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[2012] ZALAC 33
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National Union of Metal Workers of South Africa v Lee Electronics (Pty) Ltd and Others (LAC) [2012] ZALAC 33; [2013] 2 BLLR 155 (LAC); (2013) 34 ILJ 569 (LAC) (8 November 2012)
REPUBLIC OF SOUTH AFRICA
IN THE LABOUR APPEAL COURT OF SOUTH
AFRICA, PORT ELIZABETH
Case no: PA 05/11
In
the matter between:
NATIONAL
UNION OF MENTALWORKERS
OF
SOUTH AFRICA
.............................................................................................
Appellant
and
LEE
ELECTRONICS (PTY) LTD
.............................................................
First
Respondent
SOUTH
SOUND (PTY) LTD
...............................................................
Second
Respondent
CHEN
HSUNG LEE
...............................................................................
Third
Respondent
Heard:
14 September 2012
Delivered:
08 November 2012
___________________________________________________________________
JUDGMENT
DAVIS
JA
Introduction
[1] This is an appeal, with the leave
of the court
a quo,
against the decision that the second and
third respondents were not jointly and severally liable together with
the first respondent
for relief afforded to the individual
appellants, pursuant to the determination that the dismissal of
second to eighty first appellants
(the individual appellants) by
first respondent was both procedurally and substantively unfair.
Second and third respondents cross-appealed,
with the leave of the
court
a quo,
that, in dismissing appellants claim, the court
ought to have directed that the appellants pay their costs.
Common cause facts
[2] First and second respondents were
registered as corporate entities during 1984 and 1989 respectively.
They commenced operations
in Dimbaza which, at the time, fell within
the so called Republic of Ciskei. The third respondent was the sole
shareholder of both
first and second respondents. It appears that
first respondent was a manufacturer and distributor of radios, while
second respondent
manufactured and distributed television sets. These
operations were conducted out of premises in Canal Road Dimbaza and
it appears
that first and second respondent operated out of premises
on opposite sides of that road.
[3] During 1998, first appellant
sought to recruit employees who had been employed by first
respondent, which campaign had been
strenuously resisted by first
respondent. It does not appear to be in dispute that first respondent
was openly hostile to this
recruitment drive on the part of first
appellant.
[4] The evidence suggests that first
respondent reduced the employees’ toilet facilities and ceased
rendering any medical
assistance to employees who became ill. During
the 1998 Christmas recess, first respondent decreed that there would
be a 2 –
3 month shutdown which coincided with the commencement
of first appellant’s recruitment drive.
[5] On 10 March 1999 a manager of
first respondent who was known to the appellants as Mr Soul switched
off the lights of first respondent’s
factory. During the next
week negotiations took place between shop stewards representing the
individual employees and Mr Soul,
together with Mr Chang, who
appeared to represent first respondent. It is clear from the evidence
that the first respondent had
resolved to close the factory and on 19
March 1999 Mr Chang approached the various individual employees,
handed over to them their
salaries for the week that they had worked
together with leave money. As a result, the dispute was conciliated
on 15 September
1999 under the auspices of CCMA but remained
unresolved because first respondent did not attend.
[6] According to appellant’s
statement of case, which averment does not appear to have been placed
in dispute, certain individual
applicants were reemployed, including
Mr Andile Victor Jackson, whose role in this dispute will become
apparent shortly.
[7] Appellants’ case was to the
effect that these individual applicants including Mr Jackson were
selectively reemployed by
first and/or second respondent and that
first respondent continued to operate ‘in a clandestine manner
including operating
at night and, at times trading as South Sound
with inter alia the employees it had reemployed.’ Given the
alleged confusion
as to which of the first or second respondent
continued to conduct the business that previously had been conducted
by first respondent
prior to the dismissal of the individual
appellants, the appellants averred in their amended statement of
case:
‘
By
virtue of his controlling interest in the first and second
respondents, the third respondent was, at all material times hereto
an employer as defined in the LRA of the individual applicants in the
circumstances pleaded below’.
Appellants’ case
[8] Apart from the common cause facts,
the critical evidence insofar as appellant’s case was concerned
was given by Mr Jackson.
Mr van de Riet, who appeared on behalf of
the appellants, emphasised the following passage of Jackson’s
evidence.
‘
MR
SMUTS
:
I put it to you that after the electricity was cut off at the Lee
Electronics premises there was no manufacturing of radios by
Lee
Electronics. --- That is not correct because the time when everything
…….. up until today I am still with them.
