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[2015] ZAFSHC 104
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Ngwathe Local Municipality v Eskom Holdings Soc Ltd and Others (4425/2014) [2015] ZAFSHC 104 (28 May 2015)
FREE
STATE
HIGH
COURT, BLOEMFONTEIN
REPUBLIC
OF
SOUTH AFRICA
Case
No: 4425/2014
In
the matter between:
NGWATHE
LOCAL
MUNICIPALITY
Applicant
and
ESKOM
HOLDINGS SOC LTD
1
st
Respondent
MEMBER
OF THE EXECUTIVE COUNCIL,
CO-OPERATIVE
GOVERNMENTS,
TRADITIONAL
AFFAIRS AND HUMAN
SETTLEMENTS,
FREE STATE PROVINCE
2
nd
Respondent
MEMBER
OF EXECUTIVE COUNCIL,
FINANCE,
FREE STATE GOVERNMENT
3
rd
Respondent
CORAM
:
JORDAAN, J
JUDGMENT
BY
:
JORDAAN, J
HEARD
ON:
28
APRIL 2015
DELIVERED
ON
:
28 MAY 2015
[1]
The applicant, a local municipality, under whose jurisdiction the
towns of Parys, Edenvale, Heilbron, Koppies and Vredefort
in the Free
State falls, brought an urgent application against first respondent
with the purpose of interdicting first respondent
from disconnecting
the bulk electricity supply to the applicant pending the finalisation
of the application. It also sought
an order compelling first
respondent to resume negotiations which were allegedly commenced with
the applicant on the 31
st
of July 2014, for purposes of striving to reach consensus on the
repayment of arrears owing by the applicant to the first respondent
for the supply of the aforesaid electricity. The prayers also
foresaw the possibility of consensus not being reached in which
event
it was proposed that the parties appear before court for purposes of
a structured interdict regulating payment of arrears.
In
paragraph 2.4 of the Notice of Motion the applicant asks for an order
that, pending consensus between the parties in regard
to the
repayment of the arrears, the applicant be ordered to ensure that its
current account with first respondent is paid promptly
and that it
will effect payments in accordance with a payment plan sanctioned by
the applicant’s council on the 30
th
September 2014. The matter was enrolled to be heard on the 3
rd
of October 2014.
[2]
At the hearing of the matter first respondent appeared and the
parties then, by agreement, reached an interim understanding
which
was made an order of court. The interim agreement was to the
effect that the first respondent (herein later called
Eskom)
undertook not to disconnect the electricity supply to the applicant
pending finalisation of the application, the applicant
be allowed to
file supplementary affidavits and Eskom allowed to file a counter
application if so advised. Paragraph 8 of
the aforesaid
agreement and order of court read as follows:
“
The
applicant Municipalities are, pending the finalisation of the
applications, to pay over to Eskom Holdings SOC Ltd, all amounts
recovered in respect of electricity to the maximum amount billed by
Eskom Holdings SOC Ltd.”
(It
needs to be mentioned that the plural was used because there were a
few other similar applications enrolled for the same date.
The
interim agreement applied to all those applications.)
[3]
In terms of the interim ruling affidavits were filed as well as a
counter application on behalf of Eskom and the matter postponed
to a
further date and again postponed twice until it was finally heard on
the 31
st
of April of this year.
HISTORICAL
BACKGROUND
[4]
The background history leading to the said application is not in
dispute and indeed common cause. Like most, if not all
other
municipalities in the country, the applicant buys bulk electricity
from Eskom in terms of a written agreement between the
parties.
Payment for electricity so bought and supplied during a specific
month has to be paid in the month following upon
the month it was
supplied. The applicant started to fall in arrears in paying
its account with Eskom so that in January 2009
it was in arrear in
the amount of R6,3 million, a year later in January 2010 the arrears
amounted to R10,6 million, in 2011 it
amounted to R30 million, in
January 2012 amounted to R61 million, in 2013 R113 million, in
January 2014 R194,7 million and in September
2014 the amount of
R274,8 million.
[5]
During the aforesaid period the parties negotiated with a view of
reaching consensus as to the payment of arrears and keeping
the
account up to date.
