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[2010] ZASCA 156
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Gauteng MEC for Health v 3P Consulting (Pty) Ltd (199/10) [2010] ZASCA 156; 2012 (2) SA 542 (SCA) (1 December 2010)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 199/10
In the matter between:
GAUTENG MEC FOR HEALTH
.....................................................
Appellant
and
3P
CONSULTING (PTY) LTD
.......................................................
Respondent
Neutral Citation
:
Gauteng MEC for Health v 3P Consulting
(Pty) Ltd
(199/10)
[2010] ZASCA 156
(1 December 2010)
Coram
: Heher, Van Heerden, Mhlantla, Tshiqi JJA and
Bertelsmann AJA
Heard
: 12 November 2010
Delivered
: 1 December 2010
Summary
:
Services agreement
between provincial department and private company – renewal
thereof – whether original services agreement
and/or renewed
services agreement void for want of legality and/or authority,
alternatively void on the application of private
law principles –
whether order for specific performance of renewed services agreement
appropriate remedy
Order
On appeal from:
South Gauteng High Court, Johannesburg (Lamont
J sitting as court of first instance):
The appeal is dismissed with costs, including the costs of two
counsel.
judgment
van heerden ja (HEHER, MHLANTLA,
TSHIQI JJA ANd bertelsmann aja concurring):
Introduction
In
2007, the respondent, 3P Consulting (Pty) Ltd (‘3P
Consulting’), a management consulting company specialising in
providing public sector reform solutions, allegedly entered into a
services agreement with the appellant, the Gauteng Department
of
Health (‘the Department’), for an initial period of two
years, renewable for a further period of two years. In
2009, the
parties allegedly agreed to extend the services agreement for a
period of three years to 31 May 2012. In July 2009,
the Department
repudiated the services agreement as extended.
On
application by 3P Consulting to the South Gauteng High Court, Lamont
J granted a declaratory order to the effect that the services
agreement between the parties had been duly renewed by agreement
between the parties for a further period of three years. The
high
court also ordered the Department to implement the renewed services
agreement and to allow 3P Consulting to do so. Hence
this appeal by
the Department, which serves before us with the leave of the court
below.
Factual background
Towards
the end of April/beginning of May 2007, the Department published
advertisements calling for proposals by service providers
to draft
and facilitate the implementation of a so-called ‘turnaround
strategy’ for the Department. The terms of
reference for this
strategy did not stipulate the expected duration of the proposed
agreement.
On 25 May 2007, 3P Consulting submitted its proposal to the
Department. This proposal was for a project duration of an initial
period of two years, renewable for a further period of two years.
According to the proposal, the renewable element was ‘to
ensure the optimum skill transfer, protection of intellectual
property and to ensure continuity’. The proposal continued
–
‘
It
is anticipated that the entire team . . . will reduce on an annual
basis by approximately 20% per annum as the capacity support
programmes enable the GDoH [Gauteng Department of Health] internal
staff to be trained to sufficient levels. It is therefore a
major
objective for the PMU [Project Management Unit] to undertake
extensive capacity support.’
Accordingly, the term of the Project Management Unit (‘PMU’)
proposed by 3P Consulting was an effective four years.
That this was
understood by the Departmental Acquisition Council (‘DAC’),
the procurement decision-making body of
the Department, is clear
from the Minutes of the DAC meeting held on 4 June 2007, during
which the DAC considered the ‘[r]equest
of the GSSC [Gauteng
Shared Services Centre] for Health DAC approval of the award [to 3P
Consulting] in respect of the request
for proposal for the
establishment of a Project Management Unit for a period of two
years’. Notwithstanding the reference
to a period of two
years, the DAC, in approving the request, commented (as it put it,
‘for clarity’) that –
‘
The
planned Health Agency will function in managing high cost
assets/resources and leveraging funding sources. Core high level
staff will be transferred from the PMU; gradually escalating
migration of staff with a view of changing the structure
over
4
years
from predominantly external to internal staff.’ (Emphasis
added.)
On 5 June 2007, the Department informed 3P Consulting that its
proposal ‘for the establishment of a Project Management
Unit
for a period of 2 years has been approved,
subject to the signing
of a service level agreement
’. (Emphasis added.) On 2 July
2007, the Director-General of the Department, who is also the Chair
of the DAC and the accounting
officer of the Department, and Mr
Richard Payne, the Managing Director of 3P Consulting, signed the
services agreement. The relevant
clauses of this agreement read as
follows:
‘
2.2 Notwithstanding the date
of signature, the Agreement shall commence on 5
th
June 2007 and shall terminate on 4 June 2009, unless extended as
contemplated in 2.3
. . . below.
