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[2016] ZAGPPHC 855
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Public Investment Corporation Limited v Local Municipality of Madibeng (16611/2010) [2016] ZAGPPHC 855 (21 September 2016)
IN
THE HIGH COURT OF SOUTH
AFRICA
GAUTENG
DIVISION, PRETORIA
REPORTABLE
OF
INTEREST TO OTHER JUDGES
CASE
NO: 16611/2010
DATE:21/9/2016
In
the matter between:
PUBLIC
INVESTMENT CORPORATION
LIMITED
…......
Plaintiff
and
LOCAL
MUNICIPALITY OF
MADIBENG
…....
Defendant
JUDGMENT
JANSEN
J
[l]
The plaintiff, in its particulars of claim, relied on three zero
coupon stock certificates issued by the local Municipality
of
Madibeng (or rather its predecessor-in-title the Brits Town Council).
The plaintiff is the Public Investment Corporation Ltd,
a juristic
person established as a company in terms of the provisions of section
2 of the Public Investment Corporation Act 23
of 2004, (the
successor-in-title of the Public Investment Commissioners established
in terms of the Public Investment Commissioners
Act 45 of 1984).
[2]
It is nowhere pleaded in respect of which loans the defendant issued
the zero coupon stock certificates.
[3]
In its plea, the defendant pleads, as a special plea, that the
plaintiff s claims had prescribed. Within the body of its plea
(not
as a special plea) the defendant pleaded that it had not duly been
authorised to issue the zero coupon certificates. The zero
coupon
certificates, so the defendant pleads, were issued in contravention
of the Local Government Ordinance 17 of 1939
("the
Ordinance")
and the defendant further pleads that it was not
in law duly authorised to issue the zero coupon bonds to the
plaintiff.
[4]
The defendant further pleads that: -
•
At all material times,
and in particular, on 11 January 1994, when the zero coupon
certificates were issued, the defendant was a
municipality to which
the Ordinance applied;
•
the zero coupon
certificates upon which the plaintiff relies, purport to have been
issued in terms of section 52 of the Ordinance;
•
the issuing of the zero
coupon certificates to the plaintiff amounted to raising a loan;
•
in terms of section
52(l)(a) and (b) of the Ordinance, the defendant could only raise a
loan for purpose of defraying expenditure
in the execution of its
powers; or repaying an existing loan; or to finance temporarily loan
expenditure or expenditure on revenue
account incurred in
anticipation of receipt of revenue estimated in terms of section 58
and from which the expenditure would have
been defrayed;
•
in terms of section 52(2)
of the Ordinance, the defendant could only raise a loan contemplated
in section 52(1) with the prior written
approval of the Administrator
appointed in terms of section 68 of the Union of South Africa Act,
1909;
•
the loans allegedly
raised by the issuing of the certificates were not raised for any of
the purposes contemplated in section 52(1)
of the Ordinance and were
not raised with the prior written approval of the Administrator. The
Administrator could not have validly
and lawfully approved the
raising of the loans in view of the fact that the purpose of such
loans would in any event have been
unlawful;
•
the defendant further
pleaded that were it to be held that the Administrator did give
written approval, such approval would have
been
ultra vires
due
to the fact that the purpose for which the loans were purportedly
raised is not a purpose for which the Administrator could
in law have
validly and lawfuUy approve such certificates;
•
hence the raising of the
loans by the issue of the zero coupon certificates was accordingly
ultra vires,
did not and could not have created a valid and
lawful obligation capable of giving rise to any of the claims upon
which the plaintiff
relies in these proceedings;
•
there is, accordingly, no
valid debt owing by the defendant to the plaintiff due to the fact
that the basis of the plaintiff s claims
is invalid and of no force
and effect in law for the reasons stated above.
[5]
It was further pleaded that in te:rms of section 52(3) of the
Ordinance, when a loan contemplated in section 52(1)(a) of the
Ordinance is raised, for example, by the issue of zero coupon
certificates, the provisions of the Johannesburg Municipality
Borrowing
Powers Ordinance 3 of 1903
("the Johannesburg
Ordinance")
shall apply
mutatis mutandi.
The
defendant pleads that the issue of the zero coupon certificates
breaches sections 5, 6, 7, 8, 22, 25, 29, 39 and 53 thereof
and the
format prescribed by sections 9 and 20 of the Johannesburg Ordinance.
