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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA,

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NOs:  18065/16 & 22033/16

Not reportable

Not of interest to other judges

Revised.

In the following consolidated matters:

HOLOBYE TRADING 2 CC                                                                                    Applicant

and

HEAD: DEPARTMENT OF ROADS AND TRANSPORT,

GAUTENG                                                                                                  First Respondent

22 OTHERS                                                                Second to Twenty-Third Respondents

And

HOLOBYE TRADING 2 CC                                                                             First Applicant

LUTHABO CONSTRUCTION AND PROJECTS CC                                 Second Applicant

and

HEAD: GAUTENG DEPARTMENT OF ROADS

AND TRANSPORT                                                                                     First Respondent

34 OTHERS                                                                   Second to Thirty Fifth Respondents

 

JUDGMENT

 

FISHER J

 

INTRODUCTION

[1] This hearing was in respect of two applications that have been formally consolidated. Both applications seek the review and setting aside of decisions of the first defendant, the Department of Roads and Transport. These impugned decisions were made in connection with two tenders being DRT48/01/2015 (which I will call DRT 48) and DRT 51/01/2015 (DRT 51). The decisions in relation to DRT 48 are dealt with under case 18065/16 and the decisions in relation to DRT 51 are dealt with under case 22033/16.

[2] I will deal with each of the applications separately, although the facts of each interrelate in that the tenders were adjudicated at the same time and the findings and decisions in issue in both, inform each other.

[3] In respect of case 22033 the Department has sensibly conceded the relief sought on the merits.

 

DRT 48 – CASE 18065

 

The Facts

[4] This application concerns the legality of three decisions:

4.1. First the Department has referred the applicant, Holobye to its Anti-Fraud and Corruption unit for investigation in connection with this tender.

4.2. Second, the Department overturned the recommendation of its Bid Evaluation Committee (“BEC”) that a portion of a tender be awarded to Holobye.

4.3. Third, the Department cancelled that portion of the tender.

5. The facts of this matter are as follows:

5.1. On 12 June 2015, the Department published the Invitation to Tender in respect of DRT 48. Portion of the tender was for the installation of guardrails (Bills A2, B2, C2, D2 and E2) and it was for these Bills that Holobye submitted its bid on 15 July 2015.

5.2. On 2 November 2015, the BEC delivered its report in respect of these bill. In terms of the BEC report Holobye met the functionality criteria and ranked first on the price and points allocation in respect of Bills B2 (Bronkhorstspruit region) and D2 (Pretoria region).

5.3. The BEC therefore recommended that bills B2 and D2 be awarded to Holobye.

5.4. On 19 November 2015, the Bid Adjudication Committee (BAC) met. The BAC did not endorse the BEC’s recommendation to award B2 and D2 to Holobye.  The minutes of this meeting record the following:

 “Bills B2 and D2 for Bronkhorstspruit and Pretoria regions were not awarded as the recommended tenderer is Holobye Trading 2 who provided false completion certificates and the matter is still being investigated”. (My emphasis)

5.5. What stands out from this minute is that the Department seems, at this stage, to have already formed the view that false completion certificates had been provided. This was notwithstanding that this had not been established and notwithstanding also that Holobye at this stage had not been given any indication that it had been so judged by the BAC.

5.6. On 19 February 2016, the Department’s Chief Director: Finance & Management Accounting wrote a memorandum to the Head of Department. The memorandum read as follows:

“BAC did not recommend award to Holobye Trading 2 as the completion certificate presented by the recommended bidder (Holobye Trading 2) as part of their tender relating to past work done for the Department did not agree with the Department’s financial and previous project management reports. BAC questioned the authenticity of the completion certificate. The BAC further recommended that the accounting officer institute an investigation into this matter.

Ever since BAC resolution dated 5 November 2015, the Department has been continuously extending the validity of the above mentioned tenders, such that at this stage the validity period is currently approaching 240 days. The extended period of validity places undue pressure on the service provider to maintain his/her tendered prices, even though current market and economic conditions dictate otherwise.  Furthermore should the Department proceed in awarding the tender to the said service provider, there is risk of poor performance by the contractor due to outdated tender prices.”

5.7. On 24 February 2016 and pursuant to this memorandum, the Head of the Department decided that an investigation be conducted by the Anti-Fraud Unit into the authenticity of the completion certificate.

5.8. Thus, the basis for the taking of all 3 impugned decisions appears squarely to be the alleged suspicion that the performance certificate was not authentic. In fact, as I have stated above, the Department through its BAC appears even to have pre-empted the investigation.

5.9. It was only on 8 March 2016 that the Department wrote to Holobye in respect of the tender.  It raised the following three concerns about the completion certificate in issue:

5.9.1. The certificate was signed by a Regional Manager who do not have the authority to sign completion certificates.

5.9.2. The certificate was drawn on an outdated letterhead of the Department.

5.9.3. The amount of R18 332 535,50 reflected as having been paid to Holobye by the Department did not accord with the Department’s records.

