Govan Mbeki Municipality v New Integrated Credit Solutions (Pty) Ltd (121/2020) [2021] ZASCA 34; [2021] 2 All SA 700 (SCA); 2021 (4) SA 436 (SCA) (7 April 2021)

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[2021] ZASCA 34
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Govan Mbeki Municipality v New Integrated Credit Solutions (Pty) Ltd (121/2020) [2021] ZASCA 34; [2021] 2 All SA 700 (SCA); 2021 (4) SA 436 (SCA) (7 April 2021)

THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 121/2020
In
the matter between:
GOVAN
MBEKI
MUNICIPALITY

APPELLANT
and
NEW
INTEGRATED CREDIT SOLUTIONS (PTY) LTD

RESPONDENT
Neutral
citation:
Govan
Mbeki Municipality v New Integrated Credit Solutions (Pty) Ltd
(121/2020)
[2021] ZASCA 34
(7 April
2021)
Coram:
NAVSA ADP and DAMBUZA and MOCUMIE JJA and KGOELE
and GOOSEN AJJA
Heard
:
10 March 2021
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ legal representatives by email. It
has been published
on the Supreme Court of Appeal website and released to SAFLII. The
date and time for hand-down is deemed to
be 10h00 on 7 April 2021.
Summary:
Procurement by municipality of debt
management services – quintessentially a constitutional issue –
factors to be applied
in considering delay in self-review by public
authority – contract invalid for want of compliance with
applicable regulations
and constitutional imperatives – s
172(1)
(b)
applied – just and equitable remedy to avoid denying accrued
rights – part of contract not set aside – concern
about
frequency of late self-review applications where contract periods
have run their course and no sanctions for aberrant officials.
ORDER
On
appeal from:
Mpumalanga Division of the
High Court, Middelburg (Brauckmann AJ sitting as court of first
instance):
1
The appeal and cross-appeal succeed only to the extent reflected in
the substituted order set out hereafter.
2
In respect of the appeal, no order is made as to costs.
3
The order of the court below is set aside and substituted as follows:
‘
(a) The
contract for the provision of debt management services, concluded by
the parties  during September 2015, which is the
subject of this
action, is declared unconstitutional and invalid but is set aside
only in relation to recovery by the defendant
of the commission of
2.5% in respect of debts younger than 60 days, so as to preserve the
accrued rights of the defendant as set
out in (b) below.
(b)  The defendant is thus
not precluded from recovery of the commission of 16.5% on debts older
than 60 days in the amount
calculated by the arbitrator, Justice
Harms.
(c)  No order is made as to
costs.’
JUDGMENT
Navsa ADP (Dambuza and Mocumie
JJA and Kgoele and Goosen AJJA concurring)
Background
[1]
This case concerns the validity
of a debt management services agreement concluded between
the
appellant, the Govan Mbeki Municipality (the GMM), a municipality
established in terms of
s 1
of the
Local Government: Municipal
Structures Act 117 of 1998
, and the respondent, New Integrated Credit
Solutions (Pty) Ltd (NICS). This appeal and cross-appeal are directed
against an order
of the High Court, Mpumalanga Division, Middelburg,
in terms of which only a part of that agreement was declared invalid,
unconstitutional
and void ab initio. The GMM sought to have the
entire agreement declared invalid, whilst NICS contended that the
entire agreement
was valid and enforceable. The appeal and
cross-appeal are before us with the leave of the court below. This
case is part of an
ever growing, and frankly disturbing, long line of
cases where municipalities and organs of state seek to have their own
decisions,
upon which contracts with service providers are
predicated, reviewed and overturned, for want of legality, more often
than not
after the contracts have run their course and services have
been rendered thereunder.
[1]
But more than that, as will be demonstrated hereunder, after failing
in the most basic fashion in their duty to ensure they comply
with
constitutional norms and statutory prescripts, and after compounding
the initial errors and, as in this case, litigating at
large, organs
of state falsely seek to claim the moral high ground. All of this at
public expense and free of sanctions against
the functionaries
involved. The background, culminating in the present appeal, which is
convoluted and tortuous, is set out hereafter.
[2]
During the last quarter of
2014
the Newcastle Municipality issued a tender notice, published in two
local newspapers, inviting bids from service providers
for debt
management services. The notice indicated that on 17 October 2014
there would be a compulsory briefing session by the
municipality
regarding the bids. The briefing session occurred on that day, and it
was made clear that tenders were being invited
only
in respect of the management of debts
older than 60 days and the contract duration would be 36 months. The
debts to be managed were
in relation to rates, taxes and services
rendered by the Newcastle Municipality to residents and others within
its area of jurisdiction.
[3]
The closing date for the
submission of bids was 5 November 2014. Seventeen service providers

submitted their bids. NICS submitted a bid for ‘Debt Collection
(debt           60

days and older)’. It set out the terms of its bid as follows,
‘NICS will charge 16.5% (including VAT @ 14%) on all

successfully recovered revenue’. It submitted an alternative
proposal, which for present purposes we need consider no further.
The
Newcastle Municipality’s bid adjudication committee resolved
that NICS be appointed to provide debt management services
in
relation to debts exceeding 60 days. On 3 February 2015 NICS was
advised that it was the preferred bidder. This was confirmed
by the
Municipality in a written communication on 25 March 2015, wherein
NICS was informed that it would be responsible for collecting
debts
exceeding 60 days, and that its services would be utilised for a
period of 36 months, on the basis of ‘commission of
16.5% on
collected debt from customers exceeding 60 days’.
[4]
Consequently, on 30 April 2015, a written agreement was concluded
between the Newcastle
Municipality and NICS for the provision of debt
management services. The agreement, notably, included a clause that
the latter
would be entitled to commission of     2.5
percent on amounts collected on debts younger than 60 days. The
circumstances under which this clause was added are dealt with in
para 11 below.
[5]
The GMM, being aware that the
Newcastle Municipality had procured debt management services
from
NICS, but apparently, at that stage, not certain about the details of
the bid and the bid adjudication process, acting in
terms of reg 32
of the
Municipal Supply Chain Management Regulations,
[2
]
which provides that a Supply Chain Management Policy may allow an
accounting officer to procure goods or services
for
a municipality or municipal entity under a contract secured by
another organ of state, sought the consent of the Newcastle
Municipality to procure such services from NICS.
[6]
In seeking consent from the
Newcastle Municipality the GMM, on 31 July 2015, wrote as follows:
‘
Govan
Mbeki Municipality would like to request procurement in terms of
Section 32
of the
Municipal Supply Chain Management Regulations for
the service of New Integrated Solutions (Pty) Ltd.
We
therefore require your consent in writing and send the following to
us:
·
Letter
of consent.
·
Appointment
letter for New Integrated Solutions (Pty) Ltd.
·
Copy
of bid or proposal.
·
Any
other document that will enable us to consider their appointment.’
The
letter was signed by the GMM’s Municipal Manager.
[7]
On 12 August 2015 the Newcastle
Municipality wrote back as follows:
‘
It
is hereby confirmed that the Newcastle Municipality has no objection
if the Govan Mbeki Municipality utilizes this tender . .
. subject to
the conditions applicable to the tender.
Accompanying
this tender are the following necessary documentations:
(i)
Copy
of an advert
(ii)
Copy
of contract form
(iii)
Copy
of appointment letter
(iv)
Copy
of BAC minutes
(v)
Copy
of BEC report
(vi)
Copy
of SLA
(vii)
Copy
of bid document
Also
note that it is the responsibility of the Govan Mbeki Municipality to
obtain consent from the service provider.’
[8]
Regulation 32
provides that this
mechanism for procuring goods or services, may be resorted to only
if
:
‘
a)
the contract has been secured by that organ of state by means of a
competitive
bidding
process
applicable
to that organ of state;
b)
the municipality or entity has no reason to believe that such
contract was not validly procured;
c)
there are
demonstrable discounts or
benefits
for the municipality or entity to do so; and
d)
that other organ of state and the provider have
consented to such procurement in writing.’
(Emphasis
added.)
[9]
NICS agreed to provide the
services sought by GMM. Consequently, on                       12

