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[2018] ZAKZPHC 16
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Green Mile Investments 340 CC v Khuthala Property Consortium (Pty) Limited and Another (5188/2016P;5434/2017P;429/2016D) [2018] ZAKZPHC 16 (18 May 2018)
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REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
Case
Number: 5188/2016P
In
the matter between:
GREEN
MILE INVESTMENTS 340
CC
Applicant
and
KHUTHALA
PROPERTY CONSORTIUM (PTY) LIMITED
First Respondent
MTUBATUBA
MUNICIPALITY
Second Respondent
Case
Number 5434/2017P
KHUTHALA
PROPERTY CONSORTIUM (PTY) LIMITED
Applicant
and
MTUBATUBA
MUNICIPALITY
First
Respondent
BAMBA
NDWANDWE
Second Respondent
SIPHO R.
MATHOBELA
Third Respondent
MGA MBATHA
Fourth Respondent
N.Q.
MZIMELA
Fifth Respondent
GREEN MILE INVESTMENTS
340 CC
Sixth Respondent
Case Number 429/2016D
KHUTHALA PROPERTY
CONSORTIUM (PTY) LIMITED
Applicant
and
MTUBATUBA
MUNICIPALITY
First Respondent
BAMBA
NDWANDWE
Second Respondent
SIPHO R.
MATHOBELA
Third Respondent
MGA MBATHA
Fourth Respondent
N.Q.
MZIMELA
Fifth Respondent
JUDGMENT
Delivered
on 18 May 2018
MBATHA
J
Legal
issue for determination
[1]
The main issue before this court, referred for the hearing of oral
evidence is whether
the notarial lease dated 16 September 2011 and
held under protocol number 1535/2011 of Robin Peter Westley, notary
public, as between
Mtubatuba Municipality and Khuthala Property
Consortium (Pty) Limited, is valid or invalid? Three matters were
consolidated and
the MEC for Co-Operative Governance of Traditional
Affairs, KwaZulu-Natal (MEC) was joined as a party to the
proceedings. The MEC
filed statements of two witnesses and elected to
abide by the decision of the court.
History
of the matter
[2]
The following issues are common cause. During November 2010 the
Mtubatuba Municipality
invited bids for a tender for the long term
lease and development of the commercial site described as Erf 1[...]
M[...], registration
division GV Province of KwaZulu-Natal, in extent
of eight thousand four hundred and fourteen square meters (8414 m²),
commonly
known as the ‘old taxi rank’, (the property).
[3]
It envisaged that the successful bidder would be granted a long term
lease of no less
than 30 years, provided that the property would be
developed as a commercial entity, which would benefit the
municipality and the
bidder.
[4]
After the close of the bid, the municipality, on 29 January 2010, at
a special Council
meeting, in terms of Resolution MTMC 462/2010,
accepted the proposal by Alliance Property Group (Pty) Limited
(Alliance Property
Group), which had a draft lease attached to it.
Council resolved that the Municipal Manager be authorised to sign the
lease agreement
on behalf of the Council, that the consideration of
the proposal outside the Land Disposal Policy be condoned and that
the Municipal
Manager facilitate the development of the Land Disposal
Policy. A counter-proposal was made that the lease agreement not be
entered
into subject to legal advice from the MEC.
[5]
The Municipal Manager, Mr Ntombela, purported to delegate his
authority to sign the
lease agreement to the Chief Financial Officer,
Mr Dludla (the CFO). This process took place while the CFO was an
acting Municipal
Manager.
[6]
Legal opinion was sought as to whether the CFO could sign the lease
on behalf of the
Council. The attorneys for the Council, Messrs
Scheepers Spies & Mdaki in their letter of 17 February 2010 gave
the following
legal advice:
(a)
That in terms of s 60(1)
(a)
of the Local Government: Municipal
Systems Act 32 of 2000 (Systems Act), decisions to expropriate
immovable property or rights
in respect of immovable property, may
only be delegated to an Executive Committee or Executive Mayor;
(b)
In terms of the delegated powers of the municipality under the
heading Delegations
to the Executive Committee, it is recorded that
decisions to expropriate immovable property or rights in or to
immovable property
is delegated to the Executive Committee and may
not be sub-delegated by it to other committees or officials;
(c)
Only the Executive Committee may sign the lease agreement. The
Executive
Committee would authorise one of its members to sign such
an agreement on behalf of the Executive Committee; and
(d)
In terms of the delegated powers, not even the Municipal Manager as
an official
may be delegated to sign such an agreement, unless he is
authorised to do so on behalf of the Executive Committee. If that is
the
case there must be a resolution to that effect.
