THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

CASE NO: 483/2013
Reportable

In the matter between:
THE MEC: DEPARTMENT OF POLICE, ROADS AND TRANSPORT,

APPELLANT
FREE STATE PROVINCIAL GOVERNMENT

and

TERRA GRAPHICS (PTY) LTD t/a TERRA WORKS

FIRST RESPONDENT
SSI/TSHEPEGA JOINT VENTURE

SECOND RESPONDENT

Neutral Citation:
MEC v Terra Graphics (483/2013) [2015] ZASCA 116 (10
September 2015).

Coram:
Navsa, Ponnan, Leach, Saldulker and Zondi JJA

Heard:

20 August 2015

Delivered:

10 September 2015

Summary:

Sub-contract to provide environmental consultancy services in
relation to the Free State Province‟s Road Rehabilitation Programme – work done and
services rendered both by principal contractor and by the first respondent, a
subcontractor – benefit of work accepted and retained – after effecting partial payment,

Province refusing to pay the main contractor the balance – basis for refusing to pay the
balance was that the Road Rehabilitation Programme was allegedly not budgeted for
and that effecting payment in those circumstances would be in contravention of various
statutory provisions – defence held to be fallacious – further defence of lack of privity of
contract rejected as diversionary – always contemplated that for the subcontractor to be
paid, main contractor had to be paid – first respondent claiming in the alternative that
the amount owing to the main contractor be paid and that it in turn be ordered to pay
sub-consultant – no resistance to this by main contractor – in circumstances it would be
artificial and strained to not order direct payment.

______________________________________________________________________
ORDER
______________________________________________________________________

On appeal from: Free State Division of the High Court, Bloemfontein (Matlapeng AJ
sitting as court of first instance).

The following order is made:

1. Save to the extent set out in paragraph 2 hereof, the appeal is dismissed with costs.
2. The order of the court below is altered by substituting the amount of R1 540 123.54 in
paragraph 1 with the amount of R1 436 880.21.

______________________________________________________________________

JUDGMENT
______________________________________________________________________
Navsa JA (Ponnan, Leach, Saldulker and Zondi JJA concurring):

[1] This case is about a provincial government behaving unconscionably. As will
become apparent, in its dealings culminating in the present appeal, the Free State
Provincial Government conducted itself without any integrity and failed to be transparent
and accountable as enjoined by our Constitution. In short, after the Province had
awarded a tender in relation to a road infrastructure programme and concluded a written
agreement with the main contractor, the second respondent, to supply engineering
services for a total remuneration package of R69 million and sanctioned the
appointment of the first respondent as the subcontractor to provide environmental
protection services for payment in an amount of R1 593 997.95  and after  they had
both completed the work and received some payment, the Province refused to pay the
balance owing, on the spurious basis that the work had not been budgeted for.
Notwithstanding that the Province had received the benefits of the labour of the two
contractors, it contended that the failure to budget for the contemplated road works in
the year in which the written agreement with the main contractor was concluded and in
several budgetary periods thereafter amounted to contraventions of applicable
regulatory statutory provisions and it was therefore entitled to refuse to be held to its
obligations in terms of the concluded agreements. Ironically, it relied on the principle of
legality to avoid honouring agreements that it had authorised. It hardly requires any
imagination to consider what members of the public would make of such behaviour. The
detailed background and the reasons for the conclusions reached in the first two
sentences of this paragraph are set out hereafter.

[2] During 2009/2010 the Free State Provincial Government, represented in the
present litigation by the appellant, the Member of the Executive Council: Free State
Provincial Government: Department of Police, Roads and Transport (the MEC),

embarked on a road infrastructure programme, the purpose of which was to promote
accessibility, mobility and a safe road infrastructure network in the Province that would
be environmentally sensitive and would stimulate socio-economic growth. The
programme encompassed 23 roads located throughout the Province. In accordance
with its own procurement policy and the applicable regulatory statutory provisions, the
Free State Department of Police, Roads and Transport (the Department) called for
tenders to be submitted to it for the provision of, amongst others, engineering related
services. The second respondent, SSI/Tshepega Joint Venture (SSI), submitted a
tender and subsequently, on 19 April 2010, the Department concluded a written
agreement in terms of which SSI was to render services as follows:
„Assist the Department of Police, Roads and Transport, to manage the implementation of the
road repairs and rehabilitation programme for the Free State road network. Your appointment is
limited to Road 12 to Road 23 as per the Department‟s priority list. Your appointment will be with
immediate effect and for the duration of the contracts.‟

