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Last Updated: 3 December 2005
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 JA:
[1] This appeal is 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 municipal value of property for sewerage
services and refuse removal. The judgment of the court below is reported in 2004
(5) SA 545 (C). The appellant impugns only one aspect
of the decision, and in
view of the fullness and lucidity of the judgment of Budlender AJ there is no
need to deal with any other
issue raised in the court of first
instance.
[2] The appellant is a voluntary association that represents a
number of different ratepayer associations 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 solely on the value
of a ratepayer's property, and
unrelated to the volume of water supplied, imposed by the City since 1 July
2002; and (b) refuse removal
charges based solely on the value of a ratepayer's
property, as imposed by the respondent since 1 July 2002, was unlawful,
alternatively,
unconstitutional, in terms of the provisions of the Local
Government: Municipal Systems Act 32 of 2000, and hence of no force from
these
respective dates. The appellant also asked that, consequent on the order being
granted, the City credit all its ratepayers
with the amounts paid, and interest,
as from the date of the imposition of such charges; and that the City reverse
the charges, and
interest accruing thereon, to those ratepayers who had not
paid. The application 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 in December 2000 by the amalgamation of the Cape Metropolitan
Council and six transitional municipal local councils. In what had formerly been
the Cape Town and South Peninsula Local Council
areas, sewerage and refuse
removal services were funded from property rates. There were no consumption
charges for these services.
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 in terms of s 10G of the Local
Government Transition Act 209 of 1993 (the ‘LGTA’
).
[4] After its establishment the City compiled a general valuation roll
incorporating all of the properties which fell within its jurisdiction.
This led
to a substantial increase in the valuation of many properties which had not been
valued for several years. The revaluation
of properties had a significant effect
not only 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 removal were concerned, for these were based, in part,
on
the rateable value 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 sewerage and refuse
removal services applicable throughout the areas under
its jurisdiction. Sewerage service charges consisted of two elements. The
first
was a charge based on estimated consumption, which was capped for single
residential properties. The second was a basic charge
of R38 for each property,
but which was subject to a rebate based on the value of the property. The rebate
ranged from a full one
in respect of properties worth less than R50 000, to one
of R8 for properties valued between R1m and R1,5m. Refuse removal charges
also
had two elements: 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.
[6] Towards the end of 2002 the 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 services, while at the same time
subsidising
households where the occupants could not afford the costs – about a third
of the people living in the area. The
Council, after considering the report and
recommendations made pursuant to the study, agreed to a significant shift in
policy in
relation to the funding of services. The aim 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 balance of revenue would be based on a consumption charge.
[7] The
charges imposed for the 2003/2004 year were made up as follows. The sewerage
service charge again had two elements. The first
was a range of consumption
charges based on estimated water consumption, but capped at 28 kl per month in
the case of single residential
properties. The second element was a charge based
on the value of the property in question. In the case of single residential
properties,
this was charged at the rate of 0,153 cents in the rand of rateable
value above R50 000, subject 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 element of the sewerage 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
value. In the case of residential properties, the charge based on the property
value was 0,041588185 cents in the
rand on rateable 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 significant increases
in
the charges for sewerage services and refuse removal. The objections to the
increases by ratepayers gave rise to the application
for the orders that the
City was not entitled to charge on the bases adopted.
[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
provided by or on behalf of the municipality; and
(b) if authorized by
national legislation, 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 municipality are
limited, however, by subsec (2), which provides, inter alia, that they must not
be exercised in such
a way as to ‘materially and unreasonably’
prejudice national economic policies. Subsection (2)(b) provides that the powers
may
be regulated by national legislation. The regulatory legislation
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.
[11] The appellant contends that in terms of this Act, the
City does not have the power to charge for a service by imposing a rate
–
an amount determined on the basis of the municipal value of the property. It
accepts that this was permissible under s 10G
of the LGTA, but contends that the
relevant parts of the section were impliedly repealed when the Systems Act came
into operation.
The court below found that the section was not repealed, and
that for a period s 10G existed alongside the corresponding financial
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 view it is not necessary
to determine the question whether a municipality had a choice, 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 legislation in the suite of statutes designed to regulate local government
and its financial powers was enacted,
and the relevant provisions of s 10G were
expressly repealed by s 179 of the Local Government: Municipal Finance
Management Act 56
of 2003, which came into operation on 1 July 2005. The Act
came into operation generally on 1 July 2004, save for 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 July 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 Council for Development Planning and Local Government,
Gauteng 2003 (2) SA 344 (SCA), this court accepted the definition of a rate
in the Concise Oxford English 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):
‘(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 Act
regulates municipal services. Part 1 of the chapter deals with service
‘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 -
(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;
(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 all charges for services must be made in terms of these
sections. Thus there must 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 and refuse
removal charges, no policy had been adopted and no by-laws
passed. Accordingly, the argument goes, the charges based on the value
of the
property, rather than on use of the service, are not permitted in terms of the
Systems Act. The appellant finds support for
these contentions in s 74(2)(b),
which requires that the amount paid for services by a user should
‘generally be in proportion’
to their use; and in s 74(2)(d), which
requires that tariffs must reflect the costs ‘reasonably associated’
with rendering
the service.
[17] The implication of these provisions,
the appellant contends, is that charges for all municipal 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 accumulated through the collection of rates
for general services
– those to which all members of the public have access, such as the use 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 services, such as a city
police service, cannot be measured
such that it can be charged to individuals.
He conceded also that the Act does not preclude the use of rates for the purpose
of subsidising
households. He argued, however, that where consumption is
attributable to a particular user, such as the use of electricity, water,
sewerage services and refuse removal, the service 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 nothing to preclude the levying 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 –
it simply entitles it to
do so provided that a tariff policy has been adopted and by-laws
promulgated.
[20] In the circumstances the argument for the appellant
that the City was not permitted to charge a rate for the sewerage services
and
refuse removal cannot succeed. Since this was the only issue argued on appeal,
the appellant must fail.
[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
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