Edition: December 2015 / February 2016
Fund officials hit hard. Ruling will hurt their pockets.
Registrar wins on fiduciary duty.
The principal officer and trustees of the SA Local Authorities Pension Fund have been
thrashed by a decision of the FSB Appeal
Not only has the appeal been struck from the roll,
and dismissed with costs on the punitive attorneyclient
scale, but it was ordered that these costs be
paid jointly and severally by the fund, its principal
officer and the trustees who’d authorised the appeal.
Moreover, the fund must fully recover these costs
from the principal officer and relevant trustees in
their personal capacities.
Let this sound a warning to any fund embarking
on litigation that’s “vexatious”, as found here by
the Appeal Board sitting under retired judge L T C
Harms with J Damons and L Makhubela.
“Persons who are in a fiduciary position and
litigate in their own interests, in the name of say an
estate agent or trust, ought to be held personally
liable for the cost of the litigation,” Harms stated. “The (SALA fund’s) board members and the
principal officer stand in such relationship to the
The matter was between the SALA fund on the
one side with the Registrar of Pension Funds and
Fairsure Administration on the other. The fund’s
appeal had to fail at the outset because the fund had
no interest in the decisions of the registrar (in effect,
the deputy registrar) that were under attack. Only
the fund, which was not aggrieved, had appealed.
The principal officer and trustees had not appealed
against any decision, and the fund could not do so on
What happened, in brief, was that the fund had
entered into an agreement to buy all the shares
in Fairsure from MEB Holdings for R40m (the
intention of the fund being to appoint Fairsure as
its administrator). The agreement was subject to
certain suspensive conditions such as obtaining the
registrar’s prior consent.
Although the registrar had not granted consent,
the fund paid for the shares. MEB did not repay the
R40m and the fund has to recover its loss.
The question that concerned the registrar was
whether the fund’s board, in concluding the purchase
contract, had fulfilled its fiduciary duty. That the
fund had paid for the shares, before fulfilment of
the suspensive conditions and before ownership of
the shares had been transferred, “created avoidable
counter-party risk and prejudice which the fund has
Harms . . . clear message
Where the registrar has reason to believe that
a principal officer or trustees are no longer fit and
proper to hold office, he/she may disqualify them.
In this case, the (deputy) registrar had submitted to
them a series of questions that were met with what
the Appeal Board described as “diversionary tactics”.
Where the registrar
has reason to
believe that a
or trustees are
no longer fit and
proper to hold
office, he/she may
For example, they wanted the information to be
requested in 10 official languages and insisted that
the trustees be represented by the fund’s lawyers or
by lawyers paid for by the fund. They also contended
bias. “The consequences of the bias issue were not
spelt out but presumably meant that, because the
deputy registrar might be biased, she was not entitled
to use her powers of interrogation,” Harms said. He
considered the contention of bias to be “nonsense”.
Counsel for the fund submitted that the “key
issue” was misdirection of the payment by Fairsure,
presumably relating to the manner in which Fairsure
administered the fund’s affairs after the fund’s
takeover of Fairsure (e.g. by paying for the shares
from the fund’s moneys). The fund had demanded,
and been denied, sight of communications between
the registrar and Fairsure.
To which Harms retorted: “The fund has not said
why this information (was) required to answer the
(deputy registrar’s) questionnaire, and a perusal of
the questions shows why it could not have been said.
The alleged post-contract wrongdoings of Fairsure
have nothing to do with the conclusion of the
In such a morass, yet another indication of fund
misbehaviour is almost incidental. It had purported
to note an appeal against the deputy registrar’s
decision not to supply the fund with the Fairsure
communications. But the noting of an appeal was “out of time” which, the fund knew, the Appeal Board
had no power to condone. In fact, it hadn’t even
applied for condonation.
The purpose of the litigation, according to the
deputy registrar, was only to delay her duty (under
the Pension Funds Act) in considering whether
certain officials of the fund should be debarred. The
Appeal Board found in her favour:
“(The principal officer and trustees had) decided
to proceed with the litigation in their own personal
interest without any regard to the interests of the
fund, hiding behind the fund to shield them against
any adverse litigation consequences. This is a serious
breach of their fiduciary duties and justifies a cost
order against them personally, not only for the
registrar’s costs but also for those of the fund. The
fund will be obliged to recoup its own costs from
those responsible for this litigation.”
• N Arendse SC acted for the fund and M
A Chohan SC for the registrar. Fairsure did not
participate in the proceedings but gave notice that it
disputed the allegations of misconduct made against it
by the fund.