The interpretation of "upon payment" and "paid" in context as used in section 35(3) and section 2 of the Income Tax Act.
Kenya Revenue Authority v Republic (Ex parte Fintel Ltd)
Civil Appeal No 311 of 2013
Court of Appeal at Nairobi
W Ouko, Asike- Makhandia, S Gatembu Kairu, JJA
February 5, 2019
Reported by Beryl A Ikamari
Download the Decision
Taxation Law-income tax-withholding tax-deduction of withholding tax-interest payable for purposes of delayed payment for building, civil and engineering works, recorded as an expense in a profit and loss account, without actually being paid-whether the payment of withholding tax could be demanded in relation to the interest-Income Tax Act (Cap 470), section 35(3).
Statutes-interpretation of statutory provisions-interpretation of sections 35(3) & 2 of the Income Tax Act-meaning of the "upon payment" and "paid" as used in section 35(3) and section 2 of the Income Tax Act-whether a payment could be deemed to have been made even where no money or valuable thing had changed hands-Income Tax Act (Cap 470), sections 2 & 35(3).
Statutes-interpretation of a taxation enactment-principles applicable to interpreting a taxation legislation-the proper approach in the application of the literal or ordinary meaning, reading of the enactment as a whole and purposive interpretation of a taxation statute.
Judicial Review-institution of judicial review proceedings-availability and exhaustion of alternative remedies-claim that a tax payer who was disputing a tax assessment failed to exhaust the remedy of pursuing the grievance at the Local Committee provided for under section 86 of the Income Tax Act-effect of failure to exhaust an alternative remedy in judicial review proceedings-Income Tax Act (Cap 470), section 86.
The respondent entered into an agreement with a contractor. One of the terms of the agreement was that the respondent would pay the contractor interest on any contract fees that were outstanding after the due date. The respondent was unable to pay all contract fees on the due dates and the interest was recorded as a liability in its books of account. After conducting an audit of the respondent's books, for the year ending December 31, 2001, the appellant demanded immediate payment of withholding tax on the interest assessed at Kshs. 4,787,257/=.
The respondent filed an objection to the assessment which was considered and rejected by the Commissioner of Income Tax. The respondent then went to court contending that that the accrual of the interest expense in its books of account did not amount to payment of the same to the contractor and the appellant's decision to demand withholding tax was ultra vires. The respondent sought orders of certiorari to quash the decision.
The appellant stated that the recognition of the interest as an expense had the effect of reducing the amount of profit chargeable as corporation tax and that when it was recognized as a liability, the respondent acknowledged that the interest was credited to the account of the payee. It was therefore within the definition of the term "paid" in section 2 of the Income Tax Act and was subject to withholding tax under section 35(1)(e) of the Income Tax Act.
The High Court found that the demand for withholding tax was ultra vires as under sections 35(1) and 35(3) of the Income Tax Act, tax would be withheld upon payment. It stated that when interest was claimed as an expense in audited accounts, that interest was not paid within the meaning of sections 2 and 35 of the Income Tax Act.
The appellant lodged an appeal at the Court of Appeal. It stated that the High Court misinterpreted the words ‘paid’, ‘payment’ and ‘credited’ in the Income Tax Act, misapplied the basic principles of accounting and taxation and failed to find that the respondent was guilty for failure to disclose the existence of an alternative remedy.
- How should the words "upon payment" and "paid" as used in section 35(3) and section 2 of the Income Tax Act be interpreted?
- What was the proper approach in interpreting an enactment that was about taxation?
- Whether under the Income Tax Act it was possible for a payment to be deemed to have been made even where no money or valuable thing had changed hands.
- Under section 35(3) of the Income Tax Act, when was withholding tax due for deduction and remission to the relevant authority?
- In judicial review proceedings, what was the effect of an applicant having had an alternative dispute resolution mechanism which had not been exhausted?
- Under rule 29(1) (a) of the Court of Appeal Rules 2010, an appeal from a high court trial would take the form of a re-trial at the Court of Appeal, except that the Appellate Court would not have an opportunity of seeing and hearing the witnesses. The Court of Appeal was required to reconsider the evidence on record, evaluate it itself and draw its own independent conclusions.
- Withholding tax referred to a situation where a tax payer of certain incomes was responsible for deducting tax at source from payments made and remitting the deducted tax to the revenue body. The Black's Law Dictionary defined withholding tax as a portion of income that would be subtracted from salary, wages, dividends or other income before the earner received payment.
- The word “upon payment” as used in section 35(3) of the Income Tax Act had the same meaning as paid. Under section 2 of the Income Tax Act, the definition given to the word "paid" included distributed, credited, dealt with or deemed to have been paid in the interest or on behalf of a person and “pay”, “payment” and “payable” had corresponding meanings.
- No issue would arise where actual payment had been made in respect of building, civil or engineering works. However, in a situation where an actual payment had not been made, it was unclear whether the respondent should insist on the remission of withholding tax.
- In its profit and loss account, the respondent recognized and included the interest payable and credited the amount in favour of the contractor. The application of the strict definition of the word "paid" would of necessity include any amount credited in the interest or on behalf of a person.
- Where the provisions of an enactment were penal in nature, they had to be construed strictly and care had to be taken to ensure that a person was not brought within the provision where the express language of the enactment did not bring that person within that provision.
- In construing tax statutes, the ordinary meaning of the words used would be applied. Nothing was to be read in or implied. The Court was under a duty to adopt an approach that produced neither injustice nor absurdity. In other words the Court would adopt an approach that promoted the purpose or object underlying the particular statute albeit that such purpose or object was not expressly set out therein. A statute ought to be looked at in the context of its enactment and as a whole as opposed to picking and choosing words in isolation.
