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[2015] ZALCJHB 460
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Loyiso and Others v Amethst (Pty) Ltd and Others (JS961/12) [2015] ZALCJHB 460 (10 March 2015)
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Reportable
Case
no: JS 961/12
In the
matter between:
LOYISO
AND 28
OTHERS
First
Applicant
MOTINGWA
ANNA
MOLAMU
Second Applicant
and
AMETHST
(PTY)
LTD
First Respondent
ETQUITON
CORPORATION INVESTMENT
Second Respondent
EQUITON
HEALTH
SOLUTIONS
Third Respondent
BAOKI
CONSORTIUM
Fourth Respondent
Heard:
26 November 2015
Delivered:
10 March 2016
Summary:
Claim of dismissal based on breach of contract. Distinction between
contractual relationship and employment
relationship. Restating the
principles for lifting the corporate veil.
JUDGMENT
MOLAHLEHI,
J
Introduction
[1] The
applicants, in this matter, claims that the first respondent breached
their employment contract in allegedly dismissing
them prior to the
expiry of their five years fixed term employment contracts. The
initial number of the applicants was 28 individuals
but that has now
been reduced to 11 applicants subsequent to the others accepting the
settlement offer. The applicants claim compensation
for the unexpired
period of their written fixed term employment contracts which were
terminated by the third respondent.
[2] The
first respondent has, in its statement of response to the applicants’
statement of claim, raised several points
in limine.
All the
other points were, however, except for the one on jurisdiction
,
abandoned.
[3] At
the commencement of the hearing on 23 November 2015, the parties
agreed amongst other things that:
‘
3.
For the purpose of the points
in
limine
raised by the
First Respondent, the Applicants will have to show the existence of
the contractual relationship.’
[4] The
respondent applied for the condonation of the late filing of its
statement of opposition to the applicants’ statement
of case
which was unopposed. Considering this and other relevant factors
related to condonation application, the late filing of
the statement
of opposition of the first respondent was granted.
[5]
Furthermore, the parties agreed after the completion of the evidence
in chief of the first witness of the applicants that there
was no
need to present the case through oral evidence. They, in this
respect, agreed to argue the case based on the papers before
the
court. It was also agreed that the oral evidence, thus far presented,
should be ignored.
The
parties
[6] The
first respondent, Amethyst (Pty) Ltd, the second respondent, Equiton
Corporation Investment and the third respondents, Equiton
Health
Solutions are companies duly incorporated in terms of the company
laws of the Republic of South Africa. The fourth respondent,
Baoki
Consortium, is an unincorporated entity comprising of the first and
the second respondents. The fourth respondent was created
in terms of
the consortium agreement between the first and that second
respondents which were separate legal entities. The third
respondent,
also a separate legal entity was formed by the second respondent.
Background
facts
[7]
It
is common cause that the first and second respondent formed a
consortium for the purpose of rendering services to the Gauteng
Department of Health (GDoH), known as Baoki Consortium (Baoki). In
terms of this agreement, each of the parties (the first and
second
respondents) were to employ employees who were to be deployed to
Baoki. The consortium agreement further provides, as pointed
out in
the pleadings that the first and second respondents are jointly
liable for any claim relating to the premature termination
of the
contract of employment which employees may have or instituted against
the fourth respondent. The second respondent outsourced
its
responsibility of deploying employees to the consortium to the third
respondent.
[8]
On 3 November 2008, the GDoH awarded Baoki
the tender for the provision of Hospital Information System and
Electronic Health Record
(the contract). It is apparent that after
the conclusion of the contract the individual applicants and other
employees concluded
written five years fixed term employment
contracts with the third respondent.
[9]
It would appear that the GDoH failed to
honour its obligation in terms of the contract resulting in financial
difficulties for the
third respondent and the consequence of which
was the termination of the employment contracts of a number of
employees. The termination
of the employment contract on the basis of
retrenchment was effected by the third respondent. At that stage, the
third respondent
was in the process of liquidation.
[10]
According to the first respondent, it
intervened and offered to ameliorate the consequences of the
retrenchment by giving an undertaking
to pay certain moneys to the
affected employees. This resulted in the termination agreement of the
employment contract by the third
respondent, with some of the
affected employees. It would appear that the applicants rejected that
offer of settlement. Those who
accepted the settlement offer
undertook to indemnify the first respondent against any claim related
to their dismissal and in particular
in relation to the payment
offered by the first respondent.
