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[2017] ZAFSHC 100
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Factoring SPV (Pty) Ltd v Matjabeng Local Municipality (4509/2016) [2017] ZAFSHC 100 (26 June 2017)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No: 4509/2016
In
the application between:
FACTORING
SPV (PTY)
LTD
Applicant
and
MATJABENG
LOCAL
MUNICIPALITY
Respondent
JUDGMENT
BY:
C REINDERS, J
DELIVERED
ON:
26
JUNE 2017
[1]
Applicant is Factoring SPV (Pty) Ltd (“Factoring SPV”), a
company registered for unrestricted business and having
its
registered place of business in Welkom, Free State. Respondent is
Matjabeng Local Municipality (“the Municipality”)
with
its principle office in Welkom.
[2]
In it’s Notice of Motion Factoring SPV moves for orders that:
2.1. The debt repayment
agreement and acknowledgement of debt concluded between Maree Van Wyk
Incorporated and Respondent
on 26 March 2016 (and ceded to Applicant)
be made an order of Court;
2.2. Respondent be ordered
to pay Applicant the amount of R 20 064 000,00 plus
interest at the rate of 15,5%
per annum from 17 July 2015 until date
of payment in full;
2.3. Costs of the
application.
[3]
The application and the relief sought are opposed by the Municipality
who in a counter-application moves for orders in the following
terms:
3.1 Declaring that
the decision of the previous Municipal Manager, Mr Ramathebane, to
appoint Maree Van Wyk Incorporated,
to be (sic) unlawful;
3.2 Setting aside
the Service Level Agreement concluded between Mr Ramathebane
(purportedly on behalf of the Respondent)
and Maree Van Wyk
Incorporated dated 18 December 2013 and declaring same to be invalid
and null and void, ab initio;
3.3 Reviewing and
setting aside the decision of Mr Ramathebane to appoint Maree and Van
Wyk Incorporated;
3.4 Cost of suit
[4]
The Municipality raises disputed issues, which in essence boils down
to:
4.1 an attack on the
jurisdiction of this court to entertain the dispute between the
parties;
4.1 an attack on SPV
Factoring’s
locus standi
to institute proceedings
against the Municipality;
4.3 the appointment
of MVW offending the principle of legality.
[5]
Background
5.1 In order to deal
with the attack on the jurisdiction of this court to entertain the
dispute as well as Factoring
SPV’s
locus standi
, it is
necessary to give an introduction to the history of the matter. Even
though the Municipality in its opposing affidavit repeatedly
refers
to the various agreements which forms the basis of this application
as “purportedly” and “allegedly”
concluded,
it is evident from the papers before me that same were indeed
concluded. The validity and/or legality thereof is what
should be
adjudicated upon by me.
5.2 On 27 May 2013
Mr German Ramathebane (“Ramathebane”), the erstwhile
Municipal Manager (“MM”)
of the Municipality, issued a
letter to Maree van Wyk Incorporated (“MVW”), a firm of
attorneys. In the said letter
MWV was instructed to perform legal
services to the Municipality. Same were so called “data
purification” by performing
a legal audit of the Municipality’s
contractual agreements and requirements of its credit control and
debt recovery policy.
The aim thereof was the eventual recovery of
arrears and outstanding debts. According to the letter MVW would be
allowed to utilise
the services of a registered auditor firm to
verify the data before the collection of arrears commenced. The
purpose of the
data purification was for the Municipality to avoid
unnecessary legal costs and wasted time. In terms of the letter, the
conclusion
of a Service Level Agreement contract (“SLA”)
was a precondition to the rendering of the said services. It is
common
cause that MWV was at all material times an approved
professional service provider (“PSP”) for the rendering
of legal
services to the Municipality and registered as such on its
data basis of suppliers.
5.3 On 30 May 2013 a
SLA (Annexure “FA4”) was concluded between MVW and the
Municipality dealing with
inter alia
the PSP’s
obligations, breach, cession and dispute resolution. The clauses
relevant to the current dispute are quoted below.
“
9.
