Blair Homeowner Association v City of Tshwane Metropolitan Municipality (2010/68226) [2017] ZAGPPHC 519; [2017] 4 All SA 344 (GP) (30 August 2017)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 2010/68226

REPORTABLE: YES

DATE: 30/08/2017

In the matter between:

BLAIR ATHOL HOMEOWNER ASSOCIATION

Plaintiff

and

THE CITY OF TSHWANE METROPOLITAN MUNICIPALITY

Defendant

JUDGMENT

Murphy J

1. These proceedings originated as an urgent application during December 2010 which was ultimately referred to trial in 2014. The plaintiff later filed its declaration in January 2015. The plaintiff is the Home Owners Association at the Blair Atholl Estate ("the estate"), near Lanseria Airport. It is a non-profit company duly registered under the Companies Act.[1] Wraypex (Pty) Ltd and Mr Robert Wray, the developers of the estate, were initially joined as plaintiffs. They have now withdrawn from the action. The defendant is the City of Tshwane Metropolitan Municipality, a municipality established under the provisions of the Local Government: Municipal Structures Act [2]

("the Structures Act").

2. The main issue in dispute in this action pertains to the determination of the applicable rate (tariff) at which the defendant supplies bulk water to the plaintiff. It requires the interpretation of the Engineering Services Agreement ("the ESA") concluded between the parties on 3 February 2006 and particularly Clause 6.16 thereof which provides that "in recognition of the acceptance of responsibility by the Section 21 Company[3] of the duties normally performed by the Municipality", the defendant agrees to supply water to the plaintiff at "the normal rate of the Municipality" and not to raise a sewerage charge.

Overview

3. The parties are in dispute about two key issues. Firstly, what was meant by the wording "in recognition of the acceptance of

responsibility by the Section 21 Company of the duties normally performed by the Municipality" in the introduction to clause

6.16; and secondly what was intended and agreed between the parties in clause 6.16.1 when providing that water would be supplied at "the normal rate of the Municipality".

4. The plaintiff is billed as a single user via two bulk meters for the total bulk water supplied to the estate (i.e. total consumption), even though the ultimate consumers of the bulk water supply are the individual residents within the estate.

5. It is common cause that the defendant has six possibly applicable rates or scales of rates in relation to charges for the supply of water that were set by a resolution of the Council and are contained in a schedule to a notice issued in terms of section 75A(3) of the Local Government: Municipal Systems Act[4] ("the Systems Act"). The first five are referred to as Scale A through to Scale E and the last is Rate 6. Scale A is the rate for agricultural holdings and farm portions for residential purposes, being applicable to any consumer who is supplied with water, but who is not resident within a proclaimed township. Scale B is for single dwelling houses metered separately by the municipality. Scale C is for flats, townhouses and other sectional title developments on stands with more than two dwellings.

Scale Dis for all consumers who do not fall under Scale A, B or C. Scale Eis for homes for the aged and retirement centres. Rate 6 is for bulk water supply to other municipalities.

6. The plaintiff contends that the applicable "normal rate of the Municipality" is the rate at which the defendant supplies

bulk water to other municipalities or water service providers, being Rate 6. This rate is a bulk rate in terms of the applicable Rand Water tariff including a Water Research Fund Levy plus a 10% administrative charge or as per agreement. The plaintiff maintains

that its interpretation is supported by the intra-textual context of the ESA which, inter alia, provides for (i) the plaintiff's construction of and payment for the internal and external engineering services (including pipelines, a reservoir, packing station [sewerage plant]); (ii) the plaintiff's transfer of the ownership of the external services to the defendant; (iii) the plaintiff's acceptance of responsibility for the duties normally performed by the defendant as the municipality; and (iv) the plaintiff to act, to all intents and purposes, as a de facto municipality or water supplier.

7. The defendant originally contended that Scale B applied but now wishes to charge in accordance with Scale D. The Scale D tariff reflected in the notice applicable with effect from July 2010 is a decreasing scale ranging between R9,92 and RB,77 per kl depending on the usage - the greater the usage, the lesser the rate. Scale B, on the other hand, provides for an escalating rate from R4,70 to R14,41.

8. The plaintiff seeks a declaratory order that the reference in clause 6.16.1 of the ESA to "the normal rate of the Municipality"

is a reference to Rate 6; alternatively, an order for the rectification of clause 6.16.1 by the insertion of the word "bulk" between the words "normal" and "rate"; and, in the event that the plaintiff's interpretation is rejected, an order that the defendant's imposing of a rate other than that contemplated in Rate 6 is inconsistent with section 74(2)(a) and (d),[5] and section 76(b),[6] of the Systems Act, and such is, furthermore, unconstitutional, invalid and in violation of the constitutional principle of legality as contemplated by section l(c) of the Constitution, 1996.

9. The defendant initially, in opposing the urgent application and in its plea, alleged that the plaintiff was to be billed in accordance with Scale D "as an accommodation" but in due course would be billed in terms of Scale B. That would have meant that the plaintiff would have been billed on the maximum applicable tariff per the sliding scale under Scale B almost from the first hour of day one in any given month after the consumption of 72 kl. The scale applicable to single dwelling houses cannot apply in this context. Hence, the defendant sought, and was granted, an amendment during the evidence of the plaintiff's witness, Mr Croswell, to exclude the reference to the plaintiff being billed according to Scale B.

10. It is accordingly necessary to determine which of the rates (be it Rate 6 or Scale D) is applicable, or accords with the principle of legality, to the bulk water supply relationship between the plaintiff and the defendant.

11. The defendant has also brought counterclaims in which it seeks an order aimed at payment by the plaintiff for water under Rate D. An agreement has been reached between the plaintiff and the defendant regarding the quantity of bulk water supplied by the defendant to the plaintiff, they however remain in dispute about the amount payable for the water supplied. After

hearing evidence and argument in relation to the interpretation of clause 6.16 of the ESA, the parties agreed that it would be

convenient to separate and determine that question first, in terms of rule 33(4), and to postpone determination of the

counterclaims.

