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[2002] ZALAC 33
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Waverly Blankets v Commission for Conciliation Mediation and Arbitration and Others (PA7/01) [2002] ZALAC 33; (2003) 24 ILJ 388 (LAC); [2003] 3 BLLR 236 (LAC) (11 December 2002)
IN THE LABOUR APPEAL COURT OF
SOUTH AFRICA
HELD IN JOHANNESBURG
CASE NO: PA7/01
In the
matter between
WAVERLY BLANKETS
LTD APPELLANT
and
COMMISSION FOR CONCILIATION,
MEDIATION
AND ARBITRATION FIRST RESPONDENT
BRAND
F. N.O. SECOND RESPONDENT
SOUTH
AFRICAN CLOTHING AND
TEXTILE
WORKERSâ UNION THIRD RESPONDENT
________________________________________________________________
JUDGMENT
________________________________________________________________
NICHOLSON JA
[1] The
appellant is a registered company, which carries on the business of
manufacturing blankets. The third respondent is a registered
trade
union. During 1995 and 1996 64 members of the third respondent were
dismissed for various acts of misconduct. Certain procedural
aspects
of the relationship between the third respondent, its members and the
appellant were regulated by a agreement into between
the third
respondent and the appellant - then known as Consolidated Waverly
Textile Ltd - on 21 August 1990.
[2] On the
19 April 1997 the appellant was placed under provisional liquidation
and joint provisional liquidators were appointed who
continued to run
the appellantâs business pending either the disposition of the
appellantâs business, the disposition of its
assets or the adoption
of a scheme of arrangement as contemplated in section 311 of the
Companies Act, No 61 of 1973. On 29 April
the appellant wrote to the
third respondent indicating that it was putting together a plan âin
order to resuscitate the Waverly
business and to ensure that jobs are
saved for the East London areaâ. The letter also requested an
irrevocable guarantee from it
that it would work with appellant in
order to ensure industrial stability and peace.
[3] On 20
My 1997 the personnel department of the appellant sent out notices to
all employees informing them that their contracts
of employment and
the recognition agreement, subsisting between the appellant and the
third respondent, had been terminated as a
result of the provisional
liquidation of the appellant.
[4] On 26
May 1997 the appellant and third respondent concluded an agreement on
wages, leave pay, provident fund and other related
matters.
[5] On or
about 17 July 1997 the High Court granted leave for the convening of
meeting to consider a proposed scheme of arrangement
in terms of
section 311 of the Companies Act. On the same date appellant and
third respondent wrote a joint letter to the secretary
of the
Bargaining Council for the Textile Manufacturing Industry of the
Republic of South Africa. The letter records the fact of
the
provisional liquidation and the fact that âthe future of the
employees has been under intensive negotiation during the past
eight
or so weeksâ
[6] The
letter goes on to make mention of the scheme of arrangement being
approved by the creditors of the appellant and attaches
the agreement
relating to wages dated 26 May 1997 mentioned above, the acceptance
of which would determine whether the purchaser
Dacman Investments
(Pty) Ltd (âDacmanâ) put forward the offer of compromise. The
joint letter goes on to say that âthis agreement
has been arrived
at in order to secure the continued employment of a large number of
people and then only after a great sacrifice
by these people; should
it for any reason now fail the jobs of these people will be placed in
jeopardy.
[7] The
letter makes it plain that the third respondent was very well aware
of the scheme and terms thereof. Although no mention is
made of the
dismissed employees whose arbitration is at issue, their fate could
not have been absent from the minds of the appellant
and the third
respondent at that time. The very laudable concern of both parties
was to preserve as many of the remaining jobs as
possible.
[8] On 21
August the scheme of arrangement, in terms of which Dacman bought
shares in the appellant, was sanctioned by the court and
the
provisional liquidation order was discharged. Throughout the relevant
period the appellantâs business continued operating without
interruption.
[9] An
agreement was concluded between appellant and the third respondent on
29 August. The preamble of that agreement reads: â
the agreement is
made and concluded by the parties on the understanding that new
management and ownership, taking over from the provisional
liquidation, will take over the existing procedural agreement
including the Agency Shop Agreement, without amendment to any
condition
of employment unless exception is granted by the Bargaining
Council or negotiation at plant level and reduced to writing in terms
of Annexure A ( the recognition agreement)â.
