Radio Surveillance Security Services (Pty) Ltd v Telkom SA Limited (69753/2011) [2018] ZAGPPHC 296 (26 April 2018)

IN

THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

Case number: 69753/2011

NOT

REPORTABLE

NOT

OF INTEREST TO OTHER JUDGES

REVISED

In the matter between:

RADIO SURVEILLANCE SECURITY SERVICES (PTY) LTD

PLAINTIFF

And

TELKOM

SA

LIMITED

DEFENDANT

JUDGMENT

PRETORIUS J,

(1) The plaintiff's action arises from an agreement in terms of which the plaintiff was required to upgrade a cable theft alarm system

purportedly purchased from the plaintiff by the defendant. The plaintiff claims three sums of money, R97 284 146.26, R112 860 000.00

and R5 5 17 719.62 with interest from 1 September 2011 to date of payment and costs of suit. The defendant instituted an enrichment

counterclaim for payment of R22 000 476.96 paid to the plaintiff in respect of the upgrade agreement. Counsel for the defendant conceded that this claim had become prescribed in terms of section 11 of the Prescription Act[1] and should be dismissed with costs.

THE PARTIES:

(2) The plaintiff is Radio Surveillance Security Services (Pty) Ltd ("RSSS") with its principal place of business at 1st Floor, Block A, 1 Sunbury Crescent, La Lucia Ridge, Durban, KwaZulu Natal.

(3) The Defendant is Telkom SA Limited ("Telkom"), a telecommunications company with its principal place of business at 152 Proes Street, Pretoria.

(4) Initially the plaintiff claimed that the defendant was not an organ of state, as contemplated in section 217(1) of the Constitution of the Republic of South Africa[2] ("the Constitution") and being subject to the Public Finance Management Act[3] ("the PFMA"). It was eventually admitted by the plaintiff that paragraph 5.3.3 of the plea of the defendant was correct as it read:

"At all relevant times the defendant was an organ of State, as contemplated in section 217(1) of the Constitution, as well as a public entity as contemplated in section 51(1)(a)(iii) of the PFMA;"

INTERLOCUTARY APPLICATIONS:

OBJECTION TO EXPERT'S EVIDENCE:

(5) The defendant delivered an expert report by Mr Jaco Lubbe before the start of the trial. The plaintiff objected to the report on the basis that it was inadmissible as it addressed issues not on the pleadings.

(6) According to the plaintiff the expert's evidence was two-fold. Firstly he averred that due to the lack of information on what would have been required by the defendant, the plaintiff could not realistically have provided a quotation in two days as the plaintiff

had done.

(7) The main complaint against the evidence of the expert is that Mr Lubbe had found that the M3010 purportedly installed was non-compliant. The submission by the plaintiff’s counsel was that non­ performance had never been a defence in the plea. The only defence on the plea had been that no contract had been concluded.

(8) I had once more studied the particulars of claim and plea. The plaintiff had set out that the plaintiff had performed in terms of the alleged contract. These allegations by the plaintiff were denied by the defendant where in paragraph 6 of the plea it is stated: "The allegations contained herein are denied". Counsel for the defendant urged the court to hear the argument before the expert testified, but counsel for the plaintiff insisted that it should be dealt with before further proceeding with the trial, to which I acceded.

(9) I once more studied Rule 22 of the Uniform Rules of the High Court. It is quite clear on·the plea that the defendant had denied performance clearly and unequivocally. Therefor I found that the expert witness' evidence should be allowed.

FILING OF REJOINDER:

(10) On the second day of trial the defendant's counsel applied to file a rejoinder, which was vehemently opposed by counsel for the plaintiff.

(11) Defendant's counsel argued that the opening address of plaintiffs counsel caused the defendant to rethink its position regarding

reliance on section 217(1) of the Constitution. Counsel was previously of the opinion that the issue of the applicability of section 217 of the Constitution could be argued, without dealing with it in the pleadings.

(12) Counsel argued that the rejoinder should be allowed as it sought to introduce legal issues pertaining to section 217(1) of the Constitution. The further issue was whether reliance on estoppel can make legal what otherwise would have been illegal. A further issue was whether the defendant is an organ of State, which was not admitted by the plaintiff. This would be important, because if the defendant was found to be an organ of State section 217(1) of the Constitution would be applicable to decide whether the agreement if it was found to have been concluded, was concluded in accordance with a system that was fair, equitable, transparent, competitive and cost effective.

(13) The plaintiff's main argument, opposing the filing of the rejoinder, was that the defendant at the outset elected not to plead the issue of compliance with section 217(1) of the Constitution or the provisions of the PFMA. i must agree with defendant's counsel that on the facts before me I cannot find that the defendant had waived its right to rely on section 217(1) of the Constitution.

(14) I had considered all the arguments, authorities and facts. I find that, in the interest of justice, that the filing of the rejoinder should be allowed so that all the issues can be fully ventilated. Unfortunately this finding, inevitably, lead to a postponement. The defendant subsequently filed an amended plea that the Upgrade Agreement contravened the provisions of section 217(1) of the

Constitution and/or section 5(1)(a)(iii) of the PFMA.

ISSUES:

(15) The principal issues in this action, according to the defendant, which was conceded by the plaintiff during argument, are:

15.1 Whether RSSS proved the conclusion of the Upgrade Agreement;

15.2 The court has to determine, whether RSSS, represented by Mr Narainsamy and Telkom, represented by Mr Pillay, reached consensus on the subject matter of the Upgrade Agreement;

15.3 Should the court find that an agreement was concluded, then the court has to determine whether Mr Pillay was authorised by Telkom to conclude the agreement;

15.4 Should the court find that Mr Pillay was authorised, the constitutional issues raised in Telkom's plea must be dealt with;

this will only be necessary if Mr Pillay was authorised, otherwise the constitutional issues become moot;

15.5 Should the court find a lack of authority, RSSS pleaded estoppel in the replication. The court has to adjudicate whether RSSS is entitled to rely on estoppel and if so, whether RSSS has proved the requirements to succeed;

15.6 Should the court find the Upgrade Agreement was validly concluded between RSSS and Telkom, it must be determined whether RSSS proved compliance with its contractual obligation to claim the balance of the contract price.

