THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 322/19
In the matter between:

VALOR IT

APPELLANT

and

PREMIER, NORTH WEST PROVINCE

FIRST RESPONDENT

MEMBER OF THE EXECUTIVE COUNCIL, DEPARTMENT
OF SPORTS, ARTS AND CULTURE, NORTH WEST
PROVINCE

SECOND RESPONDENT

DEPARTMENT OF SPORTS, ARTS AND CULTURE,
NORTH WEST PROVINCE

THIRD RESPONDENT

Neutral citation:
Valor IT v Premier, North West Province and Others (Case no
322/19) [2020] ZASCA 62 (9 June 2020)
Coram:
WALLIS, MOLEMELA, MOKGOHLOA and PLASKET JJA and KOEN
AJA
Heard:
No hearing. Disposed of in terms of s 19(a) of the Superior Courts Act
10 of 2013
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the Supreme Court of Appeal website
and release to SAFLII. The date and time for hand-down is deemed to be 09h45 on
the 9th day of June 2020.

Summary:  Public procurement – contract awarded for the provision of services to
organ of state – no open tender process followed, as required – agreement unlawful
for want of compliance with legal prescripts – further contracts for provision of services
also unlawful – effect of settlement agreement – court cannot validly make settlement
agreement an order if settlement agreement unlawful.

ORDER

On appeal from: North West Division of the High Court, Mahikeng (Gura J sitting as
court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.

JUDGMENT

Plasket JA (Wallis, Molemela and Mokgohloa JJA and Koen AJA concurring)

[1] This appeal concerns the strange tale of how a public procurement contract
awarded to the appellant, Valor IT CC (VIT), by the third respondent, the Department
of Sports, Arts and Culture in the government of the North West Province (the
Department and the provincial government respectively) escalated over about three
years from its tender value of R498 000, excluding VAT, to R41 729 647 (including the
payment of R22.8 million in ‘damages’), the total amount that was paid to VIT by the
provincial government; and how all of this occurred without any bona fide attempt to
comply with the public procurement processes that have their origin in s 217 of the
Constitution.1 At the heart of this matter lies the question of whether the contractual
relationship between VIT and the Department is lawful.

1 Section 217 of the Constitution provides:
‘(1) 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.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from
implementing a procurement policy providing for-
(a)
categories of preference in the allocation of contracts; and
(b)
the protection or advancement of persons, or categories of persons, disadvantaged by unfair
discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in subsection (2)
must be implemented.’

[2] That question arises because, following the termination of the contractual
relationship by the provincial government, VIT applied for a declaratory order that the
termination was unlawful and that it was entitled to payment of a further amount of
R146 473 747.49 as damages. In the court below, the North West Division of the High
Court, Mahikeng, Gura J dismissed VIT’s application and granted the provincial
government’s counter-application in which it sought, inter alia, the setting aside of all
contracts between VIT and the Department. Gura J refused VIT leave to appeal, but
leave was granted by this court on petition.

Background
[3] VIT is engaged in the information technology industry. It was one of a number
of entities that were accredited by the State Information Technology Agency (SITA) as
approved suppliers to organs of state of information technology requirements.

[4] In January 2011, VIT submitted an apparently unsolicited proposal to the
Department concerning an enterprise content management – or ECM – system, to
manage its records. The Department considered the proposal and had discussions
with VIT. As a result, in March 2011, VIT gave the Department another, more detailed
and costed, proposal.

[5] The proposal was said to be specific to ‘the Department’s Business
requirements’, and was ‘geared to analysing the requisite infrastructure, business
systems and IT systems required by the Department to enable the Department to
successfully meet their strategic aims and goals’. VIT stated that if it was successful
in being given the task, it would ‘obviously welcome the chance to work together with
other consultants of the Department’s choice in subsequently implementing fully
working end-to-end business and IT solutions that all integrate with each other’.

[6] In its overview of what it offered the Department, VIT said that a number of
steps had to be taken to ‘ensure that the records management solution is successfully
designed, controlled and implemented’. It listed eight steps that started with a
preliminary investigation and ended with a post implementation review. It then said:
‘The first of these steps will be tackled in the first stage of the engagement namely the
preliminary investigation. This step will provide an understanding of the organisation, together

with the administrative, legal, business and social context in which it operates. The
investigation will identify current record keeping strengths and weaknesses within the
department as well as building a solid foundation on which the scope of the record keeping
program can be built. The information collected in this step will be crucially important as
progress is made through the project and decisions need to be made relating to record keeping
systems and activities. The initial steps of the process are resource intensive, it is therefore
important to ensure that appropriate time and resources are assigned to the tasks in these
steps.’

[7] Later in the document, the first step in the process was identified as ‘Phase 0’.
In a table, the key activities involved in Phase 0 were set out. They included:
determining and defining the scope of the investigation; collecting sources of
information that needed to be analysed; interviewing ‘relevant stakeholders/ business
units etc’; drafting a report of the investigation that would include the major findings of
the investigation and recommendations ‘related to the scope, conduct and feasibility
of the proposed records management program’; and the drafting of a ‘proper plan’
based on the findings in the report. The proposed price for this work was R498 000
excluding VAT. (Certain other costs were also excluded.)

