Financial Services Board and Another v De Wet NO and Others

• Jurisdiction: South Africa
• Citation: 2002 (3) SA 525 (C)

Financial Services Board and Another v De Wet NO and Others
2002 (3) SA 525 (C)

2002 (3) SA p525

Citation	2002 (3) SA 525 (C)
Case No	10978/97
Court	Cape Provincial Division
Judge	Rogers AJ
Heard	November 5, 2001; November 6, 2001; November 7, 2001; November 8, 2001; November 9, 2001; November 10, 2001; November 11, 2001; November 12, 2001; November 13, 2001; November 14, 2001; November 15, 2001; November 16, 2001; November 17, 2001; November 18, 2001; November 19, 2001; November 20, 2001; November 21, 2001; November 22, 2001; November 23, 2001; November 24, 2001; November 25, 2001; November 26, 2001; November 27, 2001; November 28, 2001
Judgment	December 14, 2001
Counsel	J A Van der Westhuizen SC (with him A M Breitenbach) for the plaintiffs.; C D A Loxton SC (with him A E Franklin SC and J Wilson) for the defendants.

Flynote : Sleutelwoorde B

Administrative law — Decision of functionary — Locus standi of functionary to approach Court to review own decision — Fact that functionary functus officio not decisive.

Administrative law — Decision of functionary — Locus standi of functionary to approach Court to review own decision or that of his or C her officials taken on delegated authority — Locus standi depending upon proper construction of functionary's statutory powers and duties — General power of supervision sufficient to give functionary locus standi in other matters falling within his or her sphere of authority a strong factor in favour of recognising such functionary's locus standi to challenge validity of D decisions — Pension Funds Act 24 of 1956 and Financial Institutions (Investment of Funds) Act 39 of 1984 according Registrar of Pensions, as guardian of interests of pension fund members, very wide powers of supervision and control over pension funds — Interests of members affected by transaction irregularly approved in terms of s 14(1) of Pension Funds Act providing sufficient foundation for locus E standi of Registrar to have approval reviewed — Supervisory function over pension funds accorded to Financial Services Board by ss 3(a) and 13(3) of Financial Services Board Act 97 of 1990 conferring locus standi on Board to challenge validity of decisions taken by Registrar. F

Pension — Pension fund — Transaction in terms of s 14(1) of Pension Funds Act 24 of 1956 — Application for approval of transfer of majority of members of defined benefit pension fund to three new funds, leaving small number of members and substantial surplus in transferor fund — Transferor fund's valuator advising Registrar that pre-transfer and post-transfer funding level in transferor fund 137%, excluding 'special reserves' and 'special surpluses' as requested G by fund's actuarial advisor — Since valuator an experienced and respected actuary, Registrar's staff accepting that exclusions actuarially justified — Registrar considering applications on basis that post-transfer funding level in transferor fund 137% — Concluding that disparity in funding levels between transferor fund and transferee H funds (123%, 121% and 116%) not sufficiently significant to justify refusing applications — Transfers accordingly approved — Some years later, when transferor fund seeking approval for its liquidation and approval of new rule allowing for payment of surplus to employer, Registrar discovering that transferor fund's pre-transfer funding level 151% and post-transfer funding level 606% — Registrar seeking to have earlier approvals reviewed and set aside on grounds that approvals I granted on basis that full and complete information would have been supplied to enable him to comply with his duties under Act and to protect interests of pension fund members — Registrar alleging that, instead, applications part of undisclosed scheme to enable employer to access surplus in transferor J

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fund — Act not regulating 'schemes' in sense that Registrar using term — Scheme alleged by Registrar in A conflict with Act only if one or more individual components comprising such scheme in conflict with Act — Section 14 contemplating that Registrar's value judgment in terms of s 14(1)(c) would be formulated on basis of 'scheme for the proposed transaction' submitted under s 14(1)(a) and on strength of such additional particulars as might be required under s 14(1)(b) — Registrar's opinion in terms of B s 14(1)(c) whether proposed transfer reasonable and equitable, and accorded full recognition to, inter alia, rights of pension fund members to be formed with reference to true facts relating to proposed transaction — Opinion formed on basis of inaccurate information failing to achieve important objects of s 14(1)(c) — Exclusion of amounts labelled 'special C reserves' and 'special surpluses' from transferor fund's funding levels arbitrary and actuarially unjustified — Such exclusion constituting misrepresentation — Registrar in fact misled — Misrepresentations precluding Registrar from properly applying his mind to matters contemplated by s 14(1)(c) — Approvals void. D