[6] The official in the employ of the Department who drew the certificate, Mr Gombani, under oath in these consolidated proceedings confirmed the authenticity of the certificate, that the work was done, and that he, as Regional Manager, was the person who usually made such certifications for the Department.

[7] It is of concern that the Department did not deal with the affidavit of Mr Gombani.  Even more troubling is that, despite claiming to be conducting an investigation into the authenticity of the certificate, the Department has never, in almost two years of its alleged ongoing investigation, contacted either Mr Gombani or Holobye to gather evidence relating to the investigation. The Department, furthermore, does not state the form that the investigation is taking or even who is conducting it. These lacunas in the cases for the Department, taken with its concession that there is, to date, no basis for a finding of any wrongdoing on the part of Holobye, cannot but create the impression that the decision to institute an investigation was embarked upon arbitrarily.

[8] The effect of a decision to investigate cannot be underestimated. It cannot but create suspicion and scrutiny in the absence of proof. Obviously, there are times when an investigation into suspected wrongdoing is required – but there can be no doubt that such an investigation must be embarked on after careful consideration of the basis therefor and that it should be conducted with due with expedition in the circumstances of the matter.

[9] Whenever administrative bodies, for example the Competition Commission or the National Credit Regulator, are given investigative powers, they are made subject to the Constitution in the manner in which they carry out their functions and powers. There is a purpose behind these constraints and limitations of power. The Constitution is based on the rule of law, affirms the democratic values of dignity and freedom, and guarantees the right to privacy, a fair trial and just administrative action. (see in this context Woodlands Diary (Pty) Ltd and another v Competition Commission 2010 (6) SA 108 (SCA) at p112). A main reason for these constraints on investigative processes initiated as part of an administrative process is obviously an appreciation by the Legislature of the fact that such an investigation can have devastating consequences for the reputation and goodwill of a commercial entity that is subject to the investigation. The hallmarks of an investigatory process are that it should only be undertaken on a reasonable suspicion and that it progress in a transparent and measured way by duly qualified officials and with expedition.

[10] The facts of this matter show that Holobye was not afforded these protections. Nearly two years later there is no resolution of the matter and no outward indication that any real investigation has been conducted. This is untenable. The Department’s attitude is that the mere fact of the referral for investigation disqualifies Holobye from being eligible for the award of tenders for so long as the investigation is underway. The referral for investigation therefore patently determines Holobye’s legal rights and interests.

 

Is the Decision to Institute an Investigation Reviewable?

[11] The Department contends that the decision to refer for investigation is not reviewable because it does not amount to administrative action. It relies on the decision of Tshwane City and Others v Nambiti Technologies (Pty) Ltd 2016 (2) SA 494 (SCA) in which the SCA held that a decision by a municipality to cancel a tender did not, on the facts of that case, constitute administrative action within the meaning of PAJA.(see also SAAB Grintek Defence (Pty) Ltd v South African Police Service and Others (316/2015) [2016] ZASCA 104; [2016] 3 All SA 669 SCA)

[12] It is not necessary for me to decide this issue because, in any event, even where decisions by public bodies do not amount to administrative action and are thus not subject to review under PAJA, they are still subject to review for lack compliance with the principle of legality.

[13] The two types of review inquiries differ:  PAJA  requires that the decision be one that a reasonable decision maker could not make (see: Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs & others [2004] ZACC) whilst review under the principle of legality requires only a rational connection between the action and the reasons given for it (see: Pharmaceutical Manufacturers Association of SA: In re ex parte President of the Republic of South Africa & others [2000] ZACC 1; 2000 (2) SA 674 (CC) at paragraphs [85] and [90]; Democratic Alliance v President of the Republic of South Africa & others  2013 (1) SA 248 (CC)  paragraph [27])

[14] Review under the principle of legality is not confined to or even focused on questions of procedural fairness.  Rather, it allows for review on various grounds, including irrationality, a failure to comply with an empowering statute, and an abuse of discretion. In Pharmaceutical Manufacturers Association of SA and Another: In re Ex Parte President of the Republic and Others 2000(2) SA 674 CC at [85] Chaskalson P laid down the test for rationality in the exercise of public power as follows:

“It is a requirement of the rule of law that the exercise of public power by the Executive and other functionaries should not be arbitrary. Decisions must be rationally related to the purpose for which the power was given, otherwise they are in effect arbitrary and inconsistent with this requirement. It follows that in order to pass constitutional scrutiny the exercise of public power by the Executive and other functionaries must, at least, comply with this requirement. If it does not, it falls short of the standards demanded by our Constitution for such action.”

