About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Johannesburg Labour Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: Johannesburg Labour Court, Johannesburg
>>
2014
>>
[2014] ZALCJHB 313
|
|
Palierakis v Atlas Carton & Litho (In Liquidation) and Others (JS1039/10) [2014] ZALCJHB 313; (2014) 35 ILJ 2839 (LC) (20 June 2014)
REPUBLIC
OF SOUTH AFRICA
IN
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Reportable
Case
no: JS 1039 /10
In
the matter between -
STYLIANOS
PALIERAKIS
Applicant
And
ATLAS
CARTON & LITHO
(IN
LIQUIDATION)
First
Respondent
ATLAS
PAPER SACKS
C.C
Second
Respondent
ATLAS
PACKAGING (PTY)
LTD
Third
Respondent
Date
heard: 25
November 2013
Date
of Judgment: 20 June 2014
Summary: Sale of
business as a going concern. Transfer of business in terms of Section
197A (1) of the LRA - Application of common
law compromise and scheme
of arrangement. Application of section 311 of the Companies Act
of 1973 to the provisions of 197A
(1) (b) of the LRA. Labelling an
agreement as being governed by section 197A(1) of the LRA
JUDGMENT
MOLAHLEHI
J
Introduction
[1]
The applicant initially lodged the alleged
unfair dismissal claim against the first and second respondents. He
abandoned the claim
against the two respondents after the agreement
to have the third respondent joined in the proceedings as a party.
The claim against
the two respondents was abandoned subsequent to
joining the third respondent.
[2]
The third respondent has raised a point
in
limine
contending that the applicant
was not its employee and therefore there is no basis for the claim.
To the extent that the applicant
relies on the provisions of section
197 of the Labour Relations Act of 1995, (the LRA) the third
respondent contends that the applicable
section is section 197A of
the LRA.
[3]
The applicant contends that the third
respondent is liable for his unfair retrenchment because the transfer
of the business to the
third respondent took place in terms of
section 197 of the LRA.
Background facts
[4]
The applicant was dismissed for operational
reasons by the first respondent on 14 April 2010. After his dismissal
and on 29 September
2010, the first and second respondent concluded a
business sale agreement with the third respondent. Although there is
some suggestion
in the pleadings that the applicant was employed by
the second respondent, it is not clear whether that was indeed the
case. It
is however not disputed that he was employed by the first
respondent. For the purpose of this judgment the matter is
approached
as if the applicant was employed only by the first
respondent.
[5]
On 5 August 2011, the first and second
respondents went into voluntary liquidation which was converted into
compulsory liquidation
on 7 September 2011.
[6]
The case of the third respondent is that
although the transfer of the business from the first respondent took
place as a going concern,
the provisions of section 197 of the LRA
does not apply, but what rather applies are the provisions of section
197A of the LRA.
The third respondent’s contention is largely
based on the agreement concluded with the first respondent.
[7]
The sale of business agreement provides for
amongst other things in the definition section that employees are
“any persons
employed by the Seller in respect of the Business
before the Effective Date.” It also records in relation to the
issue of
the employees that the business was sold as a going concern
in terms of section 197A of the LRA and that all the contracts of
employment
between the first respondent and the employees shall
continue without interruption with the third respondent.
The issue for
determination
[8]
The issue for determination at this point
is whether the provisions of section 197A apply when regard is hard
to the facts of this
matter and in particular as concerning the
provisions of the sale of business agreement. If found that the
provisions of
section 197A (1) (b) and (c) of the LRA is applicable,
then that would be the end of the applicant’s claim as against
the
third respondent. If it is found that it does not then the matter
would proceed to the main claim.
The submissions by
parties
[9]
The third respondent contends that the
agreements concluded between it and the other parties in the purchase
of the businesses was
a compromise or a scheme of arrangement
contemplated in section 197(A)(1)(b) of the LRA. In other words, the
contention is that,
section 197 of the LRA does not apply, but rather
what applies on the facts of this matter are the provisions of
section 197A (b)
read with (c) of the LRA.
