City of Johannesburg v Even Grand 6 CC

Mr Manfred Hamburger, acting on behalf of a close corporation (the respondent), purchased four immovable properties at a public auction for R17,000. The auction was held by the executor in the Estate Late M E Ramos, acting in terms of s 34 of the Administration of Estates Act 66 of 1965. The amount owed to the appellant municipality in respect of the four properties was approximately R80,000. The executor had reported the estate as insolvent to creditors, and creditors did not instruct surrender under the Insolvency Act. The executor thus sold the assets in accordance with s 34(2) of the Administration of Estates Act. The estate was administered under s 34 of the Administration of Estates Act and had not been sequestrated. The respondent sought an order compelling the appellant to issue clearance certificates for the transfer of the properties against payment of only R17,000 (the purchase price).

• Whether a municipality is obliged to issue a clearance certificate under s 118(1) of the Local Government: Municipal Systems Act 32 of 2000 upon payment of only the proceeds of sale when those proceeds are less than the municipal debts due
• Whether s 118(2) of the Systems Act, which subjects s 118 to s 89 of the Insolvency Act in cases of transfer by a trustee of an insolvent estate, applies to properties sold by an executor under s 34(2) of the Administration of Estates Act
• Whether interpreting s 118(1) according to its plain meaning leads to an absurdity that the legislature could not have intended
• Whether the municipality's right under s 118(1) gives it impermissible preference over other creditors in an insolvent estate

The appeal was upheld with costs. The order of the High Court was set aside and replaced with an order dismissing the application with costs.

Section 118(2) of the Local Government: Municipal Systems Act 32 of 2000, which makes s 118 subject to s 89 of the Insolvency Act, applies only to transfers of property by a trustee of an insolvent estate that has been sequestrated under the Insolvency Act. It does not apply to estates being administered under s 34 of the Administration of Estates Act 66 of 1965 that have not been sequestrated. A municipality is not obliged to issue a clearance certificate under s 118(1) unless the full amount of municipal debts due during the two-year period preceding the application for the certificate has been paid. Section 118(1) gives a municipality a veto over the transfer of property but does not create a preference in the distribution of estate assets. The municipality's discretion to compromise claims under s 109(2) of the Systems Act is separate from the registrar of deeds' obligation not to register transfer without a clearance certificate.

The court observed that if the purchase price represents the best price achievable for the property, if no more can be recovered from the property owner, and if there is no prospect of future recovery, a municipality will probably be prepared to accept a lesser sum in payment under s 109(2) of the Systems Act, as this would enable transfer to a new owner who would become liable for future rates and charges. The court also noted the maxim 'you cannot bleed a stone' (referenced by the court a quo), but held this did not justify departing from the plain meaning of the legislation.

This case is significant in South African municipal and insolvency law because it clarifies the scope and application of s 118 of the Local Government: Municipal Systems Act 32 of 2000. It establishes that s 118(2), which subjects the clearance certificate requirement to s 89 of the Insolvency Act, applies only to sequestrated estates and not to insolvent estates being administered under s 34 of the Administration of Estates Act. The judgment protects municipalities' rights to recover municipal debts and clarifies that the clearance certificate requirement under s 118(1) operates as a mechanism to ensure payment of municipal debts before transfer, rather than affecting the order of preference in distribution. It also clarifies the distinction between the municipality's veto power over transfer and its rights in the distribution of estate assets.