Cession
9.1
The service provider shall not sub-contract or cede this agreement,
including any portion thereof or interest therein, unless written
permission is granted by Matjabeng Local Municipality and on
such
conditions as Matjabeng Municipality may approve.
16.
16.1
A dispute between the parties relating to any matter arising out of
this agreement
of (sic) the interpretation thereof, shall be referred
to arbitration, by either of the parties, by way of notice to the
other
party, in which notice of particulars of the dispute are set
out;
16.7
No clause in this agreement which refers to arbitration shall mean or
be deemed
to mean or interpreted to mean that either of the parties
shall be precluded from obtaining interim relief on an urgent basis
from
a court of competent jurisdiction pending the decision of the
arbitrator.”
17.
General
17.3
No addition to, variation or agreed cancellation of the Agreement
shall be
of any force or effect unless in writing and signed by the
authorised and duly delegated representatives for the parties
concerned;
and …. ”
5.4 Pursuant hereto
an addendum to the SLA (the “Addendum”, Annexure “FA5”)
was concluded
on 18 December 2013. Same dealt with the appointment of
PKF Professional Auditors as sub-contractors to MVW and payment. In
terms
of clause 2.2.6 hereof:
“
The parties agree
that Matjabeng Local Municipality, if not satisfied with the service
provider’s final work and services
as delivered in 2.2.5 supra,
Matjabeng Local Municipality will declare a dispute with the service
provider, in writing and by registered
post at his chosen
domicilium
citandi et executandi
, to any such matter
arising out thereof within 30 (THIRTY) calendar days after receipt of
the final work and services as per required
compact disc. If no such
dispute is declared by Matjabeng Local Municipality, it will be
regarded that all such work, services
and information has been
completed sufficiently by the service provider and is accepted
accordingly in such form and manner by
Matjabeng Local Municipality.”
5.5 After the
services were rendered by MWV a debt repayment agreement (the “DRA”,
Annexure “FA7”)
was concluded on 26 March 2014 in terms
whereof the indebtness of the Municipality to MVW in the amount of R
20 064 000,00
was acknowledged. Clause 13 of the DRA
reads as follow:
“
13.
CESSION AND
DELEGATION
13.1 The Creditor shall-
13.1.1 be entitled, at any
time, to cede any of its rights in terms of this Agreement;”
5.6 On 28 March 2016
MVW ceded its rights under the DRA to Factoring SPV (Annexure
“FA12”).
[6]
Does this Court have jurisdiction to entertain the dispute
between the parties?
6.1 On the papers
and in argument before me Mr Mokoena on behalf of the Municipality,
submitted that this court
lacks the necessary jurisdiction to
entertain the dispute. Relying on clauses 16.1 and 16.7 of the SLA as
quoted in para [5.3]
above, he stressed that clause 16.1 provides
that “any matter arising out of this agreement” must be
referred for arbitration,
and since SPV Factoring is seeking a
substantial relief on the merits, it ought to be done this way.
Furthermore, in terms of clause
16.7, a competent court could only be
approached in instances whereby “interim relief on an urgent
basis” is sought.
6.2 Mr Louw on
behalf of SPV Factoring stressed that the applicant’s cause of
action is based on the DRA
and not the SLA. He submitted that in any
event Clause 16.1 envisages that such a dispute shall be referred by
either of the parties
by way of notice to the other party, setting
out the particulars of the dispute. No such notice was given by any
party. Furthermore,
clause 2.2.6 of the Addendum (para [5.4] above)
makes it clear that, should the Municipality be dissatisfied with the
final work
and services of the PSP, it was incumbent upon the
Municipality to declare a dispute with the PSP in writing within
thirty
calendar days after receival of such work and services
rendered. It is common cause that no such dispute was declared
by
the Municipality.
[6.4] In
Joob Joob
Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture
[2009] 3 All SA 407
(SCA) a similar dispute arose between the
parties. It was held by the Supreme Court of Appeal at para [17] that
a dispute has to
exist before it can be referred for arbitration.
In
casu
it is clear that a dispute must be in existence and notice
thereof must be given to the other party in writing according to
clause
16.1 of the SLA. The Municipality failed to raise same and
cannot now contend that clause 16.1 ousts the jurisdiction of this
court.
