Bloemfontain Correctional Contracts Proprietary Limited v Minister for the Department of Correctional Services and Another (54391/17) [2017] ZAGPPHC 1091 (13 September 2017)

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

Case Number: 54391/17

13/9/17

In the matter between:

BLOEMFONTAIN CORRECTIONAL CONTRACTS

APPLICANT

PROPRIETARY LIMITED

and

THE MINISTER FOR THE DEPARTMENT OF

1st RESPONDENT

CORRECTIONAL SERVICES

GROUP 4 CORRECTION SERVICES (BLOEMFONTAIN)

2nd RESPONDENT

PROPRIETARY LIMITED

Coram: HUGHES J

JUDGMENT

HUGHES J

Introduction

[1] This application emanates from the urgent court. The applicant, Bloemfontein Correctional Contracts (Pty) Ltd (BCC) seeks the following order:

"1. The applicant seeks an order that the matter be heard urgently and that this Court condone any non-compliance with the Rules of Court in respect of service and the abridged timelines for filing of affidavits. (prayer 1)

2. The applicant seeks amended relief prayer 2 of the notice of motion for an order directing payment of amount R24 901 218.00, being the shortfall due in respect of its June invoice.

3. The applicant prays for an interdict in terms set out in prayers 3 of the notice of motion as follows:

‘That the first respondent is interdicted and restrained from setting off as against any amounts due to the applicant any amounts that the first respondent claims in respect of the costs allegedly incurred by it, between the period 9 October 2013 and 1 August 2014, under section 112 of the Correctional Services Act 111 of 1998.’

4. Alternatively, the applicant seeks an interim interdict on the terms pending the final determination of an action to be instituted by the first respondent. (prayer 4)" [Extracted from the applicant’s practise note]

[2] The applicant is a special purpose vehicle participating in a public

private partnership with the state to establish, operate, maintain and control the Mangaung Correctional Centre in Bloemfontein (the Correctional Centre). The applicant and the first respondent the Department of Correctional Services (DCS), on behalf of the

Government of Republic of South Africa, concluded a Concession Contract on 24 March 2000 in respect of establishing, operating,

maintaining and controlling the Correctional Centre. The second respondent, Group 4 Correction Services (Bloemfontein) (Pty) Ltd

(G4S) is cited, as it has an interest in the outcome of these proceedings. In terms of the Concession Contract, currently the applicant together with G4S operate all aspects of the Correctional Centre which house 2928 maximum security prisoners.

Background

[3] In terms of section 103 of the Correctional Services Act, 111 of 1998 (the Act) the applicant concluded a Concession Contract with the Government duly represented by the first respondent to design,

construct, operate, maintain and finance the Correctional Centre.

[4] In terms of the Concession Contract the applicant assumed all duties,

operations and maintenance pertaining to the Correctional Centre which was inclusive of all the day to day care and custody of the prisoners themselves. The way the Concession Contract works, is that it ensures that only the applicant operates the prison and the DCS are not involved in the day to day operations of the prison.

[5] With the knowledge of DCS, these services entrusted upon the applicant were sub-contracted to G4S and they have operated and maintained the Correctional Centre since 2001. Be that as it may, under the Concession Contract the operation and maintenance of the Correctional Centre still remains with the applicant. It is important to bear in mind that the control of the prison is vested with the Prison Director. The Prison Director is in the employ of G4S and his appointment is governed by the Act and the Concession Contract.

[6] On 3 October 2013 the Acting National Commissioner of DCS invoked

section 112 of the Act and appointed a Temporary Manager to manage the Correctional Centre. The Acting National Commissioner reason for invoking section 112 is set out below:

"... in consultation with the Minister of Correctional Services...I am of the opinion that the Director of the Mangaung Correctional Centre ("MCC'') has lost effective control of the MCC and that it is necessary, in the interests of safety and security to take control of the said Correctional Centre... In light of the above, and in terms of the provisions of section 112 of the 1998 Act, read with Clause 55 of the Conditions of the Concession Contract, I have decided to appoint a Temporary Manager of the MCC with effect from 09 October 2013..."

