12 April 2017 by Dispute Resolution Alert

Commercially lucrative agreements with the state are not necessarily so

The decision of the Western Cape High Court in Parkscape v MTO Forestry (Pty) Ltd and Sanparks (15910/2016) [2017] ZAWCHC 22 (1 March 2017) emphasises how a private entity places itself at risk when concluding a commercial contract with a state entity as highlighted by the decision of the Constitutional Court in Black Sash Trust v Minister of Social Development and Others concerning the payment of social grants by a private company, Cash Paymaster Services (Pty) Ltd. The earlier decision of the Western Cape High Court in Parkscape v MTO Forestry (Pty) Ltd and Sanparks (15910/2016) [2017] ZAWCHC 22 (1 March 2017) again emphasises how a private entity places itself at risk when concluding a commercial contract with a state entity.

MTO concluded a lease with Sanparks which, among other things, permitted MTO to harvest for commercial gain its pine plantations located within the Table Mountain National Park and in accordance with time streams approved by Sanparks. In July 2016, as a result of devastating fires in the park during March of that year, MTO sought Sanparks’ approval for the accelerated harvesting of certain sections of its plantation located in the Tokai area of the park. Sanparks agreed to this and felling of the plantation commenced the following month.

Parkscape, a voluntary association of interested persons established in June 2016 to “create safe, biodiverse, open and shaded urban parks in the buffer zones of the Table Mountain National Park where the park meets the urban edge” sought an order setting aside Sanparks’ decision to allow the accelerated harvesting of the plantation and preventing the further felling of trees in the plantation pending public participation and approval of this. Parkscape’s application was founded upon the contention that the Table Mountain National Park and the plantations therein are a public amenity managed under statutory authority by Sanparks, and that, in agreeing to the accelerated harvesting of the plantation in question, Sanparks was exercising a public, as opposed to a private, power.

This position was upheld by the court and, as a result, Sanparks’ decision to permit MTO to embark upon the accelerated felling of its plantation was set aside as unlawful and Sanparks was ordered to engage with Parkscape and other interested parties in relation to the future harvesting of the plantation.

In the circumstances, MTO, whose only interest in the lease was of a commercial nature and to realise its asset located within the park, was and is left commercially exposed. The lease could not provide the parties with unfettered rights, although it afforded them the ability to determine by agreement how certain provisions of the lease, on purely commercial considerations, should be implemented. The court found the straightforward decision by Sanparks to permit, purely on commercial considerations, MTO to accelerate the commercial realisation of its assets in terms of the lease to be the exercise of a public power and therefore subject to public scrutiny, participation and approval.

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2020 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com

You may also be interested in