Chartered Systems Integration (Private) Limited v Zimbabwe Revenue Authority

### Preamble
Judgment No. SC 142/20
1
Civil Appeal No. SC 110/19
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REPORTABLE 	(132)

CHARTERED     SYSTEMS     INTEGRATION     (PRIVATE)     LIMITED

v

ZIMBABWE     REVENUE     AUTHORITY

SUPREME COURT OF ZIMBABWE

PATEL JA, MAVANGIRA JA & MATHONSI JA

HARARE, 30 MARCH & 12 NOVEMBER 2020

F. Girach, for the appellant

S. Bhebhe, for the respondent

PATEL JA:		This is an appeal against the judgment of the High Court granting absolution from the instance with costs in favour of the respondent. The appellant had issued summons against the respondent claiming the sum of US$5,348,887.75 together with interest at the rate of 15 per cent per annum and costs on a legal practitioner and client scale. The claim was in respect of the development, implementation and integration of a Zimbabwe Revenue Authority Online Payment System (ZOPS) in various banks in the country. The appellant averred that it rendered these services to the respondent pursuant to a tacit contract concluded and implemented from 2011.

The respondent pleaded prescription of all claims arising before 2013. On the merits, it disputed the alleged tacit contract. It further averred that, in any event, the alleged contract was illegal and unenforceable by virtue of the failure to comply with the Revenue Authority Act and the Procurement Act.

Judgment of the High Court

The court a quo found that at the end of the appellant’s case there was no documentary or other evidence that the respondent’s Board had deliberated upon and resolved to procure the appellant’s services, contrary to the requirements of the Revenue Authority Act. Moreover, there was no evidence of compliance with ss 30 and 32 of the Procurement Act. The appellant had either snatched a contract without following an open competitive bidding process or it had been paid in full for the online system by the 14 banks involved. The appellant could not explain why it had persisted with the transaction that was apparently predicated on corruption. The emails and correspondence produced by the appellant revealed that the respondent never accepted any contract with the appellant. Furthermore, from 2011 to 2016 there was no written communication acknowledging liability to the appellant.

The court held that the law should be applied in a manner which promotes and protects transparency, accountability and probity as entrenched in the Constitution. Section 22 of the Revenue Authority Act stipulated that all contracts needed the prior approval of the respondent’s Board in order to be valid. Additionally, since the respondent was a procuring entity, it had to comply with the mandatory provisions of ss 30 and 32 of the Procurement Act which regulated the procurement of services by the respondent.

The court found that, if the appellant had rendered any services at all, that would have been in collusion under a corrupt scheme with an official who was on a frolic of his own in demanding a bribe. The appellant’s director knew that a valid contract could only be concluded by the respondent’s Board. The procurement procedure to be followed by the respondent was governed by a clear legal framework and the court had no discretion to condone the blatant subversion of the law. Allowing a State agency to be bound by a contract in flagrant and corrupt disregard of clear legislative provisions would amount to dereliction of duty by the court.

The court found it curious that the appellant would implement such a huge project without any written agreement. The dealings between the appellant’s director and the respondent’s officials were not intended to be transparent. The online payment system facilitated the transfer of funds from taxpayers’ bank accounts to the respondent’s bank accounts. It was therefore reasonable to infer that the appellant intended to engage in double dipping by claiming payment from the respondent for a service already paid for by the banks.

According to the appellant’s evidence, the respondent’s official was only going to facilitate a written contract after receiving a bribe. The bribe was never paid and so the official declined to assist. The court found that the facts did not point to any agreement between the parties and that no written contract was ever signed. The appellant had failed to establish a prima facie case.  There was no likelihood that the court would make a mistake and give effect to an illegal contract tainted by corruption. The court’s findings on the illegality of the contract, even if it were shown to exist, and its consequent unenforceability would not change if the respondent was called upon to testify. In the result, the court granted absolution from the instance with costs in favour of the respondent.

Grounds of appeal

The grounds of appeal noted by the appellant are unduly repetitive and far from being concise. They are also very argumentative. This was conceded as much by counsel for the appellant at the hearing of the matter. In any event, they may be aptly summarised as raising the following three issues:

Whether the appellant had established a prima facie case for a tacit contract on the pleadings and on the evidence adduced at the trial.

Whether the alleged tacit contract was illegal for non-compliance with the governing legislation and consequently null and void and therefore unenforceable in its entirety.

Whether the respondent had been unjustly enriched at the appellant’s expense through the implementation and operation of ZOPS and whether the appellant was consequently entitled to compensation.

