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[2015] ZASCA 195
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Blair Atholl Homeowners Association v The City of Tshwane Metropolitan Municipality (20634/2014) [2015] ZASCA 195; 2016 (2) SA 167 (SCA) (1 December 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 20634/2014
In
the matter between:
BLAIR ATHOLL
HOMEOWNERS ASSOCIATION
FIRST APPELLANT
WRAYPEX (PTY)
LIMITED
SECOND
APPELLANT
ROBERT
SEAN
WRAY
THIRD APPELLANT
and
THE
CITY OF TSHWANE METROPOLITAN MUNICIPALITY
RESPONDENT
Neutral
Citation:
Blair
Atholl Homeowners Association v The City of Tshwane Metropolitan
Municipality
(20634/2014)
[2015] ZASCA 195
(1 December 2015)
Coram
:
Lewis, Cachalia, Tshiqi,
Pillay and Dambuza JJA
Heard:
13
November 2015
Delivered:
1
December 2015
Summary:
Review
– Section 3(3)
(a)
of
Local Government: Municipal Property Rates Act 6 of 2004
–
council resolution not to exempt ratepayers, who provide their own
services, from paying rates – whether equitable.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Murphy J sitting as court of
first instance):
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Cachalia
JA (Lewis, Tshiqi, Pillay and Dambuza JJA
concurring)
[1]
This is an appeal against a judgment of the Gauteng Division of the
High Court (Murphy J) dismissing an application to review
and set
aside a rates policy of the City of Tshwane Municipality (the City)
for a private residential complex known as the Blair
Atholl Estate.
The policy was adopted by way of a council resolution on 4 May
2011.
[2]
The three applicants in the high court were the Blair Atholl
Homeowners Association, of which all the individual property owners
are members, Wraypex (Pty) Ltd, the developer and ‘township
owner’ of the estate as well as a member of the Homeowners
Association, and Mr Robert Wray, who was a member of the Homeowners
Association (but no longer is) and is a director of the developer.
They were granted leave to appeal to this court against the dismissal
of their application. On the day before the appeal was heard,
the
Homeowners Association delivered a notice withdrawing its appeal.
Senior and junior counsel, who had been briefed in the matter
and had
prepared written submissions, had to withdraw.
[3]
Mr Theron and Ms Freese were then instructed to argue the appeal.
They were placed in an invidious position having had virtually
no
time to prepare, but adopted their predecessors’ main
submission and soldiered on for the two remaining appellants. When
the hearing commenced Mr Theron explained that Mr Wray, the
third appellant, was no longer a member of the Homeowners Association
and did not own any property on the Estate. He thus had no standing
to continue with the appeal in his personal capacity. The developer,
however, persists in the appeal as the sole remaining appellant. As
it is no longer a member of the Homeowners Association, the
only
basis upon which it now claims to have standing is as the township
owner, an issue to which I shall later return. It is convenient
to
refer to the appellants collectively.
[4]
The appellants’ complaint is that the City’s rates policy
is inequitable, and thus unlawful, because it imposes
the same
liability for rates on property owners of the estate as for other
differently situated ratepayers. They believe that they
are entitled
to be treated differently from other property owners in the City’s
jurisdiction because they provide and maintain
their own services and
thus qualify for an exemption, a reduction, or a rebate in rates.
Section 3(3) of the Local Government:
Municipal Property Rates
Act 6 of 2004 (the Rates Act), which calls for rates policies to be
equitable, and envisages a rates differentiation
for different
categories of properties (determined under s 8), is the focus of this
dispute.
[5]
The facts, which were fully set out in the judgment of the high
court, are briefly these: The Blair Atholl Estate is an upmarket
residential development with a golf course, located 50 kilometres
west of Pretoria. It is some 600 hectares in size and has 329
stands.
The estate’s recreational facilities include a restaurant,
swimming pool, tennis courts and a wellness centre.
[6]
The development was approved as a township, subject to specific
conditions, under the Town-Planning and Townships Ordinance
15 of
1986. This was because the relevant area fell outside the City’s
priority areas for the establishment of new townships,
and had no
water and sewerage services. So, approval was given on condition that
the developer installed these services.