[15] Rationality requires that a decision be objectively capable of furthering the purpose for which the power was given and for which the decision was purportedly taken. The learned Judge President expounded further on this point as follows at [86]:

“The question whether a decision is rationally related to the purpose for which the power was given calls for an objective enquiry. Otherwise a decision that, viewed objectively, is in fact irrational, might pass muster simply because the person who took it mistakenly and in good faith believed it to be rational. Such a conclusion would place form above substance and undermine an important constitutional principle.”

[16] Rationality requires there to be a rational relationship between the means chosen and the end sought to be achieved. ( see: Affordable Medicines Trust and others v Minister of Health and Others [2005] ZACC 3; 2006 3 SA 247 (CC) at paragraph [78]; Albutt v Centre for the Study of Violence and Reconciliation, and Others 2010 3 SA 293 (CC) at paragraph[ 51]; Democratic Alliance v President of the Republic of South Africa  2013 1 SA 248 (CC) at paragraph [32].

[17] Importantly, for a decision to be rational it “must be based on accurate findings of fact and a correct application of law”. (see: Chairman State Tender Board v Digital Voice Processing (Pty) Ltd 2012 (2) SA 16 (SCA) at paragraph [40] ).

[18] Even if the decision of the department is measured against the lower standard required under the principle of legality – it has not, in my view met that standard.

 

Right to Cancel the Tender

[19] The Department is an organ of state as defined in the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”). It is therefore subject to the PPPFA Regulations ( see:Regulation 2(1)).

[20] In terms of Regulation 8(4), an organ of state may only cancel a tender if one of three conditions are met: (a) due to changed circumstances, there is no longer a need for the goods or services; (b) funds are no longer available to cover the expenditure; or (c) no acceptable tenders were received.

[21] In Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and Another 2015 (5) SA 245 (CC) the Constitutional Court held at paragraph [68] that Regulation 8(4) was exhaustive of the grounds upon Department, Mpumalanga Department of Education v Valozone 268 CC (837/2015) [2017] ZASCA 30 (29 March 2017) at paragraph [16].)

[22] The presence of one of the three grounds for cancellation in Reg 8(4) is a jurisdictional prerequisite for the lawful cancellation of the tender. None was present in this case.

 

Remedy

[23] Holobye seeks an order that Bills B2 and D2 be awarded to it, in other words an order of substitution.

[24] In terms of section 8(1)(c)(ii) of PAJA exceptional circumstances are required for a court to substitute the decision of the administrator  with a decision of its own. Holobye contends that it has established such exceptional circumstances in this case.

[25] In Trencon at  paragraph [35] the Constitutional Court emphasized that “an exceptional circumstances enquiry must take place in the context of what is just and equitable in the circumstances”. The Court at paragraph 47suggested the following approach to this enquiry:

“To my mind, given the doctrine of separation of powers, in conducting this enquiry there are certain factors that should inevitably hold greater weight. The first is whether a court is in as good a position as the administrator to make the decision. The second is whether the decision of an administrator is a foregone conclusion. These two factors must be considered cumulatively. Thereafter, a court should still consider other relevant factors. These may include delay, bias or the incompetence of an administrator. The ultimate consideration is whether a substitution order is just and equitable. This will involve a consideration of fairness to all implicated parties. It is prudent to emphasise that the exceptional circumstances enquiry requires an examination of each matter on a case-by-case basis that accounts for all relevant facts and circumstances."

[26] Holobye scored the highest number of points in the evaluation process and was properly recommended by the BEC as the preferred bidder. The Department’s only reason for not implementing the recommendation of the BEC were, what are conceded to be the unfounded, concerns about the authenticity of the completion certificate. This Court is therefore plainly in as good a position as the Department to make the decision

[27] A further important consideration is that the Department’s attitude raises questions of bias and incompetence of the kind that constitute a sufficient reason to substitute the decision of the administrator with that of the court.  (See Trencon at paragraph [54].)

[28] Holobye has tendered to provide the services at the same price at which it tendered.

[29] In all the circumstances I find that all 3 decisions should be reviewed and set aside. As to remedy, I find that it is proper that this court substitute its order for that of the Department.

 

DRT 51 – CASE 22033

[30] This matter concerns the legality of a further four decisions in a tender process which was run at the same time as DRT 48.  In this case, Holobye and the second applicant, Luthabo tendered as a joint venture.

 

The Facts

[31] The facts pertaining to this matter are as follows:

31.1. On 12 June 2015, the Department issued an invitation to tender. The JV submitted its bids on 16 July 2015. The Bills in issue in this matter are Bills B, C, E, F, and G.

31.2. Bill G went the same course as  Bills A2 and D2 in case 18065: The BEC assessed the JV’s bid as functionally compliant and recommended that the tender be awarded to the JV, but the Department decided to cancel Bill G for the same reasons as those advanced in respect of Bills A2 and D2.

