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CONSTRUCTION INDUSTRY DEVELOPMENT

BOARD (“CIDB”)

CASE SUMMARIES AND ANALYSES

JANUARY 2014 – MARCH 2014

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SOLENTA AVIATION (PTY) LTD v AVIATION @ WORK (PTY) LTD 2014

(2) SA 106 (SCA)

Case No

754/2012

[2013] ZASCA 103

Court Supreme Court Of Appeal

Judge Meyer AJA

Heard August 23, 2013

Judgment September 12, 2013

Facts:

This is an appeal against a judgment of Louw J, sitting in the North J Gauteng

High Court, in which he upheld a special plea of prescription raised by the

respondent, (Aviation @ Work (Pty) Ltd), against a claim for payment of

damages brought against it by the appellant, (Solenta Aviation (Pty) Ltd).

On 13 March 2007 a combined summons was issued in the name of Solenta

Aviation Workshops (Pty) Ltd (Solenta Aviation Workshops) against the Aviation

@ Work. A plea with a claim in reconvention was in due course delivered by the

Aviation @ Work, followed by the delivery of a replication and a plea to the claim

in reconvention in the name of Solenta Aviation Workshops.

It was common cause on the pleadings that on or about 22 March 2006 and at

Wonderboom, Pretoria, Solenta Aviation Workshops, as lessor, and the Aviation

@ Work, as lessee, concluded a written agreement — referred to as the 'Aircraft

Dry Lease Agreement' — in terms whereof Solenta Aviation Workshops leased a

certain Cessna aircraft to Aviation @ Work.

Solenta Aviation Workshops in convention and Aviation @ Work in reconvention

claimed damages against each other resulting from the other party's alleged

breach of the contract.

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The description of the lessor in terms of the contract is 'Solenta Aviation (Pty)

Ltd' and not Solenta Aviation Workshops as described in the combined summons

and in the particulars of claim.

On 18 August 2009 a notice of intention to amend was delivered in which notice

was given that the description of the plaintiff was to be amended to 'Solenta

Aviation (Pty) Ltd' by the deletion of the word 'Workshops' where it appears in

the summons and in the particulars of claim.

Aviation @ Work objected to the proposed amendment on the grounds that it

would amount to a substitution of one plaintiff for another, and that any claim

that Solenta Aviation (Pty) Ltd might have had against Aviation @ Work had

prescribed. An application for leave to amend the citation of the plaintiff was

then brought.

In granting the amendment on 31 March 2010 Potterill J held that the

description of the plaintiff amounted to a misnomer, rather than a substitution of

the correct plaintiff for the wrong one. She held that the true identity of the

plaintiff was recognisable from the particulars of claim and the contract, and that

service of the summons on Aviation @ Work had interrupted the running of

prescription in terms of s 15(1) of the Prescription Act. The amendment was

effected on 7 April 2010.

Aviation @ Work thereupon amended its plea by raising a special plea of

prescription to Solenta Aviation (Pty) Ltd's claim. Solenta Aviation (Pty) Ltd

delivered a replication in answer to the Aviation @ Work's special defence. It is

common cause on these further pleadings that Solenta Aviation Workshops and

Solenta Aviation (Pty) Ltd were both registered companies and therefore

separate legal entities. It is also common cause that the contract was concluded

between Solenta Aviation (Pty) Ltd and Aviation @ Work; that no contractual

relationship existed between Solenta Aviation Workshops and Aviation @ Work

at the time of instituting the action; and that Solenta Aviation Workshops was

not a creditor of Solenta Aviation (Pty) Ltd.

It is alleged in the special plea that service on Aviation @ Work of the summons

whereby Solenta Aviation Workshops claimed payment of damages arising from

Aviation @ Work's alleged breach of the contract — which breach is alleged in

the particulars of claim to have taken place on or about 13 May 2006 — did not

interrupt the running of prescription in terms of s 15(1) of the Prescription Act,

and that a period of more than three years had elapsed since the alleged breach

and the delivery of the notice of intention to amend the citation of the plaintiff,

or of the actual substitution of Solenta Aviation (Pty) Ltd for Solenta Aviation

Workshops.

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Solenta Aviation (Pty) Ltd responded in its replication to the special plea that,

although incorrectly described in the summons and particulars of claim, it was

the company that instituted the action against Aviation @ Work on 13 March

2007 and that that process conveyed to the reader the intention of Solenta

Aviation (Pty) Ltd, as creditor, to claim payment from its debtor, Aviation @

Work. The defence of res iudicata in the form of what has become known as

issue estoppel was also raised. It was alleged that, in dismissing Aviation @

Work's objection to the proposed amendment, 'the court determined the

identical issue between the identical parties now raised in the special plea' and

that Aviation @ Work 'is accordingly, and in addition, issue estopped on the

issue raised in the special plea'.

The trial on two separated issues proceeded before Louw J. He was only

concerned with the issues of res iudicata and prescription, while the remaining

issues stood over for later determination. No evidence was led and the parties

confined themselves to the documents that formed part of the record. In

upholding the special plea of prescription, the court a quo followed the decision

of this court in Blaauwberg Meat Wholesalers CC v Anglo Dutch Meats (Exports)

Ltd and held that the summons that was served in this instance, objectively

considered, failed to communicate to the defendant (Aviation @ Work) the

intention of the plaintiff (Solenta Aviation (Pty) Ltd) to claim payment of the

debt. It held that the summons did not meet the objects of s 15(1) of the

Prescription Act and it did not interrupt prescription. In dismissing the plea of res

iudicata, the court a quo held that the application for amendment was

interlocutory and the finding of Potterill J was not one that finally disposed of an

issue in the action between the parties.

In the result, Solenta Aviation (Pty) Ltd's claim was dismissed with costs,

including the costs of two counsel. Solenta Aviation (Pty) Ltd appeals to this

court with the leave of the court a quo. This appeal concerns the same issues of

prescription and res iudicata.

In terms of s 12(1) of the Prescription Act, prescription begins to run when the

debt becomes due. It is common cause between the parties that the debt which

forms the subject of Solenta Aviation (Pty) Ltd's claim became due on 13 May

2006. Sections 10(1) and 11(d) provide for a period of prescription of three

years in the present case. The notice of the application to amend the citation of

the plaintiff was given on 18 August 2009, which was after the prescriptive

period. Section 15(1) provides as follows:

'The running of prescription shall, subject to the provisions of subsection (2), be

interrupted by the service on the debtor of any process whereby the creditor claims

payment of the debt.'

The question to be decided is therefore whether the combined summons served

on Aviation @ Work by which action was instituted in the name of Solenta

Aviation Workshops was a claim by the creditor of the debt, which it is now

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common cause is Solenta Aviation (Pty) Ltd, in compliance with the provisions of

s 15(1).

The general rule or test applicable in the determination of whether there is

compliance with s 15(1) was reaffirmed by this court in Blaauwberg thus:

'For obvious practical reasons the Legislature ordained certainty about when and how the

running of prescription is interrupted. That certainty is of importance to both debtors and

creditors. It chose an objective outward manifestation of the creditor's intentions as the

criterion, viz the service on the debtor of process in which the creditor claims payment of

the debt. That is not a standard which allows for reservations of mind or reliance on

intentions which are not reasonably ascertainable from the process itself. Nor does it, as a

general rule, let in, in a supplementation of an alleged compliance with s 15(1), the

subjective knowledge of either party not derived from the process, such as, for example,

the content of a letter of demand received by the debtor shortly before service of the

process.'

In Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd, the case referred

to in the above quotation, Selikowitz J stated the test as follows:

'The test as to whether any given process interrupts prescription in respect of a particular

debt must be an objective one. The process in question must be objectively considered.

Knowledge which one or both of the parties may have dehors the process cannot affect its

interpretation or its interruptive effect. More particularly, the fact that plaintiff may

subjectively intend to claim a particular debt, and that defendant may, by virtue of

extrinsic knowledge, appreciate that plaintiff has wrongly identified the debt in his

summons, cannot convert the summons into one which interrupts prescription in respect of

any debt other than the one identified in the process. It is the process which interrupts

prescription, not the plaintiff's subjective intention to sue.'

