The Constitutional Court flexes its administrative muscles

Broadly speaking, administrative action refers to the exercise of public power or the performance of a public function.  It is well established that the tender process implemented by an organ of state constitutes administrative action. Section 33(1) of the Constitution provides that “[e]veryone has the right to administrative action that is lawful, reasonable and procedurally fair“. This must be read together with section 172 of the Constitution which states that following a declaration of constitutional invalidity of any law or conduct that is inconsistent with the Constitution, a court may make any order that is ‘just and equitable’.

Section 8 of the Promotion of Administrative Justice Act (“the PAJA”) – being the Act which gives effect to section 33 rights – deals with remedies for judicial review. In line with section 172 of the Constitution the PAJA allows a court to award any order that is ‘just and equitable’.  More specifically, in terms of s8(1)(c)(aa) of the PAJA, it allows a court to substitute its decision for that of the administrator in ‘exceptional circumstances’.

At common law, the general rule is that where a decision has been set aside by a court, that decision should be remitted back to the original decision maker for further consideration. This is in line with the notion that courts are not ordinarily vested with the skills and expertise required of an administrator and therefore not able to take the decisions of the administrator. Substitution is viewed as the exception to that  rule and the PAJA underpins this view by limiting the award of this remedy to ‘exceptional circumstances’. In the absence of express provisions in the PAJA guiding the court as to what constitutes ‘exceptional circumstances’, the phrase must be interpreted through the prism of the current common law jurisprudence.

The case of Johannesburg City Council v Administrator, Transvaal 1969 (2) SA 72 (T) set out important common law principles in relation to the awarding of substitution in that:- the court will be prepared to substitute the decision where the end result is a foregone conclusion and as such it would be a waste of time to remit the decision back to the original decision maker; further delay would cause unjustifiable prejudice to the applicant; and where the original decision maker has exhibited bias or incompetence to such a degree that it would be unfair to ask the applicant to submit to the jurisdiction again. Earlier case law indicates that these factors appear to be independent in that if any factor is established on its own, it would be enough to justify an order of substitution.

The Court in Gauteng Gambling Board v Silver Star Development Limited and Others [2010] ZAFSHC 33 [Saflii link] supplemented the aforementioned principles with a  further consideration being, whether the court was in as good a position as the administrator to make a decision.

One must bear in mind, however, that the fact that the court considers itself qualified to make the decision does not, in and of itself, mandate an intervention into the domain of the executive.

In Intertrade Two (Pty) Ltd v The MEC for Road and Public Works and Another [2008] 1 All SA 142 (Ck) [Saflii link] it was indicated that the availability of proper and adequate information together with the institutional competence of the court to take a decision for the administrative decision maker are prerequisites to the court legitimately  assuming an administrative decision-making function.

One of the concerns surrounding the use of substitution is its unsettling effect on the doctrine of the separation of powers. The argument follows that where the Constitution entrusts specific powers and functions to a particular branch of government, courts should not usurp that power by making a decision of their preference. This would frustrate the balance of power implied by the separation of powers. The primary responsibility of a court is to ensure that the other branches of government exercise their powers in accordance with the Constitution. In doing so, due weight must be given to the policy decisions made by those with expertise in their field.

The Trencon Judgment handed down by the Constitutional Court

It is with this in mind, that we consider the recent constitutional case of Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and Another (CCT198/14) [2015] ZACC 22. [Saflii link]

In May 2012, the Industrial Development Corporation of South Africa Limited (“the IDC”) issued a public invitation to building contractors to submit proposals in order to prequalify for a principal building contract to upgrade the IDC’s head office. The request for proposals (“RFP”) was an invitation to contractors to bid for the tender and it also set out the rules governing the tender process. The process was conducted by the IDC’s Bid Evaluation Committee together with various other committees as well as independent consultants.

The tender process was conducted in two phases. First, the contractor’s profiles were judged according to various categories as set forth by the RFP. From that, seven contractors were shortlisted for the second phase, which involved the evaluation of tender submissions on the basis of both price and broad-based black economic empowerment points. A point system was utilized to determine how well each contractor scored per category. Based thereon, a recommendation would be made.

In its proposal, Trencon included a condition in its tender that provided that as long as the site handover date remained unchanged, its price would remain fixed for the duration of the contract. Upon enquiry by the Quantity Surveyors, Trencon indicated that should the date change to a later date, their proposed cost would increase by 0.6%. Trencon’s bid subsequently scored the highest in all categories and all the evaluators recommend that the tender be awarded in Trencon’s favour.

Notwithstanding this, and despite the various recommendations in Trencon’s favour, the tender was awarded to Basil Read (Pty) Limited. Trencon’s submission was declared non-responsive because the Committee found that, by adding a price escalation, Trencon failed to keep its price fixed for the 120 days of the tender evaluation period.

Trencon challenged the award in the High Court, arguing that the award of the tender to Basil Read was based on a material error of law and that Basil Read’s late submission of its tender proposal should not have been considered by the IDC’s Bid Evaluation Committee. The High Court consequently set aside the IDC’s decision to award the tender to Basil Read.

