Summary of Judgment

1. Introduction

The proceedings were an opposed application in the High Court of South Africa (Free State Division, Bloemfontein) in which the applicant sought the rescission or variation of a consent order previously granted in favour of the respondent.

The applicant was the MEC: Free State Provincial Government: Department of Police, Roads and Transport, and the respondent was Sedtrade (Pty) Ltd.

The procedural history was that the respondent, as plaintiff in action proceedings, had sued the applicant for unpaid invoices arising from a road upgrading contract. On 23 June 2022, the parties settled that action and a consent order was granted by agreement. The applicant later launched the present application to rescind or vary that order, contending that the consent was given under a mistaken belief regarding completion of the works. The respondent opposed the rescission and contended the application was motivated by an ulterior purpose to avoid payment.

The dispute concerned payment obligations under a public works contract for the upgrading of the road between Deneysville and Heilbron, and specifically whether the consent judgment should stand notwithstanding alleged non-completion of works and the circumstances in which the settlement was concluded.

2. Material Facts

A contract was concluded between the parties on 13 September 2016 for the upgrading of the road between Deneysville and Heilbron. The respondent later instituted action proceedings against the applicant for unpaid invoices connected to that work.

On 23 June 2022, judgment was granted against the applicant by agreement (a consent order). The consent order recorded that the applicant would pay the respondent R7 332 809.60 and R8 060 952.12, and that each party would pay its own costs.

The applicant’s case in the rescission application was that its Acting Director of Legal Services, Mr Monyane, authorised the applicant’s attorney to consent to the settlement under the belief that the respondent had completed the works and was entitled to payment. The applicant alleged that only afterwards, when Mr Monyane motivated for payment, he became aware that the respondent had not completed the works, and that the applicant’s project manager, Mr Ndaba, had also refused to sign a certificate of completion for that reason. The applicant relied on photographic material suggesting approximately a kilometre of roadworks remained incomplete.

It was not disputed on the papers (as the court framed the matter) that about a kilometre of roadworks was incomplete and that, on the completed part, there were snags not attended to by the respondent. The parties did, however, dispute why the works were incomplete. The applicant’s stance was that paying under the consent order would cause fruitless and wasteful expenditure because the contractual payment would be exhausted while the project remained incomplete.

The respondent’s opposition proceeded on the basis that the applicant sought to evade a valid obligation to pay, particularly because the applicant made no payment after the consent order, prompting the respondent to issue a warrant of execution on 1 September 2022. The respondent also contended that the issues now raised (incomplete works and the absence of a completion certificate) existed before the settlement, were discussed by the applicant’s officials, and that Mr Ndaba attended a meeting where the settlement was concluded and later reduced to writing by the applicant’s head of department.

The respondent further disputed the adequacy of the photographs as a reflection of the road and maintained that the outstanding kilometre related to an “extra” portion requiring Provincial Treasury authorisation, which the applicant had not obtained; on that version, the respondent contended it could not build that portion without such authorisation.

3. Legal Issues

The central legal questions were whether the applicant had established grounds in the common law for rescission (or variation) of a consent order, and if so, on what basis.

The court was required to determine whether the consent order could be rescinded on the ground of iustus error (a vitiating mistake) and, alternatively, whether rescission was justified on the basis of justa causa (good and sufficient cause), which in this context required demonstrating a bona fide defence that prima facie carried prospects of success on the merits.

These questions involved a combination of legal standards (the requirements for rescission of a consent order at common law) and their application to the factual matrix (the circumstances of the settlement and whether there was a bona fide defence based on alleged non-completion and the absence of a completion certificate). The costs question required an evaluative judgment concerning litigation conduct and the appropriate scale of costs.

4. Court’s Reasoning

The court stated that, at common law, a consent order may be rescinded on the basis of iustus error where it is shown that the party denying liability laboured under a mistake. The court also recognised rescission on justa causa, described as a good and sufficient cause warranting rescission, namely where there is a bona fide defence which prima facie has some prospect of success on the merits.

