IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
(HELD AT JOHANNESBURG)
Case No. JA9/03
In the matter between:
SOUTH AFRICAN MUNICIPAL
WORKERS UNION 1st Appellant
ISMAEL MANAMA AND OTHERS 2nd & Further Appellants
And
RAND AIRPORT MANAGEMENT
COMPANY(PTY) LTD 1st Respondent
TURNKEY FACILITY MANAGEMENT
(PTY) LTD 2nd Respondent
CAPITAL AIR SECURITY
OPERATIONS (PTY)LTD 3rd Respondent
JUDGMENT
Zondo JP
[1] As Davis AJA says in the judgement that he has prepared in this matter which
appears after this one and in which I concur, this matter concerns the application of sec
197 of the Labour Relations Act 1995 (Act 66 of 1995) (“the Act”) to outsourcing. The
aspect that I wish to deal with is an aspect which, in my view, puts the first respondent’s
conduct before the 1 st August 2002 and after in the correct perspective.
[2] The conduct of the first respondent that I refer to is the fact that prior to the 1 st
August 2002 it had expressly said that the outsourcing of its security and garden services
that it intended to embark upon at that stage would be a transfer of business as a going
concern in terms of sec 197 of the Act but subsequent to that date – and in the
proceedings in the Labour Court and in this Court, the first respondent’s stance was that
sec 197 had no application in this matter.
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[3] In the above regard reference should be made to a letter dated the 21 st June 2002
that the first respondent addressed to Mr M.W. Machaka and other employees. In that
letter the first respondent referred to the various discussions that it said had been held
since March 2002. In the second, third and fourth paragraphs of that letter Mr Wehmeyer,
who dealt with this matter on behalf of the first respondent at the time and deposed to the
answering affidavit filed on behalf of the first respondent in these proceedings, wrote thus:
“Management has, as indicated to you, no option but to outsource the security
function in the business as this is not a core function of the business. The function
will be outsourced in terms of section 197 of the Labour Relations Act to [the third
respondent] with effect from 1 August 2002.
You will therefore be required to enter into new employment contracts with [the third
respondent] as from that date. Should you not find the alternative employment suitable
we will be forced and have no alternative but to enter into retrenchment procedures in
terms of section 189 of the Labour Relations Act.
I trust that you will consider the alternative employment and that we can reach an
amicable agreement.”
(Underlining supplied). The date of the 1 st August 2002 as the date of implementation was
later postponed to the 1 st September 2002.
[4] It will be noticed from the first of the three paragraphs of the letter quoted above
that the first respondent was saying that it was going to outsource the security function
and that this was in terms of sec 197 of the Act. In the second of the three paragraphs
quoted above, the first respondent said that the employees would be required to enter
into new contracts of employment with the third respondent but that, should the
employees not find “ alternative employment suitable” , it would have no alternative but
employees not find “ alternative employment suitable” , it would have no alternative but
to enter into retrenchment procedures in terms of sec 189 of the Act.
[5] In a letter dated the 31 st July 2002 addressed to the first respondent, the first
appellant’s attorneys recorded that “(o)ur clients accept your statements that the
transfer of the noncore functions constitutes a ‘transfer as a going concern?
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Section 197 of the Labour Relations Act, 1995 is therefore applicable. In these
circumstances if the transfer proceeds the employees will, by operation of law, be
transferred to [the third respondent] on the same terms and conditions of
employment.”
[6] On the 1 st August 2002 the first respondent sent letters to the employees –
including the second and further appellants – informing them that it was terminating their
services with effect from the 31 st August 2002. The fourth paragraph of that letter read
thus: “ Should you wish to be reemployed you are requested to approach the
company taking over the services for a position. Should the company require your
service prior to the 31 st August 2002, [the first respondent] will allow you to take
up such employment without any reductions to the pay as set out hereinabove.” In
a letter dated the 1 st August 2002 addressed by the first respondent to the first
appellant’s attorneys, the first respondent wrote in its last paragraph: “ In the light of the
fact that [the first respondent] intends terminating services, section 197 is not
applicable and any application brought for a declaration as stated in your letter will
be vigorously opposed.” (Underlining supplied.)
[7] The fact that earlier on the first respondent had mero motu stated quite expressly
that the outsourcing was “ in terms of sec 197 ” of the Act but that on the 1 st of August
2002 it said that sec 197 was not applicable marked an about turn on the part of the first
respondent on the issue. The question that arises is why the first respondent made this
about turn. Had the first respondent not changed its mind on this, the appellants would
probably not have instituted these proceedings. In the first respondent’s answering
affidavit, Mr Wehmeyer sought to explain it thus in par 34: “I was always under the
erroneous belief that outsourcing of any department of a company is done in terms
of section 197 of the Act.” He then went on to say that from the letter concerned it was
clear that their intention was that as a result of the outsourcing, the employees would be
required to enter into new employment contracts with the third respondent as from such
date. He pointed out that the letter did say that, if any employee did not find suitable
alternative employment with the third respondent, the retrenchment procedure would be
resorted to. Mr Wehmeyer’s explanation is deficient in at least one respect. That is that he
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does not say what made him change from his belief that the “ outsourcing of any
department of a company is done in terms of sec 197 of the Act.”
[8] The only explanation that I can think of for this apparently inexplicable stance on
the part of the first respondent is one which has as its source what the first respondent
said in the last sentence of the letter under discussion. In the last sentence the first
respondent said: “In the light of the fact that Rand Airport intends terminating
services, section 197 is not applicable” . In particular note must be taken of the first
part of that sentence. What that sentence conveys is that the reason why sec 197 was
not applicable was because the first respondent was terminating the services of the
employees. This statement manifests the first respondent’s understanding at the time of
when sec 197 applied to a transaction such as the one the first respondent was
concerned with. That understanding was that sec 197 of the Act did not apply if there was
no agreement for the employees from the transferor to the transferee. In all probability the
above understanding of the law with regard to the applicability of sec 197 which the first
respondent had as at the 1 st of August 2002 has as its source the majority judgement of
this Court in Nehawu v University of Cape Town (2002) 23 ILJ 306 (LAC). In that
matter this Court held that, if the transferor and transferee of a business or part of a
business did not agree that the workforce be also transferred from the transferor to the
transferee, sec 197 did not apply. That judgement had been delivered in February 2002
and the Constitutional Court had not heard the appeal that was noted to it against that
judgment. Accordingly, as at immediately before the 1 st August the law relating to sec
197 was as laid down in that judgment.
