THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case No:  20265/14

In the matter between:

MERAFONG CITY LOCAL MUNICIPALITY
APPELLANT

and

ANGLOGOLD ASHANTI LIMITED

RESPONDENT

Neutral citation: Merafong City Local Municipality v AngloGold Ashanti Ltd
(20265/2014) [2015] ZASCA 85 (28 May 2015)

Coram:
Maya, Majiedt and Mbha JJA, Schoeman and Van der Merwe
AJJA

Heard:

19 May 2015

Delivered:

28 May 2015

Summary: Review – invalidity of administrative action – Minister’s ruling made in
terms of s 8(9) of the Water Services Act 108 of 1997 overturning municipality’s
decision to levy a surcharge on water for industrial use by mines, even if invalid, exists
and has legal consequences which municipality cannot simply disregard until it is set
aside by court in proceedings for judicial review.

__________________________________________________________________
ORDER
__________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Kubushi J sitting
as a court of first instance):

The appeal is dismissed with costs, including the costs of two counsel.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
MAYA JA (Majiedt, Mbha JJA, Schoeman and Van der Merwe AJJA concurring):

[1] At issue in this appeal is whether the appellant municipality (Merafong) is
entitled to ignore a ruling made by the Minister of Water Affairs and Forestry (the
Minister) in terms of powers vested in her by s 8(9) of the Water Services Act 108 of
1997 (the Act). The effect of the ruling was to prevent Merafong from levying
incremental surcharges on water for industrial use supplied to mines owned by the
respondent (AngloGold), which are situated in Merafong’s jurisdictional area. The
ruling further required Merafong, AngloGold Ashanti and Rand Water (formerly the
Rand Water Board)1 to negotiate a reasonable tariff for water supplied to the mines for
domestic use by the latter.

[2] AngloGold, a public company, has conducted gold mining operations at its
mines Tautona, Mponeng and Savuka situate near Carletonville, since the mid 1940’s.
Its operations require water which it uses mainly for two purposes. It uses it for
industrial purposes which include dust allaying during drilling and rock handling, as a

1 Established under the Rand Water Board Incorporation Ordinance 32 of 1903, as consolidated in the Rand Water
Board Statutes (Private Act) 17 of 1950, deemed to be a water board established in terms of the Water Services Act
108 of 1997.

cooling medium, as a transport medium and as a solvent in the metallurgical process. It
also uses water for domestic consumption by its employees housed in hostels on the
mine properties. AngloGold has its own water reticulation infrastructure. Water saved
during the mining activities is stored in reservoirs for treatment and recycling. Waste
water from domestic use is treated in its sewage plants operated on the mine premises.
Anglogold therefore purchases water for industrial use (ie use of water for mining,
manufacturing, generating electricity, land-based transport or any related purpose)2
and domestic use only to recoup the loss incurred during the mining operations.

[3] The additional water has, since 1958, been directly supplied to it by Rand
Water. The latter body is a water board and organ of State, whose primary activity is
to provide water services to other water service institutions, including municipalities in
their capacity as water service authorities. With the municipalities’ approval, it also
supplies water directly to users for industrial use and acts as a water service provider
directly to consumers3 in terms of written water supply agreements. AngloGold’s water
supply has, at all times, been provided through Rand Water’s system of reservoirs,
pipelines and other apparatus which are maintained by Rand Water. AngloGold
therefore does not and has never used Merafong’s water and sanitation services.

[4] In December 1997, Parliament promulgated the Act, a major piece of national
legislation providing, inter alia, for the rights of access to the supply of water and
sanitation envisaged in the Constitution,4 the setting of national standards and norms

2  As defined in s 1 of the Act.
3 In terms of ss 1 and 30(2)(d) of the Act, respectively.
4 The Constitution of the Republic of South Africa Act 108 of 1996.

and standards for tariffs in respect of water services,5 the establishment and
disestablishment of water boards and water services committees and their duties and
powers, the monitoring of water services and intervention by the Minister  or by the
relevant province, the accountability of water service providers,6 and the promotion of
effective water resource management and conservation.7 The Act further recognises
local government’s constitutional authority to administer water and sanitation services8
and designates municipalities as water services authorities responsible for
progressively ensuring access to water services by consumers9 in their areas of
jurisdiction.

