Special Investigations Unit v Municipal Employees Union Retirement Fund and Others (GP10/2020) [2024] ZAST 11 (31 July 2024)

IN THE SPECIAL TRIBUNAL ESTABLISHED IN TERMS OF SECTION 2 (1) OF THE SPECIAL INVESTIGATIONS UNIT AND

SPECIAL TRIBUNALS ACT 74 OF 1996

(REPUBLIC OF SOUTH AFRICA)

Case No. GP10/2020/LP01/2020

In the matter between:

In the case between:

Special Investigating Unit Applicant and Municipal Employees Union Retirement Fund First Respondent Phineas Kgahliso Legodi Second Respondent In re: Special Investigating Unit Plaintiff and Phineas Kgahliso Legodi First Defendant Carel Scmahl Second Defendant Johann Christiaan Kilian Third Defendant

JUDGMENT

Summary

Civil procedure – confirmation of rule nisi – whether a proper case is made out for an order confirming the rule nisi – whether the Tribunal has jurisdiction to grant an interdict preserving funds held in a Pension Fund.

Modiba J

Introduction

[1] The Special Investigating Unit (SIU) seeks an order confirming a rule nisi granted on 4 September 2020. The second respondent, Phineas Legodi (Legodi) is the only respondent who opposes the application.

.

[2] The nature of the relief sought against Legodi is an order for interdictory relief to prevent and restrict the payment of pension benefits that stand to his credit with the First Respondent (“Retirement Fund”) pending the final determination, including all appeals, of the action the SIU instituted against Legodi.

[3] The application for interdictory relief has a very long litigation history which I briefly set out below. I defer to the background facts as set out in the exception judgment handed down on 18 December 2023. I therefore do not repeat them in this judgment. I set out issues to be determined. Thereafter, with reference to the applicable law and legal authorities, I determine whether Legodi has made out a proper case for the rule nisi not to be confirmed. I then determine the costs of the application. An order concludes the judgment.

Litigation history

[4] On 1 September 2020, the SIU instituted an ex parte application, seeking, inter alia, the following relief:

a. The forms, time periods and service provided for in the Special Tribunal Rules are dispensed with. This matter is dealt with on an ex parte basis and as one of urgency in terms of rules 23 and 12 of the Special Tribunal Rules respectively.

b. The First Respondent is interdicted and restrained from releasing to the Second Respondent or any other party the money which represents

pension and retirement benefits due to the Second Respondent pending the outcome of an action to be instituted within 30 (thirty) days of this order by the Applicant against the Second Respondent for the recovery of financial losses and damages suffered by the First Respondent and/or Lepelle Northern Water Board and/or the Department of Water and Sanitation as a result of the alleged illegality,misconduct and acts of dishonesty perpetrated by the Second Respondent while he was employed by Lepelle Northern Water Board.

c. The Applicant shall institute the action contemplated in paragraph 2 above within 30 (thirty) days from the date of this order.

d. A rule nisi is issued calling upon the Respondents to show cause, on 19 October 2020 at 10:00 or as soon thereafter as counsel may heard (“the return date”), why the interim order granted in terms of paragraph 2 above should not be confirmed.

e. The Respondents may anticipate the return date on a 24 (twenty four) hour notice to the Applicant.

f. The Applicant, its legal representatives as well as the personnel of the Special Tribunal may only disclose this order to the media after it has been served on the Respondents.

[5] I considered the application and granted the above order. The SIU failed to comply with the terms of the rule nisi. This led to an order I granted on 24 November 2020 declaring that the rule nisi had lapsed. The SIU subsequently applied to have the rule nisi revived. Legodi opposed the application. On 21 January 2021 I granted an interdict at the SIU’s instance, pending the finalisation of the revival of the rule nisi. This Tribunal granted several other interlocutory orders in this matter. It would serve no purpose to enumerate them.

[6] Judge Pillay considered the SIU’s revival application and on the 14th of July 2022, granted an order reviving the rule nisi until it is confirmed or discharged.

Issues that arise for determination

[7] The primary issue to be determined is whether Legodi has shown cause why the rule nisi should not be confirmed. The SIU contends that he has not. He contends that he has because:

(a) The SIU is battling to formulate a winnable case against the defendants.

(b) It has not set out any basis on which to find that Legodi will dissipate his assets.

