Emmanuel Thomas Simasiku Ziko v Zambia Railways Limited (1996/HP/3836) [2002] ZMHC 13 (31 May 2002)

IN THE HIGH COURT OF ZAMBIA 1996/HP /3836 AT THE PRINCIPAL REGISTRY AT LUSAKA (CIVIL JURISDICTION) BETWEEN: EMMANUEL THOMAS SIMASIKU ZIKO Plaintiff AND ZAMBIA RAILWAYS LIMITED Defendant BEFORE THE HONOURABLE MR. JUSTICE PETER CHITENGI IN OPEN COURT AT LUSAKA THIS 31 ST DAY OF MAY, 2002 For the Plaintiff For the Defendant : : Shonga Messrs Shamwana & Company W. Sithole Mwenda Messrs W. Sithole - Mwenda & Company JUDGMENT Authorities referred to:- 1. Paul Mwila Kasengele and 40 others vs Zambia National 2. 3. 4. Commercial Bank Limited SCZ Judgment No. Ji of 2000. Income Tax (Amendment Act and Practice Note 1/95 Kabwe vs BP (Zambia) Limited (1995 -1997) Z. R. 218 SCZAppeal No. 156 of 1997 1. The Plaintiff took a Writ of Summons out of the Principal Registry at Lusaka claiming from the Defendant Kl,433,604,830.00 and interest as severance package etc. As revealed by the amended Statement of Claim dated 28th August, 2000 and the evidence led on behalf of the Plaintiff, the Plaintiffs case is that he worked for the Defendant and on 31 st March 1995 he was retrenched and was offered K295,750,000 as separation package as per letter document number 8 in the Defendant's bundle of documents. According to him the figure of K295,750,000 was incorrect because it did not include fringe benefits and allowances, which were supposed to be merged into salary. There was instruction from ZIMCO the umbrella company under which the Defendant felt that allowances and fringe benefits be merged into salary (see document numbers 1 and 2 in the bundle of documents). He was entitled to free housing, free water and electricity, Medical and retention allowance, social tour, personal to holder car and the others tabulated in paragraph 5 of the amended Statement of Claim. He worked for the Defendant for 22 years and the correct coefficient applicable to him was 4 and not 3 as used by the Defendant in the calculations. The Plaintiff was bound by the 1 ~t July, 1992 ZIMCO conditions of service (see Notice to Produce dated 18th November, 1999 documents 5 et seq). He prays that the allowances that were left out be incorporated into his salary. He also prays for grossing up for tax as explained in document number 22 in the Notice to Produce dated 18111 November, 1999. If the grossing up is not done then it means that he will be taxed on the net and not on the gross. The claim of KJ ,433,604,803.00 needs grossing up. By letter dated 14th July, 1994 the Defendant's Management varied, froze and totally abolished some of the allowances and merged them into the basic salary on the ground that the Defendant was undergoing financia1 problems. The Plaintiff has not claimed the allowances, wfoch were lumped to the basic salary. He is claiming for domestic servant allowance because he was entitled to three servants but the calculations on document number 24 in the Notice to Produce dated 18th November, 1999 refers to one domestic servant only. ZIMCO conditions of service applied to the Defendant automatically but there were some condition of service specific to the Defendant only, for example a free ticket on the railways for employee, spouse and dependants. The Defendant did not refuse to pay increased salaries because of lack of capacity to pay. He received his gratuity of K8 Million in 1996. He is not aware of an agreement between the Union and the Defendants management to reduce the coefficient to 3. With respect to the claim for repatriation he is claiming the difference between what the Defendant could pay and that provided for by ZIMCO conditions. He was supposeito be given three months' pay in-lieu of notice. The personal to holder car was not priced according to ZIMCO conditions of service. He has not claimed entertainment allowance to be merged into his salary. The Defendant filed an amended Defence and Mr. Davis Mukonkela, at the materia1 time head of Industrial Relations, gave evidence on behalf of the Defendant. He deposed that the Plaintiff was transferred from Zambia National Commercial Bank to the Defendant in 1988 as Company Secretary. In 1994 the Plaintiff was seconded to Zamb1a Concrete Limited at Kafue a subsidiary of the Defendants as General Manager. While at Zambia Concrete Limited the Plaintiff and the management team requested for retrenchment so that they could participate in the Management Buy Out (MBO) of Zambia Concrete Limited which was earmarked for sale by the Zambia Privatization Agency (ZPA). The Plaintiffs' request was granted and the Plaintiff went on retrenchment on 31 st March, 1995. The Defendant started restructuring process in 1992. The restructuring involved, inter alia, reduction of staff. The Defendant came out with a total package the retrenches would be paid. A document for retrenchment was made (see document number 32 in the Notice to Produce dated 18th November, 1999). This document was subject to negotiation with the Union. As at 8th February, 1995 the coefficient factors were amended after negotiation between the management and the union. The factors were changes as follows:- 1 - 5 years service 6 - 14 years service 15 Year and above 2 This was an improvement on the formular contained in a document called ZIMCO conditions