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[2018] ZAKZPHC 10
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Umgungundlovu District Municipality v Amaraka Investments 37 (Pty) Limited and Others (1145/2017P) [2018] ZAKZPHC 10 (11 April 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
No: 1145/2017P
In
the matter between:
UMGUNGUNDLOVU
DISTRICT
MUNICIPALITY
APPLICANT
And
AMARAKA
INVESTMENTS 37 (PTY) LIMITED
FIRST
RESPONDENT
HILTON
LIFE PRIVATE HOSPITAL (PTY) LIMITED
SECOND
RESPONDENT
ANDRE
MARK VOIGTS
N.O.
THIRD
RESPONDENT
IVAN
STEVEN COLENBRANDER N.O.
FOURTH
RESPONDENT
GARY
LEORNARD BANFIELD
N.O.
FIFTH
RESPONDENT
Date
of hearing: 09 November 2017
Date
judgment handed down: 11 April 2018
ORDER
(a)
The contract provisions as specified in paragraphs 1, 2 and 3 of the
Notice of Motion are declared constitutionally invalid.
(b)
The order of constitutional invalidity in paragraph (a) is suspended
pending the applicant complying with the requirements of
sections 76
and 78 of the Municipal Systems Act 32 of 2000 and subjecting the
provision of the service to a competitive procurement
process.
(c)
From the date of this order and pending compliance alluded to in
paragraph (b) the first respondent may continue to provide
the
service and bear the costs thereof itself.
(d)
The respondents’ counter-application is dismissed.
(e)
The applicant must pay the respondents’ costs including costs
in the application to compel the applicant to deliver a
Record in
terms of Uniform Rule 53 as well as costs for the joinder of the
Trustees of the former Third Respondent.
JUDGMENT
NKOSI
J,
INTRODUCTION
[1]
The applicant seeks declaratory orders by notice of motion which are
in the form of a review of its decisions to authorise and
conclude
three contracts, being annexures “A2”, “A3”
and “A4” to the founding affidavit. The
applicant
requires severance of some provisions specified in paragraphs 1, 2, 3
of the notice of motion from the contracts.
[2]
To the extent that this is necessary, the applicant also seeks
the extension of the 180 day period referred to in s 7(7)
of the
Promotion of Administrative Justice Act 3 of 2000 (“PAJA)”.
[3]
The applicant is a District Municipality as well as Water Services
Authority in terms of the
Water Services Act 108 of 1997
and,
as such, responsible for the provision of water and sanitation in its
area of jurisdiction. The provision of services by a
municipality is
dealt with in s 76 of the Local Government: Municipal Systems Act 32
of 2000 (“the Municipal Systems Act”).
What is envisaged
in the section is that the municipality will either provide the
service itself through an internal mechanism
as dealt with in s 76
(a) or through an external mechanism which involves entering into a
service delivery agreement as contemplated
by s 76 (b).
[4]
The service delivery agreement that is contemplated by s 76 (b) may
be concluded with various entities and for present purposes
sub-paragraph (b) is applicable, namely, it may conclude such an
agreement with “any other institution, entity or person
legally
competent to operate a business activity”.
[5]
The first respondent is the developer of the second respondent which
is run as a private hospital. The third, fourth, and fifth
respondents are the trustees of the Hilton Health Property Investment
Trust (the former third respondent).
BACKGROUND
[6]
The following facts are generally not disputed. On 31 October 2011
the applicant and the first respondent concluded the Service
Level
Agreement (annexure “A1”) in respect of a medical center
that was to be built in Hilton, now known as Hilton
Life Private
Hospital, the second respondent. The services agreement relates to
bulk services and, relevant for the purposes of
the present
application, this included sewage services for the interim
infrastructure and for the supply of the services relating
thereto
and for payment thereof.
[7]
The material terms of the agreement are, inter alia, the following:
(a)
the first respondent would procure the design and installation, to
the satisfaction of the applicant, of all the internal services;
such
to be designed by competent professional engineer who was to be
responsible for the construction and supervision of
such internal
services.
(b)
the applicant undertook, at its own cost, to provide
sufficient water capacity to meet the needs of the development
to the
edge of the property boundary to enable the development to proceed;
(c)
the applicant undertook to construct a sewage treatment –
plant;
(d) should the
development commence prior to the commencement of the bulk sewage
disposal system, then the first respondent agreed
that it would
construct conservancy tanks or other suitable interim means of sewage
disposal on the site at its own cost;
(e) the applicant was to
charge the developer in accordance with the prevailing standard
tariffs for water bound sewage disposal
or such tariffs as it deems
applicable;
(f) the first respondent
agreed that it would be responsible, at its own cost, for the
provision and maintenance of all sewage
disposal infrastructure
required to link the development to the municipal sewage disposal
system; and
(g) the first respondent
was responsible, at its own cost, for any construction that may be
required to link the proposed
development to the proposed water bound
sewage system.