In
Joob Joob
supra
Navsa JA held that the
appellant chose not to pay rather than to declare a dispute.
6.3 The Municipality
prays for an order that the SLA be declared invalid, the very same
SLA upon which the Municipality
relies for its contention that the
matter should have been referred to arbitration. It is hard to
imagine how effect can be given
to the arbitration clause when the
validity of the contract itself is in dispute. After all, the matter
can only be referred for
arbitration where the parties are ad idem
that the contract appointing such arbitrator is valid. Para [6.1] of
the agreement requires
notice being given by any party in the event
of a dispute. I am satisfied that I should hear this matter and has
the necessary
jurisdiction to do so. The first point in
limine
is dismissed.
[7]
Does Factoring SPV have
locus standi
to initiate the proceedings against the Municipality?
7.1 Factoring SPV is
a cessionary of the rights under the DRA as is evident from Annexure
“FA12”.
The Municipality contends that clauses 9.1 and
9.2 of the SLA specifically preclude MVW as the PSP, from ceding the
agreement unless
written permission thereto is granted by the
Municipality.
7.2 In terms of the
DRA upon which SPV Factoring relies, provision is made in clause 13
thereof for entitlement
by the creditor (MVW) to cede any of its
rights in terms of the DRA. MVW exercised its rights in terms of the
contract and ceded
its claim to SPV Factoring on 28 March 2016. I am
satisfied that SPV Factoring has sufficient interest in the
determination of
the dispute before me and accordingly has
locus
standi
to initiate litigation.
See:
Rinaldo Investments (Pty)
Ltd [2012] 3 ALL 57(SCA)
at para [14]
[8]
The merits
Mr
Mokonea (assisted by Mr Mathopo) ably drafted comprehensive heads of
argument with the Constitutional approach to matters of
this nature
as the point of departure. Indeed, the principle of legality as
enshrined in section 217(1) of the Constitution,
is of the
utmost importance in deciding the dispute before me. Same
provides that:-
“
When an organ of
state in the national, provincial or local sphere of government, or
any other institution identified in national
legislation, contracts
for goods or services, it must do so in accordance with a system that
is fair, equitable, transparent and
cost-effective.”
[9]
Section 217 should be read with the applicable legislation in regards
to procurement, including the Local Government Municipal
Finances
Management Act 56 of 2003 (“MFMA”) and the Municipality’s
Supply Chain Management Policy (“SCMP”).
Determination
of the dispute should also involve the principal of
pacta sunt
servanda
, namely that it is in public interest that parties
should comply with their contractual obligations.
See:
Reddy v Siemens Telecommunications (Pty) Ltd
2007 (2)
SA 486
(SCA).
[10]
In essence the dispute between the parties is whether the cause
underlying the DRA infringes upon the applicable procurement
legislation which rendered the appointment of the PSP and subsequent
SLA void, thereby absolving the Municipality from payment.
[11]
In terms of section 111 of the MFMA it is imperative on every
municipality to have a SCMP which must comply with a prescribed
regulatory framework for municipal chain management.
See
also:
Metroprojects Developments (Pty) Limited v Jozini Local
Municipality and Others
[2015]JOL 33417 (KZP].
[12]
The Municipality has adopted its own SCMP. At the time of MVW’s
appointment same contained specific provisions relating
to the
appointment of PSP’s. The relevant portions thereof (Annexure
“RA1” annexed by SPV Factoring) read as
follow:
“
Part 2
Appointment of professional service
providers
7.14 This part
outlines the approach of the Municipality in the appointment of
professional service providers
(PSPs), otherwise referred to as
consultants. The Municipality shall, like government departments,
appoint PSPs using a roster
system. The policy sets out the
principles used for the establishment and operation of a roster
system for the appointment of PSPs.
