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[2017] ZAGPPHC 346
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Transnet Soc Ltd v Mazothando (Pty) Ltd (13991/2016) [2017] ZAGPPHC 346 (9 May 2017)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH
COURT OF
SOUTH AFRICA,
GAUTENG
DIVISION, PRETORIA
CASE
NO: 13991/2016
DATE:
9/5/2017
In
the matter between:
TRANSNET
SOC
LTD
Applicant
and
MAZOTHANDO(PTY)LTD
Respondent
JUDGMENT
MIA,AJ
INTRODUCTION
[1]
The applicant sought an order declaring its decision to appoint the
respondent to supply and deliver B90 Black Loco Sand in
25 kg bags to
the applicant as constitutionally invalid and unlawful and to set
aside the aforesaid decision. It sought further
an order to declare
the agreement concluded between itself and the respondent pursuant to
the aforesaid decision, for supply and
delivery of sand to be
declared constitutionally invalid and unlawful and to set aside
the agreement.
The
respondent opposed the application. The first issue that arose on the
papers was the respondent's objection to the applicant's
late filing
of the replying affidavit.
[2]
The respondent objected initially to the admission of the replying
affidavit as evidence in the proceedings as it was filed
five months
after it was due. The applicant did not launch a substantive
application to condone the late serving and filing of
the replying
affidavit. When the matter was heard this issue was no longer
persisted. Rule 27 permits the Court to condone any
non-compliance
with the rules where good cause is shown.
BACKGROUND
[3]
The facts which inform the background to the dispute are the
following. The applicant is an organ of state. It procures goods
and
services from time to time in the course of executing its functions.
The applicant issued a request for quotations (RFQ) on
25 August
2015. The request was for the supply of B90 Black Loco Sand in 25 kg
bags for 10E, 11E and Diesel Locomotives at three
sites in Ermelo,
Mpumalanga for a period of three months. The invitation did not
specify the number of bags required. This was
a necessary
specification and the failure to do so it was contended compromised
the RFQ process.
[4]
In response to this request for quotations the
respondent enquired directly from one of the applicant's user
departments what their consumption of black loco sand was per week.
The respondent was informed that the amount was 110 bags per
week.
The respondent submitted a quotation taking into account an
additional 10 bags per week to allow for spillage. The respondent
submitted a quotation calculating usage at 110 bags per week plus 10
extra bags per week for spillage over 3 months and submitted
a
quotation for the total amount of R1322,856,00 being the amount it
would charge for the supply and delivery of the sand required
by the
applicant over three months.
[5]
The applicant accepted the quotation and awarded the contract to the
respondent. A written contract was concluded on 22 September
2015.
Clause 4.1 of the agreement provided:
"This agreement is
an agreement under the terms and conditions of which the supplier
will arrange for the supply to Transnet
of goods which meet the
requirements and specifications of Transnet delivery of which is
controlled by means of purchase orders
to be issued by Transnet and
executed by the supplier in accordance with this agreement."
[6]
The applicant issued purchase orders for the period 22 September
until the end of October 2015 for the delivery of sand. The
respondent delivered a total of 4140 bags of sand which deliveries
were accepted by the applicant and utilised. At
the end of the
period the respondent issued an invoice for the amount of R2 616 744,
60 which was considerably more than the amount
that had been agreed
upon. The quotation reflected the amount of R1322 856.00. The
applicant refused to pay the invoice. The applicant
averred the goods
were procured in contravention of its procurement policy and sought
to set aside the contract concluded.
[7]
Mr Tsatsawane, counsel for the applicant, argued that the applicant
is required to procure goods and services in terms of a
prescribed
procurement policy which is governed by section 217 the Constitution.
Section 217 of the Constitution provides:
"(1) When an organ
of state in the national, provincial or local sphere
of government, or any
other institution identified in national legislation, contracts for
goods or services, it must do so in accordance
with a system which is
fair, equitable, transparent, competitive and cost effective.
