of a rule nisi, sought by the Applicants and granted by

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1 IN THE HIGH COURT OF SOUTH AFRICA NATAL PROVINCIAL DIVISION CASE NO. 161/2001 In the matter between: NAUGIS INVESTMENTS CC G N H OFFICE AUTOMATION CC First Applicant Second Applicant and THE KWAZULU- NATAL TENDER BOARD THE MINISTER FOR EDUCATION AND CULTURE KWAZULU-NATAL First Respondent Second Respondent AND OTHERS J U D G M E N T HARPUR AJ. The Applicants were the successful tenderers in respect of two contracts to supply school furniture to the Second Respondent. Paragraph 1( a) of a rule nisi, sought by the Applicants and granted by consent, called upon the Respondents to show cause why an order should not be granted:- " That the decision of the KwaZulu- Natal Tender Board ( First Respondent )

2 taken on 20 th July 2000 to approve of a cancellation of the contracts concluded with the Applicants, be and is hereby set aside." During the hearing before me on the return day the Applicants distilled their case to the proposition that the First Respondent s said decision constituted an administrative action that was fatally defective for want of compliance with the principle of audi alteram partem, ( the audi rule ). They did not persist with the alternative relief sought against the Third Respondent, reasoning that failure of their argument on the relief sought in the main, would be fatal also to the alternative relief. The fourth to fifteenth Respondents were cited as interested parties, and did not oppose. The result was a contest between the Applicants on the one hand and the First and Second Respondents ( the Respondents ) on the other. Both the Applicants and the Respondents relied upon the decision in Cape Metropolitan Council v Metro Inspection Services 2001 (3) SA 1013 ( SCA ) ("Cape"), albeit for different reasons. The Respondents submitted that the decision to cancel the contracts was taken by the Second Respondent, not the First Respondent, and that it was taken as a matter of commerce, not administrative law. In particular they sought to fit their case within the mould of the following passage in Cape: " The Appellant is a public authority and, although it derived its power to enter into the contract with the First Respondent from statute, it derived its

3 power to cancel the contract from the terms of the contract and the common law. Those terms were not prescribed by statute and could not be dictated by the Appellant by virtue of its position as a public authority. They were agreed to by the First Respondent, a very substantial commercial undertaking. The Appellant, when it concluded the contract, was therefore not acting from a position of superiority or authority by virtue of it being a public authority, and, in respect of the cancellation, did not, by virtue of its being a public authority, find itself in a stronger position than the position it would have been in had it been a private institution. When it purported to cancel the contract, it was not performing a public duty or implementing legislation; it was purporting to exercise a contractual right founded on the 1 consensus of the parties in respect of a commercial contract." The Applicants, on the other hand, submitted that the decision to cancel had been taken by the First Respondent, not the Second Respondent, and that in the light, in particular, of the provisions of the KwaZulu- Natal Tender Board Amendment Act No 4 of 1997 (" the Act"), the cancellation of the contracts constituted an administrative action in respect of which there had been no compliance with the audi rule. In order to decide upon the differing contentions it is necessary to have regard to the material facts, including the material terms of the contracts, and also to the relevant provisions of the Act. 1 Cape supra at 1023H-1024A.

4 The material facts are as follows: ( a ) By way of a letter dated the 29 th of December 1999, the Second Respondent gave the First Applicant notice that it had failed to execute orders in terms of the contract with it and it was requested to furnish, within seven working days, reasons why the contract " cannot be cancelled" on the grounds of non- performance. ( b ) A letter from the First Applicant dated 12 th January 2000 followed. In it, the First Applicant sets out the difficulties experienced by it due to the non- availability of Saligna, the specified wood to be used in the manufacture of the school furniture ordered. It concluded by promising timeous completion. I pause to record that it became common cause during the argument before me that whether or not the Applicants were in fact in contractual breach was not a material issue: the issue was one of procedure. ( c ) By way of letters dated 8 th March 2000, the Applicants were requested to address the First Respondent on 16 March 2000 in relation to the question of their performance under the contracts. ( d ) A meeting was held on 16 th March Exactly what was said at that meeting has been the subject of disputes in the papers, none of them material. In any event, the Applicants, to the extent that

