Waterford Estate Homeowners Association NPC v Riverside Lodge Body Corporate and Others

Waterford Estate Homeowners Association (Waterford) is the homeowners' association of a residential development comprising 328 units including 215 full title erven and 101 sectional title units in the Riverside Lodge Sectional Title Scheme. Since 2002, unit owners paid contributions to Waterford. In 2007, a settlement agreement was concluded containing a formula for determining contributions payable by Riverside Lodge Body Corporate (Riverside) to Waterford. Waterford cancelled the settlement agreement in February 2018 due to non-payment. In November 2017, Waterford applied to the Community Schemes Ombud Service under s 38 of the Community Schemes Ombud Service Act 9 of 2011 seeking payment of contributions for 2017-2018 financial years and thereafter. Riverside defended on grounds that unit owners were not members of Waterford, contributions were incorrectly calculated, and contributions were unreasonable. An adjudicator (Ms Khosi Mabaso) investigated and found that unit owners were not members of Waterford, contributions were not calculated according to the settlement agreement formula, and contributions were unreasonable. Waterford then applied to the High Court to declare s 39(1)(c) read with s 39(1)(e) of the Act unconstitutional and to review the adjudicator's decisions. The High Court dismissed the application. Waterford appealed to the Supreme Court of Appeal.

• Whether s 39(1)(c) read with s 39(1)(e) of the Community Schemes Ombud Service Act 9 of 2011 is unconstitutional for vagueness and absence of guidelines regarding the determination of whether a contribution is 'unreasonable'
• Whether unit owners in the Riverside Lodge Sectional Title Scheme are members of Waterford Estate Homeowners Association
• Whether the adjudicator committed reviewable irregularities in determining contributions and levies payable for the 2017 to 2020 financial years
• Whether the adjudicator erred in determining the interest payable on arrear levies
• Whether costs should be awarded de bonis propriis against respondents' attorneys for including unnecessary material in the appeal record
• Whether the Biowatch principle applies to costs relating to the constitutional challenge

1. Application to amend notice of appeal to include constitutional challenge dismissed with costs against appellant (including costs of two counsel for 105th-108th respondents). 2. Appeal upheld in part. High Court order set aside and replaced with: (a) Constitutional challenge dismissed with costs (including two counsel); (b) Adjudicator's orders in paragraphs 86.1, 86.2, 86.3 and 86.4.3 reviewed and set aside; (c) Adjudicator's order that unit owners are not members of Waterford reviewed and set aside, replaced with declaration that they are members; (d) Determinations regarding levies for 2017-2020 remitted to new adjudicator to be chosen by parties by 30 January 2026, failing which by 107th respondent by 20 February 2026; (e) Interest determination reviewed and set aside, substituted with order that appellant entitled to charge interest at prescribed rate from 1 January 2017 to 31 January 2019, and 1% per month from 1 February 2019; (f) 1st-102nd respondents to pay costs including two counsel. 3. 1st-102nd respondents to pay appeal costs jointly and severally including two counsel. 4. Eugene Marais Attorneys to pay costs relating to volumes 6-13 of appeal record de bonis propriis.

1. Section 39(1)(c) read with s 39(1)(e) of the Community Schemes Ombud Service Act 9 of 2011 is not unconstitutional for vagueness. The standard of 'reasonableness' provides adequate guidance and is commonplace in administrative law. The provisions must be read together with ss 50 and 51 which impose procedural safeguards including due process, proper consideration of evidence, and extensive investigative powers. Adjudicators must have suitable qualifications under s 21(2)(b). The provisions set reasonable objective standards and allow for fact-specific determinations while remaining subject to judicial review for rationality, reasonableness and procedural fairness. 2. Unit owners in a sectional title scheme are members of a homeowners' association where: (a) the township establishment conditions impose membership obligations on registered owners; (b) the association's articles of association provide for automatic membership of registered owners; and (c) a settlement agreement confirms membership status. Such membership is automatic upon transfer of ownership and does not require individual consent where the constitutional documents so provide. 3. An adjudicator's decision is reviewable where: (a) the adjudicator fails to consider material and uncontradicted evidence; (b) the adjudicator fails to decide all issues properly referred for determination; (c) the decision is not rationally connected to the evidence and reasons given; (d) the adjudicator misinterprets the agreement or provisions under consideration; or (e) the adjudicator takes into account irrelevant considerations. 4. Legal practitioners may be ordered to pay costs de bonis propriis where they act unreasonably in relation to the court record by insisting on including extensive irrelevant material contrary to the requirements of Supreme Court of Appeal Rule 8(9)(a)(i), thereby wasting judicial resources and imposing unnecessary expense on the opposing party. 5. The Biowatch principle does not immunise litigants from costs where a constitutional challenge is frivolous, without merit, and does not raise constitutional issues of genuine import.

The Court observed that the obligation of sectional title unit owners to pay levies does not arise from, nor is it contingent upon, their membership in a homeowners' association. Rather, membership serves only to identify the entity to which levies are payable. Membership has no bearing on whether levies themselves are reasonable. The Court also noted that Waterford's willingness to utilise the remedies provided under the impugned provisions, only challenging their constitutionality after adverse findings were made, demonstrated that the challenge was cynical rather than genuine. The Court indicated that if a legislative provision is reasonably capable of a meaning consistent with the Constitution, that interpretation should be preferred, affirming the presumption of constitutional validity established in Investigating Directorate: Serious Economic Offences v Hyundai Motor Distributors. The Court also observed that imposing circumscribed criteria for reasonableness in the context of community scheme disputes would undermine the effectiveness of the dispute resolution mechanism given the diversity of potential disputes.

This judgment is significant for several reasons: (1) It clarifies the constitutional validity of the Community Schemes Ombud Service Act's provisions granting adjudicators power to determine whether contributions are 'unreasonable', affirming that such standards are sufficiently certain and subject to proper safeguards. (2) It confirms that adjudicators' discretion under the Act is not unfettered but bounded by principles of rationality, reasonableness, procedural fairness and subject to judicial review under PAJA. (3) It provides guidance on the application of reasonableness standards in administrative decision-making, consistent with the Constitutional Court's approach in Bato Star Fishing. (4) It clarifies membership obligations in homeowners' associations and sectional title schemes, particularly regarding automatic membership arising from township establishment conditions and articles of association. (5) It reinforces standards for judicial review of administrative decisions, including requirements that decision-makers consider all relevant evidence, provide reasons, and address all issues properly referred to them. (6) It addresses procedural matters including when costs may be awarded de bonis propriis against legal practitioners for including unnecessary material in appeal records, and the limits of the Biowatch principle regarding costs in constitutional challenges found to be frivolous.