City of Tshwane Metropolitan Municipality and Others v New GX Enviro Solutions and Logistics Holdings (Pty) Ltd (53694/20) [2021] ZAGPPHC 390 (21 June 2021)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO.: 53694/20

REPORTABLE:NO

OF INTEREST TO OTHER JUDGES:NO

REVISED

21/06/2021

In the matter between:

CITY OF TSHWANE METROPOLITAN MUNICIPALITY ACTING MUNICIPAL MANAGER – CITY OF TSHWANE METROPOLITAN MUNICIPALITY THE ADMINISTRATOR – CITY OF TSHWANE METROPOLITAN MUNICIPALITY First applicant Second applicant Third applicant and NEW GX ENVIRO SOLUTIONS AND LOGISTICS HOLDINGS (PTY) LTD Respondent

JUDGMENT

van der Westhuizen, J

[1] The applicants seek to review certain of the first applicant’s (City of Tshwane Metropolitan Municipality) decisions on the principle of legality. The relevant decisions led to the appointment of the respondent to render waste processing services in respect of recyclable and non-recyclable household and business waste collected from two identified regions within the first applicant’s jurisdictional area. The second and third applicants are functionaries of the first applicant.

[2] The bases upon which the applicants seek to review the first applicant’s said decisions are summarised as follows:

(a) The respondent’s appointment in respect of recyclable household and business waste from the stipulated two regions was contrary to the provisions of section 217 of the Constitution of the Republic of South Africa of 1996;

(b) The respondent’s aforesaid appointment was irrational under the particular circumstances;

(c) The deviation from the relevant prescripts to enable the respondent’s aforesaid appointment was irrational and unlawful.

[3] It is common cause that where an organ of state seeks to review its own decision, it may only do so under the principle of legality and not in terms of PAJA.[1] In this review the constitutionality of the first applicant’s decisions, sought to be impugned, is to be determined.

[4] There are further issues relating to the delay in launching this review, in the context of the dates of the decisions sought to be reviewed, and the alleged tardiness on the part of the first applicant in finalising its papers to be considered. In the latter regard, it is the late filing of a replying affidavit and heads of argument that require consideration. The respondent contends that those issues should be considered as a relevant factor when determining whether the review should be granted and the consequential remedy that should then follow.

[5] The relevant factual matrix upon which this review is premised, is as follows:

(a) The respondent drafted a proposal proposing the establishment of a sorting, recycling and composting facility at the Kwaggasrand landfill site which it presented to the first applicant;

(b) On 6 March 2015, a notarial lease agreement was entered into by the first applicant’s erstwhile City Manager and the respondent. The lease agreement was in respect of certain adjacent land to the Kwaggasrand Landfill Site for a period of 15 years. That agreement was entered into following on the proposal made on behalf of the respondent to the first applicant.

(c) The said lease agreement only made provision for the recycling of recyclable waste from the two identified and stipulated regions.

(d) In respect of non-recyclable waste, clause 10.6 of the lease agreement provided as follows:

“The Lessor may dispose of non-recyclable waste at the Property, such non-recyclable waste will be compacted, transported in bulk and disposed of by the Lessee at a licensed municipal landfill site on the terms and subject to the conditions to be determined by the Parties.”

(e) The first applicant and the respondent further agreed, in the lease agreement, that the first respondent would, at its own cost, upgrade the existing recycling facility on the said land into a Multi-Purpose Waste Recycling Facility over 3 phases.

(f) A report was tabled before the Executive Acquisition Committee (EAC) on 19 November 2015. The objective of that report was to propose the procurement of a waste transfer station service from the respondent in respect of all the non-recyclable household and business waste received from the said identified and stipulated regions. The intended proposed procurement was to be done in terms of regulation 36 of the Municipal Supply Chain Management Regulations[2] and which was subject to a process contemplated in section 33 of the Municipal Finance Management Act, 56 of 2003 (the MFMA). The said proposal originated from the respondent who was apparently alive to an expected crisis relating to the eminent closure of a particular landfill site.

