In the High Court of South Africa
(Transvaal Provincial Division)
CASE NO: 21785/2002
In the matter between :
CCII Systems (Pty) Ltd
The Minister of Defence
The Armaments Corporation of South Africa Limited
African Defence Systems (Pty) Ltd
Judgment : 27 January 2005
The plaintiff has instituted an action for damages it: claims to have suffered as a result of the award of contracts to other companies far the supply of an "Information Management System" (IMS) and a "Combat Management System" (CMS) that will be fitted to four (4) corvettes to be built and supplied to the South African Navy - the new infamous "Arm Scandal" that has already seized the attention of the citizens of this country for some years and will certainly continue to occupy the significant interest, debate, court trials and commenting of many citizens, groups and political parties for years to come.
The plaintiff's particulars of claim together with Annexures thereto occupy a somewhat modest 122 pages containing 233 paragraphs. The defendants have each excepted to the particulars of claim. The first defendant claims that they are vague and embarrassing and disclose no cause of action against him. The second and third defendants raise the same objection to the particulars of claim as does the 1st defendant. For convenience, I shall refer to the parties as plaintiff and defendant, respectively.
Rule 18(4) of the Uniform Rules of Court: provides: "Every pleading shall contain a clear and concise statement of the material fads upon which the pleader relies for his claim, defence or answer to any pleading, as the case may be, with sufficient particularity to enable the opposite party to reply thereto".
Commenting on the provisions of this rule De Klerk 3 sated, in Buchner and Another v Johannesburg Consolidated Investment Company Limited 1995(1) SA 215 (T) at page 216 " ...The necessity to plead material facts does not have its origin in this rule. It is fundamental to the judicial process that the facts have to be established. The Court, on the established facts, then applies the rules of law and draws conclusions as regards the rights and obligations of the parties and gives judgment. A summons which propounds the plaintiff's own conclusions and opinions instead of the material facts is defective" (See also Moki v Raced and Colman (Africa) Ltd 1968(3) SA 98A). Such facts as are pleaded must be in summary form (See Erasmus, Superior Court Practice, p, B1- 130).
The only exception to the general rule of pleading only the facts is where there is a need that the background or history to the facts be set out for the sake of clarity or to place the facts in context., Where that need arises the history or background must be clearly demarcated from the facts. This was stated concisely by Levy J, in Secretary for Finance v Esselmann 1988(1) SA 594 (SWA) at p. 597 and where he said: ''However, for the sake of clarity it is sometimes necessary to plead history. The pleader should do this with caution. Unless such history is clearly severed from the cause of action the pleading may be rendered vague and embarrassing ".
The plaintiff's particulars of claim fall into four parts. The first part is that which is set out in paragraphs 1 to 128. This section sets out the history to the claims and forms the background on which the claims are premised. Paragraphs 129 to 161 constitute the second portion on which the claim for administrative justice is based. Paragraphs 162 to 176 form the third part that makes out a case of unlawful competition against the 3rd defendant. Paragraphs 177 to 233 contain the case against the first and second defendants relating to the System Management System.
All the parties submitted detailed written heads. I have found them most useful and I thank counsel for their assistance. The damages sought by the plaintiff against the first defendant are based on an alleged breach of its right to administrative justice - resulting from a flawed tender process for the acquisition of armaments. It is common cause that the plaintiff's interest in the procurement of the corvettes was limited to the supply of the Information Management System (IMS) and the Systems Management system (SMS). Both sub-contracts were awarded to the rival systems connected with the 3rd defendant, namely the Detexis System and an SMS System offered by the 3rd defendant. The plaintiff's case is that its displacement in both instances was actionable.
With regard to the IMS the plaintiff alleges that the 3rd defendant took advantage of its position as part of the consortium and as the nominated supplies of the Combat Suite integration element and the CMS to substitute the Detexis System for the IMS. It alleges that this was done in an unlawful unfair and administrative action attributable, i.e. to the first defendant.
The claim against the 1st and 2nd defendants regarding the SMS system is based on unjustifiable and procedurally unfair administrative action for which it seeks damages, as aforesaid.
