Analysis of the Marsh Rose Judgement Delivered in the Supreme Court of Appeal

Introduction

Previously I wrote an article on the judgment handed down on 23 September 2021 in the case of The Body Corporate of Marsh Rose SS No. 269/2012 v Steinmuller and others, where the court was inter alia tasked to interpret section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 (“ST Act”), which had the effect of watering down the security offered (“the embargo”) to bodies corporate in terms of the mentioned section 15B(3)(a)(i)(aa) to withhold the levy clearance certificate for a unit that has outstanding monies owing.

This article will be an analysis of the appeal to the Supreme Court of Appeal (the SCA) which is cited as The Body Corporate of Marsh Rose v Steinmuller and Others (149/2022) [2023] ZASCA 143 (2 November 2023). The case was heard on 15 March 2023, and the SCA delivered their judgement on 2 November 2023.

Summary of the history of the case

Read here for the media summary published to set the scene for the reader: https://www.saflii.org/za/cases/ZASCA/2023/143.html

Furthermore, for my detailed discussion on this case go to :

Intervention Application

At the hearing of the appeal the National Association of Managing Agents NPC (NAMA), a registered non-profit company comprising of approximately 400 members, sought leave to intervene as co-appellant. The intervention application was premised on its status as a representative of property managing agents, regional and national service providers, and community scheme members, and contended that:

(a) the judgment debt owed by the previous owner retains the character of the underlying causa as an amount due in respect of the property;

(b) the security put up by Mr Steinmuller does not satisfy the requirements of the embargo provision; and

(c) it would be impossible for the body corporate to produce the clearance certificate so that transfer can take place.

Mr Steinmuller opposed NAMA’s intervention application on the basis that:

1. NAMA does not have a direct and substantial interest in the subject matter of the appeal, other than a purely financial interest; and
2. NAMA wished to re-litigate the same issues that were ventilated in the high court, and that would prejudice him by delaying the prosecution of the appeal. 

The law regarding leave to intervene requires the applicant to show that it has some right which is affected by the order issued, which was articulated by the Constitutional Court as follows:

‘It is now settled that an applicant for intervention must meet the direct and substantial interest test in order to succeed. What constitutes a direct and substantial interest is the legal interest in the subject-matter of the case which could be prejudicially affected by the order of the Court.’

It is recognised in our law that associations that exist to promote the interests of their members have the power to intervene in litigation that affects those interests. NAMA submitted that it brings this application to assert and protect the rights of its members who may be prejudiced by the judgment of this Court, especially the rights encapsulated in the embargo provision.

It was contended that NAMA’s members had a direct interest in the interpretation of s 15B(3) of the Act and its application in circumstances such as the present. The order of the high court would have profound consequences for bodies corporate and that it would render the statutory embargo protection ineffective.

The full court found that the debt for arrear levies owing by the erstwhile owner is ‘converted’ into a simple judgment debt payable by the erstwhile owner, which does not impede the transferability of the property to Mr Steinmuller. In this Court, NAMA argued that this finding has the effect of watering down the security offered to body corporates in terms of the embargo provision, in that legal costs no longer attach to the property and judicial novation has taken place. It was contended that bodies corporate may then be left in the invidious position that they cannot recover amounts due by an erstwhile owner who has no property to satisfy the judgment debt. The findings of this Court, NAMA argued, will influence the issuing of clearance certificates, and in turn the transfer of properties by the Registrar of Deeds, and this will, in turn, adversely affect the property industry in the country.

The Court found that Mr Steinmuller’s contention that NAMA may not intervene because it only intends to ‘re-litigate’ the application, had no merit. It is not a requirement of an application to intervene that the intervening party may only refer to an issue that has not been raised by the parties to the litigation, and/or that it is limited to the introduction of new perspectives to the court or arguments not advanced by any other parties. The issue of the contractual undertaking will only raise a new angle for consideration in determining Mr Steinmuller’s liability (if any) to pay the body corporate. NAMA’s intervention will also not prejudice Mr Steinmuller, as there will not be any delay in the prosecution of the appeal. The hearing of the intervention application was heard on the same day as the appeal. The Court found that the legal interest advanced by NAMA on behalf of its members satisfies the requirements set out by the Constitutional Court, and were therefore satisfied that NAMA made out a proper case to intervene as co-appellant. There was no proper basis to resist the intervention application, and the costs occasioned by the opposition, if any, ought to be paid by Mr Steinmuller.

