Steenkamp NO v Provincial Tender Board, Eastern Cape

• Jurisdiction: South Africa
• Judge: Harms JA, Cameron JA, Jafta JA, Ponnan JA and Mlambo JA
• Judgment Date: 30 November 2005
• Docket Number: 528/05
• Hearing Date: 17 November 2005
• Counsel: W G Burger SC (with D M Davis) for the appellant. R G Buchanan SC and S V Notsche SC for the respondent.
• Court: Supreme Court of Appeal

Harms JA:

Introduction E

[1] The negligent causation of pure economic loss is prima facie not wrongful in the delictual sense and does not give rise to liability for damages unless policy considerations require that the plaintiff should be recompensed by the defendant for the loss suffered. This is another case in which these limits are being tested, F this time in an administrative law setting.

[2] The appellant, the liquidator of Balraz Technologies (Pty) Ltd, sued the Provincial Tender Board of the Eastern Cape (the respondent) for such damages suffered by the company before its liquidation. These are the facts in summary. Balraz and five other G concerns submitted tenders pursuant to an invitation issued by the State Tender Board for the supply to the Eastern Cape Province of three separate services relating to the implementation of an automated cash payment system for social pensions and other welfare grants. Balraz's tender appeared to be the lowest but concerns were raised by two technical advisory committees about the effective cost of its tender H (the tender was not for a globular sum but per item and the number of items were an unknown factor) and about Balraz's ability to deliver. In spite of these reservations and in the belief that Balraz represented local (Eastern Cape) interests and that awarding the contract to it would support black empowerment, the board decided to I split the tender (as it was entitled to do) by awarding one of the three services to Balraz and the other two to Pensecure (Pty) Ltd.

[3] Pursuant to the award the Province placed an order on Balraz. In order to perform in terms of the contract, Balraz allegedly incurred expenses amounting to R4,35m (the bulk of which in fact represented J

Harms JA

consultants' and directors' 'salaries'). Thereafter, the Ciskei High Court, at the behest of an unsuccessful tenderer, set A both tender awards aside on review. [1] It is these expenses that the appellant wishes to recover as damages from the board. They are admittedly purely economic and consist of out-of-pocket expenses.

[4] The appellant's case as pleaded was that the board owed Balraz a duty in law to (i) exercise its powers and perform its B functions fairly, impartially and independently; (ii) take reasonable care in the evaluation and investigation of tenders; (iii) properly evaluate the tenders within the parameters imposed by tender requirements; and (iv) ensure that the award of the tender was reasonable in the circumstances. The appellant specifically disavowed C reliance on lack of good faith on the part of the board.

[5] The particulars of claim alleged further that the board, in performing its statutory duty, acted negligently. The sting of the allegation was based on a number of factual assumptions, namely that the tender as awarded would have been R100m more expensive than D otherwise and was not the cheapest; that the requirements of economic efficiency were accordingly ignored by the board; and - ironically - that the board did not take into account the fact that Balraz lacked the required technical competence. [2] The board was, according to the allegations, negligent (and I summarise) because it failed to take reasonable care in the evaluation and investigation of tenders by E disregarding the recommendations of two technical evaluation committees; did not properly study the tender documents; failed to determine the actual costs but had regard to the unit costs only; made a hasty decision on inadequate facts; and overemphasised the principles of the national government's reconstruction and development policy. F

[6] In the particulars of claim, the appellant originally claimed loss of profit because of a breach of contract. The board filed an exception to this leg of the particulars of claim on the basis that it did not breach the contract; the contract was invalidated. [3] The exception was upheld by White G J who, though, dismissed an exception against the delictual claim. The delictual claim went on trial before David van Zyl J, who ordered a separation of the questions of liability (ie whether the board's conduct had been wrongful vis-à-vis Balraz and, if so, whether it had been negligent) and quantum, the latter standing over for later adjudication. Causation, the parties thought, relates to quantum only, which it does not necessarily, as the facts of the case H will demonstrate, and much of what follows would have been irrelevant if causation relating to damage (in contradistinction to causation of quantum) had not been separated. J

