Rural Maintenance (Pty) Limited v Maluti-A-Phofung Local Municipality

JurisdictionSouth Africa
JudgeMogeong CJ and Moseneke DCJ and Bosielo AJ and Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mhlantla J, Nkabinde J and Zondo J
Judgment Date01 November 2016
Docket NumberCCT 214/15
CourtConstitutional Court
Hearing Date03 May 2016
Citation2016 JDR 2033 (CC)

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring):

Introduction

[1]

This is an application for leave to appeal against an order by the Labour Appeal Court, upholding an appeal to it from the Labour Court. The dispute between the parties concerned the question whether there had been a transfer of business by the applicants (Rural) to the respondent (Municipality) in terms of section 197 of the Labour Relations Act (LRA). [1] The Labour Court held that there had been a transfer, the Labour Appeal Court held that there had not.

[2]

Rural seeks to justify its application for leave to appeal on the basis that the Labour Appeal Court failed to apply the proper test for considering whether there has been a transfer of business under section 197 and effectively crafted and applied a new test. It argues that, in any event, in relation to transfer of a service as a business under the section, this Court should re-assess its jurisprudence in light of new developments in European employment law. In addition, Rural contends that the Labour Appeal Court made factual findings outside the case pleaded by the Municipality and seeks to lead further evidence on appeal.

2016 JDR 2033 p3

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring)

[3]

None of these contentions withstand scrutiny. In order to understand why, one has to look at the facts as disclosed in the papers, the Labour Appeal Court judgment and the applicable law.

Facts and pleadings

[4]

The Municipality is responsible, in terms of the Constitution [2] and national legislation, [3] for the provision of services to its residents, including the supply of electricity. It appears that it allowed its electricity services to fall into disrepair. In 2011 its then municipal manager entered into an Electricity Management Contract (EMC) with Rural to manage, operate, administer, maintain and expand the municipal electricity distribution network for a period of 25 years, after which the obligation to supply electricity to residents would revert to the Municipality. In terms of the EMC 16 employees were transferred under section 197 of the LRA by the Municipality to Rural.

[5]

Rural started its performance under the provisions of the EMC on 1 September 2011. It expanded the workforce to 127 employees and incurred significant expenditure on the purchase of network materials, specialised vehicles, the compiling and recordal of details of the Municipality's electrical distribution infrastructure, the mapping of townships within the Municipality's geographical area, and software systems in relation to the provision of the electrical services. It also purchased immovable property for offices and staff accommodation. This all cost in the region of R96 million.

[6]

In August 2013 the Municipality informed Rural that it considered the EMC to be null and void because the erstwhile municipal manager did not have the requisite authority to conclude the EMC with Rural. The latter disputed this and contended that

2016 JDR 2033 p4

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring)

this conduct amounted to a repudiation of the Municipality's obligations under the EMC, entitling it to cancel the agreement. This contractual dispute was, and apparently still is, pending in the Free State High Court.

[7]

Despite the pending action in the High Court, Rural provided the Municipality with information about the identities of the 127 employees, their employment contracts and organisational structure in the beginning of October 2014. It also handed over what it termed the "possession of the Network and the Capital Assets". [4] It proposed an agreement of the transfer of the 127 employees under section 197 of the LRA to the Municipality. The Municipality refused.

[8]

Rural then sought relief in the Labour Court for an order declaring that there had been a transfer of business as a going concern by it to the Municipality and that, hence, the employment contracts of the 127 employees should be transferred to the Municipality. The Labour Court granted the relief, but the Labour Appeal Court overturned that decision.

[9]

The application was brought in motion proceedings and the affidavits filed thus served as both pleadings and evidence. [5] The case advanced on behalf of Rural in the founding affidavit was based on its acceptance of the Municipality's alleged repudiation of the EMC and the resultant cancellation of the EMC. Rural averred, however, that the legal cause of the transfer was not relevant, because that issue was pending in the High Court. It stated that factually the entire electricity distribution infrastructure of the Municipality that Rural utilised, maintained, upgraded and was in control of, was handed back to the Municipality. This, it contended, amounted to the transfer of the business as a going concern in terms of section 197 of the LRA.

2016 JDR 2033 p5

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring)

[10]

The Municipality disputed both the causa (legal cause) for the transfer, as well as the extent of the factual handing over. In regard to the former it contended that because the EMC was null and void from the outset, all that had to be effected was to restore the parties to their position prior to the conclusion and implementation of the EMC. That meant a transfer back of the employment obligations of only the 16 persons employed by the Municipality originally, not the transfer of all 127 persons employed by Rural.

[11]

At a factual level the Municipality also disputed that Rural's business was transferred to it as a going concern. The answering affidavit deposed to by the municipal manager stated:

"Rural grew the business after it was transferred to them. On their own version they invested large sums of money in making the business bigger, better, more efficient and ultimately more profitable. We know that they employed more than 100 additional people. However, they would have bought computers (hardware and software), stationery, office equipment, implemented systems (such as a debt collection system), vehicles and other related equipment needed to operate their business as they were conducting it. I can categorically state that since the contract 'fell through' Rural has not transferred their business to us as a 'going concern'. At best we have received an obligation to provide electricity to the residents but we never received their computers, systems, stationery, vehicles, equipment etc. We also have not received their debtor's book. I have not, to date, received an inventory of Rural's business. Thus its business was not transferred to us as a going concern. The meaning of 'going concern' is specific and argument on this will be presented to the court. I understand this to be a threshold requirement for the trigger of section 197." (Emphasis in original.)

[12]

Similar statements are made elsewhere:

"I deny that Rural has done enough in its papers to lay a factual foundation that demonstrates that it did transfer its business to the Municipality as a going concern. Further argument on this point will be advanced at the hearing."

2016 JDR 2033 p6

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring)

Towards the end of the affidavit the following summary appears:

"Noticeably absent from these paragraphs (in which Rural allege that they transferred their business as a going concern to us) is an itemized inventory of exactly what their business was. One would expect that an allegation of a business being transferred as a going concern would explain what the business was (assets, liabilities, etc). The founding affidavit does not do this. The founding affidavit does not even explain to us what Rural's 'business' entailed. The meaning of 'a business as a going concern' has a very specific meaning in mercantile parlance. The founding affidavit, in my submission, fails to describe Rural's business and what it would mean for it to qualify as a going concern. For example, I presume that Rural were operating from offices that were either owned by them or leased by them. I assume that Rural had assets which may have included motor vehicles, computers, laptops, cellphones, office furniture, tools, and other equipment needed to carry out its operation. I would also assume that Rural's business had both creditors and debtors. I assume it had intellectual property too. None of these aspects that one would ordinarily find in an inventory of a business being transferred as a 'going concern' are apparent from these papers. None of these aspects were factually transferred to the Municipality either. We do not have any of their assets, we do not have their motor vehicles, cellphones, computers, laptops, equipment, etc. Their contracts have not been ceded to us nor have their debtor's books. This, I respectfully submit, translates into the only inference that their business was not transferred to us as a going concern." (Emphasis in original.)

[13]

In reply Rural deals with the Municipality's contention that the business had not been transferred to it as a going concern, in particular the allegation that certain assets had been retained by Rural as follows:

"[T]he business comprises, in essence, the infrastructure for the provision of electricity services and the employees dedicated to that business. Handing over of peripheral assets such as software, vehicles and stationery are not essential for the transaction to constitute one in terms of section 197 of the LRA. The transfer of the business did not occur in a vacuum but in the de facto implementation of the Agreement whether the Agreement is valid or void. The Agreement did not

2016 JDR 2033 p7

Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde...

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