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[2022] ZAECQBHC 27
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Nelson Mandela Bay Metropolitan Municipality v Erastyle (Pty) Ltd and Others (398/2016) [2022] ZAECQBHC 27; [2022] 3 All SA 864 (ECP) (26 April 2022)
IN
THE HIGH COURT OF SOUTH AFRICA
EASTERN
CAPE DIVISION, GQEBERHA
CASE
NO: 398/2016
In
the matter between:
NELSON
MANDELA BAY METROPOLITAN
MUNICIPALITY
Plaintiff
and
ERASTYLE
(PTY) LTD
(Registration
No. 2012/038907/07)
First Defendant
MPILO
SAKILE MBAMBISA
Second Defendant
MAMISA
CHABULA-NXIWENI
Third Defendant
MHLELI
MLUNGISI TSHAMASE
Fourth Defendant
TREVOR
HARPER
Fifth Defendant
MZWAKE
CLAY
Sixth Defendant
ROLAND
WILLIAMS
Seventh Defendant
WALTER
SHAIDI
Eighth Defendant
JUDGMENT
RUGUNANAN,
J
[1]
The
plaintiff is a Category A municipality established in terms of
section 12
of the
Local Government: Municipal Structures Act 117 of
1998
read with section 155(1) of the Constitution
[1]
.
The first defendant
[2]
is a
juristic entity registered in accordance with the laws of the
Republic of South Africa. The second to eighth defendants
(collectively
“the employee defendants”) are uniformly
former senior employees of the municipality and were incumbents of
various
positions namely: The second defendant as municipal manager
and accounting officer
[3]
; the
third defendant as Executive Director: Public Health, and who from
time to time had acted as municipal manager; the fourth
defendant as
Project Manager: Integrated Public Transport System; the fifth
defendant as Chief Financial Officer (“CFO”);
the sixth
defendant as Chief Operating Officer (“COO”); the seventh
defendant as Director: Communications; and the
eighth defendant as
Executive Director: Infrastructure and Engineering.
[2]
The plaintiff’s claims arise from its appointment of the first
defendant
as a lead consultant for the development of a comprehensive
communication and marketing strategy in respect of the project for
the plaintiff’s
Integrated Public
Transport System (“IPTS”). The appointment was made
during or about February 2014 pursuant to which
the following sums of
money were paid to the first defendant, namely; R5 263 179.89;
R1 390 800.00; and R984 197.21.
[3]
The cause of action against the first defendant
essentially is that the appointment of the first defendant occurred
in breach of
the Constitution and the plaintiff’s Supply Chain
Management Policy (“the SCM policy” or “the
policy”)
and is for payment of the abovementioned amounts.
[4]
The cause of action against the second, third,
fourth, fifth, sixth, seventh and eighth defendants arose from their
conduct in their
employment relationship with the plaintiff, and is
posited on a wrongful and intentional, alternatively negligent breach
of their
obligations to discharge their duties diligently,
transparently, with the utmost good faith, and without prejudice to
the plaintiff.
[5]
Arising therefrom:
(i)
the
claim against the second and fifth defendants, alternatively against
the third defendant, is for the amounts of R 5 263 179.89;
R1 390 800.00; and R984 197.21;
[4]
(ii)
the
claim against the fourth defendant is for the amounts of
R5 262 179.89 and R1 390 800.00; and the amount
of R984 197.21 for which the fourth and eighth defendants, the
plaintiff contends, are jointly and severally liable;
[5]
(iii)
the claim against the sixth and seventh
defendants is for the amount of R1 390 800.00 for which it
is contended they are
jointly and severally liable.
[6]
It
is alleged that the payments to the first defendant pursuant to its
appointment were effected in breach of the provisions of
the Local
Government: Municipal Finance Management Act
[6]
(“the MFMA”), such conduct causing irregular expenditure
to be incurred by the plaintiff and falls to be recovered
from the
second, third, and fifth defendants under the peremptory provisions
of section 32(2) of the MFMA.
[7]
The plaintiff accordingly seeks orders: (i) declaring certain
decisions
of the second and third defendants to be unlawful and
invalid; (ii) declaring the appointment of the first defendant to be
unlawful
and void
ab initio
; and (iii) reclaiming the
aforementioned amounts from the first defendant and / or the
remaining defendants.
[8]
Each of the defendants filed special pleas and pleaded over on the
merits
of the plaintiff’s claims. The first defendant raised
two special pleas. The first was to the effect that the proceedings
instituted by the plaintiff constituted an abuse of process –
the plaintiff was obliged to institute proceedings under rule
53 (and
to file a record) since the plaintiff sought a legality review of its
own decisions. The second special plea raised the
issue of delay, it
being contended that a review must be brought within a reasonable
time and absent condonation the court is precluded
from entertaining
the action.
[9]
The special
pleas of the second defendant were identical. In addition, he pleaded
that insofar as the plaintiff relied on section
32(1)(c) of the MFMA
for recovering irregular expenditure, it is obliged to prove that its
claims are not precluded by the exception
contained in section
32(2)(b) thereof. The third, fourth, fifth, sixth, seventh and eighth
defendants have taken the same point
in their special pleas. In a
judgment handed down on 6 November 2018, reported as
Nelson
Mandela Bay Metropolitan Municipality v Erastyle and Others
2019 (3) SA 559
(ECP), Goosen J dismissed the special pleas on these
issues.
[7]
The issue of delay
(which the learned judge referred to as “the delay special
plea”) was, by agreement between the
parties, reserved for
determination by the trial court.
[10]
Accordingly,
in addition to the orders sought by the plaintiff, what remained for
determination at the trial was the first defendant’s
delay
special plea and the self-same issue raised by the second defendant -
as also the fifth and eighth defendants, in their special
pleas.
[8]
THE
CONDUCT OF THE TRIAL
[11]
Consequent to the striking out of the first
defendant’s defence on 29 September 2020 the plaintiff pursues
its claim against
the first defendant by default. At the commencement
of the trial I was informed from the bar that the third defendant is
deceased
and that the plaintiff sought a separation of its claim
against the third defendant in anticipation of the claim being
pursued
against her deceased estate.
[12]
Except for mentioning that no executor has been
appointed for the estate, no proof was placed before court, by way of
a death certificate
or an affidavit from a member of the third
defendant’s family or perhaps an affidavit from the plaintiff’s
attorney
whom counsel mentioned has been in contact with a close
relative of the third defendant. Nor was any internal record or
document
of the plaintiff, offering indication of being notified of
the third defendant’s death, tendered. In the circumstances in
the absence of either documentary or factual proof of the death of
the third defendant the logical course to adopt is that the
separation order sought be refused and that the third defendant be
deemed to be in default of appearance.
[13]
The
default status also applies to the seventh defendant. Although having
defended the claim/s against him and having delivered
a plea, he made
no appearance at the trial notwithstanding service of the notice of
set down by registered mail and by email.
[9]
The fourth defendant appeared in person while the remaining
defendants (i.e. the second, fifth, sixth and eighth defendants) were
represented by counsel.
[14]
At the commencement of the trial the plaintiff
placed before court an indexed and paginated bundle of documents
(“the bundle”).
Pursuant to the provisions of uniform
rule 37 the parties agreed that the documents in the bundle are what
they purport to be.
[15]
In the conduct of its case the plaintiff led
oral evidence of Mr. Burt Botha, a forensic investigator; Ms Barbara
De Scande, at
present the plaintiff’s Director of Expenditure
Management; and Mr Johann Mettler, a former municipal manager of the
plaintiff.
The plaintiff thereafter closed its case. The defendants
in turn uniformly did so without leading oral evidence in rebuttal of
the plaintiff’s case.
APPLICABLE
STATUTORY AND REGULATORY PROVISIONS
[16]
The matter essentially concerns the procurement of goods and services
by the plaintiff
and the liability of its employees for incurring
unlawful expenditure in breach of their duties of good faith and
diligence towards
the plaintiff. Before proceeding to deal with the
factual background to the matter it is desirable to describe in broad
outline
the legal framework pertaining to procurement of goods and
services.
[17]
The
plaintiff is an organ of state in the local government sphere. The
framework in which it procures goods and services is strictly
regulated by legislation.
[10]
The procurement process commences with section 217 of the
Constitution. The section lays down the minimum requirements for a
valid
procurement process and requires that the procurement process
preceding the conclusion of contracts for the supply of goods and
services must be “fair, equitable, transparent, competitive and
cost-effective” (see
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency and
Others
2014 (1) SA 604
(CC) at 617B).
