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[2007] ZASCA 28
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City of Tshwane Metropolitan Municipality v RPM Bricks Proprietary Ltd. (177/2006) [2007] ZASCA 28; [2007] SCA 28 (RSA); 2008 (3) SA 1 (SCA) (27 March 2007)
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REPUBLIC OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case Number :
177 / 2006
In the matter
between
CITY OF TSHWANE
METROPOLITAN MUNICIPALITY
......................
APPELLANT
and
RPM BRICKS
PROPRIETARY LIMITED
......................
RESPONDENT
Coram
:
HARMS ADP, FARLAM, LEWIS, PONNAN JJA et MUSI AJA
Date
of hearing
: 5 MARCH 2007
Date
of delivery
: 27 MARCH 2007
SUMMARY
Estoppel –
raising of against a statutory body – distinction between acts
which are ultra vires and non-compliance with
internal arrangements –
reliance on estoppel in former case – not permissible.
Neutral citation: This judgment may
be referred to as :
City of Tshwane Metropolitan
Municipality
v
RPM
Bricks (Pty) Ltd
[2007] SCA 28 (RSA)
___________________________________________________________________
J U D G M E N T
___________________________________________________________________
PONNAN JA
[1] On 5 July 2001 the council of the present appellant, the City of
Tshwane Metropolitan Municipality (the defendant in the court
below),
resolved to add the respondent, RPM Bricks Proprietary Limited (the
plaintiff in the court below), to its list of already
approved
suppliers for the supply and delivery of coal to its Pretoria West
and Rooiwal power stations. For convenience I will refer
to the
parties by their appellation in the court below.
[2] The plaintiff was thus duly placed on the council's list of
approved coal suppliers on inter alia the following terms:
(a) the supply contract was to commence on 1 April 2001 and to endure
for a period of three years;
the coal was to be despatched by rail to the railway sidings of the
respective power stations;
the total price for all coal delivered during any calendar month was
to be paid within 30 days after receipt by the city electrical
engineer of a fully specified account;
the price payable for the coal supplied and delivered had two
component parts, namely, the free on rail ('FOR') price of the coal
per ton (which varied according to the calorific value of the coal)
plus the railage cost; and
the FOR and railage prices were to be fixed for the first year of
the contract, whereafter prices were to increase in accordance
with
the producer price index for the previous year.
[3] By letter dated 10 July 2001 the plaintiff was officially
informed that it had been added to the list of coal suppliers of the
defendant and that it could proceed with the execution of the tender.
Nothing happened however until May 2002. The reason for this
was that
Spoornet, which was buckling under the pressure of existing orders
and did not have any available railway carriages, was
unwilling to
enter into transportation contracts with new clients such as the
plaintiff. To address this difficulty, at a meeting
with employees of
the defendant during May 2002, the plaintiff expressed a willingness
to deliver coal by road. Pursuant to that
meeting, on 15 May 2002 the
plaintiff despatched a letter to one of the defendant’s
employees indicating that it was willing
and able to supply 30 000
tons of coal by road transport. There followed in that letter a
schedule of prices for coal of different
calorific values.
[4] On 28 May 2002 the defendant placed an initial order with the
plaintiff and, after a trial run using road transportation, placed
several more orders with the plaintiff for the month of June. On 13
June 2002 the plaintiff despatched a letter to the defendant
in which
it recorded:
'As you are aware Transnet at present
cannot supply rail trucks and this has now forced everybody to turn
to road transport which
in turn has created a golden opportunity for
the owners of trucks to demand very high fees for road transport . .
. ‘.
There followed a schedule of prices. The letter continued
'Be rest assured that the moment that
Transnet can supply rail trucks again on a regular basis we trust
that we will then be able
to reduce our prices as follows . . . ‘.
A schedule of lower prices then followed. Whilst awaiting a response
to that letter the plaintiff continued to deliver coal by road
at the
price originally agreed with reference to rail transportation.
[5] By letter dated 22 August 2002 the plaintiff was informed that
its application for an increase in price had been approved and
that
the new prices, which would come into effect on 1 July 2002, would be
as set out in a document annexed thereto. The plaintiff
implemented
its terms with retrospective effect to that date and invoiced the
municipality for the difference between the original
price and the
increased price for the months of July and August. These invoices
were paid by the defendant. The plaintiff continued
thereafter to
supply and deliver coal to the defendant at the increased price for
the remainder of 2002 and the month of January
2003. It invoiced the
defendant and was paid up to and including November 2002.
