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[2020] ZASCA 52
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Umgungundlovu District Municipality v Amaraka Investments 37 (Pty) Ltd (921/19) [2020] ZASCA 52 (15 May 2020)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case no: 921/19
In
the matter between:
UMGUNGUNDLOVU
DISTRICT MUNICIPALITY APPELLANT
and
AMARAKA
INVESTMENTS 37 (PTY) LTD RESPONDENT
Neutral
citation:
Umgungundlovu
District Municipality v Amaraka Investments 37 (Pty) Ltd
(Case
no 921/19) [2020] ZASCA 52 (15 May 2020)
Coram:
CACHALIA, DAMBUZA, MOCUMIE AND
NICHOLLS JJA AND BOQWANA AJA
Heard
:
6 May 2020
Delivered
:
This judgment was handed down
electronically by circulation to the parties' representatives by
email, publication on the Supreme
Court of Appeal website and release
to SAFLII. The date and time for hand-down is deemed to be 10h00 on
15 May 2020.
Summary:
Contract concluded
between private service provider and municipality – contract
declared unconstitutional for failure to comply
with constitutionally
required procurement provisions – whether order suspending
declaration of invalidity retrospective
in effect – proper
approach to interpreting court order.
ORDER
On
appeal from:
KwaZulu-Natal
Division of the High Court, Pietermaritzburg (Seegobin J sitting as
court of first instance):
The appeal is dismissed with costs.
JUDGMENT
Cachalia
JA (Dambuza, Mocumie and Nicholls JJA and Boqwana AJA
concurring)
[1] The Umgungundlovu Municipality (the appellant)
appeals against a decision of the KwaZulu-Natal Division of the High
Court (Seegobin
J) granting summary judgment against it. The learned
judge held that the respondent (the plaintiff a quo) was entitled to
enforce
payment of a contract for the provision of sewerage services
concluded between it and the Umgungundlovu Municipality (the
defendant
a quo). The same division of the High Court (Nkosi J) had
declared the contract invalid earlier, but suspended its invalidity.
The court a quo concluded that the suspension was retrospective in
effect.
[2]
This finding meant that despite the declaration of invalidity, the
contract was enforceable in its past (the status quo) for
the
services the respondent had rendered in the carting of sewerage, but
not for any future services it may render after the date
of the Order
(11 April 2018). The appellant was therefore liable for payment
covering the entire period from the date the contract
was concluded
on 31 October 2011 until 11 April 2018. The appellant takes
issue with this finding. This narrow issue –
whether or not the
suspension of the invalidity of the contract operated retrospectively
– is now before this court with
leave of the court a quo.
[3]
It is unnecessary to delve into the facts in any detail. They are
canvassed fully in the judgments of both Nkosi J and of the
court a
quo. For present purposes it is common cause that the respondent had
performed its contractual obligations by providing
the required
services to the appellant. The amount of money it claimed from the
appellant in the summary judgment proceedings for
its performance was
R13 050 776.55 together with interest at the rate of 2 per
cent per month.
[4] The appellant did not dispute the quantum of the
claim in the court a quo. It raised only one defence to resist an
order of
summary judgment against it. It contended that Nkosi J’s
Order suspending the invalidity of the contract did not explicitly
say that the contract was suspended retrospectively. The Order was
thus unclear and the court a quo could not read this implication
into
it. Once that was accepted, the argument went, the respondent was not
entitled to enforce payment for its contractual services
from the
date of its inception on 31 October 2011 until the date of the Order
declaring the contract invalid on 11 April 2018.
[5]
The dispute before the court a quo thus concerned the interpretation
of the judgment and Order of Nkosi J, which was granted
following the
appellant having instituted review proceedings to declare the
contract invalid. In response the respondent brought
a
counter-application seeking an order declaring the contract valid and
concomitantly that the appellant was obliged to pay to
it the amount
for which it was sued.
[6] Nkosi J’s Order read as follows:
‘
(a) The contract . . . [is] declared
constitutionally invalid.
(b) The order of constitutional invalidity in paragraph (a) is
suspended pending [the Municipality] complying with the requirements
of sections 76 and 78 of the Municipal Systems Act 32 of 2000 and
subjecting the provision of the service to a competitive procurement
process.
