The Financial Services Tribunal (FST) has upheld a decision by the Financial Sector Conduct Authority to revoke its approval of an amendment to a retirement fund’s rules because the employee-appointed trustees were excluded from the meeting during which the amendment was adopted.
The amendment to the rules of the Tshwane Municipal Provident Fund reduced the number of trustees and removed the trustees appointed by the fund’s sole sponsor, the City of Tshwane.
The Fund’s rules required that the board of management (BOM) comprise eight persons – two appointed by the principal employer and six elected by the members.
In August last year, the board resolved to reduce the number of trustees to six, all of whom would be elected by the members. The BOM said the change was necessary to reduce costs amid declining membership and shrinking contributions.
The FSCA registered the rule amendment in September, relying on the certification of the BOM’s resolution by the chairperson, a board member, and the principal officer.
But the following month, the Authority received a letter from the City of Tshwane objecting to the rationale and process pertaining to the amendment.
Prompted by the City’s letter, the FSCA requested and received the minutes of the BOM’s meeting on 21 August 2024.
The minutes showed that the two employer-appointed trustees and the alternate employer-appointed trustee were asked to leave the meeting during deliberations on the amendment. They were invited back into the meeting after the resolution had been adopted. Furthermore, the resolution was adopted by a majority of voting members, not those present at a quorate meeting, as required by the Fund’s rules.
The minutes suggested the amendment was a risk-mitigation measure against alleged unbecoming conduct by employer-appointed trustees. However, the Fund later clarified that behaviour was not the reason for their removal. The FSCA found these reasons inconsistent with the minutes and indicative of an ulterior motive, breaching the board’s duty of good faith under section 7C(2)(b) of the Pension Funds Act (PFA).
Citing the above flaws, the FSCA notified the Fund that it intended to revoke its decision to approve the rule amendment.
The Fund responded in November, arguing the amendment was done in compliance with the rules.
It said: “The request for the employer trustees to be excused from the meeting was to allow the board to freely discuss the matter without the conflict of interest that comes with discussing board members in their presence. The employer trustees were given an opportunity to give their contributions before they were requested to be excused from the meeting. The employer trustees were also given feedback after the discussion point, to which they did not object to the board resolution.”
In December last year, the FSCA revoked the rule amendment, citing reliance on an incorrect certification that the resolution complied with the rules.
Resolution was procedurally invalid
The Tribunal’s decision revolved around three interconnected issues: the procedural validity of the BOM’s resolution, breaches of fiduciary duties under the PFA, and the FSCA’s powers to revoke a decision under the Financial Sector Regulation Act (FSRA).
The Tribunal found that the employer-appointed trustees were excluded from full and meaningful participation in the deliberations and decision-making process during the BOM’s meeting. This exclusion was deemed a violation of Rule 10.2.11, which requires trustees with a declared interest to refrain from voting but remain present. It rejected the Fund’s claim that these trustees were consulted and raised no objections as “ridiculous” and unsupported by the minutes.
Rule 10.2.5 requires decisions to be made by a majority of board members present at a quorate meeting. The resolution was adopted by a majority of voting members, not those present, rendering the meeting improperly constituted.
The Tribunal relied on Van Der Merwe NO and Others v Bosman and Others (2010), where the High Court held that a majority decision in trusts is valid only if adopted by a majority of trustees present at a quorate meeting, with all trustees receiving notice to participate. The Court emphasised that trustees must act jointly, binding absent or dissenting trustees only if the trust deed permits majority votes at properly notified meetings.
The Tribunal distinguished or aligned this with the recent Constitutional Court decision in Shepstone and Wylie Attorneys v De Witt N.O. and Others (2025), which clarifies that quorate meeting decisions bind trusts even without unanimous presence, provided the trust deed allows majority rule. However, the Tribunal noted that Shepstone does not override the notice and participation requirements in Van der Merwe, particularly where exclusion targets specific trustees.
Breach of fiduciary duties
The Tribunal found the removal of the employer-appointed trustees to be “spurious, irrational, and done for an ulterior motive”. The Fund’s stated reasons – cost-cutting, and the lack of value from employer trustees in a defined contribution fund – were inconsistent with the minutes, which initially cited trustee behaviour as a concern. The Fund later clarified that behaviour was not the reason, undermining its rationale. The Tribunal viewed these justifications as a “mixture” and “mind-boggling”, suggesting an improper purpose.
The exclusion violated the fiduciary duty of trustees to act jointly, consult, and strive for agreement, as outlined in Trust Law in South Africa (2017). By sidelining the employer-appointed trustees, the BOM deprived them of their opportunity to persuade others, breaching the duty of good faith under section 7C(2)(b) of the PFA.
The Tribunal also inferred that the City of Tshwane was not given timely or reasonable notice of the proposal to terminate its representation on the BOM, describing the process as indicative of an “ambush”.
The Fund argued that the FSCA was functus officio (having exhausted its authority) and could not revoke the amendment by engaging its substance ex post facto. The Tribunal rejected this, citing the clear language of section 95(1)(b) of the FSRA, which allows revocation if a decision was based on inaccurate or incomplete information.
The Tribunal affirmed that the FSCA acted within its mandate, and failing to revoke the amendment would have been an abdication of responsibility, impairing its integrity.
