- The judgement, on 22 May 2013, of the Supreme Court of Appeal of South Africa in the matter of City of Tshwane Metropolitan Municipality v Mathabathe & another (501/12)  ZASC 60 forces me to agree with Mr Bumble in Charles Dickens’ Oliver Twist when he said "If the law supposes that, the law is a ass - a idiot” (sic).
In the said matter the Court examined the security given to a municipality by section 118(1) and 118(3) of the Local Government: Municipal Systems Act 32 of 2000 which provides as follows:
“118 (1) A registrar of deeds may not register the transfer of property except on production to that registrar of deeds of a prescribed certificate-
(a) issued by the municipality or municipalities in which that property is situated;
(b) which certifies that all amounts that became 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.
(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 is owing and enjoys preference over any mortgage bond registered against the property”
I will, in this memorandum, refer to “municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties relating to the two years preceding the date of application for the certificate” as ‘current municipal debts’ and to all other ‘municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties’ as ‘old municipal debts’.
The Court came to the following conclusions:
- section 118 (1) is an embargo provision whilst section 118(3) is a security provision;
- in terms of section 118 (1) the municipality can refuse to issue the prescribed certificate (colloquially referred to as a ‘rates clearance certificate’) and thereby block the transfer of the ownership of the property unless all current municipal debts are paid.
- in terms of section 118(3) the municipality has a lien having the effect of a tacit statutory hypothec (and no limit is placed on its duration outside of insolvency) on the relevant property for any municipal debts (old and new) that have not prescribed. The municipal debts are secured by the property and, if not paid and an appropriate order of court is obtained, the property may be sold in execution and the proceeds applied in payment of the relevant municipal debts.
- It would then appear as if the immovable property of any person, who took transfer of the relevant property on the strength of a rates clearance certificate issued in terms of section 118(1), may be sold in execution for old municipal debts incurred by his predecessors in title. The old municipal debts would also enjoy preference over the relevant new bondholder’s mortgage bond.
- I, and I presume most other conveyancers and moneylenders have, to date, accepted that the existence of a rates clearance certificate guaranteed that no municipal debts (old or new) were owing or, at least, that a municipality could, after the transfer of a property on the strength of a rates clearance certificate issued by it, not enforce any old municipal debts other than against the previous owner(s) who incurred the debts.
- The judgement under discussion clearly shows that I was wrong and that conveyancers will have to devise new mechanisms to ensure that no old municipal debts exist regarding the properties transferred by them.
- I can only imagine how busy attorneys acting for municipalities are going to be in order to obtain court orders to sell in execution properties that were, since the date that section 118 came into force, transferred whilst old municipal debts were still owing.
Paragraph 3 of Roelie Rossouw's article is most certainly true, I am sure. I read section 25 of the Constitution of the Republic of South Africa again which forms part of the Bill of Rights and goes as follows: "25. Property.—(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property."
Certainly the Municipal Systems Act must qualify as a "....law of general application". It also does not allow for arbitrary deprivation of property, but it seems to me that the interpretation by the Court that we now have is most certainly not in the spirit of what the Bill of Rights intended, never mind a natural sense of justice. It would seem to me that this matter needs to be referred to the Constitutional Court as a matter of extreme urgency.
Mr Rossouw, you are surely wrong when you say that a municipality can sell a property for "old" Municipal debts, by which I assume you mean any Municipal debt, no matter how old? I accept that Municipal rates are taxes and as such, prescribe in 30 years, but my understanding is that service charges (water, electricity, refuse removal etc) are not taxes but are for services supplied contractually, and that debts owing for such services prescribe in three years.
Incidentally, some Municipalities are "cheating" (or sloppy) and when they give figures for outstanding rates and service charges (when these are requested for rates clearance purposes), they often include outstanding debts which are over two years old (two years being the period mentioned in section 118 (2) (b) beyond which the Municipality cannot require payment before issuing such a clearance certificate.)
