A retirement fund must be able to ascertain and quantify the damages claimed by an employer when it relies on an admission of liability to withhold a member’s benefit, according to a decision issued by the Financial Services Tribunal (FST) last month.
Section 37D(b)(ii) of the Pension Funds Act (PFA) permits a retirement fund to deduct from a member’s benefits payable in terms of the rules of the fund any amount in respect of damages caused to the employer by the member as a result of theft, fraud, dishonesty, or misconduct, provided the member has admitted liability in writing, or a judgment by a court of law has been obtained against the member.
In this matter, Edward Snell & Company (Pty) Ltd (which produces, distributes, sells, and markets various brands of spirits) asked the Tribunal to reconsider a decision by the Pension Funds Adjudicator (third respondent).
The fund member (first respondent) resigned from the applicant’s employ on 3 October 2023, and he was subsequently dismissed on 31 October. He was a member of the Old Mutual SuperFund Pension Fund (second respondent) and became entitled to the payment of his withdrawal benefit of R763 258.03.
Edward Snell & Company accused the first respondent of fraud and theft.
The fund, acting at the employer’s behest, relied on section 37D(1)(b)(ii) of the PFA to justify withholding the first respondent’s benefit.
The first respondent complained to the Adjudicator in March 2024 because he was dissatisfied with the fund’s decision.
In her ruling, the Adjudicator ordered the applicant to commence legal proceedings against the first respondent by 30 November 2024. If this was not done, the Old Mutual SuperFund must pay his withdrawal benefit within one week following the lapse of the period.
The Adjudicator’s office, in investigating the complaint, noted that the applicant submitted two documents to the fund when it directed the fund to withhold the benefit. These documents purported to be acknowledgements of debt (AODs) and an admission of liability (AOL), respectively, and were signed by the first respondent.
In her determination, the Adjudicator raised the concern that although the documents were purportedly signed by the first respondent, they had two different amounts in respect of the alleged loss incurred by the employer. Despite this finding, the Adjudicator did not make an order regarding this material aspect of the matter.
Two AODs, two different amounts
At the Tribunal hearing, the employer confirmed it had satisfied the PFA’s determination and order and had instituted a legal claim and opened a criminal case against the first respondent.
But the Tribunal found this did not constitute adequate compliance with section 37D. It said the Adjudicator should have made a ruling about the discrepancies in the AODs and AOL submitted to the fund and whether the acknowledgements of debt and liability accorded with the requirements of section 37D.
The Tribunal said the applicant presented the fund with two AODs, both of which were dated 17 November 2023. The first AOD reflected a damage amount of R4 091 392.34 due to the first respondent’s alleged misconduct, whereas the second AOD reflected an amount of R2 142 000.
The first respondent did not dispute that he signed an AOD. However, he disputed the amount contained in the AODs and said, “he was compelled to sign some blank pages”. He specifically disputed that he signed an AOD with an amount of R4 091 392.34.
In his complaint to the Adjudicator, the first respondent submitted that the fund had acted unreasonably when it withheld his benefit, and it should not have relied on the two AODs, which reflect two different amounts of indebtedness.
The Tribunal said the fund should have satisfied itself that the loss and compensation to the employer was readily ascertainable and quantified before it withheld the member’s benefit.
“The fact that there were two different amounts in the two AODs demonstrates that compensation was not ascertainable or quantified. The AODs fell short of the requirements of section 37D of the Act because they failed to stipulate the ascertainable compensation that was due to the employer.”
Admission must be ‘clear and unambiguous’
The Tribunal said a member’s written admission of liability “must be clear and unambiguous and should specifically allow for deductions to be made in respect of a wrongdoing committed by the member against the employer”.
The common cause facts showed that the damage to the employer was not quantified. The Adjudicator should have dealt with this issue and made an order setting out its significance. Instead, the Adjudicator merely ordered the applicant to institute legal proceedings and found that failure to do so within a reasonable time would result in the lapse of the order. The Tribunal said this did not answer the question of whether the damage to the employer had been quantified. “In our view, it was not.”
The Tribunal referred to Highveld Steel and Vanadium Corporation Ltd v Oosthuizen, where the Supreme Court of Appeal held that the trustees of a retirement fund are not entitled to make any deduction in the absence of a written admission of liability by the member concerned or a judgment obtained by the employer against the member.
The FST said an employer should put in place mechanisms for obtaining “proper written admissions” from an employee.
The Tribunal referred the matter back to the Adjudicator’s office so that it could address whether the loss to the employer was properly quantified, and whether the fund was justified in its decision to withhold the member’s benefit.
