THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number: 64/2008

In the matter between:

WILLIAM VAN DER RIET FAMILY TRUST t/a CATHEDRAL PEAK HOTEL

Appellant (defendant)

and

HOSPITALITY INDUSTRY PENSION PROVIDENT FUND

Respondent (plaintiff)

Neutral citation:
William Van Der Riet Family Trust t/a Cathedral Peak Hotel v
Hospitality Industry Pension Provident Fund (64/2008) [2008]
ZASCA 148 (November 2008)

BEFORE :

Scott JA, Cameron JA, Cloete JA, Griesel AJA and
Kgomo AJA

HEARD:

Tuesday 18 November 2008

DELIVERED:
Thursday 27 November 2008

SUMMARY:
Pension Funds Act 24 of 1956 – Rules of pension fund –
interpretation – obligation of employer – agreement
obliging employer to pay increased contribution of 6% of
employee members’ salaries

ORDER

On appeal from:

The High Court, Pietermaritzburg (Moleko J and
Radebe AJ), sitting on appeal from the magistrate’s court at Bergville

The appeal is dismissed with costs

JUDGMENT

CAMERON JA (Scott JA, Cloete JA, Griesel AJA and Kgomo AJA concurring)
[1] In the magistrate’s court at Bergville, the respondent (the fund) sued
the appellant (the hotel) for R15 365,73 plus interest, which the fund claimed
represented  underpayments in the hotel’s monthly dues as a participating
employer on behalf of its employees.  The hotel admitted the underpayments
during the fourteen-month period the summons covered (February 2003 to
March 2004), but denied they were due.  Thus presented, the contesting
parties’ dispute raised an issue of significance not only for the hotel, but
presumably also for other participating employers: the correct interpretation of
the fund’s rules, which have binding force under the Pension Funds Act 24 of
1956 (the Act),1 and which the fund (which is registered under the Act) has
statutory power to amend.2  The Act obliges employer members to pay ‘any

1 Pension Funds Act 24 of 1956, s 13 Binding force of rules:
Subject to the provisions of this Act, the rules of a registered fund shall be binding on the fund
and the members, shareholders and officers thereof, and on any person who claims under the
rules or whose claim is derived from a person so claiming.
2 Pension Funds Act 24 of 1956, s 12 Amendment of rules:
(1)
A registered fund may, in the manner directed by its rules, alter or rescind any rule or
make any additional rule, but no such alteration, rescission or addition shall be valid –
(a)
if it purports to [a]ffect any right of a creditor of the fund, other than a member or a
shareholder thereof; or
(b)
unless it has been approved by the registrar and registered as provided in ss (4).
Sub-section (2) requires a copy of resolution to be transmitted to the Registrar of Pension
Funds.  Sub-section (3) requires a statement regarding the financial soundness or otherwise

contribution which, in terms of the rules of the fund, is to be deducted from the
members’ remuneration’, as well as ‘any contribution for which the employer
is liable in terms of those rules’.3

[2] The hotel asserted that it was obliged under the rules, properly
interpreted, to contribute only 5% of its employee members’ salaries.  The
fund insisted that the hotel was obliged to pay 6%, since the trustees resolved
in January 2003 to increase employer contributions to that figure.  The sum
claimed in the summons represented the difference for the disputed period.
The magistrate at Bergville, Ms E De Lange, upheld the hotel’s contentions.
The fund appealed to the High Court in Pietermaritzburg (Moleko J; Radebe
AJ concurring), which reversed this judgment, and ordered the hotel to pay
the amount claimed, with interest.  The hotel now appeals, with leave granted
by the High Court.

[3] To understand the parties’ dispute it is necessary to explain its context.
The fund was established in September 1992.  The hotel joined as a
participating employer on 24 February 1999.  At that date, revisions had
recently been effected to the rules.  So updated, the text defined the ‘rules’ as
including ‘such alterations as may at any time be in force’.  The text also
provided, concordantly with the Act, that the rules ‘may be amended at any
time by the Trustees’ (among whose number, it bears mention, both
employers and employees are represented).  Members’ contributions are
defined as being a ‘minimum 6 per cent’ of salary, while employers’
contributions were (in 1999) ‘at least 4 per cent’, less certain benefit costs,
provided that –
‘(b) every 1 January the EMPLOYER’S contribution shall increase by 1% up to a
minimum level of 6% of FUND SALARY’.

[4] It is this latter proviso that afforded the foundation for the fund’s
contentions.  However, the hotel’s accession was recorded in an Agreement

of the fund should the change affect its financial condition.  Sub-section (4) empowers the
Registrar to register the change.
3 Pension Funds Act 24 of 1956, s 13A(1)(a) and (b).

of Participation which the parties’ respective representatives signed on 24
February 1999 (the Agreement).  This expressly set out the contribution rates,
as a percentage of gross monthly wage payable to the fund, for both employer
and employee.  The figure stated was in each case 5%.

