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[2011] ZASCA 13
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CEO of the South African Social Security Agency N.O and Other v Cash Paymaster Services (Pty) Ltd (90/10) [2011] ZASCA 13; [2011] 3 All SA 233 (SCA); 2012 (1) SA 216 (SCA) (11 March 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no
:
90/10
In the
matter between:
THE
CHIEF EXECUTIVE OFFICER OF THE SOUTH
AFRICAN
SOCIAL SECURITY AGENCY N.O.
....................................
1
st
Appellant
THE
SOUTH AFRICAN SOCIAL SECURITY AGENCY
......................
2
nd
Appellant
THE
SOUTH AFRICAN POST OFFICE LIMITED
................................
3
rd
Appellant
and
CASH PAYMASTER SERVICES (PTY) LTD
.........................................
Respondent
Neutral citation:
The Chief Executive Officer of the South
African Social Security Agency N.O. v Cash Paymaster Services (Pty)
Ltd (90/10
)
[2011] ZASCA 13
(11 March 2011)
Coram:
HARMS DP, PONNAN, SNYDERS, TSHIQI JJA AND BERTELSMANN
AJA
Heard:
16 November 2010
Delivered: 11 March 2011
Summary:
S 217(1) of Constitution – Procurement of goods
or services – Competitive process – Non-compliance –
Public Finance Management Act 1 of 1999
and the Treasury Regulations
applicable once a system is in place – Accounting officer
permitted to deviate – Reasons
for deviation – Non –
compliance not fatal
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
South Gauteng High Court (Johannesburg) (Du
Toit AJ sitting as court of first instance):
The appeal is upheld with costs including the costs of two counsel.
The order of the court below is set aside and substituted with an
order dismissing the application with costs, including the
costs of
two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
TSHIQI JA (concurring)
INTRODUCTION
This appeal relates to the validity of the decision by the South
African Social Security Agency (SASSA) to enter into a Letter
Agreement with the South African Post Office Ltd (SAPO) for the
provision of basic banking services to eligible members of the
South
African public in order to facilitate the payment of social grants
to them. The agreement was an interim agreement and
foreshadowed the
conclusion of a final agreement. The first appellant is the Chief
Executive Officer of SASSA, the second appellant
is SASSA and the
third appellant is SAPO.
The present respondent, Cash Paymaster Services (Pty) Ltd
(Paymaster), launched an application in the high court in which it
sought to review the decision taken by SASSA to enter into the
Letter Agreement, and interdict SASSA from entering into the
proposed final agreement with SAPO to render banking or payment
services, relating to social security beneficiaries, without having
followed a procurement process which complies with s 217(1) of the
Constitution, s 51(1)(a)(iii) of the Public Finance Management
Act 1
of 1999 (the PFM Act) and the Treasury Regulations made thereunder,
or with SASSA’s own supply chain management policy.
It is
common cause that SASSA did not follow a competitive process and the
question that arose was whether it was obliged to
do so.
The court below (per F J du Toit AJ) upheld the application by
setting aside the decision to enter into the agreement and
interdicted
SASSA from contracting with SAPO to render banking or
payment services without having followed a procurement process which
complies
with s 217 of the Constitution, the PFM Act and the
Treasury Regulations. The court did, however, order that accounts of
beneficiaries
should not be closed pending the envisaged procurement
process. It granted the appellants leave to appeal subject to an
order
that his main order would remain operative and effective
during the appeal process.
SASSA
SASSA is a statutory juristic person established in terms of the
South African Social Security Agency Act 9 of 2004 (the SASSA
Act).
It is an organ of state in terms of s 239(b)(ii) of the Constitution
and a national public entity within the meaning of
the PFM Act. Its
objects are to (a) act, eventually, as the sole agent that will
ensure the efficient and effective management,
administration and
payment of social assistance; (b) serve as an agent for the
prospective administration and payment of social
security; and (c)
render services relating to such payments (s 3 of the SASSA Act).
And its functions include the administering
of social assistance in
terms of Chapter 3 of the
Social Assistance Act 13 of 2004
, and
performing any function delegated to it under that Act; and to
collect, collate, maintain and administer such information
as is
necessary for the payment of social security, as well as for the
central reconciliation and management of payment of transfer
funds
in a national data base of all applicants for and beneficiaries of
social assistance (s 4(1)(a) and (b) of the SASSA Act).
