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In the KwaZulu Natal High Court, Durban

Republic of South Africa

Case No : 4880/12

PPD Engineering & Hardware Suppliers CC …..................................................Applicant

and

eThekwini Municipality …...............................................................................Respondent

Judgment

Lopes J

[1] This is an application for an interim interdict pending the outcome of a review for the setting aside of a tender awarded by the respondent, the eThekwini Municipality (‘the municipality’) for the supply and delivery of mechanical and insertion type electromagnetic flow water meters (‘water meters’).

[2] The history of the matter may be summarised as follows .

1. Water meters have been used by the municipality to monitor water consumption for approximately 100 years.

2. The applicant is a manufacturer of both water meters and what are referred to as electronic flow controllers. The two pieces of equipment are, in some installations, used together and are viewed by the applicant as an integrated unit.

3. The water meter gives off an electric impulse every time half a litre of water passes through it. This signal is transmitted to the electronic flow controller which has a valve, and after a specified amount of water has passed through the valve it shuts off, limiting or restricting entirely the flow of water.

4. During November of 2010 the municipality invited tenders for the supply of approximately 70 000 water meters. The tender closed on the 19^th November of 2010.

5. In this application the relevant part of the tender was that for 15mm water meters, and the tender specifications in respect thereof required that they :

   1. ‘comply with regulations relating to water meters in terms of the National Standard for water meters : SANS 1529-1 : 2003 or the latest applicable National Standard’ (Clause 4(b)); and

   2. ‘be approved and equipped to generate a high frequency pulse output (two pulses per litre for 15mm meters) so that the flow can be controlled by the Electronic Flow Limiter Devices currently used by the department’ (Clause 4(g));

   3. ‘If it is not a standard feature, Tenderers must stipulate on the Schedule of Prices the extra cost per water meter for the provision of a pulse output facility and any other facility that does not accommodate a reed switch in order to be compatible with the Electronic Flow Limiter Devices used by the Department.’ (Clause 5(a)).

6. By way of explanation, ‘electronic flow controllers’ and ‘Electronic Flow Limiter Devices’ are one and the same, and I use the latter terminology in referring to them.

7. Eleven entities tendered, three of which were regarded as non-responsive by the municipality.

8. The tender was initially awarded to Joat Sale & Services CC, but after an internal appeal procedure, that award was set aside and the tender was awarded to the applicant in November of 2011.

9. On the 15^th February 2012 and after it had purchased and tested some of the applicant’s 15mm water meters, the municipality’s attorneys wrote to the applicant complaining that the water meters did not comply with the required technical specifications because :

   1. they could not be controlled by the electronic flow limiter devices currently used by the municipality;

   2. the water meters were not approved in terms of the relevant approval required from the National Regulator for Compulsory Specifications (NRCS) under the specifications recorded in SANS 1529-9:2008 (‘SAN1529-9’).

10. The applicant replied to this letter and confirmed that its 15 mm water meter ‘is competent to work within any Electronic Flow Limiter Device. To my expert (manufacturers’s) knowledge, all Electronic Flow Limiter Devices uses (sic) water meter pulse output to control the flow of water.’

11. On the 10^th April 2012 the municipality’s attorneys again wrote to the applicant reiterating that the applicant’s water metres could not be controlled by the electronic flow limiter devices currently used by the municipality. That complaint is in addition to the complaint that the applicant’s meter had not been approved under the specifications set out in SANS 1529-9. The applicant was given 14 days to provide satisfactory proof that its water meters could be controlled by the electronic flow limiter devices used by the municipality, and that the meters were approved in accordance with the relevant SANS specification.

12. As nothing was done by the applicant, on the 26^th April 2012 the municipality cancelled the contract.

13. Other than the suggestion by the applicant’s representative in his letter of the 22^nd February 2012 that ‘my 15 mm is competent to work with any electronic flow limiter device’ there is no suggestion in the correspondence, nor yet any statement in the application papers of the applicant, that its water meters were in fact able to be controlled by the electronic flow limiter devices used by the municipality.

