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REPUBLIC OF SOUTH AFRICA

IN THE HI GH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

CASE NO: 70215 /2017

REPORTABLE

OF INTEREST TO OTHER JUDGES

REVISED.

HORTORS PENSION FUND                                                                                            Applicant

AND

FINANCIAL SECTOR CONDUCT AUTHORITY                                            First Respondent

THE MINISTER OF FINANCE                                                                       Second Respondent

 

JUDGMENT

 

KOLLAPEN J

 

Introduction

1. The Applicant, Hortors Pension Fund ("the Fund"), a pension fund duly registered and established in terms of the Pension Funds Act 24 of 1956 ("the Act") seeks on order reviewing and setting aside the Pension Funds Amendment Regulations, 2003 (the Regulations") promulgated in Government Notice 558 of 22 April 2003, alternatively an order reviewing and setting aside Regulation 35(4) of the Regulations.

2. In addition, it seeks, to the extent necessary, condonation for the late filing of this application as well as the Supplementary Founding Affidavit and the amended Notice of Motion.

3. Both respondents oppose the relief sought except in so far as it relates to condonation for the late filing of the Supplementary Founding Affidavit and the amended Notice of Motion and in respect of which a proper case has been made out warranting the grant of condonation. .

 

The background facts

4. The Applicant was established in 1950 and in terms of its rules bonuses were credited annually to the member ' s retirement contribution accounts based on the Fund' s investment performance. It says that between 1994 and 2001 the bonuses declared by it were very conservative and below actual investment performance. In order to address this it sought to pay out additional bonuses in order to make up for its earlier under­ declarations and took the view that such payments were to be seen as the discharge of a prior existing obligation under the Funds rules as opposed to a surplus distribution . It then, in June 2002 submitted a proposal to the first Respondent for its approval. The distinction between a surplus distribution as opposed to a payment for a under­ declaration is important as the payment of any surplus distribution would have to be effected in terms of surplus distribution legislation and in particular Section 15 of the Act read with the Regulations.

5. The first Respondent took the view that the proposal amounted to a surplus distribution rather than an adjustment of past bonuses and while the applicant sought to challenge and engage the first Respondent on this interpretation, it says that when it did not receive a reply form the first Respondent , it approved the distribution and the additional bonuses were credited to the accounts of active members.

6. The first Respondent subsequently took the view that the distribution was unlawful in that it constituted the distribution of an actuarial surplus in terms of the Act. A letter from the first Respondent to the Applicant dated the 28 January 2004 expresses the position of the first Respondent in clear and unambiguous terms. It reads as follows:-

"We acknowledge receipt of your letter - outlining scheme for the distribution of reserves in the above-mentioned funds and we wish to advise as follows. In terms o,f Section 15A (2) of the Act, the actuarial surplus in the Fund cannot be used to benefit any class of stakeholders prior to a surplus apportionment in terms of Section 15B. Please note that the distribution of surplus in the Fund should comply with the regulation as outlined on Section 15B of the Act, the Registrar does not have the power to exempt funds from these requirements. "

In these proceedings all the parties accepted that the distribution was that of an actuarial surplus and that the Act and the Regulations had application.

7. The matter was then referred to the Tribunal set up in terms of Section 15K of the Act which confirmed that the surplus distribution by the Applicant had been unlawful. Of relevance however is that it is common cause that the Tribunal does not have the power to consider the constitutionality or otherwise of the Act or the Regulations and that the position adopted by the first Respondent in its letter of the 28 January 2004 was a correct exposition of the law.

8. The Applicant has suggested that it's conduct was bona fide at the time the distribution was made and that having to comply with the Act and the Regulations will have a devastating effect on its financial position. With respect, those considerations cannot be material in the detem1ination of the relief sought.

 

Basis upon which the relief is sought

9. In advancing the relief sought the Applicant contends that the main relief is competent on account of the failure by the second Respondent in following a fair procedure in making the Regulations as contemplated by Section 4 of the Promotion of Administrative Justice Act N 3 of2000 ("PAJA") .

10. . In respect of the alternative relief sought it is the Applicant's case that Regulation 35(4) which requires the Fund to pay the full amount of it' s quantified liability to untraced members into a contingency reserve account is unconstitutional on a number of grounds including that the Regulation is ultra vires the power of the 2^nd Respondent ; that it purports to deprive the Fund of the discretion the Act gives it to pay an amount determined by the Fund and that it results in an arbitrary deprivation of the right to property. I proceed to deal with these challenges.

