About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Free State High Court, Bloemfontein
SAFLII
>>
Databases
>>
South Africa: Free State High Court, Bloemfontein
>>
2018
>>
[2018] ZAFSHC 109
|
|
VIP Consulting Engineers (Pty) Ltd v Mafube Municipality (A274/2017) [2018] ZAFSHC 109; [2018] 3 All SA 922 (FB) (29 June 2018)
FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
Case
No. : A274/2017
In
the matter between:-
VIP
CONSULTING ENGINEERS (PTY)
LTD
Appellant
and
MAFUBE
MUNICIPALITY
Respondent
CORAM:
DAFFUE, J
et
POHL,
AJ
et
MENE,
AJ
HEARD:
18 JUNE 2018
JUDGMENT
BY
J
P DAFFUE
DELIVERED:
29 JUNE 2018
I
INTRODUCTION
[1]
This appeal raises interesting issues regarding the interpretation
and validity of appointments of a company of consulting engineers
by
a municipality. Another crucial issue is whether or not the
appointments were
“
on
risk”
,
i.e.
on the basis that no fees shall be paid in the event of no government
funding be obtained for certain infrastructure projects.
[2]
The engineers were appointed by means of four separate letters of
appointment dealing with four different projects. They
were
mandated to undertake the preliminary design stages and to prepare
feasibility studies, technical reports and the required
documentation
to obtain government funding for the projects.
[3]
In the event of a finding that the agreements are void and
unenforceable, it needs to be considered whether claims based on
enrichment should succeed.
II
THE PARTIES
[4]
The company, VIP Consulting Engineers (Pty) Ltd, is the appellant in
this appeal, it being the unsuccessful plaintiff in the
court
a
quo
.
Adv J A Venter appeared before us on behalf of appellant as was the
case in the court
a
quo
.
[5]
Mafube Local Municipality is the respondent in this court, it being
the defendant in the court
a quo
. Adv M C Louw appeared
for it, both before us and in the court
a quo
.
III
HISTORY
OF LITIGATION
[6]
On 27 November 2013 appellant caused summons to be issued against
respondent for payment of the amounts of R556 542.30,
R328 333.00, R164 680.13 and R799 258.33 in respect of
its professional fees and disbursements calculated as per
the
Engineering Council of South Africa (“ECSA”) scale. As is
evident from the amended declaration reliance was placed
on four
separate letters of appointment. More in this regard will be said
infra
.
[7]
An unsuccessful application for summary judgment followed upon
respondent giving notice of intention to defend whereafter respondent
filed its plea. The parties went on trial during the latter half of
2016 and on 16 February 2017 Mbhele J handed down judgment,
dismissing the action.
[8]
On 2 June 2017 Mbhele J dismissed appellant’s application for
leave to appeal, but on 24 August 2017 the Supreme Court
of Appeal
granted leave to appeal to the Full Court of the Free State Division
of the High Court. It set aside the costs
order of the court
a
quo
in dismissing the application for leave to appeal and ordered
that the costs of the two applications for leave to appeal shall be
costs in the appeal.
IV
THE
ISSUES ON THE PLEADINGS
[9]
Appellant relied on four partly written, partly oral agreements in
alleging that four separate agreements came into existence.
It
is alleged that Mr Graeme Ambrose acted on behalf of appellant and
respondent’s municipal manager, Mr Isaac Radebe, acted
for the
municipality. The written portion of the agreements consisted
of four letters of appointments, duly accepted by it,
in terms
whereof it was mandated to
“
undertake
the preliminary design stage with the view to preparing the
feasibility study, technical report and approval”
pertaining
to four different projects. In the one instance the Department
of Water Affairs (“DWAF”) had to approve
and register the
project relating to solid waste disposal sites and rehabilitation of
existing sites in certain Mafube towns.
In the other instances
Municipal Infrastructure Grant (“MIG”) registration was
required which also included the availability
of funds. Two of
these projects had to do with sewerage reticulation networks and
toilet structures in Qalabotjha township
for 697 stands and in
Ntswanatsatsi/Cornelia for 393 stands respectively. The fourth
project related to the extension of the bulk
water supply for
Namahadi/Frankfort and Ntswanatsatsi /Cornelia.
[10]
The four separate claims for which separate invoices were issued,
dated 13 August 2013, are based on 25% of appellant’s
total
fees in the event of implementation of the projects. The total
project costs estimated by appellants were set out in
its invoices
and also pleaded in its amended declaration.
[11]
Appellant pleaded in the alternative and on the basis of a finding
that the contracts were null and void for non-compliance
with s 217
of the Constitution and all relevant procurement processes, that
respondent was liable to it in the amounts of its invoices
based on
enrichment.
[12]
Respondent raised two special pleas, the first which was later
abandoned. In its second special plea respondent pleaded
non-compliance
with the applicable procurement processes with
particular reference to s 217 of the Constitution and regulation
12(1) of the 2005
Municipal Supply Chain Regulations and its Supply
Chain Management Policy. It pleaded that no competitive bidding
process
was followed. Such a process was peremptory insofar as
the amounts involved were in excess of R200 000.00.
[13]
Instead of pleading in the alternative, respondent proceeded to plead
over in respect of the merits that appellant was mandated
on a
“
risk
basis”
and
that it would only be entitled to payment for its services when funds
were approved for the projects. Funds were not approved
and
therefore appellant had no claim. An alternative defence based
on cession of the claims was not pursued.
