Hidro-Tech Systems (Pty) Ltd v City of Cape Town and Others

• Jurisdiction: South Africa
• Judge: Irish AJ
• Judgment Date: 24 December 2008
• Citation: 2010 (1) SA 483 (C)
• Docket Number: 4174/08
• Counsel: DC Joubert for the applicant. MJM Bridgman for the first respondent. JG Dickerson SC (with A Smalberger) for the second and third respondents.
• Court: Cape Provincial Division

Irish AJ:

[1] These applications have their origin in the implementation of a F preferential-procurement policy by a local authority, relating to the awarding of contracts for the supply and installation of mechanical equipment for water and sewerage works.

[2] The applicant in the principal application before me is Hidro-Tech Systems (Pty) Ltd, a South African registered company with limited liability, which conducts the business of the supply and installation of G mechanical equipment for purposes of water and sewerage treatment works from its principal place of business within the jurisdiction of this court.

[3] The first respondent is the City of Cape Town, a metropolitan municipality, established in terms of the Local Government: Municipal H Structures Act 117 of 1998, read with Western Cape Provincial Notice 479/2000 of 22 September 2000, having its principal place of administration at the Civic Centre in the city of Cape Town.

[4] The second and third respondents, respectively, are Viking Pony I Africa Pumps (Pty) Ltd t/a Tricom Africa, and Bunker Hills Pumps (Pty) Ltd t/a Tricom Systems, both registered South African companies having limited liability and both conducting the business of the supply and installation of mechanical equipment for water and sewerage treatment works from their common principal place of business in Bellville, Western Cape. J

Irish AJ

A [5] Also before me is a counter-application brought by the second and third respondents (as first and second applicants) against the applicant (as first respondent) and the applicant's attorneys of record, Jacques Viljoen Attorneys (as second respondent). For convenience I will continue to refer to the parties conventionally as the applicant and its B attorneys of record. The first and second respondents seek final interdictory relief against the applicant and its attorneys to restrain them from making what are alleged to be defamatory statements concerning the first and second respondents.

[6] There are further applications, both to amend the relief being C claimed by the applicant in the principal application, as also to strike out portions of the founding affidavit. I deal with these hereinafter.

Background to the litigation

[7] The applicant and the second respondent compete with each other D and with other companies in tendering for contracts from the first respondent and from other local authorities for the supply and installation of mechanical equipment for water and sewerage treatment works, both in the Western Province and in adjacent provinces.

[8] The deponent of the founding affidavit, one Rudolf Viljoen (Viljoen), who is the managing director of the applicant, states that the applicant E has been actively involved in the industry (initially under a different trading name) since 1990. He further avers that, during approximately the last five years, the second respondent has won some 80% more contracts arising from tender processes in which both participated, than contracts won by the applicant. Annexed to his affidavit is a table F showing 31 contracts awarded pursuant to a tender process, during the period December 2005 to February 2008, by a variety of municipalities stretching from Clanwilliam to George. The table reflects the identity of the successful tenderer and also reflects the potential loss of profit to the applicant in respect of those contracts secured by the second respondent, G totalling an amount of R2 894 400.

[9] Viljoen goes on to say that he 'knows as a fact' that the applicant's tenders were lower than the second respondent's in respect of three of the tenders in question, being items 19, 20 and 21 on the list. The three awards in question were a contract of R1,553 million in respect of the H Racecourse Road pump station at Durbanville, awarded by the first respondent; a contract of R3,313 million in respect of a booster pump station awarded by the West Coast Municipality; and a contract of R2,678 million in respect of a booster and sewage pump station awarded by the Gamagara Municipality.

