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[2015] ZASCA 38
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Minister of Transport NO and Another v Prodiba (Pty) Ltd (20028/2014) [2015] ZASCA 38; [2015] 2 All SA 387 (SCA) (25 March 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE NO: 20028/2014
Reportable
In
the matter between:
THE
MINISTER OF TRANSPORT
NO
.............................................................
FIRST
APPELLANT
THE
ACTING DIRECTOR GENERAL FOR THE DEPARTMENT
OF
TRANSPORT
NO
......................................................................................
SECOND
APPELLANT
and
PRODIBA
(PTY)
LTD
....................................................................................................
RESPONDENT
Neutral
Citation:
Minister of Transport v
Prodiba (Pty) Ltd
(20028/2014)
[2015]
ZASCA 38
(25 March 2015).
Coram:
Navsa ADP, Wallis & Mbha JJA
et
Dambuza & Gorven AJJA
Heard:
19 February 2015
Delivered:
25 March 2015
Summary:
Agreement with service provider signed by Director-General without
approval of Minister – held no authority to sign
on behalf of
the Department of Transport – decision with financial
implications of approximately R1 billion – decision
polycentric
in nature – within province of the Executive – agreement
signed without competitive process – if
agreement upheld it
would mean that following upon the award of a single tender in 1997
one service provider would have had a monopoly
in the production of
drivers’ licences for over 20 years – militates against
constitutional principles of transparent
and accountable government –
imperative statutory and treasury requirements flouted –
agreement held to be void.
ORDER
On
appeal from
: The North Gauteng High
Court, Pretoria (Ebersohn AJ sitting as court of first instance).
The
following order is made:
1. The appeal is
upheld with costs including the costs of two counsel.
2. The order of the
court below is set aside and substituted as follows:
‘
(a)
The application is dismissed with costs, including the costs of two
counsel.
(b)
The third addendum agreement is declared void
ab
initio
and set aside.
(c)
The respondent in the counter-application is
ordered to pay the costs of the counter application, including the
costs of two counsel.’
JUDGMENT
Navsa
ADP (Wallis & Mbha JJA
et
Dambuza
& Gorven AJJA concurring):
Introduction
[1]
At the beginning of 1997 a tender was awarded by the Department of
Transport (the Department) for the provision of a bureau
service that
would produce a personalised new style South African drivers’
licence, administer the production process and
keep the licences safe
until they were delivered to the licencing authority. This service
was to be provided for a period of five
years. Shortly after the
award of the tender, and the conclusion during February 1997 of an
agreement, the rights vested in the
successful tenderer were ceded to
Prodiba (Pty) Ltd (Prodiba). Some extension periods were provided for
in the agreement concluded
upon the award of the tender. That fact
and further proposals by Prodiba and negotiations with the Department
resulted in the former
providing the services referred to above at
substantial remuneration until 28 February 2014. The present appeal
by the first and
second appellants, the Minister of Transport (the
Minister) and the Acting Director-General in the Department (the
ADG), respectively,
followed on a successful application by Prodiba,
in the North Gauteng High Court, to enforce an agreement concluded on
1 February
2013 by the erstwhile Director-General of the Department,
whose authority is disputed by the appellants. In terms of that
agreement
Prodiba was entitled to produce new smart-card drivers’
licences for a period of five years, commencing on 1 March 2014. The
financial implications for the state were estimated at R1 097
billion. The present appeal, with the leave of this court, is
directed
against those results. If Prodiba were to succeed it would
mean that following upon a single tender process during 1995-1997, a
single contractor would have had an uncontested monopoly in the
production of drivers’ licences for a period of more than
20
years. Do our constitutional norms and values countenance such a
situation? The short answer is no. The present appeal might
rightly
be described as the Department belatedly coming to its senses. The
detailed background and the reasons for the aforesaid
non-affirmative
conclusion are set out below.
Detailed
background
[2]
During 1995/1996 the Cabinet took a policy decision to migrate from
the old drivers’ licence regime to a new card system
for
drivers’ licences. As a result the Department issued a tender
through the State Tender Board to provide the services
referred to in
the preceding paragraph. After following proper tender processes the
tender was awarded to Face Technologies (Pty)
Ltd (Face
Technologies), Idmatics and Nkobi Holdings (Pty) Ltd, which led to
the Department and Face Technologies concluding a
written agreement
on 28 February 1997, for the manufacture of driver’s licence
cards. It is common cause that shortly thereafter
Face Technologies
ceded its contractual rights to Prodiba. The contract period was
repeatedly extended. The last extension was
from 1 March 2012 until
28 February 2014. These repeated extensions, by virtue of contractual
provisions and negotiations, appear
legally suspect but for present
purposes need detain us no further.
