Mostert, as curator of the CAF Pension Fund ("the Fund"), sued Old Mutual for damages of R48,254,488 arising from two payments (R32,350,847.60 on 7 December 1994 and R95,545.66 on 20 December 1994) made by Old Mutual to Corporate Acceptances Finance (Pty) Limited ("CAF") pursuant to an insurance policy. The Fund was an underwritten pension fund that operated exclusively through an insurance policy with Old Mutual since 1958, subject to a statutory exemption. In 1994, the Korstens acquired control of AMI (later AMK), the participating employer. AMK instructed Old Mutual to pay the Fund's monies to CAF, a company controlled by the Korstens. Old Mutual made the payments without obtaining regulatory approval or ensuring compliance with the Pension Funds Act. The Fund was not legally converted from an underwritten to a privately administered fund until 19 June 1995 when amended rules were registered. The trial court (Blignault J) dismissed the claim, finding the Fund had acquiesced in the payments. Mostert appealed.
Appeal allowed with costs, including costs of two counsel and junior counsel's reasonable travelling costs from Canada. The order of the trial court was set aside. Judgment was granted for payment of: (1) R32,350,847.60 plus interest from 7 December 1994; (2) R95,545.66 plus interest from 20 December 1994; (3) less amounts already recovered by the plaintiff on behalf of the Fund (with interest adjusted accordingly); (4) costs of recoveries made; (5) costs of suit including specified expenses. The appellant was ordered to account for and pay over any future recoveries to the respondent.
A pension fund organized as a 'scheme' under section 5(1)(b) of the Pension Funds Act 24 of 1956 has legal personality and beneficially owns its assets to the exclusion of any other person, including the employer and members. Such a fund has the essential attributes of a universitas at common law. An underwritten pension fund is a party to the insurance policy that underpins it, with the employer negotiating the policy both on its own behalf and on behalf of the fund, thereby creating privity of contract. An insurer underwriting a pension fund breaches its contractual obligations if it pays fund assets to a party other than an 'approved fund' as defined in the policy and regulatory framework, particularly where such payment violates the conditions of statutory exemption and the fund's registered rules. Damages for breach of contract involving pension fund assets should ordinarily be assessed at the date of breach, comprising the amounts wrongfully paid plus interest from the date of payment.
The Court expressed doubt about the correctness of the majority decision in ISEP Structural Engineering and Plating (Pty) Ltd v Inland Exploration Co (Pty) Ltd 1981(4) SA 1 (A) regarding claims for damages as a surrogate for performance, noting it has been subjected to severe criticism and that reconsideration is called for, though the present case was not the appropriate matter for such reconsideration. The Court also observed that there is no hard and fast rule regarding the date for assessment of damages in contract cases, and the appropriate date may vary depending on circumstances and proper application of the fundamental rule that the injured party should be placed in the position they would have occupied had the agreement been fulfilled. The Court commented on the 'breathtaking' nature of Old Mutual's argument that would have undermined the manifest intention of the legislature to protect pension fund assets from employer control.
This is a leading case on the legal personality of pension funds in South African law. It authoritatively establishes that pension funds organized as 'schemes' under s 5(1)(b) of the Pension Funds Act have legal personality and beneficially own their assets, rejecting arguments that such funds lack separate legal existence. The judgment reinforces the protective policy of the Pension Funds Act to safeguard pension assets from abuse by employers and emphasizes that insurers underwriting pension funds owe direct contractual obligations to the funds themselves, not merely to employers. The case clarifies the requirements for valid discontinuance of underwritten pension fund policies and the conversion from underwritten to privately administered funds. It also addresses the proper measure of damages for breach of contract involving pension fund assets.
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