Cradock Business Forum and Others v Inxuba YeThemba Local Municipality and Others (2794/2020) [2021] ZAECGHC 30 (18 March 2021)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: 2794/2020

Date heard: 11 March 2021

Date delivered: 18 March 2021

In the matter between:

THE CRADOCK BUSINESS FORUM First Applicant THE MIDDELBURG RATEPAYERS ASSOCIATION Second Applicant THE CRADOCK RATEPAYERS ASSOCIATION Third Applicant and THE INXUBA YETHEMBA LOCAL MUNICIPALITY First Respondent THE EXECUTIVE MAYOR OF THE INXUBA YETHEMBA LOCAL MUNICIPALITY Second Respondent THE MUNICIPALITY MANAGER OF THE INXUBA YETHEMBA LOCAL MUNICIPALITY Third Respondent ESKOM HOLDINGS SOC LIMITED Fourth Respondent

JUDGMENT

LOWE, J

INTRODUCTION

[1] On 17 June 2020 Bloem J issued the order appearing below in respect of the parties referred to in that order:

“IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: 1900/2019

BEFORE THE HONOURABLE MR. JUSTICE BLOEM

On the 17th day of June 2020

IN THE MATTER BETWEEN:

THE CRADOCK BUSINESS FORUM

1st APPLICANT

THE MIDDELBURG RATEPAYERS ASSOCIATION 2nd APPLICANT

THE CRADOCK RATEPAYERS ASSOCIATION

3rd APPLICANT

AND

ESKOM HOLDINGS SOC LIMITED

1st RESPONDENT

THE NATIONAL ENERGY REGULATOR OF 2nd RESPONDENT

SOUTH AFRICA

THE INXUBA YETHEMBA MUNICIPALITY

3rd RESPONDENT

THE EXECUTIVE MAYOR OF INXUBA

4th RESPONDENT

YETHEMBA MUNICIPALITY NO

THE MUNICIPAL MANAGER OF INXUBA

5th RESPONDENT

THE MEC FOR CO-OPERATIVE GOVERNANCE 6th RESPONDENT

AND TRADITIONAL AFFAIRS, EASTERN CAPE

THE MINISTER OF CO-OPERATIVE GOVERNANCE 7th RESPONDENT

AND TRADITIONAL AFFAIRS

Having on the 4th June 2020 heard Adv. De La Harpe (SC) & Adv. Brown, Counsel for the Applicants and Adv. Shangisa (SC) & Adv. Rakgwale, Counsel for the 1st Respondent and Adv. Quinn (SC) & Adv. Poswa, Counsel for the 3rd, 4th & 5th Respondents and having read the documents filed of record

THE COURT RESERVED JUDGMENT;

THEREAFTER ON THIS DAY;

IT IS ORDERED THAT:

1. The Third Respondent (the municipality) be and is hereby declared to be indebted to the First Respondent (Eskom) in the sum of R127 974 276.27 which shall be paid to Eskom in terms of the payment schedule annexed to this order and marked “A”.

2. The municipality shall keep separate financial statements, including a balance sheet of its electricity reticulation business, as is envisaged in Section 27(i) of the Electricity Regulation Act, 2006 (Act 4 of 2006).

3. The financial statements referred to in paragraph 2 above shall distinguish on a monthly basis: firstly, between capital and on-going expenditure in respect of reticulation infrastructure and the bulk purchase of electricity; and secondly, revenue received in respect of both reticulation infrastructure and the supply of electricity to customers.

4. The municipality’s financial statements shall disclose, on a monthly basis, revenue received in respect of the supply of electricity and the extent to which such revenue is appropriated for payment of its current account with Eskom and its obligation in terms of annexure “A” to effect payment for arrears.

5. The municipality shall report to this Court on or before the 15th day of every third month following this order in respect of the steps taken to implement the provisions of paragraphs 3 and 4 above, the first report to be filed of record on or before 15th November 2020.

