IN THE LABOUR COURT OF SOUTH AFRICA
CASE NO: J565/02
In the matter between:
Applicant
and
Respondent
JUDGMENT
FRANCIS J
Introduction
1. This is an application in terms of section 158(1)(c) of the Labour Relations Act 66
of 1995 (‘the Act”) to make an arbitration award an order of court.
2. On 30 November 2001, commissioner Wynand Stapelberg (“the commissioner”)
of the CCMA ordered the respondent to pay to the applicant compensation in an
amount of R312 000.00 which was payable on or before 30 December 2001.
3. The respondent opposed the application on the basis that it tendered compliance
with the award, which tender was rejected by the applicant. The respondent had
offered the applicant a cheque in the amount of R113 960.00 in settlement of the
arbitration award after it had deducted an amount of R131 040.00 in respect of
income tax and an amount of R67 000.00 in respect of an alleged balance of a loan
by the applicant during the course of his employment.
The issues
4. The crisp issue for determination is whether the tender by the respondent
constitutes a tender in compliance with the award made by commissioner
Stapelberg (“the commissioner”) of the CCMA. This inquiry into the merits of the
tender demands that consideration be given to the following two issues:
4.1 Whether there is an obligation on the respondent to deduct tax from the
compensation to be paid to the applicant, and in view thereof whether the tender
made by the respondent for payment less any amount reflected on a tax directive is
tantamount to a tender in compliance with the award.
4.2 Whether a loan by the respondent to the applicant and alleged to be due and
payable to the respondent an allegation denied by the applicant may be set off
against the award made by the commissioner.
5. It follows that, if the deductions were correctly made, that the respondent’s tender
of payment was a tender in compliance with the award by the commissioner and
no purpose would be served to make the award and order of court.
The parties contentions
6. It was contended on behalf of the applicant that the respondent should be ordered
to pay over to the applicant the full amount of R312 000.00 being the amount of
compensation awarded to the applicant in terms of the award, without any
deduction of any amounts whatsoever together with interest and costs because no
tax should be levied where compensation had been awarded in terms of section
194 of the Act. The award is in the nature of compensation in the form of
damages due to the fact that the respondent made himself guilty of having
committed an unfair labour practice and not income. It was therefore not subject
to the deduction of tax.
7. It was contended further on behalf of the applicant that the respondent was not
entitled to deduct the amount of R67 000.00 being the alleged balance due in
terms of a loan by the applicant during the course of his employment. The
applicant’s alleged indebtedness to the respondent is not capable of prompt
ascertainment. The amount of the indebtedness is disputed and unliquidated and
therefore not capable of being set off against the arbitration award.
8. It was contended on behalf of the respondent that an employer has a statutory
obligation to deduct the required tax from any remuneration which it pays to an
employee. Further that the amount due to the applicant should be set off since the
applicant’s debt is admitted. It was capable of easy and speedy ascertainment.
Liability for tax
9. There are two issues of dispute which require an expert ruling by the office of the
Receiver of Revenue. These are:
1. 9.1 Whether any tax should be deducted from an award for compensation by
the CCMA at all, having regard to the nature of such an award.
9.2 The rate at which the award for compensation should be taxed.
10. An employer has a statutory obligation in terms of the Income Tax Act 58 of 1962
(“the Income Tax Act”) to deduct the required tax from any remuneration which it
pays to an employee. Gross income is defined in section 1(d) of the Income Tax
Act as:
“Any amount, including any voluntary award, received or accrued in respect of
the relinquishment, termination, loss, repudiation, cancellation or variation of
any office or employment or any appointment (or right or claim to be appointed)
to any office or employment: Provided that ......”
11. Part 1 of Schedule 4, item 1 defines remuneration as:
“Means any amount of income which is paid or is payable to any person by way
of any salary, leave pay, allowance, wage, overtime pay, bonus, gratuity,
commission, fee, emolument, pension, superannuation allowance, retiring
allowance or stipend, whether in cash or otherwise and whether or not in respect
of services rendered ......”
12. In terms of schedule 4 item 2(1) of the Income Tax Act, an employer who “pays
or becomes liable to pay any amount by way of remuneration to an employee
shall, unless the Commissioner has granted authority to the contrary, deduct or
withhold from that amount by way of employee’s tax an amount which shall be
determined as provided in paragraph 9, 10 and 12 whichever is applicable, in
respect of liability for normal tax of that employee”.
13. I am of the view that the issues referred to in paragraph 9 above are both issues
which neither this Court nor the CCMA is competent to determine, but are issues
which are required to be determined by the appropriate expert forum to be taken
on appeal in terms of the provisions of the Income Tax Act, if necessary.
14. There are a number of decisions by this Court that deals with settlement
agreements wherein it was stated that such amounts attract income tax. I do not
deem it necessary for purposes of this judgment to deal with the said cases.
