This blog was co-authored by: Kristen de Wet, Candidate Attorney

In Siemens Proprietary Limited v PRSA , the court confirmed that the doctrine of estoppel cannot render an agreement enforceable if it is invalid.  This is particularly the position where it is in the public interest to ensure an agreement is unenforceable.

Estoppel refers to the legal principle that prevents a person from asserting a legal right contrary to its prior words or conduct that the other party relied on to its prejudice.  In the contractual setting, it prohibits a person from representing or arguing a fact, or asserting a right, which contradicts what was previously settled in terms of an agreement.  Where a party successfully raises estoppel, the other party is effectively precluded from denying its actions or commitments previously made in terms of their agreement.

In the Siemens case, the parties were involved in a competitive tender process regarding the installation of signalling hardware for a railway system as a trial process.  It was agreed that the party rendering the services (being the applicant) would be paid the agreed cost of the trial.  The applicant claimed that performance was rendered in terms of the agreement and demanded payment.

However, the organ of state receiving the services (being the respondent) opposed the claim and sought to have the agreement declared unlawful.  The respondent relied on the defence that the representative acting on behalf of the respondent lacked the requisite authority to conclude the agreement with the applicant.  The respondent further asserted that the agreement did not comply with the policies that govern the procurement of goods or services by an organ of State.

The court upheld the respondent’s defence and confirmed that a contract concluded between parties is invalid if one of the parties to the contract does not have, by virtue of a statutory provision, the necessary power to enter into the contract.

The applicant raised the doctrine of estoppel.  The court relied on Trust Bank van Afrika Bpk v Eksteen and reaffirmed that a state of affairs prohibited by law in the public interest cannot be enforceable by reliance upon estoppel.  As the respondent was an organ of State, its representative had no power to conclude the contract for the reason that it would be against the public interest.  The contract was unenforceable, despite the representations initially made by the respondent and despite the fact that the applicant was misled into believing that the respondent had the power to conclude the agreement.

In Siemens, estoppel did not assist the applicant and the respondent’s defence of illegality succeeded.  The application was dismissed.  This case serves as a reminder that the courts do not allow the doctrine of estoppel as a defence where a contract is invalid and unenforceable.