Inter
alia
the applicant submitted a payment plan on the 21nd of November 2013
according to which the applicant undertook to keep the current
account fully paid and to make payments towards arrears so that the
amount of arrears would, according to the payment plan be reduced
to
R109 million as at April 2014. When the payment plan was
submitted the arrears amounted to R169 million. The payment
plan foresaw that the arrears would be fully paid by November 2014.
[6]
In actual fact however, the applicant still did not pay its current
account in full causing the arrears to escalate so that,
in April
2014 when it should have been R109 million according to the payment
plan, it escalated to an arrear amount of R216 million.
That
led Eskom to give notice to the applicant that it intended
discontinuing the supply of electricity, which notice was dated
the
8
th
May 2014. Eskom’s intention to do that was also published
in newspapers for comment on the 6
th
of June 2014. The public notice published intimated that Eskom
intends discontinuing the supply of electricity to the applicant
on
the 21nd of July 2014, it invites submissions and comments to be
delivered on or before the 27
th
of June 2014 and it further indicates that Eskom would, after
consideration of the aforesaid, publish its final decision in a
notice on the 14
th
of July 2014.
[7]
The applicant then alleges that Eskom indeed published a notice
during July 2014 to the effect that the supply of electricity
will be
disconnected to the applicant on the 4
th
of August 2014.
[8]
The officials of the applicant then became involved in negotiations
with Eskom again and also involved the second and third
respondents
in those negotiations. The purpose of the negotiations
obviously was to reach agreement as to an acceptable payment
plan to
pay off the arrears and the current account with Eskom. Eskom
in the meantime undertook to suspend its decision to
discontinue
supply pending the outcome of the negotiations. It remained
however adamant that the notice of intention to discontinue
was only
suspended and not withdrawn so that Eskom could, if need be, continue
with the discontinuation of the supply in terms
of the notices.
[9]
As aforesaid, various other municipalities were involved in the same
problem at that stage and it was agreed that all those
municipalities
would provide a payment plan to Eskom for the latter’s
approval. In view of that a payment plan on behalf
of the
applicant was submitted to Eskom before the end of August 2014, which
Eskom did not find acceptable and informed the third
respondent, who
was involved in negotiations on behalf of the municipalities, as
such. Eskom proposed some changes to the
payment plans by means
of a letter dated the 18
th
of September 2014 to be approved by the council of the applicant and
again submitted to Eskom by the 30
th
September 2014. The applicant did not submit a revised payment
plan by the 30
th
of September as requested by Eskom. As a result of that Eskom
addressed a letter dated the 1
st
of October 2014 to the applicant in which the following appears:
“
It
is unacceptable to Eskom that the payment plans have to date not been
agreed on and in addition the current accounts are not
being paid in
full and on time resulting in escalation of the municipal arrear debt
to R258 million as of 30 September 2014. …
As you are aware,
on the 31
st
of July 2014 we agreed in a meeting held at Megawatt Park,
Johannesburg to suspend the disconnection of electricity supply to
the municipality, scheduled for 4 August 2014 to 31
August
2014 but that the disconnection notice will, however, remain in
effect. … The current situation cannot
be
sustained at the expense of Eskom’s financial and operational
sustainability and we advise you that the electricity supply
to the
Ngwathe Municipality will be disconnected on 3 October 2014 at about
12H00.”
That
led to the urgent application by the applicant brought to be heard on
the 3
rd
of October 2014.
[10]
In a letter by the 3
rd
respondent following upon the meeting of the 14
th
of July 2014 to resolve the problem, 3
rd
respondent confirmed that the interim arrangement would be that the
municipalities (which includes applicant) will in the meantime
keep
their current account up to date. It is clear that the
applicant did not even comply with that requirement so that,
for
instance, of the current account of October 2014 in the amount of
R10,3 million, the applicant only paid around R500 000,00.
It is also common cause that the applicant did not even keep to the
interim arrangement reached between the parties and made an
order of
court on the 3
rd
of October 2014 according to which the applicant was obliged to pay
over to Eskom all moneys recovered and collected in respect
of
electricity by the applicant.
COUNTER
APPLICATION
[11]
Before the hearing of the matter Eskom applied for an amendment to
the prayers in the counter application which was unopposed
and I will
deal with the counter application as envisaged in the amendment.