[3]
Prior to the last extension the Department considered updating and
changing the technology related to drivers’ licences.
There was
a dispute about whether the idea to change the technology and migrate
to a new system, namely a smart-card driver’s
licence, emanated
from the Department or Prodiba. That dispute was ultimately
irrelevant.
[4]
On 1 February 2013 the erstwhile Director-General of the Department,
Mr George Mahlalela, signed the agreement at the centre
of the
present dispute. That agreement purported to bind the Department and
South Africa to migration from the initial card system
to a smart
card microchip-based driving licence system, with Prodiba being
responsible for its production, with the concomitant
financial
implications set out in paragraph 1. The agreement was entitled ‘the
Third Addendum Agreement’. The agreements
that followed on the
one concluded upon the award of the tender were entitled and referred
to as the First and Second Addendum
agreements, respectively. I
shall, in due course, deal with that description and the employment
of what I consider to be semantic
stratagems. In adjudicating the
validity of the third agreement it is necessary to consider the
events and processes leading up
to its conclusion.
[5]
During October 2012 an internal memorandum was prepared by the
Department, which envisaged the migration to the new smart-card
technology and anticipated negotiations in that regard with the
current service provider, Prodiba. The internal memorandum was
in
line with a written business case prepared by the Department. What
was ultimately intended was a Departmental takeover of the
entire
production process. The stated purpose of the memorandum was to seek
approval from the Minister for the take-over ‘of
the services
currently provided by the service provider and to change the current
paper format driving licence card to plastic
chip based card.’
[6]
The documents reflect a commonplace process of seeking approval
within the structures of government. The proposal was prepared
by an
Acting General Manager, Ms Zwane, in a memorandum addressed to the
Minister of Transport. Its recommendations were supported
by the
Acting Chief Financial Officer and the Deputy Director-General: Roads
Transport. It was then referred to Mr Mahlalela, who
recommended it
and who made a written note stating the following:
‘
Need
to brief Deputy Minister and the Minister on their proposals.’
The
memorandum was then sent to the Deputy Minister, who noted this
recommendation and said that it was highly supported. That was
on 20
December 2012. When the memorandum was placed before the Minister of
Transport on 24 February 2013, he deleted the words
‘APPROVED/NOT
APPROVED’ and added a hand-written note stating the following:
‘
Briefing
to precede approval.’
[7]
In the answering affidavit the Department was emphatic that the
briefing of the Minister had not occurred prior to the conclusion
of
the agreement. It was adamant in its assertion that there had been no
approval of this migration to the new technology or of
the cost
implications, by the Executive arm of Government, either in the form
of a Cabinet decision or indeed even by the individual
responsible
member of the Cabinet, the Minister. The sequence of events, set out
in the preceding paragraph, supported the Department’s
stance.
[8]
I consider it necessary to record that in the litigation leading up
to and including this appeal, Mr Mahlalela was conspicuously
absent.
No affidavit by him was filed by either party, setting out the basis
on which he had purported to conclude the agreement.
It was
unchallenged that Mr Mahlalela was informed, during September 2012,
that his contract as Director-General in the Department
would not be
renewed when it expired on 28 February 2013. Mr Mahlalela signed the
agreement in question on 1 February 2013. The
evidence demonstrates
that he did so without having briefed the Minister and without having
obtained his approval.
[9]
On 5 February 2013, Mr Mahlalela, purporting to act on behalf of the
Department, wrote the following letter to the Director-General
of
National Treasury, ostensibly to create the impression that he had
complied with statutory or Treasury prescripts:
‘
1.
The Department of Transport (“the Department”) produced
driving licence cards on a fully outsourced Bureau service
since
March 1998 on contract RT6969SA(G).
2. The original
contract was for a period of 5 (five) years. The contract was then
extended for a period of 13 (thirteen) months,
before a second
production period of 5 (five) years was included. The contract was
subsequently extended on various occasions for
multiple periods
ranging from 1 (one) month to 18 (eighteen) months.
3. The Department on
several occasions advertised tender specifications for a new service
provider but failed to complete the process
due to the technical
nature, and due to legal challenges.
4. The Department
subsequently took a strategic decision, supported by the Ministry and
EXCO not to go out on open tender for the
continuation of this
service but rather to perform this function in-house.
5. The bureau
service for the production of driving licence cards will be performed
by the Driving Licence Trading Entity (“DLTE”).
The
Department together with the entity is currently planning and
creating capacity within the entity to take over this service.
Technical services will be supplied by the Department’s
integrated transport information technology hub (“IT Hub”).
6. The Department
developed a service level agreement between the entities to regulate
this arrangement (attached and marked Annexure
A). The Department
developed a business case (attached and marked Annexure B) for the
handover of services from the current service
provider to the DLTE.
