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[2014] ZAWCHC 142
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Commissioner for the South African Revenue Service v eTradex (Pty) Ltd and Others (12949/2013) [2014] ZAWCHC 142; 2015 (3) SA 596 (WCC); 77 SATC 121 (9 September 2014)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 12949/2013
DATE:
09 SEPTEMBER 2014
In
the matter between:
COMMISSIONER
FOR THE SOUTH AFRICAN
REVENUE
SERVICE
...........................................................
FIRST
APPLICANT
And
eTRADEX
(PTY) LTD
.......................................................
FIRST
RESPONDENT
LOUISE
WIGGETT
.....................................................
SECOND
RESPONDENT
BUSINESS
WIZE ACCOUNTING AND MANAGEMENT
SERVICES
CC
...............................................................
THIRD
RESPONDENT
Coram
:
ROGERS J
Heard:
13 AUGUST 2014
Delivered:
9 SEPTEMBER 2014
JUDGMENT
ROGERS
J:
Introduction
[1]
The applicant (‘SARS’) seeks
confirmation of a provisional preservation order granted in terms of
s163(4) of the Tax
Administration Act 28 of 2011 (‘the TAA’).
The first respondent (‘Tradex’) and third respondent
(‘BWA’)
are entities owned and controlled by the second
respondent (‘Wiggett’). The provisional order was granted
ex parte
on
14 August 2013. Mr Eugene Nel (‘Nel’) was appointed as a
curator
bonis
.
The return day was extended on five occasions, most recently on 25
June 2014.
[2]
The parties agreed on the extensions
because the respondents were seeking to bring their tax affairs up to
date and to pay the outstanding
taxes owed by them. When it became
apparent that SARS was dissatisfied with progress and intended to
press for confirmation of
the provisional order, the respondents on 9
June 2014 filed answering affidavits. SARS filed its replying papers
on 19 June 2014.
Pursuant to the postponement order of 25 June 2014
supplementary answering and replying papers were delivered.
[3]
Tradex began operations during 2002 after
three years of research and development by Wiggett. It supplies
technology solutions for
automating and streamlining export and
import processes. More recently it has expanded into consulting
services in the international
trade environment. Wiggett says that
the period January 2010 to August 2013 was a difficult one for Tradex
because it had to dedicate
considerable resources in adapting
Tradex’s technology solution to SARS’ customs
modernisation program, which SARS
launched in January 2010. Tradex
has 38 full-time employees. It does not own immovable property.
[4]
BWA started business during 2006/2007.
Wiggett caused BWA to purchase properties in Montague Gardens and
Caledon. She says her idea
was to develop the Montague Gardens
property for letting to Tradex but she has had to hold this in
abeyance because of unfavourable
economic conditions. BWA bought the
Montague Gardens property during May 2006 and took transfer in August
2006. The price was R2,149
million. A mortgage bond was registered in
favour of Investec for R1,25 million. BWA purchased the Caledon
property during April
2008 for R1,95 million though only took
transfer during June 2009.
[5]
Wiggett annexed to her answering affidavit
two written agreements between Tradex and BWA signed on 1 March 2007.
In terms of one
agreement BWA was to provide Tradex with furniture,
equipment, office accommodation and operational support services at
market
related charges. In terms of the other agreement BWA appointed
Tradex as its agent in terms of s 54 of the Value-Added Tax
Act
89 of 1991 (‘the VAT Act’), with the result that VAT on
input and output supplies made by or to Tradex as agent
for BWA would
be treated as supplies made by or to BWA. The reason for these
arrangements between BWA and Tradex is not ventilated
in the papers.
[6]
Wiggett
owns a property in Langebaan which she bought in February 2000 for
R33 060. She also owns an undivided share (together
with a Mr MM
Abrahams) of a property in Hout Bay. It appears from a Windeed search
attached to the founding affidavit that Wiggett
(then with the
surname Liebenberg) acquired a half-share in this property during
1991 and that she and Abrahams purchased the remaining
half-share (as
to a quarter-share each) in April 2001 for a combined price of
R900 000.
