THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 663/2019
In the matter between:
ESKOM HOLDINGS SOC LIMITED

APPELLANT

and

RESILIENT PROPERTIES (PTY) LTD
FIRST RESPONDENT
CHANGING TIDES 91 (PTY) LTD
SECOND RESPONDENT
RETRACTION PROPS 7 (PTY) LTD
THIRD RESPONDENT
MOGWELE TRADING 278 (PTY) LTD      FOURTH RESPONDENT
EMALAHLENI MUNICIPALITY
FIFTH RESPONDENT
MEC: COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS
MPUMALANGA

SIXTH RESPONDENT
MINISTER OF ENERGY

SEVENTH RESPONDENT
NATIONAL ENERGY REGULATOR
OF SOUTH AFRICA

EIGHTH RESPONDENT
and
SAKELIGA NPC

AMICUS CURIAE

Case no: 664/2019

In the matter between:
ESKOM HOLDINGS SOC LIMITED

APPELLANT

and

SABIE CHAMBER OF COMMERCE
AND TOURISM

FIRST RESPONDENT
LYDENBURG CHAMBER OF
COMMERCE AND TOURISM

SECOND RESPONDENT
GRASKOP CHAMBER OF
COMMERCE AND TOURISM

THIRD RESPONDENT
THABA CHWEU LOCAL
MUNICIPALITY

FOURTH RESPONDENT
MUNICIPAL MANAGER: THABA
CHWEU LOCAL MUNICIPALITY
FIFTH RESPONDENT
EXECUTIVE MAYOR: THABA
CHWEU LOCAL MUNICIPALITY

SIXTH RESPONDENT
CHIEF FINANCIAL OFFICER: THABA
CHWEU LOCAL MUNICIPALITY
SEVENTH RESPONDENT
NATIONAL ENERGY REGULATOR
OF SOUTH AFRICA

EIGHTH RESPONDENT
MINISTER OF ENERGY

NINTH RESPONDENT
MEC: COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS

TENTH RESPONDENT

MINISTER OF COOPERATIVE
GOVERNANCE AND TRADITIONAL
AFFAIRS

ELEVENTH RESPONDENT
and
SAKELIGA NPC

AMICUS CURIAE

Case no: 583/2019
In the matter between:
THABA CHWEU LOCAL MUNICIPALITY
FIRST APPELLANT
MUNICIPAL MANAGER: THABA
CHWEU LOCAL MUNICIPALITY
SECOND APPELLANT
EXECUTIVE MAYOR: THABA
CHWEU LOCAL MUNICIPALITY

THIRD APPELLANT
CHIEF FINANCIAL OFFICER: THABA
CHWEU LOCAL MUNICIPALITY
FOURTH APPELLANT

and

SABIE CHAMBER OF COMMERCE
AND TOURISM

FIRST RESPONDENT
LYDENBURG CHAMBER OF
COMMERCE AND TOURISM

SECOND RESPONDENT
GRASKOP CHAMBER OF
COMMERCE AND TOURISM

THIRD RESPONDENT
ESKOM HOLDINGS SOC LIMITED
FOURTH RESPONDENT
NATIONAL ENERGY REGULATOR

OF SOUTH AFRICA

FIFTH RESPONDENT
MINISTER OF ENERGY

SIXTH RESPONDENT
MINISTER: COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS

SEVENTH RESPONDENT
MEC: COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS

EIGHTH RESPONDENT

Neutral citation: Eskom Holdings SOC Ltd v Resilient Properties (Pty) Ltd
and Others (Case no 663/19); Eskom Holdings SOC Ltd v
Sabie Chamber of Commerce and Tourism, and Others
(Case no 664/19); Thaba Chweu Local Municipality and
Others v Sabie Chamber of Commerce and Tourism, and
Others
(Case
no
583/19)
[2020] ZASCA
(29 December 2020)
Coram:
PETSE DP, CACHALIA, VAN DER MERWE and
MOCUMIE JJA and LEDWABA AJA
Heard:
27 – 28 August 2020
Delivered: This judgment was handed down electronically by circulation to
the parties’ legal representatives via e-mail, publication on the
Supreme Court of Appeal website and released to SAFLII. The
date and time for hand-down is deemed to be 09H45 on
29 December 2020.

Summary: Constitutional law – section 41 of the Constitution of the Republic
of South Africa, 1996 – principles of cooperative government and
intergovernmental relations – all spheres of government and all organs of state
obliged to make reasonable effort in good faith to settle intergovernmental

disputes – Intergovernmental Relations Framework Act 13 of 2005, ss 40 and
41.
Electricity – Electricity Regulation Act 4 of 2006, s 21(5) – interruption of
electricity supply by Eskom to municipalities in financial crises and unable to
pay for electricity supply – municipalities constitutionally and statutorily
obliged
to
provide
basic
services,
inclusive
of
electricity,
to
communities – whether Eskom entitled to interrupt electricity supply due to
non-payment.
Local Government – Local Government: Municipal Structures Act 117 of
1998 – Local Government: Municipal Systems Act 32 of 2000 – Local
Government: Municipal Finance Management Act 56 of 2003.

ORDER

On appeal from: Gauteng Division of the High Court, Pretoria (Hughes J
sitting as court of first instance): judgment reported sub nom Sabie Chamber
of Commerce and Tourism and Others v Thaba Chweu Local Municipality
and Others; Resilient Properties (Pty) Ltd and Others v Eskom Holdings SOC
Ltd and Others [2019] ZAGPPHC 112

Case no 663/2019: Eskom Holdings SOC Limited v Resilient Properties (Pty)
Ltd and Others:
The appeal is dismissed with costs, including the costs of two counsel where
so employed.

Case no 664/2019: Eskom Holdings SOC Limited v Sabie Chamber of
Commerce and Tourism and Others:
The appeal is dismissed with costs, including the costs of two counsel where
so employed.

Case no 583/2019: Thaba Chweu Local Municipality and Others v Sabie
Chamber of Commerce and Tourism and Others:
The appeal against paragraph 2 of the order of the high court is upheld.
The first, second and third respondents shall pay the costs of the appeal
jointly and severally, the one paying the others to be absolved.
Paragraph 2 of the order of the high court is set aside and in its place is
substituted the following:

‘The costs of this application shall be borne by Eskom Holdings SOC
Limited, with the rest of the respondents being absolved.’

JUDGMENT

Petse DP (Cachalia, Van der Merwe and Mocumie JJA and
Ledwaba AJA concurring):

Introduction
[1] These proceedings encompass a trilogy of appeals, two of which
primarily concern the issue of whether the decisions taken by Eskom Holdings
SOC Limited (Eskom) to interrupt the bulk supply of electricity to two
municipalities at scheduled times are defensible on both constitutional and
statutory grounds. They arise from two applications brought in the Gauteng
Division of the High Court, Pretoria, sitting in Mpumalanga. Although these
applications were not formally consolidated, they were nonetheless heard
together over several days. The high court (Hughes J) granted an order
reviewing and setting aside Eskom’s decisions, together with other ancillary
relief. 1 Whether the high court rightly reviewed and set aside Eskom’s
decisions is the primary question confronting us in this appeal. The third
appeal is confined to the issue of whether the high court exercised its
discretion judicially in awarding costs against Thaba Chweu Local
Municipality, and three of its senior executives. The appeals come before us
with the leave of the high court.

1 Sabie Chamber of Commerce and Tourism and Others v Thaba Chweu Local Municipality and Others;
Resilient Properties Proprietary Limited and Others v Eskom Holdings SOC Ltd and Others [2019]
ZAGPPHC 112. The review applications were heard together from 13-18 August 2018, with the order
following on 7 March 2019.

[2] The facts of these appeals graphically illustrate the distressing state of
municipal governance in this country, which depict a picture of the
dysfunctional state of affairs bedevilling local government. The Emalahleni
Local Municipality (ELM) and the Thaba Chweu Local Municipality
(TCLM), the municipalities occupying centre-stage in these proceedings,
have been aptly referred to by counsel as financial delinquents, dysfunctional
municipalities, and municipalities plagued by poor governance and financial
mismanagement.

[3] Eskom is a state-owned public company having a share capital,
incorporated in accordance with the company laws of the Republic of South
Africa.2 It is the appellant in two of the three appeals. Where it is necessary to
distinguish between the two appeals, I shall, for convenience, refer to the
appeal under case no 663/19 as Eskom I, and the appeal under case no 664/19
as Eskom II.

[4] The first to fourth appellants in the third appeal under case no 583/10
are the Thaba Chweu Local Municipality; the Municipal Manager: Thaba
Chweu Local Municipality; the Executive Mayor: Thaba Chweu Local
Municipality; and the Chief Financial Officer: Thaba Chweu Local
Municipality, respectively. For convenience, these appellants shall be referred
to collectively as the Thaba Chweu Municipal appellants.

[5] The respondents in Eskom I are, respectively, Resilient Properties (Pty)
Ltd; Changing Tides 91 (Pty) Ltd; Retraction Props 7 (Pty) Ltd; Mogwele

2 See the long title of the Eskom Conversion Act 13 of 2001.

Trading 278 (Pty) Ltd; the Emalahleni Municipality; the MEC: Cooperative
Governance and Traditional Affairs, Mpumalanga; the Minister of Energy;
and the National Energy Regulator of South Africa (NERSA).3 For
convenience, the first to fourth respondents shall collectively be referred to as
Resilient. The fifth to eighth respondents shall be referred to, respectively, as
Emalahleni, the MEC, the Minister, and the NERSA.

[6] The first to third respondents in Eskom II are, respectively, the Sabie
Chamber of Commerce and Tourism; the Lydenburg Chamber of Commerce
and Tourism; and the Graskop Chamber of Commerce and Tourism. For
brevity, they will collectively be referred to as the Chambers. The fourth to
eleventh respondents are, respectively, the Thaba Chweu Local Municipality;
the Municipal Manager: Thaba Chweu Local Municipality; the Executive
Mayor: Thaba Chweu Local Municipality; the Chief Financial Officer: Thaba
Chweu Local Municipality; the NERSA; the Minister of Energy; the MEC:
Cooperative Governance and Traditional Affairs; and the Minister:
Cooperative Governance and Traditional Affairs. The fourth to seventh
respondents shall collectively be referred to as the municipal respondents. For
convenience, the eighth to the eleventh respondents shall respectively be
referred to as the NERSA, the MEC, and the Ministers. Where it is necessary
to distinguish between the two Ministers, the ninth respondent will be referred
to as the Minister of Energy and the eleventh respondent simply as the
Minister of Cooperative Governance.

3 The National Energy Regulator of South Africa (NERSA) is a regulatory authority, established as a
juristic person, in terms of s 3 of the National Energy Regulator Act 40 of 2004.

[7] Resilient are all private companies who own the Highveld Mall, a
68 000m2 retail shopping centre located within the jurisdiction of the ELM.
The mall has 185 retail tenants. These companies together employ some 2 000
employees and more than 100 support staff. The mall consumes a large
amount of electricity supplied by the ELM, which is a licensed distributor of
electricity it bulk-purchases from Eskom for use by its residents. Resilient
have dutifully paid the ELM for their consumption. The Chambers share a
common interest with Resilient in these proceedings. They represent various
businesses that are affiliated to them. Despite Resilient and the Chambers
having fulfilled their payment obligations to the ELM and TCLM, the two
municipalities have repeatedly defaulted in making their payments to Eskom.
This has resulted in Eskom deciding to interrupt electricity supply to them.
For Resilient and the Chambers, these electricity interruptions have had a
devastating effect as they ‘threaten the very fabric of society’, with hospitals,
schools, households and businesses severely disrupted.

[8] Mr Gwilym Rees, who deposed to the founding affidavit of the
Chambers, elaborated on the effects of electricity interruptions as follows:
‘Firstly, when the power supply is cut, all sewage works immediately come to a standstill.
This means that sewage is not pumped to the sewage processing plants but instead, will
simply sit (and will eventually spill into the streets) for the duration of the cut-off, with the
associated, serious risks to the health of the community.
Secondly, the minute the power is shut off, the water purification and processing plants as
well as those pumping water to the community to ensure adequate water pressure come to
an immediate standstill. This means that taps run dry, households run out of water, and
critical water based facilities will cease functioning. Even worse, when the supply is
reconnected, it will take some time for an adequate reserve to be generated to enable the
community and business to recommence.

Thirdly … any process (industrial, commercial or domestic) that is dependent on electricity
will immediately cease.’

