Colonial Insurance Agents Association v BSP Life (Fiji) Ltd [2011] FJHC 410; HBC479.2006 (29 July 2011)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

ACTION NO. HBC. 479 OF 2006

BETWEEN:

COLONIAL INSURANCE AGENTS ASSOCIATION
First Plaintiff

AND:

MIKAELE RADRODRO
Second Plaintiff

AND:

BSP LIFE (Fiji) LIMITED (formerly Colonial Fiji Life Limited)
First Defendant

AND:

FIJI NATIONAL PROVIDENT FUND BOARD
Second Defendant

Mr A.K Singh for the Plaintiffs
Mr J Apted for the First Defendant
Ms R. Devan for the Second Defendant

JUDGMENT

This action relates to a decision taken by the First Defendant to reduce commission rates payable to the members of the First Plaintiff and the Second Plaintiff (the Plaintiffs). The reduction in commission rates was in response to the 2005 amendments to the Fiji National Provident Fund Act (the FNPF Act) whereby commission payments to independent contractors were deemed to be wages. As a result those payments became subject to contributions to the Fund for the benefit of the Plaintiffs who, as a result of the amendments, were also classified as employees. The Plaintiffs claim that the decision constituted a breach of a statutory duty and could not be justified as a valid exercise of an express contractual management right to revise commission rates when it deemed it appropriate to do so.

The proceedings were commenced by Originating Summons filed on 31 October 2006 by the First Plaintiff against the First Defendant. An amended Originating Summons was filed on 20 August 2007 pursuant to leave granted by the Master on 15 August 2007. By that time the Second Plaintiff and the Second Defendant had been joined as parties to the proceedings.

Pursuant to directions given by the Court during the course of the hearing the Plaintiffs filed on 8 June 2011 a further amended Originating Summons the principal purpose of which was to set out the amended relief claimed by the Plaintiffs. It is appropriate to set out in full the relief (as amended) claimed by the Plaintiffs:

"1] A Declaration that the 1st Defendant as employer within the meaning of the Act, is under a mandatory legal obligation as the employer to contribute to the Fund in respect of each and every member of the 1st Plaintiff and the 2nd Plaintiff and the 2nd Defendant to take all legal and appropriate steps to enforce the Act.

2] A Declaration that the purported exercise of the contractual right of the 1st Defendant under the written agreement to reduce the compensation of the members of the 1st Plaintiff and the 2nd Plaintiff on the coming into force of the FNPF Amendment Act represents for the purposes of the Act a deduction from the wages of the Sales Representatives an amount greater than that permitted under the Act; and constitutes a breach of sub-section 13 (2) of the Act.

3] A further Declaration that under the provision of the Act, it is not lawful for the 1st Defendant as an employer to unilaterally reduce the compensation payable to the members of the 1st Plaintiff and 2nd Plaintiff with the effect thereby to recover more than fifty per cent (50%) of the minimum contribution from the employees, that is, the members of the 1st Plaintiff and the 2nd Plaintiff.

4] Further, and for the removal of doubt, a Declaration that the 1st Defendant is not permitted by law, notwithstanding any provision to the contrary in the written agreement to reduce the compensation payable to the Plaintiffs so as to recover more than fifty per cent (50%) of its contribution to the Fund from the members of the 1st Plaintiff and the 2nd Plaintiff.

5] A Declaration that the 1st Defendant's intention to recover one hundred per cent (100%) of the contribution to the Fund from the members of the 1st Plaintiff and the 2nd Plaintiff is contrary to law and in contravention of the Act.

6] A Declaration that that 1st Defendant's failure to contribute to the Fund since the Act came into effect in respect of members of the 1st Plaintiff and 2nd Plaintiff under the provisions of the Act constitutes a contravention of the Act.

7] A mandatory injunction directed against the 1st Defendant compelling the 1st Defendant to make the appropriate sixteen per cent (16%) in a complete dollar of the employees' commission payment to the Fund from the date of coming into force of the Act and the 2nd Defendant do take appropriate legal steps to implement the provision of the Act.

8] An Order to restrain the 1st Defendant whether by its servants or agent or howsoever from deducting and or reducing the 1st plaintiff's members or the 2nd Plaintiff's commission or benefit under the written agreement to an amount exceeding fifty per cent (50%) of the 1st Defendant's minimum contribution to the Fund.

9] For damages to be summarily assessed for or an Order for assessment of damages for the default or dereliction of the statutory obligation of the 1st Defendant to make statutory contribution of the superannuation to the 2nd Defendant in respect of members of the 1st Plaintiff and the 2nd Plaintiff.

10] Costs on a full indemnity basis."