[5] In terms of s 6(1) of the Act, ‘no person may use water services from a source
other than a water services provider nominated by the water services authority having
jurisdiction in the area in question, without the approval of that water services
authority’. Section 7(1) of the Act provides that ‘no person may obtain water for
industrial use from any source other than the distribution system of a water services
provider nominated by the water services authority having jurisdiction in the area in
question, without the approval of that water services authority’. Section 8 of the Act
governs the process employed by a water services authority in respect of applications
for approval made in terms of ss 6 and 7, which may not be unreasonably withheld and
may be granted subject to reasonable conditions.10 In terms of s 8(4), such an

5 Defined in s 1of the Act as water supply services ie the abstraction, conveyance, treatment and distribution of potable
water, water intended to be converted to potable water or water for commercial use but not water for industrial use, and
sanitation services ie the collection, removal, disposal or purification of human excreta, domestic waste-water, sewage and
effluent resulting from the use of water for commercial purposes.
6 Defined in s 1 of the Act as ‘any person who provides water services to consumers or to another water services institution
[ie a water services authority, a water service provider, a water board and a water services committee] but does not include a
water services intermediary [ie any person who is obliged to water services to another in terms of a contract where the
obligation to provide water services is incidental to the main object of that contract]’.
7 As provided in the Act’s Preamble and s 2.
8 In terms of para 5 of the Act’s Preamble and Part B of Schedule 4 read with s 156(1)(a) of the Constitution.
9 Defined in s 1 of the Act as any end user who receives water services from a water services authority including an end user
in an informal settlement.
10 Section 8(1)(a) and (b) of the Act.

applicant may appeal to the Minister ‘against any decision, including any condition
imposed, by that water services authority in respect of the application’. Subsection (9)
empowers the Minister when adjudicating the appeal to ‘confirm, vary or overturn any
decision of the water services authority concerned’. In addition to these appeal
powers, the Minister has supervisory and control powers under s 10. She or he may
from time to time, with the concurrence of the Minister of Finance, prescribe norms
and standards in respect of tariffs for water services.

[6] Municipalities assumed the status of water service authorities only in July 2003
following the adoption of the Strategic Framework document by the Department of
Water Affairs and Forestry. On 11 February 2004, Merafong sent a written notice to
all the mines in its area of jurisdiction, including AngloGold. It informed the mines that
it had, with effect from 1 July 2003, been accorded the powers and functions of a
water services authority. It further requested the mines to apply for approval for the
supply of water for industrial use in terms of s 7 of the Act. This letter was followed by
meetings at which Merafong explained the implications of the Act and its role as a
water services authority.

[7] Anglogold replied on 8 April 2004 and  requested Merafong’s approval ‘to
continue obtaining water from Rand Water for its mining operations and associated
domestic applications at the tariff set by, and under the conditions imposed by Rand
Water’. Merafong responded by way of a letter dated 31 May 2004 headed
‘APPROVAL TO BE SUPPLIED WITH WATER’. It stated that it appointed Rand
Water as its water service provider which would supply water to the mines directly,
bill and collect water sales revenue and assume responsibility for water quality and
other technical aspects of water supply as Merafong’s agent. It also set out proposed
tariffs for water to be supplied to the mines which were significantly higher than Rand

Water’s prices and included a higher tariff for operational use compared to domestic
use.

