Spar Group Limited v Sea Spirit Trading 162 CC t/a Paledi and Others (JA47/2017) [2018] ZALAC 15; (2018) 39 ILJ 1990 (LAC); [2018] 10 BLLR 1000 (LAC) (7 June 2018)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Labour Appeal Court
SAFLII
>>
Databases
>>
South Africa: Labour Appeal Court
>>
2018
>>
[2018] ZALAC 15
|

|

Spar Group Limited v Sea Spirit Trading 162 CC t/a Paledi and Others (JA47/2017) [2018] ZALAC 15; (2018) 39 ILJ 1990 (LAC); [2018] 10 BLLR 1000 (LAC) (7 June 2018)

IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case
no: JA47/2017
In
matter between
SPAR
GROUP
LIMITED

Appellant
and
SEA
SPIRIT TRADING 162 CC T/A PALEDI

First Respondent
GREENVILLE
TRADING 543 CC T/A PALEDI TOPS

Second Respondent
CORNELIUS
MARTHINUS VERMAAK

Third Respondent
MARLENE
DAPHNE
VERMAAK

Fourth Respondent
Heard:
24 May 2018
Delivered:
07 June 2018
Summary:
Transfer as a going concern – in terms of the notarial bonds
concluded by the appellant and
first and second respondents, in the
event of default by the first and second respondent, the appellant
takes over the business
and exercises all rights including selling
the business - Whether the perfection of the notarial bonds by the
appellant led to
the transfer of business as a going concern when the
first and second respondents could not meet their financial
obligations –
Held
A creditor perfecting a notarial bond over movable property of its
debtor normally does not intend to acquire responsibility
for
conducting the business of the debtor for the purpose of making
profits on an ongoing basis. The limited purpose of the transaction

from the creditor’s perspective is usually to recover the debts
owing by the debtor and to withdraw from the arrangement
once that
object is accomplished. Requiring a creditor perfecting a notarial
bond to assume responsibility for the employment contracts
of the
debtor will render this form of security unduly burdensome and less
effective. Although the appellant assumed responsibility
for
conducting the business of the corporations, it did so temporarily
with the limited purpose of recovering its debt. Labour
Judgment set
aside and appeal upheld.
Coram:
Waglay JP, Jappie and Murphy AJJA
JUDGMENT
MURPHY
AJA
[1]
This is an appeal against the decision of the Labour Court (Prinsloo
J) which found that the perfection of a notarial bond by
the
appellant, the Spar Group Ltd, (“Spar”) over the movable
property of the first and second respondents  constituted
a
transfer of a business as a going concern with the result that the
contracts of employment of the third and fourth respondents,
Mr and
Mrs Vermaak, were transferred to Spar on 1 July 2015 in terms section
197 of the Labour Relations Act
[1]
(“the LRA”). Spar contends additionally that the Labour
Court erred in finding that the dismissal of the Vermaaks was

automatically unfair
[2]
and in
awarding compensation to the Vermaaks in an amount equivalent to 12
months’ remuneration together with costs.
[2]
The first and second respondents, two close corporations, (“Paledi
Superspar” and “Paledi Tops” respectively)
operated
a supermarket and a bottle store. Mr Vermaak acquired a 50% member’s
interest in the two close corporations during
November 2013. The
Vermaaks were employed by the close corporations to manage the
businesses.
[3]
Spar supplied the two businesses with trading stock on credit. On 4
December 2013, two general notarial covering bonds were
registered by
the Registrar of Deeds in Pretoria over the movable property of the
close corporations in favour of Spar in terms
of which the first and
second respondents bound and hypothecated generally all of their
movable property as security for their
acknowledged indebtedness to
Spar. In the event of default, Spar was entitled under the bonds,
inter alia
, to take possession of and retain all or any of the
movable property and to sell and dispose of it. In addition, in terms
of clause
8.2.3 of the bonds, Spar was entitled to “carry on
the business of the Mortgagor relating to the movable property in the
name of and at the expense of the Mortgagor and for that purpose to
purchase goods and do whatever else the Mortgagees deem necessary.”

