IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO 334/03
In the matter between
MA MPAKATHI Appellant
and
KGOTSO DEVELOPMENT CC First Respondent
SDP DU TOIT Second Respondent
HC DU TOIT Third Respondent
SEDIBENG DISTRICT MUNICIPALITY Fourth Respondent
MIDVAAL LOCAL MUNICIPALITY Fifth Respondent
REGISTRAR OF DEEDS, PRETORIA Sixth Respondent
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CORAM: HARMS, STREICHER JJA, ERASMUS, JAFTA et PONNAN
AJJA
________________________________________________________________________
Date Heard: 3 September 2004
Delivered: 20 September 2004
Local authority – Councillors – Purchase of property at a sale in execution where
municipality the judgment creditor – According to agreed facts, magistrate
acquired certain ‘rights’ in terms of conditions of sale – Such ‘rig hts’ all to benefit
of municipality – Such ‘rights’ entail rights already vesting in municipality in terms
of statute or part of functions of sheriff under Magistrates’ Courts rule 43 – Sale not
null and void under s 40 of Gauteng Local Government Ordinance 17 of 1939
________________________________________________________________________
J U D G M E N T
________________________________________________________________________
ERASMUS AJA
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ERASMUS AJA
[1] At issue in this appeal is the validity of an agreement of sale of
immovable property concluded at a sale in execution held on a magistrate’s
judgment obtained by a local authority ag ainst the registered owner of the
property. Transfer was e ffected. The previous owner thereafter instituted
action in the court a quo for an order declaring th e purchase to be null and
void. She cited: as first defendant, th e close corporation that had purchased
the property; as second and third defe ndants, the two members of the close
corporation; as fourth and fifth de fendants, two municipalities (to whom I
refer collectively as either ‘the municipality’, ‘the judgment creditor’ or ‘the
execution creditor’ depending upon what is appropriate to the context); and,
as sixth defendant, the registrar of deeds.
[2] It was plaintiff’s case that the sa le fell foul of s 40 of the Gauteng
Local Government Ordinance 17 of 1939 (T) (‘the ordi nance’) which is
current in Gauteng and wh ich provides, in ss (1) thereof, that a municipal
councillor shall not (except in certain specified circumstances not relevant
here) ‘enter into a contract with th e council in which he or she has a
pecuniary interest’. Subsection (3) declares that such a contract ‘shall be null
and void’. At the time of the sale in execution, the s econd defendant was a
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councillor in the municipality. His member’s interest in the close corporation
was sufficient to bring the contract of sale within the purview of s 40.
[3] The court dismissed the action on the basis of the stated case
presented to it for adjudication in terms of rule 33 of the Uniform Rules. The
judgment is reported as Mpakathi v Kghotso Development CC and others
2003 (3) SA 429 (W). Cloete J therein se t out fully the relevant facts and
dealt extensively with a number of que stions of law arising in the matter.
The learned judge granted the unsuccessful plaintiff leave to appeal.
[4] The agreement that comes into bei ng at a judicial sale is one between
the purchaser and the sheriff acting as the executive of the law. This
proposition was accepted as correct by appellant’s counsel, who therefore
did not contend that the execution cr editor automatically becomes party to
that contract. He contended instead that in the present matter a contractual
relationship was establis hed between the municipality and the purchaser by
virtue of certain provisions containe d in the conditions of sale; which
conditions, upon the fall of the hammer, became terms of the contract of
sale. The relevant conditions are identified in the statement of agreed facts:
‘26. The Conditions of sale vested various rights in the Eastern Gauteng Services
Council, inter alia, the following:
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26.1 Clause 5 obliged the purchaser, at the instance of the attorney of the Eastern
Gauteng Services Council, to pay all the costs relating to th e transfer of the
property and the sale in execution.(a)
26.2 In terms of clause 6, the purchaser a ssumed liability for all outstanding debts
owed to the Eastern Gauteng Services C ouncil in respect of taxes, levies and
service fees relating to the property.(b)
26.3 In terms of clause 7, the purchaser had to furnish a guarantee approved by the
attorney of the Eastern Gauteng Services Council for payment of the balance of
the purchase price.(c)
26.4 In terms of clause 9, the Eastern Ga uteng Services Council appointed the
conveyancer to effect the transfer of the property.(d)
26.5 In terms of clause 10, the Eastern Gaut eng Services Council was exempted from
liability for any latent defects in the property.’(e)
