This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its July 2007 decision in Attorney-General v. Public Procurement and Asset Disposal Board, Botswana’s Court of Appeal ruled that a bypassed low bidder was not entitled to a damages remedy against the government body. The dispute dealt with a tendering process for an infrastructure project. Notwithstanding the advice of the engineer evaluating the bids, the government authority decided to reject the low bidder due to concerns that its bid was “financially risky.” The low bidder brought a legal challenge, claiming it has suffered financial loss due to the improper rejection of its bid:
After detailed evaluation the engineer concluded that the lowest tender submitted by the applicant was ‘extremely professional and competitive’ and recommended that the contract be awarded to the applicant in the sum of P79 464 549.51.
Notwithstanding the engineer’s recommendation the Board awarded the contract to the fourth respondent who was the second lowest tenderer. The applicant first became aware on 27 December 2004 that its tender had not been accepted. The applicant then requested the Board to provide it with further information concerning the award, whereupon the Board forwarded to the applicant a document headed ‘Brief Report on Award’ (hereinafter referred to as ‘the report’). It appears that the applicant was disqualified for a number of reasons set forth in the report. The report concludes with the remark that: ‘the Department considered the [Applicant’s] tender to be financially risky and recommended award to the second lowest [tender] and the Board concurred’.
The applicant submitted that a fraud had been perpetrated and maintained that it has demonstrated that the criticisms contained in each one of the six numbered paragraphs of the report were without substance. The applicant concluded that it had been wrongfully deprived of the contract and submitted that the tender had been awarded to the fourth respondent in fraudulent circumstances.
The applicant claimed that it has suffered financial prejudice as a consequence. The applicant thereupon launched its application. The answering affidavit of the employer was made by Mr Buhatwa, a principal engineer in the employ of the Department of Local Government and Development. It appears from his affidavit that although the engineer had recommended that the tender be awarded to the applicant, he, Mr Buhatwa, considered that the applicant’s tender was not responsive and that it presented a substantial financial risk to the employer. The applicant in its replying affidavit alleged that Mr Buhatwa’s reasons for disqualifying the applicant were untrue and that he knew that they were false.
The trial court found that the evaluation decision was contrary to Botswana’s procurement statute since the government board improperly overruled the evaluation recommendations of the engineer who had conducted the evaluations:
The court a quo meticulously considered the applicant’s allegation of fraud on the part of Mr Buhatwa, but came to the conclusion that the applicant has failed to prove on the papers that Mr Buhatwa was biased and that he deliberately misrepresented the situation to the Board. There is no cross-appeal by the applicant against this finding. The court a quo did however find that it was contrary to the Act and the conditions of tender, and therefore wrong, for Mr Buhatwa to recommend a disqualification of the applicant’s tender, and for the Board to act on the strength of that recommendation, without any regard to the recommendation made by the engineer. Once the engineer had determined the applicant’s tender to be substantially responsive it cannot simply be disqualified and disregarded for comparison and detailed evaluation. That would appear to be contrary to the provisions of s 35(2) of the Act, which reads as follows:
(2) Only substantially responsive bids shall be considered for comparison, evaluation, adjudication and award.
Clause 27.1 of the conditions of tender is to the same effect. Clause 24.1, quoted above, makes it clear that it is the employer who must determine whether the tender is substantially responsive, and the employer has engaged the engineer to perform that task on its behalf. Mr Buhatwa therefore had no locus standi to review the engineer’s determination in this connection. However, as pointed out above, it has not been established on the papers that Mr Buhatwa acted fraudulently or mala fide in this regard. The court a quo in fact found that he could have acted in ignorance of his role as advisor to his employer. The court a quo nevertheless found, as appears from the declaratory order it made, that the applicant was wrongfully and unlawfully denied a chance to have its tender considered for an award. This case turns on the question whether there was sufficient evidence for the court a quo to find that the actions of the Board or Mr Buhatwa (acting on behalf of the employer) were not only wrong, but ‘wrongful’ in the legal sense.
