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Gore NO v Minister of Finance and Others (11190/99) [2008] ZAGPHC 338 (30 October 2008)

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IN THE HIGH COURT OF SOUTH AFRICA /ES

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO: 11190/99

DATE: 30/10/2008

not reportable




IN THE MATTER BETWEEN

STEPHEN MALCOLM GORE N.O.

[having replaced Bernard Gutman N.O.

in his capacity as liquidator of 3D-ID

Systems (Pty) Limited (in liquidation)] PLAINTIFF


AND


THE MINISTER OF FINANCE 1ST DEFENDANT


THE NATIONAL GOVERNMENT OF THE

REPUBLIC OF SOUTH AFRICA 2ND DEFENDANT


THE MINISTER OF WELFARE AND

POPULATION DEVELOPMENT 3RD DEFENDANT


THE PREMIER OF THE WESTERN CAPE PROVINCE 4TH DEFENDANT

JUDGMENT

PRINSLOO, J

[1] This quantum trial, of somewhat unusual proportions, came before me in three sessions. It ran for twenty four days. Closing argument, alone, took three days. The record runs into a few thousand pages. Some of the annexures contain intricate calculations, statistics and permutations.


[2] Mr Loxton SC, assisted by Mr Farlam, appeared for the plaintiff. Mr Trengove SC, assisted by Mr Harris SC and Mr Motau, appeared for the second defendant. Mr Scholtz SC, assisted by Mr Schippers SC, appeared for the fourth defendant.


[3] The first and third defendants, as cited, played no part in the proceedings, neither will an order be made against them.


Background and brief synopsis

[4] In June 1994, a tender for the pay-out of social pensions and other welfare grants within the erstwhile Cape Province ("the tender") was fraudulently awarded to Nisec CC ("Nisec"). 0ne of the unsuccessful tenderers, 3D ID Systems (Pty) Ltd ("3D ID") – whose directors' successful demonstrations of the required technology to the former Cape Provincial Administration ("the CPA") and other government departments had prompted the tender – challenged that award. For the sake of detail it is recorded that the Cape Provincial Administration was in 1994 succeeded by the Provincial Administration of the Western Cape ("PAWC"). For the sake of simplicity counsel used the expression "CPA" throughout, and I will do the same.


[5] The challenges of the aforesaid award were initially unsuccessful. Various applications, launched by 3D ID, (to set aside the tender award, obtain further information in relation thereto, and stay its implementation) all failed, in large part due to false statements by fraudulent state officials and incorrect statements by other state employees involved in the tender process. Nisec also liquidated 3D ID, apparently in an attempt to quash its legal challenges.


A few years later, however, 3D ID's members and directors found evidence of fraud right within the heart of the CPA. An action for damages (for fraud, alternatively negligence) by 3D ID's liquidator followed in January 1999.


[6] The parties to the action (in effect, 3D-ID's liquidator, the National Government and the Western Cape Premier) agreed that the merits of the action should be separated from the quantum. The hearing on the merits subsequently took place in November 2004 before HARTZENBERG, J of this Division. HARTZENBERG, J found in favour of the plaintiff on all the separated issues, and held that, but for the fraud, 3D ID would have been awarded the tender.


HARTZENBERG, J's judgment was upheld by the Supreme Court of Appeal ("the SCA"), in a judgment reported as Minister of Finance and 0thers v Gore N.O. 2007 1 SA 111 (SCA). A subsequent attempt by the defendants to appeal the SCA judgment to the Constitutional Court was dismissed with costs in February 2007.


[7] What remains to be determined is the quantum of 3D ID's damages, or, in other words, the loss which 3D ID suffered pursuant to the fraud. In this case, the loss is equal to the amount of profit which 3D ID would have made from the tender contract of which it was corruptly deprived.


A nutshell summary of what the tender was about – the nitty-gritty of the pay-out activity

[8] A reader of this judgment may find it useful to be able to form a picture in the mind, broadly speaking, of the nature of the activity involved.


[9] I can do no better than to quote extracts from the eloquent description to be found in the judgment of HARTZENBERG, J:

"[2] During the early nineties of the previous century the State departments involved in the payment of pensions and other State grants to individuals were subjected to large-scale fraud. The predecessor of the fourth respondent the then Cape Provincial Administration (the CPA) was no exception. The fraud relevant for the purposes of this case pertained to the system of cash payments to individuals who had to identify themselves by means of identity documents and fingerprints. At the time that particular payment system was utilised to pay black pensioners.


[3] In order to qualify for a pension or a grant the person had to apply for the benefit. It entailed the filling out of forms from which an evaluation could be made as to the merits or demerits of the application. Matters such as age and available means were relevant considerations for the evaluation. Details from the identity document such as the identity number and the bar code were captured together with fingerprints of the applicant. If the application was successful the information would be stored electronically in a central data base. Thereafter the particular individual would be entitled to receive the pension or other grant at a specified pay-point. The CPA had 650 pay-points.


[4] 0fficials of the CPA went to the pay-points with laptop computers, loaded with the details of prospective payees, and money. At the pay points they were awaited by rows of payees. The officials identified the payees by their identity documents and took fingerprints simultaneously. If the identity documents correlated with the detail, at their disposal, they paid out. A small portion of the fingerprints obtained were afterwards compared by experts with the fingerprints in a central data base, as a check. It was found that an exceptionally high number of irregularities were of the order of the day.


[5] Apart from the problem of hi-jacking of CPA vehicles and the molestation and robbing of pensioners and grantees, it was accepted that fraud was committed on a massive scale. Some of the ways in which the fraud was perpetrated were,

(a) registration of the same person more than once

(b) withdrawal of the moneys by other persons than the ones entitled to the moneys

(c) fraud by the paymasters in that they registered themselves or collaborators as pensioners or grantees and appropriated such moneys.

[6] Two enterprising individuals, Rabie and Pamensky, were aware of the problems. They realised that what was needed was a software program which could be run on an ordinary personal computer on which the following could be achieved:

(a) Identification of the fingerprints of the applicant, in the sense that duplications could be avoided. (The applicant's fingerprints must be compared with all the fingerprints in the central data base. The process is described as a 'cold search' or a 'one-to-many' search. Furthermore all the fingerprints in the data base are to be compared to all the other fingerprints, a 'many-to-many' search. 0nce all duplications have been eliminated a 'clean' data base has been established.)


(b) Verification of the fingerprints of the pensioner or grantee who comes to collect the monthly payment. (It entails that when the individual comes to collect his/her moneys his/her fingerprint is compared to the fingerprints stored in the data base together with the individual's identity number and bar code contained in the identity document. Such a search is known as a 'one-to-one' search.)


(c) Activation of the ATM's in the security vehicles from which payments are made. (Upon verification of the identity of the individual the correct amount is to be counted out automatically and simultaneously documents are to be printed ie a receipt by the payee on which the fingerprint evidences receipt of the particular amount and a payment advice which the payee receives together with his money.)


(d) The ability to identify fraudsters and to make the necessary fingerprint evidence available for the successful prosecution of the perpetrators.


[7] Pamensky's supplier of fingerprint pads in California was a corporation known as Identicator. It was developing a program with the required characteristics. At the time the AFIS (Automatic Fingerprints Identification System) was already internationally employed in crime investigation and criminal prosecutions. In the civil sphere, however, it had not been used, except for one instance in the United States in which Identicator was involved. Rabie, Pamensky and the individuals managing Identicator realised that a system addressing the South African problem with its own special needs had to be developed. Their motives were far from altruistic. Rabie and Pamensky visualised many lucrative government contracts and Identicator saw a market for a large quantity of their products.


[8] During August 1993 Rabie and Pamensky staged a presentation of a proposed system in Cape Town. Not only officials of the CPA were invited but also officials of other State departments and the police. Keagy of Identicator brought a computer from California. He attended the presentation. It was given over a number of days. The presentation whetted the appetite of the government officials. After some interaction and further demonstrations Rabie and Pamensky, who by now acted through a Close Corporation 3D ID CC, undertook to do an enrolment of pensioners during 0ctober 1993 and thereafter to do the paying out to them during November 1993. The demonstrations went smoothly and 3D ID's system was regarded as a possible answer to the problems.


[9] It was conveyed to Rabie and Pamensky that they were not to accept that, as they had spent a lot of time and money to develop the system and to demonstrate it, they would automatically get the contract with the CPA. It was indicated to them that tenders had to be called for. They were asked to assist the CPA with the compilation of the tendered documents. They were more than willing to do so. In the process they invited the assistance of Identicator. They were pretty sure that at the time there was no other system that could fulfil the required functions. They knew that they had a lead on other prospective tenderers. They wanted the tender documents to call for the use of software that could do what their program could do. They realised that it was unlikely that such a program could be obtained from any other supplier than Identicator. They had an arrangement with Identicator that they would be Identicator's sole agent in South Africa."


[10] Rabie and Pamensky are, of course, major players in this case. They were directors of 3D ID and the driving force behind the tender handed in by 3D ID. Rabie gave evidence in both the merits trial and the quantum trial.


[11] The third director and shareholder was a financial backer, one Fuchs. HARTZENBERG, J describes the situation as follows:

"[11] Before they submitted tenders Rabie and Pamensky converted 3D ID CC to 3D ID (Pty) Ltd. The successful tenderer for part B would require a great capital outlay. 0ne Fuchs, who was lucky enough to amass a nest egg of in excess of $1 billion before his 40th birthday, acquired one third of the shares in the company. He, for tax purposes, lives for six months a year in Monaco and the other six months in South Africa. The successful tenderer for part B would require quite a sizeable capital outlay. Fuchs would come in handy. From his point of view he could earn a few extra Rands. 3D ID tendered for part A in collaboration with Identicator and 0livetti. 0livetti was to supply the personal computers. It also tendered for part B."


[12] There were a number of other tenderers. They included Q Data Consulting (Pty) Ltd ("Q Data"), Coin Security Technology ("Coin Security"), Recognition Data Systems (Pty) Ltd ("RDS"), National Data Systems ("NDS"), Nisec CC ("Nisec"), Fidelity Guards (Pty) Ltd ("Fidelity Guards") and Cash Paymaster Systems (Pty) Ltd ("CPS").


[13] The Identicator technology, which was superior to anything else on offer, gave 3D ID a decided edge over the other tenderers. HARTZENBERG, J, and the SCA, found that, but for the fraud, the tender would have been awarded to 3D ID. This is despite the fact that 3D ID presented by far the highest tender when it came to the fee to be charged per beneficiary during the pay-out process.


Some observations about the legal principles applicable to quantum cases

[14] Understandably, plaintiff's counsel pointed out that this is not a case where damages are capable of precise calculation (for example, as a result of damage to property with a verifiable value). It instead involves a situation where, by the very nature of the wrongful conduct, the damages are dependant on hypotheses and assumptions about what would have happened almost fifteen years ago.


[15] As a general proposition, it is sufficient, in such circumstances, for a plaintiff to produce the best available evidence about the extent of his losses. DIEMONT, JA put it as follows in Esso Standard SA (Pty) Ltd v Katz 1981 1 SA 964 (AD) at 969H:

"Before considering these contentions it is necessary to make some reference to the principles applicable to the assessment of damages in this type of case.


These principles have been conveniently summarised by DE VILLIERS, J in Lazarus v Rand Steam Laundries (1946) (Pty) Ltd 1952 3 SA 49 (T). It has long been accepted that in some types of cases damages are difficult to estimate and the fact that they cannot be assessed with certainty or precision will not relieve the wrongdoer of the necessity of paying damages for his breach of duty … Not only is the principle not a novel one but the English precedents which have given some guidance on the problem have gone so far as to hold that the Court doing the best it can with insufficient material may have to form conclusions on matters on which there is no evidence and to make allowance for contingencies even to the extent of making a pure guess."


A Court will then make an assessment of damages as best it can, even if only on the basis of an "informed guess" or a "rough estimate". See for example Visser and Potgieter's Law of Damages 2nd edition at p489-491; Caxton Ltd and 0thers v Reeva Forman (Pty) Ltd and Another [1990] ZASCA 47; 1990 3 SA 547 (A) at 573I J and Hushon SA (Pty) Ltd v Pictech (Pty) Ltd 1997 4 SA 399 (SCA) at 412G H, 415F G and 416 417.


[16] 0n the other hand, as counsel for the plaintiff correctly pointed out, there are factors relevant to this particular case which may facilitate efforts towards arriving at a realistic amount of damages. In this regard, counsel for the plaintiff reminded me that this matter does not require the Court to make forward-looking projections, using actuarial calculations and predictions to assess factors such as life expectancy, probability of promotion, future medical expenses and the like. The case instead involves parties looking backwards, at a time period which has already passed, and in respect of which other entities performed the service to which the tender related and another company subsequently performed a substitute contract to the one which the company now in liquidation was corruptly deprived of. In that sense, this Court is in the fortunate position of knowing information such as the number of beneficiaries who would have been paid by 3D ID had it been awarded the contract, the inflation rate for the relevant years, the Rand/Dollar exchange rate, the political and social dynamics of the time (including the continued pressing need for a pension payment solution), and the performance of the company which was awarded the replacement tender.


[17] In their very comprehensive and well crafted heads of argument, counsel for the plaintiff developed these submissions further in the following terms:

"Given the nature of the service which 3D ID would have provided and the fact that, in terms of the tender of which it was corruptly deprived, 3D ID would have been the only entity performing the service for the relevant periods, one also does not have to make allowances for the performance of competitors, or market conditions, or for example predict sales figures which might have eventuated in a fair competitive environment. The beneficiaries who were to be paid by 3D ID would always have wanted to be paid and, given the absence of any other welfare payment providers in the Western Cape Province (ie 3D ID's state-approved monopoly in the Province), would always have wanted to be paid by 3D ID. Nor would any other company have been able to 'shrink 3D ID's market share' for the duration of the contract. The only real variables thus related to 3D ID's costs, or expenses; and even then the Court has the benefit of quotations furnished to 3D ID at the time, as well as the benefit of knowing the costs of the company which performed the replacement contract. Another relevant source of comparison would be the tender prices of 3D ID's competitors for the tender, as one could reliably assume that their tender prices were at the very least designed to cover their costs and make a small profit for their shareholders."


[18] These submissions by counsel for the plaintiff contain details of the parameters within which the trial was ultimately conducted. More details will emerge from an analysis of the various subheadings of the claim (income and expenses) but, broadly speaking, the following important issues can be highlighted at this stage:

(1) The number of beneficiaries which the plaintiff would have to pay over the entire tender period became common cause when the fourth defendant supplied these numbers in an amended plea and further particulars delivered shortly before the trial. The plaintiff accepted the numbers and calculated his claim accordingly.


In the process of finally calculating his claim on this basis, the plaintiff prepared a document, attached to his pleadings as annexure "PR1" ("PR1") containing various line items specifying the computation of the subheadings of the claim over the whole tender period from 1995 to 1999 (and also the years 2000 and 2001, in the event of the contract being extended).


The line items include headings such as enrolment income, payment income, interest income on daily balance, interest on surplus cash reinvested (under income) and personnel costs, direct costs, indirect costs and others (under expenses).


With the number of beneficiaries to be paid no longer in dispute, the plaintiff could calculate the payment income by applying the tender price for the pay-out function per pensioner as quoted in the tender, to the number of pensioners applicable at any given stage.


Moreover, the defendants' witnesses, at least to a considerable extent, adopted the subheadings to be found in "PR1" for purposes of making their own calculations. This enabled counsel for the plaintiff, in their heads of argument, to supply comparative tables of the figures arrived at by the plaintiff, the second defendant and the fourth defendant respectively with regard to each of the subheadings to be found in "PR1". In some cases there was little or no difference between the results arrived at by the various parties. This facilitated the task of determining the quantum of the claim to a considerable extent.


(2) In addition to "PR1", which dealt with projected income and expenses flowing from the tender as such, the plaintiff offered a further, and to my mind very useful and relevant, comparative exercise. He did this by analysing the actual financial statements of the company which was awarded the replacement tender after the CPA cancelled the tender contract with Nisec upon discovering the fraud. The replacement company is Allpay Western Cape (Pty) Ltd which took charge of the project in the year 2000 and is still in the proverbial saddle. The correctness of the financials were not in dispute and, in any event, the financials are presumed to represent a fair reflection of the affairs of the company.


(3) Tender details relating to the other tenderers who were in competition with 3D ID at the time (listed above) were also analysed for comparative purposes.


[19] Another recognised feature of quantum calculation is the practice of making an allowance for "contingencies". It is generally a percentage downward adjustment to cater for uncertain events. Plaintiff's counsel argued, correctly in my view, that the more reliable and complete the evidence, the smaller the contingency deduction should be.


[20] In this regard, I was referred to the case of Transnet Ltd v Sechaba Photoscan (Pty) Ltd 2005 1 SA 299 (SCA). The case involved an action for damages flowing from a tender for the sale of one of Transnet's divisions which had corruptly been awarded to the second defendant instead of the plaintiff. The merits were effectively conceded by the first defendant, leaving only the question of the quantum of the plaintiff's damages to be decided. The plaintiff claimed some R60,6 million and was awarded some R57,6 million plus interest by the court a quo. Transnet had given the respondent (Sechaba) a strong indication that its tender would succeed but another company had unexpectedly been awarded the purchase contract for Transnet's printing business, TPH. After the existence of a fraudulent tender process had been conceded, Sechaba sought the net profit it alleged it would have been able to make in the three years following the purchase of TPH, had it been awarded the contract. Even though TPH would have been a private company, and so exposed to the vagaries of market conditions, the learned judge a quo only made a 5% contingency deduction to cater for uncertainties. This finding was upheld by the SCA. Counsel for the plaintiff argued that this judgment should serve as a guide if any contingency deductions were to be made in the present case. The defendants, understandably, contended for a much higher contingency deduction.


[21] Finally, on the issue of general principles applying to quantum determination, there is an aspect of the onus of proof which has to be mentioned. It is put as follows by counsel for the second defendant in their comprehensive heads of argument:

"0nce the plaintiff has discharged the onus of proving that it suffered a loss as a result of the delict, then it must quantify its loss. It does not bear the conventional onus on this score. It is required to do no more than to place the best available evidence before the court on the issue of quantification. 0nce it has done so, the court will do the best it can to quantify its loss. This is the element of quantification of the plaintiff's claim."


See for example Burger v Union National South British Insurance Co 1975 4 SA 72 (W) at 74 75; Blyth v Van den Heever 1980 1 SA 191 (A) at 225G 226B; De Klerk v Absa Bank 2003 4 SA 315 (SCA) at 328H 329C and Minister van Veiligheid en Sekuriteit v Geldenhuys 2004 1 SA 515 (SCA) at 535E G.


[22] As a general proposition, this principle of quantification must favour a plaintiff because it relieves him or her of the duty to discharge the standard onus of proof.


[23] This brings me to an argument offered by the defendants to the effect that the plaintiff should be non-suited altogether because he had failed to prove, on a balance of probabilities, that 3D ID would have been able to implement the contract successfully and profitably. The second defendant's counsel formulated this argument as follows in their heads of argument:

"1. We submit in the first place that the plaintiff's approach to the proof of its damages is fundamentally flawed for the following reasons:

1.1 It bears the onus of proving on a balance of probabilities that it would have been able to implement the contract successfully and profitably. In order to do so, it at least had to show how it would have implemented the contract and that the cost of doing so would have been less than the income it would have earned from it. It has, however, not discharged this onus. It has not even made any serious attempt to do so. It has attempted to do no more than to show that its budget had been a reasonable one. But it does not follow or even suggest that it would have been able to implement the contract successfully and would have made a profit in doing so.


1.2 The plaintiff was obliged to adduce the best available evidence on the quantification of its claim. It also failed to do so. It again did no more than to adduce evidence of the reasonableness of its budget. But it should have adduced evidence of the manner in which it would have implemented the contract and of how much it would have cost to do so."


[24] I will refer to this as "the implementation argument" and deal with it under the next subheading.


The implementation argument

[25] Mr Trengove, in support of the argument of the second defendant as quoted above, referred me to the case of Hendricks v President Insurance Co Ltd 1993 3 SA 158 (C). At 165E H, the learned judge, correctly in my view, recognised the principle, which I also referred to earlier, that where it is clear that damages have been suffered but that the quantum of those damages is not conducive to precise calculation or even certain reliable estimation, the wrongdoer will not be relieved of the necessity to pay by reason of the difficulties in assessing the quantum, the principle having as its ratio the policy that the wrongdoer should not escape liability merely because the damages he caused cannot be quantified readily or accurately.


The learned judge then goes on to find that in so far as the ratio for the principle is to prevent a wrongdoer who has caused damage from being relieved of his liability, it does not follow that the principle is to be applied where it is sought to establish whether or not the wrongdoer has caused damage which, when quantified, will be recoverable.

