THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
R E P O R T A B L E
Case number : 240/2003
In the matter between :
B O E BANK LIMITED APPELLANT
and
CITY OF TSHWANE METROPOLITAN
MUNICIPALITY RESPONDENT
CORAM : SCOTT, MTHIYANE, BRAND,
CONRADIE, PONNAN JJA
HEARD : 8 MARCH 2005
DELIVERED : 29 MARCH 2005
Summary: Charge upon property in favour of municipality imposed by
s 118(3) of Act 32 of 2000 – does not exclude debts older than two years –
preference enjoyed under section also over mortgage bonds registered prior
to commencement of the Act – does not amount to affording section
retrospective effect.
_____________________________________________________
JUDGMENT
BRAND JA/
2
BRAND JA:
[1] This appeal arose from co mpeting claims by the appellant
('the bank') and the respondent ('the municipality') to the proceeds
realised from a sale in executi on of immovable property situated at
Wonderboom, Pretoria (' the property'). The bank's claim is based
on mortgage bonds over the property while the municipality's claim
is for municipal rates and for serv ices rendered in connection with
the property. The outcome of the dispute turns on the
interpretation of s 1 18(3) of the Local Gove rnment : Municipal
Systems Act 32 of 2000 ('the Act' ), read with subsection 118(1) of
the Act. These two subsections provide:
'118(1) A registrar of deeds may not register the transfer of property except
on production to that registrar of deeds of a prescribed certificate –
(a) issued by the municipality or municipalities in which that property is
situated; and
(b) which certifies that all amounts that became due in connection with that
property for municipal service fees, surcharges on fees, property rates and
other municipal taxes, levies and duties during the two years preceding the
date of application for the certificate have been fully paid.
(3) An amount due for municipal service fees, surcharges on fees, property
rates and other municipal taxes, levies and duties is a charge upon the
property in connection with which the amount is owing and enjoys preference
over any mortgage bond registered against the property.'
3
[2] The facts of the matter are relatively straightforward. The
previous owners of the property were Mr and Mr s Van Heerden.
Between 1994 and 1996, the bank's predecessor-in-title, NBS
Bank Limited, registered three mo rtgage bonds over the property
securing loans in a total amount of more than R2,3m. During the
period 1994 to 2001 the previous owne rs also became indebted to
the municipality for pr operty rates, municipa l services and other
charges contemplated in ss 118(1) and 118(3).
[3] In June 2001 NBS Bank took judgment against the Van
Heerdens for money lent a nd advanced under the mortgage
bonds. In terms of the judgment the prop erty was declared
executable. Towards the end of October 2 001, the attorneys
appointed to attend to the transfer of the pr operty pursuant to the
sale in execution, app lied to the municipalit y for the clearance
certificate contemplated by s 1 18(1) of the Act. The certificate
issued by the municipality show ed an amount of R287 900,29
owing in respect of municipal rates and services for the two years
preceding the date of applicat ion for the certificate, ie since
October 1999. The same certificat e, however, also reflected a
further amount of R655 273,83 outstand ing in respect of municipal
debts that became due prior to October 1999. In argument, the
4
latter indebtedness was re ferred to as 'the hi storical debt'. For
ease of reference, I shall adopt the same nomenclature.
[4] At the sale in execution, which was hel d in December 2001,
the property was sold for R725 000. In terms of th e conditions of
sale the purchaser also undertoo k to pay various amounts apart
from the purchase price, including 'any charges necessary to effect
transfer' of the propert y. It is common ca use that the purchaser
thus became liable to pay the amount of R287 900,29 certified to
be owing in respect of the two year period since October 1999.
Consequently there is no disp ute about this amount. It has been
paid by the purchaser. The dispute concerns the historical debt.
[5] Initially the cons truction of s 118(3) contended for by the
municipality was that in terms of th e section, the purchaser, as the
new owner of the property, became liable for the historical debt.
