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[2010] ZAGPPHC 268
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Cash Paymaster Services (Pty) Ltd v Chief Executive Officer of the South African Social Security Agency and Others (20067/2010) [2010] ZAGPPHC 268 (25 June 2010)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRlCA
(NORTH
GAUTENG HIGH COURT. PRETORIA)
CASE
NO: 20067/2010
DATE:25/06/2011
IN
THE MATTER BETWEEN:
CASH
PAYMASTER SERVICES (PTY)
LTD
...........................................................
APPLICANT
AND
THE
CHIEF EXECUTIVE OFFICER OF THE SOUTH
AFRICAN
SOCIAL SECURITY
AGENCY
...................................................
1ST RESPONDENT
THE
SOUTH AFRICAN SOCIAL SECURITY
AGENCY
...............................
2nd
RESPONDENT
THE
MINISTER OF SOCIAL
DEVELOPMENT
............................................
3rd RESPONDENT
FIRST
NATIONAL
BANK
.............................................................................
4
th
RESPONDENT
STANDARD
BANK GROUP
LIMITED
.........................................................
5
th
RESPONDENT
NEDBANK
LIMITED
....................................................................................
6
th
RESPONDENT
ABSA
BANK
LIMITED
...................................................................................
7
th
RESPONDENT
JUDGMENT
PRINSLOO,
J
[1]
This is an application for urgent interdictory relief as well as an
application to review and set aside certain decisions taken
by the
second respondent.
[2]
The application was first enrolled for urgent interim relief ("the
part A proceedings") on 29 April 2010. On that
occasion, by
agreement and with the consent of the Deputy Judge President, the
application was postponed for the hearing of the
final relief ("the
part B proceedings") on an expedited basis. This is the
application which came before me.
[3]
Mr Gauntlett SC, assisted by Mr Pelser, appeared for the applicant
and Mr Notshe SC, assisted by Ms Baloyi, appeared for the
first,
second and third respondents. The fourth, fifth, sixth and seventh
respondents did not oppose the application.
Brief
synopsis and background
[4]
The second respondent is the South African Social Security Agency
("SASSA"). SASSA is a juristic person established
under
section 2(1) of the South African Social Security Agency Act no 9 of
2004 ("the SASSA Act"). In terms of the SASSA
Act the
second respondent must administer the provision of social assistance
throughout South Africa. Its duties include administering
social
security payments (also known as "grants") and rendering
such services as may be required to ensure effective
and lawful
payments to social welfare beneficiaries. Until 2005 these and other
functions were performed by the relevant Member
of the Executive
Council ("MEC") tasked with administering social assistance
in each province.
[5]
Social grants are paid to literally millions of beneficiaries
throughout the Republic on a monthly basis. Figures listed in
the
founding affidavit, which are uncontested, suggest that some 9.6
million beneficiaries, in all the provinces, get paid on this
basis.
In the Eastern Cape alone, where the present dispute arose, some 1.6
million beneficiaries are paid.
[6]
Before 2005, when SASSA took over the national obligation to pay the
beneficiaries, the Tender Board established for each province
would
typically call for tenders to procure payment services relating to
the administration of social assistance grants. Accordingly,
payment
services would be provided by different service providers, depending
on the province concerned. For example, the applicant,
following due
and valid tender processes, is currently responsible for providing
payment services in respect of social grants in
five provinces,
namely Kwa-Zulu Natal, Limpopo, Northern Cape, North-West and the
Eastern Cape. Other entities are responsible
for providing payment
services in the rest of the country. In 2009, the applicant also
entered into a Service Level Agreement with
SASSA, confirming the
applicant's appointment to render the grant payment services in the
five provinces mentioned. The term of
this agreement has been
extended to 30 June 2010, and negotiations are underway to extend it
further, because there is no alternative
process in place. It is not
anticipated that a further tender process will be formalised and put
into place before 2011. Indeed,
SASSA initiated such a tender process
in February 2007, under Tender No 19/06/BS, but, in the end, decided
not to award any tender
and terminated the entire procurement
process. A replacement process has not yet got underway.
[7]
Currently the enrolment and payment system for grant beneficiaries,
at least in the provinces allocated to the applicant, essentially
operates as follows: successful applicants for social grants are
registered and listed on the national government's computerised
Social Assistance Grant System ("SOCPEN"). Beneficiaries
thereafter undergo an enrolment process. This entails the capturing
of beneficiaries' fingerprints and photo images, where applicable and
required in terms of the Service Agreement. After successful
enrolment. Smart Cards (which in appearance are similar to bank
cards) are issued to beneficiaries. This enables beneficiaries
to
upload their grants and withdraw cash (at any fixed or mobile
pay-point or at any merchant participating in the merchant acquiring
system referred to below), at any time after the commencement of a
payment cycle. This is done through a biometric identification
process involving fingerprint recognition.
[8]
The merchant acquiring system was already introduced during 2004.
