Eskom Holdings Limited and Kwanda Ferro Alloy African Resources (Pty) Ltd v The New Reclamation Group (Pty) Ltd

In mid-2007, Eskom issued a request for quotation (RFQ) for collection and disposal of non-ferrous scrap metals for a two-year contract. The RFQ required tenderers to submit audited financial statements for the last two years to prove financial viability. Both Kwanda and The New Reclamation Group (NRG) submitted tenders. Kwanda's tender was submitted with financial statements from Rappa Holdings, which held a 50% shareholding in Kwanda, rather than Kwanda's own financial statements. Eskom's Corporate Management Accounting Department evaluated Rappa Holdings' financial position and concluded it was sound enough to be awarded the R29 million contract. The R35M Tender Committee awarded the tender to Kwanda despite NRG scoring better ratings on security and site evaluation, and NRG's tender price being R2.8 million lower. NRG challenged the award, and the High Court (Blieden J) set aside the tender award and ordered Eskom and Kwanda to pay NRG's costs jointly and severally. Eskom and Kwanda appealed with leave.

• Whether Eskom's award of the tender to Kwanda constituted reviewable administrative action under the Promotion of Administrative Justice Act (PAJA)
• Whether Eskom took into account irrelevant considerations and failed to consider relevant considerations in awarding the tender
• Whether the award was rationally connected to the information before Eskom
• Whether the court a quo exercised its discretion correctly in setting aside the tender award as just and equitable relief under section 8 of PAJA
• Whether NRG's failure to seek an interdict at an early stage precluded the setting aside of the tender award

The appeal was dismissed. The appellants (Eskom and Kwanda) were ordered to pay the respondent's (NRG's) costs of appeal jointly and severally, the one paying, the other to be absolved. The order of the High Court setting aside the tender award was upheld.

Where a tender requires proof of financial viability and a tenderer submits financial statements of a third party (such as a shareholder) rather than its own, and there is no legal obligation on the third party to provide financial support to the tenderer, an organ of state that awards the tender based on the third party's financial capacity: (1) takes into account irrelevant considerations; (2) fails to consider relevant considerations (the tenderer's own financial capacity); and (3) makes a decision not rationally connected to the information before it, rendering the decision reviewable under sections 6(2)(e)(iii) and 6(2)(f)(ii)(cc) of PAJA. In exercising the discretion under section 8 of PAJA to set aside reviewable administrative action, a court must balance legality against certainty. However, an unsuccessful tenderer challenging an invalid tender award is not required to have sought interim interdictory relief to preserve their entitlement to have the award set aside. The failure to seek an interdict does not constitute a failure to mitigate loss where the relief sought is not damages. The successful tenderer cannot claim to be an innocent bystander where it submitted a flawed tender and cannot rely on delay caused by its own appeal against an order setting aside the award.

The court noted (without deciding definitively) the debate about whether the discretion under section 8 of PAJA is a 'wide' or 'narrow' discretion, stating it was unnecessary to resolve this debate for purposes of the case. The court observed that while organs of state may be entitled to take calculated risks in furtherance of Black Economic Empowerment (BEE) policies when awarding tenders (provided proper consideration is given), this principle cannot apply where there is no evidence the organ of state appreciated it was taking any risk. The court made general observations about proper practice in motion proceedings, emphasizing that in motion proceedings affidavits constitute both pleadings and evidence, and a party cannot advance arguments for the first time based on passages in annexed documents not canvassed in the affidavits, as this amounts to 'trial by ambush'. The court distinguished the exceptional circumstances in Chairperson, Standing Tender Committee v JFE Sapela Electronics, emphasizing that case involved completed work where it was impractical to restart the tender process, whereas in the present case the work involved ad hoc collections that any qualified contractor could perform.

This case is significant in South African administrative and tender law for several reasons: (1) It clarifies the application of PAJA's review grounds in the tender context, particularly regarding consideration of relevant/irrelevant factors and rational connection. (2) It establishes that a tender award based on a third party's financial capacity (such as a shareholder) without any legal obligation on that third party to provide financial support is reviewable. (3) It provides guidance on the exercise of the court's discretion under section 8 of PAJA to grant 'just and equitable' relief, balancing legality against certainty. (4) It clarifies that an unsuccessful tenderer is not required to seek interim relief (interdict) to preserve their right to have an invalid tender award set aside. (5) It reinforces that organs of state exercising procurement functions must base decisions on the actual capacity of the tenderer itself, not merely on associated entities, unless there are binding obligations. (6) The judgment emphasizes that remedies under PAJA are designed to advance administrative justice, efficient public administration and the rule of law, consistent with constitutional values. The case has been frequently cited in subsequent tender law jurisprudence.