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[2015] ZASCA 116
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MEC: Department of Police, Roads and Transport, Free State Provincial Government v Terra Graphics (Pty) Ltd t/a Terra Works and Another (483/2013) [2015] ZASCA 116; [2015] 4 All SA 255 (SCA); 2016 (3) SA 130 (SCA) (10 September 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE NO: 483/2013
DATE: 10
SEPTEMBER 2015
Reportable
In
the matter between:
THE
MEC: DEPARTMENT OF POLICE, ROADS AND TRANSPORT,
FREE
STATE PROVINCIAL
GOVERNMENT
.............................................................
APPELLANT
And
TERRA
GRAPHICS (PTY) LTD t/a TERRA
WORKS
.................................
FIRST
RESPONDENT
SSI/TSHEPEGA
JOINT
VENTURE
..........................................................
SECOND
RESPONDENT
Neutral
Citation:
MEC v Terra Graphics
(483/2013)
[2015] ZASCA 116
(10 September 2015).
Coram:
Navsa, Ponnan, Leach, Saldulker and Zondi JJA
Heard:
20 August 2015
Delivered:
10 September 2015
Summary:
Sub-contract to provide
environmental
consultancy services in relation to the Free
State Province’
s
Road
Rehabilitation
Programme
– work done
and services rendered
both by principal contractor and by the first respondent, a
subcontractor – benefit of work
accepted and retained –
after effecting partial
payment
,
Province
refusing to pay the main contractor the
balance
– basis for refusing to pay the balance was that the
Road Rehabilitation Programme was allegedly not budgeted for and that
effecting payment in those circumstances would be in
contravention
of various statutory provisions – defence held to be fallacious
– further defence of lack of privity of
contract rejected as
diversionary – always contemplated that for the subcontractor
to be paid, main contractor had to be
paid – first respondent
claiming in the alternative that the amount owing to the main
contractor be paid and that it in turn
be ordered to pay
sub-consultant – no resistance to this by main contractor –
in circumstances it would be artificial
and strained to not order
direct
payment.
ORDER
On
appeal from
: Free State Division of the High Court, Bloemfontein
(Matlapeng AJ sitting as court of first instance).
The
following order is made:
1.
Save to the extent set out in paragraph 2 hereof, the appeal
is dismissed with costs.
2.
The order of the court below is altered by substituting the amount of
R1 540 123.54 in paragraph 1 with the amount
of
R1
436
880.21.
JUDGMENT
Navsa
JA (Ponnan, Leach, Saldulker and Zondi JJA concurring):
[1]
This case is about a provincial government behaving unconscionably.
As will become apparent, in its dealings culminating in
the present
appeal, the Free State Provincial Government conducted itself without
any integrity and failed to be transparent and
accountable as
enjoined by our Constitution. In short, after the Province had
awarded a tender in relation to a road infrastructure
programme and
concluded a written agreement with the main contractor, the second
respondent, to supply engineering services for
a total remuneration
package of R69 million and sanctioned the appointment of the first
respondent as the
subcontractor to provide
environmental protection services for payment in an amount of R1 593
997.95 and after they
had both completed the work and
received some payment, the Province refused to pay the balance owing
,
on the spurious basis that the work had not been budgeted for.
Notwithstanding that the Province had received the benefits of
the
labour
of the two contractors, it contended
that the failure to budget for the contemplated road works in the
year in which the written
agreement with the main contractor was
concluded and in several budgetary periods thereafter amounted to
contraventions of applicable
regulatory statutory provisions and it
was therefore entitled to refuse to be held to its obligations in
terms of the concluded
agreements. Ironically, it relied on the
principle of legality to avoid honouring agreements that it had
authorised. It hardly
requires any imagination to consider what
members of the public would make of such behaviour. The detailed
background and the reasons
for the conclusions reached in the first
two sentences of this paragraph are set out hereafter.
