Applications made in terms of section 30P of the Pension Funds Act (PFA) can encompass both procedural reviews and substantive merits inquiries, particularly where a fund’s compliance with section 37C of the Act is at issue, the Constitutional Court has ruled.
The Court’s unanimous judgment, delivered on 8 August, addressed critical aspects of retirement fund administration.
The case centred on the distribution of a death benefit following the passing of a member of the Municipal Gratuity Fund.
The Constitutional Court’s judgment addressed four key issues:
- Whether the Adjudicator breached the audi alteram partem principle when making findings about the Municipal Gratuity Fund’s investigation without giving the Fund a meaningful opportunity to respond.
- Whether the Fund properly exercised its discretion in terms of section 37C of the PFA.
- Which date governs the determination of dependency under section 37C – the date of the member’s death or the date the fund makes its distribution decision?
- Whether a person must still be a “beneficiary” at the time of the distribution to retain his or her status as a dependant.
The Court’s landmark decision on the distribution of death benefits to dependants is discussed in this article: Apex court clarifies timing of dependency test for death benefit payouts
Its findings with respect to the second issue are addressed in this article: Funds must fully verify dependency before allocating a death benefit
At the heart of the first issue was whether the SCA had correctly limited the High Court’s inquiry in the Fund’s section 30P application to procedural fairness issues, specifically the Adjudicator’s compliance with the audi alteram partem principle, or whether the issues before the High Court included whether the Fund had conducted a proper investigation as required by section 37C before making its distribution decision.
Background to the case
The applicant, Tshifhiwa Shembry Mutsila, was married to Takalani Emmanuel Mutsila and had five children with him, all of whom were dependants at the time of his death in December 2012. Upon the member’s death, a benefit of R1 614 434.86 became available for distribution.
The Fund identified Mutsila and her children as dependants but also included Dipuo Masete and her two children, based on claims of a customary marriage and factual dependency.
In April 2014, the Fund allocated 22.5% to Mutsila, 27.5% to Masete, and varying portions to the children, resulting in Masete and her children receiving 52.5% of the benefit.
Mutsila lodged a complaint with the Pension Funds Adjudicator in May 2014. The basis for the complaint was that Masete was neither married to the deceased nor factually dependent on him, and Masete’s children were not dependent on the deceased.
The Fund requested that the matter be held in abeyance, pending the outcome of court proceedings between Masete and Malema Joseph Mphafudi pertaining to the custody of Masete’s children.
The Adjudicator continued with her determination without the Fund’s response to the complaint. The Adjudicator found that the Fund had not conducted a proper investigation as required by section 37C of the Act to identify the beneficiaries of the deceased and set aside its decision regarding the allocation of the death benefit.
Litigation leading to the Constitutional Court
The Fund then launched an application, in terms of section 30P of the PFA, in the High Court. It sought to set aside the Adjudicator’s determination and declare that its investigation had been thorough and compliant with section 37C.
The High Court found that the Fund had failed to conduct a diligent investigation and dismissed its application in June 2018. The Fund’s subsequent appeal to the Full Court was dismissed in November 2021 for similar reasons.
The Fund appealed the Full Court’s decision to the SCA, which, in July 2023, set aside the Adjudicator’s decision and, in effect, upheld the decision taken by the Fund.
The SCA focused on procedural flaws in the Adjudicator’s process, finding a violation of audi alteram partem because the Fund was not given a full opportunity to respond substantively to the complaint. It held that both the High Court and the Full Court failed to recognise the essential issue: namely, whether Masete and her two children were factually dependent on the deceased. The SCA reasoned that this factual dependency was never challenged.
Read: Adjudicator did not allow retirement fund to respond fully to a complaint
Adjudication process was flawed
Justice Leona Theron, writing on behalf of the Constitutional Court, said section 30P proceedings are an appeal in the wide sense, allowing the High Court to consider the merits afresh and make any order it deems fit. Drawing from prior jurisprudence, Justice Theron noted: “The High Court is therefore not limited to a decision whether the Adjudicator’s determination was right or wrong. Neither is it confined to the evidence or the grounds upon which the Adjudicator’s determination was based. The Court can consider the matter afresh and make any order it deems fit.”
However, the Court clarified that section 30P does not oust review powers; courts retain inherent jurisdiction to review under the Promotion of Administrative Justice Act or legality principles. Where a challenge is procedural, as the Fund framed its application – seeking to set aside the Adjudicator’s determination for non-compliance with audi alteram partem – the High Court could adjudicate that.
The Constitutional Court agreed with the SCA that the Adjudicator had indeed violated this principle, because the Fund was not afforded a substantive opportunity to respond.
“The Adjudicator did not inform the Fund that it would proceed with a determination of the complaint without giving the Fund an opportunity to respond to the substance of the complaint. Most startlingly, the Adjudicator’s determination related directly to the Fund’s investigation: the Adjudicator made negative findings regarding the Fund’s investigation in circumstances where it had not afforded the Fund an opportunity to substantively respond to the complaint, nor was it afforded an opportunity to place any evidence before the Adjudicator about its investigation.”
This “fatal irregularity” was sufficient reason to set aside the Adjudicator’s determination, Justice Theron said.
SCA’s misdirection
Yet, the Constitutional Court found the SCA erred by limiting the High Court’s scope to the procedural issue alone. The Fund’s application also sought a declaration that its investigation was thorough, inviting scrutiny of the substantive compliance with section 37C. Moreover, Mutsila’s complaint explicitly challenged Masete’s factual dependency, as evidenced in her affidavits.
The SCA’s finding that factual dependency was “never properly challenged” was a “serious misdirection” because it overlooked the core of Mutsila’s objections.
The SCA apparently decided that the Adjudicator’s determination had to be set aside because of procedural defects, and because of the time that had passed, it was in the interests of justice that it determine the matter instead of referring it back to the Adjudicator. The SCA found that Masete had factually proved that the deceased maintained her and her children. In arriving at this conclusion, the SCA relied on information contained in the custody dispute that came to light after the fund had taken its distribution decision.
Having regard to the legal nature of section 30P proceedings and the facts of the matter, the SCA was wrong, both in law and in fact, in concluding that the only dispute the High Court was required to determine was whether the Adjudicator had complied with the audi alteram partem principle.
Decisions set aside
The Constitutional Court set aside the decisions by the Pension Funds Adjudicator, the High Court, the Full Court, and the SCA. It remitted the matter to the Fund to make a fresh determination of dependency and equitable distribution having regard to the circumstances on 9 April 2014 – the date of the Fund’s original decision. The Fund must complete its investigation within three months of the judgment.
