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Ngaka Modiri Molema District Municpality v Naphtronics (Pty) Ltd and Others (M379/2015) [2018] ZANWHC 8 (25 May 2018)

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IN THE HIGH COURT OF SOUTH AFRICA

NORTH WEST DIVISION, MAHIKENG

CASE NUMBER: M379/2015

In the matter between:

NGAKA MODIRI MOLEMA DISTRICT MUNICIPALITY                         APPLICANT

And

NAPHTRONICS (PTY) LTD                                                          1st RESPONDENT

ARBITRATION FOUNDATION OF SOUTHERN                         2nd RESPONDENT

AFRICA

R.G. NAIR N.O.                                                                             3rd RESPONDENT

 

DATE OF HEARING: 15 MARCH 2018

DATE OF JUDGMENT: 25 MAY 2018

COUNSEL FOR APPLICANT: Adv. P Mokoena (SC)

With him Adv. E Mokutu

COUNSEL FOR 1st RESPONDENT: Adv. J L Van der Merwe (SC)

: With Him Adv. L K Van der Merwe


JUDGMENT


KGOELE J.

INTRODUCTION

[1] Cora Hoexter in his book “Administrative Law in South Africa (2007, Juta report), page 226- page 232 remarked as follows:-

“Administrators have no inherent powers.  Every incident of public power must be inferred from a lawful empowering source, usually legislation.  The logical concomitant of this is that an action performed without lawful authority is illegal or ultra vires, that is to say, beyond the powers of the administrator.

[2] Foundational to the exercise of any power by a Municipality is the requirement that there should be a source in law for the power so exercised.  This fundamental principle was stated by the Constitutional Court in the case of AAA Investments (Pty) Ltd v Micro Finance Regulatory Council [2006] ZACC 9; 2007 (1) SA 343 (CC) in paragraph [68] as follows:-

“[68]… (t)he doctrine of legality which requires that power should have a source in law, is applicable whenever public power is exercised … public power … can be validly exercised only if it is clearly sourced in law.”

[3] It is settled in our law that the doctrine of legality dictates that a Municipality may only act within the powers lawfully conferred upon it.  Organs of State are constrained by the doctrine of legality to exercise only those powers bestowed upon them by the law.  See: Fedsure Life Insurance Ltd v Greater Johannesburg Transitional Metropolitan Council and Others [1998] ZACC 17; 1999 (1) SA 374 (CC).

[4] It is evident from the Fedsure decision already quoted in the previous paragraph that the rule of law embraces the principle of legality. The principle of legality requires the Government, the Legislature and the Courts to act in accordance with the legal principles and rules that apply to them. It is therefore expected from an Organ of State such as the applicant to comply with the law and policies when concluding any agreements or even committing the applicant with settlement agreements.

[5] The applicant, a Municipality as established in terms of the enabling statutes, with its offices situated in Mafikeng, makes a contention in its papers that it is obliged when acquiring and procuring goods and services, to do so within the principles espoused in Section 217 of the Constitution of the Republic of South Africa (the Constitution). It further contends that it must also do so as envisaged in the enabling statutes read with its policy documents.  In addition, it is obliged in terms of the Constitution and enabling statutes to ensure that goods are procured in terms of a competitive system that is fair, transparent, lawful and cost-effective.

[6] Informed by these legal prescripts, the applicant initiated these proceedings, seeking a declaratory order to the effect that the decision of the third respondent (Mr Nair), who was at the relevant time appointed as its Administrator, and the procedures he followed in appointing the first respondent (Naphtronics), a company duly incorporated and registered in accordance with the Company laws of South Africa, to be declared unlawful.  In addition, the applicant is seeking that the Service Level Agreement  (SLA) dated 29 October 2014, purportedly concluded between the applicant and the first respondent, be declared invalid, null and void and be accordingly reviewed and set aside.

[7] The first respondent is the only party opposing the granting of the relief sought by the applicant. The third respondent did not oppose the relief sought but filed an affidavit, after being requested by the first respondent, to explain to the Court the actions that it had taken in so far as they are relevant to this matter.

 

FACTUAL BACKGROUND

[8] On or about 9th June 2014, the applicant appointed Tshireletso Professional Services (Tshireletso Security) to render security services on various locations in Mahikeng, as identified in the SLA concluded through a normal tender process. The appointment was for a period of 3 (three) years commencing in June 2014 to June 2017.

[9] Whilst Tshireletso Security was still rendering its security services to the applicant, the applicant was placed under administration in terms of Section 139(1)(c) of the Constitution on the grounds of maladministration.  As a result of this the third respondent was appointed as the Administrator for the applicant, together with a task team of experts to assist him.  He was tasked to manage the overall administration and to inter alia, investigate all recently awarded contracts to establish the validity and legitimacy thereof.

[10] I pause here to indicate that, prior to the launch of this application, there were several other cases already decided in this Division relating to the unrest in the same Municipality.  Furthermore, there was also a matter that was heard by the Constitutional Court. The ones that are more relevant and almost similar to this applications are:-

· Ngaka Modiri Molema District Municipality v Azranite Investment (Pty) Ltd and R.G. Nair (Case No. 409/15);

· Ngaka Modiri Molema District Municipality v Moto-Tech (Pty) Ltd and R.G. Nair (Case no. CIV APP FB 12/2016);

· Ngaka Modiri Molema District Municipality v Chairperson of the North West Provincial Executive Committee and Others 2015 (1) BCLR 72 (CC).

[11] All these cases are relevant because the parties involved are the same namely: the Municipality and the Administrator Mr Nair (third respondent).  Furthermore, they deal with the issues that were occurring at the time the third respondent was serving as the Administrator.  But in particular, there is one thread that runs across the three judgments which is to the effect that: there was a major problem regarding the ability of the Municipality to render services; that this failure led to protest which were sometimes quite violent and resulted in damages to buildings. The protests spilled over to include some officials at the Municipality as they were hostile and opposed the appointment of the Administrator. The dire situation necessitated emergency measures to be applied by the Administrator in order for the Municipality to fulfil its Constitutional mandate. It is for this reason that I will not repeat the factual background that relates to how the situation was at that particular time to avoid repetition of same. The second reason is that as much as both parties in casu gave their version of the events at that particular time, there are instances where they differ.  In the main, they do not agree on the issue as to whether the situation needed emergency attention.  This dispute can be summarily resolved in our matter by reliance on the Constitutional Court matter and the Full Bench of this Division matter already quoted above, wherein the two Courts had already made a finding that an emergency situation existed at that particular time.  It therefore goes without saying that as a starting point, the judgment of this Court will be decided on the first respondent’s facts and the submission that, the situation at the Municipality at the time the contract in casu was concluded, needed urgent intervention.