 

The unfair procedure challenge

11. Section 3(1) of PAJA provides that administrative action which materially and adversely affects the rights or legitimate expectations of any person must be procedurally fair while Section 4(1) in dealing with administrative action which affects the rights of the public places a duty as well as an election on the administrator to follow various options and they include a public inquiry, a notice and comment procedure or any other procedure which gives effect to Section 3.

12. Section 4(4) (a) and (b) however provides: -

a) "If it is reasonable and justifiable in the circumstances, an administrator may depart from the requirements referred to in subsection (]) (a) to (e), (2) and (3) (b)

b) In determining whether a departure as contemplated in paragraph (a) is reasonable and justifiable, an administrator must take into account all relevant factors, including;

(i) the objects of the empowering provision;

(ii) the nature and purpose of and the need to take, the administrative action;

(iii) the likely effect of the administrative action;

(iv) the urgency of taking the administrative action or the urgency of the matter; and

(v) the need to promote an efficient administrative and good governance."

13. The Applicant contends that the second Respondent in departing from the fair procedure obligations set out in PAJA did not advance a case that it was reasonable and justifiable to do so.

14. The stance of the second Respondent is that Section 4(4) entitles the Minister to depart from the requirements and procedures contemplated if it is reasonable and justifiable in the circumstances and further that the Regulations were promulgated some 15 years ago in 2003 and that a record in respect of the promulgation of the regulations does not exist. It is further argued that had this review been launched timeously the Minister and Treasury would have been in a position to fully explain their reasons for following the procedure that they followed.

15. The first Respondent is however able to shed some further light on the matter and even though it says due to the lapse of time it has been not possible to locate all the relevant documentation , it does say that the process leading to the introduction of the surplus legislation was the subject of an extensive consultation process in NEDLAC(National Economic Development and Labour Council) between government , business and labour and has made available copies of memoranda and correspondence which on the face of it suggests at the very least a consultation process both prior to the introduction of the regulations and after its promulgation occurred. The Applicant however disputes that the consultation process that the first Respondent makes reference to occurred after and not before the promulgation of the regulations.

16. However when one has regard to the affidavit filed by Mr Tshidi the CEO of the first Respondent and the documentation made available by him that not only does he say that he was party to the pre- promulgation consultation process in NEDLAC but that the content and the tenor of the correspondence also point strongly in the direction of consultation both pre and post promulgation of the regulations. There clearly appears to have been a technical committee of NEDLAC which advised on the proposed legislation and was then reconvened to advise on the implementation of the proposed legislation.

17. Finally the Memorandum on Objects of Pension Fund Amendment Regulations, 2002 which accompanied the publication of the Regulations states in its introduction that

'an intensive review by the Registrar of Pension Funds revealed several matters that must be urgently dealt with in order lo implement the new statutory provisions ... '

18. Of course the information that is put up by the respondent s is patchy and in complete but one must be acutely mindful of the long passage of time since the promulgation of the regulations in 2003 and the constraints that time and memory would invariably place on the ability to accurately recall and record what transpired then as well as the availability of relevant records from that time.

19. What is apparent is that the second Respondent purports to rely on Section 4(4) of PAJA as it were by default as it is unable to offer any substantial justification for the departure from the requirements of Sections 1, 2 and 3 of PAJA. The second Respondent however attempts to fill this gap by its reference to the consultation process that preceded the introduction of the Regulations and my view is that I should have regard to the totality of what is put up by the respondents in this regard.

20. From that exercise the following emerges:-

a) The Registrar of Pension Funds was of the view that the matter of the apportionment of actuarial surpluses was an urgent matter to be dealt with as such.

b) There was pre - regulation consultation within NEDLAC between government , business and labour on the content of the regulations followed by post regulation consultation on its implementation.

c) The finer details of the process followed and the precise identities of who was consulted with within the NEDLAC process are unclear bearing in mind that the consultation process would have occurred in about 2002. There was however consultation with business and labour on the proposed regulations.

