NorthWest Provincial Government and Another v Tswaing Consulting CC and Others (190/05) [2006] ZASCA 108; [2007] 2 All SA 365 (SCA); 2007 (4) SA 452 (SCA) (21 November 2006)

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NorthWest Provincial Government and Another v Tswaing Consulting CC and Others (190/05) [2006] ZASCA 108; [2007] 2 All SA 365 (SCA); 2007 (4) SA 452 (SCA) (21 November 2006)

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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
Case no: 190/2005 REPORTABLE
In the appeal between:
NORTHWEST PROVINCIAL GOVERNMENT
First appellant
NORTHWEST TENDER BOARD
Second appellant
and
TSWAING CONSULTING CC
First respondent
MANGOPE, SWAI MATHANIEL
Second respondent
SEBAKWANE, Martin Oleboleng
Third respondent
ODAME-TAKYI, Kweku
Fourth respondent
VAN ROOYEN, JWC, NO
Fifth respondent
Before: Zulman JA, Cameron JA, Nugent JA, Maya JA, Cachalia AJA
Heard: Thursday 2
November 2006
Judgment: Tuesday 21 November 2006
Appeal – postponement – refused where litigant and attorney
knew appeal pending but did nothing despite reminders – Fraud
inducing
contract – victim entitled to rescind – rule as to
evidence regarding forfeiture of election restated – Restitution
when fraudulently
induced contract rescinded – once victim
establishes fraud, and entitlement to rescind contract, it is
entitled to repayment in
the absence of evidence showing that
restitution would be unjust
Neutral citation: Northwest Provincial Government v Tswaing
Consulting CC [2006] SCA 138 (RSA)
JUDGMENT
_______________________________________________________
CAMERON JA:
Introduction
This case is about a fraud perpetrated against the Northwest
Province by Tswaing Consulting CC (Tswaing) and its principal
member,
Mr Swai Mathaniel Mangope (the first and second
respondents), with the help of accomplices in the provincial
bureaucracy. The
first and second appellants – the province and
its tender board (‘the province’) – applied to the High Court
at Mmabatho
to set aside a tender award, service contract and
arbitration agreement with Tswaing, and for repayment of R4 319
378.50 plus interest.
Landman J dismissed their application. They
appeal with his leave. Of the respondents, only Tswaing opposed the
application
in the court below and appeared on appeal. Mangope and
the third to fifth respondents (Mr Martin Oleboheng Sebakwane, a
former
provincial deputy director-general; Mr Kweku Odame-Takyi,
formerly chief financial officer in the provincial department of
transport
and chair of the departmental tender committee; and Prof
JCW van Rooyen, the arbitrator appointed to hear a dispute between
the
province and Tswaing) made no appearance in either forum.
The dispute arose from an ambitious programme the province embarked
upon in 2000 to upgrade, rehabilitate and repair its roads
on a
budget of over R156 million. Through the fraudulent interventions
of Sebakwane and Odame-Takyi, colluding with Mangope, the
province –
with Sebakwane as signatory – in December 2000 signed a ‘service
agreement’ with Tswaing, even though it was
bereft of experience
in roads or civil engineering projects. The tender board was never
asked to and did not approve the conclusion
of the ‘service
agreement’: but, on the basis of bogus documentation, it later
gave approval for the ‘ex post facto appointment’
of Tswaing.
Between January and August 2001 Tswaing quickly pocketed
disbursements of over R4 million by the province. But an
audit
established overpayments, and in the course of 2002, the province
made several ineffectual attempts to cancel the agreement.
An
investigation by a major firm of auditors comprehensively detailed
the irregularities and improprieties in the agreements with
Tswaing,
and the falsehoods that gave rise to them. The report was submitted
to the province in January 2002. But its existence
and its findings
were not communicated to those in the roads and public works
department dealing directly with Tswaing. And when
Tswaing itself
purported to cancel the agreement – complaining of late payments –
and claimed damages of R400 million, the
department in August 2003
entered into an arbitration agreement with it to settle its claims.
But as soon as the department’s
chief financial officer, Mr
Mawethu Xolani Mtyhuda (who became the appellants’ principal
deponent), became aware of the damning
report, he immediately moved
to halt the arbitration.
It was for rescue from this sorry muddle that the province turned to
the high court. First, it obtained an order staying the arbitration
proceedings. Then it asked Landman J to set aside the tender award,
service agreement and arbitration agreement. The province’s
case
was that the tender award was made and the service agreement entered
into as a result of fraudulent misrepresentations, and
that the
service agreement was in any event invalid and unenforceable because
the tender board’s approval was essential under
the North West
Tender Board Act 3 of 1994 and was never sought or obtained.
The fraud was minutely detailed in more than 1600 pages of
documentation in the appellants’ founding papers. To this Tswaing
and Mangope responded with bellicose and evasive argumentation.