[6]
In its replication the plaintiff pleads that the loans or
transactions giving rise to the litigation were not regulated by the
Ordinance nor was section 52 or any other provisions thereof
applicable to the loans, alternatively if they were, the defendant
was represented by a duly authorised representative further,
alternatively, the defendant is estopped from denying the authority
giving rise to the loan agreements and/or transactions.
[7]
The defendant also counterclaimed for repayment of the amounts it had
paid in terms of the coupons on the basis of unlawful
enrichment of
the plaintiff (the
condictio indebiti),
and.,
inter alia,
relied on such payments to demonstrate that prescription had been
interrupted.
[8]
Confusion seemed to reign in the defendant's mind as it conflated a
loan with the security for a loan
(in casu
being a zero coupon
certificate). However, this is an argument for another day.
[9]
A mere two days before the trial, the defendant served a Rule 31(4)
notice on the plaintiff seeking a separation of issues -
namely that
the issue of the validity and enforceability of the zero coupon
certificates be heard separately. This was initially
opposed by the
plaintiff but, given the time limit available for the hearing and the
fact that the plaintiff had not sought a special
trail date, it was
decided, with the assistance of the court, in order to utilise the
limited days available properly, to hear
the issue of the validity
and enforceability of the zero interest certificates frrst and to
separate it from the other issues.
[I0]
The parties were afforded the opportunity to prepare and answer a
proper Rule 33(4) application and heads of argument in respect
thereof. The court understood that the matter could be argued with
reference to the voluminous discovery bundles without hearing
oral
evidence, and that the affidavits to be filed in the Rule 33(4)
application would serve as a guide to the relevant discovered
documents for the court's convenience.
[I
I] The remainder of the issues in 1he trial was postponed
sine
die.
[12]
It was agreed and accepted by the court that any evidence required
would be in the form of affidavit evidence and that the
defendant
bore the onus regarding the validity issue.
[13]
It should also be borne in mind that in order to establish upon which
litigant the onus rests to prove the invalidity/validity
of the
certificates, the pleadings have to be analysed. The question is
whether the issue of the certificates is merely
prima facie
proof
of their validity, and whether the defendant's onus to prove the
invalidity of the zero coupon certificates was a full onus
or only
one of rebuttal.
[14]
For example, in respect of a patent issued in terms of the
Patents
Act 57 of 1978
, it is stated that a patent will be regarded as
prima
facie
valid, but nonetheless the party attacking its validity
bears the onus to prove it. The same principle applies to a
registered trade
mark registered in terms of the
Trade Marks Act 194
of 1993
.
[15]
It is trite that a court may not give judgment or make a ruling in
respect of matters which are not before it as was held by
a full
bench. In the judgment of
Mamela Taxi Rank (Pty) Ltd v Mamela
Taxi Association and Others
(CA 155/2010) [2010) ZAECMHC
31 (28 October 2010),
the court at paragraph
[23],
held: -
"A
trial or legal proceedings can only be fair
if,
inter
alia,
the persons
against
whom
the
order
is
made
are parties to
the
litigation,
the material issues are adequately canvassed in the papers,
ventilated
bv the evidence
and addressed
during argument
bv
the parties to the
l
itigation."
(Emphasis added)
[16]
In
Kouesa v
Minister of Home Affairs, Namibia and
Others
1996 (4) SA 965
(NmS) the Namibian Court of Appeal held at
973I-974A: -
"It
would be wrong for judicial officers to rely for their decisions on
matters not
put be/
ore
them by litigants neither
in evidence or in oral
or written s
ubmissions. Now and
again a Judge comes across a
point not
argued before him by counsel but which he thinks material to
the resolution of the case. It is his duty in such a
circumstance to inform counsel on both sides and to invite them to
submit arguments
either for or against the Judge's point. It is
undesirable for a Court
to deliver
a judgment with a substantial portion containing issues never
canvassed or
relied
on
by
counsel
"
(
Emphasis added)
[17]
The principle has now been endorsed by the Supreme Court of Appeal in
National
Director of Public Prosecutions v Zuma (Mbeki and others
intervening)
[2009] ZASCA 1
;
2009 (2) SA 277
(SCA)
and confirmed in
Ekurhuleni
Municipality v
Dada NO
and
others
[2009]
3
All
SA
379
(SCA).
