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[2013] ZAWCHC 93
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Malan v S (A217/2012) [2013] ZAWCHC 93; 2013 (2) SACR 655 (WCC) (30 April 2013)
REPUBLIC
OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH
AFRICA
(WESTERN CAPE HIGH COURT, CAPE
TOWN)
Reportable
Case no: A217/2012
In the appeal of:
FRANSISCA MALAN
.............................................................................
Appellant
and
THE STATE
..........................................................................................
Respondent
JUDGMENT: 30APRIL
2013
SchippersJ:
This is an appeal
against conviction. The appellant was the managing member of Cape
Corporate Cleaning Services CC (“
the close corporation”),
a cleaning business which rendered services to MWEB on a
month-to-month basis from September 2003 until September 2004 (“
the
relevant period
”), and received the sum of R478 182.40.
The close corporationwas required to register for value added tax
(VAT) under the
Value Added Tax Act 89 of 1991 (“
the VAT
Act
”), because it earned in excess of R300 000 per
year over a period of 12 months – the statutory threshold for
registration at the time.However, it failed to do so and also did
not charge VAT on the services rendered to MWEB. These facts
were
common cause. The South African Revenue Services (SARS) got to know
about the existence of the close corporation through
a letter in the
post informing it that the corporation was carrying on business, but
had not registered for VAT.
Pursuant to an
investigation by SARS, the appellant wascharged in the Bellville
Regional Court with seven counts of fraud (counts
1-7);one count of
contraveningsection 58(c) of the VAT Act for failing to apply for
registration of the close corporation under
that Act (count 8);one
count of fraud (count 9); one count of contravening section 75(1)(a)
of the Income Tax Act 58 of 1962
(“
the Income Tax Act
”)
for not submitting income tax returns (count 10); and seven counts
of contravening section 58(d) of the VAT Act for failing
to submit
VAT returns (counts 11-18).The appellant was convicted on all
counts. The charges of fraud (counts 1-7 and 9) were
taken together
for the purpose of sentenceand the appellant was sentenced to a fine
of R30 000 or 18 months’ imprisonment
and a further
R10 000 or six months’ imprisonment suspended for five
years, on condition that she is not convicted
of fraud committed
during the period of suspension. On the charge of contravening
section 58(c)of the VAT Act (count 8)the appellantwas
sentenced to a
fine of R300 or 30 days’ imprisonment. She was also sentenced
to a fine of R300 or 30 days’ imprisonment
for failing to
submit income tax returns (count 10). The remaining charges of
failing to submit VAT returns (counts 11-18) were
also taken
together for the purpose of sentence and the appellant was sentenced
to a fine of R1000 or 90 days’ imprisonment.
The State adduced
the evidence of Mr Gideon Kock (“
Kock
”), an
inspector at the Criminal Investigation Unit of SARS; Ms. Hester
Potgieter (“
Potgieter
”), an employee of SARS and
Ms. Hazel Wickham (“
Wickham
”), a bookkeeper who
previously rendered services to the appellant. Kock testified thathe
obtained invoices issued by the
close corporation to MWEB which
showed that cleaning services were rendered to MWEB during the
relevant period at R36 200
per month. He also obtained from
MWEB, documents showing that over a period of 12 months, MWEB paid
the sum of R471 182.40
to the close corporation, which exceeded
the required threshold for registration as a VAT vendor under the
VAT Act.Formerly another
close corporation, Four Page 101 CC, of
which the appellant was also a member, had rendered the cleaning
services to MWEB in
terms of a written contract. The close
corporation took over those services under a month-to-month
contract. The appellant registered
the close corporation for VAT
only in December 2004, after which VAT payments were made and VAT
returns submitted to SARS. As
regards the failure to register for
income tax and submit returns, Kock said that the close corporation
should have registered
for income tax for the year ending 28
February 2004. It did not so register or submit an income tax return
for the 2004 tax year.
He also said that the close corporation had
registered for income tax in 2007, but had not submitted any return
to SARS. Wickham
testified that the appellant had outsourced the
bookkeeping of the close corporation to her from September 2003 to
about April
2004. When she saw one or two invoices issued by the
close corporation to MWEB at the beginning of the services, she
noted that
no VAT had been charged and asked the appellant about
this. The appellant told her that she had been advised that the
close corporation
did not need to register for VAT because it would
not exceed the VAT limit at the time. Potgieter assisted Kock in the
investigation
and confirmed that the close corporation had submitted
its VAT returns late. The appellant chose not to testify, did not
call
any witnesses and closed her case.