(g) After consideration of the report and apparent comments from various relevant departments within the first applicant, the EAC resolved that:

(i) A deviation in terms of regulation 36(1)(a)(v) of the Municipal Finance Management Regulations be allowed from the normal procurement process and authorised the City Manager accordingly;

(ii) The respondent is appointed to provide the transfer station service for the two said regions (albeit that the one region was stated to refer to a different region from that referred to in the lease agreement);

(iii) The respondent’s appointment to be effective from the date of commercial operation of that facility up to March 2030, as aligned with the approved lease period, subject to the normal approval in terms of section 33 of the MFMA;

(iv) The appointment to be linked to the lease period for 15 years, effective from March 2015.

(h) A further resolution was passed on or about 23 June 2016 amending the resolution of 19 December 2015 in three respects: rectification of the incorrect region referred to; to reduce the duration of the respondent’s appointment to a period of three years pending the completion of the section 33 process; and, to impose certain conditions upon the respondent’s appointment. The appointment of the respondent for the three years remained predicated on a deviation in terms of regulation 36 and further remained in respect of non-recyclable waste. The stated purpose of the EAC’s decisions was to allow for terms and conditions to be agreed upon that would provide for the respondent being in a position to dispose of non-recyclable waste as was contemplated in clause 10.6

of the notarial lease agreement recorded earlier.

(i) In conformity of the EAC resolution of 19 November 2015, the City manager dispensed with the normal procurement process and issued an amended letter of appointment of the respondent in terms of the resolution of 23 June 2016.

(j) Following on the amended letter of appointment of the respondent, a service agreement was entered into on or about 10 August 2016 between the first applicant and the respondent. The terms of that service agreement (and contrary to the said EAC resolutions) provided for the respondent to render waste processing services to the first applicant for a period of three years in respect of all non-recyclable and recyclable household and business waste collected from the said two regions. Furthermore, the service agreement provided that the respondent would be paid a consideration for its service calculated on a waste disposal fee equal to the refuse removal portion of the bulk tariff less 10% as per the first applicant’s prevailing refuse service schedule. The service agreement further contained onerous provisions concerning tonnage and rates concerning recyclable waste.

(k) It is common cause that the respondent’s attorney drafted the service agreement on the respondent’s instructions.

(l) The first applicant, needless to say, repeatedly did not comply with the delivery of the service agreement’s stipulated tonnage of recyclable waste. That repeated failure on the part of the first applicant, resulted in the respondent considering that conduct of the first applicant as a breach of the service agreement and subsequently cancelled that agreement on or about 1 March 2019.

(m) In furtherance of the said cancellation, the respondent claimed damages from the first applicant, which claim was subject to arbitration proceedings. The first applicant in its defence and counterclaim challenged the legality of the aforesaid actions, on the part of the City Manager, that deviated from the EAC resolutions. That challenge was, by agreement between the parties, to be determined in a review application to be brought before this court. That review application is the present one.

[6] The first applicant, as a state organ, is obliged to follow statutory prescripts. The primary statutory prescript being the Constitution and in particular section 217 thereof. That section provides:

“1. When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

2. Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for –

a. Categories of preference in the allocation of contracts; and

b. The protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

3. National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.”

[7] The afore quoted passage of section 217 of the Constitution is given effect in sections 111 – 119 of the MFA, read with the Municipal Supply Chain Regulations (the MSCR). Further in this regard, section 111 of the MFMA prescribes that each Municipality and each Municipal Entity must have and implement a supply chain management policy. The regulations promulgated in terms of the MFMA prescribe the framework within which the policy referred to in section 217(2) of the Constitution must be implemented.

[8] Regulation 2(3) of the MSCR stipulates that no municipality or municipal entity may act in a manner that is not in accordance with its supply chain management policy when procuring goods or services. However, that supply chain management policy is to adhere to the prescripts of section 217 of the Constitution.

[9] The first applicant had, as required by section 111 of the MFMA and the MSCR, a supply chain policy in place that guided the first applicant in the procurement of goods and services.

