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[2016] ZALAC 29
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Kruger and Others v Aciel Geomatics (Pty) Ltd (JA87/2014) [2016] ZALAC 29; (2016) 37 (ILJ) 2567 (LAC) (14 June 2016)
IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA,
JOHANNESBURG
Case
no: JA87/2014
DATE:
14 JUNE 2016
Reportable
JAN
KRUGER
.................................................................................................................
First
Appellant
GEOSYSTEMS AFRICA (PTY)
LTD
.......................................................................
Second
Appellant
PERSONS LISTED IN ANNEXURE
A
...................................................
Third
to further Appellants
And
ACIEL GEOMATICS (PTY)
LTD
.......................................................................................
Respondent
Heard: 03 March 2016
Delivered: 14 June 2016
Summary: Practice and Procedure – co-respondent in a
proceeding filing affidavit in support of the relief sought by the
applicant
– co-respondent then becomes an applicant in the
proceedings. Allowing a co-respondent to become an applicant in
motion proceedings
is contrary to the Plascon-Evans rule which states
that the respondent against whom relief is sought is only obliged to
deal with
the case in applicant’s founding affidavit where the
case is made out – no
lis
existing between the applicant
and the co-respondent. Labour Court not having discretion
for
departing from this rule.
Transfer
of business
as
a going concern in terms of
s197 of the LRA – manufacturer company entering into a
non-exclusive
distribution agreement of
its products with another company – manufacturer company
unhappy with distributor company and entering
into distribution
agreement with another company and cancelling first agreement –
first distributor company contending that
the cancellation of its
agreement and the subsequent agreement with another company giving
rise to a transfer of a business as
a going concern - –
cancellation of a non-exclusive agency agreement does not trigger the
application of s 197 of the LRA
– the employment of a few
employees of the initial distributor does not mean that the new
distributor is taking over employees
of the initial distributor –
no business is transferred from the initial to the new distributor –
Appeal dismissed.
Coram:
Waglay JP, Tlaletsi DJP et Davis JA
JUDGMENT
WAGLAY
JP
[1]
This is an appeal against the judgment of
the Labour Court which held that there had been no transfer of the
business of the second
appellant, Grosystems Africa (Pty) Ltd
(“GSA”), to the respondent Aciel Geomatrics (Pty) Ltd
(“Aciel”)
as contemplated in section 197(2) of the Labour
Relations Act no. 66 of 1995 (“the LRA”).
[2]
In this part of the judgment, I deal only
with the point
in limine
raised by the respondent with respect to the status of GSA as an
appellant in these proceedings and as a co-respondent in the
application proceeding in the Labour Court, particularly, whether a
co-respondent while remaining a respondent may support an applicant
by raising facts and allegations in its affidavit in support of the
applicant and praying for the relief sought by the applicants.
[3]
For my part of the judgment, I did not see
the need to set out the background and facts in this matter, my
brother Davis JA deals
with them as well as the merits and the other
issues raised in the appeal.
[4]
On 30 October 2013, the first and third to
further appellants erstwhile employees of GSA (hereafter referred to
as the “said
appellants”) launched the application which
is now the subject of this appeal. The said appellants sought an
order to declare
that there had been a transfer of the business of
GSA as a going concern to Aciel as provided in s197 of the LRA.
[5]
In their application, the said appellants
cited three respondents: Leica, Aciel, the company which purportedly
was the new business
and GSA the old business as contemplated by s197
of the LRA. At some point, Leica was removed as a respondent in the
proceedings.
There can be no doubt that GSA was cited as a respondent
because it had an interest in the proceedings, no relief was sought
against
the GSA. Significantly, though, if the appellants fail in
their application, GSA may be liable to the said appellants for
payment
of a severance by virtue of the fact that GSA has by reason
of the cancellation of its agency agreement is no longer able to
retain
the said appellants as its employees.
[6]
Notwithstanding the fact that GSA was a
nominal respondent, it decided to involve itself, as it was entitled
to do, in the application
proceedings. However its involvement was
not limited to placing evidence before the Court but it became
involved as if it was an
applicant in the proceedings arguing the
case of the said appellants and asking for the relief sought by the
said appellants.
[7]
At the hearing of the application in the
Labour Court, the respondent correctly objected to the court taking
into account the affidavits
filed by GSA effectively seeking its
striking out on the basis that it constituted an irregularity and in
violation of the accepted
rules relating to motion proceedings.
