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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable
Case no: 1161/2018

In the matter between:

VRYSTAATSE MUNISIPALE PENSIOENFONDS
APPELLANT

and

THE MINISTER OF FINANCE

FIRST RESPONDENT
FINANCIAL SECTOR CONDUCT AUTHORITY
SECOND RESPONDENT
CHIEF MASTER OF THE HIGH COURT

THIRD RESPONDENT
CHRISTOPHER HENRY ROSENBERG NO

FOURTH RESPONDENT
In his capacity as the former member representative

Neutral citation:
Vrystaatse Munisipale Pensioenfonds v The Minister of Finance
and Another (Case no 1161/18) [2020] ZASCA 143 (2 November 2020)

Coram:
Navsa, Zondi, Van der Merwe and Nicholls JJA and Unterhalter
AJA

Heard:
21 August 2020
Delivered:
This judgment was handed down electronically by circulation to
the parties’ representatives via email, publication on the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand-down is deemed to be
10:00 am on 2 November 2020.
Summary:  Whether regulation promulgated by Minister, in terms of which a board
of a pension fund is obliged to place calculable enhancements due to former members
who cannot be traced in a contingency reserve fund from which it cannot be released,

except as  payment to such members or as a result of crediting the Guardian’s Fund
or some other fund, is beyond the Minister’s power and not in accordance with the
Pension Funds Act 24 of 1956 – Minister arrogating power at odds with the Act
– against the principle of legality.

___________________________________________________________________

ORDER
___________________________________________________________________

On appeal from: Gauteng Division of the High Court, Pretoria (Wepener J, sitting as
court of first instance): judgment reported sub nom Free State Municipal Pension Fund
v The Minister of Finance and Others [2018] ZAGPPHC 404

The appeal is upheld with no order as to costs.
The order of the court below is set aside and substituted as follows:
‘Regulation 35(4) of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers under the provisions of
the Pension Funds Act 24 of 1956.’

___________________________________________________________________

JUDGMENT
___________________________________________________________________

Navsa JA (Zondi, Van der Merwe and Nicholls JJA and Unterhalter AJA
concurring):

[1] This is one of three related appeals that were heard on the same day.1 This
appeal, like the other two, is directed against a decision of the Gauteng Division of the
High Court,2 in terms of which an application by a pension fund, registered in terms of
s 4 of the Pension Fund Act 24 of 1956 (the PFA), to have regulation 35(4) of the
regulations, promulgated by the first respondent,3 the Minister of Finance (the
Minister), declared invalid on the basis that it exceeds the Minister’s power under the
PFA, was dismissed. In all three cases the high court had made no order as to costs.

[2] The principal issue in all three appeals, as it was in the high court, is whether
the regulation in question is ultra vires the powers assigned to the Minister in terms of
the PFA. Put differently, the question is whether the Minister has, by way of the
regulation in issue arrogated power at odds with the PFA and offended against the
principle of legality. The three appeals require consideration of the person/functionary

1 The other two being Hortors Pension Fund v Financial Sector Conduct Authority and Another (Case
no 054/2020) and Southern Sun Group Retirement Fund v The Registrar of Pension Funds and Others
(Case no 215/2019). The unreported judgments of the courts below in these matters are cited,
respectively, as Hortors Pension Fund v Financial Sector Conduct Authority and Another GP 28-08-
2019 case no 70215/2017 and Southern Sun Group Retirement Fund v The Registrar of Pension Funds
and Others GJ 18-12-2018 case no 21229/215.
2 This particular appeal is against a decision of the Gauteng Division of the High Court, Pretoria
(Wepener J, sitting as court of first instance). The other two – Hortors Pension Fund (ibid) and Southern
Sun Group Retirement Fund (ibid) – are appeals against decisions also of the Gauteng Division of the
High Court, first from the Provincial Division (Pretoria)(Kollapen J, sitting as court of first instance), and
second from the Local Division (Johannesburg)(Siwendu J, sitting as court of first instance).
3 See GN R98 in GG 162 of 26-01-1962. Regulation 35(4) was inserted in an amendment to the
Regulations: see GN R558 in GG 24780 of 22-04-2003.

in whom, in terms of the PFA, the power to apportion an actuarial surplus in a pension
fund and to create contingency reserve accounts, vests. The impugned regulation has
to be viewed against the relevant provisions of the PFA. Neither the third respondent,
the Chief Master of the High Court, who is in control of the Guardian’s Fund, nor the
fourth respondent, who is the former member representative of former members of the
appellant, the Vrystaatse Munisipale Pensioenfonds (the Fund), participated in the
proceedings in the court below or before us.

[3] The historical path leading up to the commencement of litigation, and the
manner in which the issues were framed by the respective appellants in the three
appeals, are not identical. There is also the accusation before us, on behalf of the
Minister, that, in at least two, if not all three appeals, the respective pension funds
have departed from their initial challenge to the regulation and are now advancing
submissions beyond those raised in their founding affidavits and before the high court.
Whether that complaint is justified and whether the appellant and the other funds ought
to have been granted the relief sought requires scrutiny of the pleadings in each case,
hence the necessity for three, separate judgments. There will, of course, in each
judgment be references, where relevant, to the other two appeals. The analysis of the
law and the conclusions reached will essentially be the same.  All three appeals are
before us with the leave of the court below.

[4] The Financial Sector Conduct Authority (the FSCA), the first respondent, was
established under s 56 of the Financial Sector Regulation Act 9 of 2017 (the FSRA),

and came into existence on 1 April 2018,4 replacing the Financial Services Board (the
FSB), which owed its existence to the Financial Services Board Act 97 of 1990 (the
FSBA).5 The main objectives of the FSCA include, enhancing and supporting the
efficiency and integrity of financial markets, protecting financial customers by
promoting fair treatment by financial institutions and assisting in maintaining financial
stability.

[5] It is necessary at the outset to have brief regard to the meaning of an actuarial
surplus, since that concept is at the centre of this appeal. Simply stated, a surplus
arises in a pension fund when an actuary determines that its assets exceeds its
liabilities. Prior to 2001, how a fund dealt with a surplus was determined by its rules.
The Pension Funds Second Amendment Act 39 of 2001 came into effect on 7
December 2001. It was enacted to regulate the distribution of a surplus by pension
funds. It became known as the surplus legislation. The surplus legislation inserted
definitions relating to pension funds surpluses and also introduced ss 14A and 14B,
and ss 15A to 15K into the PFA.6 This appeal turns on the interpretation and
application of relevant provisions of the surplus legislation, located within the PFA. I
shall, in due course, deal with the historical factors that gave rise to the surplus
legislation.

[6] The background culminating in the present appeal is set out hereafter. The
Fund is a closed pension fund, which was established and registered on 31 March

4 See GN 169 in GG 41549 of 29-03-2018; and the Regulations published in GN R405 in GG 41550 of
29-03-2018.
5 Established in terms of s 2 of the FSBA.
6 Some of these provisions were either amended or substituted in subsequent legislation.

1963, in terms of prevailing legislation. The Fund has three categories of active
membership, with class A members accruing benefits on a defined benefit basis, class
B members accruing benefits on a defined contribution basis and class C members
having certain vested pension benefits, accrued on a defined benefit basis and
accruing further benefits on a defined contribution basis.’

[7] The Fund’s members, subject to certain minor exceptions, are full-time
employees and former employees of Local Authorities in the Free State. The following
seven paragraphs explain how the litigation culminating in the present appeal arose.

[8] On 29 November 2013 the Fund deposited a copy of a Statutory Actuarial
Valuation Report (12/8/412) reflecting the valuation of the Fund as at 30 June 2011,
with the Registrar of Pension Funds, as required by s 16(1) of the PFA. Paragraph
5.55 of the Valuation Report reads as follows:
‘In terms of Rule 45(2) the contingency reserve account in respect of surplus allocations to
former members of the Fund revert to the fund two years after the approval of the surplus
scheme by the Registrar. The two-year period expired in October 2008 and an amount of
R86.5 million reverted to the fund.’
The reference to rule 45(2) is a reference to the rules of the Fund which would in the
ordinary course have been authorised in terms of the PFA.

