IN THE HIGH COURT OF SOUTH AFRICA (WITWATERSRAND LOCAL DIVISION)

IN THE HIGH COURT OF SOUTH AFRICA (WITWATERSRAND LOCAL DIVISION) DELETE WHICHEVER IS NOT APPLICABLE CASE NO: 20358/08 (1) REPORTABLE: YES / NO (2) OF INTEREST TO OTHER JUDGES: YES / NO (3) REVISED: YES / NO.. DATE... SIGNATURE In the matter between: GERTRUIDA JACOBA KIRCHNER Applicant and JAN DIRK KIRCHNER MPF BESTUURSDIENSTE (SENTINEL MYNINDUSTRIE AFTEEFONDS EN MYNWERNEMERS PENSIOENFONDS) 1 st Respondent 2 nd Respondent JUDGMENT Gildenhuys J [1] The applicant and the first respondent were previously married to each other out of community of property. The marriage was subject to the accrual system specified in Chapter I of the Matrimonial Property Act No 88 of 1984. The

first respondent was at all relevant times a member of both the Mine Employees Pension Fund and the Sentinal Mining Industry Retirement Fund. Both funds are administered by the second respondent. [2] On 7 August 2007 the applicant and the first respondent got divorced. They entered into a settlement agreement, which was incorporated into the decree of divorce. Par 6.3 of the settlement agreement reads as follows: 6.3.1 Die eiseres sal geregtig wees op 50% van die verweerder se pensioenbelang op datum van egskeiding. 6.3.2 Verweerder moet binne 30 (DERTIG) dae na toestaan van die bevel n pensioen staat aan die eiseres se prokureur voorsien waarin sy belang op datum van egskeiding aangetoon word sodat die nodige stappe geneem kan word om eiseres se belang te registreer. [3] The applicant submits that in terms of recently amended legislation, she is entitled to claim immediate payment of 50% of the pension interest allocated to her under par 6.3.1 of the settlement agreement. I will revert to the legislation later in my judgment. [4] The second respondent wrote the applicant s attorney that it is not prepared to make immediate payment of the pension interest allocated to the applicant without the authority of a new Court Order, because - a. the relevant pension fund or funds are not identified in the [existing] order; 2

b. It [the existing order] does not provide that the relevant pension fund must pay the allocated portion to your client or endorse its records to that effect. This is at best implied in paragraph 6.3.2 [5] The applicant by notice of motion dated 10 June 2008 prayed (inter alia) for an order as follows: Dat die tweede respondent 50% (vyftig persent) van die eerste respondent se pensioenfondse te Sentinel Mynindustrie Aftreefonds en Mynwerknemers Pensioenfonds soos op datum van egskeiding, 7 Augustus 2007 soos gelas in die egskeidingsbevel tussen die applikant en eerste respondent gedateer 7 Augustus 2007 in saaknommer 2005/29694, aan die applikant betaal binne 30(dertig) dae na datum van die bevel. [6] The first respondent indicated that it will not oppose the application. The second respondent did not enter an appearance to defend. The application was therefore unopposed. Ms Bezuidenhout, who appeared on behalf of the applicant, delivered comprehensive and well-researched heads of argument, which were of great assistance to me. [7] Prior to 1 August 1989, the interest which a member of a pension fund might have in pension benefits that have not yet accrued was generally not regarded as an asset in his or her estate or, where the marriage was in community of property, as an asset in the joint estate. This meant that, when determining the patrimonial benefits to which spouses who are getting divorced may become entitled, their pension expectations were not to be taken into account. 3

