MD Business Solutions (Pty) Ltd v Ikhwezi Local Municipality (3304/16) [2017] ZAECGHC 56 (18 May 2017)

IN

THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

Case no. 3304/16

Date heard: 28/4/17

Date delivered: 18/5/17

Not reportable

In the matter between:

MD BUSINESS SOLUTIONS (PTY) LTD

Applicant

and

IKWEZI

LOCAL MUNICIPALITY

Respondent

JUDGMENT

PLASKET, J:

[1] This is an application in which the applicant, MD Business Solutions (Pty) Ltd (MD Business Solutions), seeks to enforce payment by the respondent, Ikwezi Local Municipality (Ikwezi) of amounts alleged by the former to be due to it principally in terms of two contracts, styled service level agreements, entered into by the parties on 17 July 2014. The amounts involved total R1 332 262.19.

[2] It is common cause that the agreements were entered into, and that Ikwezi acknowledged its indebtedness to MD Business Solutions. It is also common cause that the entering into of the contracts was not preceded by any public procurement process that was, as required by s 217(1) of the Constitution, ‘fair, equitable, transparent, competitive and cost-effective’.

[3] The process involved in this case was the following: Ms Delphine Sauls, the chief financial officer of Ikwezi at the time, contacted

MD Business Solutions and asked it to provide a proposal concerning the provision of an information system service and data cleansing

process (ICT) and a performance management system (PMS); it did this in two presentations, on 14 July 2014 and on 17 July 2014; on the latter date decisions were taken to contract with MD Business Solutions and two contracts were signed on behalf of MD Business

Solutions by Mr Michael Subramoney, its managing director, and on behalf of Ikwezi by Ms Sauls and Ms Misiwe Mpahlwa, its acting

municipal manager. I shall refer to these contracts as the ICT contract and the PMS contract.

[4] Ikwezi’s primary defence to MD Business Solutions’ claim for payment is that, as a result of the complete absence of compliance with the law regulating public procurement, the contracts are invalid.

[5] The argument advanced by MD Business Solutions, on the other hand, is that the decisions to contract with it were administrative decisions. They have effect for as long as their validity is not successfully challenged on review. As they have not been set aside, they must be given effect to. In other words, reliance is placed on the well-known Oudekraal principle:[1]

‘For those reasons it is clear, in our view, that the Administrator's permission was unlawful and invalid at the outset. Whether he thereafter also exceeded his powers in granting extensions for the lodgement of the general plan thus takes the matter no further. But the question that arises is what consequences follow from the conclusion that the Administrator acted unlawfully. Is the permission that was granted by the Administrator simply to be disregarded as if it had never existed? In other words, was the Cape Metropolitan Council entitled to disregard the Administrator's approval and all its consequences merely because it believed that they were invalid provided that its belief was correct? In our view, it was not. Until the Administrator's approval (and thus also the consequences of the approval) is set aside by a court in proceedings for judicial review it exists in fact and it has legal consequences that cannot simply be overlooked. The proper functioning of a modern State would be considerably compromised if all administrative acts could be given effect to or ignored depending upon the view the subject takes of the validity of the act in question. No doubt it is for this reason that our law has always recognised that even an unlawful administrative act is capable of producing legally valid consequences for so long as the unlawful act is not set aside.’

[6] Ikwezi brought no counter-application to set aside the decisions to enter into contracts with MD Business Solutions. It simply asserted in its answering affidavit that, as a result of its own failure to comply with the applicable public procurement legislation, the contracts on which MD Business Solutions’ claims are based are invalid.

[7] The first issue I am called upon to decide is whether Ikwezi, in order for its defence to succeed, had to have brought a counter-application for the review and setting aside of the decisions to contract with MD Business Solutions, or whether raising the unenforceability of the contracts as it has done suffices.

[8] Ikwezi relied on two judgments of the Supreme Court of Appeal in support of its defence. Neither, in my view, assists Inkwezi for the reasons that follow.

[9] In the first, Premier, Free State & others v Firechem Free State (Pty) Ltd,[2] the validity of the administrative decision to award a tender to Firechem was not in issue (although Schutz JA remarked that the

process had been suspicious).[3] The appeal concerned the terms of the contract subsequently entered into. The court held that the contract was invalid because certain terms relating to the supply of fixed quantities of cleaning materials contradicted the terms contained in the acceptance of the tender by Firechem, and were not severable from it.[4]

[10] In the second case, Municipal Manager: Qaukeni Local Municipality & another v FV General Trading CC,[5] a tender had been awarded in defiance of the applicable public procurement legislation. When FV General Trading sought to enforce

the contract, the Municipality brought a counter-application for a declaratory order to the effect that the contract was void.[6] The central issue that the court was required to decide was whether the Municipality could challenge the administrative decision to award the tender by way of the counter-application for declaratory relief, rather than a counter-application to review and set aside the award of the tender in terms of the Promotion of Administrative Justice Act 3 of 2000 (the PAJA).