[10] The
recognition agreement, resuscitated by the subsequent agreement of 29
August contained a provision in clause 15.4.1 to the
effect that any
dispute of right be arbitrated by an arbitrator appointed by IMMSA.
The third respondentâs attorney sent a letter
of demand dated 17
November 1997 that appellant submit the prior dismissal disputes of
1995 and 1996 to such arbitration but the
appellant declined by
letter dated 24 November 1997.
[11] The
third respondent then referred the dispute to the Commission for
Conciliation, Mediation and Arbitration (CCMA) in terms
of the Labour
Relation Act, No66 of 1995 (the Act) and after an unsuccessful
attempt at conciliation on 31 March 1998, the matter
was referred to
the CCMA for arbitration.
[12] The dispute was referred for
arbitration in terms of Section 24 of the Act. The third respondent
sought the following relief:
â1. Determination that the employer is
bound by the said collective agreement. 2. Determination that the
employer is obliged to
refer to arbitration under the said collective
agreement, the dispute relating to the dismissal of union members for
alleged (sic)
various acts of misconductâ.
[13] On 15
March 1999 the second respondent a commissioner of the CCMA,
arbitrated the dispute and issued his award on 4 May 1999.
He found
that the CCMA had jurisdiction to arbitrate the dispute. He also
found that the recognition agreement had survived the provisional
liquidation and scheme and was not terminated by operation of law or
the facts. He found further that neither the agreement of 29
August
1997 nor the provisions of the Companies Act nor the scheme of
arrangement terminated the 64 dismissed employeesâ right
to submit
their dismissal dispute to private arbitration. In June the appellant
launched a review application in the Labour Court
and sought an order
reviewing that ruling and setting it aside. The Labour Court handed
judgement in October 2000 dismissing the
review application with
costs. With the leave of the Labour Court the appellant now appeals
against that judgement on 9 grounds that
are set out in the notice of
appeal.
[14] Before
the commissioner the present appellant argued three submissions;
firstly, that the CCMA lacked jurisdiction as the dispute
involved
the law of insolvency and the High Court had jurisdiction; secondly,
that section 38 of the insolvency Act automatically
terminated the
contracts of employment, and, finally that the scheme of arrangement
extinguished the claims of the dismissed employees.
[15] In
this Court Mr Tip SC, who appeared for the appellant with Mr Myburg,
the heads of argument having been drawn by Mr Franklin
SC, placed no
reliance on the first two grounds set out in the previous paragraph
and directed his energies at the third submission.
This ground
involves the preliminary question whether the dismissed employees
were creditors under the scheme of arrangement.
[16] Section
311(!) Of the Companies Act provides the machinery in terms of which
compromise or arrangement may be made between (a)
a company and its
creditors, or any class of them, or (b) a company and its members, or
any class of them, or (c) a company and any
combination of its
creditors and or members, or any class of them. The successful
implementation of such a scheme requires three
procedural steps.
Firstly, a person with locus standi brings an application to obtain
the authority of the court for the summoning
of meeting of the
creditors or members concerned. Secondly, if the court grants the
order, the meetings are held in order to obtain
the agreement of the
required majority of the creditors or members. Thirdly, if the
proposal ie agreed to by the required majority
or majorities, the
sanction of the court must be sought.
[17] If
sanctioned by the Court, the proposal, on registration by the
registrar of a copy of the courtâs order, becomes binding
on all
the creditors or members concerned (whether or not they have all
agreed to it) and on the company itself. Under a compromise
a
âreceiverâ is usually appointed whose function it is to implement
the compromise.
[18] While the Companies Act does
contain a definition of who a âmemberâ of a company is, it
contains no definition of âcreditorâ.
In order to ascertain if
the 64 dismissed employees were incorporated as creditors by the
scheme of arrangement it is necessary to
properly interpret the
scheme. It is clear that the term âcreditorsâ is broad enough to
accommodate contingent creditors and
creditors with illiquid claims.
See
Namex (Edms)
Bpk v Kommissaris van Binnelandse Inkomste
1994(2) SA 265
(AD)
at
288F-289E.
[19] In
Morris
v Airomatic (Pty) Ltd t/a Barlows Airconditioning Co
1990 4 SA 376
(A)
at 398 Milne
JA said
â
In
Kleena Industries
(Pty) Ltd v Senator Insurance Co Ltd
1982 2 SA 458
(W)
Slomowitz AJ wens so far as to hold at 463 that: âwhere the Act
refers to a sanctioned composition as being binding on all creditors
or on all members of a particular class of them, the word âallâ
must be qualified to mean no more than all those whom the offeror
intended, on proper construction of the offer, should be boundâ.