[12] Coming back to the factual background pertinent to this matter which is common between the parties, on 8 October 2014, the third respondent made a written offer to the first respondent to provide emergency security services.  It is apparent from the paper trail of this matter that no “tender” was ever advertised as is normal procedure and/or that any of the standard procedural processes were followed when the offer was made.  The contract was for a period of three (3) years effective from 9 October 2014 to October 2017.  A written SLA was also signed on 29 October 2014.  This contract for providing 24 hours services was concluded whilst Tshireletso Security was still on contract with the applicant Municipality, offering the same services.

[13] On 4 November 2014, the third respondent constituted a Special Emergency Bid Adjudication Committee in order to approve the appointment of the first respondent. The said committee eventually approved the said appointment, subject to a qualification that the contract should be reviewed bi-annually. It appears that it was only on 25 November 2014 that, the Administrator enquired from Mr Mekoa, who was by then still a Manager in the Supply Chain Management offices of the applicant, about Regulation 36 of the Municipal Supply Chain Management Regulations issued in terms of Section 168 of the Local Government: Municipal Finance Management Act 56 of 2003, which provides for how goods and services are to be procured in an emergency situation. The said advice was attached to the papers as Annexure “N3”. On 20 January 2015, the Senior Manager Corporate Resource Support Service, whom according to the applicant’s case was apparently ignored by the third respondent and not consulted with when the first respondent was appointed, despatched a letter to the Manager Security Services, raising concerns that they as Advisory Support Services were overlooked when the contract and the SLA were concluded, further that they were given such agreements after their conclusion.  He indicated that the contract that was awarded to the first applicant which he was asked to belatedly give advice to was invalid and suggested that the first applicant be asked to render such services on a month to month basis.

[14] Despite this advice, nothing was done by the applicant about the contract and SLA which the first and third respondents concluded, until the term of office of the third respondent came to an end on 28 February 2015, when a new Council was elected and a new Acting Municipal Manager appointed. This appointment came after the Municipal Manager who was there when the third respondent was appointed as Administrator, Mr Mojaki, was on suspension, after the third respondent put him on suspension on the October 2014 alleging gross in-subordination and corruption.  He resigned in January 2014.

[15] It appears that from this time the Municipality fell into arrears in paying what was due to the first respondent. Various Acting Municipal Managers and/or Administrators who were appointed thereafter promised one after the other to pay, but payment was not forth coming.  In June 2015 the first respondent appointed A M Vilakazi Tau Attorneys of Pretoria to claim from the applicant, all the monies due in respect of the unpaid invoices.  The first respondent elected to refer the dispute to arbitration as provided for in the SLA signed, and the applicant on the other hand, instead of participating in the arbitration, resorted to bringing this application to Court, to stay the arbitration proceedings pending the reviewing and setting aside of the contract and Service Level Agreement concluded, hence this application.

 

THE APPLICANT’S CASE

[16] The applicant’s main contention is that as a Municipality duly established in terms of Section 12(1) read with Section 14(2) of the Local Government; Municipality Structures Act 117 of 1998 (The Structures Act) has, as provided in the Constitution, adopted and implemented a Supply Chain Management Policy and a Code of Conduct applicable to parties involved in its procurement processes. These policies conform with the principles enshrined in the Constitution. Further that, by virtue of the fact that the third respondent was appointed in terms of Section 139(1)(c), of the Constitution, his intervention is confined to failures to comply with executive obligations. The applicant argues that, true to preserving the distinctiveness of a Municipality, intervention in the legislative domain of a Council is not tolerated. The applicant maintain that only in very exceptional circumstances may a Council be dissolved and its Legislative function taken over by the Province.

[17] As a starting point I fully agree with this proposition by the applicant. However, this is not the case of the first respondent either. The first respondent does not contest this issue. But the contention of the applicant does not end here. The applicant raise a further issue to the effect that the mere fact that the third respondent was appointed as envisaged in Section 139(1)(c) of the Constitution, does not in itself suggest that he is not bound by the Constitution and the enabling statutes which are applicable to the applicant. In fact, their proposition continues to the effect that, when conducting the affairs of the applicant, and in particular when procuring goods and services, the third respondent was obliged, just like the Council of the applicant that was dissolved when he was appointed, and/or any of its structures, to adhere to the Constitution, the enabling statutes and the policy documents. I fully agree with this proposition.

[18] Despite the fact that this application was brought before this Court after the applicant had already paid partly in terms of the impugned contract by the various Acting Municipal Managers / Administrator as afore mentioned,  I furthermore agree with the applicant that the action, in particular, that of  the current Municipal Manager, in deciding to institute the current proceedings to set aside its appointment of the first respondent by the third respondent including the SLA concluded, after conducting a due diligence pertaining to the compliance issues, is sanctioned by our law and the above mentioned legal principles.

[19] The pertinent issue raised in the applicant’s case is that the appointment of the first respondent offends the principles of legality.  In the main, they contend that, the first respondent was appointed without any lawful tender process being adhered to as envisaged in Section 217 of the Constitution read with the enabling legislation and the policy documents applicable to the applicant as a Municipality.  In addition, that the first respondent was appointed at the time when the applicant was in fact having a Security Company which was still offering those services.  The applicant demonstrated by annexing Annexure “N7”, a remittance advice of both entities for a period of five months, which reveals an absurd situation according to it that the applicant is faced with to wit:-

(a) A huge amount of fees charged as compared to those charged by Tshireletso Security;

(b) Two security bills to pay for both companies which offer the same security services

The applicant’s argument is that the situation could have been resolved by extending the Tshireletso Security mandate if ever there were more areas in the Municipality which needed urgent security services as the first and third respondent contended.

[20] The applicant’s Counsel submitted that it is evident from the papers filed in this matter, that the third respondent appointed the first respondent by a mere letter dated 4 November 2014, when infact there were no grounds advanced by the third respondent in this letter justifying why an open and transparent bidding process was not followed as envisaged in section 217 of the Constitution read with the applicant’s enabling legislation.

