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[2012] ZAKZDHC 93
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Crowie Projects (Pty) Ltd v Durban University of Technology and Others (5612/10) [2012] ZAKZDHC 93 (30 November 2012)
Republic of South
Africa
IN THE HIGH COURT OF
SOUTH AFRICA (KWAZULU-NATAL HIGH COURT; DURBAN)
Case
No: 5612/10
In
the matter between:
CROWIE
PROJECTS (PTY) LTD
.........................................................................................
Applicant
and
DURBAN
UNIVERSITY OF
TECHNOLOGY
and
18 OTHERS
......................................................................................................
First
Respondent
JUDGMENT: FRIDAY, 30
NOVEMBER 2012
DESAI J
[1]
The applicant is CROWIE PROJECTS (PTY) LTD. It is, in effect, the bid
leader of a consortium of several business entities located
in and
around Durban. The first respondent is the DURBAN UNIVERISTY OF
TECHNOLOGY (the DUT”), a state funded university in
KwaZulu-Natal established in accordance with the relevant higher
education legislation. The second respondent is the Minister
of
Higher Education who is cited in his official capacity but no real
relief is sought against him.
[2]
The other consortium members have been joined as respondents herein
and, it seems, are satisfied with the applicant proceeding
on its own
accord in pursuit of the relief sought.
[3]
In 2007 the DUT issued by way of advertisement
9
Request for Qualifications (“RFQ”) document which called
for tenders for the development of a DUT Student Village -
essentially the provision of new student accommodation and related
facilities for students attending the DUT campus. The project
entailed the provision of an estimated 1400 additional beds which was
“intended to provide a comprehensive solution to address
the
issues of capacity, enhanced student experience and the creation of a
sustainable eco-environment". This was the rationale
underpinning the need for the project in the RFQ briefing document.
[4]
The said document expressly stipulated that the DUT reserved to
itself the right to terminate the process, or to modify it,
without
incurring any liability for costs.
[5]
In its evaluation of responses to the RFQ the DUT reserved to itself
the right to attach special conditions, for instance with
regard to
the financial strength of the bidding party and its ability to raise
the necessary finance for the project.
[6]
All prospective bidders were required to affirm their acceptance of
the DUT’s General and Special Conditions of Contract,
with
timeous compliance being the essence thereof.
[7]
Applicant’s consortium submitted a response to the RFQ and was
one of the consortia shortlisted for the next phase.
[8]
I may mention that the RFQ document also noted that the Request for
Proposal (“RFP”) response would form the basis
for
negotiations between the DUT and the candidate.
[9]
The consortium’s RFP response indicated that it was,
inter
alia,
designed to ensure that an
appropriate financial package could be concluded to the satisfaction
of the DUT and other stakeholders
and that a financial risk analysis
could only be executed once they had a fuller understanding of the
relationship. It also noted
that the most legally and financially
effective mechanism to implement the project could only take place
after the selection of
the
preferred
bidder.
In other words, it was only
after the selection of a
preferred
bidder
that the parties could
commence negotiations with the objective of agreeing upon the final
funding and the legal and commercial
terms of the agreement.
[10]
The offer of the applicant’s consortium was a conditional one
subject to the achievement of certain milestones on or
before
specified dates. For instance, the detailed design and procurement
process was to be completed on or before 20 August 2007,
construction
was to commence by 10 September 2007 and the premises were to be
ready for student occupation by 1 February 2009.
[11]
Applicant’s consortium was eventually selected as the
preferred
bidder.
This was on 23 July 2007.
This selection was, of course, conditional on a number of issues
being negotiated and resolved. Some 13
months lapsed and no consensus
was reached on several issues upon which the selection of the
consortium, as
preferred bidder
had been undertaken. Deloitte & Touche (“Deloitte”)
had in the meantime been appointed to undertake the necessary
investigations with a view to advising the DUT as to the
affordability of applicant’s offer and various discussions had
taken place between the parlies.
[12]
On or about 4 September 2008 the DUT agreed to consider a
fourth
option
presented by the applicants.
This option differed substantially from the earlier proposals by
applicant and its consortium. It
involved the DUT giving a 25 - 30
year concession to the consortium with it raising the necessary
capital expenditure for the 1400
bed facility. This option involved
the DUT subsidising the students.
[13]
In any event, the latter option involved a drastic reduction of
capital expenditure and the financial management costs being
reviewed. This had to be done within tight timelines imposed by the
DUT. The relevant department at the DUT had to consider Deloitte’s
report on this option at least two and a half weeks prior to 30
October 2008. These timelines were not met.
