Kwa Sani Municipality v Underberg/Himeville Community Watch Association

• Jurisdiction: South Africa
• Judge: Koen J
• Judgment Date: 30 October 2013
• Docket Number: 415/13
• Court: KwaZulu-Natal High Court, Pietermaritzburg
• Hearing Date: 03 September 2013
• Citation: 2013 JDR 2506 (KZP)

Koen J:

INTRODUCTION:

[1]

The applicant, a municipality, claims the following relief against the first and second respondents:

'1.

The written services agreement annexed to the founding affidavit of Ms Caroline Nokubonga James and marked "NJ3" is declared invalid and is set aside.

2.

The first respondent is directed to make payment to the applicant of all and any amounts paid by the applicant to the first respondent in terms of or pursuant to the agreement within 7 days of the date of this order.

3.

The arbitration proceedings initiated by the first respondent in terms of the agreement be and are hereby declared invalid.

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Koen J

4.

The second respondent's appointment as arbitrator is declared invalid and is set aside alternatively the second respondent's appointment as arbitrator be and is hereby terminated.

5.

It is declared that all and any decisions and awards as may have been made by the second respondent in the arbitration proceedings in the capacity of arbitrator are invalid and the applicant is not obliged to comply therewith.

6.

The first respondent is directed to bear the costs of this application, save in the event that the second respondent elects to oppose this application in which event the first and second respondents be directed to pay the costs of this application jointly and severally.

7.

The applicant is granted such further and/or alternative relief as this Honourable Court deems appropriate.'

[2]

The first respondent is an association. Its operations inter alia include being a co-ordination centre for disaster management and fire protection, supplying a 24 hour emergency service to the community within the magisterial district of Underberg, supervising and coordinating the 21 security cells within the magisterial district, being available to be called upon from time to time by the first respondent to attend to any emergency within each cell area, cooperating closely with the South African Defence Force during the time the latter was deployed in the district, providing radios and various vehicles in order to improve and maintain communications throughout the municipal area, supervising and managing a working-on-fire team based at Willowmere, farm Underberg and subsequently also at Sappi Claremont Farm Bulwer, etc. The second respondent is the arbitrator appointed to arbitrate in a claim pursued by the first respondent against the applicant for monies it alleges are due to it by the applicant in terms of the agreement, annexure 'NJR3' to the founding affidavit.

[3]

The applicant has elected to argue the matter in relation to the main relief claimed in paragraph 1 of the Notice of Motion, on the papers. It contends that in respect of the 'consequential relief' claimed from paragraph 2 onwards, that certain disputes of fact exist which might require a referral to oral evidence [1] . During argument I enquired from Mr Gani, who appeared on behalf of the applicant, what

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Koen J

particular issues he envisaged might be referred to oral evidence. He subsequently provided me with a manuscript note in which one issue to be referred to oral evidenced in respect of the 'consequential relief', was identified as:

'(1)

Whether the first respondent actually provided services referred to in the agreement and, if so, the fair and reasonable value of the services so provided'.

He however continued that if there was to be a referral to oral evidence in respect of the consequential relief, that a further issue which might assume significance in respect of the primary relief claimed in paragraph 1 of the Notice of Motion, might also have to be referred to oral evidence, and if I was of such view, that the applicant asked that this issue also be referred to oral evidence. This issue he formulated as:

'(2)

Whether the first respondent was the only service provider which had the capacity to provide the services provided for in the agreement'.

Mr De Wet SC, on behalf of the first respondent, resisted any such referral and maintained that the matter could be dealt with on the papers and that the relief should be dismissed.

BACKGROUND:

[4]

The written agreement in issue, being annexure 'NJ3' to the founding affidavit, was signed by the applicant on 2 November 2010 by the then municipal manager of the applicant, Mr S B Gwacela. Ex facie the agreement, he signed it authorised by a resolution of the applicant numbered 'No. 117 dated 28 October 2010'. [2] Mr Chris Barris, the chairperson of the first respondent at that time, signed the agreement on behalf of the first respondent.

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Koen J

[5]

In brief, the agreement records that the applicant required an emergency and disaster relief co-ordination centre within the Kwa Sani municipal area and that the first respondent was willing and able to provide such general emergency and disaster relief co-ordination services on the terms as set out in the agreement. Notwithstanding the date of signature, the effective date of the agreement was 1 July 2008. The applicant commenced making payment of the agreed monthly amounts payable from 1 July 2008. The agreement was for an initial period of 3 years, until 30 July 2011, and would then be automatically renewed for a further 3 years until 30 July 2014, unless notice to terminate was provided by either party in writing before 28 February 2011. Failing such notice to terminate, and there has been none, the agreement would remain in force indefinitely until at least 6 months written notice to terminate was given by either party. The agreement is thus presently during this renewed period post 28 February 2011.

[6]

The applicant made payment to the first respondent under the agreement from 1 July 2008 onwards. It alleges however that during 2012 its circumstances began to change and it no longer required the services which the first respondent was rendering under the agreement, the monthly payments to the first respondent becoming an unnecessary expense and placing undue strain on the applicant's financial resources. On 23 May 2012 the applicant's council resolved to terminate the agreement.

[7]

The validity of this purported termination was disputed by the first respondent. When the applicant persisted with the contention that the agreement was cancelled validly, the first respondent initiated arbitration proceedings, in terms of the arbitration provision in the agreement, to enforce the agreement. The second respondent was appointed to arbitrate in this dispute.

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Koen J

[8]

After a change of attorneys, the applicant received advice from its new attorneys during November 2012 that the agreement was invalid from the outset on legal grounds. The first respondent's disputes the correctness of that advice. Their respective contentions give rise to the principal issue for determination before this court.

THE LEGAL FRAMEWORK:

[9]

The agreement is one for the delivery of a municipal service by an external service provider, as envisaged by the Local Government: Municipal Systems Act [3] and the Local Government; Municipal Finance Management Act, [4] to an organ of state.

[10]

The provisions of s 217 of the Constitution are peremptory. They require that an organ of state contracting for goods and services must to do so 'in accordance with a system, which is fair, equitable, competitive and cost effective'.

[11]

In terms of s 217(2) national legislation must be enacted to give effect to the provisions of that section. The national legislation enacted is the Preferential Procurement Policy Framework Act. [5] In respect of municipalities, the import of s 217 of the Constitution has been 'fleshed out' [6] and reinforced by the MFMA.

[12]

Part 1 of Chapter 11 of the MFMA deals with the procurement by a municipality or municipal entity of goods and services. Section 111 requires a municipality to have and implement a supply chain management policy which gives effect to the provisions of part 1. Section 116 of the MFMA provides what a contract procured through the supply chain management policy of a municipality must provide for. It includes inter alia that the contract must be in writing and contain terms and conditions providing for a periodic review once every 3 years in respect of a contract which exceeds 3 years. There are also Municipal Supply Chain Management

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Regulations which have been published by the Minister of Finance and under Government Notice 868, GG 27636, dated 30 May 2005. In terms of regulation 36 a supply chain management policy, if one had been created, may allow the accounting officer

'(a)

to dispense with the official procurement processes established by the policy and to procure any required goods or services through any convenient process, which may include direct negotiations, but only –

(i)

in an emergency;

(ii)

if such goods or services are produced or available from a single provider only;

(iii)

for the acquisition of special works of art or historical objects where specifications are difficult to compile;

(iv)

acquisition of animals for zoos;

(v)

in any other exceptional case where it is impractical or impossible to follow the official procurement processes;

(b)

to...