A Case in Point – The Limits of Arbitral Authority in Public Procurement Disputes – May 2026

A CASE IN POINT – MAY 2026

THE LIMITS OF ARBITRAL AUTHORITY IN PUBLIC PROCUREMENT DISPUTES[1]

  1. On 27 November 2017 NAD Property Income Fund (Pty) Ltd (NAD) instituted an action in the High Court against the Bushbuckridge Local Municipality (the Municipality) for payment of approximately R23.5 million for the building of three driveway roads and water-supply infrastructure. The three roads would serve as driveways into a shopping mall that NAD was in the process of constructing at the time. The claim was based on a written construction agreement (the agreement) concluded between NAD and the Municipality, in terms of which NAD undertook to construct the abovementioned works.
  2. The primary defence raised by the Municipality that the agreement was concluded in contravention of the provisions of s 217 of the Constitution and ss 111 – 116 of the Local Government: Municipal Finance Management Act 56 of 2003 (the MFMA), because it was not preceded by a competitive bidding process, and therefore constituted an unsolicited bid which, under s113 of the MFMA, the Municipality had not been obliged to consider.
  3. Instead of proceeding to trial the disputes were subsequently referred to arbitration, and the arbitrator made (amongst others) the following findings:
      • the agreement was invalid, unlawful and therefore unenforceable; and
      • the agreement was unlawful for non-compliance with the legal regulatory framework which governs procurement by national, provincial or local government such as the Municipality, together with the prescribed supply-chain management process.
  1. In review proceedings brought by NAD, NAD claimed that the arbitrator had exceeded his powers by declaring the agreement invalid for non-compliance with s 217 of the Constitution and the relevant provisions of the MFMA. The review application was dismissed in the High Court.
  2. On appeal, the SCA held that the arbitrator had indeed exceeded his powers. While parties may agree to arbitrate many disputes, the Court stressed that questions concerning the constitutional validity of state procurement fall within the exclusive domain of the courts. Only a court, exercising powers under section 172 of the Constitution, may declare state conduct unconstitutional and grant the necessary “just and equitable” relief.
  3. The judgment is therefore an important reminder that even the widest arbitration clause has limits where public-law legality is concerned.

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[1] NAD Property Income Fund (Pty) Ltd v Bushbuckridge Local Municipality and Another (422/2024) [2025] ZASCA 184; 2026 (2) 426 (SCA) (4 December 2026).

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