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[2014] ZALAC 74
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Richardson v Tecmed Africa (Pty) Ltd (JA 86/2014) [2014] ZALAC 74 (18 December 2014)
REPUBLIC
OF SOUTH AFRICA
IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case
no: JA 86/2014
In
the matter between:
ROSS
RICHARDSON
..............................................................................................................
Appellant
and
TECMED
AFRICA (PTY)
LIMITED
..................................................................................
Responden
t
Heard:
11 November 2014
Delivered:
18 December 2014
Summary:
Payment of a
pro
rata
portion of the profits
share for a financial year - employee claiming for the payment of the
profits share - employer disputing
the method of calculation and the
quantum of the profit share – Labour Court ordering payment of
the
pro rata
portion of the profits share to employee without interests –
Labour court dismissing employer method of calculation Appeal
–
employee claiming payment of interest on the
pro
rata
portion of the profits
share -
profits share a liquidated
debt and employee entitled to
mora
interest on the profit share
claim – Labour Court erring in finding profits share
unliquidated debt – Cross-appeal employer
contending that
method of calculation of profits share from actual days worked by
employee and not on the whole financial year
- employer not
submitting profit share for days worked by employee – such
method impractical – literal interpretation
to be given to
profits share clause – cross-appeal dismissed with costs-
Labour Court’s judgment varied – employer
ordered to pay
profit share plus interests at the prescribed rate.
JUDGMENT
Murphy AJA
[1]
In a judgment handed down on 19 April 2013,
the Labour Court (Moshoana AJ) ordered the respondent to pay the
appellant an amount
of R461 890, being a
pro
rata
profit share it held was payable
in terms of his contract of employment. It also ordered the
respondent to pay the appellant R13290,79
in respect of unpaid salary
together with interest at the prescribed rate on that amount. It
refused however to grant payment of
interest at the prescribed rate
of 15.5% per annum on the appellant’s claim for profit share.
The appellant appeals against
the refusal of the Labour Court to
order the payment of interest in relation to the amount owing as a
pro rata
profit share.
The respondent has in turn
noted a cross-appeal against the order that it pay the capital amount
allegedly owing as profit share.
[2]
The appellant, a qualified chartered
accountant, commenced employment with the respondent as a financial
manager on 12 January 2009.
His key areas of responsibility were to
oversee and manage all functions of the commercial division and all
financial responsibilities
of the business of the respondent. On 18
March 2009, the appellant and the respondent concluded a contract of
employment in the
form of a letter of appointment (“the
agreement”) which was drafted by the respondent and accepted by
the appellant.
The effective date of the agreement is recorded to be
1March 2009. The appellant resigned from his employment by mutual
agreement
with the respondent less than six months later on 4
September 2009. He was accordingly employed by the respondent for a
total period
of approximately eight months (from 12 January to 4
September 2009) of the financial year that ended on 30 September
2009. The
respondent’s financial year runs from 1 October to 30
September. The relevant financial year of the respondent for the
purposes
of this matter is 1 October 2008 to 30 September 2009.
[3]
The respondent failed to pay the appellant
his remuneration for the period 1-4 September 2009. The Labour Court,
as indicated, ordered
the respondent to pay the appellant this amount
(R13 290.79) with prescribed interest. There is no appeal
against that order.
[4]
The contested amount is that which the
Labour Court held was owing in terms of the agreement as a
pro
rata
portion of the profit share
calculated from 1 March 2009 up to and including 4 September 2009.
The relevant part of the agreement
reads:
‘
Over
and above the remuneration which you will receive through your
employment with Tecmed Africa (Pty) Ltd (“Tecmed”),
you
will be eligible to participate in a profit share scheme. This profit
share scheme will commence after the 3 month probationary
period has
expired.
The purpose of the
profit share scheme is to incentivise you to remain in our service
and to promote the continued growth and success
of Tecmed Africa by
giving you an opportunity to profit in Tecmed Africa’s success.
