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2024
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[2024] ZAECQBHC 25
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Mandela Bay Development Agency and Others v Nelson Mandela Bay Municipality (3619/2023) [2024] ZAECQBHC 25 (19 March 2024)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION, GQEBERHA
NOT
REPORTABLE
Case
No.: 3619/2023
In
the matter between:
MANDELA
BAY DEVELOPMENT AGENCY
First Applicant
GLENDA-ANNE
PERUMAL
Second Applicant
PINKY
KONDLO
Third
Applicant
MXOLISIS
MOOLMAN
Fourth
Applicant
VUYANI
GALEN
DYANTYI
Fifth
Applicant
KHWEZI
GIDEON NTSHANYANA
Sixth
Applicant
And
NELSON
MANDELA BAY MUNICIPALITY
Respondent
JUDGMENT
EKSTEEN
J:
[1]
This
matter (the application) was initially launched as an urgent
application, in which the first applicant, the Mandela Bay
Development
Agency
[1]
(MBDA),
and the second to sixth applicants sought an order:
‘
2.
[D]eclaring
that the Current Board of the First Applicant (being the Second to
Sixth Applicants) validly constitutes the Board of
the First
Applicant and may continue to so act until lawfully removed from the
Board, whether in terms of Section 93G of the Municipal
Finance
Management Act or otherwise.
3.
That
the Respondent Municipality be directed to transfer, forthwith, the
quarterly amounts due to the First Applicant as provided
for in the
Service Level Agreement concluded between the First Applicant and the
Respondent Municipality, including all transfers
due at the date of
this order.’
[2]
The
underlying dispute giving rise to the application arose from the
displeasure of the respondent, the Nelson Mandela Bay Municipality
(the municipality), at the appointment of Mr Anele Qaba as the chief
executive officer (CEO) of the MBDA. The municipality
has
launched a separate application (the review) to review and set aside
the appointment. The review was enrolled and argued
simultaneously with the application. They are factually
interrelated and the municipality has referred, in the application,
to its founding affidavit in the review, and incorporated it by
reference in its answering papers. I shall refer to this
affidavit herein, only to the extent necessary, however, it is
convenient in this judgment to deal separately with the application
to which I shall confine myself herein.
Background
[3]
It
was common cause on the papers, and in argument, that the MBDA was
established by the municipality as a private company,
[2]
wholly owned and controlled by it, in terms of s 86C of the Local
Government: Municipal Systems Act
[3]
(the Systems Act). Its principal object was to assist the
municipality in its service delivery objectives and it has entered
into a ‘Service Delivery Agreement’ (SDA) with the
municipality to give effect thereto. As I have said, in June
2023, the MBDA appointed Mr Qaba as its CEO. The appointment
was, to put it at its lowest, controversial. On 28 June
2023,
National Treasury addressed the city manager of the municipality in
respect of the appointment. It recorded that Mr
Qaba, who had
previously been employed as the Executive Director: Economic
Development, Tourism and Agriculture in the municipality
had been
suspended, during June 2022, due to allegations of gross misconduct
relating to supply chain management processes.
The council of
the municipality had resolved on 21 June 2022 that he be suspended
pending the finalisation of an investigation
into allegations of
financial misconduct. However, no disciplinary processes were
instituted and, on 28 February 2023, the
municipality and Mr Qaba
signed a settlement agreement in terms of which Mr Qaba vacated his
office in exchange for a monetary
remuneration equivalent to the
remaining sixteen months of his contract of employment. Mr Qaba
was paid R3 million.
[4]
Against
this background, Treasury questioned the legality of Mr Qaba’s
appointment as the CEO of the MBDA and demanded further
information
relating to the process from the municipality. They advised the
municipality to suspend Mr Qaba’s appointment
as CEO of the
MBDA and cautioned it to consider their advice ‘to avoid any
form of penalty as it relates to the withholding
of conditional
grants allocated in terms of the
Division of Revenue Act&rsquo
;.
[5]
Treasury
persisted in its stance and declined to transfer the funds due to the
municipality. On 9 August 2023, the Minister
of Finance (the
Minister) addressed the mayor in respect of a number of matters of
alleged maladministration in the municipality,
including the
appointment of Mr Qaba. In respect of Mr Qaba he recorded:
‘
I
am grossly concerned about the integrity of the City’s decision
to appoint Mr Qaba as the CEO of MBDA within less than four
months of
being paid R3 million through a settlement agreement. …
I
emphasise the concern I have over the governance that the Board of
Directors of Mandela Bay Development Entity has with implementing
material irregular decisions that contravene statutory prescripts, as
well as not obtaining approval of the municipal Council when
required.
The
fact that the Board of Directors failed to consult Council is a clear
indication that they have failed to execute their fiduciary
duties
and therefore I advise your Council to consider taking appropriate
steps against them which may include possible dissolution,
subject to
due processes.’
