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Claiming from new owners, old owners debts

01 October 2014 Professor Robert W Vivian, University of the Witwatersrand

In most countries municipal tax issues generally do not receive much attention. In South Africa, however, there are a number of matters of considerable concern regarding municipal cash gathering. We now look at one example.

Carte Blanche recently ran a rather disturbing story in which new property owners were visited by municipal officials. These officials pretended to come and examine the electrical installation but once they were inside they disconnected the electricity supply. The municipality then demanded payment from the new owners for outstanding balances of the previous owners. According to a municipal representative on Carte Blanche, municipalities were doing this ‘rightfully’ based on an unnamed recent Supreme Court decision.

Things get worse. In an article published on Moneyweb in April, a court ordered the City of Tshwane Metropolitan Municipality to provide municipal services to new property owners who found themselves in the same situation mentioned above. The court order was presented to officials of the municipality where it was dismissively treated, as they stated that they would only provide the services if the new owners signed an Acknowledgment of Debt agreeing to pay off the debt of previous owners.

Follow the leader

In this article I am going to examine the Supreme Court of Appeal’s (SCA) decision, based on the case of the City of Tshwane Metropolitan Municipality versus Thomas Mathabathe and Nedbank which seems to be the judgement relied upon by many municipalities attempting to force new owners to pay the debts of old owners. On the 11th of December 2010 a Mr Mathabathe appointed Nedbank to sell his property by public auction. It was sold to Lesley Lawrence for the sum of R1.3 million.

By agreement Nedbank instructed a conveyancer to attend to the transfer of the property from Mathabathe to Lawrence. To achieve any transfer, a municipal clearance certificate is required as specified by S118 (1) of the Local Government: Municipal Services Act 32 of 2000 which reads as follows:

(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; and
(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.

(1A) A prescribed certificate issued by a municipality in terms of subsection (1) is valid for a period of sixty days from the date it has been issued.

Facing the truth

The municipality provided a clearance certificate which indicated that an amount of R162 723 was outstanding. However, of this amount R151 324 was older than two years making this a historical debt, and the balance was thus only R11 399. The Act as can be seen is crystal clear, and states that only amounts less than two years are to be taken into consideration but the municipality refused to indicate the correct amount. Further, the municipality would not give a proper statement of account indicating how the amount determined.

The high court ordered the municipality to issue a certificate of only the amounts attributable to the prior two years. The municipality counter claimed demanding an amount of R87 744. No explanation was given for the difference in figures. The matter was taken to the SCA on appeal. At this point S118 (3) becomes important which reads as follows:
(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.

A tsunami of words

What does S118(3) mean in relation to what happened? What does it do to the crystal clear words referring to the two years as stated in S118 (2)? The “law” now becomes a mere tsunami of words not only because s118(3) is incomprehensively drafted but because of the waves of other words which break over the legal process. In this case, for example, the municipality conceded it was not appealing the decision of the court ordering that only prior two years must be included but was appealing the dismissal of its counterclaim.

What does that suppose to mean? It is confusing as the SCA put it, “the order of the high court granting leave to appeal to this court suffers some confusion (par[6]).”

What was suggested is that after registration an amount of R87 744 (which exceeds the two year limit) must be paid to the municipality. This would result in two contradictory orders. The court cannot order A and B at the same time, where A and B are actually in conflict. The court cannot order that there is no obligation to pay and that there is an obligation to pay.

Not surprisingly the SCA dismissed the municipality’s appeal. The practical outcome of this case is that the current owner only paid the outstanding prior two years, whatever the figure may be.

So what is the problem? To arrive at its decision to dismiss the municipality’s appeal the SCA examined S118 (3). In so doing it referred to six previous cases which form part of the tsunami of words I refer to when I refer to modern “law”.

What the municipalities have now done is to interpret this part of the judgement as the basis of claiming outstanding amounts from the next owner. The municipality lost the case however, reinterpreted this outcome to claim they won the case against the next owner, who was not a party to the case. The position of the new owner was not before the court,

The municipality lost its case in the high court and also on appeal, but argues it won against the new owner when there was no such case. I trust all can understand why I refer to this modern mess as a mere tsunami of words. Hundreds of thousands of transfers have take place in South Africa over the centuries and yet we do not have any certainty regarding this mundane transaction.

Deep pocket phenomenon

On the Carte Blanche program the municipal representative said that municipalities are finding creative ways of collecting money. Increasingly government institutions are attempting to shift the costs from one party to another where these do not belong. It should also be pointed out that South Africa is now in the age of extortion. Municipalities are not attempting to collect moneys due to them through the legal process but via extortion. Surreptitiously they disconnect the electricity supply of new owners and then demand payment before reconnecting the electricity.

Is this SCA decision authority for holding new owners liable for old owners’ debts as claimed by municipalities? Not at all. This case did not involve new owners; only old owners. A case against new owners will have to be taken to the courts for clearity.

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