Payment of a profit
share (“the Profit Share”) will be made to you on the
following terms and conditions:
1. Tecmed Africa
will pay to you 3% of EBIT (Earnings Before Interest and Tax) of
Tecmed Africa (Pty) Ltd of the financial year,
being the period 1
October to 30 September, as audited by the auditors of Tecmed Africa,
from time to time, in accordance with
standard accounting practice.
2. The Profit Share
will be payable quarterly in arrears based on the quarterly
management accounts in respect of the first three
quarters in any
financial year being overstated or understated (as the case may be),
having regard to the annual audited financial
statements of the
Tecmed Company, the final quarterly payment will be adjusted. Profit
Share scheme commences on the start of the
business financial year.
3. In the event of
the quarterly management accounts being overstated (i.e. in the event
of there being an overpayment), you hereby
consent to the amount of
the overpayment being deducted from any monies which may be due to
you (including salary).
4. In the event of
the quarterly management accounts being understated (i.e. in the
event of there being an underpayment), the amount
of the underpayment
will be included in the final quarterly payment.
5. Upon the
termination of your employment for whatsoever reason (“the Date
of Termination of Employment”) other than
where you are
dismissed for reasons related to dishonesty, fraud or theft, you will
be entitled to a pro rata portion of the Profit
Share calculated from
the commencement of the Effective Date, or the commencement of the
financial year in question as the case
may be, up to and including
the Date of Termination of Employment, which profit share shall be
paid to you within 30 days of the
delivery of the audited financial
statements.”
[5]
On 26 March 2010, the respondent received
its audited financial statements for its financial year ended 30
September 2009 (“the
audited financial statements”).
During April 2010, the appellant delivered his statement of claim
seeking an order
inter alia
for payment of a
pro rata
portion of the profits share for the 2009
financial year.
In
February
2013, the appellant brought an urgent application to the Labour Court
for an order compelling the respondent to furnish
him with a copy of
the audited financial statements, which the court granted.
[6]
The appellant claimed
payment
of the amount of
R461 890.00 (the
pro
rata
portion of the profit share for
the financial year ended 30 September 2009 in respect of the period 1
March 2009 (the effective
date) to 4 September 2009 (the date of
termination)) in terms of clause 5 of the contract together with
interest at the prescribed rate of 15.5%
per annum calculated from 26 April 2010 (30 days after the delivery
of the audited financial
statements), alternatively 1 May 2010. In
addition to the claim for
payment of
the
amount of R13 290.79, being
four days’
remuneration
together with interest
thereon,
the appellant further claimed
payment of the equivalent of six, alternatively three, months’
salary as notice pay. This claim
was abandoned by the appellant prior
to the commencement of the trial.
[7]
The respondent initially opposed the claim
for a
pro rata
profit share on the basis that the appellant was not entitled to any
payment of profit share because the profit share scheme only
commenced after 1 October 2009
.
In
the alternative, it alleged that the employment contract was
concluded as a result of a mutual mistake and was thus unenforceable.
In the further alternative, it alleged that the profit share
provisions involved reciprocal obligations and that the appellant
had
failed to discharge his obligations and thus was not entitled to
claim any profit share.
[8]
At the beginning of the trial, the
respondent amended its reply to introduce a fourth alternative
defence to the appellant’s
profit share claim in which it
disputed the method of calculating the amount owed to the appellant
in respect of the profit share
claim.
[9]
During argument at the trial, the
respondent elected to rely solely on the newly introduced fourth
alternative defence which sought
only to dispute the quantum of the
profit share claim.
