Moala v Samoa National Provident Fund [2010] WSSC 2 (11 February 2010)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN:

PAPALII PANOA TAVITA MOALA
of Ululoloa, Businessman.
Plaintiff

AND:

SAMOA NATIONAL PROVIDENT FUND
a statutory body established pursuant to the
National Provident Fund Act 1972.
Defendant

Counsel: R Drake for the plaintiff
S Leung Wai for the defendant

Hearing: 26 November and 2 December 2009
Judgment: 11 February 2010

JUDGMENT OF SAPOLU CJ

Introduction

1. In his statement of claim, the plaintiff pleads two causes of action against the defendant. The first cause of action relates to the interest to which the plaintiff was entitled on his National Provident Fund contributions for the financial year 2007/2008 at the time he withdrew those contributions. The second cause of action relates to the rate of interest the plaintiff has to pay under a loan agreement and deed of mortgage he has with the defendant.

2. After the hearing of the evidence and after both counsel for the plaintiff and the defendant had filed their written submissions, I met with counsel in chambers regarding the plaintiff’s second cause of action and the defences raised by the defendant against that cause of action. It appeared to me it was unnecessary for the plaintiff to proceed with his second cause of action in the face of the defences raised by the defendant. It also appeared to me that the plaintiff’s second cause of action was bound to fail in any event.

3. Counsel for the plaintiff was then granted the opportunity to consult with the plaintiff and obtain further instructions. Counsel for the defendant, however, opposed any leave being granted to the plaintiff to withdraw any part of his claim even though I indicated to counsel for the defendant that I do not see any injustice to the defendant if that were to happen, provided it is taken into account when determining costs.

4. When I met again with both counsel, after counsel for the plaintiff had obtained instructions from the plaintiff who had been overseas, I was informed that the plaintiff has decided to withdraw his second cause of action. Again counsel for the defendant opposed withdrawal. Because I still did not see any injustice to the defendant if the plaintiff was allowed to withdraw his second cause of action, provided the matter is taken into account when determining costs, I decided to grant leave to the plaintiff to withdraw his second cause of action.

5. I will, therefore, confine the remainder of this judgment to the plaintiff’s first cause of action. At the same time, I wish to acknowledge the well prepared submissions by Mr Leung Wai for the defendant against the plaintiff’s second cause of action which has been withdrawn.

Background

6. The plaintiff is the former chief executive officer of the National Provident Fund which is a statutory corporation established under the National Provident Act 1972 (hereinafter referred to as "the NPF"). The defendant is the NPF.

7. Except for a period of about twelve months from 1983 to 1984 when the plaintiff was employed in the Department of Agriculture, Forests and Fisheries, he had served for thirty three years in three different statutory corporations. From 1974 to 1983, the plaintiff was employed in the Development Bank of Samoa which is a statutory corporation. He was then employed in the Department of Agriculture, Forests and Fisheries for about twelve months from 1983 to 1984. From 1984 to 1997 he was the manager of the Agriculture Store Corporation which is another statutory corporation. From 1997 to 17 January 2008, he was the chief executive officer of the NPF. So of the thirty three years that the plaintiff had served in statutory corporations, he had held the top managerial positions in two of those statutory corporations for a total period of twenty four years. In a sense, it is perhaps unfortunate that at the end of the plaintiff’s long career in top managerial positions, this matter has come to Court.

8. As chief executive officer of the NPF, the plaintiff was also a contributor to the NPF or "the Fund" as the NPF is referred to in abbreviated form in the National Provident Fund Act 1972 (hereinafter referred to as "the Act"). As a contributor to the NPF, the plaintiff was a "member of the Fund" which expression is defined in the Act to mean "any person to whose credit any amount is standing in the Fund". The contributions paid in respect of a member of the Fund are credited to the member’s account with the Fund in the financial year during which the contributions were paid.

9. The "financial year" for the NPF, as defined in the Act, is a period of twelve months commencing from 1 July in any year and ending on 30 June in the following year. This is the same as the financial year for the government.