[10] It is trite that when an organ of state procures goods or services contrary to the prescriptions of section 217 of the Constitution, such procurement is constitutionally invalid and hence unlawful.[3]

[11] Furthermore, it is trite that the procurement of goods and services by an organ of state is an exercise of public power and a performance of a public function. Accordingly, that decision to procure goods or services is to be rational to pass constitutional muster.[4]

[12] The test in respect of determining the rationality of the decision was stated in Albutt v Centre for the Study of Violence and Reconciliation et al[5] to be that the courts are obliged to examine the means selected to determine whether they are rationally related to the objective sought to be achieved. If it is found that the means, objectively considered, are not so related, they fall short of the standard

demanded by the Constitution. It would thus be constitutionally invalid.

[13] It is trite that regulation 36 of the MSCR permits a state organ to deviate from the normal (i.e. the prescribed) tendering processes in certain circumstances. In that regard, compliance with the requirement of competitive bidding may be excused. Regulation 36(1)(a) provides:

“(1) A supply chain management policy may allow the accounting officer-

(a) to dispose with the official procurement processes established by the policy and to procure may required goods or services through any convenient process, which may include direct negotiations, but only;

(i) in an emergency;

(ii) if such goods or services are produced or available from a single provider only;

(iii) for the acquisition of special works of art or historical objects where specifications are difficult to compile; or

(iv) acquisition of animals for zoos; or

(v) in any other exceptional case where it is impractical or impossible to follow the official procurement processes;”

[14] The EAC’s decision to deviate from the normal procurement processes was premised upon the respondent being an alleged sole provider in view thereof: that the respondent was “on-site”; and had been approved for a long-term lease with the first applicant. This view was contained in the aforementioned report of 19 November 2015. Reliance was placed upon the provisions of regulation 36(1)(a)(ii) of the MSCR.

[15] It is to be noted and recorded that the respondent, in a written confirmation by itself, was said to be a sole provider for a transfer station service that was required, induced the first applicant to deviate from the normal procurement processes. No market research was undertaken by the first applicant in that regard. The document recording the issue of sole provider for the required services was not traceable from the first applicant’s records. The respondent, who authored the document, un-obligingly, did not supply a copy thereof in these proceedings.

[16] There is a dearth of authority in respect of single-source procurement. However, in this regard Bolton[6] states that:

“Of all the procurement methods, however, single-source procurement has the greatest potential to defeat compliance with all the principles in section 217(1) of the Constitution, i.e. competitiveness, cost-effectiveness, equity, fairness and transparency. It is important, therefore, for proper safeguards to be in place.”

[17] It is submitted on behalf of the first applicant that when considering the deviation from the normal procurement processes on the premise of regulation 36(1)(a)(ii) of the MSCR, three reasons arise why the conclusion by the EAC that the respondent was a sole provider of the required services of a transfer station service, was irrational.

[18] The first reason advanced relates to the reliance by the EAC on the respondent’s self-confirmation of being a sole provider for the services required, without conducting an unbiased market analysis to confirm the position. The second reason relates to the EAC’s reliance on the respondent enjoying a 15 years lease of the property on which the transfer station services would be conducted, and was on-site. In this regard, it was submitted that those facts are irrelevant, as it would amount to the tailoring of a tender to suit the strength of a particular provider.[7] Thirdly, it was submitted, and it is common cause, that at the time when the deviation decisions were made, the initial multi-purpose

recycling facility was not yet built and/or in operation. Building thereof only commenced in June 2016. For that reason, it was

submitted that the respondent could not have been a sole provider of the services required.

[19] The aforementioned facts upon which the reasons for the irrational decisions were premised, were not disputed by the respondent.

[20] It follows that the EAC’s reasoning was seriously flawed.

[21] Considering the peremptory provisions of section 217 of the Constitution and the peremptory provisions of regulation 2(3) of the MSCR, the reliance upon the provisions of regulation 36(1)(a)(ii) of the MSCR by the first applicant bears close scrutiny.

[22] The respondent bemoans the fact that the applicants have not put forward all relevant documentation and had not provided “first hand” affidavit evidence by specific persons who were allegedly privy to the decisions to be impugned. It is common knowledge that the City of Tshwane Metropolitan Municipality recently endured a chequered history in its governance of the municipality. There were changes in the political governance and it was further subjected to so-called administration. The latter was the subject of litigation to re-instate the properly elected political party from which the power

to govern was wrenched during the administration period. Furthermore, it is also common knowledge that many key personnel were replaced from time to time during the aforementioned strife, in particular those personnel that were part of the decision making process under consideration. However, the relevant documents speak for themselves. Those are to be interpreted. It is essentially the decision that is to be measured against the prescripts of the Constitution for constitutional validity.

