South African Property Owners Association v Council of the City of Johannesburg Metropolitan Municipality and Others (648/2011) [2012] ZASCA 157; 2013 (1) SA 420 (SCA); 2013 (1) BCLR 87 (SCA); [2013] 1 All SA 151 (SCA) (8 November 2012)

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[2012] ZASCA 157
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South African Property Owners Association v Council of the City of Johannesburg Metropolitan Municipality and Others (648/2011) [2012] ZASCA 157; 2013 (1) SA 420 (SCA); 2013 (1) BCLR 87 (SCA); [2013] 1 All SA 151 (SCA) (8 November 2012)

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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
Case No: 648/2011
In the matter between:
SOUTH AFRICAN PROPERTY OWNERS
ASSOCIATION
.................................................................................................
APPELLANT
and
THE COUNCIL OF THE CITY OF
JOHANNESBURG METROPOLITAN
MUNICIPALITY
..................................................................................
FIRST
RESPONDENT
EXECUTIVE MAYOR OF THE CITY
OF
JOHANNESBURG METROPOLITAN
MUNICIPALITY
.............................................................................
SECOND
RESPONDENT
THE CITY OF JOHANNESBURG
METROPOLITAN MUNICIPALITY
....................................................
THIRD
RESPONDENT
THE MEMBER OF THE EXECUTIVE
COUNCIL FOR LOCAL GOVERNMENT
FOR THE PROVINCE OF GAUTENG
...........................................
FOURTH
RESPONDENT
THE MEMBER OF THE EXECUTIVE
COUNCIL FOR FINANCE FOR THE
PROVINCE
OF GAUTENG
....................................................................................
FIFTH
RESPONDENT
Neutral citation:
South
African Property Owners Association v The Council of the City of
Johannesburg
(648/2011)
[2012] ZASCA 157(8
November 2012)
Coram: NAVSA, LEWIS, SHONGWE, PETSE JJA AND SOUTHWOOD
AJA
Heard: 30 AUGUST 2012
Delivered: 8 NOVEMBER 2012
Summary: Constitutional law – municipal budget
and imposition of rates – imposition of rates part of budget
process
- constitutional review based on principle of legality –
failure to consult with community - application of
Local Government:
Municipal Systems Act 32 of 2000
,
Local Government: Municipal Finance
Management Act 56 of 2003
and
Local Government: Municipal Property
Rates Act 6 of 2004
- interpretation of
section 19(1)(b)
of
Local
Government: Municipal Property Rates Act 6 of 2004
– section
172 of the Constitution.
_____________________________________________________________
ORDER
_____________________________________________________________
On appeal from:
South Gauteng High Court,
Johannesburg (Moshidi J sitting as court of first instance):
1 The appeal is upheld with costs, such costs to include
the costs of two counsel.
2 The order of the court below is set aside and
substituted as follows:
‘
1 It is declared that the
first, second and third respondents failed to comply with the
prescribed statutory requirements and procedures
in arriving at the
decision on 21 May 2009 to impose a rate of R 0.0154 in the rand on
the value of business, industrial and commercial
properties.
2 It is declared that in the future the first respondent
is obliged to comply with the provisions of the
Local Government:
Municipal Systems Act 32 of 2000
, the
Local Government: Municipal
Finance Management Act 56 of 2003
and the
Local Government: Municipal
Property Rates Act 6 of 2004
when it materially amends a proposed
budget after it has been tabled and advertised for public comment.
3 The first, second and third respondents are ordered to
pay the costs of the application, such costs to include the costs of
two
counsel.’
JUDGMENT
SOUTHWOOD AJA
(dissenting as to the order only)
[1] This appeal is concerned with the levying of
property rates of 1,54 cents in the rand in terms of the Local
Government: Municipal
Property Rates Act 6 of 2004 (the Rates Act) on
business, commercial and industrial properties (collectively referred
to as business
properties) by the Council of the City of Johannesburg
Metropolitan Municipality (the Council) for the 2009/2010 financial
year.
At the heart of the dispute is the Council’s decision, on
21 May 2009, to increase the property rates on business properties
by
an additional 18% (after it had resolved, on 26 March 2009, to
increase the rates generally by 10% and advertised these rates
with
the proposed budget for public comment) so that, instead of
increasing from 1,2 cents in the rand to 1,32 cents in the rand,
the
rates increased from 1,2 to 1,54 cents in the rand.
[2] The appellant, the South African Property Owners
Association (SAPOA), applied to the South Gauteng High Court, to
review and
set aside, alternatively, declare null and void, the City
of Johannesburg Metropolitan Municipality’s (the City) budget
for
2009/2010, alternatively, the rate of 1,54 cents in the rand on
business properties. SAPOA sought this relief on these grounds:

firstly, that the levying of the rate contravened section 19(1)(
b
)
of the Rates Act because the ratio of the rate levied on business
properties (1,54 cents in the rand) to the rate levied on residential

properties (0,44 cents in the rand) exceeded the ratio which is
permissible under section 19(1)(
b
) of the Rates Act read with
the regulations; secondly, that the levying of property rates is an
integral part of the budget process
in terms of the Rates Act, the
Local Government: Municipal Finance Management Act 56 of 2003 (the
Finance Act) and the Local Government:
Municipal Systems Act 32 of
2000 (the Systems Act) and the decision to increase the rates on
business properties by an additional
18% required community
participation which did not occur; and, thirdly, the rates imposed on
business properties contravened the
Rates Act because they unfairly
discriminated against the owners of such properties.
[3] The court a quo found that the Council had not
contravened section
19(1)(
b
)
of the Rates Act; that the levying of property rates is not an
integral part of the budget process; that there was no failure
of
community participation and that the rates imposed on business
properties were not discriminatory. The court a quo also found
that
the grant of the relief sought by SAPOA was not in the public
interest because it would probably bankrupt the City and, as
a
result, the City would not be able to perform its constitutional
duties. Accordingly, the court a quo dismissed the application
with
costs.
1
SAPOA appeals against that order with the leave of that
court. At the hearing of the appeal, presumably because of the
Department
of Finance’s view that no ratio between the rates on
residential and business property had been prescribed, SAPOA’s

counsel abandoned reliance on the ground based on section 19(1)(
b
)
of the Rates Act and the appeal proceeded on the other grounds.
Nevertheless, as the interpretation of section 19(1)(
b
)
is of fundamental importance in the levying of property rates it will
be considered again in this judgment.
[4] Since there are no material disputes of fact it is
clear that final relief may be granted.
2
The relevant events took place during a relatively short
period from March to May 2009, the facts are well-documented and for
the
most part SAPOA’s case is based on the City’s
documents. The facts will be considered later in this judgment.
[5] As the imposition of rates is not administrative
action,
3
SAPOA did not seek to review and set aside the Council’s
budget or the decision to levy an additional 18% rate on business

properties in terms of the
Promotion of Administrative Justice Act 3
of 2000
. Its case is based on the principle of legality in terms of
which the Council’s decision had to be taken in accordance with

the law, failing which it was invalid to the extent that it was
inconsistent with the law. In
Affordable
Medicines Trust & others v Minister of Health & others
4
the Constitutional Court summarised the legal position
as follows:
‘
Our
constitutional democracy is founded on, among other values, the
“(s)upremacy of the Constitution and the rule of law.”

The very next provision of the Constitution dictates that the
“Constitution is the supreme law of the Republic; law or
conduct
inconsistent with it is invalid”. And to give effect to
the supremacy of the Constitution, courts “must declare that

any law or conduct that is inconsistent with the Constitution is
invalid to the extent of its inconsistency”. This commitment
to
the supremacy of the Constitution and the rule of law means that the
exercise of all public power is now subject to constitutional

control.
The exercise of public power
must therefore comply with the Constitution, which is the supreme
law, and the doctrine of legality,
which is part of that law. The
doctrine of legality, which is an incident of the rule of law, is one
of the constitutional controls
through which the exercise of public
power is regulated by the Constitution. It entails that both the
Legislature and the Executive
“are constrained by the principle
that they may exercise no power and perform no function beyond that
conferred upon them
by law”. In this sense the Constitution
entrenches the principle of legality and provides the foundation for
the control
of public power.’
5
[6] With regard to the first issue, the appellant
contends that the levying of rates constitutes an integral part of
the budget
process which required that there be community
participation in the decision to increase the rates, which did not
happen. This
is disputed by the respondents. There are therefore two
issues to be determined: first, whether the levying of rates
constitutes
an integral part of the budget process – which is
primarily a legal issue - and second, if so, whether the respondents
made
allowance for community participation in terms of the relevant
statutory provisions.
[7] Municipalities such as the City are part of the
local sphere of government
6
and must provide services to communities in a
sustainable manner and encourage the involvement of communities and
community organisations
in matters of local government.
7
The City is a category A Municipality: it has, in its
area, exclusive municipal executive and legislative authority.
8
With regard to rates on property and surcharges on fees
for services rendered, the relevant provisions of s 229 of the
Constitution
provide:
‘
(
1)
Subject to subsections (2) … a municipality may impose –
(a) rates on property and
surcharges on fees for services provided by or on behalf of the
municipality; and
(b) if authorised by national
legislation, other taxes, levies and duties appropriate to local
government or to the category of
local government into which that
municipality falls, but no municipality may impose income tax,
value-added tax, general sales
tax or customs duty.
(2) The power of a municipality
to impose rates on property, surcharges on fees for services provided
by or on behalf of the municipality,
or other taxes, levies or duties
–
…
(b) may be regulated by national
legislation.’
[8] The relevant national legislation is the Systems
Act, the Finance Act and the Rates Act. The three Acts must be read
together
as they form part of the suite of legislation that gives
effect to the new system of local government.
9
It must also be noted that a fundamental aspect of the
new local government system is the active engagement of communities
in the
affairs of municipalities in which they are an integral part,
and, in particular, in planning, service delivery and performance

management.
10
How this is achieved with regard to the preparation of
the budget and levying of rates is dealt with in the following
paragraphs.
[9] While the Systems Act provides that a municipality
is an organ of state
with a separate legal personality,
11
and that the Council has the right to govern the local
government affairs of the local community
12
and the right to exercise the municipality’s
executive and legislative authority, and to do so without improper
interference,
it also provides that members of the local community
have the right ‘through mechanisms and in accordance with
processes
and procedures provided for in terms of this Act or other
applicable legislation to contribute to the decision-making processes

