Nyiko Commercial Enterprises v Johannesburg Fresh Produce Market (Pty) Ltd (51812.2010) [2013] ZAGPPHC 349 (27 November 2013)

IN THE HIGH COURT OF SOUTH AFRICA

(NORTH GAUTENG HIGH COURT, PRETORIA)

Case number: 51812/2010

Date: 27 November 2013

NOT REPORTABLE

Not of interest to other judges

Revised

In the matter between:

NYIKO COMMERCIAL ENTERPRISES……………………………..…………….Plaintiff

And

THE JOHANNESBURG FRESH PRODUCE MARKET (PTY) LTD………… Defendant

JUDGMENT

PRETORIUS J,

[1] This is a claim for payment of R587,100.00 (five hundred eighty seven thousand and one hundred rand) as a result of a partly written and partly oral agreement entered into by the plaintiff and defendant. In the alternative, the plaintiff is claiming the same amount due to enrichment of the defendant.

[2] The defendant instituted a claim in reconvention against the plaintiff requesting the court to order that the decision of the defendant to accept the plaintiff’s quotation and any contract arising therefrom to be unlawful and void ab initio.

[3] The facts of the matter are to a great extent common cause. During April 2010 the defendant invited the plaintiff to submit a quotation to remove bird’s nests from the premises in halls 3 and 4 at the Johannesburg Fresh Produce Market. The plaintiff and two other entities submitted a quotation to the defendant. The two other quotations were not granted due to various reasons. The plaintiff quoted R1,000.00 per nest removed, although there was no method in which it could have been determined how many nests would have to be removed.

[4] On 22 April 2010 the defendant accepted the plaintiff’s quotation in writing in a purchase order and order confirmation. It is alleged that a partly written and partly oral agreement was concluded between the plaintiff, as represented by Ms. Neer, and the defendant, represented by employees of the defendant, namely Ms. Cynthia Moji, the chief financial officer and Mr. Odwa Radebe, the procurement manager.

[5] The scope of the work was orally extended by the defendant’s representative, Mr Herman Pienaar, on the evening prior to the plaintiff commencing the work to include all the halls - 9 halls and the administration building as well as the outside of the buildings. The scope of work included, apart from halls 3 and 4, halls 1, 2, 5, 6, 7, 8 and 9, as well as the administration building. In terms of this agreement the plaintiff had to remove all the birds’ nests from all the halls and the administration building of the defendant.

[6] The plaintiff employed 14 people to remove these nests. They started removing the nests on 23 April 2010, utilizing ladders and finished on 29 April 2010. They also had to clean the beams and struts on which the nests were found.

[7] The plaintiff and defendant are ad idem that 515 nests were removed from the halls and the administration building. Although the plaintiff claimed for the use of a skyjack, Ms Neer conceded that only ladders were used to remove the nests. Her quoted rate for removal of the nests was R1,000.00 per nest. The plaintiff’s team required 7 days to remove all the nests.

[8] According to Ms Neer, the plaintiff’s expenses were: labour in the sum of R24,500.00; safety equipment which included 10 safety harnesses, 18 pairs of goggles, 28 pairs of rubber gloves and R6,000.00 for chemicals to clean the beams and roofs.

[9] The plaintiff tendered an invoice of R587,100.00 which despite demand, the defendant refuses to pay.

[10] The defendant submits that the acceptance of the quote was not in compliance with section 217 of the Constitution of South Africa, the Local Government: Municipal Finance Management Act, Act 56 of 2003 (“MFMA”), the Municipal Supply Chain Regulation to the MFMA, nor the Supply Chain Management Policy of the defendant.

[11] According to the defendant the contract should have been reduced in writing on the defendant’s standard terms and conditions, had to contain the provisions prescribed by the MFMA and should have set out the precise quantity. None of this was contained in the contract. The quote for more than R500,000.00 was not approved by the Chief Executive Officer. The services for cleaning the other halls, apart from halls 3 and 4 were not tendered for, but impermissibly extended and expanded by Mr Pienaar, who was in the employ of the defendant without complying with any of the relevant legislation.