197 was as laid down in that judgment.
[9] The Constitutional Court subsequently set aside that judgement. (see Nehawu v
University of Cape Town (2003) 24 ILJ 95 (CC )). It held that it was not a requirement
that the transferor and the transferee agree to transfer the workforce before there could
be a transfer of business or part thereof as a going concern in terms of sec 197. In fact
with effect from the 1 st August 2002 the Labour Relations Amendment Act, 2002 (Act no
12 of 2002) came into operation. One of the amendments it brought about was a
definition of the word “business” that included “ service”. Accordingly, to the extent that
there may have been doubt before whether transferring a service could fall within the
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ambit of sec 197, that doubt was completely removed with effect from the 1 st August
2002. That amendment also included sec 187(1)(g) of the Act which in effect outlawed
the dismissal of employees because of a transfer of business or part thereof as
contemplated by sec 197 or for a reason that is connected with such a transfer. From the
1st August 2002 when sec 187(1)(g) came into effect such a dismissal became
automatically unfair.
[10] In the light of the above it, therefore, seems to me that, read against the above
background, what the first respondent believed as at the 1 st August 2002 was that, if
there was an agreement that the employees be transferred, sec 197 would apply but
that, if there was no such agreement, sec 197 would not apply. In the first respondent’s
own understanding the fact that it was dismissing the second and further appellants
meant that the transaction was taken out of the ambit of sec 197. I do not think that the
first respondent would have taken the stance that sec 197 would not apply to the situation
had it taken the view that agreement to transfer the employees to the contractors was not
a sine quo non for the application of sec 197 to the situation. I also do not think that the
first respondent would have gone ahead and dismissed the employees if it had known
that, with effect from the 1 st August 2002, which was the day on which it wrote to the
second and further appellants dismissing them with effect from the 31 st August 2002, the
dismissal of employees because of, or, for a reason connected with, a transfer
contemplated in sec 197 was automatically unfair.
[11] It seems to me, therefore, that the first respondent’s stance as from the 1 st August
2002 which it has maintained to date despite the judgement of the Constitutional Court in
Nehawu v University of Cape Town referred to above originates from its understanding of
Nehawu v University of Cape Town referred to above originates from its understanding of
what law was at the time but which it seems not to have changed after the Labour
Relations Amendment Act, 2002, which contained sec 187(1)(g) came into operation on
the 1 st August 2002 and after the delivery of the judgement of the Constitutional Court
Nehawu case.
Zondo JP
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I agree.
Jafta AJA
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
(HELD AT JOHANNESBURG)
Case No. JA9/03
In the matter between:
SOUTH AFRICAN MUNICIPAL WORKERS UNION 1 st Appellant
ISMAEL MANAMA AND OTHERS 2 nd & Further Appellants
And
RAND AIRPORT MANAGEMENT COMPANY(PTY) LTD 1 st Respondent
TURNKEY FACILITY MANAGEMENT (PTY) LTD 2 nd Respondent
CAPITAL AIR SECURITY OPERATIONS (PTY)LTD 3rd Respondent
JUDGMENT
DAVIS AJA
INTRODUCTION
[1] This appeal concerns the application of sec 197 of the Labour Relations Act, 1996
(Act 66 of 1996) (“ the Act ”) to outsourcing. The facts are largely common cause. What is
in dispute are the conclusions to be drawn from those facts and the legal issues that arise
from them. It is appropriate to first set out the facts and the sequence of events that led to
these proceedings.
The facts
[2] First respondent operates and manages Rand Airport. Until 31 May 2000 Rand
Airport was an entity owned and managed by the greater Johannesburg Metropolitan
Council. On that date, pursuant to a restructuring within the council, first respondent
began to run Rand Airport.
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[3] At a meeting on 11 March 2002, first respondent informed employees that it was
experiencing financial difficulties and wished to discuss this position at a further meeting. At that
further meeting on 18 March 2002, first respondent disclosed financial information to
employees’ representatives, who were asked to proffer solutions to some of the financial
problems experienced by first respondent. A number of cost cutting measures were raised and
discussed. During the course of the meeting Mr Andr é Wehmeyer, managing director of first
respondent, intimated that certain specialized services appeared to be more costly when
conducted ‘in house’ rather than being subcontracted to a third party.
[4] On 18 April 2002 Mr Wehmeyer wrote a letter to the first appellant in which he
stated that five meetings had been held with the staff since 11 March 2002 in which the financial
position of first respondent had been discussed. He wrote of the need to ‘revisit… the staffing
requirements’ and then referred to possibilities which had been considered including ‘voluntary
early retirement, outsourcing or any other possibilities that you may want to be considered’.
[5] Further meetings took place and on 14 June 2002 Mr Wehmeyer informed
representatives of first appellant that the intention of first respondent was not to retrench but
rather to outsource, a point which was reiterated in a further letter written by Mr Wehmeyer on
16 June 2002.
[6] In a letter addressed to the first appellant on 25 June 2002, the intention of first
respondent was set out by Mr Wehmeyer thus:
‘I also want to inform you that it is the intention of Management to proceed with the proposal of
outsourcing the noncore activities as indicated to you before namely Security, Garden Services
and Cleaning effective 1 July 2002’.
[7] On 21 July 2002 first respondent gave notice that the noncore functions would be
outsourced in terms of section 197 of the Act to a subcontractor with effect from 1 August
outsourced in terms of section 197 of the Act to a subcontractor with effect from 1 August
2002. On the same day Mr Wehmeyer again wrote a letter to the affected employees
headed ‘Retrenchment due to Operational Requirements’. In this letter Mr Wehmeyer
informed second appellant that “ Should you wish to be reemployed you are
requested to approach the company taking over the services for a position.