This system enables merchants and beneficiaries inter alia
to
transact with each other using the applicant's Smart Card technology.
Participating merchants are prohibited from charging a
beneficiary a
fee to upload their grants, transact or withdraw cash. Beneficiaries
receive these benefits free of any charge, regardless
of the number
of transactions they conclude. A further benefit of the merchant
acquiring system is the security it provides. Under
it, fraud is
virtually non-existent. The merchant acquiring system has also
contributed significantly to enhance grant beneficiaries'
dignity and
the accessibility of grant payments. Many merchants -including big
chains like Shoprite Checkers and Pick-n-Pay, as
well as numerous
smaller merchants in rural areas, participate in the merchant
acquiring system.
[9]
The applicant is also able to dispense grant moneys through the
formal banking infrastructure (automated teller machines, as
they are
commonly known) although the applicant is not at present using this
method of payment.
[10]
The events which gave rise to the dispute between the parties can be
summarised as follows: some beneficiaries also receive
grants via
bank accounts held with certain retail banks. This is authorised in
terms of the regulations ("the Social Assistance
Regulations")
relating to the application for and payment of social assistance.
These regulations were published in terms
of section 32 of the Social
Assistance Act, no 13 of 2004, in 2008. The regulations provide that
grants may be paid not only manually
at a designated place but also
through electronic transfers into an account of the beneficiary or
institution where the beneficiary
resides (but subject to written
authorisation by the beneficiary).
This
method of payment of grants into bank accounts is not included in the
applicant's payment activities, as presently conducted
by the
applicant, and as provided for in the applicant's service level
agreement, supra.
[11]
It appears that during or about 2003, SASSA's predecessor in the
Eastern Cape, the then provincial government in the person
of the
then MEC, identified the "problem" that the banks receiving
these direct grant payments on behalf of the beneficiary
which had
authorised this method, charged banking fees to the beneficiary so
that the latter did not receive the full amount of
the grant. In
order to overcome this difficulty, the MEC held unspecified informal
talks with some banks (not all identified) and
entered into oral
agreements with the fourth and the fifth respondents only, in terms
of which the provincial government would
subsidise the beneficiary by
paying the bank charges on behalf of him or her.
[12]
To this end, so the applicant strongly argues, no proper procurement
process was followed as intended by the provisions of
section 217 of
the Constitution of the Republic of South Africa, 1996 ("the
Constitution") and a host of other statutory
provisions, to
which I will briefly refer hereunder. It is convenient to quote the
provisions of section 217(1) of the Constitution:
"Procurement.
- (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."
[13]
When SASSA stepped into the shoes of the Eastern Cape provincial
government, it simply perpetuated these two informal oral
agreements,
which have now been in place for some seven years.
[14]
The mechanics of these two "contracts" are described as
follows by the respondents in one of their opposing affidavits:
"The
amount of money that is paid to the Fourth and Fifth Respondents is
an amount which is equivalent to the bank charges
that the Fourth and
Fifth Respondents would have charged the beneficiaries. That system
enables the beneficiaries receiving the
social assistance through
electronic transfers to receive the full amount of the social
assistance awarded to them."
As
to the details of the payments, the respondents state the following
in one of
their
opposing affidavits:
"At
present SASSA pays Standard Bank and First National Bank an amount of
R15.50 and R13.68 respectively per beneficiary ...
I vehemently deny
that the conduct of SASSA is unlawful. At present SASSA pays the two
banks combined an approximate amount of
R5.2 million per month."
[15]
In my view it is noteworthy that the fourth and the fifth
respondents, who appear to be doing quite well in terms of this
arrangement, are not opposing this application.
[16]
The applicant contends that it is suffering ongoing prejudice while
these "contracts" are in place and also that
the
beneficiaries, or some of them, are suffering prejudice in the
result. In the founding affidavit the applicant also makes the
following submission:
"The
applicant does not object to the payment of grants into bank accounts
nominated by beneficiaries by virtue of this application.
This
application is directed at the manifestly unlawful and unfair
relationship between SASSA and certain banks, in terms of which
SASSA
procures the services of these banks at a fee, but without having
afforded the applicant the opportunity to offer a competitive
alternative and without having complied with the constitutional and
statutory duty to follow proper procurement processes."
[17]
In concluding this brief summary of the background of the case, I add
that the respondents allege that these arrangements with
the two
commercial banks are confined to the Eastern Cape and that no other
banks are involved. The applicant was not able to rebut
this
evidence.
[18]
The relief sought by the applicant in part B of the notice of motion
is the reviewing and setting aside of the decision in
terms of which
SASSA subsidises bank accounts by paying commercial banks to provide
payment and/or banking services to social welfare
beneficiaries
pursuant to these "subsidisation agreements". The applicant
then also applies to interdict the second respondent
from continuing
to give effect to the subsidisation agreements referred to.
