K C Productions CC v MEC for Education and Another (439/03) [2004] ZANWHC 40 (9 December 2004)

IN THE HIGH COURT

OF SOUTH AFRICA

(BOPHUTHATSWANA PROVINCIAL DIVISION)

CASE NO. 439/03

In the matter between:

K

C PRODUCTIONS CC APPLICANT

AND

MEC FOR EDUCATION 1st

RESPONDENT

THE NORTH WEST TENDER BOARD 2nd

RESPONDENT

MMABATHO

MOKGOATLHENG AJ

JUDGMENT

MOKGOATLHENG AJ:

Introduction

[1] This is an application to review, correct or set aside the decision of the first Respondent on 22 October 2002 to cancel the tender awarded to the Applicant on 19 November 2001.

The Applicant applied for, and on 13 November 2001 was awarded a tender by the second Respondent to supply the first Respondent with television/video combination sets.

Background Facts

[2] On 1 March 2002 the first Respondent instructed the second Respondent to cancel the tender awarded to the Applicant. The second Respondent declined to do so, instead it informed the first Respondent that he had on 19 November 2001 entered into a lawfully binding contract with the Applicant, that the reasons proffered by the first Respondent for the cancellation of the contract, were in law insufficient to justify the cancellation of the contract. The first Respondent was advised to negotiate the cancellation of the contract with the Applicant.

On 16 October 2002 the first Respondent issued an order to the Applicant to supply and deliver 90 (ninety) television/video combination sets in the amount of R274 500.00. On 22 October 2002 the first Respondent cancelled this order.

The reason for the cancellation of the order was that the Applicant was unable to supply and deliver in terms of the contract that the Applicant was therefore in breach of the contract, that this entitled the first Respondent to cancel same. The first Respondent denies that the decision taken on 22 October 2002 amounted to an administrative action entitling the Applicant to procedural fairness as contemplated in terms of sections 1, 3, and 6 of the Promotion of Administrative Justice Act no. 2 of 2000 and sections 33 and 217 of the Constitution no. 108 of 1996.

[3] The first Respondent contends that in terms of section 15 of the Division of Revenue Act of 2001 he is precluded from utilising the conditional grant awarded by the Department of Education for the acquisition of the television/video combination sets.

The first Respondent denies that when it made the decision to cancel the contract it was executing a public function. The submission is that it therefore did not perform an administrative act as contemplated by sections 33 and 217 of the Constitution Act no. 108 of 1996 or sections 1, 3 or 6 of the Promotion of Administrative Justice Act no. 2 of 2000. The first Respondent contends that the power to cancel the contract is derived from the common law and from the contract. The first Respondent states that the decision taken to cancel the contract is in law not subject to review.

The Law

[4] It is trite that under the constitutional order the control of public power is always a constitutional matter. The Courts’ power to review administrative action flows directly from the Promotion of Administrative Justice Act no. 2 of 2000 and sections 33 and 217 of the Constitution Act no. 108 of 1996. Section 33 of the Constitution Act no. 108 of 1996 provides that:

“(1) Everyone has the right to administrative action that is lawful, reasonable and procedurally fair.

(2) Everyone whose rights have been adversely affected by administrative action has the right to be given written reasons.

Section 217 of the Constitution Act no. 108 of 1996 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”.

Section 1 of the Promotion of Administrative Justice Act no. 2 of 2000, provides:

“ “administrative action” means any decision taken, or any failure to take a decision by-

an organ of state, when-

exercising a power in terms of the Constitution or a provincial constitution; or

exercising a public power or performing a public function in terms of any legislation.”.

Section 3 provides:

“Procedurally fair administrative action affecting any person. –(1) Administrative action which materially and adversely affects the rights or legitimate expectations of any person must be procedurally fair”

Section 6 provides:

“Judicial review of administrative action.-(1) Any person may institute proceedings in a court or tribunal for the judicial review of an administrative action.”.

The Promotion of Administrative Justice Act no. 2 of 2000 gives effect to section 33 of the Constitution Act no 108 of 1996. Matters relating to the interpretation and application of the Promotion of Administrative Justice Act no. 2 of 2000 are defined as constitutional matters. It follows that the Promotion of Administrative Justice Act no. 2 of 2000 is applicable and that this application must be decided by applying this Act.

[5] The principal function of section 33 of the Constitution Act no. 108 of 1996 is to regulate the conduct of the public administration and in particular to ensure that where action taken by the administration affects or threatens individuals the procedures followed must comply with the constitutional standard of administrative justice.

