South African Post Office v De Lacy and Another

SAPO invited tenders for the provision of a biometric payment system for social grants in the North West Province. The respondents, De Lacy and Beadon, were associated with Cornastone, a company with strong BEE credentials that submitted a tender. Cornastone scored the highest overall points (73.33) compared to the Kumo Consortium (64.71). However, Kumo scored significantly higher on technical ability (34.58 vs 26.33), while Cornastone's advantage came primarily from BEE points (26.25 vs 16.25). The Evaluation Committee recommended Kumo based on superior technology, despite lower overall points. The contract was awarded to Kumo in September 2002. Cornastone ceded its rights to the respondents, who claimed damages of approximately R108 million for lost profits (Claim A), R406 million for profits from other provinces they allegedly would have secured (Claim B), and alternatively an accounting for unjust enrichment (Claim C). The respondents alleged fraud, corruption, and dishonest manipulation by SAPO officials, particularly Mr Topper. The High Court upheld Claim A in part, awarding R60 million after applying a 50% contingency factor.

• Whether an unsuccessful tenderer can claim damages for lost profits based on alleged irregularities in the tender process
• Whether the evidence established dishonesty or fraud on the part of SAPO officials in awarding the contract to Kumo
• Whether mere irregularities, incompetence or negligence in a tender process can found a delictual claim for damages
• What standard of proof is required to establish dishonesty in tender processes
• Whether SAPO was unjustly enriched by allegedly using Cornastone's technology

Appeal upheld with costs (including two counsel). Cross-appeal dismissed with costs. The High Court order awarding R60 million was set aside and replaced with an order dismissing all claims with costs. Costs related to the original (non-compliant) heads of argument were disallowed, and costs related to the record were to be assessed as if it comprised 70 volumes rather than the actual excessive length.

An unsuccessful tenderer can claim damages for lost profits only where it is established, on a balance of probabilities, that the award of the contract to a rival was brought about by dishonest or fraudulent conduct on the part of public officials for whose conduct the state organ is vicariously liable, but for which the contract would have been awarded to the complainant. Irregularities falling short of dishonesty, incompetence, and even negligence will not found such a claim. The inference of dishonesty must be consistent with all proved facts and must be the more natural or plausible conclusion when measured against the probabilities, considering all evidence and context, not merely selected irregularities in isolation. A tender evaluation committee is entitled to depart from a strict points-based formula where it honestly and rationally considers that the interests of the procuring entity are better served by an alternative, particularly where technical performance is critical.

The Court made important observations on practice and procedure: (1) SCA Rule 10 requires "main heads of argument" that are concise - practitioners should expect appeals to be removed from the roll or adverse costs orders for non-compliance; (2) It is undesirable for witnesses to present cases through "PowerPoint presentations" that conflate evidence with hearsay, commentary, opinion and argument - this introduces confusion and prevents proper evaluation of evidence; (3) Mere assertions made in pleadings, opening argument, or under guise of evidence do not call for "rebuttal"; (4) The onus-bearing party must prove its case - it is not incumbent on the opposing party to call witnesses merely because they are available, though failure to call witnesses may give rise to inferences where prima facie evidence requires rebuttal. The Court also noted critically that De Lacy's affidavit to the ombudsman deliberately misrepresented the timing and context of Topper's approaches to create a false impression of bribe solicitation related to the tender.

This case clarifies the narrow circumstances in which unsuccessful tenderers can claim damages in South Africa. Following Olitzki Property Holdings v State Tender Board and Steenkamp NO v Provincial Tender Board, it confirms that mere irregularities, negligence, or incompetence in tender processes do not found delictual claims for economic loss. Only dishonesty or fraud by public officials can establish liability, as recognized in Minister of Finance v Gore NO. The judgment emphasizes that such dishonesty must be proved on a balance of probabilities, considering all evidence and probabilities, not inferred merely from isolated irregularities. The case demonstrates the courts' approach to evaluating tender disputes: courts will not second-guess the substantive decisions of tender committees provided they acted honestly and rationally. It also addresses procedural matters including the requirement for concise heads of argument and the impropriety of witnesses delivering argument under the guise of evidence. The decision protects the tender process from speculative claims while maintaining accountability for genuine fraud.