IN THE LABOUR COURT OF SOUTH AFRICA
HELD IN JOHANNESBURG				
Case Number: JR215/2004

In the matter between

P G GROUP (PTY) LTD					APPLICANT

and 

COMMISSIONER L MBAMBO N.O.		          	1ST RESPONDENT

THE NATIONAL BARGAINING COUNCIL
FOR THE CHEMICAL INDUSTRY			2ND RESPONDENT

PHILIP THOMAS PETER CLATWORTHY		3RD RESPONDENT

JUDGMENT 

REVELAS J

1.	This is an application to review and set aside a ruling in respect of jurisdiction made on 18 December 2003 by the first respondent, a Commissioner acting under the auspices of the second respondent, in favour of Mr PTP Clatworthy (“the third respondent”). 

The founding affidavit deposed to by Mr Stewart Jennings, reflects the following: 

2.	The third respondent was appointed as Director: Finance at P.G. Glass Holdings Ltd during June 1989. During a restructuring exercise the third respondent was transferred to the applicant in 2001 where he remained the financial director of the applicant.

3.	His services as director were terminated on 30 September 2003 by the board of PGSI, the holding company and sole shareholder of the PG Group. The third respondent’s services were terminated by giving him notice in terms of Article 46.4 of the applicants’ Articles of Association, (requiring that he resign as director) read together with Article 52 of the same Articles of Association.

4.	The third respondent referred a dispute about an alleged unfair dismissal to the second respondent on 21 October 2003. He sought reinstatement. 

5.	On 25 November 2003 the applicant raised an objection against the second respondent having the necessary jurisdiction to conciliate the alleged unfair dismissal because the applicant had not dismissed the third respondent. It was argued that the termination of his appointment as an executive director was occasioned by the notice given to him in terms of the two Articles referred to above.

6.	The Commissioner found that the second respondent (“the Bargaining Council”) had the necessary jurisdiction to conciliate the dispute. It is this ruling that the applicant wishes to have set aside.

7.	The applicant contends that the first respondent failed to apply his mind to the relevant issue in dispute, namely that the second respondent did not have the necessary jurisdiction to conciliate an alleged unfair dismissal dispute between the applicant and the third respondent, since the latter was not dismissed by the former.

8.	According to the founding papers’ the applicants case appears to be that it was not its wish to dismiss the third respondent and that the decision to dismiss was taken by the its holding company being the sole shareholder. Here I must pause to mention that just some months prior to the termination of the third respondents’ services, the applicant made an attempt, (apparently an abortive one), to retrench the third respondent. The correspondence exchanged also suggest rather strained relations with undertones of acrimony between the parties.

9.	The applicant argued that the inability of the commissioner to appreciate that it was the holding company, the sole shareholder of the applicant, who dismissed the third respondent, was attributable to his failure to properly consider that unique relationship between an executive director and a company’s articles of association.

10.	The two articles, already referred to above, relied upon by the applicant provide as follows:

Article 46.6: 
“The office of director shall ipso facto be terminated if the director is given notice, signed by members holding in the aggregate more than 50% of the total voting rights of all members then entitled to vote on a poll at a general meeting, requiring that director to resign.”

Article 52 :
“The appointment of any executive director or managing director shall, without prejudice to any claim of any nature whatever which any such director may have against the company, cease if for any reason he ceases to be a director.”      

11.	The case argued for the applicant was that the articles of association gave the majority shareholders the right to terminate the appointment of a director. The point was made that there is no obligation upon a shareholder to act in the interests of the applicant in which he holds shares, nor do the actions of a shareholder (in the absence of direct authority) bind a company.

12.	The articles of association confers  the majority shareholder with a particular right. When the shareholder in question became a member of the applicant it acquired the right to remove a director, and in doing so, it did not act as a representative of the company but in its own interests and its acts are not attributable to the applicant.  By removing a director in this way, a certain knock-on effect is achieved in respect of the contract.  It ends the contract.

13.	The argument went further to include the contention that the third respondent was not employed by the shareholder and that the termination of his employment (or “appointment”, which is the word the applicant prefers in advancing this particular argument) was effected by the shareholder. The applicant therefore did not dismiss the third respondent in the sense defined in section 186 (a) of the Labour Relations Act, 66 of 1995 (“the Act” or “the Labour Relations Act”).

14.	The applicant submitted that the actions of the shareholder were imposed on it by virtue of the articles of association and consequently the applicant had no alternative but to treat the appointment of the third respondent as terminated and had no discretion in this regard.  His employment, whether at the level of contract or relationship, was terminated by operation of principles of supervening impossibility of performance. Under this principle, supervening impossibility discharges the contract by operation of law and the discharge of a contract of employment by operation of law, does not fall within the definition of dismissal as envisaged by section 186(a) of the Act.

