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REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NUMBER:     21904/2015

In the matter between:

CORRUPTION WATCH (NPC) (RF)                                                                    APPLICANT

And

THE CHIEF EXECUTIVE OFFICER OF THE                                                 1^st RESPONDENT

SOUTH AFRICAN SOCIAL SERVICES

THE SOUTH AFRICAN SOCIAL SECURITY                                                2^nd RESPONDENT

AGENCY

CASH PAYMASTER SERVICES (PTY) LTD                                              3^rd RESPONDENT

JUDGMENT

TSOKA, J

[1] The applicant, Corruption Watch (NPC) (RF) (Corruption Watch) applied to this court to review two decisions by the first respondent, the Chief Executive Officer of the South African Social Security Agency and the second respondent, the South African Social  Security Agency,  conveniently  and  collectively called (SASSA). The first decision relates to an alleged Variation .Agreement concluded by SASSA and the third respondent, Cash Paymaster Services (Pty) Ltd (Cash Paymaster) at a meeting held on 15 June 2012 at Kyalami, Johannesburg while the second decision relates to the payment of the amount of R316 447 361.41, which payment was the result of the Variation Agreement.

[2] Corruption Watch contends that the two decisions fall foul of the provisions of section 6(a)(i) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA) in that, in concluding the agreement and effecting the payment, SASSA contravened the provisions of its then existing Supply Chain Management Policy of 2008 (SCM Policy) thus rendering the decisions unlawful.

[3] The application is opposed by both SASSA and Cash Paymaster who filed affidavits resisting the order sought by Corruption Watch. At the hearing of the application, only Cash Paymaster persisted in its opposition while SASSA did not and, in fact, indicated that they abide the decision of this court.

[4] The facts giving rise to this national saga are the following. On 17 January 2012 SASSA enlisted CPS to distribute social welfare grants on its behalf. For reasons that are not relevant to this application, on 29 November 2013, the Constitutional

Court declared   the   agreement   between   SASSA   and   CPS unlawful[1]. The

declaration of  unlawfulness was  suspended  pending confirmation  of  a just  and equitable remedy. On 17 April 2014, the Constitutional Court ordered SASSA to initiate  a  new  tender  process for  the  payment  of  social grants  within 30  days. Again, the  court  suspended  the  declaration  of invalidity  of  the  tender  pending compliance with the new tender  process to be initiated. To date, no new tender has been awarded with the result that the declaration of invalidity still remains.

[5] Before the tender was set  aside,  SASSA  and  CPS  concluded  a  Service  Level Agreement (SLA) and an agreement in terms of which the latter was to pay social grants on behalf of the former on 3 February 2012 (the Contract).  In terms of the SLA,  CPS  was  responsible  for  two  distinct  phases  of  enrolment,  namely  bulk. enrolment  and  on-going  enrolment  of  new  recipients.  The enrolment  process

entails the capturing and registration of the data relating to the name, surname,

digital photograph  (excluding children) and  identification··number  of the recipient.

In addition, SASSA requested CPS to capture and register the current address (physical and postal), cell phone numbers, alternate contact numbers, employment, name and address of school attended by the child. This request was considered to be an additional function to be performed by CPS at a fee  to be agreed to between the parties. In the event the parties did not reach any agreement on the fee payable, the time and the deliverables, CPS was not obliged to render such additional services.

[6] In terms of the Contract, the parties agreed on a firm price of R16.44, inclusive of VAT, to be paid by SASSA to CPS per recipient of a social grant: In ·terms of clause 6.3 of the contract the parties agreed that -

'In the event that SASSA may require the contractor (CPS) to render social grant payment  related  services  additional  to  the services,  this  shall  be subject  to  a written agreement between the parties inter alia as to a negotiated service fee for such services...'

[7] During June 2014, Corruption Watch learnt through an exchange    announcement made by Net  1  UEPS  Technologies  Incorporated   (Net  1),  a.  United  States company  listed on the Johannesburg  Stock Exchange    the parent company  of CPS    that SASSA engaged  CPS to perform approximately 11 million  additional registrations  that did not form  part of  its  monthly  service fee. And that  after the additional registrations which were independently verified, SASSA agreed to pay CPS ZAR 275 million as full settlement of the additional costs incurred.