[21] He added that, it is apparent from the appointment letter that the third respondent appointed the first respondent with total disregard of the procurement processes which were applicable at the time.  Furthermore that, the first respondent was appointed without the relevant procurement structures of the applicant being engaged, including the relevant officials.  No reason, at all is furnished for such a deviation.

[22] Equally so, his arguments continued, upon perusal of the SLA concluded between the first respondent and the third respondent, it is important to highlight that no reason is furnished, at all, for the deviation.  The SLA simply records that:-

“WHEREAS the Supply Chain Policy of Ngaka Modiri Molema District Municipality provides in Section 32 for procurement of goods and services under a contract secured by another organ of state.”

[23] According to him, what is recorded in the SLA does not justify the departure from the normal procurement processes contrary to the peremptory provisions of the Constitution, the Municipal Finance Management Act 56 of 2003 (MFMA) and the applicable policy documents of the applicant.

[24] In expanding on the above submissions applicant’s Counsel submitted that the third respondent appointed the first respondent unlawfully and illegally without providing any reasons for deviating from  Treasury Regulation 16A6.4 which also provides as follows:-

“If in a specific case it is impractical to invite competitive bids, the Accounting Officer or Accounting Authority may procure the required goods or services by other means, provided that the reasons for deviating from inviting competitive bids must be recorded and approved by the Accounting Officer or Accounting Authority.”

[25] Furthermore that, Practice Note 8 of 2007/2008 deals with Supply Chain Management: Threshold values for the procurement of goods, works and services by means of petty cash, verbal / written price quotations or competitive bids, and provides at paragraph 3.4.3, as follows:-

“Should it be impractical to invite competitive bids for specific procurement, eg in urgent or emergency cases, or in case of a sole supplier, the Accounting Officer / Authority may procure the required goods or services by other means, such as price quotations or negotiations in accordance with Treasury Regulation 16A6.4. The reasons for deviating from inviting competitive bids should be recorded and approved by the Accounting Officer / Authority or his or her delegate. Accounting Officers / Authorities are required to report within 10 working days to the relevant Treasury and the Auditor-General all cases where goods and services above the value of R1 million (VAT inclusive) were procured in terms of Treasury Regulation 16A6.4. The report must include the description of the goods or services, the name/s of the supplier/s, the amount/s involved and the reasons for dispensing with the prescribed competitive bidding process.”

[26] He relied on the case of  Chief Executive Officer, South African Social Security Agency, and Others v Cash Paymaster Services (Pty) Limited 2012 (1) SA 216 (SCA), wherein the Supreme Court of Appeal, in considering the meaning and effect of Treasury Regulation 16A6.4, stated that:-

“[21]……First, there must be rational reasons for the decisions. That is a material requirement. Second, the reasons have to be recorded. That is a formal requirement. The basis for these requirements is obvious. State organs are, as far as finances are concerned, first of all accountable to the National Treasury for their actions. The provision of reasons in writing ensures that Treasury is informed of whatever considerations were taken into account in choosing a particular source and of dispensing with a competitive procurement process. This enables Treasury to determine whether there has been any financial misconduct and, if so, to take the necessary steps in terms of regulation 33.” [Emphasis added]

[27] He also referred the Court of the Constitutional Court case of Albutt v Centre for the Study of Violence and Reconciliation, and Others 2010 (3) SA 293 (CC) wherein it was stated that, rationality is not about whether other means could have been used. In this regard it drew a distinction between the test for reasonableness and the test for rationality and pointed out that review for reasonableness is about testing ‘the decision itself’, whereas review for rationality is about testing whether there is a sufficient connection between the means chosen and the objective sought to be achieved.

[28] The last case he referred to was a Supreme Court of Appeal matter of TEB Properties CC v The MEC, Department of Health and Social Development, North West, an unreported judgment (792/10) [2011] ZASCA 243 (1 December 2011), wherein the Court had an opportunity to properly interpret section 217 of the Constitution with regard to section 38 of the Public Finance Management Act 1 of 1999 (PFMA) and Treasury Regulation 16A6.4 and held as follows:-

“[28] It was accordingly argued that regard being had to the fact that: (i) Kgasi was, as the acting head of the department, its accounting officer; and (ii) in that capacity, had the authority to deviate from the bidding process, it was not incumbent upon the appellant to enquire as to whether internal procedural requirements pertaining to procurement of goods or services without any reference to a bidding process had been complied with by Kgasi. For these propositions the appellant relied on, inter alia, two judgments of this court in CEO, SA Social Security Agency NO & others and City of Tshwane Metropolitan Municipality v R P M Bricks (Pty) Ltd.

[29] This argument cannot be sustained. In CEO, SA Social Security Agency this court, in considering the import of s 217(1) of the Constitution, said the following: (paras 15 and 17)

‘Section 217 (1) of the Constitution prescribes the manner in which organs of State should procure goods and services. In particular, organs of State must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective. This implies that a “system” with these attributes has to be put in place by means of legislation or other regulation. The main object of the PFM Act is to secure transparency, accountability, and sound management of the revenue, expenditure, assets and liabilities of the institutions to which the Act applies. . . The PMF Act, read with the Treasury, Regulations, is such legislation . . .’

[30] When the head of a department, as the accounting officer, deems it prudent to deviate from the requirements of the bidding system he would nonetheless still be required to provide ‘rational reasons for that decision’ as this is a material requirement. The rationale for this requirement was described as ‘obvious’ in Chief Executive Officer, SA Social Security Agency NO

[31] Moreover the appellant’s reliance on City of Tshwane Metropolitan Municipality is, in my view, misplaced for at least three reasons. First, the requirements of s 217(1) of the Constitution read with the provisions of s 38(1)(a)(iii) of PFMA and Regulation 16A6.4 are not of a formal nature but are material. Second, the provisions of s 217(1) are peremptory as are the requirements of s 4 of the North West Provincial Tender Board Act. Third the mischief that these statutory prescripts seek to prevent would be perpetuated and the objective that they seek to promote would be undermined ‘if contracts were permitted to be concluded without reference to them and without any resultant sanction of invalidity.’ As to the provisions of s 4(1) of the North West Tender Board Act, they make it plain that the exclusive power to, inter alia, arrange the hiring and letting of anything on behalf of the Government vests in the Provincial Tender Board. It is thus axiomatic, as this court in fact found in Eastern Cape Provincial Government & others, that’s 4(1) disables the province from acting autonomously in that regard’.”

