Judgment : 04 March 2004

BLIGNAULT J:

[1] First and second applicants brought this application on notice of motion for an order reviewing and setting aside the decision of second respondent, taken in January 2000, to enter into foreign loan agreements in order to finance the purchase of frigates and submarines from Germany, fighter aircraft from Sweden, fighter trainer aircraft from the United Kingdom and helicopters from Italy (referred to in the papers as the arms deal) and declaring the arms deal to be of no force and effect. In their notice of motion they seek the following relief:

"1. Reviewing, correcting and setting aside the decision of the Second Respondent made in and during January 2000 to enter into foreign loan agreements and export guarantees in respect of frigates and submarines from Germany; Gripen fighter aircraft from Sweden; Hawk fighter trainer aircraft from the United Kingdom; and utility helicopters from Italy;

2. Declaring the decision to be null and void and of no force and effect in consequence of the invalidity of such decision;

3. Declaring the armaments acquisition programme ("the Arms Deal") to be null and void and of no force and effect in consequence of the invalidity of the foreign loan agreements and export guarantees;

4. Ordering only Second Respondent together with those further Respondents who oppose this application to pay Applicants' costs of suit, jointly and severally, one paying the other to be absolved, such costs to include the costs of two Counsel." APPLICANTS' FOUNDING AFFIDAVIT

[2] First applicant is described in the founding affidavit as Economists Allied for Arms Reduction, South Africa ("ECAAR SOUTH AFRICA"), the South African affiliate of Economists Allied for Arms Reduction ("ECAAR"), an international non-governmental organization with consultative status to the United Nations Economic and Social Council. ECAAR, it is alleged, has, since 1989, campaigned against high military spending and military approaches to conflict resolution, and for peaceful and sustainable development and investment in human welfare world-wide. Second applicant, Mr Terry Crawford-Browne, is a retired international banker, formerly employed, inter alia, as regional treasury manager for the Western Cape until 1986. His international banking experience includes foreign exchange dealing in the United States and Britain. He resides at 3B Alpine Mews, High Cape, Cape Town. That is also the principal place of business of first applicant.

[3] Second applicant deposed to the founding affidavit on behalf of both applicants. First applicant, he said, brought the application acting in its own interest, in the interest of ECAAR SOUTH AFRICA as contemplated in section 38(c) of the Constitution of the Republic of South Africa, Act 108 of 1996 ("the Constitution"), in the public interest as contemplated in section 38(d) of the Constitution and as an association acting in the interests of its members as contemplated in section 38(e) of the Constitution. Second applicant, he said, brought the application in his personal capacity and as a member of ECAAR SOUTH AFRICA and the class of all poor persons in South Africa as contemplated in section 38(c) of the Constitution and in the public interest as contemplated in section 38(d) of the Constitution.

[4] First respondent is the President of the Republic of South Africa. He is cited as a member of the Cabinet, and as the Head of State, and as the Head of the National Executive in terms of section 83(a) of the Constitution. Second respondent is the Minister of Finance. He is the Cabinet member responsible for entering into the financial transactions in question on behalf of the Republic of South Africa. Third respondent is the National Government of the Republic of South Africa, constituted in terms of section 40(1) of the Constitution. Fourth respondent is the Speaker of Parliament, who is cited in her capacity as such. Fifth respondent is the Public Protector appointed in accordance with section 182, read with section 181(1)(a), of the Constitution. Sixth respondent is the National Director of Public Prosecutions appointed in terms of section 179 of the Constitution and seventh respondent is the Auditor-General appointed in terms of section 188, read with section 181(1)(e), of the Constitution. No relief is sought by applicants against fourth, fifth, sixth and seventh respondents. They have been cited as it might be said that they have an interest in the subject matter of the application.

[5] According to second applicant the review application concerns the irrationality and accordingly the unconstitutionality of the South African Government's actions in entering into the various constituent parts of the Arms Deal and specifically the rationality of second respondent's conduct in entering into loan agreements and credit guarantees on 24 January 2000. It also constitutes a challenge to the lawfulness of second respondent's actions in entering into the underlying loan agreements.

[6] Second applicant described the background to the application in his founding affidavit. In 1996 the Department of Defence published a defence white paper. Thereafter the Department carried out a review which culminated in a defence review report. Copies of the defence white paper and defence review report were incorporated in a document called "Defence in a Democracy" that was released by the Government in September 1998. The document contained a number of options and/or recommendations but it did not contain any decisions which simply required implementation. In November 1998 the Department of Defence announced publicly a list of preferred suppliers of armaments and equipment and made clear its intention to proceed to purchase armaments at a cost of approximately R29,8 billion ("the arms acquisition"). Various organizations and persons, including himself, raised the objection at public meetings that the envisaged expenditure could not be justified in light of the fact that South Africa had no discernable enemies and furthermore a clear priority of poverty alleviation. According to second applicant the Government's response to these challenges was to inform the public that the envisaged expenditure of R29,8 billion on armaments would be offset by foreign investments and exports of R110 billion (later reduced to R104 billion); that these offsets would create 64 165 jobs; that the Department of Trade and Industry had from 1997 established offsets as the basis of the Government's industrialization programme, and that the intention was that any Government foreign procurement transaction worth more that US$10 million would be leveraged to fast-track South Africa's industrial development. The public was informed thereafter that affordability studies had been carried out and that these studies supported the notion that the Arms Deal was affordable because it would generate offsets worth R104 billion and create 64165 jobs.

