Esorfranki (Pty) Ltd v Mopani District Municipality

• Jurisdiction: South Africa
• Judge: Petse AP, Nicholls JA, Mbatha JA, Goosen AJA and Poyo-Dlwati AJA
• Judgment Date: 24 June 2021
• Court: Supreme Court of Appeal
• Hearing Date: 24 June 2021
• Citation: 2022 (2) SA 355 (SCA)
• Counsel: KW Luderitz SC (with C Woodrow) for the appellant. WR Mokhare SC (with SC Motsepe) for the respondent.
• Docket Number: 916/2018 [2021] ZASCA 89

Goosen AJA (Petse AP concurring):

[1] This appeal concerns the liability, in delictual damages, of a municipality to an unsuccessful tenderer where the award of the tender is vitiated by fraudulent or dishonest conduct.

[2] The appellant, Esorfranki Pipelines (Pty) Ltd (Esorfranki), instituted a claim for damages, based on a loss of profit, against the Mopani District Municipality (Mopani); Tlong Re Yeng CC (Tlong); and Base Major Construction (Pty) Ltd (Base Major) as first, second and third defendants, respectively. It is common cause that Tlong and Base Major had formed a joint venture (the Joint Venture) for the purposes of securing and executing a contract offered by way of tender. As the successful tenderer, the Joint Venture was awarded a contract with Mopani.

[3] Esorfranki's claim for damages against Mopani and the Joint Venture was founded upon the allegation that the award of the tender was as a

Goosen AJA (Petse AP concurring)

result of wrongful and intentional conduct, amounting to dishonesty and fraud. It was alleged that the decision of Mopani to award the contract to the Joint Venture was vitiated by bias, bad faith, ulterior purpose and dishonesty. In consequence, Esorfranki was alleged to have suffered damages based on the profit it would have earned had the contract been awarded to it as the successful tenderer, as it should have been.

[4] On 29 April 2015 judgment was granted by default against the Joint Venture members for payment of damages, interest and costs. The relief claimed against Mopani was postponed sine die. The High Court trial against Mopani commenced on 15 May 2017 in respect only of the issue of liability. Makgoka J dismissed the claim on 17 January 2018. The High Court subsequently refused leave to appeal. The appeal therefore comes before this court with leave having been granted on petition.

Background and litigation history

[5] In August 2010 Mopani invited tenders for the construction of a water pipeline between the Nandoni Dam, Thohoyandou and the Nsami water treatment works in Giyani (the first award). In October 2010 the contract was awarded to the Joint Venture. Esorfranki and another unsuccessful tenderer, Cycad Pipelines (Pty) Ltd (Cycad), brought an urgent application in the Gauteng Division of the High Court, Pretoria, to interdict the implementation of the award pending further review relief. On 27 January 2011 Preller J granted an order by consent between the parties, setting aside the award of the tender and directing that the tender be readjudicated.

[6] In February 2011 the tender bids were readjudicated and Mopani again awarded the contract to the Joint Venture (the second award). On 1 March 2011 Esorfranki commenced an urgent application to interdict implementation of the award pending the outcome of review proceedings. On 22 March 2011 Fabricius J granted an interim order interdicting and restraining Mopani from implementing the contract.

[7] What followed the grant of the interim order was a series of applications. In response to a failure to comply with the order of Fabricius J, Esorfranki commenced contempt proceedings. Mopani brought an application for leave to appeal the interim order. When the hearing of the latter application was delayed, Esorfranki brought an interlocutory application in terms of rule 49(11) of the Uniform Rules. Esorfranki sought an order suspending all operations and actions by the Joint Venture pending the finalisation of the application for leave to appeal. All the while the Joint Venture proceeded with the works. Webster J granted an order in terms of rule 49(11) on 1 April 2011. That order was extended, on various occasions, to 10 May 2011, when the application for leave to appeal was heard. Leave to appeal the order of Fabricius J was refused on 11 May 2011. Mopani thereupon, on 19 May 2011, filed a petition for leave to appeal the interim order with this court. When no undertaking was provided in respect of the continuation of the contract works, Esorfranki commenced a second rule 49(11) application

Goosen AJA (Petse AP concurring)

to stay the implementation of the contract. An interim order was granted on 24 May 2011, pending the hearing of the rule 49(11) application.

