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[2016] ZAGPPHC 964
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Pasito Trading Enterprises (Pty) Ltd v Gauteng Provincial Liquor Board (71044/13) [2016] ZAGPPHC 964 (22 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION,
PRETORIA
CASE
NO: 71044/13
DATE:
22 NOVEMBER 2016
REPORTABLE:
NO
OF
INTEREST TO THE JUDGES: NO
REVISED
In
the matter between:
PASITO
TRADING ENTERPRISES (PTY) LTD
APPLICANT
and
THE GAUTENG PROVINCIAL
LIQUOR BOARD
RESPONDENT
JUDGMENT
BAM
AJ
[1] This is an
application for the review in chambers of the Taxing Master's
decision to disallow Value Added Tax (VAT) on a bill
of costs
presented for taxing The review is unopposed.
On
the
1st
April
2015,
Mr
Christo van Niekerk from Marius Blom Incorporated presented a bill of
costs on behalf of the applicant who had been awarded costs
on a
party and party scale and on which VAT had been charged on the fees
allowed. The taxation was unopposed.
[2]
The Applicant's representative alleges that the Taxing Master
disallowed the VAT when he failed to produce proof that his client
was not registered for VA T. He allegedly requested an indulgence
from the Taxing Master for time to establish the VAT status of
the
applicant but same was refused. His contention is that one cannot
prove that they are not registered for VAT, but it can be
proven that
one is a VAT vendor through the production of a registration
certificate. He is asking the court to review and set
aside the
Taxing Master's decision.
[3]
In her stated case, the Taxing Master requests the court to dismiss
the application for review with costs. She alleges that
the reason
she disallowed the VAT is because the presenter intimated that
"the
fees on the bill was (sic) for the attorneys and not the applicant,
and the attorney is not registered for VAT".
Contrary
to the version of the presenter that she refused a request for an
indulgence to verify the applicant's VAT status, the
Taxing Master
avers that no such request was made, and that if it been made, she
would have postponed the matter accordingly.
[4]
The Taxing Master states further that in the case where a bill for
party and party costs is brought for taxation, the VAT status
of the
attorney is irrelevant because the costs are for the client, not the
attorney. She concludes by stating in paragraph 4,
page 2 that
"The
Taxing Master exercised her discretion to make the decision and
disallowed VAT because the presenter failed to produce
proof that the
applicant is not registered for VAT".
This
decision, she says, is based on her interpretation of the judgment of
the Supreme Court of Appeal in the case of
Price
Waterhouse Meyernel v The Thoroughbred Breeders' Association of South
Africa
2003 (3) SA 54
(SCA).
[5]
In the
Price
Waterhouse Meyernel case
cited
above, the Respondent had objected to, amongst other things, the
inclusion of VAT in the bills of cost presented for taxation
on the
basis that same did not constitute an expense actually incurred. The
Taxing Master duly disallowed the VAT portion of the
bills as he was
not satisfied that it constituted a true disbursement and added
further that the VAT status of a party and its
entitlement or
otherwise to an input VAT credit were to be decided between that
party and the receiver of revenue, not the Taxing
Master. The review
was brought in terms of Rule 17 of the Supreme Court of Appeal Rules
which provides that
"
Value-added tax may be added to all costs, fees, disbursements and
tariffs in respect of which value-added tax is chargeable".
The
wording is exactly the same as that of Rule 70 (3A) of the Uniform
Rules of Court which reads as follows:
"Value
added tax may be added to all costs, fees and tariffs in respect of
which value added tax is chargeable".
[6]
The Supreme Court of Appeal, per Howie JA, disagreed with the Taxing
Master's stance and indicated that the issue of whether
VAT had
properly been claimed ought to be determined through the application
of the provisions of the Value Added Tax Act No. 89
of 1991. The
court continued to clarify that the inclusion of the word "may"
in the Rule conferred a choice on the winning
party to either include
or exclude VAT in its bill of cost, not a discretion on the Taxing
Master to allow or disallow the inclusion
of VAT. Howie AJ says on
page 61at D-F that:
"Once
that party decides to include VAT, the Taxing Master has to decide
whether such inclusion is
proper.
That is not a matter of discretion. A costs order - it is trite to
say - is intended to indemnify the winner (subject to
the limitations
of a party and party costs scale) to the extent that it is out of
pocket for pursuing the litigation to a successful
conclusion. It
follows that what the winner has to show
-
and the Taxing
Master has to be satisfied about - is that the items in the bill are
costs in the true sense, that is to say, expenses
which actually
leave the winner out of pocket. The sub-rule is consequently an
empowering provision. It enables the party concerned
to claim
reimbursement of the items referred to but obliges the Taxing Master
to allow or disallow them depending on whether they
are expenses of
the nature I have described"
[7]
In deciding whether the VAT claimed by the winner is properly
included, the Taxing Master has to consider the items against
which
such VAT is charged to check if they are vatable. Once it has been
established that they are, then the Taxing Master has
to allow the
VAT provided that it represents a cost out of pocket to the winning
party. This will depend on whether or not the
party is registered for
VAT.