The
events leading up to the launching of the application
[19]
The deponent to the founding affidavit, which is the General Manager
of the applicant, alleges that the existence of these
subsidisation
agreements only came to the applicant's knowledge after 5 February
2010. At about that date the applicant received
information that
SASSA was paying certain banks a service fee to render banking and/or
payment services to grant beneficiaries.
This information
specifically concerned the fourth and the fifth respondents.
[20]
At that stage the information was largely unconfirmed. In order to
confirm the information, the applicant instructed its attorneys
on 5
February 2010 to write a letter to SASSA.
Part
of this letter reads as follows:
"We
therefore ask that you clarify the following in an effort to allay
our clients' concerns in this regard:
1.
Is our client's understanding correct that SASSA has contracted with
Standard Bank and First National Bank and is paying them
a fee to
render banking or payment services to social grant beneficiaries?
2.
Is SASSA contracting with all banks in this way or only First
National Bank and Standard Bank? If the latter, on what basis
and via
what process were these banks selected?
3.
Was the required consent of the Minister of Social Development
obtained for these contracts and, if so, when?
4.
Does the payment of grants via the banks concerned apply to existing
beneficiaries, new beneficiaries or both?
5.
Does SASSA intend to persist with these contracts in light of the
recent judgment in the matter of CPS v SASSA and SAPOT
The
latter is a reference to a recent, as yet unreported, judgment by DU
TOIT, AJ, in this division, under case no 53753/09, to
which I will
refer later.
[21]
Although this letter was already sent by e-mail to SASSA on 5
February 2010, the reply of SASSA was only telefaxed to the
applicant's attorney on 23 February 2010. Part of this reply reads as
follows:
"2.
SASSA has arrangements with various banks nationally for the
electronic payment of social grants to qualifying beneficiaries.
However, there are no written contracts because when SASSA took over
the payment, management and administration of social grants
from the
Provincial Departments of Social Development during 2006, it was
apparent that there were no formal (written) contracts
between the
banks and government. Therefore the alleged payment of service fees
to the effect that banks in the Eastern Cape region
was/is effected
on the basis of verbal agreements. It must be noted that before the
payment of grants became a national competency,
each province
determined the standards as well as all the aspects relating to the
rendering of such services and this led to inequitable
services
provision and resultant fees.
3.
It should be noted that beneficiaries have the right to receive
payment of their social grants through the banks (via ACB) and
the
Post bank. SASSA has a responsibility to make beneficiaries aware of
the current methods of payments (cash through CPC's like
CPS and
electronic) to enable them to make the choice of which payment method
they prefer (my note: CPS is a reference to the applicant).
4.
SASSA undertakes to publish a new tender (Request for Proposals
and/or Request for Expression of Interest) for the provision
of cash
and electronic social grant payment services on or before 31 March
2010. An open tender process will be in place subsequent
to that
date. This will standardise not only the services provided by the
successful bidders, but also the resultant fees to be
paid by SASSA
with respect to the services rendered." (Emphasis added.)
The
letter was signed by the Acting Chief Executive Officer of SASSA.
[22]
On 4 March 2010, the applicant's attorney wrote back, pointing out
that the letter under reply did not answer the questions
raised on 5
February 2010. The attorney also writes the following:
"Please
advise which banks you have 'arrangements' with for the electronic
payment of social grants to qualifying beneficiaries.
Please note
that we require only the names of those banks offering subsidised (by
yourselves) accounts to beneficiaries, alternatively
who are being
paid a fee by yourselves to render the said service.'1
There
was no answer to this letter and on 24 March 2010 the applicant's
attorney
wrote
another letter part of which reads as follows:
"It
occurred to us that your failure to respond may be attributed to the
agreement reached between our client and yourselves,
as recorded in
our client's letter dated 5 March 2010. to hold over legal action
herein for a period of seven working days, pending
attempts to settle
the issue amicably.
Seven
working days from 5 March 2010 expired on 16 March 2010.
You
have made no attempts to remedy the situation, notwithstanding our
client's adherence to your request to hold over legal action.
In
fact, our client held over legal action for an extended period, in
the hope that the issue might be addressed at the scheduled
meeting
on 18 March 2010. It was not.
Our
client is unfortunately left with no alternative other than to
approach the High Court to intervene, and we request that you
urgently respond to our telefax dated 4 March 2010 in order that we
may cite all interested parties."
[23]
There was no response from SASSA, neither was the new tender,
promised in the letter of 23 February, published by 31 March
2010 or
at all.
[24]
The application was launched on 9 April 2010, well within the 180 day
period prescribed by section 7(1) of the Promotion of
Administrative
Justice Act 3 of 2000 ("PAJA").
