The Cape Metropolitan Council v Metro Inspection Services Western Cape CC and Others

The Cape Metropolitan Council (the appellant) was a transitional metropolitan council established under the Local Government Transition Act 209 of 1993 as an organ of state. It had a duty to levy and collect regional services levies. The Council entered into a contract with Metro Inspection Services (Western Cape) CC (the first respondent) in terms of section 10C(7)(a) of the LGTA for the registration of levy payers and collection of arrear levies. The contract initially ran for 1997, was extended to 1998, with the first respondent being substituted for the second respondent at the beginning of 1998. The first respondent was entitled to commission for arrear levies collected and for new registrations. During August/September 1998, allegations were made by a competitor (SDR Inspection Services CC) that the first respondent had submitted fraudulent claims for commissions amounting to approximately R1.4 million, later alleged to be over R2 million. The Council launched an internal investigation by internal auditors. On 30 October 1998, the Chief Executive Officer (Dr Fisher) summarily terminated the contract alleging material breach and substantial fraudulent claims. A public statement was released on 4 November 1998. The first respondent denied fraudulent conduct and applied to the Cape Provincial Division to set aside the termination, seeking reinstatement, access to documents, reasons for the decision, and costs.

• Whether the cancellation of a contract by an organ of state constitutes 'administrative action' within the meaning of section 33 of the Constitution of 1996
• Whether the first respondent was entitled to procedurally fair administrative action before cancellation of the contract
• Whether the first respondent was entitled to written reasons for the decision to cancel the contract
• Whether the first respondent was entitled to access to information held by the Council in terms of section 32 of the Constitution
• What constitutes the exercise of 'public power' for purposes of administrative law

The appeal was substantially successful. The Supreme Court of Appeal set aside the Cape Provincial Division's order setting aside the cancellation and the order to furnish reasons, but upheld the order granting access to documents (items 1, 2, 3, 6, 7 and 8). The first respondent was ordered to pay 75% of the appellant's costs in both the court a quo and on appeal, including costs of two counsel. The first respondent was also ordered to pay the costs of its application for condonation.

The cancellation of a contract by an organ of state does not constitute 'administrative action' within the meaning of section 33 of the Constitution where: (1) the power to cancel is derived from the terms of the contract and common law rather than from statute or public power; (2) the organ of state is not acting from a position of superiority or authority by virtue of being a public authority; (3) the cancellation does not involve the performance of a public duty or implementation of legislation; and (4) the organ of state is exercising a contractual right founded on the consensus of the parties in respect of a commercial contract. Section 33 is concerned with the public administration acting as an administrative authority exercising public powers, not with the public administration acting as a contracting party from a position no different from what it would have been in had it been a private individual or institution. For purposes of section 32 of the Constitution, 'rights' includes all legal rights, not only fundamental rights. To qualify for access to information under section 32, an applicant must demonstrate: (1) what right they wish to exercise or protect; (2) what information is required; and (3) how that information would assist in exercising or protecting that right.

The Court made several non-binding observations: (1) Had the Council purported to cancel the contract in terms of Regulation 22(1) of the Financial Regulations for Regional Services Councils, this would have constituted 'administrative action' requiring compliance with the audi rule (right to be heard), even if those provisions had been incorporated into the contract; (2) The relationship between the Council and levy payers (which involves statutory duties) should be distinguished from the relationship between the Council and the contractor; (3) The fact that a competitor may have exerted influence on the Council to terminate the contract cannot transform what would otherwise be a purely contractual cancellation into 'administrative action'; (4) Classification of an agreement as an 'administrative agreement' does not determine whether cancellation of that agreement constitutes 'administrative action'; (5) Different considerations apply to the calling for and adjudication of tenders, which do constitute administrative action, particularly in light of section 217(1) of the Constitution which specifically regulates how organs of state contract for goods or services; (6) The Court noted that it had not been necessary to decide whether the alleged fraudulent claims would have constituted a material breach entitling the Council to cancel under common law contract principles, as this was not determinable in application proceedings.

This is a landmark judgment in South African administrative law that clarifies the boundaries between administrative action and contractual relationships involving organs of state. The case establishes important principles for determining when an organ of state exercises 'public power' subject to constitutional administrative law protections versus when it acts as an ordinary contracting party subject only to common law. It demonstrates that not every action by a public authority constitutes administrative action - the critical factor is whether public power is being exercised. The judgment also provides important guidance on the application of section 32 (access to information) of the Constitution, confirming that 'rights' for purposes of that section extends beyond constitutional rights to include all legal rights, including the right to reputation. The case is frequently cited in subsequent administrative law jurisprudence concerning the distinction between public and private law functions of state entities.