---

We except (sic) your offer to extend the agreement for a period of one year. We are also prepared to go into price negotiations regarding this. This (sic) negotiations will however not have any influence on the level of service or the period as agreed.

We would however like to address some logistics regarding the linen management service. The current staff and working procedure is ineffective and we will be able to streamline it, if allowed.

Please advise when we can meet with you (sic) Hospital management to introduce ourselves and for the price negotiations.

If you need any further information please do not hesitate to contact me." (my emphasis)

14. In my view, what the letter does not say is more significant than that which it does say. It does not say that the price has been agreed. It further does not say that the price will be the same as that laid down in the interim July agreement. It does say that the level of service and period has been agreed. A plain reading of the letter seems to suggest that the price has yet to be negotiated.

15. According to the Answering Affidavit deposed to on behalf of the First and
Second Respondents by Isac Smith ("Smith"), as confirmed in the Confirmatory Affidavit of Rousseau, Rousseau on receipt of the letter, telephoned "Applicant" (presumably Kroucamp) and pointed out to it (sic):

"... the letter was factually incorrect as he was not empowered to enter into agreements on behalf of the Department. Kroucamp is fully aware of this and the letter was obviously an attempt by the Applicant to bypass the procurement procedures with which it (sic) was fully familiar."

The Deponent goes on state:

"It is correct that Rossouw entered into preliminary negotiations with the Applicant and that he informed the Applicant that he would make a recommendation in its favour to the GSH Sub-bid Committee. The Applicant was aware and was also alerted to the fact that this was, subject to the Sub-bid Committee supporting the recommendation to Dr S Karriem and the Department. Dr Karriem and the Department did not endorse the recommendation."

16. Mr Duminy SC, on behalf of the Applicant, argued that this paragraph indicated that the contract was conditional upon the approval of the Sub- bid Committee which, according to the papers, was obtained and that this condition was, therefore, fulfilled. His submitted that the content of this paragraph goes to conditionality rather than to authority.

17. Thereafter Rossouw addressed an e-mail to Escreet stating the following:

"I hereby request an urgent meeting with the Department regarding the contract.

Our current arrangement cannot carry on like it is at the moment.

I had to permanently employ the extra staff in the factory according to the LRA and pressure from the union. I also have to vaccinate the staff as I am putting them to risk and I have to upgrade our transport.

This means that we will need at least a 3 month notice period for the current situation.

Other issues that I would like to discuss is (sic):

The future of the Groote Schuur contract

The price

The future of WP Laundry

I would appreciate it if we would have this meeting before the end of the week." (my emphasis)

18. The e-mail does not suggest that a binding agreement was concluded between the Applicant and the Department, the Second Respondent, (or the Hospital, the First Respondent?) and that the essentialia of such an agreement had been agreed upon, and in particular the price. The references to:

(i) the "current arrangement" not being able to "carry on like it is at the
moment";

(ii) the desire to discuss "other issues" such as:

(a) "the future of the Groote Schuur contract"; and

(b) "the price";

all tend to suggest that no such agreement is in place.

19. As is pointed out by the Deponent to the Founding Affidavit, the following appears at the foot of the e-mail he received in response from Escreet:

"No employee of the PGWC is entitled to conclude a binding contract on behalf of the PGWC unless he/she is an accounting officer of the PGWC or his or her authorized representative."

20. Rossouw is not an accounting officer of the PGWC and there is nothing in the papers to indicate that he is an accounting officer's "authorized representative".

21. In regard to the authority of Rossouw, the Deponent states the following in the Applicant's Founding Affidavit:

"Mr Vincent Rousseau at all material times indicated to myself and Mr Van Eeden, who acted on behalf of the Applicant, that he is in fact the authorized representative of the Hospital and is in a position to contract on its behalf."

Even if this was correct, it does, of course, not assist the Applicant in establishing the authority of Rossouw. The averment is, however, pertinently denied by Rossouw and the First and Second Respondents. The Deponent goes on to state:

"In the past this is precisely what happened and we concluded our agreements with Mr Rousseau."

Once again, this is pertinently denied by Rossouw and the Respondents.

22.lt is clear that Rossouw did not have actual authority. It was, however, submitted on behalf of the Applicant that he had ostensible authority. In my view the Applicant has not made out a sufficient case on the papers to discharge the onus which it bears to establish that either the Department or the Hospital held out to the Applicant that Rossouw had the requisite authority. No such averment is made in the Founding Affidavit and the oblique suggestions in this direction are denied by the Hospital and the Department. Despite Mr Duminy's able and persuasive argument and his thorough and diligent reference to every iota of evidence which can be gleaned from the papers in support of his submissions in this regard, I am not persuaded that the Applicant had established that Rossouw had the requisite authority to conclude the September agreement contended for with the Applicant.

23. On 9 October Kroucamp addressed an e-mail to Rossouw in which he stated, inter alia, the following:

"Vincent

Baie dankie weereens vir die openlike gesprek gister. Na aanleiding van hierdie gesprek en die een wat ons op 12 September gehad het, bleik (sic) dit dat die Hospitaai wel die kontrak met die vorige diensverskaffer beeindig het.

