Wed (Pty) Ltd. v City Council of Pretoria and Others (381/86) [1987] ZASCA 147 (30 November 1987)

381/86/AV

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

In the matter between:WED (PROPRIETARY) LIMITED AppellantANDCITY COUNCIL OF PRETORIA 1st RespondentVOLKSKASSTIGTING 2nd RespondentVOLKSKAS BEPERK 3rd Respondent

CORAM: RABIE, ACJ, BOTHA, VAN HEERDEN, GROSSKOPF, JJA et NICHOLAS, AJA

HEARD: 5 November 1987

DELIVERED: 30 November 1987

JUDGMENT GROSSKOPF, JA

This

2 This appeal concerns two adjacent buildingsof historical importance in Church Street, Pretoria, viz.,

the Sammy Marks Building (also known as the Gundelfinger

Building) and the Kynoch Building. These buildings wereexpropriated on 1 September 1965 by the City Council ofPretoria ("the Council"), which is the first respondent inthis matter. At the time of expropriation the Council in-tended redeveloping the area in which the buildings aresituated. A number of redevelopment schemes were consideredduring the ensuing years but no finality was reached and the

future of the buildings remained unresolved until the 1980's.On 30 November 1983 the Council decided not to demolish thebuildings but to approach interested persons and bodies to

assist

3

assist with the restoration of the buildings and with their in-corporation into a proposed Hendrik Verwoerd square in that area. This resolution was subject to the proviso that if the Council could not, before the end of 1985, find some-body who was prepared to restore the buildings at his own ex-pense, or at least to make a major contribution to the costs of restoration, the future of the buildings might have to be reconsidered.In 1983 the appellant and an associated com-pany, Continental Trading Company (Pty) Ltd, occupied parts of the Sammy Marks Building. For present purposes we may assume that they did so pursuant to leases with the Council. These leases were due to expire on 31 December 1985. On

16

4 16 June 1983 the appellant's sole shareholder, Mr. C.D.S. Thomaz, wrote to the Council requesting a renewal of the leases beyond 31 December 1985. On 12 January 1984 the Council wrote to him informing him of the resolution adopt-ed by the Council on 30 November 1983. Further correspondence followed between the parties, in the course of which the appellant intimated that it was interested in restoring the buildings. Later a firm of architects, acting on behalf of the appellant, submitted proposals for the restoration of the buildings to the Council. Proposals were also sub-mitted by the third respondent on behalf of the second re-spondent. In the result the Council resolved on 13 November 1984 to enter into a contract with the second respondent.

This 5 This resolution was confirmed,with certain amendments, on 28 March 1985. I shall deal later in more detail with the third respondent's proposals and with the contract decided upon by the Council.After the Council had decided to contract with the second respondent, it notified the appellant that its proposals for the restoration of the buildings had not been accepted, and that its lease would terminate on 31 De-cember 1985. (Continental Trading was then no longer in the picture, having been deregistered in 1983).The appellant was dissatisfied with the Council's decision because, so it was contended, the Council had failed to comply with section 35(1) of the Local GovernmentOrdinance, No 17 of 1939 (Transvaal),before deciding to

contract .......

6

contract with the second respondent. This sec-

tion provides, inter alia, that "before a council enters

into any contract for the execution of any works" it should

(with certain exceptions) give notice in a prescribed mannerof its intention to do so, and should ask for tenders. Theappellant consequently appliedon notice of motion to theTransvaal Provincial Division for an order

"that the decision of the First Respondent to contract with the Second Respondent for the restoration of the Sammy Marks and Kynoch Buildings be reviewed and set aside."

The matter came before FLEMMING J. At thehearing in the court a quo, as also on appeal, it was common

cause that the Council had not complied with section 35(1)

of the Ordinance. The Council's contention was that it was

not 7 not obliged to do so because its proposed contract with the second respondent was not a contract "for the execution of ... works" within the meaning of the section. FLEMMING J decided in favour of the Council, and dismissed the applica-tion with costs. With leave granted pursuant to a petition to the Chief Justice the appellant now appeals to this Court.Before dealing with the legal issues in this appeal it is convenient first to describe the roles of the second and third respondents in more detail. On 22 February 1983 the third respondent wrote to the Council offering to restore ("op te knap") the Sammy Marks Building as part of the cele-brations of the third respondent's fiftieth anniversary in 1984. This offer fell away because the tenants could not