BACKGROUND:

(16) The plaintiff's action arises from an agreement in terms of which the plaintiff was required to upgrade a cable theft alarm system, previously purchased from the plaintiff by the defendant. According to the plaintiff's particulars of claim, the parties, plaintiff and defendant, entered into a partly written, partly oral agreement, to which the plaintiff refers as the Upgrade Project Agreement ("Upgrade Agreement").

(17) The plaintiff avers that this agreement was concluded in Pretoria, alternatively at La Lucia. According to the plaintiff, the plaintiff was represented by Mr Selvanathan Narainsamy and the defendant was represented by Mr Jay Pillay. The plaintiff alleged that the written portion of this agreement was an email from the defendant to the plaintiff dated 4 April 2007; a memorandum of agreement from the defendant to the plaintiff dated 6 April 2007 and a quotation presented by the plaintiff to the defendant on 6 April 2007, in person.

(18) The material, alternatively express, alternatively implied terms of the Upgrade Agreement included, inter alia, according to the particulars of claim, that the plaintiff would initiate a project, the M3010 Upgrade Project, to upgrade and render the alarm equipment previously purchased by the defendant in terms of the Purchase and Sale Agreement compliant with Telkom M3010 standard.

(19) According to the plaintiff, the project included research, development, design and development of the control software, as well as the design and development of equipment.

(20) On 4 April 2007 Mr Wayne Louis, who was in the employ of the defendant, and responsible for general security of the buildings and assets of the defendant, requested the plaintiff by email to provide a quotation via the defendant's procurement department. The request was for a quotation requiring the plaintiff to comply in line with the M3010 telecommunications standards. It further required that the system previously purchased by Telkom, should have communication levels from the site device within the exchange to Telkom's national security control centre to be done via Tienet Protocols. Tienet, according to the evidence, is a Telecommunication Protocol/Internet Protocol ("TCP/IP").

(21) On 5 April 2007 the plaintiff emailed a quotation in three parts, the sum of R158 669 039.50 in respect of upgrading the system at 800 exchanges; the amount of R99 million plus VAT for the provision of software and for the sum of R24 200 524.66 plus VAT in respect of testing the software and equipment over a 12 month period. The total amount quoted was R281 869 564.16 plus VAT, which resulted in an amount of more than R320 million.

(22) On 6 April 2007, a written quotation was provided personally by Mr Narainsamy to Mr Pillay, who signed for it. On the same date the defendant received a written communication, signed by Mr Pillay referring to the email, requesting the quotation and requiring the plaintiff to comply in line with the M3010 telecommunications standards and setting out that the current system purchased by

Telkom, required that communication levels from the site device within the exchange to Telkom's national security control centre had to be done via Tienet Protocols.

(23) The issue was whether Mr Pillay was authorised to give such an instruction. Although he had been a procurement manager, the amount involved in the transaction was above the threshold amount he was delegated to deal with. The plaintiff had never previously dealt with Mr Pillay giving authorisation for procurement of equipment.

THE PLEADINGS:

(24) The Upgrade Agreement alleged by the plaintiff is denied by the defendant. The defendant denies the conclusion of the Upgrade

Agreement. The defendant further denied that Mr Pillay had been authorised by the defendant to conclude the agreement, should the

court find that the Upgrade Agreement was a valid agreement. It was pleaded in the amended plea of the defendant that the conclusion of the Upgrade Agreement contravened the provisions of section 217(1) of the Constitution and/or section 51(1)(a)(iii) of the PFMA, as a result of which it was invalid ab initio ; alternatively, the decision to conclude the Upgrade Agreement was unlawful and constituted an invalid administrative act, as a result of which RSSS is not entitled to coerce performance from Telkom in terms thereof and Telkom further denies that RSSS performed properly in terms of the Upgrade Agreement.

(25) The plaintiff replicated that Telkom had made various representations to the plaintiff that Mr Pillay was authorised to conclude the Upgrade Agreement and/or two of Telkom's employees, Mr Prince Motsogi and/or Mr Wayne Louis ratified the conclusion of the Upgrade Agreement; and or Telkom "otherwise" had ratified the Upgrade Agreement. RSSS relied upon these representations as being correct and acted thereon by performing its obligations in terms of the Upgrade Agreement to its detriment. In the result Telkom is estopped from denying Pillay's authorisation and/or the "subsequent ratification" of the Upgrade Agreement.

(26) Furthermore, in the replication the plaintiff refers to clause 14 of an earlier agreement between the two parties concluded on or about 4 December 2006, approximately four months before the alleged conclusion of the Upgrade Agreement. According to the plaintiff, in the replication, the request of 4 April 2007 was a variation in terms of clause 14 of the agreement of 4 December 2006. Furthermore, plaintiff asserted in the reply that the nature and subject matter of the agreement of 4 December 2006 related to the sale of rights to a certain patent and therefor section 217(1) of the Constitution and section 51 of the PFMA were not applicable. This contention was taken no further during argument and can be ignored.

(27) The defendant subsequently filed a rejoinder in response to the plaintiff's estoppel allegations, denying the alleged representations

and/or that RSSS relied upon same as being correct and, as a result, acted to its detriment. It was asserted that estoppel may not be used to make legal, what would otherwise be illegal and cannot replace statutory requirements for the validity of contracts, as a result of which RSSS is, in law, not entitled to rely on estoppel.

