Transport Sector Retirement Fund v Bhopelo Beneficiary Fund and Others (48382/2018) [2020] ZAGPPHC 529 (31 August 2020)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 48382/2018

In the matter between:

TRANSPORT SECTOR RETIREMENT FUND

Applicant

And

BOPHELO BENEFICIARY FUND

First Respondent

JAUNITO DAMONS N.O

Second Respondent

FINANCIAL SECTOR CONDUCT AUTHORITY

Third Respondent

FAIRHEADS UMBRELLA BENEFICIARY FUND

Fourth Respondent

JUDGMENT

MAKHUBELE J

Introduction and factual background

[1] This application was launched on 13 July 2018 on an urgent basis in terms of Rule 6(12) of the Uniform Rules of Court on 13 July 2018. The relief sought reads as follows:

“1. To the extent that it may be necessary, granting leave for this application to be heard as a matter of urgency in terms of Rule 6(12), thereby dispensing with the ordinary forms, service and time limits prescribed in the Rules of Court.

2. In respect of the first respondent’s members who obtained their membership as a result of the applicant’s decision, as transferor fund, to pay their share of a death benefit in terms of section 37C of the Pension Funds Act 24 of 1956 (“PFA”)

to the first respondent ( TSRF Beneficiaries”)

Directing the first respondent to:

2.1 Transfer all assets and liabilities in respect of the TSFR Beneficiaries to the Fairheads Umbrella Beneficiary Fund in terms of the first respondent’s rules read with the PFA; and

2.2 Terminate the TSFR Beneficiaries’ membership in the first respondent.

3. Directing the first respondent to effect the transfer in paragraph 2.1 above, within 20 (twenty) days of this order or within such other period as this Court may determine.

4. Costs against any respondent(s) who oppose this application, jointly and severally.

5. Further and/or alternative relief”.

[2] The initial third respondent was the Pensions Fund Adjudicator, cited as ‘Muvhango Lukhaimane N.O’. She was not formally withdrawn (as there are is no such order before me) but her position

as third respondent was taken by the Financial Conduct Authority (‘the FCSA’) who was joined by a court order dated 29 May 2019, agreed to between the applicant and the first and second respondent (hereinafter referred to collectively as ‘the

Curator’).

[3] The matter came before me some nineteen (19) months after the application was launched as indicated above. There are numerous supplementary affidavits that I am not certain the parties were granted leave to file. The relief sought in the original notice was refined along the way due to certain procedural objections which the applicant begrudgingly attended to, though not conceding the correctness thereof. The founding papers though remained the same. The issues addressed in the supplementary affidavits dealt in the main with the objections. Depending on the different perspectives the objections may or may not have been necessary.

[4] The facts giving rise to this application have been and continue to be widely publicised. The acronym ‘VBS’ , without mentioning the details is enough to give one an idea of what happened

to the hard-earned money that was meant to take care of the children who are the subject of this application.

[5] The applicant, previously known as the ‘Road Freight and Logistics Industry Provident Fund (RFLIPF)’ is a registered pension fund in terms of the Pension Funds Act , No. 24 of 1956, as amended (‘the PFA ‘). It is a retirement fund in the transport sector and most of its members are said to be low-earning truck drivers.

[6] Section 37C of the PFA empowers a Board of a retirement fund when distributing death benefits that are due to minors that for some reason cannot be made to their guardians and / or caregivers to pay those benefits to a beneficiary fund to administer, invest and pay to those minors.

[7] The Board of the TSRF made a decision to transfer the death benefits involving the minor dependants of its deceased members to the first respondent, who, according to the papers before me was identified as the ‘most appropriate fund for these payments following a due diligence exercise”.

[8] The first respondent, who I shall henceforth refer to as ‘Bophelo’

is a pension fund organisation as defined in the PFA. Its object is to receive, administer, invest and pay benefits that became payable as a result of the in- service death of a member of a Transferor Fund (the applicant in this case).

[9] In terms of the Rules of Bophelo, the TSRF became a transferor fund. The transferred minor beneficiaries became members of Bophelo because in terms of Rule 3.1.1 , they were “ awarded a share of a death benefit by a Transferor Fund in terms of section 37C of the Act, and the TRANSFEROR FUND has resolved that the amount be paid to the FUND for the benefit of that person”.

[10] The minors who are the subject of this application are estimated to be about 1 000. They became entitled to receive two main payments from Bophelo in terms of Rules 7.1 and 7.2. The former are regular payments that can be made on a monthly, quarterly, biannual or annual basis. The latter are referred to as ‘ad hoc’ payments to cater for the members’ education, maintenance, health and other needs and may be paid at the request of institutions providing these

services. These payments are subject to the discretion of the Board.

[11] On 30 April 2017 the City Press Newspaper reported about a ‘missing’ R255m that Bophelo was administering on behalf of Anglo Platinum Group Provident Fund.

[12] On 02 May 2017, the Principal Officer of Bophelo, Mr Kenneth Mourant addressed a letter to TSRF and denied the allegations in the City Press newspaper which he described as “false, misleading, malicious and were made to tarnish the good name and reputation of Bophelo Beneficiary Fund’. He assured the Board of Trustees of the RFLIP (nowTSRF) that ‘an amount of R55 133 144.00 in respect of the beneficiaries of the deceased memebrs of RFLIP, entrusted to the Bophelo Beneficiary Fund, is fully accounted for. The Fund has received unqualified audit reports conducted by external auditors over the years”.

[13] Bophelo is administered by Bophelo Benefit Services (Pty) Ltd (‘BBS’), which is a subsidiary of Mvunonala Holdings (MH).

The relevance of VBS curatorship in this matter is that part of the money that was obtained from the sale of MH, about R300 million, was invested with it. It was placed under curatorship just before the investment was due for withdrawal.

[14] The Financial Sector Conduct Authority (‘FSCA’) appointed a statutory manager on 09 May 2017 to investigate the affairs of the Bophelo Beneficiary Fund. He recommended that both Bophelo and its administrator, BBS, be placed under curatorship.

[15] The second respondent, Mr Juanito Damons, was appointed as curator for both Bophelo and BBS on 08 June 2017 in terms of section 5(10) of the Financial Institutions (Protection of Funds) Act, No. 28 of 2001 (‘FIA’), which provides for a discretionary appointment of a curator by the registrar ‘on good cause, by agreement with an institution and without the intervention of the court..”

[16] The terms of appointment of the curator were set out in his letter of appointment, which is dated 8 June 2017. These include his powers and duties and reporting to the Registrar.

[17] The information that was considered to appoint a curator included the media reports about large sums of money that were unaccounted for, and in particular the R255m which City Press newspaper had earlier reported on. On the basis of this information the registrar was held a view that ‘the institutions may have in material respects failed to comply with certain aspects of the law; there are concerns about their financial soundness and that there may have been maladministration of the affairs of the institutions”.

[18] The TSRF terminated its relationship with Bophelo on 15 June 2017. This meant that the TSRF was no longer going to transfer pension benefits of its minor beneficiaries to Bophelo in future when it makes distributions of benefits in terms of section 37C of the PFA.

[19] The problem for the TSRF is the plight of the 1000 minor children who are already members of Bophelo. It sought ways to terminate their membership of Bophelo. First, by lodging a complaint with the Pensions Fund Adjudicator, and then this application. This is what this application is all about.

[20] It is common cause that the 1000 children who are the subject of this application are part of a large group of others, estimated to be about 5 000 more, whose benefits were transferred to Bophelo from other transferor funds such as :

(a) Anglo Platinum Group Provident Fund;

(b) SATAWU National Provident Fund;

(c) Idwala Provident Fund;

(d) KZN Municipal Pension Fund;

(e) Bargaining Council for the Contract Cleaning Industry Provident Fund;

(f) McDonald’s South Africa Pension and Provident Fund;

(g) BCCI Provident Fund;

(h) PGEASA Provident Fund;

(i) Nzalo Provident Fund;

[21] The defences raised by the respondents include the locus standi of the TSRF to launch these proceedings, whether it is acting within its own rules, non-joinder of other funds as well as the lawfulness of a transfer of their membership to another beneficiary fund under circumstances where Bophelo is not in a position to fund the full liability, but only a small fraction. The latter entails interpretation of section 14 (8) of the PFA read with the relevant practice directives.

