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[2004] ZALCJHB 8
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P G Group (Pty) Ltd v Mbambo NO and Others (JR215/2004) [2004] ZALCJHB 8 (26 October 2004)
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD
IN JOHANNESBURG
Case
Number: JR215/2004
In
the matter between
P
G GROUP (PTY)
LTD APPLICANT
and
COMMISSIONER
L MBAMBO N.O.
1
ST
RESPONDENT
THE
NATIONAL BARGAINING COUNCIL
FOR
THE CHEMICAL
INDUSTRY 2
ND
RESPONDENT
PHILIP
THOMAS PETER
CLATWORTHY 3
RD
RESPONDENT
JUDGMENT
REVELAS
J
1.
This is an application to review and set
aside a ruling in respect of jurisdiction made on 18 December 2003 by
the first respondent,
a Commissioner acting under the auspices of the
second respondent, in favour of Mr PTP Clatworthy (“the third
respondent”).
The
founding affidavit deposed to by Mr Stewart Jennings, reflects the
following:
2.
The third respondent was appointed as
Director: Finance at P.G. Glass Holdings Ltd during June 1989. During
a restructuring exercise
the third respondent was transferred to the
applicant in 2001 where he remained the financial director of the
applicant.
3.
His services as director were terminated on
30 September 2003 by the board of PGSI, the holding company and sole
shareholder of
the PG Group. The third respondent’s services
were terminated by giving him notice in terms of Article 46.4 of the
applicants’
Articles of Association, (requiring that he resign
as director) read together with Article 52 of the same Articles of
Association.
4.
The third respondent referred a dispute
about an alleged unfair dismissal to the second respondent on 21
October 2003. He sought
reinstatement.
5.
On 25 November 2003 the applicant raised an
objection against the second respondent having the necessary
jurisdiction to conciliate
the alleged unfair dismissal because the
applicant had not dismissed the third respondent. It was argued that
the termination of
his appointment as an executive director was
occasioned by the notice given to him in terms of the two Articles
referred to above.
6.
The Commissioner found that the second
respondent (“the Bargaining Council”) had the necessary
jurisdiction to conciliate
the dispute. It is this ruling that the
applicant wishes to have set aside.
7.
The applicant contends that the first
respondent failed to apply his mind to the relevant issue in dispute,
namely that the second
respondent did not have the necessary
jurisdiction to conciliate an alleged unfair dismissal dispute
between the applicant and
the third respondent, since the latter was
not dismissed by the former.
8.
According to the founding papers’ the
applicants case appears to be that it was not its wish to dismiss the
third respondent
and that the decision to dismiss was taken by the
its holding company being the sole shareholder. Here I must pause to
mention
that just some months prior to the termination of the third
respondents’ services, the applicant made an attempt,
(apparently
an abortive one), to retrench the third respondent. The
correspondence exchanged also suggest rather strained relations with
undertones
of acrimony between the parties.
9.
The applicant argued that the inability of
the commissioner to appreciate that it was the holding company, the
sole shareholder
of the applicant, who dismissed the third
respondent, was attributable to his failure to properly consider that
unique relationship
between an executive director and a company’s
articles of association.
10.
The two articles, already referred to
above, relied upon by the applicant provide as follows:
Article 46.6:
“
The
office of director shall
ipso
facto
be terminated if the
director is given notice, signed by members holding in the aggregate
more than 50% of the total voting rights
of all members then entitled
to vote on a poll at a general meeting, requiring that director to
resign.”
Article 52 :
“
The
appointment of any executive director or managing director shall,
without prejudice to any claim of any nature whatever which
any such
director may have against the company, cease if for any reason he
ceases to be a director.”
11.
The case argued for the applicant was that
the articles of association gave the majority shareholders the right
to terminate the
appointment of a director. The point was made that
there is no obligation upon a shareholder to act in the interests of
the applicant
in which he holds shares, nor do the actions of a
shareholder (in the absence of direct authority) bind a company.
12.
The articles of association confers the
majority shareholder with a particular right. When the shareholder in
question became
a member of the applicant it acquired the right to
remove a director, and in doing so, it did not act as a
representative of the
company but in its own interests and its acts
are not attributable to the applicant. By removing a director
in this way,
a certain knock-on effect is achieved in respect of the
contract. It ends the contract.
13.
The argument went further to include the
contention that the third respondent was not employed by the
shareholder and that the termination
of his employment (or
“appointment”, which is the word the applicant prefers in
advancing this particular argument)
was effected by the shareholder.
The applicant therefore did not dismiss the third respondent in the
sense defined in section 186
(a) of the Labour Relations Act, 66 of
1995 (“the Act” or “the
Labour Relations Act&rdquo
;).
14.