[8]
The construction of the second respondent was completed in December
2014 but the bulk and water sewage infrastructure was not
yet ready.
The applicant and first respondent thus varied the terms of the
agreement by way of the first addendum (annexure A2)
on 9 December
2014 to deal with this situation.
[9]
In the aforesaid addendum the parties agreed, inter alia, as follows:
(a) the first respondent
will be responsible for the design and construction of the
sewer pump station and rising main
from the sewer pump station
to the M139, including the encroachment application across the M139 (
Clause 2.1);
(b) the first respondent
shall be responsible to fence off the sewer pump station with a
Clearview fence, including
the provision of an access gate onto
Monzali Drive (Clause 2.3);
(c) on completion of the
sewer pump station, the first respondent shall notify the applicant
who shall take over or be deemed to
have taken over the sewer pump
station upon the issuing of a completion certificate by the
developer’s engineer (Clause
2.5);
(d) the applicant shall
be responsible for all costs associated with the operation and
maintenance of the sewer pump station from
the date of handover (
Clause 2.6);
(e) the first respondent
shall connect the sewer pump station onto the electrical supply
provided in the hospital (Clause 2.10);
(f) the first respondent
shall be responsible for the design and construction of an outfall
sewer linking the rising main
from its crest near the M139 to a
new 80 m³ conservancy tank suitably located to link the proposed
sewer line from the Hilton
/ Mondi development adjacent to the Grace
College boundary (Clause 2.13);
(g) the first respondent
shall be responsible for the construction of a 80 m³
conservancy tank to accommodate effluent
flow until the
Waste Water Treatment Works is fully operational, provided that such
capacity shall not exceed the permissible environmental
thresholds
(Clause 2.16);
(h) the applicant shall
be responsible for the operation and maintenance of the 80 m³
conservancy tank, including, but not
limited to emptying it with
vacuum tankers to an existing waste water treatment works from 1 May
2015 or from the date when the
hospital is opened, until the new
waste water treatment works is fully operational (clause 2.22); and
(i) the applicant shall,
from date of occupation, charge what were referred to as Hilton Life
Hospital and Hilton Health Development
the published rates, as
reviewed from time to time for water and sewage ( Clause 2.23);
and
(j) the applicant shall,
prior to implementing such charges, credit the first respondent’s
service accounts the amount of
the total development cost
(Clause 2.24)
[10]
The first respondent designed and constructed the conservancy tank as
agreed to in the addendum. Due to the fact that the construction
of
the waste water treatment works had been delayed and therefore the
construction of a conservancy tank was required, the parties
concluded the second addendum agreement (annexure A3) on 2 October
2015.
[11]
In the second addendum the parties are agreed, inter
alia
, as
follows:
(a) the applicant is
unable to operate and maintain the conservancy tank due to
insufficient vacuum tankers (Clause 2.3);
(b) the first respondent
agrees to take over the emptying of the conservancy tank by
contracting an external service provider and
shall only contract with
service providers with a valid permit (Clause 2.4),
(c) the first respondent
and its service provider shall be permitted to take effluent to the
Howick Waste Water Treatment Works
for treatment (Clause 2.5);
(d) the first respondent
shall keep the delivery notebook for every trip made by the service
provider and each load shall be signed
as accepted at the Howick
Waste Water Works (Clause 2.6);
(e) the first respondent
shall not be charged any cost for the delivery of effluent at the
Howick Waste Water Treatment Works (Clause
2.7);
(f) the first respondent
shall be responsible for all costs associated with the delivery of
effluent to the Howick Waste Water Treatment
Works by the external
service provider. The rate per load from the conservancy tank to the
Howick Waste Water Treatment Works shall
be R1 500.00 inclusive
of VAT (Clause 2.8);
(g) the applicant shall,
from date of occupation, charge the second and third respondents (now
second to fifth respondents ) the
published rates, as reviewed from
time to time for water and sewage (Clause 2.9);
(h) the applicant shall,
prior to implementing such charges as referred to in (g) (Clause 2.9
of the addendum), credit what was
referred to as the “developers
entity”, presumably a reference to the hospital and health
centre (now second to fifth
respondents), the total development cost,
as well as the additional operation and maintenance cost of R1 500.00
per load to
transport effluent from the conservancy tank to the
Howick Waste Water Treatment Works (Clause 2.10); and
(i) the maintenance costs
of R1 500.00 per load shall be reviewed annually from the date
of signing the agreement (Clause 2.11).