In support of the claim the First Plaintiff filed an affidavit sworn by Mikaele J Radrodro on 24 October 2006. An answering affidavit sworn by Vandhana Narayan on 5 February 2007 was filed on behalf of the First Defendant. The First Plaintiff filed a reply affidavit sworn by Mikaele J Radrodro on 12 February 2007. A supplementary affidavit in support sworn by Mikaele J Radrodro on 23 February 2007 was filed with leave by the First Plaintiff. Having been joined as a party the Second Defendant filed an answering affidavit sworn by Valentine Low on 7 June 2007. The First Defendant filed with leave a supplementary affidavit sworn by Vandhana Narayan on 12 October 2007. The Second Defendant filed with leave a further answering affidavit sworn by Praven Chand Dayal on 25 June 2008. The Second Plaintiff filed a supplementary affidavit on 15 July 2008 pursuant to leave granted on 9 July 2008.

The hearing of submissions had initially been fixed for 30 April 2009. It subsequently became necessary to vacate that date. The parties had filed written submissions and eventually presented oral submissions to the Court on 7 June 2011.

At the commencement of the hearing four documents were admitted into evidence. Exhibit 1 was the Certificate of Registration of the First Plaintiff as an Industrial Association under the Industrial Associations Act Cap 95. Exhibit 2 was a copy of the constitution of the First Plaintiff. Exhibit 3 was a copy of the Certificate of Change of Name of the First Defendant. Exhibit 4 was a copy official receipt in the sum of $203,973.99 from the Second Defendant made out to the First Defendant.

The First Plaintiff is an industrial association registered under the Industrial Associations Act Cap 95. The Second Plaintiff is an insurance agent of the First Defendant. He is the General Secretary of the Association. He brings the action on his own behalf. The application for his joinder as Second Plaintiff was made on the basis that he was the representative for insurance agents of the First Defendant who are members of the First Plaintiff. However there was no material before the Court to establish the representative capacity of the Second Plaintiff.

The First Defendant is a registered company and carries on business in Fiji as a health and life insurer. It sells such policies through insurance agents whom it calls "sales representatives" and "district sales managers". They are engaged on individual contracts for service and as such are more accurately classified as independent contractors. They shall be referred to as "insurance agents".

The Second Defendant was initially named as the Fiji National Provident Fund. As a result of a submission from Counsel for the First Defendant the name of the Second Defendant was by consent formally amended to Fiji National Provident Fund Board. This amendment enabled the proper legal entity to be named as Second Defendant in accordance with section 4 of the FNPF Act.

Under the FNPF Act a fund is established into which is paid all contributions required to be made under the Act and, from which is met all payments required to be made under the Act. The Board is the trustee of the Fund and as such has been invested with special powers of investment that are wider than the powers of investment of ordinary trustees.

A convenient starting point for a consideration of the background to the present proceedings is 1 January 1999. From that date insurance agents of the First Defendant each entered into a "Sales Representative Agreement" (the agreement). A copy of the standard version of the agreement was annexed as P1 to the Second Plaintiff's affidavit sworn on 24 October 2006. Clause 28 of the agreement states:

"The Sales Representative shall act as an independent contractor and nothing herein contained shall be construed to create between the Company and the Sales Representative the relationship of employer and employee, partnership, joint venture or otherwise".

It was accepted by the parties that any reference in the agreement to "sales representative" was to be taken as applying to the term "insurance agent".

In Fiji National Provident Fund –v- Colonial Fiji Life Limited (unreported civil action No. 24 of 2003 delivered 13 March 2006) (the FNPF case) the High Court held that the agreement was an agreement for service and that as such each insurance agent had the rights and obligations of an independent contractor with the First Defendant.

In 2003 when the above mentioned action (action No 24 of 2003) was commenced the Second Defendant required contributions to be made by an employer who engaged employees under contracts of service. An employer who engaged a person under a contract for service as an independent contractor was not required to make a contribution to the Fund in respect of contractual payments made to the independent contractor.

As a result the First Defendant had from 1 January 1999 ceased to make any payment to the Fund in respect of contractual payments made to insurance agents all of whom from that date had been engaged pursuant to a standard agreement. The High Court decision (supra) had found in favour of the First Defendant's claim that the agreement was a contract for service and that insurance agents were independent contractors. As a result the decision by the First Defendant to discontinue contributions after 1 January 1999 had been vindicated. The First Defendant was not required to make contributions to the Fund in respect of insurance agents engaged as independent contractors under the standard agreement.

In 2005 Parliament passed the Fiji National Provident Fund (Amendment) Act. Section 2(a), (b) and (d) of that Act came into force on 1 July 2006 and had the effect of overturning the decision of the High Court in the FNPF case (supra). Section 2(a) of the 2005 Act amended the definition of employee in the principal Act so as to include a person "engaged under a contract for service or as an agent remunerated wholly or partly by commission". Section 2 (b) of the amending Act also amended the definition of employer in the principal Act so as to include those who employ persons under contracts for service and agents remunerated wholly or partly by commission. Section 2(d) of the amending Act repealed the definition of wages in the principal Act and replaced it with a definition which included:

"all emoluments including allowances and commission which would be due in money to any employee under his contract of service or for services or as an agent ...".

