Edition: May/July 2018
Expect no thanks
Fund trustees were kicked in the pants. Now they must hope for High Court relief.
Trusteeship, like old age, isn’t for sissies. Four erstwhile trustees of the IF pension and provident funds have found out the hard way. For their sakes, may it not become even harder should a judgment and costs be awarded against them.
Having had to pick up the bills for legal expenses to date, there’s already sufficient hardship to cause premature aging. And for the sakes of anybody who is a trustee, or thinking of becoming a trustee, learn from their experience. At least some good can then come of it (see box).
The IF funds are umbrella arrangements for a few dozen participating employers and several hundred employees. The former trustees, having been found by the Pension Funds Adjudicator to be personally liable for the cost of a database rebuild, have been hit with a bill for over R17m.
They want the complaint to the Adjudicator, by various employers who contend that the rebuild should not have been paid from deductions in the members’ share of funds, to be reheard afresh. After several false starts, the matter goes to trial in the South Gauteng High Court towards the end of May.
The Adjudicator is not a party to the litigation. Much of the detail has previously been described (TT Oct-Dec’16).
Briefly, the four former IF trustees – Gail le Grellier, Renier Botha, David Lepar and Carel Smith – seek an order to set aside the Adjudicator’s 2013 determination. It had declared that the IF Four had managed the funds improperly, causing them financial loss, and directed that they personally pay the funds for the database rebuild.
The cost of the rebuild was R18,2m. This is what they’d have to pay, jointly and severally, minus R1m that had been paid in settlement (without admission of liability) by Tony Kamionsky of Dynamique (the predecessor to Aon as the funds’ administrator).
According to the IF Fours’ heads of argument, they had been advised by Aon (appointed in 2008 to take over from Dynamique) that the funds’ membership data was inaccurate. Having received two quotes, they appointed accountancy firm Deloitte to rebuild the records and resolved that the costs be paid by a levy of roughly 2,5% against the funds’ assets. Participating employers complained against the levy’s imposition.
The IF Four were not accused of themselves having maladministered the funds. Rather, as trustees, the complaint was that they were responsible for the actions of then administrator Dynamique. To the extent that Dynamique had maladministered the funds, the IF Four were responsible either vicariously or because they had failed to exercise proper oversight.
However, it’s argued in their heads, the IF Four were appointed long after the funds’ inception in 2004. It was only during their later tenure that they became aware of the funds’ financials not having been audited. And only once Dynamique had been replaced by Aon did it become clear that the funds’ data “lacked integrity” and were “unreliable”.
The IF Four cannot be held accountable for the unreliability as if they were its cause, they say. The unreliability did not arise when they became trustees but had its origins when the funds were incorporated and none of the IF Four were trustees.
The complaint does not suggest how or when the IF Four should have acted: “If the end result is the same, then the complainants cannot be said to complain about having suffered any prejudice as a result of (the IF Four’s) alleged failure properly to oversee Dynamique’s administration of the IF funds”.
For example, Le Grellier took office in November 2006. Ought she immediately to have discovered the maladministration by Dynamique and, if so, what should she have done? Should she immediately have terminated Dynamique’s administration in 2007 and, if so, what would the new administrator do on its appointment? Would it have immediately drawn her attention to its inability to finalise the financial statements, because of the membership data’s unreliability, or would this have taken some time to discover?
Irrespective of whether the discovery was immediate or later, it’s suggested that the rebuild exercise was “necessary, prudent and inevitable”.
The issues that the IF Four want decided are whether:
When the rebuild was done, it’s pointed out, there was no claim and no loss suffered by the funds. Further, the PI policies excluded liability relating to “any claim/loss arising in any way from the issues raised by the auditors following their audit for the year ended 28 February 2006”.
These issues concerned the data’s unreliability and the material weaknesses in the funds’ records. They stemmed from a time prior to the appointments of the IF Four and ultimately led to the rebuild necessity.
Moreover, the argument runs, Aon had failed to pay the PI premiums for the year to end-July 2011. But even if the premiums were paid, the insurers had advised that they would have elected to void the policy due to Kamionsky’s misrepresentation and non-disclosure.
Think of it this way. If the judgment goes against the IF Four, they’d each have to pay over R4m from their own pockets. Plus costs of the litigation. Plus legal expenses incurred beforehand. Still want to be a trustee?