[7] The Temporary Manager was in the aforesaid position from 9 October

2013 until 31 July 2014 when his services were terminated. A year later on 2 March 2015, the Acting National Commissioner advised the applicant of its entitlement to be reimbursed for the necessary costs incurred in invoking the section 112 intervention. To this end the Acting National Commissioner demanded a sum of R110 671 992.53 being the costs that he alleges was incurred during the section 112 intervention.

[8] When DCS requested the amount from the applicant it disputed both the liability of same and the amount claimed. Attempts were made between the applicant and DCS to resolve this issue, by way of correspondence and eventually mediation, but to no avail. When the parties reached a deadlock DCS advised the applicant that it was proceeding to invoke clause 4.1, 43.1 and 55.3 of the Concession Contract. This effectively culminated in DCS setting off the amount it claimed was due against that due to the applicant in respect of future payments commencing 1 August 2017. It is this set-off that the applicant seeks to interdict on an urgent basis.

Urgency

[9] DCS officially issued a notification on 10 July 2017 that it would be invoking the set-off process from 1 August 2017. It advised the applicant that it would implement the set-off as set out below:

On 1 August 2017 an amount of R 33 201 612.00;

On 1 September 2017 an amount of R16 600 800.00; and thereafter

R1 790 282.00 on future monthly payment for a period of 34 months commencing 1 October 2017.

[10] On 18 July 2017 the applicant sent correspondence to DCS persisting with its dispute with regards to liability and the amount claimed and in addition it sought an undertaking from DCS that it would not proceed with the setting

off proposed. Suffice to say that nothing was forth coming from DCS.

[11] In response to the aforesaid, on 31 July 2017, DCS advised the applicant that the set-off had been invoked, however, it explained that the amounts to be implemented had been reduced. It would now set-off R24 901 200.00 on 1 August 2017, R24 901 200.00 on 1 September 2017 and from 1 October 2017 for 34 months an amount of R1 790 282. 00.

[12] The applicant submitted its invoice for June 2017 in the amount of R 35 264 457. 22 on 2 July 2017, which was due and payable on 31 July 2017. The applicant states that on invoicing DCS they would usually honoured same on or

about the 20th of the month in which it was due, as interest runs after the due date.

[13] On 3 August 2017 the applicant sent a letter to DCS as payment on their June 2017 invoice had not been paid by the due date. On enquiring and demanding payment, no response, explanation nor payment was forthcoming from the DCS.

[14] Even though DCS notified the applicant that the set-off would

commence on 1 August 2017 it failed to honour the June 2017. The applicant contends that the conduct of DCS is in flagrant disregard

of the provisions of the Concession Contract and as such it is entitled to an order that the June 2017 invoice be paid together with interest.

[15] The applicant submits that if DCS is allowed to continues in this vain, though it has accumulated some income on hand, this would not be sufficient to pay G4S. Further, there is insufficient time to secure finance to cover the shortfall of R85 066 857.22 which is the June 2017 invoice, 1 August and 1 September 2017 amounts of R24 901 200.00 each due to be set-off.

[16] On behalf of DCS, in respect of urgency, it was argued:

1. That there was no urgency as the applicant had received the notification from DCS of the proposed set-off on 10 July 2017 and it only came to court on 29 August 2017;

2. The matter was initially set down for 22 August 2017 and the applicant removed the matter from the urgent roll thus there is no urgency;

3. The payment for June 2017 invoice was paid on 8 August 2017 and thus the application is moot;

4. In addition, DCS erroneously advanced payment for the July 2017 when it effected the June 2017 payment.

The case for the applicant

[17] The applicant argues that the conduct of DCS, in failing to pay on the invoices issued timeously and applying the set-off unlawfully to the alleged debts is an infringement and breach of its contractual right in terms of the Concession Contract. Further, by DCS not paying the full contracted fee, reliably and timeously, this jeopardises the continued operation of the Correction Centre.

