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[2013] ZAFSHC 224
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Innovent Rental & Asset Management Solutions (Pty) Ltd v MEC for the Provincial Department of Health, Free State Province (2234/2013) [2013] ZAFSHC 224 (5 December 2013)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Case
No.: 2234/2013
In
the matter between:
INNOVENT
RENTAL & ASSET MANAGEMENT
SOLUTIONS
(PTY) LTD
….................................................................
Applicant
and
THE
MEC FOR THE PROVINCIAL
DEPARTMENT
OF HEALTH, FREE STATE
PROVINCE
…................................................................................
Respondent
CORAM:
L. Le R. POHL, AJ
HEARD
ON:
21 NOVEMBER 2013
DELIVERED
ON:
05 DECEMBER 2013
INTRODUCTION:
[1]
In these motion proceedings the applicant in essence seeks payment of
rentals allegedly due to it by the respondent, in terms
of a written
rental agreement. The subject matter of the rental agreement
was certain surveillance equipment and cameras
hired by the
respondent at a certain monthly rental. The respondent’s
main defence to this application is that the
relevant written rental
agreement is null and void, because of the parties’ failure to
adhere to the relevant Supply Chain
Management Policy, the Public
Finance Management Act, Act 1 of 1999 and the relevant sections of
the Constitution of South Africa.
THE NOTICE OF
MOTION:
[2]
For the proper conceptualisation of this judgment it is appropriate
at this stage to refer to the relief sought in the notice
of motion.
The notice of motion reads as follows:
“
1.
The Applicant’s non-compliance with the six months' period
provided for in Section 3(2)(a) of the Institution of Legal
Proceedings Against Certain Organs of State Act, Act 40 of 2002,
insofar as it may be necessary, condoned as provided for in Section
3(4)(a) of that Act;
2.
The Respondent is ordered and directed to forthwith return to the
Applicant:
2.1
the goods forming the subject matter of the Rental Schedule Number
1128DOH0001 and the extension thereof numbered 1128DOH0001a;
and
2.2
the goods forming the subject matter of the Rental Schedule Number
1128DOH0001.1 and the extension thereof numbered 1128DOH0001.1a;
attached
to the founding affidavit as Annexures ‘FA3(1)’,
‘FA3(2)’, ‘FA4(1)’ and ‘FA4(2)’,
respectively;
3.
The Respondent is further ordered to pay to the Applicant:
3.1
damages in respect of the goods referred to in prayer 2.1 above in
the amount of R54 759.90 per month, calculated from
1 December
2011 to date of return; and
3.2
damages in respect of the goods referred to in prayer 2.2 above, in
the amount of R57 346.22 per month, calculated from
1 December
2011 to date of return;
together
with interest on the aforesaid amounts at the rate of 15.5% per annum
a tempore morae
;
4.
In the alternative to prayers 2 and 3:
Judgment is entered against the Respondent for payment of the market
value of the equipment forming the subject matter of:
4.1
Rental Schedule Number 1128DOH0001 and the extension thereof numbered
1128DOH.0001a, in the amount of R657 118.80; and
4.2
Rental Schedule Number 1128DOH0001.1 and the extension thereof
numbered 1128DOH0001.1a, in the amount of R688 154.64;
together
with interest on the aforesaid amounts at the rate of 15.5% per
annum,
a tempore morae
;
5.
The Respondent is ordered to pay the costs of this application;
6.
Further and/or alternative relief is afforded to the Applicant.”
CONTRACT:
[3]
The relevant portion of the contract reads as follows:
“
14.
NOTICE
14.1
The User shall give Hirer at least 90 days written notice before the
expiry of the initial rental period of the User’s
intention to
terminate and return the goods.
14.2
Should the User fail to:-
14.2.1
give notice in accordance with clause 14.1 above or;
14.2.2
give notice but fail to return the goods in terms of clause 10 or;
14.2.3
both give notice and return the goods,
Then
the rental period shall be automatically extended indefinitely for at
least a 90 day period from the initial rental period
expiry date.”
[4]
Clause 10 of the relevant rental agreement reads as follows:
“
10.
RETURN OF GOODS
10.1
The User shall, on termination of this agreement return the goods in
good working order, fair wear and tear excluded, together
with all
applicable documents to the Hirer’s stipulated address at the
User’s cost and expense. The User shall
ensure that the
goods are returned in such a manner so as to protect the goods and
preserve their value;
10.2
In the event that the User fails to return the goods in accordance
with the provisions of this agreement, the Hirer may at
its election
accept payment of an amount equal to the market value of the goods.
A certificate duly completed by any manager
of the Hirer indicating
the amount of the market value shall be
prima
facie
proof of the contents thereof for
all purposes.”
