IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA LAC case …

IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA

Case CCT: 214 / 2015

LAC case no: JA 79 / 2014

In the matter between:

RURAL MAINTENANCE (PTY) LTD First Applicant

RURAL MAINTENANCE (FREE STATE) (PTY) LTD Second Applicant and MALUTI-A-PHOFUNG LOCAL MUNICIPALITY Respondent

________________________________________________________________

APPLICANTS’ SUBMISSIONS

________________________________________________________________

A INTRODUCTION

1. The First and Second Applicants will be referred to as “Rural”.

2. The Respondent will be referred to as “MAP” or “the Municipality”.

3. This is an application for leave to appeal against the judgment and order of

the Labour Appeal Court (per Davis JA, with Coppin JA and Savage AJA

concurring) handed down on 21 October 2015. This judgment reversed the

judgment and order of the Labour Court (per Tlhotlhalemaje AJ).

4. Leave to appeal is sought against the whole judgment, save for the Labour

Appeal Court’s findings in regard to the “positive act” issues referred to in

paragraphs [14] to [23] of the judgment. Rural does not challenge the

Labour Appeal Court’s findings in this regard1.

1 Insofar as is necessary, the “positive act” issues are dealt with below.

2

5. In addition, Rural seeks leave to introduce new evidence dealing

essentially with the Labour Appeal Court’s findings in regard to the assets

transferred by Rural to MAP2.

6. Rural initially sought relief by way of urgency in the Labour Court,

pursuant to Section 197 of the Labour Relations Act 66 of 1995 (“the

LRA”).

7. In short Rural sought an order confirming that the contracts of employment

of a number of its employees had transferred to MAP in terms of Section

197 of the LRA. The transfer alleged followed upon the cancellation of an

outsourcing contract between Rural and MAP on 1 April 2014. This

contract (the Electricity Management Contract, “the EMC”) provided for the

outsourcing by MAP to Rural of electricity management services.

8. Rural was successful in the Labour Court before Tlhotlhalemaje AJ, who

granted an order as follows on 21 May 2014:

“i. It is declared that with effect from 1 April 2014, the employment contracts of the employees listed in annexure “A” of the Applicants’ Notice of Motion are transferred to Maluti-A-Phofung Local Municipality (The Municipality) in terms of section 197 (2) of the Labour Relations Act.

ii. The Municipality is directed to comply with the provisions of section 197 in relation to the transfer of the employees as mentioned above.

iii. There is no order as to costs.”

9. MAP sought leave to appeal against the judgment of Tlhotlhalemaje AJ.

Leave to appeal was refused. Subsequently, MAP petitioned to the Labour

Appeal Court for leave to appeal, and was granted leave to appeal.

2 This relief is sought in terms of Rule 30 of the Rules of this Court.

3

10. On 21 October 2015, the Labour Appeal Court upheld MAP’s appeal in

this matter, and replaced the Labour Court’s order with an order that

Rural’s Section 197 application is dismissed with costs.

B REQUIREMENTS FOR LEAVE TO APPEAL

11. This application for leave to appeal is brought in terms of Section

167(3)(b)(i) and (ii) of the Constitution of the Republic of South Africa, and

Rule 19 of the Rules of this Court.

12. In order for Rural to be granted leave to appeal, it must demonstrate that

(i) the matter raises a constitutional issue3; or (ii) the matter raises “an

arguable point of law of general public importance which ought to be

considered by [the] court”4.

13. There is no dispute, nor can there be, that Rural’s appeal raises a

constitutional issue5. This Court has often held that the interpretation of the

LRA involves a constitutional issue (as the LRA was enacted to give effect

to Section 23 of the Constitution), and has done so expressly with

reference to Section 1976.

14. MAP, however, disputes that Rural’s appeal raises arguable points of law

of general public importance7.

3 Section 167(3)(b)(i) of the Constitution.

4 Section 167(3)(b)(ii) of the Constitution. See Paulsen and another v Slip Knot Investments 77

(Pty) Ltd 2015 (3) SA 479 (CC) at para [16]. 5 Volume 4, answering affidavit of MAP in application for leave to appeal, pp 356, para 9, pp 357,

para 10, pp 364, 365, para 25. 6 See most recently, City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd &

others (2015) 36 ILJ 1423 (CC) at para [14]. 7 Volume 4, answering affidavit of MAP in application for leave to appeal, pp 356-358, para 9-14.

4

15. At issue, amongst other things, is the determination of the proper test to be

applied when an outsourced business or service (or part thereof) is

transferred. At issue therefore is a point of law. This should be

uncontroversial.

16. The point of law must be arguable. In order to qualify as arguable, there

must be substance in the argument advanced; it must have some

prospects of success8.

17. The general public importance requirement has been interpreted as

meaning that the point of law must transcend the narrow interests of the

litigants and implicate the interest of a significant part of the general

public9.

18. The proper interpretation and application of Section 197 of the LRA is, by

its very nature, of public importance.

19. The requirement that the point of law is one that ought to be considered by

this Court, has been interpreted as meaning that it must be in the interests

of justice for the court to determine the point10. In order to meet this

requirement, Rural must establish, inter alia, that there are reasonable

prospects that this Court will reverse or materially alter the decision of the

Labour Appeal Court11.

20. Leave to appeal ought to be granted

20.1 It is submitted that the requirements for leave to appeal have been

met by Rural and leave to appeal should be granted. Moreover,

Rural’s appeal ought to be upheld.

8 Paulsen at paras [21]-[22].

9 Paulsen at para [26].

10 Paulsen at paras [17]-[18].

11 Paulsen at para [29].

5

20.2 At issue in this appeal is, amongst other things, (i) the proper test to

be applied when a business or undertaking is transferred as a

going concern; (ii) whether only one factor or requirement is

decisive or whether a holistic approach should be adopted; (iii) the

proper approach to be adopted when a service is in-sourced and

(iv) a consideration of the United Kingdom jurisprudence in regard

to a service provision change ("SPC"). These issues are all

constitutional issues.

20.3 As submitted below, the Labour Appeal Court introduced a new and

decisive test for the operation of Section 197 – the “seamless

transition” test or requirement. This also raises both a constitutional

issue, and arguable points of law of general public importance.

20.4 The difference in approach between the judgment of the Labour

Appeal Court and prior judgments of the Labour Appeal Court and

this Court (City Power12, TMS Group13 and MTN14) favours the

granting of leave to appeal. Conflicting or inconsistent judgments by

the Labour Appeal Court regarding Section 197 and outsourcing /

insourcing would favour the grant of leave to appeal15.

20.5 Not only is a constitutional issue raised by this matter because it

involves an interpretation of the LRA, but also because it deals with

the obligations borne by municipalities, which are sourced from

Sections 152 and 153 of the Constitution16.

12

City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd & others (2014) 35 ILJ 2757 (LAC). (Upheld on appeal to the CC in City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd & others (2015) 36 ILJ 1423 (CC). 13

TMS Group Industrial Services (Pty) Ltd t/a Vericon v Unitrans Supply Chain Solutions (Pty) Ltd & others (2015) 36 ILJ 197 (LAC). 14

Communication Workers Union and Others v Mobile Telephone Networks (Pty) Ltd and another (2015) 36 ILJ 1819 (LAC). 15

See by way of analogy, NEHAWU v University of Cape Town & others (2003) 24 ILJ 95 (CC) at para [26]. 16

See City Power (CC) para [14].

6

20.6 MAP itself contends that this case is different to other Section 197

cases dealt with by the Supreme Court of Appeal ("the SCA") and

in this Court.

20.7 In its answering affidavit17 in the Section 197 application MAP

states that “. . . This case, therefore, is different to other cases

grappled with by both the Supreme Court of Appeal and

Constitutional Court ala Aviation Union of South Africa and

Another v South African Airways (Pty) Ltd and Others 2012 (1)

SA 321 (CC)”. In its heads of argument before the Labour Appeal

Court18 MAP submitted that “. . . Notwithstanding, it is

appreciated that difficult issues are raised in this appeal. This

case presents a unique set of facts unlike any reported

judgment that currently exists in our jurisprudence”.

20.8 The fact that the original outsourcing attracted the operation of

Section 197 is significant. This was overlooked by the Labour

Appeal Court.

20.9 The matter raises important questions and issues of principle that

go beyond the litigants themselves19. Outsourcing and insourcing

are common features of economic life involving the State and

private business. Clarity on the appropriate test to be applied will

guide the conduct of business, trade unions and State in relation to

the applicability of Section 197 in the future, thus serving to protect

the rights of all parties concerned and in particular employees20.

17

Volume 3, answering affidavit in Section 197 application, pp 236, para 23. 18

Volume 6, Rural's heads of argument in the Labour Appeal Court, pp 472, para 21. 19

See Aviation Union of South Africa and another v South African Airways (Pty) Ltd and others 2012 (1) SA 321 (CC), paras [31],[32].

20As stated in Wynn-Evans, The Law of TUPE Transfers, Oxford, 2013, p ix:

“Since coming into force in 1982, TUPE has been of the most important aspects of the domestic statutory employment law regime, having immense practical, commercial, and financial significance for employers and employees in the private and public sectors in relation to transactions such as outsourcings, contract retenderings, and business sales. Whether considering employees’ rights on a transaction out of insolvency, addressing what happens to

7

20.10 The Labour Court (Tlhotlhalemaje AJ) and the Labour Appeal Court

came to very different conclusions, and the Labour Court refused

leave to appeal. The significant difference in approach between the

Labour Court and the Labour Appeal Court (and again the

introduction by the Labour Appeal Court of a new test), warrants

the granting of leave to appeal.

20.11 As dealt with below, the Labour Appeal Court misdirected itself by

making findings in the absence of any evidentiary support therefor.

This too warrants leave to appeal being granted.

20.12 In all of the circumstances, Rural has reasonable prospects of

success on appeal (i.e. that MAP’s appeal to the Labour Appeal

Court should have been dismissed). Rural ought to be granted

leave to appeal, and in the event that Rural is granted leave to

appeal, its appeal should succeed.

C THE PLEADINGS, MAP’S HEADS OF ARGUMENT BEFORE THE

LABOUR APPEAL COURT AND THE LABOUR APPEAL COURT’S

JUDGMENT

21. Pleadings

21.1 Rural’s case as pleaded before the Labour Court and the Labour

Appeal Court was that the business of the provision of electricity

services together with the infrastructure necessary for the conduct

of the business was transferred. This constituted a transfer in terms

of Section 197 of the LRA.

employees on an outsourcing or the retendering of a service contract, or assessing the employment-related liabilities associated with the sale of a business, TUPE issues are often closely scrutinized by, and affect the interests of, a variety of interested parties. The commercial consequences of applying an incorrect interpretation of TUPE can be significant for all concerned, quite apart from the consequent potential prejudice to employees’ legal rights and livelihoods.”

8

21.2 In this regard, Rural alleged that “[t]he entire Network Business

relating to all aspects of the Project, i.e. the provision of all

electricity related services to inhabitants of the Municipality’s

jurisdictional area, has reverted back to and has been taken over

by the Municipality and is already under the control of the

Municipality and possession of the Network and the Capital Assets

have already been returned to the Municipality”21.

21.3 Rural also alleged that “[t]he entire electricity distribution

infrastructure of the Municipality that Rural and Rural Free State

were in control of and utilised (and maintained and upgraded) for

the provision of all electricity related services to inhabitants of the

Municipality’s jurisdictional area, as the Municipality had previously

done, are no longer under the control of Rural and Rural Free State

and has been handed back, together with the additions and

improvements thereto effected by Rural and Rural Free State, to

the Municipality”22.

21.4 Rural alleged further that the rendering of electricity supply services

by Rural had ceased and was being conducted by the Municipality;

Rural was no longer providing electricity to the inhabitants within

the Municipality’s area of jurisdiction but instead the Municipality

was doing so; the Municipality was rendering to the same clients

the service that previously Rural had been rendering using the core

essential infrastructural assets that had been transferred (back) to

the Municipality and which Rural had previously been using to

render the service23.

21.5 Rural alleged further that the business (or service) (the core

essential infrastructural assets and the rendering of electricity

21

Volume 1, founding affidavit in Section 197 application, pp 44, para 78. 22


Volume 1, founding affidavit in Section 197 application, pp 44-45, para 81.

9

services to the same clients) that had transferred (back) from Rural

to the Municipality was the same business or service24.

21.6 In its replying affidavit Rural alleged that the infrastructure

transferred back to the Municipality comprised, amongst other

things, substations, switch gears, protection and isolators,

transformers, powerlines, drop-out fuses and links and metering

equipment. It is also alleged in the replying affidavit that Rural took

control of the Municipality’s prepaid vending system comprising of

approximately 30 prepaid stations. These assets too were

transferred back to the Municipality25.

21.7 Rural also alleged that certain assets were retained by Rural, being

peripheral or ancillary assets such as vehicles, computers,

stationery and the like26.

21.8 According to MAP:

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

24

Volume 1, founding affidavit in Section 197 application, pp 44-45, para 81. 25

Volume 3, replying affidavit in Section 197 application, pp 256, paras 9, 10 read with pp 257, para 15.

26 Volume 3, replying affidavit in Section 197 application, pp 257, para 18.

10

court. I understand this to be a threshold requirement for the trigger of section 197.”27 (own emphasis)

“47. Noticeably absent from these paragraphs (in which Rural allege that they transferred their business as a going concern to us) is an itemized inventory of exactly what their business was. One would expect that an allegation of a business being transferred as a going concern would explain what the business was (assets, liabilities, etc). The founding affidavit does not do this. The founding affidavit does not even explain to us what Rural’s “business” entailed. The meaning of “a business as a going concern” has a very specific meaning in mercantile parlance. The founding affidavit, in my submission, fails to describe Rural’s business and what it would mean for it to qualify as a going concern. For example, I presume that Rural were operating from offices that were either owned by them or leased by them. I assume that Rural had assets which may have included motorvehicles, computers, laptops, cellphones, office furniture, tools, and other equipment needed to carry out its operation. I would assume that Rural’s business had both creditors and debtors. I assume it had intellectual property too. None of these aspects that one would ordinarily find in an inventory of a business being transferred as a “going concern” are apparent from these papers. None of these aspects were factually transferred to the Municipality either. We do not have any of their assets, we do not have their motorvehicles, cellphones, computes, laptops, equipment, etc. Their contracts have not been ceded to us nor have their debtor’s books. This, I respectfully submit, translates into the only inference that their business was not transferred to us as a going concern.”28 (own emphasis)

21.9 MAP did not identify specific assets in its answering affidavit before

the Labour Court which it contended were necessary to continue

the function of debt collection or any other function.

21.10 MAP also did not contend in its answering affidavit before the

Labour Court that without the vehicles, computers, stationery and

the like, retained by Rural, it was unable to operate the business

and render electricity services29.

21.11 Indeed, MAP in its answering affidavit does not contend that without

27



Volume 3, answering affidavit in Section 197 application, pp 246, para 47.

11

any specific asset it is unable to operate the business and render

electricity services30. Its complaint is limited to financial or

budgetary constraints (“We simply do not have the money to

employ 111 additional people”31), which complaint is irrelevant to

the determination of whether a transfer as envisaged in terms of

Section 197 of the LRA has taken place32.

21.12 In short, MAP did not say that significant or necessary assets were

not transferred. This is confirmed in MAP’s answering affidavit in

the application to adduce further evidence wherein it is stated “[t]he

Municipality could not, with any specificity, detail exactly what had

not been transferred to it because it simply did not know”33.

22. MAP’s Heads of Argument

22.1 In MAP’s heads of argument before the Labour Appeal Court, and

as dealt with below, a different case was made out. Now MAP

made positive assertions regarding specific assets not transferred

and that such assets were necessary for the conduct of the

business.

22.2 In its heads of argument before the Labour Appeal Court34, MAP for

the first time alleged that a number of assets “crucial to the

operation of [Rural’s] business as a viable economic enterprise,

were not transferred to the Municipality”, inter alia, computer

software systems for inter alia electricity metering, billing and

collection.

22.3 MAP also for the first time in its heads of argument before the

30



See City Power (LAC) paras [27] and [28] at 2766. 33

Volume 5, answering affidavit in application to lead further evidence, pp 405, para 11. See also pp 403, para 9. 34

Volume 6, Rural's heads of argument in the Labour Appeal Court, pp 477, paras 33-35.

12

Labour Appeal Court alleged that "[a]fter the termination of the

relationship between Rural and the Municipality the obligation to

charge for electricity, invoice the customer and collect debts fell

upon the Municipality. But the means to perform the activity (i.e. the

software and digital information) was not transferred. The

Municipality therefore did not have the means to perform the

activity”35, and that “In order to make it a going concern or an

economic entity, the Municipality will have to engage in

considerable expense to acquire the necessary assets to operate

the service as a business”36. (own emphasis)

22.4 No such detailed allegations were made in MAP’s answering

affidavit before the Labour Court, and MAP was thus precluded

from dealing with such allegations for the first time in argument.

However, and as dealt with further below, the Labour Appeal Court

accepted that without the computer software systems for electricity

metering, billing and collection MAP “would not have been able to

continue [the same] business seamlessly after the ‘transfer'"37.

23. Judgment of the Labour Appeal Court

23.1 Similarly in its judgment the Labour Appeal Court made positive

factual findings in regard to both specific assets not transferred and

in regard to their necessity for the conduct of the business.

23.2 The key passages of the Labour Appeal Court judgment are

contained in paragraphs 36 and 37 and read as follows38:

“[36] Significantly, earlier on in his affidavit Mr Bester sets out ‘the

considerable expenditure’ incurred by Rural, when it began to fulfil

its obligations under the EMC including two specialised trucks,

35



Volume 4, judgment of the Labour Appeal Court, pp 324 lines 12-14. 38

Volume 4, judgment of the Labour Appeal Court, pp 323, 324.

13

electrical infrastructure mapping and the purchase of an

immovable property as well as software systems ‘in regard to the

electricity metering, billing, collection, customer care, fault desk,

call centre, technical services and the like’. All of these were

considered to be necessary for the operation of the business

conducted by Rural. As indicated earlier, many of these assets

were not transferred to the appellant and accordingly, without

significant investment by the latter, it would be impossible for the

appellant without more, to seamlessly conduct the same business

as that which had been conducted by Rural.

[37] In my view, given that the onus rests upon the respondent to

show, on the probabilities, that a transfer of a business as a going

concern had taken place, it cannot be said that the same business

conducted by Rural had been transferred so that it was now

conducted by a different entity, namely appellant. Take but one

critical issue, debt collection. For debt collection to be continued

seamlessly by appellant, this component of the business had

been conducted by Rural, it was necessary to meter the use of

electricity, invoice the consumer and collect payments therefrom.

Essential to this process would have been the use of software and

information stored and used in digital form as had been employed

by Rural. In short, the means to perform this debt collection

activity had not been transferred. On its own, this was a significant

component of the overall business. It supports the overall

assessment that it cannot be said, on these papers, that the very

business conducted by Rural had been transferred to appellant.