Headnote : Kopnota

Section 14(1) of the Pension Funds Act 24 of 1956 prohibits any 'transaction involving the transfer of any business from a registered fund to any other person' unless the requirements of the section have been met. Among these requirements are that 'the scheme for the proposed transaction, including a copy of every actuarial or other statement taken into account for the purposes of the scheme' has E been submitted to the Registrar of Pensions (the Registrar) (para (a)); that 'the Registrar has been furnished with such additional particulars or such special report by a valuator, as he may deem necessary' for the purposes of ss (1) (para (b)); and that the Registrar is satisfied that the scheme submitted in terms of para (a) is reasonable and equitable and accords full recognition, inter alia, to the rights and reasonable F benefit expectations of the members of the fund concerned (para (c)).

The executive officer of the Financial Services Board (the FSB) established in terms of s 2 of the Financial Services Board Act 97 of 1990 (the FSB Act) is ex officio the Registrar of Pensions. In August 1997 the long title of the Act defined its purpose as 'to provide for the establishment of a board to exercise supervision over the business of financial institutions [including pension funds]; and G for matters connected therewith'. At the time one of the functions of the FSB was defined in s 3(a) as 'to supervise the exercise of control, in terms of any law, over the activities of financial institutions and over financial services'. (This section was amended with effect from 12 May 2000 to restate one of the FSB's H functions as 'to supervise the compliance with laws regulating financial institutions and the provision of financial services'.) In terms of s 13(3) the executive officer (ie the Registrar) 'shall, subject to supervision by the board, perform the functions entrusted to him by or in terms of this or any other Act'.

In early 1993 the trustees of the Pepkor Pension Fund, all of whom were I executives of the employer, Pepkor Ltd, decided to split the fund into four defined benefit pension funds. Three new funds (the daughter funds), providing identical benefits to those provided by the parent fund, were to be established for the employees of Pepkor's operating subsidiaries. These employees constituted the majority of members of the Pepkor Pension Fund (the parent fund). The parent fund would be retained for the small J

2002 (3) SA p527

number of employees of Pepkor itself. It was also decided that, after the split of the parent fund, four new defined A contribution funds would be established for the holding company and three operating subsidiaries. Members of the four defined benefit funds would be offered the option of transferring to the corresponding defined contribution fund. Pepkor and the parent fund were advised by Alexander Forbes, a firm of actuaries. The parent fund's official actuary, or valuator, was one M of Sanlam, the underwriters of the B fund.

Pursuant to these decisions applications were made and granted in terms of s 4 of the Pension Funds Act for the registration of the three daughter funds and of four defined contribution funds. Thereafter applications in terms of s 14(1) of the Act were lodged to transfer members, assets and liabilities from the parent funds to the three new defined benefit funds. At the time the Registrar's requirements in C respect of such applications were set out in circular PF 78, in terms of which an application was to comprise a description of the proposed scheme; a special report signed by the valuator of the transferor fund; a special report signed by the valuator of the transferee fund; and a certificate signed by the principal officer and a trustee of both the transferor and transferee funds. The valuator's reports were required D to disclose the 'funding level' of the funds to which they related. This was the ratio by which the assets of the funds, actuarially valued, exceeded or fell short of its actuarial liabilities. In this regard the circular required a clear indication of 'how any overfunding or underfunding is reflected in the transfer values'.

It had been decided that sufficient surplus from the parent fund should be transferred to each daughter fund to ensure that the funding E level in each daughter fund was at least 110% and that the employer's contribution for at least the next three years would be pegged at 7,5% of each member's pensionable salary. This resulted in the funding levels in each daughter fund upon establishment of 123%, 121% and 116%. It appeared that the funding level in the parent fund prior to any transfer had been 151% and that it would have been 606% F thereafter. However, the three certificates signed by M as...