[29] As far as the duration of the contract is concerned, the applicant’s Counsel submitted that Regulation 36 read with the applicant’s Supply Chain Management Policy contemplates deviation in order to address an interim measure. Regulation 36, read with the applicant’s Supply Chain Management Policy does not contemplate that in addressing an emergency, an interim measure can exist beyond the purported emergency.

[30] Based on this regulation he argued that a contract concluded for a duration of three years clearly illustrates the point that no emergency existed, but that the first respondent was preferred without any justification, to the detriment of other service providers.  A contract of three years was not an interim measure but it perpetuated the unlawful conduct of the third respondent to have appointed the first respondent unlawfully.  The third respondent has failed to adduce evidence justifying its conduct for appointing the first respondent on a three year contract and thereby denying other service providers to bid for the services which were offered by the first respondent.

[31] To supplement on this proposition Advocate Mokoena SC representing the applicant referred this Court to a case of Minister of Transport NO v Prodibo [2015] 2 All SA 387 (SCA) wherein the Supreme Court of Appeal went further to interpret section 217 of the Constitution having regard to section 38 of the PFMA, and held as follows:-

“[33] Section 38(1)(a)(iii) of the PFMA reads as follows:

“(1) The accounting officer for a department, trading entity or constitutional institution –

(a) must ensure that that department, trading entity or constitutional institution has and maintains –

(iii) an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective.”

Mr Mahlalela was the accounting officer of the Department. It was incumbent on him to have regard to constitutional principles, the provisions of the sub-section set out above and other statutory prescripts. The High Court erred by not having sufficient regard to constitutional norms and statutory requirements and concluding that the decision to produce the new licences in-house could only have been facilitated by an extension of Prodiba’s contract and that a competitive bid would not have been viable where the supply of services would have been for a very limited duration. The High Court ignored the very extensive period during which Prodiba enjoyed a monopoly and did not properly appreciate that the five year extension period was not of very limited duration. More importantly, the agreement was one in respect of which Prodiba was required to provide a new service dealing with new technology in respect of which potential competitors were not engaged. Moreover, in describing Prodiba as an innocent party which would be prejudiced if the agreement was to be terminated, the court below ascribed to it a level of naivety that was unjustified. At the outset it succeeded a successful tenderer. In 2009 it was a bidder when a new tender was invited and ultimately not proceeded with. Prodiba knew that new technology and a new process was required and that the cost implications for the State were enormous. It must have been obvious that what was required was a competitive process which was circumvented by the agreement under discussion.”

[32] In further substantiating the applicant’s argument, Advocate Mokoena SC also relied on two judgments of this Division already mentioned above in demonstrating that the third respondent, even though he filed an affidavit in this matter, could not justify his unlawful, illegal and unconstitutional conduct in appointing the first respondent.  Specific reference was made to the following paragraphs of the judgment of Gura J in the Azranite Investment matter:-

“[22]During argument, Mr Davis for the respondent referred the Court to a recent judgment by Landman J, and urged me to follow that decision.  The parties in that case were the same as in the present except the first respondents.  In that judgment the Court found that a contract which was entered into in order to address an emergency situation where the duration of the agreement was 36 months was legally in order.

AND

“[23]I am unable to agree with my brother (Landman J) in this regard.  In my view, a contract entered into for emergency situations must address the emergency situation now and in the not distant future. The administrator must, forever keep in mind, that the intervention in terms of section 139(1) of the Constitution is an interim measure by the Provincial Government aimed at healing or addressing the problems which the municipality finds itself in.  The administrator should not be allowed to bind the municipality in a long term contract whilst masquerading under the cover of an “emergency situation”.  If he/she does enter into such a long terms contract, there must be reasons why he/she cast his/her net so far into the future.  How on earth, could the administrator have known or foreseen, that thirty to thirty six months after the conclusion of the agreement, the same emergency situation would still be in existence?  Incidentally, on 20 October 2017 Landman J granted the applicant leave to appeal specifically on the finding relating to the duration of the contract, being 36 months.”

 

THE FIRST RESPONDENT’S CASE

[33] Advocate Van der Merwe SC appearing on behalf of the first respondent in his submission mainly concentrated on trying to show the Court that the applicant’s version relating to the issue whether there was an emergency or not, should not, using the Plascon Evans rule, be relied upon as it denied the existence of an emergency situation when this contract was concluded.  For this submission, Advocate Van der Merwe SC relied heavily on the affidavit that was filed by the third respondent explaining that his appointment was made on an emergency basis, which appointment is allowed in terms of regulation 36 of the Municipal Supply Chain Management Regulation, 2005, read with Clause 12.2.2. of the Supply Chain Management Policy of the applicant.

[34] He further submitted that the applicant’s replying affidavit does not deal with or address at all the details of the factual averments as provided by the first respondent in these regards.  He argued that it is not for the first respondent in this matter to deal with the evidence in other matters heard in this Division and to either show that the respondents in those matters did not properly and thoroughly present their cases, or, possibly, that the factual findings in those matters were not justified, which might also be due to a variety of possible causes.  One such possibility according to him is that, the applicants in those cases perhaps made incorrect statements as it did in this matter, and thereby caused the Courts in those matters to make incorrect factual findings.

[35] He submitted further that this Court should approach the factual background supplied in this matter afresh, and thereafter only apply the applicable legal principles to those facts.  He opined that regard to the legal principles of the other judgments from this Division which the applicant relied upon may well be of importance, but only in regard to the legal principles pronounced upon them.  He submitted that the applicant in this matter should, in its replying affidavit, have conceded to the fact that its founding affidavit contains incorrect factual allegations.  Instead, the replying affidavit attempts to confirm the incorrect statements in the founding affidavit.

[36] The factual averments which Counsel for the first respondent refers to and took much time deliberating on mainly refers to whether there was an emergency situation or not at the time the tender was awarded to the first respondent, an issue which I had already pronounced on when I was dealing with the factual background of this matter.  I have already made a finding that in view of the decision by the Constitutional Court and the two judgments in this Division, I am prepared to accept the version of the first respondent that was supported by that of the third respondent that the contract was concluded at the time the emergency situation persisted.