The plaintiff advances an alternative claim for damages against the first and second defendants based on an alleged breach of duty to follow a fair equitable transparent competitive and cost effective system in the procurement of the IMS and the SMS, as required by section 217(1) of the Constitution Act 108 of 1996.
The plaintiff alleges that its rights and interests to participate in a lawful and fair procurement process and in having its IMS selected was breached in three respects, namely
i) Unlawful administrative action :
At a time unknown to plaintiff, certain officials of SAN, DoD and Armscor decided to reclassify its databus as a category B system, i.e. one in which GFC and ADS would have to accept full responsibility whereas previously the databus had been classified as a category C system, i.e. a sub-system supplied by a sub-contractor and for which the primary contractor was not expected to assume full responsibility until after satisfactory and successful completion of factory acceptance tests. At the same time these same officials decided that plaintiff's IMS should be replaced by the Detexis system and that the architecture of the Combat Suite should be altered so as to allow for the use of the Detexis system.
These decisions, although taken by persons who were some of the members of the administrative bodies charged with the duty to considering technical aspects of the corvette acquisitions before the matter was referred to Cabinet as the final authority, were not taken by the relevant administrative bodies.
Nonetheless, that decision which was not lawfully made by the duly constituted bodies authorised to make it somehow became insinuated into the process and was incorporated into the budget subsequently approved by the Cabinet and in the contract awarded. Cabinet, however, believed that the selection of the various systems had been duly approved by the relevant administrative bodies, the JPT and PCB.
ii) Unfair administrative action (Substantive expectation of plaintiff) :
This legitimate expectation had been inculcated over the years during which plaintiff had developed the IMS. I n the circumstances, plaintiff's legitimate expectation conferred on it the substantive right to have its IMS selected as the databus for the Combat Suite in the absence of sound reasons to the contrary. Since there were no sound reasons not to select the IMS this administrative action was unfair.
iii) Procedural unfairness :
This involves administrative action which was procedurally unfair, i.e. the State selected another databus in favour of the IMS without following a fair procedure. Four constituent complaints are advanced, one of which needs amplification. They are:
1. The complaint that the technical evaluation of the relative merits of the IMS and Detexis systems was not conducted by fair process.
2. The complaint that there were departures from the present architectural and technical specification for the databus involved in the selected of the Detexis system.
3. The complaint that the tendering process was unfair because if the State was willing to accept departures occasioned by the selection of the Detexis system, then plaintiff should have been invited to deal with such departures.
4. The complaint of conflict of interes [sic]. This relates to one Shamin Shaikh who, in May 1998 had been appointed the DoD Chief of Acquisitions and was chairperson of the PCB and co-ordinated other evaluation teams and was co-chairperson of SOFCOM. Shamin Shaikh's brother, Schabir Shaikh was appointed an alternate director of ADS in September 1999 at a time when Thomson-CSF (PTY) Limited (Thompson) acquired 80% of the shares in ADS. Nkobi Investments (PTY) Limited which was controlled by Schabir Shaikh held 10% in an associate of Thompson and 30% in Thompson itself. Shamin Shaikh's conflict of interest (which was known to first excipient from May 1998) did not lead him to recuse himself from the PCB or SOFCOM and he actively promoted the interests of ADS and participated in the decision to select the Detexis system. The State, although aware of the conflict, failed to take any adequate measures to ensure that Shaikh refrained from participating in discussions, deliberations and decisions regarding the Combat Suite.
The plaintiff alleges that the aforesaid infringements of its rights to administrative justice entitles it to monetary damages in the form of loss of profit resulting from the award of the tender of the IMS to its rival including the loss of profit on future maintenance, support and upgrading of the system on the corvettes, business that the plaintiff would have won from foreign navies had its IMS been selected alternatively all expenses incurred by the plaintiff in the development of its system alternatively all expenses incurred by it in participating in the process for the procurement of the system.