Hiermee wil ek net weer in kort bevestig dat ons julle aanbod aanvaar het om 'n een jaar ooreenkoms vir die lewering van die diens aan te gaan. Soos op 12 September aan jou genoem is ons steeds bereid om oor die prys te onderhandel. Hierdie prys onderhandeling sal egter geen effek op diens of die termyn van die ooreenkoms uitoefen nie." (my emphasis)

24. This e-mail reflects a willingness to conclude an agreement rather than a confirmation that an agreement has been concluded. If, in fact, an agreement had been concluded on 12 September, one would have expected Kroucamp to have said so in the e-mail. If the price had been agreed on, one would, similarly, have expected him to have stated this in the e-mail. The statement that: " ... ons is steeds bereid om oor die prys te onderhandel" is indicative of the fact that no price had been agreed upon.

25. On 13 October, Rossouw copied an e-mail to Kroucamp which had been sent to him by the Assistant Director: SCM - Tenders of the Department of Health. The e-mail reads as follows:

"Hi Vincent

Can you please thank WP and inform them that we will only require their services until 30 November 2008. MLS has been ceded and the new company will commence 1 December 2008."

26. According to Kroucamp, he was alarmed and concerned when he received the e-mail. Notwithstanding this alarm and concern, it was only some eight days later, and on 21 October 2008 that he forwarded the letter referred to in the Applicant's initial Notice of Motion to the Chief Executive Officer of Groote Schuur Hospital (and not the Department) in which he set out the terms of the contract which the Applicant contends was concluded with Groote Schuur Hospital on 12 September 2008. The letter alleges that the following terms were agreed:

"(a) The laundry services are delivered on the request of Groote Schuur Hospital for a period of 12 months ending on 20 September 2009.

(b) The price agreed was 185 cents per piece excluding VAT and subject to price increases according to the price increase formula as supplied by the Department of Health. The price for the linen distribution service is calculated by adding the total salaries of linen distributed staff and consumables plus 15% admin fee and VAT. Please note that the price will increase on November 1^st because of Industry wage increases and other cost increases.

(c) The service agreed was 24 hr turn around Laundry service and a linen distribution service."

27. Nowhere in the Founding Affidavit does Kroucamp mention that it was agreed on 12 September that the twelve month agreement would end on 20 September 2009. Nowhere in the Founding Affidavit is it stated that it was agreed on that date that the price which was allegedly agreed was: "... subject to price increases according to the price increase formula as supplied by the Department of Health."; or that: "the price for the linen distribution services calculated by adding the total Salaries of linen distribution staff and consumables plus 15% admin fee and VAT"; or that: "... the price would increase on November 1^st because of Industry wage increases and other cost increases." (The latter term was omitted from the portion of the letter quoted in the Founding Affidavit).

28. One further searches in vain in the Founding Affidavit for an averment that it was agreed on 12 September that: "The service agreed was 24 hr turn around Laundry service and a linen distribution service."

29. On the next day, the Applicant received a letter from the Department, the Second Respondent, which reads as follows:

"We hereby wish to inform you that effective from 1 December 2008, your services will no longer be required. Your company's last working day will thus be on 30 November 2008.

On behalf of Hospital Management we wish to thank you for your support throughout this difficult situation that we experienced since July 2008."

30. Mindful of the probably consequences of the factual disputes raised in the papers, Mr Duminy submitted in the alternative that these disputes should be referred to evidence.

31. Mr Gamble SC, on behalf of the First and Second Respondents, submitted that this is not an appropriate case for a referral under Rule 6(5)(g) on the basis that:

(i) the Rule cannot be invoked to make out a case which is not already made on the affidavits; and

(ii) the applicant should have realized when it launched the application, that the factual disputes are incapable of resolution on the papers.

32. In my view there would be no point in referring the disputes to evidence for the reasons set out above, and insofar as the portion of the application relating to the September 2008 agreement is concerned, Mr Gamble is correct and this portion of the application should not be granted. It follows that in respect of the Rule Nisi issued on 28 November 2008, sub­paragraphs (a) and (b) of paragraph 1, stand to be discharged.

THE CESSION

33.lt33.lt is now necessary to deal with the cession of the contract between the Second Respondent and Mandarina Trading 536 (CC) (in liquidation) to the Third Respondent, Hlamba Linen CC with effect from 1 December 2008.

34. Kroucamp on behalf of the Applicant, deposed to a Supplementary Affidavit on 26 November 2008 in support of an application to join the Third Respondent Hlamba Linen CC, and the Fourth Respondent, Jurgens Steenkamp N.O., in his capacity as liquidator of Mandarina Trading 536 CC (in liquidation). In it, he states that the Applicant first became aware of the alleged cession on 13 October 2008 when it received a copy of the e-mail of that date in which Claude Munnik, the Assistant Director: SCM -Tenders, WC Department of Health advised Rossouw as follows:

"Hi Vincent, can you please thank WP and inform them that we will only require their services until 30 November 2008.

MLS has been ceded and the new company will commence 1 December 2008."

35. Kroucamp goes on to allege in his Affidavit that the cession was neither valid nor lawful. He points out that in the Founding Affidavit for the liquidation of Mandarina Trading 536 CC, Mrs Schoeman stated that the Groote Schuur Hospital contract had been cancelled. (In a subsequent Affidavit filed by Schoeman she states that she erred in this regard). Kroucamp goes on to state:

"Moreover, in terms of Section 217 of the Constitution read with the Public Finance Management Act and the regulations made thereunder, the procurement of laundry and linen distribution services for the Groote Schuur Hospital had to take place in accordance with a system which is fair, equitable, transparent, competitive and cost effective. The appointment of Hlamba Linen by means of the purported cession did not comply with any of these requirements, nor with the supply chain management procedures laid down in the Treasury Regulations issued under the Public Finance and Management Act, No. 1 of 1999, which regulations were contained in Government Gazette No. 27388 dated 15 March 2005. The contract value exceeds the threshold of R200 000 and no competitive bid process was followed before the appointment of Hlamba Linen was approved."