Should the company require your services prior to 31 August 2002 Rand Airport
will allow you to take up such employment without any reductions to the pay set
out herein above.” The letters to other employees conveyed the same message.
[8] On 6 August 2002 first and second respondents concluded a written agreement
concerning the outsourcing of the gardening service. Attorneys acting on behalf of first
appellant enquired as to whether subcontractors would guarantee the affected workers jobs on
application by them, what their conditions of service would be in the event that they were
employed and whether they would start as new employees if their applications were successful.
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[9] On 13 August 2002 first respondent replied, and recorded, that it was retrenching
employees, that it could not comment on whether the relevant subcontractors would guarantee
jobs to retrenched workers, what their conditions of service would be in the event that they were
hired and further confirmed that they could commence as new employees if their applications
were successful. A similar response was also received from second respondent.
Proceedings in the Labour Court
[10] On the 23 rd August the appellants brought an application before the Labour Court
as a matter of urgency. The substantive orders that they sought in terms of the notice of
motion were in the following terms:
“1. ……….
2. Declaring that the company’s (sic) transfer of its garden
department to the second respondent [i.e. Turkey Facility
Management (Pty)Ltd] constitutes a transfer of part of a
business as a going concern, as contemplated in section
197 of the Labour Relations Act, 1995;
3. Declaring that the company’s (sic) transfer of its security
department to the third respondent constitutes a transfer
of part of a business as a going concern, as contemplated
in section 197 of the Labour Relations Act, 1995;
4. Ordering that the contracts of employment of the second
and further applicants are transferred from the first
respondent to the second and third respondents on the
same terms and conditions and without interruption of
their service with the first respondent, with effect from the
date of the transfer of the security and garden
departments.”
[11] The matter was argued before Landman J in the Labour Court. With regard to the
security functions, the Labour Court dealt with the matter in the following terms in
paragraphs 3033:.
“30. I shall deal with the security functions and the declarator requested in this
regard. But firstly I should note some common facts and considerations:
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a) Rand Airport conducts the business of providing
an airport and related services to the aviation
industry.
b) The cleaning and security services are essential
as other services in the long run but are noncore
functions.
31. Capital Air coordinates the functioning
of the shift system at Rand Airport. This
includes its own staff and the nine or so
security officers of Rand Airport. This is
done because Rand Airport did not have
sufficient staff to provide night shift nor
coordinate the roster system. Rand
Airport required 24 security members
but had only 9 and therefore had early
on contracted with Capital Air to provide
a service. The security officers of Rand
Airport were not integrated with Capital
Air in terms of the reporting lines. Rand
Airport guards wear a different uniform.
Rand Airport has its own security
equipment. Its security guards do not
report to Capital Air’s managers. Capital
Air would treat Rand Airport’s security
guards as new employees. Any
applicants for positions at Capital Air
must be able to be registered with
Security Industry Regulatory Authority.
32. Most importantly Capital Air and Rand
Airport have not concluded an
outsourcing agreement. Whether they
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do so or not is said to be dependent on
the outcome of this application
launched by the applicants on an urgent
basis for a declaratory order. This
application was launched on the basis
that Rand Airport had concluded an
agreement with Capital Air to replace its
existing security operations. This
supposition, on the version of Capital
Air (which I must accept on these
papers) has not taken place. Capital Air
and Rand Airport are awaiting the
outcome of this application before
deciding whether to outsource the
security operations to Air Capital.
Capital Air opposes this application;
especially as it has been brought on an
urgent basis.
33. I do think it desirable to grant a
declaration on a set of facts which may
not come to pass. Nor do I think it
permissible to provide advice so that
Rand Airport and Capital Air can decide
whether to enter into a contract; more
so, where they do not seek this
declaration.”
[12] With regard to the gardening functions, the Labour Court had this to say in
paragraphs 34 and 35:.
“ 34. This brings me to the relief sought in regard to the gardening function. The following facts
and circumstances considered cumulatively persuade me that the gardening services of Rand
Airport do not constitute part of a business (as defined) and that there can be no transfer of this
function as a going concern.
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a) the gardening functions form part of
maintenance services;
b) these services form part of the noncore
activities of Rand Airport.
c) Rand Airport outsourced the garden
functions to Turnkey. The garden
services which Turnkey is to render
include cutting grass, pruning and
trimming trees, weeding, landscaping
and watering. Cleaning services will also
be provided. This contract is to run until
31 April 2004 and may then be terminated
on three months notice.
d) Rand Airport and Turnkey, on their
version, which must be accepted, did not
intend to transfer the applicants working
in the gardens.
e) Gardening services is not an entity. It has
no separate management structure, no
own goals, no assets, no customers and
no goodwill. It is merely an activity and
will be such in the hands of Turnkey. It is
not intended to make a profit or gain
some other advantage.
f) The gardening function is being
outsourced for a limited period.
35. Even if I were persuaded that the gardening functions constitute a part of a
business and that it was transferred, it would not constitute the transfer of a going
concern within the meaning assigned to this term by the Labour Appeal Court in
the NEHAWU v UCT case. See Craig Bosch “Two wrongs make it more wrong, or a
case for minority rule” 2002 SALJ 501 at 511 who is of the view that the meaning of
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“a going concern” attributed to it by the LAC has survived the amendments to the
LRA. As stated earlier I am bound by this decision.”
[13] In the result Landman J dismissed the appellants’ application with costs on the
27th September 2002. Landman J granted the appellants leave to appeal to this Court in
respect of the part of the matter that relates to gardening services and refused leave to
appeal in respect of that part of the matter that relates to security functions. The Judge
President was then petitioned for leave to appeal in respect of the part of the matter that
relates to gardening functions. This Court duly granted leave to appeal in regard to that
part, hence this appeal.
The appeal
[14] It is common cause that the first respondent sought to outsource its gardening and
security services to outside contractors because, apparently, it would be cheaper to have
such services provided by contractors. It is also common cause that to this end the first
respondent awarded tenders to the second and third respondents for the provision of
such services. Subsequent to the second respondent being awarded its tender, a written
contract was concluded between itself and the first respondent for it to provide the
services for which it had been awarded the tender. It is undisputed that as at the time of
the launching of the urgent application in the Labour Court, the first and third respondents
had not signed any written contract in terms of which the first respondent would provide
the services in respect of which it had been awarded the tender.
