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[2010] ZALAC 24
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National Union of Mine Workers v Commission for Conciliation, Mediation and Arbitration and Others (JA 45/07) [2010] ZALAC 24 (29 January 2010)
21
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
Held in Durban
Case no.: JA 45/07
In the matter between:
National Union
of Mine Workers
…........................................................................................
Appellant
And
The Commission
for Conciliation, Mediation and Arbitration
…...............................
1
st
Respondent
Zondi, D N.O
…...............................................................................................................
2
nd
Respondent
Precious Metal
Refiners (Pty) Ltd
….............................................................................
3
rd
Respondent
Rustenburg Base
Metal Refiners (Pty) Ltd
…..............................................................
4
th
Respondent
JUDGMENT
ZONDO JP
Introduction
[1] This appeal
concerns the correctness or otherwise of a judgment and order made
by the Labour Court dismissing a review application
that had been
brought by the appellant to have a certain arbitration award issued
by the second respondent under the auspices
of the first respondent
reviewed and set aside. The arbitration award related to a dispute
between the appellant, on the one
hand, and, the third and fourth
respondents, on the other, about whether or not the third and fourth
respondents were obliged
to pay certain employees who were members
of the appellant union certain bonuses in terms of a certain
agreement. The second
respondent, who was the arbitrator in the
dispute, issued an arbitration award to the effect that the third
and fourth respondents
were not obliged to pay the employees such
bonuses. The appellant then brought an application in the Labour
Court to have the
award reviewed and set aside. The Labour Court
found that the arbitration award was justifiable and dismissed the
application.
It subsequently granted the appellant leave to appeal
to this Court against that order, Before considering the appeal, it
is
necessary to set out the background to the dispute.
The
background
[2] The appellant
is a registered trade union and had members among the employees of
the third and fourth respondents. In December
2002 the third and
fourth respondents entered into an agreement with a number of trade
unions regarding the payment of incentive
bonuses to their employees
when they had achieved certain performance targets. This agreement
was called:
"Incentive
Scheme Framework Agreement Financial year 2003."
Although
the appellant was not a signatory to the agreement, it is common
cause that the agreement was applicable to the appellant's
members.
It is common cause that the agreement was binding upon the third and
fourth respondents and those of the appellant's
members who are
affected by this matter. It is necessary to refer to certain of the
provisions of the agreement.
[3] Clause 2:4 of
the agreement sets out the objectives that the incentive scheme was
designed to achieve. It reads:
"2.4
The
Scheme has been designed to achieve the following:
2.4.1.
incentives achievement of Group performance targets,
2.4.2. reward
employees for superior performance,
2.4.3
.
reward
team performance."
Clause 4 of the
agreement sets out the objectives of the agreement.
It reads:
"4.
Objectives
4.1 The
objectives of the scheme are to:
4.1.1. align
performance with overall company goals;
4.1.2. align
employee outputs with performance drivers;
4.1.3. encourage
superior performance through achievable incentives;
4.1.4.
incentives on going contributions to significant performance
improvement;
4.1.5. encourage
and reward superior team performance;
4.1.6. attract
and retain people who can, are, and continue to add economic value;
4.1.7. create a
competitive advantage;
4.1.8. improve
the rewards without a negative impact on the Group's cost
structures."
[4]
Under clause 5 of the agreement certain principles are set out which
govern the incentive scheme. It is not necessary to quote
all of
them. It suffices to identify only some. Clause 5.1 reads:
"The
parties recognise their mutual interest in the objectives set out
above and consequently agree to cooperate in
the promotion of
the objectives set out above."
Clauses
5.3.2
to
5.3.11
excluding
clauses
5.3.5
and
5.3.6
read
thus:
"5.3.2The
Scheme will be fair, transparent and designed to enhance teamwork,
5.3.3. The
Scheme must be self-funding.
5.3.4. The
Scheme recognises the achievement of quality.
5.3.5
5.3.6
5.3.7.
performance criteria will be weighted according to the focus of
various teams;
5.3.8.
performance measures will be established for each performance
criteria;
5.3.9. targets
will be set for each team based on these performance measures
relative to the stretch targets;
5.3.10. Actual
performance will be assessed relative to the targets;
5.3.11. the
incentive payments will be based on the team's result, but may be
linked to the performance of various teams where
there is
interdependence;
5.3.12.
Performance measurement is a core principle of the Scheme requiring
that the performance of every team be measured against
pre-determined targets set in terms of clause 14. Previous reference
was to clauses 6 and 8."
[5] Clause 15 bears
the heading:
"MEASUREMENT
PERIOD."
Clause 15.1 reads
as follows:
"The
measurement period will depending on the nature of the team's work,
be
monthly
,
quarterly, or annually as agreed to between the parties and will
coincide with the Company or Group Company's financial period."
(Underlining
supplied).
Clause 16 deals
with the payment of incentives. Its heading is:
"Incentive
payment."
Clauses 16.1 and
16.2 read as follows:
"16.1
Incentives payments will be calculated as a percentage of basic
remuneration.
16.2. Basic
remuneration is defined as pensionable emoluments or flexpac as
applicable."
[6] Clause 18 deals
with the period of operation of the scheme and the termination of
the agreement on notice. Clause 18 reads
as follows:
"18.
PERIOD
OF OPERATION/TERMINATION
18.1. The Scheme
will
be implemented for a period of 12ftwelve) months
which coincide
with the Group Company's financial year. Notwithstanding the date on
which the Group Company signs the operational
level agreement this
Scheme
shall be deemed to have come into effect from 1 January 2003
.
