About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
SAFLII
>>
Databases
>>
South Africa: Kwazulu-Natal High Court, Pietermaritzburg
>>
2018
>>
[2018] ZAKZPHC 59
|
|
Resultant Finance (Pty) Ltd v Head of Department of Health Kwazulu-Natal and Others, MEC of Finance in the Province of Kwazulu-Natal v Resultant Finance (Pty) Ltd and Another (4536/17P, 10475/17P) [2018] ZAKZPHC 59 (24 August 2018)
IN THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL DIVISION, PIETERMARITZBURG
Case
No: 4536/17P
In
the matter between:
RESULTANT
FINANCE (PTY) LTD
APPLICANT
and
THE
HEAD OF DEPARTMENT, FOR THE DEPARTMENT
OF
HEALTH KWAZULU-NATAL 1ST
RESPONDENT
MEC
FOR THE DEPARTMENT OF HEALTH,
KWAZULU-NATAL
2ND RESPONDENT
CASE
NO. 10475/17P
In
the matter between:
THE
MEC OF FINANCE IN THE PROVINCE OF
KWAZULU-NATAL
APPLICANT
and
RESULTANT
FINANCE (PTY) LTD
1ST RESPONDENT
ARKElN
CAPITAL PARTNERS
(PTY)
LTD
2ND
RESPONDENT
JUDGMENT
MNGADI
J
Introduction
[1]
The litigation relates to three interrelated applications. There is a
main application, a counter-application to the main application
and a
review application. The main application and the counter-application
falls under case No. 4536/17P and the review application
is under
case No. 10475/17P. The applicant in the main application is
Resultant Finance (Pty) Limited ("Resultant Finance")
a
company duly incorporated in terms of the company laws of the
Republic of South Africa. The first respondent is the Head of the
Department for Health KwaZulu-Natal the administrative head of the
Provincial
Department ("Head of Health"). The second respondent is the
Member of the Executive Council of the Provincial
Department of
Health, KwaZulu-Natal ("MEC for Health"). In the Review
application the applicant is the Member of the
Executive Council of
the Department of Finance in KwaZulu-Natal ("MEC for Finance").
The first respondent is Resultant
Finance and the second respondent
is Arkein Capital Partners (Pty) Limited("Arkein Capital")
a company duly incorporated
in terms of the company laws of the
Republic of South Africa.
[2]
sultant Finance has instituted proceedings under case number 4356/17P
("the main application"), seeking to have the
contract
under Bid ZNB5709/2014-H ("the contract'') declared to be extant
and valid. The ancillary relief sought, is for specific
performance
in terms of the contract. Alternatively, cancellation of the contract
as a result of culpability on the part of Department
of Health,
KwaZulu-Natal. The later has counter-claimed seeking to have the
contract cancelled based on the breach by Resultant
Finance. In the
review a9plication the MEC for Finance seeks to have
reviewed
and set aside the ward of tender and the resulting contract to
Resultant Finance. Arkein Capital had been a co-bidder with
Resultant
Finance but has not taken part in the litigation.
[3]
Briefly, the issue in the main application is whether the contract is
extant and valid. In the counter-application is whether
cancellation
of the contract was of force and effect, whereas in the review
application, the issue is whether the award of the
tender to
Resultant Finance falls to be set aside on the grounds that it was
irregular, unlawful and
ultra vires.
With consent of the parties and for
convenience due to the interrelatedness of the applications, the
parties submitted combined
heads of argument and the applications
were heard together, and one combined judgement is given. This has
had some implications
relating to costs.
[4]
In October 2014 the then Head of the Provincial Department of Health,
after having consulted the Provincial government and the
National
Department of Health decided to lease medical and non -medical
equipment for the department rather than to purchase the
equipment.
The Department of Health commenced the procurement process to appoint
a service provider to acquire and lease to it
the required equipment
for a period of five (5) years. The Bid Specifications Committee,
having determined the bid specifications,
invited bids by the
publication in the Government Tender Bulletin the invitation for bids
on 5 February 2015. Only two bids were
received, one from Arkein
Capital and one from Resultant Finance. The Technical Evaluation
Committee found Arkein's bid non-compliant
and excluded Arkein. On 5
March 2015 the Bid Evaluation Committee recommended that the bid be
awarded to Resultant Finance. On
8 April 2015 Resultant Finance was
informed that it had been appointed as a service provider to manage
the leasing of medical and
non-medical assets for the department. The
description of the service was stated to be ' to manage leasing of
medical and non-medical
assets for KwaZulu-Natal Department of Health
at an agreed contract price including applicable taxes at a total
charge for cost
of borrowing on a full maintenance contract and
administration cost of 5.9% for period of five (5) years commencing
on 22 April
2015 expiring on 30 April 2020'.
[5]
Soon rather than later problems arose around the contract. The
parties did not conclude a written contract with a service level
agreement. The Health Department required proof of funding from
Resultant Finance before it issues purchase orders. Resultant Finance
could not proceed to procure equipment without purchase orders. It
had not been stated in the bid requirements how much finance
needed
to be confirmed as available by the bidder and in what format the
confirmation needed to be. The funders prepared to fund
Resultant
Finance required some confirmation from the Department and the
Department would not provide the required undertakings.
