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2023
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[2023] ZAKZPHC 122
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Thabzo Security Services CC v Msunduzi Municipality and Others (2682/23P) [2023] ZAKZPHC 122 (24 October 2023)
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL LOCAL
DIVISION, PIETERMARITZBURG
CASE NO: 2682/23P
In the matter between:-
THABZO SECURITY
SERVICES CC
APPLICANT
and
THE MSUNDUZI
MUNICIPALITY
FIRST RESPONDENT
WISE SECURITY TRAINING
CC
PARTY TO BE JOINED AS
SECOND RESPONDENT
ROYAL SECURITY
CC
PARTY
TO BE JOINED AS THIRD RESPONDENT
JUDGMENT
ANNANDALE AJ:
[1]
In 2021 the Msunduzi Municipality (the Municipality) engaged in a
public
tender process for the appointment of a panel of security
services providers for a period of three years under tender number
SS23-R2021.
The invitation to tender included pre-qualification
criteria and stated unequivocally that bids not meeting all these
criteria
would be disqualified, deemed non-responsive and not
considered for evaluation.
[2]
One of the pre-qualification criteria was the submission of mandatory
and returnable documents. This criterion stipulated in terms that
only bidders who had submitted all the mandatory and returnable
documents listed in a table in clause 8.4.1.1 of the invitation to
tender would be deemed responsive. Those that did not
would
be deemed unresponsive and therefore not be considered for any
further evaluation and/or adjudication. Among the mandatory
returnable documents was the bidder’s audited financial
statements for the past three financial years.
[3]
The applicant responded to the invitation to tender as did 31 others.
It is common cause that the applicant did not comply with the
pre-qualification criterion relating to annual financial statements.
Instead of submitting audited financial statements for the past three
financial years, the applicant submitted three sets of documents
said
to be the previous year’s financial statements, none of them
audited, and – curiously - not identical.
[4]
Although all purporting to be for the financial year ended 28
February
2020, one iteration of the income statement reflects
gross revenue in excess of R94 million, whilst another reflects gross
revenue for the same period as R21.5 million. Similarly, one set of
financials reflects the costs of sales for that period in the
sum of
R65.3 million, the other R11.2 million. Unsurprisingly then, the
retained profit at the end of the year differs wildly between
the
documents: in one iteration it exceeds R21 million in the other it is
R5.031 million. Similar discrepancies appear on the balance
sheet
with one version of the financial statements showing total equity and
liabilities of a little over R25 million and the other
R5.2 million.
[5]
The figures in each line item making up the income statement and the
balance
sheet is significantly different between two different sets
of financial statements purportedly for the same period, so the
divergence
in the totals described above are not due to some form of
arithmetical error. The reason for these differences has not been
explained
by the applicant. Manifestly, at least of the annual
financial statements misrepresents the applicant’s financial
affairs.
[6]
Despite all this, the applicant was one of eight bidders recommended
by
the Municipality’s Bid Evaluation Committee (BEC) to be
appointed to a panel of security services providers. The other 24
bids had been disqualified (somewhat ironically) as non-responsive
for failure to comply with mandatory documents, which in several
instances included a failure to submit audited financial statements.
Wise Security CC (Wise), and Royal Security Services CC (Royal),
which the applicant sought to join to the proceedings, were also on
the recommended list.
[7]
The Municipality’s Bid Adjudication Committee (BAC) accepted
the
BEC’s recommendations. It concluded a service level
agreement (SLA) with the applicant in January 2022 to give effect to
its acceptance of the applicant’s bid. The applicant thereupon
started rendering services at various sites and receiving
remuneration in the region of R1.7 million per month.
[8]
On24
November 2022 however, the Municipality received a
report by the Auditor-General which identified a number of
irregularities in
the tender process. One of these was that
four bidders who had failed to meet the pre-qualification criteria by
not submitting
the requisite financial statements should have been
disqualified but were not. The applicant and Wise were two of the
four bidders
named in the Auditor-General’s report in this
regard.
[9]
By the time the Municipality received the Auditor-General’s
report,
it had a new municipal manager. He considered the report
without delay, verified its contents and concluded that the decision
to
award the tender and concluded the SLA with the applicant was
improper, irregular and unlawful.
[10]
On 2 December 2022, the Municipality sent the applicant a notice
purporting to cancel the
SLA with effect from 28 February 2023 as its
bid was not acceptable and should have been disqualified. The 2
December letter of
cancellation however granted the applicant
fourteen days to make representations as to why the contract should
not be terminated.
[11]
The applicant states that it made representations. Despite admitting
in its answering affidavit
that it received these submissions, the
Municipality subsequently denied receipt. Be that as it may, the
applicant’s stance
was that the Municipality had no right to
cancel a tender after its award and that if the Municipality was of
the view that an
irregularity had occurred, it was at liberty to
launch the necessary application which would be ‘met with
vigorous opposition’.
The Municipality states that if it had
received the submissions nothing therein contained would have changed
its position on cancellation.
[12]
In its representations, the applicant accepted that three sets of
financial statements
were submitted for the same financial year and
recorded that the other statements were available but had been
‘omitted by
error’. The representations record that the
other two sets of audited financial statements were annexed to it,
but they are
not annexed to the version of the letter in the record
and have never been produced, despite repeated requests by the
Municipality.