[8] On 31 May 2011, when the second rule 49(11) application came before De Vos J, certain undertakings given by Mopani and the Joint Venture, effective until 10 June 2011, were made orders of court. The hearing of the application was postponed to that date. It was then further postponed. On 24 June 2011 De Vos J discharged the order incorporating the undertakings and postponed the rule 49(11) application sine die.

[9] Since the implementation of the tender contract was proceeding, Esorfranki launched a third interim interdict application. This was heard by Kollapen J on 6 July 2011. On 8 July Kollapen J granted the order. Despite this order, the implementation of the contract proceeded. A further contempt application was heard by Jordaan J on 19 July 2011 when an order was granted by consent.

[10] On 2 August 2011 this court dismissed the application for leave to appeal against the interim order granted by Fabricius J. The respondents then filed an application for leave to appeal with the Constitutional Court on 24 August 2011. They continued, in the light thereof, to implement the contract. On 6 September 2011 Tuchten J granted a further interdict restraining implementation of the contract. The Constitutional Court thereafter dismissed the application for leave to appeal.

[11] The judgment in the review application which Esorfranki had commenced in March 2011 was delivered by Matojane J on 29 August 2012. [1] The learned judge issued an order, inter alia, in the following terms:

'1.

The tender process is declared illegal and invalid and is set aside.

2.

The municipality is ordered to independently and at the Joint Ventures costs verify that all the work has been done according to specifications and that the Joint Venture does all the necessary remedial work and work is completed as soon as possible in terms of the agreement.

3.

Each party is ordered to pay its own costs.'

[12] The learned judge also made an order that Esorfranki should pay the costs of Mopani's attorney, one Mr Mahowa, who had been joined, on a punitive scale. Esorfranki and Cycad obtained leave to appeal against the remedy (principally paras 2 and 3 of the High Court order set out in the preceding paragraph) to this court. Matojane J denied Esorfranki and Cycad their costs on the basis that there was evidence of collusion between them in the manner in which they had conducted the litigation. He also found that they had sought to induce the award of the tender to Esorfranki, in an improper manner.

Goosen AJA (Petse AP concurring)

[13] The appeal against the order of Matojane J was heard on 4 March 2014 and judgment was delivered on 28 March 2014. [2] This court upheld the appeal against paras 2 and 3 of Matojane J's order. It set those orders aside and substituted them. The relevant portion of the substituted order reads as follows:

'(a)

Any contract entered into between [Mopani] and the [Joint Venture] pursuant to the award of the tender to the respondents for the construction of a pipeline between the Nandoni dam and the Nsami water treatment works (Nandoni to Giyani Pipe Project; project number LPR018), is declared void ab initio and is set aside.

(b)

[Mopani] is ordered to formally approach the Department of Water Affairs within seven days of the granting of this order to request that Department to do the following:

(i)

To take such steps as may be necessary to determine the extent of the works necessary to perform remedial work and to complete the construction of the pipeline and the other works as contemplated in the aforesaid tender, for purposes of publishing a tender for the said remedial work and the completion of the works;

(ii)

To prepare and publish an invitation to tender for the performance of the remedial work and completion of the works as aforesaid;

(iii)

To evaluate and adjudicate all bids received, and to make an award in respect of such invitation to bid.'

[14] It is necessary to touch briefly on Matojane J's finding regarding the conduct of Esorfranki and Cycad. This is so because my colleague Nicholls JA accords some weight to Matojane J's finding in the context of relevant public policy considerations at play in relation to the element of wrongfulness. [3] The reliance is, with respect, misplaced.

[15] This court rejected Matojane J's finding on the basis that there were no facts to support the finding. The judgment records the following: [4]

'The finding of the High Court that the parties were to pay their own costs in respect of the relevant applications was essentially made on the basis of what the court described as the "unreasonable and unconscionable manner in which Esorfranki and its attorney including Cycad conducted this litigation". It found that the appellants made themselves guilty of collusion. That finding is not supported by the facts. Esorfranki and Cycad are separate legal entities, they separately submitted tenders, instituted legal proceedings and instructed separate firms of attorneys to act on their behalf. The mere fact that they were the joint beneficiaries of a tender awarded to them in another province, [5] and that there may have been similarities in the papers filed by them in the

Goosen AJA (Petse AP concurring)

present proceedings, does not support a finding of collusion, the import of which after all is the presence of dishonesty. There is nothinguntoward in one litigant aligning itself with another and co-operating in the quest to achieve a particular result in legal proceedings.'

The trial action in the High Court

[16] As stated earlier, the trial commenced before Makgoka J...