Eagle Liner Transport (Pty) Ltd v Katiso Transport and Logistics CC and Others (J 856/21) [2022] ZALCJHB 71; (2022) 43 ILJ 1674 (LC) (5 April 2022)

THE LABOUR COURT OF SOUTH AFRICA

(HELD AT JOHANNESBURG)

Of interest to other Judges

CASE NO: J 856/21

In the matter between

EAGLE LINER TRANSPORT (PTY) LTD

Applicant

And

KATISO TRANSPORT AND LOGISTICS CC First

Respondent

GHALIB ISMAIL

Second

Respondent

THE SOUTH AFRICAN ROAD PASSENGER Third

Respondent

BARGAINING COUNCIL

THE INDIVIDUALS LISTED IN ANNEXURE “A” TO Fourth

to Further

THE NOTICE OF MOTION

Respondents

JUDGMENT

VAN NIEKERK J

Introduction

[1] The applicant (Eagle Liner) provides passenger transport services by bus. Until December 2021, the service extended to a local inter-provincial travel service, and a cross-border travel service between South Africa and Zimbabwe.

[2] On 10 December 2021 the beneficial shareholders in Eagle Liner, Bhayla, Paruk and Ismail, agreed to dissolve what they described as their ‘quasi partnership’. Specifically, they agreed that Bhayla and Paruk would purchase Ismail’s beneficial share interest in Eagle Liner for a consideration of R2 million in cash, and 13 busses and trailers that until then had been utilised in the course of Eagle Liner’s business. The parties also agreed that Ismail would retain as his sole and exclusive property certain transport operating licences and permits issued in the name of the first respondent (Katiso), which until then had been made available to Eagle Liner to conduct its cross-border operations. Neither Eagle

Liner nor Katiso are parties to the agreement. The agreement also makes no reference to any consequences that it might hold for any of Eagle Liner’s employees.

[3] Some three weeks prior to the conclusion of the agreement, on 5 November 2021, 88 employees (the fourth and further respondents in these proceedings) referred a dispute to the CCMA, citing “Eagleliner Pvt Ltd & its illegal various names” as their employer. The terms of the dispute are not a model of clarity, but the employees’ complaint appears to be that the cross-border services were terminated without notice to them, and that they were not given an ‘official letter’ advising them of that fact. The outcome sought is payment of a ‘retrenchment package’, a ‘service package’ all outstanding leave days and ‘all provident funds’. The dispute was referred to arbitration. Eagle Liner sought and obtained the joinder of Katiso to the dispute. The arbitration proceedings remain pending, with Eagle Liner and Katiso and both disputing that they were the employer of the employees; each party contending that the other was the employer. The employees aver that they were employed by Eagle Liner and that they were unaware of any internal arrangements between Eagle Liner and Katiso and Ismail relating to their employment.

[4] Eagle Liner seeks a declaratory order in the following terms:

It is declared that to the extent that the Fourth and Further Respondents were employees of the Applicant, their employment has

transferred to the First Respondent, alternatively, to the Second Respondent, in terms of section 197 of the Labour Relations Act, 66 of 1995, with effect from the implementation of the agreement dated 10 December 2020 pursuant to which the First and/or Second Respondents acquired the cross-border services business as a going concern.

[5] The qualified wording of the order sought reflects Eagle Liner’s contention in the arbitration proceedings that it was not the employer of the employees, and further excludes the necessity for this Court to determine that issue. Whether any employees were employed (or dismissed) by Eagle Liner is not an issue before this Court – it is squarely in issue at the pending arbitration. What Eagle Liner seeks is an order to the effect that by virtue of the application of section 197, at least with effect from 10 December 2021, the agreement signed on that date triggered the application of section 197 in respect of the employment contracts of any of fourth to further respondents who may be found to have been employed and dismissed by Eagle Liner.

Factual background

[6] The material facts are largely a matter of common cause. In 2005, Paruk and Bhayla purchased an interest in Liner Eagle CC (“LECC”). During or about 2006, LECC acquired the assets of Lux-Liner comprising four busses and certain local operating licenses. These were transferred to Cream Magenta 326 (Pty) Ltd (“Cream Magenta”). Ismail, Paruk and Bhayla held shares in this entity. Ismail was also the sole member of Katiso. In 2006, Ismail obtained cross-border operating licences, for which he had applied in the name of Katiso. These licenses are required in order to conduct cross-border services.