Expressed differently, appellant would not have been able to

continue business seamlessly after this ‘transfer’. For these

reasons, the appeal must be upheld.” (own emphasis)

23.3 The Labour Appeal Court found that the means used by Rural

(software and data) to perform debt collection had not been

transferred to MAP. The Labour Appeal Court further found that on

its own, this was a significant component of the overall business,

and that this supported the overall assessment that “the very

business” (i.e. the same business) conducted by Rural was not

transferred to MAP. Put differently, it would not have been able to

“continue [the same] business seamlessly” after the transfer.

14

D APPLICATION TO LEAD FURTHER EVIDENCE

23.4 It is submitted that it is necessary for this Court to have before it the

true facts in order to determine whether these facts warrant the

findings of the Labour Appeal Court. This is necessary in order to

do justice between the parties.

24. Applicable legal principles

24.1 Firstly, the legal principles to be applied to an application to lead

further evidence on appeal are dealt with.

24.2 A leading authority in this Court on the issue of the leading of

further evidence on appeal is the case of Rail Commuters Action

Group and others v Transnet Ltd t/a Metrorail and others39.

24.3 In Rail Commuters Action Group this Court endorsed the views of

the SCA and held that new evidence should only be permitted in

exceptional circumstances. This is due to the fact that on appeal,

the court is tasked with determining the correctness, or otherwise,

of an order by another court and reference to the record from the

lower court should determine that fact, but that exceptional

circumstances may warrant a variation of that rule40.

24.4 This Court confirmed in Rail Commuters Action Group that the

relevant criteria in determining whether new evidence on appeal

should be admitted include the need for finality, the undesirability of

permitting a litigant who has been remiss in bringing forth evidence

to produce it at a late stage and the need to avoid prejudice. This

Court referred to Colman v Dunbar wherein it was held that the

most important criteria was that "[t]he evidence tendered must be

weighty and material and presumably to be believed, and must be

39

2005 (2) SA 359 (CC). 40

Para [41].

15

such that if adduced it would be practically conclusive, for if not, it

would still leave the issue in doubt and the matter would still lack

finality"41.

24.5 Further, and with reference to S v Louw42, this Court confirmed in

Rail Commuters Action Group that there must be some reasonably

sufficient explanation to account for the failure to tender the

evidence earlier in the proceedings43.

24.6 This Court summarised its position to state that it "should exercise

the powers conferred by s 22 'sparingly' and further evidence on

appeal (which does not fall within the terms of Rule 31) should only

be admitted in exceptional circumstances. Such evidence must be

weighty, material and to be believed. In addition, whether there is a

reasonable explanation for its late filing is an important factor. The

existence of a substantial dispute of fact in relation to it will militate

against its being admitted”44.

24.7 This Court in Prince v President, Cape Law Society, and Others45

also considered the position in relation to new evidence on appeal.

The court confirmed that Section 22 of the Supreme Court Act 59 of

1959 confers a wide discretion on an appeal court to receive further

evidence but that courts do not readily grant leave to do so. The

courts will generally grant leave to adduce further evidence where

special grounds exist, such as where there will be no prejudice to

the other side and where further evidence is necessary in order to

do justice between the parties46.

41

Para [41]. Colman v Dunbar 1933 AD 141 at page 162. 42

1990 (3) SA 116 (A). 43

Para [41]. 44

Para [43]. Confirmed most recently in Trencon Construction (Pty) Ltd v Industrial Development Corporation Of South Africa Ltd And Another 2015 (5) SA 245 (CC) para [53] at pp 260. 45

2001 (2) SA 388 (CC). 46

Para [21].

16

24.8 This Court further confirmed that there is no exhaustive list of

special grounds upon which a court should accede to an application

for leave to lead further evidence and the mere fact that the matter

is of great importance to a party does not in itself constitute a

special ground. However, what has generally been accepted as

constituting a special ground is that the evidence sought to be led

was either not in possession of the party at the time of the trial or by

proper diligence could not have been obtained and the evidence

sought to be led must be credible, material and conclusive47.

24.9 It is submitted that Rural has satisfied the test applicable to adduce

new evidence on appeal. The new evidence sought to be

introduced by Rural, including the evidence that appears from

MAP’s answering affidavit in the application to adduce new

evidence, is weighty and material and to be believed. The

circumstances of the matter are such that the new evidence ought

to be considered by this Court.

25. The further evidence and what it establishes

25.1 The judgment of the Labour Appeal Court centres on debt

collection and related assets. The Labour Appeal Court found that

the means (software and data) used by Rural to perform the debt

collecting activity had not been transferred to MAP.

25.2 The further evidence is necessary to determine whether this

essential finding is correct.

25.3 The further evidence establishes that there are two components to

the debt collection function; prepaid metering and conventional

metering. The import of this evidence is summarised below.

47

Para [21].

17

25.4 Prepaid metering

25.4.1 Revenue collected by way of prepaid meters accounts for

33% of MAP’s revenue.

25.4.2 MAP was at all material times in possession of the prepaid

meters and the software – the Syntell host vending system –

necessary for the collection of revenue in respect of prepaid

meters. There is no dispute in this regard – at least in

respect of 105 905 prepaid meters.

25.4.3 MAP denies that it uses the Syntell system for 13 000

prepaid meters that Rural had installed, because “we did not,

until very recently, even know that they existed”48.

Significantly, MAP does not deny Rural’s allegations that the

Syntell system could easily be used in respect of these

meters. It is also not denied that no significant capital

investment was required in respect of the prepaid meters

and related systems49.

25.4.4 In its founding affidavit before the Labour Court Rural

alleged that in breach of the EMC and during the

subsistence thereof, MAP continued to invoice consumers

and collect money from consumers for electricity consumed.

This allegation is not denied50. Similarly, in paragraphs 38.4,

38.6 and 38.7 of Rural’s founding affidavit in the application

for leave to appeal51, Rural alleges that MAP continued to

collect revenue in respect of the prepaid metering system

48

Volume 5, answering affidavit of MAP in application to adduce further evidence, pp 416, para 35. 49

Volume 5, founding affidavit in application to adduce further evidence, pp 415, 416, para 33, 34, 35. These paragraphs are not specifically denied by MAP. 50

Volume 1, founding affidavit in Section 197 application, pp 40, para 68.3; volume 3, answering affidavit of MAP in Section 197 application, pp 243, 244, para 40-42.

51 Volume 4, founding affidavit in application for leave to appeal, pp 342, 343.

18

during the subsistence of the EMC. These allegations are

not seriously denied by MAP52.

25.4.5 In summary:-

25.4.5.1 There is no question of “debt collection” in respect of

prepaid meters. Electricity is paid for in advance by

consumers to vendors of prepaid vouchers. These

vendors are and have at all material times been

known to MAP.

25.4.5.2 Further, all the software necessary for the operation of

the prepaid vending system has at all material times

been in the possession of or under the control of MAP.

25.4.5.3 MAP could continue collecting revenue after transfer

without any delay or lapse of time or any significant

investment.

25.4.6 There is no real dispute in regard to prepaid meters and the

transfer of necessary assets in relation thereto. As stated by

MAP, “Indeed, it is in respect of the conventional meters that

Rural has failed to transfer those important aspects of its

metering, invoicing and debt collection system to the

Municipality”53. The real dispute revolves around the

collection of revenue in relation to 1328 conventional meters,

which accounts for 67% of the total electricity consumption

revenue of MAP.

52


Volume 5, answering affidavit of MAP in application to adduce further evidence, pp 407, para 15.

19

25.5 Conventional metering

25.5.1 All the conventional meters, including the meters installed by

MAP, were transferred to MAP. This is common cause.

25.5.2 All these meters display a readout of electricity consumption

which is recorded by the meter reader.

25.5.3 MAP’s essential complaint is that it “could not process the

data recorded on those meters for the purposes of

generating invoices without having the required compatible

software”54.

25.5.4 Rural’s version is that MAP had the necessary Venus

software system and continued to use it, albeit that some

training of MAP’s employees may have been required.

25.5.5 MAP’s version is as follows:

“It took the Municipality several months and considerable expense to upgrade its system by commissioning Elster Solutions (Pty) Ltd to recalibrate the meters so as to make them compatible with its Venus software. The Municipality also had to train its data capturers so as to ensure that it could operate a revenue system that was compatible with the new meters being used by its consumers.”55 (own emphasis)

25.5.6 Furthermore, MAP makes the following related assertions:

“22. . . . In fact it took the Municipality almost 7 months to get its

system up and running again.”56

54

Volume 5, answering affidavit of MAP in application to adduce further evidence, pp 409, 410, para 18. 55


Volume 5, answering affidavit of MAP in application to adduce further evidence, pp 411, para 22.

20

“7. There was a certain amount of bureaucratic red tape involved before Elster agreed to come to the Municipality’s assistance.

8. First and foremost, we identified that training would be

required on the part of both meter readers and data processors and that a workshop would be required so that the entire electricity billing system could be adapted, explained and then understood by the Municipality employees.

9. The software the Municipality used to bill customers (Venus) could not compute the data that the new Elster and Conlog meters provided.

10. This training was conducted on 10 July 2014. I attach

marked “A” and “B” email correspondence pertaining thereto, including a quotation from Elster confirming this.

11. Once the training had been completed, the requisite

software was installed so that the Municipality was able to commence billing customers with conventional meter once again. It began doing so in July and August 2014.”57 (own emphasis)

25.5.7 It is apparent from the above assertions of MAP that even on

its version and properly read, the Venus software system

was at all times in the possession of MAP; that it required

some adjustment or upgrading; that the only explanation for

delay was the “bureaucratic red tape” on the part of Elster;

and that some training was required. It is noted that on its

own version MAP was able to commence billing customers

some 3-4 months after transfer (that is, in July and August

2014).

25.6 Despite the bald allegation of “considerable” expense having to be

incurred, there is no evidence of any expense incurred, apart from

the evidence of a training session for part of a day at a negligible

57

Volume 5, answering affidavit of MAP in application to adduce further evidence, affidavit of Puleng Mokoena, pp 430, para 9-11.

21

cost of R195, 00 per person, including catering, for some 20

employees58.

25.7 Furthermore, recalibration is not an issue. As explained by Rural59,

this is a process whereby the accuracy of a meter is tested against

a laboratory certified test instrument. The recalibration of a meter is

performed on an ad hoc basis throughout the life of the meter, and

has nothing to do with the software billing system.

25.8 Ultimately, all that was required on the part of MAP was an

adjustment to the existing Venus software and minimal training of

meter readers and data processors.

E MERITS OF THE APPEAL

26. In summary, and in regard to the merits of the appeal, the following

submissions are made:-

26.1 the Labour Appeal Court failed to apply the proper test when

considering whether there had been a transfer of a business or

undertaking as a going concern;

26.2 the Labour Appeal Court elevated the test that it applied to a single

and decisive requirement and failed to adopt a “holistic approach”;

26.3 the Labour Appeal Court erred in applying the test or requirement

that it did, namely, the “seamless transition” test; and

26.4 the Labour Appeal Court failed to consider and apply an

appropriate test, namely, the test relating to SPC.

58

Volume 5, answering affidavit of MAP in application to adduce further evidence, affidavit of Puleng Mokoena, pp 433 - 442. 59

Volume 5, replying affidavit in application to adduce further evidence, pp 450, para 21.2.

22

27. The appropriate test

27.1 It is now trite that in interpreting and applying the provisions of

Section 197, our courts will have regard to European and United

Kingdom jurisprudence. In this regard, in NEHAWU v University of

Cape Town & Others60 the following was stated by Ngcobo J:

“[47] The comparable foreign instruments I have in mind are those that have been considered in the context of s 197, namely, the Acquired Rights Directive 77/187 EEC adopted by the European Commission in 1977 and the British Transfer of Undertakings (Protection of Employment) Regulations 1981/1794 (TUPE) which was enacted pursuant to the directive. While there are differences in the language and context in which these instruments are applied, they nevertheless 'provide some insight for proper interpretation and application of s 197'.”61

27.2 A proper understanding of the nature of the transfer is important for

a proper application of the provisions of Section 197 of the LRA.

There are at least two forms of transfer which may be relevant. The

first is a transfer of a business or undertaking, the second is a

SPC62.

27.3 The test in respect of transfer of a business or undertaking: The

first test

27.3.1 This Court in NEHAWU set out the appropriate test in

determining whether a transfer in terms of Section 197 has

taken place, as follows:-63

“'Going concern'

60

2003 (24) ILJ 95 (CC). 61

Para [47] at 115-117. See also paras [48]-[52] at 117, 118. See also Unitrans Supply Chain Solutions (Pty) Ltd & another v Nampak Glass (Pty) Ltd & others (2014) 35 ILJ 2888 (LC) at para [15]; and TMS at para [21]. 62

Section 197(1)(a) defines “business” as follows: “’business' includes the whole or a part of any business, trade, undertaking or service”. Section 197(1)(a) in its present form was introduced by way of an amendment to the whole of Section 197 in terms of Section 49 of the Labour Relations Amendment Act 12 of 2002. 63

Para [56].

23

[56] The phrase 'going concern' is not defined in the LRA. It must therefore be given its ordinary meaning unless the context indicates otherwise. What is transferred must be a business in operation 'so that the business remains the same but in different hands'. Whether that has occurred is a matter of fact which must be determined objectively in the light of the circumstances of each transaction. In deciding whether a business has been transferred as a going concern, regard must be had to the substance and not the form of the transaction. A number of factors will be relevant to the question whether a transfer of a business as a going concern has occurred, such as the transfer or otherwise of assets both tangible and intangible, whether or not workers are taken over by the a new employer, whether customers are transferred and whether or not the same business is being carried on by the new employer. What must be stressed is that this list of factors is not exhaustive and that none of them is decisive individually. They must all be considered in the overall assessment and therefore should not be considered in isolation.”

27.3.2 The test in European jurisprudence was formulated as

follows in the leading case of Spijkers v Gebroeders Benedik

Abattoir CV v Alfred Benedik en Zonen64:

“[T]he decisive criterion for establishing whether there is a transfer for the purposes for the directive is whether the business in question retains its identity. Consequently, a transfer of an undertaking, business or part of a business does not occur merely because its assets are disposed of. Instead it is necessary to consider...whether the business was disposed of as a going concern, as would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar activities. In order to determine whether those conditions are met, it is necessary to consider all the facts characterizing the transaction in question, including the type of undertaking or business, whether or not the business’s tangible assets, such as buildings and movable property, are transferred, the value of its intangible assets at the time of transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer and the period, if any, for which those activities were suspended. It should be noted, however, that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation.”

64

[1986] 2 CMLR 296, ECJ.

24

27.3.3 A similar approach to that in Spijkers was adopted by Tlaletsi

JA in Hydro Colour Inks (Pty) Ltd v Chemical Energy Paper

Printing Wood & Allied Workers Union. Tlaletsi JA summed

up the meaning of “transfer as a going concern” as follows65:

“(i) Since the phrase 'going concern' is not defined in the Act, it must be given its ordinary meaning unless the context indicates otherwise.

(ii) What is transferred must be a business in operation so that the business remains the same but in different hands.

(iii) A determination of whether a business has been transferred as a going concern is a matter of objective determination in the light of the circumstances of each transaction.

(iv) In deciding whether a business has been transferred as a going concern, regard must be had to the substance and not the form of the transaction.

(v) There are a number of factors that are relevant in determining whether or not a business has been transferred as a going concern, such as, but not limited to: what will happen to the goodwill of the business, stock-in-trade, the premises of the business, contracts with clients or customers, the workforce, the assets of the business, the debts of the business, whether there has been interruption of the operation of the business and if so, the duration thereof, whether same or similar activities are continued after the transfer or not.

(vi) All the factors referred to above are not exhaustive and none of them is decisive individually.

(vii) These factors must all be considered in the overall assessment and should therefore not be considered in isolation.”

27.3.4 The approach adopted in Harsco Metals SA (Pty) Ltd v

Arcelormittal SA Ltd and others is consistent with the above

and instructive for the purposes of this case66.

27.3.5 It was common cause in Harsco that the transferee entities

would perform substantially similar services to those

65

(2011) 32 ILJ 1625 (LAC) at para [12]. 66

(2012) 33 ILJ 901 (LC).

25

performed by the transferor entity (Harsco) at the same

locations at which Harsco performed those services. In

regard to these factors Van Niekerk J commented “In my

view, this is a strong indication of the continuation of a

discrete economic entity in different hands”67.

27.3.6 In assessing the facts in Harsco, Van Niekerk J noted that

the primary and essential test is whether, after the transfer,

the undertaking has retained its identity. In this regard the

nature of the business is a primary consideration68. An

assessment of what assets are transferred is relevant only in

this context.

27.3.7 In ADI (VIC) Ltd v Willer69 the following was stated:

“The decisions stress that the decisive criterion for a transfer is whether the business in question retains its identity and an important consideration is whether the operation is continued by the new employer with the same or similar activities.”70

27.3.8 In short “the decisive criterion for establishing the existence

of a transfer within the meaning of the directive is, therefore,

whether the entity in question retains its identity, as indicated

inter alia by the fact that its operation is actually continued or

resumed”71.

27.3.9 The test in respect of a transfer of a business or a

undertaking is dealt with as follows in Business Transfer and

Employee Rights72:

67

At para [34]. 68

At para [31] & [32]. 69

[2001] IRLR 542 CA 70

Para 29. Referred to in Wynn-Evans, para 2.51, pp 32. 71

See Sodexho at para [29] discussed in Wynn-Evans at pp 41 to 44. See too Unitrans (LC), at para [15]. 72

John McMullen Business Transfer and Employee Rights.

26

“(3) Transfer of an economic entity retaining its identity (transfers within of the meaning of the Acquired Rights Directive and reg 3(1)(a) of TUPE 2006)

[23] The primary ECJ authority on the transfer definition in the

ARD is Spijkers v Gebroeders Benedik Abattoir CV73, in which case the test was stated as follows:

‘...the decisive criterion for establishing whether there is a transfer within the meaning of the Directive is whether the business retains its identity, as would be indicated, in particular by the fact that its operation was either continued or resumed. On the other hand, in order to determine whether those conditions are fulfilled, it is necessary to consider all the factual circumstances characterising the transaction in question, including the type of undertaking or business concerned, whether the business’s tangible assets, such as buildings and movable property are transferred, the value of its intangible assets at the time of the transfer, whether or not the majority of its employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between activities carried on before and after the transfer and the period, if any, for which those activities are suspended. It should be noted however that all those circumstances are merely single factors in the overall assessment which must be made and cannot therefore be considered in isolation’.

