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[2021] ZASCA 47
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BW Brightwater Way Props (Pty) Ltd v Eastern Cape Development Corporation (1235/2019) [2021] ZASCA 47; 2021 (6) SA 321 (SCA) (19 April 2021)
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA JUDGMENT
Reportable
Case no: 1235/2019
In the
matter between:
BW
BRIGHTWATER WAY PROPS (PTY) LTD
APPELLANT
and
EASTERN
CAPE DEVELOPMENT CORPORATION
RESPONDENT
Neutral citation:
BW Brightwater Way Props (Pty) Ltd v Eastern Cape Development
Corporation
(1235/2019)
[2021] ZASCA 47
(19 April 2021)
Coram:
ZONDI, MOLEMELA and SCHIPPERS JJA and KGOELE and
EKSTEEN
AJJA
Heard:
24 February 2021
Delivered:
This judgment was handed down electronically by circulation to the
parties’ legal representatives by email, publication on
the
Supreme Court of Appeal website and release to SAFLII. The date and
time for hand-down is deemed to be 09h45 on 19 April 2021.
Summary:
Legality review of a lease agreement in respect of immovable property
concluded contrary to the legislative prescripts relating
to
Procurement Policy – such agreement is constitutionally invalid
– whether the court can in the exercise of its discretion
under
s 172(1)
(b)
of the Constitution extend the duration of a lease
agreement in order to preserve accrued rights.
ORDER
On
appeal from:
Eastern Cape Division of the High Court, East London
(Stretch J sitting as court of first instance): judgment reported
sub
nom BW Bright Water Way Props (Pty) Ltd v Eastern Cape Development
Corporation
2019 (6)
SA 443
(ECG)
1
The cross-appeal succeeds.
2 The
appellant is directed to pay the respondent’s costs in
the
appeal and the cross-appeal, such costs to include:
2.1
The costs of two counsel where so employed; and
2.2
The costs of the application for leave to appeal in
the court a quo.
3
The orders of the court a quo in case number EL848/2016 and
EDC2148/2017 are set aside and replaced with the following order:
‘(a)
The main application is dismissed.
(b)
The counter-application succeeds.
(c)
The lease agreement concluded between the
parties on 20 December 2016
in respect of Portions A and B of the Remainder of the Farm 31 Coffee
Bay, Mqanduli, is declared constitutionally
invalid and of no force
and effect. (d) The respondent is directed to pay the costs of
the main application and the appellant
shall pay the costs of the
counter-application.’
JUDGMENT
Kgoele
AJA (Zondi, Molemela and Schippers JJA and Eksteen AJA concurring)
[1]
This matter concerns the validity of a lease agreement
concluded on
20 December 2016 between the appellant, BW Brightwater Way Props
(Pty) Ltd
(Brightwater) and the respondent, Eastern Cape Development
Corporation
(the
ECDC), hereafter referred to as ‘the lease agreement’. In
terms of the lease agreement Brightwater hired Portions
A and B of
the Remainder of Farm 31, Coffee Bay, Mqanduli, commonly known as
Ocean View Hotel (the property), from the ECDC for
a period of 20
years at a rental of R32 000 per month.
[2]
In July 2017, Brightwater
launched
proceedings in the Eastern Cape Division of the High Court, East
London, against the ECDC seeking the following relief:
‘
1.
[D]eclaring that the lease agreement concluded by the [parties] on 20
December 2016, is valid, and of force and effect;
2.
[D]irecting the respondent to provide it with
vacant possession of portions A and B of the remainder of Farm 31
Coffee Bay, Mqanduli
by
inter alia
evicting from the property any unlawful occupiers;
3.
[D]irecting the respondent to take all steps
necessary to assist the applicant in causing the lease agreement to
be embodied in
a notarial deed and registered against the title deeds
of the property. . . .’