This is just the tip of the iceberg: it is not uncommon for a municipality to issue figures for rates clearance, which are then paid and the property transferred. Then the municipality cuts off services to the purchaser or demands payment of arrears amounts that the municipality negligently omitted from the previous figures quoted. The purchaser has no protection as S118(3) still applies and the defence of estoppel cannot be raised against the municipality as it is an organ of state. Even municipal officials admit that it is a travesty of justice, but "that is the law".
The fact that service accounts (that normally prescribe after three years) can in terms of the Municipal System Act be "consolidated" and protected for an "indefinite period" [Tshwane judgement at para 10] and thereby bypass the Prescription Act, places a municipality in a position so powerful that it violates the constitutional principle of equality between the state and the citizen. When the above is read with the provision that such consolidated debt is a charge over the property that enjoys preference even over bonds, the result is that an unsuspecting owner of property may find it attached and sold for municipal debts of which neither the purchaser nor the conveyancer were even aware on transfer.
Matters have gone too far and the confidence in the entire property system will be undermined unless the Constitutional Court gives direction in a situation where the intention of the Constitution got lost in the washing with sweeping legislation by state, on the one hand, and strict interpretation, in isolation and without considering unintended consequences, of sections of the Municipal Systems Act by the courts, on the other.
I differ from the opinion of the writer that the new owner will be liable for the historical debt for the following reasons: The judges mention a tacit hypothec and to enforce the hypothec the municipality must have a judgment or a court order. Once the property is transferred the hypothec is lost. In the event that this argument is invalid then any action that the municipality intends instituting can be defended on the basis of section 96 of the Municipal Systems Act which imposes on the municipality a statutory duty to collect all money due and payable to it .
The word "must " is used, which leaves them no choice in the matter. If they did not institute action for recovery thereof then there can be no claim. In the event that any action had been instituted and judgment obtained then the hypothec would have been perfected and they would have been able to enforce their right against the transferring attorneys. In the event that that defence does not avail then there is always a constitutional issue.
The wording of the judgment is unfortunate and will inevitably lead to confusion and debate. However the writer should read the judgment in conjunction with the SCA judgment in the matter of BOE Bank Limited v City of Tshwane case no 240/2003; 2005 (4) SA 336 (SCA). In that matter it was held that the municipality's claim for "old" debts was preferred over the bond holder's claim and the municipality had to be paid from the proceeds of the sale in execution. In other words, the conveyancing attorney was liable to reduce the amount payable to the bank by the amount payable to the municipality. It would be wholly illogical to conclude that the municipality could choose instead to go after the new purchaser for payment of the old debts.
I understand that the judgment, confirms the provision of security ito sec 118(3) alongside the "embargo" provision ito sec 118(1). I however, further understand the judgment to mean that the undertaking/guarantee which the Municipality may require ito 118(3), can only be forced upon (ito its lien over the property) the seller (current owner) and/or the Mortgagee of the property and not upon the purchaser of that property.
Say for instance that the transferring attorney, rather than to confront the Municipality re the old-and-new-debts-"issue" should decide to pass the buck to the poor purchaser of the property and claim from him, under a threat of breach of the contract of sale, the amount of both old and new debts?
Say further that the purchaser under this real threat, and simply to enable the Conveyancer to obtain the clearance certificate from the Municipality, pays the current and old debts under protest to the Conveyancer. Surely the purchaser had to have the right, after registration of transfer, to claim back from the Municipality and/or the seller at least the amount of the old debts!? The purchaser was after all "forced" to pay old debts, (either under a threat from the conveyancer that the purchaser is defaulting under the agreement of sale unless he pay up or the Municipality's refusal to issue a clearance certificate to the conveyancer and thereby blocking the transfer), for which the seller/Mortgagee are primarily liable vis-a-vis the Municipality.
The seller and/or his Mortgagee have now simply "shifted" their liability successfully on the Purhaser by forcing him through the seller's/Mortgagee's conveyancer (who was in turn forced by the Municipality ito 118(3)), to pay for the Seller's arrear debts! And everybody is happy except the Purchaser. The Municipality has collected current and old ("arrear") debts for which neither the Seller nor the Mortgagee have paid.
What other redress does the purchaser have but to claim from either the Municipality or the seller? (The above scenario happens all the time).
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