The
Department agrees to renew this Agreement for a further period of
two years on substantially the same terms as this Agreement,
it
being agreed that 6 (six) months prior to 5
th
June 2009,
the parties shall have afforded each other an opportunity to
negotiate any matters relating to the renewal referred
to herein
(except for the renewal itself)
.’ (Emphasis added.)
3P
Consulting duly discharged its obligations in terms of the services
agreement.
In
about October/November 2008, 3P Consulting and the Department
entered into negotiations for the renewal of the services agreement,
as foreshadowed in clause 2.3 of the agreement. On about 4 December
2008, 3P Consulting submitted a proposal to the Department,
in which
it motivated an extension of the services agreement (of the
‘operational mandate’ of the PMU) for a period
of three
years to 2012. This was followed by a letter dated 12 February 2009,
addressed to the Chair of the DAC by Mr Payne,
in which ‘the
reason for requesting the extra year’ was stated to be that
several specified PMU projects required
the support and expertise of
3P Consulting over the course of the next three years. This letter
was accompanied by a final proposal
for such extension dated 23
January 2009.
After various internal Departmental procedures had been followed, Mr
Ramaano, the Director of Supply Chain Management in the
Department,
in his capacity as Head of Procurement, wrote to 3P Consulting on 23
March 2009 as follows:
‘
The Gauteng Department of
Health hereby informs 3P Consulting that your proposal for the
extension of the renewal of the PMU contract
has been approved by the
Department for a period of three years ending 31
st
May 2012 for the contract value of R273 366 500.
Please
contact the Project Management Office for further information.’
After
the April 2009 general elections, a new Member of the Executive
Council (‘MEC’) for Health was appointed for
Gauteng.
During June 2009, the Department began refusing to allow 3P
Consulting’s employees and sub-contractors access
to its
premises to perform their work under the renewed services agreement.
When 3P Consulting addressed letters to the Department
to highlight
these breaches, the Department simply failed to respond.
Eventually, on 1 July 2009, the Department wrote to 3P Consulting
and informed it that ‘the Department will no longer perform
in
terms of the purported extension of the contract’. The reason
given for this stance was that –
‘
[W]hen the tender was
initially advertised, it was indicated that the contract would be for
a period of 2 years . . . .
However, in implementing the award of the tender to your
company, the Department signed a contract in terms of which it bound
itself
to renew the contract for a further period of 2 years. On or
about 17 February 2009, the DAC approved a period of 3 years for the
extension of the contract.
. . . .
The tender document indicated to would-be tenderers that
the tender was for a period of two years
which
the Department could not vary after the award of the tender.
Accordingly, when the Department took the decision to
extend the contract for a further period of 3 years, it acted
arbitrarily
and failed to take into account relevant considerations
like the provisions of the law and the expectations of other
potential
service providers.
From a point of view of administrative justice and the
public, the Department’s decision to extend the contract was
wrongful
and irregular. It is clearly reviewable by [a] Court of
competent jurisdiction.’
When 3P
Consulting instituted proceedings against the Department, however,
the Department back-tracked from its previous position
and admitted
that the original tender document did not in fact limit the project
to a two year period.
Discussion
The
Department contended that both the original and the renewed services
agreements were void for want of legality and/or authority.
It
relied on certain
irregularities which
had allegedly occurred in the tender process both prior to and after
the conclusion of the original services
agreement with 3P
Consulting. The Department also sought to impugn the validity of the
renewal agreement on certain private law
grounds, which – with
one exception – it had not raised in its answering affidavit.
As
regards the validity of the agreements on public law principles, 3P
Consulting countered the contentions of the Department
by arguing
that the Department’s decisions to enter into the original
services agreement with 3P Consulting and to renew
the agreement in
March 2009 constituted administrative action on the part of the
Department. Accordingly, in order for the Department
to avoid the
consequences of these agreements, it had to apply to court to review
and set aside the decisions. Furthermore, any
review application by
the Department, being made more than two years since the original
services agreement was concluded and
more than 180 days after the
renewed services agreement was concluded, would be grossly out of
time, in breach of the requirements
of ss 7 and 9 of the Promotion
of Administrative Justice Act 3 of 2000 (‘PAJA’) and
highly prejudicial to 3P Consulting.
In the
light of the view that I take in respect of the validity of both the
original services agreement and the renewed services
agreement, it
is not necessary to canvass the arguments relating to review of
administrative action.
