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[2026] ZANCHC 80
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Maximum Profit Recovery (Pty) Ltd v Ga-Segonyana Local Municipality and Others (2551/2024) [2026] ZANCHC 80 (8 September 2026)
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THE HIGH COURT OF
SOUTH AFRICA
(NORTHERN CAPE
DIVISION, KIMBERLEY)
Reportable/
Not
Reportable
Case no: 2551/2024
In the matter between:
MAXIMUM
PROFIT RECOVERY (PTY)
LTD
Applicant
and
GA-SEGONYANA
LOCAL MUNICIPALITY
First Respondent
MARTIN
TSATSIMPE
Second Respondent
MNK
TAX ADVISORY SERVICES (PTY)
LTD
Third Respondent
Neutral
citation:
Maximum
Profit Recovery (Pty) Ltd v Ga-Segonyana Local Municipality & 2
Others
(2551/2024).
Coram:
Tlaletsi JP
et
Coetzee AJ.
Heard:
9 March 2026.
Delivered:
8 September 2026.
Summary:
Review –
Promotion of Administrative Justice Act 3
of 2000
–
Two separate administrative
decisions
–
Public procurement
–
Tender for
VAT recovery services
–
VAT recovery services on month-to-month basis
–
Local Government: Municipal Finance Management Act 56 of 2003
–
Regulation 36
–
Both decisions set
aside
– Just and equitable relief – Return of a
portion of the profit made.
ORDER
1.
The decision of the first respondent to award
Tender 06/2023-24 for VAT recovery services to the third respondent,
published on
the first respondent’s website on 11 September
2024, is declared constitutionally invalid, is reviewed and set
aside.
2.
The agreement concluded between the first
respondent and the third respondent pursuant to the tender award
in
Tender 06/2023-24
is set aside.
3.
The decision of the first respondent to
appoint the third respondent on a month-to-month basis
for VAT
recovery services
is declared constitutionally
invalid, is reviewed and set aside.
4.
The third respondent is ordered to repay to
the first respondent 6% (six per cent) of the amounts received by the
third respondent
for VAT recovery services performed for the first
respondent from 18 December 2023 to the date of this order.
5.
The respondents are jointly and severally
ordered to pay the applicant’s costs on scale C, the one paying
and the other to
be absolved, which costs include the costs of two
counsel.
JUDGMENT
The Court
[1]
In this judgment, references to the
applicant will be “Maximum Profit”, to the first
respondent “the Municipality”,
to the second respondent
“the Municipal Manager” and to the third respondent
“MNK”.
[2]
Maximum Profit seeks the following relief:
2.1
That the Municipality’s decision to award tender TE 06/2023-24
for VAT recovery services
to MNK
be declared invalid, be
reviewed and set aside
;
2.2
That the Municipality’s decision to appoint MNK in terms of a
so-called month-to-month
agreement from 18 December 2023
for
VAT recovery services be declared invalid, be reviewed and set aside
;
2.3
That MNK be ordered to repay to the Municipality all amounts received
by MNK for VAT recovery
services for work performed from 18 December
2023 to the date of this order;
2.4
That the tender
TE 06/2023-24 for VAT recovery services
be
awarded to
Maximum Profit
;
2.5
That the respondents, jointly and severally, be ordered to pay the
costs of this application
on an attorney and client scale.
[3]
Mr Motloung, on behalf of MNK, submits that
Maximum Profit lacks
locus standi
to review the month-to-month contract. In this regard, he contends
that Maximum Profit is pursuing its own commercial interests,
despite
also relying on section 38(d) of the Constitution. He further
contends that section 217(1) of the Constitution, which Maximum
Profit seeks to enforce, is in any event designed primarily to
advance the public interest rather than the interests of individual
tenderers. This submission is primarily based on the authority of
Esorfranki Pipelines (Pty) Ltd v Mopani District Municipality
and
Steenkamp NO v Provincial Tender Board, Eastern Cape. Neither of
these decisions supports this submission, as they deal with
delictual
claims rather than review procedures.
[4]
The following undisputed facts are
necessary to set out to adjudicate the administrative decisions set
out in paragraphs 2.1 and
2.2 above. It is also necessary to provide
some historical background to aid understanding of the dispute
between the parties.
We do so because Maximum Profit relies, inter
alia, on that background to contend that the Municipality acted mala
fide.
4.1 On
3 February 2023, MNK was awarded a tender (03/2022-23) to provide VAT
recovery services to the Municipality
at a fee of 10% of the amount
refunded by the South African Revenue Service (“SARS”).
MNK rendered services under the
tender from February 2023. Maximum
Profit was one of the parties that participated in the February 2023
tender.
4.2
Maximum Profit, who believed that MNK was not
supposed to be awarded the tender, launched review proceedings in
March 2023 in respect
of the February 2023 tender. Various alleged
irregularities were set out in both the founding and supplementary
affidavits.
4.3
The review application, launched in March 2023, was heard on 31 July
2023, with the judgment delivered on
18 August 2023.
The
Municipality ultimately conceded that the tender award had to be
reviewed and set aside, the parties were therefore
ad idem
on
this issue. Further, the parties agreed that “the rendering of
the VAT recovery services should continue, pending the
award of a new
tender” which meant that the order of invalidity ought to be
suspended. However, they differed on the suspension
period.
4.4 The
Court ultimately made the following order:
“
1.
The decision to award Tender 03/2022-23 Re: VAT Recovery Services to
the third respondent is declared
constitutionally invalid, reviewed
and set aside;
2.
The agreement concluded between the first respondent and the third
respondent pursuant to
the Tender 03/2022-23 Re: VAT Recovery
Services is set aside;
3.
The declaration of constitutional invalidity is suspended for a
period of four months from
the date of this order;
4.
The first respondent is ordered to pay the applicant’s costs on
a party and party scale;
5.
The counter application is dismissed; . . .
”
4.5 The
order of constitutional invalidity was suspended for four months,
thereby affording the Municipality sufficient
time to rerun the
tender. The four-month period was to lapse on 17 December 2023.
Therefore, the tender award and the contract
concluded in terms
thereof would be invalid as of 18 December 2023.
