Office of Premier Eastern Cape v Director-General of the Office of the Premier, Eastern Cape Province and Another (61/18) [2019] ZAECBHC 10 (23 April 2019)

80 Reportability

Contract Law

Brief Summary

Contract — Cancellation of agreement — Applicants sought cancellation of a service level agreement with the respondent due to alleged breaches — Respondent denied breaches and claimed compliance — Court required to determine entitlement to cancellation amidst internal disputes within the respondent's leadership — Court found that the agreement had been rendered inoperative due to the respondent's failure to fulfill deliverables and the impact of internal conflicts on performance — Applicants entitled to relief sought.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an application for final relief in motion proceedings in the Eastern Cape High Court, Bhisho, in which the applicants sought the cancellation of a service level agreement concluded between the first applicant and the respondent.

The applicants were The Office of the Premier, Eastern Cape (first applicant) and the Director-General of the Office of the Premier, Eastern Cape Province (second applicant). The respondent was the South African Youth Council NPO, Eastern Cape Chapter.

The application was instituted on 29 January 2018. The respondent delivered notices of intention to oppose and ultimately filed an answering affidavit deposed to by Mr Noludwe. At the hearing on 14 March 2019, there was no appearance for the respondent. The court was satisfied that the respondent had been notified after its attorneys withdrew. Judgment was handed down on 23 April 2019.

The dispute concerned the alleged breach and resultant inoperability of an agreement appointing the respondent as an implementing agency to assist the first applicant in implementing a provincial youth development strategy, and whether the first applicant had validly exercised a contractual right of cancellation.

2. Material Facts

An agreement (a service level agreement) was concluded between the first applicant and the respondent in terms of which the respondent was appointed as the “implementing agency” for the implementation of the first applicant’s provincial youth development strategy. The agreement operated with effect from 16 August 2016 (the commencement date), notwithstanding the signature date. The respondent was obliged to provide monthly written reports of activities undertaken and tasks completed in accordance with the work schedule and project plan.

A Project Steering Committee (PSC) of ten members was established, comprising five representatives from each party. On the respondent’s side, Messrs Mleve and Noludwe were among the PSC members.

The applicants’ case was that the respondent breached the agreement in a manner that rendered it inoperative, making continued implementation impossible. The applicants identified (by reference to the agreement’s terms of reference) specific deliverables the respondent allegedly failed to perform, including establishing a database of unemployed youth, profiling youth development projects, and monthly reporting, among other deliverables.

It was common cause that the respondent experienced internal in-fighting and leadership conflict after the agreement was concluded. The applicants alleged that these internal disputes frustrated performance of the agreement and adversely affected communication and accountability, including uncertainty as to who within the respondent’s leadership was the legitimate counterpart for engagement.

The applicants stated that attempts to stabilise the respondent’s governance structures (including the establishment of a Provincial Task Team) did not resolve the dysfunction. The applicants then served a notice of cancellation on 29 September 2017, relying on clause 16 of the agreement (the breach clause). The applicants’ position was that the breach was not remedied and that performance continued to be affected.

In its answering affidavit, the respondent denied breach and asserted, in substance, that it had complied with the agreement because the first applicant had made payments, which the respondent treated as confirmation of the first applicant’s satisfaction. The respondent also asserted that a material factual dispute existed as to whether the applicants were entitled to cancel. The respondent did not, however, substantively engage the applicants’ factual allegations of non-performance by demonstrating that the contractually required deliverables were met. The respondent also did not meaningfully dispute the applicants’ statement that payments were for human resources only.

In reply, the applicants stated that the contract had been rendered inoperative and that the respondent no longer had a presence at the first applicant’s offices, leading the applicants to cease payments (save for the portion they said related to human resources).

3. Legal Issues

The central legal questions were whether the respondent had raised a real, genuine and bona fide dispute of fact sufficient to defeat final relief in motion proceedings, and whether, on the established facts, the applicants were entitled to cancel the agreement.

The dispute primarily concerned the application of legal standards to the affidavits (namely the motion-proceedings rules governing factual disputes) and the application of the contractual breach-and-cancellation clause to the facts as properly established on the papers.

Although the applicants advanced additional bases for cancellation (including contentions related to impossibility and supervening impossibility), the court’s dispositive reasoning focused on the contractual cancellation clause and the insufficiency of the respondent’s alleged factual dispute.