They claimed that the province had ‘failed to make out a prima
facie case’ for Tswaing to answer. They dealt with the damning
audit report by asserting that it was inadmissible. And in
any
event, Tswaing averred, the province (or at least its ‘so called
top echelon’) knew of the report, and thus acquiesced
in the
continuance of the contract. No answer was offered to the
falsehoods, misrepresentations and devious stratagems the founding
papers exhaustively documented.
The factual allegations of fraud that formed the crux of the
province’s case were thus not contested, and Landman J rightly

found that the fraud was not effectively challenged. But though the
learned judge was ‘prepared to assume’ in favour of the
province
that Tswaing’s documents were ‘riddled with false and fraudulent
misrepresentations’, calculated by Mangope, Sebakwane
and
Odame-Takyi to induce the tender board to grant ex post facto
approval, he nevertheless found the contracts still in force
because
the tender board had ratified the province’s action in concluding
the agreement with Tswaing. Since the contracts were
only voidable,
there had to be an effective election to rescind them: and this the
judge found the province had failed to prove.
Notice of
cancellation, eventually issued in 2004 during preparations for the
arbitration, was too late; and even if it had been
timeous, the
province had in any event by then ‘committed itself to suing on
the contract’. Since the province could not be
allowed to
approbate and reprobate, it had to be held to the agreement. The
service agreement therefore had to stand. Nor could
the arbitration
agreement be separately cancelled on the ground of fraud. The
province’s mistake in entering into the arbitration
agreement was
unilateral – and because it had acted grossly negligently, the
mistake that underlay its consent could not serve
as an acceptable
basis for cancelling. Finally, the judge concluded that there was
no ‘good cause’ under
s 3(2)
of the
Arbitration Act 42 of 1965
to grant the province and the tender board alternative relief in
setting aside the arbitration agreement: the fraud that underlay
the
whole transaction could not affect the arbitration since the service
agreement had not been cancelled.
Application for postponement of the appeal
After obtaining leave in April 2005, the province noted its appeal,
lodged the record and filed argument on 30 November 2005.
Tswaing’s
written argument was therefore due by 31 January 2006.
1
It did not come. Months passed. Nothing came. The President of
the Court decided to enrol the matter. By letter dated 21 August
the Registrar informed both sides’ attorneys of the date. On the
same day, Tswaing’s Bloemfontein correspondents faxed the
Registrar’s letter to its Pretoria attorneys, Ramushu Morare. Mr
Morare’s affidavit denies receipt of this fax: it must, he
says,
‘have gone astray’. The difficulty for Mr Morare is that the 21
August notification did not stand alone. On 8 September,
the
correspondents sent him a reminder, referring to the 21 August
letter. They pointed out ‘that we haven't received a reply
from
you’. This Morare did receive. But still he made no reply.
Nearly five weeks later, on 11 October, the correspondents
again
wrote, pointing out ‘that you haven't replied to any of our
correspondence’. Morare at last responded. He informed
his
Bloemfontein correspondents that the parties ‘are endeavouring for
an ex curia settlement negotiations between themselves’,
and that
‘we have been requested to withhold the appeal’. He asked the
correspondents not to take any further step, ‘including
a
consideration for a withdrawal’. There was no communication to
the opposing attorneys or to the Registrar.
Against this background, counsel for Tswaing moved for a
postponement. The province opposed and the application was refused.
The justification Tswaing proffered was that negotiations were
taking place to settle the matter, and that Morare denied having

received the letter of 21 August informing the parties of the
appeal’s enrolment, with the result that Tswaing only learnt of
the appeal on 1 November. But this is unpersuasive. The fact that
Morare may not have learnt the exact date of set down in August
detracts no iota from everything else he and Tswaing knew. They
knew that the province’s appeal was pending; that the province
was
entitled to its disposal; that written argument had to be filed;
that Tswaing had failed to file it; and that weeks and months
were
passing. An affidavit filed after the appeal by the state
attorney’s office in Mafikeng reveals also that Morare ignored
a
reminder in March 2006 from the province’s attorneys that written
argument had to be filed.
In this charged setting, Morare in September and October 2006
received pointed complaints from his correspondents about unanswered
correspondence but did nothing. Even if he did not receive the fax
of 21 August, the repeated allusions to it in his correspondents’
later communications made it imperative for him to inquire about its
content and significance. He was not entitled to rest content
in
the belief, as he says he did, that the reminders ‘related to the
concerns of my Bloemfontein correspondents in respect of
the
non-filing of the heads of argument’. That he failed to do
anything gives credence to the suggestion by Mr Modiboa in the
state
attorney’s affidavit that Tswaing ‘did not have any intentions
to proceed with this appeal, with the hope that it will
use its own
contacts to settle the matter and to circumvent due process and to
attempt to frustrate the set down of the appeal’.
