MEC, Department of Education, North-West v KC Productions CC (CA 14/207) [2009] ZANWHC 10 (5 March 2009)

IN THE HIGH COURT

OF SOUTH AFRICA

(BOPHUTHATSWANA PROVINCIAL DIVISION)

CASE NO.: CA 14/2007

In the matter between:-

MEMBER OF THE EXECUTIVE COUNCIL, Appellant

DEPARTMENT OF EDUCATION, NORTH WEST

and

K C PRODUCTIONS CC Respondent

JUDGMENT

MATLAPENG AJ:

INTRODUCTION

[1] The appellant was the second respondent in the court a quo in the review proceedings wherein the respondent sought and was granted an order to set aside the decision of the appellant to cancel a contract between the appellant and the respondent. Appellant applied for leave to appeal which was refused by the court a quo. However, the Supreme Court of Appeal granted the appellant leave to appeal to the Full Bench of this Division.

FACTUAL BACKGROUND

[2] The facts of this matter are straight forward and fairly simple. However, the same cannot be said about the issue to be decided.

The appellant, through the North West Tender Board (hereinafter referred to as the Tender Board) called for tenders for the supply and delivery of Television and VCR combination sets. In pursuance thereof, the respondent submitted a tender to the Tender Board. By a letter dated 19 November 2001 directed to the respondent, the Tender Board informed the respondent that its tender was successful and was accepted.

[3] However, the respondent was informed in the same letter not to regard the letter as an official order and that it had to await the official order from the appellant. Nothing transpired and the respondent directed inquiries to the appellant regarding the order. It was only on the 16 October 2002 (eleven months after the award of the tender) that the appellant placed an order with the respondent for the supply of eighty (80) units of TV and VCR combination sets. On the 17 December 2002, the respondent received a letter from the appellant dated 22 October 2002 advising it that the order placed by the appellant on the 16 October 2002 has been cancelled because of the respondent’s inability to deliver the TV and VCR combination sets.

[4] From the time of the awarding of the tender by the tender board on the 19 November 2001 and the actual placing of the order by the appellant on the 16 October 2002, the appellant wrote some letters to the tender board informing the latter to cancel the tender awarded to the respondent. The tender board informed the appellant to rather negotiate with the respondent as there existed no iusta causa in law for the tender board to cancel the tender or for the appellant to resile from the contract. The respondent came to know about this conduct of the appellant. All the above facts are common cause between the parties.

THE ISSUES

[5] The question to be decided is whether a decision by the appellant to cancel a contract arising out of an award of a tender is an administrative action which is subject to the requirements of administrative fairness as laid down in s 3 of the Promotion of Administrative Justice Act No 2 of 2000, (PAJA|).

SUBMISSION BY THE

PARTIES

[6] On behalf of the appellant Ms Zwiegelaar submitted that:

(a) the power of the appellant to cancel the contract emanates from the contract and the common law and the appellant was thus acting as an ordinary contracting party exercising its contractual rights relating to a commercial contract;

(b) thus the decision to cancel the contract was not an administrative action entitling the respondent to procedural fairness and reasons. The decision to cancel the contract was also not an exercise of a public function or an administrative action which can attract the provisions of PAJA;

(c) as a result, the decision to cancel the contract was not in law a subject of a review and there was no basis to review the same;

(d) the court a quo, in terms of the stare decisis principle was bound to follow the case of Cape Metropolitan Council v Metro Inspection Services (WC) cc 2001 (3) SA 1013 SCA and it failed to do so.

6.1 Ms Gutta on behalf of the respondent submitted the contrary view. Based on several authorities that she referred to, chief of which is Logbro Properties CC v Bedderson NO and Others 2003(2) SA 460 (SCA) she concluded that the decision to cancel the contract was indeed an administrative action, consequently it attracted the scrutiny of the provision of PAJA.

THE LAW

[7] In my view, central to this appeal is the crisp question whether the action by the appellant amounts to administrative action or not.

[8] A careful reading of our authorities reveals that there is no definitive definition of what constitutes an administrative action. This is not because administrative action defies definition but because one has to make a determination in order to reach a conclusion of whether an act constitutes administrative action or not. This will, logically differ from case to case. This is amply demonstrated by various dicta from our courts, particularly the Supreme Court of Appeal (SCA) and the Constitutional Court (CC).

[9] In President of the Republic of South Africa and Others v South African Rugby Football Union and Others 2000 (1) SA 1 (CC) par 143 it was said:

“Difficult boundaries may have to be drawn in deciding what should and what should not be characterised as administrative action for the purpose of s33. These will need to be drawn carefully in the light of the provision of the Constitution and the overall constitutional purpose of an efficient, equitable and ethical public administration. This can best be done on case by case basis.”

