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[2017] ZAECELLC 14
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Hemipac Investments (Pty) Ltd v Independent Electoral Commission and Others (EL1219/16) [2017] ZAECELLC 14 (12 July 2017)
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IN THE HIGH COURT OF SOUTH AFRICA
EAST LONDON CIRCUIT LOCAL DIVISION
CASE NO: EL1219/16
In the matter between:
HEMIPAC INVESTMENTS (PTY) LTD Applicant
and
THE INDEPENDENT ELECTORAL COMMISSION First Respondent
CRANE CREST INVESTMENTS 71 (PTY) LTD t/a
NOVATE PROPERTY INVESTMENTS Second Respondent
HARBOUR POINT FUELS (PTY) LTD Third Respondent
69 FRERE ROAD TRUST Fourth Respondent
BALLUSTRADE PROPERTIES (PTY) LTD Fifth Respondent
STHATHU FUNDING (PTY) LTD Sixth Respondent
FINISHING TOUCH TRADING 260 (PTY) LTD Seventh Respondent
JUDGMENT
MAGEZA AJ
The relief sought:
[1] This is a review application directed at the first respondent’s decision to disqualify a bid submitted by the applicant pursuant to an advertised invitation to tender under bid reference number: IEC/EC-04/2015 (“the tender”).
[2] In summary, applicant seeks the review and setting aside of the following:
[2.1] the decision of the first respondent disqualifying both the ‘BBC’ and the ‘Waverley’ bids for lack of compliance with the key requirements of the tender;
[2.2] the decision of the first respondent awarding the tender to the second respondent be set aside; and that
[2.3] upon setting the said award aside, first respondent’s decision be substituted by an award to the applicant.
[3] Applicant also seeks an order that first respondent be ordered to pay costs of this application as well as costs occasioned by an application for Interdictory relief launched by it under case number: EL806/2016 ECD2106/2016 preceding this review.
[4] The review is premised on several grounds set out in section 6(2) of the Promotion of Administrative Justice Act, No. 3 of 2000 (“PAJA”). Again in summary, these grounds under PAJA include alleged procedural unfairness as contemplated by section 6(2)(c); bad faith, arbitrary and capricious conduct envisaged in section 6(2)(e)(vi); that, the disqualification of the bids was not rationally connected to the information available and before the IEC and its representatives, as envisaged in section 6(2)(f)(ii)(cc).
Parties:
[5] Applicant is described as an entity whose main business is the development and leasing out of commercial buildings and is a subsidiary of a larger group of companies, involved in developing and leasing out commercial buildings for office space to government institutions and public entities.
[6] First respondent is the Independent Electoral Commission (“the IEC”) a Constitutional institution and an “organ of state” provided for in terms of section 239 of the Constitution. The function it performs involves the management of elections for national, provincial and municipal legislative bodies.
[7] Second respondent is Crane Crest Investments 71 (Pty) Ltd t/a Novate Property Investments, a private company cited as the successful bidder awarded the tender. Second to seventh respondents do not oppose the review and abide the decision of this Court.
Some principles relating to procurement rules:
[8] The progressive realisation of a bidding process involves a number of stages. Section 1 (i) of the Preferential Procurement Policy Framework Act, 5 of 2000 mandates that for a tender to be deemed acceptable or responsive, it must as a start, comply with all the specifications and conditions of the bid as set out in the tender document. Non-compliance with specifications and conditions render a tender unacceptable or non-responsive and as a result liable to disqualification from further assessment and consideration.
[9] In Chairperson, Standing Tender Committee and Others v JFE Sapela Electronics (Pty) Ltd 2008 (2) SA 638 (SCA) at para [14] Scott JA said the following:
“[14] The definition of “acceptable tender” in the Preferential Act [Preferential Procurement Policy Framework Act 5 of 2000] must be construed against the background of the system envisaged by s 217(1) of the Constitution, namely one which is ‘fair, equitable, transparent, competitive and effective’. In other words, whether ‘the tender in all respects complies with the specifications and conditions of the tender as set out in the contract documents’ must be judged against these values.”