At pages 287-288
(paragraph 15), Harms DP in
Zuma
supra
stated: -
".
..in
exercising the judicial function judges are themselves constrained by
the law. ... ... This commendable approach was unfortunately
subverted by a failure to confine the judgment to the issues before
the court; by deciding matters that were not germane or relevant;
by
creating new/actual issues; ...
..."
[18]
The essence of the
Zuma
matter is therefore that a
court cannot make a finding on an issue which was never raised in,
e.g. argument.
[19]
The relevance of section 48A of the Ordinance has now pertinently
been raised by the defendant and the plaintiff is fully aware
thereof
and had ample opportunity to respond thereto in written or oral
argument. This section is dealt with below and has an important
impact on the validity or otherwise of the zero coupon certificates.
[20]
Once this is the case, the court may take the section into
consideration and reach a conclusion. It often happens that a party
overlooks a section of an Act and only argues it at a hearing of a
matter. Should the point seem meritorious, the manner in which
a fair
trial is guaranteed is by allowing the other party an opportunity to
prepare and deliver oral or written arguments in respect
thereof.
This will ensure that no trial by ambush takes place. As stated, the
plaintiff,
in casu,
was given ample time to deliver written
and oral argument on the point.
[21]
Two further points of substance were raised by the parties. The
plaintiff argued that where a contract, for example, is based
on a
statutory illegality, it is held to be void
ab initio.
It
referred to the case of
Metro Western
Cape
(Pty) Ltd v Ross
1986 (3) SA 181
(A)
where Metro Cash
and Carry was carrying on the business of a general dealer without a
certificate of registration and licence. In
that case, section 3 of
Ordinance 15 of 1953 provided that: -
"No
person shall carry on a business unless he is in possession of a
certificate of registration and a licence issued to him
in terms of
this ordinance."
[22]
The Court at p 188 A - B held that: -
"It
is a principle of our law that a thing done contrary to the direct
prohibition of the law is generally void and of no effect; the
mere
prohibition operates to nullify the act:
Schierhout v Minister
of
Justice
1926 AD 99
at
1m,. lf therefore on a true construction of s
3
the
contracts in question are rendered illegal, it can make no
real
difference in
point of law what the
other objects of the
ordinance are.
They
are then void ab iniitio and a complete nullity under
which
neither party can acquire rights whether there is an intention
to
break the
law
or
not.
"
[23]
That case differs from the current one in that in this matter a
"licence", to use the analogy, was issued in this
matter
but is stated to be defective. Hence, the zero coupon certificates
were issued due to administrative action as defined in
the
Promotion
of Administrative Justice Act 3 of 2000
.
[24]
The plaintiff, on the other hand, argued that in circumstances where
an administrative act is stated to be unlawful, a proper
application
for the review of the relevant administrative action should be
brought. It referred to the matter of
MEC for Health, Eastern
Cape and Another v
Kirland Investments
(Pty) Ltd
(CCT 77/13) (2014] ZACC 6;
2014 (5) BCLR 547
(CC);
2014
(3)
SA
481
(CC)
(25
March 2014)
at
paragraph
(64)
where the Constitutional Court held as
follows: -
"Can
a decision
by a state official, communicated to the
subject,
and in reliance on which it acts, be set aside
by a court even when government has
not
applied
(or counter-applied) for the
court to
do
so? Differently put, can a court exempt government from the burdens
and
duties
of
a proper
review
application,
and
deprive
the subject of the
protections these
provide, when it seeks to disregard one of its own officials'
decisions? That is the question th
e
judgment of Jafta J
(main judgment) answers. The answer it gives is Yes. I disagree. Even
where the decision is defective -as the
evidence here suggests –
government should generally not be exempt from
the
forms and processes of review. It
should
be held
to the pain and
duty
of
proper process. It must apply formally for a
court to
set aside
the
defective decision, so that
the court can properly consider its effects on
those
subject to it.
"
[25]
In developing this principle, the Constitutional Court at paragraph
[102],
held that: -
"In
the present case, the Supreme Court of Appeal relied on this passage
in concluding that the Department was not entitled
simply to ignore
the approval.
[1]
And rightly.
In doing so, the Court acted
in
accordance with the stature Oudekraal has acquired over the
last
decade. It has been consistently applied by the Supreme Court of
Appeal
[2]
as well as by this
Court.