V
ADMISSIONS
[14]
It was conceded in the court
a quo
that appellant did the
preliminary works it was mandated to do and that this amounted to 25%
of the total work, should the projects
be implemented.
Therefore it was also conceded that the total amount due to appellant
in the event of it being successful
on the merits amounted to
R1 849 313.76, being the aggregate of the four claims set
out
supra
. It may be pointed out already at this stage
that Mr Louw conceded during argument before us that this amount
would also
represent appellant’s claim in the event of a
finding that respondent is liable towards appellant based on
enrichment.
VI
JUDGMENT
OF THE COURT
A
QUO
[15]
The court
a
quo
correctly
found that appellant did the work it was mandated to do. Bearing in
mind the concession that appellant was entitled to
25% of its total
fees which amounted to R1 849 313.76, three issues remained
in dispute, to wit whether appellant was
entitled to payment of this
amount considering the
“
no
risk”
defence,
the validity of the four contracts, it being alleged there was no
compliance with procurement law and finally, whether
or not
appellants could successfully rely on enrichment in the event of a
finding that the contracts are void.
[16]
The court
a
quo
found
it necessary to approach the matter on the legality issue raised in
Yannakou
v Apollo Club
1974
(1) SA 614
(A) at 623. No doubt, the principle has been
established that a court has a duty to take a point of illegality
mero
motu
,
but the court is obliged to consider all relevant facts and cannot
make a finding of illegality “in the air”.
It can
do so only when it is certain that all necessary evidence has been
placed before it. I refer to the full quotation
in
Yannakou
infra
when I evaluate the judgment.
[17]
The court
a
quo
found
that appellant was the respondent’s sole provider for
engineering services and that it never had to submit quotations
or
tenders for the services rendered. Consequently it found that
appellant’s
“
way
of doing business put breaks
(sic)
on the wheels of
procurement law long before they could start running.”
Appellant also
obtained an unfair advantage over other potential service providers
and respondent
“
was
held at ransom to the desires”
of
appellant and as a result there was
“
no
room to implement its supply chain management policy”
or
to comply with the applicable procurement laws. The appointment
letters were issued without taking the procurement laws
into
consideration whilst it is clear that the costs of each project
exceeded R200 000.00 by far.
[18]
Appellant knew that the projects were not budgeted for and that
invoices could only be issued once funding was approved and
allocated
through MIG. The court
a
quo
found that it is clear from the undisputed evidence of Ambrose that
the
“
on risk”
appointment letters were
accepted as such. Therefore it found that there was no
agreement to pay appellant for any work before
the approval of funds.
[19]
In conclusion on the unlawfulness issue, the court
a
quo
found
that the fact that appellant was on respondent’s database was
irrelevant and as a result of the non-compliance with
procurement
laws, the appointments were not in the interest of the communities.
Therefore the contracts were found to be illegal
and unenforceable.
[20]
The court
a
quo
decided
not to label the enrichment action on which it believed appellant
relied
.
It
merely referred to
McCarthy
Retail Ltd v Shortdistance Carriers
2001 (3) All SA 236
(A) as authority for the four general
requirements to be proven in enrichment actions. The SCA dealt with
the claim of a garage
business that as
bona
fide
occupier repaired a customer’s vehicle in the mistaken belief
that the insurer had authorised repairs. The court held at
paragraph
[25] that all the general requirements for enrichment liability were
present and found in favour of the garage against
the vehicle owner.
It appears as if the court found for the appellant based on the
condictio
sine causa
.
According to the court
a
quo
,
when entering into the contracts, appellant gambled well-knowing that
its payment hinged on government funding. Also, there
is no
proof that respondent was enriched as a result of the work done by
appellant, as Babereki was appointed by the National Government
to
complete two projects
“
similar
to those plaintiff was appointed for.”
It
then concluded that FLAGG derived benefit from the projects and not
the respondent. Although not stated as such, it appears
as if
the court
a
quo
distinguished the McCarthy judgment from the present matter on two
bases,
i.e.
appellant was not mistaken when it delivered the services and
respondent was not enriched.
VII
GROUNDS OF APPEAL
[21]
Appellant’s grounds of appeal are set out in 38 paragraphs.
It unnecessarily complicated the issues as the grounds
of appeal
really boil down to four issues only. These are set out in the
following paragraphs.
[22]
The first ground of appeal is in respect of the court
a
quo’s
alleged incorrect finding that the required procurement processes in
terms s 217 of the Constitution, the respondent’s Supply
Chain
Management Policy and the regulations were not followed and the
finding that the contracts were null and void.
[23]
Secondly, the court a quo’s finding that appellant was mandated
to do the work
“
on
risk,”
i.e.
on a
speculative basis of no funding, no fee.
[24]
Thirdly, the unilateral termination by respondent of the contracts
prevented appellant from proceeding with the implementation
and
finalisation of the projects as conceded by Ambrose.
[25]
Finally, the court
a quo
should have found in appellant’s
favour based on the just and equitable principle even if the work was
done in terms of illegal
contracts, alternatively, the requirements
for valid enrichments claims have been met.