36. In the First and Second Respondents' Answering Affidavit, Mr Isac Smith, a Director in the Safety and the Supply Chain Management Division of the Second Respondent, responds as follows to these contentions:

"52. AD PARAGRAPH 10

The Department denies that its right to agree to the assignment to Third Respondent was required to be exercised in the manner suggested by the Applicant. The Department behaved lawfully in exercising its contractual rights and observed the procedures laid down, as appears from annexures IS7.

The Accounting Officers systems were followed and approval in terms of Delegation D18."

37. The "contractual rights" on which reliance is placed on behalf of the First and Second Respondents arise out of the contents of the Service Level Agreement concluded between the Second Respondent and MLS. My attention was directed during the course of argument to clause 8 of that Agreement which provides as follows:

"8. ASSIGNMENT

8.1 Neither the benefits nor the obligations under this Agreement may be ceded or assigned by either party except with the prior consent of the other Party."

38. "Annexures (sic) IS7" to which Smith refers, is the Second Respondent's Accounting Officer's System (AOS) for Procurement, Supply Chain and Asset Management (Issued in terms of section 38 (1)(^a)(iii) of the PFMA).

39. In the Foreword to the AOS the following appears:

Section 38 of the Public Finance Management Act, Act 1 of 1999 confers general responsibilities on the Accounting Officers. It determines in subsection 1 that:

(1) "The accounting officer for a department, trading entity or constitutional institution -

(a) must ensure that department, trading entity or constitutional institution has and maintains - an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective; ..."

40. Paragraph 11.2.2 sets out the procedure to be followed in respect of the cession and assignment of contracts:

"11.2.2 Cession and Assignment of contracts

11.2.2.1. Contracts may be ceded/assigned on recommendation by the relevant Bid Committee and in accordance with the Departmental Delegations. Applications for the cession and assignment of contracts must be submitted on the prescribed forms that must be completed and signed by both the transferor and the transferee and countersigned by two witnesses. Full reasons for the transferring of the contract must be provided and the transferee's ability to carry out the contract must be established and reported. Unless it is otherwise in t he best interests of the Department, it is unlikely that the transfer will be approved if the Department would suffer a loss as a result thereof or if there is an increased risk to the Province.

11.2.2.2. The same conditions used for the award of t he bids concerned must be made applicable to the transfer of contracts. For instance, if the original contract was subject to the provision of surety, the transferee must provide the same degree of surety, or better. If a contract was awarded to a particular bidder on the basis of preference claimed, the contract might not be transferred to a firm/person qualifying for a smaller percentage preference unless the transferee is prepared to lower the contract price so that the comparative price that was used for the award of the contract is maintained." (my emphasis)

41. In support of his denial that the assignment is void, Smith attaches a copy of the "Transfer Agreement" dated 5 August 2008 between MLS and Hlamba Linen marked "IS1":

"I further attach the acceptance of this transfer by the Respondents marked annexure "IS2"."

42.The cession document on which Smith relies on behalf of the First and second Respondents makes for interesting reading. The first page thereof is headed "Transfer" and was signed on behalf of MLS which in terms of the document is called "the transferor" who in terms of the document:

" ... hereby transfer all my (sic) rights and obligations under the above-mentioned contract to Messrs. HLAMBA LINEN with Registration number to be registered (called the transferee)."

The document was signed at Durbanville on 5 August 2008 by Schoeman, apparently in the presence of two witnesses. The second page of the document reads as follows:

"B. I, MAGDALENA ELIZABETH ZIETSMAN the undersigned in my capacity as trustee for the Close Corporation to be formed and to be known as

Messrs. HLAMBA LINEN with Registration number to be registered (being the transferee)

hereby assume and accept full responsibility and liability under the said contract on the same terms and conditions as it was held by the above-mentioned transferor.

I hereby confirm that the preferential procurement rating in respect of Messrs HLAMBA LINEN (being the transferee) in terms of the under-mentioned categories are as follows:

65535. Equity ownership by persons who had no franchise in the national elections (people of colour %

65536. Equity ownership by women %

65537. Equity ownership by disabled persons %

65538. Local Manufacture (iro the item/s

to be transferred) %

• Western Province based enterprise %
See letter attached, (my emphasis)

Thus done and executed at DURBANVILLE this 5^th day of AUGUST 2006 in the presence of the undersigned witnesses:"

The document is signed by Zietsman and Schoeman signed as a witness. The portion of the document which provides for signature by the second witness has been left blank despite the provision contained in Section 11.2.2.1 of the AOS that the " ... prescribed forms that must be completed and signed by both the transferor and the transferee and countersigned by two witnesses.

As is apparent from the portion of the document quoted, the Sections of the document which refer to the preferential procurement rating in respect of Hlamba Linen have been left blank. Despite the words "see letter attached" - no such letter is attached to the copies of the documents annexed to the Answering Affidavit. The third page of the document is headed "Consent" and reads as follows:

"CONSENT

I, the undersigned in my capacity as Chief Financial Officer of the Western Cape Department of Health, hereby confirm that approval

Is granted in terms of paragraph 9.7 of the Department of Health's Accounting Officer's System (AOS), issued in terms of Section 38(1 )(a)(iii) of the PFMA).