15.	The termination of the third respondent’s employment therefore does not constitute a dismissal and therefore no unfair dismissal relief is available to him.

The above submissions amount to essentially two propositions, they are:
1.	The applicant did not dismiss the third respondent (as set out in the applicant’s founding affidavit) and,
2.	The third respondent, being a director of a company, is not an employee, by virtue of the applicant’s articles of association which precludes a director’s recourse to the Act when his or her appointment is terminated.

	Who dismissed the third respondent?

	16.	A company operates through its various organs (shareholders, 		directors, managing director and committees of directors).  The 		Companies Act No. 61of 1973, its articles of associations and 		the common 	law determines how its powers will be distributed 		amongst these organs.

	17.	In terms of Section 220 of the Companies Act the members of a 		company, in a general meeting, may by extraordinary resolution, 		remove directors before the expiration of their terms of office.  It 		was argued on behalf of the third respondent that when the 			members of a company exercise powers in a general meeting 		and make a decision, that decision is the company’s decision 		which is bound thereby, and is not a decision of the members 		themselves.

	18.	In terms of Article 30 of the applicant’s articles of association, all 		members entitled to vote at a general meeting shall be deemed 		as if it was passed at a general meeting.  The resolution to 			remove the third respondent as director of the applicant 			pursuant to Article 46.4, was unanimously approved during an 		extraordinary board meeting of PGSI Limited which was 			conducted by telephonic conference.  (See page 26 of the 			record).  The notice of dismissal to the third respondent states 		that:
			“PGSI Limited, being the holder of all voting rights entitled 			to vote on a poll at a general meeting of PG Group, 				hereby gives you notice in terms of Article 46.4 of the 				Articles of Association of PG Group requiring that you 				resign as director of PG Group”.

	19.	The decision to remove the third respondent was clearly made 		in terms of Article 46.6 and 30.  The decision was taken by 			members in a general meeting.  Therefore it is a decision of the 		applicant itself and not a decision of PGSI Limited.  One of  a 		company’s primary rules of attribution is that the decision of 			members in a general meeting constitutes a decision of the 			company itself.  (See Meridian Global Funds Management 		Asia Ltd v Securities Commission [1995] 3 All ER 918 (PC) 		at 922J-923B).

	20.	The decision to dismiss, taken by PGSI Limited, is in law the 			applicant’s decision and therefore the latter terminated the third 		respondent’s appointment as director.

	Is the third respondent, as a director protected by the Labour Relations 	Act?

	21.	Mr Brassey, on behalf of the applicant, has in effect invited me 		to revisit the question of whether a director of a company is an 		employee and entitled to protection under the Labour Relations 		Act.  It has been argued (in the 1980’s mostly), that this question 		was not properly considered by the industrial court and 			insufficient weight had been given to the relevant company law 		principles dealing with termination of directorships.  This is also 		the approach which the applicant has now adopted (See M P 		Larkin “Distinctions and differences: a company lawyer 			looks at executive dismissals (1986) 7 ILJ 248).

	22.	If one has regard to the Labour Relations Act as a 				whole, it is primarily designed to regulate employment relations 		between blue collar workers and their employers.  Support for 		this observation can be found in the many sections and 			schedules of the Act, pertaining to collective bargaining 			collective agreements, the status of unions, retrenchments and 		the like.  It may also be observed in the provisions of the Act 			regarding the informal conciliation and arbitration proceedings.  		None of these provisions have a direct bearing on the 				situation where the services of a director, as employee, are 			terminated.  Yet, this court has always treated directors as 			employees and protected unfairly dismissed directors under the 		Act.  According to the applicant, this approach is incorrect.

	23.	Larkin in his article (supra) at page 252 warns that the company 		case law which suggests that any contractual remedy a director 		may have is 	restricted to 	damages, had been decided in the 		absence of the 1956 Labour Relations Act.  Under that 			legislation reinstatement became the appropriate remedy for an 		unfairly dismissed director.

	24.	The definition of an employee in section 213 of the Labour 			Relations Act is a wide one.  It reads:
			“ ‘employee’ means-
			(a)	any person, excluding an independent 					contractor who works for another person or for 				the state and who receives, or is entitled to 					receive, any remuneration; and 
			(b)	any other person who in any manner assists in 				carrying on or conducting the business of any 				employer”
		This definition would surely apply to most, if not all, directors.

	25.	Section 78 of the Act excludes a senior managerial employees 		from the definition of an employee.  However this is done in the		context of workplace forums where such a manager is not 			regarded as an employee if he represents the employer in 			dealing with the workplace forum; or determine policy and take 		decisions on behalf of the employer that may be in conflict with 		the representation of employees in the workplace.