12. The defendant, in addition to contending for a Scale D rate, denied that the defendant's signatory to the ESA, Mr Potgieter, was

authorised to conclude any agreement containing the plaintiffs contended for rate for the supply of water. The plaintiff replicated,

denied the alleged lack of authority and raised ostensible or apparent authority and an estoppel. The issue of Potgieter's alleged lack of authority was however not seriously pressed during evidence or by counsel for the defendant in argument. Mr Mouton, one of the defendant's two witnesses, and its head of planning, in any event conceded under cross-examination that it was reasonable for the developer to assume that all internal requirements and

processes had been met and that there was nothing to suggest to a third party, such as the developer, when concluding the ESA that the relevant authority of the signatory to the agreement was not present. As the defendant has not pressed the point, it may be accepted that Potgieter had the necessary authority.

The approach to interpretation

13. The ultimate determination of the parties' dispute in respect of clause 6.16 depends on its proper interpretation. The correct approach to the interpretation of contracts is now firmly established in our law. One must have due regard to the language of the clause

within the context of the contract as a whole (the intra-textual context), the background to the preparation and production of the contractual document, that is, the circumstances attendant upon its coming into

existence, the material known to those responsible for its production, the apparent purpose to which the clause was directed, and a sensible meaning producing the most businesslike result. [7]

14. From the outset the interpreter must consider the context and the language together, with neither predominating over the other. Any evaluation of the circumstances attendant upon the contract coming into existence requires that evidence be admissible to contextualise the document to establish its factual matrix which includes both background circumstances and surrounding circumstances.[8] In Aktiebolaget Hassle and Another v Triomed (Pty) Ltd[9] Nugent JA observed:

“’In law’ remarked Lord Steyn in Rex v Secretary of State far the Home Department, Ex Parte Daly [2001] UKHL 26; 2001 (3) All ER 433 (HL) at 447a, 'context is everything'. And so it is when it comes to construing the language used in documents, whether the document be a statute, or a contract, or, as in this case, a patent specification.”

15. Moreover, in addition to the language and context, the purpose of a provision may be paramount. The interpreter must endeavour to arrive at an interpretation which gives effect to such purpose. The purpose (which is usually clear or easily discernible) is used, in conjunction with the appropriate meaning of the language of the provision, as a guide in order to ascertain the intention.[10]

The Engineering Services Agreement

16. As stated, the plaintiff is the Home Owners Association for the estate, a residential estate situated near Lanseria Airport.

The estate straddles two municipal areas, the defendant's and also that of Mogale City. The ESA was concluded between the developer of the estate and the defendant in circumstances where the then proposed estate fell outside of the defendant's priority area (i.e. outside its urban development edge). As such, there were no available bulk services, water supply, sewage purification works and related infrastructure, to the then proposed development. All of these were required to be constructed by, and paid for by, the developer. The prevailing situation is reflected and recorded in the preamble to the ESA which reads:

"WHEREAS the Applicant is the owner of the property; and

WHEREAS the Applicant has applied for the establishment of the township on the property; and WHEREAS the township is totally outside a priority area with no water and sewerage services available; and

WHEREAS the Municipality is willing to approve the Services Scheme of the proposed township subject to the conditions contained herein."

17. A notable feature recurring throughout the ESA is the recognition that the proposed township is totally outside the defendant's priority area of development and was without water and sewerage services. The ESA is focused largely upon the provision of those services by the developer rather than the municipality, the body that would normally be responsible. The ESA shifts the burden of responsibility for these services to the developer principally because the municipality did not regard the development as a priority.

18. Thus, clause 1 of the ESA provides that unless otherwise provided for in the agreement, the developer is responsible for the installation of the proposed services scheme to the satisfaction of the Municipal Engineer. The services scheme is defined in the ESA to mean the

proposed road, street, stormwater, water, electricity and sewerage reticulation

services scheme in and to the township consisting of all internal and external

services. The internal services are in turn defined as all water and sewerage networks and associated installations and accessories including stormwater, drainage systems and road infrastructure within the boundaries of the township and connecting points for the particular

service and also the water towers, booster pump stations, package plant and sewerage pump stations. The external services are defined to include all road, street, stormwater, water and sewerage services whereto the internal services can be connected for the provision of such services to the township.

19. The package plant forming part of the internal services is a sewage purification

plant, approved by the Municipal Engineer and the Department of Water Affairs, erected by the developer within the boundaries

of the estate where all sewage outflow is collected and purified and which is operated and maintained by the plaintiff at its cost.

20. Clause 4 of the ESA is concerned with the construction and installation of the services. The clause provides that the developer shall be responsible for the installation and construction of the internal services in accordance with the plans approved by the Municipal Engineer. The developer shall bear all risks involved in and related to such construction and installation.[11] As the higher lying area of the

township needed a water tower, it was necessary for water pressure to be provided via a pressure

reducing valve on the main feeder pipe. The developer was accordingly obliged in terms of the ESA to install a booster pump station feeding from the estate reservoir for emergency situations. The pump station is required to be maintained by the plaintiff in perpetuity.[12] The developer was obliged further to transfer all property necessary for provision of internal services to the plaintiff

or to register appropriate and satisfactory servitudes in its favour.[13]

21. Seeing as the estate is not located within a service priority area of the municipality, the defendant agreed that the developer at its exclusive cost would provide such external services necessary for the effective functioning of the internal services of the township, except as otherwise provided in the ESA.[14] It was therefore recorded that the defendant will not provide, supply or install external services to the estate.