[8] In July 2011, the Department directed a request for quotations to entities that
were accredited by SITA. One of them was VIT. The Department requested quotations
for the rendering of services on a ‘Records Management solution’ for the Department.
Under a heading ‘Task Directive/Terms of Reference’, the request for quotations
specified that the work would entail an assessment of the Department’s records
management needs, an information audit, the design of a records management
system, the automation of manual records management systems, the implementation,
monitoring and evaluation of the proposed system and the training of personnel in its
use and feedback on ‘the findings and strategic records management implementation
plan’.

[9] By letter dated 4 August 2011 addressed to VIT, the Head of the Department
informed it of its successful bid. She stated:
‘It is a great pleasure to inform you that the North West Department of Sports, Arts & Culture
has pursuant to your presentation to my office on 03 August 2011 resolved that your proposal

for the assessment, development and management of records, and information system for the
North West Provincial Government be awarded to VALOR IT CC for an amount of
R498 000.00 – (Four hundred and ninety eight thousand rand, excluding VAT).’

[10] The head of the Department stipulated that the project was to commence within
14 days of the date of her letter and that VIT’s appointment was subject to a number
of conditions. They were that: it accept the appointment in writing; sign a contract with
the Department; provide a payment schedule in accordance with work done; attend
an ‘engagement meeting’ in order to be introduced to ‘management’ before the
commencement of the project; and that the ‘tendered amount will be considered fixed
for the project’. The estimated delivery period for the project was six weeks.

[11] On 4 October 2011, VIT and the Department signed an agreement that they
called a service delivery agreement – an SDA – in respect of an ‘enterprise content
management solution’ for the Department. Clause 1.1.27 defined the scope of work
envisaged by the SDA to mean ‘the description of the Deliverables, timeframes and
Delivery Dates of the Services, scope, plan and payment schedule/s as set out in
Schedule 1’. This schedule was the only schedule that formed part of the SDA. A
reference to another schedule was deleted and initialled by the parties. Clause 30 of
the SDA provides that ‘[t]his Agreement constitutes the entire Agreement between the
Parties for the provision of Services by [VIT]’ and that ‘[a]ny prior arrangements,
agreements, representations or undertakings are superseded’.

[12] Schedule 1 refers, in its heading, to ‘Scope of Work Phase 0’. Immediately
below the heading it is stated that the schedule and its annexures ‘is based on this
Agreement agreed to between the parties’. Phase 0 is described as involving an
information audit and scoping in which the ‘deliverables’ are: the collection of
information; the collation, evaluation and interpretation of the information; the
compilation of a ‘comprehensive report’ containing findings and recommendations;
determining the strategic objective of records management in the Department; the
assessment of the availability of ‘sufficient human resources’ within the Department;
the assessment of ‘the availability and use of records classification systems’; the
assessment of the availability of ‘policies, procedures and processes’; the assessment
of ‘MISS compliance and confidentiality of classified records’; the assessment of the

availability and use of registers and other record keeping systems; the assessment of
the systems and practices then in use for ‘storage, maintenance and transfer of
electronic metadata, media and related technologies’ and whether these conform to
the standards set in the National Archives of South Africa Act 43 of 1996; and the
assessment of the ‘processes involved in the transfer of records to an archival
repository’. The fee that VIT would be entitled to for this work was ‘R498 000.00 (Four
hundred and ninety eight thousand rand) Excluding VAT’.

[13] On 26 October 2011, the Department paid VIT the amount of R567 720, made
up of R498 000 plus VAT. Even though Phase 0 had now been concluded, that did
not end the relationship between the Department and VIT. On 2 December 2011, they
signed a document titled ‘Schedule 2: Scope of Work – Phase 1’. In VIT’s founding
affidavit, it was claimed that, on that date, the parties ‘signed the schedule attached to
the main agreement wherein they agreed on a two phased approach namely Phase 0
and Phase 1A for the implementation of the ECM project with a total cost of
R498 000.00 and R9 800 000.00 respectively’. As was pointed out in the answering
affidavit, however, this was not factually correct: the SDA was signed on 4 October
2011 and related only to Phase 0, having a total value of R498 000 (excluding VAT),
while Schedule 2, relating to part of Phase 1, was signed on 2 December 2011, having
a total value of R9 800 000 (excluding VAT). Schedule 2 was not part of the SDA,
having been expressly excluded. It appears that the head of the Department and VIT
wanted to create the false impression that Schedule 2 had always been part of the
SDA.