10. On 17 January 2008, the plaintiff’s service with the NPF ended because his employment contract came to an end. That was during the financial year commencing from 1 July 2007 and ending on 30 June 2008. The plaintiff was over 55 years of age at that time and was therefore eligible to withdraw his contributions to the Fund. So in March 2008, he requested the NPF’s management for the withdrawal of his contributions. However, he was advised to wait until the bonuses were paid out. The plaintiff did not then withdrew his contributions but waited until the bonuses were due.

11. Apart from the plaintiff’s normal contributions as an employee, the NPF pointed out that the plaintiff had also made three lump sum contributions. The first such lump sum contribution was made on 10 December 2007 for $45,000 while the plaintiff was still the chief executive officer of the NPF. On 12 February 2008, the plaintiff made a second lump sum contribution of $55,000 after he ended his service with the NPF on 17 January 2008. And on 18 March 2008, the plaintiff made a third lump sum contribution of $100,000.

12. Up to 30 June 2008, which was the end of the financial year commencing from 1 July 2007 and ending on 30 June 2008, the plaintiff had not withdrawn his contributions because of the bonus he was waiting for. Then on 9 July 2008, the plaintiff withdrew his contributions after being given the necessary authority by the board of the NPF to do so. This was in the financial year 2008/2009 which commenced on 1 July 2008 and ended on 30 June 2009.

The relevant provisions of the National Provident Fund Act 1972

13. The relevant provisions of the Act for the purposes of this case are ss.9, 14, 22 and 25. Section 9 provides for the rate of interest to be declared by the board of the NPF to be payable on contributions by members of the Fund in a particular financial year. As far as relevant, s.9 provides:

"(1) At or before the end of each financial year, the Board shall, having considered the recommendation of the chief executive officer, declare a rate of interest in respect of that financial year, being not less than 4 percent per annum and, subject to the following subsection and to the proviso to subsection (2) of section 25, interest shall be payable on contributions to the Fund at such rate.

Provided That no rate of interest exceeding 4 percent per annum shall be so declared unless in the opinion of the Board the ability of the Fund to meet all payments required to be paid under this Act is not endangered by the declaration of such rate."

14. It is clear from the main part of s.9 that the NPF’s board is required to make in each financial year a declaration of a rate of interest, which is not to be less than 4% per annum, to be payable on contributions by members of the Fund in that financial year. In making such a declaration, the board has to take into consideration the recommendation from the chief executive officer. In terms of s.9 (1), the main part of that provision is to be read subject to s.9 (2) and the proviso to s. 25(2). Section 9 (2) is not material for present purposes but I will comment on s.25 (2) and its proviso later in this judgment.

15. The proviso to s.9 (1) then provides that the board is not to make a declaration of a rate of interest exceeding 4% per annum in respect of any financial year unless in the opinion of the board such a declaration will not endanger the ability of the NPF to meet all payments it is required to make under the Act. So the minimum rate of interest that the Board may declare in respect of any financial year after taking into consideration the recommendation of the chief executive officer is 4% per annum. But if the board is to contemplate making a declaration of a rate of interest which is more than 4% per annum, then it must first be satisfied that such a declaration will not endanger the ability of the NPF to meet all payments it is required to make under the Act.

16. Section 14, as for as relevant, then requires the board to keep or cause to be kept proper accounts of the Fund which shall be audited annually by the Controller and Chief Auditor or by a practising public accountant commissioned by the Controller and Chief Auditor.

17. Section 22, which is one of the provisions at the heart of the present dispute because of the lump sum contributions paid into the Fund by the plaintiff, provides:

"(1) Any person not being an employee under the provisions of this Act may, provided he or she gives notice to the Board in the prescribed manner, become a voluntary member to the Fund and contributions paid by such a voluntary member shall be dealt with under the provisions of section 25 of this Act as though he or she were an employee.

"(2) A person becoming a voluntary member may commence payment of contributions not earlier than the half-year in which he or she gives notice to the Board in accordance with subsection (1) of this section."

