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[2009] ZASCA 8
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Eskom Holdings Limited and Another v New Reclamation Group (Pty) Ltd (358/08) [2009] ZASCA 8; 2009 (4) SA 628 (SCA) ; 2009 (8) BCLR 813 (SCA) ; [2009] 2 All SA 513 (SCA) (13 March 2009)
THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No: 358/08
ESKOM
HOLDINGS LIMITED First Appellant
KWANDA
FERRO-ALLOY AFRICAN
RESOURCES
(PTY) LTD Second Appellant
and
THE
NEW RECLAMATION GROUP (PTY) LTD Respondent
Neutral citation:
Eskom
Holdings Ltd v The New Reclamation Group
(358/08)
[2009]
ZASCA 8
(13 March 2009).
Coram:
HARMS DP, CLOETE,
PONNAN, SNYDERS JJA
et
LEACH AJA
Heard:
24
FEBRUARY 2009
Delivered:
13
MARCH 2009
Summary:
Promotion of
Administrative Justice Act 3 of 2000
: review of award of tender by
organ of State; principles applicable and appropriate remedy,
discussed.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: High Court, Johannesburg (Blieden J
sitting as court of first
instance).
The appeal is dismissed. The appellants are ordered to
pay the respondent's costs of appeal jointly and severally, the one
paying,
the other to be absolved.
______________________________________________________________
JUDGMENT
______________________________________________________________
CLOETE JA (HARMS DP, PONNAN, SNYDERS JJA
et
LEACH AJA concurring):
[1] In mid-2007 the first appellant, Eskom Holdings
Limited, awarded a tender to the second appellant, Kwanda Ferro-Alloy
African
Resources (Pty) Ltd. One of the unsuccessful tenderers was
the respondent, The New Reclamation Group (Pty) Ltd ('NRG'). At the
suit of NRG the court a quo (Blieden J in the Johannesburg High
Court) set the award of the tender aside and ordered Eskom and Kwanda
to pay NRG's costs jointly and severally. Eskom and Kwanda now appeal
with the leave of the court a quo.
[2] It is necessary to deal with the facts in a little
detail. During March 2007 Eskom, by way of a request for quotation
('RFQ'),
formally invited tenders for the collection and disposal of
non-ferrous scrap metals ('material'). The RFQ provided that if a
tender
was accepted, a contract would come into existence for two
years for the removal, as and when required by Eskom, of material
(which
was owned by Eskom) from various sites in South Africa; the
processing of such material; and the payment to Eskom of a price for
the quantity of material recovered and processed. The following
clauses of the RFQ are relevant for present purposes:
'1.4 Subject to a prospective
tenderer meeting all the requirements set out herein as well as the
general principles governing the
award of the proposed tender, Eskom
may in its sole and absolute discretion agree to dispose of such
material in their existing
condition, as set out in the agreement.'
'1.6 Eskom has the sole and
exclusive right to determine to which tenderer the contract will be
awarded and in this regard Eskom
may in its sole and absolute
discretion decide not to award any contract and to invite quotations
and tenders afresh. It is specifically
recorded that a proposed
tenderer will merely make an offer to Eskom for the purchase of the
material and that a binding agreement
of any nature whatsoever will
only come into existence once a proposed tenderer has been informed
in writing of the fact that he
is awarded the tender.'
'1.8 All tenderers are obliged
to prove in the sole and absolute discretion of Eskom during the
evaluation period (being May 2007)
that they can comply with the
requirements of this enquiry and once a contract has been awarded, to
comply with all the terms of
the agreement fully and punctually.'
