Jordaan v City of Tshwane Metropolitan Municipality; New Ventures Consulting & Services (Pty) Ltd v City of Tshwane Metropolitan Municipality; Livanos v Ekurhuleni Metropolitan Municipality; Oak Plant Rentals (Pty) Ltd v Ekurhuleni Metropolitan Municipality (74195/2013; 13039/2014; 13040/2014; 19552/2015; 23826/2014) [2016] ZAGPPHC 941; [2016] JOL 36803 (7 November 2016) per DS Fourie J.
“[39] In the absence of any such relevant relationship between the purpose for the deprivation and the person whose property is affected (i.e. the new or subsequent owner), no sufficient reason exists for section 118(3) to deprive new or subsequent owners (other than the current owner before transfer takes place) of their title in the property concerned. I therefore conclude that the deprivation with regard to new or subsequent owners is arbitrary for purposes of section 25(1) of the Constitution”.
Excerpts without footnotes
DEPRIVATION OF PROPERTY
[20] Section 25 of the Constitution distinguishes between deprivation of property and expropriation of property. In First National Bank of SA v Commissioner, SARS 2002 (4) SA 768 (CC) par 57 it was pointed out that expropriation is a particular form, in the narrow sense, of deprivation. Generally speaking, expropriation (as a specie of deprivation) takes place when ownership (usually with regard to immovable property) is terminated by the State and the expropriated property is then acquired by the State for a public purpose against payment of compensation (Cf Harksen v Lane 1998 (1) SA 300 (CC) par 32). Viewed from this perspective, the purpose of section 118(3) of the Municipal Systems Act is to provide security for the payment of outstanding municipal charges and not to authorise expropriation.
[21] Section 25(1) of the Constitution provides that no one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property. Assuming (without deciding) that section 118(3) is a law of general application (in the sense that it applies generally , impersonally and not to specific individuals), the question is whether it permits arbitrary deprivation of property. In First National Bank of SA (par 57) it was held that, in a certain sense, any interference with the use, enjoyment or exploitation of private property involves some deprivation in respect of the person having title or right to or in the property concerned. It was pointed out by Ackermann J (in par 58) that if the deprivation infringes or limits section 25(1) and cannot be justified under section 36, that is the end of the matter. The provision is unconstitutional.
[22] In terms of section 118(3) of the Municipal Systems Act an amount due for municipal service fees, property rates and other municipal taxes is a charge upon the property in connection with which the amount is being owed and enjoys preference over any mortgage bond registered against the property. This is a security provision without a time limit and operates irrespective of who the present owner is. It enables a municipality to perfect its security (subject to compliance with its own by-laws) over the property to ensure payment of an outstanding municipal debt, not only with regard to a person who is the owner of the property when the debt is incurred, but also with regard to subsequent or new owners of the same property who took transfer thereof after these debts (historical debts) had been incurred. This does not mean that section 118(3) turns subsequent or new owners into co principal debtors, but it does provide an execution process for the recovery of historical debts.
[23] Section 118(1) contains a time limit of only two years. It was decided by the Constitutional Court in Mkontwana v Nelson Mandela Metropolitan Municipality 2005 (1) SA 530 (CC) that section 118(1) is not unconstitutional. However, the Court refrained from considering the constitutional validity of section 118(3) and this question was left open (par 13). The absence of any time limit in section 118(3) is important, because in practice it means that a subsequent or new owner of the property could be “held liable” for historical debts not covered by the two year time period referred to in section 118(1). What would be the position if that new owner refuses or is unable to settle the historical debt? Relying on the provisions of section 118(3), a municipality would be entitled to perfect its security (subject to compliance with its own by-laws) by obtaining a court order, selling the property in execution and applying the proceeds to pay off the historical debt. This process was explained as follows in City of Johannesburg v Kaplan, supra, par 26:
‘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, the property may be sold in execution and the proceeds applied in payment of the debts. In such event, the proceeds will be applied to payment of the municipal debts in full. Only after satisfaction of such debts will the remainder, if any, be available for payment of the debt secured by a mortgage bond over the property.”
[24] This means that section 118(3) could result in a loss of ownership for new or subsequent owners and consequently a loss of the ability to use, enjoy or exploit the property. Even in the absence of actual loss, the mere existence of such a drastic remedy as a security provision constitutes a severe limitation of a new owner’s property rights in terms of sec 25(1). I therefore conclude that this infringement or limitation of rights constitutes a deprivation for the purposes of section 25(1) of the Constitution (see also in this regard the minority judgment of O’Regan J in Mkontwana v Nelson Mandela Metropolitan Municipality, supra par 86).
ARBITRARINESS
[25] The next question to be considered is whether the deprivation is arbitrary? A deprivation will be arbitrary when the “law” referred to in section 25(1) does not provide sufficient reason for the particular deprivation in question or is procedurally unfair (First National Bank of SA v Commissioner, SARS, supra, 81O par 100).
