Can a state entity avoid paying a contractor where their appointment is challenged?

The Constitutional Court recently had to consider this question in a judgment delivered on 2 October 2024 in the case of Greater Tzaneen Municipality v Bravospan 252 CC.

The Greater Tzaneen Municipality extended a contract for the provision of security services, without following a lawful tender process.

When the Municipality recognised its failure to conform with its own procurement processes, it applied to invalidate the extension of the contract. In the interim, the Municipality requested Bravospan to continue providing services but failed to pay for them.

The High Court found that Bravospan were entitled to be paid based on the common law principle of unjust enrichment.

On appeal, the Supreme Court of Appeal found that the High Court had incorrectly awarded compensation based on unjustified enrichment and that South African law had not yet recognised a general enrichment action.

It found that it would be manifestly unjust for Bravospan to be afforded no compensation for the services that it had rendered to the Municipality. It therefore held that there were exceptional circumstances warranting an order of compensation on a just and equitable basis in terms of Section 172(1)(b) of the Constitution.

The Municipality appealed the decision to the Constitutional Court as it contended that the matter concerned the proper interpretation of and application of Section 172(1) of the Constitution.
The Constitutional Court granted leave to appeal and considered that the common law may well be capable of accommodating an innocent contractor like Bravospan. The Court pointed out that the innocent contractor would have to plead a claim for compensation for the amount by which its performance, pursuant to the invalid contract, had enriched the organ of state. However, the Court noted that Bravospan had not cross-appealed against the Supreme Court of Appeal’s finding on unjustified enrichment and the matter was therefore found it was not open to them to examine whether to develop the common law.

The Court noted that there was no evidence that Bravospan was anything other than an innocent contractor. It had been requested to continue providing the services by the Municipality, who then subsequently refused to pay for the services.

The Court noted that the circumstances of this case are not unique and in previous judgments remarked that:

“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 contracts with service providers are predicated, reviewed and overturned, for want of legality, more often than not after the contracts have run their course and services have been rendered thereunder.”

The Court remarked that this conduct failed to meet the ethical standard that should be expected from government bodies exercising public power. The Court remarked that public authorities must comply with an ethic of ubuntu. Requesting a contractor to provide services and then refusing to pay them is a prime example of unethical conduct.

The Court found that Bravospan were entitled to compensation and remitted the matter back to the High Court for a determination of the quantum of compensation owed.