21. I am therefore of the view that while there was a departure from the requirements of Section 1, 2 and 3 of PAJA, such a departure was both reasonable and justifiable when I have regard to the provisions of Section 4(4)(b) which require me to consider amongst other things the urgency of the action, its objects , its nature and effect and the need to promote efficient administration and good governance.

22. Given the extremely lengthy passage of time what is called for in this matter is a sensible and practical approach that incorporates within it a measure of flexibility that does not undermine the efficiency of the administrative system.

23. In conclusion and in applying such an approach to the matter there has been a long passage of time between the promulgation of the regulations and the legal challenge (some 14 to 15 years), a reasonable albeit an incomplete account of the consultation that did take place, and an indication of the factors that would have justified a departure from the prescribed procedures. This is precisely the case that requires the sensibility and flexibility to which reference has been made, not to prejudice the Applicant but rather in the interests of efficient and good governance.

For these reasons I must conclude that the challenge to the regulations on the basis of procedural fairness must therefore fail.

 

The challenge to the constitutionality of Regulation 35 (4)

24. There are a number of issues that require determination and they include:-

a) Whether there was an unreasonable delay in initiating these review proceedings and if there was not,

b) Whether Regulation 35(4) was ultra vires the power of the Minister

c) Whether Regulation 35(4) is irrational and unreasonable

d) Whether Regulation 35(4) results in an arbitrary deprivation of property.

 

Was there an unreasonable delay?

25. The Respondents argue that the review is brought considerably out of time as the Regulations were promulgated as far back as 2003 and that the Applicant has not fully explained the long delay when at the very least in January 2004 it would have become aware of the first Respondent ' s insistence that the Regulations and the Act be complied with.

26. While the Applicant purports to explain the period in question and seeks condonation to the extent that it is required, its stance is that the challenge it raises to the constitutionality of Regulation 35(4) is a collateral challenge and is as such not time barred. In support of this it says the first Respondent directed it to submit a Section 18 scheme to bring the Fund into a sound financial position and this was premised on the pillar of enforcing compliance with Regulation 35(4). They therefore conclude that this application was brought in response to the co-ercive action of the first Respondent in requiring it to submit a Section 18 scheme and was thus in their view a classical collateral challenge.

27. Reliance is then placed on Oudekraal Estates (Pty) Ltd v City of Cape Town and others 2004(6) SA 222 (SCA) where the Supreme Court of Appeal explained that it is open to a party, relying on a reactive challenge, to raise the challenge only at the stage at which the impugned legislation or regulations are sought to be enforced: The Court expressed itself as follows :-

"But just as some consequences might be dependent for validity upon the mere factual existence of the contested administrative act so there might be consequences that will depend for their legal force upon the substantive validity of the act in question. When construed against the background of principles underlying the rule of law a statute will generally not be interpreted to mean that a subject is compelled to perform or refrain from performing an act in the absence of lawful basis for that compulsion. It is in those cases- where the subject is sought to be coerced by a public authority into compliance with an unlawful administrative act- that the subject may be entitled to ignore the unlawful act with impunity and justify his conduct by raising what has come to be known as a "defensive " or a "collateral" challenge to the validity of the administrative act."

'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 upon the legal validity of the administrative act 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. "

28. The second Respondent however disputes that what has been raised is a collateral challenge and says that if regard is had to the relief sought then the Court is dealing with a direct cha1lenge and that the question of delay then becomes important. I am not sure if having regard to the nature of the relief sought can be dispositive of the question whether a challenge is a direct or a collateral challenge as the Court in Kouga Municipality observed.

29. In Kouga Municipality v Bellingan and Others 2012 (2) SA 95 (SCA), Cloete JA considered the distinction between a direct challenge based on PAJA or the doctrine of legality, and a defensive or collateral challenge. The Court found that while the relief sought by the Applicants in that application was in form a direct challenge, in substance it was in fact a defensive challenge.

30. In the context of these proceedings it is clear that the first Respondent sought (correctly so) as from the Applicant compliance with the provisions of Regulation 35(4). It was in challenge to the authority that Regulation 35(4) vested in the first Respondent to ensure compliance with the Regulation that the Applicant then raised the challenge to the constitutionality of Regulation 35(4). Notwithstanding the manner in which the relief is couched, what matters is the substance of the relief rather than its form and I am satisfied that the relief sought is in substance in the nature of a collateral challenge and to this end it must follow that once that right is established , the Court has no discretion to allow or disallow a party from raising such a challenge.

