Emfuleni Local Municipality shames itself into the legal record books

Earlier this month Acting Judge Anthony Millar of the Johannesburg High Court granted what lawyers told Moneyweb must surely be the highest rand value default judgment granted in South African legal history: R492 145 879.49.

The court also awarded interest at 10% per annum, which amounts to an eye-watering R134 834.49 per day.

The Beijing Fuxing Xiao Cheng Electronic Technology Stock Co Limited JV Ole Power Systems (BFX-OLE), a supplier of smart electricity and water meters, had entered into a public-private partnership (PPP) with the ANC-led Emfuleni Local Municipality (ELM). BFX’s local partner is Gauteng company Ole Power Systems.

Read: How structural flaws contribute to the crisis in SA’s municipalities

The agreement

In December 2013 BFX-OLE and ELM entered into the PPP agreement in terms of which BFX-OLE would procure smart meters and create an infrastructure for the municipality.

The court papers explain that: “A smart meter is an advanced electrical or water meter that identifies consumption of electricity or water in more detail than a conventional meter and is able to communicate that information to the local municipality for monitoring and billing purposes.”

The PPP project started in February 2014 and was to endure for a period of 10 years. The agreement provided that should the municipality fail to pay any undisputed amount exceeding R2 million within 30 business days then it would be deemed to be in default.

The municipality’s desire was to increase payments from its electricity and water clients “through valid, accurate and complete metering, billing and revenue management information”. This would result in the correct customers being billed the correct amounts which would assist the municipality in achieving a better bulk purchasing price from its own suppliers of electricity and water.

Read: Landmark court ruling highlights crisis in SA’s cities and towns

The break-even point

From the inception of the project BFX-OLE would receive 80% of the profit on the sale of electricity and water and the municipality would receive 20%. Once BFX-OLE has been paid a total of R1 098 billion – the break-even point – then it would receive 20% of the profit and the municipality 80%.

For reasons not explained in the court papers, BFX-OLE was only able to commence installation of the electricity smart meters in September 2015. By August 2017 it had designed the infrastructure and supplied, installed and commissioned 7 525 electricity meters.

In the period December 2015 to December 2018 BFX-OLE had achieved the agreed “Optimised Financial Performance” (OFP) and the municipality was, in turn, required to make OFP payments to BFX-OLE.

Three claims by BFX-OLE

The first claim

BFX-OLE had rendered 23 consecutive monthly invoices to the municipality which were due and payable within 30 days of presentation. The municipality never placed any of the invoices in dispute, and failed to pay any of them.

Default judgment was granted in an amount of R30 990 772.49

The second claim

BFX-OLE has spent more than R270 million in implementing the PPP agreement. It therefore placed the municipality on terms. This elicited no response and so BFX-OLE terminated the agreement – as it was entitled to do – and appointed as its expert chartered accountant Anthony De Aguiar to calculate its contractual damages.

This amounted to R360 775 million. Default judgment was granted.

The third claim

The PPP agreement contemplated the installation of 66 000 electricity smart meters. The municipality had frustrated the implementation of the agreement and eventually ordered the suspension of the roll-out of the project. BFX-OLE therefore suffered damages and claimed that it was entitled to be recompensed for its loss.

De Aguiar calculated this to be R100 380 077.00. Default judgment was granted.

Read: Eskom gets Sheriff to attach Emfuleni assets

Why did Emfuleni not defend the litigation?

Moneyweb was unable to obtain comment from Executive Mayor Gift Moerane, as was the case with his personal assistant as well as the municipality spokesperson.

Phones went unanswered and emails bounced back.

This is consistent with the experience of BFX-OLE, whose attorneys sent the Sheriff of the Court on a number of occasions to the municipality to serve process in this litigation. The summons was served on March 24, which was before lockdown. BFX-OLE was not legally obliged to service a Notice of Set Down on the municipality to notify it of the date of the default judgment hearing of the matter, but nevertheless did so.

At the default judgment hearing, counsel for BFX-OLE presented Acting Judge Millar with comprehensive legal argument – and BFX-OLE walked away with the spoils of victory.

Auditor-General Kimi Makwetu recently reported that the Emfuleni Local Municipality’s irregular expenditure had climbed from R870 million to R1 billion. The municipality presently has a qualified audit.

Read the court papers here.