[2]
During 2009/2010 the Free State Provincial Government, represented in
the present litigation by the appellant, the Member of
the Executive
Council: Free State Provincial Government: Department of Police,
Roads and Transport (the MEC), embarked on a road
infrastructure
programme, the purpose of which was to promote accessibility,
mobility and a safe road infrastructure network in
the Province that
would be environmentally sensitive and would stimulate socio-economic
growth. The programme encompassed 23 roads
located throughout the
Province. In accordance with its own procurement policy and the
applicable regulatory statutory provisions,
the Free State Department
of Police, Roads and Transport (the Department) called for tenders to
be submitted to it for the provision
of, amongst others, engineering
related services. The second respondent, SSI/Tshepega Joint Venture
(SSI), submitted a tender and
subsequently, on 19 April 2010, the
Department concluded a written agreement in terms of which SSI was to
render services as follows:
‘
Assist
the Department of Police, Roads and Transport, to manage the
implementation of the road repairs and rehabilitation programme
for
the Free State road network. Your appointment is limited to Road 12
to Road 23 as per the Department’s priority list.
Your
appointment will be with immediate effect and for the duration of the
contracts.’
[3] In effect, SSI
was the engineering firm that was appointed the project manager for
the road repair and rehabilitation programme
set out in the agreement
referred to above. The total contract value was approximately R69
million.
[1]
Clause 5.1.3 of the agreement reads as follows:
‘
Where
the client has required the Consultant to appoint selected
consultants as the Consultant’s sub-consultants, fees owed
to
those sub-consultants shall be due to the Consultant in addition to
the Consultant’s own fees.’
I
shall refer to that agreement as the main agreement. In this judgment
the terms sub-consultant and subcontractor are used interchangeably.
[4]
The main agreement contemplates the appointment, with the approval of
the Province, of sub-consultants. Environmental services
are
specifically mentioned in the main agreement. When the services of an
environmental sub-consultant were required the approval
of the
Province was obtained and tenders to that end were invited. Terra
Graphics (Pty) Ltd, a company that trades as Terra Works
(TW),
submitted a bid and subsequently a written agreement with the
approval of the Province was concluded between TW and SSI.
I shall
refer to that agreement as the sub-consultancy agreement.
[5]
The sub-consultancy agreement was concluded on 22 October 2010. The
contract value was R1
593
997.75,
excluding VAT and disbursements. Monthly payment terms were
stipulated. It is common cause that both SSI and TW performed
their
obligations in terms of the aforesaid written agreements. TW received
two payments from SSI in the amounts of R80 925.94
and
R76 191.60 on 30 September 2011 and 12 December 2011,
respectively. A total of approximately R13,7 million was paid by
the
Department to SSI, with the last payment being made on 6 October
2010.
[6]
After the Province had failed to pay SSI the balance still owing, the
latter instituted action in the Free State Division of
the High
Court, claiming payment of an amount of R44,7 million. That
litigation has not yet run to a conclusion. I pause to record
that in
that litigation the Province’s defences are substantially the
same as in this case. It also unsuccessfully raised
an exception to
an alternative claim by SSI that was based on unjust enrichment.
[7]
Since SSI
had not been paid, it could not pay TW the balance
due to the latter for the work done and services rendered in terms of
the sub-consultancy
agreement. Consequently, TW applied in the Free
State Division of the High Court for an order that the MEC pay an
amount of R1 540 123.54
for work done and services
rendered. Alternatively, TW sought an order that the MEC be ordered
to effect payment of the amount
mentioned to SSI, and that it, in
turn, be ordered to immediately and by no later than 7 days after
receipt thereof, effect payment
to TW. In addition, TW sought
interest on the amount claimed and costs of suit.
