CIV/APN/214/94
IN THE HIGH COURT OF LESOTHO
In the matter between;
LESOTHO AMALGAMATED CLOTHING
AND TEXTILE WORKERS UNION APPLICANT
AND
LESOTHO APPAREL (PTY) LTD.
(IN LIQUIDATION) 1ST RESPONDENT
M.T. MATSAU N.O. (LIQUIDATORS) 2ND RESPONDENT
JUDGMENT
Delivered by the Honourable Mr. Justice W.C.M. Maqutu on the 14th day of October, 1994.
The matter was brought as a matter of urgency by Applicant against the Respondents ex parte. A Rule Nisi was issued by Molai J. on the 6th July, 1994 in terms of prayer 2 of the Notice of Motion in the following terms:
"1, The ordinary Rules pertaining to modes and periods of services are dispensed.
A Rule Nisi be and is hereby issued returnable on the 1st day of August, 1994
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calling upon the respondents to show cause (if any) why:-
applicant's members shall not be paid their wages for the period between 23rd and 31st May, 1994.
applicant's members who were employed by first respondent shall not be paid their notice money.
Applicant's members who were employees of the first respondent and who have completed more than one year of continuous service with the first respondent shall not be paid their severance pay.
the second respondent shall not be interdicted from paying out any claims and/or payments as contemplated under Section 101, 102 of the Insolvency Proclamation of 1957 and those thereafter following finalisation
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hereon."
The matter was postponed.
On the 26th September, 1994 the matter was argued after several extensions of the Rule.
At the outset I was told that prayer l(a) of the Rule Nisi was not being pursued because Second Respondent had settled the amount on the 5th July, 1994. This was before the application was made before Molai J. on the 6th July, 1994.
The question of the locus standi of the Applicant arose. The question does not have to be decided in these proceedings for the following
reasons—
All correspondence including cheques were made in favour of Applicant.
On page 2 of Applicant's annexure "B", Second Respondent specifically requests applicant to represent non-union members in this matter.
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That being the case I felt Second Respondent, who is in charge of First Respondent, cannot be heard to challenge applicant's locus standi in the light of the aforegoing.
The issues that are before me for determination are:
Whether the employees were entitled to payment of money in lieu of notice.
Whether although the First Respondent Company having been under liquidation for more than ayear is obliged to pay the employees that Applicant represents severance pay because the employees were allowed to continue working for that period.
If the employees are entitled to preferent treatment in respect of the above, then Second Respondent has to restrained from paying out other claims.
In Applicant's annexure "C" Second Respondent says:
"In order to secure the interests of creditors and employees alike, I obtained the permission
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of the Master of the High Court and the general body of creditors to continue the operation of the factory with the specific aim of selling it as a going concern to a prospective purchaser. Such a purchaser was immediately identified as Goldmaster Investment Ltd a holding company of Lesotho Apparent (Pty) Ltd. Preliminary discussions had been commenced with the said Goldmaster Investments
Ltd. and a tentative agreement in principle reached."
It is common cause that the employees have remained in the employment of the company under liquidation for fifteen months. Therefore reading faction 79(1) of the labour Code 1992 in isolation they have
"completed more than one year of continuous service with one employer"
This would entitle them to a severance payment equivalent to two weeks' wages for each completed year of continuous service with that employer.
In terms of Section 100(1) of the Insolvency
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Proclamation 51 of 1957 employees are entitled to salary and wages not exceeding two months prior to the date of sequestration of the estate, due to the employee who was engaged by the month. The employees on behalf of whom Applicant is acting were paid monthly.
An employee is also entitled to payment in lieu of leave not exceeding 14 days. An employee is entitled to salary and wages even though he has not proved his claim so long as he submits an affidavit in support of his claim for such salary and wages. Vide Section 100(2) and (3) of the Insolvency Proclamation 1957. The Insolvency Proclamation in respect of the employees preferent treatment as to wages has put the issue beyond doubt.
It seems to be common cause that this claim has been met in full in respect of the period that the employees continued work when the company was already under liquidation. Should the employees receive preference over creditors in respect of other creditors beyond what has been provided by the Insolvency Proclamation?
