THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case No 528/04
In the matter between:
JURGENS JOHANNES STEENKAMP NO Appellant
and
THE PROVINCIAL TENDER BOARD OF
THE EASTERN CAPE Respondent
Coram: HARMS, CAMERON, JAFTA, PONNAN AND
MLAMBO JJA
Heard: 17 NOVEMBER 2005
Delivered: 30 NOVEMBER 2005
Subject: Delict – liability of tender board tow ards tenderers
for negl igently awarding tender contrary to
principles of administrative justice – no liability in
damages
J U D G M E N T
HARMS JA:
2
INTRODUCTION
[1] The negligent causation of pure economic loss is prima facie
not wrongful in the delictual sense and does not give rise to liability
for damages unless policy considerations require that the plaintiff
should be recompensed by the defendant for the loss suffered. This
is another case in which these limits are being tested, this time in an
administrative law setting.
[2] The appellant, the liquidator of Balraz Technologies (Pty) Ltd,
sued the Provincial Tender Board of the Eastern Cape (the
respondent) for such damages suff ered by the company before its
liquidation. These are the facts in summary. Balraz, and five other
concerns, submitted tenders pursuant to an invitation issued by the
State Tender Board for the supply to the Eastern Cape Province of
three separate services relating to the implementation of an
automated cash payment system for social pensions and other
welfare grants. Balraz’s tender appeared to be the lowest but
concerns were raised by two technical advisory committees about the
effective cost of its tender (the t ender was not for a globular sum but
per item and the number of items were an unknown factor) and about
Balraz’s ability to deliver. In spite of these reservations and in the
3
belief that Balraz represented local (Eastern Cape) interests and that
awarding the contract to it would support black empowerment, the
Board decided to split the tender (as it was entitled to do) by
awarding one of the three services to Balraz and the other two to
Pensecure (Pty) Ltd.
[3] Pursuant to the award the Province placed an order on Balraz.
In order to perform in terms of the co ntract, Balraz allegedly incurred
expenses amounting to R4,35m (the bulk of which in fact represented
consultants’ and directors’ ‘salarie s’). Thereafter, the Ciskei High
Court at the behest of an unsuccessful tenderer set both tender
awards aside on review. 1 It is these expenses that the appellant
wishes to recover as damages from the Board. They are admittedly
purely economic and consist of out-of-pocket expenses.
[4] The appellant’s case as pl eaded was that the Board owed
Balraz a duty in law to (i) exercise its powers and perform its
functions fairly, impartially and in dependently; (ii) take reasonable
care in the evaluation and invest igation of tender s; (iii) properly
evaluate the tenders within the parameters imposed by tender
requirements; and (iv) ensure th at the award of the tender was
1 Cash Paymaster Services (Pty) Ltd v Eastern Cape Province and others 1999 (1) SA 324 (CkH).
4
reasonable in the circumstances . The appellant specifically
disavowed reliance on lack of good faith on the part of the Board.
[5] The particulars of claim alleged further that the Board, in
performing its statutory duty, acte d negligently. The sting of the
allegation was based on a number of factual assumptions, namely
that the tender as awarded would have been R100m more expensive
than otherwise and was not the cheapest; that the requirements of
economic efficiency were accordingl y ignored by t he Board; and –
ironically – that the Board did not take into account the fact that
Balraz lacked the required technical competence. 2 The Board was,
according to the allegations, negligent (and I summarise) because it
failed to take reasonable care in the evaluation and investigation of
tenders by disregarding the recommendations of two technical
evaluation committees; did not properly study the tender documents;
failed to determine the actual costs but had regard to the unit costs
only; made a hasty decision on inadequate facts; and
overemphasised the principles of the national government’s
reconstruction and development policy.
2 The assumptions were based on the findings in Cash Paymaster Services (Pty) Ltd v Eastern Cape
Province and others 1999 (1) SA 324 (CkHC), especially at 342J, 343C, 347E-H, 350C-D and 360E-F.
5
[6] In the particulars of claim the appellant originally claimed loss of
profit because of a breach of cont ract. The Board filed an exception
to this leg of the particulars of claim on the basis that it did not breach
the contract; the contract was invalidated. 3 The exception was
upheld by White J who though dismi ssed an exception against the
delictual claim. The delictual claim went on trial before David van Zyl
J, who ordered a separation of the ques tions of liability (i.e. whether
the Board’s conduct ha d been wrongful vis-à-vis Balraz and, if so,
whether it had been negligent) and quantum, the latt er standing over
for later adjudication. Causation the parties thought relates to
quantum only, which it does not necessarily, as the facts of the case
will demonstrate, and much of what follows would have been
irrelevant if causation relating to damage (in contradistinction to
causation of quantum) had not been separated.
[7] Because Balraz had not been incorporated at the time when the
tender was submitted in its name and when the tenders closed, the
court below held that the tender was in any event void and that the
Board could therefore not ha ve had a ‘duty of c are’ towards Balraz
3 Cf Eastern Cape Provincial Government v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA).
6
and the claim was dismissed becaus e wrongfulness had not been
established in this regard. The appeal is before us with its leave.
