THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case no: 283/09

In the matter between:

CC GROENEWALD NO

First Appellant
OVERSTRAND MUNICIPALITY

Second Appellant
ASLA DEVCO (PTY) LTD                                                          Third Appellant

and

M5 DEVELOPMENTS (CAPE) (PTY) LTD                                     Respondent

Neutral citation:  CC Groenewald v M5 Developments (283/09) [2010]
ZASCA 47 (31 March 2010)
Coram:
NAVSA, CLOETE, LEWIS, MHLANTLA and LEACH JJA
Heard:
12 March 2010
Delivered:
31 March 2010
Summary:  Local authority – municipal tender – unsuccessful tenderer having
a right of appeal under s 62 of the Local Government: Municipal Systems Act
32 of 2000 – appeal authority not entitled to award tender to another
unsuccessful tenderer who did not appeal.

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: Western Cape High Court, Cape Town (Le Grange J sitting
as a court of first instance).
The appeal is dismissed with costs, such costs to include the costs of two
counsel.
__________________________________________________________
JUDGMENT
__________________________________________________________

LEACH JA (NAVSA, CLOETE, LEWIS and MHLANTLA JJA concurring)

[1]   As this court has recently observed, awards of tenders in the public
sector are a fruitful source of litigation which has led to courts being swamped
with cases concerning complaints about the award of contracts.1 This is yet
another such case. It arises out of the award of a municipal contract by the
second appellant, the Overstrand Municipality, to one of several entities who
had tendered for it.

[2]   As I shall set out more fully below, the tender of the respondent (‘M5’)
was initially accepted but, pursuant to an appeal, the first appellant, Mr CC
Groenewald, who was at the time the acting municipal manager, reversed that
decision and awarded the contract to the third appellant (‘ASLA’). This led to
M5 initiating review proceedings in the Western Cape High Court, Cape Town

1 Per Harms DP in Moseme Road Construction CC & others v King Civil Engineering
Contractors (Pty) Ltd & another  [2010] ZASCA 13 para 1.

which set aside the municipal manager’s decision to award of the contract to
ASLA and declared M5 to be ‘entitled to enter into a contract with (the
municipality) pursuant to the allocation of (the tender)’. With leave of the court
a quo, the first appellant, the municipality and ASLA now appeal to this court,
contending that the review ought to have been dismissed.

[3]   Section 217(1) of the Constitution requires organs of state, including
municipalities, to contract for goods and services in accordance with a ‘fair,
equitable, competitive and cost-effective’ system. The Local Government:
Municipal Systems Act 32 of 2000 (the Systems Act) and the Local
Government: Municipal Finance Management Act 56 of 2003 (the Finance
Management Act) were designed to ensure compliance with this obligation.2
At the same time, s 217(2) of the Constitution further provides that this
obligation does not prevent an organ of state from implementing a
procurement policy by providing for ‘categories of preference in the allocation
of contracts’ and ‘the protection or advancement of persons, or categories of
persons, disadvantaged by unfair discrimination’. In order to comply with s
217(3) of the Constitution which requires national legislation to prescribe a
framework within which the policy in s 217(2) is to be implemented, the
Preferential Procurement Policy Framework Act 5 of 2000 (the PPPF Act) was
passed, s 5 of which empowers the Minister of Finance to make regulations to
provide a framework for the implementation of a procurement process.

2  See Municipal Manager: Qaukeni Local Municipality & another v FV General Trading CC
2010 (1) SA 356 (SCA) [2009] ZASCA 66 para 11.

[4]   In order to achieve a fair, equitable, competitive and cost-effective system
for the procurement of municipal services, a municipality is obliged by s 111 of
the Finance Management Act to have and implement a supply chain
management policy which, under s 112 of that Act, must comply with a
prescribed regulatory framework. That framework3 also requires goods and
services above a transaction sum of R200 000 to be procured by way of a
competitive bidding process.4 In addition, the regulations promulgated under
the PPPF Act (the ‘preferential procurement regulations’) which, with some
justification, have been criticised both in regard to their clarity as well as their
content,5 provide for the use of a formula for the evaluation of tenders in
which points are awarded in respect of various criteria.

