IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, PRETORIA

Case No: 84850/2016

REPORTABLE: YES
OF INTEREST TO OTHERS JUDGES: YES
REVISED
12/11/2021

In the matter between:

JACOBUS ALBERTUS JOHANNES LOOTS	FIRST PLAINTIFF

LOUIS PIETER SNYMAN VAN ROOYEN	SECOND PLAINTIFF

FRANCOIS JACOBUS JOUBERT	THIRD PLAINTIFF

GüNTER ROBERT WITTHὄFT	FOURTH PLAINTIFF

and

THE AUDITOR-GENERAL	FIRST DEFENDANT

DEPUTY AUDITOR-GENERAL	SECOND DEFENDANT

KIMI MAKWETU N.O.	THIRD DEFENDANT

JUDGMENT

TOLMAY J

[1]	The plaintiffs are erstwhile employees of the Auditor-General of South Africa (AGSA). The defendants are the AGSA, the Deputy Auditor-General (DAG) and the Auditor-General (AG). The AG was initially cited as Mr. Kimi Makwetu however following his death in 2020 and the appointment of Ms. Tsakani Maluleke (Ms. Maluleke) as the new AG, the plaintiffs substituted the third defendant with Ms. Maluleke. In this judgment however Mr. Makwetu will be referred to as “the AG” and Ms. Maluleke as “the DAG”, since those were the positions they held at all material times during the determination of the plaintiffs’ claims.

[2]	This action finds its origin in a review application brought by the plaintiffs under Rule 53 of the Uniform Rules of Court on 28 October 2016 (the Review Application). For convenience sake the parties will be referred to as the plaintiffs and defendants, even if referring to the Review Application.

[3]	The Judge to whom the Review Application was allocated raised concerns regarding disputes of fact. This resulted in the matter being referred to trial by agreement between the parties. 

[4]	The plaintiffs case is based on the AG’s alleged failure to increase the maximum amount of post-retirement medical assistance (PRMA) to qualifying retired employees of the AGSA in terms of the Policy Framework on Medical Assistance (the Policy) during 2016.

[5]	Clause 4.1 of the Policy is the provision that regulates the maximum assistance amount (MAA) of PRMA and reads as follows:
“The maximum assistance amounts in respect of retired persons (or recognized widow/widower) will be considered annually by the Staff Management Board and if necessary, adjusted based on appropriate available information, such as the CPI, medical inflation, etc, and taking into account the Office’s financial position and abilities in this regard.” 

[6]	The AG’s decision not to increase the PRMA for the 2016 financial period (the Decision) was communicated by way of a letter addressed by the DAG to the first plaintiff (Dr. Loots) on 3 May 2016 (the Decision Letter). The plaintiffs were dissatisfied with the AG’s decision and launched the Review Application on 28 October 2016.

[7]	In the present action, the plaintiffs seek, in the main, an order that the amount of PRMA be increased. In this regard, the plaintiffs pursue the aforesaid objective on three bases:

a)	First, they seek a judicial review of the Decision (alternatively, the failure to take a decision) under the Promotion of Administrative Justice Act (PAJA) and the principle of legality (“the Administrative Law Claim”).

b)	Second, they seek, as an alternative to the claim founded upon PAJA, specific performance of what they contend are contractual terms that govern the medical benefits payable by the AGSA to former employees upon their retirement (“the Contractual Claim”). 

c)	Third, further alternatively, and based on section 51 of the repealed Audit Arrangements Act (“the Audit Arrangements Act”) read together with section 54(2) of the Public Audit Act (“PAA”), the plaintiffs seek an order that the PRMA be increased commensurately with the increases in medical aid contributions afforded to public service employees or retired public servants (“the Public Service Claim”). The Public Service Claim is not pursued as a separate cause of action, but is rather sought as alternative relief, under both the Administrative Law Claim and the Contractual Claim. 

[8]	The defendants’ defence was that the plaintiffs were not entitled to an increase in PRMA for the 2016 financial year. Firstly, they alleged that taking into account the AGSA’s financial position and abilities, an increase in PRMA was not affordable. Consequently, the plaintiffs were not entitled to an increase in PRMA under either the Administrative Law Claim or the Contractual Claim. Secondly, it was argued that section 51 of the Audit Arrangements Act, read with section 54(2) of the PAA, was not of application to the plaintiffs as the increases in medical benefits afforded to employees/retirees of the public service were not afforded to all members of the public service. In this regard, they argued that the Directives on Medical Assistance for Employees in the Public Service do not apply to senior members of the public service. 

[9]	The defendants further argued that this is particularly relevant in circumstances where the plaintiffs retired as senior employees of the AGSA. Therefore, it was argued that if the plaintiffs’ comparators in the public service were excluded from the increase in medical benefits, the plaintiffs’ reliance on section 51 of the Audit Arrangements Act was misplaced.

JOINDER OF PENSIONERS AND CERTIFICATION OF A CLASS ACTION
[10]	Before dealing with the merits, the question of joinder and certification of a class action should be addressed. The plaintiffs indicated that they were acting on behalf of 202 retirees who were not cited as parties to either the Review Application or the action. 

[11]	The plaintiffs were of the view that any order granted in their favour would of necessity also result in the adjustment of the PRMA to other qualifying pensioners. This justification excludes the principle of joinder, which requires that a party with a direct and substantial interest in the outcome of the litigation ought to be joined.

[12]	It was common cause that the defendants enjoined the plaintiffs to first apply for certification before continuing to pursue the action. At the onset of the trial the Court also raised the concern that certification of a class action may be required, if the plaintiffs propose to act on behalf of the 202 retirees who are not parties to the action. The plaintiffs resisted following this procedure and proceeded with the trial. In justification of their failure to certify a class action, the plaintiffs simply contended that it is not appropriate in these circumstances considering the nature of the relief sought and argued that seeing that they rely on rights contained in the Bill of Rights, such certification was not required.

[13]	The plaintiffs contended that the other 202 retirees were unable to act in their own name as most of them did not have the financial means to do so. No evidence was provided to support this allegation and as a result, no proof was provided to sustain the assertion. Taking into consideration that the plaintiffs carry the onus of proving their case on a balance of probabilities, this constitute a real difficulty in their pursuance of the claim on behalf of the 202 retirees. 

[14]	On the question of joinder, the plaintiffs alleged a logistical impossibility, time constraints and not being in possession of the particulars of the relevant retired employees as the impediments which made joinder impossible. In the Review Application it was stated that the AGSA refused to divulge the information of the retirees. However, no effort on the part of the plaintiffs was made to obtain this information by availing themselves of the discovery procedures provided for in the Uniform Rules of Court. 

[15]	Section 38 of the Constitution of the Republic of South Africa (the Constitution) entitles anyone listed in that section, who alleges an infringement or threat of a right entrenched in the Bill of Rights, to approach a competent court for appropriate relief including a declaration of rights. The plaintiffs based their locus standi and purported representation of the other 202 retirees on sections 38(a), 38(b) and 38(c) of the Constitution. Section 38(b) and 38(c) provides for anyone to act on behalf of another person who cannot act in their own name or in the interest of a group or class of persons.

[16]	The basis for the institution of class actions is established specifically by section 38(c). In an effort to bring the action within the ambit of section 38 the plaintiffs alleged a breach of their fundamental constitutional rights, as well as those of the 202 pensioners they purported to represent. The constitutional rights that they invoked were the right to lawful, reasonable and procedurally fair administrative action, as envisaged in section 33(1) and the right to being given written reasons as envisaged in section 33(2) of the Constitution. The plaintiffs further relied on the right to have access to health care services as envisaged in section 27(1)(a), the right to social security as envisaged in section 27(1)(c), and the right to dignity as envisaged in section 10 of the Constitution.

[17]	Seeing that the plaintiffs purport to act on behalf of the 202 retirees, it is important to note what the Supreme Court of Appeal (SCA) called the “quintessential requisites” for a class action as set out in Permanent Secretary, Department of Welfare, Eastern Cape Provincial Government and Another v Ngxuza and Others, namely – 

“… (1) the class is so numerous that joinder of all its members is impracticable; (2) there are questions of law and fact common to the class; (3) the claims of the applicants representing the class are typical of the claims of the rest; and (4) the applicants through their legal representatives … will fairly and adequately protect the interests of the class.” 

[18]	In order to establish whether these requisites were met, the plaintiffs were obliged to put evidence before the Court in order to enable the Court to determine whether this benchmark was met.

[19]	The plaintiffs allege that the election by the AG “has caused, and is causing, severe hardship to them” and that it also adversely affects the plaintiffs and other pensioners’ finances including their quality of life. However, they failed to advance any evidence to support these assertions. Only Dr. Loots testified in relation to the plaintiffs’ and retirees’ factual position and his evidence did not indicate any hardship suffered by him, or that his constitutional rights as envisaged by the Bill of Rights, were compromised in any manner. No evidence was provided, save for the general observation based on hearsay, that the rights of the retirees were adversely affected. Given that the plaintiffs stated that they did not have the particulars of the group of 202 qualifying pensioners that they purported to represent, it follows that they have no direct knowledge of their financial situations or their quality of life. The plaintiffs seem to expect of the Court to rely solely on these general allegations and without a shred of evidence accept that, due inter alia to the increase in medical inflation, the rights of the other plaintiffs and retirees were compromised.