[8] The  announcement  of  payment  of  such  a  substantial  amount,  aroused    the interest  of  Corruption  Watch,  whose  interest,  amongst  others,  is  to  act  as a watchdog  in ensuring that  procurement  systems  are tightened  so  as to  reduce their vulnerability to corruption in order to foster transparency  and accountability, not  only  in  respect  of  public entities  but  private  entities  as  well.  Sensing  that public  resources  intended for  use  by millions  of disadvantaged  South Africans may have been directed for the  benefit of the few, by  non-compliance with the procurement  requirements  and  the  expenditure of  public funds,  it  approached SASSA   to   confirm  that   it$   suspicions  were   unfounded.  The   latter   invited Corruption  Watch  to  its  offices  to  inspect  the  documentation  pertaining to the payment.  Corruption Watch was  however given  restricted  access to the  limited documentation regarding the said payment. From its assessment, it was  unable to locate any documentation evidencing that the said payment was made pursuant to the SLA  or  in terms of a further agreement  as envisaged  in  clause 6.3 of the contract. It was, however, informed that the said payment was made as a result of the discussion between SASSA and CPS.

[9] Corruption Watch then wrote several letters to SASSA requesting the minutes of the meeting at which the payment was discussed but the letters remained unanswered. It was a result of lack of information or clarification regarding the payment that Corruption Watch in 2015 instituted the present  application seeking access in terms of Rule 53 to the full information regarding the payment. Instead of SASSA filing the complete record, it filed an incomplete one. Later   SASSA supplemented the record with the necessary information that should have been furnished earlier on.

[10] From the records furnished, Corruption Watch  noticed that  on  10 March  2014, CPS rendered an invoice to SASSA in the amount of R316 447 361.41 (including VAT) .  The  said  invoice  was headed  ''Financial  Consideration  for   Bulk  Re­ registration"  but  instead  of  reflecting  the  agreed  firm  price  in  the  amount  of R16.44  (including VAT)  per registration,  it  reflected  a  higher  amount  of  R23.20 (excluding  VAT)  per  registration.  It  further  transpired that  three  days  later,  on

13 March 2014, one Mt Frank Earl, who has since resigned from SASSA; the Executive Manager of Benefits Transfer, submitted a document to SASSA's Bid Adjudication Committee (BAC) headed ''Variation Order reimbursement of costs incurred by Cash Paymaster Services (Pty) Ltd (CPS) in respect of additional resources procured for re registration project for the period of 01 January 2013." The purpose of the document was to seek BAC's recommendation for  variation of the 3 February 2012 contract. BAC was further requested to recommend to the CEO of SASSA to grant approval to process part payment of the said amount of R316 447 361.41. The remainder of the payment was to be paid after verification by an  independent auditor  in the ensuing financial year. The motivation for  the payment was  the  elimination  of ghost  dependants,  duplicate  children  and  non­ qualifying dependants. The document further reflected that SASSA and CPS had agreed  to  re-register  9.2  million  social grant  beneficiaries  and  recipients  for  a period of six months at CPS's costs. The document further revealed that  at the discussions held  between  SASSA  and  CPS,  the  total  number  of  social  grant recipients as well as dependants  was  unknown resulting in the re-registration  of additional grant recipients of 11.9 million by CPS. In justifying the payment,  Mr Earl pointed out that the said figure of R316 447 361.41 was audited by KPMG. This information was to Mr  Earl's knowledge incorrect  as the figure  of R316   447 361.41 was not audited by KPMG. This is common cause. The figure was not audited. SASSA, in its answering affidavit, justified the payment as representing re-registration of children which re-registration was not catered for in the SLA and the Contract which only speak of grant recipients, excluding children.