[13]
When the applicant received no response to its representations, or to
a follow up letter
sent on 15 February 2023, it launched an urgent
application set down for 27 February 2023 to pre-empt termination of
the SLA at
the end of the month as had been foreshadowed in the
letter of 2 December 2022 (the first application). It sought a rule
nisi
with interim relief preventing the Municipality from
giving effect to its 2 December 2022 cancellation decision pending
the finalisation
of a review of that decision which the applicant
intended to launch. No relief was granted in the first application
and the Municipality
did not give effect to its intended cancellation
of the SLA on 28 February 2023.
[14]
Instead, on 6 March 2023, simultaneously with the filing of a
supplementary answering affidavit
in the first application, the
Municipality issued a fresh notice of cancellation effective 31 March
2023. It was only however on
29 March 2023 that the applicant
responded to the letter of 6 March 2023, and asked the Municipality
for an undertaking that it
would not give effect to its cancellation
whilst the first application was pending. When the Municipality
failed to give the undertaking,
on 4 April 2023, the applicant
launched a further application under the same case number which it
set down for 6 April 2023 (the
second application).
[15]
By then, the sites previously serviced by the applicant had been
taken over by Wise and
Royal which had also been appointed to the
panel of security service providers. Their membership of the panel
notwithstanding,
the applicant accused the Municipality of utilising
Wise and Royal without following the required tender process, and
challenged
the validity of their appointment to its erstwhile sites
on that basis. The Municipality’s deponent states that the
transition
happened without any difficulty or violence, whilst the
applicant claims that it was accompanied by violence and intimidation
of
its guards by persons said to be representatives of the
Municipality, Wise and Royal. The applicant gave no details of where,
how
and by whom the alleged acts of violence and intimidation were
perpetrated.
[16]
What is not in dispute is that the other providers took over
the applicant’s
sites and Royal has been rendering services to
all of those sites since the Municipality cancelled the contract it
had awarded
to Wise on 4 April 2023 because its bid should also have
been regarded as non-responsive.
De facto
then, when both
applications served before me as opposed motions, the applicant was
no longer rendering any services to the Municipality
and nor was
Wise.
[17]
The relief as framed in the second application was aimed at
forestalling the implementation
of the 6 March 2023 cancellation
decision, joining Wise and Royal as respondents and seeking
interdictory and declaratory relief
against the parties which was in
certain respects contradictory and not entirely coherent.
[18]
Between the first and second applications, and on 24 March 2023, the
applicant instituted
review proceedings (again under the same case
number as the two applications) in which it sought orders setting
aside both cancellation
decisions and a declaratory order that it was
just and equitable that the SLA remain in place until its expiry in
December 2024.
I will refer to that application as ‘the
review’, to distinguish it from the first and second
applications for interim
relief to which I will refer collectively as
‘the applications’. The Municipality indicated in its
answering affidavit
in the second application that it intended to
oppose the review and counter-apply for the setting aside of its
decision to award
the tender to the applicant and conclude the SLA by
virtue of the irregularities in the tender process.
Grounds
of challenge and response
[19]
The Municipality did not purport to cancel the SLA by relying on any
terms of the contract
in either of its termination notices. In its
answering affidavit in the second application however, the
Municipality claimed a
contractual right to cancel based on three
clauses in the SLA, two of which describe the contract as ‘month
to month’
and another which entitles the Municipality to cancel
for reputational damage.
[20]
The Municipality argues in the alternative, that if the cancellation
constitutes administrative
action rather than purely contractual
conduct it was nonetheless entitled to cancel as it is did because it
is obliged to comply
with section 217 of the Constitution and section
112(1)(l) of the Municipal Finance Management Act, 56 of 2003. The
Municipality
may therefore only contract for goods and services in
accordance with a system which is fair, equitable, transparent,
competitive,
and cost–effective and complies with the
Preferential Public Procurement Framework Act 5 of 2000 (the PPPFA)
which was enacted
to give effect to the requirements in section 217
of the Constitution. The Municipality asserts that the procurement
process leading
to the conclusion of the SLA met none of these
constitutional requirements and did not comply with the PPPFA. The
Municipality
accepts that it has not yet applied to court to set
aside the process, but submits that its opposition to the
applications is a
permissible reactive challenge.
[21]
The applicant takes issue with the Municipality’s cancellation
decisions and its
stance in opposition to the applications on three
grounds. First, that its failure to submit the annual financial
statements was
not material and the BEC enjoyed a discretion to
condone non-compliance as it did. Second, if it is wrong in this
regard, the Municipality
had no purely contractual right to cancel
the contract after it had awarded the tender, and had resorted to
impermissible self-help
when it purported to cancel. Third, the
applicant contends that absent an application for self-review to set
aside the award of
the tender and the conclusion of the SLA, the
Municipality was bound to give effect to the contract it had
concluded and could
not enforce its cancellation decision in the form
of a reactive challenge either in the applications or in the review.
Relief
Sought
[22]
Given the purpose for which the two applications were launched, the
facts on the ground
as they existed when the applications were heard
suggested that some of the relief sought had been overtaken by
events. At the
start of the hearing I therefore asked counsel for the
applicant to specify what relief was being persisted in. In order to
understand
the extent to which the engagement which followed changed
the landscape of the case, it is necessary to set out the
relief
as originally framed in the first and second applications,
save for the paragraphs dealing with urgency which had become moot.
[23]
The second notice of motion incorporated some relief from the first
by reference. It therefore
conduces to better understanding of the
applicant’s ultimate position to commence with a recordal of
the relevant portions
of relief in the second notice of motion:-
‘
1.
That Wise Security Training CC …and Royal Security CC….
be joined as the Second and Third
Respondents under case number
2682/23P.
