THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE NO: 161/2004
Reportable
In the matter between
ESTATE AGENCY AFFAIRS BOARD Appellant
AND
NEIL CURDIE McLAGGAN First Respondent
McLAGGANS (PTY) LTD Second Respondent
Coram: Howie P, Cameron, Navsa, Brand, Lewis JJA
Heard: 14 March 2005
Delivered: 31 March 2005
Summary: Dishonesty is an element of the offences of contravening paras 1
and 2(1), read with para 30(1)(b) of the Fourth Schedule to the Income Tax
Act 58 of 1962 (deducting employees’ tax and failing to pay it to Revenue),
and of contravening s 28(1)(b), read with s 58 of the Value Added Tax Act 89
of 1991 (collecting VAT and failing to pay it to Revenue). The fidelity fund
certificate of an estate agent convicted of these offences lapses under s 28(5)
of the Estate Agency Affairs Act 112 of 1976. Appeal against decision of High
Court, South Eastern Cape upheld. Order is contained in para 34.
JUDGMENT
2
LEWIS JA
[1] This appeal turns on whether offences in respect of which an
estate agent – the first respon dent, Mr Neil McLaggan – was
convicted in 200 2 under the Income Tax Ac t 58 of 1962, and the
Value Added Tax Act 89 of 1991, involve an element of dishonesty
such that his fidelity fund certificate lapsed or should be withdrawn.
McLaggan is employed by the second respondent, of which he is a
director. Although the second respondent (‘the company’) was
charged with the same offences it was not convic ted, apparently
as a result of an oversight on the part of the trial court magistrate .
[2] On 23 September 2002 the ap pellant, the Estate Agency
Affairs Board (‘the Board’), ap plied in the High Court (South
Eastern Cape Local Di vision) for an or der declaring that
McLaggan’s fidelity fund certif icate had lapsed because of his
convictions of offences involvin g an element of dishonesty,
pursuant to s 28(5) of the Estate Agency Affairs Act 1 (the ‘Estate
Agency Act’). Alternatively it sought to have the certificate
withdrawn under s 28(3) of that Act. It also s ought an interdict to
prevent McLaggan from c ontinuing to act as an estate agent while
1 Act 112 of 1976.
3
not in possession of a valid fidelit y fund certificate. As against the
company, the second re spondent in the app lication, the Board
sought an order interdi cting it from continuing to act in
contravention of s 26 or, alternatively, s 28(8) of the Estate Agency
Act.
[3] McLaggan opposed the relief sought on the basis that he
had not been convicted of any o ffence involving an element of
dishonesty, and that his certific ate had thus n ot lapsed. He
contended further that th e section providing for automatic lapsing
was discriminatory and should be restrictively in terpreted or
declared inoperative. The High C ourt (per Sandi J) dismissed the
application, finding that the offences in ques tion did not involve an
element of dishonesty, and that no good cause had been shown
for withdrawing the certificate. It is against these findings that the
Board appeals to this court, leave having been granted by Sandi J.
[4] I shall deal first with the charges and the convictions of
McLaggan; second, the financial history gi ving rise to the
convictions; third, the provisions of the Estate Agency Act that
regulate fidelity fund certificates; fo urth, the question whether the
certificate did lapse because the offences in volved an element of
4
dishonesty; and finally, the subm ission that there is a disparity
between sections of the Estate Agency Act 2 that operates unfairly
against the respondents.
[5] In April 2002 McLa ggan and the company were charged on
37 counts of theft in respect of employees’ tax deducted by the
second respondent and not paid to the South African Revenue
Service (‘SARS’). In the alter native, they were charged on 37
counts in terms of par as 1 and 2(1), read with para 30(1)(b) of the
Fourth Schedule to the Income Tax Act
3 in that they had
wrongfully and unlawfu lly used or applied the amounts deducted,
or withheld employees’ tax (the amounts being set out in a
schedule to the charge) , for purposes other than the payment of
these amounts to SARS.
