South Africa

State contracts are frequently set aside by courts because proper procurement procedures were not followed. What happens to the contractor who has already done the work in good faith? Can it recover payment, including a profit margin? These questions came before the Constitutional Court in a judgment delivered on 27 May 2026. The Zeal Health Judgment In January 2015, the Department of Military Veterans advertised a tender for the provision of healthcare and wellness services to approximately 16 000 military veterans over three years. Zeal Health Innovations (Pty) Ltd ("ZHI") was awarded the tender on 21 May 2015. The contract value was approximately R198 million over three years. ZHI would receive a fixed monthly fee per registered veteran, regardless of whether each veteran actually sought treatment. ZHI commenced providing services on 1 June 2015. It established a managed healthcare network comprising general practitioners, specialists, pharmacies and other healthcare providers. ZHI submitted its first invoice in July 2015 for approximately R5.2 million. However, the Department failed to pay. The evidence revealed that there had been a change of leadership at the Department and the Minister instructed that ZHI should not be paid because she considered the contract too expensive. On 11 August 2015, the Department informed ZHI that it intended to seek judicial review of the procurement process. ZHI suspended its services the following day. Three invoices totalling R15.7 million were never paid. The High Court The High Court declared both the interim and main contracts unlawful and invalid from the outset. The Court found that the contract price far exceeded the available budget, in breach of public finance legislation. Importantly, the High Court found that there was no evidence that ZHI was complicit in any irregularities. However, having declared the contracts invalid, the High Court did not go on to consider what remedy would be fair to compensate ZHI for services it had already rendered as an innocent contractor. The Supreme Court of Appeal The SCA agreed that the contracts were invalid but found that ZHI, as an innocent party that had rendered services, should not simply walk away empty-handed. It made an order preserving ZHI's contractual rights, meaning that despite the contract being set aside, ZHI could still pursue payment for work done. The Constitutional Court The Department took the matter to the Constitutional Court, arguing that ZHI should be limited to recovering its actual expenses without any profit. The Department relied on what it termed the "no profit, no loss" principle. The Constitutional Court (Mathopo J, with eight justices concurring) upheld the appeal in part. Kollapen J wrote a separate dissenting judgment. Can A Contractor Claim Profit on an Invalid Contract? The Department contended that the "no profit, no loss" principle flowing from the AllPay judgement meant that an innocent contractor should not be out of pocket but equally should not profit from an unlawful arrangement. The Constitutional Court rejected this as a blanket rule. While there is no automatic right to profit from an invalid contract, that does not mean a court cannot allow a contractor to keep the benefit of the contract, including profit, where the circumstances justify it. The Court drew on the SCA's recent decision in Mafoko which confirmed that the "no profit, no loss" principle was developed for a very specific situation. It does not apply across the board to all cases where a state contract is set aside. What Must the Contractor Prove? The Constitutional Court identified six factors that will weigh in favour of a contractor seeking to be paid at the agreed contract rate, including a profit margins. First, that the contractor was an entirely innocent party and was not complicit in any procurement irregularities. Second, that the contractor actually rendered services and the organ of state obtained the benefit of those services. Third, that the contractor incurred costs in performing, including costs of setting up the necessary infrastructure to deliver the services. Fourth, that the conduct of the organ of state was not exemplary, for example where it approved the contract and allowed performance to continue before seeking to have it set aside. Fifth, that the organ of state created a reasonable expectation of payment by allowing the contractor to continue performing. Sixth, that the alternative arrangements the organ of state made to replace the contractor's services proved more expensive or less effective. Distinguishing Between Work Performed and Not Performed The Constitutional Court drew a critical distinction between the period when ZHI actually did the work and the period when it did not. For the period during which ZHI actually rendered services (1 June to 12 August 2015), the Court found it fair to preserve ZHI's right to be paid at the agreed contract rate, including the profit margin. For the period after 12 August 2015, when ZHI was no longer providing the full range of services, the Court refused to preserve its