[6]
The
Minister concluded the letter with a directive as follows:
‘
a.
the
appointment of Mr Qaba must be reviewed considering the settlement
agreement of an amount of R3 million which must be recovered
personally from Mr Qaba by the municipality: and
b.
I
will be prepared to transfer the funds to the City as soon as
possible on condition that the municipal Council furnishes me with
a
resolution of commitment to resolve the above serious matters of
concern and to ensure good governance practices when dealing
with
such matters. The resolution must also commit not to transfer
any funds to the entity until the appointment of the CEO
is
rectified.’
[4]
[7]
The
municipality heeded the Minister’s threats and, on 22 August
2023, the contentious resolution, that lies at the heart
of the
application, was taken at a council meeting in the following terms:
‘
That
the Minister of National Treasury be advised that the Council on 22
August 2023 resolved, in respect of his requirements set
out in his
letter of 9 August 2023, that the Municipality will:
(i)
seek
to review and set aside the appointment of Mr A Qaba as CEO of the
MBDA;
(ii)
take
steps to remove the board of the MBDA on the basis of the
unsatisfactory performance of its members;
(iii)
…’
[8]
This
set in chain a lengthy sequence of correspondence. The
following morning, the city manager of the municipality conveyed
the
resolution to Ms Perumal, the second applicant, as chairperson of the
board of the MBDA, and to Mr Qaba in writing. She
added:
‘
2.
In
the light of these resolutions referred to herein above, and in the
best interests of the NMBM, this serves to instruct you that
neither
the MBDA Board nor the CEO of the MBDA may make or take any further
decisions on behalf of the MBDA, whether of a binding
nature or not,
pending the implementation of the above resolutions.
3. Should
any decision be taken contrary to the above instruction which has a
financial implication, such
finances shall be recovered from the
person/s responsible for taking such decision.’
[9]
Mr
Qaba responded forthwith and protested that the communication lacked
legal legitimacy as it ought to have been written by the
mayor and
therefore, so he contended, the instructions were unlawful.
This raised the ire of the city manager, who responded
on 24 August
2023, in writing. She again referred to the resolution and then
proceeded:
‘
2.
You
are therefore hereby advised, that as a result of the Council
resolution, the tenure of the members of the board of the MBDA,
has
expired, as at the date of the Council resolution, being 22 August
2023.
3. You
are further reminded that the Board of the MBDA, as a municipal
entity, is appointed by Council, hence
the removal of the board is
the prerogative of Council. In terms of Section 93G, of the
Municipal Systems Act, which states
as follows: …
4.
It
is my fiduciary duty as an accounting officer, as I hereby do, as
there is no Board of Directors of the MBDA no action can be
taken by
the former Board Members on behalf of the Municipal Entity. Any
costs incurred due to such actions will be for their
personal account
as the Municipality has to ensure adherence to Section 32 of the
MFMA.’
[5]
[10]
On
25 August, Peyper Attorneys, acting on behalf of the MBDA, addressed
the executive mayor with reference to the letters from the
city
manager on 23 and 24 August 2023. They declared that a dispute
had arisen between the municipality and the MBDA in respect
of their
decision to appoint Mr Anele Qaba, and the municipality’s
authority, or lack thereof, to dissolve the board of the
MBDA.
They invited the municipality to agree to an engagement between the
parties, alternatively, through a suitable intermediary
acceptable to
both parties. They also urged the municipality not to enforce
their resolutions, which had been unilaterally
taken, as they
perceived them to be unlawful.
[11]
Although
there was no reply in writing to the letter, there appears to have
been some communication between the municipality and
the board that
yielded an initial inclination to engage. However, it did not
materialise. Hence, Peyper Attorneys again
addressed the
executive mayor, on 30 August 2023, in which they noted, with regret,
that ‘the meeting scheduled for this
past Tuesday, at the
instance of the municipality, did not materialize.’ They
emphasised the commitment of the MBDA
to engage with the municipality
in order to resolve the disputes and they proposed the appointment of
an intermediary to facilitate
dialogue between the parties.
They emphasised that the failure to resolve the matter would have a
material impact on the
work of the MBDA, who has an obligation to
approve the annual financial statements by 31 August 2023.
[12]
Again,
there was no reply to the letter. Thus, on 31 August 2023,
Peyper Attorneys directed a further letter to the executive
mayor in
which they reiterated the call for engagement between the entities,
and their proposal for the appointment of an intermediary.
They
also called upon the municipality to release the funds that had
previously been earmarked for the MBDA so that they could
continue to
meet their operational expenses.
[13]
A
further letter followed, on 5 September 2023, from Peyper Attorneys
to the executive mayor, in which they expressed their regret
that the
municipality had ‘chosen not to respond to the invitation made
by … the MBDA to engage an intermediary to
assist the parties
in resolving their disputes’. They also recorded:
‘
Self-evidently,
by not placing our client in funds the municipality is in breach of
the specific terms of the SDA …
The
municipality, without justification, has persisted in its breach of
its obligations to our client by continuing to withhold
payment of
the funds to it …
8. Our
client has a clear right in terms of the SDA that the municipality
release the funds allocated to
it …
9. We
have thus been instructed to demand from you, as we hereby do, that
the funds allocated to our client
be released by the municipality to
it by no later than
12h00
on
Wednesday 6 September 2023
,
failing which our client will be obliged to approach the High Court
for appropriate relief.’
