ZACC 26
Hearing Date: 07 March 2023
Judgement Date: 02 AUgust 2023
Post Judgment Media Summary
The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.
On Wednesday, 2 August 2023, the Constitutional Court handed down judgment in an application for leave to appeal against a judgment and order of the Supreme Court of Appeal.
The dispute in this matter arises from a withdrawal benefit claim from the Municipal Employees’ Pension Fund (Fund) – a registered pension fund in terms of the Pension Funds Act 24 of 1956 (Act). The claim was made by the applicant in this matter, Mr Pandelani Midas Mudau (Mr Mudau), who was employed by the third respondent, Vhembe District Municipality, from 3 May 2003 until his resignation on 31 May 2013. The second respondent is the administrator of the Fund, Akani Retirement Fund Administrators (Pty) Ltd. The Institute for Retirement Funds Africa (IRFA) was admitted as amicus curiae.
Mr Mudau was a member of the Fund throughout his employment and, upon his resignation on 31 May 2013, became entitled to withdrawal benefits in terms of the Fund’s Rules (Rules). These Rules provided that, upon resignation, a member would be entitled to a withdrawal benefit of three times their contribution, plus interest (old rule). In June 2013, prompted by an actuarial report, the Fund decided to amend the old rule. Under the unregistered rule amendment, a member’s withdrawal benefit would be deemed as one and a half times a member’s contributions, plus interest and it would apply with retrospective effect from 1 April 2013 (amended rule). On 22 July 2013, the Fund made an application to the Registrar of Pension Funds (Registrar) for registration of the unregistered amended rule. It was subsequently registered on 1 April 2014, with retrospective effect from 1 April 2013. On 16 October 2013, Mr Mudau received a withdrawal benefit of R646 437.42, calculated in terms of the unregistered amended rule. However, Mr Mudau resigned before the Fund had decided to amend the old rule and long before it was registered. Mr Mudau alleged that he was entitled to receive a withdrawal benefit of R2 140 313.19 in terms of the old rule and referred a complaint to this effect to the Pension Funds Adjudicator (Adjudicator) on 2 December 2013.
The Adjudicator found in Mr Mudau’s favour, concluding that the amended rule could not be applied before its approval and registration by the Registrar and that the retrospective rule amendment could not be applied to benefits that had already accrued before its registration by the Registrar. The Fund was ordered to pay Mr Mudau what was due to him in terms of the old rule, together with interest.
Dissatisfied with this outcome, the respondents applied to the High Court to review and set aside the decision and order of the Adjudicator. The High Court dismissed this application with costs. The matter went on appeal before a Full Court of the High Court, where it was found that the Adjudicator was not obliged to apply the amended rule which had not been approved and registered by the Registrar. It further found that the amendment could not be approved retrospectively to Mr Mudau’s withdrawal claim as he was no longer a member of the Fund when the amendment was approved and registered.
The respondents were granted leave to appeal by the Supreme Court of Appeal which found that the Rules, read together with the Act, permitted the Fund to amend its Rules and to determine the effective date of the amended rule. It concluded that the amended rule could apply retrospectively to the inclusion of the claim made by Mr Mudau under the rule approved by the Registrar. Accordingly, the appeal was upheld with costs, including costs in the complaint referred to the Adjudicator.
Mr Mudau then brought an application to this Court seeking leave to appeal the whole judgment and order of the Supreme Court of Appeal, condonation for his late filing of the application, and costs in the appeal. The application for leave to appeal was opposed by the respondents – there was no opposition to the condonation application.
Mr Mudau submitted that his application engages this Court’s constitutional and general jurisdiction. On constitutional jurisdiction, Mr Mudau argued that the case involved the proper interpretation of a statute, which aims to give content to a constitutional right, and is thus a constitutional matter. Further, Mr Mudau submitted that his constitutional rights to equality, social security, and property were implicated. Additionally, Mr Mudau submitted that the following questions raise arguable points of law of general public importance which ought to be considered by this Court: a) whether rule amendments apply to members who have exited the pension fund before the registration of such amendments; b) whether a pension fund can apply rules in anticipation of their registration by a Registrar; and c) whether an amendment which purports to be retrospective ought to affect pending proceedings before an adjudicator. He further submitted that it was in the interests of justice to grant leave to appeal as the matter has important consequences for the broader public, given the extensive commentary that the judgment of the Supreme Court of Appeal had attracted and its impact on the entire industry.
