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[2016] ZAGPPHC 1027
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Waymark Infotech (Pty) Ltd v Road Traffic Management Corporation (36811/2014) [2016] ZAGPPHC 1027 (13 December 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
N0:36811/2014
13/12/2016
Not
reportable
Not
of interest to other judges
Revised.
In
the matter between:
WAYMARK
INFOTECH (PTY) LTD
PLAINTIFF
and
ROAD
TRAFFIC MANAGEMENT CORPORATION
DEFENDANT
JUDGMENT
RANCHOD
J:
[1]
The plaintiff and defendant had entered into a written Service Level
Agreement (the SLA) pursuant to a bidding process in terms
of which
the plaintiff was to render certain services including the
replacement of an Enterprise Resource Planning System (ERP)
('the
system') for the defendant. The contract price was R33 737 062.00.
[2]
The plaintiff says it rendered the services but before they could be
completed the defendant asked it to suspend the provision
and
completion of the services until a formal communication from the
defendant to resume them. Plaintiff says the defendant never
informed
it to resume and complete the services.
[3]
The plaintiff issued summons against the defendant under case no
2010/40422 alleging that the suspension of the services by
it
amounted to an unlawful termination, alternatively, repudiation of
the SLA. On 18 October 2013 this court found (per Janse van
Nieuwenhuizen J) that the agreement between the parties had not been
terminated and granted absolution from the instance against
the
plaintiff.
[4]
The plaintiff thereafter tendered to perform its obligations in terms
of the SLA and called upon the defendant to agree to a
time table for
the defendant to likewise perform its obligations in terms of the
agreement. The defendant refused to do so which
refusal, says
plaintiff, amounts to an unlawful repudiation of the SLA which
plaintiff has accepted. Plaintiff accordingly terminated
the SLA and
instituted the present action for damages for R6 774 750.00.
[5]
The defendant raised a special plea of prescription and pleaded over
on the merits of the claim. For present purposes, only
paragraph 1.1
of the plea is relevant as I will explain presently. The plea in
paragraph 1.1 is as follows:
'1.1 Save for pleading
that the conclusion of the agreement was not properly authorised, as
dealt with more fully in the defendant's
counterclaim, the
allegations herein contained are admitted.'
[6]
It is necessary to set out the defendant's counter-claim (claim in
reconvention) at length. The defendant claims:
"3. In terms of the
Service Level Agreement, the Defendant acquired services from the
Plaintiff relating to an Integrated Enterprise
Resource Planning
System with business intelligence at a contract sum of R33 337 062.03
(inclusive of VAT), which services would
be rendered on or before the
delivery due dates set out in schedule "A" to such
agreement.
4. Payment terms were set
out in schedule "E" to the Service Level Agreement and
provided for the following payments to
be made on or before the
following dates:
4.1. Software licenses -
R10 422 887.00 at the commencement of the project;
4.2. Hardware - an amount
of R5 644 375.00 at the commencement of the project;
4.3. CRP1 - an amount of
R3 534 000.00 at completion of the milestone on 4 May 2009;
4.4. CRP2 - an amount R3
534 000.00 at completion of the milestone on 15 June 2009;
4.5. User Acceptance
Testing ("UAT") - an amount of R4 417 500.00 on
or before 21 September 2009;
4.6. Go-Live - an amount
of R3 534 000.00 on or before 1 November 2009;
4.7. Production support -
an amount of R2 650 500.00 on or before 30 November 2009.
5. In the premises, the
agreement was concluded on the basis that future financial
commitments were made by the Defendant.
6. At the time of
acceptance of the Plaintiffs bid under reference no: RTMC07/2008/09
dated 17 November 2008 and conclusion of the
Service Level Agreement:
6.1.the Defendant was a
National Public Entity listed in Part A of Schedule 3 to the Public
Finance Management Act 1 of 1999 (hereinafter
referred to as "the
Act").
6.2.the Defendant was
accordingly at all relevant times a National Public Entity as
contemplated in Section 66(3)(c) of the Act,
so that it could only
have concluded the agreement resulting from the tender and the
Service Level Agreement through the Minister
of Finance at the time.
7. The tender and the
Service Level Agreement were not concluded by the Minister of Finance
at the time.
