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[2020] ZASCA 35
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Khutala Property Consortium (Pty) Ltd v Mtubatuba Municipality and Others (1299/2018) [2020] ZASCA 35 (6 April 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case
No: 1299/2018
In
the matter between:
KHUTALA PROPERTY
CONSORTIUM (PTY) LTD
APPELLANT
and
MTUBATUBA
MUNICIPALITY
FIRST RESPONDENT
BAMBA
NDWANDWE
SECOND RESPONDENT
SIPHO
R
MATHOBELA
THIRD RESPONDENT
MGA
MBATHA
FOURTH RESPONDENT
NQ
MZIMELA
FIFTH RESPONDENT
GREEN
MILE INVESTMENTS 340 CC
SIXTH RESPONDENT
THE
MEC FOR CO-OPERATIVE GOVERNANCE
AND
TRADITIONAL AFFAIRS, KZN
SEVENTH RESPONDENT
Neutral
citation:
Khutala Property Consortium (Pty) Ltd v Mtubatuba
Municipality and Others
(1299/2018)
[2020] ZASCA 35
(6 April
2020)
Coram:
NAVSA, SALDULKER, DAMBUZA, and PLASKET JJA and LEDWABA AJA
Heard:
26 February 2020
Delivered:
6 April 2020
Summary:
Local government – municipal tender – notarial lease
invalid for lack of authority
ORDER
On
appeal from:
KwaZulu-Natal Division of the High Court,
Pietermaritzburg (Mbatha J sitting as court of first instance):
The
appeal is dismissed with costs, including the costs of two counsel,
where so employed.
JUDGMENT
Saldulker
JA (Navsa, Dambuza, and Plasket JJA and Ledwaba AJA concurring):
[1]
This appeal concerns the validity of a lease agreement
purportedly concluded between the first respondent, Mtubatuba
Municipality
(the Municipality), and the appellant, Khutala Property
Consortium (Pty) Ltd (Khutala). The background is set out hereafter.
[2]
During November 2009, the Municipality, a local authority
established in terms of the
Local Government: Municipal Structures
Act 117 of 1998
, published an advertisement inviting bids for a
tender for the development of a commercial site, through a long-term
lease - not
less than 30 years, in relation to Erven 197 and 312
Mtubatuba (the property), Extent 9645
m2
,
registration division GV, Province of KwaZulu-Natal, commonly known
as the old taxi rank.
[3]
The Municipality accepted the bid by the Alliance Property
Group (Pty) Ltd (Alliance), and on 29 January 2010, at a Council
meeting
the following was noted: ‘The Municipality accepts the
offer proposed by ALLIANCE PROPERTY GROUP (PTY) LTD after careful
consideration of their lease agreement as attached and on
consideration that the Council intends to lease the property.’
The
resolution at the centre of this appeal then followed:
‘
COUNCIL RESOLVED
THAT:
1. The Municipal Manager
be authorised to sign the lease agreement on behalf of Council,
2.
The consideration of this proposal outside the disposal policy be
condoned,
3.
The Municipal Manager facilitates the development of the Disposal
Property.’
The
following also appears in the minutes of that Council meeting:
‘
Subject
to comments from the MEC, the lease will be signed and/or the
processes will be rectified towards the signing of a valid
and
enforceable lease agreement.’
The
Municipal Manager also indicated that in order to speed up the
processes in this regard, a request will be made from the MEC
that
both written and verbal presentations be made.
[4]
On 1 March 2010, a Special Council meeting was convened. Under
item MTMSC 463/2010, the prior resolution of 29 January 2010 was
noted and it was recorded that on 2 February 2010, the Municipal
manager (Mr Ntombela) delegated the Chief Financial Officer (Mr
Dludla), in writing, to sign the lease agreement, as resolved. It
appears from the minutes of that meeting that the following concerns
were expressed after legal advice had been obtained: The lease
agreement that was presented for signature on behalf of the
Municipality
was not with Alliance but with Crowned Cormorant
Investments (Pty) Ltd (Crowned Cormorant) and there was no indication
that Crowned
Cormorant was part of the Alliance Property Group. A
further concern related to the right of the lessee (as expressed in
the proposed
lease) to immediately cede it to any third party. There
were other concerns also. In conclusion, the Council resolved on 1
March
2010, that:
‘
1. Council notes
and adheres to the legal advice provided;
2. Council reconsiders
Clauses 4 (Rent); 6 (Cession); and 20 (Option to purchase property);
…
5. Prior to the
implementation of this decision to dispose of Erf 197-Mtubatuba and
enter into an agreement with the preferred bidder,
the following
information be submitted to the MEC . . . for her comment. . .