Positions of Parties
[6]
According to Resultant Finance pursuant to the request for
acquisition of the equipment, a consultation process needed to take
place between it and various internal stakeholders of the Department
of Health in order to address various issues regarding the
procurement of the equipment, including the identification of
priority items and the turnaround times regarding the procurement
of
the equipment. It engaged with the officials of the Department but
found that they were not co-operating.
[7]
On 26 January 2016 the Department of Health addressed a letter to
Resultant Finance demanding from it reasons as to why the
contract
should not be cancelled. Then and by virtue of the conduct of the
Department it became apparent to Resultant Finance that
the
Department no longer desired to be bound by the contract and wanted
to resile from it. It was repudiating the contract. Resultant
Finance
rejects the repudiation and demands specific performance,
alternatively, that the contract be cancelled due the Department's
repudiation. Resultant Finance states that clause 17 of the contract
stipulated that: 'goods and services shall be rendered only
upon a
written official order or signing of a contract with the province and
accounts shall be rendered as indicated on the official
order or in
the contract, as the case may be.’
[8]
Resultant Finance states that on 31 August 2015 the Head of the
Department of Health approved the initial order comprising a
batch of
certain electro medico equipment at an estimated value of R400
million. On 8 September 2015 the Department required Resultant
Finance to put in place a service maintenance agreement for certain
life support system. Other preparatory work done by Resultant
Finance
included setting up electronic assets register; setting up of a
regime on maintenance and servicing equipment framework.
It avers
that the conduct of the department, showing that it was repudiating
the contract, included refusal of
its officials
to meet with Resultant Finance's representatives. On 24 November 2015
the KZN Health Central Supply Chain requested
from Resultant Finance
a project update. It indicated that it was not able to proceed with
repairs to equipment since the purchase
orders had not been issued to
it. A request from the Public Investment Cooperation (PIC), its
funder, that
it be confirmed by
the
Provincial Treasury that all
amounts due on quarterly basis for the first batch would be ring
fenced was only
issued in January 2016
[9]
Resultant Finance avers that despite the letter issued to it to show
cause why the contract should not be cancelled, it remained
unclear
whether the department was still committed to complying with the
contract or not. On 20 September 2016 the Department advised
Resultant Finance that the Provincial Treasury was conducting a
forensic investigation and the
outcome thereof
would provide guidance on the way forward. On 23 February 2017
Resultant Finance issued the statutory notice of
its intention to
institute legal proceedings against the Department for an order
seeking specific performance in terms of the contract.
On 21 April
2017 it launched the current proceedings. On 13 June 2017 the
Department notified Resultant Finance that it was cancelling
the
contract.
[10]
The Department responded to the application by lodging a counter -
application. If the counter-application succeeds, it trumps
the main
application. The Department avers that the contract with Resultant
Finance was cancelled on 15 June 2017 because Resultant
Finance did
not have the required funding to execute its obligations in terms of
the contract, and it
was
also not registered as a
financial services provider
with
the
Financial Services
Board
as required. It states that in July 2015 a new Head of the Department
took office. He initiated investigations which showed
that the award
of the contract to Resultant Finance needed to be reviewed. The
reasons were,
inter
alia,
lack of
financial capacity; roles of the Provincial Treasury and Department's
Health Technical Services not clearly defined in the
contract and not
clear how Resultant Finance would procure the required assets; and
critical assets required had not been leased.
[11]
The Department stated that up to date Resultant Finance had not
procured any assets and Resultant Finance has not received
any
payment because Resultant Finance has been unable to secure any
funding as required to enable it to procure the equipment.
The
investigation commenced in August 2016 and it was concluded in March
2017. It stated that soon after the contract was awarded
the
institutions that were to fund Resultant Finance required certain
conditions to be met relating to guarantees and security
from
Provincial Treasury, required the creation a special purpose vehicle
by the Provincial Treasury and the contract to be transferred
from
Resultant Finance to the funding institutions; a direct funding
agreement between the Department and the financial institutions
and
the exclusion of the maintenance from the contract. The conditions,
it states, defeated the purpose of entering into the contract
with
the applicant and were contrary to the legislation that governed the
Department and Provincial Treasury.
[12]
The Department states that by December 2016 some seven(7) months post
award of the tender, Resultant Finance failed to secure
funding for
the execution of the Works Information as per the contract. It was
not able to procure funding for the contract and
to develop a funding
model as required by the bid and contract respectively. After the
January 2016 letter to show cause, the Department
had to wait for the
outcome of the forensic investigation and the internal government
processes it needs to follow. In March 2017
it received a draft
report which does not differ from the final report. It confirms that
all financial institutions were willing
to provide funding subject to
various conditions, the financial institutions were not willing to
comply with the contractual conditions
of the bid and the contract.
It concluded that Resultant Finance was not able to procure funding
for the contract and it was non-compliant
in that it was not
registered as a financial services provider with the Financial
Services Board (FSB). It was required of the
bid that potential
bidders were required to be registered financial services providers
with FSB. Resultant Finance had not formed
a joint venture or
partnership agreement with an entity registered as a financial
services provider. The Department admits that
that Resultant Finance
would have been mandated to procure any assets in terms of the
contract if a purchase order was issued.