[9] On 28 January 2014 the Registrar’s office wrote to the Fund, stating that it had
‘pended’ the Valuation Report until the following issues were resolved or satisfactorily
explained:

‘Section 5.55 refers. It is stated that in terms of Rule 45(2), the contingency reserve account
in respect of surplus allocations to former members of the Fund revert to the Fund two years
after the approval of the surplus scheme by the Registrar. The two-year period expired in
October 2008 and an amount of R86.5 million reverted to the Fund.
Rule 45(2) states that ‘a contingency reserve account will be maintained in the Fund and will
be credited with actuarial surplus payable to former members in terms of (sic) s 15B(5)(e)(i)
and (ii) of the Act. Any remaining balance in the contingency reserve account two years after
the approval of the surplus apportionment scheme by the Registrar will revert to the Fund.
In its surplus apportionment scheme, approved by the Registrar on 24 October 2006, the Fund
did not establish a contingency reserve account for former members in terms of s 15B(5)(e)
of the Act.
The Registrar is of the opinion that the Fund is acting ultra vires its rules. The Fund is expected
to amend the report in line with its registered rules.
The Registrar requires the Fund to amend its rules in line with the Act to provide for the
adverse experience reserve. The Fund is expected to attend to this forthwith, as the statutory
actuarial valuation has not been performed in line with the rules of the Fund...’

[10] The Fund’s attorney wrote back, stating that he could not comprehend why the
Registrar adopted the view that the Fund was acting ultra vires its own rules. He
thought it appropriate to bring the following to the Registrar’s attention:

‘On 11 November 2005 the board of our client approved a Surplus Appointment Scheme under
s 15B the PFA for submission to the Registrar. Paragraph 2.3 of the Scheme reflects the
allocation of surplus to former members. Included in that allocation was 2114 “Former
members for whom the calculations could be performed, but could not be traced. (ie 58.64%
of the total number of 3605 former members).”

On 9 December 2005, our client approved at its Annual General Meeting a rule amendment
to establish a contingency reserve account to house the benefits allocated to the category of
former members quoted above.
On 25 April 2006, the Registrar approved our client’s rule amendment number 24, which reads
as follows (Rule 45(2)):
“‘n Gebeurlikheidsreserwerekenig word in die Fonds in stand gehou wat gekrediteer word met
enige aktuariïele surplus betaalbaar aan vorige lede waarna daar in Artikel 15B(5)(e)(i) en (ii)
van die Wet verwys word. Die kredietsaldo van die gebeurlikheidsreserwerekening word
vermeerder of verminder met die beleggingsopbrengs verdien op die bates in hierdie rekening.
Die kredietsaldo van die gebeurlikheidsreserwerekening word gebruik om voordele te betaal
aan enige vorige lede waarna daar in artikel 15B(5)(e)(i) en (ii) van die Wet verwys word wat
deur die Uitvoerende Komitee opgespoor word en wat in staat is om hul aanspraak op die
betaling van ‘n gedeelte van die aktuariële surplus tot die bevrediging van die Uitvoerende
komitee te staaf. Indien daar, twee jaar nadat die Registrateur van Pensioenfordse die
surplustoedelingskema goedgekeur het, ‘n kredietsaldo in die surplustoedelingskema
goedgekeur het, ‘n kredietsaldo in die gebeurlikheidsreserwerekening is, word sodanige
kredietsaldo aan die Fonds verbeur en het enige vorige lid waarna daar in Artikel 15B(5)(e)(i)
en (ii) van die Wet verwys word, geen verdere eis teen die Fonds nie.”
On 24 October 2006, the Registrar approved our client’s Surplus apportionment Scheme and
the board thereafter allocated the surplus as per the approved Scheme. This allocation
included an allocation to the 2114 former members as per para 2.3 of the Scheme to the
contingency reserve account in terms of Rule 45(2).
By October 2008, the amount standing to the credit of the contingency reserve account
reverted to our client in accordance with Rule 45(2).
As appears from the above:
our client did establish a contingency reserve account for former members in terms of Rule
45(2) as referred to in s 15B(5)(e) of the PFA; and
our client has acted in accordance with its rules.

Please convey this information to the Registrar on our client’s behalf and establish from the
Registrar whether the first issue has been clarified to his satisfaction, or (if not), the basis upon
which the Registrar still contends that our client is acting ultra vires its rules.’

[11] There were numerous interactions thereafter between the Fund and the
Registrar’s office. On 18 May 2015 the Registrar’s office wrote to the Fund as follows:
‘In terms of s 33A(1) the Registrar directs the board of the fund within two months of the date
of this letter to—
reverse the decision to revert the R83.357 million of s 15B surplus payable to its former
members in terms of the surplus apportionment scheme and calculated as at 31 October 2008
and restore the fund to financial neutrality, ie in the same position it was prior to the reversion
of the said amount; and
implement the provisions of Regulation 35(4) made in terms of s 36(1) of the PFA in respect
of s 15B surplus mentioned in paragraph 18.1 (sic).’
Section 33A of the PFA empowers the Registrar, in order to ensure compliance with
the PFA, to issue a directive to a pensions fund, an administrator or any other person
in which practices or actions that are required or prohibited are set out.

[12] The Registrar, it seems, initially objected to the valuation report on the basis
that the Fund was precluded from releasing funds in terms of Rule 45(2) because it
had not established a contingency reserve account for former members in its surplus
apportionment scheme in terms of s 15B(5)(e) of the PFA and that it was therefore
acting ultra vires its own rules. Later, from early 2015, the objection was that contrary
to regulation 35(4), the Fund was releasing the surplus allocated to former members.
I shall, in due course, deal with the provisions of the sub-regulation within the scheme
of regulation 35 as a whole.

[13] On 18 May 2015 the Registrar’s office wrote to the Fund as follows:
‘The Registrar is concerned that contrary to the PFA and contrary to the Regulations made in
terms of the PFA, the fund released R83.357 million of s 15B surplus which is payable to
former members in terms of the fund’s surplus apportionment scheme … the fund is bound by
Regulation 35(4) of the Regulations published by the Minister in terms of s 36(1) of the PFA
which says that where a board is able to determine the enhancement value due in respect of
a particular former member in terms of s 15B(5)(b) or (c) of the PFA, but is unable to trace the
former member to make the payment, the board must put the enhancement into a contingency
reserve account established specifically for that purpose. Regulation 35(4) makes it clear that
notwithstanding the rules of a fund, the moneys in this contingency reserve account may not
be released except to pay the former member or as a result of crediting the Guardian’s fund
or another fund established by law to include such amounts. This is what the Fund was
supposed to do in terms of the PFA and the Regulations and it was therefore not permitted to
“release” the R833.357 million of s 15B surplus payable to its former members for all of whom
its surplus scheme indicated that it could calculate their benefits … The Registrar directs the
board of the Fund to within two months of the date of this letter implement the provisions of
Regulation 35(4) made in terms of s 36(1) of the PFA in respect of the s 15B surplus mentioned
in paragraph 18.1 (sic).’
It is clear that the Registrar considered herself and the Fund bound by regulation 35(4).

[14] Section 26 of the FSBA permits an appeal against any decision of the Registrar
to the FSB appeal board, established in terms of s 26A of the FSBA. The Fund lodged
an appeal but because it raised. as a ground of appeal, a challenge to the validity of
regulation 35(4) the Fund and the FSB appeal board agreed that the appeal be held
in abeyance, pending an application to be brought in the high court by the Fund. That
culminated in the application referred to in the first paragraph of this judgment and to
the resultant order.

[15] I now turn to deal with the nature of the challenge by the Fund as expressed in
its founding affidavit, followed by the Minister and the FSCA’s responses and the
findings of the court below.

