---

IN THE NORTH GAUTENG HIGH COURT, PRETORIA

(REPUBLIC OF SOUTH AFRICA)

CASE NO.: 34273/2013

DATE: 20 N0VEMBER 2013

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

REVIEWED.

In the matter between:

THE MINISTER OF TRANSPORT …...........................................................................First Applicant

THE ACTING DIRECTOR GENERAL FOR

THE DEPARTMENT OF TRANSPORT NO.............................................................Second Applicant

And

PRODIBA (PTY) LTD......................................................................................................Respondent

CORAM EBERSOHN AJ

DATE HEARD: 20 NOVEMBER 2013

DATE JUDGMENT HANDED DOWN: 27 NOVEMBER 2013

JUDGMENT APPPLICATION FOR LEAVE TO APPEAL

EBERSOHN AJ.

[1] The court granted judgment in favour of the respondent against the applicants. The parties are referred to in this judgment as in the original application.

[2] The application for leave to appeal consists of no less than 43 alleged grounds. The first ground is ignored as not being a ground upon which can be appealed. It obviously is a clerical error.

[3] With reference to the second alleged ground of appeal the person who signed the first extension agreement was in fact a Mr. Mahlalela, the same man who signed the contested third extension agreement, and not a Mr. Mahlangu. Nothing turns on that.

[4] The application for leave to appeal rests upon the determination of inter alia the following grounds as raised by the respondents and although being numerous can be grouped under four main headings :

a) That the decision taken by Mahlalela to bind the State to a new “smart card driving licence card’ required Cabinet’s approval;

b) That there had been non-compliance with the provisions of:

I) the Public Finance Management Act, No. 1 of 1999 and in particular section 38(2) thereof;

ii) Treasury Regulation 16A.6.4;

iii) Treasury Regulation 15.10.1.2 (c);

iv) Treasury Regulation 9.2.3.

c) That the doctrine of estoppel finds no application and that the respondents could in fact rely on the noncompliance with its internal processes;

d) that Addendum Agreement No. 3 is void for vagueness.

[5] None of the grounds of appeal bears scrutiny especially if regard is had to the first document drafted by the Department wherein it recorded its reasons for the cancellation of the agreement, as this constitutes the Department's version shorn of any legal input (which ordinarily is a source for confusion). The letter of cancellation, FA11 (p 211), confirms in paragraph 2 that the contract was concluded unbeknown to and without instructions from the Minister of Transport. It is furthermore recorded in paragraph 4 thereof that Mahlalela understood the Department's decision that they would not continue or extend the existing contract with Prodiba as the Department would cater for the services in-house. Then in paragraph 5 follows the complaint concerning all the violations of the Treasury Regulations, the Constitution and certain fiduciary duties. In paragraph 6 reliance is placed on Treasury Regulation 19.2.3 as, so it is feared, the trading unit would become commercially insolvent. In addition, it is alleged that the claim for an advanced payment was inconsistent with Regulation 15.1.2(c).

[6] It is significant that there was no reference to the requirement of obtaining approval from National Treasury nor from the bid Committee. It is for this reason that ariy reliance on these additional requirements which were belatedly introduced and raised as issues between the parties, should be treated with the required circumspection, as this court did in its judgment.

[7] The court now deals with the main points as raised in the respondents’ notice of appeal.

[8] The Minister's/Cabinet’s approval

The approval by the Minister has no bearing on the validity of the agreement. There is simply no provision in the PFMA Act whatsoever promulgating that the accounting officer, absent approval from the Minister, was not authorised to conclude the agreement. The respondent realising that this is the case, elected to rely on the requirement that cabinet approval was required for changes in policy. The applicant’s contention that the change from a paper- based driver's licence to smart card technology does not comprise a policy change is correct and the contentions advanced by the respondents had to fail for the following reasons:

8.1 Annexure MD1 makes it abundantly clear that there was no requirement for the Cabinet to approve the migration to a smart card licence. If it is correct, as is contended by the respondents, that a policy decision required cabinet approval, it is passing strange why paragraph 6.2 (p 304, required cabinet approval, it is passing strange why paragraph 6.2 (p 304, an extract from “MD1”) contends for the contrary. It is convenient to consider paragraphs 6.1 and 6.2 of that document -

"6.1 National Treasury must be appraised, upon approval, of the Department's decision to take over the driving licence services currently provided by service provider.