[5] Immediately above the parties’ signatures, the Agreement ‘confirmed’
that the hotel had ‘received copies of the Rules of the Fund and the
Administration Guide’.  This reference to the rules was plainly intended to
integrate them into the parties’ agreement.  (The magistrate’s observation that
‘no mention is made of the rules’ was thus mistaken.)  The Agreement so
became subject to the provisions of the rules, as amended from time to time,
during the period of the hotel’s accession to the fund.

[6] Neither in the High Court nor before this Court did the hotel contend
the contrary: indeed its contentions derived from the rules, specifically
amendments the fund’s trustees adopted on 28 January 2000.  The pivotal
amendment was the addition of the following proviso to the exposition of
‘CONTRIBUTIONS’ in the section headed ‘SCHEDULE OF BENEFITS’:
‘It is specifically provided that the contribution rate(s) applicable shall be as specified
in the AGREEMENT OF PARTICIPATION.’

This proviso formed the basis for the hotel’s initial defensive stance to the
fund’s claim.  It asserted that the January 2000 amendment pegged the
employer’s contribution to that expressly stipulated in the Agreement, namely
5%, with the effect that the trustees’ decision in January 2003 to increase the
employer’s contribution to 6% violated the basis on which the hotel acceded
to the fund and was therefore ineffectual.

[7] But the defence foundered on the point, well-made by Moleko J in his
judgment in the High Court, that the 1999 rules gave no special sanctity to the
Agreement of Participation, and that the proviso that seemingly elevated the
status of the Agreement was added only in 2000.  As the learned Judge
pointed out, the Agreement the employer signed in February 1999 did not
stand alone, but was subject to and had to be read with the rules – which at

that time, as well as subsequently, provided for an annual escalation in the
employer’s contribution.  It followed by simple logic that in January 2000,
when the proviso pegging contributions at those specified in the Agreement of
Participation was inserted, the employer’s contribution had already gone up to
6%.  The hotel’s initial argument therefore required counsel to straddle the
uncomfortable anomaly that, if it were correct, the hotel’s contribution went up
(automatically) to 6% on 1 January 2000, but then reverted down to 5% when
the 2000 amendments were adopted just days later.

[8] That could not be.  In argument before us counsel therefore conceded
the force of the contrary logic and abandoned his earlier contentions, though
he continued to point to what he suggested were difficulties inherent in it.  The
rule the fund invoked entailed, he said, an automatic annual increase of 1%,
indefinitely waxing, which was an absurdity.  And indeed that outcome would
be absurd, for it seems plain that the parties envisaged that contributions of
both the employer and employee would remain fractional in relation to
salaries.  But the interpretation may safely be discarded as incorrect, for the
1% increase the rules mandate ‘every 1 January’ is automatic only until the
minimum of 6% is reached.  Thereafter, increases must be fixed by the
trustees, who, as already mentioned, include both employer and employee
representatives, and may presumably be trusted not to make absurd
decisions.

[9] As pointed out during debate with counsel, the rule envisages not an
indefinitely escalating employer contribution, but a minimum compulsory level,
which is 6%, to be attained in one-percent annual increases in those cases
where the employer’s initial contribution is below 6%.  How does the
Agreement of Participation, and the 28 January 2000 amendment that pegs
employer contributions to it, tie in with this?  The answer is that it makes
provision for those cases where the employer’s contribution is from the outset
agreed to be higher, not lower, than 6%.

[10] His main assailant fire thus quenched, counsel invoked an entirely new
contention.  He argued that the provisos to the rule specifying the employer’s

contributions had to be read so as to limit the annual increases altogether.  To
understand his submission it is necessary to set out the provision in question
more fully:
‘Participating Employer’s contributions
at least 5 per cent [as amended 28 January 2000] of FUND SALARY, less the cost of
providing the funeral benefits but inclusive of the cost of providing the RISK
BENEFITS and the administration costs; provided that
(a) if at any time the RISK BENEFITS and administration costs exceed 5 per
cent, the higher amount shall be paid by the PARTICIPATING
EMPLOYER;
(b) every 1 January the PARTICIPATING EMPLOYER’S contribution shall
increase
(c) by 1% up to a minimum level of 6% of FUND SALARY;
(d) in respect of a MEMBER who immediately prior to his PARTICIPATION
DATE was a member of an industrial fund, the PARTICIPATING
EMPLOYER shall continue to contribute to the FUND at the rate at which
he was contributing to such an industrial fund on behalf of such
MEMBER.
It is specifically provided that the contribution rate(s) applicable shall be as specified
in the AGREEMENT OF PARTICIPATION.’