[12]
On or about 4 February 2016 the parties further varied the terms of
the agreement by way of a third addendum (annexure A4).
This
was necessary because the applicant’s proposed waste water
treatment works had again been delayed and the applicant
was still
unable to operate and maintain the conservancy tank due to
insufficient vacuum tankers.
[13]
In the third addendum the parties agreed, inter alia, as follows:
(a) the applicant would
charge the hospital and health center the published rates for water
and sewage from date of occupation and
that the applicant would
refund the developer’s entity (presumably the hospital and
health center) on a monthly basis, being
thirty (30) days after
submission of proof of delivery, the cost of R1 500.00 per load
to transport effluent from the conservancy
tank to the Howick Waste
Water Treatment Works (Clause 2.10);
(b) the first respondent
shall only be reimbursed by the applicant for loads signed off
by the developer’s service provider
in the delivery notebook
(Clause 2.12);
(c) the first respondent
shall ensure that the electricity account for the sewer pump
station is registered in the
name of the applicant
(Clause 2.14);
(d) until such time as
the account is transferred, the first respondent shall meter the
consumption and recover such costs from
date of handover, from the
applicant by submitting monthly accounts, including proof of
consumption from Msunduzi Municipality
(Clause 2.14);
(e) the cost as per
Clause 2.24 from addendum one are updated to a cost of R1 321 324.33
incurred to date by the first respondent,
inclusive of VAT as per the
breakdowns attached to the third addendum;
(f) the applicant agreed
to refund the first respondent, within (30) days of the signing of
the addendum, the full amount
reflected in Clause 2.19 ( Clause
2.20);
(g) the first respondent
was to install an electronic flow meter onto the sewer pump
station to record the volume of effluent
transferred to the
conservancy tank (Clause 2.23);
(h) the flow meter shall
be read daily and monitored by the developer until the sewer pump
station is handed over to the Municipality,
who shall from then
on be responsible for the recordings (Clause 2.23); and
(i) the first respondent
shall further install a communication system, whereby the actual flow
readings, as well as the level in
conservancy tanks are recorded and
sent to the Municipality and developer (Clause2.24).
[14]
The aforesaid agreements were concluded with the authority of the
Full Council of the applicant. The first respondent commenced
the
outsourcing of the transportation and dumping of the effluent from
the conservancy tank to the Howick Waste Water Treatment
Works site
and issued its invoice for the payment of the transportation costs of
R1 500.00 per load.
[15]
On 27 May 2016 the Full Council of the applicant resolved to rescind
the addenda (annexure “B” to the founding
affidavit). As
of 19 August 2016 the amount claimed by the respondents for the
period commencing on 1 February 2016 and ending
22 June 2016 was a
total sum of R4 365 000.00. As at 2
nd
of
February 2017 the first respondent had carted loads of effluent at
the agreed rate with a total in excess of R9 million
(annexure
“R2” at page 157 of the indexed papers). On 22 August
2016 the respondents forwarded a breach notice
to the applicant
(annexure “F”). The outstanding amount has not been
paid.
PLEADINGS
[16]
The applicant avers in its founding papers that while the applicant
is empowered in terms of s 76 of the Municipal Systems
Act to provide
a municipal service in its area, or part of its area, either through
an internal mechanism, or an external mechanism
it has an obligation
to comply with the provisions of s 78 of that Act if it decides to
provide the municipal service through an
external mechanism.
[17]
In terms of s 78 of the Municipal Systems Act the applicant must:
(a) give notice to the
local community of its intention to explore the provision of the
municipal service through an external mechanism;
(b) assess the different
service-delivery options in terms of s 76 (b) of the same Act;
(c) conduct or commission
a feasibility study which must be taken into account; and
(d) comply with any
applicable legislation relating to the appointment of a service
provider and any additional requirements that
may be prescribed by
regulation.
[18]
The legislation foreshadowed in s 78 of the Municipal Systems Act is
Chapter 11 of the Local Government: Municipal Finance
Management Act
56 of 2003 (“the MFMA”). In terms of s 111 of the MFMA
the applicant must have and implement a Supply
Chain Management
Policy which is fair, equitable, transparent, competitive and cost
effective and comply with the prescribed regulatory
framework for
municipal services.
[19]
The applicant avers that the applicant has and does implement a
Supply Chain Management Policy (annexure “C” to
the
founding affidavit).
