Claiming compensation for not being awarded a tender?

Every other day in South Africa there is a news headline about tenders being awarded irregularly, unlawfully or through corruption and fraud by organs of state. This discussion will focus on the remedy that an aggrieved tenderer has in law for a tender that has been awarded through corruption and fraud. It must be noted that not all unlawful actions amount to fraud in our law.

20 Jul 2021 3 min read Dispute Resolution Alert Article

At a glance

  • Aggrieved tenderers in South Africa may have a claim for damages if a tender has been awarded fraudulently or through corruption, but the availability of such a claim depends on various factors.
  • Section 8(1)(c)(ii)(bb) of the Promotion of Administrative Action Act allows courts to order compensation in exceptional cases of judicial review, but the term "exceptional circumstances" is not clearly defined and is determined on a case-by-case basis.
  • Courts have recognized that fraud in the awarding of tenders can be considered an exceptional circumstance, as seen in the Transnet case, but the tenderer must demonstrate that they would have been awarded the tender if not for the fraudulent conduct. It is crucial for aggrieved tenderers to seek legal advice to understand the available remedies in cases of fraudulent tender awards.

The question is whether an aggrieved tenderer has a damages claim against the organ of state or public body that has awarded a tender fraudulently or through corruption. The answer to this question is not a simple “yes” or “no” as there are many factors that come into play. Section 6 of the Promotion of Administrative Action Act 3 of 2000 (Act) makes provision for instances when a person may institute proceedings in a court or tribunal for the review of an administrative action. There are remedies stipulated in section 8 of the Act that the court or tribunal may order in a judicial review.

Section 8(1)(c)(ii)bb) of the Act makes provision for a claim for compensation as follows: the court or tribunal, in proceedings for judicial review in terms of section 6(1) of the Act, may grant any order that is just and equitable, including orders setting aside an administrative action and, in exceptional cases, directing the administrator or any other party to the proceedings to pay compensation. It is clear from the provision that courts have the discretion to order compensation to be paid in exceptional circumstances, but what the provision does not define is what is meant by exceptional circumstances. The courts have indicated that what is meant by exceptional circumstances will depend on the facts of the case.

Ordinarily, a breach of administrative justice attracts public law remedies and not private law remedies. The purpose of a public law remedy is to pre-empt, correct or reverse an improper administrative function and to afford the prejudiced party administrative justice, to advance efficient and effective public administration.

The Supreme Court of Appeal in Transnet Ltd v Sechaba Photoscan (Pty) Ltd [2005] (1) SA 299 (SCA) and Minister of Finance and Others v Gore N.O [2007] (1) SA 111 (SCA) dealt with disappointed tenderers claiming damages in instances where there was fraud in the awarding of tenders. In those cases, the appeal court was of the view that if, in the process of awarding a public tender, there was fraud or deliberate dishonest conduct then liability for it should follow in damages. The appeal court held in the Transnet case that the aggrieved tenderer was entitled to be placed in the position it would have been in if the tenderer had not been fraudulently deprived of the tender award.

It must be noted that not every aggrieved tenderer who submitted a tender bid that was ultimately awarded fraudulently will be entitled to compensation. Only the tenderer who can show that they would have won the tender but for the fraudulent conduct of the administrator may claim for damages.

In Olitzki Property Holdings v State Tender Board and Another [2001] (8) BCLR 779 (SCA) the aggrieved tenderer had complained of an irregular, unreasonable and arbitrary tender process and instituted a delictual claim for damages against the tender board, but no case was made to show that it would have been awarded the tender had there not been for the wrongful conduct by the administrator. Failure to make out a case that it would have been awarded the tender was fatal in this case and the claim for damages was dismissed.

In conclusion, the courts have shied away from defining or listing what is meant by the “exceptional circumstances” referred to in section 8(1)(c)(ii)(bb) of the Act, and have instead stated that the exceptional circumstances will be determined on a case-by-case basis. However, as shown in the Transnet case, it can be argued that fraud does qualify as an exceptional circumstance. As such, it is very important for aggrieved tenderers to consult with legal professionals if they suspect that the awarding of a tender was fraudulent in order to get advice on the remedies that may be available to them.

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