Edition: August/October 2018
Victory for trustees
Long ordeal on the IF funds is over. But it’s come at a cost.
At last, there’s resolution on the attempt by the four former trustees of the IF pension and provident funds to overturn the ruling of the Pension Funds Adjudicator that they be held personally liable for the R18m cost of the funds’ database rebuild (TT March-July). In the Gauteng High Court, it’s been ordered that the Adjudicator’s ruling be set aside and that the complaints of the umbrella funds’ participating employers be dismissed.
For the former trustees, of whom Gail le Grellier has been the most vociferous, the victory is sweet and bitter: sweet in that they’ve won; bitter in that the court made no order on costs. They’re lumbered with over R1m in pre-trial expenses, going back to their early representations before the Adjudicator, and will further need now to seek recompense from the funds for their litigation costs.
Sadly, for a precedent offering guidance on what’s expected of trustees in similar circumstances, the orders by Justice Kathree-Setiloane were unaccompanied by explanations. There’s no written judgment.
The application by the former trustees (the “IF Four”) was opposed by neither the Adjudicator nor participating employers. Nonetheless, the court had to decide afresh on the issues in dispute. This meant perusal of the papers previously filed and of affidavits newly filed.
Never having been called to a hearing by the Adjudicator, to whom Le Grellier had replied in writing, her founding affidavit before the court comprised intricate detail. Setting out the chronology of events, to show that the IF Four had acted as reasonable trustees and not been negligent, it presented a factual basis for the argument that the Adjudicator’s determination was wrong in law.
The Adjudicator, conflating purported negligence with the cost of the rebuild, had held the IF Four jointly and severally liable for the R18m. This was although the maladministration, by erstwhile service provider Dynamique, had occurred during the period prior to them having become trustees.
In exercising their oversight function, which detected the maladministration, Le Grellier was able to produce sufficient evidence that the trustees had performed their duty in authorising the rebuild. This was at a cost to the funds on a per-member basis that the Adjudicator disallowed.
Had the trustees not proceeded with the rebuild, benefit payments to members would have been inaccurate. Then the funds would have had to be closed, placed in liquidation or under curatorship, inevitably followed by a rebuild with additional costs in fees for the liquidator or curator.
Given the urgency, the rebuild had to take place before Dynamique could be sued for damages. Given its scant resources, however, this route would have proved futile.
Basic advice for trustees is, firstly, to keep available contemporaneous notes of discussions around problems found and actions to remedy them. Secondly, be satisfied with the indemnity terms offered in fund rules. Thirdly, ensure that the fund has valid professional indemnity (PI) insurance cover.
In this case, the IF pension fund rules on indemnity and fidelity insurance looked standard but proved inadequate: “The trustees, officers of the fund and persons to whom they have delegated their functions, will not be personally liable for decisions taken or actions authorised except if such decisions or actions constitute a gross negligence, dishonesty, fraud or a breach of trust.”
A similar rule for the IF provident fund provides that the trustees and principal officer shall be indemnified by the fund “against all proceedings, costs and expenses incurred by reason of any claim in connection with the fund not arising from their gross negligence, dishonesty or fraud”.
For trustees to show that they weren’t negligent – or grossly negligent, if there’s a difference – they could only show it through legal process. Now that it’s been shown, the fund rule on costs indemnity for the IF Four should kick in.
But the PI insurer had already advised that it considers the funds’ policy to be void, amongst other reasons because of misrepresentations and non-disclosures prior to the IF Four having taken office, meaning that the fund has no recourse against a PI policy. Now the new trustees are reluctant for the funds to honour the widely-cast terms of the indemnity, if not for costs of the old trustees’ appeal then for their pre-trial expenses, on grounds that it will be unfair to members.
Unless their view is reversed, the IF Four will be left with hefty legal bills. Somebody will be out of pocket. It’s a situation that should never have arisen. Perhaps the safest protection is for a fund to appoint from the outset a trusted administrator with deep pockets and a reputation to uphold.