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IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

Case number:   5409/2019

In the matter between:

COMPASS MEDICAL WASTE SERVICES (PTY) LTD                      Applicant

and

MEC FOR THE DEPARTMENT OF HEALTH

FOR THE PROVINCE OF THE FREE STATE                          1^st Respondent

BUHLE WASTE                                                                       2^nd Respondent

MEC FOR THE DEPARTMENT OF HEALTH

FOR THE PROVINCE OF LIMPOPO                                       3^rd Respondent

CORAM:                      MATHEBULA, J et MOLITSOANE, J

HEARD ON:              15 MARCH 2021

JUDGMENT BY:      THE COURT

DELIVERED ON:        The judgment was handed down electronically by circulation to the parties’ legal representatives by email and released to SAFLII on 29 June 2021. The date and time for hand down is deemed to be 29 June 2021 at 14h00.

Parties

[1]     The applicant, Compass Medical Waste Services (Pty) Ltd brought an application to review and set aside the decision of the first respondent, MEC for the Department of Health: Free State Province to participate in the contract between its counterpart the MEC for the Department of Health: Limpopo Province and the second respondent, Buhle Waste (Pty) Ltd, for the provision of healthcare risk waste management services (HCRW). It is the case for the applicant that the contract concluded between the first and second respondent for the provision of the aforementioned services be declared unlawful and invalid alternatively be set aside. Importantly pending the final outcome of the procurement process, which is a subject of litigation pending under a different case number in this court that the first respondent be ordered to procure services by calling for quotations.

Background facts

[2]      The facts upon which this application is predicated are largely common cause and are briefly as follows. Sometime in 2015 the applicant and another business entity were awarded a contract pursuant to a tender process to deliver services as stated above to the first respondent throughout region 4 and 5. The contract terminated by effluxion of time in 2018 and was extended to 31 July 2019. For the month of August 2019, the first respondent procured the services from suppliers on a quotation basis. It would appear that prior to the expiration of the 2015 contract, the first respondent had already set in motion tender processes for a new contract which could not be concluded because of the pending litigation.

[3]      In an internal memorandum dated 28 August 2019, the Director: Supply Chain Management informed all heads of institutions and offices that the Department of Health: Limpopo Province had granted the first respondent approval to participate in its contract with the second respondent for limited basis on the collection, treatment and disposal of medical waste services. It would appear that the first respondent was acting in terms of Treasury Regulation 16A 6.6. The stated period of such participation was for the period 1 September 2019 to 31 October 2020. This was later extended to 30 April 2022. It is this initial decision to participate in that contract that is at the centre of the dispute between the parties and the concern of this judgement.

[4]     Before proceeding to the merits, the parties have identified few points in limine which should not detain us for long. They can be classified as mootness or staleness of the application, lis pendens, lack of locus standi to bring the application and non-joinder. Counsel for the first respondent confirmed that the point in limine relating to lis pendens is no longer an issue and as such we will express no opinion on it.

[5]      We now turn to consider each point in limine raised by the first and second respondents.

Mootness or staleness of the application

[6]      The factual matrix upon which this point is premised is that ‘a decision’ sought to be reviewed and set aside by the applicant lapsed on 31 August 2020. This is common cause. The submissions from both counsel for the respondents is that the decision has run its course and no longer presents an existing controversy between the parties. They point out that even the record requested to be placed before us was only confined to the decision to participate. The decision to extend, so the argument goes, falls outside the ambit of the application as required by the Uniform Rules of Court. Therefore, the case as presented in oral hearing differs materially with the case made out in the papers.

[7]     On behalf of the applicant it was argued that there is still a live controversy between the parties because the participation in the contract was extended for a further two (2) years until 30 April 2022. Counsel for the applicant pointed out that if we decide that the first respondent cannot use the provisions of regulation 16A6.6, promulgated in terms of the Public Finance Management Act, 1 of 1999 (the PFMA) then the dispute still exists.

