Minister of Finance and Others v Gore NO (230/06) [2006] ZASCA 98; [2007] 1 All SA 309 (SCA); 2007 (1) SA 111 (SCA) (8 September 2006)

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[2006] ZASCA 98
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Minister of Finance and Others v Gore NO (230/06) [2006] ZASCA 98; [2007] 1 All SA 309 (SCA); 2007 (1) SA 111 (SCA) (8 September 2006)

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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Case no: 230/2006
REPORTABLE
In the appeal between:
MINISTER OF FINANCE
First
Appellant
NATIONAL GOVERNMENT OF
THE REPUBLIC OF SOUTH AFRICA
Second Appellant
MINISTER OF WELFARE AND POPULATION DEVELOPMENT
Third Appellant
PREMIER OF THE WESTERN CAPE PROVINCE
Fourth Appellant
and
STEPHEN MALCOLM GORE NO
Respondent
Before: Cameron JA, Mthiyane JA, Brand JA, Mlambo JA and Malan AJA
Heard: Tuesday 15 and
Wednesday 16 August 2006
Judgment: Friday 8 September 2006
Prescription –
Prescription Act 68 of 1969
– ‘knowledge’
of ‘the facts from which’ debt arises – must be justified, true
belief – unjustified suspicion not constituting
knowledge –
Vicarious liability – for employee’s deliberate dishonesty –
employees’ actions, though fraudulent, closely
resembling what they
were employed to do – policy considerations supporting imposition
of liability for fraud – Causation –
company proving that without
fraud, tender would have been awarded to it
Neutral citation: Minister of Finance v Gore NO [2006] SCA 97
(RSA)
JUDGMENT
_______________________________________________________
CAMERON and BRAND JJA:
The liquidator of a defunct company, 3D-ID Systems (Pty) Ltd, sued
the four appellants, who represent national government and the
Western Cape provincial administration (the defendants), for damages
arising from the fraudulent award of a tender in 1994 for
which the
company was a bidder. At the trial in the Pretoria High Court,
where the defendants’ liability was separated as a
first issue
from the quantum of any damages, Hartzenberg J found for the
plaintiff liquidator. (We refer indifferently to the current
liquidator and the predecessor for whom he was substituted as ‘the
plaintiff’; and to the defunct company and its close corporation
antecedent as 3D-ID.) With the leave of the trial judge, the four
defendants ((i) the Minister of Finance, responsible for the
State
Tender Board; (ii) the national government itself; (iii) the
Minister of Welfare and Population Development, responsible
for the
payment of social pensions and welfare grants after April 1994
(‘national government’); and (iv) the Premier of the
Western
Cape, executive head of the Western Cape provincial administration
(‘the province’)) now appeal.
The defendants’ first hurdle is that the appeal has lapsed. The
appeal record should originally have been lodged by 6 December
2005,
a date extended to 6 February 2006, by when this had still not been
done, with no further extension granted. The record
was eventually
ready only on 31 March, and received the eventual date-stamp of this
court’s registrar on 5 May 2006 – a gaping
three-month chasm.
The State Attorney’s explanation for the omissions that led to
this is neither coherent nor entirely plausible
and he must
unavoidably be censured for ineptitude or inattention (or both).
These while pronounced are, however, not so prodigious
that
condonation should be refused without regard to the merits of the
matter, which we therefore turn to consider.
The disputed tender was government’s first attempt to employ
automated fingerprint identification and verification technology
for
welfare pay-outs – and was designed to address massive fraud in
registrations and payments that was plaguing not only the
then Cape
Provincial Administration (CPA), but other provinces too. As early
as 1992, government identified this as a priority
problem. And the
CPA’s planned venture was seen as a possible blueprint for other
provinces. But this was not to be: before
even the closing date,
the tender process was poisoned at its very heart by fraud within
the CPA. That came about as follows.
3D-ID had an ‘inside track’ on the tender requirements, for the
simple reason that it had helped the CPA devise them. As early
as
1992 its founder Mr Darryl Pamensky (who had previously supplied
government with fingerprint identification pads) and Mr Melchior
Rabie (plaintiff’s principal witness) met with Mr Anton Scholtz, a
senior official in the CPA welfare department, to discuss
possible
solutions to the pay-out problem. But the breakthrough came in 1993
when a California corporation, Identicator, produced
new fingerprint
identification and verification technology that could rapidly
compile and accurately search a huge database of
fingerprints on a
portable or personal computer (PC). 3D-ID formed an exclusive
association with Identicator, securing sole South
African rights to
its innovation. More advanced discussions with the CPA now included
ADJ (André) Louw, the CPA deputy
director for social security
in the welfare directorate, and from August to November 1993 highly
successful demonstrations and
tests of the product that Identicator
specially developed for the CPA were conducted before various groups
of officials from both
provincial and national government.
The tender as eventually advertised was in two parts: the first
(Part A) involved supplying only software and equipment; the second
(Part B) entailed fully outsourcing the pay-out service. The
technology required in either case had to be capable of performing
three distinct functions: registering beneficiaries (enrolment); the
complex electronic task of identifying new fingerprints as
unduplicated by searching the entire database of already captured
fingerprints (identification); and, once a ‘clean’ database
of
unduplicated fingerprints had been established, verifying any
particular enrolled beneficiary’s presented fingerprint as

identical to that already captured on the system (verification). In
addition, the technology had to run on PCs, so that the triple
function could be carried out at a large number of paypoints
dispersed across the province.
The CPA was careful to emphasise to 3D-ID that the tender process
had to be both open and authentic; but it seemed clear that

Identicator had the only product anywhere in the world with the
capacity to eliminate the fraud that was disabling the payments
system. Rabie and Pamensky had not expected the tender to include
Part B, but obtained substantial capital backing from a Swiss
investor residing in South Africa, Mr Hans Dieter Fuchs. With the
tender specifications drawn, the State Tender Board at the request
of the CPA issued a call for tenders on 11 March 1994.
By the closing date of 11 April 1994, a total of thirteen entities
had submitted tenders. 3D-ID and three others tendered for
Part A
as well as Part B; six for only Part A; while three tendered only
for Part B. All the entities that tendered for Part B
either
tendered also for Part A or tendered for Part B in association with
a Part A tenderer. One of these was Nisec CC, a corporation
its
sole member, Mr Michau Huisamen (a Port Elizabeth businessman with
no previous experience of information technology), acquired
‘off
the shelf’ from an accounting firm just days before the tender
invitation. The CPA’s evaluation committee, formally
chaired by
the CPA’s director of social welfare services, Dr Terblanche, but
in effect chaired by Louw (as will become clearer
later),
recommended that Nisec be awarded Part B of the tender. The CPA
accepted this recommendation, and – to Rabie’s consternation
and
in the face of his protests – on 16 June 1994 the State Tender
Board awarded a five-year contract to Nisec.
Rabie was convinced that skulduggery underlay the Nisec award. He
threw all his efforts into trying to prove this. Before the
end of
July 1994 3D-ID signalled that it would challenge the award, and in
September it launched a review application and sought
to interdict
the award. 3D-ID was not only refused access to the tender
documentation, but officials from both the CPA and central
government lodged affidavits vigorously defending the award. Nisec,
a respondent in the review, obtained an order obliging 3D-ID
to
lodge security for its costs. Undaunted (after obtaining the formal
record of decision-making in December 1994), 3D-ID brought
an Anton
Piller application in January 1995 to seize documents and files from
the province, the State Tender Board and Nisec that
it alleged would
prove fraud. But the review, interdict and Anton Piller
applications were all futile: and in March 1995 3D-ID
was ordered to
pay the costs of the latter on a punitive scale. Armed with this
and other costs orders, Nisec in March obtained
an order
provisionally winding up 3D-ID, which was made final in September
1995.
At this stage Rabie’s quest to prove irregularity or fraud seemed
to have foundered. But he persisted. In September 1995, he
laid a
complaint and filed an affidavit with the office of the director of
the Office for Serious Economic Offences (OSEO), which
eventually
led to an OSEO investigation. The award was in the meanwhile
unravelling. Within a very short time, problems with
capacity had
started manifesting, and in early 1995 the provincial administration
of the new Western Cape province (PAWC) commissioned
a major
accounting firm to investigate the tender. Louw and Scholtz had in
the meanwhile resigned their provincial administration
jobs and
taken up employment with Nisec on highly remunerative terms. But
Nisec’s incapacity to deliver in terms of the tender
soon became
plain, and PAWC recommended in October 1996 that its contract be
terminated. The Western Cape tender board cancelled
the contract in
December 1996 on the grounds of Nisec’s incapacity and because the
award had been improperly obtained. Nisec
challenged this – and
though its review application failed, a full bench of the Cape High
Court in February 1997 found insufficient
evidence that improper
means had been used to obtain the tender.
Time nevertheless vindicated Rabie’s indignant assertions. An
OSEO examination of Terblanche’s secretary’s computer hard
drive
eventually revealed that ten days before the closing date, Louw and
Scholtz – fraudulently conspiring with Huisamen and
Mr André
Scholtz, Scholtz’s brother (a provincial employee in Port
Elizabeth) – had put together Nisec’s tender on
Friday 1 April
1994 at the CPA offices; that Louw and Scholtz had corruptly
negotiated contracts of employment for themselves with
Nisec, plus
substantial bribes (which Huisamen paid into their wives’ banking
accounts); that Louw, left to steer the evaluation
committee and to
draft submissions to the new provincial executive and to the State
Tender Board, had with lies and distortions
manipulated the entire
process to secure the award to Nisec.
Thus armed, the plaintiff issued summons claiming damages from the
four defendants. The summons was served in January 1999, nearly
five years after the events in issue. When the matter came to trial
in November 2004, the defendants sought by last-minute amendment
to
introduce a plea that the plaintiff’s claims had prescribed; and
contended that national government and the province were
not
vicariously liable for Louw’s and Scholtz’s corrupt conduct; and
that 3D-ID would in any event not have secured the contract
and had
thus suffered no damages. These were the issues that were tried
before Hartzenberg J, who found for the plaintiff on all
of them.
On appeal the defendants persist in their trial defences. In
addition, the province contended that public policy demanded
that a
public body be immunised from liability for the consequences of
fraud committed in the course of a tender process. We examine
these
four defences in turn.
First defence: Did the claim become prescribed?
In terms of
Prescription Act 68 of 1969
, the period of prescription
in respect of the debts the plaintiff claimed was three years after
they became due.
Section 12
(3) provides –
‘
A
debt shall not be deemed to be due until the creditor has knowledge
of the identity of the debtor and of the facts from which the
debt
arises: Provided that a creditor shall be deemed to have such
knowledge if he could have acquired it through exercising reasonable
care’.
If s 2(1) of the
Limitation of Legal Proceedings (Provincial and Local Authorities)
Act 94 of 1970 applied to the province
1
(which the plaintiff for reasons it is not necessary to consider put
in issue), the limitation period would be 24 months.
The question thus is whether the plaintiff had ‘knowledge’ of
‘the facts from which’ the debt arose before 15 January 1996
(or, if a different period applies to the province, before 15
January 1997). It is well established that the defendants bear the
burden of proving when the plaintiff acquired (or should be deemed
to have acquired) the knowledge in question. National government
contended that Rabie had all the knowledge needed to institute
action by at the latest January 1995. The province argued that
Rabie had sufficient facts at latest when he lodged his OSEO
complaint and affidavit in September 1995. Either contention if

