IN THE LABOUR COURT OF SOUTH AFRICA
Held at Port Elizabeth
Case Nos:P14/98
P193/98
In the matter between:
NDIMA AND 125 OTHERS
Applicants
and
Respondent
JUDGEMENT
ZONDO J:
[1] Introduction
This matter came before me as a stated case. The parties filed a joint
statement of agreed facts. It is convenient to set those facts out before
the issues that arise in this matter can be dealt with.
The agreed facts
[2] The respondent is a registered company which carries on the business
of making blankets at 31 Philip Frame Road in East London. Prior to
the 19th April 1997 the respondent had over 1000 employees in its
employ. The applicants in this matter were among such employees.
[3] On the 19th April 1997 the respondent was placed under provisional
liquidation by an order of the Eastern Cape Division of the High
Court.
[4] Subsequent to the granting of the provisional liquidation order, joint
provisional liquidators were appointed and it was arranged that they
would continue to run the respondent’s business pending either the
disposition of the respondent’s business, the disposition of the assets
of the business or pending a scheme of arrangement contemplated in
sec 311 of the Companies Act, 1973 (Act No 61 of 1973) ( “the
Companies Act” ).
[5] On the 22nd April 1997 the respondent informed its employees
including the applicants, that by reason of the granting of the
provisional liquidation order, their contracts of employment had
terminated.
[6] The Joint provisional liquidators concluded temporary contracts of
employment with the majority of the employees of the respondent
excluding the applicants.
[7] On or about the 17th July 1997 the Eastern Cape Division of the High
Court granted leave for the convening of meetings of creditors to
consider a proposed scheme of arrangement in terms of sec 311 of the
Companies Act.
[8] On or about the 8th August 1997 the scheme meetings to discuss the
proposed scheme of arrangement were duly held in East London
pursuant to the order of the High Court. The proposed scheme of
arrangement was agreed to at the meetings.
[9] On the 21st August 1997 the scheme of arrangement was sanctioned
by the Eastern Cape Division of the High Court and the provisional
liquidation order was discharged.
[10] Following upon the sanctioning of the scheme of arrangement, the
applicants tendered their services but the respondent refused to take
them into its employment.
[11] Some of the applicants endeavoured to prove their claims against the
respondent.
[12] Throughout the relevant period the respondent’s business continued in
operation as it had prior to the provisional liquidation order.
[13] At all times material to this matter the respondent’s business of
making blankets had continued without interruption.
[14] The essence of the scheme of arrangement was that a company known
as Dacman Investments (Pty) Ltd bought shares in the respondent.
[15] According to the parties the effect of sec 38 of the Insolvency At,
1938 (Act No 24 of 1938) ( “the Insolvency Act” ) as applied to
companies by sec 339 of the Companies Act, 1973 (Act No 81 of
1973) ( “the Companies Act” ),
was that the granting of the provisional liquidation order terminated
the contracts of employment of the employees of the respondent at that
time.
[16] So much for the facts.
Procedural aspects of the proceedings
[17] By agreement between the parties the issue of what relief would be
appropriate if the applicants proved their claim successfully has been
left over for determination at a later stage if the matter reaches that
stage. By virtue of this agreement I am not entirely certain what the
precise relief is that the applicants seek in this Court because the issue
of relief does not arise at this stage of the proceedings.
[18] However, irrespective of the precise terms of the relief the applicants
may end up seeking in this Court if that stage is reached, their claim is
entirely founded upon the provisions of sec 197(2)(b) read with sec
197(1)(a) of the Labour Relations Act, 1995 (Act No 66 of 1995)
(“the Act” ). Save to paraphrase the gist of sec 197(2)(b) in order to
facilitate the reader’s understanding of what I have to say even at this
stage of the judgement, I do not intend to quote its provisions at this
stage because I will be quoting them shortly and when I do, it will be
more convenient to do so. In so far as they are relevant to this matter,
loosely paraphrased, those provisions say, if a business or part of a
business is transferred from one employer to another employer in
certain circumstances, unless otherwise agreed, the contracts of all
employees that were in existence at a certain defined point transfer
automatically from the old employer to the new employer. The dispute
between the parties is whether or not sec 197(2)(b) is applicable to this
case. If it is, then the respondent was wrong in not allowing the
applicants back at work. If it is not, then the respondent was correct.
The applicants contend obviously that it is whereas the respondent
contends
that it is not.
[19] The Court is therefore asked to determine whether sec 197(2)(b) is
applicable to this matter. If it finds that it is, that will open the way for
the matter to proceed to the issue of relief subject, with the leave of the
Court, to such other arrangements as the parties may agree upon. If the
Court finds that sec 197 is not applicable, that would be the end of the
matter in this Court. However, before the Court can consider whether
sec 197(2)(b) is or is not applicable, it will be necessary for the Court
to consider a point of objection to its jurisdiction that has been taken
by the respondent.
