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[2019] ZAFSHC 59
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MEC: Police, Roads and Transport (Free State Provincial Government) v SMEC South Africa (Pty) Ltd (A46/2018) [2019] ZAFSHC 59 (30 May 2019)
FREE
STATE HIGH COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
Reportable:
NO
Of
Interest to other Judges: NO
Circulate
to Magistrates: NO
Case
No. :
A46/2018
In
the matter between:-
MEC:
POLICE, ROADS AND TRANSPORT
Appellant
(FREE
STATE PROVINCIAL GOVERNMENT)
and
SMEC SOUTH AFRICA
(PTY) LTD
Respondent
CORAM:
DAFFUE, J
et
MOENG,
AJ
et
MEINTJES,
AJ
HEARD:
15 APRIL 2019
JUDGMENT
BY
J P DAFFUE
DELIVERED:
30 MAY 2019
I
INTRODUCTION
[1]
There is now clear authority that an organ of State, like any other
party, is obliged to challenge an
administrative decision in order to
escape its effects. This may be done reactively provided its
reasons for doing so are
sound and there has been no unwarranted
delay.
[1]
This judgment deals
with the manner in which a reactive challenge by an organ of State
was presented as well as the delay in challenging
the decision.
[2] On
21 September 2017 Lekale, J (“the trial court”) handed
down judgment in favour of a company
of consulting engineers,
ordering the Department of Police, Roads and Transport, Free State
Province to pay R2 397 173.36
plus interest and costs of
suit.
[3]
The trial court dismissed an application for leave to appeal, but an
application for leave to appeal
to the Supreme Court of Appeal (“the
SCA”) was successful. The SCA directed that the appeal be
heard by the full
bench of this Division.
II
THE PARTIES
[4]
Appellant is the MEC for the Department of Police, Roads and
Transport, Free State Province. It
was represented in this
court by Adv C Georgiades SC, instructed by Lebea and Associates.
I shall interchangeably refer to
appellant as such or as “the
Department.”
[5]
Respondent is SMEC South Africa (Pty) Ltd, a company of consulting
engineers represented by Adv S Grobler,
instructed by Peyper
Attorneys.
III
THE ISSUES ON THE PLEADINGS
[6]
Respondent claimed payment of the balance of the contract price in
the amount of R2 397 173.36
in respect of its last two
invoices for services rendered and expenditure incurred in its
capacity as appellant’s appointed
consulting engineers.
Amongst other duties it had to oversee the road works on the Petrus
Steyn/Heilbron road.
The total contract price was
just below R20m. In the alternative, and in the event of a
finding that the contract was invalid,
respondent relied on the just
and equitable principle and in a further alternative, on enrichment.
[7]
Appellant pleaded that the contract relied upon by respondent was
unlawful, invalid and unenforceable
as it was in breach of its Supply
Chain Management Policy, its Delegation of Powers, the
Public Finance
Management Act of 1999
, Treasury Regulations and the National
Treasury’s SCM Practice Notes. It also averred that the
official who signed
respondent’s appointment letter, Mr Menye,
fraudulently held himself out as the Head of Department (“HOD”)
and
that the Chief Director: Roads, Mr Troskie, who eventually signed
the contract on behalf of the Department was not delegated to
do so.
In its replication respondent averred that even if Messrs Menye and
Troskie were not authorised to bind the Department,
appellant could
not escape liability based on estoppel.
IV
JUDGMENT OF
THE TRIAL COURT
[8]
The trial court held that an organ of State cannot simply ignore an
apparently binding decision on the basis
of alleged invalidity, but
“
has to test the
validity of such a decision in appropriate proceedings.”
[2]
It continued
[3]
by stating that an organ of State is obliged as of law to resist the
enforcement of a
“
void
or unlawful contract”
and
“
have such a contract set aside
by filing a counter-application or claim as opposed to proceeding by
way of an application for formal
review.”
[9]
The trial court made the point that appellant did not utilise any of
the procedures mentioned in the previous
paragraph, but merely relied
on its plea and the evidence in that regard. It was of the view
that it was entitled to consider
the principles of administrative law
as the decision to award the contract was administrative in nature
and continued
[4]
to deal with
such issues with reference to several judgments which will be
considered again later in this judgment. The trial
court
emphasised that the Auditor-General’s report did not have the
effect of setting aside the relevant decision which remained
valid
and enforceable until set aside by a competent court.
[10] The
trial court held that there was no substantive reactive challenge to
the award of the contract, requiring determination
by it.
Appellant resorted to self-help, so the court found, in purporting to
cancel the contract instead of seeking a pronouncement
on the
validity thereof. Consequently, the question of validity of the
contract was not raised
“
fairly
and squarely”
as
would have been the case in a formal review.
[11] In conclusion
the trial court held that respondent had rendered the relevant
services and that it was entitled to ignore
the purported
cancellation of the contract. The
quantum
of the claim was never in dispute. In one final sentence the
trial court held that even if the contract was unlawful, it
was
“
only
just and equitable for the plaintiff to be compensated for such
services.”
V
GROUNDS OF APPEAL
[12] Five
grounds of appeal were raised
[5]
,
i.e.
that the trial court erred:
1.
in not finding that appellant clearly and unambiguously challenged
the validity of awarding the
contract to respondent;
2.
in law in not declaring the appointment of respondent
unconstitutional, unlawful and invalid and
should have set it aside;
3.
in not finding that the report of the Auditor-General obliged
appellant to cancel the contract
with respondent;
4.
in finding that it was just and equitable for respondent to be
compensated for the work performed
without conducting any inquiry in
this regard;
5.
in not finding that the actions of respondent were dishonourable and
that no enrichment action was available
to it.
[13] Mr
Georgiades incorrectly averred in paragraph 22.6 of his heads of
argument that a further ground of appeal was
relied upon, to wit that
the trial court
“
erred
in finding that the principles of administrative justice govern the
appointment of the plaintiff and therefore its appointment
stands
until set aside by a court.”
He
was allowed to argue the issue before us and therefore, consideration
will be given thereto.
VI
MATERIAL
FACTS
[14] Several
material facts appear from the evidence led by the parties which have
not been fully dealt with by the
trial court as most of these were
common cause. However, it is deemed necessary to provide a
cryptic background as I intend
to deal with some aspects in the
evaluation of the trial court’s judgment and the submissions of
the parties.