contractual rights. Allowing ZHI to claim lost profits for 33 months of non-performance would be a windfall, not compensation. However, the Court left the door open for ZHI to claim its actual expenses incurred in maintaining limited emergency capacity during a brief transitional period, without any profit margin, to be determined in separate proceedings. The August 2015 invoice was pro-rated to cover only the 12 days during which full services were provided. Expect Your Claim to Be Scrutinised Kollapen J, in a dissenting judgment, agreed that the SCA's order should be set aside but disagreed with the majority on the question of remedy. He cautioned that simply allowing the contractor to keep its full contractual benefits without properly examining whether those benefits were reasonable amounted to treating the matter as an ordinary contract dispute, when in fact it involved public money and required a higher level of scrutiny. In his view, the Court did not have enough evidence to carry out that scrutiny and the matter should have been sent back to the High Court for a proper enquiry. Whilst Kollapen J was in the minority, contractors should be aware that a court may well interrogate the reasonableness of the contract price, the profit margin and the relationship between the services invoiced and the services actually delivered. The stronger the evidence a contractor can produce on these points, the better. Practical Steps for Contractors The judgment confirms that an innocent contractor is not automatically limited to recovering only its expenses when a state contract is set aside. A court may permit the contractor to be paid at the agreed contract rate, including a profit margin, for work actually done. There is no automatic right to such a benefit, but equally there is no blanket exclusion. Each case will be assessed on its own facts. Contractors working on state projects should keep detailed records of all work done, costs incurred and communications with the state entity. Document the services delivered, the resources deployed and the expenses paid to subcontractors and suppliers. Record all correspondence with the organ of state, particularly any approvals, instructions to proceed and confirmations of the work performed. If a contract is challenged, the contractor's claim will turn on its ability to demonstrate that it was innocent of any irregularity, that it actually performed, that the organ of state accepted and benefited from the performance and that it incurred real costs in doing so. The distinction between the period of actual performance and the period of non-performance is important. A contractor who can prove what it did, that it acted in good faith and what it cost will be in the strongest position to recover at the contract rate.

By Randhir Naicker, partner and Chantal Mitchell, partner, Cox Yeats   The question of when a medical scheme may terminate membership due to non-disclosure was considered relatively settled in South African law. However, the Constitutional Court’s decision in Carlo Swanepoel N.O v Profmed Medical Scheme [2024] ZACC 23 has revisited both the duty to disclose and the threshold for material non-disclosure, and for many observers, the Court’s reasoning raises an uneasy question: does it fully reflect the practical realities within which medical schemes operate?   The legislative background   The ability of a medical scheme to terminate membership must be understood within the broader framework of the Medical Schemes Act, 1998, which tightly regulates both access to membership and the terms on which it is granted.   The Act is founded on the principle of open enrolment, requiring medical schemes to admit any applicant who submits a properly completed application. Membership cannot be refused based on age, health status, or claims history, ensuring that access is not influenced by medical risk.   How member contributions are determined   The Act further constrains medical schemes through section 29(1)(n), which regulates how member contributions are determined. Contributions may only be determined based on the chosen benefit option, the number of dependents, and, for certain benefit options, the member’s income, or a combination of these factors. These factors must then be applied consistently across all members within the same benefit option who meet the relevant criteria. Crucially, medical schemes may not differentiate contributions based on age, past or present health, or anticipated healthcare funding needs, nor may medical schemes charge different contributions to members on the same benefit option unless the contributions differ because of income or number of dependents.   A medical scheme is permitted to impose waiting periods   Section 29A addresses the risk of anti-selection, where a person joins a medical scheme in anticipation of imminent medical treatment costs. To mitigate this, a medical scheme is permitted to impose waiting periods in specified circumstances, such as where an applicant has not previously been a member of a medical scheme or has experienced a break in coverage. These waiting periods include a general waiting period of up to three months and a condition-specific waiting period of up to twelve months, depending on the applicant’s prior medical scheme membership history.   