Buffalo Signs Co Ltd and others v De Castro AJM and others (JA36/98) [1999] ZALAC 4 (3 March 1999)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Labour Appeal Court
SAFLII
>>
Databases
>>
South Africa: Labour Appeal Court
>>
1999
>>
[1999] ZALAC 4
|

|

Buffalo Signs Co Ltd and Others v De Castro and Another (JA36/98) [1999] ZALAC 4; (1999) 20 ILJ 1501 (LAC) (3 March 1999)

IN THE
LABOUR APPEAL COURT OF SOUTH AFRICA
Held at
Johannesburg
Case
no.: 11/2/22291
Appeal case
no.: JA 36/98
In
the matter between:
BUFFALO
SIGNS CO LIMITED
First
Appellant
SAFETY
TECHNOLOGIES LIMITED
Second
Appellant
FRANSAF
LIMITED
Third Appellant
and
DE CASTRO, A
J M S
First Respondent
CROUSE, M M
Second
Respondent
JUDGMENT
­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­
CONRADIE JA
[1] The first
appellant pretended to retrench the respondents on 30 June 1994. The
court
a quo
found that the retrenchments were substantively
and procedurally unfair. It ordered the first appellant to compensate
the respondents,
and imposed joint and several liability on the
second and third appellants.
[2] The
third appellant was listed on the Johannesburg Stock Exchange on 10
December 1993. Shortly after its conversion from a private
to a
public company, it made a successful take-over offer for all the
shares of the second appellant which were at that time quoted
on the
Johannesburg Stock Exchange. The take-over was to be effective from 1
July 1993. Pursuant to the take-over, the second appellant
was
delisted and became a wholly owned subsidiary of the third appellant.
At the time of the take- over the second appellant was
the holding
company of the first appellant. In the report of the board of the
third appellant accompanying its financial statements
for the year
ended 31 December 1993, it was announced that: -
“
Safetec (second
appellant) bought the assets and liabilities of its two subsidiaries,
Buffalo Sign Company Limited and Buffalo Sign
Cape (Pty) Ltd on 1
July 1993 and the business operations of these companies were
continued as divisions of Safetec as from this
date.”
[3] There
are strong indications that the sale of the assets and liabilities of
the first appellant had indeed been implemented. Letterheads
were
brought into use in which the former business of the first appellant
was described as being conducted by ‘Buffalo Sign a division
of
Safety Technologies Limited.’ The additional member in the court
a
quo
disbelieved the appellants’ witnesses that the letterheads
were wrong, I do not believe them either.
[4] The
second appellant resolved on 4 February 1994 to formally conclude the
transaction for the purchase of the assets and liabilities
of the
first appellant and notice was given of a general meeting of the sole
shareholder of the first appellant which was to have
been convened on
7 February 1994 to consider passing the necessary resolution. There
was no evidence before the court
a quo
on whether or not such
a resolution was passed. It is the appellants’ case that it was
not. The reason for the failure to adopt
the shareholders’
resolution was the supposed refusal of the first appellant’s board
to approve the transaction. There is no
merit whatever in this
contention. The first appellant’s directors would not and could not
have held out against the wishes of
the second appellant which was
the only shareholder and also the other interested party. Moreover,
the financial statements of the
third appellant which deal with
events subsequent to the year end occurring as late as 10 March 1994,
make no mention of cancellation
of the sale.
[5] The
second appellant must have changed its mind about the wisdom of
having acquired the first appellant’s business. The business
was
going from bad to worse. It must have been during early February 1994
that the auditors were working on the 1993 financial statements
and I
surmise that there must have been discussions concerning the first
appellant’s alarming losses. These losses would, of course,
have
had to be borne by the second appellant. Earlier, the consolidation
of the businesses of the first appellant and Buffalo Sign
Cape (Pty)
Ltd in the second appellant made good commercial sense. Now the
priority was to extricate the second appellant from the
debt-ridden
business it had bought from the first appellant.
[6] On
15 June 1994 we find the second appellant writing to the first
appellant ‘withdrawing its offer to purchase the business’,
saying that this ‘has the effect of Buffalo Signs Company Limited
(the first appellant) being a separate entity trading under its
own
name for its own account including the period 1 July 1993 to the date
of this letter.’
[7] Shortly
before, on 30 May 1994, a general meeting of the only shareholder of
the first appellant had elected four new directors
who were with
immediate effect to replace Reuben Sachs and the first respondent who
both resigned from the first appellant’s board
with effect from 30
June 1994. This meant that on the date of the supposed withdrawal of
the offer the second appellant had its own
directors on the board of
the first appellant and owned all its shares. The failure of the
first appellant’s board, even now, to
approve the sale can mean
only one thing: the board was in agreement with the second appellant
that the sale should be undone.
[8] Five
days after the ‘withdrawal of the offer’ which the first
appellant’s directors had (so the appellants would have us
believe)
so obstinately resisted, a letter was dispatched by ‘Buffalo Sign’
to the appropriate industrial council announcing
the closure of ‘our
Industria operations with effect from 30 June 1994.’ The letter
informs the industrial council that there
was little prospect of
paying employees any monies other than their June salaries or wages
and outstanding leave pay. It said, furthermore,
that ‘we are at
present negotiating with our creditors to accept as little as
possible for their outstanding debts in an endeavour
to save the
Company (the first appellant) from being liquidated.’ The letter
also expresses the intention to ‘make the Company
dormant from 1
July 1994.’
