Correctness of orders directing payments of a gross salary amount without deductions, and of payment of punitive costs.

Desert Fruit (Pty) Ltd v Smith and others (SA 34-2021) [2023] NASC (28 July 2023)

Whereas the Labour Court found that the arbitrator’s decision to ‘decline to interfere with the ongoing disciplinary hearing’ and failing to order payment during suspension or uplifting it amounted to an ‘abdication of his jurisdiction’ by declining ‘to exercise the functions entrusted to him’ and further, the court declined to refer the matter back to the arbitrator, and proceeded to order payment on the basis of the rule 20 statement, and made no provision for deductions from its orders to pay the sum of N$112 000 for each month of suspension; and as for the costs order against Desert Fruit, the Labour Court found that there was no basis for the refusal to pay Mr Smith’s salary during suspension. Despite efforts with reference to authority to persuade Desert Fruit otherwise, it persisted with that stance until written argument was filed on its behalf prior to the hearing before that court. The Labour Court found the persistence in that stance to be untenable, and it amounted to conduct which was frivolous and vexatious. The court proceeded to grant costs in favour of Mr Smith up to 16 July 2020, and did so on the most punitive basis. The appellant is appealing against the Labour Court’s judgement and order, except for para 1 of the order setting aside the arbitrator’s order staying the dispute concerning the suspension without pay.

On appeal, the Supreme Court had to determine the correctness of the Labour Court’s order to direct payment of a gross salary amount without deductions and the costs order. These issues were dealt with as follows:

‘Was the Labour Court’s order directing payment without deductions for tax or loan repayments competent?

[47] In the grounds of appeal raised by Desert Fruit, it is contended that the Labour Court erred in two different and separate respects in failing to make provision for the deduction of income tax from the monetary orders made by the court. In the second instance, it is contended that the court erred by failing to take into account deductions for loan repayments from the payment ordered to Mr Smith.

[48] Desert Fruit pointed out that both deductions were referred to in evidence in the review proceedings before the Labour Court. In respect of the deduction for tax, it was argued that this arises by operation of the Income Tax Act.

[49] Counsel for Mr Smith conceded that deductions for tax (pay as you earn) are to be applied to the payments ordered by the Labour Court, and that those are implied by that statute in the court orders directing payment of N$112 000 for each month of suspension without pay. There was thus no need for the Labour Court to make provision for that deduction, according to counsel for Mr Smith, because it follows automatically by statute.

[50] The court’s order, however, directs payment of the sum of N$112 000 together with interest on that amount in respect of each month. There is no reference to any deduction. It is thus without qualification. Mr Smith is entitled to execute upon that order. Even though the court made reference to tax deductions in its judgement and was aware of the need for them, its order should have reflected that and made provision for them. The orders cannot stand in their present formulation.

[51] As for the complaint that loan repayments are not reflected, the court also referred to this issue, and appeared to consider itself bound by the rule 20 statement of issues. There was, howeve,r evidence before it that this deduction was by accident omitted from the rule 20 statement, and that these deductions were in accordance with the loan agreement and were payable.

[52] It is not clear that this issue could have been resolved on the papers before the Labour Court, and is more appropriately dealt with in a factual enquiry by an arbitrator on that issue.

[53] This would arise because of another issue raised in argument on behalf of Desert Fruit, even though not one of the grounds of appeal.

[54] Counsel for Desert Fruit argued that the orders for payment are not authorised by s 89(10), and that this Court would be entitled to rectify an order which a court is not empowered to make. That submission is sound. This Court is not only entitled to correct an order which is not competent or authorised by statute, but is duty-bound to do so.

[55] Section 89(10) sets out the powers of the Labour Court when setting aside an award of an arbitrator. It is to be read with s 89(9). These provisions are in the following terms:

‘(9) The Labour Court may – 

(a) order that all or any part of the award be suspended; and 

(b) attach conditions to its order, including but not limited to – 

(i) conditions requiring the payment of a monetary award into Court; or 

(ii) the continuation of the employer’s obligation to pay remuneration to the employee, pending the determination of the appeal or review, even if the employee is not working during that time. 

(10) If the award is set aside, the Labour Court may – 

(a) in the case of an appeal, determine the dispute in the manner it considers appropriate; 

(b) refer it back to the arbitrator, or direct that a new arbitrator be designated; or

(c) make any order it considers appropriate about the procedures to be followed to determine the dispute.’