(28) The plaintiff filed a surrejoinder, which asserts that a rule of law which permits "an organ of State, through its own carelessness", to deprive RSSS of a statutory right of recourse, which estoppel would offer, is "inconsistent with the culture of justification of which the right to reasonable administrative action" forms an important part; to permit Telkom to take "advantage of the established rule against the raising of estoppel" in the circumstances "would be inconsistent with the entrenched constitutional value of reasonable public administration"; to allow a plea of estoppel in the circumstances "would prevent hardship and injustice and give content to the object of the Constitution"; in the circumstances RSSS is entitled to rely on estoppel".

(29) Although the plaintiff alleged in the particulars of claim that the Upgrade Agreement was "partly written, partly oral" , it appears as if none of the terms alleged were expressly agreed orally.

(30) The issue of reliance on clause 14 of the Purchase Agreement has no factual basis, as confirmed by counsel for the plaintiff in his opening address, where he asserted that the Purchase Agreement constituted a "previous transaction". There was no amendment of the particulars of claim that the Upgrade Agreement concerned the "rights to certain patents". I will therefore not deal with clause 14 of the Purchase Agreement when adjudicating the matter.

LEGAL FRAMEWORK AND BACKGROUND:

(31) Section 217 of the Constitution deals with procurement. Section 217(1) provides:

"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."

(32) Section 51(1)(a)(iii) of the PFMA provides:

"an appropriate procurement and provisioning system which is fair ,equitable. transparent. competitive and cost-effective ;"

(33) In Municipal Manager Quakeni Local Municipality and Another v FV General Trading CC[4] it was held:

"In considering the validity or otherwise of the written contract 'ZEV 2', it is necessary to recall that s 217(1) of the Constitution,

couched in peremptory terms, provides inter alia that an organ of state in the local sphere (such as a municipality) which contracts for goods and services 'must do so in accordance with a system which is fair, equitable, competitive and cost-effective' (my emphasis). This constitutional imperative is echoed in both the Systems Act and the Municipal Finance Management Act 56 of 2003 ('the Financial Management Act? as will become apparent from what is set out below.

Consequently, in a number of decisions this court has held contracts concluded in similar circumstances without complying with prescribed competitive processes are invalid. In Premier, Free State and Others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA) this court set aside a contract concluded in secret in breach of provincial procurement procedures, holding that such a contract was 'entirely subversive of a credible tender procedure' and that it would 'deprive the public of the benefit of an open competitive process'. Similarly in Eastern Cape Provincial Government v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA), which concerned the validity of two leases of immovable property concluded between the respondent and a provincial department without the provincial tender board having arranged the hiring of the premises as was required by statute, this court concluded that the leases were invalid ....

I therefore have no difficulty in concluding that a procurement contract for municipal services concluded in breach of the provisions dealt with above which are designed to ensure a transparent, cost effective and competitive tendering process in the public interest, is invalid and will not be enforced."

(34) The Upgrade Agreement constituted a contract for goods or services as envisaged in section 217 of the Constitution, and as discussed in Quaken[5] above. In The Law of Government Procurement in South Africa[6] the learned author, Bolton, defines ''procurement’' as:

"[t]he process which creates, manages, and fulfils contracts relating to the provision of supplies, services or engineering and construction works, the hiring of anything, disposals and the acquisition or granting of any rights and concessions".

(35) During argument counsel for the plaintiff, relied on ostensible authority, when dealing with plaintiff's reliance on estoppel.

Ostensible or apparent authority was introduced into law for purposes of achieving justice in circumstances where a principal had created an impression that its agent had authority to act on its behalf. If this appears to be the position to others, and an agreement that accords with that appearance is concluded with the agent, then justice demands that the principal must be held liable in terms of the agreement. This is distinct from estoppel in which there is no authority but a representation of authority misleading a third party into believing such authority.

(36) The defendant, at all times, denied that the Upgrade Agreement had been concluded.

EVIDENCE:

(37) Mr Narainsamy, director and sole shareholder of the plaintiff, gave evidence in respect to the Upgrade Agreement. His evidence was that in April 2007 Prince Motsogi of Telkom called him and enquired whether the plaintiff was capable of upgrading the alarm system, previously purchased by the defendant in terms of the Purchase Agreement, to M3010 compliance. This was followed by an email from Mr Wayne Louis of Telkom requesting him to quote for this purpose. He prepared a two page quotation for the amount of R281 869 564.16 plus VAT, which he handed to Mr Pillay at procurement on 6 April 2007. Thereafter, according to him, he was requested to upgrade the equipment to M3010 compliance in a memorandum dated 6 April 2007. There was no formal written agreement, contrary to the case with the agreement concluded on 4 December 2006. Mr Narainsamy conceded that the agreement of 4 December 2006 was the kind of agreement the plaintiff normally entered into with the defendant. It is thus clear that Mr Narainsamy knew how procurement with a State organ had to take place due to his long relationship with the defendant. A perfect example is the memorandum of agreement of 4 December 2006 which was attached to the particulars of claim. This agreement is a document of 46 pages, setting out all the terms and conditions of the agreement. It was duly signed by both parties.

(38) It is thus clear that, according to Mr Narainsamy, it was never communicated to him by Mr Pillay that his quote had been accepted. It is apposite to quote the email, dated 8 April 2007, from Mr Pillay to Mr Narainsamy:

"Dear Selvan,

As per the e-mail received from Wayne Louis dated 04 April 2007 and copied to Prince Motsogi from TARPS.

You are required to comply with, in line with the M3010 telecommunication standards. The current system purchased by Telkom requires that the communication levels from the site device within the exchange to the Telkom's National Security Control Centre (NSCR) to be done via Tienet Protocols.

After completion of the above you are required to test the equipment with the aid of TARPS for their approval.