[16] The appellant’s case was that regulation 35(4), impermissibly, ‘placed a number
of fetters’ on the wide discretion of the board to decide how an actuarial surplus is to
be applied. The following are the relevant parts of the Fund’s summary of its challenge
to the validity of the regulation as expressed in its founding affidavit:
‘Firstly… the discretion of the board to determine how, in the case of former members, the
allocated portion of actuarial surplus shall be applied for their benefit is sufficiently wide as to
place in the hands of the board, a power to determine the extent, if at all, of a former member’s
entitlement to actuarial surplus. There is accordingly nothing in the PFA as is stood at the time
of the promulgation of the Regulation which states that this enhancement is legally due and
payable to the former member.
Secondly, the Regulation prescribes that where the board is unable to trace the former
member in order to make payment, “the board shall put the corresponding enhancement into
a contingency reserve account specific for the purpose…”
This imperative requirement that the enhancement be placed in a contingency reserve account
contradicts the statutory discretion vested in the board to determine how, in the case of…
former members, the allocated portion of actuarial surplus shall be applied for their benefit.
Thirdly, notwithstanding that the statute provides that the board shall determine how, in the
case of former members, the allocated portion of actuarial surplus shall be applied for their
benefit, the Regulation provided that notwithstanding anything in the rules of the fund, moneys
may not be released from such contingency reserve accounts except as a result of payment
to such former members or as a result of crediting the Guardian’s Fund or some other fund
established by law to include such amounts.’

In formulating its challenge the Fund relied, inter alia, on the provisions of s 15B(5)
(a), (b), (c) and (e).

[17] For reasons that will become apparent it is unnecessary to deal with the Fund’s
other grounds of challenge, namely that the regulation in question was arbitrary and
irrational.

[18] In presenting its case the Fund described how it applied its surplus
apportionment scheme (SAS) and explained how it dealt with former members, for
whom a benefit was calculated but were untraced and who had failed to substantiate
a claim. On 11 November 2005, the Fund approved a surplus apportionment scheme
as contemplated in s 15B of the PFA. The surplus apportionment date was 30 June
2002 and it was the first statutory actuarial valuation date after 7 December 2001, as
contemplated by s 15B(1)(a). The Fund resolved in the SAS, as required under s 15
B(4), that former members who had left the Fund in the period from 1 January 1980 to
the surplus apportionment date would participate in the SAS.

[19] The fourth respondent, as required by the PFA, was appointed in terms of the
Act to represent former members. Steps were taken by the Fund to identify and contact
former members and obtain sufficient information to enable the calculation of top-up
benefits. The Fund’s administrators had remained unchanged since 1980 and retained
information of each former member of the fund. In its attempts to trace former
members the Fund used newspaper advertisements, radio broadcasts and written
communications. The Fund also made enquiries at the Department of Home Affairs,
tried telephoning former members and used tracing agents.

[20] An amended SAS reflected the allocation of the surplus to former members.
Included in that allocation were 8770 former members, of whom 5165 were excluded,
because their exit benefit exceeded the minimum benefit. Of the remaining balance of
3605 former members, payments were made to 1491, for whom calculations could be
performed and who could be traced and/or who claimed the benefit. The remainder
were a group of 2114 former members for whom the calculations could be performed,
but who could not be traced and who did not register for payment. They represented
24.10% of the total number of former members entitled to participate in the SAS and
58,64% of the total number of former members who were included in the
apportionment.

[21] On the 11 November 2005 when the Fund approved the SAS it also amended
its rules to establish a contingency reserve account to hold the actuarial surplus for
former members for whom benefits could be calculated but who could not be traced
and for those who were unable to substantiate their claims, but which also provided
that if there were no claims after two years the amounts so credited would revert to
the fund. The rule does state that thereafter no former member will have any claim
against the fund. On 26 April 2006 the Registrar approved the rule amendment.

[22] On 24 October 2006 the Registrar approved the Fund’s SAS and the board thereafter
allocated the surplus as per the approved Scheme. This allocation included an
allocation to the 2114 former members for whom the calculations could be performed
but who could not be traced and/or who did not substantiate their claims as per
paragraph 2.3 of the scheme, as amended.

[23] In the subsequent years all but 49 of these former members, ie 2065 former
members, could still not be traced and/or had not substantiated their claims.
Accordingly, the Fund advised the Registrar in a registered letter sent on 12 August
2008 that it intended to implement the Rule and that the amount standing to the credit
of the contingency reserve account, in terms of rule 45(2), would revert to the Fund.

[24] On 24 October 2008 the amount standing to the credit of the contingency
reserve account reverted to the Fund in accordance with the above Rule 45(2).
Following the reversion of this amount the Fund was of the view that in terms of its
Rules it was no longer obliged to make provision for these former members. The board
of the Fund had nevertheless, in the exercise of its discretion to settle and determine
claims made against the Fund (rule 23(1)(e) of the rules), made a few ex gratia
payments to certain former members who after 24 October 2008 came forward and
substantiated their claims. The Fund has made no further payments to any former
members since 3 March 2010, more than a decade ago.

[25] The Fund’s valuator reported in the Valuation Report referred to above (as at
30 June 2011), under the heading ‘Contingency Reserve Accounts’, and with respect
to the former member allocation under the s 15B scheme, that the amount which on
30 June 2008 had been R83 357 million, was now nil

[26] As stated above, the Registrar refused to approve the valuation report and
ordered the fund to reverse the R83 357 million and to implement the provisions of
rule 35(4). That is what led to the application in the court below.

[27] In opposing the application, the Minister insisted that there was nothing in the
provisions of the PFA that prevented the Minister from directing or requiring a pension
fund to create contingency reserve accounts. The Minister and the FSCA pointed out
that the purpose of the surplus legislation was to ensure that past abuses were
remedied and that members who had been unfairly treated in the past, due to improper
uses of pension fund surpluses by many employers, were now given their due. The
surplus legislation was designed to ensure that former members received
enhancements due to them. Regulation 35(4) was directed to that purpose. The
regulation required the creation of a contingency reserve fund as envisaged in the PFA
and, as far as the Minister was concerned, it was consistent with the legislative
scheme.

[28] The FSCA made common cause with the Minister. It denied that the impugned
regulation fettered the board’s discretion in any way and contended that the Fund
misread and misunderstood the relevant provisions of the surplus legislation. The
FSCA was adamant that upon the approval of a pension fund’s SAS it immediately
incurred a liability towards those former members for whom calculations could and
were done. It was submitted on behalf of the FSCA that there was no discretion vested
in the board to deal with this category of quantifiable claimants. The amounts held in
the members’ surplus accounts no longer formed part of the surplus. Where such
members could not be traced the liability was not extinguished. The impugned
regulation was directed at preserving the rights of those members to claim their due
from the Fund. The FSCA contended that s15B(5)(e) catered only for those for whom
calculations could not be made and that there was no established liability in relation to
the contingency account which a Fund decided to establish in terms of that subsection.

In short, as postulated by the FSCA, the liability by a pension fund to untraced former
members is absolute and there could be no talk of a contingency reserve account in
the true meaning of that expression. To the extent that the regulation speaks of a
‘contingency reserve account’ it must be understood that it is to a specific purpose and
that it was meant to recognise a fixed liability towards former members. The FSCA
reiterated that the regulation in question was entirely consistent with the provisions of
the PFA.

[29] The impugned regulation was promulgated by the Minister on 22 April 2003 and
the review application was launched on 25 August 2015, more than a decade
thereafter. The Fund, belatedly (after all the affidavits were filed), conditionally applied
for condonation in terms s 9 of the Promotion of Administrative Justice Act 3 of 2000
(PAJA),7 submitting that it was in the interests of justice that the matter be heard,
despite the considerable delay. Curiously, it commenced by stating that it was advised
that the application to have the regulation set aside was one in terms of PAJA, but
then went on to state that it was also advised that the making of regulations did not fall
under PAJA. It submitted, alternatively, in the court below and before us, that the
Fund’s challenge to the regulation was a classical collateral challenge as a result of
which the need to bring a condonation application in terms of PAJA fell away. The
court below dealt with these issues as well as with the merits as set out hereafter.