That gave rise to an ap plication in the court a quo by the
purchaser, as first applicant, an d the bank, as second applicant,
for an order declari ng that s 118(3) did no t render the new owner
liable for the historical debt. In its answering affidavit the
municipality conceded that its initial interpretation of s 118(3) could
not be sustained. Its revise d contention was that, on a proper
interpretation of s 118(3), the his torical debt enjoyed a preference
5
over the bank's claim under the mortgage bonds to the proceeds of
the sale in execution. The bank did not agree with this contention.
In the event, the municipalit y brought a counter application
essentially for an order declaring that its interpretation of s 118(3)
be confirmed. In the court a quo the municipality's contentions
were upheld by Du Plessis J w ho granted the coun ter application
with costs. The appeal against that judgment is with his leave.
[6] In the court a quo, the bank's case was exclusively based on
the premise that s 118( 3) of the Act did not apply to mortgage
bonds that were regi stered prior to the commencement of the Act
on 1 March 2001. The application of the section to ex isting bonds,
so the bank argued, would amount to affordi ng it retrospective
effect which is not warranted by the wording of the section.
Confining its judgment to the onl y issue before it, the court a quo
held that although s 11 8(3) does not have retr ospective effect, it
nevertheless applies to mortgage bonds that were registered
before its commencement on 1 March 2001. The present appeal is
inter alia against tha t finding. In additio n, the bank sought and
obtained leave to appeal on the further basis, not argued in the
court a quo, namely that s 118(3) must be read to incorporate the
time limit stipulated in s 118(1) and that the 'charge' contemplated
6
in subsection (3) is therefore limited to debts that became due
during the immediately preceding tw o years. I propose to deal with
the latter contention first.
[7] In considering whe ther the time limit stipulated in s 118(1)
should be read into s 118(3), it must be bo rne in mind that the two
sections provide the municipality with two different remedies.
Although the purpose of both is to ensure payment of the
municipal claims that fall with in the stipulat ed category, the
mechanisms employed to achieve that purpose are different.
Provisions such as those cont ained in s 118(1), sometimes
referred to as 'embargo' or 'veto' provisions, can be traced back to
provincial ordinances concerning local authorities passed many
years ago (see eg Pretoria Stadsraad v Geregsbode,
Landdrosdistrik van Pretoria 1959 (1) SA 60 9 (T) 613E-F;
Stadsraad van Pretoria v Letabako p Farming Operations (Pty) Ltd
1981 (4) SA 911 (T) 917C-H). While the effect of these embargo
provisions is to afford the municipality a right to veto the transfer of
property until its stipulated claims are met, they do not render the
municipality's claim preferent to exis ting mortgagees in the case of
a sale in execution. That much was held in Rabie NO v Rand
Townships Registrar 1926 TPD 286 (see also Nel NO v Body
7
Corporate of the Seaways Building and another 1996 (1) SA 131
(A) 134B-135C; First Rand Bank Ltd v B ody Corporate of Geovy
Villa 2004 (3) SA 362 (SCA) 369F- 370E). If the legislature
intended to create such a preference, so Greenberg J held in
Rabie NO (at 290), it must do so in specific language and 'not
leave such charge to be inferred from the mere existence of an
embargo on transfer'. The Transvaal legislature's response to this
decision was to create such a 'c harge' in specif ic language, as
suggested by Greenberg J, in s 50(2) (later s 50(3)) of Ordinance
17 of 1939 (T). Whereas s 50 (1) of the ordinan ce contained an
embargo or veto provision, similar to s 118(1), s 50(2) provided for
a 'charge' similar to s 118(3), wh ich has since bee n described as
amounting to a tacit s tatutory hypo thec (see eg Stadsraad,
Pretoria v Letabakop Farming Operations (Pty) Ltd supra 918C-G;
First Rand Bank Ltd v Body Corporate of Geovy Villa supra 368J-
369A; C G van der Merwe 1996 (59) THRHR 378. Like s 118(3), s
50(2) specifically declared it s purpose to be to afford the
municipality a preference over any mortgage bonds registered
against the property. Unlike s 11 8(3), however, s 50(2) expressly
limited such preference to debts referred to in s 50(1), which
applied only to debts that became d ue during the pr eceding three
years. Consequently, both the veto and the hypothec provided for
8
in ss 50(1) and 50(2) were expr essly limited to municipal claims
not older than three year s. The inferenc e to be drawn from this is
clear. The veto in s 118(1) and the charge in s 118(3) are two
different entities. They ma y be subject to the same time limit, but
this need not be so.