18.2. The
Committee will review the Scheme at the end of the 12(twelve) month
period. Subject to the outcome of the review the
Committee will,
after due consultation, determine the continuation of the scheme.
18.3 Any party
may terminate this agreement on one (1) months written notice to all
other parties to this agreement."
(Underlining
supplied).
[7] Clause 19 bears
the heading:
"COMPANY/GROUP
COMPANY'S RIGHTS OF TERMINATION:"
It
reads as follows:
"19.1
The
Company or any Group Company may
immediately
terminate
either temporarily or permanently the Scheme on the following
grounds:
19.1.1 In the
event that the Company or Group Company is unable on financial
grounds, to pay incentives in accordance with the
Scheme;
19.1.2.
Where
the metal price in Rand terms falls below the unit cost of
production, or where the metal price falls below a threshold
level
of a 15% (fifteen percent) decline from the planned metal price for
the financial year."
(underlining
supplied).
[8] There were two
annexures to the agreement, namely, annexures
"A"
and
"B". Annexure
"A"
deals
with the functions and powers of
"EXCO"
as
well as
"Decision
Making."
Annexure
B deals with the
"RULES
OF THE Scheme."
Paragraph
3 of annexure B says in the first sentence:
"Performance
measurement is the core principle of the scheme i.e the performance
of every team will be measured against pre-determined
targets."
Paragraph 7 of
Annexure B deals with time frames. It reads:
"7.
TIME
FRAMES
Concept
The measurement
period will vary depending on the nature of the work
Incentive
payments will be made at different time intervals for different
teams.
Measurement
period for a particular team should be similar at all Business
Units."
Part of what
appears under paragraph 9 of Annexure B is the following:
"Termination
(resignations, dismissals, retrenchments)
Employees who
resign or are dismissed before the end of the applicable
measurement period do not participate in incentive payments.
However, those who are dismissed or resign after the end of the
measurement period but before the incentive is paid will receive
payment if they qualify".
[9] It will have
been seen that clause 19.1.2 of the agreement refers among others to
a planned metal price. It is necessary to
explain this phrase
because of its significance in the application and interpretation of
clause 19.1.2. The evidence by Mr Cressley,
the only witness to give
evidence in the arbitration, was that the management would, before
the end of each year, make projections
as to what the metal price
for the following year would be. The planned metal price would be
the metal price projected by the
management as the metal price for
the following financial year.
[10] It is clear
from the agreement that the main objective thereof was that the
employees should provide superior performance
resulting in the
achievement of certain targets in return for which the employer
would provide the employees with incentives
in the form of bonuses.
It is common cause that during the period of operation of the
agreement or scheme, which was 1 January
2003 to 31 December 2003,
the employees affected by these proceedings did meet their
performance targets. However, when they
expected the employer, i.e.
the third and fourth respondents, to pay them their bonuses, the
third and fourth respondents refused
to pay them their full bonuses
and
"terminated"
the
agreement or
"terminated"
the
agreement but only paid them some small amount of money which they
said they were paying as an ex gratia payment.
The
dispute
[11]
A dispute then arose between the third and fourth respondents, on
the one hand, and, the appellant, on the other, on whether
or not
the third and fourth respondents were obliged to pay the employees'
bonuses in terms of the agreement. The appellant said
that the third
and fourth respondents were obliged to pay the bonuses whereas the
third and fourth respondents said that they
were not obliged to pay.
The dispute was then referred to the Commission for Conciliation
Mediation and Arbitration
("CCMA")
and
was assigned to the second respondent to arbitrate. I have already
stated above the effect of the arbitration award that the
second
respondent issued.
Arbitration
proceedings
[12]
The appellant delivered a statement of case to the arbitration forum
setting out what its case was. The third and fourth
respondents also
delivered their own statement of case-it should have been referred
to as a statement of defence-in which they
set out what their
defence was to the appellant's case. The appellant's case was that
in terms of the agreement its members were
entitled to be paid
certain incentive bonuses if they met certain prescribed performance
or production targets for or during
the year 2003, that its members
had met their performance or production targets for 2003 and were,
therefore, entitled to the
payment of their bonuses by the third and
fourth respondents but that the third and fourth respondents had
refused to pay the
bonuses. As far as the third and fourth
respondents' defence is concerned, it is not clear from their
statement of case whether
their defence was that the metal price
fell below the threshold level of
15%
decline
from the planned metal price for 2003 and this meant that they were
not liable or whether their defence was that they
had terminated the
agreement as a result of the metal price falling below the threshold
level of 15% decline from the planned
metal price for 2003 and such
termination meant that they were not liable to pay the bonuses.
[13] Prior to the
commencement of the arbitration proceedings, the appellant, on the
one hand, and, the third and fourth respondent,
on the other,
concluded a pre-arbitration agreement in the form of a
pre-arbitration minute in which they once again set out
their
respective cases and the issues which the commissioner was required
to decide. Of the seven issues that the parties agreed
should be
decided by the commissioner, only the first two are still of
relevance to the matter at this level. The first two were:
(a) whether the
third and fourth respondents were entitled to cancel or terminate
the agreement when they purported to do so on
the 24
th
February 2004.
(b)what the
consequences were of the third and fourth respondents' conduct in
terminating (or purporting to terminate) the agreement
on the 24
th
February 2004.
[14] The only oral
evidence that was led in the arbitration proceedings was that of Mr
Cressley who testified on behalf of the
third and fourth
respondents. There was also documentary evidence that was submitted
to the commissioner. In the view I take
of this matter I do not
propose to deal with the evidence given by Mr Cressley at this
stage. I shall refer to one or two aspects
thereof in so far as it
may be necessary for the determination of the issues, as I see them,
in this appeal.
