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[2014] ZALCCT 57
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Redefine Properties Ltd v Universal Service & Access Agency of South Africa (C792/14) [2014] ZALCCT 57 (7 October 2014)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
CASE NO:
40515/2013
DATE: 29/10/2014
NOT REPORTABLE
NOT OF INTEREST
TO OTHER JUDGES
In the matter
between:
REDEFINE
PROPERTIES LTD
…
..................................................................................................
Applicant
and
UNIVERSAL
SERVICE & ACCESS AGENCY
OF
SOUTH AFRICA
…..................................................................................................................
Respondent
JUDGMENT
DAVIS,
AJ
INTRODUCTION
:
[1] The Applicant is
the lessor and the Respondent is the lessee of a certain immovable
property situated in the Thornhill Office
Park, Midrand, Gauteng.
[2] The relationship
between the parties is governed by a written Agreement of Lease dated
19 August 2010.
[3] The rental and
other amounts payable by the Respondent to the Applicant are provided
for in clauses 4, 5 and 6 of the agreement
read with item 9 of the
schedule to the agreement.
[4] In addition to
the monthly rental payable in respect of the office area, the storage
area, the covered parking bays, the shaded
parking bays and the open
parking bays which constitute the leased premises, the agreement also
provides for the payment of a contribution
towards the municipal and
utility charges levied on the premises.
[5] The relevant
portions of the aforesaid terms of the lease agreement read as
follows:
“
4.
RENT AND PAYMENTS
4.1 The rental
and other amounts payable by the tenant to the landlord as set out in
item 9 of the schedule (read with clauses 5
and 6 of the Standard
Terms and Conditions of Lease) shall be payable monthly in advance on
or before the 1
st
day of each calender month ...
5.
VALUE-ADDED TAX
5.1
All amounts referred to in this lease, unless otherwise stated
,
exclude
Value-Added Tax (‘VAT’) payable in terms of the
Value-Added Tax Act, No.
89
of 1991 as amended
and any other rates, taxes or imposts which may be payable thereon
...
5.3
In respect of any amounts payable by the tenant under this lease
which are not quantified herein and which attract VAT, the
tenant
shall pay to the landlord the total of each such amount and the VAT
thereon at the prevailing rate from time to time
...
5.4
In the event of any other form of tax, imposed by ... local ...
authority
,
being payable by
the landlord on the rent or on any other amount due by the tenant in
terms of this lease, the tenant shall refund
to the landlord on
demand the amount of such tax or other amount so payable by the
landlord ...
22. MUNICIPAL
CHARGES, LEVIES AND UTILITIES (CHARGES PAYABLE BY THE TENANT)
22.1
Upon the tenant taking occupation of the leased premises ... the
tenant shall be liable for and shall on demand pay
-
22.1.1 any
charges arising out of the use of electricity; water and gas in
respect of the leased premises ...
22.
1.2
the basic and service charges in respect of the services referred to
in clause 22.1.1 above; and
22.1.3
the levy (including park- or sectional title-levy), rates, taxes or
fees including those contemplated in clause 22.3 (if
then in force),
below, or a contribution to such levy
,
rates, taxes or
fees determined on the basis contemplated in clause 22.2 below ...
22.2
The tenant’s consumption of electricity
;
water and gas
shall be determined in accordance with separate sub-meters ...
22.3
The tenant shall be liable for and pay to the landlord on
a
monthly basis 100%
(One Hundred percent) of any levy (including park
-
or sectional
title-levy), rates and fees due by the landlord to any competent or
the relevant local authority. If at any time after
the date of
occupation or the commencement date ...
22.3.1
any levy (including park- or sectional title-levy), rates, taxes or
fees payable by the landlord to any authority or precinct
manager in
respect of the leased premises, the building or the site are
increased above those applicable at the effective date
... then the
landlord shall be entitled to recover from the tenant from time to
time with effect from the date on which the increase
,
deposit
,
levy, rates, taxes
or fees as the case may be, becomes effective 100% of such amount
...”
DISPUTES:
[6] The Applicant’s
case is that, in breach of the agreement, the Respondent has failed
to pay rental and other charges on
the due dates thereof and was in
arrears therewith in the sum of R645 540.41. The Applicant relied on
a reconciliation, detailing
the arrear amount annexed to its Founding
Affidavit as Annexure “PS3” thereto.
