Letsemeng Local Municipality v Eskom Holdings SOC Limited and Others (901/2020) [2020] ZAFSHC 126 (23 July 2020)

IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

Case number: 901/2020

In the matter between:

LETSEMENG LOCAL MUNICIPALITY 1st Applicant

and

ESKOM HOLDINGS SOC LIMITED

1st Respondent

NATIONAL ENERGY REGULATOR

OF SOUTH AFRICA

2nd Respondent

MINISTER OF ENERGY

3rd Respondent

MINISTER OF PUBLIC ENTERPRISES

4th Respondent

THE MEC OF DEPARTMENT OF COOPERATIVE

GOVERNANCE, HUMAN SETTLEMENTS AND

TRADITIONAL AFFAIRS,

FREE STATE PROVINCE

5th Respondent

CORAM: LOUBSER, J

HEARD ON: 25 JUNE 2020

DELIVERED ON: 23 JULY 2020

[1] The Applicant makes application on an urgent basis for an interim interdicted against the First Respondent (Eskom) in the following

terms:

“That, pending the outcome of an application to review the decision of the First Respondent to interrupt bulk supply of electricity to the Applicant, and further pending a determination of a dispute by the Applicant against the First Respondent, to be referred to the Second Respondent, in accordance with the provisions of the Electricity Regulation Act 2006 (which dispute will be formally lodged within one month of an order being granted in this application), First Respondent is interdicted and restrained from implementing its decision dated 31 January 2020 (“the interruption decision”) to interrupt the bulk electricity supply to the entire Letsemeng Local Municipality.”

[2] The application has been postponed by agreement between the parties on four different occasions, the last one having been necessitated by circumstances surrounding the Corona virus pandemic. As a consequence, the urgency of the application is no more relevant, more

so since Eskom had undertaken on each occasion not to interrupt the electricity supply until such time as the application is heard. In the course of the proceedings so far, Eskom has filed a counter application to the effect that the Applicant be ordered to honour its obligations towards Eskom. I will return to the counter application later herein.

[3] In all applications where an interim interdict is sought, the Applicant has to satisfy the following requirements:

a) a prima facie right to the relief sought, even if it is open to some doubt;

b) a reasonable apprehension of irreparable and imminent harm to the right if an interdict is not granted;

c) the balance of convenience must favour the grant of the interdict; and

d) the applicant must have no other remedy.[1]

[4] The question whether the Applicant has satisfied these requirements in the present application, must be considered with reference to the factual matrix of the matter before the court. It appears from the founding affidavit of the Applicant, deposed to by its municipal manager Mr. Tshemedi Lucas Mkhwane, that the municipal district of the Applicant includes, inter alia, the towns of Jacobsdal, Koffiefontein, Luckhoff, Petrusburg, Ratanang, Relebohile, Boitumelong, Bolokanang and Diamant Hoogte.

During or about 2017 the Applicant fell into arrears with payments of its current accounts for the bulk supply of electricity to Eskom. These arrears have escalated to a massive present amount of more than R 41 million Rand.

[5] According to the Applicant, it is in no position to pay that amount. Its financial woes were caused by the same problems which are endemic to many other municipalities in the country. Because of those problems, and its inability to settle the full account of Eskom on a monthly basis, Eskom has made many demands for payment in the past, but notwithstanding, Eskom has allowed the Applicant to slip further and further into arrears. That is until the decision was made to cut the bulk supply on every day of the week from 06h00 to 20h00 until the breach is remedied. The problems of the Applicant can only be resolved with assistance coming from the Provincial or National Government, the Applicant says.

[6] The Applicant alleges that an interruption as envisaged by Eskom would result in no electricity for homes, businesses, schools,

clinics, old-age homes, police stations and courts for the entire working day and beyond. In addition, such interruption would result in, inter alia, the total disruption of the water supply and the destruction of the sewerage network.

[7] On the other hand, Eskom points out in the papers that the Applicant has acknowledged its debt to Eskom on numerous occasions in writing, and has undertaken to make payment time and again without honouring its obligations. The last occasion was on 19 February 2020, when the Applicant promised payment of R 5 million on 25 February 2020, which amount the Applicant was to receive from Treasury on that date. However, on the eve of the date set by the Applicant for the payment of the R 5 million, the Applicant served Eskom with the papers for this urgent application, instead of making the promised payment. According to Eskom, this conduct illustrates the bad faith on the part of the Applicant.