- The Income Tax Act gave the word “paid” a technical as opposed to an ordinary definition. Tax law was dynamic, complicated and highly technical. Therefore, it could not be the case that the meaning of "upon payment" was that money or some valuable thing was delivered; that was a narrow construction. In the context of the Income Tax Act, payment would be deemed to have been made even where no money had been passed over.
- Section 35(5) required that where withholding tax was payable, the tax payer had to “deduct” and remit the amount so deducted to the Commissioner. The sense in which the word “deduct” was used, as an accounting term referred to the act or process of subtraction of an item or expenditure from gross income to reduce the amount of income subject to income tax. That need not be done physically or practically but as a book entry.
- The income tax regime was based on the accrual system. That was clear from inter alia, sections 3 and 10 of the Income Tax Act.
- The appellant was established under the Kenya Revenue Authority Act with functions which included revenue assessment and collection, administration and enforcement of the laws relating to revenue. Further, section 120 of the Income Tax Act permitted the appellant to inquire into the accounts of a company, assess tax and demand payment. Therefore the grant of orders of certiorari to quash the appellant's decision to demand for payment of withholding tax was inappropriate.
- After the Commissioner of Income Tax rejected the respondent's objection, the respondent filed a notice of appeal to the Local Committee under section 86 of the Income Tax Act but decided not to pursue the option of going to the Local Committee further and instead it filed judicial review proceedings. There was no justification for the respondent to move the High Court after invoking the jurisdiction of the Local Committee but it was excusable as it was done in good faith and the appellant suffered no prejudice.
Case Updates Issue 015/2019
|| Criminal proceedings can be instituted against an employee of a public office who is not a member of its tendering committee but whose misleading advice leads to direct sourcing of a tender resulting to loss of public funds.
Republic v Director Public Prosecutions & another Ex-parte Justus Ongera  eKLR
Miscellaneous Criminal Application 20 of 2017
High Court at Nairobi
J N Onyiego, J
January 30, 2019.
Reported by Kakai Toili
Constitutional Law- office of the Director of Public Prosecutions -powers of the Director of Public Prosecutions-scope of the powers-where an employee of a public office who was not a member of the tendering committee of the public office gave misleading advice which led to direct sourcing of a tender-where the direct sourcing led to loss of public funds-whether criminal proceedings could be instituted against an employee of a public office who was not a member of its tendering committee but whose misleading advice led to direct sourcing of a tender resulting in loss of public funds-Constitution of Kenya, 2010, article 2, 10 & 157; Ethics and Anti-Corruption Commission Act , section 13(2)(c); Anti-Corruption and Economic Crimes Act , section 35;National Prosecution Policy, paragraph 4 (B) (2)
Judicial Review-orders--certiorari, mandamus and prohibition-circumstances in which a court could grant judicial review orders-where an employee of a public office who was not a member of the tendering committee of the public office gave misleading advice which led to direct sourcing of a tender-where the direct sourcing led to loss of public funds-whether judicial review orders could be granted against a decision of the Director of Public Prosecutions to institute criminal proceedings against an employee of a public office who was not a member of its tendering committee but whose misleading advice led to direct sourcing of a tender resulting in loss of public funds-Constitution of Kenya, 2010, article 22, 23 & 47; Fair Administrative Actions Act; Civil Procedure Rules, 2010, order 53
The ex-parte applicant was the director of the ICT department in the office of the Auditor General. He and the then IT audit manager (his colleague) were tasked with the duty of conducting due diligence on prospective suppliers of an audit vault software. Their instructions were to establish and recommend the firms that would supply the software and which firm had to have had local references. They confirmed that only OSL Kenya Limited (a subsidiary of OSL SLOVENIA) was known to have supplied the system in Kenya and the African region. His finding together with his colleague was communicated to the Auditor General and the tender committee who met and approved the purchase of the software through direct sourcing which decision was also approved by the executive committee.
A corruption report was made to the 2nd respondent (EACC) who conducted investigations and recommended that the ex parte applicant and members of tender committee including the Auditor General be charged with various offences. The 1st respondent (DPP) absolved the charges against the Auditor General, the tender committee and the executive committee and recommended the prosecution of the ex parte applicant and his colleague. Aggrieved by the respondents’ actions the ex parte applicant filed the instant application.
- Whether criminal proceedings could be instituted against an employee of a public office who was not a member of its tendering committee but whose misleading advice led to direct sourcing of a tender resulting in loss of public funds.
- What were the circumstances in which a court could exercise its powers of granting judicial review orders?
- Whether judicial review orders could be granted against a decision of the Director of Public Prosecutions to institute criminal proceedings against an employee of a public office who was not a member of its tendering committee but whose misleading advice led to direct sourcing of a tender resulting in loss of public funds. Read More..
Relevant Provisions of the Law
Constitution of Kenya, 2010
(1) This Constitution is the supreme law of the Republic and binds all persons and all State organs at both levels of government.
(1) The national values and principles of governance in this Article bind all State organs, State officers, public officers and all persons whenever any of them—
(a) applies or interprets this Constitution;
(b) enacts, applies or interprets any law; or
(c) makes or implements public policy decisions.
(2) The national values and principles of governance include—
(a) patriotism, national unity, sharing and devolution of power, the rule of law, democracy and participation of the people;
(b) human dignity, equity, social justice, inclusiveness, equality, human rights, non-discrimination and protection of the marginalised;
(c) good governance, integrity, transparency and accountability; and
(d) sustainable development.
Article 157-Director of Public Prosecutions
(4) The Director of Public Prosecutions shall have power to direct the Inspector-General of the National Police Service to investigate any information or allegation of criminal conduct and the Inspector-General shall comply with any such direction
(6) The Director of Public Prosecutions shall exercise State powers of
prosecution and may—
(a) institute and undertake criminal proceedings against any person before any court (other than a court martial) in respect of any offence alleged to have been committed;
(b) take over and continue any criminal proceedings commenced in any court (other than a court martial) that have been instituted or undertaken by another person or authority, with the permission of the person or authority; and
(c) subject to clauses (7) and (8), discontinue at any stage before judgment is delivered any criminal proceedings instituted by the Director of Public Prosecutions or taken over by the Director of Public Prosecutions under paragraph (b).