[15] During
2006 appellant embarked on a process to rehabilitate several roads in
the Free State Province that required
urgent rehabilitation. The
appellant made use of a roster system in terms whereof several firms
of consulting engineers –
between ten and twenty according to
the evidence of Mr Jacobs - had been placed on a list of service
providers without first having
followed a competitive bidding
process. These firms, road specialists according to Mr Jacobs,
were selected for different
projects from time to time on a
rotational basis. It is placed on record that Mr Jacobs
testified for respondent, he being
a former employee of appellant
until 1996, where after he took up employment with respondent.
[16] It is
common cause that several high ranking officials of appellant
considered the poor conditions of several Free
State roads, referring
to
“
severe
infrastructure deficiencies in the road network”
and
made recommendations which were apparently approved by senior
officials including the HOD. In terms hereof respondent
was
appointed as consulting engineers and it was confirmed that a
contract had to be concluded in respect of the rehabilitation
of the
Petrus Steyn/Heilbron road. These officials were,
ex
facie
the document, the Director Land, Transport and Planning, the
Chairperson of the Bid Committee, the Chief Financial Officer of the
Department of Public Works, Roads and Transport, the Chief Director:
Roads and Transport, the Chief Director: EPWP, the Director:
Supply
Chain Management, the Deputy Director-General: Roads and Transport
and the HOD: Public Works, Roads and Transport.
[6]
The motivation was recorded as follows:
“
Furthermore, the roster system
is a fair and auditable system that allows for the fair and equal
distribution of wealth throughout
the engineering fraternity –
thus, the professional service providers proposed by the roster
system are a true response to
the current work – and revenue
distribution in the industry.
[7]
[17] On
27 March 2007 Mr Menye, an employee of appellant, signed a letter of
appointment in terms whereof respondent
was appointed as consulting
engineers for the rehabilitation of the Petrus Steyn/Heilbron road.
Mr Menye pretended to be
the HOD
ex
facie
the letter, but that was not correct. Clearly, this letter is a
consequence of the aforesaid approval and the resolution
taken that
respondent be appointed in terms of the Department’s roster
system. Several other consulting engineering
firms were
approved for appointment in respect of different roads at this
stage. This was not the first time that respondent
received a
letter of appointment from appellant.
[8]
[18] On 19
January 2009 a standard written contract was entered into between the
parties. The Chief Director:
Roads, Mr Troskie, signed the
contract on behalf of appellant. It is now appellant’s
case that Mr Troskie was not authorised
to sign the contract.
Mr Jacobs testified that Mr Troskie regularly acted as HOD and as
senior official in the Department
he believed that Mr Troskie had
authority to bind it. It is recorded that not a single firm of
consulting engineers or anybody
else, including appellant, objected
to respondent’s appointment and its involvement in the tender
process and thereafter
during rehabilitation of the road until the
events referred to later herein. As mentioned, several other
firms of consulting
engineers were appointed in similar vein in
respect of the other roads identified for urgent rehabilitation.
The Department
had budget constraints in 2007 and 2008 which caused
the contract with respondent to be entered into in 2009 only.
[19] Respondent
was responsible for assessment of the condition of the road, the
drafting of an assessment report and after
approval, preliminary and
eventually detailed designs of the work to be done. After each
stage the Department had to approve
and consent to the next phase.
Hereafter respondent drafted the tender documents and invited tenders
for the construction
works on behalf of the Department.
Initially Tau Pele was the successful tenderer, but after litigation,
Haw and Inglis were
awarded the tender as the contractors to
rehabilitate the road. The site was handed over to them by the
Department and road
works started in 2010/2011. As far back as
2012 respondent and the contractor experienced problems with the
payment of their
invoices.
[20] The
Auditor-General issued a report on 26 July 2010 in respect of
appellant’s 2010 financial year, indicating
that respondent’s
appointment was irregular in that the Department
“
did
not follow proper procurement procedures in the appointment of such
consultants…”
The
report also applied to other well-known consulting firms such as
Dihlase, Kwezi 3 and Ninham Shand. The Auditor-General
recommended merely that the management of the Department
“
must
ensure that all appointments of consultant is (sic) made in
compliance with Treasury regulations and PFMA.”
[9]
Apparently
nothing was done about this until the appointment of Mr Msibi as HOD
on 1 November 2011. It should be mentioned
at this stage that
Mr Msibi should not be confused with Adv Msibi who was the HOD when
the respondent was appointed as stated.
In obvious defiance of
the Auditor-General’s report, or at best for him, instead of
adhering to the report, Mr Msibi failed
to act accordingly and
approach the court to have the contract declared null and void.
Respondent was also not alerted.
He opted to order an internal
investigation and obtained a report on 5 December 2012.
Hereafter he decided to appoint Mr
Lebea, the appellant’s
attorney, to investigate.
[21] On
receipt of the attorney’s report a meeting was arranged with
respondent for 26 March 2013, attended by
several people including Mr
Msibi and Mrs Botes on behalf of appellant and Mr
Jacobs on behalf of respondent.
Mr Msibi testified that he
informed respondent of the illegality of the contract and that it
should vacate the site. According
to him there was total
agreement between appellant and respondent at the meeting on this
issue. His version is contradicted
by his colleague, Mrs Botes
as well as respondent’s Mr Jacobs. The letters by
appellant that followed after this meeting
clearly do not serve as
proof of an agreement. In fact, respondent continued to deliver
services until completion of the
project. I shall deal with
this again when I evaluate the submissions of counsel.
[22] On 29
April 2013 respondent issued an application for payment of all
outstanding invoices since June 2012.
This case was settled on
5 September 2013 on the basis that respondent’s claim in excess
of R8m would be paid.
At that stage the State Attorney
acted for appellant. Mr Lebea came on board hereafter and
applied for rescission of the
settlement agreement, but a few months
later the parties settled the matter on the same basis as earlier.
Respondent’s
last two invoices dated 29 August 2013 and 5
November 2013 in the total amount of R2 397 173.36, which
did not form part
of the claim instituted earlier and settled
eventually, are in dispute.
[23] On 14
May 2013 Mr Msibi addressed a letter to respondent, directing it to
vacate the site because of the alleged
unlawful contract. There
is no proof that this letter, if it left the appellant’s
offices, reached respondent.