The position was therefore that Eskom had a discretion
to award the agreement to any tenderer, or not at all; but it could
only
do so if the tenderer met all the requirements of the tender;
and the decision whether a tenderer could comply with the
requirements
of the tender, was also a decision to be made in the
discretion of Eskom. What is important for present purposes is that
included
in the RFQ was a 'Financial Evaluation Form' which required
signature on behalf of the tenderer and which read:
'In order that
ESKOM
can determine that it is placing business with viable companies,
ESKOM
determines minimum requirements to satisfy itself that it is
justified in entering into an
AGREEMENT
with such companies. Accordingly, it is in the interest of the
tenderer and strictly required by
ESKOM
,
that the tenderer submits audited financial statements for the last
two years. This information will be handled with the strictest
confidence.'
[3] Kwanda and NRG both submitted tenders. In a covering
letter attached by Kwanda to its tender, it said that it:
'[I]s a company formed in
partnership with Rappa Holdings to target a niche of steel and
foundry customers in Africa which are perceived
as risky due to their
size, geographical positioning, etc, Rappa Holdings is a holding
company of Knightsbridge Copper and Cobalt,
Waste Product Utilisation
and Three Marias Mines. Rappa Holdings has 50% share in Kwanda and
the balance of the 50% is owned by
the Luthuli/Buckley Trust.'
Rappa Holdings provided a balance sheet of the 'group'
which comprised five major subsidiaries, including Kwanda.
[4] The tenders were evaluated and adjudicated upon in
three stages. The outcome of the first stage was that four tenderers,
including
Kwanda and NRG, were shortlisted. Thereafter, as part of
the second stage, the tenders were evaluated by various Eskom bodies,
including the Corporate Management Accounting Department. The report
of this latter body in relation to Kwanda's tender, began with
the
statement:
'Please note that this financial
analysis was performed solely for the purpose of deciding whether
RAPPA HOLDINGS (PTY) LTD is sound
enough financially to be awarded a
contract of R29 million for the collection of non-ferrous scrap
metal, over a period of two
years . . ..'
and the author concluded:
'In my opinion, RAPPA HOLDINGS
(PTY) LTD is sound enough financially to be awarded a contract of R29
million for the collection
of non-ferrous scrap metal, over a period
of two years . . ..'
The report contained no reference whatever to Kwanda.
[5] At the third and final stage a report was put before
the Corporate Division R35M Tender Committee. The report said inter
alia:
'All short listed companies were
found to be financially sound.
. . .
Kwanda Ferro-Alloy African
Resources is sufficiently financially sound to be awarded the
contract for the collection and disposal
of non-ferrous metal.'
The report further contained a recommendation that the
contract be awarded to Kwanda because it:
'[S]ubmitted the most favourable
offer that is technically, financially and commercially acceptable of
the eight offers received.'
NRG was still in contention at that stage of the process
â indeed, the R35M Tender Committee initially at its meeting on 1
June
2007 pointed out that the price offered by Kwanda, which
exceeded NRG's tender by some R2,8 million, might be outweighed by
the
better ratings scored by NRG in relation to security and site
evaluation. However, the committee ultimately approved the award of
the contract to Kwanda for the period 11 June 2007 to 31 May 2009.
[6] It is quite apparent from what I have said about
Kwanda's tender that Kwanda did not itself have the financial
resources to
perform the work and that the tender was awarded to it
on the basis of the financial position of the Rappa Group. All that
Eskom
knew about the relationship between the two was that Rappa
Holdings was a 50 per cent shareholder in Kwanda and that, according
to Kwanda, it had a 'partnership' with Rappa Holdings. The former
relationship did not of itself oblige Rappa to assist Kwanda
(indeed,
individuals frequently use the vehicle of a company in which they are
shareholders to avoid personal liability and to
enable them to
liquidate the company, should its business prove unprofitable). And
there was nothing to show that the latter relationship
imposed any
such obligation on Rappa Holdings or its subsidiaries in the Rappa
Group either. Not even Kwanda said it did. Where
the financial
ability of a tenderer to perform the contract for which it tenders is
a prime consideration in the award of the tender,
as will usually be
the case (and was here), then the award of a tender based on the
financial ability of a third party to perform
the tender is illogical
â unless there is some obligation on the third party to provide the
necessary financial assistance to
the tenderer. It is not in dispute
that Eskom is an organ of State and that the award of the tender
constituted administrative
action reviewable in terms of the
provisions of the
Promotion of Administrative Justice Act (PAJA
).
