South African Post Office v De Lacy and Another

• Jurisdiction: South Africa
• Judge: Farlam JA, Navsa JA, Nugent JA, Van Heerden JA and Mlambo JA
• Judgment Date: 13 May 2009
• Citation: 2009 (5) SA 255 (SCA)
• Docket Number: 19/08
• Hearing Date: 23 February 2009
• Counsel: HJ Fabricius SC (with HF Jacobs) for the appellant. M Nowitz for the respondents.
• Court: Supreme Court of Appeal

South African Post Office v De Lacy and Another
2009 (5) SA 255 (SCA)

2009 (5) SA p255

Citation	2009 (5) SA 255 (SCA)
Case No	19/08
Court	Supreme Court of Appeal
Judge	Farlam JA, Navsa JA, Nugent JA, Van Heerden JA and Mlambo JA
Heard	February 23, 2009
Judgment	May 13, 2009
Counsel	HJ Fabricius SC (with HF Jacobs) for the appellant.; M Nowitz for the respondents.

Flynote : Sleutelwoorde B

Delict — Pure economic loss — Loss of profit — Loss suffered by unsuccessful tenderer — No dishonesty in award of contract established — Claim for damages dismissed.

Delict — Pure economic loss — Loss suffered by unsuccessful tenderer as a C result of fraudulent or dishonest award of contract — Reiterated that unsuccessful tenderer having claim for damages for loss of profit only if fraud or dishonesty established.

Headnote : Kopnota

The respondents, as the cessionaries of a claim by an unsuccessful tenderer D (Cornastone) for a contract with the appellant, instituted action in the High Court for recovery of the profit that they alleged Cornastone would have made had it been awarded the contract, consequent upon the alleged dishonest award of the contract by the tender board to a third party (Kumo). The High Court found that the contract had indeed been awarded through 'dishonest manipulation and corruption' and upheld the respondents' claim. In an appeal to the SCA, E

Held, that irregularities falling short of dishonesty, incompetence on the part of those who evaluated the tenders, and even conduct that amounted to negligence, would not found a claim for damages at the hands of an unsuccessful tenderer. A claim would lie only if it were established that the award of the contract to the rival was brought about by dishonest or fraudulent conduct on the part of one or more of the officials for whose F conduct the appellant was vicariously liable, but for which the contract would have been awarded to the complainant. The onus rested upon the respondents to establish, as a matter of probability, that the award of the contract was brought about by conduct of that kind, and, if that onus were not discharged, the claim would have to fail. (Paragraph [14] at 260G - I.)

Held, further, that there was in the instant case no evidence of manipulation or G dishonesty on the part of any of the members of the Review Panels. The evidence also did not disclose dishonest manipulation in the course of the deliberations of and reporting by the evaluation committee, nor on the part of the tender board. (Paragraph [116] at 282H.)

Held, further, that there might well have been irregularities, incompetence and H negligence and Cornastone might even have been more worthy of being awarded the contract, but none of that was enough. The respondents bore the onus of establishing that the contract was awarded to Kumo in consequence of dishonesty on the part of one or more of the officials concerned. They had failed to discharge that onus and their claim A should have been dismissed. (Paragraph [118] at 283B - C.) Appeal upheld. I

Cases Considered

Annotations

Reported cases

Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd and Another 1998 (3) SA 938 (SCA) ([1998] 3 All SA 175): dictum in para [37] applied J

2009 (5) SA p256

Minister of Finance v Gore NO 2007 (1) SA 111 (SCA) ([2007] 1 All SA 309): dictum in para [90] applied A

Ocean Accident and Guarantee Corporation Ltd v Koch 1963 (4) SA 147 (A): dictum at 159B - D applied

Olitzki Property Holdings v State Tender Board and Another 2001 (3) SA 1247 (SCA) (2001 (8) BCLR 779): distinguished

R v Blom 1939 AD 188: dictum at 202 - 203 applied B

Steenkamp NO v Provincial Tender Board, Eastern Cape 2006 (3) SA 151 (SCA) ([2006] 1 All SA 478): distinguished

Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) (2007 (3) BCLR 300): distinguished.

Case Information

C Appeal from a decision in the Transvaal Provincial Division (Hartzenberg J). The facts appear from the reasons for judgment.

HJ Fabricius SC (with HF Jacobs) for the appellant.

M Nowitz for the respondents.

Cur adv vult. D

Postea (May 13).