[10]
The contention that the business was sold
through some compromise or a scheme of arrangement is based on the
following suspensive
conditions:
a)
The written release by Mr Gargassouls (one
of the members of the first respondent) of the fixed assets from the
Notorial Bond and
the Accounts Receivable from cession.
b)
The litigation currently existing between
the first respondent and Mondi Paper Limited. The agreement in this
regard specifically
provides that those proceedings are excluded from
the agreement and that the first respondent and Mr Gargassouls
indemnify the
third respondent against any claim which may be made by
Mondi Papers.
c)
The liabilities of the first respondent in
relation specifically to the employees to be assumed by the third
respondent.
d)
The third respondent undertook to assume
the responsibility for the loan of Mr Gargassouls.
[11]
The other point on which the third
respondent relies on is that, at the time of the conclusion of the
sale of the business, the
employee’s employment contract was
already terminated. In this respect, the third respondent contends
that the applicant
was not its employee on a proper construction and
interpretation of the agreement that the third respondent concluded
with the
first respondent. The ground upon which this contention is
based on is that, the first respondent did not in terms of clause
2.1.3
34 of the agreement assume any liability or claims that the
applicant may have had against the first and second respondent.
Clause
2.1.3 34 reads as follows:
‘
Sold
Liabilities”-the liabilities of the Seller to be assumed by the
Purchaser and comprising –
2.1.3.3 4.1
the trade liabilities of the Seller in respect of the Business as at
the Effective
Date, incurred in the ordinary, normal and regular
course of business, including without limitation, to all
employee related
liabilities.’
[12]
The third respondent further contends that
the provisions of section 197A of the LRA apply in this matter for
the following reasons:
a)
because the sale agreement took place in
the context of some form of a compromise or an arrangement between
the parties.
b)
the agreement specifically records at
clause 19 thereof that the business is sold as going concern in terms
of section 197A
of the LRA.
Legal principles
[13]
The case of the third respondent, as stated
earlier is that the provisions of section 197A(1)(b) and (c) of the
LRA apply in this
matter. The issue of whether the provisions of the
section 197A apply is a matter to be determined by considering the
objective
facts placed before the Court. The issue of whether the
provision of section 197 of the LRA applies is an issue to be
determined
in the main application when the claim of the applicant is
considered. In other words what is to be determined in the present
instance
is the interlocutory point regarding the application of
section 197A of the LRA.
[14]
Section 197 of the LRA reads as follows:
‘
Transfer
of contract of employment
.
–
(1)
In this section and in
section
197
A
(a)
business” includes the whole or a part of any business, trade,
undertaking or service; and
(b)
“transfer’ means the transfer of a business by one
employer (“the old
employer”) to another employer (“the
new employer”) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of subsection
(6) –
(a)
the new employer is 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 the
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 the 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,
and
(d)
the transfer does not interrupt an employee’s continuity of
employment, and an employee’s
contract of employment continues
with the new employer as if with the old employer.’
[15]
The case of the third respondent is that
the provisions of section 197A apply in this matter. Section 197(A)
of the LRA reads as
follows:
“
197A.Transfer
of contract of employment in circumstances of insolvency
(1)
This section applies to a
transfer of a business -
(a)
if the old employer is
insolvent; or
(b)
if a scheme of arrangement or compromise is being entered into to
avoid winding-up
or sequestration for reasons of insolvency.
(2)
Despite the Insolvency Act, 1936 (Act No. 24 of 1936), if a transfer
of a business takes
place in the circumstances contemplated in
subsection (1), unless otherwise agreed in terms of section 197(6)-
(a)
the new employer is automatically substituted in the place of the old
employer in all contracts
of employment in existence immediately
before the old employer’s provisional winding-up or
sequestration;
(b)
all the rights and obligations between the old employer and each
employee
at the time of the transfer remain rights and
obligations between the old employer and each employee;
(c)
anything done before the
transfer by the old employer in respect of each
employee
is considered to have been done by the old employer;
(d)
the transfer does not interrupt the
employee’s
continuity of employment and the employee’s contract of
employment continues with the new employer as if with the old
employer.”