15. I am also of the view that even if this Court is competent to determine the issue it
should not do so on the grounds that the Receiver of Revenue who may be an
interested party in this matter was not cited as such.
16. I am also of the view that nothing prevents the applicant from obtaining the
necessary tax directive and present it to the respondent. The respondent had
attempted to obtain the tax directive, but was unable to do so in view of the
applicant’s outstanding returns. The respondent has at all times confirmed that it
is prepared only to deduct such income tax as it is directed to do and pay the
remainder to the applicant.
17. The applicant indicated that it intended to apply for such a tax directive. The
respondent’s tender to pay over to the applicant the award, less the tax directed by
the office of the Receiver of Revenue to be deducted, constitutes a tender in
compliance of the award save on the issue of the setoff.
Set off
18. The principles pertaining to setoff in common law are as follows:
18.1 Setoff is in essence a method by which debts are extinguished. It comes into
effect when two parties are reciprocally indebted to each other if both debts are
equal, they are discharged; if they are unequal, the smaller amount is discharged
and the larger is reduced by the amount of the smaller. See R H Christie, The Law
of Contract, 4 th ed. at pl 552.
18.2 Setoff operates automatically irrespective of whether it is invoked by either party
(for example by raising it in a plea or a defence) from the moment when the
compensating debt came into existence. In Schierhout v Union Government 1926
AD 286 at 289 to 290 it was stated that:
“The doctrine of setoff with us is not derived from statute and regulated by rule
of court, as in England. It is a recognised principle of our common law. When
two parties are mutually indebted to each other, both debts being liquidated and
fully due, then the doctrine of compensation comes into operation. The one debt
extinguishes the other pro tanto as effectually as if payment had been made.
Should one of the creditors seek thereafter to enforce his claim, the defendant
would have to set up the defence of compensatio by bringing the facts to the notice
of the court as indeed the defence of payment would have to be pleaded and
proved. But compensation once established, the claim would be regarded as
extinguished from the moment the mutual debts were in existence together.”
18.3 In Mohamed v Nagdee 1952(1) SA 410 (A) at 416H, the Appellate Division
confirmed its acceptance of this view. It was also confirmed in Great North
Farms (Edms) Bpk v Ras 1972 (4) SA 7 (T) at 8F where the Court quoted from
Harris v Tancred N.O. 1960 (1) SA 839 (C) AT 843F and recorded that:
“Therefore when the defence of setoff is invoked it operates retrospectively, so
that the two debts are extinguished as soon as they balance each other.”
18.4 Setoff is equivalent to payment and therefore operates ipso facto and by operation
of law extinguishes the debt pro tanto. In this regard the Court in Great North
Farms (Edms) Bpk (supra) quoted from In re: Trans African Insurance Co. Ltd (in
liquidation) 1958 (4) SA 324 (W):
“Setoff or compensation by our law is really equivalent to payment; it operates
ipso facto as a discharge. As soon as there are two debts in existence between
which there is mutuality, so that the one can be compensated against the other,
then by the operation of law the one debt extinguishes the other pro tanto...”
19. The above principles apply equally to the setoff of a liquidated debt against a
judgment debt or an award of the CCMA. This was demonstrated in the matter of
The Government v RegnaAdwel Business Machines Africa (Pty) Ltd 1970 (2) SA
428 (T) where a warrant of execution issued against the respondent company for
failure to comply with the judgment debt outstanding payments in lieu of leave
were set aside due to the fact that the company had set the judgment debt off
against a liquidated debt. Similarly an employer is entitled to setoff any claims
which it may have against any amount owing by that employee. This
notwithstanding, and notwithstanding the dicta in Keulder v Minister of Finance
1953 (2) SA 101 (N) AT 104H to the effect that an employer may set off money
owing to it from an employee’s salary, section 34(1) of the Basic Conditions of
Employment Act, 75 of 1997 determines that an employer may not do so unless
the employee in writing agrees to the deduction of a debt specified in the
agreement, or the deduction is required or permitted in terms of law, collective
agreement, court order or arbitration award.
20. The requirements for a liquidated debt were set out in TreasurerGeneral v Van
Vuuren 1905 TS 582 at 589:
“The law requires that a debt which it is desired to oppose by way of setoff must
be of a liquidated nature. It need not be liquid in the sense in which that word is
now used in practice. According to Vinnius (Select Jurist Quaest, 1 c 50), if not
admitted by the other side it must be capable of prompt and speedy proof. Pothier
(Obligations, 3, c 4 sec 2) says a debt is liquidated when it is evidence that is due,
and to what amount ...”
21. To the extend that the applicant’s debt is not admitted, it will qualify for setoff if
it is capable of easy and speedy proof. A bank overdraft and charges and an
agent’s commission has been held to constitute debts which are capable of easy
and speedy proof.
