CAE Construction CC v Petroleum Oil & Gas Corporation of SA (Pty) Ltd and Others (3667/06) [2006] ZAWCHC 57 (8 December 2006)

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[2006] ZAWCHC 57
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CAE Construction CC v Petroleum Oil & Gas Corporation of SA (Pty) Ltd and Others (3667/06) [2006] ZAWCHC 57 (8 December 2006)

IN THE HIGH COURT OF SOUTH
AFRICA
(CAPE OF GOOD HOPE
PROVINCIAL DIVISION)
CASE NO. 3667/2006
REPORTABLE
In
the matter between:
CAE
CONSTRUCTION CC APPLICANT
CK
2000/035940/23
and
PETROLEUM
OIL & GAS CORPORATION
OF
S.A. (PTY) LTD 1
ST
RESPONDENT
VUSANI
CONTRACTING SERVICES
GROUP
HOLDINGS 2
ND
RESPONDENT
TRADEFLUX
2014 CC 3
RD
RESPONDENT
JUDGMENT DELIVERED ON 8
DECEMBER 2006
DLODLO,
J
INTRODUCTION
In this application CAE
Construction seeks,
inter alia
, a declaration order that
Petro SA’s decision taken on 19 January 2006 to cancel tender NO.
E1496 (“the tender”) to be inconsistent
with the Constitution,
unlawful and invalid. CAE Construction further seeks the reviewing
and setting aside of Petro SA’s decision
taken on 19 January 2006
to cancel the tender. An order compelling Petro SA to award the
tender to CAE Construction is also sought.
Mr. Katz, assisted by Mr.
Borgström appeared for CAE Construction whilst Mr. Rosenberg (SC)
assisted by Ms Pillay appeared for
Petro SA. In this judgment the
following Acts have been referred to extensively, namely:
Constitution of the
Republic of South Africa, Act 108 of 1996 (“the Constitution”)
Promotion of Administrative
Justice Act 3 of 2000 (“PAJA”)
Preferential Procurement
Policy Framework Act 5 of 2000 (Preferential Procurement Act)
GN R725 in government
Gazette 22549 of 10 August 2001 Regulations promulgated in terms of
Preferential Procurement Policy Framework Act.
Public
Finance Management
Act 1 of 1999 (PFMA)
FACTUAL BACKGROUND
(2) The Applicant, CAE
Construction CC, (CAE CONSTRUCTION) is a Close Corporation registered
in terms of the Close Corporation Act
and carrying on business at 53
Ysterhoutsingel, Heiderand, Mossel Bay. CAE Construction is a Black
Economic Empowerment (BEE) entity
as all of its members are black. It
is conducting business of installing and maintaining electrical and
air conditioning services.
The First Respondent, Petroleum Oil and
Gas Corporation of SA (Pty) Ltd trading as Petro SA (Petro SA), is
the National oil company
of the government of the Republic of South
Africa and it owns, operates and manages the government’s
commercial assets in the petroleum
industry. Petro SA’s core
business includes the exploration and production of oil and natural
gas, the marketing and trading of
oil and petroleum chemicals and the
storage of crude oil on behalf of the Strategic Fuel Fund. Its
principal place of business is
at 151 Frans Conradie Drive, Parow,
Cape Town. The Second Respondent has its principal place of business
at 102 Montague Street,
Mossel Bay. The third Respondent has its
principal place of business at 15 Meul Street, George Industria,
George. The First and Second
Respondents have been cited merely
because they may have an interest in the relief sought in this
application.
(3) In December 2002, CAE
Construction was awarded a contract to supply Petro SA with
electrical maintenance services for a period
of three (3) years (that
is until November 2005). During this period, CAE Construction was
granted further contracts by Petro SA
for a range of services. CAE
Construction grew from a small business with six (6) employees, to
one with eighteen (18) full-time
and up to fifty (50) part-time
employees. In June 2005, Petro SA duly called for tenders for these
services. The contract period
advertised in the tender was thirty six
(36) months. The estimated tender value was R12 million and the
contract value was R10 203
35400. In its “Instructions to
Tenderers”, Petro SA indicated that the tender proposals would be
scored in accordance with the
Procurement Act. On 13 September 2005,
CAE Construction submitted a tender proposal to Petro SA. The tender
closed later that same
day. Five (5) other tenders were also
received.
(4) The tenders were received
by an Evaluation Committee which assessed whether the tender
proposals met all the formal and ‘baseline’
requirements. Three
(3) tenders were eliminated in this process. The three remaining
tender proposals – which included that of
CAE Construction, were
placed on a short-list. The recommendations of the Evaluation Team
were considered by a Procurement Committee.
At this stage the other
two (2) tenderers were both eliminated for conflicts of interest,
leaving only CAE Construction. At a meeting
on 10 November 2005, the
Evaluation Committee requested that CAE Construction’s existing
contract be extended in order for it to
properly adjudicate the new
tender process. The contract was duly extended until 28 February
2006. On 2 February 2006, CAE Construction
was advised that its
proposal had been unsuccessful, and that its existing contracts would
terminate on 28 February 2006. CAE Construction
was aggrieved and
raised several concerns with Petro SA. In a letter of 8 February
2006, Petro SA responded as follows:
“
We wish to assure you
of our continued commitment to transformation, and in particular the
development of small black suppliers. Please
note, however, that
Petro SA is currently in the process of re-evaluating its electrical
maintenance requirements with regard to
outsourcing in general.
Consequently, in order to make an informed decision, it is necessary
for us to re-evaluate the need for services
tendered for. On 19
January 2006, the Procurement Committee reviewed all the tenders that
were submitted and resolved to cancel the
tender. The electrical
maintenance services will henceforth be provided and managed by the
electrical department, utilizing labour
from approved labour
suppliers, until the evaluation has been completed.”
CAE Construction contended
that the reason for Petro SA’s action in rejecting its tender was
thus based on its decision to “re-evaluate”
its need for an
external service provider. This is, however, disputed by Petro SA. On
10 February 2006, CAE Construction noted its
dissatisfaction and
called for a meeting. A meeting was held on 15 February 2006.
(5) CAE Construction
thereafter approached its attorneys, who in a letter of 24 February
2006 gave notice of this application, and
requested that the existing
contracts be extended until Petro SA had finalized its
‘re-evaluation’ of the services. In a letter
of 27 February 2006,
Petro SA refused CAE Construction’s request for an extension. In
this same letter, it was suggested that Petro
SA was not obliged to
accept any tender, that PAJA did not apply; and that it bore no duty
to supply any unsuccessful tenderer with
reasons. Petro SA has
subsequently appointed the Second and Third Respondents to supply
suitable staff on an
ad hoc
basis to carry out functions,
which is believed to include the services previously supplied by CAE
Construction. They thus appear
to be the “labour suppliers”
referred to in the letter of 8 February 2006. In its Answering Papers
in this application, Petro
SA suggests that the sole reason it did
not award the tender to any party was because no acceptable tender
was received. The allegation
that CAE Construction’s tender was
unacceptable is justified by a plethora of allegations regarding CAE
Construction’s ability
and its internal state. No reliance is
placed on “re-evaluation” process referred to in the letter of 8
February 2006. I deem
it necessary for purposes of this Judgment to
set out
infra
in a summary form the evidence contained in the
papers.
THE FOUNDING AFFIDAVIT
(6) This was deposed to by
one Christopher Johannes Fredericks, a member of CAE Construction,
the Applicant in the matter. After fully
defining the parties and
stating the nature of the proceedings he proceeded to address the
question of urgency. In the latter regard
Mr. Fredericks averred that
the CAE Construction’s commercial interests,
inter alia
, are
threatened and violated by Petro SA’s current utilization of the
Second and Third Respondent’s services without having
followed the
proper tender procedure. He further stated that the Second and Third
Respondents have been effectively awarded the
tender without the
proper tender process being followed. In Mr. Fredericks’ view the
mere fact that unlawful conduct is being perpetrated
on an ongoing
basis merits this application being heard on an urgent basis.