Thus done and executed at CAPE TOWN this 22^nd day of September 2008." (my emphasis)

(The typed portion of the document contained the word "August" and this has been crossed out and replaced with the word "September"). The somewhat puzzling series of events which led to the signature of this document may explain this. There is no "paragraph 9.7" in the AOS. I was advised by Counsel for the First and Second Respondent that what was intended to be referred to was paragraph 11.2.2 to which I have referred above.

43. Argument in this matter commenced on Monday 2 March 2009. On the preceding Friday afternoon, Counsel for the Applicant provided Counsel for the other parties and myself, with a Supplementary Note containing further and more detailed submissions on behalf of the Applicant.

44. Counsel for the First and Second Respondents as also Counsel representing the Third Respondent, applied for the matter to be postponed as they contended that they needed time to consider the submissions made in the Note and that the Note contained submissions which were not set out in the Applicant's Heads of Argument which had been filed some time before.

45. Substantive applications for postponement had been prepared over the weekend, with Supporting Affidavits. Annexed to the First and Second Respondents' application for postponement were copies of the Applicant's original Heads of Argument and of the Supplementary Note. It is not clear why this was necessary as these documents had already been made available to the parties and the Court.

46.lt46.lt was submitted on behalf of the First and Second Respondents that the issues raised in the Note were not properly addressed on the papers filed by the Applicant, or in the Heads of Argument and that the Respondents were 46.lt was submitted on behalf of the First and Second Respondents that the issues raised in the Note were not properly addressed on the papers filed by the Applicant, or in the Heads of Argument and that the Respondents were "...46.lt was submitted on behalf of the First and Second Respondents that the issues raised in the Note were not properly addressed on the papers filed by the Applicant, or in the Heads of Argument and that the Respondents were "... required to meet a new case". It was further submitted that the First and Second Respondents would be " ... severely prejudiced should the Applicant be allowed to raise these new issues without a proper opportunity for their Counsel to consider and research same."

47. The application brought on behalf of the Third Respondent was based on substantially the same contentions. Even more documentation, including the Note, was attached to this application.

48.lt48.lt appears that the portion of the Note which caused the most apprehension amongst the First to Third Respondents was that which dealt with the validity of the cession. It is, however, clear from the papers that the validity of the cession is in issue and one would have expected the Respondents to do the necessary preparation in order to enable them to defend their stance that the cession was in fact validly executed. Insofar as any extra preparation may have been necessary in order to deal with the more detailed submissions contained in the Note, there was, in my view, ample time to do so between 14h00 on Friday 27 February 2009, when I understand the Note was delivered, and the hearing.

49. The time spent in preparing the substantial applications for postponement, would, in my view, have been better spent in preparing for the hearing, and insofar as may have been necessary, in considering the submissions contained in the Note. I heard argument on the application until approximately noon on 2 March 2009 and, having heard argument, dismissed them.

50. The Note, however, had further consequences as it elicited further Affidavits (two sets on behalf of the First and Second Respondents) and one from the Third Respondent.

51. In the first of the Supplementary Affidavits handed up on behalf of the First and Second Respondents dated 3 March 2009, Smith, the Deponent to the Answering Affidavit, states that on 6 August 2008 and as a result of a meeting held with MLS on 11 July 2008, MLS provided Claude Munnik, of the Sub-Director : Tenders in the Department with a "contingency plan" after which the task team met with MLS to discuss the plan on 14 August 2008.

52. The contingency plan, which is annexed to the Supplementary Affidavit as annexure ISS3, is an undated letter signed by Mr Schoeman on behalf of MLS. The fact that the portions of the cession documents relating to the preferential procurement rating had been left blank and that the letter which was said in the documents to be attached, did not appear to be there, had been referred to during the course of argument. It was suggested, on behalf of the Respondents during argument that these aspects were catered for in the letter in question and in particular, in paragraph 7 on the second page thereof. The impression I formed after hearing argument in this regard, was that insofar as the portion of the cession documents relating to the preferential procurement rating referred to an attached letter, that this was in fact the letter that had been attached to the documents in question.

53. The cession documents are included in a number of places in the application papers and in not one of these places is the letter which one would expect to find as a result of the notation contained in the cession documents: "see letter attached", to be found.

54. In this Supplementary Affidavit, Smith goes on to state:

"9. ... The contingency plan at this stage proposed the transfer of the existing SLA to a new entity (with the retention of MLS staff as far as possible) and made mention of a possible assignment, the main focus being financial rescue." (my emphasis)

55. It is extremely difficult to reconcile this statement with the contents of the
cession documents. According to those documents, Zietsman, on behalf of Hlamba Linen and in her capacity as trustee for the close corporation to be formed, had already accepted the cession and assignment on 5 August 2008.

56. In paragraph 2 of the "contingency plan" Schoeman states on behalf of MLS, the following:

"2. We wish to confirm that we want to exercise our right as more fully set out in clause 8 on page 10 in our Service Level Agreement, which we have (sic) entered into with the Department of Health, dated 11 November 2005."

It appears that MLS was under the incorrect impression that it had the right to insist that the Second Respondent consent to the proposed cession. This would appear to be the only explanation for the use of the phrase "... we want to exercise our right as more fully set out in clause 8."

