THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No: 440/2017

In the matter between:

WAYMARK INFOTECH (PTY) LIMITED                                                 APPELLANT

and

ROAD TRAFFIC MANAGEMENT CORPORATION                            RESPONDENT

Neutral citation: Waymark Infotech v Road Traffic Management Corporation
(440/2017) [2018] ZASCA 11(6 March 2018)

Coram:
Lewis, Seriti and Mathopo JJA and Davis and Plasket AJJA
Heard:
19 February 2018
Delivered:
6  March 2018

Summary:   Interpretation of ss 66 and 68 of the Public Finance Management
Act 1 of 1999: contract for the procurement of professional services did not constitute
a future financial commitment.

___________________________________________________________________

ORDER

On appeal from: Gauteng Division of the High Court, Pretoria (Ranchod J sitting as
court of first instance):
1 The appeal is upheld with costs.
2 The order of the court a quo is set aside and in its place is substituted:
‘The counterclaim is dismissed with costs.’

JUDGMENT

Lewis JA (Seriti and Mathopo JJA and Davis and Plasket AJJA concurring)

[1] The interpretation of two provisions of the Public Finance Management
Act 1 of 1999 is at the centre of this appeal. These are s 66, which deals with the
restrictions on borrowing, guarantees and other financial commitments by
government, an organ of state or a public entity listed in Schedule 3 to the Act; and
s 68, which governs the consequences of unauthorized transactions.

[2] The appellant, Waymark Infotech (Pty) (Ltd) (Waymark), was the successful
bidder in a public tender process administered by the respondent, the Road Traffic
Management Corporation (RTMC), for the provision of professional services – to
develop and install an ‘Enterprise Resource Planning System’. The RTMC is an
entity listed in Schedule 3 of the Act and is thus bound by the provisions of the Act.

[3] A contract between the parties was concluded on 31 March 2009. It made
provision for various services to be rendered over a three-year period, and included
a schedule for the payment of remuneration, the full contract sum being some
R33.7 million.

[4] Waymark commenced rendering the services in 2009, but in February 2010
the RTMC advised it that some of its services were suspended. Litigation followed
and a court found that the contract had not been terminated. That finding does not
concern us. Waymark tendered its services and when the RTMC failed to perform its
obligations, despite demand, Waymark considered that the contract had been
repudiated. It instituted an action for damages (in the Gauteng Division of the High
Court, Pretoria) in an amount exceeding R6.7 million in May 2014.

[5] The RTMC raised various defences, including that the claim had prescribed.
Waymark replicated to the plea of prescription. Some two years after action was
instituted by Waymark, the RTMC delivered a counterclaim for an order declaring
that the contract was not binding on it, since it did not comply with the provisions of
s 66(3)(c) of the Act, in that it had not been authorized by the Minister of Finance and
was accordingly void in terms of s 68 of the Act. The question whether there had to
be compliance with s 66(3)(c) was dealt with separately by the trial court, Ranchod J
ordering a separation of issues in terms of rule 33(4) of the Uniform Rules of Court.

[6] That court found that an ordinary contract for the procurement of services by a
public entity was valid only if the Minister of Finance had authorized it in terms of
s 66(3). And since it was common cause that the Minister’s authority had not been
sought, let alone granted, the court concluded that the contract pursuant to the
tender process was invalid. The appeal before us lies with the leave of Ranchod J.

[7] The only question that arises on appeal is whether the Minister’s authority
was needed in order for the contract to be enforceable. The answer depends on the
interpretation of ss 66 and 68 in the context of the Act and having regard to what the
legislation was designed to achieve. And the Act must of course also be construed
having regard to ss 216 and 217 of the Constitution, to which the Act gives effect.

[8] Section 216 of the Constitution, headed ‘Treasury control’, requires that
national legislation must establish a national treasury and prescribe measures ‘to
ensure both transparency and expenditure control in each sphere of government by
introducing’ a variety of measures and practices, and enforcing compliance with
them. Section 217 deals with ‘Procurement’. Section 217(1) provides that ‘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’.