(c) The Tribunal lacks jurisdiction to grant an order in terms of s 37D(1)(b)(ii) of the Pension Funds Act. Further, a decision to withhold pension benefits due to an employee or member rests with the Board of a Fund, in this case the Municipal Employees’ Union Retirement Fund (the retirement fund).

(d) The SIU fails to meet the requirements for an interim interdict as it has an alternative remedy.

[8] The SIU places reliance on Tribunal Rule 23 (1) read with Tribunal Rules 23(2) and 26. In the alternative, it contends that the rule nisi ought to be confirmed because it meets the requirements for an interim interdict under the common law.

[9] From the parties’ contentions, the following issues arise for determination.

(a) Whether the Tribunal lacks jurisdiction to grant the order sought.

(b) Whether Legodi has shown cause why the rule nisi should not be confirmed on the basis on which the SIU sought it.

Analysis and findings

The Tribunal’s jurisdiction

[10] Legodi misconstrues the SIU’s case. It is not based on s 37D(1)(b)(ii) of the Pension Funds Act. Therefore, it matters not that the Tribunal is not a court. The Supreme Court of Appeal’s (SCA’s) authority in Highveld Steel and Vanadium Corporation Ltd v Oosthuizen[1] that only the board of the retirement fund may authorise non-payment of due pension benefits is also not of assistance to it.

[11] The SIU’s case is based on Tribunal Rule 23 (1) read with Tribunal Rules 23(2) and 26. Legodi has not attacked the constitutionality on these rules. The statutory basis for these rules in s 8 of the Special Investigating Unit and Special Tribunals Act[2] the constitutionality of which Legodi has also not attacked. S 8 provides as follows:

“(2) A Special Tribunal shall have jurisdiction to adjudicate upon any civil proceedings brought before it by a Special Investigating Unit in its own name or on behalf of a State institution or any interested party as defined by the regulations, emanating from the investigation by such Special Investigating Unit, including the power to-

(a) issue suspension orders, interlocutory orders or interdicts on application by such Unit or party;

(b) make any order which it deems appropriate so as to give effect to any ruling or decision given or made by it; and

(c) make any order which it deems appropriate as to costs.”

[12] Tribunal Rules regulate the procedure to be followed when seeking an interdict. Tribunal Rule 23 (1) provides that:

“(1) The SIU may, by way of an ex parte application in the form or a rule nisi, apply to the Tribunal in chambers or open hearing of the Tribunal, for a preservation order, pending the final adjudication of the main application or action proceedings, including appeals arising there from; prohibiting any person, subject to such conditions and exceptions as may be specified in the order, from disposing of, interfering with or dealing in any manner with any property to which the order relates.”

“(2) An application for a preservation order before the Tribunal is limited only in instances where there is a need for the preservation of evidence of the proceeds of a crime or unlawful transactions, contracts or conduct arising from any of the grounds listed in section 2(2) of the Act.”

[13] When read with Tribunal Rule 23 (2), it appears the Tribunal may only grant an order preserving property in terms of Tribunal Rule 23 (1) when:

(a) a rule nisi is sought ex parte or in chambers or open court on application

(b) it prohibits any person from dealing with, interfering or otherwise disposing of property to which the order relates pending the final adjudication of the main application or action proceedings, including appeals arising there from.

[14] The rule also empowers the Tribunal to specify any conditions or exceptions to which the order relate.

[15] A plain reading of Tribunal rule 23 (2) seems to suggest that the Tribunal’s powers to grant an order preserving property is limited only in instances where there is a need for the preservation of evidence of the proceeds of a crime or unlawful transactions, contracts or conduct arising from any of the grounds listed in section 2(2) of the Act. However, a purposeful and contextual reading of s8(2) lends itself to a wide interpretation of Tribunal’s powers to grant interdicts, including an interdict of the type sought against Legodi. To hold otherwise would frustrate the objective of such an order as expressed in Tribunal Rule 26 as well as the objectives of the SIU Act as set out in its preamble read with s 4(1)(c) and 5(5) of the SIU Act to recover money lost to the State due to irregular procurement processes.

[16] Rule 26 provides as follows:

“26 Forfeiture orders

At the conclusion of the proceedings and on final determination of the dispute, depending on the outcome on the unlawful activities of the respondent or the defendant, as the case may be, the Tribunal may make a final order for forfeiture to the State, of the property held under a preservation order or the interdict order where the respondent has been found to have participated in unlawful activities.”