[7] During or about 2006, cross-border services were rendered using Katiso’s cross-border licences and two busses provided by LECC. The service was initially limited to the Johannesburg – Harare route. The cross-border service expanded. In total, 102 operating licences were obtained – all in the name of Katiso. During or about 2007, the branding of the service changed to “Eagle Liner” with approximately 40 to 60 busses used to service the cross-border route. Simultaneously, inter-provincial travel in South Africa was also provided, a part of the business not dependent on the use the cross-border operating licences.

[8] With effect from 1 December 2016, LECC and Cream Magenta sold their operations to Eagle Liner – a new legal entity registered for this purpose. The day-to-day operations continued, including the cross-border service. The essential components of the cross-border service were the cross-border operating licences (issued in Katiso’s name) and the buses and trailers used for this purpose, owned by Eagle Liner.

[9] Ismail held a 24% beneficial interest in the shares of Eagle Liner; Bhayla and Paruk held 38% each of the remaining shares. In 2019, a dispute arose between Bhayla and Ismail. It was ultimately agreed that Ismail would exit from Eagle Liner. On 10 December 2020, the agreement referred to above was concluded between Ismail, Paruk and Bhayla. The terms of the agreement, more fully expressed, were that the ‘quasi-partnership’ was dissolved; Ismail relinquished his right, title and interest to the 24% beneficial interest that he held in Eagle Liner ‘in full and final settlement’; Ismail took transfer of buses and trailers that were used to undertake the cross-border service as identified in the agreement; Paruk and Bhayla would pay Ismail the amount of R2 million; Paruk and Bhayla agreed to transfer to Ismail their right, title and interest

in Eagle Liner Zimbabwe (Pty) Ltd – an entity that undertakes passenger services in Zimbabwe; Ismail would be entitled to retain as his sole and exclusive property the cross-border operating licences used to conduct the cross-border service; and Ismail would be entitled to take transfer and ownership of two motor vehicles which he utilised.

[10] The agreement does not provide, expressly or impliedly, for the transfer of the cross-border service to Ismail or Katiso. Having said that, the agreement is clearly structured to enable Ismail to conduct the cross-border service independently of Eagle Liner, on account of his retention of the cross-border licences and acquisition of the buses and trailers. Subsequently, and in keeping with the agreement, Ismail and/or Katiso has been rendering the cross-border service, which he describes as a charter service.

The applicable legal principles

[11] The requirements for a declaratory order are well-established. Section 21 (1) (c) of the Superior Courts Act provides that a High Court may, in its discretion, and at the instance of any interested person, inquire into and determine any existing, future or contingent right or obligation, even if that person cannot claim any relief consequential on the determination. In Proxi Smart Services (Pty) Ltd v The Law Society of South Africa & others (case number 74313/16, High Court, Pretoria, Gauteng 16 May 2018), the court said the following (footnotes omitted):

The correct approach to section 21 (1) (c) the wording of which is similar to the erstwhile power conferred on the court under section

19 (1) (a) (iii) of the now repealed Supreme Court Act 59 of 1959 was summed up by Corbett CJ in Shoba v OC, Temporary Police Camp, Wagendrift Dam as follows:

‘An existing or concrete dispute between parties is not a prerequisite for the exercise by the court of its jurisdiction under this

subsection, though the absence of such a dispute may, depending on the circumstances, because the court to refuse to exercise its

jurisdiction in a particular case… But because it is not the function of the Court to act as an adviser, it is a requirement of the exercise of jurisdiction under this subsection that there should be interested parties upon whom the declaratory order would be binding (Nell’s case, at 760B-C). In Nell’s case supra at 759A-B, Steyn CJ referred with approval to the following statement by Watermeyer JA in Durban City Council v Association of Building Societies 1942 AD 27, at 32, with reference to the identically worded s 102 of the General Law Amendment Act 46 of 1935

‘The question whether or not an order should be made under this section has to be: examined in two stages. First, the Court must be satisfied that the applicant is a person interested in an ‘existing, future or contingent right or obligation’, and then, if satisfied on that point, the Court must decide whether the case is a proper one for the exercise of the discretion conferred on it...’.

