Makaula Zilwa Incorporated and Another v Bushbuckridge Local Municipality (2431/2018) [2020] ZAMPMBHC 9 (14 April 2020)

THE HIGH COURT OF SOUTH AFRICA

MPUMALANGA DIVISION, MBOMBELA MAIN SEAT

CASE NO: 2431 / 2018

In the matter between:

MAKAULA ZILWA INCORPORATED 1ST APPLICANT

MNB CHARTERED ACCOUNTANTS 2ND APPLICANT

and

BUSHBUCKRIDGE LOCAL MUNICIPALITY RESPONDENT

J U D G M E N T

RATSHIBVUMO AJ:

[1] Introduction.

This is an application for a condonation over the failure to comply with the time periods of section 3(2) of the Institution of Legal Proceedings against Certain Organs of State Act 40 of 2002 (the Act) by the Applicants. The application follows a special plea raised by the Respondent to the Applicants’ claim for damages based on breach of contract. The Respondent raised two special pleas, one in which it is alleged that the claim has prescribed and another one of failure to comply with the Act.

[2] Background.

The relationship between the Applicants and the Respondent dates back to 20 August 2013 when they signed a Service Level Agreement (the contract) in terms of which the Applicants would, for three years starting from 16 May 2013, “assist in rendering of the following services: (i) the collection of arrear metered service charges from active and inactive customers as identified by the BLM, (ii) the collection of arrear unmetered service charges from active and inactive rate payers as identified by the BLM, and (iii) the collection of arrear sundry charges from customers from active and inactive account holders as identified by the BLM.”[1] In terms of the contract, the Applicants would be entitled to 20% of their commission (the collected debt), plus VAT.[2]

[3] Towards the end of 2014, a dispute arose over the non-payment of claims submitted by the Applicants to the Respondent. Although both parties dedicated over half of their pleadings to this dispute, I do not find it relevant to this application. Since the claim before this court is a consequence of this dispute, it is necessary to state that it culminated in the Applicants litigating against the Respondent before the Gauteng Division of the High Court. While the litigation was pending a letter was written by the Respondent directed to the Applicants on 28 April 2015 (the Respondent’s letter), in which the Respondent requested the “deferment of the debt collection services within the municipality” by the Applicants. This letter marked the end of allocation of debt collection work by the Respondent to the Applicants. The claim is based on that non-allocation of work which the Applicants claim was in breach of the contract.

[4] A letter of notice in terms of section 3 of the Act dated 10 February 2017 was sent by registered mail to the Respondent on 14 February and was received on 27 February 2017. This was a notice to institute damages action to the tune of R141 231 832.39. Summons was finally issued by the Applicants in this court on 30 August 2018 in which the amount of R118 950 000.00 is claimed in damages. The summons was served on the Respondent on 03 October 2018 – some three years and 5 months after the Respondent’s letter referred to above. While the amount in summons varies from that in the letter of notice, it is apparent that the claim is based on the same cause of action. In the alternative, R16 964 227.00 is claimed.

[5] The amount in the main claim is calculated as 20% of the balance of the collectable debt book that the Applicants allege was handed over to them by the Respondent in May 2015 – an amount in excess of R600 000 000.00 (no exact figure is provided). The amount in the alternative claim is based on the average of the claims that the Applicants allege they made and claimed from the Respondent in the period preceding the suspension of their services through the Respondent’s letter.

[6] The Special Pleas.

As indicated above, the Respondent raised two special pleas. In the first special plea, the Respondent pleads that the Applicants’

claim constitutes a debt in terms of the Prescription Act 68 of 1969 (the Prescription Act), and the debt upon which the claim is based has prescribed in terms of this Act as over three years had lapsed by the time the summons was served. The reason for this plea flows from a reasoning to the effect that the cause of action or the alleged breach of contract emanates from the Respondent’s letter dated 28 April 2015. In the second special plea, the Respondent pleads that the Respondent being an organ of State was not served with a notice within six months from the debt became due and payable in accordance with the Act. These pleas were served on the Applicants and filed with the Registrar on 14 November 2018.

[7] In reaction to the second special plea, this application was launched by the Applicants only on 23 July 2019 – over eight months later. It is also apparent in my view that the second special plea incorporates the first one as prescription is one of the requirements to be considered in determining if condonation should be granted. For these reasons, this judgment focuses on the second special plea and the application at hand.

[8] The applicable law:

Section 3 of the Act provides,

3. Notice of intended legal proceedings to be given to organ of state

(1) No legal proceedings for the recovery of a debt may be instituted against an organ of state unless-

(a) the creditor has given the organ of state in question notice in writing of his or her or its intention to institute the legal proceedings in question; or

(b) the organ of state in question has consented in writing to the institution of that legal proceedings-

(i) without such notice; or

(ii) upon receipt of a notice which does not comply with all the requirements set out in subsection (2).

(2) A notice must-

(a) within six months from the date on which the debt became due, be served on the organ of state in accordance with section 4(1); and

(b) briefly set out-

(i) the facts giving rise to the debt; and

(ii) such particulars of such debt as are within the knowledge of the creditor.