[1]
At the same
time a mortgage bond in the amount of R1 million was registered. She
says that over the period 1999 to 2004 her only
income was a pension
from Alexander Forbes paid pursuant to the death of her late husband.
Since 2005 she has also earned remuneration
from Tradex.
[7]
When the preservation application was
brought in August 2013, Tradex owed not less than about R4,1million
in respect of various
taxes. Its liability for income tax for 2010
and 2011 was unknown because it had failed to render tax returns for
those years.
Its liability for VAT was also unknown because it had
failed to render returns over the period January 2010 to March 2013.
BWA
had rendered no tax returns since 2006 (when it started
business). Wiggett had rendered no returns since registering as a
provisional
taxpayer during March 2000.
Factual
background
[8]
In her answering affidavit Wiggett says,
without seeking to excuse the respondents’ fiscal
non-compliance, that with the growth
of Tradex’s business
during 2005 she engaged a full-time financial manager but that he
failed to comply with his duties and
was eventually subjected to a
disciplinary hearing during 2010. With his departure in July 2010,
she appointed a new financial
manager and a bookkeeper. Wiggett
herself was intensively involved on the operational side of the
business, including frequent
travel. The new financial manager failed
to keep deadlines, which concerned Wiggett greatly. This led to the
filing by Tradex of
various Voluntary Disclosure Programme (‘VDP’)
applications during October 2011. She says she did not hear anything
in response to these VDP applications until the meeting of January
2013 mentioned hereunder. The new financial manager ‘absconded’
without notice during September 2012.
[9]
There was a meeting in September 2012
between Wiggett and senior SARS executives at which the tax affairs
of the respondents were
discussed. According to SARS’ Mr
Cruikshank, the meeting was scheduled by SARS. Well before this time,
Tradex during 2007
had applied for relief under SARS’ Small
Business Tax Amnesty (‘SBTA’) program in respect of its
tax years up
to 2007 and had submitted the VDP applications mentioned
above. Wiggett says that, pursuant to the meeting of September 2012,
she
presented an action plan to SARS in early December 2012 but did
not receive a response.
[10]
SARS says that during January 2013 the tax
affairs of Tradex and Wiggett were referred to its Unit: Preliminary
Investigation &
Enquiries. There were further meetings between
SARS and Wiggett on 16 January, 4 April and 8 April 2013. On 17
January 2013 Wiggett
wrote SARS a four-page letter with her view of
the state of play in regard to the various respondents’ tax
affairs. On 7
March 2013 SARS responded, stating that unless a
payment plan was submitted by 8 March 2013 ‘this office will
continue with
the process of instituting legal proceedings against
your indebted companies’. Tradex submitted a payment plan on 14
March
2013. SARS addressed further letters to her on and after 4
April 2013. In a letter dated 30 April 2013 SARS stated that it
reserved
the right ‘to follow remedial processes should
undertakings made by the taxpayer not be met’, a reservation
repeated
in its letter of 21 May 2013, in which payment of an
outstanding amount of R3 801 725,66 was demanded from
Tradex.
[11]
Pursuant to the meeting of 16 January 2013,
Wiggett, in accordance with an undertaking she says she gave SARS,
appointed a firm
of Cape Town auditors, Cecil Kilpin, to conduct a
due diligence investigation into Tradex and BWA’s accounting
records. Their
report of February 2013 showed that Tradex and BWA’s
records were in such disarray that they needed to be reconstructed
for
the period 2007 to 2013. Cecil Kilpin started on this assignment
during March 2013. Wiggett appointed a new financial manager in
April
2013 to assist Cecil Kilpin. Wiggett alleges that she kept SARS
informed of these developments.
