Although the City of Tshwane is still paying R4.6 million a day in terms of the cancellation clause in the agreement with smart electricity meter contractor PEU, Professor Birgit Kuschke, a contract law expert in the Department of Private Law of the Faculty of Law at the University of Pretoria is of the opinion that it is ‘unacceptable and confusing’ why the City of Tshwane, now under control of the DA, is still entangled in and making payments in terms of the R950m contract.

Although the City of Tshwane is still paying R4.6 million a day in terms of the cancellation clause in the agreement with smart electricity meter contractor PEU, Professor Birgit Kuschke, a contract law expert in the Department of Private Law of the Faculty of Law at the University of Pretoria is of the opinion that it is ‘unacceptable and confusing’ why the City of Tshwane, now under control of the DA, is still entangled in and making payments in terms of the R950m contract.

Professor Kuschke is of the expert opinion that there are three legal aspects that Tshwane can and must rely on:  That the contract is void as it was concluded improperly and not in accordance with procedure. Any payment made will have to be recouped on the basis of an unjustified enrichment claim that is time consuming and costly. If the contract is void, then the vexed clause in terms of which Tshwane believes payments must continue is of course also void.

In the meantime, while it remains uncertain whether the contract is in fact void or valid, ‘Tshwane could have used and still can use the reciprocity defence as a remedy (the exceptio non adimpleti contractus), i.e. the right to refuse to perform one’s obligations under a reciprocal contract unless or until such time that the other party performs in terms of the contract. Payment is merely withheld from the party who fails to perform.  The contract need not be cancelled, repudiated or amended to rely on this remedy. Tshwane must merely stop any and all payments to PEU, irrespective of the pending court action or whether the contract or the clause on cancellation in question is void or not.’

‘Thirdly, in terms of observance of the law, any contract or clause against the public interest is null and void. It is not in the public interest that millions are still being paid over under a contract where there is a material breach such as in this case where only 13 000 of 800 000 meters were delivered, based on a clause such as the one in question.  This speaks to the facts without saying.

Tshwane has an obligation to the community to stop payments immediately, and may once it is found that the contract is void, rightfully and immediately institute a claim for unjustified enrichment and delictual damages for other damages suffered. Where the contract is however found to be valid, then a damages claim based on breach of contract to claim “all payments to date to PEU as there was non-delivery from them in terms of the agreement”, Kuschke continues to state.

According to an article in City Press, Tshwane could have chosen to manage its own smart electricity meters at a cost of about R11 million a year, but instead insisted on paying 70 times this amount to a contractor – and is now paying R950 million to get out of the contract.

Mayoral spokesperson Matthew Gerstner has said they are consulting with lawyers and will ‘amend’ their legal position. Gerstner added the city will claim damages from PEU at a later stage, if possible. The report says the city vehemently opposed AfriSake’s application when it was still under control of the ANC. But the DA laid criminal charges against city bosses who entered into the contract. The PEU contract was also slammed by the auditor-general as unlawful and a directive was issued by the former Public Protector, Thuli Madonsela, that the process must be put on hold.

Futher reading:   Rapport, 23 October 2016