THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 241/2016

In the matter between:

P A PEARSON (PROPRIETARY) LIMITED
APPELLANT

and

eTHEKWINI MUNICIPALITY
FIRST RESPONDENT

NATIONAL MINISTER FOR COOPERATIVE
GOVERNANCE AND TRADITIONAL AFFAIRS
SECOND RESPONDENT

KZN MEC FOR COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS
THIRD RESPONDENT

Neutral citation:
Pearson v eThekwini Municipality (241/2016) [2017] ZASCA 63
(29 May 2017)

Coram:
Lewis, Petse, Swain, Mbha JJA and Molemela AJA

Heard:
16 May 2017

Delivered:
29 May 2017

Summary:  Municipal Systems Act 32 of 2000: Sections 102(1)(b) and 118(3): right
of municipality to transfer credits between accounts: single account holder:
properties with different owners: amounts outstanding on both properties by account
holder for services supplied by municipality: transfer of credits by municipality from
first account to second account: resultant liability of owner of first property increased
and that of owner of second property decreased: municipality entitled to claim from
owner of first property increased balance owed.

ORDER

On appeal from: KwaZulu-Natal Local Division, Durban (Marks AJ sitting as court of
first instance).

The appeal is dismissed with costs.

JUDGMENT

Swain JA (Lewis, Petse and Mbha JJA and Molemela AJA concurring):
[1] This appeal examines whether the exercise by a municipality of two of its
statutory powers in terms of the Municipal Systems Act 32 of 2000 results not only in
unfair, but also unlawful treatment of a ratepayer. The first statutory power is the
right of a municipality, in terms of s 102(1)(b) of the Act, to transfer credits between
accounts held by a single account holder in respect of two properties, regardless of
the fact that the properties have different owners. The second statutory power is the
right of a municipality in terms of s 118(3) of the Act to claim from the owner of a
property any outstanding amounts not paid by the account holder, based upon its
right to hold the property as security for charges levied against it.
[2] The inevitable consequence of the exercise by the municipality of its right to
transfer credits between two accounts held by a single account holder in respect of
two properties, where the properties have different owners, is that the contingent
liability of the first owner is increased, whereas that of the second owner is
decreased. A subsequent claim for payment by the municipality against the owners

for payment of the amount outstanding on each of the respective accounts is unfair
to the first owner, whose liability was increased by the conduct of the municipality,
whereas the liability of the second owner is decreased. The possible unfairness to
the first owner is exacerbated where the liability of the second owner is extinguished,
as in the present case. Whether the conduct of the municipality is not only unfair, but
also unlawful, is the issue to be decided in this appeal.
[3] The appellant, P A Pearson (Pty) Ltd, is the owner of an immovable property
situated at Wareing Road, Pinetown, KwaZulu-Natal (the Pearson property), within
the jurisdiction of the first respondent, the eThekwini Municipality. The National
Minister for Cooperative Governance and Traditional Affairs is the second
respondent and the KZN MEC for Cooperative Governance and Traditional Affairs is
the third respondent. Alleging that the exercise by the first respondent of these
statutory powers in the manner described was unlawful, the appellant launched an
application before the KwaZulu-Natal Local Division, Durban, in which payment of
the amount of R1 431 442.88, was claimed from the first respondent. A claim by the
appellant that the provisions of s 102(1)(b) of the Act were inconsistent with the
Constitution and therefore invalid was withdrawn, with the result that the second and
third respondents were no longer required to participate in the proceedings. The
court a quo (Marks AJ) dismissed the application with costs, finding that the
appellant had failed to discharge the onus of proving that the first respondent had
acted outside its authority in terms of s 102(1)(b) of the Act. The present appeal is
with the leave of the court a quo.
[4] The facts which gave rise to the dispute are as follows:
(a)
Microfinish Manufacturing (Pty) Ltd (Microfinish) was at all relevant times the
occupier of the Pearson property.
(b)
Cherokee Rose 164 CC was the owner of an immovable property situated at
Goodwood Road (the Cherokee Rose property) within the jurisdiction of the first
respondent. Helio Microfinish South Africa (Pty) Ltd (Helio), an associate company of
Microfinish, was at all relevant times the occupier of the Cherokee Rose property.

