Brief Summary

Administrative Law — Tender — Self-review — Municipality seeks to review its decision to allocate a tender for a housing project, claiming it contracted with the wrong entity — Successful bidder, Stone Trade Trust, issued summons for specific performance or damages — Municipality's review application dismissed due to unreasonable delay and failure to establish that the tender process violated constitutional procurement provisions — Award found to be fair, transparent, equitable, competitive, and cost-effective.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an application by an орган of state, the Municipality of Mossel Bay (the applicant), to review and set aside its own tender award decision taken in February 2009. The review was brought as a constitutional legality review rather than under the Promotion of Administrative Justice Act 3 of 2000 (PAJA), on the basis that the Municipality alleged non-compliance with the procurement requirements in section 217 of the Constitution of the Republic of South Africa, 1996.

The respondents were Jan Kasper Gerhardus Steenkamp N.O. and Stephanus Johannes Steenkamp N.O., cited in their capacities as trustees of the Stone Trade Trust (“the Trust”), the entity that had been treated as the successful tenderer and which, in separate pending action proceedings, claimed contractual rights flowing from the tender award.

The procedural history was central to the context of the review. The tender dispute had long-running consequences: after the tender award, a dissatisfied tenderer (ASLA Devco (Pty) Ltd) launched urgent review proceedings in 2009, which were redirected into an internal appeal and then arbitration, ultimately settling on a basis that the Trust and ASLA would share the award. Separately, in 2011, the Trust instituted action proceedings (pending under case number 21583/2011) seeking specific performance against the Municipality to enforce the tender-related contract, alternatively damages exceeding R64 million for alleged loss of profits. The Municipality only launched the present review application on 21 December 2022, shortly before the action trial was due to commence in February 2023, approximately 13 years after the original tender award decision.

The general subject matter of the dispute concerned public procurement and whether the Municipality’s award of a development tender for three mid-income housing projects complied with the constitutional procurement standard in section 217, against the background of a late self-review brought to resist contractual enforcement and/or damages claims.

2. Material Facts

The Trust was formed in 2002 as a family trust engaged in construction, trading over time under the name “Stone Trade Trust Construction”. At the relevant times its trustees were the two respondents. The Municipality initiated a procurement process in October 2007 by issuing an Expression of Interest for the development of municipal land for mid-income housing on three sites, and later (15 May 2008) issued a Call for Proposal to shortlisted firms. Five tenderers ultimately submitted proposals, including entities described as “Stone Trade Trust” and “ASLA Devco (Pty) Ltd”.

On 31 July 2008, a tender was submitted in the name “Stone Trade Trust Construction” (referred to in the judgment as STTC in line with the tender documentation’s usage). In that tender document, STTC disclosed that for the project it would participate in a 50/50 joint venture with Mbobs and Mbobs Building and Civil Construction (Pty) Ltd (“Mbobs”), a BEE-aligned partner. The tender documentation indicated that the joint venture would be housed in a separate company, Marblesharp 122 (Pty) Ltd (“Marblesharp”). The tender was evaluated by the Municipality’s committees using a points system (including a 90/10 approach, with preferential procurement forming part of the scoring).

The Municipality’s evaluation process resulted in the Trust scoring 80.60 points and ASLA 79.40 points. The Bid Adjudication Committee approved the recommendation, and on 5 February 2009 the Municipality communicated acceptance by letter addressed to “Messrs Stone Trade Trust Construction”, stating that acceptance was subject to negotiation and signature of a Land Availability Agreement. It was not disputed that the tender award was made in that period and communicated accordingly; what was disputed in the Municipality’s later case was the legal characterisation of which entity was the contracting party and whether the tender was awarded consistently with section 217.

ASLA’s dissatisfaction led to urgent review proceedings in March 2009. Those proceedings were converted into an internal appeal and then arbitration, eventually settling on the basis that the Trust and ASLA would share the award. The Trust did not implement the development immediately, and the papers referred to issues surrounding conclusion of the land availability agreement, with allegations that the Municipality frustrated the process. The Trust then instituted action proceedings in October 2011 claiming enforcement or damages, and that action was eventually set down for trial in February 2023.