[5]   In February 2007, the municipality intended to develop some 3 000 low-
cost houses.  In order to facilitate this project and to comply with its
constitutional and statutory obligations, it published an advertisement inviting
tenders for the appointment of an ‘implementation agent’ for its housing
projects. The advertisement specifically stated that the municipality did not
bind itself to accept the lowest or any tender and that tenders would be
‘subject to the Standard Conditions of Tender, the Preferential Procurement
Regulations of 2001 and (its) Supply Chain Management Policy’.

[6]   This advertisement was misleading as in fact the municipality had not
adopted a supply chain management policy, but nothing turns on its failure to

3 Promulgated in GN R 868 in GG 27636 of 30 May 2005.
4 Quakeni paras 12 and 13.
5 See eg Hidro-Tech Systems (Pty) Ltd v City of Cape Town & others  2010 (1) SA 483 (C)
[2009] ZAWCHC 125 paras 51-53.

do so. What is important is that the advertisement led to 16 tenders being
received by the municipality, five of which were considered to be acceptable.
These included tenders from M5, ASLA and a close corporation known as
Blue Whale Property CC (‘Blue Whale’).

[7]   The municipality employed a firm of consulting engineers, ICE Group
(Pty) Ltd (‘ICE’), to evaluate these tenders. This it did in detail, scoring each in
terms of the applicable formula prescribed by the preferential procurement
regulations.  It is unnecessary to set out the formula in question, it being
sufficient for present purposes to record that it involved scoring each tender
out of a maximum of 100 points, ten of which (so-called ‘PPPFA’ points)
related to those goals set out in s 2(1)(d) of the PPPF Act.

[8]   Having evaluated the tenders, ICE compiled a written report to the
municipality dated 23 March 2007 in which it stated that the two tenders most
worthy of consideration were those of M5, which it had scored at 91.6 points,
and ASLA, which had been awarded 91 points. The difference between the
two related to the scores allocated in respect of the ten PPPFA points, M5
having been given a single point and ASLA 0.6 points in that regard – their
scores otherwise having been identical. The other three tenders lagged far
behind in the scoring stakes. Those in third and fourth places were scored at
78.94 and 40.25 points respectively, while that of Blue Whale languished in a
very distant last place with but 17.25 points. Based solely on its slightly higher
score, ICE recommended that M5 should be appointed rather than ASLA.

[9]   ICE’s report was placed before the municipality’s tender evaluation
committee. It also decided to recommend to the municipality’s tender
adjudication committee that M5 should be awarded the contract.

[10]   On 13 April 2007 the municipality’s tender adjudication committee met
and accepted the recommendations of ICE and the evaluation committee that
M5 should be awarded the contract. Consequently, on 20 April 2007 M5 was
informed that its tender had been successful. The four unsuccessful tenderers
were simultaneously informed in writing of the outcome and that they had 21
days to lodge an appeal under s 62 of the Municipal Systems Act.

[11]    Unhappy that it had been unsuccessful, Blue Whale decided to appeal,
and lodged a notice within the stipulated period. ASLA also filed a notice of
appeal in which it contended that the evaluation report of ICE had not been
independent. But it did so only on 31 May 2007, almost three weeks out of
time.  Since the only appeal lodged in time was that of Blue Whale, and since
it clearly had no prospect of success, it is surprising to say the least that it
took some nine months to finalise the appeal.

[12]   In the meantime, the municipal manager when the appeal was
launched, Mr Koekemoer, had been replaced by Groenewald, who was acting
as municipal manager, and it was he who eventually determined the appeal
and awarded the contract to ASLA.  This he did despite being of the view that
ASLA’s appeal could not be considered and that of Blue Whale had to be
dismissed.

[13]   Groenewald explained how this somewhat surprising result came about.
After he had been appointed to the post in November 2007, he went through
the available documentation, including the reports of ICE and the evaluation
committee, and was initially somewhat confused by the differences in the
scoring. He discussed the matter with the chairperson of the tender evaluation
committee, Ms La Cock, who advised him that the evaluation committee had
received certain information relevant to the PPPFA points which contradicted
that accepted by ICE,  and that because it perceived that ICE had also erred
in other respects of the scoring in regard to those points, it had re-assessed
the tenders, increased the score of M5 to 94.3 points and that of ASLA to 93.4
points, but reduced Blue Whale’s score to 15.25 points. None of this appears
in the minutes of the tender evaluation committee or in its recommendation to
the tender adjudication committee. Nevertheless, according to La Cock, as
M5 still retained a slight lead over ASLA, the evaluation committee had also
decided to recommend M5.

