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[2014] ZASCA 206
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Sakhiwo Health Solutions (Limpopo) (Pty) Ltd v MEC of Health , Limpopo Provincial Government (908/2013) [2014] ZASCA 206 (28 November 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 908/2013
Reportable
In
the matter between:
Sakhiwo
Health Solutions (Limpopo) (Pty)
Ltd
.....................................................................
Appellant
and
MEC
of Health, Limpopo Provincial
Government
.............................................................
Respondent
Neutral
Citation:
Sakhiwo Health Solutions v MEC of Health, Limpopo
908/2013
[2014] ZASCA 206
(28 November 2014)
Coram:
Lewis, Bosielo and Wallis JJA and Schoeman and Dambuza AJJA
Heard:
17 November 2014
Delivered:
28 November 2014
Summary:
In construing a contract a court must have regard to all the
provisions of the contract and not view any in isolation. A service
delivery agreement, entered into pursuant to a request for proposals
(RFP) and a bid award, and which expressly referred to the
RFP, had
to be read subject to the provisions of the RFP.
ORDER
On
appeal from:
North Gauteng High Court, Pretoria (Fabricius J
sitting as court of first instance)
1
The appeal against paragraph 2 of the order of the high court is
dismissed.
2
The appeal against the orders granting prayers 3, 4, 8 and 9 of the
notice of motion is upheld with costs including those of two
counsel
and those orders are set aside and replaced with the following:
‘
(a)
The MEC of Health, Limpopo Provincial Government is directed to allow
Sakhiwo Health Solutions (Limpopo) (Pty) Ltd to continue
to provide
facility management services, in terms of the contract between them
concluded pursuant to the request for proposals
(HEDP 849/08), for a
maintenance period of five years after commissioning of each project
undertaken by it under that contract
and to pay invoices rendered by
Sakhiwo Health Solutions (Limpopo) (Pty) Ltd for those services
within a period of 30 days from
date of such invoices.
(b)
The MEC of Health, Limpopo Provincial Government is
directed to comply
with
all the client’s obligations in terms of the contract,
including:
(i)
effecting payments as and when they become due in terms of the
contract;
(ii)
executing variation orders where these have arisen
due to additional and supplementary
work required by the
MEC to the projects commissioned before the expiry of the service
delivery agreement between them;
(iii)
payment of the invoices submitted by Sakhiwo Health Solutions
(Limpopo) (Pty) Ltd to the MEC in the sum of R26,817 754.17
which is
due and payable; and
(iv)
payment of the sum of R13,401 563.01 which is due and payable.
(c)
The MEC is directed to pay to Sakhiwo Health Solutions (Limpopo)
(Pty) Ltd such further amounts of money
as are due
to Sakhiwo Health Solutions (Limpopo) (Pty) Ltd after a
statement and debatement of account
between the
parties, and to that extent it is directed that:
(i)
the debatement of the statement of account takes place immediately
upon the grant of the order as substituted, and be completed
within a
period of two months from the date of the order as substituted;
(ii)
the MEC pay to Sakhiwo Health Solutions (Limpopo) (Pty) Ltd such
amounts as are found to be due after the debatement of the
statement
of account by the parties, and such payments be made within 30 days
of the debatement of the account.
(d)
Each party is to pay its own costs.’
JUDGMENT
Lewis
JA (Bosielo and Wallis JJA and Schoeman and Dambuza AJJA concurring)
[1]
This appeal turns on the interpretation of a contract between Sakhiwo
Health Solutions Limpopo (Pty) Ltd (Sakhiwo), the appellant,
and the
Department of Health, Limpopo Province represented by the MEC for the
province who is cited as the respondent. I shall
refer for
convenience to the respondent as the department. The contract was for
service delivery in respect of public healthcare
facilities in
Limpopo. It was concluded in several stages, beginning with a
‘Request for Proposals’ (RFP) issued by
the department,
followed by a bid made by Sakhiwo, a bid award and a service delivery
agreement (SDA). At issue is the duration
of a maintenance agreement
that forms part of the contractual matrix.