[10]
The respondent thus effectively conceded
the merits of the appellant’s entitlement to a profit share but
contended for a different
interpretation of the phrase “the
pro
rata
portion of the Profit Share”
in clause 5 of the agreement and a different method of calculating
the amount owed to the appellant
in respect of his profit share
claim. T
he Labour Court rejected the
respondent’s version of the agreement and found in favour of
the appellant. This finding is the
issue for determination in the
cross-appeal. The Labour Court held further that the appellant had
successfully proven the quantum
of the profit share claim in the
amount of R461 890.00. As stated, the court
a
quo
held that the appellant was not
entitled to claim interest on the profit share claim. This is the
issue for determination in the
appeal.
[11]
It will be best first to deal with the
cross-appeal. The question to be answered is what is meant by the
term “a
pro rata
portion of the Profit Share” in clause 5. The agreement defines
the profit share to mean 3% of EBIT (earnings before interest
and
tax). The Oxford English Dictionary defines the phrase “
pro
rata
” to mean “
in
proportion to the value or extent
”
or “
proportionally
”.
The phrase “
pro rata
”
necessarily entails the questions: what period is being referred to
and what is the relevant portion of that period? The
respondent
conceded that the relevant period for the calculation of the quantum
of the appellant’s profit share claim was
the period from 1
March 2009 (the Effective Date) up to and including 4 September 2009
(the Date of Termination) and that the relevant
financial year was
the financial year that ended on 30 September 2009.
[12]
The appellant contends that a
pro
rata
portion is the ratio between the
months worked and the full annual period. Thus if an employee worked
six months of a financial
year he or she would be entitled to half of
3% of EBIT. According to the appellant, the audited financial
statements reveal that
the EBIT for the financial year ended 30
September 2009 was R29 891 845.00. The profit share for the financial
year ended 30 September
2009, on his calculation, was therefore R896
755.35 (being 3% of R29 891 845.00). The amount of R896 755.35
was therefore
the total profit share for the financial year 1 October
2008 to 30 September 2009. This is what the appellant would have
received
had he been employed at the respondent for the full
financial year. The respondent does not deny that had the appellant
been employed
by the respondent for the full financial year he would
have been entitled to receive 3% of EBIT as his profit share. The
pro
rata
portion of the profit share, in
the calculation applied by the appellant, is computed by dividing the
period specified in clause
5 (from the effective date to the date of
termination), which is a period of 188 days, by the total period (the
financial year
in question), which is a period of 365 days. This
gives a
pro rata
portion of the profit share of R461 890 (being about 51.5% of R896
755) which was accepted by the Labour Court as the amount of
the
appellant’s
pro rata
claim to profit share.
[13]
The respondent submitted that the term “
pro
rata
”, interpreted contextually
and purposively, means something different in the agreement. It
submitted that the 188 days, being
the
pro
rata
portion of the profit share,
should be applied to entitle the appellant to receive a share of the
profits earned only during the
188 day period between the effective
date and the date of determination and not to any share of profits
earned outside that period.
In other words, it contended that the
appellant was entitled to 3% of the EBIT earned during the period of
1 March – 4 September
2009. However, it tendered no evidence at
either the trial or on appeal disclosing the actual amount of EBIT
for that period, meaning
that it is not possible to determine whether
the amount owing to the appellant on this basis of calculation would
be more or less
than the amount the Labour Court ordered it to pay.
Despite that, the respondent persisted doggedly with a multiplicity
of submissions
and arguments favouring this interpretation, arguing
most notably that a purposive method of interpretation favoured its
construction.
In this regard, it relied on the stated purpose of the
scheme being to incentivise employees to remain in service and to
promote
the continued growth and success of the company. Thus, not
entirely unreasonably, it argued that the rewards envisaged by the
scheme
are bound up with the period during which the employee
contributed to the success of the company, i.e. the six months that
the
appellant worked for the respondent. In other words, employees
whose services are terminated are not entitled to share in profits
earned at a time when they did not contribute to those profits. The
appellant countered that these legitimate concerns are equally
and
adequately provided for in the manner of calculation proposed by him,
which he argues is the true intention of the agreement.
