Edition: March / May 2017
Editorials

FUND CANCELLATIONS

Open season

After the judgment against her, Hunter’s FSB litigation pales with comparison to outstanding matters of unclaimed benefits.

The Financial Services Board “feels vindicated” by its victory over former FSB deputy executive officer Rosemary Hunter in the North Gauteng High Court. So it shouldn’t. At best, the victory is partial. Also, it stands to be tested should Hunter succeed in her application for leave to appeal.

The litigation has a long and tortuous history (TT Oct-Dec ’16). True, the court has dismissed Hunter’s application. That’s the extent of the victory. What stands out, however, is that Acting Judge H F Jacobs made findings on neither the lawfulness of the cancellations project nor on whether prejudice was suffered by members of funds whose registrations had been cancelled.

Sithole . . . make the call

These matters, central to Hunter’s application, are left in the air. In her favour is that, by having launched the litigation, she did obtain copies of the reports into the project by former Concourt judge Kate O’Regan and accountancy firm KPMG previously denied her – although too late for her to have acted on them in her official FSB capacity.

A curious aspect of the judgment (see box) is the order for a split in costs. They were awarded partially for Hunter and partially for the respondents who comprised the FSB itself, FSB board chairman Abel Sithole, FSB executives Dube Tshidi and Jurgen Boyd, and the Minister of Finance.

In all there were four senior counsel and four juniors, Hunter being represented by one senior and one junior. The respondents’ must pay her counsels’ costs incurred up until 1 August last year, and she must pay the respondents’ costs incurred thereafter.

Unclear is the court’s reasoning behind Hunter not having to pay costs over the period that she was employed at the FSB. Still, for her it’s a partial victory especially in that the court rejected the argument for Tshidi and Boyd that she pays all costs on a punitive scale.

Critical nitty-gritty in the dispute was prejudice to fund members. The FSB had said, and the court had accepted, that investigations were ongoing. And yet Jonathan Mort, a highly respected pensions lawyer appointed by the FSB as an inspector, had already found evidence of prejudice.

FROM THE JUDGMENT

Acting Judge Jacobs said:

  • (Hunter) made it clear that she and those who share her views believe the unlawful cancellation of funds occurred during the watch of Mr Tshidi and Mr Boyd and heaped scorn on them. It is not within my remit to consider the merits of the views of the factions within the FSB;
  • It is not within my remit to consider or adjudicate upon the merits or demerits of the cancellation project, the findings of Justice O’Regan, the KPMG report or the report of Mr Mort;
  • The central issue in (Hunter’s) application is (her) standing in law to apply for...a court to order the FSB and the Minister to perform a certain act in a specified manner and then to supervise compliance with the order... Both the (FSB’s) original decisions to cancel the orphan funds and the subsequent decisions must be respected;
  • It is not for (Hunter) as a member of the FSB to dictate her views and preferences to the FSB by means of judicial intervention;
  • There is nothing on the papers to suggest that the FSB, after considering the context of the O’Regan report and the KPMG report, considered itself bound to do what (Hunter) suggests. There is in law no obligation on the FSB to have accepted the O’Regan report’s recommendations or that of any other person who advised the FSB;
  • (Hunter’s concerns for the public interest) can be taken care of by the Public Protector;
  • I have referred to the acrimonious nature of the litigation and the events that led thereto. In my view all the parties, except the Minister, are to blame for the state of affairs.

That much is apparent because his second report, handed into court without a supporting affidavit as the hearing began, shows it. Moreover, the second report emphasises that it must be read in conjunction with his third report which deals with the treatment of unclaimed benefits in the funds that the KPMG summary had listed. But this third report, obviously completed, is nowhere to be seen.

For the second report, Mort inspected 29 funds

  • Of these, four funds were still active. Their aggregate TIFP (total indicative potential material financial prejudice, excluding surplus apportionment where applicable) was R17,9m;
  • One fund should not have been deregistered as it still had assets. This fund’s TIFP was R12,4m;
  • There were two funds of “significant concern” in that their assets had not been properly transferred. The aggregate possible TIFP was R40,8m.

Mort’s second report has knocked certain holes in the KPMG computations. But it records no response from KPMG which had investigated a larger sample, using bigger resources, over a longer period. Further, Mort had relied extensively on cooperation from the same administrators who’d been the focus of Hunter’s attention.

“I did not see that it was necessary for me to spend time which I could not afford, at the expense of the FSB, in undertaking the extensive work required to investigate her suspicions,” said Mort.

The bottom line is that prejudice, no matter how paltry if distributed to wealthier individuals, has been established. The extent of it, amongst the myriad funds affected by the cancellations project, remains to be determined. To address it would require a mammoth investigation, creating a series of fresh issues: who will perform it; to whose mandate and budget, and to what timescale.

The alternative is to let the matter rest, leaving the mainly poor beneficiaries not to receive their entitlements and allowing the unclaimed benefits to remain wherever they might now lie in anticipation of successful tracing. There’s a tough call to be made on whether the cost is worth the effort. Who is to make it?

If not a court, then it must be the FSB while still under the chairmanship of Sithole. Otherwise it can be buried with the imminent collapse of the FSB into the new ‘Twin Peaks’ authority, abandoning the prejudiced beneficiaries to their fate.