6. The Municipal Manager
to sign the agreement with Alliance Property Group;
7. The Municipal Manager,
the CFO and Alliance Property Group to discuss clause 5.3 on the
legal advice.’
[5]
It is common cause on the papers that at the time the
resolutions were taken by the Council, Crowned Cormorant was a
deregistered
company.
[6]
On 25 March 2010, the Municipal manager wrote to the director
of Alliance, informing him that the matter had been referred to the
MEC, specifically stating that ‘we draw to your attention that
the ongoing negotiations and the agreements that will be reached
shall only be enforceable subject to their endorsement by the MEC’.
[7]
On 8 April 2010 a resolution was passed at the meeting of a
company called Alliance Property Developments (Pty) Ltd in terms of
which that company resolved to enter into a lease agreement with the
Municipality in respect of the property. On 9 April 2010, a
meeting
of the directors of Alliance took place where it was resolved as
follows: ‘Alliance Property Developments (Pty) Ltd,
being a
100% owned subsidiary company of the company [Alliance Property Group
(Pty) Ltd] enter, in place of the company, as the
nominated
development company for Erf 197 Mtubatuba’.
[8]
On 3 May 2010 the MEC addressed a letter, to the Municipality
concerning the Council resolution of 29 January 2010, in which she
cautioned that pending her obtaining a legal opinion, and until
further notice, the Municipality was not to conclude any agreements
for the letting of the property. On 6 May 2010, the MEC also
addressed a letter to Alliance, in similar vein.
[9]
On 19 May 2010, Cox Yeats, the attorneys tasked with
registering the notarial lease, wrote to the Municipal manager,
informing him
that they had received a power of attorney and a draft
notarial lease signed by Mr Dludla and that they were instructed to
proceed
with the execution and registration of a notarial lease. The
heading to that letter reads as follows:
‘
LEASE AGREEMENT:
MTUBATUBA MUNICIPALITY/ ALLIANCE PROPERTY DEVELOPMENT (PROPRIETARY)
LIMITED – ERF 197 MTUBATUBA.’
[10]
On 2 July 2010, the MEC addressed a letter to the acting
Municipal manager, Mr Dludla, requesting documentation relating to
information
on various matters, in order to enable her to make an
informed decision in relation to the lease. Furthermore, she
re-iterated
her previous caution not to conclude any agreement in
respect of the property.
[11]
Following on what is set out above, on 22 February 2011, and
while the matter was still pending before the MEC, Mr Dhlomo, the
acting
Municipal manager at the time, signed a power of attorney
authorising certain named employees of Cox Yeats to act as agent in
appearing
before the notary to execute the notarial lease purporting
to be authorised by a resolution of the Municipality.
[12]
On 28 February 2011, the MEC sent her advices in a letter
addressed to the acting Municipal manager, Mr Dhlomo. In that letter,
she raised various issues concerning the proposed lease agreement.
She directed that the following clauses be removed from the lease
agreement, inter alia, the option in favour of the lessee to purchase
the property upon commencement of the lease; clauses granting
pre-emptive rights and the clause entitling the lessee to cede its
rights to the property to a third party. The MEC further directed
that the amended lease be submitted to the Council for its
consideration and approval.
[13]
In a document dated 4 March 2011, printed on a Municipal
letterhead and addressed ‘TO WHOM IT MAY CONCERN’, and
which
contained Mr Dhlomo’s signature in his capacity as the
acting Municipal manager, reference was made to the ‘RESOLUTION:
MTMSC 463/2010’, relating to the ‘LEASE AGREEMENT FOR THE
PROPOSED DEVELOPMENT OF ERF 197 – MTUBATUBA (OLD TAXI
RANK)’.
What follows thereafter appears to be a resolution taken on 31 March
2010, which reads:
‘
This serves to
certify that Council in its meeting of 31st March 2010 resolved as
follows on the above matters:
Council resolved that:
1.
