The Gauteng government has been told by the high court that it acted outside its rights when it attempted to terminate a contract for the supply and installation of natural gas infrastructure at public hospitals, a decision that could leave the province facing a damages claim of more than R200-million.
Judge finds department could not lawfully end agreement
In a judgment handed down on Thursday, Judge SDJ Wilson concluded that the provincial department — referred to in court as GDID — had no entitlement to terminate the agreement when it issued a notice of termination on 19 January 2023. The court found the notice amounted to a repudiation of the contract.
The dispute arises from an original contract signed in September 2015 under which private company VGN agreed to install gas infrastructure and supply natural gas to four Gauteng hospitals. In November 2016 the parties concluded an addendum expanding the scope to cover a further six hospitals and to include additional gas-powered infrastructure and "daughter stations" used to store and distribute gas.
VGN also secured a R39-million loan from the Industrial Development Corporation (IDC) to fund the expansion works. The heart of the litigation was the question of whether the expanded agreement remained in force beyond November 2021, the date GDID argued the contract expired.
Judge Wilson rejected the department’s interpretation, saying the addendum’s timeframe should be linked to the completion and certification of the final infrastructure works rather than a fixed five-year term starting from the addendum date.
"It makes no business sense," the judge said, according to the judgment, when dismissing the department’s construction of the contractual term.
Because the court found the contract was still in force when GDID issued its termination notice, it ruled the department was not entitled to end the agreement and that its notice was effectively a repudiation. The effect of that finding is to enable VGN to pursue a damages claim for losses flowing from the wrongful termination; the precise quantum will be determined at a later hearing.
Legal advisers will now quantify the losses, with the court record indicating potential damages in excess of R200-million. The exact figure was not fixed in Thursday’s judgment and will be settled at a subsequent trial or assessment process.
Practical implications for hospitals and the provincial fiscus
The contract related to gas supply and the installation of on-site infrastructure at public hospitals — projects typically tied to clinical services such as central heating, kitchen operations or generator systems that run on pipeline or stored gas. While the judgment does not, on its face, mandate immediate works, it means the province may be held liable for substantial compensation or forced to complete contractual obligations.
- Potential liability: More than R200-million in damages claimed by VGN.
- Financing involved: VGN took a R39-million IDC loan for the expanded works.
- Next step: The exact damages will be determined at a later trial or assessment.
The ruling also dismissed a counter-application by the department seeking to have the 2016 addendum declared unlawful. That point was therefore not upheld by the court.
Provincial departments frequently enter complex multi-year infrastructure contracts with private parties and state financiers. This judgment underscores the legal and financial risks that arise when contract termination is contested and shows how interpretation of timelines and completion clauses can produce very large liabilities for a provincial administration.
For now, VGN is entitled to pursue compensation; the timeline for any payment, settlement or further litigation will depend on the procedural steps the parties take after the court’s finding. Officials from GDID or the provincial treasury did not appear in the judgment record quoted in this report, and any comment from the province will likely be sought as the matter proceeds.
| Key dates | Event |
|---|---|
| September 2015 | Original gas-supply contract signed for four hospitals |
| November 2016 | Addendum expanded contract to cover six more hospitals; IDC loan of R39-million |
| November 2021 | Department said contract had expired (contention) |
| 19 January 2023 | GDID issued termination notice |
| Judgment date (Thursday) | High court found termination was unlawful; VGN entitled to claim damages |
As the matter moves towards quantification of damages, Gauteng’s health services and finance officials will need to consider the ruling’s implications for budget planning and for ongoing hospital projects that rely on outsourced energy infrastructure. The full effects on service delivery and the provincial balance sheet will become clearer once VGN states its claim and the court sets a process for assessing losses.
Reporting from Johannesburg.
