Commissioner for the South African Revenue Services v Esibonga Investment (Pty) Ltd and Others (16177/21) [2021] ZAWCHC 250; 84 SATC 405 (2 December 2021)

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[2021] ZAWCHC 250
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Commissioner for the South African Revenue Services v Esibonga Investment (Pty) Ltd and Others (16177/21) [2021] ZAWCHC 250; 84 SATC 405 (2 December 2021)

IN THE HIGH COURT
OF SOUTH AFRICA
(WESTERN CAPE
DIVISION, CAPE TOWN)
CASE
NO: 16177/21
In the matter
between
THE
COMMISSIONER FOR THE SOUTH
APPLICANT
AFRICAN
REVENUE SERVICES
AND
ESIBONGA
INVESTMENT (PTY) LTD
FIRST RESPONDENT
SIVALUTCHMEE
MOOLIAR N.O
SECONDEND RESPONDENT
EBRAHIM
MEHNAAZ
N.O.
THIRD RESPONDENT
ITAI
CHATAURWA
FOURTH RESPONDENT
LIONEL
MARAY TABANI
MUHLANGA
FIFTH RESPONDENT
TERRENCE
MUDIWA MUSARURWA
N.O.
SIXTH RESPONDENT
PARTSON
MUNYARADZI
N.O.
SEVENTH RESPONDENT
GARY
OWEN
WATSON
EIGHT RESPONDENT
LESLEY
WATSON
NINTH RESPONDENT
TAKUDZA
TALENT
MUSVANGA
TENTH RESPONDENT
SIMON
TAVAGUTA HOMENGA
ELEVENTH RESPONDENT
TANYARDZWA
JOY NYAMARAI
TWELFTH RESPONDENT
FABIOLA
GONYE
THIRTEENTH RESPONDENT
AMOS
PHIRI
FOURTHEENTH
RESPONDENT
LIZAAN
ENGELBRECHT
FIFTHEETH
RESPONDENT
LYTON
REID
SIXTEENTH RESPONDENT
GALARD
MASANGO
SEVENTIETH RESPONDENT
DENSON
MUVANDI
EIGHTEETH RESPONDENT
JUDGMENT
delivered on 2 December 2021
THULARE AJ
[1]
This is an anticipation by respondent 8 and 9 (the Watsons) of the
return date of a provisional preservation order granted in
favour of
the applicant (SARS) on 1 October 2021. The order related to the
preservation of Erf 1635, Fourways Extension 15, City
of
Johannesburg, Gauteng (ST83747/2019) (the property) which was
registers into the names of by the Watsons. The order was granted,
amongst others authorizing the Registrar of Deeds to register a
caveat notice on the property to ensure that the property was not
transferred without notice to SARS and the
curator bonis
,
appointing a
curator bonis
and authorizing him to take control
of the property. The application is opposed by SARS.
[2]
Esibonga Investments (Esibonga) was started as a business in 2018 and
Mr Nicolas Johannes Van Vuuren (Van Vuuren) was the sole
director. He
was an accountant by trade. Esibonga, as a tax payer did not submit
its tax returns for the period 2018-2020. When SARS
contacted Van
Vuuren about Esibonga’s tax affairs, Van Vuuren indicated that
Esibonga was under ‘voluntary liquidation by creditors’
and that
this liquidation was on 22 November 2019 before Esibonga’s first
tax returns were due. As a result, according to Van Vuuren,
Esibonga
would not file any tax returns. SARS applied to the High Court and
was granted a winding-up order.
[3]
SARS conducted an in-depth information gathering process in respect
of Esibonga. According to Van Vuuren, Esibonga did not keep
any trial
balances, general ledgers and did not draft any financial statements.
Its best record of transactions were its bank statements.
It was
registered to render services of a bookkeeping nature. SARS obtained
statements from Standard Bank for the bank accounts held
by Esibonga.
