REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, JOHANNESBURG
CASE NO:A5015/2022
(1) REPORTABLE: NO
(2) OF INTEREST TO OTHER JUDGES: NO
(3) REVISED.
___________________ 15 November 2022
SIGNATURE DATE
In the matter between:
TUHF LIMITED Appellant
and
68 WOLMARANS STREET JOHANNESBURG (PTY)LTD First Respondent
10 FIFE AVENUE BEREA (PTY) LTD Second Respondent
MARK MORRIS FARBER Third Respondent
___________________________________________________________________
JUDGMENT
___________________________________________________________________
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MATOJANE J
Introduction
[1] This is an appeal against the whole of the judgment of the court a quo
dismissing an application instituted by the appellant against the respondents in which
the appellant sought to foreclose on a mortgage bond executed by the first respondent
as security for its obligations to the appellant in terms of a loan agreement.
[2] The appellant brought an application against the first respondents in the court
below seeking, amongst others, payment of the accelerated amount of money in the
sum of R4 897 004.22 with interest. Foreclosure on a mortgage bond executed by the
first respondent as security for its obligations to the appellant in terms of a loan
agreement and cession of the rental amounts payable by the tenants at Wolbane
Mansions and other relief.
[3] The central issues in the application before the court a quo and in this appeal
is whether, despite the first respondent keeping up with its monthly instalments in
terms of the Loan Agreement, the appellant was entitled to accelerate payment and
claim the total outstanding indebtedness as a result of the first respondent's alleged
breach of the Loan Agreement by not paying to the City of Johannesburg the debt that
it disputes to the point of obtaining a court order compelling the COJ to debate its
accounts with the first respondent.
[4] The court below held that:
"In my respectful view allowing the applicant to rely on non-payment of such services, electricity,
rates and taxes as a ground to allege a breach of the loan agreement entitling it to the cancellation,
accelerated payment, and cession of rental revenue generated by the first respondent would be
prejudicial to the first respondent. To allow the applicant to take such draconian steps when the
first respondent is, in fact, up to date with the monthly payments will be an injustice of great
proportion."
Background
[5] On or about 23 August 2013, the appellant entered into a Loan Agreement with
the first respondent. The first respondent ("the Borrower") agreed to borrow an amount
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of R5 771,166.00 ("the loan amount") from the appellant. The funds were to be used
to assist the first respondent in the purchase and refurbishment of Wolbane Mansion,
a large multi-unit residential property comprising over 51 residential units. The second
and third respondents are sureties for and co-principal debtors, with the first
respondent for its indebtedness to the appellant under the Loan Agreement.
[6] The security in the form of a mortgage bond was registered over the property
in favour of the appellant for a total amount of R8 656,749.00 to secure the appellant's
interests over the amount loaned.
[7] The Loan Agreement ("the Agreement") contained various clauses on the part
of the Borrower, the breach of which would constitute an "Event of Default" entitling
the appellant to declare the entire principal amount outstanding and all other
obligations immediately due and payable.
[8] Below are several provisions from the Loan Agreement pertinent to the issues
before us. Clause 17 of the agreement state that the first respondent was required to:
17.1 pay promptly on the due date for payment all rates, taxes, water and electricity
charges (whether levied as basic charges or in respect of actual consumption),
sanitation charges (in respect of refuse removal and sewerage) and other like
imposts that may be payable in respect of the Property to any governmental,
provisional, divisional council, municipal or other like authority;
17.2 provide proof of the aforesaid payments to the Lender whenever requested to do
so, and the Lender has the right, but not the obligation, to make all such payments
on behalf of the Borrower and any money so disbursed shall be immediately
refundable by the Borrower to the Lender; and
17.3 provide to the Lender on a monthly basis certified copies of all statements for the
amounts payable in terms of 17.1.
[8] The Loan Agreement defined the term "an Event of Default" and reads :
Each of the following events shall constitute an Event of Default under the Loan Facility
18.1.1 the Borrower fails to pay any amount due by it in terms of this Loan Agreement on
the due date for payment thereof or breaches any provision of this Loan Agreement
and fails to remedy such breach within any applicable cure period;
…
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18.1.20 the Borrower fails to comply with all and any municipal bylaws.