(2) Subsection (1)
does not prevent the organs of state or institutions
referred to in that
subsection from implementing a procurement policy providing for-
(a)
categories of preference in the allocation of contracts; and
(b)
the protection or advancement of persons, or categories of
persons, disadvantaged by unfair discrimination.
(3) National
legislation must prescribe a framework within which the policy
referred to in subsection (2) must be implemented."
The
applicant had thus formulated and adopted a supply chain management
policy which informed its procurement and gave effect to
the
provisions of section 217 of the Constitution.
[8]
He argued further that the applicant's supply chain management policy
provided for various methods whereby the applicant could
procure
goods and services. This policy he argued was therefore the source of
authority to procure goods and services and directed
the methods to
be employed. One such method of procurement was the quotation method
which was the particular method employed before
the agreement was
concluded between the parties.
[9]
The quotation method required the invitation of quotations and the
submission of quotations by service providers. Service providers
indicated the amount they would charge for a particular service or to
provide certain goods required by the applicant. Upon receipt
of all
the quotations, the applicant conducted and assessment to identify a
successful bidder based on particular criteria.
The successful
bidder once identified concluded a procurement agreement and fees
were disbursed for goods provided or services
rendered.
[10]
Of particular relevance to the present matter is the
applicants supply chain management policy which provides
in
clause 14.3.1 that:
"The quotation
system is a procurement system for transactions below
R2
million (exclusive of VAT) that are required on a non -repetitive
basis."
[11]
The above requires that goods and services required in excess of R2
million are secured by alternate means such as by way of
tender. The
applicants supply chain management policy
provides further in clause 14.3.2 that:
"b) The quotation
system is intended for non-frequent purchases of
fairly low value.
It should not be used on a continual/ repetitive basis for the
same commodity i.e. where the same commodity is purchased (sometime
even form the same supplier), but on different purchase
orders/requisitions. This will be regarded as parcelling."
c) The quotation
system is best suited in the following circumstances where:
i)
transactions are valued at less than R2 million;
ii)
The purchase is
not required on a repetitive basis.
Where the same purchase is regularly made, consider a fixed term
as and when required contract..
iii)
the value of the transaction would make it impossible,
impractical or economically inviable to call for Open Bids;
iv)
there are opportunities to develop suppliers in order to
achieve transformational objectives. This mechanism is considered to
be
the best avenue to facilitate entry to the market for emerging
small B BBEE companies."(my emphasis)
[12]
Mr Tsatsawane argued further that the procurement of goods and
services was informed and guided by a public procurement system
informed by section 217 of the Constitution to ensure good governance
and to ensure responsible and accountable use of funds. Section
2 of
the Constitution provided that any law or conduct which is
inconsistent with the Constitution is invalid and the obligations
imposed by the Constitution must be complied with. A failure to do so
rendered the conduct or law in issue invalid. In view hereof
the
applicant was thus obliged to monitor and resist any contracts
concluded in contravention of the procurements system which
occurred
or was concluded contrary to the procurement system as it was thus
contrary to section 217 of the Constitution.
[13]
He argued that the contravention occurred in that the quotation
system allowed for the purchase of goods to the value of R2
million
on a once off basis. It was not for purchases which would be
repetitive in nature. The fact that the value of the procurement
exceeded R2 million, despite the invoice reflecting an amount of
R1.322 856 million appeared from the respondents own invoice and
was
thus in contravention of the procurement policy. The respondents
invoice and claim against the applicant in the Gauteng Local
Division
exceeded the quotation and the agreed amount per the terms of the
agreement.
[14]
The applicant's officials were required to take steps to determine
whether goods or services required would exceed R2 million.
This
should have informed the procurement method which they would need to
employ. They ought to have specified the number of bags
required in
the RFQ to ensure transparency and accountability. When the request
for quotations was issued this specification was
lacking. This
resulted in the service provider approaching a particular office to
determine usage. The decision makers were thus
not able to determine
whether the total price would exceed R2 million in these
circumstances as the information furnished was incomplete.