 

The ultra vires argument

31. The Applicant' s stance is that the second Respondent did not have the power to make the impugned regulations as Section 36 of the Act which creates the authority for the making of regulations does not expressly provide for the making of regulations to deal with how actuarial surpluses are to be dealt with.

34. Section 36 reads in part as follows:-

(1) The Minister may make regulations, not inconsistent with the provisions of this Act- (a) in regard to all matters which by this Act are required or permitted to be prescribed by regulation ; (c) generally, as to all matters which he considers it necessary or expedient to prescribe in order that the purposes of this Act may be achieved.

35. The Act does not limit the regulation making field of the Minister and the suggestion that the Minister acted ultra vires on the basis that Section 36 does not create the power he exercised is not sustainable. It is manifestly clear from the plain and ordinary language used that the Minister has the power to make regulations as 'to all matters which he considers necessary or expedient to prescribe in order that the purposes of the Act may be achieved ', There is no conceivable basis to suggest that this wide framing of the powers of the Minister in making regulations should, somehow be interpreted as restrictively as the Applicant contends that it should. To do so would give Section 36 a meaning other than the language and the context suggests.

36. That being the case the ultra vires argument on this leg is without any merit.

 

The inconsistency argument

37. The second and what emerged as the most substantial part of the challenge of the Applicant. is that Regulation 35(4) is ultra vires in that it is inconsistent with the Act in that it restricts and fetters unlawfully by Regulation a discretion given to the board of the Applicant by the Act and in addition that the Regulations oblige the Applicant to create a contingency reserve account different to the one the Act contemplates and one that is more onerous to the Applicant.

38. This issue and a challenge identical to the one brought by the Applicant in relation to Regulation 35(4) came to this Division on three separate occasions in the period 2015 to 2018 before the Gauteng Local Division of this Court.

39. Those cases are: - Mostert NO v Registrar of Pension Funds [2016] 4 ALL Sa 131 (GJ) Free State Municipal Pension Fund v The Minister of Finance 2018 JDR J 0 J3(GP) and Southern Sun Group Retirement Fund v Registrar of Pension Funds Case No 21229/15 (Un reported judgment of the South Gauteng High Court of the 18 December 2018)

40. While in both the Free State case and the matter of Mostert the Court disposed of the application to challenge the constitutionality of Regulation 35(4) on the basis of delay , it did in obiter remarks deal with contention of unconstitutionality and in the main concluded that that challenge was likely to fail as the Act and the Regulations purported to deal with 2 different situations the one being former members whose benefits are not capable of being calculated and the other with those former members whose benefits can be calculated but cannot be paid since they remain untraced. The Court in both instances concluded that there was no inconsistency between the Act and the Regulations given this distinction which has been broadly characterised as the calculation problem versus the payment problem.

41. In Southern Sun, the Court having granted condonation for the late filing of the application dealt with the merits of the constitutional challenge to Regulation 35(4) and dismissed the challenge that the Regulations were ultra vires in that it created a different regime than that created by the Act and that it was irrational. In doing so the Court distinguished between the calculation and the payment problem and concluded that the Act and the Regulations dealt with 2 different categories of former members (those whose benefits could be calculated and those whose benefits were not capable of being calculated and provided for different approaches in dealing with them). To do so was not ultra vires the power of the Minister nor was it irrational concluded the Court.

42. I am bound to follow these judgments unless I am convinced that they are clearly wrong. In Patmar Explorations (Pty) Ltd and Others v Limpopo Development Tribunal and Others 2018 (4) SA 107 (SCA) at paragraphs 3, 4, 7 and 8 the Supreme Court of Appeal restated the following principles applicable to the stare decisis doctrine to be that essentially the court stands by its previous decisions, subject to an exception where the earlier decision is held to be clearly wrong. In this regard it also concluded that a decision will be held to have been clearly wrong where it has been arrived at on some fundamental departure from principle or a manifest oversight or misunderstanding, that is, there has been something in the nature of a palpable mistake.

43. Having considered those judgments I cannot conclude that they were clearly wrong in their analysis and conclusion of the scheme of the Act and the effect of the Regulations. My own analysis conforms to the reasoning and the conclusions reached in those matters as far as the merits of the challenge is concerned.