1. 22. The applicant has admitted his debt. It is contained in a written agreement
wherein he has admitted that he had applied for a loan of R67 000.00 and that he
has authorised the respondent to deduct the full outstanding amount from any
monies due to the applicant upon him leaving his employment.
23. The applicant disputes two aspects pertaining to the loan to be setoff against the
judgment debt: the one is the interest to be charged in respect of the debt and the
other is the extent to which the applicant has repaid the loan. The question
therefore is whether the debt is capable of prompt and easy ascertainment. The
respondent contended that it is and the applicant has denied this.
24. In a letter dated 22 January 2002 the respondent’s attorney’s stated that in terms of
the reconciliation an amount of R47 593.67 was due and owing. In addition the
applicant owes interest on the amount in an amount of R6164.34. The letter states
further that an amount of R67 893.01 should have been deducted instead of R67
000.00 and for purposes of bringing the matter to a finality the respondent was
prepared to forego R893.01 in interest.
25. In a letter dated 29 January 2002 the applicant’s attorneys stated that in terms of
the respondent’s reconciliation the amount owing by the applicant to the
respondent is R47 593.67. It pointed out that the respondent’s calculation was
incorrect and should have amounted to R53 758.01 instead of R67 893.01. It
stated further that the amount of R33 654.76 do not include all the commissions
due to the applicant up to and including 31 March 2001. It stated that the amount
owing to the respondent is in dispute. It requested that it be provided with a full
reconciliation of the commission earned by the applicant during the course of his
employment up to the date if dismissal in order to determine the correct amount to
be deducted, if any.
26. In the respondent opposing affidavit it has stated that the full amount that should
be made from the award is R68 223.90 and that the applicant would still owe the
respondent R1 223.90.
27. The respondent has deducted an amount of R67 000.00 from the amount of the
award. The respondent is disputing the amount of commission earned by the
applicant of R33 654.76 and has failed to furnish the applicant with a detailed
reconciliation of all the commission earned during the relevant period. The
applicant stated that with regard to the balance due to the respondent the matter
could still be sorted out once a full reconciliation of the commission due had been
furnished to him.
28. I accept that the rate at which interest will be charged is governed by the
Prescribed Rate of Interest Act, 55 of 1975, and is currently 15,5% per annum.
The date at which the applicant would be in mora is recorded in the agreement that
the applicant signed. It records: “In the event that I .... leave the company, I
hereby authorise the company to deduct the full outstanding amount”. The
applicant was dismissed in March 2001. The interest was calculated from 1 April
2001. The award was handed down on 30 November 2001. The rate of interest is
fixed and the period in respect of which it is due is similarly fixed.
29. The applicant does not deny that the loan agreement for R67 000.00 was
concluded on the terms as alleged by the respondent. The applicant does not deny
the advance of R20 000.00 was to be repaid from commissions (it being an
advance in respect of commissions already earned by not yet due and payable).
The applicant’s only dispute on the calculation of outstanding debt relates to the
fact that he alleges he earned more commission than the R20 310.71 accounted for
in annexure “A” to the answering affidavit. The allegation is that this additional
commission was neither paid to him, nor setoff against the outstanding loan.
30. There is a material dispute of fact about what the exact amount of commission that
was earned is. The onus is on the respondent to proof what the amount is that
needs to be setoff. The respondent has given different amounts as can be seen
from paragraphs 24, 25 and 26 above. The respondent has not discharged that
onus. It has failed to proof that the amount is capable of prompt and easy
ascertainment.
31. I do not believe that this is a matter where costs should be awarded to any of the
parties.
32. In the circumstances I make the following order:
1. (a) The arbitration award dated 30 November 2001, issued by Wynand
Stapelberg, a commissioner of the Commission of Conciliation, Mediation and
Arbitration, is made an order of Court in terms of section 158(1)(c) of the Act.
(b) The respondent to pay within five days of this order to the applicant the sum of
R180 960.00.
(c) The applicant is to obtain a tax directive from the Receiver of Revenue on whether
the sum of R312 000.00 is taxable and should it be found that it is, the respondent
to pay any shortfall to the applicant within ten days of receiving the tax directive.
(d) Should it be found that no income tax is payable on the amount referred in
paragraph (c) above, the respondent is to pay to the applicant within ten days of
receiving the tax directive, the outstanding amount.
(e) There is no order as to costs.
FRANCIS J
JUDGE OF THE LABOUR COURT OF SOUTH AFRICA
FOR THE APPLICANT : I G GELDENHUYS INSTRUCTED BY GIESSING ATTORNEYS
FOR THE RESPONDENT : W G LA GRANGE INSTRUCTED BY HOFMEYER HERBSTEIN &
GIHWALA INC
DATE OF JUDGMENT : 29 NOVEMBER 2002