[8]      The underlying principle of mootness is geared towards avoiding the court dealing with or concerning itself with matters that no longer present an existing or live controversy or the prejudice or threat of prejudice to the applicant.[1] Practically these are matters that no longer affect the rights of the parties. The test is whether the question is academic and/or has no practical effect. This point can be dispositive of the matter.

[9]     We are not persuaded by the submissions of counsel for the respondents which does not talk to the essence of the dispute. It is against the backdrop of the decision to participate in the Limpopo contract that the first respondent is able to extend the participation for two (2) years and may continue to do so in the future. Should that decision be impugned, there can be no factual or legal basis upon which the current extension or any other in the future may be sustained. This is at the centre of the dispute whether the first respondent used regulation 16A6.6. correctly or not. These two (2) events though separate are inextricably linked to each other. Therefore, we hold the view that there is still a live dispute or controversy and that in the event that the decision is set aside, the practical effect is that the extension will automatically be nullified.

[10]    Even if we are wrong in our dismissal of this point raised by the respondents, we hold the view that the interests of justice demand that we entertain this matter. Undoubtedly, the order we intend to hand down does have a practical effect on the parties. Procurement is an important issue to ensure good governance and eliminates the scourge of maladministration and misuse of the public purse. These are inter alia the factors set out by the Constitutional Court and reaffirmed in a long list of cases in that court.[2] Both respondents cannot succeed on this point.

Lack of locus standi and non-joinder

[11]    Although these points were raised separately, the facts alleged and arguments made overlap. We deem it appropriate that we discuss them together for the purposes of this judgement. The first respondent is pursuing the point relating to locus standi on a two-pronged approach. At the heart of the first respondent’s case is that the deponent to the founding affidavit lacks the necessary authority to launch the proceedings on behalf of the applicant alternatively the joint venture that included a business entity called Due North. The crux of the submission is that the founding affidavit lacks the necessary averments to indicate that the deponent being a natural person had the requisite authority to act on behalf of the juristic person, i.e. the applicant. The point taken is that at the time the proceedings were instituted such authority was lacking only to be cured by a retrospective action when the Uniform Rule 7 notice was delivered. Therefore, the latter action does not remedy the lack of authority on the part of the deponent to the founding affidavit.

[12]    The second leg of the argument is based on the fact that the applicant submitted a tender as a joint venture. The nub of the argument is that the applicant is part of the joint venture and the constituent member whose interests are also at stake is not part of this application. In these proceedings the deponent does not make any averments that he has the necessary authority from the constituent member to launch the proceedings before us. Still on this issue, the very standing of the applicant is on a shaky ground because the rights sought to be asserted are applicable to the joint venture. On these basis, both counsel submitted that we should find that the applicant does not have the requisite standing to act in these proceedings.

[13]    In sharp contrast, counsel for the applicant argued placing reliance on the decision of Eskom v Soweto City Council that the question of authority is whether the attorneys were authorised to act or not and a deponent to an affidavit is merely a witness and does not need any authority to depose to an affidavit.[3] In this matter the authority that can be questioned is that of the attorneys not the deponent. On the ability of the applicant to contest the decision, he argued that the question of authority following the modern approach by our courts is now a fact-based enquiry and must be decided on the basis that the applicant is correct on his litigation. Applying the test as set out, the applicant has the requisite standing and as one of the tenderers has a better standing to challenge the decision.

[14]    Counsel for the first respondent anchored his argument on the decision of this court in K2011148986 South Africa (Pty) Ltd v State Information Technology Agency SOC Ltd and 9 Others (3996/2019) [2020] ZAFSHC 135. On paragraph 21 Chesiwe J said the following: -

           “The Founding Affidavit makes no mention of the company resolution. The deponent sought to amend this defect in the Replying Affidavit by attaching the resolution that simply said: ‘2. All steps previously taken by Mario Engelbrecht on behalf the company is hereby rectified as it may be necessary’ as mentioned in Interboard, a later decision will not serve as a ratification of or give retrospective authority for the launching of the application. Rule 6 of the Uniform Rules of Court provides that the Applicant’s right/authority to apply, that is, the applicant’s locus standi, should be established in the Founding Affidavit and not in the Replying Affidavit.  The deponent to the affidavit need not be authorised by the party concerned to depose thereto, it is the institution of the proceedings thereof that must be authorized. In my view and taking into consideration the above, the applicant cannot rectify the defect in its application retrospectively. The court cannot therefore find that Mario Engelbrecht had the necessary authority to bring the review application in this matter.”

