THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case no: 90/10
In the matter between:

THE CHIEF EXECUTIVE OFFICER OF THE SOUTH
AFRICAN SOCIAL SECURITY AGENCY N.O.

1st Appellant

THE SOUTH AFRICAN SOCIAL SECURITY AGENCY
2nd Appellant

THE SOUTH AFRICAN POST OFFICE LIMITED

3rd Appellant

and

CASH PAYMASTER SERVICES (PTY) LTD

Respondent

Neutral citation:
The Chief Executive Officer of the South African Social
Security Agency N.O. v Cash Paymaster Services (Pty)
Ltd (90/10) [2011] ZASCA 13 (11 March 2011)

Coram:
HARMS DP, PONNAN, SNYDERS, TSHIQI JJA AND
BERTELSMANN AJA

Heard:

16 November 2010

Delivered:
11 March 2011

Summary:
S 217(1) of Constitution – Procurement of goods or
services – Competitive process – Non-compliance –
Public Finance Management Act 1 of 1999 and the
Treasury Regulations applicable once a system is in
place – Accounting officer permitted to deviate – Reasons
for deviation – Non – compliance not fatal

______________________________________________________________

ORDER
______________________________________________________________

On appeal from: South Gauteng High Court (Johannesburg) (Du Toit AJ
sitting as court of first instance):

1.
The appeal is upheld with costs including the costs of two counsel.

2.
The order of the court below is set aside and substituted with an order
dismissing the application with costs, including the costs of two
counsel.
______________________________________________________________

JUDGMENT
______________________________________________________________

TSHIQI JA (HARMS DP, PONNAN, SNYDERS JJA AND BERTELSMANN
AJA concurring)

INTRODUCTION

[1] This appeal relates to the validity of the decision by the South African
Social Security Agency (SASSA) to enter into a Letter Agreement with the
South African Post Office Ltd (SAPO) for the provision of basic banking
services to eligible members of the South African public in order to facilitate
the payment of social grants to them. The agreement was an interim
agreement and foreshadowed the conclusion of a final agreement. The first
appellant is the Chief Executive Officer of SASSA, the second appellant is
SASSA and the third appellant is SAPO.

[2] The present respondent, Cash Paymaster Services (Pty) Ltd
(Paymaster), launched an application in the high court in which it sought to
review the decision taken by SASSA to enter into the Letter Agreement, and
interdict SASSA from entering into the proposed final agreement with SAPO
to render banking or payment services, relating to social security
beneficiaries, without having followed a procurement process which complies
with s 217(1) of the Constitution, s 51(1)(a)(iii) of the Public Finance
Management Act 1 of 1999 (the PFM Act) and the Treasury Regulations
made thereunder, or with SASSA’s own supply chain management policy. It is
common cause that SASSA did not follow a competitive process and the
question that arose was whether it was obliged to do so.

[3] The court below (per F J du Toit AJ) upheld the application by setting
aside the decision to enter into the agreement and interdicted SASSA from
contracting with SAPO to render banking or payment services without having
followed a procurement process which complies with s 217 of the
Constitution, the PFM Act and the Treasury Regulations. The court did,
however, order that accounts of beneficiaries should not be closed pending
the envisaged procurement process. It granted the appellants leave to appeal
subject to an order that his main order would remain operative and effective
during the appeal process.
SASSA

[4] SASSA is a statutory juristic person established in terms of the South
African Social Security Agency Act 9 of 2004 (the SASSA Act). It is an organ

of state in terms of s 239(b)(ii) of the Constitution and a national public entity
within the meaning of the PFM Act. Its objects are to (a) act, eventually, as the
sole agent that will ensure the efficient and effective management,
administration and payment of social assistance; (b) serve as an agent for the
prospective administration and payment of social security; and (c) render
services relating to such payments (s 3 of the SASSA Act). And its functions
include the administering of social assistance in terms of Chapter 3 of the
Social Assistance Act 13 of 2004, and performing any function delegated to it
under that Act; and to collect, collate, maintain and administer such
information as is necessary for the payment of social security, as well as for
the central reconciliation and management of payment of transfer funds in a
national data base of all applicants for and beneficiaries of social assistance
(s 4(1)(a) and (b) of the SASSA Act).

