DDP Valuers (Pty) Ltd v Madibeng Local Municipality

The Madibeng Local Municipality issued an invitation to tender for compilation of a new General and Supplementary Valuation Roll for 2014-2018. Fifteen bidders submitted tenders, with DDP Valuers (Pty) Ltd (appellant, the previous municipal valuer) and Dijalo Property Valuers (second respondent) being shortlisted. The Municipality awarded the tender to the second respondent with effect from 9 September 2013 until 30 June 2018. The appellant lodged an objection in terms of regulation 49 of the Municipal Supply Chain Management Regulations, alleging that the second respondent's tender was out of proportion and far exceeded the appellant's bid (which was the second lowest). On 1 October 2013, the appellant requested information and asked the Municipality to appoint a competent person in terms of regulation 50 to resolve the dispute, and sought suspension of the new contract. The Municipality replied by email the same day stating it would be unethical for the appellant to communicate with it given that the appellant had instituted action against it for payment of outstanding invoices. The Municipality did not respond to the appellant's reg 50 request. The appellant then launched a review application in the Gauteng High Court (Pretoria Division), seeking to set aside the tender award on various grounds, including that the tender evaluation was based on different criteria than specified in the tender documents and that it was evaluated based on responsiveness instead of the prescribed preference points system.

• Whether regulation 50 of the Municipal Supply Chain Management Regulations constitutes an 'internal remedy' as contemplated in section 7(2) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA)
• Whether an applicant must exhaust internal remedies before instituting judicial review proceedings
• Whether an unsuccessful tenderer must utilize the dispute resolution mechanism in regulation 50 before approaching a court for review of a municipal tender award
• Whether section 62 of the Local Government: Municipal Systems Act 32 of 2000 was available as an internal remedy in the circumstances
• What constitutes an 'internal remedy' in administrative law

1. The appeal is upheld with costs. 2. The first and second respondents are ordered to pay the costs of the appeal jointly and severally, the one paying the other to be absolved. 3. The order of the court a quo is set aside and replaced with the following order: 'The point in limine is dismissed with costs.' 4. The matter is remitted to the court a quo for a decision on the merits.

Regulation 50 of the Municipal Supply Chain Management Regulations does not constitute an 'internal remedy' as contemplated in section 7(2) of the Promotion of Administrative Justice Act 3 of 2000. An internal remedy in administrative law connotes an administrative appeal to an official or tribunal within the same administrative hierarchy with power to confirm, substitute or vary the decision on the merits. Regulation 50 creates only a dispute resolution mechanism where an independent person assists in resolving disputes or deals with objections and complaints, but has no decision-making powers to correct or set aside the municipality's decision. The regulation does not set out the procedure for dealing with complaints, grounds for challenge, or remedial powers. Regulation 50(7) expressly preserves the right to approach a court 'at any time', giving aggrieved persons a choice between the dispute mechanism or court proceedings. Accordingly, there is no obligation to utilize regulation 50 or apply for exemption under section 7(2)(c) of PAJA before instituting judicial review proceedings against a municipal tender award. Section 62 of the Local Government: Municipal Systems Act 32 of 2000 does constitute an internal remedy, but is unavailable once a contract has been concluded and rights have accrued to the successful tenderer, as any variation would detract from those accrued rights contrary to section 62(3).

The court made several non-binding observations: (1) The duty to exhaust internal remedies is not absolute or automatic, and courts have discretion under section 7(2)(c) of PAJA to exempt applicants in exceptional circumstances if in the interest of justice. (2) Under common law, the paramount considerations are whether domestic remedies are capable of providing effective redress, and whether the alleged unlawfulness undermines the internal remedies themselves. (3) The requirement to exhaust internal remedies should not be rigidly imposed, nor used by administrators to frustrate aggrieved persons or shield the administrative process from judicial scrutiny. (4) Internal remedies serve valuable purposes: they provide more readily available, immediate and cost-effective relief; they defer to executive administrative autonomy; they afford the relevant higher administrative body an opportunity to rectify its own irregularities before litigation; they enable administrators to apply specialized knowledge; and they benefit courts in judicial review by providing a full record of internal adjudication. (5) On costs, the general rule is that a substantially successful party is entitled to costs of appeal, and there was no reason to depart from this rule even though the second respondent filed a notice to abide, as the appellant still had to proceed with the appeal to set aside the lower court order.

This case establishes an important principle in South African administrative law regarding the interpretation of section 7(2) of PAJA and what constitutes an 'internal remedy' that must be exhausted before judicial review. The judgment clarifies that regulation 50 of the Municipal Supply Chain Management Regulations does not create an internal remedy because: (1) it creates only a dispute resolution/mediation mechanism, not a remedial appeal with decision-making powers; (2) the independent person appointed has no power to confirm, substitute or vary the original decision; and (3) regulation 50(7) expressly preserves the right to approach a court at any time. This decision provides certainty for unsuccessful municipal tenderers on whether they must exhaust the regulation 50 process before seeking judicial review. It prevents municipalities from using regulation 50 as a procedural shield to delay or prevent judicial scrutiny of tender awards. The case also confirms that section 62 of the Local Government: Municipal Systems Act 32 of 2000 does constitute an internal remedy, but is unavailable once a contract has been concluded and rights have accrued to the successful tenderer. The judgment reinforces that the requirement to exhaust internal remedies should not be rigidly imposed and should not be used by administrators to frustrate aggrieved persons or shield the administrative process from judicial scrutiny (following Koyabe). It provides important guidance on distinguishing between dispute resolution mechanisms (mediation/conciliation) and true internal remedies (administrative appeals with decision-making powers).