(7) If the discontinuance of any proceedings under clause (6)(c) takes place after the close of the prosecution’s case, the defendant shall be acquitted.
(8) The Director of Public Prosecutions may not discontinue a prosecution without the permission of the court.
(11) In exercising the powers conferred by this Article, the Director of Public Prosecutions shall have regard to the public interest, the interests of the administration of justice and the need to prevent and avoid abuse of the legal process.
National Prosecution Policy
Paragraph 4 (B) (2)
The Evidential Test –
Public prosecutors in applying the evidential test should objectively assess the totality of the evidence both for and against the suspect and satisfy themselves that it establishes a realistic prospect of conviction. In other words, public prosecutors should ask themselves; would an impartial tribunal convict on the basis of the evidence available?
- The law governing judicial review proceedings was anchored under order 53 of the Civil Procedure Rules and principally based on the common law principles in which courts or judicial review proceedings were concerned only with the decision making process as opposed to the merits of the decision. With the promulgation of the Constitution and subsequent enactment of the Fair Administrative Actions Act, the scope or process of judicial review had been elevated to a pedestal that transcended the technicalities of common law.
- The Court had powers to exercise supervisory powers over the respondents, being public statutory bodies mandated to exercise certain administrative functions, breach of which would attract judicial review orders from the Court. That could be done either under order53 of the Civil Procedure Rules or articles 22, 23 and 47 of the Constitution as well as the Fair Administrative Actions Act.
- For the court to exercise powers of certiorari, prohibition or mandamus the Court had to be satisfied that the act or omission complained of was arrived at illegally, unreasonably, improperly, irrationally, biased, in bad faith or otherwise ultra vires hence breach of the principles of natural justice.
- An order of certiorari was designed to prevent abuse of power and was intended to ensure that an individual was given fair treatment by the authority to which he was subjected. Orders of certiorari dealt with decisions already made, such an order could only be issued where the court considered that the decision under attack was reached without or in excess of jurisdiction or in breach of the rules of natural justice or contrary to law. Thus, an order of certiorari was not a restraining order. The order of certiorari was retrospective as it directed reversion to the original position before the impugned decision was made.
- An order for prohibition was that which was prospective in character and was intended to restrain an inferior tribunal body or authority from assuming jurisdiction where there was none or from doing what it was not authorised to do. Its mandate was not a basis for reviewing errors or wrongs that had already taken place or occurred. The order was only focused on the future and was intended to contain or stop an anticipated event like the intended prosecution in the instant case.
- The remedy of judicial review was not to review the merits of the decision but the decision making process itself to ensure that an individual was given fair treatment. However, with the promulgation of the Constitution and enactment of the Fair Administrative Actions Act there had been a paradigm shift in terms of the scope of interpretation and applicability of judicial review orders. That was a departure from the traditional common law understanding and limited application in terms of scope on judicial review declaratory orders.
- Issuance of judicial review orders could be classified from the viewpoint of focusing on an illegality, irrationality and procedural impropriety in decision making. It was a constitutional imperative that nobody should be discriminated against and where the Court was confronted with proof, such decision should be quashed. Article 21 of the Constitution underscored implementation of rights and fundamental freedoms and the State and every State organ duly bound to observe respect, protect, promote and fulfil the rights and fundamental freedoms in the Bill of Rights. As a State organ, the DPP was subject to the authority of the Constitution, being a product of the Constitution itself under article 157 of the Constitution.
- The DPP’s functions included directing the Inspector General of Police to investigate any allegation of criminal conduct, recommending, instituting and undertaking criminal proceedings, taking over or discontinuing any criminal proceedings commenced before any court by any other person. In executing that mandate, the DPP had to have due regard to public interest, promote the interest of justice, apply national values and principles of good governance, promote the rule of law and only be answerable to the Constitution. He was expected to work diligently without any discrimination, abuse of power/office and free from any direction, control or influence from any quarters.
- Article 27 of the Constitution commanded equality and freedom from discrimination and that every person was equal before the law hence entitled to equal protection. For the Court to interfere with decisions made by the DPP, one had to demonstrate sufficiently that the DPP had exceeded his mandate or acted in contravention of the law. The DPP did not have blank cheques to do what he wished regardless of the law. He was bound by the Constitution and where there was clear and sufficient proof of such contravention of the law, the Court would not hesitate to set such orders aside.
- Among the guiding principles outlined in section 4 of Office of the Director of Public Prosecution’s Act(ODPP Act) and the National Prosecution Policy formulated by the DPP pursuant to section 5(1)(c) of the ODPP Act were that;
- the decision to prosecute as a concept envisaged two basic components namely;
- that the evidence available was admissible and sufficient
- and that public interest required a prosecution to be conducted.
- Recommendation of prosecution by the EACC or the DPP was clearly guided by the law and where excesses arose, then the decisions arising therefrom had to be interfered with and set aside albeit sparingly. The duty to investigate crime by the EACC was well captured under section 13 (2) (c) of the Ethics and Anti-Corruption Commission Act and section 23 of the Anti-Corruption and Economic Crimes Act and submitted their recommendations to the DPP under section 35 of Anti-Corruption and Economic Crimes Act for further directions. In the instant case EACC discharged its mandate as constitutionally and statutorily required in recommending prosecution of the applicant.
- EACC had no control over what the DPP did. The DPP had powers to decide on who to charge based on the evidence at hand. He could not be directed on who to charge and who not to charge. The DPP could recommend or discontinue prosecution if he found it necessary. As to whether the person charged was guilty or not, it was for the court to decide upon conducting full trial.
