Abstract

In Bae Estates and Escapes (Pty) Ltd v Trustees for the time being of the Legacy Body Corporate 2020 4 SA 514 (WCC) the Supreme Court of Appeal (SCA) considered a resolution by the trustees of a sectional title scheme that an estate agent Bae Estates and Escapes was not allowed to enter or exercise any economic activities in the scheme. The resolution was based on a conduct rule which enabled the trustees to disallow specific estate agents to sub-let units in the scheme on a short-term basis. The Western Cape Division of the High Court found that the resolution was unlawful, wrong, procedurally unfair and arbitrary and therefore reviewable. The High Court considered two requirements of the definition of "administrative action" in the Promotion of Administrative Justice Act 3 of 2000 (PAJA) and held that the resolution of the trustees constituted administrative action in terms of PAJA and was as such reviewable under PAJA.

On appeal the Supreme Court of Appeal considered whether the trustees' conduct should be considered an administrative act reviewable under PAJA or alternatively be reviewed under the common law in terms of section 33 of the Constitution. After analysing the three requirements of administrative action to determine whether the conduct of the trustees had to be determined under PAJA, the SCA held that the conduct of the trustees did not fulfil any of these requirements and reviewed their conduct under the common law.

In this case note the three requirements for administrative action are discussed in view of the special nature of the body corporate and the rules of a sectional title scheme. The body corporate is a statutory juristic person that is automatically established on the opening of a sectional title register and therefore not consensual in nature, like common law clubs, companies or retirement schemes. Furthermore, its rules are regarded as the product of the quasi-legislative function of a statutory body, which rules must be approved by the Ombud Service for Community Schemes before the opening of the sectional title register. Although the outcome of the judgment would have been the same, the juridical basis would have been more accurate if the SCA had taken into consideration the special nature of a sectional title scheme, which brings the conduct of the trustees within the ambit of administrative action under PAJA.

Keywords

Administrative action; sectional title scheme; body corporate; trustees; conduct rules; nature of rules; common-law judicial review.

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Disputes regarding the enforcement of the rules of a sectional title scheme often end up in court or are referred to the Ombud Service for Community Schemes for mediation or adjudication. This case is exceptional, as it does not concern a dispute between individual members of the scheme or the trustees and a member or members, but between the trustees and a third party who is not in any relationship, contractual or otherwise, with the trustees and is regarded as an outside party. The question in this judgment is how and to what extent the rules of the scheme are enforceable against outside parties, and how any dispute regarding such enforcement should be adjudicated.

Bae Estates and Escapes (Pty) Ltd, the applicant for an interdict in the Western Cape High Court (Cape Town) 1

* Gerrit Johannes Pienaar. BJur & Com LLB LLD (PUCHE). Extraordinary Professor, North-West University, South Africa. E-mail: gerrit.pienaar@nwu.ac.za. ORCID: https://orcid.org/0000-0003-0931-9088.

1 Bae Estates and Escapes (Pty) Ltd v Trustees for the time being of the Legacy Body Corporate 2020 4 SA 514 (WCC) (hereafter Bae Estates and Escapes).

In May 2019 the trustees notified the owner of the leased unit that in terms of conduct rule 37.3 of the scheme he was no longer allowed to continue with the short-term letting of the unit. This rule determines:

37 An owner may let or part with occupation of his section provided: …

37.3 that in order to retain the nature of the Scheme, short-term letting shall be permitted provided that such short-term holiday letting is managed through a letting agency which is considered to be reputable for such purpose in the sole discretion of the Trustees. The trustees shall in their sole discretion have the right to restrict any short-term letting ….