[12]
Wiggett says that Cecil Kilpin only
completed the reconstruction exercise during August 2013 and began
formal auditing work in October
2013 with an intended completion date
of end-February 2014. Because the process took longer than expected
and because Cecil Kilpin
could not allocate further human resources
to the audit, Wiggett in March/April 2014 engaged an experienced tax
consultant, Ms
Linda Hartzenberg (registered with SARS as a tax
practitioner), and appointed new auditors, Boshoff Visser.
Hartzenberg quickly
realised that the previous auditors had
incorrectly captured a large number of transactions. Wiggett alleges
that the respondents’
inability to meet time-lines with SARS
was attributable to the fact that requested information was simply
not as yet available.
[13]
It is common cause that the respondents’
tax affairs were not in order when the
ex
parte
application was issued on 12
August 2013 and that the respondents’ tax liability was likely
substantially to exceed the known
amount of R4,1 million. It is also
clear that the respondents’ financial records were in disarray.
Hartzenberg has since
April 2014 devoted considerable time and
immense energy in trying to bring order to the respondents’ tax
affairs. She made
affidavits which form part of the respondents’
answering and supplementary answering papers. Wiggett and her staff
spent
many hours in support of Hartzenberg’s work, including
over weekends and public holidays. Hartzenberg’s very detailed
affidavits contain no suggestion that Wiggett was uncooperative or
attempted to conceal matters from her.
[14]
Because of the approach adopted by the
parties, the papers tell a developing story rather than focusing on
the position that obtained
when the application was launched in
August 2013. Each set of affidavits provided an update from the
perspective of one side or
the other. Unsurprisingly, therefore,
SARS’ replying papers and then its supplementary replying
papers contained new matter.
[15]
It would be tedious to go into the detail
and impossible at this stage to determine with any precision the
amounts of tax for which
the various respondents will in due course
be held liable. It is enough to say the following. By the end of
April 2014 the respondents
had paid an amount of about R4,7 million
in respect of the known liability mentioned in the founding papers
(there have also been
certain additional payments - R567 556
according to Hartzenberg, R227 167 according to SARS, which SARS
has not yet appropriated
to specific tax debts). However, the
financial statements and tax returns which had been outstanding as at
August 2013 still
needed to be finalised. On 9 April 2014, shortly
after Hartzenberg’s engagement, SARS notified the respondents
of its intention
to conduct a field audit into their tax affairs. On
25 April 2014 SARS informed the respondents that the field audit
would be conducted
at their premises over the period 12 to 15 May
2014. SARS demanded that a substantial quantity of specified
information be made
available.
[16]
Hartzenberg on 29 April 2014 furnished to
SARS a detailed week-by-week account of the actions undertaken since
her engagement and
requested that the field audit be postponed,
contending that it would be detrimental to both the respondents and
SARS should the
latter begin the field audit while Hartzenberg was
still in the process of preparing the required records and returns.
SARS refused
Hartzenberg’s request (despite a further detailed
motivation from Hartzenberg dated 2 May 2014) and conducted the field
audit
on the notified dates. Over the period 15 May 2014 to 9 June
2014 Hartzenberg delivered to SARS Tradex and BWA’s
outstanding
annual financial statements and tax returns and Wiggett’s
personal tax returns for the period 2008-2013 together with other
information requested by SARS. The following email which Wiggett
wrote to SARS on 21 May 2014 conveys something of the effort which
the respondents were making to meet SARS’ requirements:
‘
Just
a quick follow up in this regard – we are in the process of
getting all the information ready for submission to you,
but I did
not spot the fact that you required the information by close of
business today, 21 May. Our admin and accounting teams
worked flat
out for more than 12 weeks and I had to give them a bit of a break
and time off after you left on Thursday. They were
all at breaking
point after all the long hours, weekend and public holiday work. This
will impact on delivering all the information
to you today, but both
[Hartzenberg] and I will try our utmost in this regard and get as
much of the information to you.