- The DPP could drop charges against a suspect or an accused person or an accomplice and treat such person as a witness against the person charged although an accomplice. It did not matter whether the one treated as a witness was culpable like the one charged. However, the DPP had to justify the reasons for dropping charges against some suspect or suspects facing similar allegations without appearing to discriminate the one charged.
- Absolving some suspects from prosecution and recommending the ex parte applicant’s prosecution together with another person was not discriminatory. The DPP had powers to decide on who to charge for which offence. He could not work under direction not even from the Court on who to charge save where there was discrimination without justification. In the instant case the DPP dropped charges on account that the executive tender committee was misled by the recommendation of the ex parte applicant and his colleague. Prima facie, that could be a justification sufficient enough to absolve those that the DPP found were not culpable from the evidence at hand.
- The Court would act with utmost and extreme caution and restraint not to unnecessarily interfere with decisions of the DPP or other statutory bodies in a manner that would disable their operations hence cause an injustice to the public who were consumers of justice and interested parties in the outcome of criminal justice. In the instant case there was no fundamental wrong committed in absolving the tender executive committee members.
- Section 74(2) of the Procurement Act only allowed single sourcing in situations where there was only one person who could supply the goods, works or services being procured and that there was no reasonable alternative or a substitute for the goods, work or services being procured. Therefore, the burden to prove that there were no other accredited suppliers or alternative source other than OSI Slovenia Kenya lay with the ex parte applicant.
- By making the effort in writing to Oracle Kenya on March 29, 2017, the EACC was exercising diligence in confirming the true position regarding actual accredited partners of Oracle in Kenya. That action was in compliance with the requirements stipulated in the Fair Administrative Actions Act in making fair, diligent and accountable administrative decisions without bias. Having received the letter dated April 21, 2017 from Oracle which confirmed that there were other accredited partners of oracle which letter came later, the DPP had prima facie evidence to recommend the prosecution which then would be subjected to scrutiny upon trial. The DPP and EACC’s conduct did not contravene the Fair Administrative Actions Act or the Constitution.
- The finer details regarding the contract and who met which requirements and to what extent the ex parte applicant misled the Auditor General and the entire tender committee into awarding a contract through single sourcing instead of subjecting it to competitive bidding would be a subject of the trial court. The Court should be slow but cautious before curtailing other independent offices from executing their statutory mandate unless it was overtly clear that such action would definitely deliver a miscarriage of justice.
- In the instant case, from the onset and initiation of the procurement process, the element of sourcing a supplier with local reference in terms of having supplied and installed similar software within Kenya was not mentioned anywhere. That issue came up when the Auditor General solicited for that confirmation on January 19, 2017 for a purpose to defeat the intended prosecution.
- There were high prospects of a conviction against the ex parte applicant for giving misleading information or professional advice thus causing the Auditor General and the tender committee to award a tender through single sourcing which they could not have done had true and correct information been given. The prerogative orders of certiorari and prohibition were not applicable.
Application dismissed, interim prohibitory orders issued on February 14, 2017 vacated, each party to bear own costs.
||Court awards compensation for the unlawful use of a person’s image or likeness.
Ann Njoki Kumena v KTDA Agency Limited
HCCC No 7 of 2015
High Court at Kerugoya
L W Gitari, J
February 15, 2019
Reported by Beryl A Ikamari
Constitutional Law-fundamental rights and freedoms-rights to privacy, property and human dignity-personality rights-unlawful use of a person's image or likeness-where a person's photograph was used for commercial advertising without her consent-whether there was a violation of that person's rights to privacy, property and human dignity-Constitution of Kenya 2010, articles 28, 31 & 40.
Constitutional Law-enforcement of fundamental rights and freedoms-remedies for violations of fundamental rights and freedoms-monetary compensation-amount of compensation awardable for the unlawful use of a person's image or likeness.
The plaintiff's case was that the defendant took a photograph of her and used it in its marketing brochures without her knowledge or consent. She said that the defendant's conduct entailed unjust enrichment and interference with her economic interests.
The defendant said that the principles of unjust enrichment were inapplicable to the suit. While denying that the plaintiff was the subject of the photograph, the defendant stated that if the plaintiff was the subject of the photograph, she acquiesced to the taking of the photograph by voluntarily posing for it and her rights had not been infringed upon. The defendant failed to file witness statements and list of documents as required under order 7 rule 5 and order 11 of the Civil Procedure Rules 2010 and the court ordered the matter to proceed by way of formal proof.
- What were the key elements to be established in a claim of unlawful use of name or image?
- Whether the use of a person's image or likeness for commercial purposes without their consent was a violation of the person's right to privacy, property and human dignity.
- What remedy was a person, whose image or name had been used unlawfully, entitled to? Read More...
- The appropriation of a person's image or likeness for commercial benefit or advantage could call for legal intervention in order to protect the individual concerned. When a photograph of one's image was employed for purposes of making profit, it could constitute unjustifiable invasion of the person's rights including rights to dignity and privacy.
- The key elements in a claim for unlawful use of a name or image that a petitioner had to establish were the following:-
- use of a protected attribute- the plaintiff would have to show that the defendant used an aspect of his or her identity, which would include the plaintiff's name and likeness or other attributes, that were protected by the law;
- the exploitative purpose- the plaintiff had to show that the defendant used his or her name, likeness, or other personal attributes for commercial or other exploitative purposes;
- lack of consent- the plaintiff had to established that he or she did not give permission for the offending use.
- The use of a person's name or likeness for news reporting and other expressive purposes was not exploitative as there was a reasonable relationship between the use of the plaintiff's identity and a matter of legitimate public interest.
- The plaintiff proved that the defendant took her photograph without her consent and used it for the commercial purpose of advertising its products, without paying the plaintiff. The plaintiff had established the legal threshold in showing that her photograph was used without her consent for a commercial purpose.
