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[2019] ZALCJHB 55
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Moloney and Others v 3D Design Close Corporation t/a Muga Design (In Liquidation) and Others (JS 201/17) [2019] ZALCJHB 55 (15 March 2019)
IN
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Not reportable
Case No: JS 201/17
In the matter between:
SARAH JANE MOLONEY &
12 OTHERS
Applicant
And
3D DESIGN CLOSE
CORPORATION t/a
MUGA DESIGN (IN
LIQUIDATION)
First Respondent
3D DESIGN JHB (PTY)
LTD
Second Respondent
3D EVENTS JHB (PTY)
LTD
Third Respondent
CONRAD
KULLMAN
Fourth Respondent
JOHN
KULLAN
Fifth Respondent
MIBELLA 1045 t/a 3D
SHELL
Six respondent
Heard:
11, 12 - 13 March 2019
Delivered:
15 March 2019
JUDGMENT –
ABSOLUTION FROM THE INSTANCE
TLHOTLHALEMAJE,
J
[1]
In a claim
brought under the provisions of section 187(1)(g) read with the
provisions of section 191(5)(11) of the Labour Relations
Act
(LRA)
[1]
,
the applicants seek
an
order declaring that their dismissal was automatically unfair or in
the alternative, unfair. Their claim is based on the transfer
of the
business of the first respondent (3D Design CC t/a Muga Design)
(Muga) to the second respondent (3D Design JHB) at the time
of their
dismissal.
[2]
It was common cause that the applicants were
on 30 November 2016 summarily dismissed either individually
or as a group,
upon being informed that Muga was being liquidated.
The applicants further contend that despite their summary dismissal,
other
employees were transferred to the second, third and sixth
respondents.
[3]
The fourth and fifth respondents (The ‘Kullmans’)
who are brothers and were the directors or shareholders of the
entities
(including the first, second, third and sixth respondents)
that formed 3D Group of Companies, opposed the applicants’
claim.
Subsequent to the applicants having closed their case, the
Kullmans had sought absolution from the instance, contending that
there
was no
prima facie
evidence
adduced to sustain the claim of piercing the corporate veil as
pleaded by the applicants in their statement of claim.
The
applicants opposed the application for absolution from the instance.
[4]
In their statement of claim, the applicants alleged the following;
4.1.
Prior to and/or in November 2016 the Kullmans were common
members of the first and
sixth respondents and other entities
including JCK Management Services CC, Lumen Electrical CC and Mibella
1039 CC. The entities
were collectively referred to as the 3D Group
of Companies, and were at all times intertwined and interdependent
upon each other
and ran as extensions of the Kullmans’
personalities.
4.2.
In August 2015, Muga had created an entity called 3D Design t/a
3D Events on its internal
accounting system, which had at all times
utilised Muga’s registration and VAT numbers, and operated as a
division of Muga.
That entity eventually became known as 3D Design
JHB (Pty) Ltd (The second respondent), and was registered on
7 December 2016,
with the Kullmans as its directors and
shareholders. The third respondent (3D Events (Pty) Ltd was
registered on 12 January 2017,
with the Kullmans as its
directors and shareholders.
4.3.
As at 12 January 2017, the entities forming the 3D Group
included the sixth,
second and third respondents, in addition to
Lumen Electrical CC, JCK Management Services CC and Lumen Electrical.
The Kullmans
remained the directors and shareholders of the 3D Group
of Companies.
4.4.
On 30 November 2016, the applicants were individually and
collectively verbally
informed that Muga was to be liquidated and
that their employment services were to be terminated with immediate
effect.
4.5.
On the same date that the dismissals took place, the 3D Group
publicised information on
its website which read;
“
The 3D Group is
in a process of restructuring its business in order to provide
clients a better and more personal service in 2017.
In order for us to
achieve this we are closing one of our five companies in the group.
This does not affect 3d Shell, 3d Furniture,
3d Cape or 3d Furniture
Hire.
The affected company
is the 3d Design business, which will become 3d Design Johannesburg
(Pty) Ltd as of January 2017. The new company
will be positioned for
longer term sustainability in terms of supporting the exhibition
industry and its stakeholders. We are looking
forward to the positive
effect that this will have on our business for 2017 and the future”
4.6.