[7] Annexure “PS3”
constitutes a schedule of debits and credits in respect of the lease
agreement from 1 October 2012
to 1 June 2013, starting with a nil
balance and ending with the claimed amount. In respect of each month,
items relating to municipal
sewerage, municipal water, municipal
rates, office rent, store room rent, parking bay rent (in the various
categories thereof)
are debited together with VAT thereon (including
VAT on the items of municipal rates). Payments are then credited
against the amounts.
[8] The Founding
Affidavit was deposed to on 11 June 2013, the Notice of Motion was
dated 1 July 2013 and was served on 4 July 2013.
On 6 July 2013 the
Respondent made payment to the Applicant in the amount of R552
399.00, leaving a balance of R98 766.11.
[9]
The Respondent contended that the amount paid was not as a result of
the launch of the application but was the result of a verification
and reconciliation process conducted by the Respondent in compliance
with its obligations in terms of the Public Finance Management
Act,
No. 1 of 1999 (the “PFMA”) and Treasury Regulations and
pursuant to documentation obtained and an analysis of
the Applicant’s
November 2012 tax invoice which included “...
amongst
other things, back-charge of property rates for the period from
September 2010 to October 2012".
[10] As a result of
the abovementioned reconciliation and payment, the Respondent
contended it has paid everything that it was obliged
to do.
[11]
In particular, the Respondent contended that the municipal rates
levied by the local authority constitute the supply of goods
or
services falling within Section 11 of the Value-Added Tax Act, No. 89
of 1999 which is taxed at 0%. The rates are therefore
colloquially
said to be
"zero-rated'.
[12]
The Respondent further contended that a prior
“
VAT
ruling
”
by
the South African Receiver of Revenue dated 1 November 2009 which
provided that VAT must be levied on the total rental consideration
charged by a lessor (including the contribution to municipal rates)
in terms of Section 7 of the Value-Added Tax Act, (at the standard
rate of 14%), has been withdrawn.
[13] The Respondent
further contended that a later VAT ruling by the Commissioner of the
South African Revenue Services dated 11
December 2013, was only valid
from that date (which post-dates the amounts claimed by the
Applicant) and does not avail the Applicant.
[14] The VAT ruling
of 11 December 2013 was precipitated by a request from the Applicant,
formulated by the SARS Manager: Interpretation
and Rulings as
follows:
“
Redefine
requests a VAT ruling in respect of whether or not Redefine, as the
landlord, should charge VAT at the standard rate on
rates recovered
from commercial tenants despite the fact that a ‘municipal
rate
'
as
defined in the
Value-Added Tax Act No. 89 of 1991, (‘the VAT Act) is subject
to VAT at the zero rate”
[15] The Manager:
Interpretation and Rulings made the following ruling:
“
5.
5.1 Redefine is required to levy VAT in terms of Section 7(1 )(a) at
the standard rate on the total rental charge for the letting
of the
property (i.e. including the rates).
5.2
This VA T ruling is
-
5.2.1 effective
from 11 December 2013 and
5.2.2 subject to
the standard conditions and assumptions as set out in Annexure “B”."
[16] aforesaid
Annexure “B” determines that the ruling is based on the
terms of the Applicant’s current standard
agreement and that it
shall only apply to the Applicant and pursuant to Section 82(4) of
the Tax Administration Act, the ruling
may not be cited in any
proceeding before the Commissioner or in courts of law other than in
a proceeding involving the Applicant.
[17]
Apart from the fact that the ruling does not apply to the period in
respect of which the Applicant seeks to recover payment
from the
Respondent, the contents thereof and conclusion therein, on a first
reading, appears to offend the decision in
Commissioner,
South
African
Revenue Service v British Airways pic
2005(4)
SA 231 SCA.
[18]
In the end, I was however not called upon to decide the issue as Mr
Cohen who appeared before me on behalf of the Applicant
stated that
the Applicant
“
was
prepared to afford the Respondent the benefit of the doubt
regarding
this issue.
Ex
facie
the
Applicant’s reconciliation the outstanding amounts relevant to
the VAT issue are R9 693.39, R27 254.56 and R9 628.34 (totalling
R46
576.29) which also appear as individual items on Annexure ‘‘US2”
to the Answering Affidavit, being the Applicant’s
disputed tax
invoice for November 2012 as referred to in the Respondent’s
Answering Affidavit. When these amounts are deducted
from the initial
balance of R98 766.11 and, as I understand Mr Cohen, proper provision
is made for the credit of interest thereon,
the outstanding balance
at the time amounted to R51 109.20. The Applicant therefore argued
that the Respondent still remained indebted
to the Applicant. Before
me and on the assumption that the amount was arithmetically
calculated correctly, there appeared to be
little dispute about this.