[14]
When
the ultimatum was not heeded Peyper Attorneys transmitted a final
letter of demand to the executive mayor, on 13 September
2023, and
recorded that the municipality’s lack of response, together
with its unjustifiable breach of the SDA, had left
the MBDA with no
other option but to approach the High Court on an urgent basis.
This final demand ultimately elicited a
terse response from the
acting city manager explaining that:
‘
The
Council resolution and national treasury letter prevents NMBM from
transferring funds and/or approving expenditure by the MBDA.
This can only be done once Council gives a way forward on the
matter.’
The
city manager did not explain what she meant by ‘a way forward’
nor did she provide any indication of when they were
likely to show
the way.
[15]
In
the interim, on 15 September 2023, the review was commenced by
service on the MBDA and Mr Qaba. Ms Perumal, deposing to
the
founding affidavit in the application, explained that the MBDA did
not proceed forthwith with the application and that they
had sought
to resolve the matter amicably before proceeding to litigation.
The endeavours to resolve the matter amicably
have not been
challenged.
Legal
relationship between the municipality and the MBDA.
[16]
As
I have said, it was common cause on the papers and at the hearing
that the MBDA was established in terms of s 86C of the Systems
Act.
The section entitles a municipality to establish a private company,
controlled by it, and, if it does so, it is required
to comply with
the Companies Act
[6]
, and any
other law relating to companies, save where a conflict arises between
the Systems Act and such other legislation.
[7]
[17]
A
private company, thus established, is a municipal entity under the
effective control of a parent municipality, being the municipality.
The parent municipality is empowered to exercise any shareholder,
statutory, contractual or any other rights and powers it may
have in
respect of the MBDA in order to ensure that it is managed responsibly
and transparently.
[8]
It
is obliged to ensure that the annual performance objectives are
established by agreement
[9]
and
it must monitor, and annually review, the performance of the MBDA.
The municipality is empowered to liquidate, or disestablish
the
MBDA,
[10]
or to terminate the
SDA.
[11]
However, it
must allow the board of directors and the chief executive officer to
fulfil their responsibilities
[12]
and it is required to establish and maintain clear channels of
communication between itself and the MBDA.
[13]
In this regard, the official lines of communication between the MBDA
and the municipality exists between the chairperson
of the board of
directors and the executive mayor of the municipality.
[14]
The directors of the MBDA are appointed by the municipality,
[15]
but the chief executive officer is appointed by the directors of the
board.
[16]
The
municipality may also remove, or recall, a director appointed or
nominated by it on certain circumscribed grounds which
are recorded
in s 93G of the Systems Act.
[18]
As
I have outlined earlier, the municipality is required to comply with
the provisions of the Companies Act, or any other legislation
applicable to companies, unless there is a conflict between the
Systems Act and such other legislation. Section 93G
circumscribes
the grounds upon which directors may be removed or
recalled by the municipality. Unlike a private commercial
company, where
shareholders may remove directors at will, without
providing reasons for doing so, the municipality may only do so for
the reasons
set out in s 93G of the Systems Act. The Systems
Act does not lay down the procedure to be followed in doing so.
The
process for the removal of directors is circumscribed in s 71 of
the Companies Act. I shall revert to this issue.
The
declaratory relief claimed.
[19]
The
municipality challenged the
locus
standi
of the second to sixth respondents, who have at all material times
been the board of directors of the MBDA, to bring the application,
either personally or on behalf of the MBDA. Ms Perumal had annexed to
her papers a resolution taken by the second to sixth respondents
on
12 September 2023 authorising them to bring the application on behalf
of the MBDA as the foundation for their authority.
[17]
However, the municipality contended that the second to sixth
respondents did not have the authority, on 12 September
2023, to
convene a meeting of directors or to vote on the resolution. They
argued that the second to sixth respondents had been
removed as
directors of the MBDA by their resolution of 22 August 2023.
The letters of 23 August 2023 and 24 August 2023
from the city
manager, so the argument developed, constituted the implementation of
the resolution to remove them as directors.
They reasoned that
the resolution stands in law and in fact and, in the absence of a
review to set it aside, second to sixth respondents
cannot
appropriate for themselves the position of board members.
[20]
The
argument cannot be sustained. As explained earlier, s 93A of
the Systems Act empowers the municipality to exercise any
shareholders, statutory or contractual rights and powers it may have
in order to ensure that the MBDA is managed responsibly.