[3] In effect, SSI was the engineering firm that was appointed the project manager
for the road repair and rehabilitation programme set out in the agreement referred to
above. The total contract value was approximately R69 million.1 Clause 5.1.3 of the
agreement reads as follows:
„Where the client has required the Consultant to appoint selected consultants as the
Consultant‟s sub-consultants, fees owed to those sub-consultants shall be due to the Consultant
in addition to the Consultant‟s own fees.‟
I shall refer to that agreement as the main agreement. In this judgment the terms sub-
consultant and subcontractor are used interchangeably.

[4] The main agreement contemplates the appointment, with the approval of the
Province, of sub-consultants. Environmental services are specifically mentioned in the
main agreement. When the services of an environmental sub-consultant were required
the approval of the Province was obtained and tenders to that end were invited. Terra

1 This appears to be a small part of a much larger initiative that was described by the Minister of Finance
in correspondence that formed part of the record as a multi-year R4,2 billion project.

Graphics (Pty) Ltd, a company that trades as Terra Works (TW), submitted a bid and
subsequently a written agreement with the approval of the Province was concluded
between TW and SSI. I shall refer to that agreement as the sub-consultancy agreement.

[5] The sub-consultancy agreement was concluded on 22 October 2010. The
contract value was R1 593 997.75, excluding VAT and disbursements. Monthly
payment terms were stipulated. It is common cause that both SSI and TW performed
their obligations in terms of the aforesaid written agreements. TW received two
payments from SSI in the amounts of R80 925.94 and R76 191.60 on 30 September
2011 and 12 December 2011, respectively. A total of approximately R13,7 million was
paid by the Department to SSI, with the last payment being made on 6 October 2010.

[6] After the Province had failed to pay SSI the balance still owing, the latter
instituted action in the Free State Division of the High Court, claiming payment of an
amount of R44,7 million. That litigation has not yet run to a conclusion. I pause to record
that in that litigation the Province‟s defences are substantially the same as in this case.
It also unsuccessfully raised an exception to an alternative claim by SSI that was based
on unjust enrichment.

[7] Since SSI had not been paid, it could not pay TW the balance due to the latter for
the work done and services rendered in terms of the sub-consultancy agreement.
Consequently, TW applied in the Free State Division of the High Court for an order that
the MEC pay an amount of R1 540 123.54 for work done and services rendered.
Alternatively, TW sought an order that the MEC be ordered to effect payment of the
amount mentioned to SSI, and that it, in turn, be ordered to immediately and by no later
than 7 days after receipt thereof, effect payment to TW. In addition, TW sought interest
on the amount claimed and costs of suit.

[8] In resisting TW‟s application, the MEC admitted that the Province had invited
tenders that resulted in the conclusion of the agreements referred to above. The MEC
did not dispute that the work had been done and that services had been rendered by

SSI and TW in terms of the main and sub-consultancy agreements. In resisting TW‟s
application in the court below, the first point taken by the Province was that the
application was premature, because the sub-consultancy agreement provided for
arbitration in the event of a dispute which TW was bound by and which it had not
resorted to. The second point was that the application was ill-fated since TW had failed
to comply with the notice provisions of the Institution of Legal Proceedings Against
Certain Organs of State Act 40 of 2002. These defences were clearly entirely without
substance and were rightly abandoned by the MEC during the hearing in the court
below.