[25]
I took the trouble to analyse the chronological sequence of events
leading up to the launch of the application in some detail,
because,
in their answering affidavit, the respondents offer a bare denial of
the allegation that the applicant only became aware
of the
subsidisation agreements on 5 February 2010. They make the bald
allegation that the applicant knew about this as early as
2003. No
evidence in support of this allegation is offered. The allegation is
again disputed by the applicant in reply. It was
argued on behalf of
the applicant that it was inherently improbable that the applicant
would sit idly by for a number of years
without intervening where it
contends that it was suffering ongoing prejudice because of the
existence of these agreements. In
this regard, counsel for the
applicant also referred me to the case of Wightman t/a J W
Construction v Headfour (Pty) Ltd &
Another
[2008] ZASCA 6
;
2008 3 SA 371
(SCA)
at 375G-I where the learned Judge of Appeal said the following:
"A
real, genuine and bona fide dispute of fact can exist only where the
court is satisfied that the party who purports to raise
the dispute
has in his affidavit seriously and unambiguously addressed the fact
set to be disputed. There will of course be instances
where a bare
denial meets the requirement because there is no other way open to
the disputing party and nothing more can therefore
be expected of
him. But even that may not be sufficient if the fact averred lies
purely within the knowledge of the averring party
and no basis is
laid for disputing the veracity or accuracy of the averment. When the
facts averred are such that the disputing
party must necessarily
possess knowledge of them and be able to provide an answer (or
countervailing evidence) if they be not true
or accurate but, instead
of doing so, rests his case on a bare or ambiguous denial the court
will generally have difficulty in
finding that the test is
satisfied."
I
deal with this aspect at some length, because it was argued on behalf
of the respondents that there was an undue delay on the
part of the
applicant to launch these proceedings, because the applicant knew of
the existence of these subsidisation arrangements
since 2003. To that
extent, it was also argued, if I understood counsel correctly, that a
proper case for urgency had not been
made out.
[26]
For the reasons mentioned, I see no basis for rejecting the emphatic
evidence offered on behalf of the applicant that it only
became aware
of this state of affairs on 5 February 2010. This conclusion is also
supported by the manner in which correspondence
was conducted with
SASSA after 5 February 2010 and the general probabilities to which I
have referred. In any event, it is, in
my view, also inherently
urgent to investigate a complaint of illegality in the form of
contracts of this nature being perpetuated
in contravention of the
provisions of section 217 of the Constitution and other statutory
provisions to which I will refer.
[27]
In these circumstances, I have come to the conclusion that there is
no merit in the contention that there was undue delay on
the part of
the applicant in pursuing this application, and I also find that a
proper case for urgency has been made out.
Was
there a proper procurement process, as intended by the provisions of
section 217 of the Constitution, when the services of the
banks were
obtained?
[28]
In response to the applicant's allegations that no such procurement
process took place, the respondents offered the following
explanation:
"9.
In about 2003 the Provincial Department of Social Development of the
Province of the Eastern Cape commenced the program
of cash payment by
the service providers. The services were rendered by the applicant in
predominantly rural areas and by a company
by the name of All Pay in
respect of urban areas. As a result of the fact that there was a new
system there was a lot of anxiety
and uncertainty amongst the
beneficiaries. Some even feared that the service providers, being
non-government entities, might run
out of cash. This led to massive
overcrowding at the social grant pay-points. This resulted in immense
hardship to the beneficiaries.
Some people slept over at the
pay-points. In one or two instances the beneficiaries died.
10.
As a result thereof the Member of the Executive Council responsible
for Social Development in that province invited banks to
assist. The
problem however was that the beneficiaries who were receiving their
moneys through the bank would not receive the whole
amount of the
grant. The banks deducted their bank charges.
11.
As a result thereof it was decided that the banks who were prepared
to assist would then be paid the amount which is equivalent
to the
bank charges that they would have charged the beneficiaries. That
system then enabled the beneficiaries receiving money
through the
banks to receive the full amount of the grant awarded to them.
12.
Only the Fourth and Fifth Respondents responded to the invitation
from the Member of the Executive Council. As a result thereof
they
were the only banks that participated in the system. The Seventh
Respondent (Absa) found itself unable to participate because
of its
close links with All Pay.
13.
At the time of the agreement between the two banks in the Eastern
Cape Provincial Department the contracts for payment of grants
with
the service providers was expiring in 2006. It was envisaged that
upon expiry of the contracts that have been concluded with
the
provincial departments SASSA would then enter into a national
contract with the service providers. The contracts with the service
providers have been extended from time to time until 31 March 2010.
At present those contracts have been extended for a further
period of
three months to complete the negotiations for a longer extension of
twelve months. It is envisaged that a new contract
would be in place
by 31 March 2011 when the extension is hoped to expire.
14.
The new contract that is envisaged is a contract for both the
electronic and the cash payment of grants to the beneficiaries.
As
stated above the new contract will then normalise and standardise the
payment of grants in all provinces."
[29]
Counsel for the respondents informed me that the respondents
recognise that this procurement process was subject to the provisions
of section 217 of the Constitution. What is quoted above, is the
high-water mark of the respondents' case to show that a proper
procurement process took place.
[30]
Not a single document was produced to illustrate the lines along
which the procurement was brought about. It appears that everything
was done verbally. All the MEC did was to "invite banks".