[7]
To this end, in 2006, the developer and the City concluded an
‘Engineering Services Agreement’ (ESA), so styled
because
the developer undertook to install all engineering services for which
municipalities are usually responsible. The services
included water,
electricity, sewerage networks, storm water drainage systems, and
road infrastructure. The Homeowners Association,
whose establishment
was one of the conditions in the ESA, became responsible for the
maintenance of the services inside the estate.
The residents, who are
obliged to be members of the association, pay a monthly levy to it to
cover these costs. The City maintains
the services outside the
estate, including the supply of water, for which the residents pay,
but it does not raise sewerage charges.
[8]
It is of some significance that the ESA specifically provided for
rates to be levied according to the City’s policies
once the
township was proclaimed. It made no provision for, nor did it
expressly envisage, the township to be treated as a different
category of rateable property. In fact on any fair reading of the
relevant clauses of the ESA, the contrary was envisaged –
rates
would be levied as usual, as with other residential property. I shall
return to this question.
[9]
In April 2011 the City published a draft rates policy inviting the
public to comment on it. The appellants made written representations
in response to the City’s invitation running into some thirty
pages. In summary, they made the following argument:
(a)
The rates policy recognises only one category of residential property
and one category of
vacant land. In regard to residential property
this means that all properties in this category attract the same
rates. But, this
does not take into account Blair Atholl’s
unique position of being located a distance from the urban area and
not having
to rely on the City for its internal services. Its
property owners pay levies to the Homeowners Association for the
maintenance
of essential services. So, the additional rates the City
demands for the same services are inequitable because the property
owners
pay, but do not benefit from, these rates in the same way that
other property owners located close to the City’s amenities
do.
The rates therefore constitute an improperly imposed double tax.
(b)
In regard to vacant land inside the estate, ie land the developer has
not yet transferred
to a first time recipient, there should also be a
separate category for which the developer is exempt from paying
rates, and first
time recipients should likewise not have to pay
rates for the first two years, while they are developing it. This is
to give recognition
to the important role of developers in township
development.
(c)
Section 3 of the Rates Act compels a municipality to adopt a rates
policy that is
equitable, meaning that geographic locality and the
provision of engineering services must be taken into account. The
City is obliged
to create a specific category for ‘privately
owned towns serviced by the owner’ such as Blair Atholl as
provided for
in s 8(2)
(j)
of the Rates Act.
[1]
It should
have a capped property tax of R570.50 per erf, escalated annually at
the municipal cost index.
[10]
On 4 May 2011 the City’s Council, an elected body, met to
approve the draft rates policy and draft by-laws, and after
considering the appellants’ oral and written submissions
resolved to reject the appellants’ demand for a separate
category of rateable property in its rates policy. The city’s
documentation, placed before council, noted that the Rates Act
did
not define the category of ‘privately owned towns serviced by
the owner’. It stated, however, that the conventional
understanding of this concept is a township with a single owner that
provides all developmental, social, functional and infrastructural
services, including approving building plans. It also attends to its
own town-planning as mining residential townships do. Importantly,
it
has full jurisdictional powers over the township as an
‘own-municipality’. The basis of how Blair Atholl came to
be developed, underpinned by the ESA, which explicitly recognised
that the City would levy assessment rates in accordance with
its
policies, therefore precluded this estate from being understood as
falling within this concept.
[11]
As to the appellants’ main complaint, that it was inequitable
to have to pay the same rates as other property owners
who rely on
the municipality for services, the documents before council explained
the policy rationale for rejecting the linkage
between rates and
services: rates, it stated, are a property tax. They are imposed on
all rateable property in a municipality and
are not linked to
services, such as water, waste removal and electricity that property
owners pay in respect of the property. Unlike
the costs for services,
there are no measurable benefits from the payment of property taxes.
There may be indirect benefits such
as the use of parks, libraries,
public health and law enforcement services, which may be referred to
as collective goods and services.
For these services everyone pays,
whether or not they are used. Rates policy is also based on
affordability and the principle of
a progressive sliding scale; the
higher the value of the property the more the owner pays.
