In the Financial Services Tribunal (FST) decision in Rand Mutual Assurance Co Ltd v TJ Begwa and others (Case No PFA19/2024 – 15 August 2024), the FST ruled that an employer’s compliance with the audi alteram partem rule (hear the other side) does not absolve a board of a fund from its separate obligation to afford the same right to a member.
The member was responsible for managing the claims process, including adjudication, claims management, capturing claims on the system, and processing payments for injured employees, claims for which the employer was responsible. A dispute arose because the member had allegedly captured and processed claims based on false or incorrect information, resulting in the employer making payments for those claims. The employer informed the member of these allegations and sought a response. However, the member did not respond and resigned with immediate effect. The employer rejected her resignation and scheduled a disciplinary hearing, which the member did not attend. In her absence, she was found guilty of various offenses, including fraud.
The employer then requested the fund to withhold the member’s benefit pending a civil claim in accordance with section 37D(1)(b) of the Pension Funds Act (Act). The fund withheld the benefit without giving the member a chance to respond to the employer’s allegations. The member approached the Adjudicator, seeking the release of her benefit, arguing that she was not given an opportunity to be heard by the fund.
The Adjudicator ruled in favour of the member and held that once a benefit has accrued, the member has full ownership. Any decision to deprive the member of its use must be made after careful balancing of the interests of the parties, including giving the member a chance to present her case to the fund. The Adjudicator set aside the fund’s decision for failing to adhere to the audi rule and ordered the release of the member’s benefit.
The FST held that while the employer had made a prima facie case and given the member a chance to respond, this did not absolve the fund of its independent duty to comply with the audi rule. The fund’s failure to comply with the audi rule was fatal to its decision to withhold the member’s benefit. In addition, it was held that the appropriate course of action would have been for the Adjudicator to refer the matter back to the fund to allow the member to respond before any decision to withhold.
The Adjudicator recognises that where an employer has a prima facie case and follows the correct processes, releasing the benefit because of the fund’s failures may unduly prejudice the employer. In such cases, the Adjudicator will consider setting aside the fund’s decision and order the fund to comply with the audi rule before re-exercising its discretion. The Adjudicator welcomes the FST decision and had already adopted this approach before the FST ruling, refer to T Van Schalkwyk v DSV Flexi Retirement Fund Pension Section (PFA/GP/00101812/2023) (20 March 2024).
Compensation order in terms of section 300 of the Criminal Procedure Act
Amendments to the Act, effective 1 September 2024, state that a judgment in terms of section 37D(1)(b)(ii) obtained against a member includes a compensation order granted in terms of section 300 of the Criminal Procedure Act. Applying the purposive interpretation as highlighted in the case of Highveld Steel and Vanadium Corporation Ltd v Oosthuizen (103/2008) [2008] ZASCA 164; 2009 (4) SA 1 (SCA); [2009] 2 All SA 225 (SCA) (Highveld Steel), this means that where an employer has lodged a criminal case, the fund may allow the employer time to pursue the recovery of misappropriated funds through a section 300 compensation order. However, this does not absolve the fund of the duty to exercise its discretion with care, balance the competing interests and give due consideration to the strength of the employer’s case against the member.
This will necessitate a change in the approach adopted by funds. Prior to the amendments, the Adjudicator adopted the findings by the FST in various matters that held that section 37D(1)(b)(ii) of the Act, as it was worded then, dealt with admissions of liability and civil judgments. The amendments are not retrospective. Complaints lodged before 1 September 2024 will continue to follow the previous approach, where benefits could not be withheld based on criminal cases. Complaints lodged after 1 September 2024 will apply the new position even if the decision to withhold was made prior to 1 September 2024. The Adjudicator is aware of pending High Court cases seeking to clarify whether pension funds can withhold members’ benefits based on criminal cases lodged by the employer. The outcomes of these cases will provide guidance to ensure a consistent approach.
In conclusion, boards are reminded of the importance of adhering to the audi rule, as decisions made without this procedural step risk being set aside. This can lead to delays that negatively impact members. The new amendments relating to section 300 compensation orders mark a significant shift with far-reaching implications. Since criminal cases often take longer to resolve, funds now have to ensure that they closely monitor the progress of the criminal cases and ensure that there is no unreasonable delay occasioned by the conduct of the employer.