[20]
The policy provides,
inter alia
:
(a) that it applies when
the municipality –
(i) procures goods or
services;
(ii) selects contractors
to provide assistance in the provision of municipal services
otherwise than in circumstances where Chapter
8 of the Municipal
Systems Act applies; or
(iii) selects external
mechanisms referred to in s 81 (b) of the Municipal Systems Act
for the provision of municipal services
in circumstances contemplated
by s 83 of the Act.
(b) the Council has a
right to maintain oversight of the implementation of the Supply Chain
Policy;
(c) competitive bids must
comply with the provisions contained in Clauses 18-28 of the policy;
(d) the Accounting
Officer may dispense with the procurement processes, only –
(i) in an emergency;
(ii) goods or services
are from a single provider only; or
(iii) in any other
exceptional case where it is impractical or impossible to
follow the official procurement process;
and
(e) the Accounting
Officer must record the reasons for the deviation and report them to
the next meeting of the finance committee
of the Council and include
it as a note to the annual financial statements.
[21]
The applicant contends that it abdicated its function in allowing the
first respondent to take over the emptying of the conservancy
tank
and transport the effluent to the Howick Waste Water Treatment Works.
Further, the applicant abdicated, it says, its functions
by
authorising the first respondent to contract an external service
provider without following the required processes and procedures.
That be so, it continues to say, because the applicant’s policy
was not followed in contracting the services of the first
respondent
and the external service provider to empty the conservancy tank and
transport the effluent and there was no lawful basis
to deviate from
the policy.
[22]
The applicant submits that in terms of its Water Services Bylaw
(annexure “D”) the charges for any sewage delivered
for
disposal to the municipality sewage treatment plants shall be
assessed by the municipality or the authorised provider in accordance
with the prescribed tariffs or charges. The charges adopted by the
Council of the applicant in respect of the conservancy tank
is R300.
00 for household and R500.00 for commercial premises (annexure “E”).
The municipality is entitled to charge
fees for the transportation of
the effluent from a consumer’s conservancy tank if it
transports the effluent and even if
the municipality contracts a
service provider to perform that service, the cost is generally
passed on to a consumer through a
debit on its account with the
municipality.
[23]
The applicant contends that it is unconstitutional and offends the
principle of legality for the respondents to charge the
applicant for
the service for which the respondents would ordinarily pay if the
service was supplied to the consumer by the municipality.
The
applicant submits that the municipality is not deriving any benefit
from the service that it is paying for while the second
to fifth
respondents are unduly benefiting from the transportation of the
effluent. In conclusion the applicant submits that there
has not been
compliance with the Constitution, the relevant legislative
prescripts, the bylaws and the procurement policies applicable
to the
applicant which render the clauses in the addenda set out in the
Notice of Motion unlawful. The failures, the applicant
submits,
constitute administrative action and the resultant unlawfulness of
what was done falls to be reviewed and set aside in
terms of the
applicable provisions of PAJA, alternatively on the principle of
legality since they offend the rule of law.
[24]
The applicant’s proposition on the impugned parts of the
contract is challenged by the respondents. The respondents contend
that the parts of the contract sought to be set aside which are
categorised as unlawful procurement are not procurement at all.
They
are merely contractual amendments which were proposed to provide a
solution for a problem which arose on the applicant’s
side. The proposed amendments were accepted by the first respondent
in order to solve the applicant’s problems and the amendments
were effected with the authority of the applicant’s Council.
The respondents aver that the first respondent undertook to
transport
the effluent from the conservancy tank built by it because the
applicant had not built the treatment works, had no tankers
to
transport the effluent and had asked the first respondent to do so
for a charge.
[25]
The respondents submit that the applicant has no legal right to
refuse to comply with its contractual obligations. In the premises,
they add, the first respondent has the right to ask for a decree of
specific performance in a counter – application. Alternatively
the respondents are entitled to an order that the applicant must
comply with the obligations undertaken by it and authorised by
the
Council of the applicant until this Court sets aside the impugned
parts of the contract as amended.
[26]
In addition, the respondents contend that any legality review or a
review brought in terms of PAJA is out of time. That is
so, it is
argued, because the third addendum was concluded, agreed and
authorised on 4 February 2016. The application for the review
of the
latest act was brought on 2 February 2017 almost a year later than it
should have been and outside of the reasonable time
within which to
bring it in terms of the common law or PAJA. The respondents
submit that it is unconscionable for the
applicant to run up an
account with the first respondent in terms of the agreement for a
considerable period of time and amass
a debt in excess of R9 million
before approaching a court to have the contract set aside. They
contend that the delay has
caused great prejudice to the respondents.
