REPORTABLE
IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT DURBAN
CASE NO: D608/2001
In the matter between:
NELSON NCUNGAMA First Applicant
AND 60 OTHERS 2 nd t 61 st Applicants
and
BARGAINING COUNCIL FOR THE LIQUOR,
CATERING AND ACCOMODATION TRADES,
SOUTH COAST, KWAZULUNATAL First Respondent
FEDSURE LIFE ASSURANCE LIMITED Second Respondent
___________________________________________________
JUDGMENT
_________________________________________________________
PILLAY J
[1] This is an application in terms of Section 158(1)(g) of the Labour Relations
Act No 66 of 1995 (“LRA”) to review and correct or set aside the
decision of the First Respondent Council dated 30 October 2000 in
terms of which it refused to exempt the applicants from its Provident
Fund Collective Agreement (“Fund Agreement”).
[2] The applicants are employees engaged in the liquor catering and
accommodation trade (the trades). The second respondent, Fedsure
Life Insurance Limited, has been cited as an interested party. No relief
is claimed against it.
[3] In this case the applicants applied on various occasions for an exemption
from the Fund Agreement administered by the Council because they
wished to join the Hospitality Industry Provident Fund (“H.I.P.F.”). Each
time the applications were refused. Revised applications were
resubmitted, the last submissions being in June 2000. The first batch of
applications was made in August 1999 (the August applications). The
Council disregarded the procedures and time limits prescribed in
Clause 14 of the Fund Agreement in terms of which copies of written
comments by parties to the Council had to be given to the applicants for
their comments within thirty days.
[4] On 27 October 1999 the Council refused the August applications on the
ground that "the Council's Provident Fund benefits are equal or better
now than the benefits of the Hospitality Industry Provident Fund". The
applicants requested the H.I.P.F. to pursue the matter on their behalf
with the Council. The Council advised the H.I.P.F. that the August
applications for exemptions were refused because the applicants had
not confirmed in writing that they had been advised of the comparative
benefits of the respective funds.
[5] In December 1999 certain applicants made further applications for
exemption (the December applications). This time they confirmed in
writing that they had been informed of the comparative benefits of the
two funds. The Council again failed to comply with the procedures in
Clause 14.
[6] The H.I.P.F. invited the Council to attend a meeting at which the Council
and the H.I.P.F. could present the benefits and costs of their respective
Funds to workers to clear any misconceptions about them. The Council
replied that it was not possible to attend the meeting.
[7] On 23 February 2000 the Council refused the December applications for
exemption on the grounds that "the Council's Provident Fund is equal to
or better than the Hospitality Industry Provident Fund". This conclusion
was reached principally on the advice of the actuarial consultant for
Fedsure, Mr Richard Farraday.
[8] The applicants protested to the Council about the rejection of the August
and December applications and asked that they be referred to an
independent exemptions body. The Council refused to establish the
body until the applicants had complied with certain further requirements
relating to their applications for exemption. The further requirements
were communicated by Fedsure on behalf of the Council. A document
which had to be signed by the applicants in the presence of their trade
union stating that they understood and agreed with the applications for
exemption had to accompany the application. Furthermore, it had to be
confirmed in writing that the applicants had full knowledge of the
comparative benefits of the Funds and the implications of the transfer
after they had been explained "directly by and to each applicant from
and by representatives of both the H.I.P.F. and the Bargaining Council
Fund".
[9] The applicants pointed out to the Council that Fedsure offered in its letter
of 3 March 2000 to conduct a workshop to explain the implications of
the exemptions and transfer to the applicant; yet it had declined a
similar invitation from H.I.P.F. on 23 February 2000. Furthermore, they
also questioned how the Council had granted 300 applications in
August 1999 but refused the August applications that had been made in
substantially the same format.
[10] The Council's explanation was that when granting the 300 exemptions it
had considered the benefits being offered by H.I.P.F. as being on the
whole at least equal to those being offered by its fund. However, when
it considered the further applications for exemption it no longer held that
view. What brought about this change of opinion was not explained to
the applicants.
