IGS Consulting Engineers CC and Another v Transnet SOC Limited

Transnet SOC Limited brought an application for self-review to set aside five contracts totaling over R204 million concluded with IGS Consulting Engineers CC (first appellant) during 2015-2016 under its New Multi Product Project involving maintenance of a 715 km multi-product pipeline. Turnmill Proquip Engineering (Pty) Ltd (second appellant) was cited as it had entered into joint venture agreements with IGS in respect of two of the five contracts (the second and fourth contracts). The High Court found a corrupt relationship between Mr Sithole (sole member of IGS) and Mr Msagala (Transnet Group Capital CEO), non-compliance with prescribed tender and procurement procedures, and that fraud vitiated the contracts which did not comply with section 217 of the Constitution. The High Court set aside all five contracts and ordered disgorgement of profits jointly and severally against IGS and Turnmill. Turnmill contended it was merely a subcontractor, had performed all work on the second contract, made no profit, and was innocent of any wrongdoing. On appeal, IGS withdrew its appeal on the morning of the hearing and tendered costs. Transnet then agreed to abandon the joint and several liability order against Turnmill in respect of the second contract.

• Whether the contracts complied with section 217 of the Constitution requiring fair, equitable, transparent, competitive and cost-effective procurement
• Whether the appeal had become moot after IGS withdrew its appeal and Transnet abandoned joint and several liability against Turnmill
• Whether there were exceptional circumstances justifying a hearing on costs alone in terms of section 16(2)(a) of the Superior Courts Act
• Whether the High Court's costs order should be interfered with on appeal
• What constitutes an appropriate remedy for unlawful procurement contracts

1. Paragraph 2 of the High Court order was varied to remove joint and several liability between IGS and Turnmill, making each separately liable only for its own verified profits from the second contract. 2. The first and second appellants were ordered to pay the costs of the appeal, including costs of two counsel.

The binding legal principles established are: (1) When an organ of state contracts in non-compliance with section 217 of the Constitution, a court must declare such conduct constitutionally invalid, with discretion only in determining a just and equitable remedy. (2) No party has a right to benefit from an unlawful contract. (3) Courts will not hear matters where there is no live issue or decide matters of academic interest that will have no practical effect on the parties or public. (4) Under section 16(2)(a) of the Superior Courts Act, appeals may be dismissed where the decision sought will have no practical effect. (5) Save under exceptional circumstances, courts will not entertain appeals on costs alone. (6) Appeal courts will rarely interfere with discretionary costs orders unless the lower court failed to act judicially, applied wrong principles, misdirected itself on facts, or reached an unreasonable decision. (7) Litigants have a duty to make sensible proposals when appeals become moot to avoid wasting judicial resources, and unreasonable rejection of such proposals will affect costs orders.

The court made several non-binding observations: (1) The loss to the public purse from unlawful procurement runs into billions of rand, but the damage caused by erosion of public trust is immeasurable - the "extraordinary has become commonplace with the pillage of our state-owned enterprises." (2) While Turnmill protested its innocence and there was no evidence of corruption on its part, "its professed innocence as to the signing of the joint venture agreement does not hold water" - the only inference was that Turnmill was aware of the role it was to play, as without the joint venture it would likely not have received work from Transnet. (3) IGS needed Turnmill because IGS lacked the CIDB grading, track record and capital, while Turnmill needed IGS because Mr Sithole had connections with Transnet (specifically the corrupt relationship with Mr Msagala) that guaranteed contract awards. (4) The court referenced findings by the Special Tribunal ordering disgorgement of profits from both Mr Msagala/his family trust and Mr Sithole/IGS, plus R26 million to be paid back, noting these "damning findings" contributed to IGS's decision to withdraw the appeal.

This case is significant in South African administrative law for several reasons: (1) It illustrates the constitutional imperative of section 217 requiring organs of state to procure goods and services through fair, equitable, transparent, competitive and cost-effective systems. (2) It addresses the growing trend of "self-review" applications by state entities discovering unlawful procurement by their functionaries. (3) It confirms that disgorgement of profits, while described as an extraordinary remedy, has become commonplace due to the pillaging of state-owned enterprises. (4) It clarifies the application of section 16(2)(a) of the Superior Courts Act regarding mootness and the general rule that courts will not hear appeals solely on costs absent exceptional circumstances. (5) It emphasizes the duty of litigants to make sensible proposals when appeals become moot to conserve judicial resources. (6) It demonstrates that even parties not involved in corrupt conduct may be affected by unlawful procurement contracts if they participated in joint ventures that facilitated constitutional non-compliance.