About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, Makhanda
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, Makhanda
>>
2023
>>
[2023] ZAECMKHC 24
|
|
Enoch Mgijima Local Municipality and Another v Eskom Holdings SOC Ltd and Others (1222/2021) [2023] ZAECMKHC 24 (14 February 2023)
FLYNOTES:
RESCISSION AND MONEY OWED TO ESKOM
CIVIL
PROCEDURE – Rescission – Mistake common to the parties
– Acknowledgment of debt and payment plan agreement
–
Between Eskom and municipality – Made an order of court –
Municipality seeking rescission – Complaining
of coercion
through threats of termination of supply or by writ of execution –
Had option to interdict disconnection
– Eskom entitled to
obtain judgment – Rescission application dismissed –
Uniform Rule 42(1)(c).
IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE DIVISION
– MAKHANDA)
CASE NO.: 1222/2021
Matter heard on:
02 February 2023
Judgement delivered
on: 14 February 2023
(1) REPORTABLE: YES
(2) OF INTEREST TO
OTHER JUDGES: YES
(3)REVISED
In the matter between: -
ENOCH MGIJIMA LOCAL
MUNICIPALITY First
Applicant
MONWABISI
SOMANA Second
Applicant
and
ESKOM
HOLDINGS SOC LTD
First Respondent
BORDER-KEI CHAMBER OF
BUSINESS Second
Respondent
TWIZZA (PTY)
LTD Third
Respondent
CRICKLEY DAIRY (PTY)
LTD Fourth
Respondent
FARMHOUSE FROZEN FOODS
CC Fifth
Respondent
KINGFISHER INDUSTRIES
CC Sixth
Respondent
SIGHTFULL 142 CC t/a
SHELL ULTRA CITY
Seventh
Respondent
JUDGMENT
SMITH
J:
[1]
During December 2019 the applicant, namely the Enoch Mgijima Local
Municipality (the
municipality), and Eskom, the first respondent,
concluded an ‘Acknowledgment of Debt and Payment Plan
Agreement’ (the
settlement agreement) in terms of which it,
inter alia
, acknowledged that it owed Eskom some R265 million
in respect of electricity supplied to it. The settlement agreement
also provided
for a payment plan in terms of which the municipality
agreed to settle the debt in instalments, the first having been due
on 20
December 2019 and the final instalment on 31 July 2022. On 12
December 2019, an order issued by agreement between the parties,
making the settlement agreement an order of court. The order also
recorded that Eskom undertook to supply electricity to the
municipality
in the ordinary course, provided that the municipality
complies with the payment agreement.
[2]
It is common cause that the municipality has defaulted on the
payments due and it
now seeks rescission of the order in terms of
Uniform Court Rule 42 (1) (
c
). In terms of that rule the court
may vary or rescind an order or judgment granted as a result of a
mistake common to the parties.
The rule envisages that both parties
must be mistaken as to the true facts, or the principles of law, as
the case may be. There
must also be a causative link between the
mistake and the granting of the order. (
Tshivhase Royal Council v
Tshivhase
1992 (4) 852 (A), at 852). The second to seventh
respondents were cited as interested parties and only the
municipality opposed
the application.
[3]
The municipality contends that the mistake that resulted in the court
order arose
in the following circumstances. It is common cause that
during September 2018, Eskom published a notice in the Daily Dispatch
newspaper
declaring its intention to implement interruption of bulk
supply of electricity to the municipality in accordance with
published
schedules. The municipality contends that it was this
unlawful threat that coerced it into concluding the settlement
agreement.
[4]
The municipality disputes Eskom’s entitlement to extract
payment on threat of
termination of its electricity supply or by way
of writ of execution. It contends that its spiralling indebtedness to
Eskom was
allowed ‘by all concerned’ to escalate to the
point where it is now completely unmanageable. Referring to a
writ
of execution issued by Eskom on 17 December 2020 and its
subsequent attempts to attach and sell by public auction municipal
property
in order to satisfy the debt, which had by then ballooned to
some R457 million, it asserts that such a drastic course of action
will have catastrophic consequences for the municipality and all
citizens who live and work in it.
[5]
On 22 January 2021, the municipality’s attorneys wrote to Eskom
contesting its
entitlement to execute the writ and expressing the
view that the municipality’s parlous financial position and its
resultant
inability to settle the debt on the terms demanded by
Eskom, ‘is an intergovernmental dispute as envisaged in section
41
(3) of the Constitution and section 40 of the Inter-governmental
Relations Framework Act, 13 of 2004’. They also expressed
the
view that the impugned order falls to be rescinded on the ground that
the settlement agreement was exacted on the basis of
an unlawful
threat by Eskom to disconnect the electricity supply to the
municipality. In support of this contention they referred
to various
court cases where Eskom’s constitutional and statutory
obligations to engage meaningfully with municipalities
before
terminating electricity supply, were spelled out.
[6]
They also demanded that Eskom withdraws the writ of execution in
order to engage with
the municipality in good faith in terms of
section 41 of the Constitution. In turn, the municipality ‘undertakes
to also
engage with Eskom in good faith and in compliance with its
constitutional and statutory obligations.’
