Biofresh (Edms) Bpk v Setsoto Munisipaliteit (4645/2006) [2009] ZAFSHC 101 (1 October 2009)

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[2009] ZAFSHC 101
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Biofresh (Edms) Bpk v Setsoto Munisipaliteit (4645/2006) [2009] ZAFSHC 101 (1 October 2009)

FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case Number : 4645/2006
In
the matter between:-
BIOFRESH
(EDMS) BEPERK
Plaintiff
(Registrasienommer
2001/018221/07
and
SETSOTO
MUNISIPALITEIT
Defendant
HEARD
ON:
18
AUGUST 2009
_____________________________________________________
JUDGMENT
BY:
EBRAHIM,
J
DELIVERED ON:
1
OCTOBER 2009
[1] The plaintiff has
instituted action in this court claiming an amount of R13 041 285.00
from the defendant for damages allegedly
suffered as a result of
defendant’s alleged repudiation of a contract entered into between
the parties. The defendant has denied
that any agreement was entered
into between the parties and has alleged that the plaintiff had
deserted the project which was being
run by it on behalf of the
defendant.
[2] At the outset of the
trial I was asked to separate the issues of merits and quantum and
the trial proceeded on the question
of the merits only. Two issues
arise in this trial for determination. The first is whether an
agreement was reached and entered
into between the parties and
secondly, should there have been such an agreement, did the defendant
repudiate the agreement? In
order to determine these issues, it is
necessary to have regard to the factual background to this matter.
[3] During 2000 the
Setsoso Municipality decided that it was desirable that certain local
development objectives be pursued with
the primary aim of job
creation utilising available financial and other resources in and
surrounding its area of jurisdiction.
In the Ficksburg area
agricultural resources were identified as options for use in the
development of these objectives and the
idea of starting a fruit
farming project took root and became acceptable to the Ficksburg
community. In order to fund these local
development projects, a
local economic development fund was established, manned through and
under the auspices of the municipal
infrastructure grant system in
the Department of Provincial and Local Government in Pretoria and
proposals were sought for community
projects which the Department
would then consider and decide whether to fund or not.
[4] On behalf of the
defendant on 14 March 2001 its then director of technical services,
one M. Kohrs, submitted an application
to the local economic
development fund for the funding of a 50 hectare peach farm to be
operated in terms of a business plan proposed
by the I.G.I.T. Trust,
the owner of Borneo Farm in Ladybrand, which was being run by one
Rademan J. van Rensburg, in his capacity
as the general manager of
the farm and a known expert on peach farming. Funds from the local
economic development fund were approved
in May 2001 by the Department
of Provincial and Local Government to finance an organic peach farm.
An amount of R1 500 000.00
for the year 2002/2003 and R1 370 629.00
for 2003/2004 was made available by the Department.
[5] The defendant engaged
the services of a consultancy firm run by one Jan Hamer who initially
ran a business known as Urban Dynamics
but thereafter started a new
company known as Meerland Development (Pty) Ltd. It was Hamer’s
duty to co-ordinate the project
under the auspices of his new
consultancy firm and with the aid of the standing committee on
technical and community services which
was to form the steering
committee on the peach project.
[6] In August 2001
Meerland Development (Pty) Ltd submitted a comprehensive business
plan endorsing the growth of organic peaches
for export to Germany on
a 50 hectare peach orchid southwest of the Mequeleng area in
Ficksburg close to the Caledon River. The
project would create 16
jobs immediately, another 25 jobs in 2005 and a further 500
indirect/part time or seasonal jobs. The plan
endorsed the choice of
Biofresh organic peach growers from Ladybrand as the expert peach
growers to conduct the farming activities
on the project. It was
envisaged that the project would be sustained by the municipality and
on proving profitable, would ultimately
be handed over to the
beneficiaries to be run for their own benefit and for the benefit of
the local community.
[7] It was not disputed
that Biofresh and Bionic organic farms of Ladybrand were one and the
same entity referred to by Meerland
in its business plan and by
Rademan van Rensburg in the first plan submitted to the defendant on
behalf of the I.G.I.T.Trust.