If an applicant has not been a beneficiary of a medical scheme for at least 90 days before applying, a medical scheme may exclude cover for prescribed minimum benefits (PMBs) during the applicable waiting period. In all other cases, a medical scheme is required to cover PMBs despite the imposition of waiting periods. This distinction is significant. Where there has been a break in membership of less than 90 days, waiting periods may only be applied in respect of non-PMB conditions. Accordingly, even if a PMB condition is disclosed, a medical scheme remains obliged to provide cover for that condition, whereas cover for non-PMB conditions may be subject to waiting periods. Therefore, under these circumstances, only non-PMB conditions are relevant and material for the purpose of imposing waiting periods.   Historic approach to termination and non-disclosure   In an open enrolment environment and taking into account the limited ability medical schemes have to manage risk and apply traditional underwriting measures, the Council for Medical Schemes historically adopted a pragmatic approach to the non-disclosure of material information. Intention was not considered, and the inquiry was focused narrowly on whether the non-disclosure was material within the narrow scope of the medical scheme’s restricted underwriting ability.   Materiality was assessed with reference to whether the information would have influenced the medical scheme’s underwriting decisions, such as the imposition of waiting periods or late-joiner penalties. If an applicant had not been a beneficiary of a medical scheme for at least 90 days, all conditions (including PMB conditions) were regarded as relevant and required disclosure for underwriting purposes. In all other circumstances under section 29A, only non-PMB conditions were treated as material for underwriting purposes.   The Steyn judgement   Ms Mignon Adelia Steyn (Ms Steyn) applied for membership of Profmed Medical Scheme and was asked whether she or any of her dependants had ever suffered from, or received treatment, advice, or medication for gastric ulcers. She answered “no”, despite having undergone a gastroscopy and colonoscopy that resulted in a diagnosis of gastritis. Her membership commenced on 1 January 2016 but was terminated in November 2016 for non-disclosure of material information.   Both the Council for Medical Schemes and the Appeal Board upheld the termination, finding that the non-disclosure was material as gastritis was a non-PMB condition and the failure to disclose prevented Profmed from imposing a waiting period under section 29A.   The Court was required to determine whether a medical scheme needs only to establish that non-disclosure was objectively material, or whether it must also prove that the non-disclosure induced the scheme to enter into the contract.   Disclosure arises only where the undisclosed condition is truly material   On materiality, the Court held that a duty of disclosure arises only where the undisclosed condition is truly material. But the Act does not define material non-disclosure or set out how materiality should be assessed. The Court noted that this gap is left to medical schemes to regulate through their own rules. While Profmed’s rules referred to cancellation for material non-disclosure, and the application form defined material information relating to the disclosure of medical conditions, the Court was critical that the rules failed to articulate a clear standard for materiality. The Court also rejected the Appeal Board’s rationale that non-PMBs needed to be disclosed in this case as fundamentally flawed.   Crucially, the Court rejected the idea that materiality alone is enough. Section 29(2)(e), it held, does not remove the common-law requirement of inducement. In other words, a medical scheme must still show that the non-disclosure influenced its decision to grant membership. This approach, the Court said, aligns with the Act’s broader purpose of widening access to medical cover.   The Court also stressed that Profmed led no evidence of how it would have treated applicants with similar medical histories who had made full disclosure.   This marks a significant shift in that termination for non-disclosure now requires not only proof of objective materiality, but also evidence that the disclosure would have changed the scheme’s decision-making.   The judgment leaves some uncertainty as to the extent to which broader features of the medical schemes’ statutory environment, including open enrolment, limits on contribution setting, the interaction between PMBs, and waiting periods, were fully factored into the analysis.   How to terminate membership now?   A medical scheme seeking to terminate membership based on non-disclosure will be required to: clearly specify, in its application form and rules, the information it regards as material; and establish the materiality of the non-disclosure, including how it was induced to enter into the contract on those terms; and demonstrate how it would have treated an applicant with a similar medical history who made full disclosure.   ENDS   About Chantal Mitchell   About Randhir Naicker   About Cox Yeats    

