Pension funds released: Appealing adjudicator’s decision

Note: Footnotes omitted and emphasis added

[1] This is an application in terms of the provisions of section 30P of the Pension Funds Act 24 of 1956, “the Act”, seeking an order that a determination of the Pension Funds Adjudicator (“the PFA” or “the adjudicator”), in favour of the first respondent, pursuant to a complaint from him to the PFA in terms of section 30A of the Act, be set aside and that the decision by the second respondent, to withhold the pension benefits of the first respondent, be confirmed.

[2] The applicant is a duly incorporated private company. The founding affidavit was deposed to by “Barnett”, a joint managing director of the applicant. The first respondent (“Jeftha”), is an engineer, now a retired/retrenched ex-employee of applicant. The second respondent is a duly registered retirement/pension fund (“the fund”), and the third respondent is the PFA, appointed as such by the Minister of Finance.

Pension Funds Act

[3]  The Act contains detailed requirements providing for the regulation of pension funds and ancillary matters. It has been amended and expanded upon on numerous occasions over the years. The amendments appear to be aimed at better description of the obligations and conduct of the administrators of pension funds, making provision for the imposition of sanctions for misconduct; it clarifies the (ostensibly limited) extent to which unilateral deductions may be made from pension fund benefits of members and it defines and clarifies the (ostensibly wide) powers of the adjudicator.

[4]  The Act describes the procedure for a complainant to complain about the conduct of the administrators of a fund. “Complaint” is defined in section 1 of the Act and means a complaint relating to the administration of a fund and/or the interpretation and application of its rules, alleging:

• (a) that a decision of the fund or any person purportedly taken in terms of the rules was in excess of the powers of that fund or person, or an improper exercise of its powers;
• (b) that the complainant has sustained or may sustain prejudice in consequence of the maladministration of the fund by any person whether by act or omission;
• (c) that a dispute of fact or law has arisen in relation to the fund, between the fund or any person and the complainant, etc.

[5]  The meticulously prescribed manner of administration and the powers of registered funds is set out in section 7 of the Act and its subparagraphs. The “Object” of the board of the fund is described in section 7C. The board must control and oversee operations of the fund in accordance with the applicable laws and rules of the fund. It is expected to take all reasonable steps to ensure that the interests of the members are protected at all times and as such the board, which has fiduciary duties to members and beneficiaries, shall act with due care and diligence, in good faith and should avoid conflicts of interests, while acting impartially and independently in respect of members and beneficiaries.

[6]  The Act makes provision for the appointment of a suitably legally qualified experienced person to the office of adjudicator. The duly appointed adjudicator shall dispose of complaints (lodged in terms of section 30A) after investigation, in a procedurally fair, economical and expeditious manner, by making orders.

[7]  The adjudicator shall afford the fund, if a complaint is raised against its conduct, an opportunity to comment. There is a prescribed time limit and procedure for the conduct of the investigation by the adjudicator, which may be conducted in an inquisitorial manner. When completed, the adjudicator shall send a statement with the determination, in essence deemed to be a civil judgment of a court of law, and the reason therefore, to all the parties. If the determination consists of an obligation to pay an amount of money, the debt shall bear interest. A writ of execution may be issued after six weeks on condition that no application had by then been launched under section 30P.

[8]  Section 30P(1) provides that a party who feels aggrieved by the decision of the PFA may within six weeks of the date of the determination apply to the High Court for relief, giving written notice of its intention to the parties. Section 30P(2) provides that the relevant division of the High Court may consider the merits of the complaint made to the adjudicator on which the adjudicator‘s determination was based and “may make any order it deems fit“. This subsection “shall” not affect the court‘s power to decide that sufficient evidence has been adduced on which a decision can be arrived at and to order that no further evidence shall be adduced (own emphasis here and elsewhere unless the contrary is stated).

