Edition: February/April 2018


At last, the last lap

Finality about to be reached in the Concourt on the heated litigation over the FSB’s so-called “cancellations project”.

Rosemary Hunter is either obsessed in her personal capacity, to take on the inordinate financial risks of ongoing litigation, or possessed in her former capacity (as the Financial Services Board deputy executive officer for retirement funds) to serve people unable to protect themselves. On both counts, the stakes couldn’t be higher.

So far, on each occasion that her dispute with the FSB has been heard in court, she’s lost. The North Gauteng High Court ruled against her and refused her permission to appeal. Then, taking this decision on appeal, the Supreme Court of Appeal also refused her permission. Three defeats, each involving teams of senior and junior counsel who don’t come cheaply, have been insufficient to put her down.

Now comes the fourth and final battle when this same matter, alleging the illegal cancellations of “dormant” retirement funds’ registrations with harmful consequences (TT March-May’17), goes before the Constitutional Court. It will hear her application for leave to appeal against the earlier judgments. Should she succeed on this, argument on the merits of her dispute will be aired afresh.

A ray of hope for her is that, even if the Concourt dismisses the application for leave to appeal, it might decide that her application amounted to constitutional litigation in the public interest and accordingly set aside the costs orders previously awarded against her. The bigger hope for Hunter is that the Concourt will uphold her appeal and decide on the merits.

What if it rules in her favour on the amended notice of motion for a court-supervised independent investigation, properly qualified and resourced, into the “cancellations project” i.e. the circumstances in which the registrations of each of some 4 600 affected funds were cancelled?

Having discovered these cancellations when she took office at the FSB, she contends that such an investigation is necessary to reveal the circumstances of the cancellations. Should it be found by the investigation that the project was conducted in a way that possibly resulted in prejudice, the FSB would then be able remedy the prejudice.

Such an investigation would require a wide range of people – including certain FSB officials and fund administrators – to answer questions about the roles they played; for instance, whether there were interest conflicts in FSB-appointed trustees also being employees of an administrator. Hunter insists that there’s been a cover-up of the events which caused prejudice to funds, members and beneficiaries.

According to heads of argument filed with the Concourt by mid-December, it’s clear that Hunter’s application will be vigorously opposed. For the Minister of Finance, cited in his official capacity, National Treasury director-general Dondo Mogajane states on affidavit:

“Leave to appeal is now sought from this Court after the High Court rejected the applicant’s substantive application and subsequently refused to grant leave to appeal. It did so on the basis that there were no prospects of success. The Supreme Court of Appeal subsequently confirmed this assessment, refusing an application for special leave to appeal to it. The refusal rests not only on the basis that there were no reasonable prospects of success (but also that) no other compelling reason justified an appeal.”

For Dube Tshidi, FSB executive officer, and Jurgen Boyd, Hunter’s predecessor as head of the FSB retirement funds department, Mike Maritz SC argues:

  • Hunter’s founding and replying affidavits are replete with the most scurrilous and scandalous accusations imaginable against (Tshidi and Boyd). These included allegations of dishonesty, dereliction of duty and of an alleged conspiracy;
  • The lower court was not called upon, or required, to decide on any such accusations. These or similar accusations are precisely what (Hunter) wanted the court to decide. They were entirely irrelevant to the nature of the relief claimed;
  • Hunter had no justification for joining Tshidi and Boyd as respondents;
  • Hunter’s attempt at this late stage to introduce completely new relief (the appointment of an independent inspection) was entirely impermissible. A litigant must make out its case in the founding affidavit and cannot confront the other party with a new case not canvassed and not foreshadowed;
  • Hunter’s conduct was so far removed from what is to be expected of a reasonable litigant, and was so far removed from the rights of the other litigants, that a punitive costs order is fully justified;
  • Hunter’s purported reliance on the principle that a costs order will not be granted against an unsuccessful litigant, where the litigant sought the vindication of some constitutional right in the course of genuine constitutional litigation, is misplaced.

The case for Hunter is presented by Geoff Budlender SC:

  • In the lower court, the FSB maintained that the cancellations project was “perfectly lawful” and had no systemic flaws. Where “mistakes”; were made, it said, they had been “discovered and indeed corrected”. The FSB contended that Hunter was not “entitled” to a “bigger and better investigation” because an investigation into the cancellations is “the self-same investigation that is being done by Mr Mort”. (Jonathan Mort is a prominent pensions lawyer who’d been appointed by the FSB to investigate a sample of the cancelled funds.)
  • At issue are over 4 600 cancelled funds, not all of which are being or could ever be investigated by Mort;
  • The FSB cannot know, without a proper investigation, how many of these funds had assets at the time of their cancellation and therefore had not actually “ceased to exist”, let alone know what happened to those assets;
  • By end-2015 the aggregate value of unclaimed benefits held by retirement funds had increased to R34bn. The FSB cannot know, without a proper investigation, whether these assets include amounts previously held by deregistered funds to provide for unpaid benefits for which they were liable when their registrations were cancelled as a result of “mistakes”;
  • It does not suffice for the FSB to “correct mistakes” only if and when it discovers them, whether by accident or as a result of the limited review by Mort. The consequences for the poor are too serious;
  • Introduction of the Twin Peaks regulatory system will not make the problem of cancelled funds and unpaid benefits disappear;
  • A proper investigation remains necessary. There is a need for a court-supervised order because the Minister of Finance and the FSB do not acknowledge the seriousness of the problem, let alone demonstrate a commitment to addressing it;
  • In her founding affidavit for leave to appeal, Hunter suggested appropriate relief. The Concourt has the power to make such an order, on the basis of the evidence placed before it, including a supervisory order;
  • Sampling 500 of the 4 600 funds, accountancy firm KPMG had found that more than R2,5bn had not been satisfactorily accounted for prior to the funds’ registrations being cancelled. The FSB then requested retired Concourt judge Kate O’Regan to review the KPMG report and “to give the FSB board guidance” as it was “loath to conduct further investigations unless they are truly unavoidable”;
  • O’Regan advised that senior counsel be appointed to review the KPMG report. The FSB appointed Mort with the assistance of actuary Jeremy Andrew to determine, in respect of such deregistered funds as he would choose, whether any member, beneficiary or dependent was likely to have suffered material prejudice;
  • Mort’s mandate excluded an investigation into whether there had been any improper conduct by the Registrar and/or staff of the FSB retirement funds department;
  • To date the FSB has not given effect to what O’Regan said must be fully investigated. The investigation carried out by Mort is not the forensic investigation contemplated in O’Regan’s report. Her recommendations have still not been carried out despite the FSB having resolved to implement them. The Mort investigation does not fulfil the FSB’s obligations;
  • There is substantial evidence of actual financial prejudice resulting from the cancellations project. The presence of such prejudice in the relatively modest number of funds investigated by Mort confirms a systemic flaw rather than a handful of “mistakes”;
  • Interests of the persons affected by the Registrar’s decisions require him to seek judicial review of his own decisions.

The matter has been set down by the Concourt for hearing on February 13.