[8] It was agreed that
the main stakeholders in the project would be:
(i) the municipality
(the defendant);
(ii) the community;
the professional team
headed by Meerland Development (Pty) Ltd consisting of project
management, agricultural engineering, electrical
engineering,
structural engineering.
the strategic and/or
smart partner namely Biofresh.
The project steering
committee which would have representatives from councillors,
municipal officials, community members and the
projects team.
The beneficiaries would
be selected through the following due process using predetermined
and tested selection criteria:
by placing
advertisements;
calling for
applications;
short listing of
candidates;
interviews;
practical testing and
evaluation for shortlisted candidates; and
appointments.
A holding company to
drive the entire project was to be established with the defendant
owning a 60% shareholding therein and
Biofresh the remaining 40%.
(i.e. the plaintiff)
8.3 Biofresh would be
responsible for the operational framework of the project and for the
first five years would appoint a managing
director of its choice. It
would also have a veto right in the holding company.
On the project becoming
profitable the shares of the municipality could only be sold to the
beneficiaries.
[9] As a precursor to a
formal agreement being drafted for the incorporation of the holding
company, the formulation of the respective
roles and responsibilities
of all the parties and the defining of the institutional
arrangements, a document entitled “The Memorandum
of Understanding”
was drawn up by Jan Hamer for signature by Biofresh, the plaintiff
and the defendant. This document re-enforced
the institutional
arrangements relating to shareholding in the company to be created
for the purposes of the running of the peach
project.
[10] The project
commenced in 2002 and the operation thereof continued under the
supervision and management of Rademeyer van Rensburg.
A number of
project steering committee meetings were at which the institutional
arrangements and roles and responsibilities of
the various
stakeholders were discussed. No formal agreement was signed by
either party. The Memorandum of Understanding was
circulated at
these meetings at which representatives of the defendant and
plaintiff and representatives of the beneficiaries were
present.
Discussions were held with regard to the provisions of The Memorandum
of Understanding and amendments were made in accordance
with
decisions taken at these meetings, but no contract or agreement was
signed by either party in accordance with provisions of
The
Memorandum of Understanding.
[11] At a special meeting
of defendant’s council on 13 November 2003 at Senekal a slide
presentation was made by Jan Hamer, the
defendant’s consultant from
Meerland Development (Pty) Ltd. A progress report was furnished in
regard to the project in order
to finalise an agreement in respect of
the institutional arrangements governing the relationship between the
plaintiff and defendant
with respect to the project and with respect
also to the appointment of beneficiaries. It was proposed that:
(i) Biofresh would
manage the farm in the same way as it had been doing during
2002/2003. Mr. Koen Scheepers of Biofresh would
remain on the farm
and Rademan van Rensburg would continue to give technical input. A
monthly management farm fee of R13 000.00
exclusive of VAT would be
payable to Biofresh which would be increased to R15 000.00 after the
signing of the agreement between
plaintiff and defendant. Van
Rensburg would be appointed as general manager of the company for a
period of 20 years.
(ii) Biofresh would
continue to supply the necessary equipment to the project as may be
required from time to time. The equipment
would be supplied on an
actual cost basis as determined by the Department of Agriculture from
time to time.
Biofresh would market
all the produce of the farm at a fee of 8% of the sale value of the
produce exclusive of VAT. The normal
conditions of a marketing
agent would apply.
Biofresh would be
entitled to 15% profit share for the financial years 2004/2005 and
2005/2006. Thereafter Biofresh would be
entitled to 20% profit
share if production outputs were met.
Biofresh would be
appointed as an external director to the newly formed company for a
period of 20 years.
Biofresh would assist in
the financial control of the business for a period of 20 years and
would actively participate in financial
decisions. Finances will be
managed by a financial committee for a period of five years
consisting of:
One Biofresh
representative;
One project
beneficiary;
The financial officer;
One representative of
the municipality.