ISSUES
[27]
The issues that arise for the determination are - whether the
provisions in the addenda to the service level agreement between
the
applicant and the first respondent in terms of which the first
respondent took over the service of emptying the conservancy
tank of
the Hilton Life Private Hospital by engaging an external service
provider and charging the applicant R1 500.00 per
load was
concluded in violation of ss 76, 78 and 80 of the Municipal
Systems Act. If the contract is invalid the Court is
asked to
determine the appropriate remedy. Also in issue is whether or not the
review should fail because of delay.
[28]
I propose to first deal with the issue raised in
limine
whether
condonation should be granted for the late review application. In
this regard the question is whether the review application
ought to
be considered in terms of PAJA or as a legality review.
[29]
The Constitutional Court has already pronounced on this question. In
the judgment of
State Information Technology Agency Soc Ltd v
Gijima Holdings (Pty)
Ltd
,
2018 (2) SA 23
(CC);
2018 (2)
BCLR 240
(CC) paras 29-31, the court proclaimed as follows:
‘
[29] In the end, we are
fortified in the conclusion that section 33 of the Constitution
creates rights enjoyed only by private persons.
And the bearer of
obligations under the section is the State.
[30] Given this interpretation of
section 33 of the Constitution, does the language of section 6 of
PAJA extend to an organ of State
seeking the review of its own
administrative action? In answering this question, a fact that should
be paramount is that PAJA is
legislation that was enacted pursuant to
the provisions of section 33 (3) of the Constitution to give effect
to the rights contained
in section 33 (1) and (2) of the
Constitution. PAJA must therefore be interpreted through the prism of
section 33 of the Constitution.
[31] Section 6 (1) of PAJA provides
that “[a]ny person may institute proceedings in a court or
tribunal for the judicial review
of an administrative action”.
Section 6 (2) then itemises the grounds on which a court or tribunal
may undertake this review.
When decreeing - in section 33(3) –
that national legislation must be enacted to,
inter
alia,
“provide for
the review of administrative action”, the reference to
“administrative action” in this section
must surely be a
reference to the earlier “administrative action” referred
to in section 33 (1) and (2). The Constitution
thus envisages that –
in making provision for the review of administrative action –
the national legislation must direct
itself to the administrative
action referred to in section 33 (1) and (2). We have already
concluded that the right to administrative
action that is lawful,
reasonable and procedural fair (section 33 (1) and the right of
everyone whose rights have been adversely
affected to be given
written reasons (section 33(2) are enjoyed by private persons, not
organs of State. Therefore, when section
33 (3) (a) stipulates that
national legislation which provides for the “review of
administrative action” must be enacted,
that can be only be
administrative action that relates to the rights enjoyed by private
persons under section 33 (1) and (2)’
(Footnotes omitted).
REVIEW
UNDER LEGALITY
[30]
Regard being had of the above pronouncement, the applicant’s
review of its own decision can only proceed under the principle
of
legality. In
Fedsure Life Assurance Ltd & others v Greater
Johannesburg
Transitional Metropolitan Council & others
[1998] ZACC 17
;
1999 (1) SA 374
(CC);
1998 (12) BCLR 1458
(CC), para 56, the
Court said:
‘…
a local government may
only act within the powers lawfully conferred upon it. There is
nothing startling in this proposition –
it is a fundamental
principle of the rule of law, recognised widely, that the exercise of
public power is only legitimate where
lawful. The rule of law - to
the extent at least that it expresses this principle of legality –
is generally understood to
be a fundamental principle of
constitutional law. This has been recognised in other jurisdictions.
In
The Matter of a Reference
by the
Government
in Council Concerning Certain Questions Relating to the Secession of
Quebec from Canada
the Supreme Court of Canada held that:
“
Simply put, the
constitutionalism principle requires that all government action
comply with the Constitution. The rule of law principle
requires that
all government action must comply with the law, including the
Constitution. This Court has noted on several occasions
that with the
adoption of the
Charter,
the Canadian system of government was transformed to a significant
extent from a system of Parliamentary supremacy to one of
constitutional
supremacy. The Constitution binds all governments,
both federal and provincial, including the executive branch
(
Operation Dismantle Inc. v
The
Queen
[1985] 1 S.C.R. 441
, at p. 455). They may not transgress its
provisions: indeed, their sole claim to exercise lawful authority
rests in the powers
allocated to them under the Constitution, and can
come from no other source’’ (Footnotes omitted.)
