Automated Summary
Key Facts
Mafoko Security Patrols (Pty) Ltd (Mafoko) was awarded a tender by the South African Broadcasting Corporation (SABC) in 2017 despite being outscored by Mjayeli Security (Pty) Ltd (Mjayeli) on price and empowerment. Mjayeli applied to review the award, prompting an SIU investigation. The High Court declared the tender award unlawful in 2023 and ordered Mafoko to disgorge profits. The Supreme Court of Appeal upheld the appeal, set aside the High Court's remedial order, and remitted the case for re-evaluation of a just and equitable remedy.
Issues
The central legal issue was whether the high court erred in its application of the 'no loss, but no gain' principle when determining the remedy for an unlawful tender award. The high court ordered the innocent tenderer (Mafoko) to disgorge profits, but the Supreme Court of Appeal held that this discretion must be exercised without a priori assumptions about profit exclusion, considering the balance between public good and private return in public procurement.
Holdings
- The high court erred in applying the 'no loss, but no gain' principle to the case, which incorrectly led to an order requiring Mafoko to disgorge profits. The court held that this principle was a misinterpretation of Allpay II and related cases, emphasizing that the just and equitable remedy must consider the tenderer's culpability and whether profit is warranted in the context of public procurement.
- The appeal is upheld, and the high court's order is set aside. The matter is remitted to the high court to re-evaluate the remedy under the correct legal framework, considering factors such as Mafoko's blamelessness, its constitutional duties, and the normative benchmark of competitive pricing in public procurement.
Remedies
- The High Court's decision to set aside the tender award and require Mafoko to disgorge profits was overturned by the Supreme Court of Appeal.
- The matter was remitted to the High Court to determine the appropriate remedy under s 172(1)(a) and (b) of the Constitution after securing evidence and submissions.
- The Supreme Court of Appeal upheld Mafoko's appeal against the High Court's remedial order, overturning the decision to set aside the tender award and disgorge profits.
- The second respondent (SIU) was ordered to pay the costs of the appeal, including the costs of two counsel where applicable.
- The costs of the High Court proceedings, except for the order concerning the fifth to eighth respondents, were reserved for determination when the High Court renders its judgment on the remedy.
Legal Principles
The court addressed the application of the 'just and equitable remedy' under s 172(1)(b) of the Constitution in cases where a tender is declared invalid. It clarified that an innocent tenderer, required to continue providing services under a continuation order, may retain profits unless there is evidence of culpability. The decision rejects the rigid 'no loss, no gain' principle, emphasizing that remedial discretion must consider the balance between public and private interests.
Precedent Name
- Special Investigating Unit and Another v Vision View Productions CC
- State Information Technology Agency SOC Limited v Gijima Holdings (Pty) Limited
- Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and Another
- Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others
- Special Investigating Unit v Phomella Property Investments (Pty) Ltd and Another
- Steenkamp NO v Provincial Tender Board of the Eastern Cape
Cited Statute
Public Finance Management Act
Judge Name
- Smith
- Zondi DP
- Basson
- Unterhalter
- Kubushi
Passage Text
- The high court laboured under an error of law derived from its adherence to the principle of no loss, but no gain. This adherence pervades the reasoning of the high court and resulted in the following errors... the paramountcy of the public good does not exclude the possibility that the recognition of a profit may be warranted.
- This learning has been set out in the decision of this Court in Phomella... Allpay II held that the award of a tender found to be unlawful and declared invalid does not give rise to a right to benefit from an unlawful contract. What this means is simply this: without a right, there is no duty resting upon a court exercising its just and equitable discretion to order that the benefit of the unlawful contract must be conferred. But the absence of such a right and its correlative duty does not mean that the court in the exercise of its discretion may not permit a party to enjoy the benefit of a contract, including the profits that may accrue.
- This court cannot, on the record before it, determine a just and equitable order. The matter must accordingly be remitted to the high court so that it can reengage the parties to determine a just and equitable order, properly informed by relevant evidence and argument which the court may need to secure.