[11] Pursuant to the said BAC's recommendation, SASSA CEO, Ms Virginia Petersen approved part payment of the invoice as recommended.  CPS, on the advice of their auditors, rejected the part payment. Surprisingly, on 25 April 2014 SASSA's Supply Chain Management submitted a document to  Ms  Peterson  to  consider the  BAC's  recommendation and  pay CPS the full amount  of  R316 447  361.41 being in respect of "costs incurred by Cash Paymaster  Services (Pty)  Ltd to re- register   all   the   grant    recipients   as   well   as   outstanding   beneficiaries." Simultaneously, it was recommended that the completeness and correctness of CPS's  audited  claim  be  submitted  to  an  independent  auditor  for  verification . Ostensibly, the purpose of referral of the invoice to an independent auditor was to confirm KPMG's conclusions. It was pointed out in the document  that should any  discrepancy   be  uncovered  by  the  independent  auditor,  CPS  would   be afforded   an  opportunity   to   respond   thereto.  Should  the   latter  accept   the discrepancies, it was to refund to SASSA such discrepancy amount. On 22 May 2014 Ms Peterson approved BAC's recommendations to pay CPS in full. The payment was made in June 2014.

[12] It emerged for the first time in SASSA's and  CPS's answering affidavit that the payment was  in fact  made pursuant to the variation of the SLA, which variation was agreed to in a meeting held on 15 June 2012 between SASSA and CPS. In the  result  it  is  necessary  to  examine  the  said  SLA  variation  agreement  to determine whether the alleged agreement and payment were in compliance with section 217 of the Constitution, the  Public Finance Management Act  1 of  1999 (PFMA),  the  Social Assistance  Act  13  of  2004,  the Treasury  Regulations,  the SLA, the Contract and the Supply Chain Management  Policy No. 8 (1). It would be recalled that  in terms  of section 217 of the Constitution, any organ  of state when  it  contracts  for  goods  or  services,  it  must  do  so  in  accordance  with  a system which is fair, equitable, transparent, competitive and cost effective. If not, such contracts are unlawful and fall foul of the provisions of PAJA and must be set aside. Similarly, in terms of the PFMA, the Social Assistance Act 13 of 2004, the Treasury Regulations, the SLA, the Contract and the SCM Policy 8 (1), any procurement of goods or services must be   fair,   equitable,   transparent, competitive and cost effective.

THE SLA VARIATION AGREEMENT OF 15 JUNE 2012

[13] The  alleged  Variation  Agreement  is  headed  "Minutes  of  enrolment  day  run feedback meeting held between SASSA and CPS (Pty) Ltd at the Castle Kyalami on Friday  15 June    2012." It  records  the persons who attended the  meeting on that day. It is signed by Ms Peterson and Dr Serge Belamant on behalf of CPS. It records  the  issues  discussed  between  SASSA  and  CPS.  Of  importance  and relevance to the present matter it records:

'The SASSA CEO confirmed that the enrolment of dependants  should proceed as specified at the outset and agreed during the SLA negotiations. At the request of the SASSA CEO, the CEO of CPS agreed that the payment of costs associated with the enrolment of dependants would only be effected at the conclusion  of  the  bulk  enrolment  process.  The  SASSA  CEO   requested   an independent report  in  respect  of  the  costs  associated  with  the  enrolment  of dependants to be tabled at the conclusion of the Bulk Enrolment Process...'

[14] As  there  is  a  dispute  between the  parties  as  to  whether  the  above  quoted document is a variation agreement  or not, it is apt to restate what the Supreme Court  of  Appeal   said  in Natal   Joint  Municipal   Pension  Fund   v  Endumeni Municipality[2]  in interpreting le9islation and  agreements  such  as the one  in this matter. In that matter, the Supreme Court of Appeal said the following:

'....  Interpretation  is the  process  of  attributing meaning to  the  words  used  in a document,  be it  legislation, some other statutory  instrument, or  contract,  having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant  upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax;  the  context  in which  the  provision  appears;  the  apparent  purpose  to which it is directed and the material known to those responsible for its production. Where more than one meaning is  possible each possibility  must  be weighed in the  light of all these factors.  The process  is objective not subjective. A  sensible meaning  is  to be preferred to  one that leads to  insensible  or  unbusinesslike results or undermines the apparent purpose of the document.  Judges  must be alert to, and guard against, the temptation to substitute what they regard as reasonable,  sensible  or  businesslike  for  the  words  actually  used. To  do  so in regard  to  a  statute  or  statutory   instrument  is  to  cross  the  divide  between interpretation and legislation. In a contractual context it is to make a contract for · the  parties  other  than  the  one  they   in  fact  made.  The 'inevitable  point  of departure is the language of the provision itself', read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.'

