Artwork for podcast Perspectives – Legal Voices on Business
Case Law Developments for Pension Funds - ‘I was not a member, so return my full contributions with interest’
Episode 5 • 5th April 2022 • Perspectives – Legal Voices on Business • Fasken
00:00:00 00:15:40

Share Episode

Transcripts

Intro:

:

Welcome to Perspectives.

Intro:

:

Fasken's Legal Voices on Business.

Tshepo Mokoana:

:

Hi everyone. My name is Tshepo Mokoana, an Associate at Fasken and today I'm joined by

Tshepo Mokoana:

:

Pension Law partner and colleague, Rosemary Hunter.

Tshepo Mokoana:

:

Hi, Rose.

Rosemary Hunter:

:

Hi everyone. Hi to all our listeners.

Tshepo Mokoana:

:

In this podcast, we'll talk about a very interesting judgement handed down by the

Tshepo Mokoana:

:

Constitutional Court on 14th March 2022, and that is the Municipal Employees Pension Fund

Tshepo Mokoana:

:

and another versus Casey and another.

Tshepo Mokoana:

:

It's very interesting for the precedence that it gives to the pension law industry.

Tshepo Mokoana:

:

So to just jump right into it, the facts of the matter are that the Ngaka Modiri Molema

Tshepo Mokoana:

:

District municipality employed Daniel McKenzie as its Chief Audit Executive on a

Tshepo Mokoana:

:

five year fixed term contract.

Tshepo Mokoana:

:

When her employment commenced in February 2012.

Tshepo Mokoana:

:

She and the municipality together completed an application form for her membership of the

Tshepo Mokoana:

:

Municipal Employees Pension Fund.

Tshepo Mokoana:

:

At that time, no one told her that in terms of the rules of the fund, only permanently

Tshepo Mokoana:

:

employed municipal employees could become members.

Tshepo Mokoana:

:

So the municipality deducted both member and employer contributions from Ms.

Tshepo Mokoana:

:

McKenzie's monthly remuneration and then paid them to the fund.

Tshepo Mokoana:

:

She was then subsequently treated as a member.

Tshepo Mokoana:

:

Two years later, Ms.

Tshepo Mokoana:

:

McKenzie discovered that she had never been eligible for membership of the fund in terms

Tshepo Mokoana:

:

of its rules, so the municipality, being her employer, stopped deducting and paying

Tshepo Mokoana:

:

contributions to the fund and then asked the fund to refund her all the contributions she

Tshepo Mokoana:

:

had then paid to that date approximately 850,000 with interest.

Tshepo Mokoana:

:

The fund refused that request, saying that she had indeed become a member and enjoyed

Tshepo Mokoana:

:

all membership benefits, including death and disability cover.

Tshepo Mokoana:

:

Her contract then expired two and a half years later and the stand off with the fund

Tshepo Mokoana:

:

had not been resolved.

Tshepo Mokoana:

:

The fund then paid her an early withdrawal benefit based only on her member

Tshepo Mokoana:

:

contributions and from which tax had been deducted.

Tshepo Mokoana:

:

She was naturally aggrieved by this and so lodged a complaint against the fund with the

Tshepo Mokoana:

:

pension fund's adjudicator.

Tshepo Mokoana:

:

In it, she asked the adjudicator to order the fund to pay her the balance of her

Tshepo Mokoana:

:

contributions, plus interest.

Tshepo Mokoana:

:

After considering the submissions of both parties, the adjudicator granted the order

Tshepo Mokoana:

:

Ms. McKenzie has sought but dissatisfied by that.

Tshepo Mokoana:

:

The fund then applied to the High Court in terms of PAJA or the Promotion of

Tshepo Mokoana:

:

Administrative Justice Act for an order reviewing and setting aside the determination

Tshepo Mokoana:

:

of the pension fund's adjudicator and its order.

Tshepo Mokoana:

:

At the same time, they appealed the adjudicators findings in terms of Section

Tshepo Mokoana:

:

30-P of the Pension Funds Act.

Tshepo Mokoana:

:

And from there that's where things got interesting.

Tshepo Mokoana:

:

So that's where I'd like you Rose to explain to our listeners as to why.

Rosemary Hunter:

:

Thank you, sir. Well, that's a good summary.

Rosemary Hunter:

:

As you said, this case did get interesting.