The applicants allege that between the period 30 November 2016
to 7 December 2016,
the business of Muga was transferred to
3D Design Johannesburg (Ltd) Ltd (the second respondent) and further
that certain employees
were transferred to the employ of the latter
entity.
4.7.
The applicants further allege that one or more of the respondents
acting individually and/or
jointly and/or as the alter-ego of the
Kullmans cherry-picked the transferred employees for employment with
one or more of the
respondents and used this stratagem to unlawfully
dismiss them.
[5]
Since the dismissals, the applicants further alleged that the
following
events took place;
5.1
Other employees were transferred to the sixth respondent and paid by
that entity.
5.2
The second respondent was created on 7 December 2016, and
two days
later, Muga was voluntarily liquidated.
5.3
On 12 December 2016, the third respondent was created.
5.4
On 28 June 2017, the Kullmans sold 51% of their shares in
the Group
for R5.5m to two new shareholders.
5.5
As at February 2018, all the entities in the 3D Group of Companies
were liquidated.
[6]
At these proceedings, the summary dismissal of the applicants as it
took
place on 30 November 2016 and the manner it was
effected was not placed in dispute. In the light of all of the
entities
having been liquidated, and the liquidators not being party
to these proceedings, the applicants seek to hold the Kullmans
jointly
and severally liable for their claims. In this regard, the
applicants seeks to have the corporate veil lifted.
[7]
There are
no specific guidelines as to when a court would pierce the veil as
each case would depend on a close analysis of its facts
[2]
. It
is however accepted that there is no general discretion enjoyed by
the courts to disregard the separate juristic personality
of a legal
entity, and that in the same vein, the piercing of the corporate veil
is ‘an exceptional procedure’, which
will be invoked in
circumstances where
there
is ‘fraud or other improper conduct in the establishment, or
the use of the company/entities, or the conduct of its
affairs
[3]
.
[8]
When the veil of incorporation is pierced, the protective covering of
the limited liability presented by the company structure is stripped,
which may result in its shareholders or directors being held
personally liable. The primary purpose of piercing the corporate veil
would simply be to prevent the abuse of the corporate personality
by
directors and shareholders of the company.
[9]
In this case, and in seeking to hold the Kullmans jointly and
severally
liable, the applicants’ case was that these two
individuals as the only members/shareholders/directors of the first,
second,
third and sixth respondents as well as other entities forming
the 3D Group of Companies had utilised the vehicle of these
entities as an extension of their own personalities to fraudulently,
alternatively, dishonestly, alternatively, improperly conduct
their
affairs, or abused the corporate identities and personalities of
those entities together with others.
[10]
The applicants had relied mainly on the evidence of Ms Lathisha
Heslop (Heslop) who commenced
employment with Muga in May 2015
in the position of Assistant Events Coordinator. Her evidence is
summarised as follows:
10.1.
The operations of the 3D Group of Companies involved the preparation
of exhibition stands, live events,
furniture rental and shell scheme
stands amongst others.
10.2.
Its different entities were all housed in one building and divided
into different sections or departments.
She contended that there was
no distinction between the entities as they acted and conducted
themselves as one company. This was
fortified by the fact that
invoices for inter-company services were not paid and everything was
done internally.
10.3.
There were instances were one entity would be quoted on an asset and
the other would pay for it. In some
instances, one entity would
purchase an asset which would then be delivered and utilised by
another entity. There was further
an instance on 30 November 2016,
when the employees were instructed by the Kullmans to re-issue to
clients invoices previously
issued by Muga which resulted in the
sixth respondent receiving payment instead of Muga. Heslop contended
that this constituted
fraud.
10.4.
Following the dismissal of other employees on 30 November 2016,
Heslop and other remaining employees
were transferred to the second
respondent. Despite this, their salaries for December 2016, were
paid from the sixth respondent’s
bank account. In
February 2017, the employees’ salaries were paid from the
bank account of the third respondent.
[11]
The applicants further led the evidence of Mr Masilo Kwenabaholo an
erstwhile employee
of Muga who was also dismissed on or about
30 November 2016. His evidence to the extent that it is
relevant to the issue
for determination was to confirm that all the
entities under the Group operated under one roof.
[12]
The evidence of Ms Sarah Moloney (Moloney), who was also dismissed on
30 November 2016
mainly related to the circumstances
leading to her dismissal, and is only relevant insofar as she had
also confirmed that the entities
all operated under one roof.