The applicant submitted that the actions of
the shareholder were imposed on it by virtue of the articles of
association and consequently
the applicant had no alternative but to
treat the appointment of the third respondent as terminated and had
no discretion in this
regard. His employment, whether at the
level of contract or relationship, was terminated by operation of
principles of supervening
impossibility of performance. Under this
principle, supervening impossibility discharges the contract by
operation of law and the
discharge of a contract of employment by
operation of law, does not fall within the definition of dismissal as
envisaged by section
186(a) of the Act.
15.
The termination of the third respondent’s
employment therefore does not constitute a dismissal and therefore no
unfair dismissal
relief is available to him.
The
above submissions amount to essentially two propositions, they are:
1.
The applicant did not dismiss the third
respondent (as set out in the applicant’s founding affidavit)
and,
2.
The third respondent, being a director of a
company, is not an employee, by virtue of the applicant’s
articles of association
which precludes a director’s recourse
to the Act when his or her appointment is terminated.
Who
dismissed the third respondent?
16.
A company operates through its various organs (shareholders,
directors, managing director and committees of directors).
The
Companies Act No. 61of 1973, its articles of associations and the
common law determines how its powers will be distributed
amongst these organs.
17.
In terms of Section 220 of the Companies Act the members of a
company, in a general meeting, may by extraordinary resolution,
remove directors before the expiration of their terms of office.
It was argued on behalf of the third respondent that when
the
members of a company exercise powers in a general meeting and make a
decision, that decision is the company’s decision
which is
bound thereby, and is not a decision of the members themselves.
18.
In terms of Article 30 of the applicant’s articles of
association, all members entitled to vote at a general meeting
shall
be deemed as if it was passed at a general meeting. The
resolution to remove the third respondent as director of
the
applicant pursuant to Article 46.4, was unanimously approved during
an extraordinary board meeting of PGSI Limited which
was conducted
by telephonic conference. (See page 26 of the record).
The notice of dismissal to the third respondent
states that:
“
PGSI
Limited, being the holder of all voting rights entitled to vote on a
poll at a general meeting of PG Group, hereby gives
you notice in
terms of Article 46.4 of the Articles of Association of PG Group
requiring that you resign as director of PG Group”.
19.
The decision to remove the third respondent was clearly made in
terms of Article 46.6 and 30. The decision was taken
by
members in a general meeting. Therefore it is a decision of the
applicant itself and not a decision of PGSI Limited.
One of
a company’s primary rules of attribution is that the
decision of members in a general meeting constitutes
a decision of
the company itself. (See
Meridian
Global Funds Management
Asia
Ltd v Securities Commission [1995] 3 All ER 918 (PC) at 922J-923B
).
20.
The decision to dismiss, taken by PGSI Limited, is in law the
applicant’s decision and therefore the latter terminated
the
third respondent’s appointment as director.
Is
the third respondent, as a director protected by the
Labour Relations
Act?
21.
Mr
Brassey, on behalf of the applicant, has in effect invited me to
revisit the question of whether a director of a company is an
employee and entitled to protection under the
Labour Relations Act.
It
has been argued (in the 1980’s mostly), that this question
was not properly considered by the industrial court and insufficient
weight had been given to the relevant company law principles dealing
with termination of directorships. This is also the
approach
which the applicant has now adopted (See
M
P
Larkin “Distinctions
and differences: a company lawyer looks at executive dismissals
(1986) 7 ILJ 248
).
22.
If one has regard to the
Labour Relations Act as
a whole, it is
primarily designed to regulate employment relations between blue
collar workers and their employers. Support
for this
observation can be found in the many sections and schedules of the
Act, pertaining to collective bargaining collective
agreements, the
status of unions, retrenchments and the like. It may also be
observed in the provisions of the Act regarding
the informal
conciliation and arbitration proceedings. None of these
provisions have a direct bearing on the situation
where the
services of a director, as employee, are terminated. Yet, this
court has always treated directors as employees
and protected
unfairly dismissed directors under the Act. According to the
applicant, this approach is incorrect.
23.
Larkin in his article (
supra
)
at page 252 warns that the company case law which suggests that any
contractual remedy a director may have is restricted to
damages, had
been decided in the absence of the 1956
Labour Relations Act.
Under
that legislation reinstatement became the appropriate remedy
for an unfairly dismissed director.
24.
The definition of an employee in
section 213
of the
Labour Relations
Act is
a wide one. It reads:
“ ‘
employee’
means-
(a)
any person, excluding an independent contractor who works for
another person or for the
state and who receives, or is entitled to
receive, any
remuneration
;
and
(b)
any other person who in any manner assists in carrying on or
conducting the business of
any employer
”
This
definition would surely apply to most, if not all, directors.
25.
