ON THE ROCKS

The troubled relationship between a North West municipality and a business from which it rented equipment and vehicles seems to be heading for divorce

From the start, the marriage between the Mahikeng municipality and finance company Kwane Capital appeared a doomed affair. Now the high court has presided over its break-up and, under the watchful eye of the sheriff and the SA Revenue Service (Sars), there seems no doubt that recriminations and tears will begin in earnest.

Just who wooed whom is hard to tell — this may well have been an arranged marriage — but we do know exactly when the affair became official: the company and the North West municipality signed two rental agreements, one in December 2015 and another two months later.

Under this arrangement, Mahikeng would rent heavy plant and equipment, as well as motor vehicles, from Kwane. This was a rentto-buy contract under which, if all rental payments were made as stipulated, the machinery and vehicles would ultimately become Mahikeng’s property. But failure to pay could result in the contract being cancelled and the machinery reverting to Kwane, however much Mahikeng had paid.

Signs of trouble appeared in

May 2018, when Kwane brought an urgent application to repossess the assets because Mahikeng had failed to make rental payments for several months and owed almost R38m. A month later, Kwane asked for an order that the municipality immediately return all the vehicles, as well as the plant and equipment.

A last-minute attempt at reconciliation followed, and an agreed settlement was made an order of court: pending Mahikeng’s payment of R38m to Sars (on behalf of Kwane) by July 15, the municipality was interdicted from using certain of the equipment. Plant on a second list could be used once Mahikeng had insured it to Kwane’s satisfaction. But if the municipality defaulted, all the goods on both lists had to be returned to Kwane immediately.

Everything fell apart after Mahikeng failed to meet these obligations. In August, Kwane asked for all the assets to be returned immediately. But when the company tried to repossess the equipment, “altercations” began on site between staff of the unhappy couple. Municipal workers threatened to set the equipment on fire and hurt Kwane’s employees if they did not leave the site.

Among other arguments, the municipality said it had paid R171m of the R178m it owed on the contract. Because just R6.9m was out- standing by the time of the September hearing, it said the court should not order confiscation of the goods and cancellation of the contract. The equipment was to become municipal property at the end of the lease, and for the court to order that it be returned and the lease cancelled at this stage would offend public policy.

Kwane’s response was that the original lease and successive court interventions had made the deal perfectly clear: Kwane remained the owner of all the assets “unless all payments have been paid in full as and when [they] became due”.

Bad break-up

In finalising what looks to be a “divorce” between the two sides, judge Nadia Gutta said that Mahikeng’s argument that cancellation of the agreement offended public interest was flawed and without merit.

Ironically, from the time it first became known, the original “engagement” was flagged as likely to be counter to public policy and not in the public interest. Investigative journalists of the Mail & Guardian discovered that the contract had been awarded to Kwane without normal procedures being followed. The contract was never put out to tender; it was awarded to Kwane, whose director, Mcebisi Mlonzi, is a major ANC funder, on the day he registered on the municipal supplier’s database. Municipal manager Thabo Mokwena ordered payment of R10m as an advance three days later via a handwritten footnote instruction.

Both Mlonzi and Mokwena denied wrongdoing, saying the contract was awarded in terms of special municipal regulations.

When Kwane tried to repossess its equipment, ‘altercations’ began on site between staff of the unhappy couple