Background

In Scheer v Wagner N.O. and Others (1109/2024) [2026] ZASCA 32 the appeal before the SCA concerned (i) the interpretation of what constitutes “surplus” as contemplated in section 116 of the Act; and (ii) whether “surplus” funds in the insolvent’s (Mr Scheer) sequestrated South African estate should be transferred to his Austrian administrators to settle any claims proven by his Austrian creditors.

Section 116 provides:

“If after the confirmation of a final plan of distribution there is any surplus in an insolvent estate which is not required for the payment of claims, costs, charges or interest, the trustee shall, immediately after confirmation of that account, pay that surplus over to the Master who shall deposit it in the Guardians’ Fund and after the rehabilitation of the insolvent shall pay it out to him at request.”

Contention by the parties

Scheer argued that the joint trustees should be treated as any ordinary creditor and should lodge a claim against his South African estate in terms of section 44 of the Act. He further submitted that since he was sequestrated in both Austria and South Africa, section 116 of the Act applied and not the common law principles of international comity. In addition, Scheer contended that the effect of the High Court’s judgment was that claims by his Austrian creditors were allowed without deference to section 44 of the Act, and the application was speculative and premature.

On the other hand, the joint trustees argued that section 116 of the Act should be interpreted to consider the broader pool of Scheer’s creditors, encompassing both South African and Austrian obligations. It was further contended that although Scheer’s insolvency spans across two jurisdictions, he possesses one estate. Consequently, no “surplus” in terms of section 116 of the Act should be paid to the Guardian Fund until all Scheer’s creditors, including those in Austria, have been satisfied.

The court’s findings

In rejecting Scheer’s contentions as untenable, the SCA reaffirmed the High Court’s ruling that the common law principle of international comity applied to the dispute, particularly because recognising the authority of the joint trustees did not conflict with South African law or public policy.

Having been formally recognised, the joint trustees could, in terms of private international law, deal with Scheer’s “movable property located in South Africa because such assets follow the lex domicilli (law of domicile), and therefore vest in the trustee upon the foreign sequestration”. Sheer was domiciled in Austria at the time of his Austrian sequestration.

Pertinently, the court further held that their recognition allows the joint trustees, after the final distribution of Scheer’s South African estate under section 113 of the Act, to transfer any surplus funds from Scheer’s South African estate to the Austrian estate for the benefit of his Austrian creditors.

As for the postulated application of section 116 of the Act, the court authoritatively held that this section does not apply in circumstances where, after the distribution in a South African estate, a surplus remains while a shortfall persists in the insolvent state in the individual’s country of domicile. In such situations, the common law principles prevail and provide the applicable legal framework.

Key takeaways

The SCA confirmed the common law principle that when an insolvent is sequestrated in a foreign jurisdiction, in which jurisdiction they were domiciled at the time of their sequestration, their foreign trustees are automatically vested with their movable property in South Africa. In terms of immovable property, the foreign trustees would have to seek the recognition of their authority from the South African High Court before they are authorised, under South African law, to deal with such immovable property.

This judgment further settles the position in our law that a foreign trustee appointed in the jurisdiction of the insolvent’s domicile is entitled, upon formal recognition of the foreign appointment in South Africa, to claim any surplus remaining in the local sequestrated estate after local creditors have been paid.

It is important to note that the permanent residence (domicile) of the insolvent is of utmost importance in the comity of South African foreign insolvency law. If the insolvent is not domiciled in the foreign jurisdiction at the time of their foreign sequestration, then the foreign trustees or foreign sequestration cannot be recognised by our South African courts. This, however, does not mean foreign creditors are left without relief. If the insolvent has been sequestrated in South Africa, then the foreign creditor can still lodge a claim in the local insolvent estate. If the insolvent has not been sequestrated in South Africa, then the foreign creditor can apply to the South African courts to have the insolvent sequestrated locally and thereafter lodge a claim in the local estates.

Section 217 of the Constitution requires that when contracting for goods or services, public entities do so through “a system that is fair, equitable, transparent, competitive and cost-effective”. Once a preferred bidder is selected, public entities ordinarily enter into contractual negotiations with such bidders prior to concluding a contract. Such negotiations are a recognised feature of public procurement processes and are typically directed at clarifying terms, allocating risk and improving value‑for‑money outcomes, within the limits of the procurement framework.

