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[2019] ZAFSHC 8
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Mphati Business Enterprise (Pty) Ltd v Sizakele Consultants CC t/a Colandra Construction (5484/2016) [2019] ZAFSHC 8 (22 February 2019)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 5484/2016
In
the matter between:
MPHATI
BUSINESS ENTERPRISE (PTY)
LTD
Plaintiff
and
SIZAKELE
CONSULTANTS CC t/a COLANDRA
CONSTRUCTION
Defendant
HEARD
ON:
30 & 31 OCTOBER 2018
JUDGMENT
BY:
MATHEBULA, J
DELIVERED
ON:
22 FEBRUARY 2019
Introduction
[1]
These proceedings concerned an action brought by the plaintiff based
on a partly oral and partly written joint venture agreement
alleged
to have been concluded on/or about July 2015. The plaintiff is a
private company duly incorporated in terms of the law
carrying on
business in Bethlehem. The defendant is a close corporation with the
registered office based in Bloemfontein. At all
relevant times the
plaintiff was represented by its sole director Maseru Johannes Mphati
and the defendant by its member Sipho
Nhlapo. None of the
parties raised a special plea or point in limine to be considered
prior to the merits. In this
action, the crisp question to be
decided is whether or not a joint venture agreement was entered into
by and between the parties
[2]
In paragraph 3 of the particulars of claim, the plaintiff alleged
that the parties have concluded a joint venture agreement.
The
paragraph read as follows:-
“
On/or during
July 2015 the Plaintiff and the Defendant entered into a partly
written and partly oral Joint Venture Agreement (hereinafter
referred
to as the agreement”). The agreement was concluded in Bethlehem
with the Plaintiff being represented by Mr. Maseru
Mphati and the
Defendant represented by Mr. Sipho Nhlapo. A copy of the partly
written agreement is attached hereto marked Annexure
“A”.”
[3]
Dealing with the issue of the unsigned dokument, the plaintiff
pleaded in paragraph 4 as follows:
“
The Plaintiff
following negotiations provided the Defendant with a copy of the
agreement which the defendant did not sign.”
[4]
The gist of the agreement and the background of the discussions
between the parties is dealt with in paragraph 5 in the following
manner:-
“
The material
terms of the agreement between the Plaintiff and the Defendant were
inter alia
as follows:
5.1 The joint venture
was specifically formed for the Defendant attending to fulfilment of
its obligation with the Department of
Health under contract number:
DOH(FS) 10/13/14; supply and delivery of infection control, cleaning
equipment and supplies for health
institutions in the Free State.
5.2 The Plaintiff and
the Defendant would form a joint venture in terms of which the
Plaintiff and the Defendant would share all
profits, losses and other
allocations on a basis of 50% each;
5.3 The Plaintiff
would contribute finance towards the joint venture in the form of a
loan, which the Plaintiff did for the period
of 28 July 2015 to 6
August 2015 to the total value of R 239 563.00;
5.4 The joint venture
would repay the loan to the Plaintiff, which the joint venture has
done;
5.5 The joint venture
will dissolve on the occurrence of the following events:
a.
the
adjudication of bankruptcy, withdrawal, removal or insolvency of
either of the parties.
b.
the
sale or other disposition, not including an exchange of all, or
substantially all, of the joint venture assets.
c.
mutual
agreement of the parties.
d.
termination
of the contract by the parties.
e.
lapsing
of contract period with the Department of Health.
5.6 The sharing of
profits on the basis of 50% would be done on a six (6) month
interval;
5.7 The plaintiff
would contribute the providing of a motor vehicle for deliveries,
telephone services, Internet services and other
future administrative
assistants.
[5]
The allegations referred to above were dealt with in the plea filed
by the defence as follows:-
“
3.1 The
Defendant pleads that:
3.1.1
During or about July 2015 the defendant, duly represented by Mr.
