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ESORFRANKI LIMITED - Voluntary SENS statement

Release Date: 06/09/2012 11:16:00      Code(s): ESR       PDF(s):  
Voluntary SENS statement

(Incorporated in the Republic of South Africa)
(Registration number: 1994/000732/06)
JSE code: ESR
(“Esorfranki” or “the company”)


JSE civil engineering and geotechnical group, Esorfranki, wishes to accurately record the
proceedings and judgment issued in the matter of Esorfranki Limited v Mopani District
Municipality and the Tlong Rea Trading SMN Joint Venture (“Joint Venture”), and to
record that the company intends appealing the contradictory findings contained in the
judgement, particularly the decision to allow the Joint Venture to continue with the tender
in spite of the finding, in Esorfranki’s favour, that the tender process was unlawful and
invalid and was to be set aside on this basis as well as the decision to order Esorfranki to
pay its own legal costs despite finding that it was correct to challenge the award of the

In Nov 2010 Esorfranki brought an application to review the award of a tender for a R217
million pipeline contract to the Joint Venture. The Joint Venture’s lead party is a close
corporation registered two weeks after the tender was first advertised. At the date of
submission of the tender, neither the Joint Venture nor either of the parties thereto met the
CIDB grading requirement of 9 CE, one of the conditions of the tender, and accordingly on
this basis alone the Joint Venture’s bid should have been disqualified.

Esorfranki CEO Bernie Krone explains that the group and Cycad Pipelines (Pty) Limited,
another unsuccessful bidder, were surprised by the award of the tender to an unqualified
party whose bid was significantly higher than the lowest compliant bid (Esorfranki’s).
The inescapable conclusion to be drawn from the award of the tender to the Joint Venture
was that the Municipality was biased in favour of the Joint Venture and that there had been
collusion between the Municipality and the Joint Venture. In proving this collusion,
reference was made during the proceedings to the conduct of attorney Mahowa and in
particular to the numerous examples in which he acted for both parties. (Mahowa denied
acting for both parties despite the weight of evidence).

In the judgment delivered on 29 August 2012, Judge Matojane of the North Gauteng High
Court unequivocally found, in favour of Esorfranki, that the Municipality and the Joint
Venture had colluded unlawfully, that the Municipality was biased, that there had been
fraud in the award of the tender and that the award of the tender was unlawful. On this
basis he declared the tender process to have been illegal and invalid and set the process

Despite the unequivocal finding of tender fraud neither the Joint Venture nor the
Municipality received any sanction at all and the Joint Venture is permitted to retain the
tender while Esorfranki is directed to pay its own costs. The failure to sanction either the
Joint Venture or the Municipality sends an unfortunate signal that the courts condone
corruption and tender fraud.

Further Judge Matojane misinterprets settlement discussions between the parties, at the
instance of the Joint Venture and Municipality, as an attempt by Esorfranki to extort a
settlement from the Municipality. In this regard, during the proceedings attorneys
representing the Joint Venture and the Municipality approached Esorfranki’s legal team
and proposed that Esorfranki withdraw its application and enter into a joint venture with
the Joint Venture. Krone points out that by conceding to this request, Esorfranki would
have been condoning tender fraud, and accordingly this proposal was rejected. To prevent
stalling of the discussions and to facilitate an alternative settlement, Esorfranki’s legal
team instead proposed that the Joint Venture relinquish the remaining balance of the tender
to Esorfranki in which case Esorfranki would undertake to not interfere, whether to
promote or discourage, with the pending CIDB enquiry and any possible criminal charges
against the Joint Venture and/or the Municipality. This proposal was rejected.

Krone concludes: “We – Esorfranki - have undertaken to challenge any incidences of
perceived tender corruption, at great expense to the company. We believe that as a major
listed company, we have an ethical and commercial obligation in this regard as this avenue
is not available to smaller companies with fewer resources who are also impacted by this
widespread corruptive influence in our industry.”

Footnote 1
Judge Matojane delivered a similar judgment earlier in the week in an unrelated matter in
which he found a R10 billion government contract to have been unlawfully awarded and
then failed to sanction the guilty parties, who were again permitted to retain the contract.
This judgment will also be appealed.

Vunani Corporate Finance

6 September 2012

Date: 06/09/2012 11:16:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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