[15]    Both counsel relied and referred to a decision of the Supreme Court of Appeal in Ganes and Another v Telecom Namibia Ltd.[4] The court held that the deponent to an affidavit in motion proceedings need not be authorised by the party concerned to depose to the affidavit. It is the institution of the proceedings and the prosecution thereof that must be authorised. Undoubtedly, Uniform Rule 7 stipulates the procedure to be followed when the authority of an attorney is challenged in the proceedings. The respondents did not avail themselves of this remedy. We were also referred to Giant Concert CC v Rinaldo Investments (Pty) Ltd[5] decision, Cameron J writing for an undivided bench formulated the approach of the court on the question of standing as follows:

           “And in determining Giant’s standing, we must assume that its complaints about the lawfulness of the transaction are correct. This is because in determining a litigant’s standing, a court must, as a matter of logic, assume that the challenge the litigant seeks to bring is justified. As Hoexter explains:

‘The issue of standing is divorced from the substance of the case. It is therefore a question to be decided in limine [at the outset], before the merits are considered.”

[16]    Clearly with this approach the common law grounds have been broadened and this issue must be broadly interpreted particularly where a party seeks to vindicate a constitutional right.  There are adequate reasons to demonstrate that the contested decision directly affects the rights or interests of the applicant. This applicant seeks to do just that. An expanded approach was held to be necessary in constitutional litigation. We hold that the applicant has the necessary standing and the point in limine is dismissed. Turning to the point pertaining to the non-joinder, a member concerned has filed an affidavit that it does not wish to be joined or participate in this litigation. We were not referred to any authority to the effect that a person who does not want to be part of litigation is compelled to be part thereof. The argument on this point lacks merit and cannot succeed.

Condonation for late filing of the answering affidavit by the second respondent

 [17]   Counsel for the second respondent started his submissions by laying the facts which they relied on and reasons they did not file an answering affidavit on time. It appears that the second respondent deemed the matter to be moot given the fact that the contract was coming to an end on 31 August 2020. Importantly, there was no prejudice suffered by the applicant as a result of the late filing of the affidavit. The high-water mark of the submission is that it will be in the interests of justice that a condonation is granted and that all issues are properly ventilated before court.

[18]    Counsel for the applicant submitted that an applicant for condonation must give a full explanation which must cover the entire period of the delay. Therefore, by withholding the explanation the applicant was not demonstrating the required bona fides of the application for condonation.

[19]    Given the facts in this matter, there is no evidence that the applicant was prejudiced by the delay. There was communication between the parties and they understood the legal position from two (2) different angles. When it became apparent that the applicant was proceeding with the matter, the second respondent complied and filed the necessary affidavit. There is one more reason why this condonation should be granted. Given the type of litigation before us with the applicant asserting a constitutional right, it will be apposite that all facts are placed before us in order to do justice to the parties. The second respondent is granted condonation for late filing of the answering affidavit.

[20]   On the issue of costs, the second respondent is seeking an indulgence from the court and such a party must bear the costs.

[21]   We hold that there is no merit in the points in limine raised and that they cannot be upheld. We now turn to the merits of the application.

Issues for determination

[22]     The issues for determination are the following:

a)   The proper limitation of the use of regulation 16A6.6

b)   Whether or not the applicant has made out a case for the review of the first respondent’s decision to participate in the Limpopo contract. 

