IN THE HIGH COURT OF SOUTH AFRICA,
FREE STATE DIVISION, BLOEMFONTEIN
Not Reportable
Case no: 3865/2021
In the matter between:
CENTLEC (SOC) LIMITED Plaintiff
And
FREE STATE DEVELOPMENT CORPORATION Defendant
Neutral citation: Centlec (SOC) Limited v Free State Development Corporation
(3865/2021) [2026] ZAFSHC 320 (4 March 2026)
Coram: N SNELLENBURG AJ
Heard: 2, 3 and 5 December 2025
Delivered: 3 June 2026
2
Summary: Section 41 of the Constitution and s 40 of the Intergovernmental Relations
Framework Act 13 of 2005 – s 44 of the Local Government: Municipal Finance
Management Act 56 of 2000.
Special plea – stay of proceedings – whether dispute exists between the parties as
envisaged by the Intergovernmental Relations Framework Act – if such a dispute exists,
whether plaintiff failed to exhaust the alternative avenues contemplated in s 41 of the
Constitution and s 40 of IRFA respectively ; whether the Court should determine the
dispute notwithstanding any failure to exhaust alternative avenues constitutionally and
statutorily prescribed.
Principles of cooperative government and intergovernmental relations – organs of state
obliged to make reasonable effort in good faith to settle intergovernmental disputes with
necessary promptitude.
______________________________________________________________________
ORDER
______________________________________________________________________
1 The defendant’s second special plea is upheld.
2 The action is stayed and the matter is referred back to the parties to comply with
the processes prescribed in terms of the Intergovernmental Relations Frameworks Act
13 of 2005 and, insofar as the aforesaid does not also encompass the provisions of s 44
of the Local Government: Municipal Finance Management Act 56 of 2003 , then the
processes prescribed in s 44 of the Local Government: Municipal Finance Management
Act 56 of 2003.
3 Any one of the parties may apply for leave to this Court to re- enrol this action for
hearing:
3
3.1 In the event of such dispute(s) having been declared a formal intergovernmental
dispute(s) in terms of s 41 of the Intergovernmental Relations Frameworks Act 13 of
2005, and insofar as the formal dispute does not encompass the requirements of s 44 of
the Local Government: Municipal Finance Management Act 56 of 200 3, then any
process in terms of s 44 of the Local Government: Municipal Finance Management Act
56 of 2003, have been complied with; and
3.2 If all efforts to settle the dispute in terms of Chapter 4 of the Intergovernmental
Relations Frameworks Act 13 of 2005; and insofar as the formal dispute does not
encompass the requirements of s 44 of the Local Government: Municipal Finance
Management Act 56 of 2003, any process in terms of s 44 of the Local Government:
Municipal Finance Management Act 56 of 2003, were unsuccessful.
4 Each party to pay its own costs.
_____________________________________________________________________
JUDGMENT
______________________________________________________________________
Snellenburg AJ:
Introduction
[1] The controversy in this matter revolves around (a) the question of whether a
dispute exists between the parties as envisaged by the Intergovernmental Relations
Framework Act 13 of 2005 ( IRFA); (b) if such a dispute is found to exist , whether
Centlec failed to exhaust the alternative avenues contemplated in s 41 of the
Constitution of the Republic of South Africa, 1996 and s 40 of IRFA respectively; and (c)
if Centlec failed to exhaust the alternative avenues contemplated in s 41 of the
Constitution and s 40 of IRFA respectively , should the Court, in the specific
circumstances of this matter, notwithstanding determine the dispute. The plaintiff further
submits that, aligned to the aforesaid question, it must also be determined whether the
dispute is a ‘ dispute of a financial nature’ as referred to in the Local Government:
4
Municipal Finance Management Act 56 of 2003 ( MFMA) that arose prior to the
institution of the present action by the plaintiff during August 2021.
[2] It is not contentious nor in dispute that both Centlec and FDC are organs of state.
The plaintiff, Centlec (SOC) Limited (Centlec), is a Municipal entity as contemplated in s
82(1) of the Local Government: Municipal System Act 21 of 2002. The defendant, the
Free State Development Corporation ( FDC), is established in terms of the Free State
Development Corporation Act 6 of 1995 and is a Schedule 3D Provincial Business
Enterprise in terms of the Public Finance Management Act 1 of 1999.
[3] Centlec supplied electricity in bulk to FDC. Centlec, by means of this action,
claims payment of municipal service charges from FDC based on electricity consumed,
interest and other charges flowing from the electricity usage.
The special plea serving for adjudication
[4] FDC’s special pleas were separated to be adjudicated separately whilst the other
issues stood over for adjudication. By agreement between the parties , the court was
requested to determine FDC’s second special plea, p remised on the IRFA ( the IRFA
plea), first. The first special plea therefore also stands over for adjudication.
[5] FDC’s IRFA plea, succinctly summarised, is as follows:
(i) Centlec and FDC are both organs of state.
(ii) T he provisions of the IRFA provide that Centlec should have taken steps to
attempt to resolve the dispute between it and FDC prior to issuing summons.
(iii) T he provisions of s 44 of the MFMA also required from Centlec to have taken all
reasonable steps as may have been necessary to have the dispute resolved out of
court, which Centlec failed to do.
(iv) Centlec neither reported the dispute to National Treasury, nor did it request
National Treasury to mediate the dispute between the parties.
5
(v) Centlec failed (a) to comply with the provisions of IRFA since the dispute
between the parties are justiciable; and (b) to comply with the provisions of s 44 of the
MFMA.
(vi) Section 40(1) of IRFA required from the parties , and in this matter especially
Centlec, before declaring a dispute, to make ever y reasonable effort in good faith to
preclude the dispute from being raised as an official dispute in terms of the Act, which
provision Centlec failed to honour.
[6] As submitted on behalf of FDC, Centlec did not specifically deal with the IRFA
plea by means of a replication. Nothing, however, turns on this in my view.
The Evidence
[7] Centlec presented the evidence of Mrs Williams, the current Chief Financial
Officer (CFO) , and Mr Sekoboto, the C hief Executive Officer, of the plaintiff . Mrs
Williams’ evidence was presented first.