His method
has the added advantage of easy computation with reference to the
audited annual financial statements which avoids
ad
hoc
computations of EBIT at different
points in the financial year.
[14]
The Labour Court held that the
interpretation of clause 5 as contended for by the appellant was the
proper interpretation of the
agreement. Clause 5 of the agreement
pertinently states that the calculation of the
pro
rata
portion is from the effective date
to the date of termination. This, it correctly observed, is the
relevant period to be used to
determine the
pro
rata
portion of the profit share due to
the appellant. Clause 1 of the agreement refers to a payment of a
percentage of the EBIT
of the financial
year
and makes no reference to a
portion of the financial year. The learned acting judge found further
that clauses 2, 3 and 4 of the
agreement, which deal with quarterly
interim payments of the profit share, reveal that “the parties
were alive to the fact
that the financial year-end is the most
appropriate period to determine the profit”. He found that the
interpretation contended
for by the respondent was inconsistent with
the words used in the agreement and the purpose of the profit sharing
scheme.
[15]
The
modern approach to the interpretation of contracts was recently
enunciated by the Supreme Court of Appeal (“SCA”)
in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[1]
as follows:
‘
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must
be given to
the language used in the light of the ordinary rules of grammar and
syntax; the context in which the provision appears;
the apparent
purpose to which it is directed and the material known to those
responsible for its production. Where more than one
meaning is
possible each possibility must be weighed in the light of all these
factors. The process is objective, not subjective.
A sensible meaning
is to be preferred to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose
of the document. Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible
or businesslike for the
words actually used. To do so in regard to a statute or statutory
instrument is to cross the divide between
interpretation and
legislation; in a contractual context it is to make a contract for
the parties other than the one they in fact
made. The 'inevitable
point of departure is the language of the provision itself', read in
context and having regard to the purpose
of the provision and the
background to the preparation and production of the document.”
[16]
If the language of a provision seems clear
and admits of little if any ambiguity, when read in its particular
context, courts ought
to adhere to the ordinary grammatical and
literal meaning of the words. Where the context makes it plain that
adhering to the meaning
suggested by apparently plain language would
lead to glaring absurdity or anomaly the court should give a meaning
to the language
that avoids that result.
[17]
The appellant submits that the ordinary,
grammatical and literal meaning of the words used in clause 5, as
read in the context of
the contract as a whole, support his
interpretation. Clause 1 of the agreement, read in the context
of the agreement as a
whole, plainly delineates the meaning of the
profit share as 3% of the respondent’s EBIT for the whole
financial year based
on the audited financial statements. The phrase
“the
pro rata
portion
of the Profit Share” in clause 5 clearly and unambiguously
means the relevant portion of that amount. There is
no absurdity or
anomaly in this meaning. In the context of clause 5 and the contract
as a whole, the phrase “
pro rata
”
clearly means the proportional ratio of the relevant period divided
by the entire period. Likewise, the literal interpretation
contended
for by the appellant does not lead to impracticable results. By
contrast, the evidence led in the trial suggests that
the
respondent’s interpretation of clause 5 is impractical and
less businesslike in that the proposed method of calculating
the
quantum of the appellant’s profit share would not require it to
be based upon any audit of the relevant figures. Moreover,
while the
express purpose of the agreement is to incentivise employees to
remain in service and to promote the continued growth
and success of
the company, since clause 5 is only operative upon the termination of
employment the first purpose identified is
not relevant to the
interpretation of this clause.