6. The financial statements and reports referred to in paragraphs 3, 4 and 5 above shall set out the steps taken by the municipality:

6.1 to effect proper metering of its electricity supply;

6.2 to effect proper billing in respect of metered electricity usage;

6.3 to update and service its reticulation system and to comply with the requirements of its licence;

6.4 to reduce the incidents of theft of electricity.

7. The financial statements and reports referred to in paragraphs 3, 4 and 5 above shall, in addition to being filed with the Court, also be served on the Applicants’ attorneys, Coetzee Venter Inc (reference: Mr Coetzee) and Eskom’s attorneys, Netteltons (reference: Mr Nettelton).

8. Eskom and the municipality shall, within 7 days of the date of this order:

8.1 nominate by name and designation, the responsible person or persons mandated to ensure compliance with the terms of this order;

8.2 give written details of such persons to the Court, each other and the Applicant’s attorneys.

9. Eskom and the municipality be and are hereby granted leave to re-enrol this application on the same papers, duly amplified, for the purpose of formulating orders in regard to and arising out of the financial statements and reports referred to in paragraphs 3, 4 and 5 above.

10. The municipality shall pay the Applicants’ costs in relation to the application, including reserved costs, such costs to include the costs of two counsel, where employed.

BY ORDER OF COURT

J. V. WILSON

REGISTRAR

W R&C”

[2] On 11 December 2020, Applicants (as in the order referred to above) launched an urgent application against four of the above referred to Respondents.

[3] The Application concerned the alleged contempt by First and Third Respondents relevant to the order of Bloem J above.

[4] The relevant answering and replying affidavits have been filed.

[5] First and Third Respondents have in addition brought an application to strikeout paragraphs 8.3 to 8.15 of Applicants’ replying affidavit.

[6] It is important to place the above in context.

[7] The order of Bloem J, inter alia, declared First Respondent to be indebted to Fourth Respondent in the sum of R127,974,276.27. First Respondent was to report to this Court on the 15th day of every third month commencing 15 November 2020, in a structural interdict.

[8] The contempt application was precipitated by First Respondent’s failure to so file by 15 November 2020.

[9] On 25 November 2020, First Respondent filed Annexure “FJC6” in purported compliance with its obligation to report.

[10] Applicants contended that the report was deficient, raised this with First Respondent, and receiving no response and as a result launched this contempt application.

[11] This was aimed against First and Third Respondents as to contempt, seeking in paragraphs 2 and 3 the following relief:

“2. The Inxuba Yethemba Local Municipality and its Acting Municipal Manager, Mkhululi Mbebe, are declared to be in contempt of the order issued in Case Number 1900/2019 by Mr Justice Bloem on 17 June 2020 for their failure to have complied with paragraphs 5 and 6 thereof.

3. A rule nisi do issue calling upon the Acting Municipal Manager of the Inxuba Yethemba Local Municipality to appear in person before the above

Honourable Court, on a date to be determined by the above Honourable Court, to show cause why he should not be convicted of contempt of court and omitted to prison for such period as the above Honourable Court should determine.”[1]

[12] The Application prompted the filing by First Respondent of a lengthy supplementary report on 8 January 2021[2], some 48 pages in length.

[13] Applicants argue with considerable justification that this document is largely incomprehensible save for a two page balance sheet and income statement[3].

[14] Thereafter on 19 February 2021 First and Third Respondents filed an answering affidavit, in summary, stating:

[14.1] that arrear liability payments to Fourth Respondent had been paid;

[14.2] that riots and Covid 19 had prevented timeous compliance with the order as to reporting;

[14.3] that the failure so to file was not wilful or mala fide.

[15] Applicants filed a reply setting out that:

[15.1] from the supplementary report it appears that the municipality had complied with payment up to October 2020 but not thereafter;

[15.2] the balance sheet does not reflect payment of the arrear instalments payable for the month of August 2020;

[15.3] the balance sheet reflects no payments of any sums in respect of the Municipality’s purchase of bulk electricity during the period covered by the balance sheet;

[15.4] the income statement reflects provision for payment of bulk purchases of electricity for each month, the payment of which is not reflected on the balance sheet;

[15.5] the income statement reflects that with provision for the payment of bulk purchases of electricity having been made, the Municipality’s electrical reticulation business made a monthly profit; and

[15.6] the balance sheet further reflects that the Municipality’s liability to Eskom has increased, rather than decreased as the order of court was intended to achieve, to the sum of R192,726,182.00 or R194,062,497.00, depending on which figures are used, as at 31 October 2020.