Council noted the legal advice.
2.
Council mandates the Municipal Manager and the CFO to go and
negotiate with the developer Allied property group the concerns
raised by the lawyers on clauses 4, 6 and 10 finalise lease agreement
and sign it.’
[14]
On 16 June 2011, the company Crowned Cormorant was restored to
the company’s register and on 30 August 2011 changed its name
to Khutala Property Consortium (Pty) Ltd.
[15]
On 15 September 2011 a company described in a power of
attorney as Khutala Property Consortium (Proprietary) Limited, signed
a power
of attorney appointing employees of Cox Yeats to act as its
agents in concluding a notarial lease.
[16]
On 16 September 2011, two copies of the notarial lease between
the Municipality and Khutala were signed by employees of Cox Yeats,
purportedly on the strength of the powers of attorney in question.
Both copies recorded that the authority to sign for the Municipality
was derived from the power of attorney signed by Mr Dhlomo on 22
February 2011, under the authorisation of the resolution MTMSC
463/2010, dated 31 March 2011. It was also recorded that on 15
September 2011, a power of attorney was granted by Khutala, relying
on a resolution of its directors on 8 April 2010. On 20 October 2011
a notarial deed of lease was registered in the deeds office
between
the Municipality and the appellant.
[17]
Notwithstanding the conclusion of that lease, during January
2013, the Municipality re-advertised a tender for the development of
the same property. This was challenged by the appellant’s
attorneys who sought to engage with the Municipality to interdict
what they considered was an unlawful action. Even though the
Municipality gave an assurance to the appellant that no award would
be made to any third party, in July 2013, the Municipality notified
the sixth respondent, Green Mile Investments 340 CC (Green
Mile),
that it had been awarded a tender to develop the property.
[18]
That notwithstanding,
during
October 2014, the Municipality’s attorneys demanded building
plans for the development of the property from the appellant.
The
plans that were submitted by the appellant for approval in November
2014, were later revised and delivered to the Municipality
in
September 2015. The Municipality did not approve the plans. In the
meanwhile, the Municipality received demands from Green Mile
for the
formal award of the development rights in respect of the property,
which the Municipality ignored.
[19]
During January 2016, Khutala launched an application against
the Municipality for an order compelling it to approve its building
plans for the property for which it said it had been awarded a tender
for the purpose of the development of the property. There
was no
opposition and this application was granted. The Municipality ignored
the court order which led to a follow-up application
by Khutala for a
rule nisi
for the Municipality to show cause as to why it
should not be held in contempt of court. In May 2016, Green Mile
applied for an
order interdicting the appellant from developing the
property. On 20 July 2016, and on the return date of the
rule
nisi
, the Municipality joined the fray by making a
counter-application for a stay of the execution of the order
requiring the Municipality
to approve the appellant’s building
plans and for an order that the notarial lease between the appellant
and the Municipality
be declared invalid, and that the award of the
property development rights to Green Mile be declared valid.
[20]
In August 2018, by agreement amongst the parties, an order was
granted consolidating the applications, and the issue relating to
the
validity of Khutala’s lease, was separated in terms of rule
33(4) of the Uniform Rules of Court, with all other remaining
issues
to stand over for later determination. The separated issue did not
involve the second, third, fourth and fifth respondents.
The matter
came before Mbatha J in the KwaZulu-Natal Division of the High Court,
Pietermaritzburg (the high court) on the separated
issue, as to
whether the notarial lease between the Municipality and the appellant
was valid.
[21]
Mbatha J found that the lease registered in favour of the
appellant was invalid and made the following order:
‘
(a) The notarial
lease dated the 16 September 2011 and held under protocol number
1535/2011 of Robin Peter Westley, notary public,
as between Mtubatuba
Municipality and Khuthala Property Consortium (Pty)Limited is
declared to be invalid.
(b) Khuthala Property
Consortium (Pty) Limited is to pay costs to Mtubatuba Municipality,
costs to include the costs consequent
upon the employment of two
counsel.
(c) Khuthala Property
Consortium (Pty) Limited is ordered to pay costs for Green Mile
Investments 340CC.’
It
is against those orders that the present appeal is directed. It is
before us with the leave of the court below.