[5] Section 14(3)(a) of the Social Assistance Act, which forms part of
Chapter 3, provides that if an applicant qualifies for social assistance under
that Act, SASSA must render the relevant assistance which means in general
terms that it has to pay the beneficiary that to which the beneficiary is entitled.
SASSA may, in terms of reg 24(1), use any of the following methods for the
payment of grants, namely (a) electronic transfers into an account of the
beneficiary held at a financial institution or that of a procurator; (b) manual
payments at a designated pay-point; or (c) any other method approved by the
Minister.1

1 Regulations in terms of the Social Assistance Act 13 of 2004, GN R162, GG 27316,
22 February 2005.

SAPO AND POSTBANK

[6] SAPO is, pursuant to a 1991 amendment to the Post Office Act 44 of
1958, a public company incorporated in terms of the Companies Act 61 of
1973, and is owned by the state. Section 51 of the Postal Services Act 124 of
1998 regulates the operation and control of Postbank. Postbank is a division
of SAPO. It is not registered under the Banks Act of 1990 but undertakes
‘such activities as are customary for a financial institution carrying on the
business of accepting bank deposits’ (s 51(2) of the Postal Services Act). It
offers simple affordable banking services, specifically to the low income
groups, through the SAPO network throughout the country. Its services
extend into isolated rural areas where other financial institutions do not
maintain a viable commercial presence.

[7] SAPO (including Postbank) remains a business enterprise of the
national government despite its status as a public company and separate
juristic personality. It is a ‘major public entity’ listed in Schedule 2 to the PFM
Act. SAPO is substantially self-funding but the state may grant it annual
subsidies. The assets of the state serve as security for repayment of deposits
with Postbank. The Postbank pays interest on money deposited with it. Its
profits are reinvested in its operations for the public benefit.
THE LETTER AGREEMENT

[8] Prior to the establishment of SASSA, payment services in respect of
social grants were effected by cash payment contractors, including

Paymaster. The contractors had different service level agreements with the
various provinces for cash payments of social grants to beneficiaries residing
in the respective provinces. From 1 April 2006, SASSA ‘inherited’ these
contracts through cession and delegation. Paymaster, for instance, provided
services to approximately 3,6m beneficiaries in five provinces. Its contracts
were due to expire in March 2009. On 25 March 2009, SASSA and Paymaster
extended their contract for another year until March 2010 and agreed that
they would in future enter into negotiations in good faith in an attempt to enter
into a new consolidated service agreement in relation to cash payments.  The
contractors, including Paymaster, were the repositories of the data and the
enrolment payment system. Thus, the contractors were and are in control of
the process of taking the biometric data of the beneficiaries including verifying
the beneficiaries’ details up to the payment stage. All this data remained with
the contractors.

[9] In July 2009, during the subsistence of the extended agreement with
Paymaster, SASSA concluded the Letter Agreement with SAPO. The
agreement was implemented with effect from 5 January 2009. The effect of
the agreement was that when new beneficiaries applied to SASSA for a grant,
they would be asked if they had an existing bank account, and if not, whether
they would like to open a Postbank account. If they did, SASSA would on
behalf of the beneficiary open a Postbank account if the particular SASSA
office was online or it would refer the beneficiary to any post office to do so.

[10] SAPO in summary undertook to provide the following services: the
design, development and implementation of a web-based bank account

solution that simplifies the bank account application process for applicants;
registration of beneficiaries that is the opening, allocation and activation of
Postbank accounts for each potential grant recipient before SASSA approves
the relevant grant; the issue of a Postbank card; the single deposit of grant
funds per month, per beneficiary and one free mini statement per month; and
one of a number of additional services such as two free ATM cash
withdrawals per month.