[9] Along similar lines, the deponent to the founding affidavit of Resilient
alleged:
‘50.2
The proposed interruptions will lead to the rapid collapse of the entire Emalahleni
water network within 48 hours and it is likely that a human and environmental
disaster will follow;
50.3
Interruptions to the electrical supply to the water purification system will lead to
raw, unpurified water flowing into reservoirs and creating a serious health risk to
the community;
50.4
There is a real risk that Eskom’s planned interruptions will lead to a total collapse
of the entire sewer system;
50.5
Interruptions to the electrical supply to the sewage works will result in a situation
where raw sewage flows into the natural waterways and ultimately finds its way
into the Olifants River catchment system, creating an environmental hazard way
beyond the boundaries of Emalahleni.’4

[10] Sakeliga NPC (Sakeliga), a business interest organisation boasting a
countrywide membership of some 12 000 members, is a non-profit company
incorporated in terms of the Companies Act 71 of 2008. It was admitted as an
amicus curiae in both Eskom I and Eskom II. In the high court, Sakeliga was
admitted as an amicus curiae in Eskom I but not in Eskom II. I interpose to
observe that counsel for Eskom, in Eskom II, made some play of the fact that
Sakeliga was not admitted as an amicus in relation to the challenge of the
Chambers, contending that its submissions should not have been taken into
account by the high court. In my view this complaint has no substance. In this
court, Sakeliga was, pursuant to its unopposed application, admitted as amicus

4 These allegations were confirmed in a supporting affidavit deposed to by Resilient’s expert.

and repeated the submissions it advanced before the high court. Eskom must
have been aware for several months before the hearing of the appeal, when
Sakeliga’s application for admission as amicus was served on all interested
parties, what its argument would entail. Thus, it was well-prepared to contest,
as it in fact did, those submissions in this Court. Indeed, before us counsel was
not able to point to any prejudice that Eskom had suffered as a result of
Sakeliga having been allowed to present oral argument before the high court.

[11]  The government is Eskom’s sole shareholder. Eskom is also an organ
of state as contemplated in s 239 of the Constitution of the Republic of South
Africa, 1996 (the Constitution).5 In terms of its constituent Act, the Eskom
Conversion Act 13 of 2001, Eskom plays a developmental role and is charged
with promoting ‘universal access to, and the provision of, affordable
electricity, taking into account the cost of electricity, financial sustainability
and the competitiveness of Eskom’.6 The litigation in the high court was
precipitated by decisions7 taken by Eskom to interrupt the bulk supply of
electricity to the ELM and the TCLM. Eskom asserts that it had to resort to
what it accepts is a drastic measure because not only had the ELM and the
TCLM persistently failed over several years to pay for the bulk electricity
supplied by Eskom, in breach of their contractual obligations, they had also
failed to honour their payment obligations undertaken in terms of the
acknowledgment of debt arrangements that they had each respectively signed.

5 See para (b)(ii) of the definition of ‘organ of state’ which includes:
‘(b)
any other functionary or institution—
(i)
…
(ii)
exercising a public power or performing a public function in terms of any legislation, but
does not include a court or a judicial officer…’
6 See s 6(5)(a) and (b) of the Eskom Conversion Act.
7 Eskom’s decisions to interrupt the bulk supply of electricity to the TCLM and the ELM were taken on 15
September and 29 November 2017, respectively.

In addition, Eskom asserted that its principal objective in resorting to the
drastic measure of interrupting the bulk supply of electricity to the ELM and
the TCLM was to contain the spiralling of the electricity debt which, over the
years, had increased exponentially. Eskom further alleged that failure to take
the drastic measures it had adopted would ultimately impact negatively on its
overall capacity to generate electricity. And that if it were pushed to a point
where it could no longer generate electricity, so the argument continued, the
whole country would be plunged into darkness, with disastrous consequences
on many fronts.

[12] Eskom is licenced by the NERSA to generate, transmit and distribute
electricity countrywide.8 Currently, it is the only entity licenced to supply
electricity to municipalities in the country. The municipalities are in turn
licenced to sell electricity to their communities and other customers or end-
users within their areas. Eskom supplies bulk electricity to the municipal grid
which is then distributed by municipalities through their electricity supply
networks to the end-users. It is common cause between the parties that the
municipal electricity supply networks are designed in such a way that it is not
technically possible for Eskom to isolate supply to selected end-users within
municipal areas, the municipal water purification system and the like.

[13] In Joseph and Others v City of Johannesburg and Others9 the
Constitutional Court said, with reference to Mkontwana,10 that: ‘[E]lectricity

8 See, generally, Chapter III of the ERA.
9 Joseph and Others v City of Johannesburg and Others [2009] ZACC 30; 2010 (4) SA 55 (CC) para 34.
(Citations omitted.)
10 Mkontwana v Nelson Mandela Metropolitan Municipality and Another; Bissett and Others v Buffalo City
Municipality and Others; Transfer Rights Action Campaign and Others v MEC, Local Government and
Housing, Gauteng, and Others (KwaZulu-Natal Law Society and Msunduzi Municipality as Amici Curiae)
2005 (1) SA 530 (CC) para 38.

is one of the most common and important basic municipal services and has
become virtually indispensable, particularly in urban society.’ This statement
by the Constitutional Court resonates with the facts of this case. In Mkontwana
the Constitutional Court held that ‘[m]unicipalities are obliged to provide
water and electricity to the residents in their area as a matter of public duty.’11
That electricity is a component of the basic services that municipalities are
constitutionally and statutorily obliged to provide to their residents is
therefore beyond question.

Factual background
[14] It is now opportune to set out a detailed background to this litigation.
As the two applications were brought on essentially similar grounds, and
resisted by Eskom on virtually the same basis, it is convenient to recount the
facts in a consolidated narrative.

[15] The generation, transmission and distribution of electricity in this
country is regulated in terms of the Electricity Regulation Act 4 of 2006 (the
ERA). The NERSA, established in terms of the National Energy Regulator
Act 40 of 2004,12 has, in terms of s 3 of the ERA, been designated as the
custodian and enforcer of the regulatory framework of the ERA. As Regulator
it is empowered, amongst other things, to consider applications for licences
and issue licences for the generation, transmission or distribution of
electricity.13 Eskom is licenced by the NERSA to generate, transmit and

11 Ibid. (Citations omitted.)
12 The National Energy Regulator Act established, under s 3, the National Energy Regulator of South Africa
as a juristic person to undertake, amongst other things, the functions set out in s 4 of the ERA.
13 The powers and duties of the NERSA are set out in s 4 of the ERA:
‘The Regulator—
(a)
must—
(i)
consider applications for licenses and may issues licenses for—

distribute electricity. The ELM and the TCLM are, for their part, licenced by
the NERSA to reticulate14 electricity supplied to them in bulk by Eskom. The
ELM and the TCLM in turn on-sell or supply electricity to the customers or
end-users within their respective municipal areas at a marked-up tariff in order
to raise revenue for themselves. The contractual relationship between Eskom
on the one hand and the ELM and the TCLM on the other is, apart from the
ERA, also regulated in terms of written electricity supply agreements (ESAs)
concluded between the parties. Clauses 9.1 and 9.2 of the ESAs provide:
‘Electricity accounts for all charges payable under this Agreement shall be sent to the
DISTRIBUTOR15 as soon as possible after the end of each month (i.e. meter-reading
month, as per the definition of “month” in the Eskom Schedule of Standard Prices), and
each account shall be due and payable on the date the account is received by the
DISTRIBUTOR, which date, for purposes of this Agreement, shall be as set out in
subclause 25.2.
Should payment not be received within a period of 10 (ten) days from the date the account
is deemed to have become due and payable in terms of subclause 9.1, ESKOM may
discontinue the bulk supply to the DISTRUTOR and/or terminate the electricity supply
agreement after having given the DISTRIBUTOR 14 (fourteen) days written notice. The

(aa) the operation of generation, transmission or distribution facilities;
(bb) the import and export of electricity;
(cc) trading;
(ii)
regulate prices and tariffs;
(iii)
register persons who are required to register with the Regulator where they are not required
to hold a licence;
(iv)
issue rules designed to implement the national government's electricity policy framework, the
integrated resource plan and this Act;
(v)
establish and manage monitoring and information systems and a national information system,
and co-ordinate the integration thereof with other relevant information systems;
(vi)
enforce performance and compliance, and take appropriate steps in the case of non-
performance;
(b)
may—
(i)
mediate disputes between generators, transmitters, distributors, customers or end users;
(ii)
undertake investigations and inquiries into the activities of licensees;
(iii)
perform any other act incidental to its functions.’
14 For purposes of the ERA ‘reticulation’ is defined in s 1 to mean ‘trading or distribution of electricity and
includes services associated therewith’. Properly construed, reticulation appears to refer to the infrastructure
necessary to connect individual end-users to a single supply point for which municipalities are responsible.
15 ‘Distributor’ is a reference to the ELM and the TCLM.

amount outstanding shall bear interest compounded monthly from the due date to date of
payment, at a rate per annum equal to the prevailing prime overdraft rate charged by Firs
National Bank of Southern Africa Limited plus 5% (five per centum).’

[16] Clause 22.3 of the ESAs, in turn, provides:
‘Should the DISTRIBUTOR fail to pay any electricity account in accordance with the
provisions of Clause 9, ESKOM may discontinue the bulk supply to the DISTRIBUTOR
and/or terminate this Agreement, without prejudice to any claim ESKOM may have for
electricity supplied or for damages suffered by the default on the part of the
DISTRIBUTOR, subject to the proviso that ESKOM shall give the DISTRIBUTOR prior
notice thereof by facsimile or some other electronic medium. ESKOM shall afford the
DISTRIBUTOR a period of 48 (forty-eight) hours within which to rectify the said default.
The bulk supply shall be restored as soon as practicable after the DISTRIBUTOR has
remedied the default and paid the requisite reconnection fee.’

[17] Eskom asserted that in breach of their respective contractual
obligations, the ELM and the TCLM failed to pay for the electricity that they
had purchased for distribution to their customers, the end-users. As a result,
their accounts with Eskom fell into arrears. By June 2017 the collective debt
owed to Eskom by various municipalities in the country had reached alarming
proportions.16 The ELM and the TCLM have been two of the notable serial
defaulters17 of their payment obligations for electricity supplied by Eskom.
When the debt owed by the ELM and the TCLM had reached intolerable
levels, Eskom threatened to cut off its electricity supply to the ELM and the
TCLM to induce them to pay. In order to stave off Eskom’s threatened action,
the ELM and the TCLM signed acknowledgements of debt in favour of Eskom

16 As at April 2020 the combined municipal debt for electricity in the country stood at approximately
R 30 billion.
17 When litigation commenced some two and a half years ago, the ELM owed Eskom over R1.2 billion and
the TCLM owed approximately half a billion Rand.

in terms of which they undertook to pay off the accumulated debt in agreed
monthly instalments. At the same time, they also undertook to pay for future
monthly electricity consumption in full upon Eskom rendering its monthly
invoices. These undertakings came to naught for both the ELM and the TCLM
defaulted on their payment plans agreed with Eskom to settle the debt. In
consequence, the arrears continued to mount as the ELM and the TCLM, apart
from the sporadic payments that they made, failed to pay for their ongoing
current consumption, the historical debt and interest accruing thereon.

[18] When Eskom’s tactic of adopting ‘a carrot and stick approach’ to
extract payment from the defaulting municipalities failed to yield the desired
outcome, it published notices declaring its intention to interrupt the bulk
electricity supply at scheduled times, to wit: from 06h00 to 08h00 and again
from 17h00 to 19h30 during the week; and from 08h30 to 11h00 and again
from 15h00 to 17h30 on weekends. These times were to be extended,
incrementally, until the point of a total termination of electricity supply unless
the ELM and the TCLM made substantial payments to Eskom to reduce their
indebtedness. In the notices, Eskom invited members of the public and
interested parties to make representations on why it should not proceed with
the proposed electricity supply interruptions. Resilient made representations
to Eskom to dissuade it from proceeding with the threatened action. No
representations were received from the Chambers or from residents within the
municipal area of the TCLM.

[19] Eskom was not moved by the representations made by Resilient. It gave
notice that it would implement its decision to interrupt the bulk electricity
supply to both the ELM and the TCLM as they had repeatedly failed to honour

their payment arrangements. In justifying its stance, Eskom stated that
Resilient, the Chambers and any other similarly situated parties were not
without a remedy. It was open to them, asserted Eskom, to apply to a court
and seek a mandamus against the ELM and the TCLM directing them to pay
their debts which would then obviate the need for Eskom to implement its
decision to interrupt the supply of electricity. I observe in passing, that it is
cold comfort to suggest that  end-users of electricity could seek a mandamus
directing a delinquent municipality to pay its debts in circumstances where it
is known that it is unable to do so.

[20] The stance adopted by Eskom precipitated the litigation that ensued in
the high court. Both Resilient and the Chambers brought separate applications
on an urgent basis in which they sought interim and final relief. With respect
to the interim relief, they sought orders, in essence, directing Eskom to restore
the full supply of electricity pending the final determination of the relief
sought in part B of their notices of motion. With respect to final relief, they,
so far as is relevant for present purposes, sought orders in the following terms:
(a)
declaring that the interruption decision is unconstitutional and invalid;
(b)
reviewing and setting aside the interruption decision;
(c)
declaring that s 21(5) of the ERA is inconsistent with the Constitution
and invalid; and
(d)
interdicting Eskom from disconnecting the electricity supply for the
purpose of compelling the municipalities to pay their arrear debts to Eskom.

[21] The case of Resilient and the Chambers is that it is unconstitutional and
unlawful for Eskom to enforce its debt against the ELM and the TCLM by
interrupting the electricity supply in circumstances where they, as end-users,

have met their payment obligations to the municipalities. They assert that: (a)
they have dutifully paid for their electricity but cannot compel the ELM and
the TCLM to pay Eskom; (b) Eskom has been dilatory in failing to recover
the escalating debt from the municipalities and allowed it to escalate to
unsustainable levels, and (c) the interruption of electricity created a public
health and environmental emergency because it threatened the functioning of
the municipal water reticulation and sewage systems.