7. The Department
had successful negotiations with the current service provider and has
agreed that following the upgrade of the
current card production
infrastructure to enable it to print smart cards, export of biometric
and spatial data to the IT Hub and
upgrade the live capture
infrastructure, the bureau service will be transferred to the DLTE.
The current service provider further
agreed to assist the Department
in capacitating the DLTE including training personnel, operations,
transfer of staff and equipment.
8. The Department is
of the opinion that this is a major milestone achieved in taking
essential services performed on an outsourced
basis in-house. The
Department intends to follow the same strategy with the eNaTIS
contract RT1194KA. However a protracted legal
battle with the service
provider is currently delaying this process.
9.
Your co-operation in this regard is appreciated.’
[10]
As pointed out above, the contested agreement contemplated that
Prodiba would produce the new licence cards and be responsible
for
the related administrative processes for a further period of five
years, commencing on 1 March 2014. As can be seen, there
was no
mention of that fact in the letter that appears in the preceding
paragraph. In fact the second annexure referred to in paragraph
6 of
the letter said expressly that the existing contract would expire at
noon on 1 March 2014 and that the current extension of
that contract
was final. It added that from 1 March 2014 Prodiba would ‘no
longer provide any services’ and the entire
process of
producing drivers’ licences would be managed in-house. The
letter could not have been construed as reporting on
the conclusion
of the Third Addendum Agreement.
[11]
In an answering affidavit filed in support of the appellant’s
case, it was pointed out that there had been an unseemly
haste in
signing the agreement, prior to Mr Mahlalela’s departure, at a
time when he knew that the Department had taken a
strategic decision
that the appointment of service providers for the migration to the
new system was not a viable option and that
it intended to provide
the service itself. The Department insisted that it had acquired the
technology to do so. Prodiba, on the
other hand, disputed the
Department’s ability to produce the new cards. That was neither
here nor there. One cannot create
a contract with a government
department by asserting its inability to perform the work that is the
subject matter of the alleged
contract. In the replying affidavit on
behalf of Prodiba there was no effective challenge to the assertion
that the Department
had taken a policy decision not to continue to
employ a service provider to provide the services described at the
commencement
of this judgment. The following part of the executive
summary of the internal memorandum is significant:
‘
4.1.3
In order for the Department to proceed with bringing the card
production services in-house, the Department will need to cancel
the
Current Tender and inform the bidders by publication in the state
tender bulletin.’
In
other words, because the Department was to undertake the production
of drivers’ licences in-house, there was no need to
continue
with a tender process to appoint an outside contractor to do so.
[12]
It is also necessary to record that in 2008 and 2009 two tenders had
been issued by the Department for a new smart-card drivers’
licence system. In response to the 2009 tender, 16 bids were
received, six of which were susceptible to further evaluation and
one
of which was Prodiba’s. However, the Department decided, for
undisclosed reasons, not to proceed with the tender process.
[1]
[13]
Subsequent to the conclusion of the agreement, and in anticipation of
it being implemented, Prodiba placed orders with suppliers
for the
necessary materials and equipment to enable it to comply with its
contractual obligations. A cash flow schedule appears
to have been
agreed with Mr Mahlalela in terms of which a total amount of
R122 037 084 would be advanced to Prodiba.
In April 2013,
when Prodiba sought to obtain payment from the Department of three
invoices totalling some R38,5 million, it met
with resistance.
[14]
On 27 April 2013 the ADG purported to cancel the agreement. The
letter reads as follows:
‘
1.
The above matter refers.
2. I advise that
unbeknown and without instructions from the Minister of Transport,
the former Director-General, Mr George Mahlalela
concluded an
addendum agreement no. 3 with Prodiba on 01 February 2013.
3. I advise that at
present there is a contract between the parties (the Department and
Prodiba) which terminates at the end of
February 2014.
4. Mr Mahlalela was
in full knowledge that during 2012, the Department took a strategic
decision that the continued extension of
the current contract with
Prodiba (Pty) Ltd and any further appointment of service providers is
no longer viable. The Department
was to continue the services
in-house with effect from 01 March 2014.
5. I advise further
that Mr Mahlalela, has
inter alia
, acted:
5.1 in violation of
the provisions of the Treasury Regulations;
5.2 without the
authority of the Minister when concluding addendum agreement no. 3 on
behalf of the Department of Transport;
5.3 in violation
with the provisions of section 217 of the Constitution;
5.4 in breach of his
fiduciary duties vice versa the Department of Transport;
5.5 in breach of his
duties in concluding a further contract when an existing contract is
still in operation.
