Phillips & 77 Employees of the Ciskei Corporation v Premier,Province of the Eastern Cape and Others (313/1997) [2008] ZAECHC 143 (22 August 2008)

PARTIES :

Appearances:

Instructing attorneys:

IN THE HIGH COURT OF SOUTH AFRICA

CASE NO. 313/1997

[2] When the matter was brought before the Court on 04 August 1997 an order, based on settlement agreement between the applicants and first, second and third respondents was granted. In terms of the settlement agreement the respondents were ordered, inter alia , to pay to the applicants a sum of R34 800 000.00 in respect of severance packages. Such an order then disposed of the relief regarding the salaries of the applicants. In the event the matter now comes before this Court for a final determination of the remaining items of the relief which relate to the payment of pensions and taxes.

The Parties:

[3] The applicants in this application are listed in annexure “A” to the founding affidavit of one Mr Phillips who deposed in the founding affidavit that he acts in this matter for himself as well as on behalf of the co-applicants who have authorised him to do so. Confirmatory affidavits of 50 out of the 77 co-applicants were filed attesting to that effect. Mr Phillips stated further that due to logistic problems the remaining 27 co-applicants could not be able to submit affidavits at the time of bringing of the application confirming that they had authorised him to act on their behalf. It appears from the founding affidavit that from the time of conception of the application, prior to the dissolution, to the time of bringing of the application the co-applicants had returned to their respective homes which were situated in various parts of the rural Transkei-region and elsewhere in the Province of the Eastern Cape. That situation made it difficult for Mr Phillips to reach them by telephone and transport to secure their confirmatory affidavits. The allegation by Mr Phillips in both the founding and replying affidavits that he was duly authorised by 77 co-applicants to prosecute this application on their behalf is not challenged by the respondents in their answering affidavit. Therefore, it must be accepted that he was authorised to bring the application on their behalf and that the application is also that of the remaining applicants. (See: Cekeshe and Others v Premier, Eastern Cape, and Others 1998 (4) SA 56 (Tk) at 93H-I and other cases which are referred to therein).

[4] There were at first four respondents who were cited by the applicants for the relief sought. Those were the Premier of the Province of the Eastern Cape, the MEC for the Department of Agriculture and Land Affairs, Province of the Eastern Cape, the Permanent Secretary, Department of Agriculture and Land Affairs and the Minister of Agriculture and Land Affairs. It was through a subsequent interlocutory application for joiner that the list of respondents was extended to include Mr Xolani Mbangxa, Mr Mzimasa Nkonki and Mr John Edward Stuart Maymark as fifth, sixth and seventh respondents respectively. These three gentlemen had been appointed by the Premier to liquidate the Corporation. They were appointed as joint liquidators. However, at the time when the matter was set down for final hearing these joint liquidators had been excused from the case on the basis that although they were appointed to see to the winding up of the Corporation they were not afforded an opportunity to commence with the liquidation process. Consequently, the relief sought is directed at the remaining respondents only.

[5] Before setting out the facts on which this application is based I should state that the answering affidavit was filed after the settlement order had been granted on 05 August 1997. This affidavit was deposed to by one Mr Zola Gebeda who described himself as the Permanent Secretary to the Department of Agriculture and Land Affairs of the Eastern Cape Provincial Government, the third respondent. It is not stated in the affidavit if he submitted the answering affidavit on behalf of the first, second and fourth respondents. I have noticed that he makes emphasis of the fact that the third respondent was represented by one team of legal representatives on 04 August 2007, when the consent order was granted, which had been engaged by the co- respondents. It must also be stated that whereas the first, second and third respondents filed a notice to oppose the relief sought, the fourth respondent did not. Therefore, I am prepared to assume, as suggested by Mr Ford , that Mr Gebeda deposed to the answering affidavit not only on behalf of the third respondent but also the first and second respondents. Mr Bloem , who appeared for the first, second and third respondents did not object to the suggestion of Mr Ford .

[6] The material facts of this application are common cause. Mr Phillips states in the founding affidavit that the Corporation in which he was employed as the Chief Executive Officer is not before the Court because it was dissolved on 10 July 1997. Nevertheless, he and the co-applicants seek a relief against the respondents because the Corporation was an entity which was created, managed, controlled and ultimately dissolved by the respondents. In support of his statement he refers to the provisions of various sections of the Ciskeian Corporations Act, Act No. 16 of 1981 relating to the establishment of the Corporation by the first respondent, business objects, share holding, funding, auditing of finances, the role of the government in the affairs the Corporation, employment of workers, payment of the employees’ salaries, pensions and taxes as well as the employer’s pension contribution towards the employees’ pension fund, business operations and the dissolution of the Corporation by the third respondent.