[22] The fourth respondent (‘Fairheads’) is a pension fund organisation. It beneficiary fund as defined in the PFA. It is the intended transferee fund. It has confirmed its acceptance of the transfer of TSRF beneficiaries should the court grant the order sought. It indicated that it was willing to receive any ‘agterskot’ payments in amounts that are subsequently recovered by the curator and that it would only be liable to the TSRF beneficiaries in respect of amounts actually received.

The complaint to the Pensions Fund Adjudicator.

[23] The complaint to the Pensions Funds Adjudicator (the Adjudicator) was lodged on 27 January 2018. The Adjudicator was requested to terminate membership of all TSRF originated beneficiaries who are members of Bophelo and to transfer their membership to its Unclaimed Benefit Preservation Fund.

[24] The placement of Bophelo under curatorship and what it perceived as prejudice on the minor beneficiaries were cited as reasons for the request to terminate the membership of the TSRF originated beneficiaries. The RFLIP (TSRF) held a view that it would be failing in its ‘responsibility towards its own deceased members and their beneficiaries should it sit idly by while minor children are possibly being prejudiced’ and that the mere allegation of loss or mismanagement, even if not proved, and the appointment of a curator was ‘sufficient reason for concern and sufficient reason for the RFLIP to ensure the protection of the children’s benefits…’

[24.1] In the founding affidavit in this application the TSRF alleged that it was compelled to approach the court (on an urgent basis) because the Adjudicator had not yet delivered a ruling on the complaint and request for termination and transfer of the beneficiaries.

[24.2] However, it emerged from the answering affidavit of the Curator that the ruling was delivered on 28 June 2018 and that the complaint was considered and dismissed. The respondent (Curator) was afforded an opportunity to respond to the complaint and he submitted that he could not give his consent because the rules of Bophelo do not make provision for the relief sought, and furthermore, a similar request that the TSRF had made to the FSCA was declined by letter dated 04 July 2017.

[25] The following is a summary of the reasons provided by the Adjudicator for dismissal of the complaint and request to terminate membership of TSFR transferred beneficiaries and to transfer them from Bophelo to its unclaimed benefit fund.

[25.1] The Adjudicator noted that Rule 3.3.1.2 of Bophelo Rules makes provision for termination of membership by the Tribunal (Adjudicator), however, in this instance, the TSFR has failed to

provide a legal basis. There were no allegations of breaches or non-compliance with the Rules or evidence of mismanagement of funds.

Its funds were fully accounted for in its own version. The placement of a fund under curatorship is not a sufficient basis to terminate

membership of beneficiaries, more so because the FSCA had already appointed a curator to safeguard the interest of the members.

[25.2] She also noted the fact that the FSCA had already declined the request to terminate the participation of the TSRF in Bophelo on the basis of the latter’s placement in curatorship. The correct approach for the TSRF on receiving this ruling would have been to refer the matter to the FSCA Appeals Board and not lodge a complaint with the Adjudicator. The conduct of the TSRF (which the Adjudicator emphasized should be discouraged) was described as ‘forum shopping’ where a complainant approaches different forums ‘with the same complaint hoping for a different outcome’.

[25.3] On the intention of the TSRF to transfer the benefits of the beneficiaries from Bophelo to its Unclaimed Benefit Fund, the Adjudicator drew their attention to Rule 9 of Bophelo Rules which

deals with amalgamation and transfers. In effect, a transfer should be to another approved beneficiary fund because ‘an unclaimed fund is established solely for the receipt of unclaimed benefits’.

[26] The importance of the ruling/ decision of the Adjudicator is that the TSRF acknowledged in its replying affidavit that the relief that it had sought was not legally competent because there were no allegations of non- compliance with the rules. It also accepted and agreed with the ruling of the Adjudicator that the rules provide for transfer to another beneficiary fund, and not to an unclaimed benefit fund. In this regard, the TSRF conceded that the Adjudicator was asked to act ultra vires by ordering a transfer to an unclaimed fund.

The basis of the relief sought in this application

[27] The TSRF attached and referred to various parts of the reports filed by the curator and published by the FSCA which highlighted what it refers to as a ‘grim picture of maladministration, missing money and losses to the TSRF beneficiaries’. All parties agree that the situation was as bad as it was described in this statement.

[28] It is necessary to summarize issues highlighted in the reports to have a balanced view of the challenges and status of the administration. The reports are attached to the applicant’s founding affidavit. I do not have to decide whether the curator is discharging his duties in a proper manner, however, there are criticisms levelled against

him which form the basis of this application one of which is that he continues to pay the beneficiaries as though there are no losses, thus depleting the funds. This will be addressed when I deal with the submissions of the parties.

[28.1] The first report was published on 29 August 2017.

[28.2] He reported that a large portion of the funds that went to Mvunonala was used to renovate a property situated at 72 Grayston Drive, which is owned by the Government Employees Pension Fund and not Mvunonala. It resulted in the R255M loss to Bophelo as reported in the city press newspaper. The property was valued at less than half of the funds invested in Mvunonala.

[28.3] The team investigated beneficiary claim approval processes and found various weak points and risk areas. Controls to authenticate claims were put into place.

[28.4] There were ongoing investigations into possible irregularities

committed by institutions, the board of management, trustees, administrators, principal officer and others. The insurance companies

were duly informed about possible claims in this regard.

[28.5] The initial sale of entire share capital in Mvononala Holdings fell through. There was a new purchaser and an agreement was reached for a minimum of R300 000 000.00. The amount would be used to carry on paying the beneficiaries amongst other things.

[28.6] He negotiated early termination of a lease agreement for premises that the entities were not in occupation of but paying monthly rental of R580 000.00. There was a saving of R30 000 000.00 which would have been payable over the remaining five years of the lease agreement.

[28.7] In the next report he reported that the sale of Mvunonala Holdings had been finalized and the first payment was made. The money would be used to fund the shortfalls in both Bophelo and BBF. The new owner intended to carry on with the business of both funds. This is indicated as phase one of the recovery process. The curator expressed his optimism that the recovery process in phase one would result in a recovery of 75 cents in a rand, which was above the 30 cents in a rand at the time of his appointment.

[28.8] He indicated that he would embark on phase two of the recovery

process, which entailed launching civil claims and laying criminal charges against certain individuals and entities.

[28.9] The report published on 24 January 2018 indicated that the shares in Mvunanala were sold to Vele Investments (Pty) Ltd, which is the majority shareholder of Venda Building Society (VBS). It was anticipated that the payment from the share sale transaction would be used to fund the shortfalls in both Bophelo and BBS. He reported evidence of theft, fraud and/or misappropriation in the fourth report published on 07 February 2018.

[28.10] The progress with regard to the sale of shares in Mvunonala to Vele investments was reported in the report that was published on 15 April 2018. An amount of about R370 million was paid to the credit of BBS in an account opened at VBS in tranches. He had no doubt about the solvency and liquidity of VBS Mutual Bank at the time.

[28.11] At the end of February 2018 he called on VBS to pay out the deposit but it failed to do so and before he could take any further steps, VBS was placed under curatorship.

[28.12] In the next report he indicated that he had instructed disinvestment of all funds administered by Vele Asset Management and invested them in an interest-bearing account at First National Bank.

[28.13] The last report in the papers before me is dated 05 July 2019. In it he reported about the provisional liquidation and final winding up of Vele Financial Services Group (Pty) ltd and Vele Prop (Pty) Ltd. He also reported that he had outsourced the administration of BBF to Fairheads (Pty) Ltd with effect from 15 March 2019. He retained the control of the management and administration of the fund though. The guardians and major beneficiaries have been notified about this.

[28.14] With regard to payments to beneficiaries, he reported that they would be paid 25% going forward apart from monthly income payments which would still be paid in full. He also reported that the administration

was progressing in a steady and fully compliant manner within the parameters as stipulated in his appointment letter but that the

‘issues with VBS Mutual Bank may delay the process.

[29] As with the request (complaint) to the Adjudicator, the perceived prejudice that the TSRF beneficiaries will suffer if they remain in Bophelo is the main reasons for the relief sought in this application. The manner in which the Curator performs his functions, particularly the efficiency of the recovery process and payment methods are said to be causing more harm and prejudice.

[30] The TSRF contends that the relief sought is sought on the basis of;

(a) Bophelo Rule 3.3.1.2 (a) read with rule 7.3.3.; and

(b) A tacit term in the Bophelo rules that entitles the applicant to seek the relief in the interests of the beneficiaries to safeguard their benefits.

[31] On its legal standing to institute these proceedings, the TSRF submitted that it seeks to assert both its own rights on behalf of the beneficiaries and the rights of the beneficiaries.