[18]
Were the respondent’s interpretation
of clause 5 to be preferred, the immediate difficulty is that
the exact quantum
of the profit share claim on this basis remains
unknown, notwithstanding the fact that the respondent has had over
four years to
calculate it. In the absence of evidence as to the EBIT
earned during the relevant 188 day period, or evidence that might
disprove
the appellant’s uncontested evidence that earnings for
that financial year were relatively stable throughout that year, the
best evidence available to the court for computing the quantum of the
profit share claim in accordance with the respondent’s
method
was that presented by the appellant. The Labour Court would have had
to rely on such evidence, being all that was at its
disposal, to
apply the respondent’s method and most likely would have
discovered that there was much ado about nothing in
the dispute about
the manner of calculation. On the available best evidence, the Labour
Court reasonably could have assumed that
the EBIT earned during the
period 1 March 2009 to 4 September 2009 approximated the
pro
rata
proportion of the EBIT earned for
the whole financial year (i.e. 188 / 365 x R29 891 845). This amounts
to the sum of R15 396 348
and 3% of that is R461 890.43 the same
amount that the appellant was awarded by the Labour Court. It is
therefore more probable
than not that the method of calculating the
quantum of the profit share claim on the basis of the respondent’s
interpretation
of clause 5 might have produced a substantially
similar result, unless there was a dramatic spike in profits in the
earlier period
of the 2009 financial year (October 2008–March
2009); of which there is no objective evidence and which the
appellant testified
without challenge was not in fact the case. The
respondent in any event has conceded that the profit share claim
calculated according
to its interpretation might in the final
analysis be the same as the amount claimed by the appellant and may
even be a greater
amount.
[19]
Perhaps what is most important and
deserving of repetition is that clause 5 clearly links the method and
timing of the calculation
of the
pro
rata
profit share to the delivery of
the audited financial statements. That, in my view, is an almost
conclusive indication that the
clause envisages a
pro
rata
amount of the calculated annual
EBIT rather than a share of EBIT over the actual period of
employment. The EBIT for the relevant
188 days in this case would not
be disclosed in the audited financial statements. Hence, the correct
interpretation is that the
words “calculated from” in
clause 5 require the
pro rata
portion of the profit share to be calculated with reference to the
company’s annual performance and not for the EBIT to be
calculated from the effective date/commencement of the financial year
to the date of termination. What has to be calculated for
the purpose
of the
pro rata
determination is the period of employment between effective date and
termination and not the amount of EBIT earned in the period.
[20]
The Labour Court accordingly did not err in
its interpretation of the agreement or the calculation of the amount
owing.
[21]
The
respondent on appeal sought to introduce a new defence to the merits
of the appellant’s profit share claim to the effect
that it was
a discretionary bonus and not a contractual obligation. This
constitutes a new defence that the respondent normally
would not be
entitled to raise for the first time on appeal, particularly as it
was not
covered
by the pleadings
,
nor
canvassed or investigated at the trial.
[2]
The
defence is in any event unsustainable. The written terms of the
contract unambiguously confer a contractual entitlement. Moreover,
the evidence led at the trial that the profit share was a contractual
obligation was not controverted. Besides, in closing argument
at the
trial, counsel for the respondent expressly conceded that the
appellant was entitled to a portion of the profit share and
that the
issue to be determined was the method of calculation and quantum of
the profit share claim.
[22]
The respondent belatedly has sought to
argue that the EBIT figure relied on by the Labour Court is not
correct and that expert evidence
was required to determine it. The
evidence of the appellant, the respondent’s erstwhile financial
manager and a qualified
chartered accountant, was not meaningfully
challenged or controverted at the trial and was to the effect that
EBIT equated to the
“operating profit” figure in the
financial statements, being gross profit plus other income less
operating expenses.
The net profit for the year is reflected as the
operating profit plus investment revenue (interest received) less
finance costs
(interest paid) and taxation. The operating profit
figure is thus the net profit before interest received, interest paid
and taxation.
It is the earnings before interest and taxation are
taken into account – in other words EBIT.
The
uncontroverted evidence led at the trial is that the EBIT
for
the financial year ended 30 September 2009 was the figure of R29 891
845 reflected as operating profit in the audited financial
statements.
No attempt was made by the
respondent to contradict this figure and no alternative number was
put to the appellant in cross-examination.
The respondent did not
submit at any time that this figure was in any way inaccurate or
incorrect.
