THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE NO: 16/05
Reportable
In the matter between
RATES ACTION GROUP Appellant
and
THE CITY OF CAPE TOWN Respondent
Coram: Howie P, Streicher, Lewis, Jafta JJA Nkabinde AJA
Heard: 8 November 2005
Delivered: 25 November 2005
Summary: The levying of a rate as a charge for sewerage services and
refuse removal is permitted under the Local Government:
Municipal Systems Act 32 of 2000.
JUDGMENT
LEWIS J A:
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[1] This appeal i s against a decision of the Cape High Court
(Budlender AJ, Moosa J concurring) in which it was found that the
respondent, the City of Cape Town (the ‘City’), was entitled to levy
a charge based on the municipa l value of property for sewerage
services and refuse removal. The j udgment of the court below i s
reported in 2004 (5) SA 545 (C). The appellant impugns only one
aspect of the deci sion, and in vi ew of the full ness and lucidity of
the judgment of Budlender AJ ther e is no need to deal with any
other issue raised in the court of first instance.
[2] The appellant is a voluntar y associ ation that represents a
number of different ratepayer associat ions in parts of the City. It
sought an order declaring that the levying and recovery from
ratepayers of the City of (a) sewerage charges based sol ely on the
value of a ratepayer's property, and unrelated to the volume of
water supplied, i mposed by the City since 1 July 2002; and (b)
refuse removal charges based solel y on the value of a ratepayer's
property, as imposed by the re spondent since 1 Jul y 2002, was
unlawful, alternatively, unconstitu tional, in terms of the provisions
of the Local Government: Municipal Systems Act 32 of 2000, and
hence of no force from these respe ctive dates. The appellant also
asked that, consequent on the order being grant ed, the City credi t
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all its ratepayers with the amounts pai d, and interest, as from the
date of the imposition of such ch arges; and that the City reverse
the charges, and interest accrui ng thereon, to those ratepayers
who had not paid. The appli cation was dismissed. The appeal lies
with the leave of this court.
[3] The background to the case is, very briefly, this: the City was
created i n December 2000 by t he amalgamation of the Cape
Metropolitan Council and si x transiti onal municipal local counci ls.
In what had formerly been the Cape Town and South Peninsul a
Local Council areas, sewerage and refuse removal services were
funded from property rates. There were no consumpti on charges
for these servi ces. In other areas charges for the services were
based either on consumption or on a flat rate. These charges, and
the different methods of determining them, were permissible i n
terms of s 10G of the Local Government Transiti on Act 209 of
1993 (the ‘LGTA’ ).
[4] After its establi shment the City compil ed a general valuation
roll incorporati ng all of the properties w hich fel l within its
jurisdiction. This l ed to a substa ntial increase in the valuation of
many properties which had not been valued for several years. The
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revaluation of properties had a signif icant effect not onl y in so far
as rates were concerned (see in this regard City of Cape Town v
Robertson 2005 (2) SA 323 (CC)) but also in so far as charges for
sewerage and refuse rem oval were concerned, for these were
based, in part, on the rateable va lue of property from 2000. It is
these charges that are the subject of the dispute before the court.
[5] In 2002 the City Council approved a budget and for the first
time determined a uniform method of charging for sew erage and
refuse removal services applic able throughout t he areas under its
jurisdiction. Sewerage servi ce charges consisted of two elements.
The first was a charge based on estimated consumpti on, which
was capped for single resi dential properties. The second was a
basic charge of R38 for each propert y, but which was subject to a
rebate based on the value of the property. The rebate ranged from
a full one in respect of propertie s worth less than R50 000, to one
of R8 for properti es valued between R1m and R1,5m. Refuse
removal charges also had two elem ents: user charges, subject to
rebates based on property values; and, secondly, a percentage of
the rateable value of the property if it was in excess of R50 000.
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[6] Towards the end of 2002 th e Council, newly-controlled by a
different political party, adopted a policy to combat poverty within
the City. An independent study was commissioned to obtain advice
on how to recover the costs of servi ces, whil e at the same time
subsidising households where the occupants could not afford the
costs – about a thi rd of the people li ving in the area. The Council ,
after considering the report and recommendations made pursuant
to the study, agreed to a significant shift in poli cy in relation to the
funding of services. The ai m was to ensure that at least 50 per
cent of revenue in respect of sewerage services was based on
fixed charges, determined in accordance with the rateable value of
the property. Previously, only some 20 per cent of the revenue was
based on a fixed charge. The bal ance of revenue would be based
on a consumption charge.
[7] The charges imposed f or the 2003/2004 year were made up
as follows. The sewerage servic e charge again had two elements.