In
this case, it places no reliance on any contractual rights. The
statutory right advanced emerges from s 93G(a) which empowers
the
municipality to remove or recall a director if the performance of the
director is unsatisfactory. Section 93G, as I have
said,
circumscribes the grounds upon which a director may be removed,
but the municipality is still required to comply with
the provisions
of the Companies Act. Under s 71(1) of the Companies
Act
[18]
, the shareholders may
remove a director by majority vote, subject to compliance with s
71(2), which leaves little doubt as to the
process. It
provides:
‘
Before
the shareholders of a company may consider a resolution contemplated
in subsection (1) –
(a)
the
director concerned must be given notice of the meeting and the
resolution, at least equivalent to that which a shareholder is
entitled to receive, irrespective of whether or not the director is a
shareholder of the company; and
(b)
the
director must be afforded a reasonable opportunity to make a
presentation, in person or through a representative, to the meeting,
before the resolution is put to a vote.’
[21]
Section
71(2) does not detract from the validity of the resolution taken on
22 st 2023. The highwater mark of the resolution
was that the
municipality would take steps to remove the board of the MBDA on the
basis of unsatisfactory performance. It was no
more than the
commitment that the Minister had asked for. The resolution postulated
due process, as circumscribed in s 71(2) of
the Companies Act, and
identified the grounds upon which the proposed resolution would be
advanced. It did not amount to
a removal of the directors as
the implementation of the resolution required notice to be given to
the directors of the intended
removal and the grounds contended for.
The information was necessary to enable the directors to respond, as
envisaged in
s 71(2)(b). The municipality must first afford the
directors a reasonable opportunity to make a representation to them
before
they can put the proposal to the vote. Thus, the
municipality is correct that the resolution taken on 22 August 2023
stands
in law and in fact. But it has no effect, until and
unless it has been implemented, and no steps have been taken pursuant
to s 71 of the Companies Act.
[19]
I can detect no inconsistency between s 93G of the Systems Act and s
71 of the Companies Act so as to exclude the application
of the
latter.
[22]
Mr
Ronaasen, on behalf of the municipality, argued that s 71(1) does not
require of shareholders to provide reasons and that it
is explicit
that the power to remove directors prevail over any provision to the
contrary in the company’s memorandum of
incorporation, the
rules of the company, or an agreement between the shareholder, the
company and the directors. The reasoning
does not advance the
debate in this case, because a resolution which has the effect of
removing the directors may not be put to
the vote until the
shareholders have complied with ss 71(2). Accordingly, there
has been no removal of the directors. It
is not necessary in this
matter to determine whether the argument could be sustained in the
case of a municipality exercising a
statutory power, in terms of s
93G of the Systems Act. I express no view on this issue.
[23]
To
summarise, the council of the municipality resolved to take steps to
remove the directors of the MBDA, but it has not done so.
The
city manager misconceived the effect of the resolution, which has
resulted in the erroneous perception that the directors were
removed
by the delivery of her letters dated 23 and 24 August 2023. In
the result, they are the board and I am satisfied
that they were
entitled to convene the meeting on 12 September 2023, and to vote on
the resolution to authorise the institution
of the application.
[24]
However,
the municipality’s challenge to the
locus
standi
of
the third to sixth respondents is not limited to their representation
of the MBDA. Ms Perumal deposed to the founding
affidavit in
the application. She cited the third to sixth respondents in
their personal capacity and their capacity as directors,
but she did
not say that she was deposing to the affidavit on behalf of the
third to sixth respondents. For these reasons
it was argued
that they are not before court.
[25]
This
argument, too, cannot be sustained. Each of the third to sixth
respondents made a confirmatory affidavit in which they
confirm, as
correct, the citation of themselves in their personal and
representative capacities. For reasons which I have
already set
out, they are, as a matter of law, directors of the MBDA and their
purported removal directly affects their interests
in their personal
capacity. The second applicant did not require authority from
the third to sixth applicants to depose to
an affidavit on their
behalf.
[20]
[26]
What
is in issue, is whether Peyper Attorneys were authorised to institute
the application on behalf of the third to sixth respondents.
Rule 7 of the Uniform Rules of Court provides that a power of
attorney establishing the authority to act on behalf of a litigant
need no longer be filed as a matter of course. If their
authority is to be challenged, in terms of rule 7, they would be
required to satisfy the court that they are properly authorised to
act on behalf of the litigant concerned. Until they have
done
so, they would be precluded from acting further. The authority
of Peyper Attorneys to institute the proceedings on behalf
of the
third to sixth respondents has not been challenged.
[21]
Thus, I am satisfied that the first to sixth respondents have
locus
standi
,
both as directors of MBD and in their personal capacities to bring
the application.
The
direction to pay.
[27]
The
application for an interdict to direct payment in terms of the SDA is
resisted on two grounds. First, clause 20.3.2 of
the SDA
provides:
‘
20.3
An
event of default by the NMBM shall occur if:
20.3.1
…
20.3.2
the NMBM fails to pay any amount due by it in terms of this Agreement
on the due date for payment thereof and the NMBM persists
in such
failure to pay for a period of 14 (fourteen) Business Days after
delivery by the Service Provider to the NMBM of written
notice
requiring it to pay such amounts.’