This is the so called ‘holistic’ approach to the determination of whether an undertaking has been transferred. It is the key and seminal case on transfers of undertakings and should be resorted to in the first instance in any issue of whether there is a transfer under the ARD in order to consider whether TUPE has applied. Although Spijkers was decided in the infancy of jurisprudence on the Directive, as Advocate General Sharpston put it in her opinion in Federación de Servicios Publicos de la UGT v Ayuntamiento de la Lineo de la Concepción Maria del Rosario Vecino Uribe and the Ministerio Fiscal74; the list of factors set out by the Court in Spijkers has stood the test of time.”

The Spijkers test is therefore still key in interpreting the TUPE Regulations 2006, at least for the purposes of the standard definition in reg 3(1)(a) (transfer of an economic entity retaining its identity). It will not be helpful, it must be remembered, with regard to the extended definition of a transfer under TUPE 2006, reg 3(1)(b) on service provision

73

24/85 [1986] ECR 1119, [1986] 2 CMLR 296, ECJ. 74

Case C 151/09 unreported, ECJ.

27

changeovers. In conclusion, the Spijkers case remains the leading authority for the interpretation of TUPE 2006 in relation to all transfers of undertakings which are not outsourcing cases, the best (although not exclusive) example of which is a business sale, that is to say reg 3(1)(a) transfers (reg 3(1)(b) transfers do not depend on a transfer of an economic entity).” 75

“(d) Consideration of the Spijkers case in reg 3(1)(a) TUPE

transfers [87] In considering whether there is a transfer of an economic

entity retaining its identity for the purposes of the ARD and reg 3(1)(a) cases under the TUPE Regulations 2006, there is a requirement to consider a number of specific factors in the round. These factors, set out above in the quotation from the Spijkers case, involve:

(1) Consideration of the type of undertaking or business concerned.

(2) Whether assets, tangible or intangible, are transferred.

(3) Whether employees are taken over. (4) Whether customers are transferred. (5) The degree of similarity between activities carried

on before and after the transfer and the period, if any, for which those activities are suspended.

The court stressed that these are all single factors in the overall assessment which must be made and therefore cannot be considered in isolation. Therefore it is sound law that the mere absence of one or more of these factors in a given case is not fatal to a TUPE transfer. As later case law has illustrated, for example in Schmidt v Spar und Leihkasse der Früheren Ämter Bordesholm Kiel und Cronshagen76 and as confirmed by Ayse Süzen, there can be a transfer of undertaking even if there is no transfer of assets (reg 3(6)(a) of TUPE 2006 also provides that a relevant transfer may take place ‘whether or not any property is transferred to the transferee by the transferor’). As another example, transfer of customers may be appropriate in the case given in the text above of the sale of a shop or indeed the sale of a franchise or dealership or other business as a going concern. However, it is quite clear that there must be something on the so-called ‘shopping list’ of factors set out in Spijkers. What is absent from the list must be compensated for by something else on the list. An holistic approach in each case must be

75

pp 5-11, 5-12. 76

[1995] ICR 237, [1994] IRLR 302.

28

adopted, weighing up the presence or absence of factors as in the Spijkers case.”77

“(g) Abler v Sodexho MM Catering Gesellschaft mbH

[207] The European Court had the opportunity further to explore

the distinction between labour intensive and asset reliant functions in Abler v Sodexho MM Catering Gesellschaft mbH78. Here, Sodexho took over a catering contract supplying a catering service in a hospital from a previous contractor, Sanrest Großküchen. Sanrest contended that this was a transfer of an undertaking. However, Sodexho refused to take over Sanrest’s employees. It also declined to take on materials and stock. Thus it received no accounting data, menu plans, diet plans, recipes or general records from the outgoing contractor. In short it took no moveable assets or employees. Whether the operation was labour intensive or asset reliant, Sodexho refuted that there was a transfer on either basis. However, the European Court ruled that the catering function was asset reliant. As such the transfer of employees (or here, the non-transfer of employees) was not decisive. Notwithstanding Sodexho’s refusal to take over moveable assets it nonetheless took over use of the water, energy and the necessary small and large kitchen equipment provided by the hospital Sanrest. Transfer of use of assets was therefore a significant factor in the changeover of an asset reliant function79. Furthermore Sodexho had inherited a circle of customers (such being ‘captive’ customers, being patients and staff in a hospital). These were sufficient indicia for the transfer of an undertaking in the case of an asset reliant function. The wider enquiry undertaken by the court in Abler, in contrast to its ruling in Oy Liikenne is welcome.”80

“(e) Cheeseman v R Brewer Contracts Ltd [229] In Cheeseman v R Brewer Contracts Ltd81 a district

council’s stock of let out sales properties was originally maintained in-house. After CCT, Onyx won a contract and ran it for three years thereafter. Upon a re-tender of the contract in March of 1998, the contract was lost by Onyx and a new contract given to R Brewer Contracts Ltd. No assets, tangible or intangible, passed from Onyx to Brewer either directly or indirectly. The employees were all dismissed and not taken on by Brewer. An employment tribunal held that there was no transfer of an undertaking in

77

pp 5-39. 78

C-340/01 [2004] IRLR 168. 79

See also the UK case of CWW Logistics Ltd v Ronald and Digital Equipment (Scotland) Ltd (EAT/774/98) discussed at para [149].

80 pp 5-81.

81 [2001] IRLR 144.

29

these circumstances. The case was appealed to the EAT before Lindsay J (President). It is important to note that the case was remitted to an employment tribunal for further consideration on the facts and the applicable law, but the comments made in the case law by Lindsay J presage the ‘multi-factorial’ approach ultimately to be adopted by the Court of Appeal (see below). These are, because of their comprehensive nature, reproduced below:

’10 From these four cases we distil the following. We shall attempt, although it is not always a clear distinction, to divide considerations between those going to whether there is an undertaking and those, if there is an undertaking, going to whether it has been transferred. The paragraph numbers we give are references to the numbering in the IRLC reports of the ECJ’s judgments. Thus:

(i) As to whether there is an undertaking, there needs to be found a stable economic entity whose activity is not limited to performing one specific works contract, an organised grouping of person and of assets enabling (or facilitating) the exercise of an economic activity which pursues a specific objective – Sanchez Hidalgo paragraph 25; Allen paragraph 24 and Vidal para 6 (which, confusingly, places the reference to ‘an economic activity’ a little differently). It has been held that the reference to ‘one specific works contract’ is to be restricted to a contract for building works – see Argyll Training infra EAT at paras 14-19.

(ii) In order to be such an undertaking it must be sufficiently structured and autonomous but will not necessarily have significant assets, tangible or intangible – Vidal paragraph 27; Sanchez Hidalgo paragraph 26.

(iii) In certain sectors such as cleaning and surveillance the assets are often reduced to their most basic and the activity is essentially based on manpower – Sanchez Hidalgo paragraph 26.

(iv) An organised grouping of wage-earners who are specifically and permanently assigned to a common task may in the absence of other factors of production, amount to an economic entity – Vidal paragraph 27; Sanchez Hidalgo paragraph 26.

(v) An activity of itself is not an entity; the identity of an entity emerges from other factors such as its workforce, management staff, the way in which its work is organised, its operating methods and, where appropriate, the operational resources available to it Vidal paragraph 30; Sanchez Hidalgo paragraph 30; Allen paragraph 27.

30

11 As for whether there has been a transfer:-

(i) As to whether there is any relevant sense a transfer, the decisive criterion for establishing the existence of a transfer is whether the entity in question retains its identity, as indicated, inter alia, by the fact that its operation is actually continued or resumed – Vidal paragraph 22 and the case there cited; Spijkers v Gebrodbroerders (sic) Benedik Abattoir C.V [1986] ECR 1119 ECJ; Schmidt v Spar und Leihkasse [1994] IRLR 302 ECJ para 17; Sanchez Hidalgo paragraph 21; Allen paragraph 23.

(ii) In a labour intensive sector it is to be recognised that an entity is capable of maintaining its identity after it has been transferred where the new employer does not merely pursue activity in question but also takes over a major part, in terms of their numbers and skills, of the employees specifically assigned by his predecessors to that task. That follows from the fact that in certain labour intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity – Sanchez Hidalgo paragraph 32.

(iii) In considering whether the conditions for existence of a transfer are met it is necessary to consider all the factors characterising the transaction in question but each is a single factor and none is to be considered in isolation – Vidal paragraph 29; Sanchez Hidalgo paragraph 29; Allen paragraph 26. However, whilst no authority so holds, it may, presumably, not be an error of law to consider ‘the decisive criterion’ in (i) above in isolation; that, surely, is an aspect of its being ‘decisive’, although, as one sees from the ‘inter alia’ in (i) above, ‘the decisive criterion’ is not itself said to depend on a single factor.

(iv) Amongst the matters thus falling for consideration are the type of undertaking, whether or not its tangible assets are transferred, the value of its tangible assets at the time of transfer, whether or not the majority of its employees are taken over by the new company, whether or not its customers are transferred, the degree of similarity between the activities carried on before and after the transfer, and the period, if any, in which they are suspended – Sanchez Hidalgo paragraph 29; Allen paragraph 26.

(v) In determining whether or not there has been a transfer, account has to be taken, inter alia, of the type of undertaking or business in issue, and the degree of importance to be attached to the several criteria will necessarily vary according to the activity carried on – Vidal paragraph 31;

31

Sanchez Hidalgo paragraph 31; Allen paragraph 28.

(vi) Where an economic entity is able to function without any significant tangible or intangible assets, the maintenance of its identity following the transaction being examined cannot logically depend on the transfer of such assets – Vidal paragraph 31; Sanchez Hidalgo paragraph 31; Allen paragraph 28.

(vii) Even where assets are owned and are required to run the undertaking, the fact that they do not pass does not preclude a transfer – Allen paragraph 30.

(viii) Where maintenance work is carried out by a cleaning firm and then next by the owner of the premises concerned, that mere fact does not justify the conclusion that here has been a transfer – Vidal paragraph 35.

(ix) More broadly, the mere fact that the service provided by the old and new undertaking providing a contracted-out service or the old and new contract-holder are similar does not justify the conclusion that there has been a transfer of an economic entity between predecessor and successor – Sanchez Hidalgo paragraph 30.

(x) The absence of any contractual link between transferor and transferee may be evidence that there has been no relevant transfer but it is certainly not conclusive as there is no need for any such direct contractual relationship – Sanchez Hidalgo paragraphs 22 and 23.

(xi) When no employees are transferred, the reasons why that is the case can be relevant as to whether or not there was a transfer – ECM page 1169 e-f.

(xii) The fact that the work is performed continuously with no interruption or change in the manner or performance is a normal feature of transfers of undertakings but there is no particular importance to be attached to a gap between end of the work by one sub-contractor and the start by the successor – Allen paragraphs 32 – 33.

12 More generally the cases also show:-

(i) The necessary factual appraisal is to be made by the National Court – ECM page 1168 e; Allen paragraph 28.

(ii) The directive applies where, following the transfer, there is a change in the natural person responsible for the carrying on of the business who, by virtue of the fact, incurs the obligation of an employer vis-à-vis the employees of the undertaking, regardless of whether or not

32

ownership of the undertaking is transferred – Allen paragraph 16.

(iii) The aim of the Directive is to ensure continuity of employment relationships within the economic entity irrespective of any change of ownership – Allen paragraph 23 and our domestic law illustrates how readily the Courts will adopt a purposive construction to counter avoidance – see Lord Oliver’s speech in Lister v Forth Dry Dock Co Ltd [1990] 1 A.C. 546 at 562f-563c.’

This considered approach was approved by the Court of Appeal in Hunter v McCarrick82 and applied in Beynon v Crash Accident Repair Services Ltd (Debarred)83.”84

27.3.10 As stated further in Business Transfer and Employee Rights:

“(v) Asset transfer not essential for ARD and TUPE to apply

“[161] Regulation 3(6)(b) of TUPE 2006 states that a relevant

transfer may take place whether or not any property is transferred to the transferee by the transferor. This is a consolidation of ECJ case law. Under this jurisprudence it is not absolutely necessary for a transfer of assets to occur for there to be a transfer under the ARD. This was confirmed in the European Court (ECJ) case of Christel Schmidt v Spar und Leihkasse der früheren Ämter Bordesholm, Kiel und Crosnshagen85 Although this case is controversial for other reasons (see below) the legal basis of the ruling, that an asset transfer is not a pre-requisite for a transfer of an undertaking, is unchallengeable. The ECJ held likewise in Merckx v Ford Motors Co Belgium SA86 saying that ‘having regard to the nature of the activity pursued, the transfer of tangible assets is not conclusive of whether the entity in question retains its economic identity’. Finally, the ECJ in Ayse Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice A/S87 stated ‘it must also be noted that although the transfer of assets is one of the criteria to be taken into account by the national court in deciding whether an undertaking has in fact been transferred, the absence of such assets does not necessarily preclude the existence of such a transfer’”88. (own emphasis)

82

[2012] EWCA Civ 1399, [2013] ICR 235. 83

UKEAT/0255/12/JOJ. 84

pp 5-94.1-5.97. 85

[1994] IRLR 302. 86

[1997] ICR 352[1996] IRLR 467. 87

[1997] IRLR 255. 88

pp 5.68-1, 5.69.

33

27.3.11 It is submitted that in the present case the question referred

to in paragraph 90 above can be answered directly. As in the

cases cited above, it is clear that the same business is being

conducted in the same location, for the benefit of the same

constituency, but in different hands. In any event there has

been a transfer of an infrastructure and capital or

infrastructural assets sufficient to determine that the

business now being conducted by the Municipality is the

same business that was conducted by Rural89.

27.3.12 In order for Section 197 to apply, a discrete business

undertaking or economic entity must have been taken over

by MAP from Rural. It is submitted that this was indeed the

case.

27.3.13 Not all the assets of a business need be transferred in order

for a transfer as envisaged in terms of Section 197 of the

LRA to take place. Indeed even if no assets at all are

transferred a transfer of a business can still take place90.

27.3.14 In AVUSA it was recognised that not all the assets of the

business need to be transferred in order for a transfer to take

place. Yacoob J stated as follows91:

“[120] Does this clause contemplate the transfer of a business or does it contemplate simply the outsourcing of a service? This question must be answered in context. SAA did not effect the mere outsourcing of a service to LGM through the agreement. It did much more. It transferred the business relative to delivering that service. Thus, LGM received transfer of fixed assets and inventory, the use of space at all airports, SAA computers, SAA computer-network services and the lease of property necessary to conduct the service. In short, as the agreement rightly states, LGM

89

A further relevant consideration is that after 1 April 2014, Rural could obviously no longer conduct the business of providing electricity management to the inhabitants of MAP. It follows that the business was transferred to MAP. See in this regard AVUSA at para [123]. 90

See Harsco para [27] at 913. 91

Para [120], pp 2892.

34

acquired the whole of the infrastructure necessary for the conduct of the business. It did not have to secure property, or computers, or network services or anything of the kind.”

27.3.15 It is so that mere transfer of the service alone may not be

sufficient to constitute a transfer of a business as a going

concern. For a transfer to be established there must be

components of the original business which are passed on to

the third party92.

27.3.16 In Kelman v Care Contract Services Limited and Another93

the relevant industrial tribunal found that no part of the

undertaking of cleaning of school buildings had been

transferred from a Council to an outside company. No

tangible assets, no buildings, no intangible assets were

transferred by one to the other. No employees were taken

over. No goodwill was valued or transferred. No contracts for

the supply of material or the leasing of equipment or vehicles

or any other like contracts were assigned. The tribunal held

that there was no transfer of an economic activity94.

27.3.17 On appeal, the Employment Appeal Tribunal: Scotland, held

that the cumulative effect of the decisions on the Directive is

that the relevant provisions may apply and a transfer of an

undertaking may occur even though there has been no

transfer of the ownership of assets, tangible or intangible.

What matters is the transfer of responsibility for the

operation of the undertaking in which the employees are

employed. So, if the cleaning services are carried out mainly

by the same staff at the same premises for the benefit of the

92

See Unitrans para [16] – [18]; AVUSA para [47]-[53]; NEHAWU at para [56]; City Power para [23]. 93

[1995] ICR 260. 94

See pp 5 of the judgment at para (5).

35

same authority or company, there may be a transfer of an

undertaking for the purposes of the Directive and

Regulations95.

27.3.18 A similar result was reached in Abler and Others v

Sodexho96. In this case it was held: “[h]owever, it is clear

from the wording of [the Directive] that it is applicable

whenever, in the context of contractual relations, there is a

change in the legal or natural person who is responsible for

carrying on the business and who by virtue of that fact incurs

the obligations of an employer vis-à-vis the employees of the

undertaking, regardless of whether or not ownership of the

tangible assets is transferred.”97

27.3.19 In Sodexho, the second contractor (to whom the business

was transferred) used substantial parts of the tangible assets

previously used by the first contractor and subsequently

made available to it by the contracting authority, even where

the second contractor has expressed the intention not to

take on the employees of the first contractor98. This was held

sufficient to trigger the application of the Directive.

27.3.20 It is apparent from the judgment that what was transferred

was a catering business at a hospital. What was transferred

was the right to use the premises as well as water, energy

and the necessary small and large equipment provided by

the management authority. What was not transferred was,

amongst other things, accounting data, menu plans, diet

plans, recipe collections or general records. No stock was

95

See pp 6 to 7 of the judgment at paras (5) and (6). 96

[2004] IRLR 168. ECJ. 97

At para 41. 98

At paragraph 43.

36

transferred99. Also not transferred were work organisations,

recipe collections, diet directions or customers100.

27.3.21 In essence all that was transferred was the right to use the

catering premises together with equipment on the premises.

It was held that the Directive applied101.

27.3.22 In Harsco, no intangible assets were transferred (good-will,

intellectual property, patents and operational methodology).

Further, and as far as immovable property is concerned,

recovery plants and screening and processing plants were

not transferred. In relation to movable assets only 33% of

the total value of all Harsco’s assets would be taken over by

the incoming service providers102.

27.3.23 In Unitrans Supply Chain Solutions (Pty) Ltd & another v

Nampak Glass (Pty) Ltd & others (Labour Court) Van

Niekerk J cited with approval and relied on Sodexho103.

27.3.24 Having reviewed the facts and authorities, Van Niekerk J

concluded as follows104:

“[29] In short: the warehousing service provided by the first applicant to Nampak constituted an economic entity, or, put another way, an organized grouping of resources. This comprises, at least, the contractual right to perform the services, the assets owned by Nampak but used by the affected employees, the specific activities performed by the affected employees and the employees themselves. This economic entity constitutes a service for the purposes of S197(1).

99

See the judgment at para 9 read with para 15. 100

See the judgment at para 21. 101

See the judgment at para 43 read with para 26. 102

See paras [35] & [36]. 103

(2014) 35 ILJ 2888 (LC) at para [31]. 104

At paras [29] to [32].

