By the Litigation Team

On 2 July 2015, the Supreme Court of Appeal of South Africa (“SCA”) handed down judgment in African Information Technology Bridge 1 (Pty) Ltd v The Member of the Executive Council For Infrastructure Development (formerly part of Public Transport, Roads And Works), Gauteng Province.  The case dealt with the law surrounding a unilateral mistake rendering an agreement void ab initio.  The court found that, despite the re-issuing of letters of award in respect of tenders, a material mistake regarding the contracting parties resulting from an intention to deceive, renders the tender contracts as invalid from the outset.

The case arose from three tenders projects.  In 2006, the Gauteng Department of Transport and Public Works (“GDTPW”) was involved in the development of construction contact centres that resulted in said tender projects.  One of the companies that had been involved in a pilot project, and was expected by GDTPW to tender, was African Information Technology Bridge Pty Ltd (“AITB”). However, one of its directors was a sister of a senior manager in the GDTPW (a fact that would have disqualified it from the tender process).  So as to avoid being disqualified, one of the directors of AITB, Mr Tucker (“Tucker”), changed the name of a company he was sole director of, Crestwell Trading 9 Pty Ltd, to African Information Technology Bridge 1 Pty Ltd (“AITB1”) and submitted a bid on behalf of AITB1 but relying on the experience and employee information of AITB. 

In June 2006, the three tenders were awarded to AITB (together with certain other parties).  In July 2006, one of the employees of AITB1 went to the GDTPW and requested that the letters of award be amended to reflect that the tender of AITB1 had been accepted.  The following day, the GDTPW met with Tucker and presented documents detailing the responsibilities of AITB in respect of two of the tenders.  These documents were addressed to AITB and not AITB1. Tucker failed to alert GDTPW that the agreement was not between AITB and GDTPW, but that the GDTPW was contracting with AITB1.  The GDTPW only became aware that it had not contracted with AITB later on.

The case in the court a quo (North Gauteng High Court) was brought by AITB1 for payment for work done for which they had not been paid.  The GDTPW argued that it had intended to contract with AITB and not AITB1, and therefore no contract was entered into with AITB1 in respect of the tenders.  The SCA was concerned with the defence raised by the GDTPW that they thought they were contracting with a different company (a mistake in that constitutes to a unilateral error in persona). The SCA had to determine whether the GDTPW’s unilateral mistake was reasonable (justus) and rendered the contract with AITB1 void from the outset. The SCA stated:

“For the purposes of this appeal, the only defence that we are concerned with, which was raised by the department in denying the validity of the contracts between the parties (with reference to tenders 1417 and 1418), amounts to a unilateral error in persona by the department. It is a unilateral mistake because it is only the department that mistakenly thought that it had contracted with African Bridge, as Mr Tucker knew that the tender documents were completed in the name of AITB 1. Such a defence, which avoids the contract, has been said to be difficult to establish. In National and Overseas Distributors Corporation (Pty) Ltd v Potato Board the following was said:

'Our law allows a party to set up his own mistake in certain circumstances in order to escape liability under a contract into which he has entered. But where the other party has not made any misrepresentation and has not appreciated at the time of acceptance that his offer was being accepted under a misapprehension, the scope for a defence of unilateral mistake is very narrow, if it exists at all. At least the mistake (error) would have to be reasonable (justus) and it would have to be pleaded.'"

The SCA found that the name change carried out by Tucker was done solely to confuse the GDTPW.  The court found that the GDTPW was clearly mistaken with regard to the identity of the entity it was contracting with, and did indeed intend to contract with AITB. For these reasons, the court found that there was a material and justus error in respect of the contracts.  In contract law, according to the justus error approach, a party to an agreement who raises mistake and wishes to escape contractual liability must prove not only that the mistake is material, but also that it is reasonable. The leading case of justus error is that of George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A).

The SCA held that the GDTPW successfully proved that the contracts with AITB1 were concluded by mistake and that the GDTPW's mistake was material and reasonable. The court held that the contracts were void from the outset and the appeal was dismissed with costs.