6. I further advise
that the card production extension is not affordable by the trading
entity and it will cause the latter to become
commercially insolvent
and operate on an overdraft. This is not allowed by Treasury
Regulation 19.2.3.
7. You have further
submitted a claim for an advance payment of R32 million under payment
Certificate 307 for upgrade. This is in
violation of Treasury
Regulation 15.10.1.2(c).
8. I further advise
that Mr Mahlalela was not entitled to have concluded a further
contract when an existing contract was still
in operation.
9. I hereby advise
you as I hereby do that the addendum agreement No. 3 concluded by Mr
Mahlalela on the 1
st
of February 2013 with yourself is
herewith cancelled.
10.
Should you fail to accept the cancellation herewith, the Department
will have no alternative
but to approach
the High Court to have the agreement set aside.’
[15]
That letter caused Prodiba to launch an application in the North
Gauteng High Court for an order declaring the decision by
the ADG to
cancel the agreement unlawful and directing the Department to comply
with its obligations in terms of thereof. Although
couched as a
challenge to the validity of the cancellation it said expressly that
it was seeking specific performance of the agreement.
In a
counter-application the Minister sought an order to the effect that
the third addendum agreement was void
ab
initio.
Judgment
and order of the court below
[16]
The high court (Ebersohn AJ) considered the submission on behalf of
the Minister and the ADG that Mr Mahlalela did not have
the authority
to enter into the agreement on behalf of the Department and rejected
it. Ebersohn AJ stated that the ‘objective
facts’ set out
hereunder destroyed the respondent’s allegation that Mr
Mahlalela, the erstwhile Director-General of
the Department, did not
have the authority to enter into the third addendum agreement: First,
the Department itself had prepared
a written ‘business case’
for migrating to the smart-card drivers’ licences. Second, the
department had indicated,
since 2009, that it intended to upgrade and
update the technology relating to drivers’ licence cards.
Third, the Department
was aware that Prodiba’s contract would
come to an end on 1 March 2014. Fourth, it had to consider who would
manage the card
production facility and it had to take into account
the new technology to be employed post 1 March 2014. Fifth, the
Department
had various alternatives open to it, such as allowing a
tender to be awarded to a service provider, partial in-house
administration
and technical functions, a turn-key solution whereby a
new service provider manages the entire process, a public and private
sector
corroboration whereby a government department manages the
technical functions, an upgrading of the current manufacturing
infrastructure
together with a phased takeover of all functions by
the Drivers Licence Card Account established by the Department.
[17]
Ebersohn AJ held, with reference to the provisions of the agreement
itself, that the Department had chosen a phased takeover
of the
production of the driving licence card and entered into negotiations
with Prodiba which culminated in the Department concluding
that
agreement. He found that this was in line with the Department’s
own business plan and held in favour of Prodiba, having
regard to the
following part of the internal memorandum referred to earlier:
‘
Negotiations
should be undertaken with the current service provider on the
effective and smooth takeover including the upgrading,
replacement of
certain components of the production machine with the components
capable of printing the new plastic chip based
cards.’
[18]
Ebersohn AJ reasoned that the Minister’s lack of objection on
the record was a factor in Prodiba’s favour. He held
that the
letter from Mr Mahlalela to National Treasury, recorded in paragraph
9 above, was sufficient to fulfil the Department’s
legal
obligation to apprise National Treasury in respect of the financial
implications of the agreement. He had regard to the fact
that the
letter set out in paragraph 9 was copied to the Chief Financial
Officer of the Department and the Chief Executive Office
of the
relevant division of the Department and considered this fact to
support Prodiba’s application to enforce the agreement.
[19]
Ebersohn AJ considered the following objections to the validity of
the agreement:
(a) that the Cabinet
had not approved the policy change;
(b) that Mahlalela
failed to obtain the Minister’s approval;
(c) that, in terms
of the Public Finance Management Act 1 of 1999 (PFMA), approval had
to be obtained from National Treasury as
the effect of the agreement
was to increase the value of the existing contract in excess of
fifteen per cent; and
(d)
that Mahlalela failed to obtain the approval of a Bid Committee as
required by the Department’s supply chain policy.
[20]
The court below was dismissive of these objections, stating that none
bore scrutiny. Ebersohn AJ held it against the appellants
that they
failed to refer, in the letter of cancellation mentioned above, to
the absence of the necessary approvals from National
Treasury and Bid
Committee. He reasoned that the belated introduction of these
defences impacted negatively on the Department.
He considered Prodiba
to be an innocent party that would be prejudiced in the event that
the Department was permitted to rely ‘on
non-compliance with
its internal procedures’. He had regard to what he considered
to be a concession by the Department in
its answering affidavit that,
up until 24 February 2013, Mr Mahlalela was its Accounting Officer
and had the necessary authority
to conclude the third addendum
agreement.