[12]
The resolution concluded thus:
‘
[P]roperty
tax is not payable upon receiving basic services. The taxpayers do
not receive direct or measurable benefits from the
payment of
property tax and the value of the benefit, which an individual
derives, cannot be quantified. It is the responsibility
of an
individual property owner to pay property tax irrespective of
receiving a direct benefit from making use of collective services.
The lesser the number of properties, subject to property rates, the
smaller becomes the tax base of the municipality. The more
exceptions
and rebates granted, the greater the tax burden becomes to the
property owners whose properties remain subject to non-discounted
rates. Exceptions also create precedents and expectations that could
not be afforded by the remaining tax payers . . . [T]he Blair
Atholl
Development is not entitled to any reduction on rates and taxes or
any preferential treatment.’
[13]
Aggrieved by this outcome the appellants instituted review
proceedings against the City in the court below to set aside the
resolution. They asserted that the decision was reviewable
under s 6 of Promotion of Administrative Justice Act 3 of 2000
(PAJA)
as an administrative action because the council did not follow the
proper procedure prescribed by the Rates Act and that:
it failed to
properly consider their representations; the decision not to create a
separate category of rateable property was irrational
because it
failed to take into account the link between property rates and
services; and it was inequitable because it levied the
same rates
against Blair Atholl’s property owners as it did against other
property owners, who also live in high income areas,
despite the fact
they do not provide their own services.
[14]
The learned judge, however, correctly pointed out that a council
resolution on rates policy was a legislative decision taken
by an
elected body. It was therefore reviewable, not as an administrative
action under PAJA, but only under the principle of legality
on the
grounds of irrationality. He therefore approached the review
application on this basis. And he also considered the appellants’
new contention – not properly or clearly advanced on the papers
– that the rates policy was inequitable and contravened
s
3(3)(a) of the Rates Act. The procedural challenges, which failed
before the court below, have now been abandoned and need not
be
further considered.
[15]
The appellants also abandoned the specific relief they sought
compelling the City to create a category of rateable property
for
‘privately owned towns serviced by the owner’ and a
category of ‘vacant land’ owned by developers that
would
be exempt from rates. In this regard they accepted that a
municipality may determine a category of rateable property from
the
list of categories identified in s 8(2) of the Rates Act for the
purposes of determining differential rates and the amount
it wishes
to levy.
[2]
And also, that in
making this determination the council has a wide discretion. Put
simply, it exercises a policy choice, which
a court will be slow to
second-guess.
[16]
So, while the appellants accept that courts may not impose their own
preferences on a municipality regarding the choice of
category of
rateable property, its case now is that the rates policy adopted on 4
May 2011 did not meet the threshold requirement
of equitability in s
3(3)
(a)
of the Rates Act. This is because it imposed a rates burden on the
property owners of Blair Atholl that other differently situated
ratepayers do not bear. The policy, they contend, therefore falls to
be set aside on this basis.
[17]
Furthermore, it is contended that the imposition of this additional
burden is irrational because it is not rationally connected
to the
objectives of the Rates Act. The appellants’ papers confusingly
attempt to draw a distinction between their inequitably
and
irrationality challenges; they are effectively one and the same. And
I shall deal with them as such.
[18]
The power of municipalities to levy rates on property is an original
power derived from s 229(1)
(a)
of the Constitution. Rates are levied on the value of property to
cover the running costs of a municipality, and to achieve its
objects.
[3]
The statute
regulating the exercise of this power is the Rates Act.
[19]
Section 3 regulates the adoption and content of rates policy. Section
3(1) imposes a duty on the council of a municipality
to adopt a rates
policy, and s 3(3)
(a)
, which is at the centre of this dispute,
requires the policy to be equitable; fair, in other words. The
principle underlying an
equitable rates policy is that similarly
situated ratepayers are liable for the same rates; and, where a
policy differentiates
between ratepayers, it must do so fairly.
[20]
To this end a rates policy must determine criteria if the council
levies differential rates for categories of properties; exempts,
reduces or grants a rebate to any category; or increases or decreases
rates.
[4]
It must also provide
criteria for determining categories of properties liable for
different rates.
[5]
Fairness
also entails any exemptions, rebates or reductions to be justified by
reasons.