1
In the words of that Act, Eskom, in awarding the tender to Kwanda,
took into account irrelevant considerations
2
(the financial ability of the Rappa Group to perform the contract)
and it did not consider relevant considerations
3
(the financial ability of Kwanda to perform the contract); and the
award of the tender was not rationally connected to the information
before Eskom.
4
[7] It was submitted on behalf of Eskom that it was
entitled in the exercise of its discretion and in the furtherance of
its Black
Economic Empowerment policy to take risks in the award of a
tender, provided it gave proper consideration to the matter. The
short
answer to this submission is that there is nothing in the
affidavits or the documents annexed to them to show that Eskom
appreciated
that it was taking any risk. The contrary is the
position. Eskom simply equated Kwanda's financial ability to that of
the Rappa
Group â indeed, the R35M Tender Committee which took the
final decision to award the contract was not only unaware of Kwanda's
financial inability itself to perform the contract; it was positively
misled into believing that Kwanda was 'sufficiently financially
sound
to be awarded the contract'. Nor does the fact that the R35M Tender
Committee required that the guarantee to be furnished
by the
successful tenderer be increased from R1 million to R3 million
demonstrate, as submitted on behalf of Eskom, that it appreciated
that Kwanda might not be able to perform in terms of the contract.
The minutes of the meeting of that committee on 1 June 2007
show that
the committee required an increased guarantee to be imposed as a
condition of the award of the tender (to any tenderer)
because it
'would be more realistic'. The decision to award the tender to Kwanda
was taken at a later stage. The two decisions
were clearly unrelated.
[8] I therefore conclude that the court a quo was
correct in finding that the award of the tender by Eskom to Kwanda
was reviewable
and liable to be set aside in terms of the provisions
of PAJA. I turn to consider the second question, which concerns the
decision
of the court a quo to grant this relief.
[9]
Section 8
of PAJA empowers a court in proceedings
for judicial review to grant 'any order which is just and equitable',
including the orders
specified in the section. It is well established
that the court exercises a discretion; and, as was said by this court
in
Oudekraal Estates (Pty) Ltd v City of Cape
Town
5
'It is that discretion that
accords to judicial review its essential and pivotal role in
administrative law, for it constitutes
the indispensable moderating
tool for avoiding or minimising injustice when legality and certainty
collide.'
The principle of legality would require that an invalid
administrative decision be set aside. The desirability of certainty
may
â and I emphasise the word may, because this is not so in every
case
6
â point in the opposite direction: persons who altered their
position on the basis that the administrative act was valid would
suffer prejudice if it is set aside, because the effect of such an
order is retrospective.
7
[10] It is not necessary to debate
8
whether the discretion is a wide
discretion (as was submitted on behalf of Kwanda) or a
narrow discretion
9
and, if the latter, whether the court a quo misdirected itself. I
shall assume that this court can substitute its own decision.
That
said, I see no good reason for doing so.
[11] Ordinarily, where there has been a reviewable
irregularity in the award of the tender, an unsuccessful tenderer
would be entitled
to call for the award to be set aside. The
principal submission made by Kwanda on appeal was that this relief
should be denied
because NRG did not seek an interdict at an early
stage of these proceedings. Counsel for Kwanda relied in particular
on the decision
of this court in
Olitzki
Property Holdings v State Tender Board
.
10
In that case the plaintiff, an unsuccessful tenderer, claimed
damages representing the profit it would have made had the tender
been awarded to it, on the basis that its right to administrative
justice in terms of s 24 of the Interim Constitution
11
had been breached and that such an award would constitute
'appropriate relief' as contemplated in s 7(4)(a) of the Interim
Constitution. The latter section read:
'When an infringement of or
threat to any right entrenched in this Chapter is alleged, any person
. . . shall be entitled to apply
to a competent court of law for
appropriate relief, which may include a declaration of rights.'