37

[30] To the extent that the contractual right to provide warehousing services now vests in TMS, the same assets are used to provide those services and the activities conducted at Nampak’s behest are substantially the same as those performed by the first applicant prior to 1 February, the business performed by the first applicant has transferred as a going concern to TMS. To use the language of the warehousing agreement, the infrastructure that passed to the first applicant when it assumed obligations in terms of the contract reverted to Nampak, and has been made over to TMS. This is not unlike the situation in Allen & others v Amalgamated Construction Co Ltd [2000] IRLR 119 (ECJ), where the ECJ affirmed the principle that the fact that ownership of the assets required to run an undertaking does not pass to the transferee is not decisive, and does not preclude a transfer for the purposes of the directive. The comprehensive right of use of the infrastructure and the assumption of control over that infrastructure are the key triggers.

[31] This brings the present matter squarely within the scope of the principle established by Sodhexo, where a change in service providers triggered the equivalent of s 197 in circumstances where the incoming contractor is permitted the right of use of infrastructural assets owned by the client necessary for the purpose of continuing the relevant service. The LAC recently considered Sodhexo, and impliedly appeared to approve of its application by distinguishing it on the facts in a case that concerned the cancellation of a franchise agreement and the appointment of a new franchisee (see PE Rack 4100 CC v Sanders & others (2013) 34 ILJ 1477 (LAC); [2013] 4 BLLR 348 (LAC)). Given the importance attached by the Constitution to comparative law and the application by the Constitutional Court of the principles established by the ECJ in relation to the application of s 197, I see no reason to depart from this principle.”

.

27.3.25 The Labour Court judgment in Unitrans was upheld on

appeal105. The reasoning and conclusions of Van Niekerk J

were expressly approved. In the judgment of the court

Davies JA again relied on Sodexho.

27.3.26 In TMS Group the Labour Appeal Court:-

105

See TMS Group.

38

27.3.26.1 referred to the European concept of the SPC and

quoted the following from Wynn-Evans:

“An SPC occurs on a change (other than on a one-

off or short term basis or in relation to the supply of

goods) to the identity of the person who has the

conduct of activities to which an organised grouping

of employees has principally been dedicated for a

particular client. According to the 2009 Guidance

SPCs "concern relationships between contractors

and the clients who hire their services". The

Consultation Response indicated that the term

describes situations where a contract to provide a

business service to a client is let, re-let or ended by

bringing it in-house."106

27.3.26.2 commented that in order for there to be a SPC two

requirements must be met. Firstly, there must be an

organised group of employees principally dedicated

to that contract or activity prior to the transfer.

Secondly, the contract award must be an ongoing

contract (not a one-off contract or on a short-term

basis and must not relate to the supply of goods)107;

27.3.26.3 confirmed that the approach taken by the ECJ in

Sodexho has been adopted by the Constitutional

Court in AVUSA108. The Labour Appeal Court

referred to the following extract from Sodexho:

"Catering cannot be regarded as an activity based essentially on manpower since it requires a significant amount of equipment. In the main proceedings, as the Commission points out, the tangible assets needed for the activity in question — namely, the premises, water and

106

At para [22]. 107

At para [22]. 108

At para [26].

39

energy and small and large equipment (inter alia the appliances needed for preparing the meals and the dishwashers) — were taken over by Sodexho. Moreover, a defining feature of the situation at issue in the main proceedings is the express and fundamental obligation to prepare the meals in the hospital kitchen and thus to take over those tangible assets. The transfer of the premises and the equipment provided by the hospital, which is indispensable for the preparation and distribution of meals to the hospital patients and staff is sufficient, in the circumstances, to make this a transfer of an economic entity. It is moreover clear that, given their captive status, the new contractor necessarily took on most of the

customers of its predecessor"109. (own emphasis)

27.3.26.4 held that the warehousing operation constituted a

discrete business. The appellant had assumed the

right to use the third respondent's assets and

infrastructure in order to continue to provide the

same service to the third respondent, which had

previously been rendered by the first respondent.

Therefore, the services were "performed at the very

same site and fixed premises as the services that

were performed by Unitrans in terms of the

Warehousing agreement'. Appellant was required to

make use of the same equipment and IT systems

that were previously employed by first respondent

including forklifts, computers, printers, a computer

system as well as other assets such as furniture"110;

27.3.26.5 further held that the necessary facilities were handed

over to the appellant in a state in which the appellant

was able to carry on the very same activity

previously conducted by the first respondent. These

services were performed on the third respondent's

109

At para [25]. 110

At para [30].

40

premises using the third respondent's computer

systems and other equipment111 ;

27.3.26.6 held that the business was transferred as a going

concern and that "[f]or all the reasons set out in this

judgment, the service provided by first applicant and

now by appellant in terms of the warehousing

agreement, which was entered into between first and

third respondents and the same service which is now

provided to third respondent by the appellant,

constitutes a business sufficiently demarcated to

justify the conclusion that when this business was

taken over by appellant upon the conclusion of the

contract by way of the effluxion of time between the

first and third respondents, there was a transfer of

the business as a going concern. On the facts of this

dispute, there is no basis on which to interfere with

this conclusion reached by the court a quo"112.

27.3.27 The case of SA Municipal Workers Union & others v Rand

Airport Management Co (Pty) Ltd & others113 is also

instructive.

27.3.27.1 This case concerned the outsourcing of garden and

cleaning services at an airport managed by the

employer.

27.3.27.2 The Labour Appeal Court held that these businesses

transferred despite the fact that it did not appear as

though any assets, goodwill, operational resources or

workforce transferred.

111

At para [32]. 112

At para [36]. 113

(2005) 26 ILJ 67 (LAC).

41

27.3.27.3 In considering the test for the transfer of a business as

a going concern Davis AJA noted that both Zondo JP

and Ngcobo J in NEHAWU were "careful to desist from

developing an inflexible test. Both emphasized that the

list of factors set out in their judgments was not

'exhaustive and that none of them is decisive

individually'"114.

27.3.28 In SA Transport & Allied Workers Union & another v Member

of the Executive Committee: Gauteng Roads & Transport &

others115, the Labour Court referred to the article by P A K le

Roux Outsourcing and s 197 of the LRA 2015 (24)

Contemporary Labour Law 61 at 70 as follows116:

“When one considers the above decisions it seems that most outsourcing transactions, and the second generation transfers that flow therefrom, could fall within the ambit of s 197. The fact that no assets transfer and that no provision is made for the transfer of employees is of less importance. The Labour Court decision in the Unitrans decision found that a going concern transfer could take place where the right to use (as opposed to ownership of) the "infrastructural assets" of the client transferred from one contractor to another. The emphasis placed on the activities carried on also support such an approach.” (Emphasis added.)

27.4 The test in respect of a Service Provision Change: The second

test117

27.4.1 As appears from a review of the authorities in the previous

section (the first test) our courts appear to have accepted

that where a service is the subject matter of a transfer,

special and different considerations may apply. In particular

114

Para [24]. 115

(2015) 36 ILJ 3155 (LC). 116

Para [18]. 117

In this section, reference is made to two leading publications dealing with the relevant foreign jurisprudence in regard to SPC. They are Wynn-Evans, The Law of TUPE Transfers (above) and John McMullen, Business Transfer and Employee Rights (above). A third commentary, Michael Ryley, TUPE Law and Practice 2

nd Ed is included in the bundle of authorities to be

handed up at court.

42

the Labour Appeal Court has accepted the introduction of

the 2006 TUPE Regulations relating to a SPC. However, in

our respectful submission the law and principles relating to

the transfer of a service and in particular a SPC require

clarification.

27.4.2 The distinction between a standard transfer of a business

and a SPC is summarised in Wynn-Evans as follows118:

“1.12 There are two forms of ‘relevant transfer’ for the purposes of TUPE. These are not mutually exclusive so may both apply to the same set of circumstances. The first form of relevant transfer is a ‘transfer of an undertaking’, which some describe as a ‘traditional’ or ‘classic’ transfer since until 2006 it was the only form of relevant transfer under TUPE.

1.13 The most straightforward example of a transfer of an undertaking is where there is a sale of an ongoing business which the purchaser will continue to operate in more or less the same way, with the same premises, equipment, and machinery following the transfer. TUPE can also apply to an internal reorganization where employees and the part of a business in which they work are transferred from one group company to another. The decisive criterion in assessing whether TUPE applies to a given scenario by way of a transfer of an undertaking is whether there is a stable and identifiable economic entity which retains its identity after the transfer. When deciding whether a transfer of an undertaking for the purposes of TUPE has occurred, account will be taken of the type of business or undertaking, the transfer of tangible assets such as buildings or stocks, the value of intangible assets of the date of transfer, whether the majority of the staff are taken over by the new employer, the transfer of customers, the degree of similarity of activities before and after the transfer, and the duration of any interruption in those activities.

1.14 The second form of relevant transfer is a ‘service provision change’ (SPC), which was introduced by the 2006 Regulations119. An SPC arises in the three situations of outsourcing, retendering, and in-housing where there is, prior to the event in question, an organised grouping of

118

pp 4-5 at paras 1.12 to 1.14. 119

Regulation 3 of the 2006 TUPE Regulations is annexed marked ‘A’.

43

employees whose principal purpose is the conduct of particular activities and those activities:

- cease to be carried on by a person (‘a client’) on his

own behalf and are carried out instead by another person on the client’s behalf (‘a contractor’); or

- cease to be carried out by a contractor on a client’s

behalf and are carried out instead by another person (‘a subsequent contractor’) on the client’s behalf; or

- cease to be carried out by a contractor or a subsequent contractor on a client’s behalf and are carried out instead by the client on his own behalf.”

1.15 TUPE does not, however, apply by way of an SPC to cover the transfer of activities to contractors who are engaged to provide services on an occasional basis, or to groups of employees who carry out services on behalf of a number of clients. Nor is there an SPC where the client appoints a contractor to provide services on a one-off basis for a limited period without any intention of creating an ongoing relationship with the client.

1.16 The SPC provisions also do not apply to situations where the arrangement is for the procurement of goods, rather than services (such as, for example, an arrangement to supply food and drinks to a staff canteen as opposed to catering services).”

27.4.3 The concept of a SPC was recognised and applied by Davis

JA in TMS120 as follows:

“[21] Our courts have been influenced by and have had regular regard to European law’s Business Transfers Directive (2001/2003/EC) and have employed the consequent jurisprudence in the interpretation of section 197 of the LRA. See for example City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and others: (decision of the LAC: 29 May 2014) [reported at [2014] 10 BLLR 945 (LAC) – Ed].

[22] In European law, a change in service provision can give rise to a transfer of an undertaking. The following summary from Wynn-Evans The Law of TUPE Transfers (2013) at

120

Paras [21] to [24].

44

60-1 is particularly instructive with regard to a service provision change (SPC):

”An SPC occurs on a change (other than on a one-off or short term basis or in relation to the supply of goods) to the identity of the person who has the conduct of activities to which an organised grouping of employees has principally been dedicated for a particular client. According to the 2009 Guidance SPCs "concern relationships between contractors and the clients who hire their services". The Consultation Response indicated that the term describes situations where a contract to provide a business service to a client is let, re-let or ended by bringing it in house.”

For there to be an SPC certain other requirements must be satisfied — first, there must be an organised group of employees principally dedicated to that contract or activity prior to the transfer for there to be an SPC and, second, the contract award must be on an ongoing rather than on a one-off and short-term basis and not relate to the supply of goods. This additional and alternative concept of a relevant transfer was introduced with the objective of ensuring clarity in the application of the transfer legislation to situations such as outsourcing, in-housing, and the rendering of contracts from one contractor to another.”

[23] In Metropolitan Resources Ltd v Churchill Dulwich Ltd (in liquidation)121 and others, the purpose of the SPC regulations was further described thus:

“To remove or at least alleviate the uncertainties and difficulties created, in a variety of familiar commercial settings, by the need under TUPE 1981 to establish the transfer of a stable economic entity which retained its identity in the hands of the alleged transferee, particularly in the case of the labour intensive operation.”

[24] In summary, the SPC regulations, seek to address the problem of outsourcing. Thus these regulations cover the case where an activity is not carried out by A on its own behalf but is carried out instead by B on behalf of A. The activity which is carried out then ceases to be carried out by B on behalf of A and is then carried out by C, the new contractor on behalf of A.”

121

[2009] IRLR 190, EAT at para 26.

45

27.4.4 As stated further in Wynn-Evans:

“ B. The Definition of an SPC

3.11 For the purpose of (TUPE) regulation 3(1)(b), an SPC arises in the following situations:

‘Activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”).’ This essentially covers outsourcing.

‘Activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on its own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf.’ This essentially covers a re-tendering or contractor change.

‘Activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on its own behalf) and are carried out instead by the client on his own behalf’. This essentially covers in-housing.

3.12 The conduct of the activities in question must, however, also be of the requisite stability and structure before transfer. Accordingly, pursuant to regulation 3(3), immediately before an SPC:

There must be an ‘organised grouping of employees situated in Great Britain which has its principal purpose the carrying out of activities concerned on behalf of the client’.

The client must also intend ‘that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration’.

3.13 Essential elements of the application of regulation 3(1)(b)

are therefore the existence immediately prior to the putative SPC of an organised grouping of employees, its dedication to one client, and the change of service provider. The transfer of assets or employees, so integral to the test of whether there is a transfer of an undertaking for the purposes of regulation 3(1)(a), is not relevant to the test of whether there is an SPC. Nor are the motives of a putative transferee in not taking employees on post-transfer or any break in activities to be considered, again in contrast to the approach of regulation 3(1)(a). As Elias LJ noted in

46

McCarrick v Hunter122, as between a transfer of an undertaking for the purposes of regulation 3(1)(a) and an SPC for the purposes of regulation 3(1)(b), ‘the principal distinction, therefore is that the economic entity is constituted by an organised grouping of resources, whilst a service provision only requires an organised grouping of employees’. (own emphasis)

3.14 Despite the fact that there is no express statement to that effect, regulation 3(1)(b) presumably applies regardless of whether the transfer is voluntary or involuntary and whether there is any contractual relationship between the parties. This would be consistent with the approach in relation to regulation 3(1)(a). As is the case in relation to regulation 3(1)(a), regulation 3(6) confirms that no property need transfer for there to be a relevant transfer by way of an SPC and that an SPC can be effected by a series of two or more transactions.”123

“ D. Activities and their Similarity Post Transfer

3.30 Leaving aside the exceptions in respect of one-off short-

term contracts and the supply of goods, the rest of whether there is an SPC in a given situation is based principally upon there being an organised grouping of employees principally dedicated to servicing the relevant function and there being a change to the identity of the person performing or providing the activities in question. Regulation 3(1)(b) and its supplementary provisions do not expressly require that the activities which are the subject of an alleged SPC retain their identity on transfer. This is in contrast to the position in relation to a transfer of an undertaking for the purpose of regulation 3(1)(a) where the economic entity must retain its identity . . . (own emphasis)

. . .

3.32 In Metropolitan Resources Ltd v Churchill Dulwich Ltd (in

liquidation) and others124 . . . HHJ Burke QC said: “A common sense and pragmatic approach is required to enable a case in which problems of this nature arise to be appropriately decided, and as was adopted by the Tribunal in this case. The Tribunal needs to ask itself whether the activities carried on by the alleged transferee are fundamentally or essentially the same as those carried out by the alleged transferor. And the answer to that question

122

[2013] IRLR 26, CA at para 14. 123

pp 63, 64. 124

[2009] IRLR 190, EAT at para 26.

47

will be one of fact and degree to be assessed by the Tribunal on the evidence of the individual case before it.”

3.35 . . . An essential question in relation to an SPC is therefore ‘whether the activities carried on by the transferee are fundamentally or essentially the same as those carried out by the alleged transferor, the question being one of fact and degree’.

. . .

3.38 . . . A service can, as the ET had indicated, be ‘more than the sum total of the list of activities or tasks’ and the EAT noted that:

“identifying what an activity is involves a holistic assessment by the Tribunal. The Tribunal is trusted to make that assessment. Its evaluation will be alert to possibilities of manipulation, but is not simply to be decided by enumerating tasks and identifying whether the majority of those tasks quantitatively is the same as the majority was prior to the putative transfer.”125

“ I. An organised Grouping of Employees

3.78 In order for there to be an SPC for the purposes of regulation 3(1)(b), the relevant activity or activities must, before the putative SPC, be conducted by an ‘organised grouping of employees situated in Great Britain which has its principal purpose the carrying out of the activities concerned on behalf of the client’. As the 2005 Consultation indicated, this requirement confines the application of the concept of an SPC to situations where the incumbent service provider (which includes the client, where a service is being contracted out) operates the relevant activities by way of an identifiable team of employees that is essentially dedicated to meeting one particular client’s needs. By way of overview, in Argyll Coastal Services Ltd v Stirling and others126, the EAT commented that: “the phrase ‘organised grouping of employees’ connotes a number of employees which is less than the whole of the transferor’s entire workforce, deliberately organised for the purpose of carrying out the activities required by the

125

pp 68-70. 126

UKEATS / 0012 / 11.

48

particular client contract and who work together as a team.”127

“ J. Principal Purpose

3.93 For there to be an SPC not only must be an organised grouping of employees, its principal purpose must also be to carry out the relevant activities for the particular client.”128

27.4.5 As stated in Business Transfers and Employee Rights:

“The ‘extended’ transfer definition – service provision

changeovers

[161] Many putative transfers will continue to be governed solely by the ‘standard’ transfer definition. But service provision changeovers are now given a preferential treatment. For they are governed also by what may be described as an ‘extended’ definition of a transfer, which exceeds the protection given to workers by Directive 2001/23. This is a supplementary definition: if a putative transfer does not meet the test in the ‘extended’ definition it may still pass as a TUPE transfer if it nonetheless qualifies under the ‘standard’ definition.

[162] The Government’s rationale for the extended definition was to reduce the uncertainty in the law, to insulate the parties to service provision changeovers from the effects of ECJ jurisprudence and to create a level playing field, so that a contractor’s bid for services is based on its commercial merits, rather than on differing views of the employment rights of employees.

[163] The supplementary definition of a transfer under reg 3(1)(b) on service provision change provides that as long as service activities on behalf of the client cease by one person (transferor) and are taken up by a new person (transferee) on behalf of the client and, prior to the changeover there was an organised grouping of employees, the principal purpose of which was to carry out those activities on behalf of the client, there will be a transfer. This is in contrast with the requirements under the general law (and the ‘standard’ definition) as a laid down by the ECJ decision in Ayse Süzen. In Süzen it was stressed that a mere changeover of contractors is not a

127

pp 82. 128

pp 86.

