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[2018] ZANCHC 86
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Jorian Construction CC v Tshenolo Resources (Pty) Ltd and Another (2622/1016) [2018] ZANCHC 86 (16 November 2018)
Not Reportable
Do Not Circulate to Judges
Do Not Circulate to Magistrates
Do Not Circulate to Regional
Magistrates
IN THE HIGH COURT OF SOUTH
AFRICA
(NORTHERN CAPE HIGH COURT,
KIMBERLEY)
Case No: 2622/1016
Heard On: 24/08/2018
Delivered: 16/11/2018
In the matter between:
JORIAN
CONSTRUCTION
CC
Plaintiff
AND
TSHENOLO
RESOURCES (PTY)
LTD
1
st
Defendant
RENOSTERBERG LOCAL
MUNICIPALITY
2
nd
Defendant
JUDGMENT
PAKATI
J
[1]
The
plaintiff, Jorian Construction CC ("Jorian Construction"),
a close corporation with its main place of business at
33 Specery
Street, Kwaggafontein in Bloemfontein, applies for default judgment
against the second defendant, Renosterberg Municipality
("the
Municipality"), under Case Numbers 1217/2015 and 2622/2016 for
services rendered. The amended particulars of claim
in respect of the
two case numbers combine the separate actions and will be dealt with
as such. The Municipality does not oppose
the application. No relief
is sought against, the first defendant, Tshenolo Resources, but it
opposes the application. Tshenolo
Resources is presently under
business rescue in terms of section 129 (3) (b) of the Companies
Act
[1]
at the request of certain of its creditors due to the alleged
inability to pay its debts.
[2]
Tshenolo
Resources and the Municipality concluded a written agreement
encompassing written changes to the general contract data
and the
general provisions of the general conditions of the 2004 contract
document. According to the written agreement Tshenolo
Resources
secured a tender with the Municipality for the upgrading of dirt
roads and streets to paved streets in Petrusville and
Philipstown
areas. It is common cause that the plaintiff was not a party to this
agreement; hence it did not attach the written
agreement in its
founding affidavit.
[3]
According
to the written agreement Tshenolo Resources would submit monthly
claims for work done to the Municipality who in turn
would pay such
claims within 28 days after date of receipt of any invoice issued in
terms of the contract accompanied by a payment
certificate issued by
its consulting engineers. The work was scheduled to be completed in
eighteen months. The Municipality would
also be entitled to withhold
10% of claims submitted and on the value as determined by the
consulting engineers as a retention
amount, up and until such time as
the agreed upon defects liability period had been completed. On
completion of the construction
work it would be certified by the
Municipality's consulting engineers and 50% of the total amount of
retention up to then withheld
would be paid to Tshenolo Resources and
the remaining 50% would be paid after the expiry of one year after
the stage of practical
completion had been reached and all latent
defects in the construction work corrected by Tshenolo Resources.
[4]
On
07 August 2013 Tshenolo Resources represented by Mr ET Bozwana, and
Jorian Construction, by Mr HJP Steyn, entered into a written
agreement (Annexure "A") in which Tshenolo Resources
appointed Jorian Construction as its sub-contractor to perform the
construction work. This was after Jorian Construction had challenged
the award of the tender to Tshenolo Resources. The defendants
were
the respondents in the matter under Case Number 954/2013. Jorian
Construction and Tshenolo Resources concluded the agreement
based on
the knowledge of the express, alternatively implied and alternatively
tacit terms of the agreement which I summarise as
follows:
4.1
That Tshenolo Resources had
secured a tender with the Municipality for the upgrading of dirt
roads and streets to paved streets
in Petrusville and Philipstown
areas.
4.2
Jorian Construction would perform
all the works for the upgrading of the dirt streets to paved streets
in the mentioned areas as
a sub-contractor.
4.3
Jorian Construction would be
entitled to submit monthly statements to Tshenolo Resources for the
work done.
4.4
A retention amount of 10% would
be deducted from Jorian Construction's monthly claims submitted, on
the same terms and conditions
as it existed between Tshenolo
Resources and the Municipality as to its eventual payment terms.