[7] Not long after its establishment in 1993 the Corporation was beset by operational problems which plunged its projects into astronomic cost. In response the management saw a need to rationalise the affairs of the Corporation and transform it into an institution that would be better suited to current needs. Since September 1994 the Corporation then conducted investigations aimed at rationalising its activity and operational costs but was verbally instructed by a Mr Mzizi who was then the Strategic Manager of the Department of Agriculture and Land Affairs, under whose control the Corporation fell, that it would not be for the Corporation to manage and carry out necessary restructuring and that it fell to his department to do so. However, the Department did nothing despite numerous requests by the Corporation for it to commence with rationalisation procedure. In the meantime the budgetary allocation was insufficient money to fund operational necessities such as diesel, crop spray, etc. The corporation viewed the inaction on the part of the Department as a prohibition against rationalisation. Consequently on 24 August 1995 the Corporation addressed a letter to the State President requesting him to wind the Corporation up by reason of the lack of funding to maintain ongoing operations. This step triggered an advance by the treasury to alleviate the crisis; but only for a short time. During the course of consultations between the Corporation and the third respondent the first respondent issued the Extraordinary Proclamation winding the Corporation up.

[8] According to Mr Phillips the operational problems that beset the Corporation affected the salaries of its employees. In 1996 the Department appointed a Task Team to investigate the possibility of rationalising the agricultural parastatals of the former Ciskeian and Transkei Governments. The report which was compiled and circulated by the Task Team on the restructuring of the Corporation revealed that retrenchment of workers would be approached on the basis that the severance packages should be calculated in accordance with government policy and that existing retrenchment policy within the Corporation should be ignored. It revealed further that if that proposal met with resistance the Government could, in the alternative, resort to the liquidation of the Corporation. These revelations led the applicants to seek a legal opinion from their attorneys. The legal opinion obtained was that since the Corporation had been adopted by the new South African government they were entitled to protection in terms of section 236 of the Interim Constitution, Act 200 of 1993 and that they would be entitled to be retrenched in accordance with the Corporation’s own terms and conditions. Having been satisfied with the legal opinion the applicants then addressed a letter to the fourth respondent on 17 January 1996 demanding protection of their rights by being paid severance packages, pensions and taxes in accordance with the policies of the Corporation in the event that they were retrenched. This letter is annexure “D” to the founding affidavit. In reply thereto the fourth respondent issued an undertaking that when terminating employment of the applicants every attempt would be made to secure funds to “honour the agreements [the Corporation’s retrenchment policies] in place”. The letter of reply is annexure “E” to the founding affidavit.

[9] On 17 February 1997 the undertaking of the fourth respondent was further adopted by third respondent at a meeting which was held between the attorneys and the representatives for the third respondent and the then MEC for Economic Affairs. The third respondent undertook that the Government would apply the retrenchment procedures of the Corporation and accepted to provide the necessary funds for this purpose. A Committee was later formed by the Corporation and it was charged with the task of calculating the amount of money that would be due to the staff members in respect of retrenchment packages. The Committee which was convened under the chairmanship of one Helena Dolny arrived at an amount of R34 800 000.00. The supporting documents for this amount was later furnished to the Task Team and the figure of R34 800 000.00 duly appeared in the “Final Report on Proposed Transformation of Agricultural Parastatals and Some Major Agricultural Projects in the Eastern Cape” as the figure that would be required to fund severance packages of the Corporation.

[10] Mr Phillips states further that just after the publication of the Extraordinary Gazette dissolving the Corporation one Mr John Allwood, the representative of the third respondent, advised the legal representative of the applicants at a meeting of 14 July 1997, with the Director of the third respondent’s department being in attendance, that the National Government had remitted a sum of R750 000 000.00 to his Department for the purpose of paying for retrenchment packages of the employees of various parastatal institutions including the Corporation.