4.6
The Municipality published a tender in October 2023 (the November
2023 tender), with a closing date of 1 November
2023. The same tender
number as that of February 2023
(03/2022-23)
was
used for this tender. Maximum Profit participated in the
November 2023
tender and tendered for a fee of 4%
of the amount recovered from SARS. MNK also participated, tendering
at a fee rate of 10%.
4.7
After a 30-day extension of the tender period, the November
2023 tender ultimately lapsed on 1 March 2024.
Subsequently,
the Municipality published an invitation to tender (BID NO
06/2024-24) on or about 3 May 2024 (the June 2024 tender).
The
general terms expressly stated that the tender validity period was 90
days. The closing date and time for the June 2024 tender
were 12 June
2024 at 12:00. The material functionality criteria were set out as
follows in the June 2024 tender:
“
Experience
and track record
- Statement from SARS in
support of services rendered in recovering VAT.
- Recoveries to be
calculated for a single municipality based on monies received or due
to the municipality from SARS.
Ø
Above R90 million from a single client
(only collections of grade 4 municipalities will be considered).
- Select the biggest
recovery from a single client and only one submission will be
accepted.
- The calculation will
only be considered for recoveries from 2023 to date (no recoveries
before 1 January 2023 will be considered
for this calculation) - 50
points.
Ø Between
R70 million – R90 million from a single client (only
collections of grade 4 municipalities will be
considered).
- Select the biggest
recovery from a single client and only one submission will be
accepted.
- The calculation will
only be considered for recoveries from 2023 to date (no recoveries
before 1 January 2023 will be considered
for this calculation) - 20
points.
Ø Below R70
million from a single client (only collections of grade 4
municipalities will be considered).
- Select the biggest
recovery from a single client and only one submission will be
accepted.
- The calculation will
only be considered for recoveries from 2023 to date (no recoveries
before 1 January 2023 will be considered
for this calculation) - 10
points.”
It is significant that
the requirement limiting recoveries to the period from 1 January 2023
was not included in the November 2023
Tender, which had lapsed. As
will be shown later, this requirement is one of the factors that has
led to the dispute between the
parties.
4.8
Maximum Profit and MNK were among the bidders in the June 2024
tender. In its tender submission, MNK relied
on recoveries made on
behalf of the Municipality between 1 January 2023 and 11 June 2024,
totalling R104,208,526.00. MNK relied
on these recoveries because
they relate to a single, grade 4 municipality. Maximum Profit relied
on recoveries made on behalf of
Fetakgomo Tubatse Local Municipality,
also a grade 4 municipality. MNK’s tender submission includes a
letter from the municipal
manager (second respondent) confirming the
recoveries. It is common cause that Maximum Profit tendered at 4%,
whereas MNK tendered
at a 10% fee. These were the same rates tendered
by the parties in the previous tender, which was awarded to MNK and
became the
subject of the litigation referred to above. The June 2024
tender was also awarded to MNK in September 2024.
4.9
Intending to institute this review and threatening to urgently
interdict the implementation of the tender
award, Maximum Profit
successfully obtained the Municipality’s written undertaking
not to implement the June 2024 tender
award pending the outcome of
this review. From 18 December 2023 to date, MNK has continued to
render VAT recovery services to the
Municipality at a rate of 10%
under the purported month-to-month contract.
[5]
It
is trite that both the decision to award a tender and the decision to
conclude the month-to-month agreement for VAT recovery
services are
an exercise of public power by the Municipality.
Consequently,
the decisions constitute administrative action under the Promotion of
Administrative Justice Act 3 of 2000 (“PAJA”)
and must
therefore be lawful; reasonable; and procedurally fair.
Indeed,
the applicant brought the review application in terms of section 6(2)
of PAJA.
[1]
[6]
The
Constitutional Court in
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency, and
Others
[2]
set
the approach to PAJA reviews as follows:
“
.
. . The proper approach is to establish, factually, whether an
irregularity occurred. Then the irregularity must be legally
evaluated
to determine whether it amounts to a ground of review under
PAJA. This legal evaluation must, where appropriate, take into
account
the materiality of any deviance from legal requirements, by
linking the question of compliance to the purpose of the provision,
before concluding that a review ground and departure has been
established.”
THE DECISION TO AWARD
TENDER TE 06/2023-24, FOR VAT RECOVERY SERVICES TO MNK
Parties’
submissions
[7]
Maximum Profit submits that it was irregularly disqualified by the
Municipality
for considering irrelevant factors in relation to the
experience and track record criteria. In this regard, the
Municipality is
said to have considered the VAT return date (December
2022) for a single VAT recovery of R6,154,480.69, rather than the
date on
which the recovery was ultimately made (7 February 2023). By
deducting this amount from the total recoveries made by Maximum
Profit
for Fetakgomo Tubatse Local Municipality, as shown in the
table below, the Municipality allegedly scored Maximum Profit below
the
minimum threshold, resulting in Maximum Profit's
disqualification, according to Maximum Profit.
RECOVERY
AMOUNT
CLAIM SUBMISSION
DATE
RECOVERY DATE
R 6,154,480.69
24 January 2023
07 February 2023
R 4,584,727.42
23 February 2023
23 February 2023
R 4,554,585.84
24 March 2023
26 March 2023
R 2,219,631.63
24 April 2023
25 April 2023
R 1,898,396.61
24 May 2023
24 May 2023
R 5,040,390.01
22 June 2023
16 August 2023
R 4,804,987.24
25 July 2023
25 July 2023
R 4,663,086.16
23 August 2023
23 August 2023
R 4,090,602.13
22 September 2023
26 September 2023
R 5,504,092.44
25 October 2023
25 October 2023
R 3,210,275.38
24 November 2023
18 December 2023
R 7,786,312.37
21 December 2023
09 January 2024
R 6,046,653.83
24 January 2024
24 January 2024
R 9,676,227.49
23 February 2024
25 February 2024
R 8,355,980.46
25 March 2024
25 March 2024
R 6,408,230.59
25 April 2024
25 April 2024
R 6,353,443.14
24 May 2024
26 May 2024
R
91,352,103.43
[8]
According to Maximum Profit, the municipal manager insisted that
Maximum
Profit had failed to attach a letter of appointment for VAT
recoveries for Fetakgomo Tubatse Local Municipality and relied on
that
absence to further ground the disqualification. The argument is
that such a letter was not part of the experience and track record
criteria, and that the Municipality either improperly considered an
irrelevant factor or irregularly amended the criteria.