[15] The appellant’s case is that the contracts of employment of the second and further
appellants were transferred automatically to the second and third respondents pursuant to
agreements between the first respondent and second respondent in one instance and in
another between the first respondent and third respondent. The transfer of contracts of
another between the first respondent and third respondent. The transfer of contracts of
employment that the appellants contended took place is one referred to in sec 197 of the Act. In
this regard it is apposite to quote sec197(1) and (2). They read thus:
“(1) In this section and in section 197A
(a) “business” includes the whole or a part of any business, trade, undertaking
or service; and
(b) “transfer” means the transfer of a business by one employer (“the old
employer”) to another employer (“the new employer”) as a going concern
(2)If a transfer of a business takes place, unless otherwise agreed in terms of
subsection (6)
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(a) the new employer is automatically substituted in the place of the old
employer in respect of all contracts of employment in existence immediately before
the date of transfer;
(b) all the rights and obligations between the old employer and an employee at
the time of the transfer continue in force as if they had been rights and obligations
between the new employer and the employee;
(c) anything done before the transfer by or in relation to the old employer,
including the dismissal of an employee or the commission of an unfair labour
practice or act of unfair discrimination, is considered to have been done by or in
relation to the new employer; and
(d) the transfer does not interrupt an employee’s continuity of employment, and
an employee’s contract of employment continues with the new employer as if with the
old employer.”
[16] Whether or not the contracts of employment of the second and further appellants
have been transferred automatically to the second and third respondents, as the case
may be, depends upon whether there has been a transfer of business in one instance
from the first respondent to the second respondent and, in another, from the first
respondent to the third respondent as contemplated in sec 197 of the Act. In order to
determine whether there has been a transfer of business in this case, it is necessary to
first have regard to the meaning of the word “ business” in sec 197.
[17] Section 197 was amended pursuant to Act 12 of 2002. Of particular relevance to
the present dispute is the amendment which introduced the concept of ‘service’ into the
definition of ‘business’ and, hence, of ‘transfer’ as contained in section 197(1) of the Act.
Although not defined in the Act, the common meaning of ‘service’ as set out in the new Shorter
Oxford English Dictionary is ‘The provision of a facility to meet the needs or for the use of a
person or a person’s interest or advantage; assistance or benefit provided to someone by a
person or thing; an act of helping or benefiting another; an instance of beneficial, useful or
friendly actions; the action of serving, helping or benefiting another; behavior conducive to the
welfare or advantage of another; friendly or professional assistance’.
Do security and gardening services constitute a “service” as contemplated in sec
197 of the Act?
[18] Mr Bruinders submitted that the gardening service as well as the security service
fell within the term “ service” in sec 197 of the Act. That would appear to be the way in
which first and third respondents also saw the activities of gardening and security. In
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clause 20 of the agreement between first and second respondents, it is provided that
Annexure A ‘being a description of the services to be rendered is attached hereto (and)
forms an integral part of this agreement.” Annexure A then sets out the services which the
second respondent was obliged to undertake, including, for example, mowing, edging and
fertilizing of lawn as well as cultivation, weeding, pruning, fertilizing of the planted area. In
the similarly drafted agreement that was meant for signature by first and third
respondents but had not been signed at the time of the institution of these proceedings,
the latter is referred to as the service provider. In the recordal to the agreement it is
stated: “ The company requires the guarding and security services to be provided
and maintained on the standard required by the South African Civil Aviation
Authority”.
[19] Respondents did not dispute the correctness of the submissions made by
appellants with regard to ‘service’ and for good reason. The meaning of the word
“service” read within the context of second respondent’s obligations or third respondent’s
intended obligations (if it signed an agreement with the first respondent) towards first
respondent provide compelling justification for the conclusion that both the gardening and
security functions fell within the definition of the word “ service” as contemplated in
section 197(1) of the Act. I, therefore, conclude that the gardening and security services
fell within the ambit of the word “ service” in sec 197 of the Act.
[20] The above conclusion means that the gardening and security services of the first
respondent would be capable of being transferred in the manner contemplated in sec
197. Before I can consider whether or not they were so transferred, it is necessary to first
197. Before I can consider whether or not they were so transferred, it is necessary to first
consider the meaning of the phrase “ transfer of a business as a going concern ”.
What does it mean to transfer a business or a service “as a going concern”?
[21] In the determination of whether a business has been transferred as a going
concern, the critical phrase is ‘a going concern’. It is not defined in the Act. Understandably this
phrase has given rise to intense judicial scrutiny. The starting point of any enquiry must be the
minority judgment of Zondo JP in Nehawu v University of Cape Town and Others 2002 (23)
ILJ 306 (LAC). In paragraphs 64 and 65 of that judgement Zondo JP had this to say with regard
to the phrase ‘a going concern’, as it appeared in section 197 of the Act prior to the amendment
of 2002:
‘[64] Furthermore, I am of the view that the question whether in a particular case a business has
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been transferred as a “ going concern ” is a matter for objective determination. This does not
mean that the intentions of the parties are irrelevant but it does mean that the say so of
the parties cannot be conclusive. In my view there are a number of factors that are
relevant in determining whether or not a business has been transferred as a going
concern. These may include what will happen to the goodwill of the business, the stock
intrade, the premises of the business, contracts with clients or customers, the workforce,
the assets of the business, whether there has been an interruption of the operation of the
business and, if so, the duration thereof, whether same or similar activities are continued
after the transfer or not and others. I do not think that the absence of anyone of these will
on its own mean that the transfer of the business has not been one as a going concern. I
would align myself with the approach adopted by the European Court of Justice when, in
paras 11, 12 and 13 of its judgment in the Spijkers case, it said:
“[11]…. It appears from the general structure of directive 77/187 and the wording of Article 1(1) that the
directive aims to ensure the continuity of existing employment relationships in the framework of
an economic entity, irrespective of a change of owner. It follows that the decisive criterion for
establishing the existence of a transfer within the meaning of the directive is whether the entity in
question retains its identity.
