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[2013] ZASCA 62
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CShell 271 (Pty) Ltd v Oudtshoorn Municipality (481/2012) [2013] ZASCA 62 (24 May 2013)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 481/2012
Reportable
In the matter between:
CSHELL 271 (PTY) LTD
.........................................................................
APPELLANT
and
OUDTSHOORN
MUNICIPALITY
.........................................................
RESPONDENT
Neutral
citation
:
CShell
v Oudtshoorn Municipality
(481/2012)
[2013] ZASCA 62
(24 May 2013)
Coram
: Navsa,
Leach, Petse JJA and Swain and Zondi AJJA
Heard
: 2 May 2013
Delivered:
24 May
2013
Summary
:
Award of tender to a company to be formed –
pre-incorporation contract – company never formed –
pre-incorporation
contract not ratified. Appellant sought order
reviewing a decision by the municipality to cancel the award of the
tender, alleging
that it had acquired rights to the contract. Held
that the appellant lacked the necessary locus standi to challenge the
decision
of the municipality as it was not the entity entitled to
adopt the pre-incorporation contract and consequently acquired no
rights
under that contract.
Order
On appeal from:
Western Cape High Court, Cape Town (Henney J sitting as court of
first instance):
The appeal is dismissed
with costs.
judgment
_______________________________________________________________
SWAIN Aja
(
navsa,
leach and petse jja and zondi aja
concurring):
The
origin of the present dispute lies in a call for tenders, made by
the respondent, the Oudtshoorn Municipality (the municipality)
in an
advertisement during May 2006, for the purchase and development of a
piece of land described as Erf 5366, portion of erf
1 Oudtshoorn, 15
hectares in extent.
The
municipality awarded the tender to a company to be formed, variously
described in the papers as ‘Newco’ (ie new
company) and
‘Newco: S Afrika’. For convenience I intend to refer to
it simply as ‘Newco’. Its tender
submitted to the
municipality contained a specified constituent profile of natural
persons, who were to be its shareholders.
The appellant, CShell 271
(Pty) Ltd (Cshell) sought to enforce the tender. As a result the
municipality purported to cancel the
award. One of the stated
reasons for the cancellation was that CShell did not have the same
constituent profile of shareholders
as contained in the bid. The
significance of this alteration was that the specific black
empowerment percentage profile amongst
CShell’s shareholders
was drastically reduced, with the result that the black empowerment
composition of the company had
changed. The municipality contended
that CShell was accordingly not the same company as that which had
to be formed and to whom
the tender had been awarded.
This
resulted in CShell seeking an order by way of application before the
Western Cape High Court (Henney J) to review and set
aside this
decision, which was dismissed with costs.
In
response and by way of a counter-application, the municipality
sought an array of orders, two of which were granted by the
court a
quo, together with an order of costs. It was declared that the
municipality had not awarded any tender to CShell and
that the
tender which had been awarded to Newco, had been lawfully cancelled
by the municipality.
CShell
was granted leave to appeal, by the court a quo, against the
dismissal of the main application as well as the relief granted
in
terms of the counter-application.
In
order to place the dispute in context, it is necessary to briefly
set out the salient facts as they appear from the correspondence
exchanged between the parties.
The relevant portion of
the advertisement calling for tenders read as follows:
‘
Kennis
geskied hiermee dat die Munisipale Raad van Oudtshoorn voornemens is
om ingevolge Artikel 124(2)(a) van Ordonnansie 20 van
1974, Erf 5366,
(± 15 ha) te vervreem.
Erf
5366 Oudtshoorn word aangebied vir die doeleindes van enige
ontwikkeling, wat versoenbaar is met die omgewing en dus moet tenders
ook vergesel word van ontwikkelingsvoorstelle wat volledige detail
van die volgende insluit:
(i)
Omskrywing van die voorstel, ingesluit:
(a)
Profiel/samestelling van die betrokke firma/instansies.’
The tender submitted on
behalf of Newco provided in part as follows:
‘
PROFIEL
/ SAMESTELLING VAN DIE AANBIEDER / ONTWIKKELAAR
Newco
is ‘n maatskappy wat spesifiek geregistreer sal word vir die
doeleindes van hierdie aanbod en die gepaardgaande ontwikkeling.