[5]
Clause 7.1.3 of the rental agreement reads as follows:
“
7.1.3
Notwithstanding the provisions of this agreement, should User in
breach of its obligations fail to return the goods on termination
of
this agreement then, in addition and without prejudice to any other
claims that Hirer may have against User pursuant thereto,
User shall
be liable to continue to pay the rentals to Hirer as if this
agreement had not been so terminated.”
THE
RELEVANT BACKGROUND:
[6]
The initial period in terms of this rental agreement was from 1
December 2008 to 30 November 2011.
[7]
On 7 February 2011 the respondent wrote a letter to the applicant,
the relevant portion of which reads as follows:
“
TERMINATION
OF MASTER RENTAL AGREEMENT
Please
be advised that the Department of Health Lejweleputswa District
Health Services, terminates this agreement at the end of
its term in
November 2011.
The
termination of the agreement was thus done well within the period
provided for in clause 14.1 of the relevant rental agreement,
quoted
above.
[8]
The respondent, however, failed to return the goods on 30 November
2011 or to date.
[9]
The applicant’s claim against the respondent in the present
application is thus based on the provisions of clause 7.1.3,
10.2 and
14.2.3 of the master rental agreement, quoted above.
THE
VALIDITY OF THE CONTRACT:
[10] In its opposing
affidavit the respondent’s deponent,
inter alia
,
declares as follows:
“
4.
4.1
At all material times the respondent was obliged in contracting with
applicant for supply of goods and services to:
4.1.1
Comply with the peremptory provisions of section 217(1) of the
Constitution of the Republic of South Africa, Act no. 108 of
1996.
4.1.2
To implement a supply chain management policy which was fair,
equitable, transparent, competitive and cost effective covering
a
competitive bidding process as well as procedures for the evaluation
of bids and the combating of fraud and corruption.
4.1.3
In selecting an external service provider such as the applicant, to
do so by means of a process which complied with respondent’s
Supply Chain Management policy which included a competitive bidding
process allowing for all prospective service providers to have
equal
access to information relative to such bidding process.
5.
5.1
At all material times hereto:
5.1.1
The respondent had a Supply Chain Management Policy in place as
envisaged in terms of the said Finance Management Act; and
5.1.2
Both the applicant and respondent were obliged to deal and contract
with each other in terms of such Supply Chain Management
Policy.
5.2
I aver further that:
5.2.1
The then HOD, Dr Ramela, did not have the necessary delegated
authority to:
9.1.1.1
Conclude a contract contrary to the prescribed procedure;
9.1.1.2
To facilitate payment or any orders
5.3
In concluding the contract as alleged, both applicant and the HOD
failed to comply with the relevant provisions of the aforementioned
statues and the respondent’s Supply Chain Management Policy to
the extent as referred to above.
6.
6.1
On or about early December 2008 the respondent invited quotations for
the supply and installation of surveillance, alarm and
access control
and attendance systems for its offices at Kopanong Regional office
and surveillance and alarm systems at 8 designated
clinics in
Lejweleputswa district.
6.2
The successful quotation would be awarded a contract for a period of
three 3 years commencing 01 January 2009 to 31 December
2011.
6.3
The respondent received three 3 quotations from the following
companies, Khula IT Solutions, Inkamva and Phoenix.
6.4
It merits mentioning that the applicant failed,
alternatively
,
neglected to submit its quotation in the premises the applicant was
not short listed for adjudication.
6.5
The respondent’s adjudication panel recommended that Khula IT
be approved for reward of the contract, for the reason that
its
quotation had scored the highest points.
See
a copy of quotation recommendation adjudication attached as annexure
‘
A’
6.6
On 10 December 2008 Khula IT requested the respondent direct both
orders due to it be transferred to Corporate Finance Solutions
(PTY)
Ltd.
See
a copy of a letter attached as annexure ‘
B’
6.7
In the premises the respondent forwarded payments to Corporate
Finance Solutions (PTY) Ltd for all the goods and services rendered
by Khula IT up until the contract expired on 31 December 2011.
(I
do not attach the said invoices due to their voluminous nature.
The said invoices will be placed before the court during
the hearing
of this application.)
6.8
I aver that at all the relevant times the respondent never dealt with
the applicant in any capacity whatsoever.
7.
7.1
On 07 February 2011 the respondent gave a written notice to terminate
the contract with applicant at the end of its term in
November 2011.
7.2
However, I reiterate the averments in 3.4, 4, 5 and 6 above.
7.3
IN THE PREMISES the applicant cannot insist on extending a contract
that was never implemented by both parties.”
[11]
The relevant annexures to the opposing affidavit confirms the
relevant allegations in the quoted paragraphs 4, 5, 6 and 7,
supra
.
The applicant’s name is also conspicuously absent from the said
annexures. This is a clear indication that the
applicant did
not take part in the applicable Supply Chain Management Policy, which
was followed by the respondent at all relevant
times hereto.