22. The defendant did however agree inter alia: i) to support the construction of the on-site sewage package plant and to permit the developer and thereafter the plaintiff to own, maintain and operate the plant in perpetuity; ii) to support the construction of a bulk water supply line from an identified point to the "Blair Athol! Reservoir" at the developer's expense on a route and in accordance with standards agreed to by the Municipal Engineer; iii) that the bulk water supply constructed by the developer designed to serve the estate would also serve the adjoining proposed development known as Monaghan Country Estate; iv) that it may in its sole discretion require that the pipeline be upsized to accommodate flow to areas outside the estate at its cost; v) to take over and accept ongoing professional responsibility for the bulk water pipeline upon the expiry of the defects liability period; and vi) to support the construction of a reservoir to be constructed at the developer's expense.[15]

23. Clause 6 of the ESA is concerned with the establishment, rights, duties and obligations of the plaintiff. Clause 6.1 provides that the developer shall properly and legally constitute a section 21 company, in terms of the Companies Act, before the first sale/transfer of any portion of any erf in the estate, specifically to maintain the internal engineering services of the township as well as to ensure safety and security in the township. The engineering services are defined to be the engineering service required by the municipality including essential services as well as roads, streets and stormwater drainage systems. Essential services are in turn defined to mean the provision of water, electricity and sewerage services.

24. It is the responsibility of the plaintiff to operate and maintain the services after transfer of the erven to and at the cost of every owner. [16] The Memorandum of the Association of the plaintiff must incorporate among its objectives the maintenance of all internal engineering

services (water, booster pump station, sewerage, sewerage package plant, roads and storm water and electrical) at its cost and the maintenance of all landscape areas. [17] The plaintiff must appoint a professional

engineer to monitor the workings of the sewerage package plant and water booster pump station and take full professional responsibility for the workings t hereof.[18] To enable the plaintiff to maintain the services, it is a requirement that a trust fund must be created for this purpose, and a fixed amount be deposited by every owner into the fund every month. This amount must be determined during a general meeting of all the owners and should be escalated every year.[19]

25. Clauses 6.15, 6.16 and 6.18 of the ESA are those critical to the determination of the dispute. Clause 6.15 reads:

"Municipality hereby agrees that the Section 21 Company may levy a charge on the owners or residents of the Township to meet the cost of operating, maintaining, repairing and possible replacement of the Internal Services, booster pump station and package plant."

26. Clause 6.16, the contested provision, reads:

"In recognition of the acceptance of responsibility by the Section 21 Company of the duties normally performed by the Municipality, the Municipality agrees to:

6.16.1 Supply water to the Section 21 Company at the normal rate of the Municipality.

6.16.2 Not raise a sewerage charge (basic charge)."

27. Clause 6.18 provides:

"The Section 21 Company must specifically indemnify the Municipality from any claims or costs in terms of the non-functioning of the water and sewer reticulation; the booster pump station and the package plant."

28. Thus, in terms of the ESA, the bulk water supply to the estate was established by, and at the cost of, the developer. These costs,

in turn, were passed on by the developer to the purchasers of stands within the estate via the purchase prices paid by them for their stands. The relevant internal services are required to be maintained and paid for by the plaintiff. Although the plaintiff was not initially a party to the ESA (the parties thereto, at the time of the conclusion of the agreement, were the developer and the defendant), as the section 21 Home Owners Association, it has taken over responsibility for the internal engineering services and the obligations previously owed by the developer in terms of the ESA.

The evidence in relation to the background, surrounding circumstance and purpose of clause 6.16

29. The plaintiff contends that the language and immediate textual context of clause 6.16 give a clear indication of its purpose. The

introductory phrase "in recognition of the acceptance of responsibility" by the plaintiff of duties normally performed by the municipality in the supply of water and sewerage services, in its submission, is an indicator that it would receive treatment similar to a municipality and thus was entitled to Rate 6, being the rate payable by municipalities for bulk water supply from the defendant.

30. This interpretation, the plaintiff maintains, is reinforced by the fact that no sewerage charge is levied under clause 6.16.2 on the basis that the defendant provides no service in relation to sewerage. There is no dispute between the parties about the arrangement

regarding sewerage services. Their disagreement relates only to the cost of the supply of water, in relation to which the defendant

likewise provides no service other than bulk supply. The non-imposition of any sewerage charge under clause 6.16.2 is the quid pro quo for the plaintiff providing all the internal sewerage services, and likewise the bulk water rate, Rate 6, the plaintiff argued, is equally the intended quid pro quo for the plaintiff providing the internal water services. Clause 6.15 unequivocally imposes the responsibility for the provision of internal sewerage and water services on the plaintiff. To that end, the plaintiff points out, the defendant expressly agreed in clause 6.15 for the plaintiff to levy a charge on the owners or residents of the estate to meet the cost of "operating, maintaining, repairing and possible replacement" of all water and sewerage networks and associated

installations within the boundaries of the estate, including the booster pump station and package plant. The provision of these

services is normally the duty of the municipality. And it is "in recognition" of the reality that the municipality is not doing what it is normally obliged to do (provide the internal services and the replacement of infrastructure) that the immediately following clause, clause 6.16, permits no sewerage charge to be raised, and for water to be supplied "at the normal rate of the Municipality", intended, according to the plaintiff, to be the rate at which the defendant would supply another municipality to which it would provide no other services other that the bulk supply of the water and for which the cost of the water paid to Rand Water (the bulk supplier to municipalities) plus a 10% administration fee is "the normal rate".

31. The plaintiff contends that its textual interpretation is supported by the extra-textual background to the preparation and production of the ESA. To that end it adduced the evidence of Mr James Croswell, the consulting engineer on the development of the

estate.

32. Croswell was involved in the negotiation of the ESA from the outset and on behalf of the developer, and in particular with agreeing the supply of bulk water to the estate. During the initial developmental stage, Croswell engaged directly with Rand Water. These discussions culminated in a tentative proposal that the estate would take water at the Pretoria's Kap reservoir when the estate was connected to Rand Water. As the plaintiff was not a "water use supplier", as contemplated by relevant legislation, including the provisions of the Water Services Act [20] , the defendant intervened, in its capacity as the water services authority in the area, and it was agreed that Rand Water would supply water to the defendant who would then supply the water to the estate. The 20 km pipeline had to be increased in diameter to enable the defendant to supply other consumers along the line. The defendant paid the marginal cost of upsizing the pipeline, approximately R 3, 7 million, and has since taken over both the external pipeline and the reservoir.