Mr. Kuper who appeared with Mr. Malindi for the first defendant submitted that there being no allegation that had the procurement process not have been affected in the three (3) respects set out above the decisions to award the tender to its rivals would have been decided in its favour; that but for the breaches in the administrative justice it would have secured the supply sub-contract and that had the Cabinet known of the administrative breaches it would have altered its own decision regarding the award of the contract or the relevant budgetary provisions. He contended that "... it is not appropriate upon the case made out that the breach of section 33(1) of the Constitution as read with item 23(2) of schedule 6 insofar as it may have affected a person in the position of the plaintiff should include redress by way of an action in damages..(1) in respect of loss of profits; and/or (2) in respect of expenses incurred in the development of the IMS and in the process for procurement after 31 March 1999 or from May 1998.
Mr. Kuper, in an eloquent and pertinent address expounded on the question the relief that the plaintiff sought was required to protect and enforce the Constitution. He submitted that the action for damages as pleaded is not founded on a causal connection between the breach and the damages. He submitted that the action, if good, links the fact of infringement of rights to the consequence of monetary compensation. This, he contended, must inevitably mean that tenderers who would not have won contracts will still receive windfall amounts due to their good fortune in demonstrating that a violation of administrative justice occurred during the process. He submitted further that the plaintiff sought to be compensated twice on the same cause of action. He submitted that this, whatever theory may be, was unacceptable.
Mr. Maritz who appeared with Mr. Labuschagne for the second defendant, submitted that the plaintiff's particulars of claim are vague and embarrassing and further that they do not disclose a cause of action. He submitted that save for paragraph 118 the allegations in paragraphs 8 to 128 are not referred to or directly relied upon on the separate causes of action pleaded and relied upon by the plaintiff from paragraph 129 to 233. He submitted that the particulars of claim are not clear and concise and offend against the provisions of Rule 18(4). He submitted further that in prayers l(a) and 11(a) the plaintiff does not identify the conduct attributable to the first and second defendants and has failed to provide material particulars establishing the responsibility of each of the defendants either directly or vicariously.
On the ground that the particulars of claim fail to disclose a cause of action Mr. Maritz submitted the plaintiff‘s claims for monetary compensation in the form of appropriate relief under section 38 of the Constitution are based on alleged unlawful administrative actions by the first and second defendants as organs of State in a procurement process where the final authority lay with, and the actual decision was taken by the Cabinet. He submitted that the conduct by the recommending committees could not, and did not, affect the plaintiff or any other potential tenderer in their rights or interests and does not constitute administrative action actionable in law. He pointed out that according to the averments in paragraph 133 of the particulars of claim the decisions alleged to be unlawful are those set out in paragraph 118. Yet the plaintiff alleges in paragraph 133 that, the decisions set out in paragraph 118 were not lawfully made by duly constituted bodies duly authorised to make them. In the light of the express allegation that such decisions were unauthorised such decisions could not constitute decisions by the first and second defendants. He submitted that the plaintiff had not alleged that the final approval and decision by the Cabinet was either unlawful or vitiated by irregularity or taken in breach of any of the plaintiff's constitutional rights.
Mr. Maritz submitted further that the plaintiff's claims based on the alleged loss of profit which would have resulted from the award of the IMS and SMS contracts to the Plaintiff could not succeed as the plaintiff had failed to allege that the outcome would have been different had it not have been for the alleged unlawful administrative action.
He submitted further that the plaintiff's case as pleaded, was that (1) the GFC was approved by Cabinet as the preferred supplier of the corvettes; (2) the IMS fell under the category C that consisted of sub-systems that were to be supplied by sub-contractors; (3) the plaintiff having been requested by the 3rd defendant to furnish a quotation for the supply of the IMS was nothing more than an aspirant sub-contractor to the 3rd defendant.
That being so the plaintiff was never to be in any contractual relationship with the 1st and 2nd defendants or the State.
Consequently there could be no duty breached by the second defendant. He submitted further that the particulars of claim did not make out a case under section 38 of the Constitution and that the claim based on legitimate expectations was untenable in law. He submitted further that section 217 of the Constitution does not provide for a claim for damages but the right to call for reasons and the right to have the procurement process set aside.