I
put it to you further that when you were then in due course employed
by South Sound you participated in the commencement of a
repair,
radio repair operation at South Sound. ---That is not true.
And
that you continued in that operation working for South Sound until
the premises where you were working were closed down by the
South
African Bureau of Standards. ---That is correct sir.
But
you then moved with other to the so-called Von Leer factory premises
which are owned by South Sound. --- Yes, that is correct.
And
on those premises South Sounds imports and cuts carpets. ---
Yes,
that is correct.
And
that there they just continued to repair radios? --- Yes there are
repairs that are being done there.
But
there too there has been no manufacturing of radios. --- They were
manufactured and then the manufacturing stopped during April
to May…
And
when he asked whether you are employed at the moment you said I am
still employed at Lee Electronics. ---Yes that is correct.
And
is that your case, that the business originally conducted by Lee
Electronics is still conducted by Lee Electronics. ---Yes,
that’s
correct because I was never told of any changes and my boss is still
the same.’
[9] Mr van der Riet therefore
submitted, on the basis of this evidence that Mr Jackson, under
cross-examination, had accepted that,
at various points, he had
worked for both first and second respondents and that this concession
reinforced the key submission of
appellant that third respondent as
the controlling shareholder of first and second respondents had used
these entities interchangeably
in order to subvert the organisational
rights which otherwise would have been enjoyed by the individual
appellants.
[10] Furthermore, relying on the one
witness which was called by the respondents namely the accountant for
first and second respondents,
Mr Le Roux, appellants contended that
third respondent, either through the vehicle of first or second
respondent, continued to
produce radios for distribution and sale for
between five or six years after it had represented to the South
African Revenue Service
that the radio production had ceased in its
entirety. Furthermore, neither first nor second respondent maintained
proper employment
records and the financial statements of both
entities were so severely qualified that very little of significance
could be read
into them. In short, the submission was made by
appellants that third respondent chose to employ either the first or
second respondent
when it so suited his particular interests. For
this reason therefore Mr van der Riet submitted that, absent any
further evidence
provided by respondents, appellants had shown that
at all material times it was third respondent, through his
manipulation of two
close corporations, which he controlled, who was
the employer of the individual appellants. It was not disputed on
appeal that
first respondent had dismissed the individual appellants
in both procedurally and substantively unfair manner. Thus appellants
contended that the second and third respondents should have been held
jointly and severally liable.
Evaluation
[11] The argument developed by
appellants raises the question of the conditions for piercing of the
corporate veil, in that their
essential argument, on the evidence so
provided to the court, is that third respondent was the ‘real
employer’ of the
individual appellants. The two corporate
respondents thus had been used by the third respondent to subvert the
rights of the individual
appellants. As the court noted in
Amlin
(SA) (Pty) Ltd v Van Kooij,
1
piercing the corporate veil
necessitates:
‘
That
a court… ‘opens the curtains’ of the corporate
entity in order to see for itself what obtained inside. This
only
becomes necessary and obligatory in circumstances where justice will
not otherwise be done to the litigants.’
The issue of piercing the corporate
veil now finds application in terms of
section 20(9)
of the
Companies
Act 71 of 2008
and if, on application by an interested person or in
any proceedings in which a company is involved, a court finds that
the incorporation
of the company, any use of the company, or any act
by or on behalf of the company, constitutes an unconscionable abuse
of the juristic
personality of the company as a separate entity, the
court may-
(a) declare that the company is to be
deemed not to be a juristic person in respect of any right,
obligation or liability or liability
of the company or of a
shareholder of the company or, in the case of a non-profit company, a
member of the company, or of another
person specified in the
declaration; and
(b) make any further order the court
considers appropriate to give effect to a declaration contemplated in
paragraph (a).’
In this case however, no application
in terms of this provision was brought by appellants. It appears as
if their argument was based
upon common law principles.
[12] In
Cape
Specific Ltd v Lubner Controlling Investments (Pty) Ltd,
2
the Supreme Court of Appeal appeared
to suggest that our law does not have a fixed set of categories in
order to justify the piercing
of corporate veil. Smalberger JA said:
‘
The
law is far from settled with regard to the circumstances in which it
would be permissible to pierce the corporate veil. Each
case involves
a process of enquiring into the facts which, once determined, maybe
of decisive importance. And in determining whether
or not it is
legally appropriate in given circumstances to disregard corporate
personality, one must bear in mind ‘the fundamental
doctrine
that the law regard a substance rather than the form of things –
a doctrine common, one would think to every systems
of jurisprudence
and conveniently expressed in the
maxim
plus valet quod agitur quam quod simulate concipitur’
(Dadoo Ltd and Others v Krugersdorp Municipal Council (supra at
547)).’
