The Constitutional Court has ruled that the Pension Funds Adjudicator has jurisdiction to hear cases where the complainant was unlawfully admitted as a member of a retirement fund.
The court’s ruling clarifies how the definition of a “complainant” in section 1 of the Pension Funds Act (PFA) should be interpreted and states that a “complaint” about the “administration” of a fund should include a grievance about ultra vires conduct or maladministration.
The court found that paragraph 1(d) of the PFA – “any person who has an interest in a complaint” – should be interpreted widely to mean a class of persons in addition to those referred to paragraphs (a), (b) or (c).
In doing so, it accepted the argument of the Centre for Applied Legal Studies (CALS), which appeared as amicus curiae in the case between the applicants, the Municipal Employees Pension Fund (MEPF) and Akani Retirement Fund Administrators, and Dineo Mongwaketse.
Background to the case
Mongwaketse was employed as the chief audit executive of the Ngaka Modiri Molema District Municipality in North West in February 2012 on a five-year contract.
When her employment started, Mongwaketse and the municipality completed an application form to enrol her as a member of the MEPF.
Mongwaketse’s and the municipality’s contributions were deducted from her remuneration.
It was only in November 2014 that Mongwaketse discovered that the fund’s rules did not entitle fixed-term employees to become members.
In September 2015, the municipality told the MEPF that Mongwaketse’s joining the MEPF had been an error. It asked that her membership be withdrawn and that all contributions, plus interest, be refunded to her.
The MEPF refused, saying Mongwaketse had been a member of the fund and had enjoyed all the benefits of membership.
The stand-off between the fund and Mongwaketse had not been resolved when her contract expired, and she approached the Adjudicator.
While the case was before the Adjudicator, the fund paid Mongwaketse R237 422, which was based on her 7.5% rate of contribution, not the total contribution rate (29%).
In 2017, the Adjudicator ordered the MEPF to refund Mongwaketse the contributions she had made to the fund, R856 489.94, less the amount it had already paid her, R237 422.67 (net of income tax). The amount in the Adjudicator’s order was based on Mongwaketse’s contributions (7.5% of pensionable salary) and her former employer’s contributions (22%).
The MEPF challenged the Adjudicator’s determination in the Gauteng High Court in terms of section 30P of the PFA and the Promotion of Administrative Justice Act.
The High Court dismissed the MEPF’s application but granted the fund leave to appeal to the Supreme Court of Appeal (SCA), which dismissed the appeal in December 2020.
The fund and Akani then approached the Constitutional Court.
Was Mongwaketse a member of the fund?
The MEPF argued that Mongwaketse was a member of the fund even though the fund’s rules disqualified her from membership, because one of the fund’s rules gave the board of trustees the authority to determine whether someone met the eligibility criteria.
It also said Mongwaketse was estopped from arguing that she had not become a member because she had represented herself to the fund as being entitled to be a member by paying contributions.
The Constitutional Court rejected both arguments and decided that Mongwaketse had never become a member of the MEPF for the following reasons:
- A fund is bound by its rules, in terms of section 13 of the PFA;
- Conduct that is not authorised by a fund’s rules is ultra vires and accordingly invalid; and
- The principle of estoppel cannot be used to make what is invalid valid.
Did the Adjudicator have jurisdiction?
The MEPF argued that if Mongwaketse had never become a member of the MEPF, the Adjudicator could not have had jurisdiction to determine the dispute, because she could not fall within the definition of “complainant” as defined by section 1 of the PFA.
It argued that a “complainant” in section 1(d) of the PFA refers to a person who has an interest in an existing complaint made by a person in paragraph (a), (b) or (c).
The fund said that, in terms of the PFA, a “complaint” is defined as a “complaint of a complainant”, so there cannot be a “complaint” without a “complainant”.
CALS argued that the interpretation of the PFA should be undertaken with due regard to the constitutional rights at stake, including the right to social security and appropriate social assistance and the right to have legal disputes decided in a fair public hearing.
It said that if the Adjudicator could not entertain complaints from people wrongly admitted to membership, their only recourse would be to the High Court, which they might not be able to afford or where they would run the risk of an adverse costs order.
CALS accepted that Mongwaketse did not fall within paragraphs (a) to (c) of the definition of “complainant” but argued that she fell within the scope of paragraph (d).
It said paragraph (d) adds an additional class of persons who may initiate a complaint: any person who has an interest in a grievance of the substantive nature contained in the definition of “complaint”.
The Constitutional Court said the “wide interpretation” of paragraph (d) “is to be preferred”.
A “complainant” should not be confined to a person who has an interest in an existing complaint by another person who falls within the scope of paragraphs (a) to (c).
“If the meaning of paragraph (d) were the one advanced by the MEPF, the lawmaker could easily have made this clear by adding to the words ‘any person who has an interest in a complaint’ the words ‘lodged by a person referred to in paragraph (a), (b) or (c)’,” Acting Justice Owen Rogers wrote in the court’s unanimous judgment.
Components of a ‘complaint’
The limitations on the Adjudicator’s jurisdiction were found in the definition of “complaint”.
Acting Justice Rogers said a “complaint” requires two components:
- The grievance should relate to “the administration of a fund”, “the investment of its funds” or “the interpretation and application of its rules”; and
- The grievance must make allegations of the kind described in one or more of paragraphs (a) to (d) of the definition of a “complaint”.
The court said that because Mongwaketse was not a fund member, her grievance did not concern the interpretation and application of the MEPF’s rules. It also did not relate to the investment of the MEPF’s funds, except in the most indirect way. The question was whether the grievance concerned the “administration” of the MEPF.
Based on paragraphs (a) and (b) of the definition of a “complaint”, the court said a grievance about the “administration” of a pension fund should be able to accommodate a grievance about ultra vires conduct or maladministration. “Administration” does not have to be lawful administration.
The court noted that if the “complaint” definition “is itself practically unlimited”, the Adjudicator would become an alternative to the civil courts in all disputes involving pension funds, although it was “implausible that the lawmaker intended the Adjudicator to have such a wide jurisdiction”.
Acting Justice Rogers said it was “unnecessary, for purposes of this judgment, to decide where the line is to be drawn in relation to ‘administration’ of a fund for purposes of the ‘complaint’ definition. That expression would certainly be capable of limitation” so as to exclude ordinary contractual and delictual disputes.
Although the Constitutional Court granted the MEPF and Akani leave to appeal, it dismissed their appeal against the SCA’s judgment.
No costs were awarded, because Mongwaketse agreed to abide by the court’s decision.
Lessons for funds and employers
Rosemary Hunter, a pensions, benefits and financial services attorney at Fasken, said one of the lessons for retirement funds from this case was the need to devise a procedure for making ensure that an employer certifies that an employee falls within the categories for eligible membership of the fund.
Also, employers should think about the risks they may assume by signing up employees for fund membership without checking whether the employees are, in fact, entitled to be members. Employers should ensure their HR departments are well versed in the rules of the funds in which they participate, Hunter said.