CC: TEL NO: 315 1415

FROM: DEPUTY CHIEF STATE LAW DATE: 04 DECEMBER 2002

AVISOR

_________________________________________________________________________

1. The Portfolio Committee on Justice and Constitutional Development ("the Committee") would like to include a provision on the blacklisting of persons who contravene tender procedures, in the Prevention of Corruption Bill and requests our opinion on the following:
1. Whether or not it is possible to create a blacklist in respect of persons who are found guilty of contravening the proposed legislation, especially tender procedures;
2. if it were possible to create such a blacklist, what the constitutional implications thereof would be;
3. whether it would be possible to couple a blacklisting to any other sentence or whether such a blacklisting could only be used independently of any other sentence; and
4. in the event of a company being blacklisted, whether it would be possible to prevent any person, such as a director who was affiliated with the company at the time of that company’s blacklisting, from creating a new company and/or trading under a new name so as to circumvent the blacklisting.
2. The purpose of the Prevention of Corruption Bill is to combat and prevent corruption in general and in particular corruption relating to the rendering of services to the State through the tender system by individuals and companies. Where acts of corruption are committed in this regard by either employees of the State or those tendering, this constitutes a punishable offence in terms of the Bill. The Committee proposes that where a person tendering is guilty of such an offence, such a person or company should be blacklisted. We were not able to find a definition of the word "blacklist" in any statute, but according to the Collins English Dictionary the word "blacklist" means "a list of persons or organizations under suspicion or considered untrustworthy, disloyal etc., esp. one compiled by a government or organization. To blacklist is to put on a blacklist". The effect and consequence of blacklisting such persons is therefore that their tenders to supply goods or services to government may no longer be considered or they will be denied the opportunity to tender.
3. It is our opinion that the answers to questions (a), (c) and (d) depend on the answer to question (b), which is concerned with whether or not blacklisting is constitutionally permissible in this case. It is therefore possible to start with question (b).

Ad Question (b):

As already indicated the effect and consequence of a blacklisting is that the person blacklisted may no longer participate in the tender system. This clearly has implications for the person’s ability to earn a living and therefore impacts on the person’s right to freely choose a trade, occupation or profession in terms of section 22 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996)("the Constitution"). This impact is such that the enjoyment of the right is restricted. The question is whether or not such restriction is constitutional. This requires a consideration of the nature and scope of the right. Section 22 of the Constitution provides as follows:

"Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law."

Section 22 replaced Section 26 of the Constitution of the Republic of South Africa, 1993 (Act No. 200 of 1993)("the Interim Constitution"). While section 26 protected the right to freely engage in economic activity and to pursue a livelihood anywhere in the national territory, section 22 of the Constitution protects the right of the citizens to choose their trade, occupation or profession freely. J. de Waal, I. Currie and G. Erasmus "The Bill of Rights Handbook" 2^nd ed. 1999 at p369 state the following in this regard: "Although s22 does not expressly mention the freedom ‘to pursue a livelihood’…this aspect is, by implication, included within the scope of s22. From the point of view of the individual, occupational freedom is a crucial element of individual autonomy and constitutes the basis for the exercise of other rights and freedoms. It is therefore more than a right to provide materially for oneself, but is aimed at enabling individuals to live profitable, dignified and fulfilling lives." According to the authors the right to freely choose an occupation includes the right to earn a living practicing such a trade, occupation or profession. In this regard the authors are of the opinion that section 22 must be interpreted to mean that both the choice and practice of an occupation may be regulated by law (at p371). At p374 they state that: "Section 22 prohibits the state from regulating the practice of an occupation, trade or profession other than by law. Such a law would have to be rationally related to a legitimate objective. The regulation may, in other words, not be arbitrary."

5. It appears that the right in section 22 is already limited in scope. (See De Waal et al (supra) from p160 to 162). It is therefore by nature a restricted right in that while every citizen is free to choose an occupation, trade or profession, the law, in the public interest, determines the requirements for entering that trade or profession and the practice thereof. In S v Lawrence, S v Negal and S v Solberg 1997 (4) SA 1176 (CC) the court dealing with section 26 of the Interim Constitution stated the following in paragraph [33]:

"[33] Certain occupations call for particular qualifications prescribed by law and one of the constraints of the economics sphere is that persons who lack such qualifications may not engage in such occupations. For instance, nobody is entitled to practice as a doctor or lawyer unless he or she holds the prescribed qualifications, and the right to engage ‘freely’ in economic activity should not construed as entitling persons to ignored legislation regulating the manner in which particular activities have to conducted, provided always that such regulations are not arbitrary. Arbitrariness is inconsistent with ‘values which underlie an open and democratic society based on freedom and equality’, and arbitrary restrictions would not pass constitutional scrutiny."

6. The regulation of a practice of a trade, occupation or profession also implies that the law also determines when a person may be disqualified from practicing a trade, occupation or profession. The disqualification of a person from practicing a trade or profession is not considered unconstitutional if it done in terms of the law. In Law Society of the Transvaal v Machaka and Others (No 2) 1998 (4) SA 413 (t) the court, dealing with the matters relating to an application for the removal of respondent attorneys from the roll after they were found guilty of contravening the law relating to the ethics of the profession, held that "the respondent attorneys had exercise their rights under the Constitution by freely choosing their occupation and profession. However the Constitution did not provide that a person might abuse a right enshrined in the Constitution." The court also stated that "the rights guaranteed by the Constitution were not unlimited and had not deprived the community of the right to demand that standards be set for professions, not only relating to competence but also with regard to unimpeachable integrity." (See also Prokureursorde Van Transvaal v Kleynhans 1995 (1) SA 839 (T)).