[8] Moreover, s 118(3) is on its own wording an independent,
self-contained provision. It does not require the incorporation of the
time limit in s 118(1) to make it comprehensible or workable. It was
therefore rightly conceded by the bank that the introduction of such
time limit into s 118(3) is not a ne cessary implication. Accordingly,
the bank's contention was not that the interp retation suggested by
it constituted the only – or even the most – plausible reading of
s 118(3). What it contended was that its interpretation was a
plausible one which was rendered most likely by reason of other
considerations. Includ ed amongst these, wa s the consideration
that this narrower reading of s 118(3) would be more in conformity
with the guarantee of proper ty rights in s 25(1 ) of the Constitution
(cf Mkontwana v Nelson Mandela M etropolitan Municipality and
another 2005 (1) SA 530 (CC) para 45). It would also be the
reading, so it was contended, that avoi ds the total negation of
bondholders' rights t hat may result from the more expansive
9
interpretation of the sect ion, as aptly demonst rated by the facts of
this case. It is clear, however, that these considerations will only
come into play if the constructi on of s 118(3) con tended for by the
bank is indeed a plausible one. This flows from the settled principle
that considerations outs ide the word ing of a statuto ry provision,
including considerations of constitutional validit y, do not permit an
interpretation which is und uly strained (see eg National Director of
Public Prosecutions and another v Mohame d NO and others 2003
(5) BCLR 476 (CC) para 35).
[9] The vital issue is therefore whether a construction of s 118(3)
which allows for the intr oduction of the s 118(1) time limit would or
would not be unduly strained. The bank's proposal was that the
opening for such introd uction is to be found in the expression 'an
amount due' in s 118(3), as op posed to 'all amounts due' in
s 118(1). As the starting point to its argument the bank referred to
the fact that exactly the same wo rds are used to describe the
debts involved in s 1 18(1) and s 118(3), that is , 'municipal service
fees, surcharges on fees, property rates and other municipal taxes,
levies and duties' and that the debts concerned in the two sections
are therefore exactly the same. Shorn of unhelpful references to
the numerous dictionary meanings of 'an' and to various rules of
10
interpretation stated in the abstr act, the bank's argument then
proceeded along the following lines. The phrase 'all amounts due'
in s 118(1), so it was said, refers inclusiv ely to a certain class or
type of amounts – that is municipa l debts of the specified kind,
restricted by the two year time limit. The effect of using the
indefinite article 'an' later in the same section, that is, in subsection
(3), is to include the latter amount due in the same class or type as
the first. Conversely, it was argued, the use of the word 'all' instead
of 'an' in subsection (3) would have been the linguistically feasible
way of either ext ending the class or including other types of
amounts due.
[10] I am not convinced that the difference between 'an' and 'all'
can support the weight y superstructure of the bank's argument. I
think there is a much simpler ex planation for this difference. In
subsection (1) 'all amounts' – pl ural – refers to a number of
different debts that became due at different times. The purpose of
'all' is to indicate that, despi te their different ages, everyone of
these debts falls within the purvie w of the section, pr ovided that it
became due within the preceding tw o year period. Subsection (3),
on the other hand, does not refer to a category or class of debts
but to the aggregate of di fferent debts secur ed by a single charge
11
or hypothec. For purpo ses of s 118(3) it th erefore does not matter
when the component parts of the secured debt became due. The
amounts of all debts ar ising from the stipulat ed causes are added
up to become one composite amount secured by a single
hypothec which ranks above all mortgage bonds over the property.