[9]
In light of the alleged consideration of irrelevant factors, Maximum
Profit
invokes section 6(2)(e)(iii) of PAJA to review the
Municipality’s decision. It concludes that the consideration of
the above-mentioned
irrelevant factors subjected it to an unfair
tender process and therefore invokes section 6(2)(c) of PAJA in this
regard. Further,
Maximum Profit contends that the incorrect scoring
which led to its disqualification meant that the Municipality’s
decision
was not rationally connected to the information before it.
Reliance is placed on section 6(2)(f)(ii)(cc) of PAJA in this regard.
[10]
Maximum Profit also relied on section 6(2)(e)(ii) of PAJA, alleging
that the Municipality’s
decision not to award it the June 2024
tender was made for an ulterior purpose or motive, namely, to ensure
that MNK was awarded
the tender. To ground this argument and
demonstrate mala fides on the Municipality’s part, Maximum
Profit avers that the
Municipality deliberately allowed the November
2023 tender to lapse; thereafter created new criteria for the June
2024 tender intended
to favour MNK; and even provided MNK with a
letter confirming recoveries.
[11]
On the other hand, the Municipality and the
Municipal Manager’s case is that Maximum Profit was correctly
scored and disqualified.
The Municipal Manager maintains that the
deducted recovery falls outside the relevant period set out in the
experience and track
record criteria. Mr Manala, on behalf of the
Municipality and the Municipal Manager, submits that merely
considering the amount
recovered by Maximum Profit would determine
whether the Municipal Manager’s assessment was factually
correct.
[12]
Regarding Maximum Profit’s letter of
appointment for VAT recoveries for Fetakgomo Tubatse Local
Municipality, the Municipality
is adamant that the letter played no
role in Maximum Profit’s disqualification. It avers that the
letter was used only to
link Maximum Profit’s recoveries to
Fetakgomo Tubatse Local Municipality, since the Bid Adjudication
Committee (“BAC”)
could not otherwise establish the link.
[13]
MNK
submits that the interpretation of tender conditions is best left to
the Municipality as the functionary that established them
in light of
its needs, as long as the interpretation is not unreasonable or
arbitrary. The Court is urged to invoke the principles
in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[3]
in
dealing with the disputes on the interpretation of the criteria in so
far as the stipulated time period for the VAT recoveries
is
concerned.
Analysis
[14]
It is necessary to trace the reasoning of
the Bid Evaluation Committee (“BEC”), the BAC and the
Municipal Manager to
determine
whether Maximum Profit was
irregularly disqualified. I
n a BEC Report dated 15
July 2024, it was stated that, regarding the recoveries made by
Maximum Profit in respect of the Fetakgomo
Tubatse Local
Municipality:
“
Fetakgomo
Tubatse Local Municipality R76,058,309.38
No appointment letter was
attached from the above-mentioned municipality”.
It is common cause that,
under the functionality criterion referred to above, it was not a
requirement of the June 2024 tender that
a tenderer include an
appointment letter in its submission. In addition, there is no
information regarding the origin of the figure
R76,058,309.38 or its
calculation.
[15]
On 25 July 2024, the BAC (the document
incorrectly describes the committee as the BEC) produced a report in
which, inter alia, it
recommended awarding the bid to Maximum Profit
at an inclusive rate of 4% for 36 months. It further recommended that
an offer be
sent to Maximum Profit for acceptance or rejection, and
that a Service Level Agreement (“SLA”) be entered into
thereafter.
[16]
The Municipal Manager did not approve the
BAC’s recommendation. He remarked, inter alia, that “Maximum
Profit did not
meet the threshold; there is no reference letter for
the VAT recovery of R91.3m (refunded) (Fetakgomo Tubatse
Municipality)”.
The Municipal Manager referred the matter back
to the BAC.
[17]
The BAC reconvened on 31 July 2024. Its
report contains the following response to the remarks made by the
Municipal Manager regarding
Maximum Profit:
17.1
The BAC noted the Municipal Manager’s comments that the
reference letter from the Fetakgomo Tubatse
Local Municipality was
not attached.
17.2
The BAC reaffirmed its position that the reference letter from the
Fetakgomo Tubatse Local Municipality was
not required for experience
and track record and therefore cannot be considered for adjudication
purposes.
17.3
The BAC noted that it was unable to link the SARS statement issued by
the Fetakgomo Tubatse Local Municipality
to Maximum Profit.
17.4
The committee also noted that during the meeting, a telephone call
was made to Maximum Profit to request
the reference letter of the
Fetakgomo Tubatse Local Municipality for a purpose other than
adjudication.
[18]
On 7 August 2024, the BAC held yet another
meeting. In the minutes of that meeting, the BAC, without providing
any explanation for
its sudden change, recommended to the Municipal
Manager that the June 2024 tender be awarded to MNK at a 10% rate.
The Municipal
Manager did not approve this recommendation but added
the following:
“
Referred
to BAC considerations of Maximum Profit for functionality scoring for
additional information received.”
[19]
A further meeting of the BAC was held on 4
September 2024, and the following was noted:
·
“
The Bid Adjudication Committee
considered the Accounting Officer’s comments is and agreed that
the comments be considered
for scoring the Maximum Profit (Pty) Ltd.
·
The Committee reaffirmed its position that
the reference letter was not part of the criteria to adjudicate Bid
No. 06/2023-24.
·
The Committee agreed that the letter served
to confirm that Maximum Profit (Pty) Ltd was awarded the VAT recovery
bid by the Fetakgomo
Tubatse Local Municipality.
·
It also served to determine the period of
appointment.
·
The letter further served to confirm that
the SARS refund presented in the bidding document by the Maximum
Profit (Pty) Ltd matches
the period of appointment of Maximum Profit
(Pty) Ltd by Fetakgomo Tubatse Local Municipality.