[22] Accordingly, the case of Resilient and the Chambers was based on the
following grounds: First, Eskom was obliged to supply electricity to all end-
users in terms of clauses 3.1 and 3.2 of its distribution licence. Therefore, its
decision to interrupt the supply of electricity to the entire municipality was
not consonant with its licence conditions. Second, Eskom’s decision was
tantamount to an impermissible exercise of self-help and thus inconsistent
with the rule of law under s 1(c) of the Constitution and the right of access to
courts under s 34. Third, the decision was in breach of s 6(2)(e)(iii) of the
Promotion of Administrative Justice Act 3 of 2000 (PAJA) because in taking
it, Eskom failed to have regard to all the relevant considerations, particularly
the potential damage to the environment as a result of sources of water being
contaminated due to damage to the municipal water and sewage systems. It
thereby put the health of the local residents at risk Fourth, Eskom had not
exhausted the mechanism provided for in s 41 of the Constitution and s 40 of
the Intergovernmental Relations Framework Act 13 of 2005 (IRFA) to resolve
its disputes with the ELM and the TCLM before taking its interruption
decision.

[23] For its part, Eskom contended that: first, there was no contractual nexus
between it on the one hand and Resilient and the Chambers on the other and,
therefore, that it bore no constitutional obligation to supply them with
electricity. Secondly, it was entitled to rely on clause 9.2 of the ESAs, which
accorded it the contractual right to interrupt or even terminate altogether the
supply of electricity to the ELM and the TCLM. Thirdly, its contractual right
to interrupt or terminate the supply of electricity was buttressed by s 21(5)(c)
of the ERA, which authorises it to reduce or terminate the supply of electricity
to the affected municipalities, when they have contravened the payment
conditions of its distribution licence. Fourthly, s 41 of the Constitution and ss
40 and 41 of the IRFA were not implicated because there existed no dispute
between it on the one hand and the ELM and the TCLM on the other. On this
score, Eskom asserted that the two municipalities had unequivocally admitted
liability to it, undertook to settle the existing debt over an agreed period, pay
for their current consumption of electricity when billed therefor by Eskom,
but failed to honour their undertaking. As a further justification for its
decision, Eskom asserted that it was statutorily obliged to take the action it
did because s 51(1)(b)(i)18 of the Public Finance Management Act 1 of 1999
(PFMA) obliges it to recover revenue owed to it.

[24] Although Eskom had consented to the grant of interim relief (albeit at
different times) in terms of which it was directed to restore full supply of
electricity to the ELM and the TCLM, it nevertheless made clear that it would
resist the grant of final relief.

18 Section 51(1)(b)(i) reads:
‘An accounting authority for a public entity—
…
(b)
must take effective and appropriate steps to—

(i)
collect all revenue due to the public entity concerned…’

[25] In its answering affidavit in Eskom II, Eskom emphasised that the
failure of the municipalities to settle their debts threatened its financial
viability. It stated:
‘Between the periods March 2016 to November 2016, total municipal debt owed to Eskom
had increased to R10.2 billion. As at the June 2017, the overall municipal debts for various
municipalities had risen exponentially to R 11.45 billion of which R 2.536 billion was owed
by various municipalities within Mpumalanga Province where the [TCLM] is located.
Eskom requires the income it earns from the supply of electricity to service its debts and
meet is operational expenditure. The debt owed to it adversely impact upon Eskom’s
financial viability and its ability to deliver services to supply electricity in the country.
In the circumstances, it [became] unsustainable for Eskom to continue to supply bulk
electricity to municipalities that do not pay for it. It also [became] necessary for Eskom to
take measures to reduce and manage the rate of escalation of the debts in cases where no
payment is received.
Eskom needs to collect the outstanding debt to ensure its financial stability. It has become
urgent to collect revenue from all offending municipalities in order to ensure that: (i) its
cost of debt for capital expansion does not become unmanageable; (ii) it is not compelled
to raise funds on the capital markets to meet operating expenses; and (iii) it can maintain
and expand electricity generation to meet the needs of all South Africans. This has become
more important in light of recent credit ratings downgrades in relation to Eskom’s debt.
…
Further, if Eskom’s customers such as the municipality herein, do not pay for the bulk
electricity having been supplied with, that will put Eskom in a situation where it may not
be able to deliver on its mandate to generate electricity. That will lead to the demise of
Eskom. Should that happen, the entire economy of the country will collapse. No industry
or institution will operate. There will simply be no economic activities that will take place
in the country. Therefore, the action taken by Eskom is necessary in the circumstances.
Eskom is, moreover, statutorily obliged to collect all revenue owed to it in terms of s
51(1)(b)(i) of the PFMA and municipalities have a concomitant obligation to Eskom to pay
for the electricity they distribute to end-users.’

[26] Eskom then asserted that all of its engagements with the defaulting
municipalities to recover the debt and secure compliance with their
obligations have been unsuccessful. Significantly, with respect to the
acknowledgment of debt by the TCLM the amount of some R400 million
owing was for the period from 30 September 2002 to 7 June 2016. Yet, no
concerted effort was made to contain the debt before it spiralled to an
unmanageable level over a 16 year period.

[27] As already mentioned, in the high court the application for final relief
came before Hughes J who granted an order reviewing and setting aside
Eskom’s decisions to embark on scheduled interruptions of electricity to the
ELM and the TCLM, together with ancillary relief.

[28] It concluded that Eskom had the power under s 21(5) of the ERA to
interrupt the supply of electricity. But it nevertheless held further that Eskom
had failed to comply with the requirements of cooperative governance, as
prescribed in s 41 of the Constitution and read with ss 40 and 41 of the IFRA,
before taking the impugned decision. It reasoned as follows:
‘It is apparent that there is a dispute with regards to payments due to Eskom by the two
municipalities concerned. It is common cause that both parties have constitutional duties
and obligations towards the public at large. Both parties in my view, have failed the public
at large; on the one hand we have the delinquent municipalities and on the [other] hand we
have Eskom having not been paid by the municipalities opting to deprive the public of
basic services in terms of the Constitution and the Bill of Rights. In conclusion it is evident
to me that Eskom and the municipalities failed to adopt the dispute mechanism at their
disposal in terms of the IRFA.

In terms of s 6(2)(e)(iii) of the PAJA, the failure on the part of Eskom and the municipalities
to exhaust alternative remedies and procedures before embarking on the procedure of
supply interruptions by Eskom, warrants the grant of the review sought. This section makes
provision for a court to review an administrative action if relevant considerations were not
considered. I agree with the amici that in this instance, the failure to pursue the process and
mechanism, as is found in IFRA, would constitute a ground for review.’19

Constitutional and statutory framework
[29] Following upon the detailed factual background canvassed above, it is
now necessary to make reference to the constitutional and statutory
obligations that municipalities in the local sphere of government bear. First, s
151(1) of the Constitution establishes the local sphere of government, which
consists of municipalities throughout the territory of the Republic. Subsection
(2) vests the executive and legislative authority of municipalities in their
Municipal Councils. Each municipality has ‘the right to govern, on its own
initiative, the local government affairs of its community, subject to national
and provincial legislation, as provided for in the Constitution.’20

[30] Section 152, in turn, deals in broad terms with the objects of local
government. It provides:
‘(1) The objects of local government are—
(a)
to provide democratic and accountable government for local communities;
(b)
to ensure the provision of services to communities in a sustainable manner;
(c)
to promote social and economic development;
(d)
to promote a safe and healthy environment; and
(e)
to encourage the involvement of communities and community organisations in the
matters of local government.

19 Sabie Chamber of Commerce and Tourism (above fn 1) paras 53-54.
20 Section 151(3) of the Constitution.

(2) A municipality must strive, within its financial and administrative capacity, to achieve
the objects set out in subsection (1).’

[31] In order to fulfil its constitutional mandate as envisioned in s 152, a
municipality is required, in terms of s 153(a), to ‘structure and manage its
administration and budgeting and planning processes to give priority to the
basic needs of the community, and to promote the social and economic
development of the community’. It is also necessary to make reference to s
154 of the Constitution. The provision is headed ‘Municipalities in
cooperative government’ and provides as follows in subsection (1):
‘The national government and provincial governments, by legislative and other measures,
must support and strengthen the capacity of municipalities to manage their own affairs, to
exercise their powers and to perform their functions.’

[32] Pursuant to the constitutional mandate conferred and the constitutional
duty imposed, national government enacted various legislative measures in
order to give effect to the dictates of the Constitution. Relevant for present
purposes are: the Housing Act 107 of 1997 (the Housing Act), the Local
Government: Municipal Systems Act 32 of 2000 (the Municipal Systems
Act), and the Local Government: Municipal Finance Management Act 56 of
2003 (MFMA), the latter applying to all municipalities, municipal entities,
and to national and provincial organs of state to the extent of their financial
dealings with municipalities.21
[33] Section 4 of the Municipal Systems Act, dealing with the rights and
duties of municipal councils, provides, amongst others in subsection (2) that:

21 Section 3(1) of the MFMA. Subsection (2) goes on to state that:
‘In the event of any inconsistency between a provision of this Act and any other legislation in force when
this Act takes effect and which regulates any aspect of the fiscal and financial affairs of municipalities or
municipal entities, the provision of this Act prevails.’

‘The council of a municipality, within the municipality’s financial and administrative
capacity and having regard to practical considerations, has the duty to-
…
(f)
give members of the local community equitable access to the municipal services to
which they are entitled…’
Moreover, s 73 states that:
‘(1) A municipality must give effect to the provisions of the Constitution and—
(a)
give priority to the basic needs of the local community;
(b)
promote the development of the local community; and
(c)
ensure that all members of the local community have access to at least the minimum
level of basic municipal services.
(2) Municipal services must—
(a)
be equitable and accessible;
(b)
be provided in a manner that is conducive to—
(i)
the prudent, economic, efficient and effective use of available resources;
and
(ii)
the improvement of standards of quality over time;
(c)
be financially sustainable;
(d)
be environmentally sustainable; and
(e)
be regularly reviewed with a view to upgrading, extension and improvement.’

[34] Section 9 of the Housing Act, in respect of the functions of
municipalities, reads as follows in subsection (1)(a)(iii):
‘Every municipality must, as part of the municipality's process of integrated development
planning, take all reasonable and necessary steps within the framework of national and
provincial housing legislation and policy to—
(a)
ensure that—
…
(iii) services in respect of water, sanitation, electricity, roads, stormwater drainage
and transport are provided in a manner which is economically efficient;’

[35] The object of the MFMA is ‘to secure sound and sustainable
management of the fiscal and financial affairs of municipalities’.22 It seeks to
do so by establishing norms and standards and other requirements for,
amongst other things, ‘the handling of financial problems in municipalities’.23
Section 139, which is headed ‘[m]andatory provincial interventions arising
from financial crises’, provides in subsection (1) that:
‘If a municipality, as a result of a crisis in its financial affairs, is in serious or persistent
material breach of its obligations to provide basic services or to meet its financial
commitments, or admits that it is unable to meet its obligations or financial commitments,
the provincial executive must promptly—
(a)
request the Municipal Financial Recovery Service—
(i)
to determine the reasons for the crisis in its financial affairs;
(ii)
to assess the municipality's financial state;
(iii) to prepare an appropriate recovery plan for the municipality;
(iv) to recommend appropriate changes to the municipality's budget and
revenue-raising measures that will give effect to the recovery plan;
(v)
to submit to the MEC for finance in the province—
(aa) the determination and assessment referred to in subparagraphs (i) and (ii)
as a matter of urgency; and
(bb) the recovery plan and recommendations referred to in subparagraphs (iii)
and (iv) within a period, not to exceed 90 days, determined by the MEC
for finance; and
(b)
consult the mayor of the municipality to obtain the municipality's co-operation in
implementing the recovery plan, including the approval of a budget and legislative
measures giving effect to the recovery plan.
(2) The MEC for finance in the province must submit a copy of any request in terms of
subsection (l)(a) and of any determination and assessment received in terms of subsection
(l)(a)(v)(aa) to—

22 Section 2 of the MFMA.
23 Ibid para (f). Chapter 13 of the Act (ss 135-162) deals with the resolution of financial problems. Provincial
interventions make up part 2 of this chapter and are provided for in ss 136-150.

(a)
the municipality;
(b)
the Cabinet member responsible for local government: and
(c)
the Minister.
(3) An intervention referred to in subsection (1) supersedes any discretionary provincial
intervention referred to in section 137, provided that any financial recovery plan prepared
for the discretionary intervention must continue until replaced by a recovery plan for the
mandatory intervention.’

[36] Section 139(5) of the Constitution provides:
‘If a municipality, as a result of a crisis in its financial affairs, is in serious or persistent
material breach of its obligations to provide basic services or to meet its financial
commitments, or admits that it is unable to meet its obligations or financial commitments,
the relevant provincial executive must—
(a)
impose a recovery plan aimed at securing the municipality's ability to meet its
obligations to provide basic services or its financial commitments…’24
If a provincial executive cannot, or does not, or does not adequately exercise
the powers or perform the functions referred to in subsections (4) and (5), the
national executive must intervene in the stead of the relevant provincial
executive.25

[37] Finally, s 1 of the Constitution decrees that the Republic of South Africa
is a single, sovereign and democratic state founded on certain values ‘to
ensure accountability, responsiveness and openness’.26

The issues

24 There are two requirements for this, as listed in s 139(5)(a)(i) and (ii) of the Constitution. The provincial
executive must impose a recovery plan which:
‘(i)
is to be prepared in accordance with national legislation; and
(ii)
binds the municipality in the exercise of its legislative and executive authority, but only to the extent
necessary to solve the crisis in its financial affairs.’
25 See s 139(7) of the Constitution.
26 See s 1(d) of the Constitution.