[11] Despite their objections to the further requirements the applicants made a
third batch of applications for exemption about June 2000 in compliance
with the further requirements (the June applications). These
applications were also refused in October 2000. The reason for the
refusal was that on the advice of Fedsure, the Council believed that the
comparison of interest of fifteen percent offered by the Council and
eighteen percent by the H.I.P.F. was "incorrect or at least seriously
misleading".
[12] Only the refusal of the June batch of applications for exemption is before
me for review.
[13] That is the factual background to this dispute.
[14] The parties to the Council had concluded the Fund Agreement in terms of
which they established a fund to be administered by the Council. The
applicants sought an exemption from contributing to that fund. It is
common cause that the applicants were bound by the Fund Agreement.
[15] With certain exceptions, membership of the Council’s Fund is compulsory
for all employees in the trade. [Clause 5(1) of the Fund Agreement.]
Membership is not compulsory for certain employees if, in the opinion of
the Council, the benefits of another fund, of which the employee was a
member, are on the whole not less favourable than the benefits
provided by the fund administered by the Council. [Clause 5(3) of the
Fund Agreement.] Exemption from any part of the Fund Agreement
may be granted on application to the Council.
[16] The Council decides all applications for exemption. However, applications
for exemption by nonparties to the Council that are refused are to be
referred to an independent body for consideration. Although Clause 14
prescribes the procedure for exemptions, the criteria for deciding them
are not prescribed.
[17] This is how the parties to the Council chose to design its exemption
procedure which, by ministerial extension, became applicable to the
trades. Of special note is the fact that the Council was empowered to
adjudicate applications for exemptions from its Fund Agreement despite
a potential conflict of interest. For instance, the Council derived
revenue from administering the fund and would therefore have an
interest in having as many members as possible.
[18] There are however advantages in such a system. Firstly, the costs of
engaging independent adjudicators is avoided. Secondly, the decision
is taken by specialists in the trades.
[19] The main disadvantage is the potential conflicts of interest between
representatives on the Council amongst themselves, with their
constituencies and with the Council as an entity. The system also
permits members of parties to the Council to apply for exemptions from
agreements to which they have been bound. This could seriously
undermine the very objective for which the Council was established,
that is centralised collective bargaining. However, it may also be
necessary to have such a provision for the very survival of the system
of bargaining.
[20] What the motivation for such a design was is not relevant. The design
may, however, have some implications for the role of this Court in
promoting administrative justice. I will return to this later. It is relevant,
however, that the design was the choice of the parties to the Council to
regulate themselves. Their rights and obligations arise both from
contract and from legislation. They bind their respective constituencies
to decisions taken by them as representatives at the Council, especially
if they agreed with the decision.
[21] It is not clear from the pleadings whether the applicants were members of
a trade union that was a party to the Council. Some appear to be
members of the Hospitality Industry and Allied Workers Union
(“H.I.A.W.U.”), which is not a party to the Council. This issue is also
relevant to deciding whether the refusal of exemptions ought to have
been referred to the independent exemptions body established in terms
of section 32(3)(e) of the LRA. If they were not members of a trade
union that was party to the Council then the dispute about the refusal of
the exemption had to be referred to the exemptions body and this court
would have no jurisdiction. However, the parties have argued the
matter on the assumption that the applicants were members of a trade
union that was party to the Council. Hence there was no need for a
referral to an exemptions body.
[22] The Council referred to Clause 5(3) of the Fund Agreement and decided to
stipulate, as a criterion for exemption, that the benefits of the H.I.P.F.
should be on the whole not less favourable than the benefits that it
provided from its own Fund. The criterion is not arbitrary or
unreasonable. It puts the interests of the applicants first.
[23] It is submitted for the applicants that the criterion was unlawful because
firstly, it was a violation of section 18 of the Constitution of the Republic
of South Africa Act, No 108 of 1996 relating to the right to freedom of
association which implied a right to dissociate. Secondly, it was
submitted that the criterion could not operate as a limitation in terms of
section 36 of the Constitution as it was not a law of general application.
Advocate Naidoo for the Council disputed that the matter had any
constitutional implications.