[23]
The respondent’s belated submission,
raised for the first time in its heads of argument filed in this
appeal, is that the
EBIT could conceivably be the profit before
taxation figure of R14 453 450. That figure takes no account of the
interest received
or paid. It is the earnings before taxation, as
opposed to the explicitly agreed earnings before
interest
and taxation. EBIT as contemplated in the agreement self-evidently
takes account of the line items for interest without distinguishing
between interest revenue and expenditure. Notes 16 and 17 to the
audited financial statements describe the investment revenue figure
as “interest revenue” and the finance costs figure as,
inter alia
,
“other interest paid.”
[24]
The
determination of the EBIT for the financial year is a question of
fact that was not disputed during the trial. It is not an
opinion
held by the appellant and thus need not meet the requirements for the
admission of expert evidence, as the respondent contends.
No expert
was required to determine the EBIT. The figure is apparent from the
financial statements. Hence there is no basis for
this court to
exercise its powers in terms of section 174(a) of the Labour
Relations Act
[3]
to admit
further evidence and to permit the respondent an opportunity to lead
expert evidence in relation to the proper interpretation
of the
agreement, the calculation of EBIT or the defence that the profit
share was a discretionary benefit and not a contractual
obligation.
[25]
In the result, the cross-appeal is without
merit and should be dismissed
[26]
The appellant’s appeal, as explained
earlier, is concerned with the refusal of the Labour Court to award
him interest on the
judgment debt.
Having
held that respondent was indebted to the appellant in the amount of
R461 890, the Labour Court held with regard to interest
as follows:
‘
I
now turn to the issue of interest. To my mind the operative words in
section 1 of the Prescribed Rate of Interest Act is
‘if a
debt bears interest’. In other words not all debts bear
interest. The only evidence before the Court is that
the payment of
profit share becomes due on delivery of the audited financial
statements. There is no evidence that the amount earns
interest. In
my mind the amount was not liquidated until the Court accepted the
Applicant’s interpretation of clause 5. Accordingly
I do not
accept that the Applicant is entitled to interest from April 2010 to
date of payment. There is no doubt in my mind that
what the Applicant
is claiming is contractual damages. He alleges breach of a
contract as a result of which he suffered damages.
It is trite
that a claim for damages is unliquidated debt. In terms of the common
law an unliquidated debt cannot carry interest.
Accordingly, the
claim of interest is dismissed.’
[27]
The
appellant submitted that the Labour Court erred in reaching the above
findings for various reasons. His criticisms of this aspect
of the
judgment are well-founded. First of all, the appellant’s profit
share claim is not a damages claim arising from a
breach of contract,
but a claim for specific performance of the respondent’s
obligations in terms of clause 5 of the agreement.
The appellant
sought an order that the respondent pay to him money in pursuance of
a contractual obligation. The claim for interest
on the profit share
claim is accordingly a claim for
mora
interest that commenced running when the profit share claim first
became due and payable, alternatively when the appellant first
made
demand for payment of the profit share by serving the statement of
claim on the respondent. The profit share claim is a liquidated
debt.
But even if the profit share claim is an unliquidated debt, then the
appellant would still be entitled to
mora
interest from the date of service of the statement of claim until
date of final payment by virtue of sections 2A(1) and 2(2)(a)
of the
Prescribed Rate of Interest Act
[4]
(“the Act”).
[28]
In
terms of clause 5 of the agreement, the respondent was obliged to pay
to the appellant a
pro
rata
portion of the profit share by 26 April 2010. The fact that the
appellant pleaded that the respondent breached the agreement by
not
paying him the amount owed to him does not result in the claim for
payment becoming a claim for damages arising out of the
breach. It
remains a claim for specific performance, and not for damages.
[5]
The award of interest to a creditor, where the debtor is in
mora
is based upon the principle that the creditor is entitled to be
compensated for the loss or damage that he has suffered as a result
of not receiving his money on the due date. This loss comprises the
interest on the capital sum owing over the period of
mora
.