4.5
Tshenolo Resources would include
such payment certificates rendered to it by Jorian Construction into
its own certificates to be
rendered to the Municipality.
4.6
Tshenolo Resources would pay
Jorian Construction for work so performed within 24 hours after
Tshenolo Resources received payment
from the Municipality.
[5]
It
is undisputed that Tshenolo Resources paid the first eleven payment
certificates to the total amount of R9 618 440-72. On 21
November
2014 and 02 February 2015 Jorian Construction issued two invoices to
Tshenolo Resources (Annexures "B" and "C")
to the
amounts of R3 208 904-69 and R2 065 776-89 respectively, each invoice
with interest calculated at 9% per annum
a
tempora morae
and costs for services
rendered to Tshenolo Resources. The invoices describe the work done
as
"Project ref nr 54630VNA -
UPGRADING OF DIRT STREETS TO PAVED STREETS IN PHILLIPSTOWN AND
PETRUSVILLE PHASE 2".
On 10
December 2015 the plaintiff issued an invoice numbered payment
certificate to the amount of R 890 908-34 (Annexure "B").
Notably, the three invoices clearly show that they were prepared by
Jorian Construction for payment by to Tshenolo Resources.
[6]
After
Jorian Construction completed the construction work it was certified
accordingly and handed over to the Municipality who received
and
retained it. Jorian Construction claims that it duly performed in
terms of the agreement and rendered payment certificates
as well as
claims to Tshenolo Resources. Despite receipt of the completed
construction work the Municipality failed to pay the
full amount of
the contract price to Tshenolo Resources in order for it to pay
Jorian Constrution.
[7]
Jorian
Construction issued summons against Tshenolo Resources in Case Number
1217/2015 dated 17 June 2015 and later joined the Municipality
in its
notice of amendment of its particulars of claim. On 22 September 2015
Tshenolo Resources filed a notice of intention to
defend the action
and a plea on 18 May 2016. On 29 November 2016 Jorian Construction
issued other summons dated 17 June 2015 in
Case Number 2622/2016
against Tshenolo Resources as the first defendant and the
Municipality, the second defendant. The summons
was served upon Ms
Nguka, a person in charge of the Municipality on 10 February 2017.
[8]
Jorian
Construction filed an application for default judgment in terms of
Rule 31 (5) (a)
[2]
dated 09 March 2018 (Case Number 1217/2015) and was also served upon
the Municipality on 29 March 2018 by leaving a copy with Ms
Dick, the
Municipal Manager, in respect of both cases. On 24 May 2018 Tshenolo
Resources filed a notice to oppose the application
accompanied by an
affidavit deposed to by Mr Werner Cawood, the business rescue
practitioner, on behalf of Tshenolo Resources.
The matter was then
set down for hearing on 25 May 2018. On that date it was postponed by
agreement to 24 August 2018 when it was
heard. There was no
appearance for the Municipality on both occasions.
[9]
Tshenolo
Resources alleges that its opposition is based on the fact that it
holds an interest in the application. It submits that
it filed its
plea to the summons representing the combination of the separate
claims initially instituted against the defendants.
[10]
Mr
Grobler, on behalf of Jorian Construction, submits that Jorian's
invoices rendered to Tshenolo Construction were subsumed in
the
invoices of Tshenolo Resources rendered to the Municipality. He
submits further that the plaintiff's claim is set out in this
fashion
because there is no privity between the plaintiff and the
Municipality. It is therefore based on an admission that it was
a
sub-contractor and he maintains that the order sought is competent.
It is common cause that the relationship between Tshenolo
Resources
and Jorian Construction is a contractual one. According to Mr Grabler
there is no reason why the Court could not order
the Municipality to
pay Tshenolo Resources and in turn Tshenolo Resources be ordered to
pay Jorian Construction.
[11]
Tshenolo
Resources alleges that Jorian Construction's application is premature
taking into account that its claim has not become
due and payable.
Jorian Construction would only be entitled to payment once Tshenolo
Resources receives payment from the Municipality.
