SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in
compliance with the law and SAFLII Policy



IN THE HIGH COURT OF SOUTH AFRICA
(EASTERN CAPE DIVISION, MAKHANDA)

CASE NO: CA 118/2024
(1) REPORTABLE: YES/NO
(2) OF INTEREST TO THE JUDGES: YES/NO
(3) REVISED.
DATE:
SIGNATURE:

In the matter between:

THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE Appellant

and

HR FOCUS CC Respondent

JUDGMENT
POTGIETER J

INTRODUCTION

[1] This is an automatic appeal in terms of section 133(2)(a) 1 of the Tax
Administration Act2 (‘the TAA’) against the decision of the Tax Court held at the Eastern
Cape Division, Gqeberha ( ‘the Tax Court’ ), which was handed down on 12 December
2023, upholding the appeal of the respondent against additional assessments raised in
respect of skills d evelopment levies (‘SDL’) and Value Added Tax (‘VAT’), pursuant to
audits conducted by the appellant.

[2] The appellant is the Commissioner for the South African Revenue Service
(‘SARS’).

[3] The respondent is HR Focus CC, registration number CK 2002/070808/23, (‘HR
Focus’), a close corporation having its principal place of business at 3 […] B[…] Street,
Quigney, East London, Eastern Cape Province.

[4] SARS applied in terms of section 133(2)(b) of the TAA for leave to appeal directly
to the Supreme Court of Appeal. The latter section permits an unsuccessful party in a
tax appeal, such as the appeal that served before the Tax Court, to seek leave from the

1 The relevant sections of the TAA provide that:
133 Appeal against decision of tax court
(1) The taxpayer or SARS may, in the manner provided for in this Act, appeal against a decision
of the tax court under sections 129 and 130.
(2) An appeal against a decision of the tax court lies-
(a) to the full bench of the Provincial Division of the High Court, which has jurisdiction in the
area in which the tax court sitting is held; or
(b) to the Supreme Court of Appeal, without an intermediate appeal to the Provincial
Division, if-
(i) the president of the tax court has granted leave under section 135; or
(ii) the appeal was heard by the tax Court constituted under section 118(5).
…
135 Leave to appeal to Supreme Court of Appeal against tax court decision
(1) If an intending appellant wishes to appeal against a decision of the tax court to the Supreme
Court of Appeal, the ‘registrar’ must submit the notice of intention to appeal lodged under

Court of Appeal, the ‘registrar’ must submit the notice of intention to appeal lodged under
section 134(1) to the president of the tax court, who
(2) must make an order granting or refusing leave to appeal, having regard to the grounds of the
intended appeal as indicated in the notice.
2 Act 28 of 2011

president of the Tax Court to appeal directly to the Supreme Court of Appeal ‘ without an
intermediate appe al to the Provincial Division.’ This application was refused on 29
February 2024. Hence, SARS is currently invoking, as indicated, the automatic right of
appeal to this court in terms of section 133(2)(a) of the Act.

THE RELEVANT BACKGROUND

[5] HR Focus is a service provider to an extensive network of businesses in the mid -
market retail sector throughout the Eastern Cape Province, including well -known chain
stores such as Spar, OK Foods, Build -It and Fruit & Veg. During the period relevant to
this appeal, it was rendering services to more than 90 such retail clients and its
operations were the largest of its kind in the province. The issue between the parties,
which is also the central question in this appeal, is the exact nature of such services.
The issue pu t crisply is whether at the material time, HR Focus was the employer of
some 4500 persons (‘the disputed personnel’) who, it is common cause, were registered
on its payroll system but were deployed at the businesses of its retail clients. As more
fully set out below, SARS contended that all these persons were employees of HR
Focus (acting as a labour broker) who outsourced the employees to the retail clients. In
contrast, HR Focus contended to the contrary. According to HR Focus it, inter alia ,
provided pay roll administration services (under a services agreement) to its clients in
respect of the latter’s employees (in effect, the disputed personnel). This includes
determining (and if it is required, attending to paying) wages on behalf of clients and
deducting and accounting to SARS for Pay -As-You-Earn (PAYE) and Unemployment
Insurance Compensation (UIC), also referred to as UIF, in respect of the said
employees. It is thus readily apparent that the issue concerns a factual dispute
between the parties. The T ax Court determined this dispute in favour of HR Focus and

between the parties. The T ax Court determined this dispute in favour of HR Focus and
found that the latter was not the employer of the disputed personnel. The significance
hereof for present purposes is that should HR Focus be the employer, it would be liable
to pay the SDL togethe r with the VAT, which SARS attempted to recover from it in
respect of the disputed personnel, inter alia , under the provisions of the Skills

Development Levies Act 3 (‘SDL Act’). Unsurprisingly, HR Focus vehemently disputed
that it was liable as claimed by SARS. I revert to this aspect below.

[6] Pursuant to a payroll tax audit conducted by SARS in 2016 in respect of HR
Focus, additional assessments were issued on 14 June 2016 against HR Focus for SDL
covering the tax period 03/2011 to 08/2015. The additional assessments were not
issued in respect of each tax period, SARS instead aggregated 12 tax periods and
issued assessments for the tax periods 02/2012 (covering the tax periods 03/2011 to
02/2012); 02/2013 (covering the tax periods 03/2012 to 02/2013); 02/20 14 (covering the
tax periods 03/2013 to 02/2014); 02/2015 (covering the tax periods 03/2014 to
02/2015); and 02/2015 (covering the tax period 03/2015 to 08/2015). The additional
assessments were raised on the basis that HR Focus was the employer of all the
persons recorded on its payroll taxes declaration (including the disputed personnel)
during the assessment period. I should add that HR Focus neither collected SDL from
its retail clients nor did it include SDL in its accounting to SARS for payroll taxes. It was
accordingly determined to be liable for the non -payment of SDL calculated at the
prescribed rate of 1% of its total payroll value, together with understatement penalties
and interest. HR Focus unsuccessfully objected to the additional assessments. As
indicated, its appeal to the Tax Court, however, succeeded.

[7] SARS also subjected HR Focus, which is a VAT vendor, to a VAT audit in 2018
and issued additional VAT assessments on the basis that the disputed personnel
recorded on its payroll taxes declara tions were its employees whose work capacity was
placed at the disposal of its retail clients for consideration. This was determined to be a
vatable supply which was taxable at the standard rate. The value of the taxable
consideration was seemingly calculated from the declarations that HR Focus made in its

consideration was seemingly calculated from the declarations that HR Focus made in its
payroll tax return, which included PAYE as well as UIF deductions in respect of the
disputed personnel. I should interpose that it is, of course, trite that wages are not
taxable supplies for purposes of VAT. The wages paid to the disputed personnel can
accordingly not constitute the basis for determining the consideration that allegedly

3 Act 9 of 1999.

accrued to HR Focus for the apparent supply of the services of the disputed personnel
to its retail clients. SARS presented no evidence to indicate on what basis the amount of
consideration was computed or assessed to tax.

[8] The additional VAT assessments were also not issued on a per -period basis but
were based on the aggregation of six VAT periods. The objection of HR Focu s was
again unsuccessful, but the appeal to the Tax Court succeeded.

[9] There were two further issues with regard to VAT that arose before the Tax
Court, which can be disposed of swiftly . First, that HR Focus apparently failed to
account for VAT on the incom e that it received under the cession to it by Roslyn Store
Management Services of a contract concluded by the latter with the South African
Social Security Agency (SASSA). The version of HR Focus that it duly accounted to
SARS for the income and VAT obliga tions arising out of this transaction was placed in
dispute by SARS in its Rule 33 reply. However, the relevant witness on behalf of SARS
was unable to advance or substantiate any basis for disputing the version of HR Focus,
which was correctly accepted by the court a quo.

[10] The remaining issue related to an error in the VAT invoices and returns in
respect of transactions with Healthcare Solutions, which was conceded by HR Focus
and was accepted by SARS as an issue that was no longer in dispute. Nothing fur ther
needs to be said thereanent.

PROCEEDINGS IN THE TAX COURT

[11] The parties agreed in the joint statement of facts dated 19 May 2023 that both
the SDL and the VAT appeals should be adjudicated in the same hearing. The court
found this to be convenient as the appeals were both based upon the same set of facts
and required the determination of substantially similar issues. It accordingly gave effect

to this agreement. I should mention in passing that this outcome could arguably have
been achieved through an application for the consolidation of the appeals.4

[12] Given that the burden of proof was on HR Focus to establish that it was not liable
to pay any SDL or VAT as assessed by SARS 5, it had the duty to begin and presented
the evidence of four witnesses. SARS, in turn, also called four witnesses. Before
dealing in more detail with the respective versions of these witnesses, it is convenient to
set out the general facts relevant to the matter, which were either common cause or not
really in contention.

The undisputed relevant facts

[13] No written contract was entered into to record the business relationship between
HR Focus and its various retail clients, in particular setting out the nature and extent of
the services to be provided by HR Focus (in terms of the relevant services agreemen t)
to those businesses. The erstwhile sole member and proprietor of HR Focus, Mr Bruce
Butler, who passed away in December 2022, concluded verbal or gentlemen’s
agreements with his counterparts in those businesses. The only survivor with first -hand
knowledge of the relevant agreements is Mr Kairuz. He is the former proprietor of a
number of these entities, namely Engcobo Spar, Cala Build -It Hardware Store, Mzantsi
Auto Filling Station and Trac Props Property Development and Rental, that engaged the
services of HR Focus. Mr Kairuz was called as a witness on behalf of HR Focus. As
more fully set out below, the court a quo correctly pointed out that the evidence of Mr
Kairuz was not gainsaid.


4 The court correctly indicated that the rules of the Tax Court, R 3146 o f 10 March 2023, prescribed in
terms of section 103 of the TAA, do not expressly provide for the consolidation of actions. To clarify
any misapprehensions in this regard, it should be indicated that rule 42 of those rules provides that

where a procedure is not catered for in such rules, the most appropriate rule under the Uniform Rules
of the High Court may be utilised to the extent that it is consistent with the TAA and the rules of the
Tax Court. It would thus have been open to consolidate the said appeal s by applying Uniform Rule
28, which is not inconsistent with either the TAA or the rules of the Tax Court. In any event, in the
result, the appeals were justifiably de facto consolidated.
5 Under section 102(1)(a) of the TAA: ‘A taxpayer bears the burden of proving that an amount,
transaction, event or item is exempt or otherwise not taxable.’

[14] HR Focus provided labour law and payroll administration services to its clients.
The labour law services entailed, inter alia, drafting employment contracts and
managing workplace disputes. It charged a flat rate fee for the services. The latter
component, namely managing workplace disputes, included attending to disciplin ary
proceedings and representing the clients in hearings before the Commission for
Conciliation, Mediation and Arbitration (‘CCMA’). The employment contracts were
drafted in the form of tripartite agreements, which designated HR Focus as the
‘employer’, th e relevant business as the ‘client’, and the relevant individual as the
‘employee’. These contracts played a central role at the hearing to which I will return.

[15] The payroll administration services provided by HR Focus and for which it
charged a fee based on a percentage of the client’s wage bill together with ancillary
charges, entailed: managing the client’s payroll; ensuring that the necessary deductions
were made from the employees’ salaries; issuing payslips; calculating the leave or
sickness benefits due to the employees; and determining any benefits due to the
employees on termination of their employment. HR Focus operated and managed a
separate payroll for each client. Some clients paid the employees directly based on the
payroll calculations provide d by HR Focus. Others required HR Focus to attend to
paying employees’ salaries and employees’ taxes on their behalf. The dispute between
the parties related to the latter group only. In these instances, HR Focus only effected
payment to the employees afte r receipt of the full payroll amount from the particular
client. It utilised a dedicated bank account, the Wage Distribution Account in the name
of Mr Butler, for receipt of these payments from the clients and payment of the relevant
salaries and employees’ taxes.

[16] HR Focus accounted to SARS in respect of all persons on its payroll system,

[16] HR Focus accounted to SARS in respect of all persons on its payroll system,
including the disputed personnel, for employees’ taxes, namely PAYE and UIF. It
rendered the relevant monthly payroll taxes returns under its own employer’s tax
number and paid the amounts due in respect of PAYE and UIF over to SARS.

[17] As indicated, HR Focus did not account in the periods of assessment to SARS
for SDL as part of its accounting for PAYE and UIF. It also did not collect any SDL that
might have been payable by its clients. It is principally the dispute that arose between
the parties in respect of SDL that constituted the subject matter of the appeal before the
Tax Court. It is apposite to return to the evidence presented by the parties at the Tax
Court hearing.

The witnesses on behalf of HR Focus

[18] HR Focus presented the evidence of the undermentioned witnesses. Given the
particular importance attached to his testimony by the Tax Court, it is convenient to
commence with the evidence of Mr Kairuz, even though he w as the final witness called
by HR Focus. The evaluation of the versions of these witnesses is also dealt with and
recapitulated below when dealing with the decision of the Tax Court.

(i) John Phillip Kairuz

[19] The witness confirmed that he was at all material t imes the proprietor of the
businesses referred to above. He met Mr Butler in the year 2000 or 2001. The latter was
interested in facilitating the human resources, payroll, and timekeeping for the witness’s
businesses. They had a verbal arrangement, which f ormed the basis of their business
relationship that developed over time. This was never reduced to writing. It was not
unusual because he had had business dealings with many parties in the past without
having a written agreement in place.

[20] The services ren dered by HR Focus entailed: facilitation of the payroll;
timekeeping and attendance; as well as paying wages, PAYE, union dues and UIF. The
businesses provided the funds to HR Focus beforehand, which were then used to effect
these payments.