Categories of PSPs
7.15 This roster system
will generally cover, but will not be limited to, the following
categories of PSPs:
M - Legal services
Purpose of the roster
7.16 The
purpose
of the roster are (sic) to-
(a) Enable the Municipality to appoint
PSP’s efficiently
without having to follow a competitive
bidding process
;
(b) Ensure that the
services are carried out in a professional, competent and
cost
effective
manner;
(c) Allocate work in a
fair and equitable
manner; ….
(my emphasis)
”
[13]
In oral argument before me and in heads of argument it was submitted
by Mr Mokoena that the appointment of MVW offends the
principal of
legality as no bidding process was followed, the SLA concluded
between MVW and Ramethebane is
contra bonos mores
and that the
agreement between Rametebane and MVW was subversive, in secret and
lacked transparency with a history of irregularities
involving
unauthorized and/or suspicious payments advanced to MVW.
[14]
The Municipality places reliance thereupon that the service rendered
by the MVW was a “municipal service” as described
in
section 1 of the Local Government: Municipal Systems Act 32 of 2000
(“Systems Act”) and accordingly the provisions
of the
Systems Act applies to the agreement concluded between MVW and the
Municipality. In terms of section 1 a municipal service
means “a
service that a municipality in terms of its powers and functions
provides or may provide to or for the benefit of
the local community
irrespective of whether such service is provided, or to be provided
by the municipality through an internal
mechanism contemplated in
Section 76 or engaging an external mechanism contemplated in Section
76 and irrespective of whether fees,
charges or tariffs are levied in
respect of such service or not.” The Systems Act enables
municipalities to
inter alia
provide for municipal services by
way of service delivery agreements and the selection of service
providers should be done through
specified selection and
pre-qualifications processes.
[15]
Mr Mokoena argued that the work performed by MWV was not of a legal
nature. According to him no mention was made in the letter
to MVW
that it was appointed in terms of a roster and the SLA makes
reference to “service” and “work” only,
not
to “legal service” or “legal work”.
[16]
From Annexure “A” annexed to the SLA it can be gleaned
that MVW
inter alia
had to perform the following:
“…
verification
of opening balances of each account, prescription periods, interest
on interest…. possible success rate should
legal proceedings
be instituted… those amounts/accounts to be written off as
prescribe (sic) by the MFMA and other applicable
legislation…”
I
do not have any doubt that same amount to legal services. I likewise
do not agree with Mr Mokoena that the services rendered by
MVW can be
construed as a “municipal service”. Accordingly I am of
the view that the Systems Act is not applicable
in casu
.
[17]
It is contended by the Municipality that the appointment of MVW was
subversive, in secret and lacked transparency. From the
papers before
me it is evident that:
17.1
Prior to the appointment of MVW discussions were held between Mr
Riaan Van Wyk (“Van Wyk”)
of MVW and Ramathebane aiming
at determining the fee to be charged by MVW per consumer file. Moroka
Attorneys (“Moroka”),
one of the other PSP’s used
by the Municipality to render legal services (and the current
attorney of record to the Municipality),
was requested by the
Municipality to comment on the proposed fee. It was opined in a
letter addressed to the Municipality and dated
28 May 2013 (Annexure
“RA4”) that R100,00 per file was “more than
reasonable” with reference to prescribed
tariffs by the Free
State Law Society.
17.2 The
permanent representative of the Auditor General, stationed at the
Municipality’s offices,
one Elsje, formed part of the
discussions on the agreed fees.
17.3 At
a meeting chaired by the Mayoral Member Committee: Finance and
several other officials, of
which Mr Andre Steyger, who is the shadow
Mayoral Member Committee: Finance of the Democratic Alliance and a
representative of
Moroka Attorneys, were present.
17.4 MVW
submitted invoices to the Municipality for the total amount owing, R
25 600 00.00. Two
interim payments of R 4 560 000.00
were effected. In the DRA concluded on 26 March 2014 the Municipality
undertook to
pay the outstanding capital before or on 1 July 2014 and
30 November 2014. In an effort to ensure payment without resorting to
litigation, various meetings and discussions ensued between MVW and
the present Municipal Manager Mr Mothusi Frank Lepheana (“Lepheana”),
who is also the deponent to the answering affidavit of the
Municipality. It involved other officials in the finance department
as well. MVW was requested to afford extension to make payments and
undertakings were given, in particular by Lepheane. The
validity of the appointment, the various agreements, the services
rendered or the quantum of the amounts were never questioned.
