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[2013] ZASCA 154
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Golden Arrow Bus Services (Pty) Ltd v City of Cape Town and Others (418/13) [2013] ZASCA 154; [2014] 1 All SA 627 (SCA) (22 November 2013)
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 418/13
In the
matters between:
GOLDEN
ARROW BUS SERVICES (PTY) LTD
.............................................
APPELLANT
And
CITY OF
CAPE TOWN
......................................................................
FIRST
RESPONDENT
MEC FOR
TRANSPORT AND PUBLIC WORKS,
WESTERN
CAPE GOVERNMENT
..............................................
SECOND
RESPONDENT
TRANSPENINSULA
INVESTMENTS (PTY) LTD
............................
THIRD RESPONDENT
KIDROGEN
(PTY) LTD
.................................................................
FOURTH
RESPONDENT
MINISTER
OF TRANSPORT
.............................................................
FIFTH
RESPONDENT
Neutral citation:
Golden
Arrow Bus Services v City of Cape Town
(418/13)
[2013] ZASCA 154
(22 November 2013)
Coram:
Lewis, Cachalia, Majiedt, Willis and Saldulker JJA
Heard:
05 November 2013
Delivered: 22 November 2013
Summary:
Where a municipality is negotiating with a vehicle operator to
enter into a contract in respect of the provision of an Integrated
Public Transport Plan, in terms of
s 41
of the
National Land
Transport Act 5 of 2009
, neither party is entitled to refer any
dispute over the proposed terms of the contract to mediation or
arbitration.
ORDER
On appeal from
Western Cape High Court, Cape Town (Griesel J
sitting as court of first instance)
The appeal is dismissed with costs including those of two counsel.
JUDGMENT
Lewis JA (Cachalia, Majiedt, Willis and Saldulker JJA concurring)
:
[1] The City of Cape Town (the City), the first respondent in this
appeal, is a metropolitan municipality established in terms
of the
Local Government Municipal Structures Act 117 of 1998
. The City is in
the process of introducing throughout the area of its jurisdiction an
‘Integrated Public Transport Network’
(IPTN), part of
which is a new bus service, MyCiTi. The appellant, Golden Arrow Bus
Services (Pty) Ltd (GABS), has since 1861 operated
transport systems
in Cape Town, and currently operates scheduled and charter bus
services throughout Cape Town and the Cape Flats
areas. The dispute
between these parties, and the subject of the appeal, concerns GABS’
participation in the MyCiTi bus service.
The third and fourth
respondents, who have not participated in these proceedings, are also
transport companies (in effect groupings
of minibus taxi operators)
who are negotiating to become part of the service. The second
respondent is the MEC for Transport and
Public Works in the Western
Cape, and the fifth respondent is the Minister of Transport: they
support the City in its stance in
the proceedings.
[2] The City has been engaged in the process of setting up the IPTN
for several years and proposes the transformation of the road
transport system in phases over a period ending in 2032. The dispute
arises from the process relating to the first phase. The National
Land Transport Act 5 of 2009 (the NLTA) empowers the City to enter
into negotiated contracts with public transport service operators
such as GABS in order to integrate services as part of the IPTN. The
contractual negotiations over the MyCiTi bus service have
been
complex and have extended over some four years.
[3] GABS is aggrieved about various aspects of the process,
maintaining that there has not been genuine negotiation over
important
issues: the City, it alleges, has purported to determine
terms of the anticipated contracts unilaterally. Most importantly it
considers
that the questions of market share percentage and
compensation for decommissioned vehicles have not been negotiated as
required
by the NLTA. It therefore sought an order in the High Court,
Cape Town compelling the City to have these questions referred in the
first instance to mediation, and failing a successful outcome, to
arbitration (prayer 1). It also sought an order declaring that
in
relation to its inclusion in phase 1 of the IPTN, it was entitled in
terms of s 46(2) to mediation as prescribed in the Regulations
to the
NLTA, and failing settlement by mediation, to arbitration (prayer
1A).
[4] GABS applied in the alternative (prayers 2 and 3) for an order
directing the City to negotiate with it in good faith and reasonably
in relation to the disputed issues, and interdicting the City from
concluding a contract with either of the third or fourth respondents
pending either mediation and possibly arbitration, or the
finalization of good faith negotiations and compliance with the
City’s
statutory obligations.