Issues arising from the answering and supplementary answering affidavits

[32] The Curator filed an affidavit and opposed the granting of the relief sought on various grounds. Issues pertaining to urgency were no longer in issue at the time the matter came before me. I will only refer to the objections that were persisted with, namely

[32.1] The TSRF has no locus standi to litigate on behalf of former members and the beneficiaries whose benefits were transferred to Bophelo.

[32.2] To that extent that this application is intended to be a class action in terms of section 38(c) and (d) of the Constitution, the TSRF has failed to comply with the Practice Manual of this court.

[32.3] The determination of the Adjudicator has rendered this matter res judicata and the TSRF is estopped from raising the same issues in this application.

[32.4] Whether termination of membership and transfer of beneficiaries to another fund is competent under circumstances where the transferring fund (Bophelo) is not financially sound and not in a position to fund the liabilities.

[32.5] He also outlined the steps that he had taken with regard to his duties as curator for both Bophelo and BBS. These will be discussed when I deal with his reports.

[32.6] He denied that there was a crisis that required intervention of the court. He also did not agree with the sentiments regarding the inefficiency of the steps that he had already taken with regard to recovery of the money invested in VBS.

[33] The Curator filed a supplementary affidavit and contended that the relief sought in the notice of motion amounted to a transfer of a business from a registered fund to another as contemplated in section 14(1) of the PFA and that there was a need to involve the Registrar who must issue a certificate to confirm that all requirements have been met.

It was also contended that even though both the TSRF and Fairheads are beneficiary funds and the transfer could be made in terms of section 14(8) of the PFA, there was still a need to inform the beneficiaries about the contemplated transfer and they were entitled

to indicate their views in that regard. Furthermore, there were certain requirements in terms of Directive PF 6 which requires

approval of the transaction by at least 75% of the affected members. The submission in this regard is that the Registrar has a material interest in the outcome of these proceedings and the applicant should have been joined as a party.

Replying and supplementary replying affidavits

[34] The TSRF expressed its discontent with the contents of the Curator’s affidavit who it expects to rather place facts before the court to enable it to make a decision in the best interests of the beneficiaries and not oppose the relief sought but

[35] It also expressed its discontent with the manner in which the curator was performing his duties. The high watermark of the criticism on how he makes payments and the effect on the benefits appears in paragraph 15.

“On the one hand the Curator derides the applicant’s concern for the well-being of the TSRF beneficiaries of money held in trust. On the other hand, the Curator can only account for about 30% of the TSRF beneficiaries’ money. The Curator does not explain whether or why he is authorising the payment of full benefits in the short-term when, on his own version, he currently believes that Bophelo only has 30% of the assets entrusted to it. Such ongoing payment of 100% of the beneficiaries’ short-term benefits disproportionately reduces the available pot of money for the remainder of the TSRF beneficiaries, especially the younger beneficiaries who have many more years of resilience on Bophelo”.

[36] It was also explained that the TSRF did not want to transfer unfunded liabilities, but only 100% of funded liabilities in respect of TSRF beneficiaries and if, on calculation that was 30%, then that is what should be transferred to Fairheads. The Curator would then pay over any amount that he would have recovered as ‘agterskot’

payments for the benefit of Bophelo former members (transferred to Fairheads).

[37] In its supplementary replying affidavit, the TSRF denied that it had an obligation to trigger a section 14 transfer and that if section 14(8) was applicable, the transferor and transferee (Bophelo and Fairheads) would be obliged to comply with the requirements after the order sought has been granted.

[38] It also denied that it was necessary to join the Registrar, but reluctantly undertook to amend the notice of motion to indicate that the relief sought is subject to applicable law.

The amended paragraph 2 of the Notice of motion

[39] The application to amend was filed on 14 November 2018. There was no objection to the proposed amendment and it was duly effected. Paragraphs 2.1, 2.2 and 2.3 of the notice of motion were deleted in their entirety. The latter two were not substituted. Paragraph 2.1 was amended to include reference to section 14(8) of the PFA.

[40] There was no objection to the amendment and it was duly effected. Paragraph 2 with the amended 2.1 now reads as follows:

2. In respect of the first respondent’s members who obtained their membership as a result of the applicant’s decision, as transferor fund, to pay their share of a death benefit in terms of section 37C of the Pension Funds Act 24 of 1956 (“PFA”)

to the first respondent ( TSRF Beneficiaries”)

2.1 do all things necessary to effect the transfer of all assets and liabilities in respect of the TSRF beneficiaries to the Fairheads

Umbrella Beneficiary Fund in accordance with the first respondent’s rules and the relevant provisions of the PFA, including following the procedure prescribed in section 14(8) of the PFA read with Directive PF6;

2.2 implement paragraph 2.2 immediately or within such period(s) as this Court may determine until assets in respect of all the TSRF Beneficiaries’ liabilities have been transferred and their membership is therefore terminated; and

2.3 report to this court within 30 days, or within such period(s) as this Court may determine, on all steps taken to comply with this order.

The consent court order of 05 December 2018 / contempt of court proceedings / counter-application for rescission of consent order / 29 May 2019 rule nisi order and joinder of the third respondent

[41] Counsel for the TSRF, Mr Budlender SC, urged me to ignore the long litigation history in this matter and focus on the crisp issues formulated in the joint practice note filed on behalf of all the parties. It is correct that there is no need to traverse the historical background of the litigation, it is however necessary though to place on record the various court orders because whilst urging me to ignore the litigation history, the applicant has on the same breath asked for a cost order against the respondents, mainly on the basis that they should not have opposed the application.

[42] The respondents contend that the opposition was necessary and in fact the application should not have been launched in the first place. The papers generated in this matter are in excess of 1200 pages. The issues though are repeated throughout the various supplementary affidavits, which I am not certain were authorised.

[43] A summary of the litigation background (including the complaint to the Adjudicator) is necessary because at the end I have been asked (by the applicant) not to award a cost order against it even if the application is not successful. The basis is that this is a constitutional litigation, as contemplated in the well-known Biowatch judgment.

[44] The first court order, by consent between the curator and the TSRF was issued was handed down by Tuchten J on 05 December 2018. It reads as follows:

“1. The first respondent is ordered to take immediate steps to do all things necessary to ensure the transfer of all assets and liabilities in respect of the “TSFR Beneficiaries” to the Fairheads Umbrella Beneficiary Fund in terms of the first respondent’s rules read with the Pension Funds Act, 1956 (“the PFA”)and

PF Directive 6.

2. The “TSRF Beneficiaries “are those members of the first respondent who obtained their membership as a result of the

applicant’s decision, as transferor fund, to pay their share of a death benefit to the first respondent in terms of section 37C(2) of the PFA for the first respondent to manage, administer and pay the benefits on the TSFR Beneficiaries’ behalf.

3. As a first step to implement paragraph 1, the first respondent will do a calculation of all the values to be transferred per each TSRF beneficiary and this will be done by no later than 4 December 2018. Full detail of this calculation will be provided to the applicant and to the Fairheads Umbrella Beneficiary Fund.

4. The first respondent will report to the applicant, within 30 days from date of this order, regarding all the steps taken to ensure that all assets and liabilities owing to the TSRF Beneficiaries are transferred to the Fairheads Umbrella Beneficiary Fund.

5. When all recoverable assets and liabilities owing to the TSRF Beneficiaries have been transferred to the Fairheads Umbrella Beneficiary Fund the first respondent is to terminate the TSRF Beneficiaries’ membership in the first respondent.

6. Each party to these proceedings will bear their own costs.

[45] The Curator did not comply with the consent court order. This prompted the TSRF to file contempt of court of court proceedings during March 2019. This was opposed by the Curator, who also filed a counter – application , seeking to rescind the consent order and to postpone contempt of court proceedings pending adjudication by the Registrar of an application in terms of section 14(1) of the PFA for leave to transfer the TSRF beneficiaries from Bophelo to Fairheads.

[46] The reasons for non-compliance with the consent order was that subsequently obtained advice that it was impossible to execute as it was in contravention of section 14(1) of the PFA. In this regard he contended that his consent was occasioned by an honest error, not only on his part, but also on the part of the both parties.

[47] The issues raised pertained to the consultations that he had to make, with the registrar and also the beneficiaries before making the required calculations in the forms in terms of Directive PF no.6. He also contended that a transfer in terms of section 14(8) would not be possible because Bophelo was under-funded by about 75%.

