Three recent court cases hold lessons for both consumers and financial services providers. The first two were decided in favour of the consumer, while the third went against the consumer but is currently on appeal at the Constitutional Court.
PSG and the fraudulent emails
In March, the Johannesburg High Court ordered PSG Wealth to reimburse Jan Jacobus Gerber his retirement investment of over R800 000, which he had lost to fraudsters. The fraudsters had cunningly hacked Gerber’s computer, intercepted and diverted his email correspondence with his PSG Wealth adviser and sent emails purporting to be from Gerber requesting large withdrawals from his portfolio - the first for R250 000 and the second for R550 000.
The amounts were paid into the fraudsters’ bank account, despite it being at a different bank. To be fair to PSG, it did attempt to verify the new bank account on receipt of the first withdrawal request. However, this backfired when email requests to Gerber to verify the new account and confirming the withdrawals were met with affirmative messages from the fraudsters.
In her judgment, Judge Denise Fisher said PSG Wealth could not rely on the defence that it was up to Gerber to protect his computer against hackers. “PSG Wealth had an obligation to its clients to employ resources, procedures, and appropriate technological systems that can reasonably be expected to eliminate, as far as reasonably possible, the risk that clients will suffer financial loss through theft or fraud … The assumption of these contractual obligations must be construed in the context that cybercrime is universally recognised as a scourge,” she said.
When is permanent disability permanent?
This month, in another case before the Johannesburg High Court, a man identified as PR was awarded his R25 million claim for permanent incapacity to do his job as a stockbroker. The claim had been repudiated by his insurer, Discovery Life.
In 2015 PR suffered a mental breakdown after being accused – and subsequently acquitted – of the murder of his girlfriend in Mauritius. He underwent various medical treatments over the next few years, but his condition did not improve and in 2019 he was declared permanently incapacitated.
PR’s disability cover expired on November 30, 2015, and he submitted his claim in 2016. Discovery Life repudiated the claim on the grounds that the permanence of PR’s disability had not been established by the time the policy expired.
But Judge Stuart Wilson ruled that PR’s condition was, in retrospect, permanent all along, and Discovery Life’s obligation to honour the claim was triggered when its permanence was confirmed by his doctors in 2019.
“In this case, the kind of treatment required – in the form of drugs, psychotherapy and occupational therapy – can take months or years to perfect and to implement. In order to assess whether PR’s condition was permanent, Discovery had to have regard to evidence generated well after his policy expired. In closing the door to that evidence when it repudiated PR’s claim, Discovery was plainly unreasonable. Had it conducted itself reasonably, it would have become aware, by no later than May 1, 2019, that PR’s incapacity had become permanent, and it would have been bound to pay out on the policy by that date,” Wilson said.
Pension funds and retroactive rules
The “Mudau” case was the subject of a presentation at the recent Pension Lawyers Association annual conference by advocates Peter Buirski and Michael Bishop.
In April last year, the Supreme Court of Appeal upheld an appeal by the Municipal Employees’ Pension Fund. It allowed the fund to pay a former member, Pandelani Midas Mudau, reduced benefits under a retroactive rule registered almost a year after he resigned. The matter then went to the Constitutional Court, which heard the case on March 7. Judgment is pending.
Mudau resigned on May 31, 2013. The fund rules allowed him a withdrawal benefit of his contributions multiplied by three. In June 2013, the fund was advised to reduce the withdrawal benefits, so it changed the rules to allow retrospectively (from April 1, 2013) for a benefit of a member's contributions multiplied by 1.5. When Mudau received his payout, in October 2013, it was under the retrospectively applied new rule, and less than half the amount he was expecting. But the rule had not even been registered by then: the fund applied to the Registrar to register the new rule in July 2013, and it was registered only in April 2014.
This puzzling outcome (after rulings in favour of Mudau by the Pension Funds Adjudicator and the High Court), raises key questions with great pertinence to the retirement fund industry, say Buirski and Bishop. Can a pension fund pay a member based on rules that have not yet been registered? And can a fund make rules that are retroactive and reduce (or increase) members’ vested benefits? The Constitutional Court will have the final say.