Mora interest and labour-related debt
Introduction
On 15 August 2018, the Labour Appeal Court handed down Judgment in the matter of Malatji v Minister of Home Affairs and Another (JA52/2017) [2018] ZALAC 23 (15 August 2018), which dealt with the issue of when interest starts to run in respect arbitration awards that are challenged on review before the Labour Court (“LC”).
The facts of the case
On 28 April 2005, Malatji was dismissed by the Department of Home Affairs (“the Employer”) for misconduct. Malatji referred the dismissal dispute to the General Public Services Sector Bargaining Council (“GPSSBC”), and the GPSSBC issued an arbitration award on 14 August 2006. In the award, the GPSSBC found the dismissal to have been unfair, and ordered that Malatji be retrospectively reinstated. The amount of back pay due to Malatji was the equivalent of 12 months’ remuneration.
On review, the LC found reviewed and set aside the award, and substituted the reinstatement order of the GPSSBC with an order of compensation equivalent to months’ remuneration. The Labour Court made no order in respect of the payment of interest, or when interest would start running on the compensation amount. On 24 April 2014, the Employer paid the principal amount plus interest calculated from the date of the Judgment of the LC. Malatji then demanded that he be paid interest calculated effectively from the date after of the award, being 1 September 2006. The Employer rejected Malatji’s claim for the payment of interest back to 1 September 2006.
On 21 January 2015 Malatji launched an application in terms of section 143(2) of the LRA before the LC for a Declaratory Order declaring the Employer liable interest from 1 September 2006. On 19 January 2017, the LC dismissed that application, reasoning that because section 143(2) does not address the circumstances where an award is taken on review and is subsequently substituted with an Order of compensation only, there was no basis on which to order the Employer to pay interest with effect from 1 September 2006.
The Labour Appeal Court (“LAC”)
The crisp issue for determination before the LAC was whether the mora interest owed by the Employer was to be calculated from the date of the award or from the date of LC’s Order reviewing and setting aside the award and substituting it with an order of compensation. In determining that issue, the LAC concurred with Top v Top Reizen CC (2006) 27 ILJ 1948 (LC) where the LC had found that section 143(2) did not depart from the common law position which states that interest starts running from the date on which the debtor’s liability to pay arose and/or was ascertained. In answering that question for present purposes, the LAC held that mora interest can only be levied and would only accrue once the amount of compensation is ascertained or becomes easily ascertainable. In this regard, the LAC held that where an award is subject to a review application, it cannot be said that the quantum of the debtor’s liability is readily ascertainable or that the time for payment falling due is fixed. In those circumstances, the LAC held that an Employer who is ordered to pay a sum of money in terms of an arbitration award would only be liable to pay mora interest from the date of the award, provided the award is not challenged through the review process.
However, where the award is challenged through the review process, then payment in terms thereof only falls due from the date of the Judgment of the review Court.
Comment
The Judgment is of particular importance. Where an Employer is ordered to pay compensation to an employee in terms of an arbitration award, the employer will be liable to pay interest from the date of the arbitration award, unless the said award is challenged on review before the LC. Where, however, the award is challenged on review, then the Employer will only be liable to pay interest from the date of the LC’s Judgment in the review application. As was the case on the facts of this case, where there is a significant period between the date on which the award is issued and the date of the LC’s Judgment on review, the interpretation of the provisions of section 143(2) preferred by the LAC would have a profound effect on the amount of mora interest payable, much to the relief of most Employers.
Importantly, effective from 1 May 2018, the Prescribed Rate of Interest Act 55 of 1975 (“the PRIA”) set the prescribed rate of interest at 10% per annum. Out of interest, since 1993, the prescribed rate has varied as set out below:
1 October 1993 to 31 July 2014 15.5% P/A;
1 August 2014 to 28 February 2016 9% P/A;
1 March 2016 to 31 July 2016 10.25% P/A;
1 May 2016 to 31 August 2017 10.50% P/A;
and 1 September 2017 to 30 April 2018 10.25% P/A.