[12] At the Senekal
meeting it was proposed that all recommendations with regard to the
respective roles of the plaintiff and defendant
in regard to the
peach project be accepted and approved. On the basis of this
recommendation the plaintiff claims that a formal
agreement came into
being between the parties at the Senekal council meeting on 13
November 2003. The defendant denies that any
agreement was entered
into raising several areas of dispute in regard to The Memorandum
which could not be satisfactory resolved.
I shall deal with these
areas of dispute later on in this judgment.
[13] During October 2003
the auditor general raised certain concerns regarding the Meqheleng
peach project which related mainly
to the funds paid to the plaintiff
and the manner in which those funds were being spent on various
running costs and on salaries
for the beneficiaries. It was agreed
thereafter that the funds should remain with defendant’s council
which would then make
the necessary disbursements in respect of the
project and the building of an access road to the project. A dispute
arose between
Meerland Development (Pty) Ltd, that is Jan Hamer, and
the then municipal manager, John Makelefane, relating to the quality
of
the road works constructed and Hamer accused Makelefane of
misappropriating those funds, resulting in a rift between them.
According
to Hamer Makelefane ordered him off the project. There was
then deadlock until a meeting was arranged on 6 July 2005 in
Bloemfontein
to discuss the relationship between Hamer and Makelefane
and the further progress of the peach project. At this meeting both
Hamer
and Makelefane were present with other council members, tempers
were short and accusations were levelled at Hamer that he had drawn

too much money in respect of his own consultancy fees. It was
eventually recommended by the acting mayor that an audit of already

allocated and utilised funds be conducted and that the project be
“put on hold” until the audit had been completed and an audit

report received clarifying the areas of dispute between the plaintiff
and defendant as well as Jan Hamer’s consultancy. Until
then it
was agreed that the project should be sustained with the exclusive
support of defendant’s council.
[14] A week later on 13
July 2005 John Makelefane wrote to the municipal infrastructure grant
manager at the Department of Provincial
and Local Government in
Pretoria to advise of the breakdown in the trust relationship between
the municipality and Jan Hamer and
that a dispute had been declared
and was to be investigated. He furnished the following reasons for
the breakdown in that relationship.
I quote from his letter:
“(a) The
first project budget of R3,4 million was depleted and yet Hamer
continued to claim project management fees;
(b) Hamer was not engaged in the
current R2,5 million budget for project management fees but he
continued to appoint other consultants
and other services without any
permission to do so;
(c) In stead, Mr. Hamer went behind
my back to report grievances he had with the municipality to people
who are external to the
project, thus breaking the trust
relationship.
(d) The partnership between Biofresh
and Meqheleng peaches was expected to give returns of a R1 million.
To our dismay only R42
000.00 was realised and the municipality
carried all the costs. The explanation given, was that loss could be
attributed to theft.
Theft is possible where there are edibles, but
this is unacceptable.
(e) The project is still continuing
and supported by the municipality in terms of irrigation equipment
and other supplies needed
to keep the project sustainable.”
[15] Makelefane then
instructed a Bloemfontein firm of chartered accountants, GOBODO
Chartered Accountants, to value the Meqheleng
peach project in order
to determine what could be done about the concerns listed in its
report dated 5 September 2005 at paragraphs
1 – 4. These were:
“1. Determine
at what date did the Meqheleng peach project overspend the grant that
was allocated to the project by the local
economic development fund;
2. To determine to what extent, if
any, can money be recuperated from Biofresh (Pty) Ltd and what the
agreement was between the
parties;
3. To determine what the amount was
that Bopa-Lesedi Management Consultants were entitled to as
consultants on the project;
4. To indicate what steps need to be
taken to ensure the sustainability of the project.”
[16] As is clear the
concerns related mainly to the expenses of the project and how the
funds were spent. Makelefane told the court
that his main problem
with Hamer was regarding the implementation of the capital and that
he differed with him on the procurement
process employed by him. He
said Hamer did not consult him about the appointment of service
providers, saying that he was the
project manager and could appoint
whoever he wanted to appoint. Makelefane said this was not in
accordance with statutory procurement
provisions which he was obliged
to follow. No audit was conducted but from GOBODO’s report it was
clear that Makelefane had
utilised money voted and approved by
council for use in the payment of wages of beneficiaries as part of
the municipal expenses
for the financial year ending 2006. In regard
specifically to the plaintiff, the report concluded that there was a
mutual understanding
between the parties which had been forged in the
following respects:
(a) That Mr. Koen
Scheepers of Biofresh would act as manager of the farm.