44. Before dealing with the argument it may be useful to have regard to the scheme and the obligations the Act creates as well as the contents of Regulation 35(4) and its implications for the Applicant and pension funds in general.

a) Section 15A of the Act which is entitled ' Rights to use of actuarial surplus 'provides that once an actuarial surplus is apportioned to either the member surplus account or directly for the benefit of members and former members , such members and former members acquire rights to such actuarial surplus.

b) One of the problems that arises is how to deal in the apportionment with former members. Section l 5A(4)(a) allows the board of a pension fund to exclude from participation former members in respect of whom insufficient records are available to enable the additional benefits due to them to be calculated. Thus the Act contemplates a category of former members (who may be traced or untraced as the case may be) in respect of whom benefits cannot be calculated.

c) The Act however beyond giving the pension fund the option to exclude them from participation also grants to the fund the option to include them but given that their benefits cannot be calculated, it grants the board the power, in its discretion, to set aside a portion of the actuarial surplus in a contingency reserve account explicitly established to satisfy the claims of such former members. Clearly the inability to calculate the benefits due to such former members triggers a discretion on the part of the board of a fund to determine and set aside an amount to satisfy the claims of such former members.

d) Section 15(5)( e ) to which reference has been made provides firstly that that in respect of existing and former members the allocated portion of the actuarial surplus shall be applied for their benefit including the crediting of any portion to the members surplus account.

e) This clearly can only be a reference to instances where such an actuarial surplus has been calculated in respect of such a member or former member and it is on this issue that the parties take different positions. It is matter I will return to.

f) The proviso to sub section 5 ( e) provides that the board may allocate a portion of the actuarial surplus to be used for former members to a contingency reserve account which will be used to satisfy the claim of former members who have been identified in sub section 4 (a) but who cannot be traced. However it is clear when one has regard to sub section 4 (a) it deals with the category of former members in respect of whom a calculation cannot be made because of insufficient records.

g) Thus if one has regard to the scheme of Section 15 A and B then clearly what the Act contemplates is firstly a calculation problem largely triggered by either the inability to trace former members or even if that was possible an inability to calculate the benefits due to such members because of the insufficiency of records. In these instances the benefits are simply incapable of being determined and it there cannot be said that such members acquire any rights that Section 15A contemplates.

h) On the other hand the Act also contemplates the scenario where the benefits due to former members are perfectly capable of being calculated on account of the sufficiency of the records but where the payment cannot be made because such former members cannot be traced. This has been _referred to as the payment problem. However even in these instances the rights to the actuarial surplus are acquired by such former members as the amounts due to them are capable of accurate calculation.

45. The Applicant does not take significant issue with most of the above except that its stance is that in-respect of former members who are untraced but whose claims are capable of being calculated, the fund retains a discretion in terms of the Act to pay only a portion of such monies due to them into a contingency reserve account and it accept s however that it will continue to remain liable to such former members for the full amount for their claim. It takes this stance by seeking to rely on the provisions of Section 15 B (5) (e) to the effect that ' the board shall determine how the allocated surplus shall be applied for the benefit of members and former members ' and that in respect of former members that cannot be traced but whose benefits have been determined the board enjoys the discretion I have referred to.

46. Secondly it relies on the definition of contingency reserve account in the Act as an ' account provided for in the rules of the .fund, which has been amended in accordance with the requirements of the registrar , or which has not been disallowed by the registrar, and to which shall be credited· or debited such amounts as the board shall determine , on the advice of the valuator where the fund is not valuation exempt, in order to provide for a specific category of contingency', and argues that the reference to such amounts as the board may determine on the advice of the valuator supports its view that the board enjoys a discretion to pay only a portion of the amount of a calculated benefit where the former members cannot be traced and this portion is based on an assessment of the likelihood of the former member coming forward to claim the monies due to him/her.

47. The applicant therefore concludes its argument that the Regulations are inconsistent with the Act and creates a different and more onerous regime than the Act in that while the Act gives the fund the discretion to which reference has been made Regulation 35(4) removes such a discretion.