Sipho Edmond Nhlapo requested Mr. Maseru Mphati, acting personally,
to advance an amount of R 200,000.00 two the Defendant to enable the
Defendant to make payment to a supplier of the Defendant;
3.1.2
Mr. Maseru Mphati acceded to the Defendant’s request and duly
made payments to the defendant supplier in the amount
of R
200,000.00;
3.1.3
following payment of the amount of R 200,000.00 two the Defendant
supplier, Mr. Maseru Mphati suggested that he and the Defendant
should enter into a joint venture agreement;
3.1.4
Mr. Maseru Mphati indicated that he would prepare a draft written
joint venture agreement for the Defendant to consider and
if
satisfied with the contents, the parties would sign the document
which would then constitute the joint venture agreement;
3.1.5
A written draft joint venture agreement was provided to the Defendant
by Mr. Maseru Mphati;
3.1.6
The draft written joint agreement was not accepted and not signed by
the Defendant;
3.1.7
Mr. Maseru Mphati during or about July and September 2015 requested
repayment of the amount of R 200,000.00 advanced to the
Defendant;
3.1.8
The amount of R 200,000.00 was dearly repaid by the defendant to Mr.
Maseru Mphati.
3.2 The Defendant
denies that an agreement was concluded between the plaintiff and the
Defendant as alleged and the plaintiff is
put to the proof thereof.
3.3 The remainder of
the contents of these paragraphs are denied.”
[6]
During the pre-trial conference held in terms of Uniform Rule 37 on
27 September 2017, the parties agreed as recorded in the
minutes that
the issue to be adjudicated upon is whether or not there was a joint
venture agreement. The remainder of the issues
to stand over for
later determination. Therefore that is the only issue before me
relating to the merits.
Factual
Background
[7]
On/or about May 2015 the sole director of the plaintiff (Maseru
Johannes Mphati hereinafter referred to as “Mphati”)
was
approached by the member of the defendant (Sipho Nhlapo hereinafter
referred to as “Nhlapo” ) who informed him
that he had
been awarded a lucrative tender to supply hygiene and cleaning
material to the Department of Health - Free State Province.
The
latter conveyed to him that he was having financial constraints to
perform as per agreement and as a result was on the verge
of losing
the tender. The key performance areas that were lacking on his part
were logistics, administration and finance. To expand
on this, he did
not have transport to deliver the required orders to various parts of
the Province, the financial muscle to procure
the necessary goods and
the capacity to administer the contract.
[8]
At this point Nhlapo suggested to Mphati they must join hands. The
duration of the contract was for three (3) years which sounded
economically worth the trouble. Nhlapo provided Mphati with all
the documents that he had signed with the relevant government
department. Astute businessman that he is, Mphati prepared a joint
venture agreement and scheduled a follow-up meeting in Bloemfontein
to formalize their business relationship. They duly met at Kentucky
Fried Chicken outlet near the Grey Sports Centre in Bloemfontein.
[9]
Their discussion centred around the implementation of the project.
Shareholding and sharing of the dividends was also dealt
with. They
concluded that they will split the ratio profits equally ie. 50/50.
The salaries of R 16 000,00 and R15 000.00
respectively for
William Mphati and Nhlapo was agreed upon. He was appointed to be the
representative of the plaintiff in the new
entity and use his
expertise for the benefit of the joint venture.
[10]
The agreement was reached and what was left was for it to be reduced
in writing. Mphati drafted the document and remitted
it to
Nhlapo who took it to his accountant. It is common cause that
eventually he did not sign the document.
[11]
Although the parties were still negotiating, some clauses of the
agreement were already implemented by them. Mphati through
his
business entity had already paid a supplier namely Servest to procure
some material. He had supplied some goods in the Qwa-Qwa/Bethlehem
area. A bakkie was also rented from Avis Car Hire for the delivery of
the goods. The sum of approximately R 200 000.00 had
been paid
to the defendant for operational costs. This amount was repaid to the
plaintiff. The business relationship soured around
December 2015 when
the issue of profit-sharing was due for discussion.