[9] Section 51(1)(a)(iii) of the Act deals with the procurement of goods and
services. The section echoes s 217 of the Constitution in imposing liability on an
accounting officer for a public entity to ensure that he or she has and maintains ‘an
appropriate procurement and provisioning system which is fair, equitable,
transparent, competitive and cost-effective’. Tender processes must thus meet these
standards and, since the promulgation of the Act, cases dealing with procurement
tenders and awards have been based four-square on the section. The provisions of
the Promotion of Administrative Justice Act 3 of 2000 (PAJA) give courts the power
to review the award of tenders on a variety of grounds, and it is clear that it is the
PAJA that in general provides the review procedures and grounds for the setting
aside of a tender process and award if it does not meet the criteria in s 51(1)(a)(iii) or
fails to meet the requirements of the PAJA and of the common law.

[10] The RTMC has not, however, questioned the validity of the contract on
administrative law grounds. It contends that the contract concluded pursuant to the
tender is in breach of s 66(3)(c) and thus invalid in terms of s 68, which provides that
if a person contravenes s 66 of the Act, the transaction that ensues is not binding.
Ranchod J found that the contract concluded between the parties was in
contravention of s 66(3)(c) and was therefore unenforceable.

[11] Waymark has raised numerous grounds of appeal, based essentially on the
premise that the conclusion of the contract amounted to administrative action, and
was reviewable under the PAJA, the requirements of which had not been met by the
RTMC procedurally. No review proceedings had been launched, it argued, and it
was too late to do so at the stage when the counterclaim was issued. I shall not deal
with these grounds since the challenge to the contract was not that it amounted to
administrative action (the tender process and award were not challenged by the
RTMC), but that the contract had been concluded in contravention of s 66(3) of the

Act. I shall consider only the fourth ground of appeal – that the contract did not fall
within the purview of s 66 at all.

[12] Section 66, in Chapter 8 of the Act (headed ‘Loans, Guarantees and other
Commitments’), governs restrictions on borrowing, guarantees and other
commitments. It will be recalled that the contract was for the provision of professional
services – a standard procurement contract. The RTMC argues, however, and
Ranchod J found, that it amounted to a future financial commitment and was thus
struck by the section. Section 66(1) provides that an institution to which the Act
applies ‘may not borrow money or issue a guarantee, indemnity or security, or enter
into any other transaction that binds or may bind that institution or the Revenue Fund
to any future financial commitment, unless such borrowing, guarantee, indemnity,
security or other transaction’ is authorized in terms of the Act. Section 66(3)(c)
determines the authority required for the transactions entered into by public entities.
These transactions must be authorized by the Minister of Finance and, in the case of
‘the issue of a guarantee, indemnity or security, the Cabinet member who is the
executive authority responsible for that public entity, acting with the concurrence’ of
the Minister of Finance.

[13] The RTMC accepts that the contract did not amount to a guarantee, indemnity
or security, but contends that as it provided for future financial commitments, it
required the authorization of the Minister of Finance.  It submits that a ‘future
financial commitment’ includes any transaction that extends beyond the period for
which the public entity has budgeted. Since only the financial year in which the
contract was concluded (2008/2009) had a specified budget allocation, any
undertaking to pay for services in a later year amounted to a future financial
commitment. The RTMC relies in this regard on Putco Ltd v Gauteng MEC for Roads
and Transport 2016 JDR 0756 (GP), in which the court endorsed the view of
arbitrators that if a transaction is concluded in one financial year, but only comes into
effect in a subsequent financial year, it is a future financial commitment. The internal
memorandum of RTMC recommending that the award be made to Waymark
anticipated that the project would be implemented over the 2009/2010 and
2010/2011 financial years as well.

[14] In my view, the reliance on Putco is misplaced. The court (para 51) approved
the arbitrators’ opinion that it is only if the transaction is not currently in force that a
future financial commitment requires ministerial consent: if a contract is to run over
more than one year and financial commitments are thus anticipated for further years,
as long as the contract is in force when the commitment is made, it is current. In any
event, Putco was not dealing with procurement. And in this matter the contract was
concluded in the financial year it came into operation, and for which there had been
a budget allocated.