If
this is correct then, whether or not a particular compromise is
binding on creditors in respect only of those claims by virtue
of
which they are, or claim to be, creditors will depend upon the
correct construction to be upon the terms of that compromise
â.
(Emphasis added)
[20] I also accept that it was
competent for the third respondent challenged the applicability of
the scheme of arrangement to the
64 dismissed employees in the
proceedings before the second respondent, as opposed to challenging
the scheme in the High Court itself.
See
Barclays
National Bank Ltd v H.J. de Vos Boerdery 1980(4)SA 475(AD)
at
484 A-B.
[21] âCreditorsâ
are not defined as such in the scheme of arrangement and they
therefore must be ascertained by a perusal of the
other provisions of
the scheme.
[22] Clause
5.5 of the scheme of arrangement deals with the rights after sanction
and provides that they â(save for the excluded
creditors) be
confined to the right to claim payment from the receivers of his/its
dividend in terms of clause 4.2.1 supra and no
creditor (other than
the excluded creditors) shall after the final date have any claim
against the companyâ. The excluded creditors
are defined and
include a number of banks, financial institutions and others. It is
common cause that the third respondent and 64
employees are not
excluded creditors.
[23] A
âclaimâ is defined as âany claim of whatever nature and
howsoever arising [including claims] for payment or performance.
A
âcontractâ is defined to include a âcontract of employmentâ.
The plain meaning of âclaimâ includes a claim for reinstatement,
(which is a form of specific performance) or for compensation and the
definition of âcontractâ clearly implies that contracts
of
employment were always contemplated.
[24] Mr
Pillemer, who appeared for the third respondent, argued that the
proper forum for a determination of the merits of whether
the
dismissed employeesâ claims survived the scheme of arrangement was
the private arbitrator mentioned in the collective agreement.
There
are two problems with this submission. The first is what could be
termed a jurisdictional fact, namely, whether, the scheme
disposed of
the dispute by novating or compromising it, there was a existing
dispute to refer to private arbitration. The second
problem relates
to the proper forum for resolving such a dispute; in other words,
whether the arbitrator should entertain such a
claim, given that the
scheme provided the High Court of the Eastern Province Local Division
as the forum for dispute about claims
in terms of clause 5.1.6 read
with the definition of âcourtâ.
[25] In
order to proceed to private arbitration the third respondent had to
show that there was an existing claim by the dismissed
workers for
reinstatement. If the claim had been compromised by te scheme, then
the right to proceed to arbitration was extinguished.
As I have
already indicated, the claims for reinstatement fell into the wide
definition of âclaimâ and ceased to exist save in
the context of
enforcement against the receiver.
[26] Where
a party takes the view that impending arbitration proceedings will be
invalid, a difficult question arises on what such
a party should do
about such arbitration proceedings. The one option is for such party
to approach a court of competent jurisdiction
and seek an appropriate
order before such arbitration proceedings can commence. Another
approach would be to raise the objection
in such arbitration
proceedings, and, if the objection is dismissed, participate in the
arbitration proceedings under protest and
only approach the court of
competent jurisdiction for appropriate relief if such party is
aggrieved by the outcome of such proceedings.
The third is for such
party not to participate at all in the arbitration proceedings but to
await the outcome thereof and, approach
the court of competent
jurisdiction if such party gets aggrieved by the outcome. Botha J
expressed preference for the first approach
in Inter Continental
Finance and Leasing Corporation (Pty)Ltd v Stands 56 and 57 Industria
Ltd 1979(3)SA 740(W) at 754. In Fidelity
Guards Holdings (Pty) Ltd v
Epstein NO & others (2000) 21 ILJ 2382 (LAC) at par 20 this Court
expressed doubt that a hard and
fast rule can be fixed in regard to
such situations. In my view which of the routes is preferable is
dictated to a very large extent
by the facts of each case and the
circumstances surrounding it.
[27] Mr
Pillemer argued that the third respondent as a union had rights
separate from the rights of the members whose reinstatement
it was
seeking. It will be recalled that in the dispute referred for
arbitration the third respondent sought the following relief:
â2.