(My
emphasis.)
Aandeelhouers,
Direkteure en belanghebbendes van die aanbieder bestaan uit die
volgende persone en instansies:
1.
Me Sandra Afrika – ‘n plaaslike inwoner en welbekende
sakevrou en konstruksiekontrakteur van Oudtshoorn. Me Afrika
het geen
bekendstelling nodig nie en haar betrokkenheid in die Oudtshoorn
sakewêreld asook opheffing en sosio-ekonomiese
bydraes in die
groter Oudtshoorn is legio.
Me
Afrika is die mentor en leier van die Bemagtigingsaandeelhouers van
Newco. Sy is ook die persoon wat hierdie aanbod geïnisieer
en
gedryf het.
2.
Mnr Johnny Forbes. Welbekende Suidkaapse sakeman nou woonagtig in
Oudsthoorn. Mnr Forbes het gevestigde sakebelange in Oudtshoorn
en is
‘n bekende in die nasionale kettingwinkelkringe.’
The
tender was signed by SA Coetzee ‘namens Newco’,
understandably so as the company was yet to be formed.
The award of the tender
dated 8 September 2006 provided in part as follows:
‘
Hiermee
u formeel in kennis te stel dat die Munisipale Raad van Oudtshoorn
per Raadsbesluit nommer 71.3/08/06 as volg besluit het.
1.
Dat 'n gedeelte van Erf 5366, Oudtshoorn (± 15 Ha) vervreem
word aan
Newco ('n maatskappy wat gestig staan te word)
,
hierna verwys as die “Ontwikkelaar”, @ R5 000 000.00
(BTW ingesluit, maar uitgesluit enige ander koste voortspruitend
uit
sodanige transaksie.)
2.
Dat die ontwikkelaar skriftelik dienooreenkomstig hierdie besluit in
kennis gestel word en
daar binne 3 maande vanaf datum van die
betrokke skrywe, 'n regspersoon gestig word in wie se naam die grond
oorgedra moet word.
3.
Dat Munisipaliteit Oudtshoorn 'n prokureur sal aanstel om op koste
van die Ontwikkelaar, ‘
n koopooreenkoms op te stel, wat
binne 1 maand vanaf registrasie as maatskappy onderteken moet wees.
4.
Dat daar binne 2 weke vanaf datum van kontrakondertekening 'n
bankwaarborg vir die volle verkoopprys (R5 000 000.00
BTW
ingesluit) gelewer word aan die Munisipale Bestuurder.’
(My
emphasis.)
The response to the
award of the tender by Coetzee by way of a letter dated 12 October
2006 was, in part, as follows:
‘
Ons
bevestig hiermee dat die voorwaardes soos uitgestip in u skrywe deur
die tenderaar aanvaar word.
Ons
bevestig voorts dat ons reeds opdrag aan ons ouditeure gegee het om
'n Regspersoon te registreer in wie se naam die grond oorgedra
sal
word.
Ons voorsien u eersdaags van die besonderhede. (My
emphasis.)
Ons
let daarop dat die Oudtshoorn Munisipaliteit ‘n prokureur sal
aanstel op die ontwikkelaar se koste om ‘n ooreenkoms
te
boekstaaf. Ons ontvang graag bevestiging van u welke prokureur u
aanstel. In die alternatief is die ontwikkelaar bereid om self
'n
prokureur aan te stel wat 'n ooreenkoms kan opstel ingevolge u
instruksies.’
This was followed by a
further letter dated 2 February 2007 from Coetzee in which the
municipality was advised as follows:
‘
Ons
bevestig dat ons ouditeure 'n regspersoon gestig het
soos
in ons skrywe 12 Oktober 2006. (My emphasis.)
Die
regspersoon: Cshell 271 (Pty.) LTD
Reg.
No. : 2006/002797/07
Let
net daarop dat die Oudtshoorn Munisipaliteit 'n prokureur moet
aanstel op die ontwikkelaar se koste om 'n ooreenkoms te boekstaaf.
Ons ontvang graag bevestiging van welke prokureur u aanstel.’
A delay of some two
years then followed during which period CShell instead of Newco was
engaged in obtaining the necessary environmental
authorisation. By
letter dated 26 May 2009 one Van Rensburg stated the following:
‘
Please
find below details of the registered Company
as
requested in clause 2 of your letter dated 8 September 2006, Ref.