September 2015, the GMM and NICS concluded a written agreement for
the provision of debt management services for a period of three

years, until 31 August 2018 – from the effective date, 1
September 2015. It essentially adopted the Newcastle Municipality’s

contract regime. The written agreement contained an extensive list of
obligations undertaken by NICS. It also included an agreement
to
submit to arbitration in the event of a dispute arising from the
agreement. It included a standard clause that the decision
of the
arbitrator shall be final and binding on the parties and may be made
an order of court. The following are the material contractual

provisions which set out NICS’ primary obligations:
‘
5.1
Time is of essence in the execution of the obligations by the NICS
under this Contract.
In particular, the NICS shall at all material
times ensure complete compliance of the implementation of its
obligations to ensure
complete compliance to set Targets.
.
. .
6.1
NICS herein undertakes to, and shall within the duration of this
Contract:
(i)
In respect of Debt Management and Debt Administration
6.1.1
Collect and administer debt collection and debt administration
services and all monies recovered shall
be paid directly into the
Municipal banking account;
6.1.2
Identify and evaluate possible write-offs of outstanding debt;
6.1.3
Perform debt management, including:
.
. .
6.1.5
Prepare and submit management reports every month, quarter, and
annual performance of its obligations,
including . . .’
[10]
It is necessary to note that the remuneration for the provision of
the debt management services
set out in the agreement between the GMM
and NICS was in identical terms to the agreement between the
Newcastle Municipality and
NICS, as set out in para 3 above, namely
commission of 16.5 percent of collected debts exceeding 60 days and
2.5
percent of
collected debts younger than 60 days.
[11]
It was uncontested that at the time that the Newcastle Municipality
published the tender notice
for debt management services, referred to
in para 2 above, it contemplated establishing a debt management unit
of its own to manage
debts younger than 60 days. That did not
eventuate because of budgetary constraints. And when that realisation
struck home, the
Newcastle Municipality, according to its Director:
Financial Management,             Ms

Haripersad, who testified at the trial in the court below, referred
to later in this judgment, turned to NICS ‘to see if
they would
help us with collecting debts under 60 days’. That led to
negotiations between NICS and the Newcastle Municipality
that
resulted in the abovementioned agreement during September 2015. In
justifying the addition of the management of younger debts,
the
Newcastle Municipality sought refuge in what they considered to be
their power in terms of s 116(3) of the Local Government
Municipal
Finance Management Act 56 of 2013 (the LGMFMA), which entitles a
variation of an existing contract, provided the variation
is within
certain parameters. As will be demonstrated later, this approach was
flawed, as accepted by Ms Haripersad, because the
variation was
outside of the statutory limitation and because no resolution to that
effect had been tabled for approval by the
Council of the Newcastle
Municipality.
[12]
Two months thereafter, on 7 November 2016, unsurprisingly, the
Auditor-General of South Africa
sent a letter to the Newcastle
Municipality that essentially took issue with the provision made in
the agreement with NICS for
the additional 2.5 percent commission for
debt management services in relation to debts younger than 60 days,
which had not been
called for in the tender notice and had not been
part of the bid by either NICS or any of the other bidders, or
considered in the
evaluation or adjudication of the bids. The
Auditor-General complained that the procurement process was thus
unfair to other suppliers
and tenderers of like services. In the
written communication the Auditor-General, inter alia, said the
following:
‘
[W]e
believe
the procurement process was not fair as other suppliers were
disadvantaged and the chosen supplier might not have been the
lowest
if the price awarded were taken into account into evaluation or the
other companies’ prices might have been different
if the
changed scope of the work might have been known. Given that the
variation was signed before awarding of contract, the municipality

should have therefore started the procurement process afresh if it
was now intended to change the scope of the work to give other

companies a fair opportunity. The amount paid to the supplier above
the 16.5% is therefore considered to be irregular.
It
should also be noted that the fact the company is entitled to a
percentage from all debtors below 60 days is considered not to
be
cost effective as that might be inclusive of debtors that would pay
without the need for debt collectors thus resulting in expenditure
in
vain and that could have been avoided.’
[13]
A few months thereafter, in February 2017, the GMM, apparently itself
now having been made aware
of the above, purported to terminate in
writing its agreement with NICS, by reliance, first, on s 217 of the
Constitution,
[3]
which it quoted in full, asserting that ‘it is evident that
neither [NICS], nor any of the other unsuccessful bidders was
invited
or requested to submit a bid for the collection of any outstanding
debts from customers “under 60 days”’.
It went on
to say that for
that
reason
the additional clause, catering for the additional 2.5 percent
commission was
ultra
vires
and void. The GMM went further, and placed reliance on reg 32, which
it also quoted in full. In this regard, the GMM professed
ignorance
of the Newcastle Municipality’s failure to adhere to these
statutory prescripts. The following part of the letter
bears
repeating:
‘
In
the result your client is not entitled to claim 2,5% commission in
respect of monies collected from our client’s customers
in
respect of current accounts. Your client’s “entitlement”
to claim 2,5% commission on debt collected from our
client’s
customers (with specific reference to current accounts) was not
subjected to a competitive bidding process referred
to and provided
for in Regulation 32(1)
(a)
of the
Municipal Supply Chain Management Regulations.’
[14
]
The bases for termination did not stop there. The GMM went on to
state that NICS had failed to fulfil
its contractual obligations. The
following appears in the letter of termination:
‘
14.
The obligations of our client pursuant to the conclusion of the
agreement are reciprocal. Your client has
not complied with its
responsibilities and obligations referred to and contained in the
agreement, with specific reference to clauses
5.1, 6.1 and 6.2.6.
15.
In addition your client is only entitled to 16,5% commission on
the debt which it has collected from our client’s customers.
Your client is most definitely not entitled to claim payment in
respect of all the amounts which our client’s customers have

paid into our client’s bank account since 1 September 2015 (ie
our client’s gross revenue or income).
.
. .
17.
Your client’s conduct therefore constitutes a material breach
of the agreement, which entitles
our client to terminate the entire
agreement with 30 days’ notice, as envisaged in clause 10.1.2
thereof.
18.
Our client therefore gives notice to your client of its decision to
cancel or to terminate the entire
agreement, as provided for in
clause 10.1.2, read together with the provisions of clause 11.2
thereof.’
(Emphasis added.)
[15]
Finally, the letter of termination stated that in the event of
contestation by NICS of its right
to terminate the agreement, the GMM
consented, in advance, to arbitration. It is necessary to pause here
to note that at this stage,
approximately 17 months after the
conclusion of the agreement and approximately 18 months after all the
bid related documents had
been supplied by the Newcastle
Municipality, the only challenge by the GMM to the validity of the
agreement, as distinct from the
alleged breaches of the agreement,
was the add-on of the 2.5 percent in relation to debts younger than
60 days.    As
is evident from what is set out in para
15 of the letter, an entitlement to commission by NICS was at that
stage recognised by
the GMM in relation to amounts
actually
collected in relation to debts older than 60 days, subject, of
course, to its claims in relation to the breaches.
[16]
NICS did not accept the GMM’s entitlement to terminate the
agreement and consequently,
on 1 March 2017, approached the high
court for relief, seeking an interdict against the purported
cancellation, ostensibly pending
further proceedings. On 6 March 2017
the GMM launched a conditional counter-application for an order that
the contract for the
provision for debt management services entered
into on 12 September 2015 ‘be declared unconstitutional,
invalid and unlawful,
and void ab initio’. The urgent
application by NICS was settled by agreement between the parties, on
the basis that the issues
raised be referred to arbitration before
retired Justice Harms. The counter-application remained in abeyance.
That agreement was
made an order of court on 14 March 2017. Paras 2,
3, 4 and 5 of that order are relevant:
‘
2.
The issue of the validity of the Respondent’s purported
termination and the amount owed to the Applicant is referred to

arbitration, before retired Judge Harms, to take place from the 8
th
to the 12
th
of May 2017;
3.
The Applicant shall leave the Respondent’s site by the 22
nd
of March 2017;
4.
The Respondent’s purported termination is suspended pending the
outcome of the arbitration;
5.
The Respondent shall continue to provide the following information to
the Applicant:
5.1
PF05; PF06; PG09 and PF10 on a daily basis; and
5.2
PF15 on a monthly basis.’
[17]
The arbitration proceedings were finalised, and an award, dated 23
August 2017, was made in favour
of NICS. The arbitrator held that the
GMM’s purported cancellation of the agreement on the basis of
the alleged breaches
of the agreement in question was invalid and of
no force and effect. Ultimately, the arbitrator ordered the GMM to
pay NICS an
amount of R22 344 374.32 in respect of debts
older than 60 days and R23 767 462.03 in respect of debts
younger
than 60 days. The arbitrator held that he had jurisdiction to
deal with the termination of the agreement, other than on the basis

