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Tshwane Municipality v Mathabathe - II

12 September 2013

 Tshwane Municipality v Mathabathe    

Herewith my opinion in this matter and I will await response with bated breath.

1. Municipalities have a right to block transfer of land until certain debts are paid. This is an embargo provision and is contained in section 118(1) of the Local Authority: Municipal Systems Act 32/2000 (MSA). The embargo provision is for a limited period and is ended when the debt to the municipality for the 2 year period immediately preceding the date of application for rates figures is paid. The municipality cannot refuse to issue a rates clearance certificate once that debt is paid and thereafter the owner is free to transfer the property. In City of Cape Town v Real People Housing (77/09) [2009] ZASCA 159 (30 November 2009) paragraph 11 the Judge sums it up as follows: “If an owner is entitled to a clearance certificate when debts have not been incurred for two years, albeit that earlier debts have not been paid, it must follow that an owner is also entitled to a certificate if debts incurred in that period have been expunged........Clearly a municipality has no discretion to grant or withhold a clearance certificate at will and thereby frustrate the exercise the ordinary rights of ownership – such a discretion would be absurd....”;

In Stadsraad van Pretoria v Letabakop Farming Operations (Pty) Ltd [1981} 4 All SA 585 (T) the court referred to a quote in Bloemfontein Town Council v Estate Holzman and Others 1936 OPD 134 at 141 the following phrase by Curlewis R in Cohen’s Trustees v Johannesburg Municipality 1909 TH 134 at 137 which was quoted with approval: “The effect of this section is to give to the council an embargo or hold on the property in respect of which the rates have been imposed – something not wholly in the nature of a lien or hypothec but sui generis whereby the council practically obtains a preference over other creditors”. In City of Johannesburg v Kaplan NO & another 2006 (5) SA 10 (SCA) the court says that embargo provisions have been the the subject of repeated judicial pronouncement for at least a hundred years. Referring to Johannesburg Municipality v Cohen’s Trustees 1909 where the judge said: “....the intention seems to have been to give the local authority a right to veto the transfer of land until its claims in respect of rates should be satisfied....”. the judge continues as follows: “The court was there concerned with s26 of the Local Authorities Ordinance of 1903(Transvaal)(which contained an embargo unfettered by a time limit). Similar provisions (but with a time limit of three years) were included in later Transvaal legislation: s47 of the Local Government Ordinance 9 of 1912, s 49m of the Local Government Ordinance 11 of 1926 and s 50(1) of the Local Government Ordinance 17/1939 (which was repealed by the Local Government Laws Amendment Act 51 of 2002). It is clear that the legislature has transmuted the last-mentioned section into s118(1) with the time limit reduced from three years to two” It is clear that section 118(1) of MSA and similar provisions is in effect nothing new in South African law.  Why do municipalities suddenly have the opinion that they can enforce their rights without intervention of the court?

2. The effect of this embargo is to divest the owner of land of some of his right of ownership, but such divesting is limited to the 2 year period (see Mkontwana v Nelson Mandela Metropolitan Municipality; Bissett v Buffalo City Municipality; TransferRights Action Campaign v MEC, Local Government and Housing, Gauteng 2005 (1) SA 530 (CC)). It was found not to be in conflict with section 25 of the Constitution of the Republic of South Africa;

3. While section 118(1) provides municipalities with the protection of an embargo for a period of 2 years, section 118(3) is a security provision which has no time limit (outside of insolvency) and which, like the embargo, is a charge against the property. According to the Kaplan case it is of more recent provenance and probably a delayed reaction to the judgement in Rabie NO v Rand Townships Registrar 1926 TPD 286 which held that an embargo provision in s47(b) of Ordinance 9/1912 of the ordinance did not constitute “a claim ranking in priority” over a mortgage bond. S 118(3) specifically provides that the sums owed a municipality are a “... charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property”. The security provided by section 118(3) also extends to the debts older than the 2 year period in the embargo provision (the historical debt). The Court stated very clearly in City of Tshwane Metropolitan Municipality v Mathabathe & another the following, quoting Irwin v Davies 1937 CPD 442 at 447: Sweet, Law Dictionary, says that a “charge” on property “signifies that it is security for the payment of a debt or performance of an obligation.....”;

