Section 37C investigations remain one of the onerous duties for trustees to navigate. The Constitutional Court’s ruling in Mutsila v Municipal Gratuity Fund and Others [2025] ZACC 17 provides much needed guidance and clarity on the application of section 37C and highlights the responsibilities trustees must fulfill when allocating death benefits.
Background
Ms Mutsila, who was married to the deceased and the mother of five of his children, approached the Constitutional Court to challenge the Supreme Court of Appeal’s decision to uphold the inclusion of Ms Masete and her two children in the allocation of the death benefit by the fund. Ms Masete claimed to be a customary spouse of the deceased and that she and her children were financially dependent on him.
She was a beneficiary on the deceased’s funeral policy and indicated that the deceased made regular payments into her bank account.
Ms Mutsila objected to the fund’s decision and commissioned a private investigator, who uncovered that Ms Masete was customarily married to another man, with whom she shared the two children; there were ongoing custody proceedings in that regard, which cast doubt on Ms Masete’s claims of the children being dependent on the deceased.
At the stage when Ms Mutsila’s complaint was with the Adjudicator, the fund requested permission to file a response after the conclusion of the custody proceedings. However, the Adjudicator issued a determination setting aside the fund’s decision and held that the fund had failed to conduct a proper investigation before allocating the death benefit.
The fund, dissatisfied with the Adjudicator’s ruling, applied to the High Court in terms of section 30P. The High Court upheld the decision, prompting the fund to approach the Full Court, which found that the fund had allocated the death benefits without properly identifying dependants.
On appeal to the Supreme Court of Appeal, the fund argued that it was denied the right to respond, which violated the audi alteram partem principle (hear the other side). The SCA upheld the appeal and found that the Adjudicator had failed to observe procedural fairness.
In its judgment, the Constitutional Court addressed several questions and examined key legal principles.
Did the fund properly exercise its discretion?
The Court clarified that in terms of section 37C, the fund’s discretion is limited to identifying factual dependants (legal dependency is by operation of law) and to allocating and distributing benefits accordingly.
It outlined three key stages in this process:
The board must “actively” trace and assess potential dependants’ degree of dependency.
Make an equitable allocation of the death benefit. Dependants are entitled only to consideration, not automatic benefit.
Decide how to effect payment. (For example, the fund could decide to pay a minor beneficiary’s benefit to a beneficiary fund instead of the child’s guardian.)
The Court held that while the fund’s discretion is wide, it is heavily dependent on the factual circumstances of each case. This discretion must be exercised in a judicially compliant manner. Furthermore, the board’s decision may only be reviewed if the discretion was exercised unreasonably or improperly.
In this case, the fund relied solely on Ms Masete’s assertions without verifying her claims. No evidence was provided to show that the deceased supported her children. The fund initially treated her and the children as legal dependants, and they were only reclassified as factual dependants after doubts emerged about the marriage and paternity.
This highlights trustees’ duty to independently verify claims and not passively accept information from beneficiaries. Classification as a factual dependant must be backed by proof of actual dependency. If the fund accepts information without verification, it is unlikely to meet the standard of judicial compliance envisaged in the judgment.
At which stage must dependency be determined?
The Court stated that this question must be considered in light of the purpose of section 37C, to protect dependants and ensure that no dependants are left without support. The objective facts in respect of determining who was factually dependent must have existed at the time of the member’s death.
The Court set a twofold test for factual dependants: the person must have needed support from the member, and the member must have regularly provided it. However, this does not apply to the spouse and children, whose dependency is presumed by law.
The Court held that a change in circumstances after the member’s death does not affect a person’s status as a dependant, although it may influence the equitable distribution of benefits. The Supreme Court of Appeal’s interpretation in Fundsatwork Umbrella Pension Fund v Guarnieri could result in an untenable situation where new dependants are introduced, individuals who were neither legally nor factually dependent on the deceased at the time of death.
Dependency must be proven based on historical support, not at the time of distribution.
As dependants are required to produce proof of dependency, trustees must note that any delay in initiating investigations can jeopardise the dependant’s ability to provide proof. If investigations are delayed, crucial evidence that existed at the time of the member’s death may be lost, which may place factual dependants at a serious disadvantage.
When must the person be a “beneficiary”?
The Court held that there is no basis to conclude that someone must still be a beneficiary at the time the distribution is made, as indicated in “Guarnieri”. A dependant’s status is fixed at the time of death and does not change. While circumstances may shift, such as financial gains or death, these affect the allocation, not the status.
In practice, such individuals remain dependants, though their share may be reduced or nil.
An order of substitution
The Court held that it can only grant an order for substitution in exceptional circumstances. The matter was referred to the fund to avoid further delays and costs.
In conclusion
The judgment does not change the law but clarifies how it should be applied.