No such purchase order was
issued to date. The Department has now validly cancelled the
contract.
The
January 2016 letter read as follows:
'RE
ZNB 5709/2015-H REQUEST FOR PROPOSAL RFP, FOR THE APPOINTMENT OF
SOLUTION PROVIDER TO MANAGE LEASING OF MEDICAL AND NON-MEDICAL
ASSETS
FOR KWAZULU-NATAL DEPARTMENT OF HEALTH, 5 YEAR CONTRACT
The
above-mentioned contract was awarded to Resultant Finance (Pty) Ltd
by the
KwaZulu-Natal
Department of Health for a period of five years
The
contract was signed on 13 April 2015 and validated on 22 April 2015
and there has been no delivery to date. In view of the above
kindly
advise why this contract should not be cancelled. The response to
reach this office by not later than seven working days
from the date
of receipt of this letter'.
[13]
Resultant Finance in its replying affidavit, stated that although
itself is not registered as a financial services provider,
it
submitted its bid having partnered with or in co-operation with
Standard Bank of South Africa and Stanlib which both are registered
financial services providers. It signed a co operation agreement
with the two institutions and the co-operation agreement
was attached
to its tender. Regarding funding it stated that at all material times
it had funding running into millions of Rands
available to it. The
funders never requested security and guarantees from Provincial
Treasury. Their major requirement was the
assurance by the Provincial
Treasury that the KZN Health tender complied with all applicable PFMA
and Treasury regulations, but
the Department's official felt that
there was no need to give such an assurance.
[14]
In a letter dated 3 February 2016 in reply to the January 2016 letter
to show cause, Resultant Finance denied that nothing
had happened
since the signing of the contract in April 2015. It stated that a
first official list of equipment required by the
Department was
finalised by Health Technology Services on 31 August 2015 and
officially handed to it on 11 September 2015; when
the tender was
first awarded a facility of R100 million was made available by
Standard Bank but the terms and conditions of the
funding were not
acceptable to the Department; On 8 September 2015 Rand Merchant Bank
granted funding facility of R500 million
subject to terms and
conditions being negotiated; As an alternative, Public Investment
Cooperation(PIC) issued a letter of comfort
dated 28 October 2015 and
PIC was in the process of reviewing its terms and conditions.
Resultant Finance stated that the delay
was due to vigour displayed
by the Department in scrutinising the terms and conditions by the
various institutions. PIC had undertaken
to issue a final decision on
February 2016 thereafter the first batch approved in September 2015
of approximately R400 million
would be processed. The letter
concluded that the delays are inevitable in the project of such
magnitude and there is no reason
to cancel the contract.
[15]
Pursuant to the letter of January 2016 to show cause, on 13 June 2017
the Department by a letter to Resultant Finance cancelled
the
contract with immediate effect. It stated that the reasons for the
cancellation are that although Resultant Finance in terms
of the bid
was required to be registered as a financial services provider it was
not so registered and it had not submitted a valid
certificate for
such a registration, secondly, it has failed to secure funding for
the execution of the contract, and thirdly,
it was unable to execute
the Works Information as contained in the Request for Proposals
document.
[16]
Resultant Finance challenges the cancellation. It claims that it is
as a result of political interference. It elaborates its
basis for
the view that it was as a result of political interference. It states
that it was always able to perform in terms of
the contract. Its
efforts were frustrated by the officials of the Department.
[17]
In the application for review, the MEC for Finance is the applicant.
The respondents are Resultant Finance and Arkein Capital.
The MEC for
Finance seeks an order that the bid process which resulted in the
award of the contract to Resultant Finance be set
aside as
ultra
vires
and null and void,
alternatively, unreasonable. Arkein Capital cited on the basis that
it was one of the bidders has not participated
in the litigation. If
the review application succeeds, it defeats the main application.
[18]
The Member of the Executive Council of the Province of KwaZulu-Natal
deposed to the founding ai davit. She stated that she
is the
executive authority responsible for Provincial Treasury of
KwaZulu-Natal. The Provincial Treasury plays a transversal role
within the provincial government framework in that it performs its
own internal treasury and budgetary related functions but also
assists other departments with those functions. In addition, it plays
a monitoring and oversight function over other departments,
particularly in relation to fraud and procurement matters. The
Provincial Government has an interest in ensuring that irregular
processes are set aside and that public funds are not irregularly
dissipated and that fruitless and wasteful expenditure is curbed.
[19]
The MEC for Finance states that Provincial Treasury conducted the
initial review into the prior procurement processes in the
Department
of Health. It noted irregularities and appointed forensic audit firm
to do forensic investigation into a number of procurement
processes.
In May 2017 Provincial Treasury took over the procurement process for
the Department of Health. On 13 August 201rshe
received the forensic
report. The report resulted in the decision to apply for the review
and setting aside of the award of the
contract to Resultant Finance.