Conclusion of alleged tacit contract

Mr Girach, for the appellant, submits that there is clear evidence of a tacit contract between the parties. The appellant’s witness testified that since the appellant was the only entity with the necessary experience to be able to provide the services in question the contract was never subjected to competitive bidding, and that the respondent had or was going to apply for an exemption from the tendering process. Therefore, the respondent should have been called upon to explain its position, as there can be no onus on a service provider to ensure that the law is complied with.

Mr Bhebhe, for the respondent, submits that the appellant alleged the existence of a tacit contract but failed to show that there was any such contract. Furthermore, the appellant’s witness confirmed that a bribe was demanded by the respondent’s official but was declined. The witness also confirmed that no written contract was ever concluded because the appellant refused to give the official in question 25 per cent equity in the appellant company. As regards the alleged exemption from tender procedures, Mr Bhebhe submits that this was not part of the appellant’s case when it was instituted and cannot be relied upon to support its case.

Turning to the record, the fact that statutory procurement requirements were not complied with was raised at the outset in the respondent’s plea, filed on 15 February 2017. In its replication, filed on 26 May 2017, the appellant did not deal with or deny the averment that the law had not been complied with. Instead, the appellant asserted that the regularity or otherwise of the respondent’s internal processes did not affect the validity of the contract and that it genuinely believed that all the internal requirements had been complied with. However, nothing at all was mentioned in its replication about the alleged exemption from compliance with procurement laws. Again, in its summary of evidence, filed on 26 May 2017, nothing is stated as regards non-compliance with the law and there is no denial that the law was not complied with. Very significantly, there is no reference to any alleged exemption from procurement procedures.

Turning to the evidence adduced at the trial, the appellant’s witness did not deny and actually admitted that the competitive tender process was not followed. Critically, in his evidence-in-chief, the witness did not mention the question of any exemption from the tender process. He only raised it for the first time, very belatedly, under cross -examination.

It is abundantly clear from the appellant’s pleadings and testimony that it was fully aware and openly admitted that the law governing procurement by public entities had not been complied with. Its assertion of some specious exemption to be sought and obtained by the respondent was obviously fabricated as an afterthought and was quite correctly rejected by the court a quo. Equally importantly, the court very properly found that, at the end of the appellant’s case, there was no documentary or other evidence to demonstrate or substantiate any agreement, whether express or tacit, that was concluded between the parties. The findings of the court in this respect are unassailable and the appellant has failed to establish any misdirection warranting interference by this Court. The court a quo cannot be faulted for concluding that the appellant had failed to establish a prima facie case for any tacit contract between the parties. This conclusion is soundly supported by the pleadings filed of record and is amply buttressed by the evidence adduced at the trial.

Enforceability of illegal contract

For the sake of completeness, before dealing with the question of unjust enrichment, it is necessary to consider and address the enforceability of the alleged tacit contract relied upon by the appellant.

Mr Girach refers to s (5)4 of the Procurement Regulations of 2002, which provides for exemptions from tender requirements. He submits that each transaction in casu with each bank was invoiced separately and, consequently, each transaction fell within the range of exemption. If the respondent’s position is that the transactions did not qualify for exemption, it should be called upon to give its evidence on the point. Furthermore, the question of exemption was left to the respondent and was not the appellant’s responsibility. It is the respondent that should have provided the evidence of alleged illegality.

Mr Girach further submits that the respondent, as a corporate entity, is not immune from the so-called indoor management rule. Thus, the appellant was entitled to assume that everything was in order and that all that needed to be done had in fact been done. The respondent’s Board must have been aware of the arrangement, particularly as its directors attended a function at which the appellant’s director was given an award for the project work. Again, the respondent should have been asked to explain its position in this respect.

Mr Bhebhe counters by relying on the decision in PMA Real Estate Agency (Pvt) Ltd v ARDA 2011 (2) ZLR 355 (H). He submits that whatever hardship might befall persons dealing with a State entity, it is paramount that State monies be safeguarded. Consequently, the Turquand rule cannot apply to allow any admission of the indoor management rule so as to circumvent any statute. Since the alleged contract in casu was a nullity, there was no need for the respondent to be called to give evidence before the court a quo.

As was correctly observed by the court a quo, the procurement of services by the respondent during the period in question was regulated by the Procurement Act [Chapter 22:14] (now repealed and replaced). The respondent, being a procuring entity as defined in the Act, was enjoined to comply with the peremptory provisions of ss 30 and 32 of the Act. Section 32 contained detailed mandatory provisions governing the procurement of services. Even more detailed tender procedures were elaborated in the Procurement Regulations 2002, S.I. 171 of 2002 (also now repealed and replaced). Part II of the Regulations governed the invitation of tenders. Of particular relevance in the instant case is s 5 which regulated supplies not required to be tendered for by the State Procurement Board.

