Chembe Kabandama (Suing on his behalf and on behalf of all employees of Agip (Z) Ltd)v Totalfinaelf (Zambia) Limited (SCZ APPEAL NO. 187/04; SCZ APPEAL NO. 4 OF 2006) [2006] ZMSC 43 (2 February 2006)

(P.25) SCZ APPEAL NO. 4 OF 2006 IN THE SUPREME COURT OF ZAMBIA SCZ APPEAL NO, 187/04 HOLDEN AT KABWE AND LUSAKA (Civil Jurisdiction) CHEMBE KABANDAMA APPELLANT (Suing on his behalf and on behalf of all employees of Agip(Z) Ltd) TOTALFINAELF (ZAMBIA) LIMITED RESPONDENT Coram: Sakala, 0., Silomba and Mushabati JJS 1st November, 2005 and 2nd February,2006 For the Appellant: Major C. Hara of Fraser Associates. For the Respondent: Mr. N. K. Mubonda of D. H. Kemp & Company, JUDGMENT Sakala, CJ., delivered the Judgment of the Court. Cases referred to: 1. 2. Salomon VSalomon {1897JA. C.22. ZCCM Limited and Ndo/a Lime Company Vs Emmanuel Sikanyika and Others appeal no. 24 of 2000. 3. National Milling Limited V Simataa & 3 Others SCZ Judgment No. 21 of 2000. 4. Siulanda and 36 Others Vs Food Corp. Product Limited SCZ Judgment No. 9 of 2002. J2 {P.26) 5. Zulu and Others V Standard Charged Bank Limited SCZ Appeal No. 59 of 1996. 6. Kankomba and Others Vs Chilanga Cement PLC6 SCZ Appeal No. 30 of 2002, 7. Peter Ng'andwe and Others Vs ZAMOX AND ZPA SCZ JudgmentNo.13of1999. 8. Mike Musonda Kabwe Vs BP {Zambia) Limited (1995/1997) ZR18. This is an appeal against the Judgment of the High Court dismissing the Appellant's claims for redundancy packages and for declarations that the acquisition of shares in Agip (Zambia) Limited by the Respondent meant that Agip (Zambia) Limited had ceased to exist to carry on business for which it was established, and that the Appellants' conditions of service under Agip (Zambia) Limited were not transferable to the new owners as this was in breach of the provisions of the Employment Act. The Appellant further sought for a determination of whether or not the payment of redundancy packages, by consent order, to the other Plaintiffs, in the course of the proceedings, was not an admission that the redundancy packages sought were also payable to him. The Respondents have also cross appealed against the findings: that the "new owners" were supposed to obtain their employees' consent to transfer their service contracts; that the claim that the Defendant did not obtain consent from the employees when the employees' contracts of service were transferred J3 (P.27) from Agip (Zambia) Limited to them - the Defendants had been proved; that the principle in Salomon V Salomon1 was one of vicarious liability; and that the import of Clause 6.16 was to pass or transfer unto the Defendants the terms (conditions) of employment to its former workers in their entirety and without alterations of the same and that if they did vary or alter them then they needed the consent of the Buyer - the Defendants. After hearing evidence of only one witness on behalf of the Plaintiffs, Counsel for both parties, by consent, filed an agreed statement of facts and of issues for determination. For convenience, the Appellant will be referred to as the Plaintiff and the Respondent will be referred to as the Defendant, which they were in the court below. The summary of the statement of agreed facts was that in 1998, the Plaintiff was employed by Agip (Zambia) Limited as Sales Manager together with others who either joined the company earlier or subsequently. In the course of the employment, the shareholding of Agip Spa of Italy was transferred to Total Outre Mar of France through a sale and purchase agreement dated 31st October, 2001. The new shareholders changed the name of the company from Agip J4 (P.28) (Zambia) Limited to Totalfinaelf (Zambia) Limited, the Defendant. The brands of the products and the Trade Mark also changed. In the course of transfer of the shareholding, the Plaintiff and other workers sued the company alleging that because of the change of ownership, they should be paid a redundaflCY package as the company under its new owners had changed its whole character and form from that of its predecessor. The Plaintiff and others also sought a declaration that their conditions of service under Agip (Zambia) Limited which later changed its name to that of the Defendant had been transferred in contravention of Section 35 of the Employment Act in that the said sale and purchase agreement provided that the conditions of the Plaintiff would continue with the Defendant as they were under Agip (Zambia) Limited. The Plaintiff also sought yet another declaration that Agip (Zambia) Limited shareholding transfer to a new shareholder entailed that the company ceased to carry on business for which it was established thereby entitling the Plaintiff to redundancy benefits. Whilst the proceedings were going on, the Plaintiff resigned from the company. He was paid his leave pay and pension refund in accordance with the terms and conditions of service as provided for