---

Reportable

IN THE HIGH COURT OF SOUTH

(EASTERN CAPE DIVISION)

Case No: CA 343/06

In the matter between:

KOUGA MUNICIPALITY APPELLANT

And

ANDRE GERHARDUS DE BEER FIRST RESPONDENT

MARINA DE BEER SECOND RESPONDENT

CORAM: JONES, CHETTY JJ AND BESHE AJ

DATE HEARD 17 April 2007

DATE DELIVERED: 10 May 2007

SUMMARY: Municipality – whether decision pertaining to property owned by it amounting to administrative action – remedies – constitutional damages.

______________________________________________________

JUDGMENT

CHETTY, J:

[1] This appeal and cross-appeal against a judgment and orders of Goosen AJ, with the necessary leave of the learned judge, concerns a business styled the Ocean Mill restaurant (the premises) situate in the Shell Museum complex in the seaside town of Jeffreys Bay owned by the appellant and leased to the respondents in terms of a written agreement of lease. Clause 11 of the agreement obligated the appellant not to withhold its consent unreasonably in the event of the respondents seeking to cede any or all of their rights under the lease agreement and it is the appellant’s refusal to consent thereto which gave rise to an opposed application in the court a quo, in which the respondents sought declaratory relief framed in the amended notice of motion as:-

‘(b) that the Respondent be ordered to consent to the cession of the lease entered into between the Applicants and the Respondent on 16 March 2004 in respect of the portion of the second storey of the Shell Museum Complex, Jeffreys Bay, to Twilight Breeze Trading 102 CC (annexure “G” to the founding affidavit) as from 31 March 2006;

3. alternatively that clause 2 of the said lease agreement be rectified to reflect a termination date of 16 October 2008;

4. further alternatively that the decision of the First Respondent not to consent to a cession of the said lease to Twilight Breeze Trading 102 CC taken at the end of March 2006 be reviewed and set aside and replaced with a decision consenting to the cession of the said lease as at the end of March 2006;

(dA) further alternatively declaring that the Respondent’s refusal to consent to the cession by the Applicants of the lease entered into between them and the Respondent on 16 March 2004 aforesaid to Twilight Breeze Trading 102 CC be declared to have been unreasonable and entitling the Applicants to cede the said lease to Twilight Breeze Trading 102 CC retrospective as from 31 March 2006;

3. that the Respondent be ordered to pay the costs of the application;

4. further and/or alternative relief.

2. The trial court in due course delivered a fully reasoned judgment. It refused the relief sought in paragraph (c) of the amended notice of appeal (hence the cross-appeal) but granted orders in the following terms viz:-

“[79] I accordingly make the following order:

1. It is declared that the Respondent’s refusal to consent to a cession by the Applicants of the lease agreement entered into between the Applicants and the Respondent on 16 March 2004 to Twilight Breeze Trading 102 CC was unreasonable and unlawful;

2. The decision by the Respondent to refuse its consent to the aforesaid cession of the lease agreement taken during March 2006 is set aside;

3. The Respondent is ordered to pay the costs of the application, such costs to include the costs occasioned by the postponement of the matter on 3 August 2006.”

3. The issues which fall for decision are –

(i) whether the court a quo erred in finding that the appellant’s refusal to consent to a cession of the lease constituted administrative action;

(ii) in that event, whether the court a quo erred in then not finding that the relief sought was purely academic and the orders sought of no practical effect in as much as the lease agreement expired at the end of August 2006 (a day prior to the judgment being delivered);

(iii) whether the court a quo erred in not ordering rectification of the lease agreement; and

(iv) costs, including those occasioned by the postponements.

Before dealing herewith it is convenient to begin with a synopsis of the factual background for these have a decisive bearing on the issues raised both in the court a quo and before us.

The Factual Background

[4] Towards the latter part of 2001 a Mr and Mrs Thompson entered into an agreement of lease with the appellant in respect of the premises and commenced operating the Ocean Mill Restaurant. In due course they sold the restaurant to a Mr and Mrs Harris and ceded the lease to them with the consent of the appellant. During the latter part of 2003 the respondents purchased the restaurant from Mr and Mrs Harris, the sale being subject to the appellant’s consent to a cession of the lease to them. They commenced trading on 18 November 2003 and, notwithstanding the cession covenant, the parties concluded a new agreement of lease during March 2004. The agreement inter alia stipulated that the business be utilised for the purposes of a restaurant, the lease period would commence on 16 November 2003 and terminate on 30 August 2006, that the respondents could not, without the written consent of the appellant first having been obtained sublet the premises or cede or assign the lease and that such consent would not unreasonably be withheld. By February 2006 the business had grown substantially and having been approached by an interested purchaser the respondents sought the appellant’s consent to a cession of the lease to the prospective purchaser, Collins. No response was received. In March 2006 the respondents once more sought the appellant’s consent for a cession of the lease to another prospective purchaser, Twilight Breeze Trading 102 CC (Twilight). Ultimately at the end of March the respondents were notified that the consent sought was refused. The respondents subsequent application to renew the lease in terms of the option to renew clause (24) was likewise not approved.