5 disputes remain, rely on the Respondents' version, properly construed. ( e ) At the meeting, the Applicants again furnished an explanation for their perceived non- performance. On the Respondents version the upshot was: " The First Respondent resolved that the contracts with the Applicants should continue and that the Applicants be given an opportunity to fulfil their contracts regarding all existing orders until the end of May 2000." 2 ( f ) The final version of the transcript relied upon by the Respondents reveals that the Applicants representative was specifically requested to indicate how long it would take to execute the contracts in full. His response was: " We are looking at least a month and a half to complete because..." He was then pressed for a more definite commitment in the following terms: " Would you be able to execute this contract now with certainty within the next month and a half?" 2 Indexed papers 202/6.10.

6 His response was: " Maximum two months we would be able to complete it." He was then asked the following question: " There won' t be any difficulty in you obtaining timber?" His response was: " Absolutely, unless of course if we have a pattern of rain which we don' t foresee, then that pushes everything else because like I said we were up and running. Unusual rain soaked into the timber and that caused a problem. If there are no rains guaranteed we would get out dry timber delivered to us." 3 On this version, in my view, there was no unconditional commitment. The First Respondent condoned such lapses on behalf of the Applicants that may, up to that time, have occurred and elected to approbate the contracts. ( g ) Thereafter, by way of a letter dated 23 rd June 2000, the Second Respondent complained to the First Respondent that both Applicants " have not delivered furniture to any school or office up until the end 3 Indexed papers/

7 of May 2000." The letter concludes by addressing the First Respondent' s " assistance". 4 ( h ) In a letter dated 21 st July 2000, the First Respondent advised the Second Respondent as follows: "1. Your submission ZNT1267 EC dated 23/6/2000 has reference. 2. The KZN Tender Board at its meeting held on 20 July 2000 approved the termination of contract ZNT1267 EC with Naugis Investments and GNH because they failed to meet the contractual obligation/ obligations. 3. The cancellation of the contract will be advertised in the next issue of the Provincial Gazette. A one week period will be allowed for appeals to be lodged. If no appeals are lodged, your department will be informed accordingly whereafter the items required can be purchased in terms of the procedures in submission as approved by the Tender Board. 4. The department must notify the contractors of the cancellation as soon as possible." 5 ( i ) On 26 July 2000, the Second Respondent addressed separate letters to each of the Applicants in the following terms: "1. The above matter bears reference. 2. Kindly be informed that the KZN Tender Board at its meeting held on 20 July 2000 approved the termination of your contract ZNT1267EC 4 Indexed papers/ Indexed papers/66-67.

8 because you failed to meet the contractual obligations. 3. Your co- operation in this regard will be appreciated." ( j ) Thereafter, the present application was instituted. The material terms of the contracts are as follows: ( a ) In the form of tender : " I/ we hereby tender to supply all or any of the supplies and/ or to render all or any of the services prescribed in the attached document to the KwaZulu- Natal Provincial Administration ( hereafter called " the Province") on the terms and conditions and in accordance with the specifications stipulated in the tender documents, and which will be taken as part of and incorporated into this tender, at the prices and on the terms regarding time for delivery and/ or execution inserted therein." 6 ( b ) The following notes are also of importance: " This tender is subject to the general conditions and procedures of the KwaZulu- Natal Tender Board ( ZNT6)." 7 6 I have numbered each of the pages in the special conditions. The quoted extract appears at page 11, paragraph 1 thereof. 7 12/(x).