[28]
The
municipality contended that the MBDA had failed to give it the
contractually required fourteen days’ notice requiring
it to
pay. In any event, the municipality argued that, had it
received such notice, it would have disputed its obligation
to pay
and the MBDA would have been obliged, as they still are, to refer the
dispute to arbitration in terms of clause 18 of the
SDA. Thus,
the municipality reasoned that the court does not have jurisdiction
to decide the matter.
[29]
The
contractual notice may be easily disposed of. I have referred earlier
to the correspondence by Peyer Attorneys to the executive
mayor, on 5
September 2023, wherein they recorded that the municipality was in
breach of its contractual obligations by failing
to place the MBDA in
funds and they demanded payment thereof.
[22]
Admittedly, the letter demanded payment by 6 September 2023, however,
they did not take action before 24 October 2023, being
more than
fourteen business days after the demand. Thus, I consider that an
event of default, as envisaged in clause 20.3.2 has
been established.
[30]
I
turn to the arbitration clause. An agreement to arbitrate does
not deprive a court of its jurisdiction over the dispute.
An
arbitration agreement is not an automatic bar to court proceedings
and a party cannot file an exception to a claim brought in
a court of
law on the ground that the issue must be tried by an arbitrator.
[23]
When a party institutes court proceedings, despite the arbitration
agreement, a defendant may, by a special dilatory plea,
ask for a
stay of the proceedings, pending the final determination of the
dispute by an arbitrator.
[24]
The party resisting the stay of court proceedings bears the onus,
which will not be easily discharged, of convincing the
court that,
owing to exceptional circumstances, the stay should be refused.
[25]
[31]
However,
if a party seeks to rely on an arbitration clause to found such a
dilatory plea it is required to allege and to prove that
the
arbitration clause or agreement is applicable to the dispute between
the parties
[26]
and that all
the preconditions contained in the agreement for commencing
arbitration have been complied with.
[27]
[32]
Accordingly,
it is necessary to have regard first to the provisions of the SDA.
Part X of the SDA sets out the dispute
resolution procedures and
clause 17.1 provides:
‘
Save
as otherwise provided in this Agreement, should a deadlock or dispute
of whatever nature arise in connection with this Agreement
or any
rights or obligations of the Parties thereunder, then the Parties
shall meet as soon as reasonably possible after such deadlock
or
dispute arises. Such meeting shall take place on 7 (seven) days
written notice from either Party, at the Service Provider’s
registered office. The Parties shall use their best endeavours
to settle the dispute and negotiations shall be conducted
in good
faith.
17.1.1
If the Parties are unable to resolve the deadlock or dispute …
within 14 (fourteen) days after the commencement of
the negotiations
referred to in clause 17.1, then the deadlock or dispute shall:
17.1.2
if it is an Operational Dispute, first be subject to mediation
between the parties.
17.2.2
If an Operation Dispute, that concerns a matter referred to in Clause
18.1 to 18.3 below,
[28]
remains unresolved after a bona fide mediation process concluded
under the auspices of an independent and accredited mediator,
it
shall be resolved by way of Arbitration in terms of Clause 18 of this
agreement.’
[29]
[33]
The
material portion of the arbitration agreement, for purposes of this
judgment, then provides:
‘
In
respect of Disputes which arise in regard to:
…
.
18.2 the
carrying into effect of (the agreement);
…
.
shall
be submitted to and decided by arbitration, provided that it has
first been through the negotiation process in terms of clause
17.1,
where applicable …’
[34]
The
negotiation process set out in clause 17.1 of the SDA is a
precondition for the commencement of arbitration. Where a
dispute is an operational dispute, as the current dispute appears to
be, mediation constitutes a further precondition to the commencement
of arbitration. The municipality was obliged to establish and
maintain clear channels of communication with the MBDA
[30]
and the official line of communication between them exists between Ms
Perumal, as chair of the board, and the executive mayor.
[31]
As I have outlined earlier, from 25 August 2023 until 13 September
2023, Peyper Attorneys, on behalf of MBDA and Ms Perumal,
consistently sought such a negotiation process and the intervention
of an intermediary. The municipality continually rebuffed
their
approaches and frustrated all attempts to satisfy the preconditions
for arbitration.
[32]
[35]
Thus,
to summarise, first the MBDA has established an event of default and
their compliance with clause 20.3.2 of the SDA.
Second, the
existence of an arbitration clause does not deprive the court of
jurisdiction. Third, the municipality has not
only failed to
establish that the preconditions for the commencement of arbitration
had been met, but the evidence demonstrates
a refusal to participate
in the process prescribed for arbitration with the effect that it has
not been possible for the MBDA to
proceed to arbitration.
Accordingly, the challenge to the jurisdiction of the court
must fail.
Non-joinder
[36]
The
municipality contended, in any event, that the relief sought cannot
be granted without the Minister being joined as party to
the
litigation. It is not contentious that a third party who has,
or may have a direct and substantial interest in any order
that the
court might make in proceedings, or if such an order cannot be
sustained, or carried into effect, without prejudicing
that party, he
is a necessary party and must be joined in the proceedings, unless
the court is satisfied that such a person has
waived his right to be
joined.