[6] They were charged with two fur ther counts of theft in that the
company, being a vendor as defined in s 1 of the Value-Added Tax
Act,4 had levied and rece ived value-added tax (‘VAT’) on goods or
services supplied by it and McL aggan, with the intenti on to steal,
had failed to pay such amounts to SARS, us ing the amounts in
2 Sections 27 and 28(5).
3 Act 58 of 1962.
4 Act 89 of 1991.
5
question for the benefit of the com pany or himself. The alternative
charges to these were that the company ha d ‘wrongfully and
unlawfully’ failed to pay the amounts specified as required by s 28
(1)(b), read with s 58(d) of the VAT Act.
[7] The responden ts were further charge d with failing to furnish
SARS with an annual income ta x return in respect of three
particular tax years. Nothing turn s on these charge s since it was
not ever contended that these were offences entailing an element
of dishonesty.
[8] On 30 April 2002, in the Port Elizabeth Criminal Magistrate’s
Court, McLaggan, both in his capacity as director of the company
and personally, pleaded guilty to the alternati ve charges under the
Income Tax Act and the VAT Act, an d on the counts of failure to
submit returns. The charges of theft against them were withdrawn.
McLaggan handed in a statement in terms of s 112 of the Criminal
Procedure Act
5 in which his plea explanat ion is set out in full. He
also submitted a lengthy ‘plea in mi tigation’. He was convicted on
the alternative charges. As alr eady pointed out, the magistrate
omitted to convict the company.
5 Act 51 of 1977.
6
[9] On 2 July 2002 the trial c ourt sentenced McLaggan to six
months’ imprisonment on each of the counts under the Income Tax
Act, such sentences to be suspended for fi ve years on condition
that he not be convicted of contra vening para 30 of the Fourth
Schedule to the Act dur ing the period of suspension. On each of
the two counts of contravening section 58 of the VAT Act,
McLaggan was sentenc ed to ten months’ imprisonment, also
suspended for five years on cond ition that he not be convicted of
contravening s 58 of the VAT Act during the period of suspension.
[10] McLaggan appealed against the sentenc es and the court
(the Eastern Cape Division, per Pi ckering J, Pillay J concurring),
upholding the appeal, substantially reduced the sentences on the
first 37 counts (under the Income Tax), taking the first nine counts
together and imposing a suspended fine (R400) in the alternative
to the suspended term of impr isonment for all counts. The
remaining offences under the In come Tax Act were treated
similarly save that the alternative suspended fine imposed was
R10 000. On the charges un der the VAT Act an alternative
suspended fine of R4 000 was imposed and both charges were
taken together.
7
[11] In reducing the sentences imposed by the magistrate, the
court took into account the statement in mitigation, which related to
the personal and fi nancial circumstances of McLaggan. Regard
was had, in particular, to his l engthy service as an estate agent;
his apparent high standing in the business; and that he had served
on the Estate Agency Affairs Boar d itself for so me 21 years and
had been the President of the Board for some of that period.
Because of his high profile the media had made much of the
charges of theft against him, and his reputation had been seriously
affected. The c ourt stated also that it wa s clear, in its view, that
‘the provisions of the relevant se ctions under wh ich the appellant
was charged may be contr avened in circums tances not involving
any dishonesty on the part of the offender, such as was the case in
the present matter ’ (my emphasis). Al though the question of
dishonesty is the crux of the appeal before this court, it was not in
issue in relation to the appeal against s entence, an d was not
debated in the judgment.
[12] In his statement in miti gation McLaggan said that he had
paid the full amount owing to SARS, having obtain ed a personal
loan, and by registering mortgag e bonds over two properties
8
owned by his wife. He made much of his and the company’s
financial plight. It was d ue to a number of factor s: the real estate
business had gone into recession in the mid 1990’s; interest rates
soared; in 1997 the company’s admi nistrator and bookkeeper, on
whom McLaggan had relied in the running of the company, retired;
the new bookkeeper was incompetent and mem bers of staff stole
some R94 000, only some of whic h was recovered. These factors
led him to reduce staff, use chea per vehicles, cancel his medical
aid, cash in insurance policies and so on. He did not draw a salary
for some four years and lived on the inco me of his wife.
Compounding his financial pr oblems, in November 2000
McLaggan was stabbed and seriously injure d, and had to use
some R30 000 from the company and money of his wife to pay for
medical treatment.