Regards,

(signed)

JAY PILLAY"

The plaintiff wants the court to interpret this communication as acceptance of the quote. It is clear that this email sets out what

would be expected from the entity whose quote is accepted. There is no indication in the wording that Mr Narainsamy's quote had been accepted. Mr Narainsamy failed to ascertain as a fact whether his quote had been accepted.

(39) Mr Narainsamy conceded, during cross-examination, that when he had prepared the quote after Prince Motsogi's phone call, he did not know what the M3010 requirements were, before preparing a two page quote. He further conceded that he had prepared the quote of approximately R320 million to R330 million on assumptions, as he had not known what M3010 was about. During his evidence he further conceded that he had not testified in his evidence in chief that he had sent the quote by email to Mr Pillay on 5 April 2007, but only that he had personally taken it to Mr Pillay on 6 April 2007. It was clear that Mr Narainsamy had already on 5 April 2007, a day after being requested to submit a quote, done so by email, although he refrained from testifying to that affect, until it was put to him in cross­ examination.

(40) Mr K Ragunandan of RSSS gave the same version in a memorandum of 5 October 2010. Mr Narainsamy further conceded that he had refrained to mention the email of 5 April 2007 in the memorandum of 8 March 2011. His evidence in court was thus contrary to the actual facts where he had already provided Mr Pillay with a quote on 5 April 2007 by email and thereafter specifically went to Pretoria to hand­ deliver the quote.

(41) He confirmed that within a day of receiving the request on 4 April 2007, and without knowing what M3010is about and working on assumptions, he emailed a quotation to Mr Pillay. It is quite clear that the quote could not have been based on any facts to support it, as Mr Narainsamy did not know what M3010 was. The question is how did he then determine the work that had to be done and attach a price thereto? And not only an amount, but an amount in excess of R300 million. His evidence makes it clear that the quote was based on speculation without any knowledge of what was required.

(42) The following question by counsel for the defendant is important[7]:

"Mr Narainsamy, we have now ascertained that you were never informed expressly that the quotation was accepted, and from the documentation that you infer that it was accepted. That was your testimony. --- Yes."

There can be no doubt that the quote had not been accepted. Mr Narainsamy's evidence in this regard is once more that he based the inference of acceptance of the quote on no proven facts.

(43) It is further important that Mr Narainsamy testified that he had never previously concluded an agreement with Telkom, where Mr Pillay was representing Telkom. He conceded that Mr Pillay had not informed him that his quotation had been accepted by Telkom. Mr Narainsamy's evidence was that he never thought that an agreement had been concluded. This concession by Mr Narainsamy that he never thought that an agreement had been concluded, puts paid to the basis of the plaintiff's particulars of claim and should be the end of the case.

(44) In Stellenbosch Farmers Winery Group Ltd and Another v Martell & Cie SA and Others[8] Nienaber JA set out in what manner a court should deal with a factual dispute about the terms of an oral agreement. I find that the technique described by Nienaber JA can be and should be usefully employed to the facts of the present case. The plaintiff has the onus to prove the agreement.

(45) The astounding evidence that Mr Narainsamy had submitted a quotation for the M3010 upgrade, not knowing what it would entail, and working on assumptions, when preparing the quotation and then handing it to a procurement manager at Telkom, who he had not known as a person who could grant contracts of such magnitude, can only result in the inference that no agreement had been concluded. If I consider Mr Narainsamy's evidence the facts of the case, the burden of proof and the probabilities and improbabilities then I find that the plaintiff has not proven the case on a balance of probabilities.

(46) If I am wrong in finding that on the basis of the evidence before me, no agreement had been concluded, then I deal with Mr Pillay's lack of authority and estoppel.

ESTOPPEL:

(47) I will firstly deal with estoppel. In LAWSA[9] estoppel is explained:

"[A] person is precluded, that is estopped, from denying the truth of a representation previously made by him or her to another person if the latter, believing in the truth of the representation, acted thereon to his or her prejudice ...[W]here a person (the representor) has by his or her words or conduct made a representation to another person (the representee) and the latter, believing the representation to be true, acted thereon and would suffer prejudice if the representor were permitted to deny the truth of the representation made by him or her, the representor may be estopped, that is precluded, from denying the truth of the representation."

(48) It was decided in ABSA Bank Limited v Mahomed and Another[10] that if a third party purports to conclude an agreement with a principal who is represented by an agent, and it is found, in fact, that the agent lacked authority to conclude the agreement on behalf of the purported principal, no agreement comes into existence between the third party and the principal. The plaintiff relies on estoppel, should the court find that an agreement had not been concluded. The plaintiff relied on ostensible authority. The plaintiff pleaded estoppel in the replication.

(49) The principle regarding estoppel was clearly stated by the Appellate Division in Strydom v Die Land- en Landbou Bank van SA[11] where it is stated that:

"Versuim deur 'n statutere liggaam, soos die Landbank, om voorskrifte na te kom wat die Wetgewer vir die geldigheid van 'n bepaalde handeling van daardie statutere liggaam voorgeskryf het, kan nie deur estoppel aangesuiwer word nie, want dit sou aan 'n handeling wat ultra vires is regsgeldigheid verleen."

(50) In Provincial Government of the Eastern Cape and others v Contractprops 25 (Pty) Ltd[12] the court held:

"It is settled law that a state of affairs prohibited by law in the public interest cannot be perpetuated by reliance upon the doctrine of estoppel ...

This is such a case. It was not the Tender Board which conducted itself in a manner which led respondent to act to its detriment by concluding invalid /eases of property specially purchased and altered at considerable expense to suit the requirements of the Department. It was the Department. If the leases are, in effect, "validated" by allowing estoppel to operate, the Tender Board will have been deprived of the opportunity of exercising the powers conferred upon it in the interests of the taxpaying public at large. Here again the very mischief which the Act was enacted to prevent would be perpetuated. (Cf Strydom v Die Land-en Landboubank van SA 1972 (1) SA 801 (AO) at 815 E - F.)"

