Court name
Supreme Court of Uganda
Judgment date
20 March 2003

Nsereko Joseph and Ors v Bank of Uganda (Civil Appeal-2002/1) [2003] UGSC 15 (20 March 2003);

Cite this case
[2003] UGSC 15

THE REPUBLIC OF UGANDA

IN THE SUPREME COURT OF UGANDA

AT MENGO

(CORAM: ODOKI, C.J, TSEKOOKO, KAROKORA, MULENGA AND
KANYEIHAMBA, JJ.SC)

CIVIL APPEAL NO. 1 OF 2002

BETWEEN

NSEREKO JOSEPH }
KISUKYE SARA }
HAJI MUNJI
& OTHERS} :::::::::::::::::::::::::::: APPELLANTS

AND

BANK OF UGANDA ::::::::::::::::::::::::::::::::::: RESPONDENT

[Appeal arising from the judgment and orders of the Court of Appeal
(Okello, Mpagi-Bahigeine, Twinomujuni, J.J.A.), dated 3rd December
2001, at Kampala in Civil Appeal No. 72 of 2001).


JUDGMENT OF KANYEIHAMBA, JSC.

This is an appeal against the judgment and orders of the Court of Appeal
reversing the decision of the High Court. The background
and facts of the case
may be summarized as follows:

Up till September, 1990, the appellants
together with others were employees of the Bank of Uganda, the respondent. On
21/09/90, the
respondent's Governor issued a circular to all its employees
informing them that the respondent was due to put in place a restructuring
programme in order to reduce the then respondent's current expenditure which
would involve a reduction of the employees up to 1/3
of the workforce.
Initially, the programme would be based on voluntary retirement. However, if the
objective envisaged in the programme
could not be achieved by such voluntary
retirement, it would then be achieved by involuntary arrangements. Subsequently,
on 01/11/94,
the respondent's Governor issued another circular offering a
compensatory monetary package to those employees who were willing voluntarily
to
terminate their services to the respondent and those who were willing to take
early retirement. Employees who wished to do so
had to accept the offer by
30th November, 1994. Following the acceptance, the offered package
would then be paid to individual employees concerned. Some hundreds
of
employees, including the 290 who are now the appellants in this Court, chose to
take the package voluntarily and left the Bank
which is now the
respondent.

Subsequently, what had appeared to be an amicable settlement between the
respondent and the employees who opted to leave the former's
services under the
scheme, turned into two disputes. The first concerned the respondent's
unilateral decision to deduct from the
appellants' packages all the loans
including housing loans which some of the employees leaving the
respondent's services
had obtained on agreed terms and conditions while still in
its employment. That dispute was finally resolved in a judgment of this
court in
Bank of Uganda v. Fred Masaba & 5 Others, Civil Appeal No. 3 of 1999,
(S.C).
In that case, this Court confirmed the principle that the circular
and the voluntary scheme accepted by the respondent precluded the
recovery from
terminal benefits of the housing and other loans which could only be recovered
by the present respondent in accordance
with the instalment repayment and other
terms and conditions which the parties had entered into before the appellants
left the respondent's
services.

A second dispute arose between the respondent and the employees who had opted
to leave voluntarily. The dispute was whether those
persons who volunteered to
quit the respondent's services in order to receive the severance benefits were
also entitled to pension
under the respondent's retirement benefit scheme. The
dispute led to the said employees filing a suit in the High Court. Judgment
was
delivered on 12/09/98. The learned trial judge, Anna Magezi, J., held that the
appellants who sued in a representative capacity
were entitled to claim pension
notwithstanding that they had also received severance packages. The respondent
appealed to the Court
of Appeal on several grounds. On whether or not the
appellants were entitled to pension, the learned Justices of Appeal held that
they were not. Hence this appeal.

There are four grounds of appeal framed as follows:

1. The learned Judges
erred in law and in fact when they held that the appellants were not entitled to
pension.
2. The learned Judges
erred in law and in fact in holding that the appellants had no subsisting cause
of action against the Respondent
Bank.
3. The learned Judges erred
in law in holding that the finding of the trial judge was based entirely on
negligent
misrepresentation.
4. The learned
Judges erred in law and in fact in finding that no award of Shs. 150,000,000= as
nominal damages was made in favour of
the
appellants.

