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[2021] ZASCA 19
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City of Cape Town Metropolitan Municipality v Nu-Way Housing Developments (Pty) Ltd (1139/2019) [2021] ZASCA 19 (12 March 2021)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 1139/2019
In
the matter between
CITY
OF CAPE TOWN METROPOLITAN MUNICIPALITY
APPELLANT
and
NU-WAY
HOUSING DEVELOPMENTS (PTY) LTD
RESPONDENT
Neutral
citation:
City
of Cape Town Metropolitan Municipality v Nu-Way Housing Developments
(Pty) Ltd
(1139/2019)
[2021] ZASCA 19
(12 March 2021)
Coram:
Navsa
ADP, Molemela and Nicholls JJA and Ledwaba and Rogers AJJA
Heard
:
22 February 2021
Delivered:
This judgment
was handed down electronically by circulation to the parties’
legal representatives by email. It has been published
on the Supreme
Court of Appeal website and released to SAFLII. The date and time for
hand-down is deemed to be 14h00 on 12 March
2021.
Summary:
Townships
– Less Formal Township Establishment Act 113 of 1991 –
conditions on which land designated – electricity
supply –
condition that local authority shall determine ‘connection fee
and conditions applicable’ to electricity
connections when
application for supply made – ‘conditions applicable’
include development capital charge in
force at time application made
for electricity supply.
ORDER
On
appeal from:
The High
Court, Western Cape Division (Baartman J sitting as court of first
instance).
(a) The
appeal succeeds with costs, including the costs of two counsel where
engaged.
(b) The
order of the court
a
quo
is set aside and replaced with an order in the following terms: ‘The
application is dismissed with costs.’
JUDGMENT
Rogers
AJA (Navsa ADP, Molemela and Nicholls JJA and Ledwaba AJA
concurring)
[1]
The
present respondent, Nu-Way Housing Developments (Pty) Ltd (Nu-Way),
sued the appellant, the City of Cape Town Metropolitan Municipality
(the City), in the court a quo for recovery of R2 109 009,
being an electricity development contribution which Nu-Way
had paid
the City, allegedly under protest. Nu-Way based its claim on the
condictio
indebiti
,
alternatively in contract, being the two conceptual bases for
recovery in such circumstances identified in the majority judgment
in
Commissioner
for Inland Revenue v First National Industrial Bank Ltd
[1990] ZASCA 49
;
1990
(3) SA 641
(A). The court a quo (Baartman J) upheld the claim on both
bases. The City appeals to this Court with the leave of the court
below.
[2]
Nu-Way
applied to the Department of Planning, Local Government and Housing
in the Western Cape Provincial Government (WCPG) to have
land in
Langa designated for less formal settlement in terms of s 3(1)
of the Less Formal Township Establishment Act 113 of
1991 (the
LFTEA).
[1]
The land belonged to
the Passenger Rail Agency of South Africa (PRASA), whose agreement to
the project Nu-Way had secured. The
proposal was to subdivide the
land into 224 erven zoned Single Dwelling Residential, one erf zoned
Business and five erven zoned
Undetermined (Services) Use.
[3]
In
accordance with the LFTEA, the City was notified of the application.
The City recommended that the application be approved on
certain
conditions set out in annexures E, G and G2 to its report. In
November 2001 the WCPG notified Nu-Way that the application
had been
approved on certain conditions, including those recommended by the
City.
[4]
In
relation to electricity, clause 18(1) of annexure G required Nu-Way,
at its own cost, to provide the internal electrical reticulation
and
street lighting serving the subdivision. Independent connections were
required for each erf. The erf owner was to make formal
application
to the City’s electricity department for the connection of
supply to that erf. Clause 18.6 provided:
‘
The
Directorate
[ie
the City’s electricity department]
shall determine the connection fee and conditions applicable to the
joining of the internal electrical reticulation of the proposed
subdivision to the Directorate existing electrical infrastructure, on
formal application by the Applicant
.
’
[5]
Nu-Way
completed the residential component in about 2004. The individual
residential erven were transferred to the end-users, and
each erf
obtained an electricity connection. The business erf, which had
become Erf 4330 Langa and over which Nu-Way had a 99-year
lease from
PRASA, remained undeveloped for some years. In February 2014 the City
approved building plans for the construction of
a shopping centre on
the erf, and construction began in June 2014. In October 2014 Nu-Way
applied to the City’s electricity
department for an electricity
supply to the business erf of ‘1440A three phase at 400V’,
equating to 998 kVA. On 15
October 2014 the electricity department
notified Nu-Way that a connection fee of R31 073 and a
‘Development Contribution
(DC) Cost’ of R2 109 009
were payable for the requested supply. (I shall refer to the latter
item as the DC charge.)