In terms of s 5(3), a procuring entity was allowed to purchase goods, construction works or services without calling for tenders where it considered that it would not be in the public interest to call for tenders in respect of a particular supply. However, by virtue of s 5(4), any such purchase was subject to the prior approval of the State Procurement Board or its Chairman, depending upon the estimated value of the supply in question. The approval of the Chairman, after consultation with at least three members of the Board, was required where the estimated value of the supply exceeded US$ 10,000.00 or its equivalent, while the approval of the full Board was necessary where the estimated value of the supply exceeded US$ 50,000.00 or its equivalent. In either situation, it was incumbent upon the procuring entity to furnish full written reasons why it would not be in the public interest to call for tenders. In any event, where approval to procure supplies in terms of s 5(4) was denied, s 5(5) made it compulsory for the procuring entity concerned to follow normal tender procedures.

In casu, the appellant submitted 6 separate invoices for services rendered for payment by the respondent. These invoices covered the period from 2011 to 2016 and tallied with the total amount claimed by the appellant. Each invoice exceeded the threshold of US$ 50,000.00 prescribed by s 5(4) of the 2002 Regulations. Consequently, payment by the respondent to discharge any one or more or all of the invoiced amounts would have necessitated the prior approval of the State Procurement Board in order to obviate the requirement to invite tenders for the supply of the services in question. Such approval was obviously the “exemption” that the appellant contends should have been sought and obtained by the respondent.

In my view, the position advanced on behalf of the appellant is riddled with several fundamental fallacies. Firstly, it presupposes that it would not have been in the public interest to call for tenders, that the respondent considered that to be the case and, very critically, that the State Procurement Board would have agreed with that position before granting the requisite approval. Secondly, it assumes that the Board’s approval could have been sought and granted at any time, even long after the supposed tacit contract had been negotiated and concluded between the parties. That is manifestly not what was contemplated by s 5(4) of the Regulations. It would have been necessary for the respondent to have obtained the prior formal approval of the Board, as an essential antecedent to the conclusion of any contract with the appellant for the purchase and supply of its services. Thus, even if it were to be established and accepted that the respondent had undertaken to seek and obtain the so-called “exemption” from tender procedures, which undertaking the appellant has clearly failed to establish, its spurious reliance on the supposed tacit contract with the respondent is evidently misconceived and misplaced.

As regards the illegality of the alleged tacit contract, the court a quo relied upon ss 30 and 32 of the former Procurement Act. Section 30(1)(b) stipulated that “the procurement of … services by a procuring entity shall be done by a method which complies with section thirty-two”. Section 30(1) set out the general proceedings to be followed in the procurement of services. In terms of s 32(2), “a procuring entity shall conduct all proceedings for the procurement of a service in accordance with procurement regulations”. Section 33 empowered the responsible Minister to frame procurement regulations “providing for all matters relating to procurement by procuring entities”. The regulations so framed were the Procurement Regulations of 2002, including section 5 thereof, which I have referred to and elaborated above.

I have already concluded that the alleged tacit contract relied upon by the appellant would have been in contravention of the former Procurement Act and Regulations. However, the precise legal consequences of such non-compliance were not spelt out in that legislation. In this regard, it is pertinent to refer to the principles expounded in the PMA Real Estate Agency case, supra, at 364F-366C. It is convenient and necessary to cite the relevant passages in extenso:

“There can be no doubt that the provisions of sections 30, 31 and 32 of the 	Act are couched in peremptory terms and that compliance with them, as well as the 	Regulations, is intended to be mandatory rather than merely directory. However, 	the Act does not explicate the legal consequences of any failure to so comply. 	Generally speaking, the validity of contracts in breach of statute depends upon the 	expressed or implied intention of the 	Legislature as manifested in the statute in 	question. Where nullity is not explicitly declared, it may be inferred from other 	features of the statute. These 	may include the express prohibition of conduct in 	breach of the statute and/or the criminalisation of such conduct. As I have explained 	above, the Procurement Act and Regulations are imperfectly drafted in this 	respect.

In any event, the position of contracts involving the State is somewhat 	special. The scope of a State servant’s authority is more often than not 	determined by statutory provisions and the requirements of the statute or 	regulations concerned must be complied with. If such requirements are 	mandatory, any contract made in breach of them is invalid and unenforceable. This 	follows from the proposition that no State servant has the authority to circumvent 	or dispense with the requirements of a statute. To recognise or enforce any such 	contract would operate to render the 	applicable enactment nugatory. See Hogg: 	Liability of the Crown, at p. 125, and the authorities cited by Smith J in Foroma v 	Minister of Public Construction and National Housing & Another 1997 (1) ZLR 	447 (H) at 460-463.