of service. The Plaintiff received K19.5 Million . Under ZIMCO redundancy the fonnular was 24 months pay plus one month's pay for each completed years. If his formular was applied to the Plaintiff he would have got K13.6 Million. The Defendant had power to vary its own conditions of service. The retrenchment package conditions were varied from those of ZIMCO with the approval of the Board and ZIMCO. The Plaintiffs benefits should not have been calculated using factor 4 because document number 32 in the Notice to Produce dated 18th November 1999 was applicable only in 1992. It was agreed between the Union and the Management that when another batch of people to be retrenched had been identified the Management and the Union should re examine the retrenchment package. The second group of retrenches was identified in 1993 and Management and the Union agreed on the following coefficient factors:- 1 - 5 years service 6 - 10 years service 1.5 11 - 19 years Service 2. 5 20 and above service In 1995 another group of retrenchees was identified and the Management and the Union agreed on the following factors:- 1 - 5 years service 6 - 14 years service 15 and above service 2 These were the coefficient factors applicable to the Plaintiff at the time he was retrenched. At the time of retrenchment the Plaintiffs salary was K295,750 per month and this was multiplied by 22 years service and factor 3 to give Kl 9.5 Million. The Plaintiff was not getting allowances as such. The Plaintiff was getting fringe benefits at the expense of the employer. The fringe benefits were company car, domestic employees, free electricity and water, Medical allowance, education allowance. The Plaintiff as a senior member of the Defendant was enjoying fringe benefits at 100%. The lower group of employees were the ones who were being subsidized by some form of allowances. In 1994 the allowances paid to the lower group of employees were merged into their salary even before the ZIMCO circular to that effect. What the Plaintiff was getting would not be merged into his salary because they were not allowances but fringe benefits. An allowance is a lump sum payment regularly paid to an employees along side a salary or wage while a fringe benefit is an incidental or privilege provided by the employer at the employe1·'s expense. In other words fringe benefits are not paid directly to the employee but the employer meets the costs. The directive from ZIMCO to merge allowances into salary was about allowances which were paid regularly to the employee and not fringe benefits because even today fringe benefits are still being enjoyed in parastatals. The Plaintiff enjoyed fringe benefits up to the time he left. In the case of medicals the Defendant would pay the medical bill. The Defendant maintained furniture and at the end of the year a senior Manager would be given an allowance to maintain the furniture. With respect to education allowance, the Defendant paid the fees to the school. The Defendant also paid the water company, Zesco and telephone, company. Householders Insurance was a refund. For example, if an employee insured the furniture the Defendant would refund him the premium. The Defendant had their own security service and their security were guarding the houses. Subscriptions for senior member to professional bodies and social clubs were paid by the Defendant to the professional bodies and/or social clubs. If an employee did not belong to any social club the Defendant would not pay or give money to the employee. In case of social tours the Defendant met the cost of transport, boarding and lodging whenever a senior Manager decided to go on a social tours. If the social tour was not taken then no money was paid. Newspapers were office provisions but not for an individual. A personal to holder car was provided by the company together with free fuel and free service. Housing was provided almost free until 1994 when the Defendant started charging Kl 0,000.00 per month. There is no document in Court to show that document number 32 in the Notice to produce dated 18th November, 1999 was amended. The Court should to take the witness' word. The Plaintiff was in management and not Unionised. The retrenchment packages applied to all employees regardless whether they were represented or not. The letter docwnent Number 2 in the bundle of documents talks about benefits. Benefits were those which were being directly and regularly paid to the employee and not those paid by the employer. I asked Counsel to file written submissions. To date only Mr. Shonga learned counsel for the Plaintiff has filed his written submissions. Mrs. Sithole Mwenda leatned counsel for the Defendant has not yet filed her written submissions. As the time I allowed for filing written submissions elapsed about two weeks ago and since I cannot delay the Judgment any longer, I have decided to write the Judgment without submissions on behalf of the Defendant. The sum and substance of Mr. Shonga's submissions is that the fact that there was a directive from ZIMCO to merge allowances into basic salary is not in dispute. Except for the allegation by DWl that the retrenchment package (document Number 32 in the Notice to Produce dated 18th November, 1999) was subject to further amendments, there is no dispute that it was