[14]   On considering this information, and although he accepted the validity
of the criticism of ICE’s scoring, Groenewald concluded that the evaluation
committee had itself also incorrectly scored the tenders. Doing his own
scoring exercise, he decided that ASLA ought to have been awarded 92.4
points, fractionally more than M5 to which he gave 92.3 points. As in his
opinion ASLA had outscored M5, albeit by a minimal margin, he concluded
that it and not M5 ought to have been awarded the contract.

[15]   In the light of this, Groenewald considered himself to be on the horns of
a dilemma. On the one hand, he thought that ASLA’s appeal could not be
entertained as it had been filed out of time while that of Blue Whale was
devoid of merit and had to be dismissed.  On the other, he felt it would be
irregular, improper and, indeed, unconstitutional for M5 to be awarded a
contract which the tender adjudication committee, on his scoring, ought to
have awarded to ASLA.

[16]   Finding himself in a quandary, Groenewald took legal advice. Having
done so, and as part of what he viewed to be the overall appeal process, he
wrote to both M5 and ASLA on 29 January 2008, informing them that he had
difficulty in respect of the scoring and inviting them to make written
representations on certain issues on or before 6 February 2008. At the same
time he made it quite clear to ASLA that its appeal could not be considered as
it had been lodged out of time and that, in any event, there was no merit in its
allegation as to ICE’s lack of impartiality.

[17]   Although ASLA responded swiftly to Groenewald’s request to provide
further information, M5 did not: and so the municipal manager wrote to it on 7
February 2008, extending the period for its response to 11 February 2008. In
reply, however, attorneys acting for M5 wrote to him, stating that M5 could not
provide the information requested in the time available and requesting a
further extension of 14 days. Groenewald was not prepared to agree and,
taking into account the fresh information furnished by ASLA, he increased its
score to 92.4 points, a total slightly higher than the 91.6 points he had

awarded M5. In the light of this, he felt duty bound to award the contract to
ASLA. It was this decision that was the subject matter of M5’s application for
review which, in due course, was upheld in the court a quo.

[18]   Although a plethora of issues was raised in the papers, the ambit of the
dispute narrowed and only four issues were ventilated before this court of
which only two need to be determined. The first is whether an appeal against
the adjudication committee’s award of the contract lay under s 62(1) of the
Systems Act which provides:
‘A person whose rights are affected by a decision taken by a political structure,
political office bearer, councillor or staff member of a municipality in terms of a power
or duty delegated or sub-delegated by a delegating authority to the political structure,
political office bearer, councillor or staff member, may appeal against that decision by
giving written notice of the appeal and reasons to the municipal manager within 21
days of the date of the notification of the decision.’

[19]   In City of Cape Town v Reader & others6 the issue arose whether a
landowner had a right under s 62 to appeal against the approval of certain
building plans for the erection of a structure on its neighbour’s property. The
majority held that s 62 gives no general right to appeal to those who object to
a municipal planning permission or decision and that a neighbour, who was
not a party to the application for the approval of the building plans, did not
have a right directly affected by a decision on the application and thus had no
right to appeal under s 62. The question whether an unsuccessful tenderer

6 2009 (1) SA 555 (SCA) [2008] ZASCA 130.

would have a right to appeal against the acceptance of the tender of another
was specifically left open.

[20]   In its papers in the application a quo, as well as in its heads of argument
filed in this court, M5 argued both that ASLA was not a party to the appeal
due to its notice of appeal having been filed late and that, as an unsuccessful
tenderer, it did not have clearly defined rights adversely affected by the
decision of the tender adjudication committee. Relying upon the majority
decision in Reader it therefore contended that neither ASLA (nor Blue Whale
for that matter) had enjoyed a right to appeal under s 62 and that, on this
basis alone, it ought not to have been awarded the contract. In argument,
however, counsel for M5 stated that for purposes of the appeal he conceded
that both ASLA and Blue Whale had enjoyed a right of appeal under s 62.