[13] More recently, in
Hülse-Reuter
v Jodde
,
3
the Supreme Court of Appeal adopted a
narrower approach to when the corporate veil may be pierced. The
court held that it had no
general discretion to disregard the
existence of a separate corporate identity simply whenever it
considered it just or convenient
to do so. The circumstances in which
a court might pierce the corporate veil depended on a careful
analysis of the particular dispute
read together with considerations
of policy. However,
‘
As
a matter of principle… there must at least be some misuse or
abuse of the distinction between the corporate entity and
those who
control it which results in an unfair advantage being afforded to the
latter
.’
4
[14] This caution is of particular
relevance to the present case. Much of appellants’ case turned
on the averment that third
respondent attempted to subvert the
legitimate labour rights of the appellants, read together with
allegations that third respondent
had played ‘fast and loose’
with the Revenue authorities. On its own, these arguments are not
sufficient to pierce
the corporate veil of the two corporate
respondents. What is required is a careful examination of the
evidence which was placed
before the court by the first appellant. In
this connection that means the evidence of Mr Jackson, its sole
witness.
[15] As Mr Smuts, who appeared on
behalf of the respondents, noted, it had been put to Mr Jackson in
cross-examination that his
employment with first respondent had been
terminated after the electricity to first respondent’s premises
had been disconnected.
Not only was this averment accepted by Mr
Jackson, but he estimated that the event had taken place in
2006/2007. He further conceded
that he had then claimed and received
unemployment insurance benefits.
[16] Mr Jackson was confronted with
the difficulty that he had so received unemployment insurance
benefits but denied that his employment
with first respondent had
ever been terminated. He explained that, although he was never
dismissed ‘because my name was on
the list I thought that I
should make an application (for UIF)’.
[17] Accordingly, whatever the
evidence of Mr Jackson, which was not the model of clarity, it
certainly revealed clearly that, as
at 11 October 2004, it cannot be
that when the amended statement of case was lodged with the court
a
quo
, Jackson was not employed by first respondent. There is no
evidence to suggest that at that time there had either been a
transfer
of the business from first respondent to second respondent
or that Jackson had been employed by any other entity other than
first
respondent to whom he paid the UIF contributions, as a result
of which he had received payment from the UIF.
[18] On the basis of this evidence and
in the absence of any further evidence made available to the court as
to how employees operated
interchangeably between the corporate
entities, there is no justification for invoking the principle of
piercing the corporate
veil which, as noted, must be used sparingly.
In the light of clear evidence, as at 11 October 2004, it cannot be
found that there
was an abuse of a distinction between the corporate
entity and the person who controlled that entity, namely third
respondent which
resulted in an unfair advantage being afforded to
third respondent.
[19] For these reasons, I consider
that the court
a quo
correctly held that the appellant’s
claim must fail against the second and third respondents.
[20] Mr Smuts submitted, in the light
of second and third respondent’s successful defence against
them, there were no grounds
for failing to award them costs.
Accordingly, the court
a quo
had erred in declining to so
award costs. While it is correct that the court
a quo
did not
give reasons for its decision not to award costs, as Mr Wade, (who
had prepared the heads of argument on behalf of the
appellants)
noted, the respondents had conducted themselves in an unfortunate
fashion in that they had consulted Mr Jackson without
conferring with
the appellants’ attorneys and therefore had appeared to place
pressure on Mr Jackson not to give adverse
testimony. Accordingly,
there are grounds for the conclusion that this was a case in which
justice dictated that no adverse costs
order should be made against
individual appellants who had unquestionably been subjected to an
unfair dismissal, albeit not by
second and third respondents.
[21] For these reasons therefore, the
appeal is dismissed as is the cross-appeal. The decision of the court
a quo
is confirmed. Appellants are ordered to pay the costs of
this appeal.
_____________
DAVIS JA
I agree,
________________
NDLOVU JA
I agree.
_________________
MUSI AJA
APPEARANCES:
FOR THE APPELLANT: Hans Van der Riet
Instructed by Gray Moodley attorneys
FOR THE SECOND AND
THIRD RESPONDENTS: I J Smuts SC
Instructed by Hutton Cook attorneys
1
2008
(2) SA 558
(C) at para 12.
2
[1995] ZASCA 53
;
1995
(4) SA 790
(A) at 802.
3
2001
(4) SA 1336
SCA.
4
Hulse-Reuter
v Jodde
at para 20.