This court held:
12
'... Counsel correctly conceded
that in these circumstances and on the assumptions made the plaintiff
would have been entitled to
an interdict prohibiting the defendants
from continuing the tender process and indeed from allocating the
award elsewhere at all.
This in my view has acute
consequences for the plaintiff's task in seeking to convince the
Court that an award of the profit lost
through the non-award of the
tender could constitute "appropriate relief". An interdict
would not only have anticipated
the latter dispute; it would have
eliminated the source of loss the plaintiff invokes.'
The court concluded:
13
'It is, however, not necessary
to decide that a lost profit can never be claimed as constitutional
damages. Certainly the question
of out-of-pocket expenses is not
before us. But in all the circumstances of this particular case,
including the availability to
the plaintiff of alternative remedies â
by way of interdict before the award of the impugned tender and,
thereafter, for at least
a time, by way of review â I conclude that
the lost profit the plaintiff claims would not be an appropriate
constitutional remedy.'
The case is distinguishable on the facts. There, it was
specifically found that the plaintiff would have been entitled to an
interdict.
Here, there is no guarantee that an application for an
interdict would have been granted. It would undoubtedly have been
opposed.
The conclusion of the contract with Kwanda could not have
been interdicted because NRG, through no fault of its own, only came
to know of the award of the tender to Kwanda after the contract had
been concluded. Given that the contract was already in existence,
the
balance of convenience would have been a major issue; and it appears
from the papers that Eskom required removal of the material
fairly
urgently as the previous contract had lapsed at the end of April
2007, and the R35M Tender Committee expressed concern at
its meeting
on 1 June that Eskom might be facing the threat of a backlog building
up.
[12] Nor does the decision in
Darson
Construction (Pty) Ltd v City of Cape Town
,
14
also relied on by counsel, assist Kwanda. There the applicant, also
an unsuccessful tenderer, brought a claim for damages in terms
of
s 8(1)(c)(ii)(bb) of PAJA
15
for loss of profit, contending that such an award would be just and
equitable. The court in considering this question emphasised
that an
interdict could have been sought much earlier. It said:
16
'In any event, when applicant
became aware that second respondent [the successful tenderer] was on
site and had begun work in terms
of the contract, it could
immediately have approached the Court to interdict second respondent
pending the outcome of its appeal
[in terms of the Local Government:
Municipal Systems Act].
17
By that time it was clear that first respondent [the City of Cape
Town] was going ahead and allowing second respondent to execute
the
contract despite applicant's appeal. An application for an interdict
would, in all probability, have brought to the fore that
the decision
of 17 December 2004 [to award the tender to second respondent] was
invalid and would have prevented the loss which
applicant seeks to
recover had applicant, in addition, been able to show its entitlement
to the contract.'
Interdict proceedings in the present matter may have
'brought to the fore' NRG's attack on the validity of Eskom's
decision to award
the tender to Kwanda (although the full facts only
became known after review proceedings had been launched and the
record produced
by Eskom pursuant to uniform rule of court 53); but
even had it done so, that would have made no difference. Neither
Eskom nor
Kwanda would have thrown in the towel and accepted that the
award of the tender was irregular, as their opposition in this court
and the court a quo amply demonstrates.
[13] In any event, the claims in
Olitzki
and
Darson Construction
were for damages and it is trite that a person claiming damages must
mitigate its loss. That principle finds no application in
the present
matter. And finally on this point, I have difficulty in understanding
how it lies in the mouth of either Eskom or Kwanda
to assert that the
trial court should not have set the award of the tender aside because
NRG did not attempt to protect them against
themselves by bringing
interdict proceedings that might have mitigated the prejudice they
would suffer by the conduct that they
were wrongly intent on
pursuing. The boot was on the other foot. The position in which they
found themselves before the court a
quo was not due to NRG's
inaction; it was due to their persistence in asserting the validity
of the award of the tender in the
face of the valid challenge by NRG.