[14] In terms of Schedule 2, VIT was engaged, over a period of four months and for
a fee of R9 800 000, excluding VAT, to develop ‘provincial governance instruments’,
which included, inter alia, appointing records managers and creating and
implementing ‘records life-cycle processes’; putting in place ‘governance instruments’;
and rolling out a change management plan. (VIT stated that the original budget for
Phase 1 was R20.1 million but ‘due to budgetary constraints’, this phase was divided
in two: the agreed amount of R9 800 000 was payment for what VIT called Phase 1A.)
While VIT claimed to have completed the work and to have been paid R9 800 000, the
provincial government disputes this on two scores. First, it stated that only R8 132

695.52 was paid to VIT, over the period between January and July 2012. Secondly, it
said:
‘Despite this huge payment, no evidence of outputs was attached nor could they be submitted
in electronic format and/or verified in copies. To date, doubt exists whether the outcome of the
project produced tangible progress with documents, record and archive management for the
province. The applicant has failed to satisfy numerous requests for proof of deliverables.’

[15] In August 2012, as a result of a lack of funds to pay for the work that VIT
proposed to do, the head of the Department applied for funding from the premier’s
discretionary fund. She sought a total of R22 million for the completion of Phase 0,
Phase 1B and Phase 2. This amount was later reduced to R18.6 million in respect of
only Phase 0 and Phase 1B. The Premier granted R20 million. As a result of these
funds being made available, the Department and VIT agreed to a schedule of activities
that VIT would perform in respect of Phase 1B at a cost of R12 882 000.

[16] When supply chain management problems began to arise, with the result that
payments of invoices were refused, the arrangement was ‘formalised’. On 15 October
2012, the Department and VIT entered into what they termed a service level
agreement in respect of Phase 1B at a total cost (including VAT) of R12 882 000. This
appeared to open the money taps again, with the result that the Department paid VIT
an amount of R3 472 200.

[17] VIT then submitted a request to the Department that it purchase software from
it at a cost of R37 million, and pay it, in addition, an annual maintenance fee of R6.7
million. A deputy director general was given the task of formulating a view on this
proposal. He concluded that it could not be accepted because it had to go out to tender
in order to comply with legal procurement requirements, but recommended that VIT
be invited to ‘present detailed specifications and requirements’, that the Premier’s
office and other departments be drawn into a consideration of the need for the
proposed solution, that VIT then be asked to prepare a presentation on the costs and
benefits of the current system as against what it proposed, and that a ‘final position
regarding a submission to Extech/Exco and a review of the present proposal could be
formulated thereafter’. The head of the Department accepted these recommendations
and communicated her view to VIT. This drew a response from VIT.

[18] In a letter to the head of Department dated 27 October 2011, VIT’s chief
executive officer set out VIT’s position. He said:
‘It has come as quite a surprise to us that you indicate that the department now has to go out
on tender for the next phase/s of the project. Our understanding of the SDA that was signed
between [the Department] and [VIT] It is as follows:
1. The project was awarded by [the Department] to [VIT] as an end to end ECM Solution.
2. That the Phase 0 was only for a period of 6 weeks and that the full implementation of the
ECM project spans 3 years with an option to renew if required as per the SDA.
3. That the project will be broken down into a phased approach in terms of the deliverables
(Phase 0 then Phase 1 and finally Phase 2)
4. That any other further enhancements, developments, etc, for the ECM project will form
Phase 3 as a deliverable/s.
5. That at the end of each Phase a Schedule of Work, Payment Schedule and a Project Plan
will be developed for the following Phase that needs to be delivered. . .
6. That the SDA signed between [the Department] to [VIT] fully encompasses the total ECM
Solution Implementation, Phase 0 was purely an assessment stage.
7. On the presentation on the 27th of September 2011 to DMC in Potchefstroom, a costing of
R20,1 mil for Phase 1 was presented.
8. On the meeting at the 05th of October 2011 at your office boardroom in which the signing of
the SDA took place, you indicated that we needed to provide a project plan, scope of work
and payment schedule for Phase 1. You also removed the Scope of Work Schedule from the
SDA as it was not supported by the Project Plan and Payment Schedule. You also asked if
we could carry on with assisting with the development of the Government Instruments and
asked us to review and use what [the Department] already has in place if possible. You will
no doubt agree that this forms part of Phase 1.
Please also find attachments with various extracts that indicate clearly that the project was an
end to end solution broken down into phases. It also clearly shows that Phase 1 will follow
Phase 0 and that Phase 1 must start immediately over a period of 6 months. Please refer also
to slide number 25 which you yourself presented and indicated that Phase 1 is included.’

[19] By this time, as a result of constant concerns being expressed by supply chain
management officials about irregular expenditure, the relationship between the
Department and VIT appears to have attracted the attention of, inter alia, the Auditor-
General. On 1 October 2013, the Department cancelled the agreement with VIT. It did
so on a number of bases including that the award of the contract did not comply with

s 217 of the Constitution and the other procurement related prescripts that give effect
to it. In response to the cancellation, VIT instituted proceedings against the
Department in which it claimed damages of R152 073 768.