Tshenolo Resources
states that the reason why the Municipality has not fulfilled its
obligation towards it for the services rendered
was as a result of
the alleged defective nature of the construction work done which is
not according to the agreement. It states
further that this dispute
forms the basis of the litigation between Tshenolo Resources and the
Municipality. It acknowledges though,
that the application for
default judgment is against the Municipality only. However, the
granting of judgment would be detrimental
to it, hence its
opposition.
[12]
Mr Van der Merwe, for Tshenolo
Resources, submits that the court has discretion to grant or refuse
the application for default judgment
taking into consideration all
the relevant facts. In this regard he relies on
WASHAYA
v WASHAYA
[3]
.
In this matter the court in deciding
whether a party is truly in default in the sense of not pursuing the
litigation, should have
regard to all the documents in the court's
file.
[13]
Mr
Werner Cawood, the business rescue practitioner, deposed to the first
defendant's opposing affidavit. He argues that Tshenolo
Resources
provided services to the Municipality in terms of a tender awarded to
it by the Municipality. He argues further that
granting judgment
against the Municipality would have an adverse effect on Tshenolo
Resources, its creditors and the ongoing business
rescue proceedings.
He claims it would not be in the interests of Tshenolo Resources as
Jorian Construction and Tshenolo Resources
have to share the funds
equally as they become available within the business rescue.
[14]
Mr
Van der Merwe argues that Jorian Construction's enrichment claim
cannot stand taking into account the first defendant's allegation
that the plaintiff did not complete the work up to the standard and
specification as it was required to do. He argues further that
the
requirements for enrichment have not been complied with. He submits
that should Jorian Construction be directly paid by the
Municipality
Tshenolo Resources would lose its mark-up and the amount due to it in
terms of the agreement between Tshenolo Resources
and Jorian
Construction. He adds that Tshenolo Resources would be at a
disadvantage as the Municipality would pay the plaintiff
directly and
circumvent its obligation towards Tshenolo Resources.
[15]
Mr
Grobler submits that the granting of the judgment against the
Municipality would not have any negative effect on Tshenolo
Resources'
mark-up as nothing prevents it from claiming it. Regarding
the absence of a legal relationship between Jorian Construction and
the Municipality Mr Grobler relied on
FREE
STATE PROVINCE v TERRA GRAPHICS (PTY) LTD AND ANOTHER
[4]
where Navsa JA (Ponnan JA, Leach JA,
Sadulker JA and Zondi JA concurring) held in a similar matter:
'In the
present instance TW performed work for the benefit of the Department,
for which it invoiced SSI, which, in turn, invoiced
the Department
for the same amount in respect of the same work. It is perhaps
necessary to reiterate that the Province knew that
environmental
services could only be provided by a sub consultant. It approved the
appointment of that particular sub consultant.
In terms of clause
5.1.3 of the main agreement, the Province had undertaken to SSI to
pay the sub consultant's fees in addition
to its (SSl's) own fees. It
received the benefit of the services of TW. It is also not without
significance that the MEC represents
a government department which,
in terms of constitutional prescripts, is required to be accountable.
SSI has been joined in these
proceedings, which it has chosen not to
oppose. All interested parties were therefore before this court. The
MEC has failed to
raise any justification for its failure to pay TW
through the conduit of SSI. The court below ordered the MEC to effect
payment
of the sum of R 1 540 123, 54 to TW (para 1 of its order).
And, in para 2 (albeit wrongly couched as an alternative to para 1)
it ordered that such payment be effected via SSI. There is therefore
no reason in principle to interfere with those orders of the
High
Court.'
[16]
According to Mr Grobler the Terra
Graphics case is in all fours with the instant case. He submits that
the plaintiff's particulars
of claim went uncontested. In this case
the Free State Provincial Government awarded a tender in relation to
a road infrastructure
programme to the main contractor ("SSI").
SSI submitted a tender and was subsequently awarded the tender to
assist the
Department of Police Roads and Transport to manage the
implementation of the road repairs and rehabilitation programme for
the
Free State road network. It therefore concluded a written
agreement with the 551 to supply engineering services for a total
remuneration
package of R 69 million. The main agreement contemplated
the appointment of subcontractors with the approval of the Provincial
Government and to this end the tenders were invited. The Provincial
Government sanctioned the appointment of TW as a subcontractor
to
provide environmental protection services for payment in an amount of
R 1593 997-75. Notwithstanding that the work was fully
completed The
Provincial Government accepted and retained the benefit and had
already made two payments.