This letter does not mention the
alleged agreement testified to by Mr Msibi which version is in
dispute as mentioned. It
is also strange that a letter would be
sent to respondent at that stage as it was already represented by
attorneys who had instituted
proceedings against appellant for
payment of outstanding invoices. On 12 September 2013 a further
letter was sent to respondent
to which the letter of 14 May 2013 was
attached.
[24] When
respondent was instructed to vacate the site during March 2013, about
90% of the contract was completed. It
is evident that appellant
was prepared to pay a total amount of close to R18m to respondent for
services rendered over a period
of more than four years in
circumstances where it was alerted by the Auditor-General as long ago
as 2010 of the alleged unlawfulness
of the contract.
[25]
Appellant was prepared to pay the sum in excess of R8m after
institution of litigation, on the basis that respondent
added value,
although it averred that respondent relied on an unlawful
contract.
VII
EVALUATION
OF THE TRIAL COURT’S JUDGMENT WITH REFERENCE TO
APPLICABLE
LEGAL PRINCIPLES
AND
SUBMISSION BY THE PARTIES
Evaluation of the
evidence pertaining to the contract and the works executed
[26]
The trial court gave a brief background of the material facts and
elected to rely on the applicable legal principles
in order to come
to its conclusions. It is accepted that, notwithstanding no
detailed reference to the evidence, it took
cognisance of the facts
stated above. It is deemed apposite to evaluate the evidence in
some detail. It is accepted
that appellant clearly challenged
the validity of awarding the contract to respondent in its plea.
It is one thing to make
averments, but a different kettle of fish to
prove those averments.
[27]
Appellant bore the onus to prove that the contract entered into
between the parties was unlawful and null and void
ab
initio
.
In order to achieve that, it had to present cogent and acceptable
evidence. It was also incumbent on appellant to
fully disclose
all relevant facts and documents to show and prove the alleged
invalidity. I shall deal with this in more
detail hereunder.
[28]
It is particularly important to note from the onset that appellant
elected to tender no evidence as to the events
between 2007 and 2009
mentioned above. Adv Msibi and his management team at the time
and the persons who signed the documents
referred to earlier were not
heard. It was not placed on record that anyone of them, Adv
Msibi in particular, was not available
to testify. The court
was not presented with a full picture as to what really transpired
and why the Department elected to
make use of a roster system.
I shall deal with this again hereunder. It is instructive to
take note that the Auditor-General
noted in the last paragraph of its
report that
“
(N)o
management comments were received.”
[10]
[29]
Mr Jacobs’ testimony in respect of the receipt of the letter of
appointment, signing of the contract, respondent’s
compliance
with its contractual obligations, including its assistance with the
procurement process for the appointment of a contractor,
is not in
dispute.
[30]
There is no reason not to accept that the parties did not agree
during the March 2013 meeting that the contract
was null and void.
If that was the case, Mr Msibi’s letters would have been worded
differently. Respondent continued
with its contractual obligations
after this meeting and appellant even settled the outstanding
invoices. Appellant failed
to apply to court to declare the
contract null and void. Respondent cannot be blamed, as now
suggested by appellant’s
counsel, for ensuring that the project
was finalised. The completion of the works and the
quantum
of the claim are not in dispute.
The roster system
[31] I
mentioned above that high ranking officials of appellant accepted
that the roster system for professional entities
such as consulting
engineers was a fair system. Again, as stated above, none of
the other consulting firms, or anybody else,
objected to respondent’s
appointment. Even Mr Watkins, appellant’s expert on
procurement law who failed to investigate
why and at whose instance a
roster system had been implimented and whether or not it could be
said to be unfair and not transparent,
conceded during
cross-examination that the Supply Chain Management Policy in place in
2007 when the appointment letter was written,
read as follows:
“
However,
this policy provides as an alternative to request for proposals/bids
process for the establishment of a roster system,
updated and
maintained regularly by the Supply Chain Management with the
appointments and recommendations being made on a rotational
basis
through the Office of the Chief Financial Officer and then in
consultaion with the Bid Adjudication Committeee and approved
by the
relevant authorities as defined in the Policy.”
[11]
[32]
Mr Watkins, for reasons entirely unclear, did not investigate what
transpired at the relevant time in the edifice
that was the
Department before and could not say, for instance, whether a
deviation from the normal bidding process was allowed
or not. The HOD
could
ex
post facto
ratify an appointment made which did not strictly comply with the
acceptable procedure.
[12]
Mr Watkins did not speak to,
inter
alia
Adv Msibi, to establish if there was not perhaps such a ratification.
[33] As
mentioned, appellant presented no evidence of its management and
relevant role players during the period 2007
to 2009. Appellant
failed to show that the Supply Chain Management Policy in place at
the time had been contravened.
It is also apparent that the
Auditor-General did not receive communication from appellant’s
management at the time pertaining
to the process adopted to appoint
respondent. The full factual matrix as it played out in the
offices of appellant was not
placed before the court. If the
trial court was concerned with a counterclaim or review application
to have the decision
to appoint respondent reviewed and set aside, it
would be presented with full facts. Appellant would be obliged,
especially
in the case of a review and bearing in mind the provisions
of Rule 53, to despatch to the court the record of decision (“ROD”)
to be set aside and to make copies thereof available to respondent.
An allegation in pleadings is not evidence and save in
the case of a
clear-cut situation such as when an exception would be appropriate, a
litigant cannot merely rely on a legal argument
in order to convince
the court to find in his/her favour. The legal submission must
be based on admitted or proven facts.
The reactive
challenge, procurement law
and
the validity of the appointment of SMEC
[34]
Appellant
raised
non-compliance with procurement laws in its plea. It elected
not to file a review application or a counter-claim.
Fact of
the matter, and even if it can be accepted that review procedure was
not required, which does not have to be decided in
light of the
authorities referred to herein, it attracted an
onus
to show that the contract was illegal and null and void
ab
initio
based on the principle of legality.
[35]
Notwithstanding the main defence raised in the plea, Mr Georgiades
submitted that this court should not consider
itself with public law
and decisions taken on an administrative level. According to
his argument, once the contract was entered
into between the parties,
public law fell out of the picture. He relied on
Government
of the RSA v Thabiso Chemicals
and the earlier
Cape
Metropolitan Council
judgment
[13]
. Brand, JA
explained the aspect with much clarity in
Thabo
Chemicals
.