33. During negotiations it was agreed that the defendant would, upon completion take over the bulk system, which included the supplying pipeline and the reservoir and that it would maintain them. This agreement is reflected in clauses 4.2.4.6 and 4.2.4.9 of the ESA. It was nonetheless a central pillar of the ESA that the section 21 company would have as one of its responsibilities the internal distribution of water received in bulk from the defendant and would be entitled to recover these costs from the individual owners of every erven within the estate.

34. Croswell played a central role in the negotiations and made input into the various drafts of the ESA. The standard services agreement normally used by the defendant was adapted to the specifics of the development. The process of editing and amendment to the standard services agreement was undertaken by Croswell Engineers and officials of the defendant. There were some thirteen versions of the

ESA and the drafting process took a number of months. In a letter dated 31 January 2006 addressed to the developer and Croswell

Engineers, the defendant stated:

"That after many months of negotiations between the developer Wraypex (Pty) Limited, his consulting engineer, Croswell Engineers and officials of service delivery and the Legal Division, we are now in a position to present a final Services Agreement Version 13 for the procedures Golf Development on Gary Player1s original farm to you for signature."

35. Croswell testified that he was insistent on the inclusion of clause 6.16 and stated that as far as he was concerned the rate to be

agreed upon was a "municipal rate", but one clearly understood and accepted between the parties to be the applicable

"bulk rate" (i.e. Rate 6). This was so, Croswell said, because the defendant, as a municipality, would be supplying in bulk and would be rendering none of the services or duties normally performed by a municipality in respect of the supply of water

to the estate.

36. It was for that reason that at a meeting during April 2005 Croswell made an arrow in manuscript in the margin alongside Rate 6 on a document, Annexure C to the pleadings bundle, provided by the defendant's representatives when the applicable tariff was being discussed. The document in question is the schedule of tariffs containing the rates for water charges setting out Scales A-E and including Rate 6.

37. Croswell had a specific recollection of the meeting at which he marked the document. He says it was an acrimonious meeting which

required Mr Wray of the developer to be taken outside and calmed down. He was not challenged

under cross-examination on this score. There were two meetings in April 2005, one on 20 April 2005 and the other on 26 April 2005, one was a technical meeting and the other concerned the negotiation of the ESA. All the witnesses were uncertain about which was which. Nonetheless, it is common cause that Croswell made the handwritten notes at the left top corner of annexure C. They are his contemporaneous calculations upon which he relied to point out the unsuitability of the plaintiff being billed as a single consumer on a non-bulk tariff and the prejudice it would suffer in the application of the relevant sliding scale. Croswell acknowledged, however, that consensus was not reached on the tariff at the meeting, meaning on his version that the final formulation of clause 6.16 must have been done some time between then and February 2006 when the ESA was signed.

38. Croswell testified that he believed there was no need to insert the word "bulk" in clause 6.16.1 between the words "normal" and "rate". This was because he was of the opinion that it

was understood by the parties and implied by the ESA that a bulk rate would be applicable. The relevant applicable "normal

rate" was Rate 6, being the normal rate municipalities charge for the bulk

supply of water. He stated that there is no other "logical way" of interpreting the ESA. To interpret the agreement otherwise would result in the residents of the estate being unduly penalised in that despite paying for the internal and external engineering services, they would additionally pay rates as if those services were supplied by the municipality. The plaintiff and the residents would thus be billed first at the applicable sliding scale rate levied by the municipality under Scale D and would also be billed, on top of that, by the Home Owners Association for the costs attendant upon the maintenance of the internal water supply infrastructure.

39. Croswell stated that the relevant 10% surcharge to the Rand Water Board rate (Rate 6) would be sufficient for the

maintenance costs of the defendant, as a municipality, in respect of the

provision of the external services.

40. During cross-examination Croswell admitted that he was unable to remember whether he was present when the ESA was signed. He neither signed the ESA nor was he a witness to it. He accepted furthermore that the tariffs are created by a municipal council, which is a deliberative legislative body. With regard to the claim for rectification of the contract, Croswell conceded that at the conclusion of the contract both he and Mr Wray, the developer, accepted the content of the ESA to be correct and that the word "bulk" did not appear in Clause 6.16.1 of the ESA. Despite that he personally did not believe that the provision required rectification or correction, even though in his affidavit in the urgent application made in 2010, he stated that the word "bulk" should have been inserted between "normal" and "rate" in Clause 6.16.1 but this was erroneously left out. He now did not believe that there was an error in the ESA on this score. His evidence must be understood in light of the position adopted by him throughout his testimony, namely that it was not necessary for the word "bulk" to be inserted although it would have made things "simpler and clearer" and could have avoided the litigation. He indicated that his position on rectification in the urgent application was taken on the basis of legal advice.

41. Counsel for the defendant made much of concessions by Croswell that scales "A", "B", "C" and "E"

of the Tshwane schedule were not applicable to the estate and that the plaintiff was not a municipality or an organ of state and thus that the "shoe does not fit" as far as Rate 6 is concerned. Counsel sought to infer from this that Croswell conceded that the situation regarding the plaintiff can then only fit into the Scale D category. For reasons that will appear later, I do not accept that Croswell made any such concession. He in any event stated that the words "normal rate" in Clause

6.16.1 of the ESA were "up for debate" given that there are six normal rates in the tariff schedule.

