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Enforce Security Services (Pty) Ltd v Commission for Conciliation Mediation And Arbitration and Others (JR707/07) [2009] ZALCJHB 40 (27 July 2009)

80 Reportability
Labour Law
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Brief Summary

Labour Law — Review of CCMA Ruling — Application for rescission of variation ruling — Applicant contending lack of notification and procedural irregularities — Third respondent, a former employee, sought to substitute applicant as employer after business transfer — Commissioner upheld variation ruling without formal application — Court held that substitution under Section 197(2) of the LRA requires compliance with CCMA rules, including notification to affected parties — Ruling set aside due to failure to notify applicant of proceedings, constituting a gross irregularity.

Comprehensive Summary

Summary of Judgment


1. Introduction


The proceedings were an application in the Labour Court for the review (in terms of section 158(1)(g) of the Labour Relations Act 66 of 1995) of a rescission ruling made under the auspices of the Commission for Conciliation, Mediation and Arbitration (CCMA). The review targeted a ruling issued by the second respondent commissioner on 26 February 2007 (the ruling itself is also referenced in the order as dated 25 February 2007) under CCMA case number GAJB 1572-05.


The applicant was Enforce Security Services (Pty) Ltd (“Enforce”). The first respondent was the Commission for Conciliation, Mediation and Arbitration. The second respondent was Commissioner D.F. Matshaba, cited in his official capacity as the commissioner who issued the rescission ruling. The third respondent was Mr Mhlongo Simon Vusimuzi, a former employee connected to the earlier unfair dismissal dispute.


The procedural history, as accepted by the court, began with an unfair dismissal dispute initially pursued by the third respondent against Wolf Security. That dispute proceeded to arbitration in the CCMA, resulted in a default award in favour of the third respondent, and later triggered steps to certify and enforce the award. After Enforce purchased Wolf Security as a going concern, the third respondent sought to have Enforce substituted as the employer party for purposes of the award and its enforcement. Enforce then sought rescission of the substitution/variation ruling, failed before the commissioner, and approached the Labour Court on review.


The general subject matter of the dispute concerned the lawfulness and procedural regularity of the CCMA process by which Enforce was substituted for Wolf Security in relation to the arbitration award, and the commissioner’s later refusal to rescind that substitution/variation ruling, particularly in light of the CCMA Rules governing substitution, notice to interested parties, and condonation for late applications.


2. Material Facts


The third respondent was employed by Wolf Security as a security officer and was dismissed in November 2004. He referred an unfair dismissal dispute to the CCMA against Wolf Security, which was conciliated on 21 February 2005 without resolution. The dispute proceeded to arbitration, which was held on 13 September 2005. Wolf Security did not attend, and a default arbitration award was issued ordering Wolf Security to pay the third respondent R7 200.00 as compensation.


On 1 April 2005, Enforce purchased Wolf Security as a going concern, several months after the third respondent’s dismissal. Thereafter, steps were taken to enforce the arbitration award. On 28 October 2005, the third respondent applied for certification of the award in terms of section 143(3) of the LRA, citing Enforce as the employer. The award was certified on 8 March 2006.


During May 2006, the third respondent made an application to the CCMA to vary the award by substituting Enforce for Wolf Security as the employer party to the CCMA proceedings. A variation ruling was made on 23 May 2006 substituting Enforce for Wolf Security. Subsequently, on 5 October 2006, the third respondent caused a writ of execution to issue against Enforce for payment of the award amount plus interest calculated from 23 May 2006.


Enforce’s case (accepted by the court as undisputed for purposes of the judgment) was that it was unaware of the arbitration proceedings, the award, the variation application, the ruling on variation, and certification of the award, until 13 November 2006, when it was served with a warrant of execution by the sheriff. The court also accepted as undisputed that the variation/substitution application had been brought out of time, that there was no accompanying condonation application, and that there was no ruling condoning the late filing.