In
the light of the aforementioned, they advised that the CFO may not
sign the lease agreement because he cannot be delegated to
sign such
an agreement. If he signs, it will be void as he does not have the
authority to do so.
[7]
The diligence of the municipality’s attorneys also
picked up that the agreement was to be between
Mtubatuba Municipality
and Alliance Property Group, but that the draft document which was
delegated to be signed by the CFO was
between the municipality and a
different entity, Crowned
Cormorant
Investments 38 (Pty) Limited (Crowned Cormorant), an entity
unknown to the municipality. The attorneys pointed out
that the
agreement with this unknown entity, gives it the right to cede and
assign its rights, title, interest and obligations
in the lease
agreement to a third party and that the landlord (the municipality)
consents thereto. It was explained that this would
have the effect
that as soon as the municipality concluded the agreement, it would
have no say in the matter as it could immediately
be ceded by the
tenant to any third party.
T
hey
also found that in terms of clause 20 of the agreement, the
municipality grants an option to the tenant or its nominee, the
sole
right to purchase the property, which option is valid for a period of
five years from date of concluding the agreement, the
implication
being that immediately after the signing of the agreement the tenant
can execute the option to purchase the property
for a nominal amount
of R1 million, whereas the property was estimated to be worth between
R5 million and R6 million.
[8]
It is common cause that the agreement falls within the category of s
60(1)
(a)
of the Systems Act which does not cater for the
Municipal Manager or CFO to sign the agreement. Apart from this the
attorneys cautioned
the municipality to reconsider clauses 4 (rent),
6 (cession) and 20 (option to purchase the property), to have
attorneys revisit
the agreement and that a proper valuation of the
property be obtained.
[9]
At the Council meeting on 1 March 2010, the Council considered the
aforementioned
proposals by the attorneys. It then resolved in terms
of Resolution MTMSC 463/2010 that prior to the implementation of
their decision
to dispose the property, the MEC be approached for
comment on the nature of the immovable property disposed of, the
market related
value of the said immovable property, the reasons for
the disposal of the property and the anticipated cost to Mtubatuba
Municipality
in disposing of the property. The Municipal Manager was
authorised to sign the agreement with Alliance Property Group and the
Municipal
Manager and the CFO were mandated to discuss clause 5.3 on
the legal advice from
Scheepers Spies & Mdaki
Attorneys
.
[10]
On 25 March 2010 the Municipal Manager addressed a letter to Alliance
Property Group, the preferred
bidder, indicating to them that the
disposal of immovable property will be subject to approval from the
MEC and further consultations
with the MEC. On 3 May 2010 the MEC
informed the municipality that she will investigate the matter. She
cautioned that pending
legal opinion the municipality must not
conclude the agreement for letting of the property. The same message
was communicated to
Alliance Property Group.
[11]
It is noted that minutes from the meeting of 8 April 2010 of the
company Alliance Property Developments
(Pty) Limited 2004/00860/70
reflect that it resolved to enter into a lease agreement with the
municipality. Minutes of the meeting
on 9 April 2010 of the company
Alliance Property Group (Pty) Limited registration no. 1997/003121/07
reflect that it resolved that
its wholly owned subsidiary, Alliance
Property Developments (Pty) Limited will enter into the agreement
with the municipality as
the nominated development company for Erf
1[...] M[...]. It is noted that there is no reference to the
applicant Khuthala Property
Consortium (Pty) Limited registration no.
M[...]7 in Alliance Property Group (Pty) Limited resolution.
[12]
On 3 May 2010 the MEC addressed a letter to the municipality, noting
the resolutions made under
Resolution MTMC
462/2010
authorising the Municipal Manager to sign the lease with Alliance
Property Group and that the consideration of the proposal
outside the
Land Disposal Policy be condoned. She cautioned against the
conclusion of any agreement with the other party, pending
her
obtaining
legal opinion
.
