Nature’s Garden refuses to pay water bill

It took frozen food distributor Nature’s Garden six years and a tremendous amount of legal action – all the way to the Supreme Court of Appeal – to avoid paying its full water bill.

The long dispute around the water bill arose when the Ekurhuleni Metropolitan Municipality inspected the water meter at the company’s premises and realised the company had only been billed for 10% of its water consumption for years.

According to court documents, the municipality visited the premises of Nature’s Choice Farms (as Nature’s Garden was known then) in 2010 to inspect the water meter as part of a project to update water meters in the area. It discovered that the water meter installed was a ‘factor 10’ meter whereas it was recorded in the municipality’s accounting system as a ‘factor 1’ meter. In effect, the company had been billed for only 10% of its actual water usage for years.

The court heard, and it was accepted, that as “the factor of the meter relates to the units in which water flow in measured, it has no impact on the accuracy of the measurement”. The judgment by the Supreme Court makes no mention that the amount of water used was disputed, nor of the actual amount of water consumed.

Papers before the court

Court documents indicate that Nature’s Garden did not pay for nearly 300 million litres of water during the three years the municipality was seeking redress for (water cost little more than R10 per kilolitre at the time). It could have been much more, but municipal regulations make provision for the correction of past mistakes for a period of only three years.

The saga of mistakes and ignorance reads like a comedy.

The municipality never realised that the water account for a big business reflected usage of only around less than 800 kilolitres instead of 86 000 kilolitres per month. Bruce Sanday, CEO of Nature’s Garden, says the difference between the actual water usage and the amount it was billed for over the period came to around 280 000 kilolitres.

“The error goes back [to] when we had just started producing frozen chips, moved to new premises, and installed a new production plant operated by new people,” says Sanday.

“We honestly thought we were being good corporate citizens paying our account every month, and took for granted that it was correct.

“It was only when we eventually received the ‘corrected’ bill that we questioned [and had to re-cost] our usage,” says Sanday. “It was such a surprise that we thought the council had made a mistake.”

Nature’s Gardens management, as well as its accountants and auditors, didn’t notice the low water account then.

Big business

Today, Nature’s Garden is a big business, packaging frozen vegetables and chips under its Nature’s Garden brand, as well as Greens, Golden Harvest, Pick n Pay, Makro and Spar brands. It is an approved supplier to KFC, Captain DoRegos, Nando’s, King Pie, Bidfood and Barcelos.

But back then, says Sanday, they were still trying to establish the business and the water bill came as a nasty surprise.

Read: Ideas flow as water-challenged cities work to avert Day Zero

After the municipality installed a new water meter in 2010 and corrected their billing system to reflect the correct water consumption, the area manager of the finance department was instructed to adjust the historic water account to recover amounts due in respect of the actual usage for a period of 36 months preceding the correction of the accounting error.

Legislation stipulates that the municipality could pursue payment for a period of only three years, not longer. The municipality’s area financial manager, identified in court papers as Mr Ackerman, was tasked to correct the account for the period September 3, 2007 to July 7, 2010.

Numbers crunched, and millions added to the next bill

He calculated that Nature’s Garden had underpaid for water by more than R4.4 million, including levies and value-added tax (Vat). The amount was added to the next account.

One could argue that a big and apparently successful company should pay its water bill in full, that management should have realised that it was too low, and that it should have owned up to the mistake. In addition, it probably paid for only 10% of its water for longer than the three years that could now be claimed.

However, sentiment changes quickly when reading the next paragraph in the court’s judgment – that Mr Ackerman took longer than three years to make the correction. The big bill reflecting the additional amount of R4.4 million only arrived in September 2013.

There were enough discrepancies and different viewpoints to arouse a dead lawyer.

Nature’s Garden immediately complained, saying that Ekurhuleni supplied it with services, including water, in terms of an agreement that required it to render accurate monthly statements in respect of charges.

Nature’s Garden’s lawyers also argued that the new account was wrong as it did not adhere to provisions in the service agreement regarding the calculation to correct errors.

The relevant bit reads that charges will be calculated “based on the average monthly consumption registered over three succeeding metered periods after the factor error or incorrect coupling was rectified”.

Failure to follow procedure

The municipality did not follow this procedure. It corrected the error but adjusted the historic accounts of September 2007 to July 2010 by the correct factor of 10.

Lots of different arguments followed: about the procedure; whether the 36-month period refers to the three years preceding the date when the problem was noticed or the three years preceding the belated correction of the water account; and the separation of the parties’ opposing claims for purposes of the court proceedings.

Eventually, a technicality won the day for Nature’s Garden.

Someone realised that the procedure followed by the municipality opened the door for a claim of prescription of the old debt – due to Mr Ackerman’s failure to correct the accounts within three years.

The lawyers argued to the Supreme Court of Appeal that by the time the amount was added to the bill – September 18, 2013 – the claim for payment of the debt relating to the period ending in July 2010 was older than three years, and the debt had prescribed. The court agreed.

Hindsight is a fine thing

Interestingly, the court documents indicate that if the municipality had followed its own policies in correcting errors by measuring three months’ water usage after the mistake was rectified, the debt would still have been valid. The metering period would only have ended in February 2011 and the debt would only have prescribed months later, assuming that Mr Ackerman did not take even longer to correct the accounts.

The outcome is that Ekurhuleni Metropolitan Municipality, and its residents, lost millions in revenue.

Nature’s Garden and the municipality have met in court before. A disagreement about the company’s installation of a coal boiler at its property in Alrode ended up in the Supreme Court of Appeal as well.

Then still called Nature’s Choice – the name was changed a few years ago to Nature’s Garden to avoid confusion with the seller of health foods – the company installed a boiler at its plants without submitting plans to the municipality according to regulations. Prior approval was necessary to ensure compliance to municipal regulations related to laws regarding air pollution.

Another mistake by the municipality

According to court documents, the municipality was entitled, but not obliged, to force the company to remove the boiler. Instead, it required that Nature’s Choice remedy the situation by submitting plans and specifications, which was done by May 23, 2006.

However, the municipality did not approve the plans, citing as its prime reason that it objected against a boiler using coal as fuel. The decision reads in part that the municipality “will only consider an application for a gas fired appliance as there will be minimal pollution …”.

The case progressed all the way to the Supreme Court of Appeal, which ruled in 2009 that the municipality was wrong to prescribe a gas boiler, as relevant legislation is only concerned with emission and pollution levels and allows other fuel (including coal).

The appeal succeeded and the municipality was forced to reconsider the plans according to the set parameters within its bylaws.

Meanwhile, in 2018, Nature’s Garden was cited as leading an application to the Department of Trade and Industry in which it applied for the increase of import duties on frozen vegetables from 10% to 37% as “low-cost imports are undercutting locally-grown and produced frozen vegetables” and that retailers are importing bigger quantities.