SA Organic Fertilizer Holdings Limited v Commission for Conciliation Mediation and Arbitration and Others (C763/2000) [2001] ZALC 213 (23 November 2001)

11

IN THE LABOUR COURT OF SOUTH AFRICA

HELD AT CAPE TOWN

CASE NO. C763/2000

In the matter between :

S.A ORGANIC FERTILIZER HOLDINGS LIMITED Applicant

and

COMMISSION FOR CONCILIATION , MEDIATION First Respondent

& ARBITRATION

JOHN W. MCGAHEY N.O. Second Respondent

DELANO FOWLER Third Respondent

_________________________________________________________________

JUDGMENT

Waglay J.

[1] The third Respondent was employed by the Applicant in May 1998 in the position of a financial manager . Two months after being appointed as a financial manager he was promoted to the position of executive financial director. He held the position of executive financial director for about 6 months whereafter he was restored to his previous position of financial manager. In March 1999, one month after being placed in the position of the financial manager, the third Respondent was again made the executive financial director of the Applicant. [2] As the executive financial director the third Respondent was charged with the responsibility of compiling projections of financial figures for the purposes of attracting outside investments to the Applicant company. The projections were to be included in the company prospectus being drawn by the Applicant. [3] The projections which the third Respondent was required to compile were dependent upon the financial figures of the Applicant company. These financial figures were provided to the third Respondent by the Applicant. The third Respondent was unhappy with the accuracy of the financial figures given to him for the purposes of making the projections and protested their inaccuracy to the Applicant. These protests were rejected by the Applicant through its majority shareholder. The majority shareholder is also the chairperson of the Applicant’s Board of Directors (Board).

[1] The third Respondent was employed by the Applicant in May 1998 in the position of a financial manager . Two months after being appointed as a financial manager he was promoted to the position of executive financial director. He held the position of executive financial director for about 6 months whereafter he was restored to his previous position of financial manager. In March 1999, one month after being placed in the position of the financial manager, the third Respondent was again made the executive financial director of the Applicant.

[2] As the executive financial director the third Respondent was charged with the responsibility of compiling projections of financial figures for the purposes of attracting outside investments to the Applicant company. The projections were to be included in the company prospectus being drawn by the Applicant.

[3] The projections which the third Respondent was required to compile were dependent upon the financial figures of the Applicant company. These financial figures were provided to the third Respondent by the Applicant. The third Respondent was unhappy with the accuracy of the financial figures given to him for the purposes of making the projections and protested their inaccuracy to the Applicant. These protests were rejected by the Applicant through its majority shareholder. The majority shareholder is also the chairperson of the Applicant’s Board of Directors (Board).

[4] At a duly convened Board meeting on 3 September 1999 the chairperson advised the third Respondent that he would be “voted out as a director” at the next Board meeting and asked the third Respondent to leave the meeting while the Board discussed his future employment. During the third Respondent’s absence from the Board meeting, the Board took a decision to suspend the third Respondent qua employee pending the preferment of disciplinary charges against him. [5] Concerned about the fact that the Applicant’s prospectus would be published before he was “voted out” as a director and therefore record his name as a financial director on the prospectus which the Applicant intended to use to attract investment he (the third Respondent) chose to immediately resign as a director. The motivation for such resignation was that he did not wish a prospectus with which he disagreed to be given to potential investors. The letter tendering his resignation records the following:

[4] At a duly convened Board meeting on 3 September 1999 the chairperson advised the third Respondent that he would be “voted out as a director” at the next Board meeting and asked the third Respondent to leave the meeting while the Board discussed his future employment. During the third Respondent’s absence from the Board meeting, the Board took a decision to suspend the third Respondent qua employee pending the preferment of disciplinary charges against him.