[2]
The department decided that the contract had terminated after the
lapse of three years, plus two periods for which it was extended
(the
extensions were for a total of 18 months). Sakhiwo, on the other
hand, contended that the maintenance portion of the contract
endured,
in respect of each completed project, for a further period of five
years after the initial projects that it had undertaken
were
completed. A list of these projects reflecting the date of
commencement of maintenance services, and the outstanding period
for
each project was annexed to the answering affidavit as ‘JJL2’,
and was not challenged in reply. The department
brought an urgent
application in the North Gauteng High Court, Pretoria for a
declaratory order that the contract had terminated,
and for ancillary
relief. Sakhiwo counter-claimed for an order that the purported
termination of the SDA was of no effect, and
asked for orders that it
was entitled to provide facility and maintenance services, and to
various payments.
[3]
The high court held that the entire contract between the parties had
terminated on 30 March 2013, the date for which the department
contended. It came to this conclusion by considering only the
provisions of the SDA, ignoring the provisions of the RFP and the
bid
award, on the basis of the so-called
Shifren
principle (that
the parties had agreed that the contract could not be varied other
than in writing, by which they bound themselves:
SA Sentrale Co-op
Graanmaatskappy Bpk v Shifren
1964 (4) SA 760
(A), confirmed in
Brisley v Drotsky
2002 (4) SA 1
(SCA)).
[4]
The high court did not consider the principles of contractual
interpretation that have evolved over the last decade or so in
this
court, and misapplied the
Shifren
principle that deals with
variation, and not interpretation, as well as the parol evidence
rule. The application for leave to appeal
was granted by the high
court on the basis that this court might interpret the contract
differently.
[5]
The appeal turns essentially on the application of the correct
principles of contractual interpretation. I shall deal first
with the
factual background. The facts are not in dispute but of course they
explain the origin and the evolution of the transactions.
The
factual matrix
[6]
The department is obliged to ensure that health care facilities in
Limpopo are created and maintained. The obligation arises
from the
Constitution (part A of schedule 4). It lacked the expertise and the
staff to fulfill its obligation itself. Accordingly,
in 2008 it
published a ‘Request for Proposal’ (RFP) – a tender
– calling for bids from entities to act
as an implementing
agent for the revitalization of health and social development
facilities. This would entail construction of
new healthcare
facilities and upgrading of existing ones. The successful bidder
would in effect fulfill the project management
role of the department
itself, if it had had the resources, seeing to the implementation of
work by contractors.
[7]
Sakhiwo was the successful bidder, and the department awarded the
tender to it on 2 June 2008. The SDA envisaged in the RFP
was
concluded on 30 September 2008. As stated by the department in its
founding affidavit, ‘the tender process and service
level
[delivery] agreement brought about an agreement’ in terms of
which Sakhiwo was appointed as the department’s
agent for the
implementation of its infrastructure plan for the revitalization of
health and social development facilities –
construction and
upgrading – in Limpopo. The SDA set out the responsibilities of
Sakhiwo, which included managing contracts
during the project
implementation or construction, the ‘defects liability period
and the corresponding maintenance period’.
The duration of the
SDA was 36 months.
[8]
The period was extended, at the instance of the department, to 30
September 2012. And before then, Sakhiwo wrote a letter to
the head
of the department requesting a further extension of time. The
department acceded to a further period of six months, until
30 March
2013.
[9]
However, when Sakhiwo wrote to the head of the department later in
2012 she decided that she would not reply and considered
that further
correspondence was not appropriate. Requests by Sakhiwo for meetings
to discuss various matters were ignored. On 25
March 2013, five days
before the six-month extension was due to expire, the department
advised Sakhiwo that the contract between
them would terminate on 30
March 2013. Sakhiwo responded that the three-year period related only
to the introduction of new projects:
the contract was meant to endure
until all projects were completed and then for a further five-year
period after completion of
each project for the purpose of
maintenance.