[13] Before this misfortune befe ll McLaggan it ha d become clear
to him, in July 19 98, that he could not pa y the amounts owed to
SARS. Thus although he continued to submit monthly tax returns
in respect of employees’ tax that the company had deducted from
their salaries, and VAT returns too, he actually made no payments,
this despite the fact that he contin ued to deduct employees’ tax
from their salaries and to levy and receiv e VAT payments. On 3
9
July 1998 the company, represen ted by McLaggan, entered into
an agreement with the Port E lizabeth office of SARS to pay
amounts outstanding, and his wife stood surety for his obligation.
But still did he did not pay the amounts due to SARS.
[14] The agreement between the company and SARS reflected
that R104 859.83 was owed to SA RS. The company undertook to
pay some R62 500 immediately afte r the sale of two properties,
and then a monthly instalment un til the full am ount outstanding
was paid in full. The Receiver of Revenue, Po rt Elizabeth,
reserved the right to claim the full balance of taxes due in specified
circumstances, including the failu re to pay instalments timeously
and by ‘failure in the timeous and proper submission or payment of
any current tax returns’. Payments were not made in terms of the
agreement.
[15] On 22 March 20 00 McLaggan wrote to SAR S in an apparent
attempt to explain why payments had not been made. He stated
that a new entity, Mc Laggan’s Real Estate CC, of which he was
the sole member, had bought property, having been granted a 100
per cent bond by a b ank. The reasons for th e acquisition, he said,
were, first, that the premises would accommodate the company in
10
‘more suitable and prominent premises’ which would cost less than
the company’s previous premises (the interest payable presumably
being less than rental); and se cond, that the company would
benefit from an expr opriation adjacent to the new property.
McLaggan undertook, in the letter, to pay to SARS ‘such monies
as are received from thi s expropriation exercise within 24 hours of
receipt thereof’.
[16] The clear implication of this letter is that while the company
would not be paying employees’ tax deducted for payment to
SARS, or VAT collected for SARS, it would be paying interest on a
bond – thus undertak ing a new liability r ather than paying what
was owed to SARS. No indicati on is given in the letter of the
source of funding fo r the bond. It is reas onable to infer that the
deductions made from employees’ salaries, and VAT levied and
received, were used for this purpose.
[17] On 9 July 20 02, seven days af ter McLaggan had been
sentenced, the Board wr ote to McLaggan, stati ng that it had come
to its attention that he had been convicted on 42 counts of theft
(which was of course incorrect in that the convic tions were under
the Income Tax and Va t Acts). The conseque nce, said the Board,
11
was that McLaggan had ‘been rendered disqualified as an estate
agent pursuant to the provisions of s 27(a)(ii) of the Estate Agency
Affairs Act 112 of 1976 in that you have been convicted of an
offence involving an element of di shonesty’. The Board requested
that he immediately ce ase carrying on busi ness as an estate
agent, and that he retu rn his fidelity fund certificate. The letter
ended:
‘You may, of course, apply to the Board, by way of substantive application
supported by documentary evidence, for the issue to you of a fidelity fund
certificate pursuant to the provisions of the proviso contained in s 27 of Act
112 of 1976. You will have, in this respect . . . to satisfy the Board that, with
due regard to all relevant considerations, the issue to you of a fidelity fund
certificate will be in the interest of justice.’
[18] The relevant prov isions of the Estate Agency Act relating to
fidelity fund certificates are as follows:
‘26 Prohibition of rendering of services as estate agent in certain
circumstances
No person shall perform any act as an estate agent unless a valid
fidelity fund certificate has been issued to him or her and to every person
employed by him or her as an estate agent and, if such person is-
(a) a company, to every director of that company; or
(b) a close corporation, to every member referred to in
paragraph (b) of the definition of 'estate agent' of that corporation.
12
27 Disqualifications relating to fidelity fund certificates
No fidelity fund certificate shall be issued to-
(a) any estate agent who or, if such estate agent is a
company, any company of which any director, or if such estate agent is a
close corporation, any corporation of which any member referred to in
paragraph (b) of the definition of 'estate agent'-
(i) has at any time by reason of improper conduct
been dismissed from a position of trust;
(ii) has at any time been convicted of an offence
involving an element of dishonesty;
. . . .