[9] Of
course, if the employees and the creditors had realised that the
assets and liabilities of the first appellant had been bought
by the
second appellant such a compromise arrangement would not have been
possible. The second appellant then set about conducting
what its
witnesses described as an informal winding-up of the first
appellant. This was just as well for the second appellant. If
the
first appellant had been compulsorily wound up, the liquidator would
undoubtedly have discovered that creditors’ and employees’
claims
since 1 July 1993 lay, not against the first appellant, but against
the second appellant which was not in as precarious a
financial
situation.
[10] On
5 May 1994 the first appellant (not “Buffalo Sign, a division of
Safety Technologies Limited”) issued what it called an
“employee
communiqué/brief.” This communication advised employees that
attempts up to that point to improve the financial viability
of the
company had failed and that it had become necessary to consider the
possible closure of the operation at Industria. Employees
were
invited to discuss and consult with the first appellant about the
impending rationalisation and possible closure of the operation
at
Industria before or during the week of 16 May 1994. The decision with
regard to ‘possible corporate rationalization and the
continuation
of the operation at Industria’ would be announced before or on 20
May 1994.
[11] On
23 May 1993 there was another ‘employee communiqué/brief’. It
reads as follows:
“
We
regret to inform you of the Board of Directors’ decision to close
the Industria operation of the Company with effect from 30
June,
1994. The decision to close the Industria operation can be directly
attributed [to] the continued downturn of the country’s
economy,
the Company’s lack of financial performance in the past years and
the lack of viable product orders for the short to medium
term
future.
A
compounding factor is the Company’s high overhead cost structure,
which impacts detrimentally on the Company’s competitive advantage
in an extremely competitive market. In short, the Board of Directors
having given due consideration and regard to all circumstances
is of
the opinion that the Industria operation is and has been financially
unviable for some time now, thus necessitating its urgent
closure and
the retrenchment of all employees.
We
expect all employees to report for work as per normal and help with
the administrative closure of the branch, inclusive of the
packing of
equipment and stock loading, cleaning and transferring activities
until Thursday, 30 June, 1994. We will allow staff members
reasonable
paid time off during working hours to find suitable alternative
employment, subject to prior notice and operational requirements.
We
are at present unfortunately not in a position to guarantee to pay
our employees severance packages. An investigation into the
financial
affairs of the Company has been initiated to determine whether
severance packages to employees are in fact possible. We
will
communicate to (sic) our employees upon completion.
Leave
pay will be calculated as at 30 June, 1994 and will be paid out in
lieu of same. All monies due to employees will be paid out
on
Thursday, 30 June 1994 as per normal payment procedure.
All
employees will receive a letter of reference from the Company.
We
once again truly regret having to part company with you under these
circumstances and would again ask that you give us your full
co-operation in facilitating the speedy and orderly closure of the
Industria operations. We would further like to make use of this
opportunity to thank you for the time and effort you have put into
the Company and would like to wish you the very best for the future.”
[12] On
the view I take of this matter the letter, supposedly written to
convey information to the respondents (and others) which
might serve
as a basis for consultation on their retrenchment, was false from
beginning to end. It was part of the deceit practiced
on employees
and creditors alike. The respondents’ employer was not in dire
financial straits. The respondents were no longer employees
of the
first appellant. The first appellant had stopped trading on 1 July
1993 when its business was sold to the second appellant
as a going
concern. Thereafter the respondents, who carried on with their jobs,
could only have been employed by the second appellant.
They say that
they were. There is no evidence from the appellants that they were
not, although it would have been a simple matter
for the second
appellant to establish that it did not pay their salaries. Any
retrenchment exercise should, of course, have been
carried out by the
second appellant. Instead, it was carried out by the first appellant
who pretended to be the employer so that
it could relieve the second
appellant of its retrenchment burden. The whole distasteful exercise
was flawed and thoroughly unfair,
both procedurally and
substantively. The second appellant, as employer, is liable to
compensate the respondents.
[13] The
respondents sought and obtained in the court
a quo
an order
that all the appellants should be jointly and severally liable. I do
not believe that such an order was competent. The industrial
court is
not empowered to make an order for compensation against anyone other
than an employer. This follows from the jurisdiction
conferred on it
by the Labour Relations Act 1956 in regard to the remedying of unfair
labour practices. An unfair labour practice
can only be committed as
between employer and employee. The fact that the third appellant was
probably an accomplice to the second
appellant’s deceitful dealings
does not by itself turn it into an employer. There is no such thing
as a fictional employer. The
word ‘employer’ is defined in the
1956 Labour Relations Act as meaning:
“any person whomsoever
who employs or provides work for any person and remunerates…him or
who … permits any person whomsoever
in any manner to assist him in
the carrying on or conducting of his business…”
[14] The
only person against whom the industrial court could properly have
made an order is one who fits the above description. In
each case the
correct enquiry is into the true identity of the employer. If
necessary, he may be plucked from his hiding place behind
the
corporate veil, but when he is brought forth he must still be shown
to be the real employer. The question that the industrial
court
should have asked itself was this: was the third appellant the
employer of the respondents? Did it, in other words, pay them
or
permit them in any way to assist it in the conduct of its business?
