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[2024] ZAECELLC 19
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East London Boating Association v Transnet SOC Limited (EL1571/2022) [2024] ZAECELLC 19 (14 May 2024)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
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SAFLII
Policy
IN
THE HIGH COURT OF SOUTH AFRICA
(EASTERN
CAPE DIVISION, EAST LONDON CIRCUIT COURT)
CASE
NO.: EL1571/2022
REPORTABLE:YES/NO
In
the matter between:
EAST
LONDON BOATING ASSOCIATION
Applicant
and
TRANSNET
SOC LIMITED
Respondent
JUDGMENT
CENGANI-MBAKAZA
AJ
Introduction
[1]
T
he East
London Boating Association (the applicant), filed a notice of motion
seeking a declaratory order. The notice of motion is
paraphrased as
follows:
It
is declared that on 26 August 2022 after the respondent accepted the
applicant’s tender under reference no. ELS/HPM/05/08/2022/02
and the applicant successfully tendered in the respondent’s
public procurement process, a lease agreement was entered into
between the parties for the portion of Erven […] and […]
for a term of ten years at a monthly rental of R7000.00
exclusive of
value added tax, with annual increase at a rate of 6% based on the
terms of the written lease as annexed in the founding
affidavit.
[2]
The applicant
was established by the East London Rowing Club, a company founded in
1875. The Buffalo River serves as a venue in
East London to provide
facilities to advance the sport of rowing.
[3]
The respondent is Transnet SOC Ltd, a State-owned company
incorporated with the laws
of the Republic of South Africa.
[4]
The respondent objects to the declaratory order sought for the
reasons which are presented
in paragraph 23 of this judgment.
Factual
Background
[5]
A synopsis of the background facts of this case contained in the
parties’ affidavits
is largely common cause. In August 2022,
the respondent published on its website a request for bids (RFB)
inviting interested parties
to submit lease applications for various
properties situated at the Port of East London.
[6]
Details on the conditions of the tender were fully outlined in the
advert as follows:
Evaluation of tenders would be done on an awarded
basis in which twenty points would be rendered based on B-BBEE status
and eighty
points on price rental offered. The party with the highest
score would be awarded the tender and offered a lease.
[7]
Amongst the other conditions detailed in the lease application
document, one in particular
was outlined as follows:
“
1.5
The lease Specification and Evaluation Committee of TNPA
[1]
will
evaluate all lease applications and make a recommendation for the
award of all lease applications to the preferred Applicant.
Negotiations, if necessary, will then be conducted with a preferred
applicant, which will culminate in the signing of the TNPA
standard
lease agreement.”
[8]
The applicant submitted its tender offering a monthly rental in the
sum of R7000.00
which would then have an annual accumulation rate of
6%. The respondent’s impression was that the rental offer would
be subject
to negotiations at the discretion of the TNPA and would be
informed by the market-related valuation escalation rates.
[9]
On 25 August 2022, the applicant’s legal representative, Mr J
Buchner was invited
to a meeting with the evaluation committee
regarding lease specifications and for purposes of negotiating a
market-related rental
value. During the meeting, however, the
applicant was informed by the committee that the amount it offered
was below the market
value. The applicant’s representative
committed to responding to the offer and further requested the
respondent’s representatives
to send the letters reflecting the
offer the following Tuesday.
[10]
On 26 August 2022, the applicant received a letter (‘the first
letter’) from the
respondent which was then signed by the
property manager, Mr Makunga. The respondent informed the applicant
of the successful lease
through communication from the committee
which reads:
“
We
thank you for taking part in the lease application process and we
would like to invite you to take part in any future competitive
lease
application process as we strive to make things happen in the Port of
East London.”
[11]
On the same day, Mr Makunga further wrote to the applicant informing
him that the lease application
was evaluated and recommended for
approval by the respondent’s statutory committee. Another
letter (‘the second letter’)
set out a monthly rental of
R35 000 exclusive of value-added tax, with an annual increase
rate of 8%. The letter further set
out a requirement of a security
deposit in the sum of R190 468.45, the applicant was then
advised to accept the proposed terms
in writing to enable the
respondent’s office to seek approval from the statutory
committee for the said proposal.
The
legal framework
[12]
In cases where a declaratory order is sought, the court must, by
principle, be satisfied that
the applicant has an interest in a
future contingent right or obligation. If the court is so
satisfied it must decide whether
the order should be granted. In
exercise of its discretion, the court may decline to deal with the
matter where there is no actual
dispute
[2]
.