[20]
The MEC for Finance states that after the contract was awarded to
Resultant Finance it was for various reasons not brought
into effect,
between April 2015 and September 2015 with regard to the funding
of the leases. Up to date no one confirmed funding
for Resultant
Finance. Further, she states that in clause 2.34 of the Special Terms
and Conditions of the contract, it specified
that bidders must be
registered as financial services providers with FSB, it reads as
follows: 'The bidder must be a Registered
Financial Services Board
(FSB) financial services provider. The relevant certificate must be
submitted with the bid, failure to
comply with this clause will
invalidate the bid. If the bidder is a Joint Venture or Consortium or
Partnership at least one member
thereof must be registered with FSB
and proof to that effect must be attached. Failure to submit will
invalidate the proposal submitted
and the bid will not be considered
for evaluation'. AND Further, the MEC states that bidders were
required to submit a valid Broad
Based Black Economic Status Level
Verification Certificate. Resultant Finance did not do so and
indicated that it was 100% black
owned, and 5,2% black women owned.
But the background check revealed that Resultant Finance is 100%
owned by Mduduzi Gama. The
Bid Evaluation Committee should have, she
states, disqualified Resultant Finance for the above reasons. In
fact, she states, it
was not proper to continue with one bid after it
had disqualified Arkein Capital as that meant the process was not
competitive
as required by section 217 of the Constitution; section
38(1)(a)(ii) of the PFMA, and Treasury Regulation 16 which provide
that
procurement must be done in accordance with a system which is
fair , equitable , transparent , competitive and cost effective. The
Bid Adjudication Committee comprised of three members whereas the
Departments Supply Chain Management Delegation specified that
it
should be comprised of a least five members. Further, the bid
specifications and advertisement were not approved by the Supply
Chain Manager as required by section 8.2 paragraph 1 of the SCM
Process standardisation document. The bid specifications were
amended, reviewed on 12 February and ratified on 13 February 2015
whereas the invitation to bid had already been published in the
Government Tender Bulletin of 6 February 2015, so says the MEC.
[21]
The MEC for Finance explains the reasons for the delay in bringing
the review as follows. The officials concerned concealed
the
irregularities, alternatively, were blindly unaware thereof. The
irregularities only surfaced
when
the new Head of the Department of Health was appointed, and the
forensic investigation was initiated.
[22]
Resultant Finance opposes the review application. It challenges the
locus standi
of
the MEC for Finance. It commences by stating that the MEC for Finance
has misconstrued her role. It does not confer on her the
formal
authority over the Department of Health authorising her to institute
the review application. It is irregular not to join
the Department of
Health in the proceedings despite the fact that the Department of
Health has consented not to be joined in the
proceedings. The
decision sought to be reviewed was the decision of the Department of
Health. It is for Health to seek to correct
its own decision. The
failure to cite Department of Health, avers Resultant Finance, is
fatal to the review application. Likewise,
the citing of Arkein
Capital whereas it has no interest in the legal proceedings renders
the application fatally flawed. Further,
Resultant Finance avers that
the review application is flawed as it is not in accordance with rule
53. It does not call upon the
Department of Health to show cause why
its decision should not be reviewed, and it does not require that the
decision of Department
of Health be placed before the review court.
[23]
On merits, Resultant Finance avers that the decision to initiate
investigation and to review the award of the tender to it
is due to
political interference. That certain section of the provincial
leadership of the ruling party instructed that Resultant
Finance be
frustrated in its execution of the contract without taking into
account the interest of patients in the province of
KwaZulu-Natal. It
states that from inception interested persons were consulted and
representatives of Provincial Treasury were
roped in and were part of
the decision to procure medical and non-medical equipment by leasing
them as well as in the procurement
process to ensure compliance in
particular one Mr Sangweni. Since the representatives of Provincial
Treasury were involved in the
process, the MEC for Finance must be
taken to have been aware of what was happening from the time the
decision was taken to procure
the equipment and what happened in the
procurement process. The delay in failing to institute the review
timeously is not explained,
so it is argued. It stated that the
decision to review the award of the tender is due to political
interference.
[24]
Resultant Finance states hat as part of the bid process, it was
required that bidders attend a briefing session and in the
briefing
session it was explained that if the funders of the bidder were
registered with FSB that was sufficient. It was well known
when the
tender was awarded to it, that it was its funders with whom it
entered into a cooperation agreement, that were registered
with FSB.
It has always had access to funding. Funding was not withdrawn but
certain conditions precedent in line with section
66(2) of the PFMA
and Treasury Regulatio1 s were specified.
[25]
Resultant Finance states that the tender was awarded in April 2015.
The new Head of the Department
of
Health Dr Mtshali was appointed in
July 2015 and he soon commenced with the investigations. The MEC
states that the investigations
commenced in September 2016. The
provisional forensic report was published in March 2017. It is
incorrect that the MEC became aware
of the irregularities in the
forensic report only in August 2017. The review application was
launched to trump the main application
which sought to compel the
Department of Health to perform in terms of the contract.
[26]
Resultant Finance denies that the bid process was not in compliance
with the provisions of section 217 of the Constitution.
The contract
was awarded to it in a fair process and its bid was the most
competitive. It states that there were no irregularities
in its
B-BBEE status and documents, it reflected the true position at the
time and it was never raised with Resultant Finance as
a query. It
was partly owned by Safika Holdings (Pty) Ltd which in turn was
partly owned Black women. It states that it played
no role in the
constitution of the Bid Evaluation Committee. It was a committee set
up for procurement in the Department of Health
and the persons
constituting the committee would know better. There is no indication
that all the tenders awarded by the said committee
are being
reviewed.