[38] The principal issues for adjudication in Eskom I and Eskom II are:
(a)
whether the contractual and constitutional disputes relating to the
moneys owed to Eskom and, in particular, the manner in which Eskom sought
to recover them constituted intergovernmental disputes as contemplated in s
41 of the Constitution and s 40 of the IRFA;
(b)
whether Eskom was in law entitled to invoke s 21(5) of the ERA
without a court order authorising it to do so.
The subsidiary issues are whether:
(i)
Eskom’s decision to interrupt the bulk supply of electricity to the ELM
and the TCLM was susceptible to review, and if so, whether such decision
was irrational and unconstitutional; and
(ii)
if s 41 of the Constitution and s 40 of the IRFA are found to apply,
whether Eskom failed first to exhaust the alternative avenues contemplated in
s 41 and s 40 respectively.

[39] With respect to the appeal of the Thaba Chweu municipal appellants,
the sole issue is whether they should have been ordered to bear the costs of
the Chambers in Eskom II.

Discussion
[40] The relevant provisions of the MFMA must now be considered in
detail. The overarching purpose of this Act is apparent from its preamble. It
is to ‘secure sound and sustainable management of the financial affairs of
municipalities and other institutions in the local sphere of government.
Section 44(1) provides that whenever a dispute of a financial nature arises
between organs of state (one of which is a municipality) the parties concerned
must promptly take all reasonable steps to resolve the dispute out of court.

Furthermore, subsection (2) provides that if the National Treasury is not a
party to the dispute, the parties must report the matter to National Treasury
and may request the latter to mediate or designate a person to mediate between
them.

[41] In terms of s 135(1), the primary responsibility to identify and resolve
financial problems in a municipality rests with the municipality. Section
135(2) imposes a duty on a municipality to meet its financial commitments.
If a municipality encounters a serious financial problem, it must in terms of s
135(3)(b) ‘notify the MEC for local government and the MEC for finance in
the province.’ Section 138 sets out criteria for determining serious financial
problems. It goes further to provide a list of factors which either individually
or cumulatively may indicate a serious financial problem. Two of those
factors bear mentioning in the context of this case. They are: (i) failure by a
municipality to make payments as and when due; and (ii) where a municipality
has defaulted on financial obligations for financial reasons.

[42] Section 136 imposes an obligation on the MEC for local government in
a province if he or she becomes aware that a municipality is experiencing a
serious financial problem. In that event, the MEC is obliged to promptly: (a)
consult the mayor to determine the facts; (b) assess the seriousness of the
situation and the municipality’s response to that situation; and most
importantly (c) determine whether the situation justifies or requires an
intervention in terms of s 139 of the Constitution. Moreover, in terms of
s 136(2) the MEC must, if the financial situation has been caused by or
resulted in a failure by the municipality to comply with an executive
obligation in terms of legislation or the Constitution, and the conditions for

intervention in terms of s 139 of the Constitution are met, promptly decide
whether or not to intervene in the municipality.

[43] Section 150 provides for the intervention of the national executive
where the provincial executive ‘cannot or does not or does not adequately
exercise the powers or perform the functions’ referred to in s 139(4) or (5) of
the Constitution. It reads:
‘(1) If the conditions for a provincial intervention in a municipality in terms of section
139(4) or (5) of the Constitution are met and the provincial executive cannot or does not
or does not adequately exercise the powers or perform the functions referred to in that
section, the national executive must—
(a)
consult the relevant provincial executive; and
(b)
act or intervene in terms of that section in the stead of the provincial executive.
(2) If the national executive intervenes in a municipality in terms of subsection (1)—
(a)
the national executive assumes for the purposes of the intervention the functions and
powers of a provincial executive in terms of this Chapter;
(b)
the Minister assumes for the purposes of the intervention the functions and powers
of an MEC for finance in terms of this Chapter; and
(c)
a reference in this Chapter—
(i)
to a provincial executive must be read as a reference to the national executive;
(ii)
to an MEC for finance must be read as a reference to the Minister; and
(iii) to a provincial intervention must be read as a reference to a national
intervention.’

[44] I revert briefly to the ERA. Section 2 thereof sets out its objects which,
in relevant part, are to:
‘(a) achieve the efficient, effective, sustainable and orderly development and operation
of electricity supply infrastructure in South Africa;
(b)
ensure that the interests and needs of present and future electricity customers and end
users are safeguarded and met…

(d)
facilitate universal access to electricity;
…
(g)
facilitate a fair balance between the interests of customers and end users, licensees,
investors in the electricity supply industry and the public.’

[45] Section 27 then deals with the duties of municipalities with respect to
electricity reticulation. It reads:
‘Each municipality must exercise its executive authority and perform its duty by—
(a)
complying with all the technical and operational requirements for electricity
networks determined by the Regulator;
(b)
integrating its reticulation services with its integrated development plans;
(c)
preparing, implementing and requiring relevant plans and budgets;
(d)
progressively ensuring access to at least basic reticulation services through
appropriate investments in its electricity infrastructure;
(e)
providing basic reticulation services free of charge or at a minimum cost to certain
classes of end users within its available resources;
(f)
ensuring sustainable reticulation services through effective and efficient
management and adherence to the national norms and standards contemplated in
section 35;
(g)
regularly reporting and providing information to the Department of Provincial and
Local Government, the National Treasury, the Regulator and customers;
(h)
executing its reticulation function in accordance with relevant national energy
policies; and
(i)
keeping separate financial statements, including a balance sheet of the reticulation
business.’

[46] As can be seen from the provisions of s 27 quoted in the preceding
paragraph, it imposes certain obligations on municipalities. Notably amongst
those obligations, in the context of the facts of these appeals, is the duty to
regularly report and provide information on electricity reticulation to the

Department of Provincial and Local Government, the Regulator and
customers. And, significantly, to ‘keep separate financial statements,
including a balance sheet of the reticulation business’.

Section 21(5) of the ERA
[47] I now proceed to consider the argument advanced in relation to s 21(5)
of the ERA. From the perspective of Resilient, the Chambers and Sakeliga,
this issue raises the question whether Eskom in effect resorted to ‘self-help’
when it invoked s 21(5). In Chief Lesapo v North West Agricultural Bank and
Another27 the Constitutional Court held:
‘No one is entitled to take the law into her or his own hands. Self help, in this sense, is
inimical to a society in which the rule of law prevails, as envisioned by section 1(c) of our
Constitution, which provides:
“The Republic of South Africa is one, sovereign, democratic State founded on the
following values:
…
(c)
Supremacy of the constitution and the rule of law.”
Taking the law into one’s own hands is thus inconsistent with the fundamental principles
of our law.’28

[48] Section 21 of the ERA which is headed ‘Power and duties of licensee’
provides in relevant part of subsection (5) thereof that:
‘(5) A licensee may not reduce or terminate the supply of electricity to a customer, unless—
(a)
the customer is insolvent;
(b)
the customer has failed to honour, or refuses to enter into, an agreement for the
supply of electricity; or

27 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC) para 11. (Citations
omitted.)
28 See also: Public Servants Association obo Ubogu v Head, Department of Health, Gauteng and Others
[2017] ZACC 45; 2018 (2) SA 365 (CC) paras 66-67; Gundwana v Steko Development CC and Others [2011]
ZACC 14; 2011 (3) SA 608 (CC) para 45.

(c)
the customer has contravened the payment conditions of that licensee.’

[49] In the high court, Eskom argued that it was empowered in terms of s 21(5) to
interrupt or even terminate electricity supply, where a customer fails to honour the terms
of the agreement for the supply of electricity or has contravened the payment conditions of
the licensee. On this score Eskom strongly relied on the judgments of the Constitutional
Court and this Court in Rademan. In Rademan v Moqhaka Municipality and Others29 the
question that confronted this Court was whether the respondent municipality was
empowered to interrupt the supply of electricity without having to approach a court first to
seek a court order authorising it to discontinue the supply of services. In answering this
question in the affirmative, this Court said:
‘Such a proposition is both unrealistic and untenable. Given the rate of the protests and
demonstrations for delivery across the country concomitant with the refusal by ratepayers
to pay their rates and taxes and fees for municipal services, I am of the view that it would
not be practical for municipalities to pursue these matters in court. It cannot be gainsaid
that such a step would result in the municipalities being mired in such cases, losing precious
time in the process and incurring high legal bills unnecessarily.
I have no doubt these powers were given to municipalities to enable them to collect all
moneys that are due and payable to them in the most cost-effective manner. Commenting
on the power of a municipality to discontinue municipal service as a means of getting the
ratepayers to pay their accounts, Yacoob J remarked as follows in Mkontwana v Nelson
Mandela Metropolitan Municipality, Bisset and Others v Buffalo City Municipality and
Others; Transfer Rights Action Campaign and Others v MEC, Local Government and
Housing, Gauteng and Others (Kwazulu-Natal Law Society and Msunduzi Municipality as
Amici Curiae) 2005 (1) SA 530 (CC) para 52:
“It is emphasised that municipalities are obliged to provide water and electricity and that it
is therefore important for unpaid municipal debt to be reduced by all legitimate means. It
bears repeating that the purpose is laudable, has the potential to encourage regular
payments of consumption charges, contributes to the effective discharge by municipalities

29 Rademan v Moqhaka Municipality and Others [2011] ZASCA 244; 2012 (2) SA 387 (SCA).

of their obligations and encourages owners of property to fulfil their civic
responsibility.”’30

[50] A further appeal against this judgment to the Constitutional Court was
unsuccessful.31 Dealing with s 21(5)(b), the Constitutional Court said that the
provision contemplates two scenarios. The first is where there is an agreement
between a resident and the municipality to supply electricity by the
municipality to the customer, and the customer refuses to honour the
agreement. The other is where there is no agreement for the supply of
electricity and the customer refuses to enter into an agreement. The Court
concluded that ‘[i]n either case the municipality would be entitled to cut off
the supply of electricity to the resident or customer if it were already supplying
electricity to the customer’.32

[51] Eskom submitted that here there was no dispute between it on the one
hand and the ELM and the TCLM on the other. This was because the two
municipalities admitted that they owed money to Eskom and signed
acknowledgments of debt in terms of which they undertook to settle the debt
in agreed monthly instalments. When they failed to comply with the
agreement Eskom was left with no other option but to implement its decision
to interrupt bulk electricity supply. In this regard Eskom, as previously stated,
relied both on s 21(5) of the ERA and clauses 9.1, 9.2 and 22.4 of the ESAs.

[52] In their heads of argument Resilient, the Chambers and Sakeliga
respectively contended that it was not open to Eskom to invoke s 21(5)

30 Ibid paras 16-17.
31 See Rademan v Moqhaka Local Municipality [2013] ZACC 11; 2013 (4) SA 225 (CC).
32 Ibid para 36.

without recourse to litigation. They argued that to construe s 21(5) to mean
that Eskom could interrupt or terminate the electricity supply to an entire
municipality without judicial supervision would be a violation of ss 1(c) and
3433 of the Constitution. However, when it soon became clear that this
contention was running into headwinds, counsel for Resilient found himself
unable to press the argument. But counsel for the Chambers and Sakeliga
persisted. They argued that in the context of the ERA a municipality which is
a licensee in its own right, and licenced by the NERSA to reticulate or on-sell
electricity distributed to it by Eskom to end-users cannot be regarded as a
customer.

[53] Relying on Jaftha v Schoeman and Others, Van Rooyen v Stoltz and
Others34 and certain other decisions of the Constitutional Court,35 counsel for
the Chambers submitted that because of the egregious nature of the rights
likely to be violated by the termination of electricity to a municipality, s 21(5)
should be interpreted so as to require prior judicial authorisation of any
decision by Eskom to interrupt or terminate the supply of electricity to a
municipality. In Jaftha the Constitutional Court had occasion to say the
following:
‘Judicial oversight permits a magistrate to consider all the relevant circumstances of a case
to determine whether there is good cause to order execution. The crucial difference
between the provision of judicial oversight as a remedy and the possibility of reliance on

33 Section 34 reads:
‘Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair
public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.’
34 Jaftha v Schoeman and Others, Van Rooyen v Stoltz and Others 2005 (2) SA 140 (CC).
35 Chief Lesapo v North West Agricultural Bank and Another 2000 (1) SA 409 (CC); Gundwana v Steko
Development CC and Others 2011 (3) SA 608 (CC); University of Stellenbosch Legal Aid Clinic and Others
v Minister of Justice and Correctional Services and Others; Association of Debt Recovery Agents NPC v
University of Stellenbosch Legal Aid Clinic and Others; Mavava Trading 279 (Pty) Ltd and Others v
University of Stellenbosch Legal Aid Clinic and Others [2016] ZACC 32; 2016 (6) SA 596 (CC) para 59.

ss 62 and 73 of the Act is that the former takes place invariably without prompting by the
debtor. Even if the process of execution results from a default judgment the court will need
to oversee execution against immovables. This has the effect of preventing the potentially
unjustifiable sale in execution of the homes of people who, because of their lack of
knowledge of the legal process, are ill-equipped to avail themselves of the remedies
currently provided in the Act.’36
There, the applicants in the two cases had their homes sold in execution for
paltry amounts after they had fallen into arrears with their payments. They
applied to the high court for orders setting aside the sales in execution, and
interdicting the registration of transfer of their homes to the persons who had
purchased them by challenging the constitutionality of s 66(1)(a) of Act 32 of
1944 to the extent that it permitted the sale of a debtor’s home without
affording the debtor adequate protection. The applicants failed in the high
court but were successful before the Constitutional Court.

