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[2013] ZAECBHC 11
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Institute of Training and Education for Capacity Building v MEC for Education of the Province of the Eastern Cape (165/12) [2013] ZAECBHC 11 (4 June 2013)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE HIGH COURT: BHISHO
CASE
NO: 165/12
Heard
on: 20/05/13
Delivered
on: 04/06/13
REPORTABLE
In
the matter between:
THE
INSTITUTE OF TRAINING AND
EDUCATION
FOR CAPACITY BUILDING
Plaintiff
and
THE
MEMBER OF THE EXECUTIVE COUNCIL
FOR
EDUCATION OF THE PROVINCE OF THE
EASTERN
CAPE
Defendant
JUDGMENT
NHLANGULELA
J:
[1]
The plaintiff instituted summons against the defendant claiming for
the payment of R1 710 054,89
as damages arising out of an
alleged breach of a tender contract.
[2]
The plaintiff’s case is governed by the pleadings and documents
discovered in terms of Rule
37 of the rules of this Court.
[3]
I pause here to first deal with the background facts so that the
issue(s) arising for the decision
may be appreciated.
[4]
During September 2007 the defendant advertised a bid, Bid No.
SCMU6-07/08-0013 described as the:
Evaluation Of The Accredited
Training of Early Childhood Development (ECD) Practitioners
Programme. The plaintiff submitted
a bid strictly in terms of
the bid rules and conditions with the result that, on proper
assessment, it became a successful bidder
out of many other
contestants. Payment would be made for each completed year.
A service level agreement, the contract,
was duly signed between the
parties binding themselves to the rights and obligations each party
would have against the other as
set out therein. In terms of
the contract the implementation of the tender would be commenced with
in January 2008, and to
endure for a period of 3 years ending in
November 2010. Accordingly, the plaintiff commenced with the
execution of the contract
as it was obliged to do so. After
successful completion of the first year of the contract it was paid a
sum of R740 283,50.
Having completed implementation of all tasks
for the second year the defendant refused to pay. Protracted
negotiations and
requests for payment of R814 311,85 due for the
second year culminated in a demand for payment. Notwithstanding
all
that payment was still not forthcoming. In the meantime the
defendant took the stance that the plaintiff’s demand for
payment of R814 311,85 in respect of the second year was not
consistent with the price agreed to in the contract. The
attitude it adopted was that the plaintiff was entitled to only
R74 028,35 (10% of R740 283,50).
[5]
The disagreement between the parties resulted not only to a refusal
to pay, but also to a unilateral
repudiation of the contract by the
defendant. This conduct rendered it impossible for the
plaintiff to perform its further
contractual obligations; hence the
acceptance of repudiation and the claims made in these proceedings
for payment of R895 743,85
(R814 311,85 plus 10% thereof)
as damages in respect of the third year and the unpaid R814 311,85
for services
already rendered in the second year. These
claims make a combined claim in the sum of R1 710 054,89.
[6]
I now revert to the facts that are admitted by the defendant in the
pleadings. They may
be listed as follows:
(a)
The contract price for the first year (2008) is the sum of
R740 283,50, escalated by 10%
for each of the subsequent years.
(b)
The payment plan for the contract period of three years’
duration is as reflected in annexure
“B”, in which the
following appears:
Year 1 R740 283,50
Year 2 R814 311,85
Year 3 R895 743,04
(c)
Payment made for the first year is R740 283,50.
(d)
Plaintiff discharged its contractual obligation for the second year
(2009).
(e)
The contract was repudiated by the defendant, which resulted in the
contract not being performed
in the third year (2010).
[7]
The defendant denied the following allegations in the particulars of
claim:
(a) That
it is liable to pay the sum of R814 311,85 claimed by the
plaintiff
for the second year
(2009).
(b) That
it is liable to pay for the third year (2010) that was not performed.
These denials are
predicated on the amplification that the bid price for the second
year is only 10% of R740 283,50 (R74 028,35)
and 10% of
R814 311,85 (R81 432,00) for the third year. It is
averred in paragraph 10 of the defendant’s
plea that: “such
repudiation was consequent upon the plaintiff’s display of bad
faith and/or greed in demanding an
unwarranted payment of the sum of
R814 311,85.”
[8]
Oral evidence was not adduced in this case in keeping with the
agreement between the parties that
the case may be disposed of on the
bases of the pleadings and discovered documents. In a pre-trial
meeting held on 17 May
2013 the parties identified the issues for
decision as being the following:
(1)
Whether the defendant was justified in repudiating the contract; and
(2)
The interpretation of the term: “escalated by 10% per annum for
the second and third years”.
