FST case summary involving Malherbe and Pension Fund Adjudicator & others (Pension Funds Act)

By Shamaa Sheik

The following matter was heard in the Financial Services Tribunal on 7 August 2019:

• David Johannes Malherbe (Applicant) and Pension Fund Adjudicator (1st Respondent); Eskom Pension and Provident Fund (2nd Respondent) and Eskom Holdings Soc Limited (3rd Respondent) – case number: PFA29/2019

Fast facts

Pension Funds Act – definition of 'member' – whether deferred pensioner constitutes member

Summary

Background

This was an application brought before the Tribunal to reconsider the determination of the Pension Fund Adjudicator (PFA).

The complaint before the Tribunal
The applicant had lodged a complaint with the office of the PFA concerning a deduction of his withdrawal benefit in terms of section 37D(1)(b)(ii) of the Pension Funds Act 24 of 1956 (the Act). The applicant was a former manager in a company that became a wholly owned subsidiary of Eskom. He was employed for the period between 1977 and 2009.

During this time, the applicant had unlawfully defrauded Eskom and after several appeals, the Constitutional Court handed down a civil judgment against him that is still in effect.

Criminal proceedings were also instituted against the applicant where he was prosecuted in the lower court for fraud and money laundering and was found guilty on both charges. That matter is pending in the Supreme Court of Appeal and has been set down in August 2019.

In the present matter, the applicant sought to challenge a rule amendment of the Eskom Pension and Provident Fund Rules and the applicability thereof to his benefits.

The issues before the Tribunal
The following issues were before the Tribunal for a finding:

• The applicant was firm in his contention that he be considered a 'deferred pensioner' by virtue of the definitions in the Act and the Rules. Eskom was therefore not entitled to deduct any amount from his deferred pension.
• The applicant also objected to the applicability of the amended Rules of the Fund, which he argued was registered without his prior consent adding that as a member of the Fund, his input was necessary before the amendments were effected. He therefore sought an order setting aside the amendments to the applicable rule 40, and an order restraining the Fund from making a deduction from his benefits in terms of 
  s 37D of the Act.

Statutory framework
The Fund was directed by the Court to effect a deduction from the applicant’s withdrawal benefit in favour of Eskom in terms of s 37D(1)(b)(ii) of the Pension Funds Act. Section 37D of the Act provides for a Fund to make certain deductions from pension benefits:

'A registered fund may-
deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of-
compensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which-
    (aa)   the member has in writing admitted liability to the employer; or
    (bb)   judgment has been obtained against the member in any court, including a magistrate's court,
    from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the employer concerned;'

The definition of 'member' in s 1 of the Act means any member or former member of the association by which such fund has been established.

The Tribunal noted that this definition did not include any person who has received all benefits which may be due from the fund and whose membership terminates afterwards in accordance with the rules of the fund.

The applicant considered himself to be a 'deferred pensioner' as defined in the Act namely:
'a member who has not yet retired but has left the service of the employer concerned prior to normal retirement date, as defined in the Rules, leaving in the Fund the member’s rights to such benefits as may be defined in the Rules.'

The PFA determined that the applicant was still considered a 'member' in terms of s 1 of the Act. A 'member' in terms of s 1 aforesaid remains such until he has received all his benefits and his membership is terminated. In this instance the applicant is a 'deferred member' and had not received his full benefits.

It was highlighted that the Rules of the Fund are binding on its officials and members. However, the Rules must be consistent with the provisions and definitions of the Act. Given that the Fund and its Rules are registered in terms of the Act, it could not be argued that the Rules should not be contrary to the provisions and definitions in the Act.

The Tribunal noted that membership to a fund ceased only once a member received his full benefits and consequently terminates his membership. On these grounds, the definitions in the Rules must be aligned to the definitions in the Act and therefore, the Tribunal found that the determination of the PFA was correct.

In considering whether the deduction was in accordance with s 37D(1)(b) of the Act, the Tribunal referred to extensive case law authorities which recognised that the object of this section of the Act as being to protect the employer’s right to pursue the recovery of money misappropriated by its employer.

The applicant’s second primary contention was that the PFA had erred in its finding in that it had no jurisdiction to consider the validity of the rule amendments. The applicant in this application sought the Tribunal’s guidance on the way forward in respect of this issue.

The Tribunal stated that case law authorities indicated that Courts held that the PFA did not have jurisdiction to investigate complaints relating to the making or validity of rule amendments and that it does not constitute a 'complaint' as defined in the Pension Funds Act.

The Tribunal’s findings
In light of the statutory framework as well as case law authorities, the Tribunal found as follows:

• The applicant was a member as envisaged in the Act as a 'deferred pensioner'.
• That the applicant’s argument that upon resignation he ceased to be a member, could not be sustained given the definition of 'member' in the Act.
• The PFA had no jurisdiction to determine the validity of rule amendments.

Order
The application was dismissed and no order as to costs was made.

--------------

The law

Pension Funds Act 24 of 1956 – ss 37D(1)(d)(i); 37D(4); 37D(4)(a); 37D(4)(a)(ii); 37D(4)(c)(ii)

Case references

• Highveld Steel and Vanadium Corporation Ltd v Oosthuizen 2009 (4) SA 1 (SCA) at para 16
• Twigg v Orion Money Purchase Pension Fund (1) [2001] 12 BPLR 2870 (PFA) at para 21
• Charlton v Tongaat Hulett Pension Fund [2006] (2) BLLR 94 (D)
• Joint Municipal Fund and Another v Grobler and Others (2007) 4 ALL SA 855 SCA [also reported at 2007 (5) SA 629 (SCA)]

Full text FST Decision - DJ Malherbe v EPPF - Eskom Holdings SOC Limited and PFA