[15] The
commissioner found, as already stated earlier, that the appellant's
members were not entitled to any payment of bonuses
in addition to
the payment that the third and fourth respondents had said they were
paying as ex gratia payment. With regard
to the first question in
the pre-arbitration minute, the commissioner's decision was that the
third and fourth respondents were
entitled to cancel or terminate
the agreement when they purported to do so on the 24
th
February 2004. With
regard to the second question in the pre-arbitration minute, he
found that the (purported) termination of
the agreement by the third
and fourth respondents on the 24
ih
February
2004 had no retrospective effect or consequences and could only
affect future rights. I now proceed to refer to certain
aspects of
the arbitration award
The
arbitration award
[16] In par 28 of
his award the commissioner found that the third and fourth
respondents were entitled to cancel the agreement
when they
purported to do so on the 24
th
February 2004. He
relied upon the objectives and principles of the agreement in
support of this finding. He said that, when one
looked at the
clauses dealing with such matters, it was clear that the purpose of
the scheme was
"to
encourage superior performance through achievable incentives, to
improve the rewards without negative impact on the company's
costs
structure and the scheme had to be self-funding."
He
then said that the parties had agreed that the measurement period
for the agreement was
"annually".
The
commissioner then said that these were some of the
"objective
facts"
which
the third and fourth respondents had to consider
"in
making a decision whether or not to terminate the Scheme."
[17]
The next question that the commissioner considered was when it would
be
"appropriate"
for
the third and fourth respondents to terminate the scheme. He said in
par 27 of his award that the answer to this question
was that it
would be appropriate to terminate the scheme at the end of the
measurement period
"when
it would have had all the necessary objective facts required for it
to exercise its termination right in terms of clause
19.1
.2
of
the Incentive Scheme Agreement."
Effectively
what the commissioner said in par 27 of his award is that the third
and fourth respondents had a right to terminate
the Scheme at the
end of the measurement period which was the end of the 12 month
period. At the end of par 28 of his award the
commissioner made a
finding that the third and fourth respondents were entitled to
cancel the Incentive Framework Agreement on
the 24
th
February 2004.
[18]
In par 29 of his award the commissioner stated that the next
question for consideration was what the legal consequences of
the
third and fourth respondents' conduct in
"terminating"
the
agreement on the 24
lh
February were. The
commissioner pointed out in par 30 of his award that Counsel for the
appellant's interpretation of clause 19
did not have retrospective
effect nor did it affect any entitlement to bonuses already vested
in the employees before such termination.
[19] In par 32 of
the award the commissioner said that a notice of termination becomes
operative at the time when the notice is
brought to the attention of
the other party. He then said;
"Unless the
contrary appears either expressly or by necessary implication it
should be presumed that an act of cancellation
in terms of clause
19,1.2. [was] intended to affect the future matters - not to take
away the vested rights."
Effectively
in this passage the commissioner found that the third and fourth
respondents' conduct in purporting to terminate or
cancel the
agreement could not, as a general rule, affect rights that had
already been acquired but it could only affect future
rights. In
other words the commissioner upheld the submission made on behalf of
the appellant that the purported termination
of the agreement on the
24
th
February 2004 did
not operate with retrospective effect but only operated
prospectively.
[20]
In par 34 of his award the commissioner went on to say that
"in
accordance with what"
he
had said earlier it was only fair that the third and fourth
respondents should pay the members of the appellant the incentive
bonuses for the period in respect of which
"the
15% threshold was not triggered."
He
went on to say in the next sentence: -
"Otherwise
the interpretation preferred by the respondents will lead to an
unfair advantage and which may constitute an unfair
labour practice
in terms of section 27 of the Constitution."
1
Proceedings
in the Labour Court
[21] The appellant
was aggrieved by the commissioner's arbitration award. It
accordingly brought an application in the Labour
Court for an order
reviewing the arbitration award and setting it aside and for a
declaratory order to the effect that the third
and fourth
respondents were obliged to pay the relevant members of the
appellant their bonuses for the year 2003. As I have already
indicated, the Labour Court dismissed that application with no order
as to costs. It is necessary to deal with the reasons upon
which the
Labour Court relied for its conclusion.
[22] The Court a
quo made three points in paragraphs 21, 22 and 23 of its judgment.
The first point it made was that the agreement
made provision for
its cancellation in clauses 18 and 19 but did not
"specifically
provide whether or not the applicant employees would be entitled to
a pro-rata payment of the bonus which either
covers the period as
the date of the suspension or can collation thereof."
[23] The second
point that the Court a quo made was that the agreement failed to
provide
"in
uncertain (sic) terms"
what
the consequences would be if the agreement
"were
not to be cancelled in terms of clause 19.1.2 immediately within the
financial year but only after, as in this case,
where the metal
price fell below the threshold level of a 15% decline from the
planned metal price for the financial year."
The
third point that the Court a quo made was that the agreement
"did
not stipulate in clear terms as to when the calculation of the
actual fall of the metal price below the threshold level
of 15% from
the metal price
for
the
financial year would be determined in order to trigger the operation
of clause 19.1.2 of the agreement."
[24] In par 27 of
its judgment the Court a quo suggested that the commissioner's
reference to the provision of sec 27(1) of the
Constitution which
provides that
"every
person shall have the right to fair labour practice"
and
his reliance upon clause 18.3 of the agreement made it think that
the commissioner's conclusion in favour of the third and
fourth
respondents was
"rationally
justifiable in relation to the reasons given for it."