Validity of the original services agreement
In arguing that the original services agreement was void, the
Department relied on various statutory provisions. First, s 217(1)
of the Constitution and s 38(1)
(a)
(iii) of the Public Finance
Management Act 1 of 1999 (‘the PFMA’), both of which
provide that, when 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. Second, in
terms of s 76(4)
(c)
of the PFMA –
‘
(4) The National Treasury may
make regulations or issue instructions applicable to all institutions
to which this Act applies [including
provincial departments –
see s 3 of the PFMA, read with the definition of ‘department’
in s 1 of the Act]
concerning –
. . . .
the
determination of a framework for an appropriate procurement and
provisioning system which is fair, equitable, transparent,
competitive and cost-effective.’
Pursuant to s 76(4)
(c)
of the PFMA, a Framework for Supply
Chain Management was promulgated in
Government Gazette
No
25767 of 5 December 2003 as Treasury Regulations. In accordance with
this Framework, the National Treasury is required and
authorised to
issue instructions to accounting officers/authorities in respect of
the appointment of consultants. This it does
by way of practice
notes. In this regard, National Treasury Supply Chain Management
Practice Note No SCM 3 of 2003 provides that
–
‘
Consultants should be
appointed by means of competitive bidding processes, whenever
possible.
. . . .
For
the purpose of this practice note, the term
consultant
includes,
among others, consulting firms . . . .’
Relying
on
Municipal Manager: Qaukeni Local
Municipality & another v FV General Trading CC
1
and
Eastern Cape
Provincial Government & others v Contractprops 25 (Pty) Ltd
,
2
the Department argued that failure to comply with
any of the abovementioned constitutional and legislative provisions
renders
any contract concluded in contravention thereof void
ab
initio
. The court does not, so the
argument went, have a discretion whether or not to enforce a
contract which does not comply with
the prescribed procedures.
3
With
reference to various documents, the Department contended that,
despite the fact that 3P Consulting’s proposal was for
a
contract duration of two years renewable for a further period of two
years, the Department had, after a due and proper tender
process,
given approval for a two year contract only. Thus, according to the
Department, any attempt by the parties to circumvent
that approval
by concluding a contract for a longer period was unlawful.
As
pointed out by counsel for 3P Consulting, however, the Department
conveniently ignores certain parts of those documents and,
in any
event, fails to put them in their proper context. It is common cause
that the DAC is the supreme procurement decision-making
body of the
Department. It is therefore documents emanating from the DAC which
must be scrutinised to determine the ambit of
the approval given by
it. It is clear from the Minutes of the DAC meeting held on 4 June
2007, that the DAC was fully aware of
the fact that the term of the
PMU proposed by 3P Consulting was an effective period of four years
– the Minutes expressly
record that the project would require
a gradually escalating migration of staff over a period of four
years. The Director-General
of the Department signed the DAC
Submission Approval Form accompanying these Minutes in her capacity
as Chair of the DAC.
The
subsequent appointment letter dated 5 June 2007 made the approval of
3P Consulting’s ‘proposal for the establishment
of a
Project Management Unit for a period of two years’
4
subject to the signing of a
service
level agreement
. This condition was
fulfilled by the conclusion on 2 July 2007 of the services
agreement, signed on behalf of the Department
by the Chair of the
DAC. The services agreement reflected the parties’
understanding – as this appeared from the
proposal itself and
the abovementioned comment by the DAC in approving the proposal –
by providing for an initial contract
period of two years and a
renewal for a further period of two years subject to any amendment
the parties might agree to make.
5
That agreement contains an ‘entire
agreement’ clause.
6
Thus, the period for which the DAC approved the
contract depends on what the written agreement says and, by
application of the
parole evidence rule, any extrinsic evidence on
the meaning of the relevant clause of the agreement would be
precluded.
7
The
Department also submitted that, as the contract which the Department
was authorised to conclude with 3P Consulting was for
two years
only, the Department’s Director-General and Chair of the DAC
who signed the services agreement on behalf of the
Department lacked
the authority to do so. Not only was this denial of authority not
raised at all in the Department’s answering
affidavit, but it
is also untenable given the facts set out above.
It
follows from the above that there was no failure by the Department
to comply with the constitutional and legislative provisions
relied
on by the Department
8
and that its attack on the validity of the
original services agreement must fail.
The validity of the renewal of the services agreement
The
Department contended that the purported renewal of the services
agreement for three years (one year longer than previously
agreed)
and at increased contract values per annum
9
occurred without following a public bidding
process and in a manner which could not be said to be ‘fair,
equitable, transparent,
competitive and cost-effective’. Hence
the approval by the DAC purporting to extend the period and to
increase the value
of the services agreement, as well as any
contract which might have flowed from this approval, was unlawful
and invalid. Once
again, the Department relied for this contention
on s 217(1) of the Constitution and s 38(1)
(a)
(iii)
of the PFMA.