[20]	In Nkala and Others v Harmony Gold Mining Company Ltd and Others (Treatment Action Campaign NPC and Another as amici curiae), the Gauteng Local Division considered whether certification was necessary, particularly in the instance where a right contained in the Bill of Rights is invoked by those who purport to represent a class. The amici in Nkala argued that in a class action involving a right in the Bill of Rights, the application for certification need not be made before proceeding with a class action. They justified this argument with the contention that the Constitution already provides for a class action in such circumstances.

[21]	However, the court did not agree with this contention and ultimately held that certification in such a case was necessary. It came to this conclusion for two reasons, the first being that lack of certification could lead to the abuse of court process and the second being the potential for numerous interlocutory applications around issues that ought to be resolved in certification. In reaching its conclusions, the court had regard to the SCA decision of Trustees for the time being of the Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others (Legal Resources Centre as amicus curiae) and the Constitutional Court decision of Mukaddam v Pioneer Foods (Pty) Ltd and Others (Legal Resources Centre as amicus curiae). In Children’s Resource Centre the SCA endorsed the notion that certification is a prerequisite for the institution of a class action.

[22]	In considering the standard to be applied for certification, the Constitutional Court in Mukaddam emphasised that in exercising their power to protect and regulate their own processes (and their power to develop the common law), the courts must ultimately be guided by the interests of justice. Thus, the court held, “this is the standard which must be applied in adjudicating applications for certification to institute class actions.” What this presupposes is that there should be an application for certification before the court. In the current case, there was no such application before this Court.

[23]	The Constitutional Court in Mukaddam stated as follows, which I infer led to the plaintiffs’ assumption that certification is not required: 

“What is said in this judgment about certification that must be obtained before instituting a class action must not be construed to apply to class actions in which the enforcement of rights entrenched in the Bill of Rights is sought against the State. Proceedings against the State assume a public character which necessarily widens the reach of orders issued to cover persons who were not privy to a particular litigation. Class actions in those circumstances are regulated by section 38 which confers, as of right, the authority to institute a class action on certain persons, defined in the section. Moreover, claims for enforcing rights in the Bill of Rights may even be brought in the wider public interest without certification.” 

[24]	What is to be gleaned from the above is that after Mukaddam, it remained arguable whether prior certification must be obtained for class actions instituted in terms of section 38. However, Nkala put paid to any argument that prior certification is not required for class actions instituted in terms of section 38 to vindicate a right in the Bill of Rights.

[25]	The SCA in Children’s Resource Centre stated that it is “desirable in class actions for the court to be asked at the outset, and before the issue of summons, to certify the action as a class action.” The SCA provides justification for holding that authority to represent a class must be obtained from the outset or at an early stage by way of certification, these are:

a)	unlike litigation brought in one’s own interests, litigation brought by a representative may not proceed without certification;

b)	due to the impact that the litigation has on the rights and interests of others, it is imperative that the court ensures the protection and representation of those interests from the outset; 

c)	certification at an early stage enables a defendant to show why an action should not proceed;

d)	the court is enabled to oversee the procedural aspects of the litigation; and

e)	the need for interlocutory applications, high costs and delays are eliminated by the determination of issues such as the definition of the class, the existence of a prima facie case and common issues. 

[26]	In Ngxuza and Others v Permanent Secretary, Department of Welfare, Eastern Cape Provincial Government and Another, the court a quo granted leave to proceed with a class action as an interlocutory order. The SCA endorsed this order, and in Mukaddam the Constitutional Court stated from the outset that it is up to the courts to determine the process to be followed when litigants approach them. However in this instance the Court was not approached to certify a class action.
 
[27]	Despite the authorities that point to the contrary, the plaintiffs persisted to proceed without certification. The problem is however that only Dr. Loots testified. He was the DAG and continued to be employed by private companies after he took early retirement at 48 years and at the date of the trial still did consulting work. From his testimony it was clear that he is a man of means and he was never deprived of health care, his dignity was not infringed by the failure to increase the PRMA and his social security was not affected. The impression was that he regarded the AGSA’s attitude towards the failure to increase the PRMA to be manifestly unfair towards the 202 other retirees, and he might even be right about that, but unfortunately no evidence was tendered to prove a transgression of any of the rights contained in the Bill of Rights. Dr. Loots conceded that he was at all times able to access healthcare. The result is that the plaintiffs cannot rely directly on section 38 and certification was thus required, as previously illustrated.

[28]	In these circumstances, prior certification of a class action is, in any event, in the interests of justice for the reasons set out in Children’s Resource Centre which highlighted that “every member … is bound by the outcome of the action, so that a separate action by a member of the class after judgment can be met with a plea of res judicata.” This will have an impact on the rights of the retirees that may be blissfully unaware of the litigation that may affect their rights. 

[29]	In Ngxuza, the SCA commented that –

“[t]he most important feature of the class action is that other members of the class, although not formally and individually joined, benefit from, and are bound by, the outcome of the litigation unless they invoke prescribed procedures to opt out of it.” 

[30]	Anyone falling within the relevant class would be precluded from pursuing litigation of the same nature in future if the claim against the AGSA in this matter does not succeed. It will not be in the interests of justice to grant an order that directly affects the rights and interests of persons in respect of whom action was instituted without first certifying a class action. 

[31]	There is also the problem relating to the admissibility of hearsay evidence. In Ngxuza, the SCA acknowledged that in a class action, an element of hearsay may be expected. It provided that even if it were assumed that hearsay evidence was inadmissible, few class actions could be maintained without it, in that case sufficient administrative evidence was tendered to define the class. What must be noted is that these findings on hearsay were made in the context of defining a class in the process of considering leave for representation on behalf of members of a class. The consideration of hearsay evidence and the admissibility thereof only arises where there is a certification application before the court. In the current case, there is no such application before the Court. The hearsay evidence, limited as it was, is therefore inadmissible, and would in any event have been insufficient to sustain the plaintiffs’ claim.

[32]	At the very least, the 202 retirees ought to have been informed of this litigation through various means, as was ordered by the court a quo and endorsed by the SCA in Ngxuza, when an interlocutory order was granted, giving leave to the class representatives to continue with proceedings on behalf of the class defined therein. No evidence was led that the retirees were informed and the Court may accept that they were not, as the plaintiffs indicated that they did not have any information regarding the retirees.

[33]	In the premises, the plaintiffs have conducted their litigation without the necessary authorisation. The plaintiffs elected not to commence proceedings to certify a class action. It would be inappropriate for this Court to grant any order that would, in essence, retroactively endorse the representation of the persons purported to be represented. Therefore, the plaintiffs do not possess the necessary locus standi to represent the other 202 retirees and may only act on their own behalf and if the Court finds in favour of the plaintiffs the relief granted will only be afforded to the plaintiffs. Any order that extends to the 202 qualifying pensioners would result in the final determination of the rights of parties who are not before this Court. In the absence of the joinder or certification of a class action any relief granted will be limited to those plaintiffs who were before Court.

THE ISSUES TO BE DETERMINED
[34]	The main dispute is whether the PMRA increase should have been afforded to the pensioners and the affordability of such an increase was hotly debated between the experts. Numerous disputes arise from this question including whether the AGSA did indeed consider the increase annually, whether the plaintiffs were entitled to an increase in line with the public servants (DPSA), and whether the reasons advanced in the Decision Letter constitute adequate reasons for purposes of a review. The question also arises whether the required increase could and should be in line with the DPSA minimum rate, or in line with the increases suggested by the AGSA’s actuaries over the years.

THE AGSA AND THE PLAINTIFFS POSITION IN IT
[35]	The AGSA is an independent institution that is accountable to the National Assembly in terms of sections 181(1)(e) and section 181(5) of the Constitution. It has the additional powers and functions prescribed by the PAA. The AGSA has full legal capacity, is independent and is subject to the Constitution and the law, in terms of section 3 of the PAA. The AGSA is an organ of state in that it exercises a power, or performs a function in terms of the Constitution and the PAA. The Audit Arrangements Act was repealed by the PAA.

[36]	The DAG is appointed in terms of section 31 of the PAA, and has duties and responsibilities set out in terms of sections 32, 34, 41 and 43 of the PAA. Ms. Maluleke held the position of DAG from 1 April 2014 until 1 December 2020. 

[37]	In terms of section 54(2) of the PAA the repeal of the legislation referred to in section 53 does not affect the conditions of employment of inter alia, persons who were employed by the AGSA before such repeal, including any accumulated pension, leave or other benefits to which such person was entitled immediately before the repeal.