[9] In relation to the merits of TW‟s claim, first, it was contended on behalf of the
MEC that the claim for payment for services rendered lay against SSI and not against
the Province. It was submitted that this was so because in terms of both the main and
sub-consultancy agreements SSI undertook to pay TW. There was thus no contractual
obligation on the part of the Province to make such or any payment to TW. Essentially,
the MEC contended that there was no contractual privity between the Province and TW
and that TW‟s claim was therefore fatally flawed. Secondly, and astonishingly, TW‟s
claim was resisted on the basis that the Province had made no budgetary allocation for
the road rehabilitation programme in respect of which the written agreements were
concluded. As a consequence, so the Province asserted, it was unable to withdraw the
requisite funds from the Provincial Treasury to meet the financial obligations it had
undertaken in terms of the agreement with SSI. In this regard reliance was placed by
the Province on sections 21(1)(b)(i) and 24(1)(a)(i) of the Public Finance Management
Act 1 of 1999 (the PFMA). The following parts of the answering affidavit on behalf of the
MEC bear repeating:
„As at October 2010, alternatively, as at any date material to the applicant‟s claim, no budgetary
allocation had been made by the Free State provincial government in respect of the main
agreement or any other agreement related thereto. Likewise, no allocation of any significance
was made in respect of the two subsequent financial years. This is conveniently summarized in
page 374 of the estimates of provincial expenditure that were tabled in the Free State Provincial
Legislature with the Appropriation Bill for 2010/2011, a copy of which is attached hereto and
marked “AA2”.

Accordingly, the requisite funds to meet the financial commitments contemplated in the main
agreement could not lawfully be withdrawn from the Provincial Revenue Fund, as contemplated
in section 21(1)(b)(i), read with section 24(1)(a)(i) of the Public Finance Management Act 1,
1999 (“PFMA”).‟
I shall, in due course, examine the veracity of that statement, more particularly in
relation to the annexure marked „AA2‟, and I intend to explore the paucity of information
supplied on behalf of the MEC in relation to the background leading up to the conclusion
of the main and sub-consultancy agreements and events thereafter. I shall, in addition,
in due course, record the concessions rightly made before us by counsel representing
the Province.

[10] Lastly, in what appears to be a repeat of the second substantive defence set out
in the preceding paragraph, the MEC resisted TW‟s application on the basis that since
the main agreement was tainted by illegality because the statutory prescripts referred to
above were not complied with, no legal consequences could flow from it and TW was
thus precluded from suing on it.

[11] The court below (Matlapeng AJ) considered whether there was any merit to the
defence that there was no contractual privity between TW and the Province. He took
into account provisions of the main agreement in terms of which SSI was the Province‟s
project manager in relation to the road rehabilitation programme, including being
responsible for the financial management of the project. The court below noted that
payment due to the applicant for sub-consultancy services had to be made by the
Province to SSI. Matlapeng AJ considered that it followed that „[TW] had proved that
there was privity between itself and the [Free State Provincial Government].‟

[12] Regrettably, the court below was extremely brief in its treatment of the
substantive defences recorded in paragraphs 9 and 10 above, namely that because the
sub-consultancy agreement was tainted by illegality, TW was precluded from suing on
it. The defences were dealt with as follows:
„The first respondent attack[ed] the validity of the main agreement on the grounds that because
of its failure to comply with the peremptory provisions of section 66 of 68 of Public Finance

Management Act, no 1 of 1999 and further that no budgetary allocation had been made by the
Free State Provisional Government in respect of the main agreement that such an agreement
was void ab initio and could not satisfy a cause of action. This issue is the subject matter of a
pending case in this court under case number 393/2012. As a result I find it improper to pre-
empt the decision of another court.‟

[13] The court below then, nevertheless, went on to make the following order:
„1. The first respondent is ordered to pay an amount of R1 540 123.54 to the applicant
representing payment for work done and services rendered by the applicant to the first
respondent.
2. Alternatively the first respondent is ordered to effect payment of the amount mentioned in 1
above to the second respondent and that the second respondent is ordered to immediately and
by no later than seven days after receipt of the said amount to effect payment to the plaintiff of
the said amount.
3. The first respondent is ordered to pay interest on the amount mentioned in 1 above at the
rate of 15,5% per annum a tempore morae calculated from the date of issuing this application
until the date of first payment.
4. The first respondent is ordered to pay the costs of this application.‟
In truth the court below did not address the defence referred to in paras 9 and 10 above
at all.

[14] It is against the order and the conclusions referred to in paras 11, 12 and 13
above that the present appeal, with the leave of the court below, is directed.