[21] The employees of the businesses were interviewed and appointed by the
management of the relevant stores and businesses. Prospective employees
approached the businesses directly and applied for employment, and the management
would place them within the business. The seni or management and lower supervisory
staff would be responsible for giving instructions and supervising the employees. HR
Focus would not be involved in any of these tasks. The management within a store
would initiate any disciplinary proceedings from the o utset, whereafter they would seek
guidance from HR Focus with regard to the process. This was part of the services
rendered by HR Focus. The witness stated unequivocally that his businesses (and not
HR Focus) were the employers of all the staff at the stor es. With regard to the
designation of HR Focus as the ‘ employer’ on the tripartite agreement, the witness
indicated that it was an arrangement made at the time to enable HR Focus to attend to
the human resources matters of the businesses.

[22] With regard to the issue of employment tax incentive rebates or refunds (‘ETI’)
claimed from SARS by HR Focus, it was part of the function of HR Focus to assist the
businesses in processing the ETI claims. Credits would be passed by HR Focus in
favour of the re levant business once the claim had been successfully finalised. The
witness identified credit notes forming part of the record, passed by HR Focus in
respect of ETI tax rebates, in favour of some of his businesses. This concluded his
evidence-in-chief.

[23] Under cross-examination, the witness confirmed that all of the staff employed at
Build-It, Engcobo, where the services of HR Focus were obtained, are permanently
employed by the business in terms of employment contracts prepared by HR Focus,
where the latter is designated as the ‘employer’. He indicated that the business paid the
funds in respect of wages to HR Focus, who, in turn, administered the actual payments

funds in respect of wages to HR Focus, who, in turn, administered the actual payments
to the employees. The money came from the business. He reiterated that the source of
the funding was his company, but that the funds were physically paid over by HR Focus
to the employees concerned. He indicated that he was unsure which tax reference
number was used to claim the ETI rebates or refunds. He was similarly unsure which

tax reference numb er was used for the payment of PAYE. He indicated that he
assumed that his businesses were registered for SDL, being part of a large corporate
entity such as Spar, but that he could not vouch for that. The court indicated that the
evidence of the witness was not disputed in cross-examination and accepted his version
without reservation. This conclusion has not been shown to be wrong and must thus be
accepted.6

(ii) Quentin Ashton de la Rey

[24] The witness is currently the Legal Operations Manager at HR Focus. He initially
worked at HR Focus for one year in 2008, performing relatively minor duties. He
returned in June 2010 and took up the position of Human Resources Manager,
reporting to a senior manager, Mr Craig Snelling. His current role is more labour -related
and includes attending to disciplinary matters where he assists with investigations,
chairs disciplinary hearings and attends to incidental matters. He furthermore attends to
compiling templates for employment contracts. He also deals with the unions and
appears at the CCMA. At first, his role was more junior, but he grew into the position.
After his return in 2010, he worked directly with Mr Bruce Butler, the owner of HR
Focus. When he commenced service in 2010, Mr Butler pre -empted the rumoured
banning of labour brokers at the time by changing the business model of HR Focus
away from a labour broking role to concentrating on the payroll administration and
labour-related services provided by HR Focus. The payroll administration services
entailed functions such as drawing up payslips containing all relevant information, such
as the earnings and deductions, including tax and UIF. HR Focus also attended to
claiming ETI rebates on behalf of its clients. Once the rebates are recovered, a credit
note is passed in f avour of the relevant client. The witness was only indirectly involved
in the payroll administration services, for example, when he had to deal with pay

in the payroll administration services, for example, when he had to deal with pay
disputes. During his second term at HR Focus and after having assumed a more senior
role, he became mor e involved in this aspect and developed an understanding of how
the payroll administration services work. He demonstrated the change in the business

6 KPMG v Securefin Ltd 2009(4) SA 399 (SCA) para 24.

model with reference to copies of employment contracts in the trial bundle that were
concluded both before and after the change. The earlier contracts relating to the labour
broking era provided for temporary employment services in terms of section 198 of the
Labour Relations Act for renewable periods ranging between one and three months.
The later contracts re flect the change in that they did not provide for temporary
employment, but were notice period contracts involving permanent employment for an
indefinite period, terminable on notice. After the change, the retail clients of HR Focus
were the employers. Thi s fact was confirmed by Mr Butler and is reflected by the
wording of the contracts as well as by what happens in the workplace. In the latter
regard, the employee is based at the retail store, has to wear the uniform of the
business, eg Spar, the company w ould recruit the employees and subsequently instruct
HR Focus to engage the employees on the payroll in the positions and at the rates of
pay advised by the company. HR Focus had no control over the day-to-day duties of the
employees, whether they had to work overtime, or were entitled to receive a bonus. The
retail clients provided the necessary instructions to HR Focus and also notified HR
Focus when employees were on annual or sick leave and when employees had to be
disciplined. HR Focus merely acted as an agent of the retail clients.

[25] In respect of disciplinary matters, HR Focus would advise the company on what
would be the best option and would then be instructed by the company on how to
proceed. Where a warning had to be given, HR Focus would draft the document and
provide it to the company that issued the warning. If the company’s instruction was to
proceed with a disciplinary hearing, HR Focus would prepare the necessary
documentation and provide it to the company to issue to the employee. The company
would be the initiator at the hearing and would present all the facts and evidence. In

would be the initiator at the hearing and would present all the facts and evidence. In
most cases, the witness would chair the hearing and eventually provide his
recommendations. If these were endorsed by the company, a finding and sanction
would be issue d. In cases where there was a settlement of the disciplinary dispute
endorsed by the company, the witness would attend to the implementation thereof. The
relevant settlement agreement would be signed by the employee, the company and HR
Focus. Any monies ow ing to the employee are paid by the company. If the matter

proceeded to the CCMA, the witness or one of his colleagues would appear on behalf of
the company and attend to the relevant processes on the instructions of the company.
The retail clients obtaine d tremendous value out of the labour law services in that the
businesses are generally fearful of the CCMA and of dealing with unions or labour -
related matters. The relevant employees at HR Focus are experts in this field and took
this burden away from the clients, allowing them to focus on their businesses.

[26] The witness also explained the process relating to the engagement of an
employee on the HR Focus payroll as well as the preparation of the relevant
employment contract. The process is initiated upon th e receipt of a duly completed
engagement form from the client. The form would contain all the necessary information
to enable the employee to be engaged on the payroll. In addition to the information that
has been referred to above, the form records the pe rsonal particulars of the employee,
the work commencement date, the employee’s banking details, and the duration of the
contract. This information is also utilised to draft the employment contract, which is
signed by the employee, the retail client, and HR Focus. The latter is still described as
the employer in the later contracts for two reasons, even though it transitioned away
from being a labour broker in 2008, namely (i) to ensure the locus standi of the relevant
employees of HR Focus who appear at the CCMA, and (ii) to provide protection to the
clients insofar as union activity at the workplace is concerned. By interposing HR Focus
(rather than the individual businesses) as the employer of the total number of
employees, the union is precluded from easi ly satisfying the stipulated threshold for
membership numbers to enjoy recognition in the workplace. It is a mechanism to stymie
attempts by unions to organise or operate in the workplace of the retail clients of HR

attempts by unions to organise or operate in the workplace of the retail clients of HR
Focus. As the witness put it: ‘We had to try … our best to protect our clients and keep
the unions out as best as we could within the provisions of the law. So, that was the
thinking behind it at the time.’

[27] From approximately 2017, the employment contracts changed once more and
now described H R Focus as the ‘designated agent’. Ever since the shift in 2008, HR

Focus has always maintained that it was an agent, and the latest version of the
employment contract expressly confirms this.

[28] The witness furthermore indicated that the initial negotiation s to engage the
services of HR Focus, ie, in concluding a services agreement, took place solely
between Mr Butler and the relevant business owner. No discussions in respect of the
material aspects of the services agreements involved store managers or inter nal staff.
The latter were not privy to what transpired between Mr Butler and the business owner.
The services agreements were verbal gentlemen’s agreements based on mutual trust
between Mr Butler and the relevant business owner. The witness himself was no t
involved in any of this. Mr Butler would, however, subsequently provide him with
feedback and explain the details of the relationship with the relevant client going
forward. He was simply required to follow through with the instructions of Mr Butler.

[29] Under cross -examination, the witness repeated his version, which was not
contraverted in any respect. He was referred to a letter dated 19 May 2016 on an HR
Focus letterhead written by Mr Butler, addressed to SARS, in which it was stated that:

‘When the Company was bought, it had about 80 Employees and today it has grown
to just over 4000 employees (outsourced). We do the payroll for another 1000 staff
of other Companies. Therefore, in total, our payroll office handles over 5000
employees a month.’

The apparent purpose of the cross -examiner was to challenge the witness’s evidence -
in-chief that, according to his understanding, after the change in the business model,
the retail clients were the employers of these employees and not HR Focus. The
witness again confirmed his version that HR Focus was not the employer. He was then
asked to confirm that HR Focus contributed the employer’s 5% towards the employee’s
Provident Fund, which he did, but added that this was after payment of the 5%

Provident Fund, which he did, but added that this was after payment of the 5%
contribution was rece ived from the retail client. It was indicated to the witness that the
SDL exemption letter from SARS dated 30 November 2005 was addressed to Andrews

Recruitment, which sold the business to HR Focus, and that the latter was not exempt
from SDL. The witness was also referred to various employment contracts in respect of
different retail businesses, which described HR Focus as ‘employer’. He responded that
the important issue is the true nature of the contract and the terms of the agreement
with the retail cli ent. All of these were clear between the relevant parties. He indicated
that HR Focus was merely fulfilling an administrative role in cases where it assisted
employees in recovering payments due to them. By way of example, HR Focus would
act as the interme diary between the employer and the Provident Fund and would
complete the necessary claim documentation and provide the relevant forms to the
employee. In the process, HR Focus would relieve the burden on the company that
lacks the requisite skill and compe tency to fulfil such functions. The rest of the cross -
examination was uneventful. Nothing of note emanated from the re -examination. The
evidence of the witness was correctly accepted by the court.

(iii) Karen Ann Veaudry

[30] The witness is employed as an office ad ministrator by HR Focus. She got
married to Mr Bruce Butler in 2022 after they met in 2005, and she started working in
his office in 2006. She has never been involved in the strategic management of the
business. Mr Butler did not discuss his strategic deci sions with the witness but would
simply issue the necessary instructions. Her duties became more extensive over the
years and basically entail ensuring that the office runs smoothly, that everybody in the
office is provided with what they need to perform t heir duties, and to make sure that
deadlines are met. Her interaction with the clients was limited to passing their
instructions on to the relevant official in the office and assisting in dealing with and
resolving errors that had been made by the office. Mr Butler initially released the

resolving errors that had been made by the office. Mr Butler initially released the
payments himself, but she eventually took over this role. Her principal duties related to
the payroll, and she was never involved in the labour law services, which were a
separate department. She does not have much knowledg e of this side of the business.
Her role does not really entail the supervision of staff. However, she would often receive
instructions from Mr Butler which she had to convey to the staff. She has no knowledge

or experience of accounting. The standard payr oll process is that engagement or
discharge forms in respect of new employees or those who have left the employ are
received from the clients, and the relevant information is imported into the payroll
computer software. The wages payable to employees are c alculated, and the payslips
are generated by the computer software on the strength of a timesheet, which is
received from the client at the end of the month. The figures so calculated are sent to
the client for verification. Once the client is satisfied wi th the relevant values, they would
advise HR Focus to take the necessary steps to process payment. A payment method
report is prepared, indicating how each person on the payroll would be paid for the
month in question. In some cases, cash payments are made , and in others, electronic
fund transfer (EFT) payments are made. The EFT payments are loaded onto the bank
account, and the actual payments are released after the funds are paid over by the
client pursuant to an invoice provided to the client by HR Focus . The payments are
released on the date provided by the client. The client deposits the funds into a
separate bank account titled the Wage Distribution Account. This account was in the
name of Mr Butler and was set up in order to distribute the salaries an d wages to the
employees of the clients. HR Focus was very strict with regard to these payments in
that the funds would have to appear in the relevant bank account before any salaries
would be released. HR Focus had no influence over which persons are employed by the
client on its workforce and would only become aware of any new persons employed by
the client upon receipt of the engagement form.

[31] The witness referred to the fees charged by HR Focus for the services it
rendered to its clients. It charged an admin fee to run the payroll, which is calculated by
the software as a percentage of the wage bill. A basic fee based on the number of

the software as a percentage of the wage bill. A basic fee based on the number of
employees is charged in respect of the labour law services. The Compensation for
Occupational Injuries and Diseases Act ( COIDA) fees must be paid by the clients under
their own reference numbers and cannot be made on their behalf by HR Focus. The
client is provided with a payroll report to make the COIDA payment. While the witness
was aware of ETI rebates, she had no special ised knowledge of this aspect. The
relevant ETI rebate figures are calculated by the software. HR Focus would provide the

client with a credit note in respect of the rebate or refund due to the client. Mr Butler
would attend to this aspect and ensure that the credit notes for each client were correct.