[11] SASSA contributed an amount of R928 235.50 towards SAPO’s
start-up costs of the project. It undertook to pay SAPO a once-off fee of
R13.68 for every beneficiary account opened and thereafter a monthly fee of
R14.59 per beneficiary.

[12] One of the advantages of the system as far as SASSA was concerned
was that whereas in the past the beneficiary’s details would remain in the
contractor’s system the beneficiary’s account details would now be captured
in the SASSA system. SAPO would issue the beneficiary with a Mzansi bank
card which he or she would then use to withdraw cash from any ATM or post
office or to make any purchases at any retailer who accepts VISA branded
bank cards.2

2 In 2002, all major banks in South Africa and SAPO agreed to co-operate to provide a
standard, low cost bank account, known as the Mzansi account, to lower income groups. The
account may be opened at any of the major banks and at the Postbank on standard terms
relating to the nature of the banking services at the same low banking fees.

[13] The financial benefit for SASSA is substantial because the average
handling charge of contractors amounts to R32.11 per transaction, more than
double the SAPO fee, which means that the cash payment system costs, for 9
million recipients, an estimated R3.6 billion. Within some eight months, 460
377 beneficiaries had opened Postbank accounts under the scheme.

[14] Cash payments to the beneficiaries were not affected and contractors
consequently
retained
the
sole
right
to
process
cash
payments.
Nevertheless, Paymaster as contractor is dissatisfied because SASSA did not
follow a competitive process before entering into the Letter Agreement.
SECTION 217(1) OF THE CONSTITUTION

[15] Section 217(1) of the Constitution prescribes the manner in which
organs of state should procure goods and services.3 In particular, organs of
state must do so in accordance with a system which is fair, equitable,
transparent, competitive and cost-effective. This implies that a ‘system’ with
these attributes has to be put in place by means of legislation or other
regulation. Once such a system is in place and the system complies with the
constitutional demands of s 217(1), the question whether any procurement is

3 S 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.’

‘valid’ must be answered with reference to the mentioned legislation or
regulation.4

[16] The question debated at length in the court below and before us, was
whether s 217(1) applies if an organ of state wishes to procure goods or
services from another organ of state consequently appears to me to be beside
the point. The first inquiry ought to be to determine the meaning of the
consequent legislation.

[17] The main object of the PMF Act is to secure transparency,
accountability, and sound management of the revenue, expenditure, assets
and liabilities of the institutions to which the Act applies (s 2). SASSA and
SAPO, as mentioned, are such entities more particularly because they are
both funded, fully or substantially, from the National Revenue Fund or by way
of tax, levy or other money imposed in terms of national legislation, and they
are accountable to Parliament (s 1). The PFM Act, read with the Treasury
Regulations, is such legislation. It should be noted that it was not the
respondent’s case that the PFM Act or the Treasury Regulations were
unconstitutional, only that SASSA did not comply with their provisions.

[18] Section 51(1)(a) of the PFM Act states that an accounting authority for
a public entity must (inter alia) ensure that the particular public entity has and

4 Gcaba v Minister for Safety and Security 2010 (1) SA 238 (CC) para 65. Compare Minister
of Health & another NO v New Clicks South Africa (Pty) Ltd & others (Treatment Action
Campaign & another as Amici Curiae) 2006 (2) SA 311 (CC); 2006 (1) BCLR 1 para 96
(Chaskalson CJ) and 434 - 437 (Ngcobo J); SA National Defence Union v Minister of Defence
& others 2007 (5) SA 400 (CC) para 51; NAPTOSA & others v Minister of Education, Western
Cape, & others 2001 (2) SA 112 (C) at 123I – J; 2001 (4) BCLR 388 at 396I – J; MEC for
Education, KwaZulu-Natal & others v Pillay 2008 (1) SA 474 (CC) para 40.

maintains an appropriate procurement and provisioning system which,
echoing the words of the Constitution, is fair, equitable, transparent,
competitive and cost-effective. The National Treasury may in terms of the
PFM Act make regulations or issue instructions applicable to all institutions to
which the Act applies concerning the determination of a framework for an
appropriate procurement and provisioning system which is fair, equitable,
transparent, competitive and cost-effective (s 76(4)(c)).