[15] At the outset it is necessary to note that the answering affidavit on behalf of the
MEC was deliberately vague and evasive. No attempt was made to explain how the
Provincial Government could have concluded the written agreement with SSI without
having budgeted for the roads programme. Indeed, not even a cursory attempt was
made to explain how the road rehabilitation programme came into being and what steps
the Provincial Government had taken to fund it. Much more disturbingly, annexure
„AA2‟, referred to above, was employed by the Provincial Government in a manner that
was disingenuous. Annexure „AA2‟ does not support the statement made in the

answering affidavit that no budgetary allocation had been made by the Free State
Provincial Government in respect of the roads that form the subject matter of the
agreement with SSI. Indeed, it demonstrates the opposite. Careful scrutiny of annexure
„AA2‟, which on the Province‟s own version of events was an annexure to an
Appropriation Bill for the 2010/2011 financial year, reveals that specific amounts for
three consecutive financial periods, commencing in 2010, were appropriated by the
Province for all the roads that form the subject matter of the written agreement with SSI.
The roads in question comprising a total length of 370.8km, are set out in Appendix 4 of
the agreement with SSI, and are as follows:
Rouxville – Zastron;
Zastron –Wepener;
Deneysville – Oranjeville;
Oranjeville – Frankfort;
Vredefort – Parys;
Bultfontein – Wesselsbron;
Bothaville – Leeudoringstad;
Hobhouse – Ladybrand;
Ladybrand – Clocolan;
Kroonstad – Vredefort; and
Harrismith – Oliviershoek.
Each of these roads appears in Annexure „AA2‟. This fact was studiously and glaringly
omitted by the Province. Moreover, the Province did not, in its answering affidavit,
reveal the following very important information, namely, that the Free State Provincial
Government subsequently passed an Appropriation Act 3 of 2010. Item 6 of the
Schedule to the Appropriation Act in respect of Police, Roads and Transport reflects
that a globular amount of approximately R1,078 billion was appropriated in respect of
road infrastructure in the Province. When presented with the Appropriation Act, counsel
on behalf of the Province rightly conceded that he could not persist in the Province‟s
defence of a failure to appropriate monies in respect of the expenditure contemplated in
the main written agreement or sub-consultancy agreement. This concession was

compelled not only because counsel was faced with the Appropriation Act but also
because of what is set out in the following five paragraphs.

[16] In its founding affidavit, TW referred to minutes of a meeting held on 13 October
2010 which was attended by officials of the MEC‟s Department as well as
representatives of SSI and TW. These minutes are important. Under the heading
„Project Management Contractual Issues‟, the following, inter alia, is recorded:
„3.1. Contract documents
The signing of the contract documents remains an issue to be resolved (Thirteen of the 23
contracts have been concluded – signed by Dept. PR&T HOD).2
. . .
3.1.6 Taking note of the DG‟s undertaking that the contractual and budgetary matters will be
resolved by the end of Oct. „10, Mr Redman expressed his concern that would be impractical to
respond and implement any feedback received from the DG/PR&T before then.‟
Under the heading „Compliance Issues‟, the minutes reflect the following:
„5.1.
Environmental and Health & Safety Auditors
5.1.1. Mr Redman reported that, on instruction of the Dept. PR&T, tenders were obtained from
a number of consultants for the above two auditing functions. The tender processes were in-line
with PFMA regulations, in that:
Invitations to tender were issued publicly.
The tenders were evaluated fairly and the process contained in comprehensive evaluation
reports.
Formal letters of appointment were issued.
It was confirmed that the auditors do not operate in regions where they may be doing relevant
work for the contractors.‟ 3
Under the sub-heading „Resolutions‟, the following appears:
„5.3.1. Mr Redman is to submit a summary of the appointment values of the auditing teams to
Ms Mentz, as well as a motivation to extend the appointment scope of SSI/Tshepega.‟

2 By this time the written agreement between SSI and the Province had already been concluded.
3 This relates to the tender that was ultimately awarded to TW in respect of which an agreement was
concluded with SSI.

[17] It is clear from what is set out in the preceding paragraph that, at the very least,
both written agreements that are at the centre of this litigation were approved by the
Department. The minutes show that budgetary concerns were being addressed by
officials of the Province. That fact and the other facts dealt with in the immediately
preceding paragraphs, lend a lie to the highly improbable and clearly contrived
explanation by the Province that the work had not been budgeted for.

