Brief Summary

Judicial review — Tender process — Award of tender declared void — Municipality found biased in awarding tender — Successful tenderers guilty of fraud and fronting — Just and equitable remedy determined under s 8 of the Promotion of Administrative Justice Act 3 of 2000 — Costs awarded on attorney and client scale to reflect serious nature of misconduct.

Comprehensive Summary

Summary of Judgment

Introduction

This was an appeal to the Supreme Court of Appeal arising from judicial review proceedings under the Promotion of Administrative Justice Act 3 of 2000 (PAJA) concerning a public procurement process for the construction of a bulk water pipeline in Limpopo Province (the Nandoni to Giyani Pipe Project, project number LPR018). The proceedings ultimately required the appellate court to determine the appropriate just and equitable remedy after an unlawful tender award had been set aside, and to reconsider the costs orders made in the court of first instance.

The appellants were Esorfranki Pipelines (Pty) Ltd (first appellant) and Cycad Pipelines (Pty) Ltd (second appellant), both unsuccessful tenderers. The principal respondent was the Mopani District Municipality (first respondent), which had invited and adjudicated the tender as an “implementation agent” for the Department of Water Affairs. The successful tenderer was the third respondent, a joint venture comprising Tlong Re Yeng Trading CC (fourth respondent) and Base Major Construction (Pty) Ltd (fifth respondent). Additional respondents included municipal and joint venture office-bearers (sixth to eighth respondents) and the municipality’s attorney, Mr M C Mahowa (ninth respondent), who had been cited in interlocutory proceedings.

The procedural history was protracted. The municipality first awarded the tender to the joint venture. Two unsuccessful bidders (Esorfranki and Cycad) brought review proceedings in the North Gauteng High Court, Pretoria, which culminated in an agreement (made an order of court) that the award be set aside and that the municipality re-adjudicate the tenders. After re-adjudication in February 2011, the municipality again awarded the tender to the joint venture, prompting fresh review applications by each appellant. During the pendency of the reviews, interlocutory litigation ensued, including multiple applications under Uniform Rule 49(11) concerning the continued operation of an interim interdict restraining implementation of the tender award while the municipality pursued leave to appeal and petitions up to the Constitutional Court. At the eventual joint hearing of the two review applications, the high court limited the issues to the lawfulness of the award and the costs of Esorfranki’s third Rule 49(11) application; other relief was abandoned by agreement or not persisted in.

The high court set aside the tender award as unlawful, but granted remedial relief that effectively permitted the joint venture to continue executing the contract under municipal supervision, and made unusual costs orders (including that each party pay its own costs, and that Esorfranki pay the ninth respondent’s costs on a punitive scale). The present appeal was directed primarily at the remedy and costs, not at the high court’s finding of unlawfulness (which was not appealed).

Material Facts

In August 2010 the municipality invited tenders for the construction of concrete reservoirs and a welded steel bulk pipeline between the Nandoni Dam (Thohoyandou) and the Nsami water treatment works (Giyani). The background was an acute water shortage in the Giyani area following a 2009 drought, which led to a local state of disaster being declared under the Disaster Management Act 57 of 2002 and the implementation of emergency measures. National government resolved to source water from Nandoni Dam, and more than R284 million was made available for this purpose.

The project was a Department of Water Affairs project. The municipality was appointed by the Department as an implementation agent, responsible for implementing and managing the project, including the appointment of contractors and service providers in accordance with procurement procedures approved by the Department and in consultation with it when inviting, considering and administering bids and contracts.

The tender was awarded to the third respondent joint venture (Tlong Re Yeng Trading CC and Base Major Construction (Pty) Ltd). After the first award was set aside by agreement and the municipality re-adjudicated, the municipality again awarded the tender to the same joint venture. The high court ultimately found (and it was common cause on appeal that there was no challenge to these findings) that the tender award was unlawful on multiple grounds, including that the joint venture’s tender did not comply with bid specifications, that the joint venture engaged in fronting and made false representations in its bid, and that the municipality’s decision-making was influenced by bias and bad faith.

Central factual features relied upon by the high court (and accepted as the basis for the SCA’s remedial reasoning) included non-compliance with the required Construction Industry Development Board (CIDB) contractor grading. The required grading was 8CE PE or higher, and the bid documentation required every joint venture member to be registered with the CIDB; the lead partner to have 8CE PE or higher; and the combined grading to be at least 8CE PE. On the high court’s findings, Tlong Re Yeng held 1CE PE, while Base Major Construction held 8CE. The joint venture was accordingly treated as non-compliant with the tender specifications and should have been disqualified, particularly when other bidders (including Cycad) were eliminated for having only 8CE.