2.
The case heading of the application under case number 2682/23P is
hereby amended to henceforth
reflect the Msunduzi Municipality as the
first respondent and Wize Security Training CC …is
recorded as the second
respondent and Royal Security CC ….is
recorded as the third respondent.
3.
That the relief sought in paragraph 2 of the notice of motion in the
main application be granted
pending the finalisation of the opposed
hearing on 15 August 2023.
4.
Alternatively to paragraph 3: That a Rule
nisi
do hereby issue
calling upon … any... interested party, to show cause …
why, pending the determination of this matter,
an order in the
following terms should not be granted, viz.
4.1 The
First Respondent be interdicted and restrained forthwith from
implementing a notice of termination dated
6 March 2023 issued under
tender number S23-R/2021 pending finalisation of the review
application under case number 2682/23P.
4.2 The
Second and Third Respondents be interdicted and restrained from
entering and removing, interfering, intimidating,
coopting in any
manner whatsoever Applicant’s registered employees guarding
sites under tender number S23-R2021 pending finalisation
of this
matter.
4.3 The
Second Respondent is ordered forthwith to accept possession of all
firearms and rifles in possession of
the Applicant’s employees
(security guards) guarding the sites under tender number S23-R2020
supplied by the Second Respondent
pending finalisation of this
matter.
4.4 The
Third Respondent is ordered forthwith to accept possession of
all firearms and rifles supplied to
the Applicant’s employees
(security guards) guarding sites under tender number S23-R202.
4.5
Pending/allocation and/or award of the tender to the Second and Third
Respondents of sites awarded under tender
number S23-R2021 is
declared unlawful and of no force and effect.
4.6
Costs of the application.
4.7
Further and or alternative relief.’
[1]
[24]
There are three sets of proceedings all instituted by the applicant
under the same case
number. Counsel indicated that the applicant
persisted with paragraphs 1 and 2 of the second notice of motion but
sought the joinder
of these two parties in the applications not the
review.
[25]
Paragraph 3 of the second notice of motion sought the relief
set out in paragraph
2 of the first application. There the applicant
sought a rule
nisi
and interim relief pending a review
to be instituted, with the interim relief formulated as follows:-
‘
2.1
The Respondent is interdicted and restrained forthwith from
implementing cancellation in a notice
of cancellation dated 2
December 2022, pending finalisation of the review application to be
launched within fifteen (15) days of
this order.
2.2
The Respondent’s notice of termination dated 2 December 2022 is
declared unlawful,
of no force and effect.’
[26]
It will be apparent from the factual matrix set out at the start of
this judgment that
the 2 December 2022 notice of cancellation was not
implemented. Counsel for the applicant submitted however that the 6
March 2023
cancellation followed ineluctably from the cancellation of
2 December 2022 so the earlier cancellation notice remained relevant.
I engaged counsel for the applicant on whether it was possible to
grant declaratory relief on an interim basis as envisaged by
paragraph 2.2 of the first notice of motion and whether the
declarator and the validity of the Municipality’s termination
decision were not matters properly for the review court rather than
the court considering interim relief pending the review. Counsel
for
the applicant accepted that the declaratory relief was properly a
matter for the review court and the applicant did not persist
in
seeking the relief in paragraph 2.5 of the first notice of motion.
[27]
Counsel for the applicant agreed that the declaratory relief in
paragraph 4.5 of the second
notice of motion was likewise a matter
for the review court. He abandoned paragraphs 4.3 and 4.4 of the
second notice of motion,
for which there was in any event no
evidentiary basis, and accepted that events had overtaken the relief
envisaged in paragraph
4.2 which was therefore abandoned.
[28]
The only portion then of paragraph 4 of the notice of motion of the
second application
in which the applicant sought to persist was the
interdict in paragraph 4.1. The difficulty with that however, is that
paragraph
4.1 envisages a prohibitory interdict and the termination
decision of 6 March 2023 had already been implemented before the
second
application was instituted, some months the applications
served before me. The relief as originally formulated was therefore
incapable
of being granted. Counsel indicated that the applicant
wished instead to seek a mandatory interdict, directing the
Municipality
to do what was necessary to reverse the implementation
of its 6 March 2023 decision and, to the extent necessary, its 2
December
2022 decision. The applicant claimed to be entitled to this
relief on the basis that it had sought further and/or alternative
relief
in paragraph 4.7 of the notice of motion in the second
application. I shall assume without deciding that relief in this
altered
form can properly be pursued under the rubric of alternative
relief.
[29]
The relief
sought by the applicant is therefore in the nature of an interim
interdict, albeit now mandatory rather than prohibitory.
It therefore
behoves the applicant to demonstrate the long established
requirements of a
prima
facie
right,
a well-grounded fear of irreparable harm if the interim relief is not
granted, the balance of convenience and the absence
of any other
satisfactory remedy.
[2]
[30]
As the interim relief is sought pending the finalisation of the
review, I must also be
satisfied that the applicant has good
prospects of success in the review. In
Economic Freedom Fighters v
Gordhan and Others and a related matter
2020 BCLR 916
(CC) para
42, the Constitutional Court explained the applicable test and
approach as follows:
‘
The claim for
review must be based on strong grounds which are likely to succeed.
This requires the court adjudicating the interdict
application to
peek into the grounds of review raised in the main review application
and assess their strength. It is only if a
court is convinced that
the review is likely to succeed that it may appropriately grant the
interdict.’