[38]	The benefits envisaged by section 54(2) of the PAA include the benefits in terms of the Policy. The plaintiffs and all qualifying pensioners who were employed by the AGSA at the time of the adoption of the Policy obtained rights to the benefits afforded by it. As a consequence of the provisions of section 54(2) of the PAA, the rights of retired employees of the AGSA as stipulated in sections 50 and 51 of the Audit Arrangements Act were unaffected.

[39]	The affairs of the AGSA must be conducted in accordance with a budget and business plan prepared for each financial year which must include in terms of section 38 of the PAA inter alia, estimates of revenue and expenditure for the year to which it relates and projected revenue and expenditure for two financial years following the year to which the budget and business plan relates.

[40]	The business plan and budget must be submitted to the oversight mechanism of the National Assembly (SCOAG) and to the National Treasury in terms of section 38(2) of the PAA. The AGSA's accounts, financial statements, financial management and performance information are subject to auditing by an independent external auditor appointed by SCOAG in terms of section 39 of the PAA.

[41]	The DAG is responsible for the management of the administration of the AGSA, which includes the organization and management of all staff in terms section 32(2)(a)(ii) of the PAA. The terms and conditions of employment of employees of the AGSA are subject to generally accepted human resource practices and applicable labour legislation in terms of sections 35 and 34(3) of the PAA.

[42]	The plaintiffs were at all relevant times entitled to a medical aid contribution in terms of the Policy. Dr. Loots is a member of the Medihelp Medical Aid with one dependant membership. The second plaintiff is a member of GEMS (Government Employees Medical Scheme) also with one dependant membership. The third plaintiff is a member of Discovery Medical Aid with one dependant membership. The fourth plaintiff is also a member of GEMS with one dependant membership.

[43]	Since the Policy was revised on 30 March 2002 the maximum assistance amount (MAA) of PRMA has remained unadjusted despite significant cumulative increases in medical inflation and in the Consumer Price Index (CPI). In respect of Dr. Loots, the MAA remained at R1 042.00 per month since his retirement in 1998. The MAA in respect of the second, third and fourth plaintiffs has remained R1 015.00 per month since 2002.

[44]	After the public service increases came to the notice of Dr. Loots, he addressed a letter dated 10 September 2015 to the DAG. Various correspondence and documents were exchanged between Dr. Loots and the defendants. 

[45]	The evidence presented shows that the AGSA was able to generate a net surplus from operations (i.e. before finance charges) for every year except 2013. The average operating surplus before finance charges was R52.4 million per year, with 2016 generating a surplus before finance charges and finance income of R54 million, despite only increasing revenue by 3.1%.

[46]	The AGSA had sufficient information every year (at least from 2003) to assess the impact of an annual increase for every year until the PRMA liability was extinguished. The actuarial reports all value the liability with an increase with effect from 1 January of the next calendar year, and every year thereafter until the PRMA liability is extinguished. The AGSA was required to consider the MAA annually in terms of the Policy. Sections 51 and 54 of the Audit Arrangements Act and the PAA, respectively, are common cause. The Policy constitutes contractual terms which regulate the medical benefits payable to, inter alia, employees or their recognized widow/widower, who retired from the AGSA. The Policy and its relevant clauses in paragraphs 3 and 4 thereof were applicable to the plaintiffs who were all employed with the AGSA when the Policy was adopted. The contractual benefits in respect of MAA upon retirement remained applicable to them and are still in force.

THE EVIDENCE OF DR. LOOTS, THE EXPERTS AND MS. MALULEKE
[47]	It was common cause that Dr. Loots retired from the AGSA, having held the position of DAG. The second plaintiff retired from the AGSA, having held the position of Corporate Executive Manager. The third plaintiff retired from the AGSA, having held the position of Business Executive, and the fourth plaintiff retired from the AGSA, having held the position of Corporate Executive Manager. It is clear from the nature and titles of these positions that the plaintiffs held very senior roles within the AGSA. 

[48]	Dr. Loots was employed as DAG during the period 1 September 1991 up to 28 February 1998 and is a qualified Chartered Accountant. After retiring from the AGSA he was a partner at Deloitte & Touche from 1 March 1998 until 31 May 2013, when he reached the mandatory retirement age. From 1 October 2013 to 30 September 2016 he was employed as a consultant at Deloitte Consulting (Pty) Ltd on an annual fixed term contract basis. He then entered into a further contract with Deloitte Consulting for a 12-month period which ended on 31 May 2017. At the time of the trial he was a director of an Information Technology company. He explained that he and former colleagues got together from time to time and discussed the question of the PRMA and the failure to increase it. It was after these discussions that the letter of 15 September 2015 was written. He explained the problem that people get older and spouses die, which resulted in the pension of spouses being halved and that had an impact on the financial well-being of retirees. By the time of the decision of 16 May 2016, more than 15 years had passed since he left the employ of the AGSA.

[49]	Dr. Loots testified about the history of the AGSA which was part of the Civil Service and his role in the development of the independence of the AGSA and the enactment of the Audit Arrangements Act of 1993, that was amended in 1995 and in terms of which the office of the AG was established independent from the Public Service and the staff of the AGSA were taken out of the Civil Service. He emphasized the importance of assuring that the benefits which the staff of the AGSA had under the previous dispensation would not be impacted by the move and that led to the insertion of Section 51 of the Audit Arrangements Act, where it was specifically stated that they would not be worse off than had they remained in the Public Service.

[50]	He pointed out that in the financial statements and in the annual reports of the AGSA the increases of the PRMA’s were reflected, but despite that and the expense having been catered for in the financial statements, the beneficiaries of those increases never benefited from it. Dr. Loots himself was involved in the development of the policy pertaining to medical subsidies. He pointed out that under the Audit Arrangements Act, the Audit Revenue Fund was established to remove the financial control of the AGSA from the Executive Authority.

[51]	Dr. Loots, in the letter to the DAG of 15 September 2015, requested the AGSA to increase the PRMA on par with that of the public service employees, who received increases effective from January 2015 and of which he and some former colleagues became aware. After a further letter the DAG responded in the Decision Letter dated 3 May 2016. 

[52]	After the exchange of the aforementioned correspondence a meeting was set up for 10 November 2016. This was attended by Dr. Loots, Mr. Van Heerden, the DAG and a Ms. Makoena from the HR Department, as well as a lady from the finance department, whose name Dr. Loots could not recall. His evidence was that the meeting although generally positive did also have tense moments, due to reference by him of the “oversight” of the AGSA to consider the PRMA and to which the DAG did not take kindly. According to him the DAG refused to engage in detail and referred him to the actuaries, with whom she suggested he interact. His evidence indicated that the discussion got rather tense as the parties had different viewpoints and it is clear from his evidence that Dr. Loots felt aggrieved by what he regarded as an injustice and lack of proper implementation by the DAG of the PRMA. The parties however agreed to open communication going forward and that a reply from the AG would follow in due course.

[53]	In the Decision Letter the DAG stated inter alia that the documents provided to her were considered and compared with the AGSA’s documents. She explained how the PAA impacted on the running of the AGSA, as the AG is now in overall control and responsible for the AGSA. She further explained that she, as the DAG at the time, was responsible for the management and administration of the office and was also the accounting officer responsible for the financial administration of the AGSA.

[54]	She stated in the Decision Letter that the review of remuneration and related benefits, which include the level of the PRMA, was the duty of the AG, working in consultation and collaboration with the Remuneration and Executive Committees. She explained that when implementing the business strategy of the AGSA the leadership reviews all liabilities to maintain the continued financial viability of the institution and it is in this context that the PRMA is managed. She continued by stating that based on the above, the plaintiffs’ assumption was incorrect that the AGSA gave an “undertaking” that the PRMA would be increased, but rather, that any “undertaking” was limited to an annual consideration of the PRMA. However, taking into account the AGSA’s financial position and abilities, the DAG stressed that the retirees must rest assured that the AGSA had complied with its undertaking to consider the PRMA on an annual basis, but due to its financial position and abilities it had not been possible to increase the PRMA. She said that the fact that the retired employees were not informed that no increase to the PRMA would be granted could not be equated to the AGSA not acting reasonably, nor that the failure to increase the PRMA was due to an oversight, as stated by Dr. Loots in his letter. Importantly, she also stated that given the severe financial constraints that the AGSA had faced in the past and which seemed to be increasing year by year, it had not been possible to increase the PRMA, although this aspect had been considered by the AGSA when it budgets its expenses versus expected income annually.

[55]	She further stressed in the Decision Letter that the AGSA was well aware of the effect of inflation, but in the same breath, it must be taken into account that any increase of the PRMA must take into account the AGSA’s financial position and abilities. For all of the above reasons stated, she stressed that the AGSA’s financial position did not allow for an increase of the PRMA in the past, nor did it allow for an increase at that stage. The AGSA would, however, continue to review the position annually as per the Policy and should there be any change, this would be communicated to its retired employees.