[8]
In a typical scenario involving legal fees, the attorney, if he is
registered for VAT, will charge the client fees inclusive
of VAT.
This is not a matter of choice - a registered VAT vendor has to
collect input tax and pay it over to the receiver of revenue.
If the
client is also registered for VAT, they will be able to claim the tax
paid to the attorney either as a refund or as a credit
in respect of
any input excess established during reconciliation. It cannot, in
this instance be said that the VAT constitutes
an expense as
described by the Howie JA above. Thus the Taxing Master would be
right to disallow the VAT included in a bill of
costs. If on the
other hand, the winner/client is not registered for VAT and the
attorney has collected it from him, it stands
to reason that it
becomes an expense because he cannot claim it back from the revenue
services and thus he will be out of pocket
to the tune of that tax.
The Taxing Master will then have to allow the inclusion of VAT in the
bill of costs.
[9]
The indemnity provided by Rule 70(3) is such that the successful
litigant must be made whole by being able to recover costs
necessarily and/or properly incurred. The role of the Taxing Master
is to ensure on the other hand that the unsuccessful party
is not
unduly punished by being made to pay excessive costs.
[10]
Coming to the present case, it is now clear that the Taxing Master
brought in the exercise of discretion where it was not fitting.
Whether or not a person or an entity is registered for VAT is a
factual enquiry and the Taxing Master should have allowed the
presenter an opportunity to establish the VAT status of the
Applicant. It would have possibly meant the faxing or e-mailing of
documentary proof or postponing the matter. The request to prove
non-vendor status is unusual in itself, though not
unreasonable
under certain circumstances, because the normal practice is to
require proof of registration as a VAT vendor.
[11]
The Taxing Master is correct in saying that the VAT status of the
attorney is irrelevant for purposes of taxing a party and
party bill
of costs because same is for the client, not the attorney. She stated
further that
"the
taxing master feels that the applicant (presenter) erred by saying
that the fees are for attorney".
Having
made this, and may I say correct observation, the Taxing Master goes
on to refer to the onus that rests on the parties (to
taxation) to
prove any queries raised by the Taxing Master, which is also the
correct approach. But it does appear that the Taxing
Master was not
prepared to correct the misstatement by the presenter, nor was she
willing to afford the presenter an opportunity
to discharge the onus.
Instead she summarily made a determination to disallow the VAT
portion on the bill of costs. Thus, at the
end of the day, if the
applicant is not a VAT vendor, as appears from the Reply ing
Affidavit by the attorney, this has resulted
in the applicant being
out of pocket to the amount of the disallowed VAT
[12]
It however appears that there is a different angle to this matter
which may have led to the hasty determination. The attorney
had not
yet billed the Applicant as of the date of taxation. There is
apparently an agreement between the parties that:
"the
client will not be billed and that we will recover against the cost
order granted in favour of the client and the client
in any case was
not registered for VAT purposes
as
was confirmed by
me
subsequent(ly)
to the taxation
(my
emphasis). This simply means that the client will not be claiming VAT
as a repayment from the South African Revenue Services
and that
Marius Blom Incorporated must pay the VAT on the fees over, being a
registered VAT vendor." Para.
7
Replying
Affidavit.
[12]
The question one might ask is whether under the above circumstances,
the VAT had been properly claimed. The answer in my view
is yes.
Absent the arrangement between the applicant and the attorney, the
applicant would still have been entitled to claim VAT
if not
registered as a vendor. The attorney would have billed the applicant
in the normal way and collected VAT from the applicant
who in turn
would be have been entitled to be refunded by the Respondent in order
to be made whole again. The attorney under the
arrangement, will
satisfy his fees invoice from the costs awarded, including the VAT
that he is obliged to collect and pay over
to the revenue services.
The applicant, if he had by the date of taxation already paid the
attorney, would have been out of pocket
in the amount of the fees and
VAT on the fees. In terms of the arrangement, the fees and VAT are
being collected by agreement direct
from the Respondent through the
taxed bill of costs instead of from the applicant. Thus the VAT, if
properly
charged,
cannot be disallowed - there is no discretion to be exercised in this
regard.
It
does not appear from the Taxing Master's stated case that her query
related to the applicability of the provisions of the Value
Added Tax
Act on the allowed items, but rather on the validity of the
applicant's entitlement to collect VAT. All that needed to
be done in
this case was to verify the VAT status of the applicant. It is my
view that disallowing VAT on the bill of costs was
improper.
In
the result the following order is made:
1.
T
he Taxing Master's decision
to disallow VAT on the Applicant's bill of costs is set aside.
2.
The matter is remitted back to
the Taxing Master to consider the taxation afresh.
3.
The Taxing Master is directed
to allow the Applicant's attorney to provide proof of the Applicant'
s VAT status in order to make
a determination of whether or not the
Applicant is entitled to claim VAT on the awarded costs.
4.
There is no order as to costs.
_____________________________________
BAM
AJ
ACTING
JUDGE OF THE HIGH COURT
ATTORNEYS
FOR THE APPLICANT: Marius Blom Incorporated
DATE
OF JUDGMENT: 10 November 2016