[8] Mrs Williams first became aware of FDC ’s debt around 2013 when she had to
report on it monthly. FDC’s debt escalated because the current account was not being
serviced. As result of FDC not servicing its account, discussions were held between
Centlec and FDC between 2013 and 2017. Mrs Williams was a member of the team that
participated in the aforesaid discussions. The purpose of these discussions w as to
assist FDC managing their increasing debt.
[9] Aligned to this, Mrs Williams explained that Centlec did an asset ‘re-evaluation’
(henceforth referred to as ‘the revaluation’) every five years. Such an asset revaluation
was due during the time of the ongoing discussions referred to above. Centlec required
of FDC to include their fixed assets register in the revaluation proposal that had to be
done at the time as the purpose of the revaluation report would be to aid in the
aforesaid discussions between the parties . The revaluation report was done during
2018 to 2020 by EMS Solutions and included the FDC assets.
6
[10] The outcome of this process did not yield any success because FDC was not
satisfied with the result of the r evaluation as it had concerns over the valu e that EMS
Solutions placed on its assets. In sum, according to Mrs Williams, FDC maintained that
its assets had a higher value than what EMS Solutions determined.
[11] Regarding FDC’s indebtedness to Centlec, Mrs Williams maintained that FDC
had never disputed its debt, nor the amount of the indebtedness, to Centlec but rather
acknowledged its indebtedness. Mrs Williams was satisfied that all due processes were
followed in terms of the provisions of IRFA and s 41 of the Constitution, and that it would
serve no purpose to remit the matter as sought by FDC , as Centlec and FDC had
attempted to settle the matter without success.
[12] During cross-examination:
(i) Mrs Williams explained that the electrical assets of FDC, as a part of the entire
assets of Centlec, had to be re-evaluated which included the electrical network and grid.
(ii) Mrs Williams confirmed that the parties met and that FDC was not satisfied with
the value in respect of its electrical assets during the revaluat ion and that the
disagreement regarding the value of FDC’s electrical equipment was never resolved.
(iii) Mrs Willians was amongst others confronted with the fact that the evidence of Mr
Tebogo Seloane, financial accountant, will be presented on behalf of FDC regarding the
fact that a dispute would amongst others also have existed regarding instances of
‘double billing’ during 2020, 2021 and 2022.
(iv) Mrs Williams was also conf ronted with the fact that the action itself depicts
disputes between the parties, and the dispute, for example, relating to prescription, had
not been referred to a third-party for adjudication. Mrs Willians confirmed that no referral
of the disputes occurred after the initiation of the litigation.
(v) It was stated, on behalf of FDC that although consumption had been
(v) It was stated, on behalf of FDC that although consumption had been
acknowledged by FDC, the amount due had never been acknowledged. Mrs Williams
disagreed with the statement and maintained that the amount due by FDC to Centlec to
date was never disputed by FDC.
7
(vi) Lastly, it was put to Mrs Williams that a referral remained a viable option as it
would not only be Centlec and FDC ‘sitting across the table’ but it would also ‘entail
third-involvement’. Mrs Williams did not agree that it would serve any further purpose.
[13] Mr Sekoboto first gained knowledge of the FDC debt around 2012 but was more
intimately involved in the matter during 2019 when the matter was escalated. Mr
Sekoboto explained that he first became aware of the FDC matter as result of a request
that Centlec conduct an assessment of FDC’s infrastructure during 2012 when he was
head of planning at Centlec. According to Mr Sekoboto, the assessment followed from a
proposal by FDC that both parties have assessments done. The reason for the proposal
at the time was because FDC was unable to fulfil its monthly obligations towards
Centlec. According to Mr Sekoboto, FDC’s indebtedness to Centlec during 2012 was
approximately R19 million.
[14] Mr Sekoboto testified that during 2019 there were numerous discussions as
FDC’s debt to Centlec increased exponentially whilst FDC was unable to satisfy its
indebtedness to Centlec . As result of FDC’s inability to pay, there were discussions
regarding the transfer of infrastructure from FDC to Centlec . In sum – and this appears
to have been the case since 2012 I may add – Centlec reasoned that engagement
would be the best way to collect payment.
[15] Mr Sekoboto further explained, regarding the period from 2018, that although
FDC did and had debt collection done for it, FDC did not service its current account with
Centlec. When Centlec threatened to disconnect the electricity, FDC’s clients were
furious because FDC had not been paying the money it collected to Centlec. At th at
juncture FDC wanted to hand over their electrical infrastructure, but they needed to do a
re-assessment. The purpose of the handover at the time was to stop the increase in
monthly accounts accruing whilst Centlec would take over the clients of FDC.
monthly accounts accruing whilst Centlec would take over the clients of FDC.
[16] The first customer to be taken over by Centlec was Chicken Poultry . The
intention was that the entire Botshabelo industrial area would be transferred to Centlec.
8
The process of transfer started in May 2019. To date, those clients make payments
directly to Centlec for electricity consumed.
[17] Mr Sekoboto could not recall any ‘double billing’ nor, according to him , was
double billing ever raised with Centlec . Thus, he testified that as far as he was
concerned there was no dispute in that regard.
[18] Mr Sekoboto testified that the re-assessment previously referred to was done,
and when he became the Acting CEO, he personally had numerous discussions with
FDC. Regarding the issue of revaluation of assets, Centlec had it done and submitted a
revaluation report to FDC. Mr Sekoboto explained that after the report had been
submitted to FDC, there was a difference in ‘ understanding and belief ’ that the
revaluation of FDC’s assets should not be R39 million, but according to FDC rather R99
million or close to R100 million. He also testified that according to him, FDC received a
grant from the Department of Trade and Industry to improve the infrastructure but never
applied the funds for this purpose and that is the reason for the value placed on FDC’s
assets by EMS Solutions in the revaluation report.
[19] Mr Sekoboto confirmed that FDC however believed that their assets were worth
more than R39 million . That is the reason why the parties could not, to date, conclude
an agreement.