Residents across South Africa face chronic infrastructure failures. Flooding, exposed sewer lines, collapsing riverbanks and stormwater mismanagement are increasingly common. When residents approach their local municipality for help and are met with nothing more than buck-passing between government departments, what can they do? Can they obtain a court order compelling the state to act? And if so, which state entity is responsible? These questions were considered first by the Supreme Court of Appeal (SCA) in a judgment delivered on 22 March 2024, and then on remittal by the High Court in a judgment delivered on 29 May 2026. The Featherbrooke Estate Case Featherbrooke Country Estate is a residential complex situated in the Mogale City Local Municipality in the western part of Gauteng. The Muldersdrift se Loop River traverses through the Estate and ends in the Hartbeespoort Dam. What was historically a manageable stream became a torrent after heavy rains due to increased urban development, hard surfaces, climate change and inadequate stormwater management by the relevant municipalities. Since approximately 2010, Featherbrooke experienced increasingly frequent and severe flooding. The flooding exposed sewer infrastructure, underground power cables and caused the collapse of riverbeds and embankments. Featherbrooke's security fence was left hanging "by a thread" and residents faced risks of electrocution, exposure to sewage, property damage and security threats. A previous occasion when the fence came down resulted in a resident being shot by robbers and a R35 million damages claim against the Homeowners Association (HOA). For over ten years, Featherbrooke sought assistance from the Department of Water and Sanitation, Mogale City and the City of Johannesburg. No steps were taken by any department except to shift the blame from one to another. The Application In May 2020, Featherbrooke launched an application in the High Court against six respondents: Mogale City, City of Johannesburg, the minister of Water and Sanitation, the MEC for Agriculture and Rural Development, the Johannesburg Roads Agency, and the West Rand District Municipality. Featherbrooke sought a structural interdict compelling the respondents, jointly and severally and in the alternative, to repair the riverbeds and embankments, insert gabions, moderate the volume and flow of stormwater, repair exposed State-owned infrastructure, and draft a stormwater management plan. Every Respondent Denied Responsibility Each state entity pointed the finger at someone else. Mogale City argued that managing floods was not within its competence and that Featherbrooke should look to the minister under the National Water Act. The City of Johannesburg and Johannesburg Roads Agency argued that since the Estate was in Mogale City's jurisdiction, they had no role to play. The minister argued that the damage was due to poor planning by the developers and that Featherbrooke was required to apply for a water licence at its own expense. The High Court's Initial Order The High Court found that there was a constitutional duty on all spheres of government to prevent and mitigate disaster situations. However, it inexplicably made an order only against Mogale City, without deciding the case against the other respondents. The Full Court Mogale City appealed. The Full Court upheld the appeal, set aside the order entirely and dismissed Featherbrooke's application with costs. It reasoned that Featherbrooke was required to obtain a water licence from the department and, having failed to do so, its case had to fail. The Supreme Court of Appeal The SCA (Makgoka JA, with the full bench concurring) upheld Featherbrooke's appeal, set aside the Full Court's order, and remitted the matter to the High Court. The SCA was critical of both courts below. It held that Featherbrooke had carefully cast its net wide to include all relevant state entities and had asserted a case against each one in the alternative. The High Court was obliged to resolve the dispute in respect of each of those entities and its failure to do so was "bafflingly inchoate." The SCA did not decide the merits. It directed the High Court to determine whether, in addition to Mogale City, any of the originally cited state entities was responsible for the remedial work, and to make an appropriate order against each. The High Court on Remittal The matter returned to the High Court (Mahalelo J) and judgment was delivered on 29 May 2026. This time, the court found against multiple respondents. The court found that there was very little contradictory evidence to Featherbrooke's version. None of the respondents had taken any positive or immediate steps to address the situation, apart from bald denials. On Mogale City, the court found that it had clear constitutional and statutory obligations to manage