[26] At first blush, this approach, with respect, appears to be attractive. Nevertheless, I am of the view that it would depend on the circumstances whether or not it can be clinically applied. As the learned judge himself says at 164F H:

"In this case, and indeed in other cases of its type, the enquiry to ascertain whether damages have, in fact, been suffered is almost identical to that which has to be undertaken to quantify those damages. In order to answer both questions similar, if not identical, facts will have to be considered and evaluated. This is so because the loss which is claimable does not result from physical damage which is obvious and observable but results from a comparison of two financial situations which, although real and ascertainable, are unseen."


[27] In Hendricks, the plaintiff lost his wife in a motor collision through the negligence of the one driver. He sued in terms of the relevant "third party" legislation. 0ne of the subheadings of his claim was for expenses to be incurred by the plaintiff in employing a housekeeper and supervisor to attend to the minor daughter born of the marriage between himself and his deceased wife. The learned judge granted compensation in respect of the other subheadings but, with regard to the housekeeper claim, the learned judge found himself unable to make a finding and granted absolution from the instance. Inter alia, he was unable to conclude, from the evidence, that the plaintiff had established that as a result of the death of his wife his expenses in regard to his housekeeper exceeded the costs which he had saved as a result of no longer having to maintain his wife. The plaintiff also failed to prove that he had not saved by the death of the wife. There was also no evidence to establish what the late wife contributed to the household income, for what period she worked and what share of the household income could be apportioned to her maintenance.


It appears that it was a simply a case where the evidence was lacking or insufficient to persuade the learned judge to grant any compensation in respect of one particular subheading of the claim. There was no basis for the learned judge for him to "do the best he can" to use the phrase popularly employed in other authorities on the subject.


[28] This is a far cry from the present case: both this Court and the SCA found that 3D ID would have, but for the fraud, been awarded the tender. The SCA ordered that "the second defendant and the fourth defendant are jointly and severally liable to pay such damages as the plaintiff may prove".


[29] 0n a general reading of the judgments of this Court and the SCA, I get the clear impression that it was accepted that 3D ID would have been able to implement the contract once awarded. An example of this approach by the SCA is to be found in paragraph [59] of the judgment:

"But, even if the State Tender Board were to have been as insistent as Terblanche on an association with an established security operator, Rabie testified – and Phillips confirmed – that it was extremely unlikely that the successful tenderer would have had any difficulty in finding one. As Rabie put it, security companies were queuing up to provide that service, particularly since it was known in the industry that the CPA's plan for privatisation of pension payment was a pilot program for the rest of South Africa. If the evaluation committee, therefore, took up an intransigent attitude, 3D ID would, in all likelihood, have been able to come to an arrangement with an established security company."


There was a somewhat vague submission which, if I understood it correctly, amounted to an argument that I was not allowed to pay regard to what was said by the SCA or, for that matter, by HARTZENBERG, J, because the merits trial and the quantum trial are two separate "self-contained" trials. I see no merit in this contention: in the merits trial issues were canvassed, and findings made in favour of the plaintiff, which overlap with the "implementation argument" and which are binding for purposes of deciding whether or not this "implementation argument", such as it is, ought to be upheld.


[30] I have already referred to common ground between the parties on important issues relating to the question of quantification. For example, the mere fact that the fourth defendant supplied the numbers of beneficiaries which will be paid by the plaintiff during the tender period, in my view, amounts to a clear acknowledgment that the plaintiff, on the probabilities, would have implemented the contract. I fail to see how the fourth defendant can now argue otherwise.


[31] It is common cause that the contract awarded was a lucrative one, competed for by many established role players. I have quoted from the judgment of HARTZENBERG, J where he described the superiority of the technology available only to the plaintiff and the trial runs performed in advance by the plaintiff to the satisfaction of the CPA and other authorities. In my view, all that is left after the merits trial is the quantification exercise. In this case the damages represent the profits which the plaintiff alleges it would have made from the contract. The exercise of comparing the income to the costs will show whether such profit would have been made, and, if so, what the extent thereof would have been. In my view the plaintiff can only fail if it is found, at the end of the quantification exercise, that no profit would have been made from the contract. I see no other basis for non-suiting the plaintiff for failure to "prove on a balance of probabilities that it would have been able to implement the contract successfully and profitably". In the context of this particular case, the "implementation argument", as it is framed in the heads of argument, supra, appears to overlap with the quantification exercise to such an extent that it has no separate standing or merit.

[32] For these reasons, I find no basis, in the context of this particular case with its special characteristics, for upholding the "implementation argument".


[33] Counsel for the plaintiff, who were as surprised as I was when the "implementation argument" was raised, particularly where it had not been put to any of the plaintiff's witnesses in cross-examination, prepared comprehensive heads of argument in reply. They make compelling submissions in rebuttal of the "implementation argument" and, in view of the attitude I have already expressed, I give only a brief overview of those submissions.


[34] 0ne of their basic submissions is the following:

"It is not clear what the distinction is between the profitable and successful execution of the contract. Nor is it clear why the question of the profitability of the contract is not simply part of the overall enquiry into quantum. (After all, as the SCA said, when describing the separation, the second leg involves 'the quantum of any damages' [emphasis added].) Equally, it is not apparent why the second defendant believes that proof that the income derived from the contract would have been more than the cost of deriving that income is something different from the usual enquiry into quantum."


[35] Counsel for the plaintiff submit, correctly in my view, that one shows that a profit would have been made by engaging in the kind of profit and loss calculation that is the staple of a quantum enquiry. The law does not impose an initial hurdle of that kind: ie does not require a threshold quantification exercise (using a balance of probabilities standard) as a prerequisite for a full quantum examination.


[36] There are many, compelling, submissions, but I consider it sufficient to conclude by quoting the following:

"It is submitted that all the parties engaged in the merits stage of the trial – including the Court – would have been astonished to hear that after a long and arduous trial to establish whether or not 3D ID's tender offered a 'workable solution' and whether the Tender Evaluation Committee would, acting reasonably, have recommended that 3D ID's tender be accepted, there would have to be another hearing into whether or not 3D ID was capable of implementing its workable solution. The approach now adopted by the defendants involves the anomalous proposition that the Tender Evaluation Committee and Tender Board would have acted reasonably in recommending and accepting 3D ID's tender without in any way having to satisfy themselves either that the solution offered by 3D ID would have been practicable or that 3D ID was capable of implementing its own tender."


[37] The "implementation argument" is dismissed.


Analysis of the pleadings in relation to quantum

[38] The averments of the plaintiff which are relevant to quantum are contained in paragraphs 15 to 17 of the amended particulars of claim.


[39] As now framed, they contain in essence the following allegations:

1. on the probabilities, a contract concluded with 3D-ID pursuant to the tender would have been extended for at least one period of two years, in terms of paragraph 12.16 (of the tender), which permitted the contract concluded pursuant to the tender to be extended for a further period of two years at a time;


2. as a consequence of the fraud, 3D-ID suffered damages in the amount of R380 275 651,00, alternatively, in the event that it is found that on the probabilities 3D ID's contract would not have been extended for a further two years, R253 550 554,00, being the profits which 3D-ID would have generated from the tender, as more fully set out in annexure "PR1" to the plaintiff's reply to the fourth defendant's request for further particulars; and


3. in the premises, the second and fourth defendants (respectively, the National Government and the Western Cape Premier – who the SCA recorded "are jointly and severally liable to pay such damages as the plaintiff may prove") – are jointly and severally indebted to the plaintiff for R380 275 651,00, alternatively R253 550 554,00.


[40] The fourth defendant, in his plea, admitted that the contract could in theory have been extended, but denied that on the probabilities it would have happened.


As I pointed out earlier, the number of beneficiaries which 3D ID would have paid over the tender period (the five year period) became common cause shortly before the trial.


Nevertheless, the fourth defendant placed the amount of alleged damages in dispute.


[41] In a November 2007 amendment of his plea, the fourth defendant advanced certain legal arguments for the first time:

1. He denied that, even if the contract had been extended, the plaintiff's loss of profit pursuant to the extension would have been a "consequence in law of the delict of Louw and Scholtz" (Louw and Scholtz being two of the fraudsters employed by the CPA).


2. He denied that, on a "proper construction of the contract and particularly paragraphs 11.4 and 11.7 of the tender, the plaintiff would have been entitled to the interest earned on the cash made available to it by the fourth defendant for payment to beneficiaries".


3. He denied that, even if he had allowed 3D ID to keep the interest so earned, "the plaintiff's loss of the interest was a consequence in law of the delict of Louw and Scholtz".


4. He contended that 3D ID would have been obliged, in terms of clause 60.3 of ST36 (the State Tender Board's General Conditions and Procedures) (to which it is alleged that the tender was subject), "to provide security for the cash made available to it by the fourth defendant and would consequently have incurred the cost of the security".


5. He contended that, if he is indebted to the plaintiff for the amount claimed or any portion thereof, then, because, according to him, the "plaintiff ultimately quantified his claim and for the first time set it out in a manner which enabled the fourth defendant reasonably to assess its quantum, by amendment of his particulars of claim on 30 0ctober 2007", interest only commenced to run on 30 0ctober 2007 in terms of section 2A(2)(a) of the Prescribed Rate of Interest Act 55 of 1975; alternatively the Court should exercise its discretion in terms of section 2A(5) of the Prescribed Rate of Interest Act "by ordering that interest runs only from 30 0ctober 2007 or such earlier date as this Court deems just".

[42] The second defendant filed the final version of its plea a few days before the trial (on 9 November 2007).


[43] In the plea, the second defendant:

1. denied that the fourth defendant and the successful tenderer were entitled to extend the tender period by further periods of two years each, as well as that, on the probabilities, the tender would have been extended by at least one period of two years;


2. also contended that, even if the contract had been extended, any loss of profit which would have been earned pursuant to that extension was not "a consequence in law of the delicts of Louw and Scholtz";


3. did not dispute the fourth defendant's averments about the number of beneficiaries which would have been enrolled and paid by 3D ID from 1994/1995 onwards (over the first five years) but, like the fourth defendant, denied that he made allegations relating to the plaintiff's alleged loss;


4. in addition, in amplification of that denial:

4.1 averred that the plaintiff's "only loss which was a consequence in law of the delicts of Louw and Scholtz was the loss of profit, if any, it would have earned by the exercise of its rights and the performance of its obligations in terms of the contract";


4.2 denied that the plaintiff would, on a proper construction of the tender, have been entitled to the interest earned on the cash made available to it by the fourth defendant for payment to beneficiaries, and that in any event the loss of any interest so earned was a consequence in law of the delicts of Louw and Scholtz;


4.3 alleged that the plaintiff would have been obliged in terms of clause 60.3 of ST36, supra, which it averred would have been applicable to the contract, to provide security for the cash made available to it by the fourth defendant and would consequently have incurred the cost of such security;


4.4 made the same submissions about interest as those pleaded by the fourth defendant, supra.


The issues in dispute on the pleadings

[44] From the abovementioned analysis of the pleadings, the main issues in dispute are the following:

1. the extent of the profit which 3D ID would have made under the contract (over both five and seven years);


2. the issue whether, on the probabilities, the contract would have been extended for a two year period;


3. the issue of when the interest on the damages should commence to run.


[45] 0n the chief issue (the extent of the lost profit) there are various categories of disputes:

(i) the factual dispute as to the costs which 3D ID would probably have incurred had it been awarded the tender;


(ii) whether the tender would have allowed 3D ID to have retained interest on cash made available for payment to beneficiaries;


(iii) whether 3D ID would have been obliged to provide security for the cash made available to it by the fourth defendant;


(iv) whether any profits which would have accrued to 3D ID as a result of an extension of the contract were "legally caused" by the fraud; and


(v) whether any lost interest on retained cash for beneficiary payments would be damages which were "legally caused" by the fraud.


[46] Broadly speaking, the profit 3D ID may have lost from fraudulently being deprived of the tender depends on two factors:

(i) the income which would have been derived from the tender; and


(ii) the costs which 3D ID would have incurred in discharging its contractual obligations.


Both legs were contested by the defendants, although the latter, namely the expenses, was the more contentious.


0ther conceivable avenues of dispute

[47] The "implementation argument" was not specifically pleaded, neither was it put to the plaintiff's witnesses in cross-examination. It emerged in the heads of argument of the defendants. It has been dealt with.


[48] The defendants appeared at some stage to be formulating an argument to the effect that 3D ID would allegedly not have been able to obtain funding from its designated funder, Fuchs, either directly or through a trust or foundation. Fuchs was cross-examined on this issue when he gave evidence in the quantum trial and so was a financial adviser from Europe, Mr Luca Albrecht. In any event, this question was addressed during the merits trial, with both HARTZENBERG, J and the SCA accepting that Fuchs would have been able to provide 3D ID with the capital outlay required by the B part of the tender. I must say, respectfully, that I formed the same opinion having heard the evidence of Fuchs and Albrecht during the quantum trial. This argument was also not pursued with any force by counsel for the defendants in their closing addresses.


[49] Another area of dispute arose when the fourth defendant sought to advance evidence through his security expert, Richard Gerald Phillips ("Phillips") about the alleged deficiencies in 3D ID's security solution. Counsel for the plaintiff pointed out that the arguments which were advanced were a repetition of those which the fourth defendant had canvassed during the merits trial through the same witness, Phillips, with no success. During the trial plaintiff's senior counsel objected to the fourth defendant dealing with issues which had been addressed during the hearing on the merits, and recorded that it would be contended at the end of the trial on behalf of the plaintiff that those issues could not be re opened in the quantum leg. It was argued, correctly in my view, that issues canvassed between the parties during the merits, and addressed in the judgments of the courts thereafter, cannot be revisited for the purposes of quantum. In this regard I was referred to the case of David Hersch 0rganisation (Pty) Ltd and Another v Absa Insurance Brokers (Pty) Ltd 1998 4 SA 783 (T), where it was held at 787C H that a hearing by the judge on the merits was definitive of the rights of the parties on that issue, and could not be corrected or altered at a later stage of the case. Counsel for the plaintiff submitted that that case does not support the proposition advanced on behalf of the second defendant that the evidence led during the quantum trial is not admissible during the merits phase. It may be that counsel for the plaintiff intended to attack second defendant's argument that the evidence led during the merits phase is not admissible during the quantum trial.


This "dispute" overlaps with the "implementation argument" already dealt with. I agree with plaintiff's contention that the defendants cannot seek to contend that the solution tendered by 3D ID which has already been confirmed to be workable, should not be accepted to be adequate or viable for the purposes of assessing the costs which 3D ID would have incurred when performing under the tender contract. The SCA dealt with the evidence of Phillips at 131B J and, as I already pointed out, found at 132B F that 3D ID would have probably managed to cope with the security challenges encountered when executing the contract.

[50] Counsel for the plaintiff also invited my attention to the provisions of clause 7.24 of the State Tender Board's Directives to Departments in respect of Procurement (ST37) which reads as follows:

"The ability of tenderers to carry out a contract successfully must be taken into account fully during the consideration of tenders. This includes, where necessary, an investigation of the tenderer's financial position, previous contracts carried out, availability of skills or knowledge, existing workload, after sales service if applicable, etc."


In the circumstances, so it was argued, it must be accepted that an award to 3D ID contained an acceptance that its financial position was sufficiently strong to perform the contract, and that the skills, knowledge and after sales service it demonstrated in its tender would have been adequate for the CPA and the Tender Board to have concluded that 3D ID could carry out the contract successfully.


The change of stance by the defendants on the question of the profitability of the tender – a pointer in favour of the plaintiff?

[51] The main thrust of the contentions on behalf of the plaintiff in this regard is the following: during the merits trial the defendants, and particularly the fourth defendant, contended that 3D ID, even if its tender was compliant, would not have been given the tender because its proposal was very expensive in relation to the others, indeed the most expensive of all by a substantial margin and by implication allowing for far too much profit for 3D ID. Now, in the quantum trial, the defendants argue precisely the opposite, namely that 3D ID would have made little or no profit from the tender contract. Indeed, the second defendant's expert, Mr Peter Armitage ("Armitage"), initially made the statement that 3D ID would have made a cash-flow loss for all five years of the tender and a cumulative loss of some R46 million for the five years of the contract.


It is contended on behalf of the plaintiff that this change of stance is opportunistic, simply designed to fortify the attack on the quantum and should be seen as casting a shadow on the case presented on behalf of the defendants.


[52] It is argued on behalf of the plaintiff that the particulars of claim indicate that the plaintiff is of the view that the tender contract would have been extremely lucrative over five or seven years. That is also consistent with the fact that senior employees of the CPA considered it worthwhile jeopardising successful careers with the CPA to procure the tender award for Nisec fraudulently, and then join that close corporation.


[53] It is also contended, correctly in my view, that the plaintiff's position is corroborated by the vast profits that Allpay has made from the replacement tender awarded after the cancellation of the contract with Nisec. This issue will be analysed further later in this judgment.


[54] As a general proposition, the plaintiff argues that the vast difference between what 3D ID would charge for the monthly payment of beneficiaries and what the competing tenderers quoted militated in favour of a conclusion that 3D ID would have made substantial profits.


This state of affairs prompted Dr Waldemar Terblanche ("Terblanche"), the fourth defendant's main factual witness on the merits, to point out that the cost to the CPA in respect of 3D ID would be about R100 million more than it would be in respect of the other tenderers. This factor, so Terblanche testified, would have to be explained to the Tender Board and would probably have led to the tender not being awarded to 3D ID. The charge of 3D ID per beneficiary (including VAT) was R19,84 to start with, compared to the charges of the competing tenderers which varied, broadly speaking, between R8,00 and R12,00.


Terblanche and other defence witnesses testified that companies such as Fidelity Guards and CPS were experienced and knowledgeable in the field (CPS was performing computerised payment operations in other areas, notably Natal) and would have been able to provide a workable solution. Terblanche stated that in these circumstances the R100 million price difference would have to have been explained to the Tender Board.


[55] 0n behalf of the plaintiff it was argued that, in addition to be inconsistent with what he submitted previously, the defendants' arguments are also implausible. The best evidence of profitability is what experienced operators thought would be a viable fee at the time, as well as what it actually cost the company which performed the replacement services (Allpay) to discharge its contractual obligations. All that evidence reveals that 3D ID's tender price was far above what it would have cost to deliver the service. Even on the most conservative scenario.

[56] In my view there is much to be said for these contentions made on behalf of the plaintiff.


The methodologies adopted by the parties, and some remarks about the witnesses

[57] The fourth defendant had the advantage of having direct access to information pertaining to the equivalent tender contract awarded in 1999 (to Allpay) but did not make discovery of those documents. The plaintiff obtained the necessary documents through a subpoena application and other requests for documentation.


[58] The plaintiff justified the damages he claimed 3D ID had suffered by producing an income and expenditure spreadsheet, akin to a pro forma income statement, showing the income which 3D ID would have received for the duration of the contract, as well as the operating expenses which would have been incurred in the generation of that income. This is "PR1". Every line of that spreadsheet was also amplified and elucidated to the necessary extent. In addition, the plaintiff led an experienced and eminent chartered accountant, Mr John Louw, as an expert to confirm the accuracy of the calculations on "PR1" as well as the reasonableness of what was contained therein when measured against objective criteria – such as the cost per beneficiary of the company which subsequently obtained the equivalent tender, Allpay. I considered Mr Louw to be a most impressive and helpful witness.


[59] It appears that the defendants accepted the validity of the plaintiff's model, and engaged with the plaintiff's spreadsheet ("PR1") when advancing their opposing contentions. The approach of both the fourth defendant and the second defendant was to lead experts who had prepared their own differing versions of "PR1", relying on different assumptions and/or instructions, or different facts. The defendants' experts also, to varying degrees, had regard to other companies, in an attempt to place the plaintiff's damages claim in a more pessimistic light.


[60] The creator of the fourth defendant's version of the spreadsheet was Mr Peter Crawford ("Crawford"), an accountant who claims to specialise in, among other things, valuing businesses, corporate advice and litigation support. Crawford prepared a revised profit and loss calculation which was attached to his expert summary. Crawford used 3D ID's figures to a limited extent, but added or subtracted various amounts based on his instructions, his own opinion and assumptions, and information allegedly gleaned from two of the fourth defendant's other witnesses, Phillips (who worked for Fidelity Cash Management Services for a period) and Mr Andries de Jongh ("De Jongh") the provincial manager of Allpay from 2000, and previously a manager: Pensions at the South African Post 0ffice ("the Post 0ffice").


In an amended summary handed up during his evidence, Crawford also assessed the profits which would have accrued to the plaintiff with reference to Allpay's actual costs, as adjusted.


[61] The second defendant's spreadsheet was contained in the expert summary of Armitage, a qualified accountant and business and financial analyst. Armitage, originally, accepted some of 3D ID's figures, but made adjustments based on instructions, his own opinion of what was purportedly required to perform the business, the views of an "IT expert" for whom the second defendant had delivered an expert notice, Ms Lynne Trivella ("Trivella"), and information taken from Crawford's spreadsheet and summary.