[9]  Pension benefits are sacrosanct and are legally protected in the control of the relevant funds, with limited exceptions. Generally no benefit of a member is capable of being reduced or ceded, or is liable for attachment. Section 37A of the Act provides, in summary, that, save to the extent permitted by this Act and the Maintenance Act 99 of 1998, no benefit provided for in the rules of a registered fund shall, notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law.

[10]  Section 37D provides for limited circumstances when a fund may make deductions from pension benefits. So, for example, a fund may deduct any amount due by a member to his employer on the date of his retirement or when he ceases to be a member of the fund in certain limited instances, such as compensation in respect of damage caused to the employer “by reason of theft, dishonesty, fraud or misconduct of the member” under defined circumstances (section 37D(1)(b)(ii) of the Act).

The conduct of the fund

. . . . .

The fund’s decision

[19]  The fund took the decision, acceding to the request from the applicant to withhold the benefit due to Jeftha, purportedly in terms of the said provisions of section 37D(1)(b)(ii). As noted, section 37D deals with circumstances when the fund may be justified in deducting amounts from pension funds due to an employee, and provides that a fund may deduct any amount due by a member to his employer on the date of his retirement or when he ceases to be a member of the fund in certain well-defined circumstances, inter alia, in the case of compensation in respect of damage caused to the employer by reason of theft, dishonesty, fraud or misconduct by the member.

[20]  As noted, the application to review and set aside the determination of the adjudicator in favour of Jeftha, was brought under section 30P of the Act. In terms of section 30P(2) the court hearing the matter may consider the merits of the complaint made to the adjudicator (under section 30A(3)) and on which the adjudicator’s determination was based, and may make any order it deems fit. As emphasised, section 30P(3) provides that subsection (2) shall not affect the court’s power to decide that sufficient evidence has been adduced on which a decision can be arrived at and to order that no further evidence shall be adduced.

. . . . . 

The application

[52]  To summarise: The fund notified Jeftha on 11 November 2015 that it had decided, following instructions from the applicant, to withhold his pension benefits. Jeftha complained to the fund on 28 January 2016. When he was not favoured with the desired response, he lodged a complaint with the PFA on 5 July 2016 in terms of the provisions of section 30A of the Act, complaining about the conduct of the trustees of the fund. The fund as well as the applicant responded to the complaint to the PFA. On 27 July 2016 the applicant finally issued its threatened summons against Jeftha under Case No. 13059/2016. The applicant is claiming damages from Jeftha in the sum of about R3,7 million. The action is pending, although procedurally dormant.

[53]  On 14 February 2017 the adjudicator issued her determination, finding and directing the fund to pay the relevant benefits to Jeftha. The fund is still withholding the benefits despite this determination. This decision of the PFA prompted the present application, which was launched on 28 March 2017 in terms of the provisions of section 30P of the Act, to appeal or review and set aside the PFA determination, while confirming the fund’s decision to withhold Jeftha’s benefit. In the alternative the applicant seeks an order that the fund be directed to release the balance of the benefit to Jeftha after provision is made for the amount it now claims in damages, that is about R3,7 million.

[54]  The fund has elected not to participate in these proceedings where it is its decision which is impugned. The adjudicator has also indicated her intention to abide the outcome of the application. The court must establish whether the adjudicator erred in upholding Jeftha‘s complaint lodged on 5 July 2016 with regard to the fund‘s conduct in the withholding of his benefit. On behalf of Jeftha the argument is that this determination turns on what information was before the fund when it made its withholding decision, the process it followed and the factors it considered in arriving at a decision.

[55]  Following the adjudicator’s determination, the applicant has now sought to expand its case by including a vast amount of evidence on affidavit which has not been presented to the adjudicator or the fund when both took their decisions. There is no explanation why the applicant had not elected to place this information before the fund at the relevant time, save that it may be concluded that the information was not within the knowledge of the applicant when the fund elected to withhold Jeftha’s pension benefits at the request of the applicant. The argument on behalf of Jeftha is that the applicant may not, on appeal against the adjudicator’s determination of the complaint concerning the fund’s conduct, now amplify its case in the manner it is seeking to do so.