[30] The court below (Wepener J), dealt with the question of the delay described in
the preceding paragraph. The court noted that it was only after all the affidavits had

7 In terms of s 7 of PAJA an application in terms thereof must be brought without unreasonable delay
and not later than 180 days from the date of the action complained of. Section 9 of PAJA authorises a
court to extend the period of 180 days ‘where the interests of justice so require’.

been filed that the Fund had sought condonation in terms of s 9(2) of PAJA,
conditionally, asserting that it was relying on a collateral challenge to the validity of
regulation 35(4), for which condonation was not required. Wepener J had regard to
the decision of the Constitutional Court in Merafong City Local Municipality v Anglo
Gold Ashanti Limited8 in considering the Fund’s asserted collateral challenge.

[31] The court below went on to state the following:
‘Accepting, as the applicant does, that it knew of the regulations and its impact shortly after it
was promulgated, this court must determine whether the applicant has satisfied the provisions
of s 9 in order to grant the applicant condonation or whether it is not time barred at all due to
the collateral challenge, should it be able to rely thereon despite the manner in which it was
introduced into the papers.’

[32] Wepener J proceeded to examine the ‘unexplained’ lengthy delay and
considered that it militated against both the application for condonation and the
asserted collateral challenge. The court below weighed the prejudice that might arise
because of the delay. It said the following (at para 15):
‘In my view, there is severe prejudice for the respondents and well as other Funds, the latter
which have adhered to the regulation. The majority of the Funds have complied with the
regulation. That, in turn, resulted in surplus funds having been allocated as prescribed over a
period of twelve years. There would be manifest prejudice to those employees who were
identified and were recipients of allocations over the years. The applicant failed to set out
specific facts, even baldly, to show that there is no prejudice to other parties. I am driven to
the opposite conclusion. Since the promulgation of reg 35, the vast majority of funds (and

8 Merafong City Local Municipality v AngloGold Ashanti Limited [2016] ZACC 35; 2017 (2) SA 211 (CC)
para 69.

there are approximately 500 of them with only three that have not complied with the regulation)
have indeed complied with the regulation and allocated funds in accordance with its
provisions. Should the regulation be set aside, these Funds will have to reallocate the funds
retrospectively and also amend their records since 2003 in order to comply with a new regime
since reg 35. Such refunds and reallocation will be made despite the vested rights of former
members, an aspect to which I will return. These rights would be annulled despite having
accrued to former members and will be to the prejudice of such former members. The
prejudice will also be for those Funds who complied with the regulation and they, if the
regulation is set aside, will have to reallocate funds and re-do all the allocations since 2003.
This, too, will affect the rights of those former members who acquired rights due to the
allocation to them pursuant to the provisions of the regulation. These members are entitled to
protection rather than action that would deprive them of their rights. The applicant has failed
to show that the problem of acquired rights can be accommodated should the regulation be
set aside. That it would constitute an onerous task on the Funds who complied with the
regulation is apparent if regard is had to the various prescriptive provisions and the manner in
which the boards of Funds are required to consider the issues when allocating funds.’

[33] In dealing with time delay in relation to a review application brought in terms of
PAJA, as opposed to a collateral challenge, the court below expressed itself thus:
‘The position, should s 9 of PAJA not apply, is no different. Delay may not be a bar to a
collateral challenge in many cases. But as held by Cameron J in Merafong, it is available to a
party “who never previously confronted” the legal issue and where the law was possibly
unknown to the person it is sought to be enforced against. The applicant falls in neither
category. It is common cause that the applicant was confronted with the regulation over twelve
years ago but elected to ignore it. It was therefore well aware of the promulgation of the
regulation and delay can indeed be a disqualifying consideration. In addition, the applicant is
disqualified from attacking the regulation for the same reasons that were set out why an

extension of time would not be in the interests of justice. The applicant’s gross failure in so far
as its delay is concerned makes its unnecessary to consider the prospects of success.’

[34] The court below concluded as set out hereafter:
‘In my view, the applicant failed to make a case that it would be in the interests of justice to
allow it to embark on the collateral challenge belatedly introduced after all parties had filed
their affidavits dealing with the merits of the review matter. The application falls to be
dismissed on this basis alone.’

[35] The court below thought it prudent to consider the merits of the Fund’s case in
so far as it might impact on whether condonation should be granted. It held:
‘As far as the prospects of success are concerned, I find that the Minister had the authority to
make the Regulation. Section 36 of the PFA grants the Minister wide powers of regulation. A
limitation would have to meet the general principles of legality and rationality that have to be
met.’

[36] Furthermore, Wepener J accepted the correctness of the attitude of the
Registrar concerning the interpretation and application of ss 15B(4) and 15B(5)(e). In
this regard he said the following (at paras 20-21):
‘The applicant failed to have regard to the distinction between the various provisions of the
PFA and reg 35(4). In my view, it failed to acknowledge the different categories of members
dealt with by the PFA and the regulation and the effect and purpose of the regulation but dealt
with the different categories generically. A failure to appreciate that distinction led to the
challenge based on legality or that it is ultra vires the Minister’s powers, and a challenge based
on rationality. An analysis of the legislative scheme of the PFA leads to an understanding of,
which counsel for the second respondent submitted, the distinction between the “calculation

problem” and the “payment problem” that is evident from s 15B(4)(b) and s 15B(5)(e) on the
one hand and reg 35(4) on the other. These provisions provide for two different situations in
which actuarial surplus can be placed into a contingency reserve account. The sections confer
a discretion on a board whilst the regulation imposes an obligation.
The first situation arises where the benefits that are due to a former member are incapable of
calculation because of inadequate records that exist regarding that member. This results in a
board of a Fund being unable to apportion an actuarial surplus to such former member
because it is unable to determine what period the former member was a member of the Fund.
This leads to a difficulty in calculating the amount to apportion to such a member. A second
situation arises when the benefits of former members can be calculated but payment cannot
be made because the member cannot be traced. In such a case a board is able to apportion
actuarial surplus to the members’ surplus account and, importantly, the former member
acquires a right to such surplus. However, payment cannot be made to the former member
because the member’s whereabouts are unknown. This leads to a payment problem for the
Fund since it involves the payment of a benefit that has been calculated. The right to the
allocation vests in the former member “once the actuarial surplus in apportioned…” This is
different from other members who have been excluded from apportionment in terms of s
15B(4)(a) due to the fact that there are insufficient records available. These members do not
acquire rights to actuarial surplus.’

[37] At para 25 of its judgment the court below held as follows:
‘The very purpose of reg 35(4) is to cater for the former members for whom a benefit can be
calculated but who cannot be traced. In the result, since reg 35(4) does not deal with the same
category of former members as s 15B(5)(e), there is no inconsistency between the two
provisions and the regulation is therefore not ultra vires as it does not fetter the board’s
discretion when it comes to dealing with the former members as contemplated in s 15B(5)(e).’

[38] In the result, the court below dismissed the application in the terms mentioned
at the beginning of this judgment. It is against that order and the conclusions on which
it was based that the present appeal is directed.

[39] The anterior question was whether, because of the long delay, the application
by the Fund ought to have been entertained at all by the court below and whether this
court should consequently entertain the appeal on its merits.

[40] Before us counsel for the respective pension funds in each of the three related
appeals aligned with each other and made common cause in their quest to have the
regulations set aside or declared ultra vires the powers of the Minister. Counsel for the
FSCA and the Minister, likewise, supported each other in resisting the application
brought by each of the three pension funds. During oral argument before us it was
pointed out to counsel representing the FSCA and the Minister that in the Southern
Sun matter, which is one of the related appeals, the high court, in considering whether
to overlook the delay, took into account, inter alia, the importance of the issue,
including the nature and consequence of the impugned regulation and had concluded
that it was in the interests of justice to condone the delay, and that there was no cross
appeal in relation thereto, by the FSCA or the Minister. It was pointed out that it would
be most peculiar to decide the merits in one case and not in the other two, because
condonation was not warranted, despite the fact that a finding in the one case would
determine the legal position in relation to all three.