Rosemary Hunter:

:

In fact, it got so interesting that it ended up in the Constitutional Court.

Rosemary Hunter:

:

So let me walk you through the steps of how it got there and what the final outcome was.

Rosemary Hunter:

:

The High Court agreed with the adjudicator and found in favour of Ms.

Rosemary Hunter:

:

McKenzie, but the fund was unhappy with this, so it appealed against the High Court's

Rosemary Hunter:

:

rulings to the Supreme Court of Appeal.

Rosemary Hunter:

:

Unfortunately, Ms.

Rosemary Hunter:

:

Manga Coetzer being an individual, could not afford to appoint lawyers to defend the

Rosemary Hunter:

:

findings of the adjudicator in the High Court, and so she was not represented at the

Rosemary Hunter:

:

hearing before the Supreme Court of Appeal.

Rosemary Hunter:

:

So the the judge, President of the Supreme Court, Justice Meyer, asked the Bloemfontein

Rosemary Hunter:

:

Bar to appoint one of its members, one of the advocates, to present arguments as an

Rosemary Hunter:

:

amicus or friend of the court so that the court wouldn't hear arguments only from one

Rosemary Hunter:

:

side. So after hearing the two sets of arguments, the Supreme Court of Appeal, like

Rosemary Hunter:

:

the High Court and like the adjudicator, ruled in favour of Ms.

Rosemary Hunter:

:

Mongeau Coetzer and against the fund.

Rosemary Hunter:

:

But then the fund successfully sought leave to appeal to the Constitutional Court.

Rosemary Hunter:

:

Now, I'd been very impressed by the judgement of Justice Malcolm Wallace for the

Rosemary Hunter:

:

majority of the Supreme Court bench because he's such a teacher in the way that he writes

Rosemary Hunter:

:

his judgements. And he helpfully addressed and clarified many issues of relevance to

Rosemary Hunter:

:

retirement funds generally.

Rosemary Hunter:

:

So I was a bit concerned that when I heard that this matter was going to the

Rosemary Hunter:

:

Constitutional Court, I was concerned particularly because if Ms.

Rosemary Hunter:

:

Mckenzie had not been able to afford representation in the Supreme Court of

Rosemary Hunter:

:

Appeal, it was likely she wouldn't be able to be represented before the Constitutional

Rosemary Hunter:

:

Court. So I brought this to the attention.

Rosemary Hunter:

:

I contacted the Centre for Applied Legal Studies at the University of the

Rosemary Hunter:

:

Witwatersrand wits because I was aware that Cals had a special interest in human rights

Rosemary Hunter:

:

issues relating to retirement funds.

Rosemary Hunter:

:

So I told them that about the main issues, legal issues that were important not just to

Rosemary Hunter:

:

Ms. Mongeau Coetzer, but to retirement funds generally.

Rosemary Hunter:

:

And I asked if it would be willing to apply for leave to intervene as an amicus.

Rosemary Hunter:

:

Fortunately it was, and advocate Sandile Khumalo is a senior counsel and one of our

Rosemary Hunter:

:

leading pension law specialists at the bar.

Rosemary Hunter:

:

You agreed to act on behalf of Carl's pro bono.

Rosemary Hunter:

:

And as expected, Ms.

Rosemary Hunter:

:

Mongeau Ketsi was not represented at the hearing, and I think that the Constitutional

Rosemary Hunter:

:

Court derived considerable benefit from the submissions of made by Advocate Khumalo on

Rosemary Hunter:

:

behalf of Kells during the hearing, which took place in November last year.

Tshepo Mokoana:

:

Yeah. So Rose, what were then the big issues that the Court from the High Court until the

Tshepo Mokoana:

:

Constitutional Court had to deal with in this matter?

Rosemary Hunter:

:

Sure. As in most litigation, there were skirmishes between the parties on a wide

Rosemary Hunter:

:

range of issues. But I want to deal with only three and then only with what the

Rosemary Hunter:

:

Constitutional court had to say about them.

Rosemary Hunter:

:

Even though I thought the Supreme Court of Appeal court judge, the majority judgement

Rosemary Hunter:

:

was particularly good.

Rosemary Hunter:

:

These issues might seem a bit technical, but as I said, they're very important for the

Rosemary Hunter:

:

retirement industry as a whole.