[14]
The learned judge of appeal explained why the principles of
administrative law could not be applied. In that case the
contract and the cancellation thereof by the Tender Board were
admitted, but it was denied that the cancellation was wrongful.
The Tender Board cancelled the contract, relying on a clause in the
General Conditions of the tender and the furnishing of incorrect
information by the bidder. The bidder averred that it was
entitled to be heard, based on the
audi
alteram partem
principle, before cancellation and therefore the cancellation process
was attacked as unfair. Brand, JA made it clear that
once the
tender had been awarded, the relationship between the parties was
governed by the principles of contract law. The
applicable
regulations and General Conditions became part of the contract
through incorporation of reference. These two judgments
do not
support the appellant’s argument at all. When I asked Mr
Georgiades on which term of the contract appellant
relied for
cancellation, he could not provide an answer. In any event, the
plea, the meeting between the parties and the
letters forwarded to
respondent do not refer to cancellation at all.
[15]
This did not prevent Mr Georgiades to repeatedly refer to
cancellation of the contract, whilst it was his client’s
case
that no valid contract came into being.
[36]
Mr Georgiades submitted with reference to
Kirland
Investments
[16]
that it is not cast in stone that an organ of State must approach the
court for review and setting aside of its decision.
On his
version it was sufficient in this instance to send the letter of
cancellation as Mr Msibi had done. He referred
to the
letter of 14 May 2013 as a letter of cancellation. I fail
to understand how this letter could be regarded as
a letter of
cancellation of the contract if it is appellant’s case that no
lawful contract was entered into or as put by
it, the “contract”
was
“
invalid
and void
ab
initio
.”
I do
not agree with counsel’s argument based on the supposition that
“
(W)e
are in the field of contract law”
and
that the contract was duly cancelled. Even if that was the case
and if appellant as the innocent party’s act of
cancellation
was rejected, it could not resort to self-help, but had to approach a
competent court to confirm the cancellation.
Appellant elected
to refrain from utilising accepted legal principles and procedure by
issuing summons to confirm its alleged
cancellation of the contract.
It unsuccessfully directed respondent to vacate the site and refused
to pay what was due to
it. A purported act of cancellation is
not a reactive challenge, but even so, respondent was within its
rights not to accept
it without court intervention. However, in
my view the matter fell within the purview of administrative law and
that being
the case, counsel’s argument is not meritorious at
all, bearing in mind
Economic
Freedom Fighters
.
[17]
[37]
Reactive challenge, or collateral challenge as referred to in
Oudekraal
[18]
is
raised as a challenge to the validty of an administrative act or
decision. As the SCA said,
“
where
the subject is sought to be coerced by a public authority into
compliance with an unlawful administrative act – that
the
subject may be entitled to justify his conduct by raising what has
come to be known as a ‘defensive’ or ‘collateral’
challenge to the validity of the administrative act.”
Oudekraal
has been followed in numerous judgments. In terms thereof an
administrative decision stands until set aside by a
competent court.
It must be treated as legally effective until a court pronounces
authoritatively on its invalidity and set
it aside.
[19]
[38]
Lately reactive challenge has received much attention and it is now
clear as stated in the introductory paragraph
that organs of State
may rely on such challenge as well. Mr Georgiades relied on two
dicta
in
Merafong
[20]
for his submission that appellant was fully within its rights to rely
on invalidity in its plea, one by Cameron, J who delivered
the
majority judment and one by Jafta, J, to be found in paragraphs [23]
and [92] respectively. In the first instance the
reference is
to a
“
defence”
against
enforcement of an invalid administrative act, whilst in the second
instance it is said that a collateral challenge is
“
nothing
else but an argument advanced ... to the effect that the legal
decision... sought to be enforced is invalid...”
I
do not understand the two learned judges to lay down a rule that
either a plea or a mere legal argument would suffice in relying
on a
reactive challenge. Merafong did in fact rely on a
conditional counterclaim, and the court held that the
matter had to
be remitted to the High Court with leave to both parties to file
additional affidavits to enable that court to adjudicate
the alleged
invalidity of the applicable legislation. Cameron, J emphasised
in paragraph [61] that
“
(g)enerally,
it is the duty of the state functionary to rectify unlawfulness.”
This
Merafong did, although belatedly, by filing its conditional
counterclaim.
[39]
Jafta, J, writing for the minority in
Merafong
,
not only questioned the correctness of judgments that followed
Oudekraal
such
as
Kirland,
but went further and stated that an organ of State cannot be
time-barred to rely on an invalidity. His view is that action
based on an invalidity can at any time be opposed by the organ of
State, no matter when the action is brought. He explained
his
viewpoint in a minority judgment in
Tasima
,
relying on the judgment of Skweyia, J in
Khumalo
[21]
but eventually concluded in paragraph [131] that he
“
..would
have preserved what had already been done in terms of the invalid
extension....”
In
the majority judgment of Khampepe, J in
Tasima,
[22]
she emphasised in paragraph [151] that in light of the substantial
delay in instituting the counter-application it had to be determined
first whether the applicants were time-barred from launching their
reactive challenge, but having found for the Department on that
issue, eventually made an order as suggested by Jafta, J.
Froneman, J did not agree with Jafta, J’s criticism of
Kirland
and emphasised at paragraphs [228] and [229] that a unanimous CC
bench held in
Economic
Freedom Fighters
that
“
no
decision grounded on the Constitution or law may be disregarded
without recourse to a court of law.”
[40]
A party averring that a contract is illegal in that it is prohibited
by either the common law or statute, may do
so in his/her plea and a
court may even raise the question of illegality
mero
motu
;
however the court must be satisfied that all the evidence pertaining
to the illegality was led.
[23]
Bearing in mind this remark as well as the case law in respect of
setting aside of administrative decisions which generally take
place
behind closed doors and without the affected parties being allowed
the opportunity to monitor the process, Mr Georgiades
was challenged
to mention any judgment where the court had accepted a reactive
challenge contained in the plea of an organ of State.
He
referred to
Premier,
Free State and others v Firechem Free State (Pty) Ltd.