[3]
On 26 July 2019 the high court (Stretch J) dismissed the main
application. It
upheld the counter-application and made an order
declaring the lease agreement constitutionally invalid, because the
ECDC failed
to follow a transparent procedure of public and
competitive participation when concluding the lease agreement. It
concluded that
the argument that the rental was not market- related,
was unpersuasive, yet found that the ECDC’s conduct in
concluding the
lease agreement ‘without referring to
market-related rental’, was invalid. The ECDC was directed to
pay the costs of
both the main application and the
counter-application.
[4]
On 19 August 2019 Brightwater brought an application in the high
court that
its order of 26 July 2019 be supplemented to read that it
‘does not have the effect of divesting the applicant of any
rights
to which it is entitled under the lease contract’. The
high court granted this order. Subsequently it granted Brightwater
leave to appeal to this Court against the order dismissing the main
application. The ECDC was also granted leave to appeal the
order in
terms of which the constitutional invalidity of the lease agreement
does not have the effect of divesting Brightwater
of any rights under
that agreement. Brightwater has however abandoned its appeal.
Consequently, the only issue before us is the
cross-appeal, more
specifically whether the order declaring the lease agreement
constitutionally invalid whilst preserving all
of Brightwater’s
rights under that agreement, was competent.
[5]
The basic facts are these. Between 2012 and 2016, Brightwater
occupied the property
as a sublessee. It acquired the entire
shareholding of Wild Coast
Holdings,
which was subletting the property from South African College of
Tourism Limited (the College of Tourism), which leased
it from
Transkei Development Corporation. The Transkei Development
Corporation was dissolved by the Premier of the Eastern Cape
and its
obligations and assets were transferred to the ECDC.
[6]
Mr Leon Botha and his wife, who operated a lodge on the property,
were already
in occupation of Portion B thereof when Brightwater
became a sublessee after acquiring Wild Coast Holdings’
shareholding.
The lease agreement between the College of Tourism and
the ECDC expired in 2016.
[7] When the lease
agreement was concluded, Mr Sentwa, in his capacity as the
ECDC’s
Chief Financial Officer, signed the lease. As stated earlier, the
tenure of the lease agreement was 20 years. It would
have expired on
31 October 2036. The lease imposed an obligation on the ECDC to give
Brightwater vacant possession and to evict
any illegal occupant.
Brightwater contended that in breach of the lease agreement, the ECDC
failed to give it vacant and undisturbed
possession by not evicting
the Bothas from the premises.
[8]
When Brightwater demanded that the ECDC act against the Bothas, it
refused contending
that there was no obligation to do so, because the
lease agreement was void by reason of non-fulfilment of a suspensive
condition
to which it was subject. In consequence, Brightwater
brought the application in the high court, seeking relief as set out
in paragraph
2 above. Apart from opposing the main application on its
merits, the ECDC brought a counter-application to review and set
aside
its own action in concluding the lease agreement on the basis
that it had failed to comply with certain legislative prescripts,
namely the Preferential Procurement Framework Act 5 of 2000 and the
Public Finance
Management
Act 1 of 1999
relating to property disposal / letting of its property
(not that the lease agreement was invalid due to non-fulfilment of a
suspensive
condition as initially contended by the ECDC). It also
contended that the lease agreement was concluded contrary to its
Procurement
Policy because Mr Sentwa, who signed the lease agreement
on its behalf, did not have authority to do so. The
counter-application
was founded on the Promotion of Administrative
Justice Act 3 of 2000 (PAJA).
[9]
In a further affidavit deposed to on its behalf on 4 July 2018, the
ECDC disavowed
reliance on PAJA in its counter-application for the
review and setting aside of the lease agreement. It relied on the
principle
of legality as expounded in
State Information Agency v
Gijima
,
[1]
a judgment of the Constitutional Court.
The
high court’s judgment
[10]
The high court found that the conclusion of the agreement was
contrary to Regulation
16A.3.2 of the Treasury Regulations,
[2]
which requires the supply chain management system to be fair,
equitable, transparent, competitive and costeffective.
