Minister of Finance and Others v Gore NO

• Jurisdiction: South Africa
• Judge: Cameron JA, Mthiyane JA, Brand JA, Mlambo JA and Malan AJA
• Judgment Date: 08 September 2006
• Citation: 2007 (1) SA 111 (SCA)
• Docket Number: 230/2006
• Counsel: J W Louw SC (with M H Mabena) for the first, second and third appellants. H M Scholtz SC (with A Schippers SC) for the fourth appellant. C D A Loxton SC (with P B J Farlam) for the respondent.
• Court: Supreme Court of Appeal

Cameron JA et Brand JA:

[1] The liquidator of a defunct company, 3D-ID Systems (Pty) Ltd, sued the four appellants, who represent national government and the Western Cape provincial administration (the defendants), for F damages arising from the fraudulent award of a tender in 1994 for which the company was a bidder. At the trial in the Pretoria High Court, where the defendants' liability was separated, as a first issue, from the quantum of any damages, Hartzenberg J found for the plaintiff liquidator. (We refer indifferently to the current liquidator and the predecessor for whom he was substituted as 'the plaintiff'; G and to the defunct company and its close-corporation antecedent as 3D-ID.) With the leave of the trial Judge, the four defendants ((i) the Minister of Finance, responsible for the State Tender Board; (ii) the national government itself; (iii) the Minister of Welfare and Population Development, responsible for the payment of social pensions H and welfare grants after April 1994 ('national government'); and (iv) the Premier of the Western Cape, executive head of the Western Cape provincial administration ('the province')) now appeal.

[2] The defendants' first hurdle is that the appeal has lapsed. The appeal record should originally have been lodged by 6 I December 2005, a date extended to 6 February 2006, by when this had still not been done, with no further extension granted. The record was eventually ready only on 31 March, and received the eventual date stamp of this Court's registrar on 5 May 2006 - a gaping three-month chasm. The State Attorney's explanation for the omissions that led to this is neither coherent nor J

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entirely plausible and he must unavoidably be censured for ineptitude or inattention (or both). These, while pronounced, are, however, not so A prodigious that condonation should be refused without regard to the merits of the matter, which we therefore turn to to consider.

[3] The disputed tender was government's first attempt to employ automated fingerprint identification and verification technology for welfare payouts - and was designed to address massive B fraud in registrations and payments that was plaguing not only the then Cape Provincial Administration (CPA), but other provinces too. As early as 1992 government identified this as a priority problem. And the CPA's planned venture was seen as a possible blueprint for other provinces. But this was not to be: Before even the closing date, the C tender process was poisoned at its very heart by fraud within the CPA. That came about as follows.

[4] 3D-ID had an 'inside track' on the tender requirements, for the simple reason that it had helped the CPA devise them. As early as 1992 its founder, Mr Darryl Pamensky (who had previously supplied government with fingerprint-identification pads), and Mr Melchior Rabie D (plaintiff's principal witness) met with Mr Anton Scholtz, a senior official in the CPA welfare department, to discuss possible solutions to the payout problem. But the breakthrough came in 1993 when a Californian corporation, Identicator, produced new fingerprint identification and verification technology that could rapidly compile E and accurately search a huge database of fingerprints on a portable or personal computer (PC). 3D-ID formed an exclusive association with Identicator, securing sole South African rights to its innovation. More advanced discussions with the CPA now included A D J (André) Louw, the CPA deputy director for social security in the welfare directorate, F and, from August to November 1993, highly successful demonstrations and tests of the product that Identicator specially developed for the CPA were conducted before various groups of officials from both provincial and national government.

[5] The tender, as eventually advertised, was in two parts: the first (part A) involved supplying only software and G equipment; the second (part B) entailed fully outsourcing the payout service. The technology required in either case had to be capable of performing three distinct functions: Registering beneficiaries (enrolment); the complex electronic task of identifying new fingerprints as unduplicated by searching the entire database of already captured fingerprints (identification); and, once a 'clean' H database of unduplicated fingerprints had been established, verifying any particular enrolled beneficiary's presented fingerprint as identical to that already captured on the system (verification). In addition, the technology had to run on PCs, so that the triple function could be carried out at a large number of paypoints dispersed across the province. I

[6] The CPA was careful to emphasise to 3D-ID that the tender process had to be both open and authentic; but it seemed clear that Identicator had the only product anywhere in the world with the capacity to eliminate the fraud that was disabling the payment system. Rabie and Pamensky had not expected the tender to include part B, but Obtained J

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substantial capital backing from a Swiss investor residing in South Africa, Mr Hans Dieter Fuchs. With the tender specifications A drawn, the State Tender Board, at the request of the CPA, issued a call for tenders on 11 March 1994.