18. It is clear from s.22 that only a person who is not an employee may become a voluntary member and pay contributions as such to the Fund. But becoming a voluntary member is conditional upon a person giving the required notice to the board.

19. Section 25, which is the main provision at the heart of this dispute, provides, as for as relevant:

"(1) ....

"(2) The Board shall cause to be credited to the account of each member of the Fund the amount of the contributions paid during each financial year in his or her respect, and, upon the declaration by the Board under the provisions of section 9 of a rate of interest for the financial year, interest at that rate on the amount standing to his or her credit in the Fund at the commencement of such financial year in such manner as the Board may direct ...

Provided That, where the authority of the Board is granted under the provisions of sections 35 and 36 of this Act for the withdrawal from the Fund of any amount standing to the credit of a member of the Fund, the amount of interest due from the first day of the financial year in which such authority is given to the last day of the month preceding that in which such authority is given shall be calculated at the rate of interest declared by the Board for the previous financial year and credited to such member before such withdrawal notwithstanding that the rate of interest subsequently declared by the Board in respect of that financial year may be greater or less than the amount so calculated."

20. The main cause of this dispute lies in the different understandings of the parties and their respective counsel as to the correct interpretation of s.25 (2) and how it is to be applied to the facts of this case. Section 25(2) is a difficult provision to follow. It is also difficult to understand how it is to be applied to the facts of this case. However, I found the explanation given by the plaintiff as to how s.25 (2) is to be applied helpful. This is not to discount the explanation to the contrary which was given on behalf of the NPF. It is testimony to the fact that sometimes able minds can differ as to the correct interpretation of a statutory provision and how it is to be applied.

21. The first thing to note about s.25 (2) is that it requires the board to cause to be credited to the account of each member of the Fund the contributions paid during each financial year for such member. This is an obligation imposed on the board to perform, but the actual crediting of the contributions paid during each financial year to the account of a member of the Fund would be carried out by the staff of the Fund.

22. Section 25 (2) then provides that when the board, in terms of s.9, makes a declaration of the rate of interest to be applied to members contributions for a particular financial year, interest at that rate shall be calculated on the amount standing to the credit of each member at the commencement of that financial year and be credited to his or her account. I must admit that s.25 (2) as it has been drafted is not an easy provision to understand at first blush.

23. To assist in understanding this part of s.25(2) and how it is to be applied, it appears to me that it is necessary to understand that there are three different amounts which are credited to a member’s account during a financial year. The first is the balance in the member’s account at the end of the previous financial year which is carried forward to the next financial year and becomes the opening balance for that financial y ear. This is the amount standing to the credit of a member at the commencement of a financial year that s.25 (2) is referring to. It means that the amount standing to the credit of a member’s account at the commencement of each financial year is the same amount as the closing balance of a member’s account at the end of the previous financial year. This amount is made up of the opening balance standing to the credit of a member’s account at the commencement of the previous financial year, the interest calculated on that opening balance at the rate declared by the board in terms of s.9, and the member’s contributions for the previous financial year.

24. In addition to the closing balance from the previous financial year, the second type of amount which is credited to a member’s account in the next financial year is the member’s contributions to the Fund for that year.

25. The third amount which is credited to a member’s account for a financial year is the interest calculated at the rate declared by the board in terms of s.9 on the opening balance or the amount standing to the credit of the member’s account at the commencement of that financial year. But that amount includes the member’s contributions paid during the previous financial year. In other words, the contributions paid in respect of a member of the Fund in any particular financial year are not assessed with interest until the next financial year when they become part of the opening balance standing to the credit of the member’s account at the commencement of that financial year.

