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[2015] ZASCA 47
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Strata International (Pty) Ltd and Another v Ekurhuleni Metropolitan Municipality (79/2014) [2015] ZASCA 47 (26 March 2015)
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THE SUPREME
COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 79/2014
In
the matter between:
STRATA
INTERNATIONAL (PTY)
LTD
..........................................................
FIRST
APPELLANT
THE
GARDEN ESTATE FOR SMALL AND
MEDIUM
ENTERPRISES (PTY)
LTD
........................................................
SECOND APPELLANT
and
EKURHULENI
METROPOLITAN
MUNICIPALITY
..............................................
RESPONDENT
Neutral
citation:
Strata International (Pty)
Ltd v Ekhurhuleni Metropolitan Municipality
(79/2014)
[2015] ZASCA 47
(26 March 2015)
Coram:
Navsa ADP, Leach and Saldulker JJA and
Van der Merwe
and Meyer AJJA
Heard:
24 February 2015
Delivered:
26 March 2015
Summary:
Local government ─ resolution by
municipality to dispose of immovable property in response to
unsolicited private bid ─
no public participation or
transparency ─ resolution does not give rise to enforceable
public law rights.
ORDER
On appeal from
Gauteng
Division, Pretoria (Mathopo J sitting as court of first instance):
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Van
der Merwe AJA (Navsa ADP, Leach and Saldulker JJA and Meyer AJA
concurring):
[1]
The respondent, the Ekurhuleni Metropolitan Municipality (the
municipality), is the owner of a proclaimed township named Selcourt
Extension 4 (the property). The first appellant, Strata International
(Pty) Ltd, and the second appellant, the Garden Estate for
Small and
Medium Enterprises (Pty) Ltd, unsuccessfully claimed rights in
respect of the property in the Gauteng Division of the
High Court
before Mathopo J. He did, however, grant leave to appeal to this
court.
[2]
The property is approximately 103 hectares in extent. It was
proclaimed as a residential township on 23 December 1992 but remained
undeveloped. During March 2000 Mr Joseph Basil Johnson approached the
municipality with a proposal to develop the property as an
industrial
park for small and medium industries. Negotiations ensued and several
draft agreements between the municipality and
Mr Johnson in his
capacity as trustee for a company to be formed, were prepared in
respect of the proposed development.
[3]
A draft agreement was placed before the Corporate Affairs Committee
of the municipality (the committee) on 10 February 2003.
On 28
November 2002 the council of the municipality delegated to the
committee the power and function ‘to approve all alienation
of
Council-owned land in terms of Council policy, as well as the
granting of rights over Council-owned land’. The committee
resolved that the draft agreement be referred to the municipality’s
legal department for comment.
[4]
The Executive Director: Corporate and Legal Services of the
municipality provided the required legal advice to the committee
per
letter dated 28 August 2003. The committee was inter alia advised ‘.
. . that the stipulations contained in Section 79(18)
of the Local
Government Ordinance 17 of 1939 and/or any other legislative
stipulation dealing with the alienation etc. of immovable
property by
any Local Government be complied with’ before entering into an
agreement with Mr Johnson. This document served
before the committee
on 19 January 2004, together with the draft agreement that it related
to, termed the Land Availability Agreement.
[5]
It is common cause that s 79(18)(
a
),
(
b
) and
(
c
)(i) of
the Local Government Ordinance 17 of 1939 (the LGO) are applicable to
the municipality. In terms of s 79(18)(
a
)(i)
the council of a municipality may, inter alia, sell or in any other
manner alienate or dispose of any immovable property of
the council.
Section 17(18)
(b
)
provides that whenever a council wishes to exercise any power
conferred by subsec 18(
a
)
in respect of immovable property, the council shall cause a notice of
the resolution to that effect to be affixed to the public
notice
board of the council and published in a newspaper. The notice must
call upon any person who wishes to object to the exercise
of the
power, to lodge his or her objection in writing within a stated
period of not less than 14 days from date of publication
of the
notice in the newspaper. Section 79(18)(
c
)(i)
provides that where such objection is received, the council shall not
exercise the power unless the council has considered
the objection.
