TRUSTEE LIABILITY - Pension Lawyers Association of South Africa

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TRUSTEE LIABILITY - Pension Lawyers Association of South Africa

TRUSTEE LIABILITY:WHEN AND HOW?bySamantha Davidson (Shepstone & Wylie)Tashia Jithoo (Bowman Gilfillan)


THE NATURE OF APENSION FUND• Incorporated in term s of section 4B(1)• Section 5(1)(a): fund becomes “a body corporate capable ofsuing andbeing sued in its corporate nam e”


THE NATURE OF APE N SION FU N D (continued)• Not a trust• Board not actually “trustees”• Venter v ProtektorPension Fund [2000] 3 BPLR 340 (PFA)“Contrary to the popular perception to the effect that a pension fund inlaw constitutes a trust,I am ofthe view that a pension fund at co m m on lawis a universitas personaru m – a voluntary association with corporatepersonality ... . An universitas is distinguished from a mere association ofindividuals by the factthat itis an entity distinctfrom the individuals formingit,that its capacity to acquire rights orincur obligations is distinctfrom thatof his members, which are required or incurred for the body as a whole, andnotfor the individual mem bers.”


THE NATURE OF APE N SION FU N D (continued)BOARDBOARDCOMPANYPENSION FUNDSHAREHOLDERSMEMBERSHIP


TRUSTEES DUTIES ANDOBLIGATIONSThe Legislative Fra m e w ork• The Pension Funds Act –Sections 7C and 7D• The FinancialInstitutions (Protection of Funds Act)–Section 2• Code of Conductfor Trustees


TRUSTEES DUTIES ANDOBLIGATIONS (continued)Fiduciary Duties• Act with impartiality and protect the interests ofthe me mbers and the fund• Duty to act with care and diligence and in good faith• Avoid conflict ofinterests


TRUSTEES DUTIES ANDOBLIGATIONS (continued)The duty to act with care, diligence and in good faith• W hat does this duty entail?Connery v Old M utual Life Assurance Co. (S A) Ltd and Another [2002] 6 BPLR 3544(PFA)Moreover,the duty to act with care and diligence requires the fund andad ministrators not to act carelessly and without diligence. The Concise OxfordDictionary, 10 th edition, defines the word “carelessly” as m eaning “without givingsufficient attention or thoughtto avoiding har m or mistakes.van Wezel v Gencor Pension Fund and Others [2001] 2 BPLR 1668 (PFA)As regards the duty to act with due care, a board of managem e nt is required to acthonestly and prudently, taking allthose precautions which an ordinary prudent manof business would take in the managing ofsimilaraffairs of his ow n.• Required level ofskill?


TRUSTEES DUTIES ANDOBLIGATIONS (continued)Trustee Obligations• Keep proper records and ensure proper controlsystems• Convey adequate and appropriate inform ation• Ensure paym ent of contributions• O btain expert advice• Ensure that rules co mply with allrelevantlaws


THE NATURE OF TRUSTEELIABILITY• Fund liability vs Personalliability• Joint and Severalliability• Personalliability• Statutory• Knight v Mitchell Cotts [2002] 8 BPLR 3765 (PFA) – accepted thatthe FinancialInstitutions (Investm ent of Funds) Act39 of 1984creates personalliability at a statutory level


PERSONAL LIABILITYSection 9 ofthe FinancialInstitutions (Investm ent of Funds) Act:“A person who contravenes any provision ofthis Act orfails to com plywith any provision … is guilty of an offence and liable on convictionto a fine not exceeding R10 000 or to imprisonmentfor a period notexceeding 10 years or to both …, and is in addition liable to thefinancial institution, trust beneficiary or principal concerned for anyprofitmade by him and for any da m age suffered by the institution,trust, beneficiary or principal as a result of the contravention orfailure.…”


PERSONAL LIABILITY(continued)• Personalliability as a statutory re medy continued under the FinancialInstitutions(Protection of Funds) Act 28 of 2001• Section 10 ofthe FIA“(1) A person who contravenes or fails to co mply with any provision of thisAct is guilty ofan offence and on conviction liable to a fine orimprisonmentfor a period not exceeding 15 years.(2) A court may,in addition to any penaltyitmay impose in terms ofsubsection (1), order that such person –(a) pay the institution or principal concerned any profithe or she made;and(b) co mpensate the institution or principal concerned for any da magesuffered, as a result ofthe contravention orfailure.”