[56]  It was argued, and I agree, that it does not matter whether this is or is not an appeal in the wide sense from the adjudicator’s decision; in either event the issue is to assess whether a valid complaint was made out by Jeftha in respect of the fund’s withholding of his benefit; that cannot be affected by new evidence now sought to be put before the court relating to Jeftha’s alleged misconduct.

[57]  It was argued, with reference to In Meyer v Iscor Pension Fund,12  that the SCA has considered the nature of an application in terms of section 30P of the Act (which has subsequently been amended) and concluded that it is an appeal in the wide sense. It has also been submitted that the new material belatedly placed before the court by the applicant, is, essentially irrelevant. I have quoted section 30P(3), stating that the relevant subsection shall not affect the court’s power to decide that sufficient evidence has been adduced on which a decision can be arrived at and that no further evidence shall be adduced.

Legal principles

[58]  As noted, pension benefits enjoy strong protection under law against creditors, entrenching protection and prohibiting deductions from pension benefits unless explicitly sanctioned. Conduct to the contrary is unlawful. I was referred to the SCA decision in National Tertiary Retirement Fund v Mokadi and another,13  where it was stated in paragraph [15]:

“The central purpose of the regulatory framework for occupational pension funds is to protect the pension benefit of members across their lifetimes. These contributions are, to my mind, perhaps the most significant source of saving for most individuals in formal employment.”

[59]  As emphasised, the oft-quoted section 37D(1)(b)(ii) contains a limited exception to the general prohibition against pension deductions by providing that a fund may deduct from any benefit due to a member an amount in respect of compensation for damages caused to an employer through the employee’s dishonesty, theft, fraud, or misconduct. The section provides the caveat that such a deduction may only be made if the employee has acknowledged his indebtedness in writing or if the employer has obtained a judgment in respect of the loss suffered.

Withholding pension benefits

[60]  The size and influence of the retirement fund industry in our society has resulted in the duties and responsibilities of retirement fund trustees receiving significant attention from the Legislature and the courts. The primary role of the trustees of a retirement fund is to act in the interests of the fund and its members. On behalf of Jeftha the following sound argument was presented relating to the extent of the power of the trustees of a fund to withhold the benefit of a member, pending proof of liability:

[61]  The wording of the relevant statutory provisions may in many cases have the result that an employer would be deprived of the ability to recover losses, since an employee’s benefit may become due prior to the employer having had an opportunity to obtain judgment. That explains the finding in the SCA judgment of Highveld Steel, supra, paragraph [19], also referred to by the PFA in her determination, namely, that to give effect to the purpose of section 37D(1)(b)(ii), its wording must be purposively interpreted to include the power to withhold payment of a member’s pension benefits pending determination or acknowledgement of such member’s liability.14 

See the authorities Justice Maya referred to, inter alia, Twigg v Orion Money Purchase Pension Fund and another.15  In the Twigg matter it was found that retirement funds have the discretion to withhold payment, which discretion was properly exercised in that matter in view of a “glaring absence” of any serious challenge to the appellant’s detailed allegations of dishonesty against the employee.

[62]  I agree with the argument of Mr Freund SC that one can safely assume that the employer’s case, as related to the fund, must be put to the employee to afford him an opportunity to respond thereto before the fund should assume the liberty to take a decision impacting on the rights of the employee. I believe especially so where there is a spirited defence by the employee, as in the matter before me. The question remains whether the fund applied their mind appropriately, impartially and in a balanced manner.

[63]  In the Highveld Steel judgment, supra, the court did not analyse the manner in which the discretion of the fund to withhold must be exercised, because on the facts of that case, this was not required. But it was commented in paragraph [20] that:

“Considering the potential prejudice to an employee who may urgently need to access his pension benefits and who is in due course found innocent, it is necessary that pension funds exercise their discretion with care and in the process balance the competing interests with due regard to the strength of the employer’s claim. They may also impose conditions on employees to do justice to the case.”