[18] At this stage it is necessary to deal with yet a further disturbing aspect of the
Province‟s case. It will be recalled that in resisting TW‟s claim the MEC relied on the
Province‟s failure to comply with the provisions of s 21(1)(b)(i), read with s 24(1)(a)(i) of
the PFMA. Section 21(1)(b)(i) of the PFMA provides:
„(1) The provincial treasury of a province is in charge of that province‟s Provincial Revenue Fund
and must enforce compliance with the provisions of section 226 of the Constitution, namely
that –
. . .
(b)
no money may be withdrawn from the Fund except –

(i)
in terms of an appropriation by a provincial Act; or
(ii)
as a direct charge against the Fund when it is provided for in the Constitution or a
provincial Act.‟
The relevant part of s 226 of the Constitution read as follows:
„(1) There is a Provincial Revenue Fund for each province into which all money received by the
provincial government must be paid, except money reasonably excluded by an Act of
Parliament.
(2) Money may be withdrawn from a Provincial Revenue Fund only –
(a)
in terms of an appropriation by a provincial Act; or
(b)
as a direct charge against the Provincial Revenue Fund, when it is provided for in the
Constitution or a provincial Act.‟
Section 24(1)(a)(i) of the PFMA provides:
„(1)
Only a provincial treasury may withdraw money from a Provincial Revenue Fund, and
may do so only –
(a)
to provide funds that have been authorised –
in terms of an appropriation by a provincial Act; or
. . .‟

The disturbing aspect flows from the following, stated by the principal deponent on the
MEC‟s behalf:
„The financial commitments purported to have been made in the appointment of the contractors
of the 23 projects and the second respondent thus fell within the purview of the definition of
“irregular expenditure” in section 1 of the PFMA.‟
„Irregular expenditure‟ is defined in s 1 of the PFMA, as follows:
„“irregular expenditure” means expenditure, other than unauthorised expenditure, incurred in
contravention of or that is not in accordance with a requirement of any applicable legislation,
including –
(a)
this Act; or
(b)
the State Tender Board Act, 1968 (Act 86 of 1968), or any regulations made in terms of
that Act; or
(c)
any provincial legislation providing for procurement procedures in that provincial
government.‟
Section 81 of the PFMA renders an accounting officer for a department liable to
disciplinary proceedings for wilfully or negligently making or permitting irregular
expenditure. Section 86, which deals with offences and penalties in relation to the
PFMA, makes an accounting officer guilty of an offence, liable to a fine or imprisonment
for a period not exceeding 5 years, if that accounting officer willfully or in a grossly
negligent way fails to comply with the provision of sections 38, 39 and 40. Section 38
sets out, in general terms, the duties of an accounting officer for a department which
include ensuring that there is an effective, efficient and transparent system for financial
and risk management and internal control. Section 39 obliges an accounting officer for a
department to ensure that expenditure is in accordance with the vote of the department
and to take appropriate and effective steps to prevent unauthorised expenditure.

[19] On the MEC‟s asserted version of events, namely, that such payments as had
been made to SSI (which amount to approximately R14 million) were irregular
payments, one would have expected that the persons responsible for those payments
would have been subject to disciplinary action and that criminal charges would have
been brought. That does not appear to have been done. In any event, as demonstrated
above, the main and sub-consultancy agreements were approved and the Province‟s

own documentation prove that it had in fact appropriated funds for the repair and
rehabilitation of the relevant roads. In its replying affidavit, TW attached a letter dated 5
October 2012 from the then Minister of Finance, Minister Gordhan, to a Member of
Parliament which addresses concerns about the validity of agreements concluded by
the Province with construction companies in relation to the Oliviershoek-Harrismith road
project. The existence and contents of the letter were never contested. That letter,
dealing with the failure of the department to comply with the PFMA, the Borrowing
Powers of Provincial Governments Act 48 of 1996, as well as with the Preferential
Procurement Policy Framework Act 5 of 2000, explained that the Provincial Government
in consultation with National Treasury would continue engaging with the Department
and the subcontracted companies involved to find a mutually agreeable compromise on
fair value amounts in relation to work done by those construction entities. We are not
called upon to deal with the validity of agreements in relation to construction companies
or with all the provisions of the statutes referred to. However, it does appear that the
Free State Provincial Government behaved irresponsibly in certain instances, including
the transactions in question, without due regard to the rights and hardships faced by
those with whom it had concluded written agreements on behalf of its citizens and that
in the face of National Treasury‟s asserted willingness to assist the Province to meet its
obligations towards the subcontracted companies and others with whom written
agreements had been concluded. It appears that in relation to SSI and TW the urgings
of the then National Minister of Finance were ignored.