At the end of June 2015, the businesses were indebted to Spar in the
sum of R6 510 032.
[4]
As a result of Paledi Superspar and Paledi Tops being unable to meet
their financial obligations, Mr Vermaak, on 24 June 2015,
sent an
e-mail to the Senior Retail Operations Manager of Spar, Mr Freeman,
stating as follows:
‘
We
regret that we have no alternative but to close down Paledi Superspar
and the Tops at the end of this month as we cannot meet
our expense
obligations and we will not be able to meet our wage obligations at
month end.’
[5]
On 30 June 2015, Spar sought and obtained an order from the Gauteng
Division of the High Court perfecting the notarial bonds.
In
paragraph 9.3 of the founding affidavit, the Divisional Credit
Manager for Spar’s Northern Region explained Spar’s

purpose in seeking perfection of the notarial bonds as follows:
‘
By
granting the relief sought by the Applicant (Spar), this Honourable
Court would permit the Applicant to take possession of the

Respondents’ businesses and trade them in order to preserve the
businesses and value as a going concern until a purchaser
is found to
acquire the businesses at a market-related price. The trading and
sale would be for the account of the Respondents
and operate to their
benefit by raising the maximum amounts to settle all of their
creditors. Should it please the Court to grant
the perfection order,
the Applicant will inject sufficient funds in order to ensure that
the stores remain open and trading under
normal circumstances. It is
in the Applicant’s best interest to avoid the demise of stores
which serve as distribution points
for the Applicant’s
products.’
[6]
After perfecting the notarial bond, Spar took possession of the
businesses and started to run them from 1 July 2015. It completed
a
stock take of the stock on hand, credited the stock back to its
account and deducted that amount from the total amount owing
to it by
the close corporations.
[7]
On 13 July 2015, Spar presented a draft management agreement to Mr
Vermaak, in terms of which he would be appointed by Paledi
Superspar
as the store manager of the business at a lower salary for an initial
three-month period commencing on 1 July 2015 and
terminating on 30
September 2015. A similar management agreement was offered to Mrs
Vermaak, in terms of which she would be employed
as the manager of
Paledi Tops for a three-month period commencing on 1 July 2015 and
ending on 30 September 2015. The Vermaaks
were not happy with the
terms of the proposed agreements and rejected the offers. On 22 July
2015, Spar appointed a new store manager,
Mr Human, and informed
the Vermaaks that they were released from duty and requested them to
leave the premises.
[8]
On the following day, Spar’s attorneys addressed a letter to Mr
Vermaak. After setting out the key terms of the court
order
perfecting the bond, they stated:
‘
We
understand that you and your wife were employed by the corporations
to manage/assist in the management of the business.
In terms of clauses 1.3 and 2.3 of the
court order our client is vested with the right to manage the
businesses. In this regard
we advise that our client has appointed
managers to run the businesses and the presence of you and your wife
at the businesses
is not required.
We point out that you remain employed
by the corporations and insofar as you have any claims whether for
salary or otherwise, such
claims must be made against the
corporations.’
[9]
Clauses 1.4.1 and 2.4.1 of the order of court perfecting the notarial
bonds authorised Spar to sell and dispose of the businesses
in such a
manner and on such terms as Spar preferred and to convey valid title
to the buyer. Therefore, when it was unable to make
the businesses
profitable, Spar sold them to a third party, Erasmus Group Holdings
(Pty) Ltd (“Erasmus”). Appendix
3 of the sale of business
agreement provided for the businesses to be transferred as going
concerns and for Erasmus to be automatically
substituted in the place
of the close corporations in respect of all existing contracts of
employment. The sale of business agreement
therefore explicitly gave
effect to a section 197 transfer of the contracts of employment from
Paledi Superspar and Paledi Tops
to Erasmus.
[10]
The Vermaaks contend that the perfection of the notarial bonds by
Spar led to a transfer of business from Paledi Superspar
and Paledi
Tops to Spar in terms of section 197 of the LRA and
that their
dismissals were consequently automatically unfair under section
187(1)(g) of the LRA.
[3]
[11]
In general terms, section 197 of the LRA provides that where there is
a transfer of business as a going concern by one employer
(the old
employer) to another employer (the new employer), the new employer is
automatically substituted in the place of the old
employer in respect
of all contracts of employment in existence and all the rights and
obligations between the old employer and
the employee continue in
force as if they had been rights and obligations between the new
employer and the employee.
[12]
The Labour Court held that Spar’s perfection of its notarial
bond and its taking control of the businesses was a transfer
of
business as a going concern as contemplated in section 197 of the
LRA.
In reaching its conclusion, the Labour Court
considered that the court order authorised and empowered Spar to
enter upon the premises
of the businesses to take possession of all
movable property for the purpose of perfecting its security, to
retain possession of
the movable property as security for the debts
and to carry on the business in the name of and at the expense of the
corporations
and for that purpose to purchase goods and do whatever
else it deemed necessary. The stores did not close but continued to
trade
under the same name and from the same premises, and, as
mentioned, Spar appointed its own store manager to run the show.
Notwithstanding
that Spar was never the owner or lessee of the
business premises and the furniture and fittings on the premises
never belonged
to Spar, the learned judge concluded:
‘
I
have difficulty to accept that in doing all this, Spar did no more
than to act as a creditor to secure indebtedness, as submitted
by Mr
van As. I alluded to the factors to be considered and based on the
evidence that was adduced I am convinced that
in
casu
there was a
transfer of assets as Spar has taken over two stores with whatever
furniture, fittings or infrastructure they had.
All the employees of
Paledi Super Spar and Paledi Tops, except the [Vermaaks] were taken
over and the same business with the same
or similar activities
carried on without any interruption and retained its identity after 1
July 2015. In my view there was indeed
a transfer of the business of
Paledi Super Spar and Paledi Tops from [them] to [Spar] and such
transfer took place on 1 July 2015.’
[13]
Spar submitted that in arriving at this conclusion, the Labour Court
failed to recognise that the court order authorised it
to take
control of the two businesses for a specific and limited purpose,
namely to sell movable property (i.e. stock) to customers
in order to
realise their indebtedness.
[14]
The respondents, however, argued that the key determinant was the
fact that Spar had become responsible for the carrying on
of the
businesses and operated the undertakings. They maintain that a
transfer of business occurs where there is a change in the
person
responsible for carrying on the business who by virtue of that fact
incurs the obligations of an employer
vis-à-vis
the employees of the undertaking regardless of whether ownership of
the undertaking is transferred.
[4]
They submitted that after the perfection of the notarial bond, Spar
became the person responsible for carrying on the businesses
and thus
incurred the obligations of a new employer.
[15]
The primary issue for consideration on appeal therefore is whether
the perfecting of the notarial bond in the present circumstances