In
the result the Labour Court dismissed the review application.
The appeal
[25] Counsel for
the appellant contended that the conclusion reached by the
commissioner that the third and fourth respondents
were not obliged
to pay the relevant members of the appellant employed by them their
bonuses was a conclusion that a reasonable
decision maker could not
reach and that, therefore, it was an unreasonable decision that is
susceptible to being reviewed and
set aside. He also submitted that
the second respondent's conclusion that the cancellation of the
agreement or scheme did not
have any retrospective effect was in
conflict with his other conclusion that the appellant's members
employed by them were not
entitled to the payment of their bonuses
by the third and fourth respondents. Counsel for the third and
fourth respondents submitted
that the commissioner's award and the
interpretation of the agreement upon which the commissioner relied
were correct but that,
even if they were not correct, they could not
be said to be unreasonable.
[26]
The appellant's case was crisp. It was that in terms of the
agreement the appellant's members employed by the third and fourth
respondents were entitled to the payment of their incentive bonuses
provided for in the agreement if they had met performance
targets
required of them pursuant to the agreement. In this regard Counsel
for the appellant argued that, since the appellant's
members had met
their side of the bargain, namely, they had met their performance
targets for the entire period of operation
of the agreement or
period of operation of the incentive scheme, the third and fourth
respondents were obliged to pay the employees
their bonuses for the
entire period.
[27]
Counsel for the third and fourth respondents submitted that the
appellant's members were not entitled to any bonuses. With
regard to
why the third and fourth respondents had not invoked their right to
terminate the incentive scheme in terms of clause
19.1.2 of the
agreement in July 2003 or soon thereafter once they had realised
that the metal price had fallen below the 15%
threshold level
decline from the planned metal price for the financial year, Counsel
for the third and fourth respondents submitted
that the third and
fourth respondents were entitled to cancel the agreement at the time
at which they did, namely, on the 24
th
February 2004 as
opposed to July 2003 or soon thereafter because the measurement
period was the whole period from 1 January to
31 December 2003. He
submitted that the third and fourth respondents could only measure
the metal price at the end of the measurement
period and that that
is why they could not terminate the agreement prior to the expiry of
the measurement period.
What
was the third and fourth respondents' defence to the appellant's
claim
[28]
I have set out above the appellant's case as well as the third and
fourth respondents' case. There is no difficulty with
what the
appellant's case is and always was. However, the third and fourth
respondents' case is not as unambiguous as the appellant's
case.
When one reads the record and the arbitration award, one gets two
impressions of what the third and fourth respondents'
case was and
is. The one impression is that the third and fourth respondents'
case is that the fact that the metal price fell
below the threshold
level of 15% decline from the planned metal price for the financial
year of 2003 was enough to exonerate
the third and fourth
respondents from liability to pay the appellant's members their full
bonuses after they had met their performance
targets. The other is
the that the third and fourth respondents' case is that it is their
conduct in
"terminating"
the
agreement on the 24
th
February 2004 which
exonerated them from liability to pay the full bonuses of the
appellant's members.
[29] From the third
and fourth respondents' statement of case in the arbitration it
would seem (from par 10 thereof) that the
third and fourth
respondents' defence to the appellant's claim was that they were not
obliged to pay the appellant's members'
bonuses despite such members
having met the stipulated production targets if
"certain
profitability benchmarks"
were
not maintained and in this case such "profitability benchmarks"
were not maintained. There the third and fourth
respondents alleged:
"In
particular it was a term of the Incentive Agreement that the
respondents would not be liable to pay the Incentive Bonus
if the
actual metal price fell below a stipulated benchmark level for the
relevant measurement period."
The
third and fourth respondents then allege in par 11 of their
statement of case that
"(t)he
relevant measurement period applicable to the respondents in terms
of the Incentive Agreement was 1 year, namely,
the calendar year
2003 ("the measurement period")."
In
par 12 of their statement of case the third and fourth respondents
alleged that the actual metal price for the measurement
period fell
below the stipulated benchmark level. In par 13 the third and fourth
respondents concluded:
"13.
Accordingly:
13.1. The
respondents cancelled the Incentive Agreement; and
13.2. As they
were entitled to do, terminated the scheme and declined to pay the
Incentive Bonus."
[30] In the
arbitration proceedings Counsel for the third and fourth respondents
also articulated the third and fourth respondents'
case as being
that the falling of the metal price below the threshold level of 15%
decline from the planned metal price for the
financial year was
enough by itself to exonerate the third and fourth respondents from
liability to pay the bonuses. Before the
commissioner, he, inter
alia, said:
"Now, the
case, the case then revolves around the interpretation of 19.1, that
is the essence of the dispute before you.
The union says well, if
you terminate, then whatever has happened before then you must pay.
The company says well, that makes
nonsense of the clause, meaning of
the clause. The company says look if there is a measurement period
of one year and you measure
the criteria in 19.1 for that year and
you find out, after the calculations had been done and the audit has
been done that the
exchange rate has been so bad, that you, really
all the projections have been wrong. The scheme is now unaffordable,
then you
are excused from implementing the scheme. That is the
proper meaning. So that is really the dispute between the parties.
And
we will argue that more fully and we will put the necessary
evidence before you so you can deal with those issues. And quite
simply the company will lead evidence to show that for a one year
measurement period, you can obviously only establish all these
criteria, properly audit them in fairness to the employees at the
end of the period".
