State Liability Amendment Bill: continuation of deliberations

Meeting report

Mr Johan Labuschagne, Principal State Law Advisor, Department of Justice and Constitutional Development, noted that he had received input from the National Treasury, as well as the State Attorney and State Law Advisors. This was still only a working document. The only issue not covered was that raised on the previous day by Mr Jeffery, that the State Attorney must be informed of any actions against the State. He had been unable to track that in the Rules, and he was also not sure that this Bill was the appropriate place to provide for this.

Mr J Jeffery (ANC) agreed that this document must be viewed only as a draft, in view of the short time afforded to the drafters to prepare it. In answer to the service issue, he pointed out that the Bill was not only addressing the attachment of State property by members of the public, but also was giving the opportunity to the State to prevent attachment. One of the problems identified earlier was that service had been effected at obscure State offices. He thought that both the citation of the political head, and service on the State Attorney, must be included in this Bill, under the same clause, and that the service issue could be addressed either by making reference to existing Rules of Court, or having this separately expressed.

The Chairperson noted that the reference to the executive authority, as set out in the new section 2, was acceptable.

Mr Jeffery noted that this was now expressed as a requirement, not an option. The same needed to be done in respect of the service on the State Attorney.

Dr M Oriani-Ambrosini (IFP) asked if the Committee could discuss the merits of the Bill at this meeting.

The Chairperson explained that this was a draft, and Members had met today primarily to ensure that it did address the points raised at earlier meetings. Formal consideration would take place when Members returned on 24 May.

Mr Labuschagne highlighted the main points. On page 3, he referred to the proposed new section 3(4), which was attempting to ensure that court orders were satisfied.

Ms Jannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, National Treasury, said that this was similar to the first part of the Constitutional court judgment (the Makgoro judgment) in the Nyathi case. The new section 3(5) tried to incorporate part (c) of the Nyathii court order, although the wording was simplified, and provided for a general overall obligation on NT to ensure that the judgment debt would be settled in 14 days. The new section 3(12) set out the various powers that NT would have to ensure that the judgment was settled,  which included making payment on behalf of the Department and then withholding from that department’s budget. There was a clear indication that payment was made within 14 days.

The new section 3(6) addressed the situation where, for some reason, the judgment was not valid or was problematic, leading to a determination by NT that the judgment would not be paid. In this instance reasons would have to be given, and there would be a report to Parliament. There may be a need for discussion as to what the appropriate reporting mechanism to Parliament would be.

She then indicated that the new sections 3(7) to 3(10) were included in the working document of the previous day.

Mr Labuschagne said that at the moment he had no specific comments on these new sections drafted by NT.

Ms D Schafer (DA) did not agree with the wording used in the new section 3(6), that “the relevant treasury (may) determine that it would be inadvisable or impermissible for the particular court order to be paid..” A Treasury had no power to decide whether a court order was valid, as it was valid in fact until an appeal, review or application for rescission was lodged. She also noted that the wording in the new section 3(5)(b) had not been discussed on the previous day, and she did not find that this was acceptable. If referred to a situation where inadequate funds might be available in the vote of the department.

Mr J Jeffery (ANC) agreed with Ms Schafer on the introduction to the new section 3(6), and repeated that no government department, on its own, could decide that it was inadvisable or impermissible to comply with an order. The current subsection 3(11) could provide a basis for the arguments that could be used to get the order changed. However, only the court could decide on a change. The Makgoro judgment had recognised that there may be situations where Treasury would not pay, as otherwise there would be no need to provide for attachment, and this implication was recognised also in the Bill. However, it was not possible to spell out the circumstances in which NT would not pay.

Mr Jeffery added that the National Treasury (NT) draft of the new section 3(5) did not mention that National Treasury could itself settle the debt, but subparagraphs (a) and (b) were similar to the Makgoro judgment. However, he agreed that the words “should there be inadequate funds available in the vote of the department” must be deleted. In fact, this was narrowing the options for a Treasury as it might well be that sufficient funds were available, but that for another reason the Treasury wished to negotiate another option with the judgment creditor. He wondered if this subsection should not include wording to the effect that Treasury itself should pay.