sound would render the plaintiff’s claim unenforceable.
It was common cause that Rabie’s knowledge before 3D-ID’s
winding-up should be imputed to the liquidators. Hartzenberg J held
that Rabie’s knowledge after 3D-ID was finally liquidated (at
about the time of the OSEO complaint) should also be imputed to
the
liquidator. The plaintiff formally denied this in its draft
replication to the prescription plea, and filed a supporting

affidavit from the liquidator. On appeal it challenged Hartzenberg
J’s conclusion; but we find no reason to fault it. Rabie,
who,
more than the liquidator, was the force behind the litigation, had
an incentive to convey to him any information he obtained
and to
report any action he took, despite the secrecy and inhibition
surrounding the OSEO affidavit. The liquidator was not called
to
testify, and in the absence of contrary evidence we consider that if
he did not actually have the details of Rabie’s OSEO
evidence, he
could have acquired them by exercising reasonable care. The matter
must in our view be decided on the basis that
Rabie conveyed to the
liquidator all he knew as he came to know it.
Hartzenberg J concentrated on Rabie’s state of mind, and ‘whether
the conduct of the defendants was convincing enough to dissuade
a
prospective plaintiff from instituting action’. He found that
Rabie had no more than a suspicion that fraud had been committed,
without any ‘witness to substantiate’ it. He found that the
stand taken under oath by the province’s officials ‘was so
convincingly and emphatically contradictory’ to any suggestion of
fraud that the delay could not be faulted. Far from concluding
that
Rabie could reasonably have acquired knowledge earlier, Hartzenberg
J found he had done all in his power to acquire such knowledge,
but
his vigorous efforts had proved fruitless.
These conclusions are hard to fault. The statutory prescription
periods are meant to protect defendants from undue delay by
litigants
who are laggardly in enforcing their rights. To suggest
that the plaintiff was dilatory would be inapt, to say the least.
It
would therefore be most surprising if it were to be non-suited
for delay. In our view that is not the law.
This court has in a series of decisions emphasised that time begins
to run against the creditor when it has the minimum facts that
are
necessary to institute action. The running of prescription is not
postponed until a creditor becomes aware of the full extent
of its
legal rights,
2
nor until the creditor has evidence that would enable it to prove a
case ‘comfortably’.
3
The defendants relied on these authorities to contend that Rabie
knew at the latest by the latter half of 1995 that Louw and Scholtz
had defrauded 3D-ID out of its tender. They pointed out that Rabie
insistently asserted under oath, starting with his replying
affidavit in the review (October 1994), and repeated in his Anton
Piller (January 1995) and liquidation affidavits (April 1995),
that
fraud tainted the tender process. The allegations of fraud then
made found expression later in the particulars of claim.
Rabie certainly did cry fraud soon after 3D-ID lost the tender. But
what did he know when he did so? The defendants’ argument
seems
to us to mistake the nature of ‘knowledge’ that is required to
trigger the running of prescriptive time. Mere opinion
or
supposition is not enough: there must be justified, true belief.
Belief on its own is insufficient. Belief that happens to
be true
(as Rabie had) is also insufficient. For there to be knowledge, the
belief must be justified.
It is well established in our law that:
Knowledge is not confined to the mental state of awareness of facts
that is produced by personally witnessing or participating
in
events, or by being the direct recipient of first-hand evidence
about them;
It extends to a conviction or belief that is engendered by or
inferred from attendant circumstances;
On the other hand, mere suspicion not amounting to conviction or
belief justifiably inferred from attendant circumstances does
not
amount to knowledge.
4
It follows that belief that is without apparent warrant is not
knowledge; nor is assertion and unjustified suspicion, however
passionately
harboured; still less is vehemently controverted
allegation or subjective conviction.
What Rabie knew in essence was that only 3D-ID’s technology could
meet the demanding tender specifications. When 3D-ID did not
win
the award, he suspected that something must have been amiss in the
tender process. His conviction was strengthened by two
calls he
received: one from an anonymous caller claiming to be within the
provincial administration, and the other from a fellow
tenderer.
Added to this were stray indications he gleaned of misrepresentation
and irregularity in the procedure. From this he
inferred with
passionate certainty that fraud must have taken place; but he lacked
a firm evidentiary basis for his belief.
The affidavits the defendants invoke to establish the fatal delay
abound with assertive contentions such as ‘I contend’, ‘it
is
clear’, ‘I submit’ and ‘there must have been’. Even
Rabie’s OSEO affidavit, which provides the high point for the
defendants’ argument, is replete with inferential assertion: ‘the
only reasonable inference that can be drawn … is’; ‘based
on
the facts and information herein recorded … it can reasonably be
inferred that …’. All this reveals Rabie’s want of
adequate
proof.
The latter point deserves elaboration. That there must have been
fraud was an inference Rabie drew from the facts mentioned earlier,
namely 3D-ID’s superior technology, Nisec’s palpable
inexperience and attendant indications of processual error and
misrepresentation.
Counsel for the province contended that Rabie’s
long pre-tender collaboration with Louw and Scholtz, and his
knowledge of 3D-ID’s
decisive technological edge, meant that his
conclusion that there must have been fraud was more than merely
speculative. But Rabie’s
conclusion continued to rest on
speculative inference, and he had no direct means of knowing that
fraud had in fact been perpetrated.
Knowledge of a fact can derive
from inference, but belief in the fact becomes knowledge only once
justification for the belief
exists. This will generally mean that
the means of establishing it must exist. This Rabie did not have
until much later, and
no amount of vehemence on his part could
convert his subjective conviction into fact.
This follows not only from his want of proof, but from the response
his allegations elicited:
The provincial administration and its legal representatives went out
of their way to confute Rabie’s fraud claims as baseless,
frivolous, vexatious, scurrilous and defamatory. The central
actors, including the most senior officials in the tender process,
went on record to vouch for its propriety, and assured the court
that Rabie’s claims were ‘no more than unfounded accusations,
without any evidentiary basis’.
Rabie was forced to withdraw the allegations in his replying
affidavit in the attempt to review the Nisec tender, and likewise
to
withdraw the averments in his Anton Piller founding affidavit.
Repeated recourse to legal action, based on ‘unfounded’
allegations of fraud, not only met with failure but was visited with
judicial rebuke in the form of a punitive costs order. The review
application failed; the ex parte order 3D-ID obtained in the
Anton
Piller application was discharged with costs on a punitive scale;
Nisec’s application to liquidate 3D-ID on the basis of
the unpaid
costs orders succeeded, despite strenuous opposition from Rabie.
Even when the province itself concluded at the end of 1996 that
Nisec’s award had been improperly obtained, the full bench of
the
Cape high court determined in February 1997 in Nisec’s
unsuccessful challenge that impropriety had not been established.
Despite the vehemence of his convictions, the response to Rabie’s
claims – including the judicial discountenancing of his attempts
to vindicate his views in various court actions – was such that
they did not constitute justified belief under the statute.
5
In fact, as plaintiff’s counsel pointed out, with hindsight it is
evident that he was groping in the dark. On the one hand,
he
claimed that Terblanche ‘and possibly Mr Wentzel’ (the chairman
of the State Tender Board in the province) knowingly colluded
with
Scholtz and Louw. This was wrong. On the other, he inferred that
‘there must have been’ fraudulent complicity between
Louw,
Scholtz and Huisamen. This was right: but he lacked the means to
prove it.
Rabie acquired the minimum knowledge needed to institute action only
at the end of 1998, when OSEO finally released the evidence
that
showed that the Nisec tender had been prepared on a CPA computer.
This was ‘the smoking gun’ that senior counsel in February
1997
advised him to obtain before he contemplated further litigation
based on fraud. With this in hand, the plaintiff promptly
issued
summons. It was not time-barred when it did.
Second defence: Are the defendants vicariously liable for the
fraud of Louw and Scholtz?
The defendants contended that Louw and Scholtz were acting outside
the course and scope of their employment with the administration
in
perpetrating the fraud, and thus that their employers were not
liable for any loss their conduct may have inflicted on the