It was a business account and a money market account. SARS audited
Esibonga for the period 2019-2020. It had a tax debt
of
R987 972 392-40. SARS obtained a compulsory winding-up
order. Esibonga’s statements revealed that it purchased inter
alia
immovable properties in excess of R11 million, all of which were
owned by Zimbabwean nationals and not registered in the name
of
Esibonga.
[4]
SARS provided a bank statement of Esibonga with its account held by
Standard Bank dated 17 September 2019 which showed that an
amount of
R2,1 million was paid by Esibonga to the transferring attorneys bank
account on 21 August 2019. A payments final audit
report from
Standard Bank was provided as proof of payment that this amount was
paid to Smith Tabata Buchanan Boyes (STBB), the transferring
attorneys of the property to the names of the Watsons. This trail
showed that money transferred from Esibonga account was paid to
STBB
for the purchase of the property.
[5]
The property was not registered in the name of Esibonga, but in the
names of the Watsons. It was on this basis that the purchase
of the
property required a thorough investigation by the liquidators of
SARS. SARS sought and obtained the order to prevent the property
from
being disposed of, which may frustrate the collection of the full
amount of tax that was due and payable. SARS harboured the
fear of
risk that Esibonga may dissipate the assets, which dissipation would
hinder the collection of the tax amount due.
[6]
The Watsons are husband and wife who reside at 44 Cambridge Road,
Avondale, Harare, Zimbabwe. The basic premise of their anticipation
related to the requirement that such order was required to prevent
the dissipation of asset, which dissipation may frustrate the
collection of tax by SARS. It is their case that there was no
evidence of dissipation to warrant the granting or sustenance of the
order. In their view, SARS failed to show that in the absence of a
preservation order, there was a material risk that the asset
available
for the satisfaction of tax will no longer be available.
SARS failed to show the existence of a material risk that they, the
Watson
family, would dissipate the property in order to frustrate the
collection of tax by SARS.
[7]
Their case was that nothing specific to the actions of the Watsons
was canvassed to support a reasonable apprehension of the risk
of the
dissipation of the property by them or on their behalf. The property
was used as their primary residence and family home in
South Africa
and was purchased for that reason. They stayed in the property from
time to time when they come to Johannesburg and
it was also used by
their children, including one who was a student at the University of
Stellenbosch. They are citizens of Zimbabwe
and the husband was also
a citizen of South Africa. They did not seek to and have no intention
of disposing or transferring the property.
[8]
According to them, they do not know and have never met any of the
other respondents. They alleged that they paid funds required
to
acquire the property to a Zimbabwean foreign exchange agent in
Harare. They do not identify the agent nor provide any support
to
their bald allegations of payment. They alleged that they were
advised that the funds would be paid to the South African
conveyancers
for payment towards the purchase price through routine
and ordinary commercial channels. They alleged that they had no
dealings or
involvement of any kind with Esibonga and learnt for the
first time of the name upon receipt of the application for the
preservation
order. The conveyancers did not inform them of anything
untoward and they assumed that the funds were transferred through
legitimate
channels. The channeling of the funds through Esibonag was
not on their instructions and they deny indebtedness to Esibonga.
[9]
The Watsons did not set out any iota of evidence that the operation
of the preservation order caused or will cause them undue
hardship
and such hardship outweighed the risk that the property may be
destroyed, lost, damaged, concealed or transferred. This
is not an
anticipation in which the variation of the order is sought as
envisaged in section 163(9) of the Tax Administration Act,
2011 (Act
No. 28 of 2011) (the TAA). The facts set out by the Watsons do not
support an anticipation for the rescission on the grounds
of undue
hardship.
