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[2008] ZASCA 146
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City of Johannesburg v Even Grand 6 CC (09/08) [2008] ZASCA 146; 2009 (2) SA 111 (SCA) ; [2009] 2 All SA 24 (SCA) (27 November 2008)
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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case
No: 9/08
CITY
OF JOHANNESBURG
Appellant
and
EVEN
GRAND 6 CC
Respondent
Neutral
citation:
City
of Johannesburg v Even Grand
(9/08)
[2008] ZASCA 146
(27 November 2008)
Coram:
STREICHER,
BRAND, LEWIS, MAYA JJA and BORUCHOWITZ AJA
Heard:
18
NOVEMBER 2008
Delivered:
27
NOVEMBER 2008
Summary:
Properties
sold in terms of s 34(2) of
Administration of Estates Act 66 of
1965
–
s 118(2)
of
Local Government: Municipal Systems Act
32 of 2000
not applicable – interpreting
s 118(1)
according to plain meaning does not lead to result not intended by
legislature.
_______________________________________________________________________
ORDER
_______________________________________________________________________
On appeal from:
High Court, Johannesburg (Khampepe J sitting as court of first
instance)
The appeal is
upheld with costs and the order of the court a quo is set aside and
replaced with the following order:
‘
The
application is dismissed with costs.’
_______________________________________________________________________
JUDGMENT
_______________________________________________________________________
STREICHER JA
(
BRAND,
LEWIS, MAYA JJA and BORUCHOWITZ AJA
concurring)
[1] The issue to
be decided in this appeal is whether a municipality is obliged,
against payment by an insolvent of the proceeds
of the sale of its
immovable property, to issue a certificate that the property rates
and other fees payable to it in connection
with the property have
been paid despite the proceeds being less than the amount owed to the
municipality.
[2] Mr Manfred
Hamburger, acting on behalf of a close corporation to be formed (the
respondent being that close corporation) purchased
four immovable
properties (Erven 2394 and 2537, Jeppestown, Erf 64, Malvern and Erf
152, Jeppestown South, Johannesburg) at a public
auction for a
purchase price of R17 000. The auction was held at the instance
of the executor in the Estate Late M E Ramos,
acting in terms of
s 34
of the
Administration of Estates Act 66 of 1965
. The amount owed to
the appellant in respect of the four properties was some R80 000.
[3] In terms of
s 34(1)
of the
Administration of Estates Act the
executor of a
deceased estate shall on the expiry of the period allowed for the
lodging of claims against the estate, satisfy himself
as to the
solvency of the estate and if he finds the estate to be insolvent, he
shall report the position of the estate to the
creditors, informing
them that unless the majority in number and value of all the
creditors instruct him to surrender the estate
under the
Insolvency
Act 24 of 1936
, he will proceed to realise the assets in the estate
in accordance with the provisions of
s 34(2).
Section 34(2)
provides that if the executor has not been directed to surrender the
estate, he shall sell the assets in the estate.
[4] Having sold
the assets in the estate, the executor has to submit to the master an
account of the liquidation and distribution
of the estate (see
s 34(7)(a)).
In terms of
s 34(7)(b)
such account ‘shall
provide for the distribution of the proceeds in the order of
preference prescribed under the
Insolvency Act, 1936
, in the case of
a sequestrated estate’.
Section 34(13)
stipulates that the
provisions of the section shall not prevent the sequestration of any
estate in terms of the
Insolvency Act.
[5
] In terms of
s 118(1) of the Local Government: Municipal Systems Act 32 of
2000 (‘the Systems Act’), the registrar
of deeds may not
register the transfer of a property except on production of a
prescribed certificate (‘a clearance certificate’)
that
the municipal service fees, surcharges on fees, property rates and
other municipal taxes, levies and duties (‘municipal
debts’)
that became due in connection with the property during the two years
preceding the date of application for the certificate,
have been
fully paid. However, the respondent contended that, in terms of
s 89
of the
Insolvency Act, the
appellant was obliged, against payment of
the proceeds of the sale of the properties, to issue a certificate
that all municipal
debts in respect of the properties had been paid.