[5] Concerned about the fact that the Applicant’s prospectus would be published before he was “voted out” as a director and therefore record his name as a financial director on the prospectus which the Applicant intended to use to attract investment he (the third Respondent) chose to immediately resign as a director. The motivation for such resignation was that he did not wish a prospectus with which he disagreed to be given to potential investors. The letter tendering his resignation records the following:

“At the last director’s meeting I tried to make the board aware of certain problems that affects the company and the directors personally. It was decided to have a special meeting where these problems could be addressed . This meeting has not yet been held . In the interim we have all worked hard to have the prospectus ready . While doing this , my assumptions relating to the preparation of the figures that I would be happy to sign off were severely criticised . The majority shareholder and executive chairman of the company has now stated that he wishes to fire me as a director of SA Organic Fertilizer Holdings. It appears to me that it is my attempt to address the situation that has led to this step .He quotes the “Herman Hugo” ghost as returning . I do not understand the insinuation unless it is as it would appear that the aforementioned was also very cost-conscious. In the circumstances I choose rather to resign as director with immediate effect. It would therefore not be appropriate that my name appear in the prospectus as I am unable to give my consent to this . I will of course continue to perform my duties and to co-operate with the board in every way to reach the goals for which we have all worked so hard .I believe that I have at all times acted in the interests of the company.” [6] On the same day as receiving the third Respondent’s letter and after the Board meeting aforesaid, the Applicant delivered two letters to the third Respondent one of which was in response to third Respondent’s letter (supra) and records that the Applicant “ accepts your resignation as stated in your letter” and the other records the following :

“At the last director’s meeting I tried to make the board aware of certain problems that affects the company and the directors personally. It was decided to have a special meeting where these problems could be addressed . This meeting has not yet been held . In the interim we have all worked hard to have the prospectus ready . While doing this , my assumptions relating to the preparation of the figures that I would be happy to sign off were severely criticised . The majority shareholder and executive chairman of the company has now stated that he wishes to fire me as a director of SA Organic Fertilizer Holdings. It appears to me that it is my attempt to address the situation that has led to this step .He quotes the “Herman Hugo” ghost as returning . I do not understand the insinuation unless it is as it would appear that the aforementioned was also very cost-conscious.

In the circumstances I choose rather to resign as director with immediate effect. It would therefore not be appropriate that my name appear in the prospectus as I am unable to give my consent to this . I will of course continue to perform my duties and to co-operate with the board in every way to reach the goals for which we have all worked so hard .I believe that I have at all times acted in the interests of the company.”

[6] On the same day as receiving the third Respondent’s letter and after the Board meeting aforesaid, the Applicant delivered two letters to the third Respondent one of which was in response to third Respondent’s letter (supra) and records that the Applicant “ accepts your resignation as stated in your letter” and the other records the following :

“... I herewith inform you that you are suspended from work as of 3 September 1999 with full pay pending a disciplinary hearing on 1 October 1999...” [7] On 1 October 1999 the third Respondent attended the Applicant’s premises - no disciplinary hearing was held , instead he was handed a letter informing him that in terms of section 52 of the Applicant’s Articles of Association (Articles) his employment terminated when he ceased to be a director of the Applicant . The letter states : “You resigned your position as director of the company on the 3rd of September 1999 , which resignation was accepted by the company . In terms of section 52 of the articles of association your appointment as executive director (financial director) terminated when you ceased to be a director of the company , i.e. on the same date . . . .” [8] On 5 October the Respondent believing the termination of his employment was unfair referred same to the CCMA(the first respondent ) for conciliation recording under the nature of the dispute the following :

“... I herewith inform you that you are suspended from work as of 3 September 1999 with full pay pending a disciplinary hearing on 1 October 1999...”

[7] On 1 October 1999 the third Respondent attended the Applicant’s premises - no disciplinary hearing was held , instead he was handed a letter informing him that in terms of section 52 of the Applicant’s Articles of Association (Articles) his employment terminated when he ceased to be a director of the Applicant . The letter states :

“You resigned your position as director of the company on the 3rd of September 1999 , which resignation was accepted by the company . In terms of section 52 of the articles of association your appointment as executive director (financial director) terminated when you ceased to be a director of the company , i.e. on the same date .

. . .”

