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[2018] ZASCA 11
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Waymark Infotech (Pty) Limited v Road Traffic Management Corporation (440/2017) [2018] ZASCA 11 (6 March 2018)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 440/2017
In
the matter between:
WAYMARK
INFOTECH (PTY) LIMITED
APPELLANT
and
ROAD
TRAFFIC MANAGEMENT CORPORATION
RESPONDENT
Neutral
citation:
Waymark
Infotech v Road Traffic Management Corporation
(440/2017)
[2018] ZASCA 11(6 March 2018)
Coram:
Lewis,
Seriti and Mathopo JJA and Davis and Plasket AJJA
Heard:
19
February 2018
Delivered:
6
March 2018
Summary:
Interpretation
of
ss 66
and
68
of the
Public Finance Management Act 1 of 1999
:
contract for the procurement of professional services did not
constitute a future financial commitment.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Ranchod J sitting as court of
first instance):
1
The appeal is upheld with costs.
2
The order of the court a quo is set aside and in its place is
substituted:
‘
The
counterclaim is dismissed with costs.’
JUDGMENT
Lewis
JA (
Seriti
and Mathopo JJA and Davis and Plasket AJJA
concurring)
[1]
The interpretation of two provisions of the
Public Finance Management
Act 1 of 1999
is at the centre of this appeal. These are
s 66
, which
deals with the restrictions on borrowing, guarantees and other
financial commitments by government, an organ of state or
a public
entity listed in Schedule 3 to the Act; and
s 68
, which governs
the consequences of unauthorized transactions.
[2]
The appellant, Waymark Infotech (Pty) (Ltd) (Waymark), was the
successful bidder in a public tender process administered by
the
respondent, the Road Traffic Management Corporation (RTMC), for the
provision of professional services – to develop and
install an
‘Enterprise Resource Planning System’. The RTMC is an
entity listed in Schedule 3 of the Act and is thus
bound by the
provisions of the Act.
[3]
A contract between the parties was concluded on 31 March 2009. It
made provision for various services to be rendered over a
three-year
period, and included a schedule for the payment of remuneration, the
full contract sum being some R33.7
million.
[4]
Waymark commenced rendering the services in 2009, but in February
2010 the RTMC advised it that some of its services were suspended.
Litigation followed and a court found that the contract had not been
terminated. That finding does not concern us. Waymark tendered
its
services and when the RTMC failed to perform its obligations, despite
demand, Waymark considered that the contract had been
repudiated. It
instituted an action for damages (in the Gauteng Division of the High
Court, Pretoria) in an amount exceeding R6.7
million in May 2014.
[5]
The RTMC raised various defences, including that the claim had
prescribed. Waymark replicated to the plea of prescription. Some
two
years after action was instituted by Waymark, the RTMC delivered a
counterclaim for an order declaring that the contract was
not binding
on it, since it did not comply with the provisions of
s 66(3)
(c)
of the Act, in that it had not been authorized by the Minister of
Finance and was accordingly void in terms of s 68 of the
Act.
The question whether there had to be compliance with
s 66(3)
(c)
was dealt with separately by the trial court, Ranchod J ordering a
separation of issues in terms of rule 33(4) of the Uniform Rules
of
Court.
[6]
That court found that an ordinary contract for the procurement of
services by a public entity was valid only if the Minister
of Finance
had authorized it in terms of s 66(3). And since it was common
cause that the Minister’s authority had not
been sought, let
alone granted, the court concluded that the contract pursuant to the
tender process was invalid. The appeal before
us lies with the leave
of Ranchod J.
[7]
The only question that arises on appeal is whether the Minister’s
authority was needed in order for the contract to be
enforceable. The
answer depends on the interpretation of ss 66 and 68 in the context
of the Act and having regard to what the legislation
was designed to
achieve. And the Act must of course also be construed having regard
to ss 216 and 217 of the Constitution, to which
the Act gives effect.