[12]
The counter application as amended prays for declaratory orders,
firstly to the effect that the applicant failed to comply
with the
interim order granted by agreement by not paying over the debt
collected in respect of electricity as envisaged in paragraph
8 of
the order. Eskom prays that the applicant be found in contempt
of court and the application dismissed on that basis
alone,
alternatively seeking the original declaratory orders to the effect
that it is declared that Eskom complied with all its
statutory duties
and are indeed entitled to discontinue the supply of electricity to
the applicant if sufficient steps are not
taken to the satisfaction
of Eskom, providing for the payment of the current account and
arrears. It also asks for a declaratory
order to the effect
that, in all the circumstances, the Free State Government is
compelled to intervene in the affairs of the applicant
as
contemplated in section 139 of the Constitution.
APPLICANT’S
CONTENTIONS
[13]
In broad the contention on behalf of the applicant is that Eskom did
not comply with its statutory duties before deciding on
the
discontinuing of supply, as informed mainly by section 41 of the
Constitution,
section 44
of the
Local Government, Municipal Finance
Management Act 56 of 2003
and
sections 35
,
40
,
41
and
45
of the
Inter-Governmental Relations Framework Act 13 of 2005
.
[14]
Applicant argues that Eskom did not negotiate in good faith,
abandoned negotiations before doing everything reasonable and
necessary to reach a solution and not participating in the necessary
structures to resolve disputes between organs of state.
[15]
Applicant contends that Eskom did not negotiate in good faith, did
not co-operate in mutual trust to assist and support the
applicant
and has a duty to secure the wellbeing of the people of the Republic,
which will be affected by the discontinuation of
supply of
electricity. It maintains that Eskom is not entitled to rely on
the previous notice since it was negated by the
negotiations that
followed and at least has to give fresh notice before it can
discontinue supply.
[16]
The deponent on behalf of applicant, the municipal manager, also
alleges that the problem is rather to be laid at the door
of Eskom
because the latter neglected to enforce its rights and it allowed the
applicant to run into excessive arrears and for
years allowed the
situation to worsen. He also alleges that the applicant has for
the past six years not pursued any formal
debt collection program
which exaggerated the problem to the extent that, at present, the
applicants monthly shortfall between
income expenditure in general
amounts to almost R10 million per month.
APPLICABLE
STATUTES
[17]
The relevant statutory prescripts on which the applicant and Eskom
rely are the following:
1.
Section
41 of the Constitution
inter
alia
contains the following:
“
41.
Principles of co-operative government and inter-governmental
relations:
(1) all spheres of government and all
organs of state within each sphere must …. (b) secure the
well-being of the people
of the Republic … (e) respect the
constitutional status, institutions, powers and functions of
government in the other spheres
… (g) exercise their powers
and perform their functions in a manner that does not encroach on the
geographical, functional
or institutional integrity of government in
another sphere … (h) co-operate with one another in mutual
trust and good faith
by - … (ii) assisting and supporting one
another; (iii) informing one another of, and consulting one another
on, matters
of common interest … (vi) avoiding legal
proceedings against one another. …
(3) An organ of state involved in an
intergovernmental dispute must make every reasonable effort to settle
the dispute by means
of mechanisms and procedures provided for that
purpose, and must exhaust all other remedies before it approaches a
court to resolve
the dispute.
(4)
If a court is not satisfied that the requirements of subsection (3)
have been met, it may refer a dispute back to
the organs of state
involved.”
[18]
Section 139 of the Constitution provides in subsection (5):
“
If
a municipality, as a result of a crisis in its financial affairs, is
in serious or persistent material breach of its obligations
to
provide basic services or to meet its financial commitments, or
admits that it is unable to meet its obligations or financial
commitments, the relevant provincial executive must - (a) impose a
recovery plan aimed at securing the municipality’s ability
to
meet its obligations to provide basic services or its financial
commitments, … (b) dissolve the Municipal Council, if
the
municipality cannot or does not approve legislative measures,
including a budget or any revenue raising measures, necessary
to give
effect to the recovery plan, …”
[19]
Section 139(7) provides:
“
If
a provincial executive cannot or does not adequately exercise the
powers or perform the functions referred to in subsection (4)
or (5),
the national executive must intervene in terms of subsection (4) or
(5) in the stead of the relevant provincial executive.”