of the municipality’.
13
Chapter 4 of the Systems Act provides in detail for
community participation and emphasises the necessity for the
community to be
apprised effectively of all matters requiring its
participation. It is significant that the Act pertinently makes
provision for
the local community to participate in the preparation
of the budget.
The relevant
provisions read as follows:
‘
16(1)
A municipality must develop a culture of municipal governance that
complements formal representative government with a system
of
participatory governance, and must for this purpose –
(a) encourage, and create
conditions for, the local community to participate in the affairs of
the municipality, including in –
.…
(iv) the preparation of its
budget;
…
.
(b) contribute to building the
capacity of –
(i) the local community to
enable it to participate in the affairs of the municipality; and
.…
(2) Subsection (1) must not be
interpreted as permitting interference with a municipal council’s
right to govern and to exercise
the executive and legislative
authority of the municipality.
17(1) Participation by the local
community in the affairs of the municipality must take place through
–
political structures for
participation in terms of the Municipal Structures Act;
the mechanisms, processes and
procedures for participation in municipal government established in
terms of this Act;
other appropriate mechanisms,
processes and procedures established by the municipality;
councillors; and
generally applying the
provisions for participation as provided for in this Act.
(2) A municipality must
establish appropriate mechanisms, processes and procedures to enable
the local community to participate
in the affairs of the
municipality, and must for this purpose provide for –
. . .
(b) notification and public
comment procedures, when appropriate;
(c) public meetings and hearings
by the municipal council and other
political structures and
political office bearers of the municipality, when
appropriate
. . .
18(1) A municipality must
communicate to its community information concerning –
the available mechanisms,
processes and procedures to encourage and facilitate community
participation;
the matters with regard to
which community participation is encouraged;
(c) the rights and duties of
members of the local community;
. . . .
19 The municipal manager of a
municipality must give notice to the public, in a manner determined
by the municipal council of the
time, date and venue of every –
(a) ordinary meeting of the
council; and
(b) special or urgent meeting of
the council, except when time constraints make this impossible.
20(1) Meetings of a municipal
council and those of its committees are open to the public, including
the media, and the council or
such committee may not exclude the
public, including the media, from a meeting, except when –
(a) it is reasonable to do so
having regard to the nature of the business being transacted; and
(b) a by-law or a resolution of
the council specifying the circumstances in which the council or such
committee may close a meeting
and which complies with paragraph (a),
authorises the council or such committee to close the meeting to the
public.
(2) A municipal council, or a
committee of the council, may not exclude the public, including the
media, when considering or voting
on any of the following matters:
. . . .
(b) a budget tabled in the
council;
. . . .
21(1) When anything must be
notified by a municipality through the media to the local community
in terms of this Act or any other
applicable legislation, it must be
done –
(a) in the local newspaper or
newspapers of its area;
(b) in a newspaper or newspapers
circulating in its area and determined by the council as a newspaper
of record, or
(c) by means of radio broadcasts
covering the area of the municipality.
. . . .
(3) A copy of every notice that
must be published in the
Provincial Gazette
or the media in
terms of this Act or any other applicable legislation, must be
displayed at the municipal offices.
. . .
21A(1) All documents that must
be made public by a municipality in terms of a requirement of this
Act, the Municipal Finance Management
Act or other applicable
legislation, must be conveyed to the local community –
(a) by displaying the documents
at the municipality’s head and satellite offices and libraries;
(b) by displaying the documents
on the municipality’s official website, if the municipality has
a website as envisaged by
section 21B; and
(c) by notifying the local
community in accordance with section 21, of the place including the
website address, where detailed particulars
concerning the documents
can be obtained.
. . . .
21B(1) Each municipality must –
(a) establish its own official
website if the municipality decides that it is affordable; and
(b) place on that official
website information required to be made public in terms of this Act
and the Municipal Finance Management
Act.
. . . .
(3) The municipal manager must
maintain and regularly update the municipality’s official
website, if in existence, or provide
the relevant information as
required by subsection (2).
22(1) The Minister may in terms
of section 120 make regulations or issue guidelines concerning –
(a) minimum standards for
municipalities, including minimum standards relating to funding, when
implementing the provisions of this
Chapter; and
(b) any matter that may
facilitate –
the participation of the local
community in the affairs of the municipality; or
(ii) the application of this
Chapter.’
[10] In terms of the Finance Act the financial (or
budget) year of municipalities commences on 1 July of each year and
ends on 30
June the following year. The Finance Act provides that –
(1) A municipality may incur expenditure only in terms
of an approved budget and within the limits of the amounts approved
for the
different votes in an approved budget;
14
(2) The council of a municipality must for each
financial year approve an annual budget for the municipality before
the start of
the financial year (1 July);
15
(3) The mayor of the municipality must table the annual
budget at a council meeting at least 90 days before the start of the
budget
year (on or before the first day of April);
16
(4) The annual budget must be a schedule in the
prescribed format –
(a) setting out realistically anticipated revenue for
the budget year from each revenue source;
(b) appropriating expenditure for the budget year under
the different votes of the municipality;
(c) setting out indicative revenue per revenue source
and projected expenditure by vote for the two financial years
following the
budget year;
(d) setting out –
(i) estimated revenue and expenditure by vote for the
current year; and
(ii) actual revenue and expenditure by vote for the
financial year preceding the current year, and
(e) a statement containing any other information
required by section 215(3) of the Constitution or as may be
prescribed.
17
(5) When an annual budget is tabled in terms of s 16(2),
it must be accompanied by the following documents:
(a) draft resolutions –
(i) approving the budget of the municipality;
(ii) imposing any municipal tax and setting any
municipal tariffs as may be required for the budget year; and
(b) measurable performance objectives for revenue from
each source and for each vote in the budget, taking into account the
municipality’s
integrated development plan;
(c) a projection of cash flow for the budget year by
revenue source, broken down per month;
18
(6) An annual budget may only be funded from –
(a) realistically anticipated revenues to be collected;
(b) cash-backed accumulated funds from previous years’
surpluses not committed for other purposes;
and revenue projections in the budget must be realistic,
taking into account –
(a) projected revenue for the current year based on
collection levels to date; and
(b) actual revenue collected in previous financial
years.
19
(7) The mayor of a municipality must –
(a) co-ordinate the processes for preparing the annual
budget and for reviewing the municipality’s integrated
development
plan and budget-related policies to ensure that the
tabled budget and any revisions of the integrated development plan
and budget-related
policies are mutually consistent and credible;
(b) at least 10 months before the start of the budget
year (not later than 31 August), table in the municipal council a
time schedule
outlining key deadlines for –
(i) the preparation, tabling and approval of the annual
budget; and
(iv) any consultative processes forming part of the
processes referred to in subparagraphs (i), (ii) and (iii).
20
(8) Immediately after the annual budget is tabled in the
municipal council, the accounting officer of the municipality must –
(a) in accordance with Chapter 4 of the Systems Act –
(i) make public the annual budget and the documents
referred to in section 17(3); and
(ii) invite the local community to submit
representations in connection with the budget;
21
and
(9) When the annual budget has been tabled the Council
must consider any views of –
(a) the local community; and
(b) the National Treasury, the relevant provincial
treasury and any provincial or national organs of state or
municipalities which
made submissions on the budget.
22
(10) After considering all budget submissions, the
council must give the
mayor an opportunity –
(a) to respond to the submissions; and
(b) if necessary, to revise the budget and table
amendments for consideration by the council.
23
(11) An annual budget –
(a) must be considered for approval by the municipal
council at least 30 days before the start of the budget year (not
later than
31 May);
(a) must be approved before the start of the budget year
(not later than 30 June);
(b) is approved by the adoption of the council of a
resolution referred to in section 17(3)(
a
)(i); and
(c) must be approved together with the adoption of
resolutions as may be necessary –
(i) imposing any municipal tax for the budget year;
(ii) setting any municipal tariffs for the budget year;
(iii) approving measurable performance objectives for
revenue from each source and for each vote in the budget.
24
[11] The Rates Act states clearly that its object is to
regulate the power of a municipality to impose rates on property. The
preamble
confirms: (1) that there is a need to provide local
government with access to a ‘sufficient and buoyant source of
revenue
necessary to fulfil its developmental responsibilities’;
(2) that income from property rates is a critical source of revenue

for municipalities to achieve their constitutional objectives; and
(3) that it is essential that municipalities exercise their
power to
impose rates within a statutory framework that not only enhances
certainty, uniformity and simplicity across the nation
but also takes
into account historical imbalances and the rates burden on the poor.
[12] The relevant provisions of the Rates Act, which
commenced on 2 July 2005, stipulate that –
(1) a metropolitan or local municipality may levy a rate
on property in its area and must do this subject to –
(a) s 229 and any other applicable provisions of the
Constitution;
(b) the provisions of the Rates Act; and
(c) the rates policy it must adopt in terms of s 3.
25
(2) the council of a municipality must adopt a rates
policy consistent with the Rates Act for the levying of rates on
rateable property
which must –
(a) treat persons liable for rates equitably;
(b) determine the criteria to be applied by the
municipality if it –
(i) levies different rates for different categories of
properties;
(ii) increases rates;
(c) determine or provide criteria for the determination
of –
(i) categories of properties for the purpose of levying
different rates as contemplated in paragraph (b)(i);
26
(3) before a municipality adopts its rates policy it
must follow, amongst other things, a process of community
participation in
accordance with Chapter 4 of the Systems Act which
accords with the notice and comment requirements prescribed in s 4(2)
of the
Rates Act;
27
(4) a municipality must adopt by-laws to give effect to
the implementation of its rates policy and these by-laws may
differentiate
between different categories of properties and
different categories of owners of properties liable for payment of
rates;
28
(5) a municipality may, subject to s 19, in terms of the
criteria set out in its rates policy, levy different rates for
different
categories of rateable property which may include
categories determined according to the –
(a) use of the property;
(b) permitted use of the property;
(c) geographical area in which the property is
situated;
29
(6) a municipality may determine categories of rateable
property which include –
(a) residential properties;
(b) industrial properties;
(c) business and commercial properties.
30
(7) a municipality must levy, as a rate on property, an
amount in the rand applied to the market value of the property
31
which value is determined in accordance with generally
recognised valuation practices, methods and standards and the
provisions
of the Rates Act.
32
Generally, the market value of the property is the
amount the property would have realised if sold on the date of
valuation in the
open market by a willing seller to a willing buyer;
33
(8) a municipality must levy a rate for each financial
year as the rate lapses at the end of the financial year for which it
was
levied;
34
(9) the levying of rates must form part of the
municipality’s annual budget process as set out in Chapter 4 of
the Finance
Act and a municipality must, annually, at the time of its
budget process review the amount in the Rand of its current rates in
line with its annual budget for the next financial year;
35
(10) a rate becomes payable as from the start of the
financial year or, if the municipality’s annual budget is not
approved
by the start of the financial year, as from such later date,
when the municipality’s annual budget, including a resolution

levying rates, is approved by the provincial executive in terms of s
26 of the Finance Act;
36
(11) a rate is levied by a resolution passed by the
municipal council with a supporting vote of a majority of its members
after
which the resolution must be promulgated in the Provincial
Gazette and made known to the public in the prescribed manner;
37
(12) a municipality may not levy –
(a) different rates on residential properties, except as
provided for in ss 11(2), 21 and 89;
(b) a rate on a category of non-residential properties
that exceeds a prescribed ratio to the rate on residential properties
determined
in terms of s 11(1)(a): Provided that different ratios may
be set in respect of different categories of non-residential
properties;
(c) rates which unreasonably discriminate between
categories of non-residential properties; or
(d) additional rates except as provided for in s 22
and the ratio referred to in paragraph (b) may only be
prescribed with the concurrence of the Minister of Finance.
38
(Section 19(1)(b) provided the basis for the appellant’s
principal contention regarding illegality);
(13) a municipality intending to levy a rate on property
must, in accordance with the Rates Act, cause a general valuation to
be
made of all rateable properties and all properties valued must be
included in a valuation roll;
39
(14) valuations of properties on the valuation roll are
subject to objection, review and appeal;
40
(15) adjustments made to the valuations must be
reflected in the valuation roll or the supplementary valuation roll;
41
(16) if an adjustment in the valuation of a property
affects the amount due for rates payable on that property, the
municipal manager
must calculate the amount actually paid on the
property since the effective date and the amount which should have
been paid since
that date and recover from or repay to the person
liable for payment of the rate the difference determined together
with interest
at the prescribed rate.
42
[13] The Council adopted a property rates policy, which
came into effect with the first valuation roll on 1 July 2008. It
states
that it is designed to ensure equitable treatment by the
Council of property owners and records that the income from rates
must
be used to finance in full, or in part, the annual operating
expenditure of the Council in the annual operating budget. One of the

key objectives of the policy is to set out the criteria to be applied
by the Council if it increases rates and levies differentiating

between categories of property. Another key objective is to ensure
that all persons liable for rates are treated equitably as required

