- Gauteng unlawfully cancelled a gas infrastructure contract covering 10 public hospitals.
- The project was designed to replace coal-fired furnaces with cleaner natural gas systems across the province’s health facilities.
- The province now faces a damages claim exceeding R200 million, with the amount to be determined at trial.
A long-term project to modernise heating infrastructure and supply natural gas to 10 Gauteng public hospitals was unlawfully terminated by the Gauteng Department of Infrastructure Development, the High Court in Johannesburg has ruled.
The judgment leaves the province facing a damages claim exceeding R200 million over a contract intended to replace coal-fired hospital furnaces with cleaner, more efficient gas technology.
Judge SDJ Wilson found that the department breached its agreement with Virtual Gas Network (VGN) when it purported to terminate the contract in January 2023. The court declared that VGN is entitled to recover damages flowing from the breach, although the value of that claim will only be determined during a separate trial.
Modernising 10 public hospitals
The dispute centres on a September 2015 agreement under which VGN was appointed to install gas infrastructure and supply piped natural gas to four Gauteng hospitals. A November 2016 addendum expanded the project to six additional hospitals, creating a single programme covering 10 public health facilities.
The project included replacing coal-fired furnaces with gas-powered systems, constructing gas storage facilities known as daughter stations and supplying natural gas to hospitals for their heating operations.
The court found that the purpose of the expanded agreement was to strengthen Gauteng’s health infrastructure and enable all 10 hospitals to benefit from cleaner energy over the full contractual period. Although the judgment repeatedly refers to the 10 hospitals, their names are not disclosed.
High Court rejects Gauteng’s interpretation
The department argued that the agreement had expired by November 2021 and that its termination merely confirmed a contract that had already come to an end.
Judge Wilson rejected that interpretation, writing, “GDID’s interpretation of the effect of the addendum is untenable.” He found that the agreement did not end five years after the addendum was signed, but instead remained in force until five years after the final hospital’s infrastructure had been completed and certified.
The judge further held that the hospitals formed one integrated infrastructure project rather than separate contracts, meaning the department had no lawful right to withdraw before the contractual period expired.
He concluded, “It follows that GDID was not entitled to terminate the contract when it did, and that its notice of termination was, in fact, a repudiation of the agreement.”
Department’s legality challenge fails
In a counter application, the department sought to have the 2016 addendum declared unlawful, arguing that it exceeded the original tender and breached National Treasury procurement instructions. The High Court dismissed both arguments.
Judge Wilson ruled that the department had failed to prove the expanded project fell outside the original procurement process. He also rejected the treasury argument, finding that the instruction relied upon was an internal administrative document rather than legislation capable of supporting a legality review.
“The treasury instruction lacks either of these attributes, and is, accordingly, not ‘law’ in the sense that can sustain a legality review,” the judgment states.
R200 million damages battle moves to trial
While VGN claims more than R200 million, the High Court declined to determine the amount payable at this stage.
A central dispute remains whether the amended agreement retained the contract’s “take or pay” provision, which required the department to purchase a minimum annual quantity of gas regardless of actual consumption. Judge Wilson found that this issue requires oral evidence and cannot be resolved on affidavit alone.
He therefore ordered that “the question of the quantum of the applicant’s damages is referred to trial,” where the financial consequences of Gauteng’s unlawful cancellation will finally be determined.
The Gauteng Department of Infrastructure Development was also ordered to pay VGN’s legal costs.
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