[32] Under cross -examination, the witness indicated that she was not a payroll
administrator but an office administrator. Her knowledge of payrolls is based on working
with the payroll software of HR Focus, but sh e is not a payroll expert. She was further
referred to the question that was asked and the answer given with regard to employees
reflected in the document or questionnaire that recorded an interview with SARS
auditors, which was signed on 5 April 2016 by the witness, as well as Ms Beryl Porter of
their accounts department. The relevant question was how many employees were
employed by HR Focus in South Africa. The answer provided was approximately 4500.
The witness indicated that she was not sure who complet ed the document, which was
not in her handwriting. Nor was she sure who provided the information or answer, which
did not correctly reflect the situation at HR Focus. She does not believe that she would
have answered the questions and does not recall havin g checked their accuracy. Given
that it was a SARS matter, she would have left it to the accounts department to handle.
It is thus possible that Ms Porter of the accounts department responded to the questions
and subsequently brought the document for her t o sign. She was then referred to the
letter of Mr Butler dated 19 May 2016, which stated that HR Focus had more than 4000
employees. She replied that she was unaware of the letter, but is sure that it related to
the number of staff that they were processin g through their payroll software. This was
the approximate number for some time. She also confirmed that HR Focus made the
5% employer’s contribution to the provident fund. This was, however, not a personal
contribution. The funds emanated from the clients . The PAYE and UIF contributions are

contribution. The funds emanated from the clients . The PAYE and UIF contributions are
paid to SARS under the reference number of HR Focus. She was not aware whether
HR Focus was registered for SDL.

[33] In re -examination, she testified that Ms Porter was employed in the accounts
department on the numbers sid e, not at a high level. She was not involved in any
discussions with Mr Butler, nor was she privy to any information about or had an
understanding of the strategic nature of the business. Ms Porter has since left the

employ of HR Focus. The witness reiterated that the disputed personnel were under the
complete control of the clients who engaged them and would discipline or discharge
them. Throughout her involvement with HR Focus, it did not operate as a labour broker
but provided payroll administration and labour law services to its retail clients. That
concluded her testimony, which was in substance accepted by the court.

(iv) Justin John Emslie

[34] The evidence of the witness was not disputed in cross -examination and must be
accepted. He practises as a chartered accountant. During the periods of the relevant
assessments at issue in this matter, he was the accounting officer of HR Focus. He
presently only attends to compiling its financial statements. He has never been the
public officer of HR Focus. Typically, the main member of the corporation would be its
public officer. The late Mr Butler was the sole member of HR Focus at the relevant time.
The witness was also never involved in the preparation of statutory returns such as
VAT, SDL, PAYE, or ETI for HR Focus. The wages for the staff on the payroll did not go
through the income and expenditure statement of HR Focus but were accounted for
through the balance sheet section of the financial records. HR Focus accounted for the
wages as an agent. The wages were not reflected as income. The income statements of
HR Focus only reflected the fees that HR Focus earned from delivering the payroll
administration and other services. The witness confirmed that he attended a meeting on
3 November 2016 with representatives of SARS in his capacity as the accounting officer
of HR Focus. Although he did not have a clear recollection of the meeting, he confirmed
the correctness of the following extract (which refers to him) from the minutes of the
meeting, which was signed by him on 18 November 2016, namely –

‘Justin also stated that there is possibly some confusion around who is the

‘Justin also stated that there is possibly some confusion around who is the
employer for tax purposes and for labour law purposes. Justin proposed that he
discuss with Mr Butler the possibility of obtaining an opinion on the natu re of the
relationship with the staff.’

[35] Under cross-examination, the witness confirmed the correctness of the following
extract from the aforesaid minutes:

‘According to the SARS officials who attended the previous meeting, Mr Butler
stated twice that he i s the employer. The amended minutes signed by Mr Butler
and Justin now indicate that Mr Butler said, “let us say for argument’s sake that
he is the employer”. Justin confirmed that Mr Butler said in the meeting that HR
Focus is the employer and that he was possibly trying to give some context to the
discussion.’

[36] The witness was further referred to the PAYE pre -audit assessment
questionnaire involving Ms Veaudry, which referred to him as the public officer of HR
Focus CC. He confirmed that, unlike the questionnaire, the aforesaid minutes correctly
reflect him as the accounting officer and not the public officer of HR Focus CC. He
indicated that he had no idea where the meeting involving Ms Veaudry took place. It
could have been at his building, but he w as not part of the meeting. The witness also
indicated that in the course of preparing the financial statements of HR Focus, any
supporting information provided is validated, although an audit is not conducted. There
was no re-examination, and the case of HR Focus was then closed.

The witnesses on behalf of SARS

[37] SARS presented the evidence of the witnesses set out below. The evaluation of
their versions is addressed in the next section, which outlines the Tax Court's decision.

(i) Gafsa Obaray

[38] She has been employed by SARS as an auditor for 30 years, since 1996. SARS
conducted an audit of HR Focus. She and a colleague, Nobathlo Mbogeni, interviewed
Ms. Veaudry and Ms. Porter of HR Focus and completed the PAYE pre -audit
assessment questionnaire on 5 Apri l 2016, which was signed by all four of them. There

was some confusion about the latter date in that the email, which requested the
meeting, was sent by the witness to Ms Veaudry on 5 May 2016. It proposed that the
meeting be held on 12 May 2016. The witne ss subsequently stated under cross -
examination that the email relates to a different meeting. The meeting of 5 April 2016
took place at the premises of the accountant, Mr Emslie. The witness asked the
questions set out in the questionnaire and made audit n otes next to the answers
provided by the representatives of HR Focus. She was referred in particular to the
following questions and answers:

’13. Approximately how many employees do you employ within SA? +/_4500.
Audit note: All under HR Focus’s control, excl. 7 office staff.’
28. Do you procure staff or workers from a “labour broker” (individual) or a
personal service provider (company)?: No.
30. Please furnish a list of all payrolls, including any offshore payroll and any
payroll administered by any ot her party. Indicate categories and number of
employees on each payroll : +/- 80 different payrolls. Co. names & payroll
names to be provided.
34. Are all payments (in connection with services) made to your employees
processed through the payroll system?: Yes.
40. At the end of their latest tax year, were all qualifying employees issued with
IRP 5 certificates?: Yes.

[39] The witness indicated that the employer referred to in the questionnaire was HR
Focus. She carried out an audit in respect of payroll taxes on HR Focus with regard to
PAYE and SDL and provided the audit findings (presumably dated 10 May 2016,
although the date is not complete) to HR Focus. The taxpayer has 21 days to respond
to the findings. The outcome of the audit was that no adjustments were m ade in respect
of PAYE since HR Focus was compliant. The audit concluded that the remuneration
paid by HR Focus exceeded the SDL threshold and that it was liable to pay SDL, but
that it rendered ‘Nil’ SDL declarations. The amount due was recalculated based on the

that it rendered ‘Nil’ SDL declarations. The amount due was recalculated based on the
total remuneration paid according to the payroll, and HR Focus was liable for the

shortfall. HR Focus wrote a ‘without prejudice’ letter to SARS dated 19 May 2016 in
response to the audit findings. The letter indicated that (sic):

Our main business is that of labour broking and up until March 2015, offered only
temporary employment positions.
When we purchased the business, we were advised by the previous owners that
the Company was exempt from paying SDL.
When the Company was bought, it has about 80 Employees and today it has
grown to just over 4000 employees (outsourced). We do the payroll for another
1000 staff of other Companies. Therefore, in Total, our payroll office handles
over 5000 employees a month.’

[40] A finalisation of audit letter dated 14 June 2016 was forwarded to HR Focus after
consideration of its response to the audit findings. No adjustments were made in
respect of the audit findings or the calculation of the SDL due by HR Focus. On 4
August 2016, HR Focus requested reasons for the assessment, which were provided by
SARS on 7 October 2016. HR Focus lodged an objection on 13 December 2016, and
SARS made a request for relevant material on 24 January 2017, requiring, inter alia ,
proof that HR Focus was appointed as an agent. HR Foc us responded as follows on 6
March 2017: ‘Kindly note that HR Focus CC was not officially appointed in writing as an
agent of its clients, but they do the work and act as an agent on behalf of their clients .’
The objection was eventually unsuccessful, wher eupon HR Focus lodged an appeal.
The witness had no further involvement in the matter during the appeal stage. An initial
understatement penalty of 100 % was raised, which was subsequently reduced to 25%.

[41] Under cross -examination, the witness conceded that the pre -audit assessment
questionnaire had to be completed during an interview with the Public Officer of HR
Focus. She, however, added that it can also be completed with a taxpayer
representative. When this proposition was challenged, she conceded that t he

representative. When this proposition was challenged, she conceded that t he
questionnaire nowhere indicates that this is the case. She then alluded to the fact that
this was set out in an email which she sent to Ms Veaudry, but added that it was not the

email of 6 May 2016 that she referred to in her evidence -in-chief. She indicated that the
latter email actually related to a meeting to discuss the audit findings and did not relate
to the questionnaire. The new email that she referred to has not been disclosed to the
counsel of HR Focus. When she was asked whether Mr Butler atte nded the meeting
where the audit findings were discussed, as confirmed in the response of Ms Veaudry to
the email of 6 May 2016, she stated: ‘… it is not a yes, it is not a no at this time.’ She
indicated that she was 100% certain that the meeting where th e questionnaire was
completed was held at the offices of Mr Emslie and that the meeting where the audit
findings were discussed was held at the offices of Mr Butler. She was then reminded
that the response of Ms Veaudry confirmed that the latter meeting wo uld be held at the
offices of Mr Emslie, as the witness requested in her email of 6 May 2016. She gave the
following confounding, unrelated reply: ‘There was a meeting that took place between
myself, Mr Butler, Mr Butler’s son Owen Bruce Butler and the audit manager, there were
four people in total.’ When she was asked why the letter of 6 May 2016 was handed up,
she replied that she did not know and that she ‘did not have my ducks in a row.’ When
the issue was revisited, she confirmed that the pre -audit assessment questionnaire had
to be completed in an interview with the Public Officer, who is a senior official of the
corporation, specifically approved by SARS for the role of chief liaison officer. She
confirmed that she did not establish who the Public Off icer of HR Focus was and that
she should have forwarded the letter of notification of the audit to the Public Officer with
whom SARS has to liaise in terms of the legislation. She confirmed that the
questionnaire erroneously recorded that Mr Emslie was the Public Officer of HR Focus.
She at first disagreed with the proposition that if it appears that the person being

She at first disagreed with the proposition that if it appears that the person being
interviewed is not the Public Officer that the interview should be stopped and rather
continued with the Public Officer. She added peculiarly that this was not necessary
because ‘… the employer knows more about his employees and his workforce and the
remuneration than the accounting officer.’ When the proposition was repeated, she
simply indicated that she did not do so in this case. She agreed that the reason for
requiring the interview to be conducted with the Public Officer is to ensure that a senior
official or member of the corporation is involved who has personal knowledge of the
structure of the corporation so as to be able to answer the q uestions accurately. She

agreed that one of the interviewees, Ms Porter, did not occupy a senior position in the
accounts department and that the other one, Ms Veaudry, is an office administrator and
is neither a member nor a senior official of the corpora tion. She was unable to recall
which one of the two interviewees answered the questions recorded in the
questionnaire or who made each of the specific audit notes. She confirmed that she
made the note ‘i.e. Labour Broker’ opposite question 2 with an arrow pointing at
question 3, which dealt with ‘Main business activity’, where the following response was
recorded: ‘Payroll Services & Labour Law Services’. She indicated that she made the
note because the information was provided to her by one of the interview ees. Her
attention was then drawn to the minutes of the meeting held on 3 November 2016
between Mr Emslie and the following SARS officials, namely Euan Davidson, a senior
manager, Riette Fellows, an operational specialist, and Stephen Luff, a specialist. S he
was referred to the following extract from the minutes:

‘Euan said that Mr Butler is the person that best knows what the true relationship is
between staff and HR Focus, and despite the fact that the employment contracts
and the disciplinary documents state that HR Focus is the employer, the true
substance of the relationship is what will determine if HR Focus or the client is the
employer. If HR Focus is not the employer, then the ETI cannot be claimed, and the
clients are the only taxpayers entitled t o claim the ETI, and they are responsible for
the PAYE, UIF and SDL. Justin asked if a labour broker can claim ETI. Euan
confirmed that a labour broker can claim ETI and reminded Justin that in terms of
the definition, HR Focus is not a labour broker.’