Counsel for Tswaing suggested that there was ‘a lack of proper
communication’ between Morare, his client and the state attorney.

If there was, no part of the deficiency can be lain at the door of
the province, its counsel or the state attorney. When a party,
through its attorneys, has full knowledge of an imminent appeal, and
remains inert in the face of successive passing deadlines,
postponement would wreak a clear injustice on the opposing party,
and the requested accommodation must be refused.
What is more, counsel conceded that if negotiations were proceeding
as propitiously as Tswaing claimed, the disposal of the appeal
would
do nothing to impede them. The application for postponement was
therefore refused, and the hearing went ahead. Counsel
for Tswaing,
who has at material stages been involved in the matter (and who
indicated that his written argument had in any event
been in a
fairly advanced stage of preparation), assisted the court with oral
submissions on the merits.
Fraud and the province’s election to rescind
Landman J refused the province relief because he found that the
province had failed effectually to rescind Tswaing’s fraudulently
obtained contract. This finding may be considered in two stages.
First, Tswaing’s fraud certainly rendered the contract voidable
at
the province’s instance. The evidence established that Tswaing
had no expertise in the field, that the basis on which it
elicited
the contract was fabricated, and that the fees it secured were
grossly inflated. In short, the fraudulent misrepresentations
of
Mangope and his accomplices were far-going and most material.
The province was therefore entitled to elect either to rescind the
contract or to enforce its terms. It chose to rescind. The
judge’s
finding that the province failed effectually to rescind derived from
a misappreciation of the facts. To establish forfeiture
of the
right to rescind, there had to be evidence that the province
elected, with full knowledge of the deception, to affirm the
contract.
2
But Tswaing could point to no evidence that the province, with full
knowledge of the relevant facts, including the extent and
effect of
the deception, elected to affirm the contract. Such evidence was
lacking because the roads and public works department,
which was
overseeing the contract, did not know of the fraud, while those in
the province’s ‘top echelon’, who did know,
were not involved
in the contract’s administration. Indeed, far from affirming the
contract, the evidence shows that the ‘top
echelon’ tried to
rescind it, though because of misadventure and incompetence,
ineffectually so. The judge’s finding is unwarrantable.
This conclusion entails that the arbitration agreement also cannot
stand. This is for two reasons. First, the arbitration clause
was
embedded in a fraud-tainted agreement the province elected to
rescind. The clause cannot survive the rescission,
3
and the agreement purporting to give effect to it is still-born.
The judge overlooked that to allow Tswaing to enforce the
arbitration
agreement, the tainted product of Tswaing’s fraud,
would be offensive to justice.
Second, the arbitration agreement was in any event signed by
officials acting on behalf of the province who did not know of the
fraud when they signed. The principal deponent’s specific
averment that he was unaware of the fraud until after the
arbitration
agreement’s conclusion was not and could not be
denied; while the official who signed the agreement on behalf of the
province,
and two provincial legal advisors, stated on oath that
they did not know of the fraud when agreeing to arbitration, and
Tswaing
was unable to put their depositions effectually in issue.
This conclusion means that we do not have to consider whether
considerations of public policy might prevent a public authority
from exercising the innocent party’s entitlement to affirm even a
fraudulently induced contract. Nor do we need to consider
the
province’s argument that the service agreement with Tswaing was,
in any event, invalid for non-compliance with the North
West Tender
Board Act 3 of 1994, or the contention that ‘good cause’ existed
under
s 3(2)
of the
Arbitration Act 42 of 1965
to set the
arbitration agreement aside.
The province’s claim for repayment of moneys paid to Tswaing
Since the province elected to cancel the contract on the basis of
the fraud, it follows that it is entitled to restitution of the
money it paid to Tswaing. Counsel for the province initially
indicated that the papers did not establish the province’s
entitlement
to repayment. This was because one of the deponents,
the former provincial director of roads, Mr Stephanus Pienaar,
acknowledged
that Tswaing did ‘a fair amount of work’ under its
appointment: ‘In other words’, he said, ‘it should not be
construed
as if I think that they have done absolutely nothing, or
everything they did was wrong’. Capitalising on this, counsel for
Tswaing
urged us to find that the province’s prayer for repayment
should be referred for the hearing of oral evidence.
But this is to mistake the defrauded party’s remedies on
rescission, and to overlook what must be established before the
victim
is denied restitution. It is correct that a court will
generally not grant restitution when setting aside a contract unless
the
victim of the fraud is able and willing to restore completely
everything received under the contract. The reason is that the
victim
might be unjustly enriched by recovering what was given under
the contract while keeping what was received.
4
Yet, as this court explained in
Feinstein v Niggli
,
5
since the rule derives from equitable considerations, it may be
departed from whenever justice requires it.