Section 78 of the Act excludes a senior managerial employees from
the definition of an employee. However this is done
in the
context of workplace forums where such a manager is not regarded as
an employee if he represents the employer in dealing
with the
workplace forum; or determine policy and take decisions on behalf of
the employer that may be in conflict with the representation
of
employees in the workplace.
26.
A director may act in certain capacities and perform the kind of
work which appears to disqualify him or her from having the
status
of an employee. On the other hand, a director may also perform
duties as an employee of the company. The office
and duties of
a director are separate. The type of work done by a director is
not a dependable criterion as the nature of
a director’s
actual day to day work may vary greatly.
27.
Directors are the holders of an office within the company.
Rights and duties attach to that office and flow from statutory
and
common law of companies. A contractual relationship between a
company and a director may not be necessary. Yet
more often
than not, contracts of employment are concluded between directors and
companies, as was indeed done in this matter.
The third respondent’s
letter of appointment by the applicant contains the standard
terms which are normally expected
to be found in a contract of
employment. Both parties regarded the third respondent as an
employee.
28.
The argument that the
Labour Relations Act does
not apply to
directors is largely premised on the argument that employment is
characterised by an imbalance in bargaining
power or in
subordination. Therefore, the argument is that, financial, managing,
and ordinary directors have no claim to the status
of an employee.
This imbalance is not capable of being described in such precise
terms so as to particularly exclude a director
from the definition.
It has been held that a director’s position is a dual one–a
holder of office on the one hand
and an employee on the other.
(See:
Stevenson v Sterns Jewellers (Pty) Ltd (1986) 7 ILJ 326
IC
). Company law too, is concerned with the disparity in
power between ownership and control.
29.
Neither the
Labour Relations Act, nor the
Companies Act nor, in this
case, the applicant’s articles, specifically precludes a
director from enjoying the protection
of the
Labour Relations Act.
More
importantly, section 220 of the Companies Act, which allows a
company to make short shrift of a director’s career, expressly
requires a right to a hearing (section 220(2)). The
Constitution which requires fair administrative action, demands that
such a hearing must be fair. Whether that hearing was fair or
not, should not be finally determined by the shareholders or
the
company’s Board of Directors. It is inconceivable that in
such an enquiry the ordinary principles of employment
law would not
be relevant. It follows that the obvious remedy available to an
unfairly dismissed director would lie in the
provisions of the
Labour
Relations Act. However
, in the light of the dual capacities in
which a director holds office, it is questionable if directors are
entitled to reinstatement.
(See: Stevenson’s judgment
supra
).
31.
Consistently the courts have rejected the argument that managerial
employees should be excluded from protection against unfair
dismissal. The fact that a person is a director of a company
does not necessarily mean that he or she cannot also be an
employee
in terms of the
Labour Relations Act. The
office of director
and position of employee are distinct from another but this court
has over time investigated whether the dismissal
of the director as
an employee was fair. (See
Long & another v Chemical
Specialists Tvl (Pty) Ltd (1987) 8 ILJ (IC); Oak Industries
(
SA)
(Pty) Ltd v John No &
Another (1987)
8 ILJ 756 (N) and Whitcutt v Computer Diagnostics & Engineering
(Pty) Ltd (1987) 8 ILJ 356 (IC
)). Yet, the office held by a
financial director, one would imagine, would rather be of more
concern to the Companies Act than
to the
Labour Relations Act.
>
33.
The first respondent (the Commissioner) can not be criticised for not
deciding the above issue. It was not raised before
him.
He only had to decide who had dismissed the third respondent.
On the facts before him, which included an employment
contract and
termination of employment, the third respondent was regarded as an
employee. This point which is now raised,
is indeed a
rather novel approach to trite law. If he erred in law, this does
not
per se
render his ruling reviewable. This aspect should
be raised at the arbitration or adjudication stage and not in this
review application.
34.
In the circumstances the application must fail.
35.
It was argued that a punitive cost order should be made against the
applicant. I do not agree that the arguments
advanced by the applicant were calculated to cause delay or are
vexatious. At a later stage in the development of this dispute
such an observation may be correct. At this stage however, I
must regard the applicant as a party who wished to test its
case in
terms of an approach which is not entirely incompatible with
sentiments expressed before in respect
of the status of directors
vis-`a-vis
the
Labour Relations Act.
36.
The
application is dismissed with costs.
______________________
REVELAS
J
For
the applicant:
Adv. M.
Brassey SC with Adv. A. M. Redding
Instructed
by Webber Wentzel Bowens Attorneys
For
the third respondent: Adv. A. Franklin
SC
Instructed
by Deneys Reitz Attorneys
Date
of hearing:
15
October 2004
Date
of judgment:
26 October 2004