(b) Mr. R. van Rensburg
would supply technical input.
(c) A monthly farm
management fee of R13 000.00 exclusive of VAT which increased to R15
000.00 exclusive of VAT, would be paid
as soon as contracts were
signed. At the time of the writing of the report, no signed
contracts existed.
(d) Biofresh would supply
the equipment to the project. This would be supplied on an actual
cost basis as determined by the Department
of Agriculture. No
comparison to the cost basis according to the Department of
Agriculture was done.
As far as Jan Hamer’s
consultancy was concerned, the report concluded that the consultant
had been overpaid by an amount of R168
788.00 which amount was to be
reclaimed by the defendant.
[17] On 7 September 2005
Makelefane wrote to Jan Hamer giving him seven days to deliver all
documents and any property acquired
by him on behalf of the defendant
in his possession, failing which Makelefane would take legal steps to
recover the same.
[18] According to both
Jan Hamer and Rademan van Rensburg who testified on behalf of the
plaintiff in this matter, they were told
at the Bloemfontein meeting
on 6 July 2005 that their services were no longer required on the
Meqheleng peach project and Rademan
van Rensburg was asked to remove
his equipment from the farm and leave the project. According to both
of them they were (in laymen’s
terms) “fired” from the project
at the Bloemfontein meeting on 6 July 2005. This is denied by the
defendant. John Makelefane’s
testimony was (and it was so minuted)
that the project was “put on hold” pending an audit investigation
into the project funds.
[19] Against this
background then the question arises whether in fact an agreement was
entered into by the defendant with the plaintiff
in regard to the
Meqheleng peach project to render services as referred to in the
minutes of the meeting held at Senekal on 13
November 2003 at the
prescribed fee mentioned therein and governed by the institutional
arrangements discussed at that meeting
and recorded in the second
business plan prepared by Jan Hamer and in The Memorandum of
Understanding.
[20] It was common cause
that disputes had arisen between the beneficiaries and Rademan van
Rensburg over the issue of the appointment
of a new foreman, Koos de
Wet in the place of Mr. Koen Scheepers, who had been removed by Van
Rensburg. The beneficiaries did
not like De Wet and did not get on
with him. There were allegations relating to the theft of peaches,
where the beneficiaries
accused Van Rensburg of stealing the produce
for his own benefit. In turn Van Rensburg accused the beneficiaries
of stealing the
produce. Van Rensburg in fact laid a charge of theft
against the beneficiaries and as a result the relationship between
him, his
foreman, Koos de Wet, and the beneficiaries soured to the
extent that he refused, as he had been doing over the years, to
transport
the beneficiaries to and from the farm to the township
where they lived. Because of that the beneficiaries refused to allow
Van
Rensburg to keep his equipment on the farm and demanded that it
be removed. This was done after the meeting in Bloemfontein in
July
2005. Despite the removal and Van Rensburg quitting the project,
farming operations on the peach project continued by the

beneficiaries themselves under the supervision of the defendant and
no external service providers were appointed.
[21] In my view, the
probabilities are overwhelming that the reason no agreement was
actually signed by the parties, was due to
the fact that there were
constant disputes between them in respect of a number of areas as
testified to by John Makelefane, Jan
Hamer and Rademan van Rensburg.
I have no reason to reject this evidence nor was any reason suggested
by the plaintiff as to why
I should do so. Although Makelefane
agrees that it was envisaged that Biofresh (the plaintiff) would be
a strategic partner in
order to provide training and capacity
building in respect of the beneficiaries, he was not in agreement
that there should be a
strategic partnership to provide training and
capacity building for more than 10 years in respect of the pruning of
peach trees.
