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WILSON J:
1 The applicant, Sekela Xabiso, is a firm of auditors which tendered for work
from the first respondent, Transnet. In its request for proposals, Transnet
specified that it intended to appoint successful bidders for a period of five
years. After an open and competitive tendering process, Sekela Xabiso was
designated as one of two preferred bidders. Contractual negotiations ensued,
in which it was revealed to Sekela Xabiso that Transnet intended to appoint it
as one of two firms to do all of Transnet’s auditing work for a period of just one
year. This was because, during the tendering process, Transnet had taken a
decision, in principle, to bring all of its auditing functions in-house. Transnet
did not want to commit itself to a five year agreement, since that would have
been incompatible with its intention to insource the functions it had put out to
tender.
2 Sekela Xabiso took the view that it was not worth its while to perform the work
for just a year. It managed to secure an agreement from Transnet that it would
perform half of Transnet’s auditing work for a period of two-and-a-half years,
after which it was envisaged that Transnet would take its auditing functions in-
house. In the event that this did not happen, Sekela Xabiso secured itself an
extraordinary contractual advantage. That advantage, embodied in clause 6.1
of its agreement with Transnet, was that Transnet would be “restricted for a
period of 60 months from [24 October 2019] from procuring” services similar
to the services it had procured from Sekela Xabiso from anyone else. This
meant that if Transnet did not insource those services, it would have no choice
but to purchase them from Sekela Xabiso (clause 6.2). That undertaking would
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remain in effect for a period of two-and-a-half years after the expiration of the
initial period for which Transnet had retained Sekela Xabiso’s services.
3 On the face of it, the effect of clause 6 was to require Transnet to purchase
auditing services from Sekela Xabiso for the full five year period for which it
had initially issued the request for proposals, unless Transnet insourced its
auditing services during the second half of that period. In other words,
Transnet was forbidden, for a period of five years, from exercising its ordinary
public procurement powers to obtain from anyone else the services it had
bought from Sekela Xabiso. At the end of the two-and-a-half year period for
which it had initially contracted with Sekela Xabiso, Transnet would either
have to insource its auditing work, or contract Sekela Xabiso to do that work
for whatever portion of the remaining two-and-a-half year period that it did not
insource its auditing functions.
4 After the expiration of the initial two-and-a-half year period, Transnet extended
Sekela Xabiso’s contract for a further year, but at the end of that period,
Transnet informed Sekela Xabiso that it did not intend to renew the agreement
further. Nor did it intend to insource its audit function. Transnet instead issued
a new request for proposals for its auditing work, and ultimately employed
Deloitte & Touche to provide auditing services for a five year period. Sekela
Xabiso’s contract was renewed for a further four months for the purposes of
handing over its work to Deloitte & Touche.
5 The upshot of all of this was that Sekela Xabiso was deprived of the benefit of
the clause 6 restriction for fourteen months of the five year period to which
Transnet had agreed to be bound by it. Aggrieved, Sekela Xabiso commenced
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arbitration proceedings for the damages it claimed it had suffered as a result
of Transnet’s failure to observe the full extent of the restriction.
Arbitration
6 The arbitration proceedings were conducted under the standard rules
formulated by the third respondent, AFSA. The second respondent, Mr.
Maenetje, was appointed as arbitrator. In its statement of defence, Transnet
averred that clause 6 of its contract with Sekela Xabiso is unconstitutional and
invalid, since the restriction it embodies is contrary to section 217 of the
Constitution, 1996. Section 217 (1) requires public procurement to take place
“in accordance with a system which is fair, equitable, transparent, competitive
and cost-effective”. The gist of Transnet’s case at arbitration was that clause
6 of the agreement is neither transparent nor competitive, since it bound
Transnet to Sekela Xabiso for a period far beyond the initial contract period.
Assuming that it did not insource its auditing function, Transnet agreed not to
exercise its ordinary powers of public procurement for a period of up to two-
and-a-half years after the contract expired. To tie itself in this way to one
service provider in the absence of a contract was, Transnet argued,
unconstitutional.
7 It is now well-established that it is beyond the competence of an arbitrator to
determine the constitutional validity of an act of public procurement (see, for
example, NAD Property Income Fund (Pty) Ltd v Bushbuckridge Local
Municipality [2025] ZASCA 184 (4 December 2025), at paragraph 24). Both
parties recognise this, and the arbitration has been stayed pending the
outcome of this application.