Rosemary Hunter:

:

And those who are, I think, legal advisers, trustees and others who who are deeply

Rosemary Hunter:

:

involved in it would understand why they are important.

Rosemary Hunter:

:

So the first issue was about membership of a fund and whether Ms.

Rosemary Hunter:

:

Mongeau had become a member of the fund because she had applied for membership and

Rosemary Hunter:

:

had been paying contributions for two years and so on.

Rosemary Hunter:

:

The fund's argument was that Ms.

Rosemary Hunter:

:

Mongeau became a member of the fund, even if its rules had disqualified her from

Rosemary Hunter:

:

membership because there was a rule that said that the board could decide whether

Rosemary Hunter:

:

somebody met the eligibility criteria or not.

Rosemary Hunter:

:

The second argument of the fund was that Ms.

Rosemary Hunter:

:

Mongeau estopped from arguing that she had not become a member because she had made a

Rosemary Hunter:

:

representation that she was a member by paying contributions to the fund.

Rosemary Hunter:

:

And so she had represented to the fund that she was entitled to be a member.

Rosemary Hunter:

:

And she was either estopped from arguing that she was not or she had waived her right

Rosemary Hunter:

:

to argue that she was not.

Rosemary Hunter:

:

Now, just a side note, estoppel is a formal legal term.

Rosemary Hunter:

:

A person may be estopped from asserting a right or raising a defense to a claim that is

Rosemary Hunter:

:

inconsistent with their own prior conduct, provided that the claim itself is not based

Rosemary Hunter:

:

on invalid conduct.

Rosemary Hunter:

:

Justice Rogers, on behalf of the unanimous bench of the Constitutional Court, rejected

Rosemary Hunter:

:

both of these arguments by the fund.

Rosemary Hunter:

:

He reaffirmed that one the rules of a fund are binding on it in terms of Section 13 of

Rosemary Hunter:

:

the Pension Funds Act, and two, conduct that is not authorized by the rules of the fund is

Rosemary Hunter:

:

ultra vires, so it's beyond the powers of the fund and accordingly invalid.

Rosemary Hunter:

:

He also confirmed that the principle of estoppel can't be used to make what is

Rosemary Hunter:

:

invalid valid.

Rosemary Hunter:

:

So the second issue was whether the pension fund's adjudicator had jurisdiction to

Rosemary Hunter:

:

determine the dispute.

Rosemary Hunter:

:

Not surprisingly, the fund argued that if Ms.

Rosemary Hunter:

:

Mckenzie had never become a member of the fund, then the adjudicator did not have

Rosemary Hunter:

:

jurisdiction to determine the dispute because Mink's manganese scherzo could not

Rosemary Hunter:

:

fall within the definition of complainant as defined in the Pension Funds Act and the

Rosemary Hunter:

:

Section one of the Pension Funds Act defines a any person who is or claims to be a member

Rosemary Hunter:

:

of the or former member of a fund, a beneficiary or former beneficiary of a fund,

Rosemary Hunter:

:

an employer that participates in a fund, a spouse or former spouse of a member or former

Rosemary Hunter:

:

member of a fund, any group of people who are of that kind, the board of a fund and any

Rosemary Hunter:

:

person who has an interest in the complaint.

Rosemary Hunter:

:

Yeah. So this was an argument that found favour with two of the five judges in the

Rosemary Hunter:

:

Supreme Court of Appeal.

Rosemary Hunter:

:

They said she wasn't a member or former member and she wasn't any of the others.

Rosemary Hunter:

:

And you couldn't just have an interest in a complaint if there wasn't somebody else who

Rosemary Hunter:

:

who had raised the complaint in the first place.

Rosemary Hunter:

:

But before the Constitutional Court Advocate Khumalo, on behalf of Carl's, argued that the

Rosemary Hunter:

:

interpretation of the Act should be done with due regard to the constitutional rights

Rosemary Hunter:

:

at stake, including the right to Social Security.

Rosemary Hunter:

:

Basically arguing that fund's retirement funds are vehicles for delivery of Social

Rosemary Hunter:

:

Security benefits.

Rosemary Hunter:

:

And that's a right under section 27 of the Bill of Rights.

