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[2021] ZAECPEHC 62
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Z.V v Governement Employees Pension Fund (GEPF) and Another (1286/2020) [2021] ZAECPEHC 62 (7 December 2021)
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IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE LOCAL DIVISION, PORT ELIZABETH)
CASE
NO.: 1286/2020
Not
reportable
In
the matter between:
Z[....]
V[....]
Applicant
and
GOVERNEMENT
EMPLOYEES PENSION FUND (GEPF)
First
Respondent
D[....]
P[....] V[....]
Second Respondent
JUDGMENT
Goosen
J:
[1]
This matter concerns the proper interpretation and implementation of
a settlement
agreement made an order of court. The relevant clause
required the first respondent to make payment of an agreed amount of
the
second respondent’s pension interest in it, to the
applicant. The first respondent paid out the agreed amount less tax
payable
to the South African Revenue Service notwithstanding the term
of the agreement which stipulated that the amount to be paid was nett
of tax.
[2]
The applicant and second respondent were married to each other out of
community of
property but subject to the accrual system. Upon divorce
the applicant was entitled to payment of an amount of R1 750 000 in
respect
of the accrual. The applicant and the second respondent
concluded a settlement agreement which included provisions for the
accrual
payment. The settlement agreement was made an order of court
upon divorce on 21 July 2020.
[3]
Clause 3.4 of the Deed of Settlement sets out the agreement in
relation to the second
respondent’s pension interest, as
follows:
“
34.1 It is
recorded that the Defendant holds a Pension Interest as defined in
Section 1 of the Divorce Act 70 of 1979 (as amended)
(hereinafter
called the ‘
Divorce Act&rsquo
;), read together with the Pension
Fund Act 24 of 1956 as amended (hereinafter the Pension Act) in the
Government Employees Pension
Fund by virtue of his employment at the
South African Police Service, (hereinafter referred to as “the
Fund”).
3.4.2 The Plaintiff is
hereby awarded a nett amount of R1 750 000.00 (One Million Seven
Hundred and Fifty Thousand Rand) of the
Defendant’s aforesaid
Pension Interest, which is deemed to accrue to the Defendant,
together with the interest on the assigned
amount at Provident Fund
return from the expiry of the sixty (60) day period calculated in
accordance with the Provision of Sections
37(D)(1)(d)(i) and 37(D)(4)
of the Pension Fund Act, but not any other interest or growth.
3.4.3 The Fund
Administrators are hereby ordered and directed to make the
abovementioned nett deductions with the income tax payable
on this
amount to be paid by the Defendant so as to ensure that the Plaintiff
receives the exact nett amount of R1 750 000. 00.
3.4.3 (sic)
The Defendant agrees that the amount of R1 750 000.00 of his Pension
Interest, together with the income
tax thereon, shall be deducted
from his members’ interest, upon receipt of the final decree of
divorce. He thereby authorises
the Plaintiff irrevocably to submit a
copy of the final decree of divorce incorporating the Deed of
Settlement to the said Fund.”
[4]
It is common cause that on 18 February 2021 the first respondent paid
an amount of
R1 430 360.68 into the applicant’s bank account as
provided in the payment provisions of the Deed of Settlement. It is
common
cause that the first respondent deducted an amount from that
payable to the applicant for payment of income tax. It appears from
a
transaction record of the payment, as explained by the first
respondent in its answering affidavit, that the pension benefit
assignment amount was R1 750 000.00. To this was added an accrued
interest amount due to the second respondent of R19 710.08 (as
provided for in clause 3.4.1 above). The total of R1 769 710.08 was
treated as the “divorce gratuity”. From this amount
income tax of R339 349.40 was deducted resulting in payment of R1 430
360.68 to the applicant.
[5]
The applicant seeks an order declaring that she is entitled to
payment of an amount
of R1 750 000.00 as provided in the Settlement
Agreement. She further seeks payment of an amount of R319 360.56
being the balance
of the payment due to her. I pause to mention that
the amount claimed in the notice of motion as the balance due to her
is patently
incorrect. In light of the amount actually paid the
applicant would be entitled to payment of R319 639.32 in the event
that she
succeeds.
[6]
The first respondent opposes the application on the basis that the
declaratory relief
would exempt the applicant from the payment of
tax. It was argued that such an order would be unlawful. That is so,
the argument
went because the provisions of section 2(1)(b) of the
Second Schedule to the
Income
Tax Act
, 56 of 1962 deems
the gratuity from a pension benefit to form part of a person’s
taxable income, and the Fourth Schedule
to the
Income Tax Act
obliges the first respondent to withhold employees tax, such order
would be unlawful. The first respondent went further to suggest
that
the order incorporating the terms of the Settlement Agreement is
itself unlawful since it sanctions the non-payment of income
tax.
