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[2016] ZAFSHC 94
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Maby Clothing (Pty) Ltd v Department of Health, Free State Provincial Government (5260/2009) [2016] ZAFSHC 94 (8 April 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
no. 5260/2009
In
the matter between:
MABY
CLOTHING
(PTY)
LTD
Plaintiff
and
DEPARTMENT
OF HEALTH,
FREE
STATE
PROVINCIAL
GOVERNMENT
Defendant
Heard
on:
26 JUNE 2015
Judgment
by:
MOTLOUNG, AJ
Delivered
on:
8 APRIL 2016
[1]
In this action, the plaintiff Maby Clothing (Pty) Ltd, (Maby)
instituted proceedings against the Department of Health
Free State,
(Defendant) seeking damages in the sum of R412 479-04, pursuant to,
what it alleges to be, a repudiation by the defendant
of an agreement
between the parties and which repudiation the plaintiff accepted.
The
Agreement:
[2]
On or about 15th May 2006, the plaintiff and defendant entered
into a partly oral partly written agreement based on the
tender by
the defendant. The relevant provisions of the agreement for purpose
of the plaintiff's claim against the defendant were:
2.1
The defendant appointed the plaintiff as a supplier of uniforms for
female and male personnel
of the Department of Health in the Free
State Province and specifically hospitals.
2.2
The defendant and all institutions were authorized to obtain
quotations from the plaintiff for
the procurement of uniforms.
2.3
The plaintiff was to fully measure and fit personnel at the various
health care institutions for
quotations to be given and uniforms to
be made up.
2.4
Payment would be made directly to the plaintiff in respect of
garments ordered and delivered to
the defendant's institutions.
Pleadings:
[3]
It is particulars of claim the plaintiff averred in paragraphs 9 - 13
that:
9.
On
or
about
23
November 20016,
in
Bloemfontein
defendant
orally informed
the plaintiff
that it
was no longer interested in
purchasing
the
goods as
per
the orders
and
canceled
the
orders,
alternatively
on
12
March
2007
and at Bloemfontein
the defendant
in
writing informed
the
plaintiff
that
it
was
no
longer
interested
in
purchasing the
goods
as
per
the
orders
and
cancelled
the orders.
10.
The defendants
conduct
constituted
a
repudiation
of
the agreement
between
the parties.
11.
Plaintiff
elected
to accept the
repudiation
and terminated the
agreement
between
the
parties
and
orally
advised the
defendant
accordingly
on
12 March
2007.
12.
As
a result
of
the
aforesaid
repudiation
plaintiff
suffered damages
in
the
sum
of
R412
479-04
being
plaintiffs
net profit
at a rate of
132
percent
of the value of the
orders.
[4]
The defendant pleaded as follows:
3.
The defendant admits the conclusion of a written agreement with the
plaintiff on 30 June 2003, has no knowledge of the correctness
of the
remainder of the a/legations contained in this paragraph, does not
admit same and puts the plaintiff to the proof thereof.
8.
The defendant denies the averments set forth in this paragraph, and
pleads that the plaintiff was only required to measure and
fit
personnel at the various health care institutions after a written
request was dispatched to the plaintiff.
The
defendant at the commencement of the trial
amended its plea, to read:
"
The defendant
denies
that
there
was any repudiation
of the
agreement with the
plaintiff and pleads that there was
a
new contract awarded to another company on 2 October 2006.
The plaintiff
was awarded part of the
new
contract to supply only the male uniforms."
The
defendant pleads that defendant's officials were not authorized to
place orders on behalf of the defendant and the contract
for the
female uniforms was awarded to another company. The amendment was
agreed to and the plaintiff filed his replication.
[5]
The parties agreed at the commencement of trial that only claim two
of the particulars of claim need to be adjudicated. Claim
one has
been settled by agreement with payment of R12 000-00.
[6]
When the trial commenced, the parties by agreement made an
application for separation of merits and quantum in terms of rule
33(4) of the Uniform Rules of Court, which order I granted. The
matter thus proceeded on the merits only. Exhibits 'A'. B and 'C'
form part of the record herein.
[7]
The plaintiff led the evidence of the following witness:
Gianluca
Brunetti
He
testified that he is a joint Managing Director of Maby Clothing (Pty)
Ltd, for 30 years. The main business of the plaintiff is
to
manufacture corporate uniforms for institutions. They do protective
clothing as well as uniforms for nurses etc. They deal with
large
orders, although sometimes they do small orders. He said he is in
Sales and Finance. He interacts with clients. He is mostly
personally
involved in these matters.
