Minister of Public Works v Roux Property Fund (Pty) Ltd (SCA) (unreported case no 779/2019, 1-10-2020) (Matojane AJA (Wallis, Mocumie, Molemela and Nicholls JJA))

The Supreme Court of Appeal (SCA) set the order of the High Court aside in the Minister of Public Works matter. After it had said that the Roux Property Fund (Pty) Ltd (respondent) did not meet the three requirements for condonation in the matter in terms of s 3(4)(b) of the Institution of Legal Proceedings against Certain Organs of State Act 40 of 2002 (the Act). The SCA had to look at whether the failure by the respondent to have timeously given notice to the Minister of Public Works (the appellant) in terms of s 3(2) of the Act.

On 20 July 2010, the respondent as a lessor entered into a written lease agreement with the National Department of Public Works (DPW), as a lessee. In terms of the lease agreement, the DPW agreed to lease premises from the respondent for the South African Police Service for nine years and 11 months commencing on 1 November 2010 and terminating on 30 September 2020. Two addenda to the lease agreement were subsequently entered into in December 2010 and January 2011 respectively. The first addendum on 1 December 2010 increased the area and rent payable and the second one on 5 January 2011 altered the period of the lease from 1 April 2011 to 28 February 2021.

The DPW did not take occupation of the leased premises on the commencement date of 1 April 2011, or at any time thereafter, nor did it ever pay any of the DPW officials who concluded the lease. It also contended that various statutory requirements pertaining to procurement of goods and services for an organ of state were not complied with. On 11 April, the respondent defaulted on its mortgage bond repayment to Nedbank, the bondholder and on 21 April 2011 Nedbank instituted action against the respondent for the accelerated outstanding balance of the mortgage bond.

On 7 November 2011, Nedbank obtained a judgment against the respondent in the foreclosure action for payment in the sum of R 248 589 308,49 plus interest. On 28 August 2014, the respondent issued and served a summons on the appellant claiming damages arising from the breach and repudiation. The damages claimed represented an amount in respect of the value of the lost ownership of the property and the future benefit of the respondent being the owner of the property at the end of the lease without the property being encumbered by a mortgage bond or any liability.

On 28 August 2014 the High Court gave a notice and instituted action in respect of the respondent against the appellant, which the respondent claimed damages in the amount of R 340 million arising from the alleged breach by the DPW, of a written lease agreement concluded between the respondent and the DPW. However, the appellant contended that the power of condonation in terms of s 3(4) of the Act is only available in respect of non-compliance with the provisions of s 3(2)(a) and does not extend to non-compliance with s 3(1). The appellant further argued that the application for condonation did not satisfy the requirements of s 3(4)(b) and that the court in the exercise of its discretion ought to have refused condonation due to the delay by the respondent in bringing the application.

The SCA explained that the legal requirements for giving notice of the intention to institute proceedings before issuing summons against an organ of the state to recover a debt, are fully set out in s 3 of the Act which specifies that:

‘(1) No legal proceedings for the recovery of a debt may be instituted against an organ of state unless –

(a) the creditor has given the organ of state in question notice in writing of his or her or its intention to institute the legal proceedings in question; or

(b) the organ of state in question has consented in writing to the institution of that legal proceedings –

(i) without such notice; or

(ii) upon receipt of a notice which does not comply with all the requirements set out in subsection (2).

(2) A notice must –

(a) within six months from the date on which the debt became due, be served on the organ of state in accordance with s 4(1); and

(b) briefly set out –

(i) the facts giving rise to the debt; and

(ii) such particulars of such debt as are within the knowledge of the creditor’.

The SCA said in terms of s 3(4)(a) of the Act, if an organ of state relies on a creditor’s failure to serve a notice in terms of subs (2)(a), the creditor may apply to a court having jurisdiction for condonation of such failure. Section 3(4)(b) determines that a court may grant an application for condonation if it is satisfied that:

‘(i) the debt has not been extinguished by prescription;

(ii) good cause exists for the failure by the creditor; and

(iii) the organ of state was not unreasonably prejudiced by the failure.’

