Constitutional Court stops a Municipality from abusing judicial self-review

This issue previously discussed in the Bulletin, commonly known as self-review, is a legal process where an organ of state approaches a court to challenge its decisions (i.e., awarding of tenders) upon discovering irregularities. This article discusses the significance of the judgment, which cautions municipalities and other organs of state from not fulfilling their contractual obligations through a process of self-review or appeal, particularly where a service provider continues to render services under an unlawful contract.

Background

The case concerns a municipality, the Greater Tzaneen Municipality, which entered into a contract with a contractor (Bravospan) for the provision of security services. The Municipality and Bravospan later agreed to extend the existing contract, and the Municipality gave assurance that the extension could lawfully be concluded without a new tender process. This was, however, found to be incorrect, resulting in the Municipality instituting judicial review proceedings to self-review and set aside the extension agreement. The High Court, in separate proceedings, set aside the contract in favour of the Municipality.

Notwithstanding this, Bravospan continued to perform under the terms of the contract without receiving any compensation for those services. In fact, after instituting the review proceedings against the extension, the Municipality requested Bravospan to continue providing services. Yet, the Municipality still failed to pay for Bravospan for those services.

Bravospan, aggrieved by this (nine years since it last received payment), instituted proceedings before the High Court to claim compensation for the services that it rendered under the extension contract. The High Court found in favour of Bravospan based on the common law of unjustified enrichment. Similarly, the Supreme Court of Appeal (SCA) ruled in favour of Bravospan, but on a different underlying legal foundation, namely section 172 (1)(b) of the Constitution, which empowers a court to make any order that is just and equitable.

Arguments

In the Constitutional Court (CC), the Municipality raised several arguments disputing the SCA decision. Foremost, it contended that the SCA was not entitled to grant relief in terms of section 172(1)(b), as Bravospan did not rely on this provision when formulating its claim in the High Court. The Municipality further argued that section 172(1)(b) is not a self-standing provision upon which a claim for damages can be found. On the other hand, Bravospan argued that the leave to appeal application of the Municipality should be dismissed. It averred that its claim before the High Court was based on the Constitution, namely, constitutional damages. In addition, the company contended that while the High Court did not make a finding in terms of section 172, it does not mean that the High Court rejected it. As such, it was open to the SCA to consider it as an alternative. Therefore, it cannot be said that the SCA raised it out of its own accord, so Bravospan argued. Finally, Bravospan contended that it was an innocent contractor since the Municipality led it to believe that the extension was lawful (i.e. not necessary for a bid). Bravospan accused the Municipality of acting in bad faith, arguing that despite the invalidation of the extension agreement, the Municipality requested it to continue providing security services. As such, regardless of the invalidity of the extension agreement, Bravospan argued that justice and equity dictated that it be compensated for the services that it provided to the Municipality.

Judgment

The issue before the CC did not concern the validity of the extension. This matter was already decided since the contract was declared unlawful. The primary issue before the CC was whether the SCA was correct to rely on s 172(1)(b) of the Constitution and not unjustified enrichment when it ordered the Municipality to compensate Bravospan. Before determining this issue, the CC assessed whether leave to appeal should be granted.

The Court rejected the Municipality's appeal application and found it unnecessary to address these legal questions. Indeed, in both their separate concurring judgments, Bilchitz AJ and Dodson AJ agreed with the majority decision of Chaskalson AJ that the appeal should be dismissed, citing that no written argument was presented on these important questions, nor was it dealt with by the High Court and SCA (para 41). To deal with these questions without proper legal argument, according to the CC, “would place the Court in the untenable position to make an authoritative pronouncement with far-reaching implications…” (para 43).

This finding meant that the CC was not able to clarify the exact legal basis for awarding compensation to Bravospan. Despite this, the CC ruled that it would not be in the interests of justice to prolong this matter by sending it back to the High Court for further argument. This is considering that eight years have passed since Bravospan rendered services to the Municipality, and still, today, it has not been paid for these services (para 48). Thus, prolonging this matter, by granting the Municipality leave to appeal and delaying an award for compensation would not be in the interests of justice (para 59).

Importantly, the CC, in dismissing the appeal application, emphasised that the ruling “would also send a clear message to the Municipality and organs of state that they must pay for the services that are provided to them by an innocent contractor (para 60).” The CC noted that the circumstances of this case are not unique, referencing the Govan Mbeki ruling, where Navsa ADP observed:

“This case is part of an ever growing, and frankly disturbing, long line of cases where municipalities and organs of state seek to have their own decisions, upon which contact with service providers are predicated and reviewed and overturned, for want of legality, more often that not after the contracts have run their course and services have been rendered thereunder. (para 1)”

Indeed, this “unconscionable conduct”, which the Court described as a “broad phenomenon” where organs of state aim to rely on their own unlawful conduct not to compensate innocent contractors, “should not be tolerated” (para 60). The Court observed that in this particular case, the “municipality is opportunistically raising its own irregular conduct to avoid paying Bravospan” (para 60). The Court further reasoned that “this is not a case where there is any pleaded allegation, still less evidence, of corruption or other wrongdoing on the part of [the contractor] that would justify the Municipality’s refusal to pay it” (para 60).

Conclusion and implications

The CC’s decision in Greater Tzaneen is important on several fronts. Foremost, the judgment confirms that innocent contractors have a right to claim compensation for services rendered, even where such a contract is later set aside. However, the exact legal basis for such a claim is yet to be determined by the CC, considering the court's refusal to engage deeply with the legal basis for the compensation claim—whether it stems from common law unjustified enrichment or section 172(1)(b) of the Constitution. The decision also underscores the importance of accountability, ensuring that municipalities and other organs of state do not escape their contractual obligations by relying on their unlawful conduct. Indeed, this ruling shows that courts are increasingly scrutinising the reasons behind self-review applications made by government institutions. This shift comes as organs of state, such as municipalities,  are (ab)using the judicial self-review mechanism to avoid fulfilling their contractual obligations – a point also recently acknowledged by the SCA. 

By Curtly Stevens, Doctoral Researcher