by the Act.
[14] As provided in the Rates Act, the policy determines
categories of property for levying of differential rates. These
include
residential property,
business property, commercial property and industrial
property. The policy provides in Item 6 for the determination of
rates during
the budget process and purports to set out the criteria
to be applied by the municipality if it increases rates and the
criteria
to be taken into account in determining whether a
differential rate should be applied. Item 6 reads as follows:
‘
Annual
operating budget
(6.1) The Council must consider
the levying of rates annually during the budget process.
(2) Rate increases must be used
to finance the increase in operating costs of municipal services and
facilities.
(3) In determining the level of
increases in the rates the criteria to be applied may include the
following:
The inflation rate as indicated
by the consumer price index
excluding mortgage bonds;
(b) the financing of increased
operating expenditure in the budget of the Council;
(c) the financing of additional
maintenance expenditure included in the operating budget of the
Council;
(d) the financing of additional
depreciation charges included in the operating budget of the Council;
(e) the additional cost of
servicing debt included in the operating budget of the Council;
(f) the augmentation of any
revenue shortfall;
(g) the financing from the
annual operating budget of expenditure related to anything the
Council is lawfully empowered to do for
which provision has to be
made in the budget;
(h) take into consideration the
medium term budget growth factors as determined by National Treasury.
(4) (a) In terms of section 8 of
the Act differential rates may be levied according to the permitted
use or actual use where applicable,
of the property concerned.
The criteria to be taken into
account in determining whether a
differential rate should be
applied are the criteria specified in sub-item (3) and –
(i) the need to promote economic
development;
(ii) any administrative
advantages in applying a differential rate; and
(iii) the need to alleviate the
rates burden on the owners of any particular category of property
specified in item 7.
(5) Rates are levied in
accordance with the Act as an amount in the Rand based on the market
value of all rateable property as reflected
in the valuation
roll and any supplementary
valuation roll, as contemplated in Chapters 6 and
8, respectively, of the Act.’
(It may be observed that Items 6(3) and (4) confer on
the Council the discretion to include the matters listed in
determining the
level of increases.
This is contrary to section 3(3) of the Rates Act which
provides that the rates
policy must determine the criteria to be applied by the
municipality if it increases rates.)
[15] To briefly summarise the statutory position with
regard to the approval
of a municipal budget and the imposition of rates on
property and the community’s right to participate in these
matters:
The council of a municipality has the right to govern
the affairs of the municipality and exercise the municipality’s
executive
and legislative authority without improper interference.
However, these rights are subject to the rights of members of the
local
community to contribute to the decision-making process of the
municipality through mechanisms and procedures prescribed in the

Systems Act and other applicable legislation;
(2) A municipality must encourage and create conditions
for the local community to participate in the affairs of the
municipality,
including the preparation of the budget. Accordingly, a
municipality must for this purpose provide for appropriate
notification
and public comment procedures. Notification to the local
community with regard to the budget and the imposition of rates must
be
done as prescribed by sections 21, 21A and 21B of the Systems Act;
(3) The public is entitled to attend meetings of a
council and its committees when a budget is tabled and approved and a
resolution
for the imposition of rates is adopted;
(4) Every municipality must have a budget and impose
rates for each financial year which starts on 1 July and ends on 30
June the
following year. A budget must be in the prescribed format
setting out the prescribed information including realistically
anticipated
revenue for the financial year from each revenue source.
When the budget is tabled it must be accompanied by a number of
prescribed
documents including draft resolutions approving the budget
and imposing rates and municipal tariffs;
(5) The levying of rates must be considered together
with the budget as the levying of rates is part of the budget
process. A council
levies rates by passing a resolution imposing the
rates. The resolution must be promulgated and made known to the
public in the
prescribed manner;
(6) The approved budget and the rates imposed remain in
force for one financial year: from 1July to 30 June the following
year;
(7) Not later than 31 August in the year before the
start of the financial year, the mayor must table in the council a
time schedule
for the preparation, tabling and approval of the budget
and any consultation processes;
(8) The mayor must co-ordinate the processes for
preparing the budget;
(9) Not later than 31 March before the start of the
financial year, the mayor must table the budget in the council;
(10) Immediately after the budget is tabled in the
council, the municipal accounting officer must, in accordance with
chapter 4
of the Systems Act, make public the budget and accompanying
documents (including the draft resolution to impose the rates) and
invite the community to submit representations in connection with the
budget;
(11) After the budget has been tabled the council must
consider any views of the local community and, after considering all
submissions,
must give the mayor an opportunity to respond to the
submissions and, if necessary, revise the budget and table amendments
for
consideration by the council;
(12) Not later than 31 May before the start of the
financial year, the council must consider the budget for approval;
(13) Not later than 30 June before the start of the
financial year, the council must approve the budget;
(14) If the budget is not approved before the start of
the financial year, the provincial executive of the relevant province
must
intervene in terms of s 26 of the Finance Act (read with s
139(4) of the Constitution) to ensure that the budget is approved.
The
provincial executive may take any appropriate steps, including
dissolving the council and appointing an administrator.
[16] The City’s budget for 2009/2010 was prepared
and approved in accordance with a timetable which provided for the
following
key events:
25 September 2008
- Issuing of budget and tariffs
guidelines
7 November 2008
- Submission of draft tariffs,
budgets and business plan templates to budget office
24 November to 3 December 2008
- Budget panel
meetings
16 March 2009
- Submission of final draft
tariffs, budgets and business plans to the Budget Office
16 March 2009
- Tabling of draft budget, tariffs
and IDP reports to Special Mayoral Committee
26 March 2009
- Tabling of draft budget, tariffs
and IDP at Council
April 2009
- Public participation on the tabled
budget, tariffs and IDP- objection period 30 days
7 May 2009
- Approval of final IDP and Budget by
Special Mayoral Committee, including public participation report
20-21 May 2009
- Council approval of final Budget
and IDP and Budget day.
[17] No allowance was made for the mayor to table any
amendment of the budget or for any further public participation. The
timetable
assumes that every step will be completed properly in
accordance with the timetable.
[18] The preparation and approval of the budget
(including the increases in the rates referred to) took place against
the background
of 22 448 objections to the valuations of the
properties on the valuation roll. The new valuation roll had come
into effect
on 1 July 2008 and the objection process, which commenced
in May 2008, was completed in March 2009. The objections were
considered
and decided between 28 May 2008 and 15 March 2009 and on
16 March 2009 the City’s Finance Department knew that as a
result
of the objections the total value of rateable properties had
already been reduced by R34.4 billion and that this must result in
a
substantial reduction in the revenue from rates, the City’s
most important source of revenue. The City’s Finance
Department
comprises the following Directorates: Budget Office, Rates and Taxes,
Treasury, Valuations, Expenditure and Financial
Strategy and
Development. The Directorates of Rates and Taxes and Valuations were
involved in the processing of objections to the
valuations of
properties on the valuation roll and the effect this would have on
rates revenue. By 16 March 2009 the Valuations
Directorate had
prepared a summary of the objections received, objections upheld and
consequent reduction in the value of the valuation
roll. Pursuant to
each successful objection the Valuations Directorate prepares a
voucher, which it sends to the Rates and Taxes
Directorate, which
amends the relevant records. By 2 March 2009, both Directorates knew
that the Rates and Taxes Directorate had
processed only half of the
vouchers.
[19] On 16 March 2009, the mayoral Finance and Economic
Development
Committee considered and approved the property rates
tariff and the rebates
for 2009/2010. The differential rating of different
categories of property was also considered and it was noted that
residential
rates would be used as the base rate and the other rates
determined in relation to the residential tariff. The committee
proposed
an increase of 10% in the rates in respect of all categories
of property which meant that business property and residential
property
would be rated in the ratio 3:1: that is, 1,32 cents in the
rand on business property and 0,44 cents in the rand on residential

property. Despite the effect of the valuation objections (which the
Committee was clearly aware of because it referred to 21 021
formal
objections and the effect these had on the value of the rateable
properties) it was noted that an overall increase of 10%
would yield
the budgeted income. Accordingly, the Committee recommended that if
no objections were received, the amended assessment
rates should be
published in the Provincial Gazette to be effective from 1 July 2009.
[20] On 26 March 2009 the mayor tabled the budget for
2009/2010 in which
a 10% increase in the rates and tariffs for all
categories of property was proposed. Once again, there was no
suggestion of a revenue
shortfall that might result from the large
number of successful objections to the property valuations. The
respondents have not
attempted to explain this omission or the
failure to allow for the reduced rates revenue. The respondents’
deponent merely
says, somewhat disingenuously, that, at the committee
meeting on 16 March 2009 and the Council meeting on 26 March 2009,
the ‘full
extent’ of the successful objections was not
yet known. (Clearly the effect of the successful objections was). The
Council
approved the proposed budget (with the 10% increase in rates)
for public participation. The effect of the approval was that rates

for business properties would be increased from 1,20 cents in the
rand to 1,32 cents in the rand whilst residential property rates
(the
base rate) would increase from 0,4 cents in the rand to 0,44 cents in
the rand. The Council also resolved that the accounting
officer be
directed to publish and make available to the public the tabled
budget and accompanying documents, with an invitation
to the public
to submit objections or representations and, in the event of no
comments being received, the proposed property rates
be published in
the Provincial Gazette to take effect from 1 July 2009.
[21] After the Council meeting, the tabled budget
(together with the proposed increases in the property rates) was
published in
the local media accompanied by an invitation to the
local community that it become involved and submit comments on the
proposed
budget and the proposed increase in property rates. The
local community had an opportunity until 30 April 2009 to make
representations
to the respondents regarding the proposed 10%
increase in property rates and tariffs.
[22] On 9 April 2009, during the public participation
period, Ms Erika Naudé, the Director of Rates and Taxes,
analysed the
effect on the rates revenue of the successful objections
to the property valuations and prepared a discussion document setting
out her conclusions. She pointed out that, although the Council had
intended to increase property rates in line with inflation,
the
funding requirements of the City required that a predetermined
revenue be raised to enable the City to perform its
operational activities; that
the reduced revenue (as a result of the objections)
would result in a shortfall
of R336,39 million in the rates revenue of the proposed
2009/2010 budget and that an increase of 20% in all property rates
would
be required to make up the shortfall. She considered possible
solutions -
‘
3.1
Adjusting
the tariff
Although the proposed tariff
increase is currently 10%, it is clear that such an increase will be
detrimental to the budget for
2009/2010. In order to accommodate the
shortfall a 20% increase is required. This can be argued as an input
from the City due to
the change in the rates base.
The tariffs are currently open
for public comment. If such a change is proposed at Council, without
public consultation, it could
be considered in contravention of the
MFMA [the Finance Act] and Systems Act requirements. In addition, it
is considered that such
a huge additional increase may not be
politically acceptable. It should also be considered that such an
increase, in addition to
the increases on services could burden the
rate-payer to the extent that it is not affordable, possibly leading
to a rates boycott,
increased loss of property and thus degradation
of the built environment.
3.2
Amending ratios between
categories
From the impacts of the shift in
the rates base, it is clear that the business categories are those
that benefit most from the resultant
changes. It can thus be
considered that the business ratio be increased to 1:4. This must
yield some relief although it may not
cancel out the full impact. In
essence this will have the effect that the increase for the business
category is higher than the
increases of other categories.
Again, the issue relates to the
legal process as the ratios form part of the tariff proposal that is
currently subject to public
participation. The same arguments apply
as for the tariff increases. The ratios and therefore the subsequent
tariffs are contained
in the tariff report and if a legal means can
be established to make amendments to the tariffs at this stage, this
could be implemented
without amendments to the rates policy.
However, this is a more
organised sector that could be engaged in various platforms. It
should also be considered that this may
be a politically more
acceptable method as these businesses also have means to claim these
costs from company tax. It does not
affect the domestic income of
residents, although certain businesses have claimed that the current
increases already caused small
businesses to close down. This would
have a detrimental impact on the economic growth of the City,
especially in the small enterprise
category.
The principle is also not
acceptable in terms of the guidelines of National Treasury, where the
intention is to move towards a 1:1
ratio.
If the current ratio of 1:3 for
business is to increase to 1:3,5, it would result in a 28% increase
on the business tariff as opposed
to the 10% on other categories. . .
. This potential additional increase on the business category may
have a result of an increased
rates revenue of R274 669 800.’
She concluded by stating that business should be
consulted urgently so that its views could be obtained before the
budget was presented
to the Council
(obviously, for approval).
[23] Despite these clear warnings about the impact of
the objections on the rates revenue and the necessity for consulting
urgently
with business organisations, the respondents do not seem to
have taken any steps to do so.
They have not attempted to explain this failure.
[24] Ms Naudé distributed her discussion document
to, amongst others, Ms Ntshabiseng Mokete, the Director of the Budget
Office
(the respondents do not say when) and Ms Mokete prepared a
further report which highlights the revenue shortfall. (The report is

