Prescription of municipal debt

On 13 February 2017, in the case of Argent Industrial Investment (Pty) Ltd and Ekurhuleni Metropolitan Municipality, the court had to rule on whether the municipality’s claim for water consumption had prescribed.

The court concluded that if a consumer receives a utility bill reflecting, for the first time, charges older than three years, it cannot be held liable for such amounts, as the charges have prescribed.

It is not the duty of the consumer to read meters and determine their actual consumption. As a result, a consumer will not be considered to have acknowledged a debt when the municipality has failed to provide details.

1.     The Facts:

1.1.       Between September 2009 and March 2015, the applicant (Argent) was charged, and paid, for estimated water consumption. The meter installed at the applicant's premises was not read between 21 September 2009 and 13 March 2015. After the meter was read on 13 March 2015, the applicant was billed R1 152 666.98 for the difference between its actual usage and the estimated consumption for which it had already paid, during the period September 2009 and March 2015, almost six years. The applicant then raised a dispute regarding the charges for usage that had occurred more than 3 years before that date.

1.2.       The applicant did not dispute that it had consumed the water reflected by the meter reading in March 2015. Its only contention was that its obligation to pay for any consumption more than three years before that date had already prescribed by the time the respondent (the municipality) presented the applicant with its invoice.

1.3.       The respondent did not proffer any reason, on the papers, why no meter reading was taken between September 2009 and March 2015.

1.4.       The respondent argued that the consumer is never released from its obligation to pay when the respondent has not issued an invoice or otherwise informed the consumer of the charges which it has incurred (because of several acts, notably the Local Government: Municipal Systems Act, and the Ekurhuleni Metropolitan Municipality Credit Control and Debt Collection Policy 2015/16). Further, that that monthly payments constituted an acknowledgment of debt, and an amount due and payable by a consumer is a consolidated debt, and that any payment into the account will be allocated to that consolidated debt as determined by the respondent.

1.5.       The Prescription Act, 68 of 1969 ("the Prescription Act") provides that:

1.5.1.               a debt is extinguished after the lapse of three years;

1.5.2.               prescription starts to run as soon as the debt is due;

1.5.3.               prescription does not commence to run until the creditor is aware of the existence of the debt, but only if the debtor has wilfully prevented the creditor from becoming aware of the debt;

1.5.4.               a debt is only due when the creditor has knowledge of the identity of the debtor and the facts giving rise to the debt, but if a creditor could have acquired that knowledge by exercising reasonable care, the creditor is deemed to have that knowledge, and

1.5.5.               the running of prescription is interrupted by an acknowledgement of debt or by the issue of process.

1.6.       The respondent relied on section 12(3) of the Prescription Act for the contention that it was only when the meter was read and the invoice issued that the respondent, the creditor, became aware of the facts giving rise to the debt.

2.     The Judgment:

2.1.       The court found that the respondent had a duty to take reasonable steps to collect what was due to it. In any event, the respondent had knowledge of the relevant facts. At all times, the respondent was aware that it was supplying water to the applicant. It was aware of the applicant's identity. It was clear from the fact that the applicant was paying an estimate each month, if from nothing else, that the respondent had not read the meter on the applicant's property. These are the facts giving rise to the debt. The only "fact" of which the respondent did not have knowledge was the exact consumption of the applicant, and this was knowledge within the respondent's reach, had it simply fulfilled its functions.

2.2.       On that basis, it found that the claim over three years only had prescribed, and ordered the respondent to reverse all charges (plus interest and legal fees, thereon) raised before March 2012. It also prevented the respondent from terminating services because applicant had not paid the amounts added to the applicant's account in the invoice of 24 March 2015.

2.3.       The respondent was ordered to pay the costs of the application.

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