In addition, the trustees considered the possibility of prohibiting Bae Estates from any operations within Legacy. 4

4 Trustees of the Legacy Body Corporate para 4.

On 21 May 2019 the trustees resolved and notified the owner of the unit and Bae Estates by email that Bae Estates was prohibited from all operations within the scheme with immediate effect. Bae Estates objected to the resolution and stated that it had nothing to do with the short-term letting of the unit, which was the responsibility of the tenant who had been permitted to do so by the owner. They requested the trustees to reverse the resolution, which request was declined by the trustees. Thereafter Bae Estates launched an application for an urgent interdict against the trustees of Legacy from implementing the resolution, pending an application to review and set aside the resolution. In the application Bae Estates asserted that the resolution was: (a) unlawful and passed in error, because conduct rule 37.3 could not be applied against Bae Estates in circumstances where they were not engaged in short-term holiday letting; (b) procedurally unfair as it was passed without any prior investigation into its role and without prior notice; and (c) arbitrary and taken with an ulterior motive, namely to prevent Bae Estates from carrying on any business within the scheme. Bae Estates contended that the resolution amounted to administrative action and should be reviewed in terms of the Promotion of Administrative Justice Act 3 of 2000 (PAJA), alternatively judicial review under the common law read with section 33 of the Constitution of the Republic of South Africa, 1996 (the Constitution). 5

5 Trustees of the Legacy Body Corporate para 8.

In their response the trustees denied that Bae Estates had locus standi because there was no contractual nexus between the body corporate and the short- term letting activities of Bae Estates (which point is not further discussed as part of this case note). Regarding the merits of the application, the trustees contended that in taking the resolution they were not exercising a public power nor performing a public function, and that the resolution did not constitute an administrative action because it did not adversely affect any of Bae Estates' rights or have a direct external effect. The trustees also set out the long list of complaints which culminated in taking the resolution and contended that the resolution was reasonable and lawful in the circumstances. They furthermore stated that the resolution was taken in terms of conduct rule 37.3 concerning short-term holiday letting, and not any blanket prohibition regarding long-term letting or sales. 6

6 Trustees of the Legacy Body Corporate paras 9 and 10.

The Western Cape High Court considered two requirements of the definition of "administrative action" in PAJA, namely "public character" and "direct and external effect", which will be discussed comprehensively at 3.1 below. The Court held that the trustees' resolution constituted administrative action in terms of PAJA and is as such reviewable under PAJA. Furthermore, the court reviewed the resolution at common law against the standards of lawfulness, reasonableness and procedural fairness in view of its inherent power to develop the common law in terms of section 33 of the Constitution. Consequently, the high court set aside the trustees' resolution and ordered the trustees to pay Bay Estates' costs. 7

7 Trustees of the Legacy Body Corporate para 11.

2 Sectional title legislation

Before analysing the SCA's judgment the legal nature of the body corporate and the enforcement of the rules of a sectional title scheme are discussed to distinguish these aspects from other statutory and common-law juristic persons such as companies, homeowners' associations and voluntary associations like jockey clubs, sports and cultural associations. This is necessary because in its judgment the SCA relied heavily on the legal position of these statutory and common law associations when dealing with the effect of the rules of the

sectional title scheme, which differ in several respects from other statutory associations and voluntary common law associations. 8

8 Van der Sijde Property Regulation 187-189.

The Sectional Title Schemes Management Act 8 of 2011 9

9 In operation since 7 October 2016.

A sectional title scheme is governed by its trustees in terms of rules approved by the Ombud Service for Community Schemes and registered when a sectional title register is opened in a deeds registry. 13

13 STSMA ss 10(1) and (2).

are that the rules must be reasonable and equally applicable to all owners and occupiers of units and conduct rules may not be irreconcilable with any prescribed management rule. 16

16 STSMA s 10(3).

Before the opening of the sectional title register or after the adding, amending or repeal of existing management and conduct rules, such rules must be submitted to the Ombud Service for Community Schemes for approval. 17

17 STSMA ss 10(5)(a), 10(2)(a) and (b); Pienaar and Horn Sectional Titles 205-206.

In case law it was often held that the body corporate, and consequently its rules, are based on contract. 22