[27]
In Reply, the MEC states that the review is based in the failure by
the officials concerned to comply with the applicable legal
prescripts. Resultant Finance in its bid documents stated that it was
not bidding as a Joint Venture or Consortium or Partnership.
Concerns
were raised with the bid process, and Internal Audit commenced
investigations. In due course investigations were broadened
and
Delloitte and Touche assisted in the investigations. Various reports
were concluded in March 2017 to June 2017. The reports
were submitted
to management for comment. The MEC only received the report in August
2017. The reports indicated irregularities
and the National
Government, and the Provincial Government directed MEC for Finance to
put in place corrective measures as a matter
of urgency which
included Provincial Treasury taking over procurement of the
Department of Health. The interventions were carried
in terms of the
provisions of section 18(2)(g) of the PFMA which section requires
Provincial Treasury to intervene to address a
serious or persistent
material breach
of the PFMA by a provincial
department.
[28]
The MEC states that it was necessary to bring an independent review
proceeding rather than to join as a party in the main application.
It
was not necessary to launch the review application in compliance with
rule 53. It had in its possession all the necessary documents
and
such documents had been made available to Resultant France an
interested party. Mr Sangweni from Provincial Treasury was part
of
the technical evaluation done by the Bid Evaluation Committee and the
necessary disciplinary action will be taken against him
and other
officials
involved.
Analysis
(i)
Counter-application
[29]
The main application was launched in April 2017. Health cancelled the
contract in June 2017. Resultant Finance regarded the
cancellation as
repudiation of the contract which it rejected. In any event,
Resultant Finance brought the application for specific
performance
because it had realised that Health was reluctant to perform in terms
of the contract. In January 2016 Health issued
a letter to show cause
why the contract should not be cancelled, and Resultant Finance
responded in February 2016. The fact that
Health
did
not take any action from February 2016 until June 2017 shows that it
had no basis to issue the letter to show cause and likewise
to
purport to cancel the contract on the same grounds specified in the
January 2016
letter without in the interim having
issued another letter placing Resultant Finance on terms, show that
the reasons for
the cancellation are
questionable.
[30]
In the letter to show cause nothing is stated about failure to
furnish proof of funding and again nothing is said about failure
to
register or be registered as a financial services provider with FSB,
which in the letter of cancellation are claimed to be the
reasons for
cancellation.
[31]
In my view, it is clear that there were various issues that needed to
be sorted out between the parties before performance
in terms of the
contract. They did not have a contract with specifics. They had not
signed as service level agreement. Therefore,
the obligations of each
party were not spelt out. It soon became clear that for whatever
reasons (probably as a result of having
a new head not committed to
the process and concerns being raised around the project) there was
no commitment from Health to reach
an agreement on the outstanding
issues. Instead investigation was initiated, and Health stalled for
the outcome of the investigation.
[32]
In my view, there is no substance in the claim by Health that
Resultant Finance was in breach of the contract in that it failed
to
show that it had access to funding to perform in terms of the
contract. It was not specified what was required from the bidder
to
show that the bidder had access to funding. Further, it was never
specified that the bidder had to show access to funding of
how much.
Resultant Finance was never placed on terms and failed to meet
reasonable terms stipulated. Therefore, for Health to
abruptly cancel
based on failure to furnish proof of funding was repudiation of the
contract. See
Datacolor International
(Pty) v lntamarket (Pty) Ltd
[2000] ZASCA 82
;
2001 2
SA 284
(SCA)paras1,16,17 and 18
[33]
Health at not stage claimed any misrepresentation made by Resultant
Finance in relation to registration as a financial services
provider.
Health during the bidding process knew the position of Resultant
Finance, but it proceeded, and it awarded the contract
to Resultant
Finance. There was no stipulation in the contract that Resultant
Finance needed to register as a financial services
provider. In the
letter to show cause nothing was stated about the registration as a
financial services provider. The fact that
Resultant Finance was not
registered as a financial services provider cannot constitute breach
of the contract. Again, the purported
cancellation on this ground by
Health amounted to repudiation of the contract. Health had awarded
the contract to Resultant Finance.
If the award of the tender to
Resultant Finance was irregular, it was not within Health to take
decision that it was irregular
and of no force and effect without
approaching the court with an application to review and set aside the
award of the tender. Failing
that, in the eyes of the world it
remained an award of the tender to Resultant Finance which was
binding and to be respected. See
Oudekraal
Estates (Pty) Ltd v City of Cape Town
2004
6 SA 222(SCA)
;
MEG for Health,
Eastern Cape and Another v Kirkland Investments (Pty) Ltd
.2014
(3) SA 481(CC)
[34]
Lastly, Health purported to cancel the contract on the basis that
there was no delivery by Resultant Finance. It is common
cause that
Resultant Finance could only acquire the required equipment after
being given purchase orders. Health admits that it
did not issue any
purchase orders. The parties needed to sort out the question of the
issue of purchase orders before calling upon
the other party to
deliver. It is not possible on the papers to arrive at a conclusion
as to whose fault was it that the purchase
orders were not issued.