The question that arises is whether the second Respondent when it awarded the Applicant the tender and subsequently cancelling it executing or performing a public function or exercising public power, and was therefore performing an administrative action as contemplated in sections 33 and 217 of the Constitution and sections 1, 3 and 6 of the Promotion of Administrative Justice Act when it approved the tender. In the case of President of the Republic of South Africa v South African Rugby Football Union 2000(1) SA (CC) at 67 A-C, it was held that:

“…the test for determining whether conduct constitutes ‘administrative action’ is not the question whether the action concerned is performed by a member of the executive arm of government. What matters is not so much the functionary as the function. The question is whether the task is administrative or not. It may well be, as contemplated in Fedsure, that some acts of a legislature may constitute ‘administrative action’. Similarly, judicial officers may, from time to time, carry out administrative tasks. The focus of the enquiry as to whether conduct is ‘administrative action’ is not on the arm of government to which the relevant actor belongs, but on the nature of the power he or she is exercising.”.

It is therefore relevant to determine whether the exercise of the power to approve the tender, and subsequently to cancel the tender contract, constitutes administrative action as envisaged by sections 33 and 217 of the Constitution and sections 1, 3 and 6 of the Promotion of Administrative Justice Act no. 2 of 2000.

Legitimate Expectation

[6] The Applicant by having entered into a contract with the second Respondent on 13th November 2001 had a legitimate expectation that gave rise to an obligation of procedural fairness by the Respondents in the conduct of the contractual relationship the first Respondent had with the Applicant.

In Schmidt v Secretary of State for Home Affairs [1969] 2 149 (CA) [1968] EWCA Civ 1; [1969] 1 ALL ER 904 Lord Denning observed:

“A(n) administrative body may in a proper case , be bound to give a person who is affected by their decision an opportunity of making representations. It all depends on whether he has some right or interest, or, I would add, some legitimate expectation, of which it would not be fair to deprive him without hearing what he had to say.”.

(See Administrator, Transvaal, and Others v Traub and Others [1989] ZASCA 90; 1989 (4) SA 731 (AD) at 756 ).

Once a person has established that a legitimate expectation has arisen in terms of section 33 of the Constitution he/she will be entitled to procedural fairness in relation to administrative action that may affect or threaten that expectation.

[7] The Applicant in terms of its contract with the second Respondent has an ‘expectation of a substantive benefit and an interrelated procedurally fair expectation’. The source of the second Respondent’s power to award the Applicant the tender emanates from the State Tender Board Act no. 68 of 1968. Correspondingly the genesis of the existence of the contract between the Applicant and the Respondent emanates from, and is founded upon the public administration domain, that is the North West Tender Board, which is a State department entity. Logically it stands to reason that the second Respondent when it awarded the Applicant the tender was performing and executing an administrative action.

[8] Counsel for the first Respondent Adv Zwiegelaar strenuously argued that the Court should decide the one issue only on which this case in her view turns:

(a) whether when the first Respondent cancelled the order it placed with the Applicant on 16 October 2002 was performing an administrative action.

The contention by Adv Zwiegelaar is that when the first Respondent acted thus, it was acting in terms of a private contract executed between itself and the Applicant that the first Respondent’s conduct in cancelling the order was contractual that in essence the power and authority that the first Respondent was performing emanated from the private contractual domain. The contention is that the first Respondent was only invoking an implied contractual term against the Applicant, which is a naturalia of the contract namely that the Applicant was incapable of performing in terms of the contract that the Applicant was in breach thereof and such breach entitled the first Respondent to cancel the contract.

Adv Zwiegelaar argued that the Court is not enjoined to adjudicate on the terms of the contract as it is not a trial court, that the application before Court is not by way of action, that the first Respondents action is founded in the private contractual domain.

In my view these contentions are without merit. It is trite that when the first and second Respondents advertised applications for the tender they were inviting the public to enter into a contractual relationship with an entity of the State Department, the North West Tender Board as service providers. The Respondents are public or state functionaries. The Respondents represent state interests, administer public policy and perform public functions respectively.

The first Respondent in cancelling the order was acting on behalf of the State or a State department and was thus performing an administrative function or action. The question that arises is whether the first Respondent in cancelling the order or contract complied with the directives of sections 1, 3 and 6 of the Promotion of Administrative Justice Act and sections 33 and 217 of the Constitution, and whether the first Respondent acted procedurally fair in the context of the legitimate expectation the Applicant entertained and was entitled to.