not dated and the respondents do not say when she did this). In her
report Ms Mokete emphasised the importance of revenue from
property
rates (‘the most rateable revenue source’); referred to
the projected revenue shortfall of R336 million and
said this was
expected to increase by a further R419 million. She said that this
shortfall could not be established at the time
of tabling the budget
because ‘the valuation objections period was still under way’.
However, she contradicted herself
by saying that all valuation
objections were concluded during the first week of March 2009 and the
necessary adjustments made to
the system. She also adopted Ms Naudé’s
suggestion of amending the ratios between categories of property and
increasing
the ratio of rates on residential to business properties
from 1:3 to 1:3,5 which would lead to an increase of 28% in the
business
property rates (with a consequent increase in revenue from
the rates on business properties of R274,669 million). With regard to

the process of changing the tariff further she observed:
‘
The
tariffs are currently open for public comment. If such a change is
proposed at Council, without public consultation, it could
be
considered in contravention of the MFMA and Systems Act requirements.
Normal legal process
A new report could be written
to Mayoral Committee and Council explaining the proposal of the
amendments to the business tariff
and its impact on the budget.
After the Rates report has been approved by Council, a notice will
have to be issued informing
the public that the Rates report has to
be amended again and is now open for public comments and submission.
The residents and
all other stakeholders would be given 30 days to
comment.
Final report will be written to
Mayoral and Council detailing the comments and how the City has
responded. The reports will also
seek the approval of the new
proposed increase and the amendment of the budget to accommodate the
new increase.
Mayoral Committee members would
need to be sensitized on this matter before the report can be signed
and submitted to committees.
(The process followed here will be
flawless it will be as per MFMA and Systems Act).’
She recommended that the property rates tariff be
amended: that the current ratio of residential rates to business
rates of 1:3
be increased to 1:3,5 which would result in a 28%
increase in the business tariff as opposed to 10% on other
categories.
[25] On 29 April 2009 the City’s Finance
Department sent emails to various business organisations inviting
them to attend
a meeting on 4 May 2009 to ‘discuss the proposed
property rates/tariff for the business category for the 2009/10
financial
year.’ However, the emails did not spell out the
precise reason for the meeting (to discuss the imposition of an
additional
increase of 18% in the rate on business properties). They
merely said: ‘These proposals are not necessarily the same as
the
draft tariffs published for public comment’. They also did
not attach copies of either Ms Naudé’s discussion

document or Ms Mokete’s report. There is no record to indicate
that the meeting took place.
[26] On 5 May 2009, Ms L Sonqishe, the Acting Director,
Finance, issued a memorandum (prepared by Mr Irvine Florence)
explaining
the increase in the business property rates entitled
‘Alignment of Commercial and Residential Property Rating‘.
This
was to be circulated for comment. The memorandum commenced by
saying that it had become necessary to review the alignment of the

commercial and residential property rating structures ‘so as to
remain in line with the following key principle embodied
in the
implementation of the Municipal Property Rates Act, namely the
retention of the rates contribution over the various sectors
of the
economy to the municipal tax base.’ This is the first time that
any official in the City’s finance department
had referred to
this ‘key principle’ and it was used to justify the
further increase in business property rates. The
memorandum pointed
out that, as a result of the objections to the property valuations,
the total value of rateable property had
decreased by R88 billion
which would result in a revenue loss of approximately R603 million.
[27] On 5 and 6 May 2009 finance department officials
held meetings with representatives of the Johannesburg Business Forum
and
the Johannesburg Inner-City Business Coalition – because
the city regards the two organisations as representative of the
business community - and explained the City’s dilemma and the
proposed additional rate on business properties. Because of
the
misleading invitation to the meeting SAPOA’s representative did
not think it was necessary to attend the meeting. The
representatives
of the two organisations did not accept the proposed additional rate
on business property and asked for further
particulars about the
proposal. At the 6 May 2009 meeting, Ms Sonqishe’s memorandum
of 5 May 2009, ‘Alignment of Commercial
and Residential
Property Rating’, was distributed to those present and on 6 May
2009 the City’s finance department
emailed the memorandum to
all Johannesburg Business Forum members. The finance department did
not send a copy of the memorandum
to SAPOA, which fortuitously
received a copy from the Johannesburg Chamber of Commerce.
[28] On 6 May 2009 the Finance and Economic Development
Committee, apparently in ignorance of the proposed further 18%
increase
in rates on business properties, confirmed the proposed 10%
increase in the rates on all categories of property.
[29] On 8 and 9 May 2009, the Sonqishe proposal to
realign the rates on business and residential properties was
advertised for comment
in a number of Johannesburg newspapers. The
deadline for the submission of comment was 11 May 2009 but in SAPOA’s
case it
was 15 May 2009. SAPOA’s request for three more days to
enable it to consult with its members was refused (clearly because

the respondents wanted to meet their own deadlines). The Mayoral
Finance and Economic Development Committee ‘Public
Participation
Report’ for the Council meeting to be held on 21
May 2009 records that neither the Johannesburg Business Forum nor the
Johannesburg
Inner-City Business Coalition accepted the realignment
proposal. Both organisations complained about the limited time
allowed for
responding to the proposal. The Business Forum said: ‘The
meeting was short notice and the issues discussed here require some

analysis therefore proposed that they be given more time to consult
their stakeholders before providing final comment’. The

Inner-City Business Coalition said: ‘Consultation process. The
time allowed to interact with the City regarding the proposed
tariffs
was not sufficient. The process was not inclusive of all parties. The
disparity between the proposed rate in the rand applied
to
residential properties (0,004) and business properties (0,012) could
not be discussed or clarified’. Both organisations
pointed out
that the process of proposing new rates and taxes before the actual
2009 Property Valuation Roll had been finalised
was flawed and the
Inner-City Business Coalition contended that the rates increase on
business properties was unacceptably high
when compared to the
increase on residential properties. It also expressed concern about
the figures used and the calculations
made by the respondents.
[30] The Finance and Economic Development Committee
adopted the reasoning of the Sonqishe memorandum (that is, that ‘it
was
necessary to review the alignment of the commercial and
residential property rating structures so as to remain in line with
the
‘key principle’ embodied in the implementation of the
Municipal Property Rates Act, namely the retention of the rates

contribution over the various sectors of the economy to the municipal
tax base’) and recommended to the Council that the
rates on
business properties be increased from 1,2 cents in the rand to 1,54
cents in the rand.
[31] On 21 May 2009 the Council approved and adopted the
annual operating budget together with the amended property rates for
business
properties, thus incorporating the 28% increase (from 01,20
to 01,54 cents in the rand).
[32] Apart from the fact that the respondents clearly
and unambiguously admitted in their answering affidavit that the
levying of
rates is an integral part of a municipality’s annual
budget process,
43
the relevant provisions of the Acts and the rates policy
referred to in this judgment clearly provide that this is so. The
Finance
Act provides in Chapter 4 that a municipality must for each
financial year approve an annual budget (s 16(1)); that the annual
budget must set out realistically anticipated revenue from each
revenue source (obviously including rates) (s 17(1)(
a
));
and that when an annual budget is tabled it must be accompanied,
inter alia
, by draft
resolutions approving the budget and imposing any municipal tax (that
is, rates) and setting any municipal tariffs (s
17(3)). The Rates Act
provides that the levying of rates must form part of the
municipality’s annual budget process set out
in Chapter 4 of
the Finance Act and that a municipality must at the time of its
budget process review the amount in the rand of
its current rates in
line with its budget for the next financial year (s 12(2)). A rate is
levied by a municipality by resolution
passed by the Council with a
supporting vote of a majority of its members (s 14(1)). The rates
policy provides that the Council
must approve an annual operating
budget prior to the commencement of each financial year and that the
income from rates must be
used to finance, in full or in part, the
annual operating expenditure of the Council as reflected in such
budget (Item 3 (3)).
The rates policy further provides that the
Council must consider the levying of rates annually during the budget
process (Item
6 (1)). Furthermore, logic dictates that the approval
of the budget must go hand in hand with the determination of the
rates, as
the revenue from rates is essential to fund the budgeted
expenditure. The court
a quo
therefore
wrongly concluded that the levying of rates is not an integral part
of the budget process.
[33] The next question is whether the respondents
complied with their obligations to allow for community participation
in the approval
of the budget. It is clear that this question relates
only to the further increase in the rates to be levied on business
properties
as the respondents seem to have complied with their
statutory obligations up to the time that they finally appreciated
that the
large number of objections to the property valuations would
have a profound effect on the City’s revenue from rates. This

seems to have been sometime between 16 March and 9 April 2009.
[34] The respondents do not dispute SAPOA’s
allegations that, after the public participation process had been
concluded, the
respondents saw fit to introduce fundamental,
far-reaching and inappropriate changes to the proposed budget without
adequate public
participation; that they did so without following the
prescribed process, and without properly advising, consulting and
considering
the views of the local community; that the appellant,
because of its role and function as a community organisation,
par
excellence
, was entitled to be notified timeously and be provided
with all relevant information regarding the budget and that the
appellant
was entitled to be provided with a reasonable opportunity
to respond to these far-reaching amendments to the budget. The
respondents
simply accepted that it was correct that the City’s
budget was tabled on 26 March 2009 and alleged that this was for the
purpose of public participation and that the other allegations are a
matter for argument.
[35] It is clear that the primary error made by the
officials in the City’s Finance Department was to base the
budget and
the anticipated rates revenue on the value of the
properties on the valuation roll when those values were subject to a
very large
number of challenges. The Finance Act stipulates that ‘an
annual budget may only be funded from realistically anticipated

revenues to be collected’ (s 18(
a
)) and that the annual
budget must set out ‘realistically anticipated revenue for the
budget year from each revenue source’
(s 17(1)(
a
)) as
well as ‘estimated revenue and expenditure by vote for the
current year’(s 17(1)(
d
)). The Finance Act also
stipulates that when an annual budget is tabled ‘it must be
accompanied by draft resolutions approving
the budget . . . and
imposing any municipal tax and setting any municipal tariffs as may
be required for the budget year’
(s 17(3)(
a
)) as well as
‘a projection of cash flow for the budget year by revenue
source broken down per month’ (s17(3)(
c
).
[36] The second important error which the City’s
officials made was to persist in using the rates based on those
property
values even when it was obvious - it would have taken only a
moment’s reflection - that the values were not reliable because

of the objection process which was underway. On 16 March 2009 the
analysis of the statistics showed that the total value of rateable

property had already diminished by R34.4 billion and that this figure
would probably grow (only half of the objection valuation
vouchers
had been captured by Rates and Taxes). Despite that knowledge the
mayoral committee approved a 10% increase in rates in
respect of all
categories of property and recommended that the rates be increased
accordingly. Thereafter the mayor tabled the
budget relying on the
anticipated revenue from rates on the properties whose values were
subject to objection.
[37] The third important error which the officials in
the Finance Department made was not to comply with the respondents’
statutory community participation obligations to ensure the
participation of the local community in the preparation and
finalisation
of the budget. This could have been done during the
consultation period in April 2009 if the officials had reacted with
due expedition.
In her discussion document of 9 April 2009 Ms Naudé
had already identified the problem (a R336.39 million shortfall in
the
rates revenue for the 2009/10 budget) and the solution to the
problem (increase the rates across all categories of property by 20%