(3) For purposes of subsection (2)(a)-

(a) a debt may not be regarded as being due until the creditor has knowledge of the identity of the organ of state and of the facts giving rise to the debt, but a creditor must be regarded as having acquired such knowledge as soon as he or she or it could have acquired it by exercising reasonable care, unless the organ of state wilfully prevented him or her or it from acquiring such knowledge; and

(b) a debt referred to in section 2(2)(a), must be regarded as having become due on the fixed date.

(4) (a) If an organ of state relies on a creditor’s failure to serve a notice in terms of subsection (2)(a), the creditor may apply to a court having jurisdiction for condonation of such failure.

(b) The court may grant an application referred to in paragraph (a) if it is satisfied that-

(i) the debt has not been extinguished by prescription;

(ii) good cause exists for the failure by the creditor; and

(iii) the organ of state was not unreasonably prejudiced by the failure.

[9] The first requirement that should be met before a condonation is granted is that the debt should not have been extinguished by prescription. This covers what was raised in the first special plea. The Applicants’ counsel argued that by the time of issuing of the summons on 30 August 2018, the debt had not prescribed in that the contract signed between them and the Respondent was to run for three years ending on 16 May 2016. He therefore submitted that prescription starts running on 16 May 2016 and not on 28 April 2015.

[10] The question before the court now turns out to be on the date on which the debt became due. Section 12(1) of the Prescription Act provides, that “subject to the provisions of ss (2) and (3), prescription shall commence to run as soon as the debt is due.” While the Respondent argues that the debt became due upon receipt of the Respondent’s letter in which the rendering of services was “deferred,” the Applicants argue that it became due on the date the contract ended.

[11] In Truter and Another v Deysel[3] the court held that,

“For the purposes of the Act, the term 'debt due' means a debt, including a delictual debt, which is owing and payable. A debt is due in this sense when the creditor acquires a complete cause of action for the recovery of the debt, that is, when the entire set of facts which the creditor must prove in order to succeed with his or her claim against the debtor is in place or, in other words, when everything has happened which would entitle the creditor to institute action and to pursue his or her claim.” [own emphasis].

[12] The approach in Truter was approved by the Constitutional Court in Trinity Assets Management Pty Ltd v Grindstone Investments Pty Ltd[4] when it held that a debt is due when it is immediately claimable by the creditor and immediately payable by the debtor. In Mtokonya v Minister of Police[5], the Constitutional Court referred to a quotation in Minister of Finance and Others v Gore NO[6] with approval where the Supreme Court of Appeal (the SCA) held,

“[T]his Court has, in a series of decisions, emphasised that time begins to run against the creditor when it has the minimum facts that are necessary to institute action. The running of prescription is not postponed until a creditor becomes aware of the full extent of its legal rights.”

[13] I am therefore called upon to answer the question as to when had the Applicants acquired a complete cause of action for the recovery of the debt, that is, when did they have the entire set of facts which they must prove in order to succeed with their claim against the Respondent. In other words, the question is when did everything happen which would entitle them to institute action and to pursue the claim? This question is answered in the particulars of claim where it is alleged,

“On or about 28 April 2015, the Municipality Manager of the Defendant, one C Lisa, issued a letter to the Plaintiffs wrongfully, unlawfully and unilaterally suspending indefinitely the provision the debt collection services by Plaintiffs in terms of the SLA on the basis that the Plaintiffs had instituted legal action against the Defendant for the payment of debt… The aforesaid wrongful and unlawful action by the Defendant was in breach of the terms of the SLA and the Plaintiffs were prevented to providing the debt collection services to the Defendant as provided for in the SLA. The SLA does not permit the suspension of the debt collection services as conducted by the Defendant… The wrongful, unlawful act of the Defendant and in breach of the SLA aforesaid caused the Plaintiffs to suffer patrimonial damages occasioned by the loss of profit that they would have generated from the SLA from May 2015 up to the 16th May 2016 when the SLA expired by exfluxion of time [sic].”[7]

[14] Similar assertions appear elsewhere in the pleadings like in the notice sent to the Respondent in compliance with the Act, the founding affidavit in support of this application and in the heads of argument by the counsel for the Applicants. One clear aspect from the paragraph above is that the breach which forms the basis of the claim emanates from the Respondent’s letter which the Applicants claim was “in breach of the SLA.” I am satisfied therefore that the breach which gave rise to the claim took place the moment the letter was received as the services were suspended immediately, as opposed to the last date of the contract.

[15] This entails that the moment the Respondent acted in what the Applicants believed was in breach of the contract, they were entitled to take an action immediately and the prescription started running then because they had all the facts which they must prove in order to succeed with their claim. Once a letter in breach of the contract was written, and the services were halted; no further facts were necessary in order for the Applicants to prove their claim.

[16] If the argument by the Applicants suggesting that prescription started to run on the last day of the contract and not the date of its breach was to stand, then all breaches of contracts would have to wait until the last day of the contract before the aggrieved parties would have a recourse or actionable claim against the party in breach. This would not be correct in that in a law of contract, once a party to an agreement in in breach, the aggrieved party becomes entitled to a remedy immediately.