of its constitutional validity. That issue, as accepted by the
parties before him, was beyond his remit. During September 2018
an
arbitration appeal panel dismissed GMM’s appeal against the
arbitrator’s decision.
[18]
For a better appreciation of the issues that ultimately crystallised,
both in the court below
and before us, it is necessary to have regard
to the relevant, extensive parts of the arbitral award by Justice
Harms, and thereafter
his material conclusions. Counsel did not
suggest before us that the arbitrator’s findings on the
contractual terms and the
obligations of the parties were flawed and
presently challengeable. In any event, they appear to me to be
correctly reasoned. In
dealing with the peculiarities of the
agreement, after referring to the general obligations of NICS, the
arbitrator noted the following:
‘
47
Against these generalities one then must have regard to clause 6 as a
whole. Clause 6.1 sets out the
obligations of NICS under four
headings, namely (i) in respect of debt management and debt
administration; (ii) preparation and
submission of reports; (iii)
infrastructure; and (iv) operating costs.
48
The debt management and administration obligation under (i) is
extensive. It can for present purposes
be broken down into two
sections: namely debt collection (clause 6.1.1) and debt management
(clause 6.1.3 with at least 15 sub-items).
49
Clause 6.1.1 is rather inelegantly drawn and reads as follows:
“
Collect
and administer debt collection and debt administration services and
all monies recovered shall be paid directly into the
Municipal
banking account.”
50
Accepting that it deals with more, it at least obliges NICS to
“collect” municipal
debts and ensure that “all
monies recovered shall be paid directly into the Municipal banking
account.”
51
It is not necessary to deal with the other obligations undertaken by
NICS in terms of clause 10.1
save to add that it undertook to carry
all costs related to the performance of its debt collection and
management services.
52
Against that background one has to turn to
the obligations placed on the Municipality in terms of clause
6.2
(reproduced earlier) and in particular the payment clause as quoted.
53
It is clear that NICS is not paid per function performed but by
result. And the percentage commission
is calculated with reference to
the amount of the debt collected. But debt is not only collected by
NICS. It is also collected
by the Municipality since it is a duty of
the Municipality to issue invoices and rendering revenue management
services thereto
(clause 6.2.1).
54
All monies collected are paid into the Municipality’s banking
account. These payments are
not earmarked and cannot be earmarked. In
other words, it is not possible to identify which payments are made
pursuant to the efforts
of NICS or otherwise. As Mr Mabusa said, it
is simply not possible to prove a causal link between a debt
collection action and
payment, and that the contract is impossible of
performance on the Municipality’s interpretation. This is why
the Municipality
wished to enter into an addendum which would have
provided for the creation of a trust account into which the NICS
moneys had to
be paid.
55
The concession during argument by counsel for the Municipality that
the causal link test –
which was the issue between the parties
– cannot be the test was fairly made. However, his proposed
“subsequent to”
test (subsequent to a text message,
email, letter or telephone call) does not make any business sense.
56
This means that if one gives business efficacy to the agreement, the
reference to “debt collected”
refers to debts paid into
the Municipality’s account and not to debt factually or
causally collected by NICS, always remembering
that NICS has to do
substantially more than debt collecting.
57
There is a qualification. One does not in ordinary parlance refer to
debt collection where a debtor
pays within the grace period for
payment (that accords with NICS’s understanding of the
contract, at least sometimes) or
until handover of the debt to the
debt administrator. What this means in respect of the <60 days’
accounts, the calculation
of the commission of 2,5% has to be based
on all payments made on account after handover to NICS of the
outstanding debts for collection.
The same issue does not arise in
respect of the >60 days’ accounts.’
[19]
The following were the conclusions reached by the arbitrator:
‘
58
The Municipality amended its plea shortly before the hearing. Therein
it made a tender.          The

tender was repeatedly confirmed during evidence and in argument. It
tendered payment of “all debts that were collected by
[NICS]
since the inception of the [contract] at the rate of 16,5%, meaning
in respect of debts older than 60 days. (I understood
from the
argument that it also made a tender in respect of the 2,5% on the >60
days debts provided NICS establishes that it
“collected”
those debts but since the tender was not properly formulated I shall
ignore it.) The tender was not in
the alternative and was subject to
one condition only and that was the proof of causation (collection).
It is not understood how
in these circumstances the Municipality
could proceed with its other defences such as cancellation,
non-performance and lack of
reciprocity.
59
The evidence cast light on the Municipality’s problems around
the contract and it is apparent
that the Municipality is mainly to
blame. First, the Municipality was over-eager to find a solution for
its debt problems.
It took over the Newcastle contract regime
without giving consideration to the fact that its administrative
structure differs from
that of Newcastle Municipality and that it had
different problems.
It also did not give proper attention to the
list of exclusions which meant that its bulk industrial clients (such
as Sasol) were
included in the commission structure. The Municipality
gave scant or no attention to the obligation to pay commission on <60

days accounts. Importantly, the Municipality did not follow up the
issue of the setting of targets and was then unhappy about the
result
of the debt collecting process. This could have been prevented if
targets had been set. The Municipality is the author of
its own
problems by agreeing that debt collected by NICS should be paid into
the Municipality’s account and not providing
for a trust
account or another method of earmarking of payments.
60
It will be necessary to make declaratory orders and leave it to the
parties to make the necessary
calculations. If an additional award is
required, the parties may approach me in writing within one month of
this award.’
(Emphasis added.)
As stated above the amounts due
were later quantified.
[20]
The GMM, on 21 June 2017, approximately 22 months after the effective
date, whilst the arbitration
was being conducted, instituted the
action in the court below, seeking a declarator that the entire
agreement between it and NICS
be declared unconstitutional, invalid,
unlawful and void ab initio, alternatively, that the part of the
agreement relating to the
additional 2.5 percent for managing debts
younger than 60 days be reviewed, declared unconstitutional and set
aside because it
had not been subject to a competitive bidding
process and there were no demonstrable discounts or benefits in
respect thereof.
The stated bases for the action were that the
agreement was in conflict with s 217 of the Constitution and reg 32,
and for the
first time, reliance was placed on reg 51, which reads as
follows:
‘
CONTRACTS
PROVIDING FOR COMPENSATION BASED ON TURNOVER –
If
a service provider acts on behalf of a municipality or a municipal
entity to provide any service or acts as a collector of fees,
service
charges or taxes and the compensation payable to the service provider
is fixed as an agreed percentage of turnover for
the service or the
amount collected, the contract between the service provider and the
municipality or municipal entity must stipulate
-
(a)
a
cap on the compensation payable to the service provider; and
(b)
that
such compensation must be performance based.’
The
GMM also contended that the agreement was in contravention of the
provisions of the LGMFMA, including s 116(3).
[4]
[21]
The GMM stated that the delay in seeking relief was justified and
prayed that it be overlooked.
After NICS raised a special plea of
lis
pendens
, the counter-application by GMM, was withdrawn. NICS, in
defending the action, insisted that the delay in seeking relief,
which
essentially was a legality review, was inordinate and that it
should not be entertained and that the claim by the GMM be dismissed

with costs. In relation to the merits of the legality challenge NICS
denied that the agreement was invalid and that it did not
comply with
s 217 of the Constitution, or was in contravention of any of the
applicable statutory prescripts.         In

the alternative, NICS pleaded that in the event that the court held
that it was compelled to declare the contract invalid, justice
and
equity dictated that the court preserve the rights already accrued by
NICS. The matter proceeded to trial in the court below.
The trial
commenced on 4 November 2019, more than a full year after the
contract period had run its course.
[22]
After hearing fairly limited evidence and considering submissions by
the parties, the court below
(Brauckman AJ), with reference to
Harnaker
2 v Minister of the Interior
,
[5]
held that notwithstanding that the principal relief sought by the GMM
was in the form of a declaratory order, rather than, strictly