There was no verifying affidavit from the MEC. There was no
explanation as to why the MEC could not be approached for a verifying
affidavit. There were no verifying affidavits from any other
witnesses who may have been personally involved in the process. The
deponent to the opposing affidavit could not have arrived on
the
scene before 2005 when SASSA took over. This would have been some two
years after the event. The evidence of this deponent
amounts to
nothing more than hearsay.
[31]
There is nothing whatsoever to show that the procurement process was
fair, equitable, transparent, competitive and cost-effective
as
intended by the provisions of section 217 of the Constitution and
other statutory provisions to which brief reference will be
made.
[32]
In his letter of 23 February 2010, which I quoted, the acting CEO of
SASSA states that "it was apparent that there were
no formal
(written) contracts between the banks and government". He
acknowledges that "therefore the alleged payment
of service fees
to the affected banks in the Eastern Cape region was/is effected on
the basis of verbal agreements".
[33]
The mere fact that the CEO undertook, in the same letter, to publish
a new tender "for the provision of cash and electronic
social
grant services" on or before 31 March 2010 appears to be an
acknowledgement that the present process, based on the
verbal
arrangements, is not up to standard.
[34]
SASSA's own Evaluation Committee, designated for the aborted Tender
19/06/BS to which I have referred, presented its Evaluation
Committee
Report, under the SASSA logo, and under the heading "Confidential:
Restricted Distribution". Under the subheading
"Subsidised
Bank Accounts" it states the following:
"The
issue of subsidised bank accounts, where banking institutions are
paid a negotiated service fee to provide a banking option
to
beneficiaries, at no cost to the beneficiaries, must be phased out
within six months of the implementation of the new contracts.
These
arrangements were made without following a tender process, and do not
meet the requirements for cash payments, in that payments
are PIN
driven, not biometric. Beneficiaries currently paid through this
channel should be given the option to convert to bank
payments.
Failure to address this will perpetuate the differences in services,
and compromise the strategic intent of this tender,
namely to
standardise services." (Emphasis added.)
[35]
In its replying affidavit, the applicant, when dealing with the
problems at the pay-points referred to by the respondents,
supra,
states that they were caused by the department registering
beneficiaries at incorrect pay-points. The problems have been
addressed. These problems did not necessitate the subsidisation
agreements or justify the unlawful process embarked upon to conclude
them.
[36]
In all the circumstances I have come to the conclusion that the
procurement process followed by the MEC, such as it was, flew
in the
face of the constitutional imperative to which I have referred. It
was unlawful in the sense that a power was exercised
and/or a
function was performed beyond that conferred upon the MEC by law. In
that sense, it also flew in the face of the constitutionally
recognised principle of legality - see Fedsure Life Insurance v
Greater Johannesburg Transitional Metropolitan Council & Others
1999 1 SA 374
(CC) at 400D-F.
Relevant
statutory and other provisions
[37]
I have quoted the wording of section 217 of the Constitution which
requires an organ of State, when contracting for goods and
services,
to "do so in accordance with a system which is fair, equitable,
transparent, competitive and cost-effective".
[38]
Section 51(l)(a)(iii) of the Public Finance Management Act, 1 of 1999
("the PFMA") obliges the accounting authority
for the
applicable organ of State to ensure that it has and maintains "an
appropriate procurement and provisioning system
which is fair,
equitable, transparent, competitive and cost-effective".
[39]
To this section 76(4)(c) of the PFMA gives effect. It provides that
the National Treasury may make regulations or issue instructions
for
the determination of a framework for an appropriate procurement and
provisioning system. To this end, Treasury adopted the
following
regulations:
Treasury
Regulation 16A.3.1 which requires the accounting officer or
accounting authority of a public entity to develop and implement
an
effective and efficient supply chain management system for the
acquisition of goods and services.
Treasury
Regulation 16A.3.2 which states that "a supply chain management
system referred to in paragraph 16A.3.1 must be fair,
equitable,
transparent, competitive and cost effective".
[40]
SASSA's own Supply Chain Management Policy was attached to the
founding papers. Under the heading "Guiding Principles"
the
following is stated in this policy:
"Section
217(1) of the Constitution of the Republic of South Africa stipulates
that when an organ of State in the national,
provincial or local
sphere of government, or any other institution identified in the
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.
In
the light of this provision, SASSA as an institution identified in
the national legislation, undertakes all of its procurement
and
tendering in accordance with a system which is fair, equitable,
transparent, competitive and cost-effective."
[41]
For the reasons mentioned earlier, it is clear that the actions of
the MEC, when procuring the services of the two banks, flew
in the
face of all these provisions as well as the Supply Chain Management
Policy of SASSA itself. Moreover, SASSA's own Evaluation
Committee,
supra, condemned the actions of the MEC.
[42]
The principle of legality, supra, entails that no public power may be
exercised and no function performed beyond that conferred
by law.
