Archibald Barry Nichol and The Sage Schachat Pension Fund v The Registrar of Pension Funds and Others

Nichol was a pensioner and member of the Sage Schachat Pension Fund. In 1998, the Sage Group decided to amalgamate three pension funds (Sage Schachat Fund, Sage Group Limited Staff Pension Fund, and Sage Group Fund) by transferring businesses to create a merged fund. The merger occurred de facto from 1 December 1998, but formal approval was only sought from the Registrar of Pension Funds in October 1999. Nichol opposed the merger because the Sage Schachat Fund had a favorable surplus position that would be diluted by the merger. In April 1999, Nichol complained to the Pension Funds Adjudicator, who in November 2001 determined that the funds remained separate legal entities as the Registrar had not yet issued the required certificates. In December 2001, the Registrar retrospectively approved the merger and issued certificates under s 14(1)(e) of the Pension Funds Act. In February 2002, Nichol launched review proceedings in the Pretoria High Court to set aside the Registrar's decision, without first exhausting his right of appeal to the FSB Appeal Board under s 26(2) of the Financial Services Board Act. When this was raised by respondents, Nichol applied in April 2004 for exemption from the obligation to exhaust internal remedies under s 7(2)(c) of PAJA.

• What constitutes 'exceptional circumstances' for purposes of s 7(2)(c) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA)?
• Whether an applicant must exhaust internal remedies before instituting judicial review proceedings under PAJA?
• Whether allegations of procedural irregularities, bad faith, or strong merits constitute exceptional circumstances justifying exemption from exhausting internal remedies?
• Whether the FSB Appeal Board provided an adequate internal remedy capable of granting effective relief?

The appeal was dismissed with costs. The cross-appeal was struck from the roll with costs. Nichol was required to exhaust his internal remedy by appealing to the FSB Appeal Board before pursuing judicial review proceedings.

Section 7(2) of PAJA imposes a strict and compulsory duty on applicants to exhaust internal remedies before instituting judicial review proceedings, unless exempted by a court. To obtain exemption under s 7(2)(c), an applicant must satisfy the court of two requirements: (1) that exceptional circumstances exist, and (2) that exemption is in the interests of justice. 'Exceptional circumstances' are circumstances out of the ordinary that render it inappropriate to require the applicant to pursue internal remedies, requiring immediate court intervention. Exceptional circumstances should primarily be facts existing before or at the time of institution of review proceedings. Allegations of procedural or substantive irregularities, bad faith, breach of constitutional rights, or strong grounds of review do not per se constitute exceptional circumstances - these are ordinary grounds of review that can be addressed by internal appeal tribunals. Where an adequate internal remedy exists through a specialist tribunal with full powers to grant the relief sought, including power to conduct a complete rehearing and make fresh determinations, exceptional circumstances will not be found merely because the applicant has a strong case on the merits.

The court noted that the FSB Appeal Board is an independent tribunal as contemplated in s 34 of the Constitution, composed of members with expertise in law, financial institutions and services, and the accounting profession. The Board has very wide powers equivalent to a complete appeal, including power to confirm, set aside or vary decisions, refer matters back with directions, grant interim relief, and make costs orders. The court observed that the relationship between the Pension Funds Adjudicator and the Registrar, and the status of the Adjudicator's determination in light of the Registrar's subsequent certificates, were issues central to the dispute but did not need to be resolved for purposes of the exemption application - these were exactly the sort of issues that should be addressed by the FSB Appeal Board. The court did not need to decide whether the FSB Appeal Board has power to condone non-compliance with prescribed time limits for appeals, though it noted the Registrar's undertaking not to rely on any time bar. The court also noted that the question of whether the Sage Schachat Fund continued to exist as a separate entity and had standing to prosecute the appeal could not be determined at that stage.

This case is a leading authority on the interpretation and application of s 7(2) of PAJA, particularly the meaning of 'exceptional circumstances' for exemption from the obligation to exhaust internal remedies. It establishes that PAJA significantly reformed the common law by making exhaustion of internal remedies compulsory (subject to exemption), whereas under common law this was only required where the statute so provided. The judgment provides important guidance on what does NOT constitute exceptional circumstances: strong grounds of review, allegations of bad faith or procedural irregularities, constitutional rights arguments, or deliberate decisions not to pursue internal remedies. The case emphasizes that where an adequate internal remedy exists through a specialist tribunal with full powers of review, courts should not grant exemptions merely because an applicant has a strong case on the merits - this would defeat the purpose of s 7(2).