A
reading
of the answering affidavit reveals that the third and fourth
respondents' defence to the appellant's claim was that the
falling
of the metal price below the specified threshold level of 15%
decline from the planned metal price for the financial
year was by
itself enough to exonerate them from liability to pay the bonuses.
In this regard I refer to paragraphs 5, 6, 7,
8, 13.2, 17, 19,
24.2.4, 44, 47 and 48.3.3 of the third and fourth respondents'
answering affidavit.
[31] It was common
cause that for the first half of 2003 the metal price did not fall
below the threshold level of 15% decline
from the planned metal
price for the 2003 financial year. The reference to the financial
year herein and in clause 19.1.2 is
a reference to the third and
fourth respondents' financial year which ran from 1 January to 31
December. In July 2003 the metal
price fell below the threshold
level of 15% decline from the planned metal price for the 2003
financial year.
[32] In order to
determine this appeal, it is necessary to refer to the issues that
the commissioner was called upon to decide.
In terms of the
pre-arbitration minute agreed to by the appellant, on the one hand,
and, the third and fourth respondents, on
the other, there were
seven issues that the commissioner was required to decide. Of the
seven issues only his decisions in regard
to the first two require
our consideration. He decided the five other issues and his
decisions on those were not challenged by
either party before us.
The first two questions he had to decide were the following:
(a) whether the
third and fourth respondents were entitled to cancel the scheme in
accordance with clause 19.1.2 of the Incentive
Scheme Agreement;
(b) what the legal
consequences of the third and fourth respondents' conduct in
"terminating
the agreement"
on
the 24
th
February 2004 were.
[33]
In par 4.7 of the appellant's founding affidavit it is stated that
the third and fourth respondents informed their employees
on the
24
th
February
2004
"that
the scheme for 2003 had been terminated because the metal price was
below a threshold of a 15% decline from the planned
metal basket
price for the financial year for the full measurement period, 1
January to 31 December 2003"
and
that
"(t)he
third and fourth respondents contended that this excused them from
paying any incentive bonuses in terms of the agreement."
In
par 31 of their answering affidavit the third and fourth respondents
admitted this. Whereas the references to portions of the
third and
fourth respondents' statement of case above suggest that the falling
of the metal price below the stipulated threshold
level was put up
as a defence to the appellant's claim on its own, the admission in
par 31 of the answering affidavit of what
the appellant said in par
4.7 of its founding affidavit suggests that the
"termination"
of
the agreement was their defence to the appellant's claim. The first
two questions of the pre-trial minute agreed to between
the parties
also suggest that the third and fourth respondents' defence was the
termination of the agreement as opposed to the
fact that the metal
price had fallen below the threshold level of 15% decline from the
planned metal price for the financial
year. I propose to address
both defences in this judgment although I shall place more emphasis
on the
"termination"
of
the agreement as the third and fourth respondent's defence because
of its role in the first two questions of the pre-arbitration
minute
that the parties asked the commissioner to decide.
[34]
In par 17 of the answering affidavit the third and fourth
respondents refer to what they say was the commissioner's central
finding which, they imply, vindicated their interpretation of clause
19.1.2. There the third and fourth respondents say:
"the
central finding of commissioner, based on a reasonable
interpretation of the agreement and consistent with the uncontested
evidence, appears at para 27 of the award, in which the commissioner
found that the correct time for one of the respondents to
terminate
the incentive scheme was 'at the end of the measurement period when
it would have had all the necessary objective facts
required for it
to exercise its termination right in terms of clause 19,1.2.' This-
wasbotli a reason able,, a net-justifiable
conclusion^ as evidenced,
.inter- alia by the finding that, on the applicant's interpretation,
the parties would not be afforded
'an opportunity to reach the goals
they had set out in the agreement' during the whole of the
measurement period (para 28). The
commissioner's interpretation of
clause 19.1.2 of the agreement is dispositive of this matter, and no
regard need be had to any
further findings."
[35]
In the last sentence of par 17 of the third and fourth respondents'
answering affidavit, quoted above, the third and fourth
respondents
say that the commissioner's finding that the correct time for the
termination of the incentive scheme was at the
end of the
measurement period
"is
dispositive of this matter, and no regard need be had to any further
finding."
Of
course, if the finding is dispositive of the matter, that must be
the case irrespective of whether the finding on the point
is in the
third and fourth respondent's favour or in the appellant's favour.
It, is therefore, appropriate that I should turn
to that finding.
Whether the third and fourth respondents' defence to the appellant's
claim was the fact that the metal price
fell below the stipulated
threshold level or was the fact that it
"terminated"
the
agreement as provided for in clause 19.1.2 of the agreement, this
requires the determination of the meaning of clause 19.1.2
with
regard to either
"defence".
I
therefore propose to examine the meaning of clause 19.1.2 with a
view to establishing whether both
"defences"
are
provided for in clause 19.1.2 and, if so, when they apply.
What is the
meaning of clause 19.1.2 of the agreement with regard to the defence
to a claim for payment and to the timing of the
termination of the
scheme?
[36] In order to
properly consider the above issue, it is apposite to once again
quote clauses 19.1.1 and 19.1.2. They read as
follows:
"COMPANY/GROUP
COMPANY'S RIGHTS OF
TERMINATION
19.1
The Company or
any Group Company may immediately terminate either temporarily or
permanently the Scheme on the following grounds:
19.1.1
in
the event that the Company or Group Company is unable, on financial
grounds, to pay Incentives in accordance with the scheme;
19.1
.2
where
the metal price in Rand terms falls below the unit cost of
production, or where the metal price falls below a threshold
level
of a 15% (fifteen percent) decline from the planned price for the
financial year."