In seeking to answer this question, reference has to be made to Section 90 of the Labour Code 19 92 which
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provides,
"Notwithstanding the provisions of any other law in force in Lesotho, whenever any attachment in execution of a judgment, the proceeds realised in pursuance of such execution shall not be paid by any court to the plaintiff until a debt owed by such an employer in respect of wages has been satisfied to the extent of the sum not exceeding four months' wages of such employee. However nothing in this Section contained shall be deemed to prevent an employee from recovering any balance due on such judgment by ordinary process of law,"
As already stated, wages have been met in full. Therefore the minimum standard set by the labour Code has been exceeded if we take the agreed date in May 1994 as the cut-off date.
It seems to me that even the Labour Code 1992 does not on the face of it give severance pay priority over other claims. The Insolvency Proclamation does not refer to severance pay at all, During argument neither Counsel attempted to fit severance pay within the meaning of wages. Section 3 of the Labour Code 1992 defines wages as meaning—
"remuneration or earnings, however designated
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or calculated, capable of being expressed in terms of money, fixed by law or by a mutual agreement made in accordance with the Code, and payable by virtue of a written or unwritten contract of employment for work done or to be done or for service rendered or to be rendered."
This definition does not quite clarify the issue. If we take Section 90 of the Labour Code 1992 as protecting the employee's wages up to four months severance pay (which is a right that accrues after 12 months) does not seem to be protected by the labour Code.
Severance pay is not defined in the Labour Code. In Section 79 of the Labour Code 1992 employees are given a right to severance payments. We in Lesotho do not know the history of severance payments. Rycroft and Jordan in 4 Guide to South African Labour Law at page 244 say:
"the English law position that a severance allowance is not unemployment pay, but compensation for the loss of accrued rights in a job, and is payable even if the retrenthed worker gets another job immediately."
According to Rycroft and Jordan age page 245 of their above-mentioned book, the South African Industrial Court
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has called for legislation that would make payment of severance payments compulsory. Lesotho has with Section 79 of the Labour Code 1992 made such severance payments compulsory. In South Africa they remain the outcome of collective or individual bargaining not legal rights. Although in Lesotho severance payments are now legal rights of employees, South African legal literature on the subject is a useful guide,
J. Grogan in Rikert's Basic Employment Law 2nd Edition at pages 116 to 117 sees severance payments as part of the fair labour practices system in terms of which the employer financially assists retrenthed employees over and also gives such employee notice pay. Even in the absence of agreements the Industrial Court of South Africa has often ordered severance on grounds that
"workers of long standing acquired a vested interest in their jobs, that because they lost employment through no fault of their own they were deserving of assistance to tide them over a period of possible unemployment, and that the payment of severance pay was the norm in the industries concerned."
In the light of this history of severance pay, I conclude the English see it as compensation for loss of accrued
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rights in the job, while the South Africans see it as financial assistance to tidy employees who suddenly lost employment over the period of possible unemployment. That being the case severance pay cannot be deemed to be wages. Consequently severance payments although they are rights of employees are not specially protected rights of employees in terms of Section 90 of the Labour Code 1992 or Section 100 of the Insolvency Proclamation 1957.
I agree with Mr. Mosito Counsel for Applicant that the contracts of employment of employees terminate automatically in the event of liquidation. Their preferent claim in respect of salary and wages in my view is governed by Section 100 of the Insolvency Proclamation
1957 read along with Section 90 of the labour Code, 1992 claims of employees under this head have been met. The only problem that this Court has to decide is that of payments of money in lieu of notice.
Mr. Penzhorn for the Respondents submitted that from February 1993 when the company became insolvent the employees were not employed in terms of a definite contract but rather on an ad hoc basis. The Labour Code does not provide for employment on an ad noc basis. I
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have difficulty with this definition of the status of the employees after February 1993.