The jurisdictional point
[20] The respondent has taken the point that this Court has no jurisdiction
to entertain the applicants’ claim be it for reinstatement or
compensation and that, accordingly, this Court should decline to
entertain the applicants’ claim. Simply stated, the respondent’s
objection is based on a judgement which was handed down by
Landman J in this Court on the 10th October 1998 in the matter of
South African Agricultural Plantation and Allied Workers Union
v H. L. Hall and Sons (Group Services) Ltd & Others Case
NoJ2858/98 which is as yet unreported.
[21] On the basis of Landman J’s judgement, which I will deal with
shortly, the respondent submitted that, in the light of the termination of
the contracts of employment of the applicants upon the granting of the
provisional liquidation order ipso iure by reason of sec 38 of the
Insolvency Act the applicants had only “a claim for damages but
nothing more” (see par 21 of Landman J’s judgement in H. L. Hall
and Sons ) which they could only pursue in the High Court in terms of
the insolvency law as “the reach of the Labour Relations Act of
1995 halts once insolvency enters the picture” . (see par 22 of
Landman J’s judgement in H. L. Hall & Sons ).
[22] Mr Brassey, who, together with Mr Wade, appeared for the applicants,
submitted that in so far as Landman J said once insolvency has entered
into the picture, employees’ claim would be limited to a claim for
damages to be pursued in the High Court, his decision was obiter as to
make a pronouncement on such an issue was not necessary having
regard to the matter that was before him. Mr Gauntlett, who, together
with Mr Franklin, appeared for the respondent, submitted that
Landman J’s remarks in this regard formed part of the ratio decidendi
of his judgement.
[23] In Hall’s case the applicant was seeking an interdict restraining the
respondents in that case from dismissing the applicant’s members
which the applicant alleged they had threatened to do in the course of
the week following the one in which the application was launched.
Although the employers were separate and, apparently, autonomous,
they were related. The parent company of these companies by whom
the affected members of the applicant union were employed was going
to apply to the high Court for the liquidation of those companies.
[24] The companies which the parent company was to seek to put under
liquidation informed their employees that, upon liquidation, the
employees’ contracts of employment would come to an end. It would
appear that the applicant union perceived this as a threat by the
companies to dismiss its members. For this reason the applicant union
brought an urgent application which was heard by Landman J.
[25] There is no indication in Landman J’s judgement that the jurisdiction
of the Labour Court was in issue nor is there any indication that the
applicability or inapplicability of the Labour Relations Act, 1995 was
an issue in the matter. The issue before Landman J would appear to
have been whether there was going to be a dismissal of the applicant’s
union members and, whether, if such dismissal occurred, same would
be unfair and whether the requirements for a final interdict had been
satisfied.
[26] In the end it would appear that whether or not there was to be a
dismissal turned on the effect of sec 38 of the Insolvency Act on
contracts of employment. Landman J concluded that sec 38 has the
effect of ipso iure terminating the contracts of employment of
employees. As such termination would not be brought about by any
act of the employer, Landman J concluded that the Court could not
interdict such a termination.
[27] In my view once Landman J had come to the above conclusion, it was
not,
strictly speaking, necessary to pronounce on whether or not a claim for
damages is or is not the only claim workers have in an insolvent
situation nor do I think it was necessary for him to make the remark he
made about
the reach of the Labour Relations Act, 1995 once, as he put it,
insolvency enters the picture. However, I am satisfied too that
Landman J could also not have intended his remarks to be anything
other than remarks made obiter. In those circumstances I conclude that
Landman J’s remarks relied upon by Mr Gauntlett do not form part of
the ratio decidendi of his judgement in H. L. Hall & Sons case. For
that reason I would dismiss the respondent’s objection to the
jurisdiction of this Court.
[28] In any event and in addition to the view I have expressed above, I am
of the opinion that, in the light of the applicants’ case in this matter,
the respondent’s objection begs the question which is raised by the
applicants’ contention. As will be seen later in this judgement, the
applicants’ case is that, notwithstanding their acceptance for purposes
of these proceedings that upon the granting of the provisional
liquidation order, their contracts of employment terminated ipso iure
by virtue of sec 38 of the Insolvency act, sec 197(2)(b) has the effect
that their contracts were regenerated and were transferred ultimately
back to the respondent. If that argument is correct, then the fact that by
virtue of sec 38 their contracts of employment had previously
terminated is neither here nor there. I now turn to the merits of the
claim.
The merits
[29] Before analysing the provisions of sec 197, it may be useful to say a
thing or two about schemes of arrangements because a scheme of
arrangement features prominently in this dispute.
[30] Schemes of arrangements are provided for in sec 311 of the
Companies Act. Sec 311 of the Companies Act provides as follows :
“311 Compromise and arrangement between company, its members
and creditors.
