Withheld pension: fund loses case

MARTIN HESSE

The Supreme Court of Appeal has dismissed an appeal by a retirement fund against a judgment by the Gauteng High Court supporting the discretion of the Pension Funds Adjudicator to determine how and from what date a fund must calculate interest on a pension benefit it has been ordered to pay out.

According to the judgment, dated June 1, the National Tertiary Retirement Fund (NTRF) had sought to overturn a ruling against it by the adjudicator, Muvhango Lukhaimane, in the case of a former member, Professor Aubrey Mokadi, who, until 2006, was the rector and vicechancellor of the Vaal University of Technology.

The university dismissed Mokadi after an internal disciplinary tribunal found him guilty of misconduct, including fraud, corruption, and abuse of power.

Several legal battles followed, all of which ultimately proved unsuccessful. The university laid criminal charges against Mokadi and instituted a civil action for damages of over R6 million. Mokadi, in turn, fought to be reinstated and pursued a civil case of his own against the university.

In 2009, Mokadi was acquitted in the criminal case. The civil case was to be heard on June 2, 2010, but it floundered. In July 2012 the university told the NTRF that it had dropped the case.

Meanwhile, in January 2010, with the civil case still pending, Mokadi lodged a complaint with the adjudicator against the NTRF and his former employer, because his pension benefit had been withheld, and his employer had made several deductions from the benefit to settle legal costs for which Mokadi was liable. (A fund is permitted to withhold a member’s benefits on dismissal pending the outcome of criminal or civil cases against the member where the employer has suffered a loss. On proof of guilt, an employer may make deductions from the member’s benefit in compensation for the loss.)

In September 2012, the adjudicator ruled in Mokadi’s favour, ordering the NTRF to compute his withdrawal benefit, together with interest at 15.5 percent a year, from June 2, 2010 (the initial court date of the civil case) to the date of payment.

On October 1, 2012, Mokadi’s pension benefit was finally paid into his bank account. Mokadi received a statement that showed an amount of R597 739 in respect of “late payment interest”. This did not represent the interest as ordered by the adjudicator, but the fund’s investment return.

Despite its ( wrongly calculated) payout to Mokadi, the NTRF appealed the adjudicator’s decision at the High Court.

Mokadi lodged a counter-application (the adjudicator is not permitted to defend her determinations), asking the court to allow interest on his benefit to be calculated from November 27, 2006 (the date on which a tax directive was issued in respect of the benefit), as opposed to June 2, 2010, as determined by the adjudicator.

Both the fund’s application and Mokadi’s counter-application were dismissed by the Gauteng court, which ruled that the adjudicator was statutorily empowered to determine the date from which interest would accrue and the rate of interest.

The NTRF took the matter to the Supreme Court of Appeal. It contended, first, that it was not liable for the interest because it had lawfully withheld Mokadi’s benefit pending the finalisation of the civil action, and second, that because it had paid Mokadi the “fund return” on his benefit to the date of payment, the payment of interest meant Mokadi would receive a “double benefit”.

The Supreme Court of Appeal ruled that the Pension Funds Act did not preclude the adjudicator from applying the prescribed rate of interest (15.5 percent at the time), if she considered it to be appropriate in the circumstances of a particular case, or a different interest rate if more appropriate.

In determining the date from which interest must accrue, the court said the adjudicator may, again, choose from options that were fair and appropriate.

The judgment report states: “Mokadi’s benefit was originally due to him in July 2006, when his employment with the university was terminated. At that stage, the fund’s justification for withholding the benefit was that the university had charged Mokadi with fraud and corruption.

“When Mokadi was acquitted of these charges, the fund then sought to justify the withholding of his benefit on the basis of the pending civil action. The fund was aware that the civil action was set down for hearing on June 2, 2010. It nonetheless, adopted a supine attitude and simply made no effort to enquire from the university what the status of the civil action was subsequent to that date, until an enquiry from the adjudicator in July 2012.”