·
The Committee noted part of the submitted
SARS refund document is outside the period of the scope of the bid.
·
The Committee scoring Maximum Profit (Pty)
Ltd considered only the relevant criteria set in the Bid document.
The aforesaid period
being the 01
st
January 2023 to June 2024.
·
The Committee noted that reference letter
from Fetakgomo Tubatse Local Municipality, dated 14
th
March 2024, refers to period from January 2023 to January 2024 in
which Maximum Profit (Pty) Ltd helped with the VAT Recovery.
·
After viewing the Fetakgomo Tubatse Local
Municipality website on the contract period of Maximum Profit (Pty)
Ltd, the Committee
took a view that the contract period ended in
August 2024.
·
The Committee used SARS refund statement in
the Bid Document to score Maximum Profit (Pty) Ltd.” (
Sic
.)
The BAC awarded only 20
points to Maximum Profit in respect of the relevant functionality
criterion because, based on the BAC’s
findings, Maximum Profit
recovered less than the required R90 million for the Fetakgomo
Tubatse Local Municipality. It was noted
that the correct amount
recovered was R85,197,622.80. The difference between this amount and
R91,352,103.43 is exactly R6,154,480.63.
This is the amount reflected
as the first recovery made by Maximum Profit on behalf of the
Fetakgomo Tubatse Local Municipality.
No explanation was given in the
minutes or in the record as to why this amount had to be excluded.
[20]
It was only in the Municipality’s
answering affidavit that the following allegation was made by the
Municipal Manager:
“
140.
The applicant was disqualified because when assessing its bid, the
amounts for VAT recovered for the period 1 January 2023
to June 2024
amounted to R85 197 622.80 and was well below the required
R90 000 000.00. It was discovered that
the amount of
R6 154 460.69 claimed as part of the amounts collected
within the period scope fell outside of the period
scope. The
applicant was resultantly disqualified on that basis.”
[21]
The real dispute between Maximum Profit on the one
hand and the Municipality and the Municipal Manager on the other
concerns
the interpretation of the criteria, especially the
meaning of: “
Recoveries to be calculated for a single
municipality based on monies received or due to the municipality from
SARS. . .
The calculation will only be considered for
recoveries from 2023 to date (no recoveries before 1 January 2023
will be considered
for this calculation).
” The question is
whether the limit in the period concerns the VAT recovery date or the
VAT period to which the recoveries
made/expected relate. (Own
emphasis.)
[22]
The legal
principles surrounding acceptability and non-responsiveness of bids
are well established. It is for the
tender
issuer, the Municipality in the present matter, to define the
prerequisites and conditions for a valid tender
.
[4]
A
failure to comply with prescribed conditions would result in a tender
being disqualified unless those conditions were immaterial,
unreasonable or unconstitutional.
[5]
A
tender should not easily be invalidated on the basis that it contains
minor deviations that do not materially alter or depart
from the
characteristics, terms, conditions and other requirements set out in
the tender.
[6]
[23]
The
Municipal Manager’s stance is rather difficult to fathom,
merely at a logical level, even if this Court exercises deference.
There is nothing complex with the criteria. Indeed, as Maximum Profit
submits, VAT recoveries are by nature in respect of VAT returns
which
are for a past VAT period. The Municipal Manager simply failed to
properly consider the contents of the tender documents
and merely
concluded that Maximum Profit’s SARS statement accounts for a
longer period than prescribed in the criteria. This
is different from
an instance where a bidder has not met a bidding condition, say,
tendering to build a four-storey building when
the conditions are for
a three-storey building, as in
Raubex
Building (Pty) Ltd v Bitou Municipality and another
[7]
,
for example. In that case, the deviation was material as it offended
the very purpose of the tender.
[8]
In the present matter, the Municipality simply failed to properly and
purposively consider Maximum Profit’s documents.
[24]
The BAC’s initial recommendation to
award the tender to Maximum Profit was correct. The Municipal Manager
refused to accept
the recommendation and insisted on irrelevant
factors that were not part of the tender under consideration. Only
after the Municipal
Manager’s repeated stance was the
recommendation changed by the BAC in favour of MNK. The June 2024
tender award to MNK falls
to be set aside on this basis alone.
[25]
It
is trite that “[o]nce a ground of review under PAJA has been
established there is no room for shying away from it. Section
172(1)(
a
)
of the Constitution requires the decision to be declared unlawful.
The consequences of the declaration of unlawfulness must then
be
dealt with in a just and equitable order under section 172(1)(
b
).
Section 8 of PAJA gives detailed legislative content to the
Constitution’s ‘just and equitable’ remedy.”
[9]
The
decision to award the tender to MNK falls to be set aside, and it is
unnecessary to consider the remainder of the review grounds.
[10]
THE DECISION OF THE
MUNICIPALITY TO APPOINT MNK IN TERMS OF A SO-CALLED MONTH-TO-MONTH
AGREEMENT FROM 18 DECEMBER 2023
Parties’
submissions
[26]
Mr Els submits that the declaration of invalidity
was suspended for four months under the 18 August 2023 judgment,
thereby allowing
the Municipality to implement the irregular tender
award to MNK for up to four months. Maximum Profit’s case is
that the
Municipality ignored this Court’s August 2023 order
and enforced an invalid SLA.
[27]
Maximum
Profit contends that nothing prevented the Municipality from
finalising the November 2023 tender process and making a lawful
tender award. Instead, the Municipality repeatedly sought extensions
while simultaneously extending an invalid SLA. Maximum Profit
concludes that the Municipality intentionally sidestepped this
Court’s 2023 order. The Municipality’s letter of
extension
explicitly states that the SLA is extended on the same
terms and conditions, and the invoices from MNK make it clear that
they
are in terms of the SLA. Counsel submits that, in essence, the
Municipality acted as if it were a private party, utilising its own
funds to procure goods and services, contrary to section 217 of the
Constitution, which requires, inter alia, that organs of state
procure goods and services on a competitive basis. Maximum Profit
further submits that it was unaware that the Municipality and
MNK
continued to enforce the SLA after the institution of these
proceedings.