57.The next paragraph of the "contingency plan" is almost as perplexing as the reliance by the First to Third Respondents on this document in support of their contention that the cession was validly executed. It reads as follows:

"3. Please find attached hereto the corresponding Transfer Document, signed by the Transferor and to be signed by the Transferee upon your written consent to cede and assign the benefits and/or all the obligations under the said Service Level Agreement to a new Close Corporation, the details of which shall be confirmed to you in writing on receipt of your consent as aforesaid."

(my emphasis)

However, as is apparent from the "Transfer Document" itself, it had already been signed by the Transferee on 5 August 2008. This must have been apparent to the Second Respondent when it received the "contingency plan" and the attached cession documentation,

58. Paragraph 5 of the "contingency plan", as also paragraph 1 thereof, refer to a facsimile received on 29 July 2008, and a written response to answers which were apparently requested in that document. Neither the Court nor the other parties were favoured with copies of the facsimile received on 29 July 2008 or the "attached written response with the required answers to the concerns that you have put forward in the said letters."

59. Paragraph 6 of the "contingency plan" states the following:

"6. The aforesaid investor's auditor had advised her to conduct the business in a new legal entity and more specifically a Close Corporation and same is in the process of being registered at the offices of the Registrar of Companies in Pretoria. The new investor has however stated that it is an explicit suspensive condition that the said contract DOH30/2005 must first be ceded or assigned to the new Close Corporation before the said investor will be prepared to proceed with the day to day conduct of the business and it is a further explicit suspensive condition that your written consent must be obtained by no later than close of business on Thursday, 7 August 2008, due to the urgency of the matter and the fact that the investor wants to proceed with business as usual as soon as possible from the business's premises in Observatory." (my emphasis)

60.lt60.lt is clear that the "further explicit suspensive condition" that the Second Respondent's written consent "must be obtained by no later than close of business on Thursday 7 August 2008" was not complied with, as the consent was only signed on 22 September 2008.

61. Paragraph 7 of the "contingency plan", the paragraph on which First to Third Respondents Counsel relied for their submissions that the statutory requirements in regard to the preferential procurement rating was concerned were complied with, reads as follows:

"7. The investor has further noted and is fully aware of your Department's BEE requirements with regards to the preferential procurement rating and it is herewith confirmed that the new Close Corporation will conduct the business as a Western Cape Province based enterprise, that the new Close Corporation will appoint local people as personnel of the business and that almost all the personnel will be either women and people of colour or disabled persons. Regarding the equity ownership, the investor has undertaken to attend to and ensure the necessary skills transfers in accordance with an acceptable employment equity policy and/or ownership equity policy which will be complied with in due course by reaching certain future goals set in accordance with the business's projected future feasibility and profitability."

62.There is such a dearth of meaningful detail in this list of promises, made by an unnamed investor, and conveyed to the Second Respondent by somebody else, that the reliance thereon by the First to Third Respondents is surprising.

63. On the next day, that is to say on 4 March 2009, yet a further Supplementary Affidavit was tendered on behalf of the First and Second Respondents. The body of the Affidavit reads as follows:

"3. On Tuesday 3 March 2009 and during the course of argument on behalf of First and Second Respondents, the Honourable Court directed certain questions to counsel as to the Third Respondent's compliance with preferential procurement preference framework requirements.

4. I instructed my Department to compile a spreadsheet of such compliance as at the time of the assignment. The spreadsheet is attached hereto marked "X". For the sake of completeness the Applicant is included in this document.

5. It will be seen from annexure "X" that the procurement preference status of Hlamba is more or less the same as MLS.

6. The difference of 0.2% between MLS and Hlamba is marginal and is not regarded as significant, while the Applicant falls below these percentages." (my emphasis)

64. It is clear from this Affidavit that, apart from other respects in which the cession and assignment fall short of complying with the relevant statutory requirements that the provisions of paragraph 11.2.2.2 of the AOS were not complied with. The paragraph in question requires that:

"11.2.2.2 The same conditions used for the award of the bids concerned must be made applicable to the transfer of contracts."

and

"If a contract was awarded to a particular bidder on the basis of preference claimed, the contract might not be transferred to a firm/person qualifying for a smaller percentage preference, unless the transferee is prepared to lower the contract price so that the comparative price that was used for the award of the contract is maintained."

65. The memorandum dated 19 September 2008 from the Assistant Director: SCM - Tenders, addressed to the Delegated Official in regard to the cession, sets out the financial implications. It is clear that the costing structure pursuant to the cession was higher than the MLS costing structure. The management fee increased from R77 776,00 per month to R85 000,00 per month, and the cost per piece increased from R1.51 to R1.85.

66. The third page of the cession document which records the consent granted by the Chief Financial Officer of the Second Respondent, which was signed on 22 September 2008, confirms that approval is granted in terms of paragraph 9.7" of the AOS issued in terms of Section 38(1)(a)(iii) of the PFMA. The AOS which was applicable at the time, and which is still applicable, does not contain a paragraph 9.7. I was informed by First and Second Respondents' Counsel that the document should in fact have referred to paragraph 11.2.2 of the AOS.

