South African case clarifies test applicable to review of public contracts

The judgment of the Supreme Court of Appeal in the case of Altech Radio and Others v City of Tshwane (the City) has helped to clarify the test that applies to determining whether an application for self-review is brought within a reasonable time.

The circumstances of the case

Two sets of contracts were concluded between Altech, the City and lenders providing financing for a project to improve the ICT infrastructure of the City of Tshwane. Both contracts were concluded in 2016 and were later the subject of the dispute.

During the course of the conclusion of the contracts, there was a change in political leadership in the City’s council.

In the wake of these changes, the new leadership targeted the contracts, culminating in a review application in 2017, as brought by the City. The City was successful in having the contracts set aside in the High Court but Altech, Thobela Telecoms and ABSA appealed to the Supreme Court of Appeal (SCA) on the basis that City's delay in bringing its review application was unreasonable.

The appropriate legal test

The legal test for determining whether a delay in bringing a self-review application is unreasonable was established previously by the SCA. First the court must determine whether delay is unreasonable upon consideration of the facts. Second, if it determines that delay is unreasonable on the facts, the court must decide if it should exercise its discretion and overlook this unreasonableness.

Previous case law has established that the application of the legal test  is a “factual, multi-factor and context-sensitive” exercise. The factors to be weighed are:

• the length of the delay;
• the reasons for the delay;
• the prejudice which the delay may cause;
• the fullness of the explanation; and
• the prospects of success on the merits.

If there has been a delay in bringing the self-review, the onus will rest on the party bringing the self-review to show the reasonableness of the delay.

The ruling

The City argued that as the new leadership only took control in 2016, they needed more time to build a proper case and that the delays in bringing the review application were accordingly justified. The SCA rejected this assertion on the basis that, despite the change in the political administration, the City remained a distinct political entity. Further, it considered that the City had access to a number of reports on the validity of the tender process which existed before the change of power even occurred.

The SCA also considered that the High Court had failed to consider the prejudice that would be suffered by the interested parties involved. The court looked at the state of completion of the project at the time and found the project was 34% complete. This was problematic to the self-review application as the City had spent a large portion of money on the project and what had been completed could neither be used by Altech nor the City as it stood.

Further, the SCA considered that stopping work on the project would result in hardship on both parties. It also noted that the City had even requested an acceleration of the project which it considered was contradictory to it bringing the review application.

Aside from the impact on the parties to the litigation, the SCA found that the High Court had erred by not considering the impact that halting the project would have on other interested parties.

The court considered the position of the lenders and held that they would be unable to recover the loan financing that they had provided and that, if the City had acted promptly, their expenditure could have been limited and less expenditure would be wasted. The court also noted that the residents of the City would have been prejudiced in that they would be in the same position as before the commencement of the project: dealing with the impact of poor service delivery resulting from an inadequate ICT system.

Finally, in considering the prospects of success on the merits of the City’s case, the SCA interrogated the tender process itself and how the City had been handling the project.

The court reiterated that the tender process need not be flawless. If there are discrepancies or irregularities which are neither material nor consequential then this, the court said, is not enough to challenge the tender process.

The court also considered the fact that the City had already set aside funding for the project, after the transition of power, which it deemed contradictory to the City's conduct in bringing the review.

The SCA concluded that the delay in bringing the review application was unreasonable and decided not to exercise its discretion in favour of the City.

Lessons from the ruling

Whether bringing or defending an application for self-review by an organ of state, this decision is important because it not only illustrates the important factors to consider but also the importance of the timing of such an application.

Co-written by Christoff Ferreira of Pinsent Masons.