[12]
Sehloho Mphati left his job as a Media Liason Manager with a
government department to be a representative of his brother in
the
joint venture between the plaintiff and the defendant. He was
introduced to Nhlapo who at the time did not even have money
to put
petrol in his motor vehicle. They discussed the logistics around the
project. Together with Nhlapo they travelled to various
health
facilities to publicize the tender. The purpose of this exercise was
to inform various shareholders that orders had to be
placed through
the defendant. The spin off was to maximize profits and ensure that
the client department is complying with it.
He was also requested by
Nhlapo to attend the meeting where the price adjustment was the main
item under discussion. Their cordial
relationship became strained
around November 2015. Nhlapo became evasive and started not
taking calls and/or honouring appointments.
He also stopped reporting
for duty. Dispite all this his salary was paid until February
2016 and thereafter it was stopped.
[13]
According to Nhlapo he approached Mphati in July 2015 at his offices
in Bethlehem. He requested a loan of R200 000.00 and this
amount was
paid directly to his suppliers. The issue of joint venture was
proposed by Mphati but they did not discuss the terms
of it.
Mphati was assighed the responsibility to draft the joint venture
agreement and remit it to him. He received it but
did not sign
because he was dissatisfied with some clauses.
[14]
The delivery that Mphati did on his behalf was not in terms of the
agreement but a favour he had requested from him. He conceded
that he
had shortcomings as discussed in the preceding paragraphs and was not
opposed in principle to the idea of entering into
a joint venture
agreement with the defendant. He did not enter into it on the
strength of an advice from his accountant because
it was not in his
interest to do so. The loan agreement did not have any terms neither
did they discuss any terms relating to William
Mphati. This matter
was discussed over a telephone call and the payment of R15 000.00
made to him was based on the financial strength
of the business. In
employing William, he was only returning a favour to Mphati.
Application
for amendment
[15]
At the conclusion of the plaintiff’s case counsel for the
plaintiff applied for the amendment of paragraph 3 of the particulars
of claim by substituting the name “Bethlehem” with the
name “Bloemfontein”. This proposed amendment
was
objected to on behalf of the defendant on the basis that the
plaintiff has failed to make out a case for such an amendment.
In addition no evidence was led why the particulars of claim should
be amended nor explained why it was not done much earlier before
the
trial commenced.
[16]
Uniform Rule 28 (10) provides that the court may grant a party leave
to amend a pleading at any stage before judgement.
In deciding
whether to grant or refuse such an amendment, a court must exercise a
discretion. The primary principle is that
an amendment will be
allowed in order to obtain a proper ventilation of the dispute
between the parties.
[1]
In
exercising the discretion the court must be concerned with the
attainment of justice between the parties and not be bogged
down by
too rigid adherence to the pleadings.
[2]
[17]
The case of the plaintiff is that the parties entered into a joint
venture agreement. There is only one joint agreement that
is referred
to. It is uncontested evidence that the parties held meetings where
some kind of a business venture was discussed.
That took place in
Bethlehem and Bloemfontein. According to the plaintiff the agreement
was entered into in Bloemfontein at their
meeting held at Kentucky
Fried Chicken outlet. The defendant’s case is that no joint
venture agreement was entered into although
the joint venture
agreement was handed over to him. In this regard I can find no
prejudice that will be suffered by the plaintiff
if the amendment is
allowed. This is not a case of allegation of many joint venture
agreements but one. The amendment even if it
is effected does not
mean that a finding has been made that the parties did enter into
such an agreement. In tandem with the indulgent
approach, the
application for amendment is granted.