Section 14(3)(a)
of the
Social Assistance Act,
which
forms part of Chapter 3, provides that if an applicant
qualifies for social assistance under that Act, SASSA must render
the
relevant assistance which means in general terms that it has to
pay the beneficiary that to which the beneficiary is entitled.
SASSA
may, in terms of reg 24(1), use any of the following methods for the
payment of grants, namely (a) electronic transfers
into an account
of the beneficiary held at a financial institution or that of a
procurator; (b) manual payments at a designated
pay-point; or (c)
any other method approved by the Minister.
1
SAPO AND POSTBANK
SAPO is, pursuant to a 1991 amendment to the Post Office Act 44 of
1958, a public company incorporated in terms of the Companies
Act 61
of 1973, and is owned by the state.
Section 51
of the
Postal
Services Act 124 of 1998
regulates the operation and control of
Postbank. Postbank is a division of SAPO. It is not registered under
the Banks Act of
1990 but undertakes ‘such activities as are
customary for a financial institution carrying on the business of
accepting
bank deposits’
(s 51(2)
of the
Postal Services Act).
It
offers simple affordable banking services, specifically to the
low income groups, through the SAPO network throughout the country.
Its services extend into isolated rural areas where other financial
institutions do not maintain a viable commercial presence.
SAPO (including Postbank) remains a business enterprise of the
national government despite its status as a public company and
separate juristic personality. It is a ‘major public entity’
listed in Schedule 2 to the PFM Act. SAPO is substantially
self-funding but the state may grant it annual subsidies. The assets
of the state serve as security for repayment of deposits
with
Postbank. The Postbank pays interest on money deposited with it. Its
profits are reinvested in its operations for the public
benefit.
THE LETTER AGREEMENT
Prior to the establishment of SASSA, payment services in respect of
social grants were effected by cash payment contractors,
including
Paymaster. The contractors had different service level agreements
with the various provinces for cash payments of social
grants to
beneficiaries residing in the respective provinces. From 1 April
2006, SASSA ‘inherited’ these contracts
through cession
and delegation. Paymaster, for instance, provided services to
approximately 3,6m beneficiaries in five provinces.
Its contracts
were due to expire in March 2009. On 25 March 2009, SASSA and
Paymaster extended their contract for another year
until March 2010
and agreed that they would in future enter into negotiations in good
faith in an attempt to enter into a new
consolidated service
agreement in relation to cash payments. The contractors, including
Paymaster, were the repositories of the
data and the enrolment
payment system. Thus, the contractors were and are in control of the
process of taking the biometric data
of the beneficiaries including
verifying the beneficiaries’ details up to the payment stage.
All this data remained with
the contractors.
In July 2009, during the subsistence of the extended agreement with
Paymaster, SASSA concluded the Letter Agreement with SAPO.
The
agreement was implemented with effect from 5 January 2009. The
effect of the agreement was that when new beneficiaries applied
to
SASSA for a grant, they would be asked if they had an existing bank
account, and if not, whether they would like to open a
Postbank
account. If they did, SASSA would on behalf of the beneficiary open
a Postbank account if the particular SASSA office
was online or it
would refer the beneficiary to any post office to do so.
SAPO in summary undertook to provide the following services: the
design, development and implementation of a web-based bank account
solution that simplifies the bank account application process for
applicants; registration of beneficiaries that is the opening,
allocation and activation of Postbank accounts for each potential
grant recipient before SASSA approves the relevant grant; the
issue
of a Postbank card; the single deposit of grant funds per month, per
beneficiary and one free mini statement per month;
and one of a
number of additional services such as two free ATM cash withdrawals
per month.
SASSA contributed an amount of R928 235.50 towards SAPO’s
start up costs of the project. It undertook to pay SAPO
a
once-off fee of R13.68 for every beneficiary account opened and
thereafter a monthly fee of R14.59 per beneficiary.