[8] Eskom further places heavy reliance on the provisions of Section 21(5) of the Electricity Regulation Act 4 of 2006. These provisions

contemplate the supply of electricity only to the extent that the customer keeps its side of the bargain and pay Eskom. A customer’s

default on its payment obligations entitles Eskom to reduce or terminate the supply of electricity to that customer. As for the

apprehended disaster in the event of Eskom interrupting the power supply, it is the view of Eskom on the papers that such a disaster

would be the direct result of the Applicant’s failure to meet its financial obligations to Eskom. It is therefore impermissible for the Applicants to take advantage of its own wrongdoing in order to obtain certain relief in these proceedings, Eskom says.

[9] It is against this background that the first question has to be considered, namely whether the Applicant has established a prima facie right to the relief sought. In the recent past, our courts have constantly been confronted with the same question where defaulting municipalities and Eskom have been involved. It is therefore incumbent upon this Court to have regard to the views expressed in those cases, and especially so in the cases where interim interdicts against Eskom were sought.

[10] In the case of Resilient Properties (Pty) Ltd v Eskom Holdings SOC Limited and Others (11316/2016) ZAGPJHC the Applicant was a shopping mall owner in the area of jurisdiction of the Gamagara Local Municipality. He sought an interim interdict

against Eskom from interrupting the supply of electricity to Gamagara pending a review of Eskom’s decision. In considering the question as to the prima facie right of the applicant, Van der Linde, J remarked as follows:

“(74) In my view, therefore, in principle Eskom has the power under Section 21(5) of the Electricity Regulation Act to terminate or interrupt the supply of electricity to Gamagara, given its contractual default. Given the nature and source of Eskom’s power it’s exercise is, however, administrative action for the purposes of Section 33 of the Constitution and PAJA, and constrained if not by the baseline standard of rationality.

(75) If it acts irrationally in exercising that public power to terminate or interrupt, its decision is thus potentially open to attack under Section 6 of PAJA for offending Section 33 of the Constitution. It would act irrationally if the exercise of the power is not rationally connected to the purpose for which it was given.”

[11] The learned Judge then proceeded to state that the power could not have been intended to be exercised in such a manner that it would in any given circumstance result in widespread human catastrophe. He found that the applicant has established a prima facie case, although open to some doubt, for a review down the line at the hearing of the particular decision.

[12] In Mieliehoofstad Sakekamer and Another v Eskom Holdings SOC Limited and Others (Case number 4045/2018) a similar application for an interim interdict was heard by Reinders, J in this Division. She referred with approval to the views expressed by Van Der Linde, J in the above-mentioned case, and went on to state the following:

“(19) The Applicants in their papers aver that the implementation will lead to a human catastrophe and to a huge extent destruction of infrastructure. Notwithstanding realizing this, Eskom has preferred to apply this option which, on face value, appears to be irrational, or differently put, a decision by Eskom which knowingly would result in human catastrophe could not be rational. As such I am convinced that the Applicants at least have a prima facie right though open to some doubt.”

[13] Another application of the same kind was heard by Mathebula,

J in the case of Tokologo Local Municipality v Eskom Holdings SOC Limited and Others (2020) JOL 46522 (FB). In that application the learned Judge stated the following:

“(19) It is unquestionable that the first respondent is permitted to interrupt and disconnect electricity against defaulting customers. My view is that this power which has serious implications when exercised must be subjected to judicial scrutiny. I say so because the provision and supply of electricity is recognized as a constitutional right. It is also a fact that the applicant has not complied with the payment conditions of the first respondent. The applicant is not only owing money for past accounts but accumulating debt for current consumption.

(20) I am convinced that the applicant has demonstrated a clear right in this regard. The applicant brings this application protecting the interest of the residents within its jurisdiction. It cannot be expected that individuals can do so in trying to interdict the first respondent from cutting back the supply of electricity. I do not find any merit in the argument that the applicant is protecting a self-interest. The applicant does not exist for its own sake but that of its residents. Therefore it has a statutory obligation to protect their constitutional rights.