Legal
principles
[18]
In the heads of argument, counsel for the plaintiff submitted that
the burden of proof lies on the party who asserts that an
informal
contract was not intended to be binding until reduced to writing and
signed. He quoted and relied on the judgment of
Goldblatt v
Freemantle
where the following was said:-
“
Subject to
certain expectations, mostly statutory, any contract may be verbally
entered into, writing is not essential to contractual
validity. If
during negotiations mention is made of a written document, the court
would assume that the object was merely to afford
facility of proof
of the verbal agreement, unless it is clear that the parties intended
that the writing should embody the contract
and (Grotius 3.14.26
etc). At the same time it is always open to parties to agree
that the contract shall be a written one
(see Voet 5.1.73; V Leeuwen
4,2 sec 2 Decker’s note); and in that case there will be no
binding obligation untill the terms
have been reduced to writing and
signed. The question is in each case one of construction”
[3]
[19]
This principle was emphasized and the passage referred to in
Goldblatt supra was quoted with approval in
Woods v Walters
.
Innes CJ wrote the following:
“
It follows of
course that where the parties are shown to have been ad idem as to
the material conditions of a contract, the onus
of proving an
agreement that is legal validity should be postponed until the due
execution of a written document lies upon the
party who alleges
it.”
[4]
[20]
The essence of the submissions is that whether the agreement (joint
venture agreement) requires contractual force or not depends
upon the
intention of the parties, their contract, the terms of the agreement
and the surrounding circumstances.
[5]
In this matter an offer was made by the defendant and dully accepted
by the plaintiff. The document was drafted and handed
over to Nhlapo
who did not communicate his disagreement at all to Mphati. They
simply continued working in the unison.
[21]
Counsel for the defendant in a two (2) pronged attack refutes the
existence of the agreement and in the event that it is found
that it
does, then such an agreement is invalid. In his written submissions
he argued that the joint venture agreement was to be
signed by Nhlapo
only if he was satisfied with the terms and conditions therein. He
was not content with its terms particular the
one dealing with the
equal sharing of the profit and sought professional advice. That led
to him not signing the document.
The parties were simply
engaged in negotiations and discussions about a possible joint
venture which did not materialize.
[22]
The second leg of the argument is that the tender was awarded to the
successful bidder namely the defendant. In turn, a service
level
agreement was signed between the Department of Health and the
defendant. In terms of the Government General Conditions of
Contract
dated July 2018, paragraph 18.1 prohibits any variation or
modification of the contract except with the written amendment
signed
by the parties concerned. He relied on the case of Municipal Manager:
Qaukeni Local Municipality and another v FV General
Trading.
[6]
In that matter the court held that in considering the validity or
otherwise of the second contract, section 217 (1) of the
Constitution
108 of 1996 was pertinent. The provisions which is couched in
peremptory terms demands that an organ of State in procuring
goods
and services must do so in accordance with the system that is fair,
equitable, competitive and cost effective. The
cornerstone of
his submission is that even if the joint venture agreement is deemed
to have existed, such an agreement is invalid
and unenforceable
because it will be in contravention of the aforementioned provisions
because the Department of Health did not
grant the necessary
consents.
Application
of the law to facts
[23]
Applying these legal principles to the facts before me, I have no
hesitation that the parties entered into a joint venture
agreement.
It is common cause that Nhlapo went to Mphati to request financial
assistance which was given. In their discussion he
made available all
the documents pertaining to the award of the tender. The defendant
was assisted with logical support to transport
the ordered goods. He
employed William who assisted with marketing and administration of
the project. William even represented
the defendant at a meeting
where price adjustment or increase was discussed. This is undisputed.
Although the relationship soured
around November/December 2015 and he
stopped reporting for duty, the defendant continued to pay his salary
until February 2016.
The reasons advanced for doing so defies logic
and conduct of an astute “businessman” Nhlapo projects
himself to be.
It can also not be a coincidence that his monthly
salary is the same amount mentioned in the unsigned joint venture
agreement.