[10]
The view of the department was that all obligations ceased after the
three-year period, and the further 18 month extension,
and that the
contract was accordingly terminated on 30 March 2013. Sakhiwo’s
stance was that it was entitled and required
to manage the
maintenance of the facilities which had been constructed or upgraded
during the subsistence of the SDA for a period
of five years, as was
stipulated in the RFP. The dispute as to the maintenance period and
the duration of the contract between
the parties led to the
application to the high court for the declaratory order that the
contract had terminated and the other relief
sought.
[11]
The high court had regard only to the provisions of the SDA in
finding for the department. That approach was plainly wrong.
As will
be seen, the SDA was an auxiliary agreement: it followed on the RFP,
the tender and the bid award, which was the principal
contract. A
glance at the documents makes this clear. The SDA expressly
incorporated the terms of the RFP into it, and the SDA
itself was
concluded pursuant to the contract that came into operation when the
bid by Sakhiwo was accepted by the department.
I turn now to the
pertinent terms of the documents, starting with the RFP (numbered
HEDP 849/0[8]).
The
provisions of the RFP
[12]
Under the heading ‘Invitation and scope of work’ a number
of items were listed. They included: providing health
and social
development infrastructure planning; development of concept designs,
detailed designs and ‘technical tender’
documentation;
site supervision during construction; overall co-ordination and
project management; commissioning of the facility
and
decommissioning, and, importantly for the determination of the
meaning of the contract, facility management for a maintenance
period
of five years after commissioning.
[13]
The terms of reference, an annexure to the RFP, stated that ‘Limpopo
Department of Health and Social Development invites
capable,
competent and experienced Service Providers to submit proposals for
acting as programme implementing agent for the revitalization
of
Health and Social Development facilities (new construction and
upgrading).’ The scope of the work was repeated. A condition
was said to be that the implementing agent should have a demonstrable
track record in so far as ‘implementation and management
of
project initiation, design and build in general and particularly of
infrastructure provision and maintenance.’
[14]
The objective of the RFP was said to be to ensure that the facilities
met the required standards of health and social development,
and to
ensure fully functional facilities that operated efficiently. The
scoring points for bids were set out in a table, and points
were to
be allocated for a number of factors, including commissioning and
decommissioning facilities, and ‘facility management
for
maintenance . . . after commissioning’.
[15]
A second annexure set out the ‘conditions’ of contract.
Clause 1.1 provided that the contract in terms of the invitation
to
bid ‘shall come into being on the date of issue of the letter
of acceptance of the bidder’s bid’ by the department
and
‘shall continue in force for a period of 36 months. The bidder
will furthermore be obliged to enter into a SLA [the service
level
agreement was accepted to be the same as the SDA actually entered
into], a mutually binding
auxiliary
agreement which provides
additional or supplementary service delivery standards to be met by
the successful bidder . . .’.(My
emphasis.)
The
bid award
[16]
The letter from the department to Sakhiwo informing it that it was
the successful bidder was dated 2 June 2008. It indicated
that a
service level agreement would be entered into for every project. (It
appears that the SDA actually covered all projects.)
And it stated
that supplementary services included ‘post occupancy facility
maintenance management services’. Although
the high court and
the department focused their attention on the terms of the SDA in
determining the duration of the parties’
contractual
relationship, it is clear that the tender made pursuant to the RFP,
and the bid award, constituted the primary contract
between the
parties.
The
terms of the SDA
[17]
It is of course necessary to consider all the terms of a contract in
order to determine the meaning of any one. The department
and the
high court had regard to only two provisions, the high court finding
that they were dispositive of the dispute as to the
duration of the
contract. (In setting out the provisions, and where quoting them, I
shall not use the same formatting used in the
contract itself.)
