Blue Crane Route Municipality v The Municipal Workers Retirement Fund

• Jurisdiction: South Africa
• Judge: MS Rugunanan J
• Judgment Date: 08 October 2020
• Court: Eastern Cape Division
• Hearing Date: 06 August 2020
• Docket Number: 3016/2019

Rugunanan J:

[1]

The applicant is a municipality as contemplated in section 2 of the Local Government: Municipal Systems Act [1] with its main offices in Somerset East. The respondent is a pension fund organisation registered as such in terms of the Pension Funds Act [2] ("the PFA") of whom several of its members are employees of the applicant. On 26 November 2019 the respondent obtained an order ("the

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order") in terms of which the applicant was directed to make payment to the respondent in the sum of R3 805 608,68 for employer and employee contributions. The respective contributions payable by the applicant to the respondent are at the core of the dispute that occasioned the order. The applicant now brings an application to rescind the order in terms of uniform rule 42(1)(c) and / or the common law. It is common cause that the main application (i.e. the application that led to the order being granted against the applicant) was served on the applicant and that the applicant having elected not to oppose the application, the respondent consequently took the order by default.

[2]

In the application that gave rise to the order, the respondent alleged that the applicant acted in breach of the rules of the South African Municipal Workers Union National Provident Fund ("the rules") for the period July 2007 to June 2013. It was alleged that the rules required the applicant to pay over to the respondent, employee contributions at a rate of 7,5% deducted from the employees' monthly salaries as opposed to the rate of 5% deducted and paid over by the applicant. In respect of employer contributions it was alleged that this ought to have been paid by the applicant from its own reserves at a monthly rate of 18% as opposed to 12%. Accordingly, the case put forward by the respondent was that the lower than required payments by the applicant in respect of employer and employee contributions had accumulated to the aforementioned amount which the applicant

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was obliged to pay together with interest in terms of section 13A and 13A(7) of the PFA. [3]

[3]

Before dealing with the grounds on which the application for rescission is brought, a convenient starting point would be to examine the rules. The definitions section indicates that their effective date is 1 November 2011. [4] On 16 August 2006 the respondent's board of trustees resolved to amend the rules. With effect from 1 November 2006 the Schedule of Benefits dealing with Contributions was amended to read as indicated below. (I pause to state that the rule amendment was registered on 27 September 2007 by the Registrar of Pension funds).

"CONTRIBUTIONS

MEMBER contributions and EMPLOYER contributions in respect of the MEMBER shall be a percentage of the MEMBER'S PENSIONABLE SALARY, as specified in the agreement: provided that the MEMBER'S contributions shall not be less than 7,5 percent and the Employer contributions shall not be less than 18 percent of the MEMBER'S PENSIONABLE SALARY."

[4]

Rule 11.1.3 (quoted only in relevant part) of the rules stipulates that:

"The BOARD shall have the right to amend the rules at any time, provided that-

a)

…

b)

Any amendment which relates to the EMPLOYER contributions shall be subject to the EMPLOYER'S agreement with the UNION;

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c)

…

[5]

It is not disputed that what sub-rule (b) of rule 11.1.3 contemplates is that the respondent cannot unilaterally increase the rate of employer contributions in respect of its members – there must be an agreement with the employees' union that an employer (in this instance, the applicant) will contribute at a certain rate. Otherwise stated, the precondition for a binding increase in employer contributions is that an individual participating employer must reach agreement with the union to contribute at a higher rate.

[6]

Relevant to employee contributions, the applicant only concedes that it is indebted to pay to the respondent at the higher rate of 7,5% with effect from 1 November 2011 (the effective date of the rules) to June 2013. [5] But regarding employer contributions, it is the applicant's case that agreement with the employees' union (the South African Municipal Workers' Union (SAMWU)) [6] to contribute at the higher rate (18%) only came about in 2013 and with effect from 1 July 2013, which date was confirmed by a resolution of the applicant's Council on 30 September 2013. [7] Although the respondent does not deny this, [8] it adopts the position that, upon approval by the Registrar, [9] the rules became legally binding on the parties and remain as such until set aside by a court or other competent

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tribunal. [10] The applicant does not take issue with the fact of approval by the Registrar - but for reasons dealt with below, it disputes (as a "defence") that the rule amendment became effective from 1 November 2006.

[7]

The binding nature of the rules of a pension fund has been authoritatively stated by the Supreme Court of Appeal as follows: [11]

"The legal principles that apply to pension and Provident funds are clear and uncontroversial. The trustees of a fund are bound to observe and implement the rules of that fund. Their powers and responsibilities and rights and obligations of members and participating employers are governed by the rules, applicable legislation and the common law."

[8]

In argument the respondent raised two points in limine: (i) the applicant's failure to challenge the fund rules; and (ii) the applicant perempted its right to apply for rescission of the order. In raising these issues the respondent contended that either one of them is dispositive of the matter in its entirety notwithstanding the grounds on which a rescission of the order is sought.

THE FAILURE TO CHALLENGE THE FUND RULES:

[9]

The applicant maintains that the effective date of the rules is 1 November 2011. Because rule 11.1.3 excludes reference to employee contributions, the applicant asserts that the respondent had the power to unilaterally require a higher employee contribution of 7,5% as from that date. As for employer contributions, the

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higher rate of 18% was, on the applicant's version, limited to the period effective from 1 July 2013.

[10]

In both instances pertaining to these rates, the applicant avers that the amendment to the rules did not become effective from 1 November 2006. [12] The respondent argued that the rules remain binding until set aside by due process. The applicant has not set aside the rules (including the amendment), and the rules, including those relating to the amended (or higher) contribution rates, remain binding on the applicant. In support of this contention the respondent places reliance on the Oudekraal principle to the effect that the extant rule amendment is capable of producing legally valid consequences for so long as it is not set aside. [13] In Kirland [14] the rationale of this principle was explained thus:

"The fundamental notion – that official conduct is vulnerable to challenge may have legal consequences and may not be ignored until properly set aside – springs deeply from the rule of law."

[11]

Although the respondent's submission that the failure to challenge the rules is dispositive of the matter in its entirety is not without merit, I will in any event proceed to deal with the applicant's grounds for seeking rescission, acknowledging

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of course that the remaining point in limine is rendered moot or academic...