African Life Financial Services (Ltd T/A Saturnia Regna Pension Trust Fund) v Kelvin Fungo (S.C.Z. Appeal 112 of 2005) [2008] ZMSC 139 (23 April 2008)

IN THE SUPREME COURT OF ZAMBIA SCZ APPEAL NO.112 OF 2005 JI HOLDEN AT LUSAKA (CRIMINAL JURISDICTION) BETWEEN: AFRICAN LIFE FINANCIAL SERVICES (ZAMBIA LTD T/A SATURNIA REGNA PENSION TRUST FUND) APPELLANT VS KELVIN FUNGO RESPONDENT CORAM : Lewanika, DCJ, Chibesakunda and Mushabati, JJS. On 17th May, 2007 and 23rd April, 2008 For the Appellant: S. Simuchoba of NKM and Associates For the Respondent: C. Sampa of Mumba Malila and Company JUDGMENT Mushabati, JS., delivered the judgment of the Court. Legislation referred to: Income Tax Act, Cap. 323 - S.37 Income Tax Act, Cap.323 - 4th Schedule - Par.2a, (b)(i) When we heard this appeal, the panel included the late Hon. Mr Justice David M. Lewanika, who died before the Judgment was ready, May His Sour Rest In Peace. This judgment is therefore, by the majority of the panel that heard the appeal. J2 This is an appeal against the High Court judgment of 15th February, 2005 which was in favour of the respondent. By originating summons the respondent sought the following reliefs; (A) Whether upon a proper construction of pension scheme Rules, particularly Rules 9(a)(i)(ii)(iii) and (b):- (1) That upon being made redundant whether the Applicants are entitled to payment of their own Pension contributions? (2) That further upon being made redundant whether the Applicants are entitled to payment of their former employer’s Pension contribution made on their behalf? (B) In the event the answer to the above questions and/or either of them is in the affirmative a direction and/or an order in the following terms:- (i) That the Respondent pay to the 1st Applicant his former employer’s pension contribution made on his behalf. (ii) That the Respondent pay to the 2nd Applicant, not only his own contribution but also his former employer’s contribution made on his behalf to the pension scheme in the total sum of K600,000,027.70. (iii) In the alternative an order that the Respondent pay to the 2nd Applicant his own contribution in the sum of K219,988,054.00. J3 (iv) (v) (vi) And interest on any amount ordered to be paid. Further or other relief And costs. The matter was decided on affidavit evidence. The respondent, together with another man, who did not appeal, deposed that they were former employees of BP Zambia Pic. The respondent had worked for 15 years 120 days when he was declared redundant on 30th April, 2003. During his employment he and his employer made some contributions to a Pension Scheme called “Saturnia Regna Pension Trust Fund.” When he was declared redundant he was only paid his contribution he had made to the Scheme and not his employer’s contribution of which he was entitled to. As he was not paid his employer's portion of the contributions he decided to take this suit against the appellant. The affidavit in opposition stated that it was true that the respondent was a member of what was termed as BP. Zambia Defined Benefit Pension Scheme also known as Saturnia Regna Pension Trust Fund, which he left after he had exercised his option to do so when he left the service of the Company. The option he made was in line with Clause 9(a) (iii) of the Pension Scheme Rules. He was therefore, only entitled to his own contribution and interest thereon and as at March, 2003 he was entitled to KI 55,158,268.58 of which he was paid. He would have been entitled to employer's contribution if only J4 he had reached the retirement age of 55years. Redundancy, under which he left employment, was different from early retirement. This is the brief affidavit evidence by both the appellant and the respondent. The court below reviewed the affidavit evidence above and referred to some Constitution provisions and found for the respondent, hence this appeal. This appeal is premised on four grounds of appeal namely. 1. The Honourable Court erred at Law and fact in finding that the said First Appellant was entitled to be paid the contribution made to the Fund by the employer at his redundancy on 30th April, 2003. 2. The Honourable Court erred at Law and fact in gratuitously invoking Article 124 of the Constitution, Cap 1 relating to pensions for public officers to be applicable to the First Applicant who had been an employee of a Public Liability Company. 