[8] An amendment to the Divorce Act in 1989 altered this position, in that section 7(7)(a) now deems a member spouse s pension interest to be an asset in his or her estate for purposes of the determination of the patrimonial benefits to which the parties to a divorce action may be entitled. The term pension interest is defined in section 1 as follows pension interest, in relation to a party to a divorce action who- (a) is a member of a pension fund (excluding a retirement annuity fund), means the benefits to which that party as such a member would have been entitled in terms of the rules of that fund if his membership of the fund would have been terminated on the date of the divorce on account of his resignation from his office; (b) is a member of a retirement annuity fund which was bona fide established for the purpose of providing life annuities for the members of the fund, and which is a pension fund, means the total amount of that party s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the rate prescribed as at that date by the Minster of Justice in terms of section 1(2) of the Prescribed Rate of Interest Act, 1975 (Act 55 of 1975), for the purposes of that Act. [9] Section 7(8)(a)(i) of the Divorce Act entitles the court granting a decree of divorce in respect of a member of a pension fund, to make an order that- any part of the pension interest of that member which, by virtue of subsection (7), is due or assigned to the other party to the divorce action concerned, shall be paid by that fund to that other party when any pension benefits accrue in respect of that member. 4

[10] Pension benefits will, in the normal course of events, accrue only when the member party s employment is terminated, or when he goes into retirement or dies. That may happen many years after the decree of divorce has been granted. In the interim, the non-member party gets no benefit from any growth of or interest on its assigned share of the pension fund. All growth and interest, also in respect of the assigned share, accumulates for the benefit of the member party. This was not a satisfactory position. It also did not correspond to the clean break principle insofar as it applies to divorce actions. [11] In 2007 the legislature, through section 28(b) of the Pension Funds Amendment Act No 11 of 2007, tried to remedy the position by an amendment to the Pension Funds Act No 24 of 1956. It introduced new sections 37D(1)(d) and (e), which read as follows: 37D (1) A registered fund may- (d) deduct from a member's benefit or minimum individual reserve, as the case may be, any- (i) amount assigned from such benefit or individual reserve to a nonmember spouse or any other person in terms of a valid order made by a competent court; and (ii) employees' tax required to be deducted or withheld in terms of the Fourth Schedule to the Income Tax Act, 1962 (Act 58 of 1962), as a result of the deduction in subparagraph (i); 5

(e) for the purposes of section 7 (8) (a) of the Divorce Act, 1979 (Act 70 of 1979), the pension benefit referred to in that section and the tax referred to in paragraph (d) (ii) are deemed to accrue to the member on the date of the court order: Provided that- (i) such deduction shall be effected by the pension fund named in the order upon receipt of the order; (ii) such deduction shall have the effect of reducing the accrued benefit at the date of such deduction; (iii) the non-member spouse shall have the option to elect that the assigned amount be paid directly to him or her, or that it be transferred to an approved pension fund on his or her behalf, and such transfer or payment must take place within 60 days of such election having been exercised; (iv) the non-member spouse shall not acquire the rights of a member or beneficiary in relation to the pension fund; and (v) the non-member spouse shall be entitled to the accrual of interest on the assigned amount at fund return from the expiry of the period referred to in subparagraph (iii) until payment or transfer thereof, but not to any other interest or growth. The new section came into effect on 13 September 2007. [12] Erika Wessels, in an article Taxation of Pension Fund benefits in divorce cases (De Rebus, May 2008 p 39) explained the principles introduced by the new section 37D(1)(e) as follows: 6

The division of the benefit will be effected by the pension fund named in the court order. The deduction will have the effect of reducing the accrued benefit at the date of the deduction. The non-member spouse shall have the option to elect that the amount will be paid directly to him, or that it will be transferred to an approved pension fund on his behalf. Transfer of the payment must take place within 60 days of this election. The non-member spouse shall not acquire the rights of a member or beneficiary in relation to the pension fund. The non-member spouse shall be entitled to interest on the assigned amount until transfer thereof, but not to any other interest or growth. [13] It is not clear whether the amendment has retrospective effect. Section 40B of the Pension Funds Act, which was inserted by section 29 of the Pension Funds Amendment Act of 2007, specifically provides that certain of the new provisions shall operate retrospectively. Sections 37(D)(1)(d) and (e) are not amongst them, which is an indication that they were not intended to operate retrospectively. [14] The issue of retrospectivity came up for decision in a determination made by the Pension Funds Adjudicator under section 30M of the Pension Funds Act in the case of Cockcroft v Mine Employees Pension Fund (case no PFA/WE/11234/06/L5). The adjudicator said the following: 7