[24]
The SCA did not have to consider the constitutionality of
the Tender Board’s actions in authorising a secret
contract to
the successful tenderer (Firechem) as this was not pleaded –
see paragraph [32] – and it merely stated
that if it was open
to the court to apply the constitutional requirements, it would have
strenghtened the Province’s case.
In that case a letter of
appointment was issued to Firechem, stipulating that acceptance would
constitute a binding contract.
In accepting, Firechem referred
to a contract to be signed by the parties. It transpired
that this secret contract
which was eventually signed,
contradicted the terms of the tender contract already concluded.
It even bound the Province
to accept delivery of certain fixed
quantities of products over a period of ten years contrary to the
five years set out in the
tender and did not allow Province to
determine the quantities required. The facts in
Firechem
differ completely from the present case and Mr Georgiades is not
correct to submit that
Firechem
is authority that an organ of State can merely plead unlawfulness in
situations like the matter before us without resorting to
either a
counter-claim or a review application.
[41] The
accepted and default position is that an application to review and
set aside a decision of a functionary is
by way of Uniform Rule of
Court 53, although disgruntled persons from time to time elect to
make use of Rule 6. However,
it has become accepted practice
over the years that an organ of State may, in resisting an unlawful
claim and preventing its perpetuation,
file a counter-claim, seeking
the review and setting aside the impugned decision. I shall
deal with this again later herein.
[42] In
Mothapo
Consulting Engineers
[25]
the following was stated by the full bench of this Division:
“
[12]
Section 217 of the Constitution prescribes that when an organ of
state in the National, Provincial
or Local Sphere of Government
contracts for goods or services, it must do so in accordance with a
system which is fair, equitable,
transparent, competitive and
cost-effective. This is echoed in
section 83(3)
of the
Local
Government: Municipal Systems Act 32 of 2000
.
Section 112(1)
of
the
Local Government: Municipal Finance Management Act, 56 of 2003
stipulates that the SCMP of a municipality must be fair, equitable,
transparent, competitive and cost-effective and comply with
a
prescribed regulatory framework for municipal supply chain
management. In this regard regulations were promulgated under
GN R 868 in GG 27636 of 30 May 2005. Procurement law is
prescriptive and not permissive. See SANYATHI CIVIL ENGINEERING
AND CONSTRUCTION (PTY) LTD v ETHEKWINI MUNICIPALITY AND OTHERS
2012(1) BCLR 45 (KZP) paras 26 -36 and TEB PROPERTIES CC v MEC,
DEPARTMENT OF HEALTH AND SOCIAL DEVELOPMENT, NORTH WEST
[2012] 1 ALL
SA 479
(SCA) para 31.”
[43] More
recently the Constitutional Court set out the proper legal approach
pertaining to procurement processes in
Allpay.
[26]
It is not necessary for purposes hereof to quote the
dictum
fully,
save to reiterate that
“
the
constitutional and legislative procurement framework entails supply
chain management that are legally binding”
and
“
(t)he remedy
stage is where appropriate consideration must be given to the public
interest in the consequences of setting the procurement
process
aside.”
[44]
In
Westinghouse
[27]
the
court reiterated in paragraph [38] that fairness in the procurement
process is a value in itself and in paragraph [39] that
proper
compliance with the procurement process is necessary for a lawful
process.
[45] In
Qaukeni
[28]
the SCA found as follows:
“
[16]
I therefore have no difficulty in concluding that a
procurement contract for municipal services concluded
in breach
of the provisions dealt with above which are designed to ensure a
transparent, cost-effective and competitive tendering
process in the
public interest, is invalid and will not be enforced.”
The
SCA proceeded as follows
in
paragraph [26]
in
respect of the procedure to be adopted by a public body confronted
with its own irregular administrative act:
“
But it is unnecessary to reach
any final conclusion in that regard (the review of the administrative
action under PAJA).
If
the second appellant's procurement of municipal services through its
contract with the respondent was unlawful, it is invalid,
and this is
a case in which the appellants were duty-bound not to submit to an
unlawful contract, but to oppose the respondent's
attempt to
enforce it. This it did by way of its opposition to the main
application and by
seeking
a declaration of unlawfulness in the counter-application
.
In doing so
it
raised the question of the legality of the contract fairly and
squarely
,
just as it would have done in a formal review. In these
circumstances,
substance
must triumph over form.
”
(emphasis
added).
[46] In
Kernsig
17
[29]
the
court found in an unrelated issue, but in my view relative to the
investigation to be undertaken herein, that s 38 of the Companies
Act, 61 of 1973,
“
is
fact-based and that, without the necessary facts, a court cannot
make a finding on whether s 38 was contravened or not.”
The
SCA concluded as follows:
“
[24]
In this matter it is plain that all the facts are not before court to
enable the court to determine whether or
not s 38 has been
contravened.”
The
SCA also relied on the following
dictum
of Trollip JA:
[30]
“
And if his
defence is illegality, which does not appear
ex
facie
the transaction sued on but arises from its surrounding
circumstances, such illegality and the circumstances founding it must
be pleaded.
It
is true that it is the duty of the court to take the point of
illegality
mero
motu
,
even if the defendant does not plead or raise it; but it can
and will only do so if the illegality appears
ex
facie
the transaction or from the evidence before it,
and,
in the latter event, if it is also satisfied that all the necessary
and relevant facts are before it.
”
(emphasis
added.)
I
deliberately emphasised the last part of the
dictum
.
A court cannot make a finding of illegality if all necessary and
relevant facts have not been placed before it.
[31]
[47]
In
Mofomo
[32]
the full bench of this Division stated the following:
“
In its
counter-application the Department was called upon to disclose the
entire process followed prior to the appointment of Mofomo,
the
reasons for its decision and all relevant documents. In the
process the Department as an organ of state seeking to repudiate
its
own administrative action disobeyed the essential requirements for a
review application. The Department had to prove
invalidity to
the court
a
quo
,
but failed to do so.”
[48] The
court proceeded in
Mofomo
[33]
to
emphasise that a public body such as a municipality seeking to have
its own decision reviewed and set aside must play open cards
with the
court. It should provide the court with its ROD, the reasons
for the decision and all relevant documents as would
have been the
case if its decision was taken on review by a disgruntled member of
public. It relied on the following
dictum
of Cameron, J:
“
When
government errs by issuing a defective decision, the subject affected
by it is entitled to proper notice, and to be afforded
a proper
hearing, on whether the decision should be set aside.