[20] The matter was then settled on the advice of the Chief State Law Advisor and,
on 13 February 2014, the settlement agreement was made an order of the North-West
Division of the High Court, Mahikeng. The settlement agreement provided as follows:
‘1. The termination of the agreement between [the Department] and [VIT] was unlawful.
2. The status quo before the termination of the contract as aforesaid is hereby restored with
immediate effect.
3. [VIT] and/or the personnel belonging to [VIT]  will be allowed on site, government premises
to resume their contractual obligations in terms of the agreement with immediate effect.
4. The nature of the ECM solution contract will be re-defined as a transversal term contract so
as to comply with Treasury Regulations 16A6.5.
5. The Office of the Premier together with the Department of Finance will engage one another
regarding the roll-out of the project to provincial departments.
6. The litigation matter between [the Department] regarding the termination of the contract will
be withdrawn by [VIT], in its capacity as the applicant.
7. The parties agree to substantiate the main agreement on ECM solution with an addendum
and plans for deliverables to be rolled-out to provincial departments.
8. The parties agree that compensation to [VIT] is justified under the circumstances for loss of
profit and other damages.
9. The North West Provincial Government hereby agrees to pay the settlement amount of
R22.8 million to [VIT] in full and final settlement of all costs related to the unlawful termination
of the contract including any monies that might have been owing as at the time of the
termination of the contract.
10. The settlement amount shall be paid into the bank account of [VIT] within seven working
days from the 05th February 2014.
11. The parties agree that this settlement agreement shall be made an order of court after all
the parties have signed.’

[21] VIT was paid R22.8 million in terms of the order. Thereafter, VIT was paid
further amounts: it was paid R213 750 in respect of Phase 1B, R2 100 021.51 in
respect of Phase 0 (for all of the provincial government’s remaining departments) and

R1 750 000, also for Phase 0. By this stage, the provincial government had paid VIT
a total of R41 729 647.

[22] Advice was sought from legal practitioners external to the provincial
government. That advice was to the effect that the award of the ‘contract’ to VIT was
irregular and flew in the face of s 217 of the Constitution. On 9 January 2015, the
provincial government again cancelled the contract. That resulted in the current
proceedings, in which VIT sought a declaratory order that the provincial government’s
‘unilateral termination’ of the contract was unlawful and an order directing the
provincial government to pay VIT R146 473 747.49 as damages. The provincial
government opposed that application and brought a counter-application for the setting
aside of the SDA and ‘all subsequent agreements’ entered into between the
Department and VIT, and for the setting aside or rescission of the settlement
agreement.

The issues
[23] The case raises a number of issues. The first is a point taken by VIT that the
provincial government’s attorney has no authority to represent it in this appeal. The
second is that condonation for the late filing of the answering affidavit and of the reply
in the counter-application should not have been granted by the court below. If those
issues are to be decided in favour of the provincial government, three issues remain
to be decided. They are: whether the provincial government’s delay in bringing its
counter-application was unreasonable and, if so, whether condonation should be
granted; whether the award of the SDA to VIT and the subsequent extensions were
lawful or not; and, if they were unlawful, the effect of the settlement agreement that
was made a court order, and whether it should have been rescinded.

The preliminary points
[24] The point that the provincial government’s attorney has no authority has no
merit. Attached to the provincial government’s heads of argument is a power of
attorney signed by one of the provincial government’s administrators (appointed to
administer the province in terms of s 100 of the Constitution). In the power of attorney,
he confirmed the attorney’s mandate to represent the provincial government in this
appeal.

[25] The second preliminary point is that condonation should not have been granted
for the provincial government’s late filing of its answering affidavit and its replying
affidavit in the counter-application. The explanation given for the delay was, in
summary, that because of the long and complex history of the matter, it had been
necessary to appoint a senior bureaucrat to investigate precisely what had transpired
and to compile a report. It was only when these tasks had been completed that counsel
could be properly briefed and consultations with potential deponents could take place
This was a complicated and time-consuming exercise. In addition, in respect of the
late filing of the reply in the counter-application, the provincial government had
changed counsel and the newly briefed counsel required time to acquire an
understanding of the matter and draft the reply. It was submitted that the prospects of
success were good, that VIT stood to suffer no prejudice, and that, by contrast, the
prejudice to the provincial government if condonation was refused, would be immense.

[26] Gura J, in the court below, considered the explanation to be a reasonable one;
that VIT suffered no prejudice as a result of the delay; that the provincial government’s
prospects of success were good; and that, significant sums of public funds being
involved, there was an overwhelming public interest in favour of the matter being heard
on a full set of papers. In the exercise of his discretion, he granted condonation. The
exercise of that discretion can only be set aside on appeal if it was not exercised
judicially – if, in other words, the court below had exercised it on the basis of incorrect
facts or incorrect legal principles.2 That cannot be said of Gura J’s exercise of
discretion in this case, with the result that the attack on the granting of condonation
has no merit.

