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THE SUPREME COURT OF APPEAL

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THE SUPREME COURT OF APPEAL

    THE SUPREME COURT OF APPEAL

    OF SOUTH AFRICA

    Reportable

     CASE NO: 539/03

In the matter between :

THE AGRICULTURAL RESEARCH COUNCIL Appellant

and

GABRIEL STEPHANUS BREDELL First Respondent

    RAYMOND THERON NAUDÉ Second Respondent

    ANDRIES PETRUS FOURIE BEZUIDENHOUT Third Respondent

    JOHANNES HENDRIK TERBLANCHÉ Fourth Respondent

    ________________________________________________________________________ Before: STREICHER, NAVSA, NUGENT, HEHER JJA & ERASMUS AJA Heard: 2 NOVEMBER 2004

    Delivered: 2 DECEMBER 2004

    Summary: Rule 17.7 of Agricultural Research Council Pension Fund - increase of

    gratuity by employer obligation to pay the Fund and not the

    member unauthorised payment not recoverable from member.

    ________________________________________________________________________

    J U D G M E N T

    (Dissenting pp 12-30)

    (Concurring pp 30-32)

    The order appears at paragraph 25

    ________________________________________________________________________

     STREICHER JA

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    STREICHER JA:

    [1] The appellant instituted action against the respondents in the Transvaal Provincial Division for the repayment of amounts received by them from the Agricultural Research Council Pension Fund („the Fund‟). The appellant contended that it is considered in law to have made the payments, that it had no power to make such payments, that the payments had in any event not been authorised and that each of the respondents was unjustly enriched by the payment received by him. The court a quo

    dismissed the action and with its leave the appellant now appeals against such dismissal.

    [2] The appellant was established in terms of s 2 of the Agricultural Research Council Act 86 of 1990 („the Act‟). The Fund is a pension fund established by the appellant under the Pension Funds Act 24 of 1956 in terms of the provisions of s 19(1)(g) of the Act.

    [3] After the appellant had been established 12 research institutes were transferred to it from the Department of Agriculture. Most of the employees of those institutes, including the respondents were, by agreement, transferred to the appellant. As employees of the appellant the respondents became members of the Fund.

    [4] During 1997 and 1998 the respondents‟ membership of the Fund was terminated. In the case of the first and second respondents the termination occurred in terms of rule 4.3(3) of the rules of the Fund and in the case of

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    the third and fourth respondents it occurred in terms of rule 4.7. Each of the respondents exercised the option provided for in rule 7.4, which rule reads as follows:

    „If a Member‟s membership of the Fund is terminated in terms of Rules 4.1 to 4.4, 4.7, 5.1 to 5.4, 5.7 or 6.2(2), he may request the Board, before his Pension benefit becomes payable, rather to treat his Pension benefit as follows:

    (1) Pay the Member a Gratuity equal to a maximum of one third of the value of his

    Pension benefit in terms of the Rules, which value the Board shall determine in

    consultation with the Actuary; in which case the balance of the Member‟s

    Pension benefit shall be transferred to an Insurer or an Approved Retirement

    Fund, excluding such Provident Fund, for the purchase of a pension with that

    Insurer or Approved Retirement Fund. Once such transfer is complete, the Fund

    shall have no further obligation in respect of the Member.

    (2) Transfer the full value of the Member‟s Pension benefit in (1) above, in which

    case the conditions of (1) shall apply mutatis mutandis.

    (3) Apply the member‟s Gratuity to secure for the Member an additional Pension

    from the Fund. In such a case the Board, in consultation with the Actuary, shall

    determine the amount and the conditions of payment.‟

    [5] Rule 7.17 provides for an increase of gratuities payable in terms of rules 4.1 to 4.7 and 5.1 to 5.7 to compensate for income tax payable on such gratuities. The basis for the increase and the degree to which a member is compensated is to be agreed between the member and the employer. The rule reads as follows:

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    „(1) Notwithstanding any other conditions of the Rules, the Board shall deduct from

    the Beneficiary‟s Pension benefit any amount from such benefit due in terms of

    the Income Tax Act, before the benefit is paid to the Beneficiary.

    (2) The Employer increases a Gratuity payable to an A-member or his Beneficiary

    (as the case may be) and to a B-member or his Beneficiary (as the case may be)

    to compensate for any income tax payable by such Member or Beneficiary in

    terms of Annexure 2 to the Income Tax Act, in respect of a Gratuity in terms of

    Rules 4.1 to 4.7 and 5.1 to 5.7 respectively.