ISAZISI 5366 MOSSELBAAI DRIEHOEK,
and
as per our confirmation of registration
dated
12 October 2006.
(My
emphasis.)
Registered:
C Shell 271 (Pty) Ltd
Reg
No 2006/002797/07
Vat
No 4360251252
Shareholders
25%
Troban Property Holdings & Investments (Pty) Ltd
25%
Sandra Africa
25%
57 Victoria Street George (Pty) Ltd
25%
The Manors Trust.’
The next relevant step
in the proceedings was a letter written by Van Rensburg on behalf of
CShell dated 12 May 2010 in which
the following was stated:
‘
As
discussed we would like the council to grant written consent for
Cshell 271 (Pty) LTD. Reg. no 2006/002797/07 to change the legal
entity registered with council to a new entity to be nominated.
Reasons:
When
we started this project we anticipated a development of approximately
8000 sqm. which is considered to be a small development.
To
fulfil the tender requirements we registered a shelf company,
Cshell
271 (Pty) LTD
.
as legal entity with the local authority.
The
shelf company having no assets or substance could or would never have
been able to provide the necessary surety for a large
development. .
. . As a consequence we were forced to increase the development to a
25 000 sqm. building, which clearly requires
a lot more
financial investment. In order to meet the financial requirements we
obtained the interest of a large fund management
comp. with whom we
are having discussions. And express requirement of this company is
that the development be undertaken in a development
comp. with assets
and security to secure a loan suitable for this type of project.’
(My emphasis.)
The reply of the
municipality dated 14 June 2010 reads as follows:
‘
Die
administrasie is van mening dat die Raad onder geen omstandighede 'n
ooreenkoms met C SHELL 271 (Pty) Ltd kan sluit nie. Regstegnies
moet
ons op hierdie stadium die vraag beantwoord of die Raad die tender
aan C SHELL sou toeken soos die status van laasgenoemde
nou daarna
uitsien. Die tender is aan Newco: S Afrika toegeken op gronde van wat
die maatskappy op daardie stadium getender het,
asook die status van
die maatskappy. Ons is van mening dat die status van C SHELL en
Newco: S Afrika wesenlik verskil.’
In reply, Van Rensburg,
on behalf of CShell by way of a letter dated 17 June 2010, stated
the following:
‘
It
is therefore alarming to see that the municipality now do not
acknowledge CShell 271 (Pty) LTD.
when
it is was called for in the tender evaluation that a registered legal
entity must be formed to transfer the property into and
to act as
developer.
(My emphasis.)
The
tender evaluation did not call for Newco to be used.
.
. .
I
notice that you refer to the tender being awarded to “Newco: S
Afrika” but the award document has no reference to
that
specifically. If the tender called for a specific composition we were
unaware of this position as the pre tender, award and
tender
evaluation documents did not make mention of this requirement.’
In an e-mail dated 26
August 2010 the said Van Rensburg stated the following:
‘
Dit
blyk dat die vraag of ons die regspersoon kan verander 'n onnodige
vertraging geskep het en dat ons soos voorheen die aansoek
onttrek en
wil voortgaan met die CShell 271 (Pty) LTD.’
Attorneys for CShell by
way of a letter dated 22 November 2010 reiterated that:
‘
As
remarked above,
CSHELL
271 (Pty) Ltd was incorporated pursuant to the award of the
abovementioned tender as the envisaged Newco and legally therefore
constitutes the successful tenderer to which the development property
must now be transferred.
.
. .
It
has now come to our client’s attention that your Council is of
intent to revisit its previous resolution to award the abovementioned
tender to our client. Apparently your Council has taken legal advice
from counsel to this effect and that a Council’s meeting
has
been scheduled for this purpose for 23 November 2010. The advice of
your counsel is apparently based on alleged procedural
irregularities
to the tender process. Our client strongly disputes any such
irregularities and has in any event been advised that
it will legally
be impossible for your Council to revisit its award of the tender.
Your Council is what is known in administrative
law terms,
functus
officio
with regard
to the award of the abovementioned tender.’
.
. .
Our
client therefore takes the view that your Council is legally bound by
the award of the tender to the Newco, now known as CSHELL
271 (Pty)
Ltd.’ (My emphasis.)