[41] After conferring, counsel on behalf of the FSCA and the Minister informed this
court that the delay should no longer be considered an issue between the disputants

and that the matter should be decided on the merits in all three matters. It will be
recalled that the FSCA had always adopted a neutral stance on the question of delay.

[42] In my view the concession was rightly made. The high court in Southern Sun,
in condoning the delay, took into account all the relevant factors when it exercised its
discretion in favour of the pension fund in that case.9 Similarly, in the present case,
considering the manner in which the dispute arose and having regard to the time when
matters came to a head, rather than the time of the promulgation of the regulation in
question, and the importance of the issues the interests of justice dictate that the delay
should be overlooked. Moreover, although courts should scrutinise asserted collateral
challenges carefully, to ensure that they qualify as such and should be countenanced,
lest that avenue becomes the new ‘go-to’ basis for justifying extensive delays, it does
appear to me that in the three appeals the respective pension funds were exposed to
the coercive force of the regulatory body, the FSCA.10 The delay, in the prevailing
circumstances, consequently, ought not to preclude the challenge on the basis that
the challenge by the Fund could correctly be construed to be a collateral challenge
and should be countenanced.11 It must also be understood that the coercive force was
only brought to bear more recently. Be that as it may, condonation was effectively
correctly conceded by the Minister and the FSCA. I turn now to address the merits.

9 Those factors would have been relevant whether the regulation making in the present case constituted
administrative action or not. Of course, in relation to PAJA the period to be taken into account for as a
baseline, in the assessment of whether the delay should be excused, is 180 days. See Buffalo City
Metropolitan Municipality v Asla Construction (Pty) Ltd [2019] ZACC 15; 2019 (4) SA 331 para 19.
10 That they faced the coercive power of the FSCA is best demonstrated by the directive form the
Registrar who disapproved of the fund causing R83.357 million that had stood to the credit of members
who could not be traced and whose claims could not be substantiated to revert to the fund. Several
years thereafter the Registrar directed the board of that Fund ‘within two months of the date of this
letter’ to reverse the decision to revert the abovementioned amount and ‘to restore the fund to financial
neutrality, ie in the same position it was prior to the reversion of the said amount.’ That was a tall order.
11 Merafong City Local Municipality v AngloGold Ashanti Limited [2016] ZACC 35; 2017 (2) SA 211 (CC)
paras 27, 30 and 32.

[43] As a starting point, it must be recognised that the surplus legislation was a
milestone in pension law. Before it came into operation, as pointed out by the FSCA,
the subject that exercised the mind of many pension lawyers and administrators was
the following: Who owned the surplus in a pension fund at any given time? The debate
around this question endured for a long time before the decision of this court in Tek
Corporation Provident Fund and Others v Lorentz.12 A core conclusion in that case
was the following:
‘Once a surplus arises it is ipso facto an integral component of the fund.’
This court, in Tek, acknowledged that the legislature was best placed to deal with the
manner in which surpluses should be apportioned. At that stage, there had already
been a consultation process concerning pension fund surpluses, involving
Government, Business and Labour. That process culminated in the surplus legislation.

[44] The surplus legislation is clearly remedial in nature in that it was designed to
redress past abuses of surpluses by a number of employers, but its other purpose was
also to ensure fairness in the distribution of a fund’s surplus on an ongoing basis. The
surplus legislation put paid to any notion that the employer owned a surplus in a fund.
The relevant parts of the PFA against which the impugned regulation has to be viewed
are set out hereafter.

[45] In s 1 of the PFA, as it stood at the time that the regulation in question came
into being, ‘actuarial surplus’ was defined as follows:
‘“actuarial surplus”, in relation to a fund which is—
(a) subject to actuarial valuation, means the difference between—

12 Tek Corporation Provident Fund and Others v Lorentz 1999 (4) SA 884 (SCA) para 17.

(i) the value that the valuator has placed on the assets of the fund less any credit balances
in the member and employer surplus accounts; and
(ii) the value that the valuator has placed on the liabilities of the fund in respect of
pensionable service accrued by members prior to the valuation date together with the value
of those contingency reserve accounts which are established or which the board deems
prudent to establish on the advice of the valuator…’ (Emphasis added).

[46] Presently, the definition of ‘actuarial surplus’ reads as follows:
‘“Actuarial surplus”, in relation to a fund which is—
(a) subject to actuarial valuation, means the difference between—
(i) the value, calculated in accordance with the prescribed basis, if any, that the valuator
has placed on the assets of the fund less any credit balances in the member and employer
surplus accounts; and
(ii) the value that the valuator has placed on the liabilities of the fund in respect of
pensionable service accrued by members prior to the valuation date plus the amounts
standing to the credit of those contingency reserve accounts which are established or which
the board deems prudent to establish on the advice of the valuator, calculated in
accordance with the prescribed basis, if any.’ (Emphasis added).

[47] The definition of contingency reserve account at the time of the promulgation
of the regulation in question reads as follows:
‘“Contingency reserve account”, in relation to a fund, means an account of the fund to which
shall be credited or debited such amounts as the board shall determine, on the advice of the
valuator where the fund is not exempt from actuarial valuations, in order to provide for explicit
contingencies.’

Section 1 of the Pension Funds Amendment Act 11 of 2007 amended the definition of
‘contingency reserve account’ by adding words after ‘… an account of the fund’ as it
appears in the definition immediately above. Those words are:
‘… which has been amended in accordance with the requirements of the Registrar, or which
has not been disallowed by the Registrar…’
That amendment was part of a list of definitions and provisions that were deemed to
have come into operation on 7 December 2001, in terms of s 40B, which caters for
retrospectivity. It appears to relate to those funds that were yet to obtain approval for
their surplus apportionment schemes. It does not apply to the Fund. The Financial
Services Laws General Amendment Act 45 of 2013 brought about a further change.
Presently, the definition of ‘contingency reserve account’ in s 1 of the PFA reads as
follows:
‘“contingency reserve account”, in relation to a fund, means an account provided for in the
rules of the fund, which has been amended in accordance with the requirements of the
Registrar, or which has not been disallowed by the Registrar, and to which shall be credited
or debited such amounts as the board shall determine, on the advice of the valuator where
the fund is not valuation exempt, in order to provide for a specific category of contingency.’
(Emphasis added).

[48] Because there are references to ‘valuators’ and ‘valuations’ and actuaries in
the definitions referred to above and in the applicable provisions of the PFA, it is
necessary, first, to have regard to the definition of ‘valuator’ in s 1 of the PFA. Presently
‘valuator’ means an ‘actuary who, in the opinion of the Registrar, has sufficient
actuarial knowledge to perform the duties required of a valuator in terms of this Act’.13

13 Prior to amendment by Act 45 of 2013 ‘valuator’ was defined as follows:

Second, I deal with the definitions of ‘actuary’. Presently ‘actuary’ is defined as ‘a
natural person admitted as a fellow member of the Actuarial Society of South Africa or
any other institution approved by the Registrar...14’ Third, it is necessary to appreciate
that actuaries are experts in statistics and are used  to assess risks and calculate
insurance premiums, and are routinely employed in the field of pensions, as the
repeated references to actuarial valuations and actuarial surplus in the PFA
demonstrate.15 Lastly, ‘surplus apportionment date’, as defined in s 1 of the PFA,
‘means the first statutory actuarial valuation date following the commencement date’.