under Agip (Zambia) Limited, the company that had engaged him before it was acquired by the new shareholders. Another Plaintiff, JS (P.29) Freedom Chilinda, retired on medical grounds on 30th June, 2003. He, too, was paid as provided for in his terms and conditions of service under Agip (Zambia) Limited. By negotiation, the other Plaintiffs, still in the service of the Defendant agreed to a settlement of these court proceedings and various consent orders were consequently entered into, resulting into the payment to them of negotiated redundancy packages. From the agreed facts, the following issues were also agreed: That the Plaintiff's and Mr. Chilinda's separation from the company, through resignation for the Plaintiff, and retirement on medical grounds for Mr. Chilinda, did not affect their claim before the court in that their right to be paid redundancy packages arose at the time of the sale of the shareholding in Agip (Zambia) Limited. On the agreed facts and issues, the Plaintiff sought a declaration that the acquisition of Agip (Zambia) Limited, by another shareholder, meant that the company Agip (Zambia) Limited had ceased to exist or to carry on the business for which it was established; a further declaration that the Plaintiffs conditions of service, under Agip(Zambia) Limited, were not transferable to the company under its new owners as this was in breach of Section 35 of the Employment Act; and the Plaintiff also sought payment of a (P.30) redundancy package as the company, Agip (Zambia) Limited, which employed him had changed its whole character and business following the sale of shares by Agip (Z) Ltd to the new owners. From the foregoing agreed statement of facts and issues, written submissions were filed before the trial court on behalf of the parties. The learned trial judge considered the evidence from the one witness and also considered the agreed facts and the agreed issues as well as the submissions. According to the trial court, there were two pertinent issues for determination. These were whether the purchase of 100 percent shareholding in Agip (Zambia) Limited by the Defendant transformed the Defendant company into a complete legal entity and character in its business operations; and whether the former Agip (Zambia) Limited employees; the Plaintiffs' conditions of service were transferred to the "new" employers with their consent as required by the Employment Act, Cap 268 of the Laws of Zambia. The Learned trial judge reviewed, at great length, the only oral evidence from the Plaintiffs' witness in order to ascertain the business in which Agip (Zambia) Limited was engaged and in which the Plaintiffs were employed. The court noted that from the only oral evidence there had been not the slightest change in the nature of business from the kind carried on by Agip (Zambia) Limited and that J7 (P.31) carried on by the Defendant after the Defendant had purchased 100 percent shareholding from Agip (Zambia) Limited. The court found that both companies marketed fuels, oils and lubricants. The court also found that change of name of the previous company, Agip (Zambia) Limited, to Totalfinaelf and the introduction of new brands of oil by the "new" owners, could not be contended to amount to a change of business or that Agip ceased carrying on business for which its employees were previously engaged in. The court further found that Section 268(1) of the Employment Act, Cap 268, relied upon by the Plaintiff for their contention did not cover situations where there had been a mere change of owner of the company but covered situations where there has been change by the employers carrying on business for which the employees were previously engaged in. The court cited the case of ZCCM Limited and Ndola Lime Company Vs Emmanuel Sikanyika and Others2 in support of its findings in which the Supreme Court held that employees with contracts of employment need -not worry about new shareholders as long as the "new" owners respect the contract. The court found no evidence in the instant case that the Defendants or the "new" shareholders breached the Plaintiffs contracts. On transferability of the conditions of service, the court considered section 35(1) of the Employment Act, Cap 268, which states that rights arising under any written contract of service cannot be J8 (P.32) transferred from one employer to another unless the employee bound by such contract consents to the transfer and the particulars of the transfer are endorsed on the contracts by a proper officer. The court posed the question: whether there was a transfer of conditions from Agip (zambia) Limited to the Defendant - the "new" owners? The court considered clause 6.16 of the Share Purchase Agreement, which prohibited the seller from varying the terms of employment or remuneration payable to any of its employees without the prior written consent of the Buyer. The court found that