Swifambo Rail Leasing (Pty) Limited v Passenger Rail Agency of South Africa (1030/2017) [2018] ZASCA 167; 2020 (1) SA 76 (SCA) (30 November 2018)

Key Facts

Transaction Type

Issues

• The court determined that the tender award was corrupt and involved fronting, as PRASA officials acted dishonestly and the specifications were tailored to favor Vossloh, a non-BBBEE compliant foreign company, through the shell company Swifambo. The tender process was found to be vitiated by material irregularities, including non-compliance with BBBEE requirements and procurement policies.
• The court upheld the equitable remedy of setting aside the contract, as continuing it would benefit the corrupt parties and waste public funds. The locomotives delivered were found to be unsafe and non-compliant with South African railway standards, making further performance pointless and harmful.
• PRASA's application to set aside the contract was brought nearly three years after the award. The court found the delay was reasonable given the time needed for the new board to investigate, the obstructive behavior of former officials, and the public interest in addressing corruption. Condonation was granted despite the lengthy period.

Holdings

• Condonation of the delay was granted because the delay was not unreasonable, and the public interest in addressing corruption and ensuring clean governance outweighed the need for finality in administrative decisions.
• The court found that PRASA's hearsay evidence was admissible under the Law of Evidence Amendment Act 45 of 1988, as the evidence was uncontested, reliable, and in the public interest.
• The court upheld the order to set aside the contract, as continuing it would benefit Swifambo and Vossloh at the expense of PRASA and the public, given the locomotives' non-compliance with safety standards and the corrupt tender process.
• The court confirmed that Swifambo was a 'front' for Vossloh, which lacked BBBEE compliance, enabling Vossloh to bypass procurement requirements. This undermined the BBBEE Act's objectives of transferring economic benefits to black people.
• The court determined that PRASA's nearly three-year delay in instituting review proceedings was reasonable due to the reconstituted board's need to investigate corruption, obstruction by former officials, and the public interest in addressing fraudulent tendering.

Remedies

• The appeal is dismissed, as the court found the tender award was corrupt and the delay was reasonable to condone.
• PRASA is awarded the costs of two counsel in the appeal.

Contract Value

Legal Principles

• The court evaluated the delay in PRASA's application to set aside the contract under common law principles of legality and judicial review. It found the delay was reasonable given the reconstituted board's challenges and granted condonation in the public interest, citing the need to address corruption and prevent misuse of taxpayer funds.
• The court admitted hearsay evidence in the founding and replying affidavits under s 3(1) of the Law of Evidence Amendment Act, considering factors like reliability and public interest. It emphasized that unchallenged hearsay with no prejudice to the opposing party is admissible in the interests of justice.
• The court applied the principle of substance over form, determining that Swifambo was a front for Vossloh under the BBBEE Act, as the transaction undermined the Act's objectives despite Swifambo's BBBEE compliance. The structure of the bid and subsequent contract revealed Vossloh's de facto control.

Precedent Name

• Aurecon South Africa (Pty) Ltd v City of Cape Town
• Cape Town City v Aurecon SA (Pty) Ltd
• State Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd
• Esorfranki Pipelines (Pty) Ltd v Mopani District Municipality

Key Disputed Contract Clauses

• The court noted an irregular change in PRASA's procurement strategy from leasing to outright purchase, which benefited Swifambo. This shift was not properly evaluated or justified in the tender process.
• Swifambo's bid failed to meet local content requirements as the locomotives were designed and manufactured in Spain. This non-compliance undermined the tender's legitimacy and was a basis for the contract's invalidation.
• The court found that Swifambo did not submit a broad-based black employment equity (BBBEE) plan for the duration of the contract, violating the request for proposals' requirements. This non-compliance was a material irregularity in the tender process.
• PRASA's specifications for locomotives were determined to be crafted to match Vossloh's products, not South Africa's railway requirements. This tailoring was deemed evidence of corruption and a key factor in invalidating the tender.
• The contract lacked proper technical evaluation, resulting in locomotives exceeding South African railway height standards. This failure to assess suitability was a material irregularity cited by the court.

Cited Statute

• Promotion of Access to Administrative Justice Act
• Broad-Based Black Economic Empowerment Act
• Law of Evidence Amendment Act
• Public Finance Management Act

Judge Name

• Makgoka
• Ponnan
• Lewis
• Schippers
• Zondi

Passage Text

• An award of a tender vitiated by irregularities, corruption and 'fronting' within the meaning of the Broad-Based Black Economic Empowerment Act 53 of 2003 set aside: delay in instituting review proceedings reasonable in the circumstances, and condonation would be granted if it was unreasonable.
• Vossloh had complete control over every aspect of the contract between Swifambo and PRASA, including the appointment of members of the steering committee overseeing the acquisition and commissioning of locomotives. Swifambo's real role was undoubtedly to enable Vossloh to become the real bidder for the tender.
• Francis J in the high court found that the nearly three year delay in bringing the application was unreasonable, but that given the public interest in state owned entities not being corrupt, and the enormous cost to the country incurred through the tender process, the period for bringing the application should be extended and the delay condoned.

Damages / Relief Type