[12] Ms Cynthia Moji, left the employ of the defendant due to the disciplinary proceedings instituted against her as a result of this contract. Mr O Radebe was issued with a final written warning. These disciplinary actions were instituted as a result of the work done by the plaintiff, which was not in accordance to the provisions of the Act, Regulations and Supply Chain Management Policy.

[13] Section 217(1) of the Constitution of Republic of South Africa provides:

“217 Procurement:

(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national

legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.” (Court’s emphasis)

[14] Section 2 of the Municipal Finance Management Act, Act 56

of 2003 provides:

“2 Object of Act

The object of this Act is to secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities by establishing norms and standards and other requirements for-

(a) ensuring transparency, accountability and appropriate lines of responsibility in the fiscal and financial affairs of municipalities and municipal entities;

(b) the management of their revenues, expenditures, assets and liabilities and the handling of their financial dealings;

(c) ...;

(d) ...;

(e) ...;

(f) supply chain management;” (Court’s emphasis)

[15] According to section 111 of the MFMA each municipal entity must have and must implement a supply chain management policy. This policy must comply with the provisions of section 217(1) of the Constitution.

[16] Section 116 of the MFMA provides that a contract or agreement procured through a supply chain management of a municipal entity must be in writing and must include the provisions for the termination of the agreement and dispute resolution mechanisms to settle disputes between the contracting parties.

[17] The regulations provide in regulation 11(1 )(c) that an effective system of acquisition management must be in place to ensure that the threshold values for the different processes are complied with, which includes a competitive bidding process for procurements above a transaction value of R200,000.00 (VAT included). All tenders and quotations exceeding R200,000.00 must be evaluated by the evaluation committee and a recommendation made to the procurement committee.

[18] Even in emergencies, where deviations are allowed, the quote or tender must be approved by the Chief Executive Officer of the defendant in writing.

[19] In Municipal Manager: Qaukeni Local Municipality and Another v FV General Trading CC 2010(1) SA 355 (CC) the Constitutional Court found at paragraph 12:

[12] The provisions of these two Acts, both of which relate to the procurement of 'municipal services' by municipalities, are interrelated and somewhat convoluted.

For present purposes it suffices to summarise the applicable provisions relating to the procurement of such services from a non-municipal entity such as the respondent (defined in s 1 of the Systems Act as an 'external service provider') as follows:

⦁

- A municipality is to have and implement a supply chain management policy 1 which is 'fair, equitable, transparent, competitive and cost-effective' and which complies with a regulatory framework designed to have that effect which, inter alia, covers 'competitive

bidding processes', procedures for 'the evaluation of bids to ensure the best value for money' and measures to combat 'fraud, corruption,

favouritism and unfair and irregular practices in municipal supply chain management'.

- A municipality may provide a municipal service by way of an 'external mechanism' by concluding a service delivery agreement with an external service provider.

-In the event of a municipality deciding to do so it must select the external service provider by a process which complies with its supply chain management policy, including a competitive bidding process which allows all prospective service providers to have equal access to information relevant to the bidding process and which minimises the possibility of fraud and corruption.

⦁- The process by which an external service provider is selected must be 'fair, equitable, transparent, cost- effective and competitive'.

⦁- The regulatory framework governing a municipal supply chain management policy requires the policy to provide for the procurement of goods and services above a transaction sum of R200 000 by way of 'a competitive bidding process'. As the value of the present contract exceeds R4 million per annum, this regulation was obviously intended to apply to such a contract. ” (Court’s emphasis)

[20] The Constitutional Court found in the Qaukeni matter (supra) that a procurement contract for municipal services, concluded in breach of the statutory provisions, is invalid and cannot be enforced.

[21] The Constitutional Court held (supra) that if there had been no compliance with the provisions of the MFMA and the Supply Chain Management Policy, any procurement agreement would then be deemed to be invalid.

[22] In Quakeni (supra) the issue of legality was raised in the opposition to the main application and a declaration of unlawfulness was sought and granted

in a counter application. The present case falls four square on the facts in the Quakeni case.