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The application before me
8 In this application, Sekela Xabiso asks for an order declaring clause 6 of its
agreement with Transnet to be constitutionally valid and enforceable. By
contrast, Transnet counter-applies for an order reviewing and setting aside its
decision to incorporate that clause into the agreement. The parties agree, in
my view correctly, that clause 6 is severable from the rest of the agreement.
9 At the outset of the argument, the parties agreed that the principal issue before
me is the meaning of clause 6 in the context of the agreement as a whole. Ms.
Mgudlwa, who appeared for Sekela Xabiso, submitted that the meaning of
clause 6 is that, in the event that Transnet’s audit function was not insourced,
Sekela Xabiso’s contract would be automatically renewed beyond the initial
two-and-a-half year period on the same terms and conditions, until the end of
the whole of the five-year period to which clause 6 applied. For his part, Mr.
Maleka, who appeared with Ms. Long for Transnet, submitted that the true
effect of clause 6 is to give Sekela Xabiso the exclusive right to perform
Transnet’s outsourced auditing functions for a period of five years. The first
two-and-a-half years of that period would be on the terms set out in the
agreement itself. For the remaining period, however, Transnet’s undertaking
to contract only with Sekela Xabiso meant that Sekela Xabiso could impose
whatever terms it chose, because Transnet was forbidden from seeking better
terms on the open market.
10 Counsel were agreed that, if the meaning of clause 6 is as Ms. Mgudlwa
contended, then it is not contrary to section 217 (1) of the Constitution, since
it is no more than an agreement to retain Sekela Xabiso on definite terms and
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conditions in the event that Transnet did not insource its auditing functions
during the five-year period (on the obvious legality of which see, for example,
Gauteng MEC for Health v 3P Consulting (Pty) Ltd 2012 (2) SA 542 (SCA)).
If, however, clause 6 means that Transnet had to employ Sekela Xabiso for
the whole five-year period, during the second half of which neither party would
be bound by the other terms and conditions set out on the agreement, then
clause 6 is unconstitutional, since it would allow Sekela Xabiso to dictate the
terms of its employment during the second half of the five-year period, and
would prevent Transnet from seeking better terms from other service
providers. That, it was agreed, could neither be competitive nor transparent.
Clause 6
11 I turn, then, to the meaning of clause 6. That is to be determined by reference
to the ordinary grammatical meaning of the words used in the clause,
evaluated in the context of the contract as a whole, taking into a account the
purpose for which the contract was concluded and the circumstances
surrounding its genesis. Although the interpretive exercise starts with the text
and its structure, no one source of meaning is to be preferred over another.
The point is to arrive at a sensible, businesslike, interpretation of the clause in
light of its full textual and circumstantial context (see Capitec Holdings Ltd v
Coral Lagoon Investments 194 (Pty) Ltd 2022 (1) SA 100 (SCA), paragraphs
46 to 51 and Democratic Alliance v City of Johannesburg 2025 (3) SA 204
(GJ), at paragraph 23).
12 Clause 6 reads as follows –
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6 RESTRICTIONS
6.1 Notwithstanding any clause in this Agreement it is hereby
recorded that the Company [Transnet] shall be restricted for a
period of 60 months from the Effective Date [24 October 2019]
from procuring, participating in any Transversal Contract and/or
contract procured by any state owned entity including
Government Department for Services and/or similar services
procured in this Agreement.
6.2 If the Company wishes to procure such Services and/or similar
services it shall procure such Services from the Service Provider
[Sekela Xabiso].
6.3 This Agreement shall remain in force and effect after the expiry of
30 months from Effective Date and continue for a further period
agreed between the Parties within the 90 days prior to the expiry
period of the Term. The Company shall inform the Service
Provider of the intention to extend the Term of the Agreement in
accordance with Clause 5. Extension of [the] contract will be
subject to National Treasury Regulations, Transnet Procurement
Procedure Manuals and Transnet Delegation of Authority
framework.
6.4 Notwithstanding the Term of this Agreement, clause 6 shall
remain in force and effect for a period of 30 months after [the]
Term.
