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[2015] ZAGPJHC 234
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Ekurhuleni Metropolitan Municipality v NCP Chlorchem (Pty) Limited (3545/2013) [2015] ZAGPJHC 234 (23 September 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
GAUTENG LOCAL DIVISION,
JOHANNESBURG
CASE NO. 3545/2013
DATE: 23 SEPTEMBER 2015
In the matter between:
EKURHULENI METROPOLITAN
MUNICPALITY
.............................................................
Plaintiff
And
NCP CHLORCHEM (PTY)
LIMITED
.................................................................................
Defendant
JUDGMENT
KATHREE-SETILOANE J:
INTRODUCTION
[1] On Monday 14 September 2015 the
Plaintiff (“EMM”) gave notice of its intention to amend
its particulars of claim
by substituting them in their entirety.
This notice of amendment was the second attempt by the EMM within the
last month to replace
its particulars of claim in their entirety. It
was preceded by a first attempt to substitute the particulars of
claim on 21 August
2015. The Defendant (“NCP”) objected
to EMM’s notice of amendment dated 21 August 2015.
[2] On 11 September 2015, the EMM then
furnished NCP with a new proposed amendment that would substitute its
particulars of claim
in a manner based on, but materially different
to the proposed amendment of 21 August 2015 to which NCP had
objected. On 14 September
2015, EMM then furnished NCP with a notice
of intention to amend which still proposed to substitute the
particulars of claim in
their entirety along the lines of the 11
September 2015 draft, but with some additional details pleaded. On 16
September 2015,
NCP gave notice of its intention to oppose EMM’s
proposed amendment of 14 September 2015.
Irreparable Prejudice to the EMM (pp
148-150)
[3] NCP objects to the proposed
amendment on the basis that the proposed amendment seeks, at an
extremely late stage of the proceedings,
to introduce substantial new
issues into the case in a manner that will prejudice NCP that cannot
be cured by a costs order against
EMM or a postponement. It bears
mention, at this point, that the summons in this action was issued
approximately two years ago.
The trial has been set down for fifteen
days commencing on 27 October 2015.
[4] The prejudice which NCP contends it
will suffer, if the court were to allow the proposed amendment at
this late stage of the
proceedings, relates to the unsustainability
of the business of NCP at the tariffs claimed by EMM. The contention
advanced by NCP
in this regard, is that unless the merits of the
action and the parallel review proceedings are resolved at the
hearing during
October / November 2015, it will have to take
proactive steps that may prove to be unnecessary if the review
proceedings and the
action are ultimately resolved in its favour.
The Existing Claim of the EMM
[5] On the pleadings as they stand, the
claim of the EMM is a statutory claim on the By-laws, and not a claim
in contract. It is
a claim based on the provisions of the By-laws
that create statutory liability on a party that has (or is deemed to
have) concluded
a written consumer agreement with EMM to pay the
accounts of EMM.
[6] The issues on the existing
particulars of claim are relatively narrow. These are:
(i) The narrow factual issue of whether
NCP ever concluded a written consumer agreement with the EMM;
(ii) The legal issue of whether EMM has
any claim under By-laws 7(5) to 7(7) read with By-laws 3(2), 3(3) and
the first sentence
of By-law 3(1) for payment of its accounts from a
party who has not concluded a consumer contract with it or whether
its only proper
claim against such a party is a “claim for the
cost of electricity and any other costs incurred by Council in such
circumstances”
in terms of the second sentence of By-law 3(1);
and
(iii) The mixed legal factual issue of
whether the supply consumed by NCP at its Chloorkop plant is a supply
drawn from the EMM
supply main.
The Proposed Amendment
[7] The proposed amendment, however,
(i) introduces a claim based on
contractual liability in terms of an alleged tacit contract which is
now pleaded
(ii) reduces the claim under the
By-laws to an alternative claim and changes it to a claim based on
the second sentence of By-law
3(1) which makes parties who use a
supply without concluding a written consumer agreement with the EMM
liable to the EMM for “the
cost of electricity and any other
costs incurred by Council in such circumstances”
(iii) extends the period of the claim
past the pre-July 2012 period to the present, and
(iv) It changes the quantum claimed to
a quantum based on tariff D.