Mr. Van der Linde who appeared with Mr. Kriegler submitted that it was not clear whether paragraphs 7 to 128 or some of them contain facta probanti or the material facts upon which the plaintiff relies. He pointed out that the plaintiff effectively concedes in its heads of argument that paragraphs 7, 20, 22, 23, 44, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 61, 81, 83, 84, 88, 104, 108, 116, 118, 120, 121 are irrelevant in the case against the 3rd defendant. He submitted further that the 3rd defendant, as a supplier to the South African Navy was not barred from competing with the plaintiff. We submitted that a duty to the plaintiff may only arise if the form of competition offends the boni mores all legal convictions of the community (Administrator, Natal v Trust Bank van Afrika Bpk 1979(3) SA 824(A) 833 to 834). He submitted further that the high water mark of the plaintiff's case is that the 3rd defendant expressed an adverse opinion concerning the risk of the compatibility of the plaintiff's system. He contended that even if it were dishonest it remains the expression of an opinion concerning a future event and not the misrepresentation of an existing fact. He supported the argument that the plaintiff, having failed to allege that but for the conduct of the 3rd defendant the plaintiff would have been awarded the tender on the IMS.
Mr. Rogers who appeared with Mr. Fagan submitted that paragraphs 8 to 176 set out the claim in respect of the IMS, that paragraphs 177 to 233 set out the claims in respect of the SMS. He contended that the plaintiff's claims against the 1st and 2nd defendants in respect of both the IMS and SMS are for constitutional damages as "appropriate relief" under section 38 of Act 108 of 1996, for the alleged breach of the plaintiff's right to just administrative action under section 33 of the Constitution and for delictual damages for an alleged unlawful competition.
Mr. Rogers submitted that Cabinet, in taking its decision had relied implicitly on the tainted recommendations and the particulars of claim were not open to the interpretation of an independent assessment by the Cabinet. On the contrary the Cabinet approved the contract on the basis and in the belief that the proper structures namely the Joint Project Team (JPT) and the Project Control Board (PCB) had had (sic) indeed duly approved the selection of the systems. He submitted that had the JPT and the JCB (sic -PCB) been furnished with the cost, efficacy and reliability of the systems offered by it and the detexis system of its competitor these two bodies would certainly have chosen the plaintiff's IMS.
He submitted that the plaintiff had pleaded all the facts from which the legal conclusion of a causal nexus can be drawn and that was sufficient to render redress by constitutional damages "appropriate" as contemplated in section 38 of the Constitution. He submitted that there was a clear causal nexus set out in the particulars of claim on all three claims. He submitted that a trial court may find and award constitutional damages. He further disputed that the plaintiff's case is for "primitive" damages and submitted that they were manifestly compensatory in nature.
With regard to the exception that the particulars of claim are vague and embarrassing Mr. Rogers conceded that the particulars of claim were lengthy and that having regard to the nature of the plaintiff's claim, it is inevitable that they would contain a reasonably extensive pleading of history and background. He submitted that this is not in itself objectionable.
There are essentially two basis of objection to the plaintiff's particulars' of claim, namely that (1) they are vague and embarrassing, and (2) that they do not disclose a cause of action. In my understanding of the formulation of the exceptions none of the defendants have taken issue with the prolixity of the particulars of claim. Likewise there is no abjection, perse, to the pleading of history. The objection is to the plaintiff's failure to set out clearly what is history to which the defendants do not have to plead or those section of the particulars of claim which have no relevance against a particular defendant. The paragraphs listed as being irrelevant in the case against the third defendant which number approximately 27 demonstrate this point graphically. There is no onus on any of the defendants to analyse and determine which of the paragraphs in the particulars of claim refer to them and consequently must be pleaded to. It is the duty of the plaintiff to set this out clearly and concisely so that there can be no doubt what case each defendant has to answer to. It will be of cold comfort to a defendant to be faced with uncontested averments because it believed that a particular paragraph ought to have been dealt with and did not form part of the history of or the background to the matter. Likewise, a defendant can be in a quandary as to whether the acts of an official of one or other of the three defendants were being executed in the furtherance of a particular defendant only or whether such actions can be vicariously attributable to another or all of the defendants. I am satisfied that the exception based on the particulars of claim being vague and embarrassing is well-founded.
A whole body of case law was advanced on behalf of the plaintiff and the defendants on the concept of constitutional damages, the method of computation thereof and whether such damages are recoverable.
In deciding the second issue that is the claim for
constitutional damages it will be convenient to bear in mind the provisions of
the sections of the Constitution on which the plaintiff bases its claims.
