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[2011] ZASCA 92
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Eedenprop (Pty) Ltd v Kouga Municipality (541/10) [2011] ZASCA 92; [2011] 4 All SA 121 (SCA) (31 May 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
C
ase No:
541/10
In the matter between:
EEDENPROP (PTY) LTD
................................................................
Appellant
and
THE KOUGA MUNICIPALITY
..................................................
Respondent
Neutral citation:
Eedenprop
v Kouga Municipality
(541/10)
[2011] ZASCA 92
(31 May 2011)
Coram:
CLOETE, HEHER,
MAYA, SNYDERS JJA and PETSE AJA
Heard: 11 May 2011
Delivered: 31 May 2011
Summary:
Land
Use Planning Ordinance 15 of 1985(C) ─ whether the conditions
of sub-division and re-zoning were waived ─ whether
a contract
for reimbursement to developer of cost of provision of essential
services for a development, by a municipality from
rates generated by
that development, constitutes a sharing of rates which is unlawful
and impermissible ─ whether there has
been non-compliance with
the provisions of ss 172 and 173 of the Municipal Ordinance 20 of
1974(C).
___________________________________________________________
ORDER
On appeal from:
Eastern
Cape High Court (Port Elizabeth) (Sangoni J sitting as court of first
instance):
The appeal is upheld with costs.
The order of the court a quo is
set aside and in its place the following order is substituted:
‘
(a) The
agreement concluded between the appellant and the Jeffreys Bay
Transitional Local Council (the predecessor in title of the
respondent) on 24 October 2000 is declared to be of full force and
effect.
(b) The respondent is ordered to
pay to the appellant all amounts due in terms of chapter VI of such
agreement, including interest
at the legal rate from the date upon
which such amounts were due and payable, to the date of payment
thereof.
(c) The respondent is ordered to
pay the costs occasioned by this application, including interest on
such costs at the legal rate
calculated as from the date of taxation
to the date of payment.’
___________________________________________________________
JUDGMENT
PETSE AJA (CLOETE, HEHER, MAYA
and SNYDERS JJA concurring)
[1] This appeal concerns the
question whether an agreement concluded between the appellant and the
Jeffreys Bay Transitional Local
Council, the predecessor-in-title of
the respondent, the Kouga Municipality, is valid and thus
enforceable. On 24 October 2000
the appellant entered into a written
agreement (the agreement) with the Jeffreys Bay Transitional Local
Council in terms of which
the appellant undertook, subject to the
terms and conditions spelt out in the agreement, to develop a
retirement village on a portion
of land. It is common cause that the
respondent is the successor-in-title to the rights and obligations
arising from the said agreement.
I shall, for the sake of
convenience, as counsel have done in their heads of argument, refer
to both the Jeffreys Bay Transitional
Local Council and the Kouga
Municipality as the respondent.
[2] The appellant was the
registered owner of the land, being portion 13 (a portion of portion
8) of the farm Kabeljauws River No
328 (the farm) in the district of
Humansdorp in the Eastern Cape Province, measuring 34,9201 hectares.
The appellant desired to
develop a portion of that land comprising
16,4797 hectares as a retirement village. To accomplish this
objective the appellant
made an application for re-zoning and
sub-division of the land to the Western District Council, in whose
jurisdiction the land
fell at that stage, in terms of the Land Use
Planning Ordinance 15 of 1985 (LUPO). The application was approved on
14 September
2000, subject to conditions to which I shall return. The
retirement village would include in the first phase of the
development
82 freehold stands, a sectional title scheme consisting
of 161 units, a service centre comprising community and frail care
facilities
and an additional 100 freehold stands during the second
phase of the development. The appellant undertook to construct
‘internal
services’ which were to be transferred to the
Homeowners Association, which the appellant was required to form in
accordance
with an associated tripartite written agreement entered
into between the respondent and the Eedenglen Homeowners Association
when
such services were finalised and approved by the respondent. The
appellant also undertook to erect bulk water and electricity supply
systems and to connect such infrastructure to the respondent’s
infrastructure at its own cost, in addition to payment of
the sum of
R406 244 as a bulk services contribution to the respondent. It was
also agreed that both the internal services installation
and internal
reticulation would, upon completion to the satisfaction of the
respondent, become the property of the respondent.
It is not in
dispute that the appellant fulfilled its contractual obligations in
terms of the agreement and expended substantial
costs in excess of
R11 million in doing so.
[3] It is appropriate, at this
point, to mention that the sub-divided portion of the land excised
from portion 13 of the farm was
incorporated into the area of
jurisdiction under the control of the respondent with the consequence
that the ownership of the infrastructure
laid on the land by the
appellant became vested in the respondent, as was envisaged in the
parties’ agreement.
[4] Chapter VI of the agreement
provides:
‘
VI.