[3]
[31]
The Municipality argues that in addition to these requirements, the
applicant must demonstrate
that exceptional circumstances warrant the
grant of an interdict because the relief the applicant seeks is of
the nature that was
at issue in
National Treasury and Others v
Opposition to Urban Tolling Alliance and Others
2012 (6) SA 223
(CC) (
OUTA
).
[32]
OUTA
concerned an interdict which affected the executive domain as it
prevented a functionary from exercising a public power conferred
upon
it.
[4]
The Constitutional Court
held that such relief intruded on the separation of powers and
should therefore be ‘granted
only in the clearest of cases and
after a careful consideration of separation of powers harm’.
[5]
OUTA
explained that the
Setlogelo
test needed to be applied cognisant of the normative scheme and
democratic principles that underpin the Constitution, so the balance
of convenience enquiry must now have proper regard to separation of
powers harm.
[6]
[33]
The applicant, however submits that what is sought to be restrained
is not executive
power but administrative action. For the
reasons set out by Olsen J in
Reaction Unit South Africa (Pty) Ltd
v Private Security Industry Regulatory Authority
2020 (1) SA 281
(KZD) paras 31 to 35, I am of the view that there is much force to
this argument. By virtue of the approach which I take in this
matter,
it is however unnecessary for me to make a firm finding in this
regard, and I assume in favour of the applicant, without
deciding the
issue, that the applicant need not demonstrate exceptional
circumstances.
Joinder
[34]
The effect of the applicant’s changed position is that no
relief is sought against
Wise or Royal, the parties the applicant
sought to join to the applications. Wise had taken no part in the
proceedings but Royal
had opposed the joinder application, filed
papers and briefed counsel. Mr Khuzwayo SC who appeared at the
hearing with Mr Sibeko
for the applicant, was commendably candid in
his acceptance that as it was the applicant that had brought Royal
before court only
to abandon seeking any relief against it, its
joinder was unnecessary and it was just and equitable for the party
who had attempted
to join it to be ordered to pay its costs. He
stressed however, that it would not be appropriate for costs to be
granted on a punitive
scale as Royal requested, because the applicant
had not pursued the joinder out of malice but due to practical
concerns regarding
giving effect to the interdictory relief. I deal
with the question of costs holistically at the end of this judgment.
[35]
There is an additional issue relating to joinder. The Municipality
contends that the joinder
of the Auditor-General was mandatory and
the applications are therefore fatally defective for non-joinder. Mr
Moodley SC, who appeared
with Mr Flemming for the Municipality did
not persist in this contention, but made it clear that he was not
abandoning it either.
It is therefore necessary for me to decide this
point. The applicant submits that the joinder of the Auditor-General
is unnecessary
because the applicant challenges the decision of the
Municipality, not the Auditor-General who has no power to cancel a
contract
the Municipality has concluded and did not purport to do so.
I agree.
[36]
I turn then to deal with the central issues in the applications:
[a]
was the applicant’s bid unresponsive?
[b]
if so, does the Municipality have a contractual right to cancel?
[c]
if not, is it permitted to raise the irregularities in the tender
process by way of
a reactive challenge in these proceedings despite
not having applied for self-review?
[d]
if so, what are the merits of its reactive challenge?
Unresponsive
Bid?
[37]
The applicant contends that its failure to supply three years’
annual financial statements
was not material and the Municipality’s
supply chain management policy grants the BEC powers ‘to
condone or waive certain
requirements within minimum scale’.
The applicant argues that the BEC and BAC were better placed than the
Municipal Manager
to decide whether to condone non-compliance and
whether non-compliance was material or not. The effect of this,
submits the applicant,
is that the award of the tender and the
conclusion of the SLA are lawful and the tender could only be
cancelled after award if
one of the grounds in Regulation 13 of the
2017 PPPPFA Regulations was present. In this latter regard, the
applicant relied on
Head
of Department, Mpumalanga
Department of Education v Valozone 286 CC
[2017] ZASCA 30
(
Valozone
) para 16.
[38]
Regulation 13 lists four grounds upon which an organ of state can
cancel a tender before
award, one of which is a material irregularity
in the tender process.
Valzone
concerned a decision to cancel
a tender before an award had been made in circumstances where none of
the grounds in the 2011 PPFA
regulation equivalent to Regulation 13
were present. Neither Regulation 13 nor
Valozone
applies on
the facts of this matter where the cancellation decisions were made
after the award. Be that as it may, the validity
of the applicant’s
bid is the logical starting point of the enquiry.
[39]
The Municipality’s supply chain management policy was not part
of the papers in either
of the applications or the voluminous review
record, and counsel for the applicant did not refer to any particular
provision of
the policy in support of his submissions in this regard.
To the extent that reference can be had to the policy as a public
document
available on the Municipality’s website, clauses 28
and 29 which deal with bid evaluation and bid adjudication committees
respectively do not speak to a discretion of the sort for which the
applicant contends. However, even if one were to assume that
these
committees are accorded a measure of discretion in the evaluation and
adjudication of bids, the extent and nature of any
such discretion
would necessarily be informed by the law and the terms of the tender
at issue, specifically whether a particular
requirement was mandatory
or not.
[40]
Relying on
AllPay Consolidated Investment Holdings (Pty) Ltd and
Others v Chief Executive Officer South African Social Security Agency
and
Others
2014 (1) SA 604
(CC) (
AllPay
), paras 22 and 58,
the applicant submitted that regardless of whether any express
discretion was accorded to the BEC and BAC, as
a matter of law,
immaterial irregularities could be overlooked as not all flaws are
fatal. The question, it was submitted, is whether
the purpose the
tender requirements were intended to serve had been substantially
achieved.