49

transfer – what is required is a concomitant transfer of assets or a taking over of a major part of the workforce.”129

“[165] A final point to note is that the ‘standard’ definition requires the transfer of an economic entity which ‘retains its identity’. For the ‘extended’ (service provision changeover) definition it is sufficient that the ‘activities’ cease to be carried out by one person and are out for the future by another.”130

27.4.6 As stated in Ryley, TUPE Law and Practice:

“2.115 A good example of how thing would have looked had the Government gone ahead with the proposal to abolish the service provision change rules is the ECJ case of CLECE SA v Maria Socorro Martin Valor & Ayuntaiento de Cobisa,131 which concerned the termination of a cleaning contract where the cleaning services were brought back in-house. The client decided to hire new staff rather than take on the existing staff. Applying the principles of Süzen, the ECJ noted that there was no transfer of assets or employees. Hence there was no transfer. On those facts in the UK, there would inevitably have been a transfer

within the service provision change rules.”132 (own emphasis)

27.4.7 A similar observation is made by Wynn-Evans:

“3.18 An example of a decision under TUPE 1981 in relation to

whether there was a transfer of an undertaking which might well be decided differently under regulation 3(1)(b) is Computacenter (UK) Ltd v Swanton and others133. A dedicated team of employees were engaged in servicing a subcontract from IBM repairing Lloyds TSB computers. This arrangement constituted an economic entity in the view of the ET. The subcontract was awarded to the new subcontractor and no staff transferred. The ET found that here was no relevant transfer on the basis of the lack of any transfer of assets or employees, the lack of any relationship between the two subcontractors, and the fact that the arrangements had not been structured deliberately to avoid TUPE. The EAT rejected an appeal. Given the presence of the key factors of a dedicated team of employees and the transfer of the relevant activities between contractors, the ET might well, had it been

129

pp 4-33 ff. 130

pp 4-34. 131

[2011] IRLR 251. 132

pp 61 at para 2.115. 133

UKEAT / 0256 / 04.

50

required to consider regulation 3(1)(b), have found there to have been an SPC, despite the fact that the requirements of what is now regulation 3(1)(a) were not satisfied.”134

27.4.8 McMullen in Business Transfers and Employee Rights

summarizes the SPC provisions as follows:

“[2] The definition of a transfer was significantly changed on the enactment of the TUPE Regulations 2006. One significant aspect of the 2006 Regulations is the new definition of a relevant transfer which, for most transfers of an undertaking, consolidates European Court case law and its requirement for the transfer of an economic entity which retains its identity (discussed in detail below). This we describe as the standard definition of a transfer, or a reg 3 (1)(a) transfer. However, for service provision changes (ie outsourcing) there is a special, supplementary, definition which means that, subject to a couple of exceptions, TUPE will apply on the service provision change itself, without resort to the test under European Court case law such as Süzen v Zehnacker Gebäudereinigung GmbH Krankenhausservice135 This is a reg 3(1)(b) transfer. Thus, subject to the exceptions, when reg 3(1)(b) applies, it will no longer be necessary, in deciding whether a service provision changeover is covered by TUPE, to apply European Court case law on the interpretation of the ARD (ie find the transfer of an economic entity and to take into account whether assets or staff are transferred over the transaction (depending on whether the function is asset reliant or labour intensive))136.”

28. McMullen comments in more detail as follows:

“(4) Outsourcing; the development of ECJ jurisprudence to extend the Acquired Rights Directive to outsourcing; the Ayse Suzen case; UK responses to Ayse Suzen and the evolution of reg 3(1)(b) of TUPE 2006, culminating in unique UK test of a transfer on service provision change which differs from European Law and the Acquired Rights Directive

[162] . . . A service provision change is one where activities cease to be carried out by one person and, are instead, carried out by another person on the client’s behalf. It

134

pp 64, 65 at para 3.18. 135

Case C-13/95 [1997] ECR I-1259, [1997] 1 CMLR 768, [1997] ICR 662, [1997] IRLR 255, ECJ. See below, for a detailed discussion on the ECJ case law, including the importance of Ayse Süzen to the interpretation of the Acquired Rights Directive.

136 Above, issue 26 pp 5-1.

51

applies on first generation contracting (client to contractor), second generation (contractor to contractor) and contracting in (contractor to client). The condition of its application are that immediately before the service provision change there is an organised grouping of employees situated in Great Britain which, as its principal purpose the carrying out of the activities concerned on behalf of the client. This provision effectively reverses the Ayse Süzen (see below) decision in the UK.

The new definition does not apply where:

(a) the client intends that activities will following the service provision change be carried out by the transferee in connection with a single specific event or task of short term duration; or

(b) the activities concerned consist wholly or mainly of the supply of goods for the client’s use.

Contracting out may satisfy both reg 3(1)(a) (transfer of an economic entity retaining its identity) and reg 3(1)(b) (service provision change). But clearly, the requirements of Regulation 3(1)(b) are less onerous and nowadays, where there is contracting out, TUPE is, in the vast majority of cases likely to apply via reg 3(1)(b).”

28.1.1 McMullen also makes the following pertinent observations:

“[259] . . . That if after the sale there is a gap before trading resumed is a relevant factor but it is not conclusive against there being a transfer within the meaning of the Directive:

‘A transferee may well want to spend time reorganising or renovating the premises or equipment. If the employees are kept on for that purpose and then trading is resumed, a national court is entitled to find that there has been a transfer’.

Nor are slight changes in the mode of operation after the transfer relevant:

‘Similarly, the fact that the business is carried on in a different way is not conclusive against there being a transfer – new methods, new machinery, new types of customer are relevant factors but they do not of themselves prevent there being in reality a transfer of a business or undertaking’.”137

137

Issue 27 pp 5-126.4 at para [259]

52

28.1.2 In a recent article138 Ian Davis argues for the adoption of a

broader and more consistent approach to the transfer of a

service consistent with the SPC provisions in the TUPE

regulations, 2006 and as set out above. He remarks as

follows:

"Where employees have not been transferred to a new employer, the definitional requirements in s 197 of the LRA have generated some uncertainty and require the courts to reflect on the extent to which there are other components of the business that are being transferred, in order to justify s 197's applicability to the transaction. Such a construction of the section provides a tenuous basis for an employee's continuity of employment. In effect, the cases may result in the exclusion from s 197 protection of workers whose jobs do not require the use of assets for their performance. Accordingly, vulnerable employees engaged in labour intensive activities such as catering, cleaning, gardening and security services are less likely to be protected by s 197 where the services they perform are outsourced than those employees who, to perform their work, rely on the tangible or intangible assets that are being transferred. Distinguishing between employees affected by a business transfer on the basis of their use of the physical assets of the outsourcing party is arbitrary. The criteria determining s 197's applicability should therefore move away from a definitional focus on physical or other assets that form the subject matter of the transfer. Rather, it is preferable to apply the protective consequences of the section automatically to any change in service provider.”

28.1.3 Having regard to the requirements attaching to a SPC, and

in the present matter:

28.1.3.1 there was at all material times in existence an

organised group of employees dedicated to the task

of the provision of electricity services on behalf of

MAP139;

138

Should s 197 of the LRA be amended to automatically protect employees when labour intensive services are outsourced or when a new service provider is appointed? (2016) 37 ILJ 45, at pp 58 to 59.

139 Founding affidavit in Section 197 application, Volume 1, para 38.4, pp 26, para 46.3, pp 33,

para 61-63, pp 37-38 read with annexure “PMB” 12, Volume 2, pp 173.

53

28.1.3.2 there has been a change in the identity of the entity

providing this service (from Rural to MAP) and the

service is substantially the same; and

28.1.3.3 the transfer back to MAP is not of a short-term

duration or a contract for the supply of goods.

F SUMMARY OF THE APPLICATION OF THE STANDARD TEST AND

THE SPC TEST

29. McMullen offers the following executive summary in the analysis of when

TUPE 2006 applies:

“455

TUPE applies to the transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity or a service provision change (in the latter case defined by reg 3(1)(b)).

It is to be noted that TUPE requires a change of employer and will therefore not apply to a share sale takeover per se, nor to the winning of a contract by an in-house team after competitive tendering where the employer remains the same.

It is to be noted that following the enactment of the TUPE Regulations 2006 there are two principal definitions of a TUPE transfer. The standard definition under reg 3(1)(a) applies to all situations often than a service provision change (ie outsourcing) where there is a transfer of an economic entity which retains its identity. The best example of this would be a classic business sale.

The standard definition under reg 3(1)(a), requiring the transfer of an economic entity which retains its identity simply consolidates ECJ case law and ECJ cases will continue to be relevant in interpreting this part of TUPE. The key case in this regard will be the Spijkers case.

However, where there is a service provision change as defined by reg 3(1)(b), UK law now parts company with European law. The supplemental definition of a TUPE transfer upon a service provision change is more favourable to employees and catches more situations than is permissible, strictly, under European Law. Service provision changes under European law are governed by the Ayse Süzen case, which requires the transfer of significant tangible or intangible assets, or, failing that, a taking over by the new employer of a major part of the workforce in terms of numbers and skills. However, in contrast, reg 3(1)(b) applies simply where activities cease to be carried out by one person and, are instead, carried out by another person provided that, immediately before the provision change there is an organised grouping of employees situated in Great Britain which has, as its principal purpose, the carrying out of the activities concerned on behalf of the client. The activities concerned must be fundamentally the same after the change of provider as they were before.

54

There are only two exceptions to the extended transfer definition in reg 3(1)(b) and these are where the client intends that the activities are to be carried out by the transferee in connection with a single specific event or task of short term duration and, secondly, where the activities concerned consist wholly or mainly of the supply of goods for the client’s use.

However, where reg 3(1)(b) does apply European Court case law, such as Ayse Süzen will not be of use. Regulations 3(1)(b), when it applies, effectively displaces the Süzen test in the UK. Future ECJ cases on outsourcing may therefore cause confusion. It must be remembered that they will concern the more restricted definition of a transfer on outsourcing under Community law, compared with the more generous definition of a transfer on outsourcing under TUPE 2006”140.

30. Whichever approach is adopted, it is our submission that a transfer in

terms of Section 197 of the LRA took place.

31. “Seamless transition” test

31.1 In light of the above, there is no room for a different test or an

added requirement necessitating a “seamless transition”. Of

course, viewed holistically the business or service of providing

electricity to the inhabitants of MAP did continue on an

uninterrupted basis. The only temporary interruption was in respect

of debt collection pertaining to conventional meters.

31.2 The requirement or test that there be a “seamless transition” of a

business, as was applied by the Labour Appeal Court, surfaced for

the first time in the judgment of the Labour Appeal Court as the

decisive test which would determine whether there has been a

transfer of a business as a going concern. Prior to the judgment of

the Labour Appeal Court, no such test has been applied in any of

the major decisions in the Labour Appeal Court or this Court

dealing with Section 197, namely City Power, TMS Group and

MTN.

31.3 The “seamless transition” test (or requirement) adopted by the

Labour Appeal Court is an onerous test, and is certainly more

140

Pp 179-180.

55

onerous, it is submitted, than the test hitherto applied by the Labour

Appeal Court and in this Court.

31.4 Furthermore:-

31.4.1 A significant point of criticism, with respect, of the “seamless

transition” test or requirement is that the Labour Appeal

Court used it as being determinative of whether there had

been a transfer as a going concern. As the authorities make

clear, no single factor is individually decisive of that enquiry

in our law. What the Labour Appeal Court did is to elevate

one single factor as being determinative of whether there

had been a transfer as a going concern, namely whether the

business of the old employer (Rural) has transferred

“seamlessly” to the new employer (MAP).

31.4.2 The onerous test adopted by the Labour Appeal Court

overlooked other factors that are relevant to the enquiry as

to whether there has been a transfer of a business as a

going concern. For example, the Labour Appeal Court

overlooked the initial transaction between Rural and MAP, in

terms of the EMC (although not determinative, this remains

significant during subsequent transfers141). In this regard, in

terms of the EMC, Rural accepted 16 employees from MAP

by way of a transfer agreed to by the parties in terms of

Section 197. The fact that there was an initial transfer (of a

business as a going concern) between MAP and Rural as

envisaged in terms of Section 197 was overlooked by the

Labour Appeal Court, the Labour Appeal Court instead

focusing on the difference between the mode (or extent) of

delivery by MAP and by Rural of the rendering of electricity

services.

141

AVUSA at para 106, pp 61.

56

31.4.3 More importantly, the Labour Appeal Court appears to have

overlooked or at least not accorded sufficient weight to all

the other factors which would be relevant to the

determination of whether there had been a transfer of a

service or business, or even a SPC. These factors have

been dealt with elsewhere in these heads of argument but

may be listed as follows:

31.4.3.1 the transfer of the entire infrastructure necessary for

the continuation of the provision of electricity

services;

31.4.3.2 the fact that the service of the provision of electricity

(in its overall aspect) continued immediately after the

transfer;

31.4.3.3 the fact that MAP continued in-house to provide

electricity to the inhabitants of the Municipality, a

service that had previously been outsourced to

Rural;

31.4.3.4 that the service provided by MAP after transfer is

manifestly the same service as previously had been

provided by Rural; and

31.4.3.5 that otherwise the requirements of a SPC have been

met.

31.4.4 In this context then, to determine that because certain debt

collection activities could only be resumed after a relatively

short delay in respect of conventional meters is, with

respect, an incorrect approach for all the reasons set out

above. This factor should, it is submitted, have been

weighed up together with all the other factors in an overall

57

(or “holistic”) assessment of whether a Section 197 transfer

had taken place.

G NO POSITIVE ACT ISSUE

32. Albeit that there is no cross-appeal in regard to this issue142, and Rural

does not seek leave to appeal in this regard, Rural deals with this issue

below.

33. Whether or not a transfer as envisaged in terms of Section 197 of the LRA

has taken place is a factual question, determined with reference to the

objective facts of the matter, and regard must be had to the substance of

the transaction and not the form143.

34. A “transfer” is a factual event contemporaneous with the events

constituting the transfer. Transfer cannot be dependent upon a later legal

categorisation. Such an approach would lead to uncertainty and would

undermine protection for employees144.

35. The lack of a formal act of transfer does not affect the validity of the

transfer for the purpose of labour legislation providing for a transfer akin to

Section 197. This is well recognised in foreign jurisprudence145.

36. According to the EAT “A transfer ..... arises where a change of

responsibility for or of management of the relevant undertaking occurs”.

142

Despite there being no cross-appeal by MAP, in its answering affidavit opposing Rural’s application for leave to appeal takes issue with the judgment of the LAC in regard to the no positive act issue. Volume 4, answering affidavit of MAP in application for leave to appeal, pp 359-361, para 16-18.

143 Grinpal para [23]; Unitrans para [14]; PE Rack para [44]; AVUSA para [35], [44], [51];

NEHAWU v University of Cape Town & others para [62] at 121. 144

In AVUSA, at para [44] the Constitutional Court stated the following: “It must be stressed that the key event which brings S197 into play is the transfer of business as a going concern. The question whether the section applies to a particular case cannot be determined, as the Supreme Court of Appeal did, with reference to the label of the transaction effecting transfer. The section does not cite transactions to which it applies. Nor does it refer to any labels. Instead, its application must always be determined with reference to three requisites, namely, business, transfer and going concern.”

145 See Wynn-Evans para 2.14, pp 22, para 2.22, pp 24.

58

37. As stated in Wynn-Evans146:

“2.12 Article 1(a) requires that the transaction or event to which the Directive

applies by way of a transfer of an undertaking must entail ‘a legal transfer or merger’, a specific qualification which is not carried across into TUPE. Determining whether an undertaking has been transferred for the purposes of regulation 3(1)(a) is an employment test rather than a corporate, property, or conveyancing test. As the EAT stated in Kelman v Care Services Ltd, ‘the theme running through all the recent cases is the necessity of viewing the situation from an employment perspective, not from a perspective conditioned by principles of property, company or insolvency law’. A transfer for the purposes of regulation 3(1)(a) arises where a change of responsibility for or of management of the relevant undertaking occurs.”

38. It is of no importance whether ownership of the undertaking has been

transferred147.

39. No formality is required. As stated in Wynn-Evans148:

“In Charlton v Charlton Thermosystems (Romsey) Ltd TUPE applied, despite the lack of any formal transfer, where the directors of a dissolved company continued its trade. Mr and Mrs Charlton argued that, as they were no longer directors of the company, since it had ceased to exist, they had no authority to effect a transfer to themselves or to deal with the company’s undertaking, property, or assets and that what in fact they had done was unlawfully use the name and assets of the company and wrongfully held themselves out as having authority to trade in the company’s name. Whilst this might render them liable to claims for trespass, conversion, and breach of warranty of authority, they contended that none of those matters made them transferees of the company’s undertaking. Mummery J disagreed with this analysis:

“In our view, the underlying fallacy in [counsel]’s submissions is that, although they may constitute a correct analysis of the legal position in terms of company law, contract law and the law of tort, they do not address the essential question of the interpretation of the Directive and the Regulations in the context of the protection of the rights of the company’s employees in the event of a change of employer. The issue in this case is confined to that point. It is not concerned with other consequences which may flow from the intermeddling of Mr and Mrs Charlton in the affairs and property of the company after dissolution. As pointed out above, the relevant decisions of the European Court of

146

Para 2.12, pp 21. See Kelman pp 267, para (5): “The cumulative effect of the decisions on the Directive is that a transfer of an undertaking may occur for the purposes of the Directive even though (a) there has been no transfer of the ownership of assets, tangible or intangible. What matters is the transfer of responsibility for the operation of the undertaking in which the employees are employed.” 147

See Wynn-Evans – para 2.13, pp 21. 148

Para 2.22, pp 24.

59

Justice on the interpretation of the Directive make it clear that a transfer of an undertaking has occurred in this case by virtue of the fact that the undertaking of the company retained its identity including the identity of the employees, in Mr and Mrs Charlton’s hands. That is sufficient to protect the rights of the employees.”

40. Significantly, the fact that Section 197 makes no mention (expectedly) of

either a valid transfer or of the underlying transaction pertaining to a

transfer is indicative of the intention behind Section 197 to cater for a

factual situation (as distinct from the legal cause thereof) and to give such

factual situation legal consequences.

41. In COSAWU v Zikhethele Trade (Pty) Ltd & another149 Murphy AJ stated

as follows:

“[34] . . . The emphasis is on a comparison between the actual activities of and actual employment situation in an undertaking before and after the alleged transfer. Kelman v Care Contract Services [1995] ICR 260. What seems to be critical is the transfer of responsibility for the operation of the undertaking. Mummery J's conclusion in Kelman offers a salutary guideline. He said:

'The theme running through all the recent cases is the necessity of

viewing the situation from an employment perspective, not from a perspective conditioned by principles of property, company or insolvency law. The crucial question is whether, taking a realistic view of the activities in which the employees are employed, there exists an economic entity which, despite changes, remains identifiable, though not necessarily identical, after the alleged transfer.'”150

42. Decisively however, it is not established on the papers that the EMC was

void ab initio, still less that “the transfer” took place pursuant to any

declaration to this effect. The relevant transfer took place pursuant to

Rural’s cancellation of the contract and not any other act (or

declaration)151.