[6]
According
to the evidence of Nu-Way’s Mr Gordon Mann, Nu-Way had not been
expecting to pay a DC charge. This cost had not
been factored into
the leases which Nu-Way concluded with tenants of the new shopping
centre, particularly Shoprite. Nu-Way believed
that it was not
legally obliged to pay the DC charge. However, unless Nu-Way secured
electricity for the shopping centre by January
2015, it would be in
breach of its obligations to the tenants. The City’s officials
suggested that in order to prevent further
cost and delay for Nu-Way,
the latter should make payment as an interim measure while the City
investigated the issue. On 2 December
2014 Nu-Way paid the connection
fee and DC charge by way of an electronic funds transfer. On the same
day Nu-Way wrote to the City,
attaching proof of payment and adding:
‘
Payment
is made subject to the condition that the amount paid in respect of
electrical development contributions will be refunded
if it is
determined by the City that such amount is in fact not due and
payable in respect of Erf 4330 Langa.’
This
wording had been suggested to Mr Mann earlier in the day by Ms Susan
Mosdell of the City’s Legal Services Department,
following a
meeting between representatives of Nu-Way and the City that morning.
[7]
Although
the City raised a number of other defences, it is convenient to start
with the question whether the DC charge was in law
due and payable.
If it was, Nu-Way’s claim naturally could not succeed.
Counsel agreed
that the appeal should be decided on that basis.
[8]
The
City of Cape Town in its current form came into existence in December
2000 as an amalgamation of a previous metropolitan council
and
various transitional municipal local councils. Mr Coenraad Steyn, an
electrical engineer and employee of the City, testified
that before
amalgamation the various municipal administrations had different
mechanisms for recovering costs when a developer or
owner applied for
a new or upgraded supply of electricity. In the case of this
particular land, Mr Steyn believed that a guarantee
scheme would have
applied in terms whereof the developer would have had to provide a
guarantee based on the projected monthly billing
for five years. This
and other mechanisms were repealed by the City’s council in
December 2003, and an interim electricity
development contribution
tariff was adopted. The DC charge was only to be applicable ‘to
additional capacity applied for
above the existing capacity supplied
by the developer, customer or others’. The DC tariff was to be
recalculated annually
on 1 July.
[9]
By
way of statutory background, the Local Government: Municipal Systems
Act 32 of 2000 (Systems Act) came into force on 1 March
2001. Section
74(1) required a municipal council to adopt and implement a tariff
policy on the levying of fees for municipal services.
Section 75(1)
required a municipal council to adopt by-laws to give effect to the
implementation and enforcement of its tariff
policy. Section 75A,
which came into force on 5 December 2002, provided in subsection (1)
that a municipality could ‘levy
and recover fees, charges or
tariffs in respect of any function or service of the municipality’.
In terms of s 75A(2), such
fees, charges or tariffs were to be levied
by council resolution.
[10]
In
May 2005 the council by resolution replaced the interim tariff with a
development capital tariff which distinguished between
four
categories of networks. The new tariff was applicable only ‘to
additional capacity applied for above the existing site
connection
supply capacity’. The council resolved that ‘formal and
informal low-cost housing schemes are exempted from
paying DC
tariffs’. The DC tariff was thereafter revised annually by
council resolution.
[11]
In
April 2010 the City enacted its Electricity Supply By-Law.
[2]
Section 5 stipulates that no person may use an electricity supply
unless a written agreement for such supply has been concluded
with
the service provider (usually the City itself). In terms of s 8, an
application for electricity supply must be made in writing
on the
prescribed form and such application must specify the maximum
required demand in kVA. Section 16 states that copies of electricity
charges and fees may be obtained free of charge from the service
provider’s office. In terms of s 18(1), the consumer
‘shall be liable for all charges listed in the prescribed
tariff for the electricity service as approved by [the City]’.
[12]
The
DC tariff formed part of the City’s broader electricity tariff.
The electricity tariff policy and tariff in force when
Nu-Way applied
for a supply of electricity to the business erf in October 2014 were
the 2014/2015 policy and tariff. The policy
identified the nature of
the charges. The development capital tariff was described as ‘a
charge to cover the costs incurred
to increase the capacity of shared
networks to meet the additional demands imposed by new developments
and additional capacity
requested’. The tariff itself specified
the DC charges for various types of networks at an amount in rands
per kVA, distinguishing
between DC charges ‘for new
developments’ and ‘for upgrades’. The policy as
read with the tariff provides
for a subsidised connection fee for
residential consumers in qualifying low-cost housing schemes,
backyarder programmes and informal
settlements. Although the policy
and tariff do not mention an exemption from DC charges, it appears
from the evidence that the
exemption approved by the City in May 2005
has continued to apply.