[6]
The Labour Court consequently
erred
in finding that the profit share claim did not bear interest due to a
lack of evidence in this regard as no such evidence
was required. The
entitlement to
mora
interest
on the profit share claim flows from the applicable legal principles
and normally will not require additional evidence.
[29]
Section
1(1) of the Act provides that if a debt bears interest and the rate
at which the interest is to be calculated is not governed
by any
other law or by an agreement, such interest shall be calculated at
the prescribed rate as at the time when such interest
begins to run,
unless a court of law, on the ground of special circumstances
relating to that debt, orders otherwise. The prescribed
interest rate
for the relevant period was 15.5% per annum.
[7]
The Labour Court did not exercise its discretion to make an order to
vary the effect of section 1 of the Act; nor did it find that
any
special circumstances existed that would justify such an order.
[30]
The
Labour Court erred in finding that the appellant’s profit share
claim was not liquidated until the court accepted his
interpretation
of clause 5. The interpretation by a court of a contract gives effect
to the common intentions of the parties to
it. When a court rules
that a particular interpretation of a contract is correct, it is
objectively determining what the common
stated intention of the
parties was at the time they concluded the contract. A
claim
for a “liquidated amount in money” is a claim for an
amount ascertained or capable of speedy and prompt ascertainment.
[8]
The
liquidity of a debt does not depend upon the ability of the party
relying upon it to prove either the existence or the amount
of the
indebtedness but upon its actual existence.
The
important question is whether
the
factors on which the claim is based were actually in existence at the
time.
[9]
When the amount is due
upon a contract and the exact amount due is simply a matter for
calculation from figures in books, the claim
is a liquidated one.
The
appellant’s profit share claim is a liquidated debt because it
was capable of speedy and prompt ascertainment by means
of a simple
arithmetical calculation as soon as the audited financial statements
became available.
T
he
respondent was in possession of its audited financial statements from
26 March 2010. Hence, the quantum of the appellant’s
profit
share claim was ascertainable by means of a simple arithmetical
calculation on this date.
[31]
But
even had the claim been one for unliquidated damages, the appellant
would still have been entitled to interest.
At
common law an unliquidated debt does not bear interest, but
legislation can decree that it does
.
[10]
The
common law position was altered by section 2A of the Act in relation
to unliquidated debts with effect from 11 April 1997. Section
2A(1)
of the Act provides that the amount of every unliquidated debt as
determined by a court of law shall bear interest at the
prescribed
rate. Section 2A(2)(a) of the Act provides that the interest
contemplated in section 2A(1) shall run from the date on
which
payment of the debt is claimed by the service on the debtor of a
demand or summons, whichever date is the earlier.
In
David
Trust and Others v Aegis Insurance Co Ltd and Others,
[11]
the SCA remarked on the effect of section 2A of the Act as follows:
‘
Prior
to 1997 the plaintiffs would have been entitled to claim mora
interest only from the date of judgment. With effect from 11
April
1997 the Prescribed Rate of Interest Amendment Act 7 of 1997 (which
amended the
Prescribed Rate of Interest Act 55 of 1975
), sanctioned,
inter alia, the recovery of mora interest on amounts awarded by a
court which, but for such award, were unliquidated.
Once judgment is
granted such interest ‘shall run from the date on which payment
of the debt is claimed by the service on
the debtor of a demand or
summons, which ever date is the earlier.’ The word ‘demand’
in
s2A(2)(a)
is defined to mean a written demand setting out the
creditor’s claim in such a manner as to enable the debtor
reasonably
to assess the quantum thereof.’