plaintiff. They laid emphasis on a number of egregiously dishonest
acts Louw and Scholtz committed that were alien to their
responsibility
to the provincial administration as stewards of the
tender process. These included:
the corrupt agreement with Huisamen to secure the award to Nisec
even before the tender was advertised;
the fact that Louw and Scholtz, with Huisamen and Scholtz’s
brother, prepared Nisec’s tender – a prospective competitor –
on administration premises;
their entering Nisec – a shelf corporation with no experience or
capacity in information technology – in the tender race;
the manipulation of the entire award process by concealments and
distortions and deliberate lies;
that Louw and Scholtz secured jobs for themselves with Nisec even
before the tender was awarded.
These aspects underscore the fact that imposition of vicarious
liability on an employer for an employee’s deliberate wrongdoing
creates special difficulties, as to both its conceptual basis and
the policy justifications underlying it.
6
The observation of Watermeyer CJ that ‘the dividing line which
separates acts within the scope of a servant’s employment from
those without is one impossible to draw with certainty’
7
applies with particular force in these cases. Yet, while the act of
an employee who steals from – or defrauds –the employer
is the
very antithesis of an act in the course and scope of employment,
there is no general principle that an employer cannot be
responsible
for an employee’s intentional wrongful conduct that causes the
employer loss.
8
On the contrary, instances of such liability are by no means rare.
9
But the difficulties these cases raise make it important to bring
to the fore the policy reasons that warrant imposing liability
in
each case.
10
Even though a deliberately dishonest act that, subjectively seen,
was committed solely for the employee’s own interests and purposes
may fall outside the ambit of conduct that renders the employer
liable, it is in our law established that liability may nevertheless
follow if, objectively seen, there is a ‘sufficiently close link’
between the self-directed conduct and the employer’s business.
11
Applying this, the traditional two-pronged test, Hartzenberg J
found that the defendants failed on both the subjective and
objective
components: a conclusion that seems to us to be clearly
correct.
However gross the violation of their duties by Louw and Scholtz, it
cannot be gainsaid that all their actions that were directed
at
wrongfully securing the contract for Nisec were nonetheless
performed so that the tender would be awarded. The effect of their
subjective intentions was thus not wholly self-directed. Indeed, as
the trial judge observed, although Nisec suffered from manifest
incapacities, Louw and Scholtz could hardly have regarded it as
their future lifeline if they thought that it could not perform
the
contract at all. Louw and Scholtz of course did not testify, but
the circumstances point overwhelmingly to the probability
that they
saw Nisec’s carrying out the tender as a lucrative continuing
source of gain for themselves. Their subjective intentions
are
therefore very far from absolving the defendants from liability.
And, as in
Minister van Veiligheid en
Sekuriteit v Japmoco BK h/a Status Motors
,
12
the objective nature of the employees’ actions also points to
liability. Though they were defrauding both their employer and
3D-ID (as well as the other tenderers), their actions were tightly
aligned to the functions they were employed to perform. To
draw the
distinction – admittedly fine – that applied in
Japmoco
,
the award of the tender to Nisec was false, but it was not a total
fake.
13
This case seems to us to fall clearly within the line of liability
drawn in
Japmoco
. Even when the full bench considered the
evidence surrounding the tender award in early 1997, it rejected the
indications of impropriety
that the provincial administration
proffered: which serves to show how closely the employees’
actions, though fraudulent, resembled
what they were employed to do.
This closeness of purpose, planning and effect, indicate that all
the policy reasons for requiring
the employer to bear the burden of
its employees’ wrongdoing apply in this case, while no
countervailing considerations apply.
The defendants cannot escape
vicarious liability.
Third defence: Causation – would 3D-ID have been awarded the
tender?
We turn to the issue of causation. The plaintiff’s case is that,
had it not been for the fraudulent and corrupt acts of Louw
and
Scholtz, the evaluation committee would have recommended the award
of, and the State Tender Board would not have awarded the
tender to
Nisec but to 3D-ID. This the defendants deny. The question of
causation, it is often said, is one of fact. But of course,
as Lord
Hoffmann explained in
Fairchild v Glenhaven Funeral Services
,
14
this only means that the answer depends on fact. The question itself
is formulated by law.
In our law the time-honoured way of formulating the question is in
the form of the ‘but for’ test. Can it be said that, but
for the
wrongful act complained of, the loss concerned would not have
ensued? Applying this requires the process of inferential
reasoning
described by Corbett CJ in
International Shipping Co (Pty) Ltd v
Bentley
:
15
What would have happened if the wrongful conduct is mentally
eliminated and hypothetically replaced with lawful conduct? A
plaintiff
who can establish that, in such event, the loss would, on
a preponderance of probabilities, not have occurred, recovers his
damages
in full, because causation is regarded as having been
established as a fact. A plaintiff who cannot do so will get
nothing. That
there is no discount either way stems from the nature
of the inferential process: the verdict must go one way or the other
even
if the scales are tipped only slightly in one direction (see eg
Allied Maples Group Ltd v Simmons & Simmons (a firm)
;
16
Minister van Veiligheid en Sekuriteit v Geldenhuys
)
17
.
With reference to the onus resting on plaintiff, it is sometimes
said that the prospect of avoiding the damages through the
hypothetical
elimination of the wrongful conduct, must be more than
50%. This is often followed by the criticism that the resulting
all-or-nothing
effect of the approach is unsatisfactory and unfair.
A plaintiff who can establish a 51% chance, so it is said, gets
everything,
while a 49% prospect results in total failure. This
however is not how the process of legal reasoning works. The legal
mind enquires:
what is more likely? The issue is one of persuasion,
which is ill reflected in formulaic quantification. The question of
percentages
does not arise (see to this effect Baroness Hale in
Gregg v Scott
).
18
Application of the ‘but for’ test is not based on mathematics,
pure science or philosophy. It is a matter of common sense
based on
the practical way in which the ordinary person’s mind works
against the background of everyday life experiences. Or,
as was
pointed out in similar vein by Nugent JA in
Minister of Safety
and Security v Van Duivenboden
:
‘
A
plaintiff is not required to establish the causal link with
certainty, but only to establish that the wrongful conduct was
probably
a cause of the loss, which calls for a sensible
retrospective analysis of what would probably have occurred, based
upon the evidence
and what can be expected to occur in the ordinary
course of human affairs rather than metaphysics.’
19
Both the recommendation by the evaluation committee and the State
Tender Board’s decision to award the tender, involved an
administrative
discretion that required the exercise of judgment.
Determining what decision they were likely to have reached in the
exercise of
their discretion, but for the fraudulent conduct of Louw
and Scholtz, inevitably requires some measure of second guessing the
administrative
functionaries. Fortunately we can take guidance from
the decision of this court in
Minister of Safety and Security v
Carmichele
20
that, in a situation such as this, the question is objective:
how is a reasonable functionary likely to have exercised that
discretion?
Since the two administrative bodies concerned had to
exercise their discretion as part of the state tendering process
provided
for s 187 of the interim Constitution, which then applied,
it must also be accepted, we think, that reasonable bodies in their