[20] If in fact, the funds appropriated in terms of the Appropriation Act, referred to
above, were insufficient to meet the totality of the Province‟s obligations in relation to its
Roads Infrastructure Programme and it was therefore unable to pay SSI, it does not
mean that it would be free to simply avoid its contractual obligations. The outstanding
commitment would then fall to be treated as unauthorised expenditure in terms of the
PFMA and not irregular expenditure as initially contended for on behalf of the Province.
In s 1 „unauthorised expenditure‟ is defined, inter alia, as overspending of a vote or a

main division within a vote.4 Section 34, which deals with unauthorised expenditure,
provides:
„(1)
Unauthorised expenditure does not become a charge against a Revenue Fund
except when –
(a)
the expenditure is an overspending of a vote and Parliament or a provincial
legislature, as may be appropriate, approves, as a direct charge against the relevant
Revenue Fund, an additional amount for that vote which covers the overspending ;
or
(b)
the expenditure is unauthorised for another reason and Parliament or a provincial
legislature, as may be appropriate, authorises the expenditure as a direct charge
against the relevant Revenue Fund.
(2)
If Parliament or a provincial legislature does not approve in terms of subsection 1(a) an
additional amount for the amount of any overspending, that amount becomes a charge against
the funds allocated for the next or future financial years under the relevant vote.‟
Section 34(2) has the effect that the Provincial Treasury would, ex lege, become liable
to meet the Province‟s contractual obligation in terms of the main agreement. That
obligation would be met as a first charge upon the Treasury in the subsequent financial
cycle. Simply put, there is no statutory impediment preventing payment to SSI and, in
turn, TW. On the contrary, there is a legal obligation to pay, even if it meant a delay that
extended into the next financial cycle. In the present case a number of financial cycles
have passed. It is important to bear in mind that inability to pay was never the MEC‟s
case, nor was it contended that there had been over-expenditure.

[21] It is important that governmental institutions respect the rights of those with
whom it transacts. Government should be a scrupulous role model. In this regard the
following part of a dictum of the Constitutional Court in Mohamed & another v President
of the Republic of South Africa & others (Society for the Abolition of the Death Penalty
in South Africa & another intervening) [2001] ZACC 18; 2001 (3) SA 893 (CC) is
apposite (para 68):

4 Section 1 (b) of the PFMA.

„South Africa is a young democracy still finding its way to full compliance with the values and
ideals enshrined in the Constitution. It is therefore important that the State lead by example.
This principle cannot be put better than in the celebrated words of Justice Brandeis in Olmstead
et al v United States:
“In a government of laws, existence of the government will be imperiled if it fails to observe the
law scrupulously . . . . Government is the potent, omnipresent teacher. For good or for ill, it
teaches the whole people by its example . . . . If the government becomes a lawbreaker, it
breeds contempt for the law; it invites every man to become a law unto himself; it invites
anarchy.”
The warning was given in a distant era but remains as cogent as ever. Indeed, for us in this
country, it has a particular relevance: we saw in the past what happens when the State bends
the law to its own ends . . . . The legitimacy of the constitutional order is undermined rather than
reinforced when the State acts unlawfully.‟(footnotes omitted)
In the present case, the stance adopted by the Province was that it had acted contrary
to statutory prescripts, more particularly, that it had failed to appropriate funds. As
demonstrated above and as accepted by the Province that was not the case. The
Province failed to take any subsequent remedial steps and it completely ignored the
hardships it had caused for those with whom it had contracted. Worse still, it accepted
and retained the advantages it gained through the work done and services rendered by
those contractors and steadfastly refused to take any steps to ensure that they received
the compensation that was their due. This position was adopted notwithstanding the
exhortation by the then National Minister of Finance to resolve the impasse.