Counsel for Solenta Aviation (Pty) Ltd placed great reliance upon the description

of the lessor as 'Solenta Aviation (Pty) Ltd' and that of the lessee as 'Aviation @

Work (Pty) Ltd' in the contract that was served upon Aviation @ Work, as well as

on the reference to 'domicilium citandi et executandi' in the description of each

party on the face of the combined summons, and in paras 1 and 2 of the

particulars of claim. The details of the creditor given in the summons and in para

1 of the particulars of claim were that:

'The plaintiff is Solenta Aviation Workshops (Pty) Ltd, a company, duly incorporated in

accordance with the laws of the Republic of South Africa with domicilium citandi et

executandi of (sic) Block 5 Stratford Office Park, Corner Cedar Avenue and Valley Road,

Broadacres, Johannesburg.'

Solenta Aviation (Pty) Ltd was sought to be introduced to the proceedings by the

deletion of the word 'Workshops'. For the rest the citation remained unchanged.

It is common cause that both corporate entities had the same registered

address, which was the one given in the combined summons and in the

particulars of claim. Solenta Aviation (Pty) Ltd's counsel submitted that the

description of the lessor in the contract and the reference to a 'domicilium

citandi et executandi' communicated to Aviation @ Work the correct identity of

the creditor, viz Solenta Aviation (Pty) Ltd.

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To look only at the contents of the contract and to conclude that Aviation @

Work must have appreciated, or even did appreciate, who the true creditor was,

which is essentially what the argument on behalf of Solenta Aviation (Pty) Ltd

amounts to, can in my view not be conclusive of the enquiry as to whether

payment of the debt was claimed by the creditor.

The parties to an action are cited in the combined summons and particulars of

claim, and the cause of action is set out in the particulars of claim. It is true that

the debt which Solenta Aviation (Pty) Ltd seeks to claim is the same debt that

Solenta Aviation Workshops sought to enforce in the combined summons that

was served upon Aviation @ Work. This does not mean that the combined

summons was issued by 'the creditor' in compliance with s 15(1).

The description of the plaintiff as Solenta Aviation Workshops and of the

defendant as Aviation @ Work (Pty) Ltd on the face of the combined summons

and in the particulars of claim and the further averments about the written

agreement that was concluded between those two entities make it plain that

Solenta Aviation (Pty) Ltd was not the creditor that claimed payment of the debt

in terms of the combined summons, notwithstanding the reference to Solenta

Aviation (Pty) Ltd's name as the lessor in the contract. The citation of the

domicilium does not assist Solenta Aviation (Pty) Ltd.

The admissions by Aviation @ Work of the citations of the parties and of the

contract and its terms also do not avail Solenta Aviation (Pty) Ltd. They did not

bring about an automatic substitution of one plaintiff for another. Solenta

Aviation (Pty) Ltd's counsel in my view correctly conceded that the admissions

could also not be regarded as an unconditional acknowledgement of liability in

terms of s 14(1) of the Prescription Act. The admissions in any event admit the

parties to the contract to have been Aviation @ Work and Solenta Workshops

and not Aviation @ Work and Solenta Aviation (Pty) Ltd. They also do not assist

Solenta Aviation (Pty) Ltd.

The court sum up: in applying the objective test the claim made in the combined

summons was, on a plain reading, not that of the true creditor, which is Solenta

Aviation (Pty) Ltd, and service of that process on Aviation @ Work did not

interrupt the running of prescription. Solenta Aviation (Pty) Ltd's counsel

conceded that, if this be the finding, it will not be necessary to consider the

defence of issue estoppel.

Solenta Aviation (Pty) Ltd's counsel resisted the request on behalf of Aviation @

Work that a costs order in favour of Aviation @ Work include the costs of two

counsel. The judge stated that it considers the employment of two counsel on

behalf of Aviation @ Work to have been prudent and not extravagant.

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The court ordered that the appeal should be dismissed with costs, including the

costs of two counsel.

Analysis:

This case is relevant to the cidb and the construction industry at large as it

considers the issue of prescription.

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KATSHWA AND OTHERS v CAPE TOWN COMMUNITY HOUSING CO (PTY)

LTD AND FOUR SIMILAR CASES 2014 (2) SA 128 (WCC)

Case No

A 264/2012

Court Western Cape High Court, Cape Town

Judge Dlodlo J and Steyn J

Heard September 3, 2013

Judgment November 6, 2013

Facts:

These five appeals were consolidated for hearing in view of the applicability of

similar facts and legal principles. The representatives of the parties prepared one

argument relating to all the appeals.

The appeals originate from the Wynberg Magistrates' Court where it was agreed

that all relevant aspects related to the matters would be argued primarily on the

papers in the matter of Ndileka Constance Katshwa and Leon Katshwa (the

Katshwa matter). When the legal representatives referred to the record in their

arguments, reference was accordingly to the documentation filed in the Katshwa

matter.

The background facts relating to these appeals, as set out by the representative

of the appellants, were not disputed by the respondent's representative.

Each of the appellants concluded an Instalment Purchase Agreement (the IPA)

with the respondent for the purchase of an immovable property. The Katshwas

concluded the IPA on or about 21 June 2001.

The respondent alleges that the appellants fell into arrears in payment of the

instalments due by them, and accordingly the respondent issued letters of

demand calling upon all the appellants to remedy their breach. There was a

letter from the respondent's then attorneys, followed by a letter from the

respondent itself. The appellants remained in default of payment and the

respondent purported to cancel the IPAs. Action proceedings were instituted by

the respondent against the appellants in the Wynberg magistrates' court seeking

the ejectment of the appellants from the immovable properties occupied by

them.

The respondent thereafter instituted eviction proceedings by way of motion

proceedings pursuant to s 4(2) and (5) of the Prevention of Illegal Eviction from

and Unlawful Occupation of Land Act 19 of 1998 (the PIE Act). This relief was

opposed on behalf of the appellants and answering affidavits were filed.

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On 9 March 2011 the Wynberg Magistrates' Court found that all the appellants

were unlawful occupiers in terms of s 1, read with s 4, of the PIE Act and

ordered the City of Cape Town to file a report and requested submissions in

regard to s 4(7) and (9) of the PIE Act.

On 30 September 2011 the Wynberg Magistrates' Court issued an order that the

appellants should vacate the respective immovable properties occupied by them

on or before 13 December 2011, failing which the sheriff was ordered to evict

them on or after 15 December 2011.

Notices of appeal to these orders were duly filed and the appellants now appeal

against the said March and September judgments.

The representatives of the parties agree that the provisions of the Alienation of

Land Act 68 of 1981 (the ALA) are relevant in this matter. It is not denied by the

respondent that the IPA is a 'contract' as defined in s 1 of the ALA. Whether the

provisions of ss 19, 20 and 26 of the ALA are applicable in the present matter is,

however, a subject of dispute.

Section 20(1) of the ALA relates to the recordal of the contract and provides in

ss (1)(a) that a seller, whether he is the owner of the land concerned or not,

shall cause the contract to be recorded by the registrar concerned in the

prescribed manner, with some exceptions that are not relevant at present. If a

period of 90 days has expired without the seller having caused the contract to be

recorded as prescribed, the purchaser may, inter alia, apply to the registrar

concerned to record the contract in the prescribed manner.

Sections 19 and 20 of the ALA fall under ch II of the ALA. The court was

referred to Merry Hill (Pty) Ltd v Engelbrecht2008 (2) SA 544 (SCA) and the

observations made by Brand JA in regard to the purpose of ch II of the ALA, as

set out in para 13:

'Let me start with a proposition which appears to be beyond contention, namely that the

purpose of ch 2 of the Act, which includes s 19, is to afford protection, in addition to what

the contract may provide, to a particular type of purchaser — a purchaser who pays by

instalments — of a particular type of land — land used or intended to be used mainly for

residential purposes. In this sense, ch 2, like its predecessor, the Sale of Land on

Instalments Act 72 of 1971, can be described as a typical piece of consumer protection

legislation. The reason why the legislature thought this additional statutory protection

necessary is not difficult to perceive. It is because experience has shown this type of

purchaser, generally, to be the vulnerable, uninformed small buyer of residential property

who is no match for the large developer in a bargaining situation.'