The high court also relied on facts demonstrating misrepresentation and fronting, including that Tlong Re Yeng was established only after the invitation to tender and shortly before submission; that it had no assets, employees, or income; that it did not conduct business at the time; and that its stated address did not reflect genuine business operations. Further false representations were found in relation to locality points, years in business, equity promotion scoring, and the claimed sharing of management and execution obligations between the joint venture partners.

As to the status of the project at the time of the SCA appeal, the municipality and the joint venture initially suggested the matter might be moot because the works would probably be complete. That contention was abandoned after evidence before the SCA, including a progress report from the Department of Water Affairs, indicated the project was not complete.

Legal Issues

The central legal question was what remedy was just and equitable under section 8 of PAJA, after an unlawful tender award had been set aside, in circumstances where work under the resultant contract had at least partially progressed and where the successful tenderer and the municipality had been found to have engaged in serious misconduct (including bias, fraud, and fronting).

A related question was whether, in procurement review litigation, a court may grant relief that in substance permits the continued performance of a contract concluded pursuant to an unlawful tender award, rather than granting relief that gives effect to the invalidity of the underlying administrative action and the contract concluded pursuant to it.

Further legal issues concerned procedural and preliminary matters relevant to the appeal, including whether the dispute had become moot (a factual/practical question affecting whether the appeal would have practical effect), and whether Cycad had standing to pursue review relief given its lower CIDB grading (a question involving the application of constitutional and PAJA standing principles to the facts).

The appeal also raised questions about the proper exercise of a court’s discretion on costs, including whether the high court misdirected itself by depriving successful review applicants of costs, whether punitive costs were warranted against the municipality and the joint venture to reflect reprehensible conduct, and whether the costs order in favour of the municipality’s attorney (the ninth respondent) should be interfered with on appeal.

Overall, the dispute primarily concerned the application of legal principles to established facts, especially in relation to remedial discretion under PAJA and costs discretion, rather than the resolution of primary factual disputes.

Court’s Reasoning

The SCA proceeded from the premise that the high court’s finding of unlawfulness stood and was not in issue on appeal. The focus was therefore on the remedial and costs consequences that should follow once administrative action has been found invalid. The court emphasised that the remedial power in section 8 of PAJA is a “generous” discretion to make any order that is just and equitable, but that this discretion must be exercised judiciously and based on the facts, not on speculation.

In developing the remedial framework, the court relied on constitutional legality principles and the remedial structure endorsed in constitutional jurisprudence. It accepted that unlawful administrative action must be declared unlawful, and only thereafter does the remedial enquiry arise as to what additional orders are appropriate to address consequences and competing interests. In procurement matters, the court reiterated that once a tender award is unlawful, the contract concluded pursuant to it is void ab initio. The court accepted that, in some cases, considerations of practicality, pragmatism and certainty may justify remedial orders that ameliorate the disruption caused by setting aside administrative action, especially where third parties have altered their position or where it is impracticable to unwind performance. However, it treated that flexibility as a context-sensitive remedial adjustment rather than a licence to ignore invalidity.

Against that framework, the SCA held that the high court’s remedy was flawed because it effectively ordered the continued execution of an invalid contract by parties found to have acted dishonestly and without proper qualification. In the SCA’s assessment, the high court’s remedial choice undermined its own declaration of invalidity by allowing continued performance under the tainted arrangement. The SCA further held that the high court’s decision rested on the possibility of unknown consequences and practical difficulties (such as separability, completed works, ownership of materials and logistical feasibility), but that a PAJA remedial discretion must be grounded in evidence rather than conjecture, and where the factual position has changed over time due to delays, the court should ensure it is adequately informed and craft an order that addresses what must practically happen next.

The court placed substantial weight on the character of the unlawfulness. It distinguished this case from one of mere negligence or error, noting that the invalidity flowed from dishonesty, fraud and fronting, and from bias and bad faith on the part of the municipality. It accepted that, where corruption or fraud is involved or where the successful tenderer is complicit, the potential disruption and contractual complications that might flow from setting aside an award may carry less weight than they otherwise might. The SCA invoked the principle that fraud vitiates transactions (“fraud unravels everything”) to reinforce that the joint venture could not legitimately claim protection from prejudice flowing from the setting aside of a contract it had dishonestly obtained.

The SCA also treated section 217 of the Constitution as a central contextual consideration: public procurement must be fair, equitable, transparent, competitive and cost-effective. The interests of affected communities in receiving water infrastructure were recognised as important, but the court regarded the public interest as encompassing both delivery and the maintenance of constitutional procurement standards, including resistance to corruption and the prevention of public funds benefiting unscrupulous parties. The court viewed fronting as particularly harmful because it subverts empowerment measures and may place performance in the hands of entities lacking capacity.