[18]
The
plaintiff has developed and maintains a SCM policy
[11]
.
The policy was adopted by the plaintiff’s council under section
217(1) of the Constitution and section 111 of the MFMA.
The policy
complies with the regulatory framework contained in the Supply Chain
Management Regulations
[12]
(“the Regulations”).
[19]
Where
deviations from the fair processes envisaged by the legislation
occur, they may all too often be symptoms of corruption or
malfeasance in the process. Stated otherwise, a procurement process
not properly undertaken may signify a deliberately skewed process,
and as was evident from the testimony of Mr Botha the procurement of
the services of the first defendant through irregular procurement
practices was part of a pattern of conduct endemic to the IPTS
project.
[13]
The rationale for
insistence on faithful compliance with procedural formalities in the
procurement process serves a threefold purpose:
(a) it ensures
fairness to participants in the bid process; (b) it enhances the
likelihood of efficiency and optimality in the
outcome; and (c) it
serves as a guardian against a process skewed by corrupt influences
(see generally
Allpay
supra
at paragraph [27]).
[20]
In summary the plaintiff’s SCM policy, (the applicable
paragraph numbers are indicated
in brackets):
(a)
Delegated to the accounting officer all powers and duties necessary
to discharge the supply chain management
responsibilities conferred
on accounting officers in accordance with chapter 8 of the MFMA and
the Policy (paragraph 4);
(b)
stipulates that goods and services above a transaction value of
R200 000 (inclusive of VAT) may
only be procured by way of a
competitive bidding process (paragraphs 12, and 20 to 27);
(c)
cloaks the accounting officer with the authority to dispense with the
official procurement processes
established by the policy and procure
any required goods or services through any convenient process which
may include direct negotiations,
but only-
(i)
in an emergency;
(ii)
if such goods or services are produced or available from a single
provider only;
(iii)
for the acquisition of special works of art or historical objects
where specifications are difficult
to compile;
(iv)
for the acquisition of animals for zoos and / or nature and game
reserves; or
(v)
in any other exceptional case where it is impractical or impossible
to follow the official procurement
processes (paragraph 39).
[21]
The liability of employees for unlawful expenditure is regulated by
section 32 of the MFMA.
In relevant part the section reads as
follows:
“
32
Unauthorised, irregular or fruitless and wasteful expenditure
(1)
Without limiting liability in terms of the common law or other
legislation-
(a)
a political office-bearer of a municipality is liable for
unauthorised expenditure if that office-bearer
knowingly or after
having been advised by the accounting officer of the municipality
that the expenditure is likely to result in
unauthorised expenditure,
instructed an official of the municipality to incur the expenditure;
(b)
the accounting officer is liable for unauthorised expenditure
deliberately or negligently incurred by
the accounting officer,
subject to subsection (3);
(c)
any political office-bearer or official of a municipality who
deliberately or negligently committed,
made or authorised an
irregular expenditure, is liable for that expenditure; or
(d)
any political office-bearer or official of a municipality who
deliberately or negligently made or authorised
a fruitless and
wasteful expenditure is liable for that expenditure.
(2)
A municipality must recover unauthorised, irregular or fruitless and
wasteful expenditure from the person
liable for that expenditure
unless the expenditure-
(a)
in the case of unauthorised expenditure, is-
(i)
authorised in an adjustment’s budget; or
(ii)
certified by the municipal council, after investigation by a council
committee, is irrecoverable
and written off by the council; and
(b)
in the case of irregular or fruitless and wasteful expenditure, is,
after investigation by a council
committee, certified by the council
as irrecoverable and written off by the council.”
[22]
It is apparent from the section that a municipality is statutorily
obliged to recover unauthorised,
irregular or fruitless or wasteful
expenditure from the incumbents identified therein. Whether or not a
municipality received value
therefor is not a factor that poses a
limitation to the exercise of such obligation.
[23]
In
Nelson
Mandela Bay Metropolitan Municipality v Petuna
,
and in circumstances in which the plaintiff in this matter pursued a
claim against a former employee, Chetty J said the following
about
section 32:
[14]
“
Civil
proceedings to recover unauthorised, irregular or fruitless and
wasteful expenditure is an obligation which a municipality
is
statutorily enjoined to Institute. The plaintiff’s cause of
action is clearly posited upon the provisions of section 32(1)(c)
of
the Act which provides that any political office bearer or official
of a municipality who deliberately or negligently committed,
made
authorised and irregular expenditure is liable for that expenditure.
[24]
The learned judge stated further:
“
the language of
the section is clear and unambiguous and has only one meaning…”
[25]
In his judgment
supra
Goosen J concluded that:
“
A reading of
[the section]
makes it plain that a municipality is obliged to
recover unauthorised, irregular or fruitless expenditure unless the
expenditure
has been authorised or has subsequently been certified to
be irrecoverable and written off. No preconditions are set for
recovery
in terms of
[the section]
.”
[26]
The
categories of unlawful expenditure mentioned in the section are
defined in section 1 of the MFMA.
Irregular
expenditure
is the category under which the plaintiff contends the employee
defendants assume liability. In broad summary it is expenditure
incurred in contravention of, or which is discordant with a
requirement of the MFMA including various other statutory provisions
and in particular: “
expenditure
incurred by a municipality… in contravention of, or that is
not in accordance with the requirement of the supply
chain management
policy of the municipality… or any of the municipality’s
by-laws giving effect to such policy and
which has not been condoned
in terms of such policy or by-law.”
[15]
[27]
I am in full agreement with the submission in the plaintiff’s
heads of argument that
a claim in terms of the section is a claim
created by statute providing for the recovery of the amount of the
category of expenditure
in question from the office bearer or
official liable therefor as a penalty (and not as damages). It is a
self-standing claim based
on the jurisdictional facts provided for in
section 32(1). If these are present, the claim will lie without any
other requirement
(such as for example, to set aside any unlawful
action that gave rise to the expenditure in question).
BACKGROUND
– A SUMMARY OF THE PLEADINGS AND EVIDENCE
[28]
In the
circumstances that follow, the plaintiff’s pleaded case (and
the evidence adduced during trial) essentially tracks
the sequence of
three payments made by the plaintiff to the first defendant for
services ostensibly related to the IPTS project
consequent to the
first defendant’s irregular and unlawful appointment unrelated
to any competitive procedure. The plaintiff
alleges that the payments
were made by the fifth defendant through officials of the plaintiff
to whom the necessary authority to
do so had been sub-delegated by
the fifth defendant.
[16]
[29]
To
begin with, the funding for the IPTS project was allocated to the
plaintiff by the National Treasury as conditional grant funding.
[17]
Mr Mettler, the municipal manager of the plaintiff for the period
December 2015 to January 2020, testified that such funding was
ring-fenced by the national fiscus “
for
a specific purpose, namely getting the bus service up and
running”.
[18]
The
funding could only be utilised for that specific purpose and all
expenditure incurred on the project had to accord with the
budget
approved by the National Treasury. Such funding did not fall outside
the ambit of the usual constitutional and statutory
prescripts for
the procurement of goods and services and was, of necessity, subject
to the procurement rules in terms of the MFMA
and the plaintiff’s
SCM policy. Hence, expenditure incurred outside the budgeted
framework would be inconsistent with the
conditions of the grant and
had to be restored to the treasury.
[19]
[30]
The fourth defendant was formerly and at all
times relevant hereto employed by the plaintiff as its manager for
the IPTS project.
Through the compilation of a string of memoranda,
the evidence indicates that he procured (with the conscious or
unconscious co-operation
of other senior employee officials of the
plaintiff) the appointment of the first defendant for the supply of
services on a contract
amount above the transaction value of R200 000
by deviating from the obligatory competitive bidding process
stipulated in
the SCM policy. Further indications are that he was
instrumental in procuring funds for an additional payment (for
purposes unrelated
to the IPTS project) to the first defendant once
the cap or limit on the contract amount was uplifted under the
already unlawful
contract awarded to the first defendant. It is the
plaintiff’s case that in the instances in which the memoranda
were compiled
the fourth defendant misrepresented the facts contained
therein – that he did so unlawfully and intentionally,
alternatively
negligently and in breach of his duty of good faith and
diligence, lies at the crux of its claim for damages against him (see
further
below).