(7) Dealing with grounds for
review Mr. Fredericks opined that section 217 of the Constitution
providing
inter alia
that contracts for goods or services by
organs of state must be done in accordance with a system which is
“fair, equitable, transparent,
competitive and cost-effective”,
also provides for the section of categories of preference in the
allocation of contracts and the
protection or advancement of persons,
or categories of persons, disadvantaged by unfair discrimination. In
Mr. Fredericks’ view,
Petro SA is an organ of state as defined in
section 239 of the Constitution and is accordingly bound in terms of
section 217 of the
Constitution to contract for goods or services in
accordance with the system described in that section. In Mr.
Fredericks’ view
the tender was subject to both the Constitution
and to the provisions of the
Preferential Procurement Policy
Framework Act and
the Regulations made thereunder. Therefore,
according to Mr. Fredericks, Petro SA only had the right to cancel
the award of the tender
if one of the three (3) circumstances set out
in
Regulation 10(4)
was present. He enumerated the three (3)
circumstances and concluded that none of them existed on 19 January
2006 and that therefore
in Mr. Fredericks’ averment cancellation of
the tender by Petro SA was invalid, unlawful and unconstitutional and
thus falls to
be set aside on this ground alone. Mr. Fredericks
averred that Petro SA cannot rely on
Regulation 10(4)
(a) and
10
(4)
(b) because there is still a need for the services as evidenced by
the fact that the services are rendered by the Second and the
Third
Respondents utilizing CAE Construction’s former employees. In Mr.
Fredericks’ averment CAE Construction’s tender met
all the
requirements set out by Petro SA as evidenced by the latter’s
facsimile informing the latter that it was one of the short-listed
tenderers.
(8) Mr. Fredericks was
critical of Petro SA’s letter to the effect that the latter was
conducting an evaluation of the needs for
an electrical maintenance
services contract and accused Petro SA of failure to comply with
Regulation 10(4).
Mr. Fredericks further stated that Petro SA being
an organ of state whose actions in considering and accepting tenders
constitute
“administrative action” in terms of section 33 of the
Constitution and PAJA, is also a public enterprise in terms of
section
195(2) (c) of the Constitution. In his view, the conduct
impugned in this application did not satisfy Petro SA’s
constitutional
obligations. According to Mr. Fredericks the decision
by Petro SA not to award the tender but rather to cancel same is not
only in
contravention of the Constitution, the Procurement Act and
the Regulations enacted thereunder, but is also in violation of
section
6(2) of PAJA in that:
Petro SA was not authorized
to cancel the tender by the relevant empowering provision;
A mandatory and material
procedure and condition prescribed by Regulation 10(4) was not
complied with as the tender was cancelled
in violation of section
6(2)(b) of PAJA;
The decision to cancel the
tender falls to be set aside also in terms of section 6(2)(c) of
PAJA because the action was procedurally
unfair inasmuch as
procedural fairness required that CAE Construction be accorded an
opportunity to make representations, at least
in writing, on any
factor that might have led Petro SA not to award the tender at all
prior to cancelling the tender;
The decision falls to be set
aside and reviewed in terms of section 6(2)(d) of PAJA as the action
was materially influenced by an
error of law inasmuch as the
Procurement Committee believed that they were entitled to cancel the
tender on a mistaken understanding
of the law;
Irrelevant considerations
were taken into account and relevant considerations ignored;
The exercise of the power of
the Procurement Committee of Petro SA to cancel is so unreasonable
that no reasonable person could
have so exercised the power or
performed the function and consequently the action should be set
aside (section 6(2) (h) of PAJA).
(9) Mr. Fredericks contended
that apart from the illegality he had already described the purported
cancellation of the award was unlawful
for another reason. This
reason, according to Mr. Fredericks, is that Petro SA effectively
entered into a contract with the Second
and Third Respondents in
terms of which the Respondents are currently performing the services
that would otherwise have been rendered
by CAE Construction or the
other short listed tenderers. In his view, this constitutes an
unlawful circumvention of the required
tender procedures. This,
according to Mr. Fredericks, is yet another reason why CAE
Construction becomes entitled to the relief sought
set out in the
Notice of Motion.
ANSWERING AFFIDAVIT
(10) This affidavit was
deposed to by Mr. Owen Cedric Tobias, legal counsel of Petro SA
having been duly authorized to do so. Mr.
Tobias first set out what
he regarded as CAE Construction’s challenge on the decision by
Petro SA on 19 January 2006 and then dealt
with section 217 of the
Constitution and the Preferential Procurement Act. Mr. Tobias
emphasized that there are one or two requirements
that must be met
for section 217(1) of the Constitution to apply, namely:
the entity must be an organ
of state in the national, provincial or local sphere of government;
or
the entity must be any other
institution identified in national legislation.
In Mr. Tobias’ view, Petro
SA is not an organ of state “in the national, provincial or local
sphere of government”. Petro SA
was formed from the merger of three
(3) previous entities, Mossgas (Pty) Ltd, Soekor E&P (Pty) Ltd
and parts of the Strategic
Fuel Fund Association and it operates as a
commercial non-listed entity under South African law. According to
Mr. Tobias, seeing
that the operations and functions of Petro SA is
entirely analogous to those of other private multi-national
petrochemical companies,
it is therefore also on that basis, not an
organ of state in the national, provincial or local government. In
his view therefore,
Petro SA does not fall within the purview of
section 217 (1) of the Constitution. Mr. Tobias, however, introduced
a rider in that
he also stated that in the event that the Court finds
that Petro SA is bound by section 217(1) then in that event his
submission
would be that Petro SA’s actions have been entirely
consistent with its obligations under the section. He denied that the
Preferential
Procurement Act applied to Petro SA. Mr. Tobias put
emphasis on the fact that the Regulations under the Preferential
Procurement
Act on which CAE Construction places extensive reliance
expressly state in Regulation 2(1) that despite anything to the
contrary
contained in any law, these Regulations apply to organs of
state contemplated in section 1 (iii) of the Preferential Procurement
Act. Mr. Tobias stated Petro SA’s legal representatives diligently
searched but could not locate a Government Gazette in which
Petro SA
has been listed as an institution to which the Preferential
Procurement Act applies. Accordingly, Mr. Tobias holds a belief
that
Petro SA has not been “recognized by the Minister by notice in the
Government Gazette as an institution or category of institutions
to
which this Act applies.” He contended that Petro SA does not
constitute an organ of state for the purposes of the Preferential
Procurement Act and is not bound by either the Act or the Regulations
promulgated thereunder.
(11) Similarly on this
contention Mr. Tobias added a rider namely that in the alternative
and in the event that the Court does find
that the Preferential
Procurement Act applies to Petro SA then his submission will be that
Petro SA duly complied with the provisions
thereof. Mr. Tobias
referred to Regulation 10(4) of the Preferential Procurement Act
which provides as follows:
“
An organ of state may,
prior to the award of a tender, cancel a tender if-
due to changed
circumstances, there is no longer need for the goods or services
tendered for; or
funds are no longer
available to cover the total envisaged expenditure; or
no acceptable tenders are
received.”
On the basis of the above Mr.