The second defendant ultimately decided not to call Trivella as an expert witness. The plaintiff's IT expert, Mr Peter Bouwer ("Bouwer") had pointed out in his expert summary and his evidence that Trivella's rule 36(9)(b) summary contained certain fundamental errors and misconceptions. Armitage consequently amended his summary to delete any reference to IT costs claimed by Trivella to be necessary, as well as to make certain other adjustments (for example, to delete any reference to payment of beneficiaries by the Post 0ffice for the first eighteen months of any 3D ID contract).


[62] Armitage also did a comparison with a "basket" of six supposedly comparable companies in order to assess the "reasonableness" of the plaintiff's calculations. Armitage initially avoided all comparisons with Allpay (seemingly on instructions) instead evaluating 3D ID's operating margin (which he wrongly inflated by using incorrect numbers) almost entirely against certain IT companies' performance during a different period (which he also calculated incorrectly). Subsequently, Armitage included a comparison with Allpay's operating margin.


[63] In the circumstances, a considerable portion of the very helpful and comprehensive heads of argument presented by counsel for the plaintiff, had to relate to the items in the spreadsheets delivered by the plaintiff, the fourth defendant and the second defendant. More particularly, it was necessary to evaluate the criticisms of the plaintiff's figures in "PR1" and the accuracy of any divergent figures or line items included by the defendants in their versions of the spreadsheet. I must confess that for purposes of this judgment, I have drawn extensively from the plaintiff's heads of argument.


Plaintiff's counsel emphasised the fact that the defendants accepted the appropriateness of using a pro forma income statement to assess 3D ID's likely profit and loss, and embraced the plaintiff's model (merely taking issue with amounts in some line items, or the exclusion or inclusion of some factors).


Plaintiff's counsel also pointed out that a similar kind of income statement was, significantly, also used by the plaintiff in the case of Sechaba v Transnet, supra, and relied on by the Court in that case.


[64] Moreover, plaintiff's counsel submitted, correctly in my view, that it was also necessary and appropriate to assess the damages claimed by the plaintiff with reference to other relevant facts and circumstances, such as the profits earned by Allpay when performing the equivalent contract some five years later, and the estimated costs of other tenderers, as well as the comparators relied on by Armitage.


The expert witnesses engaged by the parties

[65] The plaintiff called three experts: Louw, another chartered accountant, Ms Gillian McKnight and Bouwer.


[66] Louw and McKnight, who had both done an independent review and assessment of the quantum of damages suffered by 3D ID, confirmed that the damages claimed in "PR1" represented a reasonable assessment of what 3D ID could have expected to have earned from the tender. McKnight also pointed out some errors and deficiencies in the expert summary of Crawford, with reference to documents which had been prepared by Louw and McKnight for that purpose.


[67] Bouwer, an IT expert with particular knowledge of biometric identification solutions, who also had intimate knowledge of the tender by virtue of having assisted another tenderer, Q Data, with its submission, in essence commented on the expert summary which had been filed on behalf of the second defendant's IT expert, Trivella. Bouwer pointed out five main problems with Trivella's evidence, and suggested some reasons for her errors. According to Bouwer, Trivella had inter alia: misread the tender, misunderstood the tender specifications, proceeded from a misconception of the kind of company which 3D ID was, and was required by the tender to be, evidently been unaware of the state of readiness and completion of the system tendered by 3D ID and made certain incorrect final assumptions. In Bouwer's view, Trivella's opinions were "manifestly wrong, and accordingly of no assistance to the Court".


[68] Apart from a few minor details (such as whether maintenance would have been included in the purchase price paid by 3D ID to Identicator, or whether 3D ID would instead have had to pay separately for it), the evidence of Bouwer was unchallenged. I add that the second defendant ultimately did not call its foreshadowed expert IT witness, Trivella, and abandoned any reliance on her statement. I am in agreement with the submission by counsel for the plaintiff that, as in the trial on the merits (in which Bouwer also gave evidence for the plaintiff), Bouwer's version is therefore to be accepted in its entirety.


[69] I agree with the submission on behalf of the plaintiff that the evidence of Louw and McKnight was impressive. Both had familiarised themselves with the necessary details, while looking at relevant sources of comparison (such as Allpay, and the tender prices of the other tenderers in 1994). They did not venture opinions outside their areas of expertise, and made concessions when appropriate. Counsel for the plaintiff submitted, correctly in my view, that I can draw comfort from the fact that accountants of their caliber and experience had done a careful analysis of 3D ID's calculations in "PR1" and the source documents on which those calculations were based.


[70] The fourth defendant also called three expert witnesses: De Jongh, Phillips and Crawford.


[71] De Jongh, the regional manager for Allpay, was inclined to over-emphasise the intricacies of the pension payment system he was required to supervise as well as to under-estimate the effectiveness of any system which did not conform to the one tendered by Allpay in 1999. Nevertheless, the plaintiff conceded that his evidence can by large be accepted. It largely involved explaining how Allpay performed its obligations under the replacement tender.


[72] By contrast, there is a question-mark over the evidence of Phillips, who started his involvement in the security industry with the railway police, before moving to various organs of state and then Fidelity Guards.

Phillips was notably inconsistent on the important question of whether Fidelity Guards' 1994 tender price would have permitted (and was intended to allow) Fidelity Guards to make a profit. Initially he suggested that Fidelity Guards would have made a loss on the contract. Then, the next morning, after the plaintiff's senior counsel mentioned that the plaintiff's representatives had contacted Phillips' superior, Mr Jeremy Frere – the director of Fidelity Guards' cash-in-transit division, whom Phillips had said would have authorised the submission of a loss making tender – and that Frere disagreed with what the plaintiff had understood Phillips to say on the issue, Phillips changed his tune. He now conceded that Fidelity Guards would have tendered to make a profit in 1994, and that Fidelity Guards' tender price should therefore be taken to have more than covered its anticipated costs. This concession, of course, enhances the value of comparisons drawn between the costs of 3D ID and the costs of the competing tenderers. The counsel for the plaintiff submitted, correctly, that this volte face by Phillips must cause all his evidence to be treated with caution.


The evidence of Phillips was very similar to the evidence he had given before HARTZENBERG, J. The views he had expressed then were effectively disregarded by both HARTZENBERG, J and the SCA. 0ne of the criticisms expressed by both Courts was that the version the fourth defendant sought to advance through Phillips had not been put to any of the plaintiff's witnesses and thus could not legitimately be taken into account. To an extent, the same criticism applies this time around. Rabie, at least, should have been asked about the alleged deficiencies in 3D ID's security proposals. I have dealt with this aspect when considering the "implementation argument". Correctly, plaintiff's counsel also relied on the well-known case of Small v Smith 1954 3 SA 434 (SWA) at 438E G in this regard.


The SCA made the following remarks about the evidence of Phillips at 131D, paragraph [55]:

"It is difficult to evaluate Phillips' criticism on its merits. Because of the way in which defendants conducted their case, most of the alleged technical deficiencies Phillips referred to were not put to the plaintiff's witnesses. As a result, answers to his difficulties could be suggested to him only through cross-examination in the form of hypothetical solutions. Although he expressed doubt about the feasibility of these solutions, he could not say that they were beyond the realms of possibility."


I already demonstrated earlier that the SCA had no difficulty in finding that 3D ID would have been able to outsource the security duties if any difficulties were to be encountered.

[73] In these circumstances, counsel for the plaintiff submitted that Phillips' criticism of 3D ID's security arrangements ought not to be accepted. Firstly, his version was not put to the plaintiff's witnesses and secondly most of the points he raised had already been disposed of during the merits trial. It was also submitted, not without justification, that Phillips proved himself to be unreliable and biased. The volte face, supra, is an example of this.


[74] The fourth defendant's final expert, Crawford, presented an expert summary containing a number of errors. To his credit, he was generally quite prepared to make frank concessions in this regard. An example can be found at p1374 of the record:

"MR LOXTON: So the fact of the matter is that far from the exercise in verifying the work that you had done to generate schedule F your figures in schedule F are 23% higher than they should be? --- That is correct M'Lord.

That is a fairly fundamental mistake Mr Crawford? --- Yes M'Lord."


More details of Crawford's evidence will appear from the later analysis of the line items to be found in "PR1".


It should be added that Crawford demonstrated recognition of the importance of Allpay as a comparison when he made an attempt to assess 3D ID's profits using an adjusted Allpay model.


[75] The second defendant filed expert summaries for three intended expert witnesses: Trivella (an IT expert), Tony Henry (a retired banker who spent his career at the Standard Bank of South Africa Ltd) and Armitage.


[76] Trivella had a meeting with her counterpart, Bouwer, during which she made further concessions and Bouwer remained firm in his criticisms of Trivella's summary, to which reference has already been made.


Ultimately, Trivella was not called by the second defendant as a witness, and the second defendant abandoned any attempt to rely on her expert summary. In the result, it was contended on behalf of the plaintiff, correctly in my view, that the second defendant must be taken to accept that the plaintiff had not under estimated IT costs or the numbers of required IT personnel (as Trivella contended), that the feasibility and likelihood of success of 3D ID's tender solution cannot be attacked from an IT perspective (as Trivella also stated) and that 3D ID was not required to be a sophisticated IT company, or to perform IT related functions (as Trivella incorrectly assumed).


[77] The evidence of Henry was essentially confined to the guarantee which, according to the defendants, 3D ID would have required.


[78] It appears that Henry was given somewhat brief and one-sided instructions. His assumptions, on which he based his opinions and conclusions, were also not in line with some of the undisputed facts.


For example, Henry indicated that the "identity and track record of the people who were behind the requesting party" would be a very important factor in any evaluation by a bank of an application for a guarantee. Yet, Henry conceded that he knew nothing about the shareholders or directors of 3D ID. He did not even know their names, let alone how successful they had been or how wealthy they were. He had been given an unflattering picture: 3D ID was a start-up venture, with no track record and no experience in its management team of the particular area of operations involved.


Henry said that a bank considering an application for a guarantee would have considered the application over a number of weeks, and sifted through a great deal of information before reaching its conclusion. Yet he conceded that he did not do that before expressing any opinions in the present matter. All he had done was to rely on a very short brief, without real detail, which had been conveyed to him by the second defendant's legal representatives.


[79] The question of the guarantee, and whether or not it is likely that same would have been required, will be discussed later in this judgment. However, Henry confirmed that if a leading European bank was prepared to give a back-to-back guarantee (as Albrecht testified) a South African bank would have been prepared to issue a guarantee for a few thousand rand, without requiring any further security, and certainly no matching cash deposit, as suggested by the defendants. There is much to be said for the submissions made on behalf of the plaintiff that Henry was, by virtue of his deficient instructions, not placed in a position to assist the Court with regard to the real question at hand.


[80] The second and final witness for the second defendant was Armitage. Like Crawford, he commented on the plaintiff's profit and loss calculations and also gave a dismal prognosis for 3D ID.


[81] I considered Armitage to be a most unsatisfactory witness. He gave unreasoned opinions favouring the second defendant but in the process he often strayed beyond his area of expertise when doing so.


In cross-examination, he stubbornly refused to make concessions, when it was patently obvious that he should have done so.


[82] In my view, a significant lacuna in his evidence, was his failure to take the comparative information pertaining to Allpay into account. His initial reason for this failure was that he deemed it inappropriate to compare 3D ID, a start-up company, with Allpay, an established company. Allpay was not an established company. It was effectively started for the purposes of the Western Cape welfare payment tender in 2000, although there had been a trial run in the Free State featuring a sister company of Allpay.


[83] More tellingly, that explanation is also discredited by the fact that the companies with whom Armitage drew comparisons in his expert summary (Dimension Data, Pinnacle and others) were themselves established companies.


[84] Moreover, the six companies which Armitage had included in his "basket" of purportedly comparable JSE listed companies were, with the exception of Net 1 UEPS (previously CPS), very different from 3D ID. The other five companies were IT companies, consistent with the view of Trivella, adopted by Armitage, that 3D ID would supposedly have been a sophisticated IT company. In her meeting with Bouwer, Trivella conceded that 3D ID was not and would not have been an IT company – it was simply a business which, like others, would have relied on an IT service. Armitage refused to acknowledge that fact, notwithstanding Trivella's retraction. He continued to insist that the comparators he had used were the most comparable listed companies.


[85] For purposes of the exercise he adopted, Armitage compared the operating margins of the companies in his "basket" with the operating margin projected for 3D ID by the plaintiff. He pointed out that the operating margins of the "basket" companies were far lower than that projected for 3D ID, with the result, so he argued, that the operating margin contended for by the plaintiff was improbable. Counsel for the plaintiff pointed out that Armitage used information from 2006 and 2007 in respect of the five IT companies, and information from the 2000/2001 year for UEPS. He did not use information for the period 1994 to 1999 which was the period of the contract that would have been awarded to 3D ID. Counsel for the plaintiff argued that this was no coincidence. The documentation demonstrated that the "IT bubble" burst in 2001 so that the operating margin of the IT companies was more favourable in 1996 than, for example, in 2006.


For all these reasons, it was contended on behalf of the plaintiff that the Armitage comparisons were not of any use to the Court and fell to be rejected.


[86] Armitage also offered evidence in relation to supposed retrenchment costs which 3D ID would allegedly have paid (thereby increasing the operating costs). Armitage included amounts in his expert summary based on his thoughts as to what labour law would have required in 1999, despite the fact that he conceded that he had no expertise in that field. Nevertheless, he persisted, even under cross-examination, in contending that he permissibly took such costs into account and that his opinion in this regard should be accepted.


[87] As a general observation, I regret to say that I was not impressed with Armitage as a witness.


The extension of the contract

[88] As I already pointed out, the plaintiff pleaded that on the probabilities, the contract concluded with 3D ID pursuant to the tender would have been extended for at least one period of two years in terms of paragraph 12.16 of the tender, which permitted the contract concluded pursuant to the tender to be extended for a further period of two years at a time.


[89] The introduction of the alleged probable extension of the contract for two years has, as I also pointed out, a dramatic effect on the final amount claimed: with the extension the claim comes to some R380,2 million and without the extension, ie a claim based on the original five year contract, the claim totals some R253,5 million. The difference (on the plaintiff's figures as pleaded) between the two scenarios is some R126,7 million which the plaintiff ought to be awarded more, if the two year extension is found to have been proved as a probability, or less, if it is found that the extension has not been proved as a probability.


[90] Understandably, this issue enjoyed a great deal of attention during the trial.


[91] I consider it appropriate, and convenient, to decide this issue at this stage, and before moving on to the actual quantification of the claim with the guidance of the subheadings, or "line items" to be found in "PR1".


The reason for this is that the "PR1" line items are all framed with the two scenarios in mind: in each instance there is a figure for the five year term and a larger figure for the seven year term. A decision at this stage on the extension issue, whatever it may be, will facilitate the quantification exercise, because only one of the scenarios will come into play.


[92] Paragraph 12.16 of the tender contract provided that:

"Any contract entered into for the supply of the service asked for in Tender B will be for a period of five years, with the option of renewal of the contract for further period[s] of two years at a time."


[93] That paragraph permitted the extension of the contract in increments of two years. It was accepted by all counsel, and correctly so, that the right to exercise the renewal option was conferred on the CPA, acting through the relevant department, the Department of Social Services ("the Department") – as opposed to 3D ID.


[94] The question which therefore must be decided is whether or not the Department would have elected to extend the contract for 3D ID for at least one period of two years (ie for 2000 and 2001) or whether, for example, it is more probable that the Department would have gone out to tender again after expiry of the contract period of five years.


[95] The plaintiff has pleaded that on the probabilities the Department would have agreed to at least one extension. The defendants have denied that the contract would have been extended, on the probabilities, and they also denied, in any event, that the plaintiff's loss of profit pursuant to the extension "was a consequence in law of the delicts of Louw and Scholtz".


[96] The alleged extension, as pleaded, must be proved by the plaintiff on a balance of probabilities. It is not merely a question of quantification where the Court "does the best it can with the material available" as stated by COLMAN, J in Burger, supra, at 75A, where the Court embarks on the exercise without the application of the burden of proof.


[97] Counsel for the second defendant, in their very comprehensive heads of argument, point out, correctly in my view, that the question whether the plaintiff would have been awarded a second contract for the extension of the original contract, raises an issue of causation and not mere quantification. They draw on the analogy of the personal injury case in Burger, and quote the following passage from that judgment at 74F G:

"It was pressed upon me that, as the burden of proof was on the plaintiff, it would be for her to prove the effects of the collision, and that she was entitled to compensation only for those effects which she proved. In so far as that submission relates to pure questions of causation, I accept it, as other Courts have done in such cases as 0cean Accident and Guarantee Corporation Ltd v Koch 1963 4 SA 147 (AD). It is on that basis that I exclude from consideration the black-outs, which have not been shown to my satisfaction to be causally related to the collision. I disregard for the same reason the plaintiff's theory or suggestion that the collision was the primary cause, or a cause, of her matrimonial troubles."


Counsel for the second defendant then state the following:

"It means that the plaintiff bears the onus of proving on a balance of probabilities that the province would have granted it an extension of the original contract. We submit for the reasons that follow that it has not discharged this onus and that the probabilities go the other way."

[98] I did not understand counsel for the plaintiff to argue that this issue does not fall to be proved by the plaintiff on a balance of probabilities. I add, for the sake of detail, that the probable extension had not yet been pleaded when the merits trial was heard. It was introduced afterwards, if I understood the submissions correctly.


[99] I turn to the submissions made both in favour of the case for an extension and against. The arguments were many and varied. They were enthusiastically developed before me, and rightly so. What follows is only a brief account, because it would not be practicable to give a detailed account and analysis of each and every argument, for purposes of this judgment.


[100] 0n behalf of the plaintiff it was pointed out that the Allpay replacement tender, which commenced in 2000 and initially ran for four years until March 2004, has been extended at least four times thus far, and is still running.


0n the same subject, it was argued on behalf of the plaintiff that every contract which has thus far been awarded by a province for the pay-out of welfare payments using a biometric verification system has to date been renewed upon expiry.


[101] Generally speaking, it also appeared that role players had increased in number and were playing progressively more important parts in the welfare pay-out business. For example, CPS had won tenders for the payment of welfare beneficiaries in Mpumalanga, KwaZulu-Natal and the Northern Cape.


[102] It was also mentioned, on behalf of the plaintiff, that HARTZENBERG, J and the SCA held that the CPA were desperate to award the tender in order to implement the biometric payment system which had been identified as the solution to the considerable problems which were crippling welfare payments, not only in the Western Cape, but country-wide.


In the result, so it was argued, it was unlikely that the CPA would have jeopardised the success which it would have achieved through the tender award to 3D ID by replacing the latter with another, as yet untried entity after a further expensive and time consuming tender process.


[103] A subject which received a great deal of attention, in the course of the "extension debate", was the argument on behalf of the defendants, through Terblanche, that the Allpay extensions were distinguishable because they were the product of circumstances which were unique to that time period: according to Terblanche, the first extension of the Allpay contract (granted in May 2003, and aimed at extending the contract from April 2004 to March 2005) was attributable to an 0ctober 2002 Cabinet decision to establish a national public entity, the South African Social Security Agency ("SASSA"), for the management and delivery of social grants. It was said that the Cabinet decision was also linked to the case of Mashava v President of the RSA. In this case the applicant challenged the validity of the assignment of the Social Assistance Act to the provinces.


When asked in chief by his counsel to comment on the plaintiff's contention that the extension of the Allpay contract would have meant that 3D ID's contract would also have been extended Terblanche said the following:

"U edele, die, dit is nie so nie, want daar was 'n baie spesifieke rede waarom die Allpay kontrak verleng is.


U edele, as gevolg van die Mashava hofsaak het die nasionale regering besluit in 2002 om die agentskap te vestig op nasionale vlak en dit is om dié rede dat die kontrak verleng is."

[104] Very broadly speaking, the argument presented by the defendants, through Terblanche, amounts to the following: the first extension of the Allpay contract, as well as later renewals thereof, were attributable to the imminent establishment of SASSA, as well as a subsequent request by the national Minister of Social Development that extensions or renewals only be granted with his concurrence during the transition to SASSA. With SASSA on the horizon, the provinces were discouraged from embarking on tender processes and committing themselves to lengthy tender contracts. SASSA, in fact, came into existence on 1 April 2006. When the 3D ID tender contract would have come to an end in 1999, SASSA had not yet been decided upon (that decision was only made in 0ctober 2002 by Cabinet) and the provinces were still firmly in the saddle when it came to awarding tenders of this nature. Terblanche put it as follows:

"U edele, as dit nie was vir die kabinetsbesluit nie, sou die departement weer op tender gegaan het."


In other words, according to Terblanche, when the 3D ID tender came to an end in 1999, it would not have been extended, but a new tender process would have been embarked upon.