On iustus error, the court was not persuaded that the applicant’s reliance on mistake was legally sustainable. The court considered that the background leading to settlement did not support the contention that Mr Monyane laboured under a mistake when authorising the settlement. Instead, the court characterised his conclusion of a settlement agreement—resulting in payment of a disputed debt—as reflecting a neglect of obligations to manage legal risks, including the risk of fruitless and wasteful expenditure of public funds. On this reasoning, the court rejected rescission grounded on iustus error, treating the relevant conduct as negligence rather than a vitiating mistake that undermined genuine consent in the manner required.

However, on justa causa, the court’s analysis took a different turn. It accepted that, on the papers, it was not in dispute that there was an incomplete portion of the roadworks (about a kilometre), and that even the completed part had outstanding snags. While the parties disagreed about the cause of incompleteness, the court considered the legal consequences of incomplete performance in the context of final payment.

The court held that a contractor is not entitled to final payment until the building project is complete, and that the onus rested on the respondent (as claimant under the contract) to allege and prove that everything required by the contract had been done. In light of the incomplete works and outstanding snags, the court concluded that, prima facie, the applicant’s defence to the respondent’s claim carried some prospects of success on the merits.

The court further considered the bona fides of the application and accepted that the applicant was desirous of being heard in the main action. For these reasons, the court concluded that the applicant had shown just cause for rescission, notwithstanding the earlier rejection of iustus error.

On costs, the court drew a distinction between the respondent’s entitlement to oppose and the applicant’s role in creating the circumstances leading to the consent order. The court was not persuaded that the respondent should bear costs for opposing rescission, given that the respondent had obtained a consent judgment after protracted negotiations. Conversely, the court viewed the applicant’s conduct in shaping the settlement and resulting consent order as reprehensible, and of a kind warranting a punitive costs order, as contended for by the respondent. The court therefore awarded costs against the applicant on an attorney and client scale.

5. Outcome and Relief

The court rescinded the consent order dated 23 June 2022.

The applicant was ordered to pay the respondent’s costs on the attorney and client scale.

Cases Cited

Dalinga Belleggings (Pty) Ltd v Antina (Pty) Ltd 1979 (2) SA 56 (A)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicant did not establish rescission on the ground of iustus error, because the settlement was not shown to have been concluded under a legally cognisable vitiating mistake; rather, the relevant conduct was characterised as neglect in concluding settlement of a disputed debt.

The court nevertheless held that rescission was warranted on the basis of justa causa, because it was not in dispute that a portion of the roadworks was incomplete and that snags remained, and because a contractor is not entitled to final payment before completion. The respondent bore the onus to prove full contractual performance, and the applicant accordingly demonstrated a bona fide defence with prima facie prospects of success.

The consent order was rescinded, but the applicant was ordered to pay punitive costs (attorney and client scale) due to its reprehensible conduct, while the respondent was found to have been entitled to oppose the application.

LEGAL PRINCIPLES

A consent order may be rescinded at common law on the basis of iustus error, where a party’s consent was vitiated by a mistake of the kind recognised in law as undermining true agreement. Mere negligence or a failure to properly assess litigation risk, without more, does not necessarily constitute such a vitiating mistake.

A consent order may also be rescinded on justa causa upon good and sufficient cause, which in this context entails demonstrating a bona fide defence that prima facie has prospects of success on the merits.

In contractual claims for final payment in a building or construction-type project, the principle applied was that a contractor is not entitled to final payment until completion, and the onus lies on the claimant contractor to allege and prove that all work required by the contract has been done.

A party may be entitled to oppose rescission where it obtained a consent judgment after extended negotiations, but punitive costs may be awarded where the opposing party’s conduct in bringing about the consent order is found to be sufficiently reprehensible to justify an attorney and client scale.