VIII
EVALUATION OF THE COURT
A QUO’
S
JUDGMENT BASED ON APPLICABLE LEGAL PRINCIPLES
Adjudication
of appeals
[26]
A court of appeal assumes as a starting point that the trial court’s
findings of fact were correct and these findings
are normally
accepted, unless there is some indication that a mistake has been
made. See: Schmidt and Rademeyer,
Law
of Evidence,
loose
leaf edition at 3-40, relying
inter
alia
on
R
v Dhlumayo
1948
(2) 677 (A) 696 at 705 and
Munster
Estates (Pty) Ltd v Killarney Hills (Pty) Ltd
1979 (1) SA 621
(A) at 623 – 624. It is also confirmed
that a trial court enjoys a particular advantage when the demeanour
of witnesses
is of importance. The trial court was, unlike the court
of appeal, absorbed in the atmosphere of the trial from start to
finish.
[27]
Notwithstanding the above comments it cannot be ignored that a court
of appeal may often be in a better position to draw inferences,
particularly in regard to secondary facts, bearing in mind the
benefit of an overall conspectus of the full record. See:
Louwrens
v Oldwage
2006 (2) SA 161
(SCA) para [14] and
Union
Spinning Mills (Pty) Ltd v Paltex Dye House (Pty) Ltd and Another
2002
(4) SA 408
(SCA) at para [24]. If it emerges from the reasons of the
trial court that it erred in respect of its findings on the facts,
the
court of appeal is free to reject the findings in total or in
part, including those findings based on credibility and to reach its
own conclusions. See:
Santam
Beperk v Biddulph
2004 (5) SA 586
(SCA) where Zulman JA stated the following in para
[5]:
“
Whilst a
Court of appeal is generally reluctant to disturb findings which
depend on credibility it is trite that it will do so where
such
findings are plainly wrong (R v Dhlumayo and Another
1948 (2) SA 677
(A) at 706). This is especially so where the reasons given for the
finding are seriously flawed. Overemphasis of the advantages
which a
trial Court enjoys is to be avoided, lest an appellant's right of
appeal 'becomes illusory' (Protea Assurance Co Ltd v
Casey
1970 (2)
SA 643
(A) at 648D - E and Munster Estates (Pty) Ltd v Killarney
Hills (Pty) Ltd
1979 (1) SA 621
(A) at 623H - 624A). It is equally
true that findings of credibility cannot be judged in isolation, but
require to be considered
in the light of proven facts and the
probabilities of the matter under consideration.”
I
shall in my evaluation of the court
a
quo’s
judgment
deal with the reasons advanced by it in order to come to a conclusion
as to whether its findings should be supported.
Evaluation
of the evidence
[28]
A court confronted with two mutually destructive and incompatible
versions should evaluate the evidence by taking cognisance
of and
adopting the reasoning of Nienaber JA in
SFW
Group Ltd and Another v Martell et Cie and Others
2003 (1) SA 11
(SCA) at para [5]:
“
[5]
The technique generally employed by courts in resolving factual
disputes of this nature may conveniently be summarised as follows.
To
come to a conclusion on the disputed issues a court must make
findings on
(a)
the
credibility
of the various factual witnesses;
(b)
their
reliability
;
and
(c)
the
probabilities
.
As to
(a)
,
the court's finding on the credibility of a particular witness will
depend on its impression about the veracity of the witness.
That in
turn will depend on a variety of subsidiary factors, not necessarily
in order of importance, such as (i) the witness' candour
and
demeanour in the witness-box, (ii) his bias, latent and blatant,
(iii) internal contradictions in his evidence, (iv) external
contradictions with what was pleaded or put on his behalf, or with
established fact or with his own extracurial statements or actions,
(v) the probability or improbability of particular aspects of his
version, (vi) the calibre and cogency of his performance
compared to
that of other witnesses testifying about the same incident or events.
As to
(b)
,
a witness' reliability will depend, apart from the factors mentioned
under
(a)
(ii),
(iv) and (v) above, on (i) the opportunities he had to experience or
observe the event in question and (ii) the quality, integrity
and
independence of his recall thereof. As to
(c)
,
this necessitates an analysis and evaluation of the probability or
improbability of each party's version on each of the disputed
issues.
In the light of its assessment of
(a)
,
(b)
and
(c)
the
court will then, as a final step, determine whether the party
burdened with the
onus
of
proof has succeeded in discharging it. The hard case, which will
doubtless be the rare one, occurs when a court's credibility
findings
compel it in one direction and its evaluation of the general
probabilities in another. The more convincing the former,
the less
convincing will be the latter.
But
when all factors are equipoised probabilities prevail.
”
(emphasis
added)
[29]
Mr Prinsloo testified for appellant and Messrs Ambrose and Hlubi for
respondent. Prinsloo and Ambrose contradict each other
in respect of
the risk applicable to the appointments, but more importantly, in
respect of whether or not appellant’s claims
were due and
payable at the stage when invoices were issued in 2013 or when
respondent terminated the contracts. Prinsloo
confirmed that
appellant was entitled to payment notwithstanding the fact that
government funding was not approved yet at that
stage.
Appellant relied on the goodwill normally shown to municipalities by
not insisting on payment for the preliminary
work until funding is
approved. However, and as is clear from the objective facts –
the written agreement between Ambrose
and his erstwhile company, the
appellant – the fees for the work done by appellant was taken
into consideration to calculate
the appellant’s value in order
to establish what was Ambrose’s interest. His
shareholding was therefore valued
by including the approximately R1.8
m now claimed by appellant. The completed work, being 25% of the
total fees on the four contracts,
was agreed to be for appellant’s
account, whilst outstanding work, to wit the balance pertaining to
75% would be for the
account of the new firm created by Ambrose. In
summary, Ambrose benefitted from agreeing that the amounts were due
and payable
for work already done by appellant. On such version
appellant was entitled to payment equal to 25% of their total bill in
respect of each of the four projects.