COST LIABILITY AND THE PROVISIONS OF SERVICES
It is a basic
principle of local government that any development such at (sic)
this, should not in any way be to the detriment of
the local rate
payers but that it should rather be to the advantage of both the rate
payer and the Developer. In view of the fact
that the Developer
personally carry the burden of all the development costs and interest
thereon in order to provide the internal
services and the connector
services (external), the council undertakes to annually pay as from
completion of the development as
envisaged in par. VIII to the
Developer 60% of the assessment rate income levied in respect of the
development area as well as
all the availability charges levied,
provided that the payments thus to be made to the Developer shall in
any one year not exceed
12.5% of the total cost of the scheme, which
payments will in any event terminate 15 years from the date of
completion of the construction
work pertaining to the services
envisaged herein or as soon as the cost of the services has been
fully paid whichever is the earlier.
The Developer shall on demand
submit to the Council’s Town Treasurer, such as may be required
documentary proof (certified
by it’s Engineer) of the total
cost of the internal services i.e. roads, stormwater, water and
electricity reticulation and
sewerage, and the annual loan costs,
before any of the payment contemplated in this paragraph shall be
made. It is a condition
hereof that the Developer shall not be
entitled to cede or make over in any way monies thus payable by the
Council to the Developer.’
[5] Upon completion of the
construction of the development and its approval by the respondent,
the appellant wrote to the respondent
on 27 October 2006 advising it
of this fact and also submitting certificates by various consultants
certifying that the construction
work had been undertaken to their
satisfaction. Simultaneously the appellant advised the respondent of
the total cost of the project
and called upon the respondent to
implement the terms of chapter VI of the agreement. The respondent
commenced with making payments
to the appellant in accordance with
the formula agreed upon in terms of that chapter until January 2009
when it questioned the
lawfulness of the payments by contending that
the agreement was ‘unenforceable’.
[6] When the appellant’s
best endeavours ─ following a futile exchange of correspondence
─ to resolve the impasse
amicably
,
came to naught
,
it instituted
proceedings in the Port Elizabeth High Court seeking first, a
declarator that its agreement with the respondent was
of full force
and effect and second, an order directing the respondent ‘to
comply fully with its obligations arising from
the agreement
including the obligations imposed upon it by virtue of the provisions
of chapter VI . . .’. The appellant’s
application was
dismissed by Sangoni J and this appeal against his judgment is now
before us with the leave of the court a quo.
[7] On appeal the respondent
relied on three principal grounds. It contended that there had been
no compliance by the appellant
with the conditions of sub-division
and rezoning imposed by the Western District Council nor proof that
such conditions had been
waived; that the formula provided for in the
agreement in relation to the repayment of the amount expendable by
the appellant in
the provision of ‘internal services’ and
infrastructure in terms of which the respondent was entitled to
receive the
rates collected from the development and was obliged to
pay over 60 per cent thereof, to the appellant, in effect meant that
the
appellant was receiving a share in taxes collected by an organ of
state
,
something that, it was submitted,
is inimical to good governance; and that there had been
non-compliance with the provisions of
ss 172 and 173 of the Cape
Municipal Ordinance 20 of 1974. I now turn to deal with each of the
above contentions in turn.
Non-compliance with conditions
of sub-division and rezoning
[8] In support of its contention
that the conditions imposed by the Western District Council were
neither complied with nor waived,
the respondent argued that as such
conditions were in extant at the time of the conclusion of the
agreement the only remedy that
the appellant had, if it were of the
mind that such conditions were for whatever reason unacceptable to
it, is that it should either
have appealed against their imposition
in terms of the
Promotion of Administrative Justice Act 3 of 2000
, or
have had them judicially reviewed. As neither of these options was
exercised by the appellant the administrative act of the
Western
District Council must perforce stand. The respondent relied on the
judgment of this court in
Oudekraal Estates (Pty) Ltd v City of
Cape Town
2004 (6) SA 222
(SCA) at 242A-C. Whilst the respondent
is correct on the principle it is, however, my view that its reliance
on the
Oudekraal
case is misplaced. The simple answer to it is
that the appellant’s case proceeds entirely from the premise
that the respondent,
in signing the agreement, in effect waived the
condition under consideration in this appeal imposed by the Western
District Council.
[9] When the Western District
Council approved the appellant’s subdivision and re-zoning
application by letter dated 14 September
2000 it did so, as I have
said, subject to certain conditions. The letter of approval expressly
stipulated that ‘this approval
is subject to the conditions
imposed in terms of
section 42
as set out in the annexures hereto’.
One of the annexures, annexure B, provides (in part):
‘
The
following further conditions shall be applicable:
(a) services such as
water reticulation, electricity, sewerage reticulation, refuse
removal, storm water disposal and any accesses
to private
thoroughfares from public roads shall be provided by the developer at
his cost . . . .’