speaking, by way of an application for a review, the delay rule in
relation to reviews was applicable. In dealing with the
reasonableness
of the delay, Brauckman AJ considered that the GMM had
been unaware of the illegality complained of, namely, the inclusion
by the
Newcastle Municipality of remuneration for collection of debts
younger than 60 days without the proper tender procedures being
followed in relation thereto until it wrote the letter of termination
in February 2017, and that less than a month had passed before
it
launched its counter-application. The court below therefore concluded
that there had been no undue delay on the part of the
GMM, even if
one were to accept that it would have become aware of the illegality
of the agreement when the Auditor-General raised
the issue with the
Newcastle Municipality in November 2016.
[23]
The court went on to consider the prescripts of reg 32, against the
constitutional imperatives
set out in s 217 of the Constitution,
namely that when an organ of state in the national, provincial or
local sphere of government
procures goods or services it must do so
in accordance with a system that is fair, equitable, transparent,
competitive and cost-effective.
It held that the GMM was bound by all
the requirements of reg 32, which must be read conjunctively. It
found, essentially in line
with the Auditor-General’s
conclusions, that the bids received by the Newcastle Municipality
were only in relation to collection
of debts older than 60 days. The
court below had regard to the evidence led on behalf of the GMM that
it had intended to set up
its own debt collection unit in relation to
debts younger than 60 days but that it was held back by budgetary
constraints, resorting
at the eleventh hour to including in the
agreement a provision relating to the collection of debts younger
than 60 days, and that
NICS ‘gladly accepted the windfall’.
[24]
The court below agreed with the Auditor-General, that permitting the
NICS to receive commission
on debts younger than 60 days was not
cost-effective because persons in that category included those who
would have paid anyway,
without the need for debt collectors, and
that if other bidders had been allowed to bid for both, the
percentage commission on
either category might have been lower.
Brauckman AJ went on to conclude that there had thus been no fair,
transparent, equitable,
competitive and cost-effective process and
that the inclusion of the additional 2.5 percent commission offended
against reg 32
and s 217 of the Constitution. It had regard to the
submission on behalf of the GMM that the relief sought was not
constitutional
in nature and found it unpersuasive. This is an aspect
to which I will revert later in this judgment. The court below did
not deal
at all with the provisions of reg 51.
[25]
The court below considered whether to set aside the agreement between
NICS and the GMM in its
entirety. It took the view that the offending
part could be severed from the good. In this regard it relied on the
decision of
this Court in
Retail
Motor Industry Organisation and Another v Minister of Water and
Environmental Affairs and Another
.
[6]
[26]
The court held that it was bound to declare that part of the
agreement that catered for the collection
of debts younger than 60
days unconstitutional and unenforceable. It went on to make the
following order:
‘
1.
That the reference to “as well as 2,5% to debt collected to
customers under 60 days” contained in clause
6.2.5 of the
“contract for provision of debt management services” be
declared unconstitutional invalid unlawful and
void ab initio;
2.
That the defendant will not be entitled to recover any
compensation/commission in respect of the debts recovered
by the
plaintiff from customers under 60 days for the duration of the
agreement between plaintiff and defendant;
3.
That the defendant is ordered to pay the plaintiff’s costs,
including the costs consequent upon the employment
of three counsel
where applicable.’
[27]
It is against the aforesaid conclusions and resultant orders that the
present appeal and cross-appeal
are directed. It was contended on
behalf of the GMM that the court below erred in holding that the
clause relating to the collection
of debts older than 60 days was
severable and that the agreement ought to have been set aside in its
entirety. In argument in the
court below the GMM apparently had
abandoned any reliance on a claim for relief based on constitutional
validity and called on
the court below to disregard any references to
the unconstitutionality of the agreement where they appear in the
GMM’s particulars
of claim. The GMM submitted that as a
consequence, the court below was precluded from invoking the
provisions of s 172(1)
(b)
of the Constitution, which entitles a court, after declaring any law
or conduct to be unconstitutional and invalid, to make an
order that
is just and equitable, including but not limited to limiting the
retrospective effect of the declaration of invalidity.
That
contention was persisted in before us. It was submitted, with
reference to this Court’s decision in
Municipal
Manager: Quakeni Local Municipality and Another v FV General Trading
CC
,
[7]
that the GMM’s challenge was a self-review challenge, rather
than a constitutional challenge. It was contended that the decision

in
Blue
Nightingale Trading 397 (Pty) Ltd t/a Siyenza Group v Amathole
District Municipality
[8]
was authority for the proposition that a failure to adhere to the
prescripts of reg 32 should result merely in a declaration of

invalidity. Presumably, also in order to further counter NICS’
submissions in relation to delay and a resort to s 172(1)
(b)
,
it was contended before us that the GMM’s case in essence was
that it had raised a collateral challenge to NICS’ ‘coercive

attempts to coerce payment’.
[28]
On behalf of NICS it was contended that the delay by the GMM in
seeking relief in the court below
was unreasonable and ought not to
have been overlooked, and for that reason alone the claim for a
review and setting aside of the
agreement ought to have been
dismissed. NICS also submitted that reg 32, applied to the facts of
this case, does not impact on
the validity of the agreement between
the GMM and NICS, as distinct from its effect on the agreement
between the latter and the
Newcastle Municipality. Furthermore, it
was asserted on behalf of NICS that the GMM’s claim, properly
analysed, is based
on the principle of legality, which is essentially
a constitutional challenge and that s 172 of the Constitution comes
into operation,
and that in the exercise of its discretion the court
below ought to have held that NICS was entitled to payments of the
amounts
computed and awarded by the arbitrator.
[29]
Is the categorisation by the GMM of its challenge to the validity of
the agreement as a collateral
challenge, thereby compelling
adjudication justified? It will generally avail a person to mount a
collateral challenge to the validity
of an administrative act where
he or she is threatened by a public authority with ‘coercive
action, precisely because the
legal force of the coercive action will
most often depend upon the legal validity of the administrative act
in question’.
[9]
Classically, that is how it was formulated by this Court.
[30]
In
Merafong
City v Anglogold Ashanti Ltd
,
[10]
the Constitutional Court was considering an appeal from this Court,
which had relied on the aforesaid formulation in denying relief
to
the public authority, Merafong City.
In
that case the Constitutional Court was dealing with a decision by the
Minister of Water Affairs and Forestry in July 2005, which
had
overturned a decision by Merafong City to levy a surcharge on water
for industrial use by Anglogold Ashanti. Merafong City
had taken
advice that the Minister had acted beyond her powers and, in
consequence, threatened to cut off Anglogold Ashanti’s
water
supply, unless it paid the surcharge. Anglogold Ashanti paid under
protest and negotiations ensued to see if an agreement
could be
reached. The negotiations failed. In April 2011 Anglogold Ashanti
launched proceedings in the high court, seeking to compel
Merafong
City to comply with the Minister’s ruling. Merafong raised a
conditional counter-application seeking a declarator
that the
Minister had acted beyond her powers. The Constitutional Court had
regard to this Court’s formulation, referred
to in the
preceding paragraph, in these terms:
‘
Only
an individual whom a public authority threatens with coercive action
can [raise a collateral challenge]; and no one outside
the category.
Never a public authority. This approach squeezes collateral challenge
into a rigid format – one format that
neither doctrine nor
practical reason appears to warrant.’
The
Constitutional Court, after exploring decided cases over the years,
went on to say the following (at para 55):
‘
While
reactive challenges, in the first instance, and perhaps in origin,
protect private citizens from state power, good practical
sense and
the call of justice indicate that they can usefully be employed in a
much wider range of circumstances. There is no practical,
or
conceptual, justification for straitjacketing them to private
citizens. It is readily conceivable, for instance, that an organ
of
state may through legal proceedings seek unjustly to subject another
organ of state to a form of coercion.
Where
appropriate,
that other should be able to raise a defensive or reactive challenge.
Categorical exclusions should be eschewed. A reactive challenge

should be available where justice requires it to be. That will
depend, in each case, on the facts.’
(Emphasis
added.)
[31]
In the next paragraph the Constitutional Court said the following:
‘
The
permissibility of a reactive challenge by an organ of state must
depend on a variety of factors, invoked with a “pragmatic
blend
of logic and experience”. And – as in
Bengwenyama
–
it
would be imprudent to pronounce any inflexible rule.’
(Citations omitted.)
[32]
At para 69 of
Merafong
, the Constitutional Court noted that in
the classical field of operation of reactive challenges, namely,
where an individual was
provided a defence to resist the enforcement
of the law he or she was not confronted with before, as where the
State threatens
consequences or ‘coerces’ payment, the
virtue is that delay plays no role, and a court is bound to entertain
such a
challenge. In my view, it is for that very reason that the GMM
strained to style its challenge a collateral or reactive challenge.

However, the Constitutional Court in relation to
Merafong City
,
the public authority concerned, said the following:
‘
Here,
Merafong was well aware of the Minister’s decision, which was
specifically addressed to it.    It does
not dispute
that it knew that a legal challenge was immediately available to it.
This means that Merafong’s reactive challenge
is of the
category that necessitates scrutiny in regard to delay.’
[11]
The
Constitutional Court went on to say that delay in that context,
though relevant, need not be conclusive.
[12]
In stating this and remitting the matter to the high court, the
Constitutional Court said that the Minister in that case had
expressed
the view that the reactive challenge could be considered by
the court. The high court was directed by the Constitutional Court to

consider the legality of the Minister’s decision and, if
necessary, what remedy was to be granted.
[33]
In the present case I struggle to understand why the challenge by the
GMM is reactive, or collateral.
In my view that characterisation has
been resorted to expediently.  The GMM was not coerced, least of
all by NICS. It drove
the process of piggybacking on the Newcastle
Municipality’s procurement process. Years later, faced with the
Auditor-General’s
interrogation of the Newcastle Municipality’s
tender process and the resultant contract, it was spurred into action
and purported
to terminate the contract on the basis provided by the
Auditor-General. It also complained that NICS had breached the
agreement.
By approaching the high court on an urgent basis NICS only
sought to preserve its contractual position to which it had been
bound
by the agreement with the GMM. At that stage the only part of
the agreement considered offensive was the 2.5 percent add-on, which