[10] Leach JA in Dr JS Moroka Municipality v Bertram (Pty) Ltd 2014 (1) All
SA 545 (SCA) at paras [14] and [16] commented:
“[14] …A bid that does not satisfy the necessary prescribed minimum qualifying requirements simply cannot be viewed as a bid ‘validly submitted’. Moreover, the tender process consists of various stages: first, examination of all bids received, at which stage those which do not comply with the prescribed minimum standards are liable to be rejected as invalid; second, the evaluation of all bids ‘validly submitted’ as prescribed in clause 3.1; and third, a decision on which of the validly submitted bids should be accepted. The fact that all bids validly submitted are to be taken into consideration as set out in clause 3.1 affords no discretion to condone and take into account bids not validly submitted but disqualified.” and;
“[16] In these circumstances it is clear that there was no discretion to condone a failure to comply with the prescribed minimum prerequisite of a valid and original tax clearance certificate. That being so, the tender submitted by the first respondent was not an ‘acceptable tender’ as envisaged by the Procurement Act and did not pass the so-called ‘threshold requirement’ to allow it to be considered and evaluated. Indeed, its acceptance would have been invalid and liable to be set aside - as was held by this court in ‘Sapela Electronics’. On this basis the appellants were perfectly entitled to disqualify the first respondent’s tender as they did.”
[11] Tenders that have been disqualified cannot be scored. In Loghdey and Others v City of Cape Town and Others; Advanced Parking Solutions CC and Another v City of Cape Town and Others 2010 (6) BCLR 591 (WCC) at 607 A-B para [48] the Court commented:
“Furthermore, by proceeding to score the tenders on the basis of allowing the SPS tender to be treated as if it had tendered a different device, the evaluation committee scored a tender that was not “acceptable” within the meaning of the PPFA. In my view, the further consideration of a tender that was manifestly non-compliant with a material requirement of the RFP stripped the process of one of the essential characteristics of the public procurement process: transparency.”
Details of the tender:
[12] The genesis of the bidding process arose pursuant to a tender for offices to accommodate the first respondent in East London and this was advertised by it in newspapers on 31 May 2015. Following the invitation, a non-compulsory briefing session to clarify all aspects of the tender to interested bidders was convened by first respondent on 11 June 2015. The closing date for the submission of the bids was 3 July 2015 and it was a condition of the tender that bids would be evaluated on the basis of the 90/10 scoring principle. Applicant submitted two bids in respect of two buildings, the so-called ‘Waverley’ bid and the ‘BBC’ bid. Applicant did not attend the briefing session.
[13] Applicant’s founding affidavit is deposed to by a duly authorised director who confirms the submission of applicant’s tenders and that annexed to each bid was a similarly worded covering letter dated 26 June 2015, marked for the attention of the first respondent’s tender adjudication panel. The dispute revolves around the interpretation of paragraph 9 on page 3 of the covering letters wherein the following is conveyed:
“Due to the fact that we do not have your specific needs requirements for a back-up generator, the costs thereof, have not been included in this offer. We will however, upon receipt of your specific needs requirements for a back-up generator, spec same and obtain a quote, the costs of which can be amortized into the Lease Agreement, unless you choose to pay us upfront. We however confirm that an emergency electrical power generator will be provided.”
[14] Following the evaluation process undertaken by the bid evaluation committee of first respondent (“the BEC”), both bids were disqualified and first respondent awarded the bids to the second respondent in April 2016.
[15] It is not disputed by the applicant that all the key requirements with respect to the required office accommodation and tender specifications were mandated to be inclusive in one single tendered price. One of the specifications is an emergency electrical power generator which had to be included in the single tendered price.
[16] The disqualification of the applicant’s bids is set out in Annexure ‘FA22’ at p338 – 342 is the Bid Evaluation Committee (BEC) and the report conveys the finding that:
“Hemipac Investments Ltd. - Proposal 1 – disqualified, additional cost for the generator not included in rental amount”
And item 2 –
“Hemipac Investments Ltd. – Proposal 2 – to disqualify additional cost for generator not included in the rental “
amount”
Material tender conditions:
[17] The Bid conditions specified in clause 6 were that: –
“Tenders must not be qualified by the service provider’s own conditions of tender. Failure to comply with this requirement shall invalidate the tender.”
Page 149 of bid Clause provides –
“Please note that tenders that do not conform to the primary compliance criteria indicated in Section A will not be considered. The bid evaluation criteria below must be read together with any additional evaluation criteria that may form part of the bid specifications.”
