“Past gratuitous payments do not crystallize into a legal obligation. The contract is the sole repository of the entitlement.” Court of Appeal Overturns High Court Ruling on Terminal Benefits.

Waboga David
6 days ago
5 min read

Facts

The Respondent, Lukooya Sam M, was employed by the Appellant, National Insurance Corporation Ltd, on January 10, 1977, and served continuously for 33.5 years until his voluntary resignation on August 5, 2010. His employment was initially governed by the 1988 Staff Regulations, which provided no terminal benefits.

In 2004, new Staff Regulations were introduced, including Appendix 6(A), which outlined a formula for terminal benefits using a multiplier of 1, 2, or 3 months' gross salary based on years of service. This formula was explicitly applicable to staff upon: (a) attaining mandatory retirement age; (b) early retirement; or (c) retirement on medical grounds.

Regulation 4 of the 2004 Regulations addressed "Resignation" and stated that upon resignation, an employee shall be paid, among other things, "other benefits as indicated in Appendix 6(A)."

In August 2009, the Appellant's Board amended the formula via a circular, introducing a uniform multiplier of one (1) month's gross salary for resigning employees with 10 or more years of service. This replaced any prior practice where the Appendix 6(A) multiplier of three (3) might have been applied.

Upon resignation, the Appellant paid the Respondent UGX 111,631,108 using the 2009 amended formula (multiplier of 1). The Respondent sued in the High Court (Civil Suit No. 179 of 2011), claiming entitlement to UGX 298,485,000 calculated under the original Appendix 6(A) formula (multiplier of 3). The High Court, per Hon. Lady Justice Margaret C. Oguli Oumo, ruled in favor of the Respondent on September 7, 2017, awarding the claimed amount plus general damages, interest, and costs.

The Appellant appealed to the Court of Appeal on four grounds.

Issues

Whether Appendix 6(A) of the 2004 Staff Regulations applied to the calculation of terminal benefits for resigning employees.
Whether the trial Judge erred by declining to follow the binding precedent of National Insurance Corporation Ltd v Lillian B. Mujuni (Civil Appeal No. 6 of 2010), which held that Appendix 6(A) does not apply to resigning employees.
Whether the trial Judge properly evaluated the evidence in concluding that the applicable formula was 3 months' consolidated pay multiplied by years served (from 1977), less deductions.
Whether the 2009 amendment to Appendix 6(A) was unlawful for being retrospective and thus inapplicable to the Respondent.

A preliminary objection was raised by the Respondent, arguing that the grounds were too general and offended Rule 86(1) of the Court of Appeal Rules, which requires concise, distinct grounds without argument or narrative.

Submissions

Preliminary Objection (Respondent's Submissions)

Counsel for the Respondent (Mr. Henry Dungu) argued that the grounds were overly general, citing Mutembuli Yusuf v Nagwomu Moses Musambwa & The Electoral Commission (Election Petition Appeal No. 43 of 2016). He prayed for the grounds to be struck out.

Appellant's Submissions (Mr. Andrew Kibaya and Mr. Alex Kabayo)

On Ground 1:

Appendix 6(A) explicitly applies only to retirement scenarios, not resignation. The reference in Regulation 4 cannot expand its scope. Relied on National Insurance Corporation Ltd v Lillian B. Mujuni (supra).

On Ground 2

The trial Judge was bound by the precedent in Mujuni (supra) and failed to distinguish it properly. Cited Paul K. Ssemogerere and 2 Others v Attorney General (Constitutional Appeal No. 1 of 2002) on stare decisis.

On Ground 3:

No terminal benefits accrued pre-2004 under the 1988 Regulations. The trial Judge misapplied Section 31 of the Public Enterprise Reform and Divestiture (PERD) Act, as no right existed to protect.

On Ground 4:

The 2009 amendment applied prospectively from its date, not retrospectively, as the Respondent resigned in 2010. No accrued rights were infringed.

Respondent's Submissions:

On Ground 1:

The contract must be read as a whole; ambiguity in Regulation 4's reference to Appendix 6(A) should be construed against the Appellant (contra proferentem). The Appellant's pleadings admitted prior use of the multiplier of 3, creating estoppel. Cited Uganda Breweries Ltd v Uganda Railways Corporation (Civil Appeal No. 06 of 2002) and Captain Henry Candy v Caspair Air Charter Ltd (195 EACA 139).