[18]
In terms of clause 3, Sakhiwo accepted appointment as agent for the
purpose of implementing the programme of managing health
care
facilities. In clause 6.1, headed ‘Period of this agreement’,
the parties acknowledged the importance of the speed
of the
development of the programme, and Sakhiwo undertook to use its ‘best
endeavours to ensure that the projects are implemented
and completed’
in terms of the department’s timetable. Clause 6.2, which the
department argued was determinative of
the duration of the
contractual relationship, read: ‘The contract shall endure for
a period of 36 months after signature
by both parties’.
[19]
That interpretation, it argued, was supported by clause 4.2, under
the heading ‘The programme budget’, which provided
that:
‘
The
parties agree to meet no later than 90 (ninety) days prior to the
expiry of the period of the Agreement, for the purpose of
attempting
to reach agreement on the extension of the agreement with regard to
maintenance.’
[20]
As I have said, clauses 6.2 and 4.2 were found by the high court to
conclude the enquiry as to the duration of the contractual
relationship. Hence the finding that the contract expired after 36
months of signature and after the two periods of extension.
I shall
return to this finding when construing the contract as a whole.
[21]
Clause 1.2, under the heading ‘Interpretation’, read:
‘
This
document shall be deemed to constitute the sole agreement between the
parties, with reference to its HEDP 849/08 Programme,
read with the
letter of award and letter of acceptance and shall cancel and negate
any prior verbal or written communications relating
to such subject
matter, whether expressed or implied, including any letters,
memoranda or minutes.’
[22]
Clause 1.8, under the same heading, read:
‘
If
any provision in a definition is a substantive provision, conferring
rights or imposing obligations on any party, effect shall
be given to
it as if it were a substantive clause in the body of the Agreement,
notwithstanding that it is only contained in the
definitions clause.’
[23]
The relevant definitions, in clause 2, are 2.1: programme means ‘the
HEDP 849/08 programme of the client as set down
within the client’s
infrastructure plan and further defined annually in the scope of
works’; and 2.8: ‘“Period
of agreement” means
the period specified in HEDP 849/08, commencing on signing of this
agreement’.
[24]
Finally, under the heading ‘Responsibility of the agent’,
clause 9.20 required Sakhiwo to manage contracts between
the
department and contractors and suppliers ‘during project
implementation and construction, defects liability period and
corresponding maintenance period. Unless the context indicates
otherwise or [the department] directs otherwise, maintenance shall
include post-occupancy facility maintenance management service’.
Principles
of interpretation and the approach of the high court
[25]
The principles governing the construction of a contract are
well-settled. I do not propose to rehearse them. In ascertaining
the
meaning a court must establish what the parties intended – what
the purpose of the contract was. In doing so, a court
must consider
all of its provisions and may not isolate any of them and consider
them in a vacuum:
Swart v Cape Fabrix (Pty) Ltd
1979 (1) SA
195
(A) at 202C-D. Thus the high court’s finding that clauses
4.2 and 6.2 could be viewed without considering the other provisions
of the SDA, the RFP and the bid award, was plainly wrong.
[26]
It was also plainly wrong not to consider the context in which the
contracts were concluded, sketched earlier, which showed
that the
department needed an implementing agent not only for managing of
construction and upgrading of healthcare facilities but
also for the
maintenance of those facilities. Indeed the contract as a whole said
just that. The SDA was just one part of the parties’
contractual arrangement. The RFP dealt expressly with a five-year
maintenance period after commissioning of each project, and the
SDA
referred back to that and incorporated it expressly, as the
definitions show. All the contractual documents had to be read
together. A request for proposals binds the body making it and the
successful bidder once the bid is accepted. It could not be
altered
other than with the clear agreement of the parties.
