When should a court award compensation as a remedy for unlawful administrative action?

October 1st, 2020
x
Bookmark

Picture source: Gallo Images/Getty

Section 33(1) of the Bill of Rights guarantees the right to administrative action that is lawful, reasonable and procedurally fair. Pursuant to s 33(3) of the Constitution, the Promotion of Administrative Justice Act 3 of 2000 (PAJA) was enacted to ‘give effect’ to the constitutional right to just administrative action in practice (see Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC) at para 22 – 26 and Minister of Health and Another NO v New Clicks South Africa (Pty) Ltd and Others (Treatment Action Campaign and Another as Amici Curiae) 2006 (2) SA 311 (CC) at para 94 – 95 and 431 – 438).

Section 8 of PAJA gives the courts a wide discretion to make any ‘just and equitable’ order to remedy the violation of the right to just administrative action (see Bengwenyama Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and Others 2011 (4) SA 113 (CC) at para 81 – 85). The usual remedy appears in s 8(1)(c)(i) where an order setting the unlawful decision aside and remitting it back to the administrator for a new decision that properly complies with the requirements of lawfulness, reasonableness and procedural fairness (see Trencon Construction (Pty) Ltd v Industrial Development Corporation of South Africa Ltd and Another 2015 (5) SA 245 (CC) at para 42 and Gauteng Gambling Board v Silverstar Development Ltd and Others (SCA) (unreported case no 80/2004, 29-3-2005) (Heher JA) at para 29).

Aside from the usual remedy of setting aside and remittal, s 8(1)(c)(ii)(bb) of PAJA states that in exceptional circumstances a just and equitable remedy could be an order ‘directing the administrator or any other party to the proceedings to pay compensation’. PAJA, however, does not indicate when a case will be ‘exceptional’ or what factors a court should consider to determine whether compensation will be a ‘just and equitable’ remedy (see Cora Hoexter Administrative Law in South Africa 2ed (Cape Town: Juta 2012) at p 570). Thus far, the courts do not appear to have considered compensation under s 8(1)(c)(ii)(bb) in much detail and have only made general findings to the effect that –

This article examines when a court should consider ordering the payment of compensation as a remedy for unlawful administrative action in terms of PAJA. First, it briefly sets out the two general requirements for compensation in s 8(1)(c)(ii)(bb). Second, it considers when a case will be ‘exceptional’ and what factors a court should consider to determine whether compensation would be ‘just and equitable’.

The two requirements for compensation

According to case law based on s 8(1)(c)(ii)(aa) of PAJA – which allows a court to substitute an unlawful administrative decision if it is an ‘exceptional case’ and where it will be ‘just and equitable’ – it seems that a court should undertake a two-step inquiry to determine whether compensation should be granted as a remedy:

  • First, the court must be satisfied that the case is ‘exceptional’.
  • Second, that it would be ‘just and equitable’ to make an order requiring the payment of compensation (see Trencon (op cit) at para 35).

Each requirement is considered in turn.

‘Exceptional case’

As noted, the courts have not yet provided a clear test to determine when a case will be ‘exceptional’ for the purposes of compensation in terms of s 8(1)(c)(ii)(bb) of PAJA. However, the fact that compensation may only be awarded in ‘exceptional cases’ clearly indicates it is supposed to be an extraordinary remedy which will not usually be granted (see Steenkamp (op cit) and Darson Construction (Pty) Ltd v City of Cape Town and Another [2007] 1 All SA 393 (C) at p 408).

In Simcha Trust (op cit) at para 28, the SCA remarked that whether a case is ‘exceptional’ turns not so much on the quality of the decision itself – such as whether it was ‘conspicuously bad’ – but rather on whether there ‘are unusual circumstances which make it appropriate’ to order compensation and not the usual remedy of setting aside and remittal. One possible interpretation of this finding is that a case will only be ‘exceptional’ when it has some ‘unusual’ feature which any other remedy, such as setting aside or even an appropriate costs order, cannot adequately rectify (see Dunn (op cit) at para 36 – 37).