[22] Having made the concession referred to in para 15, counsel on behalf of the
MEC maintained that he remained entitled to rely on the lack of contractual privity
between TW and the Province. In my view, that defence is diversionary and unhelpful.
It is necessary to have regard to the relevant parts of the main and sub-consultancy
agreements in the present case. The following are the relevant clauses in the sub-
consultancy agreement:
„2. The following documents shall be deemed to form and be read and construed as part of this
Sub-Consultancy Agreement:

1. The Conditions

2. The Appended Clauses of the Main Agreement

3. Schedules 1 to 4.
3. In consideration of the payments to be made by the Consultant to the Sub-Consultant; as
hereinafter mentioned, the Sub-Consultant agrees to perform the Sub-Consultant‟s Services
in conformity with the provisions of the Sub-Consultancy Agreement.
4. The Consultant hereby agrees to pay the Sub-Consultant, in consideration of the
performance of the Sub-Consultant‟s Services, such amounts as become payable under the
provisions of the Sub-Consultancy Agreement, within seven days after received money from
the Department, at the times and in the manner prescribed by the Sub-Consultancy
Agreement.
5. The Sub-Consultant is appointed on instruction of the client, The Department of Police,
Roads and Transport. (hereinafter called “the Client”).
6. The same payment conditions between the Client and the Consultant apply between the
Client and the Sub Consultant.‟
In the present instance, TW performed work for the benefit of the Department, for which
it invoiced SSI, which, in turn, invoiced the Department for the same amount, in respect
of the same work. It is perhaps necessary to reiterate, that the Province knew that
environmental services could only be provided by a sub-consultant. It approved the
appointment of that particular sub-consultant.  In terms of clause 5.1.3 of the main
agreement, the Province had undertaken to SSI to pay the subconsultant‟s fees in
addition to its (SSI‟s) own fees. It received the benefit of the services of TW. It is also
not without significance that the MEC represents a government department, which in
terms of constitutional prescripts, is required to be accountable. SSI has been joined in
these proceedings, which it has chosen not to oppose. All interested parties were
therefore before this court. The MEC has failed to raise any justification for its failure to
pay TW through the conduit of SSI. The court below ordered the MEC to effect payment
of the sum of R 1 540 123.54 to TW (paragraph 1 of its order). And, in paragraph 2
(albeit wrongly couched as an alternative to paragraph 1) it ordered that such payment
be effected via SSI. There is therefore no reason in principle to interfere with those
orders of the high court.

[23] It is necessary to deal briefly with the manner in which the litigation leading up to
and including this appeal was conducted. The present appeal was postponed on a prior

occasion to enable the parties to arrive at a settlement which, I must repeat, was the
outcome recommended by the National Minister of Finance nearly three years ago (see
para 19 above). No such settlement was reached. In addition, as stated earlier, the
answering affidavits were vague and evasive. And, right up until the hearing, the MEC
was firm in his stance that the financial commitments under the sub-consultancy
agreement firstly, constituted „irregular expenditure‟ in terms of the PFMA (as noted at
para 18 above), and secondly, were in contravention of s 66(2) of the PFMA, in that
certain prescribed formalities regulating „future financial commitments‟ had not been
complied with. However, at the hearing, upon being pressed to justify these conclusions
based on the facts before the court, and to explain how this state of affairs had arisen
and what steps the Province was taking to hold those responsible to account, counsel
for the MEC accepted the court‟s offer to take further instructions from his client, and
following this abandoned both arguments. Having finally arrived at the end of this
protracted process, it is likely that the cost of the litigation in the court below and before
us probably approximates the total amount claimed by TW. The litigation was a waste of
public money. It should never have occurred.

[24] Finally, there is one brief aspect that requires to be addressed. As stated earlier,
in the founding affidavit, it appears that the total remuneration for the sub-consultancy
services, was R1 593 997.75. It also appears that TW received two payments, namely,
R80 925.94 and R76 191.60. If the latter two amounts are deducted from the amount of
R1 593 997.75, a total amount of R1 436 880.21 is due. This is less than the amount
claimed in the court below and provided for in that court‟s order. Counsel on behalf of
TW accepted that, if we were inclined to dismiss the appeal the order of the high court
should be amended to allow for the payments hitherto received by his client, but not
considered by the court below. I stress that this point was raised by this court mero
motu. The order of the court below will therefore be altered accordingly.

[25] Following on the conclusions set out above, the following order is made:
1. Save to the extent set out in paragraph 2 hereof, the appeal is dismissed with costs.