22 Wiljay Investments (Pty) Ltd v Body Corporate, Bryanston Crescent 1984 2 SA 722 (T); Mount Edgecombe Country Club Estate Management Association II RF NPC v Singh 2019 4 SA 471 (SCA) para 20.

the Ombud Service before the opening of the sectional title register. Furthermore, regulation 6(1) of the STSMA determines that the rules "must be considered to be and interpreted as the laws made by and for the body corporate of the scheme." The rules form part of the public documentation of the sectional title scheme filed and are open for inspection at the Ombud Service. 24

24 Van der Merwe Sectional Titles paras 13.10 and 13.11; Pienaar and Horn Sectional Titles 209-212.

The conduct rules are enforceable against owners and occupiers of the scheme, their visitors and other tradesmen and labourers visiting the scheme with their consent, as well as outsiders with no contractual or other relationship with the owners and occupiers. Conduct rule 37.3, as approved by the Ombud Service, is an example of rules enforceable against outsiders. There are many other examples of conduct rules enforceable against outsiders, for instance in respect of access, security, parking arrangements and the use of facilities on the common property of the scheme. The only requirement for the enforcement of such rules against outsiders is that they must be enforced in respect of the use of (a) section(s) or the common property of the scheme. 26

26 Van der Merwe Sectional Titles para 13-5 on 13.22(1).

3 Administrative action or common law judicial review?

3.1 Requirements for administrative action

The SCA referred to the definition of "an administrative action" in section 1 of PAJA, which determines:

[A]ny decision taken, or any failure to take a decision, by –

(a) an organ of state, when –

(i) exercising a power in terms of the Constitution or provincial constitution: or

(ii) exercising a public power or performing a public function in terms of any legislation: or

(b) a natural or juristic person, other than an organ of state, when exercising a public power or performing a public function in terms of its empowering provision, which adversely affects the rights of any person and which has a direct, external effect … .

With reference to Minister of Defence and Military Veterans v Motau 27

27 Minister of Defence and Military Veterans v Motau 2014 5 SA 69 (CC) para 33.

3.1.1 Was the resolution of the trustees of an administrative nature

The SCA stated with reference to Grey's Marine Hout Bay (Pty) Ltd v Minister of Public Works 32

32 Grey's Marine Hout Bay (Pty) Ltd v Minister of Public Works 2005 6 SA 313 (SCA) para 24.

was made in the course of the running and managing the scheme and the nature of the power was thus managerial or commerce-related, like a meeting of shareholders of a company. 34

34 Trustees of the Legacy Body Corporate para 18.

It is an open question whether the SCA's reasoning would have been the same if they had considered the conduct of the trustees in the light of the special nature of the body corporate and the rules of a sectional title scheme, which differs in several respects from other statutory entities and common-law associations based on contract. 36

36 Van der Merwe Sectional Titles paras 2-20 and 2-21; Pienaar and Horn Sectional Titles 92-98.

making applicable to owners and residents of the scheme as well as outsiders without any contractual relation with the owners or residents.

3.1.2 Did the trustees exercise a public power or exercise a public function

With reference to Chirwa v Transnet Limited 38

38 Chirwa v Transnet Ltd 2008 3 BCLR 251 (CC) para 181.

The SCA acknowledged the government's involvement through the Minister of Human Settlements in the STSMA, the regulations promulgated in terms thereof and the rules of conduct of the scheme, but confined it to the following matters: the management of the reserve and administrative funds of the scheme; 41

41 STSMA ss 3(1)(a) and (b).

government". 45

45 Trustees of the Legacy Body Corporate para 24.

The court furthermore referred to Mount Edgecombe Country Club Estate Management Association II (RF) NPC v Singh 47

47 Mount Edgecombe Country Club Estate Management Association II RF NPC v Singh 2019 4 SA 471 (SCA) para 15. Also see Burns and Henrico Administrative Law 72, and Bill v Waterfall Estate Home Owners Association (NPC) 2020 6 SA 145 (GJ), where a contractor was locked out by the trustees.