[7] Second applicant pointed out that a team from the Department of Finance ("the affordability team") carried out a study ("the affordability study") which was provided to Cabinet in August 1999. The fact of this study and the content thereof were not made public until the Mail and Guardian newspaper disclosed its existence and content in March 2001. In fact the affordability study contained certain warnings in regard to the proposed transactions. Second applicant summarised the warnings contained in the executive summary of the affordability study as follows: "40.1 Arms procurements are likely to impact (negatively) on expenditure by other Government Departments. Additional expenditure on armaments would cause expenditure to be shifted from other Government departments to Defence.

40.2 The intention of the industrial participation programmes is to offset or mitigate the negative effects of the arms procurements. To the extent that these projects fail to deliver their expected results, the negative economic effect of the procurements will be exacerbated;

40.3 The South African Government is fully exposed to the depreciation of the rand against foreign currencies, which account for about 75 percent of the total purchase amount. There is no effective means of hedging the currency risk inherent in the procurements;

40.4 There is clearly a risk that currency depreciation could be more rapid than anticipated. Any deviations from these assumptions are for the account of the Government, with the obvious implication that the costs of the packages and their financing could be considerably higher than expected;

40.5 The sums involved are extremely large; they involved fixed contractual commitments extending over long periods with high breakage costs; they are heavily import-biased; and their costs are offset by a set of associated activities (the NIPS) which cannot be guaranteed;

40.6 Analysis of these risks suggests the Government could be confronted by mounting economic, fiscal and financial difficulties."

[8] In paragraph 41 of the founding affidavit second applicant stated that despite these warnings second respondent in January 2000 entered into foreign loan agreements and guarantees in respect of the arms procurement. Second respondent either ignored the warnings or he did not know about them. Second applicant claimed that had second respondent taken cognisance of the affordability study, then he could not rationally have entered into the loan guarantees and credit agreements as he did in January 2000. In any event, he did so on the basis of cabinet approval, which approval was based on wrong information.

[9] The warnings of the affordability team, he said, were withheld from the public until March 2001 when the Mail and Guardian disclosed them. They were not disclosed in Parliament nor made public in any other way. On 24 January 2000 second respondent signed the foreign loan agreements and export credit guarantees necessary to conclude the Arms Deal. Second applicant alleged that second respondent did this without compliance with the provisions of the Exchequer Audit Act 23 of 1956 or the Public Finance Management Act 1 of 1999. The decision furthermore was not rationally related to the purpose for which the power was given and was accordingly arbitrary. The foreign loan agreements, he said, are loans as contemplated by section 218 of the Constitution. The export credit guarantees, he alleged, are guarantees concluded with foreign governments. They are also governed by section 218 of the Constitution. The export credit guarantees are international agreements as contemplated by section 231 of the Constitution.

[10] During September 2000 the Auditor-General reported to the Parliamentary Standing Committee on Public Accounts ("SCOPA") that he had found very serious shortcomings in the acquisition processes in at least five respects:

(i) Conflicts of interest among decision makers;

(ii) The award of a fighter/trainer contract to BAe systems;

(iii) The inadequacy of the offset guarantees;

(iv) The disregard for personnel requirements to operate the equipment;

(v) The allocation of a naval sub-contract to Thomson CSF with a very substantial increase in costs over a local company tender.

In consequence of this report, SCOPA held public hearings in October 2000 and called inter alia for a multi-agency investigation. In February 2001 the Ministers of Defence, Finance and Trade and Industry appeared before SCOPA. At this hearing a letter from Deputy President Zuma was circulated to the public. The letter pointed out that a Ministerial Cabinet Committee ("the Cabinet committee") led the acquisition process. The Cabinet committee reported to the Cabinet which gave final approval for this acquisition.

[11] At the SCOPA meeting, according to second applicant, second respondent was inter alia questioned concerning the affordability of the Arms Deal and the foreign exchange risks to South Africa. He responded that "it is absurd to have to consider foreign exchange risks in cash accounting when local borrowing does not consider such risks." The following question was asked in Parliament: "Whether any specific steps were taken to hedge the cost incurred in the course of the arms acquisition programme, if not, why not - if so, what steps?" Second respondent replied on 16 May 2001 in writing that the cost of the arms procurement programme is not hedged and that there are five very clear reasons why hedging would be inappropriate. He provided particulars of these five reasons.

[12] In and during February 2001 the Auditor-General, the Public Protector and the National Director of Public Prosecutions advised SCOPA that they were competent to investigate the Arms Deal and would be doing so. These three agencies released the Arms Deal report on 15 November 2001. The report suggests that senior members of the Government committed no irregularities in the Arms Deal. Second applicant quoted the following key findings and recommendations of the report: "14.1.1 No evidence was found of any improper or unlawful conduct by the Government. The irregularities and improprieties referred to in the findings as contained in this report, point to the conduct of certain officials of the Government departments involved and cannot, in our view, be ascribed to the President or the Ministers involved in their capacity as members of the Ministers' Committee or Cabinet. There are therefore no grounds to suggest that the Government's contracting position is flawed.

14.1.12 Certain aspects of the financial and economic model used by the Affordability Team in their presentation to the Ministers Committee in August 1999 on the cost of the procurement, can be criticized to an extent. However, even though there might be different views and models explaining future projected costs and effects, it appears from the investigation that the Affordability Team and IONT took adequate measures under the circumstances to present to the Government a scientifically based and realistic view on these matters. The Ministers' Committee was put in a position by the Affordability Team to apply their minds properly to the financial impact of the procurement. Ultimately, the decision about what the country can and can not afford is one of political choice.

14.2.4 Detailed and accurate information, including all possible costs, should be submitted to Cabinet. All currency risk implications regarding international armament acquisitions should be disclosed to Cabinet. Such information is necessary to ensure that essential functionalities are not removed from equipment during negotiations due to budget constraints."