3. The Honourable Court erred at Law and fact in gratuitously invoking Article 23 (1) of the Constitution Cap 1 to make a finding of manifest and irrational discrimination in the treatment of the pension entitlements of the two Applicants (one of who is the Respondent herein). J5 4. The Honourable Court erred in Law and fact in totally disregarding the provisions of the Law in Section 37 (fourth Schedule) paragraph 2 (1), (c), (iv) of the Income Tax Act, Cap. 323. These grounds of appeal were augmented with written heads of argument. Counsel for the respondent made oral submissions to supplement his written heads. In arguing the first ground of appeal it was stated that the Pension Scheme which the respondent belonged was an approved one by the Commissioner General pursuant to Section 37 (fourth schedulejof the Income Tax Cap. 323. Under this scheme an employee would be entitled to his own contributions and interest if he left employment under circumstances in which no pension was payable to him. He was not entitled to the employer’s contribution. In this case the respondent was only entitled to be paid his own contributions and interest thereon. On the second ground of appeal it was argued on behalf of the appellant that the provision of Article 124 of The Constitution of Zambia, which were relied on by the learned trial judge, did not apply in this case. J6 On third ground of appeal, counsel for the appellant argued that the Income Tax Amendment Act No.1 of 2004 did not affect the respondent because at the time it came into effect he had already left employment. It was therefore a misdirection on the part of the court to invoke Article 23(1) of the Constitution of Zambia. Finally on the last ground of appeal it was submitted that there was no justification for the employer’s contribution to be paid to the respondent because the Law itself said he was not entitled to it. The law as it existed when the respondent left employment it did not allow a member, who did not retire normally, to be paid the employer’s contribution. The respondent filed in a written submission which was augmented with oral submissions. Mr Sampa argued that Rule 9(a) (iii) of the Pension rules was silent on redundancy and so its construction should be resolved in the respondent’s favour that he was entitled to the employer's portion of the contribution. On the second ground of appeal it was argued on behalf of the respondent that reference to Article 124 of the Republican Constitution was justified because pension schemes were expected to be equal or better than the position set out in the Constitution. J7 On the third ground Mr Sampo argued that there was discrimination between the case of Edwin Masupa Mwikisa and that of the respondent in that they were declared redundant the same year, though on different dates, namely’ 30th April, 2003 and 31st July, 2003 but the respondent was denied payment of the employer’s contribution. He did not argue the fourth ground. In his brief oral submission Mr Sampa combined all the grounds of t appeal and stated that Rule 9(a)(iii) of the Pension Rules was silent regarding a redundant declared person as to the refund of payments made to the Pension Scheme. The argument that he was not entitled to the employer's contribution must be understood to have had a punitive effect on a redundant declared person. Mr Simuchoba made a brief reply to Mr Sampo’s oral submission and said the respondent had opted to commute his pension before his retirement age. In this regard both the law, i.e the schedule to Section 37 of the Income Tax and Rule 9(a)(Hi) of the Pension Rules made it clear that if one so commuted his pension he would not be entitled to both employer’s contribution and interest thereon. J8 We have carefully considered the arguments for and against this appeal. We have further considered the evidence on record and the judgment appealed against. We have no doubt that the respondent exercised his option to be declared redundant before he attained the retirement age. Secondly it is also not in dispute that the respondent having been declared redundant he was paid his portion of the pension contribution and interest thereon. The main basis of this appeal is whether the respondent was entitled to the employer's portions of the pension contribution as found by the lower court. The respondent’s conditions of service regarding his pension scheme were as contained in the Rules and Member’s Hand Book of the BP Zambia Final Salary Pension Scheme wh ich is document marked page 40 to 56 in the record of appeal. The relevant rule in this case is Rule 9(a)(iii) which reads as follows: (a) Should a member leave the service of the company before Normal Retirement Date other than Early Retirement or dismissal he shall have one of the following options (iii) To take cash in accordance with the Income Tax regulations in force at that time, being his own contributions and interest thereon as shall be advised J9 by the Trustees in full consultation with the actuaries. Should a member