[8] On 5 October the Respondent believing the termination of his employment was unfair referred same to the CCMA(the first respondent ) for conciliation recording under the nature of the dispute the following :

“I was forced to resign from position as financial director and was put on suspension with pay pending the outcome of a disciplinary enquiry of which the charges are unknown to me . Subsequent to my resignation as director I was informed that my service is terminated because the company accepted my resignation as a director to be a resignation as a financial manager as well.” [9] Conciliation under the auspices of the first respondent failed to resolve the dispute and on 13 January 2000 a certificate to that effect was issued by the first Respondent recording that the dispute concerned an “alleged unfair dismissal(constructive)”. On 25 January 2000 the respondent referred the dispute for arbitration under the auspices of the first Respondent and recorded under the issue in dispute exactly the same statement as quoted in paragraph [8] above . [10] The evidence led by the Applicant at the arbitration was that section 52 of the Articles provided that if a director resigned as such he is also deemed to have resigned as an employee . Section 52 of the Articles provides as follows :

“I was forced to resign from position as financial director and was put on suspension with pay pending the outcome of a disciplinary enquiry of which the charges are unknown to me . Subsequent to my resignation as director I was informed that my service is terminated because the company accepted my resignation as a director to be a resignation as a financial manager as well.”

[9] Conciliation under the auspices of the first respondent failed to resolve the dispute and on 13 January 2000 a certificate to that effect was issued by the first Respondent recording that the dispute concerned an “alleged unfair dismissal(constructive)”. On 25 January 2000 the respondent referred the dispute for arbitration under the auspices of the first Respondent and recorded under the issue in dispute exactly the same statement as quoted in paragraph [8] above .

[10] The evidence led by the Applicant at the arbitration was that section 52 of the Articles provided that if a director resigned as such he is also deemed to have resigned as an employee . Section 52 of the Articles provides as follows :

“The directors may appoint from time to time one or more of the directors as executive directors or managing directors of the company, on such terms and conditions as to remuneration and otherwise (but for a maximum period of five years in the case of any one appointment ) as may be determined from time to time by a disinterested quorum of the directors , provided that the appointment of any executive director or managing director shall , without prejudice to any claim of any nature whatever which any such director may have against the company , cease if for any reason he ceases to be a director...”

[11] Van Wyk who gave evidence on behalf of the Applicant stated that although the Applicant forwarded the letter to the third Respondent advising him of his suspension pending the disciplinary hearing, this letter served no purpose because of the third Respondent’s resignation as a director which was accepted by the Board. The Respondent had, he said, by virtue of section 52 of the company’s Articles resigned both as director and employee and therefore there was no purpose in holding any disciplinary enquiry against the third Respondent . Van Wyk also stated that until the Applicant’s lawyers explained that the resignation as a director also meant resignation as an employee this was not what he understood or would have understood the said section 52 to mean . He further admitted that in the past directors who had resigned as directors or who were dismissed as directors were retained by the company as employees . [12] Walsh, a director of the company in her evidence stated that her interpretation of section 52 was no different to that of the Applicant’s lawyers but also conceded that the company had not always applied section 52 in that there were persons whose directorship was terminated but were retained as employees. [13] Relying on section 52 of the Articles ,the Applicant argued before the second Respondent(the Commissioner) that the third Respondent was not dismissed but resigned and therefore if Respondent claims to be dismissed the dismissal can only be a constructive dismissal because it is third Respondent’s actions (letter of resignation as director) that led to the termination of the employment relationship between Applicant and him . [14] Applicant’s argument is also based on the fact that the certificate of outcome of conciliation referred to the dispute as one relating to a constructive dismissal.

[11] Van Wyk who gave evidence on behalf of the Applicant stated that although the Applicant forwarded the letter to the third Respondent advising him of his suspension pending the disciplinary hearing, this letter served no purpose because of the third Respondent’s resignation as a director which was accepted by the Board. The Respondent had, he said, by virtue of section 52 of the company’s Articles resigned both as director and employee and therefore there was no purpose in holding any disciplinary enquiry against the third Respondent . Van Wyk also stated that until the Applicant’s lawyers explained that the resignation as a director also meant resignation as an employee this was not what he understood or would have understood the said section 52 to mean . He further admitted that in the past directors who had resigned as directors or who were dismissed as directors were retained by the company as employees .