[T]he public does not include persons who are there with the permission of the owners of the property within the estate. Thus, the public must be the general public, not a special class of members of the public who have occasion for business or social purposes to go to the estate.

It is common cause that Bae Estates had no contractual ties with the body corporate nor had visited the scheme with the permission of the trustees, owners or occupants. Furthermore, the appellant in the Mount Edgecombe Country Club case was a registered company and not a sectional title scheme (see 2 above). In considering this requirement the SCA did not distinguish the special nature of a sectional title scheme and its rules (being the laws of the scheme 48

48 Regulations to the STSMA reg 6(1).

The governing function of the trustees is much wider than the matters stated in terms of sections 3 and 18 of the STSMA 49

49 As per the court in Trustees of the Legacy Body Corporate para 23.

side of the Ombud Service. 51

51 Van der Sijde Property Regulation 187-189.

The SCA held that the trustees' resolution was not an administrative decision envisaged in PAJA and was not reviewable in terms thereof. 52

52 Trustees of the Legacy Body Corporate para 32.

3.1.3 Did the trustees act in terms of legislation or an empowering provision

The court stated that it was important to locate the trustees' resolution to prohibit Bae Estates from operating in the scheme within "an empowering provision". 56

56 Trustees of the Legacy Body Corporate para 27.

without a clearance certificate that all levies have been paid is akin to the embargo provision contained in section 18 of the Local Government: Municipal Systems Act 32 of 2000. The power to limit the access to a sectional title scheme and the ability to operate within it by non-owners and non-residents cannot be excluded from the functions and powers of the body corporate and trustees. The body corporate as the manager (and in some instances the owner) of the common property may exercise any of the powers and rights of a property owner by the enforcement of the rules of the scheme against outsiders, subject to the provisions of the STSMA and its regulations. 59

59 STSMA ss 5(2)(a) and (b).

In this instance the conclusion by the SCA that the trustees' resolution was not an administrative decision envisaged in PAJA and was not reviewable in terms thereof but rather by way of common-law judicial review 60

60 Trustees of the Legacy Body Corporate para 32.

3.2 Judicial review under the common law

The SCA then examined the trustees' conduct in considering and taking the resolution (to prohibit Bae Estates from operating in the scheme) to determine whether the resolution was reviewable under the common law. 61

61 Trustees of the Legacy Body Corporate paras 33-50.

The SCA correctly held that private bodies are not immune from judicial review, but that the principles of common-law review mostly evolved from the so-called "Jockey Club" cases, where voluntary associations are required to afford their members a fair and impartial hearing before their domestic tribunals. 63

63 Trustees of the Legacy Body Corporate para 39.

common-law associations based on contract and consensus (see 2 above). The court stated that Bae Estates had been directly and materially affected by the resolution of the trustees. This was in effect a recognition by the SCA that the trustees exercised a public function (see 3.1.2 above), as there was no contractual nexus between the body corporate and Bae Estates. 64

64 Trustees of the Legacy Body Corporate para 40.

The SCA then analysed the grounds on which a private body can be subjected to judicial review at common law. 65

65 Trustees of the Legacy Body Corporate paras 41-50.

Bae Estates was not afforded an opportunity to be heard by the trustees. Furthermore, after the resolution had been taken, one of the trustees proceeded to try to convince an owner of Legacy to give a mandate to the trustees to find him a tenant, which was clearly a conflict of interest. 68

68 Trustees of the Legacy Body Corporate paras 44-47.

In our constitutional order, private entities are not enclaves of power, immune from the obligation to act fairly, lawfully and reasonably. In the present case, it is not necessary to develop the common law, as the high court purported to do. The

common law, which now yields to the Constitution and must be viewed through the prism thereof, is adequate to meet the ends of justice. It follows, in my view, that the trustees' decision is reviewable at common law.