Counsel then put it to the witness that even the senior SARS representative (Euan
Davidson) indicated that, based on the definition (that labour brokers are natural
persons), HR Focus was not a labour broker. She responded that she sees that and has

persons), HR Focus was not a labour broker. She responded that she sees that and has
read tha t. It was then put to her that the reference in the questionnaire to a labour
broker is a misdescription of the business of HR Focus. She responded that she was
not accepting the proposition and that she was neutral on this issue. She, however,
agreed with the proposition that the Public Officer, Mr Butler, and not the two

interviewees, was the best person to describe the business of HR Focus. She refused
to accept that the disputed personnel were under the control of the retail clients. She
relied on the fact that they were on the payroll of HR Focus and on the provisions of the
relevant employment contracts, which indicated that HR Focus was the employer. When
she was asked if those were the only reasons for her view, she responded, ‘For now
yes … because something might crop up in my mind, then I can go back.’ She accepted
that payrolls can be administered by a third party and that HR Focus conducted a
payroll for each of the retail clients. She confirmed that she was aware that HR Focus
gets the funds to pay wages from the retail clients and thereafter administers the
payments. The funds were paid into the Wage Distribution Account in the name of Mr
Butler and were then paid out to the personnel. She disagreed with the proposition that
the retail clients r ecruit and hire the disputed personnel and contended that HR Focus
hired the personnel and outsourced them to the retail clients. She had nothing else to
rely on for this contention apart from the wording of the employment contracts. She was
unaware that the retail clients would send an engagement form to HR Focus containing
the details of employees whom they wanted to be registered on the HR Focus payroll.
When she was referred to an engagement form that was part of the trial bundle, she
stated that it was the first time that she had seen the form. She was then referred to an
employee discharge form as well as an employee inter -departmental transfer request
prepared by a retail business contained in the trial bundle, and indicated that it was also
the first time that she had seen any of these documents. She indicated that she was not
in a position to answer the question of whether she agreed that the engagement form
demonstrated that the retail clients engaged their own employees. She was also not in a

demonstrated that the retail clients engaged their own employees. She was also not in a
position to dispute the evidence to that effect because she did not know. She confirmed
that, in her understanding, the retail clients placed the employees. She also indicated
that she had no personal knowledge of the relationship between the retail clients and
the employees and cannot dispute that the retail clients determined the tasks to be
performed by the employees, their wages, and the Department that the employees
would work in. She was aware of the control test in respect of the employment
relationship, but refused to answer the question whether she had applied the test in the
present matter. She was neither aware of nor applied the dominant impression test, and

while she was aware of the supervision test, she did not apply it in the present matter.
She l ater indicated that she only relied on the payroll data and the answers in the
questionnaire, which provided the required information. She was then referred to the
notice of objection dated 13 December 2016, which was addressed to her and was
signed by Mr Butler, where it is stated that:

‘This business model has significantly changed over the years to what we have
today. The company no longer supplies staff to the SPARs and other clients per se,
but still administers the Payroll and offers Labour Law Servi ces, for which the clients
are charged separately for wages that are payable by the client. The fees charged
by HR Focus CC are not only based on wages but also on the number of staff
members employed by the clients.’

The witness indicated that she was aw are that the business model had changed, but
disagreed with the statement that the company no longer supplies staff. She intimated
that she preferred not to answer the question whether she agreed that if HR Focus was
acting as an agent for the retail clien ts, it would not be an employer in terms of the
definition contained in the Fourth Schedule to the Income Tax Act, 58 of 1962. This was
an issue raised in the notice of objection. She also indicated that she was not going to
answer the question whether she had any views on the contention in the notice of
objection that HR Focus did not fall within the definition of a labour broker, as it was not
a natural person. She had no comment on the question of whether she investigated the
statement in the notice of o bjection that HR Focus was not responsible for the payment
of workmen’s compensation for occupational injuries or safety issues at the retail clients’
premises.

[42] Nothing of note resulted from the re -examination. In response to questions from
the court, th e witness confirmed that SARS conducted an audit of payroll taxes, which

the court, th e witness confirmed that SARS conducted an audit of payroll taxes, which
covered PAYE, UIF, SDL, and ETI. She indicated that she relied upon the following
facts for the conclusion that the disputed personnel were employed by HR Focus,
namely, the personnel were on the payroll of HR Focus, PAYE and UIF contributions

were deducted in respect of the personnel and were paid over to SARS, and HR Focus
claimed ETI as an employer. In her view, HR Focus could not have it both ways in
claiming that, in respect of SD L, it was an agent and not an employer, while in respect
of ETI that it was an employer. There is no response reflected in the record to the
statement of the court that, according to the evidence that was presented, HR Focus
was in all instances acting as an agent. That concluded the evidence of the witness.

(ii) Seeiso Vuza

[43] The witness has been in the employ of SARS for 21 years and has occupied his
current position as an Audit Manager for the past 11 years. The official who conducted
the VAT audit in respect of HR Focus, Ms Riette Fellows, who has since retired,
reported to him, and he is familiar with the audit. The witness referred to the audit
findings letter addressed to HR Focus and the latter’s response, which indicate that the
real issue was tha t SARS intended to raise additional assessments based on its
conclusion that HR Focus was the employer of the disputed personnel. Apart from
certain adjustments that were made pursuant to the response of HR Focus, this
constituted the basis for the additio nal assessments raised by SARS. The further two
matters raised in the audit findings relating to Health Care Solutions and Rosslin Store
Management Services CC appear not to have been pursued any further by SARS. He
indicated that the central issue in both the SDL and VAT appeals is therefore whether
HR Focus was the employer of the disputed personnel. The witness, however, did not
independently add anything of note in respect of this issue.

[44] Under cross -examination, the witness confirmed that he did not ha ve personal
knowledge of the details of the audit, which was conducted by the specialist auditor, Ms
Fellows, who acted autonomously. His role was to review the relevant file to ensure that
the audit was conducted in a procedurally correct way and that the standard audit

the audit was conducted in a procedurally correct way and that the standard audit
procedure was followed. His knowledge of the present matter was acquired by having
had regard to the relevant documentation and the information provided to him by Ms
Fellows. He confirmed that the nub of the case was that the taxpayer maint ained that it

was administering the payment of wages on behalf of its retail clients, while SARS
concluded that it was the employer of the disputed personnel. The crux of the matter
was whether HR Focus was acting in this regard as a principal or as an age nt. In the
latter event, it would not fall within the definition of ‘employer’ in the Fourth Schedule to
the Income Tax Act, 1962, and would not be liable for the VAT as assessed by SARS.
The witness was vacillating when it was put to him that, according t o the letter of audit
findings in respect of VAT, one of the grounds for SARS’ conclusion was that HR Focus
was a temporary employment service provider or labour broker as envisaged in section
198A(3) of the Labour Relations Act. This section provides that the labour broker is the
employer of employees performing a temporary service for the client. Furthermore, if the
employee does not perform temporary services for the client, the latter is deemed to be
the employer, provided the employee is employed on an indefinite basis. The witness
eventually accepted that HR Focus was regarded as a labour broker, especially given
the following statements in paragraph 5.3 of the audit findings letter: ‘The position under
the Income Tax Act is however determined by a dif ferent test to that under the Labour
Relations Act. For the purposes of the Fourth Schedule the test is whether the amounts
paid by the company performing labour broking activities constitute remuneration. … In
terms of section 198(4A)(a) of the Labour Rel ations Act, both the company providing
Temporary Employment Services and the Client are “jointly and severally liable” to the
employee for amongst others the remuneration payable. This means that each party is
individually responsible for the payment of th e remuneration and HR Focus is therefore
not excluded from being an “employer” in terms of the definition contained in the Fourth
Schedule of the Income Tax Act when paying salaries to its employees.’ The witness,

Schedule of the Income Tax Act when paying salaries to its employees.’ The witness,
however, added that their focus was really on the definition of an employer and
employee. The statement made by Mr Butler in his ‘without prejudice’ letter that when
he bought the company, it had 80 employees, which has grown to just over 4000
outsourced employees, was also very important to the a udit. When he was asked what
facts they relied upon he listed the following considerations after some prompting: they
picked up that HR Focus rendered a service by supplying labour to each of its clients
which is a standard rated supply which should have b een declared because in their
understanding, relying on the definition, HR Focus was the employer of the

approximately 4500 employees rendering services at the premises of the clients; they
had regard to the employment contracts which designate HR Focus as the employer; it
bothered them that they never received the contracts between HR Focus and its clients
that underpin the multi -million rand business which would have assisted them to make
up their minds as to what the business relationship was between the two parties and
who these employees belonged to; two of the clients who were interviewed agreed that
HR Focus was the employer of the employees in question; they also considered that HR
Focus claimed ETI in respect of those employees which can only be don e by the
employer. The witness indicated that ‘… these are the kind of things that we looked into
to actually make our determination as to whether HR Focus is the employer or not.’ It
was then put to the witness that, according to the evidence presented by HR Focus, it
was confirmed that the clients would find the employees and make the decision whether
to hire them. The witness agreed and confirmed that this also appeared from the
interviews with clients. In response to a further proposition, the witness i ndicated that it
was possible that the clients would decide what salaries are to be paid to the
employees. He confirmed that the clients would decide how many hours and the shifts
that must be worked by the employees, and that it was possible that the clie nts would
determine the bonuses to be paid. He confirmed that the clients determined the sick
leave and annual leave of the employees and decided when disciplinary steps should
be taken against employees. He indicated that he cannot agree to the statement that
the clients control every function of the employees in their everyday work because he
did not know. He confirmed that the supervisory function was vested with the client.
When it was put to him that the clients gave the instructions when a settlement

When it was put to him that the clients gave the instructions when a settlement
agreement should be entered into with a client and would pay the settlement amount,
he indicated that HR Focus was doing the hiring and firing of employees. He was then
reminded that he had earlier conceded that the employees are hired by the clients,
whereupon he indicated that he was withdrawing his earlier statement. He could not
comment on the reason why the witnesses of HR Focus were not challenged in cross -
examination on this issue. The witness indicated that he did not dispute that the payroll
information, such as the hours worked by employees, is provided by the client and is
then imported into the payroll system by HR Focus, but did not know how the payment

of wages actually occurred. They did come across the Wage Distribution Account,
which was uti lised for the payment of wages, but he could not remember whether this
account was in the name of Mr Butler. He also confirmed that he was aware of the
application brought by HR Focus in this court to recover the payment of ETI from SARS,
but indicated tha t he would not comment when it was put to him that HR Focus
indicated in the court papers that it was claiming the ETI as an agent for the retail
clients. He finally agreed with the proposition that the relevant facts are not really in
dispute, but that th e issue was how those facts must be interpreted. Nothing of note
arose from re-examination.

(iii) Anthony George Veaudry

[45] The witness has been the general manager at OK Foods, Cambridge, East
London, for approximately 17 years. He attends to the day -to-day oper ations and the
running of the business. He confirmed the minutes of a meeting that he had on 30
August 2016 with the SARS auditors, Mr Vuzo and Ms Fellows, where he indicated that
HR Focus was the employer of the disputed personnel. He indicated that the
employment contracts designated HR Focus as the employer. He signed a services
agreement in 2017, which recorded that HR Focus has acted as an agent for OK Foods
since 2010.

[46] Under cross -examination, he confirmed that the initial services agreement was
concluded between the proprietor of OK Foods, Mr Efstratiou and Mr Butler. He was not
involved in this process and had no personal knowledge thereof. He had a long -
standing relationship with Mr Butler, who acted as the labour broker for the businesses
of the witness until 2005 when the witness closed those businesses down. He then
started at OK Foods in 2010. He was not aware that during the timeframe 2008 – 2010,
HR Focus had cha nged its business model and stopped operating as a labour broker.
He indicated that he answered the questions of the SARS auditors at their meeting

He indicated that he answered the questions of the SARS auditors at their meeting
based on the information that was in front of him, whether it was right or wrong. He was
then referred to an employment contract of 2007, which provided for temporary

employment and a 2014 employment contract, which provided for permanent
employment. He confirmed that originally, no employment contracts were longer than 12
months. He was then referred to a payme nt method form, being a record of how the
employees would be paid for the period in question and confirmed that it was based on
information and data that was provided by the business to HR Focus. This included how
many hours the employees worked and their rate of pay. He also confirmed that the
business would always have the last word when it came to engaging employees,
deciding who was to be hired and when employees have to be disciplined. In the latter
respect, they would be assisted by HR Focus, which pr ovided them with the labour law
services. When it came to settlement agreements, HR Focus would present the
settlement agreement for their approval, and the business would make payment per the
settlement agreement. The amount of wages to be paid to employe es was confirmed by
OK Foods and paid into the Wage Distribution Account at HR Focus, which was in the
name of Mr Butler. HR Focus would then release the payments of wages to each
employee. If OK Foods did not make the payment, the employees would not rece ive
their wages. He confirmed that the business would get a credit for successful ETI claims
submitted by HR Focus. The everyday functions of the employees were under the
control of OK Foods. They would decide which department the employee would work in,
what functions they would perform and whether they would go on annual leave or sick
leave. If they identify an employee whom they want to employ, they will provide HR
Focus with an engagement form containing all the relevant details for registration on the
payroll system. If an employee ceased to work for OK Foods for any reason, they would
send a discharge form for implementation to HR Focus. He indicated that he could not
answer the proposition that, objectively, the disputed personnel were employees of OK

answer the proposition that, objectively, the disputed personnel were employees of OK
Foods and added that ‘maybe it is, maybe it is not.’ He confirmed that he answered the
question of the SARS auditors about who the employer was, based on the employment
contracts that he had seen, but that he was not privy to the discussions between Mr
Efstratiou and Mr Butler as to the true nature of the relationship. Regarding the 2017
services agreement, he indicated that he did not disagree with the clause in the
agreement recording the services that HR Focus had been rendering since 2010. He
indicated that all the services that were recorded in the agreement were the work that

HR Focus was doing. He confirmed that he signed the agreement because it accurately
reflected the position according to his understanding.

[47] In re-examination, the witness explain ed that they employed two types of staff,
namely internal staff and contract staff. The pro forma employment contract prepared by
HR Focus was used only for contract staff, and a different contract was used for internal
staff. His understanding was that th e contract staff was employed by HR Focus. When
positions had to be filled, they would advise HR Focus, what the working hours and rate
of pay are. They did this on the engagement form. HR Focus would provide them with
an invoice for the wages of contract staff. At a later stage, HR Focus also ran the payroll
for internal staff.

[48] Under further cross -examination in respect of new issues that were raised in re -
examination, the witness confirmed that during the earlier years when HR Focus acted
as a labour bro ker, the staff that it provided was referred to as contract staff who were
employed by HR Focus, who exercised control over that staff. This was the historical
situation. In contrast, the internal staff were historically directly employed and managed
by the business until about 2015, when HR Focus was requested to also deal with the
internal staff. They would then pay the wages of the internal staff over to HR Focus,
who would pay the wages into the bank accounts of the employees. He indicated that
the distinction between internal and contract staff was a historical one. That concluded
the evidence of the witness.