[11] Although the contractual obligations to work for the Corporation would come to an end on 10 July 1997 in terms of the Extraordinary Gazette the entire staff of the Corporation was caused to stay on until 31 July1997 because there was ongoing work at the Corporation and the staff members were going to be remunerated for services rendered. The staff was caused to continue with its work in terms of a written notice, annexure “H” to the founding affidavit, which was issued by one M. Z. N. Lalie in his capacity as the chairperson of the Eastern Cape Agricultural Corporation Board, a board constituted in terms of the amendment to the Corporations Act by a provincial statute named the Corporations Transitional Provisions Act, 1995.

[12] As regards the claim for payment of provident fund and employee tax Mr Phillips states that it was the duty of the Corporation to deduct from salaries of the employees an agreed amount of money for pensions and taxes and in turn pay those deductions, together with the employer’s pension contribution, to the Southern Pension Fund and South African Revenue Services (SARS). However, during the last two years preceding the dissolution of the Corporation the deductions were made but the Fund and SARS were not paid. According to Mr Phillips payment was withheld by the Corporation with full knowledge and approbation of the third respondent. As a result the provident fund fell in arrears to the extent of approximately R2 400 000.00 and the amount of unpaid taxes are approximately R7 000 000.00. Mr Phillips contends that the respondents were liable to pay the Fund and SARS because it was their obligation to do so in terms of s 236 of the Interim Constitution. He also says that these payments ought to have been paid by the respondents because the third respondent has been paying monthly grants-in-aid to the Corporation towards salaries and wages for the last two years prior to 31 July 1997. He states further that the objects of the Corporation had always been to maintain its agricultural activities duly supported by the respondents. Mr Phillips also raises concerns that the respondents had not assumed responsibility to maintain the on-going activities of the Corporation-in-liquidation and that the assets of the Corporation had not been placed into the hands of the liquidators.

[13] The respondents’ case as set out in the affidavit of Mr Gebede is the following. The first, second and third respondents paid ex gratia a sum of R20 407 208.00 to bona fide employees of the Corporation after the dissolution thereof in terms of the Extraordinary Gazette. This payment was intended to address the claim for severance packages. The payment was calculated on the basis of written retrenchment polices which were in existence within the Corporation prior to 10 July 1997 because they were “entitled to receive ex gratia sums equivalent to their entitlement to severance packages calculated in accordance with the written retrenchment policy of the CAC [the Corporation].” He states that the respondents, bar the fourth respondent, devised this scheme in order to settle claims which arose as a result of dissolution of the Corporations which were “hopelessly insolvent and former employees would not have received any severance benefits from the liquidation”. Such corporations included Transkei Agricultural Corporation, Magwa Tea Corporation and certain irrigation schemes of the former Ciskei and Transkei homeland governments. He claims that there were reasons for the scheme to be applied because of the relationship between the Corporations and the Provincial Government and the need to avert social unrest that would undoubtedly have ensued had employees been obliged to seek severance benefits from the liquidators. He stated further that against the background of the scheme and the fact that the joint liquidators were not joined in the application a final determination of the outstanding issue, which is the payment of pensions and taxes, should be refused. According to him the stance of the first, second and third respondents is that since the Corporation is being liquidated the claims for pension and taxes should have been directed against the joint liquidators had the obligation to consider them. The respondents cannot do so regardless of the fact that the Government used to provide substantial financial grant-in-aid to the Corporation before 10 July 1997, kept the employees on the job up to 31 July 1997 and provided further financial aid during two years prior to the termination of applicant’s employment on 31 July 1997. Mr Gebeda goes further and states that use of Government funds by the Corporation to contribute towards applicants’ pensions took place without the knowledge and approbation of the respondents and that the respondents had issued an undertaking to pay pensions and taxes to the applicants did not attract a legal obligation to pay. Mr Gebeda also alleges that the applicants did not sustain a cause of action on affidavit for the claim on payment of taxes as the averments made are “terse and cryptic”.