one will be reminded was at the instance of Newcastle Municipality,
and replicated by the GMM. It was never suggested that NICS,
in
either instance, had solicited the add-on. In both the letter of
termination and in the action ultimately instituted, the GMM
took the
lead in its frontal attack on the validity of the agreement. To
describe that challenge as reactive is an exercise in
distortion.
[34]
I now turn to deal with the true nature of the review we are here
concerned with and will then
consider the question of delay in
relation thereto. It is now firmly established that self-review by
organs of state are not reviews
in terms of the Promotion of
Administrative Justice Act 3 of 2000 (PAJA), but rather are legality
reviews.
[13]
Unlike the control period of 180 days provided for in PAJA and a
court’s discretion in extending that period, where the interest

of justice so requires, a court dealing with a legality review has no
such fixed period within which an application must be brought.
In
Buffalo
City Metropolitan Municipality v Asla Construction (Pty) Ltd
,
[14]
the Constitutional Court, with reference to prior decisions, and
comparing the discretion under PAJA to the discretion to be exercised

in a legality review, said the following in relation to when the time
period starts to run:
‘
[I]n
both assessments the proverbial clock starts running from the date
that the applicant became aware or
reasonably
ought to have become aware
of the action taken.’
[15]
(Emphasis
added.)
[35]
The Constitutional Court went on to state the following:
‘
The
approach to undue delay within the context of a legality challenge
necessarily involves the exercise of a broader discretion
than that
traditionally applied to s 7 of PAJA. The 180-day bar in PAJA does
not play a pronounced role in the context of legality.
Rather, the
question is first one of reasonableness, and then (if the delay is
found to be unreasonable) whether the interests
of justice require an
overlooking of that unreasonable delay.’
[16]
At
para 51 the Constitutional Court explained that an assessment of the
reasonableness of the delay must involve, amongst others,
the
explanation for the delay. The entire period of the delay must be
explained. Where the delay can be explained and is justified
then it
is reasonable, and the merits of the review can be considered. Where
there is no explanation for the delay, the delay will
necessarily be
unreasonable.
[36]
In
Asla
, the Constitutional Court taught that even if the
unreasonableness of the delay has been established, it cannot be
evaluated in
a vacuum. The next leg of the test is to see if it ought
to be overlooked. It went on to state the following:
‘
Courts
have the power in a legality review to refuse an application where
there is an undue delay in initiating proceedings or discretion
to
overlook the delay. There must however be a basis for a court to
exercise its discretion to overlook the delay. That basis must
be
gleaned from the facts made available or objectively available
factors.’
[17]
(Citations
omitted.)
[37]
The Constitutional Court in
Asla
, with reference to its prior
decisions, described the appropriate approach as follows:
‘
The
approach to overlooking a delay in a legality review is flexible. In
Tasima
I
,
Khampepe J made reference to the “factual, multi-factor,
context-sensitive framework” expounded in
Khumalo
.
This entails a legal evaluation taking into account a number of
factors. The first of these factors is potential prejudice to

affected parties as well as the possible consequences of setting
aside the impugned decision. The potential prejudice to affected

parties and the consequences of declaring conduct unlawful may in
certain circumstances be ameliorated by this court’s power
to
grant a just and equitable remedy and this ought to be taken into
account.’
[18]
(Citations
omitted.)
[38]
Theron J, in
Asla
set out another factor to be taken into
account in considering whether to overlook delay, namely the nature
of the impugned decision.
She went on to state the following:
‘
This,
in essence, requires a consideration of the merits of the legal
challenge against that decision.’
[19]
In
the next paragraph she expounded on it as follows:
‘
This
court has made plain that even within the context of PAJA, the extent
and nature of the deviation from constitutional prescripts
directly
impacts upon an application for condonation in terms of s 7 of PAJA.
In the context of legality review, in
Khumalo
,
Skweyiya J . . . explained that “an additional consideration in
overlooking an unreasonable delay lies in the nature of
the impugned
decision and considering the legal challenges made against that
decision”.’
Theron
J went on to cite, with approval, the following dictum in the
decision of this Court in
South
African National Roads Agency Ltd v Cape Town City
:
[20]
‘
It
is true that in [the Supreme Court of Appeal’s judgment in
Opposition
to Urban Tolling Alliance
]
this court considered it important to settle the court’s
jurisdiction to entertain the merits of the matter by first having

regard to the question of delay. However, it cannot be read to signal
a clinical excision of the merits of the impugned decision,
which
must be a critical factor when a court embarks on a consideration of
all the circumstances of a case in order to determine
whether the
interests of justice dictate that the delay should be condoned.
It
would have to include a consideration of whether the non-compliance
with statutory prescripts was egregious.’
(Emphasis added.)
[39]
In
Asla
,
the Constitutional Court spoke thus:
[21]
‘
[T]he
extent and nature of the illegality may be a crucial factor in
determining the relief to be granted when faced with a delayed

review. Therefore, this court may consider, as part of assessing the
delay, the lawfulness of the contract under the principle
of
legality.’
[40]
The Constitutional Court in
Asla
noted yet a further factor for consideration, namely the conduct of
an applicant. In this regard it pointed out, as our courts
have done
repeatedly in the past, that a much higher standard is required of
organs of state. On this aspect it cited the following
dictum in
MEC
for Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd
t/a Eye and Laser Institute
:
[22]
‘
[T]here
is a higher duty on the state to respect the law, to fulfil
procedural requirements and to tread respectfully when dealing
with
rights. Government is not an indigent or bewildered litigant, adrift
on a sea of litigious uncertainty, to whom the courts
must extend a
procedure-circumventing lifeline.      It is
the Constitution’s primary agent. It
must do right, and it must
do it properly.’
In
Merafong
,
[23]
it was said that it is the State’s duty to rectify unlawful
decisions.
[41]
Finally, with reference to its decision in
State
Information Technology Agency SOC Limited v Gijima Holdings (Pty)
Limited
,
[24]
where
it was held that even where there was no basis to overlook an
unreasonable delay the court is nevertheless compelled to declare
the
State’s conduct unlawful, because s 172 (1)
(a)
of the Constitution enjoins a court to declare invalid any law or
conduct that it finds to be inconsistent with the Constitution,
[25]
the Constitutional Court in
Asla
recognised
the tension between the delay rules and the injunction to declare
conduct unlawful that conflicts with the Constitution.
The
Constitutional Court in
Asla
reflected
on a long line of cases that held that the State must apply timeously
to courts and the implication in
Gijima
that time hurdles must yield to that injunction. On this aspect the
Constitutional Court in
Asla
said the following:
‘
The
Gijima
principle should thus be interpreted narrowly and restrictively so
that the valuable rationale behind the rules on delay are not

undermined. At the same time, this is not a matter in which the
Gijima
principle
can be ignored and thus impliedly overruled. So the injunction it
creates –to declare invalid that which is indisputably
and
clearly inconsistent with the Constitution – must be followed
where applicable.’
[26]
[42]
In
Asla
the Constitutional Court went on to hold that there
was no reason in that case to overlook the delay. However, it held
that the
contract in the case was clearly unlawful and declared it
unconstitutional. It was common cause that the contract in that case
had been practically completed and the Constitutional Court said the
following in relation to the agreement in that case:
‘
In
these circumstances, justice and equity dictate that the Municipality
should not benefit from its own undue delay and in allowing
the
respondent to proceed to perform in terms of the contract.
I

therefore make an order declaring the Reeston contract invalid, but
not setting it aside so as to preserve the rights to that the

respondent might have been entitled. It should be noted that such an
award preserves rights which have already accrued but does
not permit
a party to obtain further rights under the invalid agreement.’
[27]
[43]
The minority judgment in
Asla
(Cameron
J and Froneman J with Khampepe J concurring) chose another route,
reaching the same practical result. The minority considered
that
although the cases in which a public authority’s delay in
bringing self-review is so prodigiously and lamentably inexcusable

are rare, they exist, and thought the case before them was one such
instance. The minority postulated that in such a case there
was no
public interest or constitutional necessity for pronouncing on the
validity of what was being challenged. The minority pointed
to
academic criticism against
Gijima
for having selected legality as the pathway for public authority
self-review. The minority took the view that drawing a distinction

between PAJA and legality self-review promoted bifurcation. They
considered that
Gijima
warranted re-consideration because it departed from earlier
decisions. It accepted that the case before it was not the case to
do
so, not least of all because it did not have the benefit of
submissions in that regard.
[28]
[44]
The minority in
Asla
recognised
the tension created by prior decisions, where despite not overlooking
delay they had sought to ‘impose a square
on [a] circle’
by nevertheless inquiring into the legality of the conduct by the
public authority and granting a deserving
subject just and equitable
relief, as was done by the majority. They noted that where there was
no delay a declaration of unlawfulness
should invariably be made –
it was the default position that accords with the principle of
legality. It was an affirmation
that the State was complying with its
duty to correct suspected unlawful decisions, expeditiously and
diligently. The minority
described this as a win-win for the rule of
law.
[29]
[45]
The minority saw the delay rule at common law as serving the public
interest in the certainty
and finality of decision-making. The
minority said the following:
‘
It
is an opportunity for the state to demonstrate that its self-review
seeks to promote open, responsive and accountable government
rather
than the self-interest of state officials seeking to evade the
consequences of their prior decision.
’
[30]
(Emphasis added.)
[46]
The minority accepted that even where a delay was found to be
unreasonable, according to precedent,
our courts retained a
discretion to overlook the delay provided that it was in the
interests of justice to do so. This evaluation
was done with
reference to the effect of the delay on the parties and the nature of
the impugned decision. It explained how it
differed from the majority
as follows:
‘
We
suggest an alternative route. This is that, in the absence of
adequate explanation for unreasonable delay, courts should not

intervene to inquire into a final and determinative holding into
unlawfulness,
unless
the seriousness of the unlawfulness at issue warrants overlooking the
manifest deficiencies in the state actor’s case.
’
[31]
(Emphasis added.)
The
minority went on to hold that on the facts before the Constitutional
Court it was not in the interests of justice to entertain
the
self-review. The minority stated that ‘resorting to
s