13 In this text, the “Agreement” means the contract as a whole, together with any
provisions of the tender conditions or bid documents which govern the
provision of services to Transnet by Sekela Xabiso (see clause 2.3). “Term”
means the initial two-and-a-half year period of the agreement, and any
extension of that term agreed between the parties (see clause 2.81).
14 At the core of clause 6 is the undertaking not to procure auditing services from
anyone but Sekela Xabiso. That is the effect of clause 6.2. That undertaking
is given effect to by the embargo on procuring any such services from anyone
else for a period of 60 months, which is embodied in clause 6.1. Clause 6.3
states that the whole agreement will remain in force after the initial two-and-a-
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half year period has expired, provided that the parties agree to extend the
initial period during the 90 days immediately preceding its expiry. Clause 6.4
provides for clause 6 as a whole (and accordingly the restrictions it contains)
to survive the Term (being the initial period plus any extensions agreed to) by
a period of 30 months. This technically means that the clause 6 restriction
might notionally endure for seven-and-a-half years, but nobody suggests that
this was its true meaning. Counsel were agreed that the purpose of the clause
was to ensure that Transnet continued to purchase its outsourced audit ing
services from Sekela Xabiso for five years from 24 October 2019.
15 If, as Ms. Mgudlwa contended, clause 6 is to be read as requiring no more
than that the agreement be extended for a maximum period of five years in
the event that Transnet does not insource its audit function, then clause 6 of
the agreement would have to be read as requiring an extension of the
agreement on the same terms and conditions. Whether that meaning can be
attributed to clause 6.3, which envisages such an extension, depends on the
construction to be given to clause 5, to which clause 6.3 cross-refers.
16 Clause 5 reads as follows –
5. COMMENCEMENT AND DURATION
5.1 Subject to the terms and conditions of this Agreement, this
Agreement shall become effective on the Effective Date [24
October 2019]. The rendering of the Services by the respective
Service Provider to the Company, in accordance with this
Agreement shall commence on the Effective Date and shall
endure for a period of thirty (30) months, until the Termination
Date, at which time this Agreement shall terminate.
5.2. Notwithstanding the Term of this Agreement the Company may
extend the Term for further period of 30 Months subject to the
terms and conditions to be agreed by the Parties and subject to
the National Treasury granting approval if the extension of the
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Agreement results in an amount exceeding the threshold set by
National Treasury for contract variation and/or extension which
amount shall be calculated using the amount indicated in Clause
13.5.
5.3 90 days prior to the expiry period of the Term the Company shall
issue a notice to the Service Provider of its intention to extend the
Term of the Agreement in accordance with this clause 5.
17 On its face, clause 5.2 grants Transnet a discretion: it may choose to extend
the term of the agreement. If it chooses to do so, the term will be extended on
“terms and conditions to be agreed” between Transnet and Sekela Xabiso. In
other words, it is on the election of Transnet that the agreement survives the
initial period of 30 months (or two-and-a-half years). This sits in obvious
tension with the idea that all clause 6 envisages is an extension of the
agreement in the event that Transnet’s audit function is not insourced. Not
only does Transnet get to choose whether the agreement survives the initial
two-and-a-half-year period at all, the extension is itself “subject to the terms
and conditions to be agreed”.
18 It seems to me that the only way that clauses 5 and 6 can be read together is
to separate the period of the agreement and the terms and conditions on which
it is concluded on the one hand from the restriction set out in clause 6 on the
other. Even though clause 6.3 provides for the “agreement” to be extended
beyond the initial term, that extension must be agreed under clause 5. Clause
5 not only reserves to Transnet the discretion to extend the agreement (in
other words, Transnet could decide not to extend the agreement at all), it
leaves the “terms and conditions” of such an extension completely open. Such
an “agreement to agree” has historically been considered unenforceable
unless there is some provision to break any deadlock the negotiations might
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reach, although the Constitutional Court has suggested that the least that it
might imply is a duty to negotiate in good faith (see Makate v Vodacom (Pty)
Ltd 2016 (4) SA 121 (CC) paragraphs 95 to 103). But whatever may be said
of the fact that clause 5 leaves the “terms and conditions” of any extension
open, the least that it must entail is that neither party envisaged clause 5 would
mean the automatic renewal of the contract on the same terms and conditions,
in the event that Transnet’s audit function was not insourced.