(51) The argument by the plaintiff is that "rule of law which permitted an organ of State, through its own carelessness or neglect to deprive the plaintiff of a statutory right of recourse and then to render itself immune from a defence to that deprivation, which estoppel would offer the plaintiff, was insistent with the culture of justification of which the right to the reasonable administrative action was an important part". These assertions by the plaintiff have no legal basis and are contrary to what the Supreme Court of Appeal had decided in Contraprops, as set out above.

(52) The evidence of Mr Mike Midgley, a former executive in the Procurement Services Department of Telkom: testified that at the time Mr Pillay was not authorised to conclude the Upgrade Agreement. As his evidence was not disputed the court accepts Mr Midgley's evidence as correct that Mr Pillay was not authorised to conclude the Upgrade Agreement on behalf of Telkom.

(53) I will deal with ostensible authority as argued by the counsel for the plaintiff. Ostensible authority, on which the plaintiffs counsel relied during argument, is a form of estoppel. In Glofinco v ABSA Bank t/a United Bank[13] Nienaber JA set out the requirements for holding a principal liable relying on ostensible authority:

''.A representation, it was emphasised in both the NBS cases, supra, must be rooted in the words or conduct of the principal himself and

not merely in that of his agent (NBS Limited v Cape Produce Company (Pty) Ltd, supra at 411H-I). Assurances by an agent as to the

existence or extent of his authority are therefore of no consequence when it comes to the representation of the principal inducing a third party to act to his detriment."

In the present instance the principal made no representation, but according to the plaintiff, the representation was made by Mr Pillay, the agent for the defendant, that he was acting on behalf of the defendant.

(54) The question which should be answered subsequently is whether the reliance on the representation by Mr Pillay was reasonable. In NBS Bank Limited v Cape Produce Company (Pty) Ltd and Others[14]Schutz JA held:

''.As Denning M R points out, ostensible authority flows from the appearances of authority created by the principal. Actual

authority may be important, as it is in this case, in sketching the framework of the image presented, but the overall impression received by the viewer from the principal may be much more d etailed . Our law has borrowed an expression, esfoppel, to describe a situation where a representor may he held accountable when he has created an impression in anothers mind, even though he may not have intended to do so and even though the impression is in fact wrong. Where a principal is held liable because of the ostensible authority of an agent, agency by estoppel is said to arise. But the Jaw stresses that the appearance, the representation, must have been created by the principal himself The fact that another holds himself out as his agent cannot, of itself, impose liability on him."

(55) In Grant and Another v Stonestreet and Others[15] the court held:

"the statement made by BRISTOWE, J., in Erasmus's case, supra at p. 1049, that, if a person wilfully shuts his eyes and declines to see what is perfectly obvious, he must be held to have had actual notice, appears to me to be sound in principle and to merit the approval of this Court. It is with due regard to the above-mentioned principles that the facts of the present case must 'be considered."

And in Makhate v Vodacom (Pty) Ltd[16] the Constitutional Court held:

''A closer examination of the original statement on apparent authority by Lord Denning, quoted below, reveals that the presence of authority is established if it is shown that a principal by words or conduct has created an appearance that the agent has the power to act on its behalf. Nothing more is required. The means by which that appearance is represented need not be directed at any person. In other words the principal need not make the representation to the person claiming that the agent had apparent authority. The statement indicates the absence of the elements of estoppel. It does not mention prejudice at all. That statement of English Jaw was imported as it is into our Jaw in NBS Bank and other cases that followed it."

(56) The first representation that the plaintiff relies on is that Pillay had been authorised to conclude the Upgrade Agreement with the plaintiff. According to Mr Narainsamy's evidence, on behalf of the plaintiff, Mr Pillay had never previously, in the long period of time that the plaintiff had been doing business with the defendant, represented the plaintiff. The plaintiff did not adduce any evidence from which the conclusion could have been drawn that Mr Narainsamy could have accepted that Mr Pillay had the necessary authority to represent the defendant. In any event, Mr Narainsamy's evidence was that no agreement had been concluded. There are no facts or evidence on which the plaintiff can rely on to prove that the defendant had created the impression that Mr Pillay had authority to conclude the agreement for such a large amount, or any other amount for that matter. Mr Narainsamy had "wilfully" shut his eyes and declined to see, at the time, that no Upgrade Agreement had been concluded. His evidence in this regard makes it very clear that he had not been under the impression that an agreement had been concluded.

(57) The second representation relied on by the plaintiff is that Mr Prince Motsogi or Mr Wayne Louise had ratified the conclusion of the Upgrade Agreement. Once again the plaintiff did not provide any evidence that Mr Motsogi or Mr Louis' conduct could be seen as that of persons representing Telkom in concluding the Upgrade Agreement. This has certainly not been proven.

(58) The third assertion on which the plaintiff relies, is that the defendant "otherwise had ratified the Upgrade Project Agreement". The only witness for the plaintiff was Mr Narainsamy. As has already been pointed out above, Mr Narainsamy's evidence was that he had inferred that his quote was accepted, although he conceded that he was never expressly informed that the quotation was accepted. If any reasonable person has regard to the memorandum referred to above, it is clear that the so-called memorandum set out what was required to be done. It can by no stretch of imagination be read as the acceptance of the quote. His evidence was that he thought that the memorandum handed to him by Pillay was "another one of those cases where they tell you to do something...is no contract yet, but you know they will conclude the contract later".

(59) Mr Narainsamy had at all times been aware of the difference between an access control system and an alarm system. The plaintiff had been involved in a pilot project at Uitenhage ("Uitenhage Project") since 2003, which controls access to certain assets, e.g. street distribution cabinets. In 2006 the plaintiff was also involved in the renting of its alarm system to the defendant. The alarm system was subsequently sold to the plaintiff for R198 million in December 2006. This agreement ("the purchase agreement") was attached to the particulars of claim and contains 46 pages with all the terms and conditions set out in detail and duly signed by both parties. It is astounding that in the present instance a contract for an amount of more than R300 million will be concluded by a single email and a memorandum. The so-called Upgrade Agreement pertains to the alarm system.