- The plaintiff had the rights to privacy and property recognized under the Constitution. Rights to privacy, property and human dignity were recognized under articles 31, 40 and 28 of the Constitution.
- The award of damages was an exercise of judicial discretion which had to be based on sound reason and principle. The plaintiff's photograph was used for commercial purposes and her rights to dignity and privacy were violated. An award of Kshs. 1, 500, 000/= was reasonable under the circumstances.
Judgment entered for the plaintiff against the defendant.
- The plaintiff was entitled to a declaration that the defendant’s conduct amounted to an infringement of the plaintiff’ s right to privacy and protection from deprivation of property without compensation.
- The plaintiff was entitled to damages.
- The plaintiff was awarded Ksh.1,500,000/= as general damages for the violation of her rights.
- The plaintiff was awarded the costs of the suit and interest.
||Deputy County Governors as State Officers are entitled to a Housing Benefit.
Council of Governors v Salaries & Remuneration Commission  eKLR
Constitutional Petition 328 of 2016
High Court at Nairobi
E C Mwita J
October 5, 2018
Reported by Angela Sang
Constitutional law-fundamental rights and freedoms –infringement of fundamental rights and freedoms- the right to equality and freedom from discrimination-where the deputy county governors were denied housing allowances by the Salaries & Remuneration Commission-whether the respondent discriminated against deputy governors by denying them housing allowance-Constitution of Kenya; article 27
Constitutional law-Independent Constitutional Commissions- the Salaries and Remuneration Commission-scope of the mandate of the Salaries and Remuneration Commission to set and regularly review remuneration and benefits for all state officers- whether the respondent had set and regularly reviewed housing allowance for deputy governors- Constitution of Kenya, article 230(4) (a) ; Salaries and Remuneration Act, 2011 sections 11 and 12
Words and Phrases-discrimination-definition of the word ‘discrimination’- the effect of a law or established practice that conferred privileges on a certain class because of race, age, sex, nationality, religion or hardship ; differential treatment especially a failure to treat all persons equally when no reasonable distinction could be found between those favoured and those not favoured- Black’s Law Dictionary, 10th Edition
The Council of Governors (the Petitioner) requested the Salaries and Remuneration Commission (the respondent) to make provision for housing for deputy county governors as required by the County Government Act 2012.
The petitioner stated that deputy county governors had been denied house allowance for 3 years after the 2013 election that brought them into office on ground that the policy did not provide housing for deputy county governors thus they were not entitled to housing or housing allowances.
The petitioner pleaded that the respondent’s action was unlawful since it was discriminatory and contrary to article 27(5) of the Constitution which afforded everybody equal protection and benefit of the law. The petitioner further pleaded that articles 47(1) and 41(2) of the Constitution afforded every one the right to fair administrative action and fair remuneration and working conditions respectively.
- Whether the respondent discriminated against deputy governors by denying them housing allowance .
- Whether the respondent had discharged its mandate to set and regularly review housing allowance for deputy governors.
- Factors to consider in determining whether or not a party was unfairly discriminated against.Read More...
Relevant Provisions of the law
Constitution of Kenya
Equality and freedom from discrimination
(1) Every person is equal before the law and has the right to equal protection and equal benefit of the law.
(2) Equality includes the full and equal enjoyment of all rights and fundamental freedoms.
(3) Women and men have the right to equal treatment, including the right to equal opportunities in political, economic, cultural and social spheres.
(4) The State shall not discriminate directly or indirectly against any person on any ground, including race, sex, pregnancy, marital status, health status, ethnic or social origin, colour, age, disability, religion, conscience, belief, culture, dress, language or birth.
(5) A person shall not discriminate directly or indirectly against another person on any of the grounds specified or contemplated in clause (4).
(4) The powers and functions of the Salaries and Remuneration Commission shall be to —
(a) set and regularly review the remuneration and benefits of all State officers;
(5) In performing its functions, the Commission shall take the following principles into account—
(a) the need to ensure that the total public compensation bill is fiscally sustainable;
(b) the need to ensure that the public services are able to attract and retain the skills required to execute their functions;
(c) the need to recognize productivity and performance; and
(d) transparency and fairness.
Salaries and Remuneration Act, 2011
In addition to the powers and functions of the Commission under Article 230 (4), the Commission shall—
(a) inquire into and advise on the salaries and remuneration to be paid out of public funds;
(b) keep under review all matters relating to the salaries and remuneration of public officers;
(c) advise the national and county governments on the harmonization, equity and fairness of remuneration for the attraction and retention of requisite skills in the public sector;
(d) conduct comparative surveys on the labour markets and trends in remuneration to determine the monetary worth of the jobs of public offices;
(e) determine the cycle of salaries and remuneration review upon which Parliament may allocate adequate funds for implementation;
(f) make recommendations on matters relating to the salary and remuneration of a particular State or public officer;
Guiding principles for the Commission
(1) In addition to the principles set under Article 230(5) of the Constitution, the Commission shall also be guided by the principle of equal remuneration to persons for work of equal value.
(2) Without prejudice to subsection (1), the Commission shall take into account the recommendations of previous commissions established to inquire into the matter of remuneration in the public service.
- The respondent was an independent constitutional commission established under article 230(1) of the Constitution. Its mandate as provided for in article 230(4) of the Constitution was to set and regularly review remuneration and benefits of all state officers and to advise the national and county governments on the remuneration and benefits of all other public officers. Article 230(5) gave considerations for which the respondent should take into account when setting and reviewing remuneration and allowances or giving advice on the same. The respondent had to ensure that the total public compensation bill was fiscally sustainable; recognized productivity and performance as well as transparency and accountability.