6.2 Upon approval Cabinet must be appraised of the decision of the Department to change the current driving license card."

In terms hereof, it was only necessary for the Department to appraise National Treasury of the Department's decision;

8.2 The document at p 294 makes provision only for the Minister to approve. Paragraph 6.2 states expressly that, '" ... Cabinet must be appraised of the decision ...";

a. It is significant to note the effect of paragraph 7, dealing with recommendations, stating that only the Minister's approval was required.

b.There is accordingly no substance in the contention that this involves a policy change which required cabinet approval.

c. It follows that the Department could only criticise Mahlalela for having failed to obtain the Minister's approval prior to signing Addendum 3. This in itself is clearly part of an internal process and not regulated by any Treasury provision. The respondents were unable to identify any provision in either the Constitution, the PFMA or the Treasury Regulations dictating approval to be obtained from the Minister.

[9] Despite the arguments of the respondents the Minister approved the change to smart card technology. So much is evident from the answering affidavit (para 41.1, p 273) stating that the Department will produce "smart cards" in conjunction with GPW. On the respondents’ version that could not be done unless the Minister approved it. It is therefore clear that if the Minister's approval was required, this must have been given otherwise the deponent would not have been able to state that the Department has already embarked on a process in conjunction with the Government Printing Works to produce smart card systems of drivers' licences.

[10] This is also borne out by the allegations made in paragraph 10.4 of the answering affidavit (p 246) stating that the Department of Home Affairs has already migrated to smart card identification cards. Although in the same paragraph it is confirmed that the two departments are in negotiations with GPW, to assist in producing the cards "once the approval process has been completed", this is no more than a red herring. Once the deponent had confirmed in paragraph 41.1 (p 273) that as a fait accompli the GPW will start producing smart cards on the Department's behalf, it cannot still be heard to contend for adherence and compliance with an approval process. There is simply no evidence adduced to establish that the Minister has as yet not given his approval to migrate to smart card technology.

[11] The silence of the Minister in this application especially on this aspect was remarkable and although he was challenged to come on oath he did not and from the Bar an excuse was advanced that Parliament was in recess and the Minister could not be traced. Accordingly, the respondents should fail on the first ground of appeal as summarised above.

[12] Compliance with the PFMA

It is remarkable that the letter of cancellation makes no reference to the PFMA. The reliance on non-compliance with the PFMA is clearly the product of an afterthought and was rejected by this court and this court found that the reliance placed on section 38(2) of the PFMA is misplaced. It only prohibits an accounting officer to commit a department "to any liability for which money has not been appropriated". As stated earlier, this was not raised as an issue at the time of cancellation, and for good reason. The existing card production and distribution services rendered in terms of the existing Addendum 2, generated sufficient income to fund the requirements of Addendum Agreement 3. This much is made clear in various places in the founding affidavit and the replying affidavit for instance the following passages of the replying affidavit - paras 8.1-8.6, pp 405-407; paras 51-53, pp 421-422 and para 57, p 423. There was accordingly no contravention of paragraph 38(2). In any event, all the internal documents of the Department demonstrate that the services were self-funding. One may merely refer to paragraph 5.1 of annexure “MD1”, p 304, dealing with financial implications. Any suggestions to the contrary by the Department are disingenuous.

[13] The court must now deal with Treasury Regulation 16A.6.4. The circumstances which prevailed in regard to the conclusion of Addendum Agreement 3 meet the requirements of this Regulation. This was set out and explained in paragraph 7.1 of the replying affidavit (pp 403-404). The counsel for the respondents shied away from the clear but fatal for the respondents, strategic decision taken by the Department to upgrade the equipment as a first phase and then to migrate the services and skills by the Department (to be housed internally), which could only have been facilitated by an extension of the existing contract and which caused the Addendum Agreement 3 to come in existence.