9 " If any of the terms and conditions contained in ZNT6 are in conflict with any special conditions, stipulations or provisions incorporated in this tender, such special conditions, stipulations or provisions will apply." 8 ( c ) The general conditions and procedures of the First Respondent ( ZNT6) provide that: ( v ) " A tender is an offer in writing. In terms of this rule, the acceptance of the tender can only be in writing, signed by a duly authorised official of the State 9 and it must be in a letter 10 sent by registered or certified mail" ( v ) " Should the contractor fail to comply with any of the conditions of the contract, the State shall be entitled, without prejudice 11 to any of its other rights to cancel the contract." ( v ) " Upon any delay beyond the contract period in the case of a suppliers contract, the State shall... be entitled... forthwith to cancel the contract and buy such supplies as 12 may be required to complete the contract." 8 12/(xi). 9 I have supplied emphasis to this and other words or passages of particular importance. 10 Clause Clause Clause 38.3.:

10 ( v ) " Board " is defined as meaning the KwaZulu- Natal Tender Board. 13 ( v ) "State" is defined as including government departments of the Republic and any other bodies listed in tender documents as participating bodies. 14 The material provisions in the Act are as follows: (a)the preamble to the Act stipulates that its intention inter alia is to change the procurement system in KwaZulu- Natal and for that purpose to establish a representative and inclusive Tender Board, to create conditions which are conducive to the empowerment of small, medium and micro enterprises, to promote the achievement of equity by measures designed to protect or advance persons or categories of persons disadvantaged by past unfair discrimination, and to create a procurement system which is fair, equitable, transparent, and cost effective, amongst other purposes. (b)section 9(1) of the Act affords the Board, subject to the provisions of the Act and any other law, and acting within the procurement policy of the province, the power 13 Clause Clause This would seem to include the Second Respondent.

11 to procure goods and services for the Province, and stipulates that it may for that purpose: (i)on behalf of the Province, conclude an agreement with a person within or outside the Province or the Republic (Section 9 (1) (a)); (ii)on behalf of the Province resile from any agreement concluded under paragraph 9 (1) (a) and in an appropriate case, claim damages (paragraph 9 (1) (f); and (iii)on such conditions as it may determine, subject to the provisions of sub-section 9 (2) exempt any person with whom an agreement under paragraph 9 (1) (a) has been concluded from compliance with such agreement, or condone the failure of such person to comply with such agreement (section 9(1)(g)); (c)section 9 (6) (a) stipulates that: "If a person has failed to comply with any of the

12 conditions of an agreement, or has performed unsatisfactories [sic] under any agreement... the Board may, in addition to any other legal action it may take - cancel any agreement with that person." (d)section 13 of the Act sets out the underlying values and principles. It stipulates that: "1. In fulfilling its tasks in terms of this Act, the Board and its delegates must - (a) (b) create conditions which are conducive to the empowerment of small, medium and micro enterprises; promote the achievement of equity by measures designed to protect or advance persons or categories of persons disadvantaged by past unfair discrimination; and (c) create a procurement system which is fair, equitable, transparent, competitive and cost effective." During the course of argument, I raised with the Respondents' counsel whether the Respondents had placed anything before the court in relation to the reason why the assistance of the First Respondent was sought at all, if as contended, it was the Second Respondent who had cancelled the contracts. This prompted an application for

13 leave to deliver further affidavits on this topic. The application was opposed. The Applicants' counsel contended that it was too late for this and that the Respondents had already made averments to the contrary in the papers. In this regard, the following statements on behalf of the Respondents are relevant: (e) on 20 July 2000, the First Respondent cancelled the contracts with the Applicants 15 ; (f)"until the decision of the First Respondent on 20 July 2000 which cancelled the agreement with the Applicants is reviewed and set aside..." 16 ; (g) the First Respondent would be entitled to cancel the agreement should the Applicants not comply with the commitment and undertaking." 17 (h)in their account of what happened at the meeting on 16th March 2000, it was stated on behalf of the Respondents that it was the First Respondent who was the active party and the First Respondent who resolved that the contracts with the Applicants should continue. 18 In my view the Respondents have committed themselves to a 15 Indexed papers 143/ Indexed papers / Indexed papers /paragraph Indexed papers/