[18] With regards to the removal of the matter from the urgent roll on 22 August 2017, the applicant explained that this was necessitated by the respondent filing its answering affidavit late and thus the court file could not be made ready to meet the deadlines provided by the practise directive of this Court. In any event, it argues, that in light of DCS submission that the July 2017 payment was in error, DCS's refusal to provide an undertaking and its continued conduct of applying the set-off process unlawfully, cumulatively these warrant the matter being urgent.

[19] The applicant argues that the debt relied upon by DCS arise from costs that occurred during October 2013 and August 2014, that being so, the claim for the amount claimed has prescribed as no proceeding were instituted to recover the said amount. No reason exists for DCS to set-off the amount from the monies due to the applicant, but that of self-help, so contends the applicant.

[20] Turning to the set-off, the applicant argues that according to clause 53 of the Concession Contract, setting off of reasonable and necessary costs, if intervention is required, is allowed. However, it is subject to clause 43, which provides that this is only permitted if the debt is 'properly due and recoverable from or payable by the Contractor' and the normal principles of set-off apply.

[21] The applicant argues in this instance the debt is not capable,

neither in terms of the common law nor in terms of the Concession Contract, capable of being set-off as the amount sought is not a liquidated amount. Further, DCS is only entitled to 'reasonable and necessary costs' and as the amount claimed is disputed by the applicant, this would require some sort of determination. In the circumstance, the amount cannot be said to be liquidated. Even so, the amount claimed is not properly due and recoverable, and the debt, or a substantial portion thereof, has prescribed.

[22] Lastly, DCS continues to threaten to set-off even though it is unlawful to do so and is in breach of the Concession Contract. Thus, the applicant submits it has a clear or at the least a prima facia right to seek full payment of its monthly invoices and to prevent DCS by interdicting it from setting off any amounts.

The case for DCS

[23] The main thrust of DCS's case is that the applicant's case is premised upon the consequence of an administrative decision taken by it to apply the section 112 intervention, rather than the

administrative decision to recover the costs incurred as a result of the section 112 intervention. In the circumstances, DCS contends that the applicant is faced with the 'Ouderkraal Principle'. To this end DCS argued that the decision being an administrative decision ought to be reviewed and no indication is advanced by the applicant that they intend to do so. 'The recovery of costs by way of set-off is... is a consequence of the decision ...to evoke Indemnity Clause' so argues DCS. The indemnity clause is 4.1 of the Concession Contract and DCS's decision to invoke same is not unlawful.

Discussion

[24] Both parties have conceded that the entire dispute emanates from the Concession Contract. It is trite that the parties' rights, obligations and duties flow from the contract.

[25] The right to be paid monthly as agreed in the Concession Contract is one of the rights that flows from the contract in favour of the applicant. Likewise, DCS right to seek to set-off, in the appropriate

circumstances, the amount they alleged is due and payable is also a right that flows from the Concession Contract. In the circumstance,

the applicant has at the least a prima facie right in terms of the Concession Contract.

[26] From the facts set out above the applicant, in my view, has demonstrated that DCS has infringed upon its right to receive its monthly payments as contracted and this is so, as they have failed to pay the June 2017 invoice. In addition, DCS's persistent threats to continue with the set-off in the face of the applicant's dispute on liability and the amount, renders the matter urgent. In the premises, this matter justifies as being classified as urgent.

[27] In the case of V & A Waterfront Properties (Pty) Ltd v Helicopter Service 2006 (1) SA 252 (SCA) at [21] Howie P had the following to say:

"[21] ...The leading common-law writer on the subject of interdict relief used the wording 'eene gepleegde feitelijkheid' to designate what is now in the present context, loosely referred to as 'injury'. The Dutch expression has been construed as something actually done which is prejudicial to or interferers with, the applicant's right. Subsequent judicial pronouncements have variously used 'infringement' of right and 'invasion of right'..." [My emphasis]

[28] In my view, the applicant is entitled to pursue this application on the basis that its right in terms of the Concession Contract is being infringed upon by DCS in failing to make the monthly payments timeously, and its right for future payments, is being threatened by the proposed set-off. That being the case, the applicant thus qualifies for the interdict sought.