[11]
The high court held that, once it is found that the lease agreement
lacked
the makings of being transparent and competitive (even if the
rental was market- related), the agreement falls foul of being
constitutionally
valid. It accordingly
declared
it invalid.
[12]
Despite this finding, the high court did not, order the setting aside
of the
lease agreement. The high court stated that ‘the
application of justice and equity to the circumstances before [it],
does
not dictate both invalidating and entirely setting aside the
impugned lease agreement’, and that Brightwater had been ‘in
a manner, misled into believing that the respondent had the power to
enter into an agreement with it, without any transparent and
open
recourse to public participation’. The court invoked s
172(1)(
b
) of the Constitution and went on to say:
‘
It is evident that I am constrained to declare
the conduct embarked upon by the respondent, (in concluding a lease
agreement with
the applicant without setting a reserve price of
market- related rental, and/or without referring to market-related
rental, and
without following a transparent procedure of public and
competitive participation in agreeing on the terms, conditions and
price
of the lease) invalid. However, I have a discretion not to set
the agreement aside in an attempt to preserve the rights which have
accrued to the applicant in terms of the lease as stated in
Asla
,
such an award is intended to preserve rights which have already
accrued to the applicant in terms of the agreement, but [does]
not
permit the applicant to obtain further rights under the invalid
agreement.’
[3]
[13] The high court
accordingly made the following order:
‘
(a)
The main application is dismissed.
(b)
The counter application succeeds only to the
extent that the lease agreement concluded between the parties on 20
December 2016 with
respect to portions A and B of the remainder of
Farm 31 Coffee Bay, Mqanduli, is declared constitutionally invalid.
(c)
The respondent is directed to pay costs of both
the main application and the counter application.’
[14]
On 5 September 2019 the high court supplemented its order by adding a
further paragraph after para (b) which reads:
‘
The order of constitutional invalidity in
paragraph (b) above does not have the effect of divesting the
Applicant of any rights
to which it is entitled under the lease
contract, but for the declaration of invalidity.’
The
cross-appeal
[15]
The issue in the cross-appeal is whether the lease agreement which
was declared
to be invalid by virtue of a lack of compliance with
constitutionally imposed procurement procedures may, notwithstanding
the declaration
of invalidity, allow Brightwater to remain in
occupation for the remainder of the lease period (the lease period
was 20 years).
The cross-appeal is mainly directed at para (c) of the
supplemented order embodying a remedy granted in terms of s 172(1)
(b)
of the Constitution.
[16]
Section
172(1) of the Constitution provides:
‘
(1)
When deciding a constitutional matter within its power, a court-
(a)
must declare
that any law or conduct that is inconsistent with the Constitution is
invalid to the extent of its inconsistency; and
(b)
may make any
order that is just and equitable, including—
(i)
an order limiting
the retrospective effect of the declaration of invalidity; and
(ii)
an order suspending
the declaration of invalidity for any period and on any conditions,
to allow the competent authority to correct
the defect.’
[17] The
Constitutional Court emphasised in
Allpay 1
[4]
that:
‘
Once a ground of review under PAJA has been
established there is no room for shying away from it. Section
172(1)
(a)
of the
Constitution requires the decision to be declared invalid. The
consequences of the declaration of unlawfulness must then
be dealt
with in a just and equitable order under section 172(1)
(b)
.
Section 8 of PAJA gives detailed legislative content to the
Constitution’s “just and equitable”
remedy.’ (Footnotes omitted.)
[18]
Section 172(1)
(b)
of the Constitution empowers a court when
deciding a matter, to make any order which it deems just and
equitable with reference
to the circumstances of a particular matter.
This simply means that the effects of the declaration of invalidity
may be ameliorated
by the court in the exercise of its just and
equitable discretion at the remedy stage.