[105] 0n behalf of the plaintiff it was argued that Terblanche was not the person who would have made the decision on whether to extend the 3D ID contract. His evidence therefore amounted to opinions which I should be slow to accept. I see no merit in this contention. At the time when the tender was awarded to Nisec, Terblanche was a director in the department which was responsible for the payment of pensions and the chairman of the Evaluation Committee. He now serves on the executive of SASSA in the Western Cape. He is a social worker by profession and achieved a doctorate in that field. It was obvious to me that Terblanche has an intimate knowledge of the whole process and the history thereof since its inception.


The counsel for the plaintiff also reminded me of the fact that Terblanche's evidence was criticised in various respects by HARTZENBERG, J. Those criticisms were not related to the present debate dealing with the reasons for the Allpay extensions and the submission that the 3D ID contract would, on the probabilities, not have been extended.


My own impression of Terblanche was a favourable one. I did not get the impression that he was in any way discredited in cross-examination during the quantum trial.

[106] Simply put, the plaintiff, in his quest to discharge this onus, is faced with the following, somewhat daunting, challenge: he must persuade me, on the probabilities, that the Department, some ten years ago, would have extended the tender whilst the very Department, through Terblanche, emphatically states that it would not have done so. As a general proposition, this is a tall order.


[107] It was also contended on behalf of the plaintiff that when Terblanche signed the extension of the Allpay tender in April 2004, he listed nine motivations for the extension, only one of which had to do with the SASSA establishment.


There was also an argument that the 0ctober 2002 Cabinet decision was preceded by a 1997 Cabinet decision which also approved "the establishment of a nationally organised social security system in the country", so that the circumstances at the end of the 3D ID contract would have been the same as those which prevailed when the Allpay contract came up for extension.


In my view both these arguments were effectively rebutted by counsel for the defendants. Details will briefly be touched upon hereunder.


[108] It should also not be overlooked that, in addition to the point about SASSA, Terblanche offered further reasons why the 3D ID contract would not have been extended. These were that:

(i) there were doubts about whether the Western Cape AFIS system would interface with the national system which was then being proposed (namely, HANIS – the Home Affairs Identification System);


(ii) 3D ID's tender price would have been more expensive than the beneficiary payment prices charged in other provinces in 1999, and so the Department would probably have gone out on tender to find a "fairer price"; and


(iii) there would have been transformation requirements by 1999, which 3D ID would not have met. Terblanche also dismissed the argument that 3D ID would have been too embedded to be dislodged. He referred to the fact that Allpay replaced the Post 0ffice in 2000, despite the fact that the Post 0ffice had been performing the service for decades.


To their credit, counsel for the plaintiff offered diligent, if somewhat elaborate, arguments to counter the points made by Terblanche. I have considered these arguments. I am not persuaded that they are strong enough to tilt the scale in favour of the plaintiff.


[109] I now turn, briefly, to some of the submissions made on behalf of the second defendant. I add that counsel for the fourth defendant made equally comprehensive submissions (some overlapping with those made by the second defendant). I do not consider it necessary to deal with each and every submission.


[110] The first point raised on behalf of the second defendant is that it is common cause that clause 12.16 of the tender did not give the plaintiff any right of renewal. The effect of this provision was accordingly no more than to record that the parties may agree to extend the contract for an unspecified number of further periods of two years at a time. The clause did not create any binding rights or obligations. The basis of the increased claim of the plaintiff is also not that it would have had any right to a further contract for an additional two years but merely that it would on the probabilities have been granted such a contract.


[111] It was submitted that the plaintiff's claim is for damages in delict. It is entitled to such damages as would place it in the same financial position it would have been in if the delict had not been committed. An award of delictual damages, "seeks to compensate for the difference between the actual position that obtains as a result of the delict and the hypothetical position that would have obtained had there been no delict" – see Transnet Ltd v Sechaba Photoscan (Pty) Ltd, supra, paragraph [15].


[112] When this principle is applied to the facts of this case, so it is argued, the plaintiff must be placed in a position it would have been but for the delict. It is quite clear what the plaintiff's position would then have been but for the delict. It would have had a five year contract but no more. There would have been a possibility of one or more further contracts for further periods of two years at a time but the plaintiff would not have had any right to any of those further contracts. For instance, if the province repudiated the five year contract and refused to implement it, the plaintiff would have been entitled to specific performance for cancellation and damages but only for the five year contract. It would not have been entitled to any compensation for the loss of the possibility of the extension of the contract to which it had no right. That would have been so as a matter of law even if the plaintiff were able to show that the province would in all probability have extended the contract. The plaintiff would not have been entitled to any compensation for the loss of the benefit of such an extension because it would not have had any right to it.


Although I find this argument attractive, I make no pronouncement as to whether or not it ought to be applied to the present case. The second defendant's counsel, quite properly, also pointed out that our law does sometimes award damages in delict for the loss of an expectation which falls short of a legally enforceable right. They referred to Visser and Potgieter's Law of Damages 2nd edition p53.


[113] Another argument offered on behalf of the second defendant was that the plaintiff's claim for compensation for the benefit of a further contract five years down the line from the original delict, also fails the test for legal causation.


"The test to be applied is a flexible one in which factors such as reasonable foreseeability, directness, the absence or presence of a novus actus interveniens, legal policy, reasonability, fairness and justice all play their part." - See Standard Chartered Bank of Canada v Nedperm Bank Ltd [1994] ZASCA 146; 1994 4 SA 747 (A) at 765A B.


It was argued on behalf of the second defendant that, when this approach is applied to the determination of legal causation in this case, it becomes apparent that the loss of the benefit of the possible extension of the contract after five years, is too remote to qualify for compensation in delict. This is so not only because of the distance between the delict and the loss but also because as a matter of policy, there is no justification for an award of compensation to the plaintiff that would put him in a better position than he would have been but for the delict. In my view there is much to be said for this argument, particularly because policy considerations, reasonableness, fairness and justice have to be taken into account in applying the test. For example, where clause 12.16 of the tender foreshadows the possibility of any number of extensions, the question arises, on the plaintiff's case, whether the plaintiff should also be allowed to claim compensation for the loss of, for example, half a dozen extensions. Where should one draw the line?

[114] As to the facts, the defendants also offered a number of arguments. I mention only some of them. I have dealt with the SASSA argument, relied upon by Terblanche.


[115] It was also submitted that the Department would have considered the cost per head to other provinces for the pay-out services, as it did in the case of the Allpay tender. In 1999, the plaintiff would have charged R22,55 excluding VAT, per payment per beneficiary. Given this high price, it is unlikely that the Department would have extended the tender. The service was awarded to Allpay at R13,09, including VAT. In my view, this consideration should go into the scale when considering whether or not the probabilities of an extension favour the plaintiff.


[116] Another consideration when deciding whether or not the onus was discharged was the fact that internal and external transformation had become an important objective by 1999. The plaintiff was an untransformed entity. There was an argument on behalf of the plaintiff that it would have been able to enlist transformation partners, but this remains a factor to be considered for purposes of deciding whether the probabilities favour an extension.


[117] It was also pointed out, convincingly in my view, that the Cabinet decision of 1997 was completely different from the Cabinet decision of 0ctober 2002. The former was an attempt to obtain agreement between the province and the National Government that there would be a single main frame computer and legislative framework aimed at achieving uniformity in the country, so that different provinces did not go and develop their own main frames and legislation. The capacity of the provinces concerning the management of social security functions was not removed by the 1997 decision, nor was it the implication of the 1997 decision.


[118] It was argued, in my view correctly, that the plaintiff's contentions concerning the effect of the 1997 Cabinet decision are demonstrably incorrect because the province, in fact, issued a four year tender during 1999 and granted Allpay a four year contract expiring only in April 2004. This is inconsistent with the version advanced by the plaintiff. It is also destructive of the plaintiff's embeddedness argument.

[119] It was also pointed out on behalf of the defendants that the proposition sought to be advanced by the plaintiff that every contract which has been awarded by a province for the pay-out of welfare payments using a biometric verification system to date had been renewed upon expiry was not supported by any evidence.


[120] The plaintiff's argument that the superior technology used by 3D ID would have contributed to a decision to grant an extension of the contract was countered on behalf of the defendants by the argument that the plaintiff ignored the fact that by 1999, Allpay had tried and tested technology. The same probably applied to other role players by that time. The technology had been improved since 1994 when 3D ID was in a superior position.


[121] There is also no reason to reject Terblanche's evidence that the plaintiff's tender price would have been more expensive than beneficiary payment prices charged in other provinces in 1999 and that the province would have gone out to tender to find a fairer price. The argument that the plaintiff would not initially have obtained the tender because of its high price was rejected during the merits trial in the context of the initial grant of the tender in 1994. This finding was premised on the assumption that there was no alternative to 3D ID's technology at that stage. This was no longer the position at the time when the tender would have expired in 1999. By this stage, as I have said, Allpay had tried and tested technology and had proved itself in other provinces.


In this regard I should add that one Dr Gert Cornelis Dry ("Dry") testified on behalf of the defendants. He was attached to Absa Bank but was also involved with the Allpay operation since its inception in 1996 up to 2002. He was the first chairman of the directors of Allpay in the Free State and the Western Cape. He testified about the origin of Allpay and about a pilot project launched in the Free State. This was in June 1997. Although Dry was not an expert witness, I got the overall impression from his testimony that Allpay was a well run and well prepared outfit by the time it got the Western Cape tender with effect from the year 2000. In any event, it was generally accepted that at all relevant times Allpay had tried and tested technology and had proved itself when it came to the execution of a contract of this nature.


[122] The plaintiff had also placed reliance on the fact that the CPA, in any event, made substantial savings by employing 3D ID, despite its higher tender price. This was countered by the defendants on the basis that the savings to the CPA would have been even higher had it employed another tenderer at a lower tariff.


[123] The evidence of Terblanche that the Department would have gone out to tender in 1999, rather than extend the 3D ID contract is supported by the objective facts: in 1999, the contract was indeed put out to tender. Moreover, the plaintiff's case is not that it would have won the tender. Its case is that its contract would have been extended without a tender.


[124] In all the circumstances, and for the reasons mentioned, I have come to the conclusion that the plaintiff has failed to prove on a balance of probability that its contract would have been extended as pleaded. I hold accordingly.


[125] The result is that only the remainder of the claim, as pleaded in the amount of R253 550 554,00 falls to be quantified.


The quantification of the remainder of the claim: the line items in "PR1" and related issues

[126] In the celebrated words of COLMAN, J in Burger, supra, I must now "do the best I can with the material available".


It appears that I should also bear the following words of the learned judge in mind, which are to be found on the same page of the report, at 75B:

"What the Court will not do in such a case is to select, from the range of possibilities presented by the evidence, the possibility which is least favourable to the plaintiff because he bears the onus, and has not proved that a more favourable possibility ought to be preferred."


[127] As I already mentioned briefly earlier in this judgment, my task is also facilitated by a number of factors. They are worth repeating:

1. the number of beneficiaries who would have been paid by 3D ID had it been awarded the contract, over the whole five year period, is common cause;


2. the inflation rate for the relevant years is a matter of public record;


3. the Rand/Dollar exchange rate for that period is known;


4. the political and social dynamics of the time (including the continued pressing need for a pension payment solution) is not in dispute;


5. the performance of the company which was awarded the replacement tender (Allpay) is known, and its financials have been scrutinised;


6. 3D ID would have been the only entity performing the service for the relevant periods so that no allowance has to be made for the performance of competitors, or market conditions;


7. the only real variables therefore related to 3D ID's costs, or expenses. Even then one has the benefit of quotations furnished to 3D ID at the time, as well as the benefit of knowing the costs of Allpay.


8. Another relevant source of comparison is the tender prices of 3D ID's competitors for the tender, as one could reliably assume (and this also emerged from cross-examination) that their tender prices were at the very least designed to cover their costs and make profits of varying degrees for their shareholders.


9. This case does not require the Court to make forward-looking projections, using actuarial calculations and predictions to assess, for example, factors such as life expectancy, probability of promotion, future medical expenses and the like. The case, instead, involves looking backwards, at a time period which has already passed and in respect of which other entities performed the service to which the tender related and another company subsequently performed a substitute contract.


[128] Before turning to the actual line items, I also make the following general remarks:

1. As I already mentioned, the defendants' expert witnesses also adopted the "PR1" framework, to a smaller or greater extent, for their own calculations. This enabled the plaintiff's counsel, in their very useful heads of argument, to produce comparative tables showing the results of the respective calculations. These will be referred to when the line items come under the spotlight. It will be observed that, in some instances, the defendants' experts adopted the figures presented by the plaintiff's experts in "PR1", and in other instances, the differences are not of a substantial nature.


2. I have attempted to apply my mind to all the different arguments and approaches and methods of calculation. By and large, I find myself in respectful agreement with the approach adopted on behalf of the plaintiff. For this reason, the heads of argument presented on behalf of the plaintiff will be used as a basis for the assessment of the line items. In the process, the competing arguments, as summarised on behalf of the plaintiff, will also be briefly dealt with.


3. Given my finding in respect of the question as to whether or not the plaintiff managed to prove that the contract would have been extended, it is obvious that the seven year figures, also to be found in the comparative tables, will be ignored.


Line items as to income

[129] There are four income items. They are:

1. enrolment income (only applicable to 1995, the first year of the tender);

2. payment income (the figures in "PR1" are individually calculated for each of the five years);

3. interest income on daily balance in respect of the total amount received for monthly pension pay-outs from the CPA (the figures are also individually calculated over the five consecutive years, namely 1995 to 1999);

4. interest on surplus cash reinvested (again, there are individual figures for the five consecutive years).


Enrolment income (line 1 of "PR1")

[130] The plaintiff has claimed an amount of R4 431 345,00 for enrolment income. That amount has been calculated by multiplying the enrolment price (excluding VAT) provided for in 3D ID's tender (R17,40) by the minimum number of pensioners which it is assumed would have been enrolled: namely, the number of pensioners which according to the fourth defendant would have been paid in January 1995 and would accordingly have had to be enrolled before then (in total, 254 675). As the plaintiff explained in "PR1", that number is conservative, as it does not take into account the number of welfare recipients who continued to receive their money in bank accounts, but who would, in terms of the tender, have had to be enrolled in order to avoid duplicate payments


[131] The second defendant's expert, Armitage, accepted the plaintiff's calculation of enrolment income.


[132] The fourth defendant's expert, Crawford, has not, He arrived at an amount some R63 130,00 less than that agreed by the plaintiff and the second defendant. In fact, Crawford worked on the assumption that about 17 000 more persons than those mentioned by the plaintiff would have had to be enrolled. They are the beneficiaries who received their welfare payments by way of bank transfers. He worked on 271 402 beneficiaries as opposed to the 254 675 adopted by the plaintiff. However, Crawford deducted 7.5% of that total for …. "duplicates" on the basis that, purportedly according to 3D ID's tender, 7.5% of the enrolments would have consisted of duplicates.


It is explained below why the plaintiff contends that the 7.5% deduction referred to in the plaintiff's initial quantification of his claim (not the 3D ID tender) has no relevance to the calculation in "PR1", and thus to the exercise conducted in this quantum trial. Nevertheless, for purposes of the enrolment calculation, the plaintiff, correctly, points out that Crawford should, if anything, have added 7.5% because there can be no question that 3D ID would have had to enroll all existing beneficiary recipients, including any bogus or fraudulent recipients.


[133] Consequently, it seems to be appropriate to accept the plaintiff's figure of R4 431 345,00 which, if anything, is on the conservative side.


Payment income (line 2 of "PR1")

[134] For obvious reasons, this is by far the largest amount of the four income line items.


[135] The plaintiff has claimed amounts ranging from some R55,2 million for 1995 to some R77,2 million for 1999.


Those figures have been calculated for the years 1995 to 1999 by multiplying the numbers of beneficiaries referred to in the fourth defendant's plea and further particulars for each of those years by the price per head quoted in 3D ID's tender, as adjusted annually for inflation in accordance with the tender conditions. (According to the tender, 85% of the pay-out service is to be increased by CPI.)


[136] The five year figure calculated by each of the three parties is as follows:

plaintiff - R333 529 000,00

second defendant - R270 448 166,00

fourth defendant - R267 778 078,00.


[137] The gap between the two sides is approximately R60 million. The defendants have taken issue with the plaintiff's figures for beneficiary payment income in two main respects. Both the second and fourth defendant disagree with the numbers of beneficiaries used in 3D ID's calculations. They argue that these figures should be reduced by 7½%.


Both also disagree with 3D ID's payment price. They contend that it should be reduced by 15% when the number of beneficiaries exceeds 250 000.


The second and fourth defendants have also assessed the relevant CPI percentages in a different way to the plaintiff, and have consequently adjusted the annual payment fee slightly differently each year.


[138] As an opening remark, it must be stated that the plaintiff's calculation is, in a sense, beyond reproach: the number of beneficiaries to be paid over the five years was supplied by the fourth defendant. The price per beneficiary appears from the tender, and so does the escalation formula.


[139] The areas of attack offered by the defendants, namely suggested percentage reductions, do not originate from the tender itself, but from other, in my view speculative, considerations.


[140] Nevertheless, it is necessary to deal briefly with the three areas of attack, namely the number of beneficiaries, the price per beneficiary and the CPI method.


[141] As to the number of beneficiaries, the reason for the difference between the two sides is that, according to the defendants, the numbers used by 3D ID for the purposes of the calculations in "PR1" have to be reduced by 7.5% in order to account for the detection (and elimination) of duplicates.


[142] The sole reason given by the defendants for reducing the numbers contained in "PR1" is that, as the annexures appended to the original particulars of claim (January 1999) reveal, the plaintiff considered it appropriate at that stage to reduce by 7.5% the number of pensioners it had assumed would be enrolled, in order to make allowance for the elimination of duplicate enrolments.


[143] Importantly, no evidence was led by the defendants to indicate that the pensioner numbers listed on "PR1" were unreliable, or were likely to contain duplicates which would have been eliminated by 3D ID. Nor is there any actual evidence to back-up the defendants' contentions about the purported need for a 7.5% deduction.


The essential question is therefore whether there is a justifiable reason for the plaintiff to have deducted 7.5% from its 1999 enrolment numbers and yet not made any deduction for fraudulent enrolments in its 2007 calculations.


[144] The plaintiff was initially uncertain as to how many beneficiaries should be used for purposes of calculating enrolment and payment income. In his 1999 particulars of claim the plaintiff therefore based his calculations on his best estimate as to how many pensioners Nisec was required to enroll in 1994. The available information at the time indicated a number of 320 000. Consistent with a reasonable approach the plaintiff deducted 7.5% from the enrolment figure to arrive at the number of beneficiaries who, in his view, would actually be paid at the start of the payment cycle. That deduction was based on an assumption that between 5% and 10% of existing welfare payments were made fraudulently. The plaintiff then also assumed a 10% increase in the number of pensioners per year for each of the five years of the contract.


[145] The need for speculation had disappeared by 0ctober 2007. By mid 2007 the number of pensioners actually paid by Nisec from January 1995 to December 1996 was available, with the result that the plaintiff was able to amend his particulars of claim in July 2007 to introduce a scenario named "Nisec actuals". The actual number of pensioners paid by Nisec during 1995 and 1996 varied from 248 699 to 286 614, a number considerably lower than the plaintiff's earlier estimate. Because the numbers being used reflected persons genuinely paid as opposed to persons who stood to be enrolled, it was considered unnecessary to make allowance for deduction of duplicates.


[146] 0n 18 September 2007, the situation was clarified further with the filing of the fourth defendant's amended plea. The plaintiff was now furnished with actual beneficiary payment figures for the entire 1995 to 1999 period, and was moreover informed by the fourth defendant that he considered that 3D ID would actually have paid those pensioners had it been awarded the tender contract.


[147] The fourth defendant further clarified the position in its response to the plaintiff's pre trial enquiries, dated 2 0ctober 2007, and in its reply to the plaintiff's additional request for trial and particulars and admissions, filed on or about 22 0ctober 2007.


[148] The plaintiff was therefore entitled to accept, and did accept, that the number of beneficiaries who would actually have been paid by 3D ID was as set out in the fourth defendant's plea, pre-trial response and additional further particulars. The result of the plaintiff's acceptance of the fourth defendant's allegations as to the number of beneficiaries who would have been paid by 3D ID was the abandonment of his own case on that question and the formulation of "PR1".


Thereafter, at the fourth defendant's instance, the plaintiff amended his claim to render it consistent with "PR1". In the circumstances, so the plaintiff's counsel argued, the fourth defendant is bound by the case he pleaded, and in particular his allegations as to the numbers of beneficiaries 3D ID would have paid. In essence, no dispute between the plaintiff and the fourth defendant remained thereafter on that issue. I agree with this contention. There is nothing that the second defendant could offer on this point which ought to upset the aforesaid conclusion.


