The Pension Funds Adjudicator violated the audi alteram partem rule by not allowing a retirement fund to respond fully to a complaint before issuing a determination, the Supreme Court of Appeal (SCA) has found.
The Adjudicator’s failure to adhere to the audi alteram partem (“listen to the other side”) principle was one of three grounds on which the Municipal Gratuity Fund brought its appeal. The SCA rejected the two other grounds. These were that the Adjudicator did not have jurisdiction to hear the complaint and lis pendens (the dispute between the parties is being litigated elsewhere).
The Municipal Gratuity Fund’s attempts to have the determination set aside in the High Court in Pretoria were unsuccessful. Furthermore, the court of first instance and the full bench penalised the fund with attorney-and-client cost orders.
The Adjudicator’s determination and the ensuing legal action arose from how the fund’s board decided to allocate the death benefit of a member who died in December 2012.
At the time of his death, the member was married in community of property to Tshifhiwa Mutsila. They had five children, three of whom were minors when their father died. Mutsila and the children were the nominated beneficiaries. The total death benefit was R1 614 434.
In addition, the deceased had taken out a funeral plan. The plan provided funeral benefits for the member, his life partner – identified in the judgment as a Ms Masete – and her three children.
The funeral plan also included three of his children with Mutsila, and his mother and his mother-in-law.
Masete and Mutsila both applied to the fund for the death benefit to be paid to them and their children.
Following an investigation, the fund concluded that Masete and her children were factually dependent on the deceased.
In April 2014, the fund resolved to allocate 22.5% of the death benefit to Mutsila and 27.5% to Masete, while the children’s benefits varied between 2.5% and 14%, depending on their respective ages.
Custody application
In May 2014, Mutsila filed a complaint with the Adjudicator. She attached to her complaint the notice of motion and founding affidavit in a custody application brought by Malema Mphafudi, the biological father of Masete’s two minor children.
Masete alleged that Mphafudi had failed to make meaningful contributions towards the maintenance of his two children, and he had not made any contribution since December 2011/January 2012.
In its response to the Adjudicator, the fund suggested that the evidence in the custody application might have a direct impact on the consideration of the complaint and the distribution of the death benefit. It suggested that consideration of the complaint should be held in abeyance until the conclusion of the custody application, and the fund be allowed an opportunity to respond 30 days after the conclusion of that application.
Despite the fund’s suggestion, the Adjudicator considered the complaint and issued a determination. The Adjudicator, among other things, set aside the fund’s award.
The fund submitted to the SCA that the Adjudicator denied it an opportunity to make representations before issuing the determination.
The SCA held that the fund had not been afforded an opportunity to respond fully, as provided in section 30F of the Pension Funds Act (PFA) before its award was set aside. This section states: “When the Adjudicator intends to conduct an investigation into a complaint, he or she shall afford the fund or person against whom the allegations contained in the complaint are made the opportunity to comment on the allegations.”
The Adjudicator did have jurisdiction
The fund asserted that the Adjudicator did not have jurisdiction to determine Mutsila’s complaint.
The fund said Mutsila should have complained to it before approaching the Adjudicator, citing section 30A(1) of the PFA.
The SCA held that the fund’s jurisdictional challenge was without merit for the following five reasons:
- Mutsila complained to the fund about the proposed distribution of the deceased’s death benefits. A round-table discussion to resolve the impasse was held, but to no avail.
- The fund advised Mutsila’s attorneys in writing and “in clear and unambiguous language” to refer her dispute to the Adjudicator. “This demonstrates that the fund was satisfied that Ms Mutsila had complied with the requirement to submit her complaint to it, and that it considered the complaint exhaustively,” Acting Judge Johannes Daffue wrote.
- “The fund raised the jurisdictional issue for the first time and somewhat vaguely in its replying affidavit, thus depriving the Adjudicator, who did not oppose the relief sought, of the opportunity to consider this version and to respond thereto.”
- Mutsila had the option of approaching the fund first or taking her complaint directly to the Adjudicator. Section 30A(1) was amended in 2007 to substitute the word “shall” with “may”. The previous wording made it an requirement for a complainant to lodge a written complaint with a fund before the matter could be referred to the Adjudicator, but this was no longer the case.