It was argued on behalf of the appellants that these sentiments voiced by Brand

JA in the quoted judgment are of application in the appeals before court, where

the provisions of s 20 of the ALA were raised in the answering affidavits filed in

the magistrates' court and it was recorded that the applicant (now the

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respondent), on its own admission, never complied with the requirement to

procure the recording of the IPA contract in terms of the provisions of s 20 of the

ALA. The respondent alleged that its failure to attend to the recordal of the IPAs

did not excuse the appellants from paying the agreed instalments.

In her judgment dated 9 March 2011 the presiding magistrate, Ms Pangarker,

commented, relating to the respondent's non-compliance with the requirements

of s 20 of the ALA and the breach by the respondent of the provisions of clause 8

of the IPAs, that nothing prevented the appellants (the respondents in the

magistrates' court) from themselves attending to the recordal of the contracts.

Clause 8.1 of the IPA reads as follows:

'The seller shall procure this contract to be recorded in accordance with the provisions of

section 20 of the Act. If the seller fails to do so the purchaser shall be entitled to procure

such recording.'

Clause 9 of the IPA provides that the seller shall be liable for the costs related to

the drafting of the contract and the recording of the contract in terms of s 20 of

the ALA.

It is apparent from the provisions of s 20 of the ALA that there is no requirement

as such on the part of a purchaser, such as the appellants, to ensure the

recordal of the IPA with the registrar. The terms of this section clearly do not

place any obligation on the purchaser to apply for the recordal of the contract

following the failure by the seller to attend to this obligation.

The relevant provisions of s 26 of the ALA read as follows:

'26 Restriction on the receipt of consideration by virtue of certain deeds of

alienation

(1) No person shall by virtue of a deed of alienation relating to an erf or a unit receive any

consideration until —

(a) such erf or unit is registrable; and

(b) in case the deed of alienation is a contract required to be recorded in terms of section

20, such recording has been effected.

(2) Any person who contravenes the provisions of subsection (1) shall be guilty of an

offence and liable on conviction to a fine not exceeding R1000 or to imprisonment for a

period not exceeding one year or to both such fine and such imprisonment.'

The circumstances when the provisions of ss (1) are not applicable do not apply

in this matter. In the premises it was submitted on behalf of the appellants that,

since there had been no recordal of the IPAs by the respondent, as contemplated

by the terms of s 20 of the ALA, the respondent, in view of the provisions of s

26(1) of the ALA, is not entitled to receive any consideration from the

appellants, and further, in view of the provisions of s 26(2) of the ALA, the

receipt of any purchase consideration by the respondent would constitute an

offence on the part of the respondent, making it liable on conviction to a fine or

even imprisonment.

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Accordingly, it was convincingly argued on behalf of the appellants that the

respondent, by virtue of the provisions of s 26 of the ALA, has no right to the

receipt of any payments from the appellants, since the recordal of the contract,

as contemplated in s 20 of the ALA, had not been effected. The appellants

cannot be in arrears in the payment of instalments due under the IPA when

there is no obligation in law for them to make payments, and accordingly there

was no basis for the respondent to have issued letters of demand upon which it

relied when seeking an order in the magistrates' court. In view of what has been

stated above it was argued that respondent's purported cancellation of the

relevant IPAs is invalid.

The court was further referred to Bouwer v Aurae (Pty) Ltd1991 (4) SA 622 (W)

at 624F – H, where the provisions of s 20 of the ALA were considered and where

it was noted, in essence, that in terms of these provisions an agreement of the

sale of land intended to be used mainly for residential purposes must be

recorded by the Registrar of Deeds, failing which the seller is precluded from

receiving the purchase price payable in terms of the agreement and no valid

cancellation of the agreement can be effected upon non-payment.

The respondent correctly noted in its heads of argument that the essence of the

appellants' case was as set out above, namely that since the IPAs were not

recorded as required by s 20 of the ALA and, in view of the provisions of s

26(1)(a), payment of instalments by the appellants was never due and no

breach of contract occurred, with the result that the IPAs could not have been

cancelled. Respondent agrees that ch II of the ALA deals with the sale of land on

instalments, which the IPAs, that formed the subject of these appeals, are. It

submits though that in order for s 26(1)(a) to have any effect the IPAs must be

contracts that can be referred to as contracts 'required to be recorded in terms

of s 20'. Respondent argues that if s 20 does not apply in these instances, s

26(1)(a) will also have no effect.

The respondent submits that ch II, which includes s 20, is not applicable to the

relevant IPAs due to the provisions of s 4 of the ALA, which reads as follows:

'4 Application of Chapter

This chapter shall not apply in respect of a contract in terms of which the State, the

Community Development Board established by s 2 of the Community Development Act,

1966 (Act 3 of 1966), the National Housing Commission mentioned in s 5 of the Housing

Act, 1966 (Act 4 of 1966), or a local authority is the seller.'

It was submitted on behalf of the respondent that, on a proper interpretation of

the wording of s 4 of the ALA, the Cape Town Community Housing Co (Pty) Ltd

(Cape Town Community Housing Co), ostensibly a private company, must be

regarded as 'a functionary of the state'. The respondent argued in essence, the

first time in its heads of argument in the appeals, that the Cape Town

Community Housing Co is an organ of state.

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Section 239 of the Constitution defines an 'organ of state' as meaning, inter alia,

any department of state or any other functionary exercising or performing a

function in terms of the Constitution or a Provincial Constitution, or exercising a

public power or performing a public function in terms of any legislation.

Appellants argue that a clear distinction needs to be drawn between the state

and the organs of state and that the appellation 'state' cannot without more be

interpreted to mean 'organ of state', since the concept of 'state' is wider than

that of an organ of state, and that the term 'state', which is referred to in s 4 of

the ALA, means the state as a persona contracting as the seller and not one of

its functionaries.

In Directory Advertising Cost Cutters v Minister for Posts, Telecommunications

and Broadcasting and Others1996 (3) SA 800 (T) ([1996] 2 All SA 83) at 810E –

F it was stated by Van Dijkhorst J that an organ of state —

'must be part of the governmental apparatus. An agent or independent contractor

performing some of the State's functions on its behalf will not be a functionary of the

State.'

In Holeni v Land and Agricultural Development Bank of South Africa2009 (4) SA

437 (SCA) ([2009] 3 All SA 22) para 17 it was stated by Navsa JA that:

'It should also be borne in mind that, when the Act was promulgated, the definition of

organ of State in s 239 of the Constitution was more than two decades into the future. It

can hardly be contended that the legislature, at that time, had in mind a broader meaning

of the State to coincide with what is presently contained in that definition. In any event,

the Constitution itself differentiates between the State and organs of State. The

Constitution can therefore not be used as authority for the proposition that the State in the

Act should be interpreted so as to include organ of State.'

The appellants submit that it does not appear from the record in these

proceedings that the Cape Town Community Housing Co, a private company, is a

state functionary. In fact, as can be noted from the affidavits filed in the lower

court's proceedings, respondent's financial manager, Mr Jurgens, stated under

oath that the respondent was not a state organ. Appellants contend, correctly in

our view, that it is evident from the wording of s 4 of the ALA that a distinction

must be drawn between the state and other possible organs of the state, such as

the Community Development Board and the National Housing Commission.

It was conceded by the appellants that the Cape Town Community Housing Co

may have been established as a joint venture between the City of Cape Town

and the National Housing Finance Corporation and it may be that it receives a

housing subsidy. This state of affairs however should not lead to the conclusion

that the Cape Town Community Housing Co should be regarded as 'the state' as

contemplated in s 4 of the ALA, an aspect previously conceded by the

respondent, when their financial manager stated categorically that it was not a

state organ.

