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[2012] ZAGPPHC 350
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New Dawn Technologies (Pty) Ltd v Minister of Home Affairs and Another (26441/2010) [2012] ZAGPPHC 350 (4 December 2012)
NOT REPORTABLE
IN THE NORTH GAUTENG HIGH COURT,
PRETORIA REPUBLIC OF SOUTH AFRICA
CASE NO: 26441/2010
DATE:04/12/2012
In
the matter between:
NEW
DAWN TECHNOLOGIES (PTY)
LIMITED
..............................................
Plaintiff
and
MINISTER
OF HOME
AFFAIRS
.........................................................................
First
Defendant
STATE
INFORMATION TECHNOLOGY AGENCY
(PTY)
LIMITED
......................................................................................................
Second
Defendant
JUDGMENT
Tuchten
J:
1.
This is an exception taken by the defendants to both the main and the
alternative claims pleaded by the plaintiff. According
to the
particulars of claim, the plaintiff responded to an invitation to
tender to supply the Department of Home Affairs (“the
DHA”)
with an electronic document management system. As required under the
invitation to tender, the plaintiff included in
its bid response a
form issued by the second defendant (“SITA”) on which the
plaintiff supplied certain relevant information.
This bid response as
distributed to would be tenderers contained a great deal of
information about the scope of the service required
and contractual
terms which were to be included in any eventual contract arising from
the bid invitation. The plaintiff alleges
that the bid response,
together with the relevant bid invitation, contained the provisions
of its contract with the DHA.
2.
The bid response form contained sections called respectively “General
Conditions of Contract/Proposal” and “Special
Tender
Conditions” which called for a response from a tenderer in
relation to specific propositions by ticking one of two
boxes
provided for that purpose in the form, indicating whether the
tenderer accepted or did not accept the proposition and, in
one
instance, whether the tenderer complied/agreed or did not comply. The
plaintiff ticked all the accept boxes in the sections
and the comply
box. In other sections, the tenderer was required to indicate whether
it did or did not comply with certain stated
criteria and to
substantiate its answer. The plaintiff stated that it did comply and
provided substantiation. In a section headed
Pricing, the tenderer
had to insert its tendered prices, which the plaintiff did. The
result was that each such proposition became
a term of the offer
constituted by the bid response as a whole.
3.
SITA is a private company established under and incorporated pursuant
to s 2 of the State Information Technology Agency Act,
88 of 1998
(“the Act”). The duties and powers of SITA are set out in
s 7 of the Act. These include procuring, either
as agent or
principal, information systems and data-processing and associated
services for state departments such as the DHA. The
purpose of the
tender was to procure such a system and data processing service.
4.
The plaintiff instituted action against the defendants, alleging
that its tender was accepted in about June 2006, upon which
a
contract came into existence between the plaintiff and the DHA and it
started rendering services to the DHA pursuant to this
contract.
5.
Paragraphs 7.1 and 7.3 of the plaintiff’s particulars read:
On
a proper interpretation of the bid response submitted by the
plaintiff and accepted by SITA and the DHA and the award of the
tender to the plaintiff, the DHA had a right either to negotiate a
final written contract with the plaintiff, incorporating the
whole of
the plaintiff's bad response, or hold the plaintiff contractually
bound to the terms of its bid response.
The
DHA by January 2007 exercised an election not to negotiate a final
written contract with the plaintiff, but to hold the plaintiff
contractually bound to its bid response and to require of the
plaintiff to proceed with the implementation of the awarded tender.
The DHA thereby waived its right to negotiate a final written
contract.
6.
The particulars of claim proceed to allege that from 28 February 2007
to June 2009, the DHA repudiated the contract between the
parties by
refusing to accept any performance by the plaintiff in terms of the
contract and that the plaintiff thereafter continuously
tendered to
perform. On the strength of these allegations, the plaintiff claims
payment of what it describes as its loss of profits,
which it
calculates as being the agreed contract price less its expenses saved
by not performing under the contract.
7.