As a result of these amendments the First Defendant became liable to make payments to the Fund in respect of commission paid to its insurance agents pursuant to section 13 of the FNPF Act. So far as is relevant section 13 states:

(1) Every employer shall pay to the Fund in respect of each of his employees ... a contribution calculated upon the amount of wages payable to such employee by such employer for the preceding month at the appropriate rates set out in the Second Schedule:

Provided that:

(a) ...

(b)...

(c) (i) and (ii)...

(2) Notwithstanding the provisions of any Act or any contract to the contrary, an employer who pays a contribution in respect of any employee in accordance with the provisions of sub section (1) shall be entitled to recover from the wages of such employee, and not otherwise, the portion of such contribution shown in the Second Schedule to be so recoverable:

Provided that no such portion may be recovered by the employer in any manner other than by deduction from the wages in respect of which the contribution is calculated at the time those wages are payable

(3) ...

(4) Notwithstanding any contract to the contrary, an employer shall not be entitled to recover in any way from an employee, in respect of a contribution payable under the provisions of this Act, any sum in excess of that permitted to be recovered under the provisions of subsection (2)."

The Second Schedule (as amended in 1998) prescribes that an amount of 16 cents in each dollar calculated on the basis of the previous month's wage payable under the contract to the employee is to be paid to the Fund. Under the same Schedule an employer is permitted to recover one half of the contribution from the actual wages payable under the contract for the previous month and upon which the amount of the contribution was required to be calculated.

As from 1 July 2006 the First Defendant was required to pay to the Second Defendant 16 cents in every dollar of commission payable to each insurance agent in the preceding month. The First Defendant was then entitled to deduct 8 cents in every dollar of commission payable for the previous month and upon which amount the contribution had been calculated.

The net result was that, if the status quo prevailed, the First Defendant's labour costs would increase by 8 cents in every dollar of commission payable to each insurance agent under the agreement. Alternatively, each insurance agent in effect would receive an 8% increase in the total compensation package.

It would appear that the rates of commission (or compensation) stipulated in the schedule to each insurance agent's agreement after 1 January 1999 had been calculated so as to take account of the changed status of an insurance agent from employee to independent contractor. Prior to 1 January 1999 insurance agents had been engaged as if they were employees and the First Defendant had made contributions to the Fund in accordance with section 13 of the Act.

It was submitted that the commission (or compensation) payable under the individual contracts for service entered into after 1 January 1999 reflected the saving that resulted from not being required to make contributions to the Fund.

As a result of the 2005 amendment to the FNPF Act the First Defendant sought to adjust the commission rates applicable to insurance agents pursuant to clause 8 of the agreement which provided:

"The full compensation of the sales representatives shall be payable at rates set forth and under the conditions stipulated in the Compensation Schedule attached hereto and such other compensation provided therein. The Company reserves the right to revise the Compensation Schedule and/or other forms of compensation herein provided at any time it deems such revision appropriate, providing 30 days notice in writing is given to the Sales Representative."

The First Defendant's proposal was outlined in a circular dated 2 August 2005 from the Managing Director of Colonial Fiji sent to all insurance agents. The circular was directly concerned with the amendments to the FNPF Act and amongst other things, informed insurance agents that:

"...

From 1 July 2006 the legislation requires that commission income ... will be subject to FNPF contributions. ...

The contracts for Sales Agents ... introduced in 1999 were set up to ensure that Agents ... were legally independent contractors. Levels of commission ... were set having regard for the legal and other professional advice Colonial received that FNPF contributions would not be payable under FNPF legislation as it was at the time (i.e. Commission levels were set higher than would have applied if FNPF had been payable on this income in the same way that it is applied to wages and salaries).

This means of course that we will now have to review the way in which we apply Commission – related income ....

We do not wish to increase the very substantial costs of sale of our Life, Health and Investment products sold by our Sales Force. Rather we must maintain our distribution costs at approximately the same levels as apply now. Therefore, when the new legislation becomes effective the payment of commission and related income will be modified so that 16% of payments will go to FNPF to meet the requirements of the new legislation. As such, commission and related income will not be reduced but some will be compulsorily put aside for your retirement.

...."

The First Defendant could have kept its operating costs at the same level by reducing the number of insurance agents pursuant to clause 26 (a) of the agreement.

In a letter dated 31 May 2006 the General Manager – Distribution and Marketing provided further details of the changes that the First Defendant proposed to make to the remuneration arrangements that applied to insurance agents.

"The purpose of this communication is to officially inform you of the change in the commission structure and Provident Fund ("in-house superannuation scheme") provisions ... as required by clause 8 of (the) contract.