[20]
Section 44 of the Local Government; Municipal Finance Management Act,
Nr 56 of 2003 provides:
“
Disputes
between organs of state
(1) Whenever a dispute of a financial
nature arises between organs of state, the parties concerned must as
promptly as possible
take all reasonable steps that may be necessary
to resolve the matter out of court.
(2) If the National Treasury is not a
party to the dispute, the parties-
(a)
must report the matter to the National Treasury; and
(b)
may request the National Treasury to mediate between the parties or
to designate a person to mediate between them.
(3) If the National Treasury accedes
to a request in terms of subsection (2), the National Treasury may
determine the mediation
process.
(4)
This section only applies if at least one of the organs of state
referred to in subsection (1) is a municipality or municipal
entity.
[21]
The
Inter-governmental Relations Framework Act, Nr
13 of 2005
contains the following relevant provisions;
Section 40:
“
Duty
to avoid intergovernmental disputes
(1) All organs of state must make
every reasonable effort-
(a)
to avoid intergovernmental disputes when exercising their statutory
powers or performing their statutory functions;
and
b)
to settle intergovernmental disputes without resorting to judicial
proceedings.
(2)
Any formal agreement between two or more organs of state in different
governments regulating the exercise of statutory powers
or
performance of statutory functions, including any implementation
protocol or agency agreement, must include dispute-settlement
mechanisms or procedures that are appropriate to the nature of the
agreement and the matters that are likely to become the subject
of a
dispute.”
[22]
Section 41
stipulates:
“
Declaring
disputes as formal intergovernmental disputes
(1) An organ of state that is a party
to an intergovernmental dispute with another government or organ of
state may declare the
dispute a formal intergovernmental dispute by
notifying the other party of such declaration in writing.
(2)
Before declaring a formal intergovernmental dispute the organ of
state in question must, in good faith, make every reasonable
effort
to settle the dispute, including the initiation of direct
negotiations with the other party or negotiations through an
intermediary.
[23]
Section 45
provides:
“
Judicial
proceedings
(1)
No government or organ of state may institute judicial proceedings in
order to settle an intergovernmental dispute unless the
dispute has
been declared a formal intergovernmental dispute in terms of
section
41
and all efforts to settle the dispute in terms of this Chapter
were unsuccessful.”
DISCUSSION
[24]
The applicant heavily relies on the prescripts of section 41(3) and
(4) of the Constitution read with section 44 of the Municipal
Finance
Management Act and
sections 40
,
41
and
45
of the
Inter-governmental
Relations Framework Act. Applicant
maintains that Eskom failed
to co-operate and negotiate in good faith, failed to make every
reasonable effort to settle the dispute
and failed to exhaust all
reasonable other remedies to resolve the dispute as required by
section 41 of the Constitution and/or
section 44 of the Municipal
Finance Management Act. Applicant furthermore contends that
Eskom failed in its duty to avoid
disputes as prescribed by
section
40
of the
Inter-governmental Relations Framework Act, has
not
declared a formal dispute and should not be allowed its day in court
because of the fact that no formal dispute has been declared
and all
efforts to settle such dispute has not been made as required by
sections 40
,
41
and
45
of the
Inter-governmental Relations Framework
Act.
[25]
The simple answer to applicant’s aforesaid contentions is that
there are no disputes. Applicant does not dispute
the amount of
and the fact of its liability towards Eskom. It does not
dispute the fact that it is in arrears. It does
not dispute
that it is obliged to pay such arrears and any current liabilities
towards Eskom. Applicant’s only real
complaint is that
Eskom should have been more lenient and accommodating towards efforts
aimed at enabling the applicant to pay
the undisputed debts.
[26]
In my view the aforesaid statutory prescripts in respect of disputes
and dispute resolution are all inapplicable. The
only relevant
statutory prescripts are those aimed at co-operation, assistance and
mutual support.
