Staff Reporter

The Supreme Court of Appeal (SCA) has upheld, with costs, an appeal against the decision of the Free State High Court in which Letsemeng Local Municipality was granted an interdict to prevent the interruption of the supply of electricity by Eskom.

As at January 31, 2020, the municipality’s debt to the national power supplier had accumulated to an astronomical figure exceeding R41 million.

Based on Letsemeng’s recurrent failure to comply with its obligations, Eskom issued a final notice to interrupt electricity supply with effect from February 18, 2020, which would have affected Koffiefontein, Jacobsdal and Petrusburg, among other towns within the council’s administrative area.

This prompted the municipality to launch an urgent application in the High Court seeking to interdict Eskom from implementing the interruption pending the review of that decision and the determination of a dispute between the parties to be referred to the National Energy Regulator of South Africa.

Eskom filed a counter-application in which it sought, inter alia, to compel Letsemeng to comply with its obligations in terms of the electricity supply agreement (ESA) that it had concluded with Letsemeng.

The High Court granted Letsemeng the interim interdict but dismissed Eskom’s counter-application.

Eskom then approached the SCA seeking a determination on whether the power company was entitled to the relief sought in its counter-application.

In the counter-application, Eskom sought several prayers, including to compel Letsemeng to comply with the payment conditions set out in the ESA.

It also wanted the municipality directed to pay the amount of R5 million which National Treasury had made available for payment to the power utility.

The SCA, in a majority judgment handed down on Thursday, held that Eskom was not entitled to an order declaring that Letsemeng was in breach of section 153(a) of the Constitution because it had not made out a case for that relief.

It further held that Eskom sought vaguely drafted structural orders that would require affidavits being filed with the High Court regularly with no explanation why these orders were necessary and the purpose they intended to serve.

With regard to prayers to compel Eskom to comply with the payment conditions set out in the ESA, the SCA held that these were aimed at securing payment from Letsemeng on the basis of its contractual and statutory obligations.

Letsemeng did not honour any of the AODs and the various payment arrangements it made with Eskom.

Furthermore, Letsemeng undertook to pay the amount of its equitable share earmarked for electricity.

A total of R5 million had been advanced to it by Treasury solely to pay Eskom but it reneged.

In the context of Letsemeng having applied to interdict Eskom from interrupting the supply of electricity, Eskom had no suitable alternative remedy other than its counter-application for the mandatory orders to enforce Letsemeng’s reciprocal obligations to pay for the electricity it received.

Letsemeng’s defence that it should not be ordered to pay what it agreed to pay because it was unable, due to its financial weakness, was no defence.

The SCA held that, to the extent that this may amount to the tacit raising of a defence of impossibility of performance, the position is clear: if a person promises to do something that can be done, such as delivering a thing or paying a debt, but which that person cannot do due to circumstances peculiar to themselves, they are nonetheless liable on the contract.

It said the commercial mayhem that would result, if the rule was otherwise, is not difficult to imagine.

Contractual obligations are enforced by courts irrespective of whether a defaulting party is able to pay or not.

The focus is on the rights of the innocent party, not the means of the defaulting party.

The SCA held that the High Court erred in dismissing Eskom’s counter-application in its entirety.

Accordingly, the appeal was upheld and the order of the High Court dismissing Eskom’s counter-application was set aside and replaced with an order in terms of which Letsemeng was directed to pay Eskom:

• all amounts, in respect of the electricity it received from Eskom, when such amounts are due and payable as set out in the ESA and Section 65(2) of the Local Government: Municipal Finance Management Act 56 of 2003;
• all arrear debts due and payable to Eskom, in accordance with the terms of the AOD;
• such portion of the equitable share that relates to electricity within 24 hours of receipt of the share;
• the amount of R5 million which the National Treasury made available to the municipality for payment to Eskom;
• costs, including the costs of two counsel.

Judge Clive Michael Plasket, in a separate concurring judgment, held that the relief granted related to admitted liabilities on the part of Letsemeng which it had not suggested that it was not liable to pay.

The repayment plan figures were prepared by Letsemeng taking into account its own affordability and revenue collected from the sale of electricity to customers.

Therefore, Letsemeng “warranted” that it could afford to pay the amounts it had agreed to pay.

Accordingly, there was no dispute between Eskom and Letsemeng about its liability to Eskom and how it would pay its debt which required resolution by negotiation.

In a dissenting judgment, Judge Ashton Schippers held there was a dispute between the parties concerning the manner in which Letsemeng could be enabled to settle its indebtedness to Eskom.

He said both parties were obliged to make every reasonable effort to resolve the dispute in accordance with the procedures provided for in the Constitution.

Schippers further held that there was a practical difficulty in implementing the orders granted in that Letsemeng, like most municipalities, was in financial crisis.

He said Eskom was aware that Letsemeng did not have the means to settle its outstanding electricity debt of some R41 million.

It was therefore unrealistic of Eskom to expect Letsemeng to comply with its obligations under the AODs and the ESA.

Thus, according to Schippers, the High Court was correct in its observation that the granting of the wide-ranging orders sought in the counter-application would not assist Eskom, if Letsemeng could not pay.

Consequently, he said, the orders sought by Eskom in the counter-application, save for an order that Letsemeng be directed to pay the sum of R5 million which Treasury made available for payment, were difficult to implement.

In the event that the dispute was unresolved within four months of the date of the order, Eskom would be entitled to set down the counter-application for its determination.