149

(2005) 26 ILJ 1056 (LC). Reversed on appeal (only in regard to the issue of non-joinder: (2007) 28 ILJ 2742 (LAC)

150 Para [34].

151 Volume 1, founding affidavit in Section 197 application, pp 41, 42, para 69, 71, 72.

60

43. As a matter of fact, there was indeed a series of positive acts constituting

the transfer premised upon Rural’s (factual) cancellation of the EMC. The

acts constituting the transfer were as follows:

- Letter of cancellation152

- Letter confirming transfer153

- Information pack154

- Infrastructure and capital assets transferred155

- Business in new hands156

44. Ultimately however, this court need not make a determination in regard to

the competing contentions of Rural and MAP pertaining to the validity of

the EMC.

45. Rural does not rely on restitution as the basis of the transfer of the

business to the Municipality157. What is relied upon by Rural is the factual

position, i.e. what in fact has taken place independent of the legal cause of

what has factually happened.

46. The Municipality’s argument does not properly appreciate the

interpretation to be given to Section 197 as considered in AVUSA.

47. As stated in AVUSA158:

“[44] It must be stressed that the key event which brings s 197 into play is

the transfer of business as a going concern. The question whether the section applies to a particular case cannot be determined, as the Supreme Court of Appeal did, with reference to the label of the transaction effecting transfer. The section does not cite transactions

152



Volume 1, founding affidavit in Section 197 application, pp 43, para 72.1, 73, pp 42, 43, para 74.1. 155

Volume 1, founding affidavit in Section 197 application, pp 44, para 78, 79, 80. 156

Volume 1, founding affidavit in Section 197 application, pp 46, para 87-89. 157

Volume 4, answering affidavit of MAP in application for leave to appeal, pp 360, para 17. 158

Para [44] and [55] as per Jafta J and para [81] as per Jacoob J.

61

to which it applies. Nor does it refer to any labels. Instead, its application must always be determined with reference to three requisites, namely, business, transfer and going concern."

48. It is reiterated, with reference to the article by Judge Malcom Wallis It's Not

Bye-Bye to 'By': Some Reflections on Section 197 of the LRA159 and the

article by Craig Bosch Balancing the Act: Fairness and Transfers of

Businesses160, that the factual situation is determinative of the matter.

49. In the present matter, as a fact on 1 April 2014 and irrespective of whether

the cause was the cancellation by Rural of the EMC (Rural accepting the

repudiation by the Municipality of the EMC) or the EMC being void ab initio

(for whatever reason), the business was transferred from Rural to the

Municipality. Most significantly, on 1 April 2014, Rural handed the

business back and gave possession thereof to the Municipality which as a

fact took back the business and took back possession thereof161.

50. Prior to 1 April 2014 the factual position was that the business was in the

hands and possession of Rural and not MAP, and by Rural handing the

business back and giving possession thereof on 1 April 2014 to MAP,

which latter party took back the business and took possession thereof from

Rural, there was positive conduct on the part of Rural and on the part of

MAP - there was a transfer “by” Rural (the old employer) to MAP (the new

employer).

159

(2013) 34 ILJ 779. 160

(2004) 25 ILJ 923. 161

Volume 1, founding affidavit in Section 197 application, pp 44, para 77 - 80.

62

51. Further and in any event (and as correctly found by Davis JA in the Labour

Appeal Court162) the EMC (and the decision to award the relevant tender)

remains valid until set aside on review163. It should be noted that the

Kirland principle applies equally to acts alleged to be ultra vires164.

H CONCLUSION

52. In conclusion:-

52.1 Rural ought to be granted leave to appeal.

52.2 Rural’s appeal ought to be upheld with costs, such costs to include

the costs of two counsel, and the order of the Labour Appeal Court

ought to be substituted with the following order:

“The Respondent’s appeal is dismissed with costs, such costs to

include the costs of two counsel.”

P J Pretorius SC

L Hollander

Applicants’ Counsel Chambers

Sandton 19 February 2016

162

Volume 4, judgment, pp 314-318, para [14]-[23]. 163

MEC for Health, Eastern Cape v Kirland Investments (Pty) Ltd 2014 (3) SA 481 (CC). 164

Per Cameron J at paras [95] to [100].

IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA

Case CCT: 214 / 2015

LAC case no: JA 79 / 2014



RURAL MAINTENANCE (FREE STATE) (PTY) LTD Second Applicant and MALUTI-A-PHOFUNG LOCAL MUNICIPALITY Respondent

_______________________________________________________

APPLICANTS’ SUMMARY OF ARGUMENT

_______________________________________________________

1. This is an application for leave to appeal against the judgment

and order of the Labour Appeal Court. Leave to introduce new

evidence is also sought.

2. At issue in the appeal is inter alia (1) the proper test to be

applied when a business or undertaking is transferred as a

going concern; (2) whether only one factor or requirement is

decisive or whether a holistic approach should be adopted; (3)

the proper approach to be adopted when a service is in-sourced

2

and a consideration of the European and United Kingdom

jurisprudence in regard to a service provision change.

3. Rural’s case as pleaded before the Labour Court and the

Labour Appeal Court was that the business of the provision of

electricity services together with the infrastructure necessary for

the conduct of the business was transferred. This constituted a

transfer in terms of Section 197 of the LRA.

4. MAP’s case was not that significant or necessary assets were

not transferred. However, in MAP’s heads of argument before

the Labour Appeal Court a different case was made out. Now

MAP made positive assertions regarding specific assets not

transferred and that such assets were necessary for the

conduct of the business.

5. Similarly in its judgment the Labour Appeal Court made positive

factual findings in regard to both specific assets not transferred

and in regard to their necessity for the conduct of the business.

6. It is submitted that it is necessary for this Court to have before it

the true facts in order to determine whether these facts warrant

the findings of the Labour Appeal Court. Rural thus seeks leave

3

to adduce further evidence and it is submitted that Rural ought

to be granted leave to adduce further evidence.

7. The further evidence establishes that there are two components

to the debt collection function; prepaid metering and

conventional metering. In summary in regard to the prepaid

metering and conventional metering:-

7.1 There is no question of “debt collection” in respect of

prepaid meters.

7.2 All the software necessary for the operation of the pre-

paid vending system has at all material times been in the

possession of or under the control of MAP.

7.3 MAP could continue collecting revenue in respect of pre-

paid meters after transfer without any delay or lapse of

time or any significant investment.

7.4 In respect of conventional metering, all that was required

on the part of MAP (on MAP’s version) was an adjustment

to the existing Venus software and minimal training of

meter readers and data processors.

4

8. In summary in regard to the merits of the appeal:-

8.1 The Labour Appeal Court failed to apply the proper test

when considering whether there had been a transfer of a

business or undertaking as a going concern.

8.2 The Labour Appeal Court elevated the test that it applied

to a single and decisive requirement and failed to adopt a

“holistic approach”.

8.3 The Labour Appeal Court erred in applying the test or

requirement that it did, namely, the new “seamless

transition” test.

8.4 The Labour Appeal Court failed to consider and apply an

appropriate test, namely, the test relating to a service

provision change.

8.5 Applying the test in respect of a transfer of a business or

undertaking, being the first test, a transfer of a business

as envisaged in terms of Section 197 of the LRA took

place.

5

8.6 Applying the test in respect of a service provision change,

being the second test, a transfer of a service as

envisaged in terms of Section 197 of the LRA took place.

9. Albeit that there is no cross-appeal in regard to the positive act

issue, and Rural does not seek leave to appeal in this regard,

Rural deals with this issue.

10. As a fact on 1 April 2014 and irrespective of whether the cause

was the cancellation by Rural of the contract (Rural accepting

the repudiation by the Municipality of the contract) or the

contract being void ab initio (for whatever reason), the business

was transferred from Rural to the Municipality. On 1 April 2014,

Rural handed the business back and gave possession thereof

to the Municipality which as a fact took back the business and

took back possession thereof. There was thus a transfer as

envisaged in terms of Section 197 of the LRA. Further and in

any event, on the authority of MEC for Health, Eastern Cape v

Kirland Investments (Pty) Ltd 2014 (3) SA 481 (CC) the contract

remains valid until set aside on review.

6

P J Pretorius SC L Hollander Applicants’ Counsel Chambers Sandton 6 March 2016

IN THE CONSTITUTIONAL COURT

REPUBLIC OF SOUTH AFRICA

Case No: CCT 214/2015

Labour Appeal Court Case No: JA79/2014



RURAL MAINTENANCE FREE

STATE (PTY) LTD Second Applicant

and

MALUTI-A-PHOFUNG

LOCAL MUNICIPALITY Respondent

_____________________________________________________________

RESPONDENT’S HEADS OF ARGUMENT

_____________________________________________________________

of 41

TABLE OF CONTENTS

INTRODUCTION ........................................................................................ 3

FACTUAL BACKGROUND ....................................................................... 4

ASSESSING THE TWO JUDGMENTS ...................................................... 8

The Labour Court judgment ..................................................................... 8

The error belying the LC judgment ........................................................ 10

The LAC judgment ................................................................................. 19

LEAVE TO APPEAL TO THIS COURT .................................................. 22

Jurisdictional issues ................................................................................ 22

The ‘Service Provision Change’ (“SPC”) in the TUPE 2006 Regulations

is not part of our law…………………………………………………..25

The application to adduce new evidence ................................................ 27

No adequate justification ........................................................................ 31

The new evidence is irrelevant ................................................................ 34

CONCLUSION ........................................................................................... 40

of 41

INTRODUCTION

1. This is an appeal from the Labour Appeal Court (“LAC”). The facts

of the matter are discussed in more detail below. For now we merely

point out that the LAC quite correctly held that on the facts that

served before it there was no transfer of a business as a going

concern and that, consequently, the provisions of section 197 of the

Labour Relations Act, 1995 (“LRA”) were not triggered. The LAC’s

finding was based principally on fact and not on law. Realising the

short comings of its own papers, the applicants (“Rural”) now

approach this Court with two applications. In the first place they

want to adduce new evidence to overcome the short comings of the

affidavits that they filed in the Labour Court, and in the second they

seek leave to appeal the LAC decision on the basis that:

1.1. it developed and applied a new test to determine whether or

not a transfer for purposes of section 197 of the LRA was

triggered, referred to by the applicants as a “seamless

transition” test; and/or

1.2. in the event their application for leave to introduce new

evidence is granted, had the proper facts served before the

LAC, its decision would have been different.

2. In short, we submit that no good reason exists for permitting the

applicants the opportunity now, at this late stage, to adduce new

evidence. They were always made aware of the fact that their

of 41

founding papers were deficient. Instead of trying to fix the problem

before the matter was heard in the LC (or for that matter in the LAC)

it chose, instead, to take its chances on the papers as they were.

When it lost in the LAC, and realised the deficiencies, it sought to

adduce new evidence – but only now at this very late stage before

this Court. There is a long line of cases which stand as high authority

for the proposition that it ought to be precluded from doing so given

the facts and circumstances of this case. Be that as it may, we also

submit that even if the new evidence is admitted it is insufficient to

disturb the decision of the LAC.

FACTUAL BACKGROUND

3. Rural specializes in assisting municipalities and local government

structures to provide electricity to consumers. The Maluti-a-Phofung

Local Municipality (“the Municipality”) is situated in the Eastern

Free State and includes the towns of Harrismith, Kestell and

Phutaditjhaba.

4. It is common cause that the Municipality allowed its electricity

infrastructure to fall into a state of disrepair. Major transformers

were suffering oil leaks which caused them to malfunction and

circuit-breakers were damaged beyond repair; there were frequent

electricity outages; in some instances there were live electricity

distribution points which had not been properly secured and which

could be accessed by members of the public resulting in potential

of 41

electrocution; switchgear was malfunctioning and in at least one

instance a substation exploded killing somebody. In addition to the

poor state of the electricity distribution infrastructure, the

Municipality could not pay Eskom for the electricity that was being

supplied to it. The main reason for this is that the Municipality did

not have the ability to effectively collect revenue from its consumers

because it did not have the necessary metering, invoicing and

collecting systems in place. In short, there was a problem with the

infrastructure used to provide the service of electricity to residents as

was there a problem with the manner in which the Municipality

operated the business of providing that service (LAC judgment,

paras 2 and 3, pp 310 and 311).

5. On 3 April 2011 the Municipality and Rural concluded the

Electricity Management Contract (the “EMC”) in terms of which

Rural was appointed to manage, operate, administer, maintain and

expand the municipal electricity distribution network for a period of

25 years, after which the obligation to supply electricity to the

residents would revert back to the Municipality (founding affidavit,

PMB2, pp. 54-112). It is common cause that in terms of the EMC

Rural accepted 16 employees from the Municipality by way of a

transfer agreed to by the parties in terms of section 197 of the LRA

(LAC judgment, para 5, p 311).

6. Rural began performing its obligations under the EMC with effect

from 1 September 2013, incurring significant expenditure in growing

the business, enlarging the workforce to 127 employees, and

of 41

investing money to make its business bigger, better, more efficient

and more profitable. Rural explains how it went about converting an

otherwise disfunctional municipal service into a profitable trading

business (founding affidavit, para 46.5, pp. 33-34):

Rural has incurred considerable expenditure in respect of:

46.5.1 the purchase of network materials being switch

gears, polls, transformers, mini-substations and

prepaid meters and the purchase of 17 new light

commercial vehicles, totalling R13,523,766.51;

46.5.2 the purchase of two specialized trucks being an

Iveco 4x4 live line truck and an Iveco 6x6 drill rig

totalling R7,500,000;

46.5.3 electrical infrastructure mapping (ie. the compiling

and recordal of the details of the Municipality’s

electrical distribution infrastructure), the mapping of

townships within the geographical area of the

Municipality, the purchase of software systems in

regard to the electricity metering, billing, collection,

customer care, fault desk, call centre, technical

services and the like… salaries, legal costs, travel

costs, technical investigations, financial

investigations and feasibility study costs totalling

R69,987,804; and

46.5.4 the purchase of an immovable property in

Harrismith to be used to construct offices for Rural’s

employees and staff accommodation. The total costs

of the immovable property including construction

will be approximately R5,000,000.

7. However, it became apparent to municipal officials that the EMC

was improperly concluded. And so on 5 August 2013 the

Municipality advised Rural that it did not consider itself bound by

the terms of the EMC because its former Municipal Manager had not

obtained the requisite authority from the Municipal Council to enter

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into the contract on behalf of the Municipality and therefore his

actions were ultra vires and the contract null and void. The

Municipality also contended that the EMC was void ab initio

because Rural never had the necessary licence from the Regulator,

NERSA, which is mandatory under the Electricity Regulation Act

(answering affidavit, para 11, p. 229). Rural, for its part, claimed that

the Municipality had no right to resile from the EMC and its actions

in doing so amounted to a breach of contract. Rural, in consequence,

sought to cancel the contract (replying affidavit, para 28, p. 260).

Whether or not the contract is void ab initio (as contended by the

Municipality) or was once valid but subsequently cancelled (as

contended by Rural) is the subject of a pending action in the Free

State High Court. The action was initially set down for trial in

October 2014 (answering affidavit, para 12, pp. 229-230) but

subsequently postponed to this year (LAC judgment, para 8, p 312).

8. Despite the pending action, Rural delivered an information pack to

the Municipality on 3 April 2014 containing a list with the names of

the 127 affected employees, their employment contracts and an

organogram of Rural’s organizational structure together with a

proposed draft section 197 agreement. Rural sought to transfer the

127 people that it (Rural) had employed to the Municipality.

Additionally, it returned to the Municipality what it terms

“possession of the network and the capital assets”, in other words the

electricity distribution infrastructure consisting largely of the

properties, tools, equipment and vehicles that had been transferred

by the Municipality to Rural (founding affidavit, paras 77-78, p. 44).

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It admits, however, that it never transferred many of its businesses

assets such as the building that it purchased in Harrismith to house

employees, nor the vehicles used to maintain the infrastructure, nor

the computer hardware and software, stationery, etc used to collect

revenue which it calls “peripheral assets” (replying affidavit, para

18, p. 257). Nonetheless, Rural claims that it has transferred enough

to trigger the operation of section 197(2) of the LRA.

9. It is clear from a literal reading of the legislative provision and from

the jurisprudence on section 197 that contracts of employment are

only transferred from the old employer to the new employer where

the old employer’s business is transferred to the new employer as a

going concern. Crucially, therefore, the Municipality is only legally

obliged to acquire the 127 affected contracts of employment if Rural

transferred their business to the Municipality “as a going concern.”

This was the core issue that featured in the judgments of both the LC

and LAC.

ASSESSING THE TWO JUDGMENTS

The Labour Court judgment

10. In para 29 of the LC judgment (p. 281), Justice Tlhotlhalemaje

summarizes his assessment of the case in the following terms:

In this case, the Municipality accepted that it had acquired the

obligation to provide electricity to its inhabitants. In this

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regard it can be accepted that the business transferred was the

purchase of electricity from Eskom as bulk supplier, the

provision of electricity and related services to rate payers, and

most importantly, the entire infrastructure to run the entire

electricity network, including transmission and distribution.

That infrastructure as pointed out in [Rural’s] replying

affidavit included sub-stations, switchgears, transformers,

power lines, prepaid vending systems, metering equipment,

etc. This infrastructure, which was transferred to [Rural] in a

dilapidated stated in 2011 was returned back to the

Municipality in an improved and functional state in April

2014. Furthermore, it should be accepted that the business

transferred will continue to serve and service the same clients

that [Rural] used to service, being the inhabitants that fall

under the jurisdiction of the Municipality. Thus the return of

the infrastructure would enable the Municipality to continue

from where [Rural] left off in providing the service in

question.

11. Thus, having understood the facts as he articulated them above,

Justice Tlhotlhalemaje then summarized the central issue in the case

as he saw it (LC Judgment, para 30, p. 282):

In my view, the only issue in this case is whether the failure to

transfer ancillary tangible and non-tangible assets such as

computers, vehicles and other equipment to continue the

service it used to render, negates the operation of the

provisions of section 197.

12. In paras 36-38 (LC judgment, pp. 283-284) Justice Tlhotlhalemaje

concludes that, in his view, “the business of the supply of electricity

to consumers within the jurisdiction of the Municipality comprised

principally of the infrastructure required to transmit and distribute

electricity supplied by Eskom to consumers, and the equipment used

to facilitate the collection of revenue.” He regarded this as being the

“core for successful service delivery of electricity” and furthermore

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concluded that it had been “transferred back to the Municipality”.

And then in para 42 (p. 287) he concluded by stating “I am satisfied

that the business of providing a service to the local inhabitants, as

previously in the hands of [Rural] and now transferred to the

Municipality, remains the same, and to this end it is concluded that

there has been a transfer of a business as a going concern as

contemplated in section 197”.

13. And so, finding as he did, Justice Tlhotlhalemaje issued a

declaratory order stating that with effect from 1 April 2014 the

employment contracts of all 127 affected employees are transferred

to the Municipality in terms of section 197(2) of the Labour

Relations Act. He directed the Municipality to comply with the

provisions of section 197 in relation to the transfer of those

employees.