The reply of the
municipality dated 1 December 2010 was as follows:
‘
Hiermee
wens ons om op rekord te plaas dat die Raad per Raadsbesluit
(nr.63.42/11/10) ‘n besluit geneem het dat die grond
nie aan
Newco vervreem gaan word. Daar is egter verder besluit dat hierdie
grond heradverteer word vir enige ontwikkelingsvoorstelle.
Die
redes hiervoor is reeds op 'n vorige geleentheid skriftelik en
mondelings aan u kliënt oorgedra.’
A request by CShell’s
attorneys for written reasons for the decision resulted in the
following reply from the municipality:
‘
As
regards to your request for reasons in the above regard I will gladly
oblige, but before doing so I need to direct your attention
to some
misconceptions.
Firstly,
the purported decision by the Municipal Council, i.e. number
71.3/08/06, conveyed per letter dated 8 September 2006, was
adopted,
not by the Municipal Council, but in fact by the erstwhile
Tender
Committee
on 14 August 2006;
Secondly,
the “decision” to award the tender 16 of 2006 was taken
in terms of section 124(2)(a) of the
Municipal Ordinance
No.
20 of 1974 (the Municipal Ordinance), despite it being impliedly
repealed by section 14 of the
Local Government: Municipal Finance
Management Act,
No. 56 of 2003 (the MFMA).
The
“decision” by the Tender Committee was
ab initio
unlawful as –
(a)
it was founded upon the provisions of an impliedly repealed
Municipal
Ordinance;
(b)
the Tender Committee lacked the necessary authority to alienate
immovable property and even if it had been conferred delegated
authority it would nevertheless have been unlawful as the power to
alienate such assets is incapable of being delegated; and
(c)
the peremptory provisions of section 14 of the MFMA were not complied
with.
In
addition, even if the
Tender Committee’s
decision had
been lawful, your client nevertheless failed to comply with all the
conditions of the “award”. Your client
has only complied
with the condition pertaining to environmental impact assessment. The
decision by the Municipal Council to repudiate
the “award”
was furthermore occasioned by the fact that any claims that your
client may have had against the Municipality
would in all probability
have prescribed.’
As is apparent from the
exchange of correspondence between the parties, the response by the
municipality to CShell’s contention
that the municipality was
legally bound by the award of the tender to Newco ‘now known
as CShell 271 (Pty) Ltd’ encompassed
a number of legal
standpoints. It was initially stated that the municipality would not
conclude any agreement for the sale of
land with CShell. The
municipality then alleged that the council of the municipality had
resolved not to alienate the land to
CShell. When reasons were
furnished by the municipality for this decision, it was stated that
the municipality had decided to
repudiate the award. A copy of the
relevant resolution was however not included in the papers. The
municipality in its affidavit
variously stated that the decision had
been to ‘cancel the tender’, there was a ‘repudiation
of the award of
the tender’ and the award was ‘cancelled’.
The confusion was compounded by the municipality’s reply to
CShell’s allegation that the decision ‘to cancel the
applicant’s tender was unlawful and unconstitutional’.
The municipality stated that:
‘
What
the municipality purported to do was to cancel the existing agreement
with Newco: S Afrika. In the alternative for an order
reviewing and
setting aside the award of the tender. In relation to the latter the
municipality accepts a court order is required.
’
The following added to
the confusion:
‘
For
purposes of cancelling the award of the tender as a consequence of
non-compliance, the municipality is not obliged to do so
solely by
way of court proceedings.’
The
legal position is as follows. The advertisement placed by the
municipality inviting tenders for the purchase of the land
constituted an offer. The submission of the tender by Coetzee
‘namens Newco’, a company to be registered specifically
for the purposes of the tender and the subsequent development, in
response to the invitation, constituted the acceptance of the
offer
to enter into an option contract. By submitting the tender, an
option contract was concluded between Coetzee ‘namens
Newco’,
and the municipality. The subsequent award of the tender to ‘Newco
('n maatskappy wat gestig staan te word)’
constituted the
exercise of the option by the municipality. On the award of the
tender the relationship of the parties was that
of ordinary
contracting parties. See
Steenkamp NO v Provincial Tender Board,
Eastern Cape
2006 (3) SA 151
(SCA) at 158C-E and 171B-C.
