State Liability Amendment Bill: matters arising from submissions

Meeting report

Deliberations: State Liability Amendment Bill
Advocate Deon Rudman, Deputy Director General: Legislative Development from the Department of Justice and Constitutional Development (DOJ&CD) informed the Committee that originally the Department had drafted a Constitutional Amendment Bill and a State Liability Amendment Bill. When the Department requested public comment on the draft versions of the two Bills, the comments were highly critical and this resulted in the Department proceeding only with the State Liability Amendment Bill to effect the order of the Constitutional Court (CC) in the Nyathi 1 judgment.

The current comments received on the State Liability Amendment Bill made it clear that the Bill was more complicated than originally envisaged. The Department had responded to the comments on the Bill but it would be clear to the Committee upon looking at the document that there was still a lot of work to be done. The responses from the Department had been submitted to National Treasury and its feedback was still awaited.  There were also a number of policy decisions that had to be taken due to the comments received. For example, commentators argued that restricting attachable property to movable property only would be unconstitutional. The state law advisors declared the Bill to be constitutional and certified it as thus. The Department itself followed the order of CC to the letter. The CC itself only referred to movable property and not immovable property. A further example was did the attachment of property apply only to the property belonging to the relevant department or to state property in general. Some commentators had submitted that it applied not only to the particular property of the relevant department but should be the property of the state as a whole, as there was only one government. 

Depending on the policy decisions of the Committee, the Department would probably have to go back to Cabinet for a final decision, it was accepted however that the Committee was the legislator. There were a number of proposed amendments that the Department supported

Discussion
Mr J Jeffery (ANC) said that the Committee had exerted pressure on the Department because of the pressure created by the time constraints of the court judgment. However, the Department response document was not complete and the Committee should not go through it. It did not seem useful to go through the document at this stage. The Committee could attempt to deal with the issues of including immovable property and of attaching the property of other state entities. Could there be input from National Treasury on this Bill?

Mr Freeman Nomvalo, Accountant General for National Treasury, said that attachment of state property had far reaching implications for service delivery purposes. National Treasury was of the view that it would not be desirable to attach immovable property and agreed with Adv Rudman that even the CC did not deal with this issue. National Treasury could assist the Committee on the issue raised by commentators that departments did not ordinarily budget for judgments against the state and that this could pose a serious threat to payouts. The comments made during the public hearings were being presently considered and National Treasury would be meeting with the DOJ&CD to deliberate further on them. On the matter of appropriations, the view was that if any department wanted to fulfill its obligations it would commit state funds to outside bodies. Departments in theory should not overspend but when they did, this fell under the category of unauthorised expenditure. There was a process in place that dealt with unauthorised expenditure. The payment for a judgment against a department would have to be dealt with in a similar manner, in other words one could not delay the payment just because it was not budgeted for. It would also be important that in this situation a department would have to consider the Public Finance Management Act (PFMA) and its provisions on shifting, reprioritisation or creating a fund to deal with such payments. Immovables should not be attached but the question then became: how should judgment debts be adequately satisfied? It would be difficult to bestow an obligation on an accounting officer of another department as a result of the actions of the accounting officer from the errant department. This would make it difficult for the accounting officer of the innocent department to fulfill their obligations. It would also not be advisable to attach goods across the three spheres of government. There was legislation that dealt with inter-governmental fiscal relations, what would be the implications for that legislation if there were attachments across government spheres?

Adv Rudman pointed out that if the Committee decided that it would be unconstitutional to exclude immovable property, then immovable property would have to be included in the Bill.  There were options should immovable property be attached. One could draft a provision that said if movable property did not satisfy the judgment, then immovable property could be executed. If it was not necessary to attach immovable property to satisfy the judgment, the Committee should not allow the attachment of state immovable property. One could not foresee a situation where the attachment of movable property would not satisfy a judgment debt.

The Chairperson requested that the state law advisors should also consider the issues raised.

Ms D Schafer (DA) requested the state law advisors and Department to consider the aspect of equality in the Constitution, as this would be a central issue. One could not place the state on a different level to private entities.

Dr M Oriani-Ambrosini (IFP) said that the executive was created under the Constitution and was the owner of state assets. There were then nine provinces and [262] municipalities. The Committee should carefully consider whether this was not a Section 76 Bill and that it was correctly tagged as it affected provinces as well. The Committee should establish a state agency to deal with judgments.

Ms D Smuts (DA) questioned why the Committee had to delve into constitutional issues. There had to be a sense of natural justice. Would it be the case that a department would have to have an adjustment appropriation?

Mr Jeffery said that the motivations of the commentators for immovable property to be included, were not very extensive. One also had to bear in mind the ramifications for the attachment of immovable property. The Committee should not try and second-guess the CC. Given the pressure that that Committee was under; it should not pursue the matter.  The test for the tagging of Bills revolved around legislative competence and was not administrative. On the issue of equality, the state was not a private company. It raised its funds from the public and offered services. It would be unfair that a department that was functioning well suddenly found its property attached because another department did not behave itself. Treasury had a key role to play as per the order from Judge Mokgoro from the Nyathi 1 judgment. The order essentially held that the relevant national or provincial treasury body would settle the judgment debt, failing which the judgment creditor would then proceed against the relevant department. 