The SCA granted the NAMA leave to intervene in the appeal as co-appellant, and ordered Mr Steinmuller to pay the costs of opposition to the application.

The Legal Question on Appeal

The appeal concerned the interpretation of s 15B(3)(a)(i)(aa) of the of the Sectional Titles Act 95 of 1986 (the “ST Act”) in the context of a sale in execution. It centred around the reliance on transfer registration embargo (“the embargo provision”) established in terms of s 15B(3)(a)(i)(aa) of the ST Act, and specifically answers the question on whether the purchaser at a sale in execution is entitled to challenge the amount payable to a body corporate, and to compel issue of clearance certificate.

The Facts

On 30 January 2018, the first respondent, Mr Steinmuller, purchased unit 24 of the sectional title scheme Marsh Rose (the property) at a sale in execution conducted by the third respondent, the Sheriff of Halfway House (the Sheriff). The property had been attached and sold in execution at the instance of the second respondent, the Standard Bank of South Africa Limited (Standard Bank). Prior to the sale in execution, the appellant, the Body Corporate of Marsh Rose (the body corporate), had also taken judgment against the previous owner of the property in an amount of R43 380.09. The judgment debt was still outstanding when Mr Steinmuller bought the property at the sale in execution.

During February 2018, the body corporate provided Mr Steinmuller with an amount that it alleged was due to it in respect of the property in the sum of R312 903.21 (the clearance figures) to be paid before it would issue the clearance certificate. On 19 February 2018, Mr Steinmuller’s attorneys requested the body corporate to provide documents upon which the aforesaid amount was based, together with all the resolutions authorising the levying of the charges reflected in the clearance figures. On 17 April 2018, the body corporate provided Mr Steinmuller’s attorneys with a reconciled account in the amount of R295 044.81, which included charges for levies, water consumption and sewerage services, an arrear cost liability, interest charges and legal fees.

Mr Steinmuller was, in terms of clause 4.4 of the conditions of sale in execution, obliged to pay all levies due to the body corporate in terms of the Act, or amounts due to a homeowners’ association or other association which rendered services to the property. He refused to pay any amount other than the levies due to the body corporate and demanded that he be furnished with the ledgers detailing the amounts claimed in respect of levies for the relevant period, as well as resolutions by the body corporate trustees in respect of the interest charged thereon.

The body corporate refused to supply the information requested on the basis that Mr Steinmuller was not the owner of the property and was thus not entitled to the information. This led to Mr Steinmuller launching an application in the Gauteng Division of the High Court, Johannesburg (the high court) for an order that the body corporate sign all papers, and take all the steps necessary to facilitate the transfer of the property into his name, and that an amount of R150 000 be paid by him into his attorney’s trust account as security in relation to the levies due to the body corporate.

The high court, per Wanless AJ, granted the order. It increased the tendered amount of R150 000 and ordered him to pay R250 000 into his attorney’s trust account as security to be held for any claim that the body corporate might have in respect of the property. The R250 000 was calculated by specifically excluding the judgment debt amount of R43 380.09 which had been obtained by the body corporate against the previous owner of the property. The high court held that a judgment debt is not a debt owed to the property. The order further provided that the body corporate was to institute an action or refer to arbitration its claim against Mr Steinmuller and any other party in respect of the property, within ten days of the granting of the order.

On appeal by the body corporate, the full court held that under the embargo provision a transferee could make provision for payment of a debt owed to the body corporate as at date of registration, instead of making the actual payment, provided that such arrangement is to the satisfaction of the body corporate. The full court found further that the high court was entitled to assess whether the security in the form tendered by Mr Steinmuller was sufficient to oblige the body corporate to issue the clearance certificate. The full court accordingly dismissed the appeal with costs.

The issues on appeal

Special leave to appeal was granted by the SCA. The primary question concerned the status of the parties and, by extension, whether the body corporate’s reliance upon the statutory embargo is open to challenge at the instance of Mr Steinmuller. The secondary question concerned the terms of the order of the high court which cannot stand irrespective of the interpretation given to the embargo provision.