(21) The consequences of the interruption of electricity supply will be akin to human catastrophe. Counsel for the applicant dealt with this aspect at length. There is insurmountable evidence that where the first respondent has embarked on this cause, there has been nothing but disaster.”

[14] I have duly considered the sentiments expressed in the decisions referred to, and I can find no reason to deviate therefrom. I am respectfully in agreement with the views expressed by the respective Judges. It follows that in the present case, I find that the Applicant has established a prima facie right, although it might be open to some doubt.

[15] As for the second requirement of a reasonable apprehension of irreparable and imminent harm to the prima facie right if an interdict is not granted, I am of the view that it speaks for itself that irreparable harm would result if the order sought is not granted. I am satisfied that life would come to a complete standstill in the area concerned should Eskom be allowed to implement its harsh decision to terminate the supply of electricity for all practical purposes. In addition, infrastructure could be demolished and access to water might become a huge problem to the residents of the area. Should the Court of review later find in favour of the Applicant, the people of the area would have suffered irreparable harm in the interim should the interim order not be granted.

[16] This brings me to the third requirement of the Applicant having to satisfy the court that the balance of convenience favours the Applicant and the people in its jurisdiction. I have no doubt that this is indeed the case. Eskom is obviously entitled to be paid for the service it provides, and it should indeed be paid. Should this temporary order be granted, however, it would certainly not leave Eskom without any redress. Eskom can then still proceed to obtain judgment against the Applicant or to exhaust other legal remedies to obtain payment. On the other hand, should the interim order not be granted, it would have disastrous consequences for the people of the area. The balance of convenience therefore clearly favours the Applicant.

[17] The argument raised by Eskom that any disastrous consequences for the community should not be laid before its door, but that the Applicant must carry the blame for the consequences, has no merit. Eskom relied on this proposition to contend that the Applicant should not be allowed to benefit from its own wrong-doing. In view of the fact that the community stands to suffer immensely should the electricity supply be interrupted, it does not matter who is to be blamed in the end for such a situation.

[18] I am also of the view that the Applicant had no alternative remedy to prevent the imminent disaster than to approach this court for an interim interdict. The requirements for such an interim interdict have therefore been established, and the main application must succeed.

[19] What remains to be decided, is the counter application filed by Eskom. The following orders are sought in the Notice of Motion:

“1. That the Municipality be and is hereby ordered to comply with the payment conditions as set out in clause 9 of the Electricity Supply Agreement (ESA) between the parties herein on 13 February 2006.

2. That the Municipality is ordered to pay for its electricity consumption in line with Section 65(2) of the Municipal Finance Management Act (MFMA) in 30 days.

3. That the Municipality is ordered to pay all monies due and payable on its current account to Eskom as set out in the ESA entered into between itself and Eskom.

4. Declaring that the Letsemeng Municipality is in breach of Section 153(a) of the Constitution in that it has failed to structure and manage its administration, budgeting and planning process in order to give priority to basic needs, including the payment of electricity to Eskom, and promote the social and economic development of its community.

5. That the Municipality is to deliver written notice, on affidavit to this Court, and to Eskom (through its attorneys of record) on or before the eighth day of each month indicating and providing evidence of its compliance with its obligations under the acknowledgment of debt and repayment plan, and its monthly current account obligations to Eskom.

6. That the Municipality’s Manager, Mr. Tshemedi Lucas Mkhwane in his capacity as Municipal Manager is mandated and ordered to ensure compliance with the terms of this order and give effect thereto.

7. That the Municipality is to report to this Court on affidavit and to Eskom (through its attorneys of record) before the last business day of every second month after the granting of this order furnishing full and comprehensive details as to the manner of such compliance with paragraphs 1-4.

8. It is declared that the Municipality has a legal obligation, on a monthly basis, to ring fence such portion, as determined in its electricity distribution license, of its electricity revenue collected from all electricity sales in terms of Section 27(i) of the Electricity Regulation Act (ERA).

9. That the Municipality is ordered to ring fence a certain portion of its electricity revenue collected from all electricity sales in terms of Section 27(i) of the ERA and its license for the distribution of electricity.