- The mandate of the respondent was reinforced by sections 11 and 12 of the Salaries and Remuneration Act (the Act), 2011 which emphasized the respondent’s constitutional mandate. It was clear from the reading of the Constitution and statute that the respondent’s mandate was to set and regularly review remuneration and benefits for all state officers and to advise national and county governments on the remuneration and benefits forall other public officers.
- Deputy governors were state officers and article 260 of the Constitution stated as much. Even if they were not, that would still not matter because the respondent had either to set and regularly review their remuneration and benefits or advice on the same. However, unlike in the case of public officers where the respondent’s mandate was to advice, in the case of state officers, the respondent was required to set and regularly review their remuneration and benefits.
- The word “set” was defined in the Oxford English Dictionary 12th Edition to mean “put, lay or stand in a specified place or position”, while the same dictionary defined the word “review”to mean “formal assessment of something with the intention of instituting change if necessary.” Remunerate” was defined to mean “pay for services rendered or work done” and “benefit” meant “a payment made by the state to someone entitled to receive it.”
- Taken in that context, therefore, remuneration meant payment for services rendered or work done (salary) while benefit meant the allowance paid by the state to state officers and public officers. In that regard, the Constitution and the law required the respondent to fix salaries and allowances of all state officers and periodically assess them with a view to instituting changes if necessary. In conducting that exercise, whether of setting or reviewing remuneration and benefits, the respondent did not have to exclude deputy governors who as state officers were entitled to remuneration and benefits.
- A literal reading of the Constitution and the law did not seem to give the respondent mandate to confer a benefit to state officers because the words “set” and “review”as used in the Constitution were not synonymous with grant or confer and, therefore, the respondent could not decide that deputy governors who were state officers should for whatever reason not get housing allowance unless of course they were housed. Under the Constitution and the Act the respondent’s obligation was to set the level of remuneration and benefits for state officers taking into account the factors set out in article 230(5) of the Constitution and section 12 of the Act.
- The respondent seemed to suggest that because deputy governors had no specific roles, they had not been given housing benefit and that the respondent was awaiting some legal reform to assign deputy governors roles before it could decide on that issue. The respondent also contended that following job evaluation, deputy governors did not have much to do unlike other county officials such as Speaker of the County Assembly. What could be inferred from that view was that, it formed the basis for the respondent’s failure to set housing allowance for deputy governors.
- The respondent had not set and reviewed housing allowance for deputy governors. That amounted to differential treatment accorded to deputy governors compared not only to other state officers but also public officers.
- Article 230(4) (a) of the Constitution required the respondent to set and regularly review remuneration and benefits for “all state officers.” Deputy governors as state officers were entitled to remuneration and benefits which should be regularly reviewed by the respondent. The respondent was not required to advise on their remuneration and benefits as was the case with public officers neither did it grant such benefits. The obligation was to set them and once benefits were set, they had to be regularly reviewed together with remuneration which the respondent seemed not to have done in the case of deputy governors. The respondent blamed that on lack of clarity with regard to the role of deputy governors .That was not the fault of deputy governors and could not therefore be used to their disadvantage.
- Article 1(a) of the Convention Concerning Discrimination in Respect of Employment and Occupation(1958), defined “discrimination” as “any distinction, exclusion or preference made on the basis of race, colour ,sex, religion, political opinion, national extraction or social origin which had the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation.” From that definition, discrimination was such conduct that subjected a person to unfair, unreasonable and unjustifiable differential treatment based on any of the prohibited considerations including position or class.
- The Constitutional Court of South Africa had laid down considerations that should be taken into account in determining whether the conduct complained of amounted to discrimination. The first step was to establish whether the respondent’s policy differentiated between people. The second step entailed establishing whether that differentiation amounted to discrimination. The third step involved determining whether the discrimination was unfair. If the discrimination was based on any of the listed grounds in section 9 of the South African Constitution, it was presumed to be unfair. Where discrimination was alleged on an arbitrary ground, the burden was on the complainant to prove that the conduct complained of was not rational, that it amounted to discrimination and that the discrimination was unfair.
- Applying the above test to the instant petition, there was no doubt that deputy governors, though state officers, had been left out in so far as housing benefit was concerned. No reasonable objective and acceptable justification for that differential treatment had been given. Housing allowance was not the same as remuneration which should be pegged on the level of performance. Housing allowance was a benefit a state officer was entitled to where the state as an employer did not provide a house to the officer.
- Failure to assign specific duties to deputy governors coupled with lack of legislation on their duties could not be used to the deputy governors’ disadvantage. It was not their fault that the law may not have prescribed in detail their daily duties. That notwithstanding, the law was clear though, that deputy governors were principal assistants to governors and assisted governors in the running of county affairs. From the constitutional perspective, they were entitled to remuneration and benefits which should include housing allowance to be regularly reviewed by the respondent. If the respondent were to maintain that it set deputy governors’ housing benefit, it had failed to demonstrate that it indeed did so and that it had regularly reviewed it as required by the Constitution and the law. That was also clear from its pleadings and submissions.
- It had been deposed and submitted on behalf of the petitioner that deputy governors had domestic staff who got house allowance to demonstrate the level of differential treatment deputy governors had been subjected to. The respondent had not rebutted that deposition and submission. If that was true, there could be no more unreasonable, unjustifiable and unfair differential treatment deputy governors had been subjected to than in the instant case .It was a classic case of unfair discrimination that article 27(5) of the Constitution prohibited.
- It was a clear violation of fundamental rights in the Bill of Rights to subject deputy governors, state officers, to that form of unfair discrimination. Therefore, the petitioner had a genuine complaint against the respondent in the manner the respondent had treated deputy governors even when compared to their own domestic staff. Denying deputy governors housing benefit could not on its own make the national wage bill sustainable.
- The respondent had not discharged its mandate as required of it by the Constitution and statute with regard to deputy governors’ housing benefit. The respondent had given deputy governors a cold shoulder and disregarded their status as state officers by subjecting them to unreasonable differential treatment in violation of the Constitution. To that extent, the petitioner was entitled to a declaration of mandamus as prayed for.