[27]
The high court considered that it could not look outside the four
corners of the SDA in order to determine the duration of
the
maintenance agreement. It did not have to do so since the SDA clearly
incorporated the RFP and the award. But this court has
held that even
where there is no ambiguity in a contract, in ascertaining what the
parties’ intention is, a court must have
regard to the factual
matrix. There is a long line of cases that state that the process of
interpretation involves a consideration
of the factual matrix. The
most recent of them are
KPMG Chartered Accountants (SA) v
Securefin Ltd
2009 (4) SA 399
(SCA) para 39;
Ekurhuleni
Metropolitan Municipality v Germiston Municipal Retirement Fund
2010 (2) SA 498
(SCA) para 13;
Natal Joint Municipal Pension Fund
v Endumeni Municipality
2012 (4) SA 593
(SCA) para 18;
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
2013
(5) SA 1
(SCA) paras 24 and 25;
Dexgroup (Pty) Ltd v Trustco Group
International (Pty) Ltd
2013 (6) SA 520
(SCA) para 16 and
Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport
(Edms) Bpk
2014 (2) SA 494
(SCA) paras 11 and 12.
[28]
Moreover, a contract must be interpreted so as to give effect to its
purpose, and to make business sense:
Masstores (Pty) Ltd v Murray
& Roberts Construction (Pty) Ltd & another
[2008] ZASCA 94
;
2008 (6) SA
654
(SCA) and
Ekurhuleni
above. It would make no sense, argued
Sakhiwo, for the maintenance obligations to run concurrently with the
construction period.
Maintenance is what is required after
construction. The healthcare facilities to be constructed or upgraded
in Limpopo were complex:
a sensible and businesslike interpretation
requires that maintenance would extend beyond the commissioning
stage. That is why clause
9.20 of the SDA, set out above, stated that
unless the context indicated otherwise, or the department otherwise
directed, maintenance
included ‘post-occupancy facility
maintenance management service’. It would be illogical to limit
the period of the
maintenance management obligation to the period of
construction.
[29]
The high court considered that clause 4.2 of the SDA, which provided
for a request for an extension of the period of the contract,
clearly
meant that the duration of the contract was limited to three years
unless such an extension was given. It referred to the
requests for
extensions made by Sakhiwo, and the fact that extensions were
granted. Why were they sought, it was asked by the department,
if
there were indeed a further five-year maintenance agreement?
[30]
The answer in my view lies in the reasons for the requests, set out
by Sakhiwo in asking for the extensions. Not all projects
had been
completed before the expiry of the three-year period: as the chief
executive officer said in her letter of 1 August 2012
requesting an
extension, ‘all projects in our scope of work in terms of the
SDA will have to be brought to completion by
ourselves and we have a
subsequent 5-year facility maintenance management obligation post
occupancy in respect of all projects
constructed under the management
of Sakhiwo’. She attached annexures showing the projects that
had been completed, those
‘on site’ and those ‘on
hold’. The request was obviously meant in respect of the
provision of project management
services in the construction phase of
the contract and not in respect of maintenance. Clause 4.2 of the
SDA, which referred to
an extension with regard to maintenance, must,
having regard to the contract as a whole (the RFP, the bid award and
the SDA), refer
to an extension prior to the expiry of the five-year
maintenance phase of the contract, not the three-year period for the
initial
construction and upgrading of facilities.
[31]
As Sakhiwo argued, it had undertaken many different projects for the
department under the agreement. Different projects would
be completed
at different times. The maintenance period would begin after each
project was commissioned. The parties must have
intended that the
maintenance obligations in respect of each project would commence and
end at different times. That is the logical
and businesslike
construction of the contract: ‘defects liability and
corresponding maintenance period’ (clause 9.20)
could begin
only after the construction was finished.
The
parol evidence rule
[32]
The high court held that the application of the parol evidence rule
precluded reliance on the RFP. There are two aspects to
the rule:
first, that a court cannot entertain evidence of extrinsic matter
that adds to or alters a written contract and second,
the extent to
which extrinsic evidence may be allowed in the process of
construction of a written contract. (See
KPMG
, above, para 39,
and
Absa Technology Finance Solutions (Pty) Ltd v Michael’s
Bid A House CC
2013 (3) SA 426
(SCA) paras 20 and 21.) In
so far as the second aspect is concerned, it is clear that a court
may have regard to any matter
that forms part of the factual matrix.
That is what this court has decided in the cases referred to above.
