Cape Town – Electrical installation service provider Namasthethu Electrical has lost its appeal in the Supreme Court of Appeal (SCA) after the City terminated its contract once it found out the company’s directors had been guilty of fraud and had misrepresented themselves to secure a R29 million tender.
The SCA on Monday handed down judgment in the appeal against
an order of the Western Cape High Court, which found that the contract had been induced by fraudulent
misrepresentations by Namasthethu, and a dispute resolution clause in
the contract did not survive the
termination of the agreement for fraud.
Namasthethu was awarded a tender in 2014 for the supply, retrofitting
and installation of energy efficient luminaries at the Cape Town Civic Centre.
Less than a month later, the City’s decision was challenged by one of the unsuccessful bidders through an internal appeal, where it claimed that Namasthethu and its directors, Ravan Chetty and his wife, Shamla Chetty, had been convicted of fraud and corruption in 2013.
The City subsequently instructed the Forensics, Ethics and Integrity Department to investigate the allegations against Namasthethu, later confirming them.
The City was provided with information from the Construction Industry Development Board
which indicated that Namasthethu and/or its directors had been found guilty and sentenced.
Chetty had answered “no” in tender application documents asking whether the tenderer or any of its directors had been convicted by a court of law for fraud or corruption during the past five years.
Namasthethu also indicated a local business address in Maitland in the tender bid, which was later discovered to be false.
The City subsequently terminated the contract, while Namasthethu proceeded to approach the Association of Arbitrators Southern Africa,
which then appointed a construction consultant and surveyor as an adjudicator.
The SCA held that the City and other State entities were entitled to be concerned about the integrity of company directors with whom they envisaged doing business.
It found this to be the reason
that the tender documents required answers to questions about convictions relating to fraud and corrupt activities.
It agreed with the finding of the High Court that all of the requirements of a fraudulent misrepresentation had been met, which rendered the contract voidable.
“Our courts have repeatedly recognised the widespread nature of fraud and corruption, and its corrosive effect on society.
“I am in agreement with counsel for the City that a punitive costs order on appeal is equally justified,” the judgment read.
The appeal was dismissed with costs.
Namasthethu did not respond to requests for comment.
City spokesperson Luthando Tyhalibongo said: “This judgment was found in favour of the City. The contract was indeed lawfully terminated.”