- Where the court was satisfied that a petitioner’s concerns were not an illusion, it was enjoined by article 23(1) of the Constitution to grant an appropriate relief to remedy the situation. An appropriate relief should be one that would not only protect, but also enforce the Constitution. Depending on the circumstances of the case, reliefs could range from a declaration of rights, an order of mandamus or such other relief that may be required to ensure that rights enshrined in the Constitution were protected and enforced. If it was necessary to do so, the Court could even fashion a new remedy to secure the protection and enforcement of the rights. In other words, an appropriate remedy meant an effective remedy.
- The respondent had also raised the issue of the petitioner’s locus standi in filing the instant petition contending that the petition was unsustainable on that ground. That argument was not meriting time and space in the instant judgment given the architectural design of the Constitution on the issue of locus and taking into account section 19 of the Intergovernmental Relations Act, 2012 which established the petitioner.
- A declaration was issued that deputy county governors as state officers were entitled to a housing benefit.
- A declaration was issued that denying Deputy Governors housing Benefit was discriminatory, unjustifiably selective, and was contrary to article 27 of the Constitution.
- An order of Mandamus was issued compelling the respondent to set and regularly review housing benefit as one of the benefits due to County Deputy Governors.
- No order as to costs
||Court awards Kshs 32 million for unlawful termination of contract of employment
Evans Arthur Mukolwe v Attorney General & another  eKLR
Cause 431 of 2015
Employment and Labour Relations Court at Kisumu
M N Nduma, J
March 7, 2019
Reported by Kakai Toili
Evidence Law-expert witnesses-expert witness reports- forensic expert report on the authenticity of signatures- essential features-what were the essential features to be contained in a forensic expert report on the authenticity of signatures for it to have probative value
Labour Law-employment-contract of employment-contract of employment of the director of the Kenya wildlife Service-terms and conditions of service- reviewing of terms and conditions of service-who bore the responsibility of reviewing the terms and conditions of service of the director of the Kenya Wildlife Services
Labour Law-employment-contract of employment-termination of contract of employment-unlawful termination-where an employee’s contract was terminated without following due procedure-what were the entitlements of an employee whose contract of service was terminated unlawfully-whether an employee could be reinstated to his position 14 years after his contract of employment was unlawfully terminated
The claimant was appointed to the position of director of the 2nd respondent (KWS) by the President on October 3, 2003. The chairman of the Board of Trustees of KWS (the Board) issued the claimant with a letter of appointment with terms and conditions of service in which the claimant was to be paid a basic salary of Kshs 490,000, house allowance of Kshs 86,000 per month and any other terms stated therein. The claimant persistently pushed the Board through its chairman to review his remuneration in line with the higher salary and allowance he enjoyed in Geneva and on the basis that he had been promised equivalent remuneration on his new appointment in Kenya. The chairman wrote to the claimant on December 11, 2004 varying the claimant’s salary from Kshs 490,000 to Kshs 592,900 per month. The claimant averred that on June 24, 2004 and July 8, 2004, the chairman wrote to the him reviewing his terms and conditions of service.
The claimant was charged before the Trial Court on allegation of irregular payments of funds and was convicted. However, he was acquitted by the High Court on appeal. Subsequently, the claimant was suspended and his employment contract was terminated and was replaced on December 21, 2004. Aggrieved by the termination of the contract the claimant filed the instant suit. The chairman denied writing of the letter dated June 24, 2004 and July 8, 2004 reviewing the claimant’s salary upwards. KWS filed a counterclaim praying that the counter claim be granted and set-off against any award made in favour of the claimant.
- What were the essential features to be contained in a forensic expert report on the authenticity of signatures for it to have probative value?
- Who bore the responsibility of reviewing the terms and conditions of service of the director of the Kenya Wildlife Services?
- What were the entitlements of an employee whose contract of service was terminated unlawfully?
- Whether an employee could be reinstated to his position 14 years after his contract of employment was unlawfully terminated.
- The claimant was not charged with any disciplinary offences upon his suspension. He was not given a notice to show cause nor was he subjected to a disciplinary hearing. The claimant was not given a letter of termination but remained in limbo until he was replaced. It was long after the constructive termination that the claimant’s terminal benefits were processed but were not paid out to the claimant.
- The 2nd respondent did not call any witness from the parent ministry nor did the Court get any testimony from the Inspectorate of Parastatals on the alleged investigations of irregularities in management of KWS. The claimant having been acquitted of charges levelled against him by the High Court and there being no disciplinary hearing that took place at all against the claimant at the workplace, there was absolutely no evidence before the Court regarding any valid reason that led to the suspension and replacement of the claimant as director of KWS.
- KWS paid the claimant a salary in terms of the letter dated June 24, 2004 and back dated his salary to the date of appointment on October 3, 2003. KWS continued to pay the said terms and conditions of service to the claimant on a monthly basis until the end of October 2004, a period of over one year without questioning the authenticity of the letter of June 24, 2004. The amounts paid to the claimant were substantial and there was no explanation by any member of the Board who included the Permanent Secretary of the Ministry as to how those payments would have been done without approval of the Board.
- It was inconceivable that the human resource department and the finance department manned by competent officers would have sanctioned the payments to the claimant without knowledge internally that the Board through the chairman had approved the payments.
- The claimant was never charged with forging his letter of appointment and fraudulently obtaining salary from KWS. It was curious that the chairman of the Board never filed a complaint with the police that the claimant had forged his signatures and had granted himself new terms and conditions of service fraudulently. It was telling that the chairman of the Board was not involved at all in the investigations and the criminal proceedings conducted against the claimant. The issue of the letter dated June 24, 2004 being a forgery was an afterthought and could not be validly used to obtain from the claimant remuneration that had been granted to him by the chairman of the Board.
