Preferential procurement policy: Irrational unlawful invalid

Note: Footnotes omitted and emphasis added

Ponnan JA (Cachalia and Wallis JJA concurring):

[56] I agree with my colleague Molemela JA that this appeal against a judgment of Coppin J, which reviewed, set aside and declared unconstitutional the decision of the appellant, Airports Company South Africa SOC Ltd (ACSA), to issue a request for bids (RFB) for the awarding of various car rental concessions at airports, must fail.

I feel persuaded to write separately because both my approach and the line that I take in endeavouring to resolve the appeal are, in their emphasis, different to that preferred by my learned colleague.

[57] The RFB, which was published by ACSA on 5 September 2017, established car rental opportunities for the letting of over 70 kiosks for a period of ten years. Bids were invited for kiosks and parking bays at airports nationally. According to the RFB, bids were to be evaluated in accordance with a four-staged approach.

• The first was the pre-qualification stage, which comprised an initial assessment of each bid and an audit of all mandatory administrative requirements.
• The second was the technical evaluation stage.
• The third was the stage at which price was assessed and categories of preference were considered.
• And, the fourth stage implicated transformation imperatives.

[58] The first respondent, Imperial Group Ltd (Imperial), is a wholly owned subsidiary of Imperial Holdings Limited, a JSE listed company. Imperial’s car rental division has operated at ACSA’s airports for more than 32 years. It owns and operates two car rental divisions: Europcar, a premium brand, operated pursuant to a franchise agreement with a French company, Europcar International and Tempest, a low-cost brand. In terms of the RFB, Imperial had to bid anew to retain its presence at the airports.

[59] Imperial formed the view that, if implemented, the RFB would be calamitous for its business. It accordingly approached the high court for relief in two parts.

• Under Part A, Imperial successfully obtained an order compelling ACSA to disclose the identities of all of the bidders, who were joined as the second to twelfth respondents.
• Under Part B, Imperial sought to review and set aside the RFB.

Only ACSA, who was cited as the first respondent, opposed the application.

[60] In a judgment handed down in July 2018, the high court upheld the application and set aside the RFB.

It did so on five grounds.

• The first was that the RFB is in breach of s 217 of the Constitution and the laws enacted thereunder, namely the Preferential Procurement Policy Framework Act 5 of 2000 (the PP Act) and the Preferential Procurement Regulations (the PP Regulations) (the Procurement Laws).
• The second was that the RFB is in breach of the laws enacted to promote black economic empowerment (BEE), namely the Broad-Based Black Economic Empowerment Act 53 of 2003 (the BEE Act) and the Tourism Sector Code of Good Practice published thereunder (the Tourism Code) (the BEE Laws).
• The third was that the RFB was produced by an arbitrary and irrational process, inasmuch as it was not underpinned by any research, consultation, advice or input from interested parties.
• The fourth was that the RFB was in part incurably vague and devoid of any meaningful content.
• The fifth was that ACSA had made the RFB under a material mistake of law. The appeal is with the leave of the high court.

[61] Imperial challenged three categories of provisions in the RFB.

• First, it attacked the pre-qualification criteria set out in clause 4.2.4 of the RFB. It contended that the criteria, which included that large entities such as it had to be at least 30% black owned and at least 15% black women owned, were unlawful. In terms of the RFB, a bidder that did not meet all of the pre-qualification criteria would immediately be disqualified. As Imperial was unable to meet these criteria, its bid had to be disqualified.
• Second, Imperial attacked the method of assessment of the bids as set out in clause 4.2 of the RFB. It contended that the method of assessment, in terms of which 50 points were awarded for price and 50 points for BEE status, was unlawful.
• Third, Imperial attacked the transformation criteria provisions of the RFB, which allowed ACSA to apply the single opportunity rule’ in awarding the tender as set out in clauses 1.7 and 5.6 of the RFB.

[62] Imperial’s core attack is that the RFB is subject to and in breach of s 217 of the Constitution. ACSA contends that s 217 of the Constitution does not apply to the RFB, inasmuch as ACSA is granting concessions to bidders who are paying for such concessions.

Accordingly, ACSA is not engaging in ‘procurement’ or ‘contracting for goods and services’. In any event, so the contention goes, even if s 217 does apply to the RFB, then the Procurement Laws are patently inapplicable. They, in their terms, so the contention proceeds, can have no application to a situation such as the present. Once this is so, according to ACSA, Imperial would then be left with impermissibly challenging the RFB directly under the Constitution.

[63] The language of s 217(1) is clear. It applies whenever an organ of state ‘contracts for goods or services’. These words are plain and unqualified. They make it clear that the section applies whenever an organ of state contracts for goods or services, whether for itself or for somebody else. ACSA’s restrictive reading thus finds no support in the plain language of the section. ACSA suggests that the ambit of the section is limited by the reference to the word ‘procurement’ in the heading and in s 217(2).

