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2024
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[2024] ZAFSHC 255
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EMS Solutions (PTY) Ltd v Mohakare Local Municipality (3972/2020) [2024] ZAFSHC 255 (7 August 2024)
IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Not
reportable
Case
no: 3972/2020
In
the matter between
EMS
SOLUTIONS (PTY) LTD
PLAINTIFF
And
MOHOKARE
LOCAL MUNICIPALITY
RESPONDENT
Neutral
citation:
EMS Solutions (PTY) Ltd v
Mohakare Local Municipality (3972/2020)
Coram:
MAHLANGU AJ
Heard:
26 JULY 2024
Delivered:
This judgment was handed down electronically by
circulation to the parties’ representatives by email and
released to SAFLII.
The date and time for hand-down is deemed to be
at 14h30 on 7 August 2024
Summary:
Invalidity of the agreement – an
administrative agreement and its legal consequences remain in effect
until it is set aside
by a court in judicial review – legal
consequences cannot simply be overlooked
.
ORDER
The
order is made in terms of the draft order marked ‘X’.
JUDGMENT
MAHLANGU
AJ
INTRODUCTION
[1]
This trial originates from an application on motion brought by EMS
Solutions (Pty) Ltd (Plaintiff),
to enforce payment of a monetary
debt of R5 346 856.09, allegedly owed to it by Mohokare
Local Municipality (Respondent)
together with interest and costs, in
respect of services rendered pursuant to having been appointed as a
service provider for the
Respondent in respect of two separate
procurement contracts, the VAT recovery services agreement and the
Fixed Asset Registers
agreement.
[2]
The application was opposed by the Respondent, who filed a
counterclaim for an order declaring
the VAT recovery services
agreement (the agreement) unlawful, invalid and null and void,
alternatively that the Applicant’s
appointment in respect of
the VAT recovery services be set aside and rescinded. After the
pleadings were closed and the application
enrolled for hearing, the
matter was referred to trial and not on any specific issue.
BACKGROUND
FACTS
[3]
On 30 June 2016, the Respondent appointed the Plaintiff for the
preparation of its Fixed Asset
Register-Infrastructure for the years
2016/2017 and 2017/2018. The parties agreed that the Fixed Asset
Registers agreement was
lawful. The Plaintiff was appointed by the
Respondent for the VAT Recovery Services on 5 December 2017 for a
period of 36 months.
The following is provided in the appointment
letter:
‘
We
have pleasure informing you that under
Section 36
of the
Municipal
Supply Chain Management Regulations as
published in the Government
Gazzette on 27636 of 30 May 2015 we have appointed you as per your
submitted proposal for the above-mentioned
project, outlined as per
budget.’
[4]
The appointment of the Plaintiff was subsequent to the proposal made
to the Respondent on 1 December
2017. Paragraph 3 of the proposal
provides that ‘[d]uring the conduction of the aforementioned
procedures, we will ensure
that the Municipality is and has been
complying with the requirement of the VAT act’. Paragraph 5 of
the proposal provides
that ‘[w]e will assist you will all VAT
queries by SARS. We will report to you on our findings and provide
you with the amount
claimable and a document setting out our
supporting calculations with a follow through of administration and
liaison with SARS
for VAT recoveries. Any long outstanding refund
issues (6 months and longer) will be addressed by EMS. Our fee rate
will apply
to any refund successfully concluded on behalf of the
municipality’.
[5]
The work to be rendered by the Plaintiff in terms of the agreement
was to ‘identify VAT
savings and recover those savings from the
South African Revenues Services (SARS) for the 2013 to 2017 financial
years’,
which would entail ‘qualifying and claiming
overpaid VAT, and/or quantifying and claiming unclaimed input tax on
the Respondent’s
expenses’; and that the Plaintiff would
be entitled to 35% VAT savings received by the plaintiff. Further,
the Plaintiff
assisted the Respondent in VAT recovery service based
on the emails that emanated from the Respondent’s senior
financial
manager, Elmien Wilken. The following was one of the emails
exchanged between the Respondent’s senior financial manager and
the Plaintiff:
‘
[Plaintiff:]
Please find attached the workings for the VAT return of 2021.
The VAT amounts to a
refund of R401 047.69.
Can you please confirm if
you are in agreement and if we can continue with the VAT submissions?
[Respondent:] Thank you
very much for your email.
Please go ahead with the
submission to SARS.
Thank you in advance.’
[6]
The Respondent disputed the validity of the agreement and
subsequently filed a counter-claim.
VAT
RECOVERY SERVICES AGREEMENT
[7]
The Respondent alleged that the appointment of the Plaintiff in terms
of the agreement was an
‘unsolicited bid’ as contemplated
by Regulation 36 of the 2005 Municipal Supply Chain Regulations
[1]
(Regulations).
The Plaintiff’s witnesses testified that, the appointment of
the Plaintiff to assist with VAT recovery services
was on the basis
that the Respondent was of dire financial position and that the
Respondent was not able to pay monthly PAYE.