[12]
Mr Manye, who appeared on behalf of the respondent, thus submitted
that the rental agreement signed on the 7
th
day of May 2009, was null and void for want of compliance with the
applicable Supply Chain Management Policy, read with the Public
Finance Management Act, Act 1 of 1999 and section 217 of the
Constitution of the Republic of South Africa. He also relied
in
this regard on the decision of
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
2010 (1) SA 356
(SCA)
.
[13]
It is important to have regard to the fact that the applicant filed a
replying affidavit, but in this affidavit there is no
allegation to
the effect that the applicant complied with the relevant Supply Chain
Management Policy and the relevant statutes.
[14]
In paragraph 18 of the applicant’s replying affidavit the
applicant’s deponent declares as follows:
“
18.
The
construction of the contractual relationship was as follows:
18.1
Khula IT was the supplier of the goods;
18.2
Corporate Finance Solutions (Pty) Ltd (‘
Fintec
’)
financed a major portion of the purchase price in respect of the
goods;
18.3
the Applicant financed the remaining portion of the purchase price in
respect of the goods. In the industry, this remaining
portion
is known as the ‘
residual
’;
18.4
Khula IT invoiced the Applicant in respect of the full purchase price
of the goods;
18.5
In terms of a separate agreement between the Applicant and Fintec,
Fintec provided the finance referred to above to the Applicant.
The Applicant then supplemented that amount with the residual and it
paid Khula IT the full purchase price of the goods.
The
Applicant, upon payment as aforesaid and delivery of the goods
directly to the Respondent, became the owner of the goods, which
it
hired to the Respondent. The Applicant, as security for its
investment ceded its right, title and interest in the goods
to
Fintec, to be ceded back at the end of the initial term of the first
and second rental schedules;
18.6
as a practical arrangement, the Respondent made payment of the rental
amounts directly to Fintec, in order to pay off the financing
provided by Fintec within the period of the agreement in terms of the
applicable rental schedule;
18.7
at the end of the period of the applicable rental schedule, Fintec
was paid off, that debt was extinguished and the right,
title and
interest of the goods were ceded back to the Applicant;
18.8
however, the residual, as financed by the Applicant, had not been
paid off;
18.9
the residual would, in normal circumstances:
18.9.1
be paid off should the rental schedule be extended; or
18.9.2
if not, be recovered by the Applicant by re-hiring or selling the
goods in the secondary market after the return thereof,
through its
designated division in the secondary market, Q-Rent,
and
in these circumstances, and only then, would the Applicant recover
its residual and also earn a profit on its initial investment.”
[15]
Mr Van Rhyn, who appeared on behalf of the applicant, submitted that
based on the business construction as set out in paragraph
18,
supra
,
of the replying affidavit, the applicant in practical effect
“piggy-backed”, as he put it on Khula IT, the supplier,
who did comply with the relevant supply chain procedures. His
argument was thus that the applicant falls under the umbrella
of the
legitimacy of Khula’s involvement almost as if it had taken
part in the supply chain procedures itself. He submitted
that
the court should therefore find that the rental agreement was thus
valid.
I
do not agree with Mr Van Rhyn. Such a construction would, to my
mind, defeat the object of the supply chain procedure and
the
relevant statutory provisions, which are
inter
alia
designed to facilitate a fair,
equitable, transparent, competitive system which combats the
possibility of fraud, corruption and
favouritism.
[16]
It needs mentioning that in the present application before me,
respondent did not bring a counter-application to have the relevant
rental agreement declared null and void and/or unlawful. The
question is thus whether or not the respondent should have done
so
for this court to take that into account in adjudicating the merits
of this application. To my mind the answer to that
question
lies in an assessment of whether or not the issue was substantially
and comprehensively raised in the opposing affidavit.
If so,
then it was not necessary to bring a counter-application. It is
thus a question of substance rather than form.
In this regard
it is apposite to refer to the decision of
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
,
supra
,
at page 365, paragraph [26]:
“
[26]
While I accept that the award of a municipal service amounts to
administrative action that may be reviewed by an interested
third
party under PAJA, it may not be necessary to proceed by review when a
municipality seeks to avoid a contract it has concluded
in respect of
which no other party has an interest. But it is unnecessary to reach
any final conclusion in that regard. If the
second appellant's
procurement of municipal services through its contract with the
respondent was unlawful, it is invalid, and
this is a case in which
the appellants were duty- bound not to submit to an unlawful
contract, but to oppose the respondent's attempt
to enforce it.
This it did by way of its opposition to the main application and by
seeking a declaration of unlawfulness
in the counter-application. In
doing so it raised the question of the legality of the contract
fairly and squarely, just as it
would have done in a formal review.