[7]
The contended common mistake relied upon by the municipality relates
to the question
whether the judgment was obtained as a consequence of
an unlawful threat by Eskom to disconnect its electricity supply.
Relying
on the Supreme Court of Appeal judgment in
Eskom Holdings
Soc Ltd v Resilient Properties (Pty) Ltd and Others
2021 (3) SA
47
(SCA) (
Resilient
), it contends that Eskom’s threat to
interrupt its electricity supply without following the prescribed
statutory procedures,
was unlawful. The Court held in that case that
Eskom was obliged to comply with the dispute resolution provisions
contained in
the Inter-governmental Relations Framework Act, 13 of
2004 (the IRFA), despite the fact that there were no real disputes
regarding
the existence of the debt or the municipality’s
inablitlty to pay. The Court held furthermore that there nevertheless
remained
a ‘live dispute’ between the parties ‘as
to how the debt would be liquidated and the remedies available to
Eskom
in the event of default’ and that it did not assist Eskom
to rely on an acknowledgement of debt. (See also the majority
judgment
of Madlanga J in
Eskom Holdings Soc Ltd v Vaal River
Development Association Ltd and Others
[2022] ZACC 44)
[8]
Mr
Buchanan
SC, who appeared for the municipality, submitted
that at the time the court order was consented to, the judgments of
the Supreme
Court of Appeal relating to Eskom’s rights and
obligations had not yet been handed down and the order was thus
obtained on
the basis of erroneous assumptions as to what the legal
position was at the time. He argued that the evidence establishes
that
both Eskom and the municipality acted on the honest –
albeit mistaken – belief that Eskom was entitled to threaten
disconnection of the electricity supply in order to exact the
settlement agreement. There therefore existed a fundamental common
mistake as to the underlying legal position, within the meaning of
rule 42 (1) (
c
), or so the argument went.
[9]
Mr
Shangisa
SC, who together with Ms
Rakgwale
appeared
for Eskom, submitted that there is no legal basis for the contention
that an order of court is a dispute that must be
referred for further
negotiations within the meaning of the IRFA. It would offend the
fundamental principle of the finality of
court orders if they are
rescinded on the basis that some further negotiations are warranted.
Any negotiations aimed at achieving
a resolution of the dispute must
be undertaken before the court order is granted and not thereafter.
This is so because court orders
constitute the final pronouncement of
a competent courts on a
lis
between the parties.
[10]
He argued furthermore that the facts of this case can be
distinguished from those in
Resilient
. In the latter case the
issue which fell for decision related to Eskom’s decision to
interrupt or terminate electricity supply
to a delinquent
municipality without complying with the provisions of the IRFA. He
submitted that the facts in
Eskom Holdings Soc v Letsemeng Local
Municipality and Others
2, All SA 347
(SCA) are on fours with
those in this case. In the latter case the Supreme Court of Appeal
held that there is nothing wrong with
a delinquent municipality
consenting to an acknowledgement of debt or monetary order, the terms
of which have been mutually agreed
to between it and Eskom. Such a
judgment is binding and may not be rescinded on the ground that it
was unlawfully obtained. The
Court thus endorsed Eskom’s
entitlement to enforce payment on account of a monetary order or
acknowledgment of debt.
[11]
He submitted that, in any event, the assertion that the legal
principle entitling a municipality
to interdict a threatened
interruption of its electricity supply by Eskom was first enunciated
in
Resilient
, is incorrect. On the contrary, there is a
plethora of cases that were decided before
Resilient
where
interdicts were granted prohibiting Eskom from terminating, reducing
or interrupting the supply of electricity to delinquent
municipalities, subject to its right to compel payment.
[12]
He argued that the legal position before
Resilient
was
consequently that (a) a municipality who was aggrieved by Eskom’s
decision to interrupt its electricity supply was entitled
to apply
for a prohibitory interdict against Eskom, in which event, (b) Eskom
was entitled to compel payment, which was usually
achieved through
relief sought way of a counter-application, an acknowledgment of
debt, or a court order consented to by the municipality.
He submitted
that Eskom has in any event complied with the provisions of the IRFA
in that it has, since January 2021, attempted
to assist the
municipality with managing its affairs. Eskom has since then
repeatedly invited the municipality to declare a dispute
in terms of
the IRFA, but to no avail.
[13]
Before I turn to consider the arguments advanced on behalf of the
parties, it is perhaps necessary
to mention that Eskom has made it
clear that it has no intention of disconnecting or terminating the
municipality’s electricity
supply in order to exact payment of
the outstanding debt. It is instead asserting its right to hold the
municipality to the terms
of the court order and, if necessary, to
execute on it.