STATUTORY SETTING
[8] These events took place under the interim Constitution which
provided that the procurement of goo ds and services at any level of
government had to be regulated by statute; ‘independent and
impartial’ tender boards had to be app ointed; and tendering systems
had to be ‘fair, public and competitive’ (s 187).4
[9] In consequence the Province adopted the Provincial Tender
Board Act (Eastern Cape) 2 of 1994. 5 It established a tender board of
between 12 to 16 persons. Not fewer than six and not more than half
of its members could be officers or employees of the Province. Men
and women had to be adequately represented and the composition of
the Board had to be ‘widely representati ve of the interests of all the
4 See now s 217 of the Constitution, which is somewhat different:
‘(1) When an organ of state in the national, provincial or local sphere of government, or any other
institution identified in national legislation, contracts for goods or services, it must do so in accordance
with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from
implementing a procurement policy providing for-
(a) categories of pref erence in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework w ithin which the policy referred to in subsection (2)
must be implemented.’
5 Since repealed by the Provincial Tender Board Appeal Act (EC) 6 of 2004. The repeal does not affect the
judgment save that the Member of the Executive Council responsible in the EC Province was substituted as
respondent for the sake of form, which happened when the appeal was called.
7
people resident within the Province’. The Act did not establish any
criteria or minimum qualifications or levels of technical or legal
expertise for board members. (The fi rst chair and his alternate were
both men of the cloth.) Echoing t he interim Constitution, the Act
required of the Board to ‘exercise its powers and perform its functions
fairly, impartially and independently’ (s 2(3)). The Board also had to
devise a tendering system that was ‘fair, public and competitive’ (s
4(2)).
[10] The legal position of the Board was somewhat ambiguous. The
intention was to set up an org an of state, independent of the
provincial government, which had to advise and protect the Province
during the procurement process of goods and services. However, the
Board was also an arm of the provin cial government with the power
to act on its behalf and to bind it contractually. The Board had the
sole power to procure supplies and services for the Province, it could
conclude procurement agreements on the Province’s behalf and
resile from them. In an appropriat e case the Board could claim
damages, presumably those suffered by the Province due to a breach
of a contract concluded by the Board.
8
ADMINISTRATIVE LAW AND THE LAW OF CONTRACT
[11] There is no need to restate t he administrative law principles
applicable to a public tender process save to repeat that any such
process is governed by the Constitu tion (which includes the right to
administrative justice) and legislat ion made under it and that if the
process of awarding a tender is suffi ciently tainted the transaction
may be visited with invalidity on review.
[12] Everything though is not admini strative law. Seen in isolation,
the invitation to tender is no doubt an offer made by a state organ ‘not
acting from a position of superiority or authority by virtue of its being a
public authority’,6 and the submission of a tender in response to the
invitation is likewise the acceptance of an offer to enter into an option
contract by a private concern who does so on an equal footing with
the public authority. 7 The evaluation of the tender is however a
process governed by administrative law.8 Once the tender is awarded
the relationship of the parties is that of ordinary contracting parties
although in particular circ umstances the requirements of
6 Cape Metropolitan Council v Metro Inspection Services CC 2001 (3) SA 1013 (SCA) para [18].
7 Cf Blackpool Aero Club v Blackpool BC [1990] 1 WLR 1195 (CA).
8 Cape Metropolitan Council v Metro Inspection Services CC 2001 (3) SA 1013 (SCA) para [19].
9
administrative justice may have an impact on the contractual
relationship.9
FATE OF THE TENDER AWARD
[13] As mentioned, the ‘contract’ between Balraz and the Board was
nullified by the order on review. 10 It is difficult to pinpoint the exact
ground of review which was held to apply and I am left with an
uneasy feeling that the difference between appeal and review was
not always kept in mind but it is not necessary to reconsider the
judgment. It is a given. On the ot her hand, delictual liability was not
an issue in that case and the judgment and its reasons have no
bearing on this appeal.
WRONGFULNESS: THE VIEWS OF THE COURTS BELOW
[14] White J, in dismissing the exception dealing with delictual
liability, was satisfied that:
‘public policy does consider any act or omission by the Board, which results in
anyone else suffering damages or econom ic loss, to be wrongful. It is
unthinkable that the Board will have carte blanche to act as it pleases,
irrespective of the loss which such actions may cause to others.’
9 Logbro Properties CC v Bedderson NO and others 2003 (2) SA 460 (SCA).
10 Cash Paymaster Services (Pty) Ltd v Eastern Cape Province and others 1999 (1) SA 324 (CkH).
10
[15] Van Zyl J, after a close analysis of the case law, was more
circumspect but also concluded that a tender board owes a legal duty
to the successful tenderer in awa rding a tender to that party.
Paraphrased he reasoned as follows . All tenderers, successful and
unsuccessful, are entitled to a lawful and fair process. Statutes
dealing with tenders are enacted in the interest of both the state and
of tenderers. An unsuccessful tenderer has a remedy in the form of a
review whereas a successful tenderer, such as Balraz, has none
unless a damages claim is recognised. Balraz’s claim is limited to
out-of-pocket expenses and a da mages award will not place a
serious burden on the public purse. The threat of a damages claim
will not make a tender board unduly cautious but will rather lead to a
higher standard of care in accordance with the constitutional concept
of accountability. The floodgate argument does not apply because it
will only be successful tenderers (in this case two, Balraz and
Pensecure) who could have claims once awards are set aside. It is
foreseeable that a failure to comply with a statutory duty in the
adjudication of a tender might result in the successful tenderer, who
does not know of the irregularity, incurring expenses to perform in
terms of the contract, and that such a tenderer might suffer loss in the
11
form of wasted expenses if the award were to be set aside
subsequently.
[16] The ‘duty of care’, van Zyl J continued, is not general, but
relative or directional and the que stion was therefore whether such a
duty was owed to Balraz where its tender offer was a nullity. He found
that the absence of a valid tender meant that there could not have
been any administrative relationship between Balraz and the Board.