[31]
In
Pietersen
v The State
[20]
an appeal court considered the conviction of the appellant (a former
accounting officer) on criminal charges under the MFMA
inter
alia
relating to irregular expenditure negligently caused by his approval
of a “deviation” in terms of policy provisions
precisely
similar to those contained in the SCM policy of the plaintiff. The
court concluded that:
“
The
deviation was a stratagem designed to justify the appointment of
[the
service provider]
the politically
preselected consultant, for an open ended range of purposes over an
extended period without a competitive tender
process. It did not meet
the requirement of Regulation 36 and was therefore invalid. As a
result, all the expenditure incurred
on
[the
service provider]
was incurred in
contravention of the SCM policy. That had the consequence that the
payments to
[the service provider]
constituted irregular expenditure as
defined in the MFMA, since all expenditure incurred in contravention
of a municipality’s
SCM policy … amounts to irregular
expenditure.”
[32]
This statement, as correctly submitted by plaintiff’s counsel,
unmistakably resonates
with what occurred in this matter.
[33]
In
a memorandum dated 28 January 2014 (“the first memorandum”)
the fourth defendant sought the authority of the third
defendant as
municipal manager (a.k.a the city manager) to appoint the first
defendant directly as a lead consultant to the plaintiff
“
for
the development and implementation of a comprehensive communications
and marketing strategy
[for
the IPTS project].”
[21]
At the time the third defendant was an incumbent in an acting
capacity in place of the second defendant. It was motivated that
the
appointment will be for the duration of 12 months at R300 000
per month for the specified period with the contract amount
capped at
approximately R6 million (excluding contingencies and inclusive of
VAT).
[22]
In its heading the
memorandum indicates that the fourth defendant purported to rely on
paragraph 39 of the SCM policy where provision
is made for an
“
exceptional
case where it is impractical or impossible to follow the official
procurement processes”
.
[23]
[34]
Except
for pointing out that there is a current service provider but that
“
an
evaluation”
had
indicated that “
it
is unable to continue with the marketing component of the
project”
[24]
,
the memorandum offers no indication as to how the first defendant was
identified, much less does it offer indications of the detailed
scope
of work to be undertaken or the first defendant’s suitability
to give effect to the mandate.
[35]
As
required by the plaintiff’s internal procedures, prior to the
memorandum being submitted to the third defendant, it was
circulated
to the eighth defendant (the executive director to whom the fourth
defendant was accountable) who, by his signature,
recommended the
fourth defendant’s proposal to the accounting officer. It was
further signed by the then Director: Supply
Chain Management who
endorsed it as compliant “
with
the MFMA supply chain policies, procedures and relevant financial
processes”
,
and by the responsible accountant who confirmed the availability of
funding.
[25]
[36]
When
the memorandum served before the then acting chief financial officer,
Ms Barbara De Scande (“the acting CFO”),
as testified by
her, she commented that the SCM policy could not be bypassed. She
declined to support the proposal and counter-proposed
that an
expedited bidding process or “
a
14-day tender process”
be followed.
[26]
On 6 February
2014 the third defendant declined to approve the fourth defendant’s
recommendation and favoured the counter-proposal
by Ms De Scande for
the implementation of a competitive bidding process.
[37]
In a second
memorandum dated 12 February 2014 the fourth defendant sought the
reconsideration by the third defendant of her decision
not to
authorise the appointment of the first defendant.
[27]
He bypassed Ms De Scande and motivated the proposal for
reconsideration on the basis that:
(a)
the existing service provider had indicated that it was unable to
continue with the marketing component
of the IPTS project and that an
additional service provider was needed to “
market the
service much better”
;
(b)
whereas the process proposed by him for the appointment of the first
defendant was compliant with the
SCM policy, “
the
acting CFO did not consider the said supply chain and legal
implications”
[28]
;
(c)
as the lead consultant had already been appointed “
it
would neither the practical nor lawful to advertise the tender as
suggested by the acting CFO”
;
this
would have severe legal implications and challenges for the
municipality to advertise the tender;
[29]
and
(d)
“
the
appointment will be for the duration of 12 months with the amount of
approximately R3.6 million (excluding contingencies and
inclusive of
VAT) which will amount to R300 000 a month for the 12 months
period”
.
[30]
[38]
In making
the submissions that he did, the fourth defendant suggested that the
advertisement of a competitive tender would cause
the existing
service provider to raise a legal challenge and by inference that it
was accordingly necessary to make the appointment
out of the public
eye.
[31]
By means of an
endorsement on the second memorandum effected on 13 February 2014 the
third defendant approved the appointment of
the first defendant for
the stipulated period, adding that such approval was given “
on
the strength of the legal advice from the project manager”
(i.e. the fourth defendant);
[39]
In a
memorandum directed to the third defendant on 20 February 2014
[32]
,
Ms De Scande proffered detail as to why she did not support the
appointment of the first the defendant without following SCM
processes. The purport and contents of her memorandum was confirmed
by her when she testified
viva
voce
.
[40]
Notwithstanding
the contents of the aforementioned memorandum by the acting CFO, the
third defendant proceeded on 21 February 2014
to sign a formal
resolution.
[33]
It confirmed
the decision of 13 February 2014 favouring the appointment of the
first defendant. She did so in her capacity as “acting
city
manager” and also purportedly as “acting chief financial
officer”; the latter, according to Ms De Scande,
being a
self-standing post and by implication a post which the third
defendant did not and could not have held in a dual capacity.
[34]
[41]
On 18 March
2014, some three weeks after having been so appointed, the first
defendant submitted an invoice (No. 001) for payment
of R5 263 157.89
(exclusive of VAT), notwithstanding its appointment being restricted
to anticipated monthly payments
of R300 000 in total amounting
to R3,6 million over a year.
[35]
A contract payment certificate electronically certified by the fourth
defendant and generated on 15 April 2014 by Mr Skade, an
incumbent
seconded to the plaintiff’s IPTS division as its financial
manager, authorised payment of R5 263 157.89
in favour of
the first defendant to be effected on 21 May 2014. In spite of this
the aforementioned memorandum by Ms De Scande
presented an impediment
to the processing of the payment sought. This is apparent from an
email dated 23 April 2014
[36]
in which she had advised the fifth defendant (who had by then been
appointed as CFO) that SCM processes were not followed in the
appointment of the first defendant and that payment not be approved
consequent to an illegal appointment
[37]
.
[42]
In these
circumstances a report dated 29 April 2014 (“the third
memorandum”) ensued from the fourth defendant.
[38]
It was directed to the fifth defendant and to the second defendant
(who had by then been occupying the position of municipal manager).
The fourth defendant sought approval for the payment by the plaintiff
to the first defendant of the amount of R6 million inclusive
of VAT.
In that memorandum the fourth defendant:
(a)
referred to the resolution of the third defendant (as acting
municipal manager) of 21 February 2014
approving the appointment of
the first defendant and stated that the latter had been appointed on
6 March 2014;
(b)
stated that the acting CFO (i.e. Ms De Scande) was not supportive of
the item as she was of the view
that an open tender process ought to
have been followed;
(c)
contended that an open tender process would have exposed the
plaintiff to the risk of a legal challenge
by the appointed service
provider Distinctive Trading (appointed on 18 September 2013) and
sought to motivate this further by stating
that the only means of
avoiding such a challenge would have been to seek the review and
setting aside of that prior appointment
which would result in delay
and additional costs;
(e)
contended that consequently there were “
exceptional
circumstances which rendered it impractical to procure…
services through an open tender method”
; and
(f)
stated that the award amount was capped at R6 million inclusive of
VAT.
[39]
[43]
Despite the
advice given to him by Ms De Scande, the fifth defendant on 20 May
2014 recommended that the payment be approved since
the approval of
the appointment of the first defendant had already been granted on 21
February 2014. The second defendant also
signed the third memorandum
on 20 May 2014 and approved the fourth defendant’s
recommendation. On the same date, both the
second and the fifth
defendants signed a formal resolution.
[40]
By his signature thereof the fifth defendant certified that he
supported the fourth defendant’s submission and confirmed
that
it complied with MFMA supply chain policies, procedures and relevant
financial processes. The second defendant, by his signature
to the
resolution, effectively approved payment of the capped amount to the
first defendant.
[44]
On 21 May
2014 the plaintiff paid to the first defendant the amount of
R5 263 157.89 (“the first payment”).
The
payment is reflected in an extract from the plaintiff’s general
ledger attached to the particulars of claim.
[41]
The first payment was followed by two sequential payments of
R1 390 800.00 and R984 197.22 to the first defendant.
The circumstances in which this occurred are comprehensively pleaded
in the plaintiff’s particulars of claim. In narrating
them, I
rely heavily on the proficiency exemplified in the main heads of
argument submitted by plaintiff’s counsel.