[20] To a question of what the idea behind the evaluation of the assets at that stage
was, Mr Sekoboto explained that the two primary reasons for the revaluation were (a) to
get an asset value to offset against FDC’s debt, and (b) to take over the network and its
maintenance going forward. To this end, Mr Sekoboto explained that FDC has its own
electrical network in the industrial area in Botshabelo. E lectricity was supplied by
Centlec in bulk and then supplied to clients by FDC.
[21] As to whether any attempts were made to resolve FDC’s indebtedness to Centlec
during the period from 2012 to 2019, Mr Sekoboto said that during that period, he
9
personally had a discussion with the previous CEO to finalise the matter and to also
finalise the issue of the transfer of assets and the grid. According to Mr Sekoboto no
dispute exists; it is more about finalising the activities. Mr Sekoboto stated there was no
dispute around the debt itself and as far as Centlec and FDC were concerned , no
dispute existed except with regards to the engagements pertaining to how the payment
would be effected. According to his testimony, the amounts were never disputed prior to
the action being instituted by Centlec.
[22] During cross-examination:
(i) Mr Sekoboto confirmed that there were numerous discussions during 2018 and
2019 which related to and entailed a transfer of infrastructure which would be part and
parcel of reducing FDC's debt to Centlec. It may be noted that it was put to Mr Sekoboto
that the disconnection of the Botshabelo industrial area occurred on 19 December 2018,
but Mr Sekoboto did not have any independent recollection of the date and could not
deny the aforesaid. Mr Sekoboto did confirm that there were disconnections as result of
FDC’s non-payment. The handover as result of disconnections following FDC’s failure to
pay Centlec was envisaged to be, at least, in partial settlement of FDC’s debt.
(ii) Mr Sekoboto confirmed that p art of the discussions were also the repayment
terms, interest and so forth , which formed part of a draft settlement document between
the parties that was sent to FDC. Mr Sekoboto confirmed that the document forming
part of the amended particulars of claim was in fact a ‘draft’ providing for payment which
would also entail the transfer of the assets . The transfer of assets were part and parcel
of the proposed structure and had to be explored. Mr Sekoboto confirmed that the
assets and the value thereof were part and parcel of the negotiations and that FDC did
not agree with the asset value stated in the report but according to Mr Sekoboto, FDC’s
dispute is without basis.
dispute is without basis.
(iii) When confronted with the fact that FDC had appointed their own engineers,
Incqali Engineers , to do a valuation of FDC’s assets between 2019 and 2021, Mr
Sekoboto replied that all he knew was that FDC disputed the valuation done by Centlec
and stated that he was not in possession of the valuation done by FDC. He, in fact,
10
indicated that the questions should rather be posed to Mr Schalk van der Mer we (who
was identified as one of FDC’s witnesses).
(iv) Mr Sekoboto confirmed that FDC was willing to do a transfer of assets, however,
FDC could not agree on the value of the assets and therefore did not proceed with the
transfer.
(v) Regarding the issue of double billing, Mr Sekoboto was confronted with the fact
that both FDC and Chicken Poultry (referred to by FDC as Supreme Poultry) were billed
for the same consumption, so-called double billing, which would be testified to by Mr
Schalk van der Merwe as well as Mr Seloane on behalf of FDC, and that this issue was
raised by Mr Seloane during April 2021 with Ms Ntabiseng Motse. It was also put to Mr
Sebokoto that the amount in issue was approximately R55,6 million and after the matter
was raised with Centlec, Centlec credited FDC’s account in the amount of R48 million,
but in a month thereafter, FDC’s account was again debited with the same amount. Mr
Sekoboto maintained that he is not aware of the billing issue, nor that it was raised with
Ms Ntabiseng Motse.
(vi) It was put to the witness that Mr van der Merwe will testify that the grants were
not taken into account in the ‘e valuation’, only the infrastructure. This was disputed by
Mr Sekoboto.
(vii) Mr Sekoboto explained that in his view there was only a disagreement regarding
the payment value attached to the assets.
(viii) When challenged with the fact that it was FDC’s case that it only admitted
consumption but not the amount, Mr Sekoboto denied the statement and explained that
the dispute was raised only in respect of how payment could be made.
[23] The defendant presented the evidence of Mr Seloane, a financial accountant ,
and Mr Schalk van der Merwe, a property consultant, both in the employ of FDC. Mr
Seloane’s evidence was presented first.
[24] In his position as financial accountant, Mr Seloane dealt with accounts, including
[24] In his position as financial accountant, Mr Seloane dealt with accounts, including
the account of Supreme Poultry. He noticed the double billing to both Supreme Poultry
and FDC (for the same consumption) and raised it with Ms Nthabiseng Motse at
11
Centlec. Supreme Poultry's account was moved from FDC to Centlec during 2019 and
Mr Van der Merwe had requested a report for the period June 2019 to July 2021, when
the account was transferred. After taking issue with the double billing a reversal of R48
million was passed on FDC’s account during August 2021, but the next month the same
amount was again charged to FDC’s account.
[25] During cross-examination, Centlec’s counsel conceded the overbilling (referred to
by FDC as ‘double billing’) on behalf of Centlec as well as the fact that a reversal was
done, but the amount of the reversal was placed in dispute . It was put to Mr Seloane
that the reversal was approximately R20 million instead of the amount alleged by FDC,
which was disputed by Mr Seloane.
[26] Mr Van der Merwe was promoted during 2001 to the district property manager,
which included the whole district . During 2017/2018 there was a restructure and h e
remained in Botshabelo as a property consultant. He confirmed that there was
overbilling in respect of the Supreme Poultry account.
[27] Mr Van der Merwe explained that electricity was purchased in bulk by FDC and
then sold to its clients. During 2014/2015, FDC took a decision not to operate as a
Municipality and subcontracted their billing to Unique Mbane, which was later ceded to
Sanusie. On 17 April 2019, they were instructed to inform the tenants in the industrial
area that they have been taken over by Centlec and that Centlec will contact them to
make applications and sign agreements directly with Centlec; future consumption had to
be paid directly to Centlec.