[49] As can be seen from the definitions set out above, a pension fund board
features prominently in relation to an actuarial surplus and a contingency reserve
account. The status and responsibility of a board in relation to a pension fund can be
gleaned from the object of a board set out in s 7C(1) of the PFA:
‘The object of a board shall be to direct, control and oversee the operations of a fund in
accordance with applicable laws and the rules of the fund’.
In pursuing that object, it is required that the board act in the best interests of members
and with ‘due care, diligence and good faith’.16

‘valuator means an actuary or any other person who, in the opinion of the Registrar, has sufficient
actuarial knowledge to perform the duties required of a valuator in terms of this Act.’
14 Prior to amendment by the Financial Services Laws General Amendment Act 22 of 2008: ‘“actuary”
means any Fellow of the Institute of Actuaries of England or of the Faculty of Actuaries in Scotland or
of the Society of Actuaries of America or of any other institute, faculty, society or chapter of actuaries
approved by the Minister…’
And, prior to amendment by the Financial Services Laws General Amendment Act 45 of 2013: ‘“actuary”
means a person admitted as a fellow member of the Actuarial Society of South Africa or any other
institution approved by the Minister…’
15 See also the definition of ‘actuary’ in the Oxford English Dictionary (OED 3 ed, 2010):
‘A person who compiles and analyses statistics of mortality, accidents, etc., and uses them to calculate
insurance risks and premiums.’
16 Section 7C(2) of the PFA.

[50] As explained earlier, the surplus legislation included ss 15A to 15K. In most of
those sections of the PFA the board of a pension fund itself features prominently.
Section 15A(1), in line with the dictum from Tek cited above, reads as follows:
‘All actuarial surplus in the fund belongs to the fund.’

[51] Section 15B(1) deals with the apportionment of an existing surplus and provides
that the board of every fund that commenced prior to March 2002 must submit to the
Registrar a proposed apportionment of an actuarial surplus. This provision was
fundamental to the new pension surplus regime introduced by the surplus legislation.
In proposing the scheme, a board had to provide details of any surplus historically
improperly utilised by an employer who participated in the fund at the time of the
improper utilisation.

[52] ‘Statutory actuarial valuation’, in relation to a pension fund, means ‘an
investigation by a valuator contemplated in s 16’. That section provides for an
investigation by a fund, once at least every three years, into its financial condition and
for a report in relation thereto by a valuator at the instance of its board. The report is
to be lodged with the Registrar.

[53] Section 15B also sets the rules of general application for all apportionments, in
favour of members, former members and employers. Section 15B(2) provides that a
scheme may involve the improvement of benefits to existing members, increases to
benefits or transfer values in respect of former members, the crediting of an amount
to a member’s surplus account, the crediting of an amount to an employer’s surplus
account or any two of the aforesaid. In terms of s 15B(3) a board must appoint

someone to represent the interests of former members and such person must then be
of assistance to the board in identifying former members, communicating proposals to
them and to the funds to which they might have transferred, communicating proposals
from former members to the board and collating any objections by former members to
the scheme. The person appointed to represent former members is also required to
report in writing to the board, inter alia, on the adequacy of the steps taken to involve
former members.

[54] Section 15B(4) which, for present purposes, has to be read with the material
parts of s 15B(5), provides:
The board shall determine who may participate in the apportionment of actuarial surplus, and
shall include in such apportionment existing members and any former members who left the
fund in the period from 1 January 1980 to the surplus apportionment date: Provided that—
(a) the board may exclude from participation former members in respect of whom the board
satisfies the Registrar that insufficient records are available to enable the additional benefits
that may be due to such former members to be calculated, after the board has taken
reasonable steps—
(i) to obtain such records from the administrator;
(ii) to construct such records from the records of the—
(aa) employer;
(bb) any fund to which such former members transferred; or
(cc) a trade union or staff association active in the workplace during this period; or
(iii) if the steps in subparagraph (i) and (ii) do not yield sufficient information, to obtain such
records from potential claimants themselves following an advertisement—
(aa) on a national basis and in the area where the former members used to work; or
(bb) on a more limited basis as approved by the Registrar if representations by the fund

satisfy the Registrar that limited advertisement will be adequate, inviting the former
members to come forward with evidence to substantiate their claim, after which
advertisement the board should wait at least six months but no longer than nine months
before excluding any former members because of a lack of sufficient information to
enable the calculations to be performed;
(b) rather than excluding former members whose individual benefits cannot be determined,
the board may set aside a portion of the actuarial surplus in a contingency reserve account
explicitly established to satisfy claims of former members in terms of subsection (5)(e).’
(Emphasis added).
As can be seen, this subsection makes a board the determinant of which categories
of persons shall participate in the surplus apportionment. The board is obliged to
include for participation, those who departed the fund in the period 1 January 1980 up
to the surplus apportionment date, including untraced members. It may exclude
unquantifiable members. Section 15B(4)(b) does, however, provide the option of
establishing a contingency reserve account in order to satisfy the potential claims of
unquantifiable members in terms of the proviso in s 15B(5)(e).

[55] Sections 15B(5)(a) and (b) read as follows:
‘(5) The board shall apportion the actuarial surplus between the various classes of
stakeholders whom the board has determined shall participate in the apportionment in terms
of subsection (4), following which such portion as is due to the employer shall be credited to
the employer surplus account: Provided that—
(a) the actuarial surplus to be apportioned shall be increased by an amount of actuarial surplus
utilised improperly by the employer prior to the surplus apportionment date as determined in
terms of subsection (6);
(b) former members shall have the benefits previously paid to them, or the amounts previously
transferred on their behalf, increased to the minimum benefit determined in terms of s 14B(2)

or 14B(6) as at the date when they left the fund, with such increase adjusted to the surplus
apportionment date with fund return over the corresponding period…’
(Emphasis added).
The remainder of this subsection deals with an adjustment for pensioners and for a
proportionate downwards revision in the event that the actuarial surplus to be
apportioned is insufficient to permit such increases.

[56] Section 15B(5)(e), which is crucial in the determination of the appeal, reads
thus:
‘(5) The board shall apportion the actuarial surplus between the various classes of
stakeholders whom the board has determined shall participate in the apportionment in terms
of subsection (4), following which such portion as is due to the employer shall be credited to
the employer surplus account: Provided that—
…
(e) the board shall determine how, in the case of existing and former members, the allocated
portion of actuarial surplus shall be applied for their benefit, including the crediting of any
portion to the members’ surplus accounts or to the members’ individual accounts, as the case
may be: Provided further that the board may allocate a portion of the actuarial surplus to be
used for former members to a contingency reserve account which will be used to satisfy the
claims of former members—
(i) who have been identified in subsection 4(a) but who cannot be traced; or
(ii) who did not substantiate their claim during the nine-month period following the
advertisement in subsection (4)(a)(iii) but who do so after the end of the period...’
(Emphasis added)

[57] The statutory provisions referred to in the preceding paragraphs, including the
definitions referred to earlier, show that a board is the protagonist in directing and

controlling the operations of a pension fund. Of course, that is subject to such
measures as the regulator, the FSCA, might employ in terms of the PFA. It is a board’s
prerogative to determine how to apply a surplus apportionment for the benefit of former
members, including those who have not yet been traced. Section 15B(5)(e) has to be
read with the rest of the provisions of s 15B(5). There is a cross reference to s 15B(4).
These sections, read and understood contextually, make it clear that a board
determines who may participate in the apportionment of an actuarial surplus, and
determines how a surplus is to be applied for the benefit of various categories of
beneficiaries, including the establishment of contingency reserve accounts. Its
discretion is not limited by s 15B(5)(e) to the establishment of such an account only in
relation to unquantifiable members. The submissions to the contrary advanced by the
FSCA and the Minister and the finding by the court below that that a board is so limited
are erroneous.17

[58] It was correctly submitted before us on behalf of all of the funds in the three
appeals that an actuarial surplus in a fund is an actuarial calculation of a fund’s assets
over its liabilities and need not be represented by an actual cash fund in the calculated
amount. When a surplus is apportioned the fund assumes liabilities to its members. It
vests in members a claim against the fund. That is how s 15A should be understood,
where it speaks of rights acquired by members, former members and employers when
a surplus is apportioned.