[33]
In so far as the first aspect is concerned, the parol evidence rule
does not prevent this court from considering the RFP and
its terms
since it is the contract itself. It is not extrinsic to the SDA. As
we have seen, the SDA is auxiliary to the RFP, which
is the
foundation of the contract. The purpose of looking at the provisions
of the RFP is to understand what the parties intended
to achieve when
concluding the contract. The RFP, the award and the SDA tell us that.
The
Shifren principle
[34]
Equally, the
Shifren
principle has no application, despite the
wording of clause 1.2 of the SDA, set out above. Sakhiwo was not
attempting to vary or
cancel the agreement in a manner not permitted
by the contract. The dispute turned only on what the parties intended
when entering
into the contract. And that exercise required the high
court to examine all the provisions of the contract, and the context
in
which it was concluded, to ascertain what was intended.
[35]
The high court’s conclusion that the entire contract came to an
end after three years was clearly wrong. But the order
it issued –
that the SDA had terminated after three years – was correct.
The appeal against that order thus cannot
succeed. However, the RFP
remains in effect in so far as the maintenance obligations are
concerned. Accordingly the other orders
must be set aside and
substituted with orders that recognize the continuing rights and
obligations of the parties.
[36]
The department argued that since the relief it sought in the high
court – an order that the SDU had expired on 30 March
2013 –
would not be reversed on appeal, it should not have to pay the costs
of the appeal. In my view, however, Sakhiwo has
had substantial
success in the appeal, and should be awarded its costs, including
those of two counsel. The costs order in the
high court should, on
the other hand, be that each party pays its own costs.
[37]
In the result:
1
The appeal against the order of the high court that the service
delivery agreement has expired is dismissed.
2
The appeal against the orders granting prayers 3, 4, 8 and 9 of the
notice of motion is upheld with costs including those of two
counsel
and those orders are set aside and replaced with the following:
‘
(a)
The MEC of Health, Limpopo Provincial Government is directed to allow
Sakhiwo Health Solutions (Limpopo) (Pty) Ltd to continue
to provide
facility management services, in terms of the contract between them
concluded pursuant to the request for proposals
(HEDP 849/08), for a
maintenance period of five years after commissioning of each project
undertaken by it under that contract
and to pay invoices rendered by
Sakhiwo Health Solutions (Limpopo) (Pty) Ltd for those services
within a period of 30 days from
date of such invoices.
(b)
The MEC of Health, Limpopo Provincial Government is
directed to comply
with
all the client’s obligations in terms of the contract,
including:
(i)
effecting payments as and when they become due in terms of the
contract;
(ii)
executing variation orders where these have arisen
due to additional and supplementary
work required by the
MEC to the projects commissioned before the expiry of the service
delivery agreement between them;
(iii)
payment of the invoices submitted by Sakhiwo Health Solutions
(Limpopo) (Pty) Ltd to the MEC in the sum of R26,817 754.17
which is
due and payable; and
(iv)
payment of the sum of R13,401 563.01 which is due and payable.
(c)
The MEC is directed to pay to Sakhiwo Health Solutions (Limpopo)
(Pty) Ltd such further amounts of money
as are
due to Sakhiwo Health Solutions (Limpopo) (Pty) Ltd after a
statement and debatement of account
between the
parties, and to that extent it is directed that:
(i)
the debatement of the statement of account takes place immediately
upon the grant of the order as substituted, and be completed
within a
period of two months from the date of the order as substituted;
(ii)
the MEC pay to Sakhiwo Health Solutions (Limpopo) (Pty) Ltd such
amounts as are found to be due after the debatement of the
statement
of account by the parties, and such payments be made within 30 days
of the debatement of the account.
(d)
Each party is to pay its own costs.’
_______________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellant: JJ Gauntlett SC, FB Pelser
Instructed
by: De Klerk & Van Gend Attorneys, Pretoria
McIntyre
& Van der Post, Bloemfontein
For
Respondent: MC Erasmus SC, M Kgatla
Instructed
by: State Attorney, Pretoria
State
Attorney, Bloemfontein