[22]
It is clear that unless the Council revoked or amended the 29
January 2010 resolution, the Municipal manager could only sign the
lease agreement debated at the Council meeting on that date, and no
other. The lease that was executed did not have the approval
of the
Municipality. This was rightly conceded by Mr Westley, the notary who
attended to the execution and registration of the
lease, in his
testimony before Mbatha J.
[23]
The principle of legality applies. In
South African
National Roads Agency Ltd v Cape Town City
2017 (1) SA 468
(SCA);
[2016] ZASCA 122
para 25, this court said that it is now accepted as
elementary that the exercise of public power is subject to
constitutional control
and is clearly constrained by the principle of
legality. A repository of power may not exercise any power or perform
any function
beyond that conferred upon it by law and must not
misconstrue the nature and ambit of the power.
[24]
Furthermore, the approval of the lease was subject to comments
from the MEC. The concluded lease agreement retained all that the
Council’s attorneys and the MEC considered objectionable.
[25]
The power of attorney in respect of the lessee was also
problematic. On 15 September 2011, the company described in the power
of
attorney as Khutala Property Consortium (Pty) Ltd, purportedly
signed a power of attorney appointing employees of Cox Yeats to act
as their agents in concluding a notarial lease. The resolution
referred to in the notarial lease is one dated 8 April 2010. It
is
common cause that Khutala passed no such resolution. On that date, a
company known as Alliance Property Developments (Pty) Ltd
resolved to
enter into a lease with the Municipality in respect of the property,
and on 9 April 2010 was identified by Alliance
as its 100% owned
subsidiary company to enter the lease agreement in its place as the
nominated development company for the property.
That fact is of no
assistance to Khutala.
[26]
Furthermore, the document dated 4 March 2011, which purported
to be an extract of resolution MTMSC 463/2010 of the Council, and
which contained Mr Dhlomo’s signature, deviated significantly
from the original resolution adopted by Council on 1 March 2010.
It
is not clear who drafted the document, but it appears to have been
provided to Mr Westley on his request, as he was concerned,
and
rightly so, that he had no resolution to support the power of
attorney that Mr Dhlomo had signed on 22 February 2011. Mr Westley
conceded that he did not see the actual resolution, and had relied
upon the document as a true copy of the resolution of the Council,
and the basis of the authority in the power of attorney that had been
obtained from Mr Dhlomo. The document contains inaccurate
details as
to the actual resolution adopted by Council on 1 March 2010. It
misstated the date and the terms of the resolution,
and the name of
the proposed lessee. The lease was clearly executed without
investigating whether the MEC had in fact reported
her concerns. Mr
Westley acknowledged that the resolution that was passed by the
Municipality was not accurately reflected in the
document he received
from Mr Dhlomo, nor did it authorise the signing of a lease with the
appellant.
[27]
The re-advertisement of the tender and the granting thereof to
Green Mile appears to have coincided with the change of political
power in the Municipality. Counsel for the Municipality rightly
conceded that the Municipality appeared to be in chaos. We are
not to
decide the legality of the grant of the second tender. We are to
adjudicate only the narrow question of the validity of
the lease.
[28]
Counsel for Khutala was constrained to accept, in light of the
judgment of this Court in
City of Tshwane Metropolitan
Municipality v RPM Bricks (Pty) Limited
[2007] ZASCA 28
;
2008 (3)
SA 1
(SCA) para13, that estoppel could not be relied on.
[29]
For all of the above reasons, the conclusion reached by the
court below cannot be faulted and the appeal must fail.
[30]
The following order is made:
The
appeal is dismissed with costs, including the costs of two counsel,
where so employed.
___________________
H K SALDULKER
JUDGE
OF APPEAL
APPEARANCES
For
Appellant: C J Pammenter SC (with him E Crots)
Instructed
by: Beall, Chaplin & Hathorn, Durban Rossouws Attorneys,
Bloemfontein
For
First Respondent: M Pillemer SC (with him B Bedderson)
Instructed
by: Matthew Francis Incorporated, Pietermaritzburg
Phatshoane
Henney Attorneys, Bloemfontein
For
Sixth Respondent: M Collins SC
Instructed
by: V Chetty Incorporated, La Lucia Lovius Block Attorneys,
Bloemfontein