[11] The basis for this argument is the alphabeticised sub-paragraphing, from
which it is immediately evident that (c) is not separate but is part of (b).
Seizing on this, counsel urged us to integrate also (a) into (b), so as to
constitute the first three sub-paragraphs a single semantic entity.  Thus
unsundered, counsel argued, the new single paragraph meant that only when
risk benefits and administration costs exceed 5 per cent, would the employer’s
contribution increase by 1% every January.

[12]  The argument is entirely unpersuasive.  For one thing, the meaning
counsel urges us to attribute to the consolidated provisos is improbably
unbusinesslike, for what if risk benefits and administration costs exceed the
default contribution by more than 1%?  On counsel’s reading, the employer’s
contribution can increase by only 1% at a time, every 1 January.  That makes
no sense.

[13]  Second, counsel’s reading requires the insertion of words between (a)
and (b) for the two to make sense together – at least the words, ‘and then’; or,
more comprehensibly, as counsel conceded in argument, ‘then in that event
and only in that event’.  Such a radical prosthetic addition is quite
unnecessary when the two provisos operate with perfect composure on their
own.

[14] Third, it is clear that (a) and (b) and (d) (in contrast to (b) and (c)) are
linguistically distinct.  Sub-para (a) is conditional; (b) is unconditional.  And (d)
is again entirely separate.  The provisos cater for three (not as many as four;
but certainly not as few as two) distinct situations, in each of which employer
dues deviate from the minimum stated in the main body of the provision – (a)
provides for excess costs in risk benefits and administration; (b) provides for
automatically increased dues (up to a minimum level) in contributions to the
main aggregation of the fund; and (d) pegs contribution levels to those of an
employee’s previous fund.

[15] Finally, counsel’s argument is unworkable for a further reason.  It was
neither pleaded, nor put to the only witness called at the trial, Mr Gary
Lamont, the fund’s administration manager.  At no stage was the fund
confronted with the possible interpretation that the automatic annual increase
sub-proviso (b) envisaged was triggered only when risk benefits and
administration costs were excessive.  Had the fund been given the opportunity
to deal with this possible interpretation, it may have called another witness,
which may have enabled it to prevail even on the interpretation now urged
before us.

[16]   But even setting aside the pleading and cross-examination objection,
the argument is not tenable.  The only editing clean-up the clause requires is
to add (c) to (b): nothing more.  So clearly mistaken is the split between (c)
and (b) that one is impelled to the conclusion, suggested to counsel during
argument, that it resulted from a mistaken keystroke, which triggered the

operation of the automatic paragraph-numbering function of the word-
processing programme.

[17] It follows that the judgment of the High Court was correct, and that the
appeal must be dismissed with costs.

E CAMERON
JUDGE OF APPEAL

Appearances:

For appellant:

GR Thatcher

Instructed by

Bowne Brodie Attorneys, La Lucia Ridge

Matsepes Inc, Bloemfontein

For respondent:

PU Fischer

Instructed by:

Brodkin & Sohn Attorneys, Pietermaritzburg

Lovius Block, Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
Thursday 27 November 2008

Status:
Immediate

Please note that the media summary is intended for the benefit of
the media and does not form part of the judgment of the Supreme
Court of Appeal

William Van Der Riet Family Trust t/a Cathedral Peak Hotel v
Hospitality Industry Pension Provident Fund (64/2008) [2008]
ZASCA 148 (November 2008)

In a judgment delivered today, the Supreme Court of Appeal has
held that the Cathedral Peak Hotel in KwaZulu-Natal is obliged to
pay increased employer contributions to the hospitality industry
pension provident fund.
The dispute between the hotel and the fund arose from differing
interpretations of the fund’s rules, which have statutory force under
the Pension Funds Act 24 of 1956.
The dispute has wider significance for other employer members of
the fund.
The hotel contended that when it joined the fund, the document
entitled ‘agreement of participation’, which it signed, pegged its
contributions at 5%.
The fund differed, and sued the hotel in the Bergville magistrate’s
court for under-payments.  The magistrate upheld the hotel’s
contentions, but the high court in Pietermaritzburg (Moleko J, with
whom Radebe AJ concurred) reversed this judgment, finding for
the fund.

The SCA has now upheld the high court’s ruling.
Before the SCA, the hotel abandoned its previous contention
(which the high court rejected) that the agreement of participation
pegged its contributions to 5%.  The SCA agreed that this
argument was untenable.
However, the SCA also rejected a new argument the hotel
advanced on appeal, which was based on an interpretation of the
fund’s rules themselves.
In a unanimous judgment by Cameron JA, with whom Scott JA,
Cloete JA, Griesel AJA and Kgomo AJA concurred, the SCA has
held that the rules, properly interpreted, entailed that the hotel’s
contributions automatically went up by 1% per year, until a
minimum level of 6% was attained.
That was the level at which the fund was entitled to enforce
contributions from the hotel, and the fund’s action therefore had to
succeed with costs.