Determination that the employer is obliged to refer to arbitration
under the said collective agreement the dispute relating
to the
dismissal of union members for alleged (sic) various acts of
misconductâ. The third respondent sought no relief qua union.
[28] It is
also clear from the correspondence between the bargaining council and
the appellant that the third respondent was involved
in a balancing
act - which was indeed the laudable approach - of trying to secure as
many existing jobs of its members as possible.
The third respondent
presumably concluded that its best interest lay in supporting the
scheme and therefore preserving the jobs of
the workers retained by
the appellant.
[29] Mr
Tip argued that, when the offeror in the scheme of arrangement-
Dacman - considered buying shares in the appellant, it was
only right
and just that an accurate and clear picture was obtained as to the
creditors that Dacman would have to deal with. The
excluded creditors
were named and Dacman was aware that it would deal with those
separately.
[30] Insofar
as the other creditors were concerned Dacman made an offer to them on
the basis that there were no claims unaccounted
for. It is for that
reason that âclaimâ definition was couched in a wide language to
make sure that no creditor could hide in
the background and ambush
the offeror - Dacman - with a claim which was not covered by the
scheme of arrangement. If the word âclaimâ
excluded the rights of
the dismissed employees to bring their dispute to a private
arbitration and claim reinstatement and backpay,
Dacman faced the
prospect of very expensive litigation in the first place and in the
second place the possibility of having to reinstate
64 employees and
pay astronomical amounts of backpay if such were successful. In
addition Dacman would have to find jobs for the
reinstated workers.
[31] If
the word âclaimâ excluded the dismissed workersâ rights to
reinstatement and backpay, the offeror might have thought
might have
thought twice about putting forward the scheme. Had Dacman backed out
of the scheme the appellant might well have been
finally liquidated
and the members of the third respondent, who were still working
there, would probably have also lost their jobs.
Such a state of
affairs would have been detrimental to all parties concerned. The
correspondence reveals close co-operation between
the appellant and
third respondent in backing the scheme on the basis that it was
mutually beneficial, certainly insofar as the members
who had jobs
were concerned.
[32] Mr
Pillemer referred us to a conflict, or potential conflict between s.
311 of the Companies Act ans s. 24 of the Labour Relations
Act, in
which event the latter statute prevails. See s. 210. Section 24
requires every collective agreement to contain certain conciliation
and arbitration provisions. Such provisions are indeed to be found in
the collective agreement in the present appeal. In terms of
subsection (2) disputes or alleged disputes about the interpretation
or application of a collective agreement may be referred to
the CCMA
if: â(b) the procedure provided for is not operativeâ. A dispute
unresolved by conciliation may be referred to arbitration.
See
subsection (5).
[33] Turning
to s.311 of the Companies Act, itself say nothing different. The
scheme of arrangement, as sanctioned by the High Court,
provided for
the dispute claims of creditors (i.e disputed by the receivers) to be
determined by a different forum, namely, the Eastern
Cape Division of
the High Court. This is not an uncommon stipulation in certain kinds
of schemes of arrangement. No doubt the learned
Judge could have
ordered otherwise, but I suspect that he was not asked to do so.
[34] What
then is or are the dispute(s) in the present matter? It is not the
unionâs case that the previously dismissed workers
have sought to
prove claims in terms of the scheme of arrangement, which claims have
been rejected by the receivers. The unionâs
real case, however, is
that the previously dismissed workers are not bound by the scheme of
arrangement at all, and that such of
the workers who have good claims
should be paid not a dividend out of some special fund, but in full.
This is the real question which
the union presented for conciliation
and arbitration. albeit in jurisdictional terms. Thus the union
relied, inter alia, on the revival
of the collective agreement. For
reasons which appear elsewhere in this judgment, the revival argument
must fail in relation to the
previously dismissed workers.
[35] I can
see no fundamental conflict between s.311 of the Companies Act and
the provisions of the Labour Relations Act. Section
311 has been on
the statute book for many years and it serves a useful purpose,
especially when companies run into trouble. That
is demonstrated by
the facts of the present case. It seems unlikely that Parliament,
when enacting the Labour Relations Act, intended
to undermine s.311
whenever a company, being rescued from insolvency, has employee
creditors and a collective agreement, which is
often the case. In the
standard type of s.311 arrangement with the creditors, the employees
will have a vote as creditors, which
they can exercise for or against
the proposed scheme according to their best interests. I do not think
that the legislature intended
to take that opportunity away from them
or to preclude the opportunity for compromise afforded by s.311. In
this case it was open
to the dismissed employees, as creditors to
seek to persuade, first the majority in the creditors meeting, and,
secondly, the High
Court, that disputes such as the dismissal
disputes be referred to arbitration. They did not do so.