[45]
The budget
allocation by the plaintiff’s municipal council for the year
1 July 2013 to 30 June 2014 included a vote description
entitled
“
Special
Projects and National Pride”
which made provision for the funding of the event described as the
“
20
Years of Freedom Celebrations”
in the amount of R1 474 160.00. Following rejection by the
plaintiff’s municipal council of a proposal that this
amount be
increased, it was resolved on 11 March 2014 that all service
providers for the celebration events be appointed in terms
of the SCM
policy.
[42]
[46]
On 27 May
2014 the seventh defendant directed a written enquiry
[43]
to the aforementioned Mr Skade as to the availability of funds in the
IPTS budget to pay for the freedom celebrations but was unable
to
obtain a commitment from the IPTS division. Following an order
(understood to have been generated at the instance of the seventh
defendant
[44]
) to the first
defendant for goods and / or services, the first defendant submitted
an invoice on 12 June 2014 to the plaintiff’s
communications
division (headed by the seventh defendant) for the sum of
R1 390 800.00. The seventh defendant then sought
to
persuade
[45]
the plaintiff’s
Acting Director: Supply Chain Management, Mr Mantyontya to lift the
contract limit or cap on the first defendant’s
existing
contract (i.e. the contract for which the first defendant had been
illegally appointed by the third defendant and paid
pursuant to the
resolution signed by the second defendant on 20 May 2014). By means
of an email dated 15 July 2014
[46]
Mr Mantyontya informed the seventh defendant that his attempt at
removing the cap was unsuccessful for want of a new resolution
signed
by the municipal manager.
[47]
What
followed on 5 August 2014 was a letter
[47]
from the seventh defendant to the sixth defendant, which in the
opinion of the seventh defendant indicated the prudence of making
use
of the existing contract (i.e. the existing IPTS Communications and
Marketing contract held by the first defendant) to pay
for the 20
Years of Freedom Celebrations for the reason
inter
alia
that the programmes had the same functionality. The letter disclosed
that an order had been generated but as the existing contract
was
capped the payment process could not be concluded. It was in this
context that the seventh defendant requested the sixth defendant
to
escalate the matter to the city manager (the second defendant) to
seek approval for the lifting of the cap.
[48]
On 7 August 2014 the sixth defendant signed the letter from the
seventh defendant thereby signifying his approval of the payment
request and the recommendation to the second defendant that the cap
be lifted. On the same day the second defendant resolved that
the cap
be lifted but in doing so did not specify a new limit on the amount
to be paid to the first defendant.
[49]
Consequent thereto and on 18 September 2014 payment in the amount of
R1 390 800.00 (“the second payment”)
was made
to the first defendant.
[50]
[48]
Arising
from the abovementioned facts relating to the actions of the sixth
and seventh defendants consequent to which the second
payment was
made, the plaintiff’s case is that it suffered damages due to
an
unlawful
and intentional, alternatively negligent
breach by each of them of their duty
of
good faith and diligence
[51]
(dealt with further below).
[49]
On 10
September 2014 and notwithstanding that it had been effectively paid
the full contract amount in advance, the first defendant
submitted a
further invoice (No. 002) in the amount of R984 197.22
(including VAT).
[52]
The
fourth defendant consequently directed a further memorandum (“the
fourth memorandum”)
[53]
to the second defendant seeking an increase in the contract value and
approval for payment of the said amount to the first defendant.
[54]
He appeared to contend that the expenditure incurred by the first
defendant was in relation to the 2014 Splash Festival and that
the
plaintiff was liable to make payment for which the authorisation of
the second defendant was required. In addition he recommended
that
the second defendant approves the increase of the contract value from
R6 million to R6 984 197.22 .
[55]
[50]
The
recommendation and authority to make payment was endorsed by the
eighth defendant (on 24 February 2015); by the fifth defendant,
as
CFO (on 25 February 2015) who, in doing so, certified that it
complied with the MFMA supply chain procedures, policies and relevant
financial processes; and by the second defendant (on 26 February
2015).
[56]
[51]
Consequent
to the above and on 4 March 2015 the plaintiff paid the amount of
R984 197,21 (“the third payment”)
to the first
defendant.
[57]
[52]
In accordance with what has been set out above
what follows is a determination as to whether the evidence is
supportive of the plaintiff’s
specific claims.
THE
FIRST CLAIM
[53]
The
plaintiff seeks declaratory relief to the effect that the actions and
decisions of the second and third defendants
[58]
occasioning the appointment of the first defendant and the consequent
payment to it of the above-mentioned sums amounts to conduct
inconsistent with the Constitution and falls to be declared unlawful,
void
ab
initio
,
and invalid under section 172 (1) of the Constitution, in particular:
(a)
The decision of the third defendant on 13 February 2014 and its
confirmation by means of a formal resolution
dated 21 February 2014
which culminated in the appointment of the first defendant without
initiating a competitive bidding process
and where none of the
grounds specified in paragraph 39 of the SCM policy were present
(Such decision and resolution the plaintiff
contends, including those
that follow in the sub-paragraphs below, are invalid and fall to be
declared as such under the provisions
of section 172(1) of the
Constitution for the reason that the procurement process followed by
the third defendant was not fair,
equitable, transparent, competitive
and cost effective);
(b)
The decision and resolution of the second defendant on 20 May 2014 in
support of the fourth defendant’s
recommendation for approving
the first payment, which decision and resolution were illegal
consequent to the third defendant’s
illegal appointment of the
first defendant;
(c)
The decision of the second defendant on 7 August 2014 for the lifting
of the cap on the first defendant’s
contract in circumstances
that culminated in the second payment being made - such decision
being tainted by the illegality of the
initial decision and
resolution of the third defendant and amounted to irregular
expenditure under the MFMA incurred in contravention
of the SCM
policy and constituted an improper increase in the contract value
without compliance with competitive bidding requirements
and
where none of the grounds specified in paragraph 39 of the SCM policy
were present
; moreover in circumstances in which the second
defendant was obliged to ensure that no payment was made to the first
defendant
pursuant to the latter’s irregular appointment by the
third defendant; and
(d)
The decision of the second defendant on 26 February 2015 which
culminated in the third payment to the
first defendant, such decision
being illegal in the light of the invalidity of the decision and
resolution of the third defendant,
and that the payment authorised by
the second defendant constituted irregular expenditure (for which he
was obliged to avoid) incurred
in contravention of competitive
bidding requirements.
[54]
The
declaratory relief sought by the plaintiff is characterised as a
legality review by the second, fifth and eighth defendants
in their
remaining special pleas.
[59]
These defendants raise the issue of undue delay by contending that
such relief ought to have been claimed within a reasonable time
as a
jurisdictional fact necessary to establish the plaintiff’s
claims against them.
[60]
The
fourth defendant’s belated reliance on the delay issue was not
pleaded but impermissibly raised in his heads of argument.
[55]
The
material facts pleaded by the plaintiff in support of its contention
that the action was brought without undue delay
[61]
are adequately borne from the evidence by Mr Botha and Mr Mettler. In
essence their evidence indicates that the plaintiff sought
the
assistance of the National Treasury to investigate irregularities in
the expenditure of IPTS funds as soon as it became aware
that such
investigation was warranted, and that the investigation was pursued
and completed as soon as possible with the plaintiff
taking the
necessary steps to institute this action within a reasonable period
after receiving, in August 2015, a draft forensic
investigative
report from the National Treasury.
[56]
The action was instituted on 11 February 2016 and progressively
graduated through case
management processes until it proceeded to
trial. In the greater scheme of things and regard being had to the
scope and complexity
of the plaintiff’s operations as an organ
of state, my sense is that the plaintiff acted swiftly and with a
sense of purpose
in instituting these proceedings. The evidence
tendered by the aforementioned witnesses (including Ms De Scande) was
not speculative
- it was
bona fide
and reliable
,
and
absent evidence to the contrary this court should be slow to allow a
perceived procedural obstacle that prevents it from looking
into a
challenge to the lawfulness of the exercise of public power. In any
event, the issue of undue delay is entirely irrelevant
for the
purpose of pursuing a claim against the defendants in terms of
section 32 of the MFMA.
THE
SECOND CLAIM
As
against the first defendant
:
[57]
The
plaintiff has fully pleaded the pertinent facts in support of this
claim
[62]
and for reasons
elsewhere stated, it proceeds against the first defendant by default.
Incontrovertibly, the procurement of the
services of the first
defendant as set out in this judgment was unlawful, nor was there a
lawful basis for effecting the series
of specified payments.