[28] During 2019 and 2020 he personally had to point out infrastructure for a report to
be prepared by Incqali Engineers. This related to a valuation report that was prepared
and submitted to the then CEO.
[29] Regarding the amount owed to Centlec, part of that amount , according to Mr Van
der Merwe, related to a property that Centlec in fact rented. That amount accordingly
12
had to be offset against the amount owed by FDC. Regarding the r evaluation, Mr Van
der Merwe testified that according to him, Centlec did their own valuation.
[30] During cross-examination:
(i) Mr Van der Merwe was confronted with the fact that the FDC valuation report was
not presented to the legal representatives of Centlec.
(ii) Mr Van der Merwe explained that the valuation was based on the incoming
cables, mini substations, switchgear and included the high mask lights. It was for the
infrastructure where the main feeder is located. As he was on ‘ ground level’ he could
only speculate to the purpose of the valuation. In his view a n amount had to be
determined on the value of the infrastructure, and if agreed upon, it should be set off
against the debt owed to Centlec if the parties c ould come to an agreement. It was put
to Mr Van der Merwe that Centlec agreed that there was a difference in the valuations ;
from the Centlec side it was approximately R39 million whilst FDC insisted that the
revaluation of its assets should be approximately R100 million. Mr van der Merwe said
that he knew about it and that Centlec appointed their own team.
(iii) It was put to Mr Van der Merwe that insofar as the valuations differ, it is a
difference of opinion. In response, Mr Van der Merwe maintained that the parties did
their own valuations, including Centlec.
(iv) According to Mr Van der Merwe , Centlec appointed a valuator as they disputed
the FDC value, only after FDC had provided Centlec with the FDC valuation. Mr Van der
Merwe however qualified his evidence insofar as he initially said that he had assumed
that the valuation was provided to Centlec but later testified that he was informed of the
aforesaid fact. Whilst further cross-examination followed on this, Mr Van der Merwe later
conceded that he was not part of the management of FDC nor the executive level and
was not able to deny nor admit what would and would not have been agreed between
Centlec and FDC.
Centlec and FDC.
(v) For sake of caution, it is recorded that it was put to Mr Van der Merwe that during
2019, when the FDC’s debt was already substantial, the parties tried to lessen it or set it
13
off; the parties, before any valuation reports were obtained had agreed to such valuation
being made.
The Legislative Matrix
[31] Co-operative government and intergovernmental relations is constitutionally
ordained in s 41 of the Constitution. Section 41(1) of the Constitution, in peremptory
terms, provide amongst other matters that a ll spheres of government and all organs of
state within each sphere must co-operate with one another in mutual trust and good
faith by , inter alia (a) fostering friendly relations; (b) assisting and supporting one
another; (c) adhering to agreed procedures; and (d) avoiding legal proceedings against
one another. Section 41(2) requires that an Act of Parliament (c) must establish or
provide for structures and institutions to promote and facilitate intergovernmental
relations; and (b) provide for appropriate mechanisms and procedures to facilitate
settlement of intergovernmental disputes. Section 4 1(3) provides that of 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.
Lastly, s 41(4) vests court with a discretion, namely if the 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. Constat, the discretion must be exercised judiciously.
[32] As result of the fact that various Acts of Parliament already gave expression to
s 41(2) in some sectors of government , and to give effect to s 41(2) of the Constitution,
the IR FA was enacted to establish a general legislative framework applicable to all
spheres and in all sectors of government to ensure the conduct
of intergovernmental relations in the spirit of the Constitution.
1 IRFA was assented to on
10 August 2005 with date of commencement being 15 August 2005.
1 IRFA was assented to on
10 August 2005 with date of commencement being 15 August 2005.
1 See the Preamble to IRFA.
14
[33] Section 1 of IRFA defines an ‘intergovernmental dispute' as a dispute between
different governments or between organs of state from different governments
concerning a matter (a) arising from (i) a statutory power or function assigned to any of
the parties; or (ii) an agreement between the parties regarding the implementation of a
statutory power or function; and (b) which is justiciable in a court of law, and includes
any dispute between the parties regarding a related matter.
[34] The injunction contained in s 41(3) of the Constitution is echoed in s 40(1) of
IRFA and, where relevant, imposes an obligation on all organs of state to make every
reasonable effort to settle intergovernmental disputes without resorting to judicial
proceedings. Significantly, if a dispute as envisaged by IRFA does exist in casu, the
obligation to make every reasonable effort to settle intergovernmental disputes without
resorting to judicial proceedings rests on both parties.
[35] Section 41 of IRFA, in turn, provides in relevant parts that a n organ of state that
is a party to an intergovernmental dispute with another organ of state may declare the
dispute a formal intergovernmental dispute by notifying the other party of such
declaration in writing. However, before a formal intergovernmental dispute is declared,
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. The consequences of declaring formal
intergovernmental disputes are dealt with in s 42 of IRFA.
[36] Notably, s 45 of IRFA provides, in relevant parts, that no 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 s 41 and all
efforts to settle the dispute in terms of the relevant Chapter (in the IR FA) were
unsuccessful.
unsuccessful.
[37] Lastly, section 44 of the MFMA requires that ‘whenever a dispute of a financial
nature arises between organs of state, the parties concerned must as promptly as
15
possible take all reasonable steps that may be necessary to resolve the matter out
of Court’. The section further provides that i f 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. National Treasury may accede to a request to
mediate between the parties and in such event may determine the mediation
process.
Discussion
Does
a dispute exist between the parties as envisaged by IRFA?
[38] FDC contends that an intergovernmental dispute as envisaged by IRFA does
exist between the parties.
(i) FDC submits that on conspectus of the evidence, a live dispute exists between
Centlec on the one hand and FDC on the other, in relation to the manner as to how
FDC’s debt would be liquidated; the terms of repayment and the manner in which the
debt would be collected. To this end FDC submits that al l the witnesses agreed that
there is a disagreement regarding the value of FDC’s infrastructure, at least FDC’s
electrical assets, whilst no further intervention was sought.