This, in my view, is exactly what the MEC did. See also Competition
Commission of South Africa v Telkom SA Ltd & Another
[2010] 2 All
SA 433 (SCA) at 441a-b and Masetlha v President of the Republic of
South Africa & Another
2008 1 SA 566
(CA) at 594 para [80].
[43]
In Municipal Manager: Qaukeni v F VGeneral Trading
2010 1 SA 356
(SCA) the question of legality also came into play.
Without
inviting any other persons to tender for such a contract, the
Municipal Council resolved to appoint the respondent as the
second
appellant's refuse collector against payment of a monthly sum of some
R351 000.00. This was a re-appointment after an earlier
oral
agreement with the same respondent as waste collector was approaching
the end of its term. The re-appointment was followed
up with a
written contract. A new municipal manager decided to inform the
respondent that the contract would not be put into effect
when the
oral agreement came to an end, because proper tenders had to be
called for. The respondent sought to enforce the contract,
and
succeeded in the High Court. On appeal, the following was said at
360C-H:
"[11]
In considering the validity or otherwise of the written contract
ZEV2, it is necessary to recall that section 217(1)
of the
Constitution, couched in peremptory terms, provides inter alia that
an organ of State in the local sphere (such as a municipality)
which
contracts for goods and services 'must do so in accordance with a
system which is fair, equitable, competitive and cost effective'
(my
emphasis). This constitutional imperative is echoed in both the
Local
Government: Municipal Systems Act 32 of 2000
and the Local
Government: Municipal Finance Management Act 56 of 2003 (the
Financial Management Act), as will become apparent from
what is set
out below ..."
The
learned judge then goes on to analyse these two Acts applicable to
finance management in local authorities. The provisions correspond
with those of the
Public Finance Management Act, supra
, which is
aimed at regulating financial management in the national and
provincial governments. There are also provisions to the
effect that
in the event of a municipality deciding to procure the services of an
external service provider beyond a certain amount,
there must be a
process which complies with the Supply Chain Management Policy of the
municipality, including a competitive bidding
process which allows
all prospective service providers to have equal access to information
relevant to the bidding process and
which minimises the possibility
of fraud and corruption. The process by which an external service
provider is selected must be
"fair, equitable, transparent,
cost-effective and competitive". There must be a "competitive
bidding process".
In the present case, the municipality (second
appellant) appears to have ignored its obligation to have and
implement a supply
chain management policy, let alone its obligation
to secure the services of the external service provider through a
proper competitive
process.
[44]
In this regard, the learned judge said the following at 361E-H:
"But
the second appellant's failure to implement a supply chain management
policy cannot relieve it of its statutory obligation
to act in a
manner as summarised above, and it would be untenable to suggest that
the second appellant was therefore not obliged
to act openly,
transparently and without following a fair, equitable, competitive
and cost-effective process when contracting with
an external service
supplier to render a municipal service.
It
was suggested by the respondent both in the court below and in the
heads of argument filed in this court that a failure to comply
with
these statutory precepts did not automatically visit the contract
with an external service supplier with nullity, and that
the court
had a discretion to enforce such a contract if the supplier would
otherwise be prejudiced. However counsel who appeared
for the
respondent ... was unable to advance this argument with any
enthusiasm. His diffidence is understandable. It is not a question
of
a court being entitled to exercise a discretion having regard to
issues of fairness and prejudice. Rather, the question is one
of
legality."
[45]
The learned Judge of Appeal then deals with a number of decisions
where the Supreme Court of Appeal had held contracts concluded
in
similar circumstances without complying with prescribed competitive
processes to be invalid. In Premier, Free State & Others
v
Firechem Free State (Pty) Ltd
2000 4 SA 413
(SCA) the Supreme Court
of Appeal set aside a contract concluded in secret in breach of
provincial procurement procedures holding
that such a contract was
"entirely subversive of a credible tender procedure" and
that it would "deprive the public
of the benefit of an open
competitive process".
[46]
The learned Judge of Appeal, at 362B-F, then deals with the judgment
in Eastern Cape Provincial Government v Contractprops
25 (Pty) Ltd
2001 4 SA 142
(SCA) which concerned the validity of two leases of
immovable property concluded between the respondent and a provincial
department
without the provincial Tender Board having arranged the
hiring of the premises as was required by statute. The Supreme Court
of
Appeal concluded that the leases were invalid. MARAIS, JA said the
following at paragraphs [8] and [9]:
"As
to the mischief which the Act seeks to prevent, that too seems plain
enough. It is to eliminate patronage or worse in the
awarding of
contracts, to provide members of the public with opportunities to
tender to fulfil provincial needs, and to ensure
the fair, impartial
and independent exercise of the power to award provincial contracts.
If contracts were permitted to be concluded
without any reference to
the Tender Board without any resultant sanction of invalidity, the
very mischief which the Act seeks to
combat could be perpetuated.