[12] Walsh, a director of the company in her evidence stated that her interpretation of section 52 was no different to that of the Applicant’s lawyers but also conceded that the company had not always applied section 52 in that there were persons whose directorship was terminated but were retained as employees.

[13] Relying on section 52 of the Articles ,the Applicant argued before the second Respondent(the Commissioner) that the third Respondent was not dismissed but resigned and therefore if Respondent claims to be dismissed the dismissal can only be a constructive dismissal because it is third Respondent’s actions (letter of resignation as director) that led to the termination of the employment relationship between Applicant and him .

[14] Applicant’s argument is also based on the fact that the certificate of outcome of conciliation referred to the dispute as one relating to a constructive dismissal.

[15] The third Respondent had never claimed to have been constructively dismissed. In both his referrals - for conciliation and arbitration - he records that he had never resigned as employee but only as a director . The company also accepted it as such as is evident from the correspondence to the Respondent of 3 September 1999 (paragraph [6] above). It was only when the attorneys were appointed after the Respondent’s suspension did the attorneys, it appears , advise the Applicant that it could in terms of section 52 of the articles regard the Respondent as having resigned as an employee. [16] Firstly insofar as Applicant wants to rely on the certificate of outcome of conciliation which referred to the dispute as one relating to constructive dismissal , such reliance is misconceived. A dispute is not defined or limited by the label designated to it. A dispute about a dismissal remains a dispute about a dismissal, whether it is labelled as a constructive dismissal or a dismissal for operational requirements . The label does not change the nature of the dispute its only relevance if any , is to determine the forum in which the dispute is to be finally heard.(See Numsa v Driveline Technologies (Pty) Ltd and another [2007] ZALC 66; [2000] 1 BLLR 20 LAC ).

[15] The third Respondent had never claimed to have been constructively dismissed. In both his referrals - for conciliation and arbitration - he records that he had never resigned as employee but only as a director . The company also accepted it as such as is evident from the correspondence to the Respondent of 3 September 1999 (paragraph [6] above). It was only when the attorneys were appointed after the Respondent’s suspension did the attorneys, it appears , advise the Applicant that it could in terms of section 52 of the articles regard the Respondent as having resigned as an employee.

[16] Firstly insofar as Applicant wants to rely on the certificate of outcome of conciliation which referred to the dispute as one relating to constructive dismissal , such reliance is misconceived. A dispute is not defined or limited by the label designated to it. A dispute about a dismissal remains a dispute about a dismissal, whether it is labelled as a constructive dismissal or a dismissal for operational requirements . The label does not change the nature of the dispute its only relevance if any , is to determine the forum in which the dispute is to be finally heard.(See Numsa v Driveline Technologies (Pty) Ltd and another [2007] ZALC 66; [2000] 1 BLLR 20 LAC ).

[17] The dismissal dispute before the second Respondent and the dispute he was required to determine was as recorded by the third Respondent (See paragraph [8] above). The fact that Applicant argued that the dispute was one of constructive dismissal and the certificate of outcome of conciliation recorded it as such did not make the dispute a constructive dismissal dispute. Constructive dismissal was an issue which was raised and was properly dealt with by the second Respondent insofar as it was relevant. [18] Turning to the principal issue the Applicant quite argued that the Articles read with the Memorandum of a Company regulates the conduct of the Company defining what acts are permitted and what acts are not permitted. While it is so that a Company is bound by its Memorandum and Articles it is not open to the Company to interpret its Articles by dictates of expediency. Articles of a Company is a business document and must therefore be interpreted from a practical business point of view (See Cilliers, Benade et al - Corporate Law Second Edition 1993 at paragraph 6.29 page 70 and the references there referred).