The ordinary meaning of ‘procure’ is ‘obtain’. In any event, s 217(1) spells out what the section means when it speaks of ‘procurement’, which is ‘to contract for goods or services’. It thus places the meaning of the word beyond doubt. ACSA suggests that the RFB is not directed at procurement but only at contracts for the lease of premises to car rental companies, who provide their services directly to the public. But, that is to elevate form above substance. The substance of the transaction is that ACSA contracts with car rental companies to provide a public service at its airports. That is how ACSA itself described the transaction in the RFB.

[64] The general rule under s 217 of the Constitution is that all public procurement must be effected in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. The only exception to that general rule is that envisaged by ss 217(2) and (3). Section 217(2) allows organs of state to implement preferential procurement policies, that is, policies that provide for categories of preference in the allocation of contracts and the protection and advancement of people disadvantaged by unfair discrimination.

Express provision to permit this needed to be included in the Constitution in order for public procurement to be an instrument of transformation and to prevent that from being stultified by appeals to the guarantee of equality and non-discrimination in s 9 of the Constitution. The freedom conferred on organs of state to implement preferential procurement policies is however circumscribed by s 217(3), which states that national legislation must prescribe a framework within which those preferential procurement policies must be implemented.

The clear implication therefore is that preferential procurement policies may only be implemented within a framework prescribed by national legislation. It follows that the only escape for ACSA from the reach of s 217(1) is if it is able to bring itself within ss (2) and (3).

[65] The PP Act is the national legislation envisaged by s 217(3). In terms of s 2(1) of that Act, an organ of state must determine and implement its preferential procurement policy within the framework prescribed by the section. Section 2(1) of the PP Act reads in relevant part as follows:

‘An organ of state must determine its preferential procurement policy and implement it within the following framework:

(a) A preference point system must be followed;
(b)

(i) for contracts with a Rand value above a prescribed amount a maximum of 10 points may be allocated for specific goals as contemplated in paragraph (d) provided that the lowest acceptable tender scores 90 points for price;
(ii) for contracts with a Rand value equal to or below a prescribed amount a maximum of 20 points may be allocated for specific goals as contemplated in paragraph (d) provided that the lowest acceptable tender scores 80 points for price;

(c) any other acceptable tenders which are higher in price must score fewer points, on a pro rata basis, calculated on their tender prices in relation to the lowest acceptable tender, in accordance with a prescribed formula;

(d) the specific goals may include—

(i) contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability;
. . . .
(e) any specific goal for which a point may be awarded, must be clearly specified in the invitation to submit a tenderer;

(f) the contract must be awarded to the tenderer who scores the highest points, unless objective criteria in addition to those contemplated in paragraphs (d) and (e) justify the award to another tenderer . . . .’

[66] This provision gives effect to the restriction imposed by s 217(3) of the Constitution that permits a preferential procurement policy but only within a framework prescribed by national legislation. In terms of the framework, a preferential procurement policy may only allocate 10 or 20 preference points out of a total of 100 to transformation goals.

It may not afford any greater weight to transformation objectives. Any goal for which a point may be awarded, must be clearly specified in the invitation to tender. It is so that s 2 clearly contemplates a conventional transaction by which an organ of state purchases goods or services at the lowest possible price. It accordingly allocates higher scores to lower prices. A transaction of the kind contemplated by the RFB, on the other hand, seeks to elicit bids for leases at the highest possible rental.

[67] Does it mean, as ACSA argues, that such a transaction is not subject to s 2? I think not. Section 2 must be read and understood to be mutatis mutandis applicable to such a transaction. It accordingly allows a scoring system which allocates more points for higher rentals. The principle remains the same.

As a general rule the words of a statute must be given their ordinary, grammatical meaning in the context in which they appear, unless to do so ‘would lead to absurdity so glaring that it could never have been contemplated by the legislature or where it would lead to a result contrary to the intention of the legislature as shown by the context or by such other considerations as the Court is justified in taking into account’ (Venter v R). In that event the court may depart from the ordinary effect of the words to the extent necessary to remove the absurdity and give effect to the true intention of the legislature.

[68] The principle laid down in Venter’s case has generally been used to ‘cut down’ the wide meaning of the words employed by the Legislature.

However, as it was put by Centlivres CJ in Barkett v SA Mutual Trust & Assurance Co Ltd:

‘But there may, it seems, be exceptional cases where it is permissible for a court of law to expand the literal meaning of words used by the Legislature. See Halsbury (2 ed., Vol. 31, para. 635), where reference is made to the cases of Hewett v Hattersley, 1912 (3) K.B. 35 and Swan v Pure Ice Co. Ltd., 1935 (2) K.B. 265.’

In Swan v Pure Ice Co Ltd, Roper LJ observed:

‘But they were, in my judgment, amply justified by the authorities, which are summed up in Maxwell on the Interpretation of Statutes, 7th ed., p. 217, as follows:—

“They (i.e., the authorities) would seem rather to establish that the judicial interpreter may deal with careless and inaccurate words and phrases in the same spirit as a critic deals with an obscure or corrupt text, when satisfied, on solid grounds, from the context or history of the enactment, or from the injustice, inconvenience, or absurdity of the consequences to which it would lead, that the language thus treated does not really express the intention and that his amendment probably does.”’

