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[2019] ZAKZPHC 43
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Khuselani Security and Risk Management (Pty) Ltd v KwaZulu-Natal Provincial Treasury (743/19P) [2019] ZAKZPHC 43 (7 March 2019)
IN
THE HIGH COURT OF SOUTH AFRICA,
KWAZULU-NATAL DIVISION,
PIETERMARITZBURG
CASE
NO: 743/19P
In
the matter between:
KHUSELANI
SECURITY AND RISK MANAGEMENT (PTY) LTD
Applicant
and
KWAZULU-NATAL
PROVINCIAL TREASURY
Respondent
ORDER
1.
The
First Order in the Notice of Motion dated 6 February 2019, is
refused;
2.
The
applicant is liable for the costs of the opposed application on 27
February 2019, including those costs reserved on 12 February
2019
JUDGMENT
Chetty J:
[1]
The applicant, which .carries on
business as a security company, launched an urgent application on 7
February 2019 seeking an order
interdicting and restraining the
respondent from acting upon a decision on 30 January 2019, to cancel
a security the respondent
from acting upon a decision on 30 January
201 ,9 to cancel a security contract for the provision of armed
security officers at
the Trizon Towers Building, Chief Albert Luthuli
Street, Pietermaritzburg. It further sought that in the event of the
respondent
having concluded a new contract with a third party for the
provision of the armed security officers, that the respondent be
interdicted
from implementing such agreement. The interdictory relief
is sought pending an application to review and set aside the decision
to cancel the contract. The matter became opposed and was adjourned
to 27 February 2019 for argument on the interim relief sought.
[2]
Mr Potgieter SC, who appeared with Mr
Pretorius for the applicant, submitted that the essence of the
enquiry was whether the respondent
lawfully terminated its contract
with the applicant. The applicant contends that the decision to
cancel the contract is an 'administrative
action', as envisaged in
the Promotion of Administrative Justice Act 3 of 2000 ('PAJA'), in
that the grounds advanced by the respondent
for the cancellation of
the contract were based on the exercise of a public power, more
precisely Treasury Regulations 16A.9.1(f)
(GN R8189, GG 27388, dated
15 March 2005, as amended), which was later changed to reg.
16A.9.2(a). The respondent on the other
hand contends that the
cancellation was based on contract, that the matter is not urgent and
that if the applicant feels aggrieved,
it has a remedy for damages.
[3]
A brief background to the matter is that
the need for armed security officers to protect Treasury officials
arose from an incident
in October 2018, when the offices of the KZN
Provincial Government were stormed by a group of persons, who sought
to disrupt a
meeting of the officials involved in the Supply Chain
Management. This intrusion was aimed at advancing the interests of
'radical
economic transformation', and those involved demanded access
to tenders in government. In the interests of the safety of its
officials,
the respondent called for quotations for the provision of
armed security guards. The applicant complied with all the
requirements
of the tender process for the present contract,
including a declaration of interest of its past supply chain
management practices.
[4]
The tender was awarded to the applicant to provide guarding services
from 24 January
2019 to 31 March 2019, at a month\y rate 01 R75
708.01. The applicant duly complied and posted its guards in
accordance with the
contract. On 30 January 2019 the applicant
received a letter from the respondent's Chief Financial Officer
informing it that subsequent
to the awarding of the tender, it had
come to the attention of the respondent that 'serious fraudulent
allegations' had been laid
against the applicant by the Special
Investigating Unit ('SIU') in respect of the applicant's contracts
with the uMsunduzi Municipality.
The respondent cited the provisions
of Treasury Regulations 16A.9.1(f) in its letter of cancellation.
[5]
On 1 February 2019 the applicant's
attorneys wrote to the respondent in which they denied the
allegations of fraud and pointed out
that reliance on regulation
16A.9.1(f) was erroneous as no impropriety had been attributed to the
current contract which the respondent
had cancelled. In any event,
the applicant denied allegations of serious fraud as· being
untrue and untested, and considered
the termination of the contract
as premature and unlawful. The respondent refused to retract its
cancellation and demanded that
the applicant remove its guards from
the Treasury offices.
[6]
The applicant received no response from
the respondent, causing it to launch the present application on 7
February 2019. The applicant
denies that the respondent is entitled
to rely on a contractual ground for the cancellation and submits that
it was obliged to
follow the procedure set out in PAJA. Counsel for
the applicant correctly pointed out that the Treasury regulations
cited by the
respondent in its letters have no application to the
cancellation of the present guarding contract as it is not alleged
that there
has been any impropriety in the awarding of the guarding
contract. This however is not the respondent's case. It relies on
allegations
of serious fraud attributed to the applicant's contracts
with the uMsunduzi Municipality, resulting in prejudice to the
municipality
in an amount of approximately R477m.