[9]
In my understanding of the respective cases of the parties as
ventilated during arguments the
decision of the case lies only on the
interpretation of the contract with specific regard to the meaning of
the words:
“
The first pricing
option is R740 283,50 for the first year of the study,
escalated
by 10% per annum for the second and third years.
Year 1 R740 283,50
Year 2 R814 311,85
Year 3 R895 743,04”
These words appear in
annexure “B” to the papers, and they call for
interpretation:
[10]
The traditional approach, the golden rule, to interpreting a document
is that in ascertaining the intention
of the parties to a contract
the words used in it must be given their ordinary grammatical meaning
with application of the rules
of grammar, dictionary meaning and
meaning assigned to them in previous judicial decisions unless such
words lack clarity or are
incapable of bearing more than one meaning;
in which event the evidence of surrounding circumstances/background
facts should be
considered. In this case it became clear to me
during argument that the interpretation given to the term: “escalated
by 10% per annum” is neither clear nor capable to bear one
meaning. The two interpretative scenarios each party gave
to
the contract price for the second and third years is evidence of
this.
[11]
Mr Jozana,
counsel who appeared on behalf of the defendant,
seems to me to have adopted a restrictive interpretation to the term
“escalated
by 10% per annum” in annexure “B”
by relying on annexures “SJ 16” , “SJ 17” and
“SJ 18” which were obtained only at the time when the
service level agreement was signed, and by so doing ignoring
the
explanatory documents which were obtained after the signing of the
contract and which documents reflect on the intention of
the parties
based on their conduct before, during and after the contract was
signed.
[12]
Annexure “SJ 16” is a letter which reads: “Your Bid
dated 04 October 2007 has been accepted
subject to all bid conditions
embodied in the bid document at a contract price of R740 283,50
inclusive of VAT and all other expenses”.
Annexure “SJ
17” is the document entitled: Invitation To Bid
which reads: “Total Bid Price R740 283,50”
Annexure
“SJ 18” is an internal document of the Joint Bid Award
Committee of the defendant in which the following resolution
was
made: “The Committee unanimously agreed to award the tender to
ITEC as per recommendation by the Joint Bid Evaluation
Committee at a
total cost of R740 283,50 exclusive of VAT.”
[13]
There cannot be merit in the argument advanced on behalf of the
defendant that it was intended by the parties
that the total costs of
the contract is R740 283,50. On the defendant’s own
documents the costs are inclusive
of VAT or not so inclusive.
If regard is had to
Mr Jozana’s
argument in Court on the
10% component payable in 2009 and 2010, which increases the sum of
R740 283,50, the interpretation
that the total costs is
R740 283,50 is defeated. In annexure “B”
R740 283,50 is not
stated as being the total costs, but it
is a payment for services rendered in the first year. For
the total costs to
remain R740 283,50 there would be no price
for services rendered in the second and third years, which is
untenable as the
contract period is three years.
[14]
Mr De La Harpe’s
submission was that the defendant’s
restrictive interpretation of the contract price does not take into
account the meaning
of surrounding circumstances as given by the
Supreme Court of Appeal in the case of
KPMG Chartered Accountants
(SA) v Securefin Ltd & Another
2009 (4) SA 399
(SCA) at
409, para. [39] read with the cases of
Van der Westhuizen v Arnold
2002 (6) SA 453
(SCA) at paras. [22]; and [23] and
Masstores
(Pty) Ltd and Another
[2008] ZASCA 94
;
2008 (6) SA 654
(SCA) at para.
[7]
.
See also the
Annual Survey of S.A. Law
1996 at pp 213 –
216 in which the cases of
Pangbourne Properties Ltd v Gill &
Ramsden (Pty) Ltd
1996 (1) SA 1182
(A) and
Sun Packaging (Pty)
Ltd v Vreulink
[1996] ZASCA 73
;
1996 (4) SA 176
(A) at 184A-E, the precursors to
the judgment of Lewis JA in the
Masstores, supra,
case.
Harms DP, as he was then, said the following in the case of
KPMG, supra,
at 409J – 410A:
“
The time has
arrived for us to accept that there is no merit in trying to
distinguish between ‘background circumstances’
and
‘surrounding circumstances’. The distinction is
artificial and, in addition, both terms are vague and confusing.
Consequently, everything tends to be admitted. The terms
‘context’ or factual matrix’ ought to suffice.”