[10]
Section 42
of LUPO referred
to in the letter just quoted provides, to the extent relevant, as
follows:
‘
42
Conditions
(1) When . . . a
council grants . . . an application . . . he may do so subject to
such conditions as he may think fit.
(2) Such conditions
may, having regard to ─
(a) the community
needs and public expenditure which in its opinion may arise from the
authorisation, exemption, application or
appeal concerned and the
public expenditure incurred in the past which in . . . its opinion
facilitates the said . . . application
. . . and
(b) the various
rates and levies paid in the past or to be paid in the future by the
owner of the land concerned,
include conditions
in relation to . . . or the payment of money which is directly
related to requirements resulting from the said
. . . application in
respect of the provision of necessary services to the land concerned.
(3) Subject to the
provisions of the Removal of Restrictions Act, 1967 (Act 84 of 1967),
. . . a council, . . .may in relation to
a condition imposed under
subsection (1), after consideration of objections received in
consequence of an advertisement in terms
of subsection (4) and after
consultation with the owner of the land concerned . . .
(a) waive or amend
any condition, . . .
(b) . . .
(4) The . . . town
clerk or secretary, where a council may so act . . . shall, if he is
of the opinion that the waiver or amendment
of conditions under
subsection (3) adversely affects the interest that any person has in
land, advertise the proposed waiver or
amendment of conditions . .
.’.
[11] In addition to chapter VI,
quoted above, the contract between the appellant and the respondent
provided:
‘
1.5
The Developer shall be obliged and undertakes to give effect to all
the conditions upon which the subdivisional and rezoning
applications
have been approved such as conditions laid down in terms of section
42 of Ordinance 15 of 1985.’
The letter from the Western
District Council dated 14 September 2000 together with annexures
comprises chapter VII of the agreement.
[12] There is a potential
conflict between Clause 1.5 and chapter VII on the one hand and
chapter VI on the other: The first two
provisions contemplate an
absolute obligation on the appellant as contemplated in s 42(2) of
LUPO to pay for the cost of services,
but the latter obliges the
respondent to pay for this. The obvious way to resolve the potential
conflict is to interpret the former
provisions as imposing a
temporary obligation on the appellant to pay for the costs of the
services in full and, once this has
been completed, to the
satisfaction of the respondent, an obligation on the respondent to
reimburse the appellant according to
the provisions of chapter VI.
[13] The respondent’s
counsel submitted that such an interpretation would require a waiver
or an amendment by the respondent
of conditions imposed by the
Western District Council, which would be void for want of compliance
with s 42(3) and (4) of LUPO
in as much as there had been no
publication of an intention to waive the condition imposed by the
Western District Council. The
argument is without merit. In terms of
subsec (3), before a council may waive or amend a condition imposed
under subsec (1), it
must consider objections in terms of subsec (4)
and consult with the owner of the land concerned. The owner of the
land concerned
was the appellant. The respondent obviously consulted
with him. And there was no other person who had any interest in land
as contemplated
in subsec (4). There was therefore no necessity to
advertise.
Share in local government
taxes (rates)
[14] The case sought to be made
out by the respondent on this score is predicated on the provisions
of ss 151, 156, 217 and 229
of the Constitution of the Republic of
South Africa, 1996 and a whole host of Acts all of which define the
powers, functions and
duties of municipalities in relation to the
sphere of local government. (See
Local Government: Municipal Finance
Management Act 56 of 2003
,
Local Government: Municipal Systems Act 32
of 2000
; Local Government Transition Act 209 of 1993 (since repealed
by the
Local Government Laws Amendment Act 19 of 2008
)). It was
argued that the fundamental theme manifest in all these legislative
prescripts is that every municipality is enjoined:
to conduct its
affairs in an effective, economical and efficient manner to optimise
one of its resources in addressing the needs
of the community; to
conduct its financial affairs in an accountable and transparent
manner; and to structure and manage its budgeting
and planning
processes to give priority to the basic needs of the community. It
was therefore contended that the real effect of
the agreement is that
the respondent’s power to determine rates payable by the owners
within the development is compromised,
because a large proportion of
such rates is allocated to the appellant thereby advancing the
appellant’s commercial interests.
[15] This argument cannot be
upheld. That it is the respondent alone that determines the rates and
collects them (albeit through
the agency of the Homeowners
Association), is beyond doubt. The fact that the respondent employs
funds generated through rates,
which after all are a major source of
revenue for a municipality, does not, in my view, detract from this.
