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[1999] ZASCA 95
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Greater Johannesburg Transitional Metropolitan Council v Eskom (536/97) [1999] ZASCA 95; 2000 (1) SA 866 (SCA) (30 November 1999)

REPORTABLE
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No: 536/97
In the matter
between:
THE GREATER JOHANNESBURG
TRANSITIONAL Appellant
METROPOLITAN
COUNCIL
and
ESKOM
Respondent
CORAM : MAHOMED CJ, VIVIER, SCOTT JJA,
MELUNSKY AND FARLAM AJJA
HEARD : 11 NOVEMBER 1999
DELIVERED : 30 NOVEMBER 1999
JUDGMENT
MEANING OF 'THE STATE' IN SECTION 24 OF ESKOM ACT, 40 OF 1987 -
WHETHER ESKOM EXEMPTED FROM PAYING REGIONAL ESTABLISHMENT LEVIES
MELUNSKY AJA
MELUNSKY AJA
:
[1] The question for decision in this appeal
is whether the respondent, Eskom, is exempted from paying the regional
establishment
levies provided for in s 12(1)(a)(ii) of the Regional Services
Councils Act, 109 of 1985 ("the RSC Act") for the period 1 November
1987 to 30
November 1995.
The background to the appeal is the following. With the
approval of the Receiver of Revenue, Johannesburg, the appellant assessed
the
respondent to pay such levies for the period 1 August 1987 to 30 November 1995.
The respondent's objection to the assessment
was disallowed and it appealed to
the Income Tax Special Court. For the purposes of the appeal a period of three
months - from 1
August to 31 October 1987 - was left out of the reckoning. The
Special Court (Southwood J) found in the respondent's favour and
with the leave
of the Judge
a quo
the appellant appeals directly to this Court against
that decision.
[2] Section 12(1) of the RSC Act authorises a regional
services council to levy and claim regional service levies and regional
establishment
levies. The section reads:
"12(1)(a) Subject to the provisions of section 4(1), a council shall levy and
claim from -
(i) every employer who employs or is deemed to employ employees within its
region, and each person carrying on or deemed to be carrying
on an enterprise
within its region as referred to in paragraph (b) of the definition of 'regional
services levy', a regional services
levy;
(ii) every person carrying on or
deemed to be carrying on an enterprise within its region, a regional
establishment levy.
(b) The Minister of Finance may from time to time, after consultation with the
Council for the Co-ordination of Local Government
Affairs established by section
2 of the Promotion of Local Government Affairs Act, 1983 (Act No 91 of 1983),
and by notice in the
Gazette
, determine the manner in which the regional
services levy and the regional establishment levy shall be calculated and
paid."
[3] The Central Witwatersrand Regional
Services Council ("the CWRSC") was established pursuant to s 3 of the RSC Act.
The appellant,
the Greater Johannesburg Transitional Metropolitan Council,
succeeded to the rights and obligations of the CWRSC on 3 December 1994
in terms
of Proclamation 24 ("Premier's") of 1994 which was issued under
s 10
of the
Local Government Transition Act, 209 of 1993
("the
LGT Act"). The
right to
claim the levies, therefore, vested in the CWRSC until 2 December 1994 and
thereafter in the appellant.
[4] The respondent is a juristic person. It was
established pursuant to the Electricity Act, 42 of 1922 under the name of the
Electricity
Supply Commission and remained in existence in terms of the
Electricity Act, 40 of 1958, which replaced the 1922 Act. The Eskom
Act, 40 of
1987 ("the Eskom Act") which superseded Act 40 of 1958, provides for its
continued existence under the name of Eskom.
It is not disputed that the
respondent carries on an enterprise in terms of the RSC Act and that, had it not
been for s 24 of the
Eskom Act, it would have been liable to pay the levies for
which it was assessed, although in the Special Court it reserved the right
to
raise certain other defences which are not relevant in this appeal. Section 24
of the Eskom Act at the relevant time read as
follows:
"Eskom is hereby exempted from the payment of any income tax, stamp duty, levies
or fees which would otherwise have been payable
by Eskom to the State in terms
of any law (excluding a law regarding customs and excise or sales
tax)."
