Case   CCT222/21
[2022] ZACC 41

Hearing Date: 05  May 2022

Judgement Date: 30 November 2022

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On Wednesday, 30 November 2022 at 09h30, the Constitutional Court handed down judgment in an application for leave to appeal against a decision of the Supreme Court of Appeal, which upheld a decision of the High Court of South Africa, Gauteng Division, Pretoria, dismissing Esorfranki Pipelines (Pty) Ltd’s (applicant) claim for delictual damages from the Mopani District Municipality (respondent). That claim was premised on the intentional misconduct of the respondent in the award of a tender, which the applicant said unlawfully deprived it of success in the tender, and thereby caused it to sustain harm in the form of loss of profit.

In August 2010, the respondent invited tenders for the construction of a water pipeline between the Nandoni Dam in Thohoyandou and Nsami Water Treatment Works in Giyani. In October 2010, the tender was awarded to a joint venture comprising of Tlong Re Yeng Trading and Projects CC and Base Major Construction (Pty) Ltd (joint venture). The applicant launched an urgent application in the High Court to review and set aside the tender and interdict the implementation of the award until the determination of the review application. It alleged that the joint venture should have been disqualified as it had failed to comply with various material requirements for the award. In January 2011, the High Court set aside the award and directed the respondent to re-adjudicate the award in terms of the Preferential Procurement Policy Framework Act 5 of 2000.

In February 2011, the tender bids were re-adjudicated and the joint venture was awarded the tender again. In March 2011, the applicant urgently applied to review and set aside the re-adjudicated tender and the contract concluded under the tender and interdict the respondent from implementation pending a determination of the review. The applicant brought a series of applications to ensure the interdict remained effective pending a determination of the review, but implementation of the contract continued. In March 2012, the High Court delivered judgment in the review application and held that the award of the tender to the joint venture was vitiated by bias, bad faith and ulterior purpose. It set aside the award but held that the joint venture was to perform all work necessary to complete the pipeline.

The applicant successfully appealed to the Supreme Court of Appeal, which held that the High Court had erred in exercising its discretion to permit the implementation of the contract. The Supreme Court of Appeal held the contract to be void and ordered the respondent to approach the Department of Water Affairs, which was to issue, evaluate and award a tender for the completion of the work. The applicant was unsuccessful in the subsequent tender process.

Prior to the Supreme Court of Appeal’s decision in the review proceedings, the applicant instituted an action in the High Court which is the subject of the present appeal, in which claimed damages for loss of profit from both the joint venture and the respondent. The High Court dismissed the action on the basis that it was res judicata (a matter already decided). It held that the applicant could only succeed if, but for the respondent’s conduct, it would have been successful in the tender and this had already been decided against the applicant in the review proceedings since both the High Court and Supreme Court of Appeal refused to substitute the applicant as the successful tenderer.

The Supreme Court of Appeal upheld the High Court’s decision by a narrow majority. Nicholls JA, with Poyo-Dlwati AJA concurring, accepted that the respondent displayed mala fides, dishonesty and ulterior purpose but held that the applicant had failed to establish wrongfulness and causation. Mbatha JA wrote separately and concurred in the order of Nicholls JA but held further that the review proceedings had the effect of rendering the action res judicata.

Goosen AJA, with Petse AP, dissented. He held that the issue was not res judicata because the cause of action and relief sought in the review and the delictual action were distinct. Goosen AJA held that there was no reason of public policy why such conduct should not be deemed to be wrongful and that a finding of wrongfulness was competent even though the tender had been set aside. He held that factual causation was established because if the tender had been lawfully adjudicated the applicant would have been awarded the tender. Legal causation was likewise established because it was foreseeable that the respondent’s conduct would cause the applicant financial loss; and the fresh tender process could not break the chain of causation because it was for materially different work and was not unusual or unexpected.