[8]
In resisting TW’s application, the MEC admitted that the
Province had invited tenders that resulted in the conclusion
of the
agreements referred to above. The MEC did not dispute that the work
had been done and that services had been rendered by
SSI and TW in
terms of the main and sub-consultancy agreements. In resisting TW’s
application in the court below, the first
point taken by the Province
was that the application was premature, because the sub-consultancy
agreement provided for arbitration
in the event of a dispute which TW
was bound by and which it had not resorted to. The second point was
that the application was
ill-fated since TW had failed to comply with
the notice provisions of the
Institution of Legal Proceedings Against
Certain Organs of State Act 40 of 2002
. These defences were clearly
entirely without substance and were rightly abandoned by the MEC
during the hearing in the court below.
[9]
In relation to the merits of TW’s claim, first, it was
contended on behalf of the MEC that the claim for payment for
services rendered lay against SSI and not against the Province. It
was submitted that this was so because in terms of both the main
and
sub-consultancy agreements SSI undertook to pay TW. There was thus no
contractual obligation on the part of the Province to
make such or
any payment to TW. Essentially, the MEC contended that there was no
contractual privity between the Province and TW
and that TW’s
claim was therefore fatally flawed. Secondly, and astonishingly, TW’s
claim was resisted on the basis
that the Province had made no
budgetary allocation for the road rehabilitation programme in respect
of which the written agreements
were concluded. As a consequence, so
the Province asserted, it was unable to withdraw the requisite funds
from the Provincial Treasury
to meet the financial obligations it had
undertaken in terms of the agreement with SSI. In this regard
reliance was placed by the
Province on
sections 21(1)
(b)
(i)
and 24(1)
(a)
(i) of the Public Finance Management Act 1 of 1999
(the PFMA). The following parts of the answering affidavit on behalf
of the MEC
bear repeating:
‘
As
at October 2010, alternatively, as at any date material to the
applicant’s claim, no budgetary allocation had been made
by the
Free State provincial government in respect of the main agreement or
any other agreement related thereto. Likewise, no allocation
of any
significance was made in respect of the two subsequent financial
years. This is conveniently summarized in page 374 of the
estimates
of provincial expenditure that were tabled in the Free State
Provincial Legislature with the Appropriation Bill for 2010/2011,
a
copy of which is attached hereto and marked “AA2”.
Accordingly,
the requisite funds to meet the financial commitments contemplated in
the main agreement could not lawfully be withdrawn
from the
Provincial Revenue Fund, as contemplated in section 21(1)
(b)
(i),
read with
section 24(1)
(a)
(i) of the
Public Finance Management
Act 1, 1999
(“
PFMA
”
).
’
I
shall, in due course, examine the veracity of that statement, more
particularly in relation to the annexure marked ‘AA2’,
and I intend to explore the paucity of information supplied on behalf
of the MEC in relation to the background leading up to the
conclusion
of the main and sub-consultancy agreements and events thereafter. I
shall, in addition, in due course, record the concessions
rightly
made before us by counsel representing the Province.
[10]
Lastly, in what appears to be a repeat of the second substantive
defence set out in the preceding paragraph, the MEC resisted
TW’s
application on the basis that since the main agreement was tainted by
illegality because the statutory prescripts referred
to above were
not complied with, no legal consequences could flow from it and TW
was thus precluded from suing on it.
[11]
The court below (Matlapeng AJ) considered whether there was any merit
to the defence that there was no contractual privity
between TW and
the Province. He took into account provisions of the main agreement
in terms of which SSI was the Province’s
project manager in
relation to the road rehabilitation programme, including being
responsible for the financial management of the
project. The court
below noted that payment due to the applicant for sub-consultancy
services had to be made by the Province to
SSI. Matlapeng AJ
considered that it followed that ‘[TW] had proved that there
was privity between itself and the [Free State
Provincial
Government].’
[12]
Regrettably, the court below was extremely brief in its treatment of
the substantive defences recorded in paragraphs 9 and
10 above,
namely that because the sub-consultancy agreement was tainted by
illegality, TW was precluded from suing on it. The defences
were
dealt with as follows:
‘
The
first respondent attack[ed] the validity of the main agreement on the
grounds that because of its failure to comply with the
peremptory
provisions of
section 66
of 68 of
Public Finance Management Act, no 1
of 1999
and further that no budgetary allocation had been made by the
Free State Provisional Government in respect of the main agreement
that such an agreement was
void ab initio
and could not satisfy a cause of action. This issue is the subject
matter of a pending case in this court under case number 393/2012.