[14]
On or about 12 November 2008 the consortium indicated to the DUT that
it wished to pursue an application to the Department
of Education for
a capital grant and partially fund the development. The DUT agreed to
support such an application for an amount
of R40 million.
[15]
At its council meeting on 22 November 2008 the Executive Management
(“EXCO”) of DUT was asked to ensure that the
terms of
reference under which the consortium had been selected as
preferred
bidder
had not changed and that the
integrity of the tender process had not been compromised.
[16]
The consortium prepared the motivation for a capital grant in the
amount of R60 million and the Minister approved this on 31
July 2009
on condition,
inter alia,
that the DUT was able to meet its share of the costs of such a
project and that a dedicated Project Management Team was appointed
in
consultation with the Department of Education to ensure the
successful delivery of the project.
[17]
At the EXCO meeting on 19 February 2009, it was noted that the
consortium had initially committed itself to funding the entire
project but subsequently asked the DUT to make an application for the
capital grant which had been approved but it involved the
DUT making
a co-payment of R13 million to R14 million in accepting the grant.
Moreover the terms of reference had deviated substantially
from the
original offer to warrant calling for a fresh tender. EXCO
accordingly resolved that the project should go out to tender
again
subject to a proper examination of all the documentation and legal
advice being obtained.
[18]
At about this time a report was received from Deloitte complaining
that the consortium had failed to provide ail the necessary
information for them to perform their review effectively, the final
financial offer had not been submitted as agreed and, in the
light of
this, they had been unable to “adequately perform a meaningful
review of the financial viability of the Student
Village”.
[19]
On 14 March 2009 the council of the DUT approved the recommendation
of the EXCO.
[20]
Its legal opinion indicated that in the light of the consortium’s
failure to comply with its obligations, the DUT was
entitled to
rescind the selection of the
preferred
bidder
on the basis that the
negotiations had not been satisfactorily concluded on the financial
model and viability of the project offered
by the consortium. The
so-called
fourth option
differed materially from the original tender proposals and left the
DUT open to legal challenges by other rival bidders. In these
circumstances the consortium was called upon to make representations
why the DUT should not withdraw the provisional selection
of the
consortium as
preferred bidder
They were to be advised that the DUT would then make a decision
whether or not to confirm the cancellation of the provisional award.
[21]
Following a letter to the above effect, the consortium requested the
opportunity to make a presentation of its financial offer
on 8 June
2009. At the said presentation serious concerns were raised with
regard to the viability of the consortium’s offer.
The DUT’s
Chief Financial Officer was of the view that a financially viable
model had not been presented, more especially
with regard to the
level of subsidy which the DUT was expected to make based on the
consortium’s projections. It appeared
that neither the
government nor the DUT were subsidising student housing. There were
also doubts as to whether the proposed financial
offer was affordable
for the DUT. Finally, there were conflicting responses with regard to
the query as to who would bear the risk
in the event of the rooms not
being fully occupied.
[22]
In a letter dated 11 June 2009 the consortium indicated that the deal
structure would only work if the institution concluded
a lease for
the full quote of beds (1490). The DUT noted in its response that
this suggestion was inconsistent with the presentation
that had been
made, which seemed to indicate that the consortium would bear the
risk of full occupancy.
[23]
The council of the DUT met on 13 June 2009. It was fully aware of the
facts and circumstances surrounding the earlier resolutions
regarding
the project. These have been set out, albeit briefly, in the
preceding paragraphs. Council accordingly resolved to set
aside the
selection of the consortium as
preferred
bidder
and resolved further that the
project was to be re-tendered. It is that decision which applicant
initially sought to impugn in
these proceedings.
[24]
The relief initially sought by the applicant reads as follows:
Reviewing
and setting aside the decision of the first respondent reflected in
its letter dated 6 August 2009 in which it informed
the applicant
that it
had
withdrawn and cancelled the applicant’s status as
preferred
bidder
]n ; respect of first
respondent’s “Student Village Project”.
Reviewing
and setting aside the decision of the first respondent in its letter
dated 6 August 2009 in which it informed the applicant
that it
“will; shortly re-tender the Student Village Project”.
...in
the
alternative,
declaring that the applicant is to be compensated for its
out-of-pocket expenses incurred in tendering for the Student Village
Project and in developing the tender proposal as the preferred:
bidder...