Rosemary Hunter:

:

It also should be taken into account as the right to have legal disputes decided in a

Rosemary Hunter:

:

fair public hearing in terms of Section 34 of the Bill of Rights.

Rosemary Hunter:

:

So Advocate Khumalo pointed out that if the adjudicator could not entertain complaints

Rosemary Hunter:

:

from people who were improperly admitted to membership, their only recourse would be to

Rosemary Hunter:

:

litigate in the High Court, which boast would not be able to afford to do so.

Rosemary Hunter:

:

While Carl's agreed that Ms.

Rosemary Hunter:

:

Coetzer did not fall within the scope of A to C of the definition, that's the member,

Rosemary Hunter:

:

former member beneficiary, former beneficiary, and so on.

Rosemary Hunter:

:

It argued she did fall within the scope of Paragraph D because she had an interest in a

Rosemary Hunter:

:

complaint as defined the fund.

Rosemary Hunter:

:

On the other hand, said that the term complaint is defined as a complaint of a

Rosemary Hunter:

:

complainant. So you can't have a complaint without a complainant.

Rosemary Hunter:

:

And that was a very literal reading of it.

Rosemary Hunter:

:

But the Constitutional Court chose to adopt a wide interpretation of paragraph D of the

Rosemary Hunter:

:

definition of complaint, saying a person who has an interest in a complaint should not be

Rosemary Hunter:

:

confined to a person who has an interest in an existing complaint by another person who

Rosemary Hunter:

:

was a member, a former member beneficiary, former beneficiary, and so on.

Rosemary Hunter:

:

So what limits the adjudicators jurisdiction, the court said, was the

Rosemary Hunter:

:

definition of the term complaint, not complainant.

Rosemary Hunter:

:

And it found that the dispute concerning Miss Mungo demand for a refund of her

Rosemary Hunter:

:

contributions was in fact a complaint relating to the administration of the fund.

Rosemary Hunter:

:

And so the adjudicator did have jurisdiction to determine it.

Rosemary Hunter:

:

The third issue was finally a smaller issue, but still important was who was entitled to a

Rosemary Hunter:

:

refund of the contributions paid by the municipality to the fund for Miss Mungo's

Rosemary Hunter:

:

benefit. Now, as you know, under the Pension Funds Act, it's the employer's responsibility

Rosemary Hunter:

:

to pay not only its own contributions, but if there are contributions to be paid.

Rosemary Hunter:

:

In terms of the rules by the member, it is the employer's job to deduct those

Rosemary Hunter:

:

contributions from the member's salary and pay them to the fund.

Rosemary Hunter:

:

And the employer wasn't a party to this litigation.

Rosemary Hunter:

:

So what Miss Mungo was claiming was a refund of her contributions plus interest on the

Rosemary Hunter:

:

basis that the fund had been unjustifiably enriched by those contributions because it

Rosemary Hunter:

:

had never been entitled to be paid them, and she had suffered a loss as a result of of the

Rosemary Hunter:

:

unlawful invalid payment of those contributions.

Rosemary Hunter:

:

One of the Supreme Court of Appeal judges had held that since it was the municipality

Rosemary Hunter:

:

that had been responsible for deducting and paying the contributions, it was the

Rosemary Hunter:

:

municipality that should have been claiming them back.

Rosemary Hunter:

:

But Justice Rogers of the Constitutional Court disagreed with us.

Rosemary Hunter:

:

And he said, and I quote, The municipality in law owed Miss Mungo her full salary.

Rosemary Hunter:

:

She authorized the municipality to pay part of it to the MEPF.

Rosemary Hunter:

:

The fund in this case, if A owes money to B and B instructs A to discharge the debt by

Rosemary Hunter:

:

paying the money to C in discharge of a debt which B mistakenly believes she owes to C,

Rosemary Hunter:

:

then it is b Miss Mungo in this case and not A municipality who can pursue the condictary

Rosemary Hunter:

:

in deputy against the against C, which is the fund.

Rosemary Hunter:

:

And that's a general general principle of these kinds of claims.

Tshepo Mokoana:

:

Yeah. Well, it seems to me that the main lessons to be drawn from this judgement are

Tshepo Mokoana:

:

threefold. One, that a fund has to be very careful about ensuring that it acts strictly

Tshepo Mokoana:

:

within the limits of the powers given to it in terms of its rules.