The error belying the LC judgment

14. There can be no transfer for the purposes of section 197 unless the

“business” that was transferred was transferred as “a going concern”.

15. First, we say that no “business” was ever factually transferred. In

para 29 the LC judgment, it was correctly held that “the Municipality

accepted that it had acquired the obligation to provide electricity to

its inhabitants.” However, it is trite that the acquisition of an

obligation to provide a service and, in fact, the provision of the

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service itself is not the same thing as acquiring a business as a going

concern – see Aviation Union of South Africa & Another v South

African Airways (Pty) Ltd & Others 2012 (1) SA 321 (CC) where

this Court held in para 52 that section 197 is only triggered when

“the business that supplies the service” is transferred “and not the

service itself.” See also Van Niekerk J in Unitrans Supply Chain

Solutions (Pty) and Another v Nampak Glass (Pty) Ltd and Others

(2014) 35 ILJ 2888 (LC)1 at para 18 to the effect that “an entity

cannot be reduced to the activity entrusted to it.” The point being

made is that something more than merely the service or the

obligation to provide the service must have transferred from Rural to

the Municipality to trigger section 197. Whilst Justice

Tlhotlhalemaje found that Rural’s business was transferred (LC

judgment, para 29, p. 281), he incorrectly labeled the business as

“the purchase of electricity from Eskom as bulk supplier, the

provision of electricity to ratepayers, and most importantly the entire

infrastructure to run the entire electricity network, including

transmission and distribution.” It is not disputed that the activity

described by the court a quo in para 29 was handed over to the

Municipality but the activity or service transferred was not a

business.

16. The business transferred must be a “going concern”. This means that

what must be transferred is the same business in different hands.

1 This judgment went on appeal to the Labour Appeal Court which upheld the decision of

Van Niekerk J which appeal is reported as TMS Group Industrial Services (Pty) Ltd t/a

Vericon v Unitrans Supply Chain Solutions (Pty) Ltd and others 2014 (10) BLLR 974

(LAC).

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Thus the business that was operated before the transfer must be

substantially the same as the business that is capable of being

operated after the transfer. Another way of saying it is that the same

business, as it is being operated today must be transferred by X to Y

so that tomorrow Y can operate that business in substantially the

same way as it was being operated by X.

16.1. Indeed, the phrase “as a going concern” has a settled meaning

for commercial lawyers that draft contracts for the sale of

trading businesses. A business is not sold as a going concern

if the buyer cannot smoothly commence trading in

substantially the same way as the business was trading

before. The Municipality’s case is that this did not happen.

16.2. It also has a settled meaning tax lawyers. Thus SARS have

also, for VAT purposes in section 11(1)(e), defined a

business transferred as a going concern to be one where, inter

alia, it is an “income-earning activity” that is “capable of

separate operation” and where “the assets necessary for doing

so have been disposed of to the purchaser” (SARS

Interpretation Note of 31 March 2010 on the Value-Added

Tax Act 89 of 1991 concerning the Sale of an Enterprise or

Part Thereof as a Going Concern).

17. The business that was being operated by Rural immediately before

the hand over used specialized tools and assets in a manner that the

Municipality simply could not do after the “hand over” because

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those same tools and assets employed by Rural were not

concomitantly handed over. Yet those tools and assets that were used

by Rural were an essential part of its trading operation. Significant

assets used by Rural to run its business as a viable commercial

enterprise were not transferred to the Municipality. Although Rural’s

papers do not clearly describe what assets were utilized by it prior to

transfer, it is nonetheless apparent from the scant information

provided that, at a minimum, the following assets, crucial to the

operation of its business as a viable economic enterprise, were not

transferred to the Municipality:

17.1. A host vending system, software and intellectual property

relating to pre-paid metering;

17.2. An immovable property in Harrismith which provided offices

and accommodation for at least 18 of the 127 employees;

17.3. Computer software systems for electricity metering, billing,

collection, customer care, fault desk, call centre, technical

services;

17.4. Computer hardware and stationery;

17.5. Two specialized trucks (Iveco 4x4 Live Line truck and Iveco

6x6 drill rig) and 17 new light commercial vehicles; and

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17.6. Electrical infrastructure mapping.2

18. These crucial components that made Rural’s operation a viable

trading business were retained by Rural. Ipso facto it was impossible

for the Municipality to operate the business of Rural in substantially

the same way after transfer as it was being operated immediately

before transfer. Thus, in order for the Municipality to run the

business that provides the service of supplying electricity, it needed

to invest substantial financial resources into acquiring the same

necessary equipment that Rural’s employees were using when Rural

operated the business. The Municipality does not have these

resources (answering affidavit, para 13, p. 230).

19. In both courts below and still in this Court, the Municipality places

reliance on the “snapshot” test formulated by Francis J in Food &

Allied Workers Union v The Cold Chain (Pty) Ltd & Another 2010

(1) BLLR 49 (LC) and used in many subsequent cases, ie. “to take a

snapshot of the entity before the transfer and assess its components”

and to compare this picture to the one taken of the business after the

transfer “to establish whether it is substantially the same business but

in different hands”. By applying this test to the facts as set out in the

papers, it is quite apparent that what Rural gave the Municipality is

manifestly not the same trading entity that it was operating.

Something less operative, less functional, less sophisticated, and less

2 Indeed, it is a serious flaw in the presentation of Rural’s case that it has not done a pre-

transfer and post-transfer inventory of assets. Its founding affidavit is inadequate to this

extent.

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profitable was given back to the Municipality. Certainly something

less than a going concern. In fact the founding papers do not even

attempt this snapshot exercise. It was therefore impossible to

conclude, as the LC did, that a business capable of operating in

substantially the same way was transferred. Without a snapshot the

court simply had insufficient information available to make this

conclusion. This led the Municipality to advance the following

argument in the courts below which it repeats in this Court.

19.1. Rural’s founding affidavit does not take a snapshot of their

business prior to the transfer. Rather the business is described

in general and somewhat vague terms “as the provision of all

electricity related services to inhabitants” (founding affidavit,

paras 78 and 79, p. 44). This Court therefore only has a vague

idea of what the business was.

19.2. The closest that Rural comes to giving any specificity as to

what the business was prior to transfer is when they state that

the business has grown because they purchased “network

materials being switchgears, poles, transformers, mini-

substations, pre-paid meters and 17 new light commercial

vehicles” (founding affidavit, para 46.5.1, p. 33); and then

that they have also purchased “two specialized trucks being

an Iveco 4x4 live line truck and an Iveco 6x6 drill rig”

(founding affidavit, para 46.5.2, p. 33); they have also

acquired “electrical infrastructure mapping (ie. the compiling

and recordal of the details of the Municipality’s electrical

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distribution infrastructure)” and “software systems in regard

to the electricity metering, billing, collection, customer care,

fault desk, call centre, technical services and the like”

(founding affidavit, para 46.5.3, p. 33); and in para 46.5.4

they claim to have purchased “an immovable property in

Harrismith used to construct offices for Rural’s employees

and staff accommodation” (founding affidavit, para 46.5.4, p.

34). The above are additional assets said to have been

acquired by Rural which are necessary for the operation of

their business.

19.3. But this is not a “snapshot”. It is merely a paragraph in the

founding affidavit in which Rural explain how they incurred

expenditure in the acquisition of various assets for use in the

business. Notwithstanding, it is a very useful indicator of

some of the additional assets that Rural used when operating

its business immediately before the transfer.

19.4. The next step would be to see a snapshot immediately after

the purported transfer to the Municipality. Rural make the

allegation that the Municipality is now, after the transfer, in

the control and possession “of the network and the capital

assets” (founding affidavit, para 78, p. 44) and that “the entire

electricity distribution infrastructure of the Municipality

which it was utilizing has been returned to the Municipality

together with the additions and improvements thereto”

(founding affidavit, para 79, p. 44). We accept that the basic

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infrastructure was indeed handed back to the Municipality.

But the basic infrastructure is insufficient to operate a trading

business. The point has already been made that more was

needed to convert the mere supply of electricity into a viable

trading business. It is the additional things needed (and

actually used by Rural), one example of which is the tools

used for debt collection, that were never transferred. For that

reason the same business was, quite simply, never transferred

“as a going concern” to the Municipality and without a

substantial financial investment being made by the

Municipality (an investment which even Rural was required

to obtain finance for) the same business cannot be run by the

Municipality.

20. Para 30 of the LC judgment (p. 282) dealt with this issue as follows.

First, the learned Judge appears to recognize that computers, vehicles

and other equipment used by Rural were not transferred. However,

the learned Judge asks whether “a failure to transfer these ancillary

assets… negates the operation of section 197.” In paras 37 and 38 of

the judgment (p. 284) he appears to conclude “not” because, despite

these assets not having been transferred the business handed over to

the Municipality “remained substantially the same”. This is where,

with respect, the court a quo erred. The Municipality’s case is that

these assets (vehicles, drill, rigs, tools, computers, software,

metering and billing systems, intellectual property, debtors’

information and debtors books, etc) may only be ancillary to the

service that supplies electricity but they are very central to the

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business that provides that service. It will be recalled that according

to Rural these assets were specifically acquired to enable it to

properly trade. A going concern is, by definition, a trading entity. As

soon as a business requires particular assets to trade profitably then

those assets cease to be merely “ancillary”. Thus, contrary to the

finding of the court a quo, many of the assets retained by Rural were

essential to the successful operation of the trading business.

21. The business of supplying electricity to an area needs more than

merely the infrastructure to transmit and distribute the electricity

supplied by Eskom in the same way that a railway business

supplying transport to an area needs more than merely the trains and

the tracks used to transport the people. In order for it to operate/trade

the railway business must also, at a minimum, have a central

booking service, a ticket sales department, and customer care. So too

must the business supplying electricity have a metering and billing

service, a collections department, and customer care. A seller can, of

course, transfer the service of providing railway transport by simply

transferring the trains and tracks but if he transfers the business that

provides the railway service then he must also transfer the essential

components that enable that business to trade such as booking and

ticket sales. Without that the business cannot be said to have been

transferred as a going concern. This analogy, we submit, finds a

home in our case too by parity of reasoning.

The LAC judgment

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22. The LAC recognized the shortcomings of the Labour Court’s

judgment. These are set out the in the fairly concise but well written

judgment of Davis JA with whom Coppin JA and Savage AJA

concurred.

23. Para 6 of the LAC judgment (pp. 311 and 312) makes the point that

Rural deemed it necessary, when commencing its performance under

the EMC, to incur “significant expenditure in expanding the

business” not only to enlarge its workforce to 127 employees but

also to invest money in various assets. Here the LAC was referring

to Rural’s purchasing of all the tools and equipment referred to at

paragraph 19.2 above.

24. Para 33 of the LAC judgment (p. 322) recognizes, after considering

foreign law, that “the overall assessment [of whether a business has

been transferred as a going concern] depends on an examination of

the totality of the business; in this case the business operated by

Rural prior to the transfer”. In para 34 of the LAC judgment (pp. 322

and 323) the learned judges correctly stated that:

The court a quo held that the vehicles, drill, rigs, tools,

computers, software, metering and billing systems, intellectual

property, debtors’ information and debtors books were

peripheral assets used in the conduct of the business. The

contrary argument was that this focused the attention of the

enquiry solely on a service that supplies electricity, rather than

upon the totality of the service which had been performed by

Rural and which could be described as its business. Following

this description, the business conducted by Rural operated on

two legs, namely the provision of adequate infrastructure in

order for residents to be supplied with electricity and the

mechanism by which to generate sufficient revenue for the

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supply of electricity by way of an adequate billing of

consumers and the collection of what was owed for the supply

of electricity.

25. In paras 35 and 36 of its judgment (p. 323) the LAC quotes from

Rural’s own founding affidavit where Rural explained and gave

details of “the considerable expenditure” that it had to incur in order

to fulfil its obligations under the EMC. The LAC quite correctly

makes the point that “all of these [assets purchased] were considered

to be necessary for the operation of the business conducted by Rural”

yet “many of them were not transferred” with the result that if the

Municipality was to conduct the same business that Rural was then it

would have to spend a considerable amount of money getting its

business to the same place that Rural’s was prior to the transfer.

Merely as an example of how much the Municipality would have

had to spend in getting its business to the same place that Rural’s

business was prior to the transfer, the LAC illustrates its point with

reference to what it says is but one of the critical issues inherent in

Rural’s business, namely debt collection. Of this it says the

following in para 37:

In my view, given that the onus rests upon the respondent to

show, on the probabilities, that a transfer of a business as a

going concern had taken place, it cannot be said that the same

business conducted by Rural had been transferred so that it

was now conducted by a different entity, namely appellant.

Take but one critical issue, debt collection. For debt collection

to be continued seamlessly by appellant, this component of the

business had been conducted by Rural, it was necessary to

meter the use of electricity, invoice the consumer and collect

payments therefrom. Essential to this process would have

been the use of software and information stored and used in

digital form as had been employed by Rural. In short, the

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means to perform this debt collection activity had not been

transferred. On its own, this was a significant component of

the overall business. It supports the overall assessment that it

cannot be said, on these papers, that the very business

conducted by Rural had been transferred to appellant.

Expressed differently, appellant would not have been able to

continue business seamlessly after the “transfer”. For these

reasons, the appeal must be upheld.

26. It is important to note that the LAC only used the debt collection

component as one example of many where crucial assets were not

transferred to the municipality.3

27. Rural seeks to make much of the LAC’s use of the word

“seamlessly” in its judgment in support of its argument that it

developed and applied a new test for determining whether or not a

transfer as a going concern for purposes of section 197 of the LRA

has taken place. The test applied by the LAC is not a new test. It is

an old well-used test. The test requires that one consider the business

operated before the transfer, as the LAC did in paras 35 and 36 of its

judgment, and juxtaposes this with the business that the transferee

3 Rural’s application for leave to appeal is premised on the fact that the LAC incorrectly

held that the municipality could not continue operating the business without necessary

debt collection components of the business being transferred to it. Rural criticized this

finding and even tries to adduce new evidence to demonstrate that the municipality could,

had it wanted to, continue operating the business and even collecting debts albeit in a

different manner. The problem with Rural’s application for leave to appeal is that it

appears to be based on the fact that the LAC deemed the only necessary component of the

business not to be transferred as relating to debt collection. That is not true. There were a

number of important components of the business that were not transferred. These are

listed in para 36 of the LAC judgment (p. 323). The important components of the business

insofar as they relate to debt collection was used merely for illustrative purposes in para

37 of the LAC judgment (pp. 323-324). But nothing in para 37 detracts from the fact that

other crucial aspects were also not transferred, such as the 17 vehicles, the two

specialized trucks, the electrical infrastructure mapping, the immovable property that had

been purchased, and the aftercare or customer care component of the business.

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has immediately after the transfer to see whether the business was

transferred as a going concern. Rural’s emphasis on the word

“seamlessly” as used by the Labour Appeal Court was taken out of

context. The Court merely used the word in order to point out that

after the transfer the Municipality was not able to simply operate the

business without making further adjustments or acquisitions. The

court was certainly not proposing a brand new test as Rural tries to

suggest.

28. Consequently, and purely by applying the existing law to the facts as

set out by the parties in their affidavits, the LAC found, correctly so,

that the onus which rested upon Rural to show that a transfer of a

business as a going concern had taken place had not been discharged

and accordingly the appeal was successful.

LEAVE TO APPEAL TO THIS COURT

Jurisdictional issues

29. We accept that a constitutional issue is raised for reasons that this

Court has previously articulated, namely that the application and

interpretation of section 197 of the LRA is a constitutional issue

because the statute was enacted to give effect to section 23 of the

Constitution ala City Power (Pty) Ltd v Grinpal Energy Management

Services (Pty) Ltd (2015) 36 ILJ 1423 (CC) at para 14. However,

there is no arguable point of law of general public importance raised

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by the appeal because the appeal turns largely on the facts and not on

the law. As already discussed above, the “seamless transition” test as

described by Rural is nothing other than the “snapshot” test given a

different name. We therefore dispute that the appeal raises an

arguable point of law of general public importance as contemplated

by section 167(3)(b)(ii) of the Constitution.

30. Rural has launched this application for leave to appeal on the basis

that the LAC developed and applied a new test, the appropriateness

of which it disputes. But this is incorrect. The appeal, if entertained,

will turn on a factual enquiry only.

31. Rural’s affidavits filed in the LC do not clearly describe what assets

were utilized by them prior to transfer. This point has been made

above as has the fact that none of these crucial components that

made Rural’s operation a viable trading business – on Rural’s own

version - were handed over. Ipso facto it was impossible for the

Municipality to operate the business of Rural in substantially the

same way after transfer as it was being operated immediately before

transfer. In order for the Municipality to run the business that

provides the service of supplying electricity, it needed to invest

substantial financial resources into acquiring the same necessary

equipment that Rural’s employees were using when Rural operated

the business.

32. Rural merely handed back the basic infrastructure needed to supply

electricity. It transferred the service to the Municipality but not the

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actual business that provides the service. Rural’s case is premised on

the Municipality needing to “outsource” because it was no longer

able to sustain the service of supplying electricity to its inhabitants.

There were at least two reasons for this. The first is that it was not

properly maintaining the infrastructure; and the second was because

it was not properly billing consumers and collecting revenue.

Without these two vital aspects of the business working properly, the

business of supplying electricity is simply not viable. That is why,

when Rural acquired the contract from the Municipality, it set about

transforming the service of supplying electricity into a viable trading

business. It did this by purchasing assets essential for the

maintenance of the infrastructure and for metering, billing, and

collecting revenue. But these essential assets, crucial to the operation

of the trading business, were never transferred to the Municipality.

33. That is why it is simply wrong to say that Rural transferred its

business to the Municipality as a going concern. The LAC

recognized this fatal flaw in Rural’s case in paras 32-37 of its

judgment (pp. 322-324) where it found that in relation to debt

collection, the means to perform this significant (and important)

aspect of the overall business was simply not transferred. This is

undoubtedly correct on the facts that served before the LAC and is

why we say that the matter in this Court is solely a question of fact

and not of law.

The ‘Service Provision Change’ (“SPC”) in the TUPE 2006 Regulations

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34. The applicants have advanced two tests which they submit could be

of application to the facts of this matter – what they call the

“standard test” and the “SPC test”. The latter is a “test” which

appears to have emerged from European and English Courts dealing

with circumstances where the transfer being examined is one where

there is a service provision change (SPC). This is a situation where a

client contracts with a contractor to provide the client with services.