[37] But the question this Court has to answer does not end here. To bring itself within the aforementioned section and legislative prescripts the third respondent will have to demonstrate, and not just merely allege, that it was impractical for him to invite competitive bids. On the supposition that the afore-going could be done then, and only then, would the third respondent be justified to deviate from the regular process, but in such a case the reasons for the deviation must also be recorded and approved by the Accounting Officer or Accounting Authority of the applicant, a Constitutional institution, or public entity.

[38] I have already indicated that much of the submissions made by the first respondent’s Counsel was devoted to the factual averments of whether there was an emergency situation. However, the submissions of the first respondent’s Counsel to answer the two questions above were very brief even in his written heads of argument. Quoting them verbatim they were couched as follows:-

“[86] It is clear that administrator and his team of experts were justified to conclude an emergency placement which was to the effect that visible steps should be taken to demonstrate to the various communities that the administration was now intending to restrict institutional and infrastructure service delivery. Time was evidently of essence to have the equipment repaired and replaced in order that water and sanitation could be provided to the communities. That was the only way to restore law and order and to prevent loss of life and serious damage to property;

[87] There are very little prescripts for the way in which urgent procurement can be obtained under such urgent circumstances;

[88] It is clear that there was no time to play with for the Administrator and his team. The process followed has been dealt with above. This was not the Administrator acting clandestinely on his own.  This was a team effort fully canvassed with the team of experts appointed by the Provincial Government and with an independent Emergency Bid Adjudication Committee;

[89] The Administrator explained that the first respondent was appointed provisionally on condition that it would have to be approved by an Emergency Bid Adjudication Committee. That explains why the services commenced prior to any contract having been signed. The Service Level Agreement was then signed in advance of approval by the Emergency Bid Adjudication Committee. It was signed by one of the team members as a witness. The final appointment letter was written only on 4 November 2015 after the newly appointed Emergency Bid Adjudication Committee approved that appointment;

[90] We submit that there are features distinguishing this case from the Moto-Tech judgment, where it was held that the administrator in that instance did not act in a transparent manner.

[91] There is nothing suspicious about the above sequence and process. The Service Level Agreement, which was still conditional, enabled the said committee to consider the appointment with all the facts and terms of the proposed contract available to the members thereof. First respondent then accepted the qualification imposed by the said committee;

[93] There is no suggestion that apart from Tshireletso any other service provider should have been considered. The third respondent explained in his affidavit that Tshireletso did not render proper services during the first week of the emergency and apparently sided with the previous Councillors and officials.  Therefore Tshireletso could not be relied upon as it was also under suspicion whether it was properly awarded;

[96] The Administrator confirmed that he and the panel were of the opinion that Tshireletso was not able to render the required service on short notice.  The additional service was required to stem the violence immediately.  Note that first respondent already commenced to render services within the first two weeks of the Administrator taking office, when the protest action of the officials was still ongoing;

[100]The period of three years is explained by the Administrator. This would give security of tenure for the huge contingent of qualified security personnel that the first respondent had to appoint, and that had to be recruited.  At the same time, however, the appointment as finalized on 4 November 2014, was on the basis that the contract could be reviewed twice per annum.  In the result there was an escape clause should a reason arise to terminate the contract, or to scale it down;

[102] It is submitted that by placing a motivation before the Emergency Bid Adjudication Committee, the recording requirement of Regulation 36 of the Supply Chain Management Regulations of the National Treasury, echoed by Clause 12.22 of the Supply Chain Management Policy of the applicant was complied with. The applicant, who placed only parts of documents before court, does not react to the challenge that the motivation be placed before the Court. It is to be noted that the motivation was furnished before the contract was finally concluded on 4 November 2014;

[104] We submit that any failure or insufficiency of the duty of the official officials of the applicant to record the reasons for the deviation from the ordinary procedures should not be construed to have the effect of causing a validly entered into contract to be invalidated.  The recording duty is a separate self-standing formal duty.  See: Chief Executive Officer SA Social Security Agency and O v Cash Paymaster Services (Pty) Ltd 2012 (1) SA 216 (SCA) at par 21.  It is the duty of the official to report it to the Accounting Officer, who is further required to report it to the next meeting of the council. In this instance there was no Council at the time and the Administrator was occupying the office of Accounting Officer.

[105] There was at the least, substantial compliance.”

[39] Unfortunately  I  do  not  agree  with the last  submission by the first respondent’s Counsel that there was substantial compliance.  For a number of reasons I fully agree with the applicant’s Counsel that the appointment of the first respondent  offends  the  principles  of legality in many respects even though the situation that  was prevailing called for an emergency.  The decision to appoint the first respondent was not in my view rational.  It cannot be sustained legally or otherwise. The third respondent circumvented the entire procurement processes without any sound and/or valid reason and/or justification proferred. I need not deal with the law that is the basis of this finding, as it was thoroughly analysed in the three judgments of this Division referred to and also because, the parties are ad idem that those are the applicable legal principles the third respondent was to adhere to in emergency situations.

[40] If one has regard to the sequence of the factual averments which relates to the conclusion of the contract in question which are common to both parties, it is quite clear that the third respondent acted unilaterally to appoint the third respondent in the first place.  It is admitted by the first respondent that a written offer to the first respondent was made on 8 October 2014, and the first respondent started on 9 October 2014, the following day, with its contractual duties.  On 10 October 2014 the Municipal Manager Mr Mojaki was suspended.  Even if we can accept the fact that the third respondent did unilaterally appoint the first respondent because Mr Mojaki was insubordinate and undermining him, the fact remains that, the third respondent could not do this function alone.  He cannot make an offer on his own, decide on the offer and appoint the service provided himself despite how dire the situation was, more especially because there were legal prescripts available to deal with the emergency situation he found himself in.  Contrary to what the legal Counsel of the first respondent said in his submission that the prescripts were very limited or non-existing, the applicant managed to show that they were available.