[31]
In
Affordable Medicines Trust & others v Minister of Health of
RSA & others
[2005] ZACC 3
;
2006 (3) SA 247
(CC);
2005 (6) BCLR 529
(CC) the
Court stated (para 49) as follows:
‘
The exercise of public power
must therefore comply with the Constitution, which is the supreme
law, and the doctrine of legality,
which is part of that law. The
doctrine of legality, which is an incident of the rule of law, is one
of the constitutional controls
through which the exercise of public
power is regulated by the Constitution’. (Footnotes omitted.)
[32]
The applicant bears responsibility for the provision of water and
sanitation in its area of jurisdiction. By entering into
a service
delivery agreement as contemplated by s 76 (b) of the Municipal
Systems Act with the first respondent the applicant was
clearly
acting in the exercise of public power. The principle of legality
thus becomes a vehicle for its review. The next question
is whether
or not the review has been brought within a reasonable period of time
and, if not, whether a case for condonation has
been made.
[33]
In
Khumalo & others v Member of the Executive Council for
Education: KwaZulu-Natal
2014 (5) SA 579
(CC);
2014 (3) BCLR 333
(CC) the Court relying on s 237 of the Constitution held as follows:
‘
[46]….Section
237 acknowledges the significance of
timeous compliance with constitutional prescripts. It elevates
expeditious and diligent compliance
with constitutional duties to an
obligation in itself. The principle is thus a requirement of
legality.
[47] This requirement is based on
sound judicial policy that includes an understanding of the strong
public interest in both certainty
and finality. People may base their
actions on the assumption of the lawfulness of a particular decision
and the undoing of the
decision threatens a myriad of consequent
actions.
[48] In addition, it is important to
understand that the passage of a considerable length of time may
weaken the ability of a court
to assess an instance of unlawfulness
on the facts…. Thus the very purpose of a court undertaking
the review is potentially
undermined where, at the cause of a
length delay, its ability to evaluate fully an allegation of
illegality is impaired.’
(Footnotes omitted.)
[34]
The same sentiments were expressed in
Merafong City Local
Municipality v
AngloGold Ashanti Ltd
2017 (2) SA 211
(CC);
2017 (2) BCLR 182
(CC) where Cameron J said (para 73):
‘
The rule against delay in
instituting review exists for good reason: to curb the potential
prejudice that would ensue if the lawfulness
of the decision remains
uncertain. Protracted delays could give rise to calamitous effects.
Not just for those who rely upon the
decision but also for the
efficient functioning of the decision- making body itself’.
[35]
Relating the principle to this matter the Council of the applicant
took a decision on 27 May 2016 to rescind the addenda. The
decision
of the Council was communicated to the Municipal Manager of the
applicant to take action on or about 19 June 2016. The
Council
resolution was then referred to the Legal Services Department of the
applicant. On 22 August 2016 the applicant received
a breach notice
(annexure F) from the respondents. The parties agreed to refer the
matter to arbitration as per the arbitration
clause in the agreement.
The pre- arbitration meeting was scheduled for 1 December 2016 where
the applicant’s attorneys advised
the applicant that the
Arbitrator would not have the jurisdiction to entertain the setting
aside of the addenda to the agreement
and proposed that a review
application should be brought. On 13 January 2017 the arbitration
proceedings were adjourned sine die
by consent to enable to the
applicant time to lodge this application. On 2 February 2017 this
application was launched.
[36]
It appears to me that the applicant must have been aware that some
parts of the addenda relating to the service delivery agreement
with
the first respondent might be invalid for lack of conformity with
legal prescripts applicable by the time they resolved to
rescind them
on 27 May 2016. The applicant had a Legal Service Department at its
disposal. The applicant should have appreciated
the need and urgency
for the review of the addenda by then to curb the potential prejudice
that would ensue if the lawfulness of
the decision remains uncertain.
Procurement is part and parcel of its business and there is no
plausible explanation why –
when it concluded the addenda –
nobody within the structures of the applicant became aware that their
conduct, in view of
non-compliance with the legal prescripts, might
be unlawful. The applicant should have provided a full and
satisfactory explanation
for the entire period of the delay. See
eThekwini Municipality v Ingonyama Trust
2014 (3) SA 240
(CC);
2013 (5) BCLR 497
(CC) paras 25-28. It is unconscionable for the
applicant to run up an account with the respondents for an amount in
excess of R9
million (annexure R2, page 157) before
approaching the Court to have addenda set aside. Under the
circumstances the
delay of eight months was unreasonable.
[37]
In
Khumalo
(para 45) it is said that courts have a “discretion
to overlook a delay’’. It is put thus:
‘
[A] court should be slow to
allow procedural obstacles to prevent it from looking into a
challenge to the lawfulness of an exercise
of public power. But that
does not mean that the Constitution has dispensed with the basic
procedural requirement that review proceedings
are to be brought
without undue delay or with a court’s discretion to overlook a
delay.’