The
failure to do so resulted in irregular unauthorised expenditure and
the procurement method was not appropriate under the circumstances.
This then resulted in the procurement transactions being
ultra
vires.
The service also required a repetitive purchase of sand
which was contrary to the procurement policy.
[15]
The above irregularities were in violation of the supply chain
management policy and the agreement concluded pursuant thereto
was
constitutionally invalid, unlawful and fell to be set aside. He
argued that the agreement was reviewable in terms of section
6(2) (a)
(i) of the Promotion of Just Administrative Action Act (PAJA) in that
the relevant officials were not authorised to procure
the services in
the manner they employed. They were not
empowered to do so in terms
of clause 14.3.1
and 14.4 of the applicant's supply chain management policy.
[16]
He argued further that section 6(2) (b) of PAJA was applicable in
that the mandatory material procedure prescribed by the empowering
provision namely clauses 14.3.1 and 14.4 of the supply chain
management policy were not complied with because the quotation method
was utilised for services and goods purchases which exceeded R2
million and were repetitive contrary to the supply chain management
policy. Further that section 6(2)(i) of PAJA was applicable as the
decision to purchase from the respondent was unlawful and
unconstitutional
in so far as the process adopted prior to concluding
the agreement and identifying the successful bidder was not a
competitive
and transparent process.
[17]
Mr Mathibedi, counsel for the respondent, argued that this matter
arose out of the same cause of action pending in the South
Gauteng
Division of the High Court. The applicant was aware that the
respondent had issued summons in the Gauteng Local Division
and
summary judgment which the applicant launched in that Division was
dismissed. The matter was thus pending. The applicant served
and
filed an exception to the respondent's particulars of
claim. The exception is yet to be heard. The respondent
filed a
notice to amend its particulars of claim. There was no opposition
thereto. If indeed the applicant sought to challenge
the conclusion
of the agreement between the parties, it ought to have done so in
that forum as set out in this application.
[18]
The respondent distinguished between the agreement under attack and
the requisition and delivery of the B 90 Black Loco Sand.
Mr
Mathibedi argued that the submission of the quotation and the
agreement concluded for the amount of R1322 856.00 did not fall
foul
of the procurement policy and thus was not invalid. The quotation
submitted resulted in the respondent being declared the
successful
bidder. This culminated in the conclusion of the agreement under
attack. The agreement allowed for the services of the
respondent to
be secured in terms of the applicant's supply chain management
policy. This was in line with section 217 of the Constitution
as well
as the applicant's Supply Chain Management Policy.
[19]
Mr Mathibedi argued further that the delivery of sand was in
compliance with the agreement. The respondent only delivered sand
as
requested. He argued further that the only portion of performance
that was open to question was the delivery of sand in excess
of R1322
856.00. This he submitted the respondent could claim on the basis of
unjust enrichment. The respondent intended to amend
its particulars
of claim accordingly to claim for the excess sand on the basis of
unjust enrichment in the Gauteng Local Division.
[20]
He argued that in the event that the Court found that the conclusion
of the agreement was contrary to the applicant's Supply
Chain
Management Policy and section 217 of the Constitution, he argued that
the Court ought to adopt a just and equitable approach.
In this
regard he submitted that the Court
should consider whether it would
be
appropriate and just and equitable to set aside the agreement with
the applicant who did not tender return of the sand and it
was now
impossible to do so. Further that the Court should consider that the
lifespan of the agreement had expired and no reasons
had been
advanced by the applicant why once it did come to the applicant's
attention that excess sand had been delivered that it
did not take
steps to refuse the excess sand alternatively that it did not return
the excess sand.
[21]
He also implored the Court to consider
that setting aside the agreement would
financially
prejudice the respondent has the agreement had been
concluded and performance had been completed.