[11] Conversely, if the legisl ature really inten ded to render
s 118(3) subject to the same two year time limit contemplated in
s 118(1), it could have done so in a number of ways. It could, for
instance, have repeated the wordin g of s 118(1). Or , it could have
followed the precedent of the 1939 Transvaal ordinance by simply
referring to 'any am ounts due in terms of s 118(1)'. This would
have the added advantage of avoiding repetition of the
cumbersome language enumerating the differ ent causes from
which the debts concerned may arise. The inference is clear. If the
legislature intended to introduce a ti me limit into s 118(3), it would
not have done so in the convoluted way suggested by the bank. In
the result, the only plau sible interpretation of s 118(3), in my view,
is that it is not subject to the time limit contemplated in s 118(1).
[12] This brings me to the ban k's alternative argument based on
what it contended to be an unwarr anted retroactive application of
s 118(3). The starting point of this argument was a reference to
12
s 50(3) of Ordinance 17 of 1939 (T), which was, as I have said, the
predecessor of s 118(3) in the Province of Gauteng. In terms of
this previous enactme nt the charge upon the property was limited
to debts that became due during the preceding three years. On the
day before the Act ca me into operation, that is, on 28 February
2001, the preference enjoyed by the municipality in terms of its
statutory hypothec was therefor e limited to debts not older than
three years. If the unlimited pre ference imposed by s 118(3) were
held to apply to bonds that exist ed on 28 February 2001, so the
bank's argument proceeded, it woul d afford s 118(3) retrospective
effect. In the absence of any indication of re trospectivity in the
enactment itself, the argument concluded, such retrospective
application could not be sustained.
[13] It is true that if s 118(3) is applied to bonds existing before 1
March 2001, it would reduce the security enjoyed by mortgagees
under those bonds and in that sense inte rfere with existing rights.
However, that in itself would not mean that the section is afforded
retrospective effect. As was pointed out by Buckley LJ in West v
Gwynne [1911] 2 Ch1 at 11-12:
'Retrospective operation is one matter. Interference with existing rights is
another.'
13
In the same case Buckley LJ for mulated the following test to
determine the difference between the two:
'If an Act provides that as at a past date the law shall be taken to have been
that which it was not, that Act I understand to be retrospective. That is not this
case. The question here is whether a certain provision as to the contents of
leases is addressed to the case of all leases or only of some, namely leases
executed after the passing of the Act. The question is as to the ambit and
scope of the Act, and not as to the date as from which the new law, as
enacted by the Act, is to be taken to have been the law.'
The test thus formulate d has been approved and applied by our
courts on various occasions (see eg Parow Municipality v Joyce
and McGregor (Pty) Ltd 1974 (1) SA 161 (C) 164E-165A; Adampol
(Pty) Ltd v Administrator, Transvaal 1989 (3) SA 800 (A) 811B-
813C; Transnet Ltd (Autonet Divisi on) v Chairman, National
Transport Commission 1999 (4) SA 1 (SCA) 7A-D).
[14] It follows that an enactment can only be described as
retrospective in the true sense if it require s the law to be taken as
amended prior to its d ate of amendment. Applyi ng this formula, I
find myself in agree ment with the court a quo that on the
interpretation of s 118 (3) contended for by t he municipality, the
section requires no such thing. It does not expressly or impliedly
purport to state that b efore 1 March 2001, the la w in Gauteng was
14
in any way different from what it was under the 1939 Transvaal
Ordinance. The extended se curity contended for by the
municipality is only effective from 1 Ma rch 2001. The bank's
contention was that s 11 8(3) should only be applied to bonds
registered after 1 March 2001. Thi s contention cannot find any
basis in the presumption against retrospectivity. What it would
amount to in effect is a limitation of the ambit and scope of the
section for which, as I read it, there is no warrant.
[15] For these reasons , the appeal is dismissed with costs.
……………….
F D J BRAND
JUDGE OF APPEAL
Concur:
Scott JA
Mthiyane JA
Conradie JA
Ponnan JA