Background
In March 2020, Oracle Corporation (South Africa) (Pty) Ltd ("Oracle") assessed the Ekurhuleni Metropolitan Municipality's ("Municipality") information system and advised that it needed an infrastructure upgrade.
5 August 2020 - the Municipality sent a Request for Quotation (RFQ) '...for the acquisition of additional software licences, software licence renewal, software maintenance, implementations and enhancements for Oracle Software that is in use from the date of award until 30 June 2023'. Business Connexion ("BCX"), a premier end-to-end digital solutions company, successfully won the bid.
27 August 2020 - the Municipality sent the agreement to be signed by BCX. The licence specifications and prices were set out with a total sum provided for in the amount of ZAR85 479 535.26. Believing that they had been awarded the tender, on 28 August 2020, BCX procured the licences and made payment to Oracle.
29 October 2020 - The Municipality attempted to cancel the agreement, stating that due to budget cuts, the Municipality was unable to honour the order for additional licences.
The Municipality's claim for cancellation of the agreement was unsuccessful in the High Court and thus was referred to the Supreme Court of Appeal.
Dispute
The Municipality relied primarily on two defences. The first was that BCX failed to show that there was delivery of said licences and the software, which it was obliged to do in order to succeed in its claim. The second was the timing of the delivery, which the Municipality contends should have taken place only once its infrastructure had been upgraded to a more stable environment. As such, the Municipality contended that the software was to be purchased on an 'as-and-when-required' basis.
Cour findings
The court found that BCX had indeed delivered the software licences via email, as confirmed by Oracle. The court also rejected the Municipality's argument that the licences were to be delivered only after infrastructure upgrades, finding no such stipulation in the agreement.
The court further found that "It is the letter of cancellation that sets out in the clearest terms the reason for the Municipality's refusal to pay. Nowhere is the non-delivery of the licences mentioned, or that the common understanding was that the licences would only be required once certain upgrades were completed. The sole reason provided is that the Municipality did not have the money to pay the purchase price because their revenue had been drastically reduced due to COVID-19. It was conceded by the Municipality in argument that the reason it did not want the licences was because it was unable to pay for them."
Judgment
The court held that the inability to pay for a contract freely and voluntarily entered into is no defence in these circumstances. It is undisputed that BCX procured the licences and paid for them on the instructions of the Municipality.
The appeal was struck from the roll, and the Municipality was ordered to pay the costs of the reconsideration, including the costs of two counsel.
Key lesson
This case underscores the importance of meticulous contract management (in particular in relation to software licences) and the need for clear communication and documentation in business transactions.
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