[13] Second applicant pointed out that on 16 July 2001 Mr Roland White, an official of the Department of Finance, and a member of the team who prepared the affordability study, testified that foreign exchange risks had been disregarded prior to the decision being taken. It is clear, suggested second applicant, that Cabinet ministers were warned of the foreign exchange and other risks of the acquisition programme, but recklessly and irrationally choose to ignore those warnings.

[14] In a section of the founding affidavit headed "The Arms Deal" second applicant set forth his understanding of the deal as gleaned from the media and public meetings. It involved the purchase of military hardware from a number of suppliers in Germany, the United Kingdom, Italy and Sweden. The initial budgeted cost for the Arms Deal was R29 billion. Testimony at Scopa in October 2000 revealed that the cost had escalated by that time to R43 billion and subsequent estimates have revealed that the figure had risen to R66 billion. The reason for the escalation is the depreciation of the South African Rand against foreign currencies. It is envisaged that the various items of military hardware will be delivered within the next four years and payments will be made over a twelve year period. The only economic rationale or justification advanced for the Arms Deal is that relating to the offsets. The nature of the offsets is that in exchange for the military contracts the foreign corporations undertake to invest in South Africa or purchase South African exports. The exact extent of these offsets, guarantees in respect of them and how they will affect the South African economy have not been disclosed. They are stated to be "commercially confidential". The Arms Deal, he said, has been structured as follows:

(i) South Africa will borrow money by way of loan agreements from large international banks;

(ii) The money so borrowed will be paid to the arms supplier;

(iii) The loans are supported by the guarantees given by South Africa to the applicable state departments who in turn provide guarantees to the international banks.

Second applicant said that the decision to sign loan agreements and the signature, thereafter, of the loan agreements are constituent parts of the Arms Deal. Had that decision not been taken or in the event of it being set aside, he argued, the agreement to purchase the military hardware will fall away. All the relevant decisions, he said, constitute the exercise of public power as contemplated by the Constitution. In order to be valid these decisions must as a minimum meet the rationality requirements under the Constitution.

[15] Second applicant proceeded to attack the rationality of the decisions in question. Under the heading of "Financial Irrationality" he pointed out that for the past forty years at least the South African Rand has been a steadily depreciating currency. Since 1994 the Rand has continued to depreciate at an average rate of 17% per annum. The prospect is, he said, that the Rand will continue to depreciate in the future at a rate of 17% per annum. South Africa has thus been committed to a financial liability that will escalate considerably above the present estimates of R66 billion. If finance and escalation costs are included the total liability could realistically rise to R287 billion by 2010. Second respondent, he said, had a duty to ensure that the Arms Deal would be affordable but he failed to meet his obligations in this regard.

[16] Under the heading of "Economic Irrationality" second applicant stated that the decisions in question are economically irrational for a number of reasons. In his view there is no discernable military threat to South Africa. The Arms Deal is for that reason alone economically irrational. The argument that the offsets will provide industrial benefits, he pointed out, assumes that they can be guaranteed and will not be cancelled or sharply reduced. Second applicant submitted that this argument is irrational. The offsets are exposed to economic and political realities in the countries concerned. Details of the offsets have furthermore been refused to the public. The international experience is that those who get the benefit of offset arrangements are already amongst the best off economically and politically well connected. Alternative expenditure of equivalent resources would have been far more likely to provide benefits, both in the alleviation of poverty and the development of the South African economy.

[17] In regard to "strategic irrationality" second applicant relied upon the testimony of Professor Peter Vale, a distinguished expert in the fields of political and strategic studies. He is of the view that South Africa faces no military threat at present. South Africa's delicate socio-economic environment represents the most important threat to its constitutional democracy. This has been aggravated by the HIV/AIDS pandemic. The procurement of sophisticated weaponry is unlikely to resolve these threats. The debate, according to him, should be turned towards human security.

[18] Second applicant stated that the increase in the spending of the Department of Defence between 1999 and 2003 averaged 15% annually which is vastly greater than that of the Departments of Police, Prisons and Justice, Education, Health and Welfare Services. Yet the Government reported in 1998 that 19 million South Africans lived on or below the poverty line of R353, 00 per month. The Arms Deal, he said, infringes the socio-economic rights of poor persons in South Africa such as the rights to adequate housing, health care, food, water, social security and education. It is for the Government to justify such limitations.

[19] Second applicant submitted next that the entering into of the Arms Deal and the underlying agreements was not open and transparent. For that reason also it was unconstitutional. Finally he submitted that the foreign loan agreements and credit guarantees are international agreements. Yet, in breach of section 231(2) of the Constitution, they were not approved by the National Assembly or the National Council of Provinces.

RESPONDENTS' ANSWERING AFFIDAVITS

[20] First, second and third respondents oppose the application. Ms Maria Ramos, the director-general of the National Treasury at the time, deposed to the principal answering affidavit on behalf of first, second and third respondents. Second respondent filed a confirmatory affidavit. Although the relief sought by applicants relates, inter alia, to export guarantees, second respondent, she said, in fact never gave export guarantees. There are four foreign loan agreements, all dated 24 January 2000; one in respect of the frigates, one in respect of the sub-marines, one in respect of the Gripen and Hawk aircraft and one in respect of the utility helicopters. The decision of second respondent to enter into foreign loan agreements was a decision taken in the course of the implementation of the strategic defence packages procurement decided upon by Cabinet. It was not second respondent who decided whether the equipment should be procured at all, and if so, the make-up of the package in question. The decision of second respondent related to the most practical, efficient and affordable method of servicing the financial obligations to be incurred by such procurement.