    (3) The basis for the increase of the Gratuity in terms of (2) above, and the degree to

    which a Member or his Beneficiary is compensated is agreed upon by the

    Member and the Employer. Such compensation is however only payable for as

    long as, and to the degree that corresponding Gratuity benefits payable to a

    member of a Previous State Fund are exempt of the provisions of Annexure 2 of

    the Income Tax Act.‟

    [6] On 20 November 1992 the Executive Management Committee of the appellant („the EMC‟) accepted a „Hoofbestuursmemorandum‟ to the effect that no increase in a gratuity was payable to any member whose membership had been terminated in terms of rules 4.1-4.4, 4.7, 5.1-5.4, 5.7 or 6.2(2) and who exercised the option provided for in rule 7.4. [7] A member who exercised the option provided for in rule 7.4 is entitled to a gratuity in terms of that rule and not to a gratuity payable in terms of rules 4.1 to 4.7 or 5.1 to 5.7. But, only gratuities payable in terms of rules 4.1 to 4.7 or 5.1 to 5.7 are to be increased in terms of rule 7.17. It

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    follows that insofar as rule 7.17 is concerned the memorandum merely confirmed what was stated in that rule.

    [8] On 23 May 1997 the EMC took the following decision („the decision of 23 May 1997):

    1„1 Die LNR die gratifikasievoordeel bedoel in reël 7.17(2) saamgelees met reël 7.4

    2van die Reglement van die LNRPF sal verhoog om te vergoed vir enige

    inkomstebelasting wat op die volle gratifikasievoordeel of gedeelte daarvan

    volgens die keuse van die lid betaalbaar mag wees.

    2. Sodanige vergoeding slegs betaalbaar sal wees vir solank as wat die

    gratifikasievoordele in die staat nie belasbaar is nie.

    3. Die maatreël met ingang van 1 Junie 1997 van toepassing is op alle uitbetalings

    van gratifikasievoordele vanaf 1 Junie 1997 ongeag die datum van

    uitdienstrede.‟

    [9] The EMC is a committee established in terms of s 16 of the Act, which, subject to the directives and control of the appellant, is responsible for the management of the affairs of the appellant in accordance with the objects and policy of the appellant. During 1997 when the EMC made the decision the fourth appellant was the president and the other respondents were members of the EMC.

    [10] In the case of the first respondent the gratuity payable in terms of rule 7.4 amounted to R962 067,17. The appellant paid an amount of R530 961,93 to the fund in order to increase the gratuity to an amount

     1 The appellant. 2 The Fund.

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    which would after deduction of the income tax payable by the fund in respect of the gratuity equal the amount of R962 067,17. In a letter by the Fund to the appellant preceding the payment the Fund requested payment thereof on the basis that in terms of rule 7.17 the amount was payable (verskuldig) by the appellant to the Fund. In the event the Fund only paid R456 441,17 income tax in respect of the gratuity. It paid R1 036 307,18 being the gratuity of R962 067,17 plus the difference between R530 961,93 and R456 441,17 (R74 520,76) less arrear taxes in an amount of R280,75 to the first respondent.

    [11] In the case of the second respondent the gratuity payable in terms of rule 7.4 amounted to R763 068,40. The appellant paid an amount of R422 221,95 to the Fund in order to increase the gratuity to an amount that would after deduction of the income tax payable by the Fund in respect of the gratuity equal the amount of R763 068,40. As in the case of the first respondent the payment was preceded by a letter by the Fund to the appellant in which the Fund requested payment thereof on the basis that in terms of rule 7.17 the amount was payable by the appellant to the Fund. In the event the Fund only paid R349 044,17 income tax in respect of the gratuity. The Fund paid the total gratuity of R763 177,78 plus the difference between R422 221,95 and R349 044,77 being R73 177,78 to the second respondent.

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    [12] In the case of the third respondent the gratuity payable in terms of rule 7.4 amounted to R614 275,90. The appellant paid an amount of R265 635,55 to the Fund in order to increase the gratuity to an amount that would after deduction of the income tax payable by the fund in respect of the gratuity equal the amount of R614 275,90. Again, the payment was preceded by a letter by the Fund to the appellant in which the fund requested payment thereof on the basis that, in terms of rule 7.17, the amount was payable by the appellant to the Fund. In the event the Fund paid R267 582,80 income tax in respect of the gratuity. The difference between R265 635,55 and R267 582,80 being R1 947,25 constituted an overpayment by the fund to the South African Revenue Service („SARS‟). The Fund paid a sum of R621 338,52 being the total gratuity of R614 275,90 plus interest to the third respondent.