26. By way of illustration of how ss.9 and 25 (2) operate, if, for example, a person had become a member of the Fund on 22 August 2004, then he had become a member of the Fund in the financial year 2004/2005 which commenced on 1 July 2004 and ended on 30 June 2005. In terms of s.9, the board would have been required to make a declaration of the rate of interest during the financial year 2004/2005 to be applied in respect of that financial year. However, in terms of s.25 (2) that rate of interest would not have applied to the member in the present example because he only became a member of the Fund on 22 August 2004 after 1 July 2004. There was, therefore, no amount standing to the credit of his account with the Fund at the commencement of the financial year 2004/2005 which was 1 July 2004. His contributions for the financial year 2004/2005 would also have earned no interest in that financial year because such contributions did not form part of the amount standing to the credit of his account at the commencement of that financial year. But the total of the member’s contributions for the financial year 2004/2005 would have appeared in the records of the Fund as the closing balance of his account as at 30 June 2005 which was the end of the financial year 2004/2005.

27. In the next financial year which would have been 2005/2006 commencing from 1 July 2005 and ending on 30 June 2006, the closing balance of the member’s account for the financial year 2004/2005 would have appeared in the records of the Fund as the opening balance of his account or the amount standing to the credit of his account with the Fund at the commencement of the 2005/2006 financial year which would have been 1 July 2005. In terms of s. 25 (2), the interest to be credited to the member’s account for the financial year 2005/2006 would have been calculated on the opening balance or the amount standing to the credit of the member’s account as at 1 July 2005. So interest would only have been calculated on the member’s contributions paid in the previous financial year 2004/2005 in the new financial year 2005/2006 when the member’s contributions for the financial year 2004/2005 became part of the opening balance of his account for the financial year 2005/2006. This process of calculating interest in terms of s.25 (2) will continue to every successive year as long as the member continues as a member of the Fund.

28. Once a member of the Fund, in terms of s.35 (1)(a)(iii), withdraws the entire amount standing to his credit with the Fund, as the plaintiff in this case has done, the proviso to s.25 (2) comes into operation. The first thing to note about this proviso is that a withdrawal by a member under s.35 or s.36 requires the authority of the board. The proviso then provides a somewhat complicated formula for the calculation of interest on the amount to be withdrawn by a member.

29. In terms of the formula for the calculation of interest provided in the proviso to s.25 (2), the period of time to be taken into account in the calculation of interest upon withdrawal by a member is the period of time from the first day of the financial year in which the board granted authority to a member to withdraw to the last day of the month preceding the month in which such authority was given by the board. This would mean that the interest which would be due on the amount to be withdrawn would be the interest due for the period from 1 July of the financial year in which the board granted authority to withdraw, to the last day of the month preceding the month in which the board granted such authority.

30. By way of illustration, if, for example, a member of the Fund wants to withdraw the entire amount standing to his credit with the Fund on 12 February 2010 and the board grants him authority on that day to withdraw, then the member will be withdrawing the entire amount standing to the credit of his account with the Fund during the financial year 2009/2010 which commenced from 1 July 2009 and ending on 30 June 2010. The financial year in which the authority is given by the board to the member to withdraw will also be the financial year 2009/2010 as 12 February 2010 falls within that financial year.

31. In terms of the formula in the proviso to s.25 (2), the period of time for which interest will be due on the amount to be withdrawn will be from 1 July 2009, which was the first day of the financial year in which the authority to withdraw was given by the board, to 31 January 2010, which is the last day of the month preceding the month of February 2010 in which that authority to withdraw was given by the board.

32. The difficulty which arose in this case was that the plaintiff was granted authority by the board on 9 July 2008 to withdraw the entire amount standing to his credit with the Fund. That means the board granted authority to withdraw in the financial year 2008/2009 which commenced on 1 July 2008 and ended on 30 June 2009. Applying the proviso to s.25 (2), that would mean the period of time for which interest would have been due on the amount withdrawn by the plaintiff on 9 July 2008 would have been from 1 July 2008 which was the first day of the financially year in which the authority to withdraw was given by the board, to 30 June 2008 which was the last day of the month of June 2008 preceding the month of July 2008 in which the authority to withdraw was given by the board. In other words, the relevant period of time for the purposes of the formula in the proviso, was from 1 July 2008 to 30 June 2008. Whilst this may seem to be an absurd result, it appears that the effect of the proviso is that if a member wants to withdraw his contributions in any financial year and authority is given by the board for that purpose in the month of July, there will be no interest due for the month of July. The plaintiff was therefore correct when he pointed out in his evidence that he was not entitled to the interest paid to him for the nine days in July 2008.