[48] On 28 May 2019 the parties agreed to a rule nisi, which was subsequently issued by issued by Hughes J on 29 May 2019. It reads as follows:

“1. That a rule nisi is hereby issued calling upon the Financial Sector Conduct Authority (“FSCA” ) as third respondent and the Fairheads Umbrella Beneficiary Fund (“Fairheads”) as fourth respondent to show cause (if any) on 2 July 2019 why the following order should not be made final:

1.1 The order of the honourable Mr Justice Tuchten dated 5 December 2018 under case number 48382/2018 is hereby rescinded.

1.2 The transfer of the funded liabilities of the TSRF Beneficiaries from the First Respondent to Fairheads shall occur in terms of section 14(8) of the Pension Funds Act 24 of 1956 (“PFA”) AND DIRECTIVE pf 6, with effect from 13 June 2019 pursuant to Annexures “A” and “B” hereto.

1.3 Declaring that the aforesaid transfer is not to the prejudice of the TSRF Beneficiaries.

1.4 In the event of the First and/or Second Respondent recovering any portion of the shortfall in the First Respondent, the said Respondents will pay the proportion of the shortfall attributable as an “agterskot” to the TSRF Beneficiaries to Fairheads in terms of section 14(8) of the PFA.

2. The Applicant’s attorneys are authorised and directed to serve this order and all papers filed of record under the above case number on the FSCA and Fairheads within three (3) court days of the date of this order.

3. Any party opposing the confirmation of the rule nisi is required to deliver its opposing affidavit (if any) by no later than Wednesday 19 June 2019 and the applicant and the first and second respondent will file their replying affidavits (if any) by no later than Wednesday 26 June 2019.

4. The contempt of court application filed against the Second Respondent is hereby withdrawn and the Second Respondent is to pay the Applicant’s costs of that application, including the costs of two counsel, to be taxed or agreed upon;

5. The Second Respondent will pay the Applicant’s costs up to 5 December 2018 in the main application which costs are to be taxed or agreed upon.”

The answering affidavit of the Third Respondent

[49] The third respondent (the FSCA) bemoaned the fact that it was joined in the proceedings by a court order, agreed to between the Curator and the TSRF. Other than this, it placed on record its mandate in the regulatory scheme, particularly the changes since the going into effect of the Financial Sector Regulation Act , No. 9 of 2017 (FSRA).

[50] It raised the following points in limine which it contends should dispose of this application:

[50.1] that the TSRF lacks locus standi to bring this application and is acting ultra vires its own rules;

[50.2] non-joinder of other transferor funds; and

[50.3] non-joinder of the ‘TSRF beneficiaries’ and the remaining BBF beneficiaries

[51] On the merits, it opposed the provisional orders in the rule nisi on the basis that:

[51.1] a section 14(8) transfer is not legally permissible where a portion of the liability is transferred. The contemplated transfer would result in split membership for the transferred members, with a portion at Bophelo and another at Fairheads.

[51.2] the court is not in a position to declare that the proposed

transaction would not prejudice the ‘TSRF beneficiaries.

[51.3] the payment of ‘agretskot’ cannot be made in terms of a section 14(8) transfer because in terms of the PFA it must be done within 180 days from the effective date of transfer. In this matter the Curator must still recover the losses, if he will recover anything at all. Agterskot payment are only allowed in terms of section 14(1) transfers.

[51.4] The proposed transfer is unfair and prejudicial on remaining Bophelo beneficiaries because they will carry the costs of recovering the losses only for the gains to be shared with the TSRF beneficiaries in terms of the ‘agterskot’ payment.

The regulatory framework

[52] The following provisions of the legislative / regulatory and supervisory framework are relevant in this matter.

The Financial Institutions (Protection of Funds) Act 28 of 2002 (read with the letter of appointment of the Curator dated 8 June 2018)

[53] In terms of section 5(1) read with 5(10), the Curator was appointed to take control of and to manage the whole of the business of both Bophelo Beneficiary Fund and Bophelo Benefit Services (Pty) Ltd.

[54] Other than the investigative powers with a view to recover losses, the Curator is vested with all executive powers that would normally be exercised by the board of directors, managers and public officers. He is enjoined to act in the best interest of the members and beneficiaries of the fund and clients of the administrator.

[55] His mandate is first to conserve the business and he may only alienate or dispose of any of the property of the institutions or business on approval of the Registrar. He reports to the Registrar during his term of office and may make any application that he deems appropriate with regard to any aspect of the affairs of the institutions.

[56] In terms of section 8, any person who is aggrieved by any decision or action taken by the Curator or registrar with regard to any matter in connection with the business of an institution that is under curatorship may make an application to the court to set aside or alter that decision of action.

[56.1] Section 9 provides that the notice period for the application should be not less than 48 hours. The registrar or curator are entitled to be heard.

Pension Funds Act, No. 24 of 1956, as amended

[57] The obligations and duties of the board towards the fund and its members are described in Section 7C (2) which reads as follows:

‘In pursuing its object the board shall –

(a) take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of this Act are protected at all times, especially in the event of an amalgamation or transfer of any business contemplated in section 14, splitting of a fund, termination or reduction of contributions to a fund by an employer, increase of contributions of members and withdrawal of an employer who participates in a fund;

(b) act with due care, diligence and good faith;

(c) avoid conflicts of interest;

(d) act with impartiality in respect of all members and beneficiaries;

(e) act independently;

(f) have a fiduciary duty to members and beneficiaries in respect of accrued benefits or any amount accrued to provide a benefit, as well as a fiduciary to the fund, to ensure that the fund is financially sound and is responsibly managed and governed in accordance with the rules and this Act; and

(g) comply with any other prescribed requirements.

[58] In terms of section 13, the rules of a registered fund are binding on the fund and its members as well as the shareholders and officers and any other person who claims under the rules or whose claim is derived from such a person.

[59] Amalgamation and transfers of a business of one registered fund to another is regulated by section 14.

[60] 14(1) transfers require the consent of the registrar and in this regard there are certain requirements , such as submission of actuarial calculations and valuation reports to satisfy the registrar that the scheme is reasonable and equitable. This is the scheme that the TSRF indicated in its replying affidavit that it had no obligation to trigger. The Curator subsequently filed an application in this regard which is referred to in the counter-application to the contempt of court proceedings.

[61] Section 14(1) does not apply if the transfer is in terms of section 14(8). However, there are conditions. The section reads as follows:

“ With effect from the commencement of the Pension Funds Amendment Act, 2007, subsection (1) does not apply where the affected members were duly informed of a proposed transaction and any objection the members may have, has been resolved to the satisfaction of the board of the fund concerned, and –

(a) both transferor and transferee funds are valuation exempt;

(aA) both transferor and transferee funds are beneficiary funds; or

(b) the transferor or transferee funds are neither registered nor required to register under this Act and the other fund is valuation exempt, and, furthermore, that –

(i) such registered funds keep proper records of all such transactions;

(ii) such registered funds comply with any further requirements as the registrar may prescribe;

(iii) the assets and liabilities are transferred within 180 days of the effective date of transfer; and

(iv) any assets transferred must be increased or decreased with fund return from the effective date until the date of final settlement.

[62] Subsection (9) provides that the registrar may exempt the funds from compliance with subsections (1) and (8), subject to conditions and requirements that he may prescribe.

Financial Sector Regulation Act, No. 9 of 2017 (FSRA)

[63] The third respondent (FSCA) was established in terms of section 56 of the FSRA and came into effect on 29 March 2018. It took over the functions of regulating and supervising the conduct of financial institutions that were previously performed by the Financial Services Board and with regard to pension funds, the functions of the Registrar of Pension Funds.

[64] Conduct Standard Authority 1 of 2019: The rule nisi order of Hughes J dated 29 May 2019 refers to Directive PF 6. It is common cause that since the coming into effect of the FSCA this was replaced by Conduct Standard 1 of 2019 which was published on 05 August 2019.

[65] In terms of the draft order before me, the transfer from Bophelo to Fairheads is sought in in terms of section 14(8) of the PFA and Conduct Standard 1 of 2019.

[66] Clause 16 deals with ‘Amalgamation and transfers of business in terms of section 14(8)’. It does not differ from its predecessor, PF Directive No. 6. It reads as follows:

“(1) In case of an amalgamation or transfers contemplated in section 14(8) of the Pension Funds Act, a scheme for the proposed transaction does not need to be submitted to the authority for approval. However, the records of any transaction effected in terms of section 14(8) must be maintained by both funds and be made available to the authority if requested.

(2) The proposed transaction may only be effected in terms of the rules of the relevant funds and the provisions of such rules must be complied with.

