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Of interest to other judges

 

The Labour Court of South Africa,

Held at Johannesburg

 

Case no: J1429/2017

 

In the matter between:

 

LEANNE JAMIE                                                                  First Applicant

 

MICHELLE VARNER                                                           Second Applicant

 

and                                                                           

 

ELLIS PARK STADIUM (PTY) LTD                                    First Respondent

 

GOLDEN LIONS RUGBY UNION (PTY) LTD                    Second Respondent

                                                                                  

Date of Hearing: 18 March 2020

 

Date of Judgment:  This judgment was handed down electronically by circulation to the parties’ legal representatives by email, publication on the Labour Court website and release to SAFLII. The date and time for hand-down is deemed to be 10h00 on 23 July 2020.

 

Summary: (Application to hold associated entities liable for judgment debt – whether debt enforceable against first respondent by virtue of s 197 transfer – whether debt enforceable against respondents by virtue of piercing the corporate veil – s 200B of the LRA – failure to join respondents in trial disentitling applicants to rely on s 197 – no merit in claim based on piercing corporate veil - costs)

 

JUDGMENT

 

LAGRANGE J

Introduction

 

[1]          On 29 June 2015, the two applicants in this matter, Ms L Jamie and Ms M Varner (‘Jamie’ and ‘Varner’), succeeded in obtaining a favourable judgment[1] in their claim that their ostensible retrenchment by Ellis Park World Of Sport [Pty] Ltd (‘EPWOS’) was an automatically unfair dismissal relating to grievances they had made. They were awarded maximum compensation of twenty-four months’ remuneration. 

[2]          When the sheriff attached supposed assets of EPWOS in execution of the judgment, the attachment was met with an interpleader by the first respondent in this application (‘EPS’) claiming that the said assets belonged to it. For reasons which are unclear that application was never heard.

[3]          In this application the applicants seek an order:

3.1   declaring EPS liable for the payments due to them in terms of the judgment, by virtue of the operation of section 197 of the Labour Relations act, 66 of 1995 [’ the LRA’];

3.2   piercing the corporate veil of the first and second respondents, directing that they be held jointly and severally liable for the payments due to the applicants in terms of the judgment;

3.3   awarding payment of interest on the amounts awarded under the judgment to the applicants, and

3.4   awarding costs in the event of the application being opposed.

[4]          In their founding affidavit the applicants are candid about their predicament, namely that they had obtained judgment against EPWOS which seemed to have no assets and was in the process of being deregistered, whereas the business it conducted was transferred to the second respondent (‘GLRU’), which runs a single organization in tandem with EPS.

[5]          EPS and GLRU oppose the application. They also raised an in limine point against both principal forms of relief sought, namely that the judgment against EPWOS is raised res judicata and cannot be pleaded against them as they were not parties to the original proceedings.

[6]          When the matter was argued, the applicants raised an additional issue, which was not pleaded in their founding papers or even in their counsel’s heads of argument. The applicants seek in addition to rely on s 200B of the Labour Relations Act, 66 of 1995 (‘the LRA’), which states:

‘(1) For the purposes of this Act and any other employment law, “employer” includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to directly or indirectly defeat the purposes of this Act or any other employment law.

(2) if more than one person is held to be the employer of an employee in terms of subsection (1), those persons are jointly and severally liable for any failure to comply with the obligations of an employer in terms of this Act or any other employment law.’

[7]          Because the respondents had no forewarning of this issue but to ensure any issue that might deserve consideration was not neglected, the court agreed to allow the applicants to make supplementary submissions relating to s 200B, without deciding if the court was obliged to consider the effect of that section given that it had not been pleaded. The court also gave the parties an opportunity to consider an academic paper entitled ‘Piercing the Corporate Veil in a Holding / Subsidiary Relationship’ [2]and make any supplementary submissions arising therefrom. Consequently, all parties filed supplementary heads of argument.

In limine objection

[8]          During the trial, EPWOS’s main witness, Mr de Klerk testified that:

8.1   The three entities fell under the GLRU, of which he was the president at the time, and he could speak on behalf of all of them.

8.2   As the chairperson of the GLRU and EPS, his powers superseded that of the CEO of EPWOS.

8.3   EPS was the trading arm of GLRU.

8.4   EPWOS had three shareholders, one of which was GLRU, and GLRU directors sat on the EPWOS board.

8.5   There was an interlinkage between the three entities.

8.6   GLRU took over the business of EPWOS when EPWOS was shut down.

8.7   The retrenchment notice issued to the applicants stated that EPWOS could no longer survive financially as an entity on its own and EPWOS and GLRU would be joined in a single management unit to ensure continuous service delivery for the functions that would continue.