172(1)
(a)
is not necessary to arrive at a just outcome’.
[32]
The following passage of the minority judgment, on the path to that
conclusion bears repeating:
‘
When
determining the unreasonableness of the delay and exercising its
discretion whether to allow consideration of the review, the
court
must balance the seriousness of the possible illegality with the
extent and unreasonableness of the delay. In the circumstances
of
this case, the delay is sufficiently more inexcusable than the
possible illegality is egregious, and the balance tips against
this
Court’s intervention.’
[33]
The
minority agreed that it would be ‘grossly unjust’ to
deprive the respondent in that case of its contractual bargain
and to
leave it to an enrichment claim, that the municipality in that case
had submitted must suffice.
[34]
I pause to note that the same claim was made by the GMM in the
present case.
[47]
Appreciating that our law on self-review has become somewhat
encrusted, it would nevertheless
be presumptious of us to become
embroiled in the differences between the majority and minority
judgments in
Asla
.
Our courts might, in time, after adjudicating a string of cases with
various permutations streamline an approach to self-review,
or the
legislature might intervene, in a constitutionally compliant manner,
to cover all forms of review, including those that
pertain to the
executive and provide for how delay is to impact on such reviews. The
Constitutional Court might, in time, revisit
prior decisions.
An aspect however, that is of immediate concern, noted at the
commencement of this judgment, is that self-review
is now a
burgeoning and troubling phenomenon. As recorded by the
Constitutional Court in
Asla
,
corruption and maladministration are inconsistent with the rule of
law and are the antithesis of open, accountable and democratic

government.
[35]
The functionaries involved are almost never subject to scrutiny and
sanctions and in some cases falsely assume the moral highground.
The
problem, as the cases demonstrate, is that corrective action, by way
of self-review, is usually sought a considerable time
after an
impugned decision was made and disciplinary steps against those
concerned might face time problems. However, if the maladministration

or corruption is discovered late by conscientious officials seeking
to take corrective and appropriate action, courts might insist
in the
future that public authorities seeking time indulgences set out the
steps they took in relation to the misconduct by errant
officials,
that resulted in the need for corrective action, including, but not
limited to disciplinary actions, and where appropriate,
criminal
proceedings. All the more so, if the corruption or maladministration
was hidden from disclosure by inept or corrupt officials.
If a
service provider was complicit then questions might be asked about
what steps were taken by the public authority in relation
to such
complicity. Beyond the courts, these aspects might even be catered
for by legislation. We must all of us, in every branch
of the State
and civil society, make every effort to protect public monies and
ensure that our country’s necessary developmental
goals as
envisaged by the Constitution, in the interest of all our people are
met.
[36]
However, for present purposes we are bound to follow the rules
dictated by the majority in
Asla
.
It is to that task that I now turn.
[48]
How long was the delay in the present case and was it unreasonable?
First, one must determine
when the clock started running and how far
the delay extended. In this case, as in other cases, the allied issue
of the higher
standard of conduct that can be expected of state
officials already at this stage arises, which invites scrutiny of the
conduct
of the officials concerned. In the present case alert and
constitutionally conscientious officials would have been intent on
ensuring
that the constitutional procurement imperatives and the
requirements of reg 32 were met. After all, it will be recalled that
already
in July 2015 the request to piggyback on the Newcastle
Municipality bid and contract, relying expressly on the provisions of
reg
32, was made. The underlying documents were sought and provided
during August 2015. From the GMM’s presently asserted
perspective
of the flaws in the agreement with NICS, for failure to
meet constitutional imperatives and the requirements of regs 32 and
51,
supported by the views of the Auditor-General, the evidence led
during the arbitration, the findings of the arbitrator and the
evidence adduced during the trial in the court below, the conclusion
is ineluctible, that the most cursory scrutiny of the documents

received from the Newcastle Municipality would have revealed that the
agreement was of questionable validity. At that early stage,
before
the agreement in question was concluded, the documents would have
revealed to the GMM that in respect of the agreement as
a whole the
requirements of reg 32
(a)
to
(c)
, set out in para 8
above, and the applicable constitutional imperatives, had not been
met. The GMM ought reasonably to have known
or have been aware from
inception, at the time that it received the documents, and certainly
at the time of the conclusion of the
agreement in September 2015 that
the agreement was of questionable validity.
[49]
In the present case the GMM would have seen that the Newcastle
Municipality had included in the
agreement the add-on in relation to
debts younger than 60 days, without having called for submisions in
regard thereto in the invitation
to tender. It ought to have done its
own calculations, which would have demonstrated that the add-on was
not within statutory permissable
amendments, as conceded by Ms
Haripersad. A basic check would have revealed that, in any event, the
Newcastle Municipality’s
officials had not tabled the intended
amendment before the council as required by s 116(3) of the LGMFMA,
referred to in para 20
above. Scrutiny of the Newcastle Municipality
bid and contract would have brought home to it the many flaws it now
complains about,
which the Auditor-General red-flagged.   It
would have been abundantly clear to the GMM that constitutional
imperatives
in relation to procurement were not being met and that
the applicable regulations were being flouted.     The