(1) Where any compromise or arrangement is proposed between a
company and its creditors or any class of them, the Court may, on
the application of the company or any creditor or any member of
the company or, in the case of a company that is being wound up,
of the liquidator . . . ., order a meeting of creditors or class of
creditors or of members of the company or class of members (as
the case may be) to be summoned in such manner as the Court
may direct”.
[31] In terms of sec 311(2) read with ss(4) and ss(5) the Court has power to
sanction a scheme of arrangement. In this regard the Court is required
to have regard to the number of those who voted in favour of the
scheme of arrangement and to the report which the liquidator is
required to make to the Master in terms of sec 400(2) of the
Companies Act. The arrangement is required in terms of sec 311(2) to
be agreed to by:
(a) a majority in number representing threefourths in value of the
creditors or class of creditors; or
(b) a majority representing threefourths of the votes exercisable by the
members or class of members, (as the case may be) present and voting
either in person or by proxy at the meeting ordered by the Court.
If such a scheme of arrangement is sanctioned by the Court, it
becomes binding on all the creditors or the class of creditors or on the
members of the company and also on the company or on the liquidator
if the company is being wound up. In terms of sec 311(8) reference to
a company in sec 311 means “any company liable to be wound up
under this Act . . .”
[32] In ex parte Millman and others NNO: In re Multi Bon (Pty) Ltd
1987(4) SA 405 (C) , Berman J, speaking for a Full Court, referred to
sec 311(1) and said:
“ . . the scope and purpose of the section is strictly limited to
considering an arrangement between the company and its
creditors, and not to an arrangement between its creditors or
between its creditors and a third party” .
In Henochberg on the Companies Act , Meskin, after referring to a
statement by Trollip J (as he then was) in Du Preez v Garber: In re
Die Boere Bank Bpk 1963 (1) SA 806 (w) at 813 where the learned
Judge said arrangements contemplated in sec 103 of the companies
Act, 1926 (Act no 46 of 1926) “were subject to certain limitations
of the widest character”, says :
“...... the relevant scheme must have as its object the affecting of
the respective rights and obligations inter se of the company and
its members (or creditors) (Ex Parte NBSA Centre Ltd 1987 (2)
SA 783 (T) at 786 789 ), the achievement of such object by way of
the use of the machinery of the section must be necessary in the
sense that it cannot otherwise conveniently be achieved (ie by
independent agreement between the company and each of the
affected parties) (Ex parte Cyrildene Heights (pty) Ltd 1966 SA
517 (W) at 520 524; NBSA case supra at 795796, 801); and the
formalities in respect of a reduction of capital or in respect of any
other matter for the achievement of which the Act prescribes a
particular procedure must be observed (ibid at 801 802); since
the section cannot be invoked itself to achieve a reduction of
capital or any other such matter, the terms relating to the
reduction or such other matter should not be conceived, or
embodied, as part of the arrangement per se (ibid)”.
[33] Although it is sec 197(2)(b) which is relied upon by the applicants to
found their claim, it is necessary to quote not only sec 197 (2)(b) but
also sec 197(1)(a) and (b) because, as for ss(1)(b), reference is made to
it in ss(2)(b) and, as for ss(1)(a), in the course of a consideration of
ss(2)(b), it becomes appropriate to have regard to ss(1)(a) in fact it
becomes appropriate to have regard to the whole section and the
objects of the Act as a whole in order to ensure that ss(2)(b) is
considered in the correct context and in the light of a full picture of sec
197.
[34] Sec 197 (1), (2), (3), (4) and (5) read thus :
“97 Transfer of contract of employment
(1) A contract of employment may not be transferred from one
employer (referred to as 'the old employer') to another employer
(referred to as 'the new employer') without the employee's consent,
unless
(a) the whole or any part of a business, trade or undertaking is
transferred by the old employer as a going concern; or
(b) the whole or a part of a business, trade or undertaking is
transferred as a going concern
(i) if the old employer is insolvent and being wound up or
is being sequestrated; or
(ii) because a scheme of arrangement or compromise is being
entered into to avoid winding up or sequestration for reasons of
insolvency.
(2) (a) If a business, trade or undertaking is transferred in the
circumstances referred to in subsection (1) (a), unless otherwise
agreed, all the rights and obligations between the old employer
and each employee at the time of the transfer continue in force as
if they were rights and obligations between the new employer and
each employee and, anything done before the transfer by or in
relation to the old employer will be considered to have been done
by or in relation to the new employer.
(b) If a business is transferred in the circumstances envisaged by
subsection (1) (b), unless otherwise agreed, the contracts of all
employees that were in existence immediately before the old
employer's winding up or sequestration transfer automatically to
the new employer, but 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, and anything done before the transfer by the old
employer in respect of each employee will be considered to have
been done by the old employer.
(3) An agreement contemplated in subsection (2) must be concluded
with the appropriate person or body referred to in section 189 (1).