8. In the premises:
8.1
the tender and the Service Level Agreement are not binding upon the
Defendant, as contemplated in Section 68 of the Act;
8.2
further, the Plaintiff was and is not entitled to enforce or rely
upon the Defendant's alleged repudiation of the agreement
and its
subsequent cancellation of the agreement.
9. The Plaintiff contends
that the Service Level Agreement was binding upon the Defendant and
that it is entitled to contractual
damages.
10. In the premises, the
Defendant is entitled to an order declaring that the tender under bid
no: RTMC07/2008/09 dated 17 November
2008, its acceptance and the
Service Level Agreement dated 31 March 2009 are not binding on the
Defendant."
[7]
At the commencement of the trial the parties applied in terms of Rule
33(4) for an order separating the issues about the merits
of
plaintiff's claim and the special plea of prescription from that of
the counter-claim and that only the latter should be determined
at
this stage. The reasoning was that if I found in defendant's favour
in the counter-claim it would dispose of the entire matter.
I agreed
and the plaintiff's claim and the determination of the special plea
were postponed
sine die.
The matter then proceeded only in
respect of the counter-claim.
[8]
It is common cause that after a tender process the parties entered
into a SLA dated 31 March 2009. It is also common cause that
the
Minister of Finance did not award the tender or conclude the SLA.
[9]
As is apparent from the counter-claim, the defendant alleges that the
payment terms set out in schedule "E" to the
SLA and the
provision of payments to be made on the completion of various stages
of the project constituted 'future financial commitments'
by the
defendant. This, it argued, falls foul of the provisions of s66 of
the Public Finance Management Act 1 of 1999 (the
PFMA)
and, in terms of s68 the SLA is
not binding on the
defendant.
[10]
The pre-amble to the PFMA provides as follow:
'To regulate financial
management in the national government and provincial governments; to
ensure that all revenue, expenditure,
assets and liabilities of those
governments are managed efficiently and effectively; to provide for
the responsibilities of persons
entrusted with financial management
in those governments; and to provide for matters connected
therewith.'
[11]
Sections 66 and 68 fall under chapter 8 of the PFMA under the heading
"Loans, Guarantees and Other Commitments".
[12]
Section 66 provides-
"66 Restrictions on
borrowing, guarantees and other commitments
(1) An institution
to which this Act applies may not borrow money or issue a guarantee,
indemnity or security, or enter into
any other transaction that binds
or may bind that institution or the Revenue Fund to any future
financial commitment, unless such
borrowing, guarantee, indemnity,
security or other transaction-
(a) is authorised
by this Act;
(b) in the case of
public entities, is also authorised by other legislation not in
conflict with this Act; and
(c) …
(2) …
(3) Public entities
may only through the following persons borrow money, or issue a
guarantee, indemnity or security, or enter
into any other transaction
that binds or may bind that public entity to any future financial
commitment:
(a) …
(b) …
(c) Any other
national public entity: The Minister or, in the case of the issue
of a guarantee, indemnity
or security, the Cabinet member
who is the executive authority responsible for that public entity,
acting with the concurrence
of the Minister in terms of section 70."
[13]
In terms of s1 of the PFMA a public entity "means a national or
provincial public entity" and a national public entity
means -
(a) a national
government business enterprise; or
(b) a board,
commission, company, corporation, fund or other entity (other than a
national government business enterprise).
[14]
It is not in dispute that the defendant is a National Public Entity
listed in Part A of Schedule 3 to the PFMA.
[15]
Section 68 of the PFMA provides:
"68. Consequences of
unauthorised transactions
If a person, otherwise
than in accordance with section 66, lends money to an institution to
which this Act applies or purports to
issue on behalf of such an
institution a guarantee, indemnity or security, or enters into any
other transaction which purports
to bind such an institution to any
future financial commitment, the state and that institution is not
bound by the lending contract
or the guarantee, indemnity, security
or other transaction.'