There can never be a comprehensive definition of a contract of employment. In South African common law which is Lesotho's common law, a contract of employment developed from the locatio conductio operarum which, Roman law was available only for so-called "operae illiberales or menial tasks". Riekert's Basic Employment Law Second Edition page 1. The Romanistic principles being antiquated our present common law is in fact an amalgam Roman-Dutch and English law. A development which should be expected as the English became the rulers of the Cape of Good Hope for at least a century.
From the historical perspective, it is clear that in general contracts of employment for monthly and weekly wages are so to speak ad hoc. This is precisely because entrepreneurs most of whom are the employers take a risk when they open a factory or any business venture. Therefore it is logical and fair to conclude that there is no such a thing as an ad hoc contract of employment to which the minimum standards set by the old Employment Act of 1967 and the present Labour Code of 1992 do not apply.
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Although the Second Respondent as the liquidator of the company was operating within the parameters of the Insolvency Proclamation he and the creditors retained the employees in order to increase their return or dividend in the Rand of Loti from the proceeds of the insolvent estate if they sold the business as a going concern.
Despite the notional freedom to contract that the law expects of an employer and employee, in reality the dice is heavily loaded against the employee. Riekert's Basic Emplyment Law 2nd Edition page 4 concludes
"The master and servant laws clearly gave primacy to the interest of employers over employees and this may have induced the
early courts to adopt a view of employment relationship which has today become anachronistic,"
Although I have to interpret the position of employees and their right of notice in the light of the labour Code 1992 and the principles of fairness it introduces, I think I should also base my judgment on the particular facts of the case. The right to notice of termination of employment is statutory.
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The determination of this matter should revolve around Second Respondent's letter annexure "C" to Applicant dated 29th
June, 1994 read along with the first letter annexure "A" of 27th May, 1994. Second Respondent says he "obtained permission of the Master and the general body of creditors to continue the operations of the factory with the specific aim of selling it as a going concern to a prospective purchaser". I take this to mean that the creditors could have taken their money immediately by getting the factory sold as it stood in February, 1993, As the purchaser at a public auction might have bought it at a rock bottom price, the creditors decided to invest their stake in the factory in collaboration with Goldmaster Investment Ltd. by keeping the factory a going concern so that it could fetch a good market price. This, in the reckoning of the Second Respondent and the creditors, would give the creditors a good return for their money. It probably has, there was probably some profit that accrued from business operations between February 1993 and May 1994. Second Respondent is silent about this. Even if there was no profit employees gave value for money, they are entitled to their rights.
The failure to disclose material facts cannot be
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interpreted against the employees. The prospective purchaser who ploughed more money into the factory is Goldmaster Investment Ltd., a holding company of Lesotho Apparel (Pty) Ltd. which is the First Respondent. By this holding company is meant a parent company. In Zangeberg Koop v Inverdorn Farming & Trading Co. 1965 (2) SA 597 the relationship between a parent company and a subsidiary gave the courts a great deal of problems. The question being whether dispositions inter as were for value or not. There is always the suspicion such transactions raise in the minds of those who have to be tossed about by a parent company and a subsidiary hiding behind the veil of incorporation, In Incorporated Industries Ltd v standard finance Corporation Ltd. 1961 (4) SA 254 at 255 Kuper J. was seized with a case in which a subsidiary sought to acquire shares of a parent or holding company, he pointed out the danger of a company trafficking in its own shares by indirect means. In other words the employees cannot be prejudiced by the games the parent or holding company may be playing with its subsidiary by offering to acquire it one minute and abandoning it to sink the next minute.
There is no need to attempt to lift the veil of incorporation to realise that Goldmaster Investments Ltd.
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is running circles around everybody. At one time their subsidiary is under liquidation, they offer to buy its factory. According to Second Respondent fifteen months later—
"Much (the surprise of Second Respondent) and with any warning Goldmaster unilaterally decided to repudiate the agreement, and were no longer prepared to purchase the factory and they withdrew all support they had hitherto given to the factory and halted operations. They instead authorised their subsidiary Qwa-Qwa Apparel to offer to purchase the equipment and assets of the factory at a negotiated price."
