Grey Elephant Investments emerges victorious in a legal confrontation with Knysna Municipality, as the Western Cape High Court invalidates an unlawful lease agreement and mandates the municipality to settle outstanding rental and consumption fees.
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While an unlawful lease agreement was declared unconstitutional and invalid, Grey Elephant Investments (GEI) was vindicated in the latest litigation tug-of-war against the Knysna Municipality, in which the municipality was ordered to pay outstanding rental amounts and consumption charges.
This week, the Western Cape High Court ruled that the Municipal Council’s resolution to approve the lease agreement between the municipality and GEI (Knysna Mall) without undertaking a competitive and open tender process was unconstitutional, unlawful, and invalid.
The lease agreement was set aside after the municipality bypassed the mandatory procurement process.
Meanwhile, the lease agreement is also the subject of an investigation by the Office of the Public Protector. The complaint to the Public Protector was lodged by Ms Julie Seton, acting on behalf of ActionSA, on December 12, 2023.
GEI had previously been one of the municipality’s top business debtors.
In the latest court battle, the municipality was ordered to pay the rental amounts, consumption charges, and interest for its period of occupation commencing on May 1, 2024, and ceasing on July 31, 2025, when the municipality vacated the leased premises at Knysna Mall.
The lease period was for three years, starting on March 1, 2024, and terminating on February 28, 2027.
The impugned lease agreement related to 3250m2 of office space for a monthly rental of R546,000 at a rate of R168/m2, which comprises a base rental of R120/m2 and a tenant installation cost of R48/m2.
Responding to the judgment, GEI lawyers said: “The court set aside the lease agreement due to failures by the municipality in its procurement processes, holding that GEI was an innocent victim of the municipality’s illegalities. GEI is heartened by the court’s emphatic rejection of the serious and damaging allegations of wrongdoing made against GEI and its director, Mr Neil Lurie.
“The court underscored that GEI and Mr Lurie at all times acted in good faith and were entirely transparent in their dealings. The court has ordered the municipality to pay GEI unpaid rental, consumption charges, interest, and tenant installation costs, as well as the legal costs of the application on the highest prescribed scale, including two counsel.”
According to GEI, the provisional estimates for repayment would exceed R20 million.
“The final amounts will be determined in accordance with the mechanisms provided for in the court order. The financial relief granted to GEI was premised on the court’s sharp criticism of the municipality’s ‘unconscionable attempt… to shift blame onto an innocent party that is equally victimised by unlawful conduct originating from the municipality's highest executive tier’ in its ‘attempt to escape its financial rental obligations’.
“GEI respects the court and the judicial process, and as the matter may proceed further before the courts, it would not be appropriate to comment further on the merits at this stage,” said GEI.
Knysna Municipality spokesperson Christopher Bezuidenhout said: “The municipality notes the judgment. As the Council is still in the process of reviewing the contents and implications thereof, no further comment will be made at this stage.”
High Court Judge Constance Nziweni nosed her judgment with a reprimand, saying “that this case is deeply troubling”, adding that the matter “regrettably reflects a persistent systemic notable malady” in that the courts are burdened with cleaning up the messes of government institutions.
“Judicial review cannot become a routine mechanism to clean up the administrative messes of government institutions. Organs of State and public officials must instead model the highest standards of ethics, accountability, and legal compliance in the execution of their duties.”
The municipality had not paid any rental amounts and, in its arguments, asserted that in terms of the Municipal Finance Management Act 56 of 2023 (“MFMA”), they are not allowed to pay rental and other charges stemming from an unlawful lease agreement, as this would constitute irregular expenditure.
Judge Nziweni said: “The municipality’s conduct is a critical factor for this court to consider when exercising its discretion regarding a remedy. In fashioning this relief, the court cannot ignore or overlook the municipality's egregious, year-long delay and its unconscionable attempt to paint Grey Elephant as a mala fide, complicit actor.
“It is particularly egregious for a wrongdoer to shift blame onto an innocent party that is equally victimised by unlawful conduct originating from the municipality's highest executive tier.”