Govan Mbeki Municipality v New Integrated Credit Solutions (Pty) Ltd

The Govan Mbeki Municipality (GMM) concluded a debt management services agreement with New Integrated Credit Solutions (Pty) Ltd (NICS) in September 2015 for a three-year period. This agreement was based on piggybacking on a contract between NICS and Newcastle Municipality in terms of Regulation 32 of the Municipal Supply Chain Management Regulations. The agreement provided for NICS to receive commission of 16.5% on debts older than 60 days and 2.5% on debts younger than 60 days. The Newcastle Municipality's original tender only called for debt collection on debts older than 60 days. After the Auditor-General raised concerns about the validity of the 2.5% add-on commission in November 2016, GMM purported to terminate the agreement in February 2017. NICS disputed the termination and the matter proceeded to arbitration, where Justice Harms (retired) found in favor of NICS, awarding approximately R22.3 million for debts older than 60 days and R23.7 million for debts younger than 60 days. GMM then instituted action in June 2017 (approximately 22 months after the effective date) seeking to declare the entire agreement unconstitutional and invalid.

• Whether the delay by the GMM in seeking self-review of the agreement was unreasonable and should not be overlooked
• Whether the entire agreement between GMM and NICS was unconstitutional and invalid for non-compliance with section 217 of the Constitution and Regulations 32 and 51 of the Municipal Supply Chain Management Regulations
• Whether the challenge by GMM constituted a collateral challenge or a legality review
• What just and equitable remedy should be granted under section 172(1)(b) of the Constitution if the agreement was found to be invalid

The appeal and cross-appeal succeeded only to the extent reflected in the substituted order. The contract was declared unconstitutional and invalid but set aside only in relation to the 2.5% commission on debts younger than 60 days. NICS was not precluded from recovering the 16.5% commission on debts older than 60 days as calculated by the arbitrator (approximately R22.3 million). No order as to costs was made in respect of either the appeal or the court below proceedings.

1. Self-review by an organ of state constitutes a legality review grounded in constitutional principles, not merely administrative review under PAJA. Procurement by municipalities is quintessentially a constitutional issue involving section 217 of the Constitution. 2. In assessing delay in self-review cases, the clock starts running when the applicant became aware or reasonably ought to have become aware of the unlawful action. Organs of state are held to a higher standard and must scrutinize procurement processes to ensure constitutional and statutory compliance. 3. Where delay is unreasonable and unexplained, courts retain discretion to overlook the delay if the interests of justice require it. This assessment involves a multi-factor, context-sensitive framework including: the explanation for delay; potential prejudice to affected parties; the nature and seriousness of the unlawfulness; and the conduct of the applicant. 4. Following Gijima and Asla, even where delay is not overlooked, section 172(1)(a) of the Constitution obliges a court to declare conduct that is clearly and indisputably unconstitutional as invalid. 5. Section 172(1)(b) provides wide remedial powers bounded only by considerations of justice and equity. Courts may preserve accrued rights under invalid contracts where it would be unjust to deprive a party of such rights, particularly where: (a) the contract period has substantially expired or been completed; (b) services have been rendered; (c) the party seeking to enforce rights competed fairly and was not complicit in the unlawful conduct that tainted the contract. 6. Service providers who are complicit in accepting unjustified advantages over other bidders in breach of procurement law will not be permitted to benefit from such complicity, even through preservation of accrued rights.

The Court expressed serious concern about the "ever growing, and frankly disturbing, long line of cases" where municipalities and organs of state seek to review their own decisions after contracts have run their course and services have been rendered. The Court noted that this often occurs "at public expense and free of sanctions against the functionaries involved." The judgment suggests that courts might in future insist that public authorities seeking time indulgences set out the steps taken in relation to misconduct by officials, including disciplinary and criminal proceedings, especially where corruption or maladministration was hidden from disclosure. The Court indicated that such requirements might even be legislated. The Court noted that "corruption and maladministration are inconsistent with the rule of law and are the antithesis of open, accountable and democratic government" and emphasized that "we must all of us, in every branch of the State and civil society, make every effort to protect public monies and ensure that our country's necessary developmental goals as envisaged by the Constitution, in the interest of all our people are met." The Court expressed the view that the GMM's submission that NICS could pursue an enrichment claim was "difficult to understand" given it would involve further litigation at public expense. The Court acknowledged tensions in the jurisprudence between the majority and minority approaches in Asla regarding self-review, noting that "our law on self-review has become somewhat encrusted" and that courts or the legislature might in time need to streamline the approach or provide comprehensive legislation covering all forms of review including executive action and the impact of delay.

This judgment is significant for its comprehensive analysis of the principles governing self-review by organs of state, particularly municipalities. It reaffirms that self-review is a legality review grounded in constitutional principles, not merely administrative review under PAJA. The judgment emphasizes the higher duty on state organs to respect constitutional procurement imperatives under section 217 and applicable regulations. It demonstrates the flexible application of section 172(1)(b) to craft just and equitable remedies that balance declaring unlawful conduct invalid while preserving legitimately accrued rights. The judgment also expresses serious concern about the growing phenomenon of late self-review applications by organs of state, often after contracts have run their course, without sanctions for errant officials. It signals that courts may in future require public authorities seeking condonation to demonstrate what disciplinary and other steps were taken against officials responsible for unlawful procurement. The case illustrates how courts will assess complicity of service providers in unlawful procurement when determining just and equitable relief.