1. Can Mr Steinmuller challenge the body corporate’s reliance on the statutory embargo?

Nature of the embargo

The statutory embargo provided by s 15B(3)(a)(i)(aa) of the ST Act is, in form, similar to that provided by s 118(2) of the Municipal Systems Act, and serves broadly similar purposes. Its operation and effect, however, provides protection for a particular class of property owners who hold units of property as individual owners within a sectional title scheme and as co-owners of common property in such scheme. A body corporate, established or deemed to be established in terms of the STSM Act, is not an owner of property. It manages the common property on behalf of the common owners.

The purpose of the embargo provision is to assist bodies corporate in recovering amounts owed by the owners of the units in the scheme, without the necessity of resorting to expensive and time-consuming litigation. In Willow Waters Homeowners Association (Pty) Ltd v Koka NO and Others (Willow Waters), this Court was concerned with an embargo provision similar to the one in s 15B(3)(a)(i)(aa) of the ST Act, which was incorporated in a title deed. It examined similar embargo provisions in s 89(1) of the Insolvency Act 24 of 1926 (the Insolvency Act), and s 118 of the Local Government: Municipal Systems Act 32 of 2000 (the MSA). In terms of s 118 of the MSA, the registrar may only register the transfer of an immovable property upon the production of a certificate issued by the municipality confirming that all moneys due to the municipality have been paid. This Court held that:

‘It is accepted that these statutory embargoes serve a vital and legitimate purpose as effective security for debt recovery in respect of municipal service fees and contributions to bodies corporate for water, electricity, rates, and taxes etc. Thus, they ensure the continued supply of such services and the economic viability and sustainability of municipalities and bodies corporate in the interest of all the inhabitants in the country.’

Sale in execution

Mr Steinmuller purchased a unit in a sectional title scheme at a sale in execution in 2018. The sale was authorised by a court order obtained at the instance of Standard Bank against the registered owner of the unit. The sale was subject to published conditions of sale which provided that the purchaser was liable to pay the purchase price, amounts due to the municipality, transfer costs and commission, and:

‘4.4.2 All levies due to a Body Corporate in terms of the Sectional Titles Act, 1986 (Act No. 95 of 1986) or amounts due to a Home Owner’s or other association which renders services to the property.’

When property is sold in execution, a contract comes into existence between the sheriff who gives effect to the court order and the purchaser whose bid is accepted. The execution creditor (in this case Standard Bank) is not a party to the contract. The obligation to pay the purchase price and other stipulated monies and to comply with the conditions of sale rests upon the purchaser. This is a contractual obligation.

In Mpakathi v Kgotso Development CC and Others, this Court stated that:

‘The purpose of execution is the enforcement of the court’s judgment; to which end the proceedings are driven throughout by the judgment creditor for its exclusive benefit (subject to the rights of preferent creditors), through the Sheriff acting in his or her executive capacity.’

Rule 46 (13) provides that the sheriff shall give transfer of the property against payment of the purchase price and upon performance of the conditions of sale. The sheriff is empowered to do everything necessary to effect registration of transfer and anything so done is as effective as if the sheriff was the owner of the property. In Ivoral Properties (Pty) Ltd v Sheriff, Cape Town, and Others, it was held:

‘A Sheriff may not sell immovable property attached pursuant to duly executed writ of execution otherwise than by way of a public auction and his authority is created and circumscribed by the provisions of Uniform Rule 46 (see Schoerie NO v Syfrets Bank Ltd and Others 1997 (1) SA 764 (D) at 771G; 773J-774A). When a Sheriff disposes of property in pursuance of a sale in execution he acts as an ‘executive of the law” and not as an agent of any person. When a Sheriff, as part of the execution process, commits himself to the terms of the conditions of sale, he, by virtue of his statutory authority, does so in his own name and may also enforce it on his own (see Sedibe and Another v United Building Society and Another 1993 (3) SA 671 (T) at 676A-C). A sale in execution of immovable property entails two distinct transactions namely, the sale itself and the passing of transfer pursuant thereto (see Schoerie NO v Syfrets Bank Ltd (supra) at 778A-B). Although Uniform Rule 46 does not specifically empower a Sheriff to institute proceedings in order to enforce the contract embodied in the conditions of sale, such power is implicit in the duty to see that transfer is passed and the provisions of Uniform Rule 46(13) which impose an obligation upon him to do anything necessary to effect registration of transfer. If that were not so the Sheriff’s only remedy, in the event of a purchaser failing to carry out any of his or her obligations under the conditions of sale, would be to approach a Judge in Chambers for the cancellation thereof in terms of Uniform Rule 46(11) and would allow recalcitrant purchasers at sales in execution to avoid their obligations almost with impunity.’