The SCA added that these three requirements are conjunctive, and the court must be satisfied that the requirements have been met before it can exercise its discretion and condone non-compliance with the Act. The SCA said the counsel for the applicant submitted that the power of condonation in terms of
s 3(4) is limited to failure to give timeous notice and that a court cannot condone the failure by the creditor to give notice. The SCA pointed out in the Minister of Safety and Security v De Witt 2009 (1) SA 457 (SCA) it considered and rejected this interpretation of s 3(4) and held:

‘In Legal Aid Board Theron J concluded that because s 3(1) is couched in peremptory terms, a court has no power to condone a failure to serve a notice prior to the creditor’s institution of action. Her finding that “The court does not have the power to condone the institution of legal proceedings in circumstances where the provisions of s 3(1) have not been complied with” is in my view incorrect. It fails to take into account the purpose of condonation which is to forgive non-compliance or faulty compliance provided that the criteria in s 3(4)(b) are met, and does not accord with an earlier statement in the judgment that s 3(4)(a) “confers upon the creditor the right to apply for condonation of the failure to comply with provisions of s 3(1).”’

The court said the counsel submitted that this was obiter as that case’s facts did not require a consideration of power to condone non-compliance with s 3(1). Whether that is correct – and it might well be said that this was an integral part of the reasoning and, therefore, part of the ratio decidendi – the SCA said it is a fully considered view of court not lightly departed from. The SCA pointed out that none of the grounds for departing from an earlier decision of the court were advanced or are present and said the counsel’s point must be rejected.

The SCA said that the respondent’s non-compliance with s 3 in having failed to serve notice within the six-month period provided for in s 3(2)(a) and only having served the notice on 1 September 2014 after service of the summons may, subject to the requirements of s 3(4)(b) being satisfied, be condoned by a court. The SCA added that the ‘second requirement of “good cause” involves an examination of “all those factors which bear on the fairness of granting the relief as between the parties and as affecting the proper administration of justice” and may include, depending on the circumstances, “prospects of success in the proposed action, the reasons for the delay, the sufficiency of the explanation offered, the bona fides of the applicant, and any contribution by other persons or parties to the delay and the applicant’s responsibility therefor.”’

The court held that good cause for the delay is not ‘simply a mechanical matter of cause and effect’ but involves the court in deciding ‘whether the applicant has produced acceptable reasons before nullifying, in whole, or at least substantially, any culpability on his or her part which attaches to the delay in serving the notice timeously’, and in this process, strong merits may mitigate fault; no merits may render mitigation pointless.

The SCA said that in terms of s 12(1) of the Act prescription commences running ‘as soon as the debt is due’. The term ‘debt’ in the section is wide enough to include any liability arising from or owing under a contract. A debt only becomes due when the creditor acquires a complete cause of action and prescription commences to run as soon as the debt is due. The SCA pointed out that the respondent had knowledge of its damages claim long before the applicant brought the application to have the lease declared void ab initio.

The SCA pointed out that by 10 October 2014 when the special plea was filed the respondent was aware that the appellant relied on non-compliance with the provisions of s 3 of the Act. The SCA said one would have expected it to bring an application for condonation immediately. Instead it delayed for three years. The SCA added that the respondent did not explain why over three years’ elapsed before it could bring the condonation application and what efforts it took to expedite the claim. The SCA said there is no explanation of any basis for saying that the officials who concluded the lease agreement were authorised to do so and the lease agreements was valid in law and binding on the minister.

The SCA noted that the applicant had pointed out that the key personnel who were involved in the negotiation and conclusion of the lease agreement are no longer in the employ of the applicant, and the trial was going to require oral evidence by everyone who was involved. It mentioned that the former acting Director-General who deposed to the founding affidavit supporting the appellant’s application for an order declaring the lease invalid has, after disciplinary charges were brought against him, deposed to an unsolicited affidavit in the same matter changing his version. The SCA said that the applicant claimed that if the application was granted, it would be prejudiced in conducting the trial without its key witnesses who had since been dismissed from its employ. The SCA pointed out that, an inordinate delay of more than three and half years between the time the respondent was aware that it was required to bring the condonation application and the time that it brought the application is prejudicial to the applicant.

The SCA added that accordingly, the respondent failed to satisfy the court that the applicant had not been unreasonably prejudiced by the failure to serve the notice timeously. The SCA said that because the respondent did not meet the three requirements for condonation in terms of s 3(4)(b) no question of the court exercising a discretion to grant condonation arose. The parties agreed that in that event there was no purpose in the matter returning to the high court and that the order it granted should dismiss the action.

The SCA granted the following order:

‘The appeal is upheld with costs including those attendant on the employment of two counsel.

The order of the high court is set aside and the following order substituted for it:

1 The application is dismissed with costs including the costs of two counsel.

2 The plaintiff’s claim is dismissed with costs, including the costs of two counsel where two counsel were employed.’

Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.

This article was first published in De Rebus in 2020 (Nov) DR 36.