[2024] KEELRC 1901 (KLR)

Local Authorities Provident Fund Board v County Government of Isiolo (Employment and Labour Relations Cause E026 of 2021) [2024] KEELRC 1901 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KEELRC 1901 (KLR)

Republic of Kenya

In the Employment and Labour Relations Court at Meru

Employment and Labour Relations Cause E026 of 2021

ON Makau, J

July 19, 2024

Between

The Local Authorities Provident Fund Board

Claimant

and

The County Government Of Isiolo

Respondent

Judgment

Introduction 1. The claimant is a body corporate mandated under the Local Authorities Fund Act to receive, invest and manage members’ savings for prompt payment of retirement benefits upon exit from employment. It brought this suit on 24th August, 2021 seeking the following reliefs;a.An order compelling the Respondent to remit the statutory deductions from its employees to the Claimant amounting to Kshs.558,019,017. 42 as at 30th June 2021. b.Cost of the suit.c.Interest on (a) and (b) at Court Rates.d.Any other relief the Court deems fit to grant.

2. The respondents filed defence on 11th November, 2021 denying the entire claim and averred that they had duly and timeously remitted all statutory deductions for their employees. They also raised preliminary objection to the suit on grounds that the claimant lacks locus standi to bring the suit; that the Court lacks jurisdiction to hear and determine the claim; and that the claim is time barred. They further averred that no notice of intention to sue was served on them. Therefore, they prayed for the suit to be dismissed with costs.

3. The suit never went to hearing as the parties told the court that the issue of the principal claim had been settled amicably. It is not clear what amount was paid in the said settlement but there is a Report of the Outstanding debt dated 23rd February 2022 signed by officers of the 1st respondent and the Claimant indicating the principal debt as Kshs. 87,050,207,62 plus accrued interest of Kshs. 675,760,690. 80 equaling to a total of Kshs. 762,840,898. 42.

4. The parties agreed on payment plan of the principal debt of Kshs. 87,050,207. 62 and the 1st respondent requested for a waiver of the interest. The request for the waive was however kept in abeyance until the principal debt was fully Paid and a deed of settlement signed.

5. The only issue for determination is whether the claimant is entitled to interest on the principal claim paid under Section 53A of the said Act and the parties agreed to dispose of the same by written submission.

Submissions 6. The Claimant submitted that the interest charged against the amount was based on section 53A of the Retirement Benefits Act and reliance was placed on the case of Local Authorities Provident Fund Board vs County Government of Laikipia (Cause E047 of 2021) [2022] KEELRC 13559 (KLR). It argued that it complied with the provisions of the above provision by issuing a demand notice dated 5th September 2018 to the Respondents and a reminder dated 15th May 2019.

7. It further argued that it had a fiduciary obligation to pay its members’ monthly pension benefits irrespective of the Respondents’ remittance and as such it had incurred financial costs in borrowing funds to enable it meet its obligations. It also argued that it is required to invest the contributions and earn interest in order to increase members’ monthly pension benefits. Consequently, it submitted that the interest charged on the unremitted contributions is meant to compensate for the interest lost when the money is not invested.

8. The respondents submitted that the only point of contention was whether the notice provided for under section 53A of the Retirement Benefits Act was served. It argued that the requirement was that the prospective claimant ought to serve the notice upon the employer and the Retirements Benefits Authority. It further argued that the burden of proving that the demand notice was issued upon it rested with the Claimant and placed reliance on sections 107 to 109 of the Evidence Act for emphasis. It contended that the demand notice produced did not bear the Respondents acknowledgement of receipt and neither was there any proof of alternative service.

9. It also argued that the contents of the letter did not meet the requirements of section 53A of the RBA and relied on this court’s decision in Local Authorities Provident Fund Board vs County Government of Laikipia (Cause E047 of 2021) [2022] KEELRC 13559 (KLR) where the requirements of a proper notice under section 53A of the RBA were set out. Therefore, the Court was urged to dismiss the suit with costs because the claimant did not discharge the burden of proof of service of notice under the said law.

10. In the oral highlights, the claimant submitted that the respondent owed it money by dint of section 33 of the said Act which requires that an employer may with approval of his employees, pay any statutory contributions in respect of such employees into any scheme fund prescribed for that purpose. It further submitted that section 8 of the Local Authority Provident Fund Act (LAP Fund Act) makes it mandatory for the respondent to contribute to the fund, sums deducted from the employees plus employees contribution.

11. It further submitted that the respondent in its defence admitted receipt of the demand letter dated 12th January, 2021 seeking payment of Kshs.311,114,450. 50 being the principal amount plus interest. While admitting that the notice required under Section 53A of the Retirement Benefit Act was not served on the respondent, the claimant contended that such notice is not mandatory. It was therefore submitted that the various demand letters served and acknowledged by the respondent in its defence warrants the payment of the compound interest under section 53A of the Act.

12. For emphasis the claimant cited the case of Republic vs Attorney General & 2 others exparte Patrick Ochwa, Samuel Ouma & Job Weloba t/a Cootow & Associates (2021) KEHC 144 (KLR) and Republic vs The Non-Governmental Organizations and others (2020) eKLR where the court was of the view that the court has a duty to try and get the real intention of the Constitution or statute by carefully attending to the whole scope of a statute, and that the word “shall” refers to mandatory command while “may” is directory or permissive.

13. Accordingly, in this case, the claimant submitted that the use of the word ‘May’ in section 53A above means that the issuance of a notice before filing a suit under the said section is merely directive and not a mandatory requirement.