[17]
Considering that 551 had not been paid it could not pay the
subcontractor, TW, for the balance due.
TW then alleged that the
Provincial Government failed to make a full payment for work and
services rendered in terms of the agreement.
The MEC did not dispute
that the work had been done in terms of the main and sub consultancy
agreements. The Provincial Government
raised a defence,
inter
alia,
that it had made no budgetary allocation for such work. On
behalf of the MEC it was argued that the claim for payment of
services
rendered lay against 551 and not against the MEC.
[18] The
court
a quo
considered whether there was any merit to the
defence that there was no contractual privity between TW (the
subcontractor) and the
Provincial Government. He took into account
provisions of the main agreement in terms of which 551 was the
Province's manager in
relation to the road rehabilitation programme,
including being responsible for the financial management of the
project. The court
a quo
noted that payment due to TW for sub
consultancy services had to be made by the Province to SSI (the main
contractor) and found
that there was privity between TW, the
sub-contractor, and the Provincial Government.
[19]
It is not necessary for me to deal with the defence of failure to
comply with the peremptory
provisions of section 66 and 68 of Public
Finance Management Act
[5]
and the fact that the Provincial Government had not allocated a
budget in respect of the main agreement that such an agreement
was
void ab initio
and could not
satisfy a cause of action as it is irrelevant in the instant case.
What makes this case distinguishable from Terra
Graphics is that in
Terra Graphics the main and sub consultancy written agreements is
that these two agreements were approved by
the Provincial Government,
which is not the case
in
casu.
In the sub
consultancy agreement the relevant clauses in the main and sub
consultancy agreements were thus:
'2. The following
documents shall be deemed to form and be read and construed as part
of this Sub Consultancy Agreement:
1.
The Conditions
2.
The Appended Clauses of the Main
Agreement
3.
Schedules 1 to 4
3.
In consideration of the payments to be
made by the Consultant to the Sub-Consultant; as hereinafter
mentioned, the Sub-Consultant
agrees to perform the Sub-Consultant's
Services in conformity with the provisions of the Sub-Consultancy
Agreement.
4.
The Consultant hereby agrees to pay the
Sub-Consultant, in consideration of the performance of the
Sub-Consultant's Services, such
amounts as become payable under the
provisions of the Sub Consultancy Agreement, within seven days
after received money from
the Department, at times and in the manner
prescribed by the Sub-Consultancy Agreement.
5.
The Sub-Consultant is appointed on
instruction of the client, The Department of Police, Roads and
Transport (hereinafter called
the Client).
6.
The same payment conditions between the
Client and the Consultant apply between the Client and the Sub
Consultant.'
[20]
TW performed work for the benefit of the
Department, for which it invoiced SSi, which in turn, invoiced the
Department for the same
amount in respect of the same work. The
Provincial Government knew that environmental services could only be
provided by a sub
consultant and had approved the appointment of the
sub consultant. This is again not the case in the instant case. Under
these
circumstances the Provincial Government had no justification
for its failure to pay TW through SSI, the conduit. On appeal the
court a quo's finding was not interfered with except for the
substitution of the amounts that was set aside and substituted with
the correct amount.
[21]
In the instant case no relief is sought
against the first defendant. The plaintiff seeks default judgment
against the Municipality
which has chosen not to oppose the
application. There is no indication that the Municipality was aware
of the appointment of Jorian
Construction as the Tshenolo Resources'
sub-contractor. Only one letter was addressed to the Municipality by
the plaintiff's attorneys
on 19 October 2016 before summons was
issued advising the Municipality of the outstanding arrears. The
facts giving rise to the
amount claimed was specifically mentioned in
the letter. That was the only time that the Municipality got to know
about the sub
consultancy of Jorian Construction.
[22]
The Municipality had already paid eleven
payment certificates to the total amount of R9 618 440-72 to Tshenolo
Resources. It is
a local sphere of government and an organ of State
as envisaged in section 239 of the Constitution
[6]
duly established as a local municipality in terms of the Local
Government Systems Act
[7]
.