In Mkontwana Yacoob J pointed out (in par 65) that procedural fairness, in the context of section 25(1), is a flexible concept and that the requirements that must be satisfied to render an action or a law procedurally fair depends on all the circumstances. I shall assume (without deciding) that the deprivation contemplated in section 118(3) is not procedurally unfair as it arises from legislation (as opposed to, for instance, administrative action) which requires a municipality to follow a due process of law as referred to in par 23 above.
[26] In addition to procedural considerations, a deprivation of property is arbitrary when the law concerned does not provide sufficient reason for the deprivation in question. It was held by Ackerman J in First National Bank of SA (par 100) that sufficient reason is to be established as follows:
“(a) It is to be determined by evaluating the relationship between means employed, namely the deprivation in question and ends sought to be achieved, namely the purpose of the law in question.
(b) A complexity of relationships has to be considered.
(c) In evaluating the deprivation in question, regard must be had to the relationship between the purpose for the deprivation and the person whose property is affected.
(d) In addition, regard must be had to the relationship between the purpose of the deprivation and the nature of the property as well as the extent of the deprivation in respect of such property.
(e) Generally speaking, where the property in question is ownership of land or a corporal movable, a more compelling purpose will have to be established in order for the depriving law to constitute sufficient reason for the deprivation than in the case when the property is something different and the property right something less extensive. This judgment is not concerned at all with incorporeal property.
(f) Generally speaking, when the deprivation in question embraces all the incidents of ownership, the purpose for the deprivation will have to be more compelling than when the deprivation embraces only some incidents of ownership and those incidents only partially.
(g) Depending on such interplay between variable means and ends, the nature of the property in question and the extent of its deprivation, there may be circumstances when sufficient reason is established by, in effect, no more than a mere rational relationship between means and ends; in others this might only be established by a proportionality evaluation closer to that required by s 36(1) of the Constitution.
(h) Whether there is sufficient reason to warrant the deprivation is a matter to be decided on all the relevant facts of each particular case, always bearing in mind that the enquiry is concerned with ‘arbitrary’ in relation to the deprivation of property under s 25.”
[27] In his comment on this dictum, Yacoob J who was writing for the majority, pointed out in Mkontwana (par 34 and 35) that if the purpose of the law bears no relation to the property and its owner, the provision is arbitrary. On the other hand, if there is a connection between the purpose of the deprivation and the property or its owner, there must be sufficient reason for the deprivation otherwise the deprivation is arbitrary. A mere rational connection between means and ends could be sufficient reason for a minimal deprivation. However, the greater the extent of the deprivation the more compelling the purpose and the closer the relationship between means and ends must be.
[28] It was pointed out in the First National Bank case, sufficient reason will depend, inter alia, on the extent of the deprivation, the nature of the property concerned, the relationship between the purpose for the deprivation and the person whose property is affected as well as the relevant facts of each particular case. Taking into account these considerations, I turn now to consider, as a first step, the extent of the deprivation caused by section 118(3), then to evaluate the purpose of the deprivation and finally to decide whether there is sufficient reason for the deprivation.
. . . . .
The purpose of the deprivation
[33] It is clear from its provisions that the overall purpose of section 118(3) is to ensure payment of municipal claims that fall within the stipulated category (BoE Bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA) par 7). The manner in which this purpose is achieved is by providing security for the payment of outstanding municipal debts in the form of a statutory hypothec and to afford municipalities a preference over any mortgage bond registered against the property. Although this form of security relates to the property concerned, it not only affects the present owner, but also subsequent owners if the municipal debt remains unpaid. In other words, it also gives a municipality a security right over that property after it has been transferred into the name of a new owner who is not necessarily a debtor of the municipality.
[34] It is important to bear in mind that transfer of a property into the name of a new owner (when there are historical debts outstanding with regard to that property) does not cause the new owner to become a co principal debtor. A statutory hypothec as a form of real security is not in law the same concept as the principal obligation. The one is a debt and the other security for payment of the debt. It provides an execution mechanism for the recovery of a debt.
In the absence of an agreement to that effect, it does not make the new or subsequent owner a debtor of the municipality (cf First National Bank of SA v Commissioner, SARS, supra, 7890-E). However, this raises the question why should a municipality be entitled to visit the sins of a predecessor in title upon innocent third parties when there is no relationship or connection between that party and the debts in question? A new owner, who has no connection to historical debts, is in no position to prevent or minimise any delinquency on the part of former owners or tenants who incurred these debts. They have no way of ensuring responsible behaviour by previous owners and tenants. They have no say in the choosing of tenants by former owners. They cannot ensure that earlier agreements of tenancy were appropriately drafted. In other words, they were in no position whatsoever to manage and control the indebtedness of their predecessors in title, whereas, in the ordinary course of business, a municipality is (and also was) in a position to do so.