[9] Clause 18.2 deals with the Lender's entitlement to accelerate and declare all
amounts owing. It reads:
Forthwith upon the occurrence of an Event of Default and at any time thereafter, if such
event continues, the Lender shall in its sole and absolute discretion be entitled (but not
obliged), without prejudice to any other rights which the Lender may have, by a notice
issued by the Lender to the Borrower to –
18.2.3 accelerate and declare all amounts owing in terms of this Loan Agreement
immediately due and payable, notwithstanding that such amounts may not
otherwise have been due and payable, whereupon the same shall become
immediately due and payable, including any fees, penalties, costs and charges...
[10] As it happened, the first respondent, while complying with its minimum monthly
instalment obligation under the Loan Agreement, has not paid the CoJ rates, taxes,
and municipal service charges since 30 October 2015 despite its tenants consuming
the services every month to date. The first respondent has also failed to provide the
appellant with proof of payment of municipal services as required in terms of the
Agreement.
[11] On or about 20 December 2019, the appellant delivered a letter of demand to
the respondent's attorneys notifying the first respondent that it was in breach of the
Loan Agreement by failing to pay the sum of R3 288 156.08 to the COJ being the
amount reflected as owing to the COJ in its statement of Account for November 2019.
The first respondent was notified that this constituted an Event of Default. The first
respondent did not adhere to the letter of demand and the appellant elected to
accelerate and declare all amounts owing in terms of the Loan Agreement on 7
February 2020 in the sum of R4 974 739.90.
The issues
[12] The crux of the appellant's case is set out in paragraph 52 of the founding
affidavit as follows:
"The first respondent is the holder of the Account with the account number 552995492 with
the COJ. The first respondent has failed to pay promptly its municipal service charges
(rates, water and sanitation, refuse and electricity) in respect of the immovable Property,
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and it has consequently fallen into significant municipal arrears. In particular, it is evident
from the COJ tax invoices for the immovable Property that as of 12 November 2019, the
municipal Account in respect of rates, electricity, water and sanitation and refuse were in
areas in the amount of R3 288.156.08 (Three Million Two Hundred and Eighty-Eighty
Thousand One Hundred and Fifty-Six Rand and Eight cents".
[13] The first respondent submitted that it did not breach the Agreement by not
paying the CoJ the entire disputed debt because clause 17.1 of the Agreement
provides that failure to pay those amounts that may be payable to the CoJ will amount
to a breach of the Agreement. The first respondent argues that no such amounts were
payable at the time that the appellant placed it on terms to remedy its alleged breach
of the Agreement.
[14] The first respondent states that since acquiring ownership of Wolbane
Mansions on or about 6 March 2014, charges for electricity consumed at the Property
were debited to the Account using incorrect readings of a different electricity meter
which was not installed on the Property.
[15] When the CoJ disconnected the electricity supply to Wolbane Mansions in or
around April 2016, the first respondent obtained a Court Order on 5 May 2016 in terms
of which the CoJ was ordered, inter alia, to provide the first respondent with a
statement and debatement of Account with the CoJ, credit the first respondent's
Account with charges incorrectly levied. The CoJ was interdicted from unlawfully
disconnecting the water and electricity supply to Wolbane Mansions.
[16] It bears mentioning that the order concerns a billing query relating to water and
electricity supplied to the Property and not, for instance, rates, taxes and other
municipal services.
[17] From this, two issues arise for determination. The first is whether the first
respondent breached the loan agreement as alleged by the appellant and, if so,
whether the appellant should be permitted to demand that the first respondent pay the
entire disputed debt to the City of Johannesburg prior to such dispute being resolved
with the CoJ.
[18] Before turning to these issues, it is necessary to decide first whether the first
respondent was in breach of its obligations under the Loan Agreement at the time the
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letter of demand was delivered. The first respondent contends that no amounts were
payable to the COJ at the time.
[19] Section 96(a) of the Local Government: Municipal Systems Act, No. 32 of 2000
(hereinafter referred to as the "Systems Act"), obliges the City of Johannesburg
(hereinafter referred to as "the CoJ") to collect all money that is due and payable to it,
subject to the provisions of that Act and any other applicable legislation;
[20] In terms of section 4(1)(c) of the Systems Act, the Council may, among other
things, levy rates on Property to finance the operational expenditure of the Council.