applicable. In view of this, it was Mr. Shonga's submission that the issues to be determined are whether the amounts the Plaintiff is claiming can be described as allowances and whether the correct coefficient is 3 or 4. About the status of the amounts claimed, Mr. Shonga submitted that there is no dispute that the Plaintiff enjoyed the benefits tabulated in paragraph 5 of the amended Statement of Claim. The parties were agreed that there was a directive to merge allowances into salary. Even if there was a disagreement, Mr. Shonga submitted, following the principle in Paul Mwila Kasengele and 40 Others Vs Zambia National Commercial Bank Limited (1) the issue would be decided in favour of the Plaintiff. Mr. Shonga submitted that a fringe benefit is a perquisite that an employer gives to an employee to supplement his salary or wage. By definition it is an annually or "on the edge benefit" enjoyed by an employee. An allowance on the other hand forms part of the emoluments that an employee can break double as part of his earnings at any given time. Springing from these definitions Mr. Shonga submitted that the majority of the allowances pleaded by the Plaintiff are not fringe benefits at all. Mr. Shonga, giving the example of social tours, conceded that some of the sums pleaded qualify as fringe benefits. Mr. Shonga then gave an example to demonstrate how use of a car does not amount to an allowance and how payment for security guards, servant, medical etc. amount to an allowances. In any case, Mr. Shonga submitted, the Defendant did not amend its Defence to the effect that the items claimed by the Plaintiff largely co'sistt of fringe benefits. He urged the Court to find that not all the items claimed are fringe benefits. About the coefficient, Mr. Shonga submitted that apart from DWl 's verbal assertions there was no documentary evidence that the coefficient was change to 3 from 4. About grossing up of benefits for tax, Mr. Shonga submitted that the defendant led no evidence to rebut this. I have carefully considered the evidence on record and submissions of counsel. Before I deal with what I call the real issues I propose to dispose of the issue of grossing up for tax first. I have looked at the ZIMCO conditions of service on which the Plaintiff relies heavily to find a condition which stated that the Plaintiff's allowances or separation package would be grossed up for tax but in vain. The Plaintiff called in aid the Income Tax (Amendment) Act 1995 and the Practice Note 1/95 (2) as the basis for his claim for grossing up for tax. The Plaintiff cannot rely on the Income Tax (Amendment) Act 1995 and the Practice Note 1/95 because firstly, it applied to low income earners and not people like the Plaintiff and secondly even if the Act and Practice Note referred to above applied across the board it would not apply to the Plaintiff because the effective date of the aforesaid Act and Practice Note was 1st April, 1995 while theJ_laintiff was retrenched on 31 st March, 1995. The two instruments had no re{roactive force. As far as I am able to ascertain the critical issue in this case is whether some or all or none at all of the items in paragraph 5 of the amended Statement of Claim are allowances. Indeed even Mr. Shonga learned counsel for the Plaintiff in his submissions concedes that some of the items may not be allowances. As an example, 111". Shonga cited social tour benefits and use of the employer's car. 1n the event~isallow the claims for social tour and use of car at this juncture. The question whether the allowances paid to employees could be merged into their salaries is not a critical issue. The Defendant being a subsidiary of ZIMCO at the material time was bound to follow the directive of ZIMCO to merge allowances into the salaries of its employees. In the case of John Paul Mwila Kasengele the Supreme Court held that in corporate law Directors and Managers must dance the shareholder's time. That case dealt with the issue whether the ZIMCO directives was binding on the Defendant Zambia National Commercial Bank Limited, a parastatal company and similarly circumstanced like the Defendant in this case. As I have said above the critical issue in this case is whether the items particularized in paragraph 5 of the amended Statement of Claim are allowances. The Defendant maintains that the items were not allowances but fringe benefits and, therefore, should not be merged into salary. I will not deal with the items seriatim. I will deal with the items in the order I consider convenient to deal with them. I have already dealt with the social tour and use of company car. I propose to deal with the claim for retention allowance first. This claim is resisted on the ground that the Plaintiff was not entitled to it. The Plaintiff has led no evidence to show that he was entitled to retention allowance. The allowances that the Plaintiff can claim before this Court are those which were payable to him at the time when he was working and not those which he thinks he should also have been paid. According to the papers on file, the Defendant refused to recognize the Plaintiff as a professional staff. Up to the time the Plaintiff left the Defendants' employment the question whether the Plaintiff was a professional staff remained unresolved. In