In BW Bright Water v Eastern Cape Development Corporation 2019 (6) SA 443, the High Court considered an application that a lease agreement concluded by a private company and the Eastern Cape Development Corporation be declared valid. Furthermore, it considered a counter-application for the review and setting aside of the agreement.

The lease pertained to land at Coffee Bay, upon which the Ocean View Hotel is situated. The ECDC argued that the lease was unlawful because the official who signed it was not authorised to do so. It also argued that there had been no regard for the applicable statutory framework inasmuch as the lease had not been put out to tender and the agreed rental did not amount to a market-related price. For purposes of deciding the matter, the court focused mainly on the lawfulness of the agreement.

The court emphasized the relevance of the procurement principles in sub-section 217(1) of the Constitution, holding that these also applied to the letting of assets. In that regard, the court observed that the most emphatic manner in which an organ of state can demonstrate application of the above principles is by use of a public and transparent tender process in which all bidders are treated fairly and equitably.

Furthermore, the court remarked that the Public Finance Management Act 1 of 1999, together with its regulations, sets out the procedures for efficient and effective management of revenue and expenditure, and assets and liabilities. Also relevant was the ECDC’s Property Policy and Procedure Manual, which stated that the purpose of renting out property was to contribute to its income and profitability, necessarily entailing the imposition of a market-related price, which was best achieved by allowing as many market-related bids as possible.

In the present matter, the lease was an exclusive deal, concluded after closed and private negotiations. Accordingly, the ECDC had not given effect to the procurement principles in sub-section 217(1) and which were inherent to the applicable provisions of the PFMA and its regulations and which informed its own policy.

The court dismissed the application and granted the counter-application in part, stating that the lease was constitutionally invalid.