[19]
It was submitted by counsel on behalf of the ECDC that the amended
order handed
down by the high court regarding the invalid lease
agreement was unsound and contradictory. He pointed out that on the
one hand
the high court found that it was unable to grant Brightwater
the order for specific performance by virtue of the invalidity of the
lease agreement, but on the other, it found that Brightwater is
entitled, purportedly pursuant to the provisions of s 172 of the
Constitution, to equitable relief which is to the effect that
Brightwater is not divested of any rights under the lease agreement,
whether such rights accrued prior to the declaration of invalidity or
thereafter. He argued that the logical consequence of the
high
court’s finding is that Brightwater, notwithstanding the
declaration of invalidity, may remain in occupation of the
premises
for the full duration of the agreement of lease, ie 20 years.
[20]
Arguing in support of para (c) of the high court’s amended
order, counsel
for Brightwater submitted, citing
Gijima
para
54, that the high court’s power to make that order, is sourced
in s 172(1)
(b)
of the Constitution in terms of which it is
empowered to make ‘any order that is just and equitable’
and that it was
entitled to make an order that sought to preserve
Brightwater’s accrued rights. He argued that under s 172(1)
(b)
of the Constitution, a court has a wide remedial discretion.
[21]
It must be accepted that the discretion that is exercised by a court
under
172(1)
(b)
is a discretion in the true sense which
therefore means that it would ordinarily be inappropriate for this
Court sitting as an
appellate court to interfere, unless it is
satisfied that the discretion was not exercised judicially, or that
it had been influenced
by wrong principle or a misdirection on the
facts or that it had reached a decision which in the result could not
reasonably have
been made by a court properly directing itself to all
the relevant facts and principles.
[5]
[22]
In view of the considerable reliance placed by Brightwater’s
counsel
on para 54 of the
Gijima
judgment, it is appropriate
to analyse that judgment in some detail. The State Information
Technology Agency (SITA), which provides
information technology
services to State departments, had contracted Gijima, a private
company, to fulfil some of those services
for it. Throughout, Gijima,
had been concerned whether SITA had complied properly with its
procurement processes. SITA had assured
Gijima that it had the
authority to enter into the settlement agreement. Once Gijima had
performed under the contract, it sought
an outstanding payment of
about R9.6 million. SITA took the view that the contract was invalid,
because it had been concluded in
contravention of its own procurement
procedures, even though it had assured Gijima, and warranted
contractually, that the agreement
had been concluded in conformity
with its procurement procedures.
[23]
SITA approached the high court, some 22 months after the contract was
concluded
for an order seeking the setting aside of the contract.
SITA had not justified the delay. The high court dismissed the
application
on the ground that the PAJA review had been brought out
of the 180-day period stipulated in s 7(1) of PAJA and that SITA had
not
sought an extension of this period. The appeal in this Court was
dismissed.
[24]
SITA successfully appealed to the Constitutional Court. It concluded
that in
awarding the contract SITA had acted contrary to the dictates
of the Constitution, and in terms of s 172(1)
(a)
of the
Constitution, declared it invalid. This was, however, not the end of
the matter. It went on to consider the just and equitable
remedy
under s 172(1)
(b)
. The Constitutional Court had this to say at
paras 53 and 54 of the judgment:
‘
However,
under section 172(1)(b) of the Constitution, a court deciding a
constitutional matter has a wide remedial power. It is
empowered to
make “any order that is just and equitable”. So wide is
that power that it is bounded only by considerations
of justice and
equity. Here it must count for quite a lot that SITA has delayed for
just under 22 months before seeking to have
the decision reviewed.
Also, from the outset, Gijima was concerned whether the award of the
contract complied with legal prescripts.
As a result, it raised the
issue with SITA repeatedly. SITA assured it that a proper procurement
process had been followed.