[149] To put it differently, the fourth defendant, the party with the most knowledge of those particular facts, has pleaded exactly how many beneficiaries 3D ID would have paid in each month. It is therefore not open to the defendants, in the face of the plaintiff's adoption of those figures, to now contend for a different (and reduced) number.


[150] In the result, I am of the view that the reduced number of beneficiaries contended for, flows from an argument that has no merit.

[151] As to the price per beneficiary for monthly payments, the plaintiff has used the price per head quoted in 3D ID's tender, less VAT, namely R17,40 for the purposes of calculating payment income for the first year (1995). The plaintiff has thereafter escalated that price annually in accordance with the formula prescribed in the tender (which permitted 85% of the fee to be adjusted by the appropriate Consumer Price Index percentage).


[152] By contrast, the defendants have reduced 3D ID's quoted price per beneficiary by 15% when the number of monthly beneficiaries exceeds 250 000, and then adjusted the reduced price every year in accordance with the stipulated formula (albeit using a different CPI percentage).


The defendants have argued that a 15% reduction in 3D ID's tender price is allegedly appropriate because the plaintiff had, in annexure "C" to his initial particulars of claim of January 1999, made provision for a reduction of 15% in the price per beneficiary (ie to R14,80 per head excluding VAT) in the event that the number of beneficiaries exceeded 250 000.


[153] The reference to a 15% reduction does not form part of 3D ID's tender submission. It is merely found in an annexure to the initial, 1999, particulars of claim.


[154] What 3D ID stated in its tender submission as regards a possible reduction in price per beneficiary was the following:

"3D ID Systems requires a proviso that a minimum number of 160 000 beneficiaries will be guaranteed per month over the five year period. If however, the total number of beneficiaries to be paid by 3D ID Systems exceeds 250 000, 3D ID Systems would be prepared to renegotiate the quoted price per head."


[155] In annexure "C" to the initial particulars of claim the plaintiff worked on the assumption that 296 000 pensioners would be paid every month for the first year and that there would thereafter be a 10% increase, which would result in 325 600 pensioners in year two, 358 160 in year three and so on. In those circumstances the plaintiff considered that a reduction of 15% (when the number of beneficiaries exceed 250 000) would be reasonable and appropriate. In fact, on that initial assumption, the number would have risen to some 433 000 by year five.


When one looks at "PR1", by contrast, it is evident that the average number of beneficiaries paid per month in the first year of 3D ID's contract is accepted to have been 264 466 while the average number for 1999 (year five) is assumed to have been 286 394. According to "PR1", at no stage during the first five years of the contract would more than 290 000 pensioners have been paid in any month. Moreover, under "PR1", the beneficiary numbers in the first year could conceivably drop below 250 000 in any month, as indeed happened in February 1995.


[156] Rabie explained in his evidence what 3D ID's position would have been in any negotiations in relation to a reduction of its quoted price per head. He said that 3D ID would have been prepared to reduce its price per beneficiary if there were corresponding concessions or indulgences from the CPA. According to Rabie, what would have been of particular importance to 3D ID in any negotiations was whether the CPA was prepared to extend the number of pay-days. The tender contemplated all cash payments being made were in the first twelve working days of a month, a time frame which led to highly inefficient use of manpower and resources and considerably increased costs (not least because of the extra pay-teams needed to make all payments within that compressed time). As Rabie explained, if the CPA was willing to allow beneficiaries to be paid over a longer period, that would have resulted in significant savings to 3D ID, which 3D ID would have been prepared to pass on to the CPA in the form of a price reduction of, say, 15%.


It is interesting to note that Fidelity Guards, in its tender, made a similar submission, namely if the working days were to be increased reductions could be made in the tendered price.


[157] The plaintiff's expert, Louw, testified that the position which Rabie claims 3D ID would have adopted was a reasonable one, and consonant with sound business practices.


[158] It should also be born in mind, as pointed out by counsel for the plaintiff, that 3D ID would have been in a very strong bargaining position. It was the only tenderer which could offer the unique technological solution required by the tender, and thus the only tenderer which appeared able to combat the enormous problems besetting the welfare payment system in the Western Cape.


As the SCA noted, the CPA and the State Tender Board were "desperately keen to award the tender" – SCA judgment paragraph [79].


[159] It is also common cause that the CPA would have saved financially (to the tune of many millions of Rands per year) if 3D ID had performed the pension pay-out service at its quoted price, escalated annually to the prescribed formula.


HARTZENBERG, J puts it as follows in paragraph [49] of his judgment:

"0n this aspect of price it was not only conceded by Dr Terblanche that it would have been financially to the advantage of the CPA to accept 3D ID's tender, but Fuchs also gave positive evidence to that effect. It was not challenged or contradicted. If there were no other reasons to reject the 3D ID tender, price was not an obstacle to it being accepted."


[160] There was therefore no pressing financial need for the Department to insist on a lower price per head.


[161] There is no indication that Crawford or Armitage took any of those considerations into account.


[162] For these reasons, and more particularly because the 15% reduction does not form part of the tender submissions and the actual number of beneficiaries that would have been paid only fractionally exceeded 250 000 on average, I am of the view that the 15% reduction in price contended for by the defendants falls to be rejected.


[163] As to the applicable CPI percentage, paragraph 12.19 of the tender provided that the fee quoted for payment of beneficiaries was "subject to adjustments after twelve months". Table 1 of PO 141.1 Consumer Price Index of the Central Statistical Services, with the commencement month of the service as basis month, would serve as the basis on which adjustments would be applied for. The adjustments formula would provide for a minimum fixed element of 15% of the fee which would not be subject to adjustment.


[164] There was also a provision that the commencement month would be the "basis month", which would "serve as the basis on which adjustments will be applied for".


It is common cause that the month to be used as the "basis month" is December. The relevant CPI table was identified, and formed part of "PR1", as well as part of Crawford's expert summary.


[165] Where the parties differ is on the following question: whether one should simply compare the CPI index for December of the relevant year with the CPI index for December of the previous year, with the result being expressed as a percentage change (the contention of the defendants), or whether one should compare the average of all the monthly indices in the past year, measured from January to December (as the plaintiff submits).


[166] Paragraph 12.19 of the tender does not indicate which approach should be preferred. There is no absolute requirement, other than in respect of the 15% minimum fixed element, as to precisely how any adjustments should be calculated. The plaintiff submits, correctly in my view, that an important interpretive consideration is which approach would be fairer, and more sensible, for the purpose of calculating price increases and also the impact upon 3D ID of price increases in input costs during the relevant year.


The approach contended for by the defendants, so plaintiff argues, is dependent on the months in question not being atypical. If that is not the case, and one or other of the months contains a spike or a depression, the percentage difference will result in a price distortion, and a windfall for one of the parties. This approach may operate unfairly.


The plaintiff's approach, by contrast, smoothes out any peaks or troughs which may have occurred in any month in the previous year. The average index provides a fair assessment of price changes since the previous price change, and thus a fair basis for calculation.


I find myself in respectful agreement with this approach.


[167] In the result, and barring the effects of an ultimate percentage reduction to cater for general contingencies, I see no basis for interfering with the income calculation offered on behalf of the plaintiff.


Interest income on daily balance – cash float (line 3 of "PR1")

[168] The figure calculated by the plaintiff is R41 197 000,00 over the five year period and the figure suggested on behalf of the second defendant is R30 million. The fourth defendant made no calculations.


[169] The tender document stated in paragraph 11.4 that the "successful tenderer will be responsible for the cash money", as well as that the "cash will electronically be made available to the tenderer in a bank account to be specified by the CPA". Paragraph 11.7 of the tender document stipulated that "all monies not paid out in a specific month must be deposited in the CPA's account within thirty six hours after the reconciliation date for that specific month".


[170] 3D ID noted and accepted those conditions. As regards the implementation of the tender, 3D ID also stated that:

"The total amount needed for monthly payments is to be deposited into the 'Pension Account' of 3D ID Systems five days before the first of the month."


[171] The tender document was silent on who could get the benefit of the interest which accrued on the money handed to 3D ID for the purposes of making payments to the beneficiaries.


[172] In this regard, counsel for the plaintiff started with the following submission: as a matter of law, since money is a fungible (interchangeable with other identical items – South African Concise 0xford Dictionary) ownership of funds paid by the CPA to 3D ID would upon payment become the property of the latter and interest earned thereon would accrue to 3D ID. The plaintiff has accordingly worked on the assumption that, in the circumstances, the interest could be retained by 3D ID. No authority was offered in support of this contention. I make no finding thereon. In my view, the answer will depend on the particular circumstances, and also the wording of the agreement. Where the agreement is silent on the issue, as in the present case, that may be a factor militating in favour of the plaintiff.


[173] Nevertheless, the plaintiff prepared a detailed interest income spreadsheet which works on the basis of interest on the full monthly amount from the receipt of the cash until the first pay day, and thereafter diminishing balances assuming twelve equal payments over each of the twelve pay days, followed by interest on 3.41% of the money (the percentage of beneficiaries assumed not to be paid) for two days, at which point the money would have to be paid back to the Department. Interest was calculated at the inter-bank rate.


[174] The defendants disputed that such interest may legitimately be included under the income line of the profit and loss calculation. Nevertheless, Armitage made provision for the inclusion of such an item in his "Base Case with adjustments". Armitage also prepared a table showing the interest which he considered would have been earned on the cash float. As I said, he made provision for an amount of R30 million. He also did not argue, when it was put to him in cross-examination that his interest calculation contained some errors – for example, by failing to take into account that payment would take place over twelve working days, and thus that there would be at least a couple of week-ends in the middle of the payment process on which the money would earn interest.


[175] The defendants appear to have two grounds, according to their pleadings, for contesting the inclusion of interest on the daily balance of money provided to 3D ID for welfare payments.


The first is that they deny that "on a proper construction of the contract and particularly paragraphs 11.4 and 11.7 of the tender" 3D ID would have been entitled to the interest earned on the cash made available to it by the fourth defendant for payment to beneficiaries. These two paragraphs have already been quoted above. The tender does not address the issue under debate expressly or indirectly. It is not clear how a "proper construction" can assist the reader in one way or another.


Secondly, it is pleaded that the loss of any interest which would have been so earned was not "a consequence in law of the delicts of Louw and Scholtz".


[176] The plaintiff points out that the "interpretation" offered by the defendants is at odds with what the CPA and the Tender Evaluation Committee thought at the time, as well as what actually happened with regard to Nisec, with the full knowledge and acceptance of the relevant persons within the CPA:

1. During the tender process CPS (one of the tenderers) wrote a letter to the CPA asking whether CPS must re pay interest earned on pensioners money to the CPA. The answer was "will be negotiated with the successful tenderer. Proposals must be put forward."


2. The minutes of the meeting of the "Nisec negotiation task team" held in November 1995, which was attended, inter alia, by Terblanche, contains the following inscription:

"Nisec gains interest on money in the bank account opened for the purposes of paying money over to Nisec."


3. A letter from the chief director of the Department of State Expenditure to one of the investigators examining the Nisec fraud, dated November 1996 stated the following:

"Uiters belangrike punte wat geensins vermeld of in berekening gebring is nie, is die feit dat alle rente verdien NISEC toeval en nie die staat nie … Die 'verdienste' uit die rente wat NISEC toeval, behoort by die tender prys gevoeg te word om 'n werklike vergelykende prys te bereken."


4. The extent of the interest earned by Nisec on the cash float held by it for the payment of beneficiaries is also apparent from a table prepared by a forensic auditor, Mr Stavrides, who did a forensic audit of Nisec's accounts. It is apparent therefrom that Nisec earned on average R799 567,59 per month from such interest, and a total of R20,79 million between December 1994 and January 1997. It is also notable that at no stage was any attempt made to sue Nisec for recovery of that interest, despite the national and provincial governments suing Nisec and others for over R56 million in damages.


[177] The plaintiff also points out that the Post 0ffice, which paid most of the beneficiaries in the Western Cape between 1995 and 1999 also retained interest on cash paid to it for the purpose of making beneficiary payments.


[178] The position only changed in 2000, when the tender awarded to Allpay commenced. That tender specifically prohibited the retention of interest by the successful tenderer.


[179] As to the back-up argument of the defendants, namely that the loss of such interest was not a consequence in law of the delicts of Louw and Scholtz, the following submissions were made on behalf of the plaintiff:

1. The SCA has held that the test for legal causation is a flexible one, in which the basis question is whether there is a close enough relationship between the wrongdoer's conduct and its consequence, for such consequence to be imputed to the wrongdoer in view of policy considerations based on reasonableness, fairness and justice. Those policy considerations include the ones traditionally used for legal causation or "remoteness" enquiries, such as reasonable foreseeability, direct consequences, and the existence of an adequate relationship to the conduct. I have already dealt with this aspect when considering the possible extension of the contract, but counsel for the plaintiff also referred to the case of International Shipping Co (Pty) Ltd v Bentley 1990 1 SA 680 (A) at 700-701 and Neethling, Potgieter and Visser Law of Delict 5th edition at p174 175.


2. Counsel for the plaintiff argued that 3D ID (like Nisec and the Post 0ffice) would in the present case have earned interest from the tender contract which it was corruptly denied. That income would moreover have been earned from 3D ID's performance of the contract. The retention of that interest was moreover foreseeable as the answer to CPS's questions, supra, during the tender process indicated.


3. It was argued on behalf of the plaintiff that the fact that there may potentially have been some negotiations over the issue does not make a difference. There could potentially have been negotiations on a number of issues (for example, security, or future enrolments) subsequent to the award of the contract to 3D ID, in order to ensure that the optimal service was rendered.


I am not entirely in sympathy with this last argument. The fact that there may have been negotiations (as stated in the answer to the CPS letter) could be something that should go into the scale when deciding the size of the contingency deduction, supra, to be applied at the end of the exercise. However, given the fact that Nisec and the Post 0ffice retained interest, this particular issue should not have a material influence on the percentage of the contingency deduction.

[180] For the rest, I find the submissions of the plaintiff compelling. I find no justification to interfere with the figure proposed on behalf of the plaintiff.


Interest on surplus cash re invested (line 3a of "PR1")

[181] The figure proposed by the plaintiff over the five year period is R39 966 275,00. No figures were calculated on behalf of the defendants.


0n my own calculations derived from "PR1", the total figure claimed over the five year period for this income line item is R59 122 000,00. This is the figure that goes into the total income projected in "PR1" to arrive at the five year claim of R253 550 000,00. This is the figure that I worked on for purposes of my own calculation. It may be that the amount reflected on the heads of argument prepared by plaintiff's counsel is erroneous.


[182] The plaintiff has allowed for interest on surplus cash re invested. For purposes of that calculation, he has deducted money payable to SARS in the form of provisional tax, having assumed that the company was assessed for tax purposes by 31 December of each year, and that the tax was paid in full on the due date. Even though interest would run on a daily basis, the plaintiff has adopted a conservative approach, and only regarded interest earned as being capitalised and re invested at the end of each half year period.


[183] The defendants' accounting experts have made no provision for that interest in their summaries or their own profit and loss calculations. They have not, however, expressed any "in principle" opposition to interest of that kind being included, nor have the defendants rejected the notion of such interest in their pleas. Armitage has moreover included "interest expense on losses" in his "Base Case with adjustments" – with the first column of that table showing interest being "charged" at 18% of the "average cash balance" for 1995. This interest rate is higher than any used by the plaintiff from 1995 to 2001.


Plaintiff's counsel have mooted the possibility that the defendants' experts have excluded "interest on surplus cash re invested" from the income side of their profit and loss calculations simply because, on their version, the plaintiff (3D ID) would allegedly never have made a profit (and thus no interest would, on their version, have accrued to 3D ID).


[184] The contention on behalf of the plaintiff is that if one assumes a profitable company there is no basis for disregarding the interest which 3D ID would have earned on surplus cash during the existence of the contract. The interest would (like the purported loss which Armitage takes into account) have been the consequence of 3D ID carrying out the pension payment service which it was denied the opportunity to perform. The interest would furthermore all have been earned on cash generated from the contract itself. Expert Louw has also confirmed that, because of the nature of the business, all the profits which 3D ID made would have been of a cash nature, and thus readily able to be deposited into an interest bearing bank account. In addition, Louw has endorsed the model as a commercially rational one, and verified the accuracy and justifiability of the positive cash balances reflected in "PR1".


[185] The defendants' expert accountants did not challenge Louw's approach to interest on surplus capital, or take issue with his assumptions or conclusions. Nor did they come up with any other model (for example, one in which some of the surplus cash was retained in an interest bearing account, with the remainder being paid out in dividends to the shareholders, or reinvested in the business). Significantly, too, neither Rabie nor Fuchs – who would have been shareholders and directors of 3D ID throughout the relevant period – were cross-examined on whether the surplus cash would have been reinvested in the way indicated by "PR1", or given an opportunity to comment on a different scenario.


[186] The only witness of the plaintiff who was cross-examined about the allowance made in line 3a of "PR1" for interest on surplus cash re-invested was Louw. His cross-examination on this point was brief and confined in its scope.


[187] Louw was asked to confirm that he had assumed that profits would be available to 3D ID in cash (which he confirmed, because of the cash nature of the business) as well as that his computation assumed that no dividends would have been paid to shareholders (which he also confirmed) without it being suggested to him that either assumption was incorrect.


In my view, even if Louw was not challenged on the last mentioned assumption, the final percentage deduction for general contingencies ought to take into account the possibility that not all surplus cash would have been re invested but that some surplus cash would have been paid out in dividends.


[188] Louw was also questioned about why he considered 3D ID to have been cash positive in January 1995. That line of enquiry involved discussing whether the R12 million interest free loan facility from Fuchs, infra, via the Saturn Trust would have been utilised (Louw said it would not have been needed) as well as whether 3D ID would, prior to January 1995, have had to incur more expenses than could be repaid from the enrolment income received during 1994. Louw felt that that would not have been the case. It was pointed out on behalf of the plaintiff that the assets in question (expenses to be incurred) would not need to have been bought in July 1994, when enrolments began, but could have been acquired as and when needed.


[189] In the circumstances, and in the absence of an alternative scenario from the side of the defendants, it seems to me that the plaintiff's model involving investing of profits generated by the business into an interest-bearing account, ought to be accepted in principle. As I indicated, the contingency factor, in my view, should not be overlooked.


[190] What remains to be dealt with, under this line item, is an argument advanced on behalf of the fourth defendant to the effect that the plaintiff's claim on this score is not legally sustainable. The argument is that the plaintiff is, in effect, claiming this interest separately from mora interest under the Prescribed Rate of Interest Act 55 of 1975. This, according to counsel for the fourth defendant, he may not do. I was referred to the case of Standard Chartered Bank of Canada v Nedperm Bank Ltd [1994] ZASCA 146; 1994 4 SA 747 (A) at 778H J.


This appears to have been a damages claim in delict based on alleged negligent misstatement causing economic loss.


As I understand the judgment, from the passage quoted by counsel, the plaintiff claimed various amounts of interest, staggered over different consecutive periods. The plaintiff was the appellant. In argument the appellant's counsel made it clear that this interest was claimed as an item of special damages, distinct from mora interest. It was submitted "that the time had come for the law to take account of what counsel termed 'commercial realities' and to eliminate the iniquity of the loss sustained by a claimant for damages being deprived of his money prior to final judgment and payment pursuant thereto" – at 778G H.


It appears that the appellant sought to claim these amounts of interest as special damages, ostensibly inspired by the appellant's inability, given the then wording of the Prescribed Rate of Interest Act, supra, to claim interest before date of judgment.


This judgment was reported before the introduction of section 2A of the Prescribed Rate of Interest Act, in 1997, and well before the introduction of section 2A(2)(a), in 2005, which provides for mora interest to run from date of demand or summons, subject to certain requirements having to be proved.


Moreover, it seems that the instant case is also distinguishable on another basis: this line item under discussion, namely interest on surplus cash re invested, is not claimed under a separate heading of special damages. It is claimed as part and parcel of the total profits (in this case the damages) allegedly lost because of the fraudulent deprivation of the tender contract. It is claimed on the basis that this line item would have flowed naturally from the tender contract as would the income from rendering the pay-out service.


For these reasons I am not inclined to uphold this particular argument submitted on behalf of counsel for the fourth defendant.


[191] This concludes the analysis of the "PR1" line items relating to income.


[192] Before turning to the line items relating to costs, it is appropriate, in my view, to mention a subject raised by plaintiff's counsel in their heads of argument which, on my understanding, is an illustration of a noteworthy attempt by the plaintiff to mitigate his alleged loss in a certain respect.


A noteworthy exercise in mitigation

[193] As already indicated, the fourth defendant pleaded in some detail what would have transpired (from the point of view of the number of beneficiaries to be paid) had 3D ID been awarded the tender contract. It has been recorded that the plaintiff amended his claim accordingly so that the number of beneficiaries to be paid over the five year period became common cause.


