Gauteng government interdicted from amending Putco contracts

Bus company says it would be short-paid more than R20m a month – forcing it to retrench around 400 employees and reduce its fleet by hundreds.

Bus transport company Putco has obtained an urgent interim interdict to stop the Gauteng government from unilaterally amending contracts entered into with it and withholding payment to Putco on that basis.

The Gauteng Department of Roads and Transport (DRT) claimed it was entitled to amend the agreements or vary the contracts entered into with Putco in June 2023 in terms of a clause of the agreement and on the basis that the terms of the agreement would “lead to unauthorised and irregular expenditure”.

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Read: Putco ends almost 20 years of service [Jul 2015]

Putco said it provides essential transport services primarily to people living in low-income areas in Gauteng and Mpumalanga and has done so for decades, with about 130 000 passengers transported daily on Putco’s buses.

It added that commuters travelling to and from work as well as students and learners rely on this public transport mode, which is subsidised by the DRT in terms of various contracts and results in Putco’s passengers paying a reduced price for their transport.

Rate reduction will cause ‘irreparable consequences’

Putco said the DRT’s aim to reduce the rate per kilometre it paid and the number of scheduled kilometres agreed on will cause drastic and irreparable consequences for Putco, its employees and the passengers using its buses.

It said these proposed reductions will result in:

• It being short-paid by more than R20.2 million every month;
• It will have to reduce its fleet by 212 buses;
• It will be forced to retrench about 400 employees; and
• About 28 300 passengers daily will be left without transport and forced to rely on taxi transport.

Putco approached the High Court in Pretoria for interim relief to preserve the status quo pending the resolution of disputes between the parties that have been referred to arbitration.

The head of the DRT and Members of the Executive Council of Gauteng for Roads and Transport opposed the application.

Putco claims that while the DRT previously gave notice of unilateral variations to the contracts, it abandoned these attempts and continued to pay Putco every month in terms of the June 2023 contracts.

It added that the DRT’s attempt to amend or vary the June 2023 contracts caused disputes to be declared by Putco and underlie the pending arbitration.

Read: Public transport can’t be used only by those with no other option – GMA

However, Putco said the DRT again on 1 October 2024 purported unilaterally to vary or amend the contracts and to withhold payment on that basis.

Putco claimed it will not be able to achieve substantial redress at a hearing in due course because the reductions will cause drastic and irreparable consequences for the company, its employees and the passengers using its buses.

‘Degree of urgency questionable’

The DRT claimed the “degree of urgency” is questionable, and the relief Putco seeks will not become irrelevant if not immediately granted because the department is mitigating a situation that might negatively affect both parties.

It said a reduction in kilometres not only assists the DRT in its compliance with the Public Finance Management Act (PFMA) but also has the potential to assist Putco in mitigating unnecessary expenditures by its business.

The DRT further claimed Putco ought to have commenced with urgent proceedings after receiving a letter dated 22 April 2024, or alternatively, a letter dated 26 August 2024, which informed Putco of the DRT’s budgetary constraints and their implications for the contracts concluded between the parties and that the urgency, if it exists, is self-created.

Putco application meets urgency requirements

Judge Elmarie van der Schyff, in a judgment handed down last week, said Putco’s application met the requirements to be dealt with on an urgent basis based on the factual context of the application, specifically the impact of an amendment of the status quo on scores of passengers, and that the trigger event underpinning Putco’s application is the latest communication sent to the company dated 1 October 2024.

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She said the interpretation of a specific clause in the contracts entered into between the DRT and Putco and the question of whether the department was required to and did engage in “meaningful” consultation with Putco and the passengers using its services on the affected routes are some of the issues referred to arbitration.

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She said the DRT claims the conclusion of the negotiated contracts without the allocation of the relevant budget was inconsistent with Section 38 of the PFMA and therefore prima facie unlawful.

Van der Schyff said the DRT’s submission that Putco’s challenge to the amendments or variations “may eventually lead to a situation where DRT would not be able to perform at all, or where the contracts are set aside in totality, is not a legal bar to Putco relying on the terms of the existing negotiated contracts”.

“The well-grounded apprehension of irreparable harm if the interim relief is not granted but Putco ultimately succeeds in the arbitration proceedings is evident.

“A unique facet of this application is the impact and irreparable harm that the curtailment of Putco’s services, even temporarily, will have on the commuters utilising its services, and the number of Putco employees who risk losing their employment.

“In applications for interim relief, the balance of convenience is the consideration of whether the harm the applicant [Putco] will suffer if the interim relief is refused is greater than the harm the respondent [DRT] will suffer if the interim relief is granted,” she said.

Judge van der Schyff added this matter does not concern a restraint against the exercise of statutory power but the interpretation of a negotiated contract and the delineation of liability in terms of the contracts.

The issue of separation of powers therefore does not arise as the court is not stepping into the shoes of another branch of government, she said.

Judge van der Schyff said the DRT claims it cannot wait for the finalisation of the arbitration proceedings before implementing the proposed amendments or variation as it operates within a limited budget, but the department’s solution lies in expediting the arbitration proceedings.

“If the harm that the temporary suspension of Putco’s services holds for the commuters on the affected routes, the impact it will have on the job security of many employees and might have on the viability of the company, particularly if the arbitration is dragged out indefinitely, is considered, the balance of convenience favours Putco,” she said.

Judge van der Schyff said there is no other satisfactory remedy than interim relief preserving the status quo pending the resolution of disputes between the parties that have been referred to arbitration, and the interim relief, therefore, stands to be granted.

What the judge ordered

She ordered that pending the final determination of the arbitration proceedings between the parties, which are currently before the Arbitration Foundation of Southern Africa, the Gauteng DRT and Members of the Executive Council of Gauteng for Roads and Transport are:

• Interdicted from breaching, varying, or amending the June 2023 contracts by taking any steps to: Reduce the number of negotiated scheduled kilometres operated by Putco; or Reduce or “temporarily reduce” the services operated by Putco, as proposed by the Gauteng DRT in its presentation delivered at the meeting with Putco on 9 September 2024; or Otherwise amend or vary the June 2023 contracts to reduce the quantum of the monthly subsidy payable to Putco.
• Directed to comply with the Gauteng DRT’s obligations under the June 2023 contracts.

The Gauteng DRT and Members of the Executive Council of Gauteng for Roads and Transport were ordered to pay the costs of the application.

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