One of the advantages of the system as far as
SASSA was concerned was that whereas in the past the beneficiary’s
details
would remain in the contractor’s system the
beneficiary’s account details would now be captured in the
SASSA system.
SAPO would issue the beneficiary with a Mzansi bank
card which he or she would then use to withdraw cash from any ATM or
post
office or to make any purchases at any retailer who accepts
VISA branded bank cards.
2
The financial benefit for SASSA is substantial because the average
handling charge of contractors amounts to R32.11 per transaction,
more than double the SAPO fee, which means that the cash payment
system costs, for 9 million recipients, an estimated R3.6 billion.
Within some eight months, 460 377 beneficiaries had opened Postbank
accounts under the scheme.
Cash payments to the beneficiaries were not affected and contractors
consequently retained the sole right to process cash payments.
Nevertheless, Paymaster as contractor is dissatisfied because SASSA
did not follow a competitive process before entering into
the Letter
Agreement.
SECTION 217(1) OF THE CONSTITUTION
Section 217(1) of the Constitution prescribes the
manner in which organs of state should procure goods and services.
3
In particular, organs of state must do so in
accordance with a system which is fair, equitable, transparent,
competitive and cost-effective.
This implies that a ‘system’
with these attributes has to be put in place by means of legislation
or other regulation.
Once such a system is in place and the system
complies with the constitutional demands of s 217(1), the question
whether any
procurement is ‘valid’ must be answered with
reference to the mentioned legislation or regulation.
4
The question debated at length in the court below and before us, was
whether s 217(1) applies if an organ of state wishes to
procure
goods or services from another organ of state consequently appears
to me to be beside the point. The first inquiry ought
to be to
determine the meaning of the consequent legislation.
The main object of the PMF Act is to secure transparency,
accountability, and sound management of the revenue, expenditure,
assets and liabilities of the institutions to which the Act applies
(s 2). SASSA and SAPO, as mentioned, are such entities more
particularly because they are both funded, fully or substantially,
from the National Revenue Fund or by way of tax, levy or other
money
imposed in terms of national legislation, and they are accountable
to Parliament (s 1). The PFM Act, read with the Treasury
Regulations, is such legislation. It should be noted that it was not
the respondent’s case that the PFM Act or the Treasury
Regulations were unconstitutional, only that SASSA did not comply
with their provisions.
Section 51(1)(a) of the PFM Act states that an accounting authority
for a public entity must (inter alia) ensure that the particular
public entity has and maintains an appropriate procurement and
provisioning system which, echoing the words of the Constitution,
is
fair, equitable, transparent, competitive and cost-effective. The
National Treasury may in terms of the PFM Act make regulations
or
issue instructions applicable to all institutions to which the Act
applies concerning the determination of a framework for
an
appropriate procurement and provisioning system which is fair,
equitable, transparent, competitive and cost-effective (s 76(4)(c)).
The relevant Treasury Regulations provide as
follows:
5
The accounting officer or accounting authority of a public entity
must ‘develop and implement an effective and efficient
supply
chain management system in his or her institution for the
acquisition of goods and services’ (reg 16A3.1(a)).
The supply chain management system must be ‘fair, equitable,
transparent, competitive and cost-effective’ (reg 16A3.2(a));
‘
If in a specific case it is impractical to
invite competitive bids, the accounting officer or accounting
authority may procure
the required goods or services by other means,
provided that the reasons for deviating from inviting competitive
bids must be
recorded and approved by the accounting officer or
accounting authority’ (reg 16A6.4).
SASSA has, in terms of reg 16A3.2, a supply chain management policy
that requires that procurement and tendering should be in
accordance
with a system which is fair, equitable, transparent, competitive and
cost-effective.
SASSA is not obliged to comply with its supply
policy in the circumstances set out in reg 16A6.4 and it is
accordingly unnecessary
to consider the terms of the policy any
further. The regulation permits an accounting officer or the chief
executive officer
to deviate from a competitive process subject to
conditions. As mentioned it is not contended that a ‘system’
may
not provide for such deviations. First, there must be rational
reasons for the decision. That is a material requirement. Second,
the reasons have to be recorded. That is a formal requirement.
6
The basis for these requirements is obvious.
