Making the State Pay for its Misdeeds

S3 of the State Liability Act 20 of 1957 was declared unconstitutional in Nyathi v Member of the Executive Council for the Department of Health Gauteng and Another 2008 (5) SA 94 (CC). The issue arose when Nyathi challenged s3 of the Act, which prohibited the attachment of state property in order to satisfy a judgment debt.

The Constitutional Court suspended the order of invalidity until 31 August 2011. The state was given three years from the date of judgment to promulgate amending legislation. The State Liability Amendment Bill (the Bill) was tabled in Parliament on 4 February 2011.

In this article the Bill will be analysed, in light of the interim order of the Constitutional Court and the State Liability Act. We will commence by referring to the interim order of the Constitutional Court and will then discuss the amended sections of the Bill and consider if the amendments are reasonable.

The object of the Bill, from its memorandum, is to give effect to the Constitutional Court's judgment in the Nyathi case. In doing this, the Bill seeks to create an effective execution process to be used by successful litigants in civil actions against the state in cases where the state has failed to comply with final court orders sounding in money[1].

The definitions in s4 confirm that the legislation is intended for National and Provincial departments only. The present Act protects the movable assets of National and Provincial government bodies from execution, but not movable assets of Local government bodies. The Bill confirms this distinction, however, it is difficult to discern any rational basis for this distinction.

s3 of the Act is substituted by s2 of the Bill
s3(1): reference to the National Revenue Fund or the Provincial Revenue Fund has been deleted by the Bill and replaced by "as contemplated in this section". Therefore, the relevant department, as judgment debtor, will be responsible for payment of its debt. This leads to direct accountability, which in theory should lead to more speedy payments of the judgment debt. This is an improvement from the Act, as the accountability ensures that the department performs more carefully when incurring debt. In the long run it could improve government departments.

In its judgment the Constitutional Court made an interim order to provide for enforcement of judgment debts against the state:

a) The state is given 30 days after judgment to pay the judgment creditor. Should the state fail to do this, the judgment creditor may serve notice on the State Attorney and the Accounting Officer of the relevant organ of state, to attach movable property of the relevant department.

b) The state is given an additional 14 days after the notice to pay the debt. Thereafter the judgment creditor may issue a writ of execution and the sheriff may attach the state's movable property that is used by the relevant department.

c) The state is given a further 30 days to pay the debt, failing which the Sheriff may sell the attached movable property in execution.

d) Any affected party may, until the time of sale of the property, apply to the court, which granted the judgment for a stay of execution on the ground, that it is not in the interest of justice and good governance to attach and sell in execution such property of the state.

The interim order provides the state with no fewer than 74 days to pay a judgment creditor, before movable property may be executed upon. Practically the state will be given at least 80 days, because the judgment creditor will have to take various practical steps, such as prepare the notice and then serving on the State Attorney or Accounting Officer.

The Bill is very similar to the interim order laid out by the court in its August 2009 judgment. It still affords the state enough time to pay its debts before movable state property can be executed by the judgment creditor.

It is an improvement of the interim order. The interim order made it the judgment creditor's duty to inform the State Attorney and the Accounting Officer in the relevant department of the final order. This incurred a cost on the judgment creditor, which could not be recovered. In the Bill, the State Attorney or the attorney of record must inform the relevant department of its debt, within seven days of the final order[2]. This is advantageous as it puts pressure on the State Attorney to improve its standards and notify its client of the final order.

The state department will then be given an additional 30 days to make payment to the judgment creditor[3]. Failing this, the judgment creditor may apply for a writ of execution, against movable property owned by the state and used by that department. However, the Bill notes that "property which would severely disrupt service delivery, threaten life or put the security of the public at risk", may not be attached[4]. The Bill affords even more protection to the state as the Sheriff may attach the state's property, but not remove it[5].

Once the property is attached, a further 30 days from date of attachment is given to the State department to pay its debt before the attached movable property may be removed and sold in execution of the judgment debt[6].

According to s3(7), any party having a direct or material interest in the execution and attachment may apply to the court, which granted the final order, for a stay on grounds that execution of the attached movable property is not in the interests of justice. The application must be brought within the 30-day period, before the property is removed. Such an application may be costly and prejudicial to the judgment creditor.

The Bill does not provide explicitly for the payment of interest on the capital of the debt, nor for payment of the writ costs and the Sheriff's costs. In the absence of an explicit provision for such payment, the state department might be content to wait deliberately for the 60-day period to elapse and force the judgment creditor to bear the execution costs and loss of interest.

The ultimate effect of the Bill is to give the state department in question a considerable amount of time to make payment, before execution against it can be issued. The state department is given approximately 60 days to pay its debt; this is better than the 74 days in the interim order. However in practice this could be at least 70 days as delays could arise when preparing and issuing a writ of execution.

The Bill has vastly improved the situation of state liability from the Act and the interim order. The blanket immunity against execution that the state was afforded under the Act has been removed. The judgment creditor is no longer required to notify the state department of the final order. The real question is whether the 60-day period is reasonable and whether the Bill should provide for payment of interest on judgment debt and costs of execution.

Historically the state would usually pay its debt after a long period, but without paying interest or costs of execution. That prejudice to judgement creditors has not specifically been remedied. It could possibly be argued that as long as the Bill specifically allows for a judgment creditor to claim interest and execution costs from the final order, then nobody will really be prejudiced if the state is given 60 days before execution can be effected.

The legislature should be commended for its attempt to remedy the issue raised in the Nyathi case. However, the Bill needs to specifically set out the judgment creditor's remedies with regards to interest, costs of execution and Sheriff's costs. In doing this, the state will still be afforded more protection than ordinary judgment debtors, but at least the judgment creditor will not be severely prejudiced.

[1] Ibid.
[2] Section 3(2) of the bill
[3] Section 3(4) of the bill
[4] Section 3(4) of the bill
[5] Section 3(5) of the bill
[6] Section 3(6) of the bill

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