[16] The allegations above form the subject matter of the application to strike out.

[17] To put this in context it needs to be said that the order of Bloem J is a so-called structural interdict[4].

[18] Applicants accept however that whilst First Respondent was clearly in breach of the order requiring it to file a response with this Court it has, albeit late, purged that contempt[5].

[19] The reply, and impugned paragraphs deal, however, with what is said to be the First Respondent’s continued failure to pay its current liability to Fourth Respondent[6].

[20] Applicants argue that the balance sheet and income statement in fact show that the liability to Fourth Respondent has increased from R127,974,276.27 to R192,726,182.00 by 31 October 2020.

[21] Applicants then contend that an order in the following terms should issue:

CASE NO.: 2794/2020

In the matter between:

THE CRADOCK BUSINESS FORUM

First Applicant

THE MIDDELBURG RATEPAYERS

ASSOCIATION

Second Applicant

THE CRADOCK RATEPAYERS ASSOCIATION Third Applicant

and

THE INXUBA YETHEMA LOCAL

MUNICIPALITY

First Respondent

THE EXECUTIVE MAYOR OF THE

INXUBA YETHEMBA LOCAL MUNICIPALITY Second Respondent

THE MUNICIPAL MANAGER OF THE

INXUBA YETHEMBA LOCAL MUNICIPALITY Third Respondent

ESKOM HOLDINGS SOC LIMITED

Fourth Respondent

DRAFT ORDER

It is ordered:-

1. That the municipal manager of the Inxuba Yethemba Municipality is ordered to appear in person before the above Honourable Court on 09h30 on the ______ day of March 2021 in order that he:-

1.1 produce copies of the accounts of Eskom, in respect of the purchase of bulk supplies of electricity for the towns of Cradock and Middelburg, for the months of July, August, September, October and November 2020;

1.2 produce proof of such payments as were made to Eskom in respect of the purchase of bulk electricity from Eskom during the months of August, September and October 2020; and

1.3 that in the event that payments have not been made to Eskom in respect of the First Respondent’s bulk purchases of electricity for the months of August, September and October of 2020 that he disclose to the above Honourable Court the reasons why such payments were not made.

2. That the First Respondent pay the costs of this application to date.

By order of Court

Registrar”

[22] In respect of the application to strike out Applicants argue that:

[22.1] the entire application was launched prior to compliance with paragraphs 2, 3 and 4 of the order of Bloem J;

[22.2] the initial report was out of time and the supplementary report followed much later after the application was launched;

[22.3] the reply simply pointed to the deficiencies of the opposing affidavit, as read with the supplementary report.

[23] Respondents however contend that:

[23.1] the order of Bloem J does not address First Respondent’s obligation to Fourth Respondent (Eskom) for use of “current” electricity;

[23.2] the paragraphs sought to be struck out relate to current use of electricity; and

[23.3] this change of tack is prejudicial.

[24] In essence then, Respondents argue that the contempt application was limited to accrued Eskom’s debt and did not relate in any way to future debt.

APPLICATION TO STRIKE OUT

[25] In general terms the founding affidavit must set out the factual and evidentiary allegations upon which Applicants will rely, and it is impermissible to make out “new” grounds in reply[7].

[26] A reply is such as to answer allegations not dealt with in the founding affidavit or to amplify same, if they have been, and this is required.

[27] The introduction of new matter (as opposed to an answer) is not permitted. The introduction, in reply, of explanatory facts to allegations in answer may well however legitimately contribute to Applicants’ case, and be properly thus included.