State organs are as far as finances are concerned first of all
accountable to the
National Treasury for their actions. The
provision of reasons in writing ensures that Treasury is informed of
whatever considerations
were taken into account in choosing a
particular source and of dispensing with a competitive procurement
process. This enables
Treasury to determine whether there has been
any financial misconduct and, if so, to take the necessary steps in
terms of reg
33.
The factual inquiry is whether there was compliance with the
provisions of reg 16A6.4. Although the chief executive officer of
SASSA did not pen his reasons for entering into the Letter Agreement
with these regulations in mind, it appears from the Letter
Agreement
itself, signed by him, that the agreement was entered into in terms
of the
Intergovernmental Relations Framework Act 13 of 2005
, and
that the object of the agreement was to provide for collaboration
between two government entities by working together and
to integrate
their services. The intention, too, was to improve grant enrolment
and payment services on a cost effective basis.
It might in this context be noted that the provisions of s 238(b) of
the Constitution permit an executive organ of state to exercise
any
power or perform any function for any other executive organ of state
on an agency or delegation basis. Although the rendering
or
procuring of banking services for beneficiaries is not a function of
SASSA, its function is payment of grants, not only manually
but also
electronically into their banking accounts. This is exactly the
function that SASSA has delegated to SAPO. This function
could not
be delegated in isolation and the fact that SASSA was able to
procure additional and ancillary advantages for beneficiaries
from
SAPO, which strictly speaking fall outside of SASSA’s
functions, does not mean that the agency or delegation is not
covered by s 238(b).
This fits in with the evidence of SASSA in the answering affidavit
where it was stated that its transaction with SAPO was not
a purely
economic transaction; its object, instead, was to achieve the
constitutional goal of providing social assistance to
the needy. It
further stated that it chose SAPO as another government entity
because SASSA was experiencing financial difficulties.
Although not stated in the Letter Agreement it is clear on the
evidence that another important reason for the agreement was that
no
other entity is able to provide the same or similar accessible
services to the poor and those living in remote areas. As was
stated
in the answering affidavit:
‘
The
beneficiaries who have accounts at Postbank have greater
accessibility than that provided by the commercial bank. SAPO has
more branches throughout the country than any of the commercial
banks, and also has branches in rural areas where none of the
commercial
banks has a branch.’
One is, unfortunately, left with a lingering impression that
Paymaster’s motive in wanting to have the Letter Agreement
set
aside is to perpetuate the expensive cash payment system and not
because it is concerned about the costs to SASSA of the
payment
systems or because it is a possible bona fide competitor of
Postbank. Paymaster is not a registered financial institution
or
financial services provider or bank and it cannot on its own provide
the services which Postbank offers. Paymaster, admittedly,
alleged
that it could possibly submit a tender to provide the same services
in conjunction with some or other bank and although
the allegation
was not denied it remains nothing more than an allegation,
especially since the facts set out in the preceding
paragraph cannot
be gainsaid.
Paymaster, in the light of the aforesaid, had to show that the
reasons for the decision were irrational. Because of the way the
case was conducted it did not address this issue pertinently. And
the reasons are, in my judgment, entirely reasonable. It was
not
enough for Paymaster to show that the reasons were ‘wrong’
by, for instance, stating that the viability of SAPO
was not tested
because other service providers were not granted an opportunity
(through a competitive bidding system) to show
whether they could
offer more attractive options. Such generalized allegations do not
address the question whether or not the
mentioned reasons were
rational.
The next issue to decide is whether the
requirement that the full recording of all the reasons for a
decision under reg 16A6.4
is a ‘mandatory and material
procedure or condition prescribed by an empowering provision’
(in the wording of
s 6(2)(b)
of the
Promotion of Administrative
Justice Act 3 of 2000
). I think not. As was recently said by this
court:
7
‘
It
is important to mention that the mere failure to comply with one or
other administrative provision does not mean that the whole
procedure
is necessarily void. It depends in the first instance on whether the
Act contemplated that the relevant failure should
be visited with
nullity and in the second instance on its materiality (see in general
Nkisimane
v Santam Insurance Co Ltd
1978
(2) SA 430
(A)
433H-434E).’