Tobias contended that Petro SA decided to cancel the tender on the
basis of Regulation 10(4) (c) and
he proceeded to set out
inter
alia
the following which he termed background to the cancellation
of the tender and stated it bears relevance:
“
Tenders received were
assessed by the Evaluation Committee so as to ensure that the
prerequisites for the grant of the tender had
been met and secondly,
that they were technically acceptable. It should be noted in this
regard that the role of the Evaluation Committee
is limited to
ensuring that a tenderer complies with the baseline requirements of
the Evaluation Criteria/technical questionnaire
(i.e. the document
that forms part of EN2 to the founding papers);
The Evaluation Committee
found three tenderers “to be acceptable with regard to scope of
work requirements and complied with all
obligatory statutes and
standards;
The submission noted that
Petro SA had received complaints from current and ex-employees of CAE
on numerous occasions and their legal
department also had to
intervene in the past.”
(12) According to Mr. Tobias
the meeting held on 15 February 2006 between CAE Construction
management and Petro SA, afforded CAE Construction
an opportunity to
discuss their concerns in respect of Petro SA’s decision to cancel
the tender. It was in this meeting that CAE
Construction management
advanced reasons in support of the fact that Petro SA should not
cancel the tender and should in fact award
it to CAE Construction
because:
CAE Construction had
incurred debt to the value of R600 000;
CAE Construction’s
vehicles were not paid in full;
CAE Construction was facing
liquidation;
Fraudulent tender processes;
Expectations that in respect
of the award of the tender;
Job losses on the part of
CAE workers.
The meeting of 15 January
2006, according to Mr. Tobias, confirmed to Petro SA that CAE
Construction’s financial situation was dire
and that it lacked
financial ability/creditworthiness. In Mr. Tobias’ averment,
financial/creditworthiness are fundamental prerequisites
for the
award of a tender.
(13) Mr. Tobias enumerated
the factors that, in his view, underpinned CAE Construction having
been found to be unacceptable, namely:
Breach of contract in
respect of previous contraventions of labour legislation, failure to
provide the necessary tools and equipment,
failure to establish on
site suitable offices and failure to employ personnel with suitable
qualifications and experience;
Extremely tenuous relations
with its employees that threatened CAE Construction’s ability to
deliver on the tender that forms
the subject-matter of this
application;
CAE Construction was
factually insolvent and awarding it the tender would pose grave and
serious risks for Petro SA. Its financial
situation also did not
accord with the prerequisites for a successful tender;
A high level of monitoring,
support assistance and intervention would be required by Petro SA in
respect of CAE Construction in
order to ensure that the latter was
capable of complying with its contractual and technical standard and
relevant legislation –
this would pose an unduly onerous and even
unmanageable burden on Petro SA. Mr. Tobias extensively dealt with
each of the above.
(14) Mr. Tobias contended
that Petro SA’s decision to cancel the tender does not constitute
administrative action for purposes of
PAJA. In the alternative and in
the event of a finding that it constituted administrative action, Mr.
Tobias averred that such decision
was lawful, reasonable and
procedurally fair. Mr. Tobias stated that Petro SA cancelled the
tender because no acceptable tenders
were received. In addition he
referred to the terms and conditions of the tender and mentioned that
in terms thereof, Petro SA reserved
the right to reject “any or all
Tenders for any reason whatsoever and is under no obligation to
accept the lowest or any other
Tender.” Furthermore, “Petro SA
does not bind itself to accept the lowest or part of or all of any
Tender submitted.”
(15) Responding to the
averment by CAE Construction that the Second and the Third
Respondents entered into agreements with Petro SA
after each of them
had been successfully awarded Tender No. 1472, Mr. Tobias explained
that this was a separate and distinct tender
from that which forms
the subject-matter of the present application. According to Mr.
Tobias these two (2) Respondents were awarded
tender to provide on an
ad hoc
basis and as and when required by Petro SA, suitably
trained, qualified and experienced staff in its employ in certain job
categories
to provide certain assignment to Petro SA’s Operations
Division. He emphatically denied that Petro SA is presently utilizing
the
services of the Second and Third Respondents without having
followed the proper tender procedure. Another aspect Mr. Tobias
explained
was that the services of former employees of CAE
Construction which are being utilized by the Second and Third
Respondents are those
who were contract workers and whose contracts
terminated on termination of the contract between CAE Construction
and Petro SA on
28 February 2006. He accordingly denied that Petro
SA’s conduct in that regard is causing damage to CAE Construction’s
ability
to sustain its business and its existence. He did concede
that in its “Instruction to Tenderers”, Petro SA indicated that
the
Preferential Procurement Policy Framework Act would
determine
scores, but emphasized that this does not make the Preferential
Procurement Act applicable
per se
.
(16) Mr. Tobias placed
emphasis on the point he made, namely that being short-listed does
not necessarily demonstrate that the entity
is “acceptable”. He
also similarly emphasized that compliance with the technical
requirements for the award of a tender does
not conclusively
determine overall acceptability for the award of such tender – in
any event the Procurement Committee determined
that CAE Construction
was not acceptable. He denied that Petro SA acted in contravention of
the Constitution, the Preferential Procurement
Act and the
Regulations thereunder or section 6(2) of PAJA.
THE REPLYING AFFIDAVIT
(17) Mr. Fredericks prefixed
his reply to Petro SA’s Answering Affidavit by stating that this
Affidvit and the Annexures thereto
do not sustain a defence to CAE
Construction’s application. In his view, the contents of the
Answering Affidavit and the documentation
annexed thereto make it
even more clear that the application should succeed, including the
prayer for a substitution of the impugned
decision. Mr. Fredericks
saluted the fact that the Answering Affidavit has annexure “OCT5”
being the copy of the procurement
policy paragraph 7 of which stating
that goods and services are to be evaluated in a manner that shall
comply with the Procurement
Act and its Regulations. Mr. Fredericks
also pinpointed paragraph 7.2 of the procurement policy which also
provides that the top
three (3) scoring suppliers will be considered
and Petro SA may negotiate and appoint any or all of them. Mr.
Fredericks hastened
to add that paragraph 7.2
supra
does not
make provision for the withdrawal of the tender or “non-appointment”
of any of the tenderers.
(18) According to Mr.
Fredericks the opposition to the present application by Petro SA on
the basis of the reasons advanced for the
withdrawal of the tender is
inconsistent with the written reasons given by Petro SA for the
withdrawal of the tender contained in
its letter of 8 February 2006.
In his view, the
ex post facto
reasons provided for the
cancellation of the tender fall to be rejected on the sole ground
that it was not the reason Petro SA provided
to CAE Construction on 8
February 2006. Mr. Fredericks labelled the conduct of Petro SA in
this regard as unacceptable and that it
falls foul of its duties set
out in the Constitution, particularly section 195 thereof. He is
quite concerned that CAE Construction
was not awarded the tender
contrary to the findings of the Executive Procurement Committee which
stated in paragraph 6 of its memorandum,
that the tender of CAE
Construction was “found to be acceptable with regard to the scope
of work requirements and complied with
all obligatory statutes and
standards” and (in paragraph 10 on due diligence exercise) that “in
exercising sound financial management
we are of the opinion that CAE
would be able to meet its proposed undertakings to Petro SA”. Mr.
Fredericks also referred to the
technical report by Petro SA of 6
January 2006 which praised the working of CAE Construction in
providing adequate electrical services
in a 2002 contract. He
concluded on this aspect by asserting that the Evaluation process as
a whole did not find that the tender
by CAE Construction was
unacceptable.
(19) Mr. Fredericks actually
repeated the assertion he made in the Founding Affidavit that CAE
Construction, in his view, had a right
or at the very least a
legitimate expectation, that before Petro SA would withdraw the
tender on the basis it did, it would give
those tenderers who were
short-listed a hearing on that issue. He responded on the denial that
Petro SA is not a state organ by dealing
rather extensively with the
status of Petro SA.