[25]
It was only at the hearing itself that Ms A Annandale SC, who
appeared :: with Mr M Du Plessis on behalf of the applicant,
eventually conceded that review was not an appropriate remedy in the
peculiar circumstances of this matter : It was not possible
for her
to demonstrate that the applicant and the first respondent would ever
have come to an agreement on all the matters which
were subject to
negotiation. In other words, the parties had ... agreed to conclude
another agreement (see Premier, Free State
and Others v Firechem Free
State (Pty) Ltd
2000 (4 SA 413
SCA at [35] - [39]). What remains of
the applicant’s case is the proposed claim for out-of-pocket
expenses. In this regard,
the applicant seeks a declaratory order
only and not an order quantifying its claims.
[27]
As Mr V Gajoo SC, who appeared with Mr V Voormolen on behalf of the
first respondent has pointed out, the applicant’s
claim for
out-of-pocket expenses must fail at the first hurdle, namely, the
contractual exclusion thereof. The agreement was recorded
in the RFQ
as follows:
“
All
costs (of whatever nature) Incurred by Respondent Consortia, Relevant
Entities; or any other person
in
relation to any stage of the procurerrient
and/or
negotiation process in respect :of this Project
are
for such Respondent’s, Relevant Entity’s, or other
person’s account alone.
The
DUT
is
not obliged to accept any response to this RFQ or to pre-bjualify any
Respondent(s). Although this RFQ describes the process,
prograrh and
anticipated timetable relating to the Project and the current
requirements of the DUT, the
DUT
reserves the right to terminate the process, or to modify any of
these matters from time to time without incurring any liability
for
costs to any person.”
[28]
The applicant accepts that any expenses incurred by it prior to its
appointment as
preferred bidder
cannot be recouped as it submitted the tender at risk and the RFP
made clear that any expenses incurred by bidders ih the tender
process were not something for which the DUT would under any
circumstances be held responsible. It, however submits that the order
for out-of-pocket expenses should relate to all those expenses
incurred from the date of its appointment on 23 July 2007 until
such
time as the impugned decision was conveyed to it on 6 August 2009.
Applicant’s counsel argued that this is so because
once it was
appointed as
preferred bidder,
the applicant was contractually obliged to take the project forward
and incur expenses until its status was terminated.
[29]
Applicant’s counsel further contended that the so-called
“disclaimer” is not;: of limitless ambit and sought
to
confine the DUT’s exposure only during the procurement and
negotiation stages. The disclaimer in the RFP, they argued,
sought to
limit the DUT’s liability only in respect of costs incurred by
bidders in the preparation of bids in response to
the RFP, not beyond
that date. It follows, according to them, that the RFP does not
exclude the claim for out-of-pocket expenses.
[30]
The paragraph from the RFQ quoted in paragraph 27
supra
is a contractual term which must be interpreted like any other term.
In other words, the language in the document is to be given
its
grammatical and ordinary meaning, unless this would result in some
absurdity or some repugnancy or inconsistency with the rest
of the
document (see Cooper & Lybrandt v Bryant
[1995] ZASCA 64
;
1995 (3 SA 761
(A) at
761 E to 768 E). The actual words used do not allow for the limited
interpretation suggested by the applicant.
[31]
The RFP document refers to any costs incurred by any candidate or
consortia in this procurement process. The question which
arises is
whether upon a proper interpretation of the RFP, the parties intended
to limit the exclusion to something less than what
was contained in
the RFQ. This is the interpretation which applicant contends for.
Such an interpretation is inconsistent with
the language used and
most improbable. A more likely and more acceptable interpretation, as
Mr Gajoo suggests, is that the disclaimer
in the RFP is an addition
to the exclusion contained in the RFQ.
[32]
The next major aspect pursued by Ms Annandale relates to first
respondent’s alleged or perceived bad faith. She argued
that
just as “fraud unravels everything’’ a party to a
contract cannot contract out of fraud. She contended that
the
disclaimer cannot serve to insulate the DUT from liability in respect
of its own bad faith in the conduct of negotiations following;upon
it
conferring the status of
preferred
bidder
upon the applicant. In
effect, it was argued, that the DUT cannot escape the consequences of
its own bad faith by relying on the
disclaimer.
[33]
Although electing to use the term I: “bad faith”,
applicant, or rather applicant’s counsel, seem to equate
the
decisions by the DUT with a fraud.
[34]
The allegation of bad faith is premised largely upon the different
reasons given for terminating negotiations with the consortium.
That
in itself cannot be evidence of bad faith. It is not uncommon that
more than one default leads to a breakdown in negotiations.
It is
settled law that, in a contractual setting, an innocent party who
purported to cancel on inadequate grounds, may afterwards
rely on any
other adequate ground which existed at the time of the cancellation
(see Datacoior International (Pty) Ltd v intamarket
(Pty) Ltd
[2000] ZASCA 82
;
2001 (2
SA 284
SCA at 2991 F).