[8]
Section 216 of the Constitution, headed ‘Treasury control’,
requires that national legislation must establish a
national treasury
and prescribe measures ‘to ensure both transparency and
expenditure control in each sphere of government
by introducing’
a variety of measures and practices, and enforcing compliance with
them. Section 217 deals with ‘Procurement’.
Section
217(1) provides that ‘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’.
[9]
Section 51(1)
(a)
(iii)
of the Act deals with the procurement of goods and services. The
section echoes s 217 of the Constitution in imposing liability
on an
accounting officer for a public entity to ensure that he or she has
and maintains ‘an appropriate procurement and provisioning
system which is fair, equitable, transparent, competitive and
cost-effective’. Tender processes must thus meet these
standards
and, since the promulgation of the Act, cases dealing with
procurement tenders and awards have been based four-square on the
section.
The provisions of the Promotion of Administrative Justice
Act 3 of 2000 (PAJA) give courts the power to review the award of
tenders
on a variety of grounds, and it is clear that it is the PAJA
that in general provides the review procedures and grounds for the
setting aside of a tender process and award if it does not meet the
criteria in s 51(1)
(a)
(iii)
or fails to meet the requirements of the PAJA and of the common law.
[10]
The RTMC has not, however, questioned the validity of the contract on
administrative law grounds. It contends that the contract
concluded
pursuant to the tender is in breach of s 66(3)
(c)
and thus invalid in terms of s 68, which provides that if a person
contravenes s 66 of the Act, the transaction that ensues is
not
binding. Ranchod J found that the contract concluded between the
parties was in contravention of s 66(3)
(c)
and was therefore unenforceable.
[11]
Waymark has raised numerous grounds of appeal, based essentially on
the premise that the conclusion of the contract amounted
to
administrative action, and was reviewable under the PAJA, the
requirements of which had not been met by the RTMC procedurally.
No
review proceedings had been launched, it argued, and it was too late
to do so at the stage when the counterclaim was issued.
I shall not
deal with these grounds since the challenge to the contract was not
that it amounted to administrative action (the
tender process and
award were not challenged by the RTMC), but that the contract had
been concluded in contravention of s 66(3)
of the Act. I shall
consider only the fourth ground of appeal – that the contract
did not fall within the purview of s 66
at all.
[12]
Section 66, in Chapter 8 of the Act (headed ‘Loans, Guarantees
and other Commitments’), governs restrictions on
borrowing,
guarantees and other commitments. It will be recalled that the
contract was for the provision of professional services
– a
standard procurement contract. The RTMC argues, however, and Ranchod
J found, that it amounted to a future financial
commitment and was
thus struck by the section. Section 66(1) provides that an
institution to which the Act applies ‘may not
borrow money or
issue a guarantee, indemnity or security, or enter into any other
transaction that binds or may bind that institution
or the Revenue
Fund to any future financial commitment, unless such borrowing,
guarantee, indemnity, security or other transaction’
is
authorized in terms of the Act. Section 66(3)
(c)
determines the authority required for the transactions entered into
by public entities. These transactions must be authorized by
the
Minister of Finance and, in the case of ‘the issue of a
guarantee, indemnity or security, the Cabinet member who is the
executive authority responsible for that public entity, acting with
the concurrence’ of the Minister of Finance.
[13]
The RTMC accepts that the contract did not amount to a guarantee,
indemnity or security, but contends that as it provided for
future
financial commitments, it required the authorization of the Minister
of Finance. It submits that a ‘future financial
commitment’ includes any transaction that extends beyond the
period for which the public entity has budgeted. Since only
the
financial year in which the contract was concluded (2008/2009) had a
specified budget allocation, any undertaking to pay for
services in a
later year amounted to a future financial commitment. The RTMC relies
in this regard on
Putco
Ltd v Gauteng MEC for Roads and Transport
2016 JDR 0756 (GP), in which the court endorsed the view of
arbitrators that if a transaction is concluded in one financial year,
but only comes into effect in a subsequent financial year, it is a
future financial commitment. The internal memorandum of RTMC
recommending that the award be made to Waymark anticipated that the
project would be implemented over the 2009/2010 and 2010/2011
financial years as well.