[1]
The municipality and Alliance Property Group received this
correspondence on 13 and 14 May 2010 respectively.
[13]
Besides the caution given by the MEC, on 19 May 2010 attorneys Cox &
Yates wrote to the municipality
requesting to engage with the MEC to
procure her approval for the transaction to enable the lease to be
registered. The Power of
Attorney and the draft Notarial Deed of
Lease signed by the CFO, Mr Dludla, was already in place as Cox &
Yates had requested
a copy of the resolution authorising the CFO to
sign. The MEC requested further documentation from the municipality
on 2 July 2010
and
cautioned
that no agreement for the letting of the property should be
concluded
.
[2]
Ms Govender (neé Maharaj) was part of the legal team from the
MEC’s office that was assigned to this matter. Mr Westley
from
Cox & Yates and Mr Talbot represented Khuthala. The municipality
appears to have been represented by Messrs Dludla and
Dlomo. It
appears from the notes of Mr Westley that no finality was reached.
[14]
Whilst the matter was still pending before the MEC, Mr Dlomo, the
acting Municipal Manager, signed
the Power of Attorney to authorise
certain persons to act as agents of the notary to execute the
aforesaid notarial agreement of
lease. This Power of Attorney was
signed against the backdrop that he lacked authority to conclude a
lease agreement at the time.
This indicates that it was signed
despite the legal opinion from Scheepers Spies & Mdaki and
caution from the MEC. The Power
of Attorney is dated 22 February
2011.
[15]
A week later the MEC gave directions as to what needed to be changed
in the lease agreement and
directed
that the final draft be handed over to the Council for consideration
and approval.
[3]
The letter reached the municipality on 7 March 2011. By then Mr Dlomo
had already signed the Power of Attorney.
[16]
Co
pies of two documents
appear from the notary’s protocol. They both record that the
authority to act on behalf of the municipality
emanates from the
resolution of 22 February 2011 taken before the decision of the MEC
was received by the Council. The notary relies
upon this Power of
Attorney and the letter of 1 March 2010 addressed ‘to whom it
may concern’ as being the authority
that gave him powers to
act. He also relies on a resolution of 15 September 2010 which was
signed by a different company to the
bidder. It bears the name of the
applicant which had recently changed from Crowned Cormorant bearing
the registration number of
the 100 per cent subsidiary nominated by
Alliance Property Group.
The document on the
municipality’s letterhead addressed ‘to whom it may
concern’ appears in the notary’s
protocol referring to
Resolution 463 of 1 March 2010, but does not accord with the terms of
the resolution. It refers to a resolution
taken on 31 March 2010. It
also refers to the Allied Property Group (Pty) Limited as against the
Alliance Property Group (Pty)
Limited and was signed by the acting
Municipal Manager, Mr Dlomo. It purported to be an extract of
Resolution 463. The notary relies
on this document as authority for
his mandate to register the lease in favour of Khuthala Property
Consortium (Pty) Limited (Khuthala),
which does not correctly reflect
the terms of the resolution.
[17]
On the other hand a company called Alliance Property Developments
(Pty) Limited resolved to enter
into a lease agreement with the
municipality on 8 April 2010.
A day
later, a resolution by Alliance Property Group, which is the company
whose bid was accepted, resolved that Alliance Property
Developments
(Pty) Limited, a 100 per cent subsidiary was entered in place of the
company as the nominated development company.
[18]
On 30 August 2011, Crowned Cormorant changed its name to that of the
applicant, Khuthala Property
Consortium (Pty) Limited registration
no. M[...]7. It relied on the resolution of 15 September 2010, which
resolution the notary
relies upon as the authority from the
transactions which he executed.
[19]
On 20 October 2011 a notarial lease was registered in favour of
Khuthala, despite that the issues
raised by the MEC relating to the
cession clause were not changed, it was never presented to the
Council for approval, it was executed
on the strength of an authority
given before the approval by the Council and executed after Mr Dlomo
was no longer the Municipal
Manager on 31 August 2011. Since February
2011, the notary never bothered to follow up whether the MEC had
given any directions
regarding the lease.
[20]
It is therefore against this backdrop of information that the
validity of the lease is challenged
by the Mtubatuba Municipality and
Green Mile Investments 340 CC in that it was not properly authorised,
the Power of Attorney was
given without the mandate of the MEC and
approval by the Council and the notary relied on inaccurate
documents.
