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IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

REPUBLIC OF SOUTH AFRICA

Not reportable

Not of interest to other judges

Revised.

29 September 2017

Date of submission: 6 September 2017

Date of judgment: 29 September 20 17

Case number 36801/2014

In the matter between:

GWAM PROPERTIES CC                                                                                          Plaintiff

versus

THE MINSTER OF TRADE AND INDUSTRY                                                       Defendant

 

JUDGMENT

 

BRENNER, AJ:

1. This case came before me as a stated case in terms of rule 33 of the uniform rules of court. The issues hinged on the interpretation of a contract executed on 28 November 2006, between the plaintiff, Gwam Properties CC ("Gwam"), and the defendant, the Department of Trade and Industry ("the DTI").

 

The admitted facts

2. The contract, which was prepared by the DTI, was designed for the DTI to make financial contributions to third parties, under defined conditions, to incentivize the development of businesses under what the DTI termed "the Small Medium Enterprise Development Programme" or "SMEDP". It is referred to below as "the contract". As will emerge below, it included a miscellany of documents. There is no dispute about which documents constituted the overall contract.

3. The stated case confirms that Gwam and the DTI were the contracting parties to the contract. The business which Gwam intended to develop was a guest house in Clarens.

4. The contract contemplated the submission of three claims by Gwam, over the passage of three years. The contract also anticipated the option of quarterly claims. In casu, a quarterly claim was submitted on 6 August 2010, but not paid. It was incorporated in the second annual claim. At the hearing, I was informed that Gwam did not persist with the quarterly claim. In the result, its claims were confined to the second and third annual claims.

5. The first annual claim was for the financial year from 1 March 2008 to 28 February 2009. It was required to be submitted to the DTI by 28 February 2010.It was submitted on 26 February 2010 and was duly paid.

6. The second annual claim for the year from 1 March 2009 to 28 February 2010 was required to be submitted to the DTI by 28 February 2011. t was submitted one year late, on 29 February 2012.

7. The third annual claim, for the year from 1 March 2010 to 28 February 2011, was required to be submitted to the DTI by 29 February 2012.It was submitted timeously, on 29 February 2012.

8. Gwam's claim is for payment of the second and third claims. The second claim was for R178 600,00 while the third was for Rl78 616,00, bringing the total to R357 216,00. The parties agreed in the stated case that such claims would still have to be verified in terms of the contract.

 

The issues

9. The DTI maintains that its policy amendment, dated 25 August 2010, which, in substance, constituted a unilateral variation of the contract, imposed a term on the contract that it would automatically terminate on the late submission of an annual claim. t is referred to below as "the policy amendment". This policy amendment was to apply to all claims received from 1October 2010, and thereafter. The policy amendment was published on the DT 's website and allegedly sent by email to all affected contracting parties, on or about 26 August 2010.

10. The policy amendment, as published on the website, reads:

"AUGUST 2010

Late submission of reconciliation or annual claims to result in automatic termination of the SMEDP contract

The Board approves that any late submission of a reconciliation or annual claim, by clients and/or consultants with the dti, will result in automatic termination of the SMEDP contract. The Policy will be applicable for claims received from 01 October 2010, and thereafter, at the dti."

11. According to the DTI, when, on 28 February 2011, the second claim was not submitted, the contract terminated. According to Gwam, Gwam asked for an extension until April 2011 to submit its second claim, and submitted this request by hand on 28 February 2011. But the DTI denies receipt of the request, and, in any event, denies having granted an extension. It merits mention that, even had the extension been granted, the second claim was not submitted in April 2011.It was submitted with the third claim, on 29 April 2012.

12. Pleading over, the DTI asserts that, in any event, in terms of the contract, a claim submitted out of time is not enforceable. Moreover, in terms of the contract, if claims for years 1 and 2 were not timeously submitted, the contract automatically terminated. On these grounds, claims two and three were unsustainable.

13. Gwam contends that any variation of the contract should have been agreed to by both parties, in terms of clause 9 .11of the contract. Gwam asserts that it did not receive notification of the policy amendment, whether via notice of publication on the DTI's website or through receipt of the DTI's letter of 26 August 2010. Therefore, it is not bound by the policy amendment or variation.

14. Gwam argues that the clause in the contract which provides for automatic termination only applies if both of the claims for years 1 and 2 are submitted out of time. Claim 1 was timeously submitted, and therefore, according to Gwam, the automatic termination clause does not apply.

15. It asserts that it had the right to an extension considering the fact that its consultant, one Koot Venter, had passed away. Although its own letter requests an extension to April 2011, the second claim was only submitted on 29 February 2012. This argument is only tenable if it is found that the DTI either gave an extension or was contractually bound to do so, and that an extension to 29 February 2012 either was or should have been given.

16. Alternatively, if it is found that the extension was not granted, or was not legally tenable, and that the second claim is unenforceable, Gwam argues that judgment should be given for its third claim.

 

The facts

17. It is necessary to quote relevant clauses in the contract, verbatim.

18. 0n 28 July 2005, Gwam applied to the DTI to join the SMEDP, so as to qualify for financial assistance.