[38]
However it is said that this discretion should not be exercised
lightly. In
Department of Transport v Tasima (Pty) Ltd
2017
(2) SA 622
(CC);
2017 (1) BCLR 1
(CC) the exercise of this discretion
was explained as follows (para 160):
‘
While a court “should be
slow to allow procedural obstacles to prevent it from looking into a
challenge to the lawfulness
of an exercise of public power”, it
is equally a feature of the rule of law that undue delay should not
be tolerated. Delay
can prejudice the respondent, weaken the ability
of a court to consider the merits of a review, and undermine the
public interest
in bringing certainty and finality to administrative
action. A court should therefore exhibit vigilance, consideration and
propriety
before overlooking a late review, reactive or
otherwise.’(Footnotes omitted.)
[39]
The applicant’s counsel submits that I should exercise the
discretion based on the unusual set of circumstances which
compelled
the applicant to comply with some illegally procured provisions
contained in the addenda. Mr
Pillemer
puts it thus:
‘
The applicant is contractually
obliged to make payment to the First Respondent which effectively is
the beneficiary of the service
and the party that should be paying
the Applicant (if the Applicant had provided the service). Since
Applicant is not, the cost
should be borne by the user itself and not
subsidised or paid for providing itself with the service by the
Applicant.
The result is that the Applicant’s
tax payers are subsidising a private hospital that operates at a
profit and the agreement
is not valid, there is no rational or
reasonable basis why they should have to do so and it is not in the
interests of justice.
The rate that the Applicant is paying
is three times greater than the tariff it would charge for providing
the service if it was
able to do so making the charge appear to be
out of kilter and astronomically high. In addition on the basis of a
benchmarking
exercise the approach that is set out in the agreement
is out of kilter with what happens in other private hospitals in
other areas,
notably Hillcrest Hospital which is responsible for the
cost of its own sewage disposal.
It is submitted that it is in the
interests of justice for the review to be heard notwithstanding the
delay, if it is found to have
been brought out of time’.
[40]
By and large the impugned provisions of the addenda are associated
with the procurement of services which the applicant itself
could not
provide to fulfil its constitutional responsibilities as a
municipality. The applicant had to build and provide an effluent
treatment plant for the respondents’ development which it had
approved as it was obliged to do. I assume that due to some
budgetary
constraints it could not do so. As a result the first respondent had
to build an effluent conservancy tank from which
the applicant would
have to cart the effluent to a treatment plant. The applicant had no
tankers, certainly not enough to do so,
and the first respondent as
was agreed, had to do so for a charge. All this was done with the
authority of the Full Council of
the applicant. It appears to me that
the applicant was too enthusiastic to conclude the addenda now
impugned and created a predicament
it finds itself in. The
predicament was self-created. It irrationally abdicated its legal
powers and responsibilities to the first
respondent. But should the
status quo
remain?
[41]
Section 217 of the Constitution deals with the obligation of an organ
of State in, inter alia, the local government sphere
to apply a
system of procurement when it contracts for goods and services. The
section provides that when an organ of State contracts
for goods and
services, it must do so in accordance with a system which is fair,
equitable, transparent, competitive and cost –
effective.
Section 195 (1) of the Constitution contains the list of basic values
and principles that should govern public administration.
Such
principles include (a) efficient, economic and effective use of
resources, and (b) provision of services impartially, fairly,
equitably and without bias. I believe the arrangement between the
applicant and the respondents is one of its kind in the applicant’s
area of jurisdiction.
[42]
The Supply Chain Management in the local government sphere is
contained in Chapter 11 of the MFMA. Section 80 of the Municipal
Systems Act deals with the provision of services through service
delivery agreements with external mechanisms. Section 83 deals
with
the competitive bidding and due compliance with tender processes. The
requirements stated therein are peremptory. It is common
cause that
the contract between the applicant and the first respondent did not
go through any of the tender processes. The applicant
concluded an
agreement for the transportation of bulk sewage to the water
treatment centre by an outside contractor at the cost
of R1 500.00
a load significantly in breach of the peremptory requirement that the
agreement had to follow an open tender
process as set out in the
Municipal Systems Act as read with s 217 of the Constitution. The
applicant clearly misconstrued its
power and this failure offends the
principle of legality.
[43]
Section 172 (1) (a) of the Constitution enjoins the court to declare
any law or conduct that is inconsistent with the Constitution
to be
invalid to the extent of its inconsistency. What the applicant agreed
to in concluding the impugned provisions of the addenda
is
irrational, unconstitutional and unlawful. The applicant’s
conduct / decision should thus de declared to be invalid.