(ii) Relying on Eskom Holdings SOC Ltd v Resilient Properties (Pty) Ltd and Others;
Eskom Holdings SOC Ltd v Sabie Chamber of Commerce and Tourism and Others;
Chweu Local Municipality and Others v Sabie Chamber of Commerce and Tourism and
Others2 (Resilient), FDC submits that a dispute between the parties as to the manner in
which the parties agree to settle the debt, the terms of repayment and the manner to
collect the debt owed, constitutes a dispute for purposes of IRFA.
(iii) Lastly, on this issue, FDC submits that the parties were engaged in settlement
negotiations, the impasse being the valuation and the double billing, the latter at least
until the concession during the trial in that regard.
2 Eskom Holdings SOC Ltd v Resilient Properties (Pty) Ltd and Others; Eskom Holdings SOC Ltd v Sabie
Chamber of Commerce and Tourism and Others; Chweu Local Municipality and Others v Sabie Chamber
of Commerce and Tourism and Others [2020] ZASCA 185; [2021] 1 All SA 668 (SCA).
16
[39] Centlec, in turn, contends that no such intergovernmental dispute exists between
the parties.
(i) Centlec submits that when evaluating the evidence, i t stands uncontested that at
no stage prior to the institution of the present action by Centlec did FDC dispute (a) its
liability towards Plaintiff; nor (b) the amounts as claimed by Centlec.
(ii) Centlec further submits that FDC is attempting to establish disputes regarding (a)
the ‘double billing’ and (b) different ‘values’ which the parties attached to the assets of
FDC during 2019/2020, in order to rely on IRFA and the relevant provision of the MFMA,
but the attempt must fail for the following reasons.
(iii) First, the double billing by Centlec had been conceded before the institution of
the action, which had again been confirmed on behalf Centlec in Court. It is contended
that FDC’s plea confirms the aforementioned to an extent. In view of the concession by
Centlec regarding the issue of double billing , any alleged dispute had fallen away. The
subsequent debiting of the relevant amount again after institution of the action may
influence the quantum of Centlec 's claim when dealing therewith, but it cannot bar the
institution or further prosecution of the claim.
(iv) Second, in respect of the different ‘ values’ which the parties attached to the
assets of FDC during or about 2019/2020, in the absence of a formal valuation on
behalf of FDC being placed before Court, the fact that the different values may have
been discussed during the relevant period, can merely be considered as part of the
negotiations between the parties at the time.
(v) There was no dispute regarding the manner in which the debt of FDC was to be
liquidated. In this regard, the facts of the present matter are distinguishable from the
facts in Resilient. In Resilient , Eskom unilaterally reduced the electricity supply to the
Municipalities concerned.
(vi) The fact that there is no dispute in this regard, is further, to a certain extent,
(vi) The fact that there is no dispute in this regard, is further, to a certain extent,
confirmed by FDC in its plea where it stated that it would still be amenable to enter into
discussion with Centlec for purposes of effecting transfer if its electrical grid to Centlec
after the parties reaching agreement on (a) the price to be paid by Centlec for FDC’s
17
infrastructure, and (b) the terms of the set -off of debt. Such deliberation will however
not, in absence of a dispute between the parties, be part of the process envisaged in
terms of IRFA and the MFMA.
(vii) Lastly, it is common cause that neither of the parties reported the matter to
National Treasury as envisaged in s 44(2) of the MFMA. The defendant does not rely on
the provisions of s 45(1) of I RFA in its plea. Reliance on s 42 of IRFA is misplaced
whereas no formal dispute has been declared.
[40] As stated above, it is common cause that both parties are organs of state .
Centlec provided electricity in bulk to FDC who has its own electrical network in the
industrial area in Botshabelo. FDC would then distribute the electricity to its properties
where FDC’s tenants would have the benefit of the electricity against payment. Initially
FDC itself recovered the payment of electricity from its tenants , but from 2014/2015 it
appointed service providers to do the collection on its behalf . During 2019 this changed
when Centlec took over certain of FDC’s tenants who pay Centlec directly for the
electricity they consume . Centlec instituted the current action to claim payment of
municipal service charges from FDC based on electricity consumed, interest and other
charges flowing from the electricity usage supplied by Centlec.
[41] A consideration of the evidence of the respective witnesses shows a lack of
particularity regarding specific dates and the fallibility of human memory to accurately
recall dates when testifying about events years later. This is understandable considering
the time that have passed. I have no doubt that all the witnesses assisted the court to
the best of their ability.
[42] The evidence establishes that FDC has been indebted to Centlec for more than a
decade (at the very least since 2012) . The outstanding amount continued to increase
due to FDC’s failure to service its current account. Mr Sekoboto first became aware of
due to FDC’s failure to service its current account. Mr Sekoboto first became aware of
FDC’s debt during 2012 as result of a request that Centlec do an assessment regarding
FDC’s infrastructure during 2012 when the outstanding amount owed by FDC to Centlec
was approximately R19 million. Mrs Williams became aware of FDC’s indebtedness
18
during the following year, to wit 2013, and was part of the team representing Centlec
that participated in the discussions between Centlec and FDC during the period 2013 to
2017. According to Mrs Williams, the purpose of these discussions, which took place on
an ongoing basis since 2013, was to assist FDC because of its increasing debt.
[43] It is safe to conclude that the issue regarding FDC’s outstanding account and
FDC’s failure/inability to pay clearly started to escalate from 2018. On all accounts whilst
discussions were ongoing, Centlec started to threaten to disconnect electricity supply to
FDC. According to Mr Sekoboto, FDC’s clients were furious because whilst they were
paying FDC for their electricity consumption, FDC had not been paying the collected
money to Centlec. It is common cause that Centlec commenced with disconnections as
result of FDC’s non -payment and to this end it stands uncontested that the
disconnection of the Botshabelo industrial area occurred on 19 December 2018.
