Namasthethu Electrical (Pty) Ltd v City of Cape Town and Another

The City of Cape Town awarded a public tender for energy-efficient luminaries to Namasthethu Electrical (Pty) Ltd in August 2014. In its tender submission, Namasthethu declared that neither it nor its directors had been convicted of fraud or corruption in the preceding five years and provided a local business address. Subsequently, a competitor alleged that Namasthethu and its directors had been convicted of fraud and corruption in 2013. A forensic investigation by the City confirmed that a director, Ravan Chetty, had indeed been convicted of fraud and corruption within the relevant period, that false representations were made in the tender declaration, and that the local address provided was fictitious. Relying on contractual provisions permitting termination for fraud, the City cancelled the contract in March 2016. Namasthethu disputed the cancellation and invoked the contract’s dispute resolution clause, leading to an adjudication in its favour. The City successfully applied to the High Court to set aside the adjudicator’s determination on the basis that the contract had been induced by fraud and validly rescinded. Namasthethu appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs on the attorney-and-client scale, including the costs of two counsel. The High Court’s order setting aside the adjudicator’s determination was confirmed.

The case confirms and consolidates South African law that an arbitration or dispute resolution clause does not survive the rescission of a contract induced by fraud, unless there is clear and unequivocal language to that effect. It reinforces the principle that fraud unravels all and is particularly significant in the context of public procurement, underscoring the duty of honesty in tender processes and limiting the arbitrability of disputes concerning fraud-tainted contracts.