[194] As to the early part of the payment exercise, the fourth defendant sketched the following scenario in his pleadings:

1. The beneficiaries who would have been paid in terms of the tender award would have been the approximately 35 000 "CPA beneficiaries" who originally formed part of the tender, as well as the recipients of social security grants from the erstwhile House of Representatives ("HOR"), House of Delegates ("HOD") and House of Assembly ("HOA") (who were then paid by the South African Post 0ffice), and the so-called "D point beneficiaries (persons who received their grants at homes for the aged and other institutions).


2. 3D ID would for the period 1 January 1995 to 30 June 1996 have paid only the "CPA beneficiaries" (who numbered between 30 000 and 40 000 in 1995 and 1996) and the D point beneficiaries (approximately 6 000 to 8 500 in number).


[193] As already indicated, the fourth defendant pleaded in some detail what would have transpired (from the point of view of the number of beneficiaries to be paid) had 3D ID been awarded the tender contract. It has been recorded that the plaintiff amended his claim accordingly so that the number of beneficiaries to be paid over the five year period became common cause.


[194] As to the early part of the payment exercise, the fourth defendant sketched the following scenario in his pleadings:

1. The beneficiaries who would have been paid in terms of the tender award would have been the approximately 35 000 "CPA beneficiaries" who originally formed part of the tender, as well as the recipients of social security grants from the erstwhile House of Representatives ("HOR"), House of Delegates ("HOD") and House of Assembly ("HOA") (who were then paid by the South African Post 0ffice), and the so-called "D point beneficiaries (persons who received their grants at homes for the aged and other institutions).


2. 3D ID would for the period 1 January 1995 to 30 June 1996 have paid only the "CPA beneficiaries" (who numbered between 30 000 and 40 000 in 1995 and 1996) and the D point beneficiaries (approximately 6 000 to 8 500 in number).


3. During the first eighteen months that 3D ID performed its tender contract, the HOR, HOD and HOA beneficiaries (who varied between approximately 216 000 and 226 000 for that period) would have continued to be paid by the Post 0ffice, which would have been paid a service fee by 3D ID for performing those payments on its behalf.


4. With effect from 1 July 1996, 3D ID would have had to take over all the pay-out functions in the Western Cape – and thus now have been responsible for paying the HOR, HOD and HOA beneficiaries, as well as the CPA beneficiaries and the D point beneficiaries.


5. Therefore, where the number of beneficiaries actually paid by 3D ID would have been approximately 50 000 in June 1996 (CPA beneficiaries and D point beneficiaries at that time) 3D ID would have been expected to pay just over 273 000 beneficiaries itself in July 1996.


[195] Terblanche, in his evidence, confirmed that this would have been the model applicable. De Jongh and Phillips, the two experts called by the fourth defendant who gave evidence as to what 3D ID would in their view have needed to perform the pay-out service, also worked on the basis of that scenario, which they had been instructed to accept.


Referring back, for the moment, to the "implementation argument" which has already been disposed of, it is interesting to note that Phillips was instructed that 3D ID would have "rendered security services in respect of 40 000 beneficiaries between the period 1 December 1994 to 30 June 1996 and thereafter to all beneficiaries in the Western Cape as and from 1 July 1996 to 30 November 1999". This is another example of the point made, when dealing with the "implementation argument", that the acknowledgement by the fourth defendant that 3D ID would have performed the contract over the whole five year term, is, by itself, not in harmony with the "implementation argument".


De Jongh was instructed along the same lines.


[196] Consequently, according to the fourth defendant, 3D ID would only have needed enough equipment, vehicles and personnel to pay approximately 40 000 to 50 000 beneficiaries for the first eighteen months of the contract (until July 1996) despite receiving payment income for the payment of between roughly 250 000 and 275 000 beneficiaries during that period. 3D ID's only cost for the non-CPA and D point beneficiaries (in other words, the beneficiaries paid by the Post 0ffice) during that period would have been a service fee payable to the Post 0ffice. Terblanche, correctly, stated in his evidence that the fee was R6.25 plus VAT.

[197] 0n the version of the fourth defendant, the party with the most immediate knowledge of the relevant events, the expenses of 3D ID in respect of approximately 220 000 Post 0ffice beneficiaries would have effectively been R6.25 (plus VAT) per beneficiary from 1 January 1995 to 30 June 1996.


Those "service fee" expenses are considerably lower than the R17.40 plus VAT which 3D ID would have been paid by the CPA for each of those 220 000 odd beneficiaries during 1995, and the R18.69 (excluding VAT) per beneficiary which 3D ID would have received from the CPA during 1996. Indeed, the difference between 3D ID's income and expenses for the Post 0ffice beneficiaries would have been R11.15 per beneficiary payment in 1995, and (using an inflation-adjusted figure assumed by Crawford) R12.01 per Post 0ffice beneficiary payment throughout the first half of 1996.


[198] As a result, even if one leaves out of account any profit on the remaining approximately 40 000 beneficiaries who 3D ID had to pay itself during those eighteen months, and even if one also ignores interest on the cash float or interest on surplus cash which had been re invested, 3D ID's income would have exceeded its expenses by a considerable margin each month.


In all, 3D ID would have made a profit of approximately R29.6 million during the twelve months of 1995 and approximately R16 million during the first six months of 1996, simply from the fees received for the Post 0ffice beneficiaries.


[199] Despite this, the plaintiff adopted a conservative approach and throughout calculated 3D ID's expenses on the basis that 3D ID itself would have made all the payments. In other words, the plaintiff worked out 3D ID's expenses on the basis that 3D ID would have incurred the costs associated with making all the payments, rather than outsourcing approximately 85% of them to the Post 0ffice for a fixed service fee.

[200] According to an exercise to be found in the heads of argument of counsel for the plaintiff, the plaintiff has thus, on the basis of evidence of the fourth defendant's experts, De Jongh and Phillips, unnecessarily burdened 3D ID for the first eighteen months of the contract with inter alia:

1. an additional eighteen armed cash transporters;

2. an additional twenty five people transporters;

3. an additional forty one cash dispensers, equipped with personal computers, fingerprint readers and printers;

4. an additional two hundred and fifty cash canisters;

5. new area offices at Vredendal and Beaufort-West, as well as a new peninsula area office (in addition to the Cape Town head office which could have doubled as an area office when the beneficiary numbers were between 40 000 and 50 000);

6. cash centres in the new area offices (with secure facilities for packing and storing cash) including radio control rooms, vehicle loading base, box rooms, portable volts, counting houses, ablution facilities, administrative offices, suitable perimeter walls and gates and a CC TV monitoring system;

7. an additional twenty five pay-point supervisors;

8. an additional thirty seven paymasters;

9. further drivers for the forty three additional vehicles, as well as a further three shuttle guards for each additional "shuttle armoured vehicle";

10. approximately hundred more pay-point security guards.

(There are more items, which I do not deem necessary to list in this judgment.)

[201] 3D ID's expenses are therefore already inflated for the first eighteen months of the contract. More particularly, the plaintiff has laden 3D ID with staff, assets and infrastructure capable of paying about 85% more beneficiaries than the fourth defendant indicated 3D ID would have had to pay.


[202] By inflating his expenses in this way, the plaintiff has to a large extent neutralised the contentions on behalf of the defendants that the plaintiff's expenses have been grossly understated.


[203] It is now convenient to turn to the various line items in "PR1" dealing with costs, or operating expenses. They are the following:

1. personnel costs (line 5 of "PR1");

2. direct costs (line 6 of "PR1");

3. indirect costs (line 7 of "PR1");

4. initial enrolment costs (line 8 of "PR1");

5. rental cost (line 9 of "PR1").


Personnel costs (line 5 of "PR1")

[204] The respective calculations offered by the three parties for the five year period are as follows:

plaintiff R91 882 000,00

second defendant R141 255 476,00

fourth defendant R96 870 164,00.


[205] The plaintiff stated in the commentary on line 5 that the number of planned personnel reflected in the 1995 budget was more than adequate to pay the largest number of pensioners who would have had to be paid each month (and that in the circumstances the number of personnel was not increased from year to year). 3D ID's staff compliment was therefore, in the plaintiff's view, larger than was necessary to perform all the functions in the first few years of the tender contract.


It is, in my view, important to note that this was confirmed by Allpay's pay-team numbers.


[206] As a precautionary measure, the plaintiff also made provision for an extra staff allowance of R100 000,00 per month (or R1.2 million per year) – approximately 1/12th of the total personnel budget. That amount increased every year in accordance with inflation.


[207] The plaintiff therefore attempted to be generous with his estimation of personnel costs. That is borne out by a comparison with Allpay's April 2008 staff compliment. According to Allpay, it had fifteen permanent staff, hundred and sixty four temporary employees and six IT consultants, in order to pay about five hundred and nineteen thousand beneficiaries in 2008 - a total of hundred and eighty five persons. By contrast, "PR1" reflects two hundred and ninety one employees for 3D ID in 1995 (even without taking account of the R1.2 million extra allowance) for the payment of an estimated two hundred and fifty thousand beneficiaries.

[208] The difference between the calculations of the plaintiff and Crawford (fourth defendant) respectively, is relatively small. It is only approximately 5.4% of the plaintiff's projected personnel costs or about R5 million.


[209] 0n the other hand, the difference between the plaintiff and the second defendant (Armitage) is considerably more, namely about R50 million over the five years.


Counsel for the plaintiff, correctly in my view, point out that one only has to look at the tender prices of the other tenderers in 1994 to realise that the personnel costs of Armitage – a man who has never run a successful business – are simply hopelessly skewed. That exercise reveals that the personnel costs alone (the Armitage version), let alone other costs, would have caused Fidelity Guards and CPS to make a loss.


[210] As a general proposition, counsel for the plaintiff point out that a fundamental problem with the approach of Crawford and Armitage is that they have essentially taken the personnel and salaries indicated in line 5 of "PR1" and then added to them without performing an analysis or getting an expert in that business to undertake an examination. Plaintiff's counsel mention a number of compelling examples in this regard, which I find unnecessary to repeat.


[211] It also appears that there was little or no unanimity between Armitage and Crawford on the question of what personnel were required. In some instances, they also added personnel in spite of the fact that the fourth defendant's pension payment experts, De Jongh and Phillips, have not referred to those persons being needed, and where the actual records of Allpay reveal that there is no comparable post in Allpay.


[212] Another significant error made by Crawford and Armitage was to take the amounts reflected in the commentary to line 5 of "PR1" next to personnel descriptions as merely indicating base salaries to which supposedly still had to be added a provision for pension and insurance, as well as a skills development levy, RSC services levy, unemployment insurance and leave pay. They overlooked the fact that the amounts indicated by the plaintiff as "expenses" in the relevant column of line 5 were intended to (and did) reflect the "total cost to company".


[213] Finally, none of Crawford's or Armitage's criticisms of the plaintiff's personnel structure was ever put to either Fuchs or Rabie.


[214] In these circumstances, and not least because the plaintiff, as a precautionary measure, added an extra R1.2 million per annum and over-inflated the personnel costs for the first eighteen months, I see no reason to interfere with the plaintiff's calculation.


Direct costs (line 6 of "PR1")

[215] The calculations offered by the respective parties for the five year period are as follows:

plaintiff R22 292 000,00

second defendant R28 232 266,00

fourth defendant R19 616 233,00.


[216] It is apparent from these comparisons, that the plaintiff's estimate is in the middle of the three (some R2.7 million more than the fourth defendant's over five years and some R5.9 million less than the second defendant's over the same period).


[217] Direct costs are items such as vehicle running costs, maintenance, insurance, petrol, licence fees, modem lines, telephones and Alarm Monitoring.


[218] The biggest discrepancy is again that between the plaintiff and Armitage.


[219] Armitage states that he "has been instructed to accept 3D ID's direct and indirect costs, save for the IT-related costs as estimated by Ms Trivella". Subsequently, as already mentioned, he was obliged to delete all references to IT-related costs, when it became apparent that Trivella's evidence was unsustainable.


True to his foolhardy approach, to which I have already referred, Armitage nevertheless retained a sizeable monthly allowance for unanticipated extra costs, resulting in his final amount being some 30% more than the plaintiff's.


This, somewhat nebulous, extra allowance is particularly unjustifiable if one considers that the plaintiff's 1995 budget already "allows for extra costs of R15 228,00 per month or R182 736,00 per year for unforeseen cost items", and that extra allowance was increased in accordance with CPI every year.


[220] Armitage's allowance increases the total budget amount for direct costs by about 30%, and results in the extra allowance for unforeseen contingencies making up about 28% of the total amount. This allowance is totally out of proportion, particularly if one considers that the allowance was for nothing specific, merely unknown contingencies, and that Armitage did not see any need to add an amount for unforeseen events under "indirect costs", to which I will refer later.


[221] In these circumstances, and given the fact that Crawford offers an amount which is actually less than that of the plaintiff, I see no reason to interfere with the plaintiff's figures.


Indirect costs (line 7 of "PR1")

[222] The calculations offered by the respective parties are the following for the five year period:

plaintiff R26 680 000,00

second defendant R26 680 000,00

fourth defendant R29 881 368,00.


[223] Indirect costs are items such as office rental, cash insurance, auditors remuneration, life insurance, building insurance, RSC levies, travelling, bank charges and extra budget items.


[224] It is apparent that Armitage actually agrees with the plaintiff's figure.


[225] The only dissenting voice is therefore Crawford's whose estimate is about R3.2 million more than the plaintiff's over the five years.


There are no indications that Crawford adjusted his calculations based on any input from someone with a personal knowledge of the service which 3D ID would have performed, such as Phillips, De Jongh or even Terblanche.


[226] Counsel for the plaintiff also list a number of mistakes made by Crawford. For example, he duplicated his allowance for RSC levies and, in 1994, provided for six months of travelling and bank charges instead of one month. He also, mistakenly, took the plaintiff's budgeted monthly expenses for 1995 and inserted them into his 1994 column without de-escalating the amounts to take inflation into account.


[227] For these reasons, and particularly bearing in mind that two of the three parties are in agreement, I see no basis for interfering with the plaintiff's figure.


Initial enrolment costs (line 8 of "PR1")

[228] The calculations (for the six month period) offered by the three parties are the following:

the plaintiff R2 184 000,00

the second defendant R2 184 000,00

the fourth defendant R11 360 029,00.


[229] Again, Crawford is the lone dissenter.


[230] The main reason for the approximately R9 million difference between Crawford and the rest is his assumption that it would have been necessary for 3D ID to have issued each beneficiary with a pension card containing the beneficiary's personal data and fingerprints.

[231] Counsel for the plaintiff point out that there are two fundamental problems with Crawford's assumption:

1. 3D ID did not mention smart cards in its tender. It was therefore under no obligation to provide such cards when performing the service. It is also not open to the fourth defendant now to seek to contend that 3D ID's tender would not have been adequate without a smart card: no such argument was raised during the merits trial, and HARTZENBERG, J and the SCA have in any event already held in relation to the merits phase that 3D ID's tender proposal constituted a workable solution.


2. Secondly, as Bouwer stated during his evidence, smart cards were not around in 1994. Bouwer was not contradicted on this score.


[232] It appears that Crawford may have been influenced by the fact that Allpay made provision for such cards in its 1999 tender. The fact is that Allpay, which did not have 3D ID's unique technological solution, decided to use a smart card, referred to that specifically in its tender, and factored the costs into its costs when tendering. What the Allpay experience shows is that, had a smart card been required, the associated costs would have simply been added to the tendered price, leaving the profit margin unaffected.


[233] For these reasons there is no justification for interfering with the "majority vote" of the plaintiff and Armitage.


Rental cost/capital expenditure (line 9 of "PR1")

[234] The calculations offered by the respective parties for the five year period are the following:

plaintiff R41 691 535,00

second defendant R41 691 535,00

fourth defendant R40 105 514,00.


[235] 3D ID has budgeted for capital expenditure costs of R28 583 784,00, and concomitantly annual rental charges to the owner of those assets (Fuchs, through the Saturn Trust) of R8 338 307,00. The annual rental charge was computed by Fuchs to cover both the capital and finance charges.


The amount mentioned by both the plaintiff and the second defendant, represents the sum total of the five annual instalments.

[236] Where the plaintiff and the second defendant are in agreement, and the figure mentioned by Crawford is even less, I see no reason to dwell any further on this particular subject.


[237] This takes care of all the line items of "PR1".


[238] The picture emerging from "PR1" (I checked the totals by adding up the income and expenses for the five years) is the following:

income over five years R438 279 000,00

less expenses over the five years R184 728 000,00

total profit before corporate tax R253 551 000,00

[The exact amount claimed in damages (which in this case, represents the lost profits) is R253 550 554,00.]


For the reasons I have mentioned, I consider this to be a fair assessment of the plaintiff's damages. I am fortified in this conclusion by considering the comparison drawn with the Allpay figures, brief reference to which will be made later. In addition, the figure also has to be adjusted downwards by applying a percentage deduction to take account of general contingencies.


[239] Next up for consideration, is a number of topics raised by the defendants in their quest to reduce the plaintiff's claim. They are the following:

the Post 0ffice service fee

shortages and losses

net interest paid on cash security

closure costs

income tax.


The Post 0ffice service fee

[240] Both the second and the fourth defendants suggest that an amount of R27 163 346,00 (for 1995 and 1996) should be added to the plaintiff's costs. The plaintiff disagrees. This issue has already been dealt with under the "noteworthy exercise in mitigation", supra.


[241] As the counsel on behalf of the plaintiff concede, it is, strictly speaking, correct, in the light of the fourth defendant's pleadings, to make allowance for payment of a service fee to the Post 0ffice. Details have already been mentioned, supra, but, if one does so, one must also make corresponding adjustments to the other expenses lines, and more particularly take cognisance of the fact that approximately 220 000 beneficiaries would not be paid directly by 3D ID until at least eighteen months into its tender contract, although the "PR1" calculations are based on the premise that this would have happened.


[242] The plaintiff chose to estimate its costs conservatively and to assume a scenario in which 3D ID paid all beneficiaries itself. It therefore did not factor in the payment of a service fee to the Post 0ffice from 1 January 1995 to 30 June 1996.


Plaintiff's counsel pointed out in their heads of argument that they would, in principle, have no objection to a proper evaluation of costs being made using the Post 0ffice payment model pleaded by the fourth defendant, and a Post 0ffice service fee being included in that context. Indeed, as pointed out, supra, in the "mitigation exercise" discussion, 3D ID would undoubtedly have made vast profits for the first eighteen months of its contract on such a hypothesis. The profits mentioned come to some R46 million (R29.6 million plus R16 million).


[243] If one opts for the more conservative model in which it is assumed that 3D ID performed the entire pension payment service itself, allowance for a Post 0ffice service fee would be double-counting.


[244] In my view, the plaintiff's conservative model is the more appropriate and just route to follow.


Shortages and losses

[245] Both the second and the fourth defendants suggest that an amount of R4 100 000,00 should be added to the plaintiff's costs over the five year period, to cater for this subject.


[246] Crawford stated in one of his schedules that:

"Shortages and losses have been estimated as R100 000,00 in 1995, R250 000,00 in 1996, due to the Post 0ffice contract, and R750 000,00 per annum thereafter. Allpay lost an average of R800 000,00 per annum with the discipline of being a bank subsidiary. 3D ID have been assumed to be inexperienced, and we have provided R1 million per annum."

The calculation therefore reflects "shortages and losses" of R100 000,00 in 1995 and R1 million for the remaining four years.


[247] The conclusion that an amount of R1 million per annum would have been more appropriate in the light of 3D ID's alleged inexperience, is also ill-founded because of the findings in the merits trial that 3D ID could have "bought in" security expertise, supra.


[248] Armitage copied Crawford's approach virtually verbatim.


[249] Counsel for the plaintiff pointed out that Allpay's losses are moreover not an accurate guide given that they started with about 320 000 beneficiaries, considerably more than 3D ID would have paid for the whole of the five year period.


[250] In any event, the defendants' experts appeared to overlook the fact that the plaintiff made provision for insurance for losses (through heists, theft, etc) under "indirect costs". He also budgeted for an extra amount of just over R4,5 million in 1995 to cater for any contingencies relating to "indirect costs", with that amount being escalated every year in accordance with inflation.


Consequently, more than adequate allowance was made in "PR1" for any shortages and losses not covered by 3D ID's substantial insurance with Lloyds of London (which provided for insurance for R300 000,00 for any event).


[251] It is also significant that Armitage, as already pointed out, accepted the plaintiff's budget for "indirect costs" as reasonable and accurate. He should accordingly not be allowed to add on elsewhere items catered for under that heading.


[252] In the result, I consider that the defendants' "shortages and losses" expenses are ill-founded and should be disregarded.


Net interest paid on cash security

[253] Under this heading, the second defendant wants R35 500 000,00 to be added to the plaintiff's costs over the five year period, and the fourth defendant contends for a figure of R34 million.