[56]	The plaintiffs, however, held the view that an increase in PRMA was affordable for the 2016 financial period, and going forward. To this end, the plaintiffs engaged an expert at the Review Application stage, Robert Cameron-Ellis (Mr. Cameron-Ellis) to consider the financial position and abilities of the AGSA and to prepare a report in this regard. A second report was also prepared and both were attached to the Review Application.

[57]	In response, the defendants also engaged the services of an expert, Osman Moosa (Mr. Moosa) to prepare a report in response to the contentions and findings contained in the reports of Mr. Cameron-Ellis. Mr. Moosa’s first report was attached to the defendants’ answering affidavit to the Review Application. Mr. Moosa and Mr. Cameron-Ellis will collectively be referred to as “the experts”.

[58]	Following the referral of the matter to trial, Mr. Cameron-Ellis delivered a further two reports, where after Mr. Moosa delivered one further report in response. During July 2020, Mr. Moosa and Mr. Cameron-Ellis held a meeting of experts and prepared and signed a joint minute (the Joint Minute).

[59]	In terms of the Joint Minute, the material disputes between the experts related to the following: the backlogged expenditure and the interactions with SCOAG on this issue, the cash margin of safety, the funding model of the AGSA and collection of debtors. Backlogged expenditure can simply be defined as expenses that need to be incurred to maintain the efficient running of the office but which, on the AGSA’s version, could not be incurred due to financial constraints. The cash margin of safety can in layman’s terms be described as a safety net that the AGSA creates to provide for unforeseen circumstances.

[60]	The experts agreed in the Joint Minute that:

“All relevant factors must be taken into consideration when assessing the financial position of the AGSA. The same applies to assessing the financial position and abilities and or the affordability of the increases in the MAA” (sic)

[61]	In Mr. Moosa’s opinion the relevant factors that must be considered when assessing the AGSA’s financial position and abilities, include inter alia, the backlogged expenditure, the cash margin of safety and the slow collection of debtors. He was of the view that deductions must be made from the net funds available to the AGSA, as a result of those factors, to determine its financial position and ability. If this is done for the 2016 financial period, the AGSA would have been in a shortfall position and accordingly Mr. Moosa concluded that an increase in PRMA was not affordable for the 2016 financial period. Mr. Cameron-Ellis did not agree and referred to the financial statements, the annual reports and the surplus that was available. He also stressed that provision was made for the PRMA in the financial statements, yet it was not increased. He pointed out that both the statements and reports indicate that the AGSA was at all relevant times in an excellent financial position and could easily afford an increase in the PRMA.

[62]	The experts agreed in the Joint Minute that:

“The obligation to consider the increases in the Maximum Assistance Amounts (MAA) arises annually.

As increases in the MAA are regulated by the PFMA (Policy Framework Medical Assistance), the AGSA has to assess and determine, whether the financial position and abilities of the AGSA permits such increases annually. 

As for future increases, the PFMA requires the AGSA to consider increases in the MAA annually, taking into account the AGSA's financial position and abilities. As such, each future year’s increase would be considered separately (for that particular year) taking into account the AGSA's financial position and abilities at that point in time.”

[63]	The experts testified at length about the financial position of the AGSA which took up most of the duration of the trial. Despite dealing extensively with the issue of affordability in the heads of argument and contending that it was unaffordable for the AGSA, in light of its financial position, to increase the PRMA’s of the plaintiffs, Counsel for the defendants, in his oral argument, responding to the question of affordability by the Court conceded that one could accept for the purposes of this case that an increase of the PMRA was indeed affordable, but reliance should rather be put on the evidence of Ms. Maluleke and the position of the AGSA as a Chapter 9 Institution and the implications that flow from that. This concession is in my view appropriate, especially in the light of Ms. Maluleke’s evidence.

[64]	Ms. Maluleke’s testimony was clear that it was ultimately a question of prioritising expenditure and not so much whether the AGSA could afford the increase in the strict sense of the word. She was at pains to point out that the AGSA as an Independent Chapter 9 Institution should not be bound by decisions of the Public Service over which it has no control, when considering whether an increase of the PRMA should be granted, and which could ultimately impact on the independence of the AGSA. She explained that the AG run a tight ship and prioritises expenditure to ensure efficient and accountable management. She explained that despite budgeting for the increase of the PRMA each year, a decision was taken not to increase it, against the background of all the circumstances, both external and internal, that the AGSA faced. 

[65]	Top priority of the AGSA, she testified, is to ensure accountability, transparency and good governance. The AGSA must ensure as a Chapter 9 Institution that audits are completed on time and at an appropriate level of quality. She testified that the finance team manages the finances of the AGSA and reports on a monthly and quarterly basis on how the AGSA is performing from a financial management point of view, and an eye is also kept on the generation of revenue and the collection of audit fees from clients. This team also advises on the allocation of resources in a way that is consistent with the budget, expectations, capacity and collections of debts.

[66]	At the end of the year the financial statements are prepared and audited by external auditors appointed by SCOAG and who operate under the supervision of the Audit Committee. The Audit Committee reviews the financial statements and by the end of July an annual financial statement report is published. The DAG signs off on the report. Quarterly engagements lead to an integrated Annual Report, which states how the AGSA has performed. The revenue of the AGSA as per the PAA would compromise audit fees charged and collected. Taking into account that all the clients of the AGSA come from National, Provincial and Local Government, Ms. Maluleke explained at length the difficulties that the AGSA faces in both increasing and collecting outstanding fees, especially in the sphere of Local Government. She explained that the nature of the budgeting process would focus on the primary source of revenue which is audit fees. These fees are generated by the staff of the AGSA and in a smaller part from auditors from the private sector. She explained how the costing of the auditing function is determined and the difficulties regarding firstly the auditing fees, taking into consideration the limitations faced by the Government, and the pressures on both the economy and the fiscus. It was apparent from her evidence that it is no small task to, firstly agree on an audit fee and then ultimately, despite the agreement, to collect payment from the clients. The experts’ evidence regarding the increase of fees and determining the yearly increase seems to have lost sight of the difficulties faced by the AGSA. 

[67]	Ms. Maluleke also emphasized the importance of attracting the type of talent to sustain an efficient office of the AGSA. It was quite clear from her evidence that there are many challenges to overcome to find a way to sustain a competent office within an inherently constrained budget. When deciding on expenditure and salaries, it is important to attract the right people. This, she explained, led to the increase in salaries, despite the difficult financial background.

[68]	She also emphasized the AGSA’s duty towards Parliament. Her evidence emphasized the daunting task to meet aspirations, whilst running an efficient office, contrary to the evidence of the experts, who despite their considerable expertise in the field, did not seem to appreciate the trade-offs necessitated by the position of the AGSA. She emphasized the balancing act that the AGSA, and particularly the AG and DAG are faced with, when making decisions regarding the obligation of the office and the policy decisions. It was clear from her evidence that difficult decisions are made and she illustrated for example that the mark-up in audit fees argued for by Mr. Cameron-Ellis, which in theory seems achievable, was not realistic, and in fact that the 2,2% mark-up had to be managed down every year since she has been in the office. Mr. Cameron-Ellis did not take into consideration those municipalities that are slow to pay or who fail to make payment altogether. Despite aggressive collecting strategies, even litigation against those municipalities might be fruitless, even if it is successful.

[69]	She emphasised that even the surplus generated, which is required to be paid back to National Treasury and some of which the office may request SCOAG to retain to cover its expenses, does not enable the AGSA to incur the expenses budgeted for. The backlog expenditures, which the AGSA wants to incur, can in most instances not be effectively incurred due to these constraints.

[70]	She testified that once needs are identified they could not simply be met out of the retained surplus, as there is a relationship of trust with the SCOAG and the AGSA must be seen to be accountable and the office is limited to spend the money on what it proposed to do.

[71]	She testified extensively about the prioritising of expenses and why it is that the PRMA’s remained unchanged. What is apparent is that in the process a discretion is exercised and unless this Court can find that the discretion was exercised irrationally or arbitrarily a Court should be slow to interfere with the discretion exercised by a Chapter 9 Institution. When it is clear that the functionary considered all circumstances and made a rational decision a Court, even if it would have made a different decision, cannot interfere. Ms. Maluleke conceded that difficult choices have to be made and even went so far as to state that if this Court found that they were wrong her office will be guided by the court. However the test is not whether the AGSA was wrong, but rather whether the discretion was exercised properly.

[72]	Ms. Maluleke further stated that the fact that the AGSA’s financial statements reflected a sound financial picture and made the lack of an increase in the PRMA suspect – as such an increase seemed to be affordable and fair – it was not as simple as that, for the reasons set out above. 