[8]
The Labour Court however, took the view
that the court was entitled to depart from the rules in the interest
of “justice and
fairness” because (i) the exclusion of
the affidavits by GSA could significantly prejudice the said
appellants and (ii) the
objection was raised at a very late stage in
the proceedings.
[9]
In my view, the Labour Court erred in
allowing the GSA’s affidavit to stand and more importantly
allowing it to present argument
as if it was an applicant in the
relief sought by the said appellants.
[10]
A respondent in a motion application cannot
in my view simply decide to be another applicant. In this regard, the
judgment of the
Labour Court records the submissions made by counsel
for the respondent:
‘
[4]
Mr. Watt-Pringle SC, who appeared on behalf of Aciel, submitted that
having been cited as a respondent, GSA had three options.
First, it
was entitled to oppose the relief sought in which event it was
entitled to file an answering affidavit refuting the applicant’s
case. Secondly, it could have elected not to oppose the application
but to abide by the relief sought. Thirdly, GSA could have
decided,
if it was not content to have the applicants make out a case for the
application of s 197, to be joined as a second applicant
in order to
make out its own case. In the latter instance, Aciel would have filed
an answering affidavit to deal with the case
presented by GSA as an
applicant. What GSA was not permitted to do in the present
proceedings was to file an answering affidavit,
the sole purpose of
which was to build the case for the relief sought by the applicants
in their notice of motion, under the guise
of a respondent which had
elected not to join issue with Aciel.
[5]
On this basis, Mr. Watt-Pringle submitted that the applicants are not
entitled to rely in these proceedings on the untested
evidence
presented by GSA, since it formed no part of the founding affidavit
and therefore no part of their case. Further, he submitted
that GSA’s
counsel is not entitled to claim in argument on behalf of GSA the
relief sought by the applicants in their notice
of motion. In other
words, GSA is not permitted to assume the role of a Trojan horse,
acting in every way as if it is a co-applicant
without claiming any
relief in its own name, and thus seeking to avoid any liability for
costs.’
[1]
[11]
In my view, the above submissions are
indeed correct. I may add that in the affidavit filed by it GSA not
only did it seek to support
the said appellants’ case but went
on to ask for the “relief as prayed for in the notice of
motion”. Once GSA
sought the relief asked for by the said
appellants it was no longer placing evidence before the Court
a
quo
it was making itself an applicant
in the proceedings. In allowing the affidavits filed by GSA in the
form they did the Court was,
in effect allowing a further founding
affidavit. The respondent in the Labour Court thus suddenly found
itself fending itself not
only against the applicants but also
against a co-respondent. What is it then to do: answer the
applicant’s papers and answer
the co-respondents papers? This
clearly goes against the fundamental principle in our law that it is
the founding affidavit filed
in support of a motion that makes the
case which the respondent must meet. Allowing a co-respondent to file
answering papers in
which it seeks the relief sought by an applicant
while not seeking to be an applicant in the proceedings cannot and is
not permissible
nor is it open to a court to allow such procedure on
any grounds. The Court does not have a discretion to do so. Allowing
the GSA
affidavit not only prejudiced the respondent but placed the
respondent in a position where it had to conduct a defence on two
fronts;
one against the applicants and one against a co-respondent.
This is untenable because GSA and the applicant effectively formed a
tag-team against the respondent.
[12]
Since the affidavits constitute pleadings
and evidence in motion proceedings, Counsel for the respondent set
out the principles
that apply to motion proceeding , although these
principles should be trite, it is worth repeating them:
(a)
An
applicant in motion proceedings must make out its case in its
founding affidavit, which constitutes both the particulars of claim
and evidence in support of the relief claimed;
(b)
it
follows from the above principle that the respondent against whom
relief is sought is only obliged and entitled to deal with
the case
in applicant’s founding affidavit;
(c)
The
rule in
Plascon
Evans
is that the applicant can only succeed on the basis of facts in its
founding affidavit which is not disputed in the answering affidavit,
read with additional facts deposed to in the respondent’s
answering affidavit;
(d)
There
is however a qualification to the rule in (c) above, which is that
the applicant cannot seek to make out a cause of action
based on
allegations in the answering affidavit, which did not form part of
its case in the founding affidavit. A corollary to
the rule that the
respondent is only obliged in its answering affidavit to deal with
the case made out in the founding affidavit
and no other.