 

7. The tender system is regulated by law (See section 4 of the State Tender Board Act, 1968 (Act No. 86 of 1968). Section 217 (1) of the Constitution requires that when an organ of state contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. (See Olitzki Property Holdings v State Tender Board and Another 2001 (3) SA 1247 (SCA) and Goodman Bros (Pty) Ltd v Transnet Ltd 1998 (4) SA 989 (W)). The various laws regulating the choice and practice of trades, occupations or professions are intended to maintain then highest possible standards of competence and integrity by persons participating in such trades, occupations or professions. Corruption committed by a person practicing such trade or profession while tendering for services to the State, not only violates laws regulating his or her trade or profession, but also violates and undermines the fairness, equitability, transparency, competitiveness and cost-effectiveness of the tender system as required by section 217 (1) of the Constitution.
8. It is our opinion that the same standards of competence and integrity expected of persons or companies when rendering services or supplying goods to ordinary people in the ordinary way, must be expected and enforced when such persons or companies render them or supply goods to the State in terms of the Tender system. In view of the restricted nature of the right in section 22 of the Constitution, a person who contravenes the various laws regulating the practice of his or her trade, occupation or profession e.g by committing an act of corruption in relation to the tender system may not, when he or she is penalized as a result, complain that his or her right to earn a livelihood or to choose and practice his or her trade or profession is being violated. Both section 217 (1) of the Constitution and laws relating to the prevention of corruption are intended to ensure the integrity and fairness of the tendering system and contravention of these laws therefore undermines the integrity and fairness of the process.
9. It is our opinion therefore that the blacklisting of a person or company found guilty of corruption relating to the tender system will not constitute a violation of section 22 of the Constitution because, although it is done in terms of a separate law, such blacklisting is, in our opinion, analogous to a law regulating the practice of a trade, occupation or profession.
10. Ad Question (a):

 

For the reasons stated it is our opinion that a blacklist of persons guilty of contravening the Bill in relation to the tender system may be created. Such persons must first have been convicted of contravening the relevant provisions of the Bill. It is debatable whether the power to blacklist should be given to the courts or to an administrative body, blacklisting will constitute administrative action and section 33 of the Constitution and Promotion of Administrative Justice Act (Act No.3 of 2000)("the Administrative Justice Act") will have to be complied with. The blacklisting will have to be lawful (in other words it has to take place in terms of law e.g the Bill), reasonable (the circumstances of each case have to be considered, it should not be automatic) and procedurally fair (if possible a procedure should be established to ensure that where possible a hearing, a review and appeal procedure). The requirement of complying with the Administrative Justice Act is to ensure that a blacklisting is not done arbitrarily. (See the quote from S v Lawrence, S v Negal and S v Solberg (above).) Alternatively a blacklisting can be imposed by the court sentencing the accused. It is our opinion that the blacklisting and the period thereof should be in the discretion of the court, depending on the circumstances of each case.

 

 

 

 

 

11. Ad Question (c):

In the light of our remarks with regard to question (a) it is our opinion that a blacklist can be created but blacklisting should be discretionary and be separate from the sentence for the offence of corruption as determined by the court.

12. Ad Question (d):

1. De Waal et al (supra) at p368 to 369 are of the opinion that the right to freely choose a trade, occupation or profession can also be claimed by juristic persons. However in City of Cape Town v Ad Outpost (Pty) Ltd and Others 2000 (2) South Africa 733 (C) the court held that the right is only available to natural persons and not to corporations. It is our opinion that both companies and individuals can and should be blacklisted because if blacklisting were to be limited only to individuals this would defeat the object of the Bill since most economic activity or the tendering for services or the supply of goods is conducted by or done through companies. The purpose of the blacklist should be to prevent the company or the individual , which or who has been convicted, from participating in the tender system and not to prevent such individual from establishing a company for other purposes, provided that the individual complies with the applicable laws.
2. The problem in this instance concerns the identification of a person who, having been previously associated with or affiliated to a blacklisted company, establishes another company in order to circumvent the blacklisting. It is a principle of our law that a company has a separate personality from that of its shareholders and directors. The rationale for this principle is inter alia to protect the assets of companies from being used to pay debts owed by directors in their personal capacity. However in certain instances the courts have been prepared to "lift the corporate veil" especially where it is used to shield fraudulent activities by directors. The court in Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1993 (2) South Africa 784 (C) said the following with regard to this principle: "Companies are generally recognised as legal entities separate from their shareholders, officers and directors. Corporate obligations remain the liability of the entity and not of the shareholders, directors of officers who own and/or act for the entity". On the other hand a company acts through its directors or officers. With regard to ‘piercing or lifting the corporate veil’ the court stated: "Piercing the corporate veil" refers to the judicially imposed exception to this principle by which Courts disregard the separateness of the corporation and its stake-holder or controller responsible for the corporation’s action as it were the stake-holder’s own’." It is our opinion that, where necessary, an application can be made to court to ‘pierce the corporate veil’ of a company that is suspected to be owned by a person previously affiliated to a blacklisted company, in order to establish such ownership and to enforce the blacklisting against such person and company. In Cape Pacific Ltd (supra) the court also referred to the unwillingness of courts to readily pierce the corporate veil of companies. But where the application is, in the opinion of the court justified, it should be granted.