The Special Investigating Unit (SIU) has failed in its attempt to recoup more than R92m paid by the Amahlathi local municipality in the Eastern Cape to businessman Mcebisi Mlonzi.

The high court in Makhanda this week dismissed the SIU’s application to declare unlawful and void a hire-purchase agreement entered into in April 2014 between Mlonzi’s company, Kwane Capital, and the municipality.

The matter stems from the multimillion-rand contract awarded to Kwane Capital for the lease of heavy plant and equipment to the municipality for three years. The contract was awarded without going through the competitive bid process, but went through as a deviation.

An SIU investigation found Kwane Capital did not own the plant and equipment but was leasing it from Barloworld. The SIU ordered the municipality to cancel the contract and return the machinery to Mlonzi.

It was the SIU’s case that Mlonzi misrepresented that his company was the owner of the equipment which in fact belonged to Barloworld and Avis.

“I agree with the defendants in that there is overwhelming evidence that it is the plaintiff [SIU] who insisted that the [hire-purchase agreement] be cancelled based on it having been entered into unlawfully as a result of it being in breach of regulation 32,” acting judge of the high court Samson Dunywa said in his judgment.

Dunywa said the evidence of the municipality and Mlonzi’s witnesses indicated the deal was an aid to financially weak municipalities lacking in service delivery.

“In my view, considering all the objectives and the reasons given, the deviation in terms of section 63(1)(b) of the municipal [supply chain management] policy was rational. The procurement was done in accordance with the system which is fair, equitable, transparent, competitive and cost-effective,” Dunywa said.

He said a call for tenders by organs of state was generally regarded as the best way to ensure compliance with principles of section 217 of the constitution. The section says an organ of state must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

Dunywa said organs of state might dispense with official procurement processes and particularly the public tender process through deviation. The supply chain management policy allowed procurement of goods and services from a single or sole supplier through negotiation.