10. That the Municipality be and is hereby ordered to pay such portion of the equitable share, as may be determined, as relates to electricity, directly to Eskom within 24 hours of receipt of such share and forthwith to give written notice to Eskom and the court that it has implemented this order.

11. That the Municipality be and is hereby ordered to pay the amount of R 5 million to Eskom which National Treasury has made available for payment to Eskom on 25 February 2020.”

[20] At the hearing of this application, Mr. Shangisa appearing for Eskom, urged the Court to perform a delicate balancing act when deciding the main application and the counter application at the same time. Should the court grant the interim interdict sought in the main application, the court should also make orders in terms of the counter application to ensure that the rights of Eskom are equally protected, he argued. At a first glance, there is much to be said for this argument because Eskom can certainly not be expected to continue providing electricity to a municipality without that municipality paying anything for it. On a broader front, it would also not be in the national interest, because such a situation could in the end lead to a total collapse of Eskom and the services it provide.

[21] On the other hand, and as mentioned earlier herein, it is the case for the Municipality that it does not have the ability to settle the full account of Eskom on a monthly basis. Accordingly, its financial problems can only be resolved with assistance from the Provincial or National Government. As for its failure to pay the R 5 million to Eskom which the National Treasury has made available on 25 February 2020, the Municipality points out, inter alia, that such funds were designated for technical support and not for discharging debts and obligations towards Eskom or other creditors. The payment of the amount in question to Eskom would therefore have amounted to utilizing funds in violation of Treasury regulations, the Municipality says.

[22] If the Municipality cannot pay in any event, I cannot see how the granting of the additional and wide-ranging prayers in the counter application would be of any assistance to Eskom. This is so, because a court will not be inclined to make an order which will be of no practical effect. In this respect I am also mindful of the harmful effect that the present lockdown is having on all spheres of national life, including the municipalities in our country. This lockdown will no doubt impact negatively on the finances of the municipality we are dealing with, reducing its ability to pay its creditors even further.

[23] Having regard to all the circumstances of the case, I am therefore not inclined to grant any of the prayers and the counter application. After all, Eskom has only itself to blame. It could have resorted to a number of alternative legal processes in the past three years to obtain payment from the Municipality, such as to sue for the outstanding amount, or to move for provisional sentence on the acknowledgments of debt. Instead, it chose to wait until such time as it deemed it appropriate to take the self-help measure of threatening a termination of the electricity supply to force the Municipality to make payments. It must have known that such a measure would have devastating consequences for the community in question. And now, only at this late hour, it wants the court to come to its aid.

[24] In the case of Tokologo (supra) the Court was confronted with a very similar counter application filed by Eskom. The learned Judge had the following to say in the end:

“(24) Turning to the counter application, there are no cogent reasons advanced that the applicant is in wilful default or acting mala fide in not effecting payment. The respondent is seeking Court oversight on an issue that it can manage by applying the many remedies at its disposal”

[25] The learned Judge then dismissed the counter application. It needs mentioning that in the present application, there are also no allegations made by Eskom that the Municipality is wilfully refusing to pay while it is indeed in a position to do so.

[26] In the premises, the following orders are made:

1. Pending the outcome of an application to review the decision of the first respondent to interrupt the bulk supply of electricity to the applicant, and further pending a determination of the dispute by the applicant against the first respondent, to be referred to the second respondent in accordance with the provisions of the Electricity Regulation Act of 2006 within one month of date hereof, first respondent is interdicted and restrained from implementing its decision dated 31 January 2020 to interrupt the bulk electricity supply to the entire Letsemeng Local Municipality.

2. The counter application is dismissed.

3. Costs to stand over to be determined in the review application.

_________________

P.J. LOUBSER, J

For the Applicant: Adv. M.C. Louw

Instructed by: Hill, McHardy and Herbst Inc.

Bloemfontein

For the First Respondent: Adv. S.L. Shangisa SC, with him

Adv. L Rakgwale

Instructed by: Phatshoane Henney Attorneys

[1] Setlogelo v Setlogelo 1914 AD 221 and Webster v Mitchell 1948 (1) SA 1186 (WLD)