2. The order of the court below is altered by substituting the amount of R1 540 123.54 in
paragraph 1 with the amount of R1 436 880.21.

_____________________
M S Navsa
Judge of Appeal

APPEARANCES:

FOR APPELLANT:

L T Sibeko SC (with him V September)

Instructed by:

State Attorney, Bloemfontein.

FOR FIRST RESPONDENT:
S Grobler

Instructed by:

Peyper Sesele Attorney, 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

10 September 2015

STATUS

Immediate

MEC v Terra Graphics (483/2013) [2015] ZASCA 116 (10 September 2015).

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

Today the Supreme Court of Appeal (SCA) delivered a judgment dismissing the appeal by the MEC:
Department of Police, Roads and Transport, Free State Provincial Government against an order by
the Free State Division of the High Court, Bloemfontein, in terms of which it was ordered to pay an
amount of R1 540 123.54 to the first respondent, Terra Graphics (Pty) Ltd t/a Terra Works, employed
as an environmental subcontractor by a main contractor, the second respondent, SSI/Tshepega Joint
Venture in furtherance of the Road Rehabilitation Programme of the Free State Provincial
Government.

In short, after the Province had awarded a tender in relation to a road infrastructure programme and
concluded a written agreement with the main contractor, the second respondent, to supply
engineering services for a total remuneration package of R69 million and sanctioned the appointment
of the first respondent as the subcontractor to provide environmental protection services for payment
in an amount of R1 593 997.95 and after they had both completed the work and received some
payment, the Province refused to pay the balance owing, on the spurious basis that the work had not
been budgeted for. Notwithstanding that the Province had received the benefits of the labour of the
two contractors, it contended that the failure to budget for the contemplated road works in the year in
which the written agreement with the main contractor was concluded and in several budgetary
periods thereafter amounted to contraventions of applicable regulatory statutory provisions and it was
therefore entitled to refuse to be held to its obligations in terms of the concluded agreements.
Ironically, it relied on the principle of legality to avoid honouring agreements that it had approved and
benefitted from.

The court held that the documentation provided by the Province demonstrated that the Road
Infrastructure Programme had indeed been budgeted for and that an Appropriation Act had in fact
been passed by the Provincial Government and an amount of approximately R1,078 billion had been
appropriated in respect of road infrastructure in the Province. Minutes of meeting also showed that
budgetary concerns were being addressed by provincial officials. The court said the following about
the aforesaid documents and the Appropriation Act:
‘[They] lend a lie to the highly improbable and clearly contrived explanation by the Province that the
work had not been budgeted for.’
The court found it disturbing that on the version of the MEC the amounts already paid to the main
contractor and the subcontractor would have constituted irregular expenditure in respect of which
disciplinary steps ought to have been taken. There was no indication that that had occurred. At best
for the Province, in the event that the budgeted amount was insufficient to pay the remainder of the
amounts contractually due to the main contractor, the outstanding commitment would constitute
unauthorised expenditure in terms of the Public Finance Management Act 1 of 1999 and would ex
lege have constituted a first charge on the Provincial Treasury in the next financial cycle.

The court rejected the Province’s contention that it was not obliged to pay the first respondent
because there was no contractual privity between them. It was submitted by the Province that the first
respondent should look to the main contractor (the second respondent) for payment, notwithstanding
that the Province had failed to pay the main contractor. The court had regard to contractual provisions
from which it was evident that the Province knew that environmental services could only be provided
by a subcontractor, of which it had approved. Furthermore, the Province had undertaken to pay the
main contractor whatever was due to the subcontractor. The court held that all the affected parties
had been joined, and the MEC had failed to raise any justification for its failure to pay the first
respondent through the second respondent. The Province had also failed to heed the call by the then
Minister of Finance to ensure that contractors it had employed were compensated.

In dismissing the appeal with costs the court stated that in relation to the transactions in question the
provincial government had behaved unconscionably, without any integrity and had failed to be
transparent and accountable as enjoined by our Constitution. The court emphasised that government
should be a scrupulous role model. In the judgment the court stated that it hardly required any
imagination to consider what members of the public would make of the manner in which it treated the
two respondents. The also criticised the MEC for persisting in the appeal. It described the ongoing
litigation as a waste of public money.