[73]	Taking into account the rise in medical inflation, Ms. Maluleke testified that liabilities reflected in the income balance sheet would be those where the contractual obligation had been confirmed, whereas at the time that the decision is made about how to allocate resources, the present financial standing is considered. In this process the AGSA has to ensure what needs to be done to keep the institution viable and sustainable The ability to deliver on its mandate in a way that is efficient and effective she illustrated by referring to the example of audit software that has for years needed financial investment as it was untenable to operate on the basis of the software that the institution presently has access to. The bottom line is that despite the financial statements and the annual reports that confirms a well-run financial office the AGSA faces financial constraints and has to prioritise expenditure to remain effective. 

[74]	Cash reserves also needs to be maintained as the fiscal environment is of concern. As was illustrated by the Covid-19 pandemic, provisions for the unexpected need to be made. Ms. Maluleke illustrated in her evidence the complexity of running a viable, transparent and accountable institution, within a very challenging environment which has been exacerbated by the Covid-19 pandemic. She impressed on the Court that one cannot look at only the financial statements or annual reports in isolation, but one needs to consider the whole picture taking into account an unpredictable future. It is against this background that decisions are made and priorities determined.

[75]	She explained why a cash margin of safety is essential to the financial well-being of the AGSA. This is linked to external and internal circumstances, i.e. the economy as well as the difficulty of recovering audit fees. Viability of the office is ensured by the creation of a cash buffer. Although a six-month’s target was initially set, in the end, three months proved to be more realistic and sustainable. Steps were taken to ensure that obligations were met, positions were frozen, costs were more diligently managed and audit fees were collected more militantly. The cash margin of safety was created to ensure viability if disaster struck, as it did with the Covid-19 pandemic. She testified that reliance on National Treasury to assist was becoming increasingly difficult. Due to the cash margin of safety the AGSA could remain viable, despite the impact of Covid-19.

[76]	Her evidence indicated that performance bonuses were not granted and the so6ftware upgrade tender could not be proceeded with as it was unaffordable. She also stressed that even if her office has a R600 million accumulated surplus that it is allowed to retain, this is not backed up by cash. The ability to recover in cash all of the revenue due to them is limited, within the particular environment. One may criticize or even differ with the outcome and choices that were ultimately made, but what was abundantly clear from Ms. Maluleke’s evidence was that her office applied their minds and made choices supported by the challenges faced by them and within the confines of their obligations and limitations and these decisions were neither arbitrarily nor irrationally made.

[77]	She explained that in relation to the decision regarding the increase of the PRMA she had to determine what the impact of the increase would be on an ongoing basis into the future as it would have an implication on the balance sheet of the institution. The affordability therefore must be seen against the background of what has already been said, together with the impact of this into the future.

[78]	No evidence was put before this Court regarding the circumstances of the retirees, apart from that of Dr. Loots, who, at all times, had access to proper health care for himself and did not suffer any hardship as a result of the decisions taken by the AGSA. This limited the Court’s ability to investigate the AGSA’s decision not to increase the PRMA more effectively.

[79]	Ms. Maluleke pointed out that to link the increase to the public sector increase would afford the AGSA no control over future increases which would place the AGSA, as an independent Chapter 9 Institution, at risk. Increases on a year on year basis coupled with unpredictable public sector increases, poses a risk for the AGSA. She pointed out that prior to 2016 the subsidy offered by the AGSA for PRMA was higher than that offered to the public sector. She indicated that if the Court should find that the decision was wrong and PAJA applied, she would prefer that it be referred back to her for reconsideration.

[80]	She testified regarding the contractual documents which underpin the plaintiffs’ claims. These were the staff rules and the policy. She admitted that the AGSA has a liability towards the retirees which would continue into the future. She testified SCOAG advised that the AGSA should pursue efforts to terminate the benefits that emanated from the transitional arrangement and the AGSA had in light thereof pursued ways of paying out the beneficiaries in order to terminate the liability. SCOAG indicated that they would support the AGSA in this attempt. The plaintiffs unfortunately saw this as yet another way to prejudice them.

[81]	Her evidence emphasised that financial statements tell you how the institution is managed, within its given constraints, but the context should be understood too. What transpired from the evidence of Ms. Maluleke was that affordability in this context has a fluid meaning and one cannot merely rely on the financial statements and annual reports filed. It also seems that the plaintiffs’ assumption that their position is not considered annually is unfounded. It was quite apparent that the plaintiffs were of the view that the AGSA was not bona fide in its handling of the increases, but Ms. Maluleke’s evidence indicated that there was no merit in this assumption.

THE ADMINISTRATIVE LAW CLAIM
[82]	The plaintiffs sought judicial review of an administrative action in terms of section 33 of the Constitution, under the Promotion of Administrative Justice Act (PAJA) in terms of section 6(2)(b), 6(2)(f)(i) and 6(2)(d) of PAJA, alternatively the principle of legality. The defendants were of the view that the actions taken by the AGSA did not constitute administrative action.

[83]	It must be noted that the plaintiffs in argument bemoaned the fact that the AGSA did not provide them with a complete record of proceedings as required by Rule 53 of the Uniform Rules of Court, and the fact that, according to them, there was no proper discovery of relevant documents. It must be noted that this aspect arose when Mr Moosa and Ms Maluleke testified, although there might be merit in the plaintiffs concern, the appropriate way to have dealt with this aspect was, in the light of the fact that it was no longer a Review Applicant but a trial, to have requested production of the necessary documents and even a postponement if required. Instead the plaintiffs proceeded with the matter and in argument expected this Court to draw negative inferences and to apply the law regarding the provision of a record in a Review Application, as if this matter did not proceed to trial at all. There is no merit in the belated argument. In any event this Court did not rely on any of the documents referred to for purposes of this judgment.

[84]	In Chirwa v Transnet Ltd and Others it was found that one must look to the function and not the functionary when considering whether conduct constitutes administrative action:

“Only acts of an administrative nature are subject to the administrative justice right in s 33(1) of the Constitution. The focus of the enquiry as to whether conduct constitutes administrative action is not on the position which the functionary occupies but rather on the nature of the power being exercised. This court has held in a number of cases that in this enquiry what matters is not so much the functionary as the function; that the question is whether the task itself is administrative or not and that the focus of the enquiry is not on the arm of government to which the relevant functionary belongs but on the nature of the power such functionary is exercising.”

[85]	In Chirwa, the issue was considered regarding the powers being exercised by public entities in the course of employment related decisions:

“Public sector employees normally allege that when a State employer dismisses them, such conduct amounts to the exercise of public power and therefore constitutes administrative action… The debate reduces itself to how powers exercised by a public entity in its employment relations ought to be characterised.”

[86]	Despite Chirwa dealing with the termination of an employment contract, it is still comparable to the present matter as it dealt with a right that stemmed from an employment contract. In finding that Transnet did exercise a public power, which was nevertheless not administrative action, it was stated that:

“[W]hat makes the power in question a public power is the fact that it has been vested in a public functionary, who is required to exercise the power in the public interest. When a public official performs a function in relation to his or her duties, the public official exercises public power… It is a public entity created by the statute and it operates under statutory authority. As a public authority, its decision to dismiss necessarily involves the exercise of public power and, '(t)hat power is always sourced in statutory provision, whether general or specific, and, behind it, in the Constitution …

However, the fact that the conduct of Transnet in terminating the applicant's employment contract involves the exercise of public power is not decisive of the question whether the exercise of the power in question constitutes administrative action… Therefore to determine whether conduct is subject to review under s 33 and thus under PAJA, the threshold question is whether the conduct under consideration constitutes administrative action. PAJA only comes into the picture once it is determined that the conduct in question constitutes administrative action.”  

[87]	In quoting President of the Republic of South Africa and Others v South African Rugby Football Union and Others, Ngcobo J remarked in Chirwa that:

“It held that 'the test for determining whether conduct constitutes ''administrative action'' is not the question whether the action concerned is performed by a member of the executive arm of government'. But what matters is the function that is performed. The question is whether the task that is performed is itself administrative action or not.”

[88]	In applying the test set out in SARFU, it was concluded that the nature of power being exercised was contractual, and was thus not administrative action:

“The subject-matter of the power involved here is the termination of a contract of employment for poor work performance. The source of the power is the employment contract between the applicant and Transnet. The nature of the power involved here is therefore contractual. The fact that Transnet is a creature of statute does not detract from the fact that in terminating the applicant's contract of employment, it was exercising its contractual power. It does not involve the implementation of legislation which constitutes administrative action. The conduct of Transnet in terminating the employment contract does not in my view constitute administration. It is more concerned with labour and employment relations. The mere fact that Transnet is an organ of State which exercises public power does not transform its conduct in terminating the applicant's employment contract into administrative action. Section 33 is not concerned with every act of administration performed by an organ of State. It follows therefore that the conduct of Transnet did not constitute administrative action under s 33.”

