THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable

Case No: 79/2014

In the matter between:

STRATA INTERNATIONAL (PTY) LTD

FIRST APPELLANT

THE GARDEN ESTATE FOR SMALL AND
MEDIUM ENTERPRISES (PTY) LTD

SECOND APPELLANT

and

EKURHULENI METROPOLITAN MUNICIPALITY

RESPONDENT

Neutral citation: Strata International (Pty) Ltd v Ekhurhuleni Metropolitan

Municipality (79/2014) [2015] ZASCA 47 (26 March 2015)

Coram:
Navsa ADP, Leach and Saldulker JJA and Van der Merwe

and Meyer AJJA

Heard:
24 February 2015

Delivered:
26 March 2015

Summary:
Local government ─ resolution by municipality to dispose of
immovable property in response to unsolicited private bid ─ no public
participation or transparency ─ resolution does not give rise to enforceable
public law rights.

______________________________________________________________
ORDER
______________________________________________________________

On appeal from Gauteng Division, Pretoria (Mathopo J sitting as court of first
instance):
The appeal is dismissed with costs, including the costs of two counsel.
______________________________________________________________

JUDGMENT
______________________________________________________________

Van der Merwe AJA (Navsa ADP, Leach and Saldulker JJA and Meyer
AJA concurring):

[1] The respondent, the Ekurhuleni Metropolitan Municipality (the
municipality), is the owner of a proclaimed township named Selcourt
Extension 4 (the property). The first appellant, Strata International (Pty) Ltd,
and the second appellant, the Garden Estate for Small and Medium
Enterprises (Pty) Ltd, unsuccessfully claimed rights in respect of the property
in the Gauteng Division of the High Court before Mathopo J. He did, however,
grant leave to appeal to this court.

[2] The property is approximately 103 hectares in extent. It was
proclaimed as a residential township on 23 December 1992 but remained
undeveloped. During March 2000 Mr Joseph Basil Johnson approached the
municipality with a proposal to develop the property as an industrial park for
small and medium industries. Negotiations ensued and several draft
agreements between the municipality and Mr Johnson in his capacity as
trustee for a company to be formed, were prepared in respect of the proposed
development.

[3] A draft agreement was placed before the Corporate Affairs Committee
of the municipality (the committee) on 10 February 2003. On 28 November
2002 the council of the municipality delegated to the committee the power and

function „to approve all alienation of Council-owned land in terms of Council
policy, as well as the granting of rights over Council-owned land‟. The
committee resolved that the draft agreement be referred to the municipality‟s
legal department for comment.

[4] The Executive Director: Corporate and Legal Services of the
municipality provided the required legal advice to the committee per letter
dated 28 August 2003. The committee was inter alia advised „. . . that the
stipulations contained in Section 79(18) of the Local Government Ordinance
17 of 1939 and/or any other legislative stipulation dealing with the alienation
etc. of immovable property by any Local Government be complied with‟ before
entering into an agreement with Mr Johnson. This document served before
the committee on 19 January 2004, together with the draft agreement that it
related to, termed the Land Availability Agreement.

[5] It is common cause that s 79(18)(a), (b) and (c)(i) of the Local
Government Ordinance 17 of 1939 (the LGO) are applicable to the
municipality. In terms of s 79(18)(a)(i) the council of a municipality may, inter
alia, sell or in any other manner alienate or dispose of any immovable
property of the council. Section 17(18)(b) provides that whenever a council
wishes to exercise any power conferred by subsec 18(a) in respect of
immovable property, the council shall cause a notice of the resolution to that
effect to be affixed to the public notice board of the council and published in a
newspaper. The notice must call upon any person who wishes to object to the
exercise of the power, to lodge his or her objection in writing within a stated
period of not less than 14 days from date of publication of the notice in the
newspaper. Section 79(18)(c)(i) provides that where such objection is
received, the council shall not exercise the power unless the council has
considered the objection. The object of such notice and publication is, inter
alia, to promote transparent and accountable government. No such notice or
publication took place in respect of the disposal of the property.