[21] On behalf of first to third respondents Ms Ramos raised the defence to the review application that this court does not have jurisdiction in the matter. She also challenged the locus standi of both first and second applicants to bring the present application.

[22] Ms Ramos provided a brief description of the history of the Arms Deal. From February 1996 to April 1998 a comprehensive process was carried out by Cabinet to determine the kind of defence force this country needed after 1994. The Minister of Defence embarked upon consultation process involving Parliament, political parties, interest groups, non-governmental organizations and citizens in order to forge a national consensus on military matters. A draft White Paper on defence was published on 21 June 1995. Widespread comment was received. Comments and proposals were evaluated and incorporated in the final White Paper presented by the Minister in May 1996. The White Paper was approved by Parliament. It contained the new defence policy. It also provided for a Defence Review the aim of which was to elaborate on the policy through comprehensive long range planning on various matters. The drafting of the Defence Review was the responsibility of a working group appointed by the Minister of Defence. It established various specialist sub-committees. The working group and the sub-committees comprised members from a variety of bodies and organizations. It was decided at the outset that the Defence Review would be subject to a process of consultation with defence stakeholders and interest groups. Various national and regional consultative conferences were held which were open to the public. The process culminated in the Defence Review document that was presented to, and approved by, Parliament on 26 May 1998.

[23] Ms Ramos explained that the policies of the Government contained in both the Defence Review and the White Paper regarding the Defence Force are that:

"27.1 The SANDF should have an affordable and sustainable force structure appropriate to its peace time role and capable of expanding to meet future defence contingencies.

27.2 It should maintain the necessary systems and expertise to ensure flexible and responsible defence for high risk defence contingencies which may arise in the short term.

27.3 It should provide and maintain an effective conventional military deterrence which demonstrates the capability and political will of the state to defend South Africa against aggression.

27.4 It should maintain and develop the capabilities and skills required to contribute to regional security.

27.5 The SANDF should comprise a small regular component backed up by a sufficiently large part time component."

The Working Group had prepared and developed various force design options, reflecting different permutations of level of defence, defence posture and cost for public consideration. Four options were presented to the Parliamentary defence committees and Cabinet and were discussed in detail. The Minister of Defence and his department recommended option 1. This included the acquisition of four corvettes, four submarines, 32 medium and 16 light fighter aircraft and 12 combat support helicopters. The recommended design was approved by Parliament on 22 May 1998. Cabinet then acted by way executive action. The first and fundamental decision taken in accordance with the authority vested in it by section 85 of the Constitution, was to purchase the equipment needed to retain the effective defence capability of the SANDF. The process to determine whether and how to purchase such equipment and the make-up thereof was extensive. It involved co-operation between and contributions from various departments of Government and consultants and advisors. The decision of second respondent to enter into the foreign loan agreements was ancillary to the preceding decisions and evaluations undertaken by Government. These other decisions covered the make-up of the package, its affordability and whether the Government should proceed with such procurement. Once those decisions had been taken it became necessary to consider the question of how best such acquisition should be funded and it was in that regard that the decision was made to enter into loan agreements in order to raise the necessary finance.

[24] Once Cabinet had taken this decision, it became necessary for second respondent to give effect to the consequential financial arrangements. He acted in terms of his powers under the Exchequer and Audit Act. In so determining to act, second respondent considered the decision of the Cabinet and the advice of the International Offers Negotiating Team ("IONT") and the Financial Working Group appointed to research, investigate and advise on relevant topics, which had in turn been assisted by financial advisors, before signing the loan agreements. The substance of the advice was summarised as follows in paragraph 2.4 of the executive summary of the affordability report:

"2.4 LOAN PACKAGES

2.4.1 Following extensive negotiations in London and Johannesburg with the ECA's, banks and exporters, the Finance Negotiating Team was able to achieve almost all of its negotiation objectives. Concretely:

• ECA finance now accounts for all the imported content and, most importantly, allows down payments in respect of those goods to be made from those ECA Loans. The need for forex commercial loans has thus been eliminated;
• The non-UK Agencies have, to different degrees, matched the attractive options that were offered by the UK ECA, ECGD;
• As a result the ECA Loans now include options to select different currencies during the delivery period, and with the exception of the German offer, there is an option to choose floating interest rates during the delivery period, with the option to fix at market rates during draw-down, and at the first repayment date the option to fix at the CIR Rate agreed on Loan signature. The ability to fix the CIRR ahead of Loan Signature for the French and the Italian packages is now much more liberal, so that a certain amount of hedging against an adverse rate movement is possible at no cost;
• The ECA premia can now be paid in instalments and financed from the ECA Loans for all packages. In one case (Italy) the ECA premium has been reduced;
• In the case of Germany an element of the finance (13% of contract value) is now available at CIR Rates rather than at market rate;
• The French have allowed 10 years repayments for the corvettes' Excocet missiles rather than the maximum 5 years;
• Bank margins and fees have been reduced.

2.4.2 These concessions by the ECAs are largely unprecedented. The finance package finally achieved has greatly pushed out the boundaries of ECA defence financing and is probably unique. The terms now achieved with the ECAs and banks have substantially improved the financing in terms of cash flow, exchange risks as well as producing substantial savings for the borrower amounting to approximately US$ 101.09 million (over R600m.)"

[25] Ms Ramos explained that in each case the loan finance related to a purchase contract between the Government as purchaser and the arms manufacturer as seller. In most cases the contract was underwritten by the export agency in the country of the seller but such underwriting was unrelated to the Government of South Africa. The choices available to second respondent on how to address any anticipated deficit that would be occasioned by the cost of the procurement, included the raising of taxes, normal borrowing and having recourse to ECA finance arrangements. Since ECA finance arrangements offered markedly preferential rates it was the considered view of those involved in advising second respondent that that was the appropriate choice, and he followed that advice. The ECA finance arrangements do not apply where equipment is manufactured in South Africa by sub-contractors.