If a purchaser does not fulfil a condition of sale, the sheriff may either seek cancellation of the sale in terms of rule 46 (11) or enforce the terms of the sale agreement. Rule 46(14) regulates the process of distribution of the proceeds of the sale which are collected by the sheriff. It requires payment of the proceeds into an account administered by the sheriff and the production of a plan of distribution in accordance with the scheme of preference applicable to writs of attachment filed with the sheriff. Unlike the embargo provision created by s 118 of the Municipal Systems Act, the embargo in this case does not establish a preferent claim except in relation to its effect in insolvency. This does not detract from the vital purpose served by the embargo provision.

In this case the conditions of sale provided for recovery, by the sheriff, of levies payable to the body corporate as a component of the consideration payable by the purchaser. It is against this backdrop that the issues raised in the appeal must be decided. Following the sale in execution, the body corporate provided an account of the monies payable to it. Mr Steinmuller, however, raised queries about the amount due and after further details were furnished regarding the calculation of the amount, he objected to payment of that which the body corporate said was payable. He sought information, including resolutions adopted by the body corporate to raise interest upon outstanding levies and similar records. When the body corporate refused to provide this information, he launched the application before the high court.

Mr Steinmuller’s right to take transfer of the property arises from contract. He only acquires an enforceable right upon fulfilment of the conditions of sale. His right operates against the sheriff and not the body corporate. It is the sheriff who must determine whether Mr Steinmuller has fulfilled his obligations. And if he has not fulfilled his obligations, then it is for the sheriff to enforce the contractual obligations or cancel the sale.

Does the embargo cover more than just levies?

The body corporate is not a party to the agreement of sale. The fact that clause 4.4.2 of the conditions of sale refers to ‘levies’ and not, as in the language of s 15B(3)(a)(i)(aa), to ‘all monies’ due to the body corporate, can have no legal  bearing upon the rights of the body corporate. The embargo confers upon the body corporate a statutory right to resist transfer of a unit in the scheme until all monies due to it have been paid or it is satisfied that arrangements for their payment have been made.

In Barnard NO v Regspersoon van Aminie en ‘n ander, the question arose whether the embargo covered not only arrear levies and interest, but legal costs incurred by a body corporate in seeking to recover amounts due to it by the owner of a unit. This Court held that the legislature intended to give to a body corporate effective protection. It reasoned that a body corporate was merely a collective of owners of units who shared expenses. If one owner fails to meet their obligations, the burden fell on others, hence the need for an effective remedy. This Court concluded that legal costs incurred in recovery of amounts due to the body corporate fell within the ambit of the protection afforded by s 15B(3)(a) of the ST Act.

Do the contractual rights limit the body corporate’s statutory right to use the embargo?

Assuming, therefore, that the conditions of sale limit what Mr Steinmuller is contractually bound to pay (as was contended by him in disputing the account of the body corporate), his payment of that limited amount might entitle him to demand that the sheriff give transfer. He cannot, however, demand that the body corporate should accept his limited payment and therefore provide a clearance certificate upon which transfer could occur. That is so, for the simple reason that unless the contract of sale binds the body corporate, its statutory right remains unaltered. Mr Steinmuller’s contractual right to transfer cannot limit the body corporate’s statutory right to refuse to issue a clearance certificate until all monies due to it are paid.

To give transfer, the sheriff must obtain a conveyancer’s certificate that all monies due to the body corporate have been paid. The body corporate would, as a matter of law, remain entitled to refuse to provide the certificate until the conditions of the embargo are met. There could be no suggestion that it was acting unreasonably or unlawfully. The only question that could then arise, is whether the conditions of sale stipulated by Standard Bank and published prior to the sale in execution binds the body corporate. That was not, however, what this case was about. The effect is that whatever dispute there may notionally be regarding what is due to the body corporate, it is not a dispute to which Mr Steinmuller is a party. He has no legal interest in that dispute.