Enforce applied to have the variation ruling rescinded in terms of section 144 of the LRA, but the second respondent commissioner refused rescission. The refusal was premised (in material part) on the commissioner’s view that, in terms of CCMA rules, the CCMA or a commissioner could substitute a party without a formal application. It was that rescission refusal which Enforce sought to review and set aside.


3. Legal Issues


The central legal questions the Labour Court was required to determine concerned whether the second respondent’s rescission ruling was reviewable and should be set aside. The court framed the question through the review standard expressed as whether the commissioner’s conclusion was one that a reasonable decision-maker could not reach on the material before him.


Within that overall review inquiry, the dispute turned principally on the application of law to fact and the procedural legality of the commissioner’s approach, specifically whether the commissioner erred in concluding that CCMA rules permitted substitution without a formal application and without notice to an interested party, and whether the commissioner committed a reviewable irregularity by ignoring the absence of condonation for a late substitution application.


The issues were therefore not primarily about resolving contested factual disputes on the merits of an alleged unfair dismissal, but about the procedural correctness and jurisdictional preconditions for substitution/variation under the CCMA Rules in the context of an automatically substituted employer under section 197 of the LRA.


4. Court’s Reasoning


The Labour Court set out the statutory context of section 197(2) of the LRA, which provides that where a business is transferred as a going concern, the new employer is automatically substituted for the old employer in respect of contracts of employment, and that anything done before the transfer by or in relation to the old employer (including dismissals) is considered to have been done by or in relation to the new employer. The court accepted that the transaction in question appeared to be a transfer as a going concern and held that, on this basis, the commissioner was correct insofar as he considered that the applicant was automatically substituted for the old employer as a matter of section 197.


However, the court distinguished between the substantive effect of section 197 (automatic substitution in law) and the procedural mechanism by which substitution occurs within CCMA proceedings. The court held that section 197 itself does not explain how substitution must take place procedurally in the CCMA, and it therefore turned to the relevant provisions of the CCMA Rules, particularly Rule 26(6) and (7) (dealing with substitution) and Rule 31 (which governs applications, including substitution applications).


The court interpreted these rules to require that substitution should occur through a proper application process and, crucially, that such an application must be brought on notice to all persons with an interest in the application. The court reasoned that Rule 31(1)(a) expressly applies to substitution applications and that Rule 31(2) requires an application to be brought “on notice to all persons who have an interest in the application”. Given that Enforce would, as substituted employer, be expected to implement the arbitration award, it had a direct and substantial interest in the outcome of the substitution/variation proceedings and therefore should have been notified.


On the evidence accepted as undisputed, Enforce had not been notified of the proceedings in which it was substituted. The commissioner nevertheless dismissed this concern on the basis that the rules permitted substitution without a formal application. The court found that there was nothing in the CCMA Rules supporting the commissioner’s reasoning that substitution could occur without a formal application and proper service. The court concluded that the commissioner’s understanding and application of the relevant rules was incorrect and that this incorrect approach was prejudicial to the applicant given its interest in the variation/substitution outcome.


The court also addressed the issue of condonation. It accepted as undisputed that the third respondent’s substitution application was late, that there was no condonation application, and that no ruling condoning the late filing had been made. The court treated the existence of a ruling on condonation as a precondition for exercising jurisdiction on the substitution application itself, and held that the second respondent ought not to have ignored this “crucial jurisdictional issue” when deciding whether to rescind the ruling. The court characterised the failure to address this as a gross irregularity.


Applying the review test and referring to the reasonableness standard as articulated in the cited Constitutional Court authority, the Labour Court concluded that the second respondent’s decision was not one that a reasonable decision-maker could have reached on the materials before him. The review therefore succeeded. On costs, the court exercised a value judgment and concluded that the matter was not one in which costs should follow the result.


5. Outcome and Relief


The Labour Court reviewed and set aside the second respondent’s rescission ruling (issued under CCMA case number GAJB 1572-05 and dated 25/26 February 2007). The matter was remitted to the CCMA (the first respondent) to be dealt with by a commissioner other than the second respondent. The court made no order as to costs.