(20) It is not necessary to
repeat his elaborate discussion in this regard. Importantly, Mr.
Fredericks concluded on this aspect by
stating that the decision of
Petro SA to withdraw or cancel the tender was certainly an exercise
of public power and was required
to be rational and not arbitrary at
a minimum. He accused Mr. Tobias of
mala fides
on the
ex
post facto
reasoning provided in the latter’s Answering
Affidavit. Mr. Fredericks conceded that it may well be so that the
Preferential Procurement
Act and the Regulations thereunder
promulgated, do not apply to Petro SA but contended that Petro SA
has, and applies, as a procurement
policy the provisions of the
Preferential Procurement Act and the Regulations thereto.
Accordingly, concluded Mr. Fredericks, in
terms of Petro SA’s own
procurement policy it may only withdraw a tender properly issued by
it if one of the jurisdictional facts
set out in Regulation 10(4) is
present. In Mr. Fredericks’ view, the decision to cancel was
arbitrary and irrational because the
documentation revealed that the
tender by CAE Construction was acceptable. Accordingly, Petro SA’s
decision to withdraw the tender
was, in Mr. Fredericks’ view,
fatally flawed and falls to be reviewed and set aside for this reason
alone.
(21) Responding to paragraph
19 of the Answering Affidavit, Mr. Fredericks merely stated that
whether or not Petro SA is bound by
the Procurement Act and the
Regulations thereunder is not decisive of this application. Mr.
Tobias gave an explanation about complaints
Petro SA received from
current and ex-employees of CAE Construction. Dealing with the
meeting of 10 November 2005, Mr. Fredericks
averred that the issue of
the award of the tender was wrongly deferred. He drew the Court’s
attention to annexures “OCT1” and
“OCT3” respectively being
the Evaluation submission and the technical report particularly the
following content:
“According to the reports and letter examined
there is no reason that CAE should not be considered for the
allocation of electrical
services contracts;” and “That CAE can
be awarded electrical services contract in the event of being the
successful vendor or
according to the approved tender process.”
Mr. Fredericks placed heavy
reliance not only on the above but also on the conclusion and
recommendation of the internal memorandum
to the Procurement
Committee which concluded thus:
“
Petro SA’s perception
is that the CAE workforce still appears to be demotivated. In spite
of this, CAE Construction has been able
to maintain an acceptable
level of service at most times since the intervention and we find
them as an acceptable service provider
in terms of the requirements
of the electrical service contract. This is obviously subject to
their successful evaluation in accordance
with Petro SA’s
procurement process including a positive due diligence report.”
(22) Mr. Fredericks denied
that the meeting between Petro SA’s management confirmed that CAE
Construction’s financial situation
was dire. What it in fact
confirmed, according to him, was that CAE Construction with
appropriate financial planning could satisfy
the tender and that one
of the reasons that it has incurred the debt referred to, was that it
had expected (legitimately) to be awarded
the tender as a result of
past conduct by Petro SA. According to Mr. Fredericks being
short-listed in the manner in which CAE Construction
was, does
demonstrate that it was acceptable for purposes of Regulation
10(4)(c) and that therefore the Procurement Committee did
not decide
on a rational basis that the tender by CAE Construction was not
acceptable. Mr. Fredericks denied the averments in the
Answering
Affidavit and tendered explanation on each paragraph. It is not
necessary to repeat the explanation he had with regard
to each
paragraph.
THE ISSUES AND SUBMISSIONS
(23) As a starting point Mr.
Katz exhaustively dealt with the status of Petro SA. He
inter
alia
, correctly contended that Petro SA is a wholly owned
subsidiary of the Central Energy Fund (Pty) Ltd (CEF (Pty) Ltd) which
is established
under the Central Energy Fund Act 38 of 1977 to
control and operate the State’s Central Energy (“CEF”) and
Strategic Fuel Fund
(“SFF”) whilst CEF Ltd is wholly owned by the
State and its shares are controlled by the Minister of Mineral and
Energy. Mr.
Katz’s further submission (with which I also agree) is
that the statutory responsibilities of CEF (Pty) Ltd include the
‘acquisition,
generation, manufacture, marketing and distribution”
of any form of energy and the production of artificial fuels.
Accordingly,
in Mr. Katz’s correct submission in this regard, Petro
SA was thus clearly created as a subsidiary company to perform some
of the
statutory responsibilities of the CEF. It is common cause that
Petro SA is further subject to political oversight from the Minister,
who has the power under Section 1 E(6) of the CEF Act to call for
information regarding the business of the CEF and SFF. Thus in
Mr.
Katz’s
submission Petro SA is bound by Chapter 6 of the
PFMA, including the requirement in Section 51(1) (a) (iii) that its
‘accounting
officer’ must ensure that it has and maintains “an
appropriate procurement and provisioning system which is fair,
equitable,
transparent, competitive and cost-effective.” Although
in the opposing papers Petro SA contended differently, it would be
fair
to say that it does not seriously dispute that it is a “public
enterprise” in terms of Section 195(2) (c) of the Constitution
and
accordingly bound by the basic values governing public administration
in Section 195(1) of the Constitution. These would most
certainly
include a high standard of professional ethics; the efficient,
economic and effective use of resources; accountability,
transparency
in dealing with the public; representivity in its ranks; and
redressing “the imbalances of the past to achieve broad
representation.”
(24) In
Institute for
Democracy in South Africa and Others v African National Congress and
Others
2005(5) SA 39© at 55-56, it was suggested that
Section 195 of the Constitution does not create any enforceable
rights. This was
followed in the unreported judgment of Motala J in
Sebenza Forwarding and Shipping Consultancy v Petro SA and
Another
(case 5601/05, 24 January 2006) at para 16. This
opposite conclusion was however found in
Johannesburg Municipal
Pension Fund and Another v City of Johannesburg and Others
2005(6) SA 273 (W). Reliance has also been placed on Section 195 by
several courts:
President of the RSA v SARFU and Others
2000(1) SA 1 (CC) at para 133-134;
Reuters Group PLC v Viljoen
2001(12) BCLR 1265 (C) at para 2-4 and 33-35;
York Timbers Ltd
v Minister of Water Affairs and Forestry and Another
2003(4)
SA 477 (T) at 506 B; and
Rail Commuters Action Group and Others
v Transnet Ltd t/a Metrorail and Others
2005(2) SA 359 (CC)
at para 174.
(25) Importantly, Petro SA,
however, dispute that it is bound by the provisions of the principles
of administrative justice contained
in Section 33 of the Constitution
and PAJA; Section 217 of the Constitution relating to procurement
policies; and the Procurement
Act and its Regulations. These deserve
to be dealt with briefly. In terms of Section 1 of PAJA,
“administrative action” (which
is subject to review) includes –
“
any decision taken by …
an organ of state when …exercising a public power of performing a
public function in terms of any legislation…which
adversely affects
the rights of any person and which has direct, external, legal
effect.”
(26) An “organ of state”
is in turn defined with reference to Section 239 of the Constitution.
Mr. Katz’s submission is that
Petro SA is an organ of state in that
it is an institution which exercises a public power under the CEF
Act. In Mr. Katz’s submission
the fact that Petro SA is a
registered company does not change this fact. Even under ‘narrow’
test, (See:
De Ville Judicial Review of Administrative Justice
in South Africa
(2003) at 41-44 refers to two applicable
tests – a ‘narrow’ control test; and a ‘wider’ government
entity test, entities
such as Telkom, (See:
Directory
Advertising Cost Cutters v Minister for Posts, Telecommunications and
Broadcasting and Others
1996(3) SA 800 (T) at 811 A-B),
Transnet (See:
Transnet Limited v Goodman Brothers (Pty) Ltd
[2000] ZASCA 151
;
2001 (1) SA 853
(SCA);
ABBM Printing and Publishing (Pty) Ltd v
Transnet Bpk en ‘n Ander
1999(3) SA 1012 (T) at 1019H-I),
and South African Airways (as a subsidiary of Transnet) (See:
Hoffman
v South African Airways
2000(1) SA 1 (CC) at para 23) have
been held to be organs of state. Petro SA is no different in
principle from these bodies. Mr.