be

8 be evicted in time. The third respondent nevertheless re-tained an interest in the project. On 9 January 1984 the Council wrote to the third respondent to inform it of the Council's decision of 30 November 1983 concerning the future of the Sammy Marks and Kynoch Buildings. The letter to the third respondent was to the same effect as that addressed to the appellant on 12 January 1984. During July 1984 the third respondent submitted a long document to the Council entitled "Voorgestelde Restourasie van die Sammy Marks- en Kynochge-boue". This document contained a historical survey of the two buildings, proposals by the third respondent for their restoration, estimates of the cost of these proposals, a cash flow projection and sketch plans to illustrate the pro-

posed

9 posed restoration. In this document the third respondent proposed to form an association not for gain in terms of sec. 21 of the Companies Act which it would provide with finance to enable it to restore the buildings along the lines suggest-ed in the document. In return for this the Council would be required to grant the new association (which was later formed and is the second respondent) a 99-year lease at a nominal rental for the first fifteen years or so.After the submission of this comprehensive docu-ment, negotiations took place between the parties. In the course of these negotiations the third respondent's proposals were varied in certain respects, as will be seen.

By November 1984 the appellant and the third

respondent 10 respondent were the only persons who evinced an interest in restoring the buildings. On 29 November 1984 the Council considered the whole matter and, as I have mentioned above, decided to accept the third respondent's proposals as modified. It is not necessary to consider its reasons for doing so -the appellant did not suggest any irregularity in the grounds upon which the Council took its decision.I turn now to the contents of the proposed a-greement between the Council and the second respondent. The main provisions, as amended on 28 March 1985, were as follows. The Council was to grant the second respondent a lease of the buildings for fifty years as from 1 January 1986 (not ninety-nine years, as had originally been contemplated).

At

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At the termination of this period preference would be given to the second respondent to renew the lease, and it would have a right of first refusal. The rental was to be R4294,72 per month at the commencement of the lease, being the amount of rental which the Council was receiving at the time. This a-mount was to escalate at 5 percent per year. The lessee was also to be responsible for municipal rates and costs of muni-cipal services. After the Council approved the details of the planned restoration, the second respondent would be re-quired to proceed with the work (which was expected to cost approximately R3 million) in accordance with specifications stipulated in the resolution. After completion of the work, the second respondent would be entitled to sub-let the ac-commodation in the buildings at market related rentals. The12 proposed contract contemplated that the third respondentwould advance the money for the restoration, and that the

second respondent would repay the loan from the surplus re-

ceived from sub-letting the buildings. Once the second re-spondent had repaid the loan with interest (which was expectedto be after twelve years) its rental obligations would change.Thereafter it would pay a proportion of the surplus receivedby it. This was calculated according to a formulawhich was to change over the period of the lease. Thus thesecond respondent would initially pay the whole surplus butthe ratio would be reduced until it reached the ratio of

1:2,333 by the 42 nd year.

I turn now to a more detailed examination of

section 13 section 35 of the Ordinance. This section deals with "anycontract for the execution of any works for or on behalf of

the council" and with any contract for "the purchase of sale

of any goods by the douncil" (subject to a minimum price).We are not concerned with the latter category of contractsand in what follows I shall ignore provisions which relate

specifically to it. Regarding contracts for the executionof works, the section provides that the council is to givenotice in a newspaper circulating within the municipality

and on a notice board at the council's office, of its inten-

tion to enter into such a contract, expressing the purpose

thereof and inviting any person willing to enter into such

a contract to submit a tender for that purpose to the council.

There

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There are certain exceptional cases in which these provisionsdo not apply, and I return to them later.

Once tenders have been invited, the council is

not entitled to consider any tender or conclude the proposedcontract until full and identical particulars have been sup-plied to every person applying therefor within a certainperiod (sub-sec. 2). Subject to certain provisions where-by tender prices are brought to a "comparative level" (inAfrikaans, "vergelykbare vlak") which appear to apply mainly,if not solely, to tenders for the supply of goods, the councilmust, in terms of sub-sec. 3 (c), accept the lowest ténder,or, "if it is satisfied that acceptance of the lowest tenderwould not be in the public interest", it may "accept any

other

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other tender which appears to be the most advantageous" (subject, in certain cases, to an obligation to give reasons for its decision). The council may also, of course, reject all the tenders (ibid.).During argument it was common cause that the use of the word "any" in the phrase "any contract for the execu-tion of any works" did not affect the meaning of the expres-sion (cf. Peter Gordon Afslaers v. Stadsraad van die Munisi-paliteit van Kroonstad 1974(1) SA 499 (A) at p. 505 F-H). The question for decision then is whether the contract in the present case is one for the execution of works within the meaning of the section.