It has been established on a balance of probabilities that
the second
appellant paid the respondents. There seems to be no room on the
facts of this case for concluding that the third appellant
in fact
paid them. There is no evidence of the extent to which the third
appellant provided finance for the day to day running of
the second
appellant’s business. The only question in this regard which was
really debated was the provision of a performance guarantee
by the
third appellant in favour of the first appellant. That, of course,
does not assist the present enquiry. The proposition that
the
respondents may have assisted the third appellant in the conduct of
its business is met by the objection that they were employees
of the
second appellant and that there was not between these two appellants
that incestuous interrelationship, coupled with an abuse
of the
second appellant’s corporate personality, which might permit one to
say that they were, despite the corporate trappings,
in truth and in
equity one and the same juristic person.
[15]
Media
Workers’ Association of SA & Others v Facts Investors’ Guide
(Pty) Ltd & another
(1986) 7 ILJ 313 (IC) was not a case of
piercing the corporate veil. The court simply decided who, prima
facie, having regard to
all the evidence, the employer was. The
decision on which Mr. Pauw for the respondents placed some reliance,
Paper, Printing, Wood and Allied Workers’ Union and Others v
Kaycraft (Pty) Ltd & Another
(1989) 10 ILJ 272 (IC) at 282 –
284 was, in my opinion, wrong. The court concluded (at 284 E – F)
that “…with due regard
to all the considerations of equity… the
respondents should be held responsible as a group for the
consequences of an unfair retrenchment.”
There is no principle by
which a person who is not an employer may (in law or equity) be held
responsible for the consequences of
an unfair retrenchment. I hold
the same view about the correctness of the decision in
SA Chemical
Workers Union & Others v Toiletpak Manufacturers (Pty) Ltd &
Others
(1988) 9 ILJ 295 (IC)
[16] The
court in the
Kaycraft
case (supra) relied on the decision in
SA Allied Workers’ Union & Others v Contract Installations
(Pty) Ltd
(1988) 9 ILJ 112 (IC). Although the result was probably
correct, the following dictum is not: “…though in strict law the
applicants
may have been employees of the first respondent only, in
equity the second respondent as the ‘umbrella company’ of the
group
should be held responsible with the first respondent for the
consequences of an unfair retrenchment…” A person either falls
within
the definition of employer or he does not. There is no
employer in equity.
[17] Bearing
in mind what Smalberger JA said recently in
Cape Pacific Ltd v
Lubner Controlling Investments (Pty) Ltd
[1995] ZASCA 53
;
1995 4 SA 790
(A) (at
802 H – I) that ‘the law is far from settled with regard to the
circumstances in which it would be permissible to pierce
the
corporate veil’, and (at 803 A) that ‘a court has no general
discretion simply to disregard a company’s separate legal
personality whenever it considers it just to do so’, I think that
the court
a quo
should have been a good deal more cautious in
its approach.
[18] There
was no evidence before the court
a quo
that the third
appellant had abused the second appellant’s legal personality or
had used it in a fraudulent scheme. The fraud was
that of the second
appellant which, although the third appellant controlled it, did not
have the same directing mind. See the remarks
of Corbett CJ in
The
Shipping Corporation of India Ltd v Evdomon Corporation and Another
1994 1 SA 550
(A) at 566 C – F.
[19] Mr.
Kruger, who appeared for the appellants was critical of the amount of
the compensation awarded by the Industrial Court. I
have, after
careful consideration, concluded that there is no reason to interfere
with the award. Having regard to the losses suffered
by the
respondents and the deceitful way in which the second respondent
treated them, there is nothing unfair about it.
[20] The
third appellant has been successful on appeal, the first and second
appellants have not. Having regard to the fraudulent
conduct of the
first and second appellants, I consider that they should pay the
costs of the appeal proceedings. The dictates of
the law and fairness
do not require that the respondents should pay the third appellant’s
costs. Since the third appellant incurred
no costs of its own, such
an order would be equivalent to one that each party pay its own
costs. That would in my view be unfair.
A. The
appeal succeeds to the extent that the order of the industrial court
is set aside and replaced by the following order -
“1. The
termination of the services of the applicants by the second
respondent constituted an unfair labour practice.
The second respondent is ordered to pay
compensation of
R 211 572.00 to the first
applicant and R27 900.00 to the second applicant.
The respondents are jointly and severally to
pay the applicants’ costs on the highest magistrates’ court
scale.
The first and second appellants are to jointly
and severally pay the respondents’ costs of the appeal.
_____________
CONRADIE JA
I agree
___________
NGCOBO AJP
Counsel for Appellant: M. A. Kruger
Counsel for Respondent: P. Pauw
Date of Hearing: 18 February 1999
Date of Judgment: 3 March 1999
Page
14
of
14