[54] Counsel for the Chambers, therefore, contended that Eskom’s reliance
on the Constitutional Court’s judgment in Rademan was misplaced. In
developing this argument, it was submitted that Rademan is authority only for
the proposition that ‘the supply of electricity may be terminated or interrupted
on the basis of s 21(5) of the ERA by a municipality, for non-payment of any
type of municipal service, without the sanction of a court order. And, further,
for confirmation that the constitutional rights of residents to receive electricity
from a municipality are in fact limited by the provisions of s 21(5) of the
ERA’. It certainly, argued counsel, is no authority for the proposition that
Eskom may interrupt or terminate the electricity supply to an entire
municipality upon default of payment by the municipality and, as a result,

36 Jaftha (above fn 32) para 55.

adversely affect even electricity consumers who are up to date with their
payments. This must be so, proceeded the argument, because Eskom’s power
‘is subject to the implied requirement of prior judicial oversight’ given its far-
reaching implications. Counsel accepted that in order to sustain this argument
it would be necessary to read in words to the effect that Eskom is required to
apply to court on notice to all interested parties for an order authorising it to
exercise its power under s 21(5).

[55] There is no merit in this contention. It cannot be sustained unless the
plain meaning of the language used in s 21(5), read contextually and
purposively, is supplemented by reading in the words suggested by counsel
for the Chambers. Indeed, counsel readily and fairly accepted this to be the
case. As the constitutional validity of s 21(5) is not in issue, it is not open to
this Court to adopt the construction that counsel attributes to the section.37
However, that is not to say that, in interpreting s 21(5), this Court must not
promote the spirit, purport and objects of the Bill of Rights as required by s
39(2) of the Constitution.38 It is therefore correct, as counsel for Eskom
argued, that s 21(5) of the ERA empowers Eskom to reduce or terminate the
supply of electricity to its customers in the circumstances spelt out in the
section. And that it may exercise that power without prior authorisation by a
court. All of the decisions upon which counsel for the Chambers heavily relied
turned on their peculiar facts which are materially distinguishable from the
facts of the Eskom appeals. To conclude, there can be no doubt that s 21(5)
was adopted with the manifest purpose of obviating obstacles that distributors

37 National Coalition for Gay and Lesbian Equality and Others v Minister of Home Affairs and Others 2000
(2) SA 1 (CC) paras 23-34.
38 Section 39(2) of the Constitution reads:
‘(2) When interpreting any legislation, and when developing the common law or customary law, every court,
tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.’

of electricity would encounter if, in the circumstances spelt out in the section
itself, they were required to seek prior judicial authorization before
interrupting or terminating the supply of electricity to a customer who refuses
or is unable to pay for it.

[56] However, this is not the end of the matter. It necessarily raises the
question whether, in the context of the ERA, a municipality to which Eskom
supplies electricity as a distributor and licensee is, vis-a-vis Eskom, a
‘customer’. This is because Sakeliga argues that a municipality is a licensee
and not a ‘customer’ as envisaged in s 21(5). Section 1 of the ERA provides
that, unless the context indicates otherwise, ‘customer’ means ‘a person who
purchases electricity or a service relating to the supply of electricity’. It further
defines ‘person’ to ‘include any organ of state as defined in s 139 of the
Constitution’. A ‘distributor’ is defined as ‘a person who distributes
electricity’ and ‘licensee’ in turn means ‘the holder of a licence granted or
deemed to have been granted by the Regulator’ under the ERA. There can be
no doubt that for purposes of the ERA both the ELM and the TCLM are
licensees and distributors of the electricity supplied to them by Eskom, which
they in turn supply to their customers or end-users.39

[57] Sakeliga’s contention does not bear scrutiny. To uphold it would result
in Eskom being precluded from invoking s 21(5) not only against
municipalities which are distributors in their own right but, crucially, also
against any other entity that distributes bulk electricity supplied by Eskom.

39 The word ‘supply’ is defined in the ERA to mean ‘trading and the generation, transmission or
distribution of electricity’.

Thus, on a contextual and purposeful construction of s 21(5) the contention
for which Sakeliga contends is untenable.

[58] But when it comes to municipalities as distributors of electricity, further
considerations would come into play. Terminating the supply of electricity to
an entire municipality in the circumstances provided for in s 21(5) would be
a radical step. Such reduction or termination of the supply of electricity would
adversely affect every consumer within the affected municipality. Indeed, it
would have the effect of collapsing the entire municipality, rendering it unable
to fulfil its constitutional and statutory mandate to provide basic services. The
objects of local government spelt out in s 152 of the Constitution would be
subverted. And a municipality whose electricity supply is terminated by
Eskom would not be able to ‘give members of the local community equitable
access to the municipal services to which they are entitled’ as required by s
4(2)(f) of the Municipal Systems Act. Nor would such a municipality be able
to provide services in respect of water, sanitation and electricity in terms of s
9(1)(a)(ii) of the Housing Act as these services rely on electricity for their
functionality.

[59] There can be no doubt about the developmental role of legislative
measures like the Municipal Structures Act which, in its preamble, recognises,
amongst other things, the fundamental importance of local government to
democracy. The Municipal Structures Act also seeks to ensure sustainable,
effective and efficient municipal services, and to promote social and economic
development in a safe and healthy environment. Without the supply of
electricity to a municipality, all of these developmental and transformative
goals would be nothing more than a dream deferred with deleterious effects

to local communities. Thus, it is manifest that these legislative measures seek
to foster an integrated co-ordinated approach to the provision of municipal
services to local communities.

[60] It is as well to remember that s 1 of the Constitution constitutes the
Republic of South Africa as ‘one, sovereign, democratic state’ founded on
certain fundamental values. In addition, s 154 of the Constitution decrees that
the ‘national government and provincial governments, by legislative and other
measures, must support and strengthen the capacity of municipalities to
manage their affairs, to exercise their power and to perform their duties’.
There is also s 4(2) of the Municipal Systems Act that imposes a duty on
municipalities together with other organs of state, like Eskom, to contribute
to the progressive realisation of the fundamental rights contained in ss 24, 25,
26, 26, 27 and 29 of the Constitution. Accordingly, before Eskom decides to
invoke its power under s 21(5) to interrupt the supply of electricity to an entire
municipality, it must, as an organ of state, be mindful of its constitutional
obligations.

Intergovernmental disputes
[61] Was Eskom required to comply with s 41(3) of the IRFA before taking
the decision to interrupt electricity supply to the municipalities herein
concerned because of their failure to pay for the electricity supplied? The short
answer to this question is: Yes. I elaborate on this below. Section 41 of the
Constitution deals with principles of cooperative government and
intergovernmental relations. It provides in relevant part that:
‘(1) All spheres of government and all organs of state within each sphere must—
(a)
preserve the peace, national unity and the indivisibility of the Republic;

(b)
secure the well-being of the people of the Republic;
(c)
provide effective, transparent, accountable and coherent government for the Republic
as a whole;
…
(h)
cooperate with one another in mutual trust and good faith by—
…
(ii)
assisting and supporting one another;
(iii) informing one another of, and consulting one another on, matters of common
interest;
(iv) coordinating their actions and legislation with one another;
(v)
adhering to agreed procedures; and
(vi) avoiding legal proceedings against one another.’

[62] Section 41 goes on to state as follows:
‘An organ of state involved in an intergovernmental dispute must make every reasonable
effort to settle the dispute by means of mechanisms and procedures provided for that
purpose, and must exhaust all other remedies before it approaches a court to resolve the
dispute.’40
The importance of this mandate is then bolstered by subsection (4), which
empowers courts to decline entertaining disputes that have not first
legitimately travelled through the extra-curial mechanisms designed and
available for that purpose.

[63] The IRFA is the legislative measure contemplated in s 41(2) of the
Constitution. In its preamble, the broad object of s 41 is taken further by
stating, amongst other things, that ‘all spheres of government must provide
effective, efficient, transparent, accountable and coherent government for the
Republic to secure the well-being of the people and the progressive realisation

40 Section 41(3) of the Constitution.

of their constitutional rights’. It goes on to state that the pervasive need for
government to redress the legacies of apartheid and discrimination are ‘best
addressed through a concerted effort by government in all spheres to work
together and to integrate as far as possible their actions in the provision of
services, the alleviation of poverty and the development of our people and our
country’. Whilst recognising that piecemeal legislation exists to regulate this
area in particular parts of the government, it deemed it necessary ‘to establish
a general legislative framework applicable to all spheres and in all sectors of
government to ensure the conduct of intergovernmental relations in the spirit
of the Constitution’.

[64] The long title of the IRFA states that the object of the Act is ‘to establish
a framework … to promote and facilitate intergovernmental relations; to
provide for mechanisms and procedures to facilitate the settlement of
intergovernmental disputes’. In particular, s 4 of the IRFA states that its object
is:
‘[T]o provide within the principle of co-operative government … a framework for the
national government, provincial governments and local governments, and all organs of
state … to facilitate coordination in the implementation of policy and legislation
including—
…
(b)
effective provision of services;
…
(d)
realisation of national priorities’.
Accordingly, there can be no doubt that there are important consequences
flowing from this particular relationship, meaning that disputes arising

between different spheres of government and other state organs are subject to
the strictures of the IRFA.

[65] Section 40 of the IRFA, which is headed ‘Duty to avoid
intergovernmental disputes’ provides:
‘(1) All organs of state must make every reasonable effort—
(a)
to avoid intergovernmental disputes when exercising their statutory powers or
performing their statutory functions; and
(b)
to settle intergovernmental disputes without resorting to judicial proceedings.
(2) Any formal agreement between two or more organs of state in different governments
regulating the exercise of statutory powers or performance of statutory functions, including
any implementation protocol or agency agreement, must include dispute-settlement
mechanisms or procedures that are appropriate to the nature of the agreement and the
matters that are likely to become the subject of a dispute.’

[66] Section 41 of the same Act, on the declaration of ‘formal
intergovernmental disputes’, reads:
‘(1) An organ of state that is a party to an intergovernmental dispute with another
government or organ of state may declare the dispute a formal intergovernmental dispute
by notifying the other party of such declaration in writing.
(2) Before declaring a formal intergovernmental dispute the organ of state in question must,
in good faith, make every reasonable effort to settle the dispute, including the initiation of
direct negotiations with the other party or negotiations through an intermediary.’
It is important to note that the s 41(2) obligation, to ‘make every reasonable
effort to settle the dispute’, is already relevant before a dispute is declared a
‘formal intergovernmental dispute’. Thus, in effect, organs of state are obliged
at two (separate) stages of the process to resolve their disputes with each other,
by means of whatever mechanism or procedure available to them in the
circumstances, outside of the courts.

[67] Both s 40 and s 41 make plain that an organ of state, as Eskom is, has a
constitutional and statutory duty to avoid judicial proceedings before a
genuine attempt has been made to settle the dispute. To that end, state organs
must make every reasonable effort, in good faith, to settle the dispute without
recourse to litigation. Moreover, where a dispute is of a financial nature, as in
these proceedings, Eskom and the ELM and the TCLM were required to
promptly take all reasonable steps necessary to resolve the dispute. To this
end, organs of state have a statutory duty to report the matter to the National
Treasury for the latter to mediate the dispute.41

Contentions of the parties
[68] The contentions of counsel for Eskom (in both appeals) were essentially
threefold. First, it was submitted that the IRFA found no application in this
litigation because the proceedings in the high court were instituted by private
entities and not by one organ of state against another. Furthermore, and in any
event, continued the submission, even accepting that the IRFA applied, this
would not avail Resilient and the Chambers because the three organs of state,
that is Eskom and the two municipalities, had, as amongst themselves, reached
agreement in relation to the amounts owed by the two municipalities to Eskom
and how they were to be paid off.

[69] In addition, counsel in Eskom II argued that, in any event, s 41 of the
IRFA was not raised in the papers and therefore not dealt with by Eskom either
in its opposing papers or in argument in the high court. Thus, counsel

41 See para 40 above.

contended that it was not open to the Chambers and Sakeliga to raise it on
appeal. Counsel emphasised that the issue of whether or not s 41 of the IRFA
had been complied with was a fact-based enquiry that could not be raised at
the eleventh hour on appeal. But even if it had timeously been raised, s 41 of
the IRFA, being a law of general application, would still not apply when s 30
of the ERA which is the specific legislation dealing with disputes between
licensees under the ERA was of direct application. Of course, the latter
contention accords with the principle that where a statutory provision in a
general legislative instrument regulates the same subject dealt with in a
specific legislative instrument, the latter takes precedence over the former.42

[70] For its part, Sakeliga submitted in its heads of argument that Eskom and
the municipalities concerned did ‘not fully exhaust other interventions and
dispute resolution mechanisms first in order to address’ the failures by the
ELM and the TCLM to meet their payment obligations to Eskom before the
latter resorted to its decision to interrupt the electricity supply ‘with
potentially disastrous consequences to the local communities and the local
economies’, thereby adversely affecting paying customers.