(60) On 16 January 2009 a memorandum was sent to Mr Narainsamy by Mr Sam Moodley, who was the manager of access control at the time. This is the memorandum that Mr Narainsamy relies on for confirmation that there had indeed been an agreement concluded regarding the alarm system. It is important to note that an alarm system is installed to protect the cables of Telkom from theft and or damage. Its use is thus clearly distinct from that of the access control system and should and, in reality, cannot be confused. The subject matter of this memorandum of Mr Moodley refers to "Element access control system that Radio Surveillance has upgraded ...". There is no mention at all in the memorandum of the alarm system, although according to the plaintiff in the request for particulars,

and Mr Narainsamy's evidence the memorandum referred to the alarm system. This contradicts the memorandum by Mr Ragunandan, dated 5 October 2010.

(61) This memorandum of Mr Moodley confirms that instructions were given to make the Uitenhage project M3010 compliant and that the memorandum refers to the Uitenhage project and not to the alarm system at all. There can be no doubt that this memorandum has nothing to do with the Upgrade Agreement and alarm system, as there is no mention of the Upgrade Agreement at all.

(62) Although Mr Narainsamy tried to disown this memorandum by Mr Ragunandan of 5 October 2010, he had himself written a memorandum on 8 March 2011, in which he incorporated Mr Ragunandan's memorandum and referred to it.

(63) Mr Narainsamy's evidence was that the plaintiff was requested to make the alarm system M3010 compliant, but that the plaintiff was told to test in Uitenhage and these tests would be applicable to the access control system. It was pointed out to him by defendant's counsel that his evidence in this regard was false. It was put to him that he had consulted with Mr Moodley the previous court day, which resulted in him changing his version. Mr Narainsamy then testified that the tests at Uitenhage pertained to both the access control system, as well as the alarm system purchased in terms of the purchase agreement. This version of Mr Narainsamy does not correspond with his evidence in chief and the further particulars· furnished by the plaintiff, as now his evidence was that the tests pertained to the access control system, as well as the alarm system. It is clear that Mr Narainsamy adapted his evidence to fit the questions and both versions cannot be correct.

(64) The plaintiff asserted in its particulars of claim that part of the plaintiffs obligations in terms of the Upgrade Agreement was that "the plaintiff would install a quantity of the M3010 equipment sufficient to test the upgrade". The testing phase would thus include the upgrade of some of the 800 alarms sold in terms of the purchase agreement in December 2006. Once again this is contrary to Mr Narainsamy's evidence. According to Mr Narainsamy's evidence the tests had been limited to Uitenhage and none of the alarms sold in December 2006 were in Uitenhage.

(65) On 14 March 2017 Mr Narainsamy deposed to an affidavit in answer to a Rule 35(3) notice served on him wherein he was requested to supply the defendant with a copy of the software. His reply was that he was unable to do so, as the defendant had all the copies as he had handed them to the defendant's representative, Mr Moodley, during August 2007.

(66) This is once more contrary to Mr Narainsamy's evidence that the software was also installed at the plaintiff's control centre. If that was the case, the plaintiff would have been able to furnish the defendant with a copy, as it was in the plaintiff's possession.

(67) In conclusion I find that if the Uitenhage test had pertained to both the access control system and the alarm system, Mr Narainsamy gave false evidence in chief in this regard. I have already previously dealt with Mr Moodley's memorandum which throughout dealt with the access control system and not with the alarm system. There can be no doubt that the Uitenhage project dealt only with the access control system and that Mr Narainsamy's evidence in this regard must be dismissed as false and untrue. Furthermore, having regard to the above authorities, I find that Mr Narainsamy could not have inferred that the principal, Telkom itself had created the impression that Mr Pillay had authority to conclude any agreement with him.

(68) To confirm this conclusion the 12 invoices rendered by the plaintiff on 23 January 2009 referred to "Re - M3010 Compliance Field Testing. " Mr Narainsamy testified that these invoices pertained to the testing component of the quote, which would have made the plaintiff entitled to payment of an amount of R99 million for the software. The plaintiff failed to render an invoice for this amount. Mr Narainsamy's explanation for the failure to claim the R99 million was that it was never his intention to claim it, but that his

intention was to complete the units and thereafter to claim for the units and the software. I find it very hard to believe and improbable that a business who is entitled to payment of R99 million plus VAT, would defer such a payment. Even more so where the plaintiffs particulars of claim was amended to reflect that the plaintiff had become entitled to this amount on 16 January 2009. The invoices rendered clearly do not refer to the alarm system. The plaintiffs version was that there was no agreement in respect of the items charged in the invoices. The plaintiff had to itemize the sub-items - according to Mr Narainsamy it was up to him to do so, which was not done.

(69) Mr Narainsamy's further evidence was that the monthly amount for testing was R2 016 710.38, although the monthly invoices rendered

were only for an amount of R1 608 222.00. His evidence was that the defendant had pressurised him for a 20% deduction, which he agreed to.

(70) I find it strange that all the invoices rendered were paid in full and there is no indication at all of a 20% reduction. According to him, in his evidence, the first set of invoices included the 20%, but these invoices were not furnished to the court. One would expect these invoices to have been discovered, if Mr Narainsamy's evidence is true and if these invoices could confirm his evidence. There is no explanation as to why these invoices were not discovered and not presented to court.