[17] In terms of this rule, not only property held under a preservation order granted in terms of Tribunal rule 23(1) read with 23(2) may be forfeited to the state, but that held in terms an interdict. This may only be an interdict which the Tribunal is expressly empowered to grant in terms of s8(2). It may only grant such an interdict as empowered in terms of s 8(2), if its interdictory powers are not circumscribed by the limitation built into Tribunal rule 23(1) read with 23(2).

[18] I therefore find that the Tribunal’s interdictory powers in terms of s8(2) are wide enough to include the order sought.

Interim interdict under the common law

[19] The requirements for an interim interdict are set out in the seminal judgment of Setlogelo v Setlogelo[3] They are:

(a) a prima facie right,

(b) an infringement of that right or fear of irreparable harm of that right,

(c) the balance of convenience in favour of the applicant;

(d) the absence of an alternative remedy.

[20] The right ought to be prima facie established even if it is open to some doubt.[4] Legodi’s defence to this requirement is that the SIU has failed to set out a winnable case. His contentions are based on various successful exceptions brought by other defendants. He notably did not enter the fray in all the exceptions. The last exception in respect of which the judgment referenced in paragraph 3 was granted, refutes this contention as it was not upheld. He has not filed his plea. As a result, he has been ispo facto barred from filing it. He has since applied to have the bar uplifted.

[21] As contended on behalf of the SIU, it does not have to show that Legodi does not have a defence to its claim.[5] It is only required to satisfy the Court that it has a reasonable prospect of success in the main action although there was no definite preponderance of probabilities in the applicant’s favour.

[22] Following the approach laid out in Webster v Mitchell to establish whether the SIU has made out a prima facie case against Legodi though open to some doubt, I find that it has. As contended on behalf of the SIU, the only defence Legodi raises is that the ministerial directive, in the amount of R100 million, authorised him to procure services in the excess of R2,1 billion,

without following the applicable procurement prescripts. LNW was the implementing agent and was duty bound to follow the procurement

prescripts which included the LNW Supply Chain Management (SCM) Policy. Contracts concluded contrary to procurement legislation and regulations are wholly invalid. Unless the Tribunal finds that it is not just and equitable to set aside, it cannot be allowed to stand.

[23] It is common cause that at the time of the impugned tender, Legodi was the accounting authority of the LNW. As the accounting authority, he was subject to s50 and 51 of the Public Finance Management Act (PFMA). In that capacity, s 51(1)(a)(iii) requires him to establish and maintain a procurement system that promotes the constitutional values provided for in s217(1) of the Constitution at the LNW. In addition, s 50 imposes a fiduciary duty on Legodi to act with fidelity, honesty, integrity and in the best interests of the public entity in managing the financial affairs of the public entity. The SIU alleges that when Legodi committed LNW to an amount of R2,2 billion, and paid in excess of R4,3 billion, he breached those

duties. The ministerial directive, referred to by Legodi, was to intervene and to restore water to the inhabitants of Giyani.

The Minister did not and could not prescribe the way this intervention had to be executed. It was incumbent upon Legodi, as accounting authority to comply with the above statutory provisions.

[24] According to Legodi, the directive by the Minister was a lawfully issued directive in terms of s 41 of the Water Services Act.[6] It is valid and binding until set aside. S 41 of the Water Services Act provides:

“41 Directives to water boards

(1) The Minister may, to the extent that it is reasonable, from time to time issue directives to a water board-

(a) to undertake a specific activity-

(i) at its own cost where the activity is financially viable; or

(ii) against full or partial payment, as directed by the Minister; or

(b) to desist from a specific activity if that activity-

(i) is not in the best interests of the general population within its service area;

(ii) is not in accordance with the parameters laid down in section 34 (1).”

[25] The intervention authorised in terms of the directive ought to have been completed by no later than 30 September 2014. Clause 3.4 of the National Treasury Practice Note, 8 of 2007/2008, provides that an accounting officer should invite competitive bids for all procurement above R500,000.00.Clause 3.4.3 of Practice Note 8 of 2007/2008 provides that when it is impractical to invite competitive bids for a specific procurement, the accounting officer may procure the required goods or service by other means such as price quotations or negotiations in accordance with Treasury Regulation 16A6.4. Treasury Regulations 16A6.4 provides that if in a specific case it is impractical to invite competitive bids, the accounting officer or authority may procure the required goods or services by other means, provided that the reasons for deviating from inviting competitive

bids must be recorded and approved by the accounting officer or authority.