[14] When replying to the allegations by the respondent as set out in the answering affidavit Mr. Phillips did not raise new facts but merely elucidated the points of fact which he had already covered in the founding affidavit. It is necessary to highlight the contents of the replying affidavit. Mr. Phillips dealt with the denials by the respondents relating to the issues of the payment of severance packages, pensions and taxes and the undertakings made to pay for those items. He stated that the payment of severance packages was not ex-gratia or a gratuitous disbursement by the respondents, an insolvency scheme to avert social unrest or, for that matter, a payment which was made in recognition of some casual relationship which the respondents enjoyed with the Corporation. He contended that the settlement of severance packages was founded upon a legal obligation which the respondents had towards the Corporation and, in turn, with the applicants as the employees. He explained the alleged legal obligation in a number of ways. He stated that the payment was an obligation which arose from an employment relationship between the Corporation and the applicants coupled with the fact that the Corporation was not an entity which was distinct from the state but was a development project of the government which had depended entirely on the on-going administrative control and funding by the respondents right from the time of establishment until it was dissolved. He stated further that the existence of agricultural business projects of the Corporation were not dependant on profits. The dissolution of the Corporation could only have taken place at the behest of the first respondent and that the liquidation of the business of the Corporation did not take place due to the intervention of the respondents who took it upon themselves to dispose of the Corporation assets apparently in a way that benefited the communities directly and at the time when the appointed joint liquidators should have been given an opportunity to wind up the estate in terms as appointed to do so by the first respondent. The formation of a Crisis Committee under the leadership of one Mr. Greathead with a mandate of taking control of the assets of the Corporation contradicted the purpose for which the liquidators were appointed. Such a course was not to be of any assistance as the assets sought to be protected by the Committee were either depleted or disappeared. Mr. Phillips also alluded to annexure “E1” which is a letter from the Master of the High Court in Bisho stating that the estate was never reported to the Master. He also stated that when financial insolvency of the Corporation had surfaced during October 1995 the third respondent took it upon himself to find strategies that would see to the business of the Corporation being restructured to get its business back on track. Mr Phillips points to the aforegoing facts as being the testimony about the Corporation not having been an entity which was distinct from the government.

[15] The applicants also disputed the respondents’ allegation that the undertakings were made without the respondent’s knowledge and approbation or that they merely the acts of assistance which attracted no legal obligations to pay for pensions and taxes. He branded the denial as an unwarranted reneging from the commitment which reflects on dishonesty on the respondents.

[16] The rule in Plascon Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634-5 is stated to the effect that where in motion proceedings the affidavits disclose a genuine dispute of fact that is material to the relief sought a final relief may not be granted. In this case there is no such a dispute. The allegation by the respondents that they were not aware of the promises or undertakings which were made on their behalf to the applicants that they were going to pay for the pensions and taxes, which is a bare denial, is not acceptable. I find that the version of the applicants in this regard to be true.

[17] I now turn to deal with the submissions which were made by Mr. Ford SC who appeared with Mr Brooks . He submitted that in 1993 the Corporation was established by the Minister of the State in terms of s 5 of the Ciskeian Corporations Act, Act No. 16 of 1981 (the Act) and dissolved by the first respondent on 10 July 1997 in terms of s13A of the Act. The reason for establishing it was to achieve the objects contemplated in s3 of the Act for the development of the State and its people in the field of agriculture. The administration of the Corporation was placed in the hands of the State. In terms of s4 (3) of the Act it was contemplated that the State would be required to fund the activities of the Corporation. It was submitted further that the Act makes it clear that the Corporation exists at the whim of the State, the State being its only shareholder (s8(3)) and subject to the ongoing control of the State in the appointment of its Board of Directors (s7, s7A), in the activities of its Board of Directors (s7B), in its financial affairs (s 9, s10 and s11), in its ongoing affairs and activities (s4 (1)(i),(t),(u), (v), (2), (c), s7 (b), s11 and s15A). In fact the State reserved to itself the right not only to name the Corporation, but to change the name of the Corporation and to decide on its continued existence (Section 5(2) and Section 13A).

[18] Mr Ford submitted further that the Corporation performed a public function and it was, therefore, an organ of the state within the meaning of the term “organ of state” as defined in s 239 of The Constitution of the Republic of South Africa Act, Act No. 108 of 1996 (the Final Constitution). After the establishment of the new South Africa in 1994 the Ciskei government administration, including the Corporation, was subjected to the new transitional arrangements in terms of sections 235 and 236 of The Republic of South Africa Act, Act No. 200 of 1993 (the Interim Constitution). In that way the obligations which the Ciskei government had on the Corporation were transferred to the new government under the supervision of the respondents. When the employment of the applicants was terminated by the respondents on 31 July 1997 the applicants were de facto employees of the government which had tacitly agreed to pay for pensions and taxes. Further, the respondents’ written undertakings, accompanied by on-going funding as granted by the third respondent to ensure viability of the agricultural activities of the Corporation, the provision of grants for the payment of applicant’s salaries and continued administrative control which the respondents enjoyed in the Corporation established a practice which entitled the applicants to believe that they would be paid salaries, pensions and taxes notwithstanding that the Corporation operated business in insolvency circumstances and that it even ceased to exist. These payment and undertaking created a legitimate expectation that their benefits would be protected. Mr. Ford then submitted that in the circumstances the respondents were estopped from abdicating responsibility to continue to pay.

