The Supreme Court of Appeal (SCA) has set aside an order that would have forced Mafoko Security Patrols to repay all profits earned from an invalid SABC contract, sending the matter back to the high court to determine a “just and equitable” remedy.
On Friday, the SCA ruled that the Johannesburg High Court erred in law by applying a
rigid “no loss, no gain” principle, which automatically precluded a blameless tenderer from retaining profit, even for services rendered over many years.
The case centres on a security services tender awarded by the interim SABC board to Mafoko on June 30, 2017.
This was despite internal committees recommending that the contract be awarded to Mjayeli Security, which had submitted a higher-scoring and cheaper bid.
Mjayeli successfully challenged the award, and the high court, in a ruling delivered in October 2023, declared the tender unlawful.
Crucially, the court also granted a request from the Special Investigating Unit (SIU) for a “disgorgement order”, compelling Mafoko to file audited financial statements so that its net profits could be calculated and repaid to the public broadcaster.
Mafoko, which did not appeal the finding of invalidity, challenged only the remedy, arguing it was unfair, as the company had performed the services diligently and was not found to be complicit in the SABC’s unlawful decision.
In a unanimous judgment penned by Justice David Unterhalter, the SCA upheld Mafoko’s appeal.
It found that the high court had misinterpreted a key Constitutional Court precedent by treating the “no profit” rule as an inflexible principle.
“The exclusion of benefit, and more particularly profit, from remedial consideration could also have perverse and undesirable consequences,” Unterhalter stated.
He explained that a tenderer’s culpability exists on a spectrum, from complicity to complete blamelessness.
The SCA judgment noted that Mafoko appeared to be on the “blameless end of the spectrum”.
It had been the incumbent service provider and was later compelled by a 2018 high court order to continue its services to the SABC pending the SIU investigation.
By the time the high court delivered its judgment, the contract term had long expired.
“The rendering of that service is a public service,” the judgment reads.
“However, it questioned whether a blameless provider, saddled with a duty to ensure service continuity, should be entirely denied a profit, which is a normal feature of competitive public procurement.
“Lawful public procurement is secured by the state at a competitive price, which includes a return (or profit) for the provider … Does the rendering of public goods or services occasioned by an unlawful award oust a blameless provider… from enjoying any profit? I think not,” Unterhalter wrote.
The SCA outlined several factors the high court must now consider for a fair remedy, including the extent of Mafoko’s blamelessness, the nature and duration of any constitutional duty it had as an incumbent, the benefits and burdens for both parties, the level of profit Mafoko made, and how that profit compared to a normal market return.
The SCA set aside the high court’s entire order, including the setting aside of the tender award itself, which it found served no practical purpose as the contract had ended.
Instead, it directed the high court to first declare the award invalid under the Constitution and then determine a just and equitable remedy after receiving further evidence and submissions from the parties.
The SIU was ordered to pay the costs of the appeal.
The ruling provides crucial guidance for lower courts on how to remedy unlawful state contracts, moving away from a one-size-fits-all approach to a more nuanced consideration of fairness, culpability, and the public interest.
Mafoko has been in the news recently for failure to pay pension contributions it collected from staff over to the fund, meaning workers did not have the benefit of this safety net in old age.