[7]
It is not necessary for me to make any
definitive finding as to whether the grounds for cancellation of the
contract are good in
law. The applicant intends to pursue an
application to review and set aside the cancellation. Counsel for the
respondent submitted
that PAJA plays no role in the cancellation of
the contract for services relying on the dictum in
Cape
Metropolitan Council v Metro Inspection Services (Western Cape)
&
others
2001
(3) SA 1013
(SCA). It was contended that the basis of the termination
is to be found in the applicant failing to comply with a Declaration
of Interests, which required the applicant not to have
"abused
the institution's supply chain management,· committed fraud or
any other improper conduct
..·
or failed to perform on a previous
contract'.
The applicant denies
having· flouted these provisions. On the respondent's own
version, the SIUs' report related to contracts
with the uMsunduzi
Municipality and made no reference to the applicant's dealings with
the respondent. The respondent’s stance
is that in the interest
of clean governance, once the allegations of fraud against the
applicant came to its knowledge, as an organ
of state it was
compelled to act immediately to disassociate itself from doing
business with the applicant. As I understood the
argument, the
respondent takes the view that the failure of the applicant to
disclose the existence of the allegations and investigations
by the
SIU were in breach of the Declaration of Bidder's Past Supply Chain
Management Practices (annexure 'MN3' to the papers)
and at variance
with the duty of transparency when dealing with an organ of state.
The respondent's continued dealing with the
applicant posed the risk
that it could be interpreted as condoning a violation of the supply
chain management prescripts and the
basic values which underpin the
conduct of organs of state, found · in s 195 of the
Constitution. Once these fraud and corruption
allegations presented
themselves, the respondent regarded these as a material breach of
contract, entitling it to cancel immediately.
[8]
Mr Potgieter submitted that no regard
should be had to the letter dated 21 June 2018 from the SIU, and the
allegations of fraud
and corruption levelled against the applicant as
these are uncorroborated by any confirmatory affidavit and are
untested. Taking
into account that this is an urgent application and
informed by the dictum in
S v Ndlovu
2002 (6) SA 305
(SCA) at para 15, I
am satisfied that having regard to the interests of justice, the
contents of the letter should not be excluded
from consideration in
this application. The allegations are serious and carry a high
probative value. It is also noteworthy that
in its letter to the
uMsunduzi Municipality, the SIU instructed that the applicant be
placed on a 'restricted suppliers database'
in terms of the Municipal
Finance Management Act, to ensure that government should no\ be a
?art-y to contracts with those having
committed or being involved in
fraud and corruption. It suggested that the respondent adhere to PAJA
in doing so.
[9]
To the extent that the applicant intends
launching a review application premised on the grounds that the
respondent was obliged
to follow PAJA in cancelling the con tr act,
in assessing the balance of convenience at this stage, this court
should have regard
to the applicant's prospects of success on review.
Those prospects, I consider to be weak. In my view. once a tender is
awarded,
the relationship between the parties is thereafter governed
by the contractual provisions, . with a right to cancel in the event
of a material breach.
Cape
Metropolitan v Metro Inspection Services (Western Cape)
&
others (supra)
at
para 17 held that 'whether or not conduct is "administrative
action" would depend on the nature of the power being
exercised.
. . . Other considerations which may be relevant are the source of
the power, the subject matter, whether it involves
the exercise of a
public duty and how closely related it is to the implementation of
legislation' (the court making reference to
President
of the Republic of South Africa
&
others v South African Rugby Football
Union
&
others
2000 (1) SA 1
(CC) at paras 141 and
143). The Court went on to state at para 18 that
'The appellant is a public
authority and, although it derived its power to enter into the
contract with the first respondent from
statute, it derived its power
to cancel the contract from the terms of the contract and the common
law.'
[10]
I find the dictum in
Cape Metropolitan
to be instructive in
answering the question whether the decision by the respondent to
cancel the guarding contract amounted to administrative
action. This
conclusion is fortified if regard is had to the views of Brand JA in
Government of the Republic of South Africa v Thabiso Chemicals
(Pty) Ltd
[2008] ZASCA 112
;
2009 (1) SA 163
(SCA) where he says the following :
'[18] What remains are
observations originating from comments by the court a quo which seem
to support the notion that the contractual
relationship between the
parties may somehow be affected by the principles of administrative
law. These comments gave rise to arguments
on appeal, for example, as
to whether the cancellation process was procedurally fair and whether
Thabiso was granted a proper opportunity
to address the tender board
in accordance with the
audi alteram partem
rule prior to the
cancellation. Lest I be understood to agree with these comments by
the court a quo, let me clarify: I do not believe
that the principles
of administrative law have any role to play in the outcome of the
dispute. After the tender · had been
awarded, the relationship
between the parties in this case was governed by the principles of
contract law (see eg
Cape Metropolitan Council v Metro Inspection
Services (Western Cape)
CC
and Others
2001 (3) SA 1013
(SCA)
(2001 (10) BCLR 1026)
at para 18;
Steenkamp NO v Provincial
Tender Board, Eastern Cape
2006 (3) SA 151
(SCA) ([2006]
1 All SA
478)
at paras 11 and 12). The fact that the tender board relied on
authority derived from a statutory provision(ie s 4(1
)(e A )
of
the State Tender Board Act) to cancel the contract on behalf of the
government, does not detract from this principle. Nor does
the fact
that the grounds of cancellation on which the tender board relied
were, inter alia, reflected in a regulation. All that
happened, in my
view, is that the provisions of the regulations - like the provisions
of ST36 - became part of the contract through
incorporation by
reference.'