The delay in bringing the counter-application
[27] The counter-application seeks, in effect, the review and setting aside of the
award of the SDA to VIT (as well as all subsequent agreements). The provincial
government thus applied to set aside its own decision. Its jurisdiction to do so
emanates from the principle of legality that is sourced in the founding constitutional

2 Notyawa v Makana Municipality and Others [2019] ZACC 43; 2020 (2) BCLR 136 (CC) para 41.

value of the rule of law, and not from the Promotion of Administrative Justice Act 3 of
2000 (the PAJA).3

[28] That means that, in terms of the common law, it was required to apply for the
setting aside of the award of the SDA within a reasonable time.4 The test entails a two-
stage enquiry. First, it must be determined whether any delay in bringing the
application was reasonable or unreasonable. If it was unreasonable, the second stage
comes into play: the court must decide whether the unreasonable delay may be
overlooked and condonation granted.5

[29] According to Khumalo and Another v Member of the Executive Council for
Education, KwaZulu-Natal,6 no specific application is required in a legality review for
the condonation of an unreasonable delay in launching proceedings. An objection that
the delay in so doing is unreasonable is ‘pre-eminently a point which the respondent
or the Court should raise because the respondent and the Court are best able to judge
whether, having regard to the respective spheres of influence of each, the lapse of
time which has occurred merits the raising of an objection’.7

[30] Whether a delay is unreasonable is a factual issue that involves the making of
a value judgment.8 Whether, in the event of the delay being found to be unreasonable,
condonation should be granted involves a ‘factual, multi-factor and context-sensitive’
enquiry9 in which a range of factors – the length of the delay, the reasons for it, the
prejudice to the parties that it may cause, the fullness of the explanation, the prospects

3 State Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd [2017] ZACC 40; 2018 (2)
SA 23 (CC); 2018 (2) BCLR 240 (CC) para 37; Buffalo City Metropolitan Municipality v Asla Construction
(Pty) Ltd [2019] ZACC 15; 2019 (4) SA 331 (CC); 2019 (6) BCLR 661 (CC) para 45.
4 Harnaker v Minister of the Interior 1965 (1) SA 372 (C) at 380C-E.
5 Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad 1978 (1) SA 13 (A) at 39C-D; Gqwetha
v Transkei Development Corporation Ltd and Others [2005] ZASCA 51; 2006 (2) SA 603 (SCA) para
33; Camps Bay Ratepayers and Residents Association and Others v Minister of Planning, Culture and
Administration, Western Cape and Others 2001 (4) SA 294 (C) at 306H-307G; Beweging vir Christelik-
Volkseie Onderwys and Others v Minister of Education and Others [2012] ZASCA 45; [2012] 2 All SA
462 (SCA) para 46; Notyawa v Makana Municipality and Others (note 2) para 46.
6 Khumalo and Another v Member of the Executive Council for Education, KwaZulu-Natal [2013] ZACC
49; 2014 (5) SA 579 (CC); 2014 (3) BCLR 33 (CC) para 44.
7 Scott and Others v Hanekom and Others 1980 (3) SA 1182 (C) at 1193B-C.
8 Gqwetha v Transkei Development Corporation Ltd and Others (note 5) para 24; Camps Bay
Ratepayers and Residents Association and Others v Minister of Planning, Culture and Administration,
Western Cape and Others (note 5) at 307E-F.
9 Department of Transport and Others v Tasima (Pty) Ltd [2016] ZACC 39; 2017 (2) SA 622 (CC); 2017
(1) BCLR 1 (CC) para 144.

of success on the merits – are all considered and weighed before a discretion is
exercised one way or the other.10

[31] The decision to award the bid to VIT on the basis of its quotation, and to
conclude the SDA with it, was taken in early August 2011. Thereafter, the scope of the
work was steadily increased and significant amounts of money were paid to VIT as a
result. Despite concerns being raised from time to time about the propriety of this
arrangement, it continued until early October 2013 when the provincial government
cancelled the SDA. That led to VIT’s first application. A state law advisor gave patently
poor advice that the provincial government should settle the dispute. The result was
the settlement agreement, which was made a court order on 18 February 2014, and
the continuation – and extension – of the contract. It was only after independent legal
advice had been obtained that the contract was cancelled again, on 23 January 2015.
VIT’s second application was launched on 21 May 2015 and the counter-application
was filed on 15 October 2015.

[32] There can be no doubt that the delay in challenging the lawfulness of the award
of the SDA to VIT was unreasonable. As I have shown, it took more than two years for
the provincial government to cancel the contract for the first time, only to reverse its
decision. It took a further 15 months before the provincial government cancelled the
contract again and another nine months before it applied for the setting aside of the
contract and the rescission of the order of court embodying the settlement agreement.

[33] In these circumstances, one would have expected a full and thorough
explanation for the delay. That was not to be. Instead, the provincial government gave
an explanation for its delay in filing its answering affidavit, and later, for its delay in
filing its reply in the counter-application. That only accounts for the period between the
service of the founding papers and the filing of the answering affidavit and reply in the
counter-application respectively. In order to understand why the provincial government
delayed for more than four years before it challenged what was a patently unlawful
contract, one has to trawl through the papers and draw inferences from the facts found

10 Gqwetha v Transkei Development Corporation Ltd and Others (note 5) paras 31-35; Camps Bay
Ratepayers and Residents Association and Others v Minister of Planning, Culture and Administration,
Western Cape and Others (note 5) at 307G.

there. That is far from satisfactory, but is necessary if the interests of justice are to
prevail.