33. The other matter to be noted about the formula in the proviso to s.25 (2) is that the rate of interest to be applied for the calculation of interest when authority is given by the board to a member to withdraw the amount standing to his credit with the Fund, is the rate of interest declared by the board under s.9 of the Act for the previous financial year. It is not the rate of interest declared by the board for the financial year in which a member withdraws his contributions. And it does not matter whether the rate of interest declared by the board for the financial year in which the member withdraws his contributions turns out to be greater or less than the rate of interest declared by the board for the previous financial year. It is still the rate of interest for the previous financial year that is to be applied.

The dispute

34. The dispute between the plaintiff and the NPF involves three issues. These are:

1. whether, in terms of s.25 (2), interest was paid on the plaintiff’s contributions for the financial year 2007/2008 when the PLAINTIFF, with the authority of the board, withdrew on 9 July 2008 the entire amount standing to the credit of his account with the Fund;
   
2. whether the plaintiff should have been paid interest for the nine days from 1 July 2008 to 9 July 2008 when the entire amount standing to the credit of his account with the Fund was withdrawn;
   

100. and whether interest is payable on the lump sum contributions paid by the plaintiff to the Fund on 10 December 2007, 12 February 2008 and 18 March 2008.
     

35. In relation to the first issue, that is, whether in terms of s.25 (2) interest was paid on the plaintiff’s contributions, other than his lump sum contributions, for the financial year 2007/2008 which commenced from 1 July 2007 and ending on 30 June 2008, I am of the respectful view that as a matter of fact and of law the contention by the plaintiff that no such interest was paid is correct. The reason is that the interest that was assessed in respect of the plaintiff in the financial year 2007/2008 for that financial year was assessed only on the amount standing to the credit of the plaintiff’s account with the Fund at the commencement of that financial year which was 1 July 2007. That amount did not include the plaintiff’s contributions for the financial year 2007/2008 which were only paid after 1 July 2007. In terms of s.25(2), interest at the rate declared by the board under s.9 is to be calculated and credited to the account of a member only on the opening balance or the amount standing to the credit of a member’s account at the commencement of a financial year which is 1 July . There is no other amount provided in s.25 (2) on which interest is to be calculated and credited. This means in the case of the plaintiff that when interest was calculated and credited to his account in the financial year 2007/2008, that interest must have been calculated on the amount standing to his credit at the commencement of the financial year 2007/2008 which was 1 July 2007. But that amount, as already mentioned, did not include the plaintiff’s contributions for the financial year 2007/2008 which were only paid after 1 July 2007. In other words, when the plaintiff on 9 July 2008 withdrew the entire amount standing to the credit of his account with the Fund, no interest had been calculated and credited on his contributions for the financial year 2007/2008.

36. I do not agree with the submissions by counsel for the NPF that as a matter of law interest has already been paid on the plaintiff’s contributions for the financial year 2007/2008. This is because s.25(2), as already pointed out, is quite clear that interest is to be calculated and credited only on the balance of a member’s account at the commencement of a financial year which would be 1 July. That, of course, would not include a member’s contributions for a particular financial year because such contributions are only paid after 1 July. Those contributions will only be assessed with interest when they become part of the amount standing to the credit of a member’s account at the commencement of the next financial year and the board has declared the rate of interest to be applied for that financial year. In the present case, the contributions paid in respect of the plaintiff in the financial year 2007/2008 would have been paid after 1 July 2007. Those contributions would have been assessed with interest when they became part of the amount standing to the credit of the plaintiff’s account at the commencement of the financial year 2008/2009 which was 1 July 2008. The rate of interest that would have been applied would have been the rate of interest declared by the board during the financial year 2008/2009 for that financial year. However, because the plaintiff did not continue as a member of the Fund but withdrew his entire contributions on 9 July 2008, the appropriate rate of interest to be applied, in terms of the proviso to s.25 (2), would have been the rate of interest declared by the board for the previous financial year, that is, the financial year 2007/2008.

