A recent Court of Appeal decision, which upheld a High Court ruling, highlights the status of trade union recognition in the context of mergers and the construction of vesting orders. The decision offers guidance on the standing of vesting orders and the effect of the transfer of assets and liabilities from a target company to a merged entity.
The appeal in question was brought by the National Union of Bank Employees (NUBE) against the minister of human resources of Malaysia, AmBank (M) Bhd and one other.
The case arose from a merger of a bank (AmBank Bhd) and a finance company (AmFinance Bhd). During the transaction, AmFinance acquired the assets and liabilities of AmBank. AmFinance later changed its name to AmBank (M) Bhd. It was issued with a new banking licence.
Against this background, AmBank was unionised. It became a member of an employers' trade union - the Malaysian Commercial Bank Association (MCBA) - and, by virtue of that membership, a party to a collective agreement with NUBE. It had also accorded recognition to NUBE. However, AmFinance - which was a larger organisation and the vehicle for the merger (albeit under a new name) - was not a member of MCBA and had no dealings with NUBE.
The merger was facilitated via a vesting order of the High Court. The order enabled the vesting of defined assets and liabilities.
The dispute arose over whether NUBE could exercise the recognition that it had enjoyed under AmBank Bhd with AmFinance, despite no longer having recognition status. NUBE presented proposals for collective bargaining and attempted to pursue a trade dispute arising therefrom.
AmFinance took the position that jurisdictionally, NUBE had no right to present an invitation to commence collective bargaining. The minister of human resources took a similar view and decided not to refer NUBE's claim arising from the invitation to the Industrial Court for adjudication.
NUBE then mounted a judicial review challenge. One of the grounds for this challenge was that, by virtue of the vesting order, AmFinance become bound by the collective agreement between MCBA and NUBE. Consequently, NUBE argued that it could exercise its recognition status with AmBank as against AmFinance.
The relevant clauses of the vesting order were as follows:
"'Contracts' means any agreements, contracts, undertakings, deeds, indentures, deed polls or instruments to which AmBank is or has ever been a party in relation to the Business including all contracts of employment but excluding the Excluded Contracts…
5. Any Contract (to the extent that it is still in force or has any effect) shall have effect as from the Scheme Date as if AmFinance had been a party thereto instead of AmBank…
12. In respect of any right or liability of AmBank transferred to AmFinance pursuant to this Order, AmFinance shall have the same rights, powers and remedies (and in particular the same rights and powers as to taking or resisting legal proceedings or making or resisting applications to any authority) for ascertaining, protecting or enforcing that right or resisting that liability of AmBank as if it had at all times been a right or liability of AmFinance, including those rights or liabilities in respect of any legal proceedings or applications to any authority pending immediately before the Scheme Date by or against AmBank." (emphasis added)
The High Court observed that AmBank and AmFinance were separate and distinct legal entities. The court further observed that the recognition requirement is a statutory prerequisite which must be satisfied before the commencement of collective bargaining. The process of collective bargaining is governed by Section 13 of the Industrial Relations Act 1967.
Finally, the court observed that a 'contract' and an 'employment contract', as mentioned in the vesting order, were distinct from a 'collective agreement'. The High Court's reasoning was driven by the fact that collective agreements are a creation of statute and are regulated by specific statutory provisions which govern the right to engage in collective bargaining, as well as the form of a collective agreement. Thus, the High Court concluded that a collective agreement could not be novated through a simple vesting order.
This decision confirms the legal position that a collective agreement stands in a class of its own and is distinct from contracts in general.
The decision of the High Court has reinforced the legal position of collective agreements and has entrenched the requirement for seeking and obtaining recognition as a jurisdictional prerequisite. This case nonetheless brings into sharp focus the need to give due consideration to the ambit and the terminology of a vesting order. In this case use of the term 'employment contract' in the vesting order necessitated various arguments to differentiate such contracts generally from a collective agreement.
For further information on this topic please contact Rutheran Sivagnanam at The Chambers Group by telephone (+60 3 2732 9530), fax (+60 3 2732 9531) or email ([email protected]).