There are certain provisions in the plaintiff’s bid response
which the plaintiff alleges give the DHA a right to require
the
plaintiff to negotiate with it towards the conclusion of what is
termed a “final written agreement.” In the alternative
to
its claim for an enforceable right to perform and get paid in terms
of the contract, the plaintiff claims that the DHA was obliged
by the
terms of the bid response to negotiate with it in good faith and that
if it had done so, a final written contract on substantially
the same
terms as those contained in the bid response would have been
concluded. The plaintiff’s claim under the alternative
claim
quantifies identically to its main claim.
8.
The exception to the main claim focusses on those provisions of the
bid response which provide for negotiations and the conclusion
of a
formal agreement or formal agreements after acceptance of the tender.
I shall deal with them in the order they appear in the
document.
9.
Clause 2:
Based
on the quality of the proposal submitted, SITA intends to select a
preferred vendor with a view to concluding a service agreement
(SLA)
where applicable with such successful vendor.
10.
Clause 5.9
This
RFB, all the appended documentation and the proposal in response
thereto read together, forms the basis for a formal contract
to be
negotiated and finalised between SITA and/or its clients and the
enterprise(s) to whom SITA awards the proposal in whole
or in part.
Mere
offer and acceptance shall not constitute a formal contract of any
nature between and vendor.
11.
Clause 9.28
The
[DHA] specifically reserves the right to negotiate a final contract
with the successful Tenderer. The contract will only be
concluded on
the signing of the contract and the agreement on service levels by
both parties.
12.
Clause 9.29
The
Tenderer’s response to this Tender, or parts of the response,
will be included as a whole or by reference in the final
contract.
13.
The crisp point made on behalf of the DHA is that the accepted
tender creates no contract between the parties and that despite
the
form of the bid invitation such a contract was only to arise on the
conclusion, after negotiation, of a final written contract.
14.
It was submitted that I should view the material in the particulars
of claim against the background of the Act and the Regulations
made
pursuant to the Act. These measures broadly set out the procedures by
which procurement by SITA and those departments and
public bodies
contemplated by the Act are to procure the networks, systems and
services provided for in the Act. It was not however
suggested that
an agreement concluded otherwise than strictly in accordance with the
Act or the Regulations would be invalid merely
for that reason. The
submission was essentially that I should employ the statutory
measures as an aid to interpretation. The thrust
of the argument is
that regulation 9(5) requires that SITA must, whenever it contracts
for the procurement of certain “mandatory
services” and
after complying with certain formalities, conclude the “necessary
contracts” with the successful
bidder or bidders.
15.
It is not the plaintiff’s case that it has contracted with
SITA for the services. The plaintiff’s case is that
it
contracted with the DHA. There is nothing in the particulars of claim
to suggest that the nature of the performance required
of the
plaintiff constituted mandatory services.
So,
in my view, on the material before me, reg 9 does not assist the DHA.
16.
On the other hand, reg 12, which relates to optional services,
provides for the conclusion of a contract by the department
concerned. No specific form for such a contract is prescribed. And
then, reg 14(3) provides that “an accounting authority,”
defined to mean in relation to a
department the relevant person or body
having financial accountability in accordance with the relevant
legislation, may, “before
notifying the successful bidder or
bidders of the award of the bid”, cancel the bid under certain
circumstances. This suggests
that the bid may not be cancelled after
the successful bidders have been notified. Reg 14(6) imposes a duty
on an accounting authority
to notify SITA as well as the successful
bidders of the award of the bid. Reg 14 tends to indicate that the
award of a bid, without
more, has contractual significance.
17.
In summary, therefore, I think that I have insufficient information
on the strength of which to place the material put up by
the
plaintiff within the scheme of the Act and the Regulations. The
measures therefore do not, at this stage, afford any aid to
interpreting the material which the plaintiff has pleaded contains
the terms of its contract with the DHA.
18.
In Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 4.
SA593 SCA paras 18-19 , the modern approach to interpretation
of
written contracts and statutes was explained. I shall confine my
remarks to contracts because a contract is what is in issue
in this
case.
19.
A contract is Interpreted by attributing meaning to the words used in
the contract, having regard to the context provided by
reading the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its
coming into existence.