[10]
Section 163(4)(c) provide as follows:
“
163
Preservation order
(4)
The court to which an application for a preservation order is made
may-
(c)
upon application by the taxpayer or other person, anticipate the
return day for the purpose of discharging the preservation order
if
24 hours’ notice of the application had been given to SARS;”
[11]
This section is under Part B of the TAA, which provides for the
payment of tax by a taxpayer. Applicable to this judgment, taxpayer
means a person who is or may be chargeable to tax or with a tax
offence [section 151(a) of the TAA]. A person chargeable to tax is
a
person upon whom the liability for tax due under a tax Act is imposed
and who is personally liable for the tax [section 152 of
the TAA]. On
the facts of this case, the taxpayer is Esibonga. It is against this
background that Part B, which deals with the payment
of tax, in which
section 163 of TAA is located, should be approached and interpreted.
[12]
SARS demonstrated, through following the money trail, that Esibonga
paid R2.1 million for the purchase of the property, and that
the
property was not registered in the name of Esibonga, but that of the
Watsons. I understand the order envisaged, sought and granted
in
terms of section 163(1) to be a form of an anti-dissipation
interdict. Section 163(1) provides:
“
163
Preservation order
(1)
A senior SARS official may, in order to prevent
any realizable assets from being disposed of or removed which may
frustrate the collection
of the full amount of tax that is due or
payable or the official on reasonable grounds is satisfied may be due
or payable, authorize
an
ex parte
application to the High Court for an
order for the preservation of any assets of a taxpayer or other
person prohibiting any person,
subject to the conditions and
exceptions as may be specified in the preservation order, from
dealing in any manner with the assets
to which the order relates.”
[13]
The purpose of the order of the kind in section 163(1) has been
explained as follows in
National Director of Public Prosecutions v
Rautenbach
2005 (4) SA 603
(SCA) at para 13:
“
It
is to ensure that the property concerned is not disposed of or
concealed in anticipation of such proceedings.”
In
my view, section 163(1) extended the protection of property against
being disposed or concealed to include persons in the position
of the
Watsons.
[14]
In this matter, the debtor was Esibonga, and the property was already
registered in the names of the Watsons. The facts suggested
that
Esibonga was dissipating its funds when it purchased the property and
registered it in the name of the Watsons.
In
Knox D’Arcy Ltd and Others v Jamieson and Others
[1996] ZASCA 58
;
1996 (4) SA
348
(AD) at 372D-H the anti-dissipation interdict was explained as
follows:
“
As
to the nature of the interdict, this was dealt with by Stegmann J in
1994 (3) SA at 706B to 707B and in 1995 (2) SA at 591A to
600F. The
latter passage was largely devoted to showing that it is not
necessary for an applicant to show that the respondent has
no
bona
fide
defence
to the action. This conclusion was not attacked before us and I agree
with it.
What
then must an applicant show in this regard? In the passages mentioned
above Stegmann J quoted the relevant cases in our law and
I do not
propose dealing with all of them. For the most part they were decided
on their own facts without providing any theoretical
justification
for the interdict. However, in
Mcitiki and Another v Maweni
1913
CPD 684
at p 687 Hopley J stated the effect of earlier cases as
follows:
"...
they all proceed upon the wish of the Court that the plaintiff should
not have an injustice done to him by reason of leaving
his debtor
possessed of funds sufficient to satisfy the claim, when
circumstances show that such debtor is wasting or getting rid
of such
funds to defeat his creditors, or is likely to do so."
See
also
Bricktec (Pty) Ltd v Pantland
1977 (2) SA 489
(T) at p
493E-G.
The
question which arises from this approach is whether an applicant need
show a particular state of mind on the part of the respondent,
i e,
that he is getting rid of the funds, or is likely to do so, with the
intention of defeating the claims of creditors. Having
regard to the
purpose of this type of interdict the answer must be, I consider,
yes, except possibly in exceptional cases. As I have
said, the effect
of the interdict is to prevent the respondent from freely dealing
with his own property to which the applicant lays
no claim. Justice
may require this restriction in cases where the respondent is shown
to be acting mala fide with the intent of preventing
execution in
respect of the applicant's claim.”