[59] At this stage it is necessary to turn to consider, alongside the statutory
provisions referred to above, the provisions of regulation 35(4). Before considering the

17 See, further, para 62 (infra).

scheme of regulation 35, regard should be had to the source of Minister’s power in
terms of the PFA to make regulations. It is located in s 36, the relevant parts of which,
read as follows:
‘(1) The Minister may make regulations, not inconsistent with the Provisions of this Act-
(a) in respect of all matters which by this Act are required or permitted to be prescribed by
regulation…’
The introductory part of that subsection is typical and is meant to keep the regulation
making within the parameters of the authorising Act. Put differently, any regulation
pursuant to s 36 is meant to be consonant with the provisions of the authorising Act,
the PFA.

[60] More than seventeen years ago, on 22 April 2003, the Minister, purporting to
act in terms of s 36(1) of the PFA, promulgated regulations, including regulation 35(4),
which is at the centre of this appeal. Although referred to in the Registrar’s
communication set out in para 20 above, for convenience it is restated hereafter, within
the full text of regulation 35. As proclaimed in the heading, regulation 35 purports to
deal with ‘contingency reserve funds’. It reads as follows:
‘35 Establishment of Contingency Reserve Accounts—
(1) By virtue of the fact that—
(a) the Act vests powers in boards of funds to establish contingency reserve accounts; and
(b) the establishment of contingency reserve accounts reduces the actuarial surplus available
for apportionment and increases the possibility that actuarial surplus may be insufficient to
enhance benefits previously paid to former members to the level prescribed in terms of
s 15B(5)(b) of the Act,
no fund may, with effect from the date of commencement of this regulation, establish any
contingency reserve account under circumstances where a reasonable inference may be

made that the establishment of the account is contrary to the duties of the relevant board
under s 7C(2)(b) of the Act and motivated by bad faith.
(2) The establishment and magnitude of any contingency reserve account by a fund—
(a) must be motivated by the valuator in the relevant report on the statutory actuarial valuation;
and
(b) may, where the Registrar is not satisfied with any such motivation, be rejected by the
Registrar.
(3) A fund must, on any such rejection of the establishment or magnitude of the relevant
contingency reserve account, take such steps in connection therewith as the Registrar
determines and sets out in writing to the relevant fund.
(4) Where a board is able to determine the enhancement due in respect of a particular former
member in terms of s 15B(5)(b) or (c) of the Act, but is unable to trace that former member in
order to make payment, the board shall put the corresponding enhancement into a
contingency reserve account specific for the purpose. Notwithstanding anything in the rules of
the fund, moneys may not be released from such contingency reserve accounts except as a
result of payment to such former members or as a result of crediting the Guardian’s Fund or
some other fund established by law to include such amounts.’ (Emphasis added).

[61] Regulation 35 commences with the recognition that the power to create
contingency funds vests in a board. Yet, contradictorily, it goes to on dictate that the
board ‘shall’ put funds into a contingency reserve account.in order to meet claims from
as yet untraced members and the funds may not be released except to pay the claims
or crediting the Guardian’s Fund or some other fund’. How can crediting the Guardian’s
Fund or ‘some other fund’ be consonant with the provisions of the PFA? Counsel for
the Minister and the PFA were rightly constrained not to seek to justify the envisaged
potential transfer, as it were, to the Guardian’s Fund. In the Guardian’s Fund or in
some other fund the monies that were destined for former untraced members would

be lost to them and to the Fund. If it were to remain in the Fund and remained
unclaimed in perpetuity that will have the effect of sterilizing the monies from which
past or present members who are traceable could never benefit. It will be recalled that
in terms of s 15A all actuarial surplus belongs to a fund.

[62] The Minister arrogated the power to deal with a surplus and to establish
contingency reserve funds, to the exclusion of the board. As demonstrated above
those aspects are within a board’s prerogative. In promulgating regulation 35(4) the
Minister acted beyond the regulation making powers set by the PFA. The court below
erred in its interpretation of the relevant provisions of the PFA, especially in relation to
s 15B(5)(e). That subsection is not time bound nor does it relate only to unquantifiable
former members, namely, those for whom benefits cannot be calculated. It has to be
read within the scheme of s 15B and there is a cross reference to s 15B(4). Together
they set out the powers of a board in general terms. When a board exercises a
discretion in allocating a surplus for the benefit of former members, thereby creating a
liability, it must concomitantly decide how to cater for claims that eventuate. The
board’s decisions can be interrogated by the regulator against the provisions of the
PFA, but those decisions are within the remit of the board.   Regulation 35(4) intrudes
upon the board’s wide discretion by compelling the board to place the entire allocation
in a contingency reserve account and freezing it in perpetuity.

[63] The Minister and the FSCA’s submissions in relation to the meaning of
‘contingency reserve account’ in regulation 35(4) are without substance. The
impugned regulation itself speaks of a ‘contingency reserve fund’ but the Minister and
the FSCA then sought to disown the concept and the description. In the three related

appeals the contingency relates to the likelihood of the claims materialising. It is in
respect thereto that valuators make assumptions. It is a regular occurrence in the field
of pensions and in the insurance industry. The court below erred in its interpretation
of the relevant provisions of the PFA and of the field of operation of regulation 35(4)
and the Minister’s regulation making power.

[64] During oral argument this court directed the parties to provide post-hearing,
written submissions on the possible effect of setting aside the impugned regulation.
We received those submissions. In essence the Minister and the FSCA submitted,
with reference to Bengwenyama Minerals and Other v Genorah Resources (Pty) Ltd
and Others18 that setting aside the regulation, without suspending the order of
invalidity, to enable an opportunity for the Minister to correct it, would result in chaos
and encourage maladministration. It was submitted that pension funds would be
incentivised to be lax in tracing former members and that boards would be free to do
as they please and build up unmanageable deficits.

[65] A pension fund in which no contingency reserve account has been established,
but where other arrangements have been made to accommodate potential claims, will
occasion no loss of regulatory oversight. In terms of the definition of ‘contingency
reserve account’, which appears above, credits or debits can only be entered in
relation thereto on the advice of a valuator. The board will reflect on the advice it
receives from a valuator. In the periodic reports submitted to the FSCA the advice and
the provision made for claims that might eventuate. or lack of it, can be interrogated

18 Bengwenyama Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and Others [2010]
ZACC 26; 2011 (4) SA 113 (CC) para 81-84.

and either approved, or rejected. Furthermore, funds are obliged, unless exempted, to
deposit annual financial statements with the FSCA. The FSCA can utilise s 15K to
refer matters to a tribunal to make certain determinations. When concerns about the
financial soundness of a fund arise, s 18 of the PFA is at its disposal.  There are a
number of tools at the disposal of the FSCA to ensure compliance with the provisions
of the PFA and to secure the financial soundness of a fund.

[66] The point made on behalf of the Minister and the FSCA that the setting aside
of the regulation will lead to laxity on the part of boards and that they will be
incentivised to expend very little or no effort to trace former members, is without
substance. The FSCA can always question the adequacy of steps taken and issue
directions in relation thereto. In addition, the provisions of s 15B(3), referred to above,
come into play. It will be recalled that the person appointed to represent former
members is required to report to the board about the adequacy of steps taken to trace
former members.

[67] The court below, in considering whether the long delay by the Fund in bringing
the application should be excused, concluded that there would be prejudice in relation
to other funds which have complied with directives by the Registrar and have held
funds in a special contingency reserve and that there might have to be reallocations
retrospectively, in the event of the impugned regulation being set aside. The court
surmised that those to whom allocations had been made pursuant to the provisions of
the regulations would be prejudiced as their allocations might have to be revisited.

[68] Those fears are unfounded. The board of a fund can make provision for claims
that might materialise, as in Hortors. The sufficiency of such measures might be
interrogated by the FSCA. Those issues will come to light in a SAS and an
accompanying valuation. That is the debate to be had, rather than rigid adherence to
the unyielding prescripts of regulation 35(4). All the indications are that strict
adherence to the regulation would, for the most part, result in the sterilization of that
part of the surplus, well in excess of what would be required to meet future claims. On
the other hand, such sterilization would prevent further allocations to benefit former
members, frustrating the purpose of the surplus legislation to ensure fairness in the
distribution of a surplus.

