Argent Industrial Investment (Pty) Ltd v Ekurhuleni Metropolitan Municipality (17808/2016) [2017] ZAGPJHC 14; 2017 (3) SA 146 (GJ) (13 February 2017)

80 Reportability

Land and Property Law

Brief Summary

Prescription — Water consumption charges — Applicant sought to avoid payment for water consumption billed after a six-year period without meter readings, arguing that the debt had prescribed — Respondent contended that prescription only commenced upon billing — Court held that the obligation to pay for consumption arose when the water was supplied, and the failure to invoice within three years was unreasonable — Respondent's failure to read the meter and invoice the applicant for consumption beyond three years constituted a lack of reasonable care, resulting in the debt being deemed prescribed for that period.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was a motion application in the Gauteng Local Division, Johannesburg, in which the applicant sought declaratory, mandatory, and interdictory relief arising from a municipal billing dispute for water consumption.

The parties were Argent Industrial Investment (Pty) Ltd as applicant and the Ekurhuleni Metropolitan Municipality as respondent. The applicant was a consumer of municipal water supplied by the respondent.

The matter arose after the respondent issued, in March 2015, a substantial invoice based on an actual meter reading taken for the first time since September 2009. The applicant disputed liability for amounts relating to consumption older than three years, contending that the debt had prescribed by the time it was billed. The applicant also sought protection against termination or restriction of services pending resolution of the prescribed portion of the charges, and a methodology for quantifying the recoverable portion of the debt given the long interval between readings.

The dispute concerned the interaction between municipal billing and debt collection on the one hand, and the Prescription Act 68 of 1969 on the other, in circumstances where a municipality had failed to read a consumer’s water meter for almost six years.

2. Material Facts

The court treated the relevant facts as common cause. The respondent supplied water to the applicant. Between September 2009 and March 2015, the respondent did not read the meter installed at the applicant’s premises. During that period, the applicant was billed for estimated water consumption, and it paid those estimated monthly charges.

The meter was eventually read on 13 March 2015. Following that reading, the respondent issued an invoice dated 24 March 2015 billing the applicant R1 152 666.98, representing the difference between the applicant’s actual usage (as revealed by the March 2015 reading) and the estimated consumption already billed and paid over the period from September 2009 to March 2015.

The applicant did not dispute that it had in fact consumed the water reflected by the March 2015 meter reading. The applicant’s dispute was confined to whether the obligation to pay for consumption older than three years before the invoice had prescribed by the time the invoice was issued.

The respondent, on the papers, proffered no explanation for why no meter reading was taken between September 2009 and March 2015.

3. Legal Issues

The central legal questions were, first, when prescription began to run in relation to the respondent’s claim for water consumption that had accrued over the period in question, and specifically whether the debt only became “due” when the municipality read the meter and issued an invoice in March 2015.

Secondly, the court had to decide whether the applicant’s regular payment of estimated monthly charges constituted an acknowledgement of liability sufficient to interrupt prescription in respect of the later, quantified “catch-up” amount.

Thirdly, assuming prescription applied to part of the claim, the court had to determine an appropriate approach to quantifying the recoverable portion (limited to the non-prescribed period), given that there were only two relevant meter readings separated by almost six years.

These questions primarily concerned the application of legal principles to largely undisputed facts, including an evaluative assessment of whether the respondent had exercised “reasonable care” for purposes of the deemed-knowledge provisions in section 12(3) of the Prescription Act, and whether the delay beyond three years was unreasonable.

4. Court’s Reasoning

The court approached the matter through the framework of the Prescription Act 68 of 1969, identifying the core statutory propositions relevant to the dispute. It noted that a debt is extinguished after three years, that prescription begins running when a debt is “due”, that knowledge and deemed knowledge under section 12 regulate when prescription starts, and that prescription can be interrupted by an acknowledgement of debt or by the service of process.

The respondent contended that prescription did not begin to run until the meter was read and the invoice issued in March 2015, relying on section 12(3) to argue that it only then became aware of the facts giving rise to the debt. The court rejected this contention. It reasoned that such a view would undermine the rationale of prescription and effectively allow the municipality to delay billing indefinitely, notwithstanding its public-law and constitutional obligations relating to debt collection and administration.

On the facts, the court held that the respondent had knowledge of the material components of the claim for purposes of section 12. It knew the identity of the debtor, that it was supplying water, and that it was not reading the meter (which was evident at least from the continued reliance on estimated billing and payment). The only matter unknown was the precise quantity of consumption, but this was information that lay within the respondent’s operational competence and was obtainable by reading the meter.

Even if the respondent lacked the necessary knowledge at the relevant times, the court held that the respondent was, in any event, deemed to have had that knowledge because it could have acquired it by exercising reasonable care. The court treated the failure to read the meter and invoice for longer than three years as plainly unreasonable in the circumstances. It emphasised that the consumer was not obliged to read the meter and hold itself ready to pay whenever the municipality later chose to quantify the consumption. The municipality was entitled to read and invoice at its convenience, but only at reasonable intervals, and a delay beyond three years, absent pleaded facts justifying it, was found to fall outside what was reasonable.

