Weekly Summary of South Africa Judgments----Vol 8

CONSTITUTIONAL COURT OF SOUTH AFRICA

Municipal Employees Pension Fund v Natal Joint Municipal Pension Fund (Superannuation) and Others (CCT260/16) [2017] ZACC 43; 2018 (2) BCLR 157 (CC); (2018) 39 ILJ 311 (CC) (1 December 2017)

 Heard on: 25 May 2017                    Decided on: 1 December 2017                                

Summary:   pension funds — right to association — constitutional challenge to validity of regulations creating pension funds — municipalities’ rights and authority in relation to local government matters

 SUMMARY OF FACTS

This case came on appeal from the SCA where it was held that municipalities in KwaZulu-Natal may associate with any pension or provident fund so long as this is in addition to their association with KwaZulu-Natal Pension Funds, which was established in terms of KwaZulu-Natal Joint Municipal Provident Fund Act (Fund legislation). The applicant, a pension funds whose members are local government employees, was established by s.79quat of the Local Government Ordinance17 of 1939, and also registered in terms of s. 4 of the Pension Funds Act as a pension fund. Whereas, the respondents are funds established by provincial legislation, namely, the Local Government Superannuation Ordinance 24 of 1973 (1973 Ordinance) and the Natal Joint Municipal Pension Fund (Retirement) Ordinance 27 of 1974 (1974 Ordinance), as well as the KwaZulu-Natal Joint Municipal Provident Fund Act (Provident Fund Act). The first and second respondents are defined benefit funds. The third respondent is a defined contribution fund. These funds are collectively referred to as the “KZN Funds”.

Historically, the applicant was established to provide pension rights for local authorities’ employees and their dependents, andthe1939 Ordinance made it obligatory for employees to be members of their employer’s chosen fund (the concerned local authorities). The 1939 Ordinance was repealed by The Local Government Superannuation Ordinance25 of 1966 and mandated all local authorities to associate with Natal Joint Municipal Pension Fund (Superannuation), except Durban and Pietermaritzburg local authorities, who had their own funds. All local authorities were required to have compulsory association for their black employees by the Natal Joint Municipal Pension Fund Ordinance 6 of 1967 (1967 Ordinance). The 1966 Ordinance was repealed by 1973 Ordinance, and the fund’s name was renamed Natal Joint Municipal Pension Fund (Superannuation). However, Durban and Pietermaritzburg were excluded from its application, and the Administrator was authorized to make regulations. There was no express provision forcompulsory membership and association with the KZN Funds.

 The Natal Joint Municipal Pension Fund (Non-White) Ordinance (1967 Ordinance) was repealed by the 1974 Ordinance, with identicalprovisionsto that of 1973 Ordinance, and also, Durban and Pietermaritzburg local authorities were not expressly mandated to be associated with the KZN Funds nor their employees obligated to become members. The MEC responsible for Local Government, KZNis empowered by the 1973 & 1974 Ordinances as well as the Provident Fund Act to make regulations regarding Natal Joint Municipal Pension Fund, and as such,the regulation for compulsory association with the KZN Funds was made, and this made local authorities in KZN associate with the funds and their employees becoming members of the funds.

 As part of its recruitment drive in KZNin 2011, the applicant secured 25 employees of Imbabazane Local Municipality in Estcourt as its members, and this resulted in the Municipality and its employees making contribution to the applicant effective from 2011. However, the Municipality had been associated with the KZN Funds since its inception,because of the subsisting legislations that prohibits its employees from belonging to any other Fund, except the KZN Funds.Therefore, the Municipality decided to correct the situation by suspending payments of pension contributions to the applicants and terminated the membership of the 25 employees.

The applicant then launched an application in the High Court, Pietermaritzburg, seeking an order of the Court to declare that the action of the Municipality was illegal, and that the Municipality must be compelled to pay pension fund contributions of the 25 employees to it, and this request was granted. However,respondents, who were not parties to the initial proceedings, launched a counter application requesting the High Court to rescind its earlier order, and to issue an interdict prohibiting the applicants from doing business in KZN, and these requests were granted by the High Court. The Court held that the object of the Fund legislation and regulations promulgated thereunder was to establish funds to provide a pension benefit and lump sum benefits for the employees of the local authorities in KZN, and the Court held that all local authorities and their employees can only be associated with the respondents, and that the concept of freedom of association raised by the applicant could not be enjoyed by it, except the employees of the local authority. And thus, the applicant was mandated to refund all the pension contributions it had collected.