4. It is clear that the judge has in mind that a court order must be obtained by a municipality to enforce its claim under the charge/statutory bond before it can get its hands on the proceeds of a sale of the property to settle historic debts. The Judge in the Tshwane case refers to the Kaplan case: “Any amount due for municipal debts (i.e. not limited by the aforesaid period of two years) that have not prescribed is secured by the property and if not paid and an appropriate order of court is obtained, may be sold in execution and the proceeds applied in the payment of the debts” (my underlining). The way the situation is interpreted by municipalities borders on parate executie. Well, almost. Municipalities still call for the undertakings from conveyancers that the historical debts will be paid from the proceeds of the sale of the land, huffing and puffing like the big bad wolf. It is abundantly clear that they are not entitled to demand such an undertaking. In Tshwane the Judge very succinctly states: “Having misconstrued the section, it sought, in addition to the security that it enjoys for the historical debt to which no limit in duration exists, the postulated undertaking. In that it had to fail”; In the same way that municipalities failed to recover their debts timeously, using the rates clearance as their principal debt recovery tool, they now attempt to scare conveyancers into issuing the required undertakings. This is simply an abuse of power and position.

5. Moreover, I do not see how it can be interpreted that the judge, or the act for that matter, intended that the debts of the seller can be carried over and be recovered from the purchaser. Municipalities should follow due process as suggested in Kaplan. Also, the municipalities do not lose their claim against the owner when the land is transferred. That is the purpose of the unlimited protection given by section 118(3) of MSA. The judge says in Tshwane: “....The Municipality failed to draw that distinction (i.e. embargo as opposed to security) and thus confused the two distinct remedies available to it. It, moreover, was plainly wrong in its contention that ‘upon registration [of transfer]....[it] loses its rights under section 118(3) of the Act’”.

That statement by the Judge cannot, however, in my opinion, be construed as meaning that municipalities may, after transfer of the land concerned to a purchaser, attach the land now belonging to another and sell it to recover the debts of the former owner. How far will this go? The third and fourth owner down the line? In my opinion the Judge simply meant what he said and nothing more - that the seller’s historical debt to the municipality is not extinguished because the land was transferred and the tacit hypothec lost. That historical debt may still be recovered from the seller/owner by some other lawful process as stated by the judge in the Kaplan case, also if “....an appropriate order of court is obtained....”. The Tshwane case agrees with this. The fact that they are given protection under section 118(3) does not turn the municipalities into demi gods able to demand or grab whatever they wish for, acting like a law unto themselves.

6. A lien or jus retentionis is lost when the holder of the lien loses possession of the property subject thereto, except when possession is lost e.g. due to illegal action, etc. (Rondalia Bank Bpk v Pieter Nel Motors (Edms) Bpk 1979 4 SA 467 (T)). However, possession is not a requirement for a tacit hypothec. Van der Merwe (Sakereg, 2nd edition p698) states: “Die statutêre voorskrifte het tot gevolg dat die owerheidsliggame ‘n eiesoortige stilswyende hipoteek oor die grond verkry ter versekering van die betaling van die betrokke gelde”. This phrase was quoted and concurred with in Stadsraad, Pretoria v Letabakop Farming Operations (Pty) Ltd [1981] 4 SA 911 (T). If the municipality allows the land to be transferred without obtaining an appropriate court order the tacit hypothec may be lost, but I failed to find a definite answer to this.

What is clear is that section 118(3) of MSA, with its feet clearly solidly planted in old enactments, creates nothing new. Why is it that now suddenly we have this “furore” around section 118(3) of MSA? It is also by now well established that in South African law immovable property cannot be sold in execution for debt or otherwise without the intervention of a court of law (First National Bank of South Africa Ltd v Land and Agricultural Bank of South Africa and others; Sheard v Land and Agricultural Bank of South Africa and Another 2000 (3) SA 626 (CC)).

7. In the Mkontwana case the constitutional validity of section 118(1) was unsuccessfully challenged inter alia on the argument that an owner of land should not be held accountable for the costs of services consumed by occupiers of land other than the owner, e.g. tenants, squatters etc. The Court went to great length to establish and explain that there is a close relationship between councils, as suppliers of the services, the land itself where the services are rendered and the owner of such land. The Court made it very clearly that there is no reason why the owner of the land should not be held accountable for services supplied to the land, even though an occupier other than the owner had the benefit of the services. To allow the attachment of the land now belonging to the purchaser and selling it to settle debts of the former owner would amount to a transgression of section 25 of the Constitution of the Republic of South Africa 1996, of the worst order and will most certainly be in conflict with the principles established by the court in Mkontwana.

The Court in that case unfortunately did not consider section 118(3) per se, but the arguments were about who was responsible for the payment of the “consumption charges”. It was established that it is the owner of the land. The case is therefor very much applicable to the historical debts as well. I doubt that either any judge or the legislator would have a consequence in mind where the accountability for certain debts of one person can be simply passed on to a new owner. I also think that the preference given to a municipality’s claim in preference of the claim of holders of bond(s) over the land must of necessity be the bonds passed by the landowner (i.e. the seller) who owes the municipality a debt, and not those bonds which may be passed by a new owner (the purchaser) subsequent to transfer of the land to such purchaser. That would be absurd. It seems impossible that any new owner/purchaser of land will not be able to successfully defend himself against any attempt at attaching his land to settle the debt of a previous owner using section 25 of the constitution as his defence. If such a defence fails, the entire idea behind section 25 is a nullity.