[21]
Ebersohn AJ held that there was no provision in the PFMA requiring Mr
Mahlalela to obtain the Minister’s approval before
binding the
Department by concluding the agreement. He considered the following
statements in the internal memorandum to give the
lie to the
appellants’ assertion that Cabinet approval was required:
‘
6.1
National Treasury must be [apprised], upon approval, of the
Department’s decision to take over the driving licence services
currently provided by service provider.
6.2
Upon approval Cabinet must be apprised of the decision of the
Department to change the current driving licence card.’
The
court below reasoned that these statements proved that all that was
required was that the Department had to apprise the Cabinet
and
National Treasury of its decision to change to the new technology. It
is this reasoning that led to his conclusion that there
was no
substance to the contention that the migration to the new system
involved a policy change which required Cabinet approval.
[22]
Ebersohn AJ thought it decisive that the respondents were unable to
identify any provision in either the Constitution, the
PFMA or the
Treasury Regulations dictating that approval had to be obtained from
the Minister. He viewed a statement in the appellant’s
answering affidavit that the Department would produce the smart cards
in conjunction with the Government Printing Works as proof
that the
Minister had approved the migration to the new system. In this regard
he also took into account, in favour of Prodiba,
the statement on
behalf of the Department that it had already migrated to smart card
technology. He did not appear to consider
it relevant that, in the
affidavit under scrutiny, it was stated that the cards would be
produced ‘once the approval process
has been completed’.
In the view of the court below the failure by the Minister to supply
an affidavit in which he denied
that he had approved the agreement
impacted negatively on the appellant’s case.
[23]
Ebersohn AJ rejected appellants’ reliance on s 38(2) of the
PFMA which provides:
‘
An
accounting officer may not commit a department, trading entity or
constitutional institution to any liability for which money
has not
been appropriated.’
In
his view the existing card production and distribution services
generated sufficient income to fund the requirements of the present
agreement. He went on to state that the internal documents of the
Department demonstrated that the services were self-funding.
[24]
The court below considered the appellants’ reliance on Treasury
Regulations which provide that, when it is impractical
to invite
competitive bids, and when goods and services of over R500 000
are to be procured, an accounting officer has to
record the reasons
for not adopting a competitive procedure and can only deviate on the
basis of recommendations of a Bid Adjudication
Committee. It
concluded that Mr Mahlalela had sound reasons for opting to use his
powers to conclude the agreement without engaging
a competitive
process and that any omissions on his part could not be laid at
Prodiba’s door. He relied on the decisions
in
Buena Vista
Trading 15 (Pty) Ltd v Gauteng Department of Roads and Transport
2012
JDR 2198 (GSJ) and the decision in
City of Tshwane Metropolitan
Municipality v RPM Bricks (Pty) Ltd
2008 (3) SA 1
(SCA) to
support his conclusions. Finally he held that the Department was
estopped from relying on a failure of internal management
processes.
In the result the following order was made:
‘
2.
The decision taken by the second respondent on 27 April 2013 to
cancel the third addendum agreement and the attempted cancellation
thereof by the respondents is reviewed and set aside and it is
confirmed that the third addendum agreement is in force for the
full
contractual period thereof.
3. It is directed
and ordered that the Department of Transport is obliged to comply
with its obligations arising from the third
addendum agreement and to
make payments to the applicant punctually and to facilitate full
compliance by the applicant of its obligations
in terms of the third
addendum agreement.
4. The
counter-application of the respondents is dismissed.
5.
The respondents are ordered to pay the applicant’s costs
including the costs of two counsel, jointly and severally, payment
by
the one absolving the other respondents.’
Conclusions
[25]
There are several fundamental flaws in the approach of the court
below. First, it did not pause to consider that, on the undisputed
facts, what was in contemplation by the Department was an entirely
new technological framework for drivers’ licences with
major
cost implications. The epithet ‘Third Addendum Agreement’
is deceptive. It creates the impression that the agreement
in
question was merely an extension of an existing agreement. As stated
above, previous extensions of the agreement originally
concluded by
Face Technologies were termed ‘First Addendum Agreement’
and ‘Second Addendum Agreement’ respectively.
The first
two ‘addendums’ extended the five year period in respect
of which the tender was awarded from 1997 to March
2014, a period of
17 years. The word ‘addendum’, in my view, was
consciously and strategically employed. One must bear
in mind that
during that period there had been two tender processes embarked on by
the Department which were abandoned. The abandonment
remained
unexplained.