constituted a transfer of business. The appraisal is by its nature
context specific. Nonetheless, the definition of the word “transfer”

in section 197(1)(b) of the LRA requires that there be a transfer of
the business from one employer to another. The decisive criterion
is
whether, after the alleged transfer, the undertaking has retained its
identity, so that employment in the undertaking is continued
or
resumed in the different hands of the transferee.
[5]
The inquiry requires examination of all the facts relating both to
the identity of the undertaking and the relevant transaction
in order
to assess their cumulative effect, looking at the substance, not at
the form of the arrangements. The emphasis is on a
comparison between
the actual activities of and actual employment situation in an
undertaking before and after the alleged transfer.
The purpose of the
relevant transaction often will be an important relevant
consideration.
[16]
Although Spar assumed responsibility for conducting the business of
the corporations, it did so temporarily with the limited
purpose of
recovering its debt. The court order did not authorise Spar to take
possession of the movable property for any purpose
other than the
realisation of its security for the debt. More importantly, the court
order did not authorise Spar to sell the movables
in its own name.
Spar continued to conduct the businesses in the names of the two
close corporations, and for their account. Nor
did the court order
authorise Spar to dispose of any immovable property belonging to the
corporations or to retain movable or immovable
property belonging to
them after the indebtedness had been realised. The leases in the
names of the corporations were not transferred
or ceded to Spar and
all the employees of the close corporations became employees of
Erasmus when, in order to recover the debt
owing to Spar, the
businesses were subsequently sold as going concerns in April 2016.
[17]
Moreover, Mr Freeman gave unchallenged evidence on behalf of Spar
that responsibility for the two businesses would have been
handed
back if the indebtedness to Spar had been settled whilst it was
managing them. In addition, the owners of the close corporations
were
given the opportunity to produce other potential buyers before the
sale to Erasmus. Counsel for the respondents also conceded
before us
that any revenue recovered in excess of the indebtedness would have
been for the account and benefit of the two corporations
and not
Spar.
[18]
A creditor perfecting a notarial bond over movable property of its
debtor normally does not intend to acquire responsibility
for
conducting the business of the debtor for the purpose of making
profits on an ongoing basis. The limited purpose of the transaction