[89]	The Constitutional Court in Gcaba v Minister for Safety and Security and Others provided further clarity on the question by holding that an issue arising from an employment relationship does not amount to administrative action:

“Generally, employment and labour relationship issues do not amount to administrative action within the meaning of PAJA. This is recognised by the Constitution. Section 23 regulates the employment relationship between employer and employee and guarantees the right to fair labour practices. The ordinary thrust of s 33 is to deal with the relationship between the State as bureaucracy and citizens and guarantees the right to lawful, reasonable and procedurally fair administrative action. Section 33 does not regulate the relationship between the State as employer and its workers. When a grievance is raised by an employee relating to the conduct of the State as employer and it has few or no direct implications or consequences for other citizens, it does not constitute administrative action.” 

[90]	The plaintiffs relied on Minister of Defence v Xulu to support their submission that the action of the AGSA constituted an administrative action:

“The subject of the decision was the non-renewal of the fixed term contract of a member of the Regular Force. The steps had to be taken in terms of the Department of Defence’s Policy in dealing with such matters. The characteristic of administrative action identified by Nugent JA in Grey’s Marine, that it is the conduct of the bureaucracy in the application of policy, applies in this case. A similar decision not to reinstate a member of the SANDF, after his contract had been terminated by operation of law in consequence of his being absent without leave, was held by this Court to amount to administrative action.”

[91]	However, Wallis AJ stated that Xulu was distinguishable from Chirwa and Gcaba. Chirwa, he stated, involved the exercise of a public power, not in terms of a statute, but the exercise of a contractual right, and the action was therefore not an administrative action.

[92]	He continued to state:

 “What distinguishes this case from Chirwa is that the actions of the SANDF were not taken in terms of the contract under which Mr Xulu was appointed. The contract made no provision for its renewal and recorded expressly that it would terminate in terms of s 59(1)(b) of the Act on expiry of the fixed term. The decision not to renew was one in terms of s 52(2) of the Act, because it involved the extension of Mr Xulu’s contract and hence his further enrolment in the SANDF. It concerned the procedures relevant to the enrolment of members of the Regular Force, read in conjunction with the Policy. While Mr Xulu lost his post as a member of the SANDF as a result, this was not because he was dismissed, but as a result of the application of s 59(1)(b) of the Act. It was the statutory consequence of his contract not being renewed. The dispute between the parties is not a dismissal dispute, but a dispute in relation to the decision of the SANDF not to extend Mr Xulu’s contract.

Gcaba is far closer to the type of issue in the present case. It involved a police officer who applied for a promotion post, but was not appointed. The Constitutional Court held that the failure to appoint him was a quintessential labour issue with little or no direct consequence for any other citizens. On that basis it held that the failure to appoint him was not administrative action. It said that generally employment and labour relationship issues do not amount to administrative action within the meaning of PAJA.” 

[93]	Importantly he continued to explain further:

“By contrast the issue in the present case is of importance to the citizenry at large, namely the manner in which people are selected for enrolment in our armed forces and the circumstances in which their contracts may be terminated. It cannot be categorised as the exercise of a contractual power under a contract of employment, because that is not the nature of the contract between a soldier and the SANDF. Irrespective of the precise nature of the contract, the decision not to renew it did not involve an exercise of contractual power, because no such exercise was required in the situation. If nothing had been done the contract would have come to an end by operation of law. … His obligation to serve until discharged in terms of s 52(3)(d) of the Act would have terminated on the termination date of his fixed term contract, entitling him to his discharge in the absence of either of the special circumstances referred to in s 59(5) of the Act. Unlike Gcaba, which was a dispute over promotion in the context of a contract of employment, falling within the dispute resolution mechanisms of the LRA, this is a non-contractual dispute over the exercise of a statutory power to extend Mr Xulu’s period of enrolment in the SANDF falling outside the LRA.”

[94]	The principles set out in Chirwa should be applied in the present matter. The AGSA is regulated by legislation and the AG, in making decisions concerning its employees, exercises a public power, but in deciding whether or not to increase the PRMA, the AG exercises a contractual power which falls within the employment contract and is therefore not an administrative action.

[95]	Ms. Maluleke’s uncontested evidence was that the staff rules and policy set out the contractual provisions between the AG and the plaintiffs. In a memorandum from the AG dated 1 September 1999 it is clearly stated that, during 1998, the policy issues were removed from the staff rules to establish a document containing only a contract of employment.

[96]	The policy states that:

“The attached staff rule document is being regarded as an integral part of each contract of employment between the office and the staff member unless otherwise agreed to in writing and shall supersede all previous documents in respect of such matters. The Staff Rules deals with medical aid under the heading “Fringe benefits and allowances” and states that each member shall become a member of a medical association as referred to in section 50 and 51 of the Audit Arrangements Act and the office shall determine the employer’s contribution to the association from time to time.” 

[97]	The policy itself sets out the medical policy framework and the monthly contributions and also deals with the MAA in respect of retirees. These documents are clearly contractual in nature and do not form part of legislation. If this is considered with the uncontested evidence by Ms. Maluleke, there can be no doubt that the determination of the PMRA forms part of the contract of employment.

[98]	The difference between Xulu and the present matter is accordingly that in Xulu, the terms of employment fixed by the Minister were powers that she had under the Act. In Xulu, the matter was distinguished because, no contract was involved at all, and it was purely a matter of statute and the decision not to renew was a power conferred by statute, and therefore constituted administrative action. In this instance the dispute between the parties are in relation to the benefits afforded to them in terms of the employment contract entered into between them.

 [99]	As a result a review in terms of section 33 of the Constitution is not appropriate in this instance, as the decision not to increase the PRMA does not constitute an administrative action.

[100]	Even if I am wrong in this regard an evaluation of the evidence as set out above, show that the plaintiffs’ rights in terms of section 33 of the Constitution and section 6 of PAJA or the principal of legality were not contravened at all. As a result the administrative claim cannot succeed.

[101]	As far as the issue of written reasons as envisaged by section 33(2) of the Constitution is concerned, the Decision Letter set out in detail what the reasons for the decision were. There is thus no merit in the argument that insufficient written reasons were provided for the decision

THE CONTRACTUAL CLAIM
[102]	The plaintiffs for the first time raised the Contractual Claim in the declaration, it did not form part of the review application. As far as this claim is concerned it they relied solely on the common law principles of contract.

[103]	The plaintiffs allege that the terms and conditions as embodied in the Public Finance Management Act (PFMA) and specifically the portions pertaining to retired employees, read with the Audit Arrangements Act and PAA, constitute the contractual terms which regulates the PRMA. They proceed further to rely on the provision of section 51 of the Audit Arrangements Act as statutory contractual conditions. Section 51 was promulgated and cannot form part of the contract given that the purpose of section 51 is to preserve benefits and it does not form part of the employment contract itself. The plaintiffs claim specific performance of the contractual terms in the PFMA alternatively the provisions of section 51.

[104]	Whether this is legally possible must be determined, considering the statutory framework. In terms of section 18 of the Audit Arrangements Act, a Staff Management Board (Board) was established and the members thereof were appointed by the AG in consultation with the Audit Commission.

[105]	In terms of section 19(9) of the Audit Arrangements Act, the powers, functions and duties of the Board included the making of recommendations that related to and arose from the employment and conditions of service of both in-service and former employees of the AGSA. Recommendations under this section were to be carried out by the DAG. 

[106]	In terms of section 54(1)(b) of the Audit Arrangements Act, and pursuant to a recommendation by the Board in this regard, the AG was empowered to make rules (i.e. Staff Rules) relating to, inter alia, “the duties, powers, conduct, discipline, hours of attendance and leave of absence of officers and employees and their conditions of service…” The Policy was approved by the Board and this is stated as such on the first page thereof. 

[107]	It was already pointed out that the policy and staff rules were regarded as an integral part of the contract of employment. The Policy formed part of the terms and conditions of employment between the AGSA and its employees in that the Staff Rules provided that:

“(4) Each staff member shall, subject to the [Policy] and the provisions of the applicable rules of the fund or association, become a member of a pension fund and a medical aid association as referred to in section 50 and 51, respectively, of the Audit Arrangements Act, and the Office shall make employer’s contributions, as the Board may determine from time to time to the said fund and association in favour of such staff member.” 

[108]	As already stated Ms. Maluleke confirmed in her evidence that the Staff Rules and the Policy constituted the contractual terms and conditions of employment between the plaintiffs and the AGSA. The plaintiffs reliance on the PFMA, the Audit Arrangement Act and the PAA to establish the contractual claim is not sustainable.

[109]	The further problem with the contractual claim is that it is not limited to a particular decision or year. Ultimately the obligations which are set out and which the plaintiffs relied on are not obligations contained in the contract and are based on a section in a statute that does not form part of the contractual claim. The pleadings do not state clearly what the obligations of the AGSA were and how they were allegedly breached. 

[110]	Importantly no evidence was led to support the contractual claim. The inference that can be drawn is that this claim was merely an afterthought and the administrative claim and the public service claim were actually the claims that were pursued. 

THE PUBLIC SERVICE CLAIM 
[111]	When one considers the Public Service Claim the point of departure should be the position of the AGSA as an Independent Chapter 9 Institution, and whether this claim is legally tenable in the light of section 181 of the Constitution. 