The appellant has
not challenged her conviction on the charges of failing to submit
VAT returns. Indeed, Mr. de la Harpe, who
appeared for her,fairly
conceded that she was rightly convicted on counts 11-18. However,
the appellant contends that the magistrate
erred in convicting her
of fraud on counts 1-7 and 9, more specifically in that the State
failed to prove a misrepresentation
or intent to defraud. She also
contends that the evidence required to prove the fraud charges
(counts 1-7) is the same evidence
required to prove the statutory
charge of failing to apply for registration of the close corporation
under the VAT Act (count
8).
The first question
is whether, on the facts of this case, the appellant was properly
convicted of fraud on counts 1-7 and 9. The
charge sheet in relation
to counts 1-7 states that the appellant unlawfully, falsely and with
intent to defraud, expressly or
impliedly, through words or conduct,
represented to SARSessentially that: (1) the close corporation did
not carry on business
during the relevant period; (2) the appellant
was not obliged to register the close corporation for the purpose of
VAT; (3) the
appellant or the close corporation was not obliged to
submit VAT returns for the relevant period; (4) no taxable services
were
rendered by the close corporation during the relevant period;
and (5) the appellant or the close corporation was not liable to
SARS for VAT in the amount referred to in the charge sheet for the
relevant period. The charge sheet goes on to state that through
these false pretencesthe appellant induced SARS to accept, to its
prejudice or potential prejudice, the representations in (1)
to (5),
whereas in truth and in fact, the appellant when making those
representations, well knew that they were false; and that
the
appellant is thus guilty of fraud.The first alternative charge to
counts 1-7 is theft. The State alleged that the appellant
stole VAT
in the sum of R65 965.51 from SARS. The second alternative
charge is a contravention of section 58(d) read together
with
section 28(1)(a) and (b) of the VAT Act, namely that the appellant
failed to submit VAT 201 returns to SARS for the calculation
of VAT
in terms of section 16 of the VAT Act, or that she failed to pay
over to SARS VAT in the sum of R65 965.51.
On the fraud charge
on count 9 the State alleges that the appellant represented to SARS
that: (1) the income of the close corporation
for the period of
submission i.e. 9 July 2004, was less than the prescribed limit for
liability for income tax determined by
the Commissioner, SARS; (2)
that the appellant was not obliged to register the close corporation
as a taxpayer; (3) that a taxable
amount of R202 224 was not
received as gross income by the corporation in the 2004 income tax
year; and (4) that the appellant
and/or the close corporation were
not liable to SARS for income tax. Through these false
representations, the charge sheet goes
on to state, the appellant
induced SARS, to its prejudice or potential prejudice, to accept
that the income of the close corporation
was less than the
prescribed limit for liability for income tax; that the appellant
was not obliged to register the close corporation
as a taxpayer;
that the close corporation did not receive gross income in the sum
of R202 224;andthat the appellant
or the close
corporation was not liable to SARS for income tax, whereas in truth
and in fact, the appellant knew that the misrepresentations
in (1)
to (4) were false, and that the appellant is thus guilty of fraud.
It is settled law
that fraud is the unlawful making, with intent to defraud, of a
misrepresentation which causes actual prejudice
or which is
potentially prejudicial to another.
1
The very first
requisite for fraud is a misrepresentation – a perversion or
distortion of the truth - the conduct element
of the crime. In order
to constitute a misrepresentation, the words spoken or written by
the accused must be false. The question
whether silence or
non-disclosure is criminally fraudulent is not an easy one, as
silence may well constitute civil fraud without
constituting
criminal fraud. The distinction lies mainly in the presence or
absence of the necessary intention to defraud.
2
Moreover,
there is no general duty owed to the world to speak the truth or to
make disclosure. Such a duty arises in relation
to particular people
in specific circumstances.
3
The
cases recognise that silence, non-disclosure or concealment of the
facts may in certain circumstances amount to a fraudulent
representation where the accused was under a legal duty to make
disclosure but failed to do so.
4
The requirements
for fraud in the case of non-disclosure of an existing fact were
laid down by Trollip J (as he then was) in
Heller
,
5
and
usefully summarized in
Burstein
,
6
as follows:
“
(a) a duty, to disclose
the particular fact;
(b) awilful breach of this
duty under such circumstances as to equate the non-disclosure with a
representation of the non-existence
of that fact;
(c) an intention to defraud
which involves
(i) knowledge of the
particular fact;
(ii) awareness and
appreciation of the existence of the duty to disclose;
(iii) deliberate refraining
from disclosure in order to deceive and induce the representee to act
to its prejudice or potential
prejudice;
(d) actual or potential
prejudice of the representee.”