[18] “Acceptance or Rejection of Tender” (Primary compliance verification criteria)
Legality of tender document:
(a) Non-compliance with tender rules – The following shall lead to disqualification:
· …
· Any changes to the tender specifications (unless formally agreed to by the Electoral Commission and recorded as such before the closure of the tender).”
The Bid:
[19] The bid document for Bid: IEC/EC-04/2015 details the IEC specifications and the requirement for the inclusion of a generator falls under the column –
“ACCOMMODATION REQUIREMENTS.”
The specifications thereto are set out at page 31 of the Bid Document as follows:
‘Bid Specifications’ –
“Grade A building with approximately 1059sqm of office space and the building must be able to accommodate requirements which include:
(i) Internal office design mostly individual offices.
(ii) Electrical requirements.
(iii) Air conditioning suitable for its ICT infrastructure.
(iv) …
(v) Emergency power generator to supply power to lights, white and red power.
(vi) …
(vii) …
(viii) …
[20] The capacity of the required emergency power generator is also contained in the IEC Bid Document at page 36 and is defined as:
“A 250KVA emergency power generator to supply lights, red and white power sockets as well as the ICT server room air conditioner.”
The disqualification:
[21] Despite earlier enquiries about the progress of the evaluation process, applicant only learned of the disqualification and the full reasons thereof on the 24th June 2016. Applicant states it was provided with a copy of the BEC report setting out the individual scoring sheets in two tranches, the first in the form of an ‘interim response’ on the 2nd June 2016 and thereafter the rest on the 24th June 2016. Applicant was aggrieved by the decision and resolved to challenge the outcome. A sizeable amount of correspondence was exchanged between applicant and first respondent but this did not resolve the dispute.
[22] The two grounds for the disqualification provided by first respondent were the following:
“The bids did not meet the minimum key requirements with regard to the provision of emergency power as part of the all-inclusive cost to be tendered;
The bids did not meet minimum key requirements with regard to tenders not to be subject to qualifications and/or conditions and/or additional terms to be negotiated after submission.”
Communication after the disqualification:
[23] Following the disqualification, applicant sought an undertaking that first respondent would not implement: -
‘…the award pending the finalisation of a possible appeal or review in view of the fact that a contract was allegedly already concluded with Novate…’
[24] At paragraph [60.20] of its founding affidavit, applicant contends that the BEC report provided to it did not in its view constitute a record of decision and that such a record: -
“… goes much further than merely the BEC’s report and recommendation. Without limiting the record of decision, one would expect in addition the minute of the meeting of the BAC and its full report, which should, so I am advised, include confirmation that all disqualifications are justified.”
[25] In the event, applicant advised the first respondent that it was of the view that it had not been provided with all the required documents and that first respondent was simply intent on implementing the bid with Novate. As a result, so the applicant says, it was compelled to launch a 336 page long interdict application. As things turned out, this interdict set down for the 1st September 2016 was, by agreement, removed from the roll with costs reserved for later determination.
[26] The full reasons were provided to applicant after the initiation of the review proceedings and the detail thereof is the following:
First respondent’s reasons:
“Whereas the applicant seeks to review and set aside the tender awarded by the first respondent to the second respondent under bid reference number: IEC/EC-04/2015 (‘the tender’) after having disqualified the applicant’s two bids referred to in the founding papers as the BBC bid and the Waverley bid, the first respondent gives the following reasons for the award of the tender:
1. The applicant’s bids were disqualified in that its bids, in particular as set out in its covering letters dated 26 June 2015, reflected that:
1.1 The bids did not meet minimum key requirements with regard to the provision of emergency power as part of the all-inclusive cost to be tendered;
1.2 The bids did not meet key requirements with regard to tenders not to be subject to qualifications and/or additional terms to be negotiated after submission; (my emphasis)
2. The tender was awarded by the first respondent to the second respondent as it scored the highest points of the bidders that remained after the disqualification of the applicant’s bids.