Judgment

Nugent JA:

E [1] Cases concerning tenders in the public sphere are coming before the courts with disturbing frequency. This is another such case. It concerns a claim by an unsuccessful tenderer for damages arising from the award of the contract to a rival tenderer.

F [2] A claim of that kind came before this court in Olitzki Property Holdings v State Tender Board and Another. [1] In that case an unsuccessful tenderer sought to rely upon the provisions on procurement administration in s 187 of the interim Constitution to recover profits that it lost by not being awarded a contract because of irregularities on the part of the G State tender board. Expressing the question before him as 'whether [that provision] creates a right to claim damages for lost profit at the instance of a party claiming injury because of its infringement', Cameron JA concluded that 'in s 187 I can find no basis of interpretation and no applicable principle of public policy entitling the plaintiff to claim its lost H bargain'. [2]

[3] The principles underlying that decision were affirmed by this court, and subsequently the Constitutional Court, when an even narrower claim was dismissed in Steenkamp NO v Provincial Tender Board, Eastern Cape. [3] In that case the claim was by a successful tenderer (in liquidation I at the time the claim was brought) for the loss of the expense it had

2009 (5) SA p257

Nugent JA

incurred in preparing and submitting its tender, when its contract was A subsequently set aside on review. Dismissing the claim, Harms JA said in this court: [4]

'(T)he existence of an action by tenderers, successful or unsuccessful, for delictual damages that are purely economic in nature and suffered because of a bona fide and negligent failure to comply with the B requirements of administrative justice cannot be inferred from the statute in question. [5] Likewise, the same considerations stand in the way of the recognition of a common-law legal duty [not to act negligently] in these circumstances.' [Footnote added.]

Endorsing that conclusion, Moseneke J said in the Constitutional Court: [6] C

'I am satisfied that in considering the tenders submitted by Balraz [the company in liquidation] and others, the tender board did not owe Balraz a duty of care and therefore its conduct in avoiding the tender was not wrongful. I cannot find public policy considerations and values of our Constitution which justify adapting or extending the common-law D of delict to recognise a private law right of action to an initially successful tenderer which has incurred a financial loss on the strength of the award which is subsequently upset on review by a court order.'

[4] But generally the position will be different where the loss of a contract has been brought about by dishonesty or fraud on the part of the E public officials concerned. That was the conclusion reached by this court in Minister of Finance v Gore NO. [7] That was another claim for damages (the nature of the damages does not appear from the report) by an unsuccessful tenderer. The conduct that caused the contract to be awarded to the rival tenderer at the expense of the plaintiff was described as follows: [8] F

'An OSEO examination of Terblanche's secretary's computer hard drive eventually revealed that, ten days before the closing date [for tenders], Louw and Scholtz [9] - fraudulently conspiring with Huisamen [10] and Mr André Scholtz, Scholtz's brother (a provincial employee in Port Elizabeth) - had put together Nisec's [11] tender on Friday 1 April G 1994 at the CPA offices; that Louw and Scholtz had corruptly negotiated contracts of employment for themselves with Nisec, plus substantial bribes (which Huisamen paid into their wives' banking accounts); that Louw, left to steer the evaluation committee and to draft submissions to the new provincial executive and to the State tender board, H

2009 (5) SA p258

Nugent JA

A had, with lies and distortions, manipulated the entire process to secure the award to Nisec.' [Footnotes added.]

[5] That conduct on the part of the officials concerned was held to found a claim against them for damages, for which their employer was vicariously liable. Cameron and Brand JJA said the following: [12]

B '(T)he question is: is there any conceivable consideration of public or legal policy that dictates that Louw and Scholtz (and vicariously, their employer) should enjoy immunity against liability for their fraudulent conduct? We can think of none. The fact that the fraud was committed in the course of a public-tender process cannot, in our view, serve to C immunize the wrongdoers (or those vicariously liable for their conduct) from its consequences. And we find no suggestion in Olitzki and Steenkamp that the tender process itself must provide government institutions with a shield that protects them against vicarious liability for the fraudulent conduct of their servants.'

D [6] Although the present claim was launched after Olitzki had been decided (but before the decisions in Steenkamp and Gore), the particulars of claim paid little regard to what was said in that case. What was fired in support of the claim was a barrage of allegations that would have been the pride of a battery of artillery. It was alleged, among other things, that the persons who evaluated the tenders were 'unqualified to do so and E [were] guilty of misconduct and/or corruption', that there were 'anomalies' in the process, that the process was not 'objective, equitable and transparent', that other bidders were given an 'unfair or improper advantage', that 'back-handers and bribes entered into the process', and that the tender...