[21] Section 96(b) of the Systems Act requires the City to adopt, maintain and
implement a credit control and debt collection policy, which is consistent with its rates
and tariff policies and complies with the provisions of the Act; Clause 3 of the CoJ
Property Rates Policy 2022/2023 provides that rates which are recovered by the
Council on an annual or a monthly basis, are payable in full on or before the due date
stipulated in the Account sent to the ratepayer.
[22] "Municipal Services" for purposes of the policy, is defined to mean services
provided by the City, which include refuse removal, water supply, removal and
purification of sewerage, sanitation, electricity services and rates either collectively or
singularly, and any other miscellaneous services whether provided by the City or a
Municipal Service Provider.
[23] The first respondent admits that since 6 March 2014, charges for electricity,
water and refuse services consumed at Wolbane Mansions have been debited to an
account that it alleges had an incorrect meter number. Electricity and water continue
to be supplied and consumed at the Property. Since that date, rates were also levied
in respect of the property and save for payment of R25 000.00 on October 2015 for
electricity consumed at the property. No other payment for electricity, water
consumed, or rates and taxes were paid. The last payment was made subsequent to
the billing query the first respondent raised with the COJ.
[24] According to the remittance advice from the COJ dated 12 November 2019,
which was attached to the letter of demand, the total rates and taxes levied were R5
333,90. The electricity amount due was R47 082.00. Water and sanitation were R60
272.48, and waste management service was not billed.
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[25] The first respondent states that it was advised by its forensic specialist not to
make a payment towards property rates and taxes as well as waste management
services as such payment would deprive it of the defence of prescription. This reason
for failure to pay for municipal services is flawed as the property rate is a debt in
respect of taxation in section 11 of the Prescription Act, 68 of 1969, and the Council
can recover rates in arrears for a period of up to 30 years1.
[26] The First respondent's forensic specialist, Hugo Venter ("Venter"), advised the
first respondent that assessment rates were billed to the Property and that the value
was subject to the valuation objection2. Venter agreed with the amounts debited on
the Account for sewer availability. Venter advised the first respondent that it was billed
for water on estimated readings. Rates are levied in accordance with the Act as an
amount in the Rand based on the market value of all rateable property as reflected in
the valuation roll and any supplementary valuation roll, as contemplated in Chapters
6 and 8, respectively, of the Act.
[27] Despite knowledge of monies owed to the CoJ as advised by its specialist, the
first respondent elected not to pay the undisputed rates, taxes, and water charges
levied before the alleged billing dispute arose and after. It fails to pay the current
monthly water consumed at the Wolbane Mansion.
[28] The first respondent does not dispute that waste management services in
respect of Wolbane Mansions were received even though not billed for. In terms of the
CoJ rates policy, a ratepayer remains liable for the payment of the rates whether or
not an account has been received. If an account has not been received, the onus is
on the ratepayer concerned to establish the amount due for the rates and to pay that
amount to the Council. The first respondent is not absolved of paying for waste
1 Section D of City of Johannesburg Property Rates Policy 2022/2023
2 Rates are levied in accordance with the Act as an amount in the Rand based
on the market value of all rateable property as reflected in the valuation roll and any
supplementary valuation roll, as contemplated in Chapters 6 and 8, respectively, of
the Act.
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management services which have been rendered to the property even though not
billed for.
[29] In paragraph 62 of the answering affidavit, the first respondent tenders payment
to the COJ once issues regarding the municipal charges have been resolved. The
tender contravenes the CoJ's debt collection bylaws as municipal charges are payable
in full on or before the due date stipulated in the Account sent to the ratepayer.
[30] The tender also contravenes clauses 17 and 18.1.20 of the Loan Agreement
and clause 3 of the mortgage bond, which records that the first respondent was
required to promptly pay all rates, taxes, water, electricity charges, sanitation charges
and other like imposts that may be payable to the municipality.
[31] There is, therefore, no merit in the submission that there were no amounts due
to the CoJ at the time a letter of demand was delivered. The first respondent's expert
has confirmed what was due and payable by the first respondent to the CoJ. The first
respondent not only breached the Loan Agreement by non-payment of municipal
services, it also breached its obligations to the CoJ, which constitutes an event of
default in clause 18.1.1 of the Loan Agreement. This event of default entitles the
appellant to exercise its rights under the Loan Agreement and to accelerate payment
thereunder.
[32] The other reason advanced by the first respondent for not complying with the
Loan Agreement is the contention that the amount claimed by the CoJ is disputed.