Consequently it could not hav e been within the reasonable
contemplation of the Board that Balraz could suffer harm or loss
when it directed its mind to th e acts or omissions that were
questioned. Lacking foreseeability of harm there could not be
wrongfulness. Based on this he dismissed the claim.
DUTY OF CARE AND FORESEEABILITY
[17] The constant use of the phrase ‘d uty of care’ is unfortunate. It is
a term that in our legal setting is inherently misleading and its use
may have led the trial court some what astray. This appears from
especially the concluding part of the ratio mentioned where the
emphasis in relation to wrongful ness was placed on foreseeability of
harm as if it were a sine qua non for wrongfulness. The approach
adopted appears to be similar to that under the English tort of
12
negligence. There the questions to answer in order to establish a duty
of care are: (i) Was the damage to the plaintiff reasonably
foreseeable? (ii) Was the relationship between the plaintiff and the
defendant sufficiently proximate? (iii ) Is it just and reasonable to
impose a duty of care?11
[18] The role of foreseeability in the context of wrongfulness must
be seen in its correct perspec tive. It might, depending on the
circumstances, be a factor that can be taken into account but it is not
a requirement of wrongfulness and it can never be decisive of the
issue. Otherwise there would not have been any reason to distinguish
between wrongfulness and negligence and since foreseeability also
plays a role in determining legal c ausation, it would lead to the
temptation to make liability dependent on the foreseeability of harm
without anything more, which would be undesirable.
LEGAL DUTY OF TENDER BOARD
[19] A useful starting point in cons idering the nature of the legal duty
of the Board towards tenderers in general is to remind oneself a legal
duty may have its origin in either statute law or the common law and
that the breach of every legal duty, especially one imposed by
11 Caparo Industries plc v Dickman [l990] 2 AC 605 (HL) at 617-618.
13
administrative law, does not translate by necessity into the breach of
a delictual duty, i.e. a duty to compensate by means of the payment
of damages. Because the term ‘legal duty’ is inherently ambiguous, it
is therefore important to have due regard to the exact nature of the
legal duty in issue.
[20] A statutory and a common-law duty may, in a given case,
overlap. If the legal duty invoked is imposed by a statutory provision
the focal question is one of statutory interpretat ion: does the statute
confer a right of action or provide th e basis for inferring that a legal
duty exists at common law? But if a common-law duty is at issue, the
answer depends on a broad assess ment of whether policy
considerations require that a ci vil claim for damages should be
accorded.
12
[21] Whether the existence of an action for damages can be inferred
from the controlling legislation depends on its interpretation13 and it is
especially necessary to have regard to the object or purpose of the
legislation. This involves a consid eration of policy factors which, in
the ordinary course, will not differ from those that apply when one
12 Olitzki Property Holdings v State Tender Board and another 2001 (3) SA 1247 (SCA) at para [12].
13 Cf Knop v Johannesburg City Council 1995 (2) SA 1 (A).
14
determines whether or not a common-l aw duty existed because, as
Lord Hoffmann said:14
‘If the policy of the Act is not to create a statutory liability to pay compensation,
the same policy should ordinarily exclude the existence of a common law duty of
care.’
[22] One has to concede that our case law is not clear when it
comes to drawing the boundary between liability due to the breach of
a statutory duty and that of a comm on-law one. It appears to me that
if the breach of a statutory duty, on a conspectus of the statute, can
give rise to a damages claim, a common-law legal duty cannot arise.
If the statute points in the other direction, namely that there is no
liability, the common law cannot provi de relief to the plaintiff because
that would be contrary to the stat utory scheme. If no conclusion can
be drawn from the statute, it seems unlikely that policy considerations
could weigh in favour of granting a common-law remedy.
14 Stovin v Wise [l996] AC 923 (HL) at 953A. Cf Lord Slynn in Barret v London Borough of Enfield [1999]
UKHL 25; [1999] 3 All ER 193: ‘Both in deciding whether particular issues are justiciable and whether if a
duty of care is owed, it has been broken, the court must have regard to the statutory context and to the
nature of the tasks involved. The mere fact that something has gone wrong or that a mistake has been made,
or that someone has been inefficient does not mean that there was a duty to be careful or that such duty has
been broken. Much of what has to be done in this area involves the balancing of delicate and difficult
factors and courts should not be too ready to find in these situations that there has been negligence by staff
who largely are skilled and dedicated.’
15
[23] Counsel for the appellant eschewed reliance on a statutory duty
and although the legal duties pleaded were derived from the wording
of the Act under consideration, he submitted that those duties were in
any event common-law duties that have their origin in the basic
principles of administrative law, and that it was merely by chance that
the two overlap. This argument, although at first blush attractive,
contains some pitfalls.
[24] Since the adoption of the interim Constitution the common-law
principles of administrative law have been subsumed by a
constitutional dispensation and every failure of administrative justice
amounts to a breach of a constitutional duty, which raises the
question whether, under the Constitution, damages are an
appropriate remedy. The problem be comes more complex since the
adoption of the Promotion of Administrative Justice Act 3 of 2000
(which does not govern this ca se) which sets out the remedies
available for a failure of administrat ive justice. It may not be without
significance that an award of damag es is not one of them, although
an award of ‘compensation’ in exceptional circumstances is possible.