[32]
The appellant demanded payment of the
profit share claim during April 2010 when his statement of claim was
served on the respondent
(i.e. some time before 1 May 2010). The
appellant’s statement of claim meets the definition of ‘demand
as it sets out
the claim in such a manner that it enabled the
respondent to reasonably assess the quantum thereof. For these
reasons, were it
an unliquidated claim the appellant would be
entitled to interest on the profit share claim at the prescribed rate
of interest
from 1 May 2010 until date of final payment.
[33]
The respondent has endeavoured to rely on
section 2A(5) of the Act which empowers a court to make such order as
appears just in
respect of the payment of interest on an unliquidated
debt, the rate at which interest shall accrue and the date from which
interest
shall run. It argued that the Labour Court exercised this
discretion in refusing to grant interest and had done so judicially.
That is factually incorrect. The Labour Court clearly misconstrued
the provisions of the applicable law. It assumed incorrectly
that it
is not permissible to award interest in relation to an unliquidated
debt. In any event, the debt in question here was,
as I have found, a
liquidated debt. Moreover, no case was made out in the court below
for the imposition of a rate of interest
below the prescribed rate.
[34]
The Labour Court was of the opinion that
the appellant was entitled to his costs because he had been
substantially successful. I
see no reason to interfere with that
order. The respondent abandoned most of its defences during the trial
and the appellant succeeded
on his main claims. I am further of the
view that the appellant is entitled to his costs on appeal.
[35]
In the premises, the following orders are
made:
35.1 The appeal is
upheld and the order of the Labour Court is varied and substituted as
follows:
“
i)
The respondent is ordered to pay the applicant the amount of R461 890
together with interest on this amount at the prescribed
rate of 15.5%
per annum from 26 April 2010 to the date of final payment.
ii) The respondent
is ordered to pay the applicant the amount of R13 290.79 together
with interest at the rate of 15.5% calculated
from 30 March 2010 to
date of final payment.
iii) The respondent
is ordered to pay the costs of the application.”
35.2 The
cross-appeal is dismissed.
35.3
The respondent is ordered to pay the costs of the appeal and the
cross-appeal.
________________
JR
Murphy AJA
I
agree
________________
Waglay
JP
I
agree
_______________
Dlodlo
AJA
APPEARANCES:
FOR
THE APPELLANT: Adv GJA Cross
Instructed
by Gordon Holtman Attorneys
FOR
THE RESPONDENT: Adv K Lapham
Instructed
by Schindlers Attorneys
[1]
2012
(4) SA 593
(SCA) at para 18.
[2]
Road
Accident Fund v Mothupi
2000 (4) SA 38
(SCA) at para 30;
Quartermark
Investments (Pty) Ltd v Mkhwanazi and Another
2014
(3) SA 96
(SCA) at para 20.
[3]
Act
66 of 1995.
[4]
Act
55 of 1975.
[5]
Director
General, Department of Public Works v Kovac Investments
2010
(6) SA 646
(GNP) at 648H-649A. See also RH Christie
The
Law of Contract in South Africa
5ed, p522.
[6]
Bellairs
v Hodnett and Another
1978
(1) SA 1109
(A) at 1145D-F.
[7]
GN
R1814 in
GG
15143 of 1 October 1993. The rate was recently amended to 9% with
effect from 1 August 2014 with the promulgation of GNR 554
in GG
37831 of 18 July 2014. The prescribed rate of interest which applied
when the debtor was placed in mora will remain applicable
to that
debt.
[8]
Fatti's
Engineering Co (Pty) Ltd v Vendick Spares (Pty) Ltd
1962
(1) SA 736
(T) at 738F-G;
Blakes
Maphanga Inc v Outsurance Insurance Co Ltd
2010 (4) SA 232
(SCA) at 238E-F.
[9]
Fatti’s
Engineering Co (Pty) Ltd
supra
at 738H-I and 740C-D.
[10]
Adampol
(Pty) Ltd v Administrator Transvaal
1
989
(3) SA 800 (A).
[11]
[2000] ZASCA 108
;
2000
(3) SA 289
(SCA) at 303H-304E, paragraph 39.