IN THE HIGH COURT OF SOUTH AFRICA 

(WESTERN CAPE HIGH COURT, CAPE TOWN)

In the matter between: 
JPL HORN 							         First Applicant
LYDIA ADAMS 						    Second Applicant
LENA DOUW						        Third Applicant
KATHARINA SUSANNA HOLTZHAUZEN		      Fourth Applicant
LELINDA KARSTEN					         Fifth Applicant
BASIL PAUL RUGHUBAR					        Sixth Applicant
DIANA THERON						   Seventh Applicant
LOVINA ELIZABETH YOUNG				        Eight Applicant
And

CAPE JOINT RETIREMENT FUND 			    First Respondent 

LA HEALTH MEDICAL SCHEME			          Second Respondent

JUDGMENT DELIVERED THIS 1st DAY OF MARCH 2011

[1]     Applicants brought an application for the following relief:
1.      Ordering the First Respondent, upon receiving payment in terms of paragraph 2 thereof., to pay each of the individual Applicants. 
1.1    The additional benefit specified in paragraph (b) under the heading, "REDUNDANCY/RETRENCHMENT BENEFIT FROM
1 MARCH 1999" in Rule 7.1A(1) of the Rules of the First Respondent, calculated as at 1 January 2005 in respect of each of the respective individual Applicants.
1.2.    Interest at the First Respondent's "prevailing rate" (as defined in Rule 1.7 of the Rules of the First Respondent) as was applicable from time to time since 1 January 2005, alternatively at 15.5% per year on the additional benefit payable to each of the respective individual Applicants from 1 January 2005.
2. Ordering the Second Respondent forthwith to make payment of the First Respondent of:
2.1. The additional benefit payable to each of the respective individual Applicants as specified in paragraph (b) under the heading "REDUNDANCY/RETRENCHMENT BENEFIT FROM 1 MARCH 1999 in Rule 7.1A(1) of the Rules of the First Respondent, calculated as at 1 January 2005.
2.2. Interest at the First Respondent's "prevailing rate" (as defined in Rule 1.7 of the Rules of the First Respondent) as was applicable from time to time since 1 January 2005, alternatively at 15,5% per year, on the additional benefit payable to each of the respective individual applicants, from 1 January 2005.

[3]     The first respondent did not oppose the relief sought by the applicants.

[4] The second respondent denied that it is obliged to make payment of any additional benefits to the applicant. They further deny that such obligation exists either in terms of the rules or the terms and conditions of employment of the applicants.

Background:

[6] The Local Authorities Municipal Aid Fund ("LAMAF") was established in terms of section 2(1) of the Local Authorities Medical Aid Fund Ordinanace of 1967. On 1 January 2005 LAMAF underwent a name change to become LA Health, the present second respondent.

[7] Applicants were employees of second respondent, previously known as LAMAF.

[8] The applicants as employees of second respondent, were members of first respondent, a defined contribution fund, registered in terms of section 4 of the Pension Fund Act 24 of 1956 (as amended) ("the Pension Funds Act");

[9] LAMAF was not defined as a local authority in terms of section 1 of the Income Tax Act, however, it was permissible for LAMAF to offer its employees (who were not local authority employees) membership of the first respondent which was a pension fund established for the benefit of employees of a local authority, as the rules allowed for this. This situation changed, however, during 1994 at which stage the Commissioner for Inland Revenue was prepared to accept that all existing members of the first respondent, despite the fact that they were not employees of a local authority as defined, could remain as members, but required that the rules of the first respondent be amended to prohibit henceforth employees of a "non-local authority" from becoming members thereof. Therefore the applicants remained members of the first respondent.

[10] LAMAF was not a party to or bound by collective agreements entered into between employers and employees within the local government sector or any other collective agreements. Local government authorities' conditions of service are negotiated on a national basis at the South African Local Bargaining Council ("SALBC"). The parties to this forum include the employer represented by the South African Local Government Association ("SALGA"). The employees are represented by two major trade unions, being SAMWU and IMATU. being trade unions within the local authority sphere.