[71] In opposing Eskom’s appeals, counsel for Resilient, the Chambers and
the ELM made common cause. Broadly stated, their contentions, so far as they
are relevant to this aspect of the appeals, were:
(a)
Eskom failed to comply with the constitutional requirements of
cooperative governance as given effect to by the IRFA particularly having
regard to the fact that: (i) the interruption decision would have ‘catastrophic
implications for [other] organs of state’ (ie the ELM and the TCLM); (ii)

42 See: Sidumo and Another v Rustenburg Platinum Mines Ltd and Others 2008 (2) SA 24 (CC) para 103.

Eskom had for several years remained supine whilst the electricity debt soared
to unsustainable levels for the two local municipalities involved;
(b)
that the dispute amongst the parties related to both the quantum of the
debt and the manner in which it could be liquidated;
(c)
Eskom’s decisions amounted to self-help which is inconsistent with the
Constitution when there was no statutory power authorising Eskom to
disconnect electricity to an entire municipality;
(d)
that the decisions were not rationally related to the purpose for which
they were taken; and
(e)
the interruption decisions were unconstitutional to the extent that their
implementation would render the ability of the municipalities concerned to
comply with their constitutional obligations to provide basic services
unattainable.

[72] Before considering the contentions of the parties, it is necessary to
determine the antecedent issue of what constitutes a dispute.43 This is
necessary because Eskom argues that there was no dispute between organs of
state. An analogous point to the one under consideration here was considered
over seven decades ago in Williams v Benoni Town Council44 in which the
registered owner of an agricultural holding contested the assessment rate
levied by a municipal council in respect of his property. The council argued

43 Section 1 of the IRFA defines ‘intergovernmental disputes’ as:
‘a dispute between different governments or between organs of state from different governments concerning
a matter—
(a)
arising from—
(i)
a statutory power or function assigned to any of the parties; or
(ii)
an agreement between the parties regarding the implementation of a statutory power or
function; and
(b)
which is justiciable in a court of law, and includes any dispute between the parties regarding a related
matter…’
44 Williams v Benoni Town Council 1949 (1) SA 501 (W).

that there was no dispute because the parties were still engaged in discussions
to resolve the impasse. In rejecting this argument, Roper J who gave the
judgment in the case, said:
‘I am unable to agree … that there is no “dispute” until the parties are at arm’s length. A
dispute exists when one party maintains one point of view and the other party the contrary
or a different one. When that position has arisen the fact that one of the disputants, while
disagreeing with his opponent, intimates that he is prepared to listen to further argument,
does not make it any the less a dispute.’45

[73] Most recently, the Constitutional Court was called upon in Competition
Commission of South Africa v Hosken Consolidated Investments Ltd and
Another46 to determine whether there was a ‘live dispute’ or merely ‘a
difference of opinion’ between the parties in that matter. The Court had the
following to say (para 85):
‘The mere fact that parties had a difference of opinion regarding an important jurisdictional
issue suggests that there was a live dispute. This is particularly so where the difference of
opinion existed between an important statutory entity such as the Commission and parties
who are involved in a proposed transaction that may trigger the far reaching investigative
powers of the Commission.’47

[74] As to the question whether there is a dispute between Eskom on the one
hand and the ELM and the TCLM on the other, the following bears emphasis.
It is true that there is no real dispute as to the existence of the debts owed to
Eskom by both the ELM and the TCLM. Nor is there a dispute as to the
inability of these municipalities to make any meaningful payments themselves

45 Ibid at 507.
46 Competition Commission of South Africa v Hosken Consolidated Investments Ltd and Another [2019]
ZACC 2; 2019 (3) SA 1 (CC) para 23.
47 Ibid para 85. See also Frank R Thorold (Pty) Ltd v Estate Late Beit 1996 (4) SA 705 (A) at 708J-709A, in
which this court held that for a dispute to arise there must exist two or more parties, who are in controversy
with one another, in the sense that they are advancing irreconcilable contentions.

due to their parlous financial state. The real disputes concerned the manner in
which these two municipalities could be enabled or empowered to pay their
debts to Eskom and thus whether it was appropriate in the circumstances to
interrupt the supply of electricity to exact payment from them. It was in
relation to these disputes that Eskom and the affected municipalities, in
collaboration with the other state role players, were constitutionally obliged
to make ‘every reasonable effort’ to avoid or settle, but failed to do so.

[75] I am therefore persuaded that there was a live dispute between Eskom
on the one hand and the ELM and the TCLM on the other, in relation to the
manner as to how the debt would be liquidated and the remedies available to
Eskom in the event of default. That the two municipalities involved signed
acknowledgments of debt detailing how the debt was to be liquidated cannot
assist Eskom. This must be so because the acknowledgments of debt
themselves under the heading ‘Default’ provided in terms that ‘Eskom may
with due regard to all the relevant legislation … take whatever legal remedies
available to it including disconnection of supply of electricity …’ (my
emphasis). In the context of the facts of these proceedings the ‘relevant
legislation’ is the IRFA, s 139 of the MFMA and PAJA

[76] Moreover, in signing the acknowledgments of debt the municipalities
did not thereby consent to the interruption of electricity. On the contrary, all
indications point to the fact that there were always sharp disagreements
between the parties as to whether it was open to Eskom to interrupt electricity
supply as a measure to coerce the ELM and the TCLM to pay. This is borne
out by the fact that the ELM and the TCLM applied for and were granted
interim relief directing Eskom to restore the electricity supply following on

the disastrous consequences of the enforced interruption a few days earlier.
There can be little doubt that in signing the acknowledgments of debt, the
municipalities sought to stave off the interruptions of bulk electricity supply
that Eskom had all along threatened. And it was unrealistic of Eskom to expect
the ELM and the TCLM to pay off a debt that had accumulated over 15 years
within 12 months when it was known that they were in financial crisis.

[77] In support of the contention that there was no dispute of the kind
contemplated in ss 40 and 41 of the IRFA and s 44 of the MFMA, Eskom
heavily relied on an unreported judgment of the Free State Division of the
high court delivered on 28 May 2015.48 There, the court held that where a
municipality: (a) admits its liability to Eskom in the amount claimed; (b)
admits that it is in arrears; and (c) does not dispute that ‘it is obliged to pay
such arrears and any current liabilities’ no dispute exists and ss 40 and 41 of
the IRFA therefore find no application. In my view this judgment is not
directly on point as it was decided on its peculiar facts. On a careful reading
of the judgment it can hardly be understood to mean that where a dispute does
indeed exist Eskom is free from the strictures of ss 40 and 41 of the IRFA and
s 44 of the MFMA. In these proceedings, Eskom was, at all times, aware that
the financial situation within the ELM and the TCLM was dire. This is clear
from what Eskom itself alleged in its answering affidavit that: ‘there is a
constitutional obligation on the part of the National Department of
Cooperative Governance and Traditional Affairs to intervene in the affairs of
the municipality where the latter is unable to fulfil its constitutional
obligations to provide services’.

48 Ngwathe Local Municipality v Eskom Holdings SOC Limited and Others FB 28-05-2015 case no
4428/2014.

[78] I elaborate on why I earlier held that Eskom was required to comply
with s 41(3) of the IRFA before embarking on the course it had chosen in
order to extract payment from the ELM and the TCLM. Municipalities bear
certain obligations to provide their communities with basic services, including
electricity. The source of these obligations is the Constitution itself, buttressed
by a number of statutory provisions.49 If anyone of these obligations is
breached by a municipality, the Constitution provides the necessary remedies
to resolve the breach.
[79] As an organ of state, Eskom bears certain constitutional duties. The
relationship between Eskom on the one hand and the ELM and the TCLM on
the other is more than merely a contractual one regulated purely in terms of
the ESAs that the parties concluded. Eskom supplies bulk electricity to the
municipalities which, in turn, have a concomitant duty to supply it to the end-
users. The unique feature of this relationship is that Eskom, as an organ of
state, supplies electricity to local spheres of government to secure the
economic and social well-being of the people. This then brings the
relationship within the purview of the IRFA.

[80] It must therefore perforce follow that Eskom is under a constitutional
duty to ensure that municipalities, which are solely dependent on it for
electricity supply, are enabled to discharge their obligations under the
Constitution. Thus, it goes without saying that Eskom cannot act in a way that
would undermine the ability of municipalities to fulfil their constitutional and
statutory obligations to the citizenry. For as Froneman J said, in Allpay

49 The Housing Act, the Municipal Systems Act, the Structures Act and the MFMA.

Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive
Officer, South African Social Security Agency and Others:50
‘Organs of state have obligations that extend beyond the merely contractual. In terms of
s 8 of the Constitution, the Bill of Rights binds all organs of state. Organs of state, even if
not state departments or part of the administration of the national, provincial or local
spheres of government, must thus “respect, protect, promote and fulfil the rights in the Bill
of Rights”.’
Accordingly, Eskom’s decision to interrupt or terminate bulk electricity
supply to the entire municipality without prior compliance with ss 40 and 41
of the IRFA, is inimical to the constitutional obligations that it bears.
[81] In paragraph 77 above, mention is made that Eskom itself realised that
the parlous state in which the ELM and the TCLM are warranted intervention
by the provincial government and, if need be, the national government. But
this avenue was not explored because Eskom was not prepared to wait for that
process to unfold. The irony about Eskom’s obdurate stance was that (it had
indulged the ELM and the TCLM for far too long) Eskom had inexplicably
failed to make any serious attempt for more than ten years to act in terms of
legislative prescripts like s 51(1) of the PFMA. As already indicated, s 41(3)
requires organs of state to exhaust all other remedies to resolve disputes before
they approach a court. True, in this instance, Eskom never approached a court.
Instead, it took the impugned decisions to interrupt electricity supply to the
municipalities, hoping that doing so would coerce the municipalities to pay
for the electricity supplied over several years. This, Eskom asserts, had the
desired effect in the Sabie matter that was settled between the parties. In taking
this route, Eskom in effect circumvented the consequences that flow from the
prohibition contained in ss 40 and 41 of the IRFA against instituting

50 Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South African
Social Security Agency and Others [2014] ZACC 12; 2014 (4) SA 179 (CC) para 49. (Citations omitted.)

proceedings in a court to settle intergovernmental disputes if the dispute has
not been declared a formal intergovernmental dispute, and all efforts to
resolve that dispute have not been exhausted in terms of chapter 4 of the IRFA
and proved unsuccessful. Nothing less than a ‘reasonable effort, in good faith’
to resolve the dispute will suffice.

[82] There was some suggestion that Eskom had complied with its statutory
duty under the IRFA in that it held meetings with the ELM together with the
Premier of Mpumalanga, the provincial MEC and at one stage including the
Minister of Cooperative Governance to seek a solution to the ELM’s inability
to pay. At these meetings the representatives of the ELM once more undertook
to settle their debt to Eskom in monthly instalments which the municipality
still failed to honour. I shall not burden this judgment with the details of those
meetings ostensibly held to find a lasting solution to the financial crisis facing
several municipalities within Mpumalanga. Suffice it to say that these
attempts came to naught and were insufficient for compliance with the
precepts of s 41 of the Constitution and ss 40 and 41 of the IRFA. Importantly,
no attempt was made to engage the National Treasury as required by s 44 of
the MFMA.

[83] Counsel for Eskom had another string in their bow. They argued that
even if it were found that there was a dispute between the parties, ss 40 and
41 of the IRFA would not be implicated. Counsel submitted that s 39 of the
IRFA provides that chapter 451 of the Act does not apply ‘to the settlement of
specific intergovernmental disputes in respect of which other national
legislation provides resolution mechanisms or procedures’. They contended

51 Chapter 4 regulates resolution of intergovernmental disputes.

that as the dispute in these proceedings arose out of the supply of electricity
under the ERA, it was s 3052 of the ERA that would find application.

[84] These contentions cannot be upheld. Section 30 deals with disputes
arising out of the ERA, and even then only if the dispute is between licensees,
and the Regulator has been requested ‘by both parties to the dispute’ to act as
a mediator. It therefore cannot apply to a dispute where Eskom seeks to
interrupt bulk electricity supply to a municipality which, although willing to
settle its indebtedness, is unable to do so because it is not only facing financial
crisis but also contests Eskom’s right to interrupt electricity. Such a dispute
would trigger the application of ss 40 and 41 of the IRFA. And absent every
reasonable effort to settle the dispute, including negotiations through an
intermediary, it was not open to Eskom to implement its interruption decision
without first exhausting the avenues prescribed under ss 40 and 41. In
addition, there is s 41 of the MFMA which prescribes the process that must
be followed whenever a dispute of a financial nature arises between organs of
state one of which is a municipality. This section too requires the organs
concerned to take all reasonable steps necessary to resolve the dispute out of
court.