[35]
When the consortium was selected as the
preferred
bidder,
a number of issues needed to
be resolved, including the financial model and affordability. It
could not have been contemplated
by the parties that these issues
would be allowed to drag on indefinitely. The timeline proposed by
the consortium itself envisaged
that the student residence would be
ready for occupation by 1 February 2009.
[36]
It is apparent from the documentation that one Mr Udesh Ramsunder,
the DUT’s Senior Manager, Finance Operations and Accounting,
in
a letter to Deloitte indicated that the consortium was unable to put
an affordable model on the table for students and the DUT.
The
applicant met with Mr Ramsunder shortly thereafter with regard to his
concerns of the affordability of the projects but did
not in fact
furnish the outstanding information.
[37]
Other members of the DUT staff also wrote to the consortium with
regard to the feedback from Deloitte that they were unable
to
complete the affordability model in respect of the proposed student
village. In a response dated 30 July 2008 the consortium
indicated
that the actual cost had to be reviewed, that they had engaged with
several financial institutions and were refining
a detailed financial
offer. This led to their request to make a presentation to the DUT,
which presentation took place on 4 September
2008. On 23 September
2008 the consortium was advised of the time deadlines in order to
make it possible to make a presentation
or seek approval from the
council of the DUT in respect of the student village. These deadlines
were not met. The applicant brushes
off the long delays, from the
time of its selection as
preferred
bidder
until the status was
terminated. It argues that the delays were “condoned”
because a further opportunity was presented
to the consortium to
provide information. This approach is quite clearly untenable.
Cancellation due to delay by its very nature
requires an examination
of the entire delay.
[39]
On or about 12 November 2008 the consortium was confident that it;
was close to presenting an affordable solution to the institution
in
due course. It in effect means that by date an affordable solution
had not yet been found.
[40]
The council meeting of 22 November 2008 took place before the
application for a grant from the Department of Education had
been
made, and long before the DUT learnt that the application had been
successful. This destroys the applicant’s “bad
faith”
theory ~ the theory that when,the DUT learnt that the application for
a grant had succeeded, it decided to abandon!
the consortium.
[41]
In the light of the above the EXCO of council provisionally decided
that the Student Village Project should go out to tender
again. Their
decision was subject to several qualifications, in particular the
relevant documents being carefully examined and
legal advice being
obtained.
[42]
The applicant’s case is to the effect that the members of EXCO
of council were engaged in a fraud. As Mr Gajoo correctly
pointed
out, this is an unlikely conclusion to be drawn from the facts. One
cannot lightly presume that the officials who sit on
the EXCO of a
university would act, or were acting, fraudulently, In all likelihood
their genuinely held views were expressed in
the minutes of the
meeting. Whether these views were ultimately right or wrong does not
matter in a claim for out-of-pocket expenses.
Provided that they did
not act in bad faith, there is no room for holding the DUT: liable
for the expenses of the consortium.
[43]
The applicant also suggests bad faith on the part of the DUT in that
they did not inform the consortium of the outcome of the
grant. In
view of the applicant’s role in presenting the model it is most
unlikely that the consortium did not monitor the
outcome of the
application, which in any event was a matter of public knowledge that
could be easily ascertained.
[44]
On 16 April 2009 the DUT received a legal opinion from independent
attorneys which I do not propose to re-state, save to indicate
that
it concludes by stating that the DUT may withdraw the provisional bid
on the basis that the negotiations had not been satisfactorily
concluded. Mr Gajoo submits in this regard that it cannot be
seriously suggested that the attorneys who gave that legal advice
were party to any deception or fraud or acted in bad faith.
[45]
When DUT’s council ultimately concluded that the procurement
process had been flawed, it did so both on the strength
of the legal
opinion received and upon discussions by the members of council. This
is another indicator that the decision was not
made in bad faith.
[46]
The applicant’s contention that there are “exceptional
circumstances” in this case which warrant the granting
of its
out-of-pocket expenses is based both on the bad faith argument and on
the allegation that the DUT has “taken points”
without
any merit, especially in regard to the condonation application.
[47]
I do not propose dealing with the “bad faith” argument
again. With regard to the condonation aspect, Mr Gajoo has
pointed
out that the applicant’s grounds for seeking condonation were
superficial and did not contain an explanation of the
delay, let
alone a reasonable explanation. I agree.
[48]
THE APPLICATION IS ACCORDINGLY
DISMISSED WITH COSTS, INCLUDING ALL RESERVED COSTS AND THOSE
CONSEQUENT UPON THE EMPLOYMENT OF TWO
COUNSEL.
DESAI, J