position would have been guided by the constitutional norms
underwritten by that section. They would have applied the values of
a fair, public and competitive tender system.
Central to the plaintiff’s case that, without the fraud, 3D-ID
would have been the successful tenderer, is the contention that
3D-ID’s tender was the only one submitted that actually complied
with the specifications of the invitation. In the circumstances,
the
plaintiff contended, the fact that 3D-ID proved to be the most
expensive of all the tenderers would, on the probabilities,
not have
prevented it from gaining the award. To this the defendants’
answer – as it eventually turned out – amounted to
a
contradiction of the plaintiff’s central contention in all its
parts. (a) First, they denied that 3D-ID’s tender complied
with
the tender specifications. (b) Second, they maintained that another
tenderer, Cash Payment Systems (CPS), was capable of meeting
the
tender requirements while Nisec (who admittedly did not comply with
the requirements) would nevertheless have been able to
persuade the
evaluation committee that it did. (c) Third, they contended that, if
3D-ID had been the only compliant tenderer, the
State Tender Board
would have decided, in the circumstances prevailing, not to award
the tender at all.
We deliberately made reference to the defendants’ case ‘as it
eventually turned out’ because this was not how it was originally
pleaded or even as it was put to the plaintiff’s witnesses. In
fact, the defendants’ conduct of their case understandably

reminded Hartzenberg J of trench warfare. Though this does not mean
that one or more of the trenches might not afford adequate

protection, the implications cannot be ignored in evaluating the
merits of the defences.
(a) Did 3D-ID’s tender comply with the tender specifications?
The issue whether 3D-ID’s tender complied with the specifications
of the invitation must be considered against the background
of how
the invitation itself came into existence. More specifically, it
will be remembered that the invitation resulted from
3D-ID/Identicator
demonstrations to the CPA and national government.
The purpose of the demonstrations, which included simulated tests
and live payouts,
was to persuade the institutions that the
fingerprint identification technique devised and adapted by
Identicator could provide
the solution to the problems experienced
by the CPA in the payment of social pensions, and particularly the
fraud permeating the
payout system. It is common cause that
eventually the responsible officers of the CPA were persuaded that
the 3D-ID/Identicator
product was indeed the answer. Likewise it was
common cause that 3D-ID and Identicator assisted in preparing the
technological
specifications for the invitation so as to ensure that
the successful tenderer would deliver the same result.
This would make it surprising if the 3D-ID tender did not at least
comply with the technological requirements specified. Nonetheless,
the defendants expended much time and energy at the trial persisting
in their denial that it did. On appeal these defences, which
failed
to impress Hartzenberg J, were not pursued. Before us the focus
shifted to the non-technical aspects. The defendants now
contended
that 3D-ID had failed to fulfil the tender requirements in two
respects: (i) first, in that it did not provide for the
enrolment of
future pension beneficiaries; and (ii) second, because its proposal
for security arrangements was deficient.
These contentions must be understood against the background of how
Part B of the tender invitation – which was eventually awarded
–
was framed. The fingerprint technology was crucial to this portion
of the tender. For that reason, very specific requirements
were
formulated. So para 11.3 of the invitation required that:
‘
All recipients of social pensions and other welfare
grants must be enrolled on software capable of registering
fingerprints and such
software must be able to positively identify
and verify recipients . . . Tenderers must submit a detailed
implementation plan to
enrol existing clients and the cost per head
of enrolling the existing clients must also be indicated.’
Para 11.5 provided that:
‘
The successful tenderer will be required to use the
software of the CPA to render the payout function. The software to be
used for
the fingerprint identification and verification must be
compatible and interface with the software presently used by the
CPA.’
Para 12.17 admonished that:
‘
The
standards set out in paras 11.1 to 11.7 [containing the technical
specifications] are the minimum standards acceptable to the
CPA.
Tenderers that cannot comply with these standards will not be
considered.’
Non-technical aspects were treated in far less specific terms by the
rather laconic pronouncement in para 12.1 that:
‘
Tenderers are expected to tender a workable solution
[for rendering the service of pension payouts previously performed by
the CPA
itself].’
(i) Enrolment of future beneficiaries
While provision for enrolling existing pensioners was mandatory
(para 11.3), the tender invitation did not specifically refer to
enrolment of future pension beneficiaries. However, in response to
an enquiry by CPS whether ‘there are any specific towns where
ongoing registration sites must be located’, Louw wrote to all
tenderers that ‘ongoing registration of future beneficiaries
must
form part of the solution offered’. The ‘solution offered’ by
3D-ID, under the heading ‘Future Applicants’ was this:
‘
Any
future applicants will be enrolled at the CPA’s present regional
offices as the prospective clients have to come in to the offices
to
complete their application forms. This would be the most effective
way to complete this task and 3D-ID Systems will quote the
CPA
separately (see Annexure D) for the equipment needed to perform this
task and pricing.’
At the time the CPA had thirteen regional offices. Under 3D-ID’s
proposal, future applicants would therefore have to go to one
of
these, where they would be enrolled by CPA officials using the
equipment 3D-ID offered to provide at the quoted price of R1,2m.
According to Rabie’s testimony this proposal was based on his
understanding that, according to the existing system, pension

applications could be made only at a regional office. His reasoning,
Rabie said, was that future applicants should be required to
make
their fingerprint enrolment at the time and place of application. It
turned out, however, that Rabie was mistaken in believing
that
applications could be made only at a regional office. In fact,
pension applications could also be made at one of at least
30
‘service points’ in the Western Province alone.
According to its minutes and memoranda, the evaluation committee
found no deficiencies in the workable solution proposed by 3D-ID.
In
fact, it was found to be the only viable implementation plan –
apart, supposedly, from that Nisec offered. In answer to 3D-ID’s
formal objections to the award to Nisec, the CPA indicated that,
although 3D-ID’s compliance with the tender specifications was
not
disputed, Nisec succeeded because its tender, which was lower, had
also complied.
In the review and other proceedings that followed, both the CPA and
the State Tender Board persisted in this. Affidavits on behalf
of
the CPA were mostly deposed to by Terblanche, while affidavits on
behalf of the State Tender Board were deposed to by Wentzel.

Terblanche affirmed that:
‘
I
do not doubt that the applicant’s [ie 3D-ID’s] product complies
with the tender specification. It is, however, not the only
product
that does so. [Nisec’s] tender was also in accordance with Part B
of the tender specification.’
Wentzel stated:
‘
What it [the State Tender Board] did accept was that
both [Nisec] and [3D-ID] complied with the minimum requirements set
out in the
tender invitation.’
In the pleadings and at the trial, the defendants again omitted to
proffer future enrolments as a subject of any concern. This
aspect
first reared its head at the pre-trial conference when the plaintiff
enquired from the province whether it 'now admits that
3D-ID's
tender complied with all the requirements of the tender'. The
province responded:
'No. Price carried a weight of 50%. 3D-ID's price was
the highest and thus did not meet the requirement . . . .
Furthermore, in addition
to its tender, 3D-ID required the CPA to
purchase the enrolment hardware and software in the amount of R1,2m.'
Even now the contention was thus not that 3D-ID's proposal regarding
future enrolment rendered its tender non-compliant. What
the
allusion to ‘future enrolment’ obviously contrived to show was
that the 3D-ID tender not only was the most expensive, but
also
carried a further effective cost of over R1m. Rather surprisingly in
these circumstances, Terblanche then testified at the
trial that
3D-ID’s proposal regarding future enrolment was so deficient that
it completely disqualified it as a tenderer.
The reasons Terblanche proffered for this contention were
essentially twofold. In the first place, he said, the whole purpose

