Agribee Beef Fund (Pty) Limited and another v Eastern Cape Rural Development Agency and another

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Zondo CJ, Maya DCJ, Baqwa AJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J
• Judgment Date: 01 February 2023
• Docket Number: CCT 26/22
• Hearing Date: 06 September 2022
• Court: Constitutional Court

BAQWA AJ (Zondo CJ, Maya DCJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J concurring):

Introduction

[1]

Is a tripartite agreement between two organs of state and a private entity in furtherance of the objects of the organs of state subject to the provisions of section 217(1) of the Constitution? The agreement at issue in this application required the private party to provide smallholder farmers with cattle, veterinary kits and feed supplements and training and mentorship, paid for with public funds.

[2]

Section 217(1) of the Constitution provides:

"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."

2023 JDR 0759 p3

BAQWA AJ (Zondo CJ, Maya DCJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J concurring)

[3]

Section 217(1) of the Constitution and the legislative and regulatory framework promulgated pursuant to the provisions of that section, such as the Public Finance Management Act [1] (PFMA), Preferential Procurement Policy Framework Act [2] (PPPFA) and subordinate legislation like the Treasury Regulations, and other instruments, for instance, the Supply Chain Management Policies, [3] provide in very clear and simple language how an organ of state in any of the three spheres of government, if authorised by law, needs to proceed when contracting for goods and services. Their provisions have been the subject of numerous decisions of this Court, yet for some reason state organs still seem to struggle to determine with precision when to apply their provisions when they enter into contracts. [4]

[4]

The issue for determination, if we reach the merits, is whether the agreement between the parties was no more than a vehicle through which funds or subsidies were made available to enable the economic uplifting of emerging farmers in the Eastern Cape. This would be done by supporting the beef value chain production, and by so doing contribute significantly to the rural development of the province.

Parties

[5]

The applicants are Agribee Beef Fund (Pty) Limited (Agribee), a private company trading as the Eastern Cape Beef Fund (ECBF) and Berlin Beef (Pty) Limited (Berlin Beef), also a private company. Agribee and Berlin Beef have the same shareholder.

[6]

The respondents are the Eastern Cape Rural Development Agency (Agency), a corporation established in terms of the Eastern Cape Rural Finance Corporation Act [5]

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BAQWA AJ (Zondo CJ, Maya DCJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J concurring)

and the Member of the Executive Council for Rural and Agrarian Reform, Province of the Eastern Cape (MEC). The Agency and the Department of Rural Development and Agrarian Reform, Province of the Eastern Cape (Department) over which the MEC exercises political oversight are organs of state responsible for the development and administration of the agricultural sector in the Eastern Cape.

Background

[7]

At the centre of the dispute is a strategy which was adopted by the state organs, namely, the Eastern Cape Agricultural Economic Transformation Strategy. Agribee submitted a "Request for a strategic partnership - Implementation of the Eastern Cape Beef Fund". The request was in line with the mandate of the Department and stated that the applicants would finance beef weaners, [6] veterinary costs and provide sufficient working capital for the project operations. Initially, the applicants sought an investment of R50 million from the Department in the form of "equity or a revolving loan or a grant or combination of these".

[8]

On 9 May 2018, a service level agreement was concluded between the respondents in terms of which the Agency was to receive and administer the project's funds on behalf of the MEC for various projects in a total amount of R263 million.

[9]

On 6 July 2018, the Department sent an email to Berlin Beef seeking clarity on whether the budgeted funds would be regarded as "loan funding" for the farmers. Berlin Beef offered no response. The Department was of the view that the transfer of funds from the Agency to Berlin Beef would be classified as a "grant". On 16 July 2018, Agribee entered into an agreement that incorporated a business plan with the organs of state to carry out the project.

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BAQWA AJ (Zondo CJ, Maya DCJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Rogers J and Tshiqi J concurring)

[10]

In terms of the agreement, a total of R67 535 000 was required from the Department for the project. On the other hand, as it appears in terms of the agreement's preamble, the applicants had raised R180 million to implement and manage the project.

[11]

Agribee performed in terms of the agreement. However, when the state organs had to pay, they challenged the legality of the contract, alleging that the conclusion of the agreement was not preceded by a procurement process as required in terms of section 217(1) of the Constitution. As a result, the state organs brought an application before the Eastern Cape Division of the High Court, Grahamstown (High Court), seeking an order for the agreement to be set aside.

Litigation history

High Court

[12]

The state organs argued in the review application that the agreement was unlawful, because a procurement process in terms of section 217(1) was necessary before its conclusion since public funds were to be utilised for the acquisition of beef weaners (goods) and services rendered.

[13]

The applicants contended that the agreement was not unlawful, because it did not constitute procurement of goods and services. Their argument was that the agreement was a vehicle through which funds and subsidies from the Department to the Agency were extended to the applicants to further a common goal of uplifting emerging black farmers.

[14]

The High Court considered the context within which the agreement was structured and its objectives. It held that the agreement underpinned a project aimed at the upliftment of black emerging farmers. The Court dismissed the application with costs on the basis that the agreement was not one for the provision of goods and services and that a procurement process in terms of section 217(1) of the Constitution was not necessary. In its conclusion, the Court held:

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BAQWA AJ (Zondo...