The first respondent argues that the statement and debatement of Account still have
to take place in the future and that it is only after the CoJ has credited the incorrect
debits to its Account that the first respondent will be in a position to tender payment in
respect of the undisputed portion thereof.
[33] Once a dispute has been lodged regarding a particular disputed amount, the
CoJ is obliged to separate such amount from payments made after the dispute has
been lodged. Debt collection and credit control measures could not be implemented
in regard to such disputed amount, but the obligation to pay rates and municipal
service charges rendered in respect of any subsequent period on or before the due
date specified in such subsequent account is not suspended. The customer must pay
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the full amount of any account that relates to amounts for rates or municipal services
which are not in dispute.
[34] In terms of section 102(2) of the Systems Act:-
"(1) A municipality may-
(a) consolidate any separate accounts of persons liable for payments to the municipality;
(b) credit payment by such a person against any account of that person; and (c) implement
any of the debt collection and credit control measures provided for in this Chapter in relation
to any arrears on any of the accounts of such a person.
(2) Subsection (1) does not apply where there is a dispute between the municipality and a
person referred to in that subsection concerning any specific amount claimed by the
municipality from that person.
[35] In Body Corporate Croftdene Mall v Ethekwini Municipality,3 the Supreme Court
of Appeal held that:-
"It is, in my view, of importance that subsec 102(2) of the Systems Act requires that the dispute
must relate to a 'specific amount' claimed by the municipality. Quite obviously, its objective must
be to prevent a ratepayer from delaying payment of an account by raising a dispute in general
terms. The ratepayer is required to furnish facts that would adequately enable the municipality
to ascertain or identify the disputed item or items and the basis for the ratepayer's objection
thereto. If an item is properly identified and a dispute properly raised, debt collection and credit
control measures could not be implemented in regard to that item because of the provisions of
the subsection. But the measures could be implemented in regard to the balance in arrears;
and they could be implemented in respect of the entire amount if an item is not properly
identified and a dispute in relation thereto is not properly raised.
[36] In the current matter, the dispute does not relate to a specific amount claimed
by the municipality. The monthly water consumption at Wolbane Mansion cannot be
disputed, as the first respondent's specialists confirmed it. Rates and takes are
capable of easy calculation and cannot be denied. In breach of the Systems Act and
the CoJ's Debt Collection By-Laws, municipal services have been consumed
continuously without payment since 30 October 2015. This event of default constituted
a breach of the Loan Agreement allowing the appellant to exercise its rights under the
Loan Agreement and to accelerate payment thereunder.
3 2012 (4) SA 169 at [22]
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[37] The first respondent submits that it is patently unconscionable to allow the
appellant to accelerate the first respondent's indebtedness in terms of the Agreement
and to foreclose on the Property in circumstances where the first respondent is up to
date with its minimum monthly instalments under the Agreement and the CoJ has not
asserted any right to payment of the disputed Account and where there is no threat of
doing so until the court-ordered statement and debatement process has been
completed.
[38] Generally, contracting parties have considerable freedom in choosing how they
structure their agreements, and it is not the function of the court to protect consenting
adults from bad bargains. Legal certainty and the notion of pacta sunt servanta are
central values of the law of contract, which must be honoured and enforced by the
courts.
[39] The parties in the present matter enjoyed equal bargaining power when they
negotiated the terms of the Agreement. There is no suggestion that the freedom to
contract was undermined, the contract was freely entered into, and the parties did not
make provision for withholding payments of municipal services where the charges are
disputed.
[40] In Beadica,4 the Constitutional court, in the majority judgment held that a court
may not refuse to enforce a contractual term on the basis that the enforcement would,
in its subjective view, be unfair, unreasonable or unduly harsh in the circumstances.
The court explained that abstract values of fairness and reasonableness had not been
accorded self-standing status as requirements for the validity of a contract. Instead,
they are important considerations that a court will consider in determining whether the
enforcement of a contractual term is contrary to public policy.
[41] The first respondent has failed to adequately explain why it has not paid its
undisputed indebtedness to the CoJ on the due date. The harsh consequences of its
failure to comply with the terms of the Agreement could not by itself constitute a
sufficient basis for the conclusion that enforcement of the strict terms of the contract
would be unconscionable. The first respondent freely agreed that the appellant is
4 Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others [2020]
ZACC 13; 2020 (5) SA 247 (CC); 2020 (9) BCLR 1098 (CC) (17 June 2020).