or increase the rates on business properties by an additional 18%).
This document should have been given to the mayor for a decision
to
be made and then, if the mayor decided that the rates should be
amended, the mayor should have provided a statement to explain
the
necessity for the amendment to the rates and the effect it would have
on the budget. Thereafter the proposed amendments to
the budget
should have been set out in the tabled budget to comply with the
relevant sections of the Finance Act and the documents
as they were
to be amended, together with the mayor’s statement, published
in the prescribed manner, and the local community
invited to submit,
within a time, which in the circumstances was reasonable,
representations in connection with the amended rates
and the amended
budget. The Council would then have been obliged to consider the
views of the local community and thereafter give
the mayor an
opportunity to respond to the submissions of the local community and,
if necessary, revise the budget and table amendments
for
consideration by the Council. The Council would then have approved
the budget, with or without the proposed amendments, after
having
received the views of the local community and properly considered
them.
[38] The tabled budget which had been advertised for
public participation required substantial amendment. The total value
of rateable
property had been reduced by some R88 billion with a
consequent loss of rates revenue amounting to R603 million and a
rates revenue
shortfall in the 2009/10 budget year calculated to be
R336.39 million. The preparation and finalisation of the budget
required
the participation of the ratepayers, particularly the
ratepayers most likely to be required to make up the shortfall.
Although
the Finance Act does not specifically provide for such a
situation it must obviously be dealt with in terms of the provisions
of
the Acts governing the preparation and approval of a budget and
any other statutory provisions governing participation by the local

community. It is significant that both Ms Naudé and Ms Mokete
immediately recognised the necessity for the respondents to
comply
with the public participation requirements of the Finance and Systems
Acts and that Ms Mokete considered that a period of
30 days should be
allowed for the local community to comment.
[39] To summarise: when the budgeted rates of a
municipality must be amended after the budget has been tabled and
advertised for
comment, the steps to be taken by a mayor and council
of a municipality to comply with the statutory requirements for
participation
by the local community are as follows:
(1) The budget must be amended to set out the
realistically anticipated revenue from each revenue source and the
indicative revenue
per revenue source for the two financial years
following the budget year (s 17(1)(
a
) and (
c
) of the
Finance Act);
(2) The draft resolutions accompanying the budget
approving the budget and imposing the municipal tax and setting the
municipal
tariffs must be amended to reflect the amended rates (s
17(3)(
a
)(i)and (ii) of the Finance Act);
(3) The measurable performance objectives for revenue
from each source and the projection of cash flow for the budget year
by revenue
source, broken down per month, accompanying the budget,
must be amended to reflect the amended rates (s 17(3)(
b
) and
(
c
) of the Finance Act);
(4) The mayor must provide a statement explaining the
necessity for amending the rates and demonstrating the effect the
amendment
of the rates will have on the budget and indicating what
aspects of the budget require comment (s 21(1)(
a
) of the
Finance Act);
(5) Immediately after the budget and accompanying
documents have been amended and the mayor’s statement provided,
the accounting
officer of the municipality must, in accordance with
ss 21, 21A and 21B of the Systems Act, make public the amended budget
with
the amended documents referred to in the previous paragraphs and
invite the local community to submit, within a time which, taking

into account the relevant circumstances, must be reasonable,
representations in connection with the amended budget and
accompanying
documents and the amended rates proposed (s 22(
a
)
of the Finance Act) and provide these documents to the National
Treasury and the relevant provincial treasury (s 22(
b
) of the
Finance Act);
(6) After the submissions have been received the council
must consider them and then give the mayor an opportunity to respond
to
the submissions and, if necessary, to revise the budget and table
the amendments for consideration by the council (s 23(1) and (2)).
[40] It is clear that the respondents did not follow
this procedure and adopted their own truncated procedure which was
not in accordance
with the relevant Acts and which, in any event, was
quite inadequate to ensure that the local community could participate
in the
preparation and approval of the budget. The respondents did
not give SAPOA and the rest of the business community proper notice

of the new rates proposed and the short period allowed for business
organisations to comment on the amended rate for business properties

was completely inadequate for any person or body to properly consider
the matter, do the necessary research and prepare a meaningful

representation. It is clear from the responses received from the
business forums that they were not able to consider the matter

properly and make substantial representations in the time allowed.
The essence of the respondents’ case was set out in the

answering affidavit as follows:
‘
. . .
at a very late stage, during the notice and comment phase of the
annual
budget and rates procedure for
2009/10, an unforeseeable and unavoidableshortfall in rates income on
the 2008/09 budget from business
properties wasdetected. The
shortfall would also occur in the 2009/10 financial year. (I referto
“business properties”
as shorthand for “business,
commercial and industrial properties”.) The only reasonable
solution was to propose amending
the rate on that particular category
of property by increasing the rate by a further 18% over and above
the 10% increase already
proposed and advertised and to advertise the
proposed amendment as widely as possible under the circumstances. The
proposal was
implemented for the 2009/10 financial year. It is denied
that any material breaches of procedure occurred.’
The respondents also claimed that because of the urgency
of the matter ‘a less extensive public participation process
was
followed’.
[41] There is no merit in this explanation. On the
respondents’ own documents the problem regarding the reduced
rates revenue
as a result of the objections to valuations was
obvious. By 16 March 2009 the respondents’ officials knew what
the impact
of the objections was. Their analysis of the statistics
showed that there was a very large reduction in the value of the
properties
(R34.4 billion) which would have an effect on rates
revenue. The respondents contradicted themselves as to whether, at
that stage,
all the records had been updated, but even if they had
not been, it was obvious that the problem would only get bigger. By 9
April
2009 Ms Naudé had thought it necessary to do a further
analysis of the valuations statistics and this showed that, when
compared with the rates income in the proposed 2009/10 budget, there
would be a considerable shortfall of rates income. Thereafter,
there
was an unexplained delay in addressing the problem and seeking the
participation of the business community in the decision
to impose an
additional 18% increase in the rates on business properties. Three
weeks were allowed to pass before any steps were
taken. The steps
taken after that were clearly inadequate and the time allowed for the
business community to comment on the proposed
increase was
unreasonably short. (It is noteworthy that Ms Mokete thought that 30
days should be allowed for comment.) The City
officials obviously
considered that it was more important for them to meet their
deadlines than to get the business community’s
comments. It is
also noteworthy that the City did not ensure that SAPOA was involved
from the outset. It was the most important
organisation to consult as
it represents 90% of all business property owners. The respondents
were forced to rely on the fact that
a member of the SAPOA executive
was given notice of meetings in another capacity. This is not
compliance with their obligation
to inform all interested parties. In
my view any urgency was of the respondents’ making and they
cannot rely on their own
failures to excuse their non-compliance with
their obligations in terms of the Acts. By imposing the additional
18% in the rate
on business properties without complying with the
Finance and Systems Acts the respondents acted unlawfully.
[42] During oral argument the question was raised
whether there is a rational connection between the facts and the
decision to increase
the rates on business properties by a further
18% and the respondents’ counsel were given leave to file
further heads of
argument to deal with this issue. In their
supplementary heads of argument filed after the hearing the
respondents’ counsel
contended that –
(1) the shortfall that occurred in the rates income for
the category ‘business properties’ was approximately R274
million
and the additional 18% increase in the rates on that category
served only to recover the lost amount from that category;
(2) the total reduction in revenue as a result of
successful objections to property valuations and corrections of wrong
categorisation
was R603 million;
(3) the total of lost revenue due to successful
objections in all categories was R336 million;
(4) the (additional) 18% increase in the rates in
business properties did not burden the owners of business properties
with any
shortfall that occurred in other categories;
(5) the rate on business properties was increased
because the percentage contribution from the rates on business
properties to the
total rates income had declined from what it was in
2007/8 and the purpose of the increase was to restore the percentage
contribution
from business properties on the total rates income. This
‘re-alignment’ would be restored by increasing the rates
on
business properties from 1,2 cents in the rand to 1,54 cents in
the rand and was intended to be a ‘once-off adjustment in
order
to restore the previous relative positions of business and
residential properties’.
For these contentions the respondents relied on the
evidence of their principal deponent, Mr Mankode Moitse, the
Executive Director
of the City’s Finance Department, who relied
on the contents of two documents prepared by City officials. The
first was the
memorandum dated 5 May 2009 issued by L Sonqishe, the
Acting Executive Director, Finance and Acting Group Chief Financial
Officer.
The second, which is undated but was obviously prepared
after the first (it used the same figures and the same language) was
to
be signed by Ms Mokete, the Director, Budget Office, Mr Moitse, as
Executive Director Finance Department, and Counsellor Parks Tau,
as
MMC Finance Strategy and Economic Development.
[43] An analysis of these documents shows that they do
not support the first, third and fourth supplementary submissions but
that
they support the second (that the total reduction in rates
revenue as a result of successful objections to the property
valuations
was R603 million) and particularly the fifth submission
(the respondents simply used the fact that the business properties’

contribution to total property rates revenue had declined by about
10% to justify the additional 18% increase).
44
This justification is itself problematic. (When dealing
with the figures in the two documents I shall use round figures.)
[44] It will be remembered that the Sonqishe memorandum
of 5 May 2009 provided the theoretical basis for the additional
increase
of 18% in business property rates. The memorandum is
entitled ‘Alignment of Commercial and Residential Property
Rating’
and commenced with the paragraph:
‘
It has
become necessary to review the alignment of the Commercial and
Residential
Property Rating Structures so as
to remain in line with the following key principle
embodied in the implementation
of the Municipal Property Rates Act, namely the
retention of the Rates
Contribution over the various sectors of the economy to the
municipal tax base.’
It then dealt with the decline in total property
valuations as a result of objections to the valuations of the
properties on the
valuation roll (R88 billion) and the consequent
total loss of revenue from rates (R603 million). According to the
figures used,
the contributions of six categories of properties to
the total rates income declined: business (by 12%); mixed use (by
31%); business
sectional title (by 32%); vacant (by 35%); residential
(by 3%) and residential sectional title (by 2%). These figures do not
show
by how much (that is, the rand value) rates revenue on business
property had declined. The next sections of the memorandum
demonstrated
how the estimated rates income, primarily from business
and residential, had declined, and how the percentage contribution of
the
rates from business properties had declined from approximately
50% in 2006/07 and 2007/08 to approximately 40% in 2008/09 and how

this would continue in 2009/10 if the rates increase of 10% was
implemented but would ‘be restored’ to just under 50%
if
the additional increase of 18% was imposed. The memorandum stated:
‘it was a hallmark of Municipal Property Rates Act

implementation process that the rates contribution per category of
rate paying sectors should not be unduly distorted’. It
said
that the purpose of the proposal was to restore the parity that
prevailed prior to 1 July 2008 on property rates over the
commercial
and residential sectors of the tax base. If the business property
rates were increased by 28% this would be a ‘once-off

adjustment in order to restore parity over the affected contributory
sectors to the tax base’.
[45] The Sonqishe memorandum simply sought to justify
the increase of 28% by reference to the reduced contribution of
business property
rates as a percentage of the total. No figures were
given for the loss of rates income from business properties and how
much more
income would be received from business property rates after
the increase of 28%. However, if the estimated income after the 10%

increase is compared with the estimated income after the 28%
increase, the total increase in rates income would be R274 million.
[46] Ms Mokete’s report for signature by herself,
Mr Moitse and Mr Tau dealt with the anticipated shortfall in property
rates
revenue in the 2008/09 financial year (R421.28 million) and in
the 2009/10 financial year (R336.39 million). It pointed out that
in
the 2008/09 financial year the rates income did not grow but in the
2009/10 financial year it was expected to increase by R257.49

million, still leaving a shortfall of R336.39 million. The report
made no attempt to attribute the shortfall to any category of