[7] By the closing date of 11 April 1994 a total of 13 entities had submitted tenders. 3D-ID and three others tendered for part A as well as part B; six for only part A; while three tendered B only for part B. All the entities that tendered for part B either tendered also for part A or tendered for part B in association with a part A tenderer. One of these was Nisec CC, a corporation that its sole member, Mr Michau Huisamen (a Port Elizabeth businessman with no previous experience of information technology), acquired 'off the C shelf' from an accounting firm just days before the tender invitation. The CPA's evaluation committee, formally chaired by the CPA's director of social welfare services, Dr Terblanche, but, in effect, chaired by Louw (as will become clearer later), recommended that Nisec be awarded part B of the tender. The CPA accepted this recommendation, D and - to Rabie's consternation and in the face of his protests - on 16 June 1994 the State Tender Board awarded a five-year contract to Nisec.

[8] Rabie was convinced that skulduggery underlay the Nisec award. He threw all his efforts into trying to prove this. Before the end of July 1994 3D-ID signalled that it would challenge the award and, E in September, it launched a review application and sought to interdict the award. 3D-ID was not only refused access to the tender documentation, but officials from both the CPA and central government lodged affidavits vigorously defending the award. Nisec, a respondent in the review, obtained an order obliging 3D-ID to lodge security for its costs. Undaunted (after obtaining the formal record of F decision-making in December 1994), 3D-ID brought an Anton Piller application in January 1995 to seize documents and files from the province, the State Tender Board and Nisec that it alleged would prove fraud. But the review, interdict and Anton Piller applications were all futile: And, in March 1995, 3D-ID was G ordered to pay the costs of the latter on a punitive scale. Armed with this and other costs orders, Nisec, in March, obtained an order provisionally winding up 3D-ID, which was made final in September 1995.

[9] At this stage Rabie's quest to prove irregularity or fraud seemed to have foundered. But he persisted. In September 1995 he laid a complaint and filed an affidavit with the office of the director of the H Office for Serious Economic Offences (OSEO), which eventually led to an OSEO investigation. The award was, in the meanwhile, unravelling. Within a very short time problems with capacity had started manifesting and, in early 1995, the provincial administration of the new Western Cape Province (PAWC) commissioned a major accounting firm to I investigate the tender. Louw and Scholtz had, in the meanwhile, resigned their provincial-administration jobs and taken up employment with Nisec on highly remunerative terms. But Nisec's incapacity to deliver in terms of the tender soon became plain, and PAWC recommended, in October 1996, that its contract be terminated. The Western Cape tender board J

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cancelled the contract in December 1996 on the grounds of Nisec's incapacity and because the award had been improperly obtained. A Nisec challenged this - and though its review application failed, a Full Bench of the Cape High Court, in February 1997, found insufficient evidence that improper means had been used to obtain the tender.

[10] Time nevertheless vindicated Rabie's indignant assertions. An OSEO examination of Terblanche's secretary's computer hard drive B eventually revealed that, ten days before the closing date, Louw and Scholtz - fraudulently conspiring with Huisamen and Mr André Scholtz, Scholtz's brother (a provincial employee in Port Elizabeth) - had put together Nisec's tender on Friday 1 April 1994 at the CPA offices; that Louw and Scholtz had C corruptly negotiated contracts of employment for themselves with Nisec, plus substantial bribes (which Huisamen paid into their wives' banking accounts); that Louw, left to steer the evaluation committee and to draft submissions to the new provincial executive and to the State Tender Board, had, with lies and distortions, manipulated the entire D process to secure the award to Nisec.

[11] Thus armed, the plaintiff issued summons claiming damages from the four defendants. The summons was served in January 1999, nearly five years after the events in issue. When the matter came to trial, in November 2004, the defendants sought, by last-minute amendment, to introduce a plea that the plaintiff's claims had E ...