As
against the second defendant
:
[58]
Implicated
are the first, second and third payments authorised by the second
defendant in favour to the first defendant. The payments
amounted to
irregular expenditure.
[63]
The
first payment was made consequent upon the authorisation given by the
second defendant on 20 May 2014. The second payment was
made
consequent upon the authorisation given by the second defendant on 7
August 2014. The third payment was made consequent upon
the
authorisation given by the second defendant on 26 February 2015.
[59]
In his
capacity as accounting officer of the plaintiff the second defendant
was at all material times relating to this claim bound
to the
provisions of the Code of Conduct for Municipal Staff Members as
contained in the Local Government: Municipal Systems Act
32 of 2000
(“the Systems Act”). He was
inter
alia
bound to loyally execute the lawful policies of the plaintiff’s
council, to perform the functions of his office in good faith,
diligently, honestly and in a transparent manner, and was required to
uphold the values underpinning public administration
[64]
and to act with integrity and in the best interests of the plaintiff
without compromising its integrity and credibility.
[60]
Moreover, the second defendant was cloaked with the responsibility
for implementing the
plaintiff’s SCM policy, and for managing
the financial administration of the plaintiff and for that purpose
was obliged to
take all reasonable steps for ensuring that its
resources are used effectively, efficiently and economically and that
unauthorised,
irregular or fruitless and wasteful expenditure and
other losses are prevented as is stipulated in section 62 of the
MFMA.
[61]
In his plea the second defendant does not
dispute having signed the following documents and what is recorded in
each of them:
(a)
The third memorandum and the consequent formal resolution of 20 May
2014
[65]
;
(b)
Annexure POC 15 on 7 August 2014
[66]
;
and
(c)
The fourth memorandum on 26 February 2015
[67]
.
[62]
These
documents themselves are not disputed – they are what they
purport to be and in terms authorised the first
[68]
,
second
[69]
and third
[70]
payments to the first defendant. By virtue of the evidence of Mr
Botha and Ms De Scande the documentation relating to these
payments
[71]
constitute
confirmation of the payments made to the first defendant. The second
defendant has not disputed such documentation and
the plaintiff need
not have gone any further than the evidence of the abovenamed
witnesses to prove the payments were made to the
first defendant.
[63]
The
resolutions of the third defendant appointing the first defendant
were before the second defendant at the time when he signed
the
above-mentioned documents for approving the payments and were known
to him. It ought to have been apparent to the second defendant
that
the motivations submitted by the fourth defendant did not support any
of the requisites for a deviation in terms of paragraph
39 of the
plaintiff’s SCM policy. (The resolutions appointing the first
defendant were, in any event, irregular for the reasons
stated by Ms
De Scande. In this regard I allude to her counter-proposal to the
first memorandum
[72]
and her
subsequent memorandum directed to the third defendant
[73]
).
[64]
On
the above facts there is merit in the plaintiff’s submission
that the second defendant deliberately authorised the irregular
expenditure and falls to be held liable therefore in accordance with
section 32(1)(c) of the MFMA. Objectively considered, and
regard
being had to his position and statutory responsibilities the second
defendant should have foreseen that the payments he
was requested to
authorise would be irregular. In these circumstances it was incumbent
on him to have taken reasonable steps
[74]
to avoid the incurring of such expenditure by refusing to authorise
it. In failing to do so he was negligent.
[75]
The evidence establishes the case pleaded by the plaintiff
[76]
whereas no evidence to the contrary was tendered by the second
defendant.
As
against the fifth defendant
:
[65]
Liability
for the first, second and third payments by the plaintiff to the
first defendant is similarly attributed to the fifth
defendant under
section 32(1)(c) of the MFMA. He was similarly bound to the Code of
Conduct (
supra
)
and plainly aware of the background and circumstances relating to the
unlawful and irregular appointment of the first defendant
as lead
consultant for the IPTS project. This is apparent from the evidence
by Ms De Scande in relation to her email of 23 April
2014 in which
the attention of the fifth defendant is pertinently drawn to her
memorandum of 20 February 2014 (which was directed
to the third
defendant). The evidence by Ms De Scande stands uncontradicted and
despite a comprehensive defence having been pleaded
by the fifth (and
eighth) defendant, no evidence was led in support thereof. The
evidence indicates that the fifth defendant indubitably
ought to have
known that the decision of the third defendant on 21 February 2014
contravened the provisions of the SCM policy and
did not establish a
lawful basis for any payment to the first defendant and consequently
any payment to the first defendant would
be irregular expenditure. In
approving the payments it is the plaintiff’s case that he acted
negligently
[77]
.
As
against the third defendant
:
[66]
This
claim is pleaded as an alternative to the claims against the second
and fifth defendants, in the event of those claims failing.
In as
much as the third defendant has pleaded a positive defence no
evidence was led to substantiate it. For reasons stated elsewhere
in
this judgment the third defendant is deemed to have been in default
of appearance at trial.
[78]
The background and evidence referred to in the preceding paragraphs
assumes relevance and has not been disputed. Indications are
that
upon making her decision of 13 February 2014 and her resolution of 21
February 2014 the third defendant ought to have known
that her
appointment of the first defendant would result in irregular
expenditure, more particularly because such expenditure would
be
expenditure incurred by the plaintiff in contravention of, or that
was not in accordance with the competitive bidding requirement
in the
plaintiff’s SCM policy.
[79]
THE
THIRD CLAIM – AS AGAINST THE FOURTH AND EIGHTH DEFENDANTS
[67]
This is a
common law claim for damages suffered by the plaintiff and is posited
on an unlawful and intentional, alternatively a
negligent breach by
the fourth and eighth defendants of their duties to deal with the
plaintiff with the utmost good faith, diligently
and in a transparent
manner and to refrain from doing anything that might prejudice or
detract from the rights, assets or interests
of the plaintiff.
[80]
The scope of these duties, as pleaded, are not disputed by either of
the defendants, except for the plaintiff’s allegations
of a
breach of duty occasioned by unlawfulness and intent, and in the
alternative, negligence. It is also not disputed by the fourth
defendant that he drafted the first, second, third and fourth
memoranda, and that these are what they purport to be.
[68]
The eighth defendant admits having signed the fourth memorandum after
having considered
the recommendations of the fourth defendant. The
eighth defendant has pleaded a positive defence (framed in the same
terms as the
fifth defendant) but chose not to testify in support
thereof. To the extent that it can be gleaned that the fourth
defendant has
pleaded a defence, he similarly has chosen not to give
evidence in support thereof. There is accordingly no evidence of an
effective
rebuttal against the plaintiff’s allegations of
unlawfulness and/or negligence attributed to the fourth and eighth
defendants.
In effect, the plaintiff’s pleaded version having
regard to the memoranda and being supported by the evidence of Ms De
Scande,
is unchallenged. It only bears mentioning that the
unlawfulness of the actions of the second, third and fifth
defendants, where
it has been shown to intersect with the
unlawfulness of the actions of the fourth and eighth defendants, has
been established.
THE
FOURTH CLAIM – AS AGAINST THE SIXTH AND SEVENTH DEFENDANTS
[69]
This is similarly a claim under the common law
for damages following a breach by the sixth and seventh defendants of
their obligations
of good faith and diligence which are pleaded in
terms substantially similar to those under the third claim. Both
defendants occupied
senior positions while they were employed by the
plaintiff. The sixth defendant was the “COO”, an
executive incumbent
directly accountable to the city manager and
located at the second highest level of seniority in the
administration. The seventh
defendant was the director of
communications, who reported to and was accountable to the sixth
defendant, and was an official at
the third highest level of
seniority.
[70]
Of
relevance to the fourth claim is the request by the seventh defendant
in his letter of 5 August 2014 for the city manager to
lift the cap
on the first defendant’s existing contract and the sixth
defendant’s endorsement of the letter. On the
plaintiff’s
case this occurred in circumstances in which the sixth and seventh
defendants unlawfully and intentionally, alternatively
negligently
misrepresented to the plaintiff that,
inter
alia
,
the limit on the existing contract could lawfully be lifted without
following prescribed procurement procedures
[81]
,
and that the second defendant could approve payment of the amount of
R1 390 800.00 to the first defendant.
[82]
[71]
The
seventh defendant formulated the submissions in the letter and
incorporated the pleaded misrepresentations
[83]
.
The sixth defendant signed the letter incorporating the
misrepresentations and effectively endorsed the request made therein.
As a direct consequence of the misrepresentations, the second
defendant approved the request, removed the limitation on the
contract
amount and authorised the second payment.