Summary
of evidence
[21]
Oral evidence was led to determine whether or not the lease agreement
was valid or not. Ms Davies,
a Councillor and Speaker of the
Mtubatuba Council gave a detailed background as to the passing of the
Resolutions MTMC 462/2010
and MTMSC 463/2010 relating to the lease
and how she sought the intervention of the MEC.
[22]
Khuthala led the evidence of Messrs Ndlela, Palkowiski and Westley.
Mr Ndlela described their
consortium as a group of different
companies that are involved in different types of professional
services, who formed a consortium
known as Khuthala Property
Consortium. He testified that this group assigned duties to Alliance
Property Group to look for land
for development. When the invitation
for bids came from the Mtubatuba Municipality, they assigned Alliance
Property Group to tender
on their behalf. They had agreed at that
stage to use Crowned Cormorant as their vehicle for development of
the project, if successful.
He emphasised that the choice of Crowned
Cormorant related to the issue of ‘cleanliness’ and that
it was to be an all-inclusive
entity. He stated that they were all
surprised when they saw that the letter of appointment was made out
to Alliance Group because
they were actually coming in as Khuthala
Consortium, which was the development entity that they were hoping to
use. When it dawned
on him that Khuthala was unknown to the then
administration of the municipality, they tried to resolve issues
amicably with various
officials of the municipality.
[23]
When Ndlela was cross-examined by Mr
Pillemer SC
for Mtubatuba
Municipality, he acknowledged that he was aware that Crowned
Cormorant was a shelf company with no assets and liabilities.
He gave
the impression that the municipality would have concluded a lease
with a company with no business records whatsoever. He
insisted that
Alliance Property Group was an agent acting on their behalf as
Khuthala, which I understand to mean that the Alliance
Company
profile was to be used to gain Khuthala the bid, which they could not
have qualified to get through their shelf company.
This was said
against the backdrop of two resolutions already passed in the name of
Alliance Property Group in January and March
2010. He acknowledged
that he was aware of the decision of the MEC that nothing was to be
done pending her recommendations, but
that they continued to register
the lease in favour of Khuthala.
[24]
It is accepted by this court that the lease was registered, despite
the MEC and the attorneys
for the municipality having pointed out
that the Council resolved to accept the offer of Alliance Property
Group and will conclude
the lease agreement based on the proposal
made by Alliance and the lease agreement as negotiated by the
parties. Any cession right
title in respect of the lease is contrary
to resolution of Council to contract with Alliance.
[4]
And that the amended lease must be submitted to Council for
consideration and approval.
[5]
Ndlela could not explain why Khuthala does not feature in the
Council’s resolutions and correspondence from the MEC and why
it was not referred to Council for consideration and approval.
[25]
Richard Palkowiski also came with the same story that Alliance
Property Group were agents of
Khuthala, though the specimen lease
attached to the bid documents referred to Crowned Cormorant. He
referred to themselves, Khuthala,
as an association of likeminded
individuals working together to look at development of projects in
KwaZulu-Natal and Eastern Cape
and to a certain extent were involved
with members of the Alliance Group. His version is that the members
of the consortium had
agreed to use Crowned Cormorant as a
development vehicle in the Mtubatuba project.
[26]
He was very evasive when he was asked if the likeminded persons had
agreed that Crowned Cormorant
was to be used as the vehicle. On being
asked if they were going to put up sureties for the shelf company,
his answer was that
it was not a requirement. This was with full
knowledge that Crowned Cormorant had no assets, had not traded and
had a minimal capital
of no more than R1 000. His evidence was
that the idea of name change came from their attorneys and it was
changed from Crowned
Cormorant to Khuthala in August 2011. He could
not explain why the specimen lease was not in the name of Crowned
Cormorant, if
indeed Alliance Property Group had acted as their
agents in 2009. The change from Crowned Cormorant to Khuthala
occurred in August
2011.
[27]
It was pointed out to Palkowiski that as of 13 November 2009, Crowned
Cormorant was in deregistration
for non-compliance with statutory
requirements and was placed under final deregistration on 16 July
2010. It was only registered
into business in June 2011. Palkowiski
wants the court to accept that a non-registered company would have
validly and legally entered
into a contract with the municipality.
