Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and Others

This case arose from a substantial increase in property rates levied by the Eastern Metropolitan Substructure (EMS) in June 1996. Ten ratepayers challenged the lawfulness of this increase in the Witwatersrand High Court. The case emerged in the context of transforming local government in post-apartheid South Africa, specifically in the Greater Johannesburg area. The transformation involved dissolving 13 former racially-segregated local government bodies and creating a Transitional Metropolitan Council (TMC) and four metropolitan substructures. For the 1996/97 financial year, the TMC and substructures jointly agreed on budgets based on uniform principles. A uniform rate of 6.45 cents in the Rand was set across the metropolitan area. This resulted in surpluses in EMS and Northern Metropolitan Substructure (NMS) budgets and deficits in the TMC, Western and Southern Metropolitan Substructures. The TMC levied contributions of R438,330,000 from EMS and R4,223,000 from NMS, which it used partly to fund its own deficit and partly to pay subsidies to the other substructures. The appellants challenged: (1) the validity of the TMC's levy under item 23(c) of Annexure A to Proclamation 35 and section 178(2) of the interim Constitution; (2) the EMS rate as being set to fund the TMC contribution rather than EMS functions; and (3) procedural irregularities in budget approval under the Local Government Ordinance.

• Whether the resolutions imposing rates and levies constituted 'administrative action' under section 24 of the interim Constitution
• Whether the rule of law/principle of legality is implicit in the interim Constitution
• Whether local government councils exercise legislative or administrative functions when setting rates and levies
• Whether the TMC's levy on substructures complied with item 23(c) of Annexure A to Proclamation 35 (requirement that it be 'an equitable contribution...based on the gross or rates income')
• Whether the levy complied with section 178(2) of the interim Constitution (requirement that levies be 'necessary to exercise its powers and perform its functions' and 'based on a uniform structure')
• Whether the budgets were irregularly approved due to non-compliance with sections 29 and 58 of the Local Government Ordinance
• Whether the Supreme Court of Appeal retained jurisdiction under the interim Constitution to hear common law challenges to administrative action
• Whether proceedings pending when the 1996 Constitution came into force should be decided under the interim or 1996 Constitution

The appeal was dismissed with costs. The resolutions were not declared inconsistent with the interim Constitution. Due to the Court being evenly divided (5-5) on the validity of the TMC levy, the decision of the High Court upholding its validity stood. The Court answered the referral questions from the Supreme Court of Appeal: (a) the resolutions are not inconsistent with the interim Constitution; (b) the SCA has no residual jurisdiction under the interim Constitution but should exercise its jurisdiction under the 1996 Constitution for constitutional issues arising under the interim Constitution in pending matters, applying the substantive law applicable at the time of the alleged infringement.

The binding legal principles established are: (1) The imposition of taxes and rates by elected local government councils constitutes legislative action, not administrative action within the meaning of section 24 of the interim Constitution. Such decisions are taken by deliberative legislative bodies after political deliberation and accountability to the electorate. (2) The principle of legality is implicit in the interim Constitution. All government action, whether legislative, executive or administrative, must be authorized by law. This is a fundamental principle of constitutional law in South Africa. (3) Local government under the interim Constitution has constitutional status and is not merely exercising delegated powers. It is autonomous within limits prescribed by law and entitled to regulate its affairs. (4) The 'uniform structure' requirement in section 178(2) does not mandate identical rates or levies throughout a local government's jurisdiction, but requires a clear, rational structure for differentiation based on relevant factors such as type of user and quality of service. (5) Item 17 of Schedule 6 to the 1996 Constitution should be interpreted in the interests of justice to permit the Supreme Court of Appeal to exercise jurisdiction under the 1996 Constitution over pending matters involving constitutional issues under the interim Constitution, while applying the substantive law applicable at the time of the alleged infringement. Note: On the specific question of whether the TMC levy complied with item 23(c)'s requirement to be 'based on gross or rates income', there is no binding ratio due to the even division of the Court.

Several important obiter observations were made: (1) Chaskalson P, Goldstone J and O'Regan J noted that whether the rule of law has content beyond the principle of legality was unnecessary to decide. (2) They also noted it was unnecessary to characterize local government powers as 'original' or 'delegated' or to define all grounds on which elected local government councils can be reviewed beyond constitutional review for legality. (3) The joint judgment observed that the exercise of legislative powers by elected councils cannot sensibly be subjected to section 24(b), (c) or (d) requirements regarding procedural fairness, written reasons and justifiability, as these provisions do not 'fit' deliberative legislative assemblies. (4) Kriegler J observed (obiter, as this was not necessary to his conclusion) that there may be an argument that the power of a TMC to redistribute resources between substructures is impliedly grounded in section 175 of the interim Constitution, based on the duties it imposes on local government. (5) The joint judgment noted that prior to the interim Constitution, courts adopted a more deferential attitude to laws made by elected legislatures than to laws made by administrative functionaries, and that legislation by elected Provincial Councils was treated as 'original' not 'delegated' power. (6) Various members of the Court emphasized the historical context of extreme inequality in local government under apartheid and the imperative of transformation, though this contextual analysis was not strictly necessary to the legal conclusions reached.

This landmark case is significant for several reasons: (1) It clarified that elected local government councils exercise legislative, not administrative, functions when setting rates and levies, thus section 24 (administrative justice) does not apply to such decisions. (2) It established that the principle of legality is implicit in South Africa's constitutional order - all exercise of public power must be authorized by law. This principle exists independently of section 24. (3) It recognized the constitutional status of local government under the new constitutional dispensation, as distinct from the previous system of delegated powers under parliamentary sovereignty. (4) It addressed the constitutional framework for fiscal redistribution within metropolitan areas to address apartheid-era disparities. (5) It provided guidance on interpreting section 178(2)'s requirement of a 'uniform structure' for local government taxation - this does not require identical rates but a rational, structured approach. (6) It resolved important jurisdictional questions about the division of powers between the Constitutional Court and Supreme Court of Appeal under the interim Constitution. (7) It held that in the interests of justice, the SCA should apply the 1996 Constitution's jurisdictional provisions to pending matters, while applying the substantive law in force when the alleged infringement occurred. The case demonstrates the Court grappling with the complex legal framework governing the transformation of local government in post-apartheid South Africa.