[8]
He testified that during 2004 - 2006 the plaintiff entered into a
contract with the defendant. However they had been doing business
together since 1993. The agreement was that they would receive a
quotation and deliver the uniforms to the defendant. From the
year
2000, the contract was done by tender. He said clients would give
them a mandate to visit the site, and take sizes and fittings
from
personnel. Plaintiff would then give a quotation on a basket per
case. Once defendant gives them the order number, plaintiff
would
start with the manufacturing process. This was done in 14
week cycles.
[9]
He testified that the plaintiff covered the entire Free State, as the
process was centralized. This was changed in 2000, when
it was
de-centralized. The price was fixed according to the lapsed contract
price of 2003/2004, and was a formal acceptance of
the tender for
male uniforms.
[10]
In February 2006, the tender was extended. The plaintiff was asked to
visit institutions to obtain sizes and orders were placed.
The
defendant would purchase by quote, provided they had a budget for the
uniforms and prices were within the last tender award.
On the 26
April 2006, plaintiff wrote to the defendant to confirm that there
won't be price escalation. They had received an instruction
from the
defendant's committee in June 2006. The extension of the tender did
not have a time limit.
[11]
He testified that plaintiff never solicited business from the
clients, but instead they were approached by clients. The plaintiff
only took orders after permission was granted. He said orders in
claim two were based on the extension of the tender of the 23
February 2006, and these orders were terminated by defendant.
[12]
On the 15 May 2006, an oral agreem ent was reached to supply
uniforms. There were no documents supplied. This was an open-ended
agreement until such time a new contract was entered into on the 5
th
October 2006. The defendant placed orders between these periods. He
learned later that part of the tender was awarded to another
company.
[13]
He testified however, that their tender was not cancelled. Defendant
made orders after October 2006. He acted on the orders.
However, the
plaintiff could not deliver the garments. After a while a dispute
about these orders arose. As a result of the above,
they incurred
losses. The plaintiff sent a list of unpaid orders to the defendant.
The defendant replied to that letter on the
1ih March 2007, wherein
they cancelled all the orders. He said orders were placed with the
Head of Procurement at each institution.
[14]
He said if he was aware that the authority had changed, he would not
have taken the orders.
[15]
In cross-examination he said he had a meeting with the defendant
after the expiry of the contract on the 15th May 2006. He
received
written instructions to go to each institution to offer his services.
He said the prices were maintained as per the previous
contract.
[16]
He said his claim was based on material used and production. The lost
orders were made on information obtained from the defendant
and the
official orders detailed quantities and
the person authorized. He denied that
the orders were made
after cancellation of the tender. In re-examination he said he was
unaware that the tender had been given
to another company.
THE
DEFENCE CASE:
[17]
The defendant's witness,
LUCELLE
CHRISTINA
PRETORIUS,
testified that she is the Corporate Officer, falling
under Supply Chain Management of the Defendant. She has been with
Supply Chain
from 1998, but has worked for the Defendant for
approximately 30 years.
[18]
She outlined her long career as traversing finance, Human Resources,
supply chain, procurement, but now worked on all that
should be
procured by the defendant. If items are to be procured for the
defendant this may be by contract or a quote. If
a quote is
used then evaluation of those submitted will be made, then only an
order is placed.
[19]
She further testified that not every official of the defendant can
place an order. There has to be identified suppliers and
then 3
quotations will have to be submitted. After evaluation of these
quotes, an order will be placed. She said an order number
is critical
to each process.
[20]
Between February 2004 and May 2006, there was a contract between
plaintiff and defendant for the supply of uniforms. Previously
the
plaintiff exclusively provided all male and female uniforms to the
defendant. In the event the contract lapsed, an extension
would be
made and the plaintiff would continue to supply. She said a
department directive dated
9
June 2006,
is an
example of such extension.
[21]
After the new contract came into place, the system was computerized
to show an order number in real time when the order is
placed. She
said for a person to obtain an order number, there should at
least be:
(i)
A request made as per the contract;
(ii)
That 3 quotations were submitted and one was preferred.
She
said order numbers so issued cannot be manipulated. They also show
the status of the order.