Provided that if in respect of any person who is subject to any disqualification
referred to in this section, the board is satisfied that, with due regard to all the
relevant considerations, the issue of a fidelity fund certificate to such person
will be in the interest of justice, the board may issue, on such conditions as
the board may determine, a fidelity fund certificate to such person when he or
she applies therefor.’ (My emphasis.)
Section 28 deals with the withdrawa l and lapse of fidelity fund
certificates. It provides that the Board may withdr aw a certificate in
a number of specified circumstanc es. The subsection in issue in
this case relates to the automatic lapsing of a certificate: s 28(5)(a)
reads:
13
‘ A fidelity fund certificate issued to any person shall lapse immediately and be
of no force and effect if that person-
(a) becomes subject to any disqualification referred to in
section 27 (a) (i) to (v); . . . .‘
Section 27(7) and (8) read:
(7) ‘No person whose fidelity fund certificate has been withdrawn in
terms of subsection (1) or has lapsed in terms of subsection (5), may directly
or indirectly participate in the management of any business carried on by an
estate agent in his or her capacity as such, or participate in the carrying on of
such business, or be employed, directly or indirectly, in any capacity in such
business, except with the written consent of the board and subject to such
conditions as the board may determine.
(8) No estate agent shall directly or indirectly in any capacity
whatsoever employ a person referred to in subsection (7), or allow or permit
such person directly or indirectly to participate in any capacity in the
management or the carrying on of his or her business as an estate agent,
except with the written consent of the board, and subject to such conditions as
the board may impose.’
[19] The effect of these provisions, in summary, is that an estate
agent cannot operate as such without a fide lity fund certificate. 6
The certificate is issued by the B oard, and may not be issued in
certain circumstances, one of which7 is that the applicant has been
6 S 26.
7 S 27(a)(ii).
14
convicted of an offence involving an elem ent of dishonesty. The
Board does, however, hav e a discretion, created by the proviso to
s 27, to issue a certificate in t he interests of justice. Once a
certificate has been issued, and there foll ows a conviction in
respect of an offence involving an element of dishonesty, then the
certificate automatically lapses.8
[20] The crisp ques tion to be decided then is whether the
offences in respect of which Mc Laggan was convicted did involve
an element of dishonesty. He contends not. At all times he
rendered tax and VAT returns su ch that SARS was not deceived:
he did not hide from SARS the indebtedness resulting from the
company’s failure to pay it.
[21] The Board argues the contrary: McLaggan deducted
employees’ tax from employees of the company, and levied and
received VAT payments that were then used for purposes different
from that for which they were inte nded. That in itself is dishonest,
argues counsel for the Board.
8 S 28(5)(a).
15
[22] The Board contends further that dishonesty ca n be found in
the context in which the offences are comm itted, and need not
necessarily be an intrinsic element of the offence. Authority for this
is to be found in R v Ghosh 9 although in that case the court was
primarily concerned with mens rea – whether the accused knew
that he was acting dishonestly.
[23] Cases dealing with dishones ty as an element of the offence
in South Africa have tended to suggest that the element of
dishonesty must be an ingred ient of the offence. In Ex parte
Bennett,10 in dealing with offe nces committed under the
Companies Act11 La Grange J said:
‘What is an "offence involving dishonesty"? In its ordinary meaning dishonesty
in this context denotes:
"Lack of probity: disposition to deceiv e, defraud or steal. Also, a dishonest
act." (See Shorter Oxford English Dictionary, sv "dishonesty" 4.) In Brown v R
1908 TS 211 Solomon J said at 212 that in its ordinary sense "dishonest"
involves an element of fraud. (Cf R v White 1968 (3) SA 556 (RAD).) In
Words and Phrases Legally Defined (2nd ed by J B Saunders; 1976
Supplement at 57) there is a quotation from a judgment of the Canadian
Supreme Court:
9 [1982] 2 All ER 689 (CA).
10 1978 (2) SA 380 (W) at 383 in fin-384D.