Katz contended that even if Petro SA
is not an organ of state, “administrative action” further
includes decisions made by –
“
a natural or juristic
person, other than an organ of state, when exercising a public power
or performing a public function in terms
of an empowering
provision…”. The “empowering provision” can include “a law…
or an agreement, instrument or other document
in terms of which the
administrative action was purportedly taken”.
In the case of
Petro SA’s consideration of tenders, such provisions are found in
Section 217 of the Constitution; the PFMA; and
in the rules of the
tender process itself. However, Mr. Katz almost conceded that not
every decision made by bodies exercising a
public power will
necessarily be susceptible to review as administrative action –
especially those commercial and contractual decisions
made in
relation to substantial entities which enjoy a position of
negotiating strength. (See:
Cape Metropolitan Council v Metro
Inspection Services (Western Cape) CC
2001(3) SA 1013 (SCA),
in which the court held that the cancellation of a contract did not
amount to administrative action. In
Logbro Properties CC v
Bedderson NO
2003(2) SA 460 (SCA), the court qualified this
proposition to say that the CMC case did not lay down a general
proposition. In particular,
in CMC the contract was “concluded on
equal terms with a major commercial undertaking, without any element
of superiority or authority
deriving from (the CMC’s) public
position.” It would however be different when the public
functionary “dictated the conditions”.)
Relying on
Goodman
,
supra
; and the further cases cited in
Logbro
, para
5n3.;
Minister of Health and Another v New Clicks SA (Pty) Ltd
and Others
2006(1) BCLR 1(CC) at para 95, Mr. Katz submitted
that it is well established that the consideration of tenders
constitutes administrative
action and that therefore, in his view,
the consideration of tenders by Petro SA is subject to judicial
scrutiny based on the requirements
of lawfulness, procedural fairness
and reasonableness as “codified” in Section 6(2) of PAJA.
Concluding on this aspect it was
Mr. Katz’s submission that even if
the consideration of this tender under discussion in this Judgment
does not fall into the definitional
ambit of administrative action
for the purposes of PAJA, it is nevertheless an exercise of public
power which is subject to the requirements
of rationality and could
not be arbitrary. (See:
Pharmaceutical Manufacturers Association
of SA
: In re
ex parte
President of the RSA and
Others
2000(2) SA 674 (CC) and importantly, the unreported
decision of the Constitutional Court, case no CCT 71/05, of 28
September 2006,
in
Steenkamp NO v The Provincial Tender Board
of the Eastern Cape
at paras [20] – [22] and [29]-[35].)
(27) The most important
requirement in Section 217 of the Constitution is that such bodies
must contract for goods and services in
terms of a system which is
“fair, equitable, transparent, competitive and cost efficient”.
Sections 217(2) and (3) continue to
permit “categories of
preference” and the advancement of previously disadvantaged persons
– and require a framework for such
policies in national
legislation. Section 217 only applies to “organs of state in the
national, provincial or local sphere of government”
and “other
institution[s] identified in national legislation”. Petro SA is
clearly an “organ of state” even though it is
not in the
national, provincial or local spheres of government. The question
however remains whether it falls into the category of
“any other
institution identified in national legislation”? The national
legislation identifying “other institutions” subject
to Section
217 is clearly the PFMA. As seen above, this Act identifies Petro SA
as a “major public entity” and Section 51(1)
(a) (iii) repeats
the requirement in Section 217 that it must have a procurement system
which is fair, equitable, transparent, competitive
and cost
efficient”. In my view there can be no doubt that Petro SA is at
least bound by the requirements of Section 217(1) of
the
Constitution. It is also not prevented from creating affirmative
measures in terms of Section 217(2) of the Constitution. In
this
regard I fully agree with Mr. Katz. The question for determination is
rather whether Petro SA does have a procurement system
to which it is
subject. The long title of the Procurement Act states that it was
created to give effect to Section 217(3) of the
Constitution.
However, the requirements in Section 2 of the Procurement Act do not
apply to all bodies referred to in Section 217(1)
of the
Constitution. Rather, it only applies to “organs of state” as
defined in the Procurement Act itself. That definition differs
from
the definition of “organ of state” in Section 239 of the
Constitution.
(28) Petro SA has exercised
this power. Significantly, Petro SA’s procurement policy explicitly
states that “the evaluation of…tenders
shall comply with the
Procurement Act together with Regulations under the Act.” This is
also reflected in the Instructions to Tender,
which states that the
scoring system from the Procurement Act is applicable to this tender.
This scoring system is detailed in Part
2 of the Regulations under
the Procurement Act. (See: GN R725 in Government Gazette 22549 of 10
August 2001. Section 5 of the Procurement
Act permitted the Minister
of Finance to make regulations regarding any matter that may be
necessary or expedient to achieve the
aims of the Act). In Mr. Katz’s
submission this includes Regulation 10(4), which provides that
tenders may only be cancelled prior
to their award in three narrow
categories – namely if:
“
(a) due to changed
circumstances there is no longer need for the goods or services
tendered for; or
funds are no longer
available to cover the total envisaged expenditure; or
no acceptable tenders are
received.”
Petro SA’s procurement
policy also provides only for the consideration and award of tenders.
Significantly it contains no provision
dealing with the withdrawal of
tenders. According to Mr. Katz Petro SA is bound to follow regulation
10(4), as Petro SA is compelled
to follow its own procedures.
(29) It is important to note
that in terms of PAJA, administrative action must not only be based
on reasons, but it must also be reasonable
and rational when measured
against those reasons. According to Chaskalson CJ in the
New
Clicks
case
supra
, the requirement for reasonableness
is a
“variable but higher standard, which in many cases will
call for a more intensive scrutiny of administrative decisions than
would
have been competent under the interim Constitution.”
In the instant matter papers show that Petro SA did not believe at
all that it was duty bound to supply reasons for its decision.
Mr.
Katz maintained that this stance on the part of Petro SA is totally
incorrect. It is common cause that on 8 February 2006 Petro
SA wrote
a letter to the Applicant the gist of which is quoted
supra
.
(30) Importantly Petro SA in
its Answering Affidavit provided a host of reasons. I will in due
cause deal with these reasons contained
in the Answering Affidavit.