[5] The Judge
a quo
concluded that the levies
payable in terms of s 12(1) of the RSC Act were payable to "the State" within
the meaning of s 24 of the
Eskom Act and that the respondent was therefore
exempted from paying such levies. On the appellant's behalf it was submitted
both
in the Special Court and in this Court that the exempting provision has no
application to this matter as neither the appellant not
its predecessor should
be regarded as part of "the State" for the purposes of the section. The issue
that arises in this appeal
is whether the expression "the State" in s 24 of the
Eskom Act included the CWRSC and the appellant. Southwood J was of the view
that the Minister of Finance enjoys such powers of control over the activities
of regional services councils particularly in relation
to the manner in which
the levies are to be calculated and paid that the councils are
"a manifestation of the State and that the levies payable to regional services
councils are levies payable to the State."
As the Minister
also has the power in terms of s 12(1)(b) of the RSC Act to determine the manner
in which the levy due to the appellant
is to be calculated and paid, the State,
so it was held by the Special Court, also controls the appellant insofar as its
right to
claim levies is concerned.
[6] Before considering the meaning to be
ascribed to the expression "the State" in s 24 of the Eskom Act, two other
matters need to
be dealt with. The first concerns the status and functions of
regional service councils and local transitional metropolitan councils,
and the
second is whether the test of control, which was adopted by Southwood J, is the
correct yardstick to apply in the instant
case.
[7] The system of government
in South Africa from 1910 is described as follows in an article by Robert
Cameron:
Regional Service Councils in South Africa - Past, Present and
Future
(Vol 71,
Public Administration
, at 417-418):
"South Africa became a Union in 1910 as a result of the South Africa Act of 1909
which created a three-tier unitary system of government.
Firstly, there was a
Parliament based on the British Westminster system in terms of structure,
procedure and practice. The second
tier consisted of four Provinces, whereby
power was shared between a centrally appointed Administrator and the elected
provincial
council. The third tier of government was local government. Local
authorities were created by provincial authorities which defined
the scope of
their local jurisdiction. Local authorities were single-tier, multi-purpose
authorities with both legislative and executive
powers. No metropolitan form of
local government existed. This led to fragmentation of urban areas, which
caused disparities in
the standards of service provision and expenditure,
particularly on racial lines (as will be shown). Major functions of local
authorities
included the construction and maintenance of roads, the supply of
water and electricity, provision of housing, traffic control, refuse
collection,
health services, public library services, museums, fire-fighting services, motor
vehicle and business licencing, sewerage,
cemeteries and crematoria, ambulance
services and stormwater drainage. Public protection (except for traffic
control), education
and welfare, were not however local government
functions."
[8] The position did not change materially when
South Africa became a Republic in 1961, save that the State President became the
head
of the State. When the Eskom Act came into operation, a new constitution,
introduced by the Republic of South Africa Constitution
Act, 110 of 1983, was in
force. In terms of this Constitution the State President remained the head of
the Republic and presided
over the Cabinet but he became an executive President.
Parliament consisted of three houses divided on racial lines. The Act vested
the governance of the provinces in administrators, each acting with an executive
committee for the province concerned. The powers
of administrators were not
conferred by specific legislation but by the State President and Parliament.
The executive arm of government
was described in the following words in
Executive Council, Western Cape Legislature, and Others v President of the
Republic of South Africa and Others
[1995] ZACC 8
;
1995 (4) SA 877
(CC) at 910, para 71:
"In the Republic of South Africa executive authority was vested in the State
President under s 19 of the 1983 Constitution. It was
exercised by the State
President himself and by Ministers, Deputy-Ministers, Provincial Administrators,
and members of the Executive
Councils of the provinces. These were all
functionaries of the national government and all held their positions at the
discretion
of the State President."
In 1986 provincial
governments were abolished. Their functions were taken over by administrators
and executive committees for each
province (s 2 of the Provincial Government
Act, 69 of 1986). It was in this constitutional re
-arrangement that
regional service councils were established. They were part of the
constitutional restructuring that took place
at the time. The councils consist
of members nominated by local bodies in a particular region. They exercise
such powers referred
to in the second schedule of the RSC Act as may be assigned
to them. In turn each council provides public services to the local
authorities
in the area. In terms of s 4(1) of the RSC Act, a council has all the powers
and duties of a local authority, save for
the power to levy rates on immovable
property.