I [10] In the light of the allegation that, in at least these instances, the applicant's tenders were for a lower contract price than the second respondent's, Viljoen ascribes the applicant's failure to secure these particular contracts - and, by inference, many of the others - to the second respondent's consistently higher score in respect of its 'HDI status'. This allegation refers to the system, dealt with hereinafter, in J terms of which a public authority may structure its procurement policy

Irish AJ

so as to give weight to the scoring of a tendering supplier, if such supplier A be a historically disadvantaged individual (HDI) or be owned or managed by historically disadvantaged individuals, to a greater or lesser extent. The system has the significant potential result of awarding a contract to a competing entity, notwithstanding that (all other things being equal) it did not submit the keenest price. B

[11] The second respondent admits that the second respondent's HDI status has been a decisive factor in the award of certain contracts for which the parties competed. That being so, it is not necessary for the purpose of this application to determine in respect of how many tenders in which these parties competed against each other, the second respondent's C HDI status proved determinative of its success. The allegations of Viljoen relating to the second respondent consistently scoring a higher HDI status than the applicant have not been denied by the second respondent. Indeed, its principal deponent, one Daniel Mosea, merely points out in answer to this allegation that a tenderer's HDI status 'is not the only factor that is taken into consideration before a tender is D awarded'. Seeing that no one had so suggested, this supposed counter is writ in the wind. More to the point, as dealt with hereinafter, the first respondent has acknowledged that the second respondent's claimed HDI status has resulted in it obtaining an overall higher ranking than the applicant in competitive tenders. E

[12] Viljoen goes on to testify that he had, for a number of years, suspected that the second respondent was misrepresenting its true HDI status and that it was in fact merely operating as a 'front' for the third respondent. He states that the applicant had no evidence to bolster this suspicion until the applicant employed two persons who had previously F been involved in the second and/or third respondents as shareholders and directors. The two, one Zandberg and one James, filed affidavits confirming the allegations made by them, and set out in Viljoen's affidavit as part of the continuing narrative. It is not disputed that James was a director of and held a 35% shareholding in the second respondent, prior to his departure from the company in 2006; nor that Zandberg was G a director and 10% shareholder of third respondent during 2006 and was also an employee of second respondent. It is also not disputed that, at all times material hereto, the third respondent was owned by shareholders who were, not to mince words, white.

[13] It is common cause that, prior to James' departure from the H company, he and one Mosea (a director of the second respondent, the principal deponent to the second and third respondents' answering affidavit, and James' brother-in-law) each held 35% of the issued shareholding. Upon James' departure, Mosea purchased James' 35% shareholding for R23 000. (Mosea challenges this figure and states that I the price was in fact some R40 000, from which certain loans and charges - including the costs of a disciplinary hearing against James - due to the second respondent were deducted.) Nevertheless, it is worth noting that the second respondent, for the 18-month period ending 31 August 2006, had a turnover in excess of R49 million and a gross profit exceeding R6 million; whilst for the succeeding 12 months ending J

Irish AJ

A 31 August 2007 these figures improved to a turnover of R45 million and gross profit of R4,8 million. It is also significant that payments of the amount due to James for his shareholding were effected by means of company cheques.

[14] Subsequent to his acquiring this controlling shareholding, Mosea B continued his membership of the board of the second respondent, on which also sat the other three 10% shareholders of the second respondent, each of whom is also a member and a director of the third respondent.

[15] The allegation is further made that the significant percentage C shareholding and the appointment as a director of (previously) James and of Mosea were never reflected in the remuneration, dividends and collateral benefits they were permitted, or the degree of management participation or authority that they exercised, if compared to the directors who were also directors of the third respondent. The evidence tendered in this regard was that:

[15.1]

D Zandberg himself received a monthly salary of R23 500 together with medical aid, company credit card and petrol card. [1] He was also allowed an additional R1000 to be spent on the company credit card. [2]

[15.2]

During the same period James received a monthly remuneration E package of R5600 with medical aid, but none of the other benefits. [3] This allegation is not denied by the second respondent, although Mosea does aver that his own remuneration 'for the income tax year ended 29 February 2008' was some R200 000. [4] However, that is not the period to which the F allegations of Zandberg related; nor does it mention that, of this amount, only R12 000 was paid to him arising from his board appointment, and nothing in respect of his shareholding.)

[15.3]

For the year 2006, the year in respect of which Zandberg did testify, the financial statements annexed by Mosea to the answering affidavit revealed that...