[6]
The importance of
stated criteria and the obligation to provide reasons is that they
are open to legal challenge – albeit
on narrow grounds, because
they involve policy questions. It must also be borne in mind that
municipalities are not obliged to
levy differential rates for
different categories of rateable property or create different
categories for this purpose.
[21]
Another aspect of the equitability principle is that rates policy
must take into account its effects: on the poor and include
measures
to alleviate them;
[7]
on
organisations that conduct public benefit activities that are
exempted from income tax;
[8]
and
on public service infrastructure.
[9]
The policy must also allow the municipality to promote local social
and economic development.
[10]
This necessarily implies that some ratepayers – those who have
the means to own more valuable properties – must perforce
shoulder a heavier burden for these taxes.
[22]
Another injunction in the Rates Act is that a rates policy providing
for exemptions, rebates or reductions must comply with
a national
framework as may be prescribed after consultation with organised
local government.
[11]
This is
to avoid the knock-on effect that a policy, which allows exemptions,
reductions or rebates in one municipality, may have
on other
municipalities.
[23]
The adoption of a rates policy is therefore quintessentially a
political decision that involves balancing the interests of
various
parties. It is underpinned by the principle of equitability in s
3(3)
(a)
.
And even though the adoption of a rates policy is subject to legal
challenge for failure to adhere to this principle, the judicial
branch of government will be circumspect before it interferes with a
council’s assessment of what is equitable.
[12]
[24]
I turn to consider the appellant’s equitably complaint. As I
have mentioned earlier, this case was not made out pertinently
on the
papers. The appellants’ representations to the City were aimed
at securing the creation of two categories of rateable
property that
would qualify for a rates reduction and exemption: a privately owned
town serviced by the owner and vacant land.
The impugned resolution
rejected the submission for the reasons mentioned. That was the case
they brought to court; hence the orders
sought were to compel the
City to establish a different category of rateable property for Blair
Atholl. That relief has now been
abandoned and what remains is only
the prayer for the resolution to be set aside.
[25]
The case now made out, as I understand it, is that Blair Atholl’s
property owners were treated inequitably since: their
particular
circumstances and peculiar context were not factored into the rates
imposed; their geographic location was ignored;
and their interests
were not appropriately balanced with those of differently situated
communities, who pay equivalent rates and
enjoy access to municipal
services that Blair Atholl residents do not.
[26]
Stripped of the verbiage the essential complaint is that property
owners in Blair Atholl should not be made to pay equivalent
rates to
other differently situated communities as they provide and pay for
their own basic services, while not having access to
other communal
services because of its geographic location.
[27]
But this challenge fails at its first hurdle, for it assumes there
is, or ought to be, a fair relationship between the services
a
municipality provides its ratepayers and the rates they are liable to
pay. In this regard the court a quo observed correctly
that s
229(1)
(a)
[13]
of the Constitution distinguishes between rates and surcharges: the
latter may be imposed for services the municipality provides,
while
the former bears no such constraint. In addition we were referred to
no provision in the Rates Act that supports the appellants’
contention. In fact, the contrary is true. Ratepayers who have the
means are required to bear an additional burden to subsidise
those
who cannot afford to pay for their services. Rates also support local
social and economic development, unrelated to the provision
of
services.
[28]
The City’s policy document, to which I have referred earlier,
explicitly eschews any link between rates and services.
That policy
was not challenged. What is contested is the application of the
policy to Blair Atholl. In this regard the reasons
given in the
council resolution for refusing to create a policy exception for
Blair Atholl are persuasive.
[14]
It follows that the appellant’s attempt to link services with
rates must founder.
[29]
In regard to the specific complaint that the resolution does not
factor in the peculiar context and geographic location of
the Blair
Atholl development, the short answer is that it does. The court below
– again correctly – observed that the
City and the
developer entered into the EAS on the premise that the development
would provide its own services as it fell beyond
the reach of
municipal services. The City agreed to supply water at the normal
rate, and not to levy a sewerage charge, but made
no similar
concessions for property rates. On the contrary, the agreement
explicitly provided for rates to be levied from the date
of the
proclamation of the township.