[8] NCP contends that the new claims
introduce materially different issues into the case and will prevent
NCP from being able to
run the trial in October thereby causing it
irreparable prejudice and creating the risk of material harm to the
public interest.
As contended for by NCP, the proposed amendments
threaten to introduce a dispute over whether there was a tacit
contract between
the parties, and if so, what the terms of that tacit
contract were; and whether, and if so when, that tacit contract was
validly
terminated. The proposed amendments will also introduce
disputes over:
(i) How to interpret the phrase “cost
of electricity and any other costs incurred by Council in such
circumstances”
(ii) What such costs are, and
(iii) Whether they cumulatively exceed
the amount of Megaflex plus 2% which NCP has been paying EMM.
[9] All the abovementioned issues are
issues which NCP does not have to traverse on the pleadings as they
currently stand. As contended
for by NCP, they are issues which will
require NCP to prepare and to call witnesses which it did not intend
to call in this trial.
In relation to the issues around cost of
electricity, they will probably involve substantial additional
discovery and may require
expert evidence. EMM points out that new
issues come at a time when, as a result of EMM’s belated
amendment to its replication,
NCP has had to plead a rejoinder which
will oblige it to lead new categories of evidence and new witnesses
at the trial.
PREJUDICE TO THE NCP
[10] I turn now to consider the
prejudice to NCP if the October hearing is postponed as a result of
the grant of the proposed amendment.
While the general policy of the
courts is to encourage full ventilation of the real issues between
parties, prejudice to the respondent
still remains the deciding
factor in determining whether to grant or refuse an application to
amend (Benjamin v Sobac South African
Building and Construction (Pty)
Ltd 1989(4) SA 940). An application for an amendment will be refused
if, to allow it, would cause
prejudice to the other party, which
cannot be remedied by an order for costs and, where appropriate, a
postponement (Trans-Drakensberg
Bank Ltd v Combined Engineering
1967(3) SA 632 at 638).
[11] The NCP submits that if these
amendments are allowed, it will be prejudiced in its preparation for
trial and is unlikely to
be able to proceed with the trial on 27
October 2015. As is apparent from NCP’s answering and replying
affidavits in the
counter application to the review application, the
prejudice that will be caused to the NCP (and possibly the country at
large)
if the trial is postponed is enormous.
[12] Importantly, the prejudice that
NCP will suffer if the trial is postponed must be viewed in the
context of the key role that
it plays in the country in relation to
the purification of potable or drinking water. The NCP supplies more
than 90% of the liquefied
packed chlorine used in the purification of
South Africa’s drinking water. Its electrolysis production
process uses large
amounts of electricity to produce liquefied packed
chlorine and caustic soda in equal parts. Electricity cost is more
than 50%
of the NCP’s cost of production in relation to an
electrochemical unit (which is the equal share of liquefied packed
chlorine
and caustic soda with reference to which NCP measures its
production output). NCP’s current business at Chloorkop is
unsustainable
at “retail” EMM electricity tariffs.
[13] NCP made a loss of close to R30
million rands in its 2014 financial year. The 2014 financial
statements are its latest audited
statements. It anticipates that
its 2015 financial statements will confirm the ongoing threat to the
sustainability of its business.
NCP’s increased production
costs cannot be passed onto its consumers because the competitive
South African caustic soda market
will not allow NCP to sell at
prices increased to take account of electricity price increases. It’s
new competitor Protea
Chemicals is free of retail municipal
electricity tariffs and now has capacity to supply 10 000 tonnes of
liquefied packed chlorine
into a market that is currently sitting at
22 900 tonnes (ie capacity to supply 44% of the current market).
