The Chairman of the State Tender Board v Supersonic Tours (Pty) Ltd

Supersonic Tours (Pty) Ltd ('Supersonic') had been providing travel management services to government departments for over 25 years. In August 2003, the State Tender Board ('STB') called for tenders for travel and accommodation services to the Department of Defence for two years. Supersonic tendered and was awarded the contract in September 2003. On 28 February 2005, Supersonic received a letter from the Department of Defence alleging possible misrepresentations in its tender regarding the SARS Tax Clearance Certificate and preference points for equity ownership by historically disadvantaged individuals. Supersonic responded in detail on 11 March 2005. On 22 September 2005, the STB decided to cancel the contract and restrict Supersonic and its directors from obtaining business from the State or any organ of state for a period of 10 years. Supersonic was informed of this decision on 29 September 2005. Supersonic brought motion proceedings in the Pretoria High Court to set aside the STB's decision on review. Pretorius J granted the relief on 11 May 2007, and the STB and Minister of Finance appealed to the Supreme Court of Appeal.

• Whether the decision of the STB constituted 'administrative action' as defined in the Promotion of Administrative Justice Act (PAJA)
• Whether Supersonic was entitled to procedural fairness under section 3 of PAJA
• Whether the STB gave Supersonic adequate notice of the nature and purpose of the proposed administrative action
• Whether the STB was entitled to disqualify Supersonic under regulations made under the State Tender Board Act 86 of 1968 and the Preferential Procurement Policy Framework Act 5 of 2000
• Whether fraud or bad faith was established as a basis for disqualification

The appeal was dismissed with costs, including the costs of two counsel. The decision of the State Tender Board to restrict Supersonic Tours (Pty) Ltd and its directors from obtaining business from the State or any organ of state for a period of 10 years was set aside. The Registrar of the court was requested to send a copy of the memorandum and judgment to the Commissioner of SARS regarding a possible contravention of section 4 of the Income Tax Act.

The binding legal principles established are: (1) A decision by the State Tender Board to disqualify a tenderer from future state contracts constitutes 'administrative action' as defined in PAJA, being an exercise of public power under legislation with direct legal consequences. (2) Section 3(2)(b) of PAJA requires that an organ of state give adequate notice of the nature and purpose of proposed administrative action, which must specifically identify the grounds being investigated (such as fraud or bad faith) and the potential consequences (such as disqualification). (3) General references to possible invalidation of tenders or voiding of contracts, or references to contractual provisions, do not constitute adequate notice that fraud or bad faith is being investigated or that disqualification is being contemplated. (4) Under regulation 3(6) of the State Tender Board Act regulations, 'incorrect' information alone does not trigger the power to disqualify; disqualification under regulation 3(5)(a)(iv) requires findings of fraud, bad faith, or other improper conduct. (5) Similarly, under regulation 15 of the Preferential Procurement Policy Framework Act regulations, disqualification powers in subregulation (2)(d) can only be exercised where subregulation (1) is satisfied, requiring either that preference was obtained on a fraudulent basis or that specified goals were not attained in contract performance. (6) Administrative action that is procedurally unfair as contemplated in section 6(2)(c) of PAJA must be set aside under section 8(1).

The court made an important obiter observation about a concerning feature in the record: a memorandum from attorneys investigating Supersonic referred to obtaining information from the South African Revenue Services through 'unofficial' means to circumvent the prohibition in section 4 of the Income Tax Act 58 of 1962 against disclosure of taxpayer information. Cloete JA stated: 'In view of these statements I consider it necessary to request the Registrar of this court to send a copy of the memorandum and of this judgment to the Commissioner, South African Revenue Services, drawing attention to this paragraph of the judgment, in order to alert him to the fact that there may have been a contravention of s 4 of the Income Tax Act and to enable him to take such steps as he may deem expedient including, if he considers such a step to be warranted, a referral to the appropriate law society which has jurisdiction over the firm of attorneys concerned.' This observation, while not necessary for the decision, highlights the court's concern about potential breaches of taxpayer confidentiality and professional ethical standards by attorneys involved in tender investigations. It demonstrates the court's willingness to bring potentially improper conduct to the attention of relevant authorities even when such conduct is not directly at issue in the appeal.

This case is significant in South African administrative law for establishing clear principles regarding procedural fairness in state tender disqualification proceedings. It confirms that decisions by the State Tender Board to disqualify tenderers constitute administrative action subject to PAJA requirements. The judgment emphasizes that organs of state must give clear and adequate notice to affected parties about the specific nature of allegations being investigated (such as fraud or bad faith) and the potential consequences (such as disqualification), not merely general references to possible invalidation or contract termination. The case also clarifies the interpretation of regulations under the State Tender Board Act and Preferential Procurement Policy Framework Act, distinguishing between 'incorrect' information (which does not automatically trigger disqualification) and fraud or bad faith (which may trigger disqualification powers). It illustrates the importance of compliance with section 3(2)(b) of PAJA requiring adequate notice and reasonable opportunity to make representations. The case serves as a reminder that tender documents and form provisions do not override statutory procedural requirements, and that references to contractual terms do not necessarily constitute adequate notice of administrative action being contemplated.