On the facts, the SCA regarded it as significant that any delay and partial performance were not attributable to dilatoriness by the appellants, who promptly instituted proceedings and repeatedly sought to prevent implementation. Instead, the municipality and the joint venture were found to have persisted in resisting the consequences of challenge, including through “hopeless” appellate steps against interim orders, thereby contributing to delay while benefitting from performance under a contract they should not have obtained.

Balancing legality, practicality, and the public interest, the SCA concluded that the appropriate remedy required an express declaration that the contract was void ab initio and set aside, accompanied by practical directions to secure completion of the project through a lawful process. Because the works were partially complete, the SCA held that the Department of Water Affairs should determine what remedial work and completion steps were necessary and should run a new tender process for those works. The court accepted that, given the municipality’s bias and conduct, it should play no role in any further tender process for this project.

On standing, the SCA rejected the argument that Cycad lacked standing because it did not hold the required contractor grading. It held that a tenderer has an interest in a fair, competitive process even if it does not ultimately receive the award, and that standing in this context is informed by section 38 of the Constitution and a generous approach consistent with constitutional goals. The court treated Cycad’s interest as real and not hypothetical, extending beyond mere financial interest to an interest in a lawful, fair tender process, particularly where good governance concerns are implicated.

On costs, the SCA applied the principle that costs are discretionary, but that appellate interference is warranted where the lower court acted on wrong principles, misdirected itself on the facts, or reached an unreasonable result. It held that the high court’s decision to order each party to pay its own costs was materially influenced by a finding of “collusion” by Esorfranki and Cycad that was not supported by the facts. The SCA also held that reliance on a without-prejudice settlement letter (which the municipality characterised as blackmail) did not justify depriving the appellants of their costs, and it stressed that Cycad had distanced itself from the letter. A significant misdirection was the high court’s failure to give proper weight to the appellants’ substantial success in vindicating constitutional and statutory rights, and to the seriousness of the municipality’s and the joint venture’s conduct.

The SCA further held that punitive costs were justified against the municipality and the joint venture because their conduct was reprehensible both in the tender process and in the litigation (including resistance to undertakings and pursuit of unmeritorious appellate steps), and because the costs order should reflect the court’s disapproval of such conduct.

However, as to the ninth respondent (the municipality’s attorney), the SCA declined to interfere with the high court’s punitive costs award in his favour. It held that there was no factual or legal basis to compel him, personally or professionally, to comply with the Rule 49(11) relief sought, and that the allegations impugning his integrity were unsupported and could not be cured in reply on motion. The high court was seen to have had reasonable grounds for the costs order protecting the attorney from unjustified personal citation.

Outcome and Relief

The SCA upheld the appeal by Esorfranki and Cycad against the high court’s remedial and costs orders in paragraphs 2 and 3 of its order, and replaced them with orders declaring the contract pursuant to the unlawful tender award void ab initio and setting it aside. The municipality was directed to approach the Department of Water Affairs within seven days to request it to determine the extent of remedial and completion works required, to prepare and publish a new invitation to tender for those works, and to evaluate, adjudicate and award the new tender.

The SCA ordered the municipality and the joint venture parties (third to fifth respondents) jointly and severally to pay Esorfranki’s review costs and its third Rule 49(11) application costs, and to pay Cycad’s review costs, all on an attorney and client scale, including reserved costs and the costs of two counsel where applicable. The costs of the appeal were also awarded on an attorney and client scale against the municipality and the joint venture parties (jointly and severally) insofar as the appeal succeeded.

The SCA dismissed Esorfranki’s appeal against paragraph 4 of the high court’s order (the order that Esorfranki pay the ninth respondent’s costs on the attorney and own client scale), with costs.

Cases Cited

Sizabonke Civils CC t/a Pilcon Projects v Zululand District Municipality & others 2011 (4) SA 406 (KZP).

Moseme Road Construction CC & others v King Civil Engineering Contractors (Pty) Ltd & another 2010 (4) SA 359 (SCA).

Giant Concerts CC v Rinaldo Investments (Pty) Ltd & others 2013 (3) BCLR 251 (CC).

Allpay Consolidated Investment Holdings (Pty) Ltd & others v Chief Executive Officer, South African Social Security Agency & others 2014 (1) SA 604 (CC).

Bengwenyama Minerals (Pty) Ltd & others v Genorah Resources (Pty) Ltd & others 2011 (4) SA 113 (CC).

Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs & others [2004] ZACC 15; 2004 (4) SA 490 (CC).

Zondi v MEC for Traditional and Local Government Affairs 2005 (3) SA 589 (CC).

Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC).

Mvumvu & others v Minister for Transport 2011 (2) SA 473 (CC).

Hoffmann v South African Airways 2001 (1) SA 1 (CC).

Seale v Van Rooyen NO; Provincial Government, North West Province v Van Rooyen NO 2008 (4) SA 43 (SCA).

TEB Properties CC v MEC, Department of Health and Social Development, North West [2012] 1 All SA 479 (SCA).

