BOE Bank v City of Tshwane Metropolitan Municipality

Supreme Court of Appeal -240/03 Hearing date: 5 March 2005
  Judgment date: 29 March 2005
Charge upon property in favour of municipality imposed by s 118(3) of Act 32 of 2000 – does not exclude debts older than two years – preference enjoyed under section also over mortgage bonds registered prior to commencement of the Act – does not amount to affording section retrospective effect.

Media Summary of Judgment

1) This appeal arose from competing claims by the appellant – bank, and the respondent – municipality, to the proceeds realised from a sale in execution of immovable property situated at Wonderboom, Pretoria. The bank's claim was based on mortgage bonds over the property while the municipality's claim was for municipal rates and for services rendered in connection with the property. The outcome of the dispute turned on the interpretation of s 118(3) of the Local Government: Municipal Systems Act 32 of 2000 ('the Act'), read with subsection 118(1) of the Act.

(2) Section 118(1) provides that a property situated in a municipal area may not be transferred until all municipal rates and service fees that became due during the immediately preceding two years, have been paid. In terms of s 118(3) an amount due to the municipality for rates and service fees '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'.

(3) In December 2001 the property concerned was sold at an execution sale for R725 000. Pursuant to the conditions of sale, the municipal claims for the preceding two years were paid by the purchaser. The dispute between the bank and the municipality related to municipal claims in the total sum of R655 273 that had been outstanding for more than two years, referred to as 'the historical debt'. The bank argued that the historical debt did not enjoy any preference under s 118(3) because, on a proper interpretation of that section such preference was limited to the same debts as those contemplated in s 118(1), ie to debts not older than two years. Its alternative contention was that s 118(3) did not create a preference over the mortgage bonds that were registered prior to the date of commencement of the Act, which was 1 March 2001.

(4) The SCA did not agree with either of these arguments. Consequently the judgment of the Pretoria High Court, that the historical debt ranked prior to the bank's mortgage bonds at the execution sale, was upheld and the appeal dismissed with costs.