In
dealing with this contention, the High Court relied on Regulation
16A6.4 of the Treasury Regulations published under s 76
of
the PFMA in
Government Gazette
No
27388 dated 15 March 2005 (GN R225), which expressly provides for an
exemption from the competitive bid requirement which must
usually
accompany appointments of consultants
10
in cases where it is impractical to engage in a
competitive tendering process. Lamont J held that ‘the only
person reasonably
possible to perform the works is the applicant [3P
Consulting], which was integrally involved with the completion of
the project,
having been engaged in it for the initial period of two
years.’ Thus, according to the learned judge, the three year
renewal
of the services agreement fell squarely within the ambit of
this regulation.
Before
this court, counsel for 3P Consulting also relied on this
regulation, despite the fact that it had not been mentioned in
their
papers. It is, however, not give any further consideration to this
finding of the court below. It is clear that the renewal
of the
services agreement did not give rise to a
new
services agreement; it simply extended the
duration of the services agreement for a period of three years.
Properly interpreted,
clause 2.3 of the agreement provides for a
renewal for a period of two years on the same terms as before
subject only to such
amendments as may be negotiated and agreed
between the parties. The negotiations between the parties in late
2008 ultimately
gave rise to an agreement that the services
agreement would be renewed for a period of three years, instead of
the two years
provided for in clause 2.3, and that the contract
value for each of the remaining three years would be increased. The
increases
were described by both the Department’s Programme
Management Office and by the Department’s Director of Supply
Chain
Management as ‘being ‘marginal increases only
allowing for inflation, and also taking cognisance of the strategy
to empower developing service providers in the body shop’. It
is clear that these increases properly flowed from the negotiations
contemplated in clause 2.3 of the services agreement. As there was
no
new
services
agreement, there was no
new
procurement of goods or services and it was
therefore in my view not necessary to follow a competitive public
bidding process
in this regard.
It
follows from the above that the Department’s attack on the
validity of the renewal of the services agreement on public
law
grounds is without merit.
In its
Heads of Argument and in argument before us, the Department sought
to rely on a number of private law grounds for the invalidity
of the
renewal of the services agreement. With one exception, none of these
grounds was raised by the Department in its answering
affidavit, but
appeared for the first time in the Department’s Heads of
Argument.
As was stated by Joffe J in
Swissborough
Diamond Mines (Pty) Ltd & others v Government of the Republic of
South Africa & others
:
11
‘
It is trite law that in motion
proceedings the affidavits serve not only to place evidence before
the Court but also to define the
issues between the parties. In so
doing the issues between the parties are identified. This is not only
for the benefit of the
Court but also, and primarily, for the
parties. The parties must know the case that must be met and in
respect of which they must
adduce evidence in the affidavits.
. . . .
An applicant must accordingly raise the issues upon
which it would seek to rely in the founding affidavit. It must do so
by defining
the relevant issues and by setting out the evidence upon
which it seeks to discharge the onus of proof resting on it in
respect
thereof. As was held in
Prokureursorde van Transvaal v
Kleynhans
1995 (1) SA 839
(T) at 849B in regard to a
constitutional issue:
“
Dit is myns insiens vir die
behoorlike ordening van die praktyk absoluut noodsaaklik dat
konstitusionele punte nie deur advokate
as laaste debatspunt uit die
mou geskud word maar pertinent in die stukke as geskilpunt geopper
word sodat dit volledig uitgepluis
kan word deur die partye ten einde
die Hof in staat te stel on dit behoorlik te bereg.”
The
dictum
is not only of application to
constitutional issues – it applies to all issues. Nor is the
dictum
only of application in the context of a founding
affidavit – it applies
equally to answering affidavits and
replying affidavits.’
12
While it is so that a party in motion proceedings
may advance legal arguments in support of the relief or defence
claimed by it
even where such arguments are not specifically raised
in the papers,
provided that all
relevant facts are before the court,
13
this will not be allowed if it causes prejudice to
the other party.
14
The only ‘private law grounds’ relied on by the
Department which can conceivably be said to raise legal issues are
its contentions that clause 2.3 of the services agreement was either
no more than an agreement to negotiate between the parties
and thus
unenforceable, or that the said clause constituted an option to
renew the services agreement and was not exercised timeously.