[19] The relevant Treasury Regulations provide as follows:5
(a)
The accounting officer or accounting authority of a public entity must
‘develop and implement an effective and efficient supply chain
management system in his or her institution for the acquisition of goods
and services’ (reg 16A3.1(a)).
(b)
The supply chain management system must be ‘fair, equitable,
transparent, competitive and cost-effective’ (reg 16A3.2(a));
(c)
‘If in a specific case it is impractical to invite competitive bids, the
accounting officer or accounting authority  may procure the required
goods or services by other means, provided that the reasons for
deviating from inviting competitive bids must be recorded and approved
by the accounting officer or accounting authority’ (reg 16A6.4).

5 Treasury Regulations, GN R225, GG 27388, 15 March 2005; as amended by GN R146,
GG 29644, 20 February 2007.

[20] SASSA has, in terms of reg 16A3.2, a supply chain management policy
that requires that procurement and tendering should be in accordance with a
system which is fair, equitable, transparent, competitive and cost-effective.

[21] SASSA is not obliged to comply with its supply policy in the
circumstances set out in reg 16A6.4 and it is accordingly unnecessary to
consider the terms of the policy any further. The regulation permits an
accounting officer or the chief executive officer to deviate from a competitive
process subject to conditions. As mentioned it is not contended that a ‘system’
may not provide for such deviations.  First, there must be rational reasons for
the decision. That is a material requirement. Second, the reasons have to be
recorded. That is a formal requirement.6 The basis for these requirements is
obvious. State organs are as far as finances are concerned first of all
accountable to the National Treasury for their actions. The provision of
reasons in writing ensures that Treasury is informed of whatever
considerations were taken into account in choosing a particular source and of
dispensing with a competitive procurement process. This enables Treasury to
determine whether there has been any financial misconduct and, if so, to take
the necessary steps in terms of reg 33.

[22] The factual inquiry is whether there was compliance with the provisions
of reg 16A6.4. Although the chief executive officer of SASSA did not pen his
reasons for entering into the Letter Agreement with these regulations in mind,
it appears from the Letter Agreement itself, signed by him, that the agreement

6 The third requirement, namely approval by the chief executive officer, is not an issue in the
case because the Letter Agreement was entered into by him.

was entered into in terms of the Intergovernmental Relations Framework Act
13 of 2005, and that the object of the agreement was to provide for
collaboration between two government entities by working together and to
integrate their services. The intention, too, was to improve grant enrolment
and payment services on a cost effective basis.

[23] It might in this context be noted that the provisions of s 238(b) of the
Constitution permit an executive organ of state to exercise any power or
perform any function for any other executive organ of state on an agency or
delegation basis. Although the rendering or procuring of banking services for
beneficiaries is not a function of SASSA, its function is payment of grants, not
only manually but also electronically into their banking accounts. This is
exactly the function that SASSA has delegated to SAPO. This function could
not be delegated in isolation and the fact that SASSA was able to procure
additional and ancillary advantages for beneficiaries from SAPO, which strictly
speaking fall outside of SASSA’s functions, does not mean that the agency or
delegation is not covered by s 238(b).

[24] This fits in with the evidence of SASSA in the answering affidavit where
it was stated that its transaction with SAPO was not a purely economic
transaction; its object, instead, was to achieve the constitutional goal of
providing social assistance to the needy. It further stated that it chose SAPO
as another government entity because SASSA was experiencing financial
difficulties.

[25] Although not stated in the Letter Agreement it is clear on the evidence
that another important reason for the agreement was that no other entity is
able to provide the same or similar accessible services to the poor and those
living in remote areas. As was stated in the answering affidavit:
‘The beneficiaries who have accounts at Postbank have greater accessibility than
that provided by the commercial bank. SAPO has more branches throughout the
country than any of the commercial banks, and also has branches in rural areas
where none of the commercial banks has a branch.’

