Merafong City Local Municipality v AngloGold Ashanti Limited

AngloGold operated mines in Merafong municipality and obtained water from Rand Water. After the Water Services Act came into effect in 1997, municipalities became water services authorities from 2003. In 2004, Merafong imposed new water tariffs including a surcharge on AngloGold. AngloGold appealed to the Minister of Water Affairs under section 8 of the Act. On 18 July 2005, the Minister overturned Merafong's decision to levy a surcharge on industrial water, ruling that surcharges could only apply to domestic water use. Merafong obtained legal advice that the Minister's decision was void and continued to levy the surcharge. AngloGold paid under protest. In April 2011, AngloGold brought proceedings to enforce the Minister's ruling. Merafong counter-applied, arguing the Minister lacked power to interfere with its exclusive municipal competence to set tariffs under section 229 of the Constitution, and alternatively that section 8(9) of the Act was unconstitutional.

• Whether an organ of state may raise a collateral or reactive challenge to an administrative decision sought to be enforced against it
• The scope and application of the Oudekraal and Kirland principles regarding the binding nature of invalid administrative action
• Whether delay in challenging administrative action precludes a reactive defence
• Whether section 8(9) of the Water Services Act unconstitutionally intrudes on exclusive municipal fiscal powers under section 229 of the Constitution
• The distinction between declaring constitutional invalidity and granting a just and equitable remedy

Leave to appeal granted. Appeal upheld. Orders of the High Court and Supreme Court of Appeal set aside. Matter remitted to the High Court to determine, after further affidavits: (1) the lawfulness of the Minister's decision of 18 July 2005; and (2) if necessary, what remedy should be granted. The Minister ordered to lodge the record by 4 November 2016. Timetable set for further affidavits. Costs reserved for High Court consideration.

An organ of state is not categorically precluded from raising a reactive or collateral challenge to administrative action sought to be enforced against it. The permissibility of such a challenge depends on various contextual factors including: the nature of the alleged irregularity, reasons for not challenging earlier, the stage of proceedings, delay and its explanation, potential prejudice, good faith, whether the challenge is appropriate to the proceedings, and overall justice considerations. While organs of state should ordinarily proactively challenge disputed administrative decisions (as good constitutional citizens), failure to do so does not automatically render them unable to raise the challenge reactively. However, where an administrative decision was specifically directed to an organ of state which was aware of its right to challenge, delay becomes a relevant consideration (unlike "classical" collateral challenges by individuals facing general laws or first-time enforcement). There is a clear distinction between a declaration that conduct is invalid (mandatory under section 172(1)(a)) and the remedy that follows (discretionary and just and equitable under section 172(1)(b)).

Cameron J (majority): The pre-Constitution flexibility in allowing reactive challenges should continue under the Constitution. The Oudekraal paradox that unlawful acts can produce legally effective consequences is constitutionally sustainable because of the remedial discretion in section 172(1)(b). Courts may decline to decide matters because the right complainant is not before them or the challenge is not warranted in the particular proceedings. Neither Oudekraal nor Kirland imposed absolute obligations on citizens to proactively challenge invalid decisions, nor did they preclude organs of state from raising reactive challenges. The constitutional challenge to section 8(9) should not be decided as Merafong did not properly pursue it in written or oral argument and only revived it when the Court inquired about it. Jafta J (minority): The Kirland principle that invalid administrative acts become valid if not set aside is inconsistent with constitutional supremacy under section 2, the principle of legality, section 33's guarantee of lawful administrative action, and the mandatory declaration requirement in section 172(1)(a). An unlawful administrative act is void ab initio and cannot gain validity merely through passage of time or failure to challenge it. The Oudekraal principle is limited to consecutive administrative acts where an empowering provision requires only factual (not legal) existence of a prior act. The proposition that invalid acts are binding creates a two-tier system of law inconsistent with Pharmaceutical Manufacturers. The constitutional challenge should have been decided, and section 8(9) is invalid for impermissibly empowering the Minister to exercise exclusive municipal fiscal powers under section 229 of the Constitution.

This case significantly develops South African administrative law on several fronts: (1) It clarifies that reactive/collateral challenges are not categorically unavailable to organs of state, rejecting a rigid approach; (2) It addresses tension between the Oudekraal/Kirland principles and constitutional supremacy, with the minority strongly critiquing the notion that invalid acts can become binding; (3) It elaborates on duties of constitutional citizenship requiring organs of state to seek judicial clarification rather than ignore disputed rulings; (4) It engages with principles of cooperative intergovernmental relations and separation of powers between spheres of government; (5) It distinguishes between declarations of invalidity (mandatory under section 172(1)(a)) and just and equitable remedies (discretionary under section 172(1)(b)). The case represents an important contribution to understanding when and how public authorities may challenge administrative decisions, and the relationship between legality, certainty, and constitutional supremacy.