He said he would have been comfortable with one to two
years training in that regard. He also testified that he had an
issue
with Biofresh being given a veto right, because such a right
was incompatible with local government management as it would have

made the defendant council vulnerable to the control and dictates of
Biofresh in respect of the running of the project. He said
that was
unacceptable as defendant council in terms of local government
management had to be supreme. He, accordingly, raised
this as a
concern at a meeting but could not get consensus from council members
in respect of the veto right. Makelefane also
agreed that the
plaintiff had implemented the project by planting peach trees,
installing irrigation systems, feeding plants organic
poisons, had
managed the pruning and clipping of the peach trees and had sought
export markets for the marketing of the produce,
for all of which it
was paid a fee. He said that he continued to honour his liabilities
in respect of payment to the plaintiff
because it was important to
the defendant and himself that a sustainable project was created and
maintained for the benefit of
the beneficiaries as part of the
municipality’s constitutional obligations towards the community it
served. He testified that
he also had reservations about the fate of
the land on which the project was to be implemented which had to be
ironed out. No
provision was made in The Memorandum of Understanding
in regard to this. There was no indication as to whether the land
was to
be sold by the municipality to the beneficiaries or leased
to them or donated to them. Consequently because The Memorandum
of
Understanding created disputed areas for him in regard to the veto
right and periods of training and the land issue, he was
unable to
enter into a formal agreement with the plaintiff.
[22] It was clear from
the manner in which they gave evidence that both Rademan van Rensburg
and Makelefane were strong and dominant
personalities, equipped with
qualities of leadership and, I suppose, it was inevitable that this
resulted in a clash of wills between
them. But, having said that, I
must add that both impressed me as credible witnesses as regards the
content of the testimony each
gave to the court, such that I am
unable on the facts as testified to by both of them to make a finding
that the probabilities
of the case favour the version of either of
them, insofar as the underlying causes of the various disputes
relating to the peach
project as testified to by each of them is
concerned. I make the finding therefore that in this regard, the
probabilities are
equivocal. In making such a finding, I must
emphasize that I do not make that finding in regard to the events
which occurred at
the meeting of 6 July 2005 in Bloemfontein which,
on plaintiff’s version amounted to a repudiation by the defendant
of the agreement
between the parties.
[23] Having regard to
these findings, I hold the view that The Memorandum of Understanding
drafted by Jan Hamer and proposed as
a pre-cursor to a formal
agreement between the parties, amounts to nothing more than an
un-enforceable preliminary agreement for
the simple reason that the
parties had absolute discretion to agree or disagree the terms; that
the discretion was vested in the
parties because they were required
to sign a contract the precise terms of which were not fixed is clear
from the evidence of both
Van Rensburg and Makelefane in respect of
the veto right. Van Rensburg insisted on having a veto right in
order to protect his
interests and Makelefane insisted there be no
veto right in order to protect the interests of the defendant. There
was accordingly
room for a breakdown in negotiations before a
contract was concluded and indeed such a breakdown did occur as a
result of disputes
which arose in regard to the operation of the
project itself and the implementation of the capital and funding made
available by
the local economic development fund for the project. In
addition, the beneficiaries themselves were not satisfied with the
manner
in which the project was being run by Van Rensburg.
[24] Accordingly, tt
cannot be said that there was agreement between the parties as to the
essential terms and conditions of the
contract. I conclude therefore
that the preliminary agreement as incorporated in The Memorandum of
Understanding, was not legally
enforceable. See
PREMIER,
FREE STATE, AND OTHERS v FIRECHEM FREE STATE (PTY) LTD
2000 (4) SA 413
(SCA) at 431 G – H;
SOUTHERNPORT
DEVELOPMENTS (PTY) LTD v TRANSNET LTD
2005 (2) SA 202
(SCA) para [11] – [16].
[25] In the result the
plaintiff has failed to discharge the overall onus it carries of
proving its case on a balance of probabilities.
Its claim is
dismissed with costs.
_____________
S. EBRAHIM, J
On
behalf of plaintiff: Adv. P.R. Cronje
Instructed by:
Stander Venter &
Kleynhans
BLOEMFONTEIN
On behalf of
defendant: Adv. J.P. Daffue SC
Instructed by:
Bokwa Attorneys
BLOEMFONTEIN
/sp