Minister of Finance and Another v Van Heerden

• Jurisdiction: South Africa
• Judge: Chaskalson CJ, Langa DCJ, Madala J, Mokgoro J, Ngcobo J, O'Regan J, Sachs J, Skweyiya J, Van Der Westhuizen J and Yacoob J
• Judgment Date: 29 July 2004
• Citation: 2004 (6) SA 121 (CC)
• Docket Number: CCT 63/03
• Hearing Date: 24 February 2004
• Counsel: G B Marcus SC (with him M Chaskalson) for the applicants. E W Fagan and P B J Farlam for the respondent. A Louw for the amicus curiae.
• Court: Constitutional Court

Moseneke J:

Introduction

[1] This case raises important constitutional issues of equality, D restitutionary measures and unfair discrimination. These issues arise within the context of a challenge to the constitutionality of certain rules of the Political Office-Bearers Pension Fund ('the Fund') that provided for differentiated employer contributions in respect of members of Parliament and other political office-bearers between 1994 and 1999. E

[2] The constitutional attack is mounted on two grounds. The first is that the relevant rules of the Fund offend the equality provisions of the Constitution because they are unfairly discriminatory. The second ground is that, in any event, the Fund as a whole is a nullity because it was not validly established under s 190A of the interim Constitution [1] or F

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s 219 of the Constitution. [2] The equality challenge is contested on the basis that the differentiation in the rules of A the Fund is not unfairly discriminatory because it constitutes a 'tightly circumscribed affirmative action measure' permissible under the equality provisions of our Constitution.

[3] The claimant is Mr Frederik Jacobus van Heerden B (respondent). He served as a National Party member of the old Parliament from 1987 to 1994. With the advent of the new democratic Parliament in 1994, he was returned to office for the same political party as member of the National Assembly until April 1999. Like many parliamentarians whose term straddled the old and new Parliaments, he is a member of the Fund and of the Closed Pension Fund C (CPF). [3] He purports to act also on behalf of 145 other similarly placed members of the Fund. Thring J, sitting in the Cape High Court (High Court), upheld the claim and declared the provisions of rule 4.2.1 of the Fund to be unconstitutional and invalid in Van Heerden v The Speaker of Parliament and Others (the D High Court judgment). [4] The Minister of Finance, the first applicant, and the Fund, the second applicant, are aggrieved by this decision and seek leave of this Court to appeal against it.

Moseneke J

Factual background

[4] From 1983 to 1994, the pension benefits of members of the A tricameral Parliament and of other political office-bearers were regulated by statute. [5] In 1993, at the Kempton Park constitutional negotiations, [6] the ruling party of the time raised concern regarding the security of existing pensions of political office-bearers. There had been speculation by parliamentarians and other political office-bearers of B the time that the new political regime may not continue to pay their pension benefits. The negotiating parties agreed that a pension fund exclusive to members of the old Parliament and other political office-bearers of the time would be established and fully funded to pay defined benefits to its members, whether they were re-elected or not as members of the first democratic Parliament of 1994. C

[5] Pursuant to this agreement, legislation established the CPF. [7] It came into operation on 5 January 1994. As its name intimates, the CPF had several exclusionary features. Only members of Parliament and political office-bearers who held office D before 1994 could become its members. [8] No new members could be admitted. It follows that persons who were elected to Parliament for the first time in the 1994 general elections were excluded. A further significant feature is that members of the old Parliament who on 26 April 1994 had not served for a period of seven and a half years were entitled only to a gratuity. [9] E

[6] Yet another distinguishing feature of the CPF is its financing provisions. The pension liability of the CPF to its beneficiaries was to be fully financed by public funds and not based on employer or employee contributions. [10] As a result, after January 1994, its members were not F

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required to make any contributions to the CPF irrespective of whether they were returned to A office or not in the 1994 general elections.

