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[2016] ZAGPPHC 1151
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Pasito Trading Enterprises (Pty) Ltd v Gauteng Provincial Liquor Board (82606/14) [2016] ZAGPPHC 1151 (22 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE
NO: 82606/14
DATE:
22 NOVEMBER 2016
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
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 VAT 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 Replying 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 subsequently 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.
[13]
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.The 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