[30]
Ambrose misled respondent by providing it with an incomplete version
of the agreement between him and appellant and on all
probabilities
his interaction with respondent caused the municipality to
unilaterally terminate the contracts with appellant. This
was to the
advantage of Ambrose’s new company as is apparent from the
evidence. Ambrose’s version should have been
rejected as
untrustworthy and unreliable, or at best for respondent, improbable
insofar as Prinsloo’s version was not only
credible, but could
and should have been preferred based on the probabilities.
[31]
It does not automatically follow that the rejection of a witness’
version on one or more aspects should mean that his/her
evidence
should be rejected
in
toto. In casu
I am satisfied that the court
a
quo
misdirected
itself when it found that there was no procurement process undertaken
by the respondent at all. According to the undisputed
evidence led by
Mr Louw, Ambrose confirmed that a roster system was in place and that
appellant had to tender to be recognised
as a service provider.
Hlubi confirmed this to an extent although he submitted that no
tender process had to be followed
in
casu
because
the work was done
“
on
risk.”
Hlubi’s
repeated references to
“
risk”
in his evidence,
even from the onset, appear suspicious, especially bearing in mind
the version of Radebe in his answering affidavit
in the summary
judgment proceedings where this was not an issue at all. On
Hlubi’s version a competitive bidding process
had to be
followed only once funds were secured. This probably led the court
a
quo
to
state that in performing the preliminary work appellant received an
advantage over other potential bidders. Hlubi’s version
is
directly in contrast with the terms of the appointment letters. The
language used in paragraph two is unambiguous. On
approval and
funding being obtained appellant
“
should
then proceed with the final design, preparation of necessary
documents, and the project management of the project during
implementation phase of the project.”
Two
of the four letters qualify
“
documents”
to be “
tender
documents.”
[32]
Ambrose and Hlubi contradicted each other as alluded to in the
previous paragraph. Hlubi was an arrogant witness that did not
even
understand that appellant was claiming for preliminary work only.
In any event his evidence did not and could not contribute
to the
court
a
quo
’s
decision. In fact, no mention is made of his evidence in the
judgment.
[33]
Although Prinsloo had a reason to testify in appellant’s
favour, he made concessions when necessary. Ultimately
the
court could not and did not reject his version as not true or even
improbable. His evidence provided background, as was
the case
with Ambrose’s evidence (although to be considered carefully)
and based on that it is possible to utilise such evidence
as a tool
in interpreting the appointment letters. Interpretation of the
contracts will be considered under the next heading.
Interpretation
of contracts
and
the terms and conditions of appellant’s appointments
[34]
Throughout this judgment I interchangeably refer to appointment
letters and contracts between the parties. The written parts
of the
contracts consist of the appointment letters and the written
acceptance thereof. The wording of the letters of acceptance
does not
assist us in the interpretation of the contracts, save insofar as it
is evident that both appellant and respondent accepted
that appellant
would be part of the project team in respect of all four projects
until finalisation thereof. The parties accepted
that funds would be
obtained some time in future as the projects relate to much needed
infrastructure and would obviously be in
the interest of the local
communities. Therefore, as Ambrose testified, fees were not
discussed. It is common cause
that the ECSA fee structure would
apply as set out in the letters of acceptance. It is also clear from
the evidence that some of,
if not all, the letters of appointment
were issued after appellant had already started with the preliminary
works. I shall deal
with other factual issues once I have referred to
the authorities
infra
.
[35]
In an oft-quoted judgment Wallis JA summarised the current state of
our law regarding the interpretation of documents, including
contracts, as follows in
Natal
Joint Municipal and Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA) at para [18]:
“
Interpretation
is the process of attributing meaning to the words used in a
document, be it legislation, some other statutory instrument,
or
contract, having regard to the context provided by reading the
particular provision or provisions in the light of the document
as a
whole and the circumstances attendant upon its coming into
existence. Whatever the nature of the document, consideration
must be
given to the language used in the light of the ordinary rules of
grammar and syntax; the context in which the provision
appears; the
apparent purpose to which it is directed; and the material known to
those responsible for its production. Where more
than one meaning is
possible, each possibility must be weighed in the light of all these
factors. The process is objective, not
subjective.
A
sensible meaning is to be preferred to one that leads to insensible
or unbusinesslike results or undermines the apparent purpose
of the
document.”
(emphasis
added)
Thus,
the matter must be approached holistically and context and language
must be considered together with neither predominating
over the
other.
See
also
Bothma-Batho
Transport (Edms) Bpk v S Bothma en Seun Transport (Edms) Bpk
2014
(2) SA 494
(SCA) at paras [10] - [12].
[36]
In
BP
Southern Africa (Pty) Ltd v Mahmood Investments (Pty) Ltd
[2010]
2 All SA 295
(SCA) Lewis JA stated the following in a unanimous
judgment at para [11]:
“
It
is settled law that a contractual provision must be interpreted in
its context, having regard to the relevant circumstances known
to the
parties at the time of entering into the contract …. It is
also clear that the provision must be given a
commercially
sensible meaning
…”
(emphasis
added)
[37]
In
Novartis
v Maphil
[2015]
ZASCA 111
, 3 September 2015, Lewis JA stated the following at para
[28]:
“
[28] The
passage cited from the judgment of Wallis JA in
Endumeni
summarizes the state of the law as it was in 2012. This court did not
change the law, and it certainly did not introduce an objective
approach in the sense argued by Novartis, which was to have regard
only to the words on the paper. That much was made clear in
a
subsequent judgment of Wallis JA in
Bothma-Botha
Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk
[2013] ZASCA 176
;
2014 (2) SA 494
(SCA), paras 10 to 12 and in
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
[2013] ZASCA 76
;
2013 (5) SA 1
(SCA) paras 24 and 25.