[41] To this Court’s dismay, the third respondent claims that at that time the team of experts who were assisting him were already appointed.  In his affidavit he talks about the fact that he consulted with them and had a meeting with them prior to making an offer.  The problem with this averment is that no date was provided for this meeting.  This problem is exacerbated by the fact that from his affidavit and the papers that he attached, we were not supplied with a date when the purported Emergency Bid Adjudication Committee was elected and appointed.  We are only told about their Inaugural meeting which took place on 4 of November 2014.  But this Inaugural date is almost three weeks after the contract was offered to the first respondent and the guarding services already commenced, and worse, after the SLA was already signed on 29 October 2014. A cherry on top is that the purported copy of the minutes of the said Inaugural meeting is attached to the papers before Court, but not even a single member of this Committee, including the third respondent himself, signed same. No reasons were proffered for all this anomalies. What is furthermore noticeably and strikingly absent is a single confirmatory affidavit from all these experts, to confirm what was said by the third respondent.

[42] The third respondent claims that he acted with full support and authorization of the team but they are noticeably silent on this important aspect. One wonders whether the third respondent did not make them aware of all these series of cases that are against him.  The only time their signature appears is in the SLA but as indicated, it was done long after the contract was concluded, in most probabilities, as an effort to ratify what was already done illegally.

[43] I can do no better than quote paragraph 43 of the judgment of the Full Court of this Division in the Moto-Tech judgment already quoted above to emphasize that the third respondent did not have any power to unilaterally take decisions or conclude contracts.

“[43] I share the sentiments raised by the Constitutional Court that the dire situation necessitated emergency measures to be applied by the Administrator in order for the Municipality to fulfil its Constitutional mandate. However, the conduct of Mr Nair was vitiated by the lack of transparency and accountability.  He assumed the responsibilities of the accounting officers and usurped their powers and unilaterally concluded the service level contract worth millions of rands (R2, 500 000-00) with Moto-Tech. He is the only signatory to the written contract on behalf of the Municipality. An interpretation that suggests that Mr Nair had the sole authority to contract with service providers without any checks and balances would be contrary to the rule of law and the principles of legality and thus ultra vires and not in accordance with his terms of reference.”

[44] I fully agree with the third respondent that it would have been futile for the Administrator (himself) acting in the stead of the non-functioning Accounting Officer, Mr Mojaki, to report the situation to himself, although it is clear that he did same, as he appointed the first respondent, informed them of his decision even before he appointed the emergency Bid Adjudication Committee as alluded above. This flies against what he said in his affidavit that approximately 40 employees were co-operative during this era.  Furthermore, we are not told that the Manager Supply Chain Management was approached and he refused to co-operate too before the offer was made.  Even though there was an emergency situation that persisted, Section 139(1)(c) of the Constitution is not a license to anarchy.

[45] The other problem worth mentioning is that the purported Emergency Bid Adjudication Committee appointment also fell outside the lawful recognized structures of the applicant as found by Gura J in his judgment.

[46] A further anomaly is that the first respondent was appointed while Tshireletso was still offering security services on behalf of the applicant.  It was only on 25 November, long after the SLA was allegedly concluded that, as an afterthought, an advice and justification was sought from Mr Mekoa who was at all the times available and overlooked, about Regulation 36.  The last nail to the coffin of the first respondent’s case in as far as the anomalies are concerned, is the fact that the sequence of event reveals that the SLA was concluded on the 29 October 2014, and a letter that officially appointed the first respondent was dispatched by the third respondent to the Director of the first respondent on 4 November 2014. It simply cannot escapes one’s mind as to how a SLA could be signed on 29 October 2014,a date prior to the appointment of the service provider, because the first respondent was appointed only on 4 November 2014. There is no plausible explanation for these glaring irregularities coming from the first and/or third respondents.

[47] In our proceedings, apart from the fact that evidence or facts justifying deviation from invoking the provisions of the prescripts of the applicant in the case of procuring services in an emergency situation were not recorded in writing by the third respondent as required, there was also no motivation at all, from an authorized official of the applicant, let alone the third respondent himself, justifying any form of deviation at the time the tender was awarded.  The relevant authorities and structures were simply ignored and not engaged throughout the unlawful process that led to the appointment of the first respondent.

[48] The duration of the contract instead of salvaging the case of the first respondent added woes to it.  I fully agree with the sentiments by Gura J in his judgment already quoted above that a contract entered into for emergency situation must address the emergency situation now and not in the not distant future.

[49] In distinguishing the cases of this Division relied upon by the applicant the respondent’s Counsel submitted that:-

49.1 In the matter between the Ngaka Modiri Molema District Municipality as appellant, Moto-Tech (Pty) Ltd as first respondent and Mr Nair NO as second respondent, a full bench of the above this Court already quoted above, dealt with another appointment made by the administrator, namely Moto-Tech as a service provider to repair water and sanitation infrastructure of the applicant.  This appointment was made on 10 October 2014. It speaks for itself that this judgment thus relates to a comparable situation, because Naphtronics was appointed inter alia to provide security for this contractor and to guard the installations where this contractor would render services in order to make service delivery possible. The Court held that there was no reason for the Administrator to bypass the Municipal Manager. He submitted that it seems as if the Court was misled by the Municipality to believe that the Municipal Manager was willing and able to perform his functions – as also alleged in this matter by the applicant. According to him that is incorrect. This distinguishes the two matters but there are other important differences as well;

49.2 It seems that the suspension of the Municipal Manager pending his disciplinary hearing and charges of gross insubordination and corruption was not brought to the attention of the Court.  The Court was apparently also not made aware of the hostility of the senior officials of the Municipality and was left under the impression that the various Bid Adjudication Committees remained in place, were fully functional and were above suspicion of being part of the corruption of the past that brought the applicant to its knees;

49.3 In paragraph 41 of their judgment the Full Court emphasizes that regulation 36 specifically provides that the Municipal Manager may invoke this regulation and that sub regulation 8 prohibits the delegation of this power by the Municipal Manager. We submit that that is not applicable where the Municipal Manager was hostile, had to be suspended, and was in fact suspended on 10 October 2014. Clearly in such case the Administrator would step into the shoes of the Municipal Manager, until one is appointed again – which happened during December 2014, when Mr Nair was appointed as Acting Municipal Manager. Obviously if the Court was aware that the Municipal Manager was suspended the judgment would have been totally different on this issue;

49.4 In this matter, on the evidence before Court that cannot be doubted, it is clear that the Administrator did not act unilaterally.  The above differences already distinguish the facts of the present matter from the facts upon which the full Court decided the Moto-Tech matter;

49.5 In the result, furthermore, in this instance Mr Nair made it abundantly clear that he involved the advisory team appointed by the Provincial Government, throughout in the decision making also in regard to the appointment of the first respondent.  The applicant elected not to refute this in the replying affidavit.  In the result, the facts in this matter are totally different from the facts upon which judgment of the full Court is based; 

49.6 Gura J points out that the contract in that matter was not a formal written contract. In this matter that is totally different.  Gura J was not prepared to accept that an emergency can justify a contract that is entered into for three years. We submit, with respect, that Gura J, on the available facts in that matter was perfectly correct in taking that stance. However in our matter the situation is different. There is evidence before court that a good reason existed why that contract had to be for a long time.