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The judge agreed with the appellants that the respondent's attempts to rely on

Part 7 of a document titled 'Housing Subsidy Scheme', annexed to its heads of

argument in the appeals, was flawed and that this guideline should be ignored,

as the document appears to be no more than a guideline, was not proved in

evidence, was not accepted by the appellants and cannot now be relied upon on

appeal.

The respondent's view remains that on a proper interpretation of s 4 of the ALA

the respondent should be regarded as a functionary of the state for the specific

purposes of providing social housing. Accordingly, it is argued that the IPAs are

exempt from the provisions of ch II of the ALA.

With reference to the comments of the respondent's financial manager, in its

replying affidavits in the magistrates' court, that the respondent is not a state

organ and can only exist to provide houses if it receives payment for the houses

that it provided, it is contended that the statement was made in a different

context and only reflected the expression of an opinion, which was incorrect. It

was argued that the respondent cannot now be precluded from relying on the

provisions of s 4 of the ALA in these proceedings, based on these incorrect

comments.

Finally it was submitted on behalf of the respondent that the correct meaning of

the phrase 'the state', for the purposes of the disputed issue in these appeals,

should be determined by considering the intention of the legislature, ie the

context of the ALA in which it is found.

As noted previously, the argument relating to the applicability of s 4 was not

raised during the hearing of the matter in the magistrates' court. The appellants

were brought under the impression by the respondent that it agreed that the

provisions of s 4 applied.

The ALA prescribes in s 4 that ch II shall not apply in respect of a contract in

terms of which 'the State . . . or a local authority is the seller'. Save for

recording that certain sections of the National Credit Act will prevail to the extent

of any conflict with this section, no elaboration as to the meaning of the use of

the word 'state' is provided. Section 1 of the ALA, setting out detailed definitions

of the words and phrases contained in the Act, is silent on the meaning and

ambit of the use of the word 'state'.

Legislation usually does not unambiguously and specifically address all matters.

Occasionally the meaning of words used in a statute or a contract or other

document do not have a plain, straightforward meaning, but may be ambiguous

or vague, resulting in the judiciary having to resolve the ambiguities and

pronounce on the perceived intended meaning of the words.

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The Constitution of the Republic of South Africa, 1996, provides in s 39(2) that

when interpreting legislation every court must promote the spirit, purport and

objects of the Bill of Rights. In general, the courts attempt to promote public

interest when interpreting the wording of a statute.

There are numerous rules of statutory interpretation. It is trite that the words or

language of a statute should be given its 'ordinary meaning' where possible and

where such a construction will not lead to an absurdity, repugnancy or

inconsistency with the rest of the statute. It is also common sense that the

words used in a particular section or clause need to be interpreted in the context

of the statute or document as a whole, as such an interpretation would usually

reflect the true intention of the legislature or contracting parties, if a contract

needs to be interpreted.

In Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593

(SCA) ([2012] 2 All SA 262; [2012] ZASCA 13) the proper approach that the

court should follow when interpreting statutes, contracts or other documents is

set out in detail. Wallis JA comments as follows (para 18):

'The present state of the law can be expressed as follows: Interpretation is the process of

attributing meaning to the words used in a document, be it legislation, some other

statutory instrument, or contract, having regard to the context provided by reading the

particular provision or provisions in the light of the document as a whole and the

circumstances attendant upon its coming into existence. Whatever the nature of the

document, consideration must be given to the language used in the light of the ordinary

rules of grammar and syntax; the context in which the provision appears; the apparent

purpose to which it is directed and the material known to those responsible for its

production. Where more than one meaning is possible each possibility must be weighed in

the light of all these factors. The process is objective, not subjective. A sensible meaning is

to be preferred to one that leads to insensible or unbusinesslike results or undermines the

apparent purpose of the document. Judges must be alert to, and guard against, the

temptation to substitute what they regard as reasonable, sensible or businesslike for the

words actually used. To do so in regard to a statute or statutory instrument is to cross the

divide between interpretation and legislation . . . .'

Wallis JA emphasised that context and language should be considered together,

the one not dominating the other. The broad purpose of the relevant legislation

is highly relevant to the process of interpretation, 'as is the mischief at which the

legislation is aimed' (para 22). Ultimately the courts give effect to legislative

purpose within the constraints imposed by the language adopted by the

legislature. In this process the interpreting judge must avoid the tendency to be

driven by what that judge regards as a desirable result in a specific case.

'In resolving the problem, the apparent purpose of the provision and the context in which

it occurs will be important guides to the correct interpretation. An interpretation will not be

given that leads to impractical, unbusinesslike or oppressive consequences or that will

stultify the broader operation of the legislation or contract under consideration.'

15 | P a g e

The court was of the view that the purpose of the ALA is clearly as stated in the

preamble to the Act, to regulate the alienation of land in certain circumstances.

Chapter I deals with the formalities required in respect of deeds of alienation.

Chapter II deals with the provisions relating to sale of land on instalments.

Chapter III deals with general provisions.

The primary aspect for determination in these appeals has thus been distilled to

be the ambit and meaning of the word 'state' in s 4 of the ALA, which section

provides that ch II (containing s 20, relating to the recordal of the contract) shall

not apply in respect of a contract in terms of which, inter alia, the state is the

seller. No definition is given of the meaning intended to be attributed to the

word 'state'.

In the Directory Advertising judgment supra at 809D Van Dijkhorst J comments

that private companies incorporated under the Companies Act can 'hardly be

statutory bodies' as contemplated in the Constitution because in their day-to-day

functioning they are not integrated into the state's structure or authority. At

810C – F he comments, inter alia, that an organ of state is not an agent of the

state, it is part of government (at any of its levels). A functionary of the state is

part of the 'governmental apparatus':

'An agent or independent contractor performing some of the State's functions on its behalf

will not be a functionary of the State.'

A private company is governed by its articles of association. In view of what is

stated hereinabove and viewing the word 'state' in the context of the ALA, the

purpose of the relevant sections, such as ss 20 and 26, to protect vulnerable,

financially disadvantaged and relatively unsophisticated purchasers from private

companies, with or without state shareholders.

Further, the court expressed the view that the use of the word 'state' in s 4

refers to closed categories of entities and that the wording of 'state' in this

context cannot be widened to include organs of state and definitely not private

companies, such as the respondent in this matter, regardless of the interest in it

by certain organs of state and regardless of whether or not its purpose is to

generate profit.

The respondent was an independent contractor performing certain governmental

obligations, including the provision of housing. There is no evidence before court

that the respondent forms part of government at any level or is controlled by

government, or that it should be regarded as an organ of state. On the contrary,

the respondent's own factual averments lead to the conclusion that it is not an

organ of state, but is, in fact, a private company. The respondent has not shown

that there is any foundation in fact or in law why it should be regarded as the

state.

16 | P a g e

Section 4 of the ALA does not assist the respondent. The respondent has not

offered argument in answer to those advanced by the appellants in the heads of

argument filed on their behalf.

The court ordered that all the appeals should succeed, and that the orders of the

magistrate in these appeals, under the recorded case numbers, should be

altered to read:

1. The applications are dismissed.

2. The applicant is ordered to pay the costs of the applications.

Analysis:

This case is relevant to the cidb and the construction industry at large as it

considers drawing up the distinction between ‘organ of state’ and the ‘state’.

17 | P a g e

COUNTRY CLOUD TRADING CC v MEC, DEPARTMENT OF

INFRASTRUCTURE DEVELOPMENT 2014 (2) SA 214 (SCA)

Case No

751/12

[2013] ZASCA 161

Court Supreme Court Of Appeal

Judge Brand JA, Leach JA, Tshiqi JA, Theron JA and Saldulker JA

Heard November 8, 2013

Judgment November 26, 2013

Facts:

The respondent is a Member of the Executive Council in the province of Gauteng

with responsibility for the provincial Department of Infrastructure Development,

which was formerly part of the Department of Public Transport, Roads and

Works (the department).

The appellant is a close corporation, Country Cloud Trading CC (Country Cloud).

The appeal originates from a building contract between the department and a

construction company, Ilima Projects (Pty) Ltd (Ilima). In terms of this contract,

Ilima undertook to complete the construction of the partially built Zola Clinic in

Soweto at a contract price of R480 million. In order to comply with its

obligations under the contract, Ilima borrowed R12 million from Country Cloud.