[44] Although not entirely clear exactly when the request was made, it appears that as
part of the ongoing discussions, during this time, FDC was requested to include their
assets in the five -yearly revaluation of Centlec’s assets. This revaluation and report
were done some time between 2018 and 2020 by EMS Solutions and included the FDC
assets. If Mr Sekoboto’s evidence is considered, there was also a request that Centlec
do an assessment regarding FDC’s infrastructure during 2012. No evidence regarding
the purpose of the latter request or the outcome thereof was however tendered.
[45] After the disconnections commenced, Centlec started ‘taking over’ FDC clients
who would henceforth pay Centlec directly for electricity consumed. The first client that
was taken over by Centlec was Chicken Poultry (Supreme Poultry). The intention was
that the entire Botshabelo industrial area would be transferred to Centlec . FDC
that the entire Botshabelo industrial area would be transferred to Centlec . FDC
instructed, amongst others, Mr Schalk van der Merwe, on 17 April 2019, to inform the
tenants in the industrial area that they have been taken over by Centlec and that
Centlec will contact them to make applications and sign agreements directly with
Centlec. Mr Sekoboto testified that this process of transfer started during May 2019. To
19
date the tenants that were taken over by Centlec pay Centlec directly for the electricity
they consume.
[46] Mr Sekoboto testified that at that juncture FDC wanted to hand over their
electrical infrastructure, but they needed to do a re- assessment. The purpose of the
handover at the time was to stop the increase in monthly accounts accruing whilst
Centlec would take over the tenants of FDC. The handover as result of disconnections
following FDC’s failure to pay Centlec was envisaged to be, at least , in partial
settlement of FDC’s debt.
[47] It is common cause between the parties that FDC did not accept the value of its
assets which formed part of the revaluation. Mr Sekoboto stated that there was a
difference in ‘understanding and belief ’ that the revaluation of FDC’s assets should not
be R39 million , but according to FDC , rather R99 million or close to R100 million.
According to Mr Sekoboto, the difference between the value placed on FDC’s assets
and what FDC maintained the value was, is the reason why the parties could not, to
date, conclude an agreement . As will be recalled, according to Mr Sekoboto, FDC’s
dispute about the value was without basis.
[48] As to the idea behind the valuation of the assets at that stage, it will be recalled
that Mr Sekoboto explained that the two primary reasons for the revaluation were (a) to
determine an asset value to offset against FDC’s debt, and (b) to take over the network
and its maintenance going forward. The discussions according to Mr Sekoboto during
2019, specifically between Mr Sekoboto and FDC’s CEO was to finalise the matter and
to also finalise the issue of the transfer of assets and the grid.
[49] Both Mrs Williams and Mr Sekoboto were adamant that no dispute existed, at
least not prior to Centlec’s action being issued, regarding FDC’s liability towards the
plaintiff or the amounts claimed by Centlec. According to Mr Sekoboto there was no
plaintiff or the amounts claimed by Centlec. According to Mr Sekoboto there was no
dispute around the debt itself and as far as Centlec and FDC were concerned, no
20
dispute existed except regarding the engagements pertaining to how the payment can
be made.
[50] Mr Sekoboto did confirm under cross -examination that p art of the discussions
related to the repayment terms, interest and so forth , which would also entail the
transfer of the assets . The transfer of assets was part and parcel of the proposed
structure and had to be explored. Mr Sekoboto confirmed that the assets and the value
thereof were part and parcel of the negotiations.
[51] I am satisfied that Centlec has established, on a balance of probabilities , that
prior to the institution of this action, FDC did not dispute its liability towards Centlec, nor
the amounts as claimed by Centlec.3 Centlec was aware of the dire financial situation of
FDC, whether by their own doing as Mr Sekoboto alleged, or not.
[52] The facts in Resilient admittedly differ from the facts in this matter , but there are
also similarities in certain respects . FDC’s argument is however premised on the basis
that on the facts of this matter the legal principles established in Resilient find
application, namely that the dispute between organs of state as to the manner in which
the parties agree to settle the debt, the terms of repayment and the manner to collect
the debt owed, would constitute a dispute for purposes of IRFA.
[53] In terms of s 3 of the Free State Development Corporation Act 6 of 1995, FDC
shall be responsible, in accordance with a policy determined by the responsible member
or any direction given by him or her, to perform or promote urban or rural development
in die Free State Province with regard to any matter within the functional areas specified
in Schedule 6 of the Constitution of the Republic of South Africa Act 200 of 1993 4 (for
3 Whilst FDC challenged Centlec’s evidence in this regard by means of statements by its counsel, it is trite
law that statements put to the witnesses during cross examination is not evidence. No evidence in line
with the statements were produced by FDC. In fairness, FDC’s counsel did argue for a different finding on
this issue. Its argument rests on the summary of its submissions set out above.
4 The Free State Development Corporation Act 6 of 1995 still refers to the Interim Constitution, 1993 and
has not yet been amended to refer to the Constitution, 1996 (which repealed the Interim Constitution,
1993). The functional areas specified in Schedule 6 of the Interim Constitution, 1993 related to legislative
competences of provinces as listed in the Schedule. Insofar as may be relevant, t he majority of the
21
sake of convenience referred to as ‘ the Interim Constitution, 1993’ ). In terms, that
includes a developmental role in growing the economy of the Free State. Seen in proper
context, Centlec and FDC’s relationship is more than merely a contractual one. Centlec
supplied bulk electricity to FDC which, in turn, had a concomitant duty to supply it to its
end-users, its tenants or as referred to by FDC, its clients . In the context of the FDC’s
statutory ordained objects, that would secure or promote economic and social well -
being of the people. In the present context, FDC’s financial position and any agreement
to offset debt against transfer of assets , as well as handing over ‘clients’, constitutes a
matter of public interest in the context of FDC’s objects.
[54] When the narrative above is considered, it is clear that during 2018 Centlec
started to disconnect electricity supply whilst the parties were in discussions . This
resulted in Centlec taking over tenants of FDC who now pay Centlec directly for the
electricity they consume. The revaluation of FDC assets as part of Centlec’s revaluation
would serve two primary functions, namely, to determine an asset value to offset against
FDC’s debt and to take over the network and its maintenance going forward. It is
common cause that the parties’ positions became entrenched at some point.