A
court must examine all the facts - the context - in order to
determine what the parties intended. And it must do that whether
or
not the words of the contract are ambiguous or lack clarity. Words
without context mean nothing.”
(emphasis
added)
[38]
The heading of all four letters reads
“
Risk
appointment ....”
followed
by a description of the particular project. In one of the four
letters the words
“
at
risk”
are
found in respect of the appointment to undertake preliminary work.
The preliminary work is costed at 25% of a consulting
engineer’s
total remuneration for the project, whilst the work in respect of
detail design, preparation of necessary documents
and project
management during the implementation phase of the project is costed
at 75%. The witnesses, except Hlubi who was
out of his depth,
agreed that the work undertaken in paragraph one of the four letters
of appointment entitled appellant to payment
of 25% of its total fee
(bearing in mind the difference of opinion whether it could lawfully
be claimed) and the work to be undertaken
in paragraph two,
i.e.
when the project is implemented and finalised entitles an engineer to
75% of the total fee.
In
casu
there is no issue about the 75%, but the 25% only.
[39]
The last paragraph of three of the appointment letters reads as
follows:
“
Please note
that the project implementation is subject to approval by the
Municipal Infrastructure Grant and availability of funds.”
The
fourth letter is in similar terms but approval was required of the
National Department of Finance. In my view the respondent
made it
abundantly clear in these last paragraphs that only the project
implementation – that is in respect of 75% of the
work as set
out in paragraph two – is subject to approval and funding.
The obvious and logical deduction from this
is that funding and
approval from MIG or National Government was not required for the
first phase,
i.e.
the 25% set out in paragraph one. This should be clear to any
reasonable person that embarks on interpretation of the appointment
letters. The respondent, by its own admission and like so many
municipalities in this country, does not have any skilled
personnel
in its service anymore and need to employ outsiders such as
consulting engineers to assist them with proper service delivery.
If appellant (or for that matter any other firm of consulting
engineers) was not mandated to do the first part of the project,
respondent and the government would not have a clue what the projects
might cost and it would be impossible to advertise for tenders
without feasibility studies and technical reports.
[40]
Hlubi reckoned that the preliminary work done was nothing but a
desktop exercise and he tried to cast doubt on the amount of
work put
in to arrive at the end of phase one. It is not clear whether
he is guilty of extreme arrogance or merely a badly-informed
person
with some financial background, but a layman in the field of civil
engineering. Be that as it may, his version should
have been
rejected. It needs to be pointed out again that the court
apparently did not rely on his version.
[41]
Ambrose suggested that the work done in respect of phase one, or then
paragraph one of the appointment letters, was done speculatively,
or
put otherwise, no fees would be charged if no funding was obtained.
The last paragraph of the appointment letters does
not allow for such
an interpretation and even if it did, such possibility, if weighed
with the one submitted by appellant and the
surrounding
circumstances, is untenable. I am not prepared to accept, for
purposes of interpretation of the appointment letters,
that any firm
of consulting engineers would go around the country, offering its
services, spending many manhours and employing
several experts in
order to prepare documentation based on their expertise in the hope
that funding will become available and if
not, that they would have
done the work for free. We are not talking of desktop exercises
and possibly advice that might
have taken an hour or two of their
time.
[42]
Prinsloo explained that the reference to risk merely meant that if
appellant would proceed to do work beyond that required
for phase one
in the hope that funding would be obtained, appellant would be doing
such extra work on risk, meaning that if funds
were not approved, it
would not have any leg to stand on in order to claim fees in excess
of 25% of the total fees.
[43]
The author of the four letters, Radebe in his capacity as municipal
manager, was available but not called to testify.
Messrs
Motsoeneng and Mofokeng to whom enquiries could be directed
ex
facie
the
letters were also not called. Any of these persons might have
clarified matters. It is important to note that Radebe did
not
raise the so-called
“
risk
appointment”
as
a defence in his answering affidavit resisting the summary judgment
application. There is merit in Mr Venter’s argument
that
this
“
defence
was conjured up”
since
then and during preparation for trial. I am not prepared to
accept Mr Louw’s argument that the appointment letters
must be
interpreted against the backdrop of s 15 of the Local Government:
Municipal Finance Management Act, 56 of 2003 (“MFMA”),
dealing with approved budgets and certain treasury regulations to the
effect that competitive bidding can be done away with if
contracts
are offered on a “
risk-basis”
,
i.e. a contingency fee basis of no success, no fee. No factual
basis was laid in the evidence for such approach and it was
not fully
canvassed by relying on direct and credible evidence. It is
reiterated that respondent bore the
onus
to
prove illegality.
[44]
The court
a
quo’
s
conclusion that it
“
is
clear from the undisputed evidence that the plaintiff accepted
appointment letters based
on
risk
as its marketing exercise to retain its position as a preferred
provider for engineering services”
is
flawed for the reasons advanced herein. Also, the finding that there
was no agreement that appellant would be paid for preliminary
designs
before approval of funds must be seen in light of a proper
interpretation of the appointment letters. In the process
of
arriving at its conclusion the court
a
quo
elected to rely on the fact that respondent had not budgeted for the
fees relating to the preliminary work. Again,
it was no doubt
accepted that funds would become available at a stage and that the
preliminary work was essential to make out a
case for funds to comply
with the needs of the local communities.
