Appeal Court upholds ruling by Pension Funds Adjudicator

Muvhango Lukhaimane, Pension Funds Adjudicator.

The Supreme Court of Appeal has dismissed an appeal brought by a retirement fund against the ruling of the Gauteng High Court which endorsed the discretion of the Pension Funds Adjudicator to determine how interest shall be paid on an obligation to pay money.

The National Tertiary Retirement Fund, the appellant, cited Professor Aubrey Mokadi, former Rector and Vice-Chancellor of the Vaal University of Technology as first respondent, and Muvhango Lukhaimane, the Pension Funds Adjudicator (PFA), as the second respondent.

During his employment with the university, Mokadi was a member of the National Tertiary Retirement Fund.

After consideration of the report of a commission of enquiry appointed to investigate certain allegations levelled against Mokadi, the university charged him with misconduct.

A disciplinary tribunal found him guilty of numerous counts of misconduct including fraud, corruption, theft, abuse of power and abuse of university funds. Pursuant thereto he was dismissed.

Subsequent to his dismissal, Mokadi referred an unfair dismissal dispute to the Commission for Conciliation Mediation and Arbitration, but did not proceed with it. There were seven high court applications between the university and Mokadi before and after his dismissal.

Subsequent to dismissing Mokadi, the university instituted criminal charges of fraud and corruption against him. Having done so, it requested the fund to withhold his pension benefit pending finalisation of the criminal case. Almost a year later on 5 August 2007, the university instituted a civil action against Mokadi for damages, in the amount of R6 073 215.01.

When Mokadi was acquitted of the criminal charges in February 2009, the university instructed the retirement fund to withhold Mokadi’s pension benefit pending finalisation of the civil action against him. Aggrieved by the withholding of his benefit, Mokadi lodged a complaint on 3 January 2010 against the fund with the PFA.

In response to the complaint, the fund alleged that Mokadi’s complaint was time-barred as it related to a benefit which he should have received in June 2006 when his employment at the university was terminated.

The fund contended that Mokadi ought to have utilised his remedies under the PFA within three years from the date when he became aware of the fund’s decision to withhold his benefit, which was soon after his dismissal or, at the latest, on 22 August 2008 when he demanded payment of his pension benefit from the fund through his attorneys.

The fund also, in the response, sought to justify its decision to withhold Mokadi’s pension benefit at the university’s request, on the basis of the various cost orders obtained by the university against Mokadi which were outstanding, as well as the pending civil action against him.

The fund said it had already paid the university an amount of R431 043.55 from Mokadi’s pension benefit, and that the remaining amount held by the fund was R1 305 477.10.

The fund furthermore alleged that having regard to the history of the matter and that the university had done everything it could to expedite the proceedings, it was of the view that it acted within the scope of Section 37D of the Pension Funds Act by withholding payment of Mokadi’s pension benefit until the civil action had been properly ventilated and considered by a court.

Finally, as to the status of the pending civil action, the fund asserted that it was being defended by Mokadi; that the pleadings had closed; and that the matter was set down for hearing on 2 June 2010.

A month after filing its response to the complaint, the university’s attorneys advised the fund, in a letter dated 21 May 2010, that another bill of costs in one of the applications between it and Mokadi had been taxed in the university’s favour in the amount of R303 803.49. The university furthermore confirmed that Mokadi’s pension benefit remained subject to retention as resolved by the Board, pending the taxation of a further bill of costs in respect of amongst others, the pending civil action.

Presumably, Mokadi was advised of this decision because, on 7 June 2010, he wrote to both the Adjudicator and the fund under separate cover, expressing his dissatisfaction with the decision of the fund to deduct money from his pension benefit, without informing him of the deductions.

On 10 June 2010, the fund responded stating that it did not deem it necessary to deal with the allegations in Mokadi’s letter and denied them.

Mokadi wrote to the PFA on 10 July 2012 recording that there was no pending civil case against him. The PFA wrote to the fund pointing out that according to a further submission from Mokadi, there appeared to be no pending legal proceedings against him, and hence the withholding of his pension benefit was unlawful.

On 13 July 2012, the university informed the fund that Mokadi’s allegation that there was no civil action pending was untrue and added that the university Council had resolved that Mokadi’s pension benefits be withheld further.

Dissatisfied with the university’s response, the fund advised it in writing, on 17 July 2012, that in view of the university’s decision not to pursue the action for damages against Mokadi, it could no longer withhold his benefit. On 18 July 2012, the fund received a further letter from the university confirming that it had decided not to pursue the claim for damages against Mokadi, although a judgment for costs still remained unsatisfied.

On 19 September 2012, the PFA found that the complaint had not prescribed because the university had decided not to pursue the civil claim for damages against Mokadi but rather to pay Mokadi his pension benefit.

The PFA ordered the fund to compute Mokadi’s withdrawal benefit in terms of its rules together with interest at the rate of 15.5% per annum from 2 June 2010.

On 28 September 2012, the fund advised Mokadi that the payment process was underway and, on 1 October 2012, the pension benefit (excluding interest) was finally released into Mokadi’s bank account.

On 15 November 2012, the Fund sent Mokadi a statement of the computation of his benefit. According to the fund, although the statement showed a payment of R597 739.51 in respect of “late payment interest”, this amount did not represent ‘interest’ accrued, but rather ‘fund return’.

The fund appealed the decision of the PFA to the Gauteng High Court.

Mokadi lodged a counter-application in which he requested the court to make an order allowing interest on the pension benefit to be calculated from 27 November 2006 (the date on which a tax directive was issued in respect of the pension benefit) as opposed to 2 June 2010, as determined by the PFA.

Both the fund’s application and Mokadi’s counter application were dismissed by the court which reasoned that once the university had determined not to proceed further with the civil case, then the fund became obliged to pay the benefit.

The court ruled that the PFA was statutorily empowered to determine the date of payment of the interest as also the rate.

The fund took the matter on appeal. The fund’s contentions were first, that it was not liable to pay the interest as it had lawfully withheld Mokadi’s benefit pending the finalisation of the civil action instituted by the university; and second, that because it had paid Mokadi his benefit together with the fund return on his benefit to the date of payment, the payment of interest would result in Mokadi receiving a double benefit.

The Supreme Court of Appeal ruled that the Pension Funds Act did not preclude the PFA from applying the prescribed rate of interest, if he or she considered it to be appropriate in the circumstances of a particular case.

“The Adjudicator is also free to use a different interest rate such as, for instance, the average rate of inflation or the rate of fund return, where these would be more appropriate. It follows that on this score the fund’s contention to the contrary is untenable.”

In determining the date from which interest shall run, the Supreme Court of Appeal said the Adjudicator may again choose from a range of options which in his or her view was fair and appropriate.

“Both the Adjudicator and the Gauteng High Court found correctly that the fund had no obligation to pay Mokadi his benefit pending finalisation of the civil action which the university had instituted against him.

“The Fund was not justified in withholding Mokadi’s benefit once the university decided not to proceed with the civil action against Mokadi.

“Mokadi’s benefit was originally due to him in July 2006, when his employment with the university was terminated. At that stage, the fund’s justification for withholding Mokadi’s benefit was that the university had charged Mokadi with fraud and corruption.

“When Mokadi was acquitted of these charges, the fund then sought to justify the withholding of his benefit on the basis of the pending civil action.

“The Fund was aware that the civil action was set down for hearing on 2 June 2010. It, nonetheless, adopted a supine attitude and simply made no effort to enquire from the university what the status of the civil action was subsequent to that date, until after it had received the enquiry from the Adjudicator on 10 July 2012.”