See too
SAAB Grintek Defence
(Pty) Ltd v South African Police Service
&
others
[2016]
3 All SA 669
(SCA) where reference was made to
City of Tswane
Metropolitan Municipality
&
others v Nambiti
Technologies(Pty) Ltd
2016 (2) SA 494
(SCA) where the court held
that the decision to cancel a tender was not administrative action
and not susceptible to review in
terms of PAJA. It would follow, in
my view, that the relationship which follows after a tender is
awarded is governed by contract,
finding no place for the application
of administrative action in the event of a cancellation.
[11]
In light of my conclusion that the applicant would have slim
prospects of success in a review
which it intends to bring, I proceed
to deal with the requirements for interim relief, that being a prima
facie right; the applicant
will suffer irreparable harm; the balance
of convenience favours the applicant and that there is no other .
remedy.
[12]
At the outset, I posed to counsel for the applicant that this
appeared to be a classic example
of a case where the applicant would
have a claim for damages if it is found that the contract was
terminated unlawfully. Those
damages are easily calculable and the
respondent is an organ of state, not a man of straw. The applicant
sought reliance on
Pick 'n Pay Retailers (Pty) Ltd v Liberty Group
&
others
2015 (4) SA 241
(GP) for the proposition that
if the cancellation were allowed to stand it would suffer
unquantifiable loss and irreparable harm,
and that an award for
damages would not be a suitable remedy in the circumstances. I am not
persuaded by this argument. The contract
which the applicant entered
into was for a fixed amount per month, and for a limited duration.
There was no basis for an expectation
that these services would be
required for any period beyond 31 March 2019. In fact the respondent
states that the guards were required
for a
' critical period
...
during which bid closures were to take place.'
The applicant
acknowledges this in reply, but stemming from some altruistic
consideration, it expresses a concern that the respondent
would be
placing the safety of its officials at risk in the absence of having
guards being posted. I find this argument unconvincing.
[13]
I am not persuaded that the applicant was able to establish a prima
facie right for the reinstatement
of the contract or that the balance
of convenience favours it above that of the respondent.
The interests which I believe
the applicant was seeking to protect
through the launching the application for an interdict was not so
much the reinstatement of
a two and a half month contract for
guarding services, worth a little more than R159 000.00. Instead it
fears that if the cancellation
of its contract by the respondent is
allowed to stand, its opportunities to do business elsewhere in the
public sector are severely
dented by the allegations of the SIU. If
that is the case, its options lie elsewhere, rather than an urgent
interdict against the
respondent. I am in agreement
with the respondent's counsel that it is of utmost . importance that
organs of
state should conduct their business in a transparent
manner, reflective of a clean administration.
[14]
The respondent disputed the urgency of the application, whereas the
applicant contended that
it moved as quickly as possible to have the
matter resolved after it received notice of the cancellation. When
this failed, it
launched the application on the grounds of commercial
urgency. In light of there being an alternative claim for damages,
which
the applicant could have resorted to in the fullness of time,
and in the Magistrate's Court (having regard to the quantum), I am
not satisfied that the matter was urgent. It also bears noting that
in its letter of demand, written a day after the cancellation
of the
contract, the applicant's attorney made the following concluding
remarks in their letter
'...we remind you that the
relevant contract is in any event only for a period of two months
and, as such, it would be prejudicial
to both our client and
yourselves to litigate in this dispute and it is likely that the
associated costs could exceed the entire
contract amount.'
[15]
For
the above reasons, I am not persuaded that the applicant has made out
a case for the interim relief in the Notice of Motion.
[16]
I
make the following order :
1.
The First Order in the Notice of Motion
dated 6 February 2019, is refused ;
2.
The applicant is liable for the costs of
the opposed application on 27 February 2019, including those costs
reserved on 12 February
2019.
CHETTY
J
Appearances
For the Applicant:
A E Potgieter SC & J P Pretorius
Instructed by:
Vathers Attorneys
13
Prince Edward Street, Pietermaritzburg
Your Ref:
U J Vather/nikita/Khuselani Security and Risk
Management
Tel:
033 342 4099
Email:
vathers@hotmail.com
For the Respondent:
M Chetty
Instructed by:
E B Zaca Attorneys
220 Otto Street, Pietermaritzburg
Your Ref:
Mr Stuurman
Tel:
033 817 8264
Email:
zacaeric@gmail.com
Date of Hearing:
27 February 2019
Date of Judgment:
7 March 2019