[55] Centlec did show some appreciation for its obligations as far as
intergovernmental relations go. It discussed and negotiated with FDC from 2012 on an
ongoing basis. It however took a hardline during December 2018 and disconnected the
electricity supply. The discussions/negotiations regarding the management and
ultimately the payment of FDC’s debt to Centlec clearly included Centlec taking over
tenants from FDC (which eventuated after the electricity supply was disconnected),
determining the asset value of FDC’s relevant assets to offset against FDC’s debt to
determining the asset value of FDC’s relevant assets to offset against FDC’s debt to
Centlec, and that Centlec take over the network and its maintenance going forward.
categories referred to in Schedule 6 to the Interim Constitution, 1993 , are now provided for in Schedule 4
of the Constitution, 1996 which regulates f unctional areas of concurrent national and provincial legislative
competence, Schedule 5 of the Constitution, 1996 deals with functional areas of exclusive provincial
legislative competence.
22
[56] I do not agree with Centlec’s submission that in the absence of a formal valuation
on behalf of FDC being placed before Court, the fact that the different values may have
been discussed during the relevant period, can merely be considered as part of the
negotiations between the parties at the time.
[57] I have carefully considered Centlec’s submissions and all the legal precedent
Centlec referred to in their heads of argument. 5 Whilst, as stated, the facts in R esilient
are distinguishable, I am satisfied that in applying the legal principles established by the
Supreme Court of Appeal in the aforementioned case, t here was a live dispute between
Centlec on the one hand and FDC on the other, in relation to the manner as to how
FDC’s debt would be liquidated, specifically the value of FDC’s assets to be offset
against its debt and that a dispute as envisaged by IRFA existed, prior to institution of
the action between Centlec and FDC in regard to how FDC’s debt to Centlec would be
liquidated.
[58] Any amounts that were ‘double billed’ would form part of the resolution of the
dispute on how FDC’s debt would be liquidated. I am therefore satisfied that the dispute
was a dispute of a financial nature and also a dispute as envisaged by IRFA that existed
prior to Centlec instituting its action against FDC.
Did Centlec fail to comply with s 41 of the Constitution and s 40 of IRFA before issuing
summons?
[59] Before the advent of IRFA the Constitutional Court , in Uthukela District
Municipality and Others v President of the Republic of South Africa and Others
6
(Uthukela), reiterated that t he essence of chapter 3 of the Constitution is that disputes
5 I do not list all judgments I was referred to but note that t he case law included Petersen and Others v
South African Social Security Agency [2024] ZASCA 173; 2025 (3) SA 153 (SCA) ; Eskom Holdings SOC
Ltd v Lekwa Ratepayers Association NPC and Others and a Similar Matter [2022] ZASCA 10; 2022 (4) SA
78 (SCA) and National Gambling Board v Premier, KwaZulu- Natal, and Others [2001] ZACC 8; 2002 (2)
SA 715 (CC) (National Gambling Board) . National Gambling Board preceded IRFA, but the passage in
para 36 supports the view I take in this matter. S ome of the judgments that the plaintiff relied on are also
discussed in this judgment.
6 Uthukela District Municipality and Others v President of the Republic of South Africa and Others [2002]
ZACC 11; 2002 (11) BCLR 1220; 2003 (1) SA 678 (CC) (Uthukela) para 15.
23
between organs of state should, where possible, be resolved at a political level rather
than through adversarial litigation, 7 and as is apparent from s 41(4) of the Constitution,
courts must ensure that this duty is duly performed.
[60] In Resilient, Petse DP on behalf of a unanimous Court said:
‘It is important to note that the s 41(2) [of IRFA] obligation, to 'make every reasonable effort to
settle the dispute', is already relevant before a dispute is declared a 'formal intergovernmental
dispute'. Thus, in effect, organs of state are obliged at two (separate) stages of the process to
resolve their disputes with each other, by means of whatever mechanism or procedure available
to them in the circumstances, outside of the courts.’8
[61] The Court proceeded to explain that both s 41 of the Constitution and s 40 of
IRFA make plain that an organ of state has a constitutional and statutory duty to avoid
judicial proceedings before a genuine attempt has been made to settle a dispute
envisaged in the aforesaid sections . To that end, state organs must make every
reasonable effort, in good faith, to settle the dispute without recourse to litigation.
Moreover, where a dispute is of a financial nature, the organs of state that are parties to
the dispute, not only the one or the other, are required to promptly take all reasonable
steps necessary to resolve the dispute. To this end, organs of state have a statutory
duty to report the matter to the National Treasury for the latter to mediate the dispute.
[62] The plaintiff did enter discussions /negotiations with FDC, and it did so over a
protracted period whilst FDC’s debt kept on increasing. It is however common cause
that neither Centlec nor FDC reported the matter to National Treasury , nor did either of
them declare a formal intergovernmental dispute in terms of s 41(1) of IRFA by notifying
the other party of such declaration in writing . Whilst on the facts it may be argued that
the other party of such declaration in writing . Whilst on the facts it may be argued that
Centlec complied with the obligation imposed by s 41(2) of IRFA to the extent that it in
7 Certification of the Constitution of the Republic of South Africa, 1996 [1996] ZACC 26; 1996 (4) SA 744
(CC); 1996 (10) BCLR 1253 (CC); (1996) 17 ILJ 821 (CC) para 291.
8 Resilient fn 4 para 66.
24
good faith made every reasonable effort to settle the dispute by direct negotiations with
FDC, it did not thereafter comply with the obligation imposed by s 41(1).
Should the Court, in the specific circumstances of this matter, notwithstanding the failure
by Centlec to exhaust the alternative avenues contemplated in s 41 of the Constitution
and s 40 of IRFA respectively, proceed to determine the dispute?
[63] In City of Cape Town v Premier, Western Cape, and Others,9 Swain J (Nicholson
J concurring) held that s 45(1) of IRFA read in conformity with the provisions of s 41(3)
and s 41(4) of the Constitution vests a Court with the discretion to hear a matter, even if
not satisfied that the parties have made every reasonable effort to settle the dispute.