[28]
To the extent that the Municipality may rely on Regulation 36
of the Regulations issued under the Local Government: Municipal
Finance
Management Act 56 of 2003 (“MFMA”), Maximum
Profit submits that any emergency would have been self-created.
Regulation
36 provides:
“
Deviation
from, and ratification of minor breaches of, procurement processes
(1)
The supply chain management policy may allow the accounting officer-
(a)
To dispense with the official procurement processes established by
the policy and to procure any required goods
or services through any
convenient process, which may include direct negotiations, but only-
(i)
In an emergency situation;
.
. .
(v)
Did any other exceptional case where it is impractical or impossible
to follow the official procurement processes;”
[29]
The applicant therefore seeks to review and set
aside the decision to enter into a month-to-month alleged
continuation of the invalid
contract, on the basis that the purported
urgency justifying the deviation was self-created, thereby rendering
the decision unlawful.
Mr Els drew this Court’s attention to
the fact that, in any event, it is MNK, not the Municipality, that
avers the purported
month-to-month contract was concluded in
accordance with Regulation 36 processes.
[30]
The
Municipality concedes that implementing the 2023 SLA after 18
December 2023 would be unlawful. It avers that in December 2023
it
was foreseeable that the tender process would not be finalised. To
avoid losing the income source that VAT recoveries provide,
it
contracted with MNK on a month-to-month basis, pending the
finalisation or rerunning of the tender after it had lapsed. The
Municipality vehemently denies having extended the 2023 SLA.
[31]
Mr
Manala submits that the starting point for the inquiry should be the
provisions of Regulation 36. He further submits that the
Regulations
do not define what constitutes an emergency or an impractical or
impossible situation. Accordingly, as Counsel concludes,
a
determination of whether a situation meets the threshold of an
emergency or an impractical or impossible situation lies within
the
accounting officer’s discretion.
[32]
MNK stands with the Municipality and avers
that Regulation 36 was invoked to conclude the month-to-month
agreement. However, MNK
also concedes that there was non-compliance
with Regulation 36, thereby making its appointment irregular. MNK
further avers that
Maximum Profit cannot review the contract because
it relied on it to support its request for the Municipality’s
undertaking
not to implement the June 2024 tender award pending the
finalisation of this review.
Analysis
[33]
The Municipality’s denial that it
extended the 2023 SLA defies understanding in light of the
overwhelming evidence before
this Court. First, invoices from MNK
dated from 17 January 2024 to 6 September 2024 clearly state that
they are in terms of the
SLA. Second, the Municipality’s letter
to MNK dated 14 May 2024, extending the SLA from January 2024 to June
2024, clearly
states that the SLA is extended on the same terms and
conditions. Third, the Municipality failed to furnish the purported
month-to-month
agreement despite being called upon to do so by
Maximum Profit. Accordingly, the only agreement in existence is the
2023 SLA. Nonetheless,
insofar as the Municipality insists that the
extension in its letter gave rise to a new or independent contract,
the central issue
is whether the Municipal Manager was entitled to
invoke Regulation 36 on the basis of urgency, or whether that urgency
was self-created,
thereby invalidating the deviation.
[34]
Regulation
36 permits deviation from competitive bidding processes only in
exceptional circumstances, including where it is impracticable
or
impossible to follow official procurement procedures. Regulation
36(2) requires the accounting officer to record and report
the
reasons for the deviation, and to do so at the next Council
meeting.
[11]
[35]
Our
courts have repeatedly emphasised that deviations from public
procurement processes are exceptional and must be narrowly construed,
and that Regulation 36 provisions must be interpreted restrictively
and may be invoked only where genuine exceptional circumstances
render compliance with ordinary procurement procedures impractical or
impossible.
[12]
[36]
No cogent facts or circumstances have been
set out by the Municipality or the Municipal Manager to show that the
month-to-month
agreement was entered into as a result of any
exceptional circumstances, or that it was an impracticable or
impossible situation
warranting a deviation in terms of Regulation
36. No process preceding the conclusion of this alleged
month-to-month contract was
disclosed. Therefore, the alleged
emergency cannot be characterised as unforeseen or unavoidable. It
is, rather, the product of
poor planning and internal inefficiency.
The very absence of the process followed demonstrate that Regulation
36 was either not
invoked or not complied with. Allowing an after the
fact reliance on Regulation 36 in such circumstances would undermine
the entire
procurement framework and create a perverse incentive for
organs of state to bypass competitive processes by deliberate or
negligent
delay. This Court must guard against such an outcome.
[37]
It is therefore clear that, contrary
to the provisions of section 217(1) of the Constitution, the
conclusion or extension of the
SLA with MNK and MNK’s
month-to-month appointment were not fair, equitable, transparent,
competitive and cost-effective.
We therefore find that the
month-to-month appointment was illegal, as it is not permitted under
section 217 of the Constitution
read with the relevant procurement
legislation. The month-to-month agreement stands to be set aside.
What remains to be considered
is the appropriate remedy.
JUST AND EQUITABLE
RELIEF
Parties’
submissions
[38]
As stated above, apart from the setting aside of the two decisions,
Maximum Profit sought
substitution in relation to the tender award
and an order for MNK to repay to the Municipality the money it had
paid to MNK in
relation to the purported month-to-month contract.
[39]
Maximum Profit relies on the following grounds to seek substitution:
39.1
The Court has been provided with the tender and bidding documents,
meaning it has all the relevant information;
39.2
Once it is accepted that Maximum Profit was incorrectly scored and
irregularly disqualified, it is a forgone
conclusion that it ought to
have been awarded the June 2024 tender in terms of section 2(1)(
f
)
of the Preferential Procurement Policy Framework Act 5 of 2000
[13]
(“PPPFA”) which makes it peremptory for the Municipality
to award the tender to the highest scoring bidder;
39.3
There are no polycentric issues
in casu
, the Court is in as
good a position to adjudicate the tender;
39.4
The Municipality demonstrated incompetency and/or bias as illustrated
by it considering irrelevant factors
after having let the November
2023 tender lapse without providing cogent reasons;
39.5
Further delays ought to be avoided, on the Municipality’s own
version, there is a need for VAT recovery
services.