[5] The Western Cape High Court (Griesel J) dismissed the
application. It also declined to deal with the City’s counter
application seeking the declaration of a regulation to be invalid
since the refusal to grant the orders sought by GABS rendered
that
order unnecessary. The appeal against the dismissal of the
application lies with the leave of the High Court.
[6] On appeal GABS, in accordance with an agreement with the City,
persisted only with an appeal against the refusal of prayers
1 and
1A. In effect, it sought a referral to mediation, failing which,
arbitration, by the court, and a declaration that it was
entitled to
refer its disputes to mediation or arbitration in terms of s 46 of
the NLTA. And at the end of the hearing of the appeal
GABS abandoned
its application for arbitration in the event of mediation failing,
although much of the hearing and the heads of
argument for both
parties were devoted to the issue of arbitration.
[7] Accordingly the issues to be determined on appeal are whether
GABS is entitled to have the disputed issues (market share,
compensation and statutory compliance) referred to mediation and to
the declaration sought as the second form of relief. The
determination
of the appeal depends on the construction of ss 41 and
46 of the NLTA and of the NLTA Regulations. Before turning to these
provisions
I shall set out briefly the background relating to the
contractual arrangements governing the GABS bus services in Cape
Town.
[8] As I have said, GABS currently provides bus services across the
entire metropolitan area of Cape Town. Since 1997 these services
have
been regulated by an interim contract concluded in terms of the
National Land Transport Transition Act 22 of 2000 (the Transition
Act) between GABS and the National Department of Transport. The
interim contract remains operative in terms of the NLTA. In May
2007
the National Department ceded and assigned its rights and obligations
under the interim contract to the Western Cape Province.
The Province
remains party to the contract.
[9] The introduction by the City of MyCiTi bus services on routes
along the West Coast in 2010 has had an impact on GABS in that
some
of its services along particular routes were stopped. A dispute
between GABS and the City was resolved through the conclusion
of an
addendum to the interim contract (there was another addendum that
preceded it but it is of no moment to the present dispute
so I shall
not refer to it again) concluded on 20 April 2011. The addendum was
signed by a representative of the Province, GABS
and the City. Its
purpose was to provide for the inclusion of GABS in the MyCiti
service and to achieve the integration of existing
bus services into
the IPTN. GABS undertook to render services in respect of ‘Milestone
0 Routes’ and to cease providing
services along the West Coast
routes. Importantly, the addendum provided that if any of the
services then provided by GABS were
integrated into the IPTN, the
routes affected could be excised by the Province from the interim
contract. That anticipated the
conclusion of contracts between GABS
and the City in terms of the NLTA. GABS was agreed to be an
interested party in respect of
contracts to be negotiated, and
entitled to negotiate under s 41 of the NLTA.
[10] Following on the conclusion of the addendum, GABS, together with
other vehicle operator companies, engaged in discussions
with the
City in respect of further phases of the MyCiTi project. Its
expectation was that it would conclude a contract with the
City for a
period of 12 years in respect of phase 1 of MyCiTi. GABS and the City
have different views as to whether there have
been negotiations
between them, or whether the City has simply called for comments and
then made unilateral decisions. It is not
necessary to deal with
their respective versions of events since the issue before this court
is simply whether, since there is
no agreement on the terms of a
contract between them, GABS is entitled to require that their
disputes be referred to mediation.
[11] I turn now to the statutory provisions in issue. Section 40 of
the NLTA, in chapter 5 of the Act which regulates ‘Contracting
for Public Transport Services’, requires provinces and
‘planning authorities’ (a municipality is a planning
authority in relation to planning functions) to take steps as soon as
possible after the commencement of the Act to ‘integrate
services subject to contracts in their areas’ ‘into the
larger public transport system’. The City’s IPTN
is that
system. Sections 41 and 46 of the NLTA govern GABS’s
contractual relationships with the City. These sections deal
with
entirely different situations. Section 46 regulates the position
where there are ‘Existing contracting arrangements’.