under clause 6.16, the conditions of service of the previous employees of Agip (Zambia) Limited were transferred to the Defendants and inherited by them in total. The court found as a fact that there was a transfer of the conditions of service of ex-Agip employees to the "new" owners not withstanding that the company's legal entity remained unchanged. The court further found that the Defendants having inherited the conditions of the employees from their Sellers - Agip (Zambia) Limited, the Defendants were required to secure written consents of its employees in terms of section 35(1) of the Employment Act, which they did not. (P.33) On payment of redundancy package on account of change of character and business of Agip (Zambia) Limited, the court maintained that there was no change of character or business. On payment of redundancy packages to other employees, the court rejected the Plaintiff's claim on the ground that having been paid his dues upon resignation, he should have bee.n struck out of the proceedings on ground of misjoinder and that it would have been unjust to pay him more than he was entitled. The court concluded that the Plaintiff had not proved his case and dismissed it accordingly except for the claim that the Defendant did not obtain consent from the employees in terms of Section 35 of the Employment Act when their contracts were transferred from Agip (Zambia) Limited to the Defendant. The Plaintiffs then appealed to this court against the whole judgment of the trial court. The memorandum of appeal contained three grounds. These are: that the court failed to take into account the fact that the Defendant had earlier paid the other Plaintiffs redundancy packages based on the same facts; that the court failed to take into account the totality of the evidence in determining whether or not Agip (Zambia) Limited had ceased to carry on business in Zambia in view of the provisions of section 26B of the Employment Act; and that the court having no (P.34) found that the Defendant did not obtain the consent of the Plaintiff when the contracts of service were transferred from Agip (Zambia) Limited to the Defendant ought to have found that the Defendant was in breach of section 35(1) of the Employment Act. The Plaintiff filed heads of argument based on these three grounds of appeal. The gist of the submissions on ground one is that the consent order on record established that all other employees/ Plaintiffs of former Agip (Zambia) Limited had been paid their redundancy packages; and that the right to be paid a redundancy package under the circumstances of this case accrued at the time of the Defendant's purchase of Agip (Zambia) Limited. Section 25(3)(b) was cited in aid of the submissions in ground one. The section reads: "25(3} An employee whose contract of service has been terminated by reason of redundancy shall- {b J be paid the redundancy benefits not later than the last day of duty of the employee" It was submitted that the last day of the Plaintiff working with the Agip (Zambia) Limited was on the day the Defendant took over and therefore any events supervening thereafter cannot and could not have affected the redundancy package which had already accrued. Jl 1 It was argued that the Plaintiff resigned after the takeover and infact during proceedings in the court below and there could be no justifiable reasons why the Plaintiff could not be paid when all his friends had been paid. (P.35) The gist of the response to written heads of argument on ground one on behalf of the Defendant, is that the trial judge was on firm ground when he held that the lead Plaintiff, Chembe Kabandama, was not entitled to the negotiated redundancy packages paid by the Defendant to the co- Plaintiffs because the terminating events, the facts and circumstances, were different. In the case of Plaintiff, Chembe Kabandama, the terminating event was resignation on 30th September, 2002; he was paid his terminal benefits in accordance with the terms and conditions of service. It was submitted that in the case of the other co-Plaintiffs, they remained in employment of the Defendant and entered into negotiations with the Defendant which culminated into a settlement which in turn was reduced into consent order under which negotiated packages were paid. It was contended that the Plaintiff was not entitled to a redundancy package as he resigned and that no right to a redundancy package accrued merely because of a change of ownership of the shares of Agip (Zambia) Limited. (P.36) On change of ownership of shareholding, a number of cases were cited in response to ground one where this court has said that "change of ownership of the shares did not result in a new employer; (see National Milling Limited V Simataa & 3 Others1 and also see ZCCM Limited and Ndola Lime Company2 in which this court went further and said: "The attempt to make a change of shareholding