De Lange v Absa Makelaars (262/09) [2010] ZASCA 21 (23 March 2010).
In a very recent unanimous decision the Supreme Court of Appeal [“SCA”] incorporated an implied or tacit term of natural justice (audi alteram partem) into an employment contract. In terms of the contract the employer had the right to recover from a broker employed by the company a loss suffered as result of his alleged ‘incorrect or incomplete’ advice provided to a number of clients. The incorporation of the implied term prevented the employer from enforcing the contractual provision.
Five weeks earlier, in another unanimous decision, SAMSA v McKenzie (017/09) [2010] ZASCA 2 (15 February 2010) the SCA held that it was unnecessary to incorporate an implied term of fairness into the employment contract and warned against the danger of undermining the laws passed by parliament to give effect to the constitutional right to fair labour practices.
Are these 2 SCA decisions, by differently constituted benches, reconcilable, more particularly because in the latest decision the SCA relied only on the common law without any reference to the earlier SCA decision, the Constitution or any statutes ?
In De Lange v Absa Makelaars (262/09) [2010] ZASCA 21 (23 March 2010) Van Heerden JA had to interpret the following clauses in the employment contract (as translated from Afrikaans by the Judge)
‘The Company is not liable for any loss or damage which may be suffered as a result of intentional or negligent incorrect or incomplete advice given by the Employee or the Employee’s agents and if the Company is held liable for any such loss or damage, the Company will accordingly have a right of recovery against the Employee for any such damage or loss as is paid by the Company if the Company is of the opinion that the Company was legally liable therefor.’
The broker pleaded that it was necessary to incorporate the following implied/tacit terms into the employment contract (again as translated from Afrikaans by the Judge):
‘1. will take into account all relevant facts, including but not limited to the circumstances prevailing at the time [De Lange] gave advice to third parties, as well as [De Lange’s] version of events; and
2. will respect the audi alteram partem-rule by giving [De Lange] the opportunity to present his side of the matter before [ABSA] forms an opinion in respect of the question whether [ABSA] is legally liable to a specific third party.’
Van Heerden JA held in para [21]:
‘The test for establishing the existence of a tacit term, which this court has recognised and applied in many cases, is the so-called ‘bystander’ or ‘officious bystander’ test’. [footnote omitted]
Van Heerden JA went on to state in para [22]:
‘An examination of the express provisions of clause 16.6 makes it clear that these do not ‘immediately exclude the possibility of importing’ the tacit term pleaded by De Lange. Clause 16.6 effectively makes it possible for ABSA to impose a potentially unlimited liability upon De Lange simply by forming the ‘opinion’ that ABSA is legally liable vis à vis a client who has allegedly suffered loss or damage as a result of intentional or negligent incorrect or incomplete advice given by De Lange, and by paying out to the client such loss or damage as ABSA may determine the client has sustained. In my view, the importation of the tacit term pleaded by De Lange would ensure that clause 16.6 ‘functions efficiently’ and fairly’. [footnote omitted]
Van Heerden JA also rejected an argument that any implied term should be limited to a situation where the ‘offending broker’ was still in ABSA’ employ (see para [24]).
Van Heerden JA upheld the broker’s appeal with costs and concluded in para [30]:
‘Considering, as I am required to do, the express terms of the contract and the surrounding circumstances under which it was entered into, as well as the subsequent conduct of the parties, I am firmly of the view that the tacit term pleaded by De Lange can, and should, indeed be imported into the contract of employment between ABSA and De Lange’.
Contrast this with the unanimous judgment of Wallis AJA in SAMSA v McKenzie (017/09) [2010] ZASCA 2 (15 February 2010). (See the earlier post on the website “SCA: No implied term of “fair dealing” in employment contracts“)
Wallis AJA stressed the following point in para [14]:
‘The fundamental difference between rights arising from a contract and rights arising from statute is that the former depend upon the actual or imputed consent of the parties whilst the latter are imposed by the legislature in order to give effect to social policies underpinning the legislation. The nature of the latter rights may vary’.
Referring to the constitutional right to ‘fair labour practices’ and the need to develop the common law in terms of section 39(2) of the Constitution Wallis AJA had this to say about the LRA in para [27]:
‘The concept of an unfair labour practice is defined and limited in section 186(2). This stands in sharp contrast to the position under the 1956 LRA where the concept was originally undefined. Then the Industrial Court was vested with jurisdiction over, and responsibility for giving content to, the unfair labour practice. When constitutional protection against being subjected to unfair labour practices was introduced the LRA was enacted to give content to that constitutional right and did so by providing a definition of an unfair labour practice.
The Constitutional Court has several times held that one cannot in those circumstances have direct resort to the constitutional guarantee without an attack on the constitutionality of the legislation in question. But that confronts the whole notion of the incorporation into a contract of employment of the statutory right not to be subjected to unfair labour practices with a fundamental and intractable dilemma. It is this.
If what is incorporated is simply a general right not to be subjected to unfair labour practices, without the incorporation of the accompanying statutory provisions, of which the definition is the most important, then the incorporation goes further than the statute from which it is derived.
That is logically impermissible when we are dealing with incorporation by implication. If what is incorporated is limited to the statutory notion of an unfair labour practice, with all its limitations, then incorporation serves no purpose as the employee will gain no advantage from it. That is a powerful indication that no such incorporation is intended’.
After referring to developments in the United Kingdom where it was decided by the House of Lords that
‘ … recognising such an implied term in the contract of employment would be inconsistent with and render redundant the statutory scheme in regard to unfair dismissals’
Wallis AJA stated in para [33]:
‘I find myself in respectful agreement with this reasoning. I would add to it that there is the further bar in South Africa that the legislation in question has been enacted in order to give effect to a constitutionally protected right and therefore the courts must be astute not to allow the legislative expression of the constitutional right to be circumvented by way of the side-wind of an implied term in contracts of employment’. [All footnotes omitted and emphasis added]
It seems that these two SCA decisions give rise to the question of when does an alleged implied term fall within the meaning of ‘fair labour practice’ as provided in section 23(1) of the Constitution and when it is part of natural justice, and if so should natural justice play any part in developing the common law relating to contracts of employment.
Note that to date 2 commentators have discussed the Wallis AJA judgment:
Carl Mischke “Making contractual rights: Has the Supreme Court of Appeal reached the end of the line?” Contemporary Labour Law (2010) 19:08:77
Darcy du Toit “À bon entendeur, un demi mot suffit (to the good listener, half a word suffices)” The SASLAW Newsletter March 2010 p5 onwards where he concludes as follows:
“The net effect, I believe, is to place our labour jurisprudence in a healthier state than it was a year ago. Chirwa, Gcaba and McKenzie will have an effect far wider than the issues they were directly concerned with. These judgments will send a signal to all lower courts, and remind the CC and the SCA themselves, of the importance of meticulously and scrupulously analysing legal principle within the constitutional framework in order to fashion a consistent body of law.
The confusion following Chirwa was a warning of what could happen if the dichotomy between the various CC and SCA decisions was allowed to deepen. There will, I believe, be no turning back. There is an even wider dimension. The independence of the judiciary has been perceived as being under threat, and demagogic politicians certainly do not hesitate to seek to bring the judiciary into disrepute.
Exaggerated though the dangers may be and without ignoring shortcomings in the conduct of certain judges nor questionable decisions, there can be no doubt that an authoritative and respected judiciary consistently upholding the rule of law is a vital part of an emerging democracy – especially one as historically fractured as South Africa. Ending a potentially bruising conflict among judges over questions of fundamental principle is a step in this direction. All this, I believe, the good listener may hear in the judgments in Gcaba and McKenzie“.