Government should not be allowed to take short cuts.
Generally,
this means that government must apply formally to set aside the
decision. Once the subject has relied on a decision,
government
cannot, barring specific statutory authority, simply ignore what has
been done. The decision, despite being defective,
may have
consequences that make it undesirable or even impossible to set it
aside. That demands a proper process, in which
all factors for
and against are properly weighed.”
[49] As mentioned,
the principle that a public body or state functionary may challenge
exercises of public power, including
their own, in appropriate
circumstances, has been confirmed recently by the Constitutional
Court in
Tasima.
[34]
A reactive challenge to validity of a decision is allowed.
[50] In
State
Information Technology Agency (SOC) Ltd v Gijima Holdings (Pty)
Ltd
[35]
the
Constitutional Court found that a PAJA review is not available to an
organ of state, but a legality review applies to enable
the organ of
State to apply for the review of its own decision. In coming to
this conclusion the CC did not in any other
manner change the
established principles enunciated in
Kirland
and
Oudekraal
.
[51]
Appellant did not launch review proceedings. If it did that,
the reasons for its decision to issue the appointment
letter and
entering into the subsequent contract would have to be provided.
All relevant aspects pertaining to the history
of the matter would
have been placed before the court, such as
e.g.
advertisements for tenders (if it was done), the tenders received,
the discussions by panel members (if it was the case), any possible
deviation requests and discussions about that at management level,
who, when and on whose authority a roster system was put in
place and
on what basis appellant was selected and by whom. All the facts
have not been placed before the court
a
quo
for
it to adjudicate whether an illegality has taken place. See:
Apollo,
Kirland and VIP Consulting Engineers (Pty) Ltd v Mafube
Municipality.
[36]
The evidence of Mr Msibi and Mrs Botes was irrelevant in this
regard. The court did not have the opportunity to hear
evidence
of the role players in the employ of appellant at the critical times
in 2007 and 2009. Furthermore, no minutes of
meetings that
could shed light on the matter were presented to the court.
Appellant should have placed reliable and credible
evidence of
witnesses that were involved with procurement and the roster system
before the court, but failed to do so. The
court
a
quo
was
left in the dark in this regard. Appellant wanted the court to
exercise its discretion
“
in
the air.”
The Auditor-General’s
report
[52]
The effect of the Auditor-General’s report needs to be
considered. Mr Georgiades submitted that, as
is the case with
reports of the Public Protector, the Auditor-General’s reports
are binding on organs of State as well as
citizens affected thereby.
The irony of his submission, relying on the third ground of appeal,
is that appellant did not
regard it bound by the Auditor-General’s
decision. It did not inform respondent there and then –
in 2010 and
before the actual rehabilitation of the road started -
that the purported contract was a nullity. Mr Georgiades did
not provide
any authority for this submission. I do not agree
with him. I considered ss 181, 182 and 188 of the Constitution
and
the Public Protector Act.
[37]
Section 182(1) of the Constitution provides the Public
Protector with the power, not only to report on specified conduct,
but also to take appropriate remedial action and the Public Protector
Act confims this in greater detail. I also refer to recent
judgments
of the Constitutional Court pertaining to the powers and functions of
the Public Protector and the
2016
State Capture Report
of the Public Protector.
[38]
In
SABC
and others v DA and others,
[39]
confirmed
in
Economic
Freedom Fighters,
the
SCA held that
“
the
Public Protector cannot realise the constitutional purpose of her
office if other organs of State may second-guess her findings
and
ignore her recommendations.”
In
Economic
Freedom
Fighters
[40]
Mogoeng CJ writing for a unanimous court, stated the following:
“
Our
foundational value of the rule of law demands of us, as a law-abiding
people, to obey decisions made by those clothed with the
legal
authority to make them or else approach courts of law to set them
aside, so we may validly escape their binding force.”
Appellant elected not one
of the two available options as clearly demonstarted by the facts of
this case.
[53]
The Auditor-General is, as the Public Protector, one of the Chapter 9
institutions which are accountable to the National
Assembly. I
accept that he/she is the watchdog over government. Contrary to
the Public Protector’s powers,
the Auditor-General’s
functions as set out in s 188 of the Constitution, read with the
Public Audit Act
[41]
do not
entail any binding nature, at least not on the citizenry.
He/she must audit and report on the accounts, financial
statements
and financial arrangements of organs of State, those entities
required by national and provincial legislation to be
audited and
institutions receiving funding from certain organs of State as well
as institutions authorised by law to raise money
for a public
purpose. These reports must be submitted to the relevant
entities and are made public. It is expected
of these entities
to adhere to the Auditor-General’s reports in order to ensure
future compliance with the relevant legislation.
Although
additional functions and powers may be prescribed to the
Auditor-General by national legislation such as are found in
the
Public Audit Act, I have not been made aware of any further relevant
powers. Whatever the appellant’s argument
before us, it
is apparent that it failed to act upon the Auditor-General’s
report and communicated to respondent that no
valid and binding
contract had come into being. This it should have done in 2010,
if it regarded it and respondent bound
by the report, but it allowed
the works to continue. Two years later it referred the matter,
initially for an inhouse investigation
and thereafter to a private
Gauteng attorney to investigate. There would be no reason to
waste money of the public purse
on this expenditure if appellant
acceded to the Auditor-General’s report.
Delay
[54]
If it accepted for the moment that appellant proved that an improper
procurement process had been followed which
resulted in an unlawful
letter of appointment and the contract concluded to be null and void
ab
initio
,
the delay must be considered as well. Delay in applying for the
review and setting aside of an administrative decision is
a vital
aspect and cannot merely be brushed aside. On appellant’s
version the letter of appointment of 2007 is a nullity.
Yet,
nothing was done to either retract the letter of appointment with
consent of respondent or apply to court to set it aside.
Two
years later the contract between the parties was concluded to give
effect to the earlier letter of appointment. Still,
nothing was
done to prevent respondent from executing its contractual
obligations. It assisted in preparing tender documents
and with
the appointment of the contractor who had to rehabilitate the
particular road. It ensured that the road was duly
rehabilitated to the extent that about 90% of the work was done
when appellant all of a sudden indicated that respondent
had to
vacate the site due to alleged unlawfulness of the contract.