So
the addendum to which GABS and the City are party is subject to its
provisions. Section 41 deals with ‘Negotiated contracts’,
and therefore governs contracts to be entered into after the
commencement of the NLTA between the City and vehicle operator
companies
such as GABS. That section itself provides that the City
may negotiate a contract with an operator only once, and that for a
maximum
period of 12 years. It thus allows a deviation from the
government norm in respect of private services, which is that
procurement
is put out to tender. In effect, it facilitates the quick
implementation of a transport system within a municipality.
[12] Section 41 provides:
‘
(1) Contracting
authorities may enter into negotiated contracts with operators in
their areas, once only, with a view to—
integrating services forming
part of integrated public transport networks in terms of their
integrated transport plans;
promoting the economic
empowerment of small business or of persons previously disadvantaged
by unfair discrimination; or
facilitating the restructuring
of a parastatal or municipal transport operator to discourage
monopolies.
(2) The negotiations envisaged
by subsections (1) and (2) must where appropriate include operators
in the area subject to interim
contracts, subsidized service
contracts, commercial service contracts, existing negotiated
contracts and operators of unscheduled
services and non-contracted
services.
(3) A negotiated contract
contemplated in subsection (1) and (2) shall be for a period of not
longer than 12 years.
(4) The contracts contemplated
in subsection (1) shall not preclude a contracting authority from
inviting tenders for services forming
part of the relevant network.
(5) Contracting authorities must
take appropriate steps on a timeous basis before expiry of such
negotiated contract to ensure that
the services are put out to tender
in terms of section 42 in such a way as to ensure unbroken service
delivery to passengers.’
[13] Section 46, as I have said, deals with contracts concluded
before the commencement of the NLTA and regulates existing rights.
It
reads:
‘
(1) Where there is an
existing interim contract, current tendered contract or negotiated
contract as defined in the Transition Act
in the area of the relevant
contracting authority, that authority may—
(a)
allow
the contract to run its course; or
(b)
negotiate
with the operator to amend the contract to provide for inclusion of
the operator in an integrated public transport network;
or
(c)
make
a reasonable offer to the operator of alternative services, or of a
monetary settlement, which offer must bear relation to
the value of
the unexpired portion of the contract, if any.
(2) If the parties cannot agree
on amendment of the contract or on inclusion of the operator in the
network, or the operator fails
or refuses to accept such an offer,
the matter must be referred to mediation or arbitration in the
prescribed manner to resolve
the issue.
(3) The Minister may make
regulations providing for the transition of existing contracting
arrangements and the transfer of the
contracting function in terms of
this section or section 41 . . .
(4) . . . .’
[14] Before I deal with the Regulations I would point out that the
obvious reason for providing for a referral to mediation or
arbitration in this section is that the parties to the contracts
envisaged by s 46 already have rights: the section does not deal
with
contracts that have yet to be concluded (although it does make
provision for the inclusion of an operator in an existing contract).
So the resort to mediation or arbitration is not to find a way of
creating or imposing contracts on the parties: it is for the
purpose
of resolving disputes that may arise when changes to vested rights
are proposed. Nonetheless GABS argued that because it
was a party to
an existing contract with the City (the addendum) it was entitled to
rely on s 46(2) in requiring the City to embark
upon a mediation, and
(at least before the hearing of the appeal) if that failed, to
arbitration so that an arbitrator would determine
the terms of the
negotiated contract.
[15] The City maintained that the only contract regulated by s 46 was
the addendum to the interim contract. There was no dispute
in respect
of that. It was concluded and implemented. And accordingly a referral
of any dispute about that contract to mediation
or arbitration was
not required. The only negotiations that have taken place subsequent
to the conclusion of the addendum are in
terms of s 41, in respect of
phase 1 of the MyCiTi service. The high court found, correctly in my
view, that that was indeed the
case.
[16] The City has balked at the prospect of mediation or arbitration
playing any role in the negotiation of s 41 contracts with
vehicle
operators. Apart from the obvious consideration that contracting
parties may not wish to have the terms of their contracts
facilitated
by a mediator or determined by an arbitrator, the City argued that
because of the complexity of the IPTN and the negotiations
with
several different operators with different and competing interests,
the potential for conflict was considerable. If any of
those parties
could demand mediation or arbitration in respect of any disagreement
over a term, the objects of the NLTA could be
defeated.
