Bureaucratic bungling, deliberate misconduct and claims for pure economic loss in the tender process

• Jurisdiction: South Africa
• Author: Chuks Okpaluba
• Pages: 387-415
• Published date: 25 May 2019
• Date: 25 May 2019

BUREAUCRATIC BUNGLING, DELIBERATE

MISCONDUCT AND CLAIMS FOR PURE

ECONOMIC LOSS IN THE TENDER PROCESS

CHUKS OKPALUBA*

Visiting Professor, College of Law, University of South Africa

I INTRODUCTION

South African Post Office v De Lacy and Another

1

is the fourth in a line of

Supreme Court of Appeal cases where plaintiffs had claimed damages

arising from tenders for the supply of goods and services. Unlike in

Minister of Finance and Others v Gore NO,

2

where liability was upheld

and large amounts in damages were awarded against the government,

3

the claim in De Lacy suffered the same fate as that in Olitzki Property

Holdings v State Tender Board

4

and Steenkamp NO v Provincial Tender

Board, Eastern Cape.

5

As all four cases involved f‌inancial loss resulting

from being unsuccessful in a tender award, one may ask: why did the

claim in Gore succeed while those in the other three cases failed? Another

pertinent question is: if applicants in a judicial review could succeed in

setting aside a tender award resulting from an administrative irregularity

as in the case of Steenkamp, or for any other form of impeachable

administrative wrong,

6

why would such a party not recover damages for

* LLB LLM (London) PhD (West Indies). Visiting Professor, College of Law, University of

South Africa.

1

2009 (5) SA 255 (SCA) (De Lacy).

2

2007 (1) SA 111 (SCA) (Gore).

3

In a subsequent quantum trial of ‘unusual proportions’, consequent upon the f‌inding that

the defendant was liable on account of its employees’ fraud, Prinsloo J made an award of

R253 550 000 less 15% contingency deduction of R38032 500, bringing the total award to

R215 517 500: see GoreNO v Minister of Finance and Others (11190/99) [2008] ZAGPHC 338

(30 October 2008) para 313.

4

2001 (3) SA 1247 (SCA) (Olitzki).

5

Steenkamp NO v Provincial Tender Board, Eastern Cape 2006 (3) SA 151 (SCA) (Steenkamp);

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

an extensive review of this case, see Geo Quinot ‘Worse than losing a government tender: Winning

it’ 2008 Stell LR 101.

6

Jafta JA made the point in Millennium Waste Management (Pty) Ltd v Chairperson, Tender

Board: Limpopo Province and Others 2008 (2) SA 481 (SCA) para 21 that the award of a tender,

tender procedures and evaluation constitute administrative action and must comply with

the requirements of s 217 of the Constitution of the Republic of South Africa, 1996 (the

Constitution) on procurement and the Promotion of Administrative Justice Act 3 of 2000

(PAJA).

387

(2014) 26 SA Merc LJ 387

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loss of prof‌it or out-of-pocket expenses arising from the botched

transaction?

A perusal of available case law reveals that the answers to the foregoing

questions rest on three interrelated strands. The f‌irst concerns the

well-known prejudices which common-law courts have towards

the award of damages in public law which can only be available in

exceptional circumstances.

7

For instance, the fact that an act constitutes

an administrative illegality for which another remedy of public law can

possibly avail does not mean that damages can be awarded in such a

situation. This is because an administrator may not necessarily be held

liable in damages even though his or her action or decision constituted

grounds upon which judicial review can be launched and for which

other remedies of public law are obtainable.

8

The second is that a claim

for pure economic loss

9

concentrates on the nature of the damage. The

third, which is linked to the second, is the principle which requires a

7

Section 8(1)(c)(ii)(bb) of PAJA provides that compensation could be awarded to

successful applicants for judicial review in ‘exceptional cases’. This phrase therefore qualif‌ies

the availability of this remedy, because it may not be available as a matter of course. It follows

that before such an award is made, all the other remedies listed in the Act would have been

considered, the idea being not to grant an applicant a windfall in the guise of remedying an

administrative wrong. Again, under the Constitution (s 38), the term used is ‘appropriate

relief’. See the judgment of Froneman J in Kate v MEC for the Department of Welfare, Eastern

Cape 2005 (1) SA 141 (SE) paras 19 and 20 on PAJA, ‘appropriate relief’, constitutional

damages and payment of compensation ‘in exceptional circumstances’.

8

It was held in Fose v Minister of Safety and Security 1997 (3) SA 786 (CC) para 69 that

constitutional damages could only be available where no statutory remedies have been given

or no adequate common-law remedies existed. This consideration is taken into account

whether the claim is constitutional damages or common-law delictual damages. So, in

deciding to award the plaintiffs constitutional damages in Modderfontein Squatters, Greater

Benoni City Council v Modderklip Boerdery (Pty) Ltd 2004 (6) SA 40 (SCA), the Supreme Court

of Appeal had to be satisf‌ied that all other remedies of public law were inappropriate in the

circumstances of the case. This was approved by the Constitutional Court on appeal in

President of the Republic of South Africa and Another v Modderklip Boerdery (Pty) Ltd (Agri SA

and Others, Amici Curiae) 2005 (5) SA 3 (CC). Again, in Steenkamp supra note 5, the Supreme

Court of Appeal held that delictual damages would not be awarded against a public authority

where other administrative law remedies were available. Similarly, the New South Wales

Court of Appeal has held that ‘compensatory damages for administrative error are available

only in very limited circumstances’ (New South Wales v Paige [2002] NSWCA 235 para 172).

See also Brown v Attorney-General [2003] 3 NZLR 335 paras 50, 127 and 129 per Glazebrook J.

9

In addition to the cases discussed in this article, see further: Stols v Garlicke and Bousfield

Inc 2012 (4) SA 415 (KZP); Nashua Mobile (Pty) Ltd v GC Pale CC t/a Invasive Plant Solutions

2012 (1) SA 615 (GSJ); Page v First National Bank Ltd and Another 2009 (4) SA 484 (E);

mCubed International (Pty) Ltd and Another v Singer and Others NNO 2009 (4) SA 471 (SCA);

Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 (HL); Informer v Chief

Constable [2012] 3 All ER 601 (CA); and British Columbia v Imperial Tobacco Canada Ltd

(2011) 335 DLR (4th) 513 (SCC). See also J Neethling, J M Potgieter & Johann Knobel Law of

Delict 6 ed (2010) 290–7; Chuks Okpaluba & Patrick C Osode Government Liability: South

Africa and the Commonwealth (2010) para 6.3;JCvanderWalt&JRMidgley Principles of

Delict 3 ed (2005) para 68.

(2014) 26 SA MERC LJ388

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