[8]
Section 36 of the Regulations provides that:
‘
(1)
A supply chain management policy may allow the accounting officer –
(a)
To dispense with the official
procurement process established by the policy and procure any
required goods or services through any
convenient process, which may
include direct negotiations, but only–
(i)
In an emergency
(ii)
. . .’
[9]
The main contention of the Respondent’s counter-claim
application was that the Plaintiff’s
appointment was without a
formal application. Mr Zietsman submitted on behalf of the Plaintiff
that, the counter claim application
brought by the Respondent was a
self-review for an order to declare the appointment of the Plaintiff
for the VAT recovery services
for a period of 36 months unlawful,
invalid and null and void, alternatively that the appointment be set
aside and rescinded. Mr
Zietsman submitted that such an application
falls under the Uniform rule 53(1), which includes the provision of
the Record.
[10]
The review application was issued after the Plaintiff performed work
for the Respondent and the Respondent
received the benefit of R35
million from the work done by the Plaintiff.
[11]
The Plaintiff referred the court to the matter of
Jockey
Club of South Africa v Forbes
,
[2]
where
Kriegler AJA held that:
‘
The
Rule thus confers the benefit that all the parties have identical
copies of the relevant documents on which to draft their affidavits
and that they and the Court have identical papers before them when
the matter comes to Court.’
[3]
[12]
The Respondent submitted that the agreement was unlawful as it did
not cater for the proposal as submitted,
except on request of Elmien
Wilken and raising the substantial fee of 35% on full amount of VAT
credits in respect of those submissions
in which it had raised
invoices.
THE
EVIDENCE
[13]
Three witnesses testified on behalf of the Plaintiff. There was
no testimony given on behalf of the
Respondent. The main issue raised
by the Respondent was that the fees claimed by the Plaintiff in
respect of VAT refunds is not
covered by the proposal. A brief
discussion of the evidence led by the Plaintiff’s witnesses is
warranted.
[14]
Mr Wagner and another witness, Mr Olivier, comprehensively testified
on the scope and ambit of the work performed
where the Plaintiff
assisted the Respondent with profit recovery. The total benefits
recovered by the Plaintiff on behalf of the
Respondent amounted to
R35 034 781.63. The total amount owed to the Plaintiff in
terms of the agreement is R3 068 906,14.
[15]
Mr Louw submitted on behalf of the Respondent that the Plaintiff was
not supposed to perform VAT recovery
service work for the Respondent
in terms of the submitted proposal. However, both Mr Wagner and Mr
Olivier were adamant that the
work done by the Plaintiff in terms of
the agreement was in terms of the proposal. They further testified
that the Respondent received
the permission to assist with the VAT
recovery services from the Respondent’s finance manager who was
communicating with
them via email. They testified that, the
Respondent could not have received any VAT refunds from SARS unless
it was compliant with
VAT requirements and its PAYE account is up to
date. Both Mr Olivier and Mr Struwig testified that, they assisted
the Respondent
to be VAT compliant and that was why the VAT returns
were submitted and the Respondent’s PAYE account was up to
date.
[16]
During cross-examination, Mr Louw put it to both Mr Olivier and Mr
Struwig that some of the returns were
submitted late. This they
conceded but explained that the reason was because whenever the
invoices were to be submitted, they had
to wait for permission from
the Respondent, which was normally received after the due date.
According to Mr Struwig, the Respondent
became compliant during
October 2019.
[17]
In turn, Mr Olivier testified that, the Respondent was entitled to a
fee of 35% in respect the VAT credits
for each month in respect of
which an invoice was submitted, and that it was entitled to such
percentage on the total credit of
the VAT 201’s which were
submitted on behalf of the Respondent by the Plaintiff.
APPLICATION
OF FACTS TO THE LAW
[18]
The Respondent failed to file any record relating to the review
application he brought against the agreement.
It is my view that the
review proceedings falls under the provisions of the Uniform rule 53.
Rule 53(1) provides that all proceedings
to bring under review shall
be in accordance with Rule 53(1).
[19]
In
Democratic
Alliance and others v Acting National Director of Public
Prosecutions
[4]
the
SCA held that:
‘
It
can hardly be argued that, in an era of greater transparency,
accountability and access to information, a record of decision
related to the exercise of public power that can be reviewed should
not be made available, whether in terms of Rule 53 or by courts
exercising their inherent power to regulate their own process.
Without the record a court cannot perform its constitutionality
entrenched review function, with the result that a litigant’s
right in terms of s 34 of the Constitution to have a justiciable
dispute decided in a fair public hearing before a court with all the
issues being ventilated would be infringed.’ (Footnotes
omitted.)
[20]
Mr Louw, on behalf of the Respondent, submitted that this court may
entertain the application to set aside
the procurement process
without a formal condonation application. I am not in agreement with
this submission. I am of a view that
the condonation and the review
application should be brought in terms of the Uniform Rules of Court.
[21]
The Respondent benefitted R35 million from the services rendered by
the Plaintiff in terms of the agreement.
The Respondent received the
benefits as a result thereof and its PAYE was made up to date due to
the work done by the Plaintiff.
