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[2020] ZASCA 180
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Gobela Consulting CC v Makhado Municipality (910/19) [2020] ZASCA 180 (22 December 2020)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case
no: 910/19
In
the matter between:
GOBELA
CONSULTING
CC
APPELLANT
and
MAKHADO
MUNICIPALITY
RESPONDENT
Neutral
citation:
Gobela Consulting v
Makhado Municipality
(Case no 910/19)
[2020] ZASCA 180
( 22 December 2020)
Coram:
WALLIS, MBHA, MOLEMELA and DLODLO JJA and
POYO-DLWATI AJA
Heard
:
No oral hearing in terms of
s 19
(a)
of the
Superior Courts Act 10 of 2013
.
Delivered
:
This judgment was handed down electronically by circulation to the
parties' representatives via email, publication on the Supreme
Court
of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be 10h00 on 22 December 2020.
Summary
:
Contract awarded for the provision of services to organ of state –
no open tender followed – action brought to enforce
impugned
contract – collateral challenge – whether court entitled
to declare contract invalid and unlawful despite
organ of state not
having launched counter application to review and set aside that
contract.
ORDER
On appeal from: Limpopo Division of
the High Court, Polokwane (Mokgohloa, DJP, sitting as court of first
instance):
The appeal is dismissed with costs.
JUDGMENT
Molemela JA (Wallis, Mbha and
Dlodlo JJA and Poyo-Dlwati AJA concurring)
[1]
This appeal concerns a dispute arising from a contract concluded by
the municipal manager of Makhado municipality with a private
company
without the necessary authorisation.
[2]
The facts that gave rise to the litigation are largely common
cause.
[1]
On or about 22 February 2011, the appellant, Gobela Consulting CC
(Gobela) submitted an unsolicited proposal to the respondent,
the
Makhado Municipality (the municipality). The proposal had the title,
‘Proposal to review and Develop the Anti-Corruption
Strategy
and Capacity Building for Makhado Municipality.’
[3] By letter dated 5 May 2011, signed
by the Municipal Manager, the municipality accepted Gobela’s
offer in the following
terms:
‘
Makhado
Municipality hereby appoint[s] your company to conduct training on
anti-corruption and fraud for all officials and councillors.
The
programme will run from May to November 2011.
As
the Municipality we will be conducting assessment after every
training session and orders will be issued every week after
assessment
has been done at an amount of R7 500 per person. The
Municipality is expected to have at least trained a total of 745
incumbents
by the end of November 2011 (Both Councillors and
Officials). You are therefore requested to make contact with our
Municipality
to start with training arrangements immediately.’
[4]
On 6 May 2011, Gobela’s director, Mr Mavhandu, sent a letter of
acceptance to the municipality. According to Mr Mavhandu,
he
subsequently had a meeting with a certain official of the
municipality, Ms Ndou, who explained to him that the program was to
be rolled out in stages and that the trainees would be divided into
four groups. The respondent would provide the venue for the
training.
[5]
Mr Mavhandu testified that in preparation for Gobela’s
performance in terms of the agreement, Gobela drafted and printed
manuals for training; drafted, printed and prepared flyers in
relation to the proposal; entered into service level agreements with
independent contractors to assist with training; and employed
professionals and support staff who would execute the project in
accordance with the proposal. On the date on which the training was
scheduled to commence, Mr Mavhandu and facilitator’s
employed
by Gobela to conduct the training arrived at the agreed venue, only
to be informed by an official of the municipality
that the training
could not proceed as there were unresolved issues between the mayor
and the African National Congress Youth League
(ANCYL). They were
requested to wait until the problem was resolved. They left the
venue. When Gobela had, after some days, still
not been invited to
commence the training, Mr Mavhandu released the facilitators.
[6]
Gobela subsequently issued the municipality with an invoice dated 27
January 2012, for payment of an amount of R6 369 750,
ostensibly being in respect of ‘training on anti-corruption and
fraud for all staff members and councillors.’ The invoice
was
soon followed by the issuance of a letter of demand.
[7]
The letter of demand evidently elicited an exchange of correspondence
in terms of which the municipality enquired about the
basis for its
alleged indebtedness to Gobela. It appears from that correspondence
that the municipality had, during August 2011,
invited tenders for
‘Training on Anti-Corruption and Fraud.’ However, that
tender was subsequently withdrawn by the
municipality, ostensibly on
account of the fact that there was no available budget for it, among
other reasons. Of significance
is that on Gobela’s own version,
the contract concluded between Gobela and the municipality emanated
from an unsolicited
proposal made to the municipality outside its
normal bidding process and accepted by the erstwhile municipal
manager without authorisation.