[35] In Geyser & Another v Msunduzi Municipality & Others 2003 (5) SA 18 (N) at 37H-I Kondile J, when considering the purpose to be achieved by the deprivation in section 118, said the following:
“Outstanding debts of this magnitude seriously threaten the continued supply of basic municipal services and demonstrate a need for effective security being put in place in respect of such service. This is a legitimate and important legislative purpose, which is essential for the economic viability and sustainability of municipalities in the country and in the interest of all the inhabitants. There is therefore a rational connection between the means employed and the legitimate legislative purpose designed to be achieved. “
[36] I deem it necessary to make a few observations about this dictum.
- First, the Court in that case was essentially seized with a section 118(1) issue. Although reference was made to section 118(1) and (3), it was pointed out by Yacoob J in Mkontwana (in par 13) that very little is said in the Geyser judgment about the meaning and effect of section 118(3), nor was the constitutionality of section 118(3) considered separately from the constitutionality of section 118(1). Therefore, section 118(3) was not really in issue.
- Second, there is a vast difference between the embargo provision in section 118(1) and the security provision in section 118(3). The former only concerns a temporary interference with a single incident of ownership with regard to immovable property whilst it is still registered in the name of the current owner, whereas the latter can result in a complete and permanent deprivation of ownership whilst the property is registered, not only in the name of the current owner, but also in the name of a subsequent owner who has no connection with any of the historical debts.
- Third, section 118(1) and (3) clearly provides a municipality with sufficient and effective security for the payment of a// outstanding municipal debts against the current owner who does have a connection with all the outstanding municipal debts whilst the property is still registered in his or her name.
The legislative purpose, as described in the Geyser judgment, can therefore still be achieved, without being thwarted in any manner, whilst the property is still registered in the name of the current owner without extending it to new or subsequent owners. Taking into account all these considerations, it appears to me that the purpose of the deprivation, as the section now reads, has been indiscriminately extended far beyond what is necessary.
Is there sufficient reason for the deprivation?
[37] In the present case we are not dealing with a deprivation of property in the hands of the current owner who has a connection with all the outstanding municipal debts. This case concerns the deprivation of immovable ·property in the hands of a subsequent owner who has no connection with any of the outstanding historical debts. This statutory “transfer of historical debts” from the current owner to a new or subsequent owner appears to be an open-ended process without any limitation regarding the quantum of municipal debts that have not yet prescribed and the number of consecutive transfers into the name of new owners in future. Even if there is a connection between the purpose of the deprivation and the property concerned, there must still be sufficient reason for the deprivation, otherwise the deprivation is arbitrary. Moreover, the greater the extent of the deprivation the more compelling the purpose and the closer the relationship between means and ends must be.
[38] No doubt, there is a legitimate and important legislative purpose, essential for the economic viability and sustainability of municipalities. It however does not justify forcing a property owner to pay the municipal debts of his predecessor in title, or to forfeit his ownership if he refuses to do so, no matter how important the objective is. Put differently, the purpose of the deprivation has been indiscriminately extended far beyond what is necessary. In short, section 118(3) “casts the net far too wide”. The means employed sanctions the total deprivation of a subsequent owner’s immovable property under circumstances where such owner has no connection with the transaction giving rise to the municipal debt or the debt itself. The new or subsequent owner is neither a debtor of the municipality with regard to these debts, nor was he or she in a position to prevent the accumulation of historical debts before transfer is effected (cf. First National Bank v Minister of Finance, supra, par 108).
[39] In the absence of any such relevant relationship between the purpose for the deprivation and the person whose property is affected (i.e. the new or subsequent owner), no sufficient reason exists for section 118(3) to deprive new or subsequent owners (other than the current owner before transfer takes place) of their title in the property concerned . I therefore conclude that the deprivation with regard to new or subsequent owners is arbitrary for purposes of section 25(1) of the Constitution.
. . . . .
[44] I do not deem it necessary, on the facts of the present case, the considerations referred to above and the conclusions which I have already reached, to embark in any detail on a section 36(1) justification analysis. Section 36 contains a set of relevant factors to be taken into account when considering the reasonableness and justifiability of a limitation. These factors have already been considered, either by specific reference or by necessary implication.
A conclusion that section 118(3) constitutes a deprivation, that no sufficient reason exists for such deprivation and that it is arbitrary with regard to new or subsequent owners of the property concerned, should be sufficient to also conclude that this deprivation or limitation is not reasonable and justifiable in an open and democratic society. Put differently, I am unable to find that the infringement serves a purpose that is considered legitimate by reasonable citizens in a constitutional democracy that values human dignity, equality and freedom above all other considerations. (Cf. The Bill of Rights Handbook, supra, 171 and 172).”