[12] Consequently it cannot be said that there is a transfer of an enterprise,
business or part of business on the sole ground that its assets have been sold. On
the contrary, in a case like the present, it is necessary to determine whether what
has been sold is an economic entity which is still in existence, and this will be
apparent from the fact that its operation is actually being continued or has been
apparent from the fact that its operation is actually being continued or has been
taken over by the new employer, with the same economic or similar activities.
[13] To decide whether these conditions are fulfilled it is necessary to take
account of all the factual circumstances of the transaction in question, including the type
of undertaking or business in question, the transfer or otherwise of tangible assets such
as buildings and stocks, the value of intangible assets at the date of transfer, whether the
majority of the staff are taken over by the new employer, the transfer or otherwise of the
circle of customers and the degree of similarity between activities before and after and
the duration of any interruption in those activities. It should be made clear, however, that
each of these factors is only part of the overall assessment which is required and
therefore they cannot be examined independently of each other.’
[65] In my view the position is that there will be cases where the transferor and
the transferee agree that the workforce will be taken over by the transferee but the
transaction cannot be described as transfer of the business as a going concern if
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many of the other factors that are relevant to a transfer being one as a going
concern are absent and there will be transactions where the transferor and the
transferee will agree that the workforce will not be taken over but the transaction
still amount to a transfer of a business as a going concern because of the presence
of many or all of the other factors that go to making a transfer of a business to be
one as a going concern. Accordingly each transaction must, in my view, be
considered in its own merits in the light of all the surrounding circumstances of the
transaction before a determination can be made whether it constitutes a transfer of
a business as a going concern.’ The majority of this Court in that case, namely,
Van Dijkhorst AJA with whom Comrie AJA agreed, held that there can be no
transfer of a business as a going concern unless both the transferor and the
transferee have agreed that the latter takes the former’s workforce over as well.”
[22] The matter subsequently went to the Constitutional Court. The judgement of the
Constitutional Court is reported as Nehawu v University of Cape Town & others (2003)
24 ILJ 95 (CC). When the matter was heard by the Constitutional Court, Ngcobo J, on
behalf of a unanimous Court, said the following in paragraphs 56, 57 and 58 of his
judgement:
“ [56] The phrase “going concern” is not defined in the LRA. It must therefore be
given its ordinary meaning unless the context indicates otherwise. What must be
transferred must be a business in operation “so that the business remains the
same but in different hands”. Whether that has occurred is a matter of fact which
must be determined objectively in the light of the circumstances of each
transaction. In deciding whether a business has been transferred as a going
concern, regard must be had to the substance and not the form of the transaction.
A number of factors will be relevant to the question whether a transfer of business
as a going concern has occurred, such as the transfer or otherwise of assets, both
tangible or intangible, whether or not workers are taken over by the new employer,
whether customers are transferred and whether or not the same business has been
carried on by the new employer. What must be stressed is that this list of factors is
not exhaustive and that none of them is decisive individually. They must all be
considered in the overall assessment and therefore should not be considered in
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isolation.
[57] There is nothing either in the context or language of section 197 to suggest
that the phrase “going concern” must be given the meaning assigned to it by the
majority. On the contrary, the purpose of the section and the context in which that
phrase occurs suggests otherwise.
[58] The fact that the seller and the purchaser of the business had not agreed on
the transfer of the workforce as part of the transaction does not disqualify the
transaction from being a transfer of a business as a going concern within the meaning of
section 197. Each transaction must be considered on its own merits regard being had to
the circumstances of the transaction in question. Only then can a determination be made
as to whether the transaction constitutes the transfer of a business as a going concern.
In this regard I agree with Zondo JP.”
[23] It is also apposite to refer to a statement by Lord Fraser in Mellon v Hector Powe
[1981] 1 All ER 313 at 317 hj where, among other things, he said that a business “ is
transferred as a going concern ‘so that the business remains the same business
but in different hands’….whereas” in the case of a transfer of assets “the assets are
transferred to the new owner to be used in whatever business he chooses”. (See
para 61 of Zondo JP’s minority judgment in Nehawu’s case, supra.)
[24] Both Zondo JP in his judgment in this Court in Nehawu’s case and Ngcobo J in
his judgement in the same case in the Constitutional Court were careful to desist from
developing an inflexible test. Both emphasized that the list of factors set out in their
judgments were not ‘exhaustive and that none of them is decisive individually’ ( Ngcobo J
at para. 56 and Zondo JP at para 64 and 65). When Landman J delivered the judgment
of the Court a quo , the law on the transfer of a business as a going concern was as set
out in the majority judgment of this Court in the Nehawu case. The Constitutional Court
out in the majority judgment of this Court in the Nehawu case. The Constitutional Court
had not yet handed down its judgment. Accordingly, Landman J was bound by the
interpretation given in the majority judgment as to the meaning of the phrase “ going
concern”. In the majority judgment the test adopted was inflexible. It was that “ a
business is a going concern only if its assets, movable and immovable, tangible
and intangible are utilized in the production of profit (or, in the case of an
undertaking, the attainment of its goal…in every business ” (Nehawu v University of
Cape Town & others 2002 (23) ILJ 306 (LAC) at 312J 313 B) .
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[25] Having dealt with the question of when it can be said that there has been a
transfer of business as a going concern, the question that arises now is whether there has been
a transfer of business as a going concern in this matter. That is the question to which I now turn.
Has there been a transfer of business or service from the first respondent to the
second respondent and the third respondent in this matter as a going concern?
[26] Mr Bruinders placed considerable emphasis on the amendment to section 197
which was introduced in terms of Act 12 of 2002 in which the word ‘service’ was introduced into
the definition of business. He submitted that, on the basis of this amended definition a transfer
of a business as a ‘going concern’ included the transfer of a ‘service’ as a ‘going concern’. Mr
Bruinders contended that the manner in which the security and gardening services were to be
undertaken by the second and third respondents provided an indication that in each case a
service would continue to be provided for the same purpose although by another party.
Accordingly, so submitted Mr Bruinders, there had been a transfer of the service as a ‘going
concern’.