[14] It was clearly not viable to expect a competitive bid from outsiders in circumstances where the supply of services would have been for a very limited duration. The accounting officer therefore had sound reasons for opting to use his powers in terms of this Regulation. The only requirement upon which reliance was placed and which formed the basis of the respondents' complaint, concern the requirement that the reasons for deviating from inviting competitive bids must be recorded. This issue was also dealt with by Mbha J. in the judgment of Buena Vista Trading 15 (Pty) Ltd and Others v Gauteng Department of Roads and Transport and Others, case no 17534/11. Mbha J dealt with this requirement and referred to the judgment by the Supreme Court of Appeal in Chief Executive Officer, South African Social Secufity Agency and Others v Cash Paymaster Services (Pty) Limited 2012 (1) SA 216 (SCA) and emphasised the importance of the formal requirement that the reasons for the deviation must be recorded. The Supreme Court of Appeal affirmed that there must be rational reasons for the decision to deviate. Although compliance with this recordal requirements provided for in this regulation was emphasised, the Mbha J concluded, with reference to the Turquand rule and its application in City of Tshwane Metropolitan Municipality v RPM Bricks (Pty) Ltd 2008 (3) SA 1 (SCA) at para 12, that parties entering into an agreement in good faith are entitled to assume that the respondents had complied with all their requirements of internal management for the conclusion of the contracts. The Court emphasised that parties were not required to enquire into any compliance with those requirements. (Judgment: para [36]). Mbha J found that the Department was not entitled to escape its liability by placing reliance upon non-compliance with its internal management processes.

[15] The reasons advanced by the accounting officer when alerting the National Treasury to the conclusion of Addendum Agreement 3 (annexure “FA13” to the founding papers, p 221) were rational and recorded by the accounting officer. The accounting officer was entitled and it was permissible for him to rely on this recordal of the reasons for deviating from the competitive bidding process.

[16] Due to the sound reasons stated the respondents' ought not to succeed in successfully relying on the provisions of this regulation - it ought to be estopped from relying on a failure of the internal management processes. It is common cause that the applicant is an innocent party and had no duty to enquire into the question of compliance with these internal requirements. In any event, the recordal in the letter to National Treasury should suffice for purposes of compliance with this regulation.

[17] It is now convenient to deal with the reliance placed by the respondents on circular 66 of 2010 which seems to have the effect of compelling the accounting officer to obtain the recommendations of the Bid Adjudication Committee. Closer scrutiny, however, showed that whereas this requirement seems to obviously inhibit the authority given to the accounting officer by law in terms of Regulation 16A 6.4 in terms whereof he is given unfettered discretion in certain circumstances, and subjects the exercise thereof to recommendations of the Bid Adjudication Committee. This is, however, not the true legal position for insofar as circular 66 is inconsistent with and has the effect of limiting the accounting officer's powers, the same has no effect in law and ought to be disregarded. The Regulations are specifically countenanced in terms of the provisions of section 76(4)(c) of the PFMA. The Regulation therefore has legal force as if it was promulgated by Parliament itself. Its ambit cannot be diminished by means of an internal circular issued by the Department notwithstanding the bona fides of the contributors thereto.

[18] The court now deals with Treasury Instruction Note of 31 May 2011 particularly paragraphs 3.9.3 and 3.9.4 thereof which seems to have the effect of precluding an expansion or variation of any existing contract by more than 15% or R15 million “for all other goods and/or services of the original value of the contract, which is the lower amount without the written approval of the relevant Treasury.” Again, this has to be considered with the necessary circumspection. In any event, the reliance placed on this particular requirement by the respondents is misplaced as this applies to existing contracts funded from the Budget and this particular note informs the other Regulations pertaining to budgetary provision for the acquisition of goods and/or services and good administration requires of accounting officers to make sure that funds are in place before goods and/or services are requisitioned.

