BUSINESS LAW &TAX
MAY 2024 WWW.BUSINESSLIVE.CO.ZA
A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW
Withhold rates at your peril Failure to pay likely own goal •unless there is a specific dispute Pippa Reyburn, Yana van Leeve, Deepna Desai & Alexandra Maree ENS n his 2023 state of the nation address, President Cyril Ramaphosa underpressing a scored national concern: “Too many of our municipalities, 163 out of 257, are dysfunctional or in distress due to poor governance, ineffective and sometimes corrupt financial and administrative management and poor service delivery.” In response to shortcomings in municipal service delivery, a growing trend of organised rates withholding has emerged, primarily spearheaded by ratepayers associations. Property owners withhold their rates payments, and fees for other municipal services, on the basis of underperformance and poor service delivery. When engagement with municipalities has failed, ratepayers associations have gone on to declare disputes with municipalities in terms of section 102 of the Local Government: Municipal Systems Act No 32 of 2000 (Systems Act), to prevent the disconnection of services for the duration of the protest or
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dispute. Section 102 of the Systems Act allows a municipality to consolidate municipal accounts (for example rates, electricity and water), credit payments made against any municipal account, and apply its debt collection and credit control measures against any arrears. However, in terms of section 102(2), the municipality cannot do this “where there is a dispute between the municipality and a person … concerning any specific amount claimed by the municipality from that person”. Westville Ratepayers Association v Ethekwini Municipality [2023] ZAKZDHC 81 deals with a dispute of this nature, in particular whether section 102 of the Systems Act is a mechanism that can be utilised by ratepayers associations in these circumstances. The case concerns a dispute between the Westville Ratepayers Association (association), and eThekwini Municipality (municipality) which arose as a result of dissatisfaction with the draft municipal budget for the 2023/4 financial year. At a large-scale gathering convened by the municipality, stakeholders were invited to offer commentary
BILLS BOYCOTT
/123RF — NONAME3132 on the draft budget. The association submitted a list of complaints, which were repeated in the submission of the dispute as the premise for the rates boycott, and included allegations that: ● 615-million litres of water was lost daily, equating to R2bn; municipal ● Outstanding debt had increased by R4.7bn;
● Despite Umgeni Water’s proposed tariff increase of 5%, the municipality proposed a 15% tariff increase to ratepayers; and ● There were a growing number of informal settlements. Despite the complaints submitted in the meeting, the Municipality adopted the draft budget. The association lodged a dispute in June 2023
in terms of section 102(2) of the Systems Act, based on the complaints listed above, and declared that members of the association “will not pay for any rates and services starting from July 1 2023 until and unless the city engages with (it)” (para 8). The association applied to the court for an order restraining the municipality from disconnecting municipal services to residents pending the finalisation of the dispute. The main issue the court dealt with was whether a dispute in terms of section 102 of the Systems Act was in fact pending between the association and the municipality. If no such dispute existed, the relief sought by the association could not be granted. The court, when interpreting section 102, discussed another case dealing with similar issues, Croftdene Mall v eThekwini Municipality, which emphasised that section 102(2) requires that a dispute must relate to a specific amount claimed by a municipality, and that the objective of the section is to prevent a ratepayer from delaying payment of an account by raising a dispute in general terms. With this in mind, the court held that the association’s dispute is one over tariff increases and municipal mismanagement, and does not concern a specific amount claimed by the municipality.
The court held that the association was embarking on a payment boycott while demanding the provision of services, which is a matter falling entirely outside the application of section 102(2), and about which entirely different legal principles apply. The application was dismissed. In light of this judgment, declaring a dispute in this manner should no longer be used by ratepayers associations as a means of prevent-
IT IS NOT FOR THE DISGRUNTLED INDIVIDUAL TO DECIDE WHAT THE APPROPRIATE RELIEF SHOULD BE ing the termination of services to residents who withhold rates as a form of protest for a general lack of service delivery. Though the court did not elaborate on the “different legal principles” that apply to rates withholding, guidance can be taken from earlier case law discussing the issue. In City Council of Pretoria v Walker 1998 (3) BCLR 257, the Constitutional Court held that it is for the courts to grant CONTINUED ON PAGE 2