Mr. Matovu, counsel for the appellants, argued grounds 1 & 2 together,
and grounds 3 and 4 separately. On grounds 1 & 2, counsel
for the
appellants, submitted that the learned Justices of Appeal erred in law when they
held that the appellants were not entitled
to pension and that the suit
disclosed no cause of action against the respondent. He submitted that the
finding of the learned judge
of the High Court that the severance package was
not intended to affect the appellants' pension rights is the correct
interpretation
of the relationship between the appellants and the respondent
even after the mutual agreement between the parties regarding the severance
packages. Counsel referred this Court to Rule 4 of the Trust Deed of the
respondent in favour of its employees which states, inter alia,
that-

"The Trustees may, with the consent of employers from time to time, amend
the provisions of this Trust Deed provides that no such
amendment shall be made
so as to affect adversely the rights and interests already secured for an
Annuitant or member save in so
far as may be entailed in securing the approval
or continued approval of the scheme by the Commissioner General of Income Tax as
a Pension Fund no amendment shall be made which would cause the main purpose of
the scheme to cease to be the provision of annuities
for members on
retirement."

Counsel submitted that in light of these provisions, no scheme or arrangement
by the respondent could in any way affect the pension
rights of the appellants
even after they had voluntarily accepted the severance packages.

Counsel
further submitted that the Court of Appeal erred in treating early retirement
and voluntary retirement as different things.
Counsel referred us to the
circular, G. 019, in which the Governor of the respondent stated that under the
current Personal Policies,
a staff member is eligible for early retirement if he
or she is 50 or more years of age. However, the circular added that all
pensionable
staff would be eligible to apply for voluntary termination of
services irrespective of age or rank.

According to counsel for the
appellants, this statement by the respondent's Governor meant that there was no
difference between early
retirement and voluntary retirement created by the
severance package scheme, yet the learned Justices of Appeal found that there
was. Counsel submitted that such a holding by the learned Justices of Appeal was
erroneous. He submitted that, there being no distinction
between voluntary
retirement and early retirement therefore, if an employee took early retirement
and another volunteered to leave
under the scheme offered by the respondent's
circular, both employees would be equally entitled to receive their pensions
after leaving
the services of the respondent bank.

Mr. Matovu further
submitted that the record shows that the respondent treated employees taking
early retirement and those volunteering
to retire under the severance scheme as
one and the same group of people. He contended that this is shown by a passage
in the circular
which states that in order to facilitate the settlement of staff
who will elect to leave the Bank under early retirement and/or voluntary
termination of the scheme, the Board of Directors had decided to pay a
compensation package.

Counsel contended further that the right of an employee to a pension is a
contractual right which cannot be surrendered until that
employee dies. He
submitted that the severance packages which were not intended to affect pension
rights were simply devices to save
wages of employees. He contended that the
pension scheme established for the respondent's employees was non-contributory,
showing
that it could continue in the respondent's scheme of things even if the
holder of the pension rights had taken voluntary retirement.
Consequently, it
was counsel's submission that the appellants were entitled to their pensions
either immediately or deferred in cases
where the holders had not reached the
retirement age. In the opinion of counsel for the appellants, it was a general
rule that an
employee cannot forego his pension rights.

Counsel further
contended that since a pension right is a deferred right, there is no way that
right can be paid in a package scheme
as was contended by the respondent's
counsel.

On ground 2, counsel contended that the cause of action was a breach of
contract. In his opinion, the appellants' case is strengthened
further by the
fact that whereas the voluntary retirement scheme was a matter between the
employees concerned and the respondent,
the latter has no direct control over
matters relating to pension rights. It was counsel's contention that those
rights are exclusively
under the control of the Trustees. He therefore submitted
that the learned judge of the High Court was right when she held that a
scrutiny
of the Trust Deed and the Rules governing the appellants' pension scheme
indicates that even if the respondent's purported
circular had amended the
rules, the appellants would still not forfeit their pension benefits.

Mr.
Matovu cited the cases of Bank of Uganda -vs- Fred Masaba & Others, Civil
Appeal No. 3 of 1998 (S.C), Mettoy Pension Trustees Ltd. -vs- Evans (1991) 2
ALLER
513 and Group Pension Trust Ltd. -vs- Imperial Tobacco Ltd. (1991) ALLER
597, David Hayton's
Commentary on the Law of Trust and Webster's New
Collegiate Dictionary, in support of his submissions.