of Part B, as underlined by Louw’s response to the CPS query, was
to outsource both the payment and the enrolment of all pension
beneficiaries, including future applicants. It followed, Terblanche
said, that 3D-ID's tender did not amount to a total solution,
in
that it proposed to 'back source' future enrolments to the CPA.
Apart from the fact that the 3D-ID tender would require the
CPA to
purchase additional equipment, Terblanche added, it also required
the CPA to make personnel and office space available at
regional
offices. His second objection was aimed at 3D-ID’s proposal that
enrolments had to take place at regional offices (as
opposed to the
CPA’s network of existing service points). This, Terblanche said,
would require indigent applicants in rural areas
to travel large
distances at their own expense, which was in conflict with the CPA's
policy of bringing its services to the people.
The CPA’s objective
was accordingly that pensioners should eventually be able to enrol,
not only at service points, but at any
one of its 650 payout points.
When asked in cross-examination why these vital deficiencies in the
tender had never been pointed
out before, his explanation was that
both he and the evaluation committee concentrated only on the
technological aspects, and not
so much on the ‘workable solution’
proposed.
What is important to recognise, we think, is that 3D-ID's tender did
not neglect to address the issue of ongoing enrolments. As
Rabie
explained, 3D-ID decided, on the basis of his understanding of the
pension payment process, that the best and most practical
solution
would be to do registrations and enrolments at the same time and at
the same venue. It was therefore not a question of
3D-ID’s being
unwilling to do future enrolments or trying to minimise its services
under the tender. Instead, 3D-ID's proposal
was the considered
result of Rabie's conclusion as to what would be in the interest of
all concerned. The advantage of his proposal
to the prospective
pensioners, as Rabie saw it, would be that they could receive their
pensions immediately after the registration/enrolment
process, as
opposed to waiting for a further period of at least one month (which
he thought would result from Terblanche’s procedure).
We find it unnecessary to enter into the debate between Rabie and
Terblanche as to which of the solutions would be the best. Whether
the 3D-ID proposal, objectively speaking, constituted the best
solution is not the issue. The issue is whether it was a workable
solution: for this is what the tender invitation required. Otherwise
stated, since considerable flexibility was given to prospective
tenderers to propose a workable solution, a tenderer could not be
disqualified because some or other CPA official might prefer
a
different solution. Such a ‘concealed trench’ approach would, in
our view, be in conflict with the constitutional norm requiring
a
fair tender process. 3D-ID's tender contained a motivated plan for
future enrolments. Whether or not Terblanche favoured it is
of no
real consequence. It was undeniably workable and the tender could
therefore not be disqualified on that basis.
In any event, there was nothing to prevent 3D-ID or the CPA, under
the 3D-ID proposal from enrolling new pensioners at the pay
points
when registering them, if that ultimately proved to be the preferred
solution. The software and other technology tendered
by 3D-ID were
capable of running on personal computers and thus could be used at
payout points in the field. In the circumstances
the fair solution
would be, not to disqualify the tender, but simply to inform the
tenderer, who complied with all the mandatory
requirements of the
tender, that the CPA preferred a workable solution that differed
from the one proposed on some relatively minor
aspect initially left
open in the invitation. The fact that the 3D-ID proposal required
the CPA to purchase additional equipment
and technology for future
enrolments was hardly likely to constitute an insurmountable hurdle.
It was ultimately, as indicated
by the province at the pre-trial
conference, something relevant simply to the evaluation of the price
of 3D-ID's tender.
Significant, in our view, is that Terblanche's objections in
relation to 3D-ID's plan for future enrolments were seemingly of no
concern to any of the ultimate decision makers, namely the
evaluation committee, the CPA or the State Tender Board. As
Terblanche
conceded, he was in no position to speak for the
evaluation committee because despite being its nominal head he was
effectively
absent from all its deliberations. In any event,
Terblanche's statements at the time clearly did not regard the 3D-ID
proposal
for future enrolment as disqualifying its tender. His
ex
post facto
explanation for the total absence of reference to a
factor that purportedly rendered the whole tender patently
unsuitable, ie that
he concentrated on the technical aspects, is not
convincing.
(ii) Security arrangements
As in the case of future enrolments, provision of security equipment
and arrangements formed no part of the tender requirements.
Nevertheless, it was accepted by all concerned, including Rabie,
that, in view of the large amounts of cash to be distributed and
the
logistical difficulties associated with the execution of Part B, any
'workable solution' would have to incorporate some form
of provision
for security. In its tender 3D-ID therefore specified what it
planned to provide. It set out the complement of security
personnel
to be employed; the number of vehicles to be used; and other
equipment it intended to procure. Reference was also made
to the
fact that 3D-ID had succeeded in obtaining insurance from Lloyds of
London in an amount sufficient to secure its obligations
to the CPA
for pension money delivered in its care.
None of the tender evaluation committee's minutes, worksheets or
memoranda contained any criticism of 3D-ID's proposed security
system. In their answers to 3D-ID's challenge to the Nisec award,
neither the CPA nor the State Tender Board indicated that 3D-ID
was
disqualified because of some deficiency in its security proposal. On
the contrary, as mentioned earlier, they admitted then
that 3D-ID's
tender accorded with the tender specifications. The sole objection
then raised was that 3D-ID's tender was too expensive.
What is
more, as with future enrolments, the defendants’ pleadings did not
raise security deficiencies, nor were they even properly
put to the
plaintiff's witnesses.
Despite this lack of forewarning, the province levelled a
two-pronged attack at 3D-ID’s security component. The first line
of
attack was based on the evidence of Terblanche, to the effect
that, in view of the security problems the CPA experienced in the
past, the tender would not have been awarded to any tenderer who was
not associated with an established security operator. The
second
objection relied on the expert evidence of Mr Richard Phillips, the
general manager of Fidelity Guards Cash Management Services
(Pty)
Ltd ('Fidelity Guards') who had 28 years experience in the security
industry, and who represented Fidelity Guards during
the tender
process. Phillips criticised the 3D-ID proposal on various technical
aspects which, in his view, rendered it practically
unworkable.
It is difficult to evaluate Phillip’s criticism on its merits.
Because of the way in which defendants conducted their case, most
of
the alleged technical deficiencies Phillips referred to were not put
to the plaintiff’s witnesses. As a result, answers to
his
difficulties could only be suggested to him during cross-examination
in the form of hypothetical solutions. Although he expressed
doubt
about the feasibility of these solutions, he could not say that they
were beyond the realms of possibility. Fortunately,
in the
circumstances, it is not necessary for us to decide the matter on
the merits of the technical debate introduced by Phillips.
This is because it is clear in our view that the evaluation
committee and the State Tender Board did not approach the matter of
security at nearly the level of Phillips’s technicality. In fact,
both these bodies clearly regarded the matter of security as
one of
the non-essential elements of the tender. With reference to these
non-essential issues their attitude appears to have been
that lesser
difficulties could be ironed out, even after the award of the
tender, as long as the tenderer could render the essential
computerised fingerprinting services. The indifference of both to
individual tenderers’ security arrangements is illustrated
by
their response to a complaint by Fidelity Guards – after the award
of the tender to Nisec – that its security vehicles and
apparatus,
which had been prepared at great expense for purposes of the tender,
were not even inspected by the evaluation committee.
Wentzel
answered:
‘
Regarding
the question of equipment and mobile pay-out vehicles, I wish to
elucidate that this was not a requirement of the tender
and therefore
not a criterion for evaluation on its own.’
Phillips also understood that a certain degree of negotiation
regarding matters such as security would take place after acceptance
of the tender. That this understanding was correct is borne out by
the fact that Nisec only furnished details of how it would discharge
its security obligations after being awarded the tender. This
approach to non-essential elements was sensible. As long as a
tenderer
complied with the specified requirements, why should it not
be allowed to negotiate aspects that were not specified? Why should
an otherwise compliant tender be rejected out of hand, merely
because the CPA did not agree with some or other aspect of its
proposed
‘workable solution’?
This, in our view, answers also Terblanche’s assertion that the
tender would only be awarded to a tenderer associated with an
experienced security operator. Rabie’s stated belief was that he
could have persuaded the evaluation committee and, ultimately,
the
State Tender Board that, although the directors of 3D-ID themselves
had no experience in the security industry, they could
satisfy the
CPA’s security requirements. One possibility he advanced was that
3D-ID could have acquired experienced personnel
from existing
security firms. An alternative was that it could buy a security
business. Despite Terblanche’s insistence to the
contrary, we can
see no reason in principle why an evaluation committee, acting
reasonably, could not have been persuaded by these.
But, even if the State Tender Board were to have been as insistent
as Terblanche on an association with an established security
operator, Rabie testified – and Phillips confirmed – that it was
extremely unlikely that the successful tenderer would have
had any
difficulty in finding one. As Rabie put it, security companies were
queuing up to provide that service, particularly since
it was known
in the industry that the CPA’s plan for privatisation of pension
payment was a pilot program for the rest of South
Africa. If the
evaluation committee therefore took up an intransigent attitude,
3D-ID would in all likelihood have been able to
come to an
arrangement with an established security company.
(b) The CPS tender and the Nisec tender
The second leg of the province’s argument on causation – which
national government did not embrace – was that another tenderer,
CPS, also complied with the technological requirements and could
therefore also have been awarded the tender. In fact, the province
contended, because 3D-ID’s tender was nearly double that of CPS,
the latter was the most likely candidate.
As has by now become a recurring theme, this part of the province’s
case was not foreshadowed in its pleadings. On the contrary,
when
the plaintiff asked at the trial particulars stage, whether it is
contended that ‘any other tenderers in fact complied with
the
technological and other requirements of the tender’, the province
answered:
‘
According to the evaluation committee, the other
tenderers did not comply with the technological and other
requirements of the tender.’
This was obviously evasive and ambiguous. But, by not distancing
itself from the evaluation committee’s stated view, the province
obviously created the impression that it agreed. That was its pleaded
case.
The viewpoint that no other tenderer did – or was in fact able to
– meet the technological requirements was supported by the
plaintiff’s expert, Mr Peter Bouwer, who was employed by another
competing tenderer, Q-Data. The problem, he explained, lay in
the
very specific requirement posed by para 11.3 of the invitation, that
pension beneficiaries ‘must be enrolled on software
capable of
registering fingerprints and such software must be able to
positively identify and verify recipients’. Though software
performing both enrolment and verification was relatively freely
available at the time, he said, this could not perform the
identification
function as well. In preparing Q-Data’s tender, he
testified, he was asked, as the technical expert of the company, to
find software
that could execute all three the required functions.
But, he said, although he searched both locally and abroad and
despite spending
a large amount on the search, the only software
that was able to register (or enrol), verify and identify
