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[2016] ZALMPPHC 17
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Greater Tzaneen Municipality v Bravospan 252 CC (238/2015) [2016] ZALMPPHC 17 (19 August 2016)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
LIMPOPO
DIVISION, POLOKWANE
CASE
NO: 238/2015
In
the matter between:
GREATER
TZANEEN
MUNICIPALITY
APPLICANT
And
BRAVOSPAN
252
CC RESPONDENT
JUDGMENT
MOKGOHLOA
J
1.
The applicant brought an
application seeking an order declaring the extension service level
agreement entered between the parties
on 28 August 2014 null and
void; alternatively, that the extended service level agreement be
reviewed and set aside.
2.
The facts of the matter are to
a great extent common cause. On 20 November 2013, the applicant and
the respondent entered into a
written service level agreement for the
rendering of security services. The essential terms of the agreement
were,
inter alia
,
that the respondent will provide security services to the applicant
commencing on 1 November 2013 until 31 October 2014; and the
applicant would pay an amount of R 2 757 666-60 for the
services rendered over a period of 12 months.
3.
On 28 August 2014, the
applicant extended the duration of the service level agreement by a
period of 24 months until 2016. The terms
of the extension were that
the agreement would commence on 1 November 2014 until 31 October
2016, and the applicant would pay an
amount of R 9 624 000.00
over a period of two years.
4.
The
applicant submits that the conclusion of the extended service level
agreement is not in compliance with the provisions of section
217 of
the Constitution of the Republic of South Africa Act,
[1]
and circular 62 issued in terms of the Municipal Finance Management
Act (MFMA).
[2]
5.
Section 217(1) of the
Constitution provides:
“
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-efficient.”
6.
Section 2 of the MFMA provides:
“
the object of the
Act is to secure sound and sustainable management of the fiscal and
financial affairs of municipalities and municipal
entities by
establishing norms and standards and other requirements for-
(a)
Ensuring transparency,
accountability and appropriate lines of responsibility in the fiscal
and financial affairs of municipalities
and municipal entities;
(b)
The management of their
revenues, expenditures, assets and liabilities and the handling of
their financial dealings;
(c)
……
(d)
……
..
(e)
………
(f)
Supply chain management,”
7.
Section 111 of the MFMA
provides that each municipal entity must have and must implement a
supply chain management policy. This
policy must comply with the
provisions of section 217 (1) of the Constitution.
8.
The applicant states the
following in its founding affidavit:
“
[
12]
A supply chain management policy and MFMA circular 62 (“the
policy”), which are informed by the foregoing statutory
provisions is attached hereto and marked as annexure (“GTM and
GTM2”).
[13] The policy provides
that competitive bids must be called for any procurement of goods or
services, construction works or consultant
services above a
transaction value of R 200 000.00 (Vat inclusive) or for any
contract exceeding one year in duration.
[14] A competitive
bidding process contemplated by the policy entails the preparation of
a bid specification and bid documents and
ad hoc committee generally
referred to as the Bid Specification Committee.
[15] The policy requires
that the bid specifications must be drafted in an unbiased manner to
allow all potential suppliers to offer
their goods or services.
[16] On completion of the
bid specification and bid document processes the policy requires the
Municipality to publicly invite bids
by notice published in the
press, in newspapers circulating in the Greater Tzaneen Municipality
area, in English and on the Municipality’s
official website.
[17] The bid notice
shall, as soon as possible after the publication contemplated above,
be posted on official notice boards designated
by the Municipal
Manager.
[18] The public notice is
to specify:
[18.1] the title of the
proposed contract and the bid or contract reference number; such
particulars of the contract as the Municipality
deems fit;
[18.2] the date, time and
location of any site inspection, if applicable; the place where the
bid documentation is available for
collection and the times between
which bids documentation may be collected;
[18.3] that bids may only
be submitted on the bid documentation provides by the Municipality;
the place where bids must be submitted;
the closing date and time for
submission of bids,
[19] Upon receipt of
bids, a bid evaluation committee is to be constituted for the
evaluation bids. The policy requires that functionality
must be
included as a criterion in the evaluation of a tender that is
specialised or technical in nature; in order to ensure the
quality of
the goods/ or services procured.