In terms of the loan agreement between these two parties, Country Cloud stood

to make a profit of R8,5 million.

After Country Cloud had paid the R12 million to Ilima, the department cancelled

the construction contract, which ultimately led to the liquidation of Ilima.

Following upon these events, Country Cloud instituted an action against the

department in the South Gauteng High Court, Johannesburg for delictual

damages in an amount of R20,5 million, together with interest at 15,5%.

The matter came before Satchwell J who dismissed the claim with costs. The

present appeal against that judgment, which has since been reported as Country

Cloud Trading CC v MEC, Department of Infrastructure Development [2012] 4 All

SA 555 (GSJ), is with the leave of the court a quo.

A proper understanding of the issues arising requires a broad outline of the

background facts. What eventually proved to be a rather sad tale of woe for all

parties concerned started on 10 May 2006 when the department awarded a

tender to build the Zola Clinic in Soweto, which was designed as a 300-bed

district hospital, to a joint venture of four companies at a contract price of about

18 | P a g e

R335 million. Ilima was one of the four companies in the joint venture. In terms

of the ensuing contract, the project had to be completed by May 2008. But the

joint venture never really got off the ground. In March 2008 Ilima's three

partners withdrew, which left it as the last contractor standing. At that stage

only 20% of the hospital had been completed.

The head of the department at the time, Mr Sibusiso Buthelezi, was then landed

with the responsibility of appointing a contractor to complete the building

project. The Departmental Acquisition Council (DAC), which concerned itself with

the procurement of goods and services for the department, recommended to

Buthelezi that the contract should once again go through the tender process. On

the other hand, the recommendation by senior officials of the department was

that, due to the urgency of the situation, the completion contract should, without

further ado, be awarded to Ilima as the only surviving member of the joint

venture. This is what Buthelezi then did. Although Buthelezi himself did not

testify at the trial, it appears from the documentary evidence that he was of the

view that, as the accounting officer of the department, he was entitled to

override the advice of the DAC and that due to the exigency of the situation, he

should do so. In motivating this decision in subsequent correspondence,

Buthelezi pointed out, for instance, that the people of Soweto were in dire need

of a hospital which was destined to be completed by May 2008; that by that time

only 20% of the work had been done; and that going out on tender was bound

to give rise to further delay and additional costs.

Ilima was confident that it was able to complete the construction of the hospital

on its own. Yet it needed immediate financial assistance in an amount of R12

million to do so and the department was clearly aware of this need. Hence the

department made various concessions to assist Ilima in obtaining a loan so as to

facilitate the expeditious completion of the hospital.

Firstly, the department undertook, as part of the construction contract, to pay

Ilima a so-called 'site re-establishment and mobilisation fee' equal to 5 % of the

contract price of R480 million — that is, R21,5 million — within 30 days of

concluding the contract. Secondly, the department allowed its managing agent,

Tau Pride (Pty) Ltd (Tau Pride), to give a formal undertaking to Country Cloud

that the loan of R12 million be paid directly to it out of the site rehabilitation and

mobilisation fee of R21,5 million when Ilima became entitled to this fee.

On this basis Country Cloud agreed, in terms of a loan agreement with Ilima, to

advance an amount of R12 million to the latter to perform its obligations under

the completion contract. In turn, Ilima undertook to repay the amount of R12

million when the site rehabilitation and mobilisation fee became payable. In

addition, Country Cloud would receive a handsome profit of R8,5 million which

Ilima undertook to pay by 1 May 2009. The construction contract for the

completion of the Zola Clinic, which ended up as the source of this litigation, was

19 | P a g e

then concluded between Ilima and the department on 4 August 2008. It soon

became known as 'the completion contract'. Following upon the conclusion of the

completion contract, Country Cloud advanced the R12 million to Ilima.

Trouble started on 4 September 2008 when the department cancelled the

completion contract before it had made any payments thereunder, either to

Ilima or, via Tau Pride, directly to Country Cloud. This despite a certificate by the

principal agent in terms of the construction contract, that an amount of R21,5

million became due and payable by the department. The comprehensive letter of

cancellation on behalf of the department was written by Buthelezi. In essence it

relied on two misrepresentations by Ilima prior to the conclusion of the

completion contract, which were alleged to be both intentional and material. The

first related to a representation conveyed through a tax clearance certificate

from the South African Revenue Service (SARS), to the effect that Ilima had

complied with all its tax obligations and was in good standing with SARS. This

was alleged to be untrue in that, at the time, Ilima's tax affairs were in serious

disarray. The second was that it had received a level 8 accreditation from the

Construction Industry Development Board.

Subsequently, Country Cloud had been liquidated for being unable to meet its

financial obligations to its creditors. This happened in March 2010. Prior to its

liquidation, summons was issued on behalf of Country Cloud against the

department for contractual damages in an amount of R1,4 billion on the basis of

its alleged unlawful repudiation of the completion contract. What happened to

this claim is not entirely clear. Apparently it went to mediation, which proved to

be unsuccessful.

Country Cloud's particulars of claim reveal clear difficulty in the formulation of a

claim in delict. As it happened, the basis finally relied upon was only introduced

by way of an inelegantly drafted amendment shortly before Country Cloud closed

its case in the court a quo. Not revealing the scars of amendments, the

formulation eventually followed the following lines:

(a) The department owed Country Cloud a so-called 'duty of care' not to cancel the

completion contract without any lawful ground prior to payment of the site rehabilitation

and mobilisation fee to Ilima.

(b) On 4 September 2008 the department intentionally, and, in breach of its duty of care,

unilaterally cancelled the completion contract without any lawful grounds.

(c) But for the conduct of the department, Ilima would have received payment of an

amount of R21,5 million and would have been able to pay the R12 million and R8,5 million

which it owed to Country Cloud.

In the original version of its plea the department persisted in the defence that

the completion contract had been validly cancelled on grounds of Ilima's material

and intentional misrepresentations. As in the cancellation letter, the two

misrepresentations relied upon again related to the content of the tax clearance

certificate provided by Ilima and the representation that Ilima had been

20 | P a g e

accredited by the Construction Industry Development Board with a level 8

rating. Moreover, and in any event, the department denied that it was liable in

delict to Country Cloud for the damages claimed. Shortly before the

commencement of the trial the department amended its plea so as to introduce

a further defence. According to this new defence the completion contract was in

any event invalid because

'the tender awarded to Ilima was contrary to the procurement regulations and policies of

the . . . Department' in that 'it was not advertised and [did not invite] . . . other companies

to bid for the tender; and it was not evaluated and adjudicated by the appropriate internal

structures of the department'.

Prior to the commencement of the trial the department admitted that Ilima

possessed the required level 8 rating. Hence the evidence at the trial focused on

(a) the validity of the tax clearance certificate, and (b) the department's

contention that the award of the tender to Ilima was invalid from the start. As to

the first issue, it was common cause that Country Cloud produced a tax

clearance certificate issued by SARS on 5 December 2007 which was valid for a

period of one year — that is until 5 December 2008 — which obviously extended

beyond the conclusion of the completion contract on 4 August 2008.

In support of the contention that there was nothing wrong with this certificate,

Country Cloud presented the evidence of Dr Tembalegise Lupepe, who was the

founder of and driving force behind Country Cloud. For the contrary proposition,

the department relied on the testimony of one Mr Wayne Broughton, a senior

employee of SARS. The only other witness of note was Mr Mohlomphegi Thulare,

a departmental official, who was called by the department to testify in support of

its non-compliance defence.

At the end of the trial the court a quo was thus enjoined to decide three issues:

(a) whether the award of the completion contract to Ilima was valid and lawful;

(b) whether the contract was validly cancelled on the basis that the clearance certificate

provided by Ilima was invalid; and

(c) whether the department could be held liable in delict for the damages allegedly sustained

by Country Cloud as a result of the repudiation of the contract by Buthelezi on behalf of the

department.