The object of such notice and publication is, inter alia, to promote
transparent and accountable government. No
such notice or publication
took place in respect of the disposal of the property.
[6]
On 19 January 2004 the committee resolved as follows:
‘
1.
That the report indicating the progress made with the obtaining of
legal comments regarding the development of Selcourt Extension
4, BE
NOTED.
2. That the Sale of the remainder of the erven in
Selcourt Extension 4 to Mr J B Johnson on the basis of a Land
Availability Agreement
BE APPROVED in principle subject to the Land
Availability Agreement being finalised and submitted for approval.
3. That the Land Availability Agreement should address
at least the following matters:
(a) The purchase price payable to the Council that
should at least be market related taking into consideration the
services presently
existing as well as the developer’s
obligation to improve and/or restore the services to the standard
required for an industrial
township.
(b) A clear and realistic timeframe with clear
deliverables for the development and sale of erven within the
township taking into
consideration the lack of interest to date.
(c) Council should not be liable for any further costs
in respect of the development neither during the development nor if
the development
should fail and the envisaged Land Availability
Agreement be cancelled.
(d) The developer be allowed at his own cost and risk to
consolidate and subdivide erven within accepted development
parameters
and subject to the normal prescribed procedures being
followed.
4. . . .
5.
That a further report BE SUBMITTED as soon as (2) and (3) above has
been addressed.’
[7]
On 30 June 2004 a valuation of the property was received, presumably
as a result of para 3(a) of the resolution of 19 January
2004. As the
development proposal involved a changed layout of the township, the
valuer was instructed not to value the proclaimed
erven but to render
a valuation of the area thereof per square metre. In terms of the
valuation the envisaged industrial erven
were valued at R1.00 per
square metre and common areas at R0.25 per square metre, both
excluding VAT. At a subsequent meeting
between Mr Johnson and
officials of the municipality, he made an offer of R5.00 per square
metre excluding VAT for the erven and
R0.25 per metre for the common
areas. The remaining outstanding matters in respect of the proposed
agreement, now entitled Land
Availability and Services Agreement (the
agreement) were finalised at this meeting.
[8]
Mr Johnson in his capacity as trustee for a company to be formed, was
referred to in the agreement as the developer. In terms
of the
agreement the property (with the exclusion of one erf) was made
available by the municipality to the developer for purposes
of
developing and marketing it as an industrial park, with effect from
date of signature of the agreement. The developer was granted
authority to amend the layout of the erven, including consolidation
and subdivision of erven, at its cost. The developer was responsible
for all ground works and preparation of erven and for the
construction of improvements on the erven. The developer was obliged
to commence marketing of the industrial erven within six months of
approval of the amended layout plans and to continue developing
and
marketing the property ‘vigorously’. Nevertheless, the
developer was expected to effect transfer of ownership of
at least
one erf before expiration of a period of five years after signature
of the agreement. Transfer of ownership of 30 per
cent of all erven
had to take place within ten years after signature of the agreement.
The developer was afforded a period of 30
years from date of
signature of the agreement to dispose of all the erven.
[9]
In terms of the agreement only the developer had the right to dispose
of the erven and would do so for its own account. The
consideration
for this right was an amount calculated at R5.00 per square metre per
erf and at R0.25 per square metre in respect
of the common areas
proportionate to the particular erf. The consideration had to be
guaranteed before transfer of an erf and paid
to the municipality
upon transfer thereof. There is therefore no doubt that in terms of
the agreement the municipality disposed
of the property.
[10]
The Local Government: Municipal Finance Management Act 56 of 2003
(the MFMA) came into operation on 1 July 2004. Section 14(1)
and (2)
thereof provide:
‘
(1)
A municipality may not transfer ownership as a result of a sale or
other transaction or otherwise permanently dispose of a capital
asset
needed to provide the minimum level of basis municipal services.
(2) A municipality may transfer ownership or otherwise
dispose of a capital asset other than one contemplated in subsection
(1),
but only after the municipal council, in a meeting open to the
public ─
(a) has decided on reasonable grounds that the asset is
not needed to provide the minimum level of basic municipal services;
and
(b)
has considered the fair market value of the asset and the economic
and community value to be received in exchange for the asset.’