As mentioned, the regulations deal in detail with the consequences of
non compliance. These are dealt with at an administrative
level.
There is no indication that the regulations contemplate that the
requirement of recording was mandatory or material or was
introduced
for the sake of the public and not only for the sake of good
financial government, or that collateral attacks on rational
decisions bona fide taken were contemplated as a possible remedy. In
one word, I do not find any ‘nietigheidsbedoeling’
lurking somewhere in the regulation.
In any event this court in
Moseme
Road Construction CC & others v King Civil Engineering
Contractors (Pty) Ltd & another
8
held that ‘[n]ot every slip in the
administration of tenders is necessarily to be visited by judicial
sanction’ (para
21). Considerations of public interest
9
,
pragmatism and practicality should inform the exercise of a judicial
discretion whether to set aside administrative action or
not.
10
This means that the appeal must be upheld and the following order is
consequently made:
The appeal is upheld with costs including the costs of two counsel.
The order of the court below is set aside and substituted with an
order dismissing the application with costs, including the
costs of
two counsel.
_______________________
Z L L Tshiqi
Judge of Appeal
APPEARANCES
1
ST
& 2
ND
APPELLANTS: S M Lebala SC (with
him Z Makhubela)
Instructed by The State Attorney,
Pretoria;
The State Attorney, Bloemfontein.
3
RD
APPELLANT: W Trengove SC (with him M A Wesley)
Instructed by Read Hope Phillips Thomas & Cadman Inc,
Johannesburg;
Webbers, Bloemfontein.
RESPONDENT: J J Gauntlett SC (with him S Budlender)
Instructed by Smit Sewgoolam Inc,
Johannesburg; McIntyre & Van Der Post, Bloemfontein.
1
Regulations
in terms of the
Social Assistance Act 13 of 2004
, GN R162, GG 27316,
22 February 2005.
2
In
2002, all major banks in South Africa and SAPO agreed to co-operate
to provide a standard, low cost bank account, known as
the Mzansi
account, to lower income groups. The account may be opened at any of
the major banks and at the Postbank on standard
terms relating to
the nature of the banking services at the same low banking fees.
3
S
217 of the Constitution provides: ‘(1) When an organ of state
in the national, provincial or local sphere of government,
or any
other institution identified in national legislation, contracts for
goods or services, it must do so in accordance with
a system which
is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or
institutions referred to in that subsection from implementing a
procurement
policy providing for-
(a)
categories
of preference in the allocation of contracts; and
(b)
the
protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework
within which the policy referred to in subsection (2) must be
implemented.’
4
Gcaba
v Minister for Safety and
Security
2010 (1) SA 238
(CC) para 65. Compare
Minister
of Health & another NO v New Clicks South Africa (Pty) Ltd &
others (Treatment Action Campaign & another
as Amici Curiae)
2006
(2) SA 311 (CC);
2006 (1) BCLR 1
para 96 (Chaskalson CJ) and 434
- 437 (Ngcobo J);
SA
National Defence Union v Minister of Defence & others
2007
(5) SA 400
(CC)
para 51;
NAPTOSA
& others v Minister of Education, Western Cape, & others
2001
(2) SA 112
(C)
at 123I – J;
2001 (4) BCLR 388
at 396I –
J;
MEC for
Education, KwaZulu-Natal & others v Pillay
[2007] ZACC 21
;
2008 (1) SA 474
(CC) para 40.
5
Treasury
Regulations, GN R225, GG 27388, 15 March 2005; as amended by GN
R146, GG 29644, 20 February 2007.
6
The
third requirement, namely approval by the chief executive officer,
is not an issue in the case because the Letter Agreement
was entered
into by him.
7
Nokeng
Tsa Taemane Local Municipality v Dinokeng Property Owners
Association
(518/09)
[2010] ZASCA 128
(30 September 2010) para 14.
8
2010
(4) SA 359
(SCA)
9
Associated
Institutions Pension Fund & others v Van Zyl & others
2005
(2) SA 302
(SCA);
[2004] 4 ALL SA 133)
para 46.
10
Oudekraal
Estates (Pty) Ltd v City of Cape Town & others
2004 (6) SA 222
(SCA) para 36.