The question that arises is whether or not the Municipality is under
an obligation to pay Jorian Construction when it had no knowledge
of
its role in the construction work. It concluded a written agreement
with Tshenolo Resources. There is no indication that the
Municipality
was made aware of this appointment and the existence of the written
agreement between Jorian Construction and Tshenolo
Resources. Can it
be said in the circumstances that there is privity between the two?
The answer is no, hence Jorian Construction
did not have the written
agreement between the Municipality and Tsenolo Resources attached to
its founding affidavit. It would
not be easy for one to know the
existence of such privity without having sight of the said written
agreement.
[23]
Considering the fact that the
Municipality decided not to oppose the application, Tshenolo
Resources cannot, in my view, be correct
in opposing this application
as no relief is sought against it. It is not Tshenolo Resources'
place to allege that the construction
work by Jorian Construction was
defective but the Municipality which failed to do so. The
Municipality was properly served with
the application and chose not
to oppose it.
[24]
Jorian Construction has not established
the legal obligation on the part of the Municipality to enforce any
claim against the Municipality.
Its claim is against Tshenolo
Resources in terms of the written agreement between them. I deem it
unnecessary to deal with the
argument by Tshenolo Resources that if
judgment is granted, it would lose its mark-up.
[25] The
plaintiff alleged that the Municipality has been enriched at its
expense. In this regard the plaintiff
has to prove the following:
25.1
The
defendant must be enriched;
25.2
The
plaintiff must be impoverished;
25.3
The
defendant's enrichment must be at the expense of the plaintiff; and
25.4
The
enrichment must be without cause.
[8]
[26]
Tshenolo Resources states that Jorian
Construction failed to mention how the Municipality has been enriched
and therefore this allegation
cannot stand. The enrichment claim was
also not seriously relied upon by the plaintiff during argument and
was not dealt with in
its heads of argument. This claim was
unsubstantiated and I do not deem it necessary to deal with it in
this judgment as it stands.
[27]
Tshenolo Resources alleges that the
claim against the Municipality is dealt with in the business rescue
plan. It alleges further
that the business rescue proceedings would
be jeopardised because if judgment would be granted in favour of the
plaintiff, it be
paid by the Municipality in full while other
creditors would have to wait for payment. Its claim against the
Municipality would
also be prejudiced.
[28]
In my view the plaintiff seeks no relief
against Tshenolo Resources and has no relevance to the business
rescue proceedings. Its
relevance is that it was just acting as a
payment conduit between the plaintiff and the Municipality.
[29]
The submission that this matter should
be allowed to go on trial as substance considering the fact that
there exists no
nexus
between
the Municipality and Jorian Construction sounds reasonable. The
allegations by Tshenolo Resources remain hearsay. The plaintiff
would
suffer no prejudice if the matter goes on trial so that all the
issues are ventilated.
[30]
I am satisfied that Jorian Construction
has not made out a case for the relief sought. Jorian Construction
is, in my view,-also
not entitled to default judgment granted in its
favour considering the lack of privity between it and the
Municipality.
In the circumstances I grant
the following order:
1.
The
application for default judgment is dismissed.
2.
The
second defendant is ordered to pay costs on a scale as between party
and party.
BM PAKATI
JUDGE-NORTHERN
CAPE DIVISION, KIMBERLEY
On
Behalf of the Applicant:
ADV D GROIJLER
Instructed
by:
ENGELSMAN MAGABANE INC.
On
.Behalf of the Respondent: ADV L
VAN DER MERWE
Instructed
by:
ROUX WELGEMOED & DU PLOOY
[1]
Act 71 of 2008
[2]
Uniform Rules of Court
[3]
1990 (4) SA 41 (ZH)
[4]
2016 (3) SA 130
(SCA) at 141G-J
[5]
Act 1 of 1999
[6]
Act 108 of 1996
[7]
Act 117 of 1988
[8]
McCarthy Retail LTD v Shortdistance Carriers CC
2001 (3) SA 482
at
496 para [2]