48. For the sake of completeness Regulation 35 (4) reads as follows:-

"Where a board is able to determine the enhancement due in respect of a particular former member in terms of section 15B(5)(b) or (c) of the Act, but is unable to trace that former member in order to make payment, the board shall put the corresponding enhancement into a contingency reserve account spec{fic for the purpose. Notwithstanding anything in the rules of the fund, monies may not be released from such contingency reserve account except as a result of payment to such former members or as a result of crediting the Guardians Fund or some other fund established by law to include such amounts"

49. The difficulty with the approach taken by the Applicant is that it fails to distinguish what has been referred to as the calculation problem as opposed to the payment problem. The Act deals largely with the calculation problem and in respect of payment only deals with the discretion of the board in respect of former members whose claims are incapable of being calculated.

50. To suggest that the Act conflate former members and gives the board the same discretion in respect of former members who are untraced but whose claims have been calculated is not tenable in my view as firstly, it ignores that such former member s would have acquired rights as provided for in Section 15 (A)( 2) , secondly it suggests that while the fund will remain liable for the full claim for such former ,members , it is absolved from providing sufficient resources in its accounts to meet such claims in full and thirdly it fails to distinguish what has been desc1ibed as the difference and the distinction between the calculation problem and the payment problem.

51. What Regulation 35 (4) sought to do was to resolve the payment problem in respect of former members who have not been traced but whose enhancement is capable of being determined.

52. I have not been convinced that the ordinary reading of the scheme set out in Section 15 A and B conflates the payment problem in the manner that the applicant suggests that it do.es and it is not open to the Applicant to suggest that sub section 5 (e) grants the board the overall discretion in respect of former members (both untraced but also quantified). This interpretation is offensive to the scheme of the Act and in particular to the distinction the Act makes between claims that can be quantified and those that cannot.

53. Finally the reliance on the definition of contingency reserve account to interpret the Act in the manner the Applicant does is misplaced. The definition cannot create substantive rights and obligations and does not confer on the Board a power to perform any conduct. See para 24 of the judgment in the Mostert matter.

54. There is accordingly no inconsistency between the Act and the Regulations nor can it be said for the reasons given that the Regulations impem1issibly deprives the board of the Applicant of a discretion the Act gives to it.

 

The challenge based on irrationality and unreasonableness

55. This ground of review is advanced on the basis·that Regulation 35 (4) is both irrational and unreasonable as it requires a fund to arbitrarily sterilise funds held in a contingency reserve account and thereby penalises a fund and its members for the ultimate benefit of the State. The Applicant ' s contention is that given the efforts already taken by it to trace former members it is unlikely that all former members will come forward to assert their claims and to this end sterilising the amounts of money due to such fom1er members will be irrational given the unlikelihood of claims. For this reason it takes the view as advised by its actuaries that such claims be valued based not on the actual value of such claims but rather a more realistic assessment on the likelihood of such claims materialising.

56. Reasonableness and rationality as ground of review are dealt with in a number of overlapping instances in PAJA. Specifically, section 6(2)(e) (vi) of the Act provides that administrative action is reviewable if the action taken was taken "arbitrarily or capriciously". Similarly, section 6(2)(f)(ii) of PAJA provides that administrative action is reviewable where the action is not rationally connected to: (aa) the purpose for which it was taken (bb) the purpose of the empowering provision; (cc) the information before the administrator ;or (dd) the reasons given for it by the administrator.

57. In addition, section 6(2)(h) provides that administrative action is reviewable where: " the exercise of the power or the performance of the function authorised by the empowering provision, in pursuance of which the administrative action was purportedly taken, is so unreasonable that no reasonable person could have so exercised the power or performed the function".

58. The test for rationality was articulated as follows in Democratic Alliance v President of the Republic of South Africa and others 2013 (1) SA 248 (CC) at para 29 -

"When making laws, the legislature is constrained to act rationally. It may not act capriciously or arbitrarily. It must only act to achieve a legitimate government purpose. Thus, there must be a rational nexus between the legislative scheme and the pursuit of the legitimate government purpose. It is by now well settled that, where a legislative measure is challenged on the ground that it is not rational, the court must examine the means chosen in order to decide whether they are rationally related to the public good sought to be achieved. It remains to be said that the requirements of rationality is not directed at testing whether legislation is fair or reasonable or appropriate. Nor is ii aimed at deciding whether there are other or eve n better means that could have been used. Its use is restricted to the threshold question whether the measure the lawgiver has chosen is properly related to the public good it seeks to realis e. If the measure fails on this count, that is indeed the end of the enquiry. The measure falls to be struck down as constitutionally bad."