Aside from this general finding, it is difficult to articulate a comprehensive principle to determine when a case will be ‘exceptional’ as each case necessarily depends on its own facts (Steenkamp (op cit)). However, the above finding from Simcha Trust does arguably indicate that there at least two situations where a case would not be ‘exceptional’ for the purposes of compensation under PAJA.

First, as noted, it arguably articulates the general principle that a case will not be ‘exceptional’ where an established administrative law remedy such as setting aside and remittal (or even substitution) will effectively rectify that violation of the right to just administrative action (Simcha Trust (op cit) at para 18 and 28).

Second, even when remittal and setting aside are not appropriate, a case will arguably not be ‘exceptional’ when a litigant has an alternative remedy that will effectively prevent the harm they may suffer as a result of the unlawful administrative decision, for example an interdict (see Olitzki Property Holdings v State Tender Board and Another 2001 (8) BCLR 779 (SCA) at para 37 – 38).

Whether a potential damages claim in delict or contract would constitute an effective alternative remedy – which could prevent a case from been ‘exceptional’ – is an open question (see Simcha Trust (op cit) at para 19).

There are, however, conflicting views on when a breach of contract will implicate the right to just administrative action (see Cora Hoexter ‘Contracts in Administrative Law: Life After Formalism’ (2004) 121 SALJ 595 at 609 – 613). Delictual claims in administrative law are also usually difficult to establish. Where the delict is based on pure economic loss, a violation of the right to administrative justice will not necessarily be delictually wrongful (see Steenkamp (op cit) at para 37). Without evidence that the administrative decision was tainted by intentional bad faith or corruption or was taken ‘completely outside the legitimate scope of the empowering provision’, it is unlikely that the delictual requirement of wrongfulness will be easily met (see Steenkamp (op cit) at para 55 and Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA) at para 25 – 26).

‘Just and equitable’

The courts have not yet developed clear factors that one should take into account to determine whether it would be ‘just and equitable’ to award compensation as a remedy for unlawful administrative action in terms of s 8(1)(c)(ii)(bb) of PAJA.

I submit that the starting point to determine this question should be informed by the Constitution itself (see Steenkamp (op cit) at para 32 and Pharmaceutical Manufacturers Association of SA and Another: In re Ex Parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) at para 44). Section 172(1)(b) and s 38 of the Constitution could provide guidance regarding what factors a court should consider. Respectively, these two provisions empower any competent court to make any ‘just and equitable order’ and grant ‘appropriate relief’ for any unjustifiable infringement of a constitutional right – such as the right to just administrative action in s 33 of the Constitution.

In Hoffmann v South African Airways 2001 (1) SA 1 (CC) at para 45, the Constitutional Court (CC) held that a ‘just and equitable’ remedy is one that properly balances the various interests, which may be affected by it. When engaging in this balancing process, at least four factors should be kept in mind to determine whether a particular remedy will grant ‘appropriate relief’ yet also be ‘just and equitable’:

  • It should effectively redress any harm caused by the violation of the right.
  • It should strive to deter future violations of the Bill of Rights.
  • It should be capable of being complied with.
  • It should be fair to everyone who may be affected by it (Hoffmann (op cit)).

Based on these four factors, the following considerations would be relevant to determine whether it would be ‘just and equitable’ to grant compensation under s 8(1)(c)(ii)(bb) of PAJA: Whether compensation would effectively redress the harm caused by the violation of the right to just administrative action, whether it would deter future violations of the right and whether it would be fair to society to require that compensation – and not some other order – be granted as a remedy.