[13]
The Constitution of the Republic of South Africa
[3]
(‘the Constitution’) and the Procurement Preferential
Policy Framework Act
[4]
(‘PPPFA’) set out a legislative framework in terms of
which decisions may be taken in the procurement process. Section
2(1)(f) of the PPPFA which is fundamental to the applicant’s
case provides that the contract must be awarded to the tenderer
who
scores the highest points unless objective criteria in addition to
those contemplated in paragraphs (d) and (e) justify the
award to
another tenderer. By deductive reasoning, the objective criteria can
only be applied in exceptional circumstances as Section
2(1) (f)
explicitly states that a tender must be awarded to the tenderer who
scores the highest points.
[14]
The Preferential Procurement Regulations which were published in the
government gazette No.40553
of 20 January 2017(PPR, 2017) were
repealed and replaced by Preferential Procurement Regulations 2022
(PPR, 2022) which came into
effect on 16 January 2023. This
notwithstanding, any tender advertised before 16 January 2023 is
examined in terms of the PPR,
2017.
[5]
[15]
The consensus is that the tender in question was advertised before
the 16 January 2023. Thus,
Regulation 6(9) of the PPR, 2017 which
appears to be fundamental to the respondent’s case provides
that,
“
(a)
If the price offered by a tenderer scoring the highest points is not
market related, the organ of the state may not award the
contract to
that tenderer.
(b)
The organ of the state may:
(i)
Negotiate a market-related price with the tenderer scoring the
highest points or cancel the tender.
(ii)
If the tenderer does not agree to a market-related price, negotiate a
market-related price with the tenderer scoring the second
highest
points or cancel the tender.
(iii)
If the tenderer scoring the second highest points does not agree to a
market-related price, negotiate a market-related price
with the
tenderer scoring the third highest points or cancel the tender.
(c)
If a market-related price is not agreed as envisaged in paragraph (b)
(iii) the organ of the state must cancel the tender.”
[16]
The
implementation guidelines
[6]
PPR, 2017 provide
:
“
19.
NEGOTIATING A FAIR
MARKET-RELATED PRICE
19.1
Institutions may include in their Supply Chain Management Policy
(SCM) policies a process for negotiating
with preferred bidders after
a competitive bidding process or price quotations. The policy may
include amongst others the following
principles:
(a)
Delegation and
threshold values for negotiations by the accounting officer.
(b)
Negotiation
may not allow any preferred tenderer a second or unfair opportunity.
(c)
Is not to the
detriment of any other tenderer.
(d)
Does not lead
to higher price than the bid as submitted.
19.2
Institutions must include in the tender documents a condition
stating that the award of the tender may be subject to
price
negotiation with the preferred tenderers.”
[17]
On a proper reading of Regulation (6)(9) of the PPR 2017, an organ of
the state, as in the present
case, has the discretion not to award
the tender after having taken into account the circumstances listed
in paragraphs a-c of
the PPR, 2017.
Issues
[18]
The applicant asserted that because its tender had the highest score,
it was entitled to be awarded
the tender on the terms specified in
the lease agreement mentioned in the tender invitation. It further
claimed that because the
tenderer was awarded with the highest score,
a lease agreement had already been concluded.
Discussion
and analysis
[19]
The
nub
of the applicant’s complaint is that the two letters dated 26
August 2022 are contradictory to each other which makes
it impossible
to reconcile the second letter with the tendering process which had
been followed and accepted by the applicant.
The first letter, so the
applicant averred, constituted an acceptance of the applicant’s
offer with the terms that were already
expressed and therefore
binding between the two parties.
[20]
The applicant’s senior counsel argued that, given the
respondent’s acknowledgement
of the applicant’s
successful tender, the respondent was required by Section 2(1) (f) of
the PPPFA to award the tender to
the applicant in accordance with the
terms of the written lease agreement mentioned in the invitation to
tender.
[21]
Section 217 of the Constitution and the provisions of the PPPFA, so
he argued, prohibit the respondent
from imposing a condition in its
RFB that the rental was subject to negotiations based on the
market-related assessment. Since
the applicant had the highest bid,
the respondent was compelled to act in accordance with the PPPFA’s
provisions and is still
obligated to lease to the applicant according
to the terms specified in the agreement as read with the amount
tendered. Therefore,
the respondent is prohibited from demanding
payment of a rental five times greater than the amount tendered with
threats of not
awarding the tender and cancelling it, so the argument
continued.