[20] The evaluation
criteria for measuring functionality and, the weighting attached to
each criterion must be listed in the Request
for Tender document and
minimum threshold of points for functionality must be identified and
disclosed in the Request for Tender
document.
[21]Thereafter, only
qualifying bids must be evaluated in terms of the 90/10 or 80/20
preference point system, where 90/80 points
are allocated for price
only and 10/20 points are allocated for HDI ownership and achieving
the prescribed RDP goals, in accordance
with the Preference Points
Claim Form. The bidder submitting the lowest quote in terms of amount
will score 90/80 points for price.
[22] The Bid Evaluation
Committee is to be comprised of at least three Municipality
officials, an appointed Chairperson (who may
be the same person as
the Chairperson of the Bid Specification Committee), a responsible
official and at least one SCM Practitioner
of the Municipality.
[23] Where appropriate, a
representative of Internal Audit and/or Legal Services may form part
of this committee, which may also
include other internal
specialists/experts as necessary. External specialists/experts may
advise the Bid Evaluation Committee,
as required.
[24] The Municipal
Manager or his delegated authority is to take into account 117 of the
MFMA, when appointing members of the Bid
Revaluation Committees.
Evaluation of bids must be done during the evaluation committee
meetings.
[25] After the Bid
Evaluation Committee completes it works, the bids are referred to the
Bid Adjudication Committee which shall
comprise at least four senior
managers, sand shall include: Chief Financial Officer or a Manager
designated by him.
[26] At least one senior
Supply Chain Management practitioner of the Municipality and a
technical expert in the relevant field who
is an official of the
Municipality, if the Municipality has such an expert.
[27] The Municipal
Manager appoints the members and chairperson of the Bid Adjudication
Committee. If the chairperson is absent
from a meeting, the members
of the committee who are present shall elect one of the committee
members to preside at the meeting.
[28] Neither a members of
a Bid Specification Committee, Bid Evaluation committee, nor an
advisor or person assisting such committees,
may be a member of a Bid
Adjudication Committee.
[29] The Bid Adjudication
Committee shall consider the report and recommendations of the Bid
Evaluation Committee and make a final
award or make another
recommendation to the Municipal Manager on how to proceed with the
relevant procurement.
[30] The Bid Adjudication
Committee may make an award to a preferred bidder, subject to the
Municipal Manager negotiating with the
preferred bidder in terms of
clause 231 of the policy.”
9.
The
applicant submits that the extension of the service level agreement
is illegal and unlawful in that all the processes and procedures
contained in the Municipality’s Supply Chain Management Policy
were not complied with. It submits further that the conduct
of
extending the agreement is in contravention of Circular 62 which
provides that ‘contracts may be expanded or varied by
not more
than 20% for construction related goods and contracts may be expanded
or varied by not more than 20% for construction
related goods and
contracts for services and/or infrastructure projects may not be
expanded or varied by not more than 15%.
10.
The
respondent opposes the application and filed a counter application
for the payment of R 2 005 000.00 for services
rendered to
the applicant for the period of November 2014 to end of March 2015. I
will revert to the counter application in due
course.
11.
In
its opposing affidavit, the respondent raised a
point
in limine
referring to some clauses of the service level agreement which read:
Clause
14
“
Any
dispute between the parties arising out of the interpretation or
implementation of this agreement shall be settled amicably
through
consultation or negotiation between them”.
Clause
15
“
Any
dispute arising in connection with this agreement, which cannot be
resolved by the parties in terms of this agreement, shall
be settled
by arbitration in accordance with the clause.
The
parties agreed to comply with the rewards resulting from arbitration
and waive their rights to any form of appeal Insofar as
such waiver
can validity be made”.
12.
As
regards the merits the respondent stated the following:
“
[11]
The Applicant did not make a case to have the service level agreement
be declared null and void nor did the Applicant satisfy
the
requirements of a review and setting aside.
[15.1]
In clause 5 of the service level agreement under the heading Value of
Tender it was agreed that the value of the contract
shall be R
2 757 666.60 for a period of 12 months and should the
Applicant wishes to extend the service, written agreement
must be
negotiated and signed by the two parties, especially on prices. [It
is emphasised that this is a very important clause
in the service
level agreement for the current application];
[16]
The need arose for the Applicant to continue the services of the
Respondent and therefore the addendum to the service level
agreement
was properly negotiated, agreed upon, entered into and signed and is
valid and binding agreement, not capable of being
declared null and
void nor being reviewed and set aside.