[3] Having tendered, having been awarded the tender, and having its water meters found wanting, the applicant seeks to review the tender award in order to have it set aside. Pending the final outcome of the review the applicant now seeks interim relief interdicting and restraining the municipality from issuing a further tender for the supply of water metres on the basis of what it describes as ‘the same unlawful terms and specifications set forth in the tender under review’.

[4] The requirements for interim interdictory relief are :

1. a prima facie right, though open to some doubt;

2. a well-grounded apprehension of irreparable harm if the interim relief is not granted and the ultimate relief is eventually granted;

3. a balance of convenience favouring the grant of the interim relief; and

4. the absence of any other satisfactory remedy.

See : Olympic Passenger Service (Pty) Ltd v Ramlagan 1957 (2) SA 382 (D).

[5] Ms Nicholson who appeared for the applicant submitted that the applicant’s prima facie right is established by the following :.

1. The award of the tender was unlawful as it was in breach of SANS 1529-9 approval. In this regard the applicant’s water meters are only designed to provide free water. They have not been approved together with the municipality’s electronic flow limiter devices under SANS 1529-9 which is required because when they are used together with water meters, consumers are charged for water consumption. In addition, all equipment used for billing purposes had to be verified and certified in terms of the Trade Methodology Act, 1973. As this was not done by the municipality prior to the installation of the equipment, the tender is unlawful.

2. The tender award should be set aside because it is anti-competitive and accordingly unfair.

[6] Dealing firstly with the issue of unlawfulness, it is common cause between the parties that when a water meter and an electronic flow limiter device are used together in combination, they require approval in terms of SANS 1529-9. What is in dispute between the parties is whether that approval can be given for components viewed separately (on the version of the municipality) or whether they must be considered together for approval (on the applicant’s version). The applicant submits that when it compiled its tender document it was unaware that approval was required for its water meters in terms of SANS 1529-9 if they were going to be used together with the electronic flow limiter devices currently used by the municipality. The applicant maintains that it only became aware of this fact when it received correspondence from the municipality’s attorney on the 15^th February 2012.

[7] Mr Goddard, who appeared for the municipality, submitted that it is obvious from the tender document that such approval was required. The tender document, however, refers only to the fact that the 15mm water meters are required to comply with SANS 1529-1. It is clear from the fact that the municipality not only regarded the applicant’s tender as being compliant, but eventually awarded the tender to the applicant, that only one of two circumstances could have applied :

1. either the municipality believed that the applicant had complied with SANS 1529-9; or

2. the municipality did not itself consider the matter of SANS 1529-9 approval at that stage.

Mr Goddard conceded that the municipality was in error in regarding the applicant’s tender as compliant when it did not have SANS 1529-9 approval.

[8] Ms Nicholson submitted that the unlawfulness of the municipality’s conduct with regard to the tender is also to be found in the fact that it was obviously using water meters which only had SANS 1529-1 approval together with electronic flow limiter devices, without having obtained SANS 1529-9 approval. This was being done in the process which followed after the supply of the water meters.

[9] I am by no means persuaded that it is revealed in the papers that the municipality has acted unlawfully as suggested by the applicant. However, even if I accept that the municipality does combine water meters which only have SANS 1529-1 approval with electronic flow limiter devices without combined SANS 1529-9 approval, that does not mean that the tender process or the award of the tender was unlawful. At best what it means is that the municipality is not obtaining the proper approval prior to the installation of water meters and electronic flow limiter devices being used together.

[10] With regard to the allegations of anti-competitive conduct, Ms Nicholson submits that the tender process is intrinsically anti-competitive because :

1. the electronic flow limiter devices originate from one entity – USC Metering (Pty) Ltd trading as Utilities;

2. the only other manufacturers currently in possession of SANS 1529-9 approval for both water meters and electronic flow limiter devices when used in conjunction are Elster Kent (Pty) Ltd and Sensus SA (Pty) Ltd, whose water meters are used in conjunction with the electronic flow limiter devices manufactured by Utilities; and

3. after cancellation of their contract by the municipality, the applicant sought to obtain a sample of the Utilities electronic flow limiter device in order to ensure that its water meters could be made compatible with it. The reply from the attorneys acting for Utilities stated that :

‘We have also been requested to advise that in the absence of a commercial relationship with your client, our client is not in a position to supply product to it.’