[26]
Policy decisions such as those to migrate to a new style drivers’
licence system which impact meaningfully and, in this
case
nationally, on the population and which have significant fiscal
implications, fall rightly within the province of the Legislature
or
the Executive. The decision to migrate to new technology on the scale
envisaged in the agreement in question is typically a
policy-laden or
polycentric decision. The Constitutional Court and this court have
recognised the importance of appreciating the
proper role and
functions of the legislature, the executive and the judiciary within
the Constitution. In this regards see
Bato
Star Fishing (Pty) Ltd v Minister of Environmental Affairs
[2004] ZACC 15
;
2004 (4)
SA 490
(CC)
paras 46–48,
Logbro
Properties CC v Bedderson NO and
2003
(2) SA 460
(SCA) para 20 and also Cora Hoexter ‘The future of
Judicial review in South African administrative law’
(2000)
SALJ
484
at 501. See also
Minister
of Home Affairs v Scalabrini Centre
2013
(6) SA 421
(SCA) paras 57-59. Policy making is traditionally
primarily the task of the highest ranking officials in government,
namely, the
Cabinet or its constituent Ministers or, at provincial
level, the executive council or its individual members.
[2]
[27]
It is undisputed that the Cabinet made the decision during 1995/1996
to change from the old drivers’ licence system to
the
smart-card system. This was clearly in line with what is set out in
the preceding paragraph. To reason, as the high court did,
from the
statement in the internal memorandum that the Cabinet would be
apprised of the Department’s decisions to change
the driving
licence system, meant that Cabinet approval was not required,
demonstrates, first, a lack of appreciation of where
the power to
make policy resides. Second, it does not appreciate the context in
which the statement set out in paragraph 21 above
appeared, nor does
it appreciate that a Cabinet colleague, in the form of the Minister
of Finance, would have had a material interest
in the implementation
of the new system. It also had the effect of letting the internal
memorandum dictate the legal requirements
for the validity of the
agreement. I shall, in due course, deal with the reasoning of the
court below that there were no budgetary
implications since the
licencing scheme was self-funding.
[28]
The court below failed to appreciate that Mr Mahlalela was a
Director-General operating within the Minister’s department
and
subject to the latter’s authority. This was expressly
recognised in the internal memorandum, the purpose of which was
to
seek Ministerial approval for the new drivers’ licence regime.
The Department was best placed to say whether the Minister
was
briefed, as contemplated in the memorandum. It was emphatic that this
did not occur. More importantly, the documentation disclosed
in the
litigation, bears this out. There is no effective counter in the
replying affidavit to the assertion that, towards the end
of his
tenure, Mr Mahlalela, with unseemly haste, concluded the agreement,
ostensibly, on behalf of the Department when he knew
that a decision
had been taken not to continue with an outside service provider.
[29]
There was no effective response by Prodiba to the assertion on behalf
of the Department that it had taken a policy decision
not to continue
with an outside service provider. The only counter on behalf of
Prodiba appeared to be that the Department does
not have the capacity
to produce the new card on its own, something which, as pointed out
in paragraph 11 above, was neither here
nor there. It was clear from
the documentation on record that the Department had decided to
produce the new card in-house.
[30]
Contrary to the finding of the court below, the letter written by Mr
Mahlalela to National Treasury, the contents of which
appear in
paragraph 9 above, instead of supporting Prodiba’s case,
detracted from it. First, it recorded that a decision
had been taken
to perform the function in-house with effect from 1 March 2014.
Second, it omitted to mention that Ministerial approval
had not been
obtained. Third, it did not record that a
new
agreement to provide a
new
service with significant cost
implications had been concluded with Prodiba. Fourth, it did not
record why a non-competitive process
was not followed. Lastly, it was
deliberately vague. All these factors were ignored in the reasoning
of the high court when it
dealt with Mr Mahlalela’s authority
to conclude the agreement. The court below took an unjustifiably
benign approach towards
Mr Mahlalela and Prodiba in its consideration
of the documentation.
[31]
To sum up, the court below failed to appreciate that policy
decision-making power, particularly in matters such as the one
under
discussion, resides in the upper echelons of government, more
particularly the Cabinet and the responsible Minister or Ministers.
In contractual terms, there was a failure to appreciate that Mr
Mahlalela not only acted without the approval of his principal,
the
Minister, but did so against an express decision by the Department,
which he purported to represent, that it would no longer
continue
with an outside service provider. Proper representation can only
occur if a person who acts on behalf of another has authority
to do
so. Whether a person has authority is a question of fact. It is clear
from what is set out above that Mr Mahlalela had no
such
authority.
[3]
I shall in due
course deal with the question of estoppel which the court below held
operated against the appellants.