[17] The dismissal dispute before the second Respondent and the dispute he was required to determine was as recorded by the third Respondent (See paragraph [8] above). The fact that Applicant argued that the dispute was one of constructive dismissal and the certificate of outcome of conciliation recorded it as such did not make the dispute a constructive dismissal dispute. Constructive dismissal was an issue which was raised and was properly dealt with by the second Respondent insofar as it was relevant.

[18] Turning to the principal issue the Applicant quite argued that the Articles read with the Memorandum of a Company regulates the conduct of the Company defining what acts are permitted and what acts are not permitted. While it is so that a Company is bound by its Memorandum and Articles it is not open to the Company to interpret its Articles by dictates of expediency. Articles of a Company is a business document and must therefore be interpreted from a practical business point of view (See Cilliers, Benade et al - Corporate Law Second Edition 1993 at paragraph 6.29 page 70 and the references there referred).

[19] In this case the evidence led on behalf of the Company was that at the time that the third Respondent handed in his resignation as a director and the resignation accepted by the Applicant, the Applicant did not consider the resignation as a director to also constitute resignation as an employee. It was only once it was informed about the alleged import of section 52 of its Articles that it felt compelled to regard the letter of resignation as a director to also constitute a resignation as an employee. Applicant’s argument was that not to do so would be to act outside its Articles which it believed it could not do. The fact that in the past it did not apply section 52 of its Articles as it now sought to apply is not explained other than by stating that it was their legal advisors who drew their attention to either the existence of section 52 of the Articles, or the interpretation thereof to mean what Applicant now contends it to mean. Neither of these arguments are of any merit.

[20] Applicant’s arguments that but for section 52 of the Articles it would have proceeded with a disciplinary hearing and also that once third Respondent was advised of the Applicant’s interpretation of section 52 of its Articles third Respondent could have reconsidered his letter of resignation but failed to do so are arguments which are both superficial . I do not see why the third Respondent should reconsider his letter of resignation when it clearly recorded what he intended it to record and the Applicant had accepted it as such. Futhermore third Respondent was not invited to reconsider his letter of resignation in the light of the interpretation given by the Applicant to section 52 of its Articles and in light of the fact that Applicant was making a departure from its past practice of distinguishing between a director and an employee. It simply advised the third Respondent that it regarded his letter to constitute a resignation both as director and employee. [21] Applicant’s further argument that the Articles constitute some kind of statute to which it is unconditionally bound is to misconceive the nature of Articles of Association of a Company. Not only, as I have said earlier, is the Articles a business document but one to which the maxim”validate if possible” applies [See Rayfield v Hands [1958] 2 All ER 194 (Ch) at 199]. It is therefore a document that by required consent can change with the changing business circumstances at any given time . Where therefore , a Company has adopted a practice ( without any objection from those whose consent is required to make changes to the Articles) that may not have been in line with certain provisions of its Articles why should such practice not continue. I see no reason why it cannot be said that Articles should be interpreted in accordance with the practice that has been adopted by the Company over the years.

[20] Applicant’s arguments that but for section 52 of the Articles it would have proceeded with a disciplinary hearing and also that once third Respondent was advised of the Applicant’s interpretation of section 52 of its Articles third Respondent could have reconsidered his letter of resignation but failed to do so are arguments which are both superficial . I do not see why the third Respondent should reconsider his letter of resignation when it clearly recorded what he intended it to record and the Applicant had accepted it as such. Futhermore third Respondent was not invited to reconsider his letter of resignation in the light of the interpretation given by the Applicant to section 52 of its Articles and in light of the fact that Applicant was making a departure from its past practice of distinguishing between a director and an employee. It simply advised the third Respondent that it regarded his letter to constitute a resignation both as director and employee.