[13]
To the extent that the Kullmans sought absolution from the instance,
this pertained mainly
to the question whether the applicants had laid
a basis for the piercing of the corporate veil.
[14]
The
principles applicable to applications for absolution from the
instance are trite. Absolution is not readily granted unless it
can
be demonstrated that the applicants’ case was so weak
that
no reasonable court could find for them.
The established test to an absolution application was set out in
Gordon
Lloyd Page & Associates v Rivera and Another
[4]
as follows;
‘
[2]
The test for absolution to be applied by a trial court at the end of
a plaintiff’s case was formulated in
Claude Neon Lights (SA)
Ltd v Daniel
1976 (4) SA 403
(A) at 409G-H in these terms:
“…
(W)hen
absolution from the instance is sought at the close of plaintiff’s
case, the test to be applied is not whether the
evidence led by
plaintiff establishes what would finally be required to be
established, but whether there is evidence upon which
a Court,
applying its mind reasonably to such evidence, could or might (not
should, nor ought to) find for the plaintiff. (
Gascoyne v Paul and
Hunter
1917 TPD 170
at 173;
Ruto Flour Mills (Pty) Ltd v
Adelson
(2)
1958 (4) SA 307
(T).)”
This implies that a
plaintiff has to make out a prima facie case – in the sense
that there is evidence relating to all the
elements of the claim –
to survive absolution because without such evidence no court could
find for the plaintiff (
Marine & Trade Insurance Co Ltd v Van
der Schyff
1972 (1) SA 26
(A) at 37G-38A; Schmidt
Bewysreg
4th ed at 91-2). As far as inferences from the evidence are
concerned, the inference relied upon by the plaintiff must be a
reasonable
one, not the only reasonable one (Schmidt at 93). The test
has from time to time been formulated in different terms, especially
it has been said that the court must consider whether there is
“evidence upon which a reasonable man might find for the
plaintiff” (
Gascoyne
(loc cit
))
– a test
which had its origin in jury trials when the “reasonable man”
was a reasonable member of the jury (
Ruto Flour Mills
). Such a
formulation tends to cloud the issue. The court ought not to be
concerned with what someone else might think; it should
rather be
concerned with its own judgment and not that of another “reasonable”
person or court. Having said this, absolution
at the end of a
plaintiff’s case, in the ordinary course of events, will
nevertheless be granted sparingly but when the occasion
arises, a
court should order it in the interests of justice.’
[15]
Applying the above principles to the facts of this case, it is
apparent that the applicants
must have adduced evidence relating to
the elements of the claim or contention that the corporate veil ought
to be pierced. This
entails that they must have placed evidence which
demonstrates that this Court applying its mind reasonably to such
evidence, could
find that the Kullmans had either fraudulently,
or dishonestly, or improperly conducted the affairs of the entities
forming
the 3D Group, or that they had abused the corporate
identities and personalities of those entities, for the purposes of
finding
them jointly and severally liable for their unfair dismissal.
The onus on the applicants in this regard is however less onerous.
[16]
There are certain worrisome features with the Kullmans’ case
that casts doubt on
whether the interests of justice will be better
served by the exercise of the discretion to grant absolution. These
features can
be identified as follows;
16.1
The first is that the grossly unfair and appalling manner with which
the dismissal of the applicants
was effected on 30 November 2016
is not placed in dispute. In the light of the constitutionally
guaranteed right to fair
labour practices, fairness and the interests
of justice dictate that the Kullmans must give an account and explain
the circumstances
leading to the dismissals. This is particularly so
since in some instances, the Kullmans had personally verbally
informed the employees
of their summary dismissal.
16.2
On the Kullmans’ version as stated in the opening address by Mr
Nel on their behalf,
Muga was liquidated but yet certain of its
functions were continued, resulting in some of the employees being
transferred to other
entities, which on their version, were created
to employ those employees.
16.3
Immediately upon the dismissal of the applicants, the Group issued an
announcement on its website
justifying the reason Muga was closed
down or placed under liquidation, whilst at the same time
establishing a new company in the
form of the second respondent.
16.4
It was further conceded on behalf of the Kullmans that the entities
within the Group operated
in tandem, and it was further contended
that each of the financial transactions in-between the entities could
be explained to demonstrate
that no fraudulent activities took place.