The change is a direct result of changes in superannuation requirements brought about by the Fiji National Provident Fund (Amendment) Act 2005 (the Act)

As you would be aware, under your existing contract with Colonial, FNPF contributions are not paid on commission and any other income.

The Act states that FNPF contributions must now be paid on all commission and other income payable to contractors, such as Colonial Sales Representatives, from 1st July 2006.

As has been stated before on this matter, the current commission structure, established in 1999, was set at a higher level than would have applied if FNPF had been payable in the same way that it is applied to salaries and wages.

Therefore recognising that the Act is to be effective from 1st July 2006, the calculation and payment of commission will be modified to reflect the statutory requirements imposed on Colonial.

As a result, the commission structure for Life Products will change as follows:

[existing and new commission rates were listed in respect of six categories. The reduction in each case was 7.4%]

....

Upon implementation of the Act the in-house superannuation scheme shall cease.

...".

The implementation date in respect of that part of the 2005 amendments requiring FNPF contributions to be made on commission payments was the subject of negotiations between the Defendants. It would appear that the Defendants could not agree and ultimately the First Defendant was required to pay contributions backdated to 1 July 2006 without being able to make deductions. In any event the proposed reductions in commission rates did not take effect until 16 February 2007. During this period correspondence passed between the Second Plaintiff on behalf of the First Plaintiff and the First Defendant concerning this issue and other unrelated contractual issues.

In a letter dated 3 July 2006 from Laurie Mellsop the First Defendant's Managing Director addressed to the Second Plaintiff the position of the First Defendant was stated:

"...

The commission structure under the contract has been recently amended to accommodate the provisions set out under the Fiji National Provident Fund (Amendment) Act 2005 (the Act). The amendments, which have been made in accordance with the terms of the Contract shall come into effect upon the implementation of the Act. ...

These amendments do not take away commission from the Sales Representatives and merely reflect that part of the commission they currently receive will now be directed through the Fiji National Provident Fund."

The deductions that had been foreshadowed in the letter dated 31 May 2006 were the same as the deductions implemented by the First Defendant with effect from 16 February 2007. (See affidavit of Vandhana Narayan sworn 16 October 2007 at paragraph 7).

The parties have filed detailed and comprehensive written submissions. Counsel indicated at the hearing that they intended to rely on their written submissions and then proceeded to address the Court on the essential nature of the dispute to which reference has been made earlier in this decision.

At the hearing Counsel for the First Defendant indicated that the challenge to the standing of the First Plaintiff to represent insurance agents was withdrawn. There did remain however the issue as to which insurance agents were members of the Association and as a result were being represented by the Association. Although not addressed by the Plaintiffs, it may well be that in the event of an outcome that is favourable to the Plaintiffs, the benefit will ultimately flow to all the insurance agents whether as a result of subsequent court proceedings or as a result of the First Defendant accepting the reality of the situation.

The Plaintiffs submitted that clause 8 of the agreement cannot be invoked by the First Defendant in order to reduce the compensation payable to insurance agents for the purpose of meeting obligations under the FNPF Act.

The Plaintiffs also submitted that the reduction in commission rates was in breach of section 13 of the FNPF Act. It was claimed that under the section primary responsibility and liability for making contributions to the fund on behalf of employees rested with the First Defendant as employer. They then contended that by reducing commission rates the First Defendant was passing its obligations and responsibility to the insurance agents which was contrary to section 13 of the FNPF Act.

The Plaintiffs submitted that the material before the Court left no doubt that the reason why commission rates were reduced was to "factor in the extra cost" that resulted from the amendments to the FNPF Act.

The Plaintiffs submitted that the reality is that the First Defendant has reduced commission rates payable to insurance agents (by 7.4%). On the revised lower payments 16% is paid into the Fund and then 8% is deducted as the "employees" (section 13) contribution which is permitted under the schedule to the Act. It is claimed that the First Defendant has wrongfully reduced commission rates to cover the cost of its own compulsory contribution to the fund in respect of each of its insurance agents as employees. It is also claimed that by not making a 16% payment on the higher commission rates, the First Defendant has paid less than it should have to the fund in respect of each employee.

The First Defendant's submission in effect starts at paragraph 5.1 of the written submissions. The first issue raised by the First Defendant concerns the capacity of both Plaintiffs. As noted earlier Counsel for the First Defendant indicated to the Court that the challenge to the First Plaintiff's capacity was not proceeding and the capacity of the Second Plaintiff has now been admitted.

The First Defendant challenges the standing of the Plaintiffs and contends that the material does not give rise to a cause of action to either of the Plaintiffs.

The First Defendant submitted that the relief claimed by the Plaintiffs in respect of the reduction in commission rates can be grouped into two issues.

The first issue is whether the Plaintiffs can bring proceedings to compel the First Defendant to pay FNPF contributions or to compel the Second Defendant to take steps to recover those contributions.

The second issue is whether the Plaintiffs are entitled to a declaration that the First Defendant was not permitted to reduce the commission payable to insurance agents with effect from 16 February 2007.