[23]
The additional inclusion to the original scope of work under the
extension to the level agreement increased the contract price,
but it
was negotiated and agreed to between the parties.
[24]
The additional services to be rendered in terms of the negotiated
extended service level agreement amounts to a cost of R 101 233.34
per month. When the calculation is properly made, the per month
charge is R401 000.00 X 12 amounting to R4 812 000.00
for the 12 month period and that calculation is made for the period
of 24 months as per the time in the extension for the service
level
agreements, the total amount is R9 624 000.00.
[26.1] At no stage
whatsoever, during negotiations or elsewhere, was the Respondent
informed of a requirement that the Municipal
Council must condone the
extension of the service level agreement;
[26.2]
Indicative of the fact that the content of the application amounts to
a falsity, the Applicant did not issue this current
application
earlier, but allowed the Respondent to fulfil its obligations for
some time in terms of the service level agreement
and the extension
thereof and having received the benefit of the Respondent’s
services, now for no justifiable reason, approaches
the Court. The
Applicant’s relief should not be granted and the contract
should be allowed to run its course and the Respondent
remunerated
therefore.
[27]
Even more pressing is the fact that the current acting Municipal
Manager was the Chief Financial Officer of the Applicant when
both
the service level agreement and the addendum to the service level
agreement was signed and she should have ensured that the
supply
chain procedures be properly followed insofar as it has any bearing
on the Respondent, which the Respondent humbly states
it does not.
The Respondent is not a party to the Applicant’s internal
processes and procedures the Applicant must follow
and when the
Respondent entered into the service level agreement and the extension
thereof, there was no indication of internal
processes not being
followed and the Respondent entered into the said agreements on the
basis that all was in order.”
13.
Dealing
with the same argument, the Supreme Court of Appeal stated in
Municipal Manager: Quakeni Local Municipality and Another
v F V
General Trading CC;
[3]
“
[23]
This argument cannot be upheld. This court has on several occasions
stated that, depending on the legislation involved and
the nature and
functions of the body concerned, a public body may not only be
entitled but also duty-bound to approach a court
to set aside its own
irregular administrative act: see
Pepcor
Retirement Fund and Another v Financial Services Board and
Another
2003
(6) SA
38
(SCA) ([2003]
3 All SA 21)
at para 10. Consequently, in
Rajah
& Rajah (Pty) Ltd and Others v Ventersdorp Municipality and
Others
1961
(4) SA 402
(A) at 407D-E it held that the interest a municipality had
to act on behalf of the public entitled it to approach a court to
have
its own act in granting a certificate to obtain a trading
licence declared a nullity. Similarly, in
Transair
(Pty) Ltd v National Transport Commission and Another
1977 (3) SA 784
(A) at 792H-793G this court held that an
administrative body, which held wide powers of supervision over air
services to be exercised
in the public interest, had the necessary
locus
standi
to ask a court to set aside a licence it had irregularly issued.
Finally, in
Premier,
Free State and Others v Fishrechem Free State (Pty)
,
supra, Schultz JA concluded in giving the unanimous judgment of this
court that ‘the province [the appellant] was under
a duty not
to submit itself to an unlawful contract and [was] entitled, indeed
obliged, to ignore the delivery contract and to
resist [the
respondent’s] attempts at enforcement.”
14.
I
fully agree with the honourable Judge of Appeal. Any Municipal
service contract concluded in breach of a statutory provision is
invalid and cannot be enforced. Regarding the points
in
limine
,
I find that the applicant was entitled and also duty bound to raise
the invalidity of the contract and to approach the court to
seek to
have the contract set aside.
15.
This
brings me to the respondent’s counter-application. The
counter-application is based on the settlement negotiations held
between the applicant and the respondent. According to the
respondent, this matter was initially set down for hearing on 9 June
2015. During the first week of June 2015, the applicant requested the
respondent to agree to a postponement of the matter to enable
the
applicant to file a replying affidavit and heads of argument. The
respondent agreed to such request.
16.
The
matter was reinstated for the 18 August 2015. On 17 August 2015, the
applicant requested another postponement for 30 days to
enable its
counsel to consider the settlement proposals as negotiated by the
parties on 8 July 2015 wherein the applicant offered
to pay the
respondent an amount of R 389 000.00. The attorney for the
applicant confirmed this discussion in a letter dated
17 August 2015.
The respondent once again acceded to the request on condition that it
was a final proposal.