Although Protea will
leave more than 50% of the South African market
to be supplied by NCP, the municipalities representing that half of
the market
which cannot source cheaper liquefied packed chlorine from
Protea will not be able to absorb increases by NCP that will have to
make up for the lost recovery of electricity cost on caustic soda
(which currently brings in almost double the value of liquefied
chlorine sales),
[14] The loss of almost 40% of its
current liquefied packed chlorine market, and the loss of almost 40%
of its current caustic soda
output which is produced in the same
process as liquefied packed chlorine will disappear if NCP has to
reduce its chlorine output
by 40%. Because of the toxicity and
difficulty of storing liquefied packed chlorine, as Protea’s
market share increases
NCP will not be able to keep producing at
current output to feed the caustic soda market because it cannot
stockpile the excess
liquefied packed chlorine that it will be unable
to sell into market which is supplied by Protea at cheaper rates. So
each tonne
of liquefied packed chlorine that Protea takes away from
NCP’s market share will translate into a corresponding
reduction
of NCP’s caustic soda sales.
[15] So unless NCP is able to free
itself with certainty from providing for the cost of EMM municipal
electricity tariffs, it will
find itself in a financially
unsustainable position within a few years. NCP cannot wait passively
for this to happen, particularly
now that NERSA and the EMM have
doubled the 24% Megaflex premium on the NCP Special Tariff to 48%. As
a result, NCP faces the following
choices:
(a) It may, through negotiation or the
legal process obtain final resolution of its dispute with NERSA and
the EMM on terms that
enable it to continue operating on the grid
from its plant in Ekurhuleni, either as a customer of Eskom paying a
manageable surcharge
to the EMM, or as a customer of the EMM at a
tariff that is financially sustainable for NCP.
(b) However, if it cannot obtain that
resolution quickly enough, it must either
(i) stay at its Ekurhuleni plant and
invest in new technology that enables it to generate its own
electricity for its electrolysers
and thus move off the Eskom grid
and free itself from the risk of being subjected to the unsustainable
burden of Ekurhuleni electricity
tariffs, or
(ii) move its plant from Ekurhuleni to
another municipality or development zone that will accept that it can
be a direct customer
of Eskom, or even to a neighbouring state that
will offer it attractive electricity arrangements.
(c) However, if these latter options
are not financially viable or practically achievable, it must shut
down its operations.
(i) Moving off the Eskom grid or moving
out of Ekurhuleni will both require substantial investment in a new
plant. The weaker the
balance sheet of NCP is, the less likely NCP
is going to be able to raise the necessary investment. If resolution
of the original
action is postponed for another year, NCP must keep
an impairment of R178 million plus more than three years of interest
on its
balance sheet in circumstances where, depending on the outcome
of the parallel review application it may have to use that balance
sheet to raise the hundreds of millions of rands necessary to move
out of Ekurhuleni or off the grid. EMM points to some discrepancies
between the allegations made by NCP in the urgent application and
those made in answer to the counter application in the review
application regarding the figures in the financials of NCP for the
2014 financial year, as well as its ability to sustain itself
in the
future. NCP has provided a proper explanation for those discrepancies
in its answer to the counter application in the review
application.
In any event, those discrepancies do not detract from the prejudice
that NCP will suffer if the proposed amendment
is granted.
(ii) Apart from the prejudice to NCP, a
postponement caused by EMM’s amendment threatens catastrophic
prejudice to the public
at large. If NCP’s ability to resolve
its conundrum through means that require substantial new investment,
is impaired by
another year’s delay of the principal action,
there will be an increased risk that NCP will have to shut down its
operations.
(iii) If this takes place at any time
in the foreseeable future, the country will be without sufficient
liquefied chlorine to meet
the water purification needs of most of
its municipalities. The emergence of Protea as a competitor to NCP
now means that small
parts of the country may be able to keep their
water clean without NCP. However, if NCP has to stop operating in
the next few
years, it is still likely that this would leave more
than half the country without potable water within a week of the
closure of
NCP.