[72]
In his plea the seventh defendant admits having
written the letter but denies that he owed the obligations pleaded by
the plaintiff
and denies having acted unlawfully and intentionally,
or negligently. Absent evidence to the contrary, the denials are
plainly
at odds with the prescripts in the Code of Conduct for
Municipal Staff Members and the common law obligations of an employee
to
their employer.
[73]
As for the sixth defendant, save for admitting
the obligations pleaded by the plaintiff, he denies that he breached
them unlawfully
and intentionally, or negligently.
[74]
The breaches complained of by the plaintiff are
apparent from the content of the letter read in the context of the
regulatory provisions
relating to procurement and the SCM policy.
Both defendants have purported to raise positive defences – the
seventh defendant
made no appearance at the trial and the sixth
defendant did not testify. What stands incontrovertibly is that the
first defendant
was appointed in contravention of the SCM policy, and
that had the consequence that payment to it was unlawful (
Pietersen
supra
) and that the plaintiff
incurred damage.
THE
ARGUMENTS
[75]
A note of gratitude is extended to the parties
for preparing heads of argument. A composite set has been submitted
by the second,
fifth and eighth defendants. In all material respects
that submitted by the fourth defendant raises similar issues to that
submitted
by the second, fifth and eighth defendants. The sixth
defendant submitted heads with discrete issues.
[76]
In dealing with the arguments of the fourth,
second, fifth and eighth defendants the plaintiff has referred to the
heads submitted
by them collectively as “the first heads”
and the heads submitted by the sixth defendant as “the second
heads”.
It is considered sensible and expedient to adopt the
same nomenclature. In response to the first and second heads, the
plaintiff
filed heads of argument in reply.
THE
FIRST HEADS
[77]
The principal contentions raised by the
defendants are:
(a)
that section 32 of the MFMA must not be read in “isolation”
[84]
but “holistically”
[85]
and falls to be interpreted in context
[86]
;
(b)
that section 32 is inconsistent with the Constitution - it gives rise
to an “irrationality”
[87]
;
and is “anomalous”; “patently unfair”
[88]
;
and “not just and equitable”
[89]
;
and
(c)
that the plaintiff unduly delayed in seeking the relief in claim
1
[90]
.
The
interpretation of section 32:
[78]
The
defendants seem to contend that section 176 of the MFMA modifies the
meaning of section 32. While referring to the prescript
of statutory
interpretation stated in
Cool
Ideas 1186 CC v Hubbard
[91]
,
the difficulty with their stance is that they do not make submissions
as to what they contend the modified interpretation of the
section
may be. In
Petuna
,
Chetty J made an unmistakable pronouncement as to its “
clear
and unambiguous and … only meaning”
.
[79]
Section 176 of the MFMA reads as follows:
176. Liability
of functionaries exercising powers and functions in terms of this Act
(1)
No municipality or any of its political structures, political
office-bearers or officials, no municipal
entity or its board of
directors or any of its directors or officials, and no other organ of
state or person exercising a power
or performing a funcion in terms
of this Act, is liable in respect of any loss or damage resulting
from the exercise of that power
or the performance of that function
in good faith.
(2)
Without limiting liability in terms of the common law or other
legislation, a municipality may recover
from a politcal office-bearer
or official of the municipality entity may recover from a director or
official of the entity, any
loss or damage suffered by it because of
the deliberate or negligent unlawful actions of the political
office-bearer or official
when performing a function of office.
[80]
A reading of section 176(1) indicates that it
precludes a claim against a municipality or any of its functionaries
pursuant to the
exercise “
in
good faith”
of a power or
function in terms of the MFMA, for “
loss
or damage”
resulting
therefrom. The primary purpose of the provision is that it precludes
the liability of a municipality and its functionaries
from claims by
third parties for loss or damage incurred by them where the actions
of a municipality or its functionaries were
undertaken in good faith.
[81]
The section notably refers to “
loss
or damage”
. Section 32(2) by
contrast does not relate to the recovery of loss or damage by a
municipality, but rather for expenditure which
is “
unauthorised,
irregular or fruitless and
wasteful”
as defined in section 1. The peremptory requirement to recover such
expenditure is not limited by a provision that precludes such
recovery where a municipality has suffered no loss or damage.
[82]
In its heads of argument plaintiff points out
that it is significant that the defendants appear not to have had
regard to section
176(2). The section provides for a statutory right
of recovery by a municipality from a political office bearer or
official of
any loss or damage suffered by it because of the
deliberate or negligent unlawful actions of that person. This remedy
exists independently
of any common law or other statutory remedy (see
Pikitup Johannesburg SOC Limited v
Nair (Maharaj and Others as Third Parties)
[2019] 3 All SA 899
(GJ) at 904i). The legislature has plainly felt
strongly enough about the consequences of deliberate or negligent
conduct on the
part of municipal functionaries to provide for a claim
for loss or damage in addition to the common law Aquilian claim
(which is
the basis of the claim against the fourth and eighth, and
the sixth and seventh defendants).
[83]
If the defendants are correct in their apparent
contention as to the meaning of section 32(2) (which though not
stated would seem
to be that a claim in terms thereof would only lie
where the municipality in question has suffered loss or damage), then
the provision
in section 176(2) would seem to be entirely
unnecessary. The contention, would, in any event, constitute a
special defence which
has not been pleaded. It is therefore not open
to the defendants to raise it in argument particularly where they
have made no assertions
that the conclusions by Chetty and Goosen JJ
forming part of the
rationes
decidendi
of those judgments, which
are binding on this court, are wrong.
Section
32 inconsistent with the Constitution:
[84]
The defendants’ ostensible reliance on
section 172(1) by contending that the issue to be resolved is a
constitutional matter,
that the constitution must apply and
accordingly there must be a just and equitable remedy overlooks the
logical sequence of the
section. The conclusion contended for is
insupportable.
[85]
The making by a court of any order that is just
and equitable must be preceded by:
(a)
a conclusion that the court has before it “a constitutional
matter within its power”;
(b)
that such matter falls to be decided;
(c)
a declaration that any law or conduct inconsistent with the
Constitution is invalid;
(d)
That such declaration is made only to the extent of the inconsistency
in question.
[86]
Only then may a court make an order that is
just and equitable.
[87]
The defendants’ contention that the
statutory provision upon which the plaintiff relies is inconsistent
with the Constitution
stems from their denial of the case made out by
the plaintiff. It was correctly submitted for the plaintiff that the
contention
as to unconstitutionality would constitute a positive
defence and would require that facts be pleaded upon which the
contention
is based as also the legal conclusion flowing therefrom.
[88]
The defendants have not done so in their
pleadings and have fallen short of making any such case in argument.
[89]
Beginning
with the obligations of a litigant when pleading, it has
authoritatively been stated that “
it
is for the parties either in the pleadings or affidavits (which serve
the function of both pleadings and evidence), to set out
and define
the nature of the dispute, and it is for the court to adjudicate upon
those issues … even where the dispute involves
an issue
pertaining to the basic human rights guaranteed by our Constitution,
for it is impermissible for a party to rely on a
constitutional
complaint that was not pleaded”
(see
Fischer
and Another v Ramahlele and Others
2014 (4) SA 614
(SCA) at paragraph [13]). A party has a duty to set
out in its pleading a clear and concise statement of the material
facts upon
which it seeks to rely for its claim with sufficient
particularity to enable the opposite party to reply thereto. The
rationale
therefor is that an opponent must be properly informed of
the case it has to meet and not be ambushed at trial
[92]
.
[90]
It bears noting that none of the defendants has
made the allegation in their plea that a notice in terms of rule 16A
was filed with
the registrar and that it was placed on a notice board
designated for that purpose. The need for such a notice is premised
on the
constitutional issue of which notice must be given, and the
particularity of the issue being properly raised in the pleadings.
[91]
It
does not avail the defendants to obliquely raise the
constitutionality of section 32 in heads of argument without laying a
proper
foundation for such challenge in the papers or the
pleadings.
[93]
Tellingly, it
has not in argument or otherwise been suggested which portions of the
section are inconsistent with the Constitution;
or on what basis is
it irrational; what basis the court should dismiss the plaintiff’s
claims; or what order the defendants
seek on the basis that it would
be just and equitable.
Undue
delay:
[92]
Although the issue is addressed elsewhere in this judgment it
suffices to make a few additional
comments. The review and setting
aside of the decisions to appoint the first defendant is not a
prerequisite for a claim under
section 32(2) of the MFMA. It is only
necessary to establish that one of the unlawful forms of expenditure
has been incurred in
the manner anticipated in section 32(1).