[22]
Referring to
Afribusiness
NPC v Minister of Finance
[7]
,
the senior counsel contended that the respondent’s reference to
PPR, 2017 is inaccurate on the basis that PPR, 2017 were
declared
unconstitutional and repealed. Furthermore, the replacement
regulations published on 16 January 2023 contain no provision
similar
to regulation (6) (9) of PPR, 2017 nor do they provide for the
cancellation of an invitation to tender.
[23]
The respondent’s counsel, on the other hand, submitted that the
respondent is legally permissible
to consider whether the prices
submitted by the successful bidder may be subject to adjustment. The
market relatedness of the bid
is a mandatory and materially relevant
consideration in any public tender, so she argued. Referring to
South
African Container Stevedores (Pty) Ltd v Transnet Port Elizabeth
Terminals and Others
[8]
,
counsel argued that negotiations with preferred bidders are lawful
for as long as provision therefor was made in the tender invitation.
[24]
I think it is apposite to first deal with the constitutionality of
PPR, 2017. In
Afribusiness
NPC’s
case,
the issue was about the lawfulness of regulations 3(b)
[9]
,
4
[10]
and 9
[11]
of the PPR, 2017.
Counsel
for the Minister submitted that if the court finds against the
Minister on the merits, it should consider setting aside
regulation 4
only and not the regulations in its entirety. The court held, that
option, due to the interconnectedness of the regulations,
may not be
an appropriate one. Zondi JA (
with
Dambuza, Ponnan
JJA,
Eksteen and Goosen AJJA concurring)
analysed
the provisions of section 217 of the Constitution and held:
“
[40]
It follows therefore that the Minister’s promulgation of
regulations 3(b), 4 and 9 was unlawful. He acted outside his
powers
under Section 5 of the Framework Act. In exercising the powers to
make the 2017 Regulations, the Minister had to comply
with the
Constitution and the Framework Act, which the national legislation
that was enacted to give effect to Section 217 of the
Constitution.
The framework providing for the evaluation of tenders provide firstly
for the determination of the highest points
scorer and thereafter for
the consideration of objective criteria which may justify the award
of a tender at a lowest score. The
framework does not allow the
preliminary disqualification of tenderers, without any consideration
of any tender as such. The Minister
cannot through the medium of the
impugned regulations create a framework which contradicts the
mandated Framework Act.”
[25]
Therefore, the court held that PPR, 2017 was inconsistent with
section 217 of the Constitution
and section 2 of the Framework Act.
Furthermore, the court suspended the order of invalidity for a period
of 12 months to remedy
the defects. Considering the passages above,
it is clear that regulation 6(9) of PPR, 2017 was not associated with
the issues raised
in
Afribusiness
NPC’s
case
,
however, due to the fact that the regulations were intertwined, the
court allowed the state a period of 12 months from the date
of the
judgment (08 September 2020) to remedy the defects. In his
address, the applicant’s senior counsel did not fully
argue
that the Constitutional Court, in its judgment on 30 May 2022 stated
that the order of the SCA was suspended under the provisions
Section18 (1) of the Superior Court’s Act due to an appeal that
was lodged with the court.
[12]
As a result of the Constitutional Court judgment of 30 May 2022, the
countdown of the 12-month period of suspension resumed on
16 February
2022 and the PPR, 2017 in its entirety remained valid until 26
January 2023.
[26]
In terms of the transitional arrangements, if a tender was advertised
or invited in terms of
the evaluation criteria prescribed in the PPR
2017, prior to the coming effect of the PPR, 2022, as in the present
case, but will
only be evaluated and awarded after the date of coming
into effect of the PPR, 2022, the tender must be evaluated and
awarded in
terms of the evaluation criteria prescribed in the PPR,
2017, and in terms of the conditions contained in the bid document.
[27]
Fortified by the suspension of the constitutional invalidity of PPR,
2017 for a period of two
years and the applicability of the
transitional requirements, one concludes that the regulations that
are applicable in this case
are PPR, 2017. This notwithstanding, I
agree with the applicant’s senior counsel that Regulation 6(9)
of PPR, 2017 must be
viewed through the lens of the Constitution and
PPPFA.