If indeed Goldmaster Investments Ltd. was running its subsidiary, the First Respondent (Lesotho Apparel under Liquidation) during these 15 months without any complaint, its sudden change of stance is unconscionable. Could it not be that Goldmaster Investments' Limited makes a profit out of the process of liquidation and insolvency of subsidiaries? Qwa-Qwa Apparel is also a subsidiary of Goldmaster Investment Ltd. Now after putting the Second Respondent in a corner where there seems to be no escape,
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Goldmaster Investments Ltd. cancels the deal and pushes him to sell equipment and assets from the Lesotho subsidiary to the Qwa-Qwa Apparel subsidiary. This strikes me as a disposition for only nominal value of assets within a group of companies for which Goldmaster
Investments Limited is the parent company.
This juggling around of assets within the Goldmaster Investment family of companies strikes me as prejudicial to creditors. Creditors are not a party in these proceedings, and I am sure they can look after themselves. The employees are through this application pursuing their own interests. They cannot just be dropped like a hot potato merely because attempts of creditors to increase their returns from their share of the bankrupt estate have gone wrong. The employees should not lose their right to notice because the Goldmaster Investment group is running circles around Second Respondent.
I have already said employees have given work for value in terms of the contract of employment such as it was in the circumstances, Creditors took the risk and nothing in the papers suggests that creditors lost heavily, reading between the lines (because Respondents
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are not communicative) the factory must have made a profit and as a going concern is worth more. Other purchasers could probably have been found. I see no reason why the employees should be denied what they are entitled to by law and as matter of fairness.
In terms of Section 61 of the Labour Code 1992, Part V of the Code applies to all contracts as their bottom line. Therefore the employees are in terms of Section 63(1) of the Labour Code 1992 entitled to a month's notice pay in addition to what has already been paid to them because they have
"been continuously employed for one year or more"
with the First Respondent as represented by the Second Respondent.
In reaching this conclusion I am guided by the spirit of the Labour Code 1992, This is because a new owner of the factory had been found for the employees and their continued employment seemed assured. They therefore stopped looking for alternate employment. The Respondents
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and the creditors wanted to keep the employees for their purposes and did indeed do so. Riekert's Basic Employment Law 2nd Edition at page 116 with whom I agree says,
"Once the individual employees have ben accepted for retrenchment and finally consulted, the employer should give them as
much notice as possible to enable them to make plans for alternative employment."
Second Respondent says in annexure "C" he decided to retain the employment—
"in order to secure the interests of the creditors and employees alike."
Second Respondent says per agreement Goldmaster Investment Ltd. supported operations of the factory and it was business as usual. In other words the position changed from what it was in February, 1993 when the provisional order of sequestration which was later confirmed. Now that Goldmaster Investment has reneged on the agreements according to Second Respondent:
"We were therefore back to the beginning where workers employment were terminated by operation
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of the state of liquidation."
While this may be so, because of the agreement with Goldmaster Investment Ltd, the right to one month's notice that has accrued to the workers cannot be lost. The creditors and their representative gambled and lost on the deal with Goldmaster Investment Ltd with the consent of the Master. Among the consequences of this gamble is that the employees have by operation of the law become entitled to Notice of termination of their employment, I have already said the operation of the factory must have brought some gain to creditors. The Second Respondent has not alleged or suggested the contrary.
The Order that I Make is as follows:
The Rule Nisi is confirmed in respect of prayer 2(b) of the Rule Nisi and consequently Second Respondent is directed to pay to each of Applicants Members in respect of whom this application has been brought one month's pay in lieu of notice.
Prayer 2(c) of the Rule Nisi is discharged
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because the employees in respect of whom Applicant has brought this application are not entitled to severance pay.
Prayer 2(c) of the Rule Nisi is confirmed and Second Respondent is directed not to make payment to creditors in terms of Sections 101 and 102 of the Insolvency Proclamation 1957 until claims authorised by this order have been satisfied.
Applicants have substantially succeeded consequently they are awarded two thirds of the taxed costs.
W.C. M MAQUTU
JUDGE
For the Applicant : Mr. Mosito
For the Respondents : Mr. Penzhorn
