Summary of Judgment

1. Introduction

This was an application for declaratory relief in the High Court of South Africa, Gauteng Division, Pretoria. The applicants were Churchill House (Pty) Ltd (in liquidation) and its final liquidators cited in their representative capacities (N.O.), and the respondent was the City of Tshwane Metropolitan Municipality.

The matter arose in the context of the transfer of immovable property owned by the company in liquidation. The applicants sought an order compelling the municipality to furnish, within a short period, a full and itemised breakdown of the amounts allegedly due for purposes of obtaining a municipal clearance certificate contemplated by section 118(1) of the Local Government: Municipal Systems Act 32 of 2000. The respondent opposed the application and raised a preliminary challenge to the applicants’ standing and authority to litigate.

Procedurally, the application was launched after the applicants’ attorneys requested the relevant clearance statement from the municipality, received clearance figures that allegedly included amounts outside the statutory period, and then disputed those figures in correspondence. The application ultimately required the court to determine whether the municipality’s approach—linking the clearance computation to section 89 of the Insolvency Act 24 of 1936—was permissible, and whether the applicants were entitled to the itemised particulars sought.

2. Material Facts

The court treated the underlying factual matrix as uncomplicated and mostly common cause. The applicants (through the company in liquidation) owned immovable property comprising the sectional title units identified in the papers and in the draft order. The company was placed in final liquidation on 31 July 2020, and the liquidators were appointed as final liquidators by the Master on 23 September 2021.

It was common cause that transfer of the property could not proceed without the municipality issuing a clearance certificate, and that the applicants—through their attorneys—requested clearance figures from the respondent as contemplated by section 118(1) of the Municipal Systems Act. The respondent issued clearance figures (attached to the founding papers) which included amounts outside the two-year period ordinarily referred to in section 118(1), being two years prior to the application for clearance figures.

It was also common cause that the clearance figures included historic charges outside that two-year period because the respondent contended it was entitled, under section 89 of the Insolvency Act, to claim charges accruing during the two years prior to liquidation, in addition to charges after liquidation up to transfer. The applicants disputed this approach and demanded that the respondent rectify the figures so that they reflected only those amounts claimable under section 118(1) for the relevant two-year period. The demand elicited no response that resolved the dispute.

A dispute emerged, both in correspondence and in the litigation, about the correct temporal basis for the clearance calculation. The applicants maintained that the relevant two-year period was two years preceding the date of application for the clearance certificate (as contemplated in section 118(1)), while the respondent maintained that the municipality could calculate and demand payment with reference to two years preceding liquidation, relying on section 89 of the Insolvency Act.

3. Legal Issues

The central issues required the court to determine, first, a standing/authority question and, second, the proper interpretation and interaction of statutory provisions governing municipal clearance figures in the context of liquidation.

On the preliminary issue, the question was whether the application was defective for want of locus standi or authority, given that the founding affidavit was deposed to by a director of the applicants’ attorneys and the respondent contended the matter ought to have been brought by the liquidators, and/or required authorisation (including alleged consent from the Master or a resolution of creditors).

On the merits, the primary legal question was whether, when issuing clearance figures required for transfer under section 118(1) and (2) of the Municipal Systems Act, a municipality may include amounts said to be secured or preferred under section 89 of the Insolvency Act by calculating the relevant period as two years prior to liquidation, rather than applying the two-year period preceding the date of application for a clearance certificate contemplated by the Municipal Systems Act.

The dispute was predominantly one of law—statutory interpretation and the application of binding precedent—together with the application of those legal conclusions to largely common-cause facts. The costs issue required an evaluative judgment as to whether the opposition was sufficiently unjustified to warrant a punitive costs order.

4. Court’s Reasoning

Authority and locus standi

The court rejected the respondent’s preliminary challenge. It accepted that insisting on citation only in the name of the liquidators, rather than the company “in liquidation” (or vice versa), was pedantic, relying on authority recognising that the distinction is not decisive.

The court further held that the deponent explained his capacity, asserted authorisation to institute proceedings and depose to the affidavit, and claimed personal knowledge of the relevant facts. Importantly, the court reasoned that if the respondent wished to dispute the authority of the applicants’ attorneys to act, it could not properly do so merely in affidavits or heads of argument; the appropriate mechanism was a Rule 7 notice, which the respondent had not served.

In relation to the respondent’s contention that there needed to be specific authority from the Master or creditors for the institution of proceedings, the court relied on authority indicating that litigation conducted without the prescribed authority is not a nullity, although it may have adverse costs implications for the liquidator. The court also accepted the applicants’ submission that any absence of authority could be addressed retrospectively under section 386 (as referred to in the judgment), and it agreed with that submission.

The clearance figures dispute and the role of section 89

Turning to the merits, the court framed the dispute as being about what amounts the municipality may insist upon before issuing a clearance certificate. It quoted the statutory embargo in section 118(2) (as set out in the judgment) as requiring certification that amounts due “during the two years preceding the date of application for the certificate” have been paid.

The respondent’s case was that, in the liquidation context, the municipality was entitled (and obliged) to include amounts relating to a period two years prior to liquidation under section 89 of the Insolvency Act, together with charges from liquidation to transfer. The respondent advanced the contention that there was no rational basis to apply section 89 when an individual is sequestrated but exclude it when a juristic person is liquidated, and it sought to reconcile section 89’s two-year period with section 118’s two-year period by treating them as addressing different temporal anchors.

The court, however, emphasised that it was bound by stare decisis and treated the interpretive question as settled by binding authority. It relied in particular on Steve Tshwete Local Municipality v Fedbond Participation Mortgage Bond Managers (Pty) Ltd and Another 2013 (3) SA 611 (SCA) for the proposition that, notwithstanding the longer period referred to in section 89, liability for payment of a tax (as defined in section 89(5)) to obtain a certificate under section 118(1) in respect of property in an insolvent or liquidated estate is limited to the period mentioned in section 118(1).