The reasons contained in the Answering Affidavit are brushed aside in
Mr. Katz’s argument. Mr. Katz
goes so far as to submit that Petro
SA has ‘flip-flopped’ between reasons which, in his submission,
clearly indicate that it
in fact acted without any good reasons. In
Mr. Katz’s submissions, Petro SA must be held to be bound by the
reasons contained in
its letter dated 8 February 2006 the content of
which have been partially quoted supra. Mr. Katz relied for this
contention on the
Judgment of this Court in
Jicama 17 (Pty) Ltd
v West Coast District Municipality
2006(1) SA 116 (C) at para
11-12 (121E-122D), where this Court (per Cleaver J) stated the
following:
“
[11] I agree with
counsel for the applicant that, having found that a binding agreement
had come into effect between the parties,
it is not open to the first
respondent to raise the other defences raised for the first time in
its answering papers. The applicant
has come to court in order to
deal with the reason which was conveyed to it as being the basis on
which the decision to cancel the
tender had been made. The reason why
the first respondent should not now be allowed to supplement the
basis on which its previous
decision was taken is eloquently set out
in a judgment of the Court of Appeal in R v Westminister City
Council, Ex parte Ermakov,
[1996] 2 All ER 302
(CA) at 315h-316d,
viz:
“
(2) the court can and,
in appropriate cases, should admit evidence to elucidate or,
exceptionally, correct or add to the reasons;
but should,
consistently with Steyn LJ’s observations in Ex p Graham, be very
cautious about doing so. I have in mind cases where,
for example, an
error has been made in transcription or expression, or a word or
words inadvertently omitted, or where the language
used may be in
some way lacking in clarity. These examples are not intended to be
exhaustive, but rather to reflect my view that
the function of such
evidence should generally be elucidation not fundamental alteration,
confirmation not contradiction. Certainly
there seems to me to be no
warrant for receiving and relying on as validating the decision
evidence – as in this case – which
indicates that the real
reasons were wholly different from the stated reasons. It is not in
my view permissible to say, merely because
the applicant does not
feel able to challenge the bona fides of the decision-maker’s
explanation as to the real reasons, that the
applicant is therefore
not prejudiced and the evidence as to the real reasons be relied
upon. This is because, first, I do not accept
that it is necessarily
the case that in that situation he is not prejudiced; and, secondly,
because, in this class of case, I do
not consider that it is
necessary for the applicant to show prejudice before he can obtain
relief. Section 64 requires a decision
and at the same time reasons;
and if no reasons (which is the reality of a case such as the
present) or wholly deficient reasons
are given, he is prima facie
entitled to have the decision squashed as unlawful.
(3) There are, I consider,
good policy reasons why this should be so. The cases emphasise that
the purpose of reasons is to inform
the parties why they have won or
lost and enable them to assess whether they have any ground for
challenging an adverse decision.
To permit wholesale amendment or
reversal of the stated reasons is inimical to this purpose. Moreover,
not only does it encourage
a sloppy approach by the decision-maker,
but it gives rise to potential practical difficulties. In the present
case it was not, but
in many cases it might be, suggested that the
alleged true reasons were in fact second thoughts designed to remedy
an otherwise fatal
error exposed by the judicial review proceedings.
That would lead to application to cross-examine and possibly for
further discovery,
both of which are, while permissible in judicial
review proceedings, generally regarded as inappropriate. Hearings
would be made
longer and more expensive.’
[12] Another reason the
first respondent should not be allowed to supplement the reasons for
its decision by reasons which were clearly
taken ex post facto is
that if it was allowed to do so, it would in effect be converting the
applicant’s application for review,
which is being brought on
narrow grounds, into a full-scale review of its own decision. This
would be palpably unfair and in any
event would be defective for the
tender documents of the other tenderers are not before the Court.”
(31) Truly in
Rustenburg
Platinum Mines Ltd v CCMA
(2006) 115(SCA) (not as yet
reported) the Supreme Court of Appeal highlighted that
“the
question on review is not whether the record reveals relevant
considerations that are capable of justifying the outcome.”
I
hasten to mention though that the point dealt with in
Rustenburg
Platinum Mines
case
supra
differs significantly to
what we are faced with in this matter. Mr. Katz submitted that the
reasons given in the letter of 8 February
2006 cannot stand for four
(4) reasons, namely:
Petro SA’s own evidence
indicates that they were not the real reasons underlying the
Procurement Committee’s decision or at
the very least not full
reason;
The reason is not rationally
connected to any of the information before the Procurement
Committee;
No opportunity was given to
the Applicant before the tender was withdrawn to deal with any
adverse information justifying the decision
to withdraw the tender
and refer the services to ‘in-house’ personnel;
The withdrawal of the tender
was unlawful, in that it did not comply with the requirements of
Regulations under the Procurement
Act.
In his submission the
decision under review was not:
authorized by empowering
provision i.e. Section 6(2)(a)(i) of PAJA;
mandatory procedures were
not followed (Section 6(2)(b) of PAJA);
it was materially influenced
by an error of law (Section 6(2)(d) of PAJA);
it was taken for a reason
not authorized by, or rationally connected to a purpose in the
empowering provision (Sections 6(2)(e)(i)
and 6(2)(f) of PAJA);
Irrelevant considerations
were taken into account (Section 6(2)(e)(iii) of PAJA, lastly,
according to Mr. Katz if PAJA is found
not to apply, it was
unconstitutional exercise of public power in that it was
ultra
vires
.
(32) In Mr. Rosenberg’s
(SC) submission a central question for determination in the instant
matter, is whether the Preferential
Procurement Act applies to Petro
SA. He prefixed his submissions on this aspect by maintaining that
the Preferential Procurement
Act does not apply to Petro SA given the
case sought to be made out in the founding papers. In his submission
the Preferential Procurement
Act is limited in its application i.e.
limited to “organs of state” (Section 2 of the Preferential
Procurement Act). In Mr. Rosenberg’s
(SC) submissions, the
Regulation under the Preferential Procurement Act on which CAE
Construction based its case provided in Regulation
2(1) that despite
anything to the contrary contained in any law that the Regulations
apply to organs of state as contemplated in
Section 1 (iii) of the
Preferential Procurement Act. I had grave difficulty in following
this line of reasoning particularly because
my view as already
demonstrated earlier on in this judgment is that Petro SA is in fact
an organ of state despite the fact that it
does not appear to fall
within the purview of Section 1(a) –(e) of the Preferential
Procurement Act (definition of “organ of
state”) and further
despite the fact that it (Petro SA) does not appear to have been
recognized by the Ministry by Notice in the
Government Gazette as an
institution or category of institutions to which the Preferential
Procurement Act applies. A question I
put to Mr. Rosenberg (SC) as to
how affected his submissions would be should the Court come to a
finding that Petro SA is in fact
an organ of state, evoked an answer
that his submissions would not at all be affected by that finding. It
seems that Mr. Rosenberg
(SC) conceded that Petro SA may be an organ
of state but he persisted that, that alone, would not mean that the
Preferential Procurement
Act and Regulations thereunder made, apply
to Petro SA and that therefore on this point alone, in his view the
Applicant cannot succeed
on the basis of non-compliance with
Regulation 10(4). This contention is strengthened by Mr. Katz’s own
submission in his heads
of argument where on this aspect he concluded
thus:
“
It may well be that the
Procurement Act does not in its own terms apply to this tender.
Similarly, the Regulations under the Procurement
Act may also not
directly apply to Petro SA.”
The possible
non-applicability of the Procurement Act and the Regulation
thereunder promulgated clearly does not render Petro SA an
entity
other than an organ of state.
(33) In the Replying
Affidavit CAE Contruction averred the following:
“
Whilst it may be so,
and it is not accepted, that Petro SA is not bound by the
Preferential Procurement Act and its Regulations, and
particularly
Regulation 10(4), what is clear is that Petro SA has, and applies, as
a procurement policy the provisions of the Preferential
Procurement
Act and the Regulations thereto.”
This averment does not appear
in the Founding Affidavit. The content of paragraph 21 of the
Founding Affidavit merely stated:
“
Petro SA clearly
indicated in its “Instruction to Tenderers” for the Tender that
the
Preferential Procurement Policy Framework Act (“the
Procurement
Act”) will determine the scores.”
It cannot be doubted, nor was
it so submitted, that the above quoted contentions contained in the
Founding Affidavit and the Replying
Affidavit are similar. It
therefore means that new averment was made by CAE Construction in
Reply. It is a trite principle of the
law of civil procedure that all
essential averments must appear in the founding affidavits for the
Courts will not allow an applicant
to make or supplement his case in
his replying affidavits and will order any matter appearing therein
which should have been in the
founding affidavit to be struck out.
(See:
Herbstein and Van Winsen
- page 75.)