19. On 20 October 2006, the CEO of the Enterprise Organisation signed a letter to Gwam to confirm its approval of the application. This is referred to as "the approval letter".

20. The terms of the approval letter were accepted by Gwam, by written signature dated 28 November 2006.

21. At page 5 of the approval letter, Gwam chose as its domicilium citandi et executandi for the service of legal documents and other notices the following address: Bondev Office Block C Floor, corner of Brakfontein and Ashford Avenue, Midstream Estate, Centurion.

22. Clause 7 of the SMEDP terms document mentioned below mentions that Gwam had selected its registered physical address as the address for service of legal documents and other notices. Gwam's CIPR 'certificate reflects its registered office as 3A Olen Lane Potchefstroom.

23. The approval letter, with accompanying annexures, was returned to the DTI on 7 December 2006. Reference to "the Board" in the contract means the Manufacturing Development Board. Paragraph G of the approval letter provides a description of the documents which, together, will constitute the contract. This provision is also contained in clause 9.10 of the SMEDP terms document mentioned below: Paragraph G reads, with my emphasis included:

"The application and supporting documents, claim form and supporting documents together with the contents of this document, the SMEDP Tourism terms and conditions brochure, and annexures hereto and any future amendments thereof by the Board. constitute the complete agreement between the entity and the Board and supercede all previous communications representations or agreements, either written or verbal."

24. There is no dispute that the document styled "SMEDP Tourism Terms and Conditions" contains further terms applicable to the relationship between the parties. t is referred to as "the SMEDP terms document".

25. Clause 2 of the SMEDP terms document deals with claim procedures, and the consequence of failing to timeously submit same, my emphasis included :

"2. CLAIM PROCEDURES

2.1 All claims must be submitted on and in accordance with the prescribed claim form as amended from time to time at the discretion of the Board.

2.2 It is an explicit condition of the contract that you should exercise your right to the approved incentives annually within a year from the end of your financial year to which your claim relates. Should you fail to comply wjth this condition, your relevant claims will not be enforceable.

3. INVESTMENT GRANT

The payment for the first year will be based on the qualifying assets as defined in paragraph 3.1 and as reflected in the audited/certified annual financial statements and reconciliation claim. The first three quarterly payments in the second year will be based on the final audited certified results of the first financial year/period.

Final payment in respect of the second and third year will be based on an audited/certified reconciliation claim as at the end of the second financial year based on the maximum investment in qualifying assets as approved by the Board."

26. Two clauses of significance to the issues are embodied in clause 8, and cater for the consequences of non-compliance by Gwam with its duties, my emphasis included:

"8 SUSPENSIVE CONDITIONS

8.1 (i) The Board will be entitled to terminate your incentives forthwith in the event of failure to comply with any of the terms and conditions of the contract or should it at any time appear to the Board that you are not proceeding with the project or that you have abandoned or suspended the activities listed in paragraph B of the contract.

8.5 It is a suspensive condition of the contract that if your relevant claims for both years 1 and 2 were not submitted and have expired, the contract terminates automatically and you will not be entitled to any incentives.”

27. Under its general conditions section, a non-variation clause appears, my emphasis included:

"9.11 No alteration or amendment or addendum or omission from the contract or waiver of rights, shall have an y force or effect unless it is effected in writing and approved by the Board."

 

Analysis

28. An overall examination of the contract makes it plain that strict adherence was required in regard to the deadline dates for submission of claims. The consequences of a failure to adhere to the time limits are spelt out unequivocally in the SMEDP terms document. Gwam was afforded a fair and reasonable period within which to submit its annual claim, namely, one year following its financial year end. The contract expressly states that any claim which is not submitted on time will be unenforceable. Vide clause 2 .2. The contract provides that if the first and second annual claims are not lodged on time, the contract would automatically terminate. Vide clause 8.5. The Board was entitled to terminate the contract, forthwith, on failure to comply with its terms and conditions. Vide clause 8. (i).

29. The import of clause 2.2 is that Gwam's second annual claim is legally unenforceable. It was submitted one year late. On the facts, assuming its letter asking for the extension was indeed delivered, the extension which it sought was not granted. There is no evidence that it was entertained, nor that it was granted. Even if it was granted, which I do not accept, the extension sought was to April 2011, and Gwam missed this deadline.

30. The result of the late submission of the second claim does not mean that the contract automatically terminated in terms of clause 8.5, and that the third claim was consequently invalid. This is because automatic termination only arose if both the first and second claims were not submitted. The use of the word "and" is dispositive of the enquiry as it is conjunctive and not disjunctive. Had the word "or" been used, then the moment the second claim was not timeously lodged, the contract would have expired. The first claim was timeously lodged, and so this clause could not apply from that date onwards.

31. With regard to the second claim, the DTI's reliance on the policy amendment effective for claims submitted from 1October 2010, to defeat the second claim, is superfluous.

32. The rationale behind the timely submission of claims in situations involving gratuities or incentives was elucidated in the case of South African Co-operative Citrus Exchange Ltd v Director-General Trade and Industry and another 1997(3) SA 236 CSCA).In terms of a General Export Incentive Scheme instituted in April 1990, registered exporters were obliged to submit their incentive claims timeously as only claims received within three months after expiry of the "claim period" would be entertained.