[41]
At a level of general principle, that is undoubtedly correct, but
there is a difference
between minor defects in procedure, and
requirements which constitute prerequisites for the validity of a
bid.
[42]
Whilst
AllPay
did deal with the materiality of irregularities,
it stressed that procedural requirements were not merely
technicalities and that
defects in procedure are not to be taken
lightly. It sounded the following alarm:-
‘
..deviations from
fair process may themselves all too often be symptoms of corruptions
or malfeasance in the process. In other words,
an unfair process may
betoken a deliberately skewed process. Hence insistence on compliance
with process formality has 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.’
[7]
[43]
Even if one could apply the materiality test to non-compliance with
mandatory requirements,
the general purpose the pre-qualifying
criteria served was to ensure that only those bids which met a
minimum threshold would be
eligible for consideration. The BEC’s
failure to disqualify the applicant’s bid coupled with its
disqualification of
other bidders who had failed to submit their
annual financial statements meant that this purpose was not served
and also rendered
the process unfair. The mandatory requirement that
bidders submit three years’ audited annual financial statements
was intended
to enable the Municipality to assess prospective service
providers’ financial soundness. It was plainly not an
irrelevant
or unconstitutional requirement. By submitting conflicting
financial statements for a single financial year, the applicant
deprived
the Municipality of the opportunity to make a proper
assessment of its financial situation. In the result, the purposes
that the
pre-qualifying criteria were intended to serve were not
achieved at all, much less substantially.
[44]
More fundamentally however,
All Pay
is not authority for the
proposition that failure to comply with mandatory pre-qualifying
criteria can be condoned or regarded
as immaterial. Our law goes the
other way.
[45]
In
Dr
JS Moroka Municipality and Others v Bertram (Pty) Limited and Another
[2014]
1 All SA 545
(SCA) (
Dr
JS Moroka
)
para 16, the
Supreme
Court of Appeal held that there was no discretion to condone a
failure to comply with prescribed minimum prerequisites for
validity.
It also dealt with the statement in
Millennium
Waste Management Chairperson Tender Board, Limpopo Province and
Others
2008
(2) SA 481
(SCA)
(
Millenium
Waste)
that
‘our law permits condonation of non-compliance with pre-emptory
requirements in cases where condonation is not incompatible
with
public interest and if such condonation is granted by the body in
whose favour the provision was enacted.’
[8]
The Supreme Court of Appeal explained that such a proposition
offended the principle of legality and insofar as
Millenium
Waste
may be construed as accepting that a failure to comply with a
pre-emptory requirement of a tender may be condoned by a functionary
if he was of the view that it would be in public’s interest for
such a tender to be accepted, it should be regarded as incorrect.
[9]
[46]
The
position is rather that an organ of state is at liberty to determine
what should be a prerequisite for a valid tender, and a
failure to
comply with such prerequisites will result in a tender being
disqualified as unacceptable unless the conditions are
immaterial,
unreasonable or unconstitutional.
[10]
Subject to these exceptions, as explained in
Minister
of Environmental Affairs and Tourism v Pepper Bay Fishing (Pty) Ltd;
Minister of Environmental Affairs v Smith
2004
(1) SA 308
(SCA) para 31, once an organ of state has set minimum
qualifying requirements in the tender invitation:
‘
(a)s a general
principle an administrative authority has no inherent power to
condone failure to comply with a pre-emptory requirement.
It only has
such power if it has been afforded the discretion to do so.’
[47]
Regulation 4(2) of the 2017 PPPFA Regulations underscores this
principle. It provides that
a tender that fails to meet any
pre-qualifying criteria stipulated in the tender document is an
unacceptable tender.
[48]
Here, the invitation to tender made it plain that the submission of
audited financial statements
for the previous three years was a
prerequisite for the validity of bids. Clause 8.4.1.1 stated that any
bidder who had not complied
with the pre-qualification criteria
‘shall be deemed unresponsive and shall not be assessed,
evaluated or adjudicated’.
Clause 8.4, which set out the
evaluation criteria, included a table listing the 22 mandatory and
returnable documents, next to
the description of which appear
boxes for the bidder to tick, confirming the documents have been
submitted. Item 19 of the
list read: ‘The Bidder shall submit
Audited Financial Statements for the past three financial years’.
The applicant
ticked this item, thereby representing that it had
complied with that specific criterion. Under the table, the following
appears
in bold type:
‘
A Bidder that
fails to submit any of the mandatory/returnable documents specified
above shall be deemed unresponsive and will not
be considered for any
evaluation and/or adjudication.’
[49]
The BEC and BAC thus had no power to condone a failure to
comply with the pre-emptory
requirements the Municipality had set.
[50]
This finding makes it unnecessary to deal in any detail with the
facts upon which the applicant
contends that the BEC acted
consistently in its approach to disqualification, thus rendering the
process fair. Consistency could
never render lawful that which was
unlawful, and in any event, the facts do not demonstrate the
consistency for which the applicant
contends. The applicant’s
submission that the BEC only disqualified bidders who had failed to
submit more than one category
of mandatory documents is incorrect.
The BEC’s evaluation report reveals that two of the bidders who
were disqualified had
failed to submit only one category of the
documents.
[51]
It follows
that the applicant’s contention that its failure to comply with
the mandatory submission requirements of the bid
was not material and
could be condoned is bad in law. The applicant’s failure to
include the mandatory documents meant that
its tender was, as a fact,
non-responsive and should have been disqualified. That being so, the
award and SLA which followed upon
it, were invalid from
inception.