[26] Legodi concedes that when procuring services for the impugned tender, he deviated from the prescribed bidding process. He followed Practice Note 8 of 2007/2008. Clause 3 imposes specific monetary thresholds and requirements when procuring good and services falling withing each threshold. Clause 3.4.3 provides as follows:

"Should it be impractical to invite competitive bids for specific procurement, e.g. in urgent or emergency cases, or in case of a sole supplier, the Accounting Officer/Authority may procure the required goods or services by other means, such as price quotations or negotiations in accordance with Treasury Regulation 16A6.4 . The reasons for deviating from inviting competitive bids should be recorded and approved by the Accounting Officer/Authority or his or her delegate. Accounting Officers/ Authorities are required to report within 10 working days to the relevant Treasury and the Auditor-General all cases where goods and services above the value of R1 million (VAT inclusive) were procured in terms of Treasury Regulation 16A6.4.”

[27] As contended on behalf of the SIU, Treasury Regulation 16A6.4 read together with Practice Note 8 of 2007/2008, does not give authority to the Accounting Officer to merely dispense with a procurement process. He may only depart from prescribed procurement processes to the extent they are rendered impractical by a prevailing emergency and to record reasons for deviating. This was not done. The procurement, or reasons proffered by Legodi, did not fall within the

prescripts of regulation 16A6.4.

[28] Legodi also alleges that the Department of Water and Sanitation specifically directed that LTE be appointed. It is for that reason that he appointed LTE without following the prescribed procurement process. His reliance on LNW’s SCM policy also does not assist him as it mirrors the prescribed procurement requirements set out above unless a technical assistance agreement prescribe procurement procedures to be followed. The Minister’s directive is not a technical assistance agreement. Even if it was, since it does not set out the procurement process to be followed, the LNW SCM policy had to

be followed. Legodi’s reliance on a further directive by the Minister also does not assist him. It matters not that the second

directive incorporated the terms of the first directive.

[29] It also matters not, as contended by Legodi, that actionable damages were not suffered by the Board but by the Department. This claim is properly authorised by s 4(1)(c) read with s 5(5) of the SIU Act.

[30] Legodi’s allegation that the SIU has failed to disclose to this Tribunal that he disclosed his assets to the SIU is not a valid ground of opposition because the non-disclosure is not material as it would not have thwarted the SIU’s quest for the ex parte interdict if disclosed. He disclosed assets far below the amount the SIU seeks to recover in the action.

Reasonable apprehension of harm, balance of convenience and alternative remedy

[31] I am satisfied that Legodi has failed to refute the basis set out by the SIU to satisfy these requirements. He is no longer employed by LNW. He has disclosed assets far less than the SIU claim. Therefore, the SIU’s apprehension that if his pension benefits are paid to him its claim against him would not be secured is reasonable. The prejudice the State stands to suffer if the pension benefits are released to Legodi far outweighs that to be suffered by him if it is not released. The SIU lacks an alternative suitable remedy to ensure that its full claim in the action is satisfied if a monetary order is granted against Legodi.

[32] For the above reasons, I find that Legodi has failed to discharge the onus resting on him to show cause why the order should not be made final. It is appropriate at this point to preserve the costs of this application for determination at the trial.

[33] Therefore, the following order is made.

Order

1. The rule nisi dated 4 September 2020 is confirmed.

2. The costs of the application are reserved for determination at the trial.

JUDGE L. T. MODIBA

MEMBER OF THE SPECIAL TRIBUNAL

APPEARANCES

Attorney for the SIU: Ms S Zondi, office of the State attorney, Pretoria

Counsel for the SIU: Adv. CE Puckrin SC assisted by Adv. HC Janse Van Rensburg.

Attorney for PK Legodi: Mr K Mphanga, Ngobeni Hlayisani Attorneys

Counsel for PK Legodi: Adv. M Manala, assisted by Adv. H Legoabe

Date of hearing: Not applicable, application determined based on papers filed.

Date of Judgment: 31 July 2024

Mode of delivery

This judgment is handed down by email transmission to the parties’ legal representatives, uploading on Caselines and release to SAFLII and

AFRICANLII. The date and time for delivery is deemed to be 10 am.

[1] 2009 (4) SA 1 (SCA) at Para 19.

[2] Act 74 of 1996.

[3] Setlogelo v Setlogelo 1914 AD 221.

[4] Webster v Mitchell 1948 (1) SA 1186 (W) at p. 1189.

[5] Van Woudenberg NO v Roos 1946 TPD 110.

[6] Act 108 of 1997;