While public entities may negotiate and conclude contracts lawfully pursuant to competitive tender processes, the Gauteng Division of the High Court has now reaffirmed that public entities cannot, by contractual design, fetter their future procurement powers by restraining themselves from approaching the open market once a contract term has expired. In Sekela Xabiso CA Incorporated v Transnet SOC Limited and Others [2026] JOL 74084 (GJ), the court held that a contractual clause which bound Transnet SOC Limited (Transnet) to procure auditing services only from a single provider beyond the contract period, unless those services were insourced, was unconstitutional and invalid. The clause was severed, and Transnet’s decision to incorporate it was reviewed and set aside.

The dispute

Transnet issued a request for proposals for auditing services, envisaging a five‑year appointment. Sekela Xabiso CA Incorporated (Sekela) was appointed as a preferred bidder.

During negotiations, Transnet disclosed its intention to insource the audit function and was unwilling to commit to a five‑year outsourcing arrangement. The parties ultimately concluded a contract for an initial 30 months. However, the contract included a restrictive clause, clause 6, which prevented Transnet, for a total period of 60 months, from procuring audit services from any provider other than Sekela unless Transnet decided to insource such services.

Despite the restriction in clause 6, Transnet issued a new tender for an appointment of an audit firm, which was awarded to Deloitte & Touche for five years. Sekela’s contract was extended briefly to facilitate the handover. Sekela thereafter declared a dispute under the arbitration clause for a damages claim based on the alleged breach of the exclusivity restriction. In response, Transnet challenged the constitutional validity of clause 6, an issue that was beyond the arbitrator’s jurisdiction. This resulted in Sekela approaching the High Court seeking a declaration that clause 6 was constitutionally valid and enforceable. Transnet opposed that relief and instituted a counter application to review and set aside its own decision to include clause 6 in the contract, contending that the clause unlawfully infringed section 217 of the Constitution.

It was common cause between the parties that clause 6 was severable from the remainder of the contract. The central issue for determination was the proper interpretation of the clause and whether, properly construed, it could withstand constitutional scrutiny.

Contractual interpretation in the procurement context

The High Court approached the matter by applying established principles of contractual interpretation and analysing clause 6 in the context of the contract as a whole, including the duration and renewal provisions. The court held that the contract did not provide for automatic renewal on fixed terms. On the contrary, the contract expressly reserved Transnet’s discretion on whether to extend the contract at all, subject to terms and conditions to be agreed and applicable procurement and National Treasury requirements. Read together, the clauses made it clear that clause 6 operated independently of the contract’s duration. Its effect was not to extend the contract but to restrain Transnet, even after expiry of the contractual term, from procuring similar services from any other provider.

The court concluded that clause 6 amounted to a restrictive covenant that bound Transnet to a single service provider for a fixed period, regardless of whether a contractual relationship on agreed terms remained in place. Crucially, the court emphasised that because no contractual terms governed the restricted post‑expiry period, clause 6 effectively permitted Sekela to dictate pricing and conditions during that period. This reinforced the conclusion that the arrangement was neither competitive nor transparent, as Transnet was disabled from testing the market or securing improved value once the agreed contractual term had ended.

Constitutional invalidity of clause 6

Once interpreted in that manner, the constitutional consequences were decisive. The court held that:

“[S]ection 217 of the Constitution forecloses the possibility of one company cornering the market for the provision of services to a particular state entity, even for a limited period – especially if the effect of it doing so would be that it could name its own price.”

The court further held that “the very purpose of section 217 is to prevent private entities from monopolising state resources” and clarified that clause 6 had the effect of wholly extinguishing Transnet’s procurement powers for the duration of the restriction and preventing it from testing the market or securing better value, albeit for a limited period and regardless of how commercially advantageous such an arrangement may have appeared at the time of contracting.

While Transnet could lawfully have concluded a five year contract through an open tender process, it could not lawfully agree to restrain itself from future procurement beyond the life of a concluded contract.

The court held that the effect of the clause was to capture the state’s purchasing power for a period exceeding the term of the contract. That sort of arrangement cannot lawfully be executed, not least because it will inevitably lend a legal veneer to corrupt control of state resources. The restrictive clause 6 of the contract was accordingly declared unconstitutional and invalid.

Conclusion

This judgment draws a clear and important boundary in public procurement.  post award negotiations are a legitimate and often necessary feature of public procurement, aimed at refining contractual terms and improving value for money. However, such negotiations cannot be used to entrench exclusivity or restrain an organ of state from returning to the market, even for a limited period, where the effect is to eliminate competition and transparency in public contracting.