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Christo Smith Law Blog

NELSPRUIT CID – CONSTITUTIONALLY FLAWED

Following our previous posts on this saga, we can report that the CID has withdrawn all claims against alleged defaulting owners. The CID withdrew its claim during the trial of the matter against mr Letsela in the Magistrates’ Court of Nelspruit on 16th August 2017. The withdrawal is based on a decision of the Supreme Court of Appeal in the matter of Randburg Management Districts v West Dunes Properties 2016 (2) SA 293 (SCA). (The decision related to a similar CID in Randburg, Gauteng). The SCA held in that matter that the levies raised by CID’s offend s 229 and 160 of the Constitution in that a local authority may not delegate its right to raise rates and taxes.  Further, the ratio of the Court’s judgment related to the fact that the legislative framework does not permit that the CID plan may endure for a period longer than 3 years from its inception.

The current legal position places all CIDs in an ominous position as owners may claim a refund of all levies that have been paid to date. This is due to the fact that the CIDs (or at least the Nelspruit CIDs) are illegal structures and as such were never competent to raise and claim levies from owners. We are presently consulting with owners of whom some have paid in excess of R150 000,00. If the CID does not have the funds to refund the payments, claims may be instituted against the various Local Councils being the authorities responsible for the illegal creation of the CIDs as well as the fact that the CID levy is in actual fact levied by Council.

The full facts of the matter relating to the Nelspruit CID are as follows :

The Plaintiff (The Nelspruit City Improvement District) issued summons against the Defendant (Mr Letsela) for payment of levies allegedly due to the Plaintiff. The Plaintiff has issued summons against various other owners within the CID which matters are also pending in the Nelspruit Magistrates’ Court.

The Plaintiff (“ the CID”) is an organisation that was established by the then Town Council of Nelspruit in May 2003 in terms of a Council Bylaw dated May 2000. There are presently three CID’s in Nelspruit (Mbombela). One CID is in central Nelspruit and two others at Riverside. They operate on the same basis in their respective areas. Each CID has a demarcated area within which the owners receive services to a more or lesser extent. Each CID operates in the form of a registered company and the owners in it’s area are liable for payment of levies in terms of the Bylaw and the provisions of its establishment. Each CID has a staff component and is orchestrated by entities that are based, presumably in Johannesburg or elsewhere.

The CID is empowered by the Bylaw to provide services in its area similar to municipal services but also certain services in addition to municipal services, such as beautification and security, etc. All these services are provided only within the demarcated area by every CID.

The  case against mr Letsela was set down for hearing for 14, 15 and 16 August 2017. The CID alleged that it had been legally formed in 2003 strictly in accordance with the provisions of the Bylaw and that mr Letsela was liable for payment of levies. Mr Letsela denied that the levies are payable. He raised certain defences which are similar to the defences raised in all the other pending matters.

The Defendant (such as all the defendants in the other pending cases) denied that the CID had been legally constituted and denied that the necessary prescribed processes had been followed when the CID was established. Mr Letsela is an owner of a unit in Plaza 10 sectional title scheme in Brown Street. He alleged that, apart from the failure of Council to comply with the advertisement and consultation processes, the individual owners of Plaza 10 were never consulted. The CID and Council alleged that it was only obliged to consult the “building” ; therefore the Body Corporate was the “owner” and it had only 1 vote. In actual fact, Plaza 10 has 44 individual owners and in terms of the Bylaw each owner is required to partake in the vote. In addition to the defences above, the Defendants allege that the CID levy is in essence a tax and that the delegation by a Municipal Authority to collect rates and taxes from owners is unconstitutional in terms of sections 229 and 160 of the Constitution 1996.

A common complaint of owners in CID areas is that they receive no or very little  benefit from the scheme. They see it as a scheme devised to enrich the administrators and employees thereof. Owners feel that the services they pay for should actually be rendered by local government, for which they are already heavily taxed.

The matter commenced on the 14th August in the Civil District Court of Nelspruit Magistrates’ Court before Magistrate Hall. The Plaintiff began adducing evidence and various witnesses were called. Mr Ben Steyn, a senior council official, testified that he was the author of the Bylaw and that all processes were followed in establishment of the CID. Mr Roelf Kotze, the then Town Clerk (2003) testified that all the Council officials were competent and would have headed to the strict provisions of the Bylaw. Neither mr Steyn nor mr Kotze could deny or confirm that the necessary advertisements had actually been published. Mr Steyn stated that it was a long time ago and council did not keep the advertisements. Mr Kotze confirmed that the advertisements would have appeared in the Lowvelder.

During the course of the proceedings the Plaintiff’s attention was drawn to a decision of the Supreme Court of Appeal in the matter of Randburg Management Districts v West Dunes Properties 2016 (2) SA 293 (SCA). (The decision related to a similar CID in Randburg, Gauteng). The SCA held in that matter that the levies raised by CID’s offend s 229 of the Constitution in that a local authority may not delegate its right to raise rates and taxes.  Further, the ratio of the Court’s judgment related to the fact that the legislative framework does not permit that the CID plan may endure for a period longer than 3 years from its inception. The court, per Leach JA stated that “…in the light of the provisions of s 229 of the Constitution…and its directive that levies can only be imposed if authorised by national legislation, I have grave reservations as to whether the CID Act, being provincial legislation under which a municipality imposes levies on owners of immovable property, can pass constitutional muster”. (In Gauteng the CID was established by Provincial Legislation, however the wording thereof is materially the same as the Nelspruit Bylaw).

Although a Magistrate may hear argument on reasons why the facts before him differ from that of the SCA, he is required by statute to follow decisions of the High Court and the SCA on the same principle. Magistrate Hall indicated that the parties were always open to raise other arguments or authority to convince him otherwise. The Plaintiff requested an adjournment and on Wednesday the 16th August formally withdrew its claim and tendered mr Letsela’s costs. The CID has since indicated that it intends withdrawing all the pending claims and will refund those litigants who have pending claims for refunds

It is at this stage not clear how the Nelspruit CID’s are going to react or what the way is going forward. It is however clear that owners within CID areas are not obliged to pay levies. Our firm has received instructions from  various owners to reclaim all levies that have been paid to the CID since its “inception”, either from the CID, alternatively from the Town Council of Mbombela. The refund of levies is based on the fact that if the establishment of the CIDs are deemed to be unconstitutional and the due processes have not been followed, the CIDs never came into lawful existence and the provisions for raising of levies consequently were void ab initio.

The Nelspruit CID was represented by Adv Kitching of the Johannesburg Bar on instructions from Andrew Meldrum Attorneys. The Defendant, mr Letsela, as well as various other owners, are represented by Christo Smith of Christo Smith Attorneys Inc. Nelspruit.

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NELSPRUIT CID – CONSTITUTIONALLY FLAWED