Cases Cited


Sidumo & another v Rustenburg Platinum Mines Ltd & others (2007) 28 ILJ 2405 (CC).


Legislation Cited


Labour Relations Act 66 of 1995, section 158(1)(g).


Labour Relations Act 66 of 1995, section 197(2).


Labour Relations Act 66 of 1995, section 143(3).


Labour Relations Act 66 of 1995, section 144.


Rules of Court Cited


Rules for the Conduct of Proceedings before the Commission for Conciliation, Mediation and Arbitration, Rule 26(6).


Rules for the Conduct of Proceedings before the Commission for Conciliation, Mediation and Arbitration, Rule 26(7).


Rules for the Conduct of Proceedings before the Commission for Conciliation, Mediation and Arbitration, Rule 31(1)(a).


Rules for the Conduct of Proceedings before the Commission for Conciliation, Mediation and Arbitration, Rule 31(2).


Held


The Labour Court held that, although section 197 of the LRA provides for automatic substitution of a new employer for an old employer in a transfer of a business as a going concern, the CCMA Rules regulate the procedural requirements for substitution within CCMA proceedings.


It held that the commissioner’s conclusion that substitution could occur without a formal application was inconsistent with the CCMA Rules when read together, particularly given the requirement that substitution applications be brought on notice to all interested persons. The court accepted that Enforce had not been notified and that this procedural failure prejudiced Enforce.


It further held that the commissioner committed a reviewable irregularity by ignoring that the substitution application was late and that no condonation application had been made or condonation ruling issued, despite condonation being treated as a jurisdictional precondition to entertaining the late substitution application.


On this basis, the rescission ruling was reviewed and set aside and the matter remitted to the CCMA for determination afresh by a different commissioner, with no costs order.


LEGAL PRINCIPLES


Section 197(2) of the Labour Relations Act 66 of 1995 provides that where a business is transferred as a going concern, the new employer is automatically substituted for the old employer in respect of contracts of employment and associated rights and obligations, and prior acts (including dismissals) are deemed to have been done by or in relation to the new employer.


Even where substitution occurs automatically by operation of section 197, the procedural implementation of substitution in CCMA proceedings is governed by the CCMA Rules, including the rules dealing with substitution and the general rules governing applications and notice to interested parties.


A substitution application in the CCMA context must be brought in compliance with the CCMA Rules applicable to applications and must be brought on notice to all persons with an interest in the application, including a party who will bear responsibility for compliance with an arbitration award if substituted.


Where an application (including a substitution/variation application) is brought out of time, the presence of a proper condonation process and ruling is treated as a necessary precondition to the CCMA’s competence to entertain the late application, and ignoring the absence of condonation may constitute a reviewable irregularity.


On review, the Labour Court applies a reasonableness standard and will interfere where the commissioner’s decision is not one that a reasonable decision-maker could reach on the material before the commissioner, including where the commissioner misdirects himself on the governing rules and thereby prejudices an affected party.

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[2009] ZALCJHB 40
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Enforce Security Services (Pty) Ltd v Commission for Conciliation Mediation And Arbitration and Others (JR707/07) [2009] ZALCJHB 40 (27 July 2009)