11 Act 61 of 1973, and the regulations promulgated thereunder.
16
"... 'Dishonest' is a word of such common use that I should not have thought
that it could give rise to any serious difficulty, but in construing even plain
words regard must be had to the context and circumstances in which they are
used: Canadian Indemnity Co v Andrews & George Co Ltd (1953) 1 SCR 19
at 24. However, to try to put a gloss on an old and familiar English word which
is in everyday use is often likely to complicate rather than to clarify.
'Dishonest' is normally used to describe an act where there has been some
intent to deceive or cheat. To use it to describe acts which are merely
reckless, disobedient or foolish is not in accordance with popular usage or the
dictionary meaning. It is such a familiar word that there should be no difficulty
in understanding it. Lynch & Co v United States Fidelity & Guaranty Co (1971)
1 OR 28 per Fraser J at 37, 38."
In this context the word "involve" means to contain or include as a part, so
that the expression "offence involving dishonesty" means an offence of which
dishonesty is an element or ingredient - in the case of a common law offence
in terms of its definition, and in the case of a statutory offence in terms of the
statute which created it.’
This approach was followed in La Grange v Boksburg Stadsraad12
and in Nusca v Da Ponte13 where the court held that illicit diamond
dealing was inherently dishonest. Di shonesty is an ingredient of
the offence if not a requirement.14 In La Grange Flemming J added
that while dishonesty need not be a requirement of the offence
12 1991 (3) SA 222 (W) at 228C-F.
13 1994 (3) SA 251 (BGD) at 259-60.
14 At 261F-G.
17
itself, one must have regard at least to the actual conduct
complained of in the charge sheet.
[24] Were the offences under th e Income Tax Act and the VAT
Act intrinsically dishonest? In my vi ew they were. It is true that
SARS was aware that the com pany was not paying the amounts
due to it and that the company rendered correc t and full tax
returns. But at the same time McLaggan, as director of the
company, knew it was obliged to pa y the taxes it collected from
employees to SARS. The company dedu cted tax from salaries for
the purpose of paying the fiscus. It used the money for entirely
different purposes. That entails dece ption of employees, although
they would not necessarily be prej udiced since the employer is the
agent of SARS for the pu rpose of paying thei r tax to it, and once
the tax had been deducted they w ould not be rendered liable
again.
15 And it is dishonest in so far as the fiscus is concerned. If
an employer deducts tax from employees, and us es it for any
purpose other than pay ing the fiscus, that is dishonest. It is a
deliberate misuse of funds. It is co nduct that would be regarded by
the public in general as lacking in probity. Equally, the levying and
15 S 28(2) of the Fourth Schedule to the Income Tax Act provides that the employee’s tax
certificate shall be prima facie evidence that the employer has deducted tax.
18
receipt of VAT for any purpose other than paying it to the fiscus in
accordance with the st atute is inherently di shonest. I consider
therefore that dish onesty is also an elem ent of the offences in
respect of which McLaggan was convicted under the VAT Act.
[25] In my view it is conceivabl e that, in relation to s 27(a)(ii) of
the Estate Agency Act, the cont ext in which an offence is
committed might also render conduct di shonest even where
dishonesty is not an ingredient of the offence itself. But it is not
necessary to decide this point given the conclusion that I have
reached that the offences of wh ich McLaggan was convicted were
inherently dishonest.
[26] Accordingly, in terms of s 28(5) of th e Estate Agency Act the
fidelity fund certific ate of McLaggan autom atically lapsed once he
was convicted, and the co mpany (by virtue of s 26(a)) could no
longer continue to operate as an estate agent.16
[27] Counsel for the respondents argued before thi s court that
there is an anomaly in the provis ions of the Estat e Agency Act in
16 McLaggan is the sole director of the company: every director must have a valid fidelity fund
certificate in order for a company to carry on business as an estate agent.
19
that where one applies for a fidelity fund certificate in the first place
the Board must consider wh ether or not the applicant is
disqualified by reason of the prov isions of s 27(a)(ii). The proviso
to s 27, quoted in full above, gives the Board a discretion in this
regard. It allows t he Board to issue a cert ificate, despite a
disqualification, if it is ‘satisfied that, with due regard to all the
relevant considerations, the issue of a fidelity fund certificate to
such person will be in the interest of justice’.17
[28] By contrast, it was argued, once an estate agent in
possession of a certificate is c onvicted of an offence involving an
element of dishonesty, the cert ificate automatically lapses.