[11] LAMAF did recognise IMATU as a trade union. This recognition was encompassed in a recognition and procedural agreement and LAMAF undertook to comply with its obligations in terms of the Labour Relations Act and the Code of Good Practice in relation to redundancy and retrenchment. In addition. LAMAF committed itself to the "retrenchment/redundancy policy".

[12]   Paragraph 7.3 of this policy reads as follows:
"7.3 The employee will also receive all payments he/she is entitled to in terms of his/her contract of employment i.e. leave pay, pro rata share of bonus, notice pay, etc."

[13] LAMAF's conditions of service of all the applicants in relation to their employment deals with various matters which includes those pertaining to the termination of service. It appears that there are no provisions that provide for the payment of any redundancy or retrenchment benefit to the employees by the second respondent, however reference is made to the relevant Pension Fund upon termination and Pensionable age.

[14] During 2004 LAMAF's board of trustees decided to outsource the administration of the medical scheme to Discovery. LAMAF concluded a memorandum of understanding with Discovery, whereby Discovery undertook to offer all employees of LAMAF affected by the proposed administration agreement, employment on terms and conditions on the whole not less favourable than those which pertained to their employment with LAMAF. Those employees of second respondent would be transferred to Discovery in terms of section 197(2) of the Labour Relations Act 66 of 1995 and cease to be employees of second respondent.

[15] During June 2004 the members of the fund were informed that the following options were available to them upon their transfer as employees to Discovery, with regard to their pension fund membership;
15.1. their member share in the first respondent's fund could be transferred to the new employer's fund (i.e. that of Discovery);
15.2. they could become a deferred member in the first respondent fund;
15.3. they could transfer their member share to a preservation fund.

[16] In light of the applicable tax legislation, a representative of the first respondent advised the members that the best option would be to transfer to a preservation fund. In terms of this option members had a once-off choice to withdraw a portion or 100% of their member's share. The majority of the applicants opted for the latter option and withdrew their member share after transfer to the preservation fund.

[17] The individual applicants state that they had accepted the offer under protest and therefore fully reserved their rights with regard to the retrenchment benefits in terms of the Pension Fund.

[18] The Rules of the Pension Fund ("the Rules") provided that if a member's service is terminated due to the following: the reduction in, the reorganization of staff, the abolition of his or her post, in order to effect improvements in efficiency or organisation, the result of his post having been declared redundant or his having been retrenched, then such members would be entitled to a redundancy benefit for the Pension Fund.

[19] The applicants contend that their employment with LAMAF was terminated in circumstances such as those contemplated in the Rules. No retrenchment or redundant benefits were paid to them.

[20] They claim that in terms of the Rules and the terms and conditions of employment of the individual applicants, the benefit in so far as it exceeded each of the individual applicant's member's share in the Pension Fund, has to be funded by the second respondent.

Rule 7 of the Rules inter alia provides that:

7.1A(1)        REDUNDANCY OR RETRENCHMENT
The member's Conditions of Service provide for an additional redundancy/retrenchment benefit to be paid by the Local Authority.

If a member's service is terminated owing to a reduction in, or reorganization of staff, or to the abolition of his post, or in order to effect improvements in efficiency or organization 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, 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 any collective bargaining agreement.

7.1A(2)        PAYMENT OF REDUNDANCY BENEFIT
The benefit payable in terms of this Rule will be paid to the member as a lump sum payment of the benefit, together with the interest at the prevailing rate, calculated from the date following the member's leaving service to the date of
payment, will be made as soon as possible, but not later
than 90(ninety) days after the date of the member's leaving service.

