Mafoko Security Patrols (Pty) Ltd and Others v Mjayeli Security (Pty) Ltd and Others

Mafoko Security Patrols (Pty) Ltd (Mafoko), the incumbent security provider, was awarded a tender by the South African Broadcasting Corporation (SABC) on 30 June 2017 to provide security services. The interim board of the SABC made this decision despite recommendations from the Bid Adjudication Committee and the Group Executive Committee that the tender should be awarded to Mjayeli Security (Pty) Ltd (Mjayeli), which had the highest score on price and empowerment and offered a lower price by approximately R2,300,955.43. Mjayeli brought a review application on 7 December 2017 to set aside the tender award. On 1 March 2018, the SABC requested the Special Investigation Unit (SIU) to investigate the tender award. On 7 May 2018, the High Court granted an order suspending Mjayeli's review pending the SIU investigation and ordered Mafoko to continue providing security services (the continuation order). The SIU rendered its report on 30 June 2019, finding that the interim board's decision amounted to financial mismanagement. The SIU intervened as an applicant in the review proceedings. The High Court found the tender award unlawful and constituting financial misconduct under the Public Finance Management Act. The High Court set aside the award and ordered Mafoko to disgorge any profits made. By the time of the High Court judgment in October 2023, the contract period had long expired and Mafoko had fully performed its services. No culpability was found on the part of Mafoko for the unlawful award.

• What is the correct interpretation of the Constitutional Court's dicta in Allpay Consolidated Investment Holdings (Pty) Ltd v Chief Executive Officer of the South African Social Security Agency (Allpay II) regarding whether an innocent tenderer can profit from an unlawful contract?
• Whether the 'no loss, but no gain' principle is correctly derived from Allpay II and should govern remedial discretion in tender invalidity cases
• Whether the High Court erred in law in exercising its remedial discretion under s 172(1)(a) and (b) of the Constitution
• What constitutes a just and equitable remedy where a blameless tenderer has fully performed services under an unlawfully awarded tender over an extended period
• Whether setting aside an expired tender award and ordering disgorgement of profits is an appropriate remedy in the circumstances

1. The appeal was upheld. 2. The order of the High Court was set aside. 3. The second respondent (SIU) was ordered to pay the costs of the appeal, including costs of two counsel where employed. 4. The matter was remitted to the High Court to determine the orders it should make in terms of s 172(1)(a) and (b) of the Constitution, after securing such production of evidence from the parties as the High Court considers warranted and inviting further submissions from the parties. 5. The costs of the proceedings before the High Court, save in respect of the order concerning the fifth to eighth respondents, were reserved for determination by the High Court when it renders its judgment on remedy.

The binding legal principles established are: (1) The two-truths dictum in Allpay II does not establish that an innocent tenderer cannot profit from an unlawfully awarded contract; it merely provides that any benefit derived should not be beyond public scrutiny and must be considered in exercising remedial discretion. (2) The 'no loss, but no gain' principle does not correctly reflect the law as stated in Allpay II and misunderstands the remedial discretion under s 172(1)(b) of the Constitution. (3) The absence of a right to benefit from an unlawful contract does not exclude consideration of whether a court, in exercising its just and equitable discretion, may permit a party to enjoy benefits including profits. (4) Where a tenderer is entirely blameless for an unlawful tender award and is required to continue providing services, the normative benchmark of a competitive price (which includes a return or profit) is relevant to the exercise of remedial discretion. (5) The exercise of remedial discretion under s 172(1)(b) requires consideration of numerous contextual factors including: the culpability of the tenderer, whether constitutional duties required continuation of service, the benefits and burdens to both parties, the quantum of profit, whether the return conforms to a normal competitive return, and whether such return was necessary and deserved. (6) The standard for appellate intervention established in Trencon applies: an appellate court may interfere with the exercise of remedial discretion where the court below made an error of law. (7) Where an unlawfully awarded tender has run its full course and services have been fully rendered, setting aside the award may not be an appropriate remedy; rather, a declaration of invalidity under s 172(1)(a) with appropriate consequential relief under s 172(1)(b) may be more suitable.

The Court made several non-binding observations: (1) The SIU's submission that a presumptive 'no loss, but no gain' principle should apply (subject to rebuttal) has merit given the prevalence of corruption in public procurement, but the Court prefers to conceive the just and equitable discretion as the Constitution intended, without preconception. However, where evidence shows a tenderer is not blameless or complicit in illegality, courts will apply the maxim that such a tenderer cannot profit from its own wrongdoing. (2) The Court noted, without making a finding, that it seems plain that Mafoko was positioned on the blameless end of the spectrum of culpability. (3) The Court observed that the content and duration of any constitutional duty owed by an incumbent service provider to continue rendering services require careful consideration, including for how long and under what conditions such service should be required. (4) The Court commented that the delay in bringing the matter to finality before the High Court is a matter that must be taken into account in determining what remedy is of practical value. (5) The Court noted that the normative benchmark of lawful public procurement is that goods or services are secured at a competitive price which includes a return (or profit) for the provider, and that without a return, the state would not be able to engage in public procurement. (6) The Court emphasized that justice and equity are capacious concepts with uncertain boundaries, designed to render a nuanced judgment rather than binary choices.

This judgment is significant in South African public procurement law for clarifying the proper approach to remedies where tender awards are found to be unlawful. It corrects a widespread misinterpretation of the Constitutional Court's Allpay II judgment and rejects the 'no loss, but no gain' principle that had been applied in several High Court decisions. The judgment affirms that courts enjoy a wide remedial discretion under s 172(1)(b) of the Constitution that is not constrained by rigid principles excluding profit in all circumstances. It establishes that the culpability of a tenderer is a key consideration, and that blameless tenderers who are required to continue providing services may, in appropriate circumstances, be entitled to retain profits. The judgment emphasizes that private gain is not inherently opposed to the public good in the context of public procurement, and that competitive returns are part of the normative framework. It provides important guidance on the factors courts should consider in exercising remedial discretion in tender invalidity cases, promoting a more nuanced and contextual approach. The decision has implications for how courts balance public interest considerations with fairness to innocent tenderers, and for the consequences that flow from unlawful tender awards that have been fully performed.