[112]	It is problematic to limit the independence of the AGSA by letting it be bound by decisions within the Public Service over which it has no control. During the lifetime of the Audit Arrangements Act the AGSA had limited independence and when it was repealed by the PAA, the AGSA’s independence was created by its establishment as a Chapter 9 Institution and the repeal of the Audit Arrangements Act.

[113]	Section 181(2) to (5) of the Constitution provides that:

“(2) These institutions are independent, and subject only to the Constitution and the law, and they must be impartial and must exercise their powers and perform their functions without fear, favour or prejudice.

(3) Other organs of state, through legislative and other measures, must assist and protect these institutions to ensure the independence, impartiality, dignity and effectiveness of these institutions.

(4) No person or organ of state may interfere with the functioning of these institutions.

(5) These institutions are accountable to the National Assembly and must report on their activities and the performance of their functions to the Assembly at least once a year.”

[114]	In Democratic Alliance v Public Protector the High Court reaffirmed the nature of the roles of Chapter 9 Institutions as follows:

“Sections 181(2) and (3) of the Constitution provide that the Chapter Nine institutions must exercise their powers and perform their functions without fear, favour or prejudice and oblige all organs of State to assist these institutions “to ensure the independence, impartiality, dignity and effectiveness of these institutions”. The effect of these provisions is to provide a constitutional guarantee that these institutions will exercise their powers independently, impartially and effectively.”’

[115]	The Constitutional Court in Independent Electoral Commission v Langeberg Municipality stated as follows:

“It is now possible to address the question whether the Commission is an organ of state which can be said to be within the national sphere of government. It is not, for the reasons that follow. In the first place, the Commission cannot be said to be a department or administration within the national sphere of government in respect of which the national executive has a duty of co-ordination in accordance with section 85(2) of the Constitution. Secondly, the Constitution, in effect, describes the Commission as a state institution that strengthens constitutional democracy, and nowhere in chapter 9 is there anything from which an inference may be drawn that it is a part of the national government. The term “state” is broader than “national government” and embraces all spheres of government. Thirdly, under section 181(2) the Commission is independent, subject only to the Constitution and the law. It is a contradiction in terms to regard an independent institution as part of a sphere of government that is functionally interdependent and interrelated in relation to all other spheres of government. Furthermore, independence cannot exist in the air, and it is clear that the chapter intends to make a distinction between the State and government, and the independence of the Commission is intended to refer to independence from the government, whether local, provincial or national.

[116]	Chapter 9 Institutions are organs of State, but they are not within the national sphere of government. In Langeberg, the Constitutional Court reaffirmed that the Commission could not “be independent of national government, yet be part of it”: 

[117]	In elaborating on the independence of the Commission, it was stated in New National Party that the importance of financial independence of Chapter 9 Institutions was emphasized and the following was said:

“'In dealing with the independence of the Commission, it is necessary to make a distinction between two factors, both of which, in my view, are relevant to ''independence''. The first is ''financial independence''. This implies the ability to have access to funds reasonably required to enable the Commission to discharge the functions it is obliged to perform under the Constitution and the Electoral Commission Act. …

The second factor, ''administrative independence'', implies that there will be [no] control over those matters directly connected with the functions which the Commission has to perform under the Constitution and the Act.”  

[118]	Ms. Maluleke in her evidence emphasised that the AGSA cannot be held at ransom by the Public Service and their negotiations regarding benefits for employees over which they have absolutely no control. The Public Service forms part of government and is controlled by the relevant Minister. It is inconceivable that the AGSA can be bound by decisions made by the Minister, within the Public Service, with no due defence being paid to its status within the constitutional framework. 

[119]	In the light of the aforesaid the legislation on which reliance was placed for the Public Service Claim must be interpreted keeping the aforesaid in mind.

[120]	Section 2(4) of the Audit Arrangements Act, which reads as follows:

“Application of Act 
…
(4)	The conditions of service under which a person contemplated in subsection (3)
served immediately before the date of commencement of this Act, shall not be altered to his detriment, and after that date no such condition of service shall be so interpreted or applied that it is less favourable to him than it was immediately prior to that date: Provided that this subsection shall not apply to a person who indicates in writing that he or she accepts the conditions of service determined by or under this Act.”

[121]	The next section of importance is section 51 of the Audit Arrangement Act which reads as follows:

“51 Medical benefits
Notwithstanding anything to the contrary contained in any other law, an officer or employee who is still in the service of the Office or retires or has retired on pension, shall in respect of membership of a medical aid association not be dealt with less favourably than an officer or employee in the Public Service: Provided that the Office may on the recommendation of the Board with the approval of the Auditor-General establish any other medical aid scheme for its officers and employees under the Medical Schemes Act, 1967 (Act No. 72 of 1967)”

[122]	The plaintiffs’ position was that the right to increases in PRMA afforded to retirees of the AGSA was preserved by section 51. The defendants however argued that on a proper interpretation of section 51, what it in fact deals with is the membership of a medical aid, and not the contributions of the employer. This, it was argued, is supported by the second part of the section. As a result, and according to the defendants’ argument, this section does not preserve the contractual obligation of the AGSA to increase the PRMA in accordance with that of the Public Service employees. As a result, it was argued that the obligation to increase the PMRA would be part of the conditions of service.

[123]	The interpretation proposed by the defendants is correct as the whole section needs to be considered and the last part of the section supports the interpretation proffered by the defendants. It would seem that this section merely states that an employee may not be treated less favourably in his/her membership of a medical aid. The section deals with the benefits of the medical aid and not with the assistance to the contribution provided by the employees.

[124]	In the process of interpretation one also have to consider what exactly was repealed by the PAA. Section 53 of the PAA reads that the legislation mentioned in the second column of the table in the schedule is repealed to the extent mentioned in the third column, subject to section 54. In this schedule the entire Audit Arrangements Act is repealed. 

[125]	The transitional provision contained in section 54(2) of the PAA reads as follows:

“The repeal of the legislation referred to in section 53 does not affect the conditions of employment of a person referred to in subsection (1)(a), (b) or (c), including any accumulated pension, leave or other benefits to which such a person was entitled immediately before the repeal of that legislation, and such a person remains subject to the same conditions of employment applicable to that person immediately before the repeal of that legislation without a break in those conditions of employment.

[126]	Section 54(2) does not preserve section 51 of the Audit Arrangements Act, but only the conditions of employment including benefits. Because section 51 of the Audit Arrangements Act is not preserved, there cannot be a claim based on section 51.

[127]	The defendants’ argument was that in that event, where it says that a person will not be treated less favourably than members of the Public Service, what it means is that you will be treated no less favourably than had you remained in the Public Service. This argument was based on the fact that section 51 of the Audit Arrangements Act is a preservation clause. It then follows that the next question should be, what would the plaintiffs’ benefits have been had they remained part of the Public Service. That will require a comparison between the plaintiffs’ status within the AG’s office and the status that they would have occupied had they remained in the Public Service.

[128]	The plaintiffs called three witnesses regarding the public service claim, Mr. Myburgh, who is employed as director of the Government Pension Administration Agency (GPAA), Ms. Rilityane, who is employed as a director in Macro Benefits within the Department of the Public Service and Administration (DPSA) and Ms. Brink, who is employed with the Department of Public Service as the director heading the unit General Benefits. This evidence illustrated how medical benefits are dealt with, within the Public Service. These witnesses were of the view that PMRA benefits are not linked to the post levels that the employees hold when they retired.

[129]	Mr. Myburgh testified that former employees of the public service received medical benefits in an amount of R1 014, which amount remained unadjusted from 2001 until 2015. Mr. Myburgh’s evidence under cross-examination was that the scope of application of the Determination and directive on medical assistance for employees in the public service dated January 2016 (the 2016 Determination) is that it deals with persons who retired at salary levels 1 to 10 and who fall within the registered scope of the Public Service Bargaining Council. 

[130]	He testified that the post-retirement medical assistance is applicable to qualifying former employees who retired on salary levels 1 to 12. He said the aforesaid qualification was first put in place in the 2016 Determination. The GPAA was informed by the DPSA that the qualification was inserted erroneously and that it ought not to be taken into account when paying post-retirement medical benefits. The DPSA instructed the GPAA (as the relevant payment agency) to increase the post-retirement medical benefits for all former employees, irrespective of the level they retired at. 

[131]	Mr. Myburgh agreed that the GPAA’s obligation is to pay in accordance with the Determination, and that it must apply whatever the Determination sets out, give effect to valid Determinations from the Minister; and pay out subsidies to former employees if they satisfy the conditions set out in the Determination such as being 50 years of age and having had 15 years of actual service. 

