Mike Sellick Trust (Pty) Ltd v Ethekwini Municipality

JurisdictionSouth Africa
JudgeMR Chetty J
Judgment Date03 September 2014
Docket Number7651/2007
CourtKwaZulu-Natal Division, Durban
Hearing Date17 June 2014
Citation2014 JDR 1772 (KZD)

JUDGMENT: SPECIAL PLEA

Chetty, J:

Introduction

[1]

The plaintiff instituted action against the defendant for the return of certain plant and earth moving equipment, which it alleges it leased to the defendant pursuant to agreements concluded between it and an official of the defendant, the first of which was concluded in 1993. In the alternative, plaintiff claims the value of the equipment, being the sum of R889 000, together with an order directing the defendant to account for the levying of rates against certain immovable property, in respect of which the plaintiff was either the registered owner, or in which it had a proprietary interest.

[2]

The plaintiff contends that part of the agreement was that instead of the defendant paying the plaintiff for the costs of hiring the equipment, the defendant would set-off whatever rates were due and payable by the plaintiff in respect of its properties, all of which were located within the jurisdiction of the defendant.

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[3]

The plaintiff's claims are founded on 3 agreements concluded with the plaintiff, the first of these concluded in 1993; the second in 1995 and the third on 27 May 1996. The terms of the last agreement, as set out by the plaintiff in its particulars of claim, are the following:

'13(b) the defendant acknowledged that the remainder of the plant and earth moving equipment was still in its possession and had not been returned to the plaintiff;

c) the defendant undertook to locate and return to the plaintiff the remainder of the equipment;

d) the parties agreed that the defendant would calculate the rates due by the plaintiff and Barge Import, to the defendant, if any, in the context of the aforesaid lease agreements;

d) the parties agreed that the payment of rates (if any) by the plaintiff and Barge Import to the defendant would be suspended until the return of the said equipment to the plaintiff and the pursuant calculation of rates (if any) payable in respect of the said properties.'

[4]

The plaintiff further alleges that the defendant breached the above agreement by failing to return any of the equipment which it hired, and that it failed to "credit" or set-off the rates liability on the plaintiff's properties against the hiring costs of the machinery. Lastly, it contends that the defendant failed to honour its obligation to recalculate the rates and penalties due on its properties taking into account the "credits" which the defendant ought to have passed in favour of the plaintiff.

The claim and special plea

[5]

According to the plaintiff, its attempts to demand the return of its equipment were unsuccessful. In October 1999 the defendant instituted action against the plaintiff for arrear rates from 1993/94. This claim arose from the plaintiff's rates liability in relation to one of its properties in the Outer West region of the municipality. This action was subsequently withdrawn in March 2000, for reasons that are not relevant to the issue before me. Similarly, the relief sought calling on the defendant to account for its claim on any rates due by the plaintiff arises out of the defendant having been paid certain monies by the purchasers of two properties, previously owned by the plaintiff, which were sold in execution. The plaintiff alleges that such payments were made to the defendant ostensibly for arrear rates on those

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properties. As such, it contends that such amounts should be accounted for. In addition to the defendant being called to account for the rates, the plaintiff further seeks that the defendant be ordered to account for the hiring costs on equipment leased to it.

[6]

The defendant in its plea denies having hired or taken possession of any of the equipment referred to by the plaintiff in the summons, and raised by way of a special plea two issues which are the subject matter of this judgment:

a.

In as much as the plaintiff's claim is for the return of its equipment and machinery is based on agreements concluded in 1993, 1995 and May 1996, and its claim for an accounting arises from payments by third parties to it in 1995 and 1996, the defendant pleads that such claims have prescribed by virtue of section 10 of the Prescription Act No 68 of 1969, as the summons commencing action was served on the defendant only on 11 July 2007.

b.

In regard to agreement reached between the plaintiff and officials acting on behalf of the defendant to set-off its rates liability against hiring charges due by the municipality, it was contended that such an agreement was unenforceable and contrary to public policy.

[7]

Although the matter had been set down for trial, counsel for both parties were in agreement that a ruling on the issues raised in the special plea could be dispositive of the plaintiff's claim. On that basis, counsel argued the matter before me, relying on their written heads. I propose to deal with the second issue first, as Mr Garland, who appeared for the plaintiff, did not appear to have any authority to counter those relied on by Mr Gajoo SC, who appeared for the defendant.

Rates: Set-off

[8]

The plaintiff in its particulars of claim avers the existence of an agreement with the defendant in terms of which the parties agreed that any payments due by the plaintiff and Barge Imports for rates on its properties would be set off by the defendant as against the amounts due and payable by the latter for hiring costs of the earth moving equipment. The defendant contends that such an agreement is

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invalid and unenforceable. In Schierhout v Union Government (Minister of Justice) 1926 AD 286 at 291 Innes CJ noted that:

'Compensatio may be pleaded against any creditor whatever, even against a ward who is suing his tutor (sec.4). But there are certain cases in which it does not operate. It cannot, for instance, be set up against a claim of the Treasury for taxes nor in respect of certain other debts due to the State... Those abovementioned were based apparently on public policy. It will be observed that though the position of the State with regard to set-off is specially considered, Voet nowhere indicates that its rights are curtailed, as against the claims of its servants, or of others. On the contrary, the modifications of the ordinary doctrine which he mentions are all in favour of the State or the Treasury.'

The principle that there can be no set off against a rates debt was considered in Commissioner of Taxes v First Merchant Bank of Zimbabwe Limited 1998 (1) SA 27 (ZS) where the provisions of the Zimbabwean Audit and Exchequer Act provided that a debt due to the State may be set off against any amount due by the State to the person by whom the debt is due. Gubbay CJ, writing for the Court, confirmed that a tax debt owed to the State cannot be set-off, and more importantly, relying on Voet, sets out the rationale for this conclusion at 30 C-G:

"At common law set-off or compensatio is a method by which mutual debts, being liquidated and due, may be extinguished. It takes place ipso jure. If the debts are equal, both are extinguished; if unequal, the smaller is discharged and the larger is proportionally reduced. There are, however, two important exceptions to the operation of the rule. A debt owed by one department of the State cannot be set off against a debt owed to another department. And set-off cannot be raised against taxes due to the fiscus or where goods are sold for the benefit of the State. See Schierhout v Union Government (Minister of Justice) 1926 AD 286 at 291; Pentecost & Co v Cape Meat Supply Co 1933 CPD 472 at 479; Voet Commentarius ad Pandectas 16.2.16 (Gane's translation vol 3 at 166); Van Leeuwen Censura Forensis 1.4.36.11 and 13 (Barber and Macfayden's translation); Wessels The Law of Contract in South Africa 2nd ed, vol II at paras 2567 and 2568; Wille's Principles of South African Law 8th ed at 483. Both these exceptions are grounded in public policy and utility. The first is designed to avoid confusion in State accounts; the second to ensure the uninterrupted flow of tax revenues to the Treasury in the interests of good governance. In each instance it is for the State to decide whether or not set-off should apply even though the debts co-exist."

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[9]

Counsel for the plaintiff was unable to provide the Court with any authority that would lead to a different conclusion to the authorities referred to above. Faced with the inevitable conclusion that a rates debt due by the plaintiff could not be set-off against any amount which may have been due by the municipality, Mr Garland intimated...

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