(e)
A
fortiori
,
a respondent is not obliged to deal with allegations made in a
co-respondent’s affidavits which may happen to support the
applicant’s case. The reasons for this are twofold:
(ii) firstly, there is no
lis
between a respondent and its co-respondent. Since the co-respondent
is not entitled to claim any relief unless it enters the fray
as an
applicant and files a notice of motion, there is nothing for the
respondent to oppose.
(ii) secondly, the respondent is
only obliged to deal with the case in applicant’s founding
affidavit.’
[13]
In the circumstances, it was not open to
GSA to intervene in the proceedings in the manner it did. It could
have made its own application
to make out a case for the section 197
relief, supported by a founding affidavit which Aciel would then be
obliged to answer. There
would then be a
lis
between GSA and Aciel. In the absence of such
lis
,
Aciel had nothing to answer to GSA.
[14]
In the result, the affidavits filed by GSA
should have been struck off.
[15]
This then brings us to GSA and this appeal.
The appellants having failed to obtain the declaratory order and are
before this Court
on appeal. GSA has decided to be a co-appellant.
Not only has it styled itself as a co-appellant it has launched two
applications
in this Court for this Court to accept further evidence.
In my view, for reason stated above it cannot move such applications.
In any event, my brother has considered these applications as if
these were brought by the said appellants. This he did because
the
respondent has no objection for them to be considered as applications
by the proper appellants.
[16]
Finally, I have read the judgment by my
brother Davis JA and agree with his reasons and order.
Waglay
JP
DAVIS JA
Introduction
[17]
This case concerns the important question
of whether a non-exclusive distribution agreement, entered into, in
this case between
Leica Geosystems AG (“Leica”) and
second appellant (GSA) in July 2011 but effective from 21 October
2010, can give
rise to a transfer of an undertaking sufficient to
trigger the provisions of
s 197
of the
Labour Relations Act 66 of
1995
(“LRA”), when the agreement is cancelled.
[18]
GSA conducted a business as a distributer
of surveying, measurement and geomatic products and accessories
produced by Leica. It
also provided after sale services in respect of
these products supplied by it to its customers. Subsequent to its
acquisition as
a going concern of a business conducted by Setpoint in
July 2004, GSA had distributed Leica products. GSA entered into an
initial
agreement with Leica for the distribution of Leica products
in the construction, surveying and mapping markets in South Africa.
Upon the cancellation of the first written distribution agreement,
the parties continued on the same terms and conditions as those
contained in the first agreement.
[19]
A second agreement was then concluded as a
result of which GSA continued to be the
de
facto
sole authorised distributor of
Leica geomatic products in South Africa. When this agreement ended, a
further agreement, to which
I have already made reference, effective
from 1 October 2010, was concluded. It was the cancellation of this
agreement which triggered
the dispute with regard to the application
of
s 197
of the LRA.
[20]
Absent any further facts, it appears to be
accepted that
s 197
could not be invoked in this case. But, it is the
contention of appellants that the specific facts of this case justify
the application
of
s 197
of the LRA. The facts which are alleged to
alter the default position that a cancellation of non-exclusive
distribution agreement
does not trigger the application of
s 197
of
the LRA can be summarised thus: On 7 July 2011, Leica entered into a
distribution agreement with Kebrallor (Pty) Ltd (t/a Aciel).
As a
consequence of the appointment of Aciel, it and GSA became direct
competitors in the relevant markets for Leica products.
Upon the
cancellation of the distribution agreement which GSA in July 2011,
Aciel became the
de facto
sole distributor of Leica products in South Africa.
[21]
Appellants were aware that the cancellation
of non-exclusive distribution agreement and the appointment of a new
distribution without
more would, on its own, not trigger the
application of
s 197
of the LRA. Hence, the case of appellants goes
further: they allege that a strategy was employed by Leica and Aciel
to transfer
the business, which had previously been conducted by GSA,
to Aciel over a protracted period; that is a transfer culminating in
Aciel operating the business previously conducted by GSA.