(iv) Sherry Lynette Clayton

[49] The witness has been employed at Fruit and Veg, Vincent, East London, since
1998, when the store opened. She holds the po sition of credit controller and also deals
with human resources. She is assisted by HR Focus with the employment issues falling
within her duties. She confirmed that the pro forma employment contract prepared by

within her duties. She confirmed that the pro forma employment contract prepared by
HR Focus was used to employ staff at the sto re. The contract designates HR Focus as
the employer. The store used HR Focus as its recruitment agency, and the staff are

employed through them. The store has two payrolls, one for the management salaried
staff who are employed by the store and the other for hourly -paid staff who are
employed by HR Focus. The store makes declarations to SARS for PAYE under its tax
reference number for the salaried staff only. When the store needs hourly paid staff,
they often identify candidates because people approach the store regularly for
employment. They then liaise with HR Focus to engage the staff on the payroll. They
would set out the job specifications as well as the rate of pay. In her understanding, the
store has not signed an agency agreement with HR Focus. The relationship goes back
to when the store first opened, but there has never been anything signed. She
confirmed having had a meeting on 26 August 2016 with two auditors from SARS,
where she had to answer questions.

[50] Under cross-examination, she indicated th at she did not have a bookkeeping or
accounting background and holds a payroll certificate. As the credit controller, she deals
more with the creditors. She has not been involved in the negotiations and original
agreement concluded between HR Focus and Fru it and Veg, which took place between
Mr Harry Nate, the proprietor of Fruit and Veg, and Mr Butler. According to her
knowledge, there was never anything in writing, and she was unaware of the terms that
were negotiated. She confirmed that her impression of how the relationship worked was
based on nothing else than what she read in the employment contracts and the fact that
HR Focus managed the payroll for the hourly paid employees. She would send through
the rate of pay and hours worked by these employees, and once this is confirmed by
HR Focus and approved by her, the store is invoiced by HR Focus, and payment is
promptly made into the Wage Distribution Account at HR Focus. The latter will only
release the funds to the employees upon receipt of payment. She confirmed that the

release the funds to the employees upon receipt of payment. She confirmed that the
store is invoiced for an admin fee, a basic fee and an EFT fee. She was unaware
exactly what these fees entailed, although according to her understanding, HR Focus
has always done all the paperwork in respect of the store, and that is w hat they were
paying for. In most circumstances, she would send an engagement form to HR Focus
with respect to the staff members they wanted to engage. The form gave instructions as
to what role the persons would play, their rate of pay, and how many hours they would

be working. She helped to accumulate all of that information and gave it to HR Focus to
register on the payroll system. It is ultimately their decision who they would employ. If
they no longer wanted the staff, they would provide HR Focus with a discharge letter,
usually in cases of misconduct. They would first consult with HR Focus for guidance in
cases of misconduct to hear what procedures needed to be followed. She indicated that
she could not confirm or deny that the reason they consulted wi th HR Focus was
because it provided labour law services to the store, for which they paid the basic fee.
HR Focus does not supervise the staff or control any of their activities on the store
premises and would not know what was happening concerning the sta ff unless she
communicated with them. HR Focus would attend to disciplinary hearings as well as
hearings at the CCMA. She indicated that she vaguely remembered that HR Focus
historically ran its business as a labour broker, but she was not part of any disc ussions
with regard to a change in their business model. She realised that there were changes
in the law, but was not sure exactly how it impacted their store. She indicated that
although she signed the employment contracts, she had never noticed that the later
contracts cited HR Focus as the designated agent.

[51] In re-examination, she confirmed that the later contracts that cited HR Focus as
the designated agent do not indicate who the employer is. In her understanding, HR
Focus was the employer in those contracts. She indicated that the salaried staff were on
the payroll of Fruit and Veg, while the hourly -paid employees were on the payroll of HR
Focus. That concluded the testimony on behalf of SARS, whose case was thereafter
closed.

Decision of the Tax Court

[52] The court correctly indicated that it was the failure of HR Focus to account to
SARS for SDL that gave rise to the present dispute. SARS initially conducted an audit in

SARS for SDL that gave rise to the present dispute. SARS initially conducted an audit in
respect of payroll taxes, including SDL, followed by a subsequent VAT audit. This
resulted in additional assessments having been issued in respect of SDL and VAT,

unsuccessful objections and internal appeals by HR Focus, and the eventual
proceedings in the court.

[53] The court held that the central issue for determination was whether HR Focus
was the employer of the 4500 persons registered on its payroll system. 7 The court
indicated that this issue was dispositive of the SDL appeal in its entirety and also of the
greater part of the VAT appeal.8

[54] The court assessed the evidence and concluded that it did not support the factual
basis relied upon by SARS for raising the additional assessments, namely that HR
Focus was the employer of the relevant persons reflected on its payroll system (‘the
disputed personnel’) 9. It found that there w as no written agreement regulating the
business relationship between HR Focus and its retail clients. The relationship was
based on what was referred to as a ‘ gentlemen’s agreement’ concluded between Mr
Butler and the proprietors of those businesses served by HR Focus. The court accepted
the uncontested evidence of Mr Kairuz, who was a party to and had direct knowledge of
the ‘gentlemen’s agreements’, to the effect that his businesses and not HR Focus were
the employers of the disputed personnel. The court further accepted the argument
advanced on behalf of HR Focus that, should it not be the employer of the disputed
personnel, it could only have acted as an agent on behalf of the retail clients and not as
a principal. The court also had regard to the eviden ce of Mr De la Rey, as supported by

7 This was referred to in the judgment as the ‘supply of workers’ issue.
8 There were two further matters relat ing to VAT that fell outside of the ‘supply of workers’ issue. The first
concerned a supply of furniture to the South African Social Security Association (‘SASSA’) by Rosslyn
Store Management Services (‘Rosslyn Store’), an entity that was connected to HR F ocus in that Mr
Butler was the sole member of both. Rosslyn Store was unable to fund the purchase, which was then

done on its behalf by HR Focus, who invoiced Rosslyn Store and accounted to SARS for the relevant
income and VAT obligations arising from thes e invoices. Mr Vuza was unable to dispute the relevant
facts, and the court found that HR Focus had discharged the onus to show that the relevant amounts
were not taxable. This issue was not pursued by SARS before us and requires no further attention.
The second matter related to transactions concerning an entity known as Healthcare Solutions. In his
evidence-in-chief, Mr Vuza indicated that this was no longer an issue in dispute. It therefore equally
requires no further attention herein.
9 Judgment Rec. Vol. 10 p1024 para 20: ‘The analysis of the evidence below does not support the factual
basis relied on by the Commissioner in raising the additional assessments, both for SDL and VAT in
the periods of assessment, that the appellant is the employer of person s reflected on the appellant’s
payroll system’.

the evidence of Ms Veaudry, concerning the business operations of HR Focus and
accepted their version that although HR Focus initially operated as a labour broker, its
business model changed around 2010 away from labour broking to payroll
administration and the provision of labour law services. This was in line with the
legislative developments at the time and met the needs of its retail clients who did not
possess the necessary infrastructure or internal specialist staff to handle their own
payrolls or labour and disciplinary processes. They further indicated that the disputed
personnel were in the employ of the retail clients. The court also accepted the
explanation of Mr De la Rey that the rationale for HR Focus being c ited as the employer
in the employment agreements was two -fold. First, this allowed HR Focus to represent
the clients at the CCMA, and it increased the threshold significantly for unions to reach
the requisite membership numbers to qualify for representati on in the workplace at the
businesses of the retail clients. 10 Furthermore, since the employees were based at the
clients’ business premises, they were subject to the control of the clients, and HR Focus
only effected payment of the wages after the funds w ere received from the clients. Ms
Veaudry provided the clients with a ‘payment method report’ to obtain the clients’
instructions and approval for the payment of the wages. After approval of the wages, the
clients were invoiced, and they deposited the wage s into the Wage Distribution Account
held in the name of Mr Butler. The evidence established that ETI was claimed on behalf
of the clients who were reimbursed in the form of a credit note issued in their favour
upon SARS crediting the PAYE account of HR Focus.

[55] The court also accepted the undisputed evidence of Mr Emslie that the wage
payments were not processed through the books of account of HR Focus because the
latter acted as an agent.

latter acted as an agent.

[56] In contrast, the court was critical of the evidence of Ms Obaray. It found that she
was defensive under cross -examination and not prepared to make reasonable
concessions such as that the note that she made on the questionnaire that HR Focus

10 The validity or lawfulness of this arrangement was not placed in issue either in the Tax Court or before
us.

acted as a labour broker, was incorrect in that a labour broker is define d as a natural
person in the Fourth Schedule to the Income Tax Act as opposed to a corporate entity
such as HR Focus. The court held that she doggedly stuck to her view that HR Focus
was the employer of the disputed personnel despite not having been previo usly aware
of either the engagement form sent to HR Focus by the clients to register employees on
the payroll system or the discharge form instructing HR Focus to give effect to the
discharge of employees. The ‘without prejudice’ letter of 19 May 2016 that she referred
to does not contain an admission that HR Focus was the employer of the disputed
personnel. Read in context, the letter indicates that HR Focus collects the payroll taxes
from its clients and declares and pays them over to SARS. There is no in dication that
the accounting is for its own account. On the contrary, a proper reading of the letter
shows that the accounting is on behalf of the clients. This was the undisputed evidence
of its witnesses. The court finally found that Ms Obaray was obstru ctive and evasive
and rejected her testimony as being unconvincing. There is limited scope to interfere on
appeal with the credibility findings of the trial court, which was steeped in the
atmosphere of the trial and had the advantage of observing the deme anour of the
witness11. In my view, the Tax Court did not misdirect itself in any respect in this regard.
The finding in respect of Ms Obaray is borne out by the record and cannot be faulted.

[57] The court held that Mr Vuza had no personal knowledge of the au dits and
conceded that the facts indicated that the engagement, control, transfer, and dismissal
of the employees vested in the retail clients. The court, however, indicated that the
interpretation of those facts was in issue. It correctly considered that the testimony of Mr
Vuza did not take the matter any further.

[58] The court found that Mr Veaudry adopted a contradictory stance in that he

[58] The court found that Mr Veaudry adopted a contradictory stance in that he
accepted that OK Foods decided who had to be employed and exercised control over
the employees, while insisting that HR Focus was the employer. The court concluded

11 Munster Estates (Pty) Ltd v Killarney Hills (Pty) Ltd 1979(1) SA 621 (A) at 623H - 624A; Union Spinning
Mills (Pty) Ltd v Paltex Dye House (Pty) Ltd 2002(4) SA 408 (SCA) para 24; Louwrens v Olwage
2006(2) SA 161 (SCA) para14.

that it could attach little weight to his insistence that HR Focus was the employer. This
conclusion cannot be assailed.

[59] The court similarly held that little weight could be attached to the opinion of the
remaining SARS witness, Ms Clayton, who was of the view that HR Focus was the
employer of the disputed personnel instead of her employer, Fruit & Veg, Vincent, East
London, where she worked as a credit controller. She nevertheless conceded that Fruit
& Veg determined the wages to be paid to the employees and provided HR Focus with
the number of hours worked by the employees. She acknowledged that she received a
document every month from HR Focus setting out the details of the workers, together
with the amount du e to each one. After she confirmed the information, Fruit & Veg
would receive an invoice from HR Focus and would then make payment into the Wage
Distribution Account. The court held that these concessions did not support her opinion,
hence its conclusion t hat her opinion carried little weight. This finding can also not be
faulted.

[60] The court analysed the evidence and found no support for SARS’ conclusion that
HR Focus was the employer of the persons registered on its payroll system. The court
held that this conclusion constituted an erroneous basis for raising the additional
assessments. It referred to the evidence of Ms Obaray who testified that SARS arrived
at its determination for the reasons that: the relevant persons were recorded on the
payroll of HR F ocus when it made the payroll declaration to SARS; HR Focus
accounted for and paid over the employees’ taxes (PAYE and UIF) to SARS; it claimed
ETI in respect of the employees; and HR Focus is designated as the employer in the
tripartite employment contrac ts. The court, however, correctly indicated that the
undisputed evidence presented on behalf of HR Focus was that the payroll taxes were
collected from its clients, accounted for, and paid over to SARS on behalf of the clients,

collected from its clients, accounted for, and paid over to SARS on behalf of the clients,
not for its own account. Fur thermore, the evidence of Ms Veaudry was not challenged
under cross-examination, which showed that she prepared the ‘payment method report’
extracted from the client’s payroll. When confirmed by the client, she invoiced the client,
who made the necessary p ayment. HR Focus would then facilitate the payment of the

staff and make the declarations to SARS. The court indicated that while HR Focus
attended to making the physical payments, nothing turned on this, given that the source
of the payments was the clien ts of HR Focus. Moreover, it was not established that the
answers in the questionnaire were binding on HR Focus since Mr Butler did not attend
the meeting, and neither of the two HR Focus employees who were interviewed was
part of management. The accuracy of the answers was, in any event, questioned by Ms
Veaudry, and little weight could therefore be ascribed to the information recorded in the
questionnaire. I agree with this reasoning and conclusion of the court.

