Contract declared invalid? You may still need to pay for services rendered

The South African Supreme Court of Appeal (“SCA”) recently handed down a judgment confirming that just because a contract is reviewed and set aside does not necessarily mean that the respondent won’t be entitled to be compensated for what they have already delivered. Rather, it will be up to the court to decide what a just and equitable remedy is.

The Fetakgomo Tubatse Local Municipality invited tenders for debt collection services for a period of three years. Sekoko Mameja Attorneys was awarded the tender alongside four other successful tenderers. Sekoko Attorneys was provided with a list of debtors by the municipality and was tasked with recovering the money owed by the debtors to the municipality. Sekoko Attorneys duly performed their obligations between January 2018 to May 2018.

However, in April 2018, the municipality realised that Sekoko Attorneys had failed to provide a valid tax certificate during the tender process, meaning that it had submitted a non-responsive bid in contravention of the Municipality Supply Chain Management Policy. As such, the municipality communicated its intention to cancel the appointment of Sekoko Attorneys.

Sekoko Attorneys did not accept the termination of its appointment. The municipality applied to review and set aside Sekoko’s Attorneys’ appointment. In response, Sekoko Attorneys delivered an answering affidavit with a counter application for payment for the services rendered between January and May 2018.

The municipality did not oppose the counter application, but did not pay the money claimed. Despite the municipality conceding that the services were rendered by Sekoko Attorneys, the Limpopo High Court held that the award of the tender to Sekoko Attorneys was inconsistent with the Constitution and therefore unlawful and invalid. Therefore, Sekoko Attorneys’ counter application was dismissed with costs by the High Court.

Before the SCA, Sekoko Attorneys’ appeal was limited to the dismissal of its counter application for payment for the services rendered by it to the municipality prior to the review and cancellation of the award of the tender.

Sekoko attorneys argued that despite the order declaring the tender to be awarded invalidly, it was still entitled to payment based on section 172 (1)(b) of the Constitution, which states that:

(1) When deciding a constitutional matter within its power, a court-

(b) may make any order that is just and equitable, including—

(i) an order limiting the retrospective effect of the declaration of invalidity;

and

(ii) an order suspending the declaration of invalidity for any period and on

any conditions, to allow the competent authority to correct the defect.

The SCA remarked that an order of invalidity in terms of section 172(1)(a) of the Constitution had to be applied in conjunction with the provision above.

The SCA found that the Limpopo High Court failed to consider section 172(1)(b) after making its finding of invalidity in terms of the Constitution. The SCA remarked that in considering the invalidity of a contract, the court must consider what is just and equitable. Parties should not receive undue benefits at the expense of an innocent party.

The SCA highlighted that the municipality did not dispute the payment claimed by Sekoko Attorneys, nor did it participate in the SCA proceedings, save for saying that it will abide by any order given. In addition, the court pointed out that the municipality benefited from the services provided by Sekoko Attorneys, whilst Sekoko Attorneys had incurred costs in providing the services.

As such, the court concluded that it was just and equitable for Sekoko Attorneys to be paid what they would have been entitled to receive in terms of the void tender. Sekoko Attorneys’ appeal was therefore upheld.

Aslam Moosajee

Dispute Resolution | Executive

amoosajee@ENSafrica.com

Inathi Mpapa

Dispute Resolution | Candidate Legal Practitioner

impapa@ENSafrica.com