[29] Turning to clause 43 of the Concession Contract for easy reference it is set out below:

''Recovery of sums due

43.1

Subject to Clause 43.2, whenever, under the Contract, any sum or sums of money shall be properly due and recoverable from or payable by the Contractor. the same may be deducted (in accordance with the normal principles of set-off) from any sum then due, or which at any time thereafter may become due, to the Contractor under the Contract..." [My emphasis]

Of importance is the necessity to set out Clause 55.3 of the aforesaid contract as well:

" INTERVENTION BY THE MINISTER UNDER SECTION 112 OF THE CORRECTIONAL SERVICES ACT, N0 .111 OF 1998 (SECTION 112)

150%">

55.1...

150%">55.2...

0.5cm; line-height: 150%"> 55.3 Any reasonable and necessary costs incurred by the Deparlment as a result of action being taken by virlue of Section 112 will be reimbursed to the Deparlment of the Contractor, unless such appointment is as a result of a Department Event of Default, and the Department shall be entitled to set off all such amounts due to it against any other amounts due to the Contractor from the Department hereunder. subject to the provisions of Cause 43." [My emphasis]

[30] On my reading of clause 55.3 in this instance DCS shall set-off an amount due subject to the provisions of clause 43. Clause 43 places emphasis on the fact that the amount to be set-off shall be properly due and recoverable, and may be deducted in accordance with the normal principles of set-off.

[31] With the aforesaid in mind, the applicant argued that the amount to be set-off is not even due and payable, as there is still a dispute about applicant's liability and the amount. Thus, the amount claimed by DCS

to be set-off cannot be due and recoverable as the actual amount due needs to be determined.

[32] DCS on the other hand contends that the decision to set-off falls within the realm of an administrative decision. The applicant ought to address that issue and not the issue of set-off which they submit is done

lawfully.

[33] In dealing with set-off the following was stated in Pep Stores (SA) LTD v Commissioner of SARS 2011 (1) SA (1) at page 6 para [8] where Cloeta JA stated as follows:

"[8] .. . it is trite that set-off comes into operation when two parties are mutually indebted to each other, and both debts are liquidated and fully due... "

And further in Standard Bank v Renico Construction 2015 (2) SA 89 (GJ) at 91 para [9] Sutherland J stated:

"[9] What attributes must each debt possess to qualify for set-off? The elements are:

• Both debts must be due to and owed by the same pair of persons.

• Both debts must be liquidated.

• Both debts must be due and payable."

[34] In the case in question, I am of the view, that the debt cannot be that which is liquidated as there is a dispute still raging as regards the alleged amount and there is the further dispute with respect to the liability of the claim. The debts are not even due as the amount to be paid still requires determination. If it can't be said that debt is due and payable, as this could only be applicable if the amount is determined, then the debt cannot be said to be liquidated.

[35] In addition, in Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy BPK. en Andere (2) 1978 (1) SA (W.L.D) 164 at 168G­ H it was clearly stated by Colman J:

"...A money claim is liquidated if the amount thereof has been fixed by agreement or by the judgment of the Court...When, in order to prove his claim, the plaintiff will have to show that it, or some element in it, or some datum involved in its computation, was fair or reasonable, the claim is not liquidated."

[36] In the current case the applicant has reiterated times after time that the liability and amount claimed is in issue. Taking the aforesaid into account and on consideration the cases supra, the claim or that which is due to DCS cannot be said to be liquidated. In the circumstances, the set-off which DCS seeks to embarked upon is not lawful.

[37] In dealing with the issue of prescription the applicant argues that DCS's claim has prescribed as it falls within the ambit of section 11 (d) of the Prescription Act, 68 of 1969 (Prescription Act). Section 11 (d) makes provision for a prescriptive period of three years. This means that the debt of DCS would be extinguished after three years.

Section 10 of the Prescription Act states that "a debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt".