alarm bells for the GMM ought to have started ringing even before it
concluded the agreement with NICS. At the latest the clock
started
running when its agreement with NICS was concluded. Moreover, early
on in the execution of the agreement the GMM would
have experienced
the issues identified later by the arbitrator, namely how
cost-inefficient it all was, and how one could not determine
whether
payments were made as a result of intervention by NICS. That too
ought to have spurred it into better enquiry of the propriety
of the
agreement. The court below erred in having regard only to the time
from which the Auditor-General raised the queries with
the Newcastle
Municiplaity or shortly thereafter.
[50]
In addition, when it wrote the letter of termination, approximately
17 months after the effective
date, the GMM was concerned, certainly
as far as the question of legality was concerned, only with the
question of the 2.5 percent
add-on commission. This is clear from
what is set out in para 13 above. Approximately 18 months after the
effective date, the counter-application
by GMM referrred to above was
launched. That was interrupted by the settlement in respect of the
application by NICS, which was
made an order of court.
The
parties then went to
arbitration and during that process accepted
that the arbitrator’s jurisdiction did not extend to the
question of a legality
challenge. When assessing the delay and moral
culpability in relation thereto, sight should not be lost of the
tender by the GMM,
albeit in unacceptable form, referred to by the
arbitrator in his award, in respect of both categories of debts.
[51]
The arbitration process was further extended by the appeal to an
arbitration appeal panel. However,
during the arbitration
proceedings, as stated above, on 21 June 2017, approximately 22
months after the effective date the GMM
instituted the action
culminating in the present appeal. When the GMM was met with a
special plea of
lis pendens
it only then withdrew its
counter-application. However, the GMM was ordered to pay the costs
incurred in relation to the special
plea, including the costs of two
counsel, limited to the time up to the date of delivery of the notice
of withdrawal of the counter-application.
By the time the trial
started in the court below the contract period had expired.
[52]
Mr Mokgatsi, the erstwhile Chief Financial Officer of the GMM, when
being led at the trial in
the court below, was asked when, after the
conclusion of the agreement with NICS, the GMM first considered there
might be a problem
with the validity of the agreement. His response
was not to address that question, but rather to speak to the failure
by NICS to
meet contract ‘deliverables’. He said there
had been ‘a problem with the execution of what was contained in
the
agreement’. Much of what followed afterwards was by way of
leading questions by counsel representing the GMM, relating to
the
events set out above. Effectively, there was no explanation for the
delay. Little surprise then that condonation is not dealt
with at all
in the heads of argument on behalf of the GMM. Counsel appear to have
been content to rest on the contention that the
review in question
was a collateral challenge. By any measure there was undue and
unreasonable delay, both in initiating and finalising
review
proceedings. Should it be overlooked? It is to that issue that I now
turn.
[53]
In this assessment, as appears from what is set out above, the merits
of the matter, including
the degree of non-compliance with statutory
prescripts must feature. In the present case there can, in my view,
be no doubt, especially
in relation to the 2.5 percent add-on that
there was non-compliance by the Newcastle Municipality with reg 32
and that the non-compliance
was egregious. There had been no
competitive bidding process in relation thereto. No thought was given
to whether there were demonstrable
discounts or benefits for the
Newcastle Municipality. All the indications were to the contrary. It
could rightly be expected that
a substantial, if not the greater
percentage of consumers, would pay their accounts within the first 60
day period, as noted by
the arbitrator and recognised by the
Auditor-General. In relation to the bid as a whole and the resultant
agreement no thought
appears to have been given to how recovery of
revenue would or could be connected to efforts made or steps taken by
the service
provider. There was no cap placed on the commission to be
earned. Therefore, the prescripts of both reg 32 and reg 51 were not
even close to being adhered to. In respect of the tender itself it is
necessary to record at this stage that there was no indication
at all
that NICS was remiss in any way in either not bidding in the form
invited or insisting on particular contractual provisions.
However,
in respect of the add-on it could not have been lost on NICS that it
was receiving preferential treatment, as opposed
to other bidders,
and it was not being asked to revisit the commission on which it had
put in a bid. It was more than a windfall
that it was glad to accept.
That unwarranted benefit was repeated in the GMM agreement. As the
computation by the arbitrator proves,
the commission on the under 60
day period was especially lucrative, earning NICS approximately R1
million more than it did on the
over 60 day revenue. It bears
repeating that the total earned in relation to debts younger than 60
days amounted to more than R23
million based on a fraction of the
commission in relation to debts older than 60 days. By any measure
this is startling. To add
insult to consumer injury, payments by the
GMM’s bulk consumers were included in the computation of what
was earned by NICS.
There is eveything fundamentally wrong with all
of this. This will be borne in mind when an order is made at the end
of this judgment.
[54]
There is no merit to the submissions on behalf of NICS that the flaws
attendant upon the Newcastle
Municipality bid process and the
resultant agreement did not translate into a flawed agreement between
NICS and the GMM. One cannot
build on such a flawed foundation. There
was a duty on the GMM to satisfy itself that the bid process was in
accordance with constitutional
norms and in line with statutory
prescripts. All the more so when the documentation was sought,
ostensibly to do just that. As
recorded by the arbitrator the GMM did
not do its own needs analysis. It accepted unthinkingly that it
should replicate the Newcastle
Municipality agreement and did not
concern itself with constitutional imperatives or statutory
prescripts. If anything, it compounded
Newcastle Municipality’s
many errors.
[55]
As to the conduct of the GMM itself, it is necessary to repeat that
it is clear that there was
a most serious and egregious breach by its
officials of their constitutional duties. There was no concern shown
for good governance,
or what was in the best interests of its
customer base. There was, at source, no scrutiny to see whether any
of the material prescripts
of the applicable regulations were met. No
consideration was given to the constitutional imperatives of fair,
equitable, transparent,
competitive and cost-effective procurement of
services. It was only spurred into action with the threat of the
Auditor-General
looming. And even then it embarked on a protracted
litigation course with concomitant costs at public expense. It must
have occurred
to its legal representatives that the question of
legality was the overarching anterior question. Yet, the
counter-application
remained in place while the GMM continued to
press on with the arbitration process before instituting action in
the court below.
The GMM was accordingly made to bear the costs of
the special plea because it had left its counter-application in
abeyance. Before
us, as in the court below the GMM was represented by
two senior counsel and by one junior counsel. All of this at extra
cost to
ratepayers and other customers.
[56]
There was a strange irony in the submissions by the GMM, that it was
egregious to have the agreement
in question remain in stead, at great
cost to the public purse. There was ostensible righteous indignation
where there was no actual
righteousness on the part of the GMM’s
office bearers. The contrary is true. It is as if they were in denial
of how all of
this came to pass. The submission that NICS could
pursue its rights by way of an enrichment action, when seen against
the background
set out above is equally difficult to understand,
especially, as it would involve further litigation with attendant
costs. That
too against the finding by the arbitrator as to what
could and could not be established. To borrow from the words of
Theron J in
Asla
,
the Municipality had a flippant attitude towards its obligations
under the Constitution that reeked of impropriety.
[37]
The words of the minority are equally applicable. The minority
judgment described the attitude and conduct of the Municipality
in
that case as follows: ‘The Municipality’s hands are
thoroughly smudged and grimy.’
[38]
[57]
As to prejudice, there is of course prejudice to the public purse
when remuneration is agreed
without regard to efficiencies and costs
savings and when it is open ended and there are no means of measuring
effort against results.
There is also prejudice to a service provider
when it has performed what appears to be extensive services without
remuneration.
In
Natyawa
v Makana Municipality
,
[39]
the Constitutional Court pointed out that nullification of an
administrative decision long after it was taken may be ameliorated
by
the benefits of a wide remedial power to grant a just and equitable
remedy in terms of s 172(1)
(b)
.
The same applies to self-review.
[58]
As in
Asla
there is, in the present case, no reason to
overlook the delay. But, as in
Asla
, the agreement in the
present case is clearly unlawful and there is a duty to declare it
so. There is no merit to the surprising
submission on behalf of the
GMM that the present case is one that is simply a legality challenge
without constitutional overtones.
The complete answer is to be found
in
Asla
. I can do no better than to quote the relevant
passages:
‘
There
is a clear basis for jurisdiction as the matter concerns s 217 of the
Constitution. It deals with procurement by an organ
of state,
judicial review of a decision by an organ of state and the question
of a just and equitable remedy in terms of s 172
(1)
(b)
of
the Constitution. Lawful procurement is patently a constitutional
issue.
In
this court, the Municipality relies on a legality review. By its
nature, legality review raises a constitutional question. It
is
founded upon the rule of law, which is a founding value of our
Constitution.’
[40]
(Citations omitted.)
The
abandonment of reliance on constitutional invalidity by the GMM in
argument in the court below was opportunistic and expedient
and
designed to obviate the need for a just and equitable order in terms
of s 172(1)
(b)
of the Constitution, including relief to be
afforded to NICS. The abandonment could not transform a case that was
quintessentially
constitutional into one which was not. I turn
hereafter to deal with the court’s powers in terms of s
172(1)
(b)
of the Constitution.
[59]
In
Gijima
the Constitutional Court described a court’s power in terms of
s 172(1)
(b)
as
wide and bounded only by considerations of justice and equity.
[41]
In that case the Constitutional Court declared the award of the
contract unlawful but with a rider that the service provider not
be
divested of rights that would have accrued but for the declaration of
invalidity.
[42]
In
Electoral
Commission v Mhlope & Others
the
Constitutional Court spoke thus:
‘
Section
172(1
)(b)
clothes our courts with remedial powers so extensive that they ought
to be able to craft an appropriate or just remedy, even for

exceptional, complex or apparently irresoluble situations. And the
operative words in the section are “any order that is
just and
equitable”. This means that whatever considerations of justice
and equity point to as the appropriate solution to
a particular
problem, it may justifiably be used to remedy that problem. If
justice and equity would best be served or advanced
by that remedy
then it ought to prevail as a constitutionally sanctioned order
contemplated in s 172(1)(b).’
[43]
[60]
In
Asla
the majority and minority agreed that the service
provider there should not be deprived of accrued rights and made an
order to that
effect. In this case, in assessing a just and equitable
remedy there are several factors to consider. In this regard, the
provisions
of the agreement that militate against constitutional
prescripts and the applicable regulations in the manner described
above,
have to be seen alongside the remarks and the findings by the
arbitrator, set out in para 18 above, which appear to be sound and