Can I please ask for
your indulgence to submit the remainder of the information until
Friday, 23 May, if we do not manage to get
everything to you today?’
[17]
On 9 June 2014 the respondents filed their
answering papers, the same day on which SARS received Tradex’s
signed financial
statements. In their answering papers the
respondents alleged that their financial statements and tax returns
were now up to date;
that BWA had made losses and did not owe tax;
that there was no outstanding tax owed by Wiggett; and that Tradex’s
estimated
liability for income tax and VAT was R7 034 602
(ie over and above the amount of R4,7 million already paid). They
said
that a preservation order was unnecessary. They repeated an
offer of security made in negotiations with SARS by way of (i) the
continued operation of caveats in respect of Wiggett’s
Langebaan property and the two immovable properties owned by BWA in
Caledon and Montague Gardens (these caveats had been noted pursuant
to the
ex parte
order);
and (ii) a cession
in securitatem debiti
by Tradex of book debts to the value of
R10,5 million. Wiggett said the three properties are worth about
R7,59 million. The respondents
excluded from their offer Wiggett’s
Hout Bay property because of Mr Abrahams’ interest as co-owner
and asked that it
be released from the preservation order. Wiggett
alleged that the security, worth more than R18 million, was
substantially in excess
of any tax that might be found owing.
[18]
In its replying papers, filed on 19 June
2014, SARS said that it had not yet verified the tax estimate of
R7 034 602 and
that the respondents had ignored Tradex’s
potential liability for interest and penalties. SARS expressed doubt
about the
correctness of the recently submitted Tradex financial
statements (audited by Boshoff Visser) because they differed from
draft
financial statements prepared by Cecil Kilpin. SARS also did
not accept that BWA’s financial statements were correct. SARS
said
inter alia
that
management fees might need to be attributed to BWA for purposes of
income tax (this was on the basis that BWA allegedly provided
accounting and management services to Tradex, a connected party) and
that VAT input credits claimed by BWA in respect of rental
properties
needed to be reviewed. In respect of Wiggett’s personal tax
affairs, SARS said that it still needed to verify
her returns for
2007 to 2013 and pointed out that she had not rendered any returns in
respect of 2000 to 2006.
[19]
In regard to the security offered by the
respondents, SARS cast doubt in particular on the value of the book
debts, referring to
bad debts previously raised by Tradex.
[20]
This was the state of the papers when the
matter came before me on 25 June 2014. In accordance with my
postponement order, the respondents
filed supplementary answering
papers on 10 July 2014 in which they dealt with three ‘new’
matters raised in SARS’
replying papers. The first matter
concerned Wiggett’s personal tax affairs. She claimed that her
personal returns for the
period 2000 to 2006 had not been the focus
of any discussion in the lengthy interactions with SARS. Be that as
it may, Hartzenberg
had recently assisted her to finalise these tax
returns and SARS had assessed her thereon for tax of R459 906.
[21]
The second matter concerned the value of
the offered security. In regard to the book debts, the respondents
alleged that Tradex’s
only bad debtor had been excluded from
the tendered security and that the rest of its debtors were blue-chip
customers. These were
listed in a schedule to the proposed security
cession. The respondents said, however, that they needed to modify
the proposed cession
for the reason that, if Tradex ceded all of its
debtors to SARS as security, it would have no cash flow. The modified
cession related
to named debtors amounting to R7 008 242.
[22]
In regard to the three immovable
properties, the respondents said that an offer of R4,2 million had
recently been received for the
Montague Gardens property. They
tendered payment of the net proceeds into an attorney’s trust
account. The sworn valuations
which the curator had obtained for the
Langebaan and Caledon properties were (I take the median values)
R360 000 and R2 million
respectively. This would give the
properties a combined value of R6,56 million, though Wiggett believed
the Caledon property in
particular was worth much more than the sworn
valuation, given that BWA had bought it in 2008 for R1,95 million.