(4) A transfer referred to in subsection (1) does not interrupt the
employee's continuity of employment. That employment continues
with the new employer as if with the old employer.
(5) The provisions of this section do not transfer or otherwise affect
the liability of any person to be prosecuted for, convicted of, and
sentenced for, any offence”.
[35] The real issue in this matter is a matter for the interpretation of sec 197
in general, and in particular, of the words “If a business is
transferred” which appear at the commencement of sec 197(2)(b) of
the Act. Mr Brassey submitted that sec 197 must be interpreted
purposively. Mr Gauntlett agreed with this.
[36] In Interpretation of Statutes , 1st ed, at 36 Prof Devenish quotes Lord
Denning as saying the following in The Discipline of law (1979) at
201 about the approach of the continental courts on interpretation
which Lord Denning believed should be emulated:
“ When they come upon a situation which is to their minds within
the spirit but not the letterof legislation, they solve the problem
by looking at the design and purpose of the legislation at the
effect which it was sought to achieve. They then interpret the
legislation so as to produce the desired effect.”
[37] Devenish then refers at 36 to the case of Ebrahim v Minister of the
Interior 1977 (1) SA 665 (A) and says the majority and minority
judgements in that matter provide a good comparison between the
literalist approach and the purposive approach. In Ebrahim v
Minister of the Interior 1976 (1)SA 878 (D ) the applicant made an
application to the High Court for a declarator that he had not lost his
South African citizenship when he was granted British citizenship
pursuant to his application for the UK citizenship. The applicant was a
seaman and a South African. He lived in Durban when he was not at
sea. When the applicant applied for UK citizenship, he was in the UK.
On the day that he was granted the UK citizenship, the applicant
happened to be in Port Elizabeth South Africa apparently for just
one or two days. There was a statutory provision in S.A. which read:
“A South African citizen who whilst outside the union, and not
being a minor, by some voluntary and formal act other than
marriage, acquires the citizenship or nationality of a country
other than the union, shall thereupon cease to be a South African
citizen.”
[38] In dealing with the applicant’s application, the Court of first instance
held that the word “acquires” in the statutory provisions refers to
what the applicant did when he took the steps he took to get the
citizenship and not when he was granted citizenship. That had
occurred whilst the applicant was outside the country and therefore the
statutory provisions applied to him and he had therefore lost his S.A
citizenship. The applicant’s application was then dismissed. In the
course of his judgement in this case Van Heerden J said at 883E : “A
court will . . . construe a statute so as to defeat all attempts at
evasion”.
[39] On appeal in Ebrahim v Minister of interior 1977 (1) 665 (A) the
appeal was allowed by a majority of five to three. The minority
judgement was given by Rumpf CJ. Jansen JA concurred in Rumpf
CJ’s judgement. In interpreting the relevant statutory provisions the
majority took the view that the word “acquire” in the statutory
provisions meant to gain or receive and that, if the appellant gained or
received the citizenship of the UK when he was in SA, the statutory
provisions would not apply. The Appeal Court held that, as the
applicant was in SA on the day he was granted the UK citizenship, it
could not be said that he had acquired such citizenship while outside
SA. Rumpf CJ took a different view. He adopted what for all intents
and purposes was a purposive approach of interpretation. He said if
one adopted a literalist interpretation, it would be too easy to avoid the
relevant provisions because a person would go out of the country,
make an application for a citizenship of another country and quickly
return to South Africa so that when the citizenship of that country was
granted to him, he would not be outside S.A. as that would cause him
to lose his S.A citizenship. Rumpf CJ held that in his view the section
applied to the applicant’s case and that the applicant had lost his S. A
citizenship.
[40] Rumpf CJ referred to two passages in Prof Cowen’s article titled
“Prolegomenon to a Restatement of the Principles of Statutory
interpretation” in Tydskrif vir die Suid Afrikaanse Reg 1976 (2) at
p.131 and at 160 where it is said:
“Statutes are always passed to achieve a purpose. They have as
some of the civilian writers put it, a ratio and the detailed
commands or prescription of the legislation stand in relation to
the ratio or purpose as means to an end.”
He also referred to the following passage in Cowen’s article :
“The practical consequences of various interpretations; that is to
say, interpreter should evaluate the consequences of various
possible interpretations the idea being that the legislature must
be presumed to have a sensible, fair and workable result.”
[41] In Dadoo v Krugersdorp municipality Council 1920 AD 530 the
Court said : “to carry out effectually the object of a statute it must
be so construed as to defeat all attempts to do or avoid in an
indirect or circuitious manner that which it has prohibited or
enjoined”. But in the same judgement, namely, Dadoo, the court also
said : “But an Act thus construed may nevertheless be evaded;
parties may genuinely arrange their transactions so as to remain
outside its provisions. Such a procedure is, in the nature of things,
perfectly legitimate”. In Dhanabakium v Subramanian 1943 AD
170 Centlivres JA said : “ . . . it seems to me that if a reasonable
construction of an Act does not lead to a casus omissus while
another construction does lead to that result, the construction
which should be applied is the one which does not lead to that
result”. Lastly Rumpf CJ also approved a passage containing the
following, also from Cowen’s article: “............ the factor which
should tip the balance, where the competing claims of language
and of ‘nonlinguistic factors’ are equal, is precisely the ratio or
purpose of the legislation.”