from the creditor’s perspective is usually to recover the debts
owing by the debtor and to withdraw from the arrangement
once that
object is accomplished. Requiring a creditor perfecting a notarial
bond to assume responsibility for the employment contracts
of the
debtor will render this form of security unduly burdensome and less
effective. That is not to say that a creditor perfecting
a notarial
bond may not in certain instances exceptionally assume ongoing
responsibility for a business for reasons other than
the recovery of
its debt. It will depend on the circumstances. However, in this case
there is no evidence that Spar sought to achieve
anything other than
the realisation of the indebtedness, as is evident from what
ultimately transpired.
[19]
There was therefore no transfer from an old employer to a new
employer in this instance.
[6]
It
is clear from the wording of section 197 that the old and the new
employers must be two separate entities.
[7]
On the facts, the employees remained employed by the two corporations
and were ultimately transferred from them to Erasmus. Before
the
transfer to Erasmus, there was only ever the original employer –
Paledi Superspar and Paledi Tops, with Spar acting
qua
creditor and not
qua
employer.
[20]
The present situation bears resemblance, in a limited respect, to a
change in shareholders through the sale of shares, where
the new
shareholder gains control of a business, but the business (i.e. the
employer) remains intact and does not transfer to the
new
shareholder. In such cases control or responsibility for the business
may be shifted, but the legal identity of the employer
remains the
same, as do the contractual relationships between the employer and
employees. Section 197 of the LRA does not apply
in these
circumstances.
[8]
[21]
The Labour Court therefore erred in finding there was a transfer of
business and that section 197 of the LRA was applicable
in these
circumstances. There is accordingly no basis for the third and fourth
respondents’ claim of an automatically unfair
dismissal in
terms of section 187(1)(g) of the LRA, and Spar’s appeal must
succeed.
[22]
Spar does not seek costs.
[23]
The following order is made:
23.1    The judgment of
the Labour Court is set aside.
23.2    The claim of
the third and fourth respondents is dismissed.
23.3
There is no order as to costs.
________________
JR
Murphy AJA
I
agree
____________
B
Waglay JP
I
agree
______________
A
Jappie AJA
APPEARANCES:
FOR
THE APPELLANT:

Adv AT Myburgh SC and Adv MJ van As
Instructed by: Moss,
Marsh and Georgiev
FOR
THE FIRST RESPONDENT:
Adv G Fourie and Adv S Nakhjavani
Instructed
by: Stemmet & Osman Inc
[1]
Act 66 of 1995.
[2]
As contemplated in section 187(1)(g) of the LRA.
[3]
Section 187(1)(g) of the LRA provides that a dismissal is
automatically unfair if the reason for the dismissal is a transfer,

or a reason related to a transfer, contemplated in section 197 of
the LRA.
[4]
Allen v Amalgamated Construction Co Ltd
(2000) ICR 436
(ECJ)
at paras 16 and 17;
Kelman v Care Services Ltd
(1995) ICR 261
(EAT) at 267; and
Landorganisationen I Danmark v NY Molle Kro
[1989] IRLR 37.
[5]
COSAWU v Zikhethele Trade (Pty) Ltd and Another
(2005) 26 ILJ
1056 (LC); and
Kelman v Care Services Ltd
(1995) ICR 261
(EAT) at 267.
[6]
Section 197(1)(b) defines “transfer” to mean “the
transfer of a business by one employer (‘the old employer’)

to another employer (‘the new employer’) as a going
concern”.
[7]
Todd
et al, Business Transfers and Employment Rights in South
Africa
; cited with approval in
Long v Prism Holdings Ltd and
Another
[2012] 7 BLLR 672
(LAC) at para 33.
[8]
Ndima and Others v Waverley Blankets Ltd
[1999] 6 BLLR 577
(LC).