[61] The court correctly held that the facts ar ising from the evidence were either
common cause or remain undisputed, particularly concerning the actual recruitment,
control, and supervision of the employees. SARS instead relied on the designation of
HR Focus in the employment contracts. In the court’s view, the designation did not
change the terms on which HR Focus and the relevant client had agreed. Given the
evidence of Mr Kairuz that HR Focus acted as the agent of his businesses, which were
the employers of the relevant employees, the court held tha t HR Focus fell outside of
the definition of ‘employer’ in the Income Tax Act and therefore outside of the taxing
provision. The court indicated that SARS placed form above substance in its reliance on
the designation of HR Focus as the employer in the tri partite agreements. The two -fold
purpose of the designation was adequately explained in the evidence presented by HR
Focus. It held that this brought an end to the enquiry and upheld the appeal of HR
Focus.

IN THIS COURT

[62] SARS filed an extensive notice of appeal which was distilled into the following
four grounds of appeal in its heads of argument: (i) HR Focus was conducting an
impermissible tax avoidance scheme; (ii) HR Focus failed to discharge the burden of

impermissible tax avoidance scheme; (ii) HR Focus failed to discharge the burden of
proof in terms of section 102(1) of the TAA to prove that it was not liable for payment of
SDL and VAT because it was not the employer of the disputed personnel; (iii) HR Focus
impermissibly attempted to show that the employment contracts are not what they

purport to be by presenting inadmissible evidence in violation of the parol evidence rule
to advance its case that the employment contracts were simulated, disguised or sham
agreements which was never pleaded; and (iv) the presiding judge was biased and
ought to have recused herself.

[63] The first three grounds overlap and are intertwined. It was, however, not in
contention that the central issue in the matter was in effect whether or not HR Focus
was the employer of the disputed personnel. If so, it was liable for the additional
assessments in respect of SDL and VAT. Its appeal should, in that event, have been
dismissed by the Tax Court, and in the result, the present appeal should succeed. If not,
its appeal was correctly upheld by the Tax Court, and the present appeal should fail.
The parties accordingly focused their arguments on this issue. Before considering and
evaluating the principal submissions of the parties, it is appropriate first to deal with the
applicable statutory provisions.

The applicable statutory provisions

[64] The Skills Development Act , 97 of 1998, has been enacted to provide for the
financing of skills development by means of a levy -financing scheme. To this end,
section 3(1)(a)(i) of the Skills Development Levies Act , 9 of 1999 (‘SDL Act’), requires
every employer to pay a skills development levy (‘SDL’) at a rate of 1% of the leviable
amount. The leviable amount is defined in the SDL Act as the total amount of
remuneration paid or payable by an employer to its employees during any month as
stipulated in the Fourth Schedule to the Income Tax Act, 58 of 1962 (‘ITA’) for the
purpose of determining the employer’s liability for any employees’ tax in terms of that
Schedule, whether or not such employer is liable to deduct or withhold such employees’
tax ( section 3(3) ). Employers who are liable to pay the levy must apply to the
Commissioner to be registered as an employer for the purposes of the levy ( section 5).

Commissioner to be registered as an employer for the purposes of the levy ( section 5).
The levy is to be paid to SARS and must be accompanied by a prescribed return
(section 6(1) & (2)).

[65] The SDL Act contains a non -exhaustive definition of the term ‘employer’, which
merely provides that the term includes an employer as defined in the Fourth Schedule
to the ITA. The latter definition excludes an agent and is to the following effect:

‘any person, excluding any person not acting as a principal , who pays or is liable
to pay to any person any amount by way of remuneration, and any person
responsible for the payment of any amount by way of remuneration to any person
under the provisions of any law or out of public funds’. (emphasis supplied)

[66] The Fourth Schedule defines the term ‘remuneration’ as:

‘any amount of income which is paid or is payable to any person by way of any
salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee,
emolument, pension …’

[67] The provisions of the Employment Tax Incentive Act , 26 of 2013 (‘ETI Act’) are
also of relevance to this matter. The Preamble to the E TI Act records that the
Government wishes to support employment growth by focusing on labour market
activation, especially in relation to young work seekers. According to its long title, the
object of the ETI Act is to provide for an employment tax incenti ve in the form of an
amount by which employees’ tax may be reduced or by allowing for a claim and
payment of an amount where employees’ tax cannot be reduced. The incentive, to be
known as the Employment Tax Incentive (‘ETI’), was introduced to encourage
employment creation ( section 2(1) ). An employer is eligible to receive the ETI in
respect of a qualifying employee ( section 2(2)), who must be between the ages of 18 –
29 years and earn less than R6000.00 per month ( section 6 ), if the employer is
registered for purposes of withholding and payment of employees’ tax in terms of
paragraph 15 of the Fourth Schedule to the ITA ( section 3). I should add that the ETI
Act contains no definition of the term ‘employer’.

[68] Insofar as the burden of proof is concerned, se ction 102(1) of the TAA provides
that the taxpayer bears the burden of proving that an amount, transaction, event, or item
is exempt or otherwise not taxable or whether a decision that is subject to objection and
appeal under a tax act is incorrect. This b urden applied to the proceedings before the
Tax Court. In essence, to escape liability for the assessed SDL and VAT, HR Focus had
to prove that it acted as an agent for it to fall outside of the abovementioned definition of
an ‘employer’, given that it oth erwise fell within the rest of the definition in that it paid
remuneration to the disputed personnel.

Principal submissions on behalf of the parties

[69] While the case advanced by SARS in its heads of argument had been distilled
into the aforementioned four grounds of appeal, both counsel accepted that the central
issue in the present appeal is whether HR Focus was the employer of the disputed
personnel. I turn to this issue next.

[70] The principal argument advanced on behalf of SARS was that the Tax Court
erred in finding that HR Focus was not the employer of the disputed personnel, contrary
to its designation as such in the tripartite employment contracts. Counsel vigorously
argued that the Tax Court improperly allowed the evidence tendered by HR Focus that it
was not the employer, and that evidence should have been ruled inadmissible on the
strength of the parol evidence rule. Counsel relied heavily on the latter argument and
described the parol evidence rule as the appellant’s ‘angel or guardian of protection ’ in
the case, in the sense that even if all its other arguments fail, the appeal must succeed
on the argument based on the rule. It is important to indicate at this juncture that
counsel did not forcefully argue that even if the evidenc e were admissible, HR Focus
had still failed to establish that it was not the relevant employer. The reason is obvious.

had still failed to establish that it was not the relevant employer. The reason is obvious.
This evidence was not contested in cross -examination. I should add that it was neither
rebutted by the documentary evidence nor the view s of Mr Veaudry (a representative of
the OK Foods Group) and Ms Clayton (of Fruit & Veg, Vincent, East London) that the
employees at their respective stores were in the employ of HR Focus. As indicated, the

Tax Court correctly found that little weight coul d be attached to their views in this
respect. It is equally obvious, in my view, that if the evidence were admissible, HR
Focus would have established its case before the Tax Court that it was not the
employer of the disputed personnel (but acted as an age nt) and therefore not liable for
the additional assessments, in which event the present appeal would lack merit. This is
in effect the crux of the matter. Needless to say, counsel for HR Focus supported the
approach and conclusion of the Tax Court in respe ct of the central issue and contended
that the appeal should be dismissed with costs. The other arguments raised are clearly
ancillary to those raised in respect of the central issue, which will be considered next,
together with two related matters raised by SARS’ counsel.

(i) Admissibility of the evidence that HR Focus was not the employer of the
disputed personnel and the applicability of the parol evidence rule. Are the
employment contracts not what they purport to be? The effect of advancing a
case that was not pleaded

(a) The parol evidence rule:

[71] As indicated, SARS contended that the evidence which HR Focus tendered to
show that it was not the employer of the disputed personnel was erroneously allowed by
the Tax Court. SARS’ counsel argued that this evidence was rendered inadmissible by
the parol evidence rule because it was extrinsic and tendered to contradict, add to, or
modify the employment contracts, which designated HR Focus as the employer.
Counsel for HR Focus submitted that this argument was misguide d, given that the
employment contracts were not the sole memorial of the agreement relating to the
employment of the disputed personnel. Counsel further submitted that the extrinsic
evidence, which concerned the true nature of the transactions and relation ship between
the parties, was in any event admissible in line with the contextual, purposive approach

the parties, was in any event admissible in line with the contextual, purposive approach
to interpretation (which is also applicable in tax cases), emphasised in the oft -quoted

decision in Endumeni12 and elucidated in Cool Ideas13. The evidence accords with the
exceptions to the applicability of the parol evidence rule in that it established that the
description of the parties in the tripartite employment contracts did not reflect either the
true relationship or the intention of the parties to facilitate the abovementioned two -fold
objectives of designating HR Focus as the ‘employer’. The evidence was, in any event,
relevant to determine the meaning of the employment contract, which in turn
demonstrated that HR Focus was not endeavouring to cont radict, add to, or modify the
contract. Counsel submitted that the parol evidence rule accordingly does not apply to
the matter. I will first deal with the applicable legal position before determining this
issue.

THE LEGAL POSITION

[72] The Constitutional Cou rt confirmed in University of Johannesburg 14 that the
essence of the parol evidence rule 15 was aptly captured in the case of Vianni Ferro -
Concrete Pipes16 where it was stated:

Now this Court has accepted the rule that when a contract has been reduced to
writing, the writing is, in general, regarded as the exclusive memorial of the
transaction and in a suit between the parties no evidence to prove its terms may
be given save the document or secondary evidence of its contents, nor may the

12 Natal Joint Municipal Pension Fund v Endumeni Municipality 2012(4) SA 474 (CC).
13 Cool Ideas 1186 CC v Hubbard & Another 2014(4) SA 474 (CC) at para 28.
14 University of Johannesburg v Auckland Park Theological Seminary & Another 2021(6) SA 1 (CC) at
para 88; See also: Capitec Bank Holdings Ltd & Another v Coral Lagoon Investments 194 (Pty) Ltd &
Others 2022(1) SA 100 (SCA) at Paras 41, 46-47 & 53.
15 The expression is said to be a misnomer in all its component parts akin to the Holy Roman Empire
which was famously quipped in 1761 by the French philosopher and thinker, Voltaire to be neither

holy, nor Roman, nor an empire. In reverse order, it is not a single rule but two rules (the integration
and interpretation rules) which are quite independent of each other. Secondly, neither of the rules
belong to the law of evidence. Where a written document is conclusive as to the terms of the
transaction, evidence of additional or different terms is excluded because it is irrelevant in terms of
substantive law. The exclusion of the evidence is a consequence of the substantive law but this has
traditionally been disguised as a rule of evidence. Finally, the rules a re not concerned solely with
‘parol’ or oral evidence, but may also exclude other documents.
16 Union Government v Vianni Ferro-Concrete Pipes (Pty) Ltd 1941 AD 43 at 47.

contents of such a document be contradicted, altered, added to or varied by parol
evidence.

[73] The Appellate Division indicated in Johnston17 that the rule consists of two sub -
rules:

[T]he parol evidence rule is not a single rule. It in fact branches into two
independent rules or set of rules: (1) the integration rule … which defines the
limits of the contract, and (2) the [interpretation] rule, or set of rules, which
determines when and to what extent extrinsic evidence may be adduced to
explain or affect the meaning of the words contained in a written contract.

[74] The integration facet of the rule was explained as follows in Johnston:

In many instances recourse to evidence of an earlier or contemporaneous oral
agreement would, in any event, be precluded by … that branch of the ‘rule’ which
prescribes that, subject to certain qualifications, when a contract has been
reduced to writing, the writing is regarded as the exclusive embodiment or
memorial of the transaction and no extrinsic evidence may be given of other
utterances or jural acts by the parties which would have the effect of
contradicting, altering, adding to or varying the written contract. The extrinsic
evidence is excluded because it relates to matters which, by reason of the
reduction of the contract to wr iting and its integration in a single memorial, have
become legally immaterial or irrelevant.18
…
[I]t is clear to me that the aim and effect of [the integration] rule is to prevent a
party to a contract which has been integrated into a single and complete written

17 Johnston v Leal 1980 (3) SA 927 (A) at 942H-943A.
18 Id at 938C-F.

memorial from seeking to contradict, add to or modify the writing by reference to
extrinsic evidence and in that way to redefine the terms of the contract.19
(emphasis supplied)

[75] The interpretation facet of the rule concerns the grounds for using extrinsic
evidence in aid of interpretation. The court indicated in Johnston that it is ‘concerned
with what extrinsic evidence may be led to construe the contents of a written contract ‘20
and referred in this regard to the explanation contained in the separate judgement of
Schreiner JA in Delmas Milling21. It is apparent from the exposition by Schreiner JA that
at the time (a now bygon e era), contextual evidence (then known as ‘evidence of
surrounding circumstances’ ) was only admissible if the language of the contract was
ambiguous. Extrinsic evidence may, on this approach, be resorted to in an attempt to
show ‘what passed between the p arties on the subject of the contract’ 22. I should
indicate that the Constitutional Court in University of Johannesburg 23 jettisoned the
requirement of ambiguity for the admissibility of extrinsic evidence on context [also
referred to as surrounding circum stances] and purpose in the interpretative process.
Context and purpose must be considered as a matter of course. The extrinsic evidence
is admissible provided it is relevant to context and purpose.

[76] It was emphasised in National Board24 that the ‘parol evidence rule only applies
where the written instrument is or was intended to be the exclusive memorial of the
whole of the agreement between the parties.’ (emphasis supplied)


19 Id at 943B-C.
20 Johnston above n16 at 946G.
21 Delmas Milling Co Ltd v Du Plessis 1955(3) SA 447 (A) at 453 -455; See also: Rane Investments Trust
v Commissioner, South African Revenue Service 2003(6) SA 332 (SCA) at para 26; Coopers &
Lybrand v Bryant 1995(3) SA 761 (A) at 768C-E.
22 Id at 455B.