[16]
The
consequences of the introduction of section 197A (1)(b) and (c) of
the LRA is that despite the provisions of the
Insolvency Act 24 of
1936
, if a transfer of a business takes place in circumstance where
the old employer is insolvent or if a scheme of arrangement or
compromise
is concluded to avoid winding-up or sequestration,
anything done before the transfer by the old employer in respect of
each employee
is considered to have been done by the old employer.
This is different to
section 197
of the LRA, where
anything
done before the transfer by or in relation to the old employer,
including the dismissal of an employee or the 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.
Put in another
way, the evocation of
section 197A(1)(a)
and (b) read with subsection
(1) (c ) of the LRA, is that
the
new employer does not automatically substitute the old employer in
all contracts of employment except for those in existence
immediately
before the old employer’s provisional winding-up or
sequestration. In this respect, the LAC in
Hydro
Colour Ink v CEPPWAWU
[1]
,
held
that:
…
Section
197A
in so far as it states that the new employer is automatically
substituted in the place of the old employer in all contracts of
employment in existence immediately before the old employer’s
winding up or sequestration finds application. It must be emphasised
that the automatic substitution only relates to all “
contracts
of employment”
in existence
immediately before the old employer’s winding up or
sequestration. This means that the new employer takes no
responsibility for the actions of the old employer. By way of an
example, any wrongful dismissal by the old employer remains a
matter
for the old employer.”
[17]
It is apparent
from the reading of
section 197A
of the LRA that its provisions may,
in a transfer of business as a going concern, be triggered in two
ways, namely where:
a)
if the old employer is insolvent; or
b)
if a scheme of arrangement or
compromise is being entered into to avoid winding-up or sequestration
for reasons of insolvency.
The
old employer being insolvent
[18]
In my view,
the provisions of
section 197A
(1)(a) of the LRA applies where there
has been insolvency in the legal technical sense. In terms of the old
Act, insolvency occurs
when in the technical sense an application to
have the company declared insolvent is made and the Court endorses
such an application.
It needs to be pointed out that the burdensome
procedure provided for under the old Act has now been done away with
by the
Companies Act of 2008
which came into operation in 2011. I
will revert to the provisions of
section 311
of the old Act latter in
this judgment.
[19]
In
the present matter the transfer of the business occurred before the
new Act came into operation and therefore the provisions
of the old
Act apply.
[2]
[20]
It
has been held in
Waverly
Blankets v CCMA and Others
[3]
that the legislature never intended, with the provisions of section
197A of the LRA to undermine the provisions of section 311
of the
Company’s Act whenever a company is rescued from insolvency.
[21]
The provisions
of section 197A (1) (a) of the LRA is triggered when there has been
compliance with the provisions of section 311
of the old Act. A
company is regarded as insolvent upon a successful application in
terms of section 311 of the old Act. In the
present instance as would
appear from the earlier discussion the third respondent did not base
its case on the provisions of section
197A (1) (a) but on (b). The
question that then arises is whether the provisions of section 311 of
the old Act apply to subsection
(b) of section 197A (1) of the LRA.
In other words do the provisions of section 311 of the old Act apply
in circumstances where
the transfer of a business as going concern
occurs as a result of an arrangement or a compromise?
[22]
It is
important before considering the question of whether the provisions
of section 311 of the old Act apply to situations involving
transfer
of a business as a result of an arrangement or a compromise to
consider the meaning of the concepts of arrangement and
compromise.
This approach is adopted in order to address the submission which was
made on behalf of the third respondent that a
scheme of arrangement
can be concluded or an arrangement can be made under common law. As I
understood the submission, it is based
on the proposition that where
a compromise or arrangement is made in terms of the common law, then
there is no need to comply with
the provisions of section 311 of the
old Act on the facts of this case. I do not agree with that
proposition for the reasons
that appear later in this judgment. In
brief, my view is that the provisions of section 311 of the old Act
apply to both the transfer
of a business in terms of both section (a)
and (b) of section 197A (1) of the LRA.
The
concept of arrangement
[23]
The concept of
compromise is defined by Christie inThe Law of Contract in South
Africa as follows:
‘
Compromise,
or
transactio,
is
the settlement by agreement of disputed obligations, whether
contractual or otherwise.’