[11] Leach AJA found that, in the circumstances, the counter-application for the declaratory order was sufficient. He held:[7]

‘If the second appellant's procurement of municipal services through its contract with the respondent was unlawful, it is invalid, and this is a case in which the appellants were duty- bound not to submit to an unlawful contract, but to oppose the respondent's attempt to enforce it. This it did by way of its opposition to the main application and by seeking a declaration of unlawfulness in the counter-application. In doing so it raised the question of the legality of the contract fairly and squarely, just as it would have done in a formal review. In these circumstances, substance must triumph over form. And while my observations should not be construed as a finding that a review of the award of the contract to the respondent could not have been brought by an interested party, the appellants' failure to bring formal review proceedings under PAJA is no reason to deny them relief.’

[12] In taking this approach, Leach AJA in effect seems to have given recognition to the fact that the term judicial review ‘has

always been used in the widest sense to cover judicial scrutiny of the legality of all kinds of administrative acts, irrespective of the nature of the remedy being sought’.[8] In other words, Leach AJA, it seems to me, accepted that the counter-application raised properly the issue of the validity of the

administrative action concerned and the remedy of a declaratory order was, in the circumstances, an appropriate remedy.

[13] This case is different because no counter-application has been brought by Ikwezi and no relief relative to the decisions to contract with MD Business Solutions has been sought.

[14] This very issue was considered by the Constitutional Court in MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye and Laser Institute.[9] Kirland had applied for approvals to operate two private hospitals. A decision was taken by the superintendent-general of the Department of Health to refuse the application. This decision was ineffective because it was never communicated to Kirland. The superintendent-general was then involved in an accident. While his duties were being performed by an acting superintendent-general, the approvals were granted and this decision was communicated to Kirland. A while later, Kirland was informed that the approvals had been revoked. In proceedings to set aside the revocation of the approvals, the Department of Health took the view that they were non-decisions

that could simply be ignored. It never applied for them to be set aside.

[15] The minority in the Constitutional Court held that as all the evidence necessary to set aside the approvals was available, it should be done, albeit in the absence of an application or counter-application for their setting aside.

[16] Cameron J, for the majority, disagreed that all of the evidence necessary to decide the issue was before the court but expressed the view that the approvals could not be set aside in the absence of a proper application or counter-application.[10] The first two paragraphs of his judgment summarise his reasoning:[11]

‘[64] Can a decision by a state official, communicated to the subject, and in reliance on which it acts, be set aside by a court even when government has not applied (or counter-applied) for the court to do so? Differently put, can a court exempt government from the burdens and duties of a proper review application, and deprive the subject of the protections these provide, when it seeks to disregard one of its own officials' decisions? That is the question the judgment of Jafta J (main judgment) answers. The answer it gives is Yes. I disagree. Even where the decision is defective — as the evidence here suggests — government should generally not be exempt from the forms and processes of review. It should be held to the pain and duty of proper process. It must apply formally for a court to set aside the defective decision, so that the court can properly consider its effects on those subject to it.

[65] The reasons spring from deep within the Constitution's scrutiny of power. The Constitution regulates all public power. Perhaps the most important power it controls is the power the state exercises over its subjects. When government errs by issuing a defective decision, the subject affected by it is entitled to proper notice, and to be afforded a proper hearing, on whether the decision should be set aside. Government should not be allowed to take shortcuts. Generally, this means that government must apply formally to set aside the decision. Once the subject has relied on a decision, government cannot, barring specific statutory authority, simply ignore what it has done. The decision, despite being defective, may have consequences that make it undesirable or even impossible to set it aside. That demands a proper process, in which all factors for and against are properly weighed.’

