SOUTH AFRICA: WITHHOLDING PENSION BENEFITS: LEGAL REQUIREMENTS AN EMPLOYER MUST SATISFY TO INTERDICT A RETIREMENT FUND FROM PAYING OUT PENSION BENEFITS

By Deirdre Phillips,Tshepo Mokoana Monday, March 06, 2023
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The withholding of pension benefits is a common recourse against employees who caused damage to their employers as a result of theft, dishonesty, fraud or misconduct. The recourse available to an employer is sanctioned by section 37D(1)(b)(ii) of the Pension Funds Act, 24 of 1956 (PFA) and in many cases, augmented by the rules of a retirement fund.

Section 37D(1)(b)(ii) of the PFA provides that a retirement fund may deduct any amount due by a member to his/her employer for any damage caused to the employer by reason of theft, dishonesty, fraud or misconduct by the member and in respect of which the member has in writing admitted liability to the employer; or judgment has been obtained against the member.

In linear circumstances, an employer would simply write to the retirement fund in which it participates and request the retirement fund to withhold payment of the member’s benefit pending the final determination of the action proceedings instituted by the employer against the former employee to recover damages caused to the employer by the former employee.

Where justified, the retirement fund would accede to the employer’s request for withholding payment of the former employee’s benefit. Not all cases, however, are linear. So what happens if the retirement fund does not accede to an employer’s request to withhold payment of a former employee’s benefit? 

In a recent unreported High Court case in Hansen + Genwest (Pty) Ltd v Corporate Selection Umbrella Retirement Fund No 2 and Others (23/002990) [2023] ZAGPJHC (06 February 2023) (Hansen case), the Court illuminated on the interdictory grounds an employer must satisfy to interdict a retirement fund from paying out the member’s benefit pending final determination of action proceedings instituted by an employer against a former employee to recover damages caused to the employer by the former employee. 

The Court reiterated the Supreme Court of Appeal’s decision in Highveld Steel & Vanadium Corporation Ltd v Oosthuizen 2009 (4) SA 1 (SCA) that, while section 37D(1)(b)(ii) of the PFA expressly states that the deduction of benefits must occur after a judgment has been obtained against the member (or after a member has admitted liability in writing), in view of its purpose to "protect an employer’s right to recover money misappropriated from it", the section is interpreted to afford retirement funds a discretion to comply with an employer’s request. Although it does not follow that a court may compel a retirement fund to do so, especially where the rules of that fund regulate such discretion.

The exercise of a discretion 

The Court in the Hansen case reiterated that when exercising its discretion, a retirement fund must balance the "potential prejudice to an employee who may urgently need access to his pension benefits and is in due course found innocent" against the strength of the employer’s claim. Furthermore that the retirement fund must exercise this discretion reasonably even if it is unfettered. That is, where the rules of a retirement fund make provision for a discretion to withhold payment of a benefit, the discretion must be exercised according to the standard of a reasonable person and the employer and employee must be given the opportunity to be heard unless the information on which the retirement fund based its decision is known to both.

Requirements for an interim interdict to withhold payment of a member’s benefit – the Hansen case

Firstly, the Court considered the nature and basis of the relief sought. It held that the relief sought in the circumstances fell within the "exceptional category of applications for interim relief pending ‘quasi-vindicatory’ actions". In these claims, the applicant (employer) does not need to prove irreparable damage as the loss is presumed irreparable subject to a rebuttal by the respondent (the former employee). Thus, the employer need not establish the absence of other satisfactory remedies.

Secondly, the relationship between the prima facie right to obtain possession of the benefit and the amount to be withheld by the retirement fund must be established. To do so, the facts set out by the employer and those established by the former employee that are common cause and not disputed are considered first. Thereafter, the facts in dispute must be analysed to determine whether the former employee has cast serious doubt upon the version of the employer. If the former employee, however, merely contradicts the employer’s case or tenders an unconvincing explanation, the matter should be left for determination at trial and the employer’s right should be protected in the interim. 

Third, the balance of convenience must be demonstrated to favour withholding payment of the benefit.

Finally, the employer must demonstrate that its request to the retirement fund to withhold payment of the benefit has been unreasonably refused and/or that the employer was not granted an opportunity to be heard.

Quantification 

Additionally, the High Court also considered the quantification of the amount to be withheld. It held that if the member (former employee) raises serious doubt in respect of the quantification of damages, the amount that the court orders to be withheld must be reduced accordingly.

Moultrie AJ found that the member had established serious doubt regarding half of the damages claimed, and as such, the amount the employer requested the retirement fund to withhold payment of was significantly reduced. Moultrie AJ also expressed the view that the employer was unlikely to prove 100% of its damages claim at trial. 

Conclusion

The clarity provided by the High Court that proceedings aimed at interdicting a retirement fund to withhold payment of a member’s benefit fall within an exceptional category of applications for interim relief is an advantage to employers because the requirement to prove that the injury is irreparable and that no other satisfactory remedy is available, is relaxed.

* Article by Deirdre Phillips, Tshepo Mokoana and Tasmika Barath