The First Defendant submitted that the Plaintiffs have neither standing nor a cause of action in respect of these two issues and that as a result the relief sought in the amended originating summons should be refused.

In respect of the first issue the First Defendant submitted that there is a clear intention in the FNPF Act that proceedings in respect of any breach of the Act can only be commenced by or on behalf of the Board and that it was not intended that there should be a separate cause of action for breach of statutory duty available to an aggrieved person. It is submitted that the scheme of the FNPF Act is to provide an exclusive right for proceedings to be commenced by or on behalf of the Board and to exclude a cause of action for breach of statutory duty commenced by a third party. Counsel submitted that as a result the Plaintiffs have no standing to commence proceedings in respect of any unpaid contributions.

In relation to the second issue the First Defendant relies on its submissions concerning standing and again submitted that the intention of the FNPF Act is that the Board has exclusive standing to bring civil and criminal proceedings in respect of any wrongful deductions from employees wages made in purported compliance with the Act.

The First Defendant also submitted that the Act neither expressly nor impliedly prevents the First Defendant reducing wages, especially by way of a contractual right, to reduce the incidence of FNPF contributions. It submitted that it is not the purpose of the Act to guarantee a level of wages. The Act only requires that, whatever the level of wages for any given month, the employer should contribute 16 cents in the dollar to the Fund and deduct up to a maximum of 8 cents in the dollar from the employee's wages at the same time.

The justification for the reduction in commission rates is set out in paragraph 5.75 of the submissions and can be read in a manner that is consistent with the aim of the reduction as expressed by the General Manager in his correspondence reference to which has already been made. The submissions state that the reduction was "for bona fide business reasons in exercise of an agreed contractual right". This is often referred to as a management right and in certain circumstances may be exercised even in the absence of an express clause in the contract.

The First Defendant submitted that it was entitled to take into account superannuation contributions in determining remuneration levels and hence commission rates. They are a cost to the employer and are part of running a business. In support of its submission the First Defendant relied on the decision of the Court of Appeal in Hudson and Others –v- H M Treasury and Another (unreported Civil Appeal 0594 of 2003 delivered 18 November 2003).

The written submissions filed by the Second Defendant did not address these issues. Instead, the Second Defendant's submissions related to the principle of estoppel and its application to the obligations of the First Defendant under the FNPF Act. The matter was not raised before the Court at the hearing and it is not necessary to comment further on the issue.

Before considering the issues raised by the parties in their written and oral presentations it is appropriate at this stage to examine the factual situation that has been the trigger for these proceedings.

It appears not to be disputed that the reduction in commission rates came into effect on and from 16 February 2007. It would appear that from that date commission rates were reduced by about 7.4%. Because there were unresolved issues between the First and Second Defendants, the First Defendant was required to make lump sum payments in respect of its obligation to make 16% contribution for its employees from 1 July 2006 to 15 February 2007. It was not able to make the 8% deduction from its employees wages in respect of those contributions due to the statute imposed limitation on the right to make deductions in respect of contributions to the Fund.

However, the scheme of the Act as amended provided that had contributions been paid as required on time then deductions could have been made in the period prior to 16 February 2007.

For example, assume that up to 15 February 2007 an insurance agent earned a commission of $100.00 for a given month. Under the Act, the First Defendant would have been required to make a contribution of $16.00 to the Fund in respect of that employee. This would have the immediate result of increasing that employee's total compensation package to $116.00 per month. However, at the same time the First Defendant could deduct $8.00 from the employee's commission payment. The result would be that the employee's total compensation package for the month would be $108.00. The amount actually received as cash in hand for the month would be $92.00. The employer incurred an additional cost to the running of the business in the sum of $8.00 and the employee received $8.00 less in his take home pay. In any event the total of $16.00 was credited to the employee's account with the Fund.

With effect from 16 February 2007 the commission payment to the same employee was reduced to $92.60 (being a reduction of 7.4% or 92.6% of the previous commission payment of $100). On this reduced commission payment the employer was required to contribute 16% being $14.80 to the Fund on behalf of the employee. This would have the immediate effect of increasing that employee's total compensation package to $107.40 per month. At the same time the employer was entitled to deduct $7.40 from the insurance agent's commission. Once again the employer has incurred an additional labour cost of $7.40 in terms of its contribution to the Fund for the benefit of the employee. The total compensation package now becomes $100.00 being $7.40 representing the employer's contribution and $92.60 being the now reduced commission payment. However the sum of $92.60 is further reduced by $7.40 as a result of the deduction allowed under the Act. The result is that the employee receives in take home pay a sum of $85.20.