fingerprints, all on
the same system, was that of Identicator.
Q-Data’s attempts to obtain this technology from Identicator were
unsuccessful, because
of its commitment to 3D-ID.
Contrary to the province’s case as pleaded, it was then put to
Bouwer that the software tendered by CPS could in fact meet the
requirements of the tender. But Bouwer’s opinion was that it
could not. Without entering too deeply into the technical debate
that ensued, the difficulty raised by Bouwer was essentially that
CPS’s tender relied on two different software systems. While
one
system was utilised to perform the registration and verification of
fingerprints, the identification function was to be carried
out by a
different system. Moreover, so Bouwer testified, even if the single
software system requirement was ignored, CPS’s two
software
systems did not speak the same computer language and were therefore
incompatible. After some technical debate in cross-examination,
he
conceded, however, that although he did not believe it would work in
practice, he could not exclude the theoretical possibility
that
CPS’s two software systems could be combined to produce the
results the tender required, although in a different manner.
The thesis that the CPS technology could be harnessed to produce the
required results was supported by an expert the province called
to
testify, Mr Leonard Klopper. Though Klopper admitted that he had
never tested his thesis in practice, his view was that it was
hypothetically feasible to combine the two CPS software systems in
that way. We find it unnecessary to declare the victor in this
technical debate. It is not the province’s case that CPS did in
fact offer the suggested solution. Since Klopper himself did
not
even read the CPS tender, he could not comment on any solution it
contained. Bouwer’s undisputed evidence, on the other hand,
was
that apart from the fact that the CPS tender did not offer the
solution suggested by Klopper, it could not have done so, because,
to his knowledge, CPS was conducting an unsuccessful search for an
answer to the technical difficulties posed by the tender. This
is
borne out by the admission in other proceedings of Mr S Etzebeth,
the managing director of CPS, that as far as CPS was concerned,
it
did not at that stage believe it had the required technology.
This, in our view, renders the feasibility of the solution suggested
by Klopper entirely irrelevant. The question is not whether
the
technology referred to in the CPS tender enabled an expert, with or
without the benefit of hindsight, to come up with some
solution that
complied with the requirements of the tender, but whether the tender
submitted by CPS in itself offered such solution.
After all, that
was what the evaluation committee had to evaluate. In this regard it
is common cause that the members of the evaluation
committee
regarded the CPS tender as ‘very poor and largely non-compliant’.
Indeed, the recorded view of one of its members,
Ms Brenda Faye, a
qualified computer technologist, was that CPS’s proposal was
‘abysmal’. In these circumstances, the proposition
that, but for
the fraud and corruption involved, the tender may have been awarded
to CPS, can in our view, be excluded as a matter
of near certainty.
The Nisec tender
National government also raised the argument that, even if 3D-ID had
complied with the specifications, there was another more likely
winning candidate. Unlike the province, however, the horse they
backed was not CPS but Nisec. When this argument was rather
belatedly
raised before us for the first time, the reaction was one
of surprise, since it had been formally admitted on behalf of the
defendants
at the trial that, as a fact, the software tendered by
Nisec did not comply with the mandatory requirements. It was also
common
cause, from the outset, that the glowing report Nisec
received from the evaluation committee was fraudulently orchestrated
by Louw
and Scholtz.
The argument on behalf of national government, that even if the
wrongful conduct of Louw and Scholtz is mentally eliminated and
hypothetically replaced by lawful conduct, Nisec would still have
won the tender, was founded four-square on the so-called ‘one
thousand fingerprint test’ arranged by Louw and Scholtz for the
evaluation committee.
As it happened, the test was attended
only by Terblanche, Louw and Scholtz. Particularly noticeable in
their absence were the evaluation
committee’s two qualified
information technologists. The purpose of the test was to enable
Nisec to demonstrate the ability of
its software to identify a
particular fingerprint against a database of one thousand others.
Rabie conceded that it would be unreasonable
to insist on a
benchmark test of all 175 000 pensioners in the CPA database
and that a test involving one thousand fingerprints
could thus not
be regarded as inappropriate. According to the evidence of
Terblanche, the software tendered by Nisec was able to
meet the
requirements of this test. As we have indicated, the argument that
Nisec would have won the award relied entirely on the
fact that its
software had passed this proficiency test. It matters not, it was
argued, that in fact Nisec’s software proved
incapable of
performing the required functions, because this would have become
apparent only after the award.
But this ignores the uncontroverted evidence of Bouwer, that it
would have been quite readily ascertainable by an expert in the
field that the Nisec tender did not comply. What one must postulate,
is a reasonably competent and fair evaluation by all the members
of
the evaluation committee, including its expert members, which would
eliminate tenders that were readily identifiable as non-compliant.
The fact that these two experts did not attend Nisec’s performance
of the one thousand fingerprint test, is telling in itself.
In all
likelihood it was part of the manipulation orchestrated by Louw and
Scholtz. Had these experts been present, as they would
have been in
a reasonably competent evaluation process, the probabilities
indicate that Nisec would have been caught out.
(c) Tender not awarded at all
The defendants’ final contention was that, but for the fraud of
Louw and Scholtz, the tender would probably not have been awarded
at
all. This argument was largely based on the evidence of Dr J C
Stegmann, a senior employee of the CPA who also served as member
of
the State Tender Board.
The CPA’s request to award the tender to Nisec first came before
the State Tender Board on 1 June 1994. It was accompanied by
a
motivation prepared on behalf of the CPA by Louw. According to the
minutes, Stegmann raised a number of concerns with regard
to the
motivation. The board seemingly adopted these because it informed
the CPA that:
‘
As a result of the following aspects which were
brought to the board’s attention, the board decided not to approve
the tender at
this stage.’
Then followed the list of Stegmann’s concerns to which the CPA was
required to respond.
Included amongst these were:
‘
(ii) the
tender is only in respect of a service to one population group in the
current Cape Province and the services to the brown
and white
population groups are not provided for in the tender;
(iii) it seems that the partitioning of the Cape
Province into three provincial governments in the near future has not
been taken
into consideration and whether the service has been
clarified with any provincial government.’
The context, as Stegmann explained in evidence, was that before 27
April 1994, the CPA was responsible for payment of social pensions
to black beneficiaries only. Pensions of other population groups
were managed by the then administrations of the House of Assembly,
the House of Representatives and the House of Delegates.
Consequently, these were not included in the tender – which
Stegmann
considered could be regarded as a perpetuation of
apartheid. Moreover, he said, the then Cape Province encompassed
what after 27
April 1994 became the separate provinces of the
Western, Northern and Eastern Cape and his concern was that the
tender had not
been approved by the latter two provincial
governments.
The CPA’s response to the two enquiries was prepared by Louw. It
read:
‘
(ii) Although the tender as published only made
provision for the then CPA clients (153 000), tenderers were at the
information meeting
held on 25 March 1994 requested verbally and in
writing to extend the service to all population groups, should it be
required by
the CPA. This was accepted.’
And:
‘
(iii) Although provincial governments are in place
for the three new provinces, they presently have no decision making
powers. The
matter has nevertheless been politically clarified with
the Western Cape Provincial Minister of Health and Welfare, Minister
Rasool,
who in turn clarified the tender with his counterparts in the
Eastern and Northern Cape.’
Both these answers turned out to be deliberate misrepresentations in
furtherance of Louw’s fraudulent manipulation of the process.
All
that was said about the extension of services at the information
meeting of 25 March 1994, which Louw relied on in (ii), was
that:
‘
tenderers must commit themselves to the extension of
this tender should additional pay points and additional clients and
pay days
be required in future.’
It is common cause that this clearly had nothing to do with the
extension to other population groups. The alleged ‘clarification’
of the tender with the provincial governments of the Northern and
Eastern Cape, which he relied on in (iii), apparently never
happened.
At the next meeting of the State Tender Board, held on 14 June 1994,
it was formally decided to accept the Nisec tender. It seems,
however, that the board was not satisfied with the assurance of
alleged (informal) acquiescence by all three provincial governments
involved. In consequence, its acceptance was formulated as follows:
‘
2. Approval was granted by the Regional Tender Board
for the acceptance of the tender from Nisec CC subject to the
following conditions:
2.1 That the letter of acceptance only be issued by this
office to the successful tenderer, once the premier or the relevant
minister
of the Western Cape Provincial Government has given his
written agreement that the service can be implemented; and
2.2 That the
Eastern and Northern Cape Provincial Governments only be incorporated
by this office, once the premiers or relevant ministers
of these
governments have given their written agreements that the service can
be implemented in their respective regions.’
The next day, 15 June 1994, Mr E Rasool, the then Minister of Health
and Welfare in the Western Cape, gave his formal consent to
the
tender on behalf of his government and on 16 June 1994 the tender
was formally awarded to Nisec in respect of the Western Cape
region
only, with the reservation that services were also to be extended to
the Eastern and Northern Cape regions, once ministerial
approval by
these two governments had been obtained. According to Stegmann’s
testimony it became apparent soon thereafter that
the services
contemplated in the tender could not without more be extended to the
other population groups, because the pay-out
system for those groups
depended on different methods of administration and different data
bases. Had this been known to the board,
Stegmann testified, the
tender would not have been awarded to any entity (irrespective of
who complied). In fact, he said, the
tender would not even have been
invited, essentially because it could be regarded as racially
discriminatory.
Like so many other arguments of the defendants, these contentions
were nowhere to be found in their pleadings or their responses
to
plaintiff’s requests for pre-trial particulars. Furthermore, they
were never put to Rabie or to plaintiff’s expert, Bouwer,
who
could possibly have commented on whether the various pension payment
systems were capable of interfacing with each other or
of being
integrated into a single system. Moreover, Stegmann’s testimony as
to the alleged incompatibility of the systems was
not within his
personal knowledge and was not confirmed by any person with
knowledge of the relevant facts. That Nisec later proved
to be
unable to extend its services to other population groups is neither
here nor there. After all, it soon became patently clear
that Nisec
was not even able to render its tendered services to the primary
target group. In our view the defendants therefore
failed to
establish the factual basis that is vital to Stegmann’s entire
thesis, namely, that it was not technically possible
to extend the
services to other population groups. What is more, as Stegmann
himself acknowledged, his contentions essentially
went to whether
the tender should have been invited at all. His concerns would thus
presumably have been considered and – by
inference – rejected by
the relevant officials in the provincial and national governments
before the tender was invited at all.
In any event, it was never the
defendants’ case that the tender should not have been invited.
It must also be borne in mind that the tender as awarded by the
State Tender Board in fact provided services for one population
group only. The board did not insist that the award be made
conditional on later extension to other population groups or even