The court a quo decided first to consider the issue in (a). It then concluded that

the award of the contract to Ilima was indeed invalid and unlawful. In

consequence, the court found it unnecessary to embark upon the other two

issues at all.

Without any intent to be uncharitable, the defence on which the department

eventually succeeded was — perhaps in retaliation to the similar lackadaisical

approach to pleadings adopted by Country Cloud —introduced at a very late

stage by means of an ineptly drafted amendment to the plea, and then

presented in an even worse way. The factual basis advanced for the alleged

unlawfulness of the award of the completion contract was that it was not

21 | P a g e

advertised and that it did not go through the tender and bidding process. The

legal basis pleaded was that the award of the tender was therefore 'contrary to

the procurement regulations and policies' of the department.

At the trial the department sought to establish this defence through the evidence

of Thulare. It then emerged that the legal basis for the defence had nothing to

do with 'departmental policy' but instead derived from a myriad of statutory

provisions, including the Public Finance Management Act 1 of 1999 (the Act);

Preferential Procurement Policy Framework Act 5 of 2000; regulations

promulgated under these Acts; practice notes issued by the National Treasury,

and so forth. Relying on these statutory provisions, the theme of Thulare's

testimony proved to be that —

(a) as a general rule, procurement of goods and services by the department had to follow

the prescribed advertising and competitive bidding process which was not adopted in the

award of the completion contract;

(b) although the prescribed process could be departed from in cases of emergency, the

circumstances surrounding the award of the completion contract did not constitute a case

of emergency;

(c) the DAC, of which Thulare was a member, had recommended to Buthelezi that the

completion contract should once again go through the prescribed process, which advice

Buthelezi had refused to follow.

Undoubtedly as a result of the way in which this defence was presented, the

court a quo gained the impression, which proved to be mistaken, that the

authority to decide whether or not deviation from the prescribed process was

justified, did not rest with Buthelezi but with the DAC. Since the DAC, 'to which

Buthelezi . . . was accountable, did not approve the deviation from inviting

competitive bids', so the court held, the completion contract was concluded

without authority.

In consequence the department could not be held liable under the completion

contract. On appeal it was common cause, however —

(a) that ss 38 – 44 and the practice notes issued by National Treasury bestowed the

authority to deviate from the prescribed procedure on the 'accounting officer';

(b) that in terms of s 36 of the Act, Buthelezi was indeed the accounting officer; and

(c) that Buthelezi therefore had the authority to ignore the DAC's advice that the

completion contract should again go out to tender.

The interpretation of the relevant statutory provisions thus accepted by counsel

for both parties — which the court regard as correct — essentially deprived the

judgment of the court a quo of its whole substructure, ie that Buthelezi had no

authority to deviate from the prescribed procedure. Nonetheless, the department

contended that the award of the contract was unlawful on the basis that the

circumstances surrounding the award did not qualify as a case of emergency. In

support of this contention it relied on the evidence of Thulare.

The court held that there are at least three reasons why the above reliance on

the evidence of Thulare cannot be sustained. First, Thulare's opinion is

22 | P a g e

inadmissible on matters of law. Secondly, insofar as his opinion pertained to

matters of fact, it was equally inadmissible since he was not called as an expert

witness. Thirdly, the court cannot see why his opinion should be preferred to

that of Buthelezi and other senior members of the department who held the view

that the completion of the Zola Clinic was indeed required as a matter of

urgency.

In this light the court concluded that the department's defence resting on an

unlawful award of the completion contract, should not have been upheld.

The department's further defence, based on the proposition that the completion

contract was validly cancelled, can be disposed of with even less ado. It will be

remembered that this defence was based on the premise that the tax clearance

certificate submitted by Ilima was false. At the trial the department set out to

establish this defence through the evidence of Broughton, a senior official in the

employment of SARS. Since Broughton was not directly involved with the issue

of the certificate, the high-water mark of his evidence was, however, that the

certificate should not have been issued. The basis he advanced for this view was

that, at the time the certificate was issued, Ilima's tax affairs were in serious

disarray. Under cross-examination he conceded, however, that a tax clearance

certificate could nonetheless be issued if Ilima had come to an arrangement with

SARS. He further conceded that he could not exclude the possibility that such an

arrangement had in fact been reached. These concessions in turn led to the

concession by counsel for the department — which was, in my view, rightly and

fairly made — that the defence based on cancellation of the completion contract

could not be sustained.

This leads to a consideration of the department's further defence that, in any

event, it cannot be held liable in delict for the damages claimed because Country

Cloud had failed to establish the element of wrongfulness, which is essential for

Aquilian liability. The contention must of course be understood in the light of the

evolution of our law with regard to delictual liability for pure economic loss that

started with the decision of this court in Administrateur, Natal v Trust Bank van

Afrika Bpk F 1979 (3) SA 824 (A). Prior to Trust Bank Aquilian liability was

limited, as a general rule, to loss resulting from physical injury to the person or

property of the defendant. But in Trust Bank it was extended to liability for pure

economic loss. What Rumpff CJ immediately realised in that case (at 833A) was

that this extension gave rise to the danger of 'oewerlose aanspreeklikheid'

(limitless liability). Experience tells us that economic effects are not subject to

the laws of physics. They can be much more widely spread. Hence the problem

of the extension was one of limitation. Or, as this court said in Fourway Haulage

SA (Pty) Ltd v SA National Roads Agency Ltd 2009 (2) SA 150 (SCA) para 17,

when we abolished the absolute exclusion of liability for pure economic loss, we

abandoned the bright line of limitation. That gave rise to the question: where is

the next bright line to be drawn?

23 | P a g e

What Rumpff CJ decided in Trust Bank was to cast the element of wrongfulness

in the role of an instrument of control to prevent limitless liability. In this way

the role of wrongfulness became far more pivotal than the one it traditionally

performs with reference to conduct causing physical harm. In the latter situation

wrongfulness is rarely contentious. In fact, in these cases wrongfulness is

presumed with the result that the onus is on the defendant to exclude the

inference of wrongfulness arising from physical harm. But in the case of pure

economic loss, wrongfulness performs the function of a safety valve, a control

measure, a long stop which enables the court to curb liability where despite the

presence of all other elements of the Aquilian action, right-minded people will

regard the imposition of liability as untenable. Decisions building upon Trust

Bank demonstrate the clear recognition by different members of this court that

wrongfulness in the context of delictual liability for pure economic loss is

ultimately dependent on an evaluation based on considerations of legal and

public policy. The enquiry is thus: do these policy considerations require that

harm- causing conduct should be declared wrongful and consequently render the

defendant liable for the loss, or do they require that harm should remain where

it fell, ie with the plaintiff?

Yet, for some or other reason there was a clear reluctance, during the early

stages of the development of the delictual action for pure economic loss, to

admit that we are dealing with considerations of policy. Perhaps the reluctance

was motivated by fear that an express reference to vague notions of policy

would fuel the criticism of those who contended that the extension of liability in

Trust Bank would result in the substitution of judicial discretion for principle. But

whatever the reason, in Trust Bank Rumpff CJ (at 833A) introduced the concept

of a 'legal duty' as the yardstick to determine when policy considerations will

require the imposition of delictual liability for pure economic loss. With the

passage of time, further attempts were made to formulate some practical

yardstick for this purpose. Included amongst these was the concept of the 'boni

mores' or 'legal convictions' of the community; and the 'general criterion of

reasonableness', which poses the question whether or not it would be reasonable

to impose liability on the defendant. Unfortunately, these yardsticks gave rise to

confusion. While the concept of a 'legal duty' was often confused with the

concept of a 'duty of care' in English law — which straddles both wrongfulness

and negligence — the 'general criterion of reasonableness' was frequently

associated with the reasonableness of the defendant's conduct, which is an

element of negligence.

Our case law illustrates that this confusion had practical consequences in that it

often led to a complete negation of either negligence or wrongfulness. The court

raised this because, despite the frequent warnings against this confusion by this

court over the last 10 years, it again raised its head right throughout the

proceedings in this case.