[16]
As is apparent from the counter-claim, the defendant relies on
s66(3)(c) read with s68 of the PFMA in that the Minister of
Finance
(the Minister) did not award the tender or conclude the SLA. That the
Minister did not do so is not in dispute. The plaintiff
contends that
while the SLA commits the defendant to future financial obligations
they are not those contemplated in s66 of the
PFMA. It says the SLA
concerns the procurement of goods and services for which a budget has
been provided. Whilst the defendant
is a public entity as
contemplated in s66(3)(c) the section does not apply to transactions
for the procurement of goods and services.
[17]
The normal procurement of goods and services is provided for in s217
of the Constitution. The section provides -
'217. Procurement - (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 ...· (Italicised
for emphasis).
[18]
Section 217 of the Constitution finds expression in s51 of the PFMA
in relation to public entities. It provides -
'51.
General
responsibilities of accounting authorities
(1) An accounting
authority for a public entity-
(a) must ensure
that that public entity has and maintains
(i) …
(ii)
(iii) an appropriate
procurement and provisioning system which is fair, equitable,
transparent. competitive and cost effective;
It
is not in dispute that the contract
in casu
is a procurement
contract.
[19]
Annexure "PL1" to plaintiff's plea to the defendant's
counterclaim is an internal document of the defendant addressed
to
its Chief Executive Officer requesting approval for the acquisition
of the Integrated Enterprise Resource Planning System. It
has been
signed by a number of the defendant's functionaries. including its
Chief Information Officer and the Chief Financial Officer.
who
supported the planned acquisition. The Chief Executive Officer of the
defendant approved it on 29 September 2008. In the document,
under
the heading 'Financial Implications' it is stated that -
'The funds
budgeted
for this project during this financial year amounts to R15 000
000.00. The actual cost of the system will only be determined once
the successful contractor has been appointed.' (My emphasis).
[20]
A request for bids was duly advertised and eventually the plaintiff
was selected as the successful bidder for the project.
The details
are set out in a submission (Annexure 'PL2' to plaintiff's plea)
dated 11 March 2009 prepared by the Chairperson of
the Bid Evaluation
Committee and addressed to the Chairperson of the Finance and Risk
Committee of the defendant wherein it is
stated -
'The purpose of this
submission is to submit recommendations by the bid evaluation
committee to the bid adjudication committee for
consideration.'
[21]
Under the heading 'Availability of Funds and Financial Implications'
in paragraph 6 of the submission it is stated -
'6.1 The project manager,
... confirmed that the project will be implemented in a phase-in
approach within the 2009/2010; 2010/2011
budget as provided for in
the business plan
of the Corporation for the 2008/2009 financial
year.
6.2 An amount of R15 000
000.00 has been allocated in the business and financial plan for the
budget of 2008/2009 for this project.'
(My emphasis).
[22]
Mr Tsatsawane, for the plaintiff, submitted, as I understood the
argument, that for what is essentially an ordinary procurement
contract, which includes a 'future financial commitment', to fall
within the provisions of s66(3) there must be something 'fiscally
exceptional' about the financial commitment. In
casu,
the
agreement was an ordinary procurement contract which had been
budgeted for and any future commitment was not fiscally exceptional.
The future financial commitment i.e. to pay at specified stages
during the provision of the goods and services is the normal
consequence
of almost any such contract and does not for that reason
make it fiscally exceptional.
[23]
Mr Tsatsawane submitted further, as did counsel for the City of Cape
Town in
Cape Town v Sanral 2015(6)
SA
535 WCC
at
639
para 269,
that "the meaning in s66(3) of the PFMA of the
words '(a)ny future financial commitment' is not easy to determine
but they
cannot mean every transaction that commits the entity to
make payment in the future. In
City of Cape Town v Sanral at 640
the Full Court had to consider an argument in support of the
restrictive interpretation of section 66 of the Act in the context of
the word
"guarantee".
The argument was that the word
"guarantee"
could not apply to every undertaking to
make payment because an absurdity would follow, namely that the words
"any future financial commitmenf'
could not mean every
transaction that committed to entity to make payment in future, such
as, for instance travel and accommodation
bookings, salary contracts
and the hiring of premises. Counsel argued that there had to be
something fiscally exceptional about
the financial commitment in
order to bring it within the ambit of the provisions requiring
approval in terms of section 66(3).
The court, in rejecting the
submissions, held that the word
"guarantee"
should
be defined widely, and that the contract was therefore subject to the
provisions of section 66 of the Act (at 639G-J).