7
The question then
arises whether the appellant expressly or impliedly, through words
or conduct, represented to SARS,essentially
thatthe close
corporation did not carry on business and was thus not liable for
VAT. The magistrate answered this question affirmatively.
After
considering the alleged misrepresentations by the appellant to SARS
regarding counts 1-7, the magistrateformed the view
that there was a
duty on the appellant to disclose to SARS the existence of the close
corporation. This duty, the magistrate
said, arose from the
following circumstances, not individually, but taken together: (1)
the appellant had arranged the registration
of the close corporation
with CIPRO and nothing prevented her from doing other duties related
to the corporation; (2)she had
deposited money received from MWEB
into her bank account which indicated a strong connection between
her and the close corporation;(3)the
appellant was a business woman
and a member of the close corporation who was expected to know the
ins-and-outs of the business
world; (4)although the application for
registration as a VAT vendor was submitted on 9 December 2004, it
was applicable to adate
which had already passed; (5) the appellant
had been advised that she should register for VAT but chose not to
follow that advice;
(6)the terms of the corporation’s contract
with MWEBwere the same as those between MWEB and a previous close
corporation
of which the appellant was a member and which had been
registered for VAT; and(7) the appellant took steps to deregister
for
VAT and the registered person is cited as the appellant or the
close corporation. The magistrate went on to find that the only
reasonable inference to be drawn from the proven facts is that the
appellant did not want SARS to know about the existence of
the close
corporation in order to evade VAT; and that the State had proved
beyond a reasonable doubt that the appellant had the
requisite
intent in respect of counts 1-7.
In my view, the
magistrate erred. The State did not prove a criminal fraudulent
non-disclosure and none of the factors listed
by the magistrateis
evidence of such non-disclosure. On first principles, a
misrepresentation involves a bilateral and not a
unilateral act. The
appellant made no representation to SARS. On the contrary,Kock’s
evidencepoints the other way –
SARS did not even know about
the appellant’s existence, and an entity carrying on business
must notify SARS that it is
doing so.
As already stated,
a duty to disclose arises in relation to particular people in
particular circumstances. Such a duty may derive
from various
sources, for example, by statute, such as the provisions governing
company prospectuses;
8
the express or
implied terms of a contract;
9
and the existence
of a fiduciary relationship between the parties, for example, a
director and his company.
10
These
examples make two things clear. First, it is difficult, if not
impossible to impute a duty to disclose in circumstances
where there
is no interaction or relationship between the accused and the
complainant, or where there have been no direct dealings
between
them. Thus in
Heller
,
the State relied upon the fiduciary relationship between a director
and his company for the duty of disclosure.
11
Likewise, in
Brande
,
a case in which the accused fraudulently submitted entries to
newspaper crossword puzzle competitions where he dishonestly
obtained knowledge of the official solutions to the competitions and
submitted prize winning entries on the basis of such knowledge,
the
court held that a contract came into existence between the newspaper
company and any person who submitted an entry. The parties
to a
contract warrant the absence of bad faith and there was a duty to
disclose in that case, because the accused knew that the
newspaper
company had accepted the entry in the belief that it was an honest
entry.
12
Secondly,
non-disclosure cannot constitute fraud unless the circumstances are
such as to equate such non-disclosure with a positive
representation, though it may be implied.
13
The magistrate
equated the appellant’s failure to register for VAT with a
positive implied representation to SARS that the
close corporation
did not exist and did not trade. But the appellant made no such
representation to SARS – she failed to
apply to SARS to
register the close corporation for VAT, pure and simple. Otherwise
viewed, it would mean,for example, that an
unlicensed driver found
driving a motor vehicle is guilty of fraud, because she is
representing to the licensing authority that
she has a licence and
is in fact authorized to drive the vehicle. Similarly, a trader or
bottle store owner who carries on business
without the requisite
licence would be guilty of fraud. Such an approach, in my opinion,
would take fraudulent concealment in
criminal law to new and far
horizons.
It follows that if
SARS was unaware of the existence of the close corporation, as the
evidence indeed shows, then it could not
in any way have been
deceived or induced to act or abstain, to its prejudice or potential
prejudice. Intention to defraud, which
Snyman explains as, “
the
intention to induce somebody to embark on a course of action
prejudicial to herself as a result of the misrepresentation
”
,
14
is
thus lacking.