(c)
Microfinish opened accounts with the first respondent for the supply of
utilities and municipal services, such as electricity and water to Microfinish at the
Pearson property (the Pearson property account), as well as the Cherokee Rose
property (the Cherokee Rose property account). Although Microfinish as the account
holder was liable to make payment to the first respondent for the supply of services
at both properties, it was unable to do so as it was placed in voluntary liquidation on
18 November 2011.
(d)
Prior to its liquidation, Microfinish made a number of payments into its
Pearson property account for the supply of services at this property in terms of
ss 75A and 76 of the Act. However, as at the date when it was placed in liquidation
approximately R1.7 million was still owed on this account. In addition, approximately
R1.4 million was owed by Microfinish in respect of its Cherokee Rose property
account, for the supply of services at this property.
(e)
On 19 November 2011, and acting in terms of s 102(1)(b) of the Act, the first
respondent credited payments made by Microfinish into its Pearson property
account, to the Cherokee Rose property account. The result was that the amount
owed by Microfinish in respect of the Cherokee Rose property account for services
supplied by the first respondent to Microfinish at that property, was fully paid.
However, the outstanding amount owed by Microfinish in respect of the Pearson
property account, for services supplied by the first respondent to Microfinish at that
property, was increased to approximately R3.1 million. This sum represented the
total amount owed on the Pearson property account by Microfinish, for services
supplied by the first respondent to it at this property.
(f)
The appellant, as the owner of the Pearson property, failed to discharge its
obligation to pay the outstanding amount owed by Microfinish on the Pearson
property account. The first respondent therefore terminated the supply of services
and utilities to this property. As the appellant urgently required their restoration, it
paid amounts totalling R2 742 191.02 to the first respondent on 12 March 2012,
without any admission of liability and under protest. Included in this payment was the
amount claimed of R1 431 442.88, which the appellant contends was previously
unlawfully credited by the first respondent from the Pearson property account to the
Cherokee Rose property account.

[5] The relevant provisions of the Act are ss 102(1)(b) and 118(3). Section 102
provides that:
‘102 Accounts –
(1) A municipality may –
(a) consolidate any separate accounts of persons liable for payments to the municipality;
(b) credit a payment by such a person against any account of that person; and
(c) implement any of the debt collection and credit control measures provided for in this
Chapter in relation to any arrears on any of the accounts of such a person.
(2) Subsection (1) does not apply where there is a dispute between the municipality and a
person referred to in that subsection concerning any specific amount claimed by the
municipality from that person.
(3) A municipality must provide an owner of a property in its jurisdiction with copies of
accounts sent to the occupier of the property for municipal services supplied to such a
property if the owner requests such accounts in writing from the municipality concerned.’
[6] Section 118 of the Act provides that:
‘118 Restraint on transfer of property
(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.
(1A) . . .
(2) . . .
(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.’

[7] The first respondent submits that because it is common cause that the
amount of R1 431 442.88 claimed by the appellant was the amount owed in respect
of services and utilities supplied by the first respondent to Microfinish at the
Cherokee Rose property, and because it is also common cause that the amount
owed on the Pearson property account after the crediting of payments to the
Cherokee Rose property account, was the amount owed in respect of municipal
services supplied to the Pearson property, the transfer of credits did not result in the
amount owed in respect of municipal services supplied to the Pearson property,
being increased. All that was increased was the balance owing on the Pearson
property account for services supplied by the first respondent to Microfinish at the
Pearson property, which had not been paid. The appellant, however, submits that
although this indebtedness was reflected as the indebtedness of Microfinish in the
Pearson property account, this did not entitle the first respondent to require the
appellant, as owner of the Pearson property, to discharge that portion of the liability
of Microfinish which arose in connection with the Cherokee Rose property.
[8] Whether the first respondent acted lawfully requires a consideration of the
provisions of s 102(1)(b) and s 118(3) of the Act. The court a quo concluded that the
provisions of s 118(3) were irrelevant to an interpretation of s 102(1)(b), and that the
first respondent had acted within its authority in terms s 102(1)(b) of the Act. It
reached this conclusion on the following basis:
‘In BOE Bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA) Brand JA (at
para 8) observed that section 118(3) is on its own wording an independent, self-contained
provision. The purpose of that section is to ensure payment of the municipal claims. In any
event, at no stage did the Municipality seek to rely on or utilise the provisions of section
118(3). To my mind section 118(3) is irrelevant to the interpretation of section 102.’
[9] The first respondent submits that the court a quo was correct in dismissing
the appellant's reliance on s 118(3) to interpret s 102 of the Act. The reason,
according to the first respondent, is that s 118(3) of the Act is a self-contained
security provision, which affords the first respondent a statutory legal hypothec over
the property of the owner for debts incurred on the property in respect of municipal