It
is of paramount importance to bear in mind that the third and fourth
respondents did not and do not rely upon clause 19.1.1
as their
defence but rely upon clause 19.1.2.
[37] Both the
commissioner and the Judge a quo came to the conclusion that the
time for the termination of the incentive scheme
under clause 19.1.2
of the agreement was at or after the end of the measurement period
i.e. at or after the 31
st
December 2003. In
my view that finding was a fundamental error because the scheme and
the agreement were for the period 1 January
to 31 December 2003 and
by the 24
th
February 2004 there
was no longer any scheme or agreement to terminate when the third
and fourth respondents purported to terminate
the scheme or
agreement on which the scheme was based. The notion of the
"termination"
of
an agreement that has already come to an end is not only unknown in
law but also it makes absolutely no sense. To
"terminate"
an
agreement the period of operation of which has expired is a legal
impossibility. What clause 19.1.2 refers to when it refers
to the
termination of the scheme is the termination of the scheme during
its operation. That is the normal concept of terminating
an
agreement. That is a concept which is not only well-known in law but
it is also a concept that accords with common sense.
Accordingly,
the meaning of the word
"terminate"
in
clause 19 is to terminate the scheme or agreement during the period
of operation of the scheme or agreement.
[38] The view
expressed above that the termination of the scheme contemplated in
clause 19.1.2 could only be effected during the
operation of the
scheme and not after the expiry of the measurement period is
supported not only by the ordinary meaning of the
term
"to
terminate"
but
also by the presence of the word
"immediately"
before
the word
"terminate"
in
clause 19.1.2. The adverb
"immediately"
denotes
the time when the act of terminating the scheme as provided for in
clause 19.1.2 is required to be done. Although the
word
"may"
is
used in clause 19.1.2, this is a case where the position is that, if
the right to terminate is to be exercised, it must be
exercised at a
certain time and at no other. In this case it had to be exercised
"immediately":
"19.1.1 in
the event that the company or group company is unable, on financial
grounds, to pay incentives in accordance with
the scheme;
19.1.2.1 where
the metal price in Rand terms falls below the unit costs of
production, or where the metal price falls below a
threshold level
of a 15% decline from the planned metal price for the financial
year."
[39]
It would seem that the third and fourth respondents' contention is
that the adverb
"immediately"
in
clause 19 does not mean that the termination must be immediate upon
the happening of the events described in sub-clauses 19.1.1
and
19.1.2 of the agreement but means that, once the third and fourth
respondents had taken a decision to terminate the scheme,
they had
to
immediately
inform the other
parties to the agreement. This, too, is a contention which is devoid
of any merit. In law, as a general rule
there is no termination of
an agreement unless the decision to terminate the agreement has been
conveyed to the other party to
the agreement.
Accordingly, one
can only speak of the termination of an agreement where the other
party to the agreement has become aware of
the decision to terminate
the agreement. If that is what the termination of an agreement
means, then the meaning of the word
"immediately"
suggested
by the third and fourth respondents falls away.
[40] The right to
terminate the scheme or agreement provided for in clause 19.1.1 and
19.1.2 which the third and fourth respondents
seek to rely upon as
their defence is a right that should be exercised immediately upon
or after the happening of any of the
events stipulated in clauses
19.1.1 and 19.1.2. That is the meaning of the word
"immediately"
in
clause 19. It is common cause in this case that the event
contemplated in clause 19.1.2, namely the falling of the metal price
below the 15% level decline occurred already in about June 2003 but
that the third and fourth respondents purported to exercise
the
right to terminate the scheme in February 2004 -about eight months
after the event. By no stretch of the imagination can
it be said
that the right to terminate the scheme or agreement was exercised
"immediately"
in
this case as required or prescribed by clause 19.1.2. That already
places the third and fourth respondents outside clause 19.1.2.
[41]
The third and fourth respondents' interpretation of clause 19.1.2
was that it contemplated that for the measurement period
the metal
price must have fallen below a threshold level of a 15% decline from
the planned metal price for the financial year.
That interpretation
is based on the third and fourth respondents' reading into clause
19.1.2 the words
"for
the measurement period"
between
the words
"where"
and
the article
"the"
in
the phrase
"the
metal price".
A
reading of clause 19 reveals that there is no reference to the
phrase
"for
the measurement period"
in
clause 19. It is also possible that the third and fourth respondents
read the words
"for
the financial
year
"
at
the end of clause 19.1.2 as indicating that whether, or not the
metal price fell below the threshold level of a 15% decline
should
be decided after the completion of the financial year or measurement
period. In my view that would be a misunderstanding
of the words
"for
the financial year"
which
appear in clause 19.1.2. The words
"for
the financial year"
refer
to the words immediately preceding that phrase. Those words are
"the
planned metal price."
The
evidence was that towards the end of each year the employer would
effectively make a projection of what the metal price would
be for
the following financial year (i.e. 1 January - 31 December).
Accordingly, clause 19.1.2 meant that, if the metal price
fell below
the threshold level of a 15% decline from the metal price projected
for the financial year, the third and fourth respondents
could then
terminate the scheme either temporarily or permanently as provided
for in clause 19. It did not necessarily refer
to a situation where
the metal price fell below the prescribed threshold level for the
whole year or for the whole of the measurement
period.