PERSONAL LIABILITY(continued)• “pay the institution or principal concerned any profit made”“compensate the institution or principal concerned for any da mage suffered”• “the institution” is defined as including:the affairs or part of the affairs of a financial institution or an unregistered(a) a financialinstitution (which includes a pension fund);(b) any person, partnership, company or trust which has or had a direct or indirectinterest in a financialinstitution or unregistered person, or in the business of afinancial institution or an unregistered person;(c) a participating e mployerin a pension fund organisation;(d) any person, partnership, company or trust that controls, manages orad ministersperson; or• “institution” can be the fund, member,co-trustee or administrator


PERSONAL LIABILITY(continued)Co m m on Law Delictual Claim• To claim compensation for patrimonialloss must show thatsustained harmwhich was wrongfullyand culpably caused by the trustee• Wrongfulness – Breach of a duty• Culpable – Intent or Negligence• Patrimonial Loss – M ust have been loss suffered• Causation – The har m m ust be the cause ofthe loss


PERSONAL LIABILITY(continued)Co m m on Law Delictual Claim sVan Huysteen v Tim es M edia Ltd Fund [2003] 4 BPLR 4613 (PFA)Naude v Esko m Pension and Provident Fund & Another [2002] 8 BPLR3782 (PFA)Warnerv Old Mutual StaffRetirem ent Fund [2000] 7 BPLR 804 (PFA)


PERSONAL LIABILITY(continued)Statutory Re medy• Breach + Loss = Liability• Question ofw hether duty owed to member or fund does not ariseCo m m on Law Rem edy• Breach + Loss = Liability• Is duty owed directly to the me m ber or only to the fund?


TO WHOM DO TRUSTEESOWE DUTIES?• Fund and/or Me mbers?• Some duties and obligations are owed specifically to members:• “protectthe interests of me mbers”• “act with impartiality in respect of allmembers and beneficiaries”• “ensure that adequate infor mation is communicated to the members”


TO WHOM DO TRUSTEESOWE DUTIES? (continued)• Vally v Federal Mogul Pension Fund [2002] 2 BPLR 3122 (PFA)• Dlvana & Another v Shoprite Checkers Employees Retirem ent Fund &Others [2002] 4 BPLR 3354• Hilton HotelEmployees vTrustees ofthe Liquor and Catering Trade(Pieterm aritzburg) Provident Fund & Another [2000] 5 BPLR 511 (PFA)


W H O CO ULD BRING ACLAIM AGAINSTTRUSTEES?• The Board?• The Em ployer?• The Me mbers?


W H O CO ULD BRING ACLAIM AGAINSTTRUSTEES? (contd.)• Using the mechanism of a curator• Section 5 ofthe FIA:(1) The registrar may,on good cause shown, apply ...for the appointmentof a curator to take control of, and to m a nage the whole or any part of,the business of an institution.(6) The curator acts under the control ofthe registrar...and m ay applyto that registrarforinstructions.


W H O CO ULD BRING ACLAIM AGAINSTTRUSTEES? (contd.)• Section 6 – Po wers ofthe Registrar(1) The registrar may institute proceedings in the High Court...in orderto-...(b) co mpel any institution to co mply with any law;(c) co mpel any institution to co mply with a lawful request,directive orinstruction made, issued or given bytheregistrar under a law; or


DELEGATION OF PO W ERSAND EXPERT ADVICECode of Conduct for Trustees“The Board is entitled and, in fact is, obliged to obtain expert advice fro mprofessionals such as lawyers, actuaries and auditors in matters where itsmembers lack sufficient expertise. Board members should give the advicedue consideration, and m ake decisions based on the assess ment oftheadvice obtained.


DELEGATION OF PO W ERSAND EXPERT ADVICE(continued)Code of Conduct for Trustees“ Where the m a nage m e nt, administration and invest m ent functions of thefund are delegated, Board mem bers re main responsible. . ...The mandates. . .must clearly set out the delegated responsibilities and the rights ofrecourse. ...There m ust be a process ofregular reporting. ...“


DELEGATION OF PO W ERSAND EXPERT ADVICE(continued)Code of Conduct for Trustees“ Where the investm e nt function has been delegated, the Board shouldensure that there are appropriate bench marks for performance and thattherisk profile of the investments matches the risk profile of the mem bers....”


DELEGATION OF PO W ERSAND EXPERT ADVICE(continued)Ad ministrators• Pieters v Schindler Lifts Defined Contribution Pension Fund & Others[2003] 3 BPLR 4493 (PFA)• Crone v Southern Life Association Ltd & Others [1999] 9 BPLR 1 PFA• Long v Krisch Provident Fund & Another [1999] 12 BPLR 370 (PFA)


DELEGATION OF PO W ERSAND EXPERT ADVICE(continued)Investm ent D ecisions• Twerefoo v Liberty Life Association ofSA Ltd & Others [2000] 12 BPLR1437 (PFA)• Van WezelvGencor Pension Fund & Others [2001] 2 BPLR 1688 (PFA)O btaining Advice• Jandruballiev Tongaat-Hullet Pension Fund [2000] 6 BPLR 606 (PFA)


LIMITATION OF LIABILITY• Exoneration /Indemnity clauses• Fidelity Cover

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