This could imply that remedies for administrative justice now have to
be found within the four corners of its provisions and that a reliance
16
on common-law principles might be out of place. One aspect must
nevertheless be kept in mind. A failure of administrative justice is not
per se unlawful (in the sense of being contra legem): it simply makes
the decision or non-decision vulnerable to lega l challenge and, until
set aside, it is valid. The award of the tender in this case was not
unlawful, it was merely vulnerable. I rai se this to indicate that an act
by an administrator, which is entirely unauthorised (whether expressly
or impliedly) or which violates some or other legal prohibition will
probably not be subject to the constr aints as to remedy that I have
mentioned. For instance, in Cameau,15 the relevant minister was held
liable in damages for a purported ad ministrative decision which he
was not authorised to make at all. His decision was not only wrong, it
was impermissible. Proper categorisation of the administrative error is
therefore also important because it is unhelpful to call every
administrative error ‘unlawful’, thereby implying that it is wrongful in
the delictual sense, unless one is clear about its nature and the
motive behind it.16
[25] Questions of public policy and the question of whether it is fair
and reasonable to impose delictual li ability are decided as questions
15 Comeau's Sea Foods Ltd v Canada (Minister of Fisheries and Oceans) [1995] 2 FC 467, 1995 CanLII
3576 (FCA).
16 Logbro Properties CC v Bedderson NO and others 2003 (2) SA 460 (SCA) at para [18].
17
of law, 17 and it is necessary to identify the relevant policy
considerations and not to react intuitively to a collection of arbitrary
factors.18 Evidence may be required in order to enable the court to
identify the policy considerations that could apply in the particular
factual matrix19 because factors that are relevant in one context (e.g.
negligent misrepresentation) 20 could hardly be relevant in another
such as the present where administrative law issues arise.
[26] In the course of this judgment I intend to refer to and quote from
judgments from a number of common-law jurisdictions that deal with
the tort of negligence. Their courts, too, have to grapple with similar
policy issues and have to we igh competing considerations.
21 This
does not mean that their policy considerations are necessarily
applicable locally; indeed, they may not apply at all 22 but they are at
least identified and assessed.
17 Barret v London Borough of Enfield [1999] UKHL 25; [1999] 3 All ER 193 (HL) at 199g-h.
18 Minister of Safety and Security v Van Duivenboden 2002 (6) SA 431 (SCA) para [21].
19 Telematrix (Pty) Ltd v Advertising Standards Authority SA (SCA case 549/04, unreported) at para [16].
20 E.g. Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 770.
21 Rowling v Takaro Properties Ltd [1988] AC 473 (PC) at 501F.
22 Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) at 504G-
505E.
18
THE GENERAL APPR OACH TO DELICTUAL LIABILITY FOR
PURE ECONOMIC LOSS CAUS ED BY ADMINISTRATIVE
BREACHES
[27] Subject to the duty of cour ts to develop the common law in
accordance with constitutional principles, the general approach of our
law towards the extension of th e boundaries of de lictual liability
remains conservative.23 This is especially the case when dealing with
liability for pure economic losses.24 And although organs of state and
administrators have no delictual immunity, ‘something more’ than a
mere negligent statutor y breach and consequent economic loss is
required to hold them delictually liable for the improper performance
of an administrative function. 25 Administrative law is a system that
over centuries has developed its own remedies and, in general,
delictual liability will not be imposed for a breach of its rules unless
convincing policy considerations point in another direction. 26
23 Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) at 500D.
24 Telematrix (Pty) Ltd v Advertising Standards Authority SA (SCA case 549/04, unreported); Premier,
Western Cape v Faircape Property Developers (Pty) Ltd 2003 (6) SA 13 (SCA).
25 Mason J in Kitano v The Commonwealth of Australia (1973) 129 CLR 151 at 174-175. Referred to with
approval in Dunlop v Woollahra Municipal Council [1981] 1 All ER 1202 (PC) at 1208f-g. The case
concerned the liability of a local authority in tort for passing an ultra vires resolution.
26 State of New South Wales v Paige [2002] NSWCA 235 at para 172: ‘Compensatory damages for
administrative error are available only in very limited circumstances.’
19
[28] One reason (others will appear la ter) is the need to preserve
the coherence of other legal principles because otherwise27
‘the tort of negligence would subvert many other principles of law, and statutory
provisions, which strike a balance of rights and obligations, duties and freedoms.’
Put differently by McHugh J, the la w is too complex for it to be a
seamless web: courts should try and make its principles and policies
coherent and, in extending delictual liability, it is necessary to
consider whether an extension would be consistent with other legal
doctrines, principles and policies. 28 In the present context, as
Spigelman CJ 29 explained, the most sign ificant characteristic of
administrative law is that courts are concerned with the legality of the
decision-making process only, and that the purpose of judicial review
of administrative decisions is not compensatory but to uphold the rule
of law and ensure effective decision-making processes.
THE DUTIES OF THE TENDER BOARD
[29] In holding that the administrative failure of the tender process
did not give rise to a constitutionally based claim for damages for lost
profits, Cameron JA made a num ber of pointed remarks in Olitzki.
30
He held that the constitutional inj unctions contained in s 187 of the
27 Sullivan v Moody (2001) 75 ALJR 1570 at para 42.
28 Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 at para 102.