For the respondent,
Mr. Masembe-Kanyerezi opposed all the grounds of appeal. On ground 1 & 2,
counsel submitted that in order
to appreciate the meaning and implication of the
respondent's circular on voluntary retirement, it was important to look at the
terms
and conditions of service of the respondent's employees and the
respondent's Retirement Benefit Scheme Trust Deed and Rules thereof.
Each
employee joined separately and his or her contractual rights were based on that
individual relationship with the respondent.
Thus, clause 3 of the terms and
conditions of service stipulates that no employee shall belong to the permanent
staff of the Bank
unless given written notice in that regard. Clause 4 of the
same terms and conditions provides that every notice to terminate employment
shall be in writing and shall be deemed to be sufficiently given if served
personally upon the Secretary of the Bank, and upon employee
if served
personally on the employee or sent by pre-paid registered post addressed to him
at his address last known to the Bank.
Clause 6 deals with responsibility for
pension and provides that members of the permanent staff are eligible for
pension in accordance
with the terms and conditions of the Pension Scheme
currently in force which may be seen by employees on application to the
respondent's
Secretary's office. From all this, counsel submitted that the
rights and obligations which arose between the appellants and the respondent
were purely contractual and not founded either on the fact that they were
permanently employed or on any law governing group employees.

Mr.
Masembe-Kanyerezi contended that the proper interpretation of the respondent's
Governor's circular should show that there were
two categories of pensionable
staff of the respondent envisaged. Those who wished to voluntarily terminate
their services to the
bank and those who had reached the age of 50 or more
years, and who were entitled to opt for early retirement.

Counsel conceded that respondent's employees who had attained the age of 50
or more years were entitled to their pension under the
early retirement scheme
but contended that those below 50 years of age were not eligible to claim
pension.

Counsel contended that the reason the Governor's circular
distinguished between employees who were 50 years or more old and all other
pensionable staff who were below that age was that on retirement, the former
were entitled to their pension and other retiring benefits,
while the latter
could only receive severance packages.

Counsel contended that after
retirement, it is only those employees who will have retired at the age of 50 or
more years who would
be entitled to pension and other retirement benefits for
themselves and their dependants even after they have severed their services
with
the employer. He contended that according to the terms of their service contract
with the respondent, if employees leave the
respondent's service before the
normal pension date and are not within the provisions of Rule 6 regarding early
retirement, they
would cease to be entitled to any benefit under the pension and
retirement scheme. Rule 6 deals with employees who are disabled or
otherwise
handicapped.

With regard to ground 2 of appeal, Mr. Masembe-Kanyerezi contended that the
plaint had raised no cause of action. Counsel contended
that the pension dues
were governed by the Retirement Scheme Trust Deed which is managed by the
Trustees. In fact, the Trust Deed
provides that the Trustees shall have powers
of general management and administration of the scheme. Only Trustees may amend
the
Trust Deed. The respondent who is the employer has no power on its own to
amend the Deed. The employer's only role is merely to consent
to amendments, if
any, proposed by the Trustees. Consequently, counsel submitted that in so far as
the employees' pension and other
retirement benefits are governed by the Trust
Deed, there is no privity of contract between the respondent and the employees.
Counsel
further contended that it was a condition precedent that where a dispute
arises between the Trustees and the employees regarding
pension and other
retirement benefits, the parties should first seek arbitration under the terms
of the Trust Deed. This was not
done in this case. Counsel therefore submitted
that the appellants had no cause of action in either alternative.

The
thrust of the appellants' contention is that since the appellants were all
permanent and pensionable employees of the respondent
bank, and were induced by
the respondent's circular either to retire early or leave under the voluntary
termination of service scheme,
they were all entitled to their pension and other
retirement benefits. Through its counsel, the respondent conceded that its
employees
who accepted to retire while aged 50 or more years were fully entitled
to receive and shall continue to receive their pension and
retirement benefits.
However, it disputed the claims of those whose ages were below 50 years when
they accepted to leave the respondent's
services, albeit induced by its
voluntary termination of service scheme which was governed by the current
personnel policies of the
respondent.

The terms of early retirement and
the voluntary termination of service were published and notified to employees in
a circular, Ref.
G. 019, entitled, "Bank of Uganda Restructuring Programme Early
Retirement/Voluntary Termination of Service", and dated 21st
September, 1994. The circular was addressed to the respondent's employees who
included the present appellants, informing them that
the respondent was
experiencing problems in meeting its operational costs at the current rate which
was too high and that the Board
of Directors had approved a Business Plan which
would result in restructuring the Bank with the objective of reducing the
operating
expenditure to match its income. The employees were further informed
that the Bank had decided to work out a compensatory package
to be offered to
employees who may wish to voluntarily terminate their services to the Bank or
opt for early retirement.