[64]  I agree with the argument that a rule of a fund permitting the withholding of a benefit without meeting these requirement would be ultra vires section 37D(1), as interpreted in Highveld Steel; and that mere satisfaction by the trustees of a fund that the employer has placed allegations before them which, if true, would show damages arising from dishonest conduct by the employee, would not on its own be sufficient to meet the test set by the SCA in Highveld Steel.

[65]  Mr Freund argued, persuasively, that a decision by a fund to withhold a pension benefit pending the determination of an employer’s civil action, is analogous to the granting of an anti-dissipation order and that there is no justification for an employer being afforded such a remedy based only on allegations of dishonesty which, if true, would disclose a cause of action. Where a benefit has accrued, as in the matter before me, the member enjoys full ownership of the pension benefit. It is indisputable, as submitted, that any claim that would have the effect of depriving such a member of the use and enjoyment of this asset, must be carefully scrutinised.

[66]  It is correct that our law sets a high bar for relief in anti-dissipation orders. I was referred to DS v DS and others 16  where it was stated that:

“. . . an applicant must still show a well-grounded apprehension of irreparable loss should the interdict pendent lite not be granted.17  It is perhaps apposite here to point out that, because of the Draconian nature, invasiveness and conceivably inequitable consequences of such anti-dissipation relief, the courts have been reluctant to grant it except in the clearest of cases. See generally in the above regard Knox D’Arcy Ltd and Others v Jamieson and Others[1996] ZASCA 58; 1996 (4) SA 348 (A), 327C; Mngadi v Beacon Sweets & Chocolates Provident Fund and Others2004 (5) SA 388 (D) 396E; Reeder v Softline Ltd, supra at 849–851″ (emphasis added by Mr Freund).

[67]  It is trite that it is important to afford a party affected by an exercise of a discretion which may result in severe prejudice to his rights, a proper opportunity to be heard. In Knox-D’Arcy, supra, the oft-quoted leading judgment on preservation orders, the court endorsed the following comments of Stegmann J in the judgment a quo, concerning orders made ex parte:18

“The making of an order which affects an intended defendant’s rights, in secret, in haste, and without the intended defendant having had any opportunity of being heard, is grossly undesirable and contrary to fundamental principles of justice. It can lead to serious abuses and oppressive orders which may prejudice an intended defendant in various ways, including some ways that may not be foreseeable.”

[68]  In Knox D’Arcythe warning of Stegmann J in the court a quo 19  was quoted with approval:

“The exercise of such powers must be attended with due caution; with all practical safeguards against abuse; and with a careful attempt to visualise the ways in which the order may prove to be needlessly oppressive to the intended defendant.”

Dishonesty

[69]  As quoted and noted with reference to the Moodley judgment, supra, it is a requirement of the provisions of section 37D(1)(b)(ii) that in order for the fund to be allowed to effect a deduction of a member’s pension benefit, the controversial conduct of the member complained of must be considered to be dishonest misconduct; theft or fraud. Conduct that does not amount to dishonesty is not regarded as enough to result in the activation of the provisions of this section of the Act, which was, in essence, the reason for the determination of the PFA.

[70]  I was referred to Meyer v Provincial Department of Health and Welfare and others,20  and Boshoff v Iliad Africa Trading (Pty) Ltd t/a Builders Market Welkom.21 

In the Meyer matter the court found that it could not be inferred from the allegations on the papers that the conduct of the applicant had been dishonest and that misconduct did not constitute a reason for a fund to withhold pension benefits; the fund was ordered to release the benefits.

In the Boshoff matter it was noted, at paragraph [24], that an employer’s recourse against a pension fund is only available in limited rare cases, where the causa for the claim is an element of discreditable, untrustworthy conduct by the employee to his employer. Section 37D(1)(b)(ii) is exclusively reserved for employers who show that they are the victims of specific dishonourable workplace transgressions. It makes sense that if not shown, the employer would not be entitled to the special protection envisaged.