[6] On 19 January 2004 the committee resolved as follows:

„1.
That the report indicating the progress made with the obtaining of legal
comments regarding the development of Selcourt Extension 4, BE NOTED.
2.
That the Sale of the remainder of the erven in Selcourt Extension 4 to Mr J B
Johnson on the basis of a Land Availability Agreement BE APPROVED in principle
subject to the Land Availability Agreement being finalised and submitted for approval.
3.
That the Land Availability Agreement should address at least the following
matters:
(a)
The purchase price payable to the Council that should at least be market
related taking into consideration the services presently existing as well as the
developer‟s obligation to improve and/or restore the services to the standard required
for an industrial township.
(b)
A clear and realistic timeframe with clear deliverables for the development
and sale of erven within the township taking into consideration the lack of interest to
date.
(c)
Council should not be liable for any further costs in respect of the
development neither during the development nor if the development should fail and
the envisaged Land Availability Agreement be cancelled.
(d)
The developer be allowed at his own cost and risk to consolidate and
subdivide erven within accepted development parameters and subject to the normal
prescribed procedures being followed.
4.
. . .
5.
That a further report BE SUBMITTED as soon as (2) and (3) above has been
addressed.‟

[7] On 30 June 2004 a valuation of the property was received, presumably
as a result of para 3(a) of the resolution of 19 January 2004. As the
development proposal involved a changed layout of the township, the valuer
was instructed not to value the proclaimed erven but to render a valuation of
the area thereof per square metre. In terms of the valuation the envisaged
industrial erven were valued at R1.00 per square metre and common areas at
R0.25 per square metre, both excluding VAT. At a subsequent meeting
between Mr Johnson and officials of the municipality, he made an offer of
R5.00 per square metre excluding VAT for the erven and R0.25 per metre for
the common areas. The remaining outstanding matters in respect of the

proposed agreement, now entitled Land Availability and Services Agreement
(the agreement) were finalised at this meeting.

[8] Mr Johnson in his capacity as trustee for a company to be formed, was
referred to in the agreement as the developer. In terms of the agreement the
property (with the exclusion of one erf) was made available by the municipality
to the developer for purposes of developing and marketing it as an industrial
park, with effect from date of signature of the agreement. The developer was
granted authority to amend the layout of the erven, including consolidation
and subdivision of erven, at its cost. The developer was responsible for all
ground works and preparation of erven and for the construction of
improvements on the erven. The developer was obliged to commence
marketing of the industrial erven within six months of approval of the amended
layout plans and to continue developing and marketing the property
„vigorously‟. Nevertheless, the developer was expected to effect transfer of
ownership of at least one erf before expiration of a period of five years after
signature of the agreement. Transfer of ownership of 30 per cent of all erven
had to take place within ten years after signature of the agreement. The
developer was afforded a period of 30 years from date of signature of the
agreement to dispose of all the erven.

[9] In terms of the agreement only the developer had the right to dispose
of the erven and would do so for its own account. The consideration for this
right was an amount calculated at R5.00 per square metre per erf and at
R0.25 per square metre in respect of the common areas proportionate to the
particular erf. The consideration had to be guaranteed before transfer of an erf
and paid to the municipality upon transfer thereof. There is therefore no doubt
that in terms of the agreement the municipality disposed of the property.

[10] The Local Government: Municipal Finance Management Act 56 of
2003 (the MFMA) came into operation on 1 July 2004. Section 14(1) and (2)
thereof provide:

„(1)
A municipality may not transfer ownership as a result of a sale or other
transaction or otherwise permanently dispose of a capital asset needed to provide
the minimum level of basis municipal services.
(2)
A municipality may transfer ownership or otherwise dispose of a capital asset
other than one contemplated in subsection (1), but only after the municipal council, in
a meeting open to the public ─
(a)
has decided on reasonable grounds that the asset is not needed to provide
the minimum level of basic municipal services; and
(b)
has considered the fair market value of the asset and the economic and
community value to be received in exchange for the asset.‟

[11] On 15 July 2004 the council of the municipality revoked the power
delegated to the committee to approve the sale and lease of immovable
property of the municipality. However, on 26 August 2004, it resolved:
„That in terms of section 59 of the Municipal Systems Act, the powers to decide in
terms of section 14(2)(a) and (b) of the Municipal Finance Management Act, 56 of
2003, in respect of the disposal of immovable capital assets BE DELEGATED to the
Corporate Affairs Committee in terms of Council‟s System of Delegations.
. . .
That the meetings of the Corporate Affairs Committee BE OPENED to the public only
for purposes to consider the decisions required in terms of section 14(2) of the
Municipal Finance Management Act, 56 of 2003.
. . .
That the meeting dates and times of the Corporate Affairs Committee and the fact
that these meetings are open to the public for this specific purposes BE PUBLISHED
together with the publication of the meetings of the Council.‟