[42] While it would be inappropriate to be unduly concerned with the
literal meaning of words in a statute at the expense of the purpose
thereof, the mischief it sought to address as well as its history and
context generally, it would be equally wrong, I believe, to totally
ignore the language of the statute.
[43] It is accepted by both parties in this matter that upon the granting of
the provisional liquidation order, possession and control of the
respondent’s business was transferred from the respondent to the
Master of the High Court, then to the provisional liquidators and that,
upon the sanctioning of the scheme of arrangement by the High Court,
such possession and control were transferred from the provisional
liquidators back to the respondent. The applicant’s contention in this
case as presented by Mr Brassey was that that transfer of possession
and control is enough to bring the applicants within the ambit of sec
197.
[44] Not so, argued Mr Gauntlett. A distinction exists, and needs to be
borne in mind, continued Mr Gauntlett, between, on the one hand, the
transfer of a business, which is what is contemplated by sec 197, and,
on the other, the sale of the assets of a business, which is not
necessarily contemplated in sec 197 and, the sale of shares which is
what happened in this case and which is not what sec 197
contemplates.
[45] The applicant’s problem arises from two facts. The one is that the
respondent told them that upon the granting of the provisional
liquidation order, their contracts of employment terminated (by
operation of law). Both parties argued the matter on the basis of the
correctness of this statement unlike in H.L. Halls and Sons case
referred to above where, quite interestingly, both Senior Counsel
appearing for both parties took the attitude that that is not the law. The
second is that the respondent refused to allow the applicants back at
work after the problems which had necessitated the provisional
liquidation order had been resolved but allowed the majority of their
colleagues to continue in its employ or to resume employment with it.
[46] If the legal position was that the granting of a provisional liquidation
order did not have the effect of terminating the contracts of
employment of the applicants in this case but, maybe, instead only
suspended the same, subject to interim arrangements that provisional
liquidators could make with the employees if so authorised, with a
view to such contracts only terminating if the provisional order was
confirmed or the suspension was uplifted by operation of law upon the
discharge of the order, then the problem in this matter would not have
arisen.
[47] The idea behind sec 197 comes from The Transfer of Undertakings
(Protection of Employment) Regulations 1981 of the UK by which it
was meant to implement the EEC Council Directive 77/187. The
regulations have been amended by sec 33 of the Trade Union Reform
and Employment Rights Act, 1993 (TURERA 1993) in order to bring
the regulations further into line with Directive 77/187.
[48] It may not be unhelpful to have a look at judgements of the English
Courts as well as those of the European Court of Justice to see how
they have approached some of the interpretational problems arising
from the application of the regulations and the directive which the
regulations seek to implement. In having regard to such judgements, it
must be borne in mind, in my view, that the wording in the regulations
and directives is not identical to that of sec 197 of our Act. Also this
Court would bear in mind the particular context of the S.A. statute.
[49] In Nokes v Dancaster Collieries 1940 AC 104 it was held that a
contract of employment is not transferrable at common law without
the consent of the parties to the contract. It was held also that such
contracts were not automatically transferable under sec 154 of the
Companies Act, 1929.
[50] In Lloyd V Brassey [1969] 1 All ER the transfer of a farm was held
to constitute the transfer of a business on the basis that the business of
farming cannot be separated from the farm from which the business of
farming is carried out. This is an exception from the principle which
has been affirmed in numerous cases arising from the UK statute and
from the EEC directive that a distinction exists between the transfer of
assets, on the hand, and on the other, the transfer of a business, and
that ,when the assets of a business are sold, that does not necessarily
constitute the sale of the business. Dealing with the construction of the
words “ change....in the ownership of the business” then appearing
in sec 13(1) of the Redundancy Payments Act, 1965, Lord Denning
referred with approval to the test which was formulated by Wingery J
in the Divisional Court in Kenmir Ltd v frizel (1968) (3) ITR 159.
[51] In Kenmir Ltd v Frizel (1968) (3) ITR 159 the latter Court was
dealing with the words: “ a trade or business or an undertaking.. is
transferred from one person to another” which Lord Denning was
of the opinion meant the same as “change in the ownership of the
business.” Wingerey J had formulated the test for determining
whether or not a business is transferred in these terms:
“ In deciding whether a transaction amounted to the transfer of a
business, regard must be had to its substance rather than to its
form.... the vital consideration is whether the effect of the
transaction was to put the transferee in possession of a going
concern, the activities of which he could carry on without
interruption.” This last sentence was also approved by Russell J at
386.