[22]
In the initial application, appellants
sought a declaratory order that there had been a transfer of the
business as a going concern
from GSA to Aciel. The employees of GSA
(said appellants) sought a further declaration that, with effect from
1 November 2013,
the employment contracts of individual employees had
been transferred from GSA to Aciel on the same terms and conditions
as they
previously enjoyed pursuant to the operation of
s 197
of the
LRA.
[23]
Sitting in the court
a
quo,
Van Niekerk J held that the
evidence presented indicated that in substance what had occurred was
the failure of the business of
one competitor in an identifiable
market, leaving the other competitor as the
de
facto
sole agent and distributor; that
is prior to 1 November 2013 there were two local distributors of
Leica products in South Africa
but after that date there was only
one. He held further that appellants had failed to demonstrate that
the transaction, on which
they relied, created rights and obligations
which required GSA to transfer something in favour of or for the
benefit of Aciel.
Although it was correct that a number of employees
elected to assume employment with Aciel after the latter had become
the
de facto
distributor of Leica products and that a number of customers had
elected to place their custom with Aciel, Van Niekerk J found
that
none of this had occurred out of “any right or obligation”
of GSA to transfer anything to Aciel, which was a requirement
for the
application of
s 197
of the LRA.
In
limine
objection
[24]
Before dealing with the merits of this
dispute, this Court was invited by respondent to determine an
in
limine
objection relating, in
particular, to the legal status of GSA as the second appellant, and
thus second respondent in the initial
proceedings. This issue has
been carefully considered by Waglay JP in his concurring judgment. I
agree fully with the compelling
reasoning employed therein and the
conclusion that it was not open to GSA to intervene in the
proceedings in the fashion of an
applicant. It could have made its
own application to make out a case for
s 197
relief, supported by a
founding affidavit which Aciel would have been obliged to answer.
There would then have been a
lis
between GSA and Aciel. In the absence thereof, Aciel had nothing to
answer to GSA. For this reason, the affidavits filed by GSA
should
have been struck out.
[25]
In turn, this finding disposes of the
application brought by GSA to have new evidence admitted before this
Court. This evidence
emerged through:
1.
A discovery process in a dispute currently
pending between GSA and Leica before the Competition Tribunal; and
2.
Through e-mail correspondence addressed to
Mr Huxley Reynolds of Imvelo Technologies (Pty) Ltd t/a PDD (‘PDD’).
[26]
Mr Redding, on behalf of said appellants,
submitted that, even if this Court refused the application of GSA to
admit further evidence,
his clients should be permitted to rely
thereon as their case was based upon the allegations of a conspiracy
between Aciel and
Leica; a
s 197
transfer took place pursuant to a
strategy adopted by Leica, in concert with Aciel, which resulted in
GSA’s business being
transferred to Aciel. In Mr Redding’s
view, this new evidence was important, arguably decisive, in
establishing the existence
of this strategy and hence providing a
clear evidential justification that a transfer of GSA’s
business to Aciel had taken
place in terms of
s 197
of the LRA.
[27]
This application was stoutly resisted by
Aciel on a compelling basis including that there was no context given
to the documents
sought to be admitted in the affidavit deposed to in
support of this application; that much of this material was hearsay
and that,
as most of all evidence involved Leica, who was not a party
to the relief now sought, no answer was forthcoming from this source.
This Court allowed Mr Redding to include the new material in his
argument on the basis that this would enable this Court to determine
whether it may prove decisive or even influential in the
determination of the case.
The merits
Appellant’s Case
[28]
Mr Redding conceded that, in principle,
s
197
of the LRA did not apply to a non-exclusive distribution
agreement. However, he contended that the facts of the present
dispute
were similar to those which were present in the case of
Merckx and Neuhaus v Ford Motor Company
Belgium SA (Merckx
)
[2]
which applied European law (Directive 77/187) which is similar to
s
197
of the LRA. In that case, the appellants were employed as
salesmen for an entity called Anfo Motors SA, a Ford dealer in
Brussels.
In 1987, Anfo decided to discontinue its activities as from
31 December 1987. Ford transferred the dealership to an independent
dealer Novarobel SA with effect from 1 November 1987.
[29]
There was no transfer of tangible assets
from Anfo to Novarobel but the former sent a letter to its customers
recommending the services
of the new dealer. Although more than
three quarters of the staff were dismissed, Anfo informed the
appellants that Novarobel
had agreed to take responsibility for
hiring certain employees with a number of clearly defined duties and
that these would be
transferred to Novarobel in accordance with
Belgium law which had incorporated European Directive 77/187. They
would then retain
their status, seniority and other contractual
rights.