(c) From the date of this order [11 April 2018] and pending
compliance alluded to in paragraph (b) the first respondent may
continue
to provide the service and bear the costs thereof itself.
(d) The respondents’ counter-application is dismissed.
(e) The applicant must pay the respondents’
costs . . . .’
[7]
The finding that the Order operated retrospectively, the court a quo
said, followed from the logic of the reasoning underpinning
order. In
this regard it pointed out that Nkosi J was acutely aware that he was
exercising the court’s just and equitable
jurisdiction under s
172(1)
(b)
of the Constitution,
[1]
which the courts have increasingly used to ameliorate the harsh
effects of declaring a contract invalid where the party contracting
with the State is blameless.
[2]
It therefore concluded that ‘justice and equity’ dictated
that, despite the contract’s invalidity, the appellant
should
not benefit therefrom by trying to evade its obligation – and
thus its liability – under the terms of the contract
by
escaping from the consequences of its self-created predicament.
[8]
It was evident from Nkosi J’s judgment, the court a quo
continued, that the appellant had irrationally abdicated its powers
and responsibilities to the respondent and had also misconstrued its
powers by concluding the contract. The predicament in which
it now
found itself was, therefore, self-created. On the other hand, the
respondent had acted bona fide and there was no suggestion
of any
impropriety on its part. It had carted the loads of effluent under
its contractual obligations that the appellant’s
Full Council
had approved. It therefore could not but have believed that the
appellant would honour the contract.
[9]
It therefore made perfect sense, the court a quo said, that Nkosi J
had underlined his judgment by stating that the ‘declaration
on
invalidity must not have the effect of divesting the respondent of
rights to which – but for the invalidity – it
might be
entitled to’. This was consistent with the meaning that the
court a quo had ascribed to the Order as intending to
operate
retrospectively.
[10]
Mr Pillemer, who appeared on behalf of the appellant before us,
contended that the court a quo’s interpretation of Nkosi
J’s
Order was wrong. The language did not support this interpretation and
it could not be fashioned to mean what the court
a quo found it to
mean, he insisted. The proper way to interpret the Order, he
continued, was that para (a) invalidated the contract.
Paragraph (b)
then suspended it pending compliance with provisions of the Municipal
Systems Act and a competitive bidding process.
Paragraph (b) was
qualified in para (c), which provided that from the date of the Order
and pending the compliance alluded to in
para (b) the plaintiff
(respondent) may continue to provide the service, but at its own
cost. The result, so he contended, was
that the suspension went no
further than permitting the respondent to go on providing the
service, but that the right to be reimbursed
would be removed until
the suspension came to an end. Properly understood, therefore, there
was no warrant for the finding that
the suspension applied
retrospectively.
[11]
It was also contended that the retention of the respondent’s
contractual rights for a limited period was not reconcilable
with
para (d) of the Order dismissing the respondent’s
counter-application to declare the contract valid and consequently
for payment of the amount due in terms of contract. If Nkosi J
had intended to allow such a right, the argument continued,
there
would have been no need for him to have dismissed the
counter-application.
[12]
It is convenient to dispose of the argument pertaining to the
counter- application, first. In the proceedings before Nkosi
J,
the respondent sought this relief – to declare the contract
valid and for payment – in response to the appellant’s
prayer for the contract to be declared invalid. It was thus the
mirror image of the relief sought by the appellant. Once the court
had granted the appellant’s prayer – apart from the
suspension – it followed that the primary relief sought by
the
respondent – that the contract be declared valid – fell
away. But the fact that he had dismissed the counter-application
was
not itself indicative of the learned judge’s intention to have
divested the respondent of all its contractual rights
through the
order of invalidity.
[13]
It therefore takes the argument no further. It is also significant
that despite having dismissed the counter-application the
learned
judge made no adverse costs order against the respondent. On the
contrary the Order made the appellant liable for all the
costs
incurred in this matter, including the counter-application.
Implicitly, therefore, the learned judge had accepted that the
respondent could enforce its contractual claim even though the
contract was invalid.
[14]
The nub of the interpretation dispute issue thus lies in
understanding what was intended by paras (a) (b) and (c) of the
Order.