[9] In this Court counsel for the appellant submitted that a
regional services council was "in a sense" a public corporation with
the
characteristics of a local authority. According to Baxter :
Administrative
Law
at 159-160, a public corporation or institution, is either wholly or
partly independent of ordinary administrative departments.
In South Africa such
institutions include bodies such as Iscor, Sasol, the Land and Agricultural Bank
and the South African Mint.
In
Tamlin v Hannaford
[1950] 1 KB 18
(CA) it
was pointed out at 24 that a public corporation is a public authority and its
purposes are public purposes. However, said
Denning LJ, it is not a government
department and its powers do not fall within the province of
government.
Public corporations of the kind referred to by counsel appear to
have at least two common characteristics. One is that they are established
to
perform a particular but limited function. A second is that the members are not
publicly elected but are appointed to their positions,
usually by central
government, that is by the Minister of the department concerned with the
activity in question. Regional services
councils do not fit into this category.
They have a broad range of functions all of which are connected with the supply
of services
for the public benefit, including the bulk supply of water and
electricity, the control of sewerage works, traffic matters, land
usage and
transport planning, passenger transport services, health services, the
establishment, improvement and maintenance of "other
infrastructural services
and facilities" and, generally, "other regional functions". As I have indicated
earlier the councils came
into existence as part of a restructuring of the
constitutional, and, indeed, the political order which then existed. Moreover
their
members are elected, albeit indirectly. It is clear from the aforegoing
that although regional service councils are subject to more
ministerial
direction and control than municipalities, they operate as a form of local
government at regional level.
[10]
Section 10
of the
LGT Act authorises
the
"competent authority" to establish transitional metropolitan councils and to
disestablish regional service councils. It was
in terms of this section that
Proclamation 24 (Premier's) of 3 December 1994 was issued. In para 10 it
established the appellant
for the purpose of unifying local government
structures within the Johannesburg area. The thirteen local government
structures were
dissolved and were replaced by a transitional metropolitan
council (the appellant) and seven transitional metropolitan substructures
(see
Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional
Metropolitan Council and Others
[1998] ZACC 17
;
1999 (1) SA 374
(CC) at 382, para 5). The
CWRSC was dissolved in terms of para 30 of the Proclamation. The functions,
powers and duties of the
appellant include those contained in schedule 2 to the
LGT Act and
all other local government functions, powers and duties of the
dissolved local government bodies. The appellant was also expressly
authorised
to exercise certain powers under the RSC Act including, as I have indicated, the
right to levy and claim the regional
establishment levy. The powers and duties
contained in schedule 2 of the
LGT Act are
similar to those reflected in the
second schedule to the RSC Act. In my view, it is clear that the appellant is a
local authority,
established to exercise governmental functions at a local
level. I did not understand counsel to suggest the contrary.
[11] I turn to
consider whether Southwood J correctly applied the test of Ministerial control
in reaching his conclusion. In
Banco de Mocambique v Inter-Science Research
and Development Services (Pty) Ltd
1982 (3) SA 330
(T), Goldstone J at 333E
referred to an article by V K Moorthy in vol 30 (1980)
International and
Comparative Law Quarterly
638, entitled "The Malaysian National Oil
Corporation - is it a Governmental Instrumentality?" At 640-1 the author
states:
"The courts have evaluated the relationship between the Government and a
statutory corporation for the purpose of determining whether
or not the
corporation is a Government instrumentality by the application of various
tests.
The tests are as follows:
(1) Whether the body has any discretion of its own; if it has, what is the
degree of control by the Executive over the exercise
of that
discretion;
(2) Whether the property vested in the
corporation is held by it for and on behalf of the Government;
(3) Whether
the corporation has any financial autonomy;
(4) Whether the functions of the
corporation are Governmental functions."
Moorthy went on to say at 641:
"Of all the above-mentioned tests the courts have tended to regard the test of
control as the most important factor, although in
some cases the question of
whether the function of the body is a governmental function has also received
some consideration. If
the degree of control is significant, the functional
test has been held to be of little or no
importance."
