Constitutional court of south africa



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CONSTITUTIONAL COURT OF SOUTH AFRICA

Case CCT 48/13


In the matter between:

ALLPAY CONSOLIDATED

INVESTMENT HOLDINGS (PTY) LTD First Applicant
ALLPAY FREE STATE (PTY) LTD Second Applicant
ALLPAY WESTERN CAPE (PTY) LTD Third Applicant
ALLPAY GAUTENG (PTY) LTD Fourth Applicant
ALLPAY EASTERN CAPE (PTY) LTD Fifth Applicant
ALLPAY KWAZULU-NATAL (PTY) LTD Sixth Applicant
ALLPAY MPUMALANGA (PTY) LTD Seventh Applicant
ALLPAY LIMPOPO (PTY) LTD Eighth Applicant
ALLPAY NORTH WEST (PTY) LTD Ninth Applicant
ALLPAY NORTHERN CAPE (PTY) LTD Tenth Applicant
MICAWBER 851 (PTY) LTD Eleventh Applicant
MICAWBER 852 (PTY) LTD Twelfth Applicant
MICAWBER 853 (PTY) LTD Thirteenth Applicant
MICAWBER 854 (PTY) LTD Fourteenth Applicant
and
CHIEF EXECUTIVE OFFICER OF THE

SOUTH AFRICAN SOCIAL SECURITY AGENCY First Respondent
SOUTH AFRICAN SOCIAL SECURITY AGENCY Second Respondent
CASH PAYMASTER SERVICES (PTY) LTD Third Respondent
EZIDLUBHEDU INVESTMENT HOLDINGS (PTY) LTD Fourth Respondent
FLASH SAVINGS AND CREDIT COOPERATIVE Fifth Respondent
ENLIGHTENED SECURITY FORCE (PTY) LTD Sixth Respondent
MOBA COMM (PTY) LTD Seventh Respondent
EMPILWENI PAYOUT SERVICES (PTY) LTD Eighth Respondent
PENSION MANAGEMENT (PTY) LTD Ninth Respondent
MASINGITA FINANCIAL SERVICES (PTY) LTD Tenth Respondent
SOUTH AFRICAN POST OFFICE Eleventh Respondent
ROMAN PROTECTION SOLUTIONS CC Twelfth Respondent
UBANK LIMITED Thirteenth Respondent
AFRICAN RENAISSANCE INVESTMENT

MANAGEMENT (PTY) LTD Fourteenth Respondent
STANDARD BANK GROUP LIMITED Fifteenth Respondent
NEW SOLUTIONS (PTY) LTD Sixteenth Respondent
ITHALA LIMITED Seventeenth Respondent
KTS TECHNOLOGY SOLUTIONS CONSORTIUM Eighteenth Respondent
and
CORRUPTION WATCH First Amicus Curiae
CENTRE FOR CHILD LAW Second Amicus Curiae


Neutral citation: AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others (No 2) [2014] ZACC 12
Coram: Moseneke ACJ, Cameron J, Dambuza AJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J
Heard on: 11 February 2014
Decided on: 17 April 2014
Summary: Remedy – unlawful tender – just and equitable remedy – tender set aside – new tender ordered – existing contract to remain in place until final decision on whether to award new tender

ORDER

Judgment on the just and equitable remedy arising from this Court’s order in AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others [2013] ZACC 42; 2014 (1) SA 604 (CC) declaring that the tender was invalidly awarded.


The Contract for the Payment of Social Grants between the South African Social Security Agency and Cash Paymaster Services (Pty) Ltd is declared invalid. The declaration of invalidity is suspended pending the decision whether to award a new tender after the tender process is re-run. The full order is at [78].


JUDGMENT



FRONEMAN J (Moseneke ACJ, Cameron J, Dambuza AJ, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J concurring):



Introduction

  1. This judgment deals with the remedy that should follow upon the judgment on the merits.1 This Court declared the award of the tender by the South African Social Security Agency (SASSA) to the third respondent, Cash Paymaster Services (Pty) Ltd (Cash Paymaster), constitutionally invalid.2 The declaration of invalidity was based on two grounds. The first was that SASSA failed to ensure that the empowerment credentials claimed by Cash Paymaster were objectively confirmed.3 The second was that Bidders Notice 2 did not specify with sufficient clarity what was required of bidders in relation to biometric verification,4 with the result that only one bidder was considered in the second stage of the process. This rendered the process uncompetitive and made any comparative consideration of cost-effectiveness impossible.5




  1. Section 172(1)(b) of the Constitution provides that following upon a declaration of constitutional invalidity a court—

“may make any order that is just and equitable, including—

(i) an order limiting the retrospective effect of the declaration of invalidity; and

(ii) an order suspending the declaration of invalidity for any period and on any conditions, to allow the competent authority to correct the defect.”