[19]
The Respondent’s principal complaint was that it was improper
for the Applicant not to invoice the Respondent timeously
and monthly
in respect of the amounts due but to only
“
suddenIf
demand
payment of a huge amount not budgeted for as part of the Respondent’s
cash-flow position. The Applicant countered that
the local authority
had levied the “
back-charges”
and
imposed same on the Applicant as part of the levying of arrears rates
and taxes and the Applicant had simply simultaneously
so invoiced the
Respondent. The Respondent further contended that, as an organ of
state subject to the PFMA, it was obliged to
responsibly investigate,
verify, calculate and reconcile all the amounts charged before making
payment thereof and that this process
took some time, resulting in
payment only having been made on 6 July 2013. Lastly the Respondent
contended that, had the Applicant
timeously prior to the hearing of
the application indicated its willingness to give the Defendant the
proverbial benefit of the
doubt regarding its argument on the levying
of VAT on the municipal charges, it might have resulted in the
aforementioned balance
being paid. There was however, no indication
why the Respondent had not in any event made the aforementioned
calculations, excluding
the VAT on the municipal rates items and
interest thereon and made or tendered payment of the amount of R51
109.20 previously.
[20] As can be seen
from the abovementioned discussion, virtually the only outstanding
issue is that of costs.
[21] Whether or not
the Applicant precipitated the initial payment of R552 399.00 by way
of the launching of its application or
not, the fact is that this
amount was only paid on 6 July 2013, that is after the launch of the
application. The amount which was
then paid, was in respect of
amounts already levied in November 2012. The payment can only amount
to an admission of the fact that
the Respondent was indeed in arrears
with amounts due by it to the Applicant. Accordingly I see no reason
why the Applicant should
not at least be entitled to costs of the
application until date of the aforesaid payment.
[22] The next
question is then whether the Applicant should be entitled to costs
for the remainder of the application in pursuance
of payment of the
amount of R98 766.11 which, by its own concession, was at date of the
hearing of the application, reduced to
R51 109.20. The Respondent
argues that this concession and reduction should have the result that
the Applicant should be disallowed
its costs.
[23] It is of course
to be commiserated that an opposed motion proceeds in the High Court
for recovery of an amount which (on either
of the two calculations of
balance due after the payment of 6 July 2014) falls within the
jurisdiction of the Magistrate’s
Court. I considered awarding
costs to the Applicant on the Magistrate’s Court scale only but
am of the view that the costs
upon the employment of counsel, having
regard to the initial intricacy of the VAT issue as well as the
importance of the matter
for the Respondent, would in any event have
been allowed even in the lower court. I also considered whether a
limitation of the
recovery of costs by the Applicant should be
ordered pursuant to the limitation of the amount claimed.
[24] Regarding the
issue of substantial success and, as debated with counsel, there is
very little difference between the present
circumstances and those
where a party had for example initially claimed R98 766,11 and only
been successful in an amount of R51
109.20. The general rule
regarding costs is that it should follow the event and such an
applicant would have been substantially
successful entitling an award
of costs in its favour. In the exercise of my discretion and having
taken all the circumstances of
the case into consideration I am of
the view that the same principles should apply in casu and that there
should not be a limitation
on the Applicant’s costs or the
scale thereof.
[25]
Whilst interest had been calculated during the period preceding the
launch of the application in accordance with paragraph
4.3 of the
agreement between the parties, the Applicant has claimed in its
Notice of Motion
mora
interest
in terms of the provisions of the
Prescribed Rate of Interest Act,
No. 55 of 1975
. I am of the view that the Applicant is, since the
launch of the Application entitled thereto.
[26] Accordingly I
make an order as follows:
26.1 The Respondent
is ordered to make payment to the Applicant of the following:
26.1.1 The amount of
R51 109.20;
26.1.2 Interest on
the aforesaid amount at the rate of 15.5% per annum from 4 July 2013
to 31 July 2014 and at the rate of 9% per
annum from 1 August 2014 to
date of payment thereof;
26.1.3 Costs of the
application.
N DAVIS
ACTING JUDGE OF
THE HIGH COURT
DATE MATTER
HEARD: 20/10/2014
DATE
JUDGMENT DELIVERED: 29/10/2014