Harms JA

[7] Because Balraz had not been incorporated at the time when the tender was submitted in its name and when the tenders closed, the A Court below held that the tender was, in any event, void and that the board could therefore not have had a 'duty of care' towards Balraz and the claim was dismissed because wrongfulness had not been established in this regard. The appeal is before us with its leave. B

Statutory setting

[8] These events took place under the interim Constitution which provided that the procurement of goods and services at any level of government had to be regulated by statute; 'independent and impartial' tender boards had to be appointed; and tendering systems had to be 'fair, public and competitive' C (s 187). [4]

[9] In consequence, the Province adopted the Provincial Tender Board Act (Eastern Cape) 2 of 1994. [5] It established a tender board of between 12 and 16 persons. Not fewer than six and not more than half of its members could be officers or D employees of the Province. Men and women had to be adequately represented and the composition of the board had to be 'widely representative of the interests of all the people resident within the Province'. The Act did not establish any criteria or minimum qualifications or levels of technical or legal expertise for board members. (The first chair and his alternate were both men of the cloth.) Echoing the interim Constitution, the Act required of the board E to 'exercise its powers and perform its functions fairly, impartially and independently' (s 2(3)). The board also had to devise a tendering system that was 'fair, public and competitive' (s 4(2)).

[10] The legal position of the board was somewhat ambiguous. The intention was to set up an organ of state, independent of the F provincial government, which had to advise and protect the Province during the procurement process of goods and services. However, the board was also an arm of the provincial government with the power to act on its behalf and to bind it contractually. The board had the sole power to procure supplies and services for the Province, it could G conclude procurement J

Harms JA

agreements on the Province's behalf and resile from them. In an appropriate case, the board could claim damages, A presumably those suffered by the Province due to a breach of a contract concluded by the board.

Administrative law and the law of contract

[11] There is no need to restate the administrative law principles B applicable to a public tender process save to repeat that any such process is governed by the Constitution (which includes the right to administrative justice) and legislation made under it and that, if the process of awarding a tender is sufficiently tainted, the transaction may be visited with invalidity on review. C

[12] Everything, though, is not administrative law. Seen in isolation, the invitation to tender is no doubt an offer made by a state organ 'not acting from a position of superiority or authority by virtue of its being a public authority', [6] and the submission of a tender in response to the invitation is likewise the acceptance of an offer to enter into an option contract by a D private concern who does so on an equal footing with the public authority. [7] The evaluation of the tender is, however, a process governed by administrative law. [8] Once the tender is awarded, the relationship of the parties is that of ordinary contracting parties, although in particular circumstances the requirements of administrative justice may have an impact on the contractual E relationship. [9]

Fate of the tender award

[13] As mentioned, the 'contract' between Balraz and the board was nullified by the order on review. [10] It is difficult to pinpoint the exact ground of review which was held to F apply and I am left with an uneasy feeling that the difference between appeal and review was not always kept in mind but it is not necessary to reconsider the judgment. It is a given. On the other hand, delictual liability was not an issue in that case and the judgment and its reasons have no bearing on this appeal. G

Wrongfulness: The views of the courts below

[14] White J, in dismissing the exception dealing with delictual liability, was satisfied that

'public policy does consider any act or omission by the board, which results in anyone else suffering damages or economic loss, to be wrongful. It is unthinkable that the board will have carte H blanche to act as it pleases, irrespective of the loss

Harms JA

which such actions may cause to others.' A

[15] Van Zyl J, after a close analysis of the case law, was more circumspect, but also concluded that a tender board owes a legal duty to the successful tenderer in awarding a tender to that party. Paraphrased, he reasoned as follows. All tenderers, successful and unsuccessful, are entitled to a lawful and fair process. Statutes dealing with tenders are enacted in the interest of both the state and B of tenderers. An unsuccessful tenderer has a remedy in the form of a review whereas a successful tenderer, such as Balraz, has none unless a damages claim is recognised. Balraz's claim is limited to out-of-pocket expenses and a damages award will not place a serious burden...