15
I therefore
conclude that the State did not prove that the appellant had the
requisite intention to defraud SARS and for this
reason also, the
appellant’s conviction on counts 1-7 cannot stand.
What remains then,
is whether a conviction on either of the alternative charges to
counts 1-7, is competent. The first alternative
charge is theft and
the only issue is whether the appellant had the requisite
mens
rea
. It was common ground that the close corporation had not
charged VAT on the invoices issued to MWEB. This, however, does not
exclude
mens rea
. In terms of section 64(1) read with the
definition of “
vendor
” in section 1 of the VAT
Act, the cost of the services to MWEB is deemed to include VAT. In
fact, this was Kock’s
evidence. The question then is: did the
appellant know that the cost to MWEB, which she intended to be a
VAT-free price would
by law be deemed to include VAT? In my view to
this question must be answered negatively for three reasons. First,
there is no
evidence that the appellant knew that any price charged
to MWEB would be deemed to include VAT. Secondly, Kock testified
that
the appellant did not withhold any money payable to SARS. And
thirdly Kock said that thecontract with MWEB was a month-to-month
contract and that in the circumstances, the appellant would not have
known that it was going to run for 12 months. Accordingly,
a
conviction on the first alternative count of theft must fail for
want of
mens rea
.
The second
alternative charge appears to be a duplication of charges 11 –
18. It basically states that the appellant is
guilty of contravening
section 58(d) read with section 28(1)(a) and (b) of the VAT Act in
that she failed to submit VAT 201 returns
on behalf of the close
corporation, or failed to calculate VAT due to SARS. Section 58(d)
provides inter alia that any person
who fails to comply with the
provisions of section 28(1) shall be guilty of an offence and liable
on conviction to a fine or
imprisonment for a period not exceeding
24 months. In terms of section 28(1), a vendor is required, within
the periods specified
in that section, to furnish the Commissioner
with a return reflecting the information required for the purpose of
the calculation
of tax, and to calculate the amounts of such tax and
pay the tax payable to the Commissioner or calculate the amount of
any refund
due to the vendor. Charges 11-18 also state that the
appellant is guilty of contravening section 58(d) read with sections
1,
16, 28(1)(a) and (2), and 46(a) and 48 of the VAT Act, in that
she failed to submit VAT 201 returns to the Commissioner containing
the information for the calculation of tax in terms of section 16 of
the VAT Act. These charges are in essence the same as the
second
alternative charge to counts 1-7. The provisions of section 28(1)(a)
have already been outlined above. The remaining provisions
of the
VAT Act referred to in counts 11-18 do not change the nature of the
charge – the failure to submit VAT returns.
16
For these reasons,
I consider that a conviction on the second alternative charge to
counts 1-7 would not be competent.
I turn now to
consider the charge of fraud on count 9. The same considerations
regarding fraudulent concealment and lack of intent
to defraud apply
to that charge. The conviction of fraud on count 9 is therefore not
sustainable. In the circumstances, it is
hardly surprising that the
lawgiver has created the statutory offence of failing to submit an
income tax return.
17
In my view, the
appellant was rightly convicted onthat charge (count 10).
In view of the
conclusion to which I have come, it is unnecessary to consider in
any detail, the second ground of appeal, namely
that there is an
improper splitting of charges, more specifically that the evidence
required to prove the fraud charges (counts
1-7) necessarily
involves proof of the statutory charge of failing to apply for
registration of the close corporation as a vendor
under the VAT Act
(count 8). It suffices to say that the appellant was properly
convicted of contravening section 58(c) of the
VAT Act for failing
to register as a VAT vendor, because the total value of taxable
supplies made by the close corporation exceeded
the then applicable
threshold.
As regards
sentence, it appears that the rather light sentences on counts 8
(the failure to register as a VAT vendor) and 11-18
(the failure to
submit VAT returns) were imposed because the appellant had been
convicted of the main counts of fraud. Given
that the convictions of
fraud on counts 1-7 fall to be set aside, the sentences on counts 8
and 11-18, to my mind, are inappropriate.
The legal representatives
of the parties were accordingly advised that the Court considered
increasing the sentences imposed
by the trial court on counts 8 and
11-18, and were granted an opportunity to make written submissions
and to indicate whether
they wished to address the Court regarding
sentence.