TERMINATION OF SERVICE
For the purpose of establishing the benefit to which the member is entitled in terms of this Rule, the trustees will be entitled to act without further enquiry or investigate on the particulars furnished to them by the Local Authority concerned, of the reason for the member's termination of service. The Local Authority indemnifies the fund against any claims instituted against the fund as a result of the trustees so acting.

(1) A member may elect to preserve any part of his entitlement in terms of Rule 7.1 above that he does not take in cash.
(2) A member who preserves his benefit in terms of (1) above may elect to preserve such benefit:

(a) By transferring such amount to an approved retirement annuity fund of his choice or an approved preservation retirement fund in which the local authority has agree to participate: or
(b) by transferring such amount to an approved Retirement Fund which is operated for the benefit of Employees of the Local Authority with whom the withdrawing member is taking up employment.
13. The definitions in Rule 1-7 of the Rules, inter alia, provide that the following meanings have to be attributed to words or phrases used in the Rules:
13.1. "Approved Retirement Annuity Fund: A Fund approved as such by the SA Revenue Services and the Registrar",
13.2. "Employee: Any person

and

(b) Any other Local Government body or similar body constituted before 1995 and who is a participant of the Fund",

13.5 "Member's Share in respect of each member: an amount determined in accordance with rule 2.2(1)";
13.6. "Prevailing Rate: The rate of interest as determined from time to time, by the Trustees in consultation with the Actuary";

[22] The second respondent did not deny the arguments by the applicants stating that the consequences of the section 197(2) transfer, were the following:
22.1. The contract of employment of the individual Applicants with LAMAF terminated on 31 December 2004.
22.2. The individual applicants became redundant within the operations and structures of LAMAF.
22.3 The staff numbers of LAMAF were reduced by those employees who were transferred by Discovery.

22.4 The posts of all employees transferred to Discovery, no longer existed within the structure of LAMAF and were thus abolished.
22.5. The employees transferred, including the individual applicants, were in effect, declared redundant by LAMAF. LAMAF was unable to accommodate them in alternative positions and it never offered to do so. Their posts ceased to exist.
22.6. The employees who were transferred lost their employment as a result of the curtailment of LAMAF's operations. The employees transferred, including the individual applicants, had accordingly been retrenched.

[23] The aforementioned are the very circumstances stipulated by Rule 7.1(A)(1) that would entitle employees to the Redundancy/Retrenchment Benefit set out in the Pension Fund Rules.

25.1   The applicants fail to deal with the factual matter on the papers relating to the terms of employment.

25.2 The applicants accepted the position offered by Discovery from 1 January 2005. Although the first applicant takes issue with the notion that their terms of employment with Discovery were less favourable than with LAMAF because Discovery never subsidised medical scheme membership, their respective remuneration packages were substantial. First applicant's total package was R479 877,00 with a performance-based incentive payment. All such remuneration compares extremely favourably with (if it does not in fact exceed) that received from LAMAF as recorded by them in their claim forms

25.5. It is therefore a "non issue" that the transfer brought about a termination of applicants employment with first respondent.
25.6. The applicants failed to deal with the factual issue whereby they were employed by the second respondent and in terms of the conditions of service, it did not provide for an "additional redundancy or retrenchment benefit to be paid by the second respondent.
25.7. The definition of the word "service" in the Rules, which means "service as an employee or otherwise of one or more local authorities depending upon the conditions or service applicable to such service", read with the "stipulation" in Rule 7.1 A(1) namely that the "Members Conditions of Service provide for an additional redundancy/retrenchment benefit to be paid by the LOCAL AUTHORITY" has the effect that the Rule 7.1A(1) did not impose as a condition of service an additional redundancy or retrenchment benefit on second respondent, irrespective of the Conditions of Service.
25.8. No obligation was imposed upon second respondent by the Conditions of Service; therefore applicants are not entitled to any redundancy/retrenchment benefit provided for in the Rules.