[5] Subsequent events as recounted by the respondents after the refusal to consent to the cession to them remain uncontroverted, and, as pointed out by the learned judge, highly relevant to the enquiry whether the appellant acted unreasonably in refusing its consent to the cession. During argument before us Mr van der Linde submitted that the unreasonableness of the appellant’s refusal to consent was no longer an issue between the parties. The submission went unchallenged, and correctly so, in my view. There is consequently no need to consider that evidence save to make the observation that the appellant’s functionaries conduct in seeking to themselves derive financial benefit from the property is to be deprecated.

The Cross-Appeal

The Claim of Rectification

[6] It is common cause that should the claim for rectification have succeeded, caedit questio, the respondents would have been entitled to an order in terms of prayer (b) of the amended notice of motion. The high water mark underpinning the respondents’ claim for rectification is the inclusion of the word “further” in the option to renew clause (24) of the agreement of lease. They claimed that they failed to pay any attention whatsoever to the commencement and termination dates on the agreement of lease (notwithstanding the dates being typed in bold numbering and the relevant pages being signed by them) because the estate agent had informed them that the appellant’s standard lease period was 4 years and 11 months with an option to renew for such further period. The trial court dealt comprehensively with the argument advanced before concluding that it lacked substance. That finding is in my view unassailable. The evidence adduced by the respondents to sustain the submission is woefully inadequate to show that the commencement and termination date was a mistake common to the parties. The “mistake” was purely unilateral on the part of the respondents and of their own doing.

The Appeal

[7] Did the refusal to consent to the cession amount to administrative action?

The question whether particular conduct constitutes administrative action was extensively debated both in the court a quo and before us. Various cases were cited and in considering the competing submissions it must be emphasized that our constitution has not only enhanced the status of a municipality but accords it powers which, like other organs of state, can be reviewed by the courts. Cameron, J.A’s observation in CDA Boerdery (Edms) Bpk and Others v The Nelson Mandela Metropolitan Municipality and Others [2007] SCA 1 (RSA) that:-

“[37] . . . The constitutional status of local government is therefore ‘materially different from the pre-constitutional era”

emphasizes the altered status of a municipality. It is implicit from the judgment that the court a quo recognized this phenomenon. The “raft of legislative measures” referred to by the judge and which underscore this change in status of a municipality no doubt influenced him in concluding that the latter’s decision whether to consent to a cession of a lease agreement or not constitutes administrative action. That conclusion is reinforced regard being had to the object of the Local Government: Municipal Finance Management Act 56 of 2003 which reads:-

“. . . to secure sound and sustainable management of the fiscal and financial affairs of municipalities and municipal entities by establishing norms and standards and other requirements for –

1. ensuring transparency, accountability and appropriate lines of responsibility in the fiscal and financial affairs of municipalities and municipal entities;

2. the management of their revenues, expenditure, assets and liabilities and the handling of their financial dealings;

3. budgetary and financial planning processes and the co-ordination of those processes with the processes of organs of state in other spheres of government;

4. borrowing;

5. the handling of financial problems in municipalities;

6. supply chain management; and

7. other financial matters.” (emphasis supplied)

[8] In considering the competing submissions advanced in behalf of the parties the trial court accepted that under the Promotion of Administrative Justice Act 3 of 2003 (PAJA) conduct only amounts to administrative action if it involves the exercise of public power or the performance of a public function in terms of any legislation. After an examination of the suite of legislative provisions in particular the Local Government: Municipal Finance Management Act 56 of 2003 and the Supply Chain management Policy Regulations, the judge concluded that the decision whether or not to consent to a cession of a lease involving municipal property amounts to administrative action. It undoubtedly was. As Nugent J.A. concisely remarked in para [24] in Grey’s Marine Hout Bay Ltd v Minister of Public Works and Others [2005] ZASCA 43; 2005 (6) SA 313 SCA:-

“[24] Whether particular conduct constitutes administrative action depends primarily on the nature of the power that is being exercised rather than upon the identity of the person who does so. Features of administrative action (conduct of ‘an administrative nature’) that have emerged from the construction that has been placed on s 33 of the Constitution are that it does not extend to the exercise of legislative powers by deliberately elected legislative bodies, nor to the ordinary exercise of judicial powers, nor to the formulation of policy or the initiation of legislation by the executive, nor the exercise of original powers conferred upon the President as head of State. Administrative action is rather, in general terms, the conduct of the bureaucracy (whoever the bureaucratic functionary might be) in carrying out the daily functions of the State, which necessarily involves the application of policy, usually after its translation into law, with direct and immediate consequences for individuals or groups of individuals.”