Mr de la Harpe made
further written submissions on behalf of the appellant in which he
outlined the following facts. The appellant
is 46 years old, a first
offender and suffered emotional stress due to personal difficulties
which influenced her ability to
function at the time of the
commission of the offences. This case has been hanging over the
appellant’s head for some eight
years. The appellant
co-operated with SARS and has paid all amounts outstanding and
penalties. The appellant has suffered financially
and emotionally as
a result of this case. Ms Booysen, on behalf of the State, submitted
that the sentences imposed in respect
of counts 8 and 11-18 are
lenient, having regard to the following facts. The appellant was
aware that she had to register for
VAT and failed to submit VAT
returns over an extended period of time. Both legal representatives
indicated that they did not
wish to address the court orally.
It is trite that
punishment is pre-eminently a matter for the discretion of the trial
court and that a sentence should only be
altered if that discretion
has not been judicially and properly exercised, more specifically if
the sentence is vitiated by a
misdirection or is disturbingly
inappropriate.
18
In my view, the
sentences imposed on counts 8 and 11-18 are disturbingly
inappropriate and an increase in those sentences is justified.
[22] In the result,
I would make the following order:
(1) The appeal
against the conviction on counts 1-7 and 9 is upheld.
(2) The conviction
and sentence on counts 1-7 and 9 are set aside.
(3) The conviction
and sentence on count10 are confirmed.
(4) The sentences on
counts 8 and 11-18 are set aside and replaced with the following
sentences:
(a) On count 8 the
appellant is sentenced to a fine of fifteen thousand Rands
(R15 000.00) or four(4) months’ imprisonment;
(b) Counts 11-18,are
taken together for the purpose of sentence and the appellant is
sentenced to a fine of fifteen thousand Rands
(R15 000.00) or
four (4) months’ imprisonment.
SCHIPPERSJ
I agree.Itis so
ordered.
NDITA J
Coram
:
NDITA
et
SCHIPPERS JJ
Judgment
:
SCHIPPERS J
Counsel for the
Appellant
: Mr De La Harpe
Instructed by
: Milton
De La Harpe Attorneys
Ref: Mr. M De
La Harpe
Tel: 021
4699701
Counsel for
Respondent
: Adv. H Booysen
Instructed by
:
National Prosecuting Authority
115
Buitengracht Street,
Cape Town
Tel: 021 487
7000
I
Dates of hearing
:
01 February 2013
Date of judgment
:
30 April 2013
1
Milton
South African Criminal
Law and Procedure
Volume
II(3
rd
ed
1996) at 702
;
Snyman
Criminal Law
(5
th
ed 2008) at 531.
2
S
v Burstein
1978 (4) SA 602
(T) at 604H.
3
Flaks
v Sarne and Another
1959 (1) SA 222
(T) at 226D.
4
R
v Larkins
1934 AD 91
at 94;
S v Heller (2)
1964 (1) 524
(W) at 537D-F;
S v Macdonald
1982 (3) 220 (A) at 239H.
5
Heller
n 4 at 537D-F.
6
Burstein
n 2 at 604H-605B.
7
Cited
with approval in
S v Gardener and Another
2011 (1) SACR 570
(SCA) para 30.
8
S
v Judin
1969 (4) SA 425 (A);
section
100
of the
Companies Act 71 of 2008
.
9
S
v Brande and Another
1979 (3) SA 371
(D).
10
Heller
n
4.
11
Heller
n 4 at 537F;
Gardener
n 7 paras 37 and 38.
12
Brande
n 9 at 382A-B.
13
Brande
n 9 at 383C.
14
Snyman
op
cit
n 1 at 531-532;
Gardener
n 7 paras 31 and 32.
15
De
Wet and Swanepoel
Strafreg
(4de uitg 1985) at 404 put the
required
mens rea
as follows:
“
Verder
moet die beskuldigde se opsetookslaan op die handeling van die
misleide tot synadeel. Die beskuldigde moet dusvoorsien
dat die
misleidedeur die misleiding tot ‘n handelingbeweegsal word, en
dat die handeling tot synadeelsalstrek.
”
16
Section
28(2) of the VAT Act provides inter alia that every vendor shall
within the period allowed by subsection (1) furnish the
return
referred to in that subsection. Section 46(a) states inter alia that
a natural person who is a resident of the Republic
responsible for
the duties imposed by the VAT Act on any company, shall be its
public officer.
17
Section
75(1) of the Income Tax Act reads as follows:
“
Any
person who –
fails
or neglects to furnish, file or submit any return or document as
and when required by or under this Act; … shall
be guilty of
an offence and liable on conviction to a fine or imprisonment for a
period not exceeding 24 months
”.
18
S
v Rabie
1975 (4) SA 855
(A) at 857D-F.