The respondents argued for the dismissal of the application on the basis that it did not raise any constitutional issues or arguable points of law of general public importance. They submitted that, absent a constitutional challenge to the provisions of the Act permitting retroactive amendments, the applicant’s challenge to the correct interpretation and application of the Act could not engage this Court’s constitutional jurisdiction. Further, they submitted that Mr Mudau had impermissibly raised for the first time in this Court that the application of the amended rule was in breach of his constitutional rights and denied that any rights were infringed. Moreover, the respondents argued that this Court’s general jurisdiction was not engaged as the Supreme Court of Appeal’s application of a rule to the facts is not a point of law and it is a settled legal principle that pension funds are allowed to amend their rules with retroactive effect, even if the amendment unsettles accrued benefits.
On the merits, Mr Mudau submitted that at the time of his resignation, the unregistered rule amendment had not been approved or registered by the Registrar and that in applying such an unregistered rule to his benefit calculation, the Fund had acted beyond the powers of the Rules and in breach of section 12(4), 13 and 37A of the Act. He accepted that the Fund is permitted to amend its Rules and to do so with retrospective effect but submitted that such retrospective rule amendments cannot reduce or take away benefits that have already accrued or that should already have been calculated and paid in terms of the old rule. Mr Mudau relied on Mostert N.O. v Old Mutual Life Assurance  ZASCA 104; 2001 (4) SA 159 (SCA);  4 All SA 250 (A) (Mostert) for the proposition that, although amended Rules may have a retrospective effect after registration, it would not be appropriate to give such Rules binding effect before registration. Mr Mudau further submitted that the unregistered amended rule should not have been applied to his withdrawal benefit as section 13 of the Act provides that only the registered rules of pension funds are binding on members, having resigned he had become a creditor and the rule could not be applied to him. Further, he submitted that section 37A does not permit the reduction of benefits of former members based on an amendment that is yet to be registered. Moreover, Mr Mudau submitted that the general presumption against statutory retrospectivity was applicable.
Mr Mudau submitted that the Supreme Court of Appeal’s costs order, requiring him to pay the Fund’s costs in the High Court, Supreme Court of Appeal as well as before the Adjudicator was flawed, inappropriate, extraordinary and unprecedented as the Adjudicator does not ordinarily grant costs orders against laypeople.
In response, the respondents submitted that section 12(4) provides for rule amendments to take effect from the date determined by the Fund and section 12(1) implicitly authorises the Fund to adopt retroactive amendments, including in a manner that affects the rights of members and shareholders. The respondents submitted that Mr Mudau was bound by the amended rule under section 13 of the Act, either as a member, or a person who claims under the Rules. According to the respondents, section 37A of the Act does not constitute a general prohibition on the reduction of benefits by a pension fund; rather, its purpose is to prevent benefit reduction as a result of factors external to pension fund rules. The respondents submitted that, despite the general presumption against retrospectivity, the amended rule clearly and expressly provided that the rule amendment would operate retrospectively. On this clear and express stipulation, the presumption was rebutted.
The IRFA’s central submission was that the Supreme Court of Appeal’s judgment fundamentally changed the established legal and industry position that backdated rule amendments do not impact vested rights, specifically accrued benefits, which result from an exit event such as retirement, resignation, dismissal, death or disability. The IRFA argued that the judgment would have material consequences for the entire retirement fund industry, ranging from requiring funds to note this new position and to review and clarify their own backdated rule amendments; to threatening the stability of some funds (specifically where backdated amendments would result in increased member benefits). The latter, it submitted, could result in former members demanding higher benefit pay-outs on the strength of the Supreme Court of Appeal’s judgment.
Regarding costs, the respondents accepted that they are not entitled to costs in respect of the proceedings before the Adjudicator and abandoned that part of the award made in their favour by the Supreme Court of Appeal.
