Municipal Manager: Qaukeni Local Municipality and Another v FV General Trading CC

• Jurisdiction: South Africa
• Judge: Mpati P, Brand JA, Cloete JA, Maya JA and Leach AJA
• Judgment Date: 29 May 2009
• Citation: 2010 (1) SA 356 (SCA)
• Docket Number: 324/08
• Hearing Date: 14 May 2009
• Counsel: MR Madlanga SC (with RM Dilizo) for the appellants. MH Wessels SC for the respondent.
• Court: Supreme Court of Appeal

Leach AJA: F

[1] This appeal concerns the validity of a services procurement contract concluded by the second appellant, the Qaukeni Local Municipality, without due compliance with various statutorily prescribed procedures relating to municipal procurements. The second appellant is situated in that portion of the province of the Eastern Cape formerly known as Transkei. Its principal towns are Lusikisiki and Flagstaff. In the circumstances G more fully described below, it purported to appoint the respondent as the refuse collector for its municipal area. The first appellant, the municipal manager Mr Fihlani, later sought to terminate the contract with effect from 30 June 2007. This gave rise to the respondent instituting urgent proceedings in the High Court, Mthatha seeking an order declaring the termination to be unlawful and directing the second H appellant to 'continue with the contract and to pay the (respondent) for the work done in terms thereof until the contract is lawfully terminated'. In their absence, the court issued a rule nisi calling upon the appellants to show cause on the return day why such an order should not be granted. The appellants subsequently opposed the confirmation of the I rule, contending that the contract relied on by the respondent was invalid and of no force and effect; and in a counter-application, they sought a declaratory order to that effect.

[2] In due course the matter came before Greenland AJ who held the contract to be valid. He further held that the appellants had not J

Leach AJA

A discharged the onus of showing that they had justifiably terminated the contract and, consequently, he granted the respondent's application and dismissed the counter-application. A subsequent application for leave to appeal was also dismissed but, with leave granted by this court, the appellants now appeal against the judgment in respect of both the main B and counter-applications.

[3] The material facts relevant to the issues in the appeal are not in dispute. During November 2005 the respondent submitted a tender for a contract offered by the second appellant to collect refuse in both Lusikisiki and Flagstaff. Its tender was accepted and gave rise to the C conclusion of an oral agreement under which the respondent provided the required service during the period November 2005 to 30 June 2006. The validity of this agreement has not been challenged and I mention it merely as historical background to the events that followed.

[4] When the oral agreement was nearing its end, the municipal manager D at the time, Mr Cezula, contacted the respondent and invited it to submit a copy of its budget for the 12 month period from July 2006 to June 2007. This the respondent did, but the 'budget' it presented in fact appears to have been no more than an itemised quotation to continue to provide its services at a monthly charge of R351 350. Without inviting any other persons to tender for such a contract, the municipal council E resolved to reappoint the respondent as the second appellant's refuse collector against payment of the monthly sum quoted in its 'budget' and tasked Cezula to draw up a written agreement for the respondent to sign. He did so, and presented it to the respondent for its approval. The respondent accepted the terms offered, and the contract was duly signed F by both parties at Flagstaff on 25 June 2006 (a copy thereof is included in the papers as annexure ZEV 2).

[5] In terms of this contract the respondent was appointed the sole refuse collector for the second appellant for which it would be paid R351 350 per month, subject to a 20 % annual escalation. Clause 2 G further provided:

'(T)o ensure uninterrupted delivery of the service in the best interest of the local community, it is agreed that this contract is for the initial period of one (1) year starting from 01 July 2006 to 30 June 2007. However for the contract to end on 30th June 2007 the notice that the H contract will terminate on 30th June 2007 must be given to the service provider six (6) months prior to the date of termination otherwise the contract is automatically renewed on the 30th of June 2007 for another period of one (1) year at the 20% escalation on the fees charged for the service. In any case for the contract to lapse a notice of termination must be given six (6) months before the end of the contract otherwise it will be automatically renewed at a 20% escalation on the fees charged I for the service. . . .'

[6] The respondent duly proceeded to render the service it had undertaken and was paid the agreed monthly fee for doing so. As no notice of termination was given six months before 30 June 2007, the contract appeared set to continue beyond that date by reason of the automatic J renewal provision in clause 2. However, in correspondence which passed

Leach AJA

between the parties commencing on 4 June 2007 the first appellant, A Cezula's successor as municipal manager, informed the respondent that the municipal council had resolved that its services were not required beyond 30 June 2007 and that, although it would be at liberty to tender afresh when the second appellant called for tenders, the necessary statutory procedures would be strictly adhered to in the future. B

[7] The letter of 4 June 2007 which conveyed this to the respondent was printed on a letterhead bearing the name 'Ingquza Hill Local Municipality'. This led to the respondent rushing to court to launch legal proceedings which terminated in chaos. In an application issued out of the Mthatha High Court under case No 891/2007, it sought an urgent C order declaring 'the intervention of the Ingquza Hill Local Municipality [to be] wrongful and unlawful in terminating [the contract ZEV 2] without giving the required notice'. In a brief affidavit to oppose the grant of interim relief, the appellants' attorney drew attention to the fact that the Ingquza Hill Local Municipality had been established on 2 December 2000 by Provincial Notice 107 of 2000 which, in turn, had D been amended on 28 January 2002 by Provincial Notice 5 of 2002 by the substitution of the name 'Ingquza Hill' with 'Qaukeni'.

[8] In the light of this amendment, the appellants' attorney averred that the Ingquza Hill Local Municipality neither continued to exist nor was E a legal entity capable of suing or being sued. Of course that was nonsensical as the municipality's name had merely been changed and the second appellant, which had previously been known as the Ingquza Hill Local Municipality, was thereafter known by its current name. But the respondent was so confused by all of this that it withdrew its application on 5 July 2007. It stated in the present proceedings that it had done so F as the second appellant (viz the Qaukeni Local Municipality) had had nothing to do with the letter of 4 June 2007 which had come from the Ingquza Hill Local Municipality, that the latter had no legal right to interfere with the contractual obligations between it and the second appellant, and that there had therefore been no reason to pursue the application in case No 891/2007 as the second appellant had not sought G to terminate the contract. As the second appellant and the Ingquza Hill Local Municipality were the same entity, all of this is farcical.

[9] In any event, the day after the withdrawal of the application in case No 891/2007, the appellants wrote to the respondent (this time on a H Qaukeni Municipality letterhead) referring to the letter of 4 June 2007 and reiterating that such letter 'terminating or cancelling the contract still stands' and that the use of an incorrect letterhead had nothing to do with the identity of the parties to the contract. The appellants therefore stated that they persisted in the contents of the letter of 4 June 2007. As a result, on 10 July 2007 the respondent rushed...