[7]
The starting point for resolution of the dispute is the language of
the Settlement
Agreement. It is upon consideration, the plain or
ordinary meaning of the words used and the context in which they
occur that the
agreement is to be interpreted.
[8]
The language of clause 3.4.3 is plain and unambiguous. The use of the
term
nett
clearly contemplates that the amount to be received
is free of any deductions. The second clause of the sentence takes
this beyond
doubt where it provides, that,
“
. . . the income
tax to be paid on this amount [i.e. the nett amount of R1 750 000.00]
to be payable by the Defendant so as to ensure
that the Plaintiff
receives the exact nett amount of R1 750 000.00.”
[9]
The second numbered clause 3.4.3 further sets out the obligation
which rests upon
the respondent in terms of the court order. It
provides in the first sentence that,
“
The Defendant
agrees that the amount of R1 750 000.00 of his Pension Interest,
together with the income tax thereon
, shall be deducted from
his members’ interest . . . “(emphasis supplied)
[10]
When these clauses are read in their totality and when regard is had
to the purpose of the agreement,
(1) the applicant and second
respondent agreed that the applicant should receive payment of R1 750
000.00; (2) that the amount
due to her was to be payable out of his
pension interest; (3) that the first respondent would deduct from the
second respondent
R1 750 000.00
plus
income tax payable on
that amount; and (4) pay to the applicant the nett amount of R1 750
000.00.
[11]
The suggestion by counsel for the first respondent that the agreement
sanctions the non-payment
of tax due by the applicant is spurious.
Clause 3.4.3 provides that the tax payable will be paid by the second
respondent –
as a charge against his member’s interest in
the pension fund. There is nothing in the
Income Tax Act
which
precludes such an arrangement. Counsel could point to no such
prohibition.
[12]
The further argument advanced by counsel to the effect that the first
respondent was obliged
to deduct the tax from the amount of R1 750
000.00 is similarly without any merit. It ignores the plain language
of the agreement
which was made an order of court. Counsel’s
reliance upon
Russouw
v Reid and Another
[1]
and
Fourie
v Eskom Pension and Provident Fund
[2]
is misplaced.
[13]
In neither of those cases was any reference made to payment of a
specified nett amount. The settlement
agreements made reference to
payment of a percentage of the pension interest and no reference was
made to the payment of tax. These
matters are entirely
distinguishable upon the facts.
[14]
In any event the liability for payment of the tax accrues to the
member of the pension fund in
terms of section 2B of Schedule of the
Income Tax Act
(see in this regard
Russouw v Reid
supra
) at par [15]). The stipulated payment of the tax by the
second respondent is, contrary to the argument advanced by first
respondent’s
counsel, entirely consonant with the legislative
provisions relating to the payment of tax.
[15]
It was not the first respondent’s case that the court order in
this matter placed upon
it an obligation that was impossible to
fulfil, in the sense that it was incapable of determining the amount
of tax payable. Instead
the first respondent confined itself to the
alleged unlawfulness of the agreement. As I have already indicated
that challenge is
without substance.
[16]
It follows that the applicant is entitled to the relief she seeks.
For the reasons indicated
at the outset the balance payable to her
stands to be corrected. The applicant sought only the usual costs
order. In the light
of the defence raised by the first respondent I
may have been inclined to a punitive costs order. However, since one
was not sought
the ordinary order will follow.
[17]
I make the following order:
1.
It is declared that the applicant is entitled to receive payment of a
nett amount
of R1 750 000.00 payable by the first respondent from the
proceeds of the second respondent’s pension interest, after
provision
is made for payment of tax on that amount from the second
respondent’s member interest in the first respondent Pension
Fund.
2.
The first respondent is ordered to pay to the applicant the sum of
R319 639.32
being the balance of the nett amount of R1 750 000.00 due
to the applicant within 30 days of the date of this order.
3.
The first respondent is ordered to pay the costs of the application.
___________________________
G.G.
GOOSEN
JUDGE
OF THE HIGH COURT
APPEARANCES
Obo
the Applicant
: Adv L.
Gagiano
Instructed
by
: Annali
Erasmus Inc
Obo
the Respondent
: Adv K T
Ntsewa
Instructed
by
: Pagdens
Attorneys
Heard
: 18
November 2021
Delivered
: 7
December 2021
[1]
[2011]
3 All SA 106 (GSJ)
[2]
(18/1355)
[2019] ZAGPJHC 188 (6 June 2019)