The award of the tender
by the municipality to Newco, a company to be registered, provided
that within three months ‘a regspersoon
gestig word in wie se
naam die grond oorgedra moet word’ and within one month of its
registration, the company would be
obliged to sign the agreement for
the sale of the land. Coetzee confirmed that a company was being
registered into whose name
the land would be transferred and that
details of this company would be furnished to the municipality in
due course. As pointed
out by Harms JA in
Steenkamp
at
169H-I:
‘
a
company is,
prior
to incorporation, not yet in existence and cannot perform a juristic
act such as submitting a tender, and . . . no one can
at that stage
act as its agent because one cannot act as the agent of a
non-existent principal unless a pre-incorporation agreement
is
concluded, which is later ratified . . ..'
The
award of the tender to Newco was clearly a pre-incorporation
contract which was to be ratified by the company after its
registration. Of special significance in this case was that the
company to be incorporated had to have a specific black empowerment
percentage profile amongst its shareholders,
which
the bid contemplated. Afrika was described in the bid as the mentor
and leader of the controlling shareholders and it was
stated that
Afrika had initiated and driven the bid. It was common cause that
Afrika was a historically disadvantaged individual
and that at the
time of the submission of the bid she held an 80 per cent share in
the company to be formed. This percentage
shareholding was relied
upon by the municipality when the tender was awarded. It was also
common cause that by May 2009 this
shareholding had been
dramatically reduced to 25 per cent.
Purporting
to comply with the requirement that a company be registered,
Coetzee,
writing on behalf of B C Design (the
architects and project managers for the development) advised the
municipality by way of the
letter dated 2 February 2007 that their
auditors had established the requisite legal entity,
details
of which were provided. The details were those of CShell. Although
Van Rensburg in the letter dated 12 May 2010
referred
to CShell as ‘a shelf company’, in the letter dated 17
June 2010 he confirmed that the tender required ‘that
a
registered legal entity must be formed to transfer the property into
and to act as developer’. That CShell understood
what was
required in this regard is made clear by the letter dated 22
November 2010 from CShell’s attorneys where the following
is
stated: ‘. . . CSHELL 271 (Pty) Ltd was incorporated pursuant
to the award of the abovementioned tender as the envisaged
Newco and
legally therefore constitutes the successful tenderer. . .’
CShell
in its founding affidavit confirmed the information conveyed by
Coetzee in the letter dated 2 February 2007 in the following
words:
‘. . . B C Design advised the municipality that its auditors
had established the applicant to operate as Newco for
the purposes
of the tender.’ This information was false. Afrika in her
affidavit filed in answer to the municipality’s
counter-application, belatedly disclosed for the first time that
CShell had been registered on 31 January 2006, as a shelf company
and was acquired by Coetzee, at some time before 31 May 2006. CShell
was accordingly in existence at the time of the submission
of the
tender and its award and was never incorporated pursuant to the
award of the tender, as the envisaged ‘Newco’.
The
attempts by Afrika in her affidavit to alter the clear meaning of
the words describing the entity in the pre-incorporation
contract
concluded as a consequence of the award of the tender,
are
without merit. She stated that together with Coetzee and Forbes they
had decided that ‘the bid . . . should be presented
on behalf
of a vehicle or entity to be nominated or established in due course,
which for convenience we described as Newco’.
Although
acknowledging that the bid indicated that Newco was a company to be
established, she sought to explain that what they
understood and
intended was that ‘the development would be undertaken by an
appropriately established special purpose vehicle,
which we foresaw
as being a company’. She added that ‘it was of no
consequence to us whether the “establishment”
of such
company was in the form of the acquisition of a suitable shelf
company or by the incorporation and registration of a
company’.
The
wording of the contract concluded as a result of the award of the
tender is clear. A company was to be registered which would
in law
have to ratify and adopt the pre-incorporation contract concluded by
Coetzee on behalf of Newco. This, however, was never
done.
Furthermore, the company to be incorporated would have the specific
black empowerment percentage profile amongst its shareholders,
in
accordance with the bid and its award. The percentage shareholding
of CShell as reflected in the letter of 26 May 2009 did
not meet
these criteria.