(iv) The closure of NCP would also have
significant balance of payments implications for the country because
of the dependence on
NCP of many South African downstream
manufacturers.
[16] EMM has known since NCP’s
letter to the Deputy Judge President of 31 March 2015 (Annexure D pp
531-538) that NCP will
be prejudiced if the trial does not run in
October 2015. In paragraph 19 of that letter (p 537), NCP’s
attorneys stated
the following:
“19. Apart from the futility of
the exercise proposed by the plaintiff, it is one which threatens
damaging consequences for
the country as a whole.
19.1.NCP produces approximately 90-95%
of the liquefied chlorine that is supplied to municipalities and
water boards and is necessary
to purify South Africa's drinking
water. The Chloorkop factory which is at the centre of the present
dispute has accordingly been
designated a National Key Point under
Act 102 of 1980.
19.2.Because of the toxicity of
liquefied chlorine, it cannot be imported on a bulk basis, nor can it
be stockpiled. At present,
if the Chloorkop factory were to be shut
down, the country would have no more than seven days' supply of
liquefied chlorine and
after seven days, most water purification
plants in the country would have to stop operating.
19.3.Unless the present dispute can be
finalised within the next two to three years the contingent liability
raised by the present
action will oblige NCP to shut down the
Chloorkop factory.
19.4.It is by no means clear in such an
event, that NCP will be able to establish a profitable liquefied
chlorine plant elsewhere,
or that the country will be able to source
alternative supplies of liquefied chlorine to replace the supply
currently provided
by NCP.
19.5.There is accordingly a material
risk that if the case continues on present course without judicial
case management, a point
will be reached where
19.5.1. the country has no access to
liquefied chlorine,
19.5.2. most municipalities in the
country will no longer be able to supply purified water to their
residents, and
19.5.3. outbreaks of cholera and other
waterborne diseases will be likely
[17] The letter of 31 March 2015 was
written before EMM and NERSA doubled the premium that they expect NCP
to pay on the Eskom Megaflex
tariff. The situation now is
accordingly considerably more urgent than it was when the letter to
the Deputy Judge President was
written.
[18] At the pre-trial meeting of 29
March 2015, EMM had already decided that it was going to amend its
pleadings and NCP indicated
the need for it to do so quickly and to
commit to a date for that amendment.
[19] Nothing stopped the EMM from
amending six months ago. It has known what its case in the post July
2012 claim was at least
since it finalised its answering affidavit
and counter-application in the review application on 30 January 2015.
It could, therefore,
have immediately pleaded its post 2012 claim at
tariff D with an alternative claim at the NCP Special Contract
tariff. Instead,
it apparently elected to hold back its amendment
because it wanted the tactical advantage of not pleading until it had
seen NCP’s
replying affidavit in the review application.
[20] EMM, will in my view, not be
prejudiced if it is denied its proposed amendment. It has instituted
action separately in respect
of the post – July 2012 period. It
may, if it so elects, deal with the issues in its proposed amendment
in that second action.
There is nothing that impedes it from doing
so.
[21] The nature of the prejudice, which
the respondent will suffer by the grant of the proposed amendment,
cannot in my view, be
compensated by a postponement or a costs order.
In the premises, the application for amendment must fail.
[22] In the result, I make the
following order:
‘The application for amendment is
dismissed with costs.’
F KATHREE-SETILOANE
JUDGE OF THE HIGH COURT OF SOUTH
AFRICA
GAUTENG LOCAL DIVISION, JOHANNESBURG
DATE OF HEARING: 18 September 2015
DATE OF JUDGMENT: 23 September 2015
PLAINTIFF’S ATTORNEYS: Kunene
Ramapala Inc
PLAINTIFF’S COUNSEL: Adv. H
Van Eeden SC
Adv. K G Hopkins
Adv. T Moretlwe
DEFENDANT’S
ATTORNEYS:D’Arcy-Herrman Raney
DEFENDANT’S COUNSEL: Adv. M
Chaskalson SC