29 State of New South Wales v Paige [2002] NSWCA 235 at para 174-176.
30 Olitzki Property Holdings v State Tender Board and another 2001 (3) SA 1247 (SCA).
20
interim Constitution were directed to the national and provincial
legislatures and did not create duti es vis-à-vis tenderers that on
breach could be translated into such damages claims. Important in
this regard is his conclusion:31
‘Certainly the contention that it is just and reasonable, or in accord with the
community's sense of justice, or a ssertive of the interim Constitution's
fundamental values, to award an uns uccessful tenderer who can prove
misfeasance in the actual award its lost profit does not strike me in this context
as persuasive. As the plaintiff's claim, which amounts to more than R10 million,
illustrates, the resultant imposition on the public purse could be very substantial,
involving a double imposit ion on the State, which would have to pay the
successful tenderer the tender amount in contract whil e paying the same sum in
delict to the aggrieved plaintiff. As a matte r of public policy the award of such an
entitlement seems to me to be so subject to legitimate contention and debate as
to impel the conclusion that the scheme of the interim Constitution envisaged that
it should be a matter for decision by the bodies upon whom the legislative duties
in ss (1) and (2) were imposed. In these circumstances to infer such a remedy
judicially would be to venture far beyond the field of statutory construction or
constitutional interpretation.’
[30] Most of these considerations apply likewise to the Act
governing the Board and its function s. The injunctions therein were
primarily directed at the Board in the interest of the Province and not
31 Olitzki Property Holdings v State Tender Board and another 2001 (3) SA 1247 (SCA) para [30].
21
tenderers as a group or individually. Indisputably, they were entitled
to proper administrative legal procee dings and the Board had, in this
respect, administrative legal duties vis-à-vis all tenderers. But that did
not mean that the breach of the administrative duties as set out in the
particulars of claim necessarily translated into private law duties
giving rise to delictual claims. 32 An American court said in a similar
context:33
‘The object and purpose of this provision of the statute is to insure competition in
the letting of contracts for public improv ements. This is the uniform ruling of
courts in reference to similar statutory and charter provisions governing cities. .
.[T]he intention [of the statute] was to protect the taxpayer and the public – not
material-men and laborers.’
COMPOSITION AND NATURE OF FUNCTIONS OF THE BOARD
[31] A related factor was the compos ition of the Board. The majority
of the Board members were (or might have been) lay persons.34 They
did not necessarily have the ab ility to understand the technical
intricacies of tender requirements and documents. They had to rely
on advice but they were at the same time not supposed to be bound
32 Telematrix (Pty) Ltd v Advertising Standards Authority SA (SCA case 459/04 unreported).
33 Surety Co v Brick Co 73 Kan 196, 84 Pac 1034 (1906) quoted with approval in Sutter Brothers
Construction Co Inc v City of Leavenworth (1985) 65 ALR 4th 81 at 84. See also Swinerton & Walberg Co
v City of Inglewood-L.A. County Civic Center Authority 40 Cal App 3d 98, 114 Cal Rptr 834 (1974) and
Funderburg Builders v Abbeville City Memorial Hospital 467 F Supp 821 (DSC 1979).
34 The Board awarded tenders by majority vote. The reasons of the members of the majority for awarding it
to a particular party may have differed. In spite of this the Board could be called on to give its reasons.
22
by advice. In this case, for instance, the Board asked for a second
evaluation report, not being satisfied with the first. The first indicated
that Balraz’s tender was more than R80m cheaper than the next
tender but stated that because of the way the tender was formulated
it ‘may therefore not actually be the lowest tender’. The second report
confirmed that Balraz’s price wa s the lowest but was ‘concerned’
about the pricing mechanism. No-one suggested at the Board
meeting, which was attended by dep artmental employees, that the
acceptance of the lowest tender could in fact have the disastrous
financial consequences as found by the reviewing court.
[32] The Board was not obliged, eith er in terms of the Act or the
tender conditions, to accept the lowest or any other tender. There
were no fixed parameters within which the Board had to act and the
Board had to determine by itself what weight had to be accorded to
each factor in a given tender withou t affecting the administrative
fairness of the process. This meant that the Board had to exercise a
discretion or value judgment. In gener al, public policy considerations
do not favour the recognition of damages claims for the wrong
23
exercise of a discretion negligently made. That was the import of
Knop35 to which can be added these comments by Lord Slynn:36
‘On this basis, if an authority acts wholly within its discretion – i.e. it is
doing what Parliament has said it c an do, even if it ha s to choose between
several alternatives open to it, then ther e can be no liability in negligence. It is
only if a plaintiff can show that what has been done is outside the discretion and
the power, then he can go on to show th e authority was negligent. But if that
stage is reached, the authorit y is not exercising a stat utory power, but purporting
to do so and the statute is no defence.’
THE DISAPPOINTED TENDERER: LOSS OF PROFITS
[33] Holding that an unsuccessful tenderer is not entitled to recover
damages (at least not for lost profits) in delict is not a quirk of local
jurisprudence.37 Courts in the USA appear to have held consistently
that disappointed tenderers have the right to challenge the improper
awarding of public contracts by me ans of injunctive or mandamus
relief, but not by means of a mandamus directing a public authority to
award a contract to a particular (l ow) tenderer because the public
entity is not required to award a contra ct in light of the express or
35 Knop v Johannesburg City Council 1995 (2) SA 1 (A) as explained in Telematrix (Pty) Ltd v Advertising
Standards Authority SA. See also Premier, Western Cape v Faircape Property Developers (Pty) Ltd 2003
(6) SA 13 (SCA) at para [37].
36 Barret v London Borough of Enfield [1999] UKHL 25;[1999] 3 All ER 193 at 210g-h.
37 Olitzki Property Holdings v State Tender Board and another 2001 (3) SA 1247 (SCA)dealt with liability
arising under the interim Constitution but as said most of the reasoning is equally applicable here.