[18]
The Municipality contends that the appointment of MVW and the amounts
received in respect of the services rendered, unfairly
and unlawfully
compromise the fiscus of the Municipality. Reliance is placed on
section 33 of the MFMA which deals with contracts
imposing financial
obligations on a municipality beyond the three years covered by the
annual budget. It is alleged that the binding
of the Municipality to
the amount as contracted for “should have been allocated in the
budget and therefore this should be
dealt with at council level”.
In its contention that the amount of procurement was not budgeted for
or all payments and authorisation
procedures were not followed, the
Municipality failed to set out any facts in support hereof. No
particulars of the budget to which
it refers are given, neither are
copies of any policies in this regard appended. I am satisfied that
the appointment of MVW did
not amount to a contract which would
impose financial obligations on the Municipality beyond the three
years covered by the relevant
annual budget as contemplated by
section 33. The fees were reasonable and could be recovered from a
particular debtor in terms
of the agreement between the Municipality
and the debtor/consumer and the budget of the Municipality was not
negatively affected.
In fact, the product of the legal services
rendered by MVW was utilised by Moroka in the subsequent debt
recovery performed by
them on behalf of Municipality.
[19]
The Municipality avers that the invoices rendered by MVW did not
comply with legislation but does not elaborate on the alleged
unlawfulness hereof. According to the applicant the deponent clearly
does not bear any knowledge as to the history of the matter
and the
Chief Financial Officer was not only fully aware of all invoices, but
at his instance invoices were broken down into parts
and rendered as
it was.
[20]
It is furthermore denied by the Municipality that MVW rendered
services in accordance with the SLA. Reliance is placed
on a
report conducted by Morar Incorporated (“the report”,
Annexure “MLM7”), titled “Report on our
review of
the contract between Matjabeng Local Municipality and Maree van Wyk
Incorporated relating to the review and audit of
all arrear accounts
in the municipality’s accounting system (debtors data
purification)” . The logo of Maroka Attorneys
is displayed at
the bottom thereof. In the sixteen page document and on page 2
thereof, a letter dated 5 February 2016 is addressed
to Maroka
indicating the attachment of a report. The report is neither signed
nor dated, but it appears to have been concluded
in March 2016, after
the issuing of the letter in February. The report concluded that
there was no value for money for the services
rendered by MVW. The
report did not account for any input by MVW on the services rendered.
No confirmatory affidavit is attached
confirming the contents of the
report. In any event, on 14 March 2014 the minutes of the
Municipal Mayoral Committee (Annexure
“FA10”) indicate
that the services rendered by MVW served before the Council of the
Municipality. It was approved and
the write offs recommended were
sanctioned by the Auditor-General. In terms of the minutes of a
meeting held on 10 November 2015
(Annexure “RA7”)
Lepheana who was in attendance, did not raise any question as to the
fact that the Municipality did
not receive any value for money.
Lepheane rather undertook to resolve the outstanding payment to MVW
and mandated one Mr Mofokane
(“Mofokane”) to attend to
same. All documentation to finalise the matter was included in a
letter by MVW to Mofokane.
Lepheane did not appraise me of the fact
that he was given all documentation pertaining to the conclusion of
debt repayment but
rather creates the impression that he only very
recently became involved in the dispute. He avers that he as
accounting officer
of the Municipality, together with the current
Chief Financial Officer Mr Tsoaeli “deemed it prudent to seek
legal advise
pertaining to how the Applicant was appointed and the
obligations created to the Respondent resulting from the service
level agreement”.
[21]
As I have found in para [16] above, the appointment of MVW was not
for the provision of a “municipal service” as
an external
service provider. Accordingly I am of the view that it was not
necessary for Ramatebane to involve the various
officials referred to
by the Municipality in its answering papers in concluding the SLA.