[40]
To further bolster the contention that it was supposed to be awarded
the June 2024 tender,
Maximum Profit submits that a portion of MNK’s
recoveries (amounting to R32,772,232.88) was obtained in direct
breach of
the existing court order and/or through unlawful invocation
of Regulation 36, and therefore that MNK was not entitled to rely on
them.
[41]
Maximum Profit bases its claim for the return of the monies received
by MNK from the Municipality
under the purported month-to-month
contract on the ground that MNK was not entitled to receive them. The
argument is that MNK is
not an innocent party and should therefore
not benefit from an unlawful contract. This is so far as MNK was a
party to the proceedings
that declared the 2023 SLA invalid, yet
proceeded, together with the Municipality, to implement it. Maximum
Profit submits that
this is a clear disregard for the rule of law,
which would be rewarded if MNK is not ordered to repay the money it
received under
the purported month-to-month contract.
[42]
On the other hand, the Municipality submits
that substitution would be inappropriate for the following reasons.
The contract for
the June 2024 tender award ends in September 2027,
as it was for 36 months only. Awarding the tender to Maximum Profit
for 36 months
at this stage would amount to an extension of the
contract, which can only be done in terms of section 33 of the MFMA.
Mr Manala
also submits that the Court would effectively be called
upon to assume two positions; first, to act as the BAC and adjudicate
the
tender and make a recommendation, as Maximum Profit was
disqualified at that level, and second, to act as the accounting
officer
and award the tender. In any event, the Municipality argues
that the BAC’s recommendation is not absolute, as the
accounting
officer may consider other relevant factors and not award
the tender to the highest-scoring bidder.
[43]
In relation to the relief sought for the
return of the money received by MNK under the purported
month-to-month contract, the Municipality
draws this Court’s
attention to the principle of no profit and no loss. The principle is
said to favour MNK, as it cannot
be found to have acted with extreme
culpability. MNK also argues that the Municipality, and by necessary
implication the public,
has benefited from its VAT recovery services.
MNK calls upon the Court to adopt a balanced approach.
[44]
To
bolster the argument that it is an innocent party, MNK submits that
once the Municipality made the decision to extend/conclude
the SLA
which then gave rise to the purported month-to-month contract, MNK
could not simply ignore that decision. Reliance is on
Oudekraal
,
[14]
Kirland
[15]
and
Gijima
[16]
for
the conclusion that the decision remained with legal consequences
until set aside by a court of law.
[45]
MNK goes further, contending that Maximum
Profit instigated the continuation of the month-to-month contract
after September 2024
by seeking to suspend the implementation of the
tender award. In its heads of argument, MNK urges this Court to
review and set
aside that suspension as unlawful, and to substitute
the purported month-to-month contract with the June 2024 SLA, with
effect
from 11 September 2024.
Analysis
[46]
We
consider the appropriate remedy in terms of section 217 of the
Constitution and section 8 of PAJA which empower this Court with
a
discretion to grant relief it considers just and equitable. At this
stage, we must consider the effects of the declaration of
invalidity
on the parties to whom the order applies. The interests of those
parties are carefully examined for the purpose of making
an order
that is just and equitable in the circumstances.
[17]
In
Steenkamp
NO v Provincial Tender Board, Eastern Cape
[18]
,
Moseneke DCJ for the majority elucidated:
“
It
goes without saying that every improper performance of an
administrative function would implicate the Constitution and entitle
the aggrieved party to appropriate relief. In each case the remedy
must fit the injury. The remedy must be fair to those affected
by it
and yet vindicate effectively the right violated. It must be just and
equitable in the light of the facts, the implicated
constitutional
principles, if any, and the controlling law. It is nonetheless
appropriate to note that ordinarily a breach of administrative
justice attracts public-law remedies and not private-law remedies.
The purpose of a public-law remedy is to pre-empt or correct
or
reverse an improper administrative function. In some instances the
remedy takes the form of an order to make or not to make
a particular
decision or an order declaring rights or an injunction to furnish
reasons for an adverse decision. Ultimately the
purpose of a public
remedy is to afford the prejudiced party administrative justice, to
advance efficient and effective public
administration compelled by
constitutional precepts and at a broader level, to entrench the rule
of law.”
[47]
It
is trite that substitution is granted in exceptional circumstances in
light of the principle of separation of powers.
[19]
While
there is no closed list of circumstances under which substitution
would be appropriate, it is well established that two key
considerations are whether the court is in as good a position as the
administrator and whether the result is a foregone conclusion
and it
would be a waste of time to remit the matter to the original decision
maker.
[20]
[48]
It is common cause that MNK submitted
recoveries of R104,208,526.00 in their bid, including recoveries of
R32,772,232.88 for the
period from 16 January 2024 to 11 June 2024,
being the month-to-month contract period. Given that the previous
irregular appointment
(the 2023 tender) finally lapsed on 18 December
2023, when the suspension of the declaration of invalidity expired
and there was
an unlawful purported invocation of Regulation 36, the
recoveries made by MNK from January 2024 to June 2024 were on a
plainly
illegal basis. As a consequence, it is clear that MNK could
never have demonstrated that they had recovered more than R90 million
for the Municipality during the relevant period. At best, MNK
recovered R71,436,293.12.
[49]
Accordingly
,
in casu
,
not even the original administrator can be said to be in the same
position as when the decision had to be made. First, as held
above,
the VAT recoveries made in terms of the invalid contract relied upon
by MNK can no longer be considered due to the setting
aside of the
purported month-to-month contract. Second is the time factor as there
is just above a quarter of the tender period
remaining. In
Intertrade
Two (Pty) Ltd v MEC for Roads and Public Works, Eastern Cape and
Another
[21]
,
Plasket
J held that:
“
.
. . The availability of proper and adequate information and the
institutional competence of the Court to take the decision for
the
administrative decision-maker are necessary prerequisites that must
be present, apart from ‘exceptional circumstances’,
before a court can legitimately assume an administrative
decision-making function. This, it seems to me, is a minimum
requirement
of rational decision-making, a fundamental requirement of
the rule of law. In this case . . . because of the flaws in the
evaluations
of the tenders and because of the unknown consequences on
the tenders of the inexcusable passage of time, both prerequisites
are
absent. If this Court was to award the tenders to Intertrade, it
would act arbitrarily and in conflict with the rule of law because
it
would not have a rational basis for concluding that the award of the
tenders would be ‘fair, equitable, transparent, competitive
and
cost-effective’, as required by s 217(1) of the Constitution.”
