By Duncan Wild on 1 November 2014

This case concerns the interpretation of interpretation of the rules of a pension fund established for employees of local authorities, and their application, particularly in conveying certain redundancy benefits, on employees who were not employed by a local authority but under a special arrangement. 

LA Health Medical Scheme (“LA Health“), operates a medical scheme for local authorities in the Western Cape. The appellants were formerly employed by it and, as a term of their contracts of employment, were members of the Cape Joint Retirement Fund (“the Fund“). On 1 January 2005 Discovery Health (Pty) Ltd (“Discovery“) took over the administration of claims against LA Health. In terms of the provisions of s 197(2) of the Labour Relations Act 66 of 1995 (“LRA“) the respondents were then automatically transferred to Discovery. The appellants argued that this transfer entitled them to redundancy or retrenchment benefits under the rules of the Fund. The claim was upheld by Erasmus J in the Western Cape High Court and on appeal by a full bench on the Court (per Saldanha J, with the concurrence of Baartman and Louw JJ).  The SCA, however, upheld LA Health’s appeal, dismissing the application.

The Fund was established in 1996 under the Local Authorities (Pension Funds) Ordinance 23 of 1969 (Cape) as a successor to the Cape Joint Pension Fund. That fund was established for employees of local authorities in what was originally the Cape Province, initially in terms of the Local Government Superannuation Ordinance 15 of 1943 (Cape). Ordinance 23 of 1969 defined a local authority and the definition expressly included LAMAF. The definition of ‘local authority’ in the rules of the Cape Joint Pension Fund likewise expressly included LAMAF.

The appellants were therefore members despite the fact that they were not employees of a local authority, but such membership had been permissible under the rules of the fund’s predecessor. In 1994 Commissioner for Inland Revenue  intervened and the position was changed, except existing members were permitted to retain their membership. The rules of the Fund were amended to include in the definition of ‘local authority’ any other body “constituted before 1995 and who is a participant of the FUND”.

Therefore on 31 December 2004, the appellants were members of the Fund and LA Health was the employer for the purpose of discharging the obligations imposed on employers under the rules. In general LA Health had the same obligations to the Fund as the Local Authority employers. In terms of s 13 of the Pension Funds Act 24 of 1956 the rules of the Fund were binding upon LA Health as the employer at the relevant time.

The issue between the parties is whether, on being transferred to the employ of Discovery, the appellants were entitled to the benefits provided for in rule 7.1A(1), which reads as follows:

REDUNDANCY OR RETRENCHMENT
The MEMBER’S conditions of SERVICE provide for an additional redundancy/retrenchment benefit to be paid by the LOCAL AUTHORITY.

Redundancy/retrenchment benefit prior to 28 February 1999

If a MEMBER leaves the SERVICE as a result of his having been declared redundant or having been retrenched and he/she has at least 10 years’ SERVICE, he/she shall be entitled to:

(a) the MEMBER’S SHARE;

Plus

(b) an amount payable by the LOCAL AUTHORITY concerned, …
Redundancy/retrenchment benefit from 1 March 1999
If a MEMBER’S SERVICE is terminated owing to a reduction in, or reorganisation of staff, or to the abolition of his post, or in order to effect improvements in efficiency or organisation (which includes termination of SERVICE in order to establish equity in the workplace or to implement affirmative action programs), or as the result of his having been declared redundant or having been retrenched, on receipt of advice from the LOCAL AUTHORITY, he shall be entitled to:

(a) the MEMBER’S SHARE;

PLUS

(b) an amount payable by the LOCAL AUTHORITY concerned (and for which it alone shall be liable to the member), being the lesser of;

(aa) the difference between the age of 65 years and his age on his nearest birthday, multiplied by 8%, multiplied by the MEMBER’S SHARE:

OR

(bb) 100% of the MEMBER’S SHARE.

…

This benefit will change if the LOCAL AUTHORITY’S redundancy/retrenchment policy changes in terms of a collective bargaining agreement.’

LA Health argues that the relevant benefits only applied to employees whose employment contracts made provision for the benefit, on the basis of the phrase “The MEMBER’S conditions of SERVICE provide for an additional redundancy/retrenchment benefit to be paid by the LOCAL AUTHORITY.” The appellants’ contracts did not do so.

The appellants argued, an argument with which the High Court agreed, that this reference to an “additional” benefit was a reference to an obligation outside the scope of the rules payable by the local authorities, and not the benefit conveyed under the rules.

The SCA, however, traced the history and context of the rule and found that it was intended only to apply to employees of local authorities, and not members of the fund in the position of the appellants.

On appeal the appellants challenge the interpretation given to the rule by the SCA.