[7] Another relevant sequel to the negotiations at Kempton Park was the establishment of a Special Pension Fund to provide for people who had undergone sacrifices in order to bring about the new democratic order. [11]

[8] As the new democratic Parliament of April 1994 convened, it B and its members had no pension arrangements. A new pension fund for the new Parliament had to be brought into being. This was in fact a constitutional obligation under s 190A of the interim Constitution. [12] Clearly, this constitutional obligation could not be achieved at the outset. The setting up of a new pension fund was a venture that would take time. As C an interim measure, all concerned agreed that from 27 April 1994, the National Assembly and each of its members would contribute 12,5% and 7,5% of a member's pensionable annual income respectively towards the pension fund to be formed. [13] Pending the creation of the envisaged pension fund, employer and member contributions were paid to D the Public Investment Commission, subject to the accrued aggregate capital and interest thereon being refundable to the pension fund to be formed.

[9] For reasons not immediately apparent, four years elapsed E before Parliament turned its attention to its own new pension scheme. In June 1998, Parliament supported recommendations on the formation of the new pension fund, with four political parties in Parliament dissenting. [14] On 3 August 1998 a parliamentary committee [15] tabled before the National Assembly a further report on the nature, benefits and management of the new pension fund. [16] The report included a proposal that pension contributions by employers for the period 27 April 1994 to F

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30 April 1999 should be paid retrospectively on a differentiated basis to new and continuing A political office-bearers. On 13 August 1998, the report was debated and adopted by the National Assembly with only one party dissenting. [17] Towards the end of 1998, only a few months before the end of the first term of the new Parliament, the Fund was established but took effect retrospectively from 27 April 1994. The rules of the new fund were finalised and registered in terms of s 4(4) of the Pension Funds Act. [18] B Predictably, the main object of the Fund was to provide for retirement, death and other benefits for serving and retired parliamentarians. [19]

The rules of the Fund C

[10] The rules of the Fund create three categories of members. D Rule 2 spells out the categories:

'''Category A member'' shall mean a member who has been notified to the trustees by the employer as a member who has not reached age 49 years and who is not a member of the closed pension fund.

''Category B member'' shall mean a member who has been notified to the trustees by the employer as a member who has reached age 49 years and who is not a member of the closed pension fund.

''Category C member'' shall mean a member who is a member of the closed pension fund.'

The rules require that each member must make a contribution to E the Fund towards retirement benefits at a monthly and uniform rate of of 7,5% of his or her annual pensionable salary. However, the contributions payable by the various employers [20] within the Fund are calculated according to a differentiated scale. Rule 4.2.1 prescribes the variance in this manner:

'The employer shall make contributions towards the retirement F benefit of each member in its service at the rate of:

(a)

in the case of a category A member, one twelfth of 17 per cent of his pensionable salary;

(b)

in the case of a category B member G

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(i)

for the period of 27 April 1994 to 30 April 1999, one twelfth A of 20 per cent of his pensionable salary;

. . .

(c)

in the case of a category C member

(i)

for the period of 27 April 1994 to 30 April 1999, one twelfth of 10 per cent of his pensionable salary.'

From 1 May 1999, the differentiation between the three categories B fell away, and the contribution of employers became standardised for all members at a rate of of 17% of their annual pensionable salaries.

[11] The nub of the respondent's unfair discrimination complaint is that over the designated five years the differentiated employer contributions scheme improperly disfavours him and other C category C members who are in receipt of pensions from the CPF, in comparison with new parliamentarians who are either below or above 49 years of age and do not receive pension benefits from the CPF.

The High Court

[12] The High Court found that the challenged provisions are not D mere 'differentiation' but rather 'discriminatory in nature' because for five years lower employer contributions were paid for the less favoured class of members of the Fund to which they all belonged and contributed equally, with the result that the less favoured class E of members will receive substantially smaller pensions than will members of the favoured classes. It also found the differentiation to be 'prima facie unfair' because first, it is arbitrary as no reason is advanced for it and secondly, it is based on intersecting grounds of race and political affiliation - the latter a matter of conscience and belief - all being prohibited grounds listed in s 9(3) of the Constitution. [21] F

[13] The High Court reasoned that a person who relies on s 9(2) to justify discriminatory measures bears the 'onus' of establishing on a balance of probabilities that the measures have been taken to promote the achievement of equality and that 'generally G speaking it cannot be an easy onus to discharge'. The discrimination, it held, has to be 'convincingly justified' to discharge the presumption of unfairness under s 9(5).

[14] The High Court found that the Minister and the Fund had failed to discharge the 'onus' that the impugned...