[14] It was submitted that Kwanda was in the position of
an innocent bystander. That is not correct. Although no mala fides
has
been sought to be attributed to Kwanda
18
it has only itself to thank for the position in which it finds
itself: it submitted a flawed tender to Eskom and it can hardly
be
heard to complain when Eskom did what it wanted by awarding the
contract to it on the basis of that tender. In the circumstances,
even if the fact that Kwanda incurred considerable expenditure to
enable it to perform the contract could operate in its favour,
it
cannot do so in this case.
[15] Nor does the lapse of time redound to Kwanda's
advantage. It is true that the contract has less than three months to
run, but
that is because Kwanda (and Eskom, with whom it made common
cause) appealed against the decision of the court a quo â which
will
be upheld by this court â which was given in June last year.
The consequent delay is therefore of its own making. It has in fact
had the benefit of the contract which should not have been awarded to
it in the first place.
[16] The present case is entirely distinguishable from
Chairperson, Standing Tender Committee v JFE
Sapela Electronics (Pty) Ltd
,
19
relied upon by Kwanda. It is important to emphasize that that was an
exceptional case. There, the court refused to set the invalid
award
of a tender aside because work had been performed between the
launching of the proceedings and the judgment in the court
a quo, and
it was impractical to start the tender process over again for the
completion of the remaining work. Here, the work involved
ad hoc
collections of material, its subsequent processing and sale. The
terms of the contract to be entered into by the successful
tenderer
as contained in the FAQ provided that each instruction given by Eskom
to the contractor to collect the material would
'constitute a
separate independent disposal agreement incorporating the terms of
[this] agreement'. Any contractor with the necessary
resources could
do that, even at this stage.
[17] There are no public policy considerations which
militate against setting aside the award of the tender. The
submission that
NRG had delayed in instituting review proceedings
within a reasonable time
20
or did not do so without reasonable delay
21
was correctly abandoned by Kwanda as it had not been raised on the
papers and such delay as there was, was not such as to require
an
explanation.
22
Millennium Waste Management (Pty) Ltd v
Chairperson, Tender Board: Limpopo Province
,
23
a case relied upon by Kwanda, is distinguishable. There, loss to the
public purse and disruption of the service for removal, treatment
and
disposal of hospital waste were considered as factors by this court
in the exercise of its discretion. Here, potential loss
to the public
purse because Kwanda's tender was the highest is outweighed by the
fact that Kwanda did not demonstrate that it could
perform the
contract; and it was not Eskom's case on the papers that disruption
would have any significant consequences for it
or the public
generally. The arguments advanced in this latter regard â that if
the material were not removed in terms of the
contract, it would
constitute an environmental hazard; landowners where it was situated
would be inconvenienced; and it might be
stolen â were not
specifically raised, and therefore not dealt with, by NRG. They
cannot be raised now. As was said by this court
in
Minister
of Land Affairs and Agriculture v D & F Wevell Trust
:
24
'It is not proper for a party in
motion proceedings to base an argument on passages in documents which
have been annexed to the
papers when the conclusions sought to be
drawn from such passages have not been canvassed in the affidavits.
The reason is manifest
â the other party may well be prejudiced
because evidence may have been available to it to refute the new case
on the facts.
The position is worse where the arguments are advanced
for the first time on appeal. In motion proceedings, the affidavits
constitute
both the pleadings and the evidence:
Transnet
Ltd v Rubenstein
,
25
and the issues and averments in support of the parties' cases should
appear clearly therefrom. A party cannot be expected to trawl
through
lengthy annexures to the opponent's affidavit and to speculate on the
possible relevance of facts therein contained. Trial
by ambush cannot
be permitted.'