  1. Paragraph 4 of the order suspended the declaration of invalidity pending the determination of a just and equitable remedy. In paragraph 5 the parties were directed to provide factual information and written submissions for the purpose of determining a just and equitable remedy. A further oral hearing took place on 11 February 2014.




  1. The structure of this judgment is as follows. First, I set out a summary of the factual information provided by the parties and their submissions about the appropriate remedy. I then consider the proper legal approach to determining a just and equitable remedy in the procurement context. I will deal with each of the relevant aspects relating to that before coming to a final conclusion on the appropriate remedy. At the outset it is necessary to say that the remedy will not disrupt the payment of existing grants.



Factual information and submissions

  1. The information provided by the parties and their submissions are helpful. There are, however, disputes about the relevance and correctness of certain facts. The provisions allowing the receipt of factual information in this Court6 do not cater for the resolution of disputed evidence. The order we make is not dependent on any factual finding in relation to disputed facts. Nevertheless, the uncontested information provides a useful background for determining a just and equitable remedy.




  1. AllPay Consolidated Investment Holdings (Pty) Ltd (AllPay) recognised that SASSA and Cash Paymaster were best positioned to assess the time, necessary steps and cost implications of a new tender process. It did, however, commission reports from various experts to gather factual information in support of what it envisages should take place in the event that a fresh tender is ordered.7 The best indication of the time and steps required for a new tender process to take place is to consider what was required in the previous tender. On that basis, AllPay contended that an entirely new tender process, from the amendment of the Request for Proposals to the handover to the successful tenderer, could be concluded in no more than nine and a half months.



  2. The key question is whether the implementation of a new system would cost SASSA more than it is currently paying for the service. Because the cost of ordering a fresh tender is the normal consequence of an unlawful tender process, any expense considerations must be viewed in the light of the benefits of a more competitive tender. This underlies the principle in section 217 of the Constitution that fair public tendering leads to more cost-effective solutions.




  1. The expert evidence proffered by AllPay8 suggests that, had it been awarded the tender instead of Cash Paymaster, SASSA would have saved approximately R926 million over five years. AllPay contends that the price discrepancy between Cash Paymaster’s and AllPay’s original offerings makes it clear that there may be significant financial benefits to running a fresh tender. On this basis the cost of re‑doing the tender may well be recouped by the state receiving a more cost-effective solution. The expert contends that, even on conservative assumptions, Cash Paymaster has, after just two years, already covered all its costs in implementing the tender and is actually making a profit. By the time a new tender process is implemented, Cash Paymaster would have earned a reasonable internal rate of return on its investment.




  1. AllPay also argued that the current system is far from perfect. As a result, it contends that Cash Paymaster is not providing the best service and that beneficiaries are forced to endure a sub-optimal system for which SASSA is paying more than it should. Because Cash Paymaster has already embarked on a bulk enrolment process, including the collection of biometric data, which is now owned by SASSA, there is no reason why a new successful bidder could not take this over. The new tenderer could thus make use of that information to allow for a seamless takeover of the current payment of beneficiaries without the need for a large scale re-enrolment of all beneficiaries.




  1. AllPay submitted that, in the ordinary course, effective remedial relief must follow a declaration of unlawfulness. If the rule of law is to be vindicated, the starting point must be the re-running of the tender process. Given the nature and materiality of the irregularities, the only just and equitable remedy is one that suspends the declaration of invalidity and allows for a fresh tender process to run, with a revised Request For Proposals and with prospective bidders being allowed to submit fresh bids. Cash Paymaster’s contract with SASSA should be kept in place until the successful bidder is able to take over. This will ensure the uninterrupted payment of social grants to beneficiaries and also provide Cash Paymaster with the chance to mitigate any prejudice that would arise if the award to it were invalidated with immediate effect.




  1. AllPay contended that, pending the outcome of the new tender process, Cash Paymaster would not be entitled to “walk away” from the existing contract – it is effectively the government’s agent for the provision of social grants and therefore has a constitutional obligation to protect the interests of the beneficiaries by continuing to perform under its existing contract with SASSA. It would also be unlawful for Cash Paymaster to resile from the contract. This is because the effect of the interim suspension of the declaration of invalidity would be that the parties remain bound by the existing contract until the new contract becomes operational. However, if Cash Paymaster were to refuse to perform under its current contract, emergency arrangements could be put in place to ensure that beneficiaries are paid. In particular, SASSA would be entitled to enter into an emergency contract in terms of the relevant treasury regulations.9




  1. SASSA’s starting premise, like AllPay’s, was that a new tender would need to follow largely the same process as the first tender. This process took nearly three years with an overall cost of approximately R6 million.10 Based on the previous process, SASSA estimated that the total time for implementing a new system would be not less than 24 months and would cost between R5 million and R10 million.