Her estimated
values for the Langebaan and Caledon properties were
R600 000 and R3 million respectively.
[23]
The third ‘new’ issue dealt
with in the supplementary answering papers was the supposed
manipulation by the respondents
of SARS’ e-filing system to
render amended returns reflecting less tax than previously.
Hartzenberg dealt in some detail
with the e-filing system in her
supplementary affidavit.
[24]
SARS filed its supplementary replying
papers on 22 July 2014. SARS said that its auditing of the
respondents’ tax affairs
was far-advanced but not finalised.
SARS said that it was nevertheless apparent that the respondents owed
substantially more than
the amount of about R7 million estimated by
the respondents in respect of Tradex. In summary, SARS says that for
the years 2007
to 2013 the respondents face potential tax liabilities
of R10 476 579 (Tradex), R65 196 (Wiggett) and
R224 414
(BWA). I understand these liabilities to be adjustments
which SARS anticipates making over and above the financial statements
and
returns as submitted by the respondents.
[25]
SARS continued, in its supplementary
replying papers, to be dismissive of the value of the book debts
offered as security. SARS’
deponent also pointed out that the
debtors list annexed to the proposed cession stated balances as at
February 2014, about five
months previously.
[26]
On 6 August 2014 SARS’ attorneys
filed an affidavit by the curator. At the commencement of argument Mr
Goodman SC, who appeared
for the respondents, said that, if this
affidavit was allowed, his clients wished to file a further
supplementary answering affidavit
which had already been prepared. Ms
Nkosi-Thomas SC, who appeared for SARS together with Mr L Sigogo, was
unable to satisfy me
that Nel’s late affidavit should be
received and I ruled that it would not form part of the contested
proceedings. There
was no formal condonation application. Delays had
already occurred. Further delay would have resulted from standing the
matter
down so that I (and SARS’ counsel) could read the
responding affidavit (which might in turn have led to a further
replying
affidavit). Furthermore, the heads of argument were filed
prior to service of Nel’s affidavit, so that the court was
deprived
of considered assistance from counsel on the implications of
Nel’s affidavit.
The
relief claimed
[27]
The preservation order which SARS seeks
contains, in summary, the following components: (i) that the
respondents the prohibited
from ‘alienating, encumbering,
dissipating [or] dealing in any manner whatsoever that will cause a
decrease in the value
of’ all of their assets, whether
specified in the order or not; (ii) that SARS be authorised to
cause caveats to be
registered over Wiggett and BWA’s immovable
properties; (iii) that Nel be appointed as the respondents’
curator
bonis
,
with all the respondents’ assets to vest in him; (iv) that
various powers be vested in Nel, including the taking of
control of
the respondents’ assets and the transfer of shares to him and
the realisation of assets for existing tax liabilities
or to satisfy
future assessments; (v) that the respondents deliver all their
records and supply information to him, act in
accordance with his
directions and subject themselves to interviews at his instance; (vi)
that a named senior counsel be appointed
as ‘mediator’
with various functions to resolve disputes that might arise between
the parties.
[28]
All these provisions came into effect upon
the
ex parte
grant
of the preservation order. SARS now seeks confirmation.
Section
163 of the TAA
[29]
Section 163 of the TAA was amended by Act
39 of 2013 promulgated on 16 January 2014. The amendment of s 163
was stated to be
with effect from 1 October 2012 (the commencement
date of the TAA). Despite this provision for retrospectivity, counsel
were eventually
in agreement that, because the present proceedings
were launched and the
ex parte
order
granted before the amendments were promulgated, the case needed to be
adjudicated without reference to the amendments. This
is in my view
correct (see
inter alia Corium (Pty) Ltd
& Others v Myburgh Park Langebaan (Pty) Ltd & Others
1995
(3) SA 51
(C) at 64B-I). My references to s 163 are thus to the
original text.
[30]
A preservation order may be made if it is
‘required to secure the collection of tax’ (s 163(3)).