[50] I fully agree with the applicant’s Counsel that this Court has already pronounced on the conduct of third respondent and on similar contracts, and further that, although the facts are not exactly the same, the analysis of the issues in those judgments and the legal principles involved cannot be distinguished from our matter.

[51] One thread that certainly cuts across all these judgments is to the effect that “to bring itself within the aforementioned section the Third Respondent will have to demonstrate, and not just merely allege, that it was impractical for it to invite competitive bids.  On the supposition that the foregoing could be done then, and only then, would the Administrator (Third Respondent) be justified to deviate from the regular process: but in such a case the reasons for the deviation must be recorded and approved by the accounting officer or accounting authority of the Applicant, constitutional institution, or public entity.”  It is worth mentioning that the Administrator talked about in those judgments is the same Mr Nair, the third respondent in this matter and furthermore the judgments dealt with the same period when the emergency situation persisted.

[52] The following paragraph from the judgment of the Full Court demonstrates this:-

“[39] The duty of the administrator was to put systems in place which would enhance the performance of the accounting officers, and the Municipality in general. This, Mr Nair had to do by utilising the services of the Municipal Manager and all other relevant officers. I have alluded to the fact that the Municipal Council has the power to appoint a Municipal or Acting Municipal Manager. It may also be assumed that this power was delegated to Mr Nair as Administrator, as it appears in clause 1 and 2 of his letter of appointment that he was to: “(1) Manage the overall administration of the municipality; (2) Stabilise and improve governance and administration within the Municipality (Council and administration)”. I pause here to observe that on 4 June 2015, when Ms Nono Dince was appointed administrator of the Municipality in terms of Section 139(1)(b), she appointed an acting Municipal Manager and an Acting Chief Financial Officer.”  [My Emphasis]

[53] The circumstances leading to the agreement concluded between the first and third respondents are not different from those already pronounced upon by the various judgments of this Division referred above, even though in our matter they were reformulated with the aim of trying to get another bite of the same cherry. The reformulated facts and those that are alleged to have not been disclosed to the previous Courts in this Division are in my view insignificant, and cannot even begin to warrant a different conclusion in this matter. Equally so, the contract concluded between the first respondent and the third respondent will as a matter of fact and premised on the sound legal principle as enunciated in the various judgments of the Constitutional Court, the Supreme Court of Appeal, including the three judgments of this Division referred to above, is bound to be reviewed and set aside.

[54] In this judgment, the following issues were not dealt with because they were overtaken by events that took place before the hearing of this matter:-

· Part A of this application

· Issue of Authority

· Issue of Pende Lite

· Counter-claim by the first respondent


JUST AND EQUITABLE REMEDY

[55] The first respondent contends that in the event this Court upholds any ground of review, the question of an appropriate, just and equitable remedy arises.  Advocate Van der Merwe SC urged this Court to exercise its remedial discretion and order the applicant to pay for the services the first respondent allegedly rendered.  He submitted further that in this instance it cannot be disputed that the services that were rendered were required by the applicant.  In expanding on this submission he argued that the officers of the applicant continued to use the services of the first respondent even after the departure of the third respondent and could not timeously review this contract.

[56] He mentioned the fact that it should be taken into account that there was no way in which the first respondent could have known that the contract was invalid because the first respondent throughout dealt with the third respondent and a team appointed by the North West Government to replace the Municipal Management that was believed to have been corrupt.  The first respondent was only aware of the requirement that a newly appointed Bid Adjudication Committee had to approve of the contract before it would become unconditional and thus binding on the applicant.  There was thus no reason for the first respondent to doubt the validity of the contract.

[57] He maintained further that, it appears that a large number of employees who duly rendered services to the applicant via the first respondent, but were not paid, are still suffering severe prejudice, and that can only be alleviated by ordering the applicant to pay for the services rendered.

[58] He submitted further that under these circumstances this is a case where a just and equitable order is called for.  He referred the Court to the matter of Bengwenyama Minerals (Pty) Ltd and others v Genorah Resources (Pty) Ltd and others 2011 (4) SA 113 (CC) where the following appears:

“[84] The discretionary choice may not precede the finding of invalidity.  The discipline of this approach will enable courts to consider whether relief which does not give full effect to the finding of invalidity is justified in the particular circumstances of the case before it.  Normally this would arise in the context of …prejudice if the administrative action is set aside.”

He also indicated that the following cases can also be referred to also: Allpay Consolidated Investment Holdings and Others v Chief Executive Officer of the South African Social Security Agency and Others 2014 (1) SA 604 (CC) at par 22 and 96; and Allpay  Consolidated Investment v CEO, SA Social Security Agency, 2014 (4) SA 179 (CC) at par 29 to 33.  See also: Merafong City v Anglogold Ashanti Ltd 2017 (2) SA 241 at paragraphs 33 to 37 and 80.

[59] According to him there is in this instance no reason advanced by the applicant why the first respondent should not be compensated for the services rendered to the applicant in good faith and under promise of payment from many Senior representatives of the applicant.  He submitted that the applicant should not be allowed to benefit at the costs of the first respondent and its employees from its own failure to act correctly (if indeed it acted incorrectly, which is by no means conceded).  He urged the Court to take into consideration that the applicant already in January 2015 was made acutely aware of the situation and it was suggested by one of its employees that a just solution could be to allow the services to be rendered on a month to month basis.

[60] He urged this Court to order the applicant to pay, with a proviso that the liquidator should first come and report as to whether the first respondent made a profit or not.  He however submitted that prima-facie it does not look like the first respondent benefited from the contract.

[61] Lastly, he reiterated the fact that all the facts which the applicant relied on in this matter to substantiate the setting aside of the contract were in fact within the third respondent, who was acting in the interest of or on behalf of the applicant. Consequently, the first respondent was an innocent contracting party, who cannot be held responsible if there was no internal compliance as the applicant claims.