stormwater and promote a safe and healthy environment. It was contravening its own precinct plan and had no stormwater management plan for the area. On the City of Johannesburg and the Johannesburg Roads Agency, the court rejected the argument that they owed no duty because the Estate was not in their jurisdiction. Stormwater originating from the City of Johannesburg's jurisdiction flowed into the river and contributed to the flooding. The principle of cooperative government required the City of Johannesburg to coordinate its actions with neighbouring municipalities. It could not simply ignore stormwater originating from its jurisdiction because the impact was felt across a municipal boundary. On the minister, the court found that the river was owned by the minister and that the National Water Act imposed a clear duty to take reasonable measures to prevent pollution of water resources. Critically, the court pointed to evidence that at a meeting on 24 March 2016, department officials had themselves recommended issuing a directive to Mogale City and the City of Johannesburg to address the very problems before the court. To date, the department had failed to issue that directive. The minister could not simultaneously acknowledge the need for intervention and then argue she owed no legal duty to act. The court held that Featherbrooke satisfied all the requirements for a final interdict: a clear right, an injury committed or reasonably apprehended, and the absence of any other remedy. The Order The court ordered Mogale City, the City of Johannesburg and the Johannesburg Roads Agency, jointly and severally, to repair, underpin, remediate and manage the riverbeds and embankments, including inserting gabions and moderating the flow of water through attenuation dams and culverts. Mogale City and the City of Johannesburg were ordered to draft and implement a stormwater management plan. The minister was ordered to mitigate, remediate and prevent flooding, including moderating the flow from the Walter Sisulu Botanical Gardens and preventing erosion of the riverbank.  All parties were ordered to repair exposed state-owned sewer and power infrastructure. Costs were awarded against the respondents. Conclusion This case reinforces the principle that courts will intervene where the state fails to discharge its constitutional obligations to maintain critical infrastructure and protect residents from environmental harm. It is not sufficient for government departments to point fingers at one another. The duty of cooperative government means that where stormwater and flooding cross municipal boundaries, all relevant state entities bear responsibility and may be compelled to act. Residents and homeowners' associations facing chronic infrastructure failures should take note. It is not necessary to wait for a disaster to occur. The Disaster Management Act adopts a forward-looking approach focused on managing future risks. Where residents can show extensive complaints, years of inaction and real threats to life, health and property, the courts will grant orders compelling the state to act, regardless of budgetary excuses or attempts to shift responsibility.

Facts On 10 April 2016, the Plaintiff was admitted to a private hospital complaining of pain in her left knee. Unbeknown to anyone at the time, the Plaintiff had suffered a ruptured aneurysm in her popliteal artery, resulting in limited blood flow to her lower left leg. The rupture went untreated for a critical period, and the condition of the Plaintiff's leg deteriorated to such an extent that it had to be amputated above the knee on 19 April 2016. On 14 August 2017, the Plaintiff instituted an action for damages arising from the allegedly negligent treatment she received at the hospital. The suit was initially brought against the hospital and three of the Plaintiff's treating physicians (the First to Fourth Defendants). It became apparent from their pleas that none of the original defendants accepted direct responsibility for the treatment the Plaintiff received in the hospital's accident and emergency department, which they said was run by the Fifth Defendant, an incorporated medical practice. On 21 June 2018, the Plaintiff sued the Fifth Defendant, which pleaded on 5 December 2018. In its plea, the Fifth Defendant identified the Seventh Defendant as its employee who had treated the Plaintiff "in the course and scope of his duties," and a Sixth Defendant as a locum physician not in its employ. The Plaintiff's legal representatives made what they described as a "strategic decision" not to sue the Seventh Defendant personally, reasoning that the Fifth Defendant could be held vicariously liable for any negligence proved against him. They did, however, sue the Sixth Defendant in her personal capacity on 31 August 2020, as she was acknowledged not to be in the Fifth Defendant's employ. At around the same time, the Fifth Defendant amended its plea to withdraw the admission that the Seventh Defendant was its employee, now pleading that both the Sixth and Seventh Defendants were independent contractors over whom it had