Mr Jeffery pointed out that the Committee could consider the order by Judge Mokgoro as an option. This route made sense as it took into account the fact that Treasury was the body that controlled state finances. This would also take into account Dr Oriani-Ambrosini’s concerns for a central body.  Another issue that was of concern was disciplinary action against officials who did not perform or ensure that judgment debts were paid. It would be useful for the legislator to have reports sent to it and have officials appear before it as a sanction that would be tantamount to naming and shaming instead of criminal sanctions.

Prof G Ndabandaba (ANC) agreed with the points raised by Adv Rudman and Mr Jeffery.

Adv S Swart (ACDP) agreed that the Committee should include only movable property. The implications of attaching immovable property would be too heavy a burden on service delivery. Departments should build into their budgets a contingency fund to deal with judgments against them because this was often not budgeted for. There must be a way to create a fund within the budgetary process. Court dates were set two years in advance for major cases. This could be foreseen and provided for instead of having to make available property for attachment.

Ms V Mentor (ANC) said that she agreed with the points raised by Mr Jeffery. National Treasury should adopt the route suggested by Judge Mokgoro, as they were the custodians of state funds.

Mr Neville Gawula, Director of the Office of the Chief Litigation Officer (CLO), said that the Committee had to consider designing a framework that would avoid another Nyathi judgment. Rule 45 of the Court Rules dealing with attachment of movable property and Rule 46 dealing with immovable property, were currently under review in the CC. One had to balance the interests of the state as a judgment creditor and a private individual. This was what the minority judgment from Judge Nkabinde tried to do in the Nyathi 1 case.  The Office of the CLO was inundated with complaints that government at municipal level did not satisfy judgment debts. In order to minimise the risk of government not complying with its obligations where judgment orders in money were concerned, National Treasury could consider giving leeway to state attorneys to be able to authorise the principal payment of agency fees where the services of counsel had been solicited.  State attorneys could respond to the satisfaction of a judgment debt only where they have dealt with the matter, at times departments obtained private legal counsel and this posed a problem.

Ms Schafer agreed with the proposals for budgeting in advance. The judgment had to be properly considered by the state law advisors in light of the equality provision.

Dr Oriani-Ambrosini said he was of the opinion that National Treasury did not have any money; they merely created the budget and had their own budget. A solution could be to establish an agency that could go to a bank to make loans to satisfy the judgment debts. The agency’s task would be to settle judgment debts on behalf of state departments. The agency would raise the necessary funds via bank loans. It would then repay the loans by soliciting money from the relevant department or other state entities which might have a surplus.

Mr Jeffery said that the suggestion for an agency was not practical given the time constraints. The Committee had to have a proper response from National Treasury as to why the model proposed in the judgment of Judge Mokgoro was not suitable. Another option was contingency funds in government that may have to be accessed by way of legislative amendments via an appropriations bill that would come from Treasury.

The Chairperson asked what prevented departments from setting aside funds in anticipation of judgment debts being handed down against them as a lot of the cases took years. The departments had ample time to prepare. Whilst the legislator did not want anarchy, it also had a responsibility to citizens like Nyathi who wanted to hold the state to account. The current situation was that Directors General dug in their heels and in the long run this resulted in the state losing more money.

Mr Nomvalo said that the adjustment appropriation could be altered for the purposes of honouring unauthorised expenditure. There could be justification for the setting aside of a contingency fund for the purposes of honouring judgment debts. Allowing this to happen could also result in perverse outcomes. It should be borne in mind that unauthorised expenditure was firstly considered by the Standing Committee on Public Accounts (SCOPA). If they were satisfied, then they could agree to additional funds being made available which would go to the adjustment budget or normal budget. A situation where there was a judgment debt against the state would have to go through a similar process. National Treasury did not issue funds to anybody, it facilitated the process of the distribution of funds which were approved by Parliament. There were officials within Treasury that felt that the Judge Mokgoro judgment should be considered. National Treasury had two concerns: the first was that it wanted to ensure that a judgment debt against the state was a genuine court order that arose out of an obligation that a particular department had. Treasury would need to have two to three months to verify judgments but the payment would be made expeditiously. An institution like Treasury which had access to the national revenue fund could be a facilitator.

Mr Jeffery said that in theory Parliament approved the budget, which realistically came from the Minister of Finance. The verification of judgments for two to three months was a non-starter. A 14-day period could be considered, as it was not difficult to verify a court judgment. The Committee had to have a report from Treasury and the DOJ&CD on why the proposal from the Judge Mokgoro judgment could not be included in the Bill.

Mr Nomvalo advised the Committee that the budget process also involved a group of ministers that decided on the allocation of funds and they were guided by government’s key priorities.  The ministers then presented this to Cabinet, which decided that this would indeed be the national budget. This process should be appreciated so as to not put unnecessary pressure on Treasury, which mainly facilitated the budget.

The Chairperson commented that Treasury had the benefit of state law advisors to assist in he verification of judgments; this could not take more than 14-days. Was there consensus on the issue of the attachment of state property as opposed to the property of the relevant department?

The Committee all agreed that the property of an innocent department should not be attached.

Mr Jeffery said that it would be useful for the Committee to find out what was not functioning with the interim order. If there was nothing, then why not go with it?

The Chairperson said that he hoped the departments would meet and deliberate further on the Bill and get back to the Committee as soon as possible.

Meeting Adjourned.