Applicable legal framework

[23]     Section 217(1) of the Constitution[6] requires all organs of the state to procure goods on a system based on five foundational principles. In order to be compliant, procurement must be fair, equitable, transparent, competitive and cost effective. The procuring authority must advertise and hold competitive bidding processes. The PFMA also enjoins an organ of state to procure and provision for goods and services in a system based on the five values set out above.[7]

[24]    Regulation 16A.6 regulates the procurement processes of goods and services.[8] The application of the regulation must be consistent with the requirements set out in the provisions of section 217 of the Constitution. Regulation 16A.6.6 permits an organ of state to procure goods and services by participating in a contract of another organ of state which was preceded by a competitive bidding process. In order to participate in such a contract, the written approval of both the organ of state and contractor in whose contract participation is sought must be obtained.  These are the conditions that must be complied with before an organ of state can participate in the contract.[9] This regulation provides as follows: -

           “The accounting officer or accounting authority may, on behalf of the Department, constitutional institution or public entity, participate in any contract arranged by means of a competitive bidding process by any other organ of state, subject to the written approval of such organ of state and the relevant contractors.”

[25]    In the decisions of Blue Nightingale Trading 397 (Pty) v Amathole District Municipality[10] and Excellerate Services v Umgeni Water and Others[11] the court emphasized that the constitutionality of the exemption is a facts based enquiry. The contract between the organ of state and contractor must comply with all procurement legislation. This is a special exemption to the procurement processes which must still follow the rules. What stands out is that the second organ of state must become a party to the same contract, meaning the terms and conditions of the second contract must be the same as that of the first contract including the price and duration of the agreement. The purpose of this form of procurement, is to avoid inter alia duplication of costs but not spoil the constitutional imperatives as stated above. It stands to reason that if the terms and conditions are not the same then the constitutional imperatives will not have been met. Such an exemption will be unlawful and set aside. These provisions are not discretionary but talk to compliance requirements as set out in the provisions of the law.

Grounds for review

[26]   The applicant seeks to challenge the impugned decision on which the participation in the Limpopo contract must be reviewed and set aside on the following grounds: (a) the action was materially influenced by an error of law; (b) the action was taken for a reason not authorized by the empowering provision; (c) the action itself contravenes a law or is not authorized by the empowering provision; (d) the first respondent could not rationally conclude that it could lawfully participate in the Limpopo contract as it did not know the terms of the said contract; (e) In view of non-compliance  with what is required by section 217(1) of the Constitution ,the decision was further reviewable on the following grounds;(f) relevant considerations were not taken into account;(g) the action was taken arbitrarily(h) the action is not rationally connected to the information before the administrator.

Submissions by the parties

The applicant

[27]     Counsel for the applicant commenced his submissions by outlining the background facts and stated that the current system does not comply with section 217 of the Constitution because it was not cost effective. This, so the argument goes, raises the limitation of the use of Regulation 16A 6.6 He placed heavy reliance on both the cases mentioned in paragraph ­­­24 above. He pointed out that in this matter the terms and conditions are not the same but what stands out is that, it is not cost effective for the first respondent to participate in the “Limpopo contract” given the vast price difference. It contends further that, in so doing, the first respondent avoided a lawful process of procurement.

[28]   The applicant further contends that regulation 16A.6.6 may only be used when an organ of state truly participates in the contract of another organ of state for the provision of identical goods or services and that it finds no application in relation to the rendering of HCRW services which are peculiar to the Free State. The applicant contends thus that the first respondent will pay more to the second respondent for the provision of the services than what it would have paid to it (the applicant) on a competitive quotation basis. By participating in the Limpopo contract, applicant contends, the Department avoided obtaining competitive bids from other HCRW service providers including the applicant. According to the applicant the Department deprived the public from the benefit of competition, which ‘in turn promotes cost effectiveness, in the public interest’.[12]

The first respondent

[29]   The first respondent contends that except for section 217 of the Constitution, the (PFMA), regulation 16A.6.6 and the National Practise note 8 of 2007/2008 there are no guidelines which may be used when interpreting procurement legislation that deals with emergency or when calling for tenders may be impractical. The first respondent thus submits that its participation in the Limpopo contract was legally permissible and could thus not be assailed. On the issue of competiveness and cost effectiveness as raised by the applicant, the first respondent denies that the prices charged by the applicant could serve as a yardstick to demonstrate that competitive procurement as opposed to participating in the Limpopo contract would be more advantageous.