42. Counsel put it to Croswell that he was in fact asking for a "special rate". This he said is demonstrated by certain proposals made by Croswell to the defendant under cover of a letter dated 19 April 2005, almost a year before signature of the ESA. Paragraph 9.2 of the proposals deals with the issue and is revealing of the nature the parameters of the discussion. It reads:

"Construction by and at the cost of the intended consumers. Currently Tshwane have indicated that the bulk supply line should be transferred to Tshwane at no cost. They have further indicated that they would not necessarily assume responsibility for the maintenance of the pipeline or the reservoir and they have definitely indicated that they are not intending to take over and maintain the internal reticulation within the proposed developments. The responsibility for the maintenance of the pipeline will attract certain costs and it is currently not clear how these costs would be met if Tshwane supply water at normal rates and expect the Section 21 Company to maintain the system and to distribute the water without "mark up". Should the cost of water to the Section 21 Company be set at the supply cost (municipal rate) levied by Rand Water then there would be sufficient margin for

the Section 21 Company to both maintain the bulk supply line and reservoir as well as the internal reticulation and to attend to the distribution of water within the various developments. It is however felt that the issue of the ownership of the pipeline and the rates which will be charged is essentially of a non-technical matter and cannot be dealt with further here. These issues will undoubtedly form part of the Services Agreement and other arrangements which would have to be entered into with the Local Authority and it is proposed that a separate negotiation in this regard needs to go through as matter of urgency."

43. The submission offers a convincing financial basis for the bulk supply rate to apply. Counsel for the defendant seized upon the reference in this paragraph to "normal rates", in contrast to the supply rate, as an indication that the distinction was

understood and that the use of the term "normal rate" in the ESA denotes that something other than the bulk supply rate was agreed. This proposal was made a year before agreement was reached and was followed by at least two if not more meetings in which the issue was subject to negotiation. Croswell also testified cogently that the bulk supply rate provided for in the tariffs schedule was like the other rates in Scale A to Scale E a "normal rate". It is one of six normal rates charged by the municipality. The exchange with counsel on the point bears repeating. It went as follows:

"Counsel for the defendant: But what does normal rate mean? Croswell: Normal rate means one of those rates. That is all it means. Counsel for the defendant: Good okay.

Croswell: Okay

Counsel for the defendant: You have always understood normal rates to mean that?

Croswell: To mean a bulk rate. I mean we had been discussing from the day that the Council said they cannot supply water, we had been discussing bulk rates.

Counsel for the defendant: Yes but....

Croswell: All of the discussions have been with Rand Water which only sells at bulk rate. They do not have Scale D or something, they have a bulk rate, they supply water at R4.04 that is what they supply here.

Counsel for the defendant: But the rate that you are relying on deviates from the normal rates that

you have referred to. It is something you are asking for a special rate.

Croswell: I am just asking for them to supply it at the rate which is under 6 (Rate 6), that is what I am asking and that is what we understood."

44. Croswell's testimony was thus to the effect that he saw Rate 6 as a normal rate along with the other normal rates in the tariff schedule. His understanding of Rate 6 is that it is the normal rate at which bulk water is supplied by the defendant to other municipalities, and "in recognition" of the fact that the plaintiff was responsible for the duties normally performed by a municipality, clause

6.16 was intended to ensure the plaintiff got the same rate paid by a municipality. He did however concede that in the two meetings in late April 2005 the defendant's officials had pressed for Scale D and that the matter was not finally resolved at those meetings. The ESA was concluded almost a year later and consensus was reached to resolve the issue in the manner formulated in clause 6.16, which expressly provides for a "normal rate" in recognition of (or in exchange for) the abnormal situation in which the plaintiff accepted responsibility of the duties normally performed by the defendant municipality. That was the pivot of Croswell's testimony.

45. The defendant called two witnesses, Mr Frans Mouton and Mr Ansen Lamprecht. Mouton is the head of the defendant's planning section, which deals with long-term planning for its infrastructural requirements. Lamprecht, prior to his retirement was a consulting civil engineer in the system development section.

46. Mouton testified that the planning section provides input to the defendant's budget and is responsible for determining the applicable tariffs for the following financial year based on predicted consumptions. Mouton was not involved in the drawing or compilation of the ESA. His only input was of an infrastructural and technical nature. Mouton has no specific recollection of the meeting of 26 April 2015 but did recall that the developer during negotiations at a meeting asked for the applicable Rand Water rate plus 10%. He recalled that there was a request from the developer for one or other special dispensation. His evidence was however that the normal rate for these types of developments is Scale D and that the defendant is obliged to stick to the approved tariff. He would not have the authority to agree a rate outside the approved rates and was not entitled to make exceptions. However, subsequent to that meeting, he did not deal further with the developer or Croswell in relation to the issue or the ESA.

47. The plaintiff has placed reliance on a number of concessions made by Mouton during the course of cross-examination. The relevant line of questioning went as follows:

"Counsel for the plaintiff: Mr Mouton just to pick up where we left for the lunch adjournment, so the hypothetical scenario that we are looking at is municipality A supplying water ...... Well, Tshwane Municipality supplying water from a reservoir through a bulk water supply line to Mogale City into their reservoir and in that case the applicable rate would be no. 6 on the schedule of tariffs and your evidence is that

the 10% administrative charge would adequately cover the municipality for the cost of supply of this bulk water supply to the reservoir at Mogale is that correct?

Mouton: That is correct, yes.

Counsel for the plaintiff: I would imagine that that would be the position at least for three reasons and I want to understand from you whether I have a correct understanding. The first reason why this would then apply is firstly because the 10% administrative charge would firstly cover your cost of supply is that correct?

Mouton: Ja, plus the rate.

Counsel for the plaintiff: Of course on top of the Rand Water rate, 10% would cover your cost of supply from point A to point Bis that correct?

Mouton: Yes 1 that is correct.

Counsel for the plaintiff: The second reason is that you as the municipality, as the Tshwane Municipality, are not rendering the services that you would ordinary render to ordinary residences and businesses within your area of jurisdiction. You are simply supply supplying water in bulk to another entity is that correct?

Mouton: That is correct.