[70] The Supreme Court of Appeal in Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd, confirmed the two-stage approach adopted by the then Appellate Division in Durban City Council Association of Building Societies 1942 AD 27 at 32 and held that:

“The two-stage approach under the subsection consists of the following. During the first leg of the enquiry, the court must be satisfied that the applicant has an interest in an ‘existing, future or contingent right or obligation’. At this stage, the focus is only upon establishing that the necessary conditions precedent for the exercise of the court’s discretion exists. If the court is satisfied that the existence of such conditions has been proved, it has to exercise the discretion by deciding either to refuse or grant the order sought. The consideration of whether or not to grant the order constitutes the second leg of the enquiry.”

[12] The employment related consequences of the transfer of a business as a going concern are regulated by section 197 of the LRA. Subsections (1) and (2) of section 197 read as follows:

(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) -

(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.

Analysis

[13] Eagle Liner seeks to be cast as the ‘old employer’ for the purposes of what it contends to be the transfer of its cross-border operations to Katiso and/or Ismail. As such, it has a direct and substantial interest in the application of section 197 to any transfer. This is so because, as I have indicated, if it is subsequently held that Eagle Liner was the employer of the employees and that it retrenched them unfairly in November 2021, those dismissals will be considered to have been done by or in relation to Katiso and/or Ismail, who will be liable to the employees for any remedy to which they are found to be entitled. Further, for a period of 12 months after the date of the transfer, in terms of section 197 (8), Eagle Liner would remain jointly and severally liable with Ismail and/or Katiso for a period of 12 months after any transfer for the amounts contemplated in subsection (7) (a), including statutory severance pay. In these circumstances, Eagle Liner has a direct and substantial interest in the application or otherwise of section 197, and thus meets the first threshold for intervention.

[14] The next question is whether the agreement between Bhayla, Paruk and Ismail triggered the application of section 197. In Road Traffic Management Corporation v Tasima (Pty) Ltd; Tasima (Pty) Ltd v Road Traffic Management Corporation (2020) 41 ILJ 2349 (CC), the Constitutional Court confirmed that the application or otherwise of section 197 is in essence a factual enquiry. The judgment also affirms the fundamental purpose underlying section 197 – the variation of the common law consequence of the transfer of a business as a going concern to preserve security of employment and to facilitate the transfer of businesses. Once a transfer of the kind identified by section 197(1) occurs, all contracts of employment that existed immediately before the transfer took place are automatically transferred to the transferor (the ‘new employer’), by operation of law, together with the business. The transferee replaces the transferor as the employer party in terms of the contracts of employment and assumes all obligations of the previous employer. The new employer also acquires the contractual rights of the previous employer.

[15] The requirements for the operation of section 197 are thus that (i) there must be a transfer by the old to the new employer; (ii) what must be transferred is the whole or part of a business (which includes a service); and (iii) the whole or part of a business must be transferred as a going concern. Each of the three requirements that in combination, trigger the application of section 197 have been interpreted by the South African courts, by and large, using the language of the European Court of Justice in the application of the Business Transfers Directive applicable in the European Union. That court has held, in summary, that a transfer must relate to an economic entity (defined to mean an organised grouping of persons and assets facilitating the exercise of an economic activity that pursues a specific objective), and a determination of whether that entity retains its identity after the transfer (see generally Harsco Metals SA (Pty) Ltd & another v ArcelorMittal SA Ltd & others (2012) 33 ILJ 901 (LC); City Power v Grinpal Energy Management Services (Pty) Ltd & others [2014] 10 BLLR 945 (LAC); City Power v Grinpal Energy Management Services (Pty) Ltd & others [2015] 8 BLLR 757 (CC)).

[16] Eagle Liner(Pty) Ltd contends that the cross-border business was sufficiently separate and distinct from the inter-provincial service with dedicated drivers and other personnel assigned to the cross-border service, the essential components of that business being operating licences, routes and busses. This being so, the cross-border service constituted an organised group of persons and assets facilitating the exercise of an economic activity, or put another way, a defined set of activities which represent an identifiable and discrete business undertaking. Katiso, alternatively Ismail, has taken transfer of the cross-border service, and continued that business as a going concern, and section 197 thus applies by operation of law.

