Kwadukuza Municipality v Consolidated Aone Trade and Invest 6 (Pty) Ltd [in Liquidation] and Others

Consolidated Aone Trade and Invest 6 (Pty) Ltd (CATI 6) was owner of Ballito Bay Mall consisting of three properties. CATI 6 was placed under provisional liquidation on 19 September 2013 and finally wound up on 20 March 2015. Liquidators were appointed. On 17 May 2017, the liquidators sold the properties for R135 million to Cyber Savvy Merchants (Pty) Ltd. To effect transfer, a rates clearance certificate in terms of s 118 of the Municipal Systems Act 32 of 2000 was required. The municipality demanded payment of over R15.6 million including historical debt exceeding the two-year period in s 118(1). On 16 November 2017, a consent order was granted by Pillay J directing the municipality to provide a statement for the two-year period and issue a rates clearance certificate upon payment. Despite the consent order, the municipality refused to cooperate. On 19 April 2018, CATI 6 paid R21,165,901.22 under protest and without prejudice to obtain the rates clearance certificate. On 30 April 2018, the municipality acknowledged the calculation was incorrect and that only R17,423,354.82 was due, offering a refund of R3,742,546.40. CATI 6 sought recovery of all overpaid amounts substantially exceeding the tendered refund. The high court granted the order on 14 July 2023.

• Whether payments made under protest for historical rates and service charges beyond the two-year period prescribed in s 118(1) of the Municipal Systems Act 32 of 2000 are recoverable
• Whether the municipality was entitled to demand payment of rates and service charges beyond the two-year period in s 118(1) as a condition for issuing a rates clearance certificate
• Whether s 10(3) of the Prescription Act 68 of 1969 protected the municipality from refunding prescribed debt that was voluntarily paid
• Whether payments made under duress and protest can be recovered
• The proper interpretation and scope of s 118(1) and s 118(3) of the Municipal Systems Act

The appeal was dismissed with costs, including the costs of two counsel where so employed. The high court order granting CATI 6 recovery of amounts overpaid to the municipality was upheld.

The binding legal principles established are: (1) Section 118(1) of the Municipal Systems Act 32 of 2000 limits municipalities to claiming payment only for municipal service fees, surcharges, property rates and other municipal taxes, levies and duties that became due during the two-year period preceding the date of application for a rates clearance certificate. Municipalities cannot lawfully demand payment of historical debts beyond this two-year period as a condition for issuing a rates clearance certificate. (2) Section 118(3) creates security for payment of historical outstanding municipal debt through a charge upon the property with preference over mortgage bonds, but does not extend or override the two-year limitation in s 118(1). (3) Payments made under protest and without prejudice are recoverable where the payer notifies the recipient that payment is made solely to obtain a necessary certificate and reserves the right to claim repayment of amounts not legally due. The recipient accepting such payment agrees that it should be recoverable if not actually due. (4) Section 10(3) of the Prescription Act 68 of 1969 does not protect a creditor from refunding prescribed debt where: (a) a consent order or agreement provides for recovery of overpayments; and (b) the debtor is in liquidation and recovering unlawful payments is necessary to prevent prejudice to the general body of creditors in the concursus creditorium. (5) Consent orders bind the parties, and a municipality that agrees to provide a statement for the two-year period and issue a rates clearance certificate upon payment cannot subsequently demand amounts beyond that period.

The Court noted that the Constitutional Court in Mkontwana v Nelson Mandela Metropolitan Municipality characterized demands for payment beyond the statutory period as 'a substantive obstacle to alienation'. The Court also observed that new owners are not liable for debts arising before transfer from the charge upon property under s 118(3), as declared in Jordaan and Others v City of Tshwane Metropolitan Municipality. The Court described s 118 as comprising two principal elements: s 118(1) as an embargo provision with a two-year time limit, and s 118(3) as a security provision creating security for historical debt without a time limit. Hughes JA noted it would be remiss not to point out the legal basis upon which CATI 6 sought recovery, emphasizing the consent order and the correspondence placing payment under protest. Regarding mora interest, the Court disagreed with CATI 6's submission that interest should run from the date of payment under duress, noting that no such interest was claimed in the notice of motion and the high court order did not grant interest.

This judgment clarifies the proper scope and interpretation of s 118(1) of the Municipal Systems Act 32 of 2000, confirming that municipalities are limited to demanding payment only for debts accrued within the two-year period preceding an application for a rates clearance certificate. It cannot be used as leverage to demand payment of historical debts beyond that statutory period. The judgment reinforces the principles governing payments made under protest and the rights of liquidators to recover unlawful payments that prejudice creditors in insolvency proceedings. It also clarifies the interplay between s 118(1) (the embargo provision with a two-year limit) and s 118(3) (the security provision creating a charge over property for historical debt). The case is significant for defining the boundaries of municipal power to withhold rates clearance certificates and protecting property owners and liquidators from unlawful demands that exceed statutory limits. It reinforces that municipalities must exercise their statutory powers lawfully and cannot use their position to extract payments not legally due.