In summary, up to 15 February 2007 an insurance agent earning $100.00 per month would benefit by a $16.00 contribution payment to the Fund by the employer. The employee would have deducted $8.00 from his commission of $100.00 leaving a take home pay of $92.00. The employer contributed $8.00 and the employee contributed $8.00. His total compensation package was worth $108.00. From 16 February 2007 the same employer would benefit by a $14.80 contribution paid to the Fund paid by the employer. The employee would have deducted $7.40 from his commission of $92.60 leaving a take home pay of $85.20. The employer has contributed $7.40 and the employee has also contributed $7.40. The total compensation package is now worth $100.00. The reduction in take home pay is $6.80. The reduction in FNPF contributions is $1.20.

The first issue requiring consideration relates to whether a common law action arises in respect of a breach of a statutory duty under the FNPF Act. To determine that issue it is necessary, in the first instance, to look to the construction of the Act. The construction of the Act is determined by its wording. The FNPF Act creates both criminal and civil remedies.

In respect of criminal proceedings sections 49 (1) and (2) prescribe specified breaches of the Act to be offences punishable on conviction by fines and/or imprisonment. In particular section 49 (1) (b) makes it an offence if any person fails to pay to the Fund in any month any amount which under section 13 (1) he is liable to pay in that month. Further section 49 (2) (b) makes it an offence if any person deducts from the wages of any employee any sum greater than that permitted to be recovered under the Act. Under section 49 (3) proceedings in respect of an offence may be commenced at any time within three years of the date of commission of the offence.

Under section 54 of the Act a prosecution for an offence may be commenced by the General Manager or by any authorised officer, servant or agent of the Board and may also be conducted by the General Manager or the same or another authorised officer servant or agent of the Board.

In respect of civil remedies, section 56 (1) of the Act provides that contributions payable under the Act may, without prejudice to any other remedy, be recoverable by the Board as a debt due. Section 56 (3) states that proceedings for the recovery of contributions as a civil debt may be instituted and conducted by the General Manager or by an authorised officer, servant or agent. Such proceedings for the recovery of contributions as a civil debt may be commenced at any time within 6 years from the date when the contribution became due.

There are provisions for commencing both criminal and civil proceedings in respect of a failure by an employer to make contributions to the Fund as and when they become due and payable.

However, it would appear that although section 49 (2) makes it an offence to make a deduction from the wages of an employee greater than that permitted by the Act, there is no civil remedy expressly provided in respect of such an occurrence. There is a simple explanation for the lack of a civil remedy being vested in the Second Defendant. The Second Defendant has no claim to the money. The deduction is not payable to the Second Defendant and any wrongful or excessive deduction is made from wages that would otherwise be due and payable to the employee.

Generally, a breach of a statutory duty does not, by itself, give rise to any private law cause of action. However, such a cause of action may arise if it can be established as a matter of construction of the Act that the statutory duty was imposed for the protection of a limited class of the public and that the legislature intended to confer on members of that class a private right of action for breach of the duty. In X (Minors) –v- Bedfordshire County Council [1995] UKHL 9; [1995] 2 AC 633 Lord Browne-Wilkinson at page 731 discussed the issue and concluded:

"There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action. .... However the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy ....

.... The cases where a private right of action for breach of statutory duty have been held to arise are all cases in which the statutory duty has been very limited and specific as opposed to general administrative functions imposed on public bodies and involving the exercise of administrative discretions."

In relation to contributions that are required to be made by the First Defendant to the Fund on behalf of its employees (insurance agents) the FNPF Act provides both a criminal and civil remedy for any breach of the obligation imposed by the Act. The remedies are set out in section 49 and section 56 of the Act. As a result, in my judgment, the intention of the FNPF Act is that there is no right to enforce the statutory obligation or to bring an action for a breach of that statutory obligation available by a private cause of action commenced by third parties such as the Plaintiffs. This conclusion is supported by section 57 of the Act which in effect makes provision for the recovery of any loss of benefit to the employee that results from the employer's breach of its statutory obligation to contribute to the Fund in the amount and at the time required by the Act. This conclusion is also consistent with the decision of this Court in Fiji National Provident Fund –v- Shri Datt (1988) 34 FLR 67.

So far as compelling the Second Defendant to take all legal and appropriate steps to enforce the Act, it is clear that on a proper construction of section 54, the legislature has given the Board a discretion to prosecute. Under those circumstances it is under a duty to investigate any complaint that may give rise to an offence under section 49. Having done so it has a discretion as to whether it should commence proceedings by way of a prosecution for an offence under section 49 and or for the recovering of a civil debt under section 56. There may be anyone of a number of reasons why the Second Defendant may decide not to commence proceedings. It may be that the Board considers the complaint to be frivolous or vexatious. It may be that the Board, on legal advice, does not consider that the complaint constitutes grounds for commencing proceedings or it may be that the issue has been the subject of legal proceedings in the past. Nevertheless the Board is required to exercise its discretion according to law otherwise it would be rendering nugatory a safeguard provided by the FNPF Act and thereby depriving employees of redress which the legislature intended them to have. There was no material before the Court that would enable the matter to be taken further.