On Ground 2:

The case is distinguishable from Mujuni (supra) due to the Appellant's admissions in pleadings, the personal nature of the contract, and application of Section 31 of the PERD Act.

On Ground 3:

Benefits are "earned" over the entire service period and protected by Section 31 of the PERD Act, deeming the contract unbroken post-privatization.

On Ground 4:

The amendment retrospectively stripped earned benefits, violating Section 31 of the PERD Act.

Legal Representation

Appellant (National Insurance Corporation Ltd)

Represented by Mr. Andrew Kibaya and Mr. Alex Kabayo.

Respondent (Lukooya Sam M)

Represented by Mr. Henry Dungu.

COURT’S FINDINGS

The Court of Appeal (per Kiryabwire, JA) began by reaffirming its duty as a first appellate court to re-evaluate the evidence and draw its own conclusions, citing Frederick J.R. Zaabwe v Orient Bank Ltd & Others (Civil Appeal No. 4 of 2006).

On Issue 1: Applicability of Appendix 6(A)

The Court held that Appendix 6(A) expressly applied only to retirees and not to employees who resigned.

“The wording of Appendix 6(A) is explicit and limited to three specific scenarios. Resignation is not one of them. Resignation is a distinct concept from retirement, a fact acknowledged by the separate existence of Regulation 4.”

The reference to Appendix 6(A) in Regulation 4 created a latent ambiguity, but the Court declined to “rewrite the contract” to include resigning staff.

“If there is a gap, then that is the reason the Appellant’s Board moved to amend the Regulations in 2009 under Clause 1.3.”

The Court also rejected the estoppel argument:

“Past gratuitous payments do not crystallize into a legal obligation. The contract is the sole repository of the entitlement.”

✅ Ground One succeeded.

On Issue 2: Binding Precedent

The Court faulted the trial Judge for disregarding the precedent in NICL v Lillian B. Mujuni, which addressed the same contractual clause between the same parties.

“The trial Judge was obligated to apply the NICL v Lillian B. Mujuni precedent. Her failure to do so without a legally sound basis constitutes a grave error of law.”

✅ Ground Two succeeded.

On Issue 3: Evaluation of Evidence

The Court found the High Court erred by backdating the Respondent’s entitlement to 1977, when no right to terminal benefits existed under the 1988 Regulations.

“A right cannot be protected by cross-reference to the PERD Act. The right to terminal benefits was first created by the 2004 Regulations.”

✅ Ground Three succeeded.

On Issue 4: Retrospectivity of the 2009 Amendment

The Court held that the 2009 amendment was prospective, not retrospective. The Respondent resigned after its enactment, so it lawfully applied to him.

“It is clear to my mind that the impugned amendment was prospective, not retrospective. The trial Judge’s finding to the contrary was based on the incorrect premise that a right existed under the old regime.”

✅ Ground Four succeeded.

HOLDING

The Court of Appeal allowed the appeal in its entirety, holding that:

Appendix 6(A) of the 2004 Staff Regulations did not apply to resigning employees.
The 2009 amendment introducing a one-month multiplier for resigning staff was valid and applicable.
The Respondent was only entitled to what was paid under the amended formula.

Final Orders

Appeal allowed.
High Court judgment and orders set aside.
Respondent’s suit dismissed.
Each party to bear its own costs both in the Court of Appeal and the High Court.

KEY TAKEAWAYS

Employment regulations must be construed by their plain wording; ambiguities cannot be filled by past practices or estoppel from pleadings. Resignation is distinct from retirement, limiting benefit entitlements.
Courts will not rewrite employment contracts or imply terms that are not expressly provided, even in the face of perceived unfairness.
Past administrative practices or ex gratia payments do not create legal entitlements absent a contractual or statutory basis.
Binding Precedent (Stare Decisis)
Trial courts must adhere to binding appellate decisions on the same legal issues. Departure without justification constitutes an error of law.
Regulatory amendments apply prospectively unless expressly made retrospective; employees cannot claim “accrued rights” under repealed provisions where none existed.
The decision reinforces predictability in corporate employment regimes, especially where internal staff regulations govern terminal benefits.