[34] It is clear that officials in the Department played a pivotal role in the scheme,
from the initial award of the SDA to VIT to its progressive extensions thereafter. This
ongoing involvement explains why the legality of the scheme was not challenged prior
to the first cancellation. It was only after the provincial government had been placed
under administration, with new officials looking afresh at the relationship between the
Department and VIT, that that was done.

[35] Furthermore, when VIT went too far by claiming an entitlement to sell software
for a price of R37 million, and to an annual maintenance fee of R6.8 million, the head
of the Department baulked. The result, when taken together with ongoing concerns
about irregular expenditure in relation to VIT, was that matters were taken out of her
hands, and the provincial government cancelled the contract with VIT for the first time.
(It is noteworthy that, in the letter of cancellation, it was stated that the head of
Department had not had the authority to contract with VIT.)

[36] One would have imagined that the first cancellation would have put an end to
the saga. That was not to be, because a state law advisor gave inexplicably wrong
advice that VIT’s application to challenge the cancellation should be settled on terms
favourable to VIT. The provincial government, it would appear, had no way of knowing
that the advice it had been given was wrong, and this problem was compounded by
an ill-conceived settlement agreement that was made a court order.

[37] Once the matter had been settled, the provincial government had little choice
but to comply with the order to which it had agreed. It was only when it obtained
independent legal advice that it found out that the state law advisor’s advice had been
wrong, and that it should cancel the agreement again. In due course, the counter-
application was brought to set aside the SDA and everything that followed it. This
accounts for the period between the first cancellation and the second cancellation.

[38] One of the factors that must be considered whenever condonation is sought is
the applicant’s prospects of success on the merits. It must be borne in mind that the

grant or refusal of condonation is not a mechanical process but one that involves the
balancing of often competing factors. So, for instance, very weak prospects of success
may not off-set a full, complete and satisfactory explanation for a delay; while strong
prospects of success may excuse an inadequate explanation for the delay (to a
point).11

[39] As I shall demonstrate in the following paragraphs, the provincial government’s
prospects of success on the merits are strong: the scheme in terms of which VIT
purported to provide services, and for which it was handsomely remunerated, was
unlawful from start to finish. As a result, even if it were to be found that the explanation
for the provincial government’s delay was wanting, the interests of justice, in the light
of its strong prospects of success, require condonation to be granted.

The merits
[40] Section 217 of the Constitution requires organs of state such as the
Department, when it procures goods and services, to do so in terms of a system that
is ‘fair, equitable, transparent, competitive and cost-effective’. Its purpose is to prevent
patronage and corruption, on the one hand, and to promote fairness and impartiality
in the award of public procurement contracts, on the other. In order to do so, statutes,
such as the Public Finance Management Act 1 of 1999 (the PFMA), subordinate
legislation made under the PFMA, such as the Treasury Regulations, and supply chain
management policies that have to be applied by organs of state, all give effect to s
217.

[41] In Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer, South African Social Security Agency and Others,12 Froneman J
said of this legal framework that compliance with it was required for a valid
procurement process and its components were not mere ‘internal prescripts’ that could
be disregarded at whim. The consequence of non-compliance is clear: in Municipal

11 United Plant Hire (Pty) Ltd v Hills and Others 1976 (1) SA 717 (A) at 720E-G; Darries v Sheriff,
Magistrate’s Court, Wynberg and Another 1998 (3) SA 34 (SCA) at 40H-41E.
12 Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South
African Social Security Agency and Others [2013] ZACC 42; 2014 (1) SA 604 (CC); 2014 (1) BCLR 1
(CC) para 40.

Manager: Qaukeni Local Municipality and Another v FV General Trading CC,13 Leach
JA held that a public procurement contract concluded in breach of the legal provisions
‘designed to ensure a transparent, cost-effective and competitive tendering process in
the public interest, is invalid and will not be enforced’.

[42] From the facts that I have set out above, it is apparent that no public tendering
process was ever held in respect of the SDA or any of the agreements that followed
it. The SDA was awarded to VIT after it and two other firms had responded to a closed
request for quotations. VIT’s quotation was for an amount of R498 000, excluding VAT.
It would appear that the purpose of the exclusion of VAT was to ensure that the amount
was lower than R500 000: VIT and the Department thought that if the amount was
below this figure, an open tendering process did not have to be embarked upon, and
a contract could be awarded on the basis of a consideration of the competing
quotations.

