Edition: Sep - Nov 2014
Start of a long haul
Fund rules are fund rules. But what precisely, in this instance, are the rules that apply? And were they broken? A highly emotive multi-billion rand class action will provide the answers, eventually.
Round one goes to Johan Pretorius and Johan Kruger, respectively members of the Transport Pension Fund (TPS) and the Transnet Second Defined Benefit Fund (TSDBF). They’ve been granted permission by the North Gauteng High Court to launch a class action, against the funds and Transnet, on behalf of former Transnet employees.
Pretorius and Kruger, the applicants, put the total loss of one fund at R85,5bn arising from “unlawful transactions at the behest of Transnet” that followed the commercialisation of the old SA Transport Services. Their application is replete with examples of “dire hardship” caused to particular fund members by, amongst other things, the fund trustees abandoning the “reasonable benefit expectations” enjoyed by fund members prior to 1999”.
The court papers, with annexures, run to hundreds of pages. They delve into substantive issues, but it wasn’t necessary for Justice Makgoba to rule on them. Mindful that the funds are governed by their own statute, he left as an “open question” whether the Pension Funds Act applied.
If the Act did apply, the funds would have been subject to supervision by the Financial Services Board and the members could have complained to the Pension Funds Adjudicator. If it didn’t, there’s a possibility of numerous arguments by the applicants being challenged on the basis that they were made on the assumption that the Act had relevance.
All the court was asked to do, and did do at this early stage, was grant Pretorius and Kruger the relief they sought; essentially, allow them to lead a class action “to enforce legislative provisions which they interpret as creating an obligation on Transnet and a guarantee on the State to pay a pension benefit which existed in 1990 and which allegedly is due and payable to the TSDBF and TPF”. For good measure, throw in the computation for a quarter century of compound interest too.
It will take a while before anything further happens. The funds and Transnet will need time to consider an appeal. They had contended that the proposed action was not “triable” (capable of being decided judicially). How long will it take into the litigation, once it eventuates, before a court can determine whether they’re right?
Also, the judge set out a series of timescales for former employees to be notified and elect whether to be included in the action. Should none opt out, the action is estimated to involve over 65 000 former employees. They’d need to take a view on their possible liability for costs, should the action fail, and their potential benefits should it succeed. These numbers have yet to be quantified.
There are imponderables for Transnet too. The longer this action hangs over its head, with the risk exposure uncertain, the more likely an adverse impact for its rating in the bond market. Transnet might be confronted by a higher cost of capital for urgent investment in infrastructure. That must be a concern of Transnet, not of the applicants.
Pretorius and Kruger alleged that, prior to establishment of Transnet, SATS had given an undertaking to employees that its commercialisation would not affect any of the service benefits (including pension benefits) they’d enjoyed. However, during 2001 the TSDBF trustees established a pension-increase policy which constituted a material departure from existing policy. They want the funds to recalculate members’ pension increases in accordance with the policy that applied before August 1999, and to pay members the recalculated increases.
The funds reserved their rights “to deal with the material allegations relating to the merits of the claims against them” in defending the proposed class action, said principal officer Petrus Maritz. “Having regard to the founding affidavit and the draft particulars of claim,” he believed, “the applicants do not seek any direct relief against either of the funds.”
For its part, Transnet contended that the applicants appeared to confuse the trustees’ duty to act diligently for the funds – both of them defined-benefit, both of them legal entities separate from Transnet -- with the duty of Transnet to pay into the funds the amounts, should it be necessary, for the funds to meet their obligations. Amongst its other contentions:
Back to the applicants’ founding affidavit. They want to claim against Transnet for repayment of all surpluses in TPS and TDBPF “that Transnet received by way of agreement with the trustees”.
They also intend to make a claim “based on the failure by the trustees...to comply with the substantive reasonable benefit expectations of members”. They’ll ask the court to confirm this expectation “and direct the trustees of the respective funds to implement and correct the pension increases of members in accordance with this entrenched policy”.
The funds and Transnet were ordered to pay the costs of the application.