Was
there a contractual relation between the first respondent and the
applicants?
[11]
The first respondent contends that the
proper analysis of the applicants’ claim is based on breach of
contract and, consequently,
they have to show that there was a
contractual relationship with the first respondent. In this regard,
it was contended that the
case of the applicants was based the
provisions of s 77(3) of the Basic Condition of Employment Act 77 of
1997 (the BCEA).
[12]
Although in the statement of case reference
is made to both the alleged unlawful and unfair termination of the
employment contract
of the applicants, it is apparent from the
reading of the pleadings that the case of the appellants is based on
the alleged breach
of the contract. This was in fact clarified with
the applicants’ counsel during his submission where he stated
that the case
of the applicants was ‘based purely on contract’.
[13]
The other suggestion which was made in the
applicants’ papers was that the contract between the applicants
and the third respondent
was for the benefit of the first respondent.
It was, however, indicated on behalf of the applicants that that
point was abandoned.
[14]
It is common cause that the written
employment contract which the applicants rely on, in relation to
their claim, was concluded
with the third respondent.
[15]
As would appear later in this judgment, the
other prayer raised by the applicants is to have this court lift the
corporate veil
of the third respondent and find that their real
employer was the first respondent.
[16]
The third respondent contended that there
was no basis to pierce the corporate veil of the third respondent.
Issues
for determination
[17]
The two issues that requires determination
are:
a.
was there a contractual relationship
between the first respondent and the applicants,
b.
have the applicants made out a case
justifying the lifting of the corporate veil of the third respondent.
In
essence, the first issue concerns whether this court has jurisdiction
to entertain the applicants’ claim of breach of contract.
The
case of the applicants
[18]
The applicants contended that the first
respondent together with others are jointly and severally liable for
the unlawful termination
of their employment contracts.
[19]
The legal basis for the case of the
applicants as set out in the statement of case is that respondents
were, at all material times,
their employers and that they (the
respondents) terminated their employment contracts prior to the
expiry period. Their alternative
prayer is that:
‘
47.6
the court should pierce the third respondent’s corporate veil
and find the first and second respondent
as the real employers.
47.7
the unlawful termination and breach of the applicant’s members’
is substantively and procedurally
unfair and constituted unfair
dismissal.
47.8
…
47.9
As a result of the unlawful termination of the Contract applicant’s
members suffered damages
being the remainder of the contract terms.’
[20]
The
case which the applicants sought to make is that there is an
employment relationship between the applicants and the first
respondent.
This, in my view, overlooks the fact that the existence
of the employment relationship, which is governed by the Labour
Relations
Act 77 of 1995 (the LRA) is not predicated on the existence
of a contract of employment. In this respect the court dealing with
the definition of “employee,” in
Discovery
Health Limited v CCMA and Others
,
[1]
had the
following to say:
‘
Taking
into account the provisions of section 23(1) of the Constitution, the
purpose, nature and extent of relevant international
standards and
the more recent interpretations of the definition of “employee”
by this Court, I do not consider that
the definition of “employee”
in section 213 of the LRA is necessarily rooted in a contract of
employment. It follows
that a person who renders work on a basis
other than that recognised as employment by the common law may be an
“employee”
for the purposes of the definition. Because a
contract of employment is not the sole ticket for admission into the
golden circle
reserved for “employees
”
,
the fact that Lanzetta’s contract was contractually invalid
only because Discovery Health had employed him in breach of
section
38(1) of the Immigration Act did not automatically disqualify him
from that status.
That,
I think, is the short answer to the question that the commissioner
had to answer. It was not necessary for the commissioner,
as he did
in his attempt to overcome the argument that Lanzetta’s
employment contract was invalid, to construct a conception
of an
“employment relationship” and to consider whether
Lanzetta was a party to such a relationship. If, as I have
suggested,
the statutory definition of “employee” is not a sidecar
to the motorcycle of the common law contract of
employment, the
commissioner had simply to ask, when applying the statutory
definition of “employee”, whether Lanzetta
worked for
Discovery Health and whether he received or was entitled to receive
remuneration. The answer to both these questions
is clearly yes.