It was
impossible for the applicant to tender return of the sand or the
excess sand. In support of his argument to uphold the agreement
referred to the matter of
Bengwenyama Minerals v Genorah Resources
2011(4) SA 113 at para 85 where the court held:
"The apparent
anomaly that an unlawful act can produce legally effective
consequences is not one that admits easy and consistently
logical
solutions. But then the law often is a pragmatic blend of logic and
experience. The apparent rigour of declaring conduct
in conflict with
the Constitution and PAJA unlawful is ameliorated in both the
Constitution and PAJA by providing for a just and
equitable remedy in
its wake. I do not think that it is wise to attempt to lay down
inflexible rules in determining a just and
equitable remedy following
upon a declaration of unlawful administrative action. The rule of law
must never be relinquished, but
the circumstances of each case must
be examined in order to determine whether factual certainty requires
some amelioration of legality
and, if so, to what extent. The
approach taken will depend on the kind of challenge presented -
direct or collateral; the interests
involved, and the extent or
materiality of the breach of the constitutional right to just
administrative action in each particular
case. "
[22]
Regarding the authorities referred to by the applicant he
submitted that they were distinguishable from the present matter. The
applicant was required to make out a case in its founding papers, not
from the bar. Regarding the submissions relating to transparency,
this does not appear in the applicants founding affidavit and thus
the applicant ought not be permitted to make out such a case
from the
bar. He argued further that to the extent that the good portions of
the agreement may be severed from the bad the Court
should uphold
that portion of the agreement that was capable of been saved so as to
ensure that there was no prejudice to the respondent.
[23]
The applicants founding affidavit made reference
to the Constitution and the
Public Finance Management Act
1 of 1999
. In so far as there was no reliance on PAJA I was
referred to the matter of Bate
Star Fishing Ltd v Minister
of Environmental Affairs and Others
2004(4) SA 490 (CC)
where the Court per O' Regan held at
paragraph [26] and
[27]:
"[26] In these
circumstances, it is clear that PAJA is of application to this case
and the case cannot be decided without reference
to it. To the
extent, therefore, that neither the High Court nor the SCA considered
the claims made by the applicant in the context
of PAJA, they erred.
Although the applicant did not directly rely on the provisions of
PAJA in its notice of motion or founding
affidavit, it has in its
further written argument identified the provisions of PAJA upon which
it now relies.
[27] The Minister and the
Chief Director argue that the applicant did not disclose its causes
of action sufficiently clearly or
precisely for the respondents to be
able to respond to them. Where a litigant relies
upon a
statutory provision, it
is not necessary to specify it, but it must be clear from
the facts alleged by the
litigant that the section is relevant and operative. I am prepared to
assume, in favour of the applicant,
for the purposes of this case,
that its failure to
identify with any precision the provisions of PAJA upon which it
relied is not fatal to its cause of action.
However, it must be
emphasised that it is desirable for litigants who seek to review
administrative action to identify clearly
both the facts upon which
they base their cause of action, and the legal basis of their cause
of action."
[24]
The submissions made by counsel as well as the heads of
argument filed herein, indicate in detail which sections the
applicant
relied on in PAJA to review the agreement which it seeks
to have declared unlawful and to have set aside.
It
is apparent that the concern raised is the manner in which the
empowering provision was flouted. Mr Tsatsawane referred to the
decision in
Minister of Transport v Prodiba (Pty) Ltd
[2015ZASCA
38 (25 March 2015) where the court held:
"(38)
The court below erred in holding that Mr. Mahlalela was acting
well within his powers in
concluding the agreement
without a competitive process
as
the option he chose, namely to sign the agreement, was justified. In
doing so, it ignored the principles set out above and misconstrued
the facts."(my emphasis)
[25]
The need for public officers or where public funds are
expended to follow a particular process is evident in the case
of
Chief Executive Officer, South African Social Security Agency v
Cash
Paymaster Services (Pty) Ltd
2012 (1) SA 216
(SCA)
where the court noted at paragraph 21 the
following in relation
to
the National Treasury
Regulations:
"That is a formal
requirement. The basis for these requirements is obvious. State
organs are as far as finances are concerned
first of all accountable
to the National Treasury for their actions. The provision of reasons
in writing ensures that Treasury
is informed of whatever
considerations were taken into account in choosing a particular
source and of dispensing with a competitive
procurement process. This
enables Treasury to determine whether there has been any financial
misconduct and, if so, to take the
necessary steps in terms of reg
33."