In support of his submissions Mr Ford referred a number of authorities to the attention of the court. I will deal with those authorities later on in this judgment.

[19] On behalf of the respondents Mr Bloem submitted that the relief sought has no legal basis because it is neither contractual nor delictual in nature. In amplification thereof he contended that:

(a) The admitted fact is that since September 1996 the monthly grants paid by the third respondent to the Corporation have been sufficient only to pay nett salaries and wages due to the applicants.

On both instances mentioned in (a) and (b) above the government cannot be saddled with the obligations of the Corporation because it (the Corporation) was a legal entity which had a contractual obligation to pay the applicants as employees and in terms of s9 of the Act and it could only meet such expenditure from its own funds. Further, the government was a public body which is separate from the Corporation and it had no statutory duty to meet the said expenditure on behalf of the Corporation.

(c) The ingredients for the claim of legitimate expectation of a

substantive relief as listed in South African Veterinary Council And Another v Szymanski 2003 (4) SA 42 (SCA) have not been shown to exist in this matter.

The issues:

[20] The view which I take of the matter is that the following questions of law fall to be answered.

(a) Is the Corporation an organ of state within the meaning of section 239 of the Final Constitution?

(b) Are the applicants entitled to the protection of their labourer rights to pensions and taxes as contemplated in sections 235 and 236 of the Interim Constitution?

I will answer each of these questions in turn.

[21] Is the Corporation an organ of state within the meaning of section 239 of Act 108 of 1996?

The provisions of section 239 of Act 108 of 1996 (the Final Constitution) reads as follows:

“ ‘ organ of state’ means –

(i) exercising a power or performing a in terms of the

function in terms of any legislation,

but does not include a court or a judicial officer; …”

The Corporation is a creature of statute, the Corporations Act 16 of 1981. The formation of the Corporation was entrusted in the hands of the Minister who could only establish a corporation with the objects which are stated in section S(3) of the Act which are : “to plan, finance, co-ordinate, promote and carry out the development of Ciskei and its peoples in the field of industry, commerce, finance, mining, agriculture and any other business whatsoever.” T he power of the Minister to establish a corporation derives from the provisions of s5 which reads:

“ (1) The Minister may, by notice in the Gazette and as from a date specified therein establish a corporation in respect of

(a) any commercial, financial, industrial, agricultural, mining, transport or other business undertaking in Ciskei; or

(2) A corporation shall be known by the name given to it by the Minister in the notice by which it has been established.”

The Minister who is referred to in s5 is defined in section 1 of Act 16 of 1981 as “the Minister of Finance and Economic Development”. The Corporation was then formed by the Minister in terms of Government Notices No 65 and 66 which were published on 05 August 1993. The objects of the Corporation are set out in s 5(3) as to: “plan, finance and carry out or to assist in planning, financing and carrying out the undertaking or project in the fields of agriculture, forestry and fishery and any other related activity, including the development and exploitation of any natural resource, as well as the marketing of products in such projects, undertaking or activity as agricultural, forestry and fisheries generally. The said Government Notices also provided for powers of officers and appointment of officers with the aim of achieving the objects of the Corporation. In terms of the Government Notices 65 and 66, the Minister established the Corporation with the object of planning, financing and carrying out the undertaking or project in the field of agriculture. The evidence of Mr Phillips as set out on the papers show that the Corporation engaged in agricultural activities of citrus plantation at the Kat, Tyumie and Keiskamma valleys, carrots and cauliflower plantation at Tyefu and dairy farming at Whittlesea. The funds for the establishment and maintenance by the Corporation of these activities were sourced by the Corporation from the Ciskei Development Corporation and the Minister would in terms of section (3) of the Corporations Act guarantee the repayment of these funds to the Development Corporation.