In these circumstances, substance must triumph over form. And while
my observations should
not be construed as a finding that a review of
the award of the contract to the respondent could not have been
brought by an interested
party, the appellants' failure to bring
formal review proceedings under PAJA is no reason to deny them
relief.”
[17]
The fact that this decision deals with a municipality and in this
case before me, the respondent is the Provincial Department
of
Health, matters not. The respondent is still an organ of State,
which is subject to the Constitution and the relevant
legislation
applicable to it.
[18]
It is trite law that in motion proceedings, unless concerned with
interim relief, are all about the resolution of legal issues
on
common cause facts. Unless the circumstances are special, they
cannot be used to resolve factual issues, because they
are not
designed to determine probabilities. It is well established
under the
Plascon-Evans
rule that where in motion proceedings, disputes of fact arise on
affidavits, a final order can be granted only if the facts averred
by
the applicant have been admitted by the respondent, together with the
facts alleged by the respondent, justify such an order.
It may
be different if the respondent’s version consists of bald or
uncreditworthy denials, raises fictitious disputes of
fact, is
palpably implausible, farfetched or so clearly untenable that the
court is justified in rejecting them merely on the papers.
(Compare:
Plascon-Evans Paints Ltd v
Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A).)
[19]
It is common cause that the applicant did not take part in the supply
chain process that was in place at the time. This,
together
with the other facts alleged by the respondent in raising the defence
of invalidity of the contract, has the inevitable
effect that the
rental agreement is invalid and cannot be enforced. (Compare:
Municipal Manager:
Qaukeni Local Municipality and Another v FV General
Trading CC
,
supra
,
read with the
Plascon-Evans
case,
supra
.)
[20]
The basis of the relief sought by the applicant in prayers 3 and 4 of
the notice of motion, quoted in paragraph [2],
supra
,
is premised on the validity of the rental agreement. My finding
that the contract is invalid and unenforceable, by
necessary
implication precludes the applicant from obtaining such relief.
The
same applies to prayer 2, i.e. the prayer for the return of the
goods. This prayer has at its foundation in clause 2.5
of the
rental agreement and the applicant’s allegation in paragraph 5
of the founding affidavit, that in terms of the rental
agreement,
(which I have found to be invalid), it retained the ownership of the
goods. It must furthermore be seen
in the context of the
somewhat complex business arrangement and in particular the cessions
referred to by the applicant itself
in its replying affidavit, quoted
in paragraph [14],
supra
.
This finding does not mean that the applicant is left remediless with
regards to the return of the goods. It may well
be advised to
pursue that remedy by way of a different procedure and on a different
basis.
[21]
The respondent also alleged in its opposing affidavit that it was
incumbent on the applicant to give the respondent timeous
notice in
terms of the provisions of the Institution of Legal Proceedings
Against Certain Organs of State Act, Act 40 of 2002 of
these
proceedings. It is common cause that the applicant did give the
respondent such notice but not timeous. Whether
or not it was
legally necessary to give such notice in the circumstances of this
case, is once again dependant on an interpretation
of the contract
and the definition of debt in Act 40 of 2002.
If
the claim is for damages stemming from a contractual cause of action,
then, in terms of Act 40 of 2002, the applicant
had to
give the proper timeous notice. If the claim, on a proper
interpretation of the contract, was for a specific performance
or
arrear rentals, the applicant did not have to give such notice.
(Compare:
Director General,
Department of Public Works v Kovac Investments
2010 (6) SA 646
(GNP.)
The
notice of motion has a prayer for condonation. Suffice it to
say that even if the applicant had to apply for condonation,
I would
have refused same as the allegations in the application falls far
short of the requirements of same. (Compare:
Minister
of Agriculture and Land Affairs v C J Rance (Pty) Ltd
2010 (4) SA 109
(SCA).)
My
previous finding that the contract is invalid and unenforceable makes
it however unnecessary to deal with this defence raised
by the
respondent as it once again entails the interpretation of the
contract. (which I have already found to be invalid)
COSTS:
[22]
The matter first came before the court on 1 August 2013.
Counsel informed me that by that time, no opposing and replying
papers had been filed. The matter was then removed from the
roll and it was ordered that the costs must stand over.
No
substantial, compelling and convincing reasons were placed before me
as to why the final order as to costs in this matter should
not
follow suit, including the costs of 1 August 2013.
THE
ORDER:
[23]
In the premises I make the following order:
1.
The application is dismissed with costs, including the costs
occasioned by the appearance of the parties on 1 August 2013.
L.
le R. POHL, AJ
On
behalf of applicant: Adv G P van Rhyn
Instructed by:
Otto
Krause Inc
Illovo
c/o
Honey Attorneys
BLOEMFONTEIN
On
behalf of respondent: Adv T L Manye
Instructed by:
State Attorney
BLOEMFONTEIN