The court also referred to BOE Bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA), noting that Brand JA drew a distinction between the embargo/veto in section 118(1) and the charge/security in section 118(3), treating them as separate entities and holding that section 118(3) operates as an independent, self-contained provision not subject to the time limit in section 118(1). Within the court’s reasoning, this supported a structured reading of section 118: the two-year embargo relevant to transfer is not enlarged by importing different time periods from other legal regimes, even if other mechanisms (such as section 118(3)) may protect municipalities in other ways.

Consistently with that approach, the court reasoned that section 89 is intended to limit rather than extend embargo provisions, and therefore cannot have the effect of extending the section 118(1) embargo beyond the two-year period preceding the application for a certificate. It accordingly rejected the respondent’s contention that it was entitled to insist on payment of amounts falling outside section 118(1)’s two-year period as a precondition to issuing the clearance figures/certificate.

On the form of relief, the court accepted that a dispute about the amount that must be settled before a section 118(1) certificate can be issued is a justiciable issue that may properly be determined by a court. It further held that the municipality had to explain the charges raised in the clearance figures with sufficient particularity so that the liquidators could assess the figures. This required a detailed breakdown of the computation of the section 118(1) amounts.

Costs

On costs, the court accepted that the respondent had been advised that its interpretation of section 89 was flawed, and that it was referred to relevant case law. It also remarked that organs of state are required to uphold the rule of law and not act in contravention of it.

The court accepted the applicants’ submission that there was no reason why the concursus creditorum should bear the costs of an application necessitated by the respondent’s stance. In the court’s evaluative conclusion, the opposition was unfounded, and this warranted a punitive costs order on the attorney-and-client scale.

5. Outcome and Relief

The court granted the application and made the draft order marked “X” an order of court. The respondent was declared obliged to furnish the applicants, within five days of the order, with full and itemised particulars of the amounts that may have become due under section 118(1) of the Local Government: Municipal Systems Act 32 of 2000, for municipal service fees, surcharges, property rates, and other municipal taxes, levies, and duties, limited to the period of two years prior to the granting of the order, in respect of the specified sectional title units.

The respondent was further ordered to pay the costs of the application on the attorney-and-client scale.

Cases Cited

Gainsford and Others NNO v Tanzer Transport (Pty) Ltd 2014 (3) SA 468 (SCA).

Ganes and Another v Telkom Namibia Ltd 2004 (3) SA 615 (SCA).

Lynn NO and Another v Coreejees and Another 2011 (6) SA 507 (SCA).

Steve Tshwete Local Municipality v Fedbond Participation Mortgage Bond Managers (Pty) Ltd and Another 2013 (3) SA 611 (SCA).

BOE Bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA).

Real People Housing (Pty) Ltd v City of Cape Town 2010 (1) SA 411 (CC).

Legislation Cited

Local Government: Municipal Systems Act 32 of 2000 (section 118(1), section 118(2), and section 118(3) referenced in the discussion).

Insolvency Act 24 of 1936 (section 89 referenced, including section 89(1), section 89(4), and section 89(5) as referred to in the reasoning).

Section 386 (as referred to in the judgment, in relation to retrospective authority in liquidation proceedings).

Rules of Court Cited

Uniform Rules of Court, Rule 7 (procedure to challenge the authority of an attorney to act).

Held

The court held that the respondent’s locus standi/authority objections could not succeed on the papers as presented, particularly where the respondent had not invoked the appropriate procedural mechanism (Rule 7) to challenge the attorneys’ authority. It further held that litigation instituted without certain prescribed authority in liquidation is not necessarily a nullity and may be cured, with the principal risk being adverse costs.

On the merits, the court held that, for purposes of obtaining a municipal clearance certificate, the municipality may claim only those amounts falling within the scope and temporal limitation of section 118(1) as a precondition to issuing clearance figures/certification. The municipality was therefore not entitled, by reliance on section 89 of the Insolvency Act, to include older amounts outside the two-year period contemplated in section 118(1) as amounts that must be paid to procure the clearance certificate. The court accordingly held that the municipality must provide a full and itemised breakdown of the section 118(1) amounts for the relevant period so that the liquidators can assess the computation.

The court also held that a punitive costs order was justified because the respondent’s opposition was unfounded in light of the applicable legal position and the guidance provided to it.

LEGAL PRINCIPLES

The judgment applied the principle that challenges to an attorney’s authority to act must be raised through the procedural mechanism provided in Rule 7, and that raising authority disputes informally in affidavits or argument is procedurally inappropriate where Rule 7 has not been utilised.

It reaffirmed that, in liquidation-related litigation, absence of certain prescribed authorisations does not necessarily render proceedings a nullity, though it may expose the liquidator to adverse costs consequences; moreover, authority can in appropriate circumstances be obtained retrospectively under the statutory scheme referred to in the judgment.

On municipal clearance certificates, the judgment applied binding authority establishing that the section 118(1) embargo operates with a two-year limitation tied to the date of application for the certificate, and that reliance on section 89 of the Insolvency Act does not extend that embargo period for purposes of what must be paid to obtain the clearance certificate. It also applied the interpretive approach distinguishing the section 118(1) embargo from the section 118(3) charge, treating them as separate mechanisms with different consequences, and emphasised that section 89 operates to limit rather than extend embargo provisions.

Finally, the judgment applied the principle that organs of state are expected to act consistently with the rule of law, and that punitive costs may be awarded where opposition is found to be unjustified on the established legal position.