24
implied authority to reject all bids. A tenderer, even the lowest
responsible tenderer, has no vested or contractual right to the award
of the contract. The right to relief do es also not extend to a right to
damages suffered as a result of not being awarded the contract.38 The
public policy considerations are these:39 (i) The unsuccessful tenderers'
status to compel, by injunction or mandamus, a public authority to
properly award a public works contract is not founded upon the private
tenderers' rights, but on th e public's interest in the integrity of the
bidding process; (ii) awarding damages for lost profit to an
unsuccessful tenderer may force the publ ic to pay twice for the work;
and (iii) allowing tenderers on public works to collect damages when
the work is improperly let to someone else places them in an
advantageous position compared to tenderers on private projects, who
have no such right. The first two of these considerations were referred
to in Olitzki and the third I intend to develop.
THE DISAPPOINTED TENDERER: OUT-OF-POCKET EXPENSES
[34] There are indications that in the USA the out-of-pocket
expenses of a disappointed tenderer may be recovered on the basis
38 Sutter Brothers Construction Co Inc v City of Leavenworth (1985) 65 ALR 4th 81 (Kansas Supreme
Court); M A Stephen Construction Co Inc v Borough of Rumson (1973) 308 A 2d 280 (New Jersey
Supreme Court); and Owen of Georgia Inc v Shelby County (1981) 648 F 2d 1084 (US Court of Appeal).
39 As summarised by Harvey J in Whistler Service Park Ltd v Whistler (Resort Municipality of) 1990
CanLII 573 (BC SC)
25
of ‘promissory estoppel’ but not in tort, 40 and Canadian law, which
similarly does not recognise a tort claim, appears to recognise a
damages claim for breach of some or other express or tacit terms of
the contract (express or implied) that governed the tendering
process:41
‘Actions by parties [for damages in the amount of an unsuccessf ul tenderer's
expenses for preparing the bid] . . . are based upon breach of the contract which is
said to arise upon submission of a tender in accordance with the terms set out in
the tender documents.’
[35] Before getting involved in the niceties of wrongfulness, it
appears to me that a disappointed tenderer’s claim in delict for out-of-
pocket expenses in prepar ing the tender will inevitably fail at the
causation hurdle. Those expenses were not caused by any
administrative impropriety because they would in any event have
been incurred and are always irrecoverable, irrespective of whether
or not the tender was awarded to that party, properly or improperly.
[36] Returning then to wrong fulness: Unless one is unduly
impressed by the floodgate argument, it is difficult to appreciate why
the nature of the specific economic loss should make any difference
40 Owen of Georgia Inc v Shelby County (1981) 648 F 2d 1084.
41 Whistler Service Park Ltd v Whistler (Resort Municipality of) 1990 CanLII 573 (BC SC).
26
to the scope of the Board’s legal duty. In other words, there does not
appear to me to be a difference in principle between purely economic
losses that are out-of-pocket and those of another kind.
OVERKILL AND ACCOUNTABILITY
[37] This Court has held that the threat of a damages action may
hamper administrative organs unduly in the execution of their duties
and that this may be an important pointer away from delictual
liability.42 In the same vein, the Privy Council (per Lord Keith) spoke
of the danger of overkill:43
‘The third is the danger of overkill. It is to be hoped that, as a general rule,
imposition of liability in negligence will lead to a higher standard of care in the
performance of the relevant type of act; but sometime s not only may this not be
so, but the imposition of liability ma y even lead to harmful consequences. In
other words, the cure may be worse than the disease. [After referring to Anns v
Merton London Borough Council [1978] AC 728 (HL) it continued.] A comparable
danger may exist in cases such as the present, because, once it became known
that liability in negligenc e may be imposed on the gr ound that a minister has
misconstrued a statute and so acted ultra vires , the cautious civil servant may go
to extreme lengths in ensuring that legal advice, or ev en the opinion of the court,
42 Knop v Johannesburg City Council 1995 (2) SA 1 (A) at 33C-D discussed in Minister of Safety and
Security v Van Duivenboden 2002 (6) SA 431 (SCA) at para [22]. Telematrix (Pty) Ltd v Advertising
Standards Authority SA (SCA case 459/04 unreported) at para [19].
43 Rowling v Takaro Properties Ltd [1988] AC 473 (PC) at 502C-F.
27
is obtained before decisions are taken, thereby leading to unnecessary delay in a
considerable number of cases.’
[38] There is another view, expressed rather forcefully by Linden JA
in a minority judgment in Canada, when he said:44
‘I would not say that our public servants are any better than those in England, but
I see no reason to disparage Canadian bu reaucrats, as Lord Keith has their
British counterparts. I cannot believe t hat the Canadian bureaucracy is as timid
and faint-hearted as Lord Ke ith apparently believes public servants in England
are nowadays.’45
[39] The importance of accountability as a public policy factor
serving a constitutional imperative has more th an once been
underscored by this Court but, as counsel ruefully mentioned, it has
never carried the day by im posing delictual liability. 46 Van Zyl J,
understandably, placed a heavy premium on this factor but the real
question appears to me to be whether the imposition of delictual
liability is necessarily the appropriate method of attaining this object.
The Board or its guilty members would not pay the award – the
provincial government would. Also, the Board was otherwise
44 Comeau's Sea Foods Ltd v Canada (Minister of Fisheries and Oceans) [1995] 2 FC 467, 1995 CanLII
3576 (FCA).
45 Ironically, the case emanated from New Zealand and did not deal with British bureaucrats.
46 Premier, Western Cape v Faircape Property Developers (Pty) Ltd 2003 (6) SA 13 (SCA)at para 40
where the authorities are collected.
