Division: South Eastern Cape Local Division
Case No: 1238/02 and 903/2002
Coram: Kroon et Leach JJ
Argument in both cases was heard at the same hearing because of the coincidence between the issues which arose for decision. Central to both cases was the interpretation and constitutionality of s 118(1) of the Local Government: Municipal Systems Act 32 of 2000 ("the Act"). The full text of which, as substituted by s 44 of Act 51 of 2002, reads as follows:
"118. (1) A registrar of deeds may not register the transfer of property except on production to the registrar of deeds of a prescribed certificate-
(a) issued by the municipality or municipalities in which that property is situated; and
(b) which certifies that all amounts due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid.
(1A) A prescribed certificate issued by a municipality in terms of subsection (1) is valid for a period of 120 days from the date it has been issued.
(2) In the case of the transfer of immovable property by a trustee of an insolvent estate, the provisions of this section are subject to section 89 of the Insolvency Act, 1936 (Act No. 24 of 1936).
(3) An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount owing and enjoys preference 0ver any mortgage bond registered against the property.
(4) Subsection (1) does not apply to -
(a) a transfer from the national government, a provincial government or a municipality of a residential property which was financed with funds or loans made available by the national government, a provincial government or a municipality and
(b) the vesting of ownership as a result of a conversion of land tenure rights into ownership in terms of Chapter 1 of the Upgrading of Land Tenure Rights Act, 1991(Act 112 of 1991)
Provided that nothing in this subsection precludes the subsequent collection by a municipality of any amounts owed to it in respect of such a property at the time of such transfer or conversion.
(5) Subsection (3) does not apply to any amount referred to in that subsection that became due before a transfer of a residential property or a conversion of land tenure rights into ownership contemplated in subsection (4) took place".
Broadly the issue was whether the relevant municipalities could decline to issue clearance certificates and thus prevent the transfer of property until payment for outstanding municipal services was received. In a two-pronged attack the respective applicants joined issue with part of the interpretation which the two local authorities sought to place on s 118(1)(b) and the manner in which they contended it should be applied. In the alternative the argument was that if the section was to be interpreted and applied as the local authorities and the Minister would have it, then the provisions of the section did not pass constitutional muster.
Interpretation of the phrase "in connection with that property" in s 118(1)(b) of the Act
Having regard for the need to adopt an approach consistent with the interpretation of this expression and the purpose of s 118(1)(b), i.e., the protection of municipalities and the promotion of the collection of debts owed to a municipality, the court concluded that the charges for water and electricity supplied by a municipality at a particular property, albeit in terms of a contractual agreement, even with a person other than the owner of the property, are included in the expression "all amounts that became due in connection with that property" contained in s 118(1)(b) of the Act.
The court briefly dealt with the alleged retrospective operation of S118(1) and the fate of the non-constitutional challenge to the stance of the respondent municipalities before turning to the constitutional challenges. This is perhaps the most interesting aspect of the case and is worth looking at in some detail.
The first constitutional challenge
This attack upon the section 118(1) of the Act is based upon s 25(1) of the Constitution which provides:
"No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property".
Here the court found that, based on the reasoning set out in First National Bank of South Africa Limited t/a Wesbank v Commissioner of the South African Revenue Services & Another; First National Bank of South Africa Limited t/a Wesbank v Minister of Finance 2002 (7) BCLR 702 (CC), and applied in Geyser and Another v Mzunduzi Municipality and Others 2003(3) BCLR 235 (N), s 118(1) is a deprivation of property as envisaged by s 25(1) of the Constitution, authorising as it does a restraint upon one of the entitlements of ownership which constitute an interference with the use, enjoyment and exploitation of property.
The "Arbitrary" nature of the deprivation
In the light of the finding above, the court then considered whether the deprivation could be arbitrary. Here recourse was made to the FNB case. This case concerned a statutory lien over property subjected to customs duties, in which the Commissioner for the South African Revenue Services has the power to hold and sell such property in execution of a customs debtor's obligations.
Factors looked at included:
- the means employed to deprive and the ends sought;
- the complexity of the relationships;
- relationship between the purposed of the deprivation and nature of the property;
- generally if the right being deprived of is ownership and all its incidents then the purpose must be more compelling; and
- a degree of proportionality must be observed;
Using this criteria the court had no difficulty in concluding that a deprivation of property could amount to a deprivation as envisaged by s 25(1) of the Constitution, otherwise it would be possible to deprive someone of their property where:
- the person had no connection with the transaction giving rise to the debt,
- the property has no connection with the debt, and
- the person has not placed the debtor or transacted with him under circumstances which would have induced the creditor to act to his detriment in relation to the incurring of the customs debt.
Now, this case has a number of similarities to the FNB case in that:
- An array of non-owners can be liable for various municipal charges.
- The owner need not necessarily have enjoyed the benefits of the services.
- The municipality was not induced by the owner to act to its detriment.
- Under s 118(1) the deprivation could continue indefinitely.
These similarities did not prevent Kondile J in Geyser from finding that the deprivation constituted by s 118(1) was not arbitrary and did not offend against s 25(1) of the Constitution. Despite the similarity of the facts of the Geyser case his view was rejected here for a number of reasons.
- Even though the municipal debts can cripple municipalities, one must be careful "not to throw the baby out with the bathwater and sacrifice the constitutional rights of landowners on the altar of expediency".
- Private property rights have to be protected against government action. A property owner who is not a consumer must not be burdened with the obligation to recover municipal debts.
- It is the responsibility of the municipality to adopt, maintain and implement credit control and debt collection policies, procedures and mechanisms such as rendering accounts, direct recovery from employers and the right to disconnect, stop or restrict the provision of services. A municipality therefore has a fiduciary relationship with its ratepayers and this function must be discharged even if it has difficulty in doing so.
- The powers are more than adequate then so there should be no reason to have recourse to s 118(1) to recover debts.
This logic when applied to the case at hand provides more than enough of a foundation to conclude that s 118(1) of the Act amounts to an arbitrary deprivation of an owner's rights as envisaged by s 25(1) of the Constitution.
Section 36 of the Constitution - regarding the need for a limitation of rights to be reasonable and justifiable - and the assumption that s 25(1) of the Constitution is subject to its provisions was then looked at. I won't labour the point, but s 118(1) of the Act was found to be constitutionally invalid.
A number of ancillary issues where looked at before s 118(1) was declared to be constitutionally invalid. Since such a finding is incohate pending confirmation by the Constitutional Court, no order was made.
Part one of Mkontwana
Part two of Mkontwana