Firm ordered to repay profit it made from R200m worth of ‘corrupt’ contracts from Transnet

A company which was awarded more than R200 million in contracts by Transnet – and which also paid a deposit for the home of one of the parastatal’s top executives – has been ordered to repay all profit it made from the deals.

Among the benefits that the Transnet employee got from the “corrupt” relationship with the engineering firm were funds for a luxury home as well as for five scooters bought in China.

Judge Bashier Vally of the Johannesburg High Court found last week that the five contracts that the parastatal had handed to IGS Consulting Engineers were unlawful.

He also ruled that the profits amassed should be refunded as they were earned through the corrupt relationship between IGS boss Sipho Sithole and the group executive for Transnet Group Capital (formerly Transnet Capital Projects), Herbert Msagala.

In his scathing judgment, signed on Wednesday, Vally said: “The relationship between Msagala and Sithole was clearly not an arms-length one. Taking advantage of his position as the chief executive officer of Transnet Group Capital, Msagala irregularly and improperly awarded contracts worth substantial amounts of money to IGS or IGS JV.

“Mr Sithole paid the deposit on the purchase of an immovable property by Mr Msagala. Mr Sithole purchased scooters for Mr Msagala while they were in China together.

“Mr Msagala instructed the employees of Transnet to ensure that Mr Sithole was allowed to accompany the Transnet team on the work-related trip to China, although Mr Sithole is not an employee of Transnet, nor has any other legitimate reason to travel with them and participate in their business affairs.

Herbert Msagala

“On these facts, I have no difficulty in coming to the conclusion that the relationship between Mr Msagala and Mr Sithole was corrupt.”

Msagala said on Saturday that the judgment was between Transnet and its suppliers, and that he was not party to them.

“I was not consulted by Transnet during the course of the legal proceedings preceding this judgment. To date, I remain an employee of Transnet. I was never invited to testify. I am currently taking legal advice … I deny any suggestions of impropriety on my part.”

But the judgment paints a different picture.

Until February 2015, both Msagala and Sithole were unknown to each other until they were introduced by a colleague in the industry.

It shows that five months later, IGS was awarded its first contract from Msagala’s division and was paid R10 million.

But the work had already been completed by another company and paid for.

In September 2015, the judgment continues, Msagala registered at least three trusts in the space of three days.

One of these trusts would, between September 2015 and March 2016, acquire four properties (including one at the upmarket Steyn City lifestyle estate in Fourways) to the tune of R15.2 million in total – all paid for in cash.

Sipho Sithole

In the same period, Msagala would also buy a string of luxury vehicles, including a Maserati.

Sithole paid a R900 000 deposit for Msagala’s Steyn City home and even bought five scooters for the executive while they were in China.

Between July 2015 and April 2016, IGS received five contracts.

Four of them were concluded without a competitive bidding process.

“The relationship between Msagala and Sithole was the key that opened the door for IGS to secure contracts,” the judgment reads.

“The failure to follow the proper procedures in awarding the contracts affected the outcome. There is no gainsaying that it affected the outcome in a material way. Transnet was never given the opportunity to assess whether IGS or IGS JV were the best suppliers of the goods and services it ultimately sourced from them.”

Several attempts to obtain comment from Sithole or IGS proved fruitless as calls went answered.

The judgment notes that IGS argued that it was prejudiced, given that Transnet had taken long in filing its review application in court – it did so in 2017.

But Vally rejected this argument, saying the parastatal had launched its own investigation before approaching the court for relief (the redress given by a court to a person who brings a legal action).

While Transnet wanted the contracts to be declared invalid and set aside, Vally said that “simply declaring them [the contracts] to be unlawful and setting them aside in these circumstances would not be just and equitable, for it results in allowing [the companies] to profit from these illegal contracts”.

Using his influence, Msagala, according to the judgment, had instructed Transnet employees to allow Sithole to accompany the parastatal’s top brass on a trip to China, even though Sithole had no business to be on that trip. It was on that trip that Sithole bought 12 scooters and gave five of them to Msagala.

“Such a relief would be wholly inappropriate. It would be tantamount to turning a blind eye to the malfeasance of Mr Msagala and Mr Sithole, which lies at the very core of the resulting five contracts. It would send the message that malfeasance pays. It would also not be effective in deterring others from engaging in such conduct.

“Such conduct has contributed immensely to the erosion of the moral fabric of our society. It has the effect of prejudicing the poor in our society most, for they bear the brunt of the wasted costs.”

Vally found that Msagala used his position to instruct a company that was already doing work for Transnet to subcontract some work to IGS in July 2015, which opened the door for IGS to benefit in a further four contracts.

The work included an engineering investigation related to the failure of petroleum tanks; management of the 715km pipeline between Durban and Heidelburg, in Gauteng; and transportation management.

IGS was awarded the contracts under the pretence of emergency work. It had also submitted fraudulent documents.

Using his influence, Msagala, according to the judgment, had instructed Transnet employees to allow Sithole to accompany the parastatal’s top brass on a trip to China, even though Sithole had no business to be on that trip.

It was on that trip that Sithole bought 12 scooters and gave five of them to Msagala.

Richard Vallihu, Transnet’s acting chief operating officer, said the judgment was the result of civil action “to declare the awarding of contracts and subsequent payments to [IGS], which will then enable Transnet to recover any moneys that were unduly paid”.

The matter was reported to the Hawks in December 2016. It then conducted an investigation.

While IGS, along with the two companies cited as respondents in the case – namely, Turnmill Proquip Engineering and WK Construction SA – can appeal the judgment, Transnet lawyers MNS Attorneys (who brought the review application on behalf of Transnet) advised the parastatal to consider applying to the court to compel the companies to comply with the order, pending an appeal.


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