that it be proven capable of such extension. The minutes of the
board meeting seem to suggest that its members regarded the question
whether a tender should be awarded despite its differentiation
between racial groups, as a political issue that was not for them
to
decide. That is one of the reasons why great pains were taken to
ensure that the tender was not awarded without formal political
consent. In effect, the State Tender Board was therefore prepared
to award the tender, despite the political risk that accusations
of
racial discrimination could follow, as long as the politicians were
prepared to accept the political risk.
Ultimately it is clear that both the CPA and the State Tender Board
were desperately keen to award the tender. Enormous pressures
were
brought to bear upon them to find a solution for the fraud that was
rampant with welfare payments, not least because the extent
of the
fraud had received considerable coverage in the press. Apart from
the enormous financial consequences, it therefore also
became a
political embarrassment. At the same time, the CPA’s own pension
program suffered from serious inefficiencies and had
all but broken
down. Due to a shortage of trained staff and outdated computer
equipment, it would soon be unable to perform its
pension payment
duties. The political consequences of a collapse of these services
need hardly be elaborated. The fingerprinting
technology tender was
presented as the only possible solution to all these problems. An
added bonus would be the prestige to the
CPA for being first to find
a workable solution to what had become a nationwide problem
involving losses in hundreds of millions
of Rands. It is therefore
hardly surprising that Stegmann’s concerns were not shared by the
majority of the decision makers within
the CPA or the State Tender
Board. What is more, it appears that Stegmann himself was only too
pleased to be persuaded otherwise.
When he was given an opportunity
to block the tender award, he did not take it. Instead, he indicated
that he was satisfied with
very cursory answers to questions that he
had posed during the first discussion of the matter on 1 June 1994.
It is in fact clear
that some of the concerns expressed in the State
Tender Board’s letter to the CPA as a result of the discussion,
were not addressed
at all.
Despite the defendants’ arguments to the contrary we are therefore
satisfied that, but for the wrongful conduct of Louw and Scholtz,
it
is more likely than not that 3D-ID, as the only qualifying tenderer,
would have received the award, even though its price was
substantially higher than all the other tenders. This means that, in
our view, the element of causation had been established.
Fourth defence:
Wrongfulness – should fraudulent conduct
in the tender process be exempt from liability?
This brings us to the province’s final contention, namely, that
the plaintiff failed to establish a further element of delictual
liability, namely wrongfulness. The province invoked the judgments
of this court in
Olitzki Property Holdings v State Tender Board
21
and
Steenkamp NO v Provincial Tender Board, Eastern Cape
,
22
arguing that they constitute authority for the general proposition
that our law does not extend a delictual claim to an unsuccessful
tenderer against a government department for losses suffered in the
course of a tender process – including losses inflicted by
fraud.
But the decisions in
Olitzki
and
Steenkamp
must be
understood against the well-established principle of our law of
delict that negligent conduct causing pure economic loss
is not
prima facie wrongful. In these circumstances, wrongfulness depends
on the existence of a ‘legal duty’. The imposition
of such a
duty is determined judicially with reference to considerations of
public and legal policy, consistent with constitutional
norms (see
eg
Minister of Safety and Security v Van Duivenboden
;
23
Gouda Boerdery BK v Transnet
;
24
Trustees, Two Oceans Aquarium Trust v Kantey & Templer
).
25
As this court has explained, the imposition of a duty means that
the conduct under consideration attracts delictual liability
for
resulting damages. Conversely, when it is said that the defendant
owes the plaintiff no legal duty and that there was thus
no
wrongfulness, it means that, despite the existence of blameworthy
conduct, the defendant enjoys immunity against liability for
damages
resulting from the conduct.
Olitzki
decided that the constitutional guarantee of a fair
tender system in s 187 of the interim Constitution does not in
itself provide
the basis for imposing a legal duty to compensate for
loss resulting from breach of the guarantee. That case concerned a
claim
for damages arising from the non-award of a tender resulting
from irregular, unreasonable and arbitrary conduct – but fraud was
not at issue. In these circumstances it was held that the
constitutional injunctions of s 187 did not create a duty to
tenderers
that on breach could be translated into a claim for
damages (paras 25-31).
In
Steenkamp
, where out of pocket expenses incurred because
of the negligent award of a tender were at issue, the conclusion was
summarised
thus (para 46):
‘
Weighing
up these policy considerations [referred to in paras 24-45] I am
satisfied that the existence of an action by tenderers,
successful or
unsuccessful, for delictual damages that are purely economic in
nature and suffered because of a
bona fide
and negligent
failure to comply with the requirements of administrative justice
cannot be inferred from the statute in question.
Likewise, the same
considerations stand in the way of the recognition of a common-law
legal duty in these circumstances.’
Drawing on these decisions, the province argued that, for the same
considerations of policy, this court should refuse to extend
Aquilian liability to loss caused by fraud in the tender process.
The province conceded that, unlike those cases, the conduct
of the
defendants’ employees here consisted of deliberate dishonesty and
corruption, as opposed to
bona fide
negligent bungling.
However, the province contended that fault and wrongfulness are
discrete elements of the Aquilian action –
with the consequence
that because subjective factors such as the perpetrator’s state of
mind and motive pertain to the former
element, they are irrelevant
in determining the latter. Authority for this proposition was
sought in J C van der Walt & J
R Midgley,
Principles of
Delict,
3ed, 71. It followed, the province argued, that
Olitzki
and
Steenkamp
applied.
But the province’s argument starts from the wrong premise. We do
not think that it can be stated as a general rule that, in
the
context of delictual liability, state of mind has nothing to do with
wrongfulness. Clear instances of the contrary are those
cases where
intent, as opposed to mere negligence, is itself an essential
element of wrongfulness. These include intentional interference
with contractual rights (see eg
Dantex Investment Holdings (Pty)
Ltd v Brenner NNO
)
26
and unlawful competition (see eg
Geary & Son v Gove
)
27
.
Closer to the mark, in our view, is the following exposition by
Boberg,
The Law of Delict
, Vol 1 (Aquilian Liability) 33, who
correctly highlights the significance of the perpetrator’s state
of mind in determining wrongfulness:
‘
Examination
of these crystallized categories of wrongfulness reveals the
determining factors. They are:
(a)
the nature of the
defendant’s conduct (was it a positive act or an omission; did it
consist of deeds or mere words?);
(b)
the nature of the
defendant’s fault (was the harm suffered by the plaintiff (was it
physical harm or mere pecuniary loss?). These
criteria do not operate
independently but in conjunction with one another. Thus harm of one
kind (eg physical) may be actionable
whether caused intentionally or
negligently, harm of another kind (eg mere pecuniary loss) may be
actionable only if caused intentionally
(otherwise it is
problematical) … .  At the root of each of these crystallized
categories of wrongfulness lies a value judgment
based on
considerations of morality and policy – a balancing of interests
followed by the law’s decision to protect one kind
of interest
against one kind of invasion and not another. The decision reflects
our society’s prevailing ideas of what is reasonable
and proper,
what conduct should be condemned and what should not . . . .’
In the language of the more recent formulations of the criterion for
wrongfulness: in cases of pure economic loss the question
will
always be whether considerations of public or legal policy dictate
that delictual liability should be extended to loss resulting
from
the conduct at issue. Thus understood, it is hard to think of any
reason why the fact that the loss was caused by dishonest
(as
opposed to
bona fide
negligent) conduct, should be ignored in
deciding the question. We do not say that dishonest conduct will
always be wrongful for
the purposes of imposing liability, but it is
difficult to think of an example where it will not be so.
In our view, speaking generally, the fact that a defendant’s
conduct was deliberate and dishonest strongly suggests that
liability
for it should follow in damages, even where a public
tender is being awarded. In
Olitzki
and
Steenkamp
,
the cost to the public purse of imposing liability for lost profit
and for out of pocket expenses when officials innocently bungled
the
process was among the considerations that limited liability. We
think the opposite applies where deliberately dishonest conduct
is
at issue: the cost to the public of exempting a fraudulent
perpetrator from liability for fraud would be too high.
These considerations would indicate that liability should follow
even if the plaintiff’s case were based on dishonesty on the
part
of the State Tender Board itself. But that is not the case before
us, and this constitutes a further problem for the province’s
argument. This case does not concern the direct liability of the
tender-awarding authority itself: it concerns government’s
vicarious liability for its employees’ conduct. The province’s
argument is therefore misconceived, since it starts from the
wrong
premise and therefore inevitably arrives at the wrong conclusion.
The plaintiff’s case is that defendants are vicariously
liable for
the wrongful conduct of Louw and Scholtz. Once we have decided the
issue of vicarious liability in favour of the plaintiff,
as we have,
the only remaining question in the context of wrongfulness is
whether Louw and Scholtz, public employees in charge
of a tender
process, should themselves be exempt from the consequences of their
own dishonest conduct. The issue in
Olitzki
and
Steenkamp
– whether loss resulting from conduct by the tender-awarding
authority itself should be visited with delictual liability –
does
not arise. For present purposes the question about wrongfulness is
no different than if Scholtz and Louw themselves were
the
defendants.
Thus understood the question is: is there any conceivable
consideration of public or legal policy that dictates that Louw and