- Acting Judge Daffue said, in his view, the legislature did not intend to divest the Adjudicator of jurisdiction to deal with a complaint where a determination has been made by a fund, particularly in a case such as this one where the fund’s highest decision-making body – its board of trustees – has made a determination after having considered a complaint.
Lis pendens challenge rejected
The SCA also rejected the fund’s lis pendens challenge, saying there was no pending litigation that prevented the Adjudicator from making a determination.
Acting Judge Daffue said the issue in this case was whether Masete and her two children were factually dependent on the deceased. In the custody application, the issue between Masete and her husband, Mphafudi, was the primary residence and daily care of their two children.
Masete asserted that the same two children who were legally dependent on her husband for maintenance were factually dependents on the deceased. The fund accepted factual dependency, although under the mistaken belief that the children were the deceased’s children. It was apparent from the affidavits that Mphafudi did not maintain his children, at least not since December 2011/January 2012, the judgment said.
“A careful perusal of the affidavits filed in these proceedings would have alerted the Adjudicator, the court of first instance, and the full court to the fact that Mr Mphafudi’s version supported Ms Masete’s claim that she and her children were dependent on the deceased for support, which he factually did. No contrary deduction could be made.”
Criticism of the Adjudicator and the High Court
The SCA said the Adjudicator’s decision to set aside the fund’s decision was premature because the outcome the custody application was outstanding. It criticised the Adjudicator for not requesting further information or documentary evidence from the fund or Masete.
It also noted that Adjudicator committed a factual misdirection in holding the fund to its “resolution” to pay R300 000 in advance to Mutsila to enable her to settle her home loan. The fund had made no such resolution.
Acting Judge Daffue commented that both the court of first instance and the full court criticised the fund for being subjective and following a one-sided approach in determining who the beneficiaries of the death benefits should be.
But, he said, both courts failed to recognise the essential issue: whether Masete and her two children were factually dependent on the deceased. The courts also failed to consider the basis upon which the fund brought its appeal: that the Adjudicator failed to apply the audi principle.
“Close to a decade has lapsed, and the battle over the custody of the children has not come to an end. The awaited outcome on the custody application is still pending. The parties hereto, and the beneficiaries, in particular, are entitled to finality and will not achieve that if the Adjudicator’s determination is allowed to stand,” Acting Judge Daffue said.
He said it would not serve any fair and equitable purpose to refer the determination back to the Adjudicator for reconsideration, bearing in mind the time lapse, the possible unavailability of witnesses and documentary proof, the fact that minor beneficiaries have become adults, and because the parties were entitled to finality.
“The only equitable outcome is to accept that the fund complied with its legislative mandate and in its discretion made a correct distribution,” said Acting Judge Daffue, who proceeded to discuss why the court was satisfied with the fund’s allocation.
Punitive costs order was based on an error
The SCA upheld the Municipal Gratuity Fund’s appeal and set aside the orders of the full bench and the court a quo and the Adjudicator’s determination.
It also found that the punitive cost order was unjustified because it was based on an error.
In its judgment, the court a quo stated that, after the Adjudicator’s determination, the fund proceeded, “to make a distribution in November 2014 of 30% of the funds in terms of its unreliable and/or challenged resolution, which distribution included a payment to Masete and her children”.
In this regard, the court commented as follows, which the full court accepted as correct: “The Applicant exhibited the same carelessness and defiance it did when it was dealing with the complaint Mrs Mutsila registered with it prior to its decision. Such improper distribution constitutes a maladministration of the fund, causing prejudice to the real beneficiaries. As a result, an award of damages for maladministration causing prejudice to the deceased beneficiaries (sic) to be borne by the fund can be a cause to consider.”
But, the SCA said, this comment was without factual basis.
As the fund’s appeal had succeeded, it was, in principle, entitled to the costs of the appeal as well as in the High Court. The SCA said, however, this was an exceptional case.
The dispute might have taken a totally different, much more inexpensive, and less time-consuming path if the fund had decided to deal with Mutsila’s complaint to the Adjudicator on the merits, instead of suggesting that the outcome of the custody application should be awaited.
As a result, the SCA said, it was appropriate that each party paid its own costs in respect of the appeal, as well as the proceedings in the court of first instance and the full court.