[17] The learned judge cited a number of reasons why the approvals could not simply be set aside in the absence of a counter-application. I shall mention three. First, the PAJA requires a formal application for judicial review to be made when a party wishes to impugn

administrative action, there is no reason to exempt governmental actors from this obligation and it is not a ‘senseless formality’. The government, Cameron J said, is not ‘an indigent and bewildered litigant, adrift in a sea of litigious

uncertainty, to whom the courts must extend a procedure-circumventing lifeline’.[12]

[18] Secondly, the process is important because where there has been an undue delay in challenging the validity of an administrative action or other exercise of public power, the PAJA and the common law require an explanation and it is only if condonation is granted that the merits may be considered.[13]

[19] Thirdly, the question of an appropriate remedy raises its head when the administrative action is found to have been wanting. In circumstances, for instance, where a party has relied on the decision and perhaps even spent resources as a result of that reliance, it could well be that a court may take the view that it is just and equitable not to set aside the administrative action. An appropriate

remedy can only be considered if a proper application is before the court.[14]

[20] Kirland has been approved and followed by the Constitutional Court in Department of Transport & others v Tasima (Pty) Ltd[15] and Merafong City v AngloGold Ashanti Ltd.[16] In the latter case, Cameron J explained the import of Kirland: an administrative action stands until – borrowing from Oudekraal – it is ‘challenged by the right actor in the right proceedings’.[17]

[21] In the present case, the decision to enter into the ICT and PMS contracts with MD Business Solutions was taken on the day the

contracts were signed, 17 July 2011, because it was only on that day that a presentation was made to Ms Mpahlwa. Thereafter, although

Ikwezi knew that MD Business Solutions was trying to obtain payment in terms of the contracts, it remained supine about the validity of the decisions to enter into the contracts. The application to enforce payment was launched on 1 July 2016, a few weeks short of two years after the decisions to contract with MD Business Solutions were taken.[18] Ms Mpahlwa’s answering affidavit, in which the issue of invalidity was raised by Ikwezi for the first time, was deposed to on 6 October 2016.

[22] As Ikwezi brought no counter-application to challenge the validity of the administrative decisions taken to contract with MD Business Solutions, that is the end of the matter: there is no properly raised challenge to those decisions that is before me and, that being so, those decisions must be regarded as effective.

[23] Secondly, as the issue of the invalidity of the administrative decisions was raised for the first time more than two years after they were taken, even if there had been a proper counter-application, it could not have been entertained on its merits before condonation for undue delay had been granted. That would have required a formal application containing a full and acceptable explanation as to why the counter-application was not brought within the 180 day period stipulated by s 7 of the PAJA. In the absence of such an application and a grant of condonation in terms of s 9, a court has no jurisdiction to consider the merits of the challenge.[19] That too signals the end of the matter for Ikwezi.

[24] The three claims of MD Business Solutions are for: (a) fees totalling R456 000 for the months of October 2014, October 2015, November 2015 and January 2016 arising from the ICT contract; (b) R478 800 being the fee for 2015 arising from the PMS contract; and (c) disbursements of R397 462.19 arising from both contracts as well as certain other work which it undertook, such as social responsibility work.

[25] Ms Mpahlwa admitted having signed the contracts on 17 July 2014. She stated, however, that she did so because she was advised to do so by Ms Sauls and other senior officials. She said that despite having signed the contracts, she was unaware that a monthly fee of R114 000 was payable in terms of the ICT contract. She was also not aware that the contract was to endure for three years. I cannot see how this can avail Ikwezi. She admitted having signed the contracts and it is, after all, ‘a sound principle of law that a man, when he signs a contract, is taken to be bound by the ordinary meaning and effect of the words which appear over his signature’.[20] She did not deny that the services were rendered.

[26] MD Business Solutions stated that in June 2015, it was requested by the municipal manager, one Mr Mapukata, to perform services

additional to the PMS contract, which had come to an end in early 2015. These included designing and compiling an annual report,

performance agreements and scorecards for directors, ‘aligning’ the integrated development plan with the annual report and ‘aligning’ the budget with the service delivery budget implementation plan. Essentially, what happened was that the PMS contract was extended orally for 2015. This oral agreement is the basis for claim 2. Ms Mpahlwa simply denied knowledge of the agreement. MD Business Solutions’ factual allegations must consequently prevail.

[27] MD Business Solutions was required to furnish invoices separately for disbursements in respect of the ICT contract, the PMS contract and the additional work done. The rates had been agreed in these contracts. The claim for payment of outstanding disbursements is claim 3. The disbursements concerned are set out in a consolidated reconciliation statement. Ms Mpahlwa’s answer to claim 3 is a bald assertion, devoid of any detail, that some of the disbursements may have been charged in excess of the agreed rates. No factual basis for this assertion is made and so no dispute of fact is created by Ms Mpahlwa in this respect.

[28] Ms Mpahlwa admitted that MD Business Solutions performed work for Ikwezi and that it has not been ‘timeously’ paid on all invoices submitted by it. She stated that a ‘problem quickly arose when it was established that the Applicant would be invoicing R114 000 per month, which as stated above, I was not aware of when I signed MS1’. She claimed that disputes arose between the parties but never provided any details as to what they involved. Although she appears to accept that MD Business Solutions performed work in terms of the contracts, she never stated what she believed Ikwezi owed it and why. Her extremely vague allegations do not amount to a proper denial of MD Business Solutions’ factual allegations of Ikwezi’s indebtedness to it.