Scholtz (and, vicariously, their employer) should enjoy immunity
against liability for their fraudulent conduct? We can think of
none. The fact that the fraud was committed in the course of a
public tender process cannot in our view serve to immunise the

wrongdoers (or those vicariously liable for their conduct) from its
consequences. And we find no suggestion in
Olitzki
and
Steenkamp
that the tender process itself must provide government
institutions with a shield
that protects them against
vicarious liability for the fraudulent conduct of their servants.
The wrongfulness issue therefore cannot
shield the defendants.
Conclusion and order
We conclude that Hartzenberg J correctly determined the issues
before him in favour of the plaintiff and against the defendants.

The defendants’ prospects on the merits of the appeal are
therefore insubstantial and for this reason they should be refused
condonation for the late filing of the appeal. There is a matter
pertaining to the form of the order granted in the court below
which
by agreement between the parties we rectify.
Condonation is refused with costs, including the costs of two
counsel.
By agreement between the parties, paragraph 5 of the order of the
court below is substituted with the following:
‘The second defendant and the fourth defendant are jointly and
severally liable to pay such damages as the plaintiff may prove.’
E CAMERON AND FDJ BRAND
JUDGES OF APPEAL
CONCUR:
MTHIYANE JA
MLAMBO JA
MALAN AJA
1
This
statute was repealed
by s 2(1) of the
Institution of Legal Proceedings against certain Organs of State
Act, 40 of 2002.
2
V
an
Staden v Fourie
1989 (3) SA 200
(A) 216B-F). The court held per
EM Grosskopf JA (in the context of a statutory provision permitting
recovery of moneys paid) that
running of prescription is not
postponed ‘until the creditor has established the full extent of
his rights’ (
totdat die skuldeiser die volle omvang van sy
regte uitgevind het nie
). It followed that prescription started
running when the creditor knew the facts the statute postulated for
recovery, even though
the creditor only later learned what
requirements the statute posed and what rights he acquired when the
payee failed to fulfil
those requirements.
3
Nedcor Bank Bpk v Regering van
die Republiek van Suid-Afrika
[2000] ZASCA 154
;
2001 (1) SA 987
(SCA) paras 11 and 13. The plaintiff alleged that
the bank had negligently paid out a treasury requisition
(skatkisorder) contrary
to its instructions. The plaintiff knew
that the requisition had been paid out, in conflict with its
instructions, and not to
the payee it specified or in terms of its
endorsement. What the plaintiff did not know was into whose account
payment had in fact
been made. It asked the drawee bank for those
details, and instituted action after receiving them. But that was
more than three
years after it knew of the erroneous payment.
Schutz JA held (para 8), adopting the minority judgment of Harms JA
in
Drennan Maud & Partners v Pennington Town Board
[1998] ZASCA 29
;
1998
(3) SA 200
(SCA) 212-213, that the plaintiff had knowledge of the
basic facts to bring its claim – admittedly a scant claim, but a
valid
claim nevertheless. A ‘merely speculative possibility’
that facts might later emerge that would lead to the failure of the
claim – such being extremely unlikely – afforded no reason not
to institute its action (para 14).
4
Compare
the judgment of Watermeyer CJ in
R v Patz
1946 AD 845
857,
applied in the context of prescription by Vos AJ in
Patterton v
Minister van Bantoeadministrasie en Ontwikkeling
1974 (3) SA 684
(C) 687A-B.
5
Compare
Mulungu v Bowring Barclays & Associates (Pty) Ltd
1990
(3) SA 694
(SWA) 702-3 and the discussion in MM Loubser
Extinctive
Prescription
(1996) pp 105-8.
6
See
J Neethling 2006
De Jure
186; Max Loubser and Elspeth Reid
‘Vicarious Liability for Intentional Wrongdoing’
2003
Juridical
Review
143
, discussing the English cases; and see
Bazley
v Curry
(1999) 174 DLR 45
(SCC), discussing the policy considerations
underlying the imposition of vicarious liability for criminal
wrongdoing.
7
Feldman
(Pty) Ltd v Mall
1946 AD 733
750 (a case of negligent driving).
8
Absa Bank
Ltd v Bond Equipment (Pretoria) (Pty) Ltd
[2000] ZASCA 136
;
2001 (1) SA 372
(SCA) 380H-I, per Harms JA.
9
Minister van
Veiligheid en Sekuriteit v Japmoco BK h/a Status Motors
2002 (5) SA 649
(SCA);
Commissioner, South African Revenue
Service v TFN Diamond Cutting Works (Pty) Ltd
2005 (5) SA 113
(SCA);
K v Minister of Safety and Security
[2005] ZACC 8
;
2005 (6) SA 419
(CC).
10
Bazley v
Curry
(1999) 174 DLR 45
(SCC) para 15, per McLachlin J on behalf of the court.
11
Minister
of Police v Rabie
1986 (1) SA
117
(A) 134D-E (a case of wrongful assault, arrest and detention).
12
2002
(5) SA 649
(SCA).
13
2002
(5) SA 649
(SCA) para 16 (‘Die polisieverklarings mag
vals
gewees het maar hulle was nie
vervals
nie’), which Loubser
and Reid
2003
Juridical Review
143
153 translate as ‘false,
but not forged’.
14
[2003]
1 AC 32
,
[2002] 3 All ER 305
(HL),
[2002] UKHL 22
para 51.
15
1990
(1) SA 680
(A) 700F-H.
16
[1995] EWCA Civ 17
;
[1995]
4 All ER 907
(CA) 914c-d.
17
2004
(1) SA 515
(SCA); paras 41-4.
18
[2005]
4 All ER 812
HL;
[2005] UKHL 2
para 202.
19
2002
(6) SA 431
(SCA) para 25.
20
2004
(3) SA 305
(SCA) paras 60-61.
21
2001
(3) SA 1247
(SCA).
22
2006
(3) SA 151
(SCA).
23
2002
(6) SA 431
(SCA) para 22.
24
2005
(5) SA 490
(SCA) para 12.
25
2006
(3) SA 138
(SCA) paras 10-12.
26
1989
(1) SA 390
(A).
27
1964
(1) SA 434
(A).