The Municipality’s founding papers in the present review contended that it later realised there was uncertainty in the tender documentation as to whether the bidder and/or successful party was the Trust, ST Trade Construction (Pty) Ltd (“ST Trade”), or Marblesharp, and that points (including preferential procurement points) may have been awarded on an incorrect basis. It further asserted, in speculative terms, that the Trust was “dormant, insolvent and incapacitated” to execute the tender, and that ST Trade had just been registered. The Trust’s answering papers disputed this narrative and asserted that the tender documentation clearly conveyed that the Trust was the tenderer, while performance would be through a disclosed joint venture structure with a BEE partner housed in Marblesharp. The Trust relied on the fact that the Municipality had been informed of the empowerment partnership intention already at the Expression of Interest stage, and that the tender included the joint venture agreement and tax clearance information reflecting the Trust’s standing and trading name.

On the evidence before the court, the Municipality did not allege that it had been misled, and it did not advance a case of misrepresentation or fronting. The thrust of its case remained that it had, allegedly and belatedly, come to suspect that it had “contracted with the wrong entity,” and that this rendered the award unconstitutional under section 217.

3. Legal Issues

The central legal questions concerned the consequences of an admittedly unreasonable delay in bringing a municipal self-review, and whether the Municipality nevertheless demonstrated that the tender award was clearly unlawful and therefore required to be set aside under constitutional principles.

More specifically, the court was required to determine whether the Municipality had established, on the facts presented in the affidavits, a breach of section 217 of the Constitution in that the procurement process and outcome were not fair, equitable, transparent, competitive, and cost-effective, particularly due to alleged uncertainty about the identity of the tenderer/contracting entity and the allocation of preferential procurement points.

The dispute was primarily one of application of law to fact within a constitutional review framework. The court also had to make an evaluative assessment of whether the Municipality’s allegations rose above speculation to the level of conclusive unlawfulness on undisputed facts, as contemplated in the Constitutional Court jurisprudence dealing with delayed self-reviews.

4. Court’s Reasoning

The court approached the matter on the basis that delay was dispositive only up to a point. The Municipality’s deponent said nothing about delay in the founding affidavit, and in argument the Municipality accepted that the delay in launching the review was manifestly unreasonable. The court nevertheless held that this did not end the enquiry. Relying on the Constitutional Court’s approach, particularly in Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd 2019 (4) SA 331 (CC) and its reliance on State Information Technology Agency SOC v Gijima Holdings (Pty) Ltd 2018 (2) SA 23 (CC), the court treated the governing principle as requiring that a court must still consider legality and, if the contract is shown to be clearly unlawful on undisputed facts, the court would be obliged to declare it invalid and set it aside in terms of section 172(1)(a) of the Constitution.

The court also confirmed the doctrinal route for a state self-review. Following Gijima, PAJA did not apply to the Municipality’s attempt to review its own conduct; the matter proceeded as a legality review, grounded in constitutional accountability and the state’s duty to rectify unlawful decisions. The judgment referred to the explanation in the minority judgment in Buffalo City emphasising the constitutional foundations for self-review (including the importance of open and accountable government and, specifically for procurement, section 217).

Turning to the merits, the court treated the Municipality as bearing the burden of establishing a clear breach of section 217. The Municipality’s core contention was that it had “unknowingly ended up contracting with the wrong entity,” and that the tender documentation was confusing as between the Trust, ST Trade, and Marblesharp. The court regarded this as an unusual contention for a municipality to raise at such a late stage, particularly given the institutional safeguards, internal processes, and access to legal advice available to an орган of state in procurement matters.

Crucially, the court found the Municipality’s stance to be speculative and assumption-based rather than grounded in clear and unequivocal facts. The founding affidavit repeatedly framed the alleged unlawfulness in terms of uncertainty and possibility, rather than demonstrating that the award in fact contravened the constitutional procurement standard. The court noted that the Municipality did not allege that it had been deceived, and there was no pleaded case of misrepresentation or fronting.

In evaluating the tender documentation and the surrounding circumstances as presented on affidavit, the court accepted that the Trust had disclosed the intended joint venture and shareholding arrangements with Mbobs, and that the Municipality’s evaluators—municipal officials and external advisers—had scrutinised the material without raising any concern at the time about the proposed structure. The judgment emphasised that the documentation reflected that the Trust was the tendering entity, and that it had communicated to the Municipality that performance would be through a joint venture housed in Marblesharp. The court treated the Municipality’s later professed confusion, including by its legal head, as inconsistent with the contemporaneous evaluation and the historical knowledge evident from the earlier ASLA litigation.