 Unhappy with the High Court’s decision, the applicant approached the SCA, claiming that

1.     There is nothing in our law that justified the decision of the High Court

2.     The legislation and regulations applied did not have such a limiting effect

3.     That the MEC acted unconstitutionally for issuing such limiting regulations, and such regulations were ultra vires.

 However, the SCA dismissed the appeal, subject a further order permitting a KZN local authority to associate with another pension fund if an association is already established with one of the respondents.

 LEGAL QUESTIONS

***Should condonation be granted?

***If so, should leave to appeal be granted?

***What is the proper interpretation of the relevant regulations?

***Are the regulations ultra vires and is this question properly before this Court?

***If the interpretative argument is dismissed, what is the appropriate remedy? Should this Court uphold the appeal for a limited purpose of allowing the constitutional challenges to be properly ventilated and determined by the High Court?  

 RATIO DECIDENDI

The question of Condonation was based on the late filling of the applicant’s application as a result of the absence of its legal counsel who was busy with a long trial. Since the degree of delay was reasonable, the explanation was adequate, and the fact that the respondent would not suffer any form of prejudice, Condonation was granted.

 The ground for appeal is based on establishing the jurisdiction of this Court, which is determined by s.167(3)(b) of the Constitution, which states this Court’s jurisdiction is to hear a constitutional matter or matters that raise arguable points of law of general public importance that should be decided by this Court.

 In Paulsen v Slip Knot Investments 777 ((Pty) Ltd [2015] ZACC 5; 2015 (3) SA 479 (CC); 2015 (5) BCLR 509 (CC)), this Court affirmed that inquiry on arguable point of law was a two-parts enquiry; namely;

a)     the issue must be one of law and not of fact; and

b)     the matter must have some degree of merit or credibility for it to be arguable.

 In addition, the Court considered the meaning of “a matter of general public importance” as it relates to the Constitution. The Court, relying on Kenyan and English Authorities, held that when a matter goes beyond the interests of the parties to a litigation, and impacts on the public interest, it becomes a matter of public importance.The Court said that the matter must pertain to an issue that could arise again in other cases and where its determination would affect a large class of persons. Therefore, because the appellant had raised a constitutional point of freedom of association and separation of powers, or even matters of public importance, the Court must grant leave to appeal in the interest of justice.

Further, this Court had instituted guidelines for determining the requirements for “interests of justice” test. These requirements (factors) to consider as grounds for leave to appeal in “interest of justice”are:

·        whether there are reasonable prospects of success that this Court will reverse or materially alter the decision appealed (S v Boesak [2000] ZACC 25;  2001 (1) BCLR 36 (CC);  2001 (1) SA 921 (C) at para 12); and

·        whether the matter concerns an issue of importance on which a decision of this Court is desirable,(De Reuck v Director of Public Prosecutions (Witwatersrand Local Division) [2003] ZACC 19;  2004 (1) SA 406 (CC);  2003 (12) BCLR 1333 (CC) at para 3), in light of both the importance of the issue and its importance to the public(Glenister v President of the Republic of South Africa [2011] ZACC 6;  2011 (3) SA 347 (CC);  2011 (7) BCLR 651 (CC) at para 53).

 Thus, for the leave to appeal to be granted in this case, its merits that ensures its reasonable success will need to be considered.

 Therefore, the proper interpretation of the regulations is the first issue to be considered, and in statutory interpretation, the applicable principleswere articulated in Natal Joint Municipal Pension Fund v Endumeni Municipality ([2012] ZASCA 13;  [2012] 2 All SA 262 (SCA);  2012 (4) SA 593 (SCA) (Endumeni)):

 “Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors.

The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to a statute or statutory instrument is to cross the divide between interpretation and legislation. In a contractual context it is to make a contract for the parties other than the one they in fact made. The ‘inevitable point of departure is the language of the provision itself’, read in context and having regard to the purpose of the provision and the background to the preparation and production of the document”.