Ms Bednar-Giyose said that the new section 3(6) had been drafted to cover the situation where a Treasury did not pay. In respect of the new section 3(5), she noted that the words “ensure that the judgment debt is settled” implied that it would be settled either by the department, or by the Treasury. She then noted that in the new section 3(12) there was mention that in order to comply with the obligations in subsection (5) a Treasury may effect payment of any outstanding court order on behalf of a department.

The Chairperson commented that what was set out under the new section 3(12) was very good, but the Committee was not happy with the wording of the new section 3(6).

Dr Oriani-Ambrosini agreed with previous comments. However, he thought, in the new section 3(5) that the word “acceptable” should be specified as “acceptable to both parties”.

Mr Jeffery responded that the wording that “Treasury …shall ensure that acceptable arrangements have been made with the judgment creditor for the settlement of the judgment debt” was sufficient clear.

Dr Oriani-Ambrosini commented that the new section 3(11)(b) should not only list the immovable property but also give details of where it was located. If the applicant could not identify it, then the onus should rest on the judgment debtor to supply this information.

Mr Jeffery wished to comment on the provisions in the new section 3(6) around reporting. The comment of Members on the previous day related to a situation where the department failed to pay, and an attachment was made. He thought this could be located elsewhere in the new section 3.

Mr Jeffery then also asked what the situation would be if the department failed to pay as required, but Treasury determined that it would pay on the department’s behalf, and asked how this could be done without Treasury being accused of making unauthorised expenditure. However, he was later referred to the new section 3(12)(f), which included a statement that Treasury could effect payment against the department’s appropriated budget.


Dr Oriani-Ambrosini thought that this was a critical aspect. He believed this Bill must contain an express provision authorising the appropriation of funds by National Treasury, almost with a permanent over-ride over the Appropriation Act. National Treasury (NT) operated on a current expenditure basis. An offset was essentially making a credit against an obligation. However, he made the point that National Treasury did not “owe” money to anyone against which anything could be offset. National Treasury created an overarching budget and presided over the National Revenue Fund. National Treasury did not give any money, as this was appropriated by Parliament. He did not think that clear enough linkage was made between this Bill and the Appropriation Act.

The Chairperson pointed out that many of the cases were long-drawn out, and there would have been many developments before cases reached this point. Departments should budget for contingent liabilities. The new Subsections 3(13) to (17) seemed to cover the issues that Dr Oriani-Ambrosini had raised. The Committee did not want departments to feel that NT would take the responsibility for departments’ failures. He asked that Members should read through these paragraphs very carefully.

Dr Oriani-Ambrosini thought that the point raised by Mr Jeffery cut across this. There would not be a problem where the funds had been budgeted as a contingent liability. However, if this did not happen, and a Treasury ended up paying, he did not think that offset could be used unless the Treasury had itself created its own contingent fund against this possibility. He reiterated that NT did not have its own finances, but dealt with how the National Revenue Fund was distributed. He still believed that there would be problems with unauthorised expenditure. He therefore thought that a channel of authorisation needed to be set up, that the Appropriation Act had to be amended, and that a specific fund for contingencies should be set up. He had previously proposed the setting up of a special funding agency, to be bonded from the outside. He gave a hypothetical example that there might be a huge class action that resulted in a judgment of R1 trillion, which exceeded the State budget. Parliament would have to authorise the raising of a national debt.

Ms Schafer said that Treasury had not dealt with the possibility that it might not have money to pay.

Ms Bednar-Giyose said that in such a case, the litigation would have been ongoing for a substantial time, which would allow for contingent liabilities to be identified and addressed through the budgeting processes of the department concerned. The subsections that would emphasise this requirement for budgeting would need to be addressed.