[11]
[52]
The real question is whether the applicant is correct in its
assertion that the Municipality
is precluded from resisting the
applications to enforce that unlawful and invalid contract because it
has not applied to review
and set aside its original decisions to
accept the applicant’s bid and conclude the SLA.
[53]
The applicant’s argument is based on two Constitutional Court
cases, although neither
of them was actually
referenced in the heads of argument.
MEC
for Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd
t/a Eye & Lazer Institute
2014
(3) SA 481
(CC)
(
Kirland)
para 64, established that where government has taken an invalid
decision, it should generally not be exempt from applying formally
to
court to set aside the defective decision. This is done by way of a
legality self-review as explained in
State
Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd
2018 (2)
BCLR 240
(CC) (
Gijima).
[54]
The Municipality seeks to overcome the challenge of not yet having
applied to self-review
in two ways. First, it invokes a contractual
right to cancel on a month’s notice in terms of the SLA.
Second, if I
were to find that the claimed contractual right is
unavailing, the Municipality contends that it is entitled to raise a
reactive
challenge to the applicant’s attempts to enforce the
SLA in these proceedings.
Contractual
Right to Cancel?
[55]
The Municipality did not invoke a contractual right to cancel in
either of its termination
notices. In its answering affidavit
in the second application however, the Municipality claimed a
contractual right to cancel based
on clauses 6.1 and 6.2 which
describe the contract as a month-to-month contract and terminable on
a month’s notice, and on
clause 17.4.3 which deals with the
Municipality’s entitlement to cancel for reputational damage.
At the hearing it only persisted
with its reliance on the duration
clauses.
[56]
The
question of when and to what extent administrative law principles
apply to a contract between an organ of state and a private
party,
and the circumstances under which state conduct in relation to a
contract is ‘purely contractual’ has been the
subject of
some dissonance in our law. The prevailing view, as I understand it,
is that ‘one cannot divorce a contract arising
from the
performance of statutory functions and the exercise of statutory
powers from its statutory background.’
[12]
By virtue of the view I take on the applications, it is however
unnecessary for me to make any firm finding on the Municipality’s
rights in this regard. I propose accepting without deciding, again
in favour of the applicant, that the Municipality had
no purely
contractual right to cancel.
[57]
On that basis, the Municipality is confined to public law remedies.
The parties accept
that it was open to the Municipality to approach
the Court for self-review as required by
Gijima
, the question
is whether it is without remedy because it has not done so and seeks
instead to raise a reactive challenge.
Reactive
Challenge
[58]
The applicant contends that the Municipality’s only remedy is
self-review. That stance
is clearly wrong. The applicant’s
submissions on this score lose sight of the very nature of a reactive
or collateral challenge.
In
Merafong City Local Municipality v
AngloGold Ashanti
2017 (2) SA 211
(CC)
(Merafong
), Cameron J described collateral challenges as
follows:
‘
Relying on the
invalidity of an administrative act as a defence against its
enforcement, while it has not been set aside, has been
dubbed a
collateral challenge – “collateral” because it is
raised in proceedings which are not in themselves
designed to impeach
the validity of the act in question. While the object of the
proceedings is directed elsewhere, invalidity
is raised as a defence
to them.’(footnotes omitted)
[13]
[59]
Collateral
challenges (or reactive challenges as Cameron J held they were better
described
[14]
) are thus a
defence against the enforcement of an administrative act which has
not been set aside, raised in proceedings not directed
at the
impeachment of that administrative act. Hence ‘the remedies of
review and collateral challenge differ distinctly in
object,
application and scope.’
[15]
[60]
Confronted
with this difficulty, the applicant changed tack and argued that the
Municipality was obliged to raise its collateral
challenge in the
review and could not do so in response to the applications for
interim relief. That line of argument is not sustainable.
It would be
illogical in the extreme to permit a collateral challenge to be
raised in response to a review, but not in proceedings
seeking
interim relief, the grant of which is dependent on prospects of
success in the review. That aside,
Merafong
stressed that South African law has always allowed a degree of
flexibility in reactive challenges to administrative action, and
that
there was no absolute duty of proactivity on public authorities to
self-review absent which they were obliged to accept an
unlawful
decision as valid.
[16]
A
reactive challenge should be available where justice requires it to
be, which will depend in each case on the facts.
[17]
Justice demands that a reactive challenge should be available on the
facts here.
[61]
The
applicant’s argument also runs contrary to
Department
of Transport v Tasima
2017(1)
BCLR1 (CC) (
Tasima
),
in which the Constitutional Court made it plain that an organ of
state was entitled to raise a reactive challenge when faced
with
coercive action based on a constitutionally invalid act.
[18]
The applications for interim relief seek to implement a
constitutionally invalid tender award and are therefore coercive
proceedings
of the type envisaged by
Tasima
.
[62]
The
applicant sought to distinguish
Tasima
because there the organ of state had brought a
counter-application
[19]
and
here there is none. Absent a counter -application, so the argument
ran, the award of the tender and the conclusion of the SLA
remained
and the Municipality had to give effect to them.
[63]
At a level of practicality, the applicant’s contentions entail
certain difficulties.