 This Court in Cool Ideas 1186 CC v Hubbard ([2014] ZACC 16; 2014 (4) SA 474 (CC);  2014 (8) BCLR 869 (CC))defined statutory interpretation based on the following principles:

“A fundamental tenet of statutory interpretation is that the words in a statute must be given their ordinary grammatical meaning, unless to do so would result in an absurdity. There are three important interrelated riders to this general principle, namely:

(a)       that statutory provisions should always be interpreted purposively;

(b)       the relevant statutory provision must be properly contextualised; and

(c)       all statutes must be construed consistently with the Constitution, that is, where reasonably possible, legislative provisions ought to be interpreted to preserve their constitutional validity. This proviso to the general principle is closely related to the purposive approach referred to in (a).”

 Its absolutely required to consider the historical and purpose of the legislative enactment/ordinances and the Providence Fund Act in the interpretation of the provisions and context of the legislative schemes. Therefore, for the KZN funds to fulfil its objectives, as defined in s.2 both the Natal Ordinances and Provident Fund Act, it must be viable through sufficient members. Therefore, to be viable through sufficient members, a broad regulatory framework was created that mandated KZN local authorities to be associated with and become members of the Funds. The main issue here is the proper interpretation of regulation 16(4) that addresses employed persons after 1 February 1996:

“A person who becomes an employee on or after the date of commencement shall, subject to his conditions of service, elect, in writing, to become a member of either—

(a) the Fund;

(b) the Superannuation Fund; and

(c) the KZN Municipal Pension Fund if the employee is employed by a Local Authority associated with such Fund in terms of its regulations.”

 This Court rejected the applicant’s argument that employees that joined the service of the KZN municipalities after 1 February 1996 were free to choose any pension fund of their choice, which was different from the position of the SCA. This Court affirmed that a purposeful interpretation of the regulation should be applied, and thus, agreed with the conclusion of the SCA that the inclusion of the phrase “subject to his conditions of service” does not allow an interpretation that does not require compulsory membership and association. Rather, it points to the election referenced in s.16(4). This means that the phrase does not infer that employees’ contract of employment allows for freedom not to join any of the Funds.

 Furthermore, regulation 16(8) forbids any employee to withdraw from the membership of the Fund whilst still employed by a local authority associated with the Fund. Regulation 16(A) deals with transfer of membership between the Funds. Should any employee elect not to be with any of the three Funds (regulation 12), he/she must be a member of the Provident Fund from the date the local authority associates with the Provident Fund, and this is the default position (Regulation 3(1)(b)). From these provisions, the objective here is compulsory membership, which means, the objective is for all employees to be part of KZN Funds until he/she leave the service of any KZN local authority, thus ensuring the Funds’ sustainability and viability. Therefore, the Court rejected the applicant’s argument regarding the interpretation of the regulations.

 The Court also rejected the applicant’s argument that the freedom of association outlined in s.18 of the Constitution, was violated by the High Court and the SCA’s interpretation of the 1973 and 1974 Ordinances, the Provident Fund Act, the regulations promulgated under the Ordinances and the KZN Joint Municipal Provident Fund Act. Fundamentally, because the employees and the trade unions in question were not party to this proceeding, the applicant failed to establish its legal standing to act on behalf of the employees or if it was needful for it to represent the employees. In addition, the applicant had not clearly stated the extent and the nature of the supposed rights violation. Also, the Court affirmed that the SCA’s interpretations were valid and guarantees the employees’ freedom of association.

 In conclusion, this Court rejected the applicant’s request to grant the appeal because of the constitutional implication, whilst it brings a proper challenge at the High Court. The applicant’s request was seen as an indulgence by this Court, which was unwarranted by the conditions of this case. The applicant was requested to bring a substantive application to the High Court, if it felt strongly about the constitutionality of the matter. Therefore, not in the interest of just to grant the leave to appeal.

 Reference was made to the minority judgment that raised the issue of ultra vires, which was raised at the SCA. However, based on the reasons outlined above, and because ultra vires was not raised in this Court, the majority judgment rejected it.

 DECISION

1.        Condonation is granted.

2.        The application for leave to appeal is dismissed with costs.