There is no indication that Health was wrong to insist that the
question of access to adequate funding
needed to be sorted out before
it could issue purchase orders. There is no indication that Health
acted in an unreasonable manner
in rejecting confirmation of funding
with terms and conditions not acceptable to it. There were no
specific terms relating to these
issues in the contract and no
implied term has been pleaded. But it was in the bid document that
the bidder was required to provide
proof of access to funding to
enable it to deliver in terms of the contract. See
Alfred
McAlpine and
Son
(Pty)
Ltd v Transvaal Provincial Administration
1974
3 SA 506
(A);
BK Tooling (Edms) Bpk v
Scope Precision Engineering (Edms) Bpk
1979
1 SA 391
at 417.
(ii)
Main application
[35]
Resultant Finance makes a case that it concluded the contract with
Health in April 2015. It has been unable to deliver in terms
of the
contract due to the lack of co-operation by Health. It was in
February 2016 when Resultant Finance responded to the letter
to show
cause. It launched the main application in April 2017. Taking into
account the activity around the project and the period
of inactivity,
Resultant Finance was justified to be concerned. It was conveyed to
Resultant Finance that certain investigations
were being conducted
and the way forward regarding the contract will be determined by the
outcome of the investigations. There
was nothing from the part of
Health showing any commitment to the contract. The refusal or failure
to attend meetings with Resultant
Finance and calling upon Resultant
Finance to show cause why the contract should not be cancelled were
clear indications that there
was no commitment to the contract. It
was prudent that Resultant Finance launched the main application for
the relief sought in
the main application. Health has not answered
the case made by Resultant Finance except to counter with its own
counter-application.
(ii)
Review application
[36]
The review application is not in the format envisaged in Rule 53. The
MEC for Finance, the applicant, states that the format
prescribed in
Rule 53 is for the benefit of the applicant in review applications.
It seems that compliance with Rule 53 is not
a peremptory
requirement. Finance had received from Health all the required
documents for purposes of the review and Resultant
Finance had been
furnished with copies which made it unnecessary to follow the format
in Rule 53. See
Jockey Club of South
Africa v Forbes
[1992] ZASCA 237
;
1993 (1) SA 649
(A)
at 661-2
[3
The
locus standi
of
the MEC for Finance is disputed. The MEC for Finance cannot act on
behalfI f the Provincial Government. The Premier of the Province
cannot authorise an MEC to act on behalf of the Provincial
Government. The MEC for Finance cannot act on behalf of another MEC
even if requested by that MEC or the Premier of the Province. The
locus standi
of
the MEC for Finance must be found in legal prescripts that give
authority to her. It is common cause that Provincial Treasury
falls
under the MEC for Finance. Matters of concern to Provincial Treasury
are of her concern. Provincial Treasury is concerned
with the
expenditure of the Provincial Government, consisting of the various
provincial departments. Further, section 18 of the
PFMA authorises
the MEC for Finance to intervene and take corrective measures. The
contract awarded to Resultant Finance was a
high value contract for
period of five years relating the expenditure of the substantial part
of the budget of the Department of
Health. The MEC for Finance had a
direct and substantial interest in the subject matter and therefore
she has
locus standi
to
bring the review application. See
Bowring
NO v Vrededorp Properties
CC
2007
(5) SA 391
(SCA) par.21. Having resolved the issue of
locus
standi
in favour of the Minister of
Finance. It appears to me the principle enunciated by the
Constitutional Court in
State
Information Technology Agency
SOC
LTD
v
Gijima Holdings (Pty) Ltd
2018
(2) SA 23
(CC) can naturally be extended, where the fundaments are
the same, to a situation where an organ of state which has
locus
standi
within the government sphere,
can seek review a decision of another organ of state.
[38]
Resultant Finance has raised the issue of non-joinder of the MEC for
Health. The MEC for Health has deposed to an affidavit
that Health
supports the application by the MEC for Finance and it wishes not to
join or be joined in the proceedings. The rationale
for joinder is
that a party be given an opportunity to protect its own interests.
Where the party has indicated that it wishes
not to be joined, it is
ii s own decision and an order justified on the papers may be made
even if it affects that party. Therefore,
the non-joinder of the
Department of Health has no consequences to the application. Further,
Resultant Finance raised the issue
that Arkein Capital was not
supposed to be joined in the review application. Arkein Capital has
not participated in this litigation.
It was a bidder that was
disqualified, and it did not raise any objection that it was not
correctly disqualified. In my view, it
has no interest in these
proceedings and it should not have been joined. That does not render
the application flawed, it is of
no consequence to the application.
[39]
The procurement of large quantities of medical and non-medical
equipment by means of a lease from a third party was viewed
as an
innovative, cost effective and efficient way to procure and maintain
the equipment and at the same time transferring the
risk to a private
third party. There were no experiences or precedents in that area. It
had the potential not to be in accordance
with the legislative
prescripts of the State. It had no clear channels and it soon
faulted. It then required the intervention of
Finance, the Provincial
Government and the National Department of Health. There had been
non-delivery in terms of the contract.
The parties could not reach a
common ground on the term and conditions of the funding required from
Resultant Finance. The change
of the Heads of Health in July 2015
resulted in concerns in the manner of procuring equipment and
services. It resulted in investigations
which revealed that the
tender was awarded to Resultant Finance not in compliance with
prescribed requirement.
[40]
The MEC for Finance as a ground of review raised the following:
1.