14 version on oath and ought not to be allowed, particularly at a late stage of the matter, to change tack once they have ascertained where "the shoe pinches" 19. There is no apparent reason why there was no earlier attempt to adduce such further (and contradictory) evidence. I reserved my judgment on the application in order that I would be better placed to decide it after hearing all the arguments. Having now heard the arguments and afforded the matter due consideration, I am of the view that the Respondents application for leave to adduce further affidavits ought to be dismissed, and I make that ruling. It seems to me that the insurmountable obstacle facing the Respondents' submissions is that they do not accord with the facts. Had it been the Second Respondent that had acted independently, on purely contractual grounds, then the passage in Cape relied upon by the Respondents would have applied. The facts here are different, and Cape is distinguishable on that basis. The Second Respondent clearly did enlist the assistance of the First Respondent, to whose authority it deferred. On the facts before me, it was the First Respondent who made the election to cancel on behalf of the Second Respondent, and the Second Respondent who communicated that election to the 19 S v De Jager 1965 (2) SA 612 (A) at 613A-E.

15 Applicants 20. In making that election, it seems overwhelmingly probable, although there is no direct evidence on this point, that the First Respondent did so in terms of its powers under the Act. It could not have done so as a party to the contracts, because it was not one. In this regard it should be remembered that it was the Second Respondent, not the First Respondent, who became the party to the contracts with the Applicants. Acting lawfully, the First Respondent could only have acted in accordance with the relevant provisions of the Act, in particular, those set out in section 9 (1) (f) and 9 (6) (a) containing the provisions which empower the First Respondent to cancel an agreement on behalf of the Second Respondent in the event of a failure to comply with any of the conditions of an agreement or in the event of unsatisfactory performance under any agreement. Those provisions provide for the exercise of a public power. 21 It follows that in my view, the Respondents' decision to "approve the cancellation" was in fact an election by it to cancel and that it constituted an "administrative action" requiring compliance with the audi rule. 20 Swart v Vosloo 1965 (1) SA 100 (A) at 105G and 115E - F. 21 Cape supra /20.

16 It was contended by the Respondents, in the alternative, that the meeting of 16 March 2000 and the events which preceded it constituted proper compliance with the audi rule for the purposes of the cancellation. This contention, in my view, has no substance. As I have already indicated, the effect of that meeting was to condone any previous lapses by the Applicants, and to make an election to continue with the contracts. I agree with the Applicants' contention that a fresh opportunity to be heard ought to have been furnished thereafter. From the passages appearing in the final transcript of that meeting, to which I have already referred, it appears that the First Respondent was told that there may be circumstances which would delay further contractual performance. Fresh representations could no doubt have been made in that regard. Questions in relation to nonpayment by the Respondents could also have formed the subject of representations by the Applicants to the First Respondent. Having regard to the underlying values and principles set out in Section 13 of the Act, representations could also have been made on extracontractual grounds, for example the need to create conditions to promote empowerment, or to advance persons previously disadvantaged. These representations might

17 have influenced its decision, if only the Applicants had been given the opportunity to be heard. The point is not so much the substance of the representations that would have been made, but the lack of opportunity to do so. It follows that, in my view, there was a failure in the application of the audi rule by the First Respondent and that the application should succeed. In relation to costs: (a) The Respondents were represented by two counsel and the Applicants were, during some stages in the proceedings (but not during the argument before me), represented by two counsel. No objection was raised on behalf of the Respondents to the Applicants' submission that the costs of two counsel were justified. Rightly so, in a matter of this complexity and importance. (b) I was not addressed in relation to the various costs that were reserved for my decision. It seems to me that these reserved costs should all follow the result.

18 In the result, I make the following order: (a) The decision of the First Respondent taken on 20 July 2000 to approve of a cancellation of the contracts concluded with the Applicants, referred to in the papers, is hereby set aside. (b) The First and Second Respondents are directed to pay the Applicants costs, including those consequent upon the employment of two counsel, where two counsel were employed, and reserved costs. DATED this 18 th day of December HARPUR AJ