The agreement benefits
both parties. The appellant, although being
obliged to lay out the expenditure necessary for the provision of
essential services,
will be reimbursed therefor and will be able to
sell the units in the development. The respondent, although being
obliged to make
the reimbursement, became the owner of the
infrastructure and received the benefit in perpetuity of the rates
from the development,
and payment for services used by the occupants
of the units in the development. What the respondent seeks to do is
to renege on
its obligation to make the reimbursement, which was an
essential term of the agreement without which the appellant would not
have
undertaken the development, on the basis that rates should be
employed for the benefit of all, when it would never have had the
income from such rates had it not entered into the agreement in the
first place.
Applicability of ss 172 and
173 of the Municipal Ordinance 20 of 1974
[16] Section 172(1) reads as
follows:
‘
(1)
A council shall, by notice published in the press, invite tenders
before entering into any contract which is for ─
the execution of
any work for or the supply or sale of any goods or materials to the
council and which involves or is likely to
involve an amount
exceeding such amount as the Administrator may from time to time
either generally or specially determine in
respect of contracts
entered into by such council, and
the sale of any
goods or materials by the council.’
[17] Thus s 172(1) enjoins a
(municipal) council to invite tenders by notice published in the
press before entering into any contract
which is for the execution of
any work for the supply or sale of any goods or material to the
council which exceeds or is likely
to exceed an amount as determined
from time to time in respect of such contracts; and the sale of any
goods or materials by the
council. The court a quo found that these
legislative prescripts were not complied with and consequently held
that such non-compliance
rendered the agreement unlawful and of no
force and effect. In reaching this conclusion it relied on a host of
judgments of, inter
alia, this court. (See
City of Tshwane
Metropolitan Municipality v RPM Bricks (Pty) Ltd
2008 (3) 1
(SCA);
Municipal Manager:
Qaukeni Local Municipality v FV
General Tracking CC
2010 (1) SA 356
(SCA);
Premier, Free State
v Firechem Free State (Pty) Ltd
2000 (4) SA 413
(SCA);
Eastern
Cape Provincial Government v Contractprops 25 (Pty) Ltd
2001 (4)
SA 142
(SCA)).
[18] To my mind the court a quo
was incorrect in finding that s 172(1) was relevant to the
determination of the dispute raised on
the papers. The terms of
chapter VI of the agreement clearly fell outside the purview of s 172
as they were neither ‘for
the execution of any work’ nor
‘for the supply or sale of any goods or materials’ to the
council.’ What
in fact chapter VI plainly envisaged, in my
view, was the provision of infrastructure and ‘internal
services’ by the
appellant at its own cost on land not
belonging to the respondent to the satisfaction of the respondent
which, after completion
thereof, would become the property of the
respondent. In that event the respondent was contractually bound to
re-imburse the appellant
for such cost as it, upon becoming the owner
of the infrastructure and internal services, and, as I have said,
acquired an additional
revenue base that it would, but for the
agreement, not otherwise have had.
[19] The court a quo also found
that the respondent was obliged to comply with s 173(4) of the
Municipal Ordinance 20 of 1974 which
reads:
‘
(1)
. . .
. . .
. . .
(4) No contract
contemplated by subsection (1) or (2) and no amendment to any such
contract shall come into force until ─
(a) The council has
by publication in the press given notice of its intention to enter
into such contract or to make such amendment,
and
(b) The
Administrator has approved such contract or amendment.’
This conclusion by the court a
quo was misconceived because the reference in s 173(4) to a
‘contract’ is, as was submitted
by counsel for the
appellant, a reference to contracts with other local authorities or
with any other ‘person for the exercise
or performance, whether
jointly or by any of the contracting parties, of any power, duty or
function whatsoever which the council
is from time to time by law
authorised or required to exercise or perform.’ The contract
between the parties was not such
a contract for the reasons already
given in para 18 above.
[20] For all the aforegoing
reasons I am satisfied that the belated attempt by the respondent to
resile from the agreement, was
untenable.
[21] In the result the following
order is made.
The appeal is upheld with costs.
The order of the court a quo is
set aside and in its place the following order is substituted:
‘
(a) The
agreement concluded between the appellant and the Jeffreys Bay
Transitional Local Council (the predecessor in title of the
respondent) on 24 October 2000 is declared to be of full force and
effect.
(b) The respondent is ordered to
pay to the appellant all amounts due in terms of chapter VI of such
agreement, including interest
at the legal rate from the date upon
which such amounts were due and payable, to the date of payment
thereof.
(c) The respondent is ordered to
pay the costs occasioned by this application, including interest on
such costs at the legal rate
calculated as from the date of taxation
to the date of payment.’
___________________
XM Petse
Acting Judge of Appeal
APPEARANCES
APPELLANT: RG Buchanan SC
Instructed by Pagdens, Port
Elizabeth;
McIntyre & van der Post,
Bloemfontein.
RESPONDENT: A Beyleveld SC
(Ms) M Beneke
Instructed by McWilliams &
Elliot, Port Elizabeth;
Webbers, Bloemfontein