As
to the consequences of visiting such a transaction with invalidity,
they will not always be harsh and the potential countervailing
harshness of holding the province to a contract which burdens the
taxpayer to an extent which could have been avoided if the Tender
Board had not been ignored, cannot be disregarded. In short, the
consequences of visiting invalidity upon non-compliance are not
so
uniformly and one-sidedly harsh that the legislature cannot be
supposed to have intended invalidity to be the consequence. What
is
certain is that the 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 discernable in the
particular case."
[47]
The learned Judge of Appeal then, at 362G, concluded that the
procurement contract for municipal services concluded in breach
of
the provisions dealt with above which are designed to ensure a
transparent, cost-effective and competitive tendering process
in the
public interest, is invalid and will not be enforced.
[48]
This approach adopted by the Supreme Court of Appeal also appears to
put paid to another argument advanced on behalf of the
respondents,
namely that I have a discretion to allow the actions of the MEC, if
found to be invalid, to stand, in the particular
circumstances of
this case. In this regard Mr Notshe referred me to the, as yet
unreported, case of Moseme Road Construction CC
<£ Others v
King Civil Engineering Contractors (Ply) Ltd & Another (385/2009)
[2010] ZASCA 13
delivered on 15 March 2010.
This
appears to be the latest in a, by now well-known, line of cases where
it was held that flawed administrative action can be
allowed to stand
where the setting aside thereof will result in undue hardship and
harsh consequences which may outweigh the results
flowing from a
setting aside of the flawed administrative action. Another such case,
also referred to in Moseme, is that of Chairperson:
Standing
Tender Committee & Others v J F E Sapela Electronics (Pty) Ltd &
Others
2008 2 SA 638
(SCA) where the learned Judge of Appeal said the
following in para [29]:
"In
my view, the circumstances of the present case as outlined above, are
such that it falls within the category of those cases
where by reason
of the effluxion of time (and intervening events) an invalid
administrative act must be permitted to stand. While
the court a quo
correctly found that the award of each of the three tenders was
invalid when made, it appears not to have appreciated
that it had a
discretion to decline to set aside those awards."
The
learned Judge of Appeal held that "considerations of pragmatism
and practicality" were relevant in the exercise of
the
discretion (para [28]). See also Oudekraal Estates (Pty) Ltd v City
of Cape Town & Others
2004 6 SA 222
(SCA) and Millennium Waste
Management (Pty) Ltd v Chairperson of the Tender Board: Limpopo
Province & Others
2008 2 SA 481
(SCA).
In
these cases, generally speaking, there were full blown tender
procedures resulting in the successful tenderer getting on with
the
execution of the contract and a disgruntled unsuccessful tenderer
launching procedures to have the flawed tender award set
aside. By
the time the matter came before the Court of Appeal, it was held, in
most of these cases, that the results flowing from
setting aside of
the unlawful administrative action would be unduly harsh and lead to
impractical consequences.
In
the present case, however, there was no tender process or procurement
process within the meaning of section 217 of the Constitution
and
other statutory provisions at all. The MEC purported to exercise a
public power and perform a function beyond that conferred
by law. The
principle of legality was contravened. In the words of MARAIS, JA in
Contractprops 25, supra, the consequences of visiting
invalidity upon
such non-compliance cannot be taken into account to avoid the setting
aside of the unlawful actions.
Some
other arguments advanced on behalf of the respondents
[49]
It was argued that the procedure followed by the MEC was, after all,
fair, equitable, transparent, competitive and cost-effective.
This
argument is based on the reasoning that there were over-crowding
problems at the pay-points, banks were invited to assist
and the
beneficiaries would be prejudiced if they had to pay the bank
charges. It was only a temporary measure.
[50]
I cannot see how these arguments can assist the respondents to avoid
the consequences of the unlawful acts of the MEC. Where
these actions
flew in the face of the principle of legality, I fail to understand
how it can be argued that they were fair, equitable,
transparent, etc
in compliance with section 217 of the Constitution.
[51]
In this regard, it is also useful to refer to a recent, as yet
unreported, judgment handed down in this division by DU TOIT,
AJ. It
was the case of Cash Paymaster Services (Pty) Ltd (also the present
applicant) v The Chief Executive Officer of the South
African Social
Security Agency NO & 3 Others under case no 53753/09. In that
case it was also common cause that the agency
did not follow any form
of competitive procurement process before entering into an agreement
with the South African Post Office
Ltd. The contract involved the
rendering of banking or payment services by the Post Office, relating
to grant beneficiaries. In
a well-reasoned judgment, with which I
find myself in respectful agreement, the learned judge also set aside
the decision of the
agency to enter into the agreement with the Post
Office and interdicted the former from contracting with the latter to
render such
banking or payment services relating to grant
beneficiaries.
[52]
It was also argued that the applicant's reliance on the fact that
SASSA's own bid Evaluation Committee condemned the actions
of the
MEC, supra, was misplaced. It was argued that the Evaluation
Committee did not realise that the respondents were entitled,
by
regulation, to effect payments other than cash, such as electronic
payments. I fail to see how this fact can assist the respondents
to
dispense with the peremptory requirement that procurement must be
preceded by a tender or procurement process in the spirit
of section
217 and other statutory provisions.