no control. Despite this material amendment, the Plaintiff's legal representatives did not act upon it until June 2022, when they finally appreciated the need to sue the Seventh Defendant in his personal capacity. The summons against the Seventh Defendant was served on 22 June 2022. The Seventh Defendant raised a special plea of prescription. Issues The central issue the Court had to determine was whether the Plaintiff's claim against the Seventh Defendant had prescribed. The Prescription Act (“the Act”) provides that an ordinary debt prescribes three years after it falls due. Section 12(3) of the Act provides that a debt falls due when the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises. The Court therefore had to determine when the Plaintiff first became aware of the Seventh Defendant's identity and his role in the chain of events leading to her injury. Complications: the peculiarity of Prescription in this matter What made the prescription issue peculiar in this matter was the manner in which the Seventh Defendant pleaded his special plea. While the case, in the Court's view, turned upon two straightforward and common cause facts — that the Plaintiff became aware of the Seventh Defendant's role in her treatment on 11 December 2018 (when the Fifth Defendant's plea was served), and that the Plaintiff did not institute proceedings against the Seventh Defendant until 22 June 2022, some four and a half years later — the Seventh Defendant's legal representatives overcomplicated the matter. The Seventh Defendant persisted with the argument that the Plaintiff should be deemed to have been aware of the Seventh Defendant's identity as early as August 2017, when the hospital records were discovered. Those records included a form signed by the Seventh Defendant, but the Court noted that the Seventh Defendant's signature was illegible and the form did not otherwise identify him. The Seventh Defendant's counsel argued that it was unreasonable of the Plaintiff to wait until the Fifth Defendant identified the Seventh Defendant in its plea. The Court expressed doubt about this more ambitious argument, observing that the Plaintiff was investigating a complex chain of medical causation. The hospital had sought to shift liability onto its separately incorporated constituent practices, which in turn sought to shift liability onto the physicians working for them as independent contractors. In those circumstances, the Court held that the Plaintiff could not be criticised for seeking relief against the hospital rather than a treating physician who, at the time the medical records were received, was identified by no more than "his scrawled signature on a single sheet of paper". Court's determination and reasons The Court upheld the special plea of prescription and dismissed the Plaintiff's claim against the Seventh Defendant. The Court's reasoning was as follows: The Plaintiff plainly became aware of the Seventh Defendant's identity and his role in her treatment when the Fifth Defendant named the Seventh Defendant in its plea dated 5 December 2018, which was served on the Plaintiff's legal representatives on 11 December 2018. The three-year prescriptive period therefore expired on 12 December 2021. Since the Plaintiff only served the summons against the Seventh Defendant on 22 June 2022, the claim had prescribed. The Court rejected the Plaintiff's reliance on section 12(2) of the Act. The argument that the Fifth Defendant had "wilfully prevented" the Plaintiff from discovering her cause of action by initially pleading that the Seventh Defendant was its employee was found to be misguided. The Court reasoned that the Plaintiff's strategic decision not to sue the Seventh Defendant personally, because the Plaintiff's representatives believed they could hold the Fifth Defendant vicariously liable, did not mean the Plaintiff was prevented from suing the Seventh Defendant in his own right. The Court further reasoned that the very decision to pursue vicarious liability against the Fifth Defendant entailed the proposition that the Plaintiff's representatives already knew about the Seventh Defendant and his potential role in causing the Plaintiff's injury. Conclusion This judgment offers important guidance in the field of medical negligence litigation on the operation of prescription, particularly regarding knowledge of a debtor's identity under section 12(3) of the Act. It underscores that the prescriptive period begins to run from the date the plaintiff acquires knowledge of the debtor's identity and the facts giving rise to the debt — not from the date a plaintiff makes a strategic decision to act on that knowledge. Practitioners in medical negligence matters should take careful note: when the identity of a potential defendant becomes known through the pleadings of a co-defendant, the clock starts immediately, regardless of whether the plaintiff has elected to pursue a vicarious liability strategy against another party. Article by: Mtho Maphumulo Litigation and Alternative Dispute Resolution Attorney, Adams & Adams Partner, Insurance & Financial Services department