 The second respondent   

[30]    The second respondent contends that regulation 16A.6.6 provides for a lawful procurement process which the department was entitled to invoke. This process, according to the second respondent was based on a process which was compliant with s 217(1).[13]

Discussion

[31]   The Department of Health: Limpopo Province awarded the HCRW contract to the second respondent for a period of thirty-six (36) months commencing on 1 May 2019 to 30 April 2022. The service level agreement stipulates that it was for collection, removal, transportation, storage, treatment and disposal of health care risk waste. It appears that in awarding the contract an open and competitive tender process was embarked upon. The second respondent was engaged about the participation of the applicant in the contract and duly accepted citing certain exclusions.

[32]    It appears to us that the Department of Health: Limpopo Province granted permission to participate in the contract as it existed with the second respondent.[14] The second respondent had accepted but excluded parts of it.[15] In its internal communication, the applicant specifically mentioned that participation is limited to collection, treatment and disposal of waste. In the light of these circumstances, the question is whether the first respondent acted within the limitations of Regulation 16A.6.6 and the rationale behind the exemptions.

[33]   The attack of the participation in the Limpopo contract is that the requirements of the Limpopo province in respect of the provisioning of the HCRW are not identical to those of the Free State. The applicant set out in a detailed table form the comparison between the current contract (2015 contract) of the first respondent, the current contract of 2019 in which litigation is pending in this court and the Limpopo contract.[16] It is in our view unnecessary to detail the said differences in view of the concession made by the first respondent that the Free State contract is not identical to the Limpopo contract.[17] The first respondent, however, contends that the exclusion of some services from the Limpopo contract does not offend the Treasury regulations and specifically Treasury Regulation16A.6.6.   

[34]   The object of the Treasury regulation 16A.6.6 is to avoid duplication of costly procurement and provisioning where a constitutionally compliant procurement by another organ of state is already in place. If the terms of the agreement are identical, participation will well be in order without much further ado. But in our view, if the terms of the existing agreement in which participation is sought excludes other services, this should call upon the decision maker to decide whether participation in such a constitutionally compliant contract would still meet the constitutional muster in the peculiar circumstances of his case despite the terms not being identical. It is our considered opinion that the procurement in this regard was not of the same goods as evidenced in the internal communique of the first respondent. There can be no talk of the respondents contracting with each other on the same Limpopo contract. It means that new terms and conditions came into existence which will be contrary to the governing provisions of the regulations. The inescapable conclusion is that the first respondent exceeded the limitations thereof.

[35]    If participation in the contract of another organ of state excludes certain services one would expect a concomitant reduction in the costs and not the costs to escalate or remain the same despite other services having being excluded. The organ of state, however, seeking participation in the contract of another organ of state must still base the contract on a system which is fair, equitable, transparent, competitive and cost- effective.  

[36]   In August 2019 the Applicant rendered HCRW services to the Department on a quotation basis and was paid ‘per institution’ for services rendered. It is undisputed that the price for the said service was far lower than the price payable due to the participation in the Limpopo contract. The contention by the first respondent is that the comparison was misleading as the prices were for a Joint Venture in which the applicant was a party. This argument is without merit. It does not address why the prices were lower than the prices of the third respondent. The third respondent, on the other hand, contends that the comparison was based on a single month of August. It may well be so but the glaring price difference is palpable. These prices may not be the same but economic logic dictates that there might have been a further price increase on both prices charged by the applicant and second respondent.  In our view, the fact that the applicant charged prices at a lower rate in August should have alerted the Department to consider the competiveness and cost effectiveness of the participation in the Limpopo contract. This the Department failed to do as will be demonstrated below.    

[37]    The procurement of HCRW services in the Free State differed from one place to another and the prices charged were equally different due to the distances to the different institutions and the economies of the places. The prices charged for such services in Annexure F of the founding affidavit illustrates this. On the other hand, the Limpopo contract provides for a flat rate of R28.00 per kilogram of collection of medical waste irrespective of where the institution is situated or the economy of the place where it is situated. The Department is unable to dispute that the procurement by participation in the Limpopo contract would be almost twice what it would have paid had it procured temporarily on a quotation basis. The requirement of competiveness and cost effectiveness were disregarded.