While the SCA in Simcha Trust (op cit) at para 28 remarked that the ‘quality of the decision’ is not necessarily relevant to determine whether a case is ‘exceptional’, this factor could be relevant to determine whether it would be ‘just and equitable’ to grant compensation as a remedy. For example: Where the administrative act is unlawful because of an intentional act of bad faith, corruption or ‘inexcusable incompetence’ it could be ‘just and equitable’ to require the administrator to personally pay compensation (see Hoexter (op cit) at p 570 and Minister of Finance and Others v Gore NO 2007 (1) SA 111 (SCA) at para 85 – 88). In this scenario, compensation could also achieve the objective of deterring other administrators from violating the right to just administrative action in this manner in future.

Another relevant factor is whether the unlawful administrative decision indirectly violated another constitutional right of a vulnerable group: Such as their right to inherent human dignity or a socio-economic right (see MEC, Department of Welfare, Eastern Cape v Kate 2006 (4) SA 478 (SCA) at para 22 and 33). Where the unlawful administrative decision indirectly violates another constitutional right, and where there is no other appropriate remedy available, the presence of this factor could make it more likely that it would be ‘just and equitable’ to require the administrator or another party to the proceedings to pay compensation.

Justice and equity also require the court to consider competing factors, which could equally tip the scales against an order requiring the administrator or another party to pay compensation. Three relevant considerations are the following:

  • First, the CC has held that monetary compensation is not usually an appropriate remedy to rectify the violation of a constitutional right (see Fose v Minister of Safety and Security 1997 (3) SA 786 (CC) para 58 and 67 – 68). This applies equally in the administrative law context, given that the primary purpose of administrative law remedies is to vindicate the rule of law and promote the public welfare by preventing or correcting the improper exercise of an administrative power or function (see Steenkamp (op cit) at para 29). Unlike private law remedies, the remedies for unlawful administrative action are, therefore, not necessarily concerned with compensating an individual litigant with a sum of money for the harm caused by the violation of their rights. However, in limited circumstances, both the SCA and CC have recognised that monetary compensation could be the only available remedy, which would provide ‘appropriate relief’ for the violation of a constitutional right and be ‘just and equitable’ to all those affected by it (see Ngomane and Others v Johannesburg (City) and Another 2020 (1) SA 52 (SCA) at para 21 – 27 and President of the Republic of South Africa and Another v Modderklip Boerdery (Pty) Ltd (Agri SA and Others, Amici Curiae) 2005 (5) SA 3 (CC) at para 52 – 64).
  • Second, the severity of the violation of the right to just administrative action could be relevant. While an intentional act of bad faith or corruption could render it more likely that compensation will be ‘just and equitable’, a relatively minor infringement caused, for example, by negligence or a clerical error could equally render it less likely that compensation will be just and equitable.
  • Third, the amount of compensation could be relevant. The CC has held that claims for punitive damages should not be granted for the violation of a constitutional right (Fose (op cit) at para 65 and 71 – 72). On this basis, the amount of compensation awarded should be strictly limited to the actual harm caused by the violation of the right to just administrative action. Furthermore, the conduct of the parties could also be relevant. Where a litigant unreasonably inflates their claim for compensation, or fails to take reasonable steps to prevent or mitigate the financial loss caused by the unlawful administrative decision, it could be ‘just and equitable’ for a court to award a reduced amount of compensation.
Conclusion

Compensation is an extraordinary remedy in the administrative law context and will usually only be considered as a remedy of last resort. Whether compensation should be granted appears to require a court to engage in a balancing process, which should be informed by the Constitution and the broad requirements of administrative justice in each case. Generally speaking, administrative justice would usually be better achieved through another remedy, such as setting aside and remittal or even substitution. However, in appropriate circumstances, an order requiring an administrator to pay compensation could also achieve the legitimate constitutional objectives of deterring administrators from violating the right to just administrative action in an intentional, grossly negligent or corrupt manner and ensuring that ‘appropriate relief’ is granted for the violation of a constitutional right when no other appropriate remedy exists.

Geoffrey Allsop BA LLB LLM (UCT) is a candidate legal practitioner at Haffegee Roskam Savage Attorneys in Johannesburg.

This article was first published in De Rebus in 2020 (Oct) DR 25.