Municipal charges: can you raise the defence of prescription?
In light of the City of Johannesburg Metropolitan Municipality’s decision to unilaterally assess accounts and write off prescribed charges in relation to those accounts, Schindlers Attorneys explains the law of prescription of municipal charges.
In terms of the Prescription Act (68 of 1969) read with various cases on the issue, it is trite (accepted) law in South Africa that refuse, rates and sewerage charges prescribe after a period of 30 years; whereas water and electricity charges prescribe after a period of three years.
It means that the law considers the charges that have prescribed as being too old to enforce the creditors’ right to collect. In most cases a creditor can still demand payment of prescribed charges and include them on the invoice, but the debtor can raise the defence of prescription when asked for payment. In relation only to charges that are subject to a credit agreement regulated by the National Credit Act 34 of 2005 (read with the National Credit Amendments Act 19 of 2014) it is further unlawful for a municipality to invoice a consumer for prescribed charges, or to collect them from the debtor. In most, but not all cases, water and electricity charges invoiced by a municipality will be regulated by the National Credit Act and it is thus unlawful for a municipality to demand payment of prescribed charges, to invoice consumers for same, or to collect same.
Although it seems very simple in principle to preclude a municipality from claiming charges that have prescribed, it is much more difficult than one first imagines in practice to determine precisely which amounts have prescribed. The following are difficulties experienced in determining which amounts (if any) have prescribed, and when they prescribed:
- In terms of the Prescription Act the prescription period starts running when the debt falls due. A debt commonly falls due when invoiced; however, prescription can also start running when the knowledge of the claim should reasonably have come to the creditor’s attention. This means that if the creditor – i.e. the municipality – didn’t raise an invoice for the amount in question for several months or years, prescription might have started running not when the municipality did eventually invoice the consumer, but rather when it would have been reasonable for the municipality to have invoiced that consumer. This is especially important in the context of cases where a municipality fails for several months (or years) to invoice a consumer of the whole or a portion of that consumer’s electricity or water consumption. This could happen for many reasons, the most common of which would be that the municipality has failed to take actual readings of the meters for an extended period.
- Prescription is “interrupted” and the prescription period must begin running afresh in respect of charges that a consumer has admitted indebtedness in respect of. What is very important is that the admission of indebtedness must be made to the creditor and not to a third party, and the acknowledgment of liability must be unambiguous and unequivocal, meaning that it must be very clear that the debtor in question intended to acknowledge liability for the amount in question. This becomes problematic when consumers are advised by a municipality to sign an acknowledgement of debt in respect of charges that they dispute, in order to procure a payment plan in respect of such charges or in order to arrange for the reconnection of the services which were terminated as a result of the non-payment of the disputed charges.
Once an amount has been paid, it cannot prescribe. Often people do not know this, and they pay amounts that are prescribed. Once payment has been made of a prescribed amount, you cannot then claim a reversal of the prescribed amount, or a refund of the amount erroneously paid.
- Once a municipality has summonsed a consumer in respect of any amount, this amount does not prescribe.
Case law exists to the effect that a part payment of a debt, or a partial acknowledgement of a part of a debt, can interrupt the running of prescription in respect of the whole of that debt. This is particularly problematic where consumers have been invoiced for several months for years based on estimated readings, and have either paid or acknowledged liability in respect of the charges raised on estimated readings. When the municipality at a later point in time then does a reconciliation of the consumer’s account based on actual readings and raises further charges over and above the amounts already raised based on estimated readings. The question then arises as to whether the consumer – having already paid or admitted liability in respect of the charges raised previously based on estimated readings – has acknowledged its liability in respect of the whole of the debt (which was only raised subsequently based on actual readings), or has interrupted the running of prescription in respect of the whole of the debt by virtue of having paid a portion of it in an earlier point in time.
- The mere fact that the municipality may invoice a consumer for charges incurred for a period of more than three years in one invoice does not necessarily mean that the charges incurred or consumed more than three years before the invoice date have prescribed. As above, one needs to determine whether any of those charges invoiced have already been paid or liability acknowledged in respect thereof, or summonsed. Only to the extent that none of these have occurred in respect of the charges invoiced which are older than three years, can those charges have prescribed.
- An admission of liability cannot operate in respect of a debt that has already prescribed. This means that any consumer who enters into an acknowledgement of debt in respect of a portion or the whole of debt that has already prescribed, does not “revive” that debt, as there was no debt whatsoever to acknowledge indebtedness of in the first place. The principals enumerated above apply to prescription as it would operate between the municipality and the principal debtor. They do not necessarily apply to any third parties (such as sureties, or owners of properties who are not the principal debtor – i.e. where an owner of a property is held liable for a tenant’s debt in respect of that property). In these cases there may be different principles that apply.
What does it all mean?
It is clear that each and every case must be dealt with in terms of its own merits to determine which charges have prescribed, and when they did so. A thorough analysis of the account needs to be conducted based on all of the principals enumerated above. Note further that simply because an amount has prescribed, does not mean that all interest charged in respect of that amount have also prescribed.
This article explains several of the most important principals relating to prescription, but due to the voluminous nature of the law of prescription it cannot cover everything. Consumers who require specific legal advice in relation to their own municipal accounts should contact an attorney for further assistance.
Words: Chantelle Gladwin, Partner, and Rogan Heale, Candidate Attorney, at Schindlers Attorneys