Coetzee
in concluding the pre-incorporation contract quite clearly did not
act as the agent for CShell, which was in existence
at the time. In
addition, Coetzee did not act as a principal, as he acted at all
times as the agent for the company to be formed.
There can
accordingly be no basis for any argument that CShell acquired any
rights to the contract, by way of a stipulatio alteri,
in its
favour. See J A Kunst et al (eds),
Henochsberg
on the Companies Act
service issue 28, at
61. It is also clear by reference to the express terms of the
contract, that Coetzee never acquired the right
to sue personally
for specific performance of the contract. See
Nine
Hundred Umgeni Road (Pty) Ltd v Bali
1986
(1) SA 1
(A) at 6D-E.
In
this regard counsel, who appeared for CShell, submitted in his heads
of argument that ‘Newco was merely an entity to
be identified
or nominated, which duly took place with the nomination of CShell’.
For the reasons set out above, this submission
is without
foundation. No provision is made in the pre-incorporation contract
for the nomination by Coetzee of any entity to
acquire any rights
under the contract and in any event, in order to do so he would have
to have acted as a principal, which he
never did. In addition as
pointed out above, the specific black empowerment percentage profile
amongst CShell’s shareholders
differed dramatically from that
which was presented in respect of the company to be formed,
at the time of the bid and its award. It was only after
a delay of some 2½ years that the altered percentage
shareholding
was belatedly revealed.
CShell
accordingly never acquired any rights in the contract concluded as a
result of the award of the tender. The inevitable
consequence of
this conclusion is that the whole legal basis for CShell’s
claim,
based as it is upon a valid and binding
award of the tender to CShell,
does not exist.
CShell quite clearly did not possess locus standi to seek a review
of the municipality’s decision to cancel
‘the award’
of the tender. The refusal of the relief sought by CShell in the
court a quo, albeit on different grounds,
was accordingly correct.
As
regards the relief granted by the court a quo in the
counter-application, it granted an order declaring that the
municipality
did not award the tender to CShell,
on
the basis that it was awarded to ‘Newco: S Afrika’. The
basis for the grant of this order was that the black empowerment
percentage profile of the shareholders in CShell had changed. It is
clear that the court a quo erred in finding that the tender
had been
awarded to ‘Newco: S Afrika’. Newco was never a legal
entity to which the tender could be awarded, the name
simply
describing what was intended by the parties, namely that a ‘new
company’ would be registered. Afrika never
sought the award of
the tender in her personal capacity. The confusion in the reasoning
of the court a quo was caused by a failure
to appreciate the legal
basis upon which the tender was awarded. Consequently, the order
declaring that the tender was not awarded
to CShell,
albeit
partly granted for the wrong reasons, was correctly made.
A
further order was granted by the court a quo in the
counter-application, declaring that the municipality lawfully
cancelled
the award of the tender. By virtue of the finding that
CShell acquired no rights in the contract concluded as a result of
the
award of the tender, it lacked locus standi to seek a review of
the decision of the municipality to cancel the award of the tender.
The municipality sought to do so on the grounds that the specific
black empowerment percentage profile amongst CShell’s
shareholders had been altered,
and that the
award of the tender had not been made in accordance with
s 14
of the
Local Government: Municipal Finance Management Act 56 of 2003
. It is
therefore unnecessary to decide whether this order should have been
granted by the court a quo.
A
number of other issues were argued before the court a quo and dealt
with in its judgment, including the relevance of the decision
in
Oudekraal
1
,
some of which were
debated on appeal. It is unnecessary to deal with these further
issues for the reasons set out above.
In
the result the following order is made:
The appeal is dismissed
with costs.
K G B SWAIN
ACTING JUDGE OF APPEAL
appearances:
FOR APPELLANT: S P
ROSENBERG sc
STADLER & SWART
ATTORNEYS, c/o WERKSMANS ATTORNEYS, CAPE TOWN
SYMINGTON & DE KOK,
BLOEMFONTEIN
FOR respondeNT: N BAWA
WEBBER WENTZEL ATTORNEYS,
CAPE TOWN
WEBBERS, BLOEMFONTEIN
1
Oudekraal
Estates (Pty) Ltd v City of Cape Town & others
2004
(6) SA 222
(SCA).