[26]
The applicant's conduct ought to be governed and
informed by the Constitution and the principle of legality. Mr
Tsatsawane referred
to Fedsure
Life Assurance
Ltd V Greater Johannesburg
Transitional
Metropolitan Council
1999(1) SA 374 (CC) where at
paragraph [58] the Court held:
"[58]
It seems central to the conception of our constitutional order that
the Legislature and
Executive in every sphere are constrained by the principle that they
may exercise no power and perform no function
beyond that conferred
upon them by law. At least in this sense, then, the principle of
legality is implied within the terms of
the interim Constitution.
Whether the principle of the rule of law has greater content than the
principle of legality is not necessary
for us to decide here. We need
merely hold that fundamental to the interim Constitution is a
principle of legality.
[59] There is of course
no doubt that the common-law principles of
ultra vires
remain
under the new constitutional order. However, they are underpinned
(and supplemented where necessary) by a constitutional
principle of
legality. In relation to 'administrative action' the principle of
legality is enshrined in s
24(a).
In relation to legislation
and to executive acts that do not constitute 'administrative action',
the principle of legality is necessarily
implicit in the
Constitution. Therefore, the question whether the various local
governments acted
intra vires
in this case remains a
constitutional question."
[27]
The applicant was obliged at all
times when procuring goods and services to exercise
its powers and act in terms of its supply chain
management
policy and the PMFA. The services and goods procured required in
terms of the PMFA and the procurement policy that a
fair, competitive
and transparent process be adopted in order to safeguard the
integrity of the procurement process and to ensure
the prudent use of
public resources and also to prevent corruption and maladministration
of public resources. The good procured
were done contrary
to the policy of the applicant in that it was repetitive
in the order. Further
the amount exceeded the R 2million
limit set in the procurement policy and was not a once off purchase.
[28]
In circumstances where an agreement is concluded without. the
prescribed statutory requirements such as the PMFA or prescribed
procurement policy which is adopted in terms of section 217 of the
Constitution, the agreement is invalid. The applicant cannot
ignore
or avoid the requirements of the Constitution and is bound to address
the issue once it comes to its attention. It
has done so in the
present matter. I have considered the submissions on behalf of the
respondent that there will be prejudice to
the respondent. There is
prejudice to the respondent. The respondent is addressing this
prejudice by way of proceedings in the
South Gauteng Local Division
by way of a claim for unjust enrichment against the applicant in the
event that the agreement is set
aside. The issue in the present
matter is the question of the legality of the agreement and whether
the procedure adopted contrary
to procurement policy resulting in an
unfair an uncompetitive process should be upheld. This cannot be.
This would permit the harm
which the policy and the Constitution seek
to prevent. The applicant is required to adopt a proactive position
rather than a defensive
position in relation to procurement and it is
appropriate that it seeks the order requested
ORDER
In
view of the above it is ordered:
[29]
1. The applicant's decision to appoint the
respond to supply and deliver B 90 Black Loco Sand in 25
kg is
declared constitutionally invalid unlawful and is hereby set-aside,
2. The agreement
concluded between the applicant and the respondent to supply and
deliver 690 Black Loco Sand in 25 kg is declared
constitutionally
invalid unlawful and is hereby set-aside
3. The respondent to pay
the costs of this application.
________________________________
S
C MIA
ACTING
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
Appearances:
On
behalf of the applicant :
Adv K Tsatsawane
Instructed
by
: Diale Mogashoa Attorneys
On
behalf of the respondent :
Adv TF Mathibedi
Instructed
by
: Makola Attorneys
Date
of hearing
: 18 April 2017
Date
of judgment
: 9 May 2017