As
a result I find it improper to pre-empt the decision of another
court
.
’
[13]
The court below then, nevertheless, went on to make the following
order
:
‘
1.
The first respondent is ordered to pay an amount of R1 540 123.54
to the applicant representing payment for work done and
services
rendered by the applicant to the first respondent.
2.
Alternatively the first respondent is ordered to effect payment of
the amount mentioned in 1 above to the second respondent and
that the
second respondent is ordered to immediately and by no later than
seven days after receipt of the said amount to effect
payment to the
plaintiff of the said amount.
3.
The first respondent is ordered to pay interest on the amount
mentioned in 1 above at the rate of 15,5% per annum a tempore morae
calculated from the date of issuing this application until the date
of first payment.
4.
The first respondent is ordered to pay the costs of this
application.’
In
truth the court below did not address the defence referred to in
paras 9 and 10 above at all.
[14]
It is against the order and the conclusions referred to in paras 11,
12 and 13 above that the present appeal, with the leave
of the court
below, is directed.
[15]
At the outset it is necessary to note that the answering affidavit on
behalf of the MEC was deliberately vague and evasive.
No attempt was
made to explain how the Provincial Government could have concluded
the written agreement with SSI without having
budgeted for the roads
programme. Indeed, not even a cursory attempt was made to explain how
the road rehabilitation programme
came into being and what steps the
Provincial Government had taken to fund it. Much more disturbingly,
annexure ‘AA2’,
referred to above, was employed by the
Provincial Government in a manner that was disingenuous. Annexure
‘AA2’ does
not support the statement made in the
answering affidavit that no budgetary allocation had been made by the
Free State Provincial
Government in respect of the roads that form
the subject matter of the agreement with SSI. Indeed, it demonstrates
the opposite.
Careful scrutiny of annexure ‘AA2’, which
on the Province’s own version of events was an annexure to an
Appropriation
Bill for the 2010/2011 financial year, reveals that
specific amounts for three consecutive financial periods, commencing
in 2010,
were appropriated by the Province for all the roads that
form the subject matter of the written agreement with SSI. The roads
in
question comprising a total length of 370.8km, are set out in
Appendix 4 of the agreement with SSI, and are as follows:
Rouxville
– Zastron;
Zastron
–Wepener;
Deneysville
– Oranjeville;
Oranjeville
– Frankfort;
Vredefort
– Parys;
Bultfontein
– Wesselsbron;
Bothaville
– Leeudoringstad;
Hobhouse
– Ladybrand;
Ladybrand
– Clocolan;
Kroonstad
– Vredefort; and
Harrismith
– Oliviershoek.
Each
of these roads appears in Annexure ‘AA2’. This fact was
studiously and glaringly omitted by the Province. Moreover,
the
Province did not, in its answering affidavit, reveal the following
very important information, namely, that the Free State
Provincial
Government subsequently passed an Appropriation Act 3 of 2010. Item 6
of the Schedule to the Appropriation Act in respect
of Police, Roads
and Transport reflects that a globular amount of approximately
R1,078 billion was appropriated in respect
of road
infrastructure in the Province. When presented with the Appropriation
Act, counsel on behalf of the Province rightly conceded
that he could
not persist in the Province’s defence of a failure to
appropriate monies in respect of the expenditure contemplated
in the
main written agreement or sub-consultancy agreement. This concession
was compelled not only because counsel was faced with
the
Appropriation Act but also because of what is set out in the
following five paragraphs.
[16]
In its founding affidavit, TW referred to minutes of a meeting held
on 13 October 2010 which was attended by officials of the
MEC’s
Department as well as representatives of SSI and TW. These minutes
are important. Under the heading ‘Project
Management
Contractual Issues’, the following, inter alia, is recorded:
‘
3.1.