Consideration must be given to the language used in the light of the
ordinary rules of grammar and syntax,
the context in which the
provision appears, the apparent purpose to which it is directed and
the material known to those responsible
for its production. Where
more than one meaning is possible, each possibility must be weighed
in the light of all these factors.
The process is objective, not
subjective. A sensible meaning is to be preferred to one that leads
to insensible or unbusinesslike
results or undermines the apparent
purpose of the document.
20.
The scope of the tender was to provide the DHA with digitised
records. The bid response provided in clause 9.30 for the plaintiff
to accept, which it did, that an estimated 500 million cases would
have to be digitised, a minimum of 13,3 million of which must
be
scanned within the first six months of the project as priority.
Failure to meet or comply with this requirement shall result
in the
contract with the successful tenderer being terminated or penalties
being applied.
21.
In addition, the “successful Tenderer” is required under
clause 2.2.2.1 of annexure A to the bid response (a document
headed
“Functional Questionnaire) to transport paper documents from
one DHA site to another. For the scanning itself, the
successful
tenderer was required under clause 2.1 of the same Questionnaire to
... supply a fully functional scanning bureau for
the completion of
this project to cover the ... expansion of the current EDMS
(scanning, workflow, storage and retrieval ) for
all functions of the
[DHA] and transportation, preparation, scanning, indexing and quality
assurance of a backlog [my emphasis]
of paper documents in the [DHA],
22.
In resisting the exception, counsel for the plaintiff drew my
attention to certain provisions in the General Conditions of
Contract/Proposal section in the bid response. I deal with them
below.
23.
Clause 9.5
SITA
reserves the right to; cancel/reject any proposal...
24.
Clause 9.14
Should
the parties at any time before and or after the award of the proposal
and prior to, and or after conclusion of the contract
fail to agree
on any significant product change in technical specification, change
in services etc. SITA shall be entitled within
14 (fourteen) days of
such failure to agree, to recall the letter of award and cancel the
proposal..., in which event all fees
on which the parties failed to
agree increases or decreases shall, for the duration of such notice
period, remain fixed on those
fee/price applicable prior to the
negotiations.
Such
cancellation means that SITA reserves the right to award the same
proposal to next best vendors as it deems fit.
25.
Clause
9.16
Any
amendment or change of any nature to this RFB shall only be of force
and effect if it is in writing, signed by SITA signatory
and added to
this RFB as an addendum.
26.
Clause
9.17
Failure
or neglect by either party to (at any time) enforce any of the
provisions of this proposal shall not, in any manner, be
construed to
be a waiver of any of that party’s right in that regard and in
terms of this proposal. Such failure or neglect
shall not, in any
manner, affect the continued, unaltered validity of this proposal, or
prejudice the right of that party to institute
subsequent action.
27.
Clause 9.18
Vendors
who make use of sub-contractors The proposal will however be awarded
to the vendor as a primary contractor who will be responsible
for the
management of the awarded proposal. No separate contract will be
entered into between DHA and any such sub-contractors.
Copies of the
signed agreements between the relevant parties must be attached to
the proposal responses.
28.
Clause 9.26
If
the successful vendor disregards contractual specifications, this
action may result in the termination of the contract.
29.
Counsel for the plaintiff also relied on clause 9.29 and submitted
that, on a proper interpretation, this clause reserved to
the DHA a
right to negotiate a final contract with the successful tenderer. I
agree with this submission. That is precisely what
clause 9.29 says.
In consequence, the DHA was entitled to elect not to negotiate a
final contract which, according to the particulars
of claim, it
indeed elected not to do. That does not dispose of the enquiry. The
question is whether the accepted bid offer acquired
contractual force
as between the parties.
30.