However, while the trial court found that the evaluation process was flawed, the Court of Appeal ruled that this did not give bidders the right to damages under tort law for “pure economic loss”, either under Botswana’s procurement statute or at common law. As the Court of Appeal explained, “pure economic loss” claims are tort claims where the plaintiff seeks damages in the absence of personal injury or physical harm to property, something that is rarely recognized by the courts:
It is clear that the applicant intends to rely on the declaratory order of the court a quo in an action for damages. The damages claimed would be for pure economic loss, that is, out of pocket expenses or loss of profit. In such an action for damages, which would be based on delict, the allegation and proof of wrongfulness would be essential to the applicant’s cause of action. It has been held in South Africa and elsewhere that negligent conduct causing pure economic loss is not prima facie wrongful. In these circumstances wrongfulness depends on the existence of a ‘legal duty’. The imposition of such a legal duty is determined judicially with reference to considerations of public and legal policy. I shall consider these legal requirements in the light of the authorities set out in the following paragraphs.
In the case of Steenkamp NO v Provincial Tender Board, Eastern Cape 2006 (3) SA 151 (SCA) the Supreme Court of Appeal of South Africa restated the general approach to delictual liability for pure economic loss caused by administrative breaches. Harms JA, who delivered the judgment of the court, made the following opening remarks:
The negligent causation of pure economic loss is prima facie not wrongful in the delictual sense and does not give rise to liability for damages unless policy considerations require that the plaintiff should be recompensed by the defendant for the loss suffered. This is another case in which these limits are being tested, this time in an administrative law setting.’ (See generally on the liability for pure economic loss: LAWSA (2nd ed) vol 8 part 1 para 68; Boberg The Law of Delict vol 1, Aquilian Liability p 103-149; Spartan Steel and Alloys Ltd v Martin & Co (Contractors) Ltd [1972] 3 All ER 557 (CA) at pp 561h-562c; Department of the Environment v Thomas Bates & Son (New Towns Commission, third party) [1990] 2 All ER 943, HL at p 946e-f.) ‘Pure economic loss’ is described as follows in LAWSA (loc cit) at p 111-112:
‘Pure economic loss is financial loss sustained without the interposition of a physical lesion or injury to a person or corporeal property, in other words, loss which is not associated with physical injury to the plaintiff’s person or property.’
It was held in Steenkamp’s case, (supra) that although organs of state and administrators have no delictual immunity, ‘something more’ than a mere negligent statutory breach and consequent economic loss is required to hold them delictually liable for the improper performance of an administrative function. Similar principles apply in England, as appears from the following passage in De Smith, Woolf and Jowell Judicial Review of Administrative Action (5th ed) (1995), p 758, para 19-003:
‘A fundamental tenet of English law is that the failure of a public body to act in accordance with public law principles of itself gives no entitlement at common law to compensation for any loss suffered. Nor does the careless performance of a statutory duty in itself give rise to any cause of action in the absence of a common law duty of care in negligence or a right of action for breach of statutory duty. To recover damages, a recognised cause of action in tort must be pleaded and proved. In short, while in some cases it may be a necessary condition, it is never a sufficient one for the award of damages that the act or omission complained of be ‘unlawful’ in a public law sense.’
(See further Kitano v Commonwealth of Australia (1974) 129 CLR 151 at pp 174-175, referred to with approval in Dunlop v Woollahra Municipal Council [1981] 1 All ER 1202 (PC) at 1208f-g.)
In applying these principles, the Court of Appeal then ruled that the low bidder was not entitled to financial damages since tort law did not recognize the right to claim such damages in a tendering process against government bodies and the bidder failed to raise any arguments supporting a contrary view of the law:
I am of the view that these legal principles, clearly set out in the authorities referred to above, also form part of the law of delict in Botswana. It is however apparent that the applicant did not address these legal requirements for a finding of wrongfulness and that the court a quo did not consider the issue of wrongfulness in the context of the existence or not of a legal duty determined with reference to considerations of public policy. The court a quo’s finding of wrongfulness is therefore not justified on the papers and should be set aside. The declaratory order of the court a quo will therefore be of no assistance to the applicant who will still be required to prove wrongfulness in the sense described above if it wishes to claim pure economic loss. The declaratory order of the court a quo becomes academic if the word ‘wrongfully’ is deleted therefrom.
As this case illustrates, while prejudiced bidders may bring administrative law claims in search of procedural remedies, including re-evaluation and rescission orders against improperly awarded contracts, they are not entitled to monetary compensation through the award of damages unless the statutory framework expressly provides for that remedy or common law rights apply under a Contract A process contract or under tort-law-based remedies. In this case, there was no contractual claim for damages based on the Contract A process contract and the Court of Appeal enforced a broadly recognized tort law principle that denies claims for “pure economic loss” in situations of a government tendering process.
