Publication: Business Day Weekender Issued: Date: 2006-09-09 Reporter: Rob Rose

State Can Now Be Sued for Business Lost Due to Graft



Business Day - Weekender

Date 2006-09-09


Rob Rose 

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The Supreme Court of Appeal on Friday made a far-reaching judgment against government, ruling that the state must pay up when its officials are implicated in corruption ­ capping a 14-year crusade by businessman Melchior Rabie over a graft-ridden city of Cape Town tender.

Friday’s decision by Judges Edwin Cameron and Fritz Brand in Bloemfontein will send a jolt through government, as it lays the platform for companies jilted by corrupt government officials and departments to sue for their losses, which could easily cost the taxpayer hundreds of millions each year.

For Rabie, Friday’s verdict marked the culmination of a crusade against the powers-that-be that saw him brought to his knees, and the company that lost the tender, 3D-ID, put into liquidation.

The Supreme Court decision marks the end of the case.

Although the quantum of damages has yet to be decided, the liquidator of 3D-ID wants R102m from government for the amount the company lost due to the dirty actions of a number of Cape Town government officials at the dawn of SA’s democracy.

The tender dates to the days immediately before the ANC government was voted into office in April 2004 (sic). 3D-ID was one of thirteen companies that bid for a lucrative tender in March 1994 to supply and run fingerprint identification for the payment of welfare grants in Cape Town, in order to combat fraud.

Ironically, as Judges Cameron and Brand noted in Friday’s judgment, “before even the closing date, the tender process was poisoned at its very heart by fraud within the Cape Provincial Administration".

Just as 3D-ID was expected to win the tender, an unknown Port Elizabeth shelf company, Nisec, which led by businessman Michau Huisaman, surprised its rivals by getting the contract, worth well over R100m a year.

Although Rabie complained, the government of the day fought him vigorously, claiming the tender was above board. After Rabie lost various court challenges, Nisec eventually succeeded in having 3D-ID liquidated for the court costs.

But as the Supreme Court noted on Friday , “time nevertheless vindicated Rabie’s indignant assertions"

In 1996, the Western Cape government cancelled the Nisec contract due to “improprieties”.

It then transpired that two prominent Cape Town officials, Andre Louw and Anton Scholtz, who had played a key role in recommending that Nisec be awarded the tender in 1994, had taken bribes and organised themselves secret deals to take lucrative jobs with Nisec at a later stage.

Not only had Huisamen paid bribes into Louw and Scholtz’s wives’ bank accounts, but the government employees had “fraudulently conspired" with Nisec’s management to put together their tender bid at the Cape government’s offices after the tender had actually expired. Police investigated and found the “smoking gun", being evidence that Nisec’s winning tender was actually drawn-up on a government computer, before the tender was even announced.

In a manner reminiscent of Richard Young’s efforts to expose corruption in the arms deal, Rabie doggedly fought government to get details of the tender decisions, but was fought all the way by the Finance and Welfare ministries.

The Supreme Court also rejected government’s argument that it couldn’t be held liable for actions it had not authorised, saying “the cost to the public of exempting a fraudulent perpetrator from liability for fraud would be too high".

“The fact that a defendant’s conduct was deliberate and dishonest strongly suggests that liability for it should follow in damages, even where a public tender is being awarded," it said.

Rabie on Friday said the Supreme Court decision was an important statement that “our courts will not stand for this sort of corruption in government".

He said the verdict marks the end of a 14-year chapter in his life that had “taken away a large part of my life, and cost me a huge amount of time and resources"

“The (corruption) meant that my company lost the opportunity to be one of the world leader’s in this type of technology. The system we proposed in 1995 would have been the first fingerprint system of its kind anywhere in the world, and we planned to take the technology worldwide after that, so who knows?," he said.

As one of the original shareholders of 3D-ID, Rabie still stands to benefit from the judgment, as he may now get money from the company’s liquidators.

With acknowledgements to Rob Rose and Business Day.

Sorry taxpayers, but in the final analysis the taxpayers will win.

Very, well done Mr Rabie and Their Lordships Mr Justice Edwin Cameron and Mr Justice Fritz Brand and the three others who sat with them.

A very special commendation to Cameron JA because this landmark judgment finally extinguishes the curse of the previous precedent law in cases such as these which was brought about by Cameron JA's judgment in
Olitski Property Holdings.