The enforcement proceedings in
Tasima
sought final relief. A counter-application in such proceedings was
therefore entirely appropriate. Where however, the enforcement
proceedings take the form of applications for interim relief pending
the finalisation of other proceedings in which the validity
of the
state conduct will be finally determined, it would manifestly be more
appropriate for the counter-application to be brought
in the main
proceedings. That is precisely what the Municipality has indicated it
intends to do in the review. Practicality aside,
the applicant’s
argument cannot be sustained for two reasons.
[64]
First, the factual difference to which the applicant points does not
detract from the rationale
articulated in
Tasima
as the basis
for permitting organs of state to raise reactive challenges, or the
approach required of courts in proceedings such
as the present where
a party seeks interim relief aimed at preserving a particular
status
quo
pending the final determination of the parties’ rights:
‘
Where, as here,
the validity of the source of the right the applicant sought to
preserve was also impugned on the basis that it
was an illegal
source, a court can hardly close its eyes to this and proceed to
grant an order preserving an illegally obtained
right. Interim relief
is not designed to protect an illegal “right”.’
[20]
[65]
The
Constitutional Court lamented the fact that in earlier proceedings,
the high court had granted an order which allowed an invalid
agreement to be given legal force and effect when it was
unconstitutional and unlawful.
[21]
Tasima
held
unequivocally that it cannot be right for a court to follow an
approach that leads to a party being entitled to an interim
order
preserving rights until final determination even where those rights
flow from an illegal or fraudulent act.
[22]
As a matter of logic those principles apply with equal force to the
present proceedings.
[66]
Second, the submission is unavailing in the light of the decision of
the Supreme Court
of Appeal in
Gobela Consulting CC v Makhado
Municipality
(Case No. 910/19)
[2020] ZASCA 180
(22 December
2020) (
Gobela
) which endorsed a high court decision upholding
a collateral challenge and declaring a contract invalid and unlawful
despite the
organ of state not having launched a counter-application
to review and set aside that contract.
[67]
The facts
were these. The appellant had instituted an action against the
Makhado Municipality seeking to enforce a contract it had
been
awarded following a tender process. The Municipality pleaded,
inter
alia
,
that the agreement was in contravention of the
Local Government
Municipal Finance Management Act 56 of 2003
and its supply chain
management policy and was therefore unlawful and invalid, but it did
not counter-apply for relief setting
aside the agreement.
[23]
This notwithstanding, the high court dismissed the appellant’s
claim with costs on the basis that the contract was invalid
and
unlawful.
[24]
On appeal to the
Supreme Court of Appeal, the appellant conceded the contract was
invalid but argued that the appeal should be
allowed because the high
court was not entitled to declare the contract invalid and unlawful
in the absence of a counter-application
for the contract to be set
aside.
[25]
[68]
The Supreme
Court of Appeal found that justice required the high court to
declare the impugned contract invalid and unlawful
despite the
municipality not having applied for it be reviewed and set aside, as
the validity of the contract had been squarely
raised in the
pleadings. It held that if the court had not entertained the
Municipality’s reactive challenge ‘the untenable
result
would be that the court would be giving legal sanction to the very
evil which s 217 of the Constitution and all other
procurement-related
prescripts sought to prevent.’
[26]
The same holds true here.
[69]
It follows
that nothing about the manner in which the Municipality has raised
its reactive challenge precludes me from considering
it. Quite the
contrary, once a reactive challenge is raised, a court has no
discretion to allow or disallow the raising of the
defence.
[27]
I am therefore obliged to consider the Municipality’s reactive
challenge. The only question is whether it has a sound foundation,
sufficient to undermine the contractual rights upon which the
applicant relies.
[70]
The common
cause facts demonstrate that the Municipality’s challenge is on
solid ground. The tender process was irregular
and the applicant’s
bid should never have been considered. Because the SLA was concluded
in breach of the legal provisions
designed to ensure a transparent,
cost-effective and comprehensive tendering process, it was invalid
from inception.
[28]
The
applicant is consequently unable to establish a right worthy of
preservation even
prima
faci
e,
as its alleged right was obtained illegally.
[29]
The applicant is consequently unable to demonstrate prospects of
success in the review. This makes it unnecessary to deal with
the
other requirements for an interim interdict.
[71]
As the applicant has not met the threshold for the grant of the
interdictory relief it
seeks, both applications fall to be dismissed
with costs.
Costs
[72]
Both Royal and the Municipality seek punitive costs. Royal does so on
the basis that the
second application was an abuse of process as the
applicant failed to demonstrate urgency and its allegations regarding
the events
surrounding the site takeovers were vague, general and
unsubstantiated. The Municipality does so on the basis that the
applicant
has failed despite repeated requests to furnish the two
further audited annual financial statements said to have been
available
and annexed to the applicant’s representations of 15
December 2022, and because of the manner in which the papers were
indexed
incorrectly and incompletely, and indexes changed at a very
late stage.
[73]
Together with its heads of argument, the Municipality submitted an
affidavit by its attorney
ostensibly to appraise the court of matters
which had transpired in connection with the applications and give the
court an understanding
of how the matter had progressed. The
affidavit dealt with various exchanges of correspondence between the
respective attorneys
where the Municipality was requesting documents
apparently missing from the papers served on it, and complaints about
the manner
in which the record had been indexed and paginated. In
response, the applicant sought to file a supplementary replying
affidavit.
Neither of these affidavits was necessary, nor do they
assist in any way in determining the issues in the applications.