The cross-examination also elicited that he only came in as a
director in 2013, long after
the bid. Khuthala only came into
existence in September 2011.
[28]
Mr Westley, the notary that caused the notarial lease to be
registered in favour of Khuthala,
informed the court that he was
instructed in early 2010 by Mr Talbot of Alliance Property Group, to
do a draft lease in the name
of Alliance Property Developments (Pty)
Limited. He alluded to a meeting with COGTA Legal Advisors, including
Ms
Govender and Mr Pienaar, where he alleges that it
was agreed that in fact
Crowned
Cormorant
, a shelf entity, was the actual entity
entitled to the tender. As a result thereof changes and amendments
were made and the lease
was registered in 2011 on the strength of the
Power of Attorney dated 22 February 2011 signed by Mr Dlomo on behalf
of the municipality.
It is common cause that this was premature as
the MEC had not given further directions to the issue. He could not
explain why a
new resolution was not obtained to reflect Crowned
Cormorant or Khuthala if they were entitled to the award of the bid.
[29]
Though admitting that certain changes were effected in the lease, he
said he was not aware that
it had to be resubmitted to the Council
for consideration and approval. The evidence was that had he been
made aware of these conditions
he would have queried it. He did not
have sight of the entire minutes which refer to the Alliance Property
Group as the bid winner.
Evaluation
of the evidence
[30]
Section 217 of the Constitution of the Republic of South Africa, 1996
provides that when government
entities engage in any procurement, it
must be equitable, transparent, fair, competitive and must also be
cost-effective for that
public institution. The regulations allow
government entities to evaluate bids or tenders on their technical
ability to undertake
the services of the government contract. There
must be an assessment of the bidders past experience and financial
strengths to
ascertain if they have the ability to perform the work
that is procured. The 2011 Regulations to the
Public Finance
Management Act 1 of 1999
apply to all major entities in their
procurement.
[31]
In the Constitutional Court decision of
Steenkamp
NO v Provincial Tender Board, Eastern Cape
[6]
Moseneke DCJ stated that:
‘
Section
217 of the Constitution is the source of the powers and function of a
government tender board. It lays down that
an organ of state
in any of the three spheres of government, if authorised by law may
contract for goods and services on behalf of the government.
However
the tendering system it devises must be fair, equitable, transparent,
competitive and cost–effective. This requirement
must be
understood together with the constitutional precepts on
administrative justice in section 33 and the basic values governing
public administration in section 195(1).’ (Footnote omitted)
(My emphasis)
The
same sentiments were echoed by the Supreme Court of Appeal in
Millennium
Waste Management (Pty) Ltd v Chairperson of the Tender Board: Limpopo
Province & others
.
[7]
[32]
It is common cause that the issue before court relates to the letting
of the municipality property, which is subject
to regulation 40 of
the Municipal Supply Chain Regulations. Transparency is a requirement
in tender processes. One cannot use the
‘strengths’ of a
different company to bid for a tender and not disclose that to the
organ of State. The Council’s
resolutions resolved to award the
bid to Alliance Property Group, on the strength of their technical,
financial and other considerations,
not on an ‘empty shell’,
which was Crowned Cormorant or the non-existent Khuthala.
[33]
This issue has come up in various cases.
In
Steenkamp
NO v Provincial Tender Board, Eastern Cape
[8]
the court stated as follows:
‘
.
. .a company is, prior to incorporation, not yet in existence and
cannot perform a juristic act such as submitting a tender, and
. . .
no one can at that stage act as its agent because one cannot act as
the agent of a non-existent principal unless a pre-incorporation
agreement is concluded, which is later ratified. . . .’
(Footnote omitted)
[34]
In
Westinghouse
Electric Belgium Société Anonyme v Eskom Holdings (SOC)
Ltd & another
,
[9]
the SCA held that:
‘
The
challenge to Eskom’s decision was based on lawfulness. Eskom’s
decision was based on what it referred to as “strategic
considerations”, which it conceded, were not part of the
specified tender criteria. As an organ of State, Eskom was required
to adopt a Supply Chain Management (“SCM”) procedure and
to follow a system that was fair, equitable, transparent,
completive
and cost-effective. The SCM procedure obliged Eskom to formulate
tender criteria clearly and without ambiguity; to attach
weightings
to each criterion and to evaluate and rank bidders on the basis of
their total points allocated in respect of each criterion.’