[24] The LRA recognises the right to freedom of association [Sections 4 and 6
of the LRA] and anticipates that it may be proscribed by collective
bargaining. Part B of Chapter 3 of the LRA relating to the legal effect of
collective agreements and agency and closed shop agreements
authorizes the limitation of the right to freedom of association. These
arrangements at the Council and in the LRA are expressly sanctioned
by section 23(6) of the Constitution which provides:
"National legislation may recognise union security arrangements contained
in collective agreements. To the extent that the legislation may limit a
right in this Chapter, the limitation must comply with section 36(1)."
[25] Assumed as it is for the purposes of this case that the applicants are
members of a trade union party to the Council, my response to both
submissions on constitutional grounds is that the applicants had
acquiesced in the Fund Agreement. They therefore consented to the
particular model for the exercise of the right to freedom of association.
There is no evidence that their representative dissociated itself from the
decision of the Council about the application of the criterion in clause
5(3) of the Fund Agreement. It is therefore also not open to the
applicants to now challenge the reasonableness of the criterion for
exemption.
[26] Advocate Moodley for the applicants, relied on Young James and Webster
v Government of the UK [1981] IRLR 408. The reliance on that case is
misplaced as it does not support his cause. It was held in that case that
a restriction on the right of freedom of association must be
proportionate to the legitimate aim pursued. Proportionality is
determined from all the facts. That case dealt with the application of a
closed shop that led to the dismissal of employees, a somewhat
extreme consequence of a restriction on the right to freedom of
association. Here, one is concerned with the choice of provident
funds. The effect of withdrawal from the Council’s Fund would not lead
to termination of employment. In both cases however, collective
bargaining is affected.
[27] A further compelling fact in this case is that the limitation was selfinflicted
as the applicants were bound to the Fund Agreement by virtue of their
membership of a trade union that was party to the Council.
[28] The criterion for exemption set by the Council is, therefore, not an
infringement of the provisions of section 18 of the Constitution. Nor is it
an unreasonable limitation on the right to freedom of association.
[29] The applicants submitted that the decision to refuse the application for
exemption was procedurally unfair. The first ground for this submission
was that the Council failed to provide the applicants with the written
comments to the applications for exemption as it was required to in
terms of clause 14(2)(e). The applicants were not given an opportunity
to respond to such comment. Accordingly, the Council refused the
applications for exemption without having heard the applicants'
response to the comments. So the argument went.
[30] Advocate Naidoo denied that there was any procedural unfairness. In so
far as I were to find that there was an irregularity it was merely formal
as, substantively, the applicants were fully appraised of all the relevant
information.
[31] It was common cause that the written comments were not furnished to the
applicants. However, they were contained in the bundle of documents
presented by the Council as a record of all three batches of exemption
applications. The Council was repeatedly requested to furnish these
comments. In response to such a request on 22 February 2000
Fedsure, on behalf of the Council, replied that there was no obligation
to provide copies of written comments to the H.I.P.F. The applicants'
attorneys pointed out that the Council had accepted that the applicants
would be represented by the H.I.P.F. Despite this, the written
comments were not furnished to the applicants.
[32] In its answering affidavit the secretary for the Council, Mr Paul
Van Gorkom stated that no such written comment had been made. The
explanation tendered from the Bar for the Council was that the
comments in the record under review did not relate to the exemptions
refused on 30 October 2000.
[33] Firstly, the submission is patently wrong. The written comments were
from, inter alia , Resort Maintenance CC. The first to sixth applicants
inclusive were employed there. Each of them had been applicants for
exemption in August, December 1999 and May 2000. Although the
comments merely convey that employer's objection to the exemption
because it believed that the Council's benefits were superior, it was
important for the applicants to have had an opportunity to respond to it.
This is especially so as it was part of the record and might have been
considered by the Council. Furthermore, negotiations in a bargaining
council environment is multidimensional. Had the first to sixth
applicants been aware of their employer's attitude they might have
engaged with it directly.
[34] It was the Council and Fedsure who had been sticklers for compliance with
procedures. Their approach to the applications for exemption had been
formalistic in the extreme. They set the standard for engagement.
[35] The failure to furnish the comments was a material procedural defect.
[36] The second complaint about procedure was that the Council failed to refer
the disputes to the exemptions body. The Council's reason for refusing
to do so was that it wanted compliance with its requirements. It hardly
lies with the applicants to raise this as a complaint since they have not
identified themselves as nonparties to the Council.