[17] Constant referrals of disputes over contractual terms, the City
argued, would delay the conclusion of contracts, which would
impede
the implementation of the IPTN. Section 41 allows for ‘negotiated’
contracts: not contracts to which the parties
would not have agreed,
and which might not be in the public interest, imposed on them. As
the City argued, GABS or any other operator
could delay the
conclusion of negotiated contracts for as long as it suited it.
[18] GABS’s response was that not every operator was entitled
to refer disputes to mediation or arbitration. But it was entitled
to
do so because it had existing rights against the City under the
addendum, and those rights would be affected by new negotiated
contracts under s 41. Other operators who had no existing rights, and
had not been expressly recognized as having a right to negotiate
(as
GABS was in terms of the addendum), did not need to protect rights
through the processes of mediation and arbitration. Moreover,
argued
GABS, the services it offered were affected by both ss 41 and
46. The negotiations between it and the City were not
separately
boxed, or sealed off from each other. Its s 46 rights would be
affected by contracts concluded in terms of s 41. It
did not matter,
therefore, that s 46(2) expressly refers to mediation or arbitration
whereas s 41 makes no mention of the possibility
of either. As I
indicated earlier, however, the City argued that those processes were
necessary dispute resolution mechanisms where
existing rights were
implicated but were not appropriate to the process of negotiating new
contracts.
[19] GABS argued also, however, that even if mediation and
arbitration were not possible by way of a referral under s 46(2), it
was possible to require such referral by virtue of reg 2(5) of the
NLTA Regulations. Section 8 of the NLTA confers on the Minister
the
power to make regulations relating to a number of matters governed by
the Act, including, under s 8
(u),
the ‘requirements and
procedures for
negotiated contracts
and their conversion to
tendered contracts’. GABS argued that reg 2, which deals with
negotiated contracts, provides for referrals
of disputes to mediation
and arbitration under s 41 as well.
[20] Regulation 2 as a whole (with the exception of reg 2(4)) deals
with the process of negotiating contracts where there are already
contractual arrangements in place between an authority and operators.
Regulation 2(1) provides that where a contracting authority
has
concluded one of a number of contracts in terms of the Transition
Act, that contract will remain in force until it expires
or is
terminated. But, it provides, the authority will not be precluded
from concluding a negotiated contract in terms of s 41
in the same
area or on the same routes. The authority may also conclude other
contracts with different operators on the same or
different routes
provided that the duration of such contract does not exceed 12 years.
[21] Regulation 2(2) governs the processes to be followed where there
is an interim contract or other contracts under the Transition
Act or
a contract contemplated in s 46(1) of the NLTA in place. It regulates
the rights of the authority and operators where the
latter already
have rights to negotiate contracts in terms of s 41 of the NLTA. It
provides for negotiations ‘with a view
to involving’
operators in IPTNs. Regulation 2(4) provides that where a
municipality is establishing an IPTN it must make
reasonable efforts
to involve existing scheduled bus operators in proposed negotiated
contracts. But, it states, ‘where the
municipality has made an
offer in writing, either individually or by notice in the press to
such operators and some of the operators
have rejected the offer’
or failed to respond to it, the municipality may conclude one or more
negotiated contracts with
other operators in terms of s 41(1), or
subsidized service contracts or commercial service contracts instead.
[22] That, argued the City, is the procedure to be followed where
agreement cannot be reached in respect of negotiated contracts.
If an
operator does not accept an offer the municipality can enter into
contracts with operators who do accept such offer, or conclude
different types of contracts. On the other hand, argued GABS, reg
2(5) permits it to refer its disputes about the proposed terms
of the
contract (in this instance, in respect of market share and
compensation in respect of phase 1 of MyCiTi) to mediation or
arbitration. Regulation 2(5) reads:
‘
Any dispute with regard
to the matters contemplated in this regulation must be resolved in
terms of the procedures set out in regulations
6 to 9.’