Therefore, for the purposes of determining the CCMA’s
jurisdiction to accept Lanzetta’s referral of
a dispute,
Lanzetta was an employee and Discovery Health employed him.
’
[21]
In
Kylie
v CCMA and Others
,
[2]
the Labour Appeal Court in holding that it was not necessary to
establish a valid contract of employment for the purposes of the
protection of employment rights as envisaged in 23 of the
Constitution had the following to say:
‘
Once
it is accepted that the constitutional right to fair labour practices
vests in “everyone” and, further that it
includes not
only parties to a contract of employment but those persons in an
employment relationship, Mr Trengove’s submission,
to the
effect that persons, who engage in services pursuant to an employment
relationship such as the appellant, are covered by
section 23,
becomes particularly compelling.’
[22]
In my view, the averments made by the
applicants in their statement of case do not establish the
contractual nexus between them
and the first respondent. The facts,
as they stand, may well establish the existence of an employment
relationship in terms of
the LRA. The issue of the employment
relationship would have been relevant had the case of the applicants
been based on the unfair
dismissal concept. As indicated earlier, the
case of the applicants was not based on the employment relationship
but rather on
the contractual relationship. In any case, even if the
pleadings were to be interpreted as providing for the unfair
dismissal,
that would not have assisted the applicants as there is no
evidence that such a dispute was ever referred to the CCMA for
conciliation
and, also, that if that was the case, than the court
would not have jurisdiction, as that would have been a matter that
falls within
the CCMA jurisdiction.
[23]
In my view, the facts as they stand do not
establish the contractual nexus between the third respondent and the
applicants. In other
words, the facts placed before this court do not
support the applicants’ contention that they had employment
contracts with
the first respondent.
[24]
In light of the above, I find that the
applicants have failed
to show the existence of contractual
relationship with the first respondent. Accordingly, the
in lime
point
raised by the first respondent, in this regard, stands to
succeed.
Piercing
of the corporate veil.
[25]
It is trite that there is no
general discretion for the court to disregard the separate juristic
personality of a legal entity.
It is
generally
accepted that the piercing of the corporate veil is ‘an
exceptional procedure’.
[3]
In
The
Shipping Cooperation of India Ltd v Evdoman Corporation and
Another
,
[4]
the court, after indicating that it did not find it necessary to
attempt to define the circumstances in which the Court would pierce
the corporate veil, held that those circumstances will include where
there is ‘fraud or other improper conduct in the establishment
or use of the company or the conduct of its affairs’.'
[26]
In
Bargaining
Council for the Furniture Manufacturing Industry, Kwazulu- Natal v
UKD Marketing CC and Others
,
[5]
the Labour Appeal Court in dealing with the issue at hand had the
following to say:
‘
[21]
It is now possible to examine appellant’s argument about
lifting the corporate veil. In
Cape
Pacific Ltd v Lubner Controlling Investments (Pty) Ltd,
Smalberger
JA noted that: ‘[o]ver the years it has come to be accepted
that fraud, dishonesty or improper conduct could provide
grounds for
piercing the corporate veil.’ At 803 G He warned that ‘it
is undoubtedly a salutary principle that our
Courts should not likely
disregard a company’s separate personality but should strive to
give effect to and uphold it. To
do otherwise would negate and
undermine the policy and principles that underpin the concept of
separate corporate personality and
the legal consequences that
attached to it.’ At 803 H The learned judge of appeal then went
on to say that, where fraud dishonesty
or other improper conduct was
to be found, then further considerations would influence the overall
assessment as to whether the
corporate veil should be pierced. In
this connection, the court would proceed to examine the substance
rather than the form of
the adopted structure in order to determine
whether there has been a misuse of corporate personality which would
justify it being
disregarded. Smalberger JA then noted that fraud or
improper conduct was not the only basis by which the corporate veil
could be
lifted. Citing Gower (The Principles of Modern Company Law
(5ed at 133)) at 804 C ‘it also seems clear that a company can
be a facade even though it was not originally incorporated with any
deceptive intentions; what counts is whether it has been used
as a
facade at the time of the relevant transactions.’