[8]
As the correspondence between the parties did not yield any payment,
Gobela subsequently issued a summons against the municipality,
in
terms of which an amount of R5 131 470 was claimed from the
municipality as damages for alleged breach of contract.
The
particulars of claim included an assertion that ‘in breach of
its obligations in terms of the agreement embodied in the
proposal
and/or letter of appointment, [the municipality] ha[d] . . . refused
and/or neglected to allow [Gobela] to perform its
obligations in
terms of the proposal.’
[9]
The municipality filed a special plea disputing the municipal
manager’s authority to enter into the contract in question.
In
its plea, it denied liability on the basis that the impugned
agreement was in contravention of the Local Government Municipal
Finance Management Act 56 of 2003 (Municipal Finance Management Act)
and the municipality’s Supply Chain Management Policy,
and
therefore invalid and unlawful. Although the municipality had pleaded
that the Municipal Manager had no authority to conclude
the impugned
contract with Gobela, it did not counter-apply for relief setting
aside Gobela’s appointment.
[10]
The matter came before Mokgohloa DJP (the court a quo), who dismissed
Gobela’s claim with costs. The court a quo found
that the
appointment of Gobela to review and develop the anti-corruption
strategy for the municipality, albeit a good initiative,
was in
breach of the applicable procurement prescripts which are designed to
ensure a transparent, cost effective and competitive
tendering
process as stipulated in s 217 of the Constitution and the provisions
of the Municipal Finance Management Act. It accordingly
dismissed
Gobela’s claim on the basis that the contract that had been
concluded by the parties was invalid and unlawful.
Aggrieved by that
decision, Gobela sought leave to appeal against the court a quo’s
decision. This appeal is with leave of
the court a quo.
[11]
There were no oral arguments presented before this Court, as both
parties agreed that the appeal could be dealt with on the
basis of
oral submissions as contemplated in s 19
(a)
of the
Superior Courts Act.
[2
]
The essence of Gobela’s heads of argument was that even though
it was conceded that the contract was invalid, the appeal
had to be
allowed on the basis that the court a quo had erred by using its
finding that the municipality had not complied with
procurement
prescripts as a basis to declare the contract invalid and unlawful
and to dismiss Gobela’s claim, despite there
being no
counter-application to review and set aside the impugned contract.
Relying on the majority judgment in
MEC
for Health, Eastern Cape and Another v Kirland Investments (Pty)
Ltd
[3]
(
Kirland
),
it was submitted that since the municipality had not specifically
applied for the impugned contract to be set aside, it was not
open to
the court a quo to sanction the municipality’s collateral
challenge to the validity of the contract by declaring
the parties’
contract invalid and unlawful. Thus, so the argument went, the court
a quo ought to have found in favour of
Gobela.
[12]
The crisp issue which this court has to decide is whether the court a
quo was, in the absence of a counter-application seeking
the review
and setting aside of the contract concluded between Gobela and the
municipality, entitled to find that the contract
in question was
invalid and unlawful.
[13] Section 217 of the Constitution
provides as follows:
‘
When
an organ of 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 system which is fair, equitable, transparent,
competitive and cost-effective.
(2)
Subsection (1) does not prevent the organs of state or institutions
referred to in that subsection from implementing a procurement
policy
providing for –
(a)
categories of
preference in allocation of contracts; and
(b)
the
protection and 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 section (2) must be implemented.’
[14]
There are various statutes, such as the Municipal Finance Management
Act, subordinate legislation made under that Act, such
as the
Treasury Regulations, as well as supply chain management policies
[4]
that have to be applied by organs of state in order to give effect to
the constitutional injunction enunciated in s 217. All those
procurement prescripts serve a dual purpose: to prevent patronage and
corruption, on the one hand, and to promote fairness and
impartiality, on the other.
[5]
[15]
Section 113 of the Municipal Finance Management Act provides that a
municipal entity is not obliged to consider an unsolicited
bid
received outside its normal bidding process; it may do so only in
accordance with a prescribed framework. Regulation 2(3) of
Municipal
Supply Chain Management Policy Regulations
[6]
provides that no municipality or municipal entity may act otherwise
than in accordance with its supply chain management policy
when
procuring goods or services. Regulation 12 of the same Regulations
stipulates that subject to Regulation 11 (2), a competitive
bidding
process must be followed for procurements above the transaction value
of R 200 000 and in respect of long-term contracts
(ie contracts
with a duration period exceeding one year). The municipality, as an
organ of state, was duty-bound to discharge all
its duties and
functions in accordance with those procurement prescripts.