(3) No proposed transaction in terms of section 14(8) will be of any force or effect unless Forms H and J in Appendix 5 have been completed and certified and the requirements set out in section 14(8) of the Pension Funds Act have been complied with.

(4) In addition to signed copies of Forms H and J, the following documents must be kept on file in respect of the transfer:

(a) Proof that the proposed transaction has been communicated and that any objections have been addressed;

(b) proof of valuation or exemption; and

(c) proof that the Authority is satisfied that the requirements for surplus schemes in terms of section 15B of the Pension Funds Act have been complied with (where applicable)”.

[67] Form H: After filling in the required information relating to the nature of the scheme and amounts being transferred, the transferor fund (Bophelo represented by the Curator) is required to certify amongst other things that:

“9.3 the rights and reasonable benefit expectations of the remaining members are not adversely affected;

9.5 The communication to the affected members was adequate to enable them to make an informed decision as to whether or not to object to the scheme of transfer. Where there were objections, the Board of the transferor fund has considered such objections and they were satisfactorily resolved. In the event that the transfer will have the effect of prejudicing the transferring members, explicit approval to transfer was received from at least 75% of the prejudiced members and such members were given at least 30 days to object to the transfer (this provision does not apply to voluntary individual transfers at the request of the member).

9.6 the assets and liabilities will be transferred within 180 days of the effective date of transfer; “

[68] The Chairperson of the board and the principal officer (Curator in this case) are required to declare that they have been ‘duly authorised by the board of the transferor fund, declare that the information in paragraph 1 to 9 above is , to the best of our knowledge and belief, correct and complete. We undertake to duly complete and sign Form J in recognition of the transfer and refer it to the transferee fund within 14 working days of date of final settlement.’

[69] The transferee fund (Fairheads in this case) is also required to make the same declarations with regard to the rights of the existing and transferring members.

[70] Form J: is titled ‘Recognition of transfer’. It is signed by the both representatives of the transferor and transferee funds once the transfer has taken place. It basically confirms the number of transferring members and their share of the funds transferred.

TSRF Rules

[71] Rule 1.3 reads:

“Nature of the FUND: The fund is a legal entity, distinct from its MEMBERS, that owns its own assets and is responsible for meeting its own liabilities in terms of the RULES. It can engage in litigation in its own name.”

[72] Rule 1.4.1: Nature and effect of these Rules

“These Rules of the fund are binding on the FUND’S MEMBERS, DEFERRED MEMBERS, and DEPENDANTS AND BENEFICIARIES, PARTICIPATING EMPLOYEES and all other persons who claim that they are entitled to a benefit in terms of the RULES. The RULES are also binding on the Board and on its PRINCIPAL OFFICER and DEPUTY PRINCIPAL OFFICER’.

[73] Rule 2.17 defines a “Beneficiary” as

“ …any person who is entitled to a portion of or to the entire amount of the MEMBER SHARE of a MEMEBR in terms of these RULES’

[74] In terms of Rule 2.54 ‘Member’ means Category A MEMBERS and CATEGORY B MEMBERS. They in turn are defined as ELIGIBLE EMPLOYEES who in terms of Rule 2.39 is defined as “a person in the SERVICE under the NORMAL RETIREMENT AGE who is an employee of a PARTICIPATING EMPLOYER who satisfies the memebrship qualifications as specified in the RULES or SPECIAL RULES, as the case may be.

[75] In terms of Rule 3.2 Membership of the fund is terminated when the member receives all his benefits, reaches retirement age, is no longer an employee of a participating employer or no longer falls within the definition of eligible employee.

[76] Rule 10 provides that payment of death benefits on the death of a CONTRIBUTING MEMBER while in SERVICE (including the death of a CONTRIBUTING MEMBER after NORMAL RETIREMENT AGE, but prior to NORMAL RETIREMENT DATE) will be made in terms of section 37C of the PFA, depending on whether he/she leaves a spouse or not. Other scenarios are also catered for.

Bophelo Rules

[77] I have already referred to how membership of the fund is attained in the preceding paragraphs.

[78] Clause 3.3 provides for ‘Cessation of membership’. In terms of clause

3.3.1 Membership of the FUND shall cease:

[78.1] 3.3.1.1 upon the TERMINATION DATE and once the MEMBER has been paid the entire amount of his benefit by the FUND and no further amounts are due by the FUND to him;

[78.2] 3.3.1.2 before the TERMINATION DATE

(a) if it is determined by the Adjudicator or a court of law or other legal process that membership be terminated;

(b) if the FUND is liquidated; or

(c) if the FUND’S liability in respect of the MEMBER is transferred to another APPROVED BENEFICIARY FUND.

The final relief sought (draft order)

[79] The draft order before me reads as follows:

‘1.1 The order of the Honourable Mr Justice Tuchten on 5 December 2018 under case number 48382/2018 is hereby rescinded.

1.2 The transfer of the funded liabilities of the TSFR Beneficiaries from the First Respondent to Fairheads shall occur in terms of section 14(8) of the Pension Funds Act 24 of 1956 (“PFA”) and Conduct Standard 1 of 2019.

1.3 Declaring that the aforesaid transfer is not to the prejudice of the TSFR Beneficiaries.

1.4 In the event of the First and/or Second Respondent recovering any portion of the shortfall in the First Respondent, the said Respondents will pay the proportion of the shortfall attributable to the TSFR Beneficiaries, to the Fourth Respondent in terms of section 14(8) of the PFA.

1.5 In relation to the question of costs:

1.5.1 The costs of the applicant, including the costs of two counsel, are to be paid by the Second and Third Respondent, the one paying the other to be absolved.

1.5.2 The members of the First Respondent may not bear the effect of the costs award against the Second Respondent. “

[80] All parties are in agreement that the court order of Tuchten J (05 December 2018) should not have been sought or granted and that it should therefore be rescinded.

Submissions

[81] I have covered the factual and legal issues in the preceding paragraphs. As I have already indicated, there is no dispute that there are major losses in both institutions and that this occurred as a result of maladministration, theft and other irregularities.

[82] I will only refer to submissions on the disputed issues; namely:

(a) Standing (locus standi)

(b) Prejudice and the best interest of the children involved

(c) The pension issue; whether it is possible under pension law to have the transfer of the portion of a liability. The respondents say it is not.

[83] A finding against the applicant in the first issue (standing) means that I do not have to consider the merits of the application, which in essence is the third issue, the pension point. The second point is also in dispute, however it is largely linked to the issue of standing because the applicant relies on the ‘best interests of the children’ to advance its standing point.

[84] It is not in dispute, as counsel for the TSRF contended that this is not a classic commercial dispute, but real children and that it has real impact on their lives. I have already summarized what happened to their benefits, and that what aggravated the problem is the three curatorships, firstly Bophelo, and Bophelo Benefit Services, which administers Bophelo and then the VBS one where the curator had invested about R370 million.

[85] It is also not in dispute that the benefits were fully funded when the TSRF transferred them to Bophelo, which Bophelo was meant to manage in a way that works best for the minors. What remained at the time this application was launched was estimated to be about 30 percent of the capital.

Applicant

[86] On behalf of the applicant (TSRF), Advocate Budlender SC and Advocate Drake contend that what should be examined is the options that the Curator has adopted when faced with the situation where Bophelo is underfunded.

[87] The question they posed and answered is what a curator or a fund should do under those circumstances. One option is to keep on paying as though it is still the same amount. They contend that this may be fantastic in the short and medium term, but catastrophic in the long term because the funds will dry out before the minors becomes adults. It also means that the older of the minor beneficiaries will benefit to the prejudice of the younger ones. An older beneficiary may be paid until she reaches 18 but not so for a younger one.

[88] They contend that if the curator continues to pay out as he does, the money will run out and the younger beneficiaries will be left destitute.

[89] TSRF was responsible for placing the money with Bophelo to administer on behalf of its beneficiaries. It is for this reason that it comes to court because it is not happy with what happened and the fact that there is only about 30% of the funds left and also at what the Curator is doing to the balance.

[90] It believes that if the money is transferred to the fourth respondent (Fairheads), which is a respected fund it will pay smaller amounts over a longer term. A payment over a long term is better than paying everything in the short –term and then leaving the children destitute in the longer term.

[91] The Curator will also be asked to pay over a proportion of whatever amount he recovers to the transferred beneficiaries (at Fairheads), less the costs.