[22]
The order numbers for plaintiff were made after the contract had
expired. The items were not delivered, hence the cancellation
of
these orders. She said the plaintiff relied on "Official Order
Form", which is an internal document to supply. She
said all the
documents purporting to be orders have not been signed by the Head of
Procurement and have no amounts. She said a
Government Order is not
done on a requisition document as these are purely internal documents
that are not supposed to be in the
hands of clients. She said only
authorised persons were entitled to place an order.
[23]
JACQUALINE
SUSSANA
JACOBS
testified
that she has been working for defendant for 32 years. She is in
supply chain dealing with tenders and concluded the contracts
with
the plaintiff. She said the letter was to give hospitals permission
to source quotations from plaintiff as the contract with
the
defendant had expired. The new contract was only approved in
October 2006.
[24]
She said from October 2006, after approval of the contract,
quotations fell away and only contracts were used. She said if
an
order is placed after the contract has been concluded, then it
becomes irregular. She said the plaintiff signed acceptance of
the
new contract on the
9
th
October
2006.
She admitted that a circular
of
15
May
2006
governed the relationship with the plaintiff
after the contract expired.
ANALYSIS
OF EVIDENCE:
[25]
The plaintiff led the evidence of one witness, Mr Brunetti, its Joint
Director, while two witnesses testified on behalf of
the defendant.
The main issue in dispute was that the defendant repudiated a
contract between the parties. This is in line with
earlier agreement
before the trial began that only claim two should be determined.
[26]
According to the evidence of the plaintiff, the parties had a
contract that was renewed orally from the 15
May
2006.
The prices would
remain the same as in the original contract, for the supply of
garments to various hospitals in the Free State.
[27]
Due to the volumes that had to be supplied, an order would be made
and delivery would be made at a later stage. The prices
were fixed as
per the previous contract. It was evidence of Mr Brunetti that all
the orders placed by the defendant had to be supplied
to the
defendant.
[28]
As a result of the oral agreement between the parties, measures were
taken and thus this confirmed the orders. However,
on the
17
March
2007,
all the orders made by
the plaintiff were cancelled. This was the repudiation of the
contract by the defendant.
[29]
Counsel for the plaintiff submitted that the evidence of Mr Brunetti
was honest and reliable. The plaintiff was never informed
that the
agreement has been cancelled. He submitted that if the
version of the defendant is found to be correct, then
the orders
ought not to have been placed. He submitted that the oral agreement
was not placed in dispute. There is no evidence
that on the
15
May 2006,
the agreement was not valid.
[30]
It was further submitted in closing that the defendant is estopped
from relying on the lack of authority by its employees.
He submitted
that for a considerable time the employees of the defendant had the
authority to make orders and until such time that
the mandate
was withdrawn it is valid. The defendant
should be held to the terms of the agreement
that was in place.
[31]
Counsel for defendant on the other hand submitted that it has always
been disputed that not every official can act on behalf
of the
department. He submitted that all quotations must be handled in terms
of the Supply Chain Management Delegated Powers.
[32]
The defendant argued that the new contract came into operation on 23
October
2006.
All the orders in dispute
were placed after the
23
October
2006.
The plaintiff wrote a letter on the
26 April 2006,
inquiring
about the commencement date of the new contracts. This clearly
demonstrates that the plaintiff was aware of the contracts
when he
placed the orders.
[33]
It was further the submission of the defendant that the oral
agreement is not valid as the order numbers were not outstanding
at
the time they were placed. He submits that there was no repudiation
of the contract. He argued that the people who placed orders
with the
plaintiff did not have the authority at the time and therefore no
mandate.
[34]
Counsel for the defendant further argued that once the contract was
in place, there was no need for the orders. He said estoppel
cannot
render legal that which is unlawful. Both witnesses for the defendant
said it would be illegal to pay on the orders as the
contracts were
operating.
[35]
The question will be whether there was any repudiation of the
contract by either party.
In
Datacolor
International
(Pty)
Ltd
v/s
lntamarket
(Pty)
Ltd
2001 SA 284
(SCA),
the Court held that:
"Where
one party
to
a
contract,
without
lawful
grounds,
indicates
to the
other
party in words
or
conduct
a
deliberate and
unequivocal intention
no
longer
to be
bound
by
the
contract,
he
is
said
to
'repudiate' the contract....
Where that happens,
the other party
to the contract
may
elect
to
accept
the
repudiation and
rescind the contract. If he
does so
the
contract
comes
to
an
end
upon communication of
his
acceptance of
repudiation and
rescission to the party
who
has
repudiated".