In relation to a breach of the statutory obligation to make deductions from wages limited to the amount specified in the Second Schedule of the Act, there is provision for the imposition of a penalty by way of a fine and/or imprisonment but the Act is silent in relation to any civil remedy. Under such circumstances the general rule to be applied was unequivocally stated by Lord Diplock in Lonrho –v- Shell Petroleum Co Ltd (No 2) [1982] A.C. 173 to the effect that where a statute creates an obligation and enforces performance in a specified manner "that performance cannot be enforced in any other manner". Where the only manner of performance provided for by the statute is the criminal process there are two exceptions. At pages 185-186 Lord Diplock discussed these exceptions to the general rule and it is the first exception which is relevant to this case. The first exception is:

"Where on the true construction of the Act it is apparent that the obligation or prohibition was imposed for the benefit of a particular class of individuals."

In my judgment the purpose of the provision in the FNPF Act which in effect imposes an obligation on the employer to deduct no more than the amount specified in the Second Schedule is primarily to protect the interests of a defined class of persons of the general public being, in this case, employees as defined by the amended definition of the word in the 2005 Amendments. Although there exists a criminal sanction which would tend to point against a civil remedy, the only remedy available to an employee to recover the amount wrongly deducted from his wages by the employer would be a private action by way of civil proceedings.

The amount of the fine that a court will impose in respect of a breach of section 13 is limited to a fine not exceeding $1000.00 under section 49 (2). That remedy is of no assistance so far as the employee is concerned when it comes to recovering any amount wrongfully deducted from his wages in purported exercise of the duty under section 13 (2) of the Act. Although section 53 does enable a court to order restitution to the employee upon conviction of the employer, it does not follow that the employee should not be able to commence civil proceedings to recover the amount in the event of a not guilty verdict. The standards of proof are different.

As a result I have concluded that a civil cause of action may be commenced by an employee against an employer in respect of any loss suffered by the employee as a result of a breach by the employer of its statutory obligation imposed under section 13 (2) of the Act to limit deductions from wages to the amount specified in the Second Schedule and to make such deduction in the manner prescribed by the section.

The issue then is whether the First Defendant has beached its obligation to deduct from an employee's wage no more than the amount permitted under the statute. Section 13 (2) provides that in respect of any contribution paid to the Fund the employer may deduct from the same wages upon which the contribution was calculated the proportion that is stated in the Second Schedule.

So far as is relevant the Second Schedule states:

"... and the amount which may be recovered by the employer under the provisions of (section 13 (2) from the employee's wages for the preceding month shall be one half of such contribution."

The legislation therefore sets out the amount of the permitted deduction, the time at which it is permitted to be made and the method of calculation. The amount to be deducted is one half of the contribution. The deduction is to be made from the month's wage at the time the wages were payable. The deduction is to be made from the wages in respect of which the contribution was calculated.

In my judgment there was no material before the Court to indicate that the First Defendant was not complying with the requirements of section 13 (2) and the Second Schedule. Rightly or wrongly, the First Defendant announced that it intended to and did with effect from 16 February 2007 reduce commission rates by 7.4%. There was no evidence to suggest that from that date the First Defendant was deducting from the wage of its insurance agents more than one half of the contribution it had paid to the Fund for each employee.

The words used in section 13 (2) and in the Second Schedule are clear and unambiguous. There is no reason why they should not be given their plain ordinary meaning. There is imposed on the employer an obligation simply to make contributions on wages payable and to limit deductions from those wages in accordance with section 13 and the Second Schedule of the Act.

The remaining issue relates to the First Defendant's decision to reduce commission rates by 7.4% in order to offset the additional operating cost that resulted from the 2005 amendments to the FNPF Act. Certainly the First Defendant has at all times acknowledged that the reason for the reduction in the commission was to cover, approximately, the additional operating costs resulting from the requirement to make contributions to the Fund on behalf of its employees and as a result of being limited to recovering only one half of that contribution from the wages payable to employees.
The First Defendant relied on clause 8 of its agreement with each of its insurance agents. By that clause the First Defendant has a contractual right to revise the compensation schedule at any time when it deems such revision appropriate.

In my judgment, in the absence of a clause, such as clause 8 in the agreement, the First Defendant could not, no matter how legitimate its motives, unilaterally revise downwards rates of its insurance agents when the same agreement expressly specified the commission rates that were payable under the agreement.

The position taken by the First Defendant appears to be that it may revise commission rates whenever it deems it appropriate to do so and that it is a proper exercise of that right even if the object is to reduce the incidence of its contributions to the Fund. Underlying the First Defendant's submission appeared to be the proposition that this contractual right could be exercised at any time under any circumstances for any reason as long as the First Defendant deemed the revision appropriate. I have some reservations about the extent to which an employer may act in bad faith, in a discriminatory or in an arbitrary manner when purporting to exercise such a management right. However, this is not the case here. The justification for the exercise of its contractual management right is to avoid an increase in operating costs and hence the price of its product.