property rates. The report included a table showing the changes in
the rates base of the City. This reflected a decline of R88
billion
in the total market value of rateable properties and a consequent
loss of revenue of R603 million from property rates.
One hundred and
ninety one million rand of this loss was attributed to the loss of
revenue from business property rates (31% of
the total). The decline
in business property rates therefore contributed to 31% of the
estimated rates shortfall of R336 million
(R104 million). The report
then pointed out that if the rates on business properties were
increased by another 18% the rates from
business properties would
increase by R274.669 million (81% of the estimated shortfall in rates
revenue of R336 million).
[47] The analysis shows that there is no merit in the
contention that there was a shortfall of R274 million in the rates
income
from the category ‘business properties’. The
reduced rates from ‘business properties’ amounted to only
R191 million (or 31%) of the total reduction of R603 million.
Therefore, it is not correct to say that the additional 18% ‘served

only to recover the lost amount from that category’. It is also
not correct that the total of lost revenue due to successful

objections was R336 million. This was not identified as such in the
report. The R336 million was the shortfall on total estimated
rates
income measured against the total rates income in the proposed budget
for 2009/10. Finally, it is not correct that the additional
18%
increase on business properties did not place a disproportionate
burden on the owners of business properties. It clearly did.
If the
decline in business rates revenue was only 31% of the total decline
in property rates then imposing an additional rate of
18% on business
properties, to make up 81% of the shortfall, placed a
disproportionate burden on the owners of business properties.
[48] The Sonqishe memorandum makes it abundantly clear
that the
additional increase of 18% was imposed ‘in line
with the . . . key principle embodied in the implementation of the
Municipal
Property Rates Act, namely
the retention of the rates contribution over the various
sectors of the economy
to the municipal tax base’. Apart from the fact
that the statement is meaningless because a principle cannot be
embodied in
the implementation of an Act, there is clearly no such
principle in the Rates Act or the City’s Rates Policy. Self
evidently
such a principle would be impossible to implement if the
variables involved in the number and value of properties to be rated
are
taken into account. It is also significant that this ‘key
principle’ is not referred to in the discussion document
prepared by Ms Naudé, the Director of Rates and Taxes, or the
memorandum prepared by Ms Mokete. If there were such a principle,

they would have known about it and used it to justify the additional
18% increase. Significantly both documents refer to the fact
that
business has benefited the most from the shift in the rates base.
While this statement is correct the reduction in rates revenue
due to
the business sector was still only 31% of the total.
[49] The opening paragraph of the Sonqishe memorandum of
5 May 2009
was repeated in the Mayoral Committee report of 18 May
2009 for the council meeting on 21 May 2009 and is used in support of
a re-alignment
of business and residential property rates.
[50] The documents relied on by the respondents clearly
demonstrate that there is no rational connection between the facts
and the
decision to impose the additional 18% rate on business
properties and that there is no legal basis for the justification of
the
additional increase. It should be recorded that the respondents’
counsel objected strongly to this issue being raised at the
hearing
on the grounds that it was not part of SAPOA’s case in the
founding affidavit. In my view this is simply a matter
of pleading.
The relevant facts appear clearly from the respondents’ own
documents and SAPOA was entitled to deal with them
in argument. In my
view, there is no merit in the objection and the court is entitled to
take these facts into account in determining
whether the respondents
acted lawfully in imposing the additional 18% in the rate on business
properties.
[51] The court a quo therefore wrongly found that the
respondents did not fail to comply with the public participation
requirements
of the municipal legislation when they imposed the
additional 18% rate on the owners of business properties and that
they did not
act unlawfully in doing so. In the absence of a factual
or legal basis to impose the additional rate on the owners of
business
properties, the court a quo also wrongly found that the
Council did not unfairly discriminate against the owners of business
properties
when it imposed the additional burden on them.
[52] As pointed out at the beginning of this judgment,
it is no longer necessary for this court to decide whether the
increase of
28% in the rates on business property was prohibited by s
19(1)(
b
) of the Rates Act because it resulted in a ratio of
the residential rate to the business rate of 1:3,5. The appellant
contended
that the section, read with the regulations, prohibited the
City from imposing a rate on any category of non-residential property

which would result in the ratio between the rate on residential
property and the rate on non-residential property exceeding the

prescribed maximum ratio of 1:1. The respondents contended that in
terms of s 8 of the Rates Act the Council was entitled to impose

differential rates and that the purpose of the proposed amendment of
the rates was to restore the parity that prevailed prior to
1 July
2008 on property rates over the commercial and residential centres of
the tax base. According to the respondents, to restore
this parity a
‘once-off’ adjustment was required. Accordingly, the
Council proposed increasing the ratio between rates
for business to
residential property from 3:1 to 3,5:1 (by increasing the business
rate from 1,2 to 1,54 cents in the rand or,
expressed differently,
increasing the business rate by 28%).
[53] This dispute about the interpretation of s 19(1)(
b
)
and the regulations is obviously of great importance as far as the
imposition of rates is concerned. Although both s 19(1)(
b
) and
the regulations (which were promulgated to give effect to the
section) are inelegantly worded (they show no proper understanding
of
the meaning of the word ‘ratio’) they seem to be capable
of being understood in the way contended for by SAPOA.
In view of the
statements in the respondents’ documents that it is Treasury’s
intention that the ratio between the
rate on residential property and
non-residential property should be 1:1 the matter should obviously
receive the urgent attention
of the Treasury and the Legislature.
[54] Section 8 of the Rates Act empowers a municipality
to levy different rates on different categories of rateable property
but
clearly provides that this power is subject to s 19 and must be
exercised ‘in terms of the criteria set out in its rates
policy’. Section 19 prohibits ‘impermissible
differentiation’. The relevant parts of the section read as
follows:
‘
(1) A
municipality may not levy –
. . .
(b) a rate on a category of
non-residential properties that exceeds a prescribed ratio to the
rate on residential properties determined
in terms of section
11(1)(
a
): Provided that different ratios may be set in respect
of different categories of non-residential properties;
. . .
(2) The ratio referred to in
subsection (1)(
b
) may only be prescribed with the concurrence
of the Minister of Finance.’
Section 19(1)(
b
) must be read with the
regulations promulgated pursuant to s 19(2). These regulations
read as follows:
‘
SCHEDULE
INTERPRETATION
Definitions
In these regulations, a word or
expression to which a meaning has been assigned in the Act, has that
meaning and unless the context
indicates otherwise –
“
agricultural
property” means property envisaged in section 8(2)(d)(i), (e)
and (f)(i) of the Act.
REGULATIONS ON THE RATIO BETWEEN
THE RESIDENTIAL AND NON-RESIDENTIAL CATEGORIES OF PROPERTY
Rates ratios to be applied
The rate on the categories of
non-residential property listed in the first column of the table
below may not exceed the ratio
to the rate on residential properties
listed in the second column of the table below, where,
the first number in the second
column of the table represents the ratio to the rate on residential
properties;
the second number in the second
column of the table represents the maximum ratio to the rate on
residential property that may
be imposed on the non-residential
properties listed in the first column of the table:
Categories
Ratio
in relation to residential property
Residential
property
1:1
Agricultural
property
1:0.25
Public
Service Infrastructure Property
1:0.25
Commencement
The provisions of regulation 2
take effect on 1 July 2009.
Short title
These regulations shall be
called the Municipal Property Regulations on the rate ration between
residential and non-residential
categories of property.’
[55] The rules of statutory interpretation require that
the words to be construed must be given their ordinary grammatical
meaning
in the light of their context, where ‘context’
includes the language of the rest of the statute (which may throw
light
of a dictionary kind on the words to be interpreted), the
matter of the statute, its apparent scope and purpose, and, within
limits,
its background. The court must, from the outset,
45
consider the language to be interpreted together with
the context. Even where the words to be interpreted are (or appear to
be)
clear and unambiguous, regard must be had to the context.
46
[56] Section 19(1)(
b
) prohibits a municipality
from levying –
‘
A rate
on a category of non-residential properties that exceeds a prescribed
ratio to the rate on residential properties determined
in terms of
section 11(1)(a)’.
Section 11(1)(
a
)
simply provides that a rate must be an amount in the rand and the
municipality must apply this rate to the market value of the

property. (This accords with the ordinary meaning of ‘rate’:
‘assessment levied by local authorities for local
purposes at
so much per pound of assessed value of buildings and land area
owned’: see
Gerber v MEC for Development
Planning and Local Government, Gauteng.
47
)
Section19(1)(
b
)
uses the word ‘ratio’, which ordinarily indicates a
relationship between two similar magnitudes in respect of quantity,

determined by the number of times one contains the other.
48
In s 19(1)(
b
)
the magnitudes are the amounts in the rand determined by the Council.
Although inelegantly worded, s 19(1)(
b
)
indicates that the ratio of the rate on non-residential properties
(which obviously includes business, commercial and industrial

properties) to the rate on residential properties may not exceed a
prescribed ratio. The object of the section is clearly not to
limit
the rates on either non-residential or residential properties per se.
It is to prohibit the relationship between the two
rates from
exceeding the prescribed relationship. The problem which arises from
the wording of the relevant part of s 19(1)(
b
)
is resolved if it is interpreted to read:
49
‘
A rate
on a category of non-residential properties so that the prescribed
ratio to the
rate on residential properties
determined in terms of section 11(1) is exceeded.’
[57] The regulations promulgated in terms of s 19(2) are
also inelegantly worded. Their object is obviously to give effect to
s
19(1)(
b
) by prescribing ratios of rates on residential
property to non-residential properties, which may not be exceeded.
They refer to
the first figure (the rate) in the second column as the
figure for residential properties and the second figure (the rate) in
the
second column as the figure for non-residential properties
referred to in the first column. Confusion arises from the words
‘residential
property’ in the first column. This
obviously should have been ‘non-residential properties’
as that is how the
properties in that column are described. The
maximum ratio of the rate on residential property to the rate on
non-residential property
would therefore be 1:1: the rates (the
amounts in the rand) on the two categories of property may be the
same but the rate on non-residential
property must not exceed the
rate on residential property. This is consistent with the
interpretation of s 19(1)(
b
) above (and with the intention of
Treasury according to Ms Naude and Ms Mokete).
[58] If this is the proper interpretation, then the
Council would have been prohibited from levying a rate on business
properties
that was 3.5 times as much as the rate on residential
property as this would result in a ratio of 3,5:1. The most the
Council could
have levied was the same amount in the rand as it
levied on residential property. The rates levied on business
properties in the
2009/2010 budget year would therefore have been
unlawful because they were contrary to s 19(1)(
b
). It must be
borne in mind that the value of business property will almost always
exceed that of residential property and, accordingly,
the revenue
from rates on business property, even if the rates for business and
residential property are the same, will always
be greater than the
revenue from residential property.
[59] In the light of the finding that the Council did
not follow the procedures prescribed in the Acts in imposing the
rates in
respect of business properties, the question arises as to
what relief should be granted.
[60] SAPOA’s counsel does not seek the setting
aside of the 2009/2010 budget (prayer 1 of the notice of motion) but
persists
in seeking relief pertinent to the additional 18% in the
rates imposed on business properties (essentially prayers 2 and 3.1
of
the notice of motion). If this relief is granted, this court would
declare, in effect, that the Council acted unlawfully in imposing
the
additional 18% on the rates on business properties (because it failed
to comply with the prescribed legal requirements and
procedures) and,
pursuant to that declaration, would set aside the rate imposed in
excess of R0,0132 in the rand. Counsel acknowledged
that there may be
claims for repayment of the rates paid in excess of what should have
been paid and suggested that the court order
that the City have three
years to repay any such amount. He also acknowledged that the
respondents’ conduct has created a
problem which is too big to
be solved by a court order. As he put it, the court cannot unscramble
the egg. This concession is clearly
correct in so far as it relates
to the whole budget for 2009/10.
[61] When the Council imposed the additional 18% rate on
business properties the Council intended to make up R274 million of
the
calculated revenue shortfall of R336 million in the 2009/10
budget. On the strength of this additional revenue of R274 million
the Council approved a budget involving expenditure on a large number
of essential matters, including the salaries of the City’s

