Transnet Limited v Sechaba Photoscan (Pty) Ltd

Transnet Limited, a parastatal corporation, called for public tenders for the purchase of one of its divisions, Transnet Production House, which operated a printing business. Sechaba Photoscan (Pty) Ltd (the respondent), a well-established printer, submitted a tender, as did Skotaville Press (Pty) Limited. Despite strong indications during the tender evaluation process that the respondent's tender would succeed, Skotaville was unexpectedly awarded the purchase contract and bought the Production House business. The respondent sued Transnet for damages, alleging that the award to Skotaville was the culmination of a fraudulent tender process. At trial, Transnet conceded the allegations of fraud and admitted liability, leaving only the quantum of damages to be determined. The respondent claimed R60,689,000 representing the net profit it would have made in the three years following the purchase had it been awarded the contract. The trial court (Snyders J) accepted the respondent's evidence and awarded R57,654,550 as damages (after a 5% contingency deduction). Transnet appealed with leave.

• Whether loss of prospective profits is compensable in law as delictual damages
• Whether the trial court wrongly relied on oral evidence of the contents of written service level agreements in determining profits
• Whether the purchase price of R10 million should be deducted from the proved damages
• Whether the distinction between positive interesse and negative interesse bars recovery of loss of profits in delict

The appeal was dismissed with costs, including costs of two counsel where two counsel were employed.

Loss of prospective profits is recoverable as delictual damages where a party has been fraudulently deprived of a contract it would have been awarded. The aim of delictual damages is to place the injured party in the position they would have been in but for the delict, assessed according to the comparative method which determines the difference between the actual position resulting from the delict and the hypothetical position that would have obtained absent the delict. There is no principle of law that bars recovery of loss of profits in delict. The distinction between positive interesse and negative interesse does not prevent recovery of loss of profits in appropriate delictual claims. Loss of earning capacity is part of a party's patrimony, whether the party is an individual or a company, and whether the injury is physical or economic. Where the delict consists of fraudulently depriving a tenderer of a contract with profit-earning potential, the impairment of earning capacity constitutes recoverable delictual damage.

The Court observed that as a broad generalization, contractual damages claims by and large concern recovery of loss of profits whereas delictual claims, by and large, do not, though this does not preclude loss of profits in delict where appropriate. The Court also noted that the idea that loss of profit is not recoverable in delict is not historically founded, and indeed the converse is the case. The Court gave the example of a taxi owner whose vehicle is negligently damaged having a claim for profit lost while the vehicle is out of action, and stated it would make no difference if the loss occurred before commencing business, subject to quantification. The Court commented that it is "nothing less than ironic" that Transnet raised complaints about evidence concerning service level agreements when all the parties to those agreements were part of Transnet itself.

This case is significant in South African law for establishing that loss of prospective profits is recoverable as delictual damages in appropriate circumstances, particularly where fraud has deprived a party of a contract they would have been awarded. The judgment clarifies that the comparative method for assessing delictual damages does not exclude loss of profits, and that the historical distinction between positive and negative interesse is not a barrier to such recovery. The case extends the principle of compensating for impairment of earning capacity beyond personal injury cases to economic loss cases. It is particularly important in the context of public procurement fraud, establishing that a tenderer fraudulently deprived of a contract can recover not merely out-of-pocket expenses but the profits they would have earned. The judgment also reinforces procedural principles regarding the raising of objections to evidence at trial and the introduction of new factual issues on appeal.