B O E Bank Limited v City of Tshwane Metropolitan Municipality

The case concerned competing claims to the proceeds of a sale in execution of immovable property in Wonderboom, Pretoria. BOE Bank Limited held mortgage bonds registered between 1994 and 1996 over the property. The previous owners were indebted to the City of Tshwane Metropolitan Municipality for municipal rates and services accrued between 1994 and 2001. Upon sale in execution in December 2001, the purchaser paid the two-year municipal debt required for a clearance certificate under section 118(1) of the Local Government: Municipal Systems Act 32 of 2000. A dispute arose over whether older municipal debts (“historical debt”) enjoyed preference over the bank’s mortgage bonds in terms of section 118(3) of the Act.

The appeal was dismissed with costs. The municipality’s claim for historical municipal debt was held to enjoy preference over the bank’s mortgage bonds under section 118(3).

This judgment is a leading authority on the interpretation of section 118(3) of the Municipal Systems Act. It confirms that municipalities enjoy a powerful statutory preference for all outstanding municipal debts, not limited by the two-year period in section 118(1), and that this preference applies even against mortgage bonds registered before the Act’s commencement. The case has major implications for mortgage lenders, insolvency practice, and property transfers in South Africa.