[18] The position is that the award of the tender to
Kwanda was fatally flawed. An order setting the award aside would
accord with
what Moseneke DCJ said in
Steenkamp
NO v Provincial Tender Board, Eastern Cape
:
26
'Ultimately the purpose of a
public remedy is to afford the prejudiced party administrative
justice, to advance efficient and effective
public administration
compelled by constitutional precepts and at a broader level, to
entrench the rule of law.'
On the other hand, the order sought by Kwanda should the
review be upheld â namely, a declaratory order that the award of
the
tender was invalid, suspended until the contract had run its
course â would not fulfil any of these purposes.
[19] The following order is made:
The appeal is dismissed. The appellants are ordered to
pay the respondent's costs of appeal jointly and severally, the one
paying,
the other to be absolved.
_______________
T D CLOETE
JUDGE OF APPEAL
Appearances:
Counsel for Appellant: 1
st
P Kennedy SC
S Ebrahim
Instructed by
Mayat Nurick & Associates Inc Park Town North
Honey Attorneys Bloemfontein
2
nd
D M Fine SC
Ms K Hofmeyr
Instructed by
Deneys Reitz Sandton
Webbers Inc Bloemfontein
Counsel for Respondent: B E Leech
Instructed by
Werksmans Inc Johannesburg
Matsepes Attorneys Bloemfontein
1
Act 3 of 2000.
2
s 6(2)(e)(iii).
3
Ibid.
4
s 6(2)(f)(ii)(cc).
5
2004 (6) SA 222
(SCA) para 36.
6
eg
Airoadexpress (Pty) Ltd v Chairman, Local
Road Transportation Board, Durban
[1986] ZASCA 6
;
1986
(2) SA 663
(A).
7
Seale v Van Rooyen NO; Provincial Government, North West Province v
Van Rooyen NO
2008 (4) SA 43
(SCA)
para 13 at 50C-D.
8
But see the approach of this court in
Chairperson,
Standing Tender Committee v JFE Sapela Electronics (Pty) Ltd
2008 (2) SA 638
(SCA) para 29.
9
For the distinction see
Naylor v Jansen
2007 (1) SA 16
(SCA) para 14 and cases referred to in the footnotes
especially
Giddey NO v J C Barnard and
Partners
[2006] ZACC 13
;
2007 (5) SA 525
(CC) para 19.
10
2001 (3) SA 1247 (SCA).
11
Act 200 of 1993.
12
At 1265F-H. I have had regard to the original signed judgment in the
archives of this court and the second sentence of para 38
in the law
report omits words. The headnote at 1250J-1251A correctly reflects
the judgment.
13
At 1267D-F.
14
2007 (4) SA 488
(C).
15
'8(1) The court or tribunal, in proceedings for judicial review in
terms of section 6(1), may grant any order that is just and
equitable, including orders â
. . .
(c) setting aside the
administrative action and â
. . .
(ii) in exceptional cases
â
. . .
(bb)
directing the administrator or any other party to the proceedings to
pay compensation.'
16
At 506F-H.
17
Act 32 of 2000.
18
cf
Millennium Waste Management (Pty)
Ltd v Chairperson, Tender Board: Limpopo Province
2008 (2) SA 481
(SCA) para 26.
19
Above, n8.
20
See eg
Wolgroeiers Afslaers (Edms) Bpk
v Munisipaliteit van Kaapstad
1978 (1)
SA 13
(A) at 41;
Associated
Institutions Pension Fund v Van Zyl
2005 (2) SA 302
(SCA).
21
Section 7(1) of PAJA.
22
Mamabolo v Rustenburg Regional Local Council
[2000] ZASCA 133
;
2001 (1) SA 135
(SCA) at 141F-G;
Scott
v Hanekom
1980 (3) SA 1182
(C) at
1192E-1193G.
23
Above, n 18.
24
2008 (2) SA 184
(SCA) para 43.
25
2006 (1) SA 591
(SCA) para 28.
26
2007 (3) SA 121
(CC) para 29.