And
Hosten
et al
in Introduction to South African Law and Legal Theory ( page 765 at
1.5. ) defines compromise as follows:
‘
A
compromise or
transactio
is an agreement between two or more
parties
aimed at terminating the dispute between them. The dispute may be
between litigants, but litigation,
current or pending, is not a requirement. The compromise agreement
must of course comply with all the requirements for a valid
contract
and may lead to the creation of obligations. Very often a compromise
concerns an existing obligation. . .’
[4]
[24]
According to the
Oxford Dictionary t
he word
‘Compromise,” means to settle disputes by mutual
concessions.
[25]
The theme that runs through the above
definitions is that a compromise is reached when the parties resolves
a dispute or reaches
a consensus on how to resolve a disputed
obligation which may have given rise to litigation between the
parties.
[26]
In the present instance, the third
respondent seems to have based its case, that there was a compromise,
on the provisions of the
sale agreement relating to the litigation
between third respondent and Mondi Papers Limited and the loan given
to the first respondent
by Mr Gargassouls. The loan and the issue of
the Mondi litigation in my view, far from being a compromise
constitute nothing but
the ordinary terms and conditions of a
business transaction. There is no evidence that there was a dispute
between the first respondent
and Mr Gargassouls, regarding the
payment of the loan.
Scheme of
arrangement
[27]
The scheme of
arrangement is usually used to rearrange the rights of creditors and
members where the company is faced with financial
difficulties that
could result in it going under sequestration. It is usually a method
for achieving consensus amongst the stakeholders
in particular in
relation to the sale of shares. Any scheme of arrangement made,
will take effect once approved by the Court
under the old Act.
[28]
Similar to the issue of compromise
which the third respondent sought to rely on, the existence of the
scheme of arrangement that
it seeks to rely on, is not supported by
the objective facts. In my view, there is insufficient evidence to
sustain the contention
that the member’s loan and the Mondi
litigation constitute an arrangement that would qualify under section
197A(1)(b) of
the LRA.
[29]
Turning to the
provision of section 311 of the 1973 Company’s Act, it reads as
follows:
‘
Where
any compromise or arrangement is proposed between a company and its
creditors or any class of them, or between a company and
its members
,the court may, on application of the company or any credit member of
the company, or in the case company
being
wound up,
of the
liquidator, or if the company is subject to judicial management
order, the judicial manager, order a meeting of the company
or class
creditors, or the members (as the case may be), to be summoned
in such matter as the court may deem fit or direct.’
[30]
Henochsberg on
Company Act 71 of 2008, in dealing with the provisions of
section 197A of the LRA correctly observed that:
‘
Section
197(A) of the LRA regulates transfer of a business which takes place
pursuant to a
scheme of arrangement or
compromise which is entered into in order to avoid winding-up for
reasons of insolvency,
and provided
that such a transfer entails that all employment contracts of the
employees of the relevant business are to be transferred
from the
“old employer” Although specific reference is not made to
S311
of the
Companies Act, it
is submitted that as 197(A) is intended
to apply not only to a compromise of scheme implemented in terms of
Section 311
but also in respect of common law arrangements and
compromise’(my underlining).
[31]
In
Waverly
Blankets Ltd v CCMA and Others
,
[5]
held that:
‘
I
can see no fundamental conflict between
section 311
of the
Companies
Act and
the provisions of the
Labour Relations Act. Section
311 has
been on the statute book for many years and it serves a useful
purpose, especially when companies run into trouble. That
is
demonstrated by the facts of the present case. It seems unlikely that
Parliament, when enacting the
Labour Relations Act, intended
to
undermine
section 311
whenever a company, being rescued from
insolvency, has employee creditors and a collective agreement, which
is often the case.
In the standard type of
section 311
arrangement
with the creditors, the employees will have a vote as creditors,
which they can exercise for or against the proposed
scheme according
to their best interests. I do not think that the legislature intended
to take that opportunity away from them
or to preclude the
opportunity for compromise afforded by
section 311.