I comment as follows on the cross -references inserted in the above
paragraph. (a)Section 3 of the Transfer Duty Act 40 of 1949 declares that the
duty shall be payable by the person who has acquired the property. (b)Section
50 of the ordinance provides that no tr ansfer of land shall be registered
unless all amounts for a period of three years in regard to municipal rates
and services have been paid. 1 (c)Rule 43(13) of the Magistrates’ Courts rules
provides that the sheriff shall give tran sfer to the purchaser against payment
1 The section is fully set out in footnote 8 p 437 of the reported judgment of the court a quo above para [3].
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of the purchase money and upon performan ce of the conditions of sale and
may for that purpose do anything necessary to effect registration of transfer.
(d)Rule 43(8) provides that the credito r may appoint the conveyancer for the
purposes of transfer. (e)Clause 10 purports to exempt the municipality from a
liability which, for it, does not exist.
[5] It seems therefore that the c onditions of sale upon which appellant
would rely, entail rights already vest ed in the municipality in terms of
statutory provisions or the rules; or prescribe how the sheriff shall perform
his executive functions in giving effect to the terms of the agreement of sale
in a process which is mandatory fo r the sheriff and therefore beyond the
control of the execution creditor.
[6] Counsel for the appellant submitte d that clauses 5 to 9 of the
conditions of sale involve the municipality in a tripartite agreement, as in the
case of Sedibe and another v United Building Society and another 1993 (3)
SA 671(T). This aspect was the subj ect of the judgment of the court a quo.
However, in view of the developments described hereinafter, it has become
unnecessary for us to come to a finding on the issue.
[7] Appellant’s counsel advanced the further submission that the validity
and status of the so-called tripartite agreement is not open to challenge by
the respondents, in virtue of the fact that in the stated case it is expressly and
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therefore incontrovertibly agreed that clauses 5 to 9 of the conditions of sale
vested various ‘rights’ in the council. 2 He contended that the court is not
entitled to go behind the admission. I shall accordingly for purposes of this
judgment accept (without deciding) that on the agreed facts, we have here a
contract of the kind that was found to exist in Sedibe 678 A-C, viz a special
type of situation where the execution creditor, the sheriff and the purchaser
are all parties to what is in effect a tripartite agreement in terms of which the
municipal council acquired a contr actual bond with the purchaser, and
therefore indirectly with a councillor.
[8] That contract is impugnable under s 40(1) of the ordinance only if a
councillor thereunder acquires ‘any direct or indirect pecuniary interest’.
That concept was received from England 3 into our legislation regulating
relationships between local authoritie s and the members of their governing
councils4. It is employed in three areas : councillors attending and voting at
meetings concerning matters in whic h they have a direct or indirect
pecuniary interest; the disqualificati on from office of councillors who enter
into contracts with the council in whic h they have such interest, and the
ineligibility of candidates for office who have such contracts with the
2 See para [4].
3 See Halsbury’s Laws of England 4th ed. Vol 29(1) under para 170 ‘Pecuniary interest.’
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council; and, as in the present case, th e invalidity of contracts in which a
councillor has such interest.
[9] The words ‘direct or indirect pecuniary interest’ are capable of
bearing a wide meaning. However, in asmuch as s 40 restricts the right of
freedom of contract, limitation of that extensive meaning through contextual
interpretation, seems called for. Dönges and Van Winsen, Municipal Law
2ed 128 state that ‘(t)hese words are nowhere defined a nd the courts have
been called upon to treat each set of facts on its merits. In order to do this the
courts have looked to the object which the Legislature desired to attain.’