[38] In terms of section 12 (1) of the Prescription Act, the start of such prescription commences when the debt is deemed due, recoverable and immediately claimable. Therefore once DCS acknowledges that the debt is due and is aware of the facts upon which the debt arises, in terms of section 12 (3), this is sufficient to comply with the debt being 'deemed to be due'. This also ‘means that there has to be a debt immediately claimable by the debtor or, stated in another way, that there has to be a debt in respect of which the debtor is under an obligation to perform immediately’. See Deloitte Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman Deutsch (Pty) Ltd [1990] ZASCA 136; 1991 (1) SA 525 (SCA) at 532G. That is the debt is due when it is ‘immediately claimable or recoverable’.

[39] In this case, if we look back, the section 112 intervention took place between 9 October 2013 and 31 July 2014. Even though the section 112 intervention was terminate on 1 August 2014, the costs of each claim during that period of intervention became due and that in itself initiated the awareness of the claim on 1 August 2014. The applicant contends, that from 1 August 2014 DCS became aware of the debt which was due and therefore had the knowledge of the debt by 1 August 2014. In the circumstances, more than three years have lapsed therefore the claim of DCS has prescribed.

[40] DCS in the papers does not address the aspect of prescription at all in fact they place reliance on clause 4.1 of the Concession Contract, which is the indemnity clause. They argue that they seek to recover by virtue of the terms of clause 4.1 and they are entitled to set-off what is due to them against that which is due to be paid to the applicant. They also argues that the decision taken to set-off what is due to them against those moneys due to the applicant is an administrative decision and as such the applicant if it is unhappy with that decision should have gone by way of a review application and should not have sought an interdict.

[41] I will deal with the issue raised by DCS that the decision is an administrative decision. According to the correspondence notifying the applicant of the proposed path that DCS intended taking it is clear that they were initiating the terms or clauses of the Concession Contract. In the letter of 10 July 2017 DCS states:

"3. The mediation process having failed...

3.1 I hereby give notice to evoke [invoke] clause 4.1, 43.5[1] and 55.3 of the Concession Agreement to call for the indemnification of the Department...."

[42] There is clearly no doubt from the above that DCS decision to set-off was contractually based and not an administrative decision as it now seeks to advance.

[43] The issue of DCS seeking to be indemnified is disputed by the applicant and it has advised DCS as such. The applicant contends that there was no need for DCS to invoke the section 112 intervention in the first place and thus it is not liable for the costs incurred.

[44] From my reading of clause 4.1 the indemnity arises "in respect of all reasonable losses, damages, liabilities, claims, actions proceedings, demands, costs charges penalties or expenses (Losses) suffered or incurred by the Department

...which arise in connection with the breach of the Contract or the Law of South Africa.." [My emphasis].

[45] In my view, it is prudent for DCS to show a breach in the contract or law, before it can claim the indemnity sought. Since there exist a dispute as regards liability DCS cannot seek the indemnity until it can show the breach of the contract or law, until then it also cannot unilaterally impose a set-off of the indemnified amount whilst a dispute has not been resolved or determined. In the circumstances, the argument of invoking the indemnity must fail.

[46] In conclusion, the applicant has made out a case for the amended

relief sought in the notice of motion.

[47] Consequently I make the following order:

1. The applicant's non-compliance with the rules of this Court in regard to service and time limits is condoned and this application is heard as urgent in terms of Rule 6 (12);

2.78cm; text-indent: -0.77cm; line-height: 150%; page-break-before: auto"> 2. The first respondent is ordered to make payment of the applicant's June 2017 invoice in the sum of R24 901 200.00 together with interest thereon at prime overdraft rate as published from time to time by reference banks from 31 July 2017 to date of payment;

3. That pending the final determination of an action to be instituted by the first respondent out of this honourable Court the first respondent is interdicted and restrained from setting off as against any amounts due to the applicant any amounts that the first respondent claims in respect of the costs allegedly incurred by it, between the period 9 October 2013

and 1 August 2014, under section 112 of the Correctional Services Act, 111 of 1998; and

4. The first respondent is ordered to pay the costs of this application such cost to be on a party and party scale.

W. Hughes

Judge of the High Court Gauteng, Pretoria

For the Applicant: B Leech SC

Instructed by: Fasken Martineau Inc

For the 1st Respondent: AP Laka SC

Instructed by: The State Attorney

Date heard: 31 August 2017

Date delivered: 13 September 2017