Court tells the City of Cape Town to exhaust intergovernmental dispute resolution mechanisms

An intergovernmental dispute is defined in section 1 of the Intergovernmental Relations Framework Act as a “dispute between different governments or between organs of State from different governments, concerning a matter (a) arising from a statutory power or function assigned to any of the parties or an agreement between the parties regarding the implementation of a statutory power or function;  and (b) which is justiciable in a court of law”.

Background

Municipalities are tasked with supplying electricity to communities and businesses as part of their constitutional mandate to provide basic services. The practice has been that municipalities purchase bulk electricity from Eskom for onward selling to their consumers. However, Eskom has for many years failed to produce and therefore guarantee an adequate supply of electricity to its customers, including municipalities. This has forced municipalities and many other consumers of electricity to explore alternative supplies of energy. Independent power producers (IPPs) have the potential to become alternative suppliers of energy. Driven by the desire to guarantee energy supply to its customers, in 2015, the City of Cape Town began to explore the purchase of renewable energy from Daring Wind Project, an IPP.

In terms of section 7(1) of the Energy Regulations Act (ERA), the National Energy Regulator of South Africa (NERSA) must issue a license to the IPP for it to operate and sell electricity to a municipality. However, before NERSA can issue a license the Minister has to determine whether the IPP is needed and could be established in terms of section 34 of ERA. In light of this provision, the City made an application to the Minister in November 2015 for determination. Two years passed without the Minister making a determination on the City’s application. Instead, the Minister issued an instruction placing all applications for section 34 determinations on hold indefinitely. After failing to get a response to its application from the Minister in over two years, the City began exploring opportunities to purchase electricity from the IPP without first obtaining the consent of the Minister as required by section 34 of ERA. 

Arguments of the City of Cape Town

The City sought an order declaring that a ministerial determination in terms of section 34 of ERA was not required for an IPP to establish a new power plant to supply electricity to the City. If the Court found that indeed the determination is required, the City sought an order declaring section 34 unconstitutional and invalid to the extent that it interfered with local government’s constitutionally protected powers to supply electricity.  The City submitted that if section 34 of ERA is valid the Court should compel the Minister to consider and respond to its application for determination. It also contended that the matter between itself and the Minister does not constitute an intergovernmental dispute because it does not comply with the definition of an “intergovernmental dispute” as provided in the Intergovernmental Relations Framework Act.  It was submitted that NERSA is not an organ of state within a governmental sphere as it is an independent statutory body. It was further submitted that the dispute regarding the constitutionality of section 34 of ERA is not a dispute which arises from a statutory power or function assigned to any of the parties. Last, the City submitted if the Court found that the case between parties was indeed an intergovernmental dispute the Court should grant condonation to litigate.

Arguments of the national Minister responsible for energy

The Minister raised a procedural challenge arguing that the matter before the Court is an intergovernmental dispute between organs of State. As such, the City needs to comply with the principles of cooperative government and intergovernmental relations provided for in section 41 of the Constitution. It was argued that the City ought to have complied with provisions of the Intergovernmental Relations Framework Act, which obliges organs of State to exhaust intergovernmental dispute resolution mechanisms before approaching a court of law. Given that the City did not exhaust these mechanisms, the Minister submitted that the Court should dismiss the City’s application.

The decision of the Court

In making its finding, the Court gave due consideration to Chapter 3 of the Constitution which details the principles of cooperative government. The Court assessed the definition of an intergovernmental dispute in terms of section 1 of the Intergovernmental Relations Framework Act.  Section 41(3) of the Constitution and Section 45(1) of the Intergovernmental Relations Framework Act provides that organs of State involved in intergovernmental disputes may only approach the court to resolve the dispute as a last resort.

In considering whether NERSA is an organ of State within a governmental sphere, the Court found that NERSA is a department within a national sphere of government. The Court stated that a reading of the Gas Act, the Petroleum Pipelines Act and ERA suggests that the national Minister and Department responsible for energy exercise a duty of co-ordination with NERSA as per section 85(2) of the Constitution with NERSA being subjected to executive control. Thus, the Court ruled that the City of Cape Town and the Minister are organs of state in government which makes the present issue an intergovernmental dispute which must comply with the principles of cooperative governance.

On the question of whether the City can purchase power from an IPP without complying with section 34 of ERA, the Court held that this provision concerned the powers of the Minister to make ministerial determinations. Thus, interpreting this provision to exclude the City from first obtaining such a determination would be a limitation on the Minister’s powers.

The Court then had to determine whether the constitutional validity of section 34 amounted to a dispute arising from a statutory power or function assigned to any parties. The court in Uthukela District Municipality and Others v President of the Republic of South Africa and Others confirmed that if parties who may be affected by a confirmation order are organs of state, then they have the constitutional duty to adhere to the principle of cooperative government. Hence, the Court found that the arguments put forth by the City were intergovernmental in nature. The Court noted that organs of state have a twofold obligation, firstly they must make every reasonable effort to settle the dispute through dispute resolution mechanisms and secondly, they are to exhaust every other remedy before approaching the courts. The Court outlined the tedious steps required to be taken by organs of State in resolving an intergovernmental dispute, and found that the City failed to take the preliminary steps as provided.

On condonation – when the court excuses a party for failing to comply with specific provisions of an Act – the Court considered the cases of City of Cape Town v Premier, Western Cape and Others, and Minister of Police and Others v Premier Western Cape and Others. The Court found that the courts have the discretion to proceed to decide on an intergovernmental dispute even when relevant organs of state fail to prove that they made reasonable efforts to settle the dispute out of court. To establish whether the City’s failure to exhaust intergovernmental dispute resolution mechanisms can be condoned, good cause had to be shown, which the City failed to show, according to the Court. The Court held that the City’s reasoning for curtailing the provisions of the Constitution and the Intergovernmental Relations Framework Act, namely that the dispute will be prolonged, was insufficient. In addition, the Court held that non-compliance cannot be condoned simply because the organ of state is of the opinion that it would have been unsuccessful in resolving its dispute in terms of the prescribed provisions. In conclusion, the Court ruled that the City failed to avoid litigation and made no reasonable effort to follow the steps provided in the Intergovernmental Relations Framework Act to settle the dispute. Therefore, condonation was not granted. Instead, the Court referred the matter back to the parties for resolution through intergovernmental dispute resolution mechanisms in terms of section 41(3) of the Constitution.

Commentary

The Constitution is the supreme law; conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled. It is thus imperative that organs of state comply with the requirements of cooperative government as they are constitutionally mandated to do so. Compliance with the principle of cooperative government is important to ensure that spheres of government and organs of state work coherently. They must also respect the functional integrity of government and organs of state in other spheres. Where a dispute arises between them, intergovernmental dispute resolution mechanisms must be exhausted to foster friendly relations, among other objectives. Legal proceedings to resolve any intergovernmental dispute can only be instituted as a measure of last resort, as covered elsewhere in this edition.

The constitutionality of section 34 of ERA, to the extent that the City argued that it impeded on its power to supply electricity, remains, however, unresolved. The Court did not deal with the merits of the City’s argument on this. Thus, the constitutionality of this provision may still be tested in the future.

by Marivyn-Blaire Tchoula Tchokonte, LLM student: Dullah Omar Institute