[92] TSRF is surprised that it is met with what it refers to as obstruction and procedural objections and delays from the curator and the opposition from the FSCA. It believes that the relief sought is an obvious thing to be done and if it was about costs, the orders sought would be tweaked accordingly.

[93] On its standing (locus standi), Mr Budlender argued that South Africa has the most generous and broadest rules of standing in the whole world. He referred to Public interest organisations that often litigate on behalf of vulnerable groups of persons. Eg, Child Law Centre or Lawyers for Human rights.

[94] He also referred to Section 38 of the Constitution and submitted that this application represents an obvious case where standing exists under the Constitution, section 38(c) and (d), someone acting in the interest of a group or public interest. The court must accept that the factual allegations that the benefits are being denuded are correct. He referred to the matter of Giant Concerts v Rinaldo Investments 2013(3) BCLR in this regard.

[95] A point was also made that the beneficiaries became members of Bophelo solely because of a decision taken by TSRF, and as such it has a fiduciary duty towards them. It has an interest in protecting their benefits.

[96] He also submitted that the court must assume that there is a problem, and if there is, the question is whether the applicant has standing to come to this court. He referred to the case of Albbutt v Centre for Study of Violence and Reconciliation and Others 2010 (3) SA 293 (CC) at para. [33] and [34]. It is a case about pardons for political crimes. The question was whether the applicant had standing as it was not a victim. The court held that it did because it was acting in the public interest under section 38(d) of the Constitution.

[97] The TSRF has standing even if it is not a victim, as in the cases cited above. It comes to court at worse on behalf of beneficiaries who are children many of whom have no resources or legal knowledge and it does so in the public interest.

[98] Finally, he submitted that if public interest organisations like Centre for Child Law can go to court on rights of children, the standing point in this case should be decided in favour of the TSRF.

[99] On prejudice. He submitted that there are no factual disputes that what is going on is damaging to the children and that it the court dismisses this application, the children will remain in Bophelo until the funds run out.

[100] The court is given express powers by Bophelo’s own rules to terminate the membership and direct that the money be transferred to Fairheads. Even if there were no such provisions in the rules, the court as upper guardian of the children would have the power. Even in terms of the Constitution.

[101] The only question according to the TSRF is whether it is in the best interest of the children to require them to sit in Bophelo and allow their funds to be paid out as if there are no problems, resulting in them drying up before they become adults, or whether is it in their best interest to transfer the funds to Fairheads who will pay out as best it can over a proper medium to long term so that they can have some funds throughout their childhood and if more money comes in during the recovery process, it will be good, but even if it does not, they will still be protected.

[102] A further criticism against the Curator is that he has taken a short-term view and he does not explain how long he is going to be able to pay as he is doing without running out of money or why he is favouring older beneficiaries over younger ones the situation is terrible and he is not managing it properly.

[103] Lastly, Mr Budlender referred to the matter of SS v VV –S [2018] ZACC 5 (1 March 2018) paras 23-24 where it was emphasized that the interests include protection of their rights.

[104] Pension points: Ms Drake , as indicated above, argued the dispute of law, namely whether 100% liability must be transferred or only the 30 or 25% funded liability. She submitted that there are two reasons why partial transfers are permitted. Firstly, the PFA permits it, and secondly, the Bophelo rules allow it and this is in addition to the general point that the court has power to do so.

[105] TSRF seeks a gradual partial transfer of available money as it is recovered. At some point the curator will not be able to recover anything and he will write off the liability that it has on these children and it will be the end of their membership in Bophelo fund.

[106] Referring to the matter of Sasol Limited v Chemical Industries National Provident Fund 2015 JDR 1853 (SCA) at para 16, she submitted that what is transferred in terms of section 14 is not the membership, but assets and liabilities. It is not as though a person in half. According to this ruling, what is being transferred is assets and liabilities and what those are can be decided on by the fund.

[107] Furthermore, there is no general prohibition in the Act to transfer in tranches, if necessary. For example, if one makes a mistake in calculations and discover 5 days later, the difference can be transfer because the beneficiary will continue to have a claim.

[108] The proposed transaction is not defined. There is nothing in the Act that one says must transfer all assets and liabilities relating to a single person at a single point in time. It has a broad meaning which must be given the ordinary grammatical meaning as per trite authorities such as Endumeni Municipality.

[109] The rest of section 14(8) and Conduct Standard 1 are implementation detail. It is about implementation, processes and procedures that the curator must follow.

[110] In terms of section 12(4) of the PFA, the Fund rules are subject to the Act, and must be consistent with the Act. They are subordinate. There is no prohibition for partial transfer.

[111] Bophelo rules permit in principle partial and full transfers. Finally it makes sense to have such rule in a beneficiary fund that gives the court broad powers to terminate or transfer membership. There are no similar rules that gives the court an overriding authority in the applicant’s rules.

The first and second respondent (Curator)

[112] Advocate Badenhorst SC urged me not to simply ignore what is prescribed in the legislation. The Curator was appointed in terms of section 5(10). In terms of section 5(6) the Curator acts under the control of Registrar. He is obliged to consult with the Registrar and seek professional assistance. He also has an obligation of reporting.

[113] The Curator has been lambasted in the applicant’s papers. He was cited with the Bophelo but the Conduct Authority was never brought in as a party. When confronted with the application, he had to get the necessary direction from the Conduct Authority which he did.

[114] When the Conduct Authority came into being and when this application was launched in 2018, it exercised its functions and acted as Registrar. The Registrar had a material and direct interest and should have been joined. The applicant stated in several occasions in the papers that it had no interest.

[115] It became clear that the order of 05 December 2018 was impossible for the Curator to implement and it should have not been granted because it required the approval by the Authority.

[116] Although there were meetings to discuss the stance of the Conduct Authority, it was brought into this matter not by citation, but by a rule nisi court order. When it came into the picture indicated that a section 14(8) transfer involves transfer of all assets and liabilities. It was making a ruling. When the matter came to court, the order was granted with regard to the provisional part of the order after the curator convinced the applicant to bring the Conduct Authority to court.

[117] The Curator is required to work closely with the Conduct Authority. As a beneficiary fund, Bophelo has no participating members. He referred to the list of other transferor funds administered by Bophelo.

[118] Taking into account the obligation of fairness it is impossible for the curator and the Authority to agree to an order in paragraph 1.2 of the draft order that the benefits of the funded liabilities be transferred to Fairheads without taking into account the liabilities as well.

[119] It must be taken into account that the Curator has the obligation towards all members with regard to assets and liabilities in terms of the prescripts in terms of section 14. All transferor funds have a real and substantial interest, much as the applicant’s.

[120] The curator was brought to court and unfortunately on wrong advice from previous advisors he agreed to the order of 05 December 2018 and then he confronted with a contempt of court application. This was caused by the fact that the Conduct Authority was not cited as a party. Fairness must be exercised in relation to the curator.

[121] He was doing his utmost in the first part of his curatorship to make Mvunonala share transaction a success and did so. He recovered 88% of the losses and unfortunately the money was paid into VBS bank. He is a very senior and astute Curator, appointed in similar positions before and he has experience.

[122] The prayers sought by the TSRF is on the basis that curatorship is not effective and that he is not collecting money effectively on behalf of the beneficiaries he was appointed for.

[123] The Conduct Authority indicated in their affidavit that the business of BBF should be treated with circumspection and be considered in the context of the work undertaken by the Curator.

[124] On costs, Mr Badenhorst submitted that this application should have been avoided if the applicant and all other parties involved had taken into account the position of the Conduct Authority as a Regulatory Authority which regulates and give guidance to the curator on how to conduct himself and when to agree to a transfer and not.

[125] If the Conduct Authority adopted a position which the applicant did not agree with, they should have come to court to challenge it. The position of the Conduct Authority was conveyed and stated in the affidavit. It was made clear that not only the assets must be transferred, but liabilities too. If there is a refusal by the Conduct Authority, it should not be for this court to be making a decision on the basis of Bophelo rules. The court should allow the Conduct Authority to make a ruling and the applicant can come to court for the Conduct Authority to explain its decision.

[126] The fact of the matter is that if the Conduct Authority was cited from the beginning, this position would have been cleared and the parties would not be in court, two years later. The court must not grant the orders sought, more so in terms of Bophelo rules.

Third respondent (FSCA)

[127] Advocate Theron SC (with Advocate Manuela) started his submissions by pointing out that the applicant ignores the fact that Bophelo administers other funds, and there are about 5 000 other beneficiaries who are affected by the curatorship.