[6] On 8 January 2003 the plaintiff received a letter from the
defendant which read: '
Your final account for December
2002 to the amount of R1 755 485.80 has been settled without
alterations.'
The consequent payment anticipated by the plaintiff after receipt of
that letter did not materialise. Instead, by letter dated 30
January
2003, the plaintiff was informed that the incorrect annexure had
inadvertently been affixed to the municipality's letter
of 22 August
2002. The correct annexure which, it was asserted, had to replace the
previous annexure, was enclosed.
[7] The plaintiff’s subsequent demand for payment for the
months of December 2002 and January 2003 elicited the response from
the defendant that the plaintiff had been overpaid for the months of
July to November 2002. In consequence, so it was asserted by
the
defendant, the plaintiff was in fact indebted to it (the defendant).
[8] The plaintiff caused summons to be issued out of the Pretoria
High Court for payment of the sum of R 2 646 134.40 for what it
alleged was the defendant's total outstanding indebtedness to it for
coal supplied and delivered to the latter for the months of
December
2002 and January 2003. In the alternative the plaintiff alleged that
the defendant had retained and utilised the full volume
of coal that
had been delivered to it and it therefore had been enriched at the
expense of the plaintiff in that sum. However, the
plaintiff
deliberately chose not to pursue its claim based on enrichment in the
court a quo.
[9] The first of the various defences raised by the defendant in its
plea and the only one that I will in due course consider was
the
following: ‘Defendant pleads that at no time did it resolve to
vary the supply contract … as required by s 38(1)
of the
Gauteng Rationalisation of Local Government Affairs Act 10 of 1998
1
(“the Act”) nor did it comply with the formalities
prescribed by s 38(3) of the Act at any stage’. The plaintiff
replicated that the defendant was precluded by the doctrine of
estoppel from relying on s 38 of the Act. Patel J, who heard the
matter,
granted judgment in favour of the plaintiff. This appeal is
with his leave.
[10] Section 38 of the Act provides:
‘
Extending
or varying a tender agreement
(1) Subject to subsection (2), a
municipal council on its own initiative or upon receipt of an
application from the person, body,
organisation or corporation
supplying goods or services to the municipal council in terms of this
Chapter, may resolve to extend
or vary a tender agreement if-
(a) the circumstances as contemplated in
section 35(2)(a) prevail; or
(b) with due regard to administrative
efficiency and effectiveness, the council deems appropriate.
(2) A municipal council may not extend or
vary a tender agreement -
(a) more than once;
(b) for a period exceeding the duration
of the original agreement; or
(c) for an amount exceeding twenty (20)
percent of the original tender value.
(3) Within one month of the resolution
referred to in subsection (1), the matters specified in subsection
(4) must be -
(a) published by the municipal council at
least in an appropriate newspaper circulating within the boundaries
of the municipality;
and
(b) displayed at a prominent place that
is designed for that purpose by a municipal council.
(4) The matters to be published or
displayed are -
(a) the reasons for dispensing with the
procedure specified in section 36;
(b) a summary of the requirements of the
goods or services; and
(c) the details of the person, body,
organisation or corporation supplying the goods or services.
(5) The functions of a municipal council
in terms of this section may not be assigned nor delegated.’
[11] It is important at the outset to distinguish between two
separate, often interwoven, yet distinctly different ‘categories’
of cases. The distinction ought to be clear enough conceptually. And
yet, as the present matter amply demonstrates, it is not always
truly
discerned. I am referring to the distinction between an act beyond or
in excess of the legal powers of a public authority (the
first
category), on the one hand, and the irregular or informal exercise of
power granted (the second category), on the other. That
broad
distinction lies at the heart of the present appeal, for the
successful invocation of the doctrine of estopppel may depend
upon
it. (See T E Dönges & L de van Winsen
Municipal Law
2ed
(1953) pp 38 – 41.)