[27]
In my view the position of the parties in the present circumstances,
as far as statutory prescripts are concerned, are informed
by,
inter
alia
,
section 41(1)(b)(g) and (h) of the Constitution and
section 35
of the
Inter-governmental Relations Framework Act.
[28
]
In terms of section 41 of the Constitution the applicant and Eskom is
obliged to co-operate with a view of securing the wellbeing
of the
people of the Republic. In doing that the said parties should
exercise their powers in a manner that does not encroach
on the
functional integrity of the other. They are obliged to
co-operate in mutual trust and good faith by assisting and
supporting
one another, consulting one another on matters of common interest and
avoiding legal proceedings against one another
as far as possible.
[29]
In terms of
section 35
of the
Inter-governmental Relations Framework
Act the
parties should, where the performance of a statutory duty or
the provision of a service depends on the participation of organs of
state in different governments, co-ordinate their actions
inter
alia
by entering into an implementation protocol.
[30]
The question then is whether Eskom and/or the applicant complied with
the aforesaid duties.
[31]
As can been seen from the factual background of the matter above,
Eskom has since 2009 been extremely lenient towards the applicant.
In fact, the deponent on behalf of the applicant in the counter
application states that the Eskom had, for a long time, neglected
to
enforce its rights and allowed the applicant’s account to
become long and excessively overdue. It blames Eskom for
being
too lenient.
[32]
The same deponent also alleges that the applicant has for the past 6
years not pursued a formal debt collection programme,
which
exacerbated the problem. By its own admission the applicant
neglected to take the necessary steps to collect debts
from its
consumers notwithstanding their payment plan proposed to Eskom in
November 2013 where they undertook to settle the account
in full by
November 2014. According to the applicant it functions as a
municipality in circumstances where their liabilities
and monthly
expenses exceeds their income by R10 million each month.
[33]
It is only now when Eskom threatens drastic action to enforce their
rights that the applicant starts implementing a proper
debt
collection system. In view of the applicant’s history as
far as effective administration and control is concerned,
it is
questionable whether it is able to effectively implement a proper
collection system.
[34]
It is clear that it is indeed the applicant that failed in its duties
as required by the aforesaid statutory enactments.
The
applicant’s lack of proper administration and debt collection
indeed encroaches upon the functional integrity of Eskom
as envisaged
in section 41(1)(g) of the Constitution. Eskom has the duty to
supply electricity to the whole of the Republic
and its people.
To be able to do that it should have sufficient financial resources.
If the accounts of certain municipalities
are not paid, it endangers
the functionality of Eskom in its duty to secure the wellbeing of the
people of the Republic as a whole
by being able to supply electricity
to all municipalities. As much as the applicant should be able
to rely on Eskom’s
co-operation in trust and good faith and its
assistance and support, so should Eskom be able to rely on the
applicant’s co-operation
in good faith, assistance and support.
[35]
The result of all this is that I am not convinced that Eskom failed
its statutory duties. It is indeed the applicant
that failed
its statutory duties and has done so for a number of years. I
am not convinced that there are sufficient grounds
justifying the
grant of the relief claimed in the main application.
COUNTER
APPLICATION
[36]
In the amended counter application Eskom first seeks an order
declaring the applicant in contempt of court and dismissing the
application on that basis alone. The basis of that is to be
found in the order made by agreement on the 3
rd
of October 2014. It is common cause that the applicant did not
comply with that order in failing to pay the current account
of Eskom
in full for the period since the order was granted.
[37]
It is clear that the applicant, although consenting to the aforesaid
order, was in fact financially unable to comply with the
order.
In those circumstances I am not convinced that the applicant’s
failure to comply with the order was indeed in
wilful contempt.
[38]
As already stated the counter application also seeks declaratory
orders to the effect that Eskom, in the circumstances, is
entitled to
discontinue the supply of electricity to the applicant and related
declaratory orders.
[39]
Paragraph 1.7 and 1.8 of the prayers contained in the counter
application envisages a ‘declaratur’ to the effect
that
the applicant is in breach of its executive obligations to such an
extent that the provincial government is compelled to intervene
in
terms of section 139 of the Constitution.
[40]
It appears to be clear that the municipality is in a financial crisis
and admits that it is unable to meet its obligations
and financial
commitments. It therefore clearly complies with the
requirements for intervention by the provincial executive.
