- The High Court found that a Transnet audit clause was unconstitutional, ruling that the agreement effectively bound the state-owned company to one service provider and prevented competitive procurement for several years.
- The court held that the clause gave Sekela Xabiso an unlawful monopoly over Transnet’s outsourced auditing work beyond the agreed contract term, which is contrary to Section 217 of the Constitution.
- Judge SDJ Wilson ruled the clause invalid and set aside Transnet’s decision to include it in the contract, while ordering that each party pay its own legal costs.
The High Court in Johannesburg has ruled that a controversial contractual clause between Sekela Xabiso CA Incorporated and Transnet SOC Limited was unconstitutional.
The clause effectively tied the state-owned company to one service provider and prevented competitive procurement for several years. The clause granted Sekela Xabiso an unlawful monopoly over Transnet’s outsourced auditing work beyond the agreed contract term.
This was found to be contrary to Section 217 of the Constitution, which requires public procurement to be fair, equitable, transparent, competitive, and cost-effective. The judge declared the clause invalid, set aside Transnet’s decision to include it in the contract, and ordered both sides to pay their own legal costs.
Background to the dispute
The dispute began when Sekela Xabiso sought to enforce a contract clause that restricted Transnet from procuring similar services from other providers for five years. When Transnet later issued a new tender and appointed another auditing firm, Sekela Xabiso claimed damages and initiated arbitration.
However, the arbitration was paused so the High Court could first determine whether the clause itself was constitutionally valid. In the judgment delivered on 10 March 2026, the court found that the clause violated the constitutional principles governing public procurement.
Sekela Xabiso CA Incorporated was the applicant in the case. Transnet SOC Limited was the main respondent, with Hamilton Maenetje, the appointed arbitrator, and the Arbitration Foundation of Southern Africa also cited as respondents.
The conflict originated from a Transnet tender process. Initially, Transnet said that successful bidders would provide auditing services for five years. After a competitive process, Sekela Xabiso was selected as one of two preferred bidders.
During contract negotiations, Transnet notified Sekela Xabiso that it planned to insource its auditing functions in the future and, therefore, only wanted to appoint service providers for one year. Sekela Xabiso objected, arguing that such a short contract was not commercially viable.
The parties eventually agreed that Sekela Xabiso would perform half of Transnet’s auditing work for two and a half years. Importantly, the contract also included Clause 6, which restricted Transnet from procuring similar services from any other contractor for 60 months from October 2019. If Transnet needed external auditing services during that period, it would be required to obtain them from Sekela Xabiso.
How the dispute escalated
The dispute intensified when Transnet chose not to renew the agreement after extending it for an additional year. Instead of continuing with Sekela Xabiso, Transnet issued a new request for proposals and ultimately appointed Deloitte & Touche to perform the auditing work for five years. Sekela Xabiso’s contract was briefly extended for four months to help with the transition to the new service provider.
Believing that Clause 6 guaranteed it exclusive access to the work if Transnet did not insource the auditing function, Sekela Xabiso launched arbitration proceedings and claimed damages for breach of the restriction. Transnet responded by arguing that the clause was unconstitutional. Since arbitrators do not have the power to determine the constitutional validity of state procurement decisions, the case was brought before the High Court.
The central issue before the court was whether Clause 6 was compatible with Section 217 of the Constitution, which sets out the requirements for fair and competitive public procurement.
Court finds clause created an unconstitutional monopoly
Judge Wilson found that Clause 6 effectively prevented Transnet from seeking auditing services from any other provider for five years unless it brought the function in-house. The judge explained that the clause gave Sekela Xabiso a guaranteed monopoly over Transnet’s outsourced auditing work, which is exactly what Section 217 of the Constitution is designed to prevent.
He added that the clause undermined Transnet’s ability to exercise its procurement powers transparently and competitively. The court rejected the argument that the clause simply extended the contract on the same terms. Instead, it found that the restriction meant Transnet could only procure such services from Sekela Xabiso, potentially allowing the firm to dictate the terms of the engagement.
“This meant that if Transnet did not insource those services, it would have no choice but to purchase them from Sekela Xabiso,” the judge observed.
Review of Transnet’s decision and the final order
In addition to opposing Sekela Xabiso’s application, Transnet asked the court to review and set aside its own earlier decision to include the clause in the agreement. The court acknowledged that Transnet had delayed in bringing the review, noting that the company waited more than three years before challenging the clause. Nevertheless, Judge Wilson ruled that the unconstitutional nature of the clause justified condoning the delay.
The judge explained that allowing the clause to remain would undermine the rule of law and could allow for unlawful contractual damages to be claimed.
Judge Wilson emphasised that Sekela Xabiso had already been paid for the work it performed. What the firm sought now was the benefit of a clause that unlawfully tied Transnet to it as a “captive customer” for a further 14 months. The court held, “There is no reason why that provision should continue to benefit Sekela Xabiso notwithstanding its unlawfulness.”
The court dismissed Sekela Xabiso’s application and granted Transnet’s counter-application, declaring Clause 6 unconstitutional and severing it from the agreement. Although the court ruled in Transnet’s favour, it ordered each party to bear its own legal costs.
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