[13]
Mr
Steyn explained that the DC charge does not relate to new equipment
installed as part of the new or upgraded connection but is
a
mechanism for recovering the cost of shared networks from all
consumers on an equitable basis. When a consumer asks for a new
or
upgraded electricity supply, the additional capacity has to be
provided over shared networks all the way from the ‘Eskom
intake point’ to the erf’s individual connection. In
simplified terms, the replacement cost of the shared network is
divided by the capacity of the network, yielding an amount in rands
per kVA, which is the marginal cost of supplying the next kVA
of
infrastructure. This is the basis of the DC charges.
[14]
In
cross-examination, Mr Steyn was taken to a Development Charges Policy
for Engineering Services which the council adopted in May
2014. This
policy indicated that DC charges for engineering services were levied
as a condition for the approval of planning applications
such as
subdivision and rezoning. The quantum of the charge was to be agreed
with the applicant before approval of the planning
application. It
was put to Mr Steyn that Nu-Way’s planning application had been
approved in 2001, that no DC charge had been
imposed as a condition
of approval, and that it was impermissible for the City to attempt to
levy the DC charge in October 2014.
[15]
Mr
Steyn disagreed. He said that in the case of electricity services, it
is unusual for the connection fee and DC charges to be
determined and
paid as a condition for the approval of a planning application. This
is because the developer would typically not
know, at that early
stage, precisely what the electricity requirements will be. This is
particularly so for non-residential erven.
In most cases, therefore,
the connection fees and DC charges only become payable, and are only
determined, when the developer (or
an owner who has taken transfer of
a subdivided erf) applies for a supply of electricity to the erf in
question. The application
would specify the power supply which the
client needed. In the present case, by way of example, the
residential erven had a standard
residential supply of 4 kVA.
Nu-Way’s notified demand for the business erf in 2014 was 998
kVA. This was regarded by the
City as a high requirement,
attributable to the fact that the operations on the site were to
include a large bakery and two fast
food outlets with numerous deep
fryers. One can infer that if Nu-Way had instead decided to develop
the business site as a modest
office block the notified demand, and
thus the DC charge, would have been much less.
[16]
With
reference to the 2014 policy, Mr Steyn testified that he had attended
the first meeting at which the policy was discussed.
He told the
meeting that the electricity DC charges should be excluded from the
policy, because the electricity department already
had a policy which
had been in place for ten years. He also considered that electricity
DC charges stood on a different footing
from DC charges for other
engineering services, not least because they were not typically
determined and payable as a condition
of planning approval. For this
reason, he did not attend subsequent meetings about the policy, and
it was approved without further
reference to the electricity
department.
[17]
The
2014 policy is in alignment with Mr Steyn’s historical
analysis. The applicable provisions of the policy are clear. Although
‘engineering services’ are defined in clause 1 as
including electricity, the concluding paragraph of clause 3 states
as
follows:
‘
This
policy covers the following engineering services: roads, stormwater,
water, sewerage, electricity, public transport and solid
waste.
However, the specific details of the charges applicable for
electricity are the subject of a separate policy and legal framework.
The separate policy on charges for electricity is essentially
compatible with the approach proposed in this draft policy, although
the charges for electricity are paid at the point of connection not
as part of the land development application.’
[18]
Clause
7.3 of the 2014 policy states that a description of the components of
external engineering services for each of the engineering
services is
provided in annexure A, adding: ‘The amount payable excludes
the capital charge for electricity connections as
the provisions
relating to this charge are described in the Electricity Development
Capital Policy’. The table in annexure
A states, with reference
to electricity: ‘Refer to Electricity Development Capital
Tariff Policy’. There is a similar
reference in the table in
clause 10.1.
[19]
I
thus reject Nu-Way’s submission that the 2014 policy precluded
the City from levying an electricity DC charge other than
as a
quantified condition for the approval of a planning application. The
2014/2015 policy and tariff as read with the council
resolution of
May 2005 authorised the electricity department to raise a DC charge
whenever an applicant for a supply of electricity
to an erf sought a
new or upgraded supply. The tariff and resolution, in turn, fell
within the ambit of ss 74 to 75A of the
Systems Act and s 18
of the Electricity Supply By-Law.
[20]
Nu-Way
did not take issue with the calculation of the DC charge in the event
of its being found that the 2014/2015 tariff was applicable.