[33]
When a
person is a necessary party the court will not deal with the issue
without a joinder being affected, and no question
of discretion or
convenience arises.
[34]
However, not every kind of interest qualifies as a direct and
substantial interest.
[37]
In
Pheko
Nkabinde J emphasised:
‘
The
test for joinder requires that a litigant have a direct and
substantial interest in the subject-matter of the litigation, that
is, a legal interest in the subject matter of the litigation which
may be affected by the decision of the court. This view
of what
constitutes a direct and substantial interest has been explained and
endorsed in a number of decisions by our courts.’
[35]
[38]
The
interest must be a legal interest in the proceedings and not merely a
financial interest.
[36]
Thus, in
Sheshe
v Vereeniging Municipality
[37]
it was held that the lessor who sought to evict a lessee was not
required to join any sublessee, even though they may be in occupation
of the property, because the sublessee had no legally enforceable
right in terms of the contract between the lessor and the lessee
which was the subject matter of the litigation.
[38]
Their right of recourse lay against the lessee, as sublessor.
The principle is further illustrated in
Amalgamated
Engineering Union
where
the court employed two tests in order to decide whether a third party
had a direct and substantial interest. The first
was to
consider whether the party would have
locus
standi
to claim relief concerning the same subject matter.
[39]
The second was to examine whether a situation could arise in which,
because the third party had not been joined, any order
that the court
might make would not be
res
judicata
against him, entitling him to approach the court again concerning the
same subject matter and possibly obtain an order irreconcilable
with
the order made in the first instance.
[40]
[39]
In
respect of the first of these tests, the subject matter of the
litigation in the interdict application is the SDA. The
Minister is not a party to the SDA and obtained no legally
enforceable rights under the SDA. He is in a similar position
to a sublessee in
Sheshe
,
having an indirect interest. In respect of the second, the
question arises whether the Minister would be entitled to approach
a
court again concerning the same subject matter, being the payment of
money due under the SDA, or the removal of the directors
of the
MBDA. The relationship which exists between the municipality
and the MBDA is statutory.
[41]
The MBDA is a municipal entity and the municipality appoints and
removes directors in terms of the statutory provisions discussed
earlier. The Minister does not derive any rights under the
Systems Act in this regard.
[40]
The
municipality reasoned that the Minister is a necessary party in
respect of the interdictory relief because he wrote to them
on 9
August 2023 and laid down a condition for the transfer of funds to
them.
[42]
The funds fall
due to the municipality in terms of the Constitution in order to
provide basic services and to perform the
functions allocated to
municipalities.
[43]
There is no legal relationship between the Minister and the MBDA.
The only identifiable ground upon which the Minister
could have
withheld part of the municipality’s equitable share, to which
it becomes entitled under s 214(1)(a) of the Constitution,
would have
been in terms of s 38 of the MFMA. Section 38 permits the
withholding of such funds when there has been a ‘serious’
or ‘persistent’ breach of measures established in terms
of s 216(1) of the Constitution.
[44]
The municipality has not identified any such measures, nor has it
alleged that any such measures have been breached.
Any recourse
that the Minister may have pursuant to his letter, seems to me to be
against the municipality. The municipality
has contracted with
the MBDA to deliver services on their behalf and it has undertaken to
the MBDA to pay the approved budgets
to them in quarterly
disbursements. They have failed to do so, and that is the
subject matter of the litigation. Accordingly,
the interest
that the Minister may have is not a direct and substantial interest
so as to make him a necessary party.
Urgency
[41]
As
I have said, the application was launched as a matter of urgency on
24 October 2023. In the notice of motion, the municipality
was
afforded until 3 November 2023 to file answering affidavits. An
extension of the period was subsequently agreed upon
between the
parties, and the application was postponed as it was deemed desirable
that it be heard simultaneously with the review.
In the
answering affidavit the municipality took issue with the urgency of
the matter and contended firstly, that the MBDA had
failed to make
out a proper case for urgency as envisaged in rule 6(12)(b) of the
Uniform Rules of Court and, secondly, that any
urgency which existed
was self-created.
[42]
By
the time that the matter was argued three full sets of affidavits had
been filed and all the material issues had been fully aired.
It
seems to me that little purpose exists to now refrain from hearing
the application. While Mr Ronaasen did not abandon
the argument
in respect of urgency, he, fairly in my view, did not present any
argument in respect of the issue.
[43]
The
MBDA contended that the municipality had neglected or refused to
affect the quarterly transfers which were due in terms of the
SDA on
1 July 2023 and again 1 October 2023. They referred to the
various written demands and requests made by Peyper Attorneys,
which
yielded no results, and contended that the municipality was acting
unlawfully.