[50]
Ultimately,
substitution is inappropriate if not impossible under the
circumstances. But so is remittal in the strict of senses
because, as
already observed above, a portion of MNK’s VAT recoveries is no
longer appropriate information to be considered
in the tender
process. Indeed, the month-to-month contract is void
ab
initio
and one may be tempted to reason that the Municipality may therefore
be deemed to have received only one responsive bid, being
Maximum
Profit’s. However, that would seem inappropriate as this Court
would effectively be assuming that MNK could not rely
on VAT recovery
services it may have provided to other grade 4 municipalities and
still satisfy the R90 million threshold. Suffice
to say that there
are no competing tenders for reconsideration by the Municipality,
thus, remittal would serve no purpose.
[22]
[51]
In
relation to the purported month-to-month contract, the remaining
issue is whether it would be just and equitable to order the
return
of the commission paid to MNK by the Municipality. An innocent party
would be a party that was not involved in any of the
irregularities
that were committed when the irregular decision was made.
[23]
[52]
Given
that there is simply no evidence detailing how the decision to
conclude the month-to-month agreement came about, it is difficult
to
establish exactly how MNK contributed towards the irregularity. Be
that as it may, it cannot be denied that MNK, as one of the
parties
to the proceedings in 2023, knew that the 2023 SLA was invalid. In so
far as the “extension” is said to be
a new contract, MNK
is not arguing that it did not know that the Municipality had not
followed due processes. Even if it is accepted
that Regulation 36
places positive obligations on the Municipality and not MNK as an
external party, the letter of extension should
have raised concerns
especially because it purports to extend the 2023 SLA (without
stating anything about a new or independent
contract) which MNK knew
was declared unlawful and invalid. As already mentioned, MNK concedes
that its month-to-month appointment
was irregular. Had MNK intended
not to be party to the implementation/enforcement of a contract
concluded following irregular processes,
nothing stopped it from
raising the irregularities with the Municipality upon receipt of the
letter purporting to extend the 2023
SLA.
[24]
MNK had no duty to bind itself to an unlawful contract; its reliance
on
Oudekraal
,
Kirland
and
Gijima
is misplaced. Ultimately, the fact that MNK knowingly participated in
the implementation of a contract arising from an irregular
appointment demonstrates impropriety which would be rewarded if MNK
were to retain the full 10% commission made/received for the
services
rendered.
[53]
Finally, the new case advanced in MNK’s
written submissions on this issue does not stand in light of this
Court’s ruling
setting aside the June 2024 tender award. The
unlawfulness or otherwise of the Municipality’s undertaking to
suspend the
implementation of the award cannot revive the tender
award or cure its unlawfulness. Similarly unhelpful is the argument
that,
but for the undertaking, the Municipality would not have
continued enforcing the purported month-to-month agreement after 11
September
2024. It might as well be that, after 11 September 2024,
the Municipality would have enforced the June 2024 tender award
instead.
In our view, the fact that Maximum Profit successfully
sought the undertaking to suspend the implementation of the tender
award
takes nothing from the fact that MNK made 6% extra commission
from an unlawful contract. Maximum Profit gained nothing. Having
rejected the locus standi challenge in this regard, it is unclear
what apportioning blame to Maximum Profit ought to yield, especially
because this is not a delictual claim.
[54]
It
defies logic for the Municipality to continuously contract MNK at a
10% rate when other service providers would have offered
the same
services at a far lower rate
.
Nonetheless, MNK did render the VAT recovery services and the
Municipality and the public benefitted. Any tenderer or party to
subsequently offer VAT recovery services to the Municipality would
take over from where MNK has left, it cannot re-recover what
MNK has
already recovered.
Khampepe J
in
Department
of Transport and Others v Tasima (Pty) Ltd
[25]
enunciated:
“
In
crafting an appropriate remedy . . . the interests of the public must
remain paramount. This extends beyond considerations of
the immediate
consequences of invalidity. As
Allpay II
expresses–
‘
(t)he
primacy of the public interest in procurement . . . matters must also
be taken into account when the rights, responsibilities,
and
obligations of all affected persons are assessed. This means that the
enquiry cannot be one-dimensional. It must have a broader
range.’”
[55]
It therefore seems just and fair to afford
MNK the retention of 4% of the commission it received in rendering
the services. Ordering
MNK to return the full amount would mean that
the Municipality (and the public it serves) would be allowed to
benefit from an unlawful
contract while MNK is left to suffer having
rendered the services. It is appropriate to, as we hereby do, direct
the Registrar
of this Court to provide the Premier of this province
and the Executive Mayor of the Municipality with copies of this
judgment
to monitor compliance with the order we make hereunder.
[56]
There is no reason why costs should not
follow the result. This approach aligns with the parties’
submissions.
ORDER
[57]
In the above premises, the following order
is made:
1.
The decision of the first respondent to
award Tender 06/2023-24 for VAT recovery services to the third
respondent, published on
the first respondent’s website on 11
September 2024, is declared unconstitutionally invalid, is reviewed
and set aside.
2.
The agreement concluded between the first
respondent and the third respondent pursuant to the tender award
in
Tender 06/2023-24
is set aside.
3.
The decision of the first respondent to
appoint the third respondent on a month-to-month basis
for VAT
recovery services
is declared constitutionally
invalid, is reviewed and set aside.
4.
The third respondent is ordered to repay to
the first respondent 6% (six percent) of the amounts received by the
third respondent
for VAT recovery services performed for the first
respondent from 18 December 2023 to the date of this order.
5.
The respondents are jointly and severally
ordered to pay the applicant’s costs on scale C, the one paying
and the other to
be absolved.
LP
TLALETSI
JUDGE
PRESIDENT
NORTHERN
CAPE DIVISION
And
COETZEE AJ
ACTING JUDGE OF THE HIGH
COURT
NORTHERN CAPE DIVISION
Appearances
For
the Applicant:
Adv.