The court also considered, in response to argument, whether section 217 could be interpreted as preventing a successful bidder from arranging its corporate affairs for operational purposes, such as using a subsidiary or a project vehicle to perform contractual obligations. The judgment recorded that counsel for the Municipality could point to no authority establishing such a prohibition, and the court did not accept that the procurement framework, on the facts shown, was necessarily undermined by the disclosed joint venture structure.

On this basis, the court concluded that the Municipality had not shown that the contract “falls foul” of section 217 such that it must be set aside. The court found that the procurement outcome was fair, transparent, equitable, competitive and evidently cost-effective, and therefore the legality review could not succeed even though the delay was unreasonable.

As to costs, the court considered the Trust’s request for punitive costs in light of the alleged cynical nature of the late review. Without expressly framing the Municipality’s conduct as mala fide in the costs reasoning, the court invoked the principle from In re Alluvial Creek Ltd 1929 CPD 532 that punitive costs may be justified where proceedings are vexatious in effect because they put the other side to unnecessary trouble and expense, even without necessarily attributing improper motive. The court held that this was an appropriate case for such an order.

5. Outcome and Relief

The court dismissed the Municipality’s application to review and set aside the 2009 tender award decision.

The Municipality was ordered to pay the costs of the respondents, in their representative capacities as trustees of the Stone Trade Trust, on the attorney-and-client scale.

Cases Cited

Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd 2019 (4) SA 331 (CC).

State Information Technology Agency SOC v Gijima Holdings (Pty) Ltd 2018 (2) SA 23 (CC).

Esorfranki Pipelines (Pty) Ltd and another v Mopani District Municipality and others [2014] 2 All SA 493 (SCA).

In re Alluvial Creek Ltd 1929 CPD 532.

Camps Bay Ratepayers’ and Residents’ Association and another v Harrison and another 2011 (4) SA 42 (CC).

Boost Sports Africa (Pty) Ltd v South African Breweries (Pty) Ltd 2015 (5) SA 38 (SCA).

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 217.

Constitution of the Republic of South Africa, 1996, section 172(1)(a).

Constitution of the Republic of South Africa, 1996, section 237.

Promotion of Administrative Justice Act 3 of 2000.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that although the Municipality’s delay in bringing a self-review was manifestly unreasonable and unexplained on the papers, the court was still required to consider whether the tender award was clearly unlawful under the constitutional principle of legality.

The court held further that the Municipality failed to establish conclusively, on the evidence presented, that the tender award breached section 217 of the Constitution. The Municipality’s case rested on speculative assertions of uncertainty about the contracting entity and the allocation of points, without a demonstrated misrepresentation, fronting, or other clear procurement unlawfulness. On the facts as presented, the tender process and outcome were found to have been fair, transparent, equitable, competitive, and cost-effective.

The review was dismissed, and punitive costs on the attorney-and-client scale were awarded against the Municipality.

LEGAL PRINCIPLES

A state organ seeking to review its own procurement decision does so through the principle of legality rather than PAJA, consistent with the Constitutional Court’s approach to self-review in public procurement matters.

An unreasonable delay by a state organ in instituting a self-review does not necessarily end the enquiry: a court must still consider legality and, where a contract is shown on undisputed facts to be clearly unlawful, the court is obliged to declare invalidity and set the decision aside under section 172(1)(a) of the Constitution.

In a legality review challenging procurement under section 217 of the Constitution, the applicant орган of state bears the burden of establishing a clear breach of the constitutional procurement standard. Mere assertions framed as uncertainty or possibility, without clear factual unlawfulness, do not justify setting aside an award.

Punitive costs on the attorney-and-client scale may be awarded where litigation is vexatious in effect, in that it unnecessarily puts the opposing party to trouble and expense, even if vexatious intent is not definitively established.

Municipality of Mossel Bay v Steenkamp N.O and Another (33/2023) [2023] ZAWCHC 315 (1 December 2023)