[26] One is, unfortunately, left with a lingering impression that Paymaster’s
motive in wanting to have the Letter Agreement set aside is to perpetuate the
expensive cash payment system and not because it is concerned about the
costs to SASSA of the payment systems or because it is a possible bona fide
competitor of Postbank. Paymaster is not a registered financial institution or
financial services provider or bank and it cannot on its own provide the
services which Postbank offers. Paymaster, admittedly, alleged that it could
possibly submit a tender to provide the same services in conjunction with
some or other bank and although the allegation was not denied it remains
nothing more than an allegation, especially since the facts set out in the
preceding paragraph cannot be gainsaid.

[27] Paymaster, in the light of the aforesaid, had to show that the reasons
for the decision were irrational. Because of the way the case was conducted it
did not address this issue pertinently. And the reasons are, in my judgment,
entirely reasonable. It was not enough for Paymaster to show that the reasons
were ‘wrong’ by, for instance, stating that the viability of SAPO was not tested
because other service providers were not granted an opportunity (through a

competitive bidding system) to show whether they could offer more attractive
options. Such generalized allegations do not address the question whether or
not the mentioned reasons were rational.

[28] The next issue to decide is whether the requirement that the full
recording of all the reasons for a decision under reg 16A6.4 is a ‘mandatory
and material procedure or condition prescribed by an empowering provision’
(in the wording of s 6(2)(b) of the Promotion of Administrative Justice Act 3 of
2000). I think not. As was recently said by this court:7
‘It is important to mention that the mere failure to comply with one or other
administrative provision does not mean that the whole procedure is necessarily void.
It depends in the first instance on whether the Act contemplated that the relevant
failure should be visited with nullity and in the second instance on its materiality (see
in general Nkisimane v Santam Insurance Co Ltd 1978 (2) SA 430 (A) 433H-434E).’
As mentioned, the regulations deal in detail with the consequences of
non-compliance. These are dealt with at an administrative level. There is no
indication that the regulations contemplate that the requirement of recording
was mandatory or material or was introduced for the sake of the public and
not only for the sake of good financial government, or that collateral attacks
on rational decisions bona fide taken were contemplated as a possible
remedy. In one word, I do not find any ‘nietigheidsbedoeling’ lurking
somewhere in the regulation.

7 Nokeng Tsa Taemane Local Municipality v Dinokeng Property Owners Association (518/09)
[2010] ZASCA 128 (30 September 2010) para 14.

[29] In any event this court in Moseme Road Construction CC & others v
King Civil Engineering Contractors (Pty) Ltd & another8 held that ‘[n]ot every
slip in the administration of tenders is necessarily to be visited by judicial
sanction’ (para 21).  Considerations of public interest9, pragmatism and
practicality should inform the exercise of a judicial discretion whether to set
aside administrative action or not.10

[30] This means that the appeal must be upheld and the following order is
consequently made:

1.
The appeal is upheld with costs including the costs of two counsel.

2.
The order of the court below is set aside and substituted with an order
dismissing the application with costs, including the costs of two counsel.

_______________________
Z L L Tshiqi
Judge of Appeal

8 2010 (4) SA 359 (SCA)
9 Associated Institutions Pension Fund & others v Van Zyl & others 2005 (2) SA 302 (SCA);
[2004] 4 ALL SA 133) para 46.
10 Oudekraal Estates (Pty) Ltd v City of Cape Town & others 2004 (6) SA 222 (SCA) para 36.

APPEARANCES

1ST & 2ND APPELLANTS:
S M Lebala SC (with him Z Makhubela)

Instructed by The State Attorney,

Pretoria;

The State Attorney, Bloemfontein.

3RD APPELLANT:
W Trengove SC (with him M A Wesley)

Instructed by Read Hope Phillips Thomas &
Cadman Inc,

Johannesburg;

Webbers, Bloemfontein.

RESPONDENT:
J J Gauntlett SC (with him S Budlender)

Instructed by Smit Sewgoolam Inc,

Johannesburg;

McIntyre & Van Der Post, Bloemfontein.