35. The applicants submit in their heads of argument for the first time

that the concept of an SPC as it is defined in the TUPE 2006

Regulations has been introduced into South African law by the LAC

in the Unitrans judgment.4

36. On a proper reading of the judgment of Davis JA in Unitrans, it

emerges that while the learned Judge referred to the concept of an

SPC, and referred to the expanded category of transfers which would

be covered by the concept (given the difficulties that had been

experienced by the Court faced with the facts in the matter of Carlito

Abler v Sodhexo MN Catering Gesellshaft GmbH [2004] IRLR 168

(ECJ)), he observed that the TUPE 2006 regulations had resolved the

difficulties inherent in outsourcing, insourcing or the transferring of

contracts by a client from one contractor to another, in England.

37. The learned Judge did not however recognise and apply the concept

of an SPC in Unitrans and thereby incorporate the concept into our

law. Rather, Davis JA found that the Sodhexo approach accords with

4 See fn 1.

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the approach taken by this Court in the Aviation Union and

NEHAWU matters, which is to the effect that the substance of the

transaction is more important than the form. It is the rights and

obligations of the specific parties involved in a particular transaction

that must be properly interpreted to determine whether or not there

has been a transfer of a business as a going concern.5

38. We are supported in this view by the comments of Yacoob J in para

105 of Aviation Union where it is stated:

A transfer of business may not be covered by section

197 even if it is a “first generation” contracting out. On the

other hand, even a “fifth generation” outsourcing could be

caught by the section if it is in reality the transfer of a business

as a going concern.

39. Contrary to what the applicants submit, the LAC in Unitrans did not

(and could not competently have) “accepted that where a service is

the subject matter of a transfer, special and different considerations

may apply.” Section 197 of the LRA is the law pertaining to transfer

of employees. It is triggered when there has been a transfer of a

business as a going concern. It has no special application in

situations where a service is transferred.

40. While the judgment of Davis JA approves of the rationale applied in

Sodhexo, that decision was handed down in 2003, some three years

5 Aviation Union at para 114.

http://www.saflii.org/za/legis/consol_act/lra1995188/index.html#s197

http://www.saflii.org/za/legis/consol_act/lra1995188/index.html#s197

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before the TUPE 2006 regulations were adopted. So to the extent

that the LAC in Unitrans applied the reasoning from Sodhexo in that

matter, it did so independently of any concept of an SPC which

concept did not exist in the TUPE regulations back in 2003. What is

more the LAC only expressly stated that the approach in Sodhexo

had been followed by this Court in Aviation Union. In saying so, he

did not refer to an SPC by name.

41. If the applicants are correct and the LAC in Unitrans did adopt the

SPC concept as part of our law it is submitted to be contrary to the

reasoning of the majority of this Court in Aviation Union. There is

no reason to adopt a second test relating to the SPC initiations. The

Aviation Union approach is quite sufficient to encompass all going

concern transfers, regardless of whether they have a significant

services transfer component or not. The “test” or guidelines in

relation to SPC ought not to be a part of our law.

The application to adduce new evidence

42. It is not the activity viewed in isolation that is of concern to a court

determining the applicability of section 197 to a transfer; rather it is

the simple question of whether or not a business was transferred as a

going concern (as opposed to merely an activity or a service). The

LAC recognised this in para 37 (pp. 323-324) where it found that the

onus rested on Rural and that Rural had not discharged its onus. And

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so Rural has tried to fix the problem by seeking to introduce new

evidence on appeal in this Court.

43. As a general rule, this Court, as a court of last instance, is reluctant

to allow additional evidence to be introduced for the first time before

it. It is in fact only in exceptional circumstances and with reluctance

that this Court will permit evidence which did not serve before the

court/s below to be admitted.

44. The Municipality opposes Rural’s application to adduce new

evidence on appeal for the following three broad reasons: First,

because it is inappropriate to introduce new facts on appeal; second,

because there is no adequate justification for only seeking to

introduce this new evidence now and not beforehand; and third,

because the new evidence will not, even if accepted, disturb the

correctness of the LAC’s decision.

45. From the applicable case law this Court, as an appeal court and

acting under Rule 30 of the Constitutional Court Rules, read with

section 19 of the Superior Courts Act, 2013 and when adjudicating

applications of this nature, will consider:

45.1. whether or not a reasonably sufficient explanation has been

provided as to why the evidence which is sought to be led

was not led at the prior proceedings;

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45.2. if there is a prima facie likelihood of the truth of the

evidence; and

45.3. whether the evidence is materially relevant to the outcome of

the appeal.6

46. This Court has furthermore recognised that its powers to accept

further evidence should not be exercised unless the circumstances

are such that compelling reasons exist to do so.7

47. We submit that Rural have not shown good reason why the

voluminous amount of new factual evidence that they seek to

introduce was not dealt with in their replying affidavit in the LC, nor

by way of a similar application having been brought once the

Municipality had lodged its application for leave to appeal the LC’s

decision nor in the proceedings pertaining to its petition to the LAC

for leave to appeal. Rural opposed both of these applications by

filing lengthy affidavits. They had ample opportunity at that stage to

either include new factual evidence in such affidavits, or, more

appropriately, to bring an application of the nature that they now

seek to bring at that point.

48. It must be borne in mind that the majority of the alleged new

evidence sought to be introduced deals with factual events in the

parties’ respective operations which transpired before 1 April 2014

6 S v De Jager 1965 (2) SA 612 (A) at 613B.

7 Bel Porto School Governing Body v Premier, Western Cape 2002 (3) SA 265 (CC) at para

119.

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(and accordingly before Rural launched its urgent application). To

the extent that the facts which served before the LC and LAC when

it decided upon the matter are incomplete facts, which appears to be

the thrust of Rural’s argument, Rural has only itself to blame for not

placing the correct facts before the LC at the outset. As has been

stated by this Court, exceptional circumstances need to exist in order

to admit new evidence because ordinarily the correctness of the

order of a court below ought to be determined from the record that

served before such court.8 This is not a case where new evidence has

come to light after judgment nor is the application made so as to

introduce facts relating to events which only took place after

judgment was handed down. It deals with facts which were within

Rural’s knowledge as at the time the original urgent application was

filed at the Labour Court. Rural was remiss in not including that

information in its original application. This Court should not come to

its rescue by granting this application now, more than two years after

the initial urgent application was heard.9

49. As already mentioned, the evidence Rural wish to advance is purely

factual. What is more, it is technical in nature. Even though the main

application deals with the applicability of section 197 of the LRA, a

question which is a factual enquiry, Rural’s omission to place such

facts before the courts below was its own choice and this Court

ought to reach a decision on the applicability of section 197 of the

8 S v Lawrence 1997 (4) SA 1176 (CC) at para 24, President of the Republic of South

Africa v Quagliani 2009 (2) SA 466 (CC) at para 70 and Rail Commuters Action Group v

Transnet Ltd t/a Metrorail 2005 (2) SA 359 (CC) at para 41. 9 De Aguiar v Real People Housing (Pty) Ltd 2011 (1) SA 16 (SCA) at para 11.

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LRA considering all the facts (and only those facts) which served

before the courts below, otherwise what Rural seek is essentially the

re-hearing of their application in its entirety.

No adequate justification

50. In paras 17 to 25 of Rural’s founding affidavit in its application to

lead further evidence on appeal (pp. 380-386), it suggests that the

new evidence was not required from it until it received the

Municipality’s heads of argument. In other words, contends Rural,

the new evidence is needed to overcome an argument made in our

heads of argument rather than in the affidavits. This is not, however,

true. The Municipality’s case, articulated in its answering affidavit,

makes it clear that it never received an inventory of assets in relation

to Rural’s business. The Municipality alleged in para 47 of its

answering affidavit (p. 246) that it had no idea what assets Rural was

employing in its business immediately before transferring it to the

Municipality. Under these circumstances it was impossible for the

Municipality to have made detailed allegations around the non-

transfer of important assets because it did not know about them.

Thus one finds in para 47 of the Municipality’s answering affidavit

(p. 246), the deponent stating the following:

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Noticeably absent from these paragraphs (in which Rural

alleged that it transferred its business as a going concern to us)

is an itemised inventory of exactly what their business was.

One would expect that an allegation of a business being

transferred as a going concern would explain what the

business was (assets, liabilities, etc). The founding affidavit

does not do this. The founding affidavit does not even explain

to us what Rural’s “business” entailed. The meaning of “a

business as a going concern” has a very specific meaning in

mercantile parlance. The founding affidavit, in my

submission, fails to describe Rural’s business and what it

would mean for it to qualify as a going concern.

51. Then, also in para 47 of the answering affidavit, the Municipality’s

deponent explains the difficulties that arise from a deficient founding

affidavit that fails to make essential allegations. A respondent is

forced to make assumptions. The difficulty is explained in these

terms:

For example, I presume that Rural were operating from offices

that were either owned by them or leased by them. I assume

that Rural had assets which may have included motorvehicles,

computers, laptops, cellphones, office furniture, tools, and

other equipment needed to carry out its operation. I would

also assume that Rural’s business had both creditors and

debtors. I assume it had intellectual property too. None of

these aspects that one would ordinarily find in an inventory of

a business being transferred as a “going concern” are apparent

from these papers. None of these aspects were factually

transferred to the Municipality either. We do not have any of

their assets, we do not have their motorvehicles, cellphones,

computers, laptops, equipment, etc. Their contracts have not

been ceded to us nor have their debtors books. This, I

respectfully submit, translates into the only inference that their

business was not transferred to us as a going concern.

52. The point being made that the Municipality could not, with any

specificity, detail exactly what had not been transferred to it because

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it simply did not know. It did not know what had not been

transferred because Rural’s founding affidavit failed to take a

snapshot of its business before transfer and then again afterwards.

Upon receiving the Municipality’s answering affidavit, Rural should

have done what the Municipality invited it to do, namely provide an

inventory of its assets in use when it operated its business. Had it

done this then it would necessarily have explained exactly how its

metering, billing and debt collecting systems worked. This would

have ensured that all of the evidence that it now wants to introduce

would have formed part of the affidavits that served before the

Labour Court. It is only because Rural refused to make an open and

frank disclosure that it is now in a position where it has to apply for

the opportunity to say now what it should have said before.

53. What is extremely interesting, however, is Rural’s allegation made in

para 38.2 of its application for leave to appeal (pp. 341-342) to the

effect that it “utilised its own software for electricity metering,

billing and collection” in respect of the 1,109 conventional meters

which provide the Municipality with approximately two-thirds of its

total revenue. Nowhere before has Rural admitted that it used its

own software for these purposes. What we do know, however, is that

it never transferred this software to the Municipality. The same goes

for its allegation in para 38.3 in its Application for Leave to Appeal

(p. 342) where it states, in respect of the 13,000 new prepaid meters

that it installed, that it operated them on its own software and on its

own systems “linked to Rural’s host vending system”. It is also

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common cause that the software and host vending system were never

transferred to the Municipality.

54. What makes it necessary for Rural to now seek to introduce new

evidence on appeal is not an omission on the Municipality’s part to

say something in its answering affidavit, but rather an omission on

Rural’s own part not to have said it in its founding affidavit.

The new evidence is irrelevant as it does not alter the LAC’s finding

55. Rural’s application to lead new evidence on appeal is premised on

the fact that the LAC incorrectly held that important systems

necessary for debt collection, which were crucial components of

Rural’s business had not been transferred to the Municipality. Rural

contends that the LAC made an incorrect finding because it had in

fact transferred everything that was required by the Municipality in

order for it to meter, invoice and then collect its debts. And so Rural

explains in its application that the new evidence which it seeks to

introduce is relevant for the following three reasons:

55.1. First, because a significant portion of revenue acquired

through the supply of electricity comes from prepaid

meters. In the case of prepaid meters there can apparently

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be no question of “debt collection” because the electricity is

paid for in advance.

55.2. Secondly, because all of the software necessary to operate

the prepaid vending system is and always has been in the

possession of the Municipality or under its control.

55.3. And thirdly, because in relation to the conventional meters,

of which there are only a few, all that the Municipality had

to do in order to collect the debt was read the meters,

calculate the consumption, and charge the customer.

56. In its answering affidavit opposing the application for leave to

adduce new evidence, the Municipality explains why the position

advanced by Rural cannot be sustained (pp. 400-433). It begins by

pointing out that, using last year’s numbers, it is apparent that the

Municipality invoices approximately R340 million per annum from

the supply of electricity. About 33% of this comes from prepaid

meters. The other 67% comes from conventional meters. This is not

in dispute. Thus the bulk of the revenue that needs to be collected

comes from electricity consumed where the consumption is

conventionally metered. It is in respect of the conventional meters

that Rural has failed to transfer important aspects of its metering,

invoicing and debt collection system to the Municipality (Answering

Affidavit, paras 14-22, pp. 406-412).

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57. In para 16 (pp. 408-409) the Municipality explains that prior to the

parties concluding the Electricity Management Contract (“EMC”)

the Municipality collected the bulk of its revenue, from the

conventional meters, in the following manner:

57.1. Conventional meters, which record the consumption of

electricity, were installed in certain households, at certain

businesses, and in government offices. The type of bulk

meters installed by the Municipality are called Sangamo

meters. The three phase meters are called Alstom and the

single phase meters used in homes and offices are called

Schlumberger. The amount of electricity consumed is

calibrated against a dial on these meters in such a way that

it reflects a number. That number represents the units of

electricity consumed (para 16.1, p. 408)

57.2. Municipal meter readers would personally go to the meters

to take a reading. The meters would have an opening

balance at the beginning of the month and a closing balance

at the end of the month. These numbers (which measure the

units consumed) would be recorded by the meter reader and

then submitted to a data capturer who would enter them into

the Municipality’s Venus computer software accounting

system. The Venus system would prompt the data capturer

to enter both the opening balances and the closing balances

whereafter it would calculate the difference between the

two. This amount, the actual consumption, would then be

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converted into a Rand amount. In that way the Venus

system would calculate how much every consumer of

electricity should be invoiced by the Municipality based on

the calibrated readings of the conventional meters installed

at residential, business and government premises (para 16.2,

pp. 408-409).

57.3. The Sangamo, Alstom and Schlumberger meters and the

Venus software were compatible with one another (para

16.3, p. 409)

57.4. An invoice generated by Venus would then be sent to the

consumer based on the amount determined by the

compatible system (para 16.4, p. 409).

58. The Municipality then explains that the problem was that after the

EMC was concluded, and after the Municipality transferred its

business to Rural, the latter proceeded to change the metering

system. It replaced the Municipality’s meters with its own Elster and

Conlog meters (para 17, p. 409). Rural also changed the software

and server (para 33, p. 415). The new meters were therefore

compatible with computer software used by Rural but not by the

Municipality (para 32, p. 415). So when Rural “returned” the

metering aspects of the business to the Municipality without the

software and server, the Municipality had problems reading and

processing the data. The Municipality explained that it took several

months to upgrade its system which involved commissioning Elster

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Solutions (Pty) Ltd to assist it by making the meters compatible with

its Venus software and training its meter readers and data capturers.

The answering affidavit makes the point that it took the Municipality

almost 7 months to get its system up and running again (paras 21-23,

pp. 410-412).

59. Rural disputes this in it replying affidavit (pp. 444-456). Essentially

Rural says that the Municipality’s difficulty animating its debt

collection endeavours has little to do with assets not being

transferred but rather with the fact that the Municipality’s employees

lacked the necessary skills to attend to the metering and billing

(replying affidavit, para 5, p. 445). What Rural omits to tell this

Court, however, is that the Municipality’s employees only lack those

skills because an entirely new set of meters were installed by Rural

and this required a new procedure to be adopted in the reading of

those meters and the capturing of the data from those meters onto the

accounting software. Not only was there a problem experienced by

the Municipality in reading the meters but Rural did not provide the

Municipality with consumption figures or opening balances as at the

start of April 2014. The result was that for the period March 2014

and until at least August 2014, the Municipality had no starting point

on which to bill consumers (supporting affidavit of Puleng Mokoena,

paras 12 and 13, p. 431). Rural says this is a skills problem and not a

failure to transfer assets but this cannot be correct. It is in any event

common cause on the affidavits filed in the application to adduce

evidence that Rural utilized its own software for metering, billing

and collection in respect of the 1,109 conventional meters and that

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this software was never transferred to the Municipality (answering

affidavit, para 26, p. 412 and replying affidavit, para 25, p. 451); in

respect of pre-paid meters, Rural apparently installed an additional

13,000 of them although the Municipality was not aware of that until

Rural filed its application for leave to appeal to this Court

(answering affidavit, para 28, p. 413 and replying affidavit, para 26,

pp. 451 and 452); Rural made use of its own host vending system but

this was never transferred to the Municipality (founding affidavit,

para 38.11, p. 344; answering affidavit, para 34, p. 416; and replying

affidavit, para 29, p. 452). Those facts are recorded on the papers.

60. And then there are disputed facts. The most hotly disputed fact

concerns whether or not the meters installed by Rural were

compatible with the Municipality’s existing software. The

Municipality says that it was not. Rural says that it was. This is a

factual dispute that cannot be resolved on the papers. It must be

resolved according to the Plascon-Evans principle.10

A proper

application of this principle requires that the factual dispute either be

referred to the hearing of oral evidence or else that it be determined

in favour of the respondent. Since Rural has not sought a referral to

oral evidence, it should be resolved in the Municipality’s favour.

61. In the circumstances the LAC was correct to conclude, as it did in

paras 36 and 37 of its judgment (pp 323-324), that Rural did not

transfer essential metering, billing and debt collection systems to the

10

Plascon-Evans Paints (TVL) Ltd v Van Riebeck Paints (Pty) Ltd 1984 (3) SA 623 (A).

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Municipality. In any event, as we have already submitted, although

Rural focus only on the debt collection component as having not

been adequately transferred, the LAC made the point that it was only

using the debt collection component for illustrative purposes but that

there were many other components of the business that had also not

been transferred (LAC judgment, paras 33-37).

CONCLUSION

62. In conclusion therefore, the Municipality respectfully submits the

following:

62.1. First, the LAC judgment was correct on the facts that served

before it.

62.2. Secondly, no new facts ought to be permitted. It is highly

undesirable that this Court, as the court of final instance,

receives new evidence on appeal. That principle, which has

been applied consistently by this Court in the past ought to

find application here as well. No good reason seems to exist

that would justify Rural introducing this new evidence for

the first time on appeal. It had opportunities to introduce

this evidence in earlier proceedings when prompted to do so

by the Municipality. It chose not to do so and should

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consequently be precluded from doing so now. The second

reason is that the new evidence does not, in any event,

suggest that the finding of the LAC was wrong. On the

contrary, and for reasons advanced in the Municipality’s

answering affidavit, it confirms that the LAC was correct to

find that Rural did not transfer crucial aspects of its

business to the Municipality. The new evidence is thus

largely irrelevant and because of its irrelevance it should be

precluded from the body of evidence that this Court will

consider when making its decision.

62.3. Thirdly, the appeal ought properly to be dismissed with

costs (such to include the costs of two counsel).

Andrew Redding SC

Kevin Hopkins

Sandra Freese

Johannesburg Bar

18 March 2016

IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA LAC case …

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