[17] Counsel for Katiso and Ismail submitted that section 197 had no application, first, because there was no sale of a business or a service; secondly, because there was no transfer either as a going concern or otherwise; and thirdly, there was no contractual relationship between the employees and Eagle Liner when the alleged transfer took place. Counsel for the fourth to further respondents associated himself with these submissions and contended further that there had been no compliance with sections 197 (6) and (7) and that no employment contracts had transferred, accordingly there was no transfer for the purposes of section197.

[18] I deal with the submissions in reverse order. Section 197 (6) concerns an agreement to vary the consequences that would otherwise follow on the application of section 197. There is no such agreement in the present instance and that section is accordingly of no relevance. Section 197 (7) requires the transferor and transferee employers to agree on a valuation of defined payments to affected employees and to conclude an agreement in terms of which liability for those payments is agreed and apportioned between them. The failure of the employers to conclude such an agreement cannot have the consequence that section 197 does not apply. Whether section 197 has been triggered is an objective question of fact depending on whether the jurisdictional requirements for its application have been met. Once triggered, section 197 applies by operation of law and thus it is independent of whether the parties acknowledged its application or compliance with sections 197(3), (6) and (7).

[19] The submission to the effect that section 197 cannot apply because there were no contracts of employment in existence at the time the agreement was concluded (and thus no transfer was possible by virtue of section 197(2)(a) of the LRA), has no merit. The fact that there may have been no contractual relationship between the employees and Eagle Liner on the date of the alleged transfer on account of a termination of employment by Eagle Liner, is neither here nor there. Section 197 (2) (c) clearly contemplates that any unfair dismissal or unfair labour practice committed by the transferor employer prior to the transfer is for the account of the transferee employer. In other words, the substitution of the transferee employer for the transferor has retrospective effect. Assuming for present purposes that Eagle Liner was the employer of the employees and that it retrenched them

in November 2021, any liability for any breach by Eagle Liner of section 189 became that of Katiso and/or Ismail from the date of any transfer of the business. It is not the existence of contracts of employment on the date of transfer that is in issue; rather, it is the liability of the transferee employer for any unfair dismissal effected by the transferor prior to the transfer.

20] Turning next to the submission that there has been no transfer of a business as a going concern, this is a factual enquiry, to be conducted in the context of the wording of the section itself and the jurisprudence that has developed over some 25 years. In Harsco Metals SA (Pty) Ltd & another v Arcelormittal SA Ltd & others (supra), this court made the following observations regarding the application of section 197:

Section 197 (1) defines a ‘business’ to include ‘the whole or any part of a business, trade or undertaking, or service. The definition is broad, but it requires the court to subject the entity that is the subject of a transfer to scrutiny. In doing so, the courts have drawn on the jurisprudence developed by the European Court of Justice in applying EU Directives on the Transfer of Undertakings, and adopted the concept of an ‘economic entity’, defined as an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective’. This formulation suggests that there may be a distinction, especially in the case of a labour-intensive business, between an ‘economic entity’ and an ‘activity’; the latter comprising only the provision of services under a specific contract.

And further:

The ‘economic entity’ test is more easily applied where a substantial business, with its assets and employees, is the subject of the transfer. At the other end of the spectrum is the business that comprises only the provision of services. In those instances, the ECJ has recognised the requirement laid down in Spijkers to have regard to the transfer of the business's tangible assets may be unrealistic. Businesses engaged in this type of activity may in fact have no assets, or have only assets whose importance is negligible in relation to the overall conduct of their activities.

Hence the caution in Suzen that an entity cannot be reduced to the activity entrusted to it. In the United Kingdom, this problem has been largely resolved by the incorporation of Regulation 3 (1) – (2) of TUPE 2006, and the addition of a ‘service provision change’ within the broader definition of a relevant transfer. In effect, this provides that if immediately before the service provision change, there is an organised grouping of employees which has as its principal purpose the carrying out of activities on behalf of the client and where the client intends that the activities will, following the service provision change, be carried out by the transferee.

