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[2019] ZAFSHC 147
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Member of he Executive Council of the Department of Co-Operative Governance, Human Settlements and Traditional Affairs, Free State Province v Scenic Route 802 CC and the 105 Further Respondents Listed in Annexure 1 of the Applicants Notice of Motion (A241/2016) [2019] ZAFSHC 147 (26 August 2019)
IN
THE HIGH COURT OF SOUTH AFRICA,
FREE
STATE DIVISION, BLOEMFONTEIN
Case
number:
A241/2016
In
the Matter between:
THE
MEMBER OF THE EXECUTIVE COUNCIL OF
THE
DEPARTMENT OF CO-OPERATIVE GOVERNANCE, HUMAN SETILEMENTS AND
TRADITIONAL AFFAIRS,
FREE
STATE
PROVINCE
Applicant
and
SCENIC
ROUTE TRADING 802 CC
AND
THE 105 FURTHER RESPONDENTS LISTED IN ANNEXURE 1 OF THE APPLICANT'S
NOTICE
OF
MOTION
1st Respondent
CORAM:
LOUBSER,
J
et
POHL,
AJ
HEARD
ON:
26
AUGUST 2019
JUDGMENT
BY:
POHL,
AJ
DELIVERED
ON:
26
AUGUST 2019
INTRODUCTION:
[1]
This is a so-called
"self-review"
application. The application arises
from a set of agreements concluded in late 2010 and early 2011
between the Free State Department
of Human Settlements
("The
Department')
and a number of
building contractors and suppliers of building materials and
consequent decisions made by the Department
to make payments to these
contractors and suppliers
.
[2]
In essence, the Department's case is
that the agreements are unlawful for the following reasons: (i) the
Department did
not follow a proper procurement process
before concluding any of them, and (ii) they were concluded and the
payments were made
as part of a scheme to avoid the provisions of the
Division of Revenue Act,
Act
1 of 2010 (Hereinafter referred to as
"DORA'J,
specifically
s 15
thereof and also
to defraud the fiscus.
[3]
The applicant thus seeks a declaratory
order that these agreements and the consequential payments were
unlawful. It prays for an
order reviewing and setting aside the
Department's decisions to conclude the agreements, the
agreements themselves and the
decisions to make payments in lieu
thereof
.
[4]
There are 106 respondents in this
application and they are made up of the contractors and suppliers
referred to in paragraph 1,
supra. Although opposing papers were
filed, none of the respondents persisted with the opposition to the
main relief and only the
28th respondent was represented by Mr
Pienaar when the matter was heard in Court.
[5]
The applicant was represented by Mr
Budlender SC, who was assisted by K Reynolds and T H Mayozi.
BACKGROUND:
[6]
For the 2010/2011 financial year, the
National Treasury allocated the Free State Province approximately
R1.4 billion for low cost
housing in terms of the
Division of Revenue
Act (Dora
). In terms of
section 20
of Dora, where a
conditional allocation, such as this, has not been spent by the end
of the financial year, it reverts back and
must be repaid to the
National Revenue Fund.
[7]
Furthermore and broadly speaking, in
terms of
section 15
of Dora, this allocation could only be used for
that specific purpose. Those funds could not be transferred to any
other entity
unless there was a payment schedule with that entity,
which was approved by the National Treasury. There must also have
been a
proper procurement process that was followed or in case of
advance payments, there must have been good reasons for same which
were
approved by National Treasury. A transfer prohibited by
section
15
of Dora, constitutes unauthorised expenditure as contemplated by
the
Public Finance Management Act of 1999
.
[8]
Section 217 (1) of the Constitution
provides that, when an organ of State (such as the
Department), contracts for goods
and services, it must do so in
accordance with a system that is fair, equitable, transparent,
competitive and cost-effective, which
elements constitute the
threshold requirements of a valid procurement process.
[9]
The Department was not able to spend the
funding referred to in paragraph [6] supra, fast enough and within
the fiscal
year to avoid the situation that most of it
would revert back to the National Revenue Fund in terms of Dora. The
Department therefore
conceived an illegal scheme to facilitate the
advance payment of very substantial amounts of money, mainly to
suppliers, within
the fiscal year, so that the funds would not revert
back to the National Treasury Fund. The agreements that form the
subject matter
of this application, were a key part of this
illegal scheme. The agreements were unlawful for two major reasons.
They were concluded
without any proper procurement process having
been followed and the agreements ( and the payments made under them),
formed part
of a fraudulent scheme to avoid the consequences of Dora.
[10]
This illegal scheme was devised to allow
the Department to pay material suppliers very significant sums of
money over a short period
of time: in total more than R630 million
over the period 2010 to 2011.
[11]
The said illegal scheme consisted of
three types of agreements. Firstly there were the building contracts
which were concluded with
the various building contractors. As
indicated, no procurement process was followed relating to these
contracts and they are therefore
unlawful for that reason alone.
They however obliged the contractor itself to source and fund
the materials necessary
for the building. The Department would then
make payments to such contractors against completion of the different
stages.
[12]
The second set of agreements were the
material supply agreements. Again, the Department did not
follow any procurement
process before concluding these
agreements. These agreements were therefore unlawful for that reason
alone. In essence these agreements
were tripartite agreements between
the Department, the suppliers and the contractors. In terms of the
agreements, the Department
as employer, itself procures the
construction materials, then pays for same itself
.
This was of course at variance with the
terms of the building contracts.