A.P.J. Els SC
Instructed
by:
Albert
Hibbert Attorneys
c/o
Haarhoffs Inc.
For
the First & Second Respondents:
Adv.
M.E. Manala
Instructed
by:
Kganare
& Khumalo Attorneys
c/o
Van de Wall Inc.
For
the Third Respondent:
Mr.
I. Motloung
Instructed
by:
Maluleke
Seriti Makume Matlala Inc.
[1]
The
relevant provisions state that:
“
A
court or tribunal has the power to judicially review an
administrative action if-
(b) a mandatory
and material procedure or condition prescribed by an empowering
provision was not complied with;
(c) the action was
procedurally unfair;
(e) the action was
taken-
(i) for a
reason not authorised by the empowering provision;
(ii) for an
ulterior purpose or motive;
(iii) because irrelevant
considerations were taken into account or relevant considerations
were not considered;
(iv) because of the
unauthorised or unwarranted dictates of another person or body;
(v) in bad faith;
or
(vi) arbitrarily or
capriciously;
(f) the action
itself-
(i)
contravenes a law or is not authorised by the empowering provision;
or
(ii) is not
rationally connected to-
(aa) the purpose for
which it was taken;
(bb) the purpose of the
empowering provision;
(cc) the information
before the administrator; or
(dd) the reasons given
for it by the administrator;
(i) the
action is otherwise unconstitutional or unlawful.”
[2]
2014
(1) SA 604
(CC) para 25.
[3]
[1984] ZASCA 51
;
1984
(3) SA 623
(A) at 634E-635C.
[4]
Dr
JS Moroka Municipality and Others v Betram (Pty) Ltd and Another
[2014] 1 All SA 545
(SCA) para 10;
WDR
Earthmoving Enterprises and Another v Joe Gqabi District
Municipality and Others
(392/2017)
[2018] ZASCA 72
(30 May 2018) paras 29, 30 and 40.
[5]
WDR
Earthmoving
Enterprises
and Another v Joe Gqabi District Municipality and Others
(
Supra
)
para 30.
[6]
Overstrand
Municipality v Water and Sanitation Services South Africa (Pty) Ltd
[2018] 2 All SA 644
(SCA) para 50.
[7]
[2025]
JOL 69692 (WCC).
[8]
Ibid
paras 43-50.
[9]
Allpay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency,
and Others
2014
(1) SA 604
(CC) para 28.
[10]
See for example
SA
Post Office Ltd v Nowosenetz NO & Others
(2013)
34 ILJ 1604 (LC) para 34;
FM
v Minister of Home Affairs
2014
JDR 1732 (GP) para 161.
[11]
See
also
Kgoale
v Taba Chweu Local Municipality and Others
(JR19/22)
[2024] ZALC 33
(12 December 2024)
para
24.
[12]
On
similar regulations, see generally
Department
of Transport and Others v Tasima (Pty) Ltd
2017 (2) SA 622
(CC) paras 22, 23, 99 and 100.
[13]
Section
2 of the PPPFA provides:
Framework
for implementation of preferential procurement policy
(1) An organ of state
must determine its preferential procurement policy and implement it
within the following framework:
(a) A preference point
system must be followed;
(b) (i) for contracts
with a Rand value above a prescribed amount a maximum of 10 points
may be allocated for specific goals as
contemplated in paragraph (d)
provided that the lowest acceptable tender scores 90 points for
price;
(ii) for contracts with
a Rand value equal to or below a prescribed amount a maximum of 20
points may be allocated for specific
goals as contemplated in
paragraph (d) provided that the lowest acceptable tender scores 80
points for price;
(c) any other acceptable
tenders which are higher in price must score fewer points, on a pro
rata basis, calculated on their tender
prices in relation to the
lowest acceptable tender, in accordance with a prescribed formula;
(d) the specific goals
may include-
(i) contracting with
persons, or categories of persons, historically disadvantaged by
unfair discrimination on the basis of race,
gender or disability;
(ii) implementing the
programmes of the Reconstruction and Development Programme as
published in
Government Gazette
No. 16085 dated 23 November
1994;
(e) any specific goal
for which a point may be awarded, must be clearly specified in the
invitation to submit a tender;
(f) 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; and
(g) any contract awarded
on account of false information furnished by the tenderer in order
to secure preference in terms of this
Act, may be cancelled at the
sole discretion of the organ of state without prejudice to any other
remedies the organ of state
may have.
(2) Any goals
contemplated in subsection 1(e) must be measurable, quantifiable and
monitored for compliance.
[14]
Oudekraal
Estates (Pty) Ltd v City of Cape Town and Others
2004 (6) SA 222 (SCA).
[15]
MEC
for Health, Eastern Cape and another v Kirland Investments (Pty) Ltd
t/a Eye and Laser Institute
2014
(3) SA 481 (CC).
[16]
State
Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd
2018 (2) SA 23 (CC).
[17]
MEC for
Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd
2014 (3) SA 481
(CC) para 61.
[18]
2007
(3) SA 121
(CC) para 29.
[19]
Gauteng
Gambling Board v
Silverstar
Development Ltd and Others
2005
(4) SA 67
(SCA) paras 28-29.
[20]
Intertrade
Two (Pty) Ltd v MEC for Roads and Public Works, Eastern Cape and
Another
2007
(6) SA 442
(Ck) para 43; see also
National
Union of Metalworkers of SA v Commission for Conciliation, Mediation
& Arbitration & Others
(2022) 43 ILJ 530 (CC) paras 64-73.
[21]
2007 (6) SA 442
(Ck) para 43.
[22]
See
for example
Premier,
Province of Mpumalanga and Another v Executive Committee of the
Association of Governing Bodies of State Aided Schools:
Eastern
Transvaal
1999 (2) SA 91
(CC) para 52.
[23]
Passenger
Rail Agency of South Africa v Swifambo Rail Agency (Pty) Ltd
[2017] 3 All SA 971
(GJ) para 93.
[24]
See for example
State
Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd
2018
(2) SA 23
(CC) paras 53-54.
[25]
2017
(2) SA 622
(CC) para 205.