[12] In the second category, persons contracting in good faith with a
statutory body or its agents are not bound, in the absence
of
knowledge to the contrary, to enquire whether the relevant internal
arrangements or formalities have been satisfied, but are entitled
to
assume that all the necessary arrangements or formalities have indeed
been complied with (see for example
National and Overseas
Distributors Corporation (Pty) Ltd v Potato Board
1958 (2) SA 473
(A);
Potchefstroom se Stadsraad v Kotze
1960 (3) SA 616
(A)).
Such persons may then rely on estoppel if the defence raised is that
the relevant internal arrangements or formalities were
not complied
with.
[13] As to the first category: failure by a statutory body to comply
with provisions which the legislature has prescribed for the
validity
of a specified transaction cannot be remedied by estoppel because
that would give validity to a transaction which is unlawful and
therefore ultra vires. (See for example
Strydom v Die Land- en
Landbou Bank van Suid-Afrika
1972 (1) SA 801
(A);
Abrahamse v
Connock's Pension Fund
1963 (2) SA 76
(W) and
Hauptfleisch v
Caledon Divisional Council
1963 (4) SA 53
(C).)
[14] Patel J found in effect that this case fell into the second
category. For the reasons that follow I am in respectful disagreement
with the learned judge. In the present case, the defendant's legal
capacity to amend the supply contract must be sought in the
provisions
of the statute. A resolution by the defendant's council
was prescribed by s 38(1) as a necessary prerequisite for amending or
varying
the supply contract. Absent such a resolution, any purported
amendment by employees of the defendant was plainly impermissible.
Moreover,
s 38(5) specifically prohibited the defendant's council
from delegating or assigning those functions. Here, of course, we are
dealing
not merely with the
form
in which the statute requires
a transaction to be clothed, but with something more fundamental. The
statute expressly confers sole
power upon a specified entity, to the
exclusion of any other person or entity, to extend or vary an
existing tender agreement. The
linguistically plain meaning of the
section severely restricts the power (
vires
) to enter into a
transaction of that kind to the defendant's council.
[15] Section 217 of the Constitution requires contracts for services
or goods by an organ of state such as the defendant to accord
with a
system that is fair, transparent, competitive and cost-effective.
Against that backdrop, the mischief that s 38 of the Act
seeks to
prevent is plain. It is to eliminate nepotism, patronage, or worse,
and to entrust the council of the defendant with a sole
power which
is to be exercised independently by it to achieve those ends. If the
conclusion of contracts were to be permitted without
any reference to
the defendant's council and without any sanction of invalidity, the
very mischief which the legislation seeks to
combat could be
perpetuated.
[16] There are formidable obstacles to the plaintiff’s reliance
upon the doctrinal device of estoppel. Assuming in the plaintiff's
favour that all of the requirements for its successful invocation
have been established, this is not a case in which it can be allowed
to operate. It is settled law that a state of affairs prohibited by
law in the public interest cannot be perpetuated by reliance
upon the
doctrine of estoppel (
Trust Bank van Afrika Bpk v Eksteen
1964
(3) SA 402
(A) at 411H-412B), for to do so would be to compel the
defendant to do something that the statute does not allow it to do.
In effect
therefore it would be compelled to commit an illegality
(Hoisain v Town Clerk, Wynberg
1916 AD 236).
[17] The amending of the supply contract was at the instance of the
defendant's employees who were plainly not authorised to do so.
The
defendant had thus not acted in fact nor, for that matter, is it
considered in law to have acted at all. No amendment of the
supply
contract had therefore occurred. The effect of allowing estoppel to
operate would be to breathe life into that which has yet
to come into
being. If the amendment were to be 'validated' by the operation of
estoppel, the defendant would be precluded from exercising
the powers
specifically conferred upon it for the protection of the public
interest.
[18] The fact that the plaintiff was misled into believing that the
defendant's employees were authorised to vary an agreement that
had
earlier been lawfully concluded with it can hardly operate to deprive
the defendant of that power which had been bestowed upon
it by the
legislature. To do so would be to deprive the ultra vires doctrine of
any meaningful effect.