the circumstances I cannot give the Plaintiff the status of a professional staff and award him retention allowance. For these reasons, I dismiss the claim for retention allowance. l now deal with education allowance. I have looked at Clause 9.1 of ZIMCO conditions of service in the Notice to Produce dated 18th November, 1999. It is clear to me that it was never intended that an allowance of this nature would be merged into salary for the purpose of calculating terminal benefits. In fact this so called allowance was a reimbursement against receipts or paid directly to the school. I disallow this claim. The Plaintiff has also claimed Medical Allowance at 25% of basis annual salary. Clause 26 of tlte ZIMCO conditions of service which provides for medical benefits stipulates that where there is no employees' medical facility/staff clinic then employees will be re-imbursed (my underlining) the actual costs of consultation fees and cost of essential medicines including spectacles incun-ed by the employee but not exceeding 25% of annual basic salary in a financial year. It is clear to me that the Defendant would pay only when an employee or a recognized dependants got sick and incurred a medical bill. The Defendant could not reimbw·se 25% the employees' annual salary irrespective whether the employer actually spent money on a medical bill or not. I am inclined to accept the evidence on behalf of the Defendant that medical benefit was one of the fringe benefits which are still being in parastatals which are still in existence. I now deal with the claim for housing. The Plaintiff claims 2,500 US Dollars housing allowance per month. I do not know how the Plaintiff arrived at this figure. It is a notorious fact which I take judicial notice of that a house in Kabwe town cannot fetch that kind of rent. It seems to me the Plaintiff just plucked a figure from the air and put it on the claim. Be that as it may, I do not know the basis of this claim. I have evidence on record that in July 1994 due to financial constraints the Defendant was experiencing the Plaintiff was made to pay rent for the house he was occupying (see document number 17 in the Defendant's bundle of documents). This evidence is not disputed. Therefore, at the time the Plaintiff was retrenched on 31 st March, 1995 he was not getting housing allowance but paying rent of Kl0,000.00 per month. The letter directing the merging of ~llowances into salary was written on 28th March, 1995 long after the Plaintiffs conditions of service relating to housing was altered by the employer. And the condition of service relating to housing was not so fundamental that the employer could not change it unilaterally without a mounting to a breach as was stated in Kabwe Vs BP(Zambia) Limited (1995- 97) ZR 218 (3). At the time the allowances were directed to be merged into salaries the Plaintiff was not getting any housing allowance. The Plaintiff was paying rent to his employer. For these reasons I dismiss this claim. I now deal with subscriptions to professional institutes under heads 12 and 13. The evidence I have is that the Defendant paid the fees to the institution. This is also what Clause 31 of the ZIMCO conditions of service states. These fees could not qualify as allowances for purpose of retrenchment and I dismiss the claim under these heads. The claim for the value worth of two dailys under head 15 is also not tenable. The uncontroverted evidence I have is that these papers were for the office. I have asked myself the question whether the Plaintiff would as of right insist on getting the two dailies if he were on leave and there was an other person acting in his position. The answer of course is no. That being the case the cost of the two dailies is not an allowance the Plaintiff can claim on retrenchment. I, accordingly, dismiss it. Under head 11, the Plaintiff has made a claim for subscriptions to two social clubs. The evidence I have and Clause 32 of the ZIMCO conditions of service say that the annual subscriptions to the clubs was to be paid by the Defendant. The subscriptions could not conceivably be regarded by the Plaintiff as an amount that could form part of his take home money. This claim also fails. Under head 6 and 7 the Plaintiff has claimed some K720,000 for utilities. It is not clear to me how the Plaintiff arrived at these figures in respect of telephone , water and electricity allowances. It seems to me the Plaintiff like in most of the claims just plucked the figures from the air. The evidence I have, which evidence the Plaintiff does not dispute is that the D efendant paid the telephone, electricity and water companies directly and that the Plaintiff continued enjoying the fringe benefits up to the time he left the Defendant's employment. I have no doubt in my mind that at no time before he was retrenched on 31 st March 1995 did the Plaintiff ever think of these benefits as part of his take home money. I do not think that the manner in which the Plaintiff enjoyed these benefits brought them within the ambit of directives from ZIMCO to merge allowances into salaries. For these reasons I dismiss this claim. The Plaintiff has also claimed under head 4 that furniture maintenance allowance should have been merged into his salary for purpose of calculations of his terminal