Although Goldstone J accepted the views
expressed by Moorthy, he did so, as Corbett CJ explained in
The Shipping
Corporation of India Ltd v Evdomon Corporation and Another
[1993] ZASCA 167
;
1994 (1) SA 550
(A) at 563J-564A, for the purposes of the case before him, i.e. in order to
decide whether a corporation (the Central Bank of Mocambique)
should be
classified as an instrumentality, servant or organ of the Government of
Mocambique. Moorthy, too, as the title to his
article indicates, was concerned
with whether a corporation, the Malaysian National Oil Corporation, was to be
regarded as a government
instrumentality.
[12] It is not difficult to see why
the test of control is appropriate for the purpose of deciding whether a public
corporation is
the
alter ego
of the government that establishes it. The
cardinal factor that has to be considered in that type of case is the
relationship between
the corporation and the State and, more especially, whether
the corporation is properly to be regarded as a separate institution
to which
specific powers have been delegated by the State or whether it is a department
of the government in the guise of a public
corporation (cf
Trendtex Trading
Corporation v Central Bank of Nigeria
(1976) 3 All ER 437
at 442d-443h). It
may then become necessary to "pierce the corporate veil" in order to determine
whether the corporation is a mere
puppet with the
de facto
control
vesting in the government. That problem does not arise in this case. The CWRSC
and the appellant are statutory bodies entrusted
with wide functions of
government at a regional or local level. They have the power to raise money
from the public and the duty
to spend their income on the supply of essential
services in the public interest. In determining whether these bodies are organs
of the state the question of control is not decisive. What is of importance is
the need to decide what functions they perform- whether
they carry out functions
of government at a local level.
[13] The control test adopted by the Special
Court is, therefore, not dispositive of this case. It may be added that I am
far from
satisfied that the degree of control exercised by the Minister of
Finance over regional councils is so significant that the councils
have hardly
any discretion of their own and are little more than the Minister's pawns.
However this is an aspect that does not
require further consideration in this
appeal.
[14] I turn to consider what is meant by the expression "the State".
In
"'The State' and Other Basic Terms in Public Law"
(1982) 99
SALJ
212
at 225-226, L G Baxter suggests that, as a rough description,
'the State' appears to be used as a collective noun for:
"(a) the collective wealth ('estate') and liabilities of the sovereign territory
known as the 'Republic of South Africa' which are
not owned or owed by private
individuals or corporations; and
(b) the
conglomeration of organs, instruments and institutions which have as their
common purpose the 'management' of the public affairs,
in the public interest,
of the residents of the Republic of South Africa as well as those of her
citizens abroad in their relations
with the South African
'Government'."
In the Shorter Oxford English Dictionary Vol II 2112,
"State" is defined to mean,
inter alia
"IV. 1. ...
2. A particular form of government;
3. The state: the body politic as organised for supreme civil rule and
government; the political organisation which is the basis
of civil government;
hence the supreme civil power and government vested in a country or
nation."
[15] Some of these definitions describe what is
meant by "the State" for the purposes of international law. These are
irrelevant
for the purposes of this appeal. In its ordinary meaning for the
purposes of domestic law the word is frequently used to include
all institutions
which are collectively concerned with the management of public affairs unless
the contrary intention appears. In
this sense the State may manifest itself
nationally (through the executive or legislature arm of central government),
provincially,
locally and, on occasions, regionally. In
Rex v Bethlehem
Municipality
1941 OPD 227
, van den Heever J said the following at 231:
"A facile distinction is sometimes drawn between municipalities and other
entities with legislative and executive powers on the ground
that municipalities
are mere creatures of statute. This is undoubtedly so, but so are provincial
councils and, for that matter,
the Union Parliament. With respect to authority
of course they differ vastly and are ordered in a definite hierarchy, but the
function
of each is government. A municipality is not merely a corporation like
a company; it is a phase of government, local it is true,
but still
government."
And in
Hleka v Johannesburg City Council
1949 (1) SA 842
(A) the same judge commented at 855:
"The modern trend is to recognise that municipal government may be local, yet it
is a phase of government."