The Plaintiff was therefore entitled
to 35% of the benefit received by the Respondent with its assistance.
[30]
The Plaintiff referred to the following cases with which I am in
agreement. In
Oudekraal
Estates v City of Cape Town
[5]
(
Oudekraal
),
the Court discussed the so-called Oudekraal principle in which it was
stated that, the administrative decisions are binding unless
set
aside. The Court held:
‘
For
those reasons it was clear, in our view, that the Administrator’s
permission was unlawful and invalid at the outset. Whether
he
thereafter also exceeded his powers in granting extensions for the
lodgement of the general plan thus takes the matter no further.
But
the question that arises is what consequences follow the conclusion
that the Administrator acted unlawfully. Is the permission
that was
granted by the Administrator simply to be disregarded as if had never
existed? In other words, was the Cape Metropolitan
Council entitled
to disregard the Administrator’s approval and all its
consequences merely because it believed that they
were invalid
provided that its belief was correct? In my view, it was not. Until
the Administrator’s approval (and thus also
the consequences of
the approval) is set aside by a court in proceedings for judicial
review it exists in fact and it has legal
consequences that cannot
simply be overlooked. . .’
[6]
[22]
In
MEC
for Health, Eastern Cape and Another v Kirkland Investments
[7]
the
Court held:
‘
The
fundamental notion – that official conduct that is vulnerable
to challenge may have legal consequences and may not be
ignored until
properly set aside – springs deeply from the rule of law.
The courts alone, and not public officials,
are the arbiters of
legality. As Khampepe J stated in Welkom, “[t]he
rule of law does not permit an organ of
state to reach what may turn
out to be a correct outcome by any means. On the contrary, the
rule of law obliges an organ
of state to use the correct legal
process.” For a public official to ignore irregular
administrative action on
the basis that it is a nullity amounts to
self-help. And it invites a vortex of uncertainty,
unpredictability and irrationality.
The clarity and certainty
of governmental conduct, on which we all rely in organizing our
lives, would be imperiled if irregular
or invalid administrative acts
could be ignored because officials consider them invalid.’
[23]
It is my view that the evidence of Mr Olivier and Mr Struwig that the
Plaintiff assisted the Respondent with the VAT returns,
queried SARS
in respect of the submitted returns and pursued VAT audits following
the submitted returns and debt equalization,
was truthful. They did
all the work to make sure that the Respondent becomes VAT complaint.
Both Mr Olivier and Mr Struwig testified
that the Respondent was not
going to receive any VAT refunds from SARS unless it was fully
compliant with VAT requirements and
that its PAYE account was up to
date. It is therefore my view that the work performed by the
Plaintiff in assisting the Respondent
with the VAT recovery services
falls under paras 3 and 5 of the proposal. The Plaintiff also
performed the work on behalf of the
Respondent based on the emails
emanating from the Respondent’s senior finance manager where
the Plaintiff was asked to assist
the Respondent with the VAT
returns, queries in respect of the returns and VAT audits following
the returns and the debt equalization.
[24]
It is therefore my view that the work done by the Plaintiff on behalf
of the Respondent cannot ‘simply [be] disregarded
as if it
never existed’ and its ‘legal consequences cannot simply
be overlooked.’ In this matter, the legal consequence
achieved
by the Respondent due to the assistance of the Plaintiff was that the
Respondent became SARS compliant and its PAYE account
became up to
date.
CONCLUSION
[25]
In the circumstances the Plaintiff successfully proved its claim in
respect of the VAT recovery
services and in respect of the Fixed
Asset Register which was conceded by the Respondent.
COSTS
[26]
The costs of both the application and the counter application stood
over for the determination at hearing
of the trial. It is trite that
costs follow the result and it is therefore my view that the costs of
the application should follow
the results of the trial and are
therefore awarded in favour of the Plaintiff.
ORDER
[27]
Order is made in terms of the draft order marked “X”
MAHLANGU
AJ
Plaintiff’s
representative:
PJJ
Zietsman SC
Attorneys
for the Plaintiff
Green
Attorneys
President
Avenue
Westdene
Bloemfontein
Respondent’s
representative:
Adv
MC Louw
Respondent’s
attorneys:
Pyper
Attorneys
101
Olympus Drive
Helicon
Heights
Bloemfontein
[1]
Regulations (published in GN 868; G 27636) as determined in the
Local Governance: Municipal Finance Management Act 56 of 2003.
[2]
Jockey
Club of South Africa v Forbes
1993 (1) SA 649 (A).
[3]
Ibid at 660F-G.
[4]
Democratic
Alliance and others v Acting National Director of Public
Prosecutions
and
Others [2012] ZASCA 15; 2012 (3) SA 486 (SCA).
[5]
Oudekraal Estates (Pty) Ltd v City of Cape Town and Others [2004]
ZASCA 48; [2004] 3 All SA 1 (SCA).
[6]
Ibid para 26
[7]
MEC for
Health, Eastern Cape and Another v Kirkland Investments (Pty) Ltd
[2014] ZACC 6
;
2014 (3) SA 481
(CC).