(34) The difficulty with
regard to the evaluation of tenders complying with the Procurement
Act and the Regulations as reflected in
the Instructions to Tender
stating that the scoring system is to apply becomes further
compounded when one considers the following:
As the title of Part 2 of
the Regulations suggest, this Part covers a wide range of issues,
viz
, a preference points system, evaluation of tenders,
awarding of tenders not scoring highest points, cancellation and
re-invitation
of tenders. The cancellation of tenders is entirely
unrelated to the evaluation and scoring of tenders and as such is
dealt with
in a separate section of the Regulations that is distinct
from the point scoring system and the evaluation;
The Applicant places
reliance on clause 7 of Petro SA’s Procurement Policy entitled:
“Evaluation of Quotations/Tenders”. The
content of the said
clause clearly states that Preferential Procurement Act as well as
the Regulations apply to the “evaluation”
of quotations/tenders
and specifically that the 80/20 or 90/10 preference point scoring
system shall be applicable. I hold a view
that this qualified
application of the Preferential Procurement Act cannot on the
wording of the policy be read to suggest the
wholesale application
of the Preferential Procurement Act to Petro SA.
(35) It would appear that the
CAE Construction’s interpretation of clause 7 of the procurement
policy is irreconcilable with Petro
SA’s Invitation to Tender in
terms whereof “Petro SA does not bind itself to accept the lowest
or part or all of any tender submitted.”
In addition, the Standard
Terms and Conditions of Tendering (which also forms an integral part
of the invitation to tender) provides:
“Petro SA reserves the right
to reject any or all Tenders for any reasons whatsoever and is under
no obligation to accept the lowest
or any other tender.”
(36) From the above it is
clear that Petro SA is not subject to the relevant statutory
provisions relied upon by CAE Construction,
nor did Petro SA subject
itself to the Regulation 10(4) regime. The terms of its procurement
policy do not in any way support any
such construction but on the
contrary, they point otherwise. A finding that Petro SA is not
subject to the Preferential Procurement
Act makes it difficult to
comprehend legal basis on which CAE Construction places reliance for
alleged non-compliance with Regulation
10(4). Neither can it be
contended, apparently, that there would have been any agreement
between the parties to the effect that Regulation
10(4) would apply.
The terms and conditions of tendering are clearly against the
possibility of any such contention in this matter.
(37) In Mr. Rosenberg’s
(SC) submission there is no merit to any challenge under PAJA in that
CAE Construction’s reliance on PAJA
is predicated on the
application of the Preferential Procurement Act (save for the issue
of the hearing). The submission by CAE Construction
that the decision
not to award the tender but rather to cancel it is in violation of
Section 6(2) for the reasons CAE Construction
set out, is strenuously
opposed on behalf of Petro SA. In this regard Mr. Rosenberg (SC)
submitted that all reasons canvassed on
behalf of CAE Construction
are expressly founded on the Preferential Procurement Act. I have
been referred for guidance to
Minister of Environmental Affairs
and Others v Bato Star Fishing (Pty) Ltd
2004(4) SA (CC)
where the Constitutional Court observed as follows:
“
[27] The Minister and
the Chief Director argue that the applicant did not disclose its
causes of action sufficiently clearly or precisely
for the
respondents to be able to respond to them. Where a litigant relies
upon a statutory provision, it is not necessary to specify
it, but it
must be clear from the facts alleged by the litigant that the section
is relevant and operative. I am prepared to assume,
in favour of the
applicant, for the purposes of this case, that its failure to
identify with any precision the provisions of PAJA
upon which it
relied is not fatal to its cause of action. However, it must be
emphasized that it is desirable for litigants who seek
to review
administrative action to identify clearly both the facts upon which
they base their cause of action, and the legal basis
of their cause
of action.”
(See paragraph 27 of Judgment and the cases cited
therein.)
Accordingly even if PAJA does
apply to the cancellation of a tender the facts averred in the
Founding Affidavit must be such that
the basis for the review and
setting aside of the decision under PAJA is justified.
REASONS FOR THE
CANCELLATION OF THE TENDER
(38) The letter of 8 February
2006 quoted earlier on in this judgment purported to give reasons why
the tender was cancelled (according
to CAE Construction). CAE
Construction relied heavily on “re-evaluate its need for an
external service provider” as having been
the reason advanced by
Petro SA. Importantly, however, I have not been able to find a
correspondence dated prior to the institution
of these proceedings
wherein CAE Construction sought to request reasons for the
cancellation of tender. The letter of 8 February
2006 from Petro SA
to CAE Construction was clearly in response to an e-mail from the
latter dated 27 January 2006. Of cardinal importance
in the letter of
8 February 2006 is the following portion thereof:
“…
..On 19 January
2006, Procurement Committee reviewed all the tenders that were
submitted and resolved to cancel the tender.”
I agree with Mr. Rosenberg
(SC) that the letter of 8 February 2006 can in no way be construed as
the furnishing by Petro SA of its
full reasons for the decision taken
on 19 January 2006. The letter came about in response to a request
for an extension of the contract,
and not in response to a request
for reasons. The letter was a response to an e-mail from CAE
Construction in which the latter had
itself acknowledged that Petro
SA had already advised it that the contract would go out on re-tender
as none of the finalists were
acceptable. CAE Construction itself
acknowledged that the letter of 8 February 2006 fell short of what
can be construed as full reasons.
The terms of the letter from CAE
Construction were:
“
On 8 February 2006
Petro SA alleged that the reason for our client being unsuccessful
was due to the fact that Petro SA Procurement
Committee resolved to
cancel the tender and advised that the service would be rendered by
the electrical department using “approved
tender
suppliers.”……………Our client therefore intends, upon
receipt of all necessary documents
and the full reasons
for the decision made, to launch an application in the Cape High
Court for reviewing and setting aside the decision.”
(Underlining
added)
(39) It is easy to gather
from the above quoted letter that the decision to cancel was based on
reasons which had at that stage not
been made available to CAE
Construction. CAE Construction’s own letter supports the contention
that “full reasons” were lacking
and still had to be supplied. It
is apposite to pay attention to
King William’s Town
Transitional Local Council v Border Alliance Taxi Association (BATA)
2002(4) SA 152 (E) where the Court observed as follows:
“
The right to written
reasons for administrative action which affects a person’s rights
is specifically entrenched by s 33(2) read
with ss (c) and (d) of
S.23(2)(b) of Schedule 6. Reasons are required to enable the person
concerned to consider whether an administrative
act or decision is
justifiable in relation to the reasons for it where his rights are
affected or threatened by it. I have no doubt
that the respondent was
entitled to written reasons and that these should have been furnished
if requested.”
In my view it would not only
be unfair and unjustified to confine Petro SA to the letter of 8
February 2006 when considering the reasons
for the decision, but it
would also be wrong. There is no way and certainly no justifiable
basis that this Court should “turn a
blind eye” to the reasons
set out by Petro SA in its Answering Affidavit. This case is clearly
distinguishable from what obtained
in
Jicama 17 (Pty) Ltd v
West Coast District Municipality
supra
. Unlike in the
instant matter, the reason on basis of which the tender was cancelled
had been furnished and conveyed in
Jicama
case. The
reasons set out fully in the Answering Affidavit are by no means
reasons which were taken
ex post facto
.
(40) The Constitutional Court
has on several occasions confirmed that a Court cannot interfere with
a decision where the purpose of
the exercise of public power falls
within the authority of the functionary, and where the decision,
viewed objectively, is rational.
In other words, a Court cannot
interfere with a decision, simply because it disagrees with it. The
Court’s task is merely to determine
whether the decision made is
one which achieves a reasonable equilibrium in the circumstances.