[56] It is clear from s 89(10)(a) that it is only in the case of appeals that it may determine the dispute in the manner it considers appropriate. In the case of setting aside an award on review, sub-paras (b) and (c) apply. The court can either refer the matter back to the arbitrator or direct that a new arbitrator be designated, or make an order considered appropriate about the procedures to be followed to determine a dispute. The very confined remedies on review are in keeping
with the confined nature of the review itself – only concerning narrowly-defined defects relating largely to the conduct of the arbitrator, and not the merits.

[57] The appropriateness of these confined remedies is demonstrated by what transpired in this matter. The award reviewed was for a stay in a dispute. In response to that review, the court not only set aside the order to stay the dispute, but proceeded itself to determine the dispute thus stayed. Not only was that entirely inappropriate (as is also demonstrated by the clear dispute of fact on the papers as to whether there should be a deduction of loan repayments), but this plainly exceeded the powers of the court under s 89(10).

[58] It follows that the court was not empowered – nor should it have in any event – to have made the orders directing payment. Those orders fall to be set aside for this reason alone. Plainly, the court should have referred the dispute back to the arbitrator for determination after setting aside the award to stay the dispute. The arbitrator is also furthermore and, in any event, better-placed to determine the dispute of fact concerning the repayment of the loan in the event Desert Fruit can persuade the arbitrator to revisit the rule 20 stated case. The arbitrator would then determine which deductions need to made, inclusive of tax deductions, in order to make an order for payment which would then be enforceable in its own terms.

The Labour Court’s punitive cost order:

[59] It was submitted on behalf of Desert Fruit that the Labour Court erred and misdirected itself in awarding Mr Smith costs, as well as in awarding costs on a punitive scale.

[60] Counsel for Mr Smith relied upon the approach of the Labour Court in finding that Desert Fruit’s persistence in its stance of refusing to pay Mr
Smith during his suspension as untenable, in the face of contractual provisions and authority to the contrary. That finding is sound. There was no employment provision permitting it. Nor was there any
other tenable basis put forward to support it, or even some form of process which would have been required, which was entirely absent. The persistence in withholding pay during his suspension was indeed untenable.

[61] Section 118 provides:

‘Despite any other law in any proceeding before it, the Labour Court must not make an order for costs against a party unless that party has acted in a frivolous or vexatious manner by instituting, proceeding with or defending those proceedings.’

[62] The statutory intention behind s 118 was that costs would not ordinarily be awarded in proceedings before the Labour Court, and to permit parties ‘a measure of freedom’ in litigating ‘without (them) being unduly hampered by the often inhibiting factor of legal costs’.  That is the principle governing costs in proceedings in the Labour Court. The exception is where a party ‘acted’ in a frivolous or vexatious manner
by instituting or carrying on proceedings, or defending those proceedings. Once this exception is established, then a court may make an order for costs. Without making a finding that this threshold has been met, an order of costs may not be made.

[63] The finding of the court that this untenable stance met the threshold
of vexatiousness in s 118 can thus not be faulted.

[64] For a Labour Court to make an order for costs on the most punitive scale, there would need to be further factors of an aggravating nature present in such conduct in order to justify a costs order on that particularly punitive scale. No further factors were raised in justification of the order on a most punitive scale. On the contrary, in the absence of a finding in respect of aggravating facts, it would appear that the court operated under the misapprehension that frivolous or vexatious conduct would automatically result in a cost order on the most punitive scale. That is not what s 118 contemplates, and amounts to a misdirection.

[65] It follows that the cost order made by the court on the most punitive scale is to be set aside and replaced with merely one of costs, as is reflected in the order of this Court.

Costs of appeal

[66] The appellant (Desert Fruit) has been substantially successful in this appeal, and costs in the appeal should follow that result.

As a result, the Supreme Court made the appropriate orders, among which was referring the dispute in respect of the applicant’s claim back to the arbitrator or another arbitrator designated by the Labour Commissioner to determine the monthly amounts payable to Mr Smith during his suspension without pay.
The first respondent was ordered to pay
the applicant’s legal costs up to and
inclusive of 16 July 2020, which included
the costs of two instructed legal
practitioners and one instructing legal practitioner. 

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