Lybrand v Bryant 1995(3) SA 761 (A) at 768C-E.
22 Id at 455B.
23 Above n 14 at para 69: ‘What the preceding discussion clearly shows is that, to the extent that the
Supreme Court of Appeal in the current matter purported to revert to a position where contextual
evidence may only be adduced when a contract or its terms are ambiguous, it erred. Context must be
considered when interpreting any contractual provision and it must be considered from the outset as
part of the unitary exercise of interpretation.’
24 National Board (Pretoria) (Pty) Ltd v Estate Swanepoel 1975(3) SA 16 (A) at 26H.

[77] The court continued as follows:

The parties’ intentions may be proved by reference to the prior negotiations
between the parties. It is clear that the power of attorney was not intended to
embody the whole of the agreement between Swanepoel and Brigish. The main
agreement between them was the oral ag reement that Brigish was to have
Swanepoel’s general power of attorney for the limited purpose of acting for
Swanepoel only during the latter’s absence overseas if the need therefor should
arise. The written power of attorney was intended merely as proof o f Brigish’s
authority, and cannot extend that authority beyond the limits agreed upon
between Swanepoel and Brigish.
…
It seems to me, therefore, that the evidence as to the circumstances in which
and the purpose for which the general power of attorney was given … may be
introduced even to add to, vary, or restrict the general words of the written
power of attorney.25

[78] The following illuminating dicta by a Full Bench of the then Transvaal Provincial
Division in Capital Building Society26, referred to with approval in National Board (supra
at 26H) and Johnston (supra at 945D), explain the proper approach to a determination
of whether a written document constitutes the exclusive memorial of a transaction:

The question “depends wholly upon the intent of the parties” (Wigmore, ibid), and
in order to ascertain that intention, it is necessary to look not only at the
document but also at the “surrounding circumstances”, evidence of which is
therefore admissible. Phipson, ibid, says:
“The inference that the writing was, or was not, intended to contain the
full agreement may be drawn not only from the document itself, but
from extrinsic circumstances.”

25 Id at 26H – 27D.
26 Capital Building Society v De Jager & Others 1963(3) SA 381 (T) at 382F – 383A.

Wigmore further says:
“This intent must be sought where alway s intent must be sought,
namely in the conduct and language of the parties and the surrounding
circumstances. The document alone will not suffice. What it was
intended to cover cannot be known till we know what there was to
cover. The question being whethe r certain subjects of negotiations
were intended to be covered. We must compare the writing and the
negotiations before we can determine whether they were in fact
covered.”
The author then says that the paradox of receiving evidence of the
negotiations in order to determine whether to exclude them is more apparent
than real because such evidence is received provisionally only until the Court
decides the crucial issue whether or not the written document was intended to
cover all the subjects of negotia tion. It is pertinent to the present case to note
that in the author’s view, the “surrounding circumstances” include the
negotiations conducted by the parties, which of necessity must be correct.

[79] The conclusion in Capital Building Society is particularly pertinent to the present
matter:

When regard is had … to the surrounding circumstances, which include all the
negotiations leading up to and accompanying annexure X, the matter is put
beyond doubt. I am referring here, of course, to the surrounding circum stances
testified to by Dandrea, whose version, for the reasons given above, must be
accepted for the purpose. They show that annexure X … was only a subsidiary
part of a scheme that Capital, the Company, and the Bank had verbally agreed
upon … That it was in fact “in the nature of machinery to enable the main
agreement to be carried out” . It follows that annexure X cannot be treated as the
exclusive memorial of the whole contract between the parties (i.e. Capital, the

Company, and the Bank) and that the parol evidence of the whole agreement is
therefore admissible and, in this case, necessary for a proper decision.27
(emphasis supplied)

[80] The approach set out in Capital Building Society was confirmed in Johnston28
where the court stated:

[I]t is permissible for the court to hear evidence of surrounding circumstances,
including the relevant negotiations of the parties, in order to determine whether
the parties intended a written contract to be an integration of their whole
transaction or merely a partial integration.

[81] The court indicated in University of Johannesburg 29 that the ‘integration facet of
the parol evidence rule … is relevant when a court is concerned with an attempted
amendment of a contract. It does not prevent contextual evidence from being adduced.
The rule is concerned with cases where the evidence in question seeks to vary,
contradict, or add to (as opposed to assisting the court to interpret) the terms of the
agreement’. The court furthermore affirmed, in line with Endumeni, that an expansive
approach should be taken to the admissibility of extrinsic evidence of context and
purpose, whether or not the words used in the contract are ambiguous, in order to
determine what the parties to the contract intended and to understand the meaning of
the words used in a written contract. Such evidence may be relevant to the context
within which the contract was concluded and its purpose. This raises the troubling issue
of how this expans ive approach can be reconciled with the strictures of the integration
rule, which, in the applicable circumstances, prohibits extrinsic evidence that
contradicts, adds to, or modifies the contract. This is best comprehended by bearing in
mind that the mean ing of a contract enjoys priority in this situation. It is only when the
meaning of its terms is established that it can be determined whether extrinsic evidence

27 Id at 383G.
28 Above n16 at 945D – E.
29 Above n14 at para 92.

contradicts, adds to, or varies the contract. The extrinsic evidence is initially admissible
to ascertain the meaning of the contract. Importantly, the parol evidence rule is not
concerned with evidence assisting in interpreting the contract. It should also be pointed
out that the rationale of the parol evidence rule is based on the value of object ivism or
the approach that the meaning of a contract is to be sought in the objective
manifestation (eg its written terms) of the consensus between the parties 30, instead of
their subjective intentions or will. Thus, parties conclude written contracts inco rporating
clauses affirming the contract to be the exclusive memorial of their agreement, so as to
ensure certainty concerning the status of the document and to avoid conflicts over the
identification of the sole source of their bargain being the written c ontract. Its
identification is a different matter from the meaning of the document, which entails
interpreting its terms. The parol evidence rule is accordingly concerned with the
identification of the written contract as the sole memorial of the agreement of the parties
and the substantive consequences thereof, but not with the meaning of the contract.
The latter is part of the separate interpretative process.

[82] It needs to be further elaborated that while they are conceptually distinct, the
parol evidence rule is closely aligned with interpretation. As indicated by the court in
Johnston31, the second leg or facet of the parol evidence rule is the interpretation sub -
rule. The parol evidence rule has been associated with the primacy of clear language in
the interpretation of contracts. On this view, if a written contract has a plain
(unambiguous) meaning and the writing is the exclusive memorial of the contract, the
parol evidence rule excludes extrinsic evidence altering or contradicting that plain
meaning. The opposing view is that the rule simply reflects the agreement between the

meaning. The opposing view is that the rule simply reflects the agreement between the
parties that the writing constitutes the sole memorial of the agreement (serving the
function of identification) and supersedes all earlier contracts and excludes evidence of
such contracts. It identifies the document embodying the exclusive agreement, but it is

30 In line with the declaration theory of contract, which focuses on the external (objective) manifestation of
the intention of the parties, ie, their concurring declarations as opposed to the will theory, which
focuses on the subjective intention or will of the contracting parties. Cf Hutchin son et al The Law of
Contract in South Africa (4ed) pp. 19-20; National & Overseas Distributors v Potato Board 1958(2) SA
473 (A) at 479F.
31 See [74] above.

not a rule as to the admission of evidence to interpret the meaning of the exclusive
agreement. If the idea that a contract has a plain meaning or the primacy of such p lain
meaning in the interpretative exercise is rejected, the extrinsic evidence as to the
meaning of the contract will enjoy a considerable remit, and the exclusionary force of
the parol evidence rule consigned to a residual role. 32 University of Johannesburg firmly
endorsed the said opposing view. It rejected the idea of the plain meaning of the text or
its primacy, since words without context mean nothing, and context is everything. It
accordingly gave a wide remit to the admission of extrinsic evidence a s to context and
purpose to interpret the meaning of a contract. 33 In cases where there is reasonable
disagreement as to whether the evidence is relevant to context and therefore
admissible, courts should incline to admit the evidence and limit its reach b y assessing
its weight as part of the unitary exercise of considering text, context, and purpose.34

[83] The court in Capitec Bank Holdings35 referred to some of the implications of what
was decided in University of Johannesburg. The following observations of t he court are
of note:

[47] … Since the interpretative exercise affords the meaning yielded by text no
priority and requires no ambiguity as to the meaning of the text to admit extrinsic
evidence, the parol evidence rule is likely to become a residual rule that does
little more than identify the written agreement, the meaning of which must be
determined. That is so for an important reason. It is only possible to determine
whether extrinsic evidence is contradicting, altering or adding to a written
contract once the court has determined the meaning of that contract. Since
meaning is ascertained by recourse to a wide -ranging engagement with the triad
of text, context and purpose, extrinsic evidence may be admitted as relevant to

of text, context and purpose, extrinsic evidence may be admitted as relevant to
context and purpose. It is this enquiry into relevance that will determine the

32 Capitec Bank Holdings above n14 at paras 42-44;47.
33 Id at para 46.
34 Id at para 40; University of Johannesburg n14 at para 68.
35 Id at paras 47-51.

admissibility of the evidence. Once this has taken place, the exclusionary force of
the parol evidence rule is consigned to a rather residual role.
…
[49] … Neither Endumeni, nor its reception in the Constitu tional Court, most
recently in University of Johannesburg , evince (sic) scepticism that the words
and terms used in a contract have meaning.
[50] Endumeni simply gives expression to the view that the words and concepts
used in a contract and their relationship to the external world are not self -
defining. The case and its progeny emphasise that the meaning of a contested
term of the contract … is properly un derstood not simply by selecting standard
definitions of particular words, often taken from dictionaries, but by understanding
the words and sentences that comprise the contested term as they fit into the
larger structure of the agreement, its context and purpose.
[51] … The proposition that context is everything is not a licence to contend for
meanings unmoored in the text and its structure. Rather, context and purpose
may be used to elucidate the text.
…
[53] … However, on my understanding of University of Johannesburg , since the
text of an agreement enjoys no interpretational primacy, and the meaning of the
text must be determined before a court can decide whether evidence seeks to
alter the terms of that contract, the parol evidence rule doe s not govern
admissibility rather, the question is whether the evidence is relevant to context so
as to ascertain the meaning of the contract.
(emphasis supplied)

[84] A further qualification of the integration rule relates to the admissibility of extrinsic
evidence to establish the true nature of the transaction. It is open to a party to show that
the document in question was drawn up for a special purpose and that the real
transaction was something different from that reflected in the document.36

36 Zeffert & Paizes The South African Law of Evidence (3ed) p370 para (f); Moodley v Moodley & Another

1991(1) SA 358 (D) at 362C-D.

EVALUATION

[85] It follows from the above that extrinsic evidence is admissible both to establish
that the document does not constitute the exclusive memorial of the parties’ transacti on
and, in the latter event, to contradict or alter the terms of the document. It is necessary
first to establish the meaning of a written contract before it can be determined whether
extrinsic evidence contradicts, adds to or alters its terms. As part of the interpretative
exercise, extrinsic evidence which is relevant to context and purpose may be admitted.
The enquiry into relevance will determine the admissibility of the evidence. In cases of
doubt, the court should incline towards admitting the evidenc e, but limit its reach by
assessing its weight as part of the unitary exercise of considering the text, context, and
purpose. Extrinsic evidence is also admissible to show the true nature of the transaction
and that the document was drawn up for a special purpose that is different from what is
reflected in the document.

[86] The case advanced by HR Focus was that the tripartite employment contracts
were preceded by a verbal services agreement concluded between Mr Butler and the
proprietors of the retail clients , which provided that the retail clients would employ the
disputed personnel. The designation of HR Focus as the employer in the subsequent
employment contracts was for the two -fold purpose of enabling HR Focus to represent
the retail clients during labour disputes at the CCMA as well as to stymie attempts by
the labour unions to obtain a foothold, acquire representation and recognition, and be
able to organise at the clients’ workplaces. This much was confirmed by the
uncontroverted evidence presented by H R Focus, which was, in my view, correctly
admitted and accepted as credible by the Tax Court. It is trite that this finding cannot be
disturbed on appeal unless there were material misdirections or irregularities in the
proceedings, neither of which has been established.

proceedings, neither of which has been established.

[87] The evidence of Mr Kairuz concerning the conclusion of the services agreement
with Mr Butler is admissible as part of the factual matrix and relevant to providing the

context to the contents and the purpose of the employment contracts. Th e evidence of
Mr De la Rey is similarly relevant to the context and purpose of the employment
contracts and to the question whether HR Focus acted as an agent and not as a
principal. Ms Veaudry testified about the implementation of the services agreements.
Her evidence served to confirm that the agreements were indeed concluded between
HR Focus and its various clients and how these services were rendered. This evidence
was equally relevant to the context of the services and tripartite agreements. All of thi s
evidence was accordingly correctly admitted to establish that the tripartite employment
agreements were not the exclusive memorials of the agreement between the relevant
parties concerning the employment of the disputed personnel, and to determine the
meaning of the employment contracts and demonstrate the true nature of the
transaction. On the accepted evidence, the employment contracts were thus a
subsidiary part of the arrangement between Mr Butler and the proprietors and (in the
words of Capital Building Society) were in fact ‘in the nature of machinery to enable the
main agreement to be carried out’. The main agreement in this instance is the prior
verbal services agreement.