employees. It must be accepted that the City has spent that revenue
and it is no longer available to the City to repay the owners
of
business properties who were required to pay the increased rate.
There is no evidence as to the City’s current financial

position and the respondents did not say more in their answering
affidavit other than make the general statements, unsupported
by any
substantial evidence, that the order setting aside the rate would put
the City in a precarious financial position; that
it would not be
able to raise the money to repay the rates; that it would have to
budget for the repayment in the future and that
there would be a
problem in identifying the source of such additional income.
Alternatively, said the respondents, the City would
have to cut back
on essential expenditure because of the amount to be repaid which
would affect its ability to comply with its
constitutional
obligations. A further problem not dealt with in the respondent’s
answering affidavit is the distorting effect
the 28% increase in the
rates on business properties probably had in the intervening years.
The Council has approved budgets for
the 2010/11, 2011/12 and 2012/13
budget years. When it approved each budget the Council also imposed
rates. If the Council decided
to increase rates in each year by a
percentage, this would be based on the ‘once off’
increase in the rates on business
properties. The difference in the
rates imposed on business properties as a result of this distorting
effect could be considerable.
Once again, the expenditure in the
budget would have been based on this revenue. The question of the
legal status of subsequent
rates imposed and their possible repayment
is not before the court but it is not unreasonable to anticipate this
problem arising
in the not too distant future. That is the position
as far as the City is concerned. But that is not the end of the
matter.
[62] The additional 18% in the rates on business
properties was supposed to increase the rates revenue for 2009/10 by
R274 million.
This additional rate was unlawfully levied on the
owners of business properties who should not have been obliged to pay
the additional
rate to the City. Ordinarily, a person who pays
something which is not owed is entitled to repayment of the amount
wrongly paid.
That is basic fairness and accords with the principle
embodied in s 55 of the Rates Act. What is due and owing must be paid
and
what is paid in excess of what is due and owing must be repaid.
It is also consistent with s 3(3) of the Rates Act which
stipulates
that the rates policy must treat persons liable for rates
equitably and the City’s Rates Policy itself which states
unambiguously
in Item 3(1) that the policy is designed to ensure
equitable treatment by the Council in the levying of rates on
property owners
and in Item 4(h) that one of the key objectives of
the policy is to ensure that all persons liable for rates are treated
equitably
as required by the Act.
[63] Section 172 of the Constitution requires that the
court must declare conduct that is inconsistent with the Constitution
invalid
to the extent of its inconsistency and make any make any
order that is just and equitable, including (i) an order limiting the
retrospective effect of the declaration of invalidity and (ii) an
order suspending the declaration for any period and on any
conditions,
to allow the competent authority to correct the defect.
50
The prejudice suffered by the business property owner
ratepayers is manifest – they have been obliged to pay amounts
which
they do not owe and have been out of pocket for two to three
years. As against that the prejudice which would be suffered by the

City is, at best on the evidence, theoretical. The court simply does
not know because the City did not place the relevant information

before the court. In my view there is no good reason not to grant the
relief sought by SAPOA and it would not be just and equitable
to
withhold such relief. One can only speculate as to what will happen
once the relief is granted and how the City will deal with
the
problem but that is obviously a matter for the parties concerned to
resolve. In view of the likelihood of claims being instituted
to
recover the rates wrongly paid and SAPOA’s concession regarding
a three year moratorium, it would be just and equitable
to order
that, in the event of claims being instituted, the City will not be
obliged to effect repayment of any rates imposed on
the owners of
business (business, industrial and commercial) properties in the
2009/10 budget year in excess of R0,0132 in the
rand for a period of
three years from when the City’s liability for repayment is
finally determined. It would also be appropriate
to make a
declaratory order which would remove doubt about the Council’s
obligation to comply with the Systems, Finance and
Rates Acts when
the Council wishes to approve its annual budget with property rates
different from those in the tabled budget.
The City is presently in
the process of preparing its annual budget for 2013/14 and this
would, it was submitted, be a timeous
reminder for the City about its
community participation obligations. I agree.
[64] Accordingly I would have made the following order
(the prayers have been suitably amended to set out the relief sought
more
accurately):
1 The appeal is upheld with costs, such costs to include
the costs of two counsel.
2 The order of the court a quo dismissing the
application with costs, including the costs of two counsel, is set
aside and replaced
by the following orders:
‘
(1) It is declared that the
first, second and third respondents failed to comply with the
prescribed legal requirements and procedures
when arriving at their
decision on 21 May 2009 to increase the ratio between the rates
applicable to business, industrial and commercial
properties, on the
one hand, and the rates applicable to residential properties, on the
other, from 3:1 to 3,5:1;
(2) The promulgation of the assessment rate tariff of
R0,0154 in the rand on the value of business, industrial and
commercial properties
within the third respondent’s area of
jurisdiction for the 2009/10 budget year is set aside and replaced
with a rate of R0,0132
in the rand;
(3) It is ordered that the first and third respondents
shall not be obliged to repay to the owners of business, industrial
and commercial
properties any rates paid by them in excess of R0,0132
in the rand in respect of the 2009/10 budget year, for a period of
three
years as from the date on which the first and third
respondents’ liability for repayment of such rates is finally
determined;
(4) It is declared that the council of a municipality is
obliged to comply with the provisions of the
Local Government:
Municipal Systems Act 32 of 2000
, the
Local Government: Municipal
Finance Management Act 56 of 2003
and the
Local Government: Municipal
Property Rates Act 6 of 2004
when it wishes to approve an amended
budget with rates which are different from the rates in the budget
which was tabled;
(5) The first, second and third respondents, jointly and
severally, are ordered to pay the costs of the application, such
costs
to include the costs of two counsel.
________________________
B R SOUTHWOOD
ACTING JUDGE OF APPEAL
JUDGMENT
NAVSA JA (LEWIS, SHONGWE AND PETSE JJA concurring)
[65] I have read the judgment of my colleague, Southwood
AJA, and agree with his reasoning and conclusion that the Council
failed,
in determining rates for the 2009/2010 financial year and
amending its budget, to comply with its statutory obligations in
relation
to community consultation and participation. I agree that
SAPOA is entitled to a declaratory order in that regard, particularly

to inform future conduct on the part of Council. I also agree with my
colleague concerning the rationality of the decision to impose
the
rate in question. I disagree with the further orders proposed by my
colleague, which in my view are untenable in the circumstances
in
which the respondents find themselves. My reasons are set out
hereafter.
[66] The following was the relief sought by the
appellant in its notice of motion:
‘
1.
Reviewing and setting aside the annual budget for the year 2009/2010
as adopted by the first respondent at its meeting held on
21 May
2009.
2. That the promulgation of the
assessment rate tariff amounting to R0.0154 in the rand value of
business, commercial and industrial
properties in the third
respondent’s area of jurisdiction be declared null and void and
be set aside.
3. Alternatively to prayer 1
above:
3.1 Declaring that the first,
second and third respondents failed to comply with the prescribed
legislative procedures and the principle
of legality when taking
their decision on 21 May 2009 to increase the rate ratios applicable
to business, industrial and commercial
property from 3:1 to 3.5:1
3.2 Reviewing and setting aside
the decision of the first respondent to increase the rates ration
applicable to business, industrial
and commercial property from 3:1
to 3.5:1
4. That the first, second and
third respondents be directed to pay the costs of the application.’
[67] At the heart of the dispute between the parties was
the question whether, in materially amending the budget after the
Council
belatedly became aware of a substantial revenue shortfall, it
was required to follow all the statutory procedures that it was
obliged
to when it proceeds to adopt a budget in the ordinary course.
The parties were in disagreement about the application of the
legislation
and the extent and manner of public participation. My
colleague, with admirable attention to detail, resolved the dispute
and rightly
answered that question in the affirmative.
[68] It is necessary at the outset to record what
appears to be common cause, namely, that at the time that the rate in
question
was imposed, the valuation roll was in a chaotic state, not
only because the objection process was still underway, but also
because
in relation to some commercial properties there had been a
significant degree of undervaluation which, obviously, would not have

been revealed by the objection processes. In para 83 of SAPOA’s
founding affidavit the following appears:
‘
In
essence what had transpired is that the municipal valuer had
over-valued a number of properties whilst under-valuing an even

greater number of properties.’
Whilst denying that a greater
number of properties had been under-valued the following was stated
on behalf of the Council:
‘
I
agree that there has been under-valuation of properties. . . It is
not known what the extent of the under valuation is.’
In its replying affidavit, SAPOA
stated, with reference to reports by valuers:
‘
On the
probabilities - and also having regard to the affidavit deposed to by
Mr Myburgh and to the appointment of and the valuations
more recently
carried out by George Nel which is allegedly premised on a random
selection of business properties which proved to
be 100% successful –
the court, I submit, is entitled to accept that there exist a
significant number of business properties
which have been
under-valued.’
This, of course, reduced the
Council’s revenue base and contributed to an income shortfall.
The Council in more ways than
one was the author of its own
misfortune, which then became the misfortune of ratepayers.’
[69] Importantly, because of the unknowns, the variables
and the imponderables one is unable to say with exactitude, if at
all,
what the rate on any category of property would have been had
the valuation roll been rectified in time and had the statutory
public
participation processes been followed. Put differently, a rate
to deal with the revenue shortfall had not been lawfully adopted.

Thus, in my view, the order proposed by my colleague in relation to
the repayment of amounts above the originally proposed rate
of 0.0132
is ill-advised. Put simply, the Council’s failure to adopt a
rate in terms of the applicable legislation to meet
the anticipated
revenue shortfall does not mean that the prior suggested rate became
the lawful rate by default. I will, in due
course, deal with the
three-year moratorium on repayment proposed by counsel for SAPOA and
adopted by my colleague and attempt
to show why that is even more
ill-advised.
[70] Notionally, an owner of commercial property,
aggrieved at the rate improperly imposed, ought to have a claim for a
refund.
In the present circumstances such an owner might experience
difficulty in the formulation of a claim. It is, however, not an
issue
we are called upon to decide. It is significant, though, that
SAPOA did not, in its notice of motion, seek any relief in relation

to repayment, nor did the parties engage, on affidavit, on
affordability or terms of repayment or the possible future impact on

all ratepayers. Even more significantly, SAPOA, even though it
represents 90 per cent of commercial property owners, is not the

representative of all such owners. The other owners were not party to
the present litigation. As stated earlier there is the question
of
what the proper rate historically would have been. My colleague is,
with respect, correct when he states that it was recognized
on behalf
of SAPOA in so far as the setting aside of the budget is concerned,
that the egg could not be unscrambled. And as he
pointed out also,
s
172
of the Constitution requires that although the court must declare
conduct that is inconsistent with the Constitution invalid to
the
extent of its inconsistency, it may make any order that is just and
equitable. In my view it is fair and equitable now, for
the reasons I
have set out and that follow, not to order the repayment of rates
that were not validly imposed.
[71] Although counsel on behalf of SAPOA persisted in
having the rate improperly imposed set aside, he advisedly recognized
the
difficulties of a court even attempting to set aside the
2009/2010 budget, two budgetary periods thereafter. Successive
budgets
are based on surpluses or deficits from prior periods. One is
built on the outcome of the other. This, in modern language, is
called
a knock-on effect. The legality of the budgets for the
successive periods has not been challenged. Considering the knock-on
effect
it must be so that any subsequent increase in rates would have
owed its genesis to and been premised on the rate presently sought
to
be impugned.
[72] Another factor militating against the setting aside
of the 2009/2010 budget is that, given the historical over-recovery
from
the commercial sector, the lapse of time - three years hence -
will have a harsh impact on struggling individual home-owners who