[14]
In my view, the reliance on
Putco
is misplaced. The court (para 51) approved the arbitrators’
opinion that it is only if the transaction is not currently in
force
that a future financial commitment requires ministerial consent: if a
contract is to run over more than one year and financial
commitments
are thus anticipated for further years, as long as the contract is in
force when the commitment is made, it is current.
In any event,
Putco
was not dealing with procurement. And in this matter the contract was
concluded in the financial year it came into operation, and
for which
there had been a budget allocated.
[15]
It would be very odd indeed if different sections of the Act, in
different chapters, were to deal with contracts of procurement.
As I
have indicated, s 217 of the Constitution is echoed in s
51(1)
(a)
(iii)
of the Act, and s 216 of the Constitution is echoed in s 66. Section
66 ensures that government does not commit itself to
expenditure that
is unplanned for. As Waymark argues, it would be absurd if s 66 were
to apply to every contract for the procurement
of goods or services
concluded by government or public entities. Government would grind to
a halt. The RTMC argues, on the other
hand that it does not assist to
look to absurd examples, such as the purchase of 1 000 pencils for a
government department that
would have to be authorized by the
Minister of Finance. But it does not suggest a clear way of
distinguishing between those contracts
of procurement that do require
ministerial authority and those that do not. It was faintly suggested
at the hearing that procurement
contracts that do not extend beyond
the financial year in which they are concluded might not require
ministerial authority. In
my view there is no legislative basis for
that.
[16]
In interpreting ss 66 and 68 of the Act this court should consider
what each section is designed to achieve – purposively,
having
regard to the scheme of the Act:
Cool
Ideas 1186 CC v Hubbard & another
[2014] ZACC 14
;
2014 (4) SA 474
(CC) para 28. Looked at together, and
with s 51, within the framework of the Act itself, each section
serves a different purpose.
Section 51 regulates procurement by
public entities. It states who bears responsibility for effective,
efficient and transparent
financial systems of financial and risk
management, and how this must be achieved. It does not deal with
loans, guarantees and
future financial commitments. Section 66 does
that and s 68 prescribes the consequences of failing to comply with s
66. It does
not deal with the consequences of procurement decisions
that are not made properly under the PAJA. This approach does
not
require the words of the sections to be stretched or words to be
read in.
[17]
As I see it, Ranchod J in the court a quo did not need to read s 66
to mean ‘an undertaking to commit expenditure in
the future for
which a budget has not yet been approved’. Nor is there any
need to read s 66 to exclude those transactions
that are not fiscally
exceptional, as Waymark has suggested. The sections require no
embroidery or unpicking. If one looks to their
design and purpose, as
we must, it is plain that s 66 does not apply to procurement
contracts that follow upon a proper process,
and that do not embody
loans, guarantees or the giving of security, even though they extend
beyond one fiscal year. The contract
in question did not amount to
‘any transaction that binds or may bind that institution . . .
to a future financial commitment’:
it was a present commitment
to pay for professional services as they were rendered, albeit over a
three-year period.
[18]
In the circumstances the appeal must be upheld, and the order of the
court a quo must be set aside. Accordingly:
1
The appeal is upheld with costs.
2
The order of the court a quo is set aside and in its place is
substituted:
‘
The
counterclaim is dismissed with costs.’
_________________________
C
H Lewis
Judge
of Appeal
APPEARANCES
For
Appellant:
K Tsatsawane
Instructed
by:
Gildenhuys Malatji Inc.,
Pretoria
Honey
Attorneys, Bloemfontein
For
Respondent:
N H Maenetje SC
(with him N Rajab-Budlender)
(Heads
of Argument also prepared by D A Preis SC)
Instructed by:
Adams & Adams,
Pretoria
Phatshoane Henney
Attorneys, Bloemfontein