[64] Constat, such discretion, exercised judiciously would in my view only be
exercised in exceptional circumstances . I n Uthukela the Constitutional Court
emphasised that Chapter 3 of the Constitution contemplates that organs of state must
make every reasonable effort to resolve intergovernmental disputes before having
recourse to the courts.
[65] Mrs Williams testified that she was satisfied that all due processes were followed
in terms of the provisions of IRFA and s 41 of the Constitution and that it would serve no
purpose to remit the matter as sought by FDC, as Centlec and FDC had tried to settle
the matter without success. On the other hand, I have found that Centlec did not comply
with the provisions of s 41(1) of IRFA.
[66] FDC submits that it would negate and subvert the entire purpose of the
application of IRFA and the manner in which organs of state are required to deal with
each other if Centlec should be allowed to simply argue that it is entitled to sue FDC
where it has also already taken steps to enforce payment of the debt by disconnecting
the electrical supply.
9 City of Cape Town v Premier, Western Cape, and Others [2008] ZAWCHC 52; 2008 (6) SA 345 (C)
paras 15 to 18.
25
[67] In my view it cannot be said at this time that when the procedures and
mechanisms provided for by IRFA are followed, the dispute may not be resolved without
the necessity of litigation. In the premises I am not inclined to determine the dispute in
the circumstances.
[68] Before dealing with the issue of costs, it needs to s aid that the requirements of
s 44 of the MFMA may well be encompassed by the IRFA proceedings . I am not called
upon to decide this issue and expressly decline to do so. Bearing in mind the history of
this matter it is worth to note that nothing would however prevent the parties to agree on
a practical manner to deal with the matter when acting in terms of IRFA i f, for whatever
reason, the s 44 process is not encompassed by the IRFA proceedings.
Costs
[69] Costs resort in the discretion of the Court. The general rule is that costs usually
follow the result.
[70] In my view the general rule should not apply to these proceedings at this
juncture. The matter has a protracted history where FDC’s debt to Centlec increased
exponentially through the years. Whilst it can be accepted that a dispute as envisaged
by IRFA did not exist during the entire period, it did originate and was then not dealt with
as envisaged constitutionally and statutorily.
[71] Not only is the resolution of intergovernmental disputes with litigation only as last
resort considered so important that it is constitutionally ordained and the mechanisms
and procedures when disputes arise regulated by statute, but when these disputes
arise, the parties thereto are clearly expected to act with the necessary promp titude to
attempt to resolve such a dispute. The parties to such a dispute should be bona fide in
their endeavours to settle the dispute. The prompt r esolution of intergovernmental
disputes is clearly in the public interest. The statutory mechanisms patently aim to
achieve finality as opposed to having disputes dragging on indefinitely. If parties act with
achieve finality as opposed to having disputes dragging on indefinitely. If parties act with
the necessary promptitude and their dispute cannot be resolved notwithstanding their
26
bona fide efforts, then having complied with the constitutional and statutory obligations,
the court may be approached to finally resolve the dispute.
[72] As pointed out above, the obligations imposed by s 41 of the Constitution and
IRFA applies equally to both parties to the dispute. Neither of the parties reported the
dispute to National Treasury. Whilst Centlec believed, wrongly so but nonetheless, that
it had complied with its obligations if an intergovernmental dispute did exist, FDC, who
relies on Centlec’s non-compliance with the provisions of IRFA and s 44 of the MFMA ,
similarly failed to comply with the said provisions to have the dispute resolved.
[73] It is not contentious that the parties’ positions became entrenched at some point.
At that stage, both parties, as organs of state, had the same responsibilities to m ake
every reasonable effort to promptly settle that dispute by means of the mechanisms and
procedures provided for that purpose, namely , in IRFA and insofar as the dispute
resolution mechanisms in IRFA does not also encompass the requirements of s 44 of
the MFMA, then also in terms of s 44 of the MFMA . That included declaring a formal
dispute when it became clear t hat the attempts to resolve the matter by other means
had failed. FDC relies on the fact that an impasse existed between the parties that had
not been resolved, but it is silent as to what steps it took and why it also failed to declare
a formal dispute in terms of IRFA or reported the dispute in terms of section 44 of the
MFMA to have the dispute resolved.
[74] Whilst FDC’s second special plea is upheld, in my view the just order as to costs
in the circumstances of this case would be that each party pays its own costs of the
proceedings.
[75] In the premises it is ordered:
1 The defendant’s second special plea is upheld.
27
2 The action is stayed and the matter is referred back to the parties to comply with
the processes prescribed in terms of the Intergovernmental Relations Frameworks Act
13 of 2005 and, insofar as the aforesaid does not also encompass the provisions of s 44
of the Local Government: Municipal Finance Management Act 56 of 2003 , then the
processes prescribed in s 44 of the Local Government: Municipal Finance Management
Act 56 of 2003.
3 Any one of the parties may apply for leave to this Court to re- enrol this action for
hearing:
3.1 In the event of such dispute(s) having been declared a formal intergovernmental
dispute(s) in terms of s 41 of the Intergovernmental Relations Frameworks Act 13 of
2005, and insofar as the formal dispute does not encompass the requirements of s 44 of
the Local Government: Municipal Finance Management Act 56 of 200 3, then any
process in terms of s 44 of the Local Government: Municipal Finance Management Act
56 of 2003, have been complied with; and
3.2 If all efforts to settle the dispute in terms of Chapter 4 of the Intergovernmental
Relations Frameworks Act 13 of 2005; and insofar as the formal dispute does not
encompass the requirements of s 44 of the Local Government: Municipal Finance
Management Act 56 of 2003, any process in terms of s 44 of the Local Government:
Municipal Finance Management Act 56 of 2003, were unsuccessful.
4 Each party to pay its own costs.
_________________________
N SNELLENBURG
ACTING JUDGE OF THE HIGH COURT
Appearances
28
For the plaintiff: JJF Hefer SC with V Mokhuane
Instructed by Tshangana & Associates, Bloemfontein
For the respondent:
A Sander
Instructed by: Peyper Attorneys, Bloemfontein