14. The Respondent has however submitted that the notice required under section 53A of the Act was not issued before filing of the suit and therefore the claim for interest must fail. It was argued that the said provision deals with the proceedings for recovery of deductions from employees and it requires in mandatory terms that a notice shall be issued to the defaulter. It was submitted that subsection (2) uses the word “Shall” to make the requirement of notice mandatory.

15. For emphasis, the respondent relied on the case of Equity Group Holdings Ltd vs Commissioner of Domestic Taxes (2021) eKLR where the court held that the word ‘Shall’ when used in a statutory provision imports a form of command and not an option.

16. The respondent further submitted that the claimant never served any notice that met the requirements of section 53A of the Act and therefore no interest is payable on the principal sum paid. According to the respondent the parties negotiated a settlement as per the minutes filed, which did not include the payment of interest on the principal.

Analysis 17. Having considered the pleadings, evidence and submissions, the dispute herein revolves around section 53A of the Retirement Benefits Act, that is:a.Whether the claimant served the respondents with a proper notice under the said law.b.Whether the claim for compound interest is merited.

18. Section 53A provides that:“(1)Where an employer, having with the agreement of an employee who is a member of a scheme, made a deduction from the employee’s emoluments for remittance to the scheme, fails to remit the deduction within fifteen days of the deduction, the scheme may, after giving such employer not less than seven days’ notice, institute proceedings for the recovery of the deduction.(2)A notice under subsection (1) shall be in writing and copied to the Authority, and shall:a.require the employer to pay the sum deducted to the scheme within seven days of the notice; andb.inform the employer that if he fails to pay such sum before the expiration of the notice, proceedings for the summary recovery of the sum shall be filed in court without further reference to him.(3)Any sum which is the subject of proceedings for summary recovery under this section shall attract a compound interest at the rate of three percent per month.(4)Without prejudice to any proceedings instituted under the provisions of this section, a person who refuses or fails to comply with a notice given to him under subsection (1) commits an offence and shall be liable to a fine not exceeding five hundred thousand shillings, or in the case of a natural person, to imprisonment for a term not exceeding three years, or to both.(5)Where an offence under subsection (4) is a continuing offence, the person convicted shall, in addition to the penalty prescribed in that subsection be liable to a further fine of one thousand shillings for every day or part thereof during which the offence continues.”

19. I discussed the above provisions in Local Authorities Provident Fund Board vs County Government of Laikipia (Cause E047 of 2021) [2022] KEELRC 13559 (KLR), where I stated that the provision gives a pension scheme the option to file suit to recover unremitted pensions contributions provided that the Pension Scheme: -a.gives a written notice to the defaulter.b.the notice is copied to the Retirement Benefits Authority.c.the notice requires the defaulter to pay the sum deducted within 7 days of the notice.d.the notice informs the defaulting employer that if he fails to pay before the expiry of the notice, summary recovery proceedings of the sum shall be filed in court without further reference to him.

20. The claimant contended that it served the required demand notice followed by a reminder before filing this suit. I have considered the said correspondences which includes letter dated 5th September 2018, 15th May 2019 and the demand letter by counsel dated 15th April 2021. They all notified the respondents of the unremitted pension contributions and threatened to invoke recovery process under the relevant regulations.

21. The demand letter by counsel complied with the requirements of section 53A of the Act but the respondents deny that it was served upon them. The copy produced as exhibit bears a receiving stamp by the Retirement Benefits Authority and none from the respondents. On that basis, they submit that the claim for compound interest by the claimant does not hold water.

22. The claimant did not make any rejoinder to the allegation that the demand letter by counsel was not served upon the respondents but they submitted that the respondents were served with the notice date 5th September 2018 and 15th May 2019. Having carefully considered the evidence and the submissions, I find that the claimant has failed to prove that it served the respondent with a proper notice as contemplated in section 53A of the Act.

23. My reading of section 53A set out above does not give a scheme fund any option whether to issue or not to issue the statutory notice before filing summary recovery proceedings. The only option given is whether or not to file recovery suit. The undisputed two letters did not meet the requirements for a proper notice under section 53A aforesaid.

Claim for compound interest 24. The failure to serve a proper notice on the respondent spelt doom to the claim for compound interest on the unremitted pension contributions. However, the parties voluntarily negotiated amicable settlement after the suit was filed and signed an agreement dated 23rd February 2022. According to the said agreement, the principal debt for the period from March 2013 to January 2022 was Kshs. 87,050,207,62 plus accrued interest of Kshs. 675,760,690. 80 totaling to a total of Kshs. 762,840,898. 42. The principal debt was to be paid by monthly instalments of Kshs. 8,705,070. 76 and be cleared by January 2023.

25. The 1st respondent requested for a waiver of the interest but it was agreed that the issue of waiver will be deliberated after the principal debt is cleared and a settlement deed signed. The respondents have not filed any evidence to show that the said deliberations on the waiver of interest were held after the principal sum was settled. Consequently, I hold that the agreement dated 23rd February 2022 between the parties herein was signed voluntarily and it is binding upon them. Consequently, the agreed interest on the principal debt is owing from the 1st respondent to the claimant.

26. In view of the foregoing matters, I enter judgment for the claimant against the 1st respondent in the following terms:a.Kshs.675,760,690. 80 being interest on the principal debt as agreed between the parties on 23rd February, 2022. b.Costs and interest at court rates from the date of this judgment.

DATED, SIGNED AND DELIVERED AT NYERI THIS 19TH DAY OF JULY, 2024. ONESMUS N MAKAUJUDGEOrderThis judgment has been delivered to the parties via Teams video conferencing with their consent, having waived compliance with Rule 28 (3) of the ELRC Procedure Rules which requires that all judgments and rulings shall be dated, signed and delivered in the open court.ONESMUS N MAKAUJUDGE