[38]   In our view regulation 16A.6.6 cannot be applied in vacuum without infusing the requirements of section 217 of the Constitution into it. The mere fact that the jurisdictional factors which appear ex facie the regulations have been complied with would not pass the constitutional muster in the absence of compliance with the five foundational values set out in section 217 of the Constitution.  Regulation16A6.6 must thus be construed in such a way that it does not offend the constitutional imperatives in section 217 of the Constitution. In this case the first respondent failed to take into account competitiveness and cost- effectiveness. The court in Minister of Social Development v Phoenix Cash & Carry Pmb CC,[18] (although it dealt with a public tender) in a brief survey of the circumstances which would offend against section 217(1), observed that “a process which lays undue emphasis on form at the expense of substance facilitates corrupt practice by providing an excuse for avoiding the consideration of substance; it is inimical to fairness, competiveness and cost effectiveness.”

[39]   The action taken was therefore, inter alia, materially influenced by an error of law, was unreasonable, unconstitutional and unlawful and ought to be reviewed and set aside in terms of s6 of The Promotion of Administrative Justice Act 3 of 2000 (PAJA).

           The remedy

[40]    It is settled that once a finding of invalidity is made under PAJA review grounds, the affected decision must be declared unlawful and a just and equitable order must be made.[19] It is undisputed that the services rendered by the second respondent are essential to the public health system. We must be careful not to disrupt the health system of the province to the detriment of the general public. The consequences that can be created by any vacuum as a result of the immediate operation of the order are too ghastly to contemplate. There can be no harm for the first respondent to procure services on quotation basis. This, as on previous occasion, can be done on month to month basis. It will however be wrong for this court to grant an order in terms of prayer 3 in the form proposed. If we were to grant that prayer, we would be advantaging the applicant by ensuring that it is part of the quotations to be considered whether such a quotation meets the formal requirements or not. We cannot encroach on the rights of the executive in the bidding process by ordering them to include the applicant.

Costs

[41]    The award of the costs lies in the discretion of the court. Both the first and second respondents opposed this application. We can find no reason why the costs should not follow the event.

Order

[42]   We make the following order: -

         [42.1]         The decision of the first respondent to participate in a contract between the Limpopo Department of Health and the second respondent for the provision of healthcare risk waste (HCRW) management services, is reviewed and set aside.

         [42.2]         Any contract between the first respondent and the second respondent to render HCRW services in the Free State Province consequent upon the decision referred to in paragraph 42.1 above, is declared unlawful and is set aside.

         [42.3]          The operation of the orders in paragraphs 42.1 and 42.2 above is hereby suspended and will only take effect on 1 August 2021.

         [42.4]          Pending the final outcome of the procurement process which is the subject of a separate application in this court under case number 47/2020, the first respondent is ordered to procure HCRW services in the Free State by calling for no less than 3 (three) quotations.  

         [42.5]          The Respondents must pay the costs of this application, jointly and severally, the one to pay and the other to be absolved.

         [42.6]          The second respondent must pay the costs of the application for condonation of the late filing of the answering affidavit.

                                                                             __________________

                                                                             M. A. MATHEBULA, J 

                                                                                                ____________________

                                                                                                P.E. MOLITSOANE,J

On behalf of the Applicant:                    Adv AV Voormolen, SC

Instructed by:                                          Shepstone & Wylie Attoneys

c/o                                                           Matsepes Inc.

                                                                       BLOEMFONTEIN

On behalf of the Second Respondent:    Adv JG Wasserman, SC

Instructed by:                                          Fairbridges Wertheim Becker Attorner

C/o                                                          Phatshoane Henney Inc. Attorneys

                                                                        BLOEMFONTEIN

 

On behalf of the first and third

respondents                                              Adv LT Sibeko SC assisted by

                                                                         Adv  K Nhlapo

                                                                        The State Attorneys

                                                                          BLOEMFONTEI

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