67. In the Supplementary Affidavit deposed to on behalf of the First and Second Respondents by Smith on 3 March 2009, he states the following in this regard:

"20. On 20 September 2008 the assignment to Hlamba was formally approved by Mr A van Niekerk, the Chief Financial Officer in the Department, who holds the rank of Deputy Director General : Finance, as is required by paragraph D18 of the AOS. MLS was informed of this decision the following day by Prof Househam.

21. The reference in Mr Van Niekerk's approval to para 9.7 of the AOS is still a reference to the earlier 2002 AOS." (my emphasis)

68. According to the Foreword to the AOS which is presently in place, and in
order to comply with the provisions of Section 38 of the PFMA, National Treasury embarked in 2003 upon a procurement reform process, the goal being to elevate the procurement process to its rightful place in the Financial Management System. The Foreword further points out that in response to this, Provincial Treasury abolished the Provincial Tender Board, and transferred the entire responsibility and accountability for procurement to Accounting Officers, as from 1 January 2004. The Foreword further states the following:

"To create the operational framework for procurement and provisioning in this department an Accounting Officer System (AOS) for Supply Chain Management was issued on 29 December 2003."

It further states that:

"This AO System makes provision for all these developments and replaces the initial document issued on 29 December 2003 and will be effective from 1 January 2007." (my emphasis)

69. On the face of it, it appears there was no "earlier 2002 AOS" as deposed to by Smith. The relevant footnote to his Affidavit refers to an annexure which contains paragraph 9.7. The relevant paragraph (presumably the one contained in the initial AOS issued on 29 December 2003) reads as follows:

"9.7 Transfer of Contracts

The contractor shall not abandon, transfer, cede, delegate, assign or sub-let a contract or part thereof without the prior written approval of the Department.

When a contract is transferred, it must be ensure that the transferee equals or betters the preferential procurement rating of the transferor. Documentary proof will be required." (my emphasis)

70. By virtue of the fact that the Chief Financial Officer, in certifying that consent has been granted in terms of paragraph 9.7 of the AOS, refers specifically to that paragraph and in the absence of any explanation from him in this regard, the inference is inescapable that he had the provisions of the old paragraph 9.7 in mind when he granted his consent. It is clear that no prior written approval was obtained from the Department before the consent was granted. It is further clear that the Second Respondent, the Department, did not"... ensure that the transferee equals or betters the preferential procurement rating of the transferor." The requirement that: "documentary proof... be required." was apparently also ignored.

71.The specific reference by the Chief Financial Officer to paragraph 9.7 of the previous AOS, again in the absence of any explanation, further leads to the irresistible inference that he was not aware of the existence of paragraph 11.2.2 of the current AOS when he granted his consent.

72. Paragraph 9.7 of the Supplementary Affidavit of Smith which I have quoted above, offers no assistance in this regard. Apart from the fact that its reference to Van Niekerk's approval is hearsay, the reference to the "earlier 2002 AOS" appears to be incorrect. It is to be regretted that the First and Second Respondents did not clarify the situation in their initial Answering Affidavit and thereafter in their two further Supplementary Affidavits.

73. As was pointed out by Mr Raubenheimer SC on behalf of the Third Respondent, the Third Respondent has, to a large extent, been obliged to rely on what the First and Second Respondents had to say about the validity of the cession. Notwithstanding this, the Third Respondent elected to enter the lists and file a Supplementary Answering Affidavit in which it contends that the cession was valid. The Third Respondent had in its original Answering Affidavit also contended that the cession was in fact valid and disputed the Applicant's contentions in this regard.

74. In her Supplementary Affidavit deposed to 4 March 2009, Mrs Zietsman, on behalf of the Third Respondent states:

"... Nou dat daar met 'n vergrootglas van naderby daarna gekyk word, is dit vir my noodsaaklik om vir die Hof die versekering te gee dat Hlamba te alle tye voldoen het aan die vereistes van die tersaaklike wetgewing. In die verband heg ek hierdie aan as Aanhangsel "A" die eedsverklaring van Jacobus Johannes Kotze ter bevestiging daarvan.

3. Hlamba is op 11 Augustus 2008 geregistreer. Handelinge wat voor dit geskied het namens die te stigte beslote korporasie deur myself voor gemelde datum is bekragtig en geratifiseer deur Hlamba."

75. In terms of Section 53 of the Close Corporations Act, No. 69 of 1984, any written contract concluded by a person professing to act as an agent or trustee for a corporation not yet incorporated, may be ratified or adopted by such corporation. Sub-section (2) of this Section provides that:

"The ratification or adoption by a corporation referred to in sub­section (1) shall be in the form of a consent in writing of all the members of the corporation, given within a time specified in the contract or, if no time is specified, within a reasonable time after its incorporation."

The question of pre-incorporation contracts entered into by a Close Corporation was raised with Counsel during argument and if the provisions of the Section 53(2) had been complied with, one would have expected there to have been a reference to the written consent referred to in the Section. However, I am prepared to assume, in favour of the Third Respondent, that the requisite written consent ratifying or adopting the cession was in existence when Mrs Zietsman deposed to her Affidavit.

76. Mrs Zietsman further states in her Supplementary Affidavit:

"4. Die rede waarom die spesifieke persentasies nie ingevul was op die document wat deur my onderteken is op 5 Augustus nie, is omdat daardie inligting myns insiens inkorporeer was in die skrywe van Jaco Schoeman wat aangeheg was daartoe en ek verwys in die besonder na Jacobus Johannes Kotze se kommentaar rakende paragraaf 7 daarvan wat inderdaad gestalte gekry het."