Ramathebane as the municipal manager was
entitled to make the
appointment in terms of the Municipality’s SCMP. The
Municipality avers that in terms of the MFMA Ramathebane,
as the
accounting officer, would have had to ensure that the SCMP was
implemented when the services of MVW was procured. The conclusion
is
then drawn that the SLA was invalid, unlawful and
contra bonos
mores
. However, the Municipality failed to attach the provisions
of its SCMP on which it relies or to indicate which of the provisions
of the SCMP was not adhered to. In fact, it becomes evident that
Lepheane has no knowledge of the Municipality’s SCMP
Department.
No confirmatory affidavits by either the Manager of the
said department or the respective chairpersons of the Bid Evaluation
or
-Adjudication committees are appended.
[22]
In
Mothapo Consulting Engineers (Pty) Ltd t/a Mothapo Projects
v Nala Local Municipality
(1053/2012)
[2012] ZAFSHC 118
(21
June 2012) at par [25] Daffue J held that
“
There is no doubt
that the municipality must act in accordance with a fair, equitable,
competitive and cost effective system and
in terms of a Supply chain
management policy designed to have that effect. The failure to comply
with these precepts renders the
contract invalid and open to
nullification by a court. It is also clear that
a
court cannot make such a finding without the necessary factual
foundation and on mere speculation or conjecture
.
In order to succeed with its allegation of illegality respondent must
be successful in the factual enquiry, i.e. that the tender
process
followed and the contracts thereafter did not comply with section 217
of the Constitution, the other procurement legislation
referred to
above as well as respondent’s SCMP.”
(My
emphasis)
[23]
A party alleging that a municipality’s procurement policy had
not been complied with, bears the onus of proving it.
See:
Manong and Associates v Director General: Department of Public
Works and Others
[2004] 1 All SA 673
(C) at 687.
[24]
Mr Mokena pressed hard upon me to find that the Municipality had to
follow a competitive bidding process in accordance with
the Systems
Act and had failed to do so. I cannot agree with him. MVW was a
registered PSP and was appointed from the roster system,
which system
enabled the Municipality to forego the process of competitive
bidding. The contract concluded for the work to be done
was in
writing as per the SLA. In
Premier, Free State, and
Others v Firechem Free State (Pty) Ltd
2000 (4) SA 413
(SCA)
the contract concluded between the parties was set aside as it was
held that same was “entirely subversive of a credible
tender
procedure”. In
casu
no tender procedure was required and
MVW was appointed in terms of the roster system aimed at cost
effectiveness and fair allocation
of work. The appointment of MVW was
done lawfully and in accordance with a recognised procedure for the
appointment of PSP’s.
[25]
The municipality elected to rely upon a plethora of legal provisions
which deal with requiring of bidding and tender procedures
unrelated
to the circumstances in
casu
. The parting shot of the
submissions made by Mr Mokoena was that MVW was appointed by
Ramathebane without the involvement of the
existing procurement
structures of the Municipality and that the appointment was in
contravention of section 217 of the Constitution
and other
legislative prescriptions. I am unable to find as such.
[26]
In view of what was stated above, I am satisfied that the
process of the appointment of MVW was open and transparent
and did
not offend the principle of legality as envisaged in the Constitution
and relevant legislation.
[27]
Accordingly I grant the following orders:
27.1 The Debt Repayment
Agreement and acknowledgement of debt between Maree Van Wyk
Incorporated and the Respondent concluded
on 26 March 2014 (and ceded
to the Applicant), is made an order of Court.
27.2 Respondent is ordered to
pay Applicant the amount of R 20 064 000,00 plus interest
at the rate of 15,5% per
annum from 17 July 2015 until date of
payment in full.
27.3 Respondent is ordered to
pay the costs of this application.
27.4 The counterclaim is
dismissed with costs.
______________
C.
REINDERS, J
On
behalf of the applicant:
Adv. M.C. Louw
Instructed by:
Hill, McHardy &
Herbst Inc.
BLOEMFONTEIN
On
behalf of the respondents: Adv.P.L.
Mokoena SC
Adv. K.T. Mathopo
Instructed by:
Moroka Attorneys
BLOEMFONTEIN