[62] In the case of Municipal Manager: Qaukeni Local Municipality and Another v FV General Tracing CC 2010 (1) SA 356 (SCA), it was held that the failure to implement a supply chain management policy does not mean that a Municipality contracting with an external supplier is therefore relieved of the obligation to act transparently and to follow a fair, competitive and cost-effective bidding process (paragraph [13] at 361 E-F). To the contrary: a failure to comply with these precepts renders the contract invalid and open to nullification by a Court, no matter the consequential harm suffered by the external supplier (paragraph [14] and [16] at 361 F-H and 362 G). The Municipality may not submit to an unlawful contract and must resist the contractor's attempt to implement it. If the contractor applies for an order enforcing performance of the contract, the Municipality may ask for a declaration of unlawfulness by way of counter-application, and need not proceed by way of an application for formal review paragraph [26 at 365 F-H)  [quote from the summary of the case].

[63] In Eastern Cape Provincial Government v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA) at page 147 the Court held that:-

“[8] As to the mischief which the Act seeks to prevent, that too seems plain enough. It is to eliminate patronage or worse in the awarding of contracts, to provide members of the public with opportunities to tender to fulfil provincial needs, and to ensure the fair, impartial, and independent exercise of the power to award provincial contracts. If contracts were permitted to be concluded without any reference to the tender board without any resultant sanction of invalidity, the very mischief which the Act seeks to combat could be perpetuated.

[9  As to the consequences of visiting such a transaction with invalidity, they will not always be harsh and the potential countervailing harshness of holding the province to a contract which burdens the taxpayer to an extent which could have been avoided if the tender board had not been ignored, cannot be disregarded. In short, the consequences of visiting invalidity upon non-compliance are not so uniformly and one-sidedly harsh that the legislature cannot be supposed to have intended invalidity to be the consequence. What is certain is that the consequence cannot vary from case to case. Such transactions are either all invalid or all valid. Their validity cannot depend upon whether or not harshness is discernible in the particular case.”

[64] In Esorfranki Pipelines (Pty) Ltd and Another v Mopani District Municipality and Others [2014] 2 All SA 493 (SCA) matter, the Supreme Court of Appeal found as follows:

“[22] The decision of the high court to give effect to a contract concluded pursuant to an unlawful tender award is flawed for several reasons. First, the parties to that contract had acted dishonestly and unscrupulously and the joint venture was not qualified to execute the contract. The first order that the high court made – that the award was unlawful – was undermined by the order that the joint venture continue the work. The second reason is that it was premised on the possible existence of a number of unknown consequences which might follow upon an order declaring the award of the tender unlawful. A decision made in the exercise of the discretion in s 8 of PAJA must be based on fact and not on mere speculation. The delay in the finalization of the review proceedings brought about a change in the factual position and it was the function of the court to ensure that it be placed in a position to arrive at an informed decision with regard to what an appropriate remedy would be. This could and should have been addressed by an appropriately worded order.”  [Emphasis Added]

[65] In Bengwenyama Minerals (Pty) Limited and Others v Genorah Resources (Pty) Limited and Others 2011 (4) SA 113 (CC) the Constitutional Court in determining an appropriate remedy as envisaged in section 172 of the Constitution held that:-

“[84] It would be conducive to clarity, when making the choice of a just and equitable remedy in terms of PAJA, to emphasise the fundamental constitutional importance of the principle of legality, which requires invalid administrative action to be declared unlawful. This would make it clear that the discretionary choice of a further just and equitable remedy follows upon that fundamental finding. The discretionary choice may not precede the finding of invalidity. The discipline of this approach will enable courts to consider whether relief which does not give full effect to the finding of invalidity, is justified in the particular circumstances of the case before it. Normally this would arise in the context of third parties having altered their position on the basis that the administrative action was valid and would suffer prejudice if the administrative action is set aside, but even then the 'desirability of certainty' needs to be justified against the fundamental importance of the principle of legality.”

[66] Taking into consideration all the authorities quoted in the preceding paragraphs, the fact that there is no longer a contract that is existing between the parties at the moment because of effluxion of time, including the fact that at the time this contract was illegally concluded there was an existing security contract which was still in operation, I fully agree with Advocate Mokoena SC that there is no need to make an Order as suggested by the first respondent’s Counsel. To make such an Order will be undermining the conclusion that I reached above.

[67] In addition, the circumstances of this matter are entirely different from the one the Constitutional Court was dealing with in the case relied upon by the respondent of Allpay Consolidated Investment Holdings (Pty) Ltd and Others v CEO of SASSA and Others 2014 (1) SA 604 (CC).  In Allplay the interest of the elderlies in the whole Country was at stake and the Court were moved to exercise their remedial discretion.  Setting aside the decision in casu will not have adverse effect to a large number of members of a public.  Furthermore, the interest of an innocent third party as was advanced by Counsel for the first respondent regarding the profit or benefit accrued are largely in the domain of the arbitration which the first respondent had already embarked upon.

[68] There is therefore no grounds that exist for this Court to exercise its discretion in the manner proposed by the first respondent after having found the decision to be reviewable.

 

ORDER

[69] Therefore the following order is made:-

69.1 It is hereby declared that the decision of the third respondent and the procedures followed to appoint the first respondent for the provision of a 24 hour security services at all bulk water reservoir, sanitation facilities (WWTP) and all water infrastructure facilities, under contract number NMMDM: 14/15/38 TS, for a period of three (3) years, are unlawful;

69.2 It is further declared that the Service Level Agreement, dated 29 October 2014, purportedly concluded between the applicant, represented by the third respondent (in his capacity as the Administrator) and the first respondent is invalid, null and void ab initio and are hereby reviewed and set aside;

69.3 The decision of the third respondent to appoint the first respondent is reviewed and set aside;

69.4 The first respondent is ordered to pay costs including costs occasioned by the employment of a Senior Counsel where applicable, and those costs previously reserved if any.

 

 

________________

A.M. KGOELE

JUDGE OF THE HIGH COURT

 

 

ATTORNEYS

FOR APPLICANT: Motshabi & Modiboa Attorneys

No. 12 Havenga Street

Golf View

MAHIKENG

2745

FOR RESPONDENT: Koster Attorneys

C/O Nienaber & Wissing Attorneys

10 Tillard Street

MAHIKENG

2745