South African appeal ruling shows unwillingness to interfere with lower court’s discretion

It also emphasises the principle that discretion must be exercised on a case-by-case basis. Despite a contract being deemed unlawful, it should be noted that the benefits received are open to public scrutiny, and courts are reluctant to order the benefits to be repaid.

The dispute (17 pages / 235KB PDF) centred on a 2009 lease agreement between the Department of Public Works (DPW) and Phomella Property Investments. At the Gauteng Division of the High Court in 2017, the Special Investigating Unit (SIU) argued that the lease had been unlawful.

It said the DPW had failed to carry out an open bidding process for the lease, as required by section 172(1) of the Constitution, and that an assessment of the property by the Department of Justice prior to the conclusion of the lease was not carried out – despite it being one of the conditions in the DPW’s supply chain management policy.

The SIU sought to have the lease agreement declared invalid. The High Court agreed to set it aside and declared that the lease had been void from the outset. In addition, the SIU sought an order for payment of nearly R104 million (US$5.68m) that had been paid to Phomella during the lease, but this claim was dismissed, and the High Court declined to order repayment.

The SIU appealed the High Court’s decision, and the Supreme Court of Appeal considered whether the High Court had exercised “loose” or “true” discretion in its decision to dismiss the SIU’s payment claim. Regarding “loose” discretion, it stated that an appellate court is equally capable of determining a matter in the same manner as the court of first instance, and that it could therefore substitute its own exercise of the discretion without having to find that the court of first instance did not act judicially.

Ultimately, however, the Supreme Court of Appeal found that the High Court had exercised discretion in the true sense, and that it would be inappropriate for an appellate court to interfere unless it was satisfied that the High Court’s discretion had not been exercised judicially. The Supreme Court of Appeal asked the SIU for evidence that the High Court had not exercised its true discretion judicially, or that it had been influenced by wrong principles or a misdirection of the facts, or if the court reached a decision which could not “reasonably have been made by a court properly directing itself to all the relevant facts and principles”.

The SIU argued that even an innocent tenderer has no right to retain what it was paid under an invalid contract, and that it is in the public interest for the default position to be that payments made under invalid contracts should be returned. It also cited a 2014 ruling in which the Constitutional Court held that there is “no right to benefit from an unlawful contract” and that any benefit “should not be beyond public scrutiny”.

But the Supreme Court of Appeal said that the Constitutional Court had not required the defendant in the 2014 case to repay the amounts paid to it under what was later found to be an unlawful contract. It added that it would be unwise to apply the facts in past precedents to rules and principles, and that discretion must be exercised on a case-by-case basis.

Ultimately, the Supreme Court of Appeal dismissed the SIU’s appeal with costs, finding that there was no basis for it to interfere with the true discretion exercised by the High Court, and held that none of the findings of the lower court’s decision could be faulted.

Co-written by Iman Damons of Pinsent Masons.