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entitled to accelerate payment and claim full outstanding indebtedness should it
breach the Loan Agreement. The non-payment of the municipal services constitutes
a breach of the Loan Agreement and a breach of the first respondent’s obligation to
the CoJ and constitutes an event of default in terms of the provisions of the Loan
Agreement.
[42] The failure by the first respondent to perform its contractual obligation has
destroyed the commercial purpose of the contract as the significant municipal arrears
impair the appellant's security it required in order to advance the loan facility as a
charge in favour of the municipality imposed by section 118(3)5 of the Systems Act
enjoys preference over any mortgage bond registered against the applicable
immovable property6.
[45] In the result, the following order is made.
1. The appeal is upheld with costs on the attorney and client scale, including the
costs of two counsels:
2. The Order of the Court a quo is substituted with the following order:
2.1. 68 Wolmarans Street Johannesburg (Pty) Ltd, 10 Fife Avenue Berea
(Pty) Ltd and Mark Morris Farber ("the respondênts") pay, jointly and severally,
the one paying the others to be absolved, the sum of R4,897,004.22 with
interest calculated at the rate of 2.50% above the commercial banks' prime rate
plus 1 % per year, calculated daily and
2.2. TUHF Limited ("the applicant") is, with immediate effect, authorized to
take cession of any rental amounts payable by the Wolbane Mansions tenants
to 68 Wolmarans Street Johannesburg (Pty) Ltd ("the first respondent");
alternatively, the respondents, further alternatively its duly authorized agent,
until payment in 1 above, as well as all outstanding municipal charges, and
5 An amount due for municipal service fees, surcharges on fees, property rates and other municipal
taxes, levies and duties is a charge upon the property in connection with which the amount is owing
and enjoys preference over any mortgage bond registered against the property.
6 BOE bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 SCA
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other like imposts that may be payable in respect of the immovable property at
68 Wolmarans Street, Hillbrow, are paid in full ("the cession");
2.3. The respondent sign all documents necessary to facilitate the cession in
2 above, failing which the Sheriff is authorized to sign all documents required
to give effect to the cession:
2.4 The respondents furnish the applicant, within 15 days of this order, with
the names and contact information of every tenant occupying the Wolbane
Mansions ("the Wolbane Mansions tenants") together with:
2.4.1 copies of any written lease agreements concluded between the
first respondent. Alternatively, the respondents, further alternatively its
duly authorized agent, and the Wolbane Mansions tenants
2.4.2 Particularity and copies of any existing property management
mandates with the Wolbane Mansions tenants; and
2.4.3 Particularity in respect of the terms of any implied end or oral
terms of any lease agreement concluded with the Wolbane
Mansions
3. the applicant may take steps necessary for purposes of collecting rental
amounts from the Wolbane Mansions tenants:
4. the immovable property situated at
ERF 2154 JOHANNESBURG TOWNSHIP
REGISTRATION DIVISION I.R., THE PROVINCE OF
GAUTENG, MEASURING 467 (FOUR HUNDRED AND SIXTY-
SEVEN) SQUARE METRES
HELD By Deed of Transfer Number T7596/2014 (hereinafter
referred to as the "immovable property") be declared
executable, and the applicant is authorized to issue Writs of
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Attachment calling upon the Sheriff of the Court to attach the
immovable property to sell the immovable property in execution;
5. The respondents are to pay a penalty fee equal to 5% plus VAT of the
monthly outstanding instalment amount from the due date for payment
until the date of actual payment in full as of 10 February 2020
PP
KE MATOJANE JUDGE OF THE HIGH COURT
GAUTENG DIVISION, JOHANNESBURG
PP______________________
E MOLAHLEHI JUDGE OF THE HIGH COURT
GAUTENG DIVISION, JOHANNESBURG
PP______________________
R STRYDOM JUDGE OF THE HIGH COURT
GAUTENG DIVISION, JOHANNESBURG
Heard: 17 August 2022 Judgment: 15 November 2022
For the Applicant: Advocate AC Botha SC
Advocate E Eksteen
Instructed by Schindlers Attorneys
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For the 1st to 3rd Respondents: Advocate M De Oliveira
Instructed by Swartz Weil Van der Merwe Greenberg Attorneys
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