[42] On the above
construction of clause 19.1.2, if, during the period of operation of
the incentive scheme, the metal price fell
below a threshold level
of a 15% decline from the planned metal price for the financial
year, the third and fourth respondents
could terminate the scheme
and thus stop incurring any liability for new bonuses but remain
liable for the bonuses earned before
the termination. If, later, but
during the same financial year or the same 12 month period, the
metal price went up beyond the
15% threshold level again, the third
and fourth respondents could reinstate the scheme and in that way
ensure fairness and transparency
which are some of the principles of
the scheme contemplated in clause 5.3.2 of the agreement. On the
third'and fourth respondents'
interpretation of clause 19.1.2 the
third and fourth respondents do not have to do anything during the
period of operation of
the scheme by way of terminating it if the
price goes down below the 15% level decline contemplated in clause
19.1.2 and their
right to terminate is a right to terminate a
non-existent agreement after the end of the period of operation of
the agreement.
I find this construction completely untenable and not
borne out by the wording and purpose of clause 19.
[43]
It seems that the third and fourth respondents' case is based on the
proposition that, since the measurement period was the
whole period
of 12 months, from 1 January 2003 to 31 December 2003, the third and
fourth respondents could not terminate the
scheme until the
measurement period had expired. That is based upon a misconception
of the concept of the measurement period.
The implied suggestion
that this conveys is that the third and fourth respondents could not
determine or see whether the metal
price had fallen below the
threshold level of 15% decline until the measurement period had
expired. The truth of the matter is
that, if, in a particular month
during the measurement period, the metal price fell below the
threshold level of 15% decline
from the planned metal price for the
year, the third and fourth respondents could see or determine that.
If, during the following
month, the metal price went up 15% above
the planned metal price for the financial year, the third and fourth
respondents could
and would see that or determine that that is what
had happened. If in one month the metal price fell below the
threshold level
of 15% decline from the planned metal price for the
financial year, that was a ground to terminate the scheme but,,
when, in
the next month, the metal price went up 15% above the
threshold level of 15%
from
the
planned metal price for the year, that was a ground to reinstate the
scheme using provisions relating to the temporary termination
of
the
scheme provided for in clause 19.1.2. This demonstrates that the
contemplation in clause 19.1.2 was that the third and fourth
respondents would see when the metal price fell below the threshold
level during the period of operation of the scheme and the
right to
immediately terminate
1
the
Scheme
temporarily
or permanently was made available to the third and fourth
respondents to use as a shield whenever the metal price
fell, below
the prescribed threshold level. In conclusion the meaning of clause
19 is that the third and fourth respondents could
only terminate the
scheme or agreement in terms
of
clause
19.1.12 if they did so
"immediately"
upon
or after the event contemplated in clause 19.1.2. The next question
is: what was supposed to be the commissioner's reply
to the first
question in the pre-arbitration minute agreed to between the
parties? I now turn to consider that question. What
was supposed to
be the commissioner's answer to the first question in the
pre-arbitration minute?
[44] In the light
of
the
above I am
of
the
opinion that the commissioner should have answered the question
whether or not the third and fourth respondents had a right
to
cancel the- scheme or agreement when they purported to do so on 24
February 2004 by saying that they had no such right because
by that
time there was no agreement or scheme to terminate. With regard to
the question
of
what
the consequences were of the third and fourth respondents' conduct
in purporting to terminate the agreement on the 24
lh
February 2004, I am
of the view that the commissioner should have decided that such
purported act of termination had no legal
consequences. If he had so
concluded, he would have been driven to further conclude that, in so
far as the third and fourth respondents
may have relied upon such
purported termination of the scheme or agreement as a defence to the
appellant's claim for payment
of the appellant's members' bonuses,
such purported termination fell outside clause 19.1.2 and provided
no such defence.
[45]
In so far as the third and fourth respondents' case was that what
excused them from the liability to pay the appellant's
members their
bonuses was the mere fact that the metal price had actually fallen
below the threshold level of a 15% decline from
the planned metal
price for the financial year, the commissioner should have found
that that was no defence in terms of clause
19.1.2. If one reads
clause 19.1.2 carefully, one sees that it did not make the falling
of the metal price below the stipulated
level an event that
exonerated the employer from the liability to pay the bonuses when
the production targets had been achieved.
It makes the falling the
metal price below the stipulated level a
ground
that confers on the
employer the right to
"immediately
terminate either temporarily or permanently the scheme.......”.
Clause
19 specifically refers to
this
as being one of the
"grounds"
upon
which the employer
"may
immediately terminate ...the scheme..."
Since
the third and fourth respondents did not terminate the scheme during
the period of its operation, nor did they terminate
it
"immediately"
upon
or after the falling of the metal price below the level prescribed
in clause 19.1.2, their purported termination thereof
after the
period of operation of the scheme had expired and about eight months
after the metal price had fallen below the level
prescribed in
clause 19.1.2 had no legal effect.
[46] I am alive to
the fact that, since the matter before the Court a quo was a review
application, it was not the correctness
or otherwise of the
commissioner's award or interpretation of clause 19.1.2 that was in
issue. What was in issue was whether
that award or the
commissioner's interpretation brought the case within one or other
of the grounds of review for CCMA arbitration
awards upon which it
was attacked by the appellant. In my view the conclusion by the
commissioner that the third and fourth respondents
were entitled as
at 24
th
February 2004 to
terminate or cancel the scheme or agreement that had ended on 31
December 2003 was unreasonable in the sense
that it is a conclusion
that a reasonable decision-maker could not have reached. On this
ground alone the Court a quo should
have reviewed the award and set
it aside. The commissioner's conclusion that such purported
termination had the consequence that
the appellant's members who had
met the production targets for 2003 were not entitled to the payment
of their bonuses was also
unreasonable.