Section 33(1) reads as fallows : "Everyone has the right to administrative
action that is lawful, reasonable and procedurally fair." Section 2l7(1)
reads : "When an organ of state in the national, provincial or local sphere
of government, or any other institution identified in national legislation,
contracts for goods or services, it must do so in accordance with a system which
is fair, equitable, transparent, competitive and cost-effective." Section
23(2)(b) of Schedule 6 reads : "section 33(1) and (2) must be regarded to
read as follows : ‘Every person has the right to -
a) lawful administrative action where any of the rights or interest is effected or threatened;
b) procedurally fair administrative action where any of the rights or legitimate expectations is affected or threatened;
c) be furnished with reasons in writing for administrative action which affects any of their rights or interests unless the reasons for that action have been made public; and
d) administrative action which is justifiable in relation to the reasons given for it where any of their rights is affected or threatened',"
There can be no doubt that these three sections could never have been intended to be merely regulatory. This much has been conceded to a certain extent by the excipients. Fundamental to them are the concepts of lawfulness, reasonableness and procedural fairness (section 33( 1)); fairness, equitableness, transparency, competitiveness and cost effectiveness (section 217 (1)) lawful administrative action, fair procedural administrative action, the furnishing of reasons for the administrative action and justifiable administrative action (section 23(2)(b) of Schedule 6).
The case that the plaintiff has set out in his particulars of claim is that those responsible for the selection process for the IMS and SMS violated virtually all of the three sections. The question is whether a victim of these transgressions should only be entitled to being furnished with reasons for the rejection of his or her tender and also to have the offending award reviewed and set aside or to sue for damages. Were this question to be answered in the affirmative, it would mean that the law condones dishonesty, fraud and deceit and is prepared to shut its eyes to and turn its back on the hallowed preamble to our Constitution.
It is my considered view firstly that a fatally flawed tender process offends against society, its morals, its deeply held and cherished beliefs. It should not be allowed to stand. Where setting it aside would have a major disruptive effect that may cause serious harm to the interests of the nation fairness and equity may dictate that the mischief be atoned for. It is that form of atonement that the plaintiff seeks. To say that there is no cause of action in the circumstances of the case is fundamentally repugnant. To uphold the exception therefore would violate our law. If the cause of action does not exist in our law it is my considered view that this is one of those instances where common law may be in need of development. The exception has to fail.
It was common cause among counsel that costs in this matter should include those attendant on the employment of two counsel.
It is accordingly ordered that :
1. The first defendant's exception is dismissed with Cost;
2.1 Part "A" of the second defendant's exception is dismissed with costs;
2.2 Part "B'' of the second defendant's exception is upheld with costs;
3. Save for paragraphs 35, 36 and 37 of the exception the third defendant's is upheld with costs;
4. The plaintiff is given leave to amend its particulars of claim within fourteen (14) days from date hereof;
5. The costs will include those attendant on the employment of two counsel.
Date of hearing :
2 February 2004
Counsel for the Plaintiff :
Adv. O. Rogers (SC)
Adv. E. Fagan
Attorneys for the Plaintiff :
Bernadt Vukic Potash and Getz
Correspondent Attorneys :
Findlay & Niemeyer
1027 Schoeman Street
Tel : 012 342 9164
Counsel for the 1st Defendant :
Adv. M.D. Kuper (SC)
Adv. P.G. Malindi
Attorneys for the 1st Defendant :
The State Attorney
4th Floor, South Tower Fedsure Forum
Cnr. Vd Walt/Pretorius Streets
Tel : 012 328 5512
Counsel for the 2nd Defendant :
Adv. M.C Maritz (SC)
Adv. E.C. Labuschagne
Attorneys for the 2nd Defendant :
Gildenhuys Van Der Merwe
2nd Floor, Brooklyn Court
301 Lange Street
Tel : 012 427 3700
Counsel for the 3rd Defendant :
Adv. W.H.G. Van der Linde (SC)
Adv. M.A. Kriegler
Attorneys for the 3rd Defendant :
Friedland Hart Inc.
201 Van der Stel Building
179 Pretorius Street
Tel : 012 326 3331/8