Since 1 April 2019, the Pension Funds Adjudicator has been empowered to apply the principles of equity in dealing with complaints. The concept of an equity jurisdiction has raised concerns in the industry due to its discretionary nature.
The concept of ‘equitable jurisdiction’ has been the subject of a recent determination by the Financial Services Tribunal. The Tribunal made it clear that the exercise of equitable jurisdiction has parameters and cannot be haphazardly applied. More specifically it can only be used in appropriate cases such as those where the positive law is absent or ambiguous and regard must always be had to the provisions of the prevailing law and legislation.
In The Municipality Gratuity Fund v West Rand District Municipality and the Pension Funds Adjudicator, the West Rand Municipality, a participating employer in the Municipality Gratuity Fund had not made payment of contributions within the prescribed period. As a result interest accrued in terms of section 13A(7) of the Pension Funds Act 1956 (PFA). Failure by the Municipality to pay the arrear interest led to the complaint to the Adjudicator in which the Fund requested a determination for payment of the outstanding amount plus interest, presumably as provided for under section 30N of the PFA.
The Adjudicator in exercising her equitable jurisdiction, directed the Fund (and not the Municipality) to conclude a settlement agreement with the Municipality where the parties should agree on another lower (non-statutory) rate or amount of interest. This order was made despite section 13A(7) providing that interest at a prescribed rate is payable on overdue amounts.
The Tribunal found that the manner in which the Adjudicator exercised her equitable jurisdiction in this case was problematic for three main reasons, namely –
- The Adjudicator in purporting to exercise equitable jurisdiction overrode the statute:
- The Adjudicator may exercise equitable jurisdiction in an appropriate case but must have regard to the provisions of the PFA. An equitable jurisdiction cannot override a statute and the statute in this case sets the obligation to pay interest.
- It is not appropriate to use an equitable jurisdiction and to disregard the mandatory terms of a statute.
- There was no clear ‘principle’ of equity applied by the Adjudicator and the determination could not stand because the Adjudicator failed to articulate whether the principle applied:
- is that local authorities in distress are not bound by the PFA or did it apply to all other bodies in distress such as state-owned entities and, say, companies under business administration.
- only applied to the interest provision in section 13A(7) or whether it extended to the contribution provision in section 13A(1).
- permitted non-compliance with provisions of the PFA which are criminalised, to be negotiable on an administrative level and capable of settlement between the parties.
- The determination was incapable of enforcement because the Fund was instructed to settle with the Municipality but there was no deadlock-breaking mechanism if they could not agree.
The matter was referred back to the Adjudicator for reconsideration.
It is likely that we will see more determinations which apply the principle of equitable jurisdiction. The decision of the Tribunal will make it easier for the Adjudicator and the industry to understand the limits when applying principles of equity.