[8] On 11 June 2014 AngloGold appealed to the Minister in terms of s 8(4) of the
Act. Its main complaints were that (a) the tariff proposed by Merafong was
‘excessively higher than the equivalent Rand Water tariff while [Merafong] is not
adding any value to, or assuming any responsibility for any aspect of the water supply’
(the difference would amount to R498 599 per month) and (b) Merafong failed to
recognise AngloGold’s role as a water service provider or make any attempt, other
than to request information on the mine’s consumption, to understand its economic
situation. As indicated above, the Minister upheld the appeal. In her opinion the tariff
increase of 62 per cent was unreasonable because Merafong would add no value to the
services provided to AngloGold by Rand Water. She ruled that a surcharge could be
levied only on the portion of water that the mines were using for domestic purposes
and not for industrial use ‘[s]ince water for industrial use is not defined as a municipal
service in terms of section 1(xxv) of the [Act]’. The Minister then directed Merafong,
Anglogold and Rand Water to negotiate a reasonable tariff on the portion of water
used by Anglogold for domestic purposes.

[9] Negotiations were initiated as ordered by the Minister. In July 2006 the parties
concluded a draft interim agreement in terms of which the mines would be charged
Merafong’s tariff for water for domestic use and Rand Water’s industrial tariff for the
mine hostels and operational water use. The negotiation process then stalled. From
July 2007 Merafong took over from Rand Water and started invoicing AngloGold for
water supplied to it by Rand Water. It informed AngloGold that it would levy a flat
rate on all water consumed on the mines with effect from June 2006 although it did not
do so until 2008. Since July 2007 Merafong has charged AngloGold on a tariff far

exceeding what it paid Rand Water despite the Minister’s ruling. (AngloGold was
informed by the Chamber of Mines that Merafong regarded the ruling as invalid on
constitutional grounds and that it would ignore it.)

[10] It appears from a legal opinion obtained by Merafong that its lawyers advised it
to convince the Minister to withdraw her decision overturning its decision to impose
tariffs on the mines. However, its attempts at engaging the Minister (who was likely
functus officio in respect of her powers under s 8(9) in any event) towards this end
failed. The formal dispute it consequently declared against her also does not seem to
have achieved the desired result.11 And it continued imposing and implementing the
tariffs adopted by its council on the mines on the basis that the Minister’s ruling, which
it did nothing to challenge, was not applicable.

[11] Over an extended period, AngloGold sought to ascertain the legal basis for the
tariffs and surcharges imposed by Merafong. When its enquiries went unattended
Anglogold withheld payment of the disputed portion of the levies. In September 2007
Merafong demanded payment of the arrears on the threat that it would otherwise take
‘appropriate steps … to limit water supply’ to AngloGold’s mines. AngloGold yielded
to the demand, but informed Merafong that it did so, under protest and without
prejudice to its rights, to obviate the drastic consequences and irreparable harm to its
operations if its water supply was cut. It still asked Merafong to indicate the legal basis
for the disputed tariffs and surcharges. In response, Merafong did not address the
Minister’s ruling and only listed various constitutional and statutory provisions which
it claimed entitled it to do so.

11 In terms of s 42 of the Intergovernmental Relations Framework Act 13 of 2005. Section 40 of this Act enjoins all organs
of State to make every reasonable effort to avoid intergovernmental disputes when exercising their statutory powers or
performing their statutory duties and to settle such disputes without resorting to litigation.

[12] The impasse lasted until Anglogold launched application proceedings to enforce
the Minister’s ruling. To that end it sought a declarator that Merafong may not levy a
surcharge on water for industrial and domestic use supplied to AngloGold by Rand
Water and various ancillary relief and an alternative order reviewing and setting aside
Merafong’s imposition of a surcharge on water for both industrial and domestic use in
terms of s 6(2)(e)(i) and/or (ii) of the Promotion of Administrative Justice Act 3 of
2000 (PAJA). Merafong opposed the application and launched a counter-application. It
sought a declarator that it has exclusive authority to set tariffs relating to the provision
of water. In the event that the court below found that s 8(9) empowered the Minister to
interfere with its powers relating to the setting of water services tariffs, it sought an
order declaring the provisions unconstitutional to that extent.