[21]   This concession was correctly made. As I have mentioned, the decision
of the majority in Reader was based on the reasoning that a neighbour could
not be considered as a person whose rights were affected by the
municipality’s decision in regard to building plans approved for a neighbouring
property as it had not been a party to the application process relating to those
plans. In the present case, of course, the unsuccessful tenderers, together
with M5, were all parties to the tender approval process.  I therefore have no
difficulty in concluding that both ASLA and Blue Whale were entitled to appeal
under s 62.

[22]   That brings me to the next issue, namely, whether Groenewald, as
appeal authority, was entitled to award a contract to an unsuccessful tenderer
who had not appealed against the initial decision to award it to another.
Arguing that Groenewald had been perfectly entitled to do so, counsel for the
appellants, as a starting point, contended that an appeal in terms of s 62 is a
so-called ‘wide appeal’7 involving a re-hearing of the issues. From that base,
they argued that the award of a municipal contract was a matter falling within
the public domain, involving a decision which had to be taken in the public
interest in the light of the various constitutional and statutory imperatives I
have already mentioned, including the necessity to advance those goals
identified in the PPPF Act. The award of the contract therefore had to be
considered in this constitutional and statutory context, and it was necessary
for a municipality to act lawfully in doing so. In these circumstances, so the
argument went, a municipal manager was bound in his re-hearing of the
matter to award the contract to the party to whom it should have been
awarded in the first place, even if that party had not appealed.

[23]   Counsel for M5 conceded that s 62 involved an appeal in the wide
sense and, for present purposes, I intend to accept that he was correct in
doing so. But that does not mean that such an appeal requires the re-
evaluation of each submitted tender. If that were so, administrative anarchy
would result. In a simple case such as this involving the re-consideration of
but three tenders, the appeal process took nine months and I shudder to think

7 Compare eg Tikly & others v Johannes NO & others 1963 (2) SA 588 (T) at 590F-591A;
Nichol & another v Registrar of Pension Funds & others [2006] 1 All SA 589 (C) paras 19-22;
Cora Hoexter Administrative Law in South Africa pp 66-68.

how long it would have taken had it been necessary to deal with, say, 50
tenders just because one unsuccessful tenderer had decided to appeal.

[24]   The obvious fallacy in the appellants’ argument is found on an
examination of the section under which the appeal authority is empowered to
act.  Section 62(1) allows a person to appeal by giving ‘written notice of the
appeal and reasons’ to the municipal manager who, under s 62(2) has then to
submit ‘the appeal’ – obviously the notice of appeal and the reasons lodged
therewith under s 62(1) – to the appeal authority for it to consider ‘the appeal’
under s 62(3). Although in terms of this latter subsection the appeal authority
is empowered to ‘confirm, vary or revoke the decision’ it exercises that power
in the context of hearing ‘the appeal’ viz the appeal and the reasons lodged by
the aggrieved person under s 62(1). That defines the ambit of the appeal, the
sole issue being whether that aggrieved person should succeed for the
reasons it has advanced.  It is not for the appeal authority to reconsider all the
tenders that had been submitted. If that had been the legislature’s intention, it
would have said so.  It did not, and for obvious reasons. There is a need in
matters of this nature for decisions to be made without unreasonable delay. If
each and every tender had to be revisited it could easily become an
administrative nightmare with the appeal authority having to hear
representations from all parties  who tendered, some of whom might have no
realistic prospect of success, in regard to a myriad of issues, many of which
might in due course be proved to be wholly irrelevant.  This could never have
been the legislature’s intention. It is inconsistent with the requirement that a

person aggrieved must file a notice of appeal with reasons within a fairly short
period.