(See:
Minister of Environmental Affairs and Others v Bato Star
Fishing (Pty) Ltd
, paragraph 49.)
(41) Aforementioned approach
must apply to the consideration of the decision dealt with in this
matter. In
Pharmaceutical Manufacturers Association of South
Africa
:
In re Ex parte Application of
President
of the RSA
2000(2) SA 674(CC) the Constitutional Court
observed:
“
[90} Rationality in
this sense is a minimum threshold requirement applicable to the
exercise of all public power by members of the
Executive and other
functionaries. Action that fails to pass this threshold is
inconsistent with the requirements of our Constitution
and therefore
unlawful. The setting of this standard does not mean that the Courts
can or should substitute their opinions as to
what is appropriate for
the opinions of those in whom the power has been vested. As long as
the purpose sought to be achieved by
the exercise of public power is
within the authority of the functionary, and as long as the
functionary’s decision, viewed objectively,
is rational, a Court
cannot interfere with the decision simply because it disagrees with
it or considers that the power was exercised
inappropriately. A
decision that is objectively irrational is likely to be made only
rarely but, if this does occur, a Court has
the power to intervene
and set aside the irrational decision.”
In
Bel Porto School
Governing Body and Others v Premier, Western Cape, and Another
2002(3) SA 265 (CC) the Constitutional Court further
observed:
“
{45} … The fact that
there may be more than one rational way of dealing with a particular
problem does not make the choice of one
rather than the others an
irrational decision. The making of such choices is within the domain
of the Executive. Courts cannot interfere
with rational decisions of
the Executive that have been made lawfully, on the grounds that they
consider that a different decision
would have been preferable.”
(42) In
Trinity
Broadcasting (Ciskei) v Independent Communications Authority of South
Africa
2004(3) SA 346 (SCA) the Supreme Court of Appeal
observed the following:
“
[20] In requiring
reasonable administrative action, the Constitution does not, in my
view, intend that such action must, in review
proceedings, be tested
against the reasonableness of the merits of the action in the same
way as in an appeal. In other words, it
is not required that the
action must be substantively reasonable, in that sense, in order to
withstand review. Apart from that being
too high a threshold, it
would mean that all administrative action would be liable to
correction on review if objectively assessed
as substantively
unreasonable: cf
Bel Porto School Governing Body and Others
v Premier, Western Cape and Another
.”
(43) I fully associate myself
with the above sentiments. The factors that underpinned CAE
Construction having been found to be unacceptable
are set out at
length in the Answering Affidavit. In a summarized form they are,
inter alia
:
(i) Breach of contract in
respect of previous contraventions of labour legislation, failure to
provide the necessary tools and equipment,
failure to establish on
site suitable offices and failure to employ personnel with suitable
qualifications and experience;
(ii) Extremely tenuous
relations with its employees (Applicant’s) which threatened its
ability to deliver on the tender forming
the subject-matter of this
application;
(iii) Unfair dismissal of
whistle blowing employees.
(iv) CAE Construction was
factually insolvent and awarding it the tender would pose a grave and
serious risk to Petro SA. CAE Construction’s
financial situation
did not accord with the prerequisites for a successful tender;
(v) A high level of
monitoring, support assistance and intervention would be required
from Petro SA in respect of CAE Construction
in order to ensure that
the latter was capable of complying with its contractual and
technical standards as well as relevant legislation.
This involvement
and intervention would pose an unduly onerous and even unmanageable
burden on Petro SA.
(44) CAE Construction
attempted to address some of the above in its Replying Affidavit. For
reasons best known to itself, CAE Construction,
however, omitted to
provide in reply any information in respect of its present financial
status. In other words, the averment that
CAE Construction is
factually insolvent was not negatived. It is noteworthy that of all
reasons set out fully in the Answering Affidavit
the alleged
insolvency of CAE Construction is of paramount importance. CAE
Construction’s credit worthiness seems central to a
decision to
award it a tender. This is borne out by clause 75 of the Procurement
document to which Petro SA is bound, as well as
clause 1.11 of
Annexure EN2 to the Founding Papers. The latter poses the following
significant question:
“
Is your company
financially sound and/or do you have access to sufficient bridging
finance?”
It is important to note that
additional information such as a bank statement, latest audited
financial statements and a letter of
good standing from a bank or
financial institution, needs also to be supplied. I have alluded
above to the fact that other issues
were indeed dealt with in the
Replying Affidavit. It is important to mention though that they were
not denied. Certain explanation
was made. In my view, it would be
totally out of the ordinary and therefore unacceptable that this
Court would oblige Petro SA to
lie in bed with CAE Construction, an
entity that may well be factually insolvent. That would militate
against the prerequisites of
the tender system and would render Petro
SA unable to fulfill its obligations to South Africa. In any event to
force Petro SA to
take on CAE Construction, would, in the
circumstances, be contrary to the expectations of the South African
public. The financial
status of CAE Construction is certainly a
central focus in an endeavour to answer the question whether or not
its tender should have
been preferred.
(45) I accept that the
Procurement Committee arrived at a conclusion favourable to CAE
Construction. It, however, remains strange
that its conclusion
(Procurement Committee) is not supported by the reports submitted to
it. I agree with Mr. Rosenberg (SC) that
the fact that the
Procurement Committee differed from the recommendations made by the
Evaluation Committee does not render the decision
challengeable. I
have been referred to
Cash Paymaster Services (Pty) Ltd v
Eastern Cape Province and Others
1999(1) SA 324 (CK) at
352C-H where the Court held as follows:
“
Accordingly, it is
obvious that they are entitled to have recourse to technical advice
relating to the particular task at hand. It
is for this reason that
it is not uncommon for a tender board to refer matters to technical
committees for reports. Having received
a report from a technical
committee is obviously also not imperative for them to follow the
advice of the technical committee. They
are at liberty to make their
own decision after having assessed the report of such technical
committee. With this I have no fault
to find. However, it the tender
board should refer any particular issue or issues to a technical
committee they are in duty bound
to consider that report fully in
all its aspects and to give due weight to it. If they wish to differ
from it, they may do so. It
is, however, to be remembered that the
technical committee arrives at its findings on that which is
contained in the tender documents.”
(46) Finally an issue raised
in the Founding Papers is that Petro SA’s decision to cancel the
tender was procedurally unfair in
that Petro SA should have afforded
CAE Construction an opportunity to make representations (at least in
writing) on any fact that
might have led it not to award the tender
at all prior to cancelling the tender. This necessitates a
determination of the question
whether or not CAE Construction did in
fact have an entitlement to the right to be heard. It is common cause
that the parties (Petro
SA and CAE Construction) met on 15 February
2006. CAE Construction made an application for the award of a tender.
In considering
the application Petro SA’s Procurement Committee
came to the conclusion that it was not an acceptable tender and the
application
was rejected. It is common cause that there were no other
acceptable tenderers. Therefore Petro SA bore no obligation to afford
a
hearing to CAE Construction. There is no entity which was
successful.
(47) Notably it was through
application for the award of tender that CAE Construction was
afforded an opportunity to make out its
case for the award of the
tender. CAE Construction in fact did this. Mr. Katz in his oral
submissions did not persist that an order
for substitution must be
made. It is not necessary to address that issue in this judgment. It
suffices to mention in passing that
given the technical nature of the
tender in question this Court is not institutionally equipped to make
such an extraordinary decision
to substitute. Accordingly, in my view
for reasons canvassed above, this application cannot succeed.
ORDER
(48) I make the following
order:
(a) The Application is hereby
dismissed with costs including costs occasioned by the employment of
two (2) Counsels.
___________________
DLODLO, J
I agree and it is so
ordered. _____________________
TRAVERSO, DJP