[10]
In
this matter the considerations relied upon by the Board Tender
Committee (“BTC”) in making its decision, were not
expressly part of the bid evaluation criteria. The court further held
that the ‘tender invitation,
which
sets out the evaluation criteria, together with constitutional and
legislative procurement provisions, constitute the legally
binding
framework within which tenders have to be
submitted,
evaluated and awarded. There is no room for departure from these
provisions.’
[11]
[35]
The
Constitutional Court in
Areva
NP Incorporated in France v Eskom Holdings Soc Ltd & another
[12]
and
Westinghouse
above,
the majority judgment held that
Westinghouse
Electric Belgium Société Anonyme (
WEBSA)
did not have locus standi to seek an order setting aside the award of
the tender to the applicant Areva and have the tender
awarded to it.
The tender that was submitted to Eskom was not one coming from WEBSA
but a different, separate company, namely,
Westinghouse USA. WEBSA
had stated that the tender had been submitted on
behalf of Westinghouse USA and not in its own right. Therefore the
assertion submitted by WEBSA that it had submitted a bid in
respect
of the tender had to be rejected. The court held that WEBSA and
Westinghouse USA were two different entities even though
they
belonged to the same group of companies. It did not give any one of
them locus standi to institute court proceedings in its
own right in
a matter that only directly affected the other company.
[36]
The
Preferential Procurement Policy Framework Act 5 of 2000
,
which applies to municipalities, provides that an acceptable tender
is ‘any tender which, in all respects, complies with
the
specifications and conditions of tender as set out in the tender
document’. Alliance Property Group complied with those
specifications and not the shelf
company.
[37]
In
CShell
271 (Pty) Ltd v Oudtshoorn Municipality
[13]
the municipality awarded the tender to a company to be formed,
described as ‘Newco’ in the papers. Its tender to the
municipality contained a specified profile of natural persons, who
were to be its shareholders. The appellant, CShell 271 (Pty)
Limited
sought to enforce the tender. The issue raised was that the
alteration was that the constituent profile of shareholders
as
contained in the bid significantly altered the black empowerment
position of the company. Similarly to this case, a letter had
been
sent to the municipality to grant written consent for CShell 271
(Pty) Limited to change the legal entity registered with
the Council
to a new entity to be formed. The reason being that ‘to fulfil
the tender requirements we registered a shelf
company,
CShell
271
(Pty) LTD
.
as legal
entity with the local authority
.’
[14]
They asserted that the shelf company having no assets or substance
could or would never have been able to provide the necessary
surety
for a large development. ‘In order to meet the financial
requirements we obtained the interest of a large fund management
comp. . . .’
[15]
[38]
Section 105 of the Systems Act sets out the role of the MEC. It
provides for the MEC for local government
in a province to establish
mechanisms, process and procedures in terms of s 155(6) of the
Constitution to
(a)
monitor municipalities in the province in managing their own
affairs, exercising their powers
and performing their
functions;
(b)
monitor the development of local government capacity in the province;
and
(c)
assess the support needed by municipalities to strengthen their
capacity to manage their
own affairs, exercise their
powers and perform their functions.
[39]
In exercising its monitoring function the MEC may require the
municipality to submit information
to the Provincial Government.
Section 106(1) of the Systems Act gives the MEC powers to conduct an
investigation into the municipality.
Section 154(1) of the
Constitution compels National and Provincial Governments to ‘support
and strengthen the capacity of
municipalities to manage their own
affairs, to exercise their powers and to perform their functions’.
It may intervene, as
a form of supervision.
[40]
Mr
Dickson SC
, representing the MEC referred us to Exhibit F
of the Bundle, which is a transcript of the KwaZulu-Natal Gazette No
1369/2006 issued
by the former MEC, Mr Mabuyakhulu, MPL, which states
as follows:
‘
1.
Prior to the implementation of any decision to dispose of immovable
property, each
Municipality must submit the following information to
the MEC for his comment:
(a)
The nature of the immovable property to be disposed of;
(b)
The market related value of the said immovable property;
(c)
The reasons for the disposal of the said immovable property; and
(d)
The anticipated cost to the Municipality in disposing of the said
immovable property.’