[24]
The PFMA was enacted to regulate financial management in the national
and provincial governments and to ensure that all revenue,
expenditure, assets and liabilities of those governments are managed
efficiently and effectively. (See the preamble and s2 of the
PFMA).
[25]
The PFMA does not contain a definition of
"any
future financial commitment."
In
the absence of a statutory definition, the words must be given their
ordinary grammatical meaning taking into account the context
in which
they are used and the purpose of the legislation. The inevitable
point of departure is the language of the provision itself.
(Natal
Joint Municipal Pension Fund v Endumeni Municipality 2012(4) SA 593
(SCA) at
603-4).ln
Cool
Ideas 1186
CC
v
Hubbard and Another 2014(4) SA 474 (CC)
the
Constitutional Court said the following about statutory
interpretation
[1]
"A fundamental tenet
of statutory interpretation is that the words in a statute must be
given their ordinary grammatical meaning,
unless to do so would
result in an absurdity. There are three important interrelated riders
to this general principle, namely:
(a) that statutory
provisions should always be interpreted purposively;
(b) the relevant
statutory provision must be properly contextualised; and
(c) all statutes
must be construed consistently with the Constitution, that is, where
reasonably possible, legislative provisions
ought to be interpreted
to preserve their constitutional validity. This proviso to the
general principle is closely related to
the purposive approach
referred to in (a)".
[26]
The purpose of the PFMA is to regulate public financial management.
Its purpose is to ensure that Organs of the State to which
it applies
do not spend money which they do not have, thereby committing the
national revenue fund to unplanned expenditure.
[27]
Upon a proper interpretation of the words used in section 66 of the
Act, in my view it is clear that
any
future financial
commitment is contemplated and the entering into
any
other
transaction that binds or
may
bind that institution. The words
should be widely interpreted and the limitation sought to be imported
by the plaintiff means that
further words have to be read into the
section, so that section 66(3) should, on the plaintiff's postulate,
read "enter into
any other
similar
transaction that binds
or may bind that public entity to any
similar
future financial
commitment
in respect of which no budget was prepared"
.
[28]
When regard is had to the purpose of the PFMA and the context of
section 66, it necessarily follows that
"future financial
commitment"
must refer to an undertaking to commit
expenditure in the future for which a budget has not yet been
approved. Plaintiff's counsel
submitted that 'future' financial
commitment must be read to mean 'substantial' future financial
commitment. I do not agree. The
phrase must be given its usual,
ordinary grammatical meaning.
[29]
Plaintiff's reliance on the two memoranda dated 29 September 2008 and
11 March 2009 respectively to show that the funds for
the project had
been budgeted for is in my view misplaced. R15 000 000.00 was
allocated
in the budget for
200812009
for the project.
However, there is nothing to indicate that there was a similar or any
allocation
for the project in the subsequent financial years.
All that is said in the memorandum in paragraph 6.1 is that 'the
project will
be implemented in a phase-in approach within the
2009/2010; 2010/2011 budget as provided for in the business plan of
the Corporation
for the 2008/2009 financial year.' It was done in the
form of a submission to the bid adjudication committee the purpose of
which
was to 'submit
recommendations . ..
for
consideration'
.
[30]
Where a contract is concluded as a result of an exercise of an organ
of state's constitutional or statutory powers, this must
be done
within the confines of such powers. In other words, the conclusion of
a contract must be a valid exercise of powers; if
not, it will be
ultra vires
and invalid.
(The Law of Government Procurement
in South Africa
-
Bolton, 2007, 74).
Unlike private
parties who generally have freedom of contract, organs of state do
not have such freedom. A number of limitations
are placed on the
power of organs of state to enter into contracts.
[31]
Plaintiff further contends that the defendant's counterclaim should
also fail on the basis that the defendant seeks to challenge
its own
decision to accept the plaintiff s bid yet it has not instituted
judicial review proceedings to have it set aside. The
challenge on
the basis of s66(3) of the PFMA is wrong, says plaintiff, as it
should have been raised in judicial review proceedings
instituted by
the defendant itself. The defendant has not done so. In
Millenium Waste Management (Pty) Ltd v The Chairperson of the
Tender Board: Limpopo Province and Others 2008(2) SA 481 (SCA) at 483
para 4
it was held that -
'... as the decision to
award a tender constitutes administrative action, it follows that the
provisions of the Promotion of Administrative
Justice Act apply to
the process.'