[22] As correctly submitted by Mr Ford , the existence of the

Corporation depended on the state which in terms of section 8 (3) was the only shareholder. The question may then be asked for whose benefit were these agricultural activities? Of course, it was for the benefit of the peoples of Ciskei because in terms of s3 one of the objects of the Corporation was the development of Ciskei and its people in, inter alia , the field of agriculture. When carrying out the project of agriculture the Corporation had to operate its business under the direct control of the state in terms of ss 7,8,9,10,11,12 and 15 from the date of its establishment in terms of section 5(2), to the date of dissolution in terms of section 13A. On the aforegoing facts, I accept the submission by Mr Ford that the control of the Corporation was placed under the direct control of the State. The plethora of correspondence which was exchanged between the applicants and the respondents show that the respondents regarded the Corporation as a government parastatal.

[23] The definition of the phrase “organ of state” came to the fore in the case of Mittal – Steel South Africa Ltd v Hlatshwayo 2007 (1) SA 66 (SCA) at page73, para. [13] and page 75 F, para.[19]. In that case it was held that the test adopted by our Courts in the determination of whether an institution is a public body is whether it was controlled by the State (the control test). The Supreme Court of Appeal held further that the control test was useful in a situation where it was necessary to determine whether functions, which by their nature might well be private functions, were performed under the control of the State and were thereby turned into public function instead. This converted a body like a trading entity, normally a private body, into a public body for the time and to the extent that it carried out public functions. In this regard also see: Minister of Education, Western Cape and Others v Governing Body, Mikro Primary School and Another 2006 (1) SA 1 (SCA). The undisputed facts which are established in this matter show that the Corporation engaged in agricultural activities for the benefit of or the development of the people (the state) even in situations where it was not making a profit and when it would be expensive for the communities which it sought to empower to do farming. I therefore come to the conclusion that the Corporation can be properly described as an organ of State because it performed a public function whilst being controlled by the State.

[24] It has been contended on behalf of the respondents that the

Corporation was a legal persona which was distinct from its members who were appointed from the State departments as prescribed by the Act. The business of the Corporation was capitalised with shares which were created and financed by the Minister representing the government. To my mind, the decision which I have already made in the preceding paragraph that the Corporation is an organ of state renders an answer obviously that the legal personality of the Corporation was not true to its meaning. Further, it would not be helpful at this stage to answer the question regarding the defence that since the Corporation was a legal person in terms of s6 of the Corporations Act, the applicants’ remedy lay against the joint liquidators. The manner in which the Corporation was formed, its trading practices and the manner in which it was dissolved attest to the Corporation not having been cloathed with corporate status in a true sense.

[25] Are the applicants entitled to the protection of their labourer rights to pensions and taxes as contemplated in sections 235 and 236 of the Interim Constitution?

Whereas section 235 regulates transitional arrangements regarding continuation of office of the members of executive authorities, section 236(1) does the same regarding continuation of functions at public service, department of state, administration or security service which were in existence on 27 April 1994 until new arrangements were announced after that date. In terms of s236 (2) persons who were employed by an institution of government before 27 April 1994, would continue in such employment. The relevance of these transitional arrangements to this matter is that the Corporation as an institution of government continued to exist despite that the Ciskei Government had come to an end. The employment of the applicants with the Corporation also continued. As stated on affidavits the employment contracts of the employees of the Corporation were continued beyond the date of dissolution of the Corporation on 10 July 1997. The employment contracts were only terminated only on31 July 1997. Consequently, in terms of s236 (2) the labour rights of the applicants to pensions and taxes were protected despite the dissolution of the Corporation on 10 July 1997. The provisions of the subsection read:

“ A person who immediately before the commencement of the new Constitution was employed by an institution referred to in subsection (1) shall continue in such employment subject to and in accordance with the new Constitution and other applicable laws regulating such employment.”

The institutions which are referred to in subsection (1) are the organs of State within the meaning of s239 of the Final Constitution.

[26] Do the facts in this case justify an inference that a tacit agreement did exist between the applicants and the government that pensions and taxes will be paid upon termination of employment on 31 July 1997?

The learned Corbett, CJ in Alfred Mc Alpine & Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA 506 (A) at section 532D–533A said the following about the distinction between an implied and a tacit term of an agreement:

“ The distinction between terms implied by law and implied terms based upon the actual and imputed intention of the parties to the contract was emphasized in Minister van Landbou-Tegniese Dienste v Scholtz 1971 (3) SA 188 (AD) at p.197, and reference was there made to Salmond and Williams, Contracts, 2 nd ed., pp.24, 36 and 37, in which the expression “implied term” is used to denote the former and the expression “tacit term” to describe the latter…The Court does not readily import a tacit term. It cannot make contracts for people; nor can it supplement the agreement of the parties merely because it might be reasonable to do so. Before it can imply a tacit term the Court must be satisfied, upon a consideration in a reasonable and businesslike manner of the terms of the contract and the admissible evidence of surrounding circumstances, that an implication necessarily arises that the parties intended to contract on the basis of the suggested term. (See Mullin (Pty.) Ltd. V Benade Ltd., 1952 (1) S.A. 211 (A.D.) at pp. 214-5 and the authorities there cited; S.A. Mutual Aid Society v Cape Town Chamber of Commerce, 1962 (1) S.A. 598 (A.D.). The practical test to be applied – and one which has been consistently approved and adopted in this Court-is that formulated by Scrutton, L.J., in the well-known case of Reigate v. Union Manufacturing Co., 118 L.T. 479 at p. 483:

‘ You must only imply a term if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that you can be confident that if at the time the contract was being negotiated someone had said to the parties: ‘What will happen in such case?’ They would have both replied: ‘Of course, so-and-so. We did not trouble to say that; it is too clear.’ ‘

This is often referred to as the ‘bystander test’. ”

[27] Applying the bystander test to the facts of this case shows that the

respondent and applicants tacitly agreed that after the dissolution

of the Corporation on 10 July 1997 the continuation of the

[28] Mr Ford referred to the case of Cekeshe,supra at 93 H/I for the

submission that there was in any event a de facto

[29] Does the doctrine of estoppel operate against the respondents?

To appreciate the nature of the doctrine estoppel I should refer to the words of Corbett JA in Aris Enterprises (Finance) (Pty) vs Protea Assurance Lo Ltd 1981 (3) SA 274(A) at 291 where he stated:-

“ The essence of the doctrine of estoppel by representation is in person, from denying the truth of a representation previously made by him to another person in the latter, believing in the truth of the representation, acted thereon to his prejudice (See Joubert the law of South African vol 9 paragraphs 367 and the authority there cited)”. “The representation may be made in words, in expressly, or it may be made by conduct, including silence or inaction, it is truly (ibid par 371); and in general it may relate to an exiting fact (ibid 372)”.

In this matter there is a series of representations, promises or undertakings which were expressed by the respondents, both in words and by conduct, to the applicants to the effect that the respondents would pay for salaries, pension and taxes. As a result, the applicants were led to believe to their prejudice that they would be paid. The representations in question have been well captured in the affidavits of Mr Philliphs in the following terms as paraphrased by me:-

[30] Does the doctrine of legitimate expectation of a substantive claim apply in this matter?

The submission on behalf of the applicants under this subheading is that the undertakings, acknowledgements, the history of the Corporation and the history of this matter have given rise to a legitimate expectation with regard to the relief which is sought. It is not the applicants’ complaint that they did not receive a hearing from the respondents. It is that since the respondents had assumed a responsibility to pay for pension and taxes on regular basis before and after the distribution of the Corporation, including the making of the representations which have been set out in the preceding paragraph the applicants reasonably expect that the respondents will continue to pay. In the case of Eastern Metropolitan Substructure v Peter Klein Investments (Pty) Ltd 2001 (4) BCLR 344 (W) the court stated the manner in which a legitimate expectation of substantive claim arises in the following terms:

“ A legitimate expectation might arise where a regular practice has been adopted or a practice which gives rise to such expectations, also where there is an expectation of a substantive benefit or, a benefit of a procedural kind.”