It is evident that the focus of the appellant’s argument
– that the Order was not intended to operate retrospectively
–
was directed principally at its language. Because, if one reads the
Order in isolation, Mr Pillemer’s submissions
appears to have
some force. But as lawyers we know that when interpreting legal texts
‘context is everything’. This
is why in ascertaining the
meaning of a court order, one must have regard not only to its
language but the context in which it
arises. That context is found in
the court’s reasoning preceding the order, which not only
explains it but ultimately gives
it its true meaning and force.
[3]
[15] In my view the court a quo properly approached its
interpretative task by not fixating only on the words of the Order
but by
giving it meaning by analysing the judgment, the key aspects
of which are alluded to above. It bears mentioning that the court a
quo emphasised what Nkosi J had said in the penultimate paragraph of
his judgment, before dealing with the question of costs that:
‘
The declaration of invalidity must not have
the effect of divesting the respondent of rights to which – but
for the declaration
of invalidity – it might be entitled to.’
[16]
The rights mentioned here could only be understood to refer to the
right to claim and receive payment for services rendered
in
accordance with the terms of the contract. Mr Pillemer candidly
accepted that this part of the reasoning posed an obstacle to
his
contention that the Order was not retrospective in effect. But he
insisted, nonetheless, that we must give effect to the meaning
of the
Order if it was clear. And what was clear in the Order – which
is really the nub of the argument – that in the
absence of any
reference to the Order applying retrospectively the suspension could
only have applied to the respondent’s
right to claim for
carting off sewerage in the future as contemplated in para (c).
[17]
Apart from Mr Pillemer’s concession that the fact that Nkosi J
was emphatic in wanting to avoid divesting the respondent
of any
rights posed a problem for the appellant’s interpretation of
the Order, it is apparent that the thrust of his judgment
on this
aspect was aimed at protecting the contractual rights that it had
already acquired but for the declaration of invalidity.
Conversely,
he was also very critical – for good reason – of the
appellant’s conduct to which I have referred
in para 7 above.
The appellant’s interpretation – that the suspension had
the effect of divesting the respondent of
its contractual rights –
has precisely the consequence that Nkosi J had made clear he
wished to avoid.
[18]
It also makes little sense that he would have intended only to
suspend appellant’s right to claim payment after the
declaration of invalidity until compliance with proper procurement
processes. Because, this would have meant that apart from the
respondent perhaps having a right to participate in a future
procurement process it would have no other rights arising from the
conclusion of the existing contract. In other words the appellant
would have us accept that the ‘just and equitable’
relief
that Nkosi J envisaged was the evisceration of all the respondent’s
contractual rights. That flies against the logic
of his judgment and
against what was obviously the just and equitable remedy in this
dispute.
[19]
I thus conclude that court a quo properly interpreted Nkosi J’s
Order as applying retrospectively to the date the contract
was
concluded until the declaration of its invalidity. It therefore
correctly dismissed the appellant’s opposition to the
claim for
summary judgment.
[20] In the result the following order is made:
‘
The appeal is dismissed with
costs.’
__________________
A
CACHALIA
JUDGE
OF APPEAL
Appearances
For
appellant: M Pillemer SC (with him S Kuboni)
Instructed
by: Mhlanga Inc, Durban
Honey
Attorneys, Bloemfontein
For
respondent: A J Dickson SC
Instructed
by: Hay and Scott Attorneys, Pietermaritzburg
Phatshoane
Henney Attorneys, Bloemfontein
[1]
‘
Powers of courts in
constitutional matters
(1) When deciding a constitutional matter within its
power, a court–
(a)
.
. .
(b)
may
make any order that is just and equitable, including–
(i) an order limiting the
retrospective effect of the declaration of invalidity; and
(ii) an order suspending the
declaration of invalidity for any period and on any conditions, to
allow the competent authority
to correct the defect.’
[2]
Allpay Consolidated
Investment Holdings (Pty) Ltd and Others v The Chief Executive
Officer, South African Social Security Agency
and Others
[2013]
ZACC 42
;
2014 (1) SA 604
(CC);
Allpay
Consolidated Investment Holdings (Pty) Ltd v Chief Executive
Officer, South African Social Security Agency and Others
[2014]
ZACC 12
;
2014 (4) SA 179
(CC);
Dykema
v Malebane
[2019]
ZACC 33; 2019 (11) BCLR 1299 (CC).
[3]
Eke v Parsons
[2015] ZACC 30
;
2016 (3) SA 37
(CC) para 29.