[88] It also does not appear from either the wording of the employment contracts
themselves37 or from any of the other evidence that the contracts were intended to be
the exclusive memorial of the agreement between the parties, in particular concerning
the employment of the disputed personnel. It follows that the tripartite e mployment
contracts were not the exclusive memorials of the relevant transaction. As such, the
evidence tendered by HR Focus in this regard was admissible both to establish that this
was the case as well as to show the meaning of the contracts and the true nature of the
transaction (ie that HR Focus acted as the agent of the retail clients) even though the

transaction (ie that HR Focus acted as the agent of the retail clients) even though the
evidence might seemingly contradict or vary the designation of HR Focus as the
‘employer’ in the heading of the employment contracts. I accordingly concl ude that this
evidence was correctly admitted by the Tax Court.

37 Contracts frequently contain a clause expr essly recording that the document represents a complete
and accurate integration (sole memorial) of the entire contract. An example of a so -called ‘whole
agreement clause’ appears in University of Johannesburg at para19 n13.

[89] The Tax Court, in the result, found that HR Focus had satisfied the burden to
prove that it was not the employer of the disputed personnel (but acted as an agent of
the retail clients in payi ng PAYE and UIF and claiming ETI) and accordingly fell outside
the definition of ‘employer’ in the Fourth Schedule to the ITA and was not liable for the
additional assessments. In my view, this conclusion cannot be faulted. The finding that
HR Focus was no t the employer is based upon and borne out by the evidence
presented at the trial and is factual. It is established law that factual findings ‘are
unappealable unless they are vitiated by misdirection, irregularity, or the absence of any
evidence reasonably warranting them’.38

[90] Apart from the said evidence presented by HR Focus ‘reasonably warranting’ this
finding, it is not apparent from the text (as opposed to the description of the parties in
the heading) of the employment contracts that HR Focus is the employer. In fact, the
majority of the contractual terms are more compatible with the fact that the retail client is
the employer. It suffices to refer to a few examples:

(a) HR Focus is referred to by name and not as the employer in the body of the
agreement [rec. p730(43-44) & (60); 731(1) & (34)];
(b) in contradistinction, there are multiple references to the ‘Company’ which in
the context clearly denotes the retail client as appears more fully from what
follows;
(c) it is the Company that determin es the place of work, the hours of work and
overtime, sick leave, and annual bonuses. The employee must wear the
Company uniform and must obey the health and safety regulations of the
Company;
(d) till operators and cashiers ‘ authorise HR Focus to deduct a ny shortages from
… any monies owed to them by the Company’ [rec. p730(43-44)];
(e) the fact that the shortages were paid ‘ does not mean the Company will not
take Disciplinary Action for shortages. The Company has the right to ask you

take Disciplinary Action for shortages. The Company has the right to ask you

38 Natal Estates Ltd v Secretary for Inland Revenue 1975(4) SA 177 (A) at 203H-204A.

to attend an enquiry, and if found guilty, you may be Dismissed on the first
offence’ [rec. p730(49-50)];
(f) ‘The Employee agrees to abide by the Health, Safety & Security Rules and
Regulations of the Company where Employed, as the Company is
responsible for Workmen’s Compens ation. HR Focus is in no way liable for
any claims that may arise in respect of your Health, Safety & Security’ [rec.
p730(59-60)];
(g) ‘If the company that you work for is a member of the Provident Fund then, by
signing this agreement, it will become compulsory to join R&A Provident Fund
[rec. p731(44-45)];
(h) where the employee gives short notice to terminate the employment, he is
liable for notice pay as stipulated and agrees ‘ to have this notice pay
deducted from any amounts due to you by the Company. The Company has
no right to end this contract during the contract period except for Incapacity,
Misconduct, or Operational Requirements. In respect of these reasons, the
Company will be required to follow the legally acceptable labour
Correctiveness procedure, which includes your right to an internal appeal, to
be represented by a Fellow employee and to approach the CCMA within 30
days for conciliation and/or arbitration [rec. p730(56-59)];
(i) in the event of dishonesty on the part of the employee, ‘you will be in breach of
this contract and therefore the Company will have the right to end this
contract immediately’ [rec. p731(16-17)].

[91] To recap, there was ample evidence reasonably warranting the factual finding
that HR Focus was not the employer of the disputed personnel. The only misdirection or
irregularity relied upon by SARS, which in its submission had vitiated the factual finding,
was the contention that the relevant evidence was allowed contrary to the parol
evidence rule. As indicated, there is no merit in this contention. SARS correctly did not
contend that even if the evidence were properly admitted, it did not establish that HR

contend that even if the evidence were properly admitted, it did not establish that HR
Focus was not the employer. The acceptable evidence to the contrary was
overwhelming. In my view, there were no misdirections or irregularities vitiating the

finding that HR Focus was not the employer, but acted as the agent of the retail clients,
which took it outside the definition in the Fourth Schedule to the ITA. This finding is
unassailable and determinative of the matter. I proceed to deal briefly with the two
related aspects.

(b) Are the employment contracts not what they purport to be?

[92] SARS’ counsel contended in this regard that HR Focus attempted to show that
the employment contracts were not what they purported to be, contrary to the
agreement to the opposite effect recorded in the pretrial minute filed of record. Counsel
for HR Focus submitted th at this contention is unfounded. I agree. The contention is
based on the misconception that the purpose of the evidence presented by HR Focus
that it was not the employer of the disputed personnel, was to show that the contracts
were not what they purport to be. This evidence patently did not relate to the nature of
the contracts but to their terms. HR Focus accepted that the relevant documents were
employment contracts. This was clearly what they purported to be. This much was
common cause. However, HR Foc us contended that contrary to its designation in the
heading of the contracts, it was not the employer of the disputed personnel. This was
the purpose of the relevant evidence. HR Focus was patently not precluded from
adopting this stance by the terms of the pretrial minute. The latter recorded the standard
agreement that the documents in the trial bundle are what they purported to be to
obviate the need to present formal evidence confirming the undisputed nature of the
documents.

(c) Relying on a defence that was not pleaded:

[93] SARS’ counsel submitted that while the case presented in evidence by HR Focus
was that the employment contracts were disguised or simulated, this was not part of its
pleaded case. This was impermissible, and the evidence should not h ave been allowed
by the Tax Court. Counsel for HR Focus retorted that the submission was unfounded

by the Tax Court. Counsel for HR Focus retorted that the submission was unfounded
and that the case of HR Focus was fully pleaded. In support of this contention, counsel

referred to various averments contained in the Rule 32 Statement of G rounds of Appeal
(Plea) of HR Focus to the effect that it was not the employer of the disputed personnel,
but provided payroll administration services as the designated agent to its retail
clients.39 Counsel submitted that SARS understood the case of HR Fo cus in this
manner, hence its heavy reliance on the parol evidence rule at the trial.

[94] I agree with the submission of counsel that the case of HR Focus was fully
pleaded, that, notwithstanding its designation as the ‘employer’ in the employment
contracts, it was the designated agent and the retail clients were the employers of the
disputed personnel. Hence, it was pleaded that ‘[t]he ineluctable conclusion is thus that
the client is in fact the employer of the employee and not the Appellant [HR Focus]’40. In
any event, even if this was not pleaded, HR Focus was, in my view, not precluded in the
present circumstances from relying on such case. While it is trite that a party is confined
to the case that it had pleaded, this is not an absolute rule. The court retains a wide
discretion, and as it was put, pleadings are made for the court, not the court for
pleadings.41 Accordingly, even a defence that was not pleaded may be relied upon
provided it had been ventilated at the trial. The matter was put a s follows by the
Supreme Court of Appeal in Umhlathuze Municipality:42

The appellants did not plead that the municipality acquired control over the cage
installed by the body corporate because it had affixed a lock to the cage. This
Court in Minister of Safety and Security v Slabbert held as follows:

‘A party has a duty to allege in the pleadings the material facts upon
which it relies. It is impermissible for a plaintiff to plead a particular case
and seek to establish a different cas e at the trial. It is equally not

39 Reference was made to: Rec. Vol.1 p 22 para 4; p 24 paragraph 8; p 25 paras 10 -12; p 27 para 17.1; p

28 para 17.2; p 28 para 18.1; p 32 para 18.3; p 33 paras 18.4-18.5; p 34 para 18.7.
40 Rec. p 34 Vol.1 para 18.7 (Rule 32 Statement).
41 Robinson v Randfontein Estates GM Co Ltd 1925 AD 173 at 198.
42 Lucas & Another v Umhlathuze Municipality & Another (Case No.785/2020) [2021] ZASCA 181 (17
December 2021) para 12; Fischer & Another v Ramahlele & Ohers [2014] 3 All SA 395 (SCA) at para
13; Minister of Police v Gqamane 2023 (2) SACR 427 (SCA) at para 12 -13.

permissible for the trial court to have recourse to issues falling outside the
pleadings when deciding a case.’

This is subject to the following caveat. This Court has inherent jurisdiction to
decide a matter even where i t has not been pleaded, provided that such matter
was ventilated before it. In Van Mentz v Provident Assurance Corporation of
Africa Ltd, this Court said that ‘… where it is clear that the appellant tribunal has
all the materials before it on which to form an opinion upon the real issue
emerging during the course of the trial it will be proper to treat the issues as
enlarged, where this can be done without prejudice to the party against whom the
enlargement is to be used’.

[95] The issue that the employment con tracts were ‘disguised’ (to achieve the two -
fold purpose referred to in the evidence) was fully ventilated in the Tax Court, where the
evidence presented by HR Focus was countered by the evidence tendered by SARS in
response. There was accordingly no prejudice to SARS, and the Tax Court did not err in
dealing with the issue to the extent that it did.

[96] The above conclusions are in effect dispositive of the appeal, and it is not strictly
necessary to deal with SARS’ other contentions and grounds of appeal. For the sake of
completeness, I nonetheless proceed to deal briefly with them.

(ii) Impermissible tax avoidance scheme

[97] SARS relied for this contention on the fact that the payments from the retail
clients were deposited into the Wage Distribution Account in the name of Mr Butler. Its
counsel argued that the personal affairs of Mr Butler were separate from those of the
legal entity, and as a consequence, the funds and profits which accrued to HR Focus
from its operations should have been deposited into its ba nk account. This (so it was
argued), together with the deliberate and significant understatement of VAT in the
invoices rendered to the retail clients, supported the conclusion that Mr Butler was

siphoning money from HR Focus, which, according to SARS, con stituted an
impermissible form of tax avoidance.

[98] This contention is unfounded. The wages paid by the retail clients into the Wage
Distribution Account did not accrue to HR Focus, which was required simply to ensure
the disbursement thereof to the employee s who were entitled to payment. It merely
acted as a paymaster. Nothing accordingly really turned on the fact that the payments
were deposited into the Wage Distribution Account. The only amounts that accrued to
HR Focus were in respect of the fees that we re due to it. It is not in dispute that the
income tax and VAT payable on these amounts were duly accounted for by HR Focus.
It is furthermore trite that VAT is not payable on wages. There was thus no obligation on
HR Focus to account for VAT in respect of the wages of the disputed personnel, and
there was accordingly no understatement of VAT, deliberate or otherwise, or any
question of a tax avoidance scheme as contended.

(iii) Was the burden of proof in terms of section 102(1)(a) of the TAA discharged by HR
Focus?

[99] As indicated, the burden of proving that the additional assessments were not due
was borne by HR Focus. This issue is intertwined with the question of who employed
the disputed personnel and the definition of ‘employer’ in the Fourt h Schedule to the
ITA. For the reasons set out above, the short answer is that HR Focus has established
that it was not the employer, but acted as the agent of the retail businesses. It
accordingly discharged the burden of proof that the additional assessm ents were not
due.

(iv) Bias of the Presiding Judge

[100] SARS’ counsel indicated that the issue of bias on the part of the trial judge is left
to the court. No specific relief was sought in this regard. Counsel stated that the matter
is left for ‘the court to make of it, whatever the court makes of it’. It strikes me that there

is merit in the submission of counsel for HR Focus that this stance effectively amounts
to an abandonment of this particular ground of appeal. The case set out in SARS’ heads
of argument is that the presiding judge erred in refusing the ap plication for her recusal.
SARS’ counsel, however, did not advance any arguments in support of this contention
during his address before us and did not press this matter at all. This, in my view, was
well advised. This ground of appeal is bereft of any mer it and is not borne out by the
record, which does not support the conclusion that the presiding judge was biased and
should have recused herself. Nothing further needs to be said about this issue.

CONCLUSION

[101] It follows from what is set out above that the appeal lacks merit.

ORDER

[102] In the result, the appeal is dismissed with costs, such costs to include the costs
of two counsel to be determined on Scale C in respect of senior counsel and Scale B in
respect of junior counsel.


______________________
D.O. POTGIETER
JUDGE OF THE HIGH COURT

I agree:

________________________
F DAWOOD
JUDGE OF THE HIGH COURT

I agree:

________________________
P MNQANDI
JUDGE OF THE HIGH COURT (Acting)


APPEARANCES

For the Appellant: Adv. C Dauds, instructed by: Joubert Galpin Searle,
173 Cape Road, Mill Park, Gqeberha


For the Respondent: Adv. AC Botha SC and Adv. K Williams, instructed by:
Pieterse Sellner Erasmus TRM Tax Attorneys, The
Elvee, 277 Main Road, Walmer, Gqeberha

Date of hearing: 17 March 2025

Date of delivery of judgment: 21 August 2025