That Resultant Finance provided a Broad Baes Black Economic Status
Level Verification Certificate which did not reflect the true
position. It claimed to have 5,2% black women owned but on
investigation it transpired that it was100% black men owned. The
sequence
indicates that the bidding process commenced in February
2015. In my view, it is not explained why there was no verification
done
up to the stage that the tender was awarded in April 2015. Why
it needed auditors to do the verification about two years after the
award was made. I find that there is no substance in this ground.
2.
Exclusion of Arkein Capital resulted in skewed process. There were
only two bids. Arkein Capital was disqualified and the bid
documents
of Arkein are missing. It was disqualified because it did not provide
an undertaking that there was no exclusivity agreement
with
manufactures. It was not requested to furnish such an undertaking and
it was unfairly excluded which favoured Resultant Finance.
In my
view, Arkein Capital participated in the bidding process, if it was
unfairly disqualified it could have pursued remedies
available to it.
It is not a ground to review the award of a bid to Resultant Finance
3.
The exclusion of Arkein Capital resulted in Resultant Finance being
the only bidder. Given the value of the bid and the fact
that the bid
could not be benchmarked, it meant that the bid should have been
cancelled and re-advertised. In my view, the MEC
does not point to
any legal prescripts stipulating that in such instances the bid
process should not proceed. There was a published
invitation of bids.
Interested entities submitted bids. The fad that some bidders were
disqualified is part of the process. It
is no ground to review and
set aside a bid that was awarded.
4.
The process was illegal, irrational and ill considered. The MEG has
not indicated on what basis was the process illegal, irrational
and
ill considered. In my view, there are no basis for such conclusion in
the papers. Before Health embarked on the process, the
necessary
consultation was done. It was a decision to procure equipment in that
manner and there is no indication that the decision
was taken by
persons who did not have authority to take such a decision. There was
no law prohibiting the equipment through a lease.
The current
leadership might not be in favour of procuring equipment through a
lease but that does not without further ado means
that the decision
taken at the time is irrational, illegal and ill considered.
5.
There was a failure to consult Health Technology Services Standard
Operation Procedures. In my view, there is nothing in the
papers that
such a consultation was a requirement and it was not done. The same
applies to the claim that he bid specifications
and advertisement
were not approved by the SCM Manager. I find no merit in these
grounds.
6.
The Bid Adjudication Committee was composed of three members instead
of five members. As stated above in this judgement, this
ground is
not properly supported in my view. There is no affidavit by a person
in charging of setting up this committee or the
chairperson of the
committee. It is not explained how it happened that it took two years
to find out that such a critical committee
in charge of procurement
for the entire department was not properly constituted.
7.
The real issue, in my view, relates to the requirement stipulated in
clause 2.34 of the Special Terms and Conditions of Contract.
Reliant
Finance admits that the requirement was stipulated, and it was
required to be complied with. It argues that it was a nonsensical
requirement and that in the briefing session it was explained that if
the bidder had a funder registered with FSB that will suffice.
In my
view, what was said in the briefing session cannot change a
requirement stipulated in the Bid Specifications. Whether the
bidder
regards the requirements as nonsensical or not is irrelevant. There
was no ambiguity in the requirement and it needed no
interpretation.
It stated that the bidder was required to be a registered financial
services provider with the FSB. If it was Joint
Venture or Consortium
or partnership it would suffice if one of its members was so
registered. It was common cause that Resultant
Finance made a bid
alone. It was not a Joint Venture, Consortium or Partnership. Clearly
the award of the tender to Resultant Finance
was irregular. Health
had no authority to award the bid to Resultant Finance in
contravention of the Bid Specifications. The awarding
of the tender
to Resultant Finance was unfair in that it favoured Resultant Finance
over other entities not registered as required
and it deprived
entities so registered of being awarded the tender. It rendered the
process uncompetitive and unfair in that a
bidder who was supposed to
be disqualified was awarded a tender. It deprived Health of acquiring
a service provider properly registered
as required, such service
provider would have been an entity compliant with the registration
requirements as financial services
provider. It was illegal in that
in contravened section 217 of the Constitution, Treasury Regulations
and the SCM policy of the
Department of Health. The award of the
tender to Resultant Finance allowed corrupt practices in that set
published requirements
were not applied. It resulted in an unfair
process. See
Al/pay Consolidated v
Chief Executive Officer SASSA
2014 1
SA 604
(CC).
Condonation
[41]
MEC for Finance sought condonation for the late lodging of the review
application, if it is found that there was a delay. The
tender was
awarded to Resultant Finance in April 2q15. The review application
was launched in September 2017. The MEC for Finance
states that after
the new Head of Health was appointed in July 2015 he reviewed a
number of procurement processes including the
award of the bid to
Resultant Finance. In August 2016 an initial review was conducted by
Provincial Treasury which noted irregularities
and appointed Deloitte
and Touché to undertake detailed forensic investigations. In
May 2017 Provincial Treasury took over
from Health its procurement
processes. She received the Deloitte report on 13 August 2017. The
MEC for Finance confirms that Provincial
Treasury's role in the
procurement in question was limited to technical assistance and
approval to extend the proposed leasing
from 3 to 5 years. Further,
she confirms that Mr Sangweni from Provincial Treasury was part of
the technical evaluation done by
the Bid Evaluation Committee. She
states that the forensic report has recommended action be taken
against him as part of the action
to be taken against a number of
employees for failing to disqualify Resultant Finance's bid as it was
not registered with FSB.