As the municipal debts that had become due during the two years
preceding the
date of application for the certificate were
substantially more than R17 000 (some R80 000, as indicated
above) the appellant
refused to issue a clearance certificate. The
respondent thereupon applied for, amongst others, an order:
‘
1.1 That
the respondent (the appellant in the appeal) issue and provide to the
applicant (the respondent in the appeal) clearance
certificates, as
envisaged in
Section 92(1)
of the
Deeds Registries Act No. 47 of
1937
, valid for a period of no less than two months in respect of the
following erven: 64 Malvern Township, 152 Jeppestown South Township,
2394 and 2537 Jeppestown Township, against payment of R17 000,00.’
[6]
Section
92(1)
of the
Deeds Registries Act referred
to in the order relates to
certificates in respect of the payment of taxes and other amounts to
the Government and provincial administrations
and not to the payment
of amounts due to local authorities. By the time of the hearing of
the matter in the court a quo the respondent
had come to realise that
s 118(1) of the Systems Act was the applicable section and not
s 92(1)
of the
Deeds Registries Act. The
matter was then argued
on the basis that, in terms of s 118(1) and (2) of the Systems
Act, read with
s 89
of the
Insolvency Act, the
appellant was
obliged, against payment of the proceeds of the sale of the
properties, to issue certificates that all municipal
debts had been
paid.
[7] Section
118(2) of the Systems Act provides that, in the case of the transfer
of property by a trustee of an insolvent estate,
the provisions of
s 118 are subject to
s 89
of the
Insolvency Act. In
terms
of
s 89(1)
of the
Insolvency Act any
tax as defined in
s 89(5)
in relation to immovable property ‘which is or will become due
thereon in respect of any period not exceeding two years immediately
preceding the date of sequestration of the estate in question and in
respect of the period from that date to the date of the transfer
of
that property by the trustee of that estate, . . . shall form part of
the costs of realization’ of that property. It provides
further
that such costs ‘shall be paid out of the proceeds of that
property, if sufficient and if insufficient and that property
is
subject to a special mortgage, landlord’s legal hypothec,
pledge, or right of retention the deficiency shall be paid by
those
creditors,
pro
rata
,
who have proved their claims and who would have been entitled, in
priority to other persons, to payment of their claims out of
those
proceeds if they had been sufficient to cover the said cost and those
claims’.
[8] Relying on
the provisions of s 118(2) of the Systems Act the court a quo
held that s 118 was subject to the provisions
of
s 89
of
the
Insolvency Act when
applied to the transfer of the properties.
Proceeding from this premise the court a quo reasoned as follows: In
terms of
s 89(1)
the amount claimed by the appellant constituted
costs of realizing the properties, which had to be paid out of the
proceeds of
the properties if sufficient, and, if not sufficient, by
creditors who had proved their claims and who would have been
entitled,
in priority to other persons, to payment of their claims
out of those proceeds if they had been sufficient to cover the cost
of
realizing the properties and these claims. There were no such
creditors with the result that the cost of realizing the properties
could only be paid out of the proceeds of the properties. If the
legislature intended that, in these circumstances, the purchaser
of
property should make payment of the balance required in order to
procure a certificate in terms of
s 118
it would have expressed
itself in no uncertain terms. Stating that ‘it is a truism that
you cannot bleed a stone’ the
court a quo concluded that ‘upon
a proper construction of the relevant provisions of the Systems Act
read with
s 89
of the
Insolvency Act, the
respondent (the
appellant in the appeal) is obliged to accept in fulfilment of all
its claims against the insolvent estate, the
proceeds of the
properties in the sum of R17 000,00.’
[9] The court a
quo nevertheless made an order in the terms prayed for, ie it ordered
the appellant to issue clearance certificates
‘as envisaged in
Section 92(1)
of the
Deeds Registries Act&rsquo
;, but granted the
appellant leave to appeal to this court. In the light of the argument
presented in the court a quo, and also
the court a quo’s
reasoning, it probably intended to order that clearance certificates
be issued in terms of s 118(1)
of the Systems Act to the effect
that the municipal debts that had become due in respect of the
properties have been paid in full.
The appeal was argued on this
basis.
[10] The premise
on which the court a quo based its reasoning is wrong. Section 118(2)
of the Systems Act provides that in the case
of the transfer of
property by a trustee of an insolvent estate the provisions of s 118
are subject to
s 89
of the
Insolvency Act. In
the present case
we are not concerned with the transfer of property by a trustee of an
insolvent estate, we are concerned with
the transfer of property by
an executor of an estate that is insolvent. Moreover, ‘insolvent
estate’ is defined in
s 2
of the
Insolvency Act as
an
estate that is under sequestration and
s 89
of the
Insolvency
Act deals
with such estates. The estate late Ramos has not been
sequestrated. As stated above the creditors did not instruct the
executor
to surrender the estate. As a result the properties were
sold in terms of
s 34(2)
of the
Administration of Estates Act.