18 No
discretion is exercise d by the Board. Indeed the Board plays no
role. An estate agent who has a certifica te, which lapses by
operation of law, thus has no opportunity to place before the Board
factors relating to the interests of justice. The estate agent is thus,
on this argument, denied a hearing.
[29] The respondents contend that the all eged anomaly operates
unfairly against them, a nd that s 28(5) must be interpreted (‘read
17 See Lek v Estate Agents Board 1978 (3) SA 160 (C) at 171A-B, where Friedman J
considered the proviso and pointed out that it is ‘cast in the widest possible terms’.
18 S 28(5).
20
down’) in such a way as to allow them a hearing before the
certificate lapses; alterna tively that it is uncons titutional, infringing
s 9(1) of the Constitution (the rig ht to equality), and s 33(1), which
requires lawful, reas onable and procedurally fair administrative
action.
[30] I do not pr opose to deal with these submissions since in my
view there is no anomaly in the relevant provisions of the Estate
Agency Act. There is good reason fo r the distinctio n between an
initial application for a fidelity fund certificate, and the lapsing of a
certificate in the event of disqualific ation by virtue of s 28(5). When
an application is made by a person for a ce rtificate the Board must
take a decision as to the fitness of the appl icant to hold one.
Applicants, for exampl e, who have been dism issed from positions
of trust ‘by reason of improper conduct’;19 been convicted of an
offence involving an el ement of dishonesty; 20 are of unsound
mind;21 do not have the pres cribed standard of training;22 or do not
have the prescribed practical experience 23 must be given special
attention because they are di squalified unless there are
19 S 27(a)(i).
20 S 27(a)(ii).
21 S27(a)(iv).
22 S27(a)(vi).
23 S27(a)(vii).
21
considerations that make the grant of the certificate consonant with
the interests of justice.
[31] On the other hand, where th e disqualification occurs after the
award of a certif icate it is appropriate th at the certificate lapses.
The disqualification, in the abs ence of evidence to the contrary,
renders the holder unfit to be an estate agent. The Board makes
no decision in this regard, and McLaggan’s argument that he has
been deprived of a hea ring by the Board is thus misconceived. A
person disqualified is not precluded from applying for a fidelity fund
certificate again. Moreover, s 28(7 ) makes provision for a person
whose certificate has lapsed to carry on the business of an estate
agent, or to be employ ed as one, with the written consent of the
Board.
[32] As I have already indi cated, seven days after being
sentenced, on 9 July 2 002, in a letter sent to McLaggan by the
Board, he was advised that he could ‘by way of substantive
application supported by documentary evidence’ apply for a fidelity
fund certificate, but woul d have to satisfy the Board that the issue
of the certificate to him would be in the interests of justice. The
factors that he referred to in his st atement in miti gation, and that
22
he claimed had led the company and him into financial difficulty,
are matters that might we ll persuade the Board that it is in the
interests of justice to issue a certificate to him again.
[33] In the circumstances, I cons ider that there is no statutory
discrimination against McLaggan, or anyone in his position, and
that the disparity be tween s 27 and s 28(5 ), complained of by
McLaggan, is justifie d. The offences of which he was convicted
involve an element of dishonesty, and his fidelity fund certificate
lapsed automatically on conviction.
[34] It is ordered that:
1 The appeal is upheld with cost s including those occasioned
by the use of two counsel.
2 The order of the court below is replaced with the following
order:
‘The fidelity fund certificate of the first respondent lapsed by
reason of his conviction on 37 counts in ter ms of paras 1 and 2(1),
read with para 30(1)(b) , of the Fourth Schedule to the Income Tax
Act 58 of 1962, and on two counts in terms of s 28(1)(b) , read with
s 58(d), of the Value Added Tax Act 89 of 1991.’
23
C H Lewis
Judge of Appeal
Concur:
Howie P
Cameron JA
Navsa JA
Brand JA