[132]	Despite the post-retirement medical assistance being expressly confined to salary levels 1 to 12, Mr. Myburgh stated that the alleged error could be remedied by the DPSA as it was done, following an email to that effect. However, the defendants’ counsel pointed out that there exists serious doubt whether this would be correct and it seems such an action would be unlawful as the DPSA employee would be acting ultra vires, due to the fact that the determination must emanate and is determined by the Minister. Moreover, and in any event, it was argued, even the Minister’s powers in respect of issuing determinations are subject to qualifications. Clause 1.4.3 of the 2016 Determination provides that the purpose of the Determination is to give effect to the relevant principles and clauses contained within, inter alia, PSCBC Resolution 2 of 2015. This was confirmed by Ms. Rilityane during her evidence.

[133]	Paragraph 1 of the Circular attached to each Determination provides that:

“The Minister for the Public Service and Administration has in terms of Section 3(5)(a) and 5(6)(b) respectively, the Public Service Act as amended, determined that the employer subsidy for employees on the government employees’ medical scheme, be adjusted and depicted herein under with effect from 1 January…” 

As such, the empowering provisions under which Minister of the DPSA issues the Determinations are sections 3(5)(a) and 5(6)(b) of the Public Service Act (the PSA). 

[134]	Section 3(5)(a) of the PSA provides that:

“Subject to the Labour Relations Act and to any collective agreement, the Minister may make determinations regarding any conditions of service employees generally, or categories of employees, including determinations regarding a salary scale for all employees, or a salary scale for particular categories of employees, and allowances for particular categories of employees.”

[135]	The Minister's power to make determinations is therefore subject to the Labour Relations Act and to any collective agreement. This was also confirmed by Ms. Rilityane during her evidence. 

[136]	Section 5(6)(b) of the PSA provides that:

“The Minister may for the proper implementation of the collective agreement, elucidate or supplement such determination by means of a directive, provided that the directive is not in conflict with or does not derogate from the terms of the agreement.” 

[137]	The aforesaid provision makes it clear that the Minister’s power is subject to the collective agreement referred to in the provision. Importantly, it is made clear that the Minister may not, in exercising his power, cause any conflict or derogation from the terms of the collective agreement and Ms. Rilityane initially agreed with this proposition. 

[138]	PSCBC Resolution 2 of 2015 is a collective agreement, the objective of which is to provide for a multi-year salary adjustment and improvements to conditions of service for a three-year period (2015 – 2018). It provides at clause 2.1.2 that “[t]his agreement binds the employer and employees who are employed by the state and who fall within the registered scope of the Council.” Ms. Rilityane confirmed in her evidence in chief that the registered scope of the Council is level 1 to 12, and excludes employees at levels 13 and above. Ms. Rilityane also accepted that where an agreement is reached by the Council that agreement is limited to those employees who are employed up until level 12. It must then follow that the Minister has no power to make any Determination that affects employees who are beyond the registered scope of the Council.

[139]	Ms. Rilityane, following an adjournment proceeded to adopt a different stance during re-examination, despite all of the concessions stated above while under cross-examination she went on to state that notwithstanding that, PSCBC Resolution 2 of 2015 which is a collective agreement, signed by various unions, is applicable to employees from levels 1 to 12, the resolution nonetheless applies to all retired employees regardless of the level they occupied prior to their retirement.

[140]	This cannot be correct, as an agreement between specified parties cannot, as a matter of law, apply to individuals who fall outside the registered scope of the Council. The employer and unions who are mandated to act on behalf of a specified group of employees cannot negotiate benefits in respect of persons who are excluded from the forum in which such an agreement is concluded. 

[141]	Ms. Rilityane’s contention in re-examination that retired employees occupy no post level and can therefore be included in a collective agreement to which they were not a party is clearly bad in law. This is inter alia so because it is the post level at which the employee retires which determines whether the employee is entitled to the benefits conferred by the collective agreement. 

[142]	Ms. Brink testified that her work, inter alia, entails assisting the bargaining process as well as the implementation of collective agreements and the development of ministerial determinations. She was involved in the ministerial determination directive on medical assistance for in service as well as former employees. She supported the assumption that the plaintiffs would qualify for the increases in medical aid contributions and that it would include senior management post-retirement. 

[143]	She relied solely on resolution 13, clause 3.5 of the collective agreement of 1998 for the proposition that collective agreements include senior managers. However, in terms of clause 3.5 collective agreements relate to senior managers who sign a performance agreement. Ms. Brink however insisted that senior management was included, and proposed that once one retires your service level falls away. She furthermore testified that the unions can bargain on behalf of employees that fall within the scope of PSCBC, however in terms of the Labour Relations Policy Framework, senior management falls outside of it unless specifically included. She testified at length about the Bargaining Council and the Unions’ right to reach agreements in the collective bargaining process, which would include senior management and specifically retirees. 

[144]	All the plaintiffs retired from the AGSA having held very senior positions, as set out above. Dr. Loots would not have qualified for PRMA at all under the Determination because it is common cause that he retired from the AGSA when he was 48 years old and was not 50 years old, as required by clause 1.3.2 of the 2015 Determination and the other Determinations that followed. It is also common cause that he was employed at the AGSA for just over 6 years and did not have 15 years of actual service, as required by clause 1.3.3 of the Determination and the other Determinations that followed. 

[145]	The stipulation in relation to “not being dealt with less favourably than an officer or employee in the public service” cannot be interpreted to mean that, for example, Dr. Loots, as the retired DAG, must be entitled to medical benefits that are not afforded to his counterparts in the public service, which would be the equivalent of the head of department if regard is had to section 50(1)(c) of the Audit Arrangements Act. This is confirmed by section 50(1)(c) of the Audit Arrangements Act which reads as follows:

“50 Pension and retirement benefits 
…
(c)	in the case of the Deputy Auditor-General, he is a head of a department as contemplated in section 6 of the Public Service Act.”

[146]	The Audit Arrangements Act draws a comparison between posts in the AGSA and equivalent posts in public service. Accordingly, on a proper interpretation of section 51 of the Audit Arrangements Act, the AGSA, in not increasing the PRMA to the amount set out in the 2015/16 Determination, did not cause the plaintiffs to be dealt with less favourably than an officer or employee in the public service. As a result, section 51 of the Audit Arrangements Act, read with section 54(2) of the PAA, do not in any event apply to any of the plaintiffs.

[147]	What is clear from what has been set out above, is that increases in PRMA were not afforded to all employees, and that senior employees from level 13 and up, were excluded from the Determinations sought to be relied upon by the plaintiffs. 

[148]	It follows that the plaintiffs did not make out a case that they comparatively fall within the category of employees in the public service who were afforded increases in PRMA in terms of the Determinations. As a result, the plaintiffs have not demonstrated that they have been treated less favourably than a comparable officer or employee in the public service.

[149]	The Public Service Claim cannot succeed for three reasons. Firstly the evidence led in support of the public service claim illustrated how linking the increase of the PMRA with increases in the public service would impact on the independence of the AGSA. Any interpretation of the Audit Arrangements Act or the PAA for that matter, being the legislation that regulates the AGSA in addition to the Constitution, cannot compromise the independence of the AGSA by subjecting the level of employment benefits of officers of the AGSA to benefits payable to employees in the public service. To find otherwise will imply that the AGSA is subject to determinations made by the Public Service. If this is allowed the independence of the AGSA is compromised and such a state of affairs is not in accordance with the Section 181 of the Constitution. Secondly the claim is not supported by a proper interpretation of the applicable legislation. Thirdly the plaintiffs were in any event not treated less favourably than their counterparts in the Public Service.

CONCLUSION
[150]	As a result the plaintiffs cannot succeed on any of the three claims raised by them and the action must accordingly be dismissed. Ms Maluleke conceded that the AGSA has an obligation to consider the PMRA on a yearly basis and this obligation will continue into the future. 

COSTS
[151]	 In light of the fact that both parties led extensive expert evidence, which took up must of the Court time and which in the end turned out to be of limited assistance due to the concession made about affordability, and the fact that the plaintiffs relied on what they were advised and perceived as their constitutional rights, I am of the view that the principle in Biowatch Trust v Registrar Genetic Resources and Others should be followed and no order as to costs should be made.

ORDER
[152]	The following order is made:
1.	The plaintiffs’ claims are dismissed.

RG TOLMAY
JUDGE OF THE HIGH COURT
GAUTENG DIVISION OF THE HIGH COURT, PRETORIA

Delivered: This judgment was prepared and authored by the Judge whose name is reflected and is handed down electronically by circulation to the Parties/their legal representatives by email and by uploading it to the electronic file of this matter on CaseLines. The date for hand-down is deemed to be 12 NOVEMBER 2021.

APPEARANCES
For the Plaintiffs: 	ADV A T LAMEY

Instructed by: 	HURTER SPIES INCORPORATED

For the Defendants:	ADV C D A LOXTON (SC)
G SINGH 

Instructed BY:	TPW ATTORNEYS

Date of hearing:	3 – 21 AUGUST 2020
3 – 21 MAY 2021 

Date of judgment:	12 NOVEMBER 2021