itself a terminating event cannot be entertained and terminal benefits cannot be paid for employment, which has not been terminated." The same principle was repeated in Siulanda and 36 Others Vs Food Corp. Product Limited' in which this court said: ''Another argument advanced sought to assert that the change of ownership of the shares brought about a new employer. The court below quite properly directed itself on the law, which has long recognized the separateness of the corporate entity from those behind it, owning it and directing its affairs. The celebrated case of SALOMON VS SALOMOJV1 on the point is still good .law. Similarly, our holding in ZCCM and NDOLA LIME COMPANY LIMITED VS SIKANYIKA AND OTHERs2 that the change of ownership of shares cannot result in J13 the corporate entity becoming a new employer is still valid and applies with equal force to the case at "hand". (P.37} We have considered the written submissions on ground one by both learned counsel. We take note that the Plaintiff, Chembe Kabandama, was not part of the negotiations, which the other co Plaintiffs entered into, which resulted into a settlement reduced into consent order under which negotiated redundancy packages were paid. Above all, the Plaintiff, Chembe Kabandama, had resigned and paid his terminal dues as per conditions of service. Although the proceedings were still going on, having resigned, he terminated his contract of service by reason of resignation and not redundancy. We are satisfied on the facts of this case that section 26B(1) of the Employment Act, which only applies to termination by reason of redundancy is inapplicable here. Above all, on the facts of this case, we repeat what has been said in the many decision of this court relied upon by the Defendant, that change of ownership of the shareholding in itself cannot be a terminating aspect to entitle an employee to terminal benefits and redundancy package. In any event, the co-Plaintiffs were paid redundancy packages not by reason of termination allegedly brought about by change of ownership of shareholding but by negotiated settlement, which resulted into consent orders. The Plaintiff's does not persuade us arguments on J14 (P. 38) ground one. This appeal, based on ground one, cannot therefore succeed. Ground one fails. The summary of the arguments and submissions on ground two was that the wholesale change of the undertaking and the takeover of Agip (Zambia) Limited meant that it ceased to exist to carry on the business on which the Plaintiff and the co-Pla'intiffs were engaged. The case of Zulu and Others V Standard Chartered Bank Limitetr was cited in support of the arguments and submissions on ground two. The summary of the response to arguments and submissions on ground two is that Agip (Zambia) Limited did not sell any shareholding but that the correct position is as per the statement of agreed facts and issues that is that \\The entire shareholding in the company, Agip (zambia) Limited was sold and transferred by Agip Spa of Italy to Total outre Mar of France". That the question as to whether on the facts it was correct and appropriate to treat the sale of shares as resulting into a new employer has already been settled in cases of National Milling Company Limited Vs Grace Simataa and Others,3 ZCCM Copper Mines Limited and Ndola Lime Company Limited Vs Sikanyika and Others2 and Siulanda and Others Vs Food Corp. Products Limited. 4 It was submitted that the settled legal positions is that a change of ownership of shares (P. 39) cannot result in a corporate entity becoming a new employer. It was pointed out that this position was reconfirmed by this court in Kankomba and Others Vs Chilanga Cement PLc6. Counsel for the Defendant distinguished the case of Zulu Vs Standard Chartered Bank Limite45 upon which the Plaintiff relied by pointing out that the facts were not on all fours with the facts in the instant case. It was argued that in the case of Zulu, the facts were different in that a different corporate entity, Finance Bank, took over the employees of Standard Chartered Bank's Branches that were being closed. Finance Bank was a new employer altogether with new conditions of service. Finance Bank did not purchase shares of Standard Chartered Bank; but purchased some of the assets; namely Branches being closed and took over the employees manning the Branches. We have examined the arguments and submissions on ground two. The effect of change of ownership of shareholding in a company has already been discussed under ground one. At the expense of repetition, the decided cases already cited are to the effect that change of ownership of shares does not result in the corporate entity becoming a new employer. Above all, the entity does not cease to exist. In the instant case, to argue that the change of ownership of shareholding in Agip (Zambia) Limited and change of name meant Jl6 (P.40) that the