Dudley Lee
Cape Town

Reader Comments: 4
MARK SCHAFER 12/09/2013:

Well Dudley, lets find the brave Conveyancer and the braver purchaser who is prepared to proceed with transfer on the basis that the purchaser will defend the claim of the Municipality for arrears of the Seller which predate the two year period. I suppose this could happen if the seller provided security for the amount claimed and the costs of the litigation to follow but if the seller were prepared to do that , why not just pay the arrears? Of course this assumes that the local authority would then institute legal action - which it had up until then failed to do. If the local authorities exercised proper debt recovery, this situation would not occur.

Nick Livesey 13/09/2013:

I agree with Dudley's interpretation, which is totally consistent with the previous judgments on this subject. Whilst the judge might have chosen his words a little more carefully he clearly didn't rule that subsequent owners inherited the transferor's obligations. However what he said was that: "[12] Unlike subsection (1), subsection (3) is not an embargo provision – it self-evidently is a security provision. The Municipality failed to draw that distinction and thus confused the two distinct remedies available to it. It, moreover, was plainly wrong in its contention that ‘upon registration [of transfer] . . . [it] loses its rights under Section 118(3) of the Act’.

From what he said earlier the appeal was thrown out because the council had confused it's rights of security under sec.118(3) with a cause of action, which was not conferred by the section. That is the ratio for the decision. He goes on to say: "It follows that in at least those two fundamental respects the Municipality has misconstrued the import of s 118(3). Having misconstrued the section, it sought, in addition to the security that it enjoys for the historical debt to which no limit in duration exists, the postulated undertaking. In that it had to fail." The judgment can in my view only mean that the rights of recovery secured by the section were not lost - i.e. the council would still be able to sue the original owner for the debt and this is how it will be interpreted.

It would be against all rules of interpretation, existing law, the constitution and common sense to interpret this otherwise. It would simply be absurd to hold that this clause would give the council a non-actionable right of security against successive owners in perpetuity for a debt incurred by another, which would only be capable of recovery from a sheriff or liquidator in the event of insolvency of or execution against a subsequent owner. Such an interpretation would also immediately run foul of the Constitutional Court judgement in the Mkontwana case. It is clear from the judgment that the subsection does not confer a right of action .

The position was the same as now under the old provincial ordinances which were properly interpreted by the AD and the only legislation I have ever seen which expressly perpetuated a right of recovery in terms of a charge against a property was a Hartebeestpoort water authority ordinance or act which was subsequently repealed and replaced by legislation containing no reference to this as it was plainly unlawful. Even under that legislation a purchaser and subsequent owner was protected in that if they did not disclose the amount within a certain time after clearance figures were requested they were unable to recover against any subsequent owner. Although what he said in summation regarding section 118(3) was probably obiter in any event it might cause some confusion due to a lack of clarity resulting from a poor choice of words. However one cannot simply interpret the judgment by taking one sentence out of context. The hysteria is clearly not warranted.

s j van wyk 15/04/2014:

Sheriffs are now confronted with a letter claiming payment of the Section 118(3) charges. Personally I agree fully with the content of Dudley's views. The Constitution aims to balance the rights and obligations of the total legal framework, statutory, private, as well as commercial entities included. Bondholders surely must have a constitutional expectation from local authorities to put in place a debt collecting policy which administers and by doing that, limits the exposure of a credit provider to unforeseen risks in regard to the security they hold.

Being a Sheriff, I am confronted with local authorities stepping in with a letter demanding payment after a sale in execution of the Section 118(3) amounts, in priority to the bondholder on which behalf the property was sold. This issue should be clarified.

Fanie van Wyk.

SOUTH AFRICAN SHERIFFS SOCIETY

Wynand Fourie 22/04/2014:

I think one must look at the essence of charges that can be registered by Land Bank or the State against farming properties. The Charge is registered against the property and no bondholders consent is necessary for it. If a new buyer buys the property the charge continues to exist and the new owner is liable for what is outstanding. With registration to the new owner, a certificate is required to be submitted by Land Bank to the effect that all instalments are up to date and also what the outstanding amount is. The Registrar of Deeds then notes the outstanding amount on the new Title Deed. The new owner is therefor fully aware what amount is still outstanding and due by him/her. I think that the municipality should follow the same procedure for the charge to be recognised.

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