As
I have already stated,
15
it is clear from the initial proposal by 3P
Consulting
16
and the comment made by the DAC in approving the
proposal
17
that clause 2.2 of the services agreement
provided for an initial contract period of two years, while clause
2.3 provided for
an automatic renewal for a period of two years
subject only to such amendments as might be negotiated and agreed
upon between
the parties. On this construction, clause 2.3
constitutes neither an agreement to negotiate nor an option to
renew.
From
the above, it follows that the Department’s attempt to impugn
the validity of the renewal of the services agreement
using private
law principles is unsustainable.
Relief
As
indicated above, the high court ordered the Department to implement
the renewed services agreement and to allow 3P Consulting
to do so.
The Department contended that the services agreement and any renewal
thereof involved the rendering of consulting and
personal services,
the quality of the performance of which would be impossible to gauge
or police. For this reason, submitted
the Department, even if the
renewal of the services agreement was valid, the court below ought
to have exercised its discretion
to refuse specific performance of
such agreement.
Once
again, this is a contention which is conspicuously absent from the
papers. I agree with the submission made by counsel for
3P
Consulting that this omission is fatal to the Department’s
contentions in this regard. It has been stated by this court
that
the party seeking to avoid an order of specific performance bears
the onus of proving that there is an impediment to the
grant of
specific performance: it is not ‘incumbent on a plaintiff who
claims specific performance, the grant or refusal
of which is in the
final result in the discretion of the Court, to anticipate in his
declaration the possible grounds which a
defendant may advance to
induce the Court to exercise its discretion against the grant of
specific performance’.
18
The Department made no attempt in its papers to
put up evidence to discharge this onus. Moreover, there is in any
event nothing
in the papers to suggest that the obligations of 3P
Consulting are vague or imprecise or that, as submitted by counsel
for the
Department, ‘lengthy disputes are likely to occur in
regard to whether the contract is in future being properly
performed’.
The order for specific performance made by the
court below must therefore stand.
Conclusion
Accordingly
the appeal is dismissed with costs, including the costs of two
counsel.
______________________
b j van heerden
JUDGE OF APPEAL
APPEARANCES
APPELLANT:
A GAUTSCHI SC (with him S GUMEDE)
Instructed by Biccari Bollo Mariano Inc, Johannesburg;
Van der
Merwe & Sorour, Bloemfontein.
RESPONDENT:
G MARCUS SC (with him K HOFMEYR)
Instructed by Eversheds, Johannesburg;
Matsepes, Bloemfontein.
1
2010
(1) SA 356
(SCA) para 16.
2
2001
(4) SA 142
(SCA) paras 8 and 9.
3
Municipal
Manager: Qaukeni Local Government v FV Trading CC
para
14.
4
As
stated above, the proposal by 3P Consulting was in fact for a
project duration of an initial period of two years, renewable
for a
further period of two years: see para 4 above.
5
The
renewal itself was non-negotiable –
see
clause 2.3 of the services agreement, as quoted in para 6 above.
6
Clause
17.2 which provides that ‘[t]his agreement contains all the
express provisions agreed upon by the Parties with regard
to the
subject-matter of the Agreement and the Parties waive the right to
rely upon any alleged express provision not contained
in the
Agreement’.
7
See
Johnston v Leal
1980
(3) SA 927
(A) at 942H-943C. See further Schalk van der Merwe, LF
van Huyssteen, MFB Reinecke & GF Lubbe
Contract
General Principles
3ed (2007) pp
173-176 and the other authorities there cited.
8
See
paras 15 and 16 above.
9
The
initial contract was for R60 million per annum (excluding VAT). The
renewal was approved at a contract value of R273 366 500
for three
years (including VAT), thus an average of more than R90 million per
annum (including VAT).
10
See
National Treasury Supply Chain Management Practice Note No SCM 3 of
2003, the relevant part of which is quoted in para 16
above.
11
1999
(2) SA 279
(T) at 323F-G.
12
See
also
Government of the Province of KwaZulu-Natal & another v
Ngwane
[1996] ZASCA 88
;
1996 (4) SA 943
(A) at 949B-D;
Eskom Holdings Ltd &
another v New Reclamation Group (Pty) Ltd
2009 (4) SA 628
(SCA)
para 17.
13
See,
for example,
Cabinet for the Territory of South West Africa v
Chikane & another
1989 (1) SA 349
(A) at 360G-H.
14
See
Minister van Wet en Order v Matshoba
1990 (1) SA 280
(A) at 285E-I.
15
See
para 25 above.
16
See
para 4 above.
17
See
para 5 above.
18
See
Tamarillo (Pty) Ltd v B N Aitken (Pty)
Ltd
1982 (1) SA 398
(A) at 442H-443B.