77. In his Affidavit, Mr Kotze refers to an oral agreement concluded in approximately July 2008: " ... wat onder andere behels dat Hlamba personeel van MLS oorneem as deel van wat beskryf was as die sessie- ooreenkoms." He thereafter sets out details of the employees. He further refers to paragraph 7 of the "contingency plan" and provides the Court with: "... die versekering ... dat aan die vereistes voldoen is ... " He further refers to ownership in terms of "wetgewing" without indicating to which legislation he is referring, and states that he is aware of the statutory requirements in regard to Broad-based Black Economic Empowerment. It is not clear what the relevance of legislation referring thereto, has in the context of this application.

78. It is necessary to refer briefly to the history prior to the formal approval of the assignment by the Chief Financial Officer of the Second Respondent. On 22 September 2008 Rossouw sent an e-mail to Smith in which he stated the following:

"I spoke to Dr Kariem, he will send an email to his secretary who in turn will forward it to yourself and me. He did indicate that he would recommend cancelling the existing linen contract at GSH."

Smith thereafter sent an e-mail to Rossouw on the same day in which he stated:

"Informed Mrs Schoeman of the decision not to cede and the possibility of cancellation. Pise ensure that I get Dr Karriem's request/decision in writing.

Goliath to prepare submission for cancellation and contingency plan. Pise submit by 27 Aug 2008."

79. On 25 August 2008 Smith wrote to MLS informing it that the proposed cession to Hlamba would not be recommended. The letter itself reads as follows:

"CONTRACT DOH 30/2005: PROVISIONING OF A LAUNDRY AND LINEN SERVICE AND A LINEN MANAGEMENT SERVICE TO GSH FOR THE PERIOD (1 JUNE 2006 - 31 MAY 2011) -REFUSAL OF PERMISSION TO CEDE THE CONTRACT AND THE ASSOCIATED MATTERS

1. Your undated letter faxed on the 06 August 2008 has reference.

2. The request to grant permission to cede the above-mentioned contract is hereby refused by the Department in terms of clause 8 on page 10 in our Service Level Agreement read in conjunction with clause 12 on page 9 of the revised BID DOH 30/2005 date 15 June 2005.

3. We have considered your request and found t hat the cession will not be in the interest of the Department.

4. You are furthermore informed that the Department is taking legal advice in respect of exercising its contractual right to terminate the contract." (my emphasis)

80. On 28 August 2008 the Sub Bid Committee at Groote Schuur Hospital recommended the cancellation of the Service Level Agreement. The relevant resolution reads as follows:

"The Sub-Bid Committee, constituted in terms of paragraph 16A2.2 of Chapter 16A of t he Western Cape Provincial Treasury instructions, considered the recommendation contained in the above report at its meeting held on 28 August 2008 and resolved to recommend to the delegated official that the recommendation be accepted as to the cancellation of the relevant contracts." (my emphasis)

81. There was, however, a change of mind as is apparent from the Minutes of the meeting of the Departmental Bid Committee held on 3 September 2008. The Resolution provides as follows:

"Resolution

The Committee resolved that the contract be ceded to Hlamba Linen with certain conditions, and that the SCM Unit work out the details i.t.o the rescue plan, and that the start up date of the contract be confirmed."

82.The Applicant's attack on the cession was based on an alleged lack of legality and the legality and validity of the purported consent to the cession were in issue. This involves an enquiry into the legislation and statutory instruments applicable to the procurement of goods and services by organs of State. As was submitted by Mr Duminy on behalf of the Applicant, a declaration of invalidity is a recognized method for remedying the effects of unlawful administrative actions. This common law remedy is also available under the Promotion of Administrative Justice Act, No. 3 of 2000 ("PAJA").

See: Rail Commuters Action Group v Transnet Limited t/a Metrorail

[2004] ZACC 20; 2005 (2) SA 359 (CC) at para [106] - [108].

The principle of legality dictates that once administrative action is declared unlawful, it stands to be set aside, as is provided for in Section 8(1 )(c) of PAJA. Once an administrative act is set aside, any further act that depended on this act for its validity, is invalid, as the legal foundation for its performance no longer exists.

See: Seale v Van Rooyen & Others : Provincial Government North­west Province v Van Rooyen N.O. & Others 2008 (4) 43 (SCA) at para [43], 49E-50F

83. In terms of Section 217(1) of the Constitution of the Republic of South Africa, 1996:

"Where an organ of State, national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods and services, it must do so in accordance with the system which is fair, equitable, transparent, competitive and cost effective."

(See: Steenkamp N.O. v Provincial Tender Board, Eastern Cape 2007 (3) SA121 (CC) at para [33].)

84. Section 217(2) permits preferential procurement and sub-section (3) provides that national legislation must prescribe a framework within which the preferential procurement policy referred to in sub-section (2) must be implemented. This has led to the enactment of the Preferential Procurement Policy Framework Act, No. 2 of 2000 ("the PPPFA").

85. After the 1996 Constitution came into effect, amendments to the State Tender Board Regulations permitted national and provincial departments to procure goods and services directly in accordance with the provisions of the Public Finance Management Act, No. 1 of 1999 ("the PFMA"). The Supply Chain Management ("SCM") aspects relating to direct procurement by national and provincial government are now regulated by Chapter 16A of the Treasury Regulations adopted under Section 76(4) of the PFMA.