His right to compel transfer of the property lay against the sheriff. To obtain it he was required to establish that he had met the conditions stipulated by the contracting party. Mr Steinmuller, however, sought no relief against the sheriff. This brings us to the orders which were granted by the high court.

Body corporate to give transfer of the property?

Paragraph 1 of the high court order provides that:

‘The [the body corporate] is to sign any and all papers and take any steps necessary, for the transfer of the property known as Section 24 of the Sectional Scheme Marsh Rose, SS269/2012, Country View Extension 1 Township (‘the property’), to [Mr Steinmuller], subject to paragraph 2 hereof.’

One is immediately struck by the fact that the order requires the body corporate to give transfer of the property. Yet, the body corporate is not the registered owner of the property and cannot give transfer as ordered. Furthermore, the property is the subject of attachment at the instance of Standard Bank and has been sold at a sale in execution. The provisions of rule 46, discussed above, plainly confer upon the sheriff the functions of an executive of the law who is authorised, for the purposes of transfer, to act as if the sheriff is the registered owner of the property.

The SCA therefore decided that the HC order cannot stand. The order, that the body corporate must consent to a conveyancer’s certificate being issued in terms of the embargo provision, is not relief that is available to Mr Steinmuller.

• Can the terms of the order of the high court stand irrespective of the interpretation given to the embargo provision?

This debate concerned whether the High Court’s order encompassed the provision of security, as may be regulated by a court, for payment of a disputed amount claimed by a body corporate. The order stipulated an amount to be provided for security against a claim to be instituted by the body corporate. The body corporate, however, had no claim against Mr Steinmuller, nor any person other than the registered owner of the unit. The claim related to charges and levies against the property which were raised in terms of the STSM Act. Such claim cannot lie against Mr Steinmuller, nor against Standard Bank or the sheriff. Section 15B does not create a statutory claim against a purchaser to whom transfer must be given. It is an embargo provision which provides security for the payment of amounts due by the owner of the unit. It serves to compel payment of those amounts by preventing the owner from giving transfer to a purchaser until the debt to the body corporate has been paid. The operation of the embargo is not altered because the sale occurs by way of execution or as part of the liquidation of an insolvent estate. As was observed by this Court in Geovy Villa, in the context of insolvency:

‘The practical effect of the statute is that, assuming the availability of funds, a body corporate will be paid before transfer of immovable property is effected. A reasonable mortgagee and body corporate might arrive at an accommodation where there are insufficient funds available to cover the total of the debts owing to both parties – but neither is obliged in law to do so.’

The order requiring institution of action by the body corporate against Mr Steinmuller cannot, as a matter of law, be carried into effect. For this reason alone, the appeal must succeed.

The Order

The SCA upheld the appeal with costs, including the costs of two counsel, (with Dambuza AP, Zondi and Molemela JJA, Molefe and Goosen JJA all concurring). The order of the High Court was set aside and replaced with an order dismissing the application with costs, including the costs of two counsel where so employed.

Evaluation

In my view, important findings that came out of the SCA are as follows:

1. In regard to when property is sold in execution, The position and interests of the parties is regulated by Rule 46 of the Uniform Rules. The Sheriff was empowered by a court order permitting execution to sell the property by public auction. Standard Bank, as the execution creditor, was entitled to stipulate conditions of sale. The conditions of sale constituted the terms upon which Mr Steinmuller entered into the contract to purchase the property. The SCA held that the contract was concluded between Mr Steinmuller and the Sheriff. It stated that upon performance of his contractual obligations, Mr Steinmuller was entitled to cancel performance by the Sheriff. Equally, it held the Sheriff was entitled to compel performance by Mr Steinmuller. Neither Standard Bank, nor the body corporate were parties to the contract.

• The SCA held that Mr Steinmuller had no legal interest in the determination of the amount due to the body corporate, nor whether it was due and payable. The debt owed to the body corporate was that owed by the registered owner of the unit.