[26] Ms Ramos also stated the following (in paragraph 41 of her affidavit) with regard to the loan agreements:

"In each case in which a loan agreement was concluded the Second Respondent was persuaded that such loan agreement constituted the most effective and economic way of financing the acquisition package. His decision was taken upon the advice of the experts and of the National Treasury and the overall conclusion was that no other form of finance was as beneficial to the republic as the taking of ECA finance. I point out that the Applicants nowhere suggest that a more efficient form of financing existed nor do they offer any alternative suggestions as to how the Second Respondent could have arranged such finance. I respectfully suggest that the method of financing chosen was the only realistic and practicable one available."

[27] In response to paragraph 41 of second applicant's founding affidavit, (see para [8] above), Ms Ramos replied as follows:

"74.1 The Applicants seek to link the considerations which they say emerge from the "warning" of the affordability team with the decision of the Second Respondent to enter into the foreign loan agreements now under review. Talk of "warnings" is incorrect. In fact, the sections of the reports of the affordability team here mentioned do not relate to the decision of the Second Respondent which latter decision had to do purely with the question of the methodology of raising loan capital.

74.2 The remainder of this paragraph perpetuates the non-sequitur. Nor do I understand the attempted link between the approval of the Cabinet (which is apparently alleged to have been based on wrong information) and the decision taken by the Second Respondent. The supposed reference to the joint report is incomprehensible. I emphasize that the Second Respondent carefully considered the basis upon which loan capital would best be raised and in so doing followed expert advice given to him."

THE DISCOVERY APPLICATION

[28] After receipt of respondents' answering affidavits and before filing their replying affidavits, applicants brought an application in terms of rule 35(12) in which they sought discovery of various categories of documents referred to in respondents' answering affidavits. The eighth category of documents was described as follows:

"The documents containing the advice of the International Offers Negotiating Team and the financial working group, referred to in paragraph 36 of the answering affidavit in the main application. If contained in the Affordability Report, a copy of that Report."

[29] The discovery application was argued on 19 March 2003. On 26 March 2003 this court delivered a judgment in that application in terms of which the following orders were made:

(a) "First, second and third respondents are directed to make discovery in terms of the provisions of rule 35(12), within a period of 10 court days, of the following documents:

"The documents containing the advice of the International Offers Negotiating Team and the Financial Working Group, referred to in paragraph 36 of the answering affidavit in the main application."

(b) All questions of costs relating to the discovery application are reserved for determination in the main application."

The eighth category of documents was subsequently produced by first, second and third respondents. On 17 November 2003 the parties agreed that applicants would not publish and/or use such documents for any purpose other than for the review application. This agreement was incorporated in an order of court.

APPLICANTS' REPLYING AFFIDAVIT

[30] Second applicant thereafter filed a replying affidavit in the review application on behalf of himself and first respondent. He replied to the defences of lack of jurisdiction and lack of locus standi raised by respondents. In regard to these matters he pointed out, inter alia, that the impact of the Government's investment in defence spending as opposed to social services and the like is a nation-wide phenomenon which is also manifested in the Western Cape. The adverse effect of the decision in question will also be experienced in the area of jurisdiction of this court. That alone would found jurisdiction in this court.

[31] Second applicant reiterated the main theme of his attack as follows:

"32.1 Again, the issue is not simply whether or not Second Respondent was entitled to adopt recommendations as to financial arrangements for the acquisition of the arms. It is respectfully submitted that Second Respondent, faced with an arms acquisition policy to the formulation of which he was a party, and having had one of several modes of raising finance recommended to him, could only have properly and diligently discharged his responsibilities as Minister of Finance by considering fully and properly the impact upon the population at large, and the poor in particular, which would follow upon the conclusion of the loan agreements. This he manifestly did not do.

32.2 I respectfully submit that, had Second Respondent adequately and properly applied his mind to the caveats contained in the advice documents placed at his disposal, and had he, in the light thereof, adequately and properly considered how the loan agreements were likely to impact on available expenditure on socio-economic services and the like, he could not rationally have taken the decision to enter into the loan agreements."

Surprisingly, however, second applicant did not respond specifically in his replying affidavit to various paragraphs in Ms Ramos' affidavit, including paragraph 41 (see para [26] above) and paragraph 74 thereof (see para [27] above).

THE AFFORDABILITY REPORT

[32] At the hearing of the review application the entire affordability report was, by agreement between the parties, placed before the court. It is quite voluminous. The body of the report comprises about 60 pages. It contains various annexures comprising about 150 pages in all. The first nine pages of the report consists of the executive summary to which reference was made in the affidavits. In order to provide some additional background I propose to quote briefly from the introduction to the executive summary and the recommendations at the final page thereof:

"1. INTRODUCTION

1.1 Background 1.1.1 On 18 November 1998, Cabinet decided that negotiations should proceed with certain preferred bidders with a view to achieving affordable agreements for the procurements of sic armaments packages. Thereafter a Minister's Committee (MC) was formed to oversee a Negotiation Team (NT). Following a later MC meeting an Affordability Team (AT) was additionally established.

1.1.2 This document comprises an assessment by the AT on the non-military impacts of the procurement decision in order that Ministers might make an appropriate final decision about the scale and nature of the arms purchase. It examines the potential impacts of different scales of purchase (or scenarios) on the fiscal, financial and economic position of the country, focusing in particular on the risks that different purchase scenarios pose in these areas. The document simultaneously provides a report on the outcome of the negotiations as of 09 August 1999.