[30]
The appellants informed Anfo that they did
not consent to being employed by Novarobel and refused to work for it
because there was
no provisions of a guarantee that their level of
remuneration, which was dependent on the turn over achieved, would be
maintained.
They further contended that Anfo was in breach of the
relevant contract and hence they claimed redundancy payments and
other amounts
due under the contract. During the course of the
proceedings, Anfo was wound up and Ford took its place. The matter
was ultimately
referred for the following question to be determined
by the European Court of Justice (ECJ):
‘
Is
there a transfer of an undertaking within the meaning of Directive
77/187 of 14 February 1977 if an undertaking which has decided
to
discontinue its activities on 31 December 1987 dismisses most of its
staff, keeping only 14 out of a total of over 60, and decides
that
those 14 persons, while retaining their acquired rights, must work
from 1 November 1987 for an undertaking with which that
first
undertaking has no formal agreement, but which has since 15 October
1987 held the dealership previously held by the first
undertaking,
and if the first undertaking has not transferred any of its assets to
the second?
’
[31]
The ECJ summarised the applicable law thus:
‘
It
is from that case law that, for the Directive to apply, it is not
necessary for there to be a direct contractual relationship
between
the transferor and the transferee. Consequently, where a
motor vehicle dealership concluded with one undertaking
is terminated
and a new dealership is awarded to another undertaking pursuing the
same activities, the transfer of undertaking
is the result of a legal
transfer for the purposes of the Directive as interpreted by the
Court.’
[3]
Applying this
dictum
to the facts, the court held:
‘
Furthermore,
it is clear from the documents before the Court that the
circumstances of the actions brought before the national court
are
that Ford, the principal shareholder of Anfo Motors, concluded an
‘agreement and guarantee with Novarobel, by which it
undertook,
inter alia, to bear the expenses relating to certain payments for
breach of contract, unlawful dismissal or redundancy
which might be
payable by Novarobel to members of the staff previously employed by
Anfo Motors. That fact confirms that there
was a legal transfer
within the meaning of the Directive.
’
[4]
For
these reasons, the court concluded: ‘all those factors taken as
whole, support the view that the transfer of the dealership
and the
circumstances of the main proceedings is capable of falling within
the scope of the Directive.’
[5]
[32]
According to Mr Redding, the facts, in many
material respects between the
Merckx
case and the present dispute, were similar. This dispute concerned an
agency for distributing and servicing Leica products which
had rights
taken away from it, resulting in Aciel being in sole possession of
the distribution field. In
Merckx
,
Anfo and Novarobel had the same roles as did GSA and Aciel in this
case. It followed therefore, in Mr Redding’s view, that
the
essential part of GSA’s business, the economic activity, which
comprised being the authorised distributor and servicer
of Leica
products ceased and was absorbed into Aciel’s business. Hence,
the finding of ECJ in
Merckx
stood to be followed in this case.
[33]
In further support of appellants’
case, Mr Boda, who appeared on behalf of GSA, submitted that the test
for the application
of
s 197
was whether what was transferred was a
business operation so that the business remains the same but was,
subsequent to the transaction,
located in different hands. In this
regard, he referred to the decision in of
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and
Others
[2015] 8 BLLR 757
(CC) at para
36, where the Constitutional Court placed considerable emphasis on
the substance as opposed to the form of the relevant
transaction. Mr
Boda submitted that the mode used to achieve the transfer could be a
cancellation of the contract, if the cancellation
resulted in the
transfer of key “components of the business” to a third
party. In emphasising the idea of “components
of the business”,
Mr Boda referred further to the judgment in
Aviation
Union of SA and Another v SA Airways (Pty) Ltd
and others (‘AUSA’):
[6]
‘
In
the circumstances, the cancellation clause of the agreement
contemplated a transfer of the business as going concern. The
only debate was about whether the business as a going concern was to
be transferred to SAA or to an interim service provider.
As
long as there is a transferor, the identity of that entity or person
is of no material significance. The agreement contemplates
transfer by LGM to SAA or to the interim service provider. It
requires a transfer by a transferor, the old employer, to the
transferee, the new employer.
