Greater Tzaneen Municipality v Bravospan 252 CC

The Greater Tzaneen Municipality and Bravospan 252 CC concluded a Service Level Agreement (SLA) on 20 November 2013 for the provision of security services for 12 months from 1 November 2013 to 31 October 2014, following a competitive tender process. Towards the end of the term, the parties concluded an extension agreement without a tender process, extending the SLA for a further 24 months from 1 November 2014 to 31 October 2016. The municipality assured Bravospan that a legal opinion confirmed the legality of the extension. On 9 February 2015, the municipality launched an application to declare the extension agreement null and void, but requested Bravospan to continue rendering services until a new provider was secured. The extension agreement was declared null and void by Mokgohloa DJP for want of constitutionality as it violated section 217 of the Constitution requiring fair, equitable, transparent, competitive and cost-effective procurement. Throughout the 24-month period, the municipality enjoyed the benefit of security services without payment. Bravospan then instituted an action for payment of R9,624,000 based on four alternative causes of action: delict, fraud, constitutional damages and unjust enrichment. The high court ruled in favour of Bravospan on the basis of unjust enrichment.

• Whether Bravospan's enrichment claim constituted a 'debt' as defined in the Institution of Legal Proceedings against Certain Organs of the State Act 40 of 2002, requiring notice under section 3(2) of the Act
• Whether a portion of Bravospan's enrichment claim had prescribed
• Whether South African law recognises a general enrichment action
• Whether a just and equitable remedy could be granted under section 172(1)(b) of the Constitution in circumstances where a contract had been declared unconstitutional

The appeal was upheld with no order as to costs. The high court's order was set aside and replaced with a declaration that Bravospan is entitled to compensation for services rendered during the period from 1 November 2014 to 31 October 2016 as a just and equitable remedy under section 172(1)(b) of the Constitution. Costs of the hearing on the merits were reserved. The matter was referred back to the high court to determine the quantum of compensation in accordance with applicable law.

The binding legal principles established are: (1) A claim for compensation for unjust enrichment is not a claim for 'damages' and does not constitute a 'debt' as defined in section 1 of the Institution of Legal Proceedings against Certain Organs of State Act 40 of 2002, and therefore notice under section 3(2) of that Act is not required for such claims; (2) South African law does not recognise a general enrichment action; (3) Section 172(1)(b) of the Constitution empowers courts to grant just and equitable remedies following a declaration of invalidity under section 172(1)(a), and this power applies even where the declaration of invalidity was obtained in separate earlier proceedings; (4) In exceptional circumstances, where an organ of state has enjoyed the benefit of services rendered pursuant to a contract declared unconstitutional, and where the service provider was not responsible for the unconstitutionality and acted in good faith, compensation for those services may be awarded as a just and equitable remedy under section 172(1)(b) of the Constitution, applying the corrective and 'no-profit-no-loss' principles; (5) The party raising prescription bears the onus of proving both the date of inception and completion of the prescription period, and must allege and prove that the creditor had the requisite knowledge on the date prescription is alleged to have commenced.

The court noted that while Nortje v Pool NO delivered the "final deathblow" to a general unjustified enrichment action in South Africa, Botha JA in that case acknowledged there might be instances where an unjustified enrichment claim may be available to counteract unfairness and rescue an impoverished person. The court also observed that ordinarily a declaration of unconstitutionality and a just and equitable remedy would be claimed in the same proceedings, but there is no reason in principle why relief under section 172(1)(a) and section 172(1)(b) may not be claimed in separate consecutive legal proceedings. The court gave an example where a declaration of unconstitutionality might be obtained on motion due to absence of factual disputes, while disputes regarding remedy might require determination at trial. The court emphasized that the purpose of public law remedies is to pre-empt, correct or reverse improper administrative functions, to afford prejudiced parties administrative justice, to advance efficient and effective public administration, and to entrench the rule of law.

This case is significant in South African constitutional and public procurement law for several reasons: (1) It confirms that South African law does not recognise a general enrichment action, reiterating the position from Nortje v Pool NO that has persisted for over 30 years; (2) It demonstrates the broad remedial power of courts under section 172(1)(b) of the Constitution to craft just and equitable remedies following declarations of invalidity, even in circumstances where no private law remedy would ordinarily be available; (3) It extends the application of section 172(1)(b) remedies beyond the typical context of review proceedings to situations where a declaration of unconstitutionality was obtained in separate earlier proceedings; (4) It applies the corrective and 'no-profit-no-loss' principles from AllPay 2 to protect parties who innocently provided services pursuant to unconstitutional procurement processes; (5) It clarifies that enrichment claims are not 'debts' requiring notice under the Institution of Legal Proceedings against Certain Organs of State Act 40 of 2002; and (6) It establishes that municipalities cannot benefit from services rendered pursuant to unconstitutional procurement processes without providing compensation, thereby preventing unjust enrichment by organs of state at the expense of innocent service providers.