[12] This resolution was clearly brought to the attention of the committee.
The committee met on 30 August 2004 to consider approval of the
agreement. There is no evidence that the public was notified of this meeting
or of the fact that the disposal of the property would be considered at the
meeting, nor is there any evidence that the meeting was open to the public. It
can safely be accepted that the public was not notified of the meeting and
afforded no opportunity to participate in the decision to dispose of the
property.

[13] On 30 August 2004 the committee took the following resolution:
„1.
That the report regarding the proposed development of Selcourt Extension 4
Township, Springs as an industrial park by Johnson International Trading and
Investments (Pty) Ltd and the recommended approval of the Land Availability and
Services Agreement in respect thereof BE NOTED.
2.
That in terms of Section 14(2)(a) of the Municipal Finance Management Act,
56 of 2003, it BE RESOLVED that on the basis of the comments from all the
departments as set out in the report and annexures, the property is not an asset
needed to provide the minimum level of basis municipal services.
3.
That the Land Availability and Services Agreement in respect of Selcourt
Extension 4 Township, Springs attached hereto as Annexure “C” BE APPROVED.
4.
That cognisance BE TAKEN of the valuation performed of properties in
Selcourt Extension 4 Township, Springs by C S Massel Valuation Services CC
attached hereto as Annexure “B” and that in terms of the provisions of section 79(18)
of the Local Government Ordinance, 1939, the properties in the said Township be
alienated in terms of the Land Availability and Services Agreement referred to in 2
above at the following selling prices:
(a)
All erven

R5,00 per m² (excluding VAT)
(b)
Common property areas
R0,25 per m²
5.
That the Executive Director: Corporate and Legal Services or nominee, BE
AUTHORISED to do or cause to be done whatever shall be requisite and to sign all
documents to give proper effect to the above.‟

[14] The agreement was signed on 17 September 2004. The appellants say
that by December 2004 the second appellant had adopted the agreement and
accepted its benefits and obligations. In terms of an agreement dated 7
August 2009 the second appellant transferred these rights and obligations to
the first appellant. The appellants therefore aver that the first appellant
stepped into the shoes of the second appellant as far as the agreement and
the resolutions of 19 January 2004 and of 30 August 2004 are concerned.

[15] The officials of the municipality initially gave some assistance to efforts
to execute the agreement. However, no erven were disposed of or
transferred. By July 2006 reports began to surface of large scale irregularities
in respect of alienation of immovable property of the municipality. The

agreement and the circumstances under which it was entered into were
considered. As a result, the municipality refused to give effect to the
agreement. It took the attitude that the agreement was invalid on a variety of
grounds.

[16] The appellants approached the court a quo on motion for an order
declaring that the first appellant had become the contracting party of the
municipality in terms of the agreement and obliging the municipality to give full
effect to the agreement. In the alternative, they asked that the municipality be
ordered to comply with any outstanding statutory requirements and to do
whatever may be necessary to give effect to the resolutions of 19 January
2004 and/or 30 August 2004. Further alternative prayers were aimed at
obliging the municipality to ratify the transaction referred to in the resolutions
of 19 January 2004 and 30 August 2004 (the resolutions) ex post facto.

[17] The court a quo refused all the relief sought. It dismissed the
application with costs, including the costs consequent upon the employment
of two counsel. The court a quo concluded that the resolution of 19 January
2004 was provisional and could not confer any rights. It found that both the
resolution of 30 August 2004 and the agreement were invalid for non-
compliance with s 79(18) of the LGO and s 14(2) of the MFMA. It upheld the
municipality‟s contention that the power conferred in s 14(2) of the MFMA
must be exercised by its council and may not be delegated. Furthermore, the
court a quo held that the invalid resolution of 30 August 2004 was not capable
of being ratified. On the view that I take of the matter, it is unnecessary to
express a view on these findings.