’
[7]
[34]
Hence central to GSA’s case was the
argument that this was a case similar to that of
AUSA,
supra,
in that there had been a gradual
transfer of the business of distributing and servicing Leica products
from GSA to Aciel which
ultimately culminated in the cancellation of
the agreement between Leica and Aciel. In support thereof, appellants
contended that
30% of the personnel were taken over gradually by
Aciel from GSA, including the area manager from Lesotho, Durban and
Mpumalanga
as well as the procurement officer and service manager.
These transfers had taken place, because Aciel’s managing
director
had represented in early 2011 that GSA would ultimately
close down. Furthermore, GSA lost the right to conduct after sales
service
and to honour warranties of its clients, which included key
customers being important players in the gold mining industry. By
virtue
of the triggering of the termination clauses and the
distribution and service agreements, said appellants had lost their
job security
and were thus entitled to invoke
s 197
of the LRA. The
very purpose of the section was to protect employees in these
circumstances.
Evaluation
[35]
As indicated earlier in this judgment,
s
197
of the LRA cannot, without more, be invoked in circumstances
where a non-exclusive distribution is cancelled. This is critical to
the evaluation of the case. This conclusion meant that this Court had
to interrogate the facts of this case, particularly the alleged
conspiracy which it was alleged provided a basis for the application
of
s 197
of the LRA. As noted, Mr Redding relied heavily upon the
Merckx
case to suggest that, given a particular factual matrix, it was
possible for
s 197
of the LRA to have application in the case of a
distribution agreement.
[36]
In
Merckx
,
the court considered that there would be a transfer in terms of the
question posed to the Court, as set out above. It held:
‘
Consequently,
the answer to the first part of the question as reformulated above
must be that Article 1(1) of the Directive must
be interpreted as
applying where an undertaking holding motor vehicle dealership for a
particular territory discontinues its activities
and the dealership
is then transferred to another undertaking which takes on part of the
staff and its recommended to customers,
without any transfer of
assets.’
[8]
[37]
The distinction between
Merckx
and the present dispute is that in
Merckx
,
the transaction was expressly co-ordinated by the manufacturer, which
was the principal shareholder of the “old dealer”.
The
“new dealer” now assumed the role of the “old
dealer” which was closed down and, in terms of which,
its
goodwill and personnel was transferred to the new dealer in terms of
a clear set of contractual arrangements. In the present
case, there
is no evidence that Leica is the principal shareholder of Aciel nor
are these contractual arrangements which provide
for the “clear
break” which took place in
Merckx
.
It should also be noted that in
Süzen
v Zehnacker Gebäudereingung GmbH,
[9]
the ECJ qualified its reading of Directive 77/187 as follows:
‘
The
mere fact that the services provided by the old and new awardees of
the contract is similar does not therefore support that
an economic
entity has been transferred. An entity cannot be reduced to the
activity entrusted to it. Its identity also emerges
from other
factors such as workforce, its management staff, the way in which its
work is organized, its operating methods or indeed
where
appropriated, the operational resources available to it
.’
[10]
[38]
Turning to
AUSA,
supra,
the key question for
determination was whether upon the termination of an outsourcing
agreement between South African Airways (SAA)
and LGM, the employees
of the latter were transferred together with the business in which
they were engaged to a new employer,
in this case SAA.
[39]
LGM had contracted to conduct a specific
set of non-core SAA business pursuant to a decision by SAA to
outsource all of its non-core
business. SAA sold fixed assets to LGM
together with certain other items concerned with the business of
rendering these designated
services. LGM became obliged in terms of
this agreement to sell these assets back to SAA at a reasonable
market price upon the
termination of the agreement. The question for
determination in the case was whether the transfer of the business
from LGM to SAA
triggered the provisions of
s 197
of the LRA or, more
generally and as has oft been stated; ‘did a second generation
transfer fall within the scope of
s 197
’.