[47]
The commissioner's finding that the third and fourth respondents
were entitled to terminate the scheme or agreement on the
24
th
February 2004
in terms of clause 19.1.2 despite the fact that clause 19.1.2
required that such right be exercised immediately
upon or after the
happening of the event provided for in clause 19.1.2 and when it was
common cause that such event had occurred
already in June or July
2003 necessarily implied that the commissioner took
the view that
the purported termination of the scheme or agreement on 24 February
2004 complied with requirement of clause 19
that the right to
terminate be exercised immediately upon or after the happening of
such event. A conclusion to that effect when
the third and fourth
respondents purported to exercise that right about eight months
later is, in my view, a conclusion that
a reasonable decision maker
could not reach and is, therefore, unreasonable and falls to be set
aside.
Conflicting
findings by commissioner
[48] In paragraphs
34-37 of its judgment, the Court a quo discussed what it said were
conflicting remarks that were made by the
commissioner in his
arbitration award. It said that the commissioner
"made
a conflicting and mutually destructive analyses of the issues
alluded to above."
In
par 35 it said that "(t)he mutually destructive remarks by the
arbitrator, which tended to favour the applicant's contention
that
they were entitled to the incentive payment for the period in
respect of which the 15% threshold was not triggered, were
uttered
on the basis that '…....
It
should be presumed that an act of cancellation in terms of 19.1,2
intended to affect the future matters only and. was not intended
to
take away the vested rights.'
The
Court then said in the next sentence:
"[The
commissioner] goes further to state that if the scheme were
terminated on a months notice in accordance with clause
18, the
Applicant employees would be entitled to a pro-rata payment of the
bonus earned for that period. He went further to state
that failure
to pay the pro-rata bonus as aforesaid would amount to an unfair
labour practice."
It
seems from par 35 of the judgment of the Labour Court that the
statements made by the commissioner which the Court a quo found
to
be
"mutually
destructive"
are
the following:
(a) the statement
by the commissioner that
"an
act of cancellation in terms of 19.1.2 intended to affect the future
matters only and was not intended to take away the
vested rights",
and
(b)the statement by
the commissioner that, if the scheme were to have been terminated on
a month's notice in accordance with clause
18, the employees would
be entitled to a pro-rata payment of the bonus earned for that
period and that failure to make the pro-rata
payment of the bonus
earned for that period would amount to an unfair labour practice.
[49] I do not see
anything
"mutually
destructive"
in
the above two statements of the commissioner. I see the two
statements as consistent with each other. The first one says that,
if the employer terminated the scheme, such termination would affect
the future and not what had already happened before the
termination.
In
my
view that statement is, as a matter of law, correct. The second
statement is to the effect that, if the employer terminated
the
scheme or the agreement, he remained liable for bonuses if, prior to
the termination, the employees had achieved their performance
targets. In my view that statement of the law by the commissioner
was also correct. Where the commissioner made
"mutually
destructive"
conclusions
is, in my view, where, on the one hand, he concluded that the
termination or cancellation affected the future i.e.
post-termination or cancellation but, on the other, also concluded
that a
"termination"
which
occurred on the 24
th
February
2004 after the period of operation of the scheme and agreement had
lapsed on 31 December 2003, effectively exonerated
the third and
fourth respondents from liability for bonuses that had been earned
upto 31 December 2003. In my view the conclusion
reached by the
commissioner in this regard could not have been reached by a
reasonable decision-maker and was, therefore, unreasonable.
[50] In the light
of all the above I conclude that the Court a quo should have granted
the review application and should have
set the arbitration award
aside. As all the material was before the Court a quo and it would
have served no useful purpose to
remit the matter to the CCMA, the
Court a quo would have been entitled to determine the dispute itself
after setting aside the
award. This is provided for in
sec 145
of
the
Labour Relations Act, 1995
. That is what I propose to do. As to
costs I am of the opinion that in this case the requirements of the
law and fairness dictate
that the third and fourth respondents
should pay the appellant's costs.
[51]
In the premises I make the following order:
1. The appeal is
upheld.
2. The third and
fourth respondents are ordered to pay the appellant's costs on
appeal jointly and severally, the one paying the
other to be
absolved.
3. The order of the
Labour Court is hereby set aside and, for it, the following order is
substituted:
"(a)
The
review application is granted,
(b) The
arbitration award issued by the second respondent in the dispute
between the applicant, on the one hand, and, the third
and fourth
respondents, on the other, in this matter is hereby reviewed and set
aside and for it the following award is substituted:
"(i) The
first and second respondents are ordered to pay the applicant's
members employed by them who were covered the "Incentive
Scheme
Framework Agreement Financial Year 2003" and who achieved the
performance targets required of them in terms of that
agreement
their bonuses for the 2003 financial year less the pro-rata payment
that was effected in 2004".
(c)
The third and
fourth respondents are directed to pay the applicant's costs jointly
and severally, the one paying the other to
be absolved."
Zondo,
JP
I
agree
Davis,
JA
I
agree
Jappie,
JA
Appearances:
For
the Appellant:
Mr
JA Van der Riet SC
Instructed
by:
Cheadle
Thompson
For the Respondent:
Mr PJ Pretorius SC
Instructed
by:
Leppan
Beech Inc
Date
of judgment: 29 January 2010
1
I
note
that there is duplication in the numbering of certain paragraphs of
the
arbitration
award. The paragraphs of the award are numbered 1-36 and those that
come after paragraph 36 are not numbered 37 onwards
but 24 to 32.