As I read s 163,
the ‘tax’ need not currently be due
and payable. A preservation order would be permissible if it appeared
that tax
in a currently unquantified amount was likely to become due
and payable.
[31]
However, the fact that tax is or is likely
in the future to be due and payable is not enough. The preservation
order must be ‘required
to secure the collection of’ the
tax. Section 163(3) does not say in what circumstances preservation
will be regarded as
‘required’ to secure the collection
of tax. In
Commissioner for the South
African Revenue Service v CJ van der Merwe
[2014]
ZAWCHC 59
Savage AJ said the following in that regard (para 43):
‘
No
necessary implication exists which warrants reading a requirement of
the requirement of necessity into the statute. It follows
therefore
that for a court to determine whether a preservation order is
required to secure the collection of tax in terms of s
163(3), it
does not need to be shown that the grant of the order is required as
a matter of necessity, or to prevent dissipation
of the assets.
Rather, in making the assessment as to whether to grant the order or
not, t
he court must be apprised of the available facts in
order to arrive at a conclusion,
reasonably formed
on the material before it, as to whether a preservation order is
required or not to secure the collection of tax. These facts must
not
amount to a statement of the applicant’s opinion but must
illustrate an appropriate connection between the evidence available
and the nature and purpose of the order sought. It is not required of
the court to determine whether the tax is, as a matter of
fact, due
and payable by a taxpayer or other person contemplated in s163(1)
which will be determined by later enquiry.
Rather,
at the preservation stage sufficient information is to be placed
before the court to enable the court to determine whether
such an
order is required against the persons against whom it is sought’
[32]
I agree with Savage AJ that the test is not
one of ‘necessity’. In another context, information has
been said to be
‘required’ for the exercise or protection
of a right if the information would ‘be of assistance’ in
the
exercise or protection of the right (
Cape
Metropolitan Council v Metro Inspection Services (Western Cape) CC &
Others
2001 (3) SA 1013
(SCA) para 28).
In
Clutchco (Pty) Ltd v Davis
2005
(3) SA 486
(SCA) the court said (para 10) that the word ‘assistance’
indicated that ‘required’ did ‘not mean
necessity,
let alone dire necessity’ and that ‘reasonably required’
was ‘about as precise a formulation
as can be achieved’
provided that ‘reasonably required’ was understood to
connote ‘a substantial advantage
or an element of need’
(para 35). On a similar approach, preservation of assets could be
said to be ‘required to secure
the collection of tax’ if
preservation would confer a substantial advantage in the collection
of the tax. I venture to suggest
that, once one has concluded that a
‘substantial advantage’ has been shown, one could
simultaneously conclude that
there was ‘an element of need’
sufficient to meet the ‘required’ (ie ‘reasonably
required’)
test.
[33]
I am less confident of Savage AJ’s
rejection of dissipation as being the focus of attention. In the
amended s 163(1)
it is made explicit that a senior SARS official
may only authorise a preservation application ‘in order to
prevent any realisable
assets from being disposed of or removed which
may frustrate’ the collection of tax. The explanatory
memorandum which accompanied
the amendments said that the object was
to ‘clarify’ the main purpose of a preservation order.
[34]
While the latter statement (and the
amendments themselves) may not be admissible material for
interpreting s 163 in its original
form, there are indications
in the original text that the focus is dissipation. The word
‘preservation’ is used to
describe the order.
Section 163(1) envisages an
ex
parte
application, which would
generally only be justified out of concern of dissipation (cf
National Director of Public Prosecutions
v Rautenbach
2005 (4) SA 603
(SCA) para
13). If more urgent action is needed than an
ex
parte
order, s 163(2)(a)
authorises SARS itself to seize assets ‘in order to prevent any
realisable assets from being disposed
of or removed which may
frustrate’ the collection of tax. In determining whether a
preservation order should be varied or
rescinded in terms of
s 163(9), the court is required to balance hardship to the
taxpayer on the one hand and ‘the risk
that the assets
concerned may be destroyed, lost, damaged, concealed or transferred’
on the other.