16.5
A further worrying feature with the Kullmans’ case pertains to
the pleadings, where they had
in their statement of response, made
bare denials, including to paragraphs 3 – 21 of the applicants’
statement of claim,
which incorporates averments in regards to the
identities of the parties, including their own. Despite raising
preliminary points
in that regard, including contending that no
employment relationship had existed between the applicants and any of
the entities,
those points were ultimately abandoned. Even worse, at
paragraph 21 of the statement of response, the dismissal of the
applicants
in the manner described was denied.
16.6
It is appreciated that certain allegations made by Heslop in her
evidence in chief were countered
under cross-examination,
particularly those related to some financial transactions made in
respect of certain clients. Be that
as it may, certain aspects of her
evidence remained unchallenged including that it was the Kullmans who
had decided which of the
employees were kept and transferred; that no
changes took place after the transfers to other entities, which
entity had paid the
monthly salaries; that the second and third
respondents had no bank accounts; and that there was no distinction
between the entities.
16.7
Other than the above, certain versions were put to Heslop under
cross-examination which were
either confirmed or denied. In such
circumstances, once certain facts are put to witnesses under
cross-examination, there is an
expectation that witnesses will
testify as to such facts and be cross-examined. If absolution is
granted, that opportunity is lost
as the Kullmans would not be called
upon to answer to the applicants’ claims, thus resulting in an
unfair result to them.
[17]
In conclusion, it is trite that in reaching a conclusion whether
absolution should be granted,
it is not required of this Court to
critically look at all the evidence, as would be required of a Court
at the end of a trial
in order to deliver judgment. The primary
consideration is whether there is evidence on which a court could or
might find for the
applicants.
[18]
In the light of the above considerations, having had regard to a
variety of factors including
the evidence led thus far in these trial
proceedings, the versions put to the witnesses under
cross-examination and as opposed
to the Kullmans’ version in
their statement of response, the pleadings as they are before the
Court, the documentary material
placed before it, the applicants’
uncontested version in regards to the nature and manner of their
dismissal, the overall
interests of justice, and the primary
objective of ensuring fair trials, I am satisfied that the applicants
have established a
prima facie
case, which the Kullmans must
answer to. To that end, it is deemed appropriate to refuse
absolution.
[19]
In regards to the issue of costs associated with the application for
absolution, it is
deemed prudent that these be determined at the end
of these trial proceedings.
Order:
[20]
In the premises, the following order is made;
1. The
respondent’s application for absolution from the instance is
dismissed.
2. Costs
associated with the application for absolution from the instance are
to be in the cause.
___________________
Edwin
Tlhotlhalemaje
Judge
of the Labour Court of South Africa
APPEARANCES:
For
the Applicants:
T. Anestidis of Eversheds Sutherland
For
the Fourth and Fifth Respondents: A.J Nel
Instructed
by:
Lee and McAdam Attorneys
[1]
Act 66 of 1995, as amended
[2]
Hülse-Reutter
and Others v Gödde
2001
(4) SA 1336 (SCA)
[3]
See
Amlin
(SA) Pty Ltd v Van Kooij
2008 (2) 558 (C);
Airport
Cold Storage [Pty] Ltd v Ebrahim and Others
[2007] ZAWCHC 25
;
2008 (2) SA 303
[C];
The
Shipping Cooperation of India Ltd v Evdoman Corporation and Another
[1993] ZASCA 167
;
1994
(1) SA 550
[A] at 566C-F
;
Bargaining Council for the Furniture Manufacturing Industry,
Kwazulu- Natal v UKD Marketing CC and Others
5
[2013] 2 BLLR 119
(LAC); (2013) 34 ILJ 96 (LAC) at para 21, where
it was held that;
‘
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.’
[4]
2001
(1) SA 88
(SCA) at 92E-93A: See also
See
Carmichele v Minister of Safety and Security
[2001] ZACC 22
;
2001 4 SA 938
(CC) at para
[79]
, where it was held that;
‘
An
order for absolution from the instance is an appropriate order to
make at the end of the plaintiff’s case where a court,
applying its mind reasonably to the evidence, could not or might not
find for the plaintiff. The underlying reason is that it
is
ordinarily in the interests of justice to bring the litigation to an
end in such circumstances. A determination of what is
in the
interests of justice necessarily involves the exercise of a
discretion.’