Contract documents
The
signing of the contract documents remains an issue to be resolved
(Thirteen of the 23 contracts have been concluded –
signed by
Dept. PR&T HOD).
[2]
.
. .
3.1.6
Taking note of the DG’s undertaking that the contractual and
budgetary matters will be resolved by the end of Oct. ‘10,
Mr
Redman expressed his concern that would be impractical to respond and
implement any feedback received from the DG/PR&T before
then.’
Under
the heading ‘Compliance Issues’, the minutes reflect the
following:
‘
5.1.
Environmental and Health & Safety Auditors
5.1.1.
Mr Redman reported that, on instruction of the Dept. PR&T,
tenders were obtained from a number of consultants for the
above two
auditing functions. The tender processes were in-line with PFMA
regulations, in that:
Invitations
to tender were issued publicly.
The
tenders were evaluated fairly and the process contained in
comprehensive evaluation reports.
Formal
letters of appointment were issued.
It
was confirmed that the auditors do not operate in regions where they
may be doing relevant work for the contractors.’
[3]
Under
the sub-heading ‘Resolutions’, the following appears:
‘
5.3.1.
Mr Redman is to submit a summary of the appointment values of the
auditing teams to Ms Mentz, as well as a motivation to
extend the
appointment scope of SSI/Tshepega.’
[17]
It is clear from what is set out in the preceding paragraph that, at
the very least, both written agreements that are at the
centre of
this litigation were approved by the Department. The minutes show
that budgetary concerns were being addressed by officials
of the
Province. That fact and the other facts dealt with in the immediately
preceding paragraphs, lend a lie to the highly improbable
and clearly
contrived explanation by the Province that the work had not been
budgeted for.
[18]
At this stage it is necessary to deal with yet a further disturbing
aspect of the Province’s case. It will be recalled
that in
resisting TW’s claim the MEC relied on the Province’s
failure to comply with the provisions of s 21(1)
(b)
(i), read
with s 24(1)
(a)
(i) of the PFMA. Section 21(1)
(b)
(i) of
the PFMA provides:
‘
(1)
The provincial treasury of a province is in charge of that province’s
Provincial Revenue Fund and must enforce compliance
with the
provisions of section 226 of the Constitution, namely that –
.
. .
(b)
no money may be withdrawn from the Fund except –
(i)
in terms of an appropriation by a provincial Act; or
(ii)
as a direct charge against the Fund when it is provided for in the
Constitution or a provincial Act.’
The
relevant part of s 226 of the Constitution read as follows:
‘
(1)
There is a Provincial Revenue Fund for each province into which all
money received by the provincial government must be paid,
except
money reasonably excluded by an Act of Parliament.
(2)
Money may be withdrawn from a Provincial Revenue Fund only –
(a)
in terms of an appropriation by a provincial Act; or
(b)
as a direct charge against the Provincial Revenue Fund, when it is
provided for in the Constitution or a provincial Act.’
Section
24(1)
(a)
(i) of the PFMA provides:
‘
(1)
Only a provincial treasury may withdraw money from a Provincial
Revenue Fund, and may do so only –
(a)
to provide funds that have been authorised –
in
terms of an appropriation by a provincial Act; or
.
. .’
The
disturbing aspect flows from the following, stated by the principal
deponent on the MEC’s behalf:
‘
The
financial commitments purported to have been made in the appointment
of the contractors of the 23 projects and the second respondent
thus
fell within the purview of the definition of “irregular
expenditure” in section 1 of the PFMA.’
‘
Irregular
expenditure’ is defined in s 1 of the PFMA, as follows:
‘“
irregular
expenditure” means expenditure, other than unauthorised
expenditure, incurred in contravention of or that is not
in
accordance with a requirement of any applicable legislation,
including –
(a)
this Act; or
(b)
the State Tender Board Act, 1968 (Act 86 of 1968), or any regulations
made in terms of that Act; or
(c)
any provincial legislation providing for procurement procedures in
that provincial government.’