[26] The issue, to be decided, in my view is simply whether the individual applicants are, in terms of the Pension Fund Rules, entitled to receive the benefits stipulated in Rule 7.1A(1) of the Pension Fund Rules. The conditions of service only became relevant insofar as it makes it compulsory for the employee to belong to the first respondent. The rules then bind both the employer and the employee.

271	After the transfer of the administration department, LAMAF no longer needed the department and. accordingly, reduced its staff by the number of employees employed. The reduction was effected by the transfer to Discovery with effect from 1 January 2005. The transfer occurred in terms of Section 197(2) of the LRA and it terminated the employees' service with LAMAF. Accordingly, the termination of the employees' service was owing to a reduction of staff.
272	LAMAF reorganised its staff as a result of the transfer of the administration department. The staff structure of LAMAF before the transfer of the administration department after the transfer would not be the same. The reorganisation was effected by the transfer of all employees in the administration department to Discovery with effect from 1 January 2005. The transfer occurred in terms of Section 197 of the Labour Relations Act and it terminated the employees' service with LAMAF. Accordingly, the termination of the transferred employees' service was owing to a reorganization of staff.
273	Because of the transfer of the administration department, LAMAF no longer had a need for the department. The employees function would cease when the transfer to Discovery took place. The employees' service accordingly terminated owing to an abolition of their posts.

27.4 LAMAF was going to transfer the administration department with effect from 1 January 2005. Transfer took place and accordingly, the employees who had been employed in LAMAF's administration department had become redundant within the framework of LAMAF's organisation.

No alternative employment was offered to the employees by LAMAF. The employees were transferred to Discovery and their service with LAMAF terminated. Accordingly, their posts were effectively declared redundant by LAMAF with effect from 1 January 2005 and as a result thereof their service was terminated. A formal "declaration" of redundancy was not required.

[30] The court held that the contractual relationship between the appellant and its erstwhile employees was terminated due to the transfer in terms of section 197 of the LRA, therefore the provisions of the rules in the pension fund when contractual relationships were terminated applied.

[31] The Court held further that the appellant wanted to rearrange its affairs and the transfer was a way of ensuring that no activities would be carried out in this division in the future, but rather have it contracted out to the new employer. The employees employment ceased to exist in the appellants organization as the transfer had terminated the employment, it lead to the abolition of the posts of the employees.

[33] In this matter the individual applicants were employed by the municipality until 30 June 2001. The municipality performed road maintenance functions referred to as provincial roads in a geographical area that was eventually known as the Bophirima Region of the department for many years. Maintenance functions were carried out in terms of an agency agreement that was originally concluded with the Roads Department of the Provincial Administration of the Cape Province and later with third respondent. The department decided to terminate the existing agency agreement in 2000, which termination finally took effect on 1 July 2001.

[34] Pursuant to the termination, the municipality's obligations ceased and the staff who had been employed became "redundant". On 5 July 2001 the individual applicants entered the employ of the department which had taken over the road maintenance operations.

[35] All the applicants were members of first respondent, the Cape Joint Retirement Fund. The rules of the fund provided that if a member's service was 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 or as a result of his post having been declared redundant or his having been retrenched, such a member was entitled to an additional benefit from the pension fund.
[36] The applicants contended that the employment of the individual applicants with the municipality terminated in circumstance contemplated in the rules but they did not receive any additional benefit as was so provided. They applied to court in order to secure payment of the additional benefits to which the individual applicants contended they were entitled and to obtain payment by the department to the fund of sums as were payable in terms of the rules thereof.

It is this principle which is of application in this case. The contractual relationship between the municipality and the individual applicants was brought to an end in circumstances which are described in rule 7.1A(1), that is either redundancy or retrenchment, triggered off by the termination of the agency agreement on 1 July 2001".

Order:
[41] An order is granted in terms of the Notice of Motion as quoted in par 1 above.

[42] The second respondent is ordered to pay the applicants' legal costs, including the costs of two counsel.
ERASMUS, J