[16]
The transaction value in this matter was far above the R200 000
threshold. Gobela’s own admission that its proposal
was
unsolicited loudly attested to the fact that no public tendering
process preceded Gobela’s appointment. The fact that
the
municipality invited public tenders for the same service a mere three
months after precluding Gobela from commencing with the
training
suggests that the municipality had no justification for deviating
from the competitive bidding process contemplated in
Regulation 12 of
the applicable Supply Management Policy when it accepted Gobela’s
proposal. No evidence was adduced to show
otherwise. It therefore
cannot be gainsaid that the municipality’s acceptance of
Gobela’s proposal flouted procurement
prescripts and was
plainly at variance with the principle of legality. Manifestly, the
Municipal Manager had no authority to do
this.
[17]
In
Municipal
Manager: Qaukeni Local Municipality and Another v FV General Trading
CC
,
[7]
this Court held that a public procurement contract concluded in
breach of the legal provisions designed to ensure a transparent,
cost
effective and competitive tendering process is invalid. The contract
concluded between the municipality and Gobela was thus
invalid from
inception. The question is whether the court a quo was entitled to
find that that contract was unlawful and invalid
notwithstanding that
the municipality had not, at any stage, challenged the validity
thereof in court proceedings and asked for
it to be set aside.
Expressed differently, the question is whether the municipality could
bring a collateral challenge
[8]
,
relying on the invalidity of the impugned contract, in proceedings
brought to coerce its compliance with that contract.
[18]
The law relating to collateral challenges was settled by the
Constitutional Court in
Merafong City
Local Municipality v AngloGold Ashanti Limited (Merafong)
.
Having surveyed the pre-constitutional
case-law, the majority judgment found that South African law has
always allowed a degree
of flexibility in reactive challenges to
administrative action. Having considered the impact of the
Constitution on that body of
law, it re-asserted that the import of
Oudekraal
was
that the government institution cannot simply ignore an apparently
binding ruling or decision on the basis that it was patently
unlawful, as that would undermine the rule of law; rather, it has to
test the validity of that decision in appropriate proceedings.
The
decision remains binding until set aside. That court expressed some
guidelines for assessing the competence of a collateral
challenge.
With specific reference to
Kirland
,
it stated as follows:
‘
But
it is important to note what
Kirland
did
not do. It did not fossilise possibly unlawful – and
constitutionally invalid – administrative action
as
indefinitely effective. It expressly recognised that
the
Oudekraal
principle
puts a provisional brake on determining invalidity. The brake is
imposed for rule of law reasons and for good administration.
It does
not bring the process to an irreversible halt. What it requires is
that the allegedly unlawful action be challenged by
the right actor
in the right proceedings. Until that happens, for rule of law
reasons, the decision stands.
Oudekraal
and
Kirland
did not impose an absolute obligation on private citizens to take the
initiative to strike down invalid administrative decisions
affecting
them. Both decisions recognised that there may be occasions where an
administrative decision or ruling should be treated
as invalid even
though no action has been taken to strike it down. Neither decision
expressly circumscribed the circumstances in
which an administrative
decision could be attacked reactively as invalid. As important, they
did not imply or entail that, unless
they bring court proceedings to
challenge an administrative decision, public authorities are obliged
to accept it as valid. And
neither imposed an absolute duty of
proactivity on public authorities
.
It all depends on the circumstances
.
.
. . .
Against
this background, the question is whether, when AngloGold sought an
order enforcing the Minister’s decision, Merafong
was entitled
to react by raising the invalidity of her ruling as a defence.
.
. . .
A
reactive challenge should be available where justice requires it to
be. That will depend, in each case, on the facts.’
[9]
(Emphasis
added.)
[19]
Furthermore, in
Department
of Transport and Others v Tasima (Pty) Limited
,
[10]
the majority judgment observed that allowing state organs to
challenge the lawfulness of the exercise of public power by way of
a
reactive challenge, in appropriate circumstances, was a
logical
and pragmatic consequence of the development of the jurisprudence
flowing from the
Merafong
judgment.
The
permissibility of a reactive challenge to the lawfulness of the
exercise of public power depends on a variety of factors and
it was
logical and pragmatic to allow it in appropriate circumstances. The
question is whether allowing the municipality to raise
a collateral
challenge in the circumstances of this case served justice.
[20] The invalidity of Gobela’s
proposal and subsequent appointment was canvassed as follows in the
municipality’s plea:
‘
The
defendant pleads that the request did not abide by the Municipal
Finance Management Act 2003 and the defendant’s Supply
Chain
Management Policy and such request is invalid and unlawful.
…
‘
The
defendant pleads that the letter of appointment dated 5 May 2011 is
invalid and unlawful. In amplification of its plea the defendant
pleads that its ex-employee acted outside his delegated powers and
authority in terms of the National Treasury’s regulations,
Municipal Finance Management Act and the supply chain management
policy. The defendant denies liability.’
