Edition: November 2018/January 2019
Follow the money
Where to now that the Concourt, in a split decision, has ruled in favour of the FSCA on the contentious ‘cancellations project’? The minority judgment retains relevance.
In the normal course, the findings of the Constitutional Court should put an end to the dispute adjudicated. Legally, since the majority has dismissed the challenge of former pensions regulator Rosemary Hunter, it has. Practically, as National Treasury intends still to address what it describes as the concerns of key stakeholders, it might still have a way to run.
This is not only because of profound disagreements in the approaches of the seven-member majority (written by Justice Khampepe) and the three-member minority (written by Justice Froneman) which impact on public policy. It’s also because of the FSCA’s reputation in that Treasury believes both the majority and minority judgments “offer valuable insights...to strengthen the regulatory system and better protect members of retirement funds”.
The Concourt decision was a long time coming (TT Feb-April). Hunter had previously lost in two trials before the High Court and one before the Supreme Court of Appeal. This time the Concourt recognised her right to bring the application, for an order that alleged irregularities in the cancellations of ‘orphan’ pension funds be properly investigated, and negated the lower courts’ costs awards against her. It was only Justice Cachalia who opined that the Concourt should not have heard her application.
Flowing from the Concourt decision:
Did the FSCA do enough?
Common cause is that there were erroneous cancellations and that prejudice had arisen. An issue was whether the extent had yet been conclusively determined.
Said the majority: “The FSCA has not only recognised and discharged its duty to investigate whatever is worthy of investigation, but administrators have also embarked on the responsible exercise of ensuring that the interests of admittedly vulnerable pensioners are not compromised.”
Reasonably satisfactory investigations have now been conducted, it held, and at some stage these investigations must come to an end: “Ms Hunter must live with that reality. It seems to be irreconcilable with an assumption or acceptance that the FSCA is run by responsible and competent people to order them to conduct investigations additional to those already conducted.”
The minority differed fundamentally. It was insufficient for the FSCA to have looked only at a sample of 510 funds when the registrations of 4 600 funds had been cancelled. All the cancelled funds should be investigated. The FSCA view, not to investigate them further at this point, is “untenable”.
The order sought by Hunter in her appeal, for further investigation, should have been granted. The FSCA has failed as a public functionary to uphold the constitutional standards of accountability, responsiveness and openness in its own conduct.
How must a complaint against a public functionary be addressed?
Hunter lost her application, said the majority, because she “chose to ride the wrong horse”. She should have proceeded through the Promotion of Administrative Justice Act whereby “she could easily have instituted a review application based on the unlawfulness (of the cancellations project) mentioned in her founding affidavit”.
As a general rule, it explained, the PAJA must apply unless the review is brought by a public functionary in respect of its own unlawful decision. Hunter was not acting on behalf of the FSCA but in the public interest: “If Ms Hunter is of the view that the registrar’s decision to cancel the registration of respective funds was unlawful, the appropriate remedy would be to review that decision in terms of the PAJA on the basis that those decisions were ones that a reasonable decision-maker could not reach.”
No, said the minority. PAJA does not apply. The appropriate mechanism to challenge the FSCA is legal review.
Whenever the attention of a responsible functionary is drawn to a potential irregularity, it has a duty to launch a “proportionate” investigation. Whatever is proportionate will depend on the seriousness of the potential irregularity and the basis on which the allegation is founded. In the present matter, said the minority, the conclusion that an investigative duty exists is buttressed by considering the wording of the Constitution and the legislation that applies specifically to the FSCA.
Justice Froneman thought it necessary to warn that this case was not about corruption and malfeasance, but about whether the FSCA’s apparently good-faith attempts to investigate the cancellations project pass constitutional muster: “The issue is whether they have been diligent enough. Complacency may be as great a danger as malice and could lead to maladministration and corruption.”
Do more ‘engagements’ await?
In its identification of key stakeholders” to be consulted, Treasury specifically mentioned such NGOs as the Casual Workers Advice Office and the Right2Know Campaign. Both were amicus curiae in the Concourt hearing.
Although not an NGO, Treasury might also bear in mind the Unclaimed Benefits Campaign. A community movement based in Sebokeng, it had been gathering momentum and continues to enjoy advisory support from Hunter.
Stakeholders must also include, clearly, administrators of the cancelled funds. The two most heavily involved administrators are Alexander Forbes, the largest by value of funds, and Liberty Group, the largest by number.
Some months ago, Alexander Forbes let it be known that it was negotiating with the FSCA for a resolution. More recently, it has not responded to TT requests for reports on progress.
Alone amongst the administrators, at great effort and cost to itself, Liberty obtained a court order to set aside the cancellations of numerous affected funds so that it can get benefits paid to members (TT Feb-April).
What might be the next steps?
It appears from the Concourt’s majority decision that the FSCA is under no obligation to do anything at all. So whether it wants to provide comfort for members of the 4 000 or so funds, left in the dark because their funds have not been investigated, is at its discretion. At the least, the FSCA is likely to request the cooperation of administrators and funds in checking whether there were funds that still had assets when their registrations were erroneously cancelled.
Whatever it does should be seen in the context of the Treasury statement issued shortly after the judgments. Almost visible is the drafting hand of Ismail Momoniat, Treasury deputy director-general in charge of retirement-fund reform and a director of the old Financial Services Board.
“The integrity and reputation of financial sector regulators is critical in ensuring that financial customers have confidence that the financial sector is serving their best interests and delivering proper outcomes,” said the statement. “In the retirement fund industry, members must be confident that their funds are safe at all times as long as the boards of trustees, principal officers and auditors are performing their functions in line with regulatory expectations.”
Perceptions of confidence follow actions to ensure it, not expectations that couldn’t be more varied than between Hunter and Momoniat. Whether the two erstwhile colleagues eventually sing off the same hymn sheet depends on how the FSCA elects finally to wrap up the vexed cancellations project.
A test for the FSCA, under its ‘Treating Customers Fairly’ initiative, is to dispel any perception that some customers are treated more fairly than others.
BIG LAWYERS, BIG MONEY
In the same way that the FSCA feels vindicated by the majority decision, Hunter will take comfort from the minority judgment. A consolation for her is that the Concourt made no order on costs.
It means that each party will need to pay its own costs right back to the three preceding matters (two in the High Court, one in the Supreme Court of Appeal) that Hunter had lost and where costs (a proportion of them in one instance) had been awarded against her.
Given the seniority of the legal teams involved throughout, the FSCA’s costs could be substantial but perhaps less so for Hunter because of special arrangements with her teams. Nonetheless, her loss of potential earnings over the three years that she dedicated to the fight would be irrecoverable.