[40]
Manifestly, the present dispute is
distinguishable from these facts. In this case, GSA entered into a
non-exclusive distribution
agreement with Leica. According to an
answering affidavit deposed to by Mr Andrew Young of Leica, it
experienced difficulties with
the performance of GSA from 2008 to
2012; in particular that GSA had experienced a significant loss of
market share. Mr Young claimed:
‘
Leica
received numerous complaints from customer about the lack of
technical knowledge of GSA staff members. For example,
Huxley
Reynolds, GSA’s managing director, had previously worked in the
motor vehicle spare parts industry and (to the best
of my knowledge)
had no prior experience in the geomatics industry;
A business model focussed on
maximising profit margins rather than increasing its sales of Leica
products. Leica believes
that discounts and favourable prices
given to GSA by Leica were not passed on by GSA to its customers in
full or at all, resulting
in customers paying GSA a higher price for
Leica’s products than would otherwise have been the case;
A failure to promote and develop
sales of Leica’s geomatics products to non-mining customers;
GSA’s
failure to meet its agreed targets for its purchases of products from
Leica.
’
Mr Young attributed this poor performance to numerous changes in the
management of GSA, internal conflicts amongst management,
the loss of
key personnel, a lack of management sales and technical staff with
skill and experience in the Geomatic industry. These
concerns had
been raised with GSA owner, Mr Himelsien, together with senior
management of GSA on a number of occasions. Indeed,
in March 2011, Mr
Himelsien was informed that Leica was considering appointing a second
distributor in competition with GSA to
“incentivise” GSA
to resolve its management problems and improve its performance.
[41]
According to Mr Young, it was because of
the continued inability of GSA to meet its performance targets that a
distribution agreement
was concluded between Aciel and Leica in
August 2011. After considerable litigation, including GSA having
initiating urgent interdictory
relief against Aciel and Mr Page of
Leica to prevent both from engaging in any alleged unlawful
competition (an application which
was not proceeded with by GSA for
reasons which are unknown on the papers) as well as a referral by GSA
of a complaint against
Leica to the Competition Commission, Leica
terminated GSA’s agreement. Mr Young emphasised that among its
reasons for termination
was that sales performance had not improved,
the existence of on-going disputes between GSA and Aciel and between
GSA and itself
had damaged the Leica brand in the South African
market.
[42]
These were the reasons provided as a
justification for the cancellation of the non-exclusive distribution
agreement. By contrast,
GSA insisted that there was, in the ordinary
course, a transfer of a business to Aciel, in that the latter now
conducted the same
exclusive business as had GSA upon the termination
of the agreement. Invited by the court to provide evidence of what
precisely
was transferred from GSA to Aciel, counsel for the
appellants referred to the employment of certain GSA employees by
Aciel and,
further, the act of Aciel in providing warranties for
Leica products, which warranties previously had been offered by GSA.
[43]
As Mr Watt-Pringle, who appeared together
with Ms McClean on behalf of the respondent, noted, between six to
eight of the GSA employees
“went over” to Aciel.
Twenty-two employees remained behind in GSA. It was these employees
who were the subject matter
of this dispute. This evidence was hardly
indicative of a transfer of a business structure from GSA to Aciel.
In summary, unlike
the
AUSA
case,
supra
,
the evidence in the present dispute, did not point to a transfer of
the business as a discrete entity. For this reason, the finding
in
AUSA, supra
is unhelpful to appellants’ case where the entire business
structure was not transferred.
The conspiracy allegations
[44]
Because of these difficulties, the core of
appellant’s case turned on a conspiracy; that is that, over a
protracted period
of time Aciel and Leica, had conspired to ensure
the incremental transfer of the GSA business to Aciel. Appellant
further argued
that, over this period, the activities of both Aciel
and Leica were designed to effect the gradual transfer of GSA’s
business
to Aciel. This summary of the dispute again shows luminously
that there is a major distinction between the
AUSA
case and the present dispute transfer.
To repeat: in
AUSA
,
the entire business structure was transferred to
SAA
between
SAA
and LGM pursuant to a defined contractual arrangement.
[45]
Appellants sought to bolster their case by
the application to admit further evidence. For the reasons advanced
earlier in this judgment,
the Court accepted that it would consider
this evidence in terms of the broad argument about a conspiracy which
had been advanced
by appellants. Appellant’s problem is that
this documentation, is at best, ambiguous in its implications. To
take but a few
examples which were pressed by counsel. On 23 June
2011, Mr Page of Leica generated an e-mail to Mr West of Leica in
which the
following appears; “Patrick is hoping that LGS give
GSA a final notice on 1 July 2011. Can the termination be
copied
to Leonard, Ian … so no one is left out of the loop.