[71]  Another case quoted, Windybrow Centre for the Arts v Sanlam Life Insurance Ltd and others,22  with facts similar to the present case, also dealt with a dispute between an employer and employees concerning the handling of the procurement of contractors and suppliers; however, it was alleged that the employees had misappropriated R60 million of the employer’s funds, based on an auditor’s forensic report, which formed the basis of pending criminal and civil proceedings at the time the application was launched to interdict the fund from paying out the benefits. The court concluded that there was insufficient proof of a prima facie case to permit the fund to withhold pension benefits. The proof of fraud, dishonesty or theft was required before a fund could accept the existence of a prima facie right, failing which the fund was not entitled to withhold a benefit in terms of the relevant section.23

Section 7C

[72]  I was referred to section 7C of the Act, the provisions of which I have quoted. As noted, this section creates a fiduciary duty on the part of the members of a board of a fund/trustees to the members of the fund, such as Jeftha.

The section requires of a board, in addition to the common-law position concerning the caution which must be exercised by a fund in granting anti-dissipatory relief,

• to take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Act are protected at all times (subsection (2)(a));
• the board must act with due care, diligence and good faith (subsection (2)(b)) and
• shall act independently (subsection (2)(d));
• the board shall have a fiduciary duty to members and beneficiaries in respect of accrued benefits (subsection (2)(f)) and
• shall comply with prescribed requirements (subsection (2)(g)).

[73]  I agree with the argument that this duty envisages careful scrutiny of claims made against benefits of members submitted by employers, and a weighing of the competing interests of the parties after affording a member the opportunity to place his case properly before the fund. The members of the board must actually be independent and be seen to be independent and must act in such a way that there should be no suspicion about their impartiality.

. . . .

Adjudicator’s determination

[77]  Jeftha responded in detail to the new allegations and evidence contained in the affidavits filed by the applicant in this matter in his answering affidavit.26  I agree with the argument that his continued denials of wrongdoing are comprehensive and credible, and his version of work practices and dealings with Matthee and his company are convincing. As pointed out by the adjudicator and in argument, there still appears to be no proof of “collusion” between Jeftha and Matthee, and there is no evidence that Jeftha benefitted from an arrangement with Matthee and Co in any way, an aspect that constitutes the crux of the applicant’s allegations of dishonesty and misconduct.

[78]  The adjudicator found in favour of Jeftha and directed that the fund should release his pension benefit and pay statutory interest. I have noted the grounds for the determination that include that it was found that any alleged non-adherence by Jeftha to the applicant’s procurement policies and protocols did not per se constitute dishonest conduct for the purposes of withholding his withdrawal benefit in terms of section 37D(1)(b)(ii) of the Act.27  The facts of the matter required scrutiny to ensure that the employers were not abusing the system; the adjudicator found that there was no prima facie proof that Jeftha had colluded with Matthee or that he financially benefitted from any alleged collusion.28

[79]  The adjudicator found that the fund had rubber-stamped the employer’s request to withhold Jeftha’s benefit without any investigation into the merits of the allegations or the financial prejudice that he might suffer;29  and that funds must guard against the abuse of this statutory provision by employers, especially during dismissals, which often end in acrimonious situations.30  Ultimately it was found that the withholding of Jeftha’s benefit was not justifiable in law.

[80]  I believe the adjudicator’s findings were correct and justified for the reasons she stated, and that no sound legal basis exists for this Court to reverse her determination. From the information provided in this matter it appears that the trustees of the fund demonstrated an inability to comply with their legally prescribed fiduciary duties. They did not conduct their responsibilities with the required independence and impartiality. As argued eloquently, it appears that the managers of the fund abdicated their responsibility to ensure that the provisions of section 37D(1)(b)(ii) were not being abused.

Order

The application is dismissed with costs, including the costs of senior counsel, where so employed.