Interesting judgment on interest

If you were ever unclear about what effect substitution of an arbitration award has on interest payable on compensation awarded in terms of an arbitration award, the Labour Court in the recent Judgment of Khwaile Rufus Malatji V Minister of Home Affairs (JR 2326-06) [2017] sheds some light.

19 Jun 2017 3 min read Employment Alert Article

The employee, in this case, was dismissed in 2005. Following the dismissal, the employee referred an unfair dismissal dispute to the Bargaining Council. The matter was arbitrated and the arbitrator issued an arbitration award followed by a variation award. In respect of the arbitration award, dated 14 August 2006, the arbitrator ordered that the employee be reinstated and paid back pay. On 30 August 2006, the arbitrator varied the arbitration award by stating that, “if the compensation was not paid by 30 September 2006 then it should accrue interest on a normal basis”. 

Shortly after, the employer challenged the arbitration award and launched a review application in the Labour Court. On 2 April 2013, Snyman AJ made an order setting aside the reinstatement order and substituted the arbitration award in toto (as a whole) by granting the employee compensation equivalent to nine months’ salary. The employee was paid the compensation but the issue then arose as to whether interest was payable on that compensation.

Following the judgment of Snyman AJ and the payment of the compensation, the employee reverted the matter back to the Labour Court before Harper AJ to determine whether interest was payable from the date of the arbitration award or as from the date of the Labour Court judgment which dealt with the review application.

The employer’s case was that the interest payable on the compensation is determined by interpreting “substitution as a whole” and other relevant factors. On the other hand, the employee’s case was that interest payable is fortified by s143(2) of Labour Relations Act, No 66 of 1995 (LRA), which essentially provides that “if an arbitration award orders a party to pay a sum of money, the amount earns interest from the date of the award… unless the award provides otherwise”. 

The court held that s143(2) of the LRA is straightforward however it fails to account for circumstances where an arbitration award is later substituted by an order of the Labour Court. It further held that while s143(2) of LRA bears no reference to the Labour Court, there is a direct link between s143(2) and review proceedings. This is because the court “is being asked to review the arbitration award and essentially acts as the arbitrator to the extent determined by it in the Judgement. The Labour Court is therefore entitled to review the issue of interest and decide whether to grant interest from the date of the arbitration award or from a later date or not grant interest at all”. The Courts’ position in this regard is premised on the all-encompassing provision of s145(4)(a) of the LRA, which empowers it to determine the dispute “in the manner it considers appropriate”.

The court ultimately held that in applying the meaning of “substitution”, which is defined as putting something “in the place of another”, the interest payable on compensation in terms of s143(2) of the LRA falls away and the order of the Labour Court would substitute the arbitration award on the issue of interest. In the review application, Snyman AJ elected not to grant interest on the compensation payable, which this Court upheld. In upholding this decision, the Court stated that Snyman AJ was entitled to make such a finding considering the interpretation of substitution, s143(2) read with s145(4)(a) of the LRA and the Labour Courts inherent jurisdiction to deal with interest payable on compensation. The court found that the substitution of the arbitration award was intended to rectify the arbitration award issued by the Arbitrator and not to penalise the employee in permitting that interest be paid from the date of review judgment.

It held that where a Judge issues an order which is punitive in respect of interest payable, he or she must substantiate such an order and reasons thereof must be fully cognisant with the provisions of s143(2) of the LRA. Therefore, where a party is aggrieved by the Labour Court’s pronouncement on interest payable, such party must lodge an appeal with a higher court which has the necessary jurisdiction to overrule such an order. 

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