[37] Having found that the criterion set by the Council is reasonable, I must now
inquire whether it was applied rationally by the Council in refusing the
exemptions. As submitted by Advocate Naidoo, a Court may interfere
on very limited grounds when reviewing the exercise of a discretion by
an administrative tribunal. ( Hira and Another v Booysen and Another
[1992] 41 at 69 at 93A94A). However, in so far as the exercise of
public power is objectively irrational or tainted by impropriety the Court
may intervene. ( Pharmaceutical Manufactures Association of South
Africa and Another in re Ex Parté President of the Republic of South
Africa 2000(2) SA 674 (CC) at paragraph 90)
[38] There is an apparent dispute of fact as to whether the H.I.P.F. or the
Council provided better benefits. I intend to determine the issue
principally on the respondents' version. ( Plascon Evans Paints Limited
v Van Riebeeck Paints (Pty) Limited 1984(3) SA 623 A at 634HI).
[39] The Council was generally satisfied that the H.I.P.F. benefits were not less
favourable than the benefits its own Fund provided. Its concerns were
about an apparent misrepresentation of the interest rates paid by each
fund. The Council found that its Fund provided better benefits over a
fiveyear period since 1994.
[40] I accept for the purposes of this case that that was so. Mr Farraday
records the average rate over the fiveyear period from 1994 to be
15.92 percent for the Council and 11.71 percent for the H.I.P.F.
[Document A245] However, one of the reasons for the applicants
wanting the exemption and transfer was that H.I.P.F. paid better rates
on withdrawal from the fund. On the version of Mr Farraday [Document
A245 and Annexure B of document ACKH5 delivered in replication], the
interest rate is seven percent for withdrawal from the Council's Fund.
Mr Farraday recorded the H.I.P.F's withdrawal rates as an average of
11.71 percent. On the Council's version the rate of withdrawal was
10.93 percent. Both versions put the H.I.P.F's withdrawal rates as
higher than that of the Council. The contradiction in the respondent’s
versions has implications for the remedy I devise.
[41] Mr Farraday's reason for disputing that the H.I.P.F. benefits were better
was that the purpose of the Council’s Fund was to provide benefits on
retirement. It therefore provided better returns at retirement.
Nevertheless, he had recommended to the Council to increase its
withdrawal interest rate. Notwithstanding this information, the Council
concluded that the benefits provided by H.I.P.F. were less favourable
on the whole to the benefits that its Fund provided.
[42] The applicants reaffirm in their founding affidavits that the Council's Fund
pays the capital bonus portion of interest only on retirement. This is not
advantageous to members whose employment security and accordingly
membership of the either fund is tenuous.
[43] The H.I.P.F. further established that of the 4516 members who had left its
Fund between 1998 and 2000, 4223 were paid withdrawal benefits and
293 were paid retirement benefits.
[44] The Council had no knowledge of these statistics. It did not dispute them.
As an administrator of its Fund one would have expected the Council to
have some idea of trends in the trades from its own statistics. It gives
no evidence in this regard. Instead, it doggedly clings to its belief that
the object of its Fund is to encourage employees to remain in
employment in the trades as members of its Fund until retirement in
order to secure the best interest rates for their investments.
Furthermore, it maintains that regular payment of withdrawal benefits is
inconsistent with the objects of its Fund and should not be encouraged.
[45] Clearly this was a reason for it refusing the exemption applications. This
reason is not cogent given the realities of work in the trades, namely
that job security is tenuous. The council ignored the applicants'
submissions in their exemption applications that they wanted the
transfer because the H.I.P.F. paid better rates on withdrawal. Whether
motivated by paternalism or selfinterest, it nevertheless concluded that
a retirement benefit was more favourable for the applicants.
[46] In terms of Clause 14(3)(b) the Council may grant an application for
exemption if, inter alia , it does not undermine the final Agreement and
collective bargaining. It is now proffered as a reason for the refusal of
the exemption that it would have undermined collective bargaining.
That was not the reason for refusing the exemptions that are now the
subject of this review. Consequently, it cannot be considered. Even if I
did take it into account, as I have said above, the parties designed the
exemptions system themselves. They must therefore have anticipated
such applications. Furthermore, the Council set the criteria for granting
the exemptions. This review is to test whether that criteria was applied
lawfully and fairly.