19 The upshot is that clause 6 must mean that, short of insourcing its audit
function, Transnet had to contract with Sekela Xabiso come what may, and
that it was forbidden from seeking similar services on the open market, even
after the terms on which Sekela Xabiso provided them during the initial period
had expired. This conclusion is reinforced by clause 25.1 (b) of the agreement,
which refers to any extension of the agreement as being “at [Transnet’s] option
for a further period to be agreed between the parties”, and by clause 2.81,
which defines the Term of the agreement as 30 months, and such further
period agreed “in accordance with Clauses 5.1 and 5.2”. There would be no
point in affording Transnet the discretion not to renew the agreement – as
clauses 5 and 25 plainly do – if clause 6 meant an automatic renewal on the
same terms and conditions anyway.
20 The circumstances surrounding the conclusion of the agreement also suggest
that the purpose of clause 6 was not to renew the agreement on the same
terms and conditions in the event that Transnet did not insource its audit
function. What Sekela Xabiso really wanted was guaranteed work for five
years if Transnet did not insource its audit function. It was the period rather
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than the precise terms of the work that animated the insertion of clause 6 in
the first place. Sekela Xabiso was not content to contract for a year. It wanted
to do so for five years. It accepted two-and-a-half years in the hope that it
might get five years if Transnet did not take its audit function in-house.
21 If the purpose of clause 6 was really no more than that the agreement with
Sekela Xabiso would continue for a period of 5 years on the terms and
conditions specified unless and until Transnet insourced its audit function,
then it is not clear to me why that was not set out explicitly in the agreement
itself. If that were the agreement’s true purpose, much of clause 5 would make
no sense at all. But I must read clause 5 as if the parties intended it to have
both meaning and force. If that is done, it seems to me that the automatic
renewal of the agreement in the event that Transnet’s audit function remained
outsourced cannot be the true purpose clause 6.
22 It follows that clause 6 is no more than a restrictive covenant that bound
Transnet to purchase auditing services from Sekela Xabiso for a period of five
years, and that prevented Transnet from exercising its ordinary powers to
procure such services elsewhere, unless it insourced its audit function.
The unconstitutionality of clause 6
23 So construed it seems plain to me that clause 6 is unconstitutional. At the very
least, it is an unlawful fetter both on Transnet’s contractual power, provided
for in clause 5 itself, to decline to renew the agreement after the initial period
expires, and on its constitutional obligation to procure services transparently
and competitively on the open market as envisaged section 217 of the
Constitution, 1996. This is not a case in which I must consider the degree to
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which Transnet may fetter its contractual power to refuse to renew the
agreement with Sekela Xabiso, or its constitutional obligations to procure
services competitively and transparently. The effect of clause 6 in this case is
to completely extinguish that power and those obligations for the period of the
restriction. A fetter of that nature is, the Constitutional Court has held,
obviously unlawful (see President of the Republic of South Africa v South
African Rugby Football Union 2000 (1) SA 1 (CC), paragraph 198).
24 Moreover, and in any event, in requiring that procurement be “competitive”
and “transparent”, section 217 of the Constitution forecloses the possibility of
one company cornering the market for the provision of services to a particular
state entity, even for a limited period – especially if the effect of it doing so
would be that it could name its own price. Ms. Mgudlwa made no submissions
to the contrary. But that is exactly the effect of clause 6 as I have construed it.
The very purpose of section 217 is to prevent private entities from
monopolising state resources. But that is the effect of clause 6, albeit for a
limited period.
25 The situation would have been different if Transnet and Sekela Xabiso had
simply agreed that the contract would run for five years unless and until the
audit function was insourced. A private entity that provides the state with a
service in return for remuneration pursuant to an otherwise constitutional
procurement process acts perfectly lawfully. But that is not what happed here.
In this case, Sekela Xabiso sought to capture the state’s purchasing power for
a period exceeding the term of the contract. That sort of arrangement cannot
lawfully be executed, not least because it will inevitably lend a legal veneer to
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corrupt control of state resources. There is no suggestion that either party has
any corrupt intent in this case. On the face of things, Sekela Xabiso sought no
more than an agreement on the most favourable terms that it could get. But
the tendency of the arrangement embodied in clause 6 to lend itself to corrupt
relationships between the state and capital seems obvious to me. The
application to declare clause 6 to be constitutionally valid must fail.