[23] Where the facts underlying the particular decisions are not in dispute, an informed determination can and should be made of whether those decisions were to be impugned. These relevant facts are recorded earlier.

[24] The submissions on behalf of the applicants in respect of the reasons advanced for a finding of irrationality of the decisions to be impugned, have merit for what follows.

[25] In view thereof that: the vexed service agreement included an extension of the services that were not authorised in any of the decisions of the EAC; that onerous conditions were included therein as indicated earlier, which were also not authorised by the EAC; and further that the service agreement was drafted by the respondent’s attorneys, there was clear non-compliance with the peremptory requirements relating to procurement of services. Particularly where the intended section 33 of the MFMA still has to be initiated and finalised.

[26] Further in my view, objectively speaking, the decisions of the EAC and the concluding of the service agreement by City Manager at the time, were irrational. There were no bases for the inclusion in the service agreement of the non-recyclable household and business waste, and the onerous conditions relating to the tonnage to be supplied by the first applicant. Furthermore, there is no merit in the respondent’s contention that an independent market analysis was conducted by a specific entity. That entity was the respondent’s own consultant. Hence, there was no independence. The first applicant

itself was obliged to do the market analysis. The first applicant merely relied on the say-so of the respondent. It was not verified by the first applicant in any manner. Objectively considered, there was no rational relation between the objective and the means.

[27] It follows that the further question to be determined is whether the aforesaid irrational decisions are to be impugned and what remedy should be afforded. The parties were at odds in this regard.

[28] The applicants were of the view that the said decisions should be set aside, whilst the respondent contended, in view of the lengthy period that had elapsed and the dilatory conduct of the applicants in seeking a review of the said decisions, that the review should not be upheld. Furthermore, the respondent contended that it would be just and equitable to hold the first applicant to its decisions, including the concluding of the service agreement.

[29] Section 172(1)(a) of the Constitution provides that on declaring conduct constitutionally invalid, a court may make an order which is just and equitable. In this regard, reference is to be had to Electoral Commission v Mhlope et al[8] where the following was held:

“Section 172(1)(b) clothes our courts with remedial powers so extensive that they ought to be able to craft an appropriate or just remedy even for exceptional, complex or apparently irresoluble good situations. And the operative words in this section are “an order that is just and equitable”. This means that whatever consideration of justice and equity point to as the appropriate solution for a particular problem, may justifiably be used to remedy that problem. If justice and equity would best be served or advanced by that remedy, then it ought to prevail as a constitutionally sanctioned order contemplate in section 172(1)(b).”

[30] Furthermore, fundamental to an enquiry on a just and equitable remedy, is the public interest.[9]

[31] In a similar matter,[10] the Constitutional Court held that section 172(1)(a) of the Constitution enjoins a court to declare invalid any law or conduct that it finds to be inconsistent with the Constitution.

[32] In view of the finding that the non-compliance with the prescriptions of the Constitution, the MFA and the MSCR, and that the decisions, including the concluding of the service agreement, were irrational, this court is obliged to hold that conduct on the part of the first applicant inconsistent with the Constitution, and consequently constitutionally invalid.

[33] What remains to be determined is what remedy would be appropriate considering the principle of just and equitable and taking into consideration the public interest.

[34] The respondent contended that it was obliged to obtain financing to enable it to establish the transfer station service. It incurred a debt for millions in that regard. Further, that in view of the fact that the first applicant did not supply the tonnage as stipulated in the service agreement which led to the cancellation of that agreement, the respondent could not recoup a profit in the amount of approximately R94 million for which it seeks to hold the first respondent liable.