For the purposes of this case it may be assumed

that 16 that the activities which the second respondent will per-

form in restoring the buildings will amount to the carrying

out of "works" within the ordinary meaning of the word. SeeSchneier v. City Council of Johannesburg and Another 1946(1)PH D 19 per RAMSBOTTOM J. These activities will, however, formonly one facet of a composite contract which will also sanction theoccupation of the buildings by the second respondent for at

least fifty years and will contain the financial arrangements betweenthe parties consisting in part of the payment of rent by the

second respondent and in part of the sharing of profits.The contract as a whole is therefore clearly something more

than a mere contract for the execution of works.

If one considers sec. 35 in its totality a

further 17 further factor emerges. The whole purpose of the section is to ensure that competitive tenders are obtained for the execution of works. It is essential for the obtaining óf tenders that the works which the council wishes to have exe-cuted should be defined in such a manner that the tender prices can be directly compared. When asked how it would be possible to tender for the contract in the present case, Mr. Zeiss answered that tenderers could be asked to submit tenders for the rental payable to the Council. As a matter of language, the rental payable in the present case can hardly be described as a "tender price" (see sec. 35 (3c)) for "the execution of works" (sec. 35(1)). But the matter goes further than that. The rental is not the only possible

variable

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variable in the contemplated contract. All the main features of the proposed contract form a unique and in-divisible whole. The nature of the work to be done by the second respondent differs from that proposed by the appellant. The period of the lease and the rental or share of profits payable by the second respondent are obviously determined in the light of the nature and cost of the restoration to be effected. With a composite arrangement of this type in which it is the contractor who indicates what work is to be done and where the Council is not to spend any money, it is clearly impossible for the Council to ask for tenders and to compare prices.

It may possibly be suggested that one of the

provisos 19 provisos to sec. 35(1), which I mentioned earlier, might apply to the present case. In particular there is a provi-sion that the section does not apply to "a special case of necessity" for which "the calling of tenders should be dis-pensed with" (in Afrikaans, "waar daar afgesien behoort te word van die vra van tenders"). The wording of the proviso indicates to me that it was intended to cover cases where the calling for tenders would in principle be possible, but where there was some strong reason why a different procedure should be followed. This is, I think, the effect of the words "should be dispensed with" and "afgesien behoort te word" - words which connote a desirable course rather than an inevitable one. The existence of this proviso consequently

does 20 does not, in my view, suggest that sec. 35(1) of the Ordi-

nance was intended to cover contracts which were by their

very nature incapable of being the subject of competitive.

tenders.

My conclusion consequently is that sec. 35 ofthe Ordinance, read as a whole, is intended to apply only tocontracts to which the procedures laid down in the section are capable ofbeing applied. For present purposes it must accordinglybe limited to contracts for the execution of works in return

for a money consideration. The present is not such a

contract and is for that reason, in my view, not struck by

sec. 35(1). It is also not suggested that the present con-

tract is a simulated transaction which takes the form which

it

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it does in order to avoid the incidence of sec. 35(1).

There is one last matter which I should con-

sider. The appellant's prayer, which I have quoted above,

asks for an order setting aside the Council's decision tocontract with the second respondent "for the restoration" ofthe buildings. Realising that this prayer might not beadequate to describe the proposed contract, which is indi-visible and includes matters other than restoration, Mr. Zeissapplied for an amendment to this prayer to include a referenceto the proposed lease between the parties. Despite thenarrowness of the original prayer I have dealt with the pro-posed contract as a whole in deciding whether it requires

compliance with sec. 35(1) and have reached the conclusion

that

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that it does not. It follows that the proposed amendment

would serve no purpose and the application is refused.

To sum up: In my view the proposed contract

between the Council and the second respondent is not coveredby sec. 35(1) of the Local Government Ordinance, N.o 17 of

1939 (Transvaal),and the appellant's application was rightlydismissed by the Court a quo.

In the result the appeal is dismissed withcosts, including the costs of two counsel.

E M GROSSKOPF, JA

RABIE, ACJ )

BOTHA JA )

VAN HEERDEN JA )

NICHOLAS, AJA )