[15] It would be very odd indeed if different sections of the Act, in different
chapters, were to deal with contracts of procurement. As I have indicated, s 217 of
the Constitution is echoed in s 51(1)(a)(iii) of the Act, and s 216 of the Constitution is
echoed in s 66. Section 66 ensures that government does not commit itself to
expenditure that is unplanned for. As Waymark argues, it would be absurd if s 66
were to apply to every contract for the procurement of goods or services concluded
by government or public entities. Government would grind to a halt. The RTMC
argues, on the other hand that it does not assist to look to absurd examples, such as
the purchase of 1 000 pencils for a government department that would have to be
authorized by the Minister of Finance. But it does not suggest a clear way of
distinguishing between those contracts of procurement that do require ministerial
authority and those that do not. It was faintly suggested at the hearing that
procurement contracts that do not extend beyond the financial year in which they are
concluded might not require ministerial authority. In my view there is no legislative
basis for that.

[16] In interpreting ss 66 and 68 of the Act this court should consider what each
section is designed to achieve – purposively, having regard to the scheme of the Act:
Cool Ideas 1186 CC v Hubbard & another [2014] ZACC 14; 2014 (4) SA 474 (CC)
para 28. Looked at together, and with s 51, within the framework of the Act itself,
each section serves a different purpose. Section 51 regulates procurement by public
entities. It states who bears responsibility for effective, efficient and transparent
financial systems of financial and risk management, and how this must be achieved.
It does not deal with loans, guarantees and future financial commitments. Section 66
does that and s 68 prescribes the consequences of failing to comply with s 66.

It does not deal with the consequences of procurement decisions that are not made
properly under the PAJA.  This approach does not require the words of the sections
to be stretched or words to be read in.

[17] As I see it, Ranchod J in the court a quo did not need to read s 66 to mean ‘an
undertaking to commit expenditure in the future for which a budget has not yet been
approved’. Nor is there any need to read s 66 to exclude those transactions that are
not fiscally exceptional, as Waymark has suggested. The sections require no
embroidery or unpicking. If one looks to their design and purpose, as we must, it is
plain that s 66 does not apply to procurement contracts that follow upon a proper
process, and that do not embody loans, guarantees or the giving of security, even
though they extend beyond one fiscal year. The contract in question did not amount
to ‘any transaction that binds or may bind that institution . . . to a future financial
commitment’: it was a present commitment to pay for professional services as they
were rendered, albeit over a three-year period.

[18] In the circumstances the appeal must be upheld, and the order of the court a
quo must be set aside. Accordingly:
1 The appeal is upheld with costs.
2 The order of the court a quo is set aside and in its place is substituted:
‘The counterclaim is dismissed with costs.’

_________________________
C H Lewis
Judge of Appeal

APPEARANCES
For Appellant:

K Tsatsawane

Instructed by:

Gildenhuys Malatji Inc., Pretoria

Honey Attorneys, Bloemfontein

For Respondent:

N H Maenetje SC (with him N Rajab-Budlender) (Heads
of Argument also prepared by D A Preis SC)

Instructed by:

Adams & Adams, Pretoria

Phatshoane Henney Attorneys, Bloemfontein
SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

6 March 2018

STATUS

Immediate

Waymark Infotech v Road Traffic Management Corporation (440/2017)
[2018] ZASCA 11 (6 March 2018)

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

The Supreme Court of Appeal today upheld an appeal against an order of the
Gauteng Division of the High Court (Pretoria) that a contract for the
procurement of professional services was invalid because it contravened the
provisions of the Public Finance Management Act 1 of 1999. Section 66 of
that Act provides that public entities, such as the Road Traffic Management
Corporation, may not enter into transactions that amount to loans or
guarantees or other future financial commitments without the authorization of
the Minister of Finance. A contract entered into in contravention of the section
is invalid in terms of s 68 of the Act.

The SCA held that a contract for the procurement of professional services,
even though payment for them was to be made over a period of three years,
did not amount to a ‘future financial commitment’ and thus did not require

authorization from the Minister. It was accordingly held to be enforceable and
the service provider was entitled to claim damages for breach of the contract.