Counsel for the plaintiff: Thirdly, because that entity, Mogale City, is in fact then going to perform the services of a municipality vis-a-vis its residence. It will have to provide for capex and apex and for a system for the supply of water to its residence and that is of course the responsibility of that municipality is that correct?

Mouton: That is correct but there is another one also and that is the volume usually ensures that the quantum is quite high.

Counsel for the plaintiff: Yes, that is why it is a bulk supply.

Mouton: Correct.

Counsel for the plaintiff: So if by way of an example one would have an agreement between the City of Tshwane and Mogale in terms of which this arrangement is regulated, in other words this bulk water supply from Tshwane Municipality to Mogale Municipality, would a clause reading as follows ... [incomplete]. Let me just ask you so in that scenario we have an agreement and we have a clause that reads: supply water to Mogale at the normal rate of the municipality. Then that would no doubt refer to the rate as it is set out in clause 6 is that correct?

Counsel for the plaintiff: That is a normal rate not so?

Mouton: For that usage, yes.

Counsel for the plaintiff: Yes, it is normal rate for a bulk supply by the municipality to another water

services provider such as a municipality?

Counsel for the plaintiff: Correct?

Mouton: Yes."

48. The purpose of the cross-examination was to establish four premises of the ultimate argument. First, tariffs are set in relation

to the kind of use. Second, the rate charged is commensurate with the actual cost and that Rate 6 adequately covers the cost of bulk supply. Third, the bulk rate (Rate 6) applies when the defendant does not render all the water services ordinarily rendered by it to individual residences and businesses. Fourth, in this case the plaintiff, not the defendant, renders the services which a municipality would ordinarily render.

49. Mouton conceded that if no other municipal services are rendered by it, then the normal tariff for the supply of water in bulk from point A to point B is Rate 6. He confirmed also that the tariff structure had regard to the capital expenditure and operating expenditure of the defendant. The capital expenditure is the cost of the installation of the water supply infrastructure and the cost of replacement over a period of time, whilst the operating expenditure includes ordinary maintenance, repair work, the administrative cost of sending out accounts and collecting payments from residents. Interest is provided for as well as provisions for the loss of water through leakages and bad debts.

50. Moreover, Mouton accepted that the tariffs in Scale A to E reflect the cost reasonably associated with the rendering of municipal services by the defendant including operating costs, maintenance, administration and replacement costs as well as interest charges. When pressed under cross­ examination as to what specific services the defendant rendered to the plaintiff which the defendant would not have rendered to another municipality in respect of the bulk supply of water, Mouton was unable to mention any and ultimately admitted that the defendant intends to charge the plaintiff for services it does not render to it, or the residents of the estate, because it fears the setting of a precedent, even though it recognises that the estate is a unique development.

51. The second witness called by the defendant was Lamprecht. He was involved in the preparation and finalisation of the ESA but did not conclude the contract. The contract was signed on behalf of

the defendant by Mr Potgieter, who was not called by the defendant to testify.

52. Lamprecht testified about a letter authored by him, dated 3 May 2005, and the events that transpired at the meeting of 26 April 2005. The letter appears to be a minute and

confirmation of the discussions and decisions of the meeting and records that the township is situated

outside the priority area for water and sanitation services where no bulk services

are available. It stated that "the application can only proceed if the developer is prepared to provide and pay for all the outstanding bulk services." The letter then goes on to set the conditions regarding the establishment of the supply pipeline and the reservoir at the cost of the developer, affirming that these will be taken over by the defendant on completion.

53. Paragraph 1.3 of the letter of 3 May 2005 sets out the conditions in relation to sewerage. Paragraph 1.3.2 specifically records that the package plant will not be taken over by the defendant but will be maintained by the plaintiff and that the erf owners "must contribute towards a maintenance fund which must all for all monthly operation and maintenance expenses, including costs of a suitably qualified firm to do daily supervision, electric consumption, future replacing of pumps and parts, any other costs and all costs for upgrading as and when necessary." These conditions were given effect to in clause 6 of the ESA and account for the agreement recorded in clause 6.16.2 for the defendant not to raise a sewerage charge.

54. The only further reference to water supply in the letter of 3 May 2005 is found in paragraph 2.6.6 of the letter which reads:

“Notice is taken that water will be provided in bulk to the network via one bulk meter by the CTMM (defendant) and will the Section 21 Company (plaintiff) be billed (sic) for the water consumed. It is the Section 21 Company's responsibility to recover these costs from the individual owners of every erf.”

55. The letter makes no reference to the rate at which water would be supplied. If anything, it reflects an understanding for there to be parity regarding both the treatment of sewerage and water supply. Both arrangements require provision of the services normally done by the municipality to be performed by the plaintiff. There is no sewerage charge levied by the defendant and, as stated, the plaintiff contends there was a similar intention that water should be supplied at the bulk rate normally charged when no municipal services beyond bulk supply are rendered.

56. Lamprecht testified during his evidence in chief that either Croswell or Wray requested a rebate on the municipal tariffs and that

Mouton, who was also at the meeting informed them that they could not have any tariff other than those approved by the council and promulgated in the in the Provincial Gazette. Furthermore, the tariffs were part of the yearly budgetary process

and as such were subject to alteration each year. When asked what he understood by normal rates he replied that they are the only rates that the council has, being "a set of rates to provide water to consumers....approved by the City Council every year with the budget and it is promulgated in the provincial gazette". Although he said officials cannot change the rates and create a "special rate", he did not testify that Rate 6 did not fall under the rubric of a normal rate. When specifically asked what he understood by the term normal rate as used in clause 6.16.1 of the ESA, he replied:

"To me it means that we provide water to them at those, as l said, approved rates of the council and promulgated."

That answer too does not entirely exclude the possibility that Rate 6 applied, as it too is part of the promulgated rates approved by the city council.

57. Lamprecht was later asked a leading question by counsel as follows, to which he replied in the negative:

"Yes, but was it ever, at that meeting, accepted by the people present there consensus between them that point 6, bulk water supply to other local governments will be applicable to the Blair Atholl Estate development?"