[9] The first Respondent in a letter dated 1st March 2002 advised the second Respondent to cancel the Applicant’s tender. The reason proffered being that “this tender will have to be cancelled because of insufficient requisitions received from schools in the Department due to lack of funds”. The second reason proffered was that since the beginning of the year television/video combination sets and non-electrical typewriters experienced a sharp price increase” that as the tenderer companies did not claim a price increase (Rand/Dollar exchange) in their tender documentation the Department believes that these “companies” will not therefore be able to deliver the equipment with their tendered prices. The Department therefore is forced to cancel the tenders and apologies for the inconvenience occasioned.

[10] The genesis of the cancellation of the contract in my view emanates exclusively from these salient facts. The other reasons enunciated by the first Respondent and advanced as plausible reasons for the cancellation of the order and or contract are not relevant and material to the adjudication of this application. In my view these reasons are patently contrived and demonstrate the mala fides of the first Respondent. These plausible reasons by the first Respondent are, that:

(1) the television/video combination sets are capital expenditure in terms of section 7 and schedule 4 of the Division of Revenue Act no. 1of 2001 and section 5 of the Business Plan;

(2) the section 21 status schools in terms of the South African Schools Act no 84 of 1996 were not interested in procuring the television/video combinations sets;

(3) the contractors did not claim price increases in their tender documentation, the first Respondent believed that they would not be able to deliver the television/video combinations sets at the tendered prices;

(4) the procurement of television/video combinations sets constitutes a deviation from the business plan as well as financial misconduct;

(5) Mr Rashid Gutta approached the Superintendent General of the first Respondent to accept a cession signed by the Applicant in his favour to deliver the television/video combination sets.

These reasons in my view do not in any manner affect the question whether the first Respondent in cancelling the order with the settled intention, of cancelling the tender acted procedurally fair as envisaged by sections 1, 3 and 6 of the Promotion of Administrative Justice Act and sections 33 and 217 of the Constitution.

[11] On 17 July 2002 and again on 27 August 2002 the Applicant enquired from the first Respondent and on numerous occasions before then, that after months of being awarded the tender the first Respondent had not contacted him. On 16 October 2002 the first Respondent placed an order in terms of its tender contract with the Applicant, requesting the Applicant to deliver 90 television/video combinations sets in the amount of R274 500.00. On 22nd October 2002 the first Respondent cancelled the abovementioned order. The reason advanced by the first Respondent being:

“The Department hereby cancels the order due to your inability to deliver the required TV-Video combinations”

The first Respondent cancelled the order six days after placing same with the Applicant. The first Respondent did not enquire from the Applicant whether it was able to comply with the order. The Applicant was not given an opportunity or sufficient opportunity to comply with its contractual obligations. The first Respondent in placing the order with the Applicant in view of his declared intention of cancelling the tender was engaging in a disingenuous, mendacious subterfuge in order to deceive the Applicant and unlawfully repudiate and cancel the contract on spurious contrived grounds which were not based on implementing any of its policy or contractual obligations.

In the premises the decision by the first Respondent to terminate the order or contract without affording the Applicant the opportunity to be heard was a breach of the Applicant’s right to procedural fairness enshrined in section 6 of the Promotion of Administrative Justice Act and sections 33 and 217 of the Constitution.

The Order

[12] Section 2 of the Constitution provides:

“The Constitution is the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.”.

The first Respondent’s decision to cancel the order or contract was taken in breach the Applicant’s right to procedurally fair administrative action. The decision is in conflict with the Constitution and is therefore invalid. In view of this finding it is not necessary to adjudicate on the Applicant’s submission that it is entitled to claim restitution or damages as a result of the first Respondent’s repudiation of the contract.

The Court is of the view that the conduct of the first Respondent was reprehensible and mala fide, that the first Respondent acted unreasonably and improperly. The first Respondent’s conduct was arbitrary and capricious. This conduct justifies the mulcting of the first Respondent with a punitive costs order to demonstrate the Court’s displeasure regarding the conduct of the first Respondent.

The application is granted. The first Respondent is ordered to pay the Applicant’s costs on an attorney and client scale.

_____

R

D MOKGOATLHENG

ACTING

JUDGE OF THE HIGH COURT

DATE OF HEARING : 3rd NOVEMBER 2004

DATE OF JUDGMENT : 9th

DECEMBER 2004

Counsel for the Applicant : Mrs N Gutta

Counsel for the Respondents : Mrs C Swiegellaar

Attorneys for the Applicant : State Attorney

Attorneys for the Respondents : D C Kruger Attorneys

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