FINANCIAL SERVICES TRIBUNAL: Editorials: Edition: July / September 2019

image_pdfimage_print

Adjudicator in a quandary

Process to reconsider a determination is a mystery, even to the appeal body.

From an early decision, confusion rules over clarity.

Problems with legislation, previously unforeseen, lie in wait.

Feelings of sympathy might be extended to Vivian Cohen, the actuary appointed as valuator to the Amplats Group Provident Fund, who’d been ordered by the Pension Funds Adjudicator to pay the fund R40,5m plus interest as compensation for a loss that the fund had allegedly suffered (TT Nov ’18-Jan ’19). Having applied to the Financial Services Tribunal, for it to reconsider the Adjudicator’s determination, Cohen is left in suspense.

All the tribunal has done, and apparently could do, is refer the order for payment back to the Adjudicator for further consideration. At this stage the limited relief for Cohen, until there’s final settlement, is the tribunal’s finding that the loss to the fund “was less than that set out in an actuarial report on which the Adjudicator relied”.

The tribunal, chaired by retired judge Louis Harms sitting with Neo Dongwana and Ndumiso Nxumalo, made clear that its remarks referred to the office of the Adjudicator and not to a particular person in the office. This is just as well because of scathing observations about the office headed by Adjudicator Muvhango Lukhaimane. She’s left with bruises and little guidance on how they must be attended.

Almost as a sideline, the tribunal laid into the office for its presentation of the records that had been signed off by an unnamed senior assistant Adjudicator. Of the 2 228 pages, only about 10% were relevant to the application and all had been “dumped” at the tribunal to appear as a “shuffled pack of cards”.

So much for the past. For the future, the Adjudicator has bigger problems. First, there’s still a hole to be filled in the fund’s assets. Second, since the tribunal’s decision didn’t analyse the merits of the Adjudicator’s determination, what’s to be the correct process in reconsidering it?

The main object of the Adjudicator is to dispose of complaints lodged in terms of the PFA. Yet in the legislation the jurisdictional requirements for the disposal of complaints are “simply absent”.

The tribunal lacked the power to substitute the Adjudicator’s decision with its own, it found. Having looked at a plethora of case law and statutes – the Financial Sector Regulation Act, the Promotion of Administrative Justice Act and the Pension Funds Act – Harms seemed to throw up his hands: “How, in the light of this mix of provisions, the process may unfold hereafter is a mystery to us.”

It must therefore be a mystery to the Adjudicator too. Now in the hands of Lukhaimane is the unfolding of this mysterious process.

Appointed by the Amplats fund as its valuator in terms of the Pension Funds Act (PFA), Cohen had undertaken to conduct unit-price calculations on behalf of the fund (see box). It was alleged that a R40,5m loss to the fund had been caused by the breach of his duty to perform this function without negligence.

However, the tribunal stated, the failure to execute the mandate with the necessary diligence, skill and care – required of a reasonable professional – was not to be resolved by delict (civil claim to compensate for a loss). It had to be resolved by the principles of contract.

Cohen did not perform a duty under the PFA when committing the error, the tribunal continued: “The question arises whether the complaint of the fund against Mr Cohen fell within the jurisdiction of the Adjudicator, something which must be found within the four corners of the PFA.”

But does it? Not necessarily.

The tribunal held that the Adjudicator does not have any inherent jurisdiction. Although in respect of matters that fall within his (sic) jurisdiction, the Adjudicator has the power to make an order which any court of law may make. But this did not mean that the Adjudicator is a court of law.

Cohen . . . not yet off the hook

Harms . . . hard findings

The main object of the Adjudicator is to dispose of complaints lodged in terms of the PFA. Yet in the legislation the jurisdictional requirements for the disposal of complaints are “simply absent”.

Moreover, citing precedent, a “complaint” refers to prejudice suffered by a complainant as a result of the fund’s maladministration. Because Cohen was not administering the fund or performing any function prescribed in the PFA, or even the rules for an actuary, his role fell outside this definition.

Put differently, the Amplats fund’s complaint to the Adjudicator did not relate to the investment of funds or to the interpretation and application of the fund’s rules. Accordingly, said the tribunal, in the present instance the Adjudicator did not have jurisdiction to make a determination against Cohen. There was also a lack of due process.

Although the Adjudicator has a wide discretion in adopting a procedure considered appropriate, the procedure must be fair. In this matter the Adjudicator had decided the matter on paper “but was not able to have done so because the essential disputes fell beyond the capability of his expertise”.

The Adjudicator had also realised that “he did not have the expertise” to decide whether or not Cohen had been negligent. Not even a High Court would decide a damages claim on paper. It requires a full-blown trial hearing with legal representation.

Instead, without notice to any party, the Adjudicator had obtained the services of an ‘independent actuary’ for advice and opinion, and had based the determination on this advice. “To obtain evidence without due notice to the parties is irregular,” noted the tribunal.

And for fairness, Cohen’s side had to be heard. That it wasn’t heard by the Adjudicator made it unsurprising that, in his appeal to tribunal and without dispute, he was able to show incorrect assumptions in the conclusions of the ‘independent actuary’.

For example, in the calculation of loss, the actuarial report on which the Adjudicator relied had failed to take into account that part had been recovered by the fund. Another part had been caused by the fund’s failure to stop overpayments once the error had been detected.

Fundamentally emphasised by the tribunal was the “fatal flaws” in the proceedings before the Adjudicator. Because of them “we do not deem it our function to deal with the issue of liability any further”.

So back the matter goes to the Adjudicator. Best of luck to Lukhaimane.

WRONG CELL

The substance of the Amplats fund’s claim against Cohen was that he had erroneously used the same opening balances in the calculation of unit prices in a specific portfolio over four months to December 2012. The result was that the members’ fund credits were overstated, causing these members to be overpaid their benefits.

The error in the calculation had arisen because one cell in the particular spreadsheet was inadvertently hard-coded at the value on end-July 2012. It should correctly have referred back to the value from the previous month’s balance by means of a standard excel formula.

This value was then carried over from month to month until the error was discovered.