Lamprecht's negative answer to the leading question is of limited evidentiary value, meaning that the only admissible evidence from him on the specific question of which rate in the schedule of tariffs applied, is that it was one of the normal rates promulgated in the gazette, which include Rate 6, albeit the rate normally applicable to municipalities. It does not follow from Mouton refusing a "special rebate", that Rate 6, the normal bulk rate, was necessarily excluded and not intended in the 13th version of the ESA agreed a year later in 2006.

58. Under cross-examination Lamprecht conceded that his recollection of the meeting 12 years ago was "vague" and admitted to relying on the relevant documents he had used before giving testimony to refresh his memory. He remembered the meeting but added: "I cannot say I can remember everything that was said". The following exchange with counsel ensued:

"Counsel for the plaintiff: Yes, and you say this meeting on 26 April is the meeting where the issue of a rebate was discussed?

Lamprecht: Yes.

Counsel for the plaintiff: And it was resolved at that meeting that there would be no rebate?

Lamprecht: That is correct.

Counsel for the plaintiff: And you participated in that discussion?

Lamprecht: Actually not, Mr Frans Mouton is working with tariffs so he was mostly doing the

discussion on that.

Counsel for the plaintiff: So it was really Mr Mouton, and if we really want to know what happened in relation to this discussion Mr Mouton would be the best person to speak to it?

Lamprecht: That is right yes.

Counsel for the plaintiff: You had a peripheral involvement but this pertinent issue was an issue that was dealt with by Mr Mouton?

Lamprecht: That is right."

59. Although, as counsel for the defendant has argued, this exchange does not amount to an unequivocal admission by Lamprecht that he could not recall what was agreed at the meeting, it certainly constitutes an honest acknowledgement by Lamprecht that he could

neither reliably or fully account for what was agreed, if anything, regarding the rate at which water would be supplied to the estate. When dealing with his letter of 3 May 2005, Lamprecht also could not satisfactorily explain why, despite his attendance at the meeting and his authoring of it, the letter, although serving as a minute, makes no reference to the rate at which the water would be supplied by the defendant. He referred in his evidence to the rate being "a done deal" at the meeting without ever quite saying what deal was done. Nowhere in his testimony does he explicitly state that Scale D was agreed rather than Rate 6. Though he apparently intended to convey that the bulk rate could not apply because the estate is not a municipality, his evidence on the issue is not unequivocal. He repeatedly made reference to the schedule of tariffs without

specifically stating which rate in the schedule was agreed to. In the light of these difficulties, little value can be placed on the evidence of Lamprecht in respect of the discussions at the April 2005 meeting in order to determine whether or not an agreement was reached, or a deal was done, on the applicable bulk water supply rate.

Summation of the undisputed evidence

60. The key (essentially common cause or undisputed) facts can be summarised as follows.

61. The developer initially negotiated with Rand Water for bulk water supply but the defendant preferred to assume responsibility for the supply of water to the plaintiff. Rand Water supplies bulk water to

the defendant who then supplies the bulk water to the plaintiff through

the pipeline from the Rand Water reservoir supply point at Pretorius Rand to the reservoir into the

estate. All of the external engineering services (i.e. the pipelines and reservoir)

were constructed by the developer and have been transferred to, and taken over by, the defendant, at no cost to it. The residents of the

.estate ultimately paid for the costs associated with the construction and installation of the external engineering services via the payment of the purchase prices to the developer for their stands within the estate.

62. The bulk water supply to the estate is measured via two bulk meters. Given high pressure considerations, one of the meters,

a secondary meter, is extraneous to (outside) the reservoir. Given that a portion of the estate is located in the municipal area of Mogale City (the Farm Lindley portion), the plaintiff effectively and de facto supplies water, with the knowledge of the defendant, to Mogale City (another municipality).

63. The defendant does not supply water directly to the residents of the estate or to Mogale City in respect of the Farm Lindley portion falling within the latter's municipal area of jurisdiction. The defendant only renders municipal services up to the water meters.

Save for this, it does not provide any municipal services to the residents of the estate. The amount paid to Rand Water for the supply of bulk water, together with the 10% additional cost to the applicable Rand Water tariff, is sufficient to pay for and carry the defendant's cost associated with maintaining and rendering these services and in due course replacing the external infrastructure,

when and if necessary.

64. The plaintiff, and ultimately its residents, is responsible for the maintenance, repair and cost of all internal engineering services. The plaintiff is required to allocate water consumption to its residents and in this regard sends out accounts. The plaintiff alone bears the risk of non-payment for water by its residents and losses through water leakages, which it is required to identify, locate and repair at its cost.

65. The defendant does not render any (additional) services - over and above those it would render in the ordinary course to another municipality - that entitle it to charge the plaintiff a Scale D rate, as opposed to a bulk water supply rate, being Rate 6. The Scale D rate sought to be imposed would penalise the plaintiff and its residents by requiring them to pay for a service that the defendant, as a municipality, is not rendering. If Scale D were to apply the plaintiff and its residents would effectively pay twice for the same water services: once to the defendant (via the plaintiff and in respect of which they receive no services) and also to the plaintiff in terms of their water accounts and levies, albeit that the plaintiff is the one responsible for rendering the service.

66. Notwithstanding that the plaintiff is performing the duties normally performed by municipality, the defendant's sole justification for the non-application of Rate 6 is simply due to the fact that the plaintiff is not a municipality.

Submissions and conclusion

67. The plaintiff submits that the only possible, sustainable, reasonable and businesslike interpretation applicable to clause

6.16.1 was that the reference to "normal rate" was a reference to the bulk rate, Rate 6. This is a normal rate of the defendant and not a special rate, payable by municipalities to the defendant for the bulk supply of water when the defendant renders no other services than the supply of bulk water. Such an interpretation, the plaintiff submits, is the only one that accords with the ESA read as a whole, the common cause facts, the prevailing factual matrix and the specific context in which the ESA was negotiated and concluded. The interpretation is consistent with the idea that the defendant's capital expenditure and operating costs are capped by the limited services it renders to the estate, being only in respect of the bulk supply.