[10] In Greys Marine Hout Bay v Minister of Public Works [2005] ZASCA 43; 2005 (6) SA 313 (SCA) par 24 the following appears:

“whether particular conduct constitutes administrative action depends primarily on the nature of the power that is being exercised rather than upon the identity of the person who does so. Features of administrative action (conduct of administrative nature) that have emerged from the construction that has been placed on section 33 of the Constitution are that it does not extend to the exercise of legislative power by deliberative elected legislative bodies, nor to the ordinary exercise of judicial powers, nor to the formulation of policy or the initiation of legislation by the executive, nor to the exercise of original powers conferred upon the President as head of State. Administrative action is rather, in general terms, the conduct of the bureaucracy (whoever

the bureaucratic functionary might be) in carrying out the daily functions of the State which necessarily involves the application of policy, usually after its translation into law, with direct and immediate consequences for individuals or groups of individuals.”

[11] In Transnet Ltd and Others v Chirwa 2007 (2) SA 178 |(SCA”) at 209 par 15 F the following is said:

“Under PAJA, which now governs the position, conduct only amount to administrative action if it is the exercise of public power or the performance of a public function in terms of any legislation. The nature of the power or function is paramount, the identity of the functionary exercising the power or performing the function, secondary . . .”

Although this case related to whether PAJA was applicable in a public employer/employee relationship, the remarks are still apposite in the current matter.

See too Bullock NO v Provincial Government, North West Province 2004 (5) SA 262 (SCA) at 268 par 17 and President of the Republic of South Africa v SARFU above at par 17.

[12] However, it should be clear that the starting point is the Constitution of the Republic of South Africa. Section 33 of the Constitution of the Republic of South Africa Act 108 of 1996 which provides:

“(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.

(3) National legislation must be enacted to give effect to these rights, and must-

(a) provide for the review of administration action by a court or, where appropriate, an independent and impartial tribunal;

(b) impose a duty on the state to give effect to the rights in subsections (1) and (2); and

(c) promote an efficient administration.”

[13] In consequence of s33 of the Constitution, and in order to give substance to the said provision, the Promotion of Administrative Justice Act 2 of 2000 (PAJA) came into existence. The relevant provisions of the Act are the following:

Section 1 which provides

“Administrative action means any decision taken, or any failure to take a decision, by –

(a) an organ of state, when-

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

(ii) exercising a public power or performing a public function in terms of any legislation; or

(b) . . .

which adversely affects the rights of any person and person and which has a direct, external legal effect, but does not include - . . .”

[14] It should be clear from s 1 of PAJA that administrative action can only be described in general terms. To my mind, it refers as has been aptly put to “the whole bureaucracy in the performance of its daily function of the state”. From the authorities traversed above, one is in a position to determine whether a conduct amount to administrative action. To qualify as such it has to be an exercise of public power or performance of public function in terms of legislation which adversely affects the rights of any person and which has a direct external legal effect. The question of who is exercising that is, in my view, not decisive. The important factor is the exercise of public power or performance of legislation itself of public power or performance of legislation itself.

[15] The appellant approached the tender board with a view to procuring TV and VCR combination sets for schools falling under its jurisdiction. In so doing, the appellant and the tender board were acting through the empowering legislation. It is settled law that tender process constitutes an administrative action. Thus the respondent was entitled to all the lawful and procedurally fair processes. See case of Logbro Properties CC supra at 465 F – G.

[16] Counsel for the appellant urges that I should find that the decision to cancel the contract was not an administrative action. She sought to make a distinction between the legislative source of the contract and the powers conferred emanating from the contract. She submits that as the decision to cancel the contract is a corollary to the law of contract, it cannot be said to be an administrative act. She bases her support for this contention in the case of Cape Metropolitan Council supra especially at paragraph 18 where it was stated:

“The appellant is a public authority and, although it derived its power to enter into the contract with the first respondent from statute, it derived its power to cancel the contract from the terms of the contract and the common law. Those terms were not prescribed by statute and could not be dictated by the appellant by virtue of its position as a public authority. They were agreed to by the first respondent, a very substantial commercial undertaking. The appellant, when it concluded the contract, was therefore not acting from a position of superiority or authority by virtue of it being a public authority and, in respect of the cancellation, did not, by virtue of it being a public authority, find itself in a stronger position than the position it would have been in had it been a private institution. When it purported to cancel the contract it was not performing a public duty or implementing legislation; it was purporting to exercise a contractual right founded on the consensus of the parties in respect of a commercial contract. In all these circumstances it cannot be said that the appellant was exercising a public power . . .”

