Judge orders Tark Group directors to personally repay covid contract profits

Judge David Makhoba ruled that R14-million in contracts for surgical masks and protective jumpsuits awarded during covid bypassed bid processes. Illustration: Bronwyn Webb

• The Special Tribunal has ruled that two directors of the Tark Group must be held personally liable for unlawful profits from R14-million in contracts for surgical masks and protective jumpsuits awarded by the Mpumalanga Department of Health during covid.
• The Special Investigating Unit said the contracts bypassed mandatory bid processes and the company lacked the required licensing.
• Judge Makhoba declared directors Katleho O’Hara Mokonyane and Bonelela Mgudlwa guilty of fraud and dishonesty under the Companies Act.

Two contracts for personal protective equipment valued at more than R14-million and awarded to the same company during the covid pandemic by the Mpumalanga Department of Health have been deemed illegal by the Special Tribunal.

Tribunal Judge David Makhoba has ruled that the company directors of the Tark Group (formerly known as Tuwo Rhodesia Pty Ltd) – Katleho O’Hara Mokonyane and Bonelela Mgudlwa – be held personally liable for “unlawful gains” and must repay the department all profits, as determined by an audit of its books.

Tark and the co-directors were also ordered to pay the costs of the application.

Read the judgment here

Two separate applications brought by the Special Investigating Unit (SIU) against the company and its directors were heard together by Judge Makhoba. The SIU sought to review and set aside a R1-million contract for 60,000 surgical masks awarded in April 2020, and a R13-million contract for 150,000 protective jumpsuits.

The SIU said both contracts unlawfully bypassed internal bid processes, that Turk was not accredited or licensed by the South African Health Products Regulatory Authority (SAHPRA) to distribute medical devices or services, and that the directors had failed to disclose “material conflicts of interest”.

Tark claimed there was no statutory requirement for it to hold a SAHPRA licence. It said the goods were delivered, accepted and utilised, their quality and value were not disputed, and courts did not permit the state to retain the benefit of performance while recovering what it had paid.

Task also argued that the SIU had not identified what “profits” had been earned or how they were calculated, and that the SIU had delayed bringing the application.

On the issue of the delay, Judge Makhoba said the SIU had explained that its investigations into procurement made during the covid period had been vast and complex, requiring the unravelling of intricate schemes to bypass procurement controls.

The judge ruled in the SIU’s favour, finding that the delay was not wilful and “clearly the various state entities were under-resourced”.

“The state of national disaster was an unusual time in our country, and this seems to have resulted in some of the factual consequences in launching this application,” he said.

Judge Makhoba said the SIU had proved that mandatory procurement processes were not used to award both contracts, which were “characterised by multiple irregularities”. Citing case law, the judge said this included the fact that Tark did not have a SAHPRA licence as required.

Judge Makhoba set aside both contracts, saying “the corporate veil” must be pierced in respect of the two directors, meaning they are personally liable.

In terms of the Companies Act, he declared the directors guilty of fraud and dishonesty and that they must repay the profits.

He further ordered that the company open its books to the SIU and the department in order to calculate the profit and that the accounts be provided to the tribunal.

SIU spokesperson Selby Makgotho welcomed the two rulings. “The Tribunal confirmed that the department issued premature promissory letters of award, bypassed mandatory bid evaluation and adjudication committees, and accepted non-compliant bids. While the department chose to abide by the application, its conduct was central to the irregularities,” he said.

“It also sends a clear message that suppliers who fail to meet essential legal requirements have no entitlement to profit from the state, and the SIU will use its litigation powers to the fullest to ensure such funds are returned.”

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