At 385 B Lord Denning said :
“In my opinion the business of farming consists of cultivating the
land, ploughing, . . . The land itself is the essence of the business,
and when the land, together with the buildings, is sold, the
business is necessarily sold with it. It remains the same business
but it changes hands.”
[52] In Young v Daniel Thwaites & Co Ltd [1977] ICR 877 it was held
that there had been a transfer of business when a tenant, in a hotel,
gave up his tenancy but the employee who had been employed by the
tenant continued with his work as normal thereafter when the owners
of the hotel, who were brewers and had been supplying the hotel with
beer during the tenancy, continued the business that the tenant had
been conducting in the hotel. In this case it was the provisions of par 9
of schedule 1 to the Contracts of Employment Act 1972 which had to
be interpreted. In case those provisions may be relevant to this case,
let me point out that these provisions read as follows:
“(2) If a trade or business or an undertaking ........ is transferred
from one person to another, the period of employment of an
employee in the trade or business or undertaking at the time shall
count as a period of employment with the transfer, and the
transfer shall not break the continuity of the period of
employment.”
[53] In Melon v Hector Powe Ltd [1981] 1 All ER 313 Company A,
which was a company of tailors, owned two factories. One was in
Blantyre and the other in Dagenham. In both factories the company
carried the business of making suites mainly to measure. On the
17th January 1977 Company B, by agreement with company A, took
over the Blantyre factory and the employees. It terminated the
contracts of employment of some of the employees of company A in
the factory but then employed them on terms and conditions of
employment not less favourable but on new contracts, Some of those
employees claimed redundancy pay claiming that they had been
dismissed.
[54] The employee’s claims were made under the Redundancy Payments
Act, 1965. The employees had to show that they had been dismissed
by reason of redundancy. The defence advanced in resisting the claim
was that the employees could not, in the light of sec 3(2) of the 1965
Act, be taken to have been dismissed for the purpose of claiming
redundancy payment. This was so because one of the circumstances
which sec 3(2) of the 1965 Act provided as disqualifying an employee
from claiming redundancy payment was where the employee’s
contract of employment had been renewed or if the employee had been
reengaged by the same employer under a new contract of
employment on terms that were not in essence different from the
terms of his previous contract. Sec 13 of the 1965 Act provided that
sec 3(2) thereof applied in a similar way where a change occurred in
the ownership of a business or of a part of a business and the new
owner renewed the employee’s contract of employment on terms not
less favourable than those he had had before. In that case the
employee’s period of employment with the old employer was carried
forward into the employment of the new employer and counted as a
period of employment with the new employer and the change of
employment did not break the continuity of employment.
[55] The matter turned on whether what had occurred with the Blantyre
factory was a transfer of part of a business or merely a transfer of
assets . Company B had been assigned the lease of the Blantyre
factory. The plant and machinery in the factory were sold to Company
B. Company B took over all work in progress and undertook to
complete it. They took virtually the whole workforce.
[56] In that matter it was found that, except for a temporary continuance of
the previous business, Company B undertook a different business.
Following Lloyd v Brassey [1969] 2 QB 98 the distinction between
the transfer of a business and the transfer of physical assets was
emphasised(see p 317HI). Lord Fraser went on to state: “ It seems to
me that the essential distinction between the transfer of a business
or part of a business and a transfer of physical assets, is that in the
former case, the business is transferred as a going concern so that
the business remains the same business but in different
hands............. whereas in the latter case the assets are transferred
to the new owner to be used in whatever business he chooses.
Individual employees may continue to do the same work in the
same environment and they may not appreciate that they are
working in a different business, but that may be the true position
on consideration of the whole circumstances.” It was therefore held
that that had not been a transfer of a part of the business of Company
A.
[57] In Premier Motors v Total Oil Great Britain Ltd & others [1984]
ICR 58 , Premier Motors were vendors and they employed one Mr
Lowe and one Miss Dyer (“the applicants”) . The vendors carried on
the business of a petrol filling station at Rochester. Another company
in the same group as Premier Motors carried on the business of a
petrol filling station at Romford. The freehold in both the Romford
and the Rochester properties vested in another company in the group,
namely, Triolocan. The vendors purchased both sites. No goodwill
was assigned and none of the purchase price was appropriated to
goodwill. There was nevertheless evidence that the purchase price had
been negotiated with reference to the profitability of the company. The
EAT refused to interfere with the decision of the tribunal that this
transaction had constituted a transfer of the business and not a transfer
of assets. It was said on the strength of Melon v Hector Powe Ltd
(1981 ICR 43 at 49) that whether there had been a transfer of
business was a question of fact to be determined by the industrial
tribunal.