[254] This subject has already been briefly referred to when the evidence of Henry was analysed.


[255] Counsel for the plaintiff point out, correctly in my view, that the tender contract, read with ST36, to which I have referred, does not, contrary to the defendants' assertions, require the successful tenderer to provide a guarantee:

1. The tender itself notably makes no reference to any guarantee being required. In this regard, it is in stark contrast to the replacement (1999) tender, which made it a condition of a bid that a tenderer must prove that it could provide R140 million security for the duration of the contract.


2. ST36 – whose conditions were stated by the tender document to apply to the tender – also did not require security. It merely stated in clause 60.1 that: "Where security is required particulars thereof are indicated in the tender documents …" In other words, as one would expect, ST36 made it incumbent on a tender document to stipulate the extent of any security which a tenderer was obliged to provide.


3. Counsel for the plaintiff also pointed out that to the extent that there may be any doubt as to whether ST36 required security, that doubt is removed by clause 10.7 of ST37 which is headed "security and performance guarantees (paragraph 60 of ST36)" and states inter alia that:

"Although guarantees may be required in certain cases, the matter must be considered in the light of the rights of the state as set out in ST36 before performance guarantees are insisted upon since the cost of providing them will probably be recovered from the state in the form of a higher price."


4. Where the documentation is silent on security, it would also be impossible to determine how much security is supposedly required.


[256] It would also have been procedurally unfair for the CPA/Tender Board to have insisted, after the event, on the successful tenderer providing a guarantee for the money to be provided to the tenderer to pay the beneficiaries. Such guarantee would – as the drafters of ST37 appreciated – have come at a cost (on the defendants' version, a considerable cost). The tenderers would therefore have had to be told expressly in advance both that they had to provide a guarantee and the extent of such guarantee in order that they could factor such costs into their tender prices.


In that event, as in the case of the putative costs of producing a smart card, supra, the consequence upon 3D ID's profits of allowing the cost of a guarantee would be neutral.

[257] It was also submitted on behalf of the plaintiff that the adoption by the defendants of the amount of R140 million which is the amount stipulated in the Allpay tender, is unrealistic because the Allpay tender envisaged a minimum of 320 000 beneficiaries which is well in excess of the number of beneficiaries applicable to the five year tender contract under debate.


[258] The 1994 tender also required that the money provided to the successful tenderer for payment to beneficiaries should be "in a bank account to be specified by the CPA", and that the "CPA will have full control over the account on the terms and conditions to be mutually agreed upon". The CPA would thus only have truly been at risk for the money which would have been withdrawn each day by 3D ID for payment to beneficiaries. If 3D ID had absconded with the money, and not paid the beneficiaries, then that would have come to the attention of the highest authorities in the province within hours.


[259] The difficulties and cost associated with the provision of a guarantee which Henry testified to, were never put to either Fuchs or Rabie.


[260] In any event, even a R140 million guarantee could have been provided by 3D ID at very little cost. Albrecht stated that a leading European bank would have been prepared to provide such a guarantee at between 0,4 and 0,8%, on the strength of the assets of the Shoreline Foundation. That evidence was not challenged or disputed. Henry conceded that if a bank such as Standard Bank had been provided with such a guarantee by a European bank, it would have been prepared to furnish a guarantee to 3D ID at a cost of a few thousand Rand, without any need for matching cash security from 3D ID. As Henry stated, a guarantee from a European bank would have been the equivalent of cash.


[261] In any event, there must be considerable doubt as to whether, even if a guarantee for R140 million was required, a matching cash deposit would truly have been demanded by a South African bank, even without a back-to-back guarantee from a Swiss, Italian or English bank. Louw, for example, rejected the proposition.


[262] It is in any event unnecessary to decide that question, or, for that matter, other arguments advanced on behalf of the defendants, in the light of the unchallenged evidence of Albrecht, and the concession of Henry as to the costs which a South African bank would have charged to provide a back-to-back guarantee.


[263] In the circumstances, the proposal by the defendants for these hypothetical costs to be included, falls to be disregarded.


Closure costs/retrenchments

[264] Under this heading, the second defendant wants an amount of R8 065 601,00 to be added to the plaintiff's costs and the fourth defendant contends for an amount of R6 267 611,00.


[265] Armitage and Crawford appear to have used 25% of the final year personnel cost as a basis for their calculations.


[266] It was argued on behalf of the plaintiff that it is unfair and unreasonable for the defendants' experts to work with a scenario which assumes a fixed five year contract with limited options for renewal and yet also assumes that 3D ID would in those circumstances have concluded long-term or indefinite contracts with its employees:

1. The logical approach, so it was argued, in such circumstances would be for 3D ID to have entered into fixed term (five year) contracts with its employees – ie employment contracts the duration of which matched that of the tender contract. In those circumstances, no retrenchments would be required at the end of the employment period. Employment would simply have come to an end upon termination of the fixed period.


2. Another option would have been for 3D ID to have outsourced its labour requirements. That model is in fact borne out by what Allpay has done. Allpay's employment figures for April 2008 shows that, despite paying over 320 000 beneficiaries (far more than 3D ID would have done between 1995 and 1999), Allpay only has fifteen permanent staff members (and hundred and seventy consultants or contract workers).


[267] The calculations of Crawford and Armitage are also unreliable because neither professed to have any knowledge of labour law, let alone the applicable labour law provisions in 1999. Neither had consulted a labour law expert for advice on retrenchments. Their provision for a three month salary as severance pay was therefore simply an uninformed guess.


[268] It is also notable, as pointed out on behalf of the plaintiff, that neither Armitage nor Crawford made provision for the sale of assets by 3D ID in the event of its closing down at the end of the tender contract. Those assets would, by any estimate, have been considerable: consisting of vehicles, fixed property (with safes and volts), computers and printers, fingerprint readers, office equipment, etc. The sale of those assets could well have reduced considerably, or even exceeded, any retrenchment costs which might theoretically have been payable.


[269] In the circumstances I consider it appropriate not to make additional provision for closure/retrenchment costs as an addition to the plaintiff's costs or operating expenses.


Any uncertainty which may flow from this debate, ought to be taken care of by means of the percentage contingency deduction I propose making.


Income tax

[270] The plaintiff's calculations assume a pre-tax profit (ie that the plaintiff would have to pay tax on any amount awarded).


[271] 0n behalf of the plaintiff it was emphasised that it is not in dispute that tax would have been payable by 3D ID, and would on the plaintiff's model be payable by him.


Knowing the Receiver of Revenue, I have little doubt that he will, in the fullness of time, demand his pound of flesh, if only on the strength of this concession.


[272] 0n behalf of the second defendant, it was recognised that the plaintiff contends that it should be awarded its full pre-tax loss because it will still have to pay income tax on the damages awarded to it.


[273] Counsel for the second defendant did not agree with this approach. They submitted that the damages awarded to the plaintiff are compensation for the value of the contract that should have been awarded to it. The value of the contract is determined inter alia with reference to the profits the plaintiff would have earned from it. However, so it was argued, the profits are taken into account only to value the contract the plaintiff lost. The contract would have been part of the plaintiff's income-earning structure. It would have been the substratum of the plaintiff's entire business. It would have been a capital asset in the plaintiff's hand. The compensation for the loss of that asset, is designed to fill the hole left by the loss of a capital asset. It would thus also be of a capital nature and not subject to income tax.


[274] The fourth defendant's counsel associated themselves with the argument submitted on behalf of the second defendant.


[275] Counsel for the second defendant handed up extracts from some Income Tax Cases for my consideration. I shall deal with them briefly.


Income Tax Case no 1259 (April 1976 Transvaal Special Court) involved the cancellation of a management agreement. The appellant received all remuneration due under the said agreement up to a certain date and remuneration, at the rate prescribed by the agreement, on all rentals collected on behalf of a company. In consideration of the aforesaid cancellation, an amount of R30 000,00 was paid to the appellant. 0n behalf of the respondent it was contended that the management agreement was one of the normal incidents of carrying on the appellant's business and formed part and parcel of its normal business activities. It was held that in the present case the amount paid was intended to compensate the appellant for the loss of a substantial permanent part of the appellant's income producing structure, so that the receipt was of a capital nature.


[276] In Income Tax Case 1341 (Transvaal Special Court 1980) the taxpayer conducted a share-transfer business. Certain companies were contractually bound, for varying periods, to utilise the taxpayer's services. The companies were then withdrawn against payment of agreed compensation to the taxpayer. It was found that the withdrawal impaired the taxpayer's income earning structure by 20%. The compensation was held to be capital accrual.


[277] In Bean v Doncaster 1942(2) All ER 282 a coalmine had a statutory obligation to remedy damage to the district drainage system resulting from subsidence. Contribution to the scheme released the mine owner from the statutory obligation. The contribution was payable in instalments. It was held that the contribution to the scheme secured an enduring advantage for the respondents' business and should be regarded as a capital expenditure for the purpose of income tax.


[278] In Income Tax Case 1557 (Transvaal Special Court August to September 1992) the taxpayer received compensation from the Department of Transport as a result of the introduction of a railway service in competition with certain of the taxpayer's bus routes resulting in closure of the taxpayer's bus route. It was held that the compensation received by the taxpayer was to fill a hole in its capital assets and was of a capital nature and fell outside the definition of "gross income" in terms of section 1 of the Income Tax Act 58 of 1962.


[279] In Income Tax Case 1725 (Cape Tax Court May 2000) the taxpayer, a dairy farmer, had received a lump sum payment being compensation for damages suffered by him for major harm caused to his farming operation as a result of defective feeds supplied to him. It was held that the proper approach to adopt was to apportion the compensation in the manner that two-third should be attributable to the loss of genetics and goodwill and one-third to loss of profits, ie R500 000,00 of the R1,5 million damages fell within the definition of "gross income" and was to be treated as of a revenue nature.


[280] Against this background, I find the argument presented by Mr Loxton on behalf of the plaintiff attractive. He pointed out that what the plaintiff pleaded, was a case based on loss of profits and the award will be in the nature of loss of profits (which equals the damages in this case). Consequently the award will be taxable.


[281] Mr Loxton also reminded me of the fact that in the Sechaba case, supra, no allowance was made for a tax deduction.


[282] The pleadings submitted on behalf of the defendants are not helpful, if I were to embark on an exercise of calculating income tax payable on the award which I am contemplating.


The fourth defendant offers a profit and loss calculation as at 8 November 2007. The calculation results in a loss for 3D ID. Although provision is made for "net profit before tax" and "net profit after tax" the amounts remain the same because of the loss calculated.


According to the Armitage calculation on behalf of the second defendant (pleadings volume 3 p620) the SA corporate tax rate for the entire period was 35%. The Armitage calculations only reflect a profit in year one, of R3 484 897,00. The taxation, according to Armitage, would amount to R1 219 183,00.


[283] In argument before me, details of how a tax calculation ought to be conducted in the present case, were not ventilated or canvassed. It is true that "PR1" contains figures representing profit after corporate tax, but, as I explained, these figures were not relied upon by the plaintiff.


[284] In Whitfield v Phillips and Another 1957 3 SA 318 (AD) a farm was bought for the purpose of planting pineapples on a large scale. The purchaser had taken occupation and purchased plants. The seller repudiated the agreement. It was held that the purchaser was entitled to be compensated for the loss of the first year's crop. The Appellate Division declined to decide whether the award was of a capital nature or income that would be taxable. At 345F the following is said:

"In dealing with the question whether the award is for income tax purposes to be regarded as a capital accrual or as income, the very first difficulty which would be encountered would be that by Act of Parliament, the determination of the merits of that question, as distinct from a question of law, has been entrusted entirely to the Commissioner for Inland Revenue and, on appeal from his decision, to the Special Court for hearing income tax appeals. Another Court cannot usurp that function. No other Court can interfere with the decision of the Commissioner, except on appeal from the Special Court, nor will any Court interfere with the decision of the Special Court except where, on the facts, no reasonable person could have arrived at the finding of the Special Court."


[285] In Sigournay v Gillbanks 1960 2 SA 552 (AD) there was an award for damages flowing from personal injuries sustained. The question of income tax on the plaintiff's loss of earnings came up for consideration. At 568H the following is said:

"It seems to me to be highly undesirable that this Court, after what was not a full argument upon the difficult questions involved, should decide whether what was said in Whitfield v Phillips was part of the ratio decidendi, whether, if it was, it could be distinguished, and whether on either view, it should be adhered to or departed from. In this case the material for making any adjustment on account of income tax is very slender and if such an adjustment were made it might well be widely wrong. In the circumstances it seems to me that this Court should not take the tax factor into account in deciding this appeal."


[286] In all the circumstances, I have come to the conclusion that the prudent approach would be not to make allowance for an income tax deduction.


A comparison with Allpay

[287] I have already indicated that I consider the five year claim, as formulated by the plaintiff, to be reasonable. I have attempted to motivate that conclusion.


[288] In my opinion, the reasonableness of the plaintiff's claim is fortified by the results of a comparison with the actual Allpay figures. The comparison is conveniently, and comprehensively, described in the heads of argument submitted by counsel for the plaintiff.


[289] There can be no doubt that Allpay is a highly relevant source of comparison.


When Allpay refused to comply with a subpoena, the plaintiff applied to enforce the subpoena. This Court upheld the application and directed Allpay to produce the relevant documents, which were then relied on extensively to test the reasonableness of the plaintiff's calculations. I have mentioned that the financial statements of Allpay were analysed for comparative purposes.


[290] The fourth defendant also relied heavily on Allpay. Three of its six witnesses were employees of Allpay: I have already referred to Dr Dry, who was for a long time director of the Allpay holding company, as well as the Western Cape subsidiary. Mr Andre Herbst was a financial director of the Allpay group and the involvement of Mr De Jongh has already been dealt with. Crawford, the fourth defendant's expert accountant, also produced a schedule using Crawford's income model and Allpay's expenses.


[291] Armitage, after providing various spurious reasons during cross-examination for why he had left Allpay out of account, ultimately produced a table showing the operating margins of Allpay. This he calculated as being 32.4% for the years 2001 to 2006. Plaintiff's counsel pointed out, quite properly, that the figure was too high and that the correct figure was 28% as calculated by Fuchs.


[292] A comparison with Allpay moreover bears out the plaintiff's calculations and projections, as Louw stated in his evidence:

1. A table produced by Rabie, substituting 3D ID's projected costs with Allpay's costs (derived from their financial statements), adjusted for inflation indicated that 3D ID would, on the basis of Allpay's expenses, have made a five year pre-tax profit of R322 165 662,00, and a seven year pre-tax profit of R492 622 263,00. Those amounts are significantly more than the pre-tax profits claimed by the plaintiff, namely some R253 million for five years and some R380 million for seven years.


2. Crawford's Allpay table, essentially involving his own income line and subtracting from that Allpay's inflation adjusted costs, yields a net profit for Allpay of some R110 million over five years. If the 7.5% deduction from beneficiary numbers is not made and the price not reduced by 15% the profit grows to some R142.6 million and it grows to some R234 million if one adds the interest line items forming part of "PR1", and to which I have referred.


3. I have already illustrated, by referring to the Rabie table, that the costs of Allpay were lower than those projected by 3D ID for itself. As demonstrated, the inflation adjusted costs of Allpay, if set off against the income of 3D ID, yields a five year pre-tax profit of some R322 million compared to the plaintiff's claim of some R253 million.


[293] Allpay's cost per beneficiary from 1995 to 1999 (inflation adjusted and imputed to 3D ID beneficiary numbers) ranges from R7,23 in 1999 to R9,30 in 1995. By contrast, 3D ID's tender VAT-exclusive price per head for paying beneficiaries would have ranged from R17,40 in 1995 to R22,55 in 1999. The massive profit margin is self-evident.


[294] It was also pointed out on behalf of the plaintiff that it would not have been in Allpay's interest to understate its expenses, and thus inflate its profits. The Allpay witnesses indicated that Allpay was desirous of having its tender contract extended, and of winning further tenders.


[295] A comparison with the Allpay operating margin also supports the case of the plaintiff:

1. I pointed out that according to the Fuchs calculation the Allpay average operating margin was 28%. That of Net 1 UEPS (formerly CPS) from 2000 to 2007 was 34%.


2. The Allpay average operating margin is some 61.7% of the 3D ID projected operating margin. Part of the differential is attributable to the fact that Allpay's first year did not involve any payment of beneficiaries, and thus no real income, and yet still required a payment to Absa. By contrast, 3D ID would have received income from its first year.


Most of the difference is, however, accounted for by the comparatively high tender price of 3D ID. If one were to raise Allpay's price per beneficiary upwards towards the national average, its operating margin would likewise rise significantly, and be comparable with that projected for 3D ID.


[296] This comparison, in my view, provides a useful pointer towards a conclusion that the five year claim of the plaintiff is within reasonable bounds.


A downward percentage reduction to account for general contingencies

[297] The purpose of adjusting for contingencies is to make allowances for uncertainties.


[298] In Southern Insurance Association v Bailey NO 1984 1 SA 98 (AD), a damages action for personal injuries sustained, the learned judge of appeal said the following at 116G H:

"0ne of the elements in exercising that discretion (the fixing of the award) is the making of a discount for 'contingencies' or the 'vicissitudes of life'. These include such matters as the possibility that the plaintiff may in the result have less than a 'normal' expectation of life; and that he may experience periods of unemployment by reason of incapacity due to illness or accident, or to labour unrest or general economic conditions. The amount of any discount may vary, depending on the circumstances of the case … The rate of the discount cannot of course be assessed on any logical basis: the assessment must be largely arbitrary and must depend upon the trial Judge's impression of the case."


[299] According to Koch Damages for Lost Income at p62:

"Deductions used in practice raise from 0% to 60% with 10% to 20% being the most common."

This is borne out by a table (pp334-338 of the book) listing various examples. Most of those examples have a bearing on personal injury cases. The principle, however, remains the same.


[300] As I already mentioned, counsel for the plaintiff, correctly in my view, pointed out that in the present case the Court is not required to look into the future, and thus make assessments about years or decades still to come. The claim relates to a period in the past, in respect of which many relevant factors are known, including the number of beneficiaries who would have been enrolled and paid, the inflation rate, the inter-bank rate, the cost of the necessary equipment and supplies, and the political and social dynamics. In addition, there is the advantage of seeing how the beneficiaries in question were paid from 1994 to 1999 (by Nisec and the Post 0ffice) and how Allpay performed (from 2000 to date).


[301] There are accordingly not many areas of uncertainty, so it is argued on behalf of the plaintiff, for which allowances need to be made by means of contingency deductions.


[302] Moreover, so it is argued on behalf of the plaintiff, the need for a contingency deduction is further watered down by the fact that allowances for contingencies for unforeseen expenses are already built into most of the line items to be found in "PR1". I have illustrated examples of these, but they are worth repeating: under personnel costs, an "extra allowance" of R1.2 million was made for the first year "to provide a safety margin for unforeseen costs" and a similar amount (escalated by inflation) has been provided in subsequent years. Extra allowances were also made under "direct costs" and "indirect costs" as well as under "fixed assets".


[303] I was also reminded of the fact that a comparison with other companies which have won provincial tenders for welfare payments over the past fifteen or so years indicates that those companies have flourished significantly.


[304] Counsel for the plaintiff submitted that it would not be appropriate to deduct more than 5% as a contingency when assessing the profits which would have been earned during the initial five year term of the contract. Counsel mentioned to me that the same percentage deduction was made by the trial Court in the Sechaba case, supra.


The reported judgment flowing from the appeal [reported at 2005 1 SA 299 (SCA)] does not deal with the question of contingencies. It mainly dealt with the question whether a prospective loss of profits suffered by the respondent was compensable in law as delictual damages. In that case the ultimate respondent was also fraudulently deprived of a tender. The respondent sought the net profit it alleged it would have been able to make in the three years following the purchase of the Transnet production house, had it been granted the tender.


I have not seen the unreported judgment of the trial judge, neither have I been given details to enable me to draw some sort of a comparison between the two cases. Each case must be judged on its own facts.


[305] The respondents, on the other hand, contended for a contingency deduction of at least 60%.


[306] The main thrust of their argument was that 3D ID was a start-up company with no experience in operating this type of business. They may well have failed altogether. In the course of this judgment, I have dealt with these arguments.


[307] The defendants relied on the evidence of the likes of Henry and Armitage, both of whom sketched the most pessimistic picture when it came to the likely performance, or lack thereof, of 3D ID, had they been awarded the tender. I have dealt with the evidence of Henry and Armitage. This Court per HARTZENBERG, J, and the SCA, found that 3D ID would probably have coped with the task of executing the tender. The technological superiority with which 3D ID was equipped was always beyond question. Rabie and Pamensky were experienced operators. They conducted trial runs which impressed and satisfied the CPA.