[41]
In this case, the oversight role of the MEC and her recommendations
were ignored. Therefore the
failure to abide by the directions of the
MEC cannot be treated as inconsequential irregularities. They impact
on the validity
of the lease registered in favour of Khuthala.
[42]
Section 14(2)
(b)
of the Municipal Financial Management Act
read with the
Municipal Supply Chain Management Regulations issued
in
terms of the Municipal Financial management Act Regulations, provides
that in the disposal of capital assets owned by municipalities,
a
municipality may consider transfer of land once it had considered its
fair market value, which was not the case in this matter.
Conclusions
[43]
It is this court’s finding that the municipality resolved to
enter into an agreement with
Alliance Property Group and no one else.
There was a legal opinion as presented on 29 January 2010 that the
lease agreement as
it stood was invalid. The notary relies on the
document addressed ‘to whom it may concern’ and an
unauthorised signature
to the Power of Attorney, which does not
reflect the entire terms of the resolution, but the notary proceeded
to register the lease.
The notary had been involved in the
negotiations and knew that they all awaited the decision of the MEC,
but accepted the Power
of Attorney signed before the MEC had given a
go ahead, without ascertaining the status of the matter from the MEC.
The MEC had
given directions that ‘the amended lease agreement
must be submitted to counsel for consideration and approval’.
This
was not done. The resolutions to award the lease to Alliance
Property Group remained as there were no further amendments to those
resolutions and that there was no authority to enter into the
agreement with Khuthala.
[44]
If, as Khuthala contends, that Alliance Property Group acted as
agents for Crowned Cormorant,
the resolution had to be amended. If a
wrong entity had been named, one wonders why the resolution was not
amended. This court
can infer from the objective evidence before it
that the likeminded persons knew of the status of Crowned Cormorant
and that the
change to Khuthala was effected for that purpose. Mr
Westley correctly conceded that that was no authority to enter into a
lease
agreement with Khuthala, an entity which was non-existent at
the time of the award of the bid.
[45]
The Council was for all purposes made to believe that it was dealing
with a viable company, Alliance
Group. Ndlela’s evidence was
that they had assigned Alliance Group to tender on their behalf as
their agent and that right
from the onset they agreed that they
needed to go in as Khuthala Group but they were going to have Crowned
Cormorant as their developer.
At the same time he conceded under
cross-examination that Crowned Cormorant did not feature anywhere.
This was ‘fronting’
in its worst form.
[46]
No company can act as an agent of another company, more particularly,
for a deregistered shelf
company, in these circumstances. This would
be tantamount to making a misrepresentation. Khuthala has not given
an explanation
as to why an ‘agent’ was needed to act for
it. Juristic persons in transactions like this are represented by
authorised
natural persons, not other companies. Khuthala does not
feature anywhere in the bid process.
[47]
It is trite that the exercise of public power is only legitimate
where lawful.
[16]
The
functions carried out by Mr Dlomo in signing the Power of Attorney
for the registration of the lease in September 2011 were
unlawful, as
he was not authorised to do so. The MEC provides oversight to the
municipality. Mr Dlomo had been told to await the
decision of the MEC
but he disregarded her directions and proceeded to sign the Power of
Attorney.
[48]
I agree with the submissions made on behalf of Green Mile Investments
by Mr
Pillay
that it has been authoritatively stated in
Ferndale
Crossroads Share Block (Pty) Ltd & others v City of Johannesburg
Metropolitan Municipality & others
[17]
as follows:
‘
[22]
The effect of non-compliance with the provisions of section 79(18)
(b)
and
(c)
of the Ordinance, ie failure by the respondent to cause a notice of
its resolution embodying its intention to let the area of land
described in the agreement to be affixed to its public notice board
and to publish it (the resolution) in a newspaper calling for
objections to the proposed lease before exercising the power to let,
is that the jurisdictional fact necessary for the exercise
of the
power was absent. In terms of section 79(18)
(c)
a council “
shall
not
exercise the power [to let immovable property] . . . unless [it] has
considered every objection”. (My underlining.) In the
absence
of the necessary jurisdictional fact, the respondent could not
validly exercise the power,
[18]
with the result that the lease element of the agreement was
ab
initio
invalid
.