28
accountable, first by legal proces s in the form of a review and
second, by means of ordinary polit ical processes. The Board was
accountable to the provincial legislature and in this case it was in fact
called upon to account when the prov incial legislature instructed the
Standing Committee on Finance and Provincial Expenditure to
investigate the award and to report back as a matter of urgency.
Board members were consequently call ed upon to testify publicly to
justify the award of these tenders.
[40] The chilling effect of the imposit ion of delictual liability on tender
boards in a young democracy with limited resources, human and
financial, on balance, is real becaus e if liability were to be imposed,
the potentiality of a claim by every successful tenderer would cast a
shadow over the deliberations of a tender board on each tender and
that may slow the process down or even grind it to a virtual halt.
AVAILABILITY OF OTHER REMEDIES
[41] The availability of other remedies is often taken as an indication
of whether or not a claim for damages should be recognised. In
Knop,47 for instance, this Court held t hat the fact that the relevant
statute provided for an administrative appeal was indicative of an
47 Knop v Johannesburg City Council 1995 (2) SA 1 (A).
29
intention to limit the disappointed member of the public’s remedies to
such an appeal. A similar approach was adopted by the Privy Council
in Rowling v Takaro Properties Ltd, 48 albeit obiter. The importance of
this consideration was also rec ognised by the Federal Court of
Appeal in Canada in Comeau49, quoting C Lewis with approval:50
‘Decisions taken in the exercise of statutory power will be subject to
judicial review, and sometimes a statutory right of appeal. Unlawful decisions can
be nullified and the individual relieved of the consequenc es of such a decision.
The existence of these remedies is regarded by the courts as an indicator that no
additional remedy in negli gence need be provided, particul arly where the judicial
review or appeal is adequate to rectif y matters, and the only real damage
suffered by the individual is the delay and possibly the expense involved in
establishing that a decision is invalid. This seems in part an axiomatic decision
on the part of the court, that there should be a di vision between public law
remedies and private la w remedies. Where an ultra vires decision can be set
aside on appeal or review, t here should not normally be any additional liability in
damages, unless the individual can establis h misfeasance. Simple negligence is
insufficient. The fact that the decision may be set aside may also mean that the
only damage suffered is the expense involved in challenging the decision.’
48 Rowling v Takaro Properties Ltd [1988] AC 473.
49 Comeau's Sea Foods Ltd v Canada (Minister of Fisheries and Oceans) [1995] 2 FC 467, 1995 CanLII
3576 (FCA). Some reasons given by the Privy Council were dealt with harshly in this case in a minority
judgment but since they are makeweights, it is not necessary to consider them further.
50 C Lewis Judicial Remedies in Public Law (London 1992) 379.
30
[42] Van Zyl J regarded the absence of an alternative remedy as a
compelling reason for finding that a ‘duty of care’ was owed by the
Board to Balraz. This led him to distinguish between the disappointed
tenderer and the (initially) successfu l one. The former could attack
the award by means of a revie w while the latter, having been
awarded the tender, could not.
[43] The ‘alternative remedy’ a rgument has some validity but the
point must not be stretched to breaking point. Availability of review to
an unsuccessful tenderer can hardly be an argum ent for conferring a
damages claim on the successful tenderer. All that can happen on
review is that the award may be se t aside. The successful litigant
does not acquire the benefits (or burdens ) of the successful tenderer.
Recently a disappointed tenderer, who was able to show that the
award was seriously tainted, was vindicated on review, though only
by an award of costs since setting aside the award was impractical as
the contract work had already been performed. 51 In other words, the
suggestion that review is an adequate alternative remedy is a
misconception.
51 The Chairperson: Standing Tender Committee and others v JFE Sapela Electronics (Pty) Ltd and others
(SCA case 511/04 unreported).
31
[44] Since the disappointed t enderer is not able to recover
damages, is there any reason in principle why the successful
tenderer should be? Drawing such a distinction would imply that
during the consideration process there are legal duties of the kind set
out in the particulars of claim towards the successful tenderer while
the same duties are simultaneously absent vis-à-vis the other
tenderers. I do not believe that policy considerations justify such
discrimination. Those legal duties are duties owed towards a class of
persons and not towards one or two mem bers of the class and if their
breach does not justify a damages clai m in the one instance it is
difficult to justify it in another.
PUBLIC VERSUS PRIVATE TENDERS
[45] Earlier in this judgment I referred to the policy consideration
that allowing tenderers on public c ontracts to collect damages when
the work is improperly awarded to someone else places them in an
advantageous position compared to those on private projects, who
have no such right. A similar consid eration arises here. In ordinary
contractual relations, one contracting party can not without more hold
the other liable in delict if the contract is void or voidable, even due to
the fault of the latter. I can think of no good reason why it should be
32
different where the contract is preceded or affected by an
administrative action.
CONCLUSION
[46] Weighing up these policy consid erations I am satisfied that the
existence of an action by tenderers , successful or unsuccessful, for
delictual damages that are purel y economic in nature and suffered
because of a bona fide and negligent failure to comply with the
requirements of administrative justice cannot be inferred from the
statute in question. Likewise, the same considerations stand in the
way of the recognition of a common-law legal duty in these
circumstances. This conclusion ma kes it strictly unnecessary to
consider the basis of the trial court’s judgment but for the sake of
completeness I shall nevertheless do so.
VALIDITY OF BALRAZ’S TENDER OFFER
[47] The court below held that that Balraz’s tender offer was invalid
and that therefore t he Board had no ‘duty of care’ towards Balraz in
awarding the tender to it.