It
follows that transfer of the properties in question is not, in
terms of
s 118(2)
, subject to the provisions of
s 89.
[11] In a letter
written after the hearing of the appeal the respondent’s
attorney objected to the matter being decided on
this basis, on the
ground that it was not contended in the court a quo, in the
application for leave to appeal, in the notice of
appeal or in the
appellant’s heads of argument in this court, that the transfer
of the properties is not subject to the provisions
of
s 89.
There is no merit in this objection. The relevant facts are known and
are common cause. It is specifically stated in the respondent’s
founding affidavit, and admitted in the appellant’s answering
affidavit, that
sections 34(1)
and (2) of the
Insolvency Act had
been
complied with, that the creditors in the estate did not require the
estate to be surrendered under the
Insolvency Act and
that the
properties were sold in terms of
s 34(2).
The reference to
sections 34(1)
and (2) of the Insolvency Act was clearly erroneous
and intended to be a reference to
sections 34(1)
and (2) of the
Administration of Estates Act. Sections
34(1) and (2) of the
Insolvency Act deal
with the disposal of a business by a trader.
Moreover, powers of attorney by the executor annexed to the founding
affidavit bear
a stamp by the Master to the effect that the estate is
being administered in terms of
s 34
of the
Administration of
Estates Act. In
the circumstances it is of no consequence that the
appellant did not, until the matter was argued in this court, advance
the submission
that the case does not concern the transfer of
property by a trustee from an insolvent estate and that s 118(2)
of the Systems
Act is for that reason not applicable. Unrestricted
leave to appeal was granted to the appellant and the appellant was
free to
advance any legal argument based on these common cause
facts.
1
Had the argument not been advanced by the appellant the members of
the bench would in any event have questioned the applicability
of
s 118(2).
[12] Before us
the respondent, relying on the provisions of the
Insolvency Act read
with
s 34(7)(b)
of the
Administration of Estates Act, submitted
that unless the amount payable in terms of
s 118(1)
in order to
obtain the required certificate, is limited to the proceeds of the
sale of the particular property, the municipality
is in effect given
a preference over other assets of the insolvent estate and that to do
so was impermissible.
[13] As stated
above
s 34(7)(b)
provides that the distribution account which
the executor has to submit to the Master has to provide for the
distribution of the
proceeds of the sale of the properties ‘in
the order of preference prescribed under the
Insolvency Act, 36 of
1936
, in the case of a sequestrated estate’. In terms of
s 118(3) of the Systems Act an amount due in respect of
municipal
debts is a charge upon the property in connection with
which the amount is owing and enjoys preference over any mortgage
bond registered
against the property.
Section 89(4)
of the
Insolvency
Act qualifies
these provisions by providing that ‘notwithstanding
the provisions of any law which prohibits the transfer of any
immovable
property unless any tax as defined subsection (5) due
thereon has been paid, that law shall not debar the trustee of an
insolvent
estate from transferring any immovable property in that
estate for the purpose of liquidating the estate, if he has paid the
tax
which may have been due on that property in respect of the
periods mentioned in subsection (1) and no preference shall be
accorded
to any claim for such a tax in respect of any other period’.
[14] Section
118(1) of the Systems Act gives the appellant the right to veto the
transfer of property until such time as the rates
and other amounts
due in respect of the period of two years preceding the date of
application for the certificate have been fully
paid. In the result
the appellant’s claim is indeed, in effect, given a preference
over other creditors. However, the section
does not create any
preference in favour of a municipality when it comes to the
distribution of the assets or the proceeds of the
assets in the
estate.
2
It provides a municipality with a different remedy to the one
provided by s 118(3).
3
Section 118(1) is therefore not affected by the provisions of
s 34(7)(a), which deals with the order of preference applicable
upon the distribution of an estate being administered in terms of
s 34(2). It follows that, in so far as the claim of the
appellant is given preferential treatment in terms of s 118(1),
neither s 118(2) nor s 34(7)(a) contains any indication
that, in the case of an insolvent estate being administered in terms
of s 34(2), the legislature had a different intention.