26.	A director may act in certain capacities and perform the kind of 		work which appears to disqualify him or her from having the 			status of an employee.  On the other hand, a director may also perform 	duties as an employee of the company.  The office and duties of a 		director are separate.  The type of work done by a director is not a 	dependable criterion as the nature of a director’s actual day to day 	work may vary greatly.

27.	Directors are the holders of an office within the company.  Rights and 	duties attach to that office and flow from statutory and common law of 	companies.  A contractual relationship between a company and a 	director may not be necessary.  Yet more often than not, contracts of 	employment are concluded between directors and companies, as was 	indeed done in this matter. The third respondent’s letter of 	appointment by the 	applicant contains the standard terms which are 	normally expected to be found in a contract of employment.  Both 	parties regarded the third respondent as an employee.  

28.	The argument that the Labour Relations Act does not apply to 	directors is largely premised on the argument that employment is 	characterised by an imbalance in bargaining power or in subordination.  	Therefore, the argument is that, financial, managing, and ordinary 	directors have no claim to 	the status of an employee.  This imbalance 	is not capable of being described in such precise terms so as to 	particularly exclude a director from the definition. It has been held that 	a director’s position is a dual one–a holder of office on the one hand 	and an employee on the other. (See: Stevenson v Sterns Jewellers 	(Pty) Ltd (1986) 7 ILJ 326 IC). Company law too, is concerned with the 	disparity in power between ownership and control.

29.	Neither the Labour Relations Act, nor the Companies Act nor, in this 	case, the applicant’s articles, specifically precludes a director from 	enjoying the 	protection of the Labour Relations Act.  More importantly, 	section 220 	of the Companies Act, which allows a company to make 	short shrift of a director’s career, expressly requires a right to a hearing 	(section 220(2)).  The Constitution which requires fair administrative 	action, demands that such a hearing must be fair.  Whether that 	hearing was fair or not, should not be finally determined by the 	shareholders or the company’s Board of Directors.  It is inconceivable 	that in such an enquiry the ordinary principles of employment law 	would not be relevant.  It follows that the obvious remedy available 	to 	an unfairly dismissed director would lie in the provisions of the Labour 	Relations Act.  However, in the light of the dual capacities in which a 	director holds office, it is questionable if directors are entitled to 	reinstatement.  (See: Stevenson’s judgment supra).

31	Consistently the courts have rejected the argument that 	managerial employees should be excluded from protection 	against 	unfair dismissal.  The fact that a person is a director of a company 	does not necessarily mean that he or she cannot also be an employee 	in terms of the Labour Relations Act.  The office of director and position 	of employee are distinct from another but this court has over time 	investigated whether the dismissal of the director as an employee was 	fair.  (See Long & another v Chemical Specialists Tvl (Pty) Ltd 	(1987) 8 ILJ (IC); Oak Industries (SA) (Pty) Ltd v John No & 	Another (1987) 8 ILJ 756 (N) and Whitcutt v Computer 	Diagnostics & Engineering (Pty) Ltd (1987) 8 ILJ 356 (IC)). Yet, 		the office held by a financial director, one would imagine, would 		rather 	be of more concern to the Companies Act than to the 			Labour Relations Act.

33.	The first respondent (the Commissioner) can not be criticised for not 	deciding the above issue.  It was 	not raised before him.  He only had 	to decide who had dismissed the third respondent.  On the facts before 	him, which included an employment contract and termination of 		employment, the third respondent was regarded as an employee.  This 	point which is now raised, is indeed a 	rather novel 	approach to trite 	law. If he erred in law, this does not per se render his ruling reviewable.  	This aspect should be raised at the arbitration or adjudication stage 	and not in this review application.

 34.	In the circumstances the application must fail. 

35	 It was argued that a punitive cost order should be made against the 	applicant.  I do not 	agree that the arguments advanced by the 	applicant were calculated to cause delay or are vexatious.  At a 	later stage in the development of this dispute such an observation may 	be correct.  At this stage however, I must regard the applicant as a 	party who wished to test its case in terms of an approach which is not 	entirely incompatible with 	sentiments expressed before in respect of 	the status of directors vis-`a-vis the Labour Relations Act.

36.	The application is dismissed with costs.

							   ______________________
																		    REVELAS J

For the applicant:		Adv. M. Brassey SC with Adv. A. M. Redding
				Instructed by Webber Wentzel Bowens Attorneys

For the third respondent:	Adv. A. Franklin SC
				Instructed by Deneys Reitz	 Attorneys	
Date of hearing:		15 October 2004
Date of judgment:		26 October 2004