[18] The appellants accept that the agreement is invalid. They did not
appeal against that finding of the court a quo. They persist however in their
reliance on the resolutions. They aver that the resolutions gave rise to „public
law rights‟ that are enforceable independently of the agreement. Their case is
that the content of these rights include that all statutory requisites necessary
in order to give effect to the resolutions must be complied with. Relying on
these alleged rights, they sought the following order as amended on appeal:

„The Respondent is ordered to forthwith comply with the outstanding requirements of
section 14(2)(b) of the Local Government: Municipal Finance Management Act, 56 of
2003, not already complied with at the meeting of its Corporate Affairs Committee of
30 August 2004 and with the requirements of section 79(18) of the Local Government
Ordinance, 17 of 1939, as well as with any other statutory requirements for the
alienation of the remainder of the erven in Selcourt  Ext 4, and to do whatever may
be necessary to give effect to the resolutions of its Corporate Affairs Committee of 19
January 2004 and 30 August 2004.‟
The alternative relief in respect of ratification was not abandoned, but not
pressed.

[19] The amended relief correctly recognised that the resolution of 19
January 2004 cannot stand on its own. It was a decision in principle that could
have no binding effect in the absence of the further resolution that it
envisaged. Read together, the resolutions constitute a final decision to
dispose of immovable property of the municipality.

[20] The committee was at least alerted to the provisions of s 79(18) of the
LGO and s 14(2) of the MFMA. Nevertheless, it was content to accept an
unsolicited private bid and dispose of the property without any public
participation or transparency.

[21] Can the resolutions in these circumstances give rise to enforceable
rights? In my view the answer is an emphatic no. The founding values of our
Constitution include accountability, responsiveness and openness. Section
152(1)(a) of the Constitution provides that the object of local government is to
provide democratic and accountable government for local communities which
we should all strive to promote. In terms of s 6(1) of the Local Government:
Municipal Systems Act 32 of 2000, a municipality‟s administration is governed
by the democratic values and principles embodied in s 195(1) of the
Constitution. Section 195(1)(f) provides that public administration must be
accountable. In terms of s 195(1)(g) transparency must be fostered by
providing the public with timely, accessible and accurate information. These
provisions inform s 14(5) of the MFMA which provides that any transfer of

ownership of a capital asset of a municipality must be fair, equitable,
transparent, competitive and consistent with the supply chain management
policy which the municipality must have and maintain.

[22] The resolutions fall foul of these Constitutional imperatives. They are
thus fatally flawed and incapable of giving rise to enforceable rights. For the
same reasons there can be no ex post facto ratification of the resolutions.

[23] The appeal is dismissed with costs, including the costs of two counsel.

_______________________
C H G VAN DER MERWE
ACTING JUDGE OF APPEAL

APPEARANCES:
For Appellant:

S J Grobler SC (with him D P J Rossouw SC)
Instructed by:
Bothma Incorporated, Brakpan
McIntyre & Van der Post, Bloemfontein

For Respondent:

P Pauw SC (with him Ms M Sello)
Instructed by:
Tshiqi Zebediela Incorporated, Kempton Park
Matsepes Inc, Bloemfontein

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From: The Registrar, Supreme Court of Appeal
Date: 26 March 2015

Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal

STRATA INTERNATIONAL (PTY) LTD v EKURHULENI METROPOLITAN
MUNICIPALITY

1.
The Ekurhuleni Metropolitan Municipality (the municipality) is the owner of a
proclaimed township named Selcourt Extension 4 (the property). The municipality was
approached with a proposal to develop the property as an industrial park. In terms of the
proposal the property would be alienated to the developer. An agreement to this effect was
placed before a committee to which the council of the municipality delegated the power to
dispose of its immovable property. On 30 August 2004 the committee accepted the
unsolicited private bid of the developer and resolved to dispose of the property in terms of
the agreement, without any public participation or transparency. The agreement was
subsequently signed.

2.
The trial court held that the agreement was invalid and the appellants accepted this
finding. They nevertheless argued on appeal that the resolution gave rise to enforceable rights
independently of the agreement. Today the Supreme Court of Appeal dismissed the appeal. It
held that the resolution fell foul of the Constitutional imperatives of accountability and
transparency. The SCA found that the resolution was fatally flawed and incapable of giving
rise to enforceable rights.

--ends--