[15] The ordinary and grammatical language of the alleged "Variation SLA Agreement" of 15 June 2012 having regard to its context and the intention of the parties reveal that -

15.1       the contended variation of the SLA is nothing other than the recordal  of the minutes held between the parties on that day;

15.2       no variation of the SLA was  intended but confirmation  that the enrolment of dependants would proceed as per the SLA;

15.3        payment of the enrolment in terms of the SLA would only be effected at the conclusion of the bulk enrolment of all dependants;

15.4        the costs of the bulk enrolment would only be known at the end of the bulk enrolment whereafter such costs would be tabled for discussion and agreement;

15.5         once an agreement is reached at the conclusion of the bulk enrolment process, payment would be effected;

15.6        no variation of the terms of SLA were discussed and agreed upon on that day justifying payment of the amount of R316 447 361.41 to CPS.

[16] According to SASSA the decision to vary the SLA was that of Ms Peterson. In paragraph 38 of SASSA's answering affidavit she states -

'... I took a decision to consider the variation of the agreement at the meeting of 15 June 2012.'

That this was a unilateraIdecision by SASSA and not an agreement between the parties could not be clearer. This unilateral decision cannot be the basis of the variation of the SLA. The unilateral variation cannot therefore be elevated to the status of an agreement between the parties.

[17] To contend and argue as SASSA and CPS do, would be to strain the language of the minutes of 15 June 2012. I conclude therefore that on 15 June 2012 at Kyalami SASSA and CPS did not agree to vary the terms of SLA justifying the payment of R316 447 361.41 to CPS. The payment was without any basis and is therefore unlawful.

[18] There is a further basis upon which the meeting of 15 June 2012 could not be regarded as an agreement. The alleged variation agreement is vague with regard

to CPS's costs which were to be investigated independently and then tabled, possibly for discussion and agreement. In ALLPay 1[3] the Constitutional Court reasoned -

'Vagueness and uncertainty are grounds for review under section 62(1) of PAJA. Certainty in legislation and administrative action has been linked with the rule of law...'

The Constitutional Court went further and stated that -

vagueness can render a procurement process, or administrative action, procedurally unfair under section 6(2)(c) of PAJA. After all an element of procedural fairness - which applies to decision-making process - is that persons are entitled to know the case they must meet.'

[19] In the instant matter, the purported variation of the SLA is not envisaged in the Request for Proposal (RFP). The exclusion of all other bidders in preference of CPS  is therefore  unfair and contrary to the rule of law which is  a fundamental value of our Constitution. It being unfair and contrary to the rule of law, it ought to be reviewed and set aside in terms of PAJA.

[20] Furthermore, in terms of the PFMA an organ of state such as SASSA must determine its procurement policies. It was on this basis that the Supply Chain Management Policy (1) of 2008 (SCMP) was promulgated. Clause 4.5.2 of that Policy provides -

'In the event that there is a need to extend the existing or concluded contracts or agreements approval must be sought from the Bid Committee with valid reasons

forwarded.  Continuity should not  be  advanced as reason  to  extend projects using same supplier  and service providers...'

[21] In addition, clause 4.7.8 of the Policy is of paramount importance. It reads -

'The Bid Adjudication Committee must also consider and rule on all recommendations I reports regarding the amendment, variation, extension, cancellation or transfer of contracts awarded.'

[22] In the present matter, the alleged variation agreement was concluded without the approval, consideration and ruling of the BAC. In the result, the alleged variation agreement is hit by the provisions of section 6(2)(a)(i) of PAJA in that it was not authorised by the SCMP. It is accordingly unlawful and reviewable.

[23] Having found that the variation of the SLA is unlawful and ought to be set aside, it stands to reason that the payment that flows from this unlawful decision is also unlawful. It cannot stand. It must also be reviewed and set aside.

[24] In addition, the payment falls foul of the provisions of section 6(2)(e)(ii) in that it was effected for ulterior purposes or motive; the payment is also not rationally connected with the purpose for which it was made; - section 6(2)(f)(ii); the payment was unreasonable in that no reasonable person in the position of SASSA could have effected such payment without any valid reasons - section 6(2)(h) of PAJA.