[3]
The underlying
principle, that public officials may not take the law into their own
hands when seeking to override conduct with
which they disagree, has
also
been
given effect in three cases involving schools' policies on admission
of
learners."
[26]
The Constitutional Court summarised the principle at paragraph
(105]
as follows: -
"The approval
communicated to Kirland was therefore, despite its vulnerability to
challenge, a decision taken by the incumbent
of the office empowered
to take it, and remained effectual until properly set aside. It could
not he ignored or withdrawn by internal
administrative fiat. This
approach does not insulate unconstitutional administrative action
from scrutiny. It merely requires government
to set about undoing it
in the proper way. That is still open to government. "
[27]
It is unnecessary for purposes of the present to deal with these
interesting issues. Section 48A of the Ordinance allows the
council
to invest revenue in stock, funds and securities as contemplated in
section 33 of the Johannesburg Ordinance. Section 53
of the said
Ordinance, raised in the defendant's plea, unambiguously provides the
complete answer to the defendant's point on authority.
It provides as
follows: -
"A
person in good faith applying for any stock on the issue thereof or
purchasing taking or holding stock once issued or advancing
money in
good faith to the Council for on the security of the stock issued or
to he issued shall not he concerned to enquire or
to take notice
whether the creation or issue thereof was or was not authorised under
the issuing or borrowing powers of the Council
or otherwise in
accordance
with any Ordinance
relating to such borrowing
powers or whether or not the Council or any meeting thereof was
properly constituted or convened or whether
or not the proceedings at
any meeting of the Council W(;ire legal and valid or regular or
whether or not the conditions of issue
were valid or have been duly
observed or to see to any application of any moneys raised by the
stock. A
certificate o( stock valid as to form once issued
purporting to be by or on behalf of the Council to a person
taking the same in good faith and for good consideration shall be
legal
and valid for all purposes in the hands of such person and
anyone taking from or through him notwithstanding any defect
informality
or illegality in the creation or issue of any of the
stock in respect of which such certificate is or purports to be
issued or
tin the making or issue of such certificate or that the
amount of stock authorised or resolved on has been or will be
exceeded
or that such certificate is a duplicate or repetition of any
certificate previously issued."(Emphasis added)
[28]
Once this is so, then the defendant possessed the requisite authority
to issue the zero coupon certificates and the defendant's
plea has no
merit.
[29]
I pause to deal with the "certificate of stock valid as to form
once issued" contained in section 53.
[30]
It was argued on behalf of the defendant that the zero coupon
certificates had to con ;:,ly with the form set out in the Schedule
to the Johannesburg Ordinance. Sections 9 and 20 of the Ordinance
provide that the zero coupon certificates for inscribed stock
and
stock to bearer shall be in the form set out in said Schedule. The
prescribed wording for both stock differs from that contained
in the
zero coupon certificates relied upon by the plaintiff.The wording of
the form for the inscribed stock certificate reads
as follows:
"This
is
to
certify
that
is
the
proprietor
of
_
pounds
of
Johannesburg
Municipal
Stock
subject
to
Ordinance
No
_of
1903
relating
thereto
and
to
the
conditions
of
issue.
"
[31]
Whereas the wording of the form of the bearer stock certificates
reads that: -
"This
is to certify that the Bearer of this certificate
is
entitled to
pounds of Johannesburg Municipal Stock with
interest thereon at the
rate
of
per
cent per annum subject to Ordinance
No.
of
1903 relating thereto and to the conditions of issue.
The
Coupons
attached
to
this
Certificate
are
payable at
----
When
the Coupons
are
exhausted this Certificate will be exchanged on
presentation
at
for anew certificate with fresh
. Coupons attached..."
[32]
It was further argued that the zero coupon certificates could not be
described as stocks contemplated in section 6 of the Johannesburg
Ordinance.
[33]
In this regard, the matter of
AllPay Consolidated Investment
Holdings (Pty) Ltd and Others v Chief Executive Officer, South
African Social Security Agency and
Others
2014 (1) SA 604
(CC)
makes
it clear that the true test is whether the purpose which the
administrative actions were intended to serve, have substantially
been achieved.
[34]
Given that the import of the wording of the zero coupon certificates
is no different to the wording set out above, one can
safely state
that the purpose of the administrative action has substantially been
achieved and that there has been due compliance
with the prescripts
regarding the form of the certificate of stock. This argument hence
also founders.