- The forensic evidence by RW1, a forensic expert, did not take the matter any further coming too late in the hour and on the face of an acquittal by the High Court of the criminal charges on purported irregularities committed by the claimant in the cause of his duties as the director of KWS. The lack of marked and demonstrated difference on the face of the comparison chart between the questioned signatures, the specimen signatures and known signatures by the forensic expert made the forensic report of no or little probative value indeed, and in addition to the lack of specified and marked differences, there was no narrative at all in the forensic report on the noted differences between questioned signatures, specific signatures and known signatures based on the testing parameters.
- KWS varied the terms and conditions of the claimant vide the letter dated June 24, 2004 and the claimant had proved that fact on a balance of probabilities. The respondent failed to rebut to the satisfaction of the Court the credible evidence adduced by the claimant. It was inconceivable that a high flier of the caliber of the claimant fresh from a very lucrative assignment in Geneva, sacrificed to honour a presidential appointment would bend low as to forge his own letter of appointment.
- The Board’s records produced by KWS and the letters by KWS showed that KWS was keen to review the terms and conditions of service of the claimant, who they considered underpaid and the Board did exactly that and the chairman communicated to the claimant on July 8, 2004 the new terms and conditions of service. KWS was frustrated by the delay by the Ministry to conclude the review of terms and conditions of service of the KWS director and the Board vide its chairman took it upon itself to exactly do that.
- The claimant was an employee of KWS and it was the Board that had the mandate to review his terms and conditions of service. The evasive conduct by the Board and failure to produce any minutes of the Board for the period March 2004 to November 2004 was explained by the heat generated by the investigations by the Ministry, the Inspectorate of Parastatals and the Ethics and Anti-Corruption Commission that had commenced. In the absence of any explanation from the Board, the Board was presumed to have taken to protecting itself and left the claimant to his own devices.
- The contract between the claimant and the 2nd respondent dated June 24, 2004 was valid. The claimant was therefore entitled to payment of the full remuneration stipulated in that document until the date he was removed from office and replaced. The claimant was paid full remuneration in terms of the letter dated June 24, 2004 up to and including October 30, 2010. The claimant was owed arrear salary for the months of November and December 2004 at the rate of Kshs. 1,099,000 per month in the sum of Kshs 2,198,000.
- The claimant’s employment was not terminated for a valid reason and the termination was not done in terms of a fair procedure. The claimant was entitled to termination notice of three months or payment in lieu of 3 months notice. That was not accorded to the claimant.
- In terms of the letter dated June 24, 2004, the claimant was entitled to gratuity calculated at 20% of the basic salary for the period served. The claimant had served from October 3, 2003 up to December 21, 2004, a period of one year and two months. In terms of the letter dated June 24, 2004, the claimant earned a basic salary of Kshs. 950,000 per month. The claimant was entitled to 20% of the salary earned for 14 months.
- If the contract itself provided for an exit clause and the same was terminated lawfully in terms of the said contract, then the employee was only entitled to payment equivalent to the notice period provided in the contract itself. However, if the court found that the contract of service was terminated unlawfully, as it was in the instant case, then the employee was entitled to general damages.
- It was more than 14 years since the claimant lost his job. His wish to be reinstated was not practicable and therefore could not be granted. KWS moved on and replaced the claimant on December 21, 2004. Several directors of KWS had been appointed and left the organization since then.
- The claimant had suffered great loss and damage as a result of the mistreatment he suffered at the hands of KWS and the Ministry. Accordingly, that was an appropriate case to award the claimant damages equivalent to the unserved term of the fixed term contract based on the doctrine of legitimate expectation. The Employment Act, 2007 had not been enacted at the time the cause of action arose. The award of damages in the case was purely based on the doctrine of legitimate expectation in common law where severe damage and loss had been occasioned and proved as a result of unlawful termination by the respondent.
- The claimant was at all material times paid house allowance to get a private residence for himself while he served as the director of KWS. Therefore, any amounts spent by KWS to furnish the claimant’s residence were a reimbursable expense incurred by the claimant. The claimant earned house allowance throughout the period he served as the director of KWS. The 2nd respondent paid Kshs 75,000 towards the rental payment of the claimant’s residence. That expense was subject to recovery from the house allowance.
- The claimant had a medical cover and was paid utility allowance of Kshs 20,000 a month for the entire period he served. Any amount paid by KWS on his behalf was a reimbursable expense and the 2nd respondent was entitled to recover the amount paid in respect of electricity bills since the amount was paid in arrears after the issue of the letter dated June 24, 2004. However, the medical bills of Kshs 732, 929 were incurred by the claimant prior to the provision of a medical cover to him, which facility was contained in the letter dated June 24, 2004. There was no way the cover would have been back dated to defray the already incurred medical bills by the claimant and his family.
Claim partly allowed, counter claim allowed
- The Court awarded the counter claim to the 2nd respondent as against the claimant as follows:
- Kshs 2,500,000 salary advance
- Kshs 662,300 for purchase of carpets and curtains.
- Kshs. 136,137 for electricity bills paid and
- Kshs. 75,000 for rent paid. Total award to the 2nd respondent – Kshs 3,373,437.
- The said sum was to be offset against the award made to the claimant.
- Judgment entered in favour of the claimant as against the respondents as follows:
- Kshs. 24,178,000 in damages
- Three (3) months’ salary in lieu of notice Kshs. 3,264,000.
- Gratuity for served term at 20% Kshs 2,660,000.
- Two months Arrear Salary – Kshs 2,198,000/= Total award – Kshs. 32,300,000 less counter claim (3,373,437), Net award Kshs 28,926,563.
- Interest on (a) above at court rates from date of judgment and from date of filing suit in respect of (b) (c) and (d).
- Respondent to pay half (1/2) the costs of the suit.
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The Kenya Law Team
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