17.
In
City of Tshwane Metropolitan Municipality v RPM Bricks (Pty) Ltd,
[4]
Ponnan JA made a distinction between two categories of cases. These
are, an act beyond or in excess of the legal powers of a public
authority (the first category) and the irregular or informal exercise
of power granted (the second category). The honourable Judge
of
Appeal stated
“
[12]
in the second category, persons contracting in good faith with a
statutory body or its agents are not bound, in the absence
of
knowledge to the contrary, to enquire whether the relevant internal
arrangements or formalities have been satisfied, but are
entitled to
assume that all the necessary arrangements or formalities have indeed
been complied with (see for example
National
and Overseas Distributors Corporation (Pty) Ltd v Potato Board
1958 (2) SA 473
(A);
Potchefstroom
se Stadsraad v Kotze
1960
(3) SA 616
(A). Such persons may then rely on estoppel if the defence
raised is that relevant internal arrangements or formalities were not
complied with.
[13]
As to the first category: failure by a statutory body to comply with
provisions which the legislature has prescribed for the
validity
of a specified transaction cannot be remedied by estoppel because
that would give validity to a transaction which is unlawful and
therefore ultra vires. (See for example
Strydom v Die Land- en
Landboubank van Suid-Afrika
1972 (1) SA 801
(A);
Abrahamse v
Connock’s Pension Fund
1963 (2) SA 76
(w); and
Houptfleish
v Caledon Division Council
1963 (4) SA 53
(C.)
[16]
There are formidable obstacles to the plaintiff’s reliance upon
the doctrinal device of estoppel. Assuming in the plaintiff’s
favour that all of the requirements for its successful invocation
have been established, this is not a case in which it can be
allowed
to operate. It is settled law that a state of affairs prohibited by
law in the public interest cannot be perpetuated by
reliance upon the
doctrine of estoppel (
Trust Bank van Africa Bpk v Eksteen
1964
(3) SA 402
(A) at 411H-412B), for to do so would be to compel the
defendant to do something that the statute does not allow it to do.
In effect
therefore it would be compelled to commit an illegality
(
Hoisain v Town Clerk, Wynberg
1916 AD 236).
[17].
. . .The effect of allowing estoppel to operate would be to breathe
life into that which has yet to come into being. If the
amendment
were to be ‘validated’ by the operation of estoppel, the
defendant would be precluded from exercising the
powers specifically
conferred upon it for the protection of the public interest.
[18]
The fact that the plaintiff was misled into believing that the
defendant’s employees were authorised to vary an agreement
that
had earlier been lawfully concluded with it can hardly operate to
deprive the defendant of that power which had been bestowed
upon it
by the legislature. To do so would be to deprive the ultra vires
doctrine of any meaningful effect”
18.
The
present case falls into the first category for the simple reason that
the applicant’s authority to extend the service
level agreement
must be sought in the provisions of the statute. Section 217 of the
Constitution requires contracts for goods or
services by an organ of
state such as the applicant, to be in accordance with a system which
is fair, equitable, transparent, competitive
and cost-effective.
Therefore, failure by the applicant to comply with the provisions of
section 217, renders the extension of
the service level agreement
unlawful. Consequently, an unlawful transaction cannot be remedied by
estoppel ‘because that
would give validity to a transaction
which is unlawful and therefore
ultra
vires.
19.
Having
stated the above, the following order shall issue:
1.
The
extension of a service level agreement concluded between the
applicant and the respondent is declared null and void.
2.
The
counter application is dismissed with costs.
3.
The
respondent is ordered to pay the costs of the application on an
attorney and client scale.
_____________________
Mokgohloa DJP
REPRESENTATIONS:
1.
Counsel
for the Applicant : Adv Manala
Instructed
by
: Mahowa Incorporated
2.
Counsel
for the Respondent : Adv Bresler
Instructed
by
: Weyer, Jansen Van Rensberg Inc
3.
Date
of hearing
: 29
April 2016
4.
Date
handed down
: 19 August 2016
[1]
108 of 1996
[2]
56 of 2003
[3]
2010 (1) SA 356
CC
[4]
2008 (3) SA (1) SCA