Procurement
law
and
the validity of the appointments
[45]
Respondent raised non-compliance with procurement laws in its plea.
It elected not to file a review application or a
counter-claim.
Fact of the matter, and even if it can be accepted that review
procedure was not required, which is doubtful
in light of the
authorities referred to
infra
,
it attracted an
onus
to show that the contracts were illegal and null and void based on
the principle of legality.
[46]
In
Mothapo
Consulting Engineers (Pty) Ltd t/a Mothapo Projects v Nala
Municipality
(1053/2012)
[2012] ZAFSHC 118
(21 June 2012) I stated the following at para [19]:
“
[12] Section 217 of the
Constitution prescribes that when an organ of state in the National,
Provincial or Local Sphere of Government
contracts for goods or
services, it must do so in accordance with a system which is fair,
equitable, transparent, competitive and
cost-effective. This is
echoed in
section 83(3)
of the
Local Government: Municipal Systems
Act 32 of 2000
.
Section 112(1)
of the Local Government:
Municipal Finance Management Act, 56 of 2003 stipulates that the SCMP
of a municipality must be fair,
equitable, transparent, competitive
and cost-effective and comply with a prescribed regulatory framework
for municipal supply chain
management. In this regard
regulations were promulgated under GN R 868 in GG 27636 of 30 May
2005. Procurement law
is prescriptive and not permissive.
See SANYATHI CIVIL ENGINEERING AND CONSTRUCTION (PTY) LTD v ETHEKWINI
MUNICIPALITY AND
OTHERS 2012(1) BCLR 45 (KZP) paras 26 -36 and TEB
PROPERTIES CC v MEC, DEPARTMENT OF HEALTH AND SOCIAL DEVELOPMENT,
NORTH WEST
[2012] 1 ALL SA 479
(SCA) para 31.”
[47]
More recently the Constitutional Court set out the proper legal
approach pertaining to procurement processes in
Allpay
Consolidated v Chief Executive Officer, SASSA
2014
(1) SA 604
(CC) at para [22]. It is not necessary for purposes
hereof to quote the
dictum
fully,
save to reiterate that
“
the
constitutional and legislative procurement framework entails supply
chain management that are legally binding”
and
“
(t)he remedy
stage is where appropriate consideration must be given to the public
interest in the consequences of setting the procurement
process
aside.”
[48]
In
Westinghouse
Electric Belgium SA v Eskom Holdings (SOC) Ltd and another
2016 (3) SA 1
(SCA) the court reiterated at para [38] that fairness
in the procurement process is a value in itself and at para [39] that
proper
compliance with the procurement process is necessary for a
lawful process.
[49]
In
Municipal
Manager: Qaukeni Local Municipality and another v FV General Trading
CC
2010
(1) SA 356
(SCA) at para [16] the SCA found as follows:
“
[16] I
therefore have no difficulty in concluding that a
procurement contract for municipal services concluded in breach
of
the provisions dealt with above which are designed to ensure a
transparent, cost-effective and competitive tendering process in
the
public interest, is invalid and will not be enforced.”
[50]
In
Qaukeni
the SCA proceeded as follows
at
para [26]
in
respect of the procedure to be adopted by a public body confronted
with its own irregular administrative act:
“
But it is unnecessary to reach
any final conclusion in that regard (the review of the administrative
action under PAJA).
If
the second appellant's procurement of municipal services through its
contract with the respondent was unlawful, it is invalid,
and this is
a case in which the appellants were duty-bound not to submit to an
unlawful contract, but to oppose the respondent's
attempt to
enforce it. This it did by way of its opposition to the main
application and by
seeking
a declaration of unlawfulness in the counter-application
.
In doing so
it
raised the question of the legality of the contract fairly and
squarely
,
just as it would have done in a formal review. In these
circumstances,
substance
must triumph over form.
”
(emphasis
added)
Review
and setting aside of decisions
[51]
In
Absa
Bank Ltd v Kernsig 17 (Pty) Ltd
2011
(4) SA 492
(SCA) the court found that s 38 of the Companies Act, 61
of 1973,
“
is
fact-based and that, without the necessary facts, a court cannot
make a finding on whether s 38 was contravened or not.”
The
SCA concluded as follows:
“
[24] In this
matter it is plain that all the facts are not before court to enable
the court to determine whether or not s 38 has
been contravened.”
See
paras [23] and [24] at 498J – 499E. The SCA also relied
on the following
dictum
of Trollip JA in
Yannakou
v Apollo Club
1974 (1) SA 614
(A) at 623G – H:
“
And if his
defence is illegality, which does not appear
ex
facie
the transaction sued on but arises from its surrounding
circumstances, such illegality and the circumstances founding it must
be pleaded.
It
is true that it is the duty of the court to take the point of
illegality
mero
motu
,
even if the defendant does not plead or raise it; but it can and will
only do so if the illegality appears
ex
facie
the transaction or from the evidence before it,
and,
in the latter event, if it is also satisfied that all the necessary
and relevant facts are before it.
”
I
have deliberately emphasised the last part of the quotation as the
court
a
quo
relied
on the very same
dictum,
but
failed to quote this extremely important part. A court cannot
make a finding of illegality if all necessary and relevant
facts have
not been placed before it. I refer to
Mofomo
and
Kirland
infra
.