[11] Although it was suggested that this reply was somewhat ambiguous, it appears to my mind, clearly to convey that Utilities did not wish to supply the applicant with one of its electronic flow limiter devices. This is perhaps unsurprising as the two entities are in competition with one another.

[12] Ms Nicholson also pointed to the fact that, since 2004, only Utilities’ electronic flow limiter devices had been used by the municipality. She submitted that the process leading up to the supply of electronic flow limiter devices was anti-competitive and not in accordance with the proper tender procedures. However, as pointed out in the municipality’s answering affidavits, the Municipal Finance Management Act, 2003 which provides for the statutory framework for municipal procurement systems had not yet been promulgated, and the municipality’s Supply Chain Management Policy was only adopted in September of 2005, after Utilities had supplied the electronic flow limiter devices.

[13] Even accepting that the process adopted for the procurement of the electronic flow limiter devices was not in accordance with modern procedures, and perhaps even anti-competitive, how does that affect the tender which the applicant now wishes to have set aside? In my view it does not. The municipality finds itself in the position where it has a large number of electronic flow limiter devices which it now wishes to use in conjunction with water meters. What it needs however, are water meters, and it makes no sense for them to acquire water meters that are not compatible with the electronic flow limiter devices which it already has. To do otherwise would result in the economic folly that all the electronic flow limiter devices which it has already purchased might be rendered useless. If a consumer uses the applicant’s water meter in an application where free water is provided and no charge is levied, if the consumer changed his/her consumption pattern in the future, that water meter would be rendered useless because it could not be used with the respondent’s electronic flow limiter devices.

[14] Even the fact that Utilities may have assisted Elster Kent (Pty) Ltd and Sensus SA (Pty) Ltd in obtaining the necessary SANS 1529-9 approval, does not necessarily indicate anti-competitive conduct on the part of the municipality. The tender document required that the water metres be compatible with the electronic flow limiter devices currently used by the municipality. It obviously did not occur to the applicant at the time it made the tender that it should obtain a Utilities manufactured electronic flow limiter device in order to ensure that its water meters could operate in conjunction with it. The applicant was clearly confident that the two units could operate together. Unfortunately it turned out not to be so.

[15] However, had the applicant taken the prudent step of testing its equipment together with the Utilities electronic flow limiter device prior to making its tender, it would have avoided the situation in which it found itself. It is no answer to this to maintain that Utilities refused to supply an electronic flow limiter device. Had it been asked for by the applicant, one has difficulty in envisaging how the municipality could have avoided ensuring that the applicant was given an electronic flow limiter device to test together with its water meter prior to completing the tender. Indeed, it was conceded by Mr Goddard in argument that the municipality could not have resisted such a request. Unfortunately the applicant did not make that request and only has itself to blame in that regard.

[16] Having failed to satisfy the first requirement of a prima facie case for interim relief (even one open to some doubt), is there any basis on which the review application can proceed? Ms Nicholson submitted that the applicant may yet be able to establish the necessary evidence required in order to prove its case. In my view that would be too late. It is required to have established the prima facie case already. Ms Nicholson submitted that the prospects of success in the contemplated review proceedings represent the measure of the strength or otherwise of the alleged right that the applicant was required to establish prima facie, in order to obtain interim relief. In my view the applicant has not established any prospects of success in the principal case.

[17] I accordingly make the following order :

(a) the application for interim relief and the review application are dismissed.

(b) the applicant is to pay the respondent’s costs of the application.

Date of hearing : 27^th June 2012

Date of judgment : 6^th July 2012

Counsel for the Applicant : J F Nicholson (instructed by M P Lutge Incorporated)

Counsel for the Respondent : G D Goddard (instructed by Linda Mazibuko Attorneys)

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