entity ceased to exist to carry on business in which the Plaintiff was engaged is to misapprehend the very statement of agreed facts and issues which was that the "shareholding of Agip Spa of Italy was transferred to Total Outre Mar of France through a Sale and Purchase Agreement. The learned trial judge found that the nature of business did not change. We agree with him. We have examined the provisions of sections 268. The whole of that section relates to termination by redundancy. The Section states:- 268{1} The contract of service of an employee shall be deemed to have been terminated by reason of redundancy if the termination is wholly or in part due to {a} the employer ceasing or intending to cease to carry on the business by virtue of which the employee was engaged; or {b} the business ceasing or reducing the requirement for the employees to carry out work of a particular kind in the place where the employee was engaged and the business remains a viable going concern. (p.41) On the statement of agreed facts and issues, we are satisfied that the whole of section 26B of Cap 268 does not apply in the instant case. Ground two, too, cannot succeed. It is dismissed. The summary of the brief written heads of argument on ground three is that the court found that there was a transfer of the conditions of service of Agip employees to the Defendant; and that the Defendant did not obtain written consent of its employees contrary to section 35(1) of the Employment Act. The contention was that the court should have gone further to find that because of the breach of a statutory provision, the Plaintiff was entitled to treat the breach by the employer as repudiating the contract of service and so terminating the relationship and thereby entitling the Plaintiff to redundancy benefits. The cases of Peter Ng'andwe and Others Vs ZAMOX AND ZPA7 and Mike Musonda Kabwe Vs BP {Zambia} Limited 8 were cited in support of the arguments and submissions on this ground three. We take note that ground three of appeal partly forms the basis of the cross-appeal. Whether section 35(1) of the Employment Act was breached is an issue to be considered together with issues in the cross-appeal. But suffice it to repeat here, on·ce more, that on the basis of the statement of agreed facts and issues, the Plaintiff's Jl8 (p.42) contract of employment was terminated by his resignation and not by redundancy as provided in the Employment Act. On the cross-appeal, Mr. Mubonda filed written heads of argument based on three grounds; namely: that the trial judge fell into error and grossly misdirected himself in law in his interpretation of section 35 of the Employment Act; that the trial judge misdirected himself in law when he held that the legal principle enunciated in Salomon case is one of vicarious liability of a corporate entity for the acts done or committed by its servants and/or agents who would include the Directors and Management Staff while in the course of performing their official duties or functions, that it must be realized that a company does not operate in a vacuum, it works through its owners - the promoters - the people who incorporated or registered its formation or birth, so to speak; and that the trial judge misdirected himself in fact and law when he held that "the import of this clause is simply that Agip {Zambia} Limited was to pass or transfer unto the Defendants the terms {conditions} of employment of its former workers in their entirety and without alterations of the same and that if they did vary or alter them they shall need to first obtain the written consent of the Buyer - the Defendants Totalfinaelf." J19 (p.43) The gist of the written heads of argument on ground one of the cross -appeal is that this court has conclusively held in several cases that change in the shareholding does not change the employer so as to make section 35 of the Employment Act apply. The case of Kankomba and Others Vs Chilanga Cement PLc:6 was cited in aid of this submission. It was also submitted that the service contracts of the employees were not transferred at all from Agip (Zambia) Limited to the Defendant and therefore the trial judge completely misdirected himself on the facts as the statement of agreed facts and issues did not contain such fact. It was further submitted that the only transfer that took place between Agip Spa of Italy and Total Outre of France was that of the ownership of shares in Agip (Zambia) Limited. On ground two of the cross-appeal, the short submission was that the legal principles enunciated in the case of Salomon Vs Salomon1 is not one of vicarious liability as held by the trial judge; but that the correct position is that the Salomon case established the legal principle that a company is a legal entity separate and distinct from members of the company (see also Siulanda and 36 others Vs Food Corp. Products Limited]4 On ground three of the