[58] In Foreningen af Arbejdfledere Danmark v Daddy’s Dance Hall
ALS [1988] IRLR 315 upon termination of a nontransferable lease of
a business, the landlord had leased the business to a new lessee who
then continued the same business as the previous lessee and took over
the staff of the previous lessee. Some of the staff of the previous lessee
had been dismissed but had not actually left the job. The European
Court of Justice held that there had been a transfer of business in this
case. The European Court of Justice said the objective of Directive
77/187 was to ensure as far as possible the safeguarding of employees’
rights in the event of a change of proprietor of the undertaking and to
allow them to remain in the service of the new proprietor on the same
conditions as those agreed with the vendor. The Directive therefore
applies as soon as there is a change of the natural or legal person
responsible for operating the undertaking who, consequently, enters
into obligations of an employer towards the employees working in the
undertaking.
[59] In support of the applicant’s contention that the facts of this case bring
them within sec 197 (2) (b), Mr Brassey submitted that the fact that
the section refers to an old employer and new employer was of no
consequence because those phrases were definitional and the
legislature could as well have used X and Y instead of the phrases
“old employer” and “new employer” . In further support of the
applicants’ contention he drew the court’s attention to the fact that in
ss(1)(b) there is no reference to the old employer and to the new
employer whereas in ss(1) there is a reference to the old employer.
[60] It seems to me that this does not have the significance which Mr
Brassey attaches to it because ss(2)(b) on which the applicants’ claim
is founded has a reference to the old employer and the new employer.
It seems to me that, as far as the applicants’ claim is concerned, it
would be difficult to find that the reference to the old employer and to
the new employer does not have much significance.
[61] Sec 197 (2)(b) envisages that certain rights and obligations flow from
the transfer of a business. There is an entity which is automatically
burdened with all the contracts of employees which existed
immediately before the winding up or sequestration of the old
employer but is not burdened with the rights and obligations of which
existed between the old employer and each employee at the time of the
transfer. The old employer and each employee remain seized with the
latter rights and obligations.
[62] The cut off point in ss(2)(a) is different from the cutoff point in
ss(2) (b) the cut off point is the time of the transfer of the business.
The section rights refers to and obligations existing between the old
employer and each employee “at the time of the
transfer.”Effectively in so far as those rights and obligations are
concerned, the new employer simply steps into the shoes of the old
employer. This means that the new employer acquires such rights and
obligations as the old employer had “at the time of the transfer” in
relation to the employee. It also means that the employee continues to
possess the rights he had at that time but now in relation to the new
employer. The employee continues to owe the obligations he had at
the time of the transfer to the old employer but now he owes them to
the new employer.
[63] Ss (2)(a) refers to anything done before the transfer by or in relation to
the old employer. It says that “will be considered to have been done
by the old employer” . There is no need for something which was
done by the old employer to be considered to have been done by the
old employer. What was intended here was simply that the old
employer remains liable for its actions and omissions before the time
of the transfer. The old employer and each employee remain seized
with the latter rights and obligations.
[64] It seems to me, from an analysis of sec 197 in general and ss(2)(b)
read with ss(1)(b) in particular that the legislature bore in mind that at
the time of the windingup, the contracts of employment of the
employees would have terminated by reason, maybe, of sec 38 of the
Insolvency Act and that if it used the time of transfer only as a cutoff
point, that would not be effective to ensure that the employees did not
lose their jobs in circumstances where the business continues.
[65] Having regard to all the above, the question still remains whether what
occurred in this case was a transfer of business.
[66] I am unable to agree with Mr Brassey that the transfer of possession
and control of a business is sufficient to bring the applicants within the
ambit of sec 197. Quite clearly, the section requires the transfer of
business in order for its operation to be triggered. The transfer of
business and transfer of possession and control of a business are two
separate concepts. I do not think that any justification can be found in
the provisions of section 197 for stretching the meaning of the transfer
of business that far. Certainly not in this case. As Mr Gauntlett so
correctly pointed out, if the owner of a business asked another person
to look after his business for him temporarily while he took leave
thereby granting such person possession and, to some extent, some
control of his business in his absence, such person would be surprised
if he were told that that meant that the business had been transferred to
him. Depending on the situation of the business, after the initial
surprise, he could be laughing all the way to the bank or he might very
quickly try and get himself out of the business before he finds himself
in more trouble than the business may already have brought him.
[67] In pressing his argument that no distinction should be drawn between
the sale of shares and the sale of a business, Mr Brassey submitted
that, if such distinction as was contended for by the respondent was
made, it would be very easy to avoid sec 197. To avoid sec 197,
instead of parties concluding a sale of business, they would simply
conclude a sale of shares.