Ms Bednar-Giyose noted that, in relation to the authorisation for payment, the new section 3(12)(f) tried to provide for authorisation to make payment against the appropriated budget of a department. There might need to be shifting or virement of funds, through the Public Finance Management Act (PFMA). Departments themselves could also make an application, or it could be handled through the adjustment budget process. Budget circulars were developed each year to guide the budget processes, and these types of issues would be addressed through those circulars. The mechanisms in the PFMA would be applied in a practical way. In her view, it would not serve any function to have additional legislation, because of the continuous budget legislation already passing through Parliament.

Dr Oriani-Ambrosini said that there were two different issues. He agreed in so far as the procedures were concerned. However, from a Constitutional point of view, he still felt that National Treasury may need to come up with amendments to the Appropriate Act. He reiterated that although offset may apply in practice, it was not possible to legislate for it, because there was no debt on National Treasury’s part to offset. The budget was fixed when Parliament adopted the Appropriation Act, and if a contingent liability had not been included in this budget, or could not be paid out of the funds of the programme under which it was budgeted, then there was no statutory authority for National Treasury to step in, find money and pay it over to a judgment creditor.

Mr Jeffery said that although he was not an expert on financial regulations, in practice only Parliament had the authority to pass money bills, and he agreed that it might be problematic if this Bill tried to give Treasury a power that it did not have in law. This was a draft only, and he was not sure how extensively the National Treasury legal team had been able to discuss it. He thought it might be useful for Ms Bednar-Giyose and Dr Oriani-Ambrosini to discuss the issue further. It was also not possible to legislate around budgeting issues decided at Cabinet.

Dr Oriani-Ambrosini thought that perhaps the hypothetical example he had raised might have confused the issue. He reiterated that if a department had budgeted for a contingent liability, as it should have done, but failed to pay, then Treasury could withhold. However, where it had failed to budget, and failed to pay, then the question arose where Treasury was sourcing the money that it was paying to settle the debt. Once Treasury had paid, it was not possible, from a legal point of view, to offset because Treasury had no debt against which the offsetting would apply. Parliament, not Treasury, provided the funding for departments.

Ms Schafer said that the word “offset” was not correct. She wondered if the word “deduct” might be better.

Dr Oriani-Ambrosini said that this would not help, because there was still no funding link between Treasury and departments.

The Chairperson said that the offset was raised by the Accountant General, and he had said that if there were insufficient funds available in one year, the department would then get less in the following financial year.

Dr Oriani-Ambrosini still thought that there was a clash between form and substance. Throughout the budgetary cycle, allocations would be done. The formal view, namely that Parliament provided the money, had to be reflected in the law, and it was not possible for Parliament to instruct itself, or Treasury, to take this into account at the next cycle, as this would in any event follow.

Mr Jeffery said that the Mokgoro judgment had summarised the input of the Minister of Finance, and the word “set-off” was used there. He thought that the experts in that field should look further at the wording. The principle was that NT “may” do what it was legally entitled to do to recover money or ensure that departments paid. It was not desirable to try to make new law in addition to the Bill.
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Mr Jeffery also said a provision must also be included that when a notice was served, but a department failed to pay within the 14 day period prescribed, then this must be reported.

The Chairperson noted that the Auditor-General made a point of reminding departments to make provision in their budgets for potential law suits. Government, Parliament and NT would clearly need to address this situation and a decision would have to be taken when it happened. To date, most of the cases dealt with had been fairly small.

Mr Jeffery noted the reference in the new draft to “relevant Treasury”. The Mokgoro judgment had used both the expressions “relevant National or Provincial Treasury” and “relevant treasury”.  He said that perhaps this should be defined, and there must be consistent references.