In
Chandler and Others v
Director of Public Prosecutions
[1962] 3 All ER 142
(HL), the phraseology
that had to be construed was "the safety and interests of the state". Lord
Devlin, after asking "what is meant
by 'the state'?" gave the following answer
at 156D-E:
"Counsel for the appellants submits that it means the inhabitants of a
particular geographical area. I doubt if it ever has as
wide a meaning as
that. I agree that in an appropriate context the safety and interests of the
state might mean simply the public
or national safety and interests. But the
more precise use of the word "state", the use to be expected in a legal context,
and the
one which I am quite satisfied for reasons which I shall give later was
intended in this statute, is to denote the organs of government
of a national
community."
And in the same case Lord Reid suggested that the
"organised community" comes as near to a definition of state as one can
get.
[16] As Baxter points out in
Administrative Law
at 95 although
the expression "the State" is extensively employed in legislation, it is not
used with any consistency. The precise
meaning of "the State" depends on the
context within which it is used.
That brings me to certain other provisions
of the Eskom Act. The objects of Eskom are stated in section 3 of the Eskom Act
as follows:
"to provide the system by which the electricity needs of the consumer may be
satisfied in the most cost-effective manner, subject
to resource constraints and
the national interest, and to perform such other functions as may be assigned to
it ..."
Subject to the rights of local authorities and
holders of licences, the respondent is authorised to generate and supply
electricity
within the Republic. It has the power to carry on undertakings to
provide an efficient and cost-effective supply of electricity
to "any body or
person in the Republic".
[17] In view of the role played by the respondent in
overseeing the supply of a valuable commodity to the country as a whole, it is
not surprising that it was at the relevant date exempted from paying transfer
duty in terms of
s 9(1)(bA)
of the
Transfer Duty Act, 40 of 1949
, stamp duty
under s 4(1)(b)(iv) of the Stamp Duties Act, 77 of 1968, and marketable
securities tax in terms of s 3(c)(vii) of the
Marketable Securities Tax Act, 32
of 1948. (All of these exemptions were removed with the repeal of the relevant
provisions by s
4 of the Eskom Amendment Act, 126 of 1998, the same statute that
repealed s 24 of the Eskom Act.) The respondent was also exempted
from paying
municipal rates in terms of s 5(1)(c) of the Local Authorities Rating Ordinance,
11 of 1977 (Transvaal), a provision
that was repealed by Administrator's
Proclamation 17 of 1994 and, it seems, it is still exempted from paying income
tax (s 10(1)(cA)(i)(bb)
of the Income Tax Act, 58 of 1962). Furthermore, the
provisions of the Companies Act, 61 of 1973, do not apply to it (s 23 of the
Eskom Act).
[18] In view of the important functions that the respondent
performs in the national interest, I can think of no compelling reason
why the
exemptions in s 24 of the Eskom Act should be limited to levies or fees payable
by the respondent to the central government.
To the contrary, it is far more
likely that the legislature, having decided to exempt the respondent from levies
and fees, probably
for the purpose of securing and protecting its economic
viability, would not have excluded other tiers of government. In fact counsel
for the appellant conceded that provincial governments were included in the
expression "the State" in s 24.
[19] Counsel for the appellant also referred
to s 16 of the RSC Act which in its original form read:
"This Act shall bind the State."
The section was amended by s 10
of the Regional Services Councils Amendment Act, 78 of 1986 with effect from 4
July 1986 to provide:
"This Act shall bind the State and all bodies established by or under any law,
and no provision contained in any other law published
on or before 31 July 1985
providing for an exemption from any taxes or levies shall be applicable to the
regional services levy or
regional establishment levy."
This
provision appears to have a two-fold effect - firstly to "bind" statutory
bodies, including the respondent, and secondly to provide
that exemptions from
taxes or levies in force prior to 31 July 1985 (the date of commencement of the
RSC Act) would not be applicable
to the regional establishment levy. The
section does not apply to the exemption contained in s 24 and it does not assist
the appellant.