(71) The plaintiff relies on Mr Moodley's memorandum, which I have previously dealt with and found that it did not relate to alarm

systems at all. The plaintiff further relies on a compliance certificate rendered by the plaintiff to the defendant, dated 12 March 2009. Mr Narainsamy's evidence was that the compliance certificate was given to the defendant after the testing had been completed, but changed his evidence under cross-examination and testified it may have been given during the time of testing. This

cannot be accepted, as a compliance certificate can only be furnished after completion of successful testing and the compliance certificate concludes:

"This document certifies that the equipment specified is in compliance with the standard ITU-T M.3010 05/96 and can be classified as a network element (NE) as prescribed in this standard."

Once more there is no mention of the alarm system in the compliance certificate, and is, as such a meaningless document. Once again Mr Narainsamy's evidence is found to be wanting.

(72) Counsel for the defendant argued that it is clear that the plaintiff was paid these 12 invoices rendered on 23 January 2009 without purchase order numbers and misrepresenting Mr Moodley's memorandum and the compliance certificate. Having considered Mr Narainsamy's evidence and the improbability thereof, I find his evidence once more wanting.

(73) Mr Keswa, employed by the defendant, queried the 12 invoices and asked an explanation from Mr Louis, Mr Louis' evidence was that he located a copy of Mr Pillay's memorandum dated 6 April 2007. The quote could not be found in the procurement file.

(74) Mr Narainsamy, during evidence, confirmed that he had attended a meeting with the defendant where Ms Tube, representing the defendant, was present. He further confirmed that the quote was not discussed at the meeting.Ms Tube sent an email on 2 April 2009 requesting:

".. .The invoices submitted to date refer to periods ending up to September 2008. As a matter of urgency, please could you provide me with the project plan for the outstanding work after September 2008, together with an estimate of any outstanding amounts".

(75) The memorandum of Mr Ragunandan of 5 October 2010 record the following:

"RSSS presented the costing and the invoice for the M3010 project to Henry Siphiwe on 3 s1t of August 2009.

Mr Siphiwe acknowledged receipt of the project cost and the invoice but advised that the invoice can only be processed when the entire project is completed, audited and accepted by TARPS. He instructed that the invoice for the completed project be submitted on completion of the entire project.

A copy of the relevant document is attached and marked Annexure 'G'."

Mr Narainsamy denied that the document attached to Mr Ragunandan's memorandum was furnished in response to Ms Tube's request. This

document attached to the memorandum as annexure 'G' is a modified version of the original quote and was brought to the defendant's

attention for the first time on 31 August 2009. Mr Narainsamy denied that this was the document that had been provided as a result of Ms Tube's request and testified that he had replied verbally. Mr Ragunandan's memorandum proves that this evidence is a lie. It is clear from this evidence that a modified version of the quote, annexure G, was only brought to Telkom's attention on 31 August 2009. Mr Narainsamy could not give an explanation for this state of affairs.

(76) In the replication the plaintiff relies upon the following representations :

"Over the period October 2007 to September 2008 the plaintiff installed the modification equipment with the co-operation and assistance of various employees of the defendant".

Once more the alarm system is not mentioned.

(77) A former employee at Telkom, Mr Cyril Keswa's evidence was that on 20 October 2008 he had received an email from Mr Allen Hardy, an operations manager in the employ of the defendant which read as follows:

"Please can you bring me up to date with procedures concerning cable alarm equipment. At Brackenfell and Kraaifontein MDFs contractors have been installing cable alarm equipment.

There was no WAP Webforce ref or permission from me to do this work.

The equipment (cable alarm box) is being installed in the MDF rooms. I thought there was a policy not to install any new equipment in the MDF rooms."

(78) His evidence was that after receiving this email, he contacted a certain Lorraine, employed by the plaintiff, enquiring as to what the position was. She informed him that the plaintiff was replacing temporal alarms purchased by the defendant, at no cost to the defendant, as they were not M3010 compliant. Mr Narainsamy confirmed that Lorraine was an employee of the plaintiff and that he could not dispute the version of Mr Keswa relating to her version of the situation. This evidence by Mr Keswa was undisputed and the plaintiff did not call Lorraine to give evidence in this regard. The court accepts Mr Keswa's evidence in this regard unequivocally. These alarms could not have formed part of the Upgrade Agreement.

(79) If this evidence is taken into consideration, it is clear that it related to modification equipment and could by no stretch of the imagination be seen as representing that the defendant had ratified the Upgrade Agreement. At that stage the defendant was not in possession of the quote and the terms of the alleged agreement were unknown. It would have been impossible to ratify such an agreement. The same applies to Mr Moodley's memorandum. I have already dealt with the memorandum that pertained to the Uitenhage access control system and have already found that it cannot be used as a representation that the Upgrade Agreement had been ratified.

(80) Mr Lubbe's evidence was that the plaintiff had repackaged the existing system, whilst not in fact fulfilling its core obligation to convert the existing dial-up systems to TCP/IP. There is no doubt that the upgrades according to the purported Upgrade Agreement had not been done.

(81) Paragraph 1(b)(v) of the replication deals with the 12 invoices rendered by the plaintiff and which were paid. Once more I have already dealt with the invoices and it cannot be used to confirm the representation by the defendant, where the plaintiff did not know whether the defendant was aware of the terms of the alleged agreement and where Mr Narainsamy himself testified that such an agreement had not been concluded.

(82) Paragraph 1(b)(vi) of the replication relies on the installation of equipment between October 2008 and 25 October 2010. The quote was only furnished to the plaintiff on 31 August 2009 and cannot constitute a representation by the plaintiff that the defendant had ratified the Upgrade Agreement.

(83) Paragraphs 1(b)(vii) and (viii) deals with the email by Ms Tube of 2 April 2009 - four months before the quote was furnished to the defendant. The email records that Mr Narainsamy undertook to provide Ms Tube with an estimate of outstanding amounts and a project plan.This could never be interpreted as ratifying the Upgrade Agreement. In any event I have dealt with Mr Narainsamy's evidence extensively in this regard.