’
In
Theron
v MEC of the Department of Transport and Public Works
[19]
the same principle was confirmed.
[49]
Having considered all the evidence in this case I find that the lease
registered in favour of
Khuthala to be invalid.
[50]
I make the following order:
(a)
The notarial lease dated 16 September 2011
and held
under protocol number 1535/2011 of Robin Peter Westley, notary
public, as between Mtubatuba Municipality and Khuthala
Property
Consortium (Pty) Limited is declared to be invalid.
(b)
Khuthala Property Consortium (Pty) Limited is ordered to pay costs to
Mtubatuba Municipality,
costs to include the costs consequent upon
the employment of two counsel.
(c)
Khuthala Property Consortium (Pty) Limited is ordered to pay costs
for Green Mile
Investments 340 CC.
MBATHA
J
Date
of Hearing:
23 March 2018
Date
of Judgment:
18 May 2018
Appearances
For
Khuthala Property Consortium (Pty) Ltd
:
HP
Jeffreys SC
Instructed
by:
Beall
Chaplin & Hathorn
121
Clarens Road, Berea
Durban
c/o
Stowell & Co
295
Pietermaritz Street
Pietermaritzburg
For
Mtubatuba Municipality:
M
Pillemer SC / B Bedderson
Instructed
by:
Matthew
Francis Inc
Suite
4, Block A
21A
Cascades Crescent
Montrose
Pietermaritzburg
For
MEC for Co-Operative Governance of
Traditional
Affairs, KwaZulu-Natal:
AJ
Dickson SC
Instructed
by:
Mdledle
Inc
187
Hoosen Haffejee Street
Shackleton
House
Pietermaritzburg
For
Green Mile Investments 340 CC:
I
Pillay
Instructed
by:
V
Chetty Inc
Suite
3 Rydall Views
Rydall
Vale Crescent
Rydall
Vale Office Park
Douglas
Saunders Drive
La
Lucia
[1]
My emphasis.
[2]
My emphasis.
[3]
My emphasis.
[4]
Mtubatuba Resolutions MTMC 462/2010 and MTMSC 463/2010.
[5]
Letter from Ministry of Co-Operative Governance and Traditional
Affairs, KwaZulu-Natal Provincial
Government dated 01 July
2010.
[6]
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2007
(3) BCLR 300
(CC) para 33.
[7]
Millennium
Waste Management (Pty) Ltd v Chairperson of the Tender Board:
Limpopo Province & others
2008
(2) SA 481
(SCA).
[8]
Steenkamp
NO v Provincial Tender Board, Eastern Cape
2006 (3) SA 151
(SCA) para 48.
[9]
Westinghouse
Electric Belgium Société Anonyme v Eskom Holdings
(SOC) Ltd & another
[2016]
1 All SA 483 (SCA).
[10]
Westinghouse
Electric Belgium Société Anonyme
above
at 483.
[11]
My emphasis.
Westinghouse
Electric Belgium Société Anonyme
above
at 483-484
.
[12]
Areva
NP Incorporated in France v Eskom Holdings Soc Ltd & another
2017
(6) BCLR 675 (CC).
[13]
CShell
v Oudtshoorn Municipality
(481/2012)
[2013]
ZASCA 62
(24 May 2013).
[14]
CShell
v Oudtshoorn Municipality
above
para 13
.
[15]
CShell
v Oudtshoorn Municipality
above
para 13
[16]
President
of the Republic of South Africa & others v South African Rugby
Football Union & others
2000
(1) SA 1
(CC) at 56.
[17]
Ferndale
Crossroads Share Block (Pty) Ltd and others v City of Johannesburg
Metropolitan Municipality & others
[2011]
2 All SA 15 (SCA).
[18]
See
Paola
v Jeeva NO & others
[2003] ZASCA 100
;
2004 (1) SA 396
(SCA) paras 14 -16;
Kimberley
Junior School v
Head,
Northern Cape Education Department & others
2010 (1) SA 217
(SCA) para 11. Compare also
Foundation
Estate & Finance Co. (Pty) Ltd v Johannesburg City Council
1978
(1) SA 92 (W).
[19]
Theron
v MEC of the Department of Transport and Public Works
2014
(2) SA 557
(WCC).