[32]
Perhaps even more fundamentally, the court below failed to pay
sufficient attention to the procurement principles set out in
the
Constitution. Section 217 of the Constitution was designed to ensure
transparency and accountability on the part of organs
of state which
we must all be intent on promoting. The relevant parts of s 217 read
as follows:
‘
(1)
When an organ of state in the national, provincial or local sphere of
government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost-effective.
. . .
(3)
National legislation must prescribe a framework within which the
policy referred to in subsection (2) must be implemented.’
[33]
Section 38(1)
(a)
(iii) of the PFMA reads as follows:
‘
(1)
The accounting officer for a department, trading entity or
constitutional institution –
(a)
must ensure that that department, trading
entity or constitutional institution has and maintains –
(iii) an appropriate
procurement and provisioning system which is fair, equitable,
transparent, competitive and cost-effective.’
Mr
Mahlalela was the accounting officer of the Department. It was
incumbent on him to have regard to Constitutional principles,
the
provisions of the sub-section set out above and other statutory
prescripts. The high court erred by not having sufficient regard
to
constitutional norms and statutory requirements and concluding that
the decision to produce the new licences in-house could
only have
been facilitated by an extension of Prodiba’s contract and that
a competitive bid would not have been viable where
the supply of
services would have been for a very limited duration. The high court
ignored the very extensive period during which
Prodiba enjoyed a
monopoly and did not properly appreciate that the five year extension
period was not of very limited duration.
More importantly, the
agreement was one in respect of which Prodiba was required to provide
a new service dealing with new technology
in respect of which
potential competitors were not engaged. Moreover, in describing
Prodiba as an innocent party which would be
prejudiced if the
agreement was to be terminated, the court below ascribed to it a
level of naivety that was unjustified. At the
outset it succeeded a
successful tenderer. In 2009 it was a bidder when a new tender was
invited and ultimately not proceeded with.
Prodiba knew that new
technology and a new process was required and that the cost
implications for the State were enormous. It
must have been obvious
that what was required was a competitive process which was
circumvented by the agreement under discussion.
[34]
As indicated above, s 38(2) of the PFMA precludes an accounting
officer from committing a department to any liability for which
money
has not been appropriated. The court below reasoned that the
production of the cards would be self-funding in that a driver
to
whom such a card has been issued would be required to pay for it.
This was a complete misapprehension about budgetary processes
in
general and more specifically in relation to the State. It ignored
the fact that what precipitated the litigation leading up
to this
appeal was that Prodiba had sought an advance payment. The money
would only be recouped (if at all) at intervals in the
future upon
the issue of the drivers’ licences. In any event, it is in the
prerogative of the Department to allocate its
earnings as it sees
fit. A budget for a financial year yet to commence would take into
account what amounts are required in respect
of capital expenditure
and operational expenses and would make a decision about how any
potential future earnings would come into
play. It was unchallenged
that money was not appropriated to ensure compliance with the
Department’s obligations in relation
to the agreement in
question. That, in itself, was sufficient ground on which to
invalidate the agreement.
[35]
There is a further regulation with which there was non-compliance.
Section 76(4)
(c)
of the PFMA provides as follows:
‘
76.
The National Treasury may make regulations or issue instruction
applicable to all institutions to which this Act applies concerning
–
(c)
the determination of a framework for an
appropriate procurement and provisioning system which is fair,
equitable, transparent, competitive
and cost-effective.’
The
applicable Reg, 16A6.4 reads as follows:
‘
If
in a specific case it is impractical to invite competitive bids, the
accounting officer or accounting authority may procure the
required
goods or services by other means, provided that the reasons for
deviating from inviting competitive bids must be recorded
and
approved by the accounting officer or accounting authority.’
In
addition, National Treasury issued an instruction note, 8 of
2007/2008, paragraph 3.4.3 of which provided
inter
alia
, that in urgent or emergency cases
or in case of a sole supplier, other means such as reg 16A6.4 may be
followed. It too provided
that the reasons for deviation should be
recorded and approved by the accounting officer.
[36]
No reasons at all were recorded by Mr Mahlalela for not employing a
competitive bid process. In
Chief Executive Officer, South African
Social Security Agency v Cash Paymaster Services (Pty) Ltd
2012
(1) SA 216
(SCA) at 22 the following appears in relation to the
National Treasury Regulations here under discussion:
‘
That
is a formal requirement. The basis for these requirements is obvious.
State organs are as far as finances are concerned first
of all
accountable to the National Treasury for their actions. The provision
of reasons in writing ensures that Treasury is informed
of whatever
considerations were taken into account in choosing a particular
source and of dispensing with a competitive procurement
process. This
enables Treasury to determine whether there has been any financial
misconduct and, if so, to take the necessary steps
in terms of reg
33.’