Overall,
it seems to us that justice and equity dictate that, despite the
invalidity of the award of the DoD agreement, SITA must
not benefit
from having given Gijima false assurances and from its own undue
delay in instituting proceedings. Gijima may well
have performed in
terms of the contract, while SITA sat idly by and only raised the
question of the invalidity of the contract
when Gijima instituted
arbitration proceedings. In the circumstances, a just and equitable
remedy is that the award of the contract
and the subsequent decisions
to extend it be declared invalid, with a rider that the declaration
of invalidity must not have the
effect of divesting Gijima of rights
to which – but for the declaration of invalidity – it
might have been entitled.
Whether any such rights did accrue remains
a contested issue in the arbitration, the merits of which were never
determined because
of the arbitrator’s holding on
jurisdiction.’ (Footnote omitted.)
[25]
It is apparent from what is stated in para 54 of the judgment that
the Constitutional
Court invoked s 172(1)
(b)
to preserve the
rights to which Gijima might have been entitled. The right that was
preserved was the right to be paid for the
work it had performed. A
similar approach was adopted by the Constitutional Court in the
Asla
judgment
[6]
in which the Municipality had sought to review and set aside the
contract it contended had been concluded in contravention of the
constitutional and statutory prescripts applicable to the procurement
of goods and services. The Constitutional Court, having been
satisfied that the contract was unlawful, declared it invalid in
terms of s 172(1)
(a)
. But in the exercise of its powers under
s 172(1)
(b)
the Constitutional Court did not set aside the
contract. Again, what was preserved through the invocation of s
172(1)
(b)
was Asla’s rights to receive payment for the
work it had already done.
[26]
The Constitutional Court took into account the fact that when the
Municipality
took the view that the Reeston contract was invalid, the
implementation of the contract had commenced and was continuing. The
Municipality
was content for the respondent to complete the contract
to the benefit of the Municipality and residents of Reeston. It also
took
into account the fact that the work had been practically
completed.
[27]
Regarding Asla’s entitlement to payment for work done, the
Constitutional
Court said at para 105:
‘
In
these circumstances, justice and equity dictate that the Municipality
should not benefit from its own undue delay and in allowing
the
respondent to proceed to perform in terms of the contract. I
therefore make an order declaring the Reeston contract invalid,
but
not setting it aside so as to preserve the rights to [which] the
respondent might have been entitled. It should be noted that
such an
award preserves rights which have already accrued but does not permit
a party to obtain further rights under the invalid
agreement.’
[28] Returning to the
submissions of the parties, I did not understand
Brightwater’s
counsel to disagree with the proposition that was put to him that
para (c) of the high court’s amended
order cannot exist side by
side with para (a) of the order dismissing Brightwater’s
application to enforce the terms of the
lease agreement. His
submission was that it was competent for the high court to make the
order that it did in the exercise of its
discretion under s 172(1)
(b)
of the Constitution. The high court however misdirected itself by
making the order which, in effect, nullifies the declaration
of
invalidity by effectively upholding the contract in all respects,
including future rights. The right to occupy the premises
post a
declaration of invalidity constitutes future rights in favor of
Brightwater, which is something that goes beyond what may
be
preserved under s 172(1)
(b)
of the Constitution.
[29]
A contract or transaction which has no force and effect is
necessarily void
ab initio
, and can under no circumstances
confer any right of action.
[7]
On the same breath, our jurisprudence has long recognised that courts
generally have no power to enforce a term of or a contract
which it
declared unlawful or void. What the law also recognises in both
instances is performance or part performance in terms
of a claim for
unjust enrichment. The court has a discretion to permit a party to
recover what was performed where a contract has
been declared
invalid.
[8]
I did not understand counsel for Brightwater to disagree with this
proposition. I would be surprised if he did because that would
be
inconsistent with Brightwater’s case as pleaded in the
answering affidavit in response to the counter application in which
it alleged:
‘
In these circumstances, it cannot be seriously
disputed that Brightwater stands to be compensated by ECDC.
Brightwater is not now
in a position to quantify what is just and
equitable compensation. It is, in any event, inappropriate to seek to
do so in these
proceedings.