31.3. The JV initially sought an order compelling the Department to award Bill G to the JV but now also seeks (in terms of a notice of amendment) to review the decision to cancel the tender for Bill G on the same grounds as the decision to cancel A2 and D2.

31.4.  In respect of Bills B, E, F and C a different route was taken by the Department: The BEC disqualified the JV for failure to comply with the mandatory requirement of 6SK in respect of CIDB levels.  The JV contends that the disqualification was erroneous and unlawful and asks that it be reviewed.

 

Remedy

[32] The decision to cancel the tender in respect of Bill G is reviewable on precisely the same basis as that set out above in relation to the decision to cancel Bills A2 and D2. The decision to cancel was therefore unlawful and should be set aside on the same basis as the decision to cancel A2 and B2. 

[33] In respect of Bills C, and Bills B, E and F, the JV seeks an order setting aside the decision to disqualify it and remitting the decision to the Department for re-adjudication. This relief is conceded by the department.

[34] This is plainly appropriate. As was held in Gauteng Gambling Board v Silverstar Development Ltd 2005 (4) SA 67 (SCA) at para [29]:

“An administrative functionary that is vested by statute with the power to consider and approve or reject an application is generally best equipped by the variety of its composition, by experience, and its access to sources of relevant information and expertise to make the right decision. The court typically has none of these advantages and is required to recognise its own limitations. …. That is why remittal is almost always the prudent and proper course.”

[35] In respect of Bill G, the JV seeks an order of substitution. This is proper for the same reasons as those advanced and considered above under case 18065 in relation to Bills A2 and D2. The same tender to hold the price is made in respect of Bill G.

 

I thus make the following orders:

 

IN CASE 18065/2016:

1 The decision by the first respondent on or about 24 February 2016 to cancel tender number DRT48/01/2015 in respect of the supply and erection or supply or erection of guardrails for a period of three years: all five regions in the Gauteng province: Bill B2 erection of guardrails: Bronkhorstspruit Region and the supply and erection or supply or erection of guardrails for a period of three years: all five regions in the Gauteng province: Bill D2 erection of guardrails: Pretoria Region, is reviewed and set aside.

2 The decision by the first respondent on or about 24 February 2016 to re-advertise for the services required in tender number DRT48/01/2015 in respect of Bills B2 and D2 is reviewed and set aside.

3 The decision by the first respondent on or about 24 February 2016 to refer the applicant to the Anti-Fraud and Corruption Unit of the Department of Roads and Transport, Gauteng for investigation in respect of tender number DRT48/01/2015 is reviewed and set aside.

4 Tender number DRT48/01/2015 in respect of the supply and erection or supply or erection of guardrails for a period of three years is awarded to the applicant in respect of Bill B2 erection of guardrails: Bronkhorstspruit Region and Bill D2 erection of guardrails: Pretoria Region only.

5 The first respondent is to pay the costs of this application, including the costs of two counsel.

 

IN CASE 22033/2016

1. The decision by the first respondent on or about 24 February 2016 to refer the first applicant to the Anti-Fraud and Corruption Unit of the Department of Roads and Transport, Gauteng for investigation in respect of tender number DRT51/01/2015 is reviewed and set aside.

2. The decision by the first respondent of 29 April 2016 to cancel tender number DRT51/01/2015 for the supply and delivery of road signs for a period of three years: all five regions in Gauteng province: Bill G is reviewed and set aside.

3. Tender number DRT51/01/2015 for the supply and delivery of road signs for a period of three years: all five regions in Gauteng province: Bill G is awarded to the joint venture between the applicants.

4. The decision to disqualify the joint venture between the applicants from tender number DRT51/01/2015 for the supply and installation of road signs for a period of three years: all five regions in the Gauteng province (Bronkhorstspruit): Bill C is reviewed and set aside and the first respondent is ordered to adjudicate this tender afresh.

5. The decision to disqualify the joint venture between the applicants from tender number DRT51/01/2015 for the supply and installation of road signs for a period of three years:  all five regions in the Gauteng province (Vereeniging, Krugersdorp, Pretoria and Benoni): Bills B, E and F is reviewed and set aside and the first respondent is ordered to adjudicate this tender afresh.

6. The first respondent is to pay the costs of this application, including the costs of two counsel.

 

________________________________

D FISHER

JUDGE OF THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

 

Date of Hearing:  7^th September 2017

Judgment Delivered: 19 September 2017

 

APPEARANCES:

For the Applicant: Adv Bham SC With him Adv Ferreira Instructed by Edward Nathan Sonnenbergs Inc.

For the Respondent: Adv  Maimela Instructed by The State Attorney.

 

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