[69] In Summit Industrial Corporation v Claimants Against the Fund Comprising the Proceeds of the Sale of the mv ‘Jade Transporter’, Corbett JA pointed out that our courts have remarked in various judgments that

‘it is dangerous to speculate on the intention of the Legislature’ and ‘the Court should be cautious about thus departing from the literal meaning of the words of a statute. . . . It should only do so where the contrary legislative intent is clear and indubitable’.

Here, I think, there is such intent. The legislation was enacted for the benefit of the national fiscus. In respect of what I have described as the conventional transaction, an organ of state securing goods and services at the lowest possible price would plainly operate for the benefit of the fiscus.

Quite the contrary for a non-conventional transaction such as the present. In this instance transacting at the highest price would undoubtedly be to the benefit of the fiscus. There is no sense in the legislation only applying to the conventional category of transaction. It thus seems to me inconceivable that the legislature could have intended such a result.

In that regard the legislation does not say what was obviously intended to be said. I am thus satisfied upon the construction of the provision and upon authority, as also the purpose of the legislation and the absurdity of the consequences to which a literal interpretation would lead, that the language of s 2 does not really express the intention of the Legislature. Construing the provision literally would place transactions of the kind encountered here beyond the reach of the Constitution and the Procurement Laws. That could plainly not have been what the Legislature intended.

[70] Indeed, it has been recognised that

‘[w]here the main object and intention of a statute are clear from the title, preamble, or otherwise, it should not be reduced to a nullity by a literal following of language, which may be due to want of skill or knowledge on the part of a draftsman, unless such language is intractable’.

Halsbury’s Laws of England points out that:

‘Although, as a rule, it is not permissible to supply omissions in a statute, even though they are evidently unintentional, it may be possible in certain circumstances:—
(1) To treat as rectified obvious misprints;
(2) To reject words or phrases as surplusage;
(3) To supply omitted words or expressions;
(4) To substitute one word for another;
(5) To read negative words as affirmative, or affirmative as negative; disjunctive as conjunctive, and vice versa;
(6) To put upon words a sense possible but not usually attributable to them;
(7) To expand their literal meaning. (Footnotes omitted.)’

After all, a court should presume that the legislature intended common sense to be used in construing an enactment.

[71] Interpretation is a far from academic exercise. ‘It is directed to a particular statute, enacted at a particular time, to address (almost invariably) a particular problem or mischief’ (see R (Quintavalle) v Secretary of State for Health).

The pendulum has swung towards purposive methods of construction.

In Quintavalle, Lord Bingham of Cornhill stated the position as follows:

‘Such is the skill of parliamentary draftsmen that most statutory enactments are expressed in language which is clear and unambiguous and gives rise to no serious controversy. But these are not the provisions which reach the courts, or at any rate the appellate courts. Where parties expend substantial resources arguing about the effect of a statutory provision it is usually because the provision is, or is said to be, capable of bearing two or more different meanings, or to be of doubtful application to the particular case which has now arisen, perhaps because the statutory language is said to be inapt to apply to it, sometimes because the situation which has arisen is one which the draftsman could not have foreseen and for which he has accordingly made no express provision.
The basic task of the court is to ascertain and give effect to the true meaning of what Parliament has said in the enactment to be construed. But that is not to say that attention should be confined and a literal interpretation given to the particular provisions which give rise to difficulty. Such an approach not only encourages immense prolixity in drafting, since the draftsman will feel obliged to provide expressly for every contingency which may possibly arise.

It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute.

Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.’

[72] In R v Z, Lord Woolf observed: [t]he proper approach, in my view, has been admirably expressed in terms upon which I could not improve by Lord Bingham of Cornhill in . . . Quintavalle.

As Lord Carswell put it in that matter:

‘If the words of a statutory provision, when construed in a literalist fashion, produce a meaning which is manifestly contrary to the intention which one may readily impute to Parliament, when having regard to the historical context and the mischief, then it is not merely legitimate but desirable that they should be construed in the light of the purpose of the legislature in enacting the provision . . . .’

When this is done there can be no doubt that any other interpretation to that postulated by me in this case would be absurd.

[73] It follows that the high court’s core conclusion that the RFB breached s 217 of the Constitution and the PP Act cannot be faulted. Given ACSA’s approach that s 217 of the Constitution and the PP Act were simply inapplicable to the RFB, that conclusion is dispositive of the appeal against it. I thus deem it unnecessary to consider the remaining grounds that were also held to be decisive against ACSA. In the result, like Molemela JA, I too would dismiss the appeal with costs, including those occasioned by the employment of two counsel.

Order

[74] The appeal is dismissed with costs, including the costs occasioned by the employment of two counsel.

“Procurement by organ of state – whether s 217 of the Constitution is applicable to Request for Bids (RFB) for the granting of car rental concessions – Language used in s 217 is clear and unambiguous – s 217 applicable when organ of state contracts for goods or services even where organ of state is not incurring an expenditure – preferential procurement policy reflected in RFB bears no relation to requirements of legislation envisaged in s 217(3) – non-compliance rendering RFB irrational, unlawful and invalid.”