[47] Applying the criterion that it set for itself, the Council ought to have granted
the exemptions because:
(i) it was aware that the withdrawal benefits of H.I.P.F. were more favourable
than the benefits provided by its Fund;
(ii) the applicants desired better withdrawal benefits instead of retirement
benefits;
(iii) the applicants desired other benefits such as superior and cheaper
housing, loan facilities, parents' funeral cover and better administration
offered by H.I.P.F. and, that these were superior benefits, were not in
issue in the exemption applications;
(iv) the only consideration underpinning the refusal being the welfare of the
applicants, they are as adults capable of rationally deciding what is in
their best interests;
(v) the applicants complied with all the procedural requirements stipulated
by the Council.
[48] The refusal of the exemption is not only wrong but also a misdirection
amounting to a reviewable irregularity as the Council failed to consider
all the material properly before it. Consequently, its decision is not
justifiable. However, the following further considerations warrant the
setting aside of the Council's decision.
(i) The credibility of the Council officials has been seriously challenged. The
Council falsely denied not having received any written comments to the
exemption application.
(ii) The Council presented its withdrawal interest rates as an average of
10.93 percent. This conflicts directly with Mr Farraday's letter
[Document A2456] and the agreement between the Council and
Fedsure, (Annexure ACKH5), both of which peg the rate at seven
percent.
(iii) The Council was not impartial. Firstly, it shifted the goalposts after
each batch of applications to insist on more onerous requirements.
Secondly, the Council derived revenue from Fedsure for administering
the fund. The probabilities are that it would be favourably disposed to
Fedsure. Conversely, the fact that negotiations for its merger with
H.I.P.F. fell through because the latter refused to pay a fee to the
Council could cause it to be less disposed to the H.I.P.F. However,
some 300 applications were granted after the merger negotiations.
While this suggested the Council was not averse to granting such
applications in favour of H.I.P.F. it does not imply that it was favourably
disposed to doing so. The fact that this application is opposed
suggests otherwise.
(iv) The Council has fettered its discretion by delegating its authority to
decide on the exemptions to Fedsure. There is no evidence that it
exercised a discretion independent of Fedsure. It simply accepted its
advice. Hence its omission to consider other reasons in support of the
applications for exemption.
[49] There are allegations and counterallegations of false rumours and
misinformation being spread amongst the employees by agents of the
Council. There are also conflicting explanations for the withdrawal of
certain applications for exemptions and their subsequent reinstatement.
In view of my decision it is not necessary to resolve these disputes of
fact.
[50] Turning to the relief sought, the general principle is that a reviewing court
may not substitute its decision for that of an administrative tribunal that
has been especially empowered for that purpose. However, special
circumstances may warrant otherwise. [ Administrative Law , Lawrence
Baxter, 1984, page 305.]
[51] In this case the parties designed the exemption's procedure in such a
manner that it ignores or underplays the potential conflict of interests,
particularly the conflict that the Council may have as decisionmaker.
Mostly, the system must work or else the parties would change it. This
Court enables that system to work by exercising a review function.
However, it needs to do more to address the procedural lacuna in the
system, that is, when disputes arise between the Council and the
parties.
[52] I cannot in the circumstances of this case refer the matter back to be
determined afresh by the Council. Hence I must determine the matter
finally. The evidence is sufficient to enable me to substitute the
decision of the Council with my own.
[53] In the circumstances I grant an order in the following terms:
(i) The decision of the Council dated 30 October 2000 in terms of which it
refused to grant the individual applicants' exemption from the Council's
Provident Fund Collective Agreement is hereby reviewed and set aside.
(ii) The individual applicants are exempted from the Council's
Provident Fund Collective Agreement.
(iii) The Council is directed to pay the applicants' costs.
PILLAY D, J
___________________________________________________
16 April 2002
18 April 2002
4 JUNE 2002
ON BEHALF OF APPLICANTS: ADVOCATE I MOODLEY
INSTRUCTED BY: CHEADLE, THOMPSON & HAYSOM
ON BEHALF OF RESPONDENT: ADVOCATE L R NAIDOO
INSTRUCTED BY: GARLICKE & BOUSFIELD INC