The circular gave further details of how each group of employees would
benefit under the scheme. An employee who was 50 or more years
of age was
eligible for early retirement. However, all other pensionable staff would be
eligible to apply for voluntary termination
of service irrespective of age or
rank. The circular stated that employees who were on temporary or contractual
terms in the service
of the respondent Bank were not eligible to apply under the
scheme.

The acceptance of any employee's application to benefit under the
scheme was to be at the discretion of the Board of Directors of
the respondent
Bank. The compensatory sums offered were different for each group of employees.
They were listed either as early retirement
or long service. There were to be
adjustment allowances depending on periods spent in the service of the Bank,
ranging from long
service, 15 years or more and 10 years or more. The circular
included item 5 headed, "Staff Indebtedness To The Bank" which later
resulted in the first dispute between the employees who had accepted to leave
under the scheme and the Bank and which
dispute was eventually resolved by this
court in Bank of Uganda v. Masaba & Others, (supra). Item 6 of the
circular indicated that any Income Tax payable on the compensatory package would
be met by the respondent Bank.

In resolving the issues raised by ground 1 of appeal in the Court of Appeal,
Okello, J.A. who delivered the lead judgment said:

"In the instant (sic.) the purpose of Exh. PIA was to invite pensionable
staff to voluntarily leave the Bank in order to reduce its
workforce and thus
cut down its operations costs. Counsel for the respondent submitted that payment
of pension or early retirement
was a term of the new scheme. I do not with
respect agree. The Circular letter, Exh. PIA, above is clear. Paragraph 2
thereof shows
that the compensatory package was the intended general offer to
two categories of pensionable staff of the Bank of Uganda:

1. Those staff who
may wish to voluntarily terminate their service to the Bank
and
2. Those staff who may wish
to opt for early retirement.

Paragraph 3 sounded a warning regarding those who may wish to opt for
early retirement that under the current personal policies only
those aged 50
above were eligible. The paragraph explains however, that the new scheme allows
all pensionable staff irrespective
of age or rank to apply for voluntary
termination of service. The words "early retirement" were left out of
this explanation. This was significant and deliberate. The obvious reason for it
is that "early retirement" was not intended to apply to all pensionable
staff irrespective of age or rank since the objective of the scheme was to cut
down
operational costs. The age restriction for eligibility for early retirement
in the current personal policies was thus recognised
in the new scheme. Payment
of pension was therefore not a general term of the new scheme."

The other two Justices of Appeal concurred. I am unable to fault the findings
and opinion of the Court of Appeal.

In my view, the appellants must have or ought to have understood the import
and meaning of the different terminologies used in circular,
Ref. G. 019. In the
first place, a distinction must be made between eligibility for and entitlement
to a pension. Indeed, the appellants'
plaint in the High Court acknowledged this
distinction when they stated that permanent staff of the respondent bank were
eligible
for pension but to be entitled to receive it one must reach the date at
which a person is entitled to start receiving his pension
payments. There is
evidence that the question of pension was raised early in the negotiations
between the respondent and representatives
of the appellants. However, when the
respondent offered its scheme of early retirement and voluntary termination, it
kept silent
on the matter of pension. The appellants readily accepted the scheme
and signed for their respective packages which were described
in part as
compensation. It may have been nice for the bank to explain why pension was not
mentioned. It is equally inexplicable
that the appellants or their
representatives did not insist that the pension be dealt with before they
readily signed for their compensation
packages.

However, whatever opinion one may have one way or the other, the respondent
was under no obligation to comment on an issue in which
the appellants had no
legal entitlement. Had the negotiations ended in forcing the respondent to
preserve and pay pension and other
retirement benefits to all its permanent and
pensionable employees, this should have been stated clearly in the Governor's
circular.
It would not have been necessary then for the respondent to
distinguish between employees aged 50 or more years who would be entitled
to
receive the benefits under the scheme as well as their pension and other
employees who though not eligible to receive pension
were eligible to apply for
voluntary termination of service and receive compensation packages. In my view,
the acceptance of the
latter position by employees below 50 years, meant
severance of any relationship with respondent bank, whether present or future
including the right to receiving anything else beyond benefiting from the
severance packages.