The first was a range of consum ption charges based on estimated
water consumption, but capped at 28 kl per month in the case of
single residential properties. T he second el ement was a charge
based on the val ue of the property in questi on. In the case of
single residential properties, this wa s charged at the rate of 0,153
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cents in the rand of rateabl e value above R50 000, subj ect to a 30
per cent rebate. It was not capped. This change from the 2002/3
flat rate of R38 per property (subject to a value-based rebate)
resulted in an increase in that el ement of the sew erage charge in
respect of all properties with a rateable value of R128 509,80 or
higher.
[8] The refuse removal charges were also based on two
elements. There was a range of consumer charges, coupled with a
charge based on the property valu e. In the case of residenti al
properties, the charge based on the property value was
0,041588185 cents in t he rand on rateabl e value above R50 000.
This was not capped.
[9] The removal of the cap and the increased rate at which the
sewerage charge was made led in many cases to signifi cant
increases in the charges for sewerage servi ces and refuse
removal. The objections to the in creases by ratepayers gave ri se
to the applicati on for the orders that the City was not entitled to
charge on the bases adopted.
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[10] The legislative framework for local government, and for the
charging of fees and the levying of rates, is described
comprehensively in the judgment a quo in paras 24 to 31 and there
is no need to repeat it here. Suffice it to say that municipalities
derive their power both from the Constitution and from legislation.
Section 229 (1) of the Constitution provides that a municipality may
impose
‘(a) rates on property and surcharges on fees for services provid ed by or on
behalf of the municipality; and
(b) if authorized by national legis lation, other taxes, levies and duties
appropriate to local government . . . , but no municipality may impose income
tax, value-added tax, general sales tax or customs duty.’
The powers of a municipal ity are li mited, however, by subsec (2),
which provides, inter alia, that they must not be exercised in such
a way as to ‘materiall y and unreasonabl y’ prejudice national
economic policies. Subsection (2)(b) provides that the powers may
be regul ated by national legislation. The regulatory legisl ation
principally in issue in this appeal is the Local Government:
Municipal Systems Act 32 of 2000 (the ‘Systems Act’), which came
into operation on 1 March 2001.
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[11] The appellant cont ends that in terms of thi s Act, the City
does not have the power to charge for a service by imposing a rate
– an amount determined on the basi s of the municipal value of the
property. It accepts that thi s was permissible under s 10G of the
LGTA, but contends t hat the relevant parts of the section were
impliedly repealed when the Systems Act came into operation. The
court below found that the sectio n was not repealed, and that for a
period s 10G existed al ongside the corresponding financi al
provisions in the Systems Act. A municipality could accordingly
choose which system of charging for services it would implement –
one permitted under s 10G or one determined under the Systems
Act.
[12] In my vi ew it is not ne cessary to determine the question
whether a munici pality had a choi ce, since the Systems Act, to
which I shall turn shortly, does not preclude the levying of a rate as
a charge for a service. (After this matter was decided in the court
below, the final legislati on in the suite of statutes designed to
regulate l ocal government and its financial powers was enacted,
and the relevant provisions of s 10G were expressly repealed by s
179 of the Local G overnment: Municipal Finance Management Act
56 of 2003, which came into operati on on 1 July 2005. The Act
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came into operati on generally on 1 July 2004, save f or sections
(including s 179) referred to in the schedule to the Act, the last of
which will come into operation on 1 July 2008. The Act must be
read with the Local Government: Municipal Property Rates Act 6 of
2004 which came into operation on 1 Ju ly 2005. This is the statute
envisaged in s 229(2)(b) of the Constitution which provides that the
imposition of property rates by a municipality may be regulated by
national legislation.)
[13] The essence of the appellant’s argument is that while s 10G
of the LGTA allowed expressly for a rate to be levied for a service,
s 74 of the Systems Act requires a tariff to be charged. In Gerber v
Member of the Executive C ouncil for Development Planning and
Local Government, Gauteng 2003 (2) SA 344 (SCA), this court
accepted the defi nition of a rate i n the Concise Oxford Engli sh
Dictionary (7 ed): ‘Assessment levied by local authorities for local
purposes at so much per pound of assessed value of buildings and
land owned.’ A tariff, on the other hand, is a table of charges for
items or services.
[14] The relevant provisions of s 10G are subsecs 7(a) and (b):
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‘(7)(a)(i) A local council, metropolitan local council and rural council may by
resolution, levy and recover property rates in respect of immovable property in
the area of jurisdiction of the council concerned: Provided that a common
rating system as determined by the metropolitan council shall be applicable
within the area of jurisdiction of that metropolitan council . . . .
(ii) A municipality may by resolution supported by a majority of the
members of the council levy and recover levies, fees, taxes and tariffs in
respect of any function or service of the municipality.
(b) In determining property rates, levies, fees, taxes and tariffs (hereinafter
referred to as charges) under para (a), a municipality may -
(i) differentiate between different categories of users or property on
such grounds as it may deem reasonable. . . .'
[15] Chapter 8 of the Systems Ac t regulates municipal services.