[23] As I see it, the subregulation deals only with disputes in
relation to contracts that are already in existence under the Interim
Act and s 46(1) contracts. Save for reg 2(4), reg 2 deals with
negotiations where operators are already party to contracts with
the
authority. Regulation 2(4), which governs negotiations with a
municipality to establish an IPTN, contemplated in ss 40 and
41 of
the NLTA as I have said, sets out the steps to be taken when an
operator does not agree to the terms proposed by the authority.
It
envisages that there may be no agreement on those terms. It does not
envisage that an operator, if it does not like the terms,
can refer
its dispute with the authority to a third party to facilitate
agreement or to an arbitrator to decide what terms he or
she would
impose. This reading is reinforced by reg 2(6): ‘The fact that
mediation or arbitration is in progress will not
prevent or delay a
contracting authority from continuing with its activities to
rationalize services or to establish IPTNs and
conclude contracts
with other operators for this purpose, in the interests of improving
public transport in the relevant area.’
[24] Regulation 6 also supports this interpretation: where the
authority and operator
cannot reach agreement under s 46(1)
the matter must be referred to mediation under reg 7, if not urgent,
or to arbitration under reg 8 where the authority decides
that the
matter is urgent. Regulation 7 governs the mediation process.
Regulation 8 deals with the arbitration process in urgent
matters.
Regulation 8(1) expressly refers to arbitration under s 46(2). No
mention is made of s 41.
[25] It is clear, therefore, having regard to the whole of reg 2,
that reg 2(5) does not permit the referral of a dispute to either
mediation or arbitration where the dispute relates to terms to be
agreed in a new contract negotiated under s 41. The City’s
counter application before the high court to set reg 2(5) aside as
being ultra vires in permitting such references was not necessary.
The high court did not deal with it because it found that such a
reading was in any event not permissible. As Griesel J said, reg
2
‘mirrors the framework of ss 41 and 46’. It regulates the
process of concluding contracts where operators already
have existing
contractual arrangements with the authority. Regulation 2(2) repeats
the three options available under s 46: negotiating
an amendment to a
contract or concluding a new contract (46(1)
(b)
); or allowing
an existing contract to run its course (s 46(1)
(a)
); or
allowing the authority to offer a monetary settlement (s 46(1)
(c)
).
[26] As the City argued, reg 2(5) must be read in context and subject
to the NLTA. Regulation 2 as a whole, although headed ‘Negotiated
Contracts’, governs the processes to be followed where
operators already have rights and are negotiating new rights under
s
41. And reg 2(4) makes plain that where an operator does not agree to
terms offered in respect of new contracts, the authority
need not
contract with it at all. The regulation must be read subject to the
NLTA. The respective purposes of ss 41 and 46 are
different. They
provide for different procedures. Reading the right to refer disputes
over terms of a contract being negotiated
to mediation or arbitration
into s 41 would fail to recognize the different objects of the
respective provisions. And it would
allow for the imposition of a
contract on parties who have not agreed to its terms. That could
never have been intended by the
legislature. As Griesel J said,
imposing terms on the parties to a contract, when they would never
voluntarily have agreed to them,
is ‘inimical to the scheme of
s 41’.
[27] GABS, as I have said, at the end of the appeal hearing, withdrew
its application for an order that the disputes were arbitrable,
and
persisted only with the application for an order referring the
disputes to mediation. The NLTA and the regulations made under
it do
not require or permit such a referral. Even the attenuated relief
sought by GABS can thus not be granted.
[28] The appeal is accordingly dismissed with costs, including those
of two counsel.
_________________
C H LEWIS
JUDGE OF APPEAL
APPEARANCES:
For
the Appellant: A P H Cockrell SC (with him P B J Farlam)
Instructed
by:
Edward
Nathan Sonnenbergs, Cape Town
Lovius
Block, Bloemfontein
For the first Respondent: A Breitenbach SC (with him R Paschke)
Instructed by:
Webber Wentzel, Cape Town
Webbers Attorneys, Bloemfontein
For the Second and Fifth Respondent: State Attorney, Cape Town
For the Third Respondent: Corporate Law Alliance, Cape Town
For the Fourth Respondent: Bowman Gilfillian Attorneys, Cape Town