This must, with respect, be the subject of further
proceedings.’
[30] In the
circumstances the cross-appeal should succeed.
Costs
[31]
One of the grounds of the cross-appeal is that the high court erred
in ordering
the ECDC to pay for the costs of the counter-application
in circumstances where it was the successful party in the
counter-application.
It is apparent from this ground of appeal that
the ECDC is only attacking part of the costs order granted against
it, because the
high court directed that the ECDC should pay costs of
both the main application and the counter-application.
[32]
The reasoning of the high court in coming to the above decision
regarding costs
is expressed in these terms:
‘
The fact that the respondent [ECDC] will achieve
nominal success to the extent that a declaration of constitutional
invalidity is
bound to follow, should not affect the question of
costs. Substantially, and not unlike the position in
Gijima
,
it is the applicant [Brightwater] that succeeds. . .To the extent
that the applicant [Brightwater] at the very least is not to
be
divested of its accrued benefits of the contract, the applicant
[Brightwater] has been successful.’
[33]
This finding cannot be supported. Brightwater lost the main
application to
declare the contract valid which was the genesis of
all the litigation that culminated in the cross-appeal. Brightwater
also failed
to obtain the relief sought in paras 2 and 3 of the
notice of motion. The counter-application succeeded. The finding that
Brightwater
succeeded substantially seems to be against the general
rule that costs follow the result. Although the award of costs is
discretionary,
it is my view that the high court failed to exercise
its discretion judicially. The appeal on this ground also must
succeed. The
ECDC is furthermore entitled to its costs in relation to
the appeal and the costs occasioned by the application for leave to
appeal,
because it achieved substantial success before us. These
costs should include the costs tendered by Brightwater occasioned by
the
withdrawal of its appeal.
[34] The following
order is thus made:
1
The cross-appeal
succeeds.
2
The appellant
is directed to pay the respondent’s costs in the
appeal and the cross-appeal, such costs to include:
2.1
The costs of two counsel where so employed; and
2.2
The costs of the application for leave to appeal in
the court a quo.
3
The orders
of the court a quo in case number EL848/2016 and
EDC2148/2017 is set aside and replaced with the following order:
‘(a)
The main application is dismissed.
(b)
The counter-application succeeds.
(c)
The lease agreement concluded between the
parties on 20 December 2016
with respect of Portions A and B of the Remainder of the Farm 31
Coffee Bay, Mqanduli, is declared
constitutionally invalid and of no
force and effect.
(d)
The respondent is directed to pay the costs of
the main application
and the appellant shall pay the costs of the counter-application.’
KGOELE A M
ACTING JUDGE OF APPEAL
APPEARANCES
For
the appellant:
R P Quinn SC and C J
Quinn
Instructed by:
Russel Linde Attorneys, Cape Town
Honey Attorneys, Bloemfontein
For
the respondent:
A Beyleveld SC and V Madokwe
Instructed by:
BNI Attorneys, Port Elizabeth
Van der Merwe Sorour
Inc,
Bloemfontein
[1]
State Information Technology Agency SOC Limited v Gijima Holdings
(Pty) Ltd
[2017] ZACC 40; 2018 (2)
SA 23 (CC).
[2]
‘
Treasury
Regulations, GNR225,
GG
27388
,
15
March 2005
.
’
[3]
Asla
referred to is
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
[2019]
ZACC 15; 2019 (4) SA 331 (CC).
[4]
Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer of the South African Social Security Agency
and
Others
[2013] ZACC 42
;
2014 (1) SA
604
(CC) para 25 (
Allpay
1).
[5]
Trencon Construction (Pty) Ltd v Industrial Corporation of South
Africa Limited and Another
[2015]
ZACC 22
;
2015 (5) SA 245
(CC) para 88.
[6]
See footnote 3.
[7]
Wilken v Kohler
1913 AD 135
at 143.
[8]
Jajbhay v Cassim
1939 AD 537
;
Wilken v Kohler
above.