(84) Mr Narainsamy could never have accepted that a contract was concluded when he provided Mr Pillay with a quote - even more so where it was a quote for something he had no knowledge of and could not explain how he came to the amounts quoted as he did not know what the work entailed.

(85) I find that the plaintiff was not entitled to rely on estoppel, but if I am wrong, the plaintiff has failed to prove any of the requisites of estoppel for all the reasons set out above.

(86) If I apply the principles as set out in the above decisions there can be no doubt that in this instance the plaintiff alleges that the defendant, a state organ, entered into a contract. If this is so then the provisions of section 217(1) of the Constitution, as well as section 51(1)(a)(iii) of the PFMA apply. The alleged contract was entered into in contravention of the above sections and is therefore null and void. There was no compliance with section 217(1) of the Constitution as the agreement was not concluded "in accordance with a system which is fair, equitable, transparent, competitive and cost-effective"

(87) Therefor I find that should my first finding be rejected, that for the reasons set out above and applying the provisions of section 217(1) of the Constitution and section 51(1)(a)(iii) of the PFMA, as well as the principles as found in the abovementioned cases, the plaintiff cannot rely on estoppel.

COMPLIANCE WITH THE UPGRADE AGREEMENT:

(88) I will deal with the question whether the plaintiff had proved fulfilment of its obligations in terms of the Upgrade Agreement, even if I have already found that no agreement was concluded. This will only be in the event that I am found to be wrong in dismissing the reliance on estoppel and ostensible authority.

(89) Mr Narainsamy's evidence was that the plaintiff's core obligation in terms of the Purchase Agreement was to convert the system sold to the defendant during December 2006, from dial-up mode to TCP/IP. This would result in communication between the control room and the alarm systems would take place via internet.

(90) Mr Jaco Lubbe's evidence, on behalf of the defendant, was that he had compiled a report on 27 June 2011, after he had conducted an investigation in the Pretoria North area to ascertain what the M3010 upgrade by the plaintiff encompassed. He testified that he had visited 14 sites in the Pretoria area. His evidence was that if TCP/IP functionality had been added, there would have been a distinct blue cable present, which he did not find. His undisputed evidence was that even if somebody had removed the TCP/IP card, the blue cable would still be there.

(91) His conclusion was:

"The cable interface modules previously bought by Telkom from RSSS have supplied the functionality of connecting the FBI/ panels to our copper network cables for monitoring the cables in an electrically isolated manner. These modules provide the functionality of translating a cable cut condition into a 12V signal for compatibility purposes with the FBII panel. Integrating the expander module with a cable interface module into one card added no functionality that did not exist prior to the industrialisation - it merely combined functionality previously available on separate modules into a single module (different

mechanical form factor).

Lastly, it must also be noted that no additional interfaces have been added to M3010 panels to provide any alternative reporting channels. The only north-bound connection mechanism in the M3010 panel is still a dial-up connection to the PSTM as existed before the industrialization".

(92) In the particulars of claim it was pleaded that the plaintiff's obligation in terms of the alleged Upgrade Agreement was:

"to upgrade and render the equipment purchased by the defendant in terms of the Purchase and Sale Agreement....compliant with the Telkom M3010 standard."

I have already dealt with the fact that when Mr Narainsamy provided the quote of R281 869 964.16 he had no idea of what the M3010 compliance entailed. It was uncontested that the plaintiff was not aware what the defendant's M3010 requirements entailed. This was confirmed in the defendant's position paper, which the plaintiff introduced into evidence:

"RSSS has not seen Telkom's M3010 specification requirements and has thus not planned their solution's capabilities accordingly. "

The plaintiff could never have rendered a quote for the alarm system without knowing what the M3010 requirements were. It was conceded by Mr Narainsamy that the plaintiff had at no stage been aware of the defendant's requirements in this regard. It is thus clear that the plaintiff could not have rendered a service, without knowing what it entailed. There was at no stage an agreement concluded, as Mr Narainsamy admitted under cross-examination. I find that Mr Narainsamy was an unreliable witness, who contradicted himself on more than one occasion and contradicted material facts as set out in documentation and in his evidence in chief. He was evasive, not answering direct questions. I have considered all the evidence, the arguments by counsel and the authorities I had been referred to. I find that the plaintiff has not proved its case on a balance of probabilities and that the action against the defendant should be dismissed.

(93) In the result I make the following order:

1. The action is dismissed;

2. The plaintiff to pay the defendant's costs including the costs of two counsel.

3. The counterclaim is dismissed with costs.

___

Judge C Pretorius

Matter heard on:30 - 31 May 2016

28 - 1 September 2017

9 March 2018

For the Plaintiff: Adv Peter SC

Adv Nischal Nash Dheoduth

Instructed by:Maharaj Attorneys

For the Defendant:Adv Swart SC

Adv Tsungai Phehane-Rametse

Instructed by: Macrobert Attorneys

Date of Judgment: 26 April 2018

[1] Act 68 of 1969

[2] Act 102 of 1996

[3] Act 1 of 1999

[4] 2010 (1) SA 365 (SCA) at paragraph 11,15 and 16

[5] Supra

[6] 2nd Edition,(Lexis Nexis 2007 ) at 67-8

[7] Page 97 of the transcribed record lines 1 to 4

[8] 2003(1) SA 11 (SCA} at page 14 to 15

[9] 2nd Edition ,vol 9para 652

[10] 2014 (2) SA 466

[11] 2001(4) SA 142 (SCA ) at paragraphs 11 and 12

[12]

[13] 2006 (6) SA 470 (SCA) at paragraph 13

[14] 2002 (1) SA 396 (SCA) at paragraph 25

[15] 1968(4) SA 1 (AD) at 20 F-G

[16] 2016(4) SA 121 (CC) at paragraph 47