[36] It is
so that the provisions of a particular scheme of arrangement may
offend against the Labour Relations Act in a respect which
escapes
the attention of the Judge who sanctioned the scheme. That situation
does not arise here in a material way.
[37] I am
therefore of the opinion that the rights of the dismissed employees
to bring reinstatement proceedings for their dismissal
fell within
the definition of a âclaimâ in the scheme and that their rights
to arbitrate such claims were extinguished by the
sanctioning of the
scheme.
[38] If the 64 dismissed employees
had a claim then such had to be dealt with in terms of the scheme of
arrangement. In
Serein
Investments(Pty) Ltd v Myb (Pty) Ltd 1967 4 (SA) (C)
438, Diemont J said:
â
Whereas previously a creditor
had the right to sequestrate the company and look to the liquidator
to pay him a dividend in due course,
he is obliged now to sit back
and wait for the provisional liquidator or receiver to implement the
terms of compromise. The compromise
is binding upon and unimpeachable
- even if he did not vote for it - until such time as it has been set
aside. If he disapproves
of the method of distribution as being in
conflict with the terms of the compromise, he may have a remedy
against the receiver. He
may even be entitled to ask the Court to set
aside the compromise - this is an issue that was not argued and I
express no final view
on itâ.
[39] Any
claim they had lay against the receiver under the scheme and if there
was a dispute such had to be referred to the High Court
as I have
mentioned. For this additional reason the third respondent had no
right to seek private arbitration. The agreement concluded
between
appellant and the third respondent on 29 August providing for the
taking over of the existing procedural agreement, does
not take the
matter any further. That the recognition agreement was resurrected
did not mean that the claims by the dismissed workers
were given new
life. At best for the third respondent it provided for the same
mechanisms to be available for workers dismissed after
that date.
[40] It
seems to me that the award of the commissioner is clearly reviewed on
a number of grounds. The commissioner found that a dismissed
employee
âshould not be disbarred from establishing a claim for the purposes
of enforcing it against the insolvent estate of his
employer by
following the arbitration routeâ. Secondly he found that there was
no indication in the Companies Act or the scheme
âthat existing
procedural rights contemplated in the [recognition] agreement to
resolve dispute of right through arbitration have
been terminatedâ.
[41] The commissioner focussed on
the continued existence of the recognition agreement and failed to
properly appreciate the implications
of the adoption of the scheme of
arrangement. He failed to appreciate that the rights of the dismissed
employees fell within the
definition of a claim in the scheme. For
the reasons set above it is clear that those conclusions were
materially defective. The
award was not justifiable as to the reasons
given and there were material legal and factual errors in the
reasoning process that
one must conclude that there was no fair trial
of the issues and that a gross irregularity of the latent type has
taken place. See
Toyota
South Africa Motors (Pty) v Radebe and Others
[2000] 3 BLLR 243
(LAC)
at 250A-C and 257H-I. It can also be said that the award was not
rationally related to the purpose for which the power was given
from
an objective point of view. See
Shoprite
Checkers (Pty) Ltd v Ramdaw NO and Others
2001 (4) SA 1037
(LAC)
para [26].
[42] This
appeal raised issues of some complexity and justified the employment
of two counsel. Success for the appellant must, therefore,
include
such costs.
[43] In
the result:
the appeal is upheld with costs,
including those consequent upon the employment of two counsel;
the judgment of the court a quo
is set aside and replaces with the following order:
(i) âthe Award of the second
respondent is hereby set aside.
(ii) The
third respondent is ordered to pay the costs of this applicationâ.
_________________
NICHOLSON
JA
I agree.
________________
ZONDO JP
I agree.
__________________
COMRIE AJA
Appearances:
For
Appellant: Adv. S.K. Tip SC with Adv. A.T. Myburg.
Instructed
by: Pierre Naude and Associates
For
Respondent: Adv. M. Pillemer SC
Instructed
by: Channels Albertyn and Tanner
Date of
Hearing: 11 June 2002
Date of
Judgment: 11 December 2002