[28]
In
Airports
Company South Africa SOC Ltd v Imperial Group Ltd and Other,
[13]
Ponnan JA with (Cachalia and Wallis JA
concurring held:
“
[64]
The general rule under s 217 of the Constitution is that all public
procurement must be effected in accordance
with a system that is
fair, equitable, transparent, competitive and
cost-effective”
(my underlining)
Molemela
JA (Tshiqi JA concurring
):
“
[45]
The PP Act, like any other legislation, must be interpreted
purposively. The long title of that Act states that its enactment
was
intended to give effect to s 217 (3) of the Constitution by providing
a framework for the implementation of the procurement
policy
contemplated in s 217(2) of the Constitution. A purposive
interpretation dictates that the PP Act be read in the context
of s
217 of the Constitution. The constitutional imperatives of a
cost-effective procurement must therefore be considered. It is
clear
that a transaction of the kind contemplated in the RFB seeks to
elicit bids for leases at the highest possible rental. This
interpretation is consistent with various provisions of the PFMA,
which enjoins the accounting authorities of organs of state to
exercise sound management of revenue and expenditure; to efficiently
manage, safeguard and maintain their assets and liabilities;
and
generally, to ensure that the organs of state receive value for
money.”
[29]
Applying the above principles to the facts of this case, first, there
is no dispute that the
applicant scored the highest points and was a
preferred tenderer. The fact that it was a successful tenderer must
not be interpreted
to mean that the bid was concluded. Second, the
first and the second letters that were written by Mr Makunga on
behalf of the applicant
are interconnected and cannot be interpreted
separately. In support of this proposition, there was an
understanding between parties
that, if necessary, negotiations
would
then be conducted with a preferred applicant, which would culminate
in the signing of the TNPA standard lease agreement. In
my opinion,
the applicant knew in advance or ought to have known that the lease
agreement was subject to negotiations.
[30]
Third, the fact that the applicant is a club and not a commercial
entity is irrelevant. Most
importantly, the accounting authorities of
the organ of the state are legally permissible to exercise sound
management of revenue
and expenditure; to efficiently manage,
safeguard and maintain their assets and liabilities; and generally,
to ensure that the
organs of the state receive value for money
[14]
.
These accord with the constitutional imperatives which guarantee a
system that is fair, equitable, transparent, competitive, and
cost-effective. Therefore, the argument positing that the respondent
is under compulsion to conclude the tender based on the stipulated
amount of a monthly rental of R7000 00 excluding VAT, with an annual
increase at a rate of 6% has no merit.
[31]
A point was raised that an amount of the monthly rental of R35 000
with an annual increase of
8% is five times higher than the offer
that was made by the applicant in his RFB and therefore exorbitant.
The following is extracted
from the minutes of the meeting dated 25
August 2022:
“
4.1
LEASE AGREEMENT NEGOTIATIONS
Mr
V Makunga: This is a negotiation in terms of the rentals offered by
the East London Boating Association. The offer by the East
London
Association is lower than the than the market value.
Mr.
V. Makunga: Does ELBA have an NPO certificate?
M
J. Buchner: Mr Buchner asked what the rental for ELBA is.
Mr
V Makunga stated that the valuations for ELBA came at R35 000
and the escalation rate came at 8%. The rental discount will
not be
backdated, and ELBA will be charged this amount until they produce a
valid NPO certificate.
Mr
J Buchner: ………..Mr Buchner further mentioned
that the main income of ELBA comes from sponsorship and the
income of
the club is membership-based.
Mr
V. Makunga: in terms of the current mandate in Transnet, the discount
percentage that may be granted in Spotting Bodies is a
50% rental
discount.
Mr
V. Makunga urged the ELBA to please submit the necessary
documentation and further clarified that the valuation are based on
the land and improvements.”
[32]
It is observed from the minutes of the meeting that the applicant was
given a fair opportunity
to negotiate the monthly rental. It is
further noted that Mr Buchner, the applicant’s representative
undertook to revert
on a Wednesday following the day of the
negotiations. The negotiations for a monthly rental were still
underway and this judgment
is not meant to end the parties’
already-started negotiations.
[33]
Considering the fact that the issues raised
in casu
are
clearly defined in the statute and the Constitution, the application
for a declaratory order cannot succeed.
Order
[34]
The following order shall issue:
1.
The
application for a declaratory order is dismissed.
2.
No order as to
costs.
N
CENGANI-MBAKAZA
ACTING
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
APPEARANCES
:
Counsel
for the Applicant :
Adv.
