BW Brightwater Way Props (Pty) Ltd v Eastern Cape Development Corporation

BW Brightwater Way Props (Pty) Ltd (Brightwater) and the Eastern Cape Development Corporation (ECDC) concluded a lease agreement on 20 December 2016 in respect of Portions A and B of the Remainder of Farm 31, Coffee Bay, Mqanduli (Ocean View Hotel). The lease was for 20 years at R32,000 per month. Brightwater had previously occupied the property as a sublessee after acquiring the shareholding of Wild Coast Holdings, which had subleased from South African College of Tourism Limited. When the original lease expired in 2016, ECDC's Chief Financial Officer, Mr Sentwa, signed the lease agreement with Brightwater. Brightwater alleged that ECDC breached the agreement by failing to provide vacant possession and evict unlawful occupiers (the Bothas). ECDC refused, contending the lease agreement was void due to non-compliance with legislative prescripts, specifically the Preferential Procurement Framework Act 5 of 2000, the Public Finance Management Act 1 of 1999, and Treasury Regulations requiring fair, equitable, transparent, competitive and cost-effective procurement. ECDC also contended Mr Sentwa lacked authority to sign the agreement. Brightwater launched proceedings seeking a declaration that the lease was valid and for specific performance. ECDC brought a counter-application to review and set aside the lease agreement on grounds of legality.

• Whether a lease agreement concluded in contravention of constitutional and statutory procurement prescripts is constitutionally invalid
• Whether the court can exercise its discretion under section 172(1)(b) of the Constitution to preserve accrued rights under an invalid contract while declaring it invalid
• Whether a court can extend the duration of an invalid lease agreement to preserve rights that would accrue in the future
• What constitutes a just and equitable remedy under section 172(1)(b) of the Constitution in the context of invalid procurement contracts
• Whether costs should follow the result where a party succeeds in a counter-application but loses the main application

1. The cross-appeal succeeded. 2. Brightwater was directed to pay ECDC's costs in the appeal and cross-appeal, including costs of two counsel where employed and costs of the application for leave to appeal in the court a quo. 3. The orders of the high court in case numbers EL848/2016 and EDC2148/2017 were set aside and replaced with: (a) The main application is dismissed; (b) The counter-application succeeds; (c) The lease agreement concluded on 20 December 2016 in respect of Portions A and B of the Remainder of Farm 31 Coffee Bay, Mqanduli is declared constitutionally invalid and of no force and effect; (d) ECDC is directed to pay the costs of the main application and Brightwater shall pay the costs of the counter-application.

A court exercising its discretion under section 172(1)(b) of the Constitution to make a just and equitable order following a declaration of invalidity may preserve rights that have already accrued under an invalid contract, but may not permit a party to obtain further or future rights under the invalid agreement. The right to occupy premises for the remainder of a lease period following a declaration of invalidity constitutes future rights which cannot be preserved under section 172(1)(b). A contract or transaction declared to have no force and effect is void ab initio and can under no circumstances confer any right of action, although courts may permit recovery for what was performed under a claim for unjust enrichment. An order under section 172(1)(b) that effectively nullifies a declaration of invalidity by upholding the contract in all respects, including future rights, constitutes a misdirection in the exercise of judicial discretion.

The Court noted that South African jurisprudence has long recognized that courts generally have no power to enforce a term of, or a contract which it declared unlawful or void, but the law recognizes performance or part performance in terms of a claim for unjust enrichment. The Court observed that Brightwater's own pleadings acknowledged that it should be compensated by ECDC, but that quantification of just and equitable compensation was inappropriate in those proceedings and should be the subject of further proceedings. The Court also commented that the high court's finding that Brightwater succeeded substantially appeared to be against the general rule that costs follow the result, noting that Brightwater lost the main application to declare the contract valid, which was the genesis of all the litigation.

This judgment clarifies the limits of the remedial discretion under section 172(1)(b) of the Constitution in cases involving invalid procurement contracts. It establishes that while courts may preserve rights that have already accrued under an invalid contract (such as payment for work already performed), they cannot preserve future rights or effectively allow a party to continue enjoying the benefits of an invalid contract going forward. The judgment reinforces the principle that contracts concluded in violation of constitutional procurement requirements are void ab initio and cannot confer rights of action, while recognizing limited equitable relief for performance already rendered. It also emphasizes that a declaration of constitutional invalidity under section 172(1)(a) cannot be effectively nullified by an overly broad remedial order under section 172(1)(b). The case provides important guidance on the distinction between accrued rights (which may be preserved) and future rights (which may not be preserved) in the context of invalid public procurement contracts.