[32]
Mr Preiss SC, for the defendant, contended that the effect of a
transaction in contravention of sections 66 and 68 of the Act
is
simply that the public institution
is not bound
by the
transaction and, accordingly, that the agreement between the parties
cannot be enforced. Therefore, there is no need for
an application
for judicial review and setting aside of the transaction. Hence the
counter-claim seeking merely that the defendant
is not bound by the
transaction.
Panama Properties 103 (Pty) Ltd v The Land and
Agricultural Development Bank of South Africa 2016(1) SA 204 (SCA)
at
208 C-E it was held at paragraph 22-
'22 While not
every contravention of a statute results in invalidity of the
contravening act or contract, where its
recognition would defeat the
purpose of the statute, the act or contract will be void.... But it
is not necessary in this matter
to consider whether the Act [the
Land
and Agricultural Development Bank Act 15 of 2002
] intended to render
the transaction invalid as the issue is determined by the PMFA.
Sections 66
and
68
of that Act provide that where a public
institution, as the Bank is, enters into a transaction that is not
authorized by legislation
governing the institution, it will not be
bound by the transaction.'
[33]
In
TEB Properties
CC
vs The MEG for Department of Health
&
Social Development North-West
[2012] 1 ALL SA 479
(SCA)
at
paragraph 26 it was held -
'Counsel
for the appellant also called in aid the decision of this court in
Oudekraal Estates (Pty) Ltd v City of Cape Town &
others
2004 (6)
SA 222
(SCA) paras 27 - 31 in support of the proposition that the
decision taken by Kgasi to hire office accommodation from the
appellant
amounts to administrative action, and as such ought to be
given effect until it has been set aside, which the respondent did
not
do. I do not think that the appellant's reliance on Oudekraal
avails it in the context of this case. In my view, that the
respondent
filed a counter-application in the court below to have the
lease declared unenforceable, is a clear indication that it sought to
prevent the implementation of the administrative action concerned on
the ground that it was unlawful. Thus the practical effect
of the
declarator granted by the court below is that the administrative
action preceding the conclusion of the lease was of no
force and
effect. Accordingly it is, under those circumstances, illogical to
speak of administrative action that is extant as though
the
declarator issued in relation to the juridical act flowing from the
administration action concerned counts for nothing. In
the
circumstances there is, to my mind, much to be said for the view that
where an organ of state seeks to have a contract, concluded
pursuant
to administrative action, declared invalid a declaration of
invalidity must have the effect of nullifying the administrative
action that is the
tons et origo
of the contract concerned.'
[34]
Similarly, in
Municipal Manager: Quakeni Local Municipality
&
Another v FV General Trading
2010 (1)
SA
356
(SCA)
at
365E-H declaratory relief by way of counter-claim was permitted.
[35]
It is therefore clear that a declaration of invalidity is not
required by virtue of the express wording of s68 of the PFMA.
The
defendant does not have to apply to court to have the transaction in
contravention of 66(3)(c) set aside as the State and the
institution
concerned
(in casu
the defendant) are not bound to an
agreement which has been concluded without compliance with the
provisions of s66 of the PFMA.
[36]
In all the circumstances I make the following order:
1. The counter-claim is
upheld with costs including costs of senior counsel where so
employed.
2. The tender under bid
number RTMC0?/2008/09 dated 17 November 2008, its acceptance and the
Service Level Agreement dated 31 March
2009 are declared not binding
on the defendant (the plaintiff in reconvention).
______________________
RANCHOD J
JUDGE OF THE HIGH COURT
Appearances:
Counsel
on behalf of Plaintiff
: Adv K. Tsatsawane
Adv
Marule
Instructed
by
: Gildenhuys Malatji Inc
Counsel
on behalf of Defendant
: Adv D.A Preis (SC)
Instructed
by
: Adams & Adams
Date
heard
: 24 May 2016
Date
delivered
: 13 December 2016
[1]
Paragraph 28 on page 484.