Part 1 of the chapter deals with servi ce ‘tariffs’. Section 74 deals
with tariff policy. It read, at the relevant times:
‘74 Tariff policy
(1) A municipal council must adopt and implement a tariff policy on the
levying of fees for municipal services provided by the municipality itself or by
way of service delivery agreements, and which complies with the provisions
of this Act and with any other applicable legislation.
(2) A tariff policy must reflect at least the following principles, namely
that -
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(a) users of municipal services should be treated equitably in the
application of tariffs;
(b) the amount individual users pay for services should generally be
in proportion to their use of that service; (my emphasis)
(c) poor households must have access to at least basic services
through -
(i) tariffs that cover only operating and maintenance costs,
(ii) special tariffs or life line tariffs for low levels of use or
consumption of services or for basic levels of service; or
(iii) any other direct or indirect method of subsidisation of
tariffs for poor households;
(d) tariffs must reflect the costs reasonably associated with
rendering the service, including capital, operating, maintenance,
administration and replacement costs, and interest charges; (my emphasis)
(e) tariffs must be set at levels that facilitate the financial
sustainability of the service, taking into account subsidisation from sources
other than the service concerned;
(f) provision may be made in appropriate circumstances for a
surcharge on the tariff for a service;
(g) provision may be made for the promotion of local economic
development through special tariffs for categories of commercial and industrial
users;
(h) the economical, efficient and effective use of resources, the
recycling of waste, and other appropriate environmental objectives must be
encouraged;
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(i) the extent of subsidisation of tariffs for poor households and
other categories of users should be fully disclosed.
(3) A tariff policy may differentiate between different categories of
users, debtors, service providers, services, service standards, geographical
areas and other matters as long as the differentiation does not amount to
unfair discrimination.’
Section 75 requires that by-laws be adopted in order to give effect
to tariff policy. It reads:
‘75 By-laws to give effect to policy
(1) A municipal council must adopt by-laws to give effect to the
implementation and enforcement of its tariff policy.
(2) By-laws in terms of ss (1) may differentiate between different categories of
users, debtors, service providers, services, service standards and
geographical areas as long as such differentiation does not amount to unfair
discrimination.’
The general power to levy and recover fees, charges and tariffs is
conferred by s 75A, inserted in 2002.
[16] The appellant argues that al l charges for servi ces must be
made in terms of these sections . Thus there m ust be a tariff, and
before that is adopted, there must be a tariff policy and by-laws
promulgated. When the City imposed the sewerage service an d
refuse removal charges, no polic y had been adopted and no by-
laws passed. Accordingly, the argument goes, the charges based
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on the value of the property, rather th an on use of the service, are
not perm itted in terms of the Systems Act. The appellant fi nds
support for these contentions in s 74(2)(b), which requires that the
amount paid for services by a us er should ‘generally be i n
proportion’ to their use; and in s 74(2)(d), which requires that tariffs
must refl ect the costs ‘reasonabl y associated’ with rendering the
service.
[17] The implication of these p rovisions, the appell ant contends,
is that charges for all muni cipal services must be based on use –
actual consumption – and must be proportionate to the use. A rate,
which is determined by the value of property, bears no relation to
actual consumption, and thus cannot be levied for a service.
[18] Counsel for the appellant conceded, however, that a
municipality may use revenue a ccumulated through the collecti on
of rates for general servi ces – those to which all members of the
public have access, such as the us e of library facilities, or the
maintenance of roads and pavements. Indeed, in South African
Municipal Workers Union v City of Cape Town 2004 (1) SA 548
(SCA) this court found that the use of some municipal servi ces,
such as a city police servi ce, cannot be measured such that it can
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be charged to indi viduals. He conceded also that the Act does not
preclude the use of rates for the purpose of subsi dising
households. He argued, however, that where consumption is
attributable to a particular user, such as the use of electri city,
water, sewerage services and refuse removal , the servi ce charge
must be based on use and determined in accordance with a tariff.
[19] There is, however, no limitation to be found in s 74, or in any
other part of the Systems Act, on the uses to which rates may be
put nor on the number of rates that may be charged by a
municipality. There is nothi ng to preclude the levyi ng of several
rates in respect of a property. And the Systems Act does not oblige
a municipality to charge for services in accordance with a tariff – i t
simply entitles it to do so provi ded that a tariff poli cy has been
adopted and by-laws promulgated.
[20] In the ci rcumstances the ar gument for the appellant that the
City was not permi tted to charge a rate for the sewerage servi ces
and refuse removal cannot succeed. Since this was the only issue
argued on appeal, the appellant must fail.
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[21] The appeal is dismissed with costs including those
occasioned by the employment of two counsel.
_____________
C H Lewis
Judge of Appeal
Concur:
Howie P
Streicher JA
Jafta JA
Nkabinde AJA