Dated at Johannesburg on this the 12 day of October 2014” – (meant to be 2016)
Applicant’s grounds for the review:
[27] Under the heading, ‘Hemipac’s grounds for review’ set out at para [66] of applicant’s founding affidavit, the following averment is made:
“It appears, from the papers filed in the interdict application that the crisp issue regarding this matter, pertains to whether or not Hemipac’s two bids were lawfully disqualified by the IEC during the tender process. It furthermore appears that, should the honourable court find that Hemipac’s bids should not have been disqualified, it is common cause that the tender should have been awarded to Hemipac. The IEC is invited to indicate in its answering papers whether my understanding in this regard is correct. In order to cater for the eventuality that the IEC does not agree that this is the case, I will deal with the scenario in any event below under the sub-heading “Highest Points”.
[28] Applicant amplifies this at para [68] and avers that from the BEC report, it appears that both the Hemipac bids were disqualified as a result of, an “additional cost for generator not included in the rental amount.” Applicant disputes this and elaborates as follows:
28.1 It is apparent from Hemipac’s bid documents that it suggests a distinct difference between the required “emergency power generator” and a “back-up generator”;
28.2 The covering letters refer to back-up generators. According to it ‘back-up generators’ are usually required to supply back-up electricity to non-essential items such as office air-conditioning systems, whereas emergency generators supply electricity to essential items such as servers, server room air conditioning, wall-sockets, lights and the like; (my emphasis)
28.3 Applicant argues that it complied with the bid requirements but even went further and, in addition, tendered a back-up generator. (my emphasis)
28.4 It says the reason for this is that tenants who did not initially specify back-up generators in their tender requirements, usually request back-up generators only after conclusion of the lease. In order to avoid any amendments to a particular lease and for the sake of proper administration and convenience to the parties, Hemipac offers back-up generators up front.
First respondent’s answer:
[29] The first respondent’s answer is deposed to by its Chief Electoral Officer and sets out the common cause facts. As a preliminary introduction to its answer, deponent attacks the manner in which the applicant’s case is pleaded. First respondent says nowhere in its papers, does applicant set out facts supporting its claim and substantive legal basis for the relief it seeks in this review. First respondent voices its frustration in the unduly lengthy and unnecessarily voluminous application filed by applicant but in which applicant, “… has failed to plead and prove its case as required by trite authority”.
[30] In addition first respondent affirms that the common cause facts in the matter are ‘crisp’ and concern first respondent’s call for tenders for accommodation in two offices in East London on clear pre-determined bid specifications, a process in which applicant participated like all other ordinary bidders. He says both the applicant’s bids were disqualified and the second respondent, having scored the highest points, was awarded the bids.
[31] First respondent says the core of the issue raised by the letters is not only the plain meaning of the words as they appear from the letters which expand on the applicant’s bids, but central and of essence, was the interpretation to be placed on them when applicant was fleshing out its bids. The interpretation its officials arrived at was conveyed by first respondent in two emails. These emails are annexed to applicant’s founding and supplementary affidavits as FA21; FA 22 and FA40 of the affidavits. Annexure ‘FA40’ consists of the formal reasons filed by first respondent and received by applicant’s attorneys on 12 October 2016.
[32] In addition, first respondent expands:
“The letters reflected, on the IEC’s interpretation, that the two bids did not comply with the IEC’s mandatory requirements for an all-inclusive tender, including for a generator that had to supply power to the electrical plugs, lights, computer server, and its air-conditioning. Hence they were disqualified.”
[33] This view, first respondent states, was always known to the applicant and was also evident from the formal reasons provided to applicant prior to launching these proceedings. Furthermore, first respondent emphasises that it is by law precluded from entering into secretive negotiations on price after bids have been submitted. It also, correctly in my view, emphasises the obligation on all organs of state to act fairly, transparently and not to unlawfully advantage one bidder at the expense of others.
The central dispute:
[34] The BEC disqualified both the ‘BBC’ and ‘Waverley’ bids submitted by applicant for, among others, the reason based on price uncertainty with regards to the specified requirement to provide a 250 KVA emergency power generator. A perusal of the tender specifications and conditions requires that among other outlined requirements, the offered office building must include one ‘emergency power generator’ as described in the bid and the quoted price was to include the generator.
[35] It is evident from this to any bidder participating in this tender process exactly what the first respondent required. There is no ambiguity and the text could not have been clearer to interested bidders. There is only one “250KVA emergency power generator” required by the first respondent. The voltage and currency capacity is specified and the overall bid price had to include the same.