Apart from avoiding conflict of interest 5, s 40 obviously has the purpose of
protecting municipal councils from fraud and corruption by councillors; the
prevention of misuse of insider knowledge of municipal business by
councillors; and their abuse of their position in dealing with municipal
employees and administrators in the performance of contracts with the
municipality.
[10] In R v Garb 1934 CPD 66, 69, Gardiner JP remarked that ‘(w)here the
councillor’s interest is simply one wh ich is common to every ratepayer in
the municipality, then he is not regarded as coming within the section’. In
4 See, for example : s 46 and s 103 Ordinance 10 of 1912 (Cape); s 30 Municipal Ordinance 20 of 1974
(Cape); s 50 Local Government Ordinance 8 of 1962 (Free State).
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the present matter the contract was en tered into at a public auction open to
all ratepayers and other interested parties. The municipality had no part in or
control over the auction in that the sh eriff is obliged to sell the property to
the highest bidder (Magistrates’ Courts rule 43(10)). These circumstances
greatly reduce the risk of impropriety on the part of the councillor in the
purchasing of the property.
[11] The risk of chicanery is further reduced by the fact that the benefits
which redound to the municipality
in terms of clauses 5 to 9 involve
statutory rights which it already posse sses, or to executive actions by the
sheriff prescribed by the rules of court.6
[12] Importantly, the contractual provisions upon which the appellant
would rely are all to the bene fit of the municipality. In Burger v Dummer
and another 1913 CPD 765, 770, Gardiner AJ declared that ‘wherever
“contract” is mentioned in the (municipal) Ordinance, a contract … whereby
the Council is to do or give something in return for something done or given
by the other party, is contemplated’. The court held that the undertaking by
a candidate councillor to donate an amount of mone y towards defraying the
costs of an appeal instituted by the council, did not cons titute a pecuniary
5 See McIllwraith v Fowler 1920 EDL 215 at 222; Stellenbosch Farmers’ Winery v Distillers Corporation
(SA) Ltd and another 1962 (1) SA 458 (A) 470B.
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interest disqualifying him from office. Th is decision might not give rise to a
general rule that a donation or a promise without return, made by a
councillor to the council, can never c onstitute a pecuniary interest; it does
however reflect the common sense view that the words ‘pecuniary interest’
generally connote a right or claim ves ting in the councillor as against the
council.
[13] The purpose of execution is the en forcement of the court’s judgment;
to which end the proceedings are driven throughout by the judgment creditor
for its exclusive benefit (subject to th e rights of preferent creditors), through
the sheriff acting in his or her executiv e capacity. The execution creditor has
the right to prepare the conditions of sale (Magistrates’ Courts rule 43 (7)(a))
and may include therein provisions to its benefit. The municipality, in its
capacity of execution creditor, stipul ated the benefits which it required out
of the sale. The purchaser, in ac cepting the conditions of sale, was
instrumental in the municipality obtaini ng its objectives. What is more, the
purchaser’s bid, being the highest bi d, constituted for the municipality the
best bargain possible at the particular sale in ex ecution. The purchaser’s
obligation to fulfil that bargain can ha rdly afford scope for corruption, fraud
or insider trading.
6 See para [4].
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[14] In short, for the above reasons, I find that the beneficial statutory
‘rights’ of the kind ‘acquired’ by the municipality at the public judicial sale
did not constitute a pecuniary intere st, direct or indirect, as contemplated
in Local Government Ordinance 17 of 1939 (T).
[15] I should mention perhaps that in the appellant’s heads of argument
reliance is placed also on s 10H(3) of the Local Government Transition Act
209 of 1993, but that aspect was not pursued at the appeal. I need not burden
this judgment with my reasons for re garding counsel’s decision to be correct
and proper.
[16] In the result, I would dismiss the appeal with costs.
_______________________
AR ERASMUS
ACTING JUDGE OF APPEAL
CONCUR:
Harms JA
Streicher JA
Jafta AJA
Ponnan AJA