[28] In Nkengana & Another v Schnetler & Another [8] :

“Thus, if the new matter in the replying affidavit is in answer to a defence raised by the respondent and is not such that it should have been included in the founding affidavit in order to set out a cause of action, the court will refuse an application to strike out.”[9]

[29] In this matter, it is clear that the order of Bloem J (paragraph 4 and 5 above) most clearly relates to, includes and envisages payment of “current” Eskom liability “and” its obligation to pay the listed arrears. That current liability is to be reported on (in addition to arrears), is equally

clear in relation to current liability into the future. This interpretation is reinforced by the contents of paragraph 6 of the order and is in terms of the proper approach to the interpretation of Orders of Court[10].

[30] In this matter the supplementary report was filed after the application was launched.

[31] The said supplementary report constitutes part of the defence to the claim and importantly purports to be the report, required to be filed, the subject matter of the order of Bloem J.

[32] The “new” material complained of is a fully legitimate reply to paragraph 17 of the answer and the out of time and subsequently filed report. It is pointed out that the balance sheet relied on does not reflect payment from the currently ongoing supply of electricity and demonstrates on its face the increase of the debt from R127,974,276.27 to R192,726,182.00 for the reasons expressed.

[33] In the result, in the circumstances of this matter, it seems to me to be clearly a fully legitimate reply, and answer to a purported defence raised, that could not have been included in the founding affidavit through no fault of Applicants.

[34] It must also be remembered that this matter goes to a structural interdict and thus bears on First Respondent’s duty to report to this Court, as ordered, and any deficiency in such report is properly to be placed before the Court. This could not have been contained in the founding papers and is legitimately dealt with in reply.

[35] In the result, the application to strike out must fail.

ORDER

[36] In the result, the following order issues:

1. Respondents’ application to strike out paragraphs 8.3 to 8.11 of the replying affidavit is dismissed.

2. The costs are reserved for the application Court before me.

3. The matter is to be re-enrolled before me for further argument as a matter of urgency on a date to be arranged.

M.J. LOWE

JUDGE OF THE HIGH COURT

Appearances:

Obo the Applicants:

Adv D H de la Harpe (SC)

Instructed by:

McCallum Attorneys, Grahamstown

Obo the First and Third Respondents:

Adv W H Olivier

Instructed by:

Yokwana Attorneys, Grahamstown

[1] The citation of the Municipal Manager seems to have had no regard to Matjhabeng Local Municipality v Eskom Holdings Ltd and Others 2018 (1) SA 1 (CC).

[2] Papers 48 – 96.

[3] Papers 95 – 96.

[4] Kenton-on-Sea Ratepayers v Ndlambe Municipality 2017 (2) SA 86 (ECG) (97 – 101).

[5] Whether this was criminal or civil contempt or merely a failure, not wilful or mala fide, is an issue as yet unresolved.

[6] It is also argued that there is insufficient certainty in the answer and annexures to actually establish payment of the arrears – though Third Respondent says in reply that he understands the system and the arrears were paid, though no Eskom account is attached showing same.

[7] Minister of Land Affairs and Agriculture and Others v D & F Wevell Trust and Others 2008 (2) SA 184 (SCA).

[8] [2011] 1 All SA 272 (SCA) at [10].

[9] SNM Holdings (PVT) Ltd v Southern Asbestos Sales (Pty) Ltd 2005 (JDR) 0715 (W) at para. 51 and in Lehane N.O. v Lagoon Beach Hotel (Pty) Ltd & Others 2015 (4) SA 72 (WCC) at para. 41 and in Uys & Another v du Plessis (Ferreira Intervening) 2001 (3) SA 250 (C) at 253 H-I.

[10] KPMG Chartered Accountants v Securefin Ltd [2009] 2 All SA 523 (SCA), 2009 (4) SA 399 (SCA); Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA) [18], 2012 (4) SA 593 (SCA); Novartis v Maphil [2015] 4 All SA 417 (SCA), 2016 (1) SA 518 (SCA); Wood v Capita Insurance Services Ltd [2017] UKSC 24 paras 8–15; Plaaslike Oorgangsraad van Bronkhorstspruit v Senekal (2001) 22 ILJ 602 (SCA); Firestone South Africa (Pty) Ltd v Genticuro AG 1977 (4) SA 298 (A).