[55]
The plea was filed in October 2014. The delay was, at worst for
appellant seven years (from 2007) and at
best for it about four years
(from July 2010). This should not be tolerated, especially
bearing in mind the circumstances
of the case. If appellant
acted swiftly in accordance with the report of the Auditor-General
and approached the court for
relief then, and on the basis of it
being successful, the contractor would not have started with road
works and the matter would
have been considered on a totally
different basis. If respondent’s appointment was set
aside in March 2013 when it
was for the first time alerted of
appellant’s attitude, appellant would have been compelled to
undertake a procurement process
to appoint new consulting engineers
whilst in the meantime the rehabilitation of the road – which
was considered urgent in
2007 - would have to be put on ice.
The costs, wasting of time and money and the negative consequences
for the travelling
public are not only unimaginable, but would be
enormous. Consulting engineers charge their fees based on the
tariffs set
out in the Engineering Profession of South Africa Act,
46/2000 and there is no reason to believe that a substitute
consulting engineer
would charge less than respondent for the
remainder of the contract works. The opposite is more likely.
Things became
much worse for appellant by the time it pleaded as the
project had been completed by then. Therefore, and even if it
could
be found that appellant was entitled to rely on a reactive
challenge based on its plea, it could not have succeeded due to the
considerable delay and the consequences thereof.
[56]
In
Gijima
[42]
the CC also considered the rule against delay in bringing review
applications with reference to
inter
alia
Tasima
and Kirland supra
and
found that even in the case of a reactive challenge, due process must
be followed by organs of State as there is no reason to
exempt
government. At paragraph [50] the court confirmed the following
dictum
by Cameron J in
Kirland
to be correct
:
“…
there is a higher duty
on the state to respect the law, to fulfil procedural requirements
and to tread respectfully when dealing
with rights. Government
is not an indigent or bewildered litigant, adrift on a sea of
litigious uncertainty, to whom the
courts must extend a procedure
circumventing lifeline. It is the Constitution’s primary
agent. It must do right,
and it must do it properly.”
It
must be emphasised that organs of State have constitutional
obligations which must be performed diligently and without delay.
[43]
[57] In my
view the appellant’s attitude towards the matter in allowing
respondent to comply with its contractual
obligations and then
belatedly and all of a sudden raised unfairness and illegality when
the project was about to be finalised,
cannot be countenanced.
The just and equitable
principle
[58]
Even if it could be found that the delay was not exorbitant, there is
still sufficient reason to hold that respondent
was entitled to
succeed. It is not necessary to say anything in this regard,
save to state that the trial court apparently
had in mind the aspects
mentioned in the previous paragraphs when it concluded as it did in
the last sentence of the judgment which
I quote again:
“
Even if the
contract is unlawful, it is, in my view, only just aand equitable for
the plaintiff to be compensated for such services.”
[44]
[59]
The trial court’s conclusion in awarding the amount claimed is
in line with the result achieved in Gijima
[45]
and it is fully endorsed. The CC held that Sita should not
benefit from having given false assurances and from its own delay
in
instituting proceedings. The CC stated that Gijima
“
may
well have performed in terms of the contract, while Sita sat idly by
and only raised the question of the invalidity of the contract
when
Gijima instituted arbitration proceedings.”
In the present matter
this is exactly what appellant did: it sat idly for a number of years
with all the relevant information available
to it, but allowed
respondent to just about finish the contract worth in excess of R19m
and then belatedly claimed that respondent
had no contractual right
to claim what was due to it. Such behaviour cannot be tolerated
and/or approved.
VIII
THE
AUTHORITY OF MESSRS MENYE AND TROSKIE
[60]
It is appellant’s case that Mr Menye fraudulently held himself
out as HOD when he signed the letter of appointment.
Therefore,
so the appellant submitted, the purported appointment was fraudulent,
alternatively irregular, unlawful and invalid.
The allegation
relating to Mr Troskie is that he as Chief Director: Roads, had no
authority to contractually bind the appellant
and the same
allegations of fraud, etc are made against him. This is really
a red herring. Mr Menye merely conveyed
in writing what was
already approved by senior members of the Department including the
HOD. The reference to him as HOD in
the letter might be a
mistake, but I am not prepared to find any fraud or illegality in
light of the history of the matter and
lack of evidence. In
fact, two years lapsed since the letter before the standard contract
was entered into. Neither
the HOD, nor anybody else in the
Department deemed it necessary –
ex
facie
the record – to retract the appointment letter. In fact,
a contract was entered into with respondent who thereafter
drafted
designs and tender documents to enable the Department to award a
tender to a contractor for construction of the road. The
project
started and payments were made until 2012. When the appellant
was sued for arrear invoices in 2013, it agreed to
pay those.
Mr Troskie was the
“
go
to”
person
in the Department relating to road matters according to Mr Jacobs and
I am prepared to accept that he was either properly
authorised to
sign the contract, or that his action was ratified thereafter by the
HOD.
[61]
Respondent submitted, based on its pleadings, that if this court find
in favour of appellant on the authority issue,
the doctrine of
estoppel prevents appellant from relying on lack of authority.
It was accepted by Mr Grobler as trite that
estoppel cannnot be
relied upon to defeat a case of illegality. He submitted that
the doctrine of estoppel can and must find
application if it is found
that the Department’s internal arrangements had been
contravened. At best for appellant,
any non-compliance with the
Department’s internal arrangements and formalities cannot be
used to non-suit respondent who
on all the available evidence acted
in good faith based on the history of co-operation as service
provider for the Department over
many years. Respondent may in
such a case successfully rely on estoppel. The facts in
RPM
Bricks
[46]
are totally distinguishable although the exposition of the law by
Ponnan, JA is with respect correct. Respondent falls in
the
second category mentioned by the learned judge of appeal.
IX
CONCLUSIONS
[62]
In sum, the appellant should have instituted proceedings for the
review and setting aside of the decision to award
the contract to
respondent. It should have filed a review application or at
best for it, a counterclaim. It failed
to act accordingly.
Consequently, the issue to be considered was not raised fairly and
squarely.