wish to exercise this option no further benefit will accrue to such a member. The respondent in this case exercised the third option of the above Rule. It is clear from this rule that a person who opted to commute his pension before reaching the retirement age was only entitled to a refund of his contributions and interest thereon. The question to be resolved really is whether a redundant declared person ought to be treated as having exercised his option to commute his pension before retirement or whether he must be treated as a retired person. Retirement and redundancy are quite different. One retires after reaching a specified age or tour of service. As for redundancy, one’s services are terminated before one reaches retirement age. They cannot be both because these carry with them different conditions. In this case the respondent opted for a redundancy. So clearly his position was not a retirement. In arguing the appeal Mr Simuchoba said he was, therefore, not entitled to the employer’s portion of the contribution. On the other hand Mr Sampa argued that he was because Rule 9(a)(iii) did not specifically cover people who were declared redundant. He in fact relied on Act No.l of 2004 of the Income Tax, Cap. 323. J10 This amendment Act provided for payment of employer’s portion of the pension contribution to a member who opts to commute his pension before he attains the retirement age. This is specifically provided for under Paragraph 2(2)(i)(b)of the Fourth Schedule of the Income Tax Cap 323 (as amended by Act No.1 of 2004). It reads: The Commissioner General shall not approve any fund or scheme unless he considers that the rules relating thereto have as their main object the provision of pensions to employees on their retirement from the service of the employer on or after attaining the specified age and unless the Commissioner - General is satisfied- fa) that the fund or scheme is established in the Republic in connection with any business carried on wholly or partly within the Republic by the employer; and (b) that the rules do not - (i) Provide for the payment to any employee during the employee’s life of any sum except the pension which may, subject to this paragraph, he commuted or, in the event of the employee leaving the service of the employee’s employer in the circumstance in which no pension is payable to the employee, any contributions to - Jll (a) a defined contributory fund or scheme made by the employee and employee’s employer together with reasonable interest; or (b) a defined benefit fund or scheme made by the employee and the employee’s employer together with reasonable interest. This Act came into effect on 1st April, 2004. The respondent in this case retired on 30th April, 2003. It is clear that the respondent's case did not fall under the ambit of the amended law. The law applicable to him was as it stood at the time of retirement. At the time of his retirement he was only entitled to his portion of contribution in accordance with the said law as read with Clause 9(a)(iii) of the Pension Scheme. Which is already reproduced at J8-J9 of this judgment. The respondent in this case left employment under redundancy and not by way of retirement. We, therefore, agree with Mr Simuchoba’s argument that the amendment to the Income Tax Act did not give retrospective effect to its application as to cover the respondent. The learned trial judge invoked the provisions of Articles 23 and 24 of the Constitution of Zambia. We were at loss at the efficacy of the importation of these Articles in this case. They were not pleaded. Further more the respondent worked under clearly spelt out conditions of service, which he and his employer agreed on. There J12 existed a contractual relationship between the appellant on one hand and the respondent on the other, and this relationship was founded on the conditions they agreed on. We are therefore satisfied that the learned trial judge's reference to Articles 23 and 24 of the Constitution of Zambia was a misdirection. In view of what we have said it is our well considered view that we have covered all the aspects of this appeal. It is otiose for us to consider all the grounds of appeal separately. In fact grounds one and four are interrelated to each other and so are grounds two and three. All in all we have sufficiently addressed all the issues pertaining to all grounds of appeal. The sum total of this judgment is that we allow the appeal. The lower court's judgment is set aside. The respondent was not entitled to his employer's portion of the contributions. We make no order as to costs. D. M. Lewanika DEPUTY CHIEF JUSTICE L. P. Chibesakunda SUPREME COURT JUDGE C. S. Mushabati SUPREME COURT JUDGE