would not in the intervening years have made provision for dealing
with the effects of the setting-aside of the budget.
[73] My colleague, in para 32, set out the following,
which is impeccable:
‘
Furthermore,
logic dictates that the approval of the budget must go hand in hand
with the determination of the rates as the revenue
from the rates is
essential to fund the budget expenditure. The court a quo therefore
wrongly concluded that the levying of the
rates is not an integral
part of the budget process.’
[74] In not persisting in its prayer to have the budget
for the 2009/2010 year set aside, SAPOA must have recognized
additional
practical and perhaps even jurisprudential difficulties.
If the budget were set aside expenditure on items such as libraries
and
parks, and even on capital expenditure to improve infrastructure,
would be called into question.
[75] If, as the parties and my colleague accept, the
effluxion of time and the practical realities referred to above
dictate that
the budget for the 2009/2010 year cannot be set aside,
the corollary must be that, the rate in question, which was its
principal
component, also cannot be set aside. A mathematical
equation which proposes that a principal value remains unaltered when
its most
significant constituent part is deducted has to be flawed.
If the present dispute concerning the Council’s statutory
obligations
and the manner and extent of public participation did not
have implications for the future conduct of the Council, the
application
by SAPOA might well have proved academic and liable to be
dismissed in terms of s 21A of the Supreme Court Act 59 of 1959.
51
Thus, in my view, the relief sought in paras 2 and 3 of
the notice of motion ought not to be granted. It is neither
necessary, nor
desirable, for us to offer a view as to how a claim
for a refund ought to be framed or indeed whether it is in the
present circumstances
competent at all.
[76] That brings me to the three-year moratorium on the
repayment of amounts above the originally proposed rate suggested by
my
colleague. In this regard reliance was placed on s 172 of the
Constitution. The Constitutional Court has, in appropriate
circumstances,
when declaring legislation unconstitutional, suspended
a declaration of invalidity and afforded the legislature an
opportunity
to remedy the defect.
52
In those circumstances the past and the legitimacy of
actions in terms of the impugned legislation is preserved. Sometimes
the legislation
is declared unconstitutional immediately.
53
On occasion the declaration of invalidity is suspended
conditionally.
54
Each case and resultant order is, of course, dependent
on that case’s facts and circumstances. It should not be
forgotten
that s 172 of the Constitution gives a court deciding a
constitutional matter a wide discretion to make such order as is just
and
equitable, including but not necessarily obliging an order
limiting the retrospective effect of the declaration of invalidity or

suspending the declaration of invalidity.
[77] Returning to the present case, in the ordinary
course, a creditor may well have an unfettered right to reclaim
amounts unlawfully
obtained or retained by a debtor. In the present
case there was, as stated earlier, no claim for repayment and no
engagement on
that issue on the affidavits filed on behalf of the
parties. In is not inapposite to ask the question: Whence do we
acquire the
power to restrict parties, particularly non-parties to
the litigation, who have not been heard on the issue to reclaim
amounts
that may be legitimately owing to them?
[78] I am not persuaded that due consideration was given
to the full import of the suggestion that there be a payment
moratorium
and all of its ramifications. There is certainly nothing
in the affidavits in that regard. On this aspect one needs only to
have
regard to what was stated, during February 2010, in the founding
affidavit on behalf of the SAPOA regarding the global economic
crisis
and the precarious position of businesses worldwide. The cavalier
attitude of the Council might well have caused many businesses
to
founder and fail. To say to ailing businesses that may be entitled to
recover moneys that they have to wait a further three
years would be
to add insult to injury. Furthermore, the moratorium does not take
into account a debtor’s right to raise
prescription. Is it
interrupted by the order proposed or not? From when will it commence
to run? The proposed moratorium would
be compounding an already
confused situation. Counsel did not deal with the questions raised in
this and the preceding paragraph,
either in their heads or in oral
argument.
[79] For all these reasons I would refrain from ordering
the undoing of any constituent part of the 2009/2010 budget and
adding
any additional orders other than the limited ones I propose.
Does this mean the Council can continue flagrantly flouting the law

with impunity? The short answer based on the principle of legality is
no. If it becomes clear that the Council has not rectified
or is not
willing to deal with the shortcomings in the valuation roll, an
application to court for a mandatory interdict would
be warranted in
advance of the budgetary process. If it becomes clear that the
Council intends to continue denying its constituent
ratepayers
meaningful participation in the budgetary process and that it is
resorting to irrational means in the process of determining
rates a
timeous application to court might well result in a proposed budget
or even an adopted one being set aside. It is not inconceivable
given
the history that offending officials could be ordered to pay
litigation costs personally.
[80] The following order is made:
1 The appeal is upheld with costs, such costs to include
the costs of two counsel.
2 The order of the court below is set aside and
substituted as follows:
‘
1 It is declared that the
first, second and third respondents failed to comply with the
prescribed statutory requirements and procedures
in arriving at the
decision on 21 May 2009 to impose a rate of R 0.0154 in the rand on
the value of business, industrial and commercial
properties.
2 It is declared that in the future the first respondent
is obliged to comply with the provisions of the
Local Government:
Municipal Systems Act 32 of 2000
, the
Local Government: Municipal
Finance Management Act 56 of 2003
and the
Local Government: Municipal
Property Rates Act 6 of 2004
when it materially amends a proposed
budget after it has been tabled and advertised for public comment.
3 The first, second and third respondents are ordered to
pay the costs of the application, such costs to include the costs of
two
counsel.’
_____________
M S Navsa
Judge of Appeal
APPEARANCES:
Counsel for appellant: R Stockwell SC
C McKelvey
Instructed by: Masilo-Freimond
Roodepoort
Bloemfontein
Counsel for respondent: S J Du Plessis SC
I Currie
Instructed by: Moodie & Robertson
Johannesburg
Claude Reid Inc
Bloemfontein
1
The
judgment is reported as
South African Property Owners Association
v Johannesburg Metropolitan Municipality & others
2012 (3)
SA 335
(GSJ).
2
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)
at 634D-635C;
National Director of Public Prosecutions v Zuma
[2009] ZASCA 1
;
2009 (2) SA 277
(SCA) para 26;
Thint (Pty) Ltd v National
Director of Public Prosecutions & others; Zuma v National
Director of Public Prosecutions &
others
2009 (1) SA 1
(CC)
paras 8-10.
3
Fedsure
Life Assurance Ltd and Others v Greater Johannesburg Transitional
Metropolitan Council & others
[1998] ZACC 17
;
1999 (1) SA 374
(CC) para 45.
4
[2005] ZACC 3
;
2006
(3) SA 247
(CC) paras 48 and 49.
5
See
also
Fedsure Life Assurance Ltd v Greater Johannesburg
Transitional Metropolitan Council
paras 56 and 58;
Pharmaceutical Manufacturers Association: In re Ex parte
President of the Republic of South Africa & others
[2000] ZACC 1
;
2000 (2)
SA 674
(CC) para 17 at 687D-E;
Pretoria City Council v Walker
[1998] ZACC 1
;
1998 (2) SA 363
(CC) para 85;
Gerber & others v MEC for
Development Planning and Local Government, Gauteng & another
2003 (2) SA 344
(SCA) para 35.
6
Section
151(1) of the Constitution.
7
Section
152(1)(b) and (2) of the Constitution.
8
Section
155(1)(a) of the Constitution.
9
See
preamble to the Systems Act.
10
See
preamble to the Systems Act.
11
Section
2 of the Systems Act.
12
Section
4 of the Systems Act.
13
Section
5(1)(
a
)(i) of the Systems Act.
14
Section
15 of the Finance Act.
15
Section
16(1) of the Finance Act.
16
Section
16(2) of the Finance Act.
17
Section
17(1) of the Finance Act.
18
Section
17(3)(
a
),(
b
) and (
c
) of the Finance Act.
19
Section
18 of the Finance Act.
20
Section
21(1) of the Finance Act.
21
Section
22(
a
) of the Finance Act.
22
Section
23(1) of the Finance Act.
23
Section
23(2) of the Finance Act.
24
Section
24(1) and (2)(
a
),(
b
) and (
c
) of the Finance
Act.
25
Section
2(1) and (3) of the Rates Act.
26
Section
3(1) and (3) of the Rates Act.
27
Section
4(1) and (2) of the Rates Act.
28
Section
6(1) and (2) of the Rates Act.
29
Section
8(1) of the Rates Act.
30
Section
8(2) of the Rates Act.
31
Section
11 of the Rates Act.
32
Section
45(1) of the Rates Act.
33
Section
46(1) of the Rates Act.
34
Section
12(1) of the Rates Act.
35
Section
12(2) of the Rates Act.
36
Section
13 of the Rates Act. Section 26 (1) of the Finance Act provides:
‘
(1) If
by the start of the budget year a municipal council has not approved
an annual budget or any revenue-raising measures necessary
to give
effect to the budget, the provincial executive of the relevant
province must intervene in the municipality in terms of
section
139(4) of the Constitution by taking any appropriate steps to ensure
that the budget or those revenue-raising measures
are approved,
including dissolving the council and –
appointing an administrator
until a newly appointed council has been declared elected; and
approving
a temporary budget or revenue-raising measures to provide for the
continued functioning of the municipality.’
37
Section
14 of the Rates Act.
38
Section
19 of the Rates Act.
39
Section
30 of the Rates Act.
40
Sections
50, 51, 52 and 54 of the Rates Act.
41
Sections
55, 77, 78 and 79 of the Rates Act.
42
Section
55(2) of the Rates Act.
43
SAPOA
alleged and the respondents pertinently admitted: ‘The
determination and levying of rates form an integral part of
a
municipality’s annual budget process and the amount in the
rand payable must
be
considered and if necessary be reviewed annually in order for same
to be in line with the requirements and demands of the annual
budget
for the next financial year
.
44
In
para 47.2 and 47.3 of their answering affidavit the respondents’
deponent said:
‘
The
rates income from business properties was re-aligned to the income
produced by residential properties by increasing the rate
on the
former category. The rate on business property was increased because
the percentage contribution from this category to
the total rates
income had reduced from what it was in 2007/08. The purpose of the
increase in the rate was to restore the percentage
contribution from
this category to the total rates income.’
45
Id
para 89;
Jaga v Dönges NO & another; Bhana v Dönges
NO & another
1950 (4) SA 653
(A) at 662G-663A.
46
Thoroughbred
Breeders Association v Pricewaterhouse
2001 (4) SA 551
(SCA)
para 12 of concurring judgment of Marais and Farlam JJA and Brand
AJA;
Bato Star Fishing (Pty) Ltd v Minister of Environmental
Affairs
para 90.
47
Gerber
v MEC for Development Planning and Local Government, Gauteng
2003
(2) SA 344
(SCA) paras 23-24.
48
C
T Onions (ed) The Shorter Oxford Dictionary vol 2 at 1750.
49
See
Durban City Council v Gray
1951
(3) SA 568
(A) at 580B where the court said: ‘…it is
within the powers of a court to modify the language of a statutory
provision
where this is necessary to give effect to what was clearly
the legislature’s intention’. See also
Shenker
v The Master & another
1936 AD 136
at142-143 and
Santy’s Wine and
Brandy Co (Natal) Ltd v The District Commandant, SA Police
1945
NPD 115
at 117-118.
50
Bengwenyama
Minerals (Pty) Ltd & others v Genorah Resources (Pty) Ltd &
others
2011 (4) SA 102
(CC) paras
84-85.
51
Radio
Pretoria v Chairperson, Independent Communications Authority of
South Africa
[2004] ZACC 24
;
2005 (4) SA 319
(CC) para 22.
52
Glenister
v President of the Republic of South Africa
2011 (3) SA 347
(CC)
para 251.
53
Tongoane
v Minister of Agriculture
2010 (6) SA 214
(CC) para 133.
54
Johannesburg
Metropolitan Municipality v Gauteng Development Tribunal
2010
(6) SA 182
(CC) para 95.