[44]
Ms
Perumal said that this had had severe financial consequences for the
MBDA which had incurred expenses exceeding R13 million since
July
2023. She proceeded to explain that the MBDA would run out of
money in the near future and would be unable to
cover their
monthly and quarterly expenses. This, she said, would be
catastrophic to the MBDA and result in a default on
their obligations
to staff, and other entities, and they may be compelled to utilise
funds that had been allocated to specific
projects in order to fund
their ongoing expenses. All of this, she explained, would have
far-reaching consequences for service
delivery relating to many
projects that the MBDA currently pursues in the interests of the
city. Reflecting on these averments
she contended that the
urgency in the application was self-evident.
[45]
Mr
Ronaasen, in his heads of argument, contended that nothing was said
of why the MBDA could not be afforded substantial redress
at a
hearing in due course,
[45]
including an arbitration in terms of the SDA.
[46]
I
have dealt earlier with the arbitration clause in the SDA and the
municipality’s extended frustration of the preconditions
for
arbitration. The inevitable delays that occur in litigation in
the ordinary course are notorious. The finalisation
of such
litigation could take many months, with the probable collapse of the
MBDA, with detrimental consequences to the service
delivery of the
municipality, as explained by Ms Perumal.
[47]
I
turn to the alleged delay in launching the application. An
applicant who first seeks compliance from the respondent before
lodging an application cannot be said to be dilatory in bringing the
application, nor is urgency self-created thereby.
[46]
The MBDA, acting through Peyer Attorneys, made every endeavour to
resolve the matter by the utilization of channels of communication
prescribed in the Systems Act until the municipality, finally, on 20
September 2023, responded categorically that no payments would
be
made. The negotiations sought was, as adumbrated earlier, a
prerequisite for the arbitration provided for in the SDA.
I do
not think that the conduct of the MBDA during this period can be
criticised.
[48]
However,
the municipality contended that the delay from 13 September 2023,
when Peyper Attorneys threatened an urgent application
unless a
positive response was received, to 24 October 2023 remained
unexplained. Factually, however, the review was served
on the
MBDA on 15 September 2023. The founding papers in the review
amount to nearly 250 pages and it included a considerable
volume of
legal arguments which impacted directly on the issues which arise in
the application. Self-evidently, the applicants
could not be
criticised for first giving consideration to the first meaningful
engagement from the municipality before launching
an urgent
application. On 28 September 2023, the municipality challenged
the authority of Peyper Attorneys to act in the
review, which have
caused an inevitable delay in proceedings. For reasons which I have
set out earlier, the application remained
urgent and to the extent
that the affidavit may fall short of the standard set in rule
6(12)(b), the non-compliance with the rule
must, on the facts of the
present case, be condoned.
[47]
[49]
In
the result, I make the following order:
1.
The
current board of the first applicant, the Mandela Bay Development
Agency, being the second to sixth applicants, are declared
to be the
lawful board of the first applicant and may continue to act as such
until lawfully removed from the board, whether in
terms of s 93G of
the Local Government: Municipal Systems Act, or otherwise.
2.
The
respondent, the Nelson Mandela Bay Municipality, is ordered to
transfer, forthwith, the quarterly amounts due to the Mandela
Bay
Development Agency, as provided for in the Service Delivery Agreement
concluded between them, including all transfers due at
the date of
this order.
3.
The
respondent is ordered to pay the costs occasioned by the application
including the costs of two counsel, where so utilised.
J
W EKSTEEN
JUDGE
OF THE HIGH COURT
Appearances:
For
Applicant: Adv
R Buchanan SC
Instructed
by: Peyper
Attorneys
c/o
Struwig Jaftha-Potgieter Attorneys
Gqeberha
For
Respondent: Adv O Ronaasen SC
Instructed
by: Kuban
Chetty Inc
Gqeberha
Date
Heard:
22 February 2024
Date
Delivered: 19 March 2024
[1]
Erroneously
cited in the application as the Nelson Mandela Bay Development
Agency.
[2]
The
Service Delivery Agreement records that MBDA was in fact established
by the municipality in 2003 as an association not for
gain, in terms
of s 21 of the 1973 Companies Act. The 1973 Companies
Act was repealed and replaced by the
Companies Act, 71 of 2008
.
The MBDA is a company as defined in the 2008
Companies Act and
is a
‘non-profit company’. The 2008
Companies Act
further
created a new category of companies, being ‘state
owned companies’, which includes companies owned by a
municipality.
No argument has been addressed to me in respect
of these developments and I shall assume, for purposes of this
judgment, as the
parties have, that the provisions of Chapter 8A of
the Systems Act apply.
[3]
Act
32 of 2000
[4]
The
funds referred to by the Minister relate to the balance of the
city’s equitable share of revenue to which it is entitled
in
terms of s 227(1)(a) of the Constitution, as confirmed by a further
letter from the Minister to the executive mayor dated
12 September
2023.
[5]
‘
MFMA’
is a reference to the Municipal Finance Management Act, 56 of 2003.
[6]
Act
71 of 2008.
[7]
Section
86C(iii).
[8]
Section
93A(c).
[9]
Section
93B(b).