[48] The contentious tender was s ubmitted in the name of Balraz
Technologies (Pty) Ltd on 8 September 1995, the closing date for
33
tenders. Late tenders were not elig ible for consideration. But the
company was only incorporated on 17 October 1995. On the same
day the certificate to commenc e business was issued. The tender
was awarded on 22 March 1996. The court below relied on a few
well-established propositions in reaching its conclusion: a company is
prior to incorporation not yet in existence and cannot perform a
juristic act like submitting a tender, and that no-one can at that stage
act as its agent because one cann ot act as the agent of a non-
existent principal unless a pre-i ncorporation agreement is concluded,
which is later ratified,52 something that did not arise in this case.
[49] In response the appellant re lied on some case law which,
according to counsel, indicated t hat this principle is not as far
reaching as van Zyl J suggested. The first is Rajah.53 An application
for a business licence was made to t he local authority in the name of
a company before incorporation. Aware that the company was not yet
in existence the local authority nevertheless issued a certificate of
authority permitting the Receiver of Revenue to issue the licence. The
Receiver, who regarded the certificat e as one in favour of a company
not yet in existence, issued the licence. After incorporation of the
52 Companies Act 61 of 1973 s 35.
53 Rajah & Rajah (Pty) Ltd and others v Ventersdorp Municipality and others 1961 (4) SA 403 (A).
34
company the local authority sought to set the licence aside because
of the non-existence of the company both at the time of application
and the issuing of the licence. This Court held against the local
authority on the basis that in the absence of prejudice to either the
public or the local author ity there was no reason to set the licence
aside.54 This judgment bears no relationship to the instant case. It
dealt with a review application. The Court dealt with one issue only
and that was prejudice since invalid administrative acts are not set
aside for the asking; the court has a discretion 55 and absent prejudice
there was no reason to set the licenc e aside. That is also how
Henning J understood Rajah when he dealt with a similar problem.56
[50] Reliance was next placed by counsel on Holmes.57 Four
persons completed an application f or a licence in the name of a
company before incorporation. By the time the application was
received by the licensing aut hority the com pany had been
incorporated. The question was whet her the application was in order
and Price J held that the question had to be answered with reference
to the date of receipt of the app lication and not when the application
54 Hoexter ACJ at 405A-B, and Holmes JA at 407D-E and 408B-C.
55 Oudekraal Estates (Pty) Ltd v City of Cape Town 2004 (6) SA 222 (SCA) para 36.
56 Yoonuce v Pillay NO and another 1964 (2) SA 286 (D) at 294C-D and H.
57 MG Holmes (Pty) Ltd v National Transport Commission and another 1951 (4) SA 659 (T).
35
forms were completed. I am unable to extract any principle from the
judgment that can be of any assistance to this case and in any event
the dictum on which the appellant relies was held to be suspect.58
[51] The trial judge dealt with the issue at some length and since I
agree with his views it is not neces sary to repeat all he said or to
follow his exact reasoning. To simplify, all that has to be said is this.
Only entities with contractual capaci ty can perform juri stic acts such
as making an offer (such as the tender submission). Balraz did not
exist at the relevant time. Submi tting a tender involves more than
merely making an offer. It amounts to the conclusion of a preliminary
agreement, which is also a juristic act, in which the tenderer accepts
the tender conditions imposed and u ndertakes to comply with them.
59
For instance, in this particular case the tender had to be (and was) in
the form of an option open to acceptance by the Board during a given
period. In addition Balraz undertook a number of obligations,
including being liable for damages in the event of, for example, the
withdrawal of its tender; accept ing certain risks relating to
calculations; and accepting the respon sibility for the proper execution
58 Transnet Ltd v Chairman, National Transport Commission 1999 (4) SA 1 (SCA) para [25]-[26].
59 Cf Blackpool Aero Club v Blackpool BC [1990] 1 WLR 1195 (CA).
36
and fulfilment of the ultimate contra ct. If we accept (as we must) that
by submitting a tender an option contract is concluded and that the
option is exercised by the award of the tender, it has to follow that
because of Balraz’s non-incorporation the award to it did not lead to
the conclusion of a valid contract.
[52] There is another f undamental problem. Balraz was not entitled
to ‘commence business’ prior to the issue of a certificate entitling it to
commence business (s 172), a provision introd uced by the 1973 Act.
It (or persons on its behalf) nev ertheless commenced business by
submitting a tender. What was done was contra legem and the tender
offer had to be null and void in the light of the wording of the section.
[53] One would have thought that once this was found the claim
would have been dismissed because of the absence of any causal
connection between the failure to assess the tenders properly and the
invalidity of the contract. But, as mentioned, causation was not an
issue and the appeal cannot be di sposed of on that ground, and I
shall later revert to the effect of the invalidity of the tender on the
question of wrongfulness.
37
LEGAL DUTY IN RELATION TO VOID TENDERS
[54] Van Zyl J held that the le gal duty cannot ex tend to tenderers
who submit invalid tenders or are non-existent legal entities. Simply
put, Balraz would not have had any standing to attack the tender
process had it been a disappointed tenderer. The Board was not
even entitled to consider its tender (something it did not know). It
would to my mind amount to a pe rversion of logic and justice to
extend an administrative non-duty in to a delictual duty based on the
breach of that non-duty. No public policy considerations point in a
different direction.
ORDER
[55] These findings make it unne cessary to decide the question of
negligence and the appeal stands to be dismissed.
[56] The appeal is consequently di smissed with costs, including
those consequent upon the employment of two counsel.
_______________
L T C HARMS
JUDGE OF APPEAL
AGREE:
CAMERON JA
JAFTA JA
PONNAN JA
MLAMBO JA