[36]
Looking at the passage above and the evidence presented before the
Court, there is no basis to find that either party repudiated
this
contract. The only indication is that the parties had communicated
the coming to an end of earlier arrangement and acceptance
of the new
contract. The letter of the 12 March 2007 was a mere communication of
the new order prevailing as the plaintiff had
already accepted the
new contract.
The
test for repudiation is not subjective but objective.
Ponisammy
& Another
v/s Versailles
Estate
(Pty)
Ltd 1973(1) SA 372 (A) at 387 A -
C.
The
plaintiff also failed to explain what it elected to do once it was
aware of the repudiation. Once a party makes an election,
that person
is bound by that election. He is bound to enforce the remedies
available to him or her pursuant to the election, and
he or she is
not at liberty to seek redress against a defaulting party by way of
remedies inconsistent with election.
See:
Custom Credit Corporation (Pty) Ltd v/s Shembe 1972(3) SA 462 A at
469(H).
There
is also no indication that the election was communicated to the
defendant. The claim for repudiation can therefore
not
stand.
[37]
The plaintiff raised the issue of an oral agreement in its pleadings.
This was denied by the defendant, but during his testimony,
Mr
Brunetti failed to provide evidence of the facts and circumstances
from which the contracts could be inferred. In any event,
the orders
in dispute were made during the existence of the new contract, the
terms of which were agreed to by both parties.
[38]
It was the evidence of Ms Pretorius that the order date was done at
real-time and could not be altered by any person. There
is no basis
to second guess the dates as they appear on documents.
[39]
On the issue of estoppel, the plaintiff appears to have raised it as
an afterthought. The plaintiff did not plead estoppel
nor did he
prove the essential elements of this defence.
See:
Blackie
Swart
Argitekte
v/s
H van
Heerden
1986(1)
SA
249 (A) 260.
For
any party to succeed on estoppel, the following elements are
essential:
(a)
Representation by words or conduct of a certain factual position;
(b)
The party acted on
the correctness of the facts
as represented;
(c)
The party acted, or failed to act, to her or his detriment;
(d)
The representation was made negligently;
(e)
The person who made the representation could
bind the defendant by means of a representation.
In
NBS Bank Ltd
v/s
Cape Produce Co (Pty) Ltd 2002(1) SA 396 (A) at para [25]:
"Where
a principal
is
held
liable
because
of
the
ostensible
authority
of
an
agent,
agencies
by
estoppel
arise.
But
the
law
stresses
that
appearance;
the representation
must
have
been
created
by
the principal himself.
The
fact
that
another holds
himself out
as
his agent cannot, of itself, impose liability
on
him".
[40]
It is trite law that estoppel may not be used to make legal what
would otherwise be illegal and cannot replace statutory requirements
for the validity of contracts.
See:
Trust
Bank
van
Afrika
Bpk
v/s
Eksteen
1964(3)
SA
402 (A).
In
Philmatt
(Pty)
Ltd
v/s
Mosselbank Developments CC 1996(2) SA 15 (SCA),
Grosskopf
JA held that:
"generally
where a statute requires that certain formalities have to be complied
with in order to render a transaction valid,
a failure to comply with
such formalities cannot be remedied by estoppel".
The
plaintiff has not pleaded estoppel and less the facts to prove the
essential element of this defence. I find that estoppel must
fail as
the plaintiff cannot rely on making legal that which is illegal. The
internal documents of the defendant cannot be used
as a source of
authority by the plaintiff to prove that a junior official bound the
defendant to an oral agreement.
[41]
In my view the dispute centres around the orders made by the
defendant's officials who it is claimed had no authority to bind
the
defendant. The defendant had denied the officials had authority. No
evidence was led to show that the officials had the authority
to make
representation on behalf of the defendant.
[42]
In the circumstances I find that the plaintiff has failed to prove
its case on a balance of probabilities and consequently
find in
favour of the defendant with costs.
[43]
I grant judgment in favour of the defendant as follows:
1.
The action against the defendant is dismissed.
2.
Costs of suit.
_________________
SE.
MOTLOUNG, AJ
On
behalf of plaintiff:
Adv. Venter
Instructed by:
Mark Harris Attorneys
Morning side Sandton
On
behalf of defendant: Adv. R
Rathidili
Instructed by:
State Attorney
Bloemfontein