Expenditure is of course irregular once it has been incurred in
contravention of, or if
it is not in accordance with a requirement of
the supply chain management policy of a municipality. For the
irregularity to arise
there is no pre-requisite for the unlawful
conduct to be reviewed and set aside, and the determination of the
special pleas in
question is thus entirely irrelevant to the question
of the relevant employee defendants’ liability.
THE
SECOND HEADS
[93]
It is
pointed out in plaintiff’s heads of argument that its claim
against the sixth defendant lies neither in terms of section
32 nor
in terms of section 172(2) of the MFMA (as is speculated by the sixth
defendant). The claim against the sixth defendant
is pursued in terms
of the common law and has been comprehensively pleaded
[94]
.
[94]
The case pleaded for the sixth defendant is that he was appointed as
“COO”
of the plaintiff with effect from 1 April 2014,
that he was requested to escalate the lifting of the cap to the
second defendant
and that such request cannot be construed as an
authorisation by him which attracts liability. He contends that the
plaintiff failed
to prove its damages.
[95]
The evidence before court is that a payment was made to the first
defendant of the amount
claimed against the sixth and seventh
defendants for which there was no lawful basis. By virtue of such
evidence the plaintiff
has established
prima facie
that as a
consequence of the second payment, absent any legal basis for it to
have done so, it suffered damages.
[96]
It was
therefore not necessary for the plaintiff to prove that it did not
receive value for such payment (if that is what the sixth
defendant
seeks to convey by contending that plaintiff failed to prove its
damages) but rather, for any defendant who contended
that value was
indeed received, to allege and prove this. This is not the case made
out for the sixth defendant; nor is it the
case for any of the other
defendants despite their contending that Mr Botha had knowledge of
the plaintiff’s acquisition
of the services of the first
defendant and that he admitted that the plaintiff received value for
the payments made.
[95]
These
contentions are not borne from the evidence. Mr Botha stated
[96]
that he interviewed witnesses who indicated that invoices submitted
to the plaintiff for payment were over-inflated. He stated
however
that to the extent that “
some
work may have been done by the first defendant … no value for
money audit
[was]
done”
.
[97]
In the
second heads a similar admission is sought to be attributed to Ms De
Scande, with the fourth defendant making common cause
therewith. The
evidence indicates the contrary – not only did she have
concerns about the procedure for the appointment of
the first
defendant but advised, that payment not be made to the first
defendant.
[97]
Against the
backdrop of this evidence, the fourth defendant’s criticism
that she had no legal background or supply chain
expertise assumes no
relevance.
[98]
A further
aspect raised by the sixth defendant concerns the reserved costs of
his application for a postponement of the trial on
9 November 2020.
Quoting directly from the plaintiff’s heads of argument, the
following is apparent:
[98]
“
That
application was not argued, but in bringing it, the sixth defendant
sought an indulgence to enable him to properly ready himself
at
trial. The lack of readiness was plainly not justified and the sixth
defendant should in the ordinary course be liable for such
costs. In
any event however the Court need not enter into the merits of that
application. The plaintiff informed the allocated
trial judge in
chambers that the seventh defendant had exhibited symptoms consequent
upon which he had submitted himself to a test
for Covid-19 and that
on the morning of the trial he remained ill and had not received his
test result. In addition,
[the trial judge]
at the same time
indicated that she had concluded that she was precluded from hearing
the matter as she had presided in disciplinary
hearings relating to
IPTS and had been required to reach conclusions regarding the
credibility of witnesses to be called by the
plaintiff. At best such
costs should be costs in the cause.”
[99]
The costs issue was not raised by any of the other defendants and as
I have not had the
benefit of their submissions, I readily accede to
the view expressed by the plaintiff.
CONCLUSION
[100]
The plaintiff bears the overall
onus
of establishing its entitlement to the relief it claims (see
Pillay
v Krishna and Another
1946 AD 946
at
952-953). Its case is uncontradicted. The defendants led no evidence
in rebuttal to substantiate their exculpatory versions
or pleaded
defences, when, indubitably, there was an obligation upon them to
have done so (see
Pillay v Krishna
and Another
at 952). In these
circumstances there can be no weighing of probabilities and the
matter cannot be determined by weighing exculpatory
assertions put to
any of the plaintiff’s witnesses in cross-examination, where
the defendants themselves have not opened
their versions to scrutiny
under cross-examination. Quite simply the plaintiff has established
facts which give rise to an evidential
burden on each of the employee
defendants to proffer an answer - the absence of which serves as a
cogent factor in support of the
natural inference that their evidence
will expose facts unfavourable to them. In addition, it is
significant that none of the defendants
contest what is said in the
plaintiff’s main heads regarding the facts established by the
evidence and the status of the
documentation before court.
[101]
In the circumstances the following order
issues:
101.1
In relation to the plaintiff’s first claim
:
(i)
The decision by the third defendant dated 13 February 2014 as
reflected in annexure
POC3 to the particulars of claim and the
resolution of the third defendant of 21 February 2014 as
reflected in annexure POC5
to the particulars of claim are declared
unlawful, invalid and void
ab initio
;
(ii)
The decision and resolution of the second defendant dated 20 May 2014
in annexures
POC8 and POC9 are declared unlawful, invalid and void
ab
initio
;
(iii)
The decision of the second defendant dated 7 August 2014 in annexure
POC15 is declared
unlawful, invalid and void
ab initio
;
(iv)
The decision of the second defendant dated 26 February 2015 in
annexure POC19 is declared unlawful,
invalid and void
ab initio
;
(v)
The appointment by the plaintiff of the first defendant as lead
consultant for the development
of a comprehensive communication and
marketing strategy for the
Integrated Public
Transport System (“IPTS”) project is
declared
unlawful, invalid and void
ab initio
;
(vi)
The costs of this claim including the costs of
two counsel shall be paid jointly and severally by the defendants,
the one paying
the other(s) to be absolved; such costs are to include
those occasioned by the postponement of the trial on 9 November 2020;
101.2
In relation to the plaintiff’s second claim
:
The
plaintiff is granted judgment against the first, second and fifth
defendants jointly and severally for:
(i)
Payment of the sum of R5 263 179.89;
(ii)
Payment of the sum of R1 390 800.00;
(iii)
Payment of the sum of R984 197.21;
(iv)
Interest on the aforesaid sums at the
prescribed legal rate from date of summons to date of payment;
(v)
The costs of this claim including the
costs of two counsel shall be paid jointly and severally by the
defendants, the one paying
the other(s) to be absolved; such costs
are to include those occasioned by the postponement of the trial on 9
November 2020;
Alternatively, the
plaintiff is granted judgment against the third defendant for:
(i)
Payment of the sum of R5 263 179.89;
(ii)
Payment of the sum of R1 390 800.00;
(iii)
Payment of the sum of R984 197.21;
(iv)
Interest on the aforesaid sums at the
prescribed legal rate from date of summons to date of payment;
(v)
The costs of this claim including the
costs of two counsel; such costs are to include those occasioned by
the postponement of the
trial on 9 November 2020;
101.3
In relation to the plaintiff’s third claim
:
The
plaintiff is granted judgment against the fourth defendant for:
(i)
Payment of the sum of R5 263 179.89;
(ii)
Payment of the sum of R1 390 800.00;
(iii)
Interest on the aforesaid sums at the
prescribed legal rate from date of summons to date of payment;
(iv)
The costs of this claim including the
costs of two counsel; such costs are to include those occasioned by
the postponement of the
trial on 9 November 2020;
As against the fourth and
eighth defendants jointly and severally, the one paying the other to
be absolved, the plaintiff is granted
judgment for:
(i)
Payment of the sum of R984 197.21;
(ii)
Interest on the aforesaid sum at the
prescribed legal rate from date of summons to date of payment;
(iii)
The costs of this claim including the
costs of two counsel shall be paid jointly and severally by the
defendants, the one paying
the other to be absolved; such costs are
to include those occasioned by the postponement of the trial on 9
November 2020;
101.4
In relation to the plaintiff’s fourth claim
:
As against the sixth and
seventh defendants jointly and severally, the one paying the other to
be absolved, the plaintiff is granted
judgment for:
(i)
Payment of the sum of R1 390 800.00;
(ii)
Interest on the aforesaid sum at the
prescribed legal rate from date of summons to date of payment;
(iii)
The costs of this claim including the
costs of two counsel shall be paid jointly and severally by the
defendants, the one paying
the other to be absolved; such costs are
to include those occasioned by the postponement of the trial on 9
November 2020.
S.