[35]
However, the learned judge may have meant
no more than that SARS does not need to prove the requirements for an
ordinary anti-dissipation
order (or, as it is sometimes styled
from the English law, a
Mareva
injunction). At common law, the
applicant must establish
prima facie
that the respondent will dissipate his
assets with the intention of defeating the applicant’s claim
(see, generally,
Knox D’Arcy Ltd v
Jamieson and others
[1996] ZASCA 58
;
1996 (4) SA 348
(A)
at 372G-I and
Janse van Rensburg NO and
another v Minister of Trade and Industry and another
2001 (1) SA 29
(CC) at para 33).
I do not
think that ‘required’ in s 163(3) entails proof of
such an intention on the part of the taxpayer. However,
SARS is
required to show, I think, that there is a material risk that assets
which would otherwise be available in satisfaction
of tax will, in
the absence of a preservation order, no longer be available. The fact
that the taxpayer
bona fide
considers
that it does not owe the tax would not stand in the way of a
preservation order if there is the material risk that realisable
assets will not be available when it comes to ordinary execution. An
obvious case is that of a company which, believing it owes
no tax,
proposes to make a distribution to its shareholders.
[36]
In every case where a taxpayer is liable or
likely to become liable for tax, there is a theoretical possibility
that the value of
its assets may for some or other reason be
diminished by the time SARS is able to execute. I do not think the
lawmaker intended
that a preservation order would routinely be
available to SARS in every case of an actual or anticipated tax
liability. There must
be something by way of ‘requirement’
which places the particular case outside the ordinary run of cases.
The existence
of material risk that assets will be diminished is, as
I have said, the obvious example. It is in such circumstances that
the court
could conclude that preservation would confer a
‘substantial advantage’ (ie over the position that would
prevail without
the order) and that there was thus ‘an element
of need’ (cf the
Clutchco
case
supra
). I
do not exclude the possibility that there may be other examples but I
cannot currently conceive what they might be.
[37]
The question whether a preservation order
is ‘required’ and whether the court should exercise its
discretion to grant
one calls for a consideration of the specific
terms of the order sought by SARS. The question whether a
preservation order is required
cannot be answered in the abstract.
The practical utility of the actual terms must be assessed.
[38]
Regarding the approach to factual disputes,
Mr Goodman argued that the confirmation of a preservation order was
final relief and
that the
Plascon-Evans
rule applied. In
Van
der Merwe supra
Savage AJ held that
proceedings for the confirmation of a preservation order are interim
in nature and that the facts should be
assessed in the same way as
for an interim interdict.
[39]
The cases decided with reference to the
Prevention of Organised Crimes Act 121 of 1998 are distinguishable
because under s 25(1)
of that Act the court’s discretion
to grant a restraint order arises if there are ‘reasonable
grounds for believing’
that a confiscation order may be made in
due course. This phrase indicates that the court is not called upon
to decide on the veracity
of the evidence; the court need only ask
whether there is evidence that might reasonably support a conviction
and a consequent
confiscation order (see, eg,
Rautenbach
supra
para 27).
[40]
Despite this distinction, I think that
Savage AJ was correct to hold that the
Plascon-Evans
rule does not apply. Although the
confirmation of a preservation order may have features which render
it appealable, it is nevertheless
interim in that its duration is
limited and it does not finally determine the amount of tax, if any,
for which the taxpayer is
liable (cf
Phillips
& Others v National Director Of Public Prosecutions
2003
(6) SA 447
(SCA) paras 20-23). There will often be factual disputes
in confirmation proceedings. The lawmaker could not have intended
that,
in the absence of a trial, those disputes would have to be
decided in favour of the respondent. The court, in my view, should
determine,
on the affidavits, where the balance of probability lies
on the issues relevant to the existence of the