Maano Water (Pty) Ltd v Eskom Holdings SOC Limited

Eskom issued Tender CORP 5542 in August 2021 to procure a five-year contract for the supply of sulphuric acid. After negotiations with the highest ranked bidder (Afro-Zonke) failed, Eskom commenced negotiations with Maano Water (Pty) Ltd, the second preferred bidder. During negotiations, global sulphur prices had risen by approximately 250% due to the conflict in Ukraine that commenced in early 2022. Maano proposed a hybrid dollar-based model for calculating Contract Price Adjustment (CPA), but Eskom rejected this on 4 May 2022, stating it created unmanageable exposure to exchange rate fluctuations and volatile commodity prices that Eskom could not hedge against. After a meeting on 10 May 2022 where both parties maintained their positions, Eskom decided to cancel the entire tender process on 4 August 2022. Maano launched an urgent application seeking a mandamus to compel Eskom to resume negotiations or, alternatively, to review and set aside the tender cancellation.

• Whether the decision to cancel the tender constituted administrative action subject to review under PAJA or executive action reviewable under the principle of legality
• Whether Eskom's decision to cancel the tender was rationally connected to the purpose for which it was taken
• Whether Maano had a right to negotiate to deadlock that restricted Eskom's power to cancel the tender
• Whether clause 1.1 of Eskom's Standard Conditions of Tender constituted an enforceable pactum de contrahendo (agreement to agree)
• Whether deadlock had been reached in the negotiations between Maano and Eskom by 10 May 2022

The appeal was dismissed with costs. The order of the Gauteng Division of the High Court, Johannesburg, dismissing Maano's urgent application, was upheld.

The binding legal principles established by this case are: (1) A decision by an organ of state or state-owned enterprise to cancel a tender before a contract has been concluded constitutes executive action, not administrative action under PAJA, as it affects only tenderers' expectations, not rights; (2) Executive action to cancel a tender is reviewable under the principle of legality, including on grounds of rationality and absence of authority; (3) A decision to cancel a tender is rational where it is taken in response to significant changed market conditions that render the original tender no longer fit for purpose and expose the public body to unsustainable financial risk; (4) A general contractual undertaking to act in a manner that is 'fair, equitable and transparent' does not create an enforceable right to negotiate to deadlock that restricts an organ of state's express power to cancel a tender at any time prior to contract formation; (5) For an agreement to negotiate to deadlock (pactum de contrahendo) to be enforceable, it must include a mechanism for resolving an impasse or deadlock-breaking mechanism; (6) An organ of state's express power to cancel a tender 'at any time prior to formation of a contract' cannot be restricted by vague general undertakings that lack specific deadlock-breaking mechanisms.

The court made several non-binding observations: (1) The court noted that Maano's focus on interdictory relief in the form of a mandamus as its primary relief had the unfortunate effect that its case for review was not fully ventilated in its founding papers; (2) The court observed that Maano's eschewing reliance on rule 53 of the Uniform Rules meant neither the high court nor the Supreme Court of Appeal had access to the record of the decision to cancel the tender; (3) While not strictly necessary to decide the factual issue, the court nonetheless applied the Plascon-Evans rule and concluded that on the facts Eskom's version that deadlock had been reached by 10 May 2022 should be accepted; (4) The court noted that Maano's belated suggestion in its replying affidavit that it 'would probably have reverted' to its original rand-based model was not conveyed to Eskom during negotiations and did not override Eskom's consistent rejection of the proposed dollar-based models; (5) The court referenced Makate v Vodacom on the role of good faith in contracts and the enforceability of less formal agreements, though this was not directly determinative of the issues in the present case.

This case provides important guidance on the distinction between administrative action and executive action in the context of public procurement, particularly in relation to tender cancellations prior to contract conclusion. It reinforces the principle established in Tshwane City v Nambiti Technologies that cancellation of a tender before a contract is formed affects only expectations, not rights, and therefore constitutes executive action reviewable under legality principles rather than PAJA. The judgment also clarifies the requirements for an enforceable 'negotiate to deadlock' obligation, holding that general undertakings to act fairly without specific deadlock-breaking mechanisms are too vague to restrict an organ of state's express power to cancel a tender. The case demonstrates how changed external circumstances (such as global price volatility) can provide rational grounds for tender cancellation as an executive function, particularly where continuing would expose a public body to unsustainable financial risk.