37. I, therefore, conclude that no interest had been paid on the plaintiff’s contributions for the financial year 2007/2008. Interest was only calculated and credited on the opening balance standing to the credit of the plaintiff’s account at the commencement of that financial year which was 1 July 2007. That interest was included in the amount already withdrawn by the plaintiff. The rate of interest to be applied to the plaintiff’s contributions for the financial year 2007/2008, apart from his lump sum contributions, would be the rate of interest declared by the board for the financial year 2007/2008.

38. In relation to the second issue, that is, whether the plaintiff should have been credited and paid interest for the nine days from 1 July 2008 to 9 July 2008 when the entire amount standing to the credit of his account was withdrawn, I have also decided to accept the plaintiff’s explanation that he was not entitled to the interest paid to him for those nine days. In terms of the proviso to s.25 (2), as I have already explained, the plaintiff is correct he was not entitled to be paid such interest.

39. In relation to the third issue about the lump sum contributions paid by the plaintiff on 10 December 2007, 12 February 2008 and 18 March 2008, I have decided to accept the submissions by counsel for the NPF that interest should not be paid on those contributions.

40. With respect, I agree with counsel for the NPF that under the Act only a voluntary member may pay a lump sum contribution to the Fund after he or she has given appropriate notice to the board. The term "voluntary member" is defined in s.2 of the Act to mean a person who enters the Fund under the provisions of s.22. In terms of s.22, a voluntary member is a person who is not an employee under the Act. As the plaintiff was still the chief executive officer of the NPF in December 2007, he was therefore an employee when he paid his lump sum contribution of $45,000 on 10 December 2007. In terms of s.22, he was not qualified to make such a lump sum contribution. It follows that interest should not be payable on that lump sum contribution. Whether some of the other staff members of the NPF also made similar contributions is not something that is permitted under the Act.

41. In relation to the plaintiff’s lump sum contributions made on 12 February 2008 and 18 March 2008, the plaintiff was no longer an "employee" at that time. However, it appears from the evidence that the plaintiff did not give notice to the board for such lump sum contributions as required by s.22. I need not go into the practical reasons given on behalf of the NPF as to why such notice is necessary. Section 22 itself is clear that such notice is required. Non-compliance with the notice requirement in the plaintiff’s case means that no interest should be payable on the lump sum contribution of $55,000 paid on 12 February 2008 and the lump sum contribution paid on 18 March 2008. In the circumstances of this case, the fact that those lump sum contributions were accepted by someone of the staff of the NPF, whose service the plaintiff had just left on 17 January 2008, is not a ground for allowing interest on those contributions. Likewise, if the plaintiff’s evidence is correct that some of the other staff members of the NPF do the same thing, then that is also not a ground for allowing interest on the plaintiff’s lump sum contributions.

Conclusions

42. In view of what has been said, I have come to the following conclusions:

(a) The plaintiff is not entitled to interest on the lump sum contributions that he paid on 10 December 2007, 12 February 2008, and 18 March 2008.

(b) The plaintiff has not been paid interest on his other contributions (different from (a) above) credited to his account with the Fund in the financial year 2007/2008 when interest should have been paid on those contributions.

(c) The rate of interest to be applied to the plaintiff’s contributions in (b) is the rate of interest that was declared by the board during the financial year 2007/2008 for that financial year.

(d) The interest paid to the plaintiff for the nine days from 1 July 2008 to 9 July 2008 when the plaintiff withdrew the entire amount standing to the credit of his account with the Fund should not have been paid, as the plaintiff was not entitled to such payment as he correctly explained.

(e) The correct amount of interest which is still due to the plaintiff for his contributions in (b) above is to be assessed on the basis of these conclusions and then deduct what was paid in (d).

43. Counsel to file memorandum as to costs in 7 days if agreement cannot be reached.

CHIEF JUSTICE

Solicitors
Drake & Co for plaintiff
Leung Wai Law Firm for defendant