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City of Johannesburg and others versus The South African Local Authorities Pension Fund and others – SCA

City of Johannesburg and others versus The South African Local Authorities Pension Fund and others – SCA

16th March 2015

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Bowman Gilfillan assisted the City of Johannesburg ("CoJ") and four of its Municipal Owned Entities ("the MEs") (i.e. Johannesburg Water, CityPower, Johannesburg CityParks and Pikitup) in an application brought by the South African Local Authorities Pension Fund ("the SALA Fund").

During June 2004, as part of the restructuring of its pension fund regime with employees, CoJ (and the MEs) took a decision to cease participation in the SALA Fund (which is a defined benefit fund) and to terminate their pension fund contributions to the SALA Fund on behalf of employees who were members of the SALA and to contribute instead, with effect from 1 January 2005, to another Fund which is a defined contribution fund.

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The SALA Fund challenged that decision by CoJ and its MEs in the South Gauteng High Court on the basis, inter alia, that the decision was unlawful, invalid and impermissible as the rules of the SALA Fund did not permit any such withdrawal.  CoJ and its MEs opposed the matter and raised a preliminary objection pertaining to the SALA's Fund's failure to join in High Court proceedings those employees who were members of the SALA Fund.

In the South Gauteng High Court, the Court found against CoJ and MEs and effectively ruled that the decision by CoJ and MEs to withdraw as participating employers in the SALA was invalid and of no legal force.  The High Court also dismissed the preliminary objection that had been raised by CoJ and MEs pertaining to the SALA's Fund's failure to join in court proceedings those employees who were members of the SALA Fund. The objection was dismissed on the basis that it was not necessary for the SALA Fund to do so as section 7C of the Pension Funds Act permitted the SALA Fund to act on behalf of its members or litigate on behalf of its members.

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CoJ and MEs appealed the High Court judgment to the Supreme Court ("SCA").  The SCA overturned the High Court judgment and ruled in favour of CoJ and its MEs:

  • the SCA ruled that section 7C of the Pension Funds Act does not entitle a pension fund or its board to litigate on behalf of its members and that the individual members of the SALA Fund ought to have been joined as parties in the High Court proceedings;
  • the SCA held that those members had a direct and material interest in the proceedings before the High Court and the relief sought by the SALA Fund in those proceedings (ie opportunity for those employees to state whether they prefer to remain in the new Fund which is a defined contribution fund or to revert to the SALA Fund which is a defined benefit fund), hence they ought to have been joined as parties in those proceedings; and
  • the SCA has referred the matter back to the High Court and has given the SALA Fund a period of three months to join the individual members in court proceedings failing which the SALA Fund's claim or application against CoJ and its MEs would be deemed to have been dismissed with costs.

The SCA judgment is important and significant in the sense that: it does not only clarify the legal interpretation of section 7C of the Pension Funds Act, but the High Court judgment that the SCA has overturned had severe financial implications for CoJ and its MEs as the SALA Fund was effectively entitled, in terms of that judgment, to all arrear contributions dating back to 1 January 2005 which the CoJ and MEs would have had to pay.

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