As noted earlier in this judgment the First Defendant referred the Court to the decision of Hudson and Others –v- H.M. Treasury and Another (supra). Upon a careful reading of the decision of the Court of Appeal, it is apparent that the decision can be distinguished from the present case.

In Hudson (supra) the Armed Forces Pension Scheme (the Scheme) was an unfunded scheme. There was no specific fund out of which pensions were paid. The pensions were in effect funded out of that part of general revenue allocated by Parliament. Furthermore the Scheme was a non-contributory scheme in the sense that there was no deduction made from an employee's gross salary in order to fund his pension.

In that case there was a claim made by former servicemen who had failed to qualify for a pension on the basis that they had not served for the required number of years. The Rules were subsequently changed and had they left the Forces after the changes having served the same number of years they would have been entitled to a deferred pension payable at the age of 60.

The claimants claimed that gross pay scales applicable to them at the time of their service in the Forces had been calculated and determined on the basis that a pension payable out of general revenue may be payable upon leaving the Forces. They claimed that as a result their pay scales were set at a lower level than would otherwise have been the case. The Court held that even if that had been established, the claimants had no entitlement of any kind to sums notionally deducted in deciding the appropriate level of gross pay (emphasis added). The Court of Appeal added at paragraph 70:

"The fact that an employer who sets the gross pay of his employees at levels lower than those which he might have decided upon had her not brought a particular factor of circumstance into account cannot possibly lead to the conclusion that the employees are entitled to the value of the deduction."

It was this quotation which the First Defendant submitted defeated the Plaintiffs' claim in the present case. However the Court's remarks in the Hudson case (supra) need to be considered in the context of the facts. In Hudson (supra) there was a non-funded and non-contributory scheme to which neither the employer nor the employee at any time made any contribution. In the present case there is a funded and contributory scheme established by legislation that requires the employer to make a net contribution of 8%.

Since there is no prohibition in the FNPF Act preventing an employer from reducing wages to offset increased operating costs incurred as a result of having to pay contributions to the Fund, the decision to exercise its management right under clause 8 was not contrary to the FNPF Act. I do not consider that section 13 (4) of the Act applies to the present case. In my judgment that section is intended to catch an agreement between the parties the effect of which would be to enable the employer to deduct an amount from the month's wages that was greater than that permitted under section 13 (2) and the Second Schedule.

In the "Amended Prayers and Relief" document which was reproduced in the Amended Originating Summons subsequently filed in the Court, the Plaintiffs sought six Declarations, one mandatory injunction, one prohibitory injunction, damages and costs.

As to the first Declaration it is sufficient to say that section 13 of the FNPF Act imposes a mandatory obligation on the part of the First Defendant to make contributions to the Fund in respect of the Plaintiffs. The enforcement of that obligation and remedies are vested in the Second Defendant and exercised in accordance with sections 49 (1) and section 56 of the Act. The reduction in commission rates is not prohibited under the FNPF Act. There is no evidence of fraud, deception or dishonesty.

In relation to the second Declaration, in my judgment the contributions paid and the deductions made by the First Defendant have been made in accordance with section 13 of the Act. The Declaration is refused.

In relation to the third Declaration the decision to reduce the compensation payable to the Plaintiffs so as to offset the cost of making a net contribution of 8% to the Fund is not prohibited by the Act since it does not follow that the First Defendant is deducting more than 50% from the monthly commission payments.

In relation to fourth Declaration, the First Defendant's decision to reduce commission rates does not constitute a breach of section 13 (2) of the Act.

In relation to fifth Declaration, the First Defendant's decision to reduce commission rates to offset its contribution to the Fund is not in contravention of section 13 of the Act.

The Court refuses these Declarations.

In relation to the sixth Declaration it is sufficient to say that jurisdiction to enforce an employer's obligation to make contributions in accordance with section 13 is vested in the Board under section 49 (1) and section 56 of the Act. Contributions have been made for the period 1 July 2006 to 15 February 2007 on the old commission rates and since 16 February 2007 on the revised commission rates.

The application for a mandatory injunction for the reasons stated in this judgment is refused. Contributions have been paid to the Fund on the commission rates since 1 July 2006.

The application for an injunction and for the reasons already stated, is refused.

In relation to relief (i) the Plaintiffs have claimed damages for breach of statutory duty as a cause of action in tort. For the reasons stated the cause of action is not available to the Plaintiffs as the criminal and civil remedies for a breach of section 13 in respect of contributions is vested only in the Board. The claim for damages is dismissed.

In view of the complex nature of the legal issues involved in these proceedings it is appropriate to order that each side should pay its own costs.

W D Calanchini
JUDGE

29 July 2011
At Suva