As I stated in my previous analysis of the HC case, a judgment debt collected in pursuance of the collection of arrear levies remains so closely related to the collection of all monies due, that its nature cannot change. The sale in execution of the unit occurred because the registered owner had insufficient funds to satisfy the payment of arrear levies and associated costs in their collection. To state that the debt is not a burden on the unit waters down the amount that a body corporate can claim from the proceeds of a sale in execution. The fact that the judgment debtor remains personally liable means that the body corporate retains a claim against a person who will be unable to repay as their credit rating has been impugned. The security that is offered by the fact that the unit cannot be transferred is reduced if the member is allowed to cease to be a member of the body corporate. The body corporate will then be forced to initiate further applications or actions to recover those amounts. The protracted litigation and further legal costs will certainly prejudice the remaining members of the body corporate.

• The nature and purpose of the embargo provision was clearly set out. It is now known that the embargo is for the benefit and protection of the members of the body corporate. It should be a means to avoid time-consuming and expensive litigation. It serves the purpose of an effective security for debt recovery.

• The fact that the conditions of sale refers to ‘levies’ and not, as in the language of s 15B(3)(a)(i)(aa), to ‘all monies’ due to the body corporate, has no legal  bearing upon the rights of the body corporate. The embargo confers upon the body corporate a statutory right to resist transfer of a unit in the scheme until all monies due to it have been paid or it is satisfied that arrangements for their payment have been made. Mr Steinmuller’s claim to transfer, assuming compliance with his contractual obligations, lay against the Sheriff and not the body corporate.

The SCA therefore correctly interpreted “all monies due” in terms of 15B(3)(a)(i)(aa) of the ST Act. It is now clear that the embargo includes all costs incidental in the collection of levies, including collection costs, legal fees, and interest (where these costs can be supported by supporting documents and/or resolutions). This interpretation in Barnard No v Regspersoon van Aminie en ‘n Ander 2001 3SA 973 (SCA) paras 18-19, where it was clearly stated that monies due to the body corporate did not only include levies but also included legal costs incurred to recover the levies due on a unit was confirmed.

• The SCA re-emphasised those legal costs incurred in recovery of amounts due to the body corporate fell within the ambit of the protection afforded by s 15B(3)(a) of the ST Act. It was again affirmed that this goes against the purpose of the embargo to offer effective protection to the body corporate, and that it is nor fair if one owner fails to meet their obligations, the burden fell on the paying members of the body corporate.

It has now therefore been clearly stated that the intention of the legislature is clear, and that the mischief that is sought to be avoided, is that a unit can be transferred before all monies due are paid to the body corporate. This prevents the body corporate from losing any claim to the recovery of arrear levies and charges. It cannot be defeated merely on the basis that there is a dispute on the amounts due. This would create absurd results.

• Mr Steinmuller cannot demand that the body corporate should accept limited payment, and provide a clearance certificate upon which transfer could occur. The amount due needs to be established and agreed upon on before the amounts due are paid and the levy clearance certificate issued. The wording of the embargo is preemptory, and transfer cannot take place until all monies due are paid. Where monies owing are in dispute or need to be taxed, this must be dealt with before the clearance certificate is issued, and transfer is registered.

• The HC order required that the body corporate give transfer of the property, but the body corporate is not the registered owner of the property and cannot give transfer as ordered. Furthermore, the property is the subject of attachment at the instance of Standard Bank and has been sold at a sale in execution. In terms of the provisions of rule 46, discussed above, the sheriff is empowered to act as the registered owner of the property.

• Mr Steinmuller’s contractual right to transfer cannot limit the body corporate’s statutory right to refuse to issue a clearance certificate until all monies due to it are paid. Section 15B does not create a statutory claim against a purchaser to whom transfer must be given. It is an embargo provision which provides security for the payment of amounts due by the owner of the unit. It serves to compel payment of those amounts by preventing the owner from giving transfer to a purchaser until the debt to the body corporate has been paid. The operation of the embargo is not altered because the sale occurs by way of execution or as part of the liquidation of an insolvent estate. Such claim cannot lie against Mr Steinmuller, nor against Standard Bank or the sheriff.

The SCA therefore made it clear that in the circumstances of this case the conditions of sale at the sale in execution stated that the purchaser would be liable for levies, but did not include the other charges such as legal fees. A contract between the seller and purchaser cannot supersede the body corporate’s legislative protection offered by the embargo. The body corporate is not a party to the conditions of sale and is not bound to its terms but is entitled to the full protection of the law applicable to its operation, more specifically the embargo contained in the ST Act.

WRITTEN BY DR CARRYN DURHAM