  2. SASSA pointed out that its contract with Cash Paymaster was intended to be the last time that it outsourced its obligation to pay social grants, since it intends to take over the system by April 2017. An advisory committee is currently analysing the possible ways that SASSA may take over the payment system by that time. If a new tender were to be awarded it would therefore have to be for a much shorter period than five years.11 Moreover, for any tenderer to recoup the pre-implementation costs, the price of a shorter tender would have to be significantly higher. Any delays attributed to a new service provider would also hamper SASSA’s own target of being self‑sufficient by 2017.




  1. SASSA maintained that the current services are being provided in an efficient and uninterrupted way. Nearly 21 million people (99.76% of beneficiaries) have been re-enrolled under the new system. The registration process has resulted in the Department of Social Development declaring unspent funds of R2 billion and the service fees have been reduced from R32 per person to R16.44 per person. This will result in a saving of R800 million per year.




  1. SASSA argued that, because of the practical implications, the tender should not be set aside. The Court has an obligation to declare the award of the tender constitutionally invalid, but that does not necessarily require that the contract with Cash Paymaster be set aside.




  1. The public has an interest in having a procedurally correct process, but this must be balanced against the essential need for uninterrupted service delivery in line with the obligations under sections 27 and 28 of the Constitution. SASSA contended that the contract is too far advanced to be undone, and that it is strongly in the interests of grant beneficiaries that the contract be allowed to run to completion. There has been no finding of fraud or corruption, and little or no loss to the unsuccessful tenderers, who in all likelihood would not have won the tender even under a different process.




  1. However, SASSA contended that, if the Court were to declare the contract invalid, its declaration should be suspended for three years, until the contract expires. If the Court were to set aside the tender before the expiration of the current contract, given the time it would take to run a new tender process, the declaration of invalidity should be suspended for two years, which would allow SASSA sufficient time to take over the administration of the payment system.




  1. Cash Paymaster also accepted that it is not best placed to indicate how long a new tender process would take and what the costs involved would be. It estimates that it would take at least 12 months to prepare, issue and adjudicate a new tender. On the costs involved, Cash Paymaster offered no comment and alluded only to the capital expenditure of R1.3 billion it has already incurred. It highlighted potential difficulties with the availability of the required technology and infrastructure, the issuing of new smart cards, the probable re-registration of beneficiaries and the likelihood that new bank accounts will need to be opened.



  2. It indicated that, if its contract were to be cancelled, it would be willing to assist a new tenderer during the transition. However, this was conditional upon payment for its services in terms of the current contract and on the basis that its facilitation of a takeover would not result in the erosion of intellectual property rights. Cash Paymaster emphasised that additional obligations to facilitate the takeover would have financial implications for it – and would be caused by SASSA’s, rather than its own, administrative irregularities. In the event of an expedited termination, Cash Paymaster submitted that it would face financial exposure of R41.5 million (if terminated within six months) or R32 million (if terminated within 12 months).




  1. Cash Paymaster submitted that any remedy granted should not result in an interruption in payment services; any decrease in the quality of the service currently enjoyed by recipients or any other inconvenience; or uncertainty in respect of the on‑going payment of grants. The only remedy that would guarantee this, and thus the one that is just and equitable in the circumstances, is to allow Cash Paymaster to run its contract to completion. This can be achieved either by declining to set aside the contract or suspending any order setting it aside for the remainder of the contract period.



  2. Cash Paymaster submitted that, in terms of sections 3 and 4(1)(a) of the South African Social Security Agency Act12 (Agency Act), SASSA is statutorily empowered to act as the sole agent to ensure the efficient and effective management of the administration of the grants. It thus asserted that SASSA is best placed to make a decision on the feasibility of a new tender.




  1. Cash Paymaster indicated that it is no longer of critical importance to determine whether it is constitutionally bound to distribute social grants, as it has undertaken to do so subject to certain conditions. However, it argued that sections 27(1)(c) and 28(1)(c) are not binding on it, at least not to the extent that it is duty-bound to continue to provide a public service on behalf of the state and to expend its own resources under terms to which it has not agreed.




  1. Corruption Watch drew attention to the composition of the decision-making bodies in a fresh bid process. SASSA was requested to provide information relating to the steps taken, if any, to investigate the irregularities. While SASSA undertook to provide the information, none has been forthcoming, and Corruption Watch remains concerned about the irregularities that occurred in the tender process.