[52]
An
administrative decision must be treated as though it is valid until a
court pronounces authoritatively on its invalidity.
See
Kwa
Sani Municipality v Underberg
/
Himeville
Community Watch Association and Another
[
2015]
2 All SA 657
(SCA) at paras [14] and [15] and
MEC
for Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd
t/a Eye and Laser Institute
2014 (3) SA 219
(SCA) at para [32]. See also
Merafong
City v Anglogold Ashanti
2017 (2) SA 211
(CC) at paras [41] –
[44].
[53]
In
MEC
for Public Works and Infrastructure, Free State Provincial Government
v Mofomo Construction CC
(A138/2016)
[2016] ZAFSHC 196
(24 November 2016) I, writing for the full bench,
stated the following at para [34]:
“
In its
counter-application the Department was called upon to disclose the
entire process followed prior to the appointment of Mofomo,
the
reasons for its decision and all relevant documents. In the
process the Department as an organ of state seeking to repudiate
its
own administrative action disobeyed the essential requirements for a
review application. The Department had to prove
invalidity to
the court
a
quo
,
but failed to do so.”
[54]
I proceeded in
Mofomo supra
to emphasise that a public body
such as a municipality that wants to have its own decision reviewed
and set aside must play
open cards with the court. It
should provide the court with its record of decision, the reasons for
the decision and all
relevant documents as would have been the case
if its decision was taken on review by a disgruntled member of
public. I refer
to paras [45] – [50] and
inter alia
relied on the judgment of Cameron J in
MEC for Health, Eastern
Cape and another v Kirland Investments (Pty) Ltd t/a Eye and Laser
Institute
2014 (3) SA 481
(CC) at para [65] where the learned
judge said the following:
“
When
government errs by issuing a defective decision, the subject affected
by it is entitled to proper notice, and to be afforded
a proper
hearing, on whether the decision should be set aside.
Government should not be allowed to take short cuts.
Generally,
this means that government must apply formally to set aside the
decision. Once the subject has relied on a decision,
government
cannot, barring specific statutory authority, simply ignore what has
been done. The decision, despite being defective,
may have
consequences that make it undesirable or even impossible to set it
aside. That demands a proper process, in which
all factors for
and against are properly weighed.”
[55]
The principle that a public body or state functionary may challenge
exercises of public power, including their own, in appropriate
circumstances, has been confirmed recently by the Constitutional
Court in
Department of Transport and others v Tasima (Pty) Ltd
2017 (2) SA 622
(CC). A collateral challenge to validity of a
decision is allowed. See also: Merafong City supra at paras
[25], [55]
and [56].
[56]
In
State
Information Technology Agency Soc Ltd v Gijima Holdings (Pty) Ltd
2018 (2) SA 23
(CC)
at
paras [37] & [38] the Constitutional Court found that a PAJA
review is not available to an organ of state, but a legality
review
applies to enable the organ of state to apply for the review of its
own decision. The court also considered the rule
against delay
in bringing review applications with reference to
inter
alia
Tasima
and Kirland supra
and
found that even in the case of a collateral or reactive challenge,
due process must be followed by organs of state as there
is no reason
to exempt government. At paragraph [50] the court confirmed the
following
dictum
by Cameron J in
Kirland
to be correct
:
“…
there is a higher duty
on the state to respect the law, to fulfil procedural requirements
and to tread respectfully when dealing
with rights. Government
is not an indigent or bewildered litigant, adrift on a sea of
litigious uncertainty, to whom the
courts must extend a procedure
circumventing lifeline. It is the Constitution’s primary
agent. It must do right,
and must do it properly.”
[57]
Respondent did not launch review proceedings. If it did that,
the reasons for its decisions to issue the appointment
letters would
have to be provided. All relevant aspects pertaining to the
history of the matter would have been placed before
the court, such
as
e.g.
advertisements for tenders (if it was done), the tenders received,
the discussions by panel members (if it was the case), any possible
deviation requests and discussions about that at council level, who,
when and on whose authority a roster system was put in place
and on
what basis appellant was selected and by whom. All the facts
have not been placed before the court
a
quo
for
it to adjudicate whether an illegality has taken place. See:
Apollo
and Kirland supra
.
The evidence of Radebe, the municipal manager and perhaps the chief
financial officer at the time, and/or even the persons
referred to
supra
would be of crucial importance. Furthermore, there might be
minutes of council meetings that could shed light on the matter.
Respondent should have placed reliable and credible evidence of
witnesses that were involved with the roster system and/or the
bidding system before the court, but failed to do so. The court
a quo
was
left in the dark in this regard and actually exercised its discretion
“
in the air.”
[58]
The contradictory versions of Ambrose and Hlubi should have been
considered and I would have expected the court
a
quo
to
deal with that. Instead it accepted Ambrose’s alleged
uncontested version as correct. As shown
supra
,
his version should have been found untrustworthy and rejected, except
where he confirmed Prinsloo’s version and where his
evidence
was not challenged in respect of the procurement process followed by
respondent and the roster system introduced.
Ambrose lied with
an apparent purpose to support respondent’s defence and to
ensure that his company would in future obtain
further work from
respondent. He was biased and his evidence is not supported by the
objective facts.