Tshepo Mokoana:

:

In particular, it must check whether each person who signs up for membership is in fact

Tshepo Mokoana:

:

eligible for membership of the fund.

Tshepo Mokoana:

:

And by the way, this was a lesson that all funds should have learned from the Brian

Tshepo Mokoana:

:

Molefe and Eskom Pension and Provident Fund case.

Tshepo Mokoana:

:

But secondly, based on this Concourt ruling, the previous assumption of what is and what

Tshepo Mokoana:

:

is not a complainant has been revised specifically regarding who is entitled to

Tshepo Mokoana:

:

take a grievance to the adjudicator.

Tshepo Mokoana:

:

And thirdly, just because an employer has a duty in terms of Section 13 a of the Pension

Tshepo Mokoana:

:

Funds Act to act as the conduit for the payment of contributions to an occupational

Tshepo Mokoana:

:

retirement fund. That doesn't mean that any refunds payable by the fund in respect of a

Tshepo Mokoana:

:

member must be paid to the employer.

Tshepo Mokoana:

:

The true source of the contribution is the remuneration of the member and by

Tshepo Mokoana:

:

consequence, the member itself.

Tshepo Mokoana:

:

I'm not sure. Rose, did I summarise the judgement nicely?

Rosemary Hunter:

:

Yes, you did. Tshepo.

Rosemary Hunter:

:

Just a couple of things.

Rosemary Hunter:

:

You mentioned that a retirement fund should have a proper procedure in place to try to

Rosemary Hunter:

:

minimise the risks that they sign up people who are not in fact eligible for membership

Rosemary Hunter:

:

because it can be a big process.

Rosemary Hunter:

:

Now they have to pay to reverse all these transactions, disinvest money, work out what

Rosemary Hunter:

:

they owe the member and so on.

Rosemary Hunter:

:

So certainly I think that a fund should devise a procedure for making sure that an

Rosemary Hunter:

:

employer certifies that a member falls within whatever the categories of eligible

Rosemary Hunter:

:

members, so that they would have to answer questions that they could be held accountable

Rosemary Hunter:

:

for. Like, you know, was the person employed in terms of a fixed term contract?

Rosemary Hunter:

:

How long is that fixed term contract or was that person employed in terms of a permanent

Rosemary Hunter:

:

contract of employment and so on, all the eligibility criteria.

Rosemary Hunter:

:

But there's another angle that wasn't addressed at all in this case, but something

Rosemary Hunter:

:

that I think that employers should think about is the risks that they may take if they

Rosemary Hunter:

:

are signing people up for membership of a fund without checking that their employees

Rosemary Hunter:

:

are in fact entitled to be members of those funds because it's from the employers that

Rosemary Hunter:

:

most new employees, most new employees expect their employers to know what their

Rosemary Hunter:

:

rights and obligations are in relation to employee benefits.

Rosemary Hunter:

:

And so I think that it's important that an employer also has a trains its HR staff who

Rosemary Hunter:

:

makes sure that its HR staff are well versed in the rules of the various funds in which

Rosemary Hunter:

:

the employer might be participating so that they know to advise them, the employees, or

Rosemary Hunter:

:

to tell the employees that you must belong to this fund or you can't belong to that fund

Rosemary Hunter:

:

and so on. And I think that that's just one of a range of things that employers should be

Rosemary Hunter:

:

careful when they're onboarding new employees to address.

Tshepo Mokoana:

:

Yeah. And from what you've just said, I think perhaps the other thing is to review their

Tshepo Mokoana:

:

membership forms, that it could be clear from the forms itself whether one is eligible

Tshepo Mokoana:

:

for membership and that possibly could have avoided something in a case like this.

Rosemary Hunter:

:

Yeah, that's entirely right.

Rosemary Hunter:

:

And so I'm sure you would agree with me that this case.

Rosemary Hunter:

:

And the sort of surrounding issues show that pension laws are constantly evolving and it

Rosemary Hunter:

:

remains interesting and absorbing for people like me and you for a long time to come.

Tshepo Mokoana:

:

Indeed.

Rosemary Hunter:

:

Thank you. It's been a pleasure to chat to you about the case today.

Rosemary Hunter:

:

Cheers.

Tshepo Mokoana:

:

Likewise. Goodbye.

Chapters

Video

More from YouTube