  2. Corruption Watch did not make firm proposals on the appropriate remedy. It raised more general rule of law concerns. Prejudice to third parties is relevant but not determinative and, while damage to the public is a major concern, a court should be slow to conclude that there is no possible order that sets the tender award aside and also adequately protects members of the public.




  1. In oral argument, Corruption Watch proposed that this Court should declare the contract invalid unless it is satisfied that there is a real risk that setting it aside will lead to significant prejudice and that the risk cannot be ameliorated.




  1. The other amicus curiae, the Centre for Child Law (Centre), expressed a preference to suspend the declaration of invalidity until the end of the existing contractual period. The Centre’s basic premise is that it would be inappropriate for the Court to order a new tender if it would result in a new registration process.




  1. According to the Centre, the relevant factors when considering setting the tender aside are the―

  1. interest of beneficiaries in the uninterrupted payment of social grants, especially that of children;

  2. cost to the public purse versus the proper use of public funds; and

  3. need to promote respect for the rule of law, including both the value of deterrence and the maintenance of and respect for a fair and lawful procurement system.




  1. It lays the strongest emphasis on the first consideration.



  1. The Centre also contended that Cash Paymaster would be under a contractual and constitutional duty to continue to administer the social grants until a new tender has been awarded. The Centre urged the Court to supervise the implementation of any order that sets aside or shortens the duration of the contract, so as to ensure that the interests of beneficiaries are protected.


Proper approach to remedy

  1. In Steenkamp Moseneke DCJ stated:

“It goes without saying that every improper performance of an administrative function would implicate the Constitution and entitle the aggrieved party to appropriate relief. In each case the remedy must fit the injury. 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. It is nonetheless appropriate to note that ordinarily a breach of administrative justice attracts public-law remedies and not private-law remedies. The purpose of a public-law remedy is to pre-empt or correct or reverse an improper administrative function. . . . Ultimately the purpose of a public remedy is to afford the prejudiced party administrative justice, to advance efficient and effective public administration compelled by constitutional precepts and at a broader level, to entrench the rule of law.”13 (Footnote omitted.)


The emphasis on correction and reversal of invalid administrative action is clearly grounded in section 172(1)(b) of the Constitution, where it is stated that an order of suspension of a declaration of invalidity may be made “to allow the competent authority to correct the defect.” Remedial correction is also a logical consequence flowing from invalid and rescinded contracts14 and enrichment law generally.15



  1. Logic, general legal principle, the Constitution, and the binding authority of this Court all point to a default position that requires the consequences of invalidity to be corrected or reversed where they can no longer be prevented. It is an approach that accords with the rule of law and principle of legality.16




  1. In the merits judgment this Court stated:

“Once a finding of invalidity . . . is made, the affected decision or conduct must be declared unlawful and a just and equitable order must be made. It is at this stage that the possible inevitability of a similar outcome, if the decision is retaken, may be one of the factors that will have to be considered. Any contract that flows from the constitutional and statutory procurement framework is concluded not on the state entity’s behalf, but on the public’s behalf. The interests of those most closely associated with the benefits of that contract must be given due weight. Here it will be the imperative interests of grant beneficiaries and particularly child grant recipients in an uninterrupted grant system that will play a major role. The rights or expectations of an unsuccessful bidder will have to be assessed in that context.”17




  1. This corrective principle operates at different levels. First, it must be applied to correct the wrongs that led to the declaration of invalidity in the particular case. This must be done by having due regard to the constitutional principles governing public procurement, as well as the more specific purposes of the Agency Act. Second, in the context of public-procurement matters generally, priority should be given to the public good. This means that the public interest must be assessed not only in relation to the immediate consequences of invalidity – in this case the setting aside of the contract between SASSA and Cash Paymaster – but also in relation to the effect of the order on future procurement and social-security matters.




  1. The primacy of the public interest in procurement and social-security matters must also be taken into account when the rights, responsibilities, and obligations of all affected persons are assessed. This means that the enquiry cannot be one‑dimensional. It must have a broader range.



  2. Corruption Watch proposed that we should articulate a general formulation for when it would be just and equitable to deviate from the corrective principle. For the moment, I only wish to point out that a general statement of this kind may not be desirable or even feasible once it is accepted that the application of the corrective principle is not uniform.18 The corrective principle may be capable of implementation at certain levels, but not others.




  1. In the discussion that follows, I will first consider the practical difficulties raised as obstacles to ordering a new tender process, before dealing with the alleged legal problems in that regard.


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