Balancing Equity and Accountability: The Constitutional Court’s Ruling in the Zeal Health Case

In a significant judgment concerning the intersection of public procurement and constitutional remedies, the Constitutional Court in Minister of Defence and Military Veterans and Another v Zeal Health Innovations (Pty) Ltd [2026] ZACC 21 addressed the complex question of how to compensate an innocent contractor when a government tender is declared invalid.

The case was centred on a R198 million contract awarded by the Department of Military Veterans to Zeal Health Innovations (Pty) Ltd (“ZHI”) for the provision of healthcare services to military veterans, over a three-year period commencing on 1 June 2015 and expiring in May 2018. ZHI, an innocent contractor, performed the contract for the first two and a half months, namely June 2015 until 12 August 2015. It thereafter suspended its services from 12 August 2015 through to May 2018 following the Department’s failure to pay its outstanding invoices. The High Court declared the contract invalid because it exceeded the Department’s approved budget, rendering it inconsistent with the Public Finance Management Act 1 of 1999. On appeal, the Supreme Court of Appeal upheld the finding that the contract was invalid for contravening the Public Finance Management Act. However, the SCA exercised its remedial discretion under section 172(1)(b) of the Constitution to craft a just and equitable order, preserving ZHI’s full contractual rights for the entire three-year period, notwithstanding that ZHI had rendered services only from June 2015 until 12 August 2015 and had suspended performance for the remaining 33 months.

The central issue before the Constitutional Court was whether, in exercising its remedial discretion under section 172(1)(b) of the Constitution, a court may permit an innocent contractor to retain a profit margin for services rendered under an invalid contract, and whether such protection should extend to periods during which no services were rendered.

Section 172(1)(b) of the Constitution provides that, when deciding a constitutional matter within its power, a court may make any order that is just and equitable, including an order limiting the retrospective effect of a declaration of invalidity, and an order suspending the declaration of invalidity for any period and on any conditions, to allow the competent authority to correct the defect.

Writing for the majority, Mathopo J narrowed the scope of the SCA’s order by drawing an important distinction between periods of actual performance and periods of non-performance. At paragraph 62, the Court held that the two periods required separate treatment in determining what would constitute a just and equitable remedy. For the first period (1 June to 12 August 2015), the Court held that it was just and equitable to preserve ZHI’s contractual rights, allowing it to be paid at the agreed rate, which naturally included the profit margin contemplated by the contract. The Court reasoned that ZHI was entirely blameless in relation to the procurement irregularities, that the State had received and retained the benefit of the services, and that depriving innocent contractors of profit earned through legitimate performance could erode the incentive for sound procurement and send an undesirable message to the business community.

For the second period, namely 13 August 2015 to May 2018, during which ZHI had largely suspended its services after the Department’s failure to make payment, the Court reached a different conclusion. At paragraph 84, it held that preserving ZHI’s full contractual rights for the remaining 33-month period would result in an unjustified “windfall” for services that were never rendered. Accordingly, at paragraph 90, the Court held that for this latter period ZHI’s claim was limited to actual out-of-pocket expenses incurred in maintaining operational capacity or providing limited emergency services. It was not entitled to recover the substantial profits it would have earned had the contract remained valid and fully operational for its intended duration. In this respect, the Court sought to prevent the declaration of invalidity from becoming either a source of unjust enrichment for the contractor or a mechanism through which the State could escape liability for benefits actually received.

Importantly, at paragraph 73, the Court clarified that the so-called “no profit, no loss” principle is not a rigid exclusionary rule applicable in all cases involving invalid state contracts. Rather, the Court emphasised that while there is no automatic right to benefit from an unlawful contract, section 172(1)(b) confers a “true discretion” to allow a benefit, including profit, if the facts of the case warrant it. The judgment therefore confirms that constitutional remedies in procurement disputes are highly context-sensitive. The decisive question is not whether profit is inherently recoverable, but whether permitting such recovery would be just and equitable considering all the circumstances.

The decision in Zeal Health does not stand in isolation. It forms part of the Constitutional Court’s evolving jurisprudence on the consequences of unlawful procurement and on the scope of just and equitable remedies under section 172(1)(b) of the Constitution. The starting point is the AllPay litigation (AllPay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer of the South African Social Security Agency and Others [2014] ZACC 12), in which the Court held that a party has no right to benefit from an unlawful contract, while making clear that the absence of such a right does not place any benefit, including profit, beyond the reach of a court’s remedial discretion. Any such benefit falls instead to be subjected to public scrutiny in determining what is just and equitable. That principle is the doctrinal hinge on which the present case turns. The same concern for blameless contractors animates Greater Tzaneen Municipality v Bravospan 252 CC [2024] ZACC 20, on which ZHI relied, where the Court emphasised that organs of state must pay for services rendered to them by innocent contractors and condemned the practice of an organ of state relying on its own unlawful conduct to avoid paying for work it had in fact received. That concern surfaces again in Zeal Health itself, where the majority reasoned that permitting organs of state to escape payment merely by establishing procedural irregularities would erode any incentive for sound procurement and would send an undesirable message to the business community.

Similarly, in Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd, the Court recognised that, while unlawful public contracts cannot simply be enforced as though they were valid, the consequences of invalidity must nevertheless be addressed fairly and pragmatically. The Court stressed that the public interest, fairness to private parties, and constitutional accountability must all be considered when crafting an appropriate remedy.

Likewise, in State Information Technology Agency SOC Ltd v Gijima Holdings (Pty) Ltd, the Constitutional Court confirmed that legality and fairness are not mutually exclusive considerations. The Court acknowledged that constitutional remedies must strike an appropriate balance between correcting unlawful state conduct and avoiding unjust outcomes for parties who acted in good faith. Against this backdrop, Zeal Health makes an important contribution by clarifying that the preservation of profits under an invalid contract is neither automatically permissible nor automatically prohibited. The entitlement to retain a profit component depends instead on whether such an outcome is just and equitable in the circumstances of the case.

The majority judgment of Mathopo J was supported by eight members of the Court. Kollapen J, dissenting, agreed that the Supreme Court of Appeal had misdirected itself, but would have set its order aside and remitted the matter to the High Court. In his view, the record did not contain sufficient evidence to enable the Court to subject the approximately R15.7 million claimed for the performance period to the public scrutiny that a just and equitable remedy requires, in particular as to what portion represented recoverable costs and what portion represented profit. The division between the majority and the dissent is therefore not one of principle as to the “no profit, no loss” debate, on which the Court was united, but as to whether the Court was in a position to fashion the remedy itself or ought to have referred it back for further evidence.

In Zeal Health, the Court ultimately reinforced the principle that, while the judiciary will protect innocent contractors in respect of work actually performed, it will not permit the State to be burdened with substantial claims for anticipated profits arising from services that were never delivered under an invalid agreement. The decision reflects a careful balancing of competing constitutional considerations: fairness to blameless private parties on the one hand, and accountability in the expenditure of public funds on the other.