Introduction
Background
Decision
Comment


Introduction

In Hansen & Genwest (Pty) Ltd v Corporate Selection Umbrella Retirement Fund No 2 and Others,(1) the High Court shed light on the interdictory grounds that an employer must satisfy to interdict a retirement fund from paying out the member's benefit pending final determination of action proceedings.

The Court reiterated the Supreme Court of Appeal's decision in Highveld Steel & Vanadium Corporation Ltd v Oosthuizen 2009(2) 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. However, 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.

Background

The withholding of pension benefits is a common recourse against employees who have caused damage to their employers through theft, dishonesty, fraud or misconduct. The recourse available to an employer is sanctioned by section 37D(1)(b)(ii) of the Pension Funds Act (PFA), 24 (1956) and, in many cases, is 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 their employer for any damage caused by theft, dishonesty, fraud or misconduct. The member must have admitted liability to the employer in writing, or a judgment must have 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.

Where justified, the retirement fund would accede to the employer's request for withholding payment of the former employee's benefit. However, not all cases are linear. The question remains as to what happens if the retirement fund does not accede to an employer's request to withhold payment of a former employee's benefit.

Decision

Exercise of discretion

The High 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, the retirement fund must exercise this discretion reasonably even if it is unfettered. 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 interim interdict to withhold payment
First, 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) did not need to prove irreparable damage as the loss was presumed irreparable subject to a rebuttal by the respondent (the former employee). Thus, the employer need not establish the absence of other satisfactory remedies.

Second, the relationship between the indisputable right to obtain the benefit and the amount 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 and not disputed are considered first. Thereafter, the facts in dispute must be analysed to determine whether the former employee seriously doubts the employer's version. However, if the former employee 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, convenience must 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
The High Court also considered the quantification of the amount to be withheld. It held that if the former employee raises serious doubt regarding 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 that the employer requested the retirement fund to withhold was significantly reduced. Moultrie AJ also expressed the view that the employer was unlikely to prove 100% of its damages claim at trial.

Comment

The clarity provided by the High Court regarding proceedings aimed at prohibiting 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.

For further information on this topic please contact Tshepo Mokoana, Deirdre Phillips or Tasmika Barath at Bowmans Law by telephone (+27 11 669 9255 or +27 11 669 9513) or email ([email protected], [email protected] or [email protected]). The Bowmans Law website can be accessed at www.bowmanslaw.com.

Endnotes

(1) (23/002990) [2023] ZAGPJHC (06 February 2023) (Hansen case).

(2) (4) SA 1 (SCA).