RUGUNANAN
JUDGE
OF THE HIGH COURT
Appearances:
For
the Plaintiff:
R.G. Buchanan SC and J.G. Richards
Instructed
by
GRAY
MOODLIAR INC.
19
Raleigh Street
Central
Gqeberha
Tel:
041-586 3920
Email:
sarah@gmlaw.co.za
(Ref:
W Gray/S Roberts/N10873)
For
the First Defendant:
No appearance
For
the Second Defendant: P.E.
Jooste
Instructed
by
TANIA
KOEN ATTORNEYS
60
2
nd
Avenue Newton Park
Gqeberha
Tel:
041-373 9690
(Ref:
MAZ/bg/CIV 4668/16)
For
the Third Defendant:
No Appearance
For
the Fourth Defendant:
In Person
Email:
mohleli786@gmail.com
For
the Fifth and Eighth
Defendants:
P.E. Jooste
Instructed
by
KAPLAN
BLUMBERG ATTORNEYS
Southern
Life Gardens
70
2
nd
Avenue
Gqeberha
Tel:
041-363 6044
Email:
Terri-Ann@kaplans.co.za
Email:
Bronwynne@kaplans.co.za
(Ref:
MAT 14864/T Radloff /Bronwynne)
For
the Sixth Defendant:
T. Zietsman
Instructed
by
GOLDBERG
& VICTOR INC.
12
Graham Street
Gqeberha
Tel:
041-484 3346
Email:
goldvic@mweb.co.za
(Ref:
M. Bumenthal/C143)
For
the Seventh Defendant: No
Appearance
Tel:
063 691 5966
Email:
rolandwilliams777@icloud.com
Email:
ceo@williamsconsulting.co.za
Dates
heard:
19, 20, 21 April; 21 June; and 19 July 2021
Date
delivered:
26 April 2022.
This
judgment was handed down in open court and circulated to the parties
by email.
[1]
Constitution
of the Republic of South Africa, Act 108 of 1996, as amended
[2]
Also
known as “Stratcom”
[3]
Appointed
as such under
section 54A
of the
Local Government: Municipal Systems
Act 32 of 2000
read with
section 60
of the
Local Government:
Municipal Finance Management Act 56 of 2003
[4]
POC
paragraphs 73-74
[5]
POC
paragraph 81
[6]
Act
56 of 2003, as amended
[7]
All
with attendant costs orders that included the costs of two counsel.
[8]
Roll
call preparation checklist 23 October 2020 paragraph 1.5.2;
Plaintiff’s heads of argument paragraph [11]
[9]
Transcript
19 April 2021 at 2:3-8
[10]
The
applicable regulatory instruments being, inter alia, the
Constitution (s217); the
Preferential Procurement Policy Framework
Act 5 of 2000
; Chapter 11 of the Local Government: Municipal Finance
Management Act 56 of 2003 (including sections 110 to 119); the
Municipal Supply Chain Management Regulations published
in
Government Gazette No. 27636 on 30 May 2005, Government Notice 868
of 2005 (“the Regulations”); and the plaintiff’s
Supply Chain Management Policy (“the Policy”) applicable
at the time
[11]
The
policy is included in the plaintiff’s bundle
[12]
as
published in Government Gazette No. 27636 on 30 May 2005, Government
Notice 868 of 2005
[13]
Heads
of argument plaintiff paragraph 9
[14]
Unreported
ECPEHC Case No. 3786/2017, delivered 29 May 2018, at paragraph [4]
[15]
"fruitless
and wasteful expenditure"
,
by contrast, is expenditure incurred in vain and would have been
avoided had a reasonable care been exercised, and
"unauthorised
expenditure"
is expenditure incurred otherwise than in accordance with the
specified provisions of the MFMA which require expenditure to be
incurred in terms of an approved budget.
[16]
POC
paragraph 50
[17]
Evidence
Mettler, transcript 19 April 2021, 50:11-13
[18]
Transcript
19 April 2021 50:14
[19]
Transcript
19 April 2021 50:15-51:9
[20]
Unreported,
A309/2017 (ZAWCHC) (6 February 2019) at paragraph [53]
[21]
Particulars
of Claim (POC), annexure POC2
[22]
annexure
POC2 paragraph 2.17
[23]
See
also annexure POC2 paragraph 6
[24]
annexure
POC2 paragraph 2.14
[25]
Heads
of argument, plaintiff paragraph31.6-31.7, also annexure POC2
paragraphs 9.1; 10; and 10.1
[26]
POC
paragraph 14; annexure POC 2 paragraph 10.2
[27]
annexure
POC3
[28]
annexure
POC3 paragraph 4
[29]
annexure
POC3 paragraph 3
[30]
annexure
POC paragraphs17-17.4
[31]
Heads
of argument plaintiff paragraph 32.6
[32]
annexure
POC4
[33]
annexure
POC5
[34]
Transcript
20 April 2021 41:11
[35]
Two
invoices were initially rendered under the same invoice number 001,
the first for an amount of R5 263 157,89 excluding
VAT and
the second for the amount of R6 million inclusive of VAT; vide
annexures POC6.1 and POC6.2
[36]
Plaintiff’s
bundle page 114-115
[37]
Cross-examination
De Scande, Transcript 20 April 2021,pp 27-30
[38]
annexure
POC8
[39]
annexure
POC paragraphs 24.1-24.6
[40]
annexure
POC9
[41]
annexure
POC10
[42]
annexure
POC paragraph 31
[43]
annexure
POC11
[44]
Heads
of argument plaintiff paragraph 34.3
[45]
annexure
POC13
[46]
annexure
POC14
[47]
annexure
POC15
[48]
annexure
POC paragraph 36
[49]
annexure
POC paragraphs 37-38 and 41
[50]
annexure
POC16 and POC17
[51]
POC
paragraphs 85-87
[52]
annexure
POC18
[53]
annexure
POC19
[54]
POC
paragraphs 42-44
[55]
POC
paragraphs 45-46 and POC19
[56]
POC
paragraph 47
[57]
annexures
POC20 and POC21
[58]
As
pleaded in paragraphs 51 to 55 and in paragraph 58 of the POC
[59]
Heads
of argument plaintiff paragraph 11
[60]
See
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
2019 (4) SA 331 (CC)
[61]
POC
paragraph 56.
[62]
POC
paragraph 59
[63]
POC
paragraphs 63-65
[64]
Section
195 of the Constitution
[65]
POC
paragraphs 26 and 27, annexures POC8 and POC9, and paragraphs 22 and
23 of second defendant's plea
[66]
POC
paragraph 38 and paragraph 25 of second defendant's plea
[67]
POC
paragraph 47.3, annexure POC19 and paragraph 27 of second
defendant's plea
[68]
POC
paragraph 30 and annexure POC10
[69]
POC
paragraph 41 and annexure POC17
[70]
POC
paragraph 49 and annexure POC21
[71]
annexures
POC 10, POC 17 and POC 21
[72]
POC2
[73]
POC4
[74]
MFMA,
section 173(1)(a)(iii)
[75]
cf.
Pietersen
supra
at paragraphs [54]-[56]
[76]
POC
paragraphs 61-66
[77]
POC
paragraphs 67, 68 and 69
[78]
The
position therefore is regulated by uniform rule 39(1) of the rules
of court
[79]
POC
paragraphs 70, 71 and 72
[80]
POC
paragraphs 75 – 79 comprehensively
[81]
POC
paragraph 86.3.4
[82]
POC
paragraph 86.3.5
[83]
POC
paragraph 83
[84]
First
heads paragraph 17
[85]
First
heads paragraph 7
[86]
First
heads paragraph 17
[87]
First
heads paragraph 15
[88]
First
heads paragraph 43
[89]
First
heads paragraph 45 and 52
[90]
First
heads paragraphs 31, 39-42
[91]
[2014]
ZACC16 at paragraph [28]
[92]
Minister
of Safety and Security v Slabbert
[2010] All SA 474
(SCA) at 478c and 480d;
Hillman
Brothers Ltd v Kelly & Hingle
1926 WLD 153
at 154
[93]
Prince
v President of the Law Society of the Cape of Good Hope and Others
[2000] ZACC 28
;
2001 (2) SA 388
(CC) at paragraph
[22]
[94]
POC
paragraphs 75 to 84
[95]
First
heads paragraphs 22 and 25
[96]
In
cross-examination by the fourth defendant, Transcript 19 April 2021
31:23-32:10
[97]
Transcript
20 April 2021, 28:1-23, and pp 29-30
[98]
Heads
of argument in reply paragraphs 38 and 39