[42]
In its papers in the main application Health stated that the
investigation commenced in August 2016 and concluded in March
2017.
The internal audit report was received by Health from Provincial
Treasury in June 2017. Resultant Finance states that the
MEC for
Finance has unconscionably delayed in bringing the review
application; Finance was present at the briefing session held
on 19
February 2015 wherein the issue of FSB registration was raised and
discussed; at all times Finance had access to all the
information
relating to Resultant Finance's bid and it could have raised an
objection and its application is two years 6 months
from the date of
the award of the bids.
[43]
The Constitutional Court determined that a review by public authority
of its own administrative action is not a PAJA review,
but a legality
review. As one of the requirements of a legality review is that it
ought to have been brought timeously. Resultant
finance submits that
the delay can be a bar to a legality review, it stresses the point
that a court will not set aside an irregular
process if there was a
delay in bringing the application. In
Cape
Town v Aurecon SA (Pty) Ltd
2017 4
SA 223
(CC) it was held that the date on which the 180-day period
contemplated in PAJA starts to run is the date on which reasons for
the administrative action becomes known or ought reasonably to have
become known to the applicant. In
Gijima
Holdings (Pty) Limited
it was held
that the reason for requiring reviews to be instituted without undue
delay is thus to ensure certainty and promote legality.
Time is of
utmost importance. In my view, Provincial Treasury through its
officials were involved in the procurement process up
to the stage of
the award of the tender to Resultant Finance. Whether there was a
delay by the Provincial Treasury to challenge
the awarding of the
tender, the period commences from the date of the award of the
tender. The MEC for Finance is in the same position
as Provincial
Treasury. The MEC for Finance is required to give a reasonable
explanation for the delay failing which the delay
will be an absolute
bar.
[44]
The MEC for Finance seeks to explain the delay by stating that
Provincial Treasury officials did not bring to her attention
the
irregularity in the award of the tender to Resultant Finance. In my
view, the other purported review grounds found to have
no merit
become irrelevant for consideration of condonation for the delay in
bringing the review application. It has not been disputed
that the
MEC for Finance herself became aware of the irregularity in August
2017. No case has been made out that she ought to have
been aware at
an earlier date.
[45]
Certainty in public administration is critical. It is important that
administrative decision that have been taken, if not immediately
challenged, must be deemed to have been properly taken. Consequences
follow from administration actions and certainty promotes
stability
and it is the interest of proper planning and organisation. In my
view, the question of prejudice to
the
immediate
interested parties if the administrative action is set aside is not
determinative but one of the factors to be taken into
consideration.
In
Merafong City
Local Municipality v AngloGold Ashanti Limited
(2017)
(2) SA 211
(CC) para 73 it was held 'the rule against delay in
instituting review exist for good
reason,
to
curb
the
potential
prejudice
that
would
ensure
if
the
lawfulness
of
the decision
remains
uncertain. Protracted
delays
could
give
rise
to
calamitous
effects. Not
for
those
who
rely
on
the
decision
but
for
the
efficient
functioning
of
the
decision making
body
itself.
Factors
to
be
considered
are
inter
alia,
nature
of
the
relief
sought; the extent and
cause of the delay; the effect of the delay on the administration
of justice and other
litigants; the reasonableness of the explanation for the delay; the
importance of the issue or ground of review.'
etc.
[46]
In my view, in this application factors that carry more weight are
the following; there has been no delivery in terms of the
contract;
the ground of review is of substance; Resultant Finance is the author
of the established ground of review; the contract
was a high value
contract; there were issues around the delivery in terms of the
contract that had not been resolved by the parties
which delayed
delivery in terms of the contract. In conclusion, the delay in
lodging the review application is condoned.
Just
and equitable remedy
[47]
Once it has been found that the award of the tender to Resultant
Finance was unlawful, it is required that it be considered
what would
be the just and equitable remedy in the circumstances. There has been
no delivery in terms of the contract. The affected
parties are
Resultant Finance and the Department. There are no consequences of
the award that are irreversible. The noncompliance
must be placed at
the door of Resultant Finance and in my view, it was a substantial
non-compliance. I find that it is a just and
equitable remedy to set
aside the award of the tender to Resultant Finance.
Conclusion
[48].
I make the following order:
1.
The application in case No. 4536/17P and
the counter-application are dismissed with no order as to costs.
2.
The application in case No. 10475/17P is
granted in terms of paraphs 2,3, and 4 of the Notice of Motion with
no order as to costs.
MNGADI
J
APPEARANCES
Case
Number: CASE
N0
.4536/17P
and CASE NO.
10475/17P
For
the Applicant in the main
application
and Respondent in the review application: Adv
P.F. LOUW SC
Represented
by
Mathopo Moshimane
Mulangaphuma
Sandton
For
the respondents in the main application
And
applicant in the review application:
Adv.
A.J. DICKSON SC
Instructed
by PRK
Attorneys
PIETERMARITZBURG
Date
of
Hearing 10
August
2018
Date
of judgement 24
August
2018