Irrationality challenge
[85] The two decisions taken by Eskom in issue in these proceedings were
also impugned on the basis that they were irrational. When a decision is sought
to be reviewed on the basis of irrationality, the test of rationality is concerned
with the evaluation of the relationship between the means employed and the

52 Section 30 which is titled ‘Resolution of disputes by Regulator’ provides:
‘(1) The Regulator must, in relation to any dispute arising out of this Act—
(a)
if it is a dispute between licensees, act as a mediator if so requested by both parties to the dispute.’

ends to be achieved. The evaluation of the relationship seeks to determine, not
whether there are means that can achieve the same purpose better than those
chosen, but whether the means employed are rationally related to the purpose
for which the power was conferred.53

[86] A rationality review also determines whether the process leading up to
the decision and the decision itself are rational. The Constitutional Court
cautioned that it should not be lost from sight that where there is an overlap
between the reasonableness and rationality evaluations one is nevertheless
dealing with discrete concepts. In Albutt v Centre for the Study of Violence
and Reconciliation and Others the following was stated:54
‘The executive has a wide discretion in selecting the means to achieve its constitutionally
permissible objectives. Courts may not interfere with the means selected simply because
they do not like them, or because there are other more appropriate means that could have
been selected. But, where the decision is challenged on the grounds of rationality, courts
are obliged to examine the means selected to determine whether they are rationally related
to the objective sought to be achieved. What must be stressed is that the purpose of the
enquiry is to determine not whether there are other means that could have been used, but
whether the means selected are rationally related to the objective sought to be achieved.
And if, objectively speaking, they are not, they fall short of the standard demanded by the
Constitution.’

[87] Eskom’s avowed purpose for the interruptions of the supply of
electricity was stated in its heads of argument as ‘two pronged’. Eskom
asserted that ‘First, it was to collect [the outstanding] debt; second … to
reduce and manage the rate of escalation of the debt’. Eskom contested its

53 See Democratic Alliance v President of the Republic of South Africa and Others 2012 [ZACC] 24; 2013
(1) SA 248 (CC) para 32.
54 Albutt v Centre for the Study of Violence and Reconciliation, and Others [2010] ZACC 4; 2010 (3) SA
293 (CC) para 51.

adversaries’ assertions that there were less drastic means available to it to
address the failure of the ELM and the TCLM to honour their financial
obligations, describing these as misplaced. The less drastic means suggested
by Eskom’s adversaries were: (i) withdrawal of the distribution licences
issued by NERSA to the ELM and the TCLM; (ii) recommending to the
minister to appoint alternative licensees in their stead; (iii) Eskom itself taking
over the distribution functions. But Eskom argued that the measures suggested
by its adversaries fail to take account of the historical debt currently overdue
and how it would be paid.

[88] There is one crucial fact that is uncontentious in relation to Eskom’s
appeals. It is that Eskom’s decision to interrupt bulk electricity supply to the
ELM and the TCLM was used as a leverage to extract payment. This drastic
measure, with its catastrophic consequences as detailed above, was decided
upon at a time when Eskom knew full well that it would not result in the
financially strapped municipalities settling their debt, at least within the short
space of time allowed by Eskom when they had all along struggled to do so
for several years, and since 2002 in the case of the TCLM. And these measures
were adopted by Eskom against the backdrop that Eskom itself had come to
realise that without the intervention of both the national government and the
provincial government it was beyond the power of the ELM and the TCLM
to turn their fortunes around on their own. Eskom sought to justify its
decisions by contending that the other reason why it embarked on is chosen
course was to contain the spiralling of the debt. I have already explained above
that Eskom, as an organ of state, cannot act in a manner that renders another
organ of state unable to discharge its constitutional and statutory obligations.
It must therefore follow that Eskom’s impugned decisions were irrational.

[89] Finally, I deal briefly with the other basis upon which the high court
found that Eskom's impugned decisions fell to be reviewed and set aside under
s 6(2)(1)(iii)of PAJA. In this regard the high court said the following (para
54):
‘In terms of section 6(e)(iii) of PAJA, the failure on the part of Eskom and the
municipalities to exhaust alternative remedies and procedures before embarking on the
procedure of supply interruptions by Eskom, warrants the grant of the review sought. This
sections makes provision for a court to review an administrative action if relevant
considerations were not considered.’
[90] There can be no doubt that Eskom’s decisions constitute administrative
action as contemplated in s 1 of PAJA. In Minister of Defence and Military
Veterans v Motau and Others (2014) ZACC 18; 2014 (5) SA 69 (CC) para 33
the Constitutional Court held that administrative action, in essence, comprises
the following elements: (a) a decision of an administrative nature; (b) by an
organ of state or a natural or juristic person; (c) exercising a public power or
performing a public function; (d) in terms of legislation or empowering
provision; (e) that adversely affects rights; (f) has direct and external legal
effect; (g) that does not involve the excluded categories.55

[91] It will be recalled that Eskom took its impugned decisions for two
reasons. The first was to force the ELM and the TCLM to pay the arrear debt.
This was despite the fact that Eskom well knew that this purpose could not be
achieved as the two municipalities were unable to pay the arrears within the

55Section 1 defines administrative action to mean ‘any decision taken or any failure to take a decision, by–
(a)
an organ of state, when-
(i)
. . .
(ii)
exercising a public power or performing a public function in terms of any legislation;’.
And see further: Mazibuko and Others v City of Johannesburg and Others 2010 (4) SA 1(CC) para 130.

time stipulated. In addition, the planned interruptions of bulk electricity
supply also failed to address the underlying reasons for the inability to pay
both the arrear and current debt. Thus, the decisions precipitately taken by
Eskom failed to take into account relevant considerations that should have
informed those decisions. Accordingly, the high court cannot be faulted for
concluding that Eskom’s impugned decisions fell to be set aside on this basis
too.

Costs
[92] For the aforegoing reasons it must follow that Eskom’s appeals fall to
be dismissed. The dismissal of Eskom’s appeals must necessarily carry with
it a costs order against Eskom. But such costs order will be restricted only to
Eskom’s adversaries with the exclusion of the amicus curiae. This must be so
for as the Constitutional Court pertinently remarked ‘it is unusual and indeed
it will rarely be appropriate for costs to be awarded in favour of an amicus
curiae’.56

Conclusion
[93] There is one final issue to address in relation to the Eskom appeals.
Earlier, I mentioned that although the NERSA, the Minister of Cooperative
Governance and the MEC were cited as necessary parties in the high court
proceedings, none of them participated in the litigation. They all elected to
remain supine. But the record discloses that the Minister of Cooperative
Governance and the MEC were cited for good reason. This litigation brought

56 See: President of the Republic of South Africa and Another v Modderklip Boerdery (Pty) Ltd [2005] ZACC
5; 2005 (5) SA 3 (CC) para 67.

to the fore the question whether the ELM and the TCLM had the requisite
capacity to effectively manage their affairs. All concerned knew for a
considerable time that they were facing a colossal crisis. To this end, s 155(6)
and (7) of the Constitution provide that:
‘(6) Each provincial government must establish municipalities in its province in a manner
consistent with the legislation enacted in terms of subsections (2) and (3) and, by legislative
or other measures, must—
(a)
provide for the monitoring and support of local government in the province; and
(b)
promote the development of local government capacity to enable municipalities
to perform their functions and manage their own affairs.
(7) The national government, subject to s 44, and the provincial governments have the
legislative and executive authority to see to the effective performance by municipalities of
their functions in respect of matters listed in Schedules 4 and 5, by regulating the exercise
by municipalities of their executive authority referred to in s 156 (1).’

[94] The overwhelming evidence that emerges from the record demonstrates
that the ELM and the TCLM have been in financial crisis for nearly two
decades. During 2016 and 2017 appeals were made to the Minister of
Cooperative Governance, the Premier of Mpumalanga, and the MEC, by
Eskom and the municipalities in an attempt to rescue the ELM and the TCLM
from their financial quagmire. But the endeavours fell short of what is
required by ss 41(1)(h) and 41(3) of the Constitution and ss 40 and 41 of the
IRFA. When agreement was reached between Eskom and the municipalities
on how their substantial debt would be liquidated, there does not appear to
have been any monitoring, by the national government and provincial
executive, of the implementation of the payment plan. The two municipalities,
hopelessly languishing in financial distress, were still left to their own devices
at a time when it must have been obvious that they lacked the capacity to turn
their fortunes around on their own. And given their parlous financial state, it

is hardly surprising that they defaulted on their payment arrangements with
Eskom.

[95] As already indicated above, Eskom is a business enterprise, albeit with
a developmental objective. As its constituent Act decrees, it is required, in
playing its developmental role, to take into account its financial sustainability
and competitiveness. It is estimated that Eskom is currently owed some R 31
billion by municipalities countrywide. The question then arises: can Eskom
on its own resolve the widespread failure by some of the municipalities to pay
for electricity? It remains to be seen. But what emerges from the record in
these proceedings is that without the constitutionally57 and statutorily58
mandated intervention by both the national and provincial governments, the
prospect of Eskom recovering its debt seems bleak. This is an untenable
situation, which is precisely what s 41 of the Constitution was designed to
avert.

[96] A situation where Eskom, as an organ of state, is driven to resorting to
all manner of ways to coerce municipalities which are a critical sphere of
government in the constitutional scheme, to pay when they are unable to do
so is plainly undesirable. This dire situation obliges the national and
provincial governments to intervene, consonant with the letter and spirit of
the constitutional59 and statutory prescripts to which reference has been made
in this judgment.

57 See s 139 of the Constitution.
58 See ss 139 and 150 of the MFMA.
59 See also s 154(1) of the Constitution, which commands the National Government and provincial
government to support and strengthen the capacity of municipalities to manage their own affairs, to
exercise their powers and to perform their functions.

[97] On this score, what the Gauteng Division of the High Court said in
Cape Gate (Pty) Ltd and Others v Eskom Holdings (SOC) Ltd and Others,60
with reference to s 139(7) of the Constitution, bears repeating. It said:
‘[T]here are only two sources of funds on which Eskom can rely for payment in respect of
on-going supply of electricity to Emfuleni. The one is Emfuleni’s paying consumers, and
the other is, ultimately, national treasury. And since in this country civilized society cannot
exist and the economy cannot function without Eskom remaining economically viable,
national treasury and ultimately National Government must inevitably step in when and
where local authorities fail; that is what the Constitution expressly envisages.’61
What this means is that without the national and provincial governments’
intervention in the financial crises experienced by the ELM and the TCLM –
and many other similarly-situated municipalities – all are doomed. It is indeed
a distressing feature of this litigation that those who are charged with certain
responsibilities in terms of the Constitution and other statutory prescripts
appear to be failing the people they are required to serve.

Case no 583/2019: Thaba Chweu Local Municipality and Others v Sabie
Chamber of Commerce and Tourism and others
[98] As already indicated, the appeal of the TCLM appellants is just about
the costs order made against them by the high court and nothing else. It is trite
that an award of costs is a matter which is pre-eminently in the discretion of
the court considering the issue of costs. It enjoys a wide discretion, to be
exercised judicially on a proper consideration of all the relevant
circumstances.

60 Cape Gate (Pty) Ltd and Others v Eskom Holdings (SOC) Ltd and Others [2018] ZAGPPHC 599; 2019
(4) SA 14 (GJ).
61 Ibid at 148E-G. (Citations omitted.)

[99] Cognisant of the fact that the high court – which sat as a court of first
instance – was vested with a discretion in the strict sense to determine the
question of costs in the light of the peculiar circumstances of the case, this
Court, sitting as a court of appeal, will require cogent reasons before it can
interfere with the exercise of the high court’s discretion. Thus, in Giddey NO
v J C Barnard and Partners62 the Constitutional Court, in a comparable
situation, reiterated the general rule that the approach of an appellate court to
an appeal against the exercise of a discretion in the strict sense will largely
depend on the nature of the discretion concerned.

[100] Accordingly, where the discretion entails that the court of first instance
may have regard to a wide range of considerations, an appellate court will not
readily interfere with the exercise of that discretion on appeal. In Giddey,
O’Regan J explained it thus:
‘The ordinary approach on appeal to the exercise of a discretion in the strict sense is that
the appellate court will not consider whether the decision reached by the court at first
instance was correct, but will only interfere in limited circumstances; for example, if it is
shown that the discretion has not been exercised judicially or has been exercised based on
a wrong appreciation of the facts or wrong principles of law. Even where the discretion is
not a discretion in the strict sense, there may still be considerations which would result in
an appellate court only interfering in the exercise of such a discretion in the limited
circumstances mentioned above.’63

[101] The Constitutional Court went on to say that the court of first instance
is best placed to make the assessment, noting that:
‘it would not be appropriate for an appellate court to interfere with that decision as long as
it is judicially made, on the basis of the correct facts and legal principles. If the court takes

62 Giddey NO v J C Barnard and Partners [2006] ZACC 13; 2007 (5) 525 (CC).
63 Ibid para 19. (Citations omitted.)

into account irrelevant considerations, or bases the exercise of its discretion on wrong legal
principles, its judgment may be overturned on appeal. Beyond that, however, the decision
of the court of first instance will be unassailable.’64

[102] More than a century ago, in Fripp v Gibson and Company 1913 AD
354, Lord De Villiers CJ said (at 357-358):
‘In appeals upon questions of costs two general principles should be observed. The first is that the
Court of the first instance has a judicial discretion as to costs, and the second is that the successful
party should, as a general rule, have his costs. The discretion of such Court, therefore, is not
unlimited, and there are numerous cases in which courts of appeal have set aside judgments as to
costs where such judgments have contravened the general principle that to the successful party
should be awarded his costs.’