[308] The Allpay comparison embodies a far more optimistic picture and scenario for 3D ID. The same applies to all the other companies which won tenders for the pay-out of beneficiaries. Details have been mentioned.


[309] In support of their argument for a much higher percentage deduction, the defendants relied on the judgment of HARTZENBERG, J in De Lacey and Another v SA Post 0ffice [2008] JOL 21219 (T). In that case the learned judge accepted that the quantum was some R160 million. It appears that the case dealt with a Post 0ffice contract. It is convenient to quote the following extract from the judgment:

"The calculation, however, does not provide for possible contingencies like problems encountered with the equipment, possible legal intervention by competitors or a change of government policy having an effect on the profitability of the project. Moreover the calculation is premised upon a duration for the contract for four years. In practice we know that the SAPO contract developed by iSolve was terminated strictly after three years."


In my view, comparative difficulties of the kind mentioned by the learned judge, are absent in the present matter. The contingency factor allowed by HARTZENBERG, J was 50%.


[310] In the present case, there is much to be said for the submissions on behalf of the plaintiff that most of the areas of uncertainty have been eliminated, so that the percentage deduction for contingencies should be lower rather than higher. The same applies to the fact that contingencies for unforeseen expenses have already been built into the line items of "PR1".


[311] Nevertheless, I am of the view that the following factors militate in favour of some percentage deduction for contingencies:

1. The possibility that there may, after all, have been some negotiations to bring about a price reduction in respect of beneficiaries over 250 000. This is not a significant issue, because the tables show that the 250 000 mark was only fractionally exceeded during the first five years.


2. The possibility, remote as it may be, that the parties may, in the end, have negotiated 3D ID out of the opportunity to earn interest on the moneys received from monthly pension pay-outs.


3. As to the interest on surplus cash re invested, it is possible that not all the surplus cash would have been re invested, but a portion may have been paid out in dividends.


4. There may have been some expense flowing from closure costs, although the arguments on behalf of the plaintiff against such a conclusion, which I have dealt with, are compelling.


5. If the security operation had to be contracted out, there may have been an escalation of costs, although it is impossible to assess any details.


[312] In all the circumstances, I have come to the conclusion that a 15% reduction for contingencies when assessing the profits which would have been earned during the five year term, would be reasonable.


The amount to be awarded

[313] In all the circumstances, I have decided to make the following award:

lost profits (damages) before tax over the five year period R253 550 000,00

less 15% contingency deduction R38 032 500,00

total award R215 517 500,00


Mora interest

[314] The plaintiff claims mora interest at 15,5% per annum on the award, calculated from the date of the summons, namely January 1999, to date of payment.


[315] The damages claimed by the plaintiff relate to an unliquidated debt. Before me, the parties were in agreement that the provisions of section 2A of the Prescribed Rate of Interest Act, Act 55 of 1975, are applicable.


[316] The rate of interest for the purposes of section 1 may from time to time be prescribed by the Minister of Justice. It is common cause that the applicable rate, for purposes of this case, was 15,5% per annum throughout the relevant period.


[317] Section 1(1) prescribes that the aforesaid applicable rate shall apply, unless a Court of law, on the ground of special circumstances relating to that debt, orders otherwise. (Emphasis added.)


[318] Section 2A(2)(a) provides that interest, such as I have described, shall run from the date on which payment of the debt is claimed by the service on a debtor of a demand or summons, whichever date is the earlier.

[319] "Demand" means a written demand setting out the creditor's claim in such a manner as to enable the debtor reasonably to assess the quantum thereof.


[320] The plaintiff does not rely on a "demand" as defined, but claims interest from the date of summons, which, as I have said, was January 1999.


[321] 0n this subject, THRING, J says the following in the MV Sea Joy 1998 1 SA 487 (C) at 507H 508B:

"Summons was served in this matter on 8 September 1992 when the Sea Joy was arrested. However, the summons contains only the bare bones of the quantum of the plaintiff's claim. It would not, in my opinion, be just or equitable to hold the defendant liable to pay interest on a claim whose quantum it could not reasonably be expected to assess. Section 2A(2)(a) of Act 7 of 1997 (my note: this was in fact the Act which inserted section 2A into Act 55 of 1975) fixes the date from which interest is to run as 'the service on the debtor of a demand or summons, whichever date is the earlier'. It is clear that by 'demand' is meant 'a written demand setting out the creditor's claim in such a manner as to enable the debtor reasonably to assess the quantum thereof' (section 4 sv 'demand'). By 'summons' the Legislature must have had in mind a combined summons such as is referred to in Uniform Supreme Court Rule 17(2)(a), where the claim is not for 'a debt or liquidated demand', to which summons must be annexed particulars of claim which comply, inter alia, with Rule 18(10), which, in turn, stipulates that a plaintiff suing for damages shall set them out 'in such manner as will enable the defendant reasonably to assess the quantum thereof'. The plaintiff's damages in this case were so set out in its particulars of claim only on 27 August 1993."


This is, with respect, clearly the correct approach to adopt when deciding whether or not a summons, in a particular case, was crafted "in such a manner as will enable the defendant reasonably to assess the quantum thereof", in order to determine when the mora interest should start running. I did not understand any of the counsel before me to argue otherwise.

[322] It is also important, in my view, to quote the relevant provisions of section 2A(5):

"Notwithstanding the provisions of this Act but subject to any other law or an agreement between the parties, a Court of law … may make such order as appears just in respect of the payment of interest on an unliquidated debt, the rate at which interest shall accrue and the date from which interest shall run."


[323] In my view, the summons was not, in 1999, crafted in such a way "as will enable the defendant reasonably to assess the quantum thereof". Quite the contrary.


[324] In this regard, I find it convenient to quote a very useful summary of the various forms of the summons from the time when it was originally issued in 1999 until it acquired its final form in 0ctober 2007 when "PR1" saw the light. The summary is to be found in the comprehensive heads of argument submitted on behalf of the fourth defendant:

"350. It is submitted that the defendants were able to assess the quantum of the plaintiff's claim only in 0ctober 2007 when he filed PR1, for the reasons advanced below.


351. In the summons sued out in 1999, the plaintiff claimed payment of the sum of R102 572 000,00, calculated as set out in annexure C to the summons. That claim however was for the net present value of future earnings over the five year period. It was based on an assumption that approximately 296 000 beneficiaries would be paid according to the number of pensioners which Nisec would have paid, increased by 10% per annum.


352. In July 2007 the plaintiff again amended his particulars of claim.


352.1 The claim was changed from a claim for the net present value of future earnings to a claim for the cumulative sum of alleged lost profits.


352.2 The plaintiff alleged for the first time that the contract would have been extended by at least one period of two years.


352.3 The plaintiff also for the first time, claimed interest income on daily balance total amounts received from the CPA for pension payments.


352.4 He alleged that the number of beneficiaries which would have been enrolled and paid in terms of the contract would have been no less than the number of beneficiaries actually enrolled and paid by the successful tenderer, Nisec together with an annual increase in the number of recipients of pensions and other welfare grants equivalent to the annual increase actually experienced by Nisec in the first twenty six months of its contract.


352.5 The plaintiff claimed damages in the amount of R352 221 116,00 alternatively R216 879 000,00.


352.6 In the alternative, the plaintiff claimed that the number of beneficiaries would have been at least 160 000, being the minimum number stipulated in 3D ID's tender and that the number of beneficiaries would have increased by an amount of at least 10% per annum. The plaintiff then claimed R263 572 408,00 alternatively R149 096 939,00.


352.7 In the further alternative, the plaintiff claimed that the contract awarded to 3D ID would have included a guarantee of a minimum number of 160 000 beneficiaries and that 3D ID would have been entitled for the duration of the contract to monthly payments calculated on the basis of no less than 160 000 beneficiaries. Consequently, the plaintiff claimed damages in the sum of R177 350 035,00, alternatively R111 201 969,00.


353. The plaintiff now claims payment of the sum of R380 275 651,00 alternatively, R253 550 554,00.


354. It is submitted that the defendants were in a position to reasonably assess the quantum of the plaintiff's claim only when it amended its particulars of claim and relied on PR1.


354.1 The defendants could not assess whether 3D ID would have made a profit without any knowledge of its cost structure. This information became available only when PR1 was provided.


354.2 Prior to 0ctober 2007, the plaintiff advanced no less than three different models according to which it calculated the alleged lost profits. The final model was the one in terms of which 3D ID would have paid out the initial 40 000 beneficiaries with effect from December 1994 and the 216 000 Post 0ffice beneficiaries from July 1996. This model was not foreshadowed in the plaintiff's particulars of claim before 0ctober 2007."

[325] I find these submissions made on behalf of the fourth defendant compelling: it is obvious that, by January 1999, the defendants were not in a position to "reasonably assess the quantum" of the claim. In my view, they were not able to do so until 0ctober 2007 for the reasons mentioned by counsel for the fourth defendant.


The very nature of the quantum trial that followed, bears testimony to the complexity of the quantification exercise.


[326] In my view, plaintiff's counsel conceded (obviously without intending to do so) that final clarification only came with "PR1" when they say the following in their heads of argument:

"What essentially happened in 0ctober 2007 was that the plaintiff amended his claim in order to accept the beneficiary numbers pleaded by the fourth defendant, after initially indicating in his reply to the fourth defendant's request for trial particulars that he was prepared to accept the fourth defendant's figures, and would be amending accordingly. The fourth defendant's careful pleading had rendered it unnecessary for the plaintiff to persist with the various speculative scenarios which had previously been advanced with respect to income."

(Emphasis added.)


The nature of the 0ctober amendment (which plaintiff's counsel, perhaps understandably, described as "formal, and comparatively undramatic") was captured in paragraph 3 of the minutes of the pre-trial meeting of 18 September 2007:

"The plaintiff's representatives advised that, in the light of the fourth defendant's plea, they would prepare a schedule in terms of which they would calculate the damages claimable by the plaintiff in the light of the allegations made in the plea, and in the event that the Court finds that those allegations are correct. The fourth defendant's representatives advised that they would attempt to co operate in so far as the schedule is concerned so as to, if possible, obviate the necessity of a formal amendment – ie to ensure that, without formally being introduced into the pleadings, the schedule could serve to set out the quantum of the damages which the plaintiff claims to have suffered on the basis of the aforesaid eventuality. The fourth defendant undertook to revert in regard to the schedule as soon as possible after same was presented to the fourth defendant."


In my view, the most reasonable inference to be drawn from these developments, is that they served to eliminate previous uncertainties and areas of speculation and to establish the basis on which the plaintiff would present the claim to Court for quantification.


[327] It should also be borne in mind, that as early as in November 1999 (according to a submission in the heads of argument submitted by plaintiff's counsel) a pre trial conference was held between the parties in terms of rule 37 in which it was agreed that the merits of the matter would be determined as a first issue prior to the determination of the quantum of damages. This "interruption" of the quantification exercise would have lasted at least until 9 February 2007, when the Constitutional Court finally dismissed the appeal against the SCA judgment, and thereby finally disposing of the issue of the merits. In my view, it would be inherently unfair, in the context of this particular case, to allow interest to run during this interval spanning some seven years, during which the quantification exercise was suspended by agreement between the parties.


In support of this conclusion, I find comfort in the fact that the exchange of documents and pleadings relating to the quantum trial, only got off the ground, for practical purposes, during 2007. This is what generally happens in practice after the conclusion of a successful merits trial. For example, the plaintiff's additional request for trial particulars directed to the fourth defendant was only filed on 9 0ctober 2007. The fourth defendant filed a request for particulars for trial on the same day. The fourth defendant's reply to the plaintiff's request was only served on 22 0ctober 2007, and the plaintiff's reply to the fourth defendant's request was only filed on 23 0ctober 2007.


The rule 36(9)(a) summary of the expert testimony of the plaintiff's witness Louw, was only filed on 25 0ctober 2007 and the Phillips summary on 31 0ctober 2007. The Louw and McKnight "joint opinions" was filed on 1 November 2007. Some of the expert summaries were only filed in 2008, after the first trial session which ran during November 2007.


In my view, all these developments militate against a conclusion that the defendants were in a position, much earlier, reasonably to assess the quantum.


[328] It should be mentioned, that counsel for the plaintiff, in support of their argument that interest should be allowed to run from an earlier date, made compelling submissions with regard to "considerations of justice and fairness", as they described it.


The submissions are aimed at describing the remarkable journey which the plaintiff and the shareholders/directors of 3D ID had to travel, and the sacrifices they had to make, in order to finally get the necessary relief.


[329] As a general proposition, I am certainly not unsympathetic towards the plaintiff and the other individuals mentioned in this regard. They showed a great deal of courage and determination when pursuing their quest for justice against somewhat overwhelming odds. Nevertheless, I am of the view that their efforts and hardships do not outweigh the other considerations I have mentioned for purposes of deciding when interest should be allowed to run from.


For example, much of the obstacles presented by the CPA and others when 3D ID initially attempted to set aside the Nisec tender and obtain documentation of an incriminating nature, were placed in the way of 3D ID long before summons was issued. In that sense, these events are irrelevant, in my view, for purposes of deciding the date when interest should start running from, which, on the plaintiff's own case, should not be before the date of summons.


[330] Moreover, the plaintiff also complains about the unco operative attitude adopted by the director of the 0ffice for Serious Economic 0ffences ("OSEO") when he was asked to investigate the matter after Rabie had filed a complaint. The erstwhile liquidator of 3D ID had to approach the Court for relief when OSEO refused to allow the liquidator to inspect certain documents. When the liquidator succeeded, OSEO went on appeal. In the first place, OSEO was not before me as a party during this trial and, as a general proposition, I fail to see how I can blame any party for opposing an application or for appealing against an unfavourable result. The same remarks apply with regard to the present defendants who took the judgment of HARTZENBERG, J on appeal, and thereafter took it further to the Constitutional Court.


[331] The defendants finally admitted that fraud had been committed during a rule 37 conference in September 2004. I am not able to decide whether or not the admission came much later than knowledge of the fraud came to the attention of the defendants. I am also not prepared to blame the defendants for introducing, for example, a new defence of prescription which had to be considered and decided by HARTZENBERG, J. 0ther details were mentioned by counsel for the plaintiff, but I do not deem it necessary to deal with all those submissions.


[332] For the reasons I have mentioned, I have come to the conclusion that there are "special circumstances" relating to this particular debt, as intended by the provisions of section 1(1) of Act 55 of 1975, supra, for deciding that interest should not run from the date of summons. For the same reasons, I have come to the conclusion that I should exercise my discretion, vested in me in terms of the provisions of section 2A(5) of the said Act, supra, against a finding that interest should run from date of summons and in favour of making an order that appears to be just in the circumstances, namely that interest should run from 1 November 2007, which is just after the particulars of claim, flowing from "PR1", were amended on 30 0ctober 2007.


The Fuchs subpoena application and the fourth respondent's application in terms of rule 35(7)

[333] Shortly before the trial the fourth respondent served a subpoena duces tecum on Fuchs.


The subpoena was aimed at forcing Fuchs to produce an extremely wide ranging collection of documents. The documents related, inter alia, to the Hans Dieter Fuchs Family Trust and a number of overseas corporations, foundations and banks. It also related to Nedbank in Cape Town, and documents involving 3D ID Systems CC and 3D ID Systems (Pty) Ltd, both in liquidation.

[334] Fuchs, as applicant, then launched an application, approximately one week before the trial, aimed at setting aside the subpoena.


The application came before me at the commencement of the trial.


[335] During the course of the proceedings, the parties reached a settlement which resulted in a draft order, exhibit "E", which I made an order of Court.


[336] The gist of the settlement was that the extremely wide net cast by the subpoena, was narrowed down considerably. Nevertheless, the settlement entailed that Fuchs was ordered to comply, to a limited extent, with the subpoena: he had to produce documents relating to the possible legal as well as financial capacity of two overseas entities to fund the implementation of the tender which would have been awarded to 3D ID in June 1994.


The foundations are the Shoreline Foundation in Liechtenstein and Harold Holdings Ltd BVI, an overseas company. The period covered by these documents was also narrowed down to the years 1993 to 2001.


The documents were supplied, but not many of them were ultimately used in the course of the trial. Those that were used were, in my view, of limited, if any, relevance.


[337] Exhibit "E" provided that the costs of the subpoena application would be reserved for determination at the end of the trial. Both parties urged me to grant costs in their favour. Although Fuchs had a measure of success with his application, in the sense that the net was narrowed down considerably, the fourth respondent was also, to an extent, successful in opposing the application, because exhibit "E" represented some tangible results, flowing from the subpoena.

[338] In all the circumstances, I have come to the conclusion that the most appropriate order would be for each party to pay his own costs flowing from the subpoena application.


[339] The rule 35(7) application was also launched by the fourth defendant. It was aimed at directing the plaintiff to comply with the fourth defendant's notice in terms of rule 35(3) served on 11 0ctober 2007, approximately one month before the trial.


[340] After the rule 35(3) notice was served, a debate ensued between the parties as to whether or not the documents sought for discovery were relevant. Numerous documents referred to in the notice relate to 3D ID Systems CC. They include correspondence, and documents exchanged between 3D ID and its system integrator, 0livetti Africa (Pty) Ltd. The documents also related to the appointment of the supplier, Identicator Corporation of California. There were many other documents. The plaintiff adopted the attitude that the documents were irrelevant for purposes of the quantum trial. The attitude of the plaintiff was also that many of the documents sought already formed part of the plaintiff's original discovery.


[341] In the event, the rule 35(7) was not proceeded with. Both parties urged me to award costs in their favour. The attitude adopted by the fourth defendant, in reply, was that the plaintiff had never before raised the point that he did not have the documents in his possession or under his control. Rather, the plaintiff argued that the documents were not relevant.


Where the application was not argued, I was not able to determine whether any of the documents listed in the rule 35(3) application ought to have been made available. 0n the other hand, there is some merit in the fourth defendant's attitude that the plaintiff could have set the record straight by filing an affidavit in response to the rule 35(3) application, declaring that he did not have the documents in his possession or control. A finger can be pointed in both directions.


[342] In the circumstances, I have come to the conclusion that the appropriate costs order would again be for each party to pay his own.


The post trial bundle

[343] Towards the end of the proceedings I requested counsel for the plaintiff, in open Court, to provide me with a document setting out, at a glance, the computation of the plaintiff's claim, with reference to all the income and expenditure items. I indicated that I wanted to make sure that none of the details get overlooked, because, in a case of this magnitude, a small oversight could result in huge prejudice one way or the other. What I had in mind, although I may not have said it, was something like a one pager serving as a refined version of page one of "PR1". I requested plaintiff's counsel to exhibit the document to all the other parties in case it evoked any point of disagreement.


[344] What I received was something alltogether different: it was a lengthy letter accompanied by various annexures including "PR1 without any changes", permutations for various contingency deductions, explanatory notes, a schedule of various permutations based on Crawford's costings and comparative schedules depicting revised contentions of the parties. Some of the items were high lighted in different colours. The tables and comparisons appear to be highly complicated. Something that I would not be able to master without the benefit of open discussion and debate with counsel.

[345] Not surprisingly, the opening salvo of the plaintiff, as described, unleashed a short but intense paper war. The second and fourth defendants joined in the fray. Within days, I had a bundle of complicated documents running into some eighty two pages. This is not what I had in mind or what I asked for. I had created a monster. I decided to put the monster out to pasture. I avoided her altogether. I did not attempt, for the reasons mentioned, to analyse or study the bundle. In my view, this bundle should not be considered to form part of the record of the case. Any inconvenience caused to the parties as a result of a possible misunderstanding is regretted.


The order

[346] The order that I make is that judgment is granted in favour of the plaintiff against the second and fourth defendants, jointly and severally, as follows:

1. payment of the sum of R215 517 500,00;

2. interest on the aforesaid sum calculated at the rate of 15.5% per annum from 1 November 2007 to date of payment;

3. costs of suit, which will include the following:

3.1 the costs flowing from the employment of two counsel;

3.2 the qualifying fees of the plaintiff's experts, Louw, McKnight and Bouwer;

3.3 the reasonable travelling expenses of the witness Albrecht, who is declared a necessary witness;

4. in respect of the Fuchs subpoena application, and the fourth defendant's rule 35(7) application, it is ordered that each party will pay his own costs.




W R C PRINSLOO

JUDGE OF THE HIGH COURT

11190-1999



HEARD ON: 16-30 NOV 2007, 14-27 MAY 2008 & 28-30 JULY 2008

FOR THE PLAINTIFF: C D A LOXTON SC & P B J FARLAM

INSTRUCTED BY: KORBERS ATTORNEYS

FOR THE 2ND DEFENDANT: W TRENGOVE SC, L HARRIS SC & T MOTAU

INSTRUCTED BY: WEBBER WENTZEL

FOR THE 4TH DEFENDANT: H M SCHOLTZ SC & A SCHIPPERS SC

INSTRUCTED BY: THE STATE ATTORNEY