Section
81 of the PFMA renders an accounting officer for a department liable
to disciplinary proceedings for wilfully or negligently
making or
permitting irregular expenditure. Section 86, which deals with
offences and penalties in relation to the PFMA, makes
an accounting
officer guilty of an offence, liable to a fine or imprisonment for a
period not exceeding 5 years, if that accounting
officer willfully or
in a grossly negligent way fails to comply with the provision of
sections 38, 39 and 40. Section 38 sets out,
in general terms, the
duties of an accounting officer for a department which include
ensuring that there is an effective, efficient
and transparent system
for financial and risk management and internal control. Section 39
obliges an accounting officer for a department
to ensure that
expenditure is in accordance with the vote of the department and to
take appropriate and effective steps to prevent
unauthorised
expenditure.
[19]
On the MEC’s asserted version of events, namely, that such
payments as had been made to SSI (which amount to approximately
R14
million) were irregular payments, one would have expected that the
persons responsible for those payments would have been subject
to
disciplinary action and that criminal charges would have been
brought. That does not appear to have been done. In any event,
as
demonstrated above, the main and sub-consultancy agreements were
approved and the Province’s own documentation prove that
it had
in fact appropriated funds for the repair and rehabilitation of the
relevant roads. In its replying affidavit, TW attached
a letter dated
5 October 2012 from the then Minister of Finance, Minister Gordhan,
to a Member of Parliament which addresses concerns
about the validity
of agreements concluded by the Province with construction companies
in relation to the Oliviershoek-Harrismith
road project. The
existence and contents of the letter were never contested. That
letter, dealing with the failure of the department
to comply with the
PFMA, the
Borrowing Powers of Provincial Governments Act 48 of 1996
,
as well as with the
Preferential Procurement Policy Framework Act 5
of 2000
, explained that the Provincial Government in consultation
with National Treasury would continue engaging with the Department
and
the subcontracted companies involved to find a mutually agreeable
compromise on fair value amounts in relation to work done by those
construction entities. We are not called upon to deal with the
validity of agreements in relation to construction companies or
with
all the provisions of the statutes referred to. However, it does
appear that the Free State Provincial Government behaved
irresponsibly in certain instances, including the transactions in
question, without due regard to the rights and hardships faced
by
those with whom it had concluded written agreements on behalf of its
citizens and that in the face of National Treasury’s
asserted
willingness to assist the Province to meet its obligations towards
the subcontracted companies and others with whom written
agreements
had been concluded
. It
appears that in
relation to SSI and TW the urgings of the then National Minister of
Finance were ignored.
[20]
If
in fact, the funds appropriated in terms of the Appropriation Act,
referred to above, were insufficient to meet the totality
of the
Province’s obligations in relation to its Roads Infrastructure
Programme
and it was therefore unable to pay SSI, it does not mean that it
would be free to simply avoid its contractual obligations. The
outstanding commitment would then fall to be treated as unauthorised
expenditure in terms of the PFMA and not irregular expenditure
as
initially contended for on behalf of the Province. In s 1
‘unauthorised expenditure’ is defined, inter alia, as
overspending of a vote or a main division within a vote.
[4]
Section 34, which deals with unauthorised expenditure, provides:
‘
(1)
Unauthorised expenditure does not become a charge against a Revenue
Fund except when –
(a)
the expenditure is an overspending of a vote and Parliament or a
provincial legislature, as may be appropriate, approves, as a direct
charge against the relevant Revenue Fund, an additional amount for
that vote which covers the overspending ; or
(b)
the expenditure is unauthorised for another reason and Parliament or
a provincial legislature, as may be appropriate, authorises
the
expenditure as a direct charge against the relevant Revenue Fund.
(2)
If Parliament or a provincial legislature does not approve in terms
of subsection 1(a) an additional amount for the amount of
any
overspending, that amount becomes a charge against the funds
allocated for the next or future financial years under the relevant
vote.’