[21] Applicant’s further argument that the Articles constitute some kind of statute to which it is unconditionally bound is to misconceive the nature of Articles of Association of a Company. Not only, as I have said earlier, is the Articles a business document but one to which the maxim”validate if possible” applies [See Rayfield v Hands [1958] 2 All ER 194 (Ch) at 199]. It is therefore a document that by required consent can change with the changing business circumstances at any given time . Where therefore , a Company has adopted a practice ( without any objection from those whose consent is required to make changes to the Articles) that may not have been in line with certain provisions of its Articles why should such practice not continue. I see no reason why it cannot be said that Articles should be interpreted in accordance with the practice that has been adopted by the Company over the years.

[22] If I am wrong about the Articles being capable of being interpreted in the light of Company practice Applicant’s argument that section 52 of its Articles properly means that resignation as director ends the employment relationship I find to be invalid. [23] Section 52 of the articles indicates that that section is applicable only to directors who are appointed as executive directors or managing directors of the company - (“ the directors may appoint from time to time one or more of the directors as executive directors or as managing directors of the company on such terms and conditions as to remuneration . . . .”(emphasis added). The Respondent in the matter was not a director when he was appointed as executive financial director , he was an employee - financial manager therefore it cannot be said that section 52 is applicable to him . [24] If persons who were employees and then made executive directors were to be bound by section 52 of the Articles then this section would not have included the phrase “ appoint ...one or more of the directors as . . .”. The use of this phrase I am satisfied does not allow for the interpretation that Applicant seeks to place on this section. This section I am satisfied only sought to ensure that only those from amongst its board of directors who were inducted as employees could not retain their employee status if their directorship came to an end .

[22] If I am wrong about the Articles being capable of being interpreted in the light of Company practice Applicant’s argument that section 52 of its Articles properly means that resignation as director ends the employment relationship I find to be invalid.

[23] Section 52 of the articles indicates that that section is applicable only to directors who are appointed as executive directors or managing directors of the company - (“ the directors may appoint from time to time one or more of the directors as executive directors or as managing directors of the company on such terms and conditions as to remuneration . . . .”(emphasis added). The Respondent in the matter was not a director when he was appointed as executive financial director , he was an employee - financial manager therefore it cannot be said that section 52 is applicable to him .

[24] If persons who were employees and then made executive directors were to be bound by section 52 of the Articles then this section would not have included the phrase “ appoint ...one or more of the directors as . . .”. The use of this phrase I am satisfied does not allow for the interpretation that Applicant seeks to place on this section. This section I am satisfied only sought to ensure that only those from amongst its board of directors who were inducted as employees could not retain their employee status if their directorship came to an end .

[25] Since section 52 of the Articles does not provide that the third Respondents’ resignation as director to also constitute resignation as an employee , Applicant’s actions in advising the third Respondent that his letter of resignation as director constituted resignation as employee constituted a dismissal. This dismissal was clearly unfair as contemplated by the Labour Relation Act and therefore the conclusion arrived at by the second Respondent cannot be faulted. [26] As the above arguments were the principal basis upon which the Applicant sought to set aside the award, the application must fail. With regard to costs I see no reason why costs in this matter should not follow the result. [27] In the result the application is dismissed with costs. __________________ Waglay J. For the Applicant : Adv. S C Kirk-Cohen instructed by Cluver

Markotter Inc. For the Respondent : B N Conradie of Conradie Attorneys Date of Judgment : 23 November 2001

[25] Since section 52 of the Articles does not provide that the third Respondents’ resignation as director to also constitute resignation as an employee , Applicant’s actions in advising the third Respondent that his letter of resignation as director constituted resignation as employee constituted a dismissal. This dismissal was clearly unfair as contemplated by the Labour Relation Act and therefore the conclusion arrived at by the second Respondent cannot be faulted.

[26] As the above arguments were the principal basis upon which the Applicant sought to set aside the award, the application must fail. With regard to costs I see no reason why costs in this matter should not follow the result.

[27] In the result the application is dismissed with costs.

__________________

For the Applicant : Adv. S C Kirk-Cohen instructed by Cluver

Markotter Inc.

For the Respondent : B N Conradie of Conradie Attorneys

Date of Judgment : 23 November 2001