[27] In support of this submission Mr Bruinders referred to the decision of the Court of
Appeal in Betts and Others v Brintle Helicopters Limited and Another 1997 IRLR 361
(CA). In this case, defendant provided helicopter services to and from oil rigs in the North
Sea. Until 30 June 1995 this service was conducted in terms of three contracts covering
separate sectors of the North Sea. When the contracts were about to expire on 30 June
1995, new contracts were put out to tender and Shell (UK), on behalf of whom the
services were to be performed, decided that no single company would be awarded all
three contracts. Defendant obtained two of the contracts, and the third which covered the
three contracts. Defendant obtained two of the contracts, and the third which covered the
Southern sector went to second defendant. None of the sixty six people who were
employed by first defendant to operate this contract were employed by second defendant
which fulfilled its contractual obligations from different locations. Seven employees of first
defendant claimed that there had been a transfer of an undertaking between first and
second defendant, as a result of which they had become employees of second defendant
by operation of law. They sought a declaration to this effect.
[28] The Court of Appeal accepted that the provision of helicopter services to and from
the oil rigs constituted an undertaking or an economic entity. However, the Court did not find
that there had been a transfer of such an undertaking. It appeared to accept the following
submission by appellants’ counsel:
‘Unlike school or hospital cleaning or other labour intensive operations in which…’a group of
workers engaged in a joint activity on a permanent basis may constitute an economic entity’, the
situation in this case was more complex. At risk of oversimplification, the labour force was not
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the only asset of the Brintel Beccles operation, and the vast majority of its assets Brintel retained,
so the situation here was precisely that envisaged by European Court…in the case of Suzen’. (at
para 45).
[29] In Suzen v Zehnacker Gebaudereinigung Gmbh 1997 IRLR 255 (ECJ) at para
33 the European Court of Justice dealt with EEC Directive 77/187 which covers the
transfer of undertakings and said: ‘The Directive is to be interpreted as meaning that the
Directive does not apply to a situation in which a person who had entrusted the cleaning
of his premises to a first undertaking terminates his contract with the latter and, for the
performance of similar work, enters into a new contract with a second undertaking, if
there is no concomitant transfer from one undertaking to the other of significant tangible
or intangible assets or taking over by the new employer of a major part of the workforce,
in terms of their numbers and skills, assigned by the predecessor to the performance of
the contract.’
[30] On one reading of the judgments in Betts and Suzen taken together, it may be
contended that these decisions stand in the way of appellants’ submissions, particularly
the conclusion reached in Betts that second defendant had ‘simply obtained a fresh
contract for carrying men and goods to the same oil rig from a different land base, using
different helicopters, different crews, but inevitably landing on the same oil rigs and using
the same oil rigs facilities’ (at para. 45). However, in both Betts and Suzen the court was
not required to apply a definition of business which expressly included the concept of
‘service’. Significantly, in the case of Betts the provision of helicopters with different
crews transporting personnel and goods, albeit to the same oil rig but from a different
land base, was held to be an undertaking or economic entity for the purposes of the
Directive. The appeal by the providers of the helicopter services succeeded because it
was found that no undertaking was transferred. The successful tenderers obtained a
contract to provide a service but the key infrastructure was never transferred.
[31] In presenting his argument that there had not been a transfer of business as a
going concern in this case, Mr Pauw submitted that the intention of the transferor and the
transferee was critical. He submitted that it was clear from the facts of this case that the parties
did not intend a transfer of the business or of the services as a going concern. He further
submitted that the first respondent was entitled to dismiss the second and further appellants for
operational requirements at the time that it did. He submitted that a court should not lightly
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conclude that a transfer of business as a going concern had occurred in circumstances where
that is not what the parties intended.
[32] I think that the answer to Mr Pauw’s contention with regard to the role of the
intention of the transferor and transferee is that the question of what determines whether
there has been a transfer of a business as a going concern has been dealt with both in
the judgement of ZondoJP in this Court in the Nehawu case as well as in Ngcobo J’s
judgement in the same case in the Constitutional Court. It is clear from those judgments
that the intention of the transferor and the transferee does not play a critical role, let alone
a decisive role in the determination of such a question. There is no warrant to repeat it
here. The answer to Mr Pauw’s argument that the first respondent was entitled to dismiss
the second and further appellants for operational requirements at the time that it did so is
to be found in sec 187(1)(g) of the Act. Sec 187(1)(g) was introduced into the statute by
Act 12 of 2002 which came into operation on the 1 st August 2002. It provides that a
dismissal is automatically unfair “ if the reason for the dismissal is – a transfer, or a
reason related to a transfer, contemplated in section 197 or 197A .” Quite clearly the
aim of this provision is to make it clear that an employer has no right to dismiss an
employee because of a transfer contemplated in sec 197 or 197A or for any reason
connected with such a transfer. Where an employer seeks to transfer a business or a part
thereof or a service to another employer and such transfer would, if implemented, be a
transfer of business or undertaking or service as a going concern as contemplated by sec
197 of the Act and is initially prepared to let the employees go over to the new employer
197 of the Act and is initially prepared to let the employees go over to the new employer
but later dismisses such employees when there is a dispute about the terms and
conditions of employment that they will enjoy after such transfer to the new employer –
which is what happened in this case there can be no doubt that the reason for the
dismissal of the employees in such a case is either the transfer or a reason connected
with such a transfer. Accordingly, the first respondent’s dismissal of the second and
further appellants was something that the first respondent was not entitled to do and
constituted a violation of their right not to be dismissed for such a reason. Sec 187
provides that such a dismissal is automatically unfair.
[33] In this case the appellants’ case that there has been a transfer of business or
service, as a going concern and, therefore, of the contracts of employment is based, in the first
place, on the assertion that in the one instance the first and second respondents and, in
another, the first and third respondents, concluded agreements in terms of which the second
and third respondents would take over certain functions previously performed by employees of
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the first respondent. If there were no such agreements, that would be the end of the appellants’
case. If, however, such agreements were concluded, that would not necessarily mean that there
had been a transfer of business or service as a going concern but what would have to be
inquired into is whether that is a type of agreement that, if implemented, would attract the
application of sec 197 of the Act. If the answer was that that is not the type of agreement that
would attract sec 197 of the Act if implemented, that would mark the end of the inquiry. If,
however, it is a type of agreement which, if implemented, would attract the application of sec
197, the next question would be whether such agreement was implemented. If it was not
implemented, then there would not have been a transfer of business or service as a going
concern and, therefore, there would not have been a transfer of contracts of employment. If
there was implementation, there would have been a transfer of business or service as a going
concern and, therefore, also a transfer of the contracts of employment of the relevant
employees. In the light of all of this, I turn to consider the position between the first respondent
and the second respondent first.