[53]
It was also argued on behalf of the respondents that the applicant
does not have standing to institute these proceedings. The
applicant
is instituting it in its own interest. The conduct of the respondent
is not in breach of the contract concluded between
the parties. The
services that have been procured from the banks are banking services.
The applicant is not a bank and cannot render
such services. It has
no direct, substantial and sufficient interest in the matter.
[54]
In reply, the applicant argued that it suffers substantial prejudice
as a result of the operation of the unlawful contracts
entered into
between the respondents and the banks. If the fourth and fifth
respondents are paid R5.2 million per month, as stated
by the
respondents, at an average cost of R14.59 per beneficiary, it amounts
to approximately 356 408 beneficiaries. Many of these
beneficiaries
would otherwise have been paid by the applicant, at an extra income.
The applicant also derives an additional income
from each and every
new beneficiary paid by it through its merchant acquiring system,
supra, and by providing financial services
to beneficiaries on that
basis. The applicant charges merchants a negotiated fee (generally
0,75%) of the transaction value in
respect of every transaction
processed by the merchant acquiring system. The merchant acquiring
system is applied nationally by
the applicant (also in the Eastern
Cape). It has been used with great success over six years. The losses
suffered by the applicant
as a result of beneficiaries currently paid
through the subsidisation scheme and future losses, should they be
allowed to continue
enrolling further beneficiaries, are impossible
to quantify. It is for this reason too, so the applicant argues,
coupled with the
evident inability in law of the applicant to recover
from the respondents such losses, that the need for the present
relief is
both urgent and compelling. The applicant submits that it
is evident that losses are being suffered and will in future be
suffered
if the present state of affairs were to be allowed to
continue and such losses are bound to be substantial.
[55]
As to the argument advanced on behalf of the respondents that the
applicant is not a bank and cannot render banking services,
the
applicant submitted that all interested parties, including the
applicant and commercial banks, which are able to render payment
or a
banking service, should have been afforded an opportunity to
participate in a fair and competitive procurement process. Had
SASSA
or its predecessors complied with this obligation, the applicant
would have tendered for the contract - either alone or together
with
a registered bank (as it is still prepared to do). The illegality
thus clearly excluded the applicant from participating in
the
process, and operated to its prejudice, and continues to do so.
[56]
Against this background, I am satisfied that the applicant has the
necessary standing to launch these proceedings and has a
direct,
substantial and sufficient interest in the matter.
[57]
For all the reasons mentioned, it is also clear that the applicant
has made out a proper case for a final interdict. It has
a clear
right to challenge the perpetuation of the unlawful contractual
relationship, it is suffering prejudice on an ongoing basis
and it
does not have a proper alternative remedy at its disposal.
PAJA
and the principle of legality
[58]
The applicant crafted its application in such a way that it relies on
PAJA alternatively on the principle of legality for the
required
relief.
[59]
The main thrust of the argument, as presented to me, was based on the
principle of legality. For the reasons mentioned, I have
come to the
conclusion that a proper case has been made out in that regard.
[60]
As to the application of PAJA, I have also come to the conclusion
that a proper case has been made out for the setting aside
of the
decisions in terms of which SASSA is subsidising the bank accounts.
At the very least, the administrative action leading
to these
decisions flies in the face of the provisions of section 6(f)(1) of
PAJA, in that it amounts to a contravention of the
law and was not
authorised by the empowering provisions. The actions also fall fowl
of other provisions of PAJA, which I do not
consider necessary to
deal with.
The
order
[61]
The order which I am about to make is contained in a draft handed up
to me by counsel for the applicant after consultation
with counsel
for the respondent. The latter indicated that if I were to find in
favour of the applicant, the provisions contained
in the draft would
be appropriate in the circumstances.
[62]
I therefore make the following order:
1.
The decisions in terms of which the second respondent subsidises bank
accounts to provide payment and/or banking services to
social welfare
beneficiaries pursuant to subsidisation agreements are reviewed and
set aside.
2.
The second respondent is interdicted from paying social welfare
grants into bank accounts opened after the date of this order
and
pursuant to the agreements referred to in paragraph 1 above.
3.
The first and second respondents are ordered to pay the applicant's
costs (including the costs flowing from the employment of
two
counsel) jointly and severally, including the costs of the part A
proceedings.
WRC
PRINSLOO
JUDGE
OF THE NORTH GAUTENG HIGH COURT
20067-2010
HEARD
ON: 9 JUNE 2010
FOR
THE APPELLANT: J J GAUNTLETT SC ASSISTED BY F B PELSER I
NSTRUCTED
BY: SMIT SEWGOOLAM INC
FOR
THE RESPONDENT: V S NOTSHE SC ASSISTED BY M C BALOYI
INSTRUCTED
BY: STATE ATTORNEY, PTA