At 10h00 on 1 December 2017 the Constitutional Court handed down judgment in the Municipal Employees Pension Fund’s application for leave to appeal against an order of the Supreme Court of Appeal.  That Court had held that municipalities in KwaZulu-Natal may associate with any pension or provident fund so long as this is in addition to an association with the respondents, the funds established in terms of KwaZulu-Natal legislation (fund legislation).

The fund legislation does not make provision for compulsory membership in the respondents.  However, it does empower the Member of the Executive Council (MEC) responsible for local government in KwaZulu-Natal to make regulations in respect of the respondents and regulations expressly providing for compulsory association with, and membership of, the respondents have been duly promulgated.  It is against that backdrop that local authorities in KwaZulu-Natal associated with the respondents and their employees accordingly became members.

The applicant conducted a presentation at one of these local authorities, the Imbabazane Local Municipality in Estcourt, in 2011.  As a result of that presentation, 25 employees of the Municipality became members of the applicant and both Municipality and the employees made pension contributions to it.  However, the Municipality subsequently concluded that its employees were not entitled to associate with the applicant because the fund legislation prohibited its employees from becoming members of any fund other than the respondents.  The Municipality therefore advised the applicant that the employees’ membership had been terminated and suspended the payment of contributions.

The applicant, aggrieved by the Municipality’s stance, launched an application in the High Court of South Africa, KwaZulu-Natal Local Division, Pietermaritzburg (High Court), seeking an order compelling the Municipality to make the pension contributions.  The High Court granted a declaration that the Municipality’s suspension of the payments was unlawful and directed the Municipality to make the payments.  The respondents, who had not been involved in these proceedings, subsequently became aware of this order and the applicant’s conduct and launched an application to rescind the order and obtain an interdict prohibiting the applicant from conducting pension business in KwaZulu-Natal.  The High Court granted the application on the ground 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 KwaZulu-Natal.  The Court directed the applicant to repay the pension fund contributions it had received from the Municipality.

The applicant appealed to the Supreme Court of Appeal, which held that the local authorities in KwaZulu-Natal are obliged to associate with the respondents.  However, the Court noted that nothing in the fund legislation or regulations prohibits a local authority in KwaZulu-Natal from associating with an additional pension fund.  The appeal was thus dismissed, subject to an order that a local authority in KwaZulu‑Natal may associate with other funds if it is already associated with the respondents.

In the Constitutional Court, the applicant applied for leave to appeal on the basis that the fund legislation does not prevent pension funds from operating in KwaZulu-Natal and that the regulations do not compel municipal employees in KwaZulu-Natal to belong to the respondents.  The applicant contended that such an interpretation of the regulations would best give effect to the spirit, purport and objects of Section 18 of the Constitution.  The applicant also submitted that an interpretation of the regulations which precludes municipalities from having conditions of employment which would allow their employees to belong to pension funds other than the respondents would undermine the rights and authority of those municipalities in relation to local government matters in terms of the Constitution.  This would exceed provincial authority in relation to those matters.  Furthermore, an interpretation compelling municipal employees in KwaZulu-Natal to belong to the respondents would make the regulations ultra vires the fund legislation.  In the alternative, the applicant submitted that the relevant provisions of the fund legislation is invalid as it is inconsistent with the Constitution  Because no constitutional attack had been launched in the High Court, the applicant requested that the appeal be upheld so as to allow the constitutional challenges to be properly ventilated and determined by the High Court.  The respondents, for their part, supported the Supreme Court of Appeal’s interpretation of the relevant legislation adopted by the Supreme Court of Appeal and, in relation to the alternative argument, submitted that the applicant ought to be precluded from making a constitutional attack for the first time in this Court.

In a majority judgment written  by Mhlantla J (Mogoeng CJ, Nkabinde ADCJ, Cameron J, Froneman J, Khampepe J, Madlanga J and Pretorius AJ concurring), the Court rejected the applicant’s interpretation of the  regulations.  It held that the intention of the fund legislation is to compel all employees to join the respondents and retain membership until he or she is no longer employed by a local authority in KwaZula-Natal.  This is to ensure the viability of the respondents.  The regulations were promulgated to achieve this purpose and are a practical mechanism to ensure that the purpose and objectives of the legislation are realised.  The Court therefore held that the regulations are valid.

The Court also dismissed the applicant’s argument that the interpretation ascribed to the legislation by the courts below infringes the employees’ right of association on the grounds that: (1) the  employees and trade unions to which the applicant refers are not parties to the application and the applicant failed to demonstrate its legal standing on behalf of the employees or why the employees need it to bring this challenge on their behalf; (2) the applicant has not provided any details on the nature and extent of the alleged infringement of the right; and (3) the Supreme Court of Appeal’s interpretation of the fund legislation and the regulations, coupled with its amendment to the order of the High Court, safeguards the right.

With respect to the alternative argument, the Court held that the ultra vires point does not arise and therefore declined to grant leave for the limited purpose set out by the applicant.  In the result, the Court granted condonation but dismissed the application for leave to appeal with costs.

In a dissenting judgment, Jafta J (Mojapelo AJ and Zondo J concurring) held that, although the relevant regulations may not be interpreted as permitting employees of municipalities in KwaZulu-Natal a choice between the respondents and any other fund, the application for leave to appeal ought not to be dismissed.  This is because the applicants asserted that, if the regulations are given the meaning preferred in the majority judgment, they are ultra vires the fund legislation and inconsistent with the legality principle.  He considered that, this challenge having been raised in the High Court and in the Supreme Court of Appeal, where it was expressly recorded and rejected in the judgment, the ultra vires point had been properly raised and addressed by both sides and therefore had to be decided in order to give effect to the applicant’s rights to a fair hearing in terms of section 34 of the Constitution.

He thus considered the fund legislation and held that the power to make regulations it confers does not include a power to compel membership in the retirement fund.  This is because the empowering provision must be interpreted contextually and purposively and another provision in the fund legislation establishes that the retirement fund was established to cater only for particular employees.  Thus, the lawmaker did not seek to make membership of the retirement fund compulsory.  He also held that the regulation that obliges Pietermaritzburg Municipality and a portion of Durban Municipality to associate with the respondents conflicts with the fund legislation and exempts members of the Durban Pension Fund from joining the respondents unless that Fund specifically asks for the regulations made under the fund legislation to apply.  Finally, he held that another regulation refers to a number of the respondents despite the fact that the empowering provision refers only to one.  He accordingly concluded that the regulations are ultra vires because the MEC acted in excess of the conferred power by enacting them and also because they are inconsistent with the fund legislation.

Madlanga J wrote a separate judgment, concurring in the first judgment but for additional reasons.  Madlanga J considered that it was necessary to deal with the applicant’s argument that, if the regulations are interpreted to have the effect of making it impossible for municipal employees in KwaZulu-Natal to have membership of only a fund or funds outside KwaZulu-Natal, the regulations are ultra vires the fund legislation.  The applicant argued that an interpretation ought to be adopted that keeps the regulations intra vires.  Madlanga J held that, based on the interpretation of the regulations adopted in the first judgment, the applicant’s interpretation does not seem viable.  He noted that the respondents’ interpretation of the regulations may well lead to the regulations being ultra vires, but held that there was no need to make a definitive holding on this.