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The Supreme Court of Appeal ("SCA"), in NAD Property Income Fund v Bushbuckridge Municipality, delivered a judgment on Thursday 4 December 2025 concerning the power of an arbitrator to rule on public procurement disputes. It held that an arbitrator has no power to declare a contract with a municipality or other organ of state invalid for breach of section 217 of the Constitution, nor to grant the just and equitable relief that follows such a finding under section 172 of the Constitution. Only a court may do so.
On that basis, the SCA reviewed and set aside an arbitral award which had declared a construction agreement between the parties unlawful and partially granted enrichment relief.
The facts were that NAD had concluded an agreement with the Bushbuckridge Municipality for the construction of roads and infrastructure for the Dwarsloop Mall.
NAD completed the roads and installed water‑supply infrastructure as required in terms of the contract. The Municipality refused to pay NAD for the services on the basis that the agreement was unlawful and unenforceable because:
- the municipality had not followed a competitive bidding process under the MFMA and section 217,
- the municipal manager lacked authority to conclude the contract,
- no consensus on price was reached, and
- the Municipality had no budget at the time, with reimbursement envisaged only in later financial years.
NAD issued summons in the High Court for payment of the amount of ZAR23,5 million due to it for the services which had been rendered, but the parties then referred the dispute to arbitration.
The arbitrator, retired Judge President Bernard Ngoepe, found the contract unlawful and unenforceable but issued limited enrichment awards in favour of NAD. NAD took the award of the arbitrator on review to the Mpumalanga division of the High Court. The High Court upheld the award of the arbitrator. The SCA disagreed.
The SCA held that the validity of a contract by an organ of state on public procurement grounds is a question of public law within the courts' exclusive supervisory jurisdiction.
Section 172 of the Constitution reserves declarations of invalidity and just and equitable remedies to courts.
This is so despite the fact that the parties in this case had ostensibly agreed to refer to the arbitrator all the issues in dispute between them, including the constitutional validity of the construction agreement. The SCA held that the parties could not confer upon the arbitrator powers which he was neither accorded nor permitted by law to decide, despite the reference from the parties.
Section 109(2) of the Municipal Systems Act reinforces the point by excluding arbitration of matters involving a municipality's powers, duties or the validity of its actions.
While public law issues might arise incidentally in arbitration for decision by an arbitrator, the proper route is a stated case under section 20 of the Arbitration Act or a stay while a court is approached.
That was not the case in this instance – the vailidity issue was squarely referred for decision – it did not arise incidentally. Because the arbitrator exceeded his powers on the core issue, the entire award was rendered invalid.
Parties need to be careful: arbitration clauses in municipal and other organ‑of‑state contracts cannot clothe arbitrators with the authority to decide issues which concern constitutional validity.
If procurement legality is in issue, go to court first. Parties may rely on section 20 of the Arbitration Act only for truly incidental legal questions.
Pushing ahead with an arbitration in circumstances such as this case risks a futile award and ultimately significant adverse costs orders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