[103] In order to succeed in their appeal, the TCLM appellants must, having
regard to the principles set out above, demonstrate that the high court failed
to exercise its discretion judicially. This necessarily entails that there must be
grounds underpinning the exercise of the discretion because a discretion
exercised on no grounds at all or that was based on a misapprehension of the
correct facts cannot be judicial. Where the court of first instance has exercised
its discretion capriciously or upon a wrong principle, or has not brought an
unbiased judgment to bear on the question or has not acted for substantial
reasons, the appellate court would be justified to interfere.65

[104] The costs order of the high court, so far as it relates to the TCLM
appellants, was assailed on several grounds. These were that the high court
failed to have proper regard to the fact that: (i) the municipality was in a

64 Ibid para 22. See also Erf One Six Seven Orchards CC v Greater Johannesburg Metropolitan Council
(Johannesburg Administration) and Another 1999 (1) SA 104 (SCA) at 109A-B.
65 See, in this regard, Techmed (Pty) Ltd v Eastern Cape Provincial Tender Board and Others 2001 (3) SA
735 (SCA) 741E-F.

parlous financial state; (ii) its financial capacity was severely constrained; (iii)
the applicants before it had abandoned the relief sought against them including
the prayer for costs. It was therefore contended that having regard to these
factors the high court ‘failed to properly consider the question of costs’
thereby rendering its costs award vulnerable to interference by this Court.

[105] Against the backdrop set out above, the high court’s reasons for
lumping the TCLM appellants with, for example, Eskom whose action had
precipitated the litigation in its costs award is dealt with in a few laconic
lines66 as follows:
‘I see no need to deprive the victorious party of its costs. I am also not convinced that either
Eskom or the municipalities should not be liable to pay costs. The matter is before court
due to their actions or non-actions… Therefore, costs are to follow the result…’
The high court made no attempt to explain why the TCLM appellants, in
particular, should still be mulcted in costs despite the fact that they had not
opposed the application and, most importantly, no relief was in the end sought
against them. The fact that the principal target of the relief sought was Eskom,
whose decision to interrupt bulk supply of electricity to the TCLM was at the
core of the dispute, was overlooked by the high court. Moreover, that the
Chambers as applicants had, during the hearing, unequivocally abandoned the
prayer for costs against the TCLM appellants does not appear to have received
the attention that it merited from the high court.

[106] In the absence of any evidence that the TCLM appellants had directly
brought about the litigation or had done something wrong connected with the
conduct of the litigation, I can see no justification for mulcting them in costs.

66 Sabie Chamber of Commerce and Tourism (above fn 1) para 56.

This conclusion ineluctably drives me to find that the high court did not
exercise the wide discretion it enjoyed judicially.

[107] It remains to deal with the issue of costs in relation to this appeal. The
TCLM appellants were represented by two counsel at the hearing. And
leading counsel asked for costs of two counsel. As indicated earlier, two
counsel were employed for the limited purpose of preparing heads of
argument on costs and appearance in this Court to argue the appeal. In
response to a question from a member of the Bench, counsel readily accepted
that the employment of two counsel for this limited purpose was not
reasonably necessary. Thus, costs of one counsel will be allowed.

[108] In all the circumstances, therefore, the appeals in Eskom I and Eskom
II must fail and the appeal of the TCLM appellants must succeed.

[109] The following orders are made:
Case no 663/2019: Eskom Holdings SOC Limited v Resilient Properties (Pty)
Ltd and Others:
The appeal is dismissed with costs, including the costs of two counsel where
so employed.

Case no 664/2019: Eskom Holdings SOC Limited v Sabie Chamber of
Commerce and Tourism and Others:
The appeal is dismissed with costs, including the costs of two counsel where
so employed.

Case no 583/2019: Thaba Chweu Local Municipality and Others v Sabie
Chamber of Commerce and Tourism and Others:
The appeal against paragraph 2 of the order of the high court is upheld.
The first, second and third respondents shall pay the costs of the appeal
jointly and severally, the one paying the others to be absolved.
Paragraph 2 of the order of the high court is set aside and in its place is
substituted the following:
‘The costs of this application shall be borne by Eskom Holdings SOC
Limited, with the rest of the respondents being absolved.’

________________________
X M PETSE
DEPUTY PRESIDENT
SUPREME COURT OF APPEAL

Appearances

For Appellant in
case no 663/2019:
L T Sibeko SC (with him N H Moloto)
Instructed by:

Ngeno & Mteto Inc., Pretoria
Kramer Weihman & Joubert Attorneys,
Bloemfontein

For First, Second,
Third and Fourth
Respondents:

M Chaskalson SC (with him C van der Spuy)
Instructed by:

Kokinis Inc., Pretoria
McIntyre van der Post Attorneys, Bloemfontein.

For Fifth Respondent:
L B van Wyk SC (with him N C Hartman)
Instructed by:

Neuhof Khoza Attorneys, Witbank

Hill, McHardy & Herbst Inc., Bloemfontein

For amicus curiae:
A T Lamey
Instructed by:

Kriek Wassenaar & Venter Inc., Pretoria

Rosendorff Reitz Barry, Bloemfontein

For Appellant in
case no 664/2019:
V S Notshe SC (with him M Gwala SC)
Instructed by:

Ngeno & Mteto Inc., Pretoria

Kramer Weihman & Joubert Attorneys,
Bloemfontein

For First, Second and
Third Respondents:
A Katz SC (with him S Pudifin-Jones)
Instructed by:

Van der Merwe & Ass Inc., Pretoria
Honey Attorneys, Bloemfontein.

For amicus curiae:
A T Lamey
Instructed by:

Kriek Wassenaar & Venter Inc., Pretoria

Rosendorff Reitz Barry, Bloemfontein

For Appellant in
case no 583/2019:
W Mokhare SC (with him Z Gumede)
Instructed by:

Matsane Attorneys Inc., Nelspruit
Matsepes Attorneys Inc., Bloemfontein

For First, Second and
Third Respondents:
A Katz SC (with him S Pudifin-Jones)
Instructed by:

Van der Merwe & Ass Inc., Pretoria
Honey Attorneys, Bloemfontein.
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
29 December 2020
Status:
Immediate

Eskom Holdings SOC Ltd & others v Resilient Properties (Pty) Ltd and Others
(Case no 663/19); Eskom Holdings SOC Ltd v Sabie Chamber of Commerce and
Tourism, and Others (Case no 664/19); Thaba Chweu Local Municipality and
Others v Sabie Chamber of Commerce and Tourism, and Others (Case no
583/19) [2020] ZASCA 185 (29 December 2020)
Please note that the media summary is for the benefit of the media and does not form part of the
judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal (SCA) today dismissed two appeals by Eskom Holdings SOC Limited
Eskom) and at the same time upheld an appeal by the Thaba Chewu Local Municipality (the TCLM), its
Municipal Manager, Executive Mayor and Chief Financial Officer, all of which were against the judgment
of the Gauteng Division of the High Court, Pretoria (the high court). For convenience, the three appeals
were heard together even though they were lodged separately by the appellants in the three appeals.
Prior to litigation in the high court, disputes had arisen between Eskom on the one hand and Emalahleni
Local Municipality (the ELM) and the TCLM on the other in relation to electricity supplied in bulk by
Eskom to the two municipalities which had not been paid for over several years. At that stage, the ELM
owed Eskom some R1,2 billion whilst the TCLM owed approximately R407 million. Because the
amounts owed by the ELM and the TCLM had escalated to unmanageable levels, as the two
municipalities had only been making sporadic payments, Eskom threatened to interrupt the supply of
electricity to the affected municipalities unless they settled their respective arrear debt over a period of
12 months. Ostensibly, to demonstrate their intention to settle the arrear debt, that had been outstanding
for several years, both the ELM and TCLM signed acknowledgments of debt in favour of Eskom
undertaking to reduce the amount in arrears over a period of 12 months whilst at the same time paying
for their ongoing electricity consumption. Despite concluding these agreements, the ELM and TCLM
still failed to pay the arrears and for their monthly consumption, save for the erratic payments that they,
from time to time, made. As a result, the debt continued to mount.

Faced with this predicament, Eskom published notices in terms of which it invited interested parties
within the affected municipalities to make representations as to why it should not implement its decision
to interrupt the bulk supply of electricity to the ELM and the TCLM for four and a half hours a day.
Although Resilient Properties (Pty) Ltd and its associated companies, which own a 68,000 m² shopping
mall in Emalahleni with 185 retail shops, had made representations to Eskom to dissuade the latter
from implementing its threatened decision, Eskom still went ahead to implement it. When the bulk
electricity supply was interrupted, the very fabric of society was threatened because hospitals, schools,
households and businesses were severely disrupted, after being without water for several days. The
municipal water sewage works were also brought to a standstill. Thus sewage, for example, could not
be pumped into sewage processing plants but would instead spill over into the streets and municipal
water catchment areas, posing a serious health and environmental risk. As a result of the total
interruption of bulk electricity supply, the two municipalities were left without electricity which meant that
they would, in turn, not be able to supply electricity to their customers.

Resilient and its associated companies in the ELM, and the Sabie Chambers of Commerce in the TCLM,
brought separate applications in the high court against Eskom and the ELM and TCLM in which they
sought declaratory orders that Eskom’s decision to interrupt the bulk supply of electricity was both
unconstitutional and unlawful, and therefore liable to be reviewed and set aside.

Eskom opposed the applications. It contended that it was empowered to interrupt or terminate the
supply of electricity to its customers, the ELM and TCLM, in terms of s 21(5) of the Electricity Regulation
Act 4 of 2006 (the ERA). Eskom also relied on clauses 9.1, 9.2 and 22.3 of the Electricity Supply
Agreements (the ESAs) that it had separately concluded with the ELM and TCLM which accorded it a
contractual right to discontinue or terminate the bulk supply of electricity to a municipality that is in
arrears with its accounts.

The ELM and TCLM countered Eskom’s contentions and argued that Eskom was precluded from
invoking s 21(5) of the ERA or asserting its contractual rights under clauses 9.1, 9.2 and 22.3 until it
has complied with its statutory obligations in terms of ss 40 and 41 of the Intergovernmental Relations
Framework Act 13 of 2005 (the IRFA) which oblige organs of state to make every reasonable effort to
settle intergovernmental disputes amongst themselves before resorting to litigation. Resilient and the
Chambers further contended that if Eskom sought to invoke s 21(5) of the ERA, it was required first to
approach a court and obtain prior judicial sanction to do so. As Eskom had not done so, its conduct in
interrupting the supply of electricity to the ELM and TCLM amounted to self-help which is inimical to the
rule of law.

The high court held that Eskom had every right in terms of s 21(5) of the ERA to reduce or terminate
the supply of electricity to a customer if such customer fails to honour an agreement for the supply of
electricity, or contravened the payment conditions of a Distributor’s licence. And that Eskom can do so
without prior judicial sanction like any other Distributor of electricity. The high court, however, upheld
the principal argument advanced by Resilient and the Chambers that Eskom failed to comply with its
constitutional and statutory obligations to make every reasonable effort to settle the dispute that had
arisen between it on the one hand and the ELM and TCLM on the other in relation to the implementation
of its decision to interrupt the supply of bulk electricity. Consequently, Eskom’s decision to interrupt the
bulk supply of electricity to the two municipalities was reviewed and set aside on the grounds that it was
both unconstitutional and unlawful. Eskom, the ELM and TCLM were ordered to pay the costs of
Resilient and the Chambers. Subsequently, Eskom was granted leave to appeal against the order of
the high court. The TCLM was also granted leave to appeal against the costs order insofar as it related
to it.

Before the SCA, Eskom argued that ss 40 and 41 of the IRFA were not implicated because it was not
the party that instituted proceedings in the high court. It further argued that Resilient and the Chambers
were in fact the parties that took Eskom and the ELM and TCLM to court. Eskom also contended that
in any event there was no dispute between it on the one hand and the ELM and TCLM on the other
because the two municipalities had admitted that they were lawfully indebted to it. The SCA rejected
this argument, and held that Eskom has mischaracterised the nature of the dispute in thinking that the
dispute is confined to the payment of a debt. The SCA stated that the dispute in issue concerned the
lawfulness of the decision to implement Eskom’s decision to interrupt the bulk supply of electricity. The
SCA therefore concluded that a dispute of that kind fell within the purview of ss 40 and 41 of the IRFA.
For this reason, Eskom was obliged first to make every reasonable effort to resolve such dispute before
it could resort to the drastic action of interrupting electricity supply. But the SCA held that the conclusion
reached by the high court in relation to s 21(5) of the ERA was correct.
Insofar as the appeal of the TCLM is concerned, the SCA held that the high court erred in awarding
costs against the TCLM. As a consequence, the appeal of the TCLM was upheld. This was because
Resilient and the Chambers had, during the hearing, unequivocally abandoned their prayer for
substantive relief and attendant costs against the TCLM. Thus, the high court did not exercise its
discretion judicially in relation to the issue of costs as against the TCLM.
The SCA also lamented the fact that although the ELM and TCLM were facing financial crisis and clearly
unable to pay their debts the National Government and the Member of the Executive Council:
Cooperative Governance and Traditional Affairs for Mpumalanga still failed to intervene in the affairs of
these municipalities in terms of s 139 of the Constitution and ss 139 and 150 of the Municipal Finance
Management Act 56 of 2003 when they were obliged, in light of the prevailing circumstances, to do so.

In the circumstances, Eskom’s two appeals were dismissed with costs, including the costs of two
counsel. The appeal of the TCLM was upheld with costs, and paragraph 2 of the order of the high court
was altered to one awarding costs against Eskom only, including the costs of two counsel.