The principles relating to the situation where there is an offer and
acceptance but the parties envisage a further, formal contract
have
very recently been restated and applied by the SCA in Command
Protection Services (Gauteng) (Pty) Ltd v South African Post
Office
Limited
[2012] ZASCA 160
paras 12-13:
The
dispute thus arising is not novel. It frequently happens,
particularly in complicated transactions, that the parties reach
agreement by tender (or offer) and acceptance while there are clearly
some outstanding issues that require further negotiation and
agreement. Our case law recognises that in these situations there are
two possibilities. The first is that the agreement reached
by the
acceptance of the offer lacked animus contrahendi because it was
conditional upon consensus being reached, after further
negotiation,
on the outstanding issues. In that event the law will recognise no
contractual relationship, the offer and acceptance
notwithstanding,
unless and until the outstanding issues have been settled by
agreement. The second possibility is that the parties
intended that
the acceptance of the offer would give rise to a binding contract
and that the outstanding issues would merely be
left for later
negotiation. If in this event the parties should fail to reach
agreement on the outstanding issues, the original
contract would
prevail (see eg CGEE Alsthom Equipments et Enterprises Electriques,
South African Division v GKN Sankey (Pty) Ltd
1987 (1) SA 81
(A)
at
92A-E; Namibian Minerals Corporation Ltd v Bengueia Concessions Ltd
[1996] ZASCA 140
;
1997 (2) SA 548
(A) at 567A-C).
Illustrations
of cases that were held by this court to be manifestations of the
first possibility are to be found in Namibian Minerals
Corporation
and in Premier, Free State v Firechem Free State (Pty) Ltd
2000 (4)
SA 413
(SCA) while the facts in Alsthom Equipment and in Murray &
Roberts Construction Ltd v Finat Properties (Pty) Ltd
1991 (1) SA 508
(A) were held to demonstrate the second (see also Lewis v Oneanate
(Pty) Ltd
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at 820I-821E). The criterion as to
whether the facts of a particular case indicate the one or the other
was succinctly summarised
thus by Corbett JA in Alsthom Equipments at
92E:
‘
Whether
in a particular case the initial agreement acquires contractual force
or not depends upon the intention of the parties,
which is to be
gathered from their conduct, the terms of the agreement and the
surrounding circumstances.’
31.
Because this is an exception, I must also have regard to the test to
be applied at this stage to the interpretation of a contract.
The
first defendant, as excipient, must persuade the court that upon
every interpretation which the particulars of claim (including
any
written material referred to in the pleading as containing
contractual provisions) can reasonably bear, no cause of action
is
made out Lewis v Oneanate (Pty) Ltd and Another
[1992] ZASCA 174
;
1992 4 SA 811
AD
817G.
32.The
Special Conditions of Contract/Proposal section includes a clause
9.31 to which I have not yet referred:
The
successful Tenderer must be on site 7 working days after the date
upon which the tender is awarded.
33.
There is no provision in the bid response for the date by which the
contemplated final contract must be negotiated. The scope
of the work
as described in the bid response is enormous. The successful tenderer
has to commit to digitising a prioritised 13,5
million cases of paper
documents, relating to births, marriages, deaths (all vital records
for the smooth maintenance of civil
society in our country) and
amendments “within the first six months of the project as
priority." in light of clause
9.31, the project commenced on the
seventh working day after the date upon which the tender was awarded.
The most reasonable interpretation
of the bid response is that the
DHA regarded the completion of the work which had been commissioned
as urgent and that the duty
imposed on the plaintiff to come onto
site (and, by inevitable inference, to start working) preceded the
attempt to negotiate a
final contract. And if the plaintiff had to
start working before any obligation to negotiate the final contract
arose, the further
inevitable inference is that it was bound by
contract to do so.
34.
This conclusion is reinforced, in my view by the provisions of
clauses 9.28, 9.5, 9.14, 9.16.9.17, 9.18, 9.26 and the provisions
of
the Functional Questionnaire to which I have referred. It is further
reinforced by the conduct of the parties as alleged in
paragraph 8 of
the
particulars of claim, which I must accept at this stage as fact, that
in January 2007, after the acceptance of the plaintiff’s
bid
offer, a representative of the DHA required the plaintiff to make
certain performance in accordance with the tender and that
the
plaintiff tendered to do so. In the result, in my view, the most
reasonable interpretation of the material put up by the plaintiff
favours the interpretation for which the plaintiff contends, ie that
the parties concluded a binding contract on the acceptance
of the
plaintiff’s tender. The exception to the main claim must
therefore fail. My conclusions are of course arrived at on
the basis
of what is before me on exception. The final decision on the
interpretation of the material must be left to the trial
court,
before which additional material may possibly be placed.