[25] CPS in its written submissions argues that on the basis of the definitions of "the Firm  Price",  in  the  RFP  and  the  definition  of  a  "Beneficiary"  in  the  Social Assistance  Act  13 of 2004, which also does  not  include children, the  variation agreement was concluded by SASSA and CPS for inclusion of children, in order to align the concluded SLA and the Contract with these definitions. According to CPS, the Variation Agreement   not   being  an  extension  of  the  existing  or concluded  agreement,  cannot  be  a  victim  of  clauses  4.5.2  and  4.7.8  of  the Supply  Chain  Management  Policy  (1)  of  2008.  In  support  of  this  submission heavy reliance was based on clause 5.3.1O of the SLA which provides that -

'The parties record that the capturing of the information recorded in    clause 5.3.1.2 is an additional function requested by SASSA. The parties shall discuss the obligations arising from such function and agree on the remuneration payable to the contractor by SASSA in respect thereof as well as the impact on timing I delivery schedules. If the parties are unable to agree on a suitable remuneration and time I delivery variations, the contractor shall not be requested to render such additional duties or functions.'

[26] It is therefore the contention of CPS that the additional duties performed by it in terms of the Variation Agreement was accordingly not a variation or extension of the concluded agreement resulting in it performing this additional function for SASSA at cost. It being further contended that when CPS priced its bid with the projected beneficiary numbers as per the RFP, it only bid to enrol 9 082 250 beneficiaries at the firm price. The number of the beneficiaries having escalated to more than the original number, CPS was to be reimbursed the costs incurred in  enrolling  the  additional  numbers.   I disagree  with  this  submission   and interpretation of clause 5.3.10. I see the matter differently.

[27] The argument and contention is far from the truth.  In terms of the definitions of "Beneficiaries" in the  SLA and the  Contract,  the  definition  "Beneficiaries"  "shall bear the meaning assigned to  it  in the Act  (Act No.  13 of 2004) and  includes children." In concluding the SLA and the Contract, the parties were ad idem that "Beneficiaries"   shall   include   children.  That   being   the   case   the   Variation Agreement,  in my view, is an additional function which should have been in strict compliance with clause 6.3  of the Contract. There  being no written agreement, the purported Variation Agreement  is nothing else but an extension of existing or concluded contract.  Resultantly, the purported  Variation Agreement  is  unlawful from which no lawful payment may be made.

[28] Clause 5.3 of the Contract deals with the information to be captured by CPS durin9 the enrolment process. In terms of clause 5.3.1.2 the name and address of the school each child attends, must be captured. This is in addition of the current address (physical and postal), cell phone numbers, alternative contact numbers, employment of each grant recipient. In terms of the Contract, the parties agreed that the capturing of this information is "an additional function" to

be performed by CPS on behalf of SASSA for an agreed price. If the parties did not agree on the remuneration, CPS was not obliged to perform this additional function. In the present matter, although the parties had not agreed on the remuneration for the additional work, CPS performed this additional work on the basis that it would be remunerated at cost. Nowhere in the papers are CPS's costs agreed upon. That the performance of this additional work was a unilateral decision by CPS, which in the absence of agreement to remuneration, was not obliged to perform, cannot be more obvious. The unilateral performance by CPS cannot be the justification for the payment of R316 447 361.41 . The payment is contrary to the provisions of section 217 of the Constitution and all legal prescripts. It is therefore reviewable in terms of PAJA.

[29] CPS's contention that the reference in clause 5.3.10 to clause 5.3.1.2 is an error and should be 5.3.1.4 is of no assistance to it. Clause 5.3.1.4 requires not only the capturing of "all 1O fingerprints where possible or two palm prints" of the grant recipients  but  "two  footprints  (new  born  to  6  years) ..."  of  children. That  both clauses   require  the  capturing  of   information   relating  to  children,   which   is additional information in terms of clause 5.3.1O admits no doubt. In the absence of  an  agreement  as  to  CPS's  remuneration,  its  rem1.,meration  in the amount  of R316 447 361.41 is thus  unjustified and unlawful. The payment is reviewable in terms of PAJA.