[19] This requirement has no place in casu where the parties are dealing with a self-funding mechanism. Income is generated on an on-going basis by means of the distribution of drivers' licences and drivers paying therefore and this is clearly recorded by the departmental documents referred to above. As the execution of Addendum Agreement 3 will not place any demands on the Treasury, the implementation of this particular instruction note has no application in casu and fhere was accordingly no requirement to obtain Treasury approval for purposes of concluding Addendum Agreement

3. The conduct of the Department and all its officials is consistent with this interpretation - it is evident from annexure “MD1” (p 304) that the parties considered it necessary only to apprise the National Treasury of the Department's decision to take over the driving licence services currently provided by a current service provider. In addition, the "intended" negotiations with the current service provider to assist in the upgrade and the migration of the services to the Department was specifically recorded, without reference to this instruction note - the officials mentioned on that page in paragraph 4 (p 304) (all supposedly well informed and senior officials in the Department and ably assisted by outside legal consultants) did not deem it necessary to obtain approval from National Treasury.

[20] The respondents also contended that there was non-compliance with Treasury Regulation 15.10.1.2(c) which requires of the accounting officer to avoid making pre-payment for goods or services. The regulation itself provides for an exception "unless required by the contractual arrangements with the supplier." In plain English, it stipulates that the accounting officer may authorise pre-payment when it is a requirement of the contractual arrangement made with the supplier. Addendum Agreement 3 specifically provides and captures a pre-payment obligation of the sum stated therein. The requirements of the Regulations have therefore been complied with.

[21] Accordingly, the respondents should fail on the second main ground of appeal as is set out above.

[22] Reliance placed on the internal management processes ought to be estopped.

[23] The respondents purport,to avoid the consequences of the Turquand rule by placing reliance on the judgment in Eastern Cape Provincial Government and Others v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA), para 11. The respondents contend that "a state of affairs prohibited by law in the public interest cannot be perpetuated by reliance upon the doctrine of estoppel'.

23.1 The material contained in the founding papers read with the replying affidavit contain sufficient material so as to justify the conclusion that the respondents ought to be estopped from placing reliance on non-compliance with internal management processes. In any event, this was dealt with by Mbha J in Buena Vista /39] and distinguished the application of those principles from cases where the contract allegedly concluded was intra vires the powers of the respondents, such as is the case in casu.

23.2 It is clearly demonstrated with reference to Regulation 16A.6.4 that the accounting officer was fully authorised to conclude Addendum Agreement 3 - consequently, the conclusion of the contract was intra vires the powers of the accounting officer.

23.3 For these reasons, it is permissible of the applicant to rely on the principles of Turquand.

23.4 Accordingly, the respondents should fail on the third^ main ground of appeal as set out in paragraph 1 above.

[24] The Department’s allegation that the agreement is void for vagueness alternatively is incomplete in that the layout, design and security features of the smart card to be produced by the applicant had not been discussed or agreed upon between the parties, was not raised in the cancellation letter (annexure “FA 11”) and is clearly, as the applicant’s counsel argued, an after thought and without merit. If regard is had to the contents of annexure “A” attached to the Addendum Agreement 3 and with particular reference to the contents of paginated pages 144 to 148 of the application, the layout, design and security features are dealt with in detail which fact apparently escaped the notice of the Department’s employees and legal representatives. Accordingly, the allegation that the agreement is void for vagueness and that the parties have not agreed as to the layout, design and security features of the smart card are baseless. Accordingly, the respondents should fail on the fourth main ground of appeal too.

[25] There are no merits in the respondents’ alleged grounds of appeal and have no prospects of success with an appeal in another court and accordingly the application must be refused with costs.

[26] The following order is made:

“1. The application for leave to appeal is refused.

2. The respondents are ordered to pay the costs of the application, jointly and severally, the one paying, the other to be absolved, which costs will include the costs consequent upon the employment of two counsel.

P.Z. EBERSOHN

ACTING JUDGE OF THE HIGH COURT

Applicants’ counsel N. Cassim SC

J.A. Motepe

Applicants’ attorney State Attorney

Ref. 2114/2013/Z17

Mr. W. Motsepe

Tel. 012 309 156^7

Respondent’s counsel J.G. Wasserman SC

H.J. Smith

Respondent’s attorneys CLIFFE DEKKER HOFMEYER inc.

C/o MacRoberts Inc

Ref. G. Dreyer/AvdB/2026369

Tel. 012 425 3400

---