Was there an outsourcing agreement between the first and second respondents and, if
so, was the relevant service transferred as a going concern from the first respondent to
the second respondent?
[34] There is no doubt that first and second respondents concluded a written
outsourcing agreement in terms of which the second respondent was obliged to perform
certain functions previously performed by employees of first respondent. A copy of the
signed agreement between the first and second respondents was annexed to the papers.
The duration of the agreement was initially to be from the 1 st September 2002 to the 31 st
August 2004. In terms of clause 2.1.2 of that agreement, the second respondent had an
August 2004. In terms of clause 2.1.2 of that agreement, the second respondent had an
option to renew the contract for a further two years from the 1 st July 2004 to the 30 th
June 2006. In the last sentence of paragraph 15.5 of the answering affidavit, Mr
Wehmeyer, first respondent’s managing director, referred to a copy of the memorandum
of agreement between the first and second respondents and said that such memorandum
of agreement had “ already been finalized…”. The functions which the second
respondent was to take over from the first respondent in terms of that agreement are set
out in the agreement.
[35] First and second respondents thus concluded an agreement in terms of which
second respondent was to take over certain functions previously performed by the first
respondent with effect from the 1 st September 2002. I am satisfied that the functions
which second respondent undertook to perform in terms of their agreement fell within the
ambit of “service” as contemplated by section 197 of the Act and that this was an
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agreement to transfer a service within the ambit of section 197 of the Act as a going
concern. Accordingly, the agreement was an agreement that, upon implementation,
would have attracted the application of sec 197 of the Act. If the agreement was
implemented, the contracts of employment of the relevant employees would have been
transferred from the first respondent to the second respondent.
[36] The question that arises is whether the agreement was implemented. The
agreement was to be implemented on the 1 st September 2002. The appellants’ urgent
application was launched in the Labour Court on 23 August 2002, that is eight days
before the date on which date the agreement was going to be implemented if everything
went according to plan. Appellants did not supplement their papers prior to the hearing
before the Court a quo to give evidence of whether the plan to implement the agreement
on 1 September materialised . They could have sought and obtained the leave of the
Court a quo to supplement their papers. They did not do so. Accordingly, there is no
evidence on the record to show that the agreement was implemented on the 1 st
September. In the absence of such evidence, I cannot make a finding that the agreement
was implemented on the 1 st September 2002. Anything might have happened between
the launching of the application on 23 August and the intended day of implementation
which might have led to the agreement no longer being implemented. I cannot speculate
on the issue. There being no evidence whether the agreement was implemented on the
1st September, I cannot make a finding that there was a transfer of business or service
as a going concern from the first respondent to the second respondent on the 1 st
September 2002. If I cannot make a finding that there was such a transfer of business or
September 2002. If I cannot make a finding that there was such a transfer of business or
service as a going concern, equally I cannot make a finding that the contracts of
employment of the relevant employees were transferred on the 1 st September 2002 from
the first respondent to the second respondent. In these circumstances I am unable to find
that any contracts of employment of employees were transferred from the first respondent
to the second respondent on the 1 st September 2002. I now turn to deal with the same
issue but now in relation to the first and third respondents.
Was there an outsourcing agreement between the first and third respondents and,
if so, was the relevant service transferred from the first respondent to the third
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respondent as a going concern?
[37] Essential to the finding of Landman J was the conclusion that no contract had
been concluded between first and third respondents at the time that appellants launched
their application. The question which thus requires determination concerns this particular
finding, namely, whether first and third respondents had concluded an outsourcing
agreement.
[38] In a letter addressed to Mr W Machaka in the Control Room of the first
respondent dated the 21 st June 2002 bearing the heading: “ Outsourcing of noncore
functions”, Mr Wehmeyer said on behalf of first respondent:
“Management has, as indicated to you, no option but to outsource the security
function in the business as this is not a core function of the business. The function will
be outsourced in terms of Section 197 of the Labour Relations Act to Capital Air Security
(Pty) Ltd with effect from 1 August 2002.
You will therefore be required to enter into new employment contracts with Capital
Air Security Service (Pty) Ltd as from that date. Should you not find the alternative
employment suitable, we will be forced and have no alternative but to enter into
retrenchment procedures in terms of Section 189 of the Labour Relations Act.
I trust that you will consider the alternative employment and that we can reach an
amicable agreement.”
The reference in the extract to Capital Air Security (Pty) Ltd is a reference to third
respondent.
[39] In a letter addressed to first appellant on the 25 th June 2002, Mr Wehmeyer said
that he had made it ‘abundantly clear that we want to outsource the noncore activities in
the business as it makes business sense to do so.’ He said that the affected staff
members had been informed that they would have an opportunity to accept or reject the
members had been informed that they would have an opportunity to accept or reject the
offer of alternative employment. He said further that the intention was that the
outsourcing would take effect in respect of security, garden services and cleaning from
the 1 st July 2002. This date was later altered to the 1 st September 2002. In its letters of
the 1 st August 2002 to the affected employees informing them of their dismissal, first
respondent advised the employees that, should they wish to be ‘reemployed, you are
requested to approach the company taking over the services for a position. Should the
company require your services prior to 31 August 2002, Rand Airport will allow you to
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take up such employment without any reductions to the pay set out herein above.’
[40] In that same letter of 1 st August 2002 to the appellants’ attorneys, Rand Airport –
of which the first respondent seems to be a subsidiary – wrote through Mr Wehmeyer as
follows:
“The aspect of outsourcing was at all stages an option that was discussed between
the parties as an alternative to retrenchment. The sections involved are security, what is
known as the ‘control room and garden services which forms (sic) part of the
maintenance department.