It might of course be argued, by analogy with company law, that private 	individuals and entities dealing with the State are entitled to assume that the 	functionaries in question have duly complied with the prescribed formalities. As 	against this, however, is the crucial consideration that any hardship which might 	befall persons contracting with the State is outweighed by the public interest in 	safeguarding State property and public moneys. See Collector of Customs v Cape 	Central Railways Ltd (1888) 6 SC 402, cited with approval in Foroma’s case, at 	461-463. Indeed, it may even be justified in this context to invoke the argument that 	contracts in breach of 	statute, being inimical to the interests of the State as well as 	the community at large, should be declared contrary to public policy and therefore 	unenforceable. See Foroma’s case, at 465-466. If contracts made in material 	breach of statute were to be recognised and enforced, the unavoidable result would 	be to frustrate and defeat an explicit injunction of the Legislature. Apart from 	repudiating such contracts, the only other remedy available to the State would be 	to discipline and/or surcharge the culpable official or officials concerned. But this 	would be wholly ineffective and futile where financially sizeable contracts are 	involved.

I would also add that a contract in breach of statute cannot be retrospectively 	ratified or otherwise validated. This is so for two very cogent reasons. Firstly, the 	law does not countenance the ratification of a contract or transaction which, being 	contrary to statute, is null and void ab initio. See Cape Dairy and General Livestock 	Auctioneers v Sim 1924 AD 167, at 170. Secondly, the Executive is not at liberty 	to waive or renounce a peremptory statutory obligation imposed by the Legislature 	for the 	protection of State property and public moneys. See Ritch and Bhyat v 	Union 	Government (Minister of Justice) 1912 AD 719, at 735, and SAR&H v 	Transvaal Consolidated Land and Exploration Co. Ltd. 1961 (2) SA 467, at 481, 	followed in Foroma’s case, at 464-465.

In the premises, I am of the view that the contract under consideration, 	inasmuch as it was concluded in breach of the prescribed requirements, is invalid 	and unenforceable for contravention of sections 30 and 32 of the Procurement Act. 	As a general rule, it is trite that a contract which is null and void ab initio is illegal 	and therefore unenforceable. See Foroma’s case, at 467; Mega Pak Zimbabwe (Pvt) 	Ltd v Global Technologies Central Africa (Pvt) Ltd HH 84-2008; Gambiza v Taziva 	HH 109-2008. The same conclusion must follow in the present case.”

Applying the principles enunciated above, there can be no doubt whatsoever that the alleged tacit contract in casu, even if it were to be proven, would be patently illegal and void ab initio, and therefore unenforceable in its entirety. This is so notwithstanding the erroneous attempt to invoke the indoor management rule which clearly cannot be applied to validate or enforce an illegal contract involving any State entity.

Compensation for unjust enrichment

Mr Girach submits that the appellant put into place a system that effectively revolutionised the tax payment system and facilitated the payment, receipt and accounting of taxes, not only for the benefit of taxpayers but also from the vantage point of the respondent. He further contends that the evidence adduced showed that it was not Microsoft that installed the system, as alleged by the respondent, but the appellant itself operating as an independent contractor. It was the appellant who carried out the entire ZOPS project and who was publicly acclaimed for having done so. This was a clear case of unjust enrichment which the respondent should have been called upon to answer.

Mr Bhebhe counters that the alleged transaction was null and void and therefore unenforceable. The appellant cannot be allowed to circumvent statute through a claim of unjust enrichment. Mr Girach initially responded by arguing that an action for unjust enrichment can be sustained even in the case of a patently illegal contract. However, following an exchange with the Court, he eventually conceded that a contract that violates statute to the prejudice of the fiscus cannot be enforced.

I am in total agreement with the position taken and accepted by both counsel. Even if the appellant were to succeed in establishing the requisites of a claim for unjust enrichment, this would not serve to avail its quest for compensation from the respondent. Having regard to the decision in the PMA Real Estate Agency case, supra, and the authorities cited in that case, I have no hesitation in concluding that a claim contra fiscum, predicated on a transaction in arrant contravention of peremptory statutory provisions, cannot be enforced under any circumstances. In short, no valid cause of action, whether founded in contract or on unjust enrichment, can possibly arise from such patent illegality.

Disposition

In the result, the appeal cannot be sustained on any of the noted grounds of appeal. It must accordingly be dismissed. As for costs, they should in the normal course of events follow the cause.

It is accordingly ordered that the appeal be and is hereby dismissed with costs.

MAVANGIRA JA		:		I agree

MATHONSI JA		:		I agree

Venturas & Samukange, appellant’s legal practitioners

Kantor & Immerman, respondent’s legal practitioners