The SCA subsequently held that the resolution by the trustees ought to be reviewed and set aside and dismissed the appeal by the trustees with costs. 72

72 Trustees of the Legacy Body Corporate para 52.

4 Administrative action or common-law review?

The outcome of the appeal regarding the reviewability of the resolution of the trustees cannot be criticised because it appeared clearly from the affidavits of the parties that the standards of lawfulness, reasonableness and procedural fairness had not been adhered to by the trustees. The SCA's comment in paragraph [50] of the judgment that private entities are not enclaves of power and immune to the obligation to act fairly, lawfully and reasonably is commendable. The SCA, like the Ombud Service, had no problem with the content of rule 37.3, being a rule enforceable against third parties or outsiders also. Furthermore, the SCA rightly found that the enforcement of the resolution lacked lawfulness, reasonableness and procedural fairness.

However, the SCA's rejection of the possibility that the resolution should have been an administrative action to be reviewed under PAJA, and the choice of judicial review under the common law, are debatable. The body corporate of a sectional title scheme is not a common law juristic person but a statutory juristic person with a public function in certain instances. In this regard Van der Sijde 73

73 Van der Sijde Property Regulation 187-189.

The impact of (sectional title) rules can be widespread and ensuring effective oversight (as regulation of this type of regulation) is important to safeguard not only property rights but also other constitutional rights.

The resolutions of the trustees that concern owners, occupants and outsiders of the scheme can be classified as administrative actions and reviewable under PAJA. Under PAJA the outcome of the review would have been the same, but the juridical basis of the review would have been more satisfactory. It is clear that the SCA grasped this opportunity to clear up uncertainties regarding reviews of activities of common law juristic persons which fall outside the ambit of PAJA, but it is debatable whether the review of the enforcement of a

sectional title rule by the trustees was in this instance the correct basis for the review. Judicial review under PAJA is an effective, authoritative and final method of resolving administrative disputes. 74

74 Hoexter and Penfold Administrative Law 169; Burns and Henrico Administrative Law 362-363.

Bibliography

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Case law

Bae Estates and Escapes (Pty) Ltd v Trustees for the time being of the Legacy Body Corporate 2020 4 SA 514 (WCC)

Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism 2004 4 SA 490 (CC)

Bill v Waterfall Estate Home Owners Association (NPC) 2020 6 SA 145 (GJ)

Body Corporate Pinewood Park v Dellis (Pty) Ltd 2013 1 SA 296 (SCA)

Calibre Clinical Consultants (Pty) Ltd v National Bargaining Council for the Road Freight Industry [2010] All SA 561 (SCA)

Chirwa v Transnet Ltd 2008 3 BCLR 251 (CC)

Grey's Marine Hout Bay (Pty) Ltd v Minister of Public Works 2005 6 SA 313 (SCA)

Minister of Defence and Military Veterans v Motau 2014 5 SA 69 (CC)

Mount Edgecombe Country Club Estate Management Association II RF NPC v Singh 2019 4 SA 471 (SCA)

Sokhela v MEC for Agriculture and Environmental Affairs 2010 5 SA 572 (KZN)

Trustees for the time being of the Legacy Body Corporate v Bae Estates and Escapes (Pty) Ltd 2022 1 SA 424 (SCA)

Wiljay Investments (Pty) Ltd v Body Corporate, Bryanston Crescent 1984 2 SA 722 (T)

Willow Waters Homeowners' Association (Pty) Ltd v Koka 2015 5 SA 304 (SCA)

Legislation

Community Schemes Ombud Service Act 9 of 2011

Constitution of the Republic of South Africa, 1996

Local Government: Municipal Systems Act 32 of 2000

Promotion of Administrative Justice Act 3 of 2000

Sectional Title Schemes Management Act 8 of 2011

Government publications

GN R1231 in GG 40335 of 7 October 2016 (Regulations to the Sectional Title Schemes Management Act 8 of 2011)

List of Abbreviations