[31] The legitimate expectation of a procedural right is a well known remedy ( the audi alteram partem rule ) in our law and has been applied by our courts over many years. In its classic formulation it is an administrative review remedy which is utilised where the decision of an administrator, or a failure to decide, affects an individual in his liberty, property or existing rights – Administrator, Transvaal And Others v Traub And Others [1989] ZASCA 90; 1989 (4) SA 731 (A) at 753 I. The doctrine has been modernised following upon development of administrative law in England to apply in situations where an individual who has no established right at all, but an interest which if shown to be reasonable is elevated to an entitlement. Where the expectation involves a benefit in favour of a complainant the law would in a proper case protect that benefit. In the context of the applicants’ claim for the payment of pensions and taxes the promises or undertakings which were made by the respondents do not have to depend on any established rights of the applicants for the claim to be enforced against the respondents. What the law interrogates in terms of the doctrine is merely the question whether the administrator did discharge his/her duty to “act fairly” towards the applicants – see the case of Traub supra at page 758 G – H and the English cases which are referred to therein. The learned Corbett JA in Traub at 761 E-G acknowledged that there is a need for the doctrine of legitimate expectation to be extended so that it includes the protection of substantive expectations in our law as the: ‘adherence to the formula of liberty, property and existing rights would fail to provide a legal remedy, when the facts cry out for one; and would result in a decision which appeared to have been arrived at by a procedure which was clearly unfair, being immune from review.” Therefore, in my view, the question here is not whether the extension of the doctrine should be given recognition in our jurisdiction as in England but whether the facts of this case do warrant its application. That much was also echoed by Brand J in Meyer v Iscor Pension Fund 2003 (2) SA 715 (SCA). However the courts of our land, including in Traub and Meyer , supra , have declined to emulate the English cases in which the extended doctrine has been applied. Again in the case of the Premier of Mpumalanga v Executive Committee of State Aided Schools: Eastern Transvaal [1998] ZACC 20; 1999 (2) BCLR 151 (CC) the Constitutional Court refused to decide in what circumstances, if any, legitimate expectation will confer a right to substantive relief beyond that ordinarily contemplated by a duty to act fairly.

[32] A claim for the fulfilment of a promise or undertaking has been upheld by the courts of Appeal in R v North and East Devon Health Authority, Ex parte Coughlan [2001] QB 213 (CA) ( [200] 3 A11 ER 850) and in R [Bibi] v Newham London Borough Council [2001] EWCA Civ 607; [2002] 1 WLR 237 (CA). Mr Ford brought these cases to my attention. These cases have been pertinently dealt with by the Supreme Court of Appeal in the case of Meyer , supra. However, the facts in Meyer were found not to be promises or undertakings; hence the refusal to apply the doctrine of legitimate expectation of a substantive claim. In this case, It seems to me that the promises made by the respondents were very clear and unambiguous; and the respondents were the rightful persons to make such promises as the decision makers. For that reason I do not agree with the submission by Mr Bloem that the requirements for legitimacy of the expectation as envisaged in the case of Szymanski, supra has not been met. Although I believe that the conduct of the respondents is a perfect example of promises or undertakings which would be enforceable in terms of the doctrine, I am unable to apply the doctrine. I proceed to state the reasons in the paragraph that follows.

[33] The warning against merely grafting into our law the extended doctrine was issued by Brand JA in the case of Meyer is very relevant to the present matter. The learned Judge traced the origin of the legitimate expectation of substantive relief to a need in England to give a solution to the problems arising from the rule which is applicable in English law that an undertaking without valuable consideration is not enforceable. That was the position since 1919 until the ground- breaking decision of the House of Lords in Ridge v Baldwin and Others [1963] 2 All ER 66 (HL) where the doctrine legitimate expectation of substantive right was coined but used for the first time by Lord Denning MR in the case of Schmidt and Another v Secretary of State for Home Affairs [1969]1 All ER 904 (CA) at 109 C and F. This historical context is well set out by Corbett JA in Traub, supra. In our law a promise or undertaking without a valuable consideration is enforceable under the laws of contract – See: RH Christie: “The Law of Contract” 4 th Ed. at pages 7-14. In the matter at hand the promises or undertakings on which the applicants rely for their claim amount to a valid contract which is enforceable in our law; hence the finding that I have already made that the circumstances of this matter do prove that the parties tacitly agreed that the respondents will honour the contractual obligations of the Corporation. With that in mind, it will appear that the applicants were not remediless and as such they have proved that they are entitled to be paid pensions and taxes without a need of going through a laborious task of having to bring their claim within the ambit of the doctrine.

Conlusion:

[34] On the afore-going, I decline to apply the doctrine of legitimate expectation of substantive claim in this case.

[35] In the circumstances of this matter I find that the applicants have succeeded to prove that they are entitled to the relief sought. The employer – employee agreement and/or the contract of promise or undertakings are foundational to the applicants’ claim. The argument that the applicants did not disclose a cause of action in their founding affidavit cannot be sustained.

The costs:

[37] In the result the following order shall issue:

Counsel for the Applicants

: Adv. E.A.S. Ford, SC

Adv. RWN Brooks

Instructed by

: Smith Tabata Inc.,

Counsel for the 1 st ,2 nd ,& 3 rd Respondents : Adv. G.H. Bloem

Instructed by

: The State Attorney,

Date heard

: 27 May 2008.

Date Judgment delivered

: 22 August 2008.