The review
26 Ms. Mgudlwa submitted that, even if I reached that conclusion, I should not
review and set aside Transnet’s decision to include clause 6 in its agreement
with Sekela Xabiso. This is because, so it was submitted, Transnet has
unreasonably delayed in instituting its review. Transnet signed the agreement
on 9 September 2020. Yet Transnet waited until Sekela Xabiso sought to rely
on clause 6 before placing its constitutionality in issue. Transnet only launched
its review as a counter-application in these proceedings. The counter-
application is dated 20 December 2023.
27 I am prepared to accept that Transnet unreasonably delayed in instituting its
self-review. I am not given much insight, in Transnet’s answering affidavit, into
what led Transnet to wait more than three years before launching its review.
The attitude seems to have been that Transnet could sit back and wait to see
if Sekela Xabiso would try to enforce the offending clause. That was
unfortunate.
28 The fact remains, however, that clause 6 is plainly constitutionally invalid.
Transnet’s overwhelming prospects of success in demonstrating this seem to
me to be reason enough to condone the unreasonable delay. There is also
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the fact that it is Sekela Xabiso itself that has chosen to place the legality of
clause 6 in issue, for the purposes of confirming its right to contractual
damages. During argument, I asked Ms. Mgudlwa what would happen if I were
to refuse the relief Sekela Xabiso seeks, while at the same time declining to
set aside Transnet’s decision to incorporate the clause into the agreement.
Ms. Mgudlwa accepted that this would achieve little more than to confuse the
position before the arbitrator. The delay will be condoned.
Justice and equity
29 Section 172 (1) (a) of the Constitution enjoins me to declare clause 6 of the
agreement to be invalid. Section 172 (1) (b) affords me a wide discretion to
determine the relief that should flow from this invalidity. Just and equitable
relief is ordinarily relief that vindicates the rule of law (Bengwenyama Minerals
(Pty) Ltd v Genorah Resources (Pty) Ltd 2011 (4) SA 113 (CC), paragraph
85), and which corrects or reverses the consequences of unconstitutional
conduct. The default position is accordingly that the unlawful decision to
include clause 6 in Transnet’s contract with Sekela Xabiso must be set aside
(Allpay (No 2) Consolidated Investment Holdings (Pty) Ltd v Chief Executive
Officer of the South African Social Security Agency 2014 (4) SA 179 (CC) ,
paragraph 30).
30 The question is whether there are any special circumstances in this case
which warrant a departure from this default position. I can see none. In the
arbitration, Sekela Xabiso seeks contractual damages on the basis that clause
6 was breached when Transnet put its auditing services out to tender during
the restriction period. But if the restriction period was itself unlawful, damages
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cannot and should not follow. There is no suggestion that Sekela Xabiso was
not remunerated for the work that it actually did over the three years and ten
months that it rendered services to Transnet. All Sekela Xabiso seeks is the
benefit of a contractual provision, to which it was never entitled, that held
Transnet as a captive customer for a period of fourteen months. There is no
reason why that provision should continue to benefit Sekela Xabiso
notwithstanding its unlawfulness.
31 Clause 6 will be declared invalid, and Transnet’s decision to enter into it will
be reviewed and set aside.
Costs
32 Ms. Mgudlwa submitted that the costs shield provided for in Biowatch Trust v
Registrar Genetic Resources 2009 (6) SA 232 (CC) should apply in the event
that I ruled for Transnet. I am not convinced of that proposition, since Sekela
Xabiso seeks to vindicate purely commercial interests, both in this application,
and in the arbitration proceedings that precipitated it. Nevertheless, I do not
think I need to apply Biowatch to come to the conclusion that there should be
no order as to costs. Transnet ought to have known that clause 6 was
unenforceable from the outset. In choosing to wait for these proceedings to be
launched before instituting its self-review, Transnet put Sekela Xabiso to the
litigious effort and expense that Transnet ought properly to have assumed
itself some time ago. In those circumstances, Transnet is not entitled to its
costs.