[59]
If a court finds that a decision of an organ of state should be
reviewed and set aside, an order should be made according to
what
justice and equity dictate. See: s 8 of PAJA, the second Allpay
judgment
2014 (4) SA 179
(CC) at para [61] and further as well as
Gijima at para [54] where the Constitutional Court found as follows:
“
Gijima may well have performed
in terms of the contract, while SITA sat idly by and only raised the
question of 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 declaration of invalidity –
it might have
been entitled.”
[60]
Even if it could be found that the contracts were null and void in
their totality, the court
a quo
should have found that
appellant was entitled to payment of the 25% claimed. See:
Gijima supra
and also
Ga-Segonyana Local Municipality v OJM
consulting Engineers (Pty) Ltd,
an unreported judgment from the
Northern Cape Division, case no 1224/15 delivered on 4 May 2018.
It must be reiterated that
although the facts in the
OJM
judgment are largely similar to that
in casu,
the municipality
brought a review application and it must be accepted that all
relevant evidence was placed before it which cannot
be said to be the
case
in casu.
Effect
of respondent’s termination of the contracts
[61]
We know that Prinsloo testified that two of the contracts, referred
to at national level as a bucket eradication system, have
been
completed. His evidence is supported by photographs and is
uncontested. Babareki was appointed as consulting engineers,
allegedly as part of a national campaign by the President.
Ambrose’s firm has been appointed as sub-contractor.
His
version that the preliminary works done by appellant in respect of
the two separate projects for sewerage reticulation networks
and
toilet structures were not the same as the work eventually completed,
is another falsehood. The record speaks for itself.
[62]
Appellant’s designs are intellectual property that were on all
probabilities used as a springboard by Babereki to do
final designs
and oversee the remainder of the two projects – the 75%
referred to in evidence. The designs for the
other projects can
be utilised the moment funding becomes available. Respondent’s
termination of the contracts prevents
appellant from being any part
thereof. If it is accepted that the appointments for all four
projects were on total risk or
100% risk, which I am not prepared to
do, then Ambrose’s concession becomes relevant. Once the
contracts were terminated,
the projects could not be proceeded with
by appellant. Respondent made it impossible for it to perform.
Enrichment
[63]
I am of the view that appellant would be entitled to succeed based on
enrichment as well. It is deemed unnecessary to
deal with this
alternative claim, save to say that the work done by appellant added
value in the amounts claimed and respondent
has been enriched.
It will not have to instruct third parties to redo the work done.
IX
CONCLUSION
[64]
I conclude by firstly stating that there was insufficent evidence
upon which the court
a
quo
could have found that the contracts were null and void and
unenforceble. The authorities quoted indicate clearly that
respondent
should have brought a legality review application for the
court to consider all reasons provided and all documents and evidence
relied upon for arriving at the decisions.
[65]
Secondly, a proper interpretation of the appointment letters based on
the authorities quoted leaves me with one conclusion
only and that is
that appellant was not appointed
“
on
risk”
as
submitted by respondent. If such a meaning could be ascribed to
the words used, the letters of appointment would in the
words of
Wallis JA lead to
“
insensible
or unbusinesslike results”
and/or
“
undermine
the apparent purpose”
thereof.
As Lewis JA said,
“
the
(contractual)
provision must be
given a commercially sensible meaning.”
[66]
The unilateral termination of appellant’s contracts, no doubt
based on incorrect information fed to respondent by Ambrose,
made it
impossible for appellant to remain involved with the remainder of the
work instructed to do – the 75% repeatedly
mentioned in the
evidence – and more importantly, to obtain payment from
government funding as it used to receive in the
past in similar
situations. It was therefore entitled to issue invoices as it
did and to claim payment for the 25% work done,
the extent and amount
which is not in dispute.
[67]
In the light of these findings, I mentioned that it is unnecessary to
consider the claims based on enrichment and refrained
from doing so.
I confirm, however, that I am convinced that a proper case has been
made out for relief in this regard as
well.
[68] Finally, and if it
could be found that there was no compliance with the procurement
laws, it would be just and equitable that
appellant be paid for work
done and which was either utilised or may (will) in future be
utilised when funds are eventually granted.
The local
communities are in dire need for the services to be rendered based on
appellant’s preliminary work.
X
ORDERS
[69] The following orders
are issued:
(1)
The appeal succeeds with costs, such costs to include the costs
of the two applications for leave to appeal.
(2) The order of the
court
a quo
is set aside and replaced by the following:
“
(2.1)
Judgment is granted in favour of plaintiff against defendant in the
amounts of R556 542.30 (Five hundred and fifty
six thousand five
hundred and forty two Rand and thirty cent), R328 333.00 (Three
hundred and twenty eight thousand three
hundred and thirty three
Rand), R164 680.13 (One hundred and sixty four thousand six
hundred and eighty Rand and thirteen
cent) and R799 258.33
(Seven hundred and ninety nine thousand two hundred and fifty eight
Rand and thirty three cent) in respect
of claims 1, 2, 3 and 4
respectively.
(2.2) Interest on
the aforesaid amounts
a
tempore morae
from
date of
mora
to date of payment.
(2.3) Costs of
suit.”
_____________
J.
P. DAFFUE, J
I
concur
____________
POHL,
AJ
I
concur
___________
MENE,
AJ
On
behalf of appellant: Adv J A Venter
Instructed
by:
WWB
Botha Attorneys
c/o
Phatshoane Henney attorneys
BLOEMFONTEIN
On
behalf of the respondent: Adv M C Louw
Instructed
by:
Stander
& Partners
BLOEMFONTEIN