…………

5.2 Recommendations

5.2.1 The AT has refrained from recommending any specific procurement scenario to the Minister's Committee. The purpose of the analysis is to demonstrate the potential impacts and implications of different expenditure levels. It is for Ministers to evaluate these, assess the respective risks, and decide which level is appropriate.

5.2.2 Notwithstanding, the AT does make certain recommendations:

• Ministers should decide on an expenditure ceiling an leave the negotiation of a specific procurement combination to the Lead Negotiator and the Department of Defence to finalise, subject to final Ministerial ratification.
• Simultaneous with the expenditure ceiling decision, the Ministers' Committee should decide on the basic question of whether to purchase both Hawk and Gripen at this point and, in particular, whether the "trance option" offered by BAe should be accepted.
• The Lead Negotiator should be charged with developing a strategy for the timing and management of the announcement of the procurement decision in consultation with bodies such as GCIS as a matter of urgency."

THE SPECIAL DEFENCES: JURISDICTION AND LOCUS STANDI

[33] Mr John van der Berg appeared, with Mr Eia, for applicants at the hearing of the application. They dealt with respondents' special defences of jurisdiction and locus standi at the outset. They conceded that the respondents that took the decisions in question did not take these decisions within the area of jurisdiction of this court. They submitted however that jurisdiction in this case is based on the following factors: The respondents are national public representatives who are themselves represented in all the provinces; considerations of access and convenience favour this court and the effects of respondents' unlawful action transcend geographic and jurisdictional boundaries. They submitted in particular that it can fairly be inferred from the allegations made by applicants in the main application that the socio-economic rights of some of the persons on behalf of whom the application is brought, are resident in the area of jurisdiction of this court. The infringement of their rights accordingly took place in this area of jurisdiction and that would give this court jurisdiction to hear this matter. In support of this submission they relied upon the judgment of the Appellate Division in ESTATE AGENTS BOARD v LEK 1979 (3) SA 1048 (A). The respondent in that matter carried on business as an estate agent in Cape Town. The appellant took a decision to refuse to issue a fidelity fund certificate to the respondent without which he could not continue practising. The respondent thereupon instituted proceedings against appellant in the Cape Good Hope Provincial Division of the Supreme Court. The case came before the Appellate Division on appeal. One of the issues was whether the court a quo had jurisdiction to entertain the matter in view of the fact that the appellant's place of "residence" was in Johannesburg and the relevant decision was taken there. The Appellate Division held that the Cape court did have jurisdiction. The following dictum of Trollip JA, at 1067 B-F, is instructive:

"The true position was that, although the Board's decision was taken in Johannesburg, its inhibitory effect (wherever it was pronounced or communicated) hit respondent in Cape Town where he is resident and has his business. It disqualified him from continuing to carry on his business as an estate agent, thereby diminishing pro tanto his legal capacity or personality, and effecting, as it were, a kind of capitis diminutio. Now I have already pointed out that the relief against such adverse effect of the Board's decision which respondent was entitled to and did seek by way of an appeal under the Act was not mandatory but rather declaratory or empowering in respect of the Board. Having due regard to that fact I think that the Court a quo had jurisdiction to entertain his appeal simply on the ground that he was resident within its area of jurisdiction. After all, that was the Court immediately at hand and easily accessible to him and to which he would naturally turn for aid in seeking to have the diminution in his legal capacity or personality remedied. In the present context of our unitary judicial system of having one Supreme Court with different Divisions, as set out earlier in this judgment, convenience and common sense, are, inter alia, valid considerations in determining whether a particular Division has jurisdiction to hear and determine the particular cause."

[34] Mr Kuper appeared, with Mr Mtshaulana and Ms Sello, on behalf of first, second and third respondents at the hearing of the review application. They submitted that there are cogent reasons why jurisdiction, in a review application, should be confined to the court having jurisdiction over the decision-maker in regard to the decision, rather than adopting a principle giving country-wide jurisdiction in respect of such decision. In cases of administrative action, there is a process leading to a decision and procedural unfairness or irregularity gives rise to challenge. The court in whose jurisdiction the process and the culminating decision occurs should be the single court exercising jurisdiction. Competing applications, for example, could give rise to reviews in different jurisdictions if the choice of forum depends simply on the choice and convenience of the applicant.

[35] Respondents' counsel also submitted that applicants have not established any real threat of injury to any of the persons on whose behalf the application is allegedly brought. He submitted that applicants' case appears to be founded upon the contention that the budgetary implications of the Arms Deal will effectively preclude the Government from meeting the socio-economic obligations imposed upon it by the Constitution. This contention, he submitted, is speculative and is founded upon three controversial and unprovable assumptions, namely that the Rand currency will depreciate, that the depreciation will continue over the next decade to the extent predicted, and that such depreciation will preclude the Government from meeting its socio-economic obligations.

[36] In regard to locus standi applicants' counsel referred to section 38 of the Constitution. It reads as follows:

"38 Enforcement of rights

Anyone listed in this section has the right to approach a competent court, alleging that a right in the Bill of Rights has been infringed or threatened, and the court may grant appropriate relief, including a declaration of rights. The persons who may approach a court are-

(a) anyone acting in their own interest;

(b) anyone acting on behalf of another person who cannot act in their own name;

(c) anyone acting as a member of, or in the interest of, a group or class of persons;

(d) anyone acting in the public interest; and

(e) an association acting in the interest of its members."