4. Court’s Reasoning

The court approached the matter on the basis that the applicants sought final relief. It applied the established motion-proceedings principles derived from Stellenbosch Farmers Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C) as qualified by Plascon-Evans Paints (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A). In essence, where final relief is sought on motion and disputes of fact arise, the respondent’s version ordinarily prevails unless the respondent’s denials do not raise a real dispute or are far-fetched, untenable, or merely bald.

The court considered the respondent’s contention that a material factual dispute existed regarding entitlement to cancellation. In interrogating whether a genuine dispute of fact was raised, the court relied on the principle that a real dispute exists only where the disputing party seriously and unambiguously addresses the facts said to be disputed. In this respect, the court cited Wightman t/a JW Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; 2008 (3) SA 371 (SCA), which emphasises that material allegations must be met with meaningful engagement rather than vague denials. The court also referred to Thebe Ya Bophelo Healthcare Administrators (Pty) Ltd and Others v National Bargaining Council for the Road Freight Industry and Another 2009 (3) SA 187 (W) in relation to the formulation of the motion-proceedings approach.

On the facts placed before it, the court found that the respondent’s opposition was effectively limited to a conclusory denial of breach, coupled with reliance on the fact of payment by the first applicant as if payment necessarily proved satisfaction and performance. The respondent did not provide a substantive account demonstrating compliance with the agreement’s deliverables, nor did it meaningfully address the applicants’ allegations that the deliverables were not achieved and that internal dysfunction undermined performance.

The court considered the internal in-fighting within the respondent to be relevant, particularly given that two PSC members on the respondent’s side were at the centre of the leadership conflict. The court reasoned that it was untenable for the respondent to suggest that such conflict did not affect the applicants and the functioning of the agreement, and it regarded the applicants’ founding allegations as remaining largely undisputed.

Turning to the contractual framework, the court held that where an agreement contains a termination mechanism, the termination clause should be considered first. It then analysed clause 16 of the agreement, which entitled the non-defaulting party to cancel where a breach was incapable of remedy, or where a remediable breach was not remedied within fourteen days after written notice.

Applying clause 16, the court accepted that the applicants had elected to cancel in terms of the agreement and found that the respondent did not meaningfully place the applicants’ contractual entitlement to cancel in dispute. In the court’s assessment, the respondent’s asserted defence—that payment equated to satisfactory performance—was implausible and did not establish a genuine factual dispute. The court therefore treated the respondent’s opposition as spurious and insufficient to defeat final relief on the papers.

Given that the contractual basis for cancellation was dispositive, the court did not find it necessary to address the applicants’ alternative arguments (including those relating to supervening impossibility), and noted that the alternative relief sought was dependent on a finding that a factual dispute existed.

5. Outcome and Relief

The application succeeded. The court ordered that the agreement concluded between the first applicant and the respondent was cancelled.

The respondent was ordered to pay the costs of the application.

Cases Cited

Stellenbosch Farmers Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C).

Plascon-Evans Paints (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

Thebe Ya Bophelo Healthcare Administrators (Pty) Ltd and Others v National Bargaining Council for the Road Freight Industry and Another 2009 (3) SA 187 (W).

Wightman t/a JW Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; 2008 (3) SA 371 (SCA).

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the respondent failed to raise a real, genuine and bona fide dispute of fact in its answering affidavit. Its denials were effectively bald and unsubstantiated, particularly because the respondent did not meaningfully engage with the applicants’ allegations of non-performance and relied primarily on the fact that the applicants had made certain payments.

The court further held that, on the facts properly established on the papers and with reference to clause 16 of the agreement, the applicants were entitled to cancel the service level agreement, and the respondent did not place that contractual entitlement in genuine dispute. Accordingly, the agreement was cancelled and costs were awarded against the respondent.

LEGAL PRINCIPLES

The judgment applied the principle that where final relief is sought on motion, factual disputes are determined in accordance with the Plascon-Evans rule (as developed from earlier authority), meaning that the respondent’s version will generally prevail unless the respondent’s allegations do not raise a genuine dispute or are palpably implausible, far-fetched, or untenable on the papers.

It applied the principle that a party alleging a dispute of fact must seriously and unambiguously engage with the material allegations said to be disputed. Bare or ambiguous denials, especially where the disputing party would be expected to have knowledge of the relevant facts and be able to provide a substantive answer, will generally not satisfy the standard for a genuine dispute of fact.

The judgment also applied the principle that where a contract contains an express breach-and-cancellation clause, that clause is the primary basis upon which entitlement to cancel is assessed. If the clause’s requirements are met and a proper election to cancel is made, cancellation follows, unless a genuine factual or legal obstacle is established on the papers.