[19] In finding for the plaintiff, Patel J held that the doctrine of
estoppel could be successfully invoked by it in this case. To
support
this finding he called in aid the judgment of Boruchowitz J in
Eastern Metropolitan Substructure v Peter Klein Investments (Pty)
Ltd
2001 (4) SA 661
(W). In that case Boruchowitz J expressed the
view that the Constitution obliged him to reconsider the existing
common law rule which
precludes the raising of an estoppel where its
effect is to prevent or excuse the performance of a statutory duty or
discretion,
although, as he put it (para 34):
'The difficulty, as I comprehend it, is not with the
rule but with its application. The rule itself does not infringe any
provision
of the Bill of Rights, and is in conformity with the
doctrine of legality implied in the Constitution. . . . As the facts
of the
present case amply demonstrate, the blanket application of the
rule may in certain instances run counter to a fundamental rights
provision or value which underpins the Constitution.'
Precisely which fundamental rights provision or constitutional value
he had in mind, the learned judge did not state. Nor, for that
matter, does this emerge with any clarity from the judgment.
Boruchowitz J continued (para 40):
'What is required, in the present
instance, is not a setting aside of the common-law rule but an
incremental change in its application,
necessary to ensure that the
underlying values and constitutional objectives are achieved. Instead
of permitting a barrier to the
raising of estoppel against a public
authority exercising public power, the common law should be developed
to emphasise the equitable
nature of estoppel, and its function as a
rule allocating the incidence of loss.'
[20] I accept, as did Boruchowitz J, that courts are enjoined to
develop the common law, if this is necessary. That power is derived
from sections 8(3) and 173 of the Constitution. Section 39(2) of the
Constitution makes it plain that, when a court embarks upon
a course
of developing the common law, it is obliged to ‘promote the
spirit, purport and objects of the Bill of Rights’
(
S v
Thebus
[2003] ZACC 12
;
2003 (6) SA 505
(CC) para 25). This ensures that the
common law will evolve, within the framework of the Constitution,
consistently with the basic
norms of the legal order that it
establishes (
Pharmaceutical Manufacturers Association of South
Africa
;
In re Ex parte President of the Republic of South
Africa
[2000] ZACC 1
;
2000 (2) SA 674
(CC) para 49). The Constitutional Court
has already cautioned against overzealous judicial reform. Thus, if
the common law is to
be developed, it must occur not only in a way
that meets the s 39(2) objectives, but also in a way most appropriate
for the development
of the common law within its own paradigm
(
Carmichele v Minister of Safety and Security
[2001] ZACC 22
;
2001 (4) SA 938
(CC) para 55).
[21] Faced with such a task, a court is obliged to undertake a
two-stage enquiry. First, it should ask itself whether, given the
objectives of s 39(2), the existing common law should be developed
beyond existing precedent. If the answer to that question is a
negative one, that should be the end of the enquiry. If not, the next
enquiry should be how the development should occur and which
court
should embark on that exercise. (See
S v Thebus
para 26.)
[22] Had that exercise been undertaken by Boruchowitz J, the first
enquiry would, in my view, have yielded a negative response. With
respect to the learned judge, his reasoning fails to draw the crucial
distinction between the two categories to which I have already
alluded. The dicta of this court in
Hoisain
v
Town Clerk,
Wynberg,
on the one hand, and
National and Overseas
Distributors Corporation (Pty) Ltd v Potato Board,
on the other,
exemplify that distinction. In
Hoisain,
Innes CJ stated (at
240):
'It is sought to compel the Town Clerk to
place the applicant's name upon the statutory list; he can only do
that upon the grant of
a certificate by the Council, which that body
has definitely refused to give. Such a certificate is not in truth in
existence. So
that the Court is asked to compel the Town Clerk to do
something which the Statute does not allow him to do; in other words
we are
asked to force him to commit an illegality. There can be no
question of estoppel as far as he is concerned. His negligence cannot
be a substitute for the Council's approval, nor can he by virtue of
his mistake be compelled to bring about a position which he has
no
power in law to create by his own free will.'
In
Potato Board,
Schreiner JA stated (at 48A-E):
'We were referred to the
case of
Hoisain
v
Town Clerk, Wynberg
,
1916
A.D. 236
, where a town clerk had in error issued a certificate for
the transfer of a business to the wrong person. Innes, C.J., at p.