Applicants, they submitted, rely upon sub-sections 38 (a), (c), (d) and (e) of the Constitution. The application is brought on behalf of all the poor people of South Africa. The leading decision on section 38(c), they submitted, is PERMANENT SECRETARY, DEPARTMENT OF WELFARE, EASTERN CAPE, AND ANOTHER v NGXUZA AND OTHERS 2001 (4) SA 1184 (SCA). The respondents in that matter were among tens of thousands of recipients of social disability grants whose grants had unilaterally and without notice been terminated by the Eastern Cape provincial authorities. They had sought in the Eastern Cape Provincial Division not only the reinstatement of their grants, but also leave to institute representative, class action and public interest proceedings against the provincial authorities, in terms of s 38(b), (c) and (d) of the Constitution, on behalf of others in the province who had also had their grants unfairly and unlawfully terminated. Some of these grantees did not reside in the area of jurisdiction of the Eastern Cape Division and the great of the provincial government was at Bisho, outside that area. The Supreme Court of Appeal held that the Eastern Cape Division had jurisdiction in respect of the action of the entire class.

[37] Applicants' counsel also relied upon the decision of a Full Court of this division of the High Court in RAIL COMMUTERS ACTION GROUP AND OTHERS v TRANSNET LIMITED T/A METRO RAIL AND OTHERS 2003 (5) SA 518 (C). In that matter, a voluntary association formed to give public expression to grave concern about the safety of passengers on commuter trains, was permitted to take legal proceedings against the entities responsible for the safety on rail commuter services. Although this judgment was overturned on appeal to the Supreme Court of Appeal, the Full Court's decision on the question of locus standi was not reversed in the judgment on appeal. See TRANSNET LTD t/a METRORAIL AND OTHERS v RAIL COMMUTERS ACTION GROUP AND OTHERS 2003 (6) SA 349 (SCA).

[38] On the question of locus standi, respondents' counsel referred, inter alia, to FERREIRA v LEVIN NO AND OTHERS; VRYENHOEK AND OTHERS v POWELL NO AND OTHERS 1996 (1) SA 984 (CC). In paragraph [234], at 1104 I - 1105 A, O'Regan J said the following:

"[234] This Court will be circumspect in affording applicants standing by way of s 7(4)(b)(v) and will require an applicant to show that he or she is genuinely acting in the public interest. Factors relevant to determining whether a person is genuinely acting in the public interest will include considerations such as: whether there is another reasonable and effective manner in which the challenge can be brought; the nature of the relief sought, and the extent to which it is of general and prospective application; and the range of persons or groups who may be directly or indirectly affected by any order made by the Court and the opportunity that those persons or groups have had to present evidence and argument to the Court. These factors will need to be considered in the light of the facts and circumstances of each case."

Respondents' counsel pointed out that section 38 of the Constitution required that a right "has been threatened or infringed" before the section can be relied upon to provide standing. This, they submitted, for substantially the same reasons as those set forth in paragraph [35] above, applicants have not established in this case.

[39] It is apparent from counsel's opposing contentions that both the questions of jurisdiction and locus standi are to some extent linked to the merits of applicants' attack on the validity of second respondent's decision to enter into the loan agreements in question. I accordingly propose to consider the merits of the review application first.

THE MERITS OF THE REVIEW

[40] Applicants' counsel submitted that the real issue in regard to the merits is whether, in the light of the warnings presented in the expert advice relied upon by second respondent at the time the decision in question and the decision to sign the loan agreements were taken, such decision was rational, reasonable and constitutionally proper. Rationality, they submitted, was the minimum threshold requirement. Applicants' counsel accepted that the contracts in question were loan agreements and not export or any other form of guarantees. The various allegations in the affidavits that the agreements were invalid by reason of particular statutory provisions, were not pursued in argument.

[41] In support of the test of rationality, applicants' counsel referred to the decision of the Constitutional Court in PHARMACEUTICAL MANUFACTURERS ASSOCIATION OF SA AND ANOTHER: IN RE EX PARTE PRESIDENT OF THE REPUBLIC OF SOUTH AFRICA AND OTHERS 2000 (2) SA 674 (CC) at 709 D-H:

"[89] The President's decision to bring the Act into operation in such circumstances cannot be found to be objectively rational on any basis whatsoever. The fact that the President mistakenly believed that it was appropriate to bring the Act into force, and acted in good faith in doing so, does not put the matter beyond the reach of the Court's powers of review. What the Constitution requires is that public power vested in the Executive and other functionaries be exercised in an objectively rational manner. This the President manifestly, though through no fault of his own, failed to do.

[90] Rationality in this sense is a minimum threshold requirement applicable to the exercise of all public power by members of the Executive and other functionaries. Action that fails to pass this threshold is inconsistent with the requirements of our Constitution and therefore unlawful. The setting of this standard does not mean that the Courts can or should substitute their opinions as to what is appropriate for the opinions of those in whom the power has been vested. As long as the purpose sought to be achieved by the exercise of public power is within the authority of the functionary, and as long as the functionary's decision, viewed objectively, is rational, a Court cannot interfere with the decision simply because it disagrees with it or considers that the power was exercised inappropriately. A decision that is objectively irrational is likely to be made only rarely but, if this does occur, a Court has the power to intervene and set aside the irrational decision. This is such a case. Indeed, no rational basis for the decision was suggested. On the contrary, the President himself approached the Court urgently, with the support of the Minister of Health and the professional associations most directly affected by the Act, contending that a fundamental error had been made and that the entire regulatory structure relating to medicines and the control of medicines had as a result been rendered unworkable. In such circumstances, it would be strange indeed if a Court did not have the power to set aside a decision that is so clearly irrational."

The warnings in the present case, counsel submitted, were of such a nature that no rational person, acting rationally, could have ignored them in deciding whether to enter into the loan agreements. Second respondent's decision, they submitted further, cannot be isolated or severed from the collective decision of the Cabinet.