[15]
The correct approach to interpreting a document, now applied by the
courts, is well articulated in the case
of
Van der Westhuizen,
supra,
at 464 para. [23] as follows:
“
On the other hand,
it is trite law that even where the wording of a provision is such
that its meaning seems plain to a court, evidence
of ‘background
circumstances’ is admissible for the purpose of construing its
meaning. In
Coopers & Lybrand v Bryant
[1995] ZASCA 64
;
1995 (3) SA
761
(A) Joubert JA said (at 768A-E):
‘
The correct
approach to the application of the “golden rule” of
interpretation after having ascertained the literal
meaning of the
word or phrase in question is, broadly speaking to have regard:
(1) to
the context in which the word or phrase is used with its
interrelation to the contract as a
whole, including the nature and
purpose of the contract,
…
(2) to
the background circumstances which explain the genesis and purpose of
the contract, i.e
to matters probably present to the minds of the
parties when they contracted. Delmas Milling Co Ltd v Du
Plessis
1955 (3) SA 447
(A) at 454G-H;
van Rensburg en Andere
v Taute en Andere
1975 (1) SA 279
(A) at 305C-E…(my emphasis).
(3) to
apply extrinsic evidence regarding the surrounding circumstances
where the language of the document
is on the face of it ambiguous, by
considering previous negotiations and correspondence between the
parties, subsequent conduct
of the parties showing the sense in which
they acted on the document, save direct evidence of their own
intentions.…’
It is not apparent to me
quite where to draw the line between background and surrounding
circumstances. Perhaps it is a distinction
without a
difference. But it is clear that in construing the ambit of the
exemption clause between the parties in this matter
regard should be
had at least to the ‘matters probably present to the minds of
the parties when they contracted’–
the ‘background
circumstances’.
[16]
The interpretation which is given to annexure “B” by
Mr
Jozana
has already been discarded by the Supreme Court of
Appeal. It, therefore, cannot find application in this case.
I adopt,
as I have to, the approach as contended for on behalf of the
plaintiff.
[17]
It is not disputed that the parties agreed that the contract price
for the second and third years shall be
R814 311,85 and
R895 743,04 respectively. The interpretation that the
contract price (compensation) for work done
in each of the three
years was intended to escalate (increase) at the rate of 10% per
annum is neither vague nor ambiguous.
It is reasonable.
This agreement held good all the way through until the defendant
repudiated the contract,
albeit
unilaterally, in 2010 by
reasons that, firstly, funds to finance work for 2009 and 2010 will
not be made available because an order
number cannot be generated;
and, secondly, because it was never agreed that the contract price is
as outlined in annexure “B”.
In fact the second
reason surfaced for the first time after the dispute had been
referred to court in May 2012.
[18]
The bundle of discovered documents is replete with documentary
evidence of surrounding circumstances which
support the version of
the plaintiff. The evidence comprises correspondence exchanged
between the parties between July 2009
and August 2011.
Mr De
La Harpe
brought all the documents to the attention of the
Court. I do not intend to deal with each of those documents in
this judgment.
I am satisfied that such evidence supports the
interpretation that the parties intended to escalate payments at 10%
in the manner
as is set out in annexure “B”.
[19]
In all the circumstances of this case the repudiation of the contract
on account of a disagreement about
the meaning of annexure “B”
was unlawful.
[20]
There is general acceptance between the parties that the plaintiff as
the service provider, had a right to
sue the government for damages
arising from a contractual breach. See:
Cape Metropolitan
Council v Metro Inspection Services CC
2001 (3) SA 1013
(SCA).
The position of the defendant is similar to that of an employer
and the plaintiff, as the employee, had no other
choice when
confronted with repudiation of the contract but to accept it.
The remedy open to the plaintiff was then to sue
for the unperformed
third year less any sum it actually earned or could reasonably have
earned during the third year in similar
employment. The case of
Myers v Abrahamson
1952 (3) SA 121
(C) at 127C-G is authority
for that proposition. In the absence of evidence of earnings
during 2010 the plaintiff is, in
my view, entitled to be paid the sum
of R895 743,85 due to it under the contract.
[21]
It is my finding that the plaintiff has proved its claims together
with default interest going back to the
end of 2009 and 2010 when
payment of the contract price fell due.
[22]
In the result judgment is granted in favour of the plaintiff against
the defendant in the following terms:
(a) Payment
of the sum of R814 311,85 with interest thereon calculated from
01 January 2010 to
date of final payment; and
(b)
Payment
of the sum of R895 743,04 with interest
thereon calculated
from 01 January 2010 to date of final payment;
(c)
Costs
of suit.
Z.M.
NHLANGULELA
JUDGE
OF THE HIGH COURT
Counsel
for the plaintiff
Adv
D. H. De La Harpe
Instructed
by
Gordon
McCune Attorney
KING
WILLIAMSTOWN.
Counsel
for the defendant
Adv
M. Jozana
Instructed
by
The
State Attorney
KING
WILLIAMSTOWN.