[69] In the present case the Fund was mistaken as to the claims of former members
being extinguished. They continue to adhere. The question is whether actuarial
assumptions in valuation reports as to their eventuating are within an acceptable
compass. The Fund’s rule on reversion and the extinguishing of claims is not the
answer. The engagement between the Fund and the regulator in this case should be
about whether it is necessary to make provision for claims eventuating and if so, its
sufficiency.

[70] From exchanges between the Fund and the board and from parts of the
affidavits referred to above, the complaint that the Fund’s challenge to the validity of
the regulation has changed and gone beyond the issues raised in the pleadings is
without merit.

[71] The funds in all three appeals, after conferring, were agreed that in the event
that they were successful in the appeal there should be no order as to costs.

[72] For all the reasons set out above it follows that the appeal must be upheld. The
following order is made:
The appeal is upheld with no order as to costs.
The order of the court below is set aside and substituted as follows:
‘Regulation 35(4) of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers under the provisions of
the Pension Funds Act 24 of 1956.’

________________________
M S NAVSA
JUDGE OF APPEAL

APPEARANCES:

For Appellant:

AE Franklin SC, with PA Buirski
Instructed by:

Du Randt & Louw Inc, Kroonstad

Phatshoane Henney Attorneys, Bloemfontein

For First Respondent:
NH Maenetje SC, with S Khumalo
Instructed by:

State Attorney, Pretoria
State Attorney, Bloemfontein

For Second Respondent: A Cockrell SC, with N Mbelle
Instructed by:

Rooth & Wessels Inc, Pretoria
Pieter Skein Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF THREE JUDGMENTS DELIVERED IN THE SUPREME
COURT OF APPEAL
Hortors Pension Fund v Financial Sector Conduct Authority and Another
(Case no 054/20) [2020] ZASCA 141;
Southern Sun Group Retirement Fund v The Registrar of Pension Funds and Others
(Case no 215/19) [2020] ZASCA 142;
Vrystaatse Munisipale Pensioenfonds v The Minister of Finance and Another
(Case no 1161/18) [2020] ZASCA 143
From:
The Registrar, Supreme Court of Appeal
Date:
02 November 2020
Status:
Immediate
The following summary is for the benefit of the media in the reporting of these cases and does not
form part of the judgments of the Supreme Court of Appeal

Today the Supreme Court of Appeal (SCA) handed down judgments in three related appeals
that were heard on the same day. All three appeals were directed against decisions of the
Gauteng Division of the High Court – Hortors Pension Fund and Vrystaatse Munisipale
Pensioenfonds of the Provincial Division (Pretoria) (Kollapen J and Wepener J, respectively
sitting as the courts of first instance) and Southern Sun Group Retirement Fund of the Local
Division (Johannesburg) (Siwendu J, sitting as court of first instance) – concerning the
distribution of actuarial surpluses and provisions that may need to be made in order to meet the
claims of former members of pension funds. All three of the appeals were upheld, with no order
as to costs.

The matters involved the interpretation and application of a regulation promulgated by the
Minister of Finance, purportedly under the powers assigned to the Minister in terms of the
Pension Funds Act 24 of 1956, governing the manner in which an actuarial surplus, ie the
surplus that arises when an actuary of a pension fund determines that its assets exceed its
liabilities, is apportioned and applied for the benefit of former members of a pension fund. The
appellants in each matter are registered pension funds, to wit: the Hortors Pension Fund, the
Southern Sun Group Retirement Fund, and the Vrystaatse Munisipale Pensioenfonds
(collectively, the Funds).  The Funds had brought respective applications in the high court to
have the regulation 35(4) declared invalid.

The regulation obliges a pension fund to place in a contingency reserve account the total
amount of enhancements due to quantifiable, but as yet untraced members of that fund, where
it is to stay until claimed or transferred to a particular fund identified in the regulation. The
principal issue was thus whether the regulation in question was beyond the powers assigned to
the Minister under the PFA.

The Minister and the Financial Services Conduct Authority (FSCA) opposed the applications,
first, on the basis of delay. In their view there had been an unreasonable and excessive delay,
of between twelve and fourteen years, from the date on which the regulation was promulgated
by the Minister and the various dates on which the review applications were launched. There
was some issue with the classification of the respective reviews, as either reviews under the
Promotion of Administrative Justice Act 3 of 2000, which prescribes a maximum period of 180
days in which an application for the review of administrative action is to be brought, or
so-called collateral challenges. Nevertheless, on appeal it was pointed out that the high court
in Southern Sun (Siwendu J) had condoned the delay after considering it in the interests of
justice to do so, which finding was not cross-appealed by either the Minister or the FSCA. The
Minister and the FSCA accordingly conceded the point. The matters were decided on their
merits, on the basis that the SCA found that the point was correctly conceded and that it was in
the interests of justice that the delay be overlooked.

The SCA noted that the surplus legislation was remedial in nature, designed to redress past
abuses of surpluses by a number of employers but also to ensure fairness in the distribution of
a pension fund’s surplus on an ongoing basis. Having regard to the relevant definitions and

other provisions in the surplus legislation, and other provisions of the PFA, it found that a
pension fund board featured prominently in relation to an actuarial surplus and a contingency
reserve account. Indeed, the SCA noted, in the case of an actuarial surplus the board is the
determinant of which categories of persons shall participate in the surplus apportionment. The
SCA found that the relevant statutory provisions were clear on the fact that a board is the
protagonist in directing and controlling the operations of a pension fund. A board determines
how a surplus is to be allocated and then decides how it is to be applied for the benefit of
various categories of beneficiaries, including the establishment of contingency reserve
accounts.

The SCA held that an actuarial surplus in a fund is an actuarial calculation of a fund’s assets
over its liabilities, and did not have to be represented by an actual cash fund in the calculated
amount. By apportioning a surplus a fund assumes liabilities to its members and vests in them
a claim against the fund. This was the position found to exist under the PFA.

The SCA thereafter scrutinised the provisions of regulation 35, which purports to deal with
contingency reserve accounts. Regulation 35(4) was promulgated by the Minister, who is
empowered to make regulations on all matters required or permitted to be prescribed by
regulation, provided they are consistent with the provisions of the PFA. The SCA found that
while regulation 35 acknowledged that the board has the power to create a contingency reserve
account, it went on to provide that a board ‘shall’ put funds into such an account; and that these
funds could not be released except to pay claims or to credit the Guardian’s Fund or some other
fund established by law to include such amounts. It was held that the Minister, by promulgating
regulation 35(4), arrogated powers that vested in the board. In promulgating regulation 35(4)
the Minister had acted beyond the regulation-making powers set by the PFA.

The SCA found that when a board exercises a discretion in apportioning a surplus for the
benefit of former members, thereby creating a liability, it was to concomitantly decide how to
cater for claims that might eventuate. The board’s decisions could be interrogated by the FSCA
against the provisions of the PFA, but those decisions were within the remit of the board. In
compelling a board to place the entire allocation into a contingency reserve account and
freezing it in perpetuity, regulation 35(4) was held to be an intrusion upon the board’s wide
discretion.

Lastly, the SCA had directed the parties to provide post-hearing, written submissions on the
possible effect of setting aside the impugned regulation. The Minister and the FSCA submitted
that setting aside the regulation, without suspending the order of invalidity, to provide the
Minister with an opportunity to correct it, would result in chaos and encourage
maladministration. It was submitted that pension funds would be incentivised to be lax in
tracing former members and that boards would be free to do as they please and build up
unmanageable deficits. The SCA found these submissions to be devoid of any substance, for
there were various provisions in the PFA which allowed the FSCA to ensure compliance with
the provisions of the PFA and to secure the financial soundness of a fund.

In the result, the appeals were upheld with no order as to costs.

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