Section
34(2) has the effect that the Provincial Treasury would, ex lege,
become liable to meet the Province’s contractual
obligation in
terms of the main agreement. That obligation would be met as a first
charge upon the Treasury in the subsequent financial
cycle. Simply
put, there is no statutory impediment preventing payment to SSI and,
in turn, TW. On the contrary, there is a legal
obligation to pay,
even if it meant a delay that extended into the next financial cycle.
In the present case a number of financial
cycles have passed. It is
important to bear in mind that inability to pay was never the MEC’s
case, nor was it contended
that there had been over-expenditure.
[21]
It is important that governmental institutions respect the rights of
those with whom it transacts. Government should be a scrupulous
role
model. In this regard the following part of a dictum of the
Constitutional Court in
Mohamed & another v President of the
Republic of South Africa & others (Society for the Abolition of
the Death Penalty in
South Africa & another intervening)
[2001] ZACC 18
;
2001 (3) SA 893
(CC) is apposite (para 68):
‘
South
Africa is a young democracy still finding its way to full compliance
with the values and ideals enshrined in the Constitution.
It is
therefore important that the State lead by example. This principle
cannot be put better than in the celebrated words of Justice
Brandeis
in
Olmstead et al v United States
:
“
In
a government of laws, existence of the government will be imperiled
if it fails to observe the law scrupulously . . . . Government
is the
potent, omnipresent teacher. For good or for ill, it teaches the
whole people by its example . . . . If the government becomes
a
lawbreaker, it breeds contempt for the law; it invites every man to
become a law unto himself; it invites anarchy.”
The
warning was given in a distant era but remains as cogent as ever.
Indeed, for us in this country, it has a particular relevance:
we saw
in the past what happens when the State bends the law to its own ends
. . . . The legitimacy of the constitutional order
is undermined
rather than reinforced when the State acts unlawfully.’(footnotes
omitted)
In
the present case, the stance adopted by the Province was that it had
acted contrary to statutory prescripts, more particularly,
that it
had failed to appropriate funds. As demonstrated above and as
accepted by the Province that was not the case. The Province
failed
to take any subsequent remedial steps and it completely ignored the
hardships it had caused for those with whom it had contracted.
Worse
still, it accepted and retained the advantages it gained through the
work done and services rendered by those contractors
and steadfastly
refused to take any steps to ensure that they received the
compensation that was their due. This position was adopted
notwithstanding the exhortation by the then National Minister of
Finance to resolve the impasse.
[22]
Having made the concession referred to in para 15, counsel on behalf
of the MEC maintained that he remained entitled to rely
on the lack
of contractual privity between TW and the Province. In my view, that
defence is diversionary and unhelpful.
It
is necessary to have regard to the relevant parts of the main and
sub-consultancy agreements in the present case. The following
are the
relevant clauses in the sub-consultancy agreement:
‘
2.
The following documents shall be deemed to form and be read and
construed as part of this Sub-Consultancy Agreement:
1.
The Conditions
2.
The Appended Clauses of the Main Agreement
3.
Schedules 1 to 4.
3.
In consideration of the payments to be made by the Consultant to the
Sub-Consultant; as hereinafter mentioned, the Sub-Consultant
agrees
to perform the Sub-Consultant’s Services in conformity with the
provisions of the Sub-Consultancy Agreement.
4.
The Consultant hereby agrees to pay the Sub-Consultant, in
consideration of the performance of the Sub-Consultant’s
Services,
such amounts as become payable under the provisions of the
Sub-Consultancy Agreement, within seven days after received money
from
the Department, at the times and in the manner prescribed by the
Sub-Consultancy Agreement.
5.
The Sub-Consultant is appointed on instruction of the client, The
Department of Police, Roads and Transport. (hereinafter called
“the
Client”).
6.
The same payment conditions between the Client and the Consultant
apply between the Client and the Sub Consultant.’