D H De La Harpe SC
Instructed
by
: DRAKE
FLEMER & ORSMOND INC
12
Quenara Drive
Beacon
Bay
EAST LONDON
Ref.: Mr AJ
Pringle/vd/MAT54076/E156
Tel.: 043 – 722
4210
Counsel
for the Respondent
:
Adv: M
Pango
Instructed
by
: KARSAN
INCORPORATED
C/o
FRANZ ATTORNEYS
41
Bonza Bay Road
Beacon
Bay
EAST
LONDON
Ref.:
Mr Franz/K13/KRFS-002
Tel.:
043 – 555 0969
Date
Heard
: 08
February 2024
Date
Delivered
: 14 May
2024
[1]
TNPA
stands for Transnet National Ports Authority.
[2]
Cordiant Trading CC V Daimler CHRYSLER Financial Services (Pty)Ltd
2005 (6) SA 205
(SCA) at 213 E-G; In terms of the provisions of
Section 2(1)(1) (c), the court may grant a declaratory order without
a consequential
relief sought. The subsection provides, ‘(2)
(1) A Division has jurisdiction over all persons resident or being
in, and
in relation to all causes arising and all offences triable
within, its area of jurisdiction and all other matters at which it
may according to law take cognisance, and has power-(c) in its
discretion, and at the instance of any interested person, to enquire
into and determine any existing, future or contingent right or
obligation, notwithstanding that such person cannot claim any
relief
consequential upon determination.
[3]
Section 217 of the Constitution, Act 108 of 1996 provides,
“
217(1)
When an organ of the state in the national, provincial, or local
sphere
of
government, or any other institution identified in national
legislation, contracts for goods or services, it must do so in
accordance with a fair, equitable, transparent, competitive, and
cost-effective.
(2)
Subsection (1) does not prevent the organs of the state or
institutions referred to in that subsection from implementing a
procurement policy providing for- (a) categories of preference in
the allocation of contracts; and (b) The protection or advancement
of persons or categories of persons, disadvantaged by unfair
discrimination.
(3)
National legislation must prescribe a framework within which the
policy referred to in subsection (2) must be implemented.
[4]
The
Preferential Procurement Policy Framework Act, 5 of 2000
is a
national legislation as contemplated in terms of section 217(3) of
the Constitution.”
[5]
Regulation (10)(2) of the Preferential Procurement Regulations, 2022
provides:
‘
Any
tender advertised before the date referred to in regulation 11
must
be dealt with in terms of the Preferential Procurement Regulations,
2017.
Regulation
11 provides,’ there Regulations are called Preferential
Procurement Regulations, 2017 and take effect on 16 January
2023’.
[6]
Implementation Guide: Preferential Procurement Regulations, 2017
issued by the National Treasurer in March 2020.
[7]
Afribusiness NPC V Minister of Finance [2021] 1 ALL SA 1 (SCA)
[8]
South
African Container Stevedores (Pty) Ltd v Transnet Port Elizabeth
Terminals and Others
[8]
2011
JDR 0357 (KZD) at para 27.
[9]
Regulation 3(b) of PPR, 2017 provides, ‘and organ of the state
must determine whether pre-qualification criteria are applicable
to
the tender as envisaged in regulation 4.
[10]
Regulation 4 of the PPR, 2017 provides, (1) If an organ of the state
decides to apply pre-qualifying criteria to advance certain
designated groups, that organ of the state must advertise the tender
with a specific tendering condition that only one or more
of the
following tenders may respond-(a) a tenderer having a stipulated
minimum B-BEE status level of contributor;(b) an EME
or QSE;(c) a
tenderer subcontracting a minimum of 30% to-…….
[11]
Regulation 9 of PPR, 2017 deals with subcontracting as a condition
of the tender. Regulation (9) (1) provides that if feasible
to
subcontract for a contract above R30 million, an organ of the state
must apply subcontracting to advance designated groups.
[12]
The Superior Court’s Act 10 of 2013; Minister of Finance v.
Sakeliga (Previously known as Afribusiness NPC) and others
[2022]
ZACC 17
at Paragraphs 15-17.
[13]
Airports Company South Africa SOC Ltd v Imperial Group Ltd and
Others
[2020] ZASCA 2
,
2020 (4) SA 17
SCA, also reported at
[2020] 2
All SA 1
(SCA) - Ed at para [64].
[14]
Airport’s case supra n 13.