[13] The court below granted the relief sought by Anglogold and dismissed the
counter-application. Its approach was that prior to 1 July 2003 Merafong had not yet
appointed a water service provider for purposes of ss 6 and 7 of the Act. Thus, the
court found, when AngloGold sought Merafong’s approval to continue obtaining water
from Rand Water it did so, properly, in terms of those provisions. The court
acknowledged Merafong’s executive and legislative powers as a water services
authority. But it held that such powers were subject to national legislation, ie the Act
which expressly entitles the Minister, in s 8(1), to intervene where a municipality
unreasonably withheld its approval or imposed unreasonable conditions in respect of
applications made under ss 6 and 7. The court concluded that the Minister’s ruling was
therefore lawful and bound Merafong, alternatively that it was valid until set aside by a
court of law.

[14] On appeal before us it was argued on Merafong’s behalf that AngloGold’s
appeal to the Minister was ill-conceived and the judgment of the court below wrong.
This was so because ss 6 and 7 of the Act were not applicable to this case as the water
supplied by Rand Water was not from ‘a source other than the distribution system of a
water services provider’ ie a third party that was neither a water service authority (in
this case Merafong) or a water service provider (in this case Rand Water) within the
contemplation of these provisions. The appeal therefore had no basis, continued the
argument, and the Minister exceeded her powers by making the disputed ruling, which
was a nullity and did not bind Merafong.

[15] It seems to me that Merafong’s failure to challenge the Minister’s ruling in
judicial review proceedings, rather than the constitutional attack it launched against the
empowering statutory provisions, poses an insuperable difficulty for its case. I will
assume without deciding that the Minister’s decision was ultra vires as was argued on
its behalf. But even if unlawful, the Minister’s ruling existed in fact and had legal
consequences. Merafong could, therefore, not simply treat it as though it did not exist
and act in the very manner that it sought to prevent.12 As the Constitutional Court
pointed out in MEC for Health, Eastern Cape & another v Kirland Investments (Pty)
Ltd t/a Eye and Lazer Institute:13
‘Even where the decision [by a state official] is defective … government should generally not be
exempt from the forms and processes of review. It should be held to the pain and duty of proper
process. It must apply formally for a court to set aside the defective decision, so that the court can
properly consider its effects on those subject to it … Government should not be allowed to take
shortcuts … Once the subject has relied on a decision, government cannot, barring specific statutory
authority, simply ignore what it has done. The decision, despite being defective, may have
consequences that make it undesirable or even impossible to set it aside. That demands a proper

12  Oudekraal Estates (Pty) Ltd v City of Cape Town & others 2004 (6) SA 222 (SCA) para 40.
13 MEC for Health, Eastern Cape &  another v Kirland Investments (Pty) Ltd t/a Eye and Lazer Institute 2014 (3) SA
481 (CC) paras 64, 65 and 88.

process, in which all factors for and against are properly weighed … [T]he Constitution … does not
require [public officials] to act without erring. On the contrary, it anticipates imperfection, but makes
it subject to the corrections and constraints of the law.’

[16] It was contended for Merafong that it was not required to seek judicial review of
the Minister’s ruling in the circumstances of this case because the Minister improperly
exercised her powers where the very preconditions for their invocation had not been
met.  This argument has no merit. It is clear from the Constitutional Court’s comments
in Kirland that it matters not if the Minister’s decision did not meet the preconditions
set out in ss 6 and 7 for the exercise of her appeal powers under s 8(9). There the
Court said:14
‘In our post-constitutional administrative law, there is no need to find that an administrator lacks
jurisdiction whenever she fails to comply with the preconditions for lawfully exercising her powers.
She acts, but she acts wrongly, and her decision is capable of being set aside by proper process of
law. So the absence of a jurisdictional fact does not make the action a nullity. It means only that the
action is reviewable, usually on the grounds of lawfulness (but sometimes also on the grounds of
reasonableness). Our courts have consistently treated the absence of a jurisdictional fact as a reason
to set the decision aside, rather than as rendering the action non-existent from the outset.’