[11]
On 15 July 2004 the council of the municipality revoked the power
delegated to the committee to approve the sale and lease
of immovable
property of the municipality. However, on 26 August 2004, it
resolved:
‘
That
in terms of section 59 of the Municipal Systems Act, the powers to
decide in terms of section 14(2)(a) and (b) of the Municipal
Finance
Management Act, 56 of 2003, in respect of the disposal of immovable
capital assets BE DELEGATED to the Corporate Affairs
Committee in
terms of Council’s System of Delegations.
. . .
That the meetings of the Corporate Affairs Committee BE
OPENED to the public only for purposes to consider the decisions
required
in terms of section 14(2) of the Municipal Finance
Management Act, 56 of 2003.
. . .
That
the meeting dates and times of the Corporate Affairs Committee and
the fact that these meetings are open to the public for
this specific
purposes BE PUBLISHED together with the publication of the meetings
of the Council.’
[12]
This resolution was clearly brought to the attention of the
committee. The committee met on 30 August 2004 to consider approval
of the agreement. There is no evidence that the public was notified
of this meeting or of the fact that the disposal of the property
would be considered at the meeting, nor is there any evidence that
the meeting was open to the public. It can safely be accepted
that
the public was not notified of the meeting and afforded no
opportunity to participate in the decision to dispose of the
property.
[13]
On 30 August 2004 the committee took the following resolution:
‘
1.
That the report regarding the proposed development of Selcourt
Extension 4 Township, Springs as an industrial park by Johnson
International Trading and Investments (Pty) Ltd and the recommended
approval of the Land Availability and Services Agreement in
respect
thereof BE NOTED.
2. That in terms of Section 14(2)(a) of the Municipal
Finance Management Act, 56 of 2003, it BE RESOLVED that on the basis
of the
comments from all the departments as set out in the report and
annexures, the property is not an asset needed to provide the minimum
level of basis municipal services.
3. That the Land Availability and Services Agreement in
respect of Selcourt Extension 4 Township, Springs attached hereto as
Annexure
“C” BE APPROVED.
4. That cognisance BE TAKEN of the valuation performed
of properties in Selcourt Extension 4 Township, Springs by C S Massel
Valuation
Services CC attached hereto as Annexure “B” and
that in terms of the provisions of section 79(18) of the Local
Government
Ordinance, 1939, the properties in the said Township be
alienated in terms of the Land Availability and Services Agreement
referred
to in 2 above at the following selling prices:
(a) All erven
R5,00 per m² (excluding VAT)
(b) Common property areas
R0,25 per m²
5.
That the Executive Director: Corporate and Legal Services or nominee,
BE AUTHORISED to do or cause to be done whatever shall
be requisite
and to sign all documents to give proper effect to the above.’
[14]
The agreement was signed on 17 September 2004. The appellants say
that by December 2004 the second appellant had adopted the
agreement
and accepted its benefits and obligations. In terms of an agreement
dated 7 August 2009 the second appellant transferred
these rights and
obligations to the first appellant. The appellants therefore aver
that the first appellant stepped into the shoes
of the second
appellant as far as the agreement and the resolutions of 19 January
2004 and of 30 August 2004 are concerned.
[15]
The officials of the municipality initially gave some assistance to
efforts to execute the agreement. However, no erven were
disposed of
or transferred. By July 2006 reports began to surface of large scale
irregularities in respect of alienation of immovable
property of the
municipality. The agreement and the circumstances under which it was
entered into were considered. As a result,
the municipality refused
to give effect to the agreement. It took the attitude that the
agreement was invalid on a variety of grounds.
[16]
The appellants approached the court a quo on motion for an order
declaring that the first appellant had become the contracting
party
of the municipality in terms of the agreement and obliging the
municipality to give full effect to the agreement. In the
alternative, they asked that the municipality be ordered to comply
with any outstanding statutory requirements and to do whatever
may be
necessary to give effect to the resolutions of 19 January 2004 and/or
30 August 2004. Further alternative prayers were aimed
at obliging
the municipality to ratify the transaction referred to in the
resolutions of 19 January 2004 and 30 August 2004 (the
resolutions)
ex post facto.