[27]
In the present matter, all
what the applicants say, in their statement of case, is that this
court must simply ‘
pierce
the third respondent’s corporate veil and find the first and
second respondent are the real employers’ of the
applicants.
There is no averment that the outsourcing of the employment of the
applicants by the second respondent was intended
to mislead the
applicants as to who their true employer was. There is also no
evidence connecting the first respondent to the outsourcing
of the
employment of the applicants by the second respondent to the third
respondent.
[28]
In my
view, the party whose corporate veil ought to be lifted, if at all,
on the papers of the applicants, is that of the second
respondent who
is not only the sole shareholder of the third respondent but also was
responsible for arranging to have the third
respondent take the
responsibility of employing the applicants. However, even then, the
pleadings do not point to any wrong doing
on the part of the second
respondent or the third respondent for that matter. There is, in this
regard, no evidence pointing to
the first respondent playing any part
in the arrangement between the second respondent and the third
respondent to have the applicant
appointed as employee and signing
for a fixed term employment contract.
[29]
In
the circumstances, I find that the applicants have failed to make out
a case for lifting the corporate veil of the third respondent.
In any
event, the situation would not be different for the applicants even
if the corporate veil of the third respondent was to
be lifted
because that would not automatically make the first respondent a
party to the contract concluded between the third respondent
and the
applicants. This would be the case because there is no evidence that
the two parties at the time of concluding the contract
had intended
the first respondent to be a party to their contract neither is there
evidence that the first respondent intended
the same. This approach
is well illustrated by the English case of
VTB
PLC v Ludteck International and Others
,
[6]
which
the first respondent’s counsel provided to the court during his
submission. In that case, whose principles I find
to be
applicable to our jurisprudence, the court in dealing with a
situation similar to the present held that:
‘
In
any event, it will be wrong to hold that Mr Malofeev should be
treated as if he was party to an agreement in circumstances where
(i)
at the time the agreement was entered into, none of the actual
parties to the agreement intended to contract with him, and
he did
not intend to contract with them and (ii) thereafter, Mr Malofeev
never conduct himself as if, or led any other party to
belief, he was
liable under the agreement. That that is the right approach seems to
me to follow from one of the most fundamental
principles on which
contractual liabilities and rights are based, namely what objective
reasonable observer would believe was the
effect of what the parties
to the contract, or alleged contract, communicated to each other by
words and actions, as assessed in
their context.’
Conclusion
[30]
The
applicants have failed to show that there is a contractual
relationship between them and the first respondent. Accordingly,
this
court lacks jurisdiction to entertain the applicants’ claim.
[31]
The
applicants have also failed to establish a basis for lifting the
corporate veil of the third respondent. In any case, even if
the
corporate veil of the third respondent was lifted, that would not
have assisted their case as all what that would do is to
show that
the applicants were, on the facts as they stand before this court,
employed by the third respondent.
[32]
Turning
to the issue of costs, on the facts and the circumstances of this
case, I see no reason why cost should not, in both law
and fairness,
follow the results.
Order
[33]
In the circumstances, the
following order is made:
1.
The point
in limine
raised by the first respondent is upheld.
2.
The applicants’ application is dismissed for lack of
jurisdiction.
3.
The applicants are to pay the costs of the first respondent.
_________________________
Molahlehi,
j
Judge
of the Labour Court
Appearances:
For the
Applicant:
Adv T Munchu
Instructed
by:
Thaanyane Attorneys
For the
Respondent:
Mr M Khoza of Edward Nathan Sonnenbergs
Inc
[1]
[2008] ZALC 24
;
[2008]
7 BLLR 633
(LC) at paras 49-50.
[2]
[2010]
7 BLLR 705
(LAC) at para 22.
[3]
See
Airport
Cold Storage [Pty] Ltd v Ebrahim and Others
[2007] ZAWCHC 25
;
2008 (2) SA 303
[C].
[4]
[1993] ZASCA 167
;
1994
(1) SA 550
[A] at 566C-F.
[5]
[2013] 2 BLLR 119
(LAC); (2013) 34
ILJ
96 (LAC) at para 21.
[6]
[2013]
1 All ER 1296.