[36] Indeed even a cursory reading of the bid specifications does not permit for the contention that more than one generator (an ‘emergency’ and a ‘back-up’ power generator) was specified, required or contemplated by the first respondent. The specifications set out are all material and reasonable and do not accommodate more than one power generator by any interpretation no matter how strained. In those circumstances it is not unreasonable for a reader to impute an interpretation which leads to the conclusion which the first respondent arrived at.
[37] Taken together with the provision that the bid must set out one composite price, the applicants communication that - ‘…We will however, upon receipt of your specific needs requirements for a back-up generator, spec same and obtain a quote, the costs of which can be amortized into the Lease Agreement, unless you choose to pay us upfront..’ introduced an impermissible invitation to negotiate a price after closure of bids for what the first respondent viewed as the very ‘emergency’; ‘standby’ or ‘backup’ power generator required to be included in the composite bid price.
Applicant’s belated explanations:
[38] It was only in the founding and replying affidavits that applicant sought for the first time to elucidate on the motivations it had for extending the invitation at the time it submitted its bid. I have detailed these at para [28] herein and these are succinctly that:
‘(i) Hemipac’s bid documents suggest a distinct difference between the required “emergency power generator” and a “back-up generator”;
(ii) That ‘back-up generators’ are usually required to supply back-up electricity to non-essential items such as office air-conditioning systems, whereas emergency generators supply electricity to essential items such as servers, server room air conditioning, wall-sockets, lights and the like.’
[39] This was not the case and none of this was conveyed in the covering letter inviting the first respondent to engage in price negotiation after bid closure. I can see no point in raising this in the papers in the review application for the first time when first respondent’s officials did not have the benefit of this added clarification when they were evaluating the bids.
Attributable meaning:
[40] Applicant both in its founding affidavit and reply contended that a ‘back-up power generator’ and an ‘emergency power generator’ are two distinct power sources serving different purposes. The distinction offered is contrived. The noun ‘generator’ simply means ‘an engine converting energy’. Collins English dictionary defines an ‘emergency’ as a ‘crisis; exigency or predicament’. ‘back-up’ is a phrasal verb meaning - to support in case of a predicament or crisis. (my emphasis)
[41] The Cambridge English dictionary defines the noun ‘backup’ to mean ‘support or help’ for example in case a main plan goes wrong. The ‘Wiktionary’ (Wikipedia dictionary) makes no distinction between an emergency and a back-up generator. It offers this definition:
“A stand-by generator is a back-up electrical system that operates automatically within seconds of a utility outage an automatic transfer switch senses the power loss, commands the generator to start and then transfers the electrical load to the generator.”
[42] The emergency is in the ‘utility outage’. Applicant’s attempt to provide an inept and laboured distinction between a ‘stand-by’ and a ‘back-up’ power generator does not accord with the meanings attributed above. The Bid Owner’s specification admitted of little doubt and what was required from all bidders was the provision of an emergency power generator. This is a generator, on stand-by and backing up the municipal electrical load to the building to be rented out to first respondent including air-conditioning systems and similar necessities.
[43] In All Pay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African Social Security Agency, and Others 2014 (1) SA 604 (CC) the Court warned:
“Compliance with the requirements for a valid tender process, issued in accordance with the constitutional and legislative procurement framework is thus legally required. These requirements are not merely internal prescripts that SASSA may disregard at whim. To hold otherwise would undermine the demands of equal treatment, transparency and efficiency under the Constitution. Once a particular administrative process is prescribed by law, it is subject to the norms of procedural fairness codified in PAJA. Deviations from the procedure will be assessed in terms of those norms of procedural fairness. But it does not mean that, where administrators depart from procedures, the basis for doing so will have to be reasonable and justifiable, and the process of change must be procedurally fair.”