[74]
The applicant’s failure properly to index and paginate the
court papers in the two
applications inconvenienced not only the
Municipality and Royal in referencing the papers in their heads of
argument, but the court
in attempting to navigate the papers and
prepare for the hearing. The applicant changed the index to the
papers after it had been
supplied to the Municipality and Royal so
the pagination of the court file did not accord with the pagination
the Municipality
and Royal used in their heads of argument. This
occasioned some difficulty in preparation for the hearing and caused
the Municipality
to update and amend the references to the papers in
its original heads of argument, thereby incurring entirely
unnecessary costs.
[75]
The papers in the court file were also incomplete, I only came to
know that volume 7 of
the application papers was missing by virtue of
that volume being referred to in the Municipality’s heads of
argument. Efforts
through my registrar to procure the elusive volume
from the applicant’s attorneys proved unsuccessful. Eventually,
it had
to be obtained from Municipality’s attorneys so that I
could at least read all of the papers before the matter was heard.
[76]
All of this is unfortunate, but the disarray of the papers and the
difficulties that occasioned
the Municipality, Royal and the court
would not in my view be sufficient on their own to warrant a punitive
costs order.
[77]
What does however warrant such an order is the fact that the
applicant through both urgent
applications sought to preserve a
manifestly unlawful
status quo
to enrich itself by receiving
payments of some R1.7 million a month from public coffers, and the
Municipality was obliged to defend
the applications using public
funds.
[78]
The Municipality in its answering affidavit pointed to the fact that
it was the
modus operandi
of some security services providers,
particularly in relation to the Municipality, to prolong their
unlawful contracts with the
Municipality by seeking interim relief of
the kind which formed the subject matter of these applications. The
Municipality cited
various examples of this conduct. Bringing
applications on an extremely urgent basis, as the applicant did on
both occasions here,
increases the likelihood of interim orders which
preserve an unlawful
status quo
being granted because organs
of state are given insufficient time properly to answer the
applications. Fortunately, that did not
happen here.
[79]
However, the applicant did not launch the second application within a
reasonable time of
receiving the cancellation letter of 6 March 2023.
Instead, it waited and brought the second application as a matter of
extreme
urgency after the cancellation decision had already been
implemented and sought relief which was not competent in the terms in
which it was framed at the time the second application was launched.
That notwithstanding, the applicant persisted with the second
application. In its founding affidavit it made entirely bald and
unsubstantiated allegations of serious misconduct on the part
of
Royal, and persisted in those allegations only to abandon all relief
sought against Royal at the start of the hearing.
[80]
In my view, all this conduct viewed cumulatively, together with the
fact that the Municipality
litigates from public funds and should not
be out of pocket for attempting to combat illegality and corruption,
warrants the grant
of costs on an attorney and own client scale,
including those reserved previously.
[81]
This matter is one of considerable importance for the Municipality
and warranted the employment
of two counsel. The applicant itself
employed two counsel for the hearing. The costs order will therefore
include the costs consequent
upon two counsel where so employed.
Order
[1]
I consequently make an order in the following terms:
–
1. The
application under Notice of Motion dated 21 February 2023 and the
application under the Notice of Motion
dated 4 April 2023 are
dismissed with costs on the scale as between attorney and own client,
such costs to include those of two
counsel where so employed and all
costs previously reserved.
A.M.
ANNANDALE, AJ
JUDGMENT
RESERVED:
21
JULY 2023
JUDGMENT
HANDED DOWN:
24
OCTOBER2023
COUNSEL FOR APPLICANT:
BS KHUZWAYO SC
(with
V SIBEKO)
(heads
of argument by V SIBEKO)
Instructed
by:
Hlengiwe
Majozi Inc
Care
of: Ngwane & Associates Inc
Tel:
033- 413 1506
COUNSEL
FOR
FIRST
RESPONDENT
Y N
MOODLEY SC
(with
A G FLEMMING)
Instructed
by:
Siva
Chetty and Company
Email:
sivana@sivachetty.co.za
Tel:
033 – 3429636
COUNSEL
FOR PROPOSED THIRD
RESPONDENT:
W.
PIETERSE
Instructed by:
Cajee
Setsubi Chetty Inc
Email:
asifessacsc@mweb.co.za
Ref:
SAE/SE/THABZO/MSUNDUZI
[1]
The
quote is indeed verbatim.
[2]
Setlogelo
v Setlogelo
1914
AD 221
at p 227.
[3]
Although
EFF
v Gordhan
concerned
an interdict which would prevent the functionary from exercising
public power in a manner which impacted on the separation
of powers,
the requirements have been held to be of general application:
IPID
v Minister of Police 2015
JDR
0547 (GP) para 11.
[4]
OUTA
paras 22 and 44 – 47.
[5]
OUTA
para 47.
[7]
AllPay
para 27.
[8]
Millennium
Waste
para
17.
[9]
Dr J S
Moroka
paras
17 – 18.
[10]
Millennium
Waste
para
19.
[11]
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
2010
(1)
SA
356 (SCA) para 16.
[12]
President
of the Republic of South Africa v Reinecke
2014
(3) SA 205
(SCA) para 16.
[13]
Merafong
para
23.
[14]
Merafong
para 26.
[15]
Merafong
para 32.
[16]
Merafong
paras
44 and 55.
[17]
Merafong
para
55.
[18]
Tasima
para
86.
[19]
Tasima
para
48.
[20]
Tasima
para
37.
[21]
Tasima
para
41.
[22]
Tasima
para
42.
[23]
Gobela
para
9.
[24]
Gobela,
para
10.
[25]
Gobela
para
11.
[26]
Gobela
para
21.
[27]
Merafong
para
32.
[28]
Gobela
para 17.
[29]
Tasima
paras
37 – 38.