[17]
The court a quo refused all the relief sought. It dismissed the
application with costs, including the costs consequent upon
the
employment of two counsel. The court a quo concluded that the
resolution of 19 January 2004 was provisional and could not confer
any rights. It found that both the resolution of 30 August 2004 and
the agreement were invalid for non-compliance with s 79(18)
of
the LGO and s 14(2) of the MFMA. It upheld the municipality’s
contention that the power conferred in s 14(2)
of the MFMA must
be exercised by its council and may not be delegated. Furthermore,
the court a quo held that the invalid resolution
of 30 August 2004
was not capable of being ratified. On the view that I take of the
matter, it is unnecessary to express a view
on these findings.
[18]
The appellants accept that the agreement is invalid. They did not
appeal against that finding of the court a quo. They persist
however
in their reliance on the resolutions. They aver that the resolutions
gave rise to ‘public law rights’ that
are enforceable
independently of the agreement. Their case is that the content of
these rights include that all statutory requisites
necessary in order
to give effect to the resolutions must be complied with. Relying on
these alleged rights, they sought the following
order as amended on
appeal:
‘
The
Respondent is ordered to forthwith comply with the outstanding
requirements of
section 14(2)(b)
of the
Local Government: Municipal
Finance Management Act, 56 of 2003
, not already complied with at the
meeting of its Corporate Affairs Committee of 30 August 2004 and with
the requirements of section
79(18) of the Local Government Ordinance,
17 of 1939, as well as with any other statutory requirements for the
alienation of the
remainder of the erven in Selcourt Ext 4, and
to do whatever may be necessary to give effect to the resolutions of
its Corporate
Affairs Committee of 19 January 2004 and 30 August
2004.’
The
alternative relief in respect of ratification was not abandoned, but
not pressed.
[19]
The amended relief correctly recognised that the resolution of 19
January 2004 cannot stand on its own. It was a decision in
principle
that could have no binding effect in the absence of the further
resolution that it envisaged. Read together, the resolutions
constitute a final decision to dispose of immovable property of the
municipality.
[20]
The committee was at least alerted to the provisions of s 79(18)
of the LGO and s 14(2) of the MFMA. Nevertheless,
it was content
to accept an unsolicited private bid and dispose of the property
without any public participation or transparency.
[21]
Can the resolutions in these circumstances give rise to enforceable
rights? In my view the answer is an emphatic no. The founding
values
of our Constitution include accountability, responsiveness and
openness. Section 152(1)(
a
)
of the Constitution provides that the object of local government is
to provide democratic and accountable government for local
communities which we should all strive to promote. In terms of
s 6(1)
of the
Local Government: Municipal Systems Act 32 of 2000
, a
municipality’s administration is governed by the democratic
values and principles embodied in s 195(1) of the Constitution.
Section 195(1)(
f
)
provides that public administration must be accountable. In terms of
s 195(1)(
g
)
transparency must be fostered by providing the public with timely,
accessible and accurate information. These provisions inform
s 14(5)
of the MFMA which provides that any transfer of ownership of a
capital asset of a municipality must be fair, equitable,
transparent,
competitive and consistent with the supply chain management policy
which the municipality must have and maintain.
[22]
The resolutions fall foul of these Constitutional imperatives. They
are thus fatally flawed and incapable of giving rise to
enforceable
rights. For the same reasons there can be no ex post facto
ratification of the resolutions.
[23]
The appeal is dismissed with costs, including the costs of two
counsel.
_______________________
C
H G VAN DER MERWE
ACTING
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: S J Grobler SC (with him D P J Rossouw SC)
Instructed by:
Bothma Incorporated, Brakpan
McIntyre
& Van der Post, Bloemfontein
For
Respondent: P Pauw SC (with him Ms M Sello)
Instructed by:
Tshiqi Zebediela Incorporated, Kempton Park
Matsepes
Inc, Bloemfontein