[35] It was further contended on behalf of the respondent that a just and equitable remedy would be to not divest the respondent from its rights to which it, but for the declaration of constitutional invalidity, might have been entitled to.[11] This contention was premised upon the first applicant only raising the issue of illegality at the stage of the arbitration proceedings,

some years later to the taking of the decisions and the concluding of the service agreement. The respondent also relied on the long delay in launching the review application subsequently

[36] In this regard the applicants contended that the matter in casu differs substantially with the facts in both Gijima, supra, and Aslo Construction, supra. In both those matters the agreements and conduct sought to be impugned were not cancelled prior to those review applications. In this matter, the respondent cancelled the agreement on the premise of breach of the terms of the service level agreement on the part of the first applicant. Secondly, the applicants contended that in both those matters all the stipulated obligations of the “innocent” parties had been fulfilled. In the present instance, the obligations of the respondent have not been fulfilled. The transfer station service has not been established. Thirdly, the applicants contended that only the respondent would benefit unduly from upholding the constitutionally invalid service agreement. The first applicant would not derive any benefit as the transfer station service has not been established, nor completed. It follows that there can be no quid pro quo issues, the first applicant has nothing from which it would draw any advantage.

[37] Where the Tax and Rate Payers within the jurisdiction of the first applicant would have to foot the bill so to speak, the remedial order sought by the respondent would certainly not be in the public interest. Particularly where they would have to eke out R94 odd million for anticipated profit had the service level agreement run to its natural conclusion.

[38] Whereas, in Gijima, supra, and Aslo Construction, supra, the respondents in those matters were held to be free from fault, the respondent in this matter was not free from blame. In this regard, the respondent was the author of the proposals, unsolicited by the first applicant, for the establishment of a multi recycle facility and the transfer station service. Furthermore, the respondent prepared a service agreement containing aspects not authorised by the EAC. It was, solely on the facts before this court, so included by the respondent itself. Should the issues of the initial proposals for the multi recycle facility and the transfer station service be held to be neutral factors, the unauthorised inclusions, relating inter alia to tonnage and rates, in the vexed service agreement clearly lies at the door of the respondent. No basis was suggested that the tonnage condition in the service agreement was feasible in the circumstances. At best it would be a thumb suck figure.

[39] The vexed issue of delay in launching the review application requires consideration. It is the respondent’s contention that the first applicant was dilatory in raising the issue of alleged constitutionality of the said decisions and the service agreement. It is to be noted that when the arbitration proceedings were launched, the applicants were required to consider the circumstances surrounding the concluding of the service agreement and hence the decisions that preceded it, for the first time. If it is the respondent’s contention that the first applicant was obliged to consider those issues at an earlier stage, there is no merit in that contention. It would require an organ of state to continually self-review its decisions and the concluding of any agreement that flows therefrom. That approach would be impracticable and illogical. There is no authority for that exercise to be undertaken. In particular, where, as in this instance, governance of the first applicant intermittently changed, it would require that at each instance of change in governance, the incumbent governing authority would be obliged to review the predecessor’s conduct. That would be senseless and illogical. The delay that occurred since the ruling by the arbitrator in respect of the present review application until it was eventually launched, was explained by the first applicant. In my view, and due to the well-known and common fact of the Covid-19 pandemic that has gripped the Republic, and the consequential imposition of measures promulgated by the Government to control the spread thereof, the explanations proffered by the applicants for the further delays that followed, were adequately explained. Further in my view, the period prior to the ruling by the arbitrator was also explained as dealt with earlier.

[40] Applying the principles enunciated in Aslo Construction, supra, in respect of a delay on the part of the state organ seeking a review of its own decisions, the following is required:

(a) the court is to determine whether the delay is unreasonable or undue which involves a factual inquiry of the circumstances;

(b) the unreasonableness of the delay depends on, inter alia, the explanation proffered;

(c) if the delay is found to be unreasonable or undue, the question is whether it stands to be overlooked which includes taking into account any prejudice to the parties would suffer if the impugned decision is set aside;

(d) where there is no basis to overlook the delay, the court is obliged to nevertheless declare the conduct of the state organ unconstitutional in terms of section 172(1)(b) of the Constitution.

[41] I have found that the delays in seeking the review of the first applicant’s decisions were adequately explained. The particular circumstances in this instance dictate that that explanation be accepted and that the delay was not unreasonable, nor undue. It accordingly stands to be overlooked.