Chairperson, Standing Tender Committee & others v JFE Sapela Electronics (Pty) Ltd & others 2008 (2) SA 638 (SCA).

Millennium Waste Management (Pty) Ltd v Chairperson, Tender Board: Limpopo Province & others 2008 (2) SA 481 (SCA).

Eskom Holdings Ltd & another v New Reclamation Group (Pty) Ltd 2009 (4) SA 628 (SCA).

Lazarus Estates Ltd v Beasley [1956] 1 QB (CA) 712.

Firstrand Bank Ltd t/a Rand Merchant Bank & another v Master of the High Court, Cape Town & others [2013] ZAWCHC 173 (11 November 2013).

National Coalition for Gay and Lesbian Equality & others v Minister of Home Affairs & others 2000 (2) SA 1 (CC).

Naylor & another v Jansen 2007 (1) SA 16 (SCA).

Nel v Waterberg Landbouwers Ko-Operatieve Vereeniging 1946 AD 597.

Tshopo v State (29/12) [2012] ZASCA 193.

Municipal Manager: Qaukeni Local Municipality & another v FV General Trading CC 2010 (1) SA 356 (SCA).

Premier, Free State & others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA).

Phillips & others v National Director of Public Prosecutions 2003 (6) SA 447 (SCA).

Atkin v Botes 2011 (6) SA 231 (SCA).

Director of Hospital Services v Mistry 1979 (1) SA 626 (A).

Bowman NO v De Souza Roldao 1988 (4) SA 326 (T).

Port Nolloth Municipality v Xhalisa & others; Luwalala & others v Port Nolloth Municipality 1991 (3) SA 98 (C).

Aeroquip SA v Gross & others [2009] 3 All SA 264 (GNP).

Herold v Sinclair & others 1954 (2) SA 531 (A).

Ward v Sulzer 1973 (3) SA 701 (A).

Legislation Cited

Constitution of the Republic of South Africa, 1996 (including sections 38, 172(1), and 217).

Promotion of Administrative Justice Act 3 of 2000 (sections 6 and 8).

Disaster Management Act 57 of 2002.

Preferential Procurement Policy Framework Act 5 of 2000.

Construction Industry Development Board Act 30 of 2000.

Rules of Court Cited

Uniform Rules of Court, Rule 49(11).

Held

The Supreme Court of Appeal held that, once the tender award had been found unlawful, the contract concluded pursuant to it was void ab initio, and that the high court erred by granting relief that effectively permitted continued performance of an invalid contract by parties implicated in fraud, fronting, and non-compliance with tender requirements. The appropriate just and equitable remedy required setting aside the contract and directing a process, driven by the Department of Water Affairs, to determine remedial and completion works and to run a new lawful tender process. The SCA further held that Cycad had standing as a co-tenderer to challenge the fairness and lawfulness of the procurement process. It also held that the high court misdirected itself on costs by failing to reflect the seriousness of the municipality’s and the joint venture’s conduct, and substituted punitive costs orders against them, while leaving intact the punitive costs order in favour of the municipality’s attorney (ninth respondent) because the personal relief sought against him lacked factual and legal foundation.

LEGAL PRINCIPLES

The judgment applied the principle that unlawful administrative action must first be declared invalid, and only thereafter does the court exercise a just and equitable remedial discretion under section 8 of PAJA to determine what additional relief is appropriate in the circumstances, guided by constitutional legality and fairness.

In public procurement review matters, where a tender award is set aside as unlawful, the contract concluded pursuant to that award is generally void ab initio, although a court may, in appropriate circumstances, craft a remedy that accounts for practicality, certainty, and the interests of affected parties; such amelioration must be based on established facts rather than speculation.

Where the procurement process is tainted by fraud, fronting, dishonesty, or bias, the weight accorded to considerations favouring preservation of the status quo is diminished, and the public interest in enforcing section 217 of the Constitution (fair, equitable, transparent, competitive, and cost-effective procurement) strongly supports effective remedial consequences.

Standing in tender review litigation is approached broadly in line with section 38 of the Constitution and the constitutional purpose of PAJA; a tenderer may have standing to challenge the lawfulness of a tender process based on an interest in a fair and competitive process, even where the tenderer’s own prospects of award are contested.

Costs remain discretionary, but appellate courts will interfere where the discretion is not exercised judicially or is based on misdirection; in procurement litigation, costs orders may properly reflect judicial disapproval through punitive costs where an organ of state and tenderers have engaged in seriously reprehensible conduct, including biased decision-making and dishonest tendering, and where they have conducted litigation in a manner that frustrates accountability and lawful administration.

Esorfranki Pipelines (Pty) Ltd and Another v Mopani District Municipality and Others (40/13) [2014] ZASCA 21; [2014] 2 All SA 493 (SCA) (28 March 2014)