During
the trial a question arose as to whether the exemption in the council
resolution of 31 May 2005 applied. Although the court
a quo did not
base its judgment on this exemption, Nu-Way in the appeal persisted
with its reliance on the exemption. In my view,
such reliance is
ill-founded. The resolution in question was that ‘formal and
informal low-cost housing schemes are exempted
from paying DC
tariffs’. Mr Steyn testified that the City has always regarded
this exemption as confined to qualifying residential
erven. The DC
charge is payable by the owner of the erf, which could be the
end-user or a developer who would pass on the cost
to the end-user.
The exemption was intended as relief to indigent end-users.
Commercial erven and other non-qualifying residential
erven (eg GAP
and market-related housing) do not benefit from the exemption, even
though those erven may have come into existence
as part of the same
process in which the low-cost housing scheme was created.
[21]
Since
the DC charge was levied in accordance with the City’s
2014/2015 electricity tariff and policy and was otherwise in
accordance with the law, the next question is whether there is
anything in the terms of the approval of November 2001 which
precluded
the City from imposing the DC charge. This requires one to
interpret the terms of approval. I accept that the process of
interpretation
must take into account the statute under which the
approval was issued.
[22]
Counsel
for Nu-Way argued that the LFTEA was social legislation and evinced
an intention that developers of designated land for
less formal
settlement should be spared costs which would ordinarily be payable
when townships are established. While the submission
that the LFTEA
is social legislation is substantially true, counsel pressed it too
far, particularly when arguing that an exemption
in respect of
non-residential erven would help to make unprofitable or marginal
schemes commercially viable. The primary purpose
of the LFTEA was to
shorten and streamline the planning processes (rezoning and
subdivision) when land was to be used for less
formal residential
settlement. The expedited procedure would naturally be less costly
for the developer. For the rest, the LFTEA
was explicit when
exempting less formal townships from legislation that would otherwise
apply. Paragraphs
(a)
to
(g)
of subsection 5(3) listed various laws that did not apply to
designated land, and paragraph
(h)
gave the Administrator the power by notice in the
Official
Gazette
to
add other laws to the list. In terms of s 9(8), there was also
an exemption from transfer and stamp duties when an erf was
transferred. Section 3(5) did not contain any exemption in relation
to legislation governing municipal charges in general or charges
for
electricity in particular.
[23]
There
is thus no basis for approaching the interpretation of the terms of
approval on the assumption that in order to give effect
to the LFTEA
the WCPG probably intended to provide an exemption in respect of any
particular category of municipal charges. The
conditions relevant in
the present case were conditions proposed by the City itself, and we
must ascertain their proper meaning.
[24]
Read
as a whole, the conditions formulated by the City and adopted by the
WCPG do not suggest that the City had in mind a general
exemption
from ordinary municipal charges. In relation to electricity, I have
already referred to the condition (contained in clause
18.1 of
annexure G) requiring the developer at its own cost to provide the
internal electrical reticulation and street lighting.
Counsel for the
City also referred us to clause 2.3 of annexure E which imposed the
following condition:
‘
The
developer shall be responsible for all costs incurred in respect of
the upgrading, extension, deviation or removal of any existing
storm
water, sewerage, electricity or other services or works, whether on
the property of [the City] or any other body having authority
so to
require as a result of the development of the property and for any
connection costs in respect of such services or works.’
[25]
With
reference to clause 18.6, counsel for Nu-Way emphasised that the only
charge specifically mentioned was a ‘connection
fee’.
Although the clause envisaged that the City’s electricity
department would, when the application for supply was
made, determine
not only the connection fee but also the ‘conditions applicable
to the joining of the internal electrical
reticulation . . .
to [the City’s] existing electrical infrastructure’,
counsel resisted the
proposition that those conditions could include
a requirement to pay a DC charge. In my view, the word ‘conditions’
in clause 18.6 is wide enough, in its ordinary meaning, to include a
condition requiring payment of a charge. After all, it was
not in
dispute that a ‘condition’ of approval in terms of s 3(1)
of the LFTEA could include a condition requiring payment
of a valid
quantified charge. One of Nu-Way’s arguments was that if the
City had wished to recover a DC charge, this should
have been
quantified and specified as condition of approval in November 2001,
which presupposes that a ‘condition’
can include a
condition as to payment. I see no reason why the word should receive
a narrower meaning in clause 18.6.
[26]
Indeed,
I did not understand counsel for Nu-Way to argue that ‘conditions’
was inapt to include a condition as to payment.
