15 April 2020 by and Dispute Resolution Alert

Do not fear the never-ending opportunity to set aside tenders

As a general principle of law, decisions by organs of state, such as those concerning the award of a tender, must be challenged as soon as possible once the decision is made and communicated. For organs of state, the Constitutional Court has held that decisions must be challenged within a “reasonable” period and for private persons that reasonable time period is 180-days. Usually, absent an adequate explanation, a court is not obligated to consider late complaints. 

The delay rule serves an important public interest: certainty and finality in decision making. It also serves a constitutional purpose: promoting open, responsive and accountable government, particularly when the state seeks to review its own decision.

In Buffalo City Metropolitan Municipality v Asla Construction (Pty) Limited (CCT91/17) [2019] ZACC 15 (16 April 2019), the Municipality sought to review its own decision to award a contract to Asla Construction (Pty) Ltd to build low cost housing. It was considerably late in launching the review, by some 14 months and, glaringly, without an explanation for its undue tardiness.

To put the issue in context: In 2003, the Municipality identified that there were housing shortages in Duncan Village, specifically within the area’s informal settlements. Following a public invitation for tenders for a housing project to address these needs, Asla successfully bid for the tender. A Turnkey Agreement was concluded between the parties on 30 May 2014 which required that Asla provide between 3,000 and 5,000 housing units for the Duncan Village Development.

Later, a subsequent agreement (the Reeston Agreement) for engineering services and the construction of housing top structures within Reeston was concluded between Asla and the Municipality. The Reeston Agreement proved to be a source of dispute after the Municipality failed to pay Asla for their performance amid allegations that the agreement was concluded without a lawful tender.

As a result, Asla instituted provisional sentence proceedings based on payment certificates issued by the Municipality for work it had done under the Reeston Agreement. In response, the Municipality disavowed the agreement on the basis that it was unlawful for failing to comply with section 217 of the Constitution and various statutory procurement prescripts. Key among these was that Reeston was not part of the tender for which Asla had bid.

The High Court found that the Municipality had made out a proper case for condonation and that the Reeston Agreement was unlawful. It declared the contract invalid and dismissed the contractual claims connected with the provisional sentence proceedings. Asla successfully appealed to the SCA, which found that the Municipality’s application for condonation could not be sustained. Expectedly, the SCA declined to make any findings in respect of the agreements’ legality.

The Municipality then approached the Constitutional Court. In the majority judgment penned by Theron J, the court upheld the appeal and declared the Reeston Agreement constitutionally invalid. In assessing delay, Theron J held that the Municipality had failed to provide a sufficient explanation and that, as an organ of state, it had a higher duty to respect the law and to take the court into its confidence by providing a full and frank explanation for its delay. This, the Municipality had dismally failed to do. Instead it had undone all its goodwill by seeking to withdraw the challenge in order to perpetuate the constitutionally invalid contract by way of an unlawful settlement agreement.

However, despite the general approach adopted by the courts to reviews brought unreasonably late and the Municipality’s questionable conduct, the majority judgment found that it was compelled to deal with the unlawfulness of the contract by declaring its invalidity and ameliorating the prejudice to Asla by preserving the rights it had accrued under the Reeston Agreement.

The dissenting judgment (second judgment) penned by Cameron J and Froneman J, adopted a different reasoning to arrive at the same practical outcome. Following the general approach to condonation, and Theron J’s finding on the paucity of the Municipality’s delay explanation, the Justices held that the Municipality’s challenge should not have been entertained due to the unreasonable delay.

When an organ of state institutes proceedings to set aside its own decision and in bringing such proceedings there is an unfathomable and inexcusable delay, no public interest or constitutional necessity exists for pronouncing on its legality.

On the importance of the delay rule, the Justices held that there is a clear insistence that delay must be explained so as to fully inform the court and that without such an explanation, justice may not require the courts to engage in an unlawfulness inquiry. Accordingly, the second judgment held that it was not in the interests of justice for the court to entertain the Municipality’s application and that leave to appeal must be refused.

“The objective served by legality review must therefore be borne in mind when evaluating the importance to be attached to the seriousness of the illegality. A court should be vigilant in ensuring that state self-review is not brought by state officials with a personal interest in evading the consequences of their prior decisions. It should scrutinize the conduct of the public body and its candour in explaining that conduct to ensure, in the public interest, open, responsive and accountable government. Where there is glaring arbitrariness and opportunism – that is, where the government actor’s efforts to correct the suspected unlawful decision serve the antithesis of the rule of law – the interests of justice weigh against giving it a free pass by overlooking an unreasonable delay.” (At paragraph 139)

It was therefore unnecessary for the majority judgment to have pronounced on the legality of the Reeston Agreement. In doing so, the majority judgment confirmed and extended the principles set out in Gijima and found that the unlawfulness of the contract could not be ignored, paving the way for organs of state to review their unlawful decisions at any stage, even years later.

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