[21] There can be little doubt that a business (which, by definition, includes a part of a business and a ‘service’), has been transferred from Eagle Liner to Katiso, alternatively, Ismail, as a going concern. The cross-border service, when operated by Eagle Liner, constituted an economic entity. The essential components of the cross-border service are the cross-border operating licenses, routes and buses and trailers. It constituted an organised grouping of persons and assets facilitating the exercise of an economic activity which pursued a specific objective (i.e. the cross-border transport of persons). It comprised a defined set of activities which represents an identifiable and discrete business undertaking.

[22] Finally, in relation to the submission that section 197 was not triggered in the absence of a sale of a business or service, whether or not section 197 has been triggered is a question of fact which turns only on whether or not the jurisdictional facts required for section 197 to apply, are present (i.e. whether (i) there is a business (including a service); (ii) whether that business has been transferred; and (iii) whether that transfer took place as a going concern). The form of the agreement is irrelevant for purposes of the enquiry. The Labour Court held as long ago as 1999 that a transfer for the purposes of section 197 could occur by virtue of an exchange of assets or a donation (see Schutte v Powerplus Performance (Pty) Ltd (1999) 20 ILJ 655 (LC)). As the Constitutional Court explained in Tasima (supra):

[85] Section 197 requires that there must be a transfer of the business. A transfer entails the movement of the business from one party to another, and is a concept that was intended to be widely construed. A transfer under s 197 can take the form of a myriad of legal transactions, including mergers, takeovers, restructuring within companies, donations and exchanges of assets. In NEHAWU, this court held that the substance rather than the form of the transaction is relevant to the determination of whether a transfer has taken place. The mode of transfer is irrelevant, and it is of no consequence whether there is a contractual link between the transferor and the transferee.

[23] So while it is correct, as counsel for Ismail and Katiso submitted, that the agreement was no more than an arrangement for the sale of Ismail’s beneficial interest in Eagle Liner in which Ismail was paid for his shares partly in cash and in assets, that is not the end of the enquiry. What is in issue is the substance of the transaction. Any transfer of assets, whatever the underlying causa, will ordinarily be a relevant factor in any enquiry into the application or otherwise of section 197. In the present instance, the transfer of the buses and trailers enabled Ismail and/or Katiso to continue the cross-border service, it also having been agreed that Ismail would retain the cross-border operating licences necessary for the conduct of that part of Eagle Liner’s business.

[24] In summary, the facts disclose the transfer of a part of the business, in the form of Eagle Liner’s cross-border operations, as a going concern, for the purposes of section 197. In these circumstances, and given the desirability of a degree of certainty as to the identity of the employer party after implementation of the agreement signed on10 December 2021, in my view, the discretion to be exercised at the second stage of the test applicable to the granting of declaratory orders ought to be exercised in favour of Eagle Liner. Of course, the application of section 197 may require in due course that those employees engaged, primarily at least, in the cross-border component of Eagle Liner’s business be identified. As I indicated at the

outset, these proceedings are not concerned with the determination of the employer of the employees, either pre-or post-transfer. This is a matter that must be determined by an arbitrator in the proceedings pending in the bargaining council.

[25] In so far as costs are concerned, the provisions of section 162 confer a broad discretion on the court to make orders for costs according to the requirements of the law and fairness. The rule that costs follow the result does not apply. These proceedings are no more than a skirmish in a much broader conflict, one in which the employees seek to pursue a legitimately felt grievance against the party whom they perceive as their employer. In these circumstances, and having regard particularly to the fact that the majority of employees are no doubt unemployed and without the means to meet an order for costs, the interests of the law and fairness are best served by each party bearing its own costs.

I make the following order:

1. It is declared that to the extent that the Fourth and Further Respondents were employees of the Applicant, their employment was transferred to the First Respondent, alternatively, the Second Respondent, in terms of section 197 of the Labour Relations Act, 66 of 1995, with effect from the date of the implementation of the agreement dated 10 December 2021, pursuant to which the Applicant’s cross-border services business was transferred as a going concern.

2. There is no order as to costs.

André van Niekerk

Judge of the Labour Court of South Africa

APPEARANCES

For the applicant: Adv L Pillay, instructed by (heads of argument drafted by Adv R Itzkin), instructed by Jajbay Attorneys

For the first and second respondents: Adv K Naidoo, instructed by Mayet Vittee Inc.

For the fourth to further respondents: Adv Dollie, instructed by Kathrada Attorneys