[68] Mr Gauntlett’s argument in regard to this was that, in a case where
there was evidence that the purchase of shares was a simulation or a
sham in order to avoid sec 197, the Court could go behind the sale of
shares and, find that in truth the transaction was a sale of business. Mr
Gauntlett submitted that not only is there no evidence in this matter
that that is the case but, more than that, there is not even a suggestion
along those lines. Mr Gauntlett stressed the point that a distinction has
always existed between three transactions, namely, the sale of
business, the sale of shares and the sale of assets of a business. He
submitted that, if the Court held that a transfer of shares was a transfer
of business under sec 197, the Court should be ready to also say a sale
of assets of a business would fall within the ambit of sec 197.
[69] I do not think that if a transfer of shares was held to constitute a
transfer of business for purposes of sec 197, it would necessarily
follow that a sale of assets of a business also constituted a transfer of
business under sec 197.
[70] Mr Gauntlett’s answer to Mr Brassey’s argument that, if the
transaction of the sale of shares in this case did not bring the
applicants within the operation of sec 197 by virtue of the suggested
distinction between the sale of shares and the sale of business, that
will make it very easy for employers to avoid sec 197 is not a
complete answer to Mr Brassey’s argument. I say this because in most
cases it would be very difficult for any one to prove that a particular
transaction of the sale of shares was a simulation or a sham. Most
transactions in which people circumvent the law look genuine on the
outside and seem to be perfectly legitimate transactions.
[71] I can well foresee that, if it is held that the transaction in this case did
not attract sec 197, many employers may well circumvent sec 197 by
resorting to similar transactions especially because it is not difficult
at all to get a company placed under provisional liquidation. Once a
company was placed under provisional liquidation, a scheme of
arrangement involving the sale of shares such as the one involved in
this case would be resorted to.
[72] I think the fundamental problem which is raised by this part of this
matter is how far a Court can disregard the language of a statute in
seeking to fulfill the purpose of a statutory provision. One view may
be to say there is no limit and that, as long as the purpose of the
section will be achieved by adopting a particular construction of a
statutory provision, a Court may completely disregard the language. If
that approach were adopted, it seems to me that no situation would
arise where the Court would conclude that there is a casus omisus in a
statute and leave it to parliament to amend the statute.
[73] Another view would be to say, as far as possible, a court should strive
for an interpretation which seeks to fulfil the purpose of a statutory
provision even if this may mean it has to disregard some of the
language in a statutory provision to some extent but that a court’s right
to disregard the language of a statute has a limit and the Court may not
go beyond that limit.
[74] I prefer the latter approach because, in that way, the distinction
between the roles of parliament and the courts does not become
blurred and yet at the same time courts would not simply throw their
hands in the air and say their function is to interpret the law and not to
make the law each time a case arises which appears to require some
departure from the literal meaning of the words of a statute.
[75] In real life the sale of shares in a company is used in order to gain not
only control of the business but also in effect the business itself. But I
also accept that the mere fact that a person buys shares in a company
and thereby gains control of the company does not necessarily mean
he is going to continue the same business.
[76] Although I well realise that it may be very easy for employers to
circumvent sec 197 if it is held that the transaction in this case did not
attract sec 197, I am of the view that to hold otherwise would be to go
far beyond the acceptable limit to which a Court may go in
disregarding the language of a statute. I conclude therefore that in this
matter the transfer of possession and control relied upon by the
applicants was not enough to bring them within sec 197 and that sec
197 did not apply.
[77] I am of the opinion that there is a crying need for an amendment of sec
197 to cover the situation such as the one which occurred in this case.
Accordingly Government, Business and Labour may do well to
consider the desirability of such an amendment of sec 197. Another
way to deal with the problem may be to amend sec 38 of the Insolvent
Act to say upon the granting of a provisional liquidation order,
existing contracts of employment are suspended pending the discharge
of the rule or the granting of a final liquidation order. Upon the
granting of a final liquidation order, the contracts of employment may
then terminate by operation of law, or, upon the discharge of the
provisional liquidation order, the suspension of contracts can be
uplifted by operation of law and the contracts of employment may
continue as before.
[78] With regard to costs I do no think that the requirements of law and
fairness envisaged in sec 162 of the Act require a cost order be made.
The case is in effect a test case for the application of sec 197. As the
matter is a very complex one and, another Court may very well come
to a conclusion different to mine, and, in the light of the need for
certainty on the applicability of sec 197, I intend to immediately grant
the applicants leave to appeal to the Labour Appeal Court against the
whole of my judgement.
[79] Therefore the order I make is the following :
(a) The applicants’ claim is dismissed;
(b) There is to be no order as to costs;
(c) Leave is hereby granted to the applicants to appeal to the Labour
Appeal Court against the whole of this judgement.
R. M. M. ZONDO
Judge in the Labour Court of South Africa
Date of Argument :29 October 1998
Date of Judgement :12 February 1999
For the Applicants :Mr M. Brassey SC. (with Mr R. Wade)
Instructed by : Bate Chubb & Dickson INC
For the Respondent :Mr J. J. Gauntlett SC. (with Mr A. Franklin)
Instructed by : Levy, Feinsteins & Associates INC