[15]
In
Mngadi v Beacon Sweets & Chocolates Provident Fund &
Others
2004 (5) SA 388
(D & CLD) it was said:
“
The
law has never shrunk from interdicting a debtor from dissipating
funds to thwart the rights of creditors. Such cases are decided
because the plaintiff should not have an injustice done to him by
reason of leaving his debtor possessed of funds sufficient to satisfy
the claim, when circumstances show that such debtor is wasting or
getting rid of such funds to defeat the creditors, or is likely
to do
so. In general an applicant needs to show a particular state of mind
on the part of the respondent, ie that he is getting rid
of the
funds, or is likely to do so, with the intention of defeating the
claims of creditors, except possibly in exceptional cases.
In
those cases the effect of the interdict is to protect the respondent
from freely dealing with his own property to which the applicant
lays
no claim. … Justice may require this restriction in cases where the
respondent is shown to be acting
mala fide
with intent of
preventing execution in respect of the applicant’s claim. …
It
seems to me that it is no great leap for the courts to extend the
last-mentioned principles to cover safeguarding a payout in the
hands
of a fund, such as the first respondent herein.”
[16]
Section 163(1) makes provision for an order to be made for the
preservation of assets of the taxpayer or other person. This includes
a person in the position of the Watsons, to whom the trail of money
paid from the account of a taxpayer, led SARS to their door.
It was
incumbent upon the Watsons to consider whether it could be said that
they took reasonable steps to investigate whether, in
the
circumstances, the payment of the purchase price for their home by
Esibonga was required and the payment was reasonably made.
This was
necessary because the Watsons should be measured with the yardstick
of a reasonable person.
[17]
Where a preservation order is made against a person in the position
of the Watsons, the order in my view has the significance
that such
person is called upon to take reasonable steps to ascertain whether
the payment was legally due, payable and paid from
the taxpayer. An
alleged representation by a mysterious agent operating behind the
scenes and placed in the darkness outside the
streak of the judicial
spotlight of this application was not enough. Once there is doubt
about the conduct of their agent, the persons
who should be asked
about the payment of money from the taxpayer were the Watsons. Even
after the preservation order was made and
came to the knowledge of
the Watsons, in my view, they did not do an adequate enquiry
required. In my view, to secure a discharge
of the preservation
order, they should have made the necessary enquiries into the trail
of payment from the moment they made it,
wherever it was, until it
reached STBB. This was moreso because the preservation order provided
that they disclose all particulars
of all transfers of the property
to enable a determination whether the transfer can and should be set
aside.
[18]
It was for the Watsons to establish, in the anticipation, that the
Court must be satisfied that a reasonable person in the position
of
the Watsons could not know that Esibonga paid or if they knew, that
the payment was not in furtherance of dissipation of the taxpayer’s
assets. Where SARS had shown that it was probable that Esibonga
entered the transaction whilst it appreciated that it would prejudice
SARS, the inescapable conclusion was that the transaction was
unreasonable for Esibonga to have entered into, and that what
Esibonga
intended through the payment was to prejudice SARS. In my
view, the arm of the law as envisaged in section 163(1), was intended
to
extend in order to reach property in the hands of other persons
like the Watsons, where the trail of the money, followed from a
taxpayer
by SARS, led SARS to.
[19]
To avoid a successful and complete dissipation by the taxpayer,
Esibonga, which dissipation would frustrate the collection of
taxes,
it was necessary to preserve the property. It must be borne in mind
that the property, now in the hands of the Watsons, the
other person
and not the taxpayer, are strategically out of the scope of assets
preserved by virtue of the liquidation of Esibonga.
In the absence of
a preservation order, the Watsons are at liberty to transfer or
dispose of the property without the knowledge of
SARS and in that
freedom, they have no obligation to wait for the finalization of the
liquidation process. For these reasons I make
the following order:
1.
The application is dismissed.
2.
The provisional order granted against
the 8
th
and 9
th
respondents is confirmed.
3.
8
th
and 9
th
respondent are to pay the costs
jointly and severally, the one to pay the other to be absolved.
DM
THULARE
ACTING
JUDGE OF THE HIGH COURT