[10]
Section
93B(b).
[11]
Section
93B(c).
[12]
Section
93A(b).
[13]
Section
93A(c).
[14]
Section
93D(2)(a).
[15]
Section
93E.
[16]
Section
93J.
[17]
In
the founding affidavit in the application the second respondent had
annexed a resolution taken by the board of the MBDA in
support of
her authority to act on behalf of the MBDA. In error, the
incorrect resolution had been annexed, being a resolution
to oppose
the review. The matter was rectified in reply where the
correct resolution taken at a meeting of the board on
12 September
was annexed. It is, accordingly, not necessary to address the
content of the resolution any further.
[18]
Section
71(1) provides for the shareholders to remove a director by majority
vote, subject to s 71 (2).
[19]
See
Minister
of Defence and Military Veterans v Motau and Others
2014 (5) SA 69
(CC) at para 72 – 75; and
Steenkamp
and Another v Central Energy Fund SOC Ltd and Others
2018
(1) SA 311
(WCC) para 53.
[20]
Ganes
and Another v Telecom Namibia Ltd
2004
(3) SA 615
(SCA) at 624F-H; and
Firstrand
Bank Ltd v Fillis and Another
2010
(6) SA 565
(ECP) at para 13.
[21]
A
challenge was made to the authority of Peyper Attorneys in the
review on 28 September 2023. It was not pursued and I shall
accept, accordingly, that they did satisfy the court of their
authority.
[22]
The
material portions are quoted in para 13 and 14 of this judgment.
[23]
Parekh
v Shah Jehan Cinemas (Pty) Ltd and Others
1980
(1) SA 301 (D); [1980] 1 All SA 239 (D).
[24]
Yorigami
Maritime Construction Co Ltd v Nissho-Iwai Co Ltd
1977
(4) SA 682
(C);
[1977] 4 All SA 733
(C); and
G
K Breed (Bethelhem)(Edms) Bpk v Martin Harris & Seuns
(OVS)(Edms) Bpk
1984
(2) SA 66 (O).
[25]
Delfante
and Another v Delta Electrical Industries Ltd
1992
(2) SA 221
(C);
[1992] 3 All SA 968
(C); and
BDE
Construction v Basfour 3581 (Pty) Ltd
2013
(5) SA 160 (KZP).
[26]
Kathmer
Investments (Pty) Ltd v Woolworths (Pty) Ltd
1970 (2) SA 498
(A);
Universiteit
van Stellenbosch v JA Louw (Edms) Bpk
1983
(4) SA 321 (A).
[27]
Santam
Insurance Ltd v Cave t/a The Entertainers and The Record Box
1986
(2) SA 48
(A) and
Amler’s
Precedents of Pleadings
(9
th
ed) p. 44.
[28]
The
arbitration clause.
[29]
An
‘operational dispute’ is defined in the SDA as a dispute
which has the potential for stultifying the service delivery
obligations of the NMBM and service provider if it is not
expeditiously resolved.
[30]
Section
93A(c) of the Systems Act.
[31]
Section
93D(2)(a) of the Systems Act.
[32]
The
approaches by Peyper Attorneys in this regard referred to the
Intergovernmental Relations Framework Act, 13 of 2005
. It is
not necessary for purposes of this application to decide on the
applicability of the Act to the current dispute
as the Systems Act
and the SDA provide for their own process.
[33]
See,
for example:
Absa
Bank Ltd v Naude NO and Others
2016
(6) SA 540
(SCA);
Morudi
and Others v NC Housing Services and Development Co Ltd and Others
2019 (2) BCLR 261
(CC); and
Pheko
and Others v Ekurhuleni City
2015 (5) SA 600
(CC).
[34]
Amalgamated
Engineering Union v Minister of Labour
1949
(3) SA 637
(A);
Henri
Viljoen (Pty) Ltd v Awerbuch Brothers
1953
(2) SA 151
(O) at 165-171.
[35]
Pheko
para 56.
[36]
Hartland
Implemente (Edms) Bpk v Enal Eiendomme Bk en Andere
2002
(3) SA 653
(NC) at 663E-H.
[37]
1951
(3) SA 661
(A) at 667A.
[38]
Since
the Constitution a sublessee, in residential property, has a
constitutional right as developed in the Prevention of Illegal
Eviction from and Unlawful Occupation of Land Act, 19 of 1998.
[39]
p.
661.
[40]
p.
660-661.
[41]
The
Systems Act.
[42]
Paragraph
6 of the judgment.
[43]
Section
227(1)(a) of the Constitution. See fn 4.
[44]
Measures
prescribed by national legislation to ensure transparency and
expenditure control in each sphere of government.
[45]
As
required by rule 6(12)(b) of the Uniform Rules of Court.
[46]
See,
for example:
Nelson
Mandela Metropolitan Municipality and Others v Greyvenouw CC
and
Others
2004
(2) SA 81
(SE) at 94C-D.
[47]
Rule
27(3) of the Uniform Rules of Court.