[29] The result is that MD Business Solutions has established that it is entitled to the amounts claimed by it, as well as to interest on those amounts.

[30] I make the following order.

Ikwezi Local Municipality (Ikwezi) is directed to pay MD Business Solutions (Pty) Ltd (MD Business Solutions):

(a) an amount of R456 000, being fees in respect of the ICT contract of R114 000 per month for the months of October 2014, October 2015, November 2015 and January 2016, which amounts were due and payable on the 25th day of each of those months;

(b) interest on each amount of R114 000 at the legal rate calculated as follows:

(i) for the October 2014 fee, from 25 October 2014 to the date of full and final payment;

(ii) for the October 2015 fee, from 25 October 2015 to the date of full and final payment;

(iii) for the November 2015 fee, from 25 November 2015 to the date of full and final payment;

(iv) for the January 2016 fee, from 25 January 2016 to the date of full and final payment;

(c) an amount of R478 800 for the 2015 PMS fee, which was due and payable on 31 March 2016;

(d) interest on the amount of R478 800 at the legal rate calculated from 31 March 2016 to the date of full and final payment;

(e) an amount of R397 462.19 for unpaid disbursements for the periods May to December 2015;

(f) interest on the amounts detailed below calculated from when each amount was due and payable;

(i) on R65 179.88 from 20 June 2015 to the date of full and final payment;

(ii) on R93 253.14 from 20 August 2015 to the date of full and final payment;

(iii) on R78 005.35 from 20 September 2015 to the date of full and final payment;

(iv) on R23 826.00 from 20 October 2015 to the date of full and final payment;

(v) on R97 966.47 from 20 November 2015 to the date of full and final payment;

(vi) on R39 131.35 from 20 December 2015 to the date of full and final payment;

(g) MD Business Solutions’ costs.

_____

C Plasket

Judge of the High Court

APPEARANCES

For the applicant: K Watt instructed by Campbell Attorneys, Durban and AC De Sousa Attorneys, Grahamstown

For the respondent: O Crisp instructed by Sharp, Crisp and Associates, East London and Netteltons, Grahamstown

[1] Oudekraal Estates (Pty) Ltd v City of Cape Town 2004 (6) SA 222 (SCA) para 26.

[2] Premier, Free State & others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA).

[3] Para 39.

[4] Paras 30-39.

[5] Municipal Manager: Qaukeni Local Municipality & another v FV General Trading CC 2010 (1) SA 356 (SCA).

[6] Para 1.

[7] Para 26.

[8] Baxter Administrative Law at 299-300.

[9] MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye and Laser Institute 2014 (3) SA 481 (CC).

[10] In the Supreme Court of Appeal, in MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye and Laser Institute 2014 (3) SA 219 (SCA) para 27, the position was set out thus: ‘In my view Makaula J had no jurisdiction to set aside the approvals granted by Diliza in the absence of either an application or a counter-application in which that relief was sought. Section 6(1) of PAJA, not surprisingly, postulates proper proceedings having been instituted as a precondition to a court's

exercise of its powers of judicial review when it states that “(a)ny person may institute proceedings in a court . . . for the judicial review of an administrative action”. In terms of s 8(1), a court may grant just and equitable relief, including the setting-aside of an administrative action, “in proceedings for judicial review in terms of s 6(1)”. Taken together, these provisions mean no more than that, before a court may set aside an administrative action, there must have been proceedings for judicial review that were brought for that relief, in exactly the same way that, before a court may grant an award of damages, there must have been a claim instituted in accordance with the proper procedure.’

[11] Paras 64-65.

[12] Para 82.

[13] Para 83.

[14] Para 86.

[15] Department of Transport & others v Tasima (Pty) Ltd 2017 (2) SA 622 (CC).

[16] Merafong City v AngloGold Ashanti Ltd 2017 (2) SA 211 (CC).

[17] Para 43.

[18] 1 July 2016 is the date that appears on the Registrar’s stamp on the notice of motion. The notice of motion is dated 30 June 2016. The founding papers, according to the return of service, were served on Ikwezi on 5 July 2016.

[19] Kirland (note 9) para 111 (Froneman J); Asla Construction (Pty) Ltd v Buffalo City Metropolitan Municipality (South African Civics Association as amicus curiae) [2017] ZASCA 23 (24 March 2017) paras 11-15.

[20] Burger v Central South African Railways 1903 TS 571 at 578; George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A) at 472A.