[14]
The municipality’s assertion that the order was granted in
error is based on the following
suppositions. At the time when Eskom
published its intention to interrupt its electricity supply in
accordance with the stated
schedule, the judgment in
Resilient
had not yet been delivered. The municipality was consequently not
aware of the principle enunciated in that case regarding Eskom’s
constitutional and statutory obligations before it can disconnect the
electricity supply of delinquent municipalities. It was thus
of the
erroneous belief that it had no legal remedy to resist that threat
and was consequently browbeaten into concluding the settlement
agreement in order to avoid the calamitous consequences that would
have flowed if Eskom had followed through on its threat. Its
decision
to consent to judgment was accordingly informed by its erroneous
understanding of the law. The municipality contends that
Eskom
laboured under the same misapprehension. This much is evident from
the fact that it appeared to believe that it was entitled,
in terms
of the law, to threaten termination or disconnection of electricity
in order to extract payment from defaulting municipalities,
hence the
publication of its intention to interrupt the municipality’s
electricity supply, or so the argument went.
[15]
The difficulty with this argument, as Mr
Shangisa
has
correctly submitted, is that it is a matter of public record that
courts (in this division and elsewhere in the country) have
issued
interdicts against Eskom prohibiting it from disconnecting
electricity supply to defaulting municipality’s without
following proper procedures long before
Resilient
was decided.
While the Court in
Resilient
may since have pronounced
authoritatively on the issue, it is not correct to suggest that
municipalities have not found sanctuary
in the remedy of interdictory
relief before
Resilient
. And even if the municipality had been
labouring under this erroneous understanding of the law, it is
indisputable that Eskom has
had to defend numerous such applications
by desperate municipalities before
Resilient
, some of them
having been brought in this Court. Thus even if the municipality was
motivated by this erroneous understanding of
the law, the same cannot
be said of Eskom. The mistake was therefore not common to the
parties.
[16]
There is, moreover, another reason why the application must fail, and
it is this. I do not believe
that there is any causal connection
between the contended mistake and the granting of the order. It is
common cause that the municipality
was indebted to Eskom to the
extent of the amount acknowledged in the settlement agreement. It was
therefore in its best interests
to negotiate for repayment terms
which it believed – at least at the time - it could afford,
otherwise Eskom would have been
entitled to claim the full
outstanding debt. The fact that it has consented to the settlement
agreement being made an order of
court was also inconsequential,
since Eskom would in any event have been entitled to obtain judgment
on the basis thereof.
[17]
The stark reality for the municipality is that rescission of the
impugned order will in any event
not change the fact that it owes
Eskom an astronomical sum of money, and more ominously, that the debt
seems to continue growing
exponentially by the month. The order it
seeks in this matter, while it may have allowed some temporary
reprieve, is therefore,
in any event, not the solution to its
daunting problem.
[18]
Having said this, one cannot help but ponder what the judgment of
this Court will mean for both
parties. The municipality is
understandably concerned about Eskom’s entitlement to attach
and sell municipal assets pursuant
to the order. It is not difficult
to conceive of the disastrous consequences that such a course of
action will have for those unfortunate
citizens who live and work
within its boundaries. Moreover, there can be little doubt that
execution will be a pyrrhic victory
for Eskom, who is likely to
recover only a miniscule amount that will hardly make a dent in the
municipality’s astronomical
debt. In addition, the remedy of
contempt of court proceedings is also likely to yield only limited
results. To my mind, the key
to the resolution of this daunting
dilemma lies within the hands of the parties. It is only they who,
perhaps with the assistance
of other organs of state, can work out a
solution that will be mutually beneficial and allow the municipality
to commit to a sustainable
payment plan that will enable it to settle
the debt within a reasonable time. The renegotiated terms of payment
can then hopefully
be reinforced through an agreed variation of the
court order. At the hearing of the matter I have requested the
parties to consider
the possibility of such an arrangement, but Eskom
declined the opportunity, perhaps because it was understandably
concerned about
losing the advantage guaranteed by the existence of
the court order. Now that it has the assurance that the court order
will remain
extant, one hopes that it will reconsider its position
regarding this possibilty. However, there can be little doubt that
any attempt
to resolve the impasse on this basis will depend to great
extent on the municipality’s commitment to accountable
governance
and to carry out its constitutional obligations. It must
also commit to strict adherence to the peremptory terms of the
Electricity
Regulation Act, 4 of 2006, which, amongst others, enjoin
it to ring-fence and keep separate financial accounts of its
electricity
reticulation business. I am, for obvious reasons, not at
liberty to make any orders in this regard, be it structural or
otherwise,
and my comments are driven only by the earnest hope that a
solution will be devised for this formidable problem faced by so many
municipalities across the country. But, in the final analysis,
it is my judicial function to pronounce on the current
lis
between the parties.
[19]
I am, for the reasons explained above, of the view that the
municipality failed to establish
that the impugned court order was
granted as a result of a mistake common to the parties. In the result
the following order issues:
(a)
The
application is dismissed with costs, including those costs occasioned
by the employment of two counsel.
JE
SMITH
JUDGE
OF THE HIGH COURT
Appearances:
Counsel
for the Applicants
:
Adv. RG Buchanan SC
: Wesley
Pretorius & Associates Inc.
: C/o
Whitesides Attorneys
53 African Street
MAKHANDA
(Ref.: Mr Barrow)
Counsel
for the 1
st
Respondents :
Adv. SL Shangisa SC
Adv. L Rakgwale
: Smith
Tabata
: C/o
Netteltons Attorneys
118A High Street
MAKHANDA
(Ref.: I. Pienaar)