benefits. The undisputed evidence I have is that this allowance was given at the end of the year to maintain furniture. I do not think that the merging of alJowances included money given to an employee at the end of the year to repair furniture. I disallow this claim. I also dismiss the claim for householders insurance under head 9. From evidence this insurance was clearly a reimbursement of the premium to an employee who had insured household goods. It cannot be termed as an allowance to be merged into the salary for purpose of an employee's basic salary. The Plaintiff complained about payment in respect of domestic servants. He claims Kl,044,000.00 under head 8. He said he was entitled to three domestic servants while the calculations in document number 24 in the Notice to Produce dated 18th November 1999 refers to one domestic servant only. The evidence I have, particularly in documents Numbers 23 and 24 in the Notice to Produce dated 18th Ju1y, 1994 is that on 14th July, 1994 the Plaintiffs' conditions of service were varied with respect to certain matters including servants. Instead of paying for all the three servants the Plaintiff was entitled to the Defendant took responsibility of paying for only two servants while the salary of the third servant was given to the Plaintiff as an allowance and merged into his salary. This change was, therefore, not in any way disadvantageous to the Plaintiff. The question is whether the salaries of the other two servants should also been merged into the Plaintiff's salary for purposes of calculating his separation package. I think not. I say so because it is clear to me that when the Plaintiff was still working it did even cross his mind that the salaries paid to the other two servants formed part of his take home money like the salary for the one servant given to him. I dismiss this claim. The evidence that the Plaintiff enjoyed these benefits up to the time he left employment is not disputed. The Plaintiff enjoyed these benefits. All that the Plaintiff wants is to enhance his separation package. If the Plaintiff were successful he would get over Kl billion, a startling figure for one retrenchee. Even in the case of Robbie Mumba ( 4) where the Plaintiffs were employees of another ZIMCO subsidiary and where there were close to 100 employees involved the total award for all employees was not beyond K400 Million, an indication to me that the allowances merged into salaries were not the allowances the Plaintiff is talking about. Having dismissed all the claims it follows that subject to what I will say about the coefficient factor the Plaintiff leave benefits were calculated at the correct salary as in document 8 in the Defendant's bundle of documents. The claims under head 19 is therefore dismissed. About payment -in-lieu of notice claimed Wlder head 20 I note that in fact the Plaintiff was paid three months pay in lieu of notice ( see Amended Defence at Page 2). I accordingly dismiss claim. I award the Plaintiff repatriation at ZIMCO rate of K.200,00 less what was paid if any because the ZIMCO condition was more favourably than the Defendant's rate of KI 20,000.00. The Plaintiff complained that his package should have been calculated using the ZIMCO condition. As the witness for the Defendant testified my finding on the evidence is that the Defendant's formular was far superior to that of the ZIMCO. I now deal with the issue of coefficient factor. The Plaintiff said that the co efficient factor should be 4 while the Defendant said that the co efficient factor was 3. The witness for the Defendant urged me to find that there were changes in the coefficient factor which changes affected the Plaintiff. I find myself not persuaded. Apart from his own word the Defendants witness pointed to no agreement between the management and the workers representatives altering the coefficient factor. In the event I hold that the Plaintiff's benefits should have been calculated using coefficient factor 4. The Plaintiff also complained about the sale of the personal to holder car and the house. The Defendant pleaded in the Defence that the Plaintiff was sold a house. The Plaintiff does not dispute this in his evidence. Accordingly, I find that the Plaintiff was sold a house. About the car. The Defendant pleaded that the Plaintiff was sold the car at K750,000.00. The Plaintiff says the car should have been sold to him using the ZIMCO formular without saying what this formular was. The ZIMCO conditions before me which the Plaintiff relies upon does not say what the formular is. I do not therefore, know which formular is better. Accordingly, I will not make any order on this as the Plaintiff has failed to prove that the ZIMCO formular is better than the formular the Defendant used. The result of my Judgment is that Plaintiffs benefits should be recalculated using the Defendant's formular with coefficient factor 4 plus K200,000.00 repatriation allowance less K120,000 already paid. The figure arrived at will carry interest at the average short term deposit rate from date of Writ to date of Judgment and after Judgment at the current Bank of Zambia lending rate. The result of this Judgment is such that I make no order as to costs. DELIVERED IN OPEN COURT AT LUSAKA THIS 31 8 T DAY OF MAY, 2002. PETER JUDGE r 17