The final issue to be determined by the High Court was what the appropriate remedy in the circumstances should be. The High Court considered section 8 of the PAJA, and noted that a substitution order can only be granted in exceptional circumstances.

The Court found that from the outset, Trencon’s bid outweighed Basil Read’s bid. Even in its response to the proposed delay of the site handover date, Trencon’s price adjustment still remained lower than Basil Read’s. Moreover, the independent consultants together with the IDC committees recommended that the tender be awarded to Trencon. The IDC was unable to present evidence justifying the refusal of the tender award to Trencon as the highest points earner. Additionally, the IDC was unable to show cause as to why the process should run afresh. Given the urgency of the matter, the substantial amount of public funds involved and the unjustifiable prejudice that would be occasioned by further delay, the Court held that remittal would not be prudent.

As a result, the High Court substituted its own decision for that of the IDC and made an order awarding the tender to Trencon.

The appeal to the Supreme Court 

On appeal to the Supreme Court of Appeal (“the SCA”) by the IDC, the crisp issue to be decided related to the validity of the substitution order.

The SCA held that the High Court had overlooked the fact that the IDC was not obliged to award the tender to the lowest bidder or at all.  Therefore, despite the fact that Trencon had the highest tender points, it still could not be a foregone conclusion that it would receive the tender.  Furthermore, the SCA indicated that the High Court had failed to balance the substitution remedy against separation of powers concerns.

The SCA upheld the IDC’s appeal and made an order setting aside the IDC’s awarding of the tender to Basil Read, and remitted the decision back to the IDC’s Executive Management Committee for reconsideration in terms of s 8(1)(c)(i) of the PAJA.

The appeal to the Constitutional Court

On a further appeal to the Constitutional Court by Trencon, and in a unanimous judgment by the court delivered by Khampepe J, the Constitutional Court held that exceptional circumstances did exist to justify the High Court’s substitution order. In so doing, the court indicated that an exceptional circumstances enquiry must take place in the context of what is “just and equitable” in the circumstances.

In addressing the separation of powers concerns raised by the SCA, the Constitutional Court indicated that such an intrusion into the domain of the executive is provided for by PAJA. The separation of powers is adequately provided for within the exceptional circumstances test itself. The court held that once a court had properly applied the test for exceptional circumstances and it makes a just and equitable order on the basis of that enquiry, the court has acted in accordance with the aforementioned doctrine. In reaching this conclusion the court emphasized that due deference must be shown to the various branches of government and that their powers are not unlimited. Courts must appreciate that it is not ordinarily vested with the skills and expertise required of an administrator.

The Constitutional Court held that:-

given the doctrine of separation of powers, in conducting an enquiry of this nature, certain factors should hold greater weight. The first is whether a court is in as good a position as the administrator to make a decision. The second is whether the decision of the administrator is a foregone conclusion. These factors must be considered cumulatively. Thereafter, a court should still consider bias, delay or the incompetence of the administrator. The ultimate consideration is whether a substitution order is just and equitable. It is prudent to emphasize that the exceptional circumstances enquiry requires an examination of each matter on a case-by-case basis that accounts for all relevant facts and circumstances.”

Once the court had established that it was in as good a position as the administrator, it is competent to enquire whether the decision of the administrator was a foregone conclusion. A foregone conclusion exists where there is only one proper outcome of the exercise of an administrator’s discretion.

It was common cause that Trencon had scored the most points in the various categories and therefore there was no justifiable reason why the tender should not have been awarded to Trencon. Given that the tender process was near its conclusion and the various committees had already deliberated on the various bids, the Constitutional Court held that it was in as good a position as the administrator to make the decision to award the tender to Trencon, and additionally, it held that the awarding of the tender to Trencon was a foregone conclusion.

The IDC argued that it had a discretion not to award the tender to the highest points earner, however, this discretion required the presence of ‘objective criteria’ or ‘justifiable reasons’ not to do so. The court rejected this approach, stating  that; (a) the price escalation was based on a material error of law; (b) Trencon agreed to absorb any price discrepancy on any item allegedly underquoted; and (c) Trencon confirmed its unconditional acceptance of the revised contract award. Therefore, and in light of the aforementioned, no objective criteria or justifiable reasons could have existed which would empower the IDC to award the tender to anyone but Trencon.

Ultimately, in overturning the SCA’s decision, the Constitutional Court adopted a measured approach and indicated that these circumstances provide a good example, in administrative law of an instance where the court is not usurping the functions of the administrative body by making a substitution order.

The order of the High Court was accordingly reinstated and as such, and the tender was awarded to Trencon, with the court substituting its decision for that of the administrative body.

Dean Pinto

Dean Pinto

Dean Pinto, a candidate attorney, joined Ashersons at the start of 2015. Dean has a particular interest in contract law, consumer law, drafting of commercial agreements, and administrative law.

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