South African Local Authorities Pension Fund v Msunduzi Municipality (994/2013) [2015] ZASCA 172 (26 November 2015) per Lewis JA (Ponnan, Theron, Willis and Mathopo JJA concurring)

The Supreme Court of Appeal disallowed the appeal and held that if a pension fund wants to claim increased contributions from employers based on an amended rule it must show that the rule was amended in accordance with s 12 of the Pension Funds Act 24 of 1956.  The High Court correctly granted absolution from the instance because the Pension Fund failed to adduce any evidence to prove that it had complied with the Act and its own rule.

Excerpts

[34]      The argument that the validity of the approval was not placed in issue at the trial or in the pleaded defence is contrary in any event to the general denials in the plea and that which was placed on record at the commencement of the trial.  It can hardly be expected, moreover, that a defendant be required to deny that which is not pleaded.  The Fund simply did not plead a valid approval of a valid rule amendment.

[35]      The Fund nonetheless argued that even if the Registrar’s approval was invalid, as an administrative act it stood and had legal consequences until set aside on review.  It referred in this regard to Oudekraal Estates (Pty) Ltd v City of Cape Town & others 2004 (6) SA 222 (SCA) (para 26) where Howie P and Nugent JA held that an administrative act, despite being invalid, may have legal consequences until it is set aside.  (See now also MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye and Laser Institute 2014 (3) SA 219 (SCA), confirmed by the Constitutional Court 2014 (3) SA 481 (CC).)

[36]      This court said in Oudekraal, however, that when there is a collateral challenge to the validity of an act, a court has no discretion but to set it aside.  (See also City of Tshwane Metropolitan Municipality v Cable City (Pty) Ltd 2010 (3) SA 589 (SCA) para 15 on the absence of discretion.)  A collateral challenge will generally arise where the subject is sought to be coerced by a public authority into compliance with an unlawful administrative act (para 32 of Oudekraal).  But, said the court (para 35):

‘It will generally avail a person to mount a collateral challenge to the validity of an administrative act where he is threatened by a public authority with coercive action precisely because the legal force of the coercive action will most often depend on the legal validity of the administrative action in question.  A collateral challenge to the validity of the administrative act will be available, in other words, only “if the right remedy is sought by the right person in the right proceedings” [a reference to Wade Administrative Law 7 ed by Christopher Forsyth and H R Wade].’  

[37]      In my view, the appellant has misconceived the position.  As Oudekraal itself makes plain (para 36)

‘the right to challenge the validity of an administrative act collaterally arises because the validity of the administrative act constitutes the essential prerequisite for the legal force of the action that follows and ex hypothesi the subject may not then be precluded from challenging its validity.

Thus faced with the general denial of the kind encountered here, it remained for the appellant to prove the validity of the amendment, which was an essential feature of its claim.  The Fund simply did not adduce evidence upon which a court could determine whether the administrative action of the Registrar in approving the rule amendment was valid or invalid.  Gyanda J in the high court referred to the judgment of Singh AJ in South African Local Authorities Pension Fund v Ethekwini Metropolitan Municipality and the Registrar of Pension Funds (unreported judgment delivered on 1 July 2011, in case number 10330/2008), in which the same rule amendment was in issue. 

There, however, the Fund excepted to the municipality’s defences that included one that the amendment was invalid for a number of reasons.  The court rejected the argument that the Fund was entitled to rely on the invalid administrative act until it was set aside on review and dismissed the exception.  It held that the right to challenge an administrative action collaterally was available to the municipality. 

[38]      Similarly in George Municipality (above) Dolamo J held that the municipality was entitled to challenge the validity of the Registrar’s approval.  The learned judge relied in this regard on National Industrial Council for the Iron, Steel, Engineering & Metallurgical Industry v Photocircuit SA (Pty) Ltd & others 1993 (2) SA 245 (C) where Scott J said (at 253E-G):

A Court, however, will not in every case permit an administrative act to be challenged in collateral proceedings.  Indeed an administrative act or order will be treated as invalid ‘only if the right remedy is sought by the right person in the right proceedings [Wade Administrative Law 7 ed by Christopher Forsyth and H R Wade] .  .  .  .  Where, however, the enforcement of such an act or order is resisted, whether in criminal or civil proceedings, on the ground that in making it the official acted beyond his powers, our Courts, to my knowledge, have never refused to allow the question of validity to be canvassed.’

The decision was approved in Oudekraal para 33.  Dolamo J in George Municipality accordingly found that it was open to the municipality to challenge the validity of the resolution and the consequent approval by the Registrar and dismissed the Fund’s claim.

[39]      The Fund in this matter sought to distinguish Oudekraal with reference to V & A Waterfront Properties (Pty) Ltd & another v Helicopter & Marine Services (Pty) Ltd & others 2006 (1) SA 252 (SCA). 

In V & A (para 10), Howie P stated that, in brief, a collateral challenge is applicable in proceedings where a public authority seeks to coerce a subject into compliance with an unlawful administrative act.  He added:

‘[i]f these proceedings are not of that nature then the  .  .  .  order will have legal effect until set aside by a reviewing Court.’

He concluded (para 15):

‘[I]n the circumstances the proceedings a quo were not such that the defence of collateral challenge was available’. 

I do not understand how that case bears on this one.  Nor do I propose to discuss the appropriate circumstances in which a collateral challenge may or may not be permissible.  I do not think that this case is one where a collateral challenge even arises.  And I do not consider that the Registrar’s act in purportedly approving a rule amendment must stand until it is set aside on review.

[40]      The Fund itself relies on the Registrar’s approval to enforce a claim against the Municipality.  It is for it to show that it complied with s 12 of the Act in obtaining that approval.  It has failed to adduce any evidence to establish even on a prima facie basis that the resolution agreeing to the amendment was taken, when it was taken, whether or when it complied with the provisions of  s 12(2) of the Act, and that the Registrar’s approval was in respect of that resolution.  Accordingly the high court correctly granted absolution from the instance.