59. What Regulation 35 (4) does is to require a pension fund to have sufficient money to meet the claims of former members in respect of whom the board of such fund has been able to calculate the enhancement due to such former member. It can hardly be said that it is irrational to oblige a fund to hold sufficient assets to meet its liabilities in full - it certainly accords with common sense and sound business practise as the Court found in the Free State case.

60. This is bolstered by the need to ensure that the liability of the Fund in respect of such rights that have accrued is secured. In Registrar of Pension Funds v British American Tobacco Pension Fund [2016] All SA 812 (SCA) the Court recognised the coming into existence of such rights together with the concomitant obligations it created on the part of the Fund in the following terms :-

"But even if we accept the fact of the credit balance in the MSA [i.e. the member surplus account], it does not necessarily follow that it could lawfully have been used to reduce the deficit. For, this would mean ignoring or overriding the rights of the beneficiaries to the actuarial surplus that had accrued as at the surplus apportionment date, which was 31 March 2002. Once the right had accrued and the MSA was credited with the surplus amount, the beneficiaries immediately because entitled to it, and a liability in the Fund thus arose simultaneously. The MSA had to be debited to reflect this liability, which follows as a matter of law. The fact that the scheme had not been implemented, and that the MSA therefore had what in reality was a notional credit balance at a later date when the Fund invoked s15(H)(l ), has no bearing on the legal question whether the Fund was permitted to do so; the effect of using s15(H)(l) to reduce the deficit in this manner would eviscerate the rights of the beneficiaries the use of the surplus allocation and defeat the purpose for which the surplus was allocated. ''

 

Reasonableness

61. When it comes to reasonableness, the essential enquiry is whether in making the decision the functionary concerned has struck a balance fairly and reasonably open to him or her. For all the reasons given above, the answer to this question must be in the affirmative. The Regulation strikes a balance that is eminently fair and reasonable in ensuring that the recognition of properly quantified enhancements due to former members is met by sufficient funds in the contingency reserve account to meet such claims

62. To suggest, as the Applicant has done , that it will somehow meet any shortfall that may arise if the claims of former members exceed the amount held in reserve is not a solution that in my view meets the standards of reasonableness. That inadequacy is the very eventuality that Regulation 35 (4) seeks to avoid.

This argument must also fail.

 

Arbitrary deprivation of property

63. The Applicant contends that Regulation 35(4) deprives a fund of its property since the fund is entirely deprived of the incident of ownership to use the money for its own benefit and that of its members. Once an enhancement has been calculated for a former member and the surplus scheme for that fund has been approved, the former member acquires rights to the enhancement and the money set aside to meet his or her claim constitutes "trust prope1iy" within the meaning of the Fl Act.

64. lt must therefore follow that Regulation 35 (4) does not permit deprivation of prope1t y. On the contrary by not providing for sufficient reserves to meet the quantified claims of former, members , it may be argued that an arbitrary deprivation of property occurs not at the instance of the Fund but the former member . This challenge must also fail. In all the circumstances I must conclude for the reasons given that the application must fail.

 

Costs

None of the Respondents sought costs in the event of the Applicant being unsuccessful. That appears to be a reasonable stance to take and l accordingly do not intend to make any order as to costs.

I make the following order.

1. Condonation is granted in respect of the late filing of the Supplementary Founding Affidavit and the amended Notice of Motion

2. The application is dismissed

3. No order is made as to costs.

 

_____________________

N KOLLAPEN

JUDGE OF THE HIGH COURT

 

 

APPEARANCES

DATE OF HEARING                     :           27 and 28 AUGUST 2019

DATE OF JUDGMENT                 :           __________________ 2019

APPLICANTS' ATTORNEYS:    :           SHEPSTONE WYILE ATTORNEYS

APPLICANTS COUNSEL             :           Adv A FRANKLIN SC

Adv K McLEAN

1^st RESPONDENT'S ATTORNEYS:       ROOTH &WESSELS ATTORNEYS

1^st RESPONDENTS COUNSEL:              Adv A COCKRELL SC

Adv N MBELLE

2nd RESPONDENT'S ATTORNEY:       THE STATE ATTORNEY

2nd RESPONDENT'S CO UNSE L:        Adv T MOTAU SC

Adv S KHUMALO

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