Mr Jeffery commented on the new section 3(8)(b), which referred to the list of movable property. He reminded Members that on the previous day they had agreed that either the State, or some other party having an interest in the property, would be able to oppose attachment. This would cater for a situation where, for instance, a patient needed access to a dialysis machine. He agreed with Dr Oriani-Ambrosini’s earlier point that the place where the property was situated must be identified. However, subparagraph (b) would clearly only apply to a situation where it was the State itself that was opposing attachment on the grounds that it would disrupt service delivery, as no private individual would be able to state this.

Dr Oriani-Ambrosini felt that the Bill was making matters more difficult for judgment creditors of the State, as opposed to judgment creditors in a private situation. The Bill restricted the attachment to only certain assets, whereas private companies might have equally important assets. He wondered whether the State interest would override that of the judgment creditor. Such restrictions might result in the judgment creditor not being able to satisfy the judgment debt. He pointed out that this order would only be sought after all other avenues had been followed. He was not sure that the principle was correct.

The Chairperson said that if there was no agreement, the Sheriff would attach.

Mr Jeffrey said that the wording of the original Bill around the possible defences that could be raised in response to attachment of certain property had been vague. Clearly, it was not desirable that a department should be able to claim that all its assets were necessary for service delivery, but in effect the Sheriff could attach anything unless the department and Sheriff agreed on this point, failing which the department would have to argue the matter before a court. A list from anyone other than the department would be no value, as clearly an affected individual, such as person reliant on a life-saving machine owned by a Department of Health, would not be able to identify alternative property. A list of alternative assets would be useful, but could be called for only where the applicant was the State.

Mr Jeffery also reverted to the point of what would happen if an attachment had to be made because the department and Treasury had not paid, but there were insufficient assets to satisfy the debt. This would generally happen if there was a very large claim. The judgment creditor would always be able to ask the court for appropriate relief, and this might be the only solution. Hopefully, though, such attachments and unsatisfied debt would be unlikely, and he understood that no attachments were necessary since the Constitutional Court Nyathi matter.

The Chairperson also asked what would happen if the State hid its property.

Mr Jeffery suggested that the judgment creditor could contest the list, and do his or her own investigation.

Mr Schafer agreed that the State was the only party having full knowledge of its assets, and able to identify property that was leased rather than owned.

Dr Oriani-Ambrosini said that Parliament knew how much was given to and spent by Departments, but there was no finalised asset register, even for immovable property. There was a need to have a register of State assets.

Mr Jeffery said that he had raised an unlikely scenario, and thought that in fact there was no need to legislate for this situation, as the correct remedy would be to approach the court.

Ms L Adams (COPE) asked for clarity what would happen if a department was faced with a large debt but had no money to settle it.

The Chairperson said that if National Treasury advised the department that it should pay, but it was unable to do so, the movable assets would be attached, a list of the assets drawn, and, if these were inadequate, then the court must be approached.

Ms Adams wondered if the Committee had not created a problem by saying that immovable property could not be attached and sold.

Mr Mongemela Kwela, State Law Advisor, Office of the Chief State Law Advisor, pointed out that the judgment debtor and creditor could reach an agreement on payment.

Mr Jeffery said he would be reluctant to allow immovable property to be attached, although he was also not in favour of allowing the court to order attachment of property belonging to other departments. He reiterated that this situation would occur only in relation to a very large debt, and pointed out that most problems with payment arose at provincial level, so it was unlikely to have attachment against national departments.

Dr Oriani-Ambrosini said that he was very concerned about excluding immovable property. The time span between attachment and sale of immovable property was very long, and he believed that the ability to attach immovable property would create good leverage to persuade departments to pay, and that there was no sense in not allowing such an attachment. He noted that judgment creditors were instead being directed to attach something that could relate directly to service delivery, thereby affecting other citizens and creating problems for government. He also urged that the Constitutional provisions about the definition of the State should be borne in mind.

Mr Jeffery said that he did not think that the Committee could resile from its decision on this point, but Dr Oriani-Ambrosini could put his objections on record during the clause-by-clause vote.