76.1. Regulation 6A 3.2 requires a Supply Chain Management System to comply, in short, with Section 217 of the Constitution, the Preferential Procurement Policy Framework Act, and the Broad-Based Black Empowerment Act, No. 53 of 2003.

76.2 Regulation 16A 6.1 provides that "procurement of goods and services either by way of 'quotations or through billing process' must be within the threshold values as determined by the National Treasury.

76.2 Regulation 16A 6.4 provides that if in a specific case it is impractical to invite competitive bids, the Accounting Officer or accounting authority may procure the required goods or services by other means, provided that the reasons for deviating from inviting competitive bids must be recorded and approved by the Accounting Officer or the accounting authority.

86. The contract to which the cession related was a five year contract and it was dealt with in accordance with the preferential procurement provisions in 2005. The invitation to bids specifically stipulated that the 90:10 preferential point principle will be applicable to the bid. Regulation 4 (2) provides that a maximum of 10 points may be awarded to a tenderer for being an HDI (historically disadvantaged individual) and/or sub-contracting with an HDI and/or achieving any of the specified goals stipulated in regulation 17. Regulation 13(11) requires the tender to be awarded to the tenderer that scores the highest points.

87. The award of the original MLS contract was subject to 90:10 preference.

88. The First to Third Respondents contend that clause 11.2.2.2 of the AOS was complied with. The clause is quoted above and it is necessary to refer again to the following portions thereof:

"The same conditions used for the award of the bids concerned must be made applicable to the transfer of contracts."

and

"If a contract was awarded to a particular bidder on the basis of preference claimed, the contract might not be transferred to a firm/person qualifying for a smaller percentage preference unless the transferee is prepared to lower the contract price so that the comparative price that was used for the award of the contract, is maintained."

89.On 23 September 2008 the Second Respondent's Head of Department wrote to MLS as follows in connection with the cession of the contract:

"CONRACT DOH30/2005: PROVISION OF A LAUNDRY AND LINEN MANAGEMENT SERVICE AT GROOTE SCHUUR HOSPITAL FOR THE PERIOD 1 JUNE 2006 TO 31 MAY 2011, CESSION OF CONTRACT FROM MEDICAL LINEN SERVICES (MLS) TO H LAMB A LINEN CC

1. Your request to cede the above-mentioned contract to Hlamba Linen dated 5 August 2008 refers.

2. Kindly note that the Department has approved your request to cede the contract to Hlamba Linen, in line with the following agreed conditions:

• That the contract will be monitored extensively for 6 months with a suspensive condition that the Department reserves the right to cancel the contract in the event that the contractor is not fully operational within 6 months from the start-up date.

65535. That an independent consultant (Mr Mickey Finn) be appointed for a period of approximately 6 months to manage the relationship between the contractor and Groote Schuur Hospital, and that the costs of such appointment be shared between the two parties.

65536. That the costs incurred by appointing WP Laundry be borne by MLS Laundry from the time that operations were ceased by MLS until the date of submission of the recovery plan, and

65537. That the contract price be amended from R1.51 per piece and R77 776.00/month for the management fee to R1.85 and R85 000/month respectively."

90. It would appear from this letter that there are further aspects in respect of which the Department, the Second Respondent failed to comply with AOS 11.2.2.2. The conditions subject to which approval was granted for the cession of the contract from MLS to Hlamba, do not mention any evaluation of preference claims according to the 90:10 system, nor is there any reference to security, two items expressly mentioned in paragraph 11.2.2.2 of the AOS.

91. Clause 7 of the General Conditions of Contract issued by the National Treasury further stipulates that performance security is to be provided. The conditions under which the cession was approved do not refer to security at all.

92. From all of the above, it would appear that the Second Respondent failed to comply with the Constitution, the PFMA, the PPPFA and its Regulations, and the National Treasury Regulations when consenting to the cession. The Second Respondent also failed to comply with the provisions of paragraph 11.2.2.2 of the AOS.

93. For these reasons, and those set out above, i am of the view that the cession was invalid and stands to be set aside.

94. Although the Applicant was unsuccessful in obtaining the relief sought relating to the contract contended for by itself, it has succeeded in obtaining the relief sought in relation to the cession, and accordingly achieved substantial success in regard to the application as a whole.

95. The Third Respondent who was joined made common cause of the First and Second Respondent and therefore should be liable for costs only to the extent, and from the time it commenced opposing the application.

96. I accordingly make the following order:

1. Sub-paragraphs (a) and (b) of paragraph 1 of the Rule Nisi handed down on 28 November 2008, are discharged and set aside.

2. Sub-paragraphs (c) and (d) of paragraph 1 of the Rule Nisi are confirmed and the cession of the contract between the Second Respondent and Mandarina Trading 536 (CC) (in liquidation) to the Third Respondent, Hlamba Linen CC, from effect 1 December 2008 is declared to be invalid.

3. The First and Second Respondents, jointly and severally with the Third Respondent, are directed to pay the costs of the application, including the costs of two Counsel.

4. The costs of the application for postponement on 2 March 2008 brought by the First, Second and the Third Respondents, are to be paid by those Respondents, jointly and severally.

5. The costs reserved in terms of paragraph 2 of the Rule Nisi are to be paid by the First, Second and Third Respondents, jointly and severally, such costs to include the costs of two Counsel to the extent that the services of two Counsel were utilized.

ZF JOUBERT AJ

Cape Town

12 March 2009

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