[25]   Thus  while I accept that the appeal is a wide one in the sense of a re-
hearing, it is a re-hearing related to the limited issue of whether the party
appealing should have been successful. In the context of a municipal tender,
an appeal by a person whose tender was unsuccessful therefore does not
entitle the appeal authority to reconsider all the tenders that were lodged and
to decide whether the committee which adjudicated upon the tender ought to
have awarded the contract to a person whose tender was not accepted, but
who did not appeal against that decision (and who might no longer have any
interest in being awarded the contract). In the present case, the appeal
related solely to whether the contract should have been awarded to Blue
Whale rather than M5 and, having concluded that issue against Blue Whale
and declining to consider ASLA’s appeal, the appeal should merely have been
dismissed and the adjudication committee’s decision left undisturbed.

[26]   Furthermore, while Groenewald may have had concerns about the
legality of the award of the tender, it is important to bear in mind that those
concerns were based on his perceptions flowing from his own investigations
on issues identified by him and that his conclusions were challenged by M5.

[27]    It was suggested during argument that if Groenewald had not been
empowered to award the contract to ASLA, the court a quo should have
referred the matter back to the adjudication committee to enable it to

reconsider the award, and that this court should therefore make such an
order. There seems to me to be no merit in this suggestion. Groenewald’s
power under s 62(3) was to ‘consider the appeal, and confirm, vary or revoke
the decision’. He had no power to refer the matter back to the adjudication
committee for reconsideration. That being so, the court a quo could not have
made an order on review that Groenewald could not have made, and neither
can this court.

[28]     The conclusion that Groenewald should merely have dismissed the
appeal under s 62 renders it unnecessary to deal with any of the other
questions raised on appeal. In regard to the question of costs, it is clear that
the matter is of substantial importance and the parties were correctly agreed
that costs should follow the event and that the employment of two counsel
was justified.

[29]   In the result, the following order is made:
‘The appeal is dismissed with costs, such costs to include the costs of two
counsel’.

__________________

L E LEACH

JUDGE OF APPEAL

APPEARANCES
1st & 2nd APPELLANTS:

E W Fagan SC
3rd APPELLANT:

H C Schreuder

1st APPELLANT &
Instructed by Fairbridges Attorneys, Cape
2ND APPELLANT                           Town;
McIntyre & Van der Post, Bloemfontein.

3rd APPELLANT
Instructed by Louw du Plessis Inc,
Somerset West;
McIntyre & Van der Post, Bloemfontein.

RESPONDENT:

J W Olivier SC (with him R B Engela)
Instructed by Malan Laäs & Scholtz Inc,
Durbanville;
Webbers, Bloemfontein.

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal

Date:
31 March 2010

Status:
Immediate

Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal

GROENEWALD NO & OTHERS

versus

M5 DEVELOPMENTS (CAPE) (PTY) LTD

The Supreme Court of Appeal today dismissed an appeal against an order of the
Western Cape High Court reviewing and setting aside the award  municipal of a
contract by the Overstrand Municipality to Asla Devco (Pty) Ltd ‘Asla’.

The municipality had invited tenders for a municipal contract. Five acceptable
tenders were received, including those from M5 Developments, Asla and a close
corporation, Blue Whale CC. Both an independent evaluator and the municipality’s
tender evaluation committee had considered the tenders and recommended that the
contract be awarded to M5. The municipality’s tender adjudication committee did so.

Blue Whale, acting under s 62 of the Local Government Municipal Systems Act 32 of
2000, appealed against the award of the contract to M5. Asla also sought to lodge
an appeal, but did so out of time.

The appeal under s 62 was heard by the acting municipal manager of the
municipality who decided that Asla’s appeal could not be considered as it had been
lodged out of time. However, although he also decided that Blue Whale could not be
awarded the contract and that its appeal should be dismissed, he awarded the
contract to Asla as he was of the view that the tenders had been incorrectly scored
and that Asla ought to have been awarded the contract.

M5 brought review proceedings in the Western Cape High Court, contending that the
municipal manager was not entitled to award the contract to Asla. Its review was
upheld and the award of the contract to Asla was set aside.

The municipal manager, the municipality and Asla appealed to the Supreme Court
of Appeal which found that the high court had correctly set aside the award to Asla.
It held that the municipal manager, as appeal authority, had the power only to
consider Blue Whale’s appeal and, once it had decided that the contract could not
be awarded to Blue Whale, it could not award the contract to Asla. The appeal to the
Supreme Court of Appeal was therefore dismissed with costs of two counsel.