[42] It follows, that in terms of the findings recorded earlier, this court is obliged to declare the first applicant’s aforesaid impugned conduct to be unlawful and unconstitutional in terms of section 172(1)(b) of the Constitution.

[43] Furthermore, I have found that in the public interest, it would not be just and equitable to hold the first applicant to its impugned conduct unqualified.

[44] Consequently, where it is not found that the delay was unreasonable in this instance, the remedial order sought by the respondent cannot be upheld for all of the foregoing.

[45] The review stands to be upheld.

[46] There remains the issue of a possible preservation of accrued rights under the service agreement. It was conceded on behalf of the applicants that any rights which may have already accrued prior to the cancellation, and to which the respondent would be entitled under the impugned service agreement of 10 August 2016, save for any rights to any claim for loss of profit and claim for shortfalls pertaining to waste, be preserved. In that regard, it would be just and equitable to hold so.

[47] The applicants effectively seek an indulgence, and in view of the delays that followed prior to the launching of this review application and the subsequent delays in prosecuting it, the applicants, in my view are not entitled to a costs order. On the other hand, the respondent is not without blame as recorded earlier. In my view, it would be just and equitable that no order as to costs be made.

I grant the following order:

1. The decisions taken by the first applicant’s Executive Acquisition Committee on 19 November 2015 and 26 June 2016, to inter alia resolve that the Municipal Manager dispense with the normal procurement processes, in terms of Regulation 36 of the Municipal Supply Chain Regulations, be declared constitutionally invalid and be set aside;

2. The decision by the erstwhile Municipal Manager to dispense with the normal procurement processes, in terms of Regulation 36 of the Municipal Supply Chain Regulations, so that the respondent could be appointed by the first applicant to provide a transfer station service for Regions 3 and 4, be declared constitutionally invalid and be set aside;

3. The three-year service agreement entered into on 10 August 2016 by the first applicant and the respondent, for the rendering of waste processing services to the first applicant, in respect of recyclable and non-recyclable waste, be declared constitutionally invalid;

4. It is declared that any rights which may already have accrued prior to the cancellation of the service agreement, and to which the respondent would be entitled under the impugned service agreement of 10 August 2016, save for any rights to any claim for loss of profit and claim for shortfalls pertaining to waste, be preserved;

5. No order as to costs be made.

C J VAN DER WESTHUIZEN

JUDGE OF THE HIGH COURT

Date of Hearing: 29 April 2021

On behalf of Applicant: E C Labuschagne SC

V Mabuza

Instructed by:

Diale Mogoshoa Attorneys

On behalf of Respondent: I B Currie

Instructed by:

Edward Nathan Sonnenbergs Inc

.

Judgment handed down: 21 June 2021

[1] State InformationTechnology Agency SOC Limited v Gijima Holdings (Pty) Ltd 2018(2) SA 23 (CC)

[2] Local Government: Municipal Finance Management Act Municipal Supply Chain Management Regulations, GN 868 GG 40553, 30 May 2005 (as amended in 2017)

[3] Municipal manager: Qaukeni et al v F V General Trading CC 2010(1) SA 356 (SCA); Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd 2019(4) SA 331 (CC)

[4] Pharmaceutical Manufacturers Association of SA et al: In re President of the Republic of South Africa et al 2000(2) SA 674 (CC) [89] - [90]

[5] 2010(3) SA 293 (CC) [51]

[6] P Bolton, The Law of Government Procurement in South Africa, p 177.

[7] Swifambo Rail Leasing (Pty) Ltd v Passenger Rail Agency of South Africa 20201) SA 76 (SCA) [22] – [24]

[8] 2016(5) SA 1 (CC) [132]

[9] Allpay Consolidated Investment Holdings et al v Chief Executive Officer of the South African Social Security Agency et al (No 2) 2014(4) SA 179 (CC) [33]

[10] State Information Technology Agency SOC Limited v Gijima Holdings (Pty) Ltd 2018(2) SA 23 (CC)

[11] Gijima, supra, [54]; Asla Construction, supra, [105]