On the 21 st June 2002, Rand Airport indicated that it intend (sic) to outsource in
terms of section 197. SAMWU choose (sic) only to respond on the 18 th July 2002 and
apposed (sic) the attended (sic) outsourcing. On 30 July 2002 SAMWU threatened Rand
Airport with an urgent application if it intended to proceed with the outsourcing.
Pursuant thereto Rand Airport, having no alternative, decided to terminate the
affected staff services .”
Later in the same letter Mr Wehmeyer wrote: “ Should any of the effected (sic) staff
wish to be employed after 31 August 2002 they are to without fail to approach [the third
respondent] who successfully tendered to provide the security services and Turnkey
Facilities Management (i.e. the second respondent) who was successful in tendering for
the Garden Services. ”
[41] In that same letter of the 1 st August 2002 to the appellants’ attorneys Rand Airport
also said that, prior to the union “ objecting in the manner they did, Rand Airport
considered it in the interest of the employees to outsource .” Mr Wehmeyer went on
to say in that letter: “ At that point in time [the third respondent] were still fully
prepared to enter into an outsourcing agreement with [the first respondent].
Pursuant to the stance taken by [first appellant], [the third respondent], nor (sic)
Pursuant to the stance taken by [first appellant], [the third respondent], nor (sic)
Rand Airport, wish to enter into an outsourcing arrangement/agreement ”. In the next
paragraph of the letter, Mr Wehmeyer then said: “ In these circumstances, the
employees are not to be transferred to [the third respondent] or any other
organization.” Rand Airport intends to terminate services which it attempted to avoid
through negotiations with [the first appellant] since April 2002” (underlining supplied). It
would, therefore, seem from that letter of the first respondent that both the first and the
third respondents were no longer willing to proceed with the outsourcing plans in the light
of the stance taken by first appellant to the whole matter. I might add that nowhere was it
said in the papers that second respondent adopted the same attitude as the third
respondent.
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[42] Appellants placed no evidence before this Court to dispute the statement by first
respondent that both it and the third respondent changed their mind about the
outsourcing plans when they realized first appellant’s stance towards outsourcing.
Admittedly, while in one part of its letter of 1 st August 2002 to appellant’s attorneys, first
respondent suggested that both it and third respondent were no longer willing to go
ahead with the outsourcing of some of the first respondent’s functions to third respondent,
it said in another part of the letter that those employees whom it was dismissing who
wanted to be considered for employment by the second and third respondents after the
31st August had to approach those contractors. Later in the letter it expressed its stance
thus in regard to any employee “ wishing to tender their services to [the third
respondent]:” “ Should any union member wish to be employed by Capital Air or
any other organization, they would firstly need to approach such a company and
enter into a new arrangement with them ”. The last sentence of that letter read thus:
“In the light of the fact that Rand Airport intends terminating services, section 197
is not applicable …..”.
[ 43] The ambiguity in third respondent’s conduct notwithstanding, there is no doubt that
even as late as the 22 nd August 2002 which was a week before the 1 st September
there were strong indications that first and third respondents had not abandoned plans for
third respondent to take over certain functions from the first respondent. However, this
does not remove the hurdle in appellants’ way, namely, that there is no evidence to show
that an agreement was concluded between first and third respondents and the specific
statement by the first respondent that, before the launching of the application in this
matter, it and the third respondent had decided not to proceed with their plans in the light
of the stance taken by the first appellant towards outsourcing which statement the
appellants never challenged.
[44] On the papers before the Court I am unable to conclude that as at the time when
the appellants launched the urgent application which led to these proceedings, any agreement
had been concluded between the first respondent and the third respondent in terms of which the
third respondent would take over certain functions from the first respondent. If I were to say that
such an agreement had been concluded, I would not be able to spell out what its terms and
conditions were including the duration of the agreement, the fee that the first respondent would
pay to the third respondent for the performance of such functions, etc. With regard to the
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second respondent all such matters were dealt with in the signed agreement. From the fact that
a draft agreement that was to be signed on behalf of the first and third respondents was
annexed to the papers albeit unsigned, an inference can be drawn that the parties intended to
have a written agreement. That document had not been signed at the time that the appellants
launched the urgent application. The appellants, being the party that alleged the existence of an
agreement, should have provided evidence of what the terms and conditions were of such
agreement. They failed to do so and, in the absence of evidence of such terms, I am unable to
uphold their contention that the first and third respondents had concluded an agreement. In my
view the fact that a tender had been awarded is not sufficient to found an agreement because,
quite clearly, the parties intended to conclude a written agreement that would spell out their
respective rights and obligations. They prepared a draft of such agreement but had not as yet
signed it when these proceedings were instituted. The result hereof is that I cannot conclude
that the two parties did conclude an outsourcing agreement.
[45] The conclusion that no outsourcing agreement had been concluded between the
first and third respondents at the time of the launching of the urgent application has the result
that there could not be any transfer of business or service as a going concern between the two
parties in the absence of such an agreement. Accordingly, there could also not be any transfer
of contracts of employment of employees from the first respondent to the third respondent.
[46] In the light of all of the above I am unable to grant the order that the appellants
sought in this matter but can only grant a differently formulated order. As to costs I am of the
view that it would accord with the requirements of law and fairness if I made no order as to
costs.
[47] In the result I make the following order:
costs.
[47] In the result I make the following order:
1. The written agreement concluded between the first and second respondents which
was annexed to the papers in this matter is an agreement to which upon implementation sec
197 of the Labour Relations Act, 1995 would apply.
2. The draft agreement which was prepared for signing by the first and third
respondents which was annexed to the papers in this matter is an agreement to which sec 197
of the Labour Relations Act, 1995 would apply if signed and implemented.
3. There is to be no order as to costs.
Davis AJA
I agree.
Zondo JP
I agree.
Jafta AJA
Appearances:
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For the appellants: Adv. T.J. Bruinders SC
Instructed by: Cheadle Thompson & Haysom
For the respondent: Adv P Pauw SC
Instructed by : Marting Hening Attorneys
Date of Judgement: 3 December 2004
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