services. In other words, the provisions of s 118(3) have an entirely different
objective to that of s 102 of the Act.
[10] Although I agree with the conclusion of the court a quo that the provisions of
s 118(3) of the Act are irrelevant to an interpretation of the provisions of s 102 of the
Act, I disagree with its reasons for the conclusion. The finding by Brand JA in BOE
Bank Ltd, that s 118(3) on its own wording was an independent and self-contained
provision, was only directed at the status of this subsection within the context of
s 118 and not the Act as a whole. In that case what had to be determined was
whether the time limit stipulated in s 118(1) should be read into s 118(3). By virtue of
the fact that subsection 118(3) was an independent and self-contained provision, it
did not require the incorporation of the time limit in s 118(1) to make it
comprehensible or workable. Furthermore, the first respondent, in demanding
payment by the appellant, quite clearly relied upon its right in terms of s 118(3) of the
Act to hold the Pearson property as security for payment of the amount owed on the
Pearson property account.
[11] The appellant, however, submits that the conclusion of the court a quo that
s 118(3) of the Act was irrelevant to the interpretation of s 102, demonstrates a
misunderstanding of the crucial question that had to be determined. The appellant
accepts that the first respondent was entitled, in terms of s 102 of the Act, to credit
payments made by Microfinish into the Pearson property account, to the Cherokee
Rose property account. According to the appellant, the first respondent was not
entitled thereafter, in terms of s 118(3) of the Act or on any other basis, to require the
appellant as owner of the Pearson property to discharge that portion of the liability
which arose in connection with the Cherokee Rose property, albeit that such
indebtedness was reflected as the indebtedness of Microfinish in the Pearson
property account.
[12] In my view, the proper enquiry is whether the conduct of the first respondent,
in seeking payment from the appellant of the outstanding balance on the Pearson
property account was rendered unlawful by the prior exercise by the first respondent
of its right in terms of s 102(1)(b) of the Act, to transfer credits between the Pearson

property account and the Cherokee Rose property account. In other words, whether
the conduct of the first respondent which resulted in an increase in the balance owed
on the Pearson property account, which increased balance nevertheless represented
the correct amount owed by Microfinish for services supplied by the first respondent
to the Pearson property, with a concomitant increase in the liability of the appellant,
renders a subsequent claim by the first respondent against the appellant for payment
of the outstanding balance on the Pearson property account, unlawful.
[13] Section 229 of the Constitution vests a local authority with the authority to
impose ‘rates on property and surcharges on fees for services provided by or on
behalf of the municipality’. This power is regulated by national legislation in the form
of the Act. Chapter 9 provides for municipal credit control and debt collection.
Section 96 of the Act deals with the ‘debt collection responsibility of municipalities’
and enjoins a municipality to collect all money that is due and payable to it, subject to
the Act and any other applicable legislation. For that purpose it has to adopt,
maintain and implement a credit control and debt collection policy, which is
consistent with its rates and tariff policies and complies with the provisions of the Act.
Section 97 of the Act requires the credit control debt collection policy to provide, inter
alia, for credit control debt collection procedures and mechanisms. (Body Corporate
Croftdene Mall v Ethekwini Municipality [2011] ZASCA 188; 2012 (4) SA 169 (SCA)
paras 14-15).
[14] The first respondent has adopted a credit control and debt collection policy
as required by the Act, which provides under the heading ‘Responsibility for Amounts
Due’, that:
‘7.1 In terms of Section 118(3) of the Act an amount due for municipal service fees,
surcharge 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.
7.1.1 Accordingly, all such Municipal debts shall be payable by the owner of such property
without prejudice to any claim which the Municipality may have against any other person.