[23] In City of Tshwane Metropolitan Municipality v RPM Bricks (Pty)Ltd 2008(3) SA 1 (SCA) Ponnan JA set out at paragraphs 11 and 12:

“[11] It is important at the outset to distinguish between two separate, often interwoven, yet distinctly different 'categories' of cases. The distinction ought to be clear enough conceptually. And yet, as the present matter amply demonstrates, it is not always truly discerned. I am referring to the distinction between an act beyond or in excess of the legal powers of a public authority (the first category), on the one hand, and the irregular or informal exercise of power granted (the second category), on the other. That broad distinction lies at the heart of the present appeal, for the successful invocation of the doctrine of estopppel may depend upon it. (See TE Donges & L de van Winsen Municipal Law 2 ed (1953) 38-41.)”

[24] The learned Judge further found at paragraph 13:

“As to the first category: failure by a statutory body to comply with provisions which the legislature has prescribed for the validity of a specified transaction cannot be remedied by estoppel because that would give validity to a transaction which is unlawful and therefore ultra vires.” (Court’s emphasis)

[25] In the present matter the quote was initially awarded for halls 3 and 4 only. It is prescribed in clause 7 and 8 of the defendant’s Supply Chain Management Policy that deviations from the policy shall be allowed under certain circumstances. However, it must be approved by the Chief Executive Officer and the Chief Executive Officer has to record the reasons for any deviations and report these deviations to the Board of Directors.

[26] It is common cause that this procedure was not followed in the present matter, as the plaintiff was informed telephonically by Mr Herman Pienaar that the contract had been expanded to include all the halls and the administration building. It is clear that only the Chief Executive Officer could have extended the plaintiff’s contract in the prescribed manner. Mr Pienaar had no authority whatsoever to amend the contract orally to include all the halls and the administration building.

[27] Section 217 of the Constitution prescribes a system that is fair, equitable, transparent, competitive and cost-effective. This action by Mr Pienaar by appointing the plaintiff telephonically and expanding the contract to include all the buildings did not comply with section 7 of the Supply Chain Management Policy

[28] Ponnan JA held in the Tshwane Municipality case (supra) at paragraph 16:

“It is settled law that a state of affairs prohibited by law in the public interest cannot be perpetuated by reliance upon the doctrine of estoppel (Trust Bank van Afrika Bpk v Eksteen 1964 (3) SA 402 (A) at 411H - 412B), for to do so would be to compel the defendant to do something that the statute does not allow it to do. In effect therefore it would be compelled to commit an illegality” (Court’s emphasis)

[29] It was found in the Tshwane Municipality case (supra) that estoppel cannot be utilized to give effect to a contract that is not permitted by law. This would have to apply in the present matter as well.

[30] At the end of the plaintiff’s case the defendant made an unconditional offer to pay the plaintiff R107,072.00, which the plaintiff did not accept. Therefore the defendant called Mr van’t Hoff to give expert evidence.

[31] Mr van’t Hoff gave expert evidence on behalf of the defendant. His evidence was that he had visited two of the halls in respect of which the quote was originally awarded to the plaintiff. He then gave a quote to do the work in the halls for R 107,072.00.

[32] Although the expert summary prepared by his attorneys referred to 6 halls, his quote clearly indicated 3 halls. Under cross-examination he conceded that the quote was only for 3 halls. Although Mr Govender, for the defendant, tried to rescue this concession during re­examination, the court finds that on a balance of probabilities his evidence was in respect of 3 halls.

[33] The court takes cognisance of the dictum in the Provincial Government of the Eastern Cape (supra) where Marais JA held at paragraph 9:

“[9] As to the consequences of visiting such a transaction with invalidity, they will not always be harsh and the potential countervailing

harshness of holding the province to a contract which burdens the taxpayer to an extent which could have been avoided if the tender

board had not been ignored, cannot be disregarded. In short, the consequences of visiting invalidity upon non-compliance are not so uniformly and one-sidedly harsh that the legislature cannot be supposed to have intended invalidity to be the consequence. What is certain is that the consequence cannot vary from case to case. Such transactions are either all invalid or all valid. Their validity cannot depend upon whether or not harshness is discernible in the particular case.”

and further at paragraph 13:

“The fact that respondent was misled into believing that the department had the power to conclude the agreement is regrettable and its indignation at the stance now taken by the department is understandable.” (Court’s emphasis)

[34] These findings by Marais JA are applicable on the facts before court. I find that the extension of the contract to include all the halls and the administration building was invalid and therefore cannot be enforced by the plaintiff. However, the quote for the three halls was not attacked. The amount, at that stage, was precise per nest. Ms Rocha, who testified on behalf of the defendant, conceded that no contract could ever have been awarded for the precise quantity of nests to be removed, as it had always been an unknown quantity. To ascertain how many nests there were by another contractor would have lead to the same problem as to the quantity.