[9]          In their founding affidavit, the applicants comment that the retrenchment made ‘more sense’ when de Klerk testified at the trial and the existence of a business transfer emerged during the trial.

[10]       The applicants also note that the court concluded that:

‘Given the manner in which De Klerk interviewed the entities, essentially as being interrelated and separate only on paper, it seems as if he saw no problem with the ultimate suggestion that the GLRU simply take over the functions of similar staff employed by EPWOS. This would explain why the ground staff of EPWOS were not retrenched as there was no duplication of services.

What has emerged from the evidence is that the business of EPWOS was transferred to the GLRU and as a result of that transfer Jamie and Varner were told that they were retrenched.’

[11]       From the applicants’ own account, it is clear that they claim that the alleged transfer of the business had already occurred by the time evidence was heard at the trial. This should have alerted them at that time to the fact that any claim arising against EPWOS (the ‘old’ employer) might have to be enforced against GLRU (the ‘new’ employer). They do not explain why, despite apprehending the existence of an alleged transfer, they did not seek leave to join GLRU as a party to the proceedings, by way of an application to amend their statement of case.

[12]       The applicants rely on the LAC decisions in Success Panel Beaters & Service Centre CC v NUMSA [2000] 6 BLLR 635 [LAC] and Transport Fleet Maintenance (Pty) Ltd v NUMSA & Others [2003] 10 BLLR 975 (LAC) to argue that the decision of the court against EPWOS is enforceable against GLRU by virtue of section 197 (2)(a) of the LRA. The respondents, by contrast, rely on the decision in Ngema v Screenex Wire Weaving Manufacturers (Pty) Ltd (2013) 34 ILJ 1470 (LAC) to argue that GLRU should have been joined in the proceedings against EPWOS.

[13]       The pertinent provisions of s 197 are:

(2) If a transfer of a business takes place, unless otherwise agreed in terms of subsection (6)—

(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;…

 

[14]       In Success Panelbeaters the new employer was aware of Industrial Court proceedings and was found to have waived its right to be joined as respondent with the old employer, on the basis it had been indemnified by the old employer against such a claim.[3] In Transport Fleet Management the only issue on appeal was whether section 197(2)(a) applied to employees who had already been dismissed by the old employer at the time of the transfer of the business.[4] In Screenex the need for joinder of the new employer was found to be necessary in circumstances where the transfer had taken place by the time the unfairness of the dismissals had been decided and only the issue of the appropriate remedy was the subject matter of an appeal. 

[15]       In the light of those authorities it appears to me that the requirement that the respondents should have been joined before judgement was handed down is as apposite in this case as it was in Screenex and, on that basis, the court cannot simply substitute the EPS as the party liable for the judgment debt of EPWOS by virtue of the operation of s 197. Consequently, the in limine objection relating to the relief sought under that provision must be upheld.

Can the court pierce the corporate veil and hold EPS and, or alternatively GLRU liable for the judgement debt against EPWOS?

[16]       On the evidence referred to it does seem as if the three entities were effectively operating as collaborating entities in a single enterprise.  The allegation was not made that they were joint employers, which conceivably could have been a matter raised at the trial by way of an amended statement of case. Assuming in the applicants’ favour that it was not necessary to have joined the respondents in the trial proceedings before seeking to hold them liable for the judgment debt, the merits of the claim based on piercing the corporate veil will be considered.

[17]       In their main heads of argument, the applicants cited at length an extract from the labour court judgment in Goldfinch Garments CC and another v Sheriff of the Court – Newcastle and another [2017] JOL 37260 (LC). In that matter the Sheriff had attached the goods of the first applicant in execution of a consent award against the second applicant in favour of the second respondent (‘the bargaining council’). The first applicant claimed that the goods attached and removed belonged to it. Ultimately the matter proceeded as an interpleader application.  The bargaining council resisted the application and further contended that the court should pierce the corporate veil and find the first applicant jointly liable to comply with the arbitration award.