In a unanimous judgment penned by Kollapen J (Maya DCJ, Madlanga J, Majiedt J, Makgoka AJ, Mathopo J, Potterill AJ, Rogers J and Theron J concurring), the Constitutional Court condoned Mr Mudau’s six-day delay for the late filing of his application for leave to appeal. The Court found that its constitutional jurisdiction was engaged as the Adjudicator’s power constitutes the exercise of public power and that the interpretation of the Act is a constitutional issue since the determination of pension withdrawal benefits affected Mr Mudau’s section 27 right to social security. The Court found that leave to appeal should be granted as the matter enjoyed good prospects and it would be in the interests of justice for the pension fund industry to have a determinative finding on both the effect of unregistered rule amendments and, if necessary, the permissible scope and extent of the retrospectivity of pension fund rules.
The Court located the dispute within the context of the importance that pensions have come to mean as a form of security against the financial uncertainty of the future. The Court determined that the question at the heart of the appeal is whether a fund may apply a rule amendment that has not yet been registered by the Registrar in anticipation of its future registration and determine the payment of benefits due on that basis. The Court held that the issue was dealt with decisively and unambiguously in Mostert, where the Supreme Court of Appeal held that, although amended rules may have retrospective effect after registration, they do not have binding effect before registration. On this basis, the Court held that Mr Mudau’s withdrawal benefit claim had to be dealt with in terms of the rule in existence when his employment terminated on 31 May 2013, being the old rule, as the amended rule was only registered in April 2014. It held that the Supreme Court of Appeal would not have arrived at any other conclusion had it embarked on a similar enquiry as the Adjudicator and the Full Court majority, and that this in itself would have been dispositive of the appeal.
In addition, the Constitutional Court found that the appeal had to succeed in light of the principle that legal proceedings should be determined in accordance with the law applicable at the time of the institution of proceedings, unless a contrary intention is indicated. It rejected the respondents’ argument that the principle could not apply as a complaint before an adjudicator does not constitute legal proceedings and that the High Court is entitled to consider the merits of a complaint afresh. It held that Mr Mudau’s lodgement of the claim would have constituted the commencement of legal proceedings and the date of lodgement fixed the date of the law applicable to the determination of the dispute. The Court found that when Mr Mudau had lodged his complaint on 2 December 2013, the rule amendments had not been registered and there was only one rule before the Adjudicator. Moreover, the Court held that the amended rule was silent on the impact of its retrospective effect on pending legal proceedings, as such the presumption against retrospectivity was not rebutted. Further, the Court rejected the respondent’s argument that Mr Mudau should have sought to review the amended rule. As Mr Mudau never had an issue with the amended rule or its retrospective effect, except for the application of the unregistered rule to his withdrawal benefit, the Court held that a review application was not necessary.
The Constitutional Court found that, while the scope and extent of a retrospective rule amendment was the subject of considerable debate in the matter, the issue of retroactivity did not arise, as the answer to the first proposition (that a rule amendment cannot be applied before it is registered) did not require the Court to deal with the argument on retroactivity. Save for recognising the holdings in National Tertiary Retirement Fund v Registrar of Pension Funds  ZASCA 41; 2009 (5) SA 366 (SCA) and National Director of Public Prosecutions of South Africa v Carolus  ZASCA 101; 2000 (1) SA 1127 (SCA);  1 All SA 302 (A), the Court found that no more needed to be said on whether retroactivity could be used to unsettle vested or accrued benefits; as well as the questions of whether the retroactive amendment of a rule may, after its registration, result in a payment made to a former member in terms of an earlier version of the rule becoming an “overpayment” or whether a pension fund may in such circumstances seek to recover the difference from the former member.
Accordingly, the Constitutional Court made an order granting leave to appeal and upholding the appeal. It set aside the order of the Supreme Court of Appeal, replacing it with an order requiring the respondents to pay the applicant the outstanding withdrawal benefit calculated in terms of the old rule. In respect of costs, the Court found that the Supreme Court of Appeal should not have ordered the applicant to pay the costs of the complaint. In the Constitutional Court, it ordered the respondents to pay the costs of the applicant, including the costs of two counsel.
The Full judgment here