    [13] In the case of the fourth respondent the gratuity payable in terms of rule 7.4 amounted to R1 638 820,91. The appellant paid an amount of R1 189 898,25 to the Fund in order to increase the gratuity to an amount that would after deduction of the income tax payable by the Fund in respect of the gratuity equal the amount of R1 638 820,91. Once again the payment was preceded by a letter by the Fund to the appellant in which the Fund requested payment thereof on the basis that, in terms of rule 7.17, the amount was payable by the appellant to the Fund. The Fund paid the

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    amount of R1 189 898,20 to SARS and the total gratuity of R1 638 820,91 to the fourth respondent.

    [14] The appellant submitted that in law the payments of the amounts of R530 961,93, R422 221,95, R265 635,55 and R1 189 898,25 by the appellant to the Fund constituted payments to the respondents and that the Fund was merely used as a convenient conduit. It was submitted, furthermore, that the appellant did not have the power to make such payments and that even if it had the power it had not delegated authority to the EMC to take the decision of 23 May 1997. On that basis, relying on the condictio indebiti alternatively the condictio sine causa, the appellant

    claimed repayment by the respondents of the amounts paid to the Fund and in turn paid by the Fund to them. The respondents contended that the payments were made to the Fund and not to them. They were made, so the argument went, in order to enable the Fund to pay an increased gratuity to each of the respondents. They contended in the alternative that the payments were intra vires and properly authorised.

    [15] The court a quo held that the appellant had the power to make the payments and that it had lawfully delegated that power to the EMC. Having arrived at this conclusion the court a quo did not consider it necessary to

    deal with the other arguments raised by the parties.

    [16] As the parties did in argument before us I shall deal with the issue of whether the payments by the appellant to the Fund are in law considered to

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    be payments by the appellant to the respondents. If they were not, any claim the appellant might have is against the Fund and not against the respondents. For purposes of this argument I shall assume that the payments had not been duly authorised and that they were therefore indebite.

    [17] Each of the payments was made in response to a statement by the Fund that the amount was payable („verskuldig‟) in terms of rule 7.17 and a

    request that payment be effected to the Fund as soon as possible. It is, therefore, in the absence of any evidence to the contrary, probable that the appellant intended to make the payments and the Fund intended to receive the payments in terms of rule 7.17.

    [18] Rule 7.17 provides that the employer is liable to increase the gratuities payable to certain employees. The extent of that liability is to be determined by agreement between the employee and the employer but once agreed is a liability in terms of the rules of the Fund. The Fund is registered as a pension fund in accordance with the provisions of s 4 of the Pension Funds Act (Act 24 of 1956). Section 13A(1) of that Act provides that the employer of any member of a fund registered in terms of s 4 shall pay to the fund in full „any contribution which, in terms of the rules of the fund, is to be deducted from the member‟s remuneration and any contribution for which the employer is liable in terms of those rules‟.

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    [19] The employer‟s liability to increase the gratuity is therefore a

    liability to pay the amount required to increase the gratuity to the Fund. It follows that it is probable that the appellant intended to make the payments and the Fund intended to receive the payments in discharge of the appellant‟s statutory liability to make the payments to the Fund. That is so

    even though the liability to pay the Fund is a liability towards the employee. [20] Counsel for the appellant relied on the fact that it is common cause between the parties that payment by the appellant in terms of rule 7.17 amounts to the payment of a remuneration, alternatively an allowance, alternatively a subsidy, alternatively a benefit to the employee concerned. They submitted that it followed that the payments were made in order to discharge perceived obligations owed by the appellant to the respondents. Therefore, so the argument went, the payments to the Fund constituted payments to the respondents.

    [21] I accept that when A is liable to B to pay an amount to C (as

    3solutionis causa adjectus), payment by A to C in discharge of his

    obligation to B is considered to be a payment by A to B. It does, however not follow that if A in his own name make payment to C erroneously believing that he owes B an obligation to do so, that such payment would be considered to be a payment by A to B.

     3 Kopman and Another v Benjamin 1951 (1) SA 882 (WLD) on 886E

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