[13]
Thirdly, there were the material supply
cession agreements. The cession agreements purport (i) to give effect
to a cession by the
contractor(as cedent) of its claim against the
Department (as Debtor) to the material supplier (as cessionary); and
(ii) to instruct
the Department to pay the claim to the material
supplier on demand. These cession agreements were then used as
part of
the documentation to create the farce of legitimacy so
as to make the payments look regular and in accordance with the law.
As
indicated before, it was all done to circumvent the provisions of
Dora.
[14]
As against the suppliers, the Department
seeks to recover what is paid to them. The basis of the claim is
unjust enrichment.
However, while the abovementioned agreements
still stand, the defence may be raised that that the agreements were
the
causa
for
the payments (and that the payments were therefore not made
sine
causa).
In order for the Department
to rely on an enrichment claim, it must have the agreements
declared unlawful.
THE
QUESTION OF DELAY:
[15]
The issue of the long delay in launching
this application, remains. The impugned conduct of the Department
took place between
2010 and 2011. This application was only
issued in December of 2016. I find this delay to be unreasonable,
given the
circumstances of this case
.
[16]
However, in view of the decision of the
Constitutional Court in
Buffalo
City Metropolitan Municipality v Asia Construction (Pty) Ltd,
2019
JDR 0757 {CC), I am of the view that the interests of justice require
this Court to overlook the unreasonable delay. The reasons
for this
are
inter alia
the
following: {i) The respondents received the payments years ago
and they do not pursue unpaid claims under the contracts.
{ii) The
nature of the impugned decisions in question was very serious
.
The nature of the proceedings
illustrate egregious non-compliance with the constitutional
requirements of section 217(1) of
the Constitution and section 15 of
Dora. The applicant himself also came to Court with the aim of
rectifying the unlawfulness
.
(iii)
Lastly, in following the decision of
SITA
v Giiima,
2018 (2) SA 23
(CC),
this Court may, despite the unreasonableness of the delay,
nevertheless be constitutionally obliged to declare the applicant's
conduct unlawful. This has become known as
11The Gijima Rule". In the
Buffalo
City-case,
supra, the Court held that the Gijima rule should be interpreted
narrowly and restrictively,
"the
injunction it creates
-
to
declare valid that which is indisputably and clearly
inconsistent with the Constitution
-
must be followed where applicable".
CONCLUSION:
[17]
In the premises and having regard to the
abovementioned authorities and the relevant factual context, I am of
the view that the
impugned agreements are clearly and indisputably
unlawful and the payments made in lieu thereof, must be declared
unlawful by this
Court. We were informed that the 2nd, 28th, 44th and
s5th respondents have reached an agreement with the applicant for the
further
proceedings in this matter as far as their counter
applications are concerned. These agreements are contained in a draft
order
presented to us by agreement prior to the hearing of the
application
.
The
following order will therefore issue:
ORDER:
The
draft order annexed hereto as annexure “X” is made an
order of Court
L.
LE R. POHL, AJ
I
concur,
P.
J. LOUBSER, J
On
behalf of applicant: Adv. G. M.
Budlender SC,
Adv
K Reynolds; and
Adv.
T. H. Mayozi
Instructed
by:
L.
E. Companie
Phatshoane
Henney
BLOEMFONTEIN
On
behalf of the respondents: Adv. C
.
D. Pienaar, 28th
Respondent
Case
no: A241/2016
FREE
STATE HIGH COURT, BLOEMFONTEIN
REPUBLIC
OF SOUTH AFRICA
At
BLOEMFONTEIN on the 26TH day of AUGUST 2019
Before
the Honourable Judges: LOUBSER, J et POHL, AJ
In
the m
a
tter between:
THE
MEC: DEPARTMENT OF CO-OPERATIVE
GOVERNANCE,
HUMAN SETTLEMENTS AND
TRADITIONAL
AFFAIRS, FREE STATE APPLICANT
AND
SCENIC
ROUTE TRADING 802 CC
1
ST
RESPONDENT
105
OTHERS RESPONDENTS
Having
considered the Notice of Motion and the other documents filed of
record and having heard Counsel for the Applicant and the
Respondent
IT
IS ORDERED THAT:
1.
Subject
to paragraphs 2, 3, 4, 5 of this order, it is declared that-
1.1.
The agreements listed as annexure 2 to
the notice of motion ('the agreements'), and the decision or
decisions taken by the Free
State Department of Human Settlements
('the Department') to make the payments listed in annexure 3 to the
notice of motion ('the
decisions'), were and are unlawful;
1.2.
The
agreements and the decisions are reviewed and set aside.
2.
By
agreement between the applicant and
28th
respondent ('Hardware Mecca'),
Hardware Mecca's counter-application is postponed to
2nd
December 2019;
3.
The
effect that the setting aside of the agreements and the decisions
will have on any rights that Hardware Mecca would, but for
such
setting aside, have been entitled to under the agreements, and on any
of the payment it received from the Department, is held
over for
determination in Hardware Mecca
'
s
counter application.
4.
Hardware
Mecca's counter-application shall be determined either by the members
of this court or by members of another court determined
by the Judge
President.
5.
The
application as against the 2nd respondent, the 44th respondent and
the 65
th
respondent is postponed to 2nd December 2019.
6.
Each
party shall pay its own cost.
BY
ORDER OF THIS COURT
PHATSHOANE
HENNEY INC
CLAUDE
REID MCINTYRE&VAN DER POST
MATLHO
ATTORNEYS MPHAFI KHANG INC
PEYPER
ATTORNEYS
SPANGENBURG
ZIETSMAN&BLOEM