[30] Even if one were to read clause 5.3.1.2 in clause 5.3.10 to be referring to clause 5.3.1.4, the submission  by CPS,  is still wrong. In terms  of clause  5.3.10, if the parties did not reach agreement on the remuneration of the additional work, CPS was   not   obliged  to   render   such   services   without   agreement   on   suitable remuneration  having  been reached.  In the  present  matter,  it rendered services without an agreement having been reached on its remuneration.  In the absence of agreement with regard to  remuneration,  the process was skewed  in favour  of CPS. It was unfair, inequitable, opaque, anti-competitive  and, probably, not cost­ effective. On the authority of ALLPay1,  as  pointed out above,  the  process was flawed. It is reviewable in terms of PAJA.

[31] International authority and experience[4] teach us that deviations from fair process may themselves, quite often, be the symptoms of corruption or malfeasance in that the process is skewed in favour of one party to the exclusion of others. Such process is invariably unfair and therefore reviewable in terms of PAJA. The fact that clause 5.3.10 envisages the discussion and future agreement on remuneration of costs payable to CPS, reveal that there was indeed no agreement between the parties for CPS to perform the additional functions at all or at cost. In any event, the contended "at cost" remuneration to CPS is doubted by the independent auditing firm Nexia SAB & T (Nexia) engaged by SASSA to verify the correctness of the payment to CPS. Nexla points out that as a result of the Variation Agreement, SASSA overpaid CPS by an additional amount of over R13 million. It also, correctly, in my view, called into question the inclusion of salaries, bonuses, legal fees and expended assets in the payment made by SASSA to CPS as constituting "at cost" as contended for by CPS.

[32] I conclude that the contended Variation Agreement of 15 June 2012 was thus unfair and unlawful. It was skewed in favour of CPS. The alleged Variation Agreement tainted the process followed by SASSA and the consequent payment resulting therefrom. The tainted process is reviewable in terms of PAJA.

REMEDY

[33] What  then,   is  the  remedy?  In  terms  of  section  8  of  PAJA,  a  court  may,  in proceedings for judicial review in terms of section 6(1) grant any order that is just and equitable. In Bengwenyama Minerals  (Pty) Ltd  v Genorah Resources  (Pty) Ltd [5] the Constitutional Court pointed out that the granting of a just and equitable remedy is discretionary based on a pragmatic blend of logic and experience.

[34] In Steenkamp NO v Provincial Tender Board, Eastern Cape[6] Moseneke DCJ reasoned that -

'...the remedy must be fair to those affected by it and yet vindicate effectively the right violated. It must be just and equitable in the light of the facts, the implicated constitutional principles, if any, and the controlling law ... and at a broader level, to entrench the rule of law.'

[35] In the instant  matter,  as  a result of  SASSA's  unlawful  conduct,  the fiscus  tias been robbed of a substantial amount of money intended for the most vulnerable and  poor  people of  our  country.  The fiscus is poorer  as  it  did  not  receive  fair value   for   what   it   paid.   It   is   just    and   equitable   that   the   payment   of R316 447 361.41 made by SASSA to CPS, together with interest, be returned to the fiscus for the benefit of those for whom it was intended in the first place. This, in my view, is a just and equitable remedy that would effectively vindicate the fair process violated by the parties. The remedy would entrench the rule of law.

[36] Having regard to the aforesaid, the following order is granted -

36.1      The Variation Agreement between SASSA and CPS made on 15 June 2012, and the resultant payment made in the sum of R316 447 361.41 are reviewed and set aside;

36.2      CPS is ordered to refund the said amount of R316 447 361.41 to SASSA, with interest from June 2014 to date of payment;

36.3      The respondents are, jointly and severally, ordered to pay the costs of the application, including the costs of two counsel.

____________________________________

M TSOKA

 

JUDGE OF THE HIGH COURT

 

 

DATE OF HEARING: 22 FEBRUARY 2018

DATE OF JUDGMENT : 23 MARCH 2018

 

 

Appearances:

 

Counsel for  the applicant:                                     Adv Budlender Adv Kelly

Instructed by:                                                         MacRobert Attorneys

 

Counsel for the third respondent:                           Adv Cockrell SC Adv Bleazard

Instructed by:                                                             Smit Sewgoolam Incorporated

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