25. The determination of whether or not legislation is retrospective is usually a complex exercise. The issue has frequently been debated in our courts in relation to various pieces of legislation and the approach has been by no means consistent. 26. In my view, the starting point should always be a consideration of the objection against retrospective legislation, namely that it may interfere with vested rights. So the question is does section 28(b) [of the amending Act, whereby the new section 37D(1)(d) and (e) was introduced] interfere with any vested rights? 27. Clearly the position of the non member spouse is improved considerably by the legislative amendment in that, as I have explained, he or she can now receive payment (or transfer to another fund) without delay and is now also entitled to interest on the benefit in terms of the new section 37D(1)(e)(v) of the Pension Funds Act. 28. The effect on the fund is that it can effect payment of the divorce benefit to the non member spouse as soon as he or she has exercised the election to either receive a cash payment or to transfer to another fund. 29. As far as the position of the member spouse goes, whereas prior to the enactment of section 28(b), the member spouse stood to receive any investment growth that accrued on the non member spouse s portion form the date of divorce to the date of accrual of the benefit, this is no longer the case. But the question is did the member spouse have a vested right to that growth at the expense of the non member spouse? 30. The right/entitlement of the member spouse depends on a contingent event. Until that contingency occurs, the member spouse has no quantifiable or ascertainable right to anything. At best, the member spouse has a spes. Certainly there can be no question of any right/s that has vested in the member spouse. 31. To my mind therefore the objection against retrospective legislation (that it interferes with vested rights) does not apply in this instance. Expressed differently, the new Act prospectively attaches new consequences to earlier events. Section 8

28(b) must accordingly be seen as operating prospectively from its effective date on 13 September 2007 to all divorce orders, whether they were made prior or subsequent to this date. [15] The adjudicator then proceeded to hold (in paras 34-36 of her determination) that even if section 28(b) of the Pension Funds Amendment Act does introduce legislation which could interfere with vested rights of member spouses, any prejudice which might be caused by the retrospective operation of such interference should be weighed up against the desire to promote simple justice between the parties. She relied on a dictum of Thirion J in the case of Kruger v President Insurance Co Ltd, 1994 (2) SA 495 (D) at 503G, which reads as follows: The conclusion that a statute was intended to operate with retrospective effect may be more readily arrived at in a case where vested rights would not be affected by a retrospective operation and also where the intention of the legislature was clearly to bestow a benefit or to effect evenhandedness in the operation of the law. [16] Relying on the above reasoning, the adjudicator came to the following conclusion: 37. The intention of the legislature was clearly to rectify the previously unfair position of the non member spouse by effecting, in the words of Thirion J, evenhandedness in the operation of section 7(8) of the Divorce Act in relation to the non member spouse. 9

38. Therefore, assuming section 28(b) does constitute retrospective legislation, I am satisfied that the legislature intended for it to apply retrospectively to existing divorce orders and that the legal presumption against retrospectivity would thereby be discharged in any event. [17] In my respectful opinion the Adjudicator s conclusion that the new sections 37D(1)(d) and (e) applies retrospectively to decrees of divorce issued before the new section was introduced, is incorrect. I will illustrate my thinking by way of an example. [18] Assume that before the new sections 37D(1)(d) and (e) came into operation, assets worth R 700 000.00 belonging to spouses getting divorced have to be divided equally between them in accordance with an accrual sharing agreement contained in their antenuptial contract. Assume further that one of the spouses is a member of a pension fund whose pension interest at the time of the divorce (valued in accordance with the definition of pension interest contained in the Divorce Act), comes to R 400 000.00 and that it forms part of the overall assets valued at R 700 000.00. In terms of section 7(7)(a) of the Divorce Act, that interest is deemed to be an asset in the member spouse s estate. Assume, lastly, that the parties have agreed that half of the pension interest will be assigned to the nonmember spouse. After the assignment, the member spouse will retain the benefit of growth and interest, not only on his share of the pension interest but also on the non-member s share. That would probably have induced the parties, when negotiating the division of the assets, to place a present value of say R 250 000.00 10