35.
The exception to the alternative claim is based on the proposition
that a mere agreement to agree, or to negotiate towards an
agreement,
is not enforceable. That of course is the position where one of the
parties has reserved to itself, to use the words
of Schutz JA in
Premier
Free State, and Others v Firechem Freestate (Pty) Ltd
2000 4 SA 413
SCA para 35.
...
the absolute [my emphasis] discretion ... to agree ordisagree.
36.
But the plaintiff has pleaded that there rested on the first
defendant an obligation to negotiate in good faith. The assertion
that the parties were obliged to negotiate in good faith has not been
assailed on exception. In Southernport Developments (Pty)
Ltd v
Transnet Ltd
2005 2 SA 202
SCA para 17, the SCA held:
The
express undertaking to negotiate in good faith in this case is not an
isolated edifice. It is linked to a provision that the
parties, in
the event of them failing to reach agreement, will refer such dispute
to an arbitrator, whose decision will be final
and binding. The final
and binding nature of the arbitrator’s decision renders certain
and enforceable, what would otherwise
have been an unenforceable
preliminary agreement.
37.
In my view, the ratio in Southernport is that an otherwise
unenforceable agreement to agree will become binding when the parties
agree on a mechanism to resolve their failure to agree. There is no
such provision for a mechanism in the material put up by the
plaintiff in its particulars of claim. In the result, in my view, the
present case has not because of the obligation to negotiate
in good
faith (an assertion I accept at this stage because it was not
attacked on exception) been taken out of the cadre of cases
contemplated in Premier, Free State, and Others v Firechem Freestate
(Pty) Ltd.
38.
In Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd
2012 1 SA 256
CC, the Constitutional Court dealt with a defence that
the common law should be developed to enforce an agreement to agree
the
rental of business premises for a period after the expiry of a
lease, if an option in that regard was exercised by the lessee. The
majority held that the defence should not be sustained on appeal to
the highest court in the land on constitutional matters because
the
defence had not been taken in the courts below. However the majority
concluded, firstly (para 72), that where there is a contractual
obligation to negotiate, it would hardly be imaginable that our
constitutional values would not require that the negotiation must
be
done reasonably, with a view to reaching agreement and in good faith
and, secondly (para 71), that in relation to this question,
the case
had not been "properly pleaded” and that the defence could
therefore not be entertained.
39.
In the present case, there is no reference in the particulars of
claim to facts which might give rise to “a number of
interlinking constitutional values [which] would inform a development
of the common law.”
(Everfresh
para 72). Indeed, there is no request at all to the court to develop
the common law. In the result, in my view, the alternative
claim
falls to be determined in the light of the common law, at its present
stage of development as reflected in Southernport,
against
which,
for reasons given, the alternative claim does not pass muster. In the
result, the exception to the alternative claim must
be upheld, with
leave to the plaintiff to amend, if so advised.
40.
As to costs, both parties have achieved a measure of success but the
greater part of the argument related to the exception to
the main
claim. I think that the same can be said for the preparation by the
legal representatives. I think that the fairest would
be to award the
plaintiff half of its taxed costs.
41.I
make the following order:
1.
The exception to the plaintiffs main claim, as set out in paragraphs
9 to 12 of the notice of exception dated 10 April 2012
is dismissed;
2.
The exception to the plaintiff’s alternative claim, as set out
in paragraphs 13 to14 of the notice of exception dated 10
April 2012
is upheld;
3.
The plaintiff is granted leave to amend its particulars of claim in
relation to its alternative claim by delivery of a notice
of
intention to amend in accordance with rule 28 within four weeks of
the date of this order.
4.
The first defendant is to pay one half of the plaintiff’s taxed
costs in relation to the exception proceedings as a whole.
NB
Tuchten
Judge
of the High Court 29 November 2012
NewDawnSITA26441.10