Counsel for the appellant submitted that the court a quo was therefore bound to follow this decision of the Supreme Court of Appeal on the basis of the principle of stare decisis.

[17] I cannot find fault with counsel’s exposition of the doctrine of stare decisis. However, the Cape Metropolitan case “did not purport to provide a general answer to the question whether a public authority in exercising powers derived from a contract is in all circumstances subject to a public duty to act fairly but the question was left open”. See the Logbro Properties CC case referred to above at par 9 E.

Furthermore the Cape Metropolitan case makes it clear that the question will depend on the circumstances of a particular case. The facts in the case under discussion are also distinguishable from the Cape Metropolitan case. This will be apparent at a later stage in this judgment. Therefore I am of the view that the Cape Metropolitan case is not applicable in this instance.

[18] What distinguishes this matter from the Cape Metropolitan decision as intimated above is that there was no separate contract entered into between the appellant and the respondent after the conclusion of the tender process. The same terms and conditions which appeared in the tender documents formed the basis of the contract between the appellant and the respondent. There is a seamless transition from a tender to a contract without there being a separate written contract based on the terms and conditions laid in the tender. The relationship of the parties may be said to be that of ordinary contracting parties but tender conditions, which form the basis of the contract were dictated by the appellant, the province exercising public power or performing public function, see the Logbro case above at par 11.

[19] Having said that there was a seamless transition from a tender to a contract, the attempt by the appellant to separate the agreement from the statute that gave rise to the agreement is not a sound one. Furthermore, the fact that the agreement came into being as a result of a statute, renders its termination a public exercise of power (Logbro case at 13). I come to the conclusion that in the present matter, the decision by the province to terminate the contract was an

exercise of public power.

[20] “An organ of the state which is empowered by statute to contract is obliged to exercise its contractual rights with due regard to public duties of fairness.” See Transnet Ltd v Owner of MV Snow Crystal [2008] ZASCA 27; 2008 (4) SA 111 (SCA) at 120 paragraph 21. The appellant, being a public organ, cannot act like any other contracting party. In its management of a contractual relationship, it must ensure that it satisfies the requirements of administrative justice and fairness. It cannot for unjustifiable reasons or improper motives decide to cancel a contract when such an act impacts on the rights of others.

[21] In this case, the appellant’s decision to cancel the contract cannot stand the administrative scrutiny of fairness. For reasons that were unrelated with the respondent’s inability to perform, the appellant decided to cancel the contract. The allegation that the respondent could not perform was a mere ruse used by the appellant because:

21.1 as early as March 2002, even before the respondent could be given an order to deliver the TV and VCR combination sets, the appellant tried to cancel the tender and the tender board advised the appellant that its conduct amounted to unlawful repudiation of the contract;

21.2 the appellant tried to hide behind the fact that schools were not placing orders for the TV and VCR combination sets;

21.3 without even consulting the respondent, appellant assumed that the respondent will be unable to deliver the TV and VCR combination sets at the quoted price;

21.4 that the costs of the TV and VCR combination sets were more than the amount the appellant had budgeted for which would lead to financial misconduct. If one looks at the reasons why the appellant acted the way it did, the conclusion is ineluctable that this is the main reason that led to the decision to cancel the contract. All these reasons given by the appellant are unjustifiable.

[22] It is clear to me that from the time the contract was awarded the appellant acted in an insalubrious manner towards the respondent. Its conduct cannot but attract opprobrium. It does not take a savant to see that the appellant did, right from March 2002, not intend to honour the terms of the contract it had concluded with the respondent.

[23] As I have alluded to above, the respondent was entitled to a lawful, reasonable and procedurally fair conduct from the appellant. The appellant, in its exercise of public power, when it took a decision to cancel the contract was duty bound to have regard to the basic precepts of administrative justice. Regrettably, the appellant failed to do so.

In the circumstances, I conclude that the appeal should fail.

The following order is made:

1. The appeal is hereby dismissed with costs.

____

D. I. MATLAPENG

ACTING JUDGE OF THE

HIGH COURT

I agree, and it is so ordered.

_____

M T R MOGOENG

JUDGE PRESIDENT OF THE

HIGH COURT

SAMKELO GURA

JUDGE OF THE HIGH

COURT

APPEARANCES

DATE OF HEARING : 07 NOVEMBER 2008

DATE OF JUDGMENT : 05 MARCH 2009

COUNSEL FOR APPLICANT : ADV C. ZWIEGELAAR

COUNSEL FOR RESPONDENT : ADV N. GUTTA

ATTORNEYS FOR APPELLANT : THE STATE

ATTORNEY

ATTORNEYS FOR RESPONDENT: D C KRUGER

ATTORNEYS