[21]
It is clear from the court a quo’s judgment that it took into
account that despite the absence of a frontal challenge
in the form
of a counter-application, the validity and lawfulness of Gobela’s
appointment were squarely raised in the pleadings.
Another important
consideration in considering whether the court a quo was justified in
entertaining the municipality’s collateral
challenge is that by
not declaring the contract invalid and unlawful, the untenable result
would be that the court would be giving
legal sanction to the very
result which s 217 of the Constitution and other all
procurement-related prescripts sought to prevent.
[11]
Moreover, a finding in favour of Gobela would have the equally
untenable result that the municipality would essentially be paying
for a benefit it did not receive, notwithstanding the undisputed
assertion that it had budgetary constraints.
[22]
Notably, despite the fact that the appointment letter pertinently
stated that there would be an assessment after finalisation
of every
phase and that Gobela had not gone beyond the preparatory steps for
its performance of its obligations in terms of the
contract, it
impermissibly claimed the full contract fee. Allowing the claim would
thus be tantamount to enforcing an unperformed
obligation. For all
these reasons, I conclude that justice required that the court a quo
declare the impugned contract invalid
and unlawful despite the
municipality not having counter-applied for it to be reviewed and set
aside. There is no question here
of impermissible self-help. The
decision that the contract was unlawful and invalid was a decision by
a court. It follows that
the appeal has to fail. As regards costs,
there is no reason to depart from the general rule that the costs
must follow the result.
The case was not of such complexity as to
warrant the employment of two counsel.
[23] In the result, the following
order is made:
The appeal is dismissed with costs.
_____________________
M B MOLEMELA
JUDGE
OF APPEAL
Appearances
For
appellants:
N Ralikhuvhana
Instructed
by:
Katlego Ralikhuvhana Attorneys, Johannesburg
Matsepes
Attorneys, Bloemfontein
For
respondent:
M S Mphahlele SC (with him T G Ramatsekisa)
Instructed
by:
Wisani Baloyi Inc, Thohoyandou
Maduba
Attorneys, Bloemfontein.
[1]
Although
the transcript of the record of the proceedings at the court a quo
does not incorporate the oral evidence adduced on
behalf of the
appellant and is thus incomplete, the appellant’s version can
be gleaned from the pleadings, documentary
evidence and the
submissions of the parties in their heads of argument. Neither party
suggested that the absence of the evidence
affected this Court's
ability to resolve the issues between them.
[2]
The
respondent’s application for its late submission of the heads
of argument to be condoned was not opposed. Condonation
was duly
granted, as the requirements for the granting thereof had been met.
[3]
MEC for
Health, Eastern Cape and Another v Kirland Investments (PTY) Ltd
[2014] ZACC 6; 2014 (5) BCLR 547 (CC); 2014 (3) SA 481 (CC).
[4]
Section
112 of the Municipal Finance Management Act provides that each
municipal entity must have and implement a Supply Chain
Management
Policy that complies with the provisions of s 217 of the
Constitution.
[5]
Valor
IT v Premier, North West Province and Others
[2020] ZASCA 62
;
2020
All SA 397
(SCA)
para 40.
[6]
Municipal
Supply Chain Management
Regulations, GN
868 GG 40553,
30 May 2005.
[7]
Qaukeni
Local Municipality and Another v FV General Trading CC
,
[2009] ZASCA 66
; 2010(1) SA 356 (SCA) para 16.
[8]
In
Merafong
City Local Municipality v AngloGold Ashanti Limited
(
Merafong
)
[2016] ZACC 35
;
2017 (2) BCLR 182
(CC);
2017 (2) SA 211
(CC) para
23, the Court described a collateral challenge as follows:
‘
Relying on the
invalidity of an administrative act as a defence against its
enforcement, while it has not been set aside, has
been dubbed a
collateral challenge – “collateral” because it is
raised in proceedings that are not in themselves
designed to impeach
the validity of the act in question. While the object of the
proceedings is directed elsewhere, invalidity
is raised as a defence
to them.’
[9]
Merafong
fn
4 above para 43-45.
[10]
Department
of Transport and Others v Tasima (PTY) Limited
[2016] ZACC 39
;
2017 (1) BCLR 1
(CC);
2017 (2) SA 622
(CC) para 140.
[11]
Pottie
v Kotze
[1954] (3) SA 719
(A) at 726H-727A;
ABSA
Insurance Brokers (Pty) Ltd v Luttig and Another NNO
[1997] ZASCA 61
;
[1997] (4) SA 229
(SCA) at 239H-I.