Before the Constitutional Court, the applicant sought leave to appeal and advanced the following central submissions. First, the evidence establishes that the respondent was moved by bias, collusion, ulterior purpose, dishonesty and fraud in awarding the tender to the joint venture. Second, where the state intentionally causes an entity to sustain loss of profit in a tender process – as opposed to where it does so negligently – such conduct is actionable in delict. Third, the respondent’s intentional misconduct was the factual cause of the applicant’s loss because, in a lawfully run tender process, it would have been awarded the highest score. Fourth, the respondent’s misconduct was also the legal cause of the applicant’s loss despite the fresh tender process that ran pursuant to the Supreme Court of Appeal’s decision in the review because that process was for materially different work and was neither an unusual or unexpected consequence of the respondent’s conduct.

The respondent opposed the application for leave to appeal on the following bases. First, the application does not engage the jurisdiction of this Court. Second, the evidence fails to establish that the respondent acted fraudulently, and, absent such a finding, its conduct cannot attract delictual liability. Third, once the tender was set aside, there was no extant tender in respect of which the respondent could be held to bear a duty of care to ensure that the applicant did not sustain harm. Fourth, the evidence fails to provide a sufficient basis to conclude that, but for the respondent’s conduct, the applicant would have been awarded the tender. Fifth, the fresh tender process constituted a novus actus interveniens (new intervening act) which broke the chain of factual and legal causation. Finally, the review proceedings have the effect of rendering the action res judicata.

The Constitutional Court held that the matter engages its jurisdiction and has reasonable prospects of success and thus leave to appeal was granted. In respect of wrongfulness, section 217(1) of the Constitution – which is silent on whether economic loss caused by an intentional breach of this section is recoverable in delict – is the source of the state’s obligations when it conducts a tender process, and the invitation and consideration of tenders is an administrative function. Section 217 must be understood together with the right to administrative justice in section 33 of the Constitution and the Promotion of Administrative Justice Act 3 of 2000 (PAJA). It held that to accede to the applicant’s demands and hold the state liable in delict for its intentional breach would subvert the principle of subsidiarity. Section 8(1) of PAJA empowers a court to grant “any order that is just and equitable” and, taking this into account, to hold that a residual private law right of recompense can be sustained, despite the availability of an award of just and equitable relief under section 8 of PAJA, which may include compensation, would subvert the careful balancing of interests that this section envisages. The principle of subsidiarity and the scheme of PAJA necessitates the conclusion that economic loss sustained as a result of a breach of section 217 – whether or not the breach is intentional – is not recoverable in delict.

The Constitutional Court differed from the majority in the Supreme Court of Appeal in one respect. It held that the Supreme Court of Appeal’s finding that an unsuccessful tenderer can never sustain loss in the form of loss of profit through a breach of the principles of administrative justice was not correct. The reasoning of the Supreme Court of Appeal was that the opportunity which the tenderer alleged it lost – the opportunity to accrue profits through the award of the tender – did not exist in law once it was set aside. The Constitutional Court disagreed. It held that a tenderer in the position of the applicant is, in appropriate circumstances, entitled to claim for loss of profit under PAJA. Further, an order setting aside a decision and remitting it to the decision-maker for a fresh determination or, in exceptional circumstances, an order of substitution will suffice to vindicate the interests of both the public and the aggrieved tenderer. However, where the state’s misconduct is deliberate and dishonest and where substitution or remittal are not viable forms of relief, or where this relief will not suitably remedy the loss sustained by a party, circumstances may require compensatory relief in order to ensure a just and equitable result.

In the result, the Constitutional Court held that it is both constitutionally impermissible and unnecessary to extend the common law in order to allow for the applicant’s claim. The appropriate avenue for a claim for compensation for loss sustained as a result of a breach of the precepts of administrative justice is PAJA. The appeal was dismissed.

Throughout the judgment, the Constitutional Court referred to the reprehensible conduct of the respondent, which harmed the rights and interests of the residents it was duty bound to protect, egregiously violated the applicant’s right to just administrative action, and prejudiced the country by squandering taxpayer money. This, it held, was deserving of sanction and the respondent was ordered to pay the applicant’s costs.

The Full judgment  here