[43] On this score they were mistaken. Regulation 16A6.1 of the National Treasury
Regulations provides that the procurement of goods and services by organs of state,
‘either by way of quotations or through bidding process, must be within the threshold
values as determined by National Treasury’. National Treasury Practice Note 8 of
2007/2008, made in terms of s 76(4)(c) of the PFMA, is intended to ‘regulate the
threshold values within which accounting officers/authorities may procure goods,
works and services by means of petty cash, verbal/written price quotations or
competitive bids’.14 Section 3.4 deals with procurement above the transaction value of
R500 000, VAT included. In such instances, s 3.4.1 provides that ‘[a]ccounting
officers/authorities should invite competitive bids’. (There was no suggestion that
urgency or emergency circumstances justified a departure from this prescript, and it is
not suggested that the procedure for such a deviation was followed.)15 As a result, the

13 Municipal Manager: Qaukeni Local Municipality and Another v FV General Trading CC [2009] ZASCA
66; 2010 (1) SA 356 (SCA) para 16. See too Premier, Free State and Others v Firechem Free State
(Pty) Ltd 2000 (4) SA 413 (SCA) para 30; Eastern Cape Provincial Government and Others v
Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA) paras 8-9.
14 Section 1.
15 See too Joubert Galpin Searle Inc and Others v Road Accident Fund and Others 2014 (4) SA 148
(ECP) para 79: ‘What emerges from the instruments that I have discussed is that, generally speaking,
when the value of the tender exceeds R500 000 a competitive, open procurement process must be
followed. It is only in exceptional circumstances that deviation from this norm will be justified.’

awarding of the SDA on the basis of a request for quotations, as opposed to an open
tender process, was unlawful and invalid.

[44] Thereafter, VIT and the Department purported to enter into new agreements on
two further occasions before the first cancellation. These related to what VIT and the
Department referred to as phase 1A, to the value of R9.8 million, and phase 1B, to the
value of R12 888 000. The award of these contracts was unlawful and invalid because
their award had not been preceded by an open procurement process in accordance
with the required constitutional and legal prescripts. This was the state of affairs that
prevailed when the provincial government cancelled the SDA and the agreements that
followed it for the first time. I turn now to consider the effect of the settlement
agreement.

The settlement agreement
[45] It is necessary in the first place to detail precisely what the settlement
agreement purported to achieve in respect of the contractual arrangement between
VIT, the Department and the provincial government. It is clear that it is a one-sided
document in that all of the benefits that it bestows accrue to VIT, and all of its
obligations, including a payment of R22.8 million, fall to the provincial government to
meet.

[46] The core provisions of the settlement agreement provided that: (a) the ‘status
quo before the termination of the contract’ was ‘restored’; (b) VIT’s staff would be
permitted to ‘resume’ their ‘contractual obligations in terms of the agreement’; (c) the
‘nature’ of the contract would be ‘re-defined as a transversal term contract’ in order for
it to comply with the Treasury Regulations; (d) and the contract would be extended by
being ‘rolled-out to provincial departments’.

[47] The effect of the settlement agreement was that the unlawful contractual
arrangements between VIT and the Department would remain in force, with two
important qualifications. First, in an apparent acknowledgement that the arrangement
in place was indeed unlawful, the parties agreed to call it something else in order to
create the impression that it was compliant with the requirements of the Treasury
Regulations. Secondly, the parties agreed, not only to the restoration of the status quo

ante, but to the further extension of the already extended unlawful contractual
arrangement. They applied to have this arrangement made a court order.

[48] Two issues arise for determination. The first is the effect of the attempt to
‘repackage’ the arrangement in order to comply with the Treasury Regulations. The
second is the effect of having made the settlement agreement a court order and, more
particularly, if the settlement agreement was unlawful, whether a court could have
made it an order.

[49] In Gibson v Van der Walt,16 Van der Walt had placed bets on credit with Gibson,
a bookmaker. Van der Walt lost and owed Gibson money as a result. He undertook to
pay by a future date, and Gibson agreed to the proposal. When no payment
materialised – and Gibson had rejected the offer of a race horse in payment of the
debt – he sued Van der Walt on the undertaking to pay, rather than on the underlying
gambling agreement which, being contrary to public policy, was unenforceable. Fagan
JA held that the undertaking was also unenforceable, setting out the test as follows:17
‘The test in such a case, to my mind, should be whether the Court is asked, in effect, to enforce
the unenforceable claim; in other words, is the later transaction on which the plaintiff relies
merely a device for enforcing his original claim, is it merely his original claim clothed in another
form or with some term or condition added to it, or a ratification or even novation of the original
claim which leaves its essential character unchanged; if so, the plaintiff must fail.’

[50] I do not believe that calling the contractual arrangement between VIT and the
Department a ‘transversal term contract’ altered the fact that it is unlawful and invalid
because of non-compliance with procurement prescripts required by the law. Gibson
v Van der Walt is authority for the proposition that if the underlying contract suffers
from a defect, such as unenforceability, dressing it in different garb will not alter that
fact. In other words, the settlement agreement has had no effect on the unlawfulness
of the contractual arrangement between VIT and the Department: it remained an
unlawful agreement whatever the parties chose to call it.

16 Gibson v Van der Walt 1952 (1) SA 262 (A).
17 At 270A-B.

[51] I turn now to the second issue – the effect of the settlement agreement having
been made a court order. The first point that must be made is an obvious, but
necessary, one: the parties asked the court to make their settlement, that purported to
confirm the continuation and extension of their unlawful agreements, an order that
could, presumably, be enforced by execution or contempt proceedings – to give it the
court’s stamp of authority.

