The Financial Services Tribunal (FST) has upheld a determination by the Pension Funds Adjudicator that an employer’s failure to provide a pension fund with membership data timeously meant it was legally liable for a member’s financial loss.
The “common cause facts” that resulted in the member’s complaint to the Adjudicator occurred early in 2020.
The employer submitted it could not be held liable for losses that arose because of market volatility brought about by the Covid-19 pandemic. But the tribunal did not accept this submission.
The fund member, “NM”, was paid a withdrawal benefit of R620 671 in April 2020. He complained to the Adjudicator that his pay-out was R340 000 less than he should have received. He attributed the loss to the delay in processing his withdrawal claim.
The FST’s decision is a sequel to a ruling handed down a year ago in which it instructed the Adjudicator to reconsider aspects of her first determination issued in April 2021.
In its ruling in July 2022, the tribunal agreed with the Adjudicator’s finding that the employer had acted wrongfully by not providing the membership information timeously as required by the Pension Funds Act (PFA).
But the FST was not satisfied that the Adjudicator had paid sufficient attention to whether the employer’s conduct was the factual and legal cause of the reduction in the value of NM’s withdrawal benefit. For his delictual claim to succeed, NM not only had to prove wrongfulness and negligence on the part of the employer but also that its conduct was the direct cause of his loss.
Read: Was market volatility or admin problems the reason a fund member lost R340 000?
Background to the tribunal’s second decision
NM became entitled to a withdrawal benefit from his pension fund when he was retrenched by Creda Communications (Pty) Ltd on 31 December 2019.
The fund received the completed claim form on 3 February 2020. The balance of NM’s information required to pay the claim was received on 14 February.
But there was a problem. The fund had not received the complete membership and contribution schedule for December 2019 from Creda.
The Adjudicator, Muvhango Lukhaimane, found that – in terms of the service level agreement between the employer, the fund, and the administrator – the fund had 15 days to pay the withdrawal benefit. If all the required information were to hand, the fund had 15 working days from 14 February to pay NM his benefit – that is, until 6 March, according to her determination.
The administrator received the complete data for December 2019 on 18 March; only then could the members’ contributions be reconciled and updated.
NM received his withdrawal benefit in April.
Lukhaimane’s second determination accepted that NM bore the risk for the impact of market volatility on his benefit. But his risk was limited to the period he would have been in the market if Creda had not failed to comply with its statutory duties. In other words, he ought to have been on risk only until 6 March 2020.
The adjudicator found that the fund must be ordered to determine whether there was a decline in performance from 7 March 2020 to the date of payment. If there was, Creda was liable for the loss incurred by the member for that period.
Creda applied to the FST for Lukhaimane’s second determination to be reconsidered.
Factual causation
The FST said the test for causation encapsulates a two-stage enquiry: a factual enquiry and a legal causation enquiry into the closeness of the connection between the act or omission and the harm.
Creda admitted it failed to submit the data on time, resulting in loss or prejudice to NM. This settled the issue of factual causation, the tribunal said.
The question to be decided was whether the loss suffered by NM was sufficiently closely or directly linked to Creda’s conduct.
Counsel for Creda contended that even if the employer was in breach of its statutory duty, this did not lead to any form of liability to pay compensation for such breach.
Relying on the Supreme Court of Appeal’s decision in Home Talk Development (Pty) Ltd vs Ekurhuleni Metropolitan Municipality (2017), counsel said although the PFA imposed a legal duty on Creda to provide the information timeously, it does not make any provision for a claim of damages if the legal duty is not complied with.
The tribunal said this argument is not always legally tenable and sustainable where a member whose loss has been caused by a breach committed by the employer, and the member has proved factual causation against the employer. Public policy considerations, based on the norms and values of the Constitution, point to the employer being liable, subject to the legal causation test being met.
Impact of Covid on the markets
Counsel also submitted that it should generally be accepted that the Covid pandemic in early 2020 caused the financial markets to crash. It was argued that Covid was a novus actus interveniens (“a new intervening act”) that had broken the chain of legal causation. Covid was an unforeseeable event, and Creda could not be held liable for any consequence arising therefrom.
The FST said the submission on the impact of Covid on the financial markets was neither raised with the Adjudicator nor with the tribunal in the form of applying to introduce a material fact and new evidence. It was an assertion made by counsel, without any supporting evidence or proof.
The tribunal said the problem caused by not providing the relevant membership information timeously would have had a direct adverse impact on the value of the investment. “And this was foreseeable. The requisite causal link has therefore been established,” it said.
If the information been provided earlier and during the 15 days, “the vicissitudes of the financial markets would not have affected the member because his withdrawal would have occurred much earlier. In the premise, we are satisfied that the employer is liable for the loss that diminished the investment withdrawal of the member.”
The tribunal dismissed the application.
This could easily have been avoided if the pension fund had a policy of moving the funds to the Money Market once they received confirmation that the member wished to take the amount in cash, unless the member requested otherwise. Covid is not the only thing that has caused huge sudden drops in the market, and pension funds should provide protection against that for someone who has indicated he wants to take the money in cash.