I am
however not convinced that such orders can be granted at this stage
without the Premier of the province being joined in the
proceedings.
[41]
As to the rest of the orders sought by Eskom, it appears to have been
appropriate at the time when the counter application
was brought.
However, at this stage it is almost a year later after Eskom started
the necessary preliminary proceedings to
disconnect the electricity
of the applicant. Secondly it is unclear whether Eskom ever
published its final decision on the
14
th
of July as it undertook to do in its notice to the public.
Although Eskom alleges that it did, the applicant denies that
and
alleges that negotiations were resumed before Eskom did that, so that
the necessary final decision has never been published.
If the
orders as sought are granted, it will entitle Eskom to discontinue
the supply of electricity with only a week’s notice.
[42]
In view of the effluxion of the time, the fact that the final
decision was most probably never published, all of which may
have
lured the public into a false sense of security, I am of the view
such drastic orders cannot be granted at this stage.
[43]
It was emphasised on behalf of the applicant that any orders
entitling Eskom to discontinue the supply of electricity to the
applicant would lead to serious hardships to the inhabitants of the
different towns under the applicant’s control and will
most
probably also lead to riotous uproar in the community. I am
acutely aware of those facts and the possible consequences
of such an
order but, as a court of law, I have to apply the law and cannot be
held ransom by threats of violence and unruly criminal
activity as a
result of that. It is the duty of the applicant, the Provincial
and/or the National executive to take the necessary
steps to prevent
such situations arising. In the mean time, Eskom cannot be
compelled to indefinitely continue the supply
of electricity without
being paid. That will compromise its ability to continue with
its national task in supplying electricity
to the inhabitants of the
Republic as a whole and definitely compromise Eskom’s
functional integrity.
[44]
I am satisfied that Eskom is entitled to some form of relief, which
will strike a balance between its right to discontinue
the supply of
electricity and the interest of the community in preparing for such
an event.
[45]
As far as costs are concerned, there appears to be no reason why the
unsuccessful applicant in the main application and unsuccessful
respondent in the counter application (applicant in the main
application) shall not be liable for the costs of both the main and
counter applications. However it appears that the postponements
on the 3
rd
of December 2014 as well as the 29
th
of January 2015 were caused by Eskom filing its papers later than
agreed upon and amending its counter application respectively.
It should therefore be held liable for the wasted costs occasioned by
the postponements on the aforesaid two dates.
[46]
In the result the following orders are granted:
A.
The
main application is dismissed.
B.
In
the counter application the following orders are granted:
1.
Should
the applicant fail to pay first respondent the full outstanding
amount of its arrear account, including any amount due in
respect of
its current account, within 14 days of the date of this order, first
respondent is entitled to discontinue the electricity
supply to the
applicant, subject to following:
1.1
Notice
of its intention to discontinue the supply of electricity must be
given to the applicant and published in a newspaper circulating
in
the area of the applicant’s jurisdiction, calling for
representations as to the discontinuation of the supply of
electricity,
which notice must be published at least 4 weeks prior to
the intended date of discontinuation and state the intended date
thereof.
1.2
A
notice confirming first respondent’s final decision must be
given to the applicant and published as aforesaid at least 14
days
prior to the date of discontinuation, again stating and confirming
the date thereof.
C.
1.
First respondent is ordered to pay the costs occasioned by the
postponement of the applictions on the 3
rd
of December 2014 and the 29 January 2015, including the costs
occasioned by the employment of two counsel, where so employed.
2.
The
applicant is ordered to pay the costs of the main and counter
application, including the costs occasioned by the employment
of two
counsel, excluding the costs referred to in paragraph (C)(1) above.
_______________
A.
F.
JORDAAN, J
On
behalf of applicant:
Adv. F.W.A. Danzfuss SC
Assisted
by: M. C. Louw
Instructed
by:
Moroka
Attorneys
BLOEMFONTEIN
On
behalf of the first
respondent:
Adv. M. Khoza SC
Assisted
by: N. H. Moloto
Instructed
by:
Phatsoane
Henney Attorneys
BLOEMFONTEIN
/ebeket