240,
dealt with an argument based on the rule in
Royal
British Bank
v
Turquand
,
[1855] EngR 531
;
119 E.R. 474
, and said that it had no application to such a situation
as the one before the Court, which was being asked to force the town
clerk
to commit an illegality by placing Hoisain's name on a
statutory list which could include only the names of persons to whom
the council
had granted certificates. The present is an entirely
different kind of case. For here although Mr. Rust had no right as
against the
respondent to enter into a contract for the respondent
which had not been approved by the Board there was no illegality if
in fact
he did so.
The contract being one which
the respondent could lawfully enter into and Mr. Rust having been the
proper person to make contracts
when an approving resolution by the
Board had been passed, it seems to follow that so far as the outside
world was concerned he bound
the respondent when he made a contract
without such a resolution. (
cf
.
S.A.I.F. Co-operative Society
v
Webbe
r,
1922 T.P.D. 49).
The
rule in
Royal British Bank
v
Turquand
,
supra
,
which was followed in
Mine Workers' Union
v
J.J. Prinsloo
,
1948 (3) S.A.
831
(A.D.), applies and any mistake that may have occurred and led to
the appellant's tender being accepted without a supporting resolution
by the Board could not prejudice the appellant. So far as it was
concerned there was a properly made contract binding on the
respondent.'
[23] Boruchowitz J concluded (para 40) that:
‘
.
. . the proper approach, consistent with s 39(2) is that the Court
should balance the individual and public interests at stake and
decide on that basis whether the operation of estoppel should be
allowed in a specific case’
.
That approach with respect to the learned judge is fallacious.
Estoppel cannot, as I have already stated, be used in such a way as
to give effect to what is not permitted or recognised by law.
Invalidity must therefore follow uniformly as the consequence. That
consequence cannot vary from case to case. 'Such transactions are
either all invalid or all valid. Their validity cannot depend upon
whether or not harshness is discernible in a particular case.' (per
Marais JA in
Eastern Cape Provincial Government v Contractprops 25
(Pty) Ltd
2001 (4) SA 142
(SCA) para 9). Boruchowitz J, I
should perhaps add, sought support for his view in the judgment of
Laker Airways Ltd v Department of Trade
[1997] 2 All ER 182
(CA), where Lord Denning MR stated (at 194 D-F):
‘…
It
[the Crown] can, however, be estopped when it is not properly
exercising its powers, but misusing them; and it does misuse them
if
it exercises them in circumstances which work injustice or unfairness
to the individual without any countervailing benefit for
the
public:…’
.
Significantly the view expressed by Lord Denning MR has subsequently
been overruled by the House of Lords in
R v East Sussex County
Council, ex parte Reprotech (Pebsham) Ltd; Reprotech (Pebsham) Ltd v
East Sussex County Council
[2002] 4 All ER 58
para 35.
[24] With respect to Boruchowitz J, what he postulates is, in my
view, the antithesis of that demanded by the Constitution. Section
173 of the Constitution enjoins courts to develop the common law by
taking into account the interests of justice. The approach advocated
by the learned judge, if endorsed, would have the effect of exempting
courts from showing due deference to broad legislative authority,
permitting illegality to trump legality and rendering the ultra vires
doctrine nugatory. None of that would be in the interests of
justice.
Nor, can it be said, would any of that be sanctioned by the
Constitution, which is based on the rule of law, and at the
heart of
which lies the principle of legality.
[25] I accordingly can find no warrant for the approach postulated by
Boruchowitz J. Neither, I must add, do I agree with the conclusion
reached by him. It follows that on this aspect, Boruchowitz J was
wrong, as indeed was the learned judge in the present case. The
appeal must therefore succeed. This result may well be perceived to
be an unpalatable one. It is, however, not so. For it must be
remembered that someone in the position of the plaintiff has, in
principle, an enrichment action and will thus not be entirely
remediless.
In this case, as I have already mentioned, the plaintiff
consciously elected at the trial not to pursue its enrichment claim.
It
must therefore bear the consequences of that election.
[26] In the result:
(a) The appeal succeeds with costs.
(b) The judgment of the court a quo is altered to one of absolution
from the instance with costs.
V M PONNAN
JUDGE OF APPEAL
CONCUR:
HARMS ADP
FARLAM JA
LEWIS JA
MUSI AJA
1
Rationalisation
of Local Government Affairs Act
10 of
1998, PN 66
,
PG
550,
30 October 1998.