7.1.2 The Municipality reserves the right to cancel a contract with the customer in default
and register the owner only for services on the property.
7.1.3 . . .
7.2 . . .
7.3 Except for property rates, owners shall be held jointly and severally liable, the one paying
the other to be absolved, with their tenants who are registered as customers, for debts on
their property.’
[15] Under the heading ‘Cash Allocation’ the credit control and debt collection
policy of the first respondent provides that:
‘10.1 For consolidated accounts the Municipality may in accordance with section 102 of the
Act credit any payment by a customer against any account of that customer.
10.2 . . .
10.3 . . .
10.4 The Municipality’s allocation of payment is not negotiable and the customer may not
choose which services to pay.’
[16] In terms of the credit control and debt collection policy of the first
respondent, which is in accordance with the Act, the first respondent is entitled to
credit a payment made by a person who is liable to make payment to the first
respondent, to any account of that person. In addition the liability of an owner for ‘all
such Municipal debts’ is restricted to debts on ‘the property in connection with which
the amount is owing’. The conduct of the first respondent was in accordance with
these provisions for the following reasons. When the first respondent credited the
amounts previously paid by Microfinish into the Pearson property account to the
Cherokee Rose property account, it simply credited those payments to the amount
owed by Microfinish on the Cherokee Rose property account. When the appellant
made payment of the balance outstanding on the Pearson property account for
services supplied by the first respondent to the Pearson property, it made payment
of the amount owing on the property of which it was the owner. The fact that the
amount owed on the Pearson property account would have been reduced by the

amount claimed of R1 431 442.88, if the first respondent had not transferred
payments made by Microfinish into the Pearson property account to the Cherokee
Rose property account, can have no bearing upon the lawfulness of the first
respondent's conduct in seeking payment of the increased balance owing on the
Pearson property account from the appellant. The conduct of the first respondent
was authorised in terms of s 102(1)(b) of the Act and  can have no bearing upon the
lawfulness of the first respondent’s subsequent exercise of its rights against the
appellant.
[17] The unfair result caused by the first respondent's conduct is, however,
tempered by two important aspects of the evidence. First, the money transferred by
the first respondent from the Pearson property account to the Cherokee Rose
property account was the money of Microfinish and not that of the appellant. The first
respondent therefore did not use the appellant's money to pay the balance
outstanding on the Cherokee Rose property account. Second, the amount paid by
the appellant into the Pearson property account represented the amount owed by
Microfinish in respect of services supplied by the first respondent to Microfinish at the
Pearson property owned by the appellant.
[18] The appeal accordingly fails and the following order is made:
The appeal is dismissed with costs.

K G B Swain

Judge of Appeal

Appearances:
For the Appellant:

V I Gajoo SC
Instructed by:
NSG Attorneys (JH Nicolson Stiller &
Geshen), Durban

Honey Attorneys, Bloemfontein

For the Respondent:

J P Broster

Instructed by:

Ngidi & Company Incorporated, Durban

Strauss Daly Attorneys, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

29 May 2017

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment.

Pearson v eTwekwini Municipality (241/2016) [2017] ZASCA 63 (29 May
2017)

Media Statement

The SCA dismissed an appeal against a decision of the High Court dismissing an
application brought by the appellant for payment by the first respondent of the
amount of R1 431 443.88. The appellant alleged that the exercise by the first
respondent of its statutory powers in terms of s 102(1)(b) and s 118(3) of the
Municipal Systems Act 32 of 2000 was unlawful. The exercise by the first respondent
of its right to transfer credits between two accounts held by a single account holder in
respect of two properties, where the properties had different owners and the
subsequent exercise of its right to claim from the owner of a property any outstanding
amounts not paid by the account holder, resulted in the liability of the owner of the
first property being increased, whereas the liability of the owner of the second
property was decreased. It was held that the conduct of the first respondent in
transferring credits between the two accounts held by one account holder was
authorised in terms of s 102(1)(b). The exercise of this power by the first respondent
could have no bearing upon the lawfulness of the first respondent’s subsequent
exercise of its right to claim payment of the balance owing on the account, from the
owner whose liability had been increased.

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