24 | P a g e

Fortunately, in the light of the confusion caused by the yardsticks, our courts

have since found their way open to acknowledge in express terms that

wrongfulness, in the context of delictual liability, is determined by considerations

of legal and public policy. This appears, for instance, from the following

statement by the majority of the Constitutional Court in Le Roux v Dey (Freedom

of Expression Institute and Restorative Justice Centre as Amici Curiae)2011 (3)

SA 274 (CC) (2011 (6) BCLR 577) para 122:

'In the more recent past our courts have come to recognise, however, that in the context

of the law of delict: (a) the criterion of wrongfulness ultimately depends on a judicial

determination of whether — assuming all the other elements of delictual liability to be

present — it would be reasonable to impose liability on a defendant for the damages

flowing from specific conduct; and (b) that the judicial determination of that

reasonableness would in turn depend on considerations of public and legal policy in

accordance with constitutional norms. Incidentally, to avoid confusion it should be borne in

mind that what is meant by reasonableness in the context of wrongfulness has nothing to

do with the reasonableness of the defendant's conduct, but it concerns the reasonableness

of imposing liability on the defendant for the harm resulting from that conduct.

Pivotal to Country Cloud's contention as to why considerations of public policy

dictate the imposition of delictual liability on the department, was the

proposition that Buthelezi cancelled the completion contract without any legal

justification and that he did so with the intent — at least in the form of dolus

eventualis — to repudiate the contract. Stated somewhat differently, in the

language of dolus eventualis, Buthelezi subjectively foresaw the possibility that

he had no legitimate grounds to cancel the contract, but reconciled himself to

that possibility and nonetheless continued to do so, regardless of the

consequences. That, so the argument went, distinguishes this case from the

situation where the degree of blameworthiness associated with the repudiation

of a contract can be placed no higher than negligence.

As to the factual basis for its contention regarding Buthelezi's state of mind,

Country Cloud relied on the following:

(a) The evidence by Thulare that Buthelezi came under severe pressure, not only from the

department itself, but also in the media, for not following the recommendation of the DAC

to put the completion contract out to tender and that he was desperately looking for

reasons to cancel.

(b) The allegation in Country Cloud's particulars of claim to the effect that the department

intentionally cancelled the contract without any legitimate grounds for doing so.

(c) The fact that it must have been patently clear to the department that the sting in that

allegation was pointed directly at Buthelezi and that the department nonetheless failed to

call him as a witness.

(d) The fact that the two grounds for cancellation of the completion contract advanced by

Buthelezi both proved to be entirely unfounded.

These circumstances, so Country Cloud argued, gave rise to the inference that

Buthelezi at least foresaw that the cancellation was unjustified and that he

reconciled himself to that possibility. Absent any explanation by Buthelezi, so the

argument went, that inference became the most probable one. Despite the

25 | P a g e

department's arguments to the contrary, it seems to the court that the logic of

Country Cloud's reasoning cannot be faulted. In consequence, the factual basis

of the policy consideration for which Country Cloud contends appears to be well

founded.

For the legal basis of the policy consideration based on the blameworthiness of

Buthelezi's state of mind, Country Cloud sought to find support in the following

statement by this court in Minister of Finance and Others v Gore NO 2007 (1) SA

111 (SCA) ([2007] 1 All SA 309) para 86:

'We do not think that it can be stated as a general rule that, in the context of delictual

liability, state of mind has nothing to do with wrongfulness. Clear instances of the contrary

are those cases where intent, as opposed to mere negligence, is itself an essential element

of wrongfulness. These include intentional interference with contractual rights and unlawful

competition.'

Again, the court find no fault with Country Cloud's point of departure that,

generally speaking, the nature of the defendant's fault and the degree of

blameworthiness of the conduct are policy considerations that can legitimately

be taken into account in deciding whether or not delictual liability should be

imposed.

Under the Aquilian action, so they say, the element of fault is satisfied by either

negligence or intent. As a general rule, no weight is therefore given, under the

rubric of fault, to the degree of blameworthiness or any reprehensible motive on

the part of the defendant. This is so because the element of fault leaves no

scope for considerations of policy. In determining wrongfulness, on the other

hand, these very considerations of policy do indeed come into play. But it goes

without saying, as is underscored by Loubser et al op cit 157, that

'(i)ntentionally causing harm to others will not always be wrongful' and that 'intent does

not necessarily indicate wrongfulness'.

In the end the nature of the fault and the degree of blameworthiness are

therefore considerations to be weighed up with all others in determining whether

delictual liability should be imposed.

With reference to the quotation from Gore NO, it will be realised that the present

is not the type of situation contemplated in cases such as Dantex. In those cases

a delictual remedy is afforded to a party to a contract who complains that a third

party — who is a stranger to the contract — has intentionally deprived him or

her of the benefits he or she would otherwise have obtained from performance

under the contract. Examples include preventing a lessee from taking occupation

of the leased property in terms of the lease (Dantex); enticing another person's

employees to breach the contract.

For Country Cloud to succeed, the court must extend delictual liability to a

contracting party for damages suffered by a stranger to the contract resulting

26 | P a g e

from the intentional repudiation of the contract by that contracting party. This,

as counsel for Country Cloud rightly conceded, has never been done before. And,

as Grosskopf AJA said in Lillicrap, Wassenaar and Partners v Pilkington Brothers

(SA) (Pty) Ltd1985 (1) SA 475 (A) at 504F – G:

'South African law [unlike English law] approaches the matter in a more cautious way, as I

have indicated, and does not extend the scope of the Aquilian action to new situations

unless there are positive policy considerations which favour such an extension.'

Aside from intent on the part of Buthelezi, the only other positive policy

consideration proposed by Country Cloud in favour of imposing delictual liability

on the department is that all departmental officials involved, including Buthelezi,

foresaw the damages that it would suffer if they were to repudiate the

completion contract.

The judge stated that foreseeability of harm has in the past been recognised by

this court as a factor in establishing wrongfulness. Nonetheless, the judge had

some reservation about this approach, mainly because it is bound to add to the

confusion between negligence and wrongfulness. Moreover, foreseeability is a

requirement for negligence and also plays a role in the determination of legal

causation. A defendant will therefore not be held liable for harm which was not

foreseeable.

The court held that since foreseeability of harm is a prerequisite for delictual

liability in all cases, that feature cannot render the claim by Country Cloud

deserving of special treatment. Imposition of delictual liability on the department

in this case will therefore as a general principle render contracting parties liable

in delict for harm suffered by strangers which flows from the repudiation of their

contracts.

The realisation that this is so immediately raises a feature which is generally

regarded as a strong pointer away from the imposition of delictual liability,

namely that of indeterminate liability. In fact, this consideration is directly linked

to the very reason for the initial doubt as to whether pure economic loss should

be actionable at all. If delictual liability were to be imposed on the department

for the loss suffered by Country Cloud, what about all others who lent money to

Ilima? And what about Ilima's employees? And what about its subcontractors?

In argument, counsel for Country Cloud was constrained to concede that there

would be no difference in principle between these potential claimants, on the one

hand, and Country Cloud, on the other. What exacerbated that difficulty was

counsel's further concession, rightly made, that there appears to be no reason

why the claims of all these potential claimants would not be cumulative with one

another and with the contractual claim of Ilima as well.

The problems of limitation thus arising are reminiscent of those referred to by

Schreiner JA in Union Government v Ocean Accident and Guarantee Corporation

27 | P a g e

Ltd1956 (1) SA 577 (A) at 585B – D. In that case the government claimed for

the loss it had suffered as a result of negligently inflicted injury to a government

employee (a magistrate). In explaining why this court declined to expand

Aquilian liability beyond the injured person himself to those who may indirectly

suffer harm as a result of the injury, Schreiner JA said (at 585F – H):

'Once one goes beyond physical proximity and considers the possibilities that may arise

out of the relationships, contractual or other, between the physically injured person and

other persons who may suffer indirectly, though materially, through his incapacitation, one

is immediately met with the prospects of an unmanageable situation. It is easy to imagine

the absurdities that would arise if all persons contractually linked to the injured person

could sue the careless injurer for the loss suffered by them. The case was put to us of the

injured building contractor who in consequence of his injury has to discontinue his

contract, so that his employees and the building owner and the architect and his sub-

contractors and their employees are all put to some loss.'