[52] In Eke v Parsons,18 a contractual dispute between two private individuals, the
Constitutional Court considered the nature and effect of settlements being made court
orders. Madlanga J held that first, it is not anything agreed to by the parties that can
be made an order: the order must be ‘competent and proper’ in the sense that it relates
to the dispute with which the court was seized.19 Secondly, it may not be objectionable
from either a legal or a practical perspective: its terms, in other words, must ‘accord
both with the Constitution and the law’ and they may not be ‘at odds with public
policy’.20

[53] A similar issue arose, but in a public law context involving public procurement
by an organ of state, in Buffalo City Metropolitan Municipality v Asla Construction (Pty)
Ltd.21 The municipality awarded a contract to Asla Construction without having
complied with the required procurement processes. It later applied to set aside its own
decision, but did so only after having delayed unreasonably. It failed to set aside the
award on this basis in the Supreme Court of Appeal but, after its appeal had been
argued in the Constitutional Court, the parties settled their dispute. The municipality
brought an application for leave to withdraw its appeal and to have the settlement
agreement made an order. That settlement confirmed that Asla Construction would
continue with the disputed contract, and also included in it other contracts unrelated
to the dispute before the court.

[54] In these circumstances, the court refused to make the settlement agreement
an order. The contract awarded to Asla Construction remained unlawful and, the court

18 Eke v Parsons [2015] ZACC 30; 2016 (3) SA 37 (CC); 2015 (11) BCLR 1319 (CC).
19 Para 25.
20 Para 26.
21 Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd (note 3).

held, that ‘inconsistency with the Constitution cannot be cured by a settlement
agreement’. If such an order was made, it would be inconsistent with the
Constitution.22

[55] So too in this case. For the reasons I have given above, the contractual
arrangement between VIT and the Department was unlawful. The settlement
agreement sought to give effect to that unlawful arrangement and should, as a result,
not have been made an order. It was correctly rescinded by the court below.

The order
[56] I make the following order:
The appeal is dismissed with costs, including the costs of two counsel.

_________________________
C Plasket
Judge of Appeal

22 Para 30. See too Shabangu v Land and Agricultural Development Bank of South Africa and Others
[2019] ZACC 42; 2020 (1) SA 305 (CC); 2020 (1) BCLR 110 (CC) para 33; Airports Company South
Africa v Big Five Duty Free (Pty) Ltd and Others [2018] ZACC 33; 2019 (5) SA 1 (CC); 2019 (2) BCLR
165 (CC) para 13.

APPEARANCES

For the appellant:

P W Makhambeni
Instructed by:
Makhubela Attorneys, c/o Kgomo
Attorneys, Mahikeng
Symington De Kock, Bloemfontein

For the respondents:

V Soni SC and H Cassim
Instructed by:
M E Tlou Attorneys, Mahikeng
Moroka Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

9 June 2020

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

Valor IT v Premier, North West Province and Others (322/2019) [2020] ZASCA 62
(9 June 2020)

MEDIA STATEMENT

The Supreme Court of Appeal (SCA) today dismissed the appeal of Valor IT (VIT) against the
Premier of the North West Province.
VIT contacted the Department of Sports, Arts and Culture in the North West provincial
government (the Department) and offered to provide certain preliminary services in respect of
an information management system at a price of R498 000 excluding VAT. The Department
called for quotations for this work from VIT and two other accredited service providers. It
awarded a service delivery agreement – a SDA – to VIT. In terms of the SDA, VIT was to
perform the work within six weeks and be paid R498 000, excluding VAT. Thereafter, the
scope of the work was extended. Eventually, the Department had paid VIT over R41.7 million,
including an amount of damages.
The provincial government eventually cancelled the SDA and its extensions but VIT
brought an application to challenge the lawfulness of the cancellation and to claim damages,
supposedly for breach of the contract. On the advice of a state law advisor, the provincial
government settled with VIT by agreeing to the continuation and extension of the contractual
arrangement with the Department and the payment of damages of R22.8 million. This
settlement was made an order of court. Some time later, the provincial government having
obtained independent legal advice, again cancelled the SDA and its extensions. This time,
when VIT challenged the lawfulness of the cancellation and claimed damages once again, the
provincial government brought a counter-application to set aside the award of the SDA to VIT,
as well as any extensions of it, and to set aside the order embodying the settlement
agreement.
The SCA found that the SDA was awarded to VIT unlawfully in that required
procurement processes were not followed: as the value of the contract was in excess of
R500 000, when VAT was included (as it was required to be), an open tender process was
required and the award on the basis of quotations did not comply with those requirements. As
no tender process of any sort was followed in respect of the extensions of the SDA, those
agreements were likewise unlawful. Only a lawful settlement agreement could be made an
order of court, with the result that the order of court embodying the settlement agreement was
invalid too.