[35] The quote for the three halls were accepted on the basis that the plaintiff would charge R1,000.00 per nest. Mr van’t Hoff’s evidence, which dealt with three halls, gave a quote of R107,072.00. In the circumstances the plaintiff would be entitled to be paid for the original work for which she had quoted. There had been three quotes as prescribed. The amount, at that time, did not exceed R200,000.00 which was the amount set out in the Supply Chain Management Policy where it was not necessary to obtain approval from the procurement committee and the Chief Executive Officer.

[36] Estoppel cannot be a valid remedy if applied to the facts in the present matter. The plaintiff cannot succeed in this claim, apart from the original quote for halls 3 and 4 quote which was valid and legally constituted an agreement between the plaintiff and the defendant, as the amount did not exceed R 200,000.00, although an exact amount could not be determined.

Enrichment:

[37] The plaintiff bases its alternative claim as a condictio sine causa. In this instance the defendant does not deny that enrichment took place as the defendant was enriched by the removal of all the birds’ nests from all the buildings. The plaintiff was impoverished as the plaintiff had to expend money, time, labour and materials to remove all the birds nests. The enrichment was unjustified due to the defendant’s employees’ conduct.

[38] In this instance counsel for the defendant conceded that the enrichment consists of something intangible. In this case it is a factum. According to the defendant the quantum for the liability for the unjustified enrichment must be calculated by comparing the extent of the defendant’s enrichment and the extent of the plaintiff’s impoverishment. In Unjustified Enrichment: A Casebook by Eiselen and Pienaar, 2nd edition, 1999, the learned authors discuss the dictum in Nortje en ‘n ander v Pool NO 1966(3) SA 96 (A). They come to the conclusion on p 31 at note B:

“(b) The salient point here, however, is that where the return of the property itself is not possible (for example where it had been sold, where it has become impossible to remove in the case of accession or where the enrichment consists of something intangible like a factum), the quantum of the liability for unjustified enrichment must be calculated by comparing the extent of the defendant’s

enrichment and the extent of the plaintiff’s impoverishment. Barring certain exceptions (see 1.3.2.3 below) the plaintiff is only entitled to the lesser of either the enrichment or the impoverishment. ”

[39] The defendant’s expert Mr van’t Hoff, did a calculation and supplied the court with a pro forma invoice as to what he would have charged to remove the pigeon nests from the three halls.

[40] Unfortunately the plaintiff’s expert’s evidence did not relate to the manner in which the plaintiff did the work and cannot be used to calculate an amount payable to the plaintiff.

[41] The defendant conceded in the heads of argument that a sum in accordance with the defendant’s expert opinion should compensate the plaintiff for its impoverishment and is a true measure of the defendant’s enrichment.

[42] The fact that the defendant at the start of the defendant’s case made an unconditional offer to settle the matter for an amount of R107,072.00 must be taken into consideration and I find that the plaintiff will at least be entitled to the amount tendered by the defendant. The fact that the plaintiff did not accept the tender causes the plaintiff to be liable for the costs from the time the defendant made the offer at the start of the defendant’s case, until the conclusion of the case.

[43] Consequently the following order is made:

1. Payment of the amount of R107,072.00 (one hundred and seven thousand and seventy two rand);

2.Interest at a rate of 15.5% a tempora mora calculated from 3 May 2010 until date of payment

3. i. Costs of suit up to the start of the defendant’s case.

ii.The plaintiff to pay the defendant’s costs incurred after the tender had been made.

4.The claim in reconvention:

4.1. The expansion of the plaintiff’s quotation to all the halls and administrative building is unlawful and null and void.

Judge C Pretorius

Case number : 51812/2010

Heard on : 4 November 2013

For the Applicant : Adv De Beer

Instructed by : Jasper van der Westhuizen

For the Respondent : Adv Govender

Instructed by : Bowman Gilfillan

Date of Judgment : 27 November 2013