[44] In so far as the reasonableness of the decision of the BEC, it is generally accepted that what is required to be done by a reviewing Court is to look at the decision of the authorised official from the prism of a simple test which is whether it is one that a reasonable decision-maker would have taken. In other words the overriding constitutional obligation upon decision-makers is to act reasonably. In Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others [2004] ZACC 15; 2004 (4) SA 490 (CC) para [45] O’ Reagan J stated:
“What will constitute a reasonable decision will depend on the circumstances of each case, much as what will constitute a fair procedure will depend on the circumstances of each case. Factors relevant to determining whether a decision is reasonable or not will include the nature of the decision, the identity and expertise of the decision-maker, the range of factors relevant to the decision, the reasons given for the decision, the nature of the competing interests involved and the impact of the decision on the lives and well-being of those affected. Although the review functions of the court now have a substantive as well as a procedural ingredient, the distinction between appeals and reviews continues to be significant. The court should take care not to usurp the functions of administrative agencies. Its task is to ensure that the decisions taken by administrative agencies fall within the bounds of reasonableness as required by the Constitution.”
Did the disputed tender comply with the bid requirements?
[45] Without embarking on speculative hypothesis and without placing this Court in the position of the first respondent’s evaluating team, the following considerations self-evidently resolve this matter:
45.1 The Bid conditions specified in clause 6 of the bid that: –
“Tenders must not be qualified by the service provider’s own conditions of tender. Failure to comply with this requirement shall invalidate the tender.”
and furthermore: -
“… tenders that do not conform to the primary compliance criteria indicated in Section A will not be considered. The bid evaluation criteria below must be read together with any additional evaluation criteria that may form part of the bid specifications.”
45.2 Primary compliance verification criteria pertaining to ‘legality of tender document’ cautioned that: -
‘Non-compliance with tender rules – The following shall lead to disqualification: -
· …
· Any changes to the tender specifications (unless formally agreed to by the Electoral Commission and recorded as such before the closure of the tender).’
[46] The manner in which the applicant prejudiced its own bid is in my experience very novel and unusual. Businesses that regularly submit tenders do not expect to communicate with an organ of state once a bid is closed. The more so for an entity which makes the claim that it tenders all the time.
[47] If there was any doubt that first respondent required two generators instead of the one specified, applicant had ample opportunity to clarify that before the bid closing date either by attending the briefing session or by seeking clarification in writing prior to 3 July 2015. This it also failed to do.
[48] In Westinghouse Electric Belgium SA v Eskom Holdings (Soc) Ltd and Another 2016 (3) SA 1 (SCA) at 12F-H para [39], that Court stated that for a tender process to be lawful there had to be proper compliance with it and that “a tender should speak for itself.”
[49] It was with this type of matter that the Constitutional Court in All Pay had in mind when it cautioned that:
“Proper compliance with the procedural requirements set out in procurement bids lead to a fair process that ensures the best outcomes. Where the process leading to the success of a bid is compromised, such a failure to adhere to all the requirements will result in little or no certainty as regards the course the process would have taken had the requirements been properly observed.” (All Pay Consolidated Investment Holdings, paragraph 24); and that
[50] “… deviations from a fair process may themselves all too often be symptoms of corruption or malfeasance in the process. In other words, an unfair process may betoken a deliberately skewed process. Hence insistence on compliance with process formalities has a three-fold purpose: (a) it ensures fairness to participants in the bid process; (b) it enhances the likelihood of efficiency and optimality in the outcome; and (c) it serves as a guardian against a process skewed by corrupt influences.” (All Pay at paragraph 27)
[51] I cannot fault first respondent’s view that for all the reasons already set out: –
‘The bids did not meet minimum key requirements with regard to tenders not to be subject to qualifications and/or conditions and/or additional terms to be negotiated after submission.’
[52] In the result, the application is dismissed with costs. Costs to include the costs of two counsel as well as the costs occasioned by the Interdict application launched by applicant under case number: EL806/2016 ECD2106/2016.
____________
MAGEZA AJ
Heard: 30 March 2017 and
21 April 2017
Delivered: 12 July 2017
For the applicant: Advocate Pretorius
Attorneys for applicant: SIM & BOTSI ATTORNEYS
Tel: (011) 880 4075
Ref: M Nel
c/o GRAVETT SCHOEMAN INC
The Hub, Bonza Bay Road
Beacon Bay, East London
Ref: I Theophilus
Tel: (043) 721 2776
For first respondent: Adv DP de Villiers
Attorneys for first respondent: DMO ATTORNEYS
First Respondent’s Attorneys
Block B, 38 Grosvenor Road
Bryanston
Tel: (011) 463 6693
Ref: Mrs Oliphant
c/o ABDO & ABDO