[128] The FSCA makes one point more than once that if this order is about the children remaining behind, they will have to bear the costs of the administration. The order sought does not make that provision. Although from the bar a submission is made that in such eventuality a debit note will be passed to the ones who have been transferred.

[129] The remaining members should have been joined. The curator is not their agent, cannot act on their behalf.

[130] He submitted that the TSRF has no capacity to approach this court. It is not standing. The TSRF cannot engage in litigation on behalf of someone who is not their members. It is acting ultravires. He referred to the case of TEK Corporation Provident Fund & Others v Loretz 1999 (4) SA 884 (SCA) at para [28].

[131] In terms of section 37C (2) (iii) of the PFA, payment to a beneficiary fund is deemed to be payment to the beneficiary. Thereafter there is no obligation remaining to the applicant to make further payment, ever, to those beneficiaries. In fact they become members of Bophelo and are paid in terms of rules of Bophelo. They derive their rights and obligations from the rules of Bophelo. There is no longer any contractual nexus, in fact there was none because they were beneficiaries as a result of their parents’ contributions to the applicant.

[132] He argued that it is a fallacy to refer to them as ‘TSFR beneficiaries’. This is neither legally nor factually correct. The fiduciary relationship that now exists is one between these beneficiaries and the Board of Bophelo in terms of its rules. He also referred to the Sasol case that Ms Drake referred to.

[133] The Board of the applicant can only act to the benefit of its members or persons who are entitled to a benefit from its fund.

[134] On whether there were other avenues open for the applicant to address the problems they perceived, the answer is yes. The statutory provision for that is section 5(8) (a) of FIAct. Any person aggrieved by a decision or action of the registrar or curator is entitled to institute court proceedings to have that decision or action set aside. The notice period for such an application is 48 hours.

[135] The applicant initially relied on the rules of Bophelo fund for the relief and in the alternative they sought to invoke a tacit term in the rules. There is a bigger problem with the attempt to invoke a tacit term because doing so entails imputing the true terms of the parties to the agreement. In this case Bophelo Fund and its members. The fund rules predates the date on which the applicant transferred these beneficiaries to Bophelo. The applicant’s beneficiaries were not parties to the rules, even to date. The applicant is not a member of Bophelo. It did not participate in the coming into effect of the rules. The tacit term argument is ill-founded and the counsel for the TSRF did not argue it.

[136] The applicant initially sought the termination of the membership and a full transfer of all assets and liabilities. It is only in the rule nisi that it was changed to the funded portion and a reference to section 14(8) of PFA and a prayer seeking a declarator that the transfer is not to the prejudice of the TSFR beneficiaries. That declarator (in the amended notice of motion) can only be sought in terms of section 21 (1) (c) of the Superior Courts Act. Declaration of rights attach to the person applying for the declarator, it cannot be somebody else’s rights that the applicant seeks to declare.

[137] A section 14(8) transfer means that the Practice Directive (Conduct Standard) must be complied with. It requires that the two forms be completed and it is there where the declarator must be made. It must be made by the transferor fund (Bophelo), unless the court makes it as requested. These are Forms H and J. The relevant paragraph are 9.3 and 9.5 which refer to communication to the beneficiaries and confirmation that there were no objections, and if any, they were satisfactorily resolved.

[138] The need for a declarator comes from these forms. The court will be declaring that there is no prejudice on the beneficiaries and that binds the first respondent (curator).

[138] The only rule of Bophelo which makes provision for transfer of fund’s liability in respect of a member is Rule 3.3.1.2(c)

[139] Ms Drake argued that the Act does not prohibit partial transfer of assets and liabilities. The Act scheme says that the Rules cannot be in conflict with the Act. This Rule is not in conflict with the Act. It does not provide for a partial transfer. It is full liability that must be transferred.

[140] Rule 7.3 upon which Ms Drake relies deals with payments of balance of members’ accounts upon termination of membership. Therefore, the Rule does not make provision for partial transfer.

[141] On Prayer 1.2 of the draft order; he submitted that in order to comply with section 14(8), one must comply with the Conduct Standard. There is no provision for a partial transfer. Even if Ms Drake is correct that the Act does not prohibit a partial transfer, which is not conceded, the Rules in this case does.

[142] In the initial notice of motion there was a prayer for termination of membership. This was based on Rule 3.3.1(a). The amended notice of motion also included the two forms, but the draft order sought does not include the forms. The reason is that the respondents complained that the TSRF altered the forms, which is not allowed.

[143] He disagreed with Mr Budlender’s submission that the court does not have to concern itself with the Forms (H and J) because it is an implementation issue. The Court must make an order that is capable of implementation. The first and second respondent will have to sign the Forms once the court declares that no one will be prejudiced. This without having communicated with the beneficiaries and done proper assessments of objections, if any.

[144] He also raised a concern about the costs of further administration of Bophelo because those comes off before paying benefits. The question is who will bear those costs.

[145] On reasons for opposing this application, he submitted that the FSCA has two fundamental issues. First, it is not the business of the applicant to litigate on behalf of someone who is no longer a member. The effect of the order sought is that the members who remain at Bophelo will pay the costs of administration. If everybody stays, everybody pays. The FSCA agree

that it is a terrible economic situation and those who stole the money must pay. The FSCA has a responsibility to protect everyone and not just a part of those affected by the financial crisis. No one knows if anything will be recovered. There may be a costly

litigation.

[146] The assets do not belong to members who are being transferred. A fund is one fund for all. The money is used to invest for returns. Assets cannot be identified as belonging to that or this group. That is why transfer is for assets and matching liabilities.

[147] A section 14(8) transfer would have to comply with the forms H and J, inter alia the declaration. One of the declarations is that the rights of the remaining members have not been affected.

[148] The founding papers were not premised on section 14(8) transfer. It found itself in the Rule nisi, probably because the FSCA had indicated that it was not going to approve a section 14(1) transaction.

[149] The TSRF cannot act on behalf of non-members. The FSCA wrote them a letter to ask what they were doing. It was made clear that that it would seek a cost de bonis propriis because this litigation is ultra vires but the TSRF continued with the litigation. They are litigating on the funds of the current members. That is what litigating on their own name entails.

[150] In reply; counsel for the applicant argued that the respondents did not dispute that the current situation is in the best interest of the 1000 children that the applicant seeks to protect and that the only answer is from the curator belatedly, that he is no longer paying out everything. He says he is only paying out 25%. This is incorrect because it is not what is in the papers. If indeed it was so, the applicant would not have brought this application. The 25% that is referred to is ad hoc payments but payments to the beneficiaries will still be paid 100%.

[151] The third respondent does not deny the erosion of benefits. It only says that it has highlighted the duties of the Curator. It is plain that there is harm.

[152] The prejudice to the remaining beneficiaries is about the costs of continued administration of the curatorship. The applicant has indicated in its papers that if the court grants the relief sought in this application, there is nothing to stop the Curator from deducting a certain amount from the funds that he will transfer and place it in some legal costs contingency account.

Whatever the source of the costs, be it costs of Curatorship, administration or to recover the misappropriated money.

[153] With regard to the declarator that there is no prejudice to the remaining members, Mr Budlender conceded that the concerns raised by the court that if I grant a declarator it pre-empts everything in these forms because the signatories confirm that they have communicated to the affected members to enable them to make an informed decision whether to transfer or not and where there were objections, they were considered and were satisfactorily resolved.

He submitted that taking into account the court’s concerns, the declaratory order can say that the transfer shall occur, subject to compliance with section 14(8) and compliance with Conduct Standard 1 of 2019.

[154] On procedural hurdles, Mr Budlender referred to the matter of AD v DW [2007] ZACC 27; 2008 (3) SA 183 (CC). It is a case about international adoptions. The jurisdiction of the High Court to hear the matter was challenged. The SCA issued a split decision. The Constitutional Court endorsed the approach of the minority in the SCA that the baby’s best interest should not be mechanically sacrificed on the alter of jurisdictional formalism.

[155] He submitted that the objections raised in this matter are similar to what happened in the adoption case, namely, scarifying the best interests of the children on the alter of jurisdictional formalism. He submitted further that the court is not bound by procedural strictures when dealing with the best interests of the children.

[156] On locus standi, he observed that counsel for the third respondent argued capacity. His response was that the applicant has capacity to litigate because its rules say so, the only question is whether it can litigate on this issue. The issue is about the children of its deceased members who are not getting paid the money which it gave to Bophelo. It is inconceivable how the applicant can be said to have no locus standi to act on behalf of these children when any person with no apparent interest could have come to litigate on their behalf.