6
The facts of this case provide a clear instance where justice
demands that the province should be afforded restitution despite
its
acknowledgement that Tswaing may be entitled to compensation for
some work performed. This is because Tswaing failed to put
up any
facts indicating that restitution would be unjust. The litigation
afforded Tswaing ample opportunity to show what it delivered
under
the contract, thereby providing a basis for the conclusion that
repayment should in justice be refused. Instead, Tswaing’s
response evidenced only its cavalier disregard.
The province chose to proceed by way of application. It therefore
bore the burden of establishing all aspects of its entitlement
to
relief, including that it was entitled to repayment in the face of
Tswaing’s claim to some compensation.
7
On the papers, the province established that entitlement. In its
founding papers, the province alleged that Tswaing had ‘added
no
or very little value’ to the roads project, and that its work
under the agreement was mere duplication of existing services.
It
followed that Tswaing ‘added little, if anything’ to the
project. In addition, the fees it pocketed were grossly excessive,
not market-related, and bore ‘no relationship’ to the amount of
work done. Having set out these averments, the deponent (not
unreasonably) anticipated a rebuttal from Tswaing, with a resultant
factual dispute:
‘
It is anticipated that [Tswaing] will dispute the
[province’s] contentions in this regard which might not be capable
of resolution
on the papers. In the event of this Honourable Court
being of the view that this is the position, applicants will request
that this
portion of the [province’s] claim be referred to evidence
or to trial.’
The province anticipated wrongly. Far from engaging with the
province’s detailed averments about the extent of the fraud and
Tswaing’s lack of entitlement to any recompense, Mangope breezily
circumvented the issue. Tswaing offered no exposition of any
work
it might have done, or of services it might have rendered to the
province, or of value it might have delivered. Instead,
it seized
on the province’s anticipation of a possible factual dispute as an
excuse for evading these allegations entirely.
In answer to the
passage quoted, Mangope contented himself with this:
‘
It is irrelevant and disputed that our services
allegedly were duplications of some sort. The applicants have
accepted that the contents
hereof are subject to dispute, that we
have indeed rendered valuable service, and that it should be referred
to evidence. [Tswaing]
is thus relieved of answering this paragraph
at this stage.’
Evasion of this sort could not serve to raise a dispute of fact
impeding the province’s claim to repayment. Once the province
established the fraud, and its entitlement to rescind the contract,
it became entitled to repayment in the absence of evidence
affording
a basis for a finding that restitution would be unjust. That could
only have come from Tswaing, which could have set
out the work it
did, its expenditures, the value delivered and the services rendered
under the contract. It failed to do so.
Instead, it sought refuge
in a bare denial of the province’s claim that it had added ‘no
or very little value’ to the roads
project, and an evasion of all
the other relevant allegations.
It must follow that no factual basis existed for denying the
province the equitable remedy of restitution. Justice requires that
Tswaing be ordered to repay what it received in consequence of the
fraud. If it is entitled to recompense for unjust enrichment
against the province, it is free to establish that claim in
appropriate proceedings.
Order and costs
Tswaing must pay the costs of the unsuccessful application for
postponement. There is an order as follows:
1. The appeal succeeds
with costs, including the costs of two counsel, which are to include
the costs of the application for postponement.
2. The order of the
court below dismissing the application is set aside.
3. In its place there
is substituted:
‘(a) The application
succeeds with costs, including the costs of two counsel, which are to
be paid by the first respondent.
(b) There is an order
in terms of prayers 1 and 2 of the applicants’ notice of motion.
(c) The first
respondent is ordered to pay the costs of the urgent application
brought by the first applicant against the first and
fifth
respondents under case number 744/2003.’
E CAMERON
JUDGE OF
APPEAL
CONCUR:
ZULMAN JA
NUGENT JA
MAYA JA
CACHALIA AJA
1
Supreme Court of Appeal
Rule 10(1)(b).
2
">
2
Feinstein v Niggli
1981 (2) SA 684
(A) 699C-E.
3
Wayland v Everite Group Ltd
1993
(3) SA 946
(W) 951H-I; D Butler ‘Arbitration’ in WA Joubert
The
Law of South Africa
(LAWSA) (2ed, 2003) vol 1 para 558.
4
Feinstein v Niggli
1981 (2) SA 684
(A) 700G-H per Trollip JA on behalf of the Court.
5
1981 (2) SA 684 (A) 700-701.
6
See
Harper v Webster
1956 (2) SA 495
(FC) 500B (a passage approvingly referred to in
Feinstein v Niggli
):
‘It does not seem that these cases
should be regarded as laying down a general rule and limited
exceptions to it; rather they
indicate acceptance of the general
rule but departure from it when justice requires such departure.’
7
Ngqumba v Staatspresident
1988 (4) SA 224
(A) 259 and following.