Ms Adams noted that if a judgment creditor successfully sued, but was unable to attach sufficient assets, then there was no alternative for that creditor other than to reach agreement with the department.

The Chairperson said that an agreement could not be forced.

Dr Oriani Ambrosini thought that the Bill might be creating a situation that would not see justice being done. It was possible that the movable assets of some entities would not be sufficient to satisfy the judgment debt, which would effectively put an end to the matter. He thought that this was not constitutional, and reiterated his earlier points that the legal entity was the national government, and could not be “compartmentalised” into departments. He noted what National Treasury had said about division of budgets, but found this difficult as national government was liable for debts against the State. He noted that citation of a Minister or Executive Authority was merely citation of a representative, but entire executive authority vested in the President, and executive authority of a province vested in a Premier. That underpinned the notion that a province was a legal entity, and was the reason for the decision in the case involving non-rollout of ARV drugs.

Mr Jeffery noted that the President and Premier would not be cited as parties.

The Chairperson said that this point required more thought.

Mr Labuschagne said that he wanted to point out to Members that, in the definitions clause, a definition had now been included for “appropriated budget”. Although an expression was, by convention, not usually defined if used only once, National Treasury had made the point that this was an important definition, and had drafted the wording now included.

Mr Labuschagne also pointed out that “PFMA” (sic), and “Rules of Court” were also now defined, and that the references, in the earlier version of the Bill, to the different rules of court had been replaced with a blanket reference to the “Rules of Court”. Paragraph (c) of the definition tried to capture the definition in respect of all courts currently in existence.

Ms Schafer said that in the words after “established by an At of Parliament” could be left out of paragraph (c) as the context already made it clear that the Bill referred only to writs or warrants.

Mr Jeffery said that “applicable rule” was any rule, and for this reason certain rules may not be relevant.

Ms Schafer repeated that only the rules and provisions relevant to the subject matter of the Bill would apply, so it was not necessary to define them.

Mr Jeffery noted that the Rules of Court were referred to in the new section 3(4).

The Committee decided to flag the issue of the final wording for further discussion.

Mr Jeffery asked that the reference to “PFMA” as the subject of the definition should be expanded out to its full title.

Mr Jeffery noted that the words “and commencement” had been removed from the Short Title. Because this Bill must come into effect by 31 August, he asked that “no later than 31 August” be specified” to emphasise this both to the NCOP and the Presidency.

Mr Labuschagne said that the initial draft had provided for regulations to be drawn, for which a commencement clause was needed, but this Bill could come into commencement immediately it was signed.

Members agreed that the words “no later than 31 August” were not strictly necessary, but would ease the passage of the Bill.

Mr Labuschagne mentioned that the National Treasury and Department of Justice drafters would need to clarify whether the Bill could come into effect without other processes or regulations needing first to be put in place. He would report back on this.

The Chairperson asked that a new draft must be e-mailed by 16 May to the Committee Secretary, who would then circulate it to Members. He noted that in order to avoid further delays, the wording should be agreed upon with the National Treasury representatives, although he appreciated that National Treasury may not be fully in favour of the final content.

The Chairperson asked if the Minister of Finance was to meet with provincial Treasuries and MECs, as there was a need for a change in mindset, away from the attitude that the State would not pay, to one where every department understood the need to comply promptly with court orders. This would also be included in the Committee’s report.

Dr Oriani-Ambrosini suggested that the Committee’s Report should ask the Minister of Finance to table this at MinMEC.

The Chairperson then noted that future meetings would take place on 24 and 25 May, and it was hoped, if possible, to finalise the Bill then.

Ms Schafer said that she would still need to take this to the caucus.

Mr Jeffery asked if COPE and the DA could discuss with their Chief Whips whether there was any alternative that would allow for the matter to be finalised on 24 or 25 May. Because this was a technical Bill it was possible, however, that other technical issues might be uncovered before then.

The meeting was adjourned.