[157] On alternative remedies, he conceded that indeed there are other remedies. He contended that the fact that there are thousand other remedies does not mean that the applicant cannot choose what it prefers. It chose a narrow one.

[158] He submitted that whether the children are called TSRF beneficiaries, deceased employee’s children or whatever label, it does not matter. It is the kind of legal formalism that the Constitutional Court would be shocked to hear is the way to deal with the children’s rights case. There is nothing in the locus standi or capacity objections and there is no merit on the prejudice point.

[159] Therefore, there is no procedural basis to refuse this relief because the merits cry out for it.

[160] On costs: This is good faith litigation. No basis for a cost order, let alone one on de bonis propiis. Biowatch principles apply.

[161] Ms Drake replied on the pension points: On whether the rules of the fund permit partial transfer. Rule 3.3.1.2(c) refers to the fund’s liability. That liability is not restricted nor is it qualified and must therefore be interpreted broadly in line with ordinary language. The ordinary language does not mean you can only transfer 100% liability because that is not what it says.

Discussion: the applicant’s standing

[162] As indicated above, the first issue for decision is whether the applicant has standing to seek the relief in this application.

[163] The applicant has argued that it has standing on many levels; on its own rights as the fund that transferred the assets to Bophelo, in the interests of the beneficiaries it transferred, in the best interests of the minor children in terms of the Constitution and also because this is litigation in the public interest .

[164] This is a catch-all approach. One need to take it step by step.

[165] I have quoted the rules of the TSRF (applicant) with a view to highlight the fact that it had a relationship with the employees who died in-service whilst contributing to the fund. The rules make it clear that their membership terminated when they stopped contributing. Their benefits were dealt with in terms of section 37C of the PFA, which in the context of this matter entailed paying Bophelo the money to administer for the benefit of the minor children. The legal connection between the TSRF and the minors ended when they became members’ of Bophelo.

[166] it is correct, as the applicant’s counsel contended, that the TSRF rules entitle it to litigate in its own name because it is a separate entity from the members and owns its own assets. The question is whether it can litigate against Bophelo on the issues concerning the minor children who are already the latter’s members.

[166.1] The short answer is NO.

[166.2] TSRF indicated in its founding papers that it terminated its relationship with Bophelo in June 2017, before lodging the complaint with the Adjudicator. That relationship was about future 37C transfers to Bophelo.

[167] The best interests of children argument in my view is defeated by the fact that the curator was appointed act in the best interests of all the children who have been affected by the financial crisis at Bophelo. If there was no curator in the picture, the argument of the TSRF would make sense.

[168] Allowing the TSRF to remove the few children when there are thousands more on the basis that the curator is depleting their funds is in my view not in the best interest of the curatorship. In fact, it is a backdoor review of the decision / actions of the registrar /curator.

[169] The best interests of children / public interest argument is further defeated by the its standpoint which clearly show that the application is not about the best interests of children as contemplated in the various judgments that I was referred to, but a narrow one, motivated by own interests.

[169.1] that this application is about its own originated minors even though it is aware that thousands more are affected by the similar hardships.

[169.2] TSRF only wants to protect the minor children it refers to as its own decision children. It knows that its target is narrow whilst there could be millions of children

[169.3] There may be other children who should also be moved, but that this is not its concern for now. Applicant only seek to move the balance of what is remaining for the children whose benefits come from it.

The vulnerability of other children is not a reason to refuse this application.

[170] The appointment of the Curator is to safeguard the interests of everyone and if he is not discharging his duties in the best interests of the children by eroding the funds, there are available remedies in terms of the Act, cancel the curatorship and make appropriate arrangements. The authority has already recognized the problem by appointing the curator.

[171] This matter is really about the perceived incompetence of the Curator, not the interests of the children because the counsel for TSRF submitted that the curator should be acting in the best interest of the children, but is he is not doing enough and soon enough, furthermore, he apparently is not concerned about the plight of the children under the current situation where the funds have been depleted. The second issue is what this matter is about.

[172] To further illustrate that the issue is not about children’s interests but the curator’s abilities, counsel for the TSRF argued that they know it takes time to recover losses, but he must adjust the flow to the beneficiaries and he certainly has not done enough. The curator is alleged to have not looked after the best interests of the children.

[173] It is correct that this court as the upper guardian of the children has the power to make an order that is in their best interests, however, I cannot ignore the fact that someone has been appointed to look after their best interests. If there is evidence that he is not doing so, I cannot remove the children on the basis that someone is promising to do a better job. There must be an application in terms of the legislation, which the curator is entitled to reply to and if he is not acting in the best interest of the children then an appropriate order will be made.

[174] The nature of the issues raised to support the application clearly show that it is about the manner in which the curatorship is conducted. For example, the transfer is sought on the basis that he is making payments as though the fund is not underfunded. The funds are being depleted, thus rendering the children vulnerable because there will not be anything to take care of the younger beneficiaries in the long-term.

[175] The curator is the person who will ultimately inform the regulatory authority about what is in the best interests of the children. He has been appointed to investigate, to manage and to report.

[176] The real issue , as submitted by counsel for the TSRF is depletion of the funds and the investigations by the curator that are alleged to be taking long, causing further depletion of funds that is supposed to go to these children . That being the case does not confer locus standi on the applicant to approach this court on the basis of acting in the best interest of the children. A proper application is one contemplated in the FIAct to set aside the actions or decisions of the curator and or the registrar.

[177] The second respondent was appointed as Curator for everyone, for both of the Fund, which include all funds under its administration.

[178] The applicant has approached court on a narrow interest of their own children (assuming that they are, which they are not), leaving thousands of children in need but allege greater interests of children. It is hard to believe that the application is for a greater interests when it is only for the benefit of few compared to many that are left behind.

[179] It cannot be said that there is no prejudice to the remaining children. They all need to be rescued if the curator is not performing his functions in a proper manner (payment method) as it is alleged.

[180] The rules of both the TSRF and Bophelo reiterate the provisions of the PFA with regard to the fiduciary duties of the board. The board of the TSRF does not owe its former members a fiduciary duty, maybe a moral duty because of the risks of reputational damage that it once found Bophelo to be a suitable beneficiary fund. This interest of course can translate into a public interest in terms of section 38 of the Constitution. The problem here is that there is already someone who has been appointed to take care of the best interests of the children.

[181] Accordingly, the points in limine regarding standing / capacity of the applicant are upheld and the application stands to be dismissed accordingly.

Costs

[182] The applicant was aware from the date it started this long drawn litigation (preceded by a complaint to the Adjudicator) that a curator had been appointed and entrusted with ensuring that his actions are in the best interests of the minor children, amongst other obligations and duties.

[183] It ignored objections and dragged this litigation for two years, amending the relief sought along the way, but leaving the criticisms against the curator as they were in the founding papers. The basis of the final relief sought in the draft order is based on the allegation that the curator is depleting funds by making payments in the manner that he is doing. This complaint, properly, should be ventilated in an application where the relief sought is against the curator as contemplated in the

FIAct.

[184] The applicant urged me not to issue a cost order against it even if it does not succeed in the application. It was argued that this is good faith litigation on constitutional issues, and as such Biowatch principles should apply.

[185] I disagree with the submission, for the same reasons under the discussion on locus standi.

[186] The TSRF is acting in its own name, so it said. In terms of the rules, it is entitled to do so because it owns separate assets from those of its own members. In this regard it appears from this that the concerns of the FSCA that a cost order will impact on its members is not correct.

In any event, as a regulatory authority the FSCA is entitled to investigate the application of the rules where there is doubt or grey areas, particularly where members will be made to pay (indirectly) for cost orders on litigation that has nothing to do with them.

[187] I am inclined to make a cost order against the applicant.

Order;

[188] The order of the Honourable Mr Justice Tuchten on 5 December 2018 under case number 48382/2018 is hereby rescinded.

[189] The application is dismissed with costs, which costs will include the costs of two counsel in respect of the third respondent.

TAN MAKHUBELE J

Judge of the High Court, Gauteng Division

APPEARANCES:

Applicant:

S Budlender SC

H Drake

Instructed by:

Shepstone Wylie Attorneys

C/O Boshoff Inc

Hazelwood

PRETORIA

First and Second Respondents: MA Badenhorst SC

Instructed by:

VFV Attorneys

Ashlea Gardens

Third Respondent

EL Theron SC

M Mabusela

Heard on:

13-02-2020

Judgment on: 31-08-2020