Academic Interest

[9] The judgment is further impugned on the basis that the declarator sought would be of academic interest only and of no practical effect. This was pertinently dealt with by the trial court. Cognisant of the fact that the declaratory relief sought “may not (have) entitled the applicant to seek any consequential relief” the trial court nonetheless exercised the discretion vested in it by determining the issues raised in favour of the respondents. It did so by holding that the refusal to consent to the cession of the lease was both unreasonable and unlawful. The remedy it seems the court had in mind to redress the untenable situation the respondents had been placed in was the recognition of an action for constitutional damages. Although Mr van der Linde urged us to make an order entitling the respondents to cede the lease retrospectively to Twilight, such an order would be entirely meaningless. A similar order was sought in the court a quo and refused, no doubt, because of the impracticality of such an order. That uncertainty has been exacerbated by the passage of time that has elapsed since the judgment in the court a quo was delivered and no purpose would be gained by such an order. The only effective order was the one made by the court a quo for it implicitly recognised that the grant of the declarator ultimately ordered would entitle the respondents, if so advised, to institute an action for constitutional damages by reason of the appellant’s breach of their constitutional duty to act in conformity therewith. Consequently, the submission advanced on behalf of the appellant that the declarator sought was of academic interest only and of no practical effect is untenable and falls to be rejected. See in this regard Fose v Minister of Safety and Security [1997] ZACC 6; 1997 (3) SA 786 (CC) at paras [94] to [101]; President of the RSA v Modderklip Boerdery (Pty) Ltd 2004 (6) SA 40 SCA para [42].

[10] This conclusion renders it unnecessary to consider the interesting question whether the decision in Herbert Porter and Another v Johannesburg Stock Exchange 1974 (4) SA 781 (W) Armstrong v De Kock 1954 (4) SA 42 (O) to the effect that when the lessor has unreasonably withheld his consent the lessees are limited to sublet without consent and resist legal action taken by the lessor or to approach the court for declaratory relief was correct or not. The invitation to do so, must in the light of the conclusion arrived at, be declined.

The Condonation Application

[11] The appellant’s application for condonation for the timeous prosecution of the appeal was contested primarily by reason of the alleged paucity of the explanation for the delay. But, as remarked upon by Howie JA in Squid Packers v Ollemans [2003] 1 ALLSA 98 (SCA) para [48]:-

“The drawback of a less than satisfactory explanation for an applicant’s default can, on ample authority be outweighed by the advantage of its having a strong case on the merits.”

In my view a ‘strong case’ cannot be equated to a winning case, the absence of which would disentitle a litigant to an order for condonation. In exercising a discretion whether to grant condonation all relevant factors have to be considered. I am unable to find that the argument advanced on appeal is so devoid of merit that condonation ought not to be granted.

Costs

[12] The trial judge dealt with the reserved costs of the postponements as follows:-

“[78] Whilst the first postponement was afforded in order to enable the Respondent to file a further affidavit, the question as to the reasonableness of the Respondents decision was not introduced as an issue by the amendment of the notice of motion. That issue was clearly raised in the Applicant’s founding affidavit and should properly have been addressed in the Respondent’s original opposing affidavits. I can accordingly see no reason why the costs of that postponement should not follow the result.”

In exercising the discretion vested in him he awarded the costs to the respondents. There is no valid basis to interfere in the exercise of that discretion.

The Orders

[13] In the result I make the following orders:

1. The application for condonation is granted, the costs of which are to be paid by the appellant, including the costs of the opposition.

2. The cross-appeal is dismissed with costs.

3. The appeal is dismissed with costs.

________________________

D. CHETTY

JUDGE OF THE HIGH COURT

Jones, J

I agree.

______________________

J.R.W JONES

JUDGE OF THE HIGH COURT

Beshe, AJ

I agree.

______________________

N. G BESHE

ACTING JUDGE OF THE HIGH COURT

Obo the Appellant: Adv Beyleveld

Obo the Respondent: Adv Van der Linde

---