[63]
Even if it might be said that substance should trump form and that it
was sufficient to rely on the plea only,
appellant failed to present
cogent, relevant and admissible evidence to the trial court for it to
properly adjudicate its averments
in the plea in respect of
non-compliance with procurement principles and legislation.
[64]
The reliance on the lack of authority of Messrs Menye and Troskie to
sign the letter of appointment and contract respectively
has not been
proven, but even if that is accepted to be the case, the doctrine of
estoppel has been raised successfully.
[65] Even if
it could be found that the contract was null and void
ab initio,
the delay in instituting timeous and appropriate steps is such
that respondent should not be penalised. It is entitled, based
on
Gijima
, to receive the final payment contractually due to
it for work done.
X
THE
RECORD
[66] A final
remark should be made in respect of the voluminous record. If
appellant would have been successful
in the appeal, it would be
penalised with an appropriate cost order. The record consists
of 2 200 pages bound in 12 volumes.
Several documents have been
filed at two and even three different places. The heads of
arguments filed with the trial court
and the SCA and even the
petition lodged with the SCA from part of the record. Numerous
other documents such as reports and
invoices which have not been
referred to at all, either during testimony, or argument, are
contained in these bundles. These
are irrelevant bearing in
mind the crisp issues to be adjudicated.
XI
ORDER
[67] The
appeal is dismissed with costs.
J.
P. DAFFUE, J
I concur
L MOENG, AJ
I concur
SG MEINTJES, AJ
On
behalf of appellant: Adv C Georgiades
(SC)
Instructed by:
Phatshoane Henney
attorneys
BLOEMFONTEIN
On behalf of the
respondent: Adv
S Grobler
Instructed by:
Peyper
Attorneys
BLOEMFONTEIN
[1]
Department of Transport v Tasima (Pty) Ltd 2017
(1) SA BCLR 1 (CC) at paras [151] & [152]
[2]
Par [12] of the judgment.
[3]
Par [14] of the judgment.
[4]
Paras [16] – [22].
[5]
Supplementary bundle, p 67.
[6]
Bundle B, p 1440 of the record.
[7]
At p 1441.
[8]
Record, pp 1579 – 1580.
[9]
Record. From p 1185 and 1191 & 1192 in
particular.
[10]
Record, p 1192.
[11]
Record, p 1702.
[12]
Record, p 1718.
[13]
[2009] 1 All SA 349
(SCA). See also Cape
Metropolitan Council v Metro Inspection Services CC
2001 (3) SA 1013
(SCA) at para [18] where the court held that the appellant did not
perform a public duty when it purported to cancel the contract,
but
that it exercised a contractual right founded on the consensus
between the parties in respect of a commercial contract.
[14]
Ibid at para [18].
[15]
Plea: Record p 258 – 263; letter: p 264.
[16]
MEC for Health, Eastern Cape and another v
Kirland Investments (Pty) Ltd t/a Eye and Laser Institute 2014(3) SA
219 (SCA)
[17]
Economic Freedom Fighters v Speaker of the
National Assembly and others; Democratic Alliance v Speaker of the
National Assembly
and others 2016(3) SA 580 (CC) paras [63] –
[75].
[18]
Oudekraal Estates (Pty) Ltd v City of Cape Town
and others
2004 (6) SA 222
(SCA) at par [32].
[19]
Kirland supra at para [32] and Merafong City v
Anglogold Ashanti
2017 (2) SA 211
(CC) at paras [41] – [44].
[20]
Ibid
[21]
Khumalo v MEC for Education
2014 (5) SA 579
(CC)
at para [45].
[22]
Tasima footnote 1 supra at paras [142] &
[143] read with [151] & [152].
[23]
Harms, Amler’s Precedents of Pleadings, 9
th
ed at p 118 and authorities quoted.
[24]
2000 (4) SA 413 (SCA).
[25]
Mothapo Consulting Engineers (Pty) Ltd t/a
Mothapo Projects v Nala Municipality (1053/2012
[2012] ZAFSHC 118
(21 June 2012)
[26]
Allpay Consolidated v Chief Executive Officer,
SASSA
2014 (1) SA 604
(CC) at para [22].
[27]
Westinghouse Electric Belgium SA v Eskom Holdings
(SOC) Ltd and another 2016 (3) SA 1 (SCA).
[28]
Municipal Manager: Quakeni Local Municipality and
another v FV General Trading CC
2010 (1) SA 356
(SCA) at para [16].
[29]
Absa Bank Ltd v Kernsig 17 (Pty) Ltd
2011 (4) SA
492
(SCA) at paras [23] & [24]
.
[30]
Yannakou v Appolo Club
1974 (1) SA 614
(A) at
623G – H.
[31]
Mofomo and Kirland. See also Harms at
footnote 23 supra.
[32]
MEC for Public Works and Infrastructure, Free
State v Mofomo Construction CC (A138/2016)
[2016] ZAFSHC 196
(24 November 2016) at para [34].
[33]
Ibid, paras [45] – [50], with reference to
Kirland at para [65].
[34]
See footnote 1; also Merafong, paras [25],
[55] & [56].
[35]
2018 (2) SA 23
(CC) at paras [37] - [40].
[36]
Footnotes 30 & 33 and VIP Consulting
Engineers (Pty) Ltd v Mafube Munnicipality
[2018] 3 All SA 922
(FB)
at para [57].
[37]
Act 23 of 1994, inter alia ss 6 – 8.
[38]
Economic Freedom Fighters v Speaker of the
National Assembly and others; Democratic Alliance v Speaker of the
National Assembly
and others
2016 (3) SA 580
(CC) paras [63] –
[75] and Absa Bank ltd v Public Protector 2018(2) All SA 1 (CC)
paras [15] – [20]
[39]
[2015] 4 All SA 719 (SCA).
[40]
See footnote 38 at para [75].
[41]
Act 25 of 2004 and ss 3 – 5 in particular.
[42]
See footnote 35.
[43]
Section 237 of the Constitution.
[44]
Para [22] of the judgment.
[45]
Gijima loc cit at para [54] and para 3(b) of the
order
[46]
City of Tswane Metropolitan Municipality v RPM
Bricks (Pty) Ltd
2008 (3) SA 1
(SCA) paras 11, 12 & 13.