Locksley and Helgard will start approaching GSA’s
staff from 11
July 2011.” On its own, this document simply informs the
reader that, on the basis that a cancellation
of the GSA contract is
to be initiated by Leica, an approach to GSA staff can be generated
thereafter. I should again add that
a small minority of staff were
eventually employed by Aciel.
[46]
A further document entitled “Business
Plan: Representation of Leica in Southern Africa” dated June
2011 was referred
to by counsel for the appellants. It provides
information that a new company, which eventually turned out to be
Aciel, would be
formed, that Mr Helgard van Heerden would be
appointed as the general manager, as he had worked previously for GSA
until 2005.
The document then says “due to confidentiality
(there are names we cannot disclose) who we have approached key
personnel
in the industry who have committed to coming on board once
we have secured the agency.” Again, although this
document
reflects a strategy that selected staff would primarily be
sourced from GSA all that this document, in effect, reveals is that a
new competitor would be launched and that approaches would be made to
GSA’s staff to join after the launch.
[47]
An e-mail of 1 November 2011 generated from
Mr Cabrucci to Mr Concannon of Leica was also emphasised by counsel.
An examination
of this e-mail of 1 November 2011 indicates that a
meeting took place between members of Leica and Mr Himelsein of GSA
which was
described as “open and friendly” and in which
the author said “
we
believe that Aciel could deliver more business than GSA, better to
offer GSA an exit way as quick as possible. I am confident
that
GSA will accept
.”
[48]
I have cited these examples of this
additional evidence which were sought to be admitted to illustrate a
fundamental problem with
this evidence. It is possible, on a generous
interpretation, to suggest that this evidence, taken as a whole,
illustrates that
there was an intention on the part of Leica to
ensure that there would be one
de facto
distributor, namely Aciel. But the evidence, particularly in that
respect is not supported by any affidavit which gives context
to the evidence sought to be admitted and where there are no
confirmatory affidavits supplied, (most of which documents was
procured
as a result of competition litigation), confirms that Leica,
as the manufacturer, was concerned with the performance of GSA and
therefore considered alternative business proposals, which included
the cancellation of its non-exclusive distribution agreement
with
GSA. What the evidence does not show is that there was an on-going
discrete economic activity which was conducted by the business
structure of GSA and, which structure pursuant to a defined
transaction/s, is now in the hands of Aciel.
[49]
In summary, all of the evidence which was
put up by appellants should be viewed through the prism of the
following counter factual:
Assume that the factual matrix
confronting this Court was exactly as it is, save that GSA contended
that there had been a transfer
of an undertaking. The question would
then arise whether Aciel could assert its right, based on
s 197
of
the LRA, to procure the transfer of employees and with them the
knowledge, goodwill and the balance of the business structure
of GSA.
Manifestly there is nothing in the evidence which suggests that this
“right” could be asserted.
[50]
The evidence, on the probabilities, does
not justify the existence of a conspiracy to transfer a defined
business, structure from
GSA to Aciel. Even were this Court to accept
the additional evidence, to the effect that the conspiracy as alleged
existed, the
evidence read as a whole does not support the argument
that a transfer of an undertaking in terms of
s 197
of the LRA, has,
on the probabilities, been proved. Absent such a finding, it cannot
be that
s 197
of the LRA applies to a non-exclusive distribution
agreement of the kind concluded in this case.
[51]
For these reasons, the appeal is dismissed
with costs, including the costs of two counsel.
Davis
JA
Tlaletsi
DJP agrees in the judgments of Waglay JP and Davis JA.
APPEARANCES:
FOR THE
FIRST APPELLANT: Adv Redding SC
Instructed
by Hogan Lovells
FOR THE SECOND
APPELLANT: Adv Boda SC
Instructed by
Nortan Rose Fulbright
FOR THE RESPONDENT: Adv
Watt-Pringle SC and Adv Mclean
Instructed by MGM
Inc
[1]
Swanepoel
and Others v Leica Geosystems AG and
Others
(2014) 35 ILJ 2877 (LC) at paras 4 and 5.
[2]
(1996) ECR 1253.
[3]
At para 30.
[4]
At para 31.
[5]
At paras 18-19.
[6]
[2012] 3 BLLR 211
(CC).
[7]
At para 124.
[8]
At para 32.
[9]
(1997) C-13/95.
[10]
At para 15.