In this case it
was open to the dismissed employees, as creditors, to seek to
persuade, first the majority in the creditors meeting,
and, secondly,
the High Court, that disputes such as the dismissal disputes be
referred to arbitration. They did not do so.’
Ev
aluation
[32]
The central
issue for determination in this matter is whether the sale agreement
constitutes a scheme of arrangement or a compromise
which triggered
the provisions of
Section 197A(1)(a)
read with subsection (2)(c) of
the LRA.
[33]
There seems to
be no doubt that the purchase of the businesses was on the basis of
an on-going concern. The fact that the businesses
of the first and
second respondents were purchased as going concern is spelt out very
clearly in the number of clauses in the agreement.
It is clear from
the clauses of the agreement that the sale of the business was on the
basis of a going concern and more importantly
for the purpose of this
judgment, provision was made for the transfer and the takeover of
employees. The contention of the third
respondent is that this does
not include the applicant because he was not in its employ
immediately when the sale took effect.
[34]
In
addition to what is stated earlier, the third respondent’s
argument is also based on clause 19.1 of the sale agreement
wherein
it is stated that the business is sold in terms of
section 197(A)
of
the LRA.
[35]
In
my view, clause 19.1 of the sale agreement is nothing but a label
which has no legal force and effect in the absence of facts
to the
contrary. It is only through the objective facts that a determination
can be made that the provisions of
section 197A
of the LRA has been
triggered.
[6]
[36]
It should be
noted that
section 197(A)
does not prescribe what form the scheme of
the arrangement or compromise should take. The interpretation of the
section, as to
what form the scheme of arrangement should be, is
informed by the objective that the legislature sought to achieve.
There are two
objectives which the legislation sought to address
through the provisions of
section 197A.
The first objective is to
protect the employment of employees faced with transfer of business
in circumstances where the old employer
is insolvent. The other
objective is to avoid burdening employers who seek to rescue
insolvent companies with employment contract
of employees who were
not in the employ of the old employer immediately on the effective
date of the transfer of the business.
[37]
In my view,
having regard to the objectives of the legislature and the phrase,
“avoiding winding-up or sequestration for reason
of
insolvency,” there seem to be no doubt that this brings the
provisions of
section 197A(1)(b)
of the LRA within the jurisdiction
of
section 311
of the old Act. This means for a scheme of arrangement
or comprise to trigger the provisions of section 197A(1)(b) of the
LRA there
should be evidence of compliance with the provisions of
section 311 of the old Act.
[38]
In light of
the above discussions, I find that the objective facts do not support
the contention of third the respondent that the
provisions of section
197A(1)(a) of the LRA has been triggered. I have already indicated
earlier that the question of whether section
197 of the LRA applies
is a question to be considered in the main claim and not in this
interlocutory application.
[39]
I see no
reason in law and fairness why costs should not follow the results.
Order
[40]
In the
circumstances, the third respondent’s preliminary point is
dismissed with costs.
________________
E
Molahlehi
Judge
of the Labour Court of South Africa
APPEARANCES
:
For
the Applicant: Advocate M A Lennox
Instructed
by:
Goldberg Attorneys
For
the Respondent: Claudio Bollo of Biccari Bollo Mariano Inc
[1]
Hydro
Colour Ink v CEPPWAWU
JA
48/07 & JA 77/09
[2]
It
is no longer necessary under the 2008 Company’s Act to have
the endorsement of the Court in order to have a company declared
insolvent.
[3]
[2003]
2 BLLR 236 (LAC)
[4]
See
also Carson v Minister of Public Works
1996
(1) SA 887
E and page 893 F-H
[5]
(2003)
2 BLLR 236
(LAC) at paragraph 35.
[6]
See
NEHAWU v University of Cape Town
(2003) 24 ILJ 95 (CC) and
Aviation
Union of South Africa (Pty) Ltd
(2011) 32 ILJ 2861 (CC)
at
paragraph 47
where
Jafta J in dealing with the provisions of section 197 of the LRA had
the following to say: “But whether a transfer
as contemplated
in section 197 has occurred or will occur is a factual question. It
must be determined with reference to objective
fact of each case.”