33. The question arose whether the Director General of the DTI had a discretion to waive compliance with the deadline for late claims. The SCA found to the contrary. At page 244F, it said:

"Inherent in the time limit....is the protection of State funds and the impartial and identical treatment of the public. To endow the Director-General with the ability to waive this non-discretionary right would thwart these objectives and be contrary to public policy and interest."

34. I refer to the third annual claim. It is undisputed that it was submitted on time, in conformity with the contract. Nevertheless, it must be determined whether the policy amendment applied to this claim by virtue of the late lodgment of the second claim. If this policy amendment had legal efficacy, then the contract would have automatically terminated on 1 March 2012, after Gwam had failed to submit its second claim.

35. Cancellation of a contract by an organ of state is governed by the law of contract and is not an administrative action for the purposes of section 33 of the Constitution. Vide Cape Metropolitan Council v Metro Inspection Services CC 2001 33 SA 1013 SCA. Cancellation is comparable to an amendment which provides for automatic termination under certain conditions.

36. The contract appears to contemplate unilateral variations of its terms by the Board. Vide clause 9.10 of the SMEDP terms. From a reading of clause 9.11, the variation has to be in writing and approved by the Board. The clause does not expressly state that both parties should agree to the variation.

37. However, even assuming the validity of these clauses, it stands to reason that a term which would materially affect the rights of a contractual counterpart would require notice, a fortiori a term which provides for the automatic termination of the contract on late submission of any annual claim. The need for notification of a term which could potentially and automatically terminate a contract is implicitly acknowledged by the DT, because the DT, on its own version, took steps to publish the policy amendment.

38. The DTI's argument focused on justifying the rationality of the policy amendment. I find no need to examine this aspect. My finding is based on the contract and the adequacy or effectiveness of the manner in which the policy amendment was communicated to Gwam.

39. There is no provision in any of the documents constituting the contract which enables the DTI to publish notices of its unilateral variations of the contract or policy amendments on its website, or by email. The contract contemplates the service of any notices or legal process on either one of two physical addresses provided by Gwam as its domicilia. Vide page 5 of the approval letter and clause 7 of the SMEDP terms document. The contract does not provide for service of notices on Gwam's agents or consultants.

40. Gwam was accordingly legitimately entitled to expect service of any notice from the DTI on either of the physical addresses chosen by it as its domicilium.

41. There is no contractual methodology for service, whether by hand, by registered mail, fax or email. This would place an additional burden on the DTI to ensure effective service on Gwam.

42. I interpose to mention that the letter produced by the DTI to prove service by email of the policy amendment does not prove that the letter was in fact sent to Gwam by email. There is no email confirmation page, nor any acknowledgment of receipt by Gwam. There is no proof that the website notification came to the attention of Gwam.

43. The DTI has failed to prove that its material variation of the contract was effectively communicated to Gwam. The policy amendment was not lawfully effected, and the contract was enforceable when the third claim was submitted. This being the case, the contract did not automatically terminate on 1March 2012, and Gwam submitted its third claim on time, and is entitled to payment.

44. In conclusion, the argument was raised that the DTI had the right to terminate the contract forthwith on Gwam's failure to comply with its contractual obligations. This argument must fail because it is not the DTI's case that clause 8. (i) was invoked.

45. There was no evidence of any termination letter, which the DTI would have been obliged to send, considering that termination would materially affect the interests of its contractual counterpart. In the result, the contract remained extant and enforceable when the third claim was submitted.

46. I subscribe to the sentiments expressed in MEC for Health, Eastern Cape and another v Kirland Investments (Pty) Ltd t/a Eve and Lazar Institute 2014(3) SA 481 (CC) at paragraph 82:

"There is a higher duty on the state to respect the law, to fulfil procedural requirements and to tread respectfully when dealing with rights. Government is not an indigent or bewildered litigant, adrift on a sea of litigious uncertainty, to whom the courts must extend a procedure-circumventing lifeline. It is the Constitution's primary agent. It must do right, and it must do it properly."

47. I refer to the requirement for verification. The DTI has been in possession of Gwam's third claim since 29 February 2012, that is, for over five years. It has had more than enough time within which to verify same. For this reason, the judgment which I have granted omits the need for verification. If the DTI failed to verify the claim because it incorrectly relied on the policy amendment, when it could and should have done so, then Gwam should not be prejudiced by its failure in this regard.

48. The plaintiff being substantially successful, and the case being one of some complexity, as confirmed on behalf of the defendant, costs on the High Court tariff should follow.

49. The following order is granted, namely :

a. the defendant is ordered to pay to the plaintiff the sum of R178 616,00;

b. the defendant is ordered to pay to the plaintiff mora interest on the above amount at 15,5% per annum from 22 May 2014 to date of final payment ;

c. the defendant is ordered to pay the plaintiff's costs of suit.

 

 

 

______________________

T BRENNER

ACTING JUDGE OF TH E HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, JOHANNESBURG

29 September 2017

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