68. Any other interpretation, the plaintiff submits, would render the introductory words in clause

6.16 superfluous within the context of the water supply rates. The bulk rate was evidently intended and was explicitly justified as being "in recognition of the acceptance of responsibility" by the plaintiff of the duties normally performed by the municipality. It was precisely because the defendant recognised that the plaintiff would assume responsibility for the municipal functions that it agreed to a quid pro quo in the form of supplying the estate bulk water at the normal rate it supplied other municipalities. In short, "normal rate" means the normal rate paid by municipalities to the defendant for bulk water supply - Rate 6. Any other interpretation would mean that no recognition is given to the fact that the plaintiff is responsible for rendering duties normally performed by the municipality and the defendant is in fact supplying water to another municipality, Mogale City.

69. The defendant submits that the normal rate intended was only one of those that could apply to a consumer that is not a municipality and that could only be Scale D (being the catch-all category when the other scales are inapplicable), which applies when the consumer does not fall into the categories of Scales A (agricultural), B (single dwellings), C (sectional titles) or E (retirement homes). It is common cause that the estate does not fall into Scales A, B, C or E and it is not a municipality. Thus, the defendant submits, the plaintiff could only be supplied at the rate under Scale D.

70. I agree with the plaintiff's interpretation. Both the language and the purpose of clause 6.16.1 reflect an intention to offer a quid pro quo in exchange for the plaintiff assuming responsibility for the duties normally performed by the defendant which is consistent with the entire tenor of the ESA as a whole.

71. A requirement to pay according to Scale D would not offer any consideration (quid) for the assumption of the duties of the municipality (quo). If the intention was that the plaintiff would pay what it ordinarily would be expected to pay under the scale typically applicable, there would have been no need to introduce clause 6.16 with language recognising the abnormal or exceptional nature of the arrangement. The predicate of the clause is exceptionality or uniqueness, justifying a departure from the norm, in this case allowing a body which is not a municipality to exceptionally benefit from the bulk rate paid by a municipality because it is performing the functions of a municipality. It is the obvious businesslike interpretation flowing

from the language used and the intra-textual context of the ESA as a whole.

72. The interpretation is supported furthermore by the fact that such charges (the Rand Water tariff plus 10%) will not be punitive and will be commensurate with the costs of the services rendered, as required by sections 74 and 76 of the Systems Act and the policy in terms of which local governments determine applicable rates. The interpretation favoured by the

defendant, on the other hand, will result in the residents of the estate being charged twice and paying

the defendant for services not rendered by it but in fact provided to them by the plaintiff. It is the plaintiff that operates, maintains, repairs and replaces the infrastructure, not the defendant. It is the plaintiff which carries the risk of bad debts or damage, not the defendant. The application of Scale D would compensate the defendant for this expenditure and risk without it bearing it. Payment under Scale D will unjustifiably enrich the defendant. The patently obvious purpose of clause 6.16 was to avoid this unjustified enrichment by putting the plaintiff on the same footing as other bodies supplied by the defendant with bulk water without providing the other services or expenditures normally recouped by the other tariffs.

73. The plaintiff is therefore entitled to the declaration it seeks. There is accordingly no

need to grant an order in relation to the prayers for rectification or invalidity.

Orders

74. In the result I make the following orders:

74.1. It is ordered in terms of rule 33(4) that the question of the interpretation of clause 6.16 of the Engineering Services Agreement

is to be separately decided from the defendant's counterclaim.

74.2. It is declared that the reference in clause 6.16.1 of the Engineering Services Agreement to

the "normal rate of the Municipality" is a reference to the

normal rate charged for bulk water supply to other local governments as contemplated in paragraph 6 of annexure C to the declaration.

74.3. The defendant is directed to render accounts to the plaintiff in accordance with the bulk charge rate as provided for in its schedule of tariffs.

74.4. The defendant's counterclaims are postponed sine die.

74.5. The defendant is to pay the costs of the action, such costs to include the costs of employing two counsel.

JR MURPHY

JUDGE OF THE HIGH COURT

Heard on:

29-31May, 2017; 4 August 2017

For the Applicant: Adv K Luderitz SC and Adv G Amm

Instructed by:

Werkmans Attorneys

For the Respondent: Adv T Strydom SC and Adv T Mkhwanazi

Instructed by:

Hugo & Ngwenya Attorneys

Date of Judgment: 30 August 2017

[1] Act 61of 1973 and Act 71of 2008

[2] Act 117 of 1998

[3] The reference in clause 6.16 to the Section 21 Company is a reference to the plaintiff. The reference therein to the Municipality is a reference to the defendant.

[4] Act 32 of 2000

[5] Section 74(2)(a) and (d) provide that users of municipal services should be treated equitably in the application tariffs and must reflect the costs reasonably associated with rendering the service, including capital, operating, maintenance, administration and replacement costs, and interest charges.

[6] Section 76(b) provides that a municipality may provide a municipal service in its area or a part of its area through-an external mechanism by entering into a service delivery agreement with inter alia a municipal entity, another municipality, an organ of state or any other institution, entity or person legally competent to operate a business activity.

[7] Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) at 603F-604D.

[8] KPMG Chartered Accountants (SA) v Securefin Ltd 2009 (4) SA 399 (SCA) para 39.

[9] 2003 (1) SA 155 (SCA) para 1.

[10] Commissioner SARS v Air World CC and Another 2008 (3) SA 335 (SCA) at para 25

[11] Clause 4.1.1

[12] Clause 4.1.2

[13] Clause 4.1.5

[14] Clause 4.2.1

[15] Clause 4.2.4

[16] Clause 6.12

[17] Clause 6.2

[18] Clause 6.13

[19] Clause 6.14

[20] Act 108 1997