[30]
Murphy J was thus correct in concluding that:
‘
There
is accordingly no basis for any supposition on the part of the
applicants supporting an equitable claim to exemption from
(or
reduction of) rates in exchange for the provision of services by
them. The municipality approved the township on the understanding
that it would not be burdened by an increased demand for services
while retaining its right to levy rates on the residents of the
estate.’
[31]
The appellants also sought to interdict the City from claiming
property rates from property owners of Blair Atholl for the
period
before 1 July 2008, a matter entirely unrelated to the present
dispute. The court below refused this relief on the grounds
that
neither the requirements for an interdict, nor their standing to
claim this relief, had been established. Counsel for the
appellants
did not press this issue, for good reason.
[32]
I mentioned at the outset that the sole basis upon which the
developer asserted a legal interest in the relief claimed was
as
township owner. But this case is about an equitable claim by the
property owners of Blair Atholl, who as ratepayers belong to
the
Homeowners Association, to be treated differently as a group. This is
because they are required to pay the association for
services for
which they are liable and rates to the City in accordance with the
City’s rates policy. The developer, on the
other hand, is no
longer a member of the association, and has no claim as owner of the
remaining extent of the township to be treated
differently. It will
be recalled that its claim for an exemption from rates as the owner
of ‘vacant land’, made in
the representations to the
City, was not part of relief sought in this case.
[33]
In regard to the claim that the property owners were entitled to a
prohibitory interdict against the City regarding the rates
for the
period preceding July 2008, there is no case made out that the
developer, as owner only of the remaining extent of the
township, was
entitled to claim this relief. So, in regard to both the main and
additional relief the developer alone seeks, it
does not appear to
have any legal interest. However, in view of the conclusion to which
I have come on the merits of the dispute,
it is not necessary to
decide this issue.
[34]
The Homeowners Association withdrew its appeal belatedly, on the day
before
the hearing. It cannot avoid liability for the costs of the appeal.
In the result the following order is made:
‘
The
appeal is dismissed with costs, including the costs of two counsel.’
_______________
A
Cachalia
Judge
of Appeal
APPEARANCES
For
Second and Third Appellant: E L Theron SC (with S
Freese) (heads of argument prepared by LGF Putter SC and
H Varney)
Instructed
by:
Schwartz-North
Incorporated c/o A L Maree Incorporated, Pretoria
Martins
Attorneys, Bloemfontein
For
Respondent:
T
Strydom SC (with T Mkhwanazi)
Instructed
by:
Hugo &
Ngwenya Attorneys, Pretoria
Phatshoane
Henney Attorneys, Bloemfontein
[1]
In 2011, s 8(2)
(j)
of the Rates Act provided for a category of ‘privately owned
towns serviced by the owner’. Section 8 was repealed
and
substituted by s 6 of Act 29 of 2014. The section no longer provides
specifically for this category of rateable property.
[2]
City of Tshwane
v Marius Blom & G C Germishuizen Inc & another
[2013] ZASCA 88
;
2014 (1) SA 341
(SCA)
paras
16-18.
[3]
Section 152(1) of
the Constitution says that the objects of local government are:
‘
(a)
to
provide democratic and accountable government for local communities;
(b)
to
ensure the provision of services to communities in a sustainable
manner;
(c)
to
promote social and economic development;
(d)
to
promote a safe and healthy environment; and
(e)
to
encourage the involvement of communities and community organisations
in the matters of local government.’
[4]
Section 3
(b)
.
[5]
Section 3
(c)
.
[6]
Section 3
(e)
.
[7]
Section 3
(f)
.
[8]
Section 3
(g)
.
[9]
Section 3
(h)
.
[10]
Section 3
(i)
.
[11]
Section 3(5).
[12]
See generally N
Steytler & J de Visser
Local
Government in South Africa
(Issue
8, October 2014) Chapter 13, para 2.1.3.
[13]
Section 229(1)
(a)
of the Constitution provides as follows:
‘
(1)
Subject to subsections (2), (3) and (4), a municipality may impose –
(a)
rates on property
and surcharges on fees for services provided by or on behalf of the
municipality; . . . .’
[14]
See para 12 above.