[42] Respondents' counsel submitted that there are three major flaws in applicants' attack on second respondent's decision to enter into the loan agreements. The first flaw, they argued, is that applicants are attacking the wrong decision. The real effective decision in the present case was that of Cabinet to acquire the armaments in question. By the time the loan agreements were concluded the Cabinet decision was a fait accompli and second respondent's role was limited to that of finding the necessary funding in order to finance the acquisition.

[43] The second flaw in applicants' attack, they submitted, is that applicants have failed to establish any irrationality on the part of second respondent. They submitted that any disputes of fact should be determined on the basis of the facts averred in applicants' affidavits which have been admitted by respondents, together with the facts alleged by respondent, as explained in PLASCON-EVANS PAINTS LTD v VAN RIEBEECK PAINTS (PTY) LTD 1984 (3) SA 623 (A) at 634 H-I. They pointed out that the version put up by respondents was in any event hardly disputed by applicants in their replying affidavit.

[44] The third flaw, they submitted, is that applicants have not shown that the rights of any person have in fact been injured or have been threatened. Applicants' contention that the socio-economic rights of poor people have been infringed is based on a simplistic theory that the funds in question, if not spent on the arms' acquisition, would have been devoted to poverty alleviation. There is, respondents' counsel submitted, no proof whatsoever that such a result would have followed or will follow if the relief sought by applicants is granted. There is accordingly no causal link between the decision under attack and the rights of the people that applicants purport to represent.

[45] In my view there is merit in at least two of the principal defences put forward by respondents' counsel. The real thrust of applicants' complaint in this matter is that massive funds have been committed by the Government to the acquisition of arms which this country do not need whereas the funds should have been used for poverty alleviation. That being so applicant's attack should have focused on the real and effective decision to acquire these arms, namely that of Cabinet. That decision should have been made the primary object of the review application. In applicants' notice of motion there is an alternative prayer attacking the Cabinet's decision but this is only a consequential attack, dependant upon the invalidity of the second respondent's decision being established. This approach is, with respect, putting the cart before the horse. The primary attack should have been directed against the Cabinet's decision with, perhaps, a consequential attack on the secondary decision to raise funds. Applicants' wrong strategy, I should point out, is not a simply a procedural matter. The result thereof is that the merits of the Cabinet decision as such, the reasons for the Cabinet decision and all the documents that were before the cabinet, were not properly analysed at all in the present review application. The Cabinet decision must accordingly be accepted as having been a valid decision. Once that is accepted the ratio for applicants' attack on second respondent's decision falls away.

[46] There is in my view also merit in respondents' counsel's second main defence. Applicant's charge of irrationality is squarely based upon the existence of the warnings contained in the affordability report. These warnings must however be read in the context of the document as a whole. They are contained in a report which purported to provide advice to the Government in regard to the affordability of the proposed acquisition. The object of the warnings in the report is to bring possible negative consequences of the decision to the attention of the decision-maker. The thrust of the warnings is not to advise the decision-maker to desist from concluding the transactions in question. The real thrust is to inform the decision-maker what risks to take into account if he does proceed with entering into the loan agreements. Other elements of the report are quite positive, for example the comments on the method of financing referred to in para [24] above. It is relevant furthermore that the affordability report (with the warnings) was before Cabinet when it took the decision to acquire the arms in question. It must be accepted therefore that Cabinet approved of the arms' acquisition with full knowledge of the warnings.

[47] In this case second respondent said that he did apply his mind to the affordibility report including the warnings. It is trite law that the test on review is not whether this court agrees or disagrees with the decision in question. See BEL PORTO SCHOOL GOVERNING BODY AND OTHERS v PREMIER, WESTERN CAPE, AND ANOTHER 2002 (3) SA 265 (CC) in para [45] at 282 F-G:

"The fact that there may be more than one rational way of dealing with a particular problem does not make the choice of one rather than the others an irrational decision. The making of such choices is within the domain of the Executive. Courts cannot interfere with rational decisions of the Executive that have been made lawfully, on the grounds that they consider that a different decision would have been preferable."

The question, when rationality is the yardstick, is whether the decision is so irrational that no rational person would have taken it. By mainly focusing on the warnings applicants have not established such irrationality in this case. I am accordingly of the view that there is no merit in the review.

[48] In the light of the conclusions that I have arrived at, it is not necessary to consider the validity of respondents' third ground of defence, namely that no rights have been shown to have been actually threatened or infringed. In view of my conclusion that second respondent's decision has not been shown to have been invalid, it would be a futile exercise to attempt to resolve whether rights would have been threatened or infringed had the decision been invalid.

[49] In view of the conclusions that I have reached with regard to the validity of the decision under attack, it is also not necessary to decide the questions of jurisdiction and locus standi that were discussed above. Having found that it has not been shown that second respondent's decision was invalid, I am unable to find that any infringement or threatening of rights took place within the area of jurisdiction of this court. Similary, without an infringement of rights being established, there is no basis for finding that applicants have any locus standi.

CONCLUSION

[50] In the discovery application this court ordered that the question of costs in that matter stand over for determination in the review application. Counsel for applicants argued that applicants were successful in that application and therefore entitled to their costs. It seems to me, however, that their success was partial only. They sought discovery of eight categories of documents and they only managed to obtain a discovery order in respect of one of these categories. In the circumstances it seems to me that it would be fair if each party is made responsible for his/its own costs in regard to the discovery application.

[51] In the result, I make the following orders:

(1) Applicants' review application is dismissed with costs, including the cost of two counsel.
(2) In the discovery application each party shall be responsible for his/its own costs.

-------------------------- A P BLIGNAULT

YEKISO J: I agree.

-------------------------- N J YEKISO

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