[24]
No agreement can come into existence without prior discussions and
negotiations. This occurred between the parties over a period
of time
commencing in Bethlehem and concluding in Bloemfontein. The document
was sent to him. Assuming Nhlapo did not agree with
it, he did not
communicate his disapproval to Mphati. The contents of the
professional advice were also not divulged to Mphati
so that it can
be amended or the relationship be terminated. I would expect a
businessman in his position to voice out his opinion(s)
about the
document in no uncertain terms to its author. It was not challenged
that he simply became un-cooperative as stated above
thus bringing
the agreement to an abrupt end.
[25]
The basis of the defence as encapsulated in the plea and evidence led
has always been that the amount of R200 000.00 paid by
Mphati on
behalf of the defendant was a loan and that no joint venture
agreement was concluded between the parties. This is the
case that
was defined in the pleadings and the plaintiff was prepared to meet
against its claim.
[26]
The argument based on section 217 of the Constitution and reliance on
Municipal Manager: Qaukeni Local Municipality supra is
misplaced. In
any event the facts of the quoted case are distinguishable from the
facts of this matter. In that matter the oral
agreement concerned an
organ of States and a private entity. It is not the position in the
matter before me. I find no application
of section 217 of the
Constitution between two (2) private entities which does not deal
with the awarding of a tender but the conclusion
of the joint venture
agreement. In any event it was never the case of the defendant that
the agreement was invalid for this or
the other reason. It has always
been the contention that the parties did not conclude the joint
venture agreement.
[27]
The reliance on the General Conditions of Contract does not come to
the assistance of the defendant. The parties must enter
into an
agreement and therefore present it to the client department for the
necessary amendment. The defendant, after concluding
the agreement,
obstructed this process from being brought to finality.
[28]
The lengthy cross-examination directed at discrediting the probative
value of the evidence of the existence of the joint venture
agreement
did not disturb the prima facie case. I could not find any fault in
the evidence of the Mphati brothers about the chronology
of events,
the conduct of the parties and the surrounding circumstances in their
dealing with the defendant.
[29]
Nhlapo did not create a good impression of himself as a witness under
cross-examination. He contradicted himself in a number
of aspects and
left a trial of unsatisfactory aspects in his evidence. At best he
was evasive to give straight answers to simple
questions directed to
him. He testified that the defendant was in principle not opposed to
the joint venture agreement. He did
not discuss the terms of the
alleged loan with Mphati. Not a single term was discussed.
Equally they did not discuss the
terms and conditions of the alleged
employment of William Mphati. This matter was briefly dealt with over
a telephone conversation.
Amazingly, his salary was perched on the
strength of the joint venture agreement. He was advised by his
accountant not to enter
into the joint venture agreement because it
was not good or in the defendant’s best interests. He could not
reveal what it
is that was against the defendant to an extent that it
will not be prudent to proceed to sign the document. I am convinced
that
he did not make an honest and credible witness. I have no qualms
about rejecting his evidence as unreliable.
[30]
In conclusion I am satisfied that the plaintiff has proved its case
on a balance of probabilities. I do not have any reason
to deviate
from the principle that the defendant as the unsuccessful party must
also pay the costs.
[31]
According I make the following order:-
31.1 The parties are
deemed to have entered into a joint venture agreement.
31.2 The defendant is
ordered to pay the costs.
___________________
M. A. MATHEBULA, J
On
behalf of the Plaintiff: Adv. W. van Aswegen
Instructed
by: Phatshoane Henney Inc
BLOEMFONTEIN
On
behalf of the Defendant: Adv. W. Groenewald
Instructed
by: Symington & De Kok
BLOEMFONTEIN
[1]
Trans-Drakensberg Bank Ltd (Under Judicial Management) v Combined
engineering (Pty) Ltd and another
1967 (3) SA 632
(D) at 637 A
[2]
Four Tower Investments (PTY) Ltd v Andries Motors 2005 (3) SA 38 (N)
[3]
1920 AD 123
at 128-129
[4]
1921 AD 303
at 305
[5]
Cgee Alsthom Equipment v GKN Sankey PTY Limited 1987(1) SA 81 (A) at
92 E
[6]
2009 4 All SA 231
(SCA)