A further consideration which weighs heavily against the imposition of delictual

liability on the department, in the circumstances of this case, is the one that has

become known in the context of wrongfulness as the plaintiff's 'vulnerability to

risk'.

As developed in our law under the influence of Australian jurisprudence,

vulnerability to risk signifies that the plaintiff could not reasonably have avoided

the harm suffered by other means. What has by now become well established in

our law is that the finding of non-vulnerability on the part of the plaintiff is an

important indicator against the imposition of delictual liability on the defendant.

The import of this consideration is best illustrated, I think, by McHugh J in Perre

v Apand (Pty) Ltd (1999) 198 CLR 180 (HCA) para 118:

'Cases where a plaintiff will fail to establish a duty of care [or wrongfulness in the parlance

of our law] in cases of pure economic loss are not limited to cases where imposing a duty

of care would expose the defendant to indeterminate liability or interference with its

legitimate acts of trade. In many cases there will be no sound reason for imposing a duty

on the defendant to protect the plaintiff from economic loss where it was reasonably open

to the plaintiff to take steps to protect itself. The vulnerability of the plaintiff to harm from

the defendant's conduct is therefore ordinarily a prerequisite to imposing a duty. If the

plaintiff has taken or could have taken steps to protect itself from the defendant's conduct

and was not induced by the defendant's conduct from taking such steps, there is no reason

why the law should step in and impose a duty on the defendant to protect the plaintiff

from the risk of pure economic loss.'

In this case it is clear that there were at least two alternative remedies available

to Country Cloud to recover its loss. It could either have claimed repayment

from Ilima in terms of the contract of loan or it could have taken cession of

Ilima's claim against the department. The reason why it did neither is not

explained. The contention on behalf of Country Cloud was that, because of

Ilima's insolvency, it was not able to recover its claim in full. But there is more

than one answer to this contention. First, it still does not explain why Country

Cloud did not take cession of Ilima's claim against the department if the

liquidators elected not to pursue their claim. Secondly, there is no reason to

think that if Ilima or its liquidator had successfully pursued its claim for breach

28 | P a g e

of contract against the department, it would still be unable to repay Country

Cloud. Thirdly, if Ilima would remain unable to pay Country Cloud despite its

success against the government, the cause of Country Cloud's loss would no

longer lie in the department's breach but in Ilima's insolvency.

Once Ilima is — by means of an award of damages in contract — placed in the

position it would have been if the department had complied with its obligations,

any further damage that Country Cloud could suffer could no longer be laid at

the door of the department.

It follows that there is no room for the imposition of delictual liability on the

department for the loss claimed by Country Cloud. In the result the court agreed

with the court a quo's finding — albeit for reasons that are quite different — that

Country Cloud's claim could not succeed.

The court ordered that the appeal should be dismissed with costs, including the

costs of two counsel.

Analysis:

This case is relevant to the cidb and the construction industry at large as it

considers the imposition of delictual liability in circumstances where it has never

been imposed before, namely where a stranger to a contract had suffered

economic loss as a result of the intentional repudiation of the contract by one of

the contracting parties.

29 | P a g e

ALLPAY CONSOLIDATED INVESTMENT HOLDINGS (PTY) LTD AND

OTHERS v CHIEF EXECUTIVE OFFICER, SOUTH AFRICAN SOCIAL

SECURITY AGENCY, AND OTHERS 2014 (1) SA 604 (CC)

Case No

CCT 48/13

[2013] ZACC 42

Court Constitutional Court

Judge

Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J,

Nkabinde J, Skweyiya J, Van Der Westhuizen J, Zondo J, Madlanga J

and Mhlantla AJ

Heard September 10, 2013

Judgment November 29, 2013

Facts:

AllPay Consolidated Investment Holdings (Pty) Ltd (AllPay); an unsuccessful

bidder in a tender invited by the South African Social Security Agency (SASSA)

for the administration of social grant payments to beneficiaries challenged the

awarding of the tender to Cash Paymaster Services (Pty) Ltd (CPS) in the North

Gauteng High Court.

North Gauteng High Court had declared the process followed in awarding the

tender illegal and invalid but declined to set it aside because it would have

disrupted the payment of social grants.

AllPay appealed to the Supreme Court of Appeal (SCA) against the refusal to set

the award aside, and CPS cross-appealed against the declaratory order. The SCA

upheld the cross-appeal and dismissed the appeal, finding that the alleged

irregularities were not unlawful, and commenting that public interest dictated

that a procurement process should not be invalidated for minor inconsequential

flaws.

The SCA also rejected, inter alia, AllPay's challenge of SASSA's alleged failure to

assess the ability of Cash Paymaster's black economic empowerment partners to

perform the tender.

In AllPay's further appeal to the Constitutional Court, the court held that

'inconsequential irregularities' were of no moment conflated the test for

irregularities and their import. An assessment of the fairness and lawfulness of

30 | P a g e

the procurement process must be in terms of the provisions of the Promotion of

Administrative Justice Act 3 of 2000 (PAJA), independent of the outcome of the

tender process.

The proper approach was to establish, factually, whether an irregularity

occurred; and then to legally evaluate the irregularity to determine whether it

amounted to a ground of review under PAJA. This legal evaluation must, where

appropriate, take into account the materiality of any deviance from legal

requirements before concluding that a review ground under PAJA has been

established. (The materiality of compliance with legal requirements depended on

the extent to which the purpose of the requirements was attained; and was

primarily determined by assessing whether the purposes the tender

requirements were intended to serve had been substantively achieved.)

Once a ground of review under PAJA had been established, s 172(1)(a) of the

Constitution required the decision to be declared unlawful. The consequences of

the declaration of unlawfulness must then be dealt with in a just and equitable

order under s 172(1)(b), to which s 8 of PAJA gave detailed legislative content.

It was at this remedy stage that appropriate attention had to be given to the

public interest in the consequences of setting the procurement process aside.

The constitutional and legislative procurement framework (provided by s 217 of

the Constitution, the Procurement Act 5 of 2000 and the Public Finance

Management Act 1 of 1999) entailed supply chain management prescripts that

were legally binding. Once a particular administrative process was prescribed by

law, it was subject to the norms of procedural fairness codified in PAJA. The

central focus of this enquiry was not whether the decision was correct, but

whether the process was reviewable on the grounds set out in PAJA. If a court

found that there were valid grounds for review, it was obliged to enter into an

enquiry with a view to formulating a just and equitable remedy. That enquiry

must entail weighing all relevant factors, after the objective grounds for review

had been established.

The SCA's analysis fell short of considering the crucial role reserved for

transformation in the procurement process. Economic redress for previously

disadvantaged people was at the heart of our constitutional and legislative

procurement framework. The definition of broad-based black economic

empowerment under the Empowerment Act indicated an intention not merely to

afford inclusion or redistribution, but to involve black people in management and

control of businesses, and to facilitate skills development. There was an

obligation on SASSA to ensure that the empowerment credentials of the

prospective tenderers were investigated and confirmed before the award was

finally made.

31 | P a g e

Substantive empowerment, not mere formal compliance, was what mattered.

Given the central and fundamental importance of substantive empowerment

under the Constitution and the Procurement and Empowerment Acts, SASSA's

failure to ensure that the claimed empowerment credentials were objectively

confirmed was fatally defective. It was difficult to think of a more fundamentally

mandatory and material condition prescribed by the constitutional and legislative

procurement framework than objectively determined empowerment credentials.

The failure to make that objective determination fell afoul of s 6(2)(b) of PAJA

(non-compliance with a mandatory and material condition) and s 6(2)(e)(iii)

(failure to consider a relevant consideration).

The award of the tender to Cash Paymaster was declared constitutionally invalid,

such declaration suspended pending confirmation of a just and equitable

remedy.

Analysis:

This case is relevant to the cidb and the construction industry at large as it

considers whether an irregularity in the procurement process was reviewable on

the grounds set out in Promotion of Administrative Justice Act 3 of 2000.