As the evidence and submissions in the record of
proceedings show, the employees who stood to benefit under the early retirement
scheme
were very few in number. The other permanent and pensionable employees of
all ages meant all employees other than temporary or contractual
or those who
were still on probationary periods and below 50 years of age. It is to all these
latter category of employees that the
term termination of services
applied without the hope that one day that termination would be converted
into early retirement. With respect therefore, I do not
agree with the
submissions by counsel for the appellants that the terms early retirement
and voluntary termination mean one and the same thing. Consequently,
ground 1 of this appeal ought to fail.


I now turn to ground 2 of the
appeal. I agree with the submissions of counsel for the appellants that whether
or not an employee is
entitled to pension depends first on the contractual
relationship between the employee and the respondent and, secondly, on the
interpretation
of circular G. 019. Circular G. 019 also created a contractual
relationship between the respondent and two categories of employees,
namely
those opting for early retirement and those opting for termination of their
services. It is immaterial that the trustees of
the pension fund had its
managerial control. In my opinion therefore, the appellants had a cause of
action in the suit.

Consequently, ground 2 of the appeal ought to succeed.

On ground 3 of the appeal, counsel for the appellants contended that the
learned Justices of Appeal were in error in holding that
the findings of the
trial judge were based entirely on negligent misrepresentation. He submitted
that, in fact, the findings of the
learned trial judge were based on breach of
contract and not on the tort of negligence. Mr. Masembe-

Kanyerezi for the respondent supported the findings and decision of the Court
of Appeal on this ground which in that court was ground
5.

Ground 5 of appeal in the Court of Appeal which is related to ground 3 of the
appeal in this court was framed as follows:-

"5. The learned trial judge erred in law in dealing with the unpleaded and
unframed issues of negligent misrepresentation in tort which
issue was time
barred as against the appellant and in deciding the case on the basis of this
issue."

On this ground, counsel for the appellants in that court contended that the
trial judge did not decide the case on the basis of negligent
misrepresentation
but rather on the basis of breach of contract which entitled the respondents to
damages, and that any reference
by the trial judge, to misrepresentation was
made "obiter dictum", arising from her extensive analysis of Bank of
Uganda v. Fred Masaba & Others, (S.C), Civil Appeal No. 3 of
1998.

The record of proceedings in the High Court shows that the learned trial
judge dealt with this ground. In her judgment she said:

"In the instant case, the defendant BOU misrepresented the plaintiffs'
right upon which facts the plaintiffs prematurely retired thinking
that Rule 4
had been repealed. It is irrelevant whether this misrepresentation was made
intentionally or carelessly. The defendant
BOU owed a duty of care to the
plaintiffs. It therefore follows that the defendant BOU must take responsibility
for indemnifying
the plaintiffs who acted on their perils when they prematurely
retired as shall be determined below."

When considering grounds 5, 6 and 7 in the Court of Appeal, Okello, J.A.
analysed this passage and concluded:

"The above passage clearly shows a finding of liability based on the tort
of misrepresentation, a claim which was rejected by Atwoki
J. as being time
barred. It was therefore wrong for the trial judge to make the claim on the
basis of her finding for the appellant's
liability. Counsel for the respondent's
contention that the trial judge's reference to misrepresentation was made
"obiter dictum" is not supported by the above passage in her judgment.
The finding based on that claim thus cannot stand. I therefore find merit
in
these grounds and they must succeed."

j

Nowhere does the learned Justice of Appeal or his colleagues on the panel
state that the trial judge's finding in the whole case was
based on negligent
misrepresentation. This was one single finding on several aspects of the appeal
before the learned Justices of
Appeal and they were obliged to find on it as
they did since it was clearly one of the specific grounds of appeal before them.
I
find no merit in this ground of appeal and therefore it ought to fail.

In light of my findings on the first three grounds, I do not find it
necessary to consider ground 4.

In the result, I would dismiss this appeal with costs to the respondent in
this court and in the courts below.

This appeal arose from a
representative suit. It is not apparent from the record whether all the
appellants and all those they represented
in the suit were aged below 50 years
at the time they accepted the terms of their respective compensatory packages.
In my opinion
therefore, the dismissal of this appeal does not affect the
pension rights of any appellant who was aged 50 years or more at the
time of
accepting to terminate his or her employment under the voluntary scheme.

JUDGMENT OF ODOKI, CJ

I have had the advantage of reading in draft the judgment of Kanyeihamba JSC
and I agree with it and the orders he has proposed.

As the other members of the Court also agree with the judgment and orders
proposed by Kanyeihamba JSC, this appeal is dismissed with
costs to the
respondent here and in the Courts below.

Dated at Mengo this 21st day of March
2003