For how long can a retirement fund withhold a member’s benefit pursuant to an employer lodging civil proceedings against the member?
The Financial Services Tribunal (FST) reached a different conclusion to the Pension Funds Adjudicator in a case where more than a year passed between the employer indicating that it reserved its right to withhold a former employee’s withdrawal benefit and its instituting civil proceedings against him.
Derrick Sandragasan lodged a complaint with the Adjudicator in March 2022 after being informed that his former employer, Tiger Consumer Brands, had asked the Tiger Brands Management Provident Fund to withhold his withdrawal benefit.
Sandragasan had been with the Tiger group for 32 years when he resigned as its procurement manager in January 2022. His resignation was by mutual agreement: he agreed to resign, and Tiger agreed to withdraw the disciplinary hearing. The disciplinary action followed an internal investigation that allegedly implicated Sandragasan in bribery and corruption.
Prior to the disciplinary hearing, Tiger placed Sandragasan on “precautionary suspension” in November 2021 and lodged a criminal complaint against him with the South African Police Service (SAPS).
When Sandragasan lodged his complaint with the Adjudicator in March, no civil proceedings had been opened against him. He submitted that section 37D of the Pension Funds Act (PFA) does not permit a benefit to be withheld on a “flimsy contention or suspicion” that money is owed.
The Director of Public Prosecutions informed Tiger in October 2022 there was insufficient evidence to prove the commission of any crime beyond a reasonable doubt, and in December 2022, the Director of Public Prosecutions declined to prosecute Sandragasan.
Tiger issued civil summons against Sandragasan in February 2023, claiming some R35.7 million (which is more than his withdrawal benefit).
‘Employer should have been held to a timeframe’
The Adjudicator, Muvhango Lukhaimane, handed down her determination in March this year.
Regarding the merits of the complaint, Lukhaimane said the issue for determination was whether the fund acted lawfully when it agreed to withhold the Sandragasan’s benefit at the behest of Tiger.
The Adjudicator said the FST’s decision in Tape Aids for the Blind held that laying criminal charges is insufficient for legal proceedings to commence and the employer must institute civil proceedings.
When the fund made its submissions to her office (on 6 May and 6 July 2022), Tiger had not instituted civil proceedings against Sandragasan, yet the fund agreed to withhold his benefit at Tiger’s behest in the absence of civil proceedings.
“In the current circumstances, it would have been incumbent on the fund to provisionally withhold the benefit upon receipt of the employer’s request (25 January 2022) and afford the employer a strict timeframe within which to institute civil proceedings. In the event of the employer failing to meet the timeframe, the fund ought to have released the benefit due to the complainant, as the employer would have failed to satisfy the requirements set out in the case of Tape Aids,” she said.
Lukhaimane said Tiger was “acutely aware” since the commencement of the matter (in January 2022) that it was necessary for it to institute civil proceedings.
The employer informed the fund that summons commencing civil proceedings would be issued by 31 July 2022, but it did so about six months later in February 2023, only once the SAPS had withdrawn the charges.
On 1 February 2023, counsel for Sandragasan submitted to the Adjudicator a letter from the SAPS, dated 26 January 2023, reflecting that the charges against their client had been withdrawn. Tiger asked the Adjudicator for further time to file a response and was granted five working days within which to make representations.
Lukhaimane said Tiger instituted civil proceedings against Sandragasan within those five days – something it ought to have done since the commencement of its proceedings in January 2022, alternatively at various junctures on 31 July 2022, 12 October 2022, and 14 December 2022.
Tiger instituted legal proceedings only once the matter became extremely pressing and considering the risk that no legal proceedings were under way by February 2023 (because the criminal charges had been withdrawn), the Adjudicator said.
The delay in instituting civil proceedings was not the only reason the Adjudicator found the withholding of the benefit was unlawful.
She ordered Tiger to submit Sandragasan’s completed and signed withdrawal claim form to the fund for processing.
Tiger asked the FST to reconsider the determination.
‘Strict time limits not compatible with the rules’
The Tribunal said the Adjudicator held that the fund was obliged to impose “strict time limits” for Tiger to institute civil legal proceedings, and because it did not do so, she set aside its decision.
“The Tribunal cannot recall that the PFA had in the past required of funds to impose strict time limits when withholding benefits under the provision. The concept of such requirement is not compatible with a preliminary decision of the fund that is subject to variation and where the rules of the fund require that the fund must be satisfied that the employer is not at any stage of the proceedings responsible for any undue delay in the prosecution of the proceedings.” [FST’s emphasis]
The FST said Sandragasan did not argue that the fund’s rules did not apply to the situation or that the rules did not comply with the PFA, and the fund could accordingly not delay payment. Furthermore, the Adjudicator insisted that a fund must follow its rules and did not suggest that the rule was or might be ultra vires.
Therefore, Tiger had no reason to issue its civil action before the conclusion of the criminal proceedings – based on the SAPS letter, the end of January 2022. “There was in everyone’s view a valid withholding in force. The only limitation was prescription, which was not an issue. Once that ground fell away, the civil proceedings were instituted within days,” the Tribunal said.
For this reason, among others, the FST set aside the Adjudicator’s decision and remitted it for further consideration.