[35]
Regarding the plea of estoppel raised by the plaintiff, the law is
clear that as far as a defence of estoppel is concerned,
it cannot
apply when it is utilised to perpetuate affairs prohibited by the law
as was held in
Land
and
Agricultural Development Bank v Panama Properties
2014 (2) SA
545
(GJ).
[36]
This principle was endorsed in clear terms in the matter of
City
of
Tshwane Metropolitan Municipality v
RPM Bricks (Pty) Ltd
2008 (3) SA 1
(SCA)
at paragraph 16: -
"There
are formidable obstacles to the plaintiff s reliance upon the
doctrinal device of estoppel Assuming in the plaintiff’s
favour
that all of the requirements for its successful invocation have been
established, this is not a case in which it can be
allowed to
operate. It is settled law that a state of affairs prohibited by law
in the public interest cannot be perpetuated by
reliance upon the
doctrine of estoppel (Trust Bank van Afrika Bpk v Eksteen
1964 (3) SA
402
(A) at 411H-412B), for to do so would be to compel the defendant
to do something that the statute does not allow it to do. In effect
therefore it would be compelled to commit an illegality (Hoisain v
Town Clerk, Wynberg
1916 AD 236).
"
Conclusion
[37]
It is held that the zero coupon certificates issued by the defendant
are valid and that the defence of the defendant
is without
merit and a mere dilatory defence.
[38]
That this is the case is further borne out by the fact that the
defendant's council, as can be seen from the: discovered
documents, such as its financial statements and various resolutions,
acknowledged its indebtedness towards the plaintiff on many
occasions.
Punitive
Costs
[39]
A punitive costs order was sought against the defendant, given the
fact that it knew that the point of authority was without
merit, and
a mere delaying tactic. The court agrees with this contention.
Order
The
separate issue regarding the alleged invalidity of the zero coupon
certificates is dismissed with a punitive costs order,
such order to
include the costs of two counsel.
____________________
JANSEN
J
JUDGE
OF THE HIGH COURT
For
the Plaintiff
Advocate P Mokoena SC, P
Khoza
Instructed
by
Werksmans Attorneys
(011 535 8145) (Ref: Mr
Manaka/PUBL6593.34)
For
the Defendant
Advocate K Tsatsawane, Xolani Mofokeng
Instructed
by
Gildenhuys Lessing Malatji Inc
(012 428 8600) (Ref: M
Kanyane/bc/01604996)
[1]
1MEC for Health, Eastern Cape and Another v Kirland lnvestments
(Ply) Ltd tla Eye & Laser Institute 2014(3) SA 219 (SCA)
at para
20.
[2]
As pointed out by the defendant in its heads of argument - in Seale
v Van Rooyen NO and Others; Provincial Government, North
West
Province v Van Rooyen NO and Others (20081 ZASCA 28;
2008 (4) SA 43
(SCA) at para 14, the Court, applied Oudekraa/, and held that acts
performed on the basis of the validity of a prior act are
themselves
invalid when the frrst decision is set aside. At para 13 the Court
rejected an argument, allegedly in reliance on
Oudekraal, that the
later (second) act could remain valid despite the setting aside of
the first. Norgold Investments (Ply) Ltd
v Minister of Minerals ancl
Energy of the Republic of South Africa and Others
(2011) ZASCA 49
;
(2011) 3 All SA 610
(SCA) at para 46.
[3]
The defendant furthermore referred to Camps Bay Ratepayers'
Association and Another v Harrison and Another
(2010) ZACC 19
;
2011
(4) SA 42
(CC);
2011 (2) BCLR 121
(CC) (Camps Bay) at para 62 and
Bengwenyama Minerals (Ply) Ltd and Others v Genorah Resources (Ply)
Ltd and Others
(2010) ZACC 26
;
2011 (4) SA 113
(CC);
2011 (3) BCLR
229
(CC) (Bengwenyama Minerals). At para 85. 1n Njongi v MEC,
Department of Welfare, Eastern Cape [2008) ZACC 4
[2008] ZACC 4
; ;
2008 (4) SA 237
(CC);
2008 (6) BCLR 571
(CC) at paras 44-5, the Court held that
until an act is found to be unlawful it is presumed to be valid as
omnia praesumuntur
rite esse acta, and agreed that only a court of
law can determine whether an administrative act alleged to be
''void" is
lawful.