[17] It is clear from these dicta that Merafong was obliged to approach the court to
set the Minister’s ruling aside and that it breached the principle of legality by simply
disregarding it. And the collateral challenge it sought to mount against the ruling does
not avail it because it is an organ of State. It is established in our law that a collateral
challenge to the validity of an administrative action is a remedy available to a person
threatened by a public authority with coercive action precisely because the legal force
of the coercive action will most often depend upon the legal validity of the
administrative action in question.15   The notion that an organ of State can use this

14 At paragraphs  98-99.
15  Ibid para 35; City of Tshwane Metropolitan Municipality v Cable City (Pty) Ltd 2010 (3) SA 589 (SCA) para 15.

shield against another organ of State is simply untenable. These findings dispense with
the need to deal with the substantive issues raised in the matter. The appeal must fail.

[18] In the result the following order is made:
The appeal is dismissed with costs, including the costs of two counsel.

____________________

MML MAYA

Judge of Appeal

APPEARANCES:

For Appellants:
MSM Brassey SC (ESJ Van Graan SC)

Instructed by: De Swardt Vögel Myambo Attorneys, Pretoria

Symington & De Kok, Bloemfontein

For Respondent:    NJ Graves SC (IB Currie)

Instructed by: Knowles Husain Lindsay Inc, Johannesburg

McIntyre & Van der Post, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

28 May 2015

STATUS

Immediate

Please note that the media summary is for the benefit of the media and does not form part of
the judgment.

Merafong City Local Municipality v AngloGold Ashanti Ltd (20265/14)
[2015] ZASCA 85 (28 May 2015)

MEDIA STATEMENT

Today the Supreme Court of Appeal (SCA) dismissed an appeal brought by the Merafong City Local
Municipality.

At issue in this appeal was whether the appellant municipality was entitled to ignore a ruling made by
the Minister of Water Affairs and Forestry (the Minister) in terms of powers vested in her by s 8(9) of
the Water Services Act 108 of 1997 (the Act). The ruling overturned the municipality’s levying of
surcharges on water supplied to the AngloGold mines by Rand Water for industrial and domestic use.

Municipalities assumed the status of water service authorities in July 2003. In 2004, the municipality
sent written notice to all the mines in the area of jurisdiction including AngloGold, informing them that
it had been accorded the powers and functions of a water services authority, and further requested
the mines to apply for approval for the supply of water for industrial use in terms of s 7 of the Act.

AngloGold requested the municipality’s appellant’s approval to continue receiving water from Rand
Water. In response the municipality informed the respondent that it had appointed Rand Water as its
water service provider which would supply water to the mines directly. It also set out proposed tariffs
for water supply which were significantly higher than Rand Water’s prices.

This prompted AngloGold to appeal to the Minister in terms of s 8(4) of the Act. The effect of the
Minister’s ruling prevented the municipality from levying incremental surcharges on water for
industrial use supplied to AngloGold’s mines. It also directed the municipality, Rand Water and
AngloGold to negotiate a reasonable tariff for the supply of water for domestic use. The municipality
ignored the Minister’s ruling and continued to invoice AngloGold at the increased rate as it considered
itself entitled to do on constitutional grounds. AngloGold then launched application proceedings to
enforce the Minister’s ruling; the municipality opposed the application and launched a counter-
application. The court below granted the relief sought by the respondent and dismissed the counter-
application to have the Minister’s ruling set aside or s 8(9) declared unconstitutional. The court below
acknowledged the municipality’s executive and legislative powers as a water services authority but
held that such power was subject to national legislation, ie the Act, which expressly entitled the
Minister to intervene where a municipality conducted itself in an unreasonable manner.

On appeal, the SCA held that the Minister’s ruling existed in fact, had legal consequences which the
municipality could not simply disregard until the ruling was set aside by a court of law in judicial

proceedings. The municipality had breached the principle of legality by disregarding it and its attempt
to raise a collateral challenge to the ruling could not succeed because the remedy does not avail a
state organ. The SCA concluded that the municipality was obliged to approach the court to set the
Minister’s ruling aside.

--- ends ---