Chefani (Pty) Ltd v MEC for Eastern Cape Department of Human Settlements and Another (2611/2019) [2019] ZAECGHC 85 (10 September 2019)

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE DIVISION, GRAHAMSTOWN)

CASE NO.: 2611/2019

Matter heard on: 6 September 2019

Judgment delivered on: 10 September 2019

In the matter between:

CHEFANI (PTY) LTD

APPLICANT

And

MEC FOR EASTERN CAPE FIRST

RESPONDENT

DEPARTMENT OF HUMAN SETTLEMENTS

GS UNITED HOLDINGS (PTY) LTD SECOND

RESPONDENT

JUDGMENT

SMITH J:

[1] The applicant, a company operating in the construction industry, instituted urgent proceedings against the respondents for a rule nisi and interim relief. While the substance of the relief sought by the applicant relates to orders compelling the second respondent

to pay all its outstanding invoices and for the first respondent to pay monies due to the applicant directly to it, the interim relief is for an order restraining the first respondent from paying to the second respondent all invoices which include amounts due to the applicant.

[2] The second respondent has two divisions, namely one trading in Agriculture and the other in the Construction Industry. During June 2018 its Construction Division concluded a tri-partite cession agreement with the first respondent and a third party in terms of which it assumed the rights and obligations of the third party in respect of a contract for the construction of 804 low cost housing units at Thornhill, Queenstown. Subsequently, during March 2019, the applicant in turn concluded a written agreement with the second respondent in terms of which it was appointed as a sub-contractor for the construction of a portion of the housing units.

[3] The applicant contends that the second respondent has “at all times during the course of the agreement” either effected payments due to it late or not at all. There are now consequently invoices in the sum of R 4 989 252 (excluding retention monies), due to it.

[4] It furthermore asserts that the second respondent claimed for the first time that it was in breach of the contract after it had written to the former on 8 August 2019, demanding payment of outstanding invoices. This, according to the applicant, was merely a “knee jerk” reaction and a mala fide attempt by the second respondent

to avoid its contractual commitments. In support of this assertion the applicant mentions the fact that only a week earlier, namely on 27 July 2019, the second respondent had instructed it to undertake the construction of a further 113 units. This instruction, it contends, is irreconcilable with the second respondent’s assertion that the applicant has failed to perform in terms of their agreement.

[5] The applicant furthermore also says that it has become aware that the second respondent has appointed another contractor to undertake work which had already been allocated to it. It thus fears that monies due to it will now be used to pay the third party.

[6] It is on this basis that the applicant asserts that it has established a prima facie right to payment of all invoices submitted by it to the second respondent, and which have been approved for payment by the first respondent. It has a “well-grounded apprehension” that those monies will not be paid over to it by the second respondent, especially in the light of the fact that the latter required it to sign a payment guarantee which would have extended payment terms by a further 30 days (which it has refused to do), and has appointed a third party to do some of the work already allocated to the applicant. In addition, it has various creditors who must be paid out of the monies due to it. If those creditors are not settled they are likely to close their accounts. One such creditor, namely Build It, has already threatened with liquidation if its account is not settled.

[7] The second respondent has opposed the application on various grounds, namely that:

a) the application is not urgent, and whatever urgency there is has been self-created;

b) the application should fail for non-joinder and lack of locus standi. In this regard it is contended that the applicant has failed to disclose that it has ceded all its rights, title, and interest in the monies due to it to Build It. It has failed to join Build It and in any event lacks the necessary locus standi;

c) the applicant has failed to establish a factual or legal basis for the interim relief;

d) there are massive disputes of fact in respect of the substantive relief sought by the applicant; and

e) it has failed to establish that it will suffer irreparable harm if the interim relief is not granted.

[11] Mr Smuts SC, who appeared for the second respondent, has correctly submitted that the application falls to be dismissed on various grounds.

[12] First, the failure to join Build It is an insurmountable obstacle to the granting of any form of relief against either of the respondents. In terms of a document entitled “Cession and Pledge” the applicant has ceded its right, title, and interest in the invoices due to it to Tuligyn (Pty) Ltd trading as Build It, Jeffrey’s Bay. And in terms of clause 8 of that agreement Build It is “entitled generally to act or refrain from acting against any of the debtors as the creditor [Build It] may in its sole and absolute discretion deem fit”. There can accordingly be little doubt that the applicant has divested itself of its rights, title, and interest in respect of the outstanding monies owed to it, and the right to institute legal action in respect thereof now vests in Build It. The applicant accordingly lacks locus standi, alternatively, should at the very least have joined Build It in the proceedings. The application accordingly falls to be dismissed on this basis alone.

[14] Second, the interim relief sought by the applicant seeks to interdict the first respondent from honouring its contractual obligations vis-a-vis the second respondent. And that under circumstances where there is no privity of contract between the applicant and the first respondent, and where the second respondent is relying on a contractual right to withhold monies owing to the applicant. In his regard the second respondent has asserted that the applicant is in breach of its obligations to complete a certain number of housing units per month. It has consequently suffered substantial damages and, in accordance with its contractual entitlement to do so, is withholding payment of monies due to the applicant until such time as these disputes had been resolved.

[15] The applicant has been unable to gainsay these assertions, neither was it able to establish any factual or legal basis for the interim relief. It has thus failed to establish a prima facie right “though open to some doubt”.

[16] In addition, as Mr Smuts has correctly pointed out, massive disputes of fact have arisen, and it is unlikely that the final interdict will be resolved on the papers. If the matter is indeed to be resolved on the papers then the second respondent’s version will prevail. However, there are real prospects that the matter may be referred for the hearing of oral evidence, which swings the balance of convenience in favour of the second respondent. In such an event, if interim relief were to be granted, it will effectively suspend the completion of the project and delivery of housing to the beneficiaries.

[17] Mr Smuts has also advanced other compelling arguments, inter alia, regarding the lack of urgency and the failure on the part of the applicant to establish that it will suffer irreparable harm if

the interim relief is not granted. However, in the light of my findings above, it is not necessary for me to pronounce on those

issues.

[19] In the result the application is dismissed, with costs.

__________________________

J.E SMITH

JUDGE OF THE HIGH COURT

Appearances

Counsel for the Applicant

: Advocate J Bester

Attorneys for the Applicant

: Huxtable Attorneys

26 New Street

Grahamstown

6140

Counsel for Second Respondent

: Advocate I Smuts

Attorneys for Second Respondent : Wheeldon Rushmere & Cole Inc

119 High Street

Date Heard

: 06/09/2019

Date Delivered

: 10/09/2019