IN
THE LABOUR COURT OF SOUTH AFRICA
HELD
AT JOHANNESBURG
CASE NO: JR 707/07
In
the matter between:
ENFORCE
SECURITY SERVICES (Pty)
Ltd
Applicant
and
The
COMMISION FOR CONCILIATION
First
Respondent
MEDIATION AND
ARBITRATION
COMMISSIONER
D.F. MATSHABA
Second
Respondent
MHLONGO
SIMON VUSIMUZI
Third
Respondent
JUDGMENT
NYATHELA AJ:
Introduction
[1]
This is an application for review in terms of section 158(1)(g)  of
the Labour Relations Act 66 of 1995
(the LRA) of a rescission ruling
issued by the second respondent on 26 February 2007 under case number
GAJB 1572-05.
[2]   The ruling
reads as follows: “
15. The variation ruling issued under the
hand of Commissioner Stephen Ntombela dated 23
rd
May 2005 is not rescinded and stands.
16.
The applicant’s application for rescission is hereby dismissed.
17.
No order as to costs”.
The
parties
[4]
The applicant is Enforce Security Services (Pty) Ltd, a company with
limited liability, duly
registered
as such in terms of the laws of the Republic of South Africa.
[5]
The first respondent is the Commission for Conciliation Mediation and
Arbitration (The CCMA), a juristic person
established in terms of
section 112 of the LRA.
[6]
The second respondent is Commissioner Dintle Frederick Matshaba. The
second respondent is cited herein in his official
capacity as the
Commissioner who made the ruling.
[7]
The third respondent is Mhlongo Simon Vusimuzi, a former
employee of the applicant.
The
facts
[8]
Third respondent was employed by Wolf Security as a security officer.
He was dismissed from such employment in November
2004. He referred
an unfair dismissal dispute to the CCMA against Wolf Security for
conciliation.
[9]
The dispute was conciliated on 21 February 2005 but remained
unresolved. The third respondent referred his
dispute to arbitration.
The arbitration hearing was held on 13 September 2005. Wolf Security
did not attend the arbitration hearing.
A default award in favour of
the third respondent was issued, Wolf Security was ordered to pay the
third respondent R 7200-00 (Seven
thousand two hundred rand) as
compensation.
[10]
On 01 April 2005, applicant purchased Wolf Security as a going
concern
four months after the dismissal of
the third respondent.
[11]
On 28 October 2005, the third respondent applied to have the
award certified in terms of Section 143(3) of the LRA. The
third
respondent cited the employer as Enforce Security Services (Pty) Ltd
(the applicant).
[12]
During May 2006, third respondent made an application to
the CCMA to vary the award by substituting the applicant
as the
employer party to the CCMA proceedings. A variation ruling was made
on 23 May 2006 wherein the applicant was substituted
for Wolf
Security.
[13]
The Arbitration award was also certified on 08 March 2006.
[14]
On 5 October 2006, third respondent caused a writ of execution to be
issued against the applicant for payment of an amount
of R7200-00
plus interest thereon from 23 May 2006.
[15]
The applicant applied to have the variation ruling of 23 May 2006
rescinded in terms of Section 144 of the “LRA”.
[16]
The commissioner refused the application for rescission hence the
review application.
Grounds
for review
In
the founding affidavit, the applicant set out the grounds of review
upon which
it
relies in this matter as follows:
[17]
The second respondent failed to apply his mind to the matter, was
biased towards the third respondent in
his rescission ruling,
committed misconduct, and/or a gross irregularity and/or exceeded his
powers in relation to his duties as
an arbitrator.
[18]
The second respondent’s ruling was not rationally justifiable
on the evidence that was placed before him at the arbitration

hearing.
[19]
The second respondent failed:
(a) to
observe the
audi alterem partem
rule
(b) to
provide a reasonable explanation to applicant’s attorney as to
the reasons for no formal variation application appearing
in the CCMA
file
(c) to
take into account that the variation application was filed over seven
months after the award and without an
application for condonation of the late filing of the application for
substitution and failure
to the rule on the effect of third
respondent’s failure to apply for condonation.
(d) to
take cognisance of applicant’s affidavit and in his analysis of
evidence, he concluded that by lodging the rescission
application,
the applicant had taken over the claim lodged by the third
respondent.
(e) to
apply his mind to the provisions of Section 197 of the “LRA.”
[20]
The third Respondent opposed the application for review and stated
amongst others the following:
(a)The
applicant was automatically substituted for the old employer with
regard to contracts of employment
(b)The
applicant was aware of the variation application
(c)The
review application should be dismissed and the applicant should be
ordered to pay the sum of R7 200-00 as per the award
(d)As
the transfer of business was done as a going concern from 01 April
2005, the applicant has taken over the claim which had
been lodged by
the third respondent
(e)The
CCMA can substitute a party without a formal application.
Application
for rescission
The
applicant stated amongst others the following:
[21]
During May 2006, the third respondent made an application to vary the
arbitration award to substitute the applicant as the
employer party.
The application was dispatched by registered mail at unit 2 Alphen
Square, 16
th
Street, Midrand, 2146.
[22]
On 5 October 2006, the third respondent signed an affidavit stating
that the Applicant’s address was 3 Cramer Avenue,
Cramerville.
[23]
From 1 April 2005 to 31 May 2005, applicant was carrying on business
at Unit 2 Alphan Square, 16
th
Street, Midrand and moved to 3 Cramer Road, Cramerville.
[24]
The applicant was unaware of the arbitration proceedings, the award,
and the application to vary the award, the ruling on that
variation
and certification of the award until 13 November 2006 when it was
served with a warrant of execution by the sheriff.
[25]
The variation ruling was erroneously granted in the absence of the
applicant.
Legal
position
[26]
Section 197(2) provides as follows: “
If
a transfer of a business takes place, unless otherwise agreed in
terms of subsection (6)-
(a)
the new employer automatically substituted in the place of the old
employer in respect of all contracts of employment in existence