on the member s share. The member s share must be worth more than its nominal value of R 200 000.00 because its yield going forward is in effect doubled. The non-member s share, which attracts neither growth nor interest, and is in terms of section 7(8)(a)(i) of the Divorce Act payable only when the member s pension benefits accrue to him, would on the other hand be worth less than its nominal value of R 200 000.00. That is because the R 200 000.00 is payable some time in the future. In the interim, its value is eroded by inflation, and the opportunity to earn investment returns above inflation is lost. Given that the parties agreed that for settlement purposes the present worth of the member s pension interest is R 250 000.00, it follows that the present worth of the non-member s interest must be R150 000.00, since the present worth of the two components cannot be more than the R 400 000.00 value in the fund. [19] In my example, the present day value of the assets to be divided is as follows- Pension Fund - R 400 000.00 Other assets - R 300 000.00 R 700 000.00 Adjusted as aforesaid, the assets fall to be divided in accordance with the following values- Member spouse Half share of pension benefit, valued at R 250 000.00 Share of other assets R 100 000.00 R 350 000.00 11

Non-member spouse Half share of pension benefit, valued at R 150 000.00 Share of other assets R 200 000.00 R 350 000.00 [20] If, in terms of the subsequently introduced sections 37D(1)(d) and (e) of the Pension Fund Act, the non-member spouse would acquire the right to have her share of the pension interest paid out to her or to have it transferred to another pension fund, it would increase the value of her share. Similarly, the value of the member s share will decrease, since he would no longer be receiving double returns. If all of that had been known to the parties at the time when the division of the assets were negotiated, they would probably have placed the same value on both portions of the pension interest. The other assets would then have been divided equally, and not R 100 000.00 to the one spouse and R 200 000.00 to the other. It follows that if the new sections are applied retrospectively, it would impair the member spouse s vested rights under the decree of divorce. [21] Mynhardt J held in Chairman Sanlam Pensioenfonds (Kantoorpersoneel) v Registrar of Pension Funds, 2007 (3) SA 41 (T) at 59D: A court will not easily be persuaded that it is implied in an enactment that it has retrospective effect. The learned judge referred to the case of National Iranian Tanker Co v MV Pericles GC, 1995 (1) SA 475 (A), where Corbett CJ said the following (at 483H-I): 12

There is at common law a prima facie rule of construction that a statute (including a particular provision in a statute) should not be interpreted as having retrospective effect unless there is an express provision to that effect or that result in unavoidable on the language used. A statute is retrospective in its effect if it takes away or impairs a vested right acquired under existing laws or creates a new obligation or imposes a new duty or attaches a new disability in regard to events already past. [22] In the case before me, the first respondent s pension interest in the two funds is deemed to be part of his estate for purposes of determining the patrimonial benefits to which the parties to the divorce action might be entitled. The parties agreed that the pension interest be shared equally. If through subsequent legislation the value of the first respondent s share is reduced, the reduction would impact negatively on the evenhandedness by which the assets have been divided between the spouses. The negative impact militates against the new sections 37D(1)(d) and (e) being interpreted as having retrospective effect. [23] There is a second reason why, in my view, the legislature did not intend the new section 37D(1)(e) of the Pension Funds Act to have retrospective effect. The section refers to section 7(8)(a) of the Divorce Act, which empowers the Court granting a decree of divorce to make an order relating to a pension interest of a party to the divorce. Section 37D(1)(e)(i) requires the pension fund to which the order applies to be named in the Order. No pension funds were named in the 13

decree of divorce of 7 August 2007. That is one of the reasons why the second respondent refused to make payment of the amount claimed from it. [24] If the legislature intended to authorize a court to amend an existing decree of divorce to make it compliant with the new section 37D(1)(e)(i), it would have said so. The fact that in many decrees of divorce issued before 13 September 2007 the pension fund would not have been named, is indicative of an intention on the part of the legislature that the new sections will not apply to such decrees of divorce. [25] It follows from the above that the application cannot succeed. It is hereby dismissed. A Gildenhuys Judge of the High Court Appearances For the applicant Ms J M Bezuidenhout instructed by Riekie Erasmus Attorneys No appearance by the respondents 14