[18]       After hearing evidence, the court concluded that the creation of the second applicant as a legal entity distinct from the first applicant was no more than "a scheme designed to assist the business operated by the first and or second applicants to avoid its legal obligations towards its employees and the second respondent, in fraudem legis”, and that lifting the corporate veil was justified.[5] The court also found, albeit obiter, that to all intents and purposes the first and second applicants are jointly and severally liable as the employers of the employees employed by both entities.[6]

[19]       What the applicants in this matter emphasise is that the judgment affirmed the following dictum in Airport Cold Storage (Pty) Ltd V Ebrahim and Others 2008 (2) SA 303 (C)[7]:

[12] The starting point is that veil piercing will be employed 'only where special circumstances exist indicating that it [i.e. the company or close corporation] is a mere façade concealing the true facts'. Fraud will obviously be such a special circumstance, but it is not essential. In certain circumstances the corporate veil will also be pierced 'where the controlling shareholders do not treat the company as a separate entity, but instead treat it as their ''alter ego'' or ''instrumentality'' to promote their private, extra-corporate interests':

   Although the form is that of a separate entity carrying on business to promote its stated objects, in truth the company is a mere instrumentality or business conduit for promoting, not its own business or affairs, but those of its controlling shareholders. For all practical purposes the two concerns are in truth one. In these cases, there is usually no intention to defraud although there is always abuse of the company's separate existence (an attempt to obtain the advantages of the separate personality of the company without in fact treating it as a separate entity).’

(emphasis added).

[20]       In Airport Cold Storage the court found the following factors relevant in determining if there had been gross abuse of the close corporation's separate legal personality, which led it to conclude that the defendants had conducted the business of the corporation recklessly: (i) the close corporation  formed part of a conglomerate of associated family businesses that were conducted with scant regard for the separate legal personalities of the entities concerned; (ii) the close corporation did not keep proper books of account; (iii) the close corporation operated without having appointed an accounting officer from the date on which it commenced trading to the date of its provisional winding up, namely for a period of more than six months; (iv) the close corporation was  incorporated for the specific purpose of taking over another of the family's businesses so as to avoid the liquidation of the business and the personal consequences for the defendants of liquidation of the business, with the objects of defrauding the business's creditors and facilitating the continued trading of the insolvent business; (v) the close corporation voluntarily assumed a debt owing by the family business it took over to the plaintiff, with the result that the close  corporation was incapable of trading profitably and of meeting its financial commitments to its major supplier as and when they fell due.[8]

[21]       What is lacking in this case by contrast is an analogous factual basis for contending that EPWOS was a mere sham to conceal the actions and interests of EPS and, or alternatively GLRU. The mere fact that the three entities acted in a closely collaborative way under the direction of De Klerk is not sufficient to lay a foundation of abuse of corporate personality. In Goldfinch Garments there was also clear evidence that one of the corporate entities had no raison d’etre other than to effectively escape liability and had been created for that purpose.

[22]       Quite apart from this, EPWOS was not a wholly owned subsidiary of GLRU.  It held 49.9% of the shares and the remaining slender majority of shares were held by Orlando Pirates and an ENZA. There was no evidence to suggest the majority shareholders were party to EPWOS being used as a front for GLRU.

[23]       In conclusion, I am satisfied the applicants have failed to lay an alternative basis for either of the respondents’ liability for the judgment debt based on piercing the corporate veil.

Section 200B of the LRA

[24]       Firstly, the applicants should have pleaded this an alternative cause of action and not simply raised it in argument on the day of the hearing. Secondly, insofar as the section might have assisted the applicants it also ought to have been raised at the trial as a basis for joining the respondents as employer parties in the matter. The section does not obviate the need to join legally interested parties who may be adversely affected by a judgment.

Costs

[25]       Ordinarily, I would be inclined to order costs against the applicants.  However, through no fault of their own they have been deprived of the fruits of a wholly favourable judgment and, but for the failure to have successfully joined the respondents in the trial, might have been able to enforce payment of the judgment debt. It would not be appropriate to make an adverse cost award in the circumstances.

Order

[26]       The in limine objection to the applicant’s claim based on s 197 of the Labour Relations Act, 66 of 1995 is upheld.

[27]       The application is dismissed.

[28]       No order is made as to costs.

 

Lagrange J

Judge of the Labour Court of South Africa

 

 

APPEARANCES -                                                

For the Applicant:                                                M A Lennox instructed by HSP Attorneys

For the Respondents:                                                 B D Stevens instructed by

                                                                                      Gideon Van Den Berg Inc.

 

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