immediately before the date of transfer;
(b)
all the rights and obligations between the old employer and an
employee at the time of the transfer continue in force as if
they had
been rights and obligations between the new employer and the
employee;
(c) anything done
before the transfer by or in relation to the old employer, including
the dismissal of an employee or commission
of an unfair labour
practice or act of unfair discrimination, is considered to have been
done by or in relation to the new employer;
(d)...
[27]
Rule 26 (6) and (7) of the CCMA rules provide as follows: “
If
in any proceedings it becomes necessary to substitute a person for an
existing party, any party to the proceedings may apply
to the
Commissioner for an order substituting that party for an existing
party, and a commissioner may make such order or give
appropriate
directions as to the further procedure in the proceedings.
(7)
An
application to join any person as a party to proceedings or to be
substituted for an existing party must be accompanied by copies
of
all documents previously delivered, unless the person concerned or
that person’s representative is already in possession
of the
documents”.
[28]
Rule 31(1)(a) of the CCMA rules provides as follows: “
This
rule applies to any – application for condonation, joinder,
substitution, variation or rescission;”.
[29]The
applicant averred in its submissions that it had not been notified
about the application for variation which led to the
granting of the
order in which it was substituted for Wolf Security on 23 May 2006.
[30]
It further contended that it only became aware of the arbitration
proceedings, the award, the application to vary the award,
the ruling
on that variation and certification of the award on the 13
th
November 2006 when it was served with the warrant of execution by the
sheriff.
[31]
The above contentions by the applicant are not disputed by the third
respondent and I therefore accept same as correct for
purposes of
this judgement.
[32]
In paragraph 12 of the rescission ruling of 26 February 2007 which is
the subject of this review, second respondent stated
the following:
“
In terms of the rules of the
Commission, the Commission or Commissioner can make a ruling to
substitute without a formal application.
The circumstances in this
matter created an environment where the Commissioner can make such a
ruling”.
[33]
The applicant contended in his grounds for review amongst others
that, the second respondent committed a gross irregularity
in the
conduct of the rescission proceedings. On page 2 para 10 of the
record of the rescission application proceedings, applicant’s

contention was that he had not been notified of the proceedings in
which he had been substituted for Wolf Security.
[34]
It is this contention which second respondent dismissed on the ground
that the CCMA rules allow a commissioner to substitute
a party for
another without a formal application.
[35]
As pointed out above, Section 197 (2) provides that where a business
is transferred as a going concern, like what appears to
have taken
place in this matter, the new employer is automatically substituted
for the old employer even in respect of arbitration
proceedings which
were pending or concluded at the time of the transfer. Thus in this
matter, second respondent was correct in
holding that the applicant
automatically substituted Wolf Security as the employer in the
arbitration proceedings which were pending
at the time of the
transfer.
[36]
However section 197 does not explain how the substitution has to take
place. This aspect is dealt with in Rule 26 (6) and (7)
of the CCMA
Rules. As pointed out above, Rule 26 only provides that any party may
apply to the commission for an order substituting
an existing party
by another party. Apart from the fact that Rule 26(7) requires that
the party who is substituting an existing
party must be served with
all documents which had already been filed in the proceedings at the
time of the application, Rule 26
does not specifically mention that
the application for substitution should comply with Rule 31 of the
CCMA rules.
[37]
It is to be noted that Rule 31(1)(a) specifically provides that the
rule applies to amongst others, applications for joinder,