cross-appeal, the gist of the written heads of argument was that the interpretation of clause 6.16 by the trial judge J20 (p.44) was erroneous; that the relevant part of the said clause 6.16 reproduced in the judgment did not lend support to the interpretation thereof that there was a transfer of contracts of employment from Agip (Zambia) Limited to the Defendant; and that there was no such transfer of contracts of employment. In his oral reply to the submissions on the cross-appeal, Major Hara maintained that the trial judge was on firm ground when he held that there was change of employer as what took place was more than change of shareholding; that Agip (Zambia) Limited ceased to exist; and that the case was on all fours with the case of Zulu V Standard Chartered Bank Limited. 5 We have considered the arguments and submissions on the cross appeal. We have also examined all the authorities cited to us whose principles are not in serious dispute. This case was decided partly on oral evidence and partly on a statement of agreed facts and issues. We have considered the evidence and the statement of agreed facts and issues as well as the submissions of both learned counsel on the cross-appeal. It is now settled law that change of shareholding does · not change the employer. The oral evidence established that there was no change in the nature of business from the kind carried on by Agip (Zambia) J21 (p.45) Limited. It was common cause that the entire shareholding was transferred to the Defendant. A careful perusal of the statement of agreed facts and issues does not suggest that the service contracts were transferred from Agip (Zambia) Limited. But what the Plaintiff sought, without adducing evidence was for a declaration that "The Plaintiffs further sought a declaration that their conditions of service under Agip {Zambia} Limited, which later changed its name to Totalnaelf {Zambia} Limited had been transferred in contravention of section 35 of the Employment Act in that the said Sale and Purchase Agreement provided that the conditions of service of the Plaintiffs would continue with the Defendant as they were under Agip (Zambia} Limited." The foregoing represents a prayer and not agreed fact. Despite the foregoing prayers in the statement of the agreed facts, there is no agreed statement or evidence that the shares were also transferred from Agip (Zambia) Limited. What is in the facts is a prayer for a declaration. In our view, the way the statement of agreed facts and issues was drafted left much to be desired. It combined facts and prayers, although agreed, were not facts. We therefore agree with the contention in ground one of the cross- appeal that the service contracts of the employees were not transferred and that the J22 (p.46) statement of agreed facts and issues did not contain the fact that the service contracts were transferred. The question is: Does section 35(1) of the Employment Act apply to this case? The section reads: "Rights arising under any written contract of service shall not be transferred from one employer to another unless the employee bound by such contract consents to the transfer and the particulars thereof are endorsed upon the contract by a proper officer." Our short answer is that there being no evidence or otherwise that the service contracts were transferred, the section does not apply to the facts of this case. We agree that the learned judge misinterpreted section 35(1). Ground one of the cross-appeal is therefore allowed. On ground two of the cross-appeal, we totally agree that the legal principle enunciated in Salomon case is not one of vicarious liability as held by the learned trial judge. The learned trial judge therefore misdirected himself. The correct position is that the Salomon case established the legal principle that a company is a legal entity, separate and distinct from the individual member of the company. Ground two of the cross-appeal is therefore allowed. J23 (p.47) Having found that there was no transfer of contracts as discussed in ground one of the cross-appeal, it follows that ground three of the cross-appeal must also succeed as the interpretation of clause 6:16 was erroneous and irrelevant to the facts of this case. The discussion of the cross-appeal disposes of ground three of the appeal, which alleged breach of section 35(1) of the Employment Act. That ground of appeal also fails and is dismissed. In conclusion, all the three grounds of appeal are unsuccessful. The appeal is therefore dismissed with costs to be taxed in default of agreement. On the other hand, the three grounds of the cross appeal are successful. The cross-appeal is allowed with costs to be taxed in default of agreement. E. L. Sakala CHIEF JUSTICE S. S. Silomba SUPREME COURT JUDGE • • • • ■ • • • • • ,0 ■ ■ • • • I • • ■ R ♦ • • • ♦ • • ■ • ♦ ■ • ■ • • • • ■ • f • . ■ • . C. 5. M_ushabati SUPREME COURT JUDGE /rmc