[17] The Applicants’ approach if followed, would defeat the whole purpose of prescription which is clearly stipulated by the Constitutional Court in Mtokonya[8] as follows,

“In conclusion I can do no better than repeat what this court said in Road Accident Fund and Another v Mdeyide[9] about the vital importance of prescription. In that case this court said: 'This court has repeatedly emphasised the vital role time limits play in bringing certainty and stability to social and legal affairs, and maintaining the quality of adjudication. Without prescription periods, legal disputes would have the potential to be drawn out for indefinite periods of time, bringing about prolonged uncertainty to the parties to the dispute. The quality of adjudication by courts is likely to suffer as time passes, because evidence may have become lost, witnesses may no longer be available to testify, or their recollection of events may have faded. The quality of adjudication is central to the rule of law. For the law to be respected, decisions of courts must be given as soon as possible after the events giving rise to disputes, and must follow from sound reasoning, based on the best available evidence.' Already, creditors have enough time to institute

proceedings under the Prescription Act. The minimum period is three years. There is no need to stretch the extinctive period to more than three years as a norm.” [own emphasis].

[18] As if oblivious of the purposes highlighted above, when the special plea was raised, the Applicants dragged their feet taking over 8 months to launch this application, worsening the impact of the delay on the Respondent. For the reason of prescription alone, this application is doomed to fail. But there are other reasons through which the condonation would not stand even if it was presumed that the debt had not prescribed when summons was served on the Respondent. That would be the requirement to show good cause and the reason for the delay. A good cause has been interpreted by the SCA in Madinda v Minister of Safety and Security[10] to entail,

“a consideration of all of those factors which had a bearing on the fairness of granting condonation and affecting the proper administration of justice. Relevant factors might include (i) the prospects of success in the proposed action, (ii) the reasons for the delay, (iii) the sufficiency of the explanation offered, (iv) the bona fides of the applicant, and (v) any contribution by other persons or parties to the delay and the applicant's responsibility therefor.”

It is my respectful view that from the above that the Applicants do not have any prospects of success in respect of the date of prescription.

[19] The reason for the delay:

Even if hypothetically speaking, prescription started running only on the last day of the contract, I struggle to find any reason or explanation for the delay since the notice was equally served out of the prescribed time in terms of the Act. The closest that the Applicants came to explaining the delay is to be found in paragraph 30 of the founding affidavit to this application where the deponent avers that they “had to prepare for the trial which was set down for the 3rd and 4th May 2017 which included drafting, serving, filing of all the pleadings and consultations leading up to the date of the trial aforementioned.”[11]

[20] The Applicants dedicated the rest of the pages in arguing that if the debt became due on 16 May 2016, serving a notice in February 2017 would make them only two months and a half late. That is calculated from the end of six months which is in November 2016. This argument makes it sound like the Applicants had to serve the notice only at the end of six months. From this argument, it does not appear like they were aware that time limits are calculated from the first due date and not the last one.

[21] The Applicants therefore missed an opportunity to advance reasons for the delay as opposed to arguing that they were not delayed by a big margin. Only one line was dedicated in explaining the delay and it can be summarised as saying, they had other work to do as a firm of lawyers. Surely this cannot be taken as an acceptable and serious explanation for delay. One needs to keep in mind that the Respondent pleaded prejudice in the opposing affidavit alleging that almost all the persons who were involved in the signing of the Contract and the Respondent’s letter are no longer employed by it and they are no longer traceable. In light of this, the Applicants could have averred better and acceptable reasons for delay than trivializing the period that lapsed.

[22] For these reasons, the following order is made:

22.1The application for condonation is dismissed.

22.2The Applicants are ordered to pay the costs of this application.

_____________________

TV RATSHIBVUMO

ACTING JUDGE OF THE HIGH COURT

FOR THE APPLICANTS: ADV. Z FRANS

INSTRUCTED BY: MAKAULA ZILWA ATTORNEYS INC

C/O KRUGER & PARTNERS INC

MBOMBELA

FOR THE RESPONDENT: ADV BN BUTHELEZI

: AMMM INCORPORATED

C/O DU TOIT SMUTS & PARTNERS

DATE HEARD: 12 MARCH 2020

JUDGMENT DELIVERED: 14 APRIL 2020

(Electronically transmitted via email)

[1] Vide p.3 of the Contract on p.20 of the paginated bundle under Scope of Work.

[2] Vide p.8 of the Contract on p. 25 of the paginated bundle under Remuneration.

[3] [2006] ZASCA 16; 2006 (4) SA 168 (SCA) at para 16.

[4] 2018 (1) SA 94 (CC) at para 38.

[5] 2018 (5) SA 22 (CC) at para 48.

[6] 2007 (1) SA 111 (SCA)

[7] See paragraphs 14, 15 & 19 of the Particulars of claim on 4 & 5 of the summons.

[8] Supra at para 83.

[9] 2011 (2) SA 26 (CC).

[10] [2008] ZASCA 34; 2008 (4) SA 312 (SCA). See also Minister of Safety and Security v De Witt 2009 (1) SA 457 (SCA).

[11] See para 30 on p. 14 of the paginated bundle.