The respondent further argued that the applicant’s regular payment of estimated consumption constituted an acknowledgement of debt interrupting prescription, relying on a provision in the respondent’s credit control and debt collection policy that treated amounts due as a consolidated debt and allowed allocation of payments by the municipality. The court found no merit in this contention. It reasoned that the municipality could not rely on the applicant’s compliance with its obligation to pay estimated charges as a substitute for the municipality’s own failure to quantify and communicate the additional amount later claimed. The court stated that an acknowledgement capable of interrupting prescription would have been present had the municipality read the meter, notified the applicant of the quantified indebtedness, and the applicant thereafter paid without disputing. On the facts, however, the applicant could not be taken to have acknowledged a debt of which it had no knowledge, particularly where only the creditor had the ability to quantify it and did not do so.

In relation to quantification of the non-prescribed portion, the court accepted the applicant’s concession that there was no need to use post-March 2015 readings to estimate consumption for the preceding three years. Because the applicant accepted the correctness of the March 2015 reading as reflecting total consumption since September 2009, the court held it appropriate to calculate an average monthly consumption over the period between the two readings (approximately 66 months) and then apply that average to determine liability for the 36 months from 13 March 2012 to 13 March 2015.

5. Outcome and Relief

The court granted substantive relief in favour of the applicant. It ordered the respondent to reverse all water consumption charges added to the applicant’s municipal account on the invoice dated 24 March 2015 that were based on the 13 March 2015 meter reading, as well as all interest and legal fees charged in respect of those added charges.

The respondent was directed to calculate the applicant’s average monthly consumption over the period 21 September 2009 to 13 March 2015, using the meter reading reflected on the 24 March 2015 invoice, and to charge the applicant on that basis only for the period 13 March 2012 to 13 March 2015. The respondent was further ordered to provide a full statement of account reflecting the reversals and calculations, together with an invoice for the amount due and payable, within 14 days.

The court declared that the respondent was not entitled to claim any payment from the applicant in respect of the account for any period before 13 March 2012. It also interdicted the respondent from terminating, restricting, or threatening to terminate or restrict services on the basis of non-payment of the amounts added in the 24 March 2015 invoice.

The respondent was ordered to pay the costs of the application.

Cases Cited

Mkontwana v Nelson Mandela Metropolitan Municipality and Another; Bissett and Others v Buffalo City Municipality and Others; Transfer Rights Action Campaign and Others v MEC, Local Government and Housing, Gauteng, and Others (KwaZulu-Natal Law Society and Msunduzi Municipality as amici curiae) 2005 (1) SA 530 (CC).

Legislation Cited

Constitution of the Republic of South Africa, 1996, Chapter 7 (including sections 151–156), read with Schedules 4 and 5.

Local Government: Municipal Systems Act 32 of 2000.

Prescription Act 68 of 1969 (including sections 10(1), 11(d), 12(1), 12(2), 12(3), 14(1), and 15(1)).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the respondent’s claim for water consumption charges became subject to prescription because the respondent either had the requisite knowledge of the facts giving rise to the debt, or was deemed to have had such knowledge because it could have obtained the necessary information by exercising reasonable care, which included reading the meter and invoicing within a reasonable time. A delay exceeding three years, without justification, was treated as unreasonable.

The court further held that the applicant’s payment of estimated monthly charges did not constitute an acknowledgement of the later-quantified debt sufficient to interrupt prescription, because the applicant could not acknowledge an unquantified debt that was within the respondent’s exclusive ability to ascertain and communicate.

The respondent was therefore not entitled to recover charges relating to water consumption for any period earlier than three years before 13 March 2015, and the recoverable portion had to be determined by averaging consumption over the long interval between meter readings and applying that average to the last 36 months.

LEGAL PRINCIPLES

Prescription under the Prescription Act 68 of 1969 runs from the time a debt is “due”, and section 12 requires consideration of the creditor’s knowledge of the debtor’s identity and the facts giving rise to the debt. Where the creditor could have acquired the necessary knowledge by exercising reasonable care, the creditor is deemed to have that knowledge for purposes of prescription.

A creditor cannot avoid prescription by delaying steps that are within its control to quantify and demand payment, where the quantification is achievable through the exercise of reasonable care. In the municipal services context addressed in this judgment, the municipality’s failure to read a meter and invoice for an extended period was treated as a failure to exercise reasonable care, with the result that prescription was not postponed.

An acknowledgement of debt capable of interrupting prescription requires that the debtor be taken to acknowledge the relevant indebtedness; payment of estimated charges, without knowledge of an additional quantified debt that only the creditor can calculate and disclose, does not amount to an acknowledgement of that additional debt for purposes of interrupting prescription.