which the parties in any event, in relation to the contractual
issues, agreed to be bound by. Paragraphs 53 to 57 of the
arbitartor’s
award are apposite, as are his findings at paras
58 to 60 and what was stated by the court below at para 77 of its
judgment.
[61]
As stated above, in the present case, NICS benefited by a calculation
of commission on all amounts
paid into the Municipal accounts,
regardless of whether they were connected to NICS’ efforts to
recover debt. The amounts
paid into those accounts included payment
from bulk consumers from which one would ordinarily not expect
defaults. There was no
way,
ex post facto
, of determining
which amounts were paid because of efforts by NICS. In relation to
debts under 60 days amounts paid into the GMM’s
account would
include amounts paid in the regular course by scrupulous consumers
who were intent on paying on time. It is thus
no surprise that the
amount calculated by the arbitrator on the much smaller 2.5 percent
rate is greater than the amount calculated
in relation to the much
higher 16.5 percent rate on debts older than 60 days. The amounts are
set out in para 17 above. In relation
to debts younger than 60 days
the probabilities are high that the greater part of monies paid into
the the GMM’s account
was paid in the ordinary course rather
than being due to the efforts of NICS. The opposite is probably true
for debts older than
60 days. Even then, there must be some
percentage due to people paying late without intervention by NICS.
The amount of close to
R24 million in relation to debts under 60 days
is quite staggering and, as already alluded to above, is more than
just a windfall
as described by the court below. One must, of course,
bear in mind, as found by the arbitrator, that there was a range of
services
provided by NICS which extended beyond debt collection. The
total amount calculated by the arbitrator as being due to NICS is
more
than R46 million. One cannot but marvel at this.
[62]
One further factor to be taken into account in considering what is
just and equitable is that
in relation to debts older than 60 days
NICS was in no better or worse position than other service providers.
It put in a bid on
terms that were accepted. There is no indication
that it sought to impose any of the terms of the agreement in
relation thereto.
In respect of commission on debts younger than 60
days NICS must have known it was in an unjustifiably advantaged
position in relation
to other bidders. As stated earlier it had not,
as a
quid pro quo
, been requested to revisit its bid on debts
older than 60 days that might result in a cost benefit for the
Newcastle Municipality.
But then neither were any of the other
bidders afforded that opportunity. NICS was thus, in relation to the
2.5 percent add-on,
complicit in the unlawful conduct of the GMM. A
message should be sent to service providers that they will not be
allowed to reap
the benefits of such complicity. On the other hand,
the GMM should not be permitted because of its own unreasonable delay
to unduly
benefit at the expense of NICS in respect of work done and
services rendered in relation to debts older than 60 days.
[63]
In my view, therefore, a just and equitable result would be to not
deprive NICS of the benefits
that accrued under the agreement in
relation to commission earned on debts older than 60 days, but to do
so in relation to all
the commission in relation to debts younger
than 60 days. For all practical purposes the result is the same as
that reached by
the high court, save that we arrive at that result
for very different reasons. The high court erred by not holding that
the entire
agreement was invalid and not following the prescripts of
Asla
and in not considering the proper application of s
172(1)
(b)
of the Constitution. Peculiarly, the result would
have been the same if the delay had been overlooked and the review
entertained,
save that the argument might have been made that the GMM
would have been entitled to costs, which in turn might have been met
with
the response that the GMM‘s conduct precluded that result.
Furthermore, the result would have been the same if one had engaged

in the balancing exercise in relation to egregiousness of the
invalidity in juxtaposition to the unreasonableness of the delay,
and
the alternate route proposed by the minority in
Asla
, referred
to in para 46 above. Especially in relation to the 2.5 percent
add-on. The order made by the high court will, of course,
have to be
set aside and substituted in line with the conclusions reached above.
In relation to costs, each party in the court
below would have
achieved a degree of success and in my view, bearing in mind the
conduct of each of the parties the best course
in relation to
proceedings in the court below and the appeal in this court is to
make no order as to costs. It should be borne
in mind that NICS was
ordered by the court below to pay the GMM’s costs, including
the costs of three counsel, where so employed.
[64]
The following order is made:
1
The appeal and cross-appeal succeed only to the extent reflected in
the substituted order set out hereafter.
2
In respect of the appeal, no order is made as to costs.
3
The order of the court below is set aside and substituted as follows:
‘
(a) The
contract for the provision of debt management services, concluded by
the parties  during September 2015, which is the
subject of this
action, is declared unconstitutional and invalid but is set aside
only in relation to recovery by the defendant
of the commission of
2.5% in respect of debts younger than 60 days, so as to preserve the
accrued rights of the defendant as set
out in (b) below.
(b)  The defendant is thus
not precluded from recovery of the commission of 16.5% on debts older
than 60 days in the amount
calculated by the arbitrator, Justice
Harms.
(c)  No order is made as to
costs.’
M
S NAVSA
ACTING
DEPUTY PRESIDENT
Appearances:
For
appellant:

M C Maritz SC,
with him F W Botes SC and D D Swart
Instructed
by:

Cronje, De Waal –
Skosana Inc., Secunda
Kramer
Weihmann Attorneys, Bloemfontein
For
respondent:

M M Rip SC, with him C M Rip
Instructed
by:

De Jager Inc.,
Pretoria
Jacobs Fourie Attorneys,
Bloemfontein
[1]
In
Altech
Radio Holdings (Pty) Ltd and Others v City of Tshwane Metropolitan
Municipality
[2020]
ZASCA 122
para 1, Ponnan JA said the following: ‘State
self-review is a novel, but burgeoning, species of judicial review
that has
occupied the attention of our courts in a number of recent
decisions. Although it seems axiomatic that unlawful conduct must be

undone, to borrow from Dr Seuss “simple it’s not”.
Particularly worrisome are public procurement cases, where,
as here,
an organ of state seeks to undo its own prior decisions.’
[2]
General
Notice 6868,
GG
27636,
30 May 2005.
[3]
Section
217 provides that where an organ of state contracts for goods or
services it must do so in accordance with a system which
is fair,
equitable, transparent, competitive and cost-effective.
[4]
Section
116(3) provides for a specific procedure to be followed by a
municipality if it intends to amend a contract concluded
in terms of
its supply chain management policy, including providing reasons
having to be tabled in council.
[5]
Harnaker
v Minister of the Interior
1965
(1) SA 372
(C) at 375C.
[6]
Retail
Motor Industry Organisation and Another v Minister of Water and
Environmental Affairs and Another
[2013] ZASCA 70
;
2014
(3) SA 251
(SCA) at paras 46 and 47.
[7]
Municipal
Manager: Quakeni Local Municipality and Another v FV General Trading
CC
[2009]
ZASCA 66; 2010 (1) SA 356 (SCA); [2009] 4 All SA 231 (SCA).
[8]
Blue
Nightingale Trading 397 (Pty) Ltd t/a Siyenza Group v Amathole
District Municipality
[2015] ZAECELLC 16;
[2016] 1 All SA 721
(ELC);
2017 (1) SA 172
(ECG).
[9]
See
Oudekraal
Estates (Pty) Ltd v City of Cape Town and Others
2004 (6) SA 222
at para 35.
[10]
Merafong
City v Anglogold Ashanti Ltd
[2016] ZACC 35
;
2017 (2) BCLR 182
(CC);
2017 (2) SA 211
(CC),
wherein
the
Constitutional Court had regard to that formulation.
[11]
Merafong
City
para 72.
[12]
Merafong
City
para 77.
[13]
See
State
Information Technology Agency SOC Limited v Gijima Holdings (Pty)
Limited
[2017] ZACC
40
;
2018 (2) BCLR 240
(CC);
2018 (2) SA 23
(CC)
and
Buffalo City
Metropolitan Municipality v Asla Construction (Pty) Limited
[2019] ZACC 15; 2019 (6) BCLR 661 (CC); 2019 (4) SA 331 (CC).
[14]
Asla
above.
[15]
At
para 49.
[16]
At
para 50.
[17]
At
para 53.
[18]
At
para 54.
[19]
At
para 55.
[20]
South African National
Roads Agency Limited v City of Cape Town
[2016] ZASCA 122
;
[2016] 4 All SA 332
(SCA);
2017 (1) SA 468
(SCA)
para
81.
[21]
Asla
para
58.
[22]
MEC for Health,
Province of Eastern Cape NO and Another v Kirland Investments (Pty)
Ltd t/a Eye & Laser Institute
[2013] ZASCA 58
;
2014 (3) SA 219
(SCA)
para
82.
[23]
Merafong
para
61.
[24]
2018
(2) SA 23 (CC) [2017] ZACC 40.
[25]
Gijima
para
52; and paras 63, 65 and 66 of
Asla
.
[26]
Asla
para
71.
[27]
At
para 105.
[28]
At
paras 109 and 112.
[29]
At
para 118.
[30]
At
para 120.
[31]
At
para 127.
[32]
At
para 149.
[33]
At
para 147.
[34]
At
para 148.
[35]
At
para 96.
[36]
At
para 99 of
Asla
the
following appears:
‘
The
important principle at play in this matter is how this court manages
complex institutional settings of corruption and maladministration,

particularly at local government level and where the organ of state
has not taken the court into its confidence.’
[37]
At
para 98.
[38]
At
para 144.
[39]
Natyawa
v Makana Municipality
[2019]
ZACC 43
(CC) at paras 50-51.
[40]
At
paras 35 and 36.
[41]
At
para 53.
[42]
At
para 54.
[43]
2016
(5) SA 1
at para 132.