[44]
However, under section 172 (1) (b) of the Constitution, a court is
empowered to make “any order that is just and equitable”.
In consideration thereof, it would be paramount for the court
to determine the prejudice likely to be suffered by the respondents
as a result of the declaration of invalidity of the
applicant’s decision and any delay in seeking to have
the
decision reviewed (
Khumalo
para 56).
[45]
The respondents had throughout the existence of the agreement carted
loads of effluent at the agreed rate with a total, as
at 2 February
2017, in excess on R9 million and counting. The contract was
concluded with the authority of the Full Council of
the applicant and
the respondents were at all times
bona fide
and in the honest
belief that the applicant was acting legally. The applicant proposed
and the first respondent accepted to move
the effluent for a charge
agreed to because the applicant had failed in its obligations. When
it eventually dawned on the applicant
that its decision was illegal
it unreasonably delayed to subject the decision to a review to be
declared invalid for non-compliance
with the legal prescripts. From
the aforegoing, it seems to me that justice and equity dictate that,
despite the invalidity of
its conduct, the applicant must not benefit
from displaying false pretences to the respondents that its impugned
decision accorded
with legal prescripts and from its undue delay to
realise its unlawfulness and in instituting appropriate
proceedings to
remedy the status quo. The declaration of
invalidity must not have the effect of divesting the respondents of
rights to which
– but for the declaration of invalidity –
it might be entitled to.
[46]
Both counsel proposed that I suspend the declaration of invalidity
pending the applicant complying with the legal prescripts.
I believe
it would be just and equitable for the court to direct so and that
from date of the order the first respondent may continue
to provide
the services at its own costs pending the applicant complying with
the legal prescripts.
COSTS
[47]
The applicant submits that there should be no order as to costs in
accordance with the decision in
BiowatchTrust v Registrar, Genetic
Resources
&
others
2009 (6) SA 232
(CC);
2009 (10)
BCLR 1014
(CC). The respondents (as private parties) should not as a
rule be mulcted in costs. However, there must exist particularly
powerful
reasons for a court not to award costs against the State in
favour of a private litigant who achieved substantial success in
proceedings
brought against it (
Biowatch,
para
24). I can find no such reasons and none were advanced.
[48]
The respondents’ counsel submitted in this regard that the
respondents were led on by the applicant for a considerable
period
before turning around and claiming that it had a duty to have the
contractual arrangements which it had concluded voluntarily
set
aside. The submission has merit. In addition there are costs related
to interlocutories which are not disputed. They are the
following:
(a) The respondents made
an application to compel the applicant to deliver a Record in terms
of Uniform Rule 53 because it was seeking
a review; and
(b) The respondents also
asked for the joinder of the Trustees of the former Third Respondent
which was incorrectly cited. The orders
sought were granted. The
respondents are thus entitled to all its costs.
ORDER
[49]
In the result the following order shall issue.
(a)
The contract provisions as specified in paragraphs 1, 2 and 3 of the
Notice of Motion are declared constitutionally invalid.
(b)
The order of constitutional invalidity in paragraph (a) is suspended
pending the applicant complying with the requirements of
sections 76
and 78 of the Municipal Systems Act 32 of 2000 and subjecting the
provision of the service to a competitive procurement
process.
(c)
From the date of this order and pending compliance alluded to in
paragraph (b) the first respondent may continue to provide
the
service and bear the costs thereof itself.
(d)
The respondents’ counter - application is dismissed.
(e)
The applicant must pay the respondents’ costs including costs
in the application to compel the applicant to deliver a
Record in
terms of Uniform Rule 53 as well as costs for the joinder of the
Trustees of the former Third Respondent.
_________________
NKOSI
J
APPEARANCES
DATE
OF
HEARING
09 NOVEMBER 2017
DATE
JUDGMENT HANDED DOWN
11 APRIL 2018
ON
BEHALF OF THE APPLICANT
M PELLEMER SC
(Instructed
by c/o Stowell & CO.INC
295
Pietermaritzburg Street
Pietermaritzburg
Tell:
033 845 0500
Email:
sumayan@stowell.co.za
Ref:
S Norgot/MHL264/0015)
ON
BEHALF OF THE RESPONDENT
A.J DICKSON SC
(Instructed
by HAY & SCOTT ATTORNEYS
Top
Floor, Alexander Forbes Wing
3
Highgate Drive, Redlands Estate
George
Macfarlane Lane
PIETERMARITZBURG
Tel:
033 342 4800
Email:
coderick@hayandscott.co.za
Ref:
R. Brent/cc/09L14300)