[15] The only
other argument advanced for interpreting s 118(1) so as to
oblige a municipality to issue a clearance certificate
in respect of
an immovable property against payment of the proceeds of the sale of
that property is that it would be absurd to
interpret the section
otherwise, because such an interpretation may result in it being
impossible to dispose of a property where
the municipal debts due in
terms of the section, during the two years preceding the date of
application for the certificate, exceed
the amount for which the
property can be disposed of.
[16] In
Venter
v Rex
4
Innes CJ said that when to give the plain words of a statute their
ordinary meaning would lead to absurdity so glaring that it
could
never have been contemplated by the legislature, or where it would
lead to a result contrary to the intention of the legislature,
as
shown by the context or by such other considerations as the Court is
justified in taking into account, the Court may depart
from the
ordinary effect of the words to the extent necessary to remove the
absurdity and to give effect to the true intention
of the
legislature. However, ‘the absurdity must be utterly glaring
and the intention of the legislature must be clear, and
not a mere
matter of surmise or probability.’
5
[17] In order to
be of assistance to the respondent one would have to interpret the
section so as to contain a proviso that, in
the event of the proceeds
of the sale of the property to be transferred being less than the
municipal debts due in respect of
the property in respect of the two
years preceding the date of application for the certificate, and in
the event of the transferor
not having any funds to pay such
municipal debts, a certificate should be issued by the municipality,
against payment of the proceeds
of the purchase price, certifying
that such municipal debts have been fully paid.
[18] In my view
there is no basis on which it can be held that the legislature
intended s 118(1) to be read subject to the
aforesaid proviso.
Although, upon payment of the municipal debts due in connection with
a property, a municipality is obliged
to issue a clearance
certificate to that effect, the section deals with a function of the
registrar of deeds and not with the discharge
of the obligation to
pay such municipal debts. Put differently, although a registrar of
deeds may not register the transfer of
property except on production
of a clearance certificate for the required period the section does
not purport to prescribe to a
municipality what amounts it may or may
not accept in settlement of the municipal debts due to it. This is a
matter dealt with
elsewhere in the Systems Act. In terms of s 109(2)
of the Act a municipality may compromise or compound any claim. It
follows
that a municipality may agree to accept the purchase price of
property or a lesser amount in payment of the municipal debts payable
in respect of a property. If such purchase price is indeed the best
price that can be achieved for the property, if no more can
be
recovered from the property owner, and if there is no prospect that
the municipality may in the future be able to recover such
municipal
debts from the property owner, a local authority will probably be
prepared to accept a lesser sum in payment thereof.
By doing so it
would enable the property to be transferred to a new owner who would
upon transfer become liable to pay the rates
and other municipal fees
and charges payable in respect of the property. For these reasons I
am not persuaded that to interpret
s 118 according to the plain
meaning of the section would lead to a result that could not have
been intended by the legislature.
[19] In the
result the appeal is upheld with costs and the order of the court a
quo is set aside and replaced with the following
order:
‘
The
application is dismissed with costs.’
_____________________
P E STREICHER
JUDGE OF APPEAL
APPEARANCES:
For appellant: R
A Solomon SC
K N Tsatsawane
Instructed by:
Kunene Ramapala
Botha, Johannesburg
Claude Reid
Inc, Bloemfontein
For
respondent: D W Phillips
Of Nathanson
Bowman & Nathan, Johannesburg
Matsepes,
Bloemfontein
1
Van Rensburg v Van Rensburg and others
1963 (1) SA 505
(A) at
510A; and
Cabinet for the Territory of South West Africa v
Chikane and another
1989 (1) SA 349
(A) at 360F-G.
2
See
Rabie NO v Rand Townships Registrar
1926 TPD 286
;
South
African Permanent Building Society v Messenger of the Court,
Pretoria, and others
1996 (1) SA 401
(T); and
Nel NO v Body
Corporate of the Seaways Building and another
[1995] ZASCA 83
;
1996 (1) SA 131
(A) at 134B-135D.
3
BOE Bank Ltd v Tshwane Metropolitan Municipality
2005 (4) SA
336
(SCA) para 7.
4
1907 TS 910
at 914-915.
5
Shenker v The Master and another
1936 AD 136
at 143.