In
Cash Paymaster
this court was dealing with the review of a
decision by the South African Social Security Agency to enter into an
agreement with
the South African Post Office Limited for the
provision of basic banking services to eligible members of the South
African public
in order to facilitate the payment of social grants to
them. It is true that this court in that case did not conclude that a
failure
to comply with the Treasury Regulations
ipso iure
rendered the decision void. It said the following at para 29:
‘
Considerations
of public interest, pragmatism and practicality should inform the
exercise of a judicial discretion whether to set
aside administrative
action or not.’
[37]
On 31 May 2011 National Treasury issued an Instruction Note. In terms
of paragraphs 3.9.3 and 3.9.4 of that Instruction Note,
accounting
officers and authorities were directed that as from 31 May 2011, no
contracts may be expanded or varied by more than
20 per cent or R20
million (including all applicable taxes) for construction related
goods, works and/or services and 15 per cent
or R15 million
(including all applicable taxes) for all other goods and/or services
of the original value of the contract, whichever
is the lower amount,
without Treasury’s written approval. The financial implications
of the agreement were over R1 billion
and these requirements must be
met and for good reason – to ensure transparent and accountable
governance.
[38]
The court below erred in holding that Mr Mahlalela was acting well
within his powers in concluding the agreement without a
competitive
process as the option he chose, namely to sign the agreement, was
justified. In doing so, it ignored the principles
set out above and
misconstrued the facts.
[39]
It is now necessary to deal with the conclusion of the court below,
that in any event the appellants were estopped from relying
on
non-compliance with internal procedures. In my view the description
of non-compliance with the fundamental principles referred
to above
can hardly appropriately be described merely a failure to comply with
internal procedures. The decision in
Buena Vista,
contrary to
the finding of the court below, is no support for its conclusions. In
that case, Mbha J determined that the contracts
there concluded were
not
ulta vires
the powers of the Department concerned. The
decision of this court in
RPM Bricks
, likewise does not assist
Prodiba. In that case Ponnan JA said the following in para 23:
‘
Estoppel
cannot, as I have already stated, be used in such a way as to give
effect to what is not permitted or recognised by law.
Invalidity must
therefore follow uniformly as the consequence. That consequence
cannot vary from case to case. “Such transactions
are either
all invalid or all valid. Their validity cannot depend upon whether
or not harshness is discernible in a particular
case.”’
[40]
By not embarking on a competitive bid process, particularly given the
nature and scale of the services to be provided, including
the cost
implications, Mr Mahlalela erred fundamentally. By concluding the
agreement without the approval of his employer and political
principal and/or of the Cabinet, he acted without authority. By
concluding the agreement and incurring a liability for which there
had been no appropriation, he not only erred, but acted against
mandatory statutory prescripts and against the constitutional
principles of transparent and accountable governance. For all these
reasons the agreement is liable to be declared void
ab
initio
. Consequently the appeal must be
upheld.
[41]
The following order is made:
1. The appeal is
upheld with costs including the costs of two counsel.
2. The order of the
court below is set aside and substituted as follows:
‘
(a)
The application is dismissed with costs, including the costs of two
counsel.
(b)
The third addendum agreement is declared void
ab
initio
and set aside.
(c)
The respondent in the counter-application is ordered to pay the costs
of the
counter application, including the
costs of two counsel.’
________________________
M S NAVSA
ACTING DEPUTY
PRESIDENT
APPEARANCES:
FOR
APPELLANT: Adv. D Unterhalter SC (with him M du Plessis and J A
Motepe)
Instructed
by:
The
State Attorney, Pretoria
The
State Attorney, Bloemfontein
FOR
RESPONDENT: J G Wasserman SC (with him H J Smith)
Instructed
by:
Cliffe
Dekker Hofmeyr Inc., Johannesburg
Matasepes,
Bloemfontein
[1]
In
the appellant’s heads it is postulated that this was done
because the Department was to take the card production in-house.
However, in the answering affidavit the following appears in
relation to the 2009 tender:
‘
This
tender was however not proceeded with for reasons that are not
relevant to this application. The applicant was one of the
entities
that submitted a bid for this tender.’
These
statements were followed immediately by the following:
‘
What
the new agreement has now done was to essentially award a tender for
migration to a new drivers license system in a manner
that is unfair
and clearly not transparent. It has also taken away the principle of
cost effectiveness in a sense that the Department
is now not in a
position to assess which of the bidders could deliver a cost
effective service, if it still needed to procure
these services.’
[2]
C
Hoexter
Administrative
Law in South Africa
2ed (2012) at 6, 7 and 24.
[3]
See
S W J van Der Merwe
et
al Contract: General Principles
4ed
(2012) at 222.