His argument was that
in clause 18.6 the conditions had to be conditions ‘applicable
to joining’ the internal electrical
reticulation to the City’s
electrical infrastructure, and that this envisaged no more than the
requirements and costs associated
with the physical exercise of
making the connection. I disagree. The DC charge becomes payable
whenever a person wants a new or
upgraded supply of electricity. This
requires a new or upgraded connection to the City’s
infrastructure. In addition to the
connection fee (which would cover
the sorts of matters counsel was referring to), the City has since
2005 required the payment
of a DC charge. Unless the DC charge is
paid, a connection to provide the new or upgraded supply will not be
made. In the present
case, the DC charge falls comfortably within the
ambit of conditions imposed by the City in order to join the
electrical reticulation
on the business site with the City’s
infrastructure.
[27]
On
the basis, then, that clause 18.6 is wide enough to include a
condition for the payment of the DC charge, the final question
is
whether it matters that the DC regime was not in force when the
approval was issued in November 2001. It was this feature which
lay
at the heart of the court a quo’s judgment. In my view, it
entails no impermissible retrospectivity to find that Nu-Way
was
obliged to pay the DC charge when it applied for the supply of
electricity to the business site in 2014. Clause 18 envisaged
a
written application for electricity supply, and the most natural
meaning of clause 18.6 is that the connection fee and other
conditions are those applicable at the time the application for
supply is made.
[28]
As
Mr Steyn testified, no quantified electricity capacity was applied
for or allocated to the land in 2001. The supply of electricity
lay
in the future. The mere fact that in 2001 the erf was zoned for
business use did not without more confer on the developer a
right to
any particular supply of electricity or (as counsel for Nu-Way
appeared to contend) a limitless supply. Clause 18 of annexure
G
required an application to be made for a supply of electricity. The
principle of legality would require the City to determine
connection
fees and other conditions of supply in accordance with the
instruments governing these matters at the time the application
for
supply is made.
[29]
When
applications were made to provide electricity connections to the
residential erven, the subsidised connection fees prevailing
at that
time were apparently charged, and there was an exemption from the DC
charges because the residential erven constituted
low-cost housing.
When Nu-Way made an application for a supply of electricity to the
business erf in October 2014, the prevailing
connection fee and other
conditions as at October 2014 were applied, and correctly so. The
connection fee was the fee determined
in accordance with the
2014/2015 tariff, not the 2000/2001 tariff. Counsel for Nu-Way
accepted that his client had correctly been
charged the connection
fee determined by the 2014/2015 tariff; he did not argue that this
involved impermissible retrospective
action. Similarly, the DC
charge, for which there was in this instance no exemption, was
determined in accordance with the 2014/2015
tariff. It would not make
commercial sense, and would be of doubtful legality, for a local
authority to give an open promise of
indefinite duration to grant a
supply of electricity on terms which were fixed at the outset and
which disregarded future changes
in the cost of providing and
maintaining electrical infrastructure.
[30]
It
is irrelevant that as at November 2001 the City would not, when using
the word ‘conditions’ in clause 18.6, have
had a DC
charge specifically in mind. The word ‘conditions’ was
probably used without further specificity precisely
because the
conditions of supply might change from time to time. The City was
referring to the conditions, whatever they might
be when the time
arrived. If Nu-Way had applied for a supply of electricity to the
business erf in 2002, the ‘conditions’
prevailing at the
time of the application for supply would have included the guarantee
scheme. In 2014, though, the prevailing
‘conditions’ of
supply instead required the payment of the DC charge.
[31]
It
follows that the court a quo erred in its conclusion on the central
issue. It is unnecessary to address the City’s other
defences.
Although the City employed one counsel in the court a quo, two were
engaged for the appeal, which was in my opinion justified.
[32]
The
following order is made:
(a) The
appeal succeeds with costs, including the costs of two counsel where
engaged.
(b) The
order of the court a quo is set aside and replaced with an order in
the following terms: ‘The application
is dismissed with costs.’
______________________
O L
Rogers
Acting
Judge of Appeal
APPEARANCES
For
Appellant:
K
Pillay SC (with her R J Steyn)
Instructed
by:
Cluver
Markotter Inc, Stellenbosch
c/o
McIntyre van der Post Inc, Bloemfontein
For
Respondent:
M
M Rip SC
Instructed
by:
Ivan
Pauw & Partners, Cape Town
c/o
Phatshoane Henney Attorneys, Bloemfontein
[1]
The
LFTEA was repealed nationally by the
Spatial Planning and Land Use
Management Act 16 of 2013
and (as legislation the administration of
which had been assigned to the Western Cape) by the Land-Use
Planning Act 3 of 2014
(Western Cape).
[2]
City
of Cape Town
Electricity
Supply By-Law, 2010
.