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Was market volatility or admin problems the reason a fund member lost R340 000?

The Financial Services Tribunal (FST) has ordered the Pension Funds Adjudicator to reconsider a determination that attributed a fund member’s loss to the employer’s failure to submit his withdrawal form timeously to the fund.

The member, “NM”, was paid a withdrawal benefit of R620 671 in April 2020, which, he claimed, was R340 000 less than he should have received. NM contended that the rand lost most of its value in March 2020, and his loss was because of the delay in processing his withdrawal claim.

The retirement fund said it received the withdrawal claim form on 3 February 2020, but it could not pay the benefit until the contribution data for December 2019 had been reconciled.

The fund’s administrator said it received the correct contribution data from the employer, Creda Communications, on 18 March. It was only then that it could start processing NM’s claim.

Creda, the fund and its administrator said the reduction in NM’s benefit was a result of market volatility between 1 January and 31 March 2020, when the value of the fund’s underlying investments declined sharply.

In her determination last year, the Adjudicator ordered the fund to calculate the loss incurred by NM on his fund credit from January to March 2020, and Creda was ordered to make good NM’s financial loss.

According to the determination, Creda breached its duties as an employer by failing to complete the withdrawal form and submit it timeously to the fund on NM’s behalf. Creda’s conduct resulted in NM suffering prejudice.

Evidence not before the Adjudicator

Creda challenged the determination, submitting that the Adjudicator had not conducted a balanced assessment of all the evidence that was material in deciding whether it had timeously adhered to the fund’s rules and sub-section 13A(1)(a) of the PFA. This sub-section requires an employer to pay the member’s and the employer’s full contributions due to the fund in terms of its rules.

Creda submitted that the fund received the December 2019 contributions and data in January 2020. However, the contribution data in respect of only one member (not NM) was incorrect, which resulted in the data schedule being resent at the beginning of February.

The FST said these submissions seemed to be new evidence that had not been placed before the Adjudicator. The FST could not consider them, because it had not received an application for the submission for new evidence.

Creda’s conduct was wrongful

The FST first addressed the issue of wrongfulness – whether Creda’s conduct was in keeping with the “legal and policy convictions of the community”.

NM suffered “pure economic loss”, which is loss that results from a negligent act.

The FST referred to the case of Fourways Haulage SA (Pty) Ltd v South African National Road Agency Ltd, where the Supreme Court of Appeal held that negligent causation of pure economic loss is not regarded as prima facie wrongful. Its wrongfulness depends on the existence of a legal duty.

“The imposition of this legal duty is a matter for judicial determination involving criteria of public or legal policy consistent with constitutional norms. In the result, conduct causing pure economic loss will only be regarded as wrongful and therefore actionable if public or legal policy considerations require that such conduct, if negligent, should attract legal liability for the resulting damages.” (FST’s emphasis)

Creda’s submitted that it had complied with section 13A(2)(a) of the PFA by providing the retirement fund with the minimum information required.

But the FST said Creda had a legal duty to furnish the fund with not only the minimum information, but also to provide accurate and relevant information to enable the fund to render its services to members.

In addition, the nature of the relationship between NM and Creda created a direct link between the parties that supported the policy consideration of public duty.

Therefore, Creda’s conduct fell short of legal duty and was wrongful, the FST found.

Element of causation not addressed

However, the tribunal was not satisfied that the Adjudicator had given sufficient attention to the aspect of causation.

Quoting from Fourways, it said that in the law of delict, causation involves two distinct enquiries:

  • The enquiry into factual causation, which is generally conducted by applying the “but-for” test. In other words, in this case, was Creda’s conduct the indispensable condition without which NM would not have suffered loss.
  • The enquiry into legal causation – whether the conduct is linked sufficiently closely or directly to the loss for legal liability to ensue, or whether the loss is too remote.

The tribunal drew attention to the submissions by Creda, the fund and the administrator that market volatility was beyond their control, and the member bears the risk associated with the investment portfolio selected by the member or the employer.

It was also necessary to consider whether the delay in providing accurate and relevant data to the fund caused the loss of the fund value.

The tribunal recommended that the Adjudicator conduct an enquiry on factual and legal causation. It therefore set aside the determination and referred it back to the Adjudicator for reconsideration.

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