[20] The appellant's counsel referred to numerous statutes
that expressly distinguish the State (in the sense of the supreme legislative
or
executive authority) from local authorities and public corporations. These
include the Black Communities Development Act, 4 of
1984, which refers to "the
State or the board or local authority" in ss 34(8), 49(1) and (2) and 52(1)(a);
the
Alienation of Land Act, 68 of 1981
, which mentions "the State or a local
authority" in
s 27(4)
; the Rating of State Property Act, 79 of 1984, which
contains separate definitions for "State", "local authority" and "governmental
institution"; and the State President's Committee on National Priorities Act,
119 of 1984 which, in s 5(1)(a) refers to "the State
or any local authority or
governmental institution". It was submitted that these provisions - and there
are many more to similar
effect - show that the legislature generally regarded
the "State" as an institution distinct from a local authority.
Counsel for
the respondent argued that no regard may be had to the way in which a particular
word is interpreted or defined in an
act other than the one under consideration.
This proposition seems to go too far. In
Craies
on Statute Law,
(7
th
ed by SGG Edgar), it is pointed out that in construing a word in
an act caution is necessary in adopting the meaning ascribed to
the same word in
other acts. The reason is obvious but that is not to say that in an appropriate
case regard cannot be had to a
common construction placed on the same word in
other statutes. The meaning of s 24 of the Eskom Act can, however, be
ascertained
from the section itself and from other provisions of the Eskom Act,
without resorting to unconnected statutes. Counsel's submission
that regard
should be had to other acts for the purposes of deciding how "the State" is to
be interpreted in s 24 is not justified.
[21] Counsel for the appellant,
relying on the principle that the same words in the same statute should
generally be given the same
meaning, referred to other provisions in the Eskom
Act which, he submitted, indicated that "the State" in s 24 does not include
local
authorities. Particular emphasis was placed on s 5(7) which reads:
"A member of the Electricity Council, excluding a member who is in the full-time
employment of the State or Eskom, shall be appointed
on such conditions,
including conditions relating to the payment of remuneration and allowances, as
the Minister may determine with
the concurrence of the Minister of
Finance."
Counsel's submission would have force only if it is
sufficiently clear that the word "State" in s 5(7) should be restrictively
construed
so as to exclude local authorities. As no satisfactory grounds were
advanced for interpreting the word restrictively in s 5(7) or
in the other
sections to which counsel referred, this is not a persuasive argument.
[22]
Further submissions were based on the definition of "undertaking" in s 1 of the
Eskom Act. The relevant part of the definition
reads:
"'undertaking' means any undertaking for the supply of electricity ... whether
under the control of Eskom, the Government, (including
the South African
Transport Services), a local authority, a company or other association of
persons or a natural person."
The argument was premised on
the assumption that the word "Government" in the definition was to be equated
with "State" in s 24.
It was therefore submitted that if the legislature had
intended to include regional service councils or local authorities in s 24
it
would have used the same method of expression that it did in the definition of
"undertaking". The premise on which this argument
was based is, in my view,
fallacious simply because there is no justification for assuming that
"Government" and "State" are used
interchangeably in the Act. On the contrary
it is more likely that the legislature expressed itself differently precisely
because
it intended the words to have different meanings. If this is so, the
word "State" in s 24 would have a wider meaning than "Government"
and would
include bodies such as regional service councils and transitional metropolitan
councils.
[23] To sum up: regional service councils and the appellant are
both authorities which exercise a myriad of governmental functions
- at a
regional level in the case of the former and at a local level in the case of the
latter. As such they are organs of government.
On a proper construction of the
Eskom Act the expression "the State" in s 24 is not limited to central and
provincial government:
it includes the State in all of its manifestations. To
hold otherwise would be to limit the meaning of the "State" in the section
for
no obvious reason, while, on the other hand, there are convincing grounds for
holding that the exemption in s 24 was not to be
applied in a restrictive
manner. It is only necessary to mention that although both counsel referred to
various provisions of the
Interim Constitution in order to further their
arguments, this matter is capable of resolution without reference to that
statute.
[24] The appeal is therefore dismissed with costs, including the
costs of two counsel.
.............................
L S MELUNSKY
ACTING JUDGE OF APPEAL
Concur
:
Mahomed CJ
Vivier JA
Scott JA
Farlam AJA