In
the present instance, TW performed work for the benefit of the
Department, for which it invoiced SSI, which, in turn, invoiced
the
Department for the same amount, in respect of the same work. It is
perhaps necessary to reiterate, that the Province knew that
environmental services could only be provided by a sub-consultant. It
approved the appointment of that particular sub-consultant.
In
terms of clause 5.1.3 of the main agreement, the Province had
undertaken to SSI to pay the subconsultant’s fees
in addition
to its (SSI’s) own fees. It received the benefit of the
services of TW. It is also not without significance that
the MEC
represents a government department, which in terms of constitutional
prescripts, is required to be accountable. SSI has
been joined in
these proceedings, which it has chosen not to oppose. All interested
parties were therefore before this court. The
MEC has failed to raise
any justification for its failure to pay TW through the conduit of
SSI. The court below ordered the MEC
to effect payment of the sum of
R 1 540 123.54 to TW (paragraph 1 of its order). And, in paragraph 2
(albeit wrongly couched as
an alternative to paragraph 1) it ordered
that such payment be effected via SSI. There is therefore no reason
in principle to interfere
with those orders of the high court.
[23]
It is necessary to deal briefly with the manner in which the
litigation leading up to and including this appeal was conducted.
The
present appeal was postponed on a prior occasion to enable the
parties to arrive at a settlement which, I must repeat, was
the
outcome recommended by the National Minister of Finance nearly three
years ago (see para 19 above). No such settlement was
reached. In
addition, as stated earlier, the answering affidavits were vague and
evasive. And, right up until the hearing, the
MEC was firm in his
stance that the financial commitments under the sub-consultancy
agreement firstly, constituted ‘irregular
expenditure’ in
terms of the PFMA (as noted at para 18 above), and secondly, were in
contravention of s 66(2) of the PFMA,
in that certain prescribed
formalities regulating ‘future financial commitments’ had
not been complied with. However,
at the hearing, upon being pressed
to justify these conclusions based on the facts before the court, and
to explain how this state
of affairs had arisen and what steps the
Province was taking to hold those responsible to account, counsel for
the MEC accepted
the court’s offer to take further instructions
from his client, and following this abandoned both arguments. Having
finally
arrived at the end of this protracted process, it is likely
that the cost of the litigation in the court below and before us
probably
approximates the total amount claimed by TW. The litigation
was a waste of public money. It should never have occurred.
[24]
Finally, there is one brief aspect that requires to be addressed. As
stated earlier, in the founding affidavit, it appears
that the total
remuneration for the sub-consultancy services, was R1 593 997.75.
It also appears that TW received two
payments, namely, R80 925.94
and R76 191.60. If the latter two amounts are deducted from the
amount of R1 593 997.75,
a total amount of R1 436 880.21
is due. This is less than the amount claimed in the court below and
provided for in that
court’s order. Counsel on behalf of TW
accepted that, if we were inclined to dismiss the appeal the order of
the high court
should be amended to allow for the payments hitherto
received by his client, but not considered by the court below. I
stress that
this point was raised by this court
mero
motu
. The order of the court below will therefore be
altered accordingly.
[25]
Following on the conclusions set out above, the following order is
made:
1.
Save to the extent set out in paragraph 2 hereof, the appeal
is dismissed with costs.
2.
The order of the court below is altered by substituting the amount of
R1
540
123.54 in paragraph 1 with
the amount of R1
436
880.21.
M S Navsa
Judge
of Appeal
APPEARANCES:
FOR
APPELLANT: L T Sibeko SC (with him V September)
Instructed by:
State
Attorney, Bloemfontein.
FOR
FIRST RESPONDENT: S Grobler
Instructed
by:
Peyper
Sesele Attorney, Bloemfontein
[1]
This appears to be a small part of a much larger initiative that was
described by the Minister of Finance in correspondence that
formed
part of the record as a multi-year R4,2 billion project.
[2]
By this time the written agreement between SSI and the Province had
already been concluded.
[3]
This relates to the tender that was ultimately awarded to TW in
respect of which an agreement was concluded with SSI.
[4]
Section 1
(b)
of
the PFMA.