substitution etc, thus I have come to the conclusion that an
application for substitution of a party like what happened in this

case, should be done in compliance with the provisions of Rule 31 of
the CCMA rules.
[38]
Rule 31(2) provides that “
An
application must be brought on notice to all persons who have an
interest in the application”.
In
this matter, the applicant is the person who was substituting Wolf
Security as an employer in the variation application. It is
clear
that as employer, the applicant is the party who would eventually be
expected to implement the arbitration award in respect
of which the
substitution was sought. The applicant therefore had an interest in
the outcome of the variation proceedings and thus
Rule 31(2) requires
that the applicant should have been notified of the proceedings.
[39]
It is clear from the record of the rescission proceedings, that the
information in para 32 above was before the second respondent
at the
time when he made the ruling that the rules of the CCMA allowed a
commissioner to substitute a party for another without
a formal
application.
[40]
In this matter therefore, this court has to decide whether the
conclusion reached by the second respondent  cannot be
said to
be one that a reasonable decision maker could not reach based on the
materials before him?
Sidumo &
another v Rustenburg Platinum Mines Ltd & others (2007) 28 ILJ
2405 (CC).
[41]
I have already stated that in paragraph 12 of the ruling under
review, the second respondent held a view that the CCMA rules
allowed
a commissioner to substitute a party for another without a formal
application. Based on this reasoning, the second respondent
proceeded
to dismiss the applicant’s rescission application.
[42]
As pointed out above, Rule 26 read with Rule 31 of the CCMA rules do
require that a substantive application accompanied by
all documents
which have been filed in the proceedings at the time of the
application for substitution should be served on all
persons who have
an interest in the application. There is nothing in the CCMA rules
which supports the reasoning of the second
respondent that the rules
allow a commissioner to substitute a party without a formal
application. I conclude therefore that second
respondent’s
understanding and application of the relevant rules was incorrect. In
view of the substantial interest which
the applicant had on the
variation application, second respondent’s incorrect
application of the rules was prejudicial to
the applicant.
[43]
There is further no dispute in this matter that third respondent’s
application for substitution was filed out of time.
The applicant
submitted that the said application was not accompanied by an
application for condonation. Furthermore, applicant
contended that
there was no ruling made condoning the late filing of the
substitution application.
[44]
The above averments are not in dispute and thus I accept same as the
facts in this matter. In view of the fact that a ruling
on
condonation of a late application is a precondition for exercising
jurisdiction on the application itself. I conclude that the
second
respondent ought not to have ignored this fact in arriving at his
decision on whether to rescind the ruling or not. I find
that second
respondent committed a gross irregularity in ignoring the fact that a
crucial jurisdictional issue had not been dealt
with when the
substitution order which applicant sought to rescind was granted.
[45]
In the light of the above analysis, I conclude that the decision
which second respondent arrived at is not one which a reasonable

decision maker could have arrived at given all materials which were
before him at the time of making the decision.
[46]
The application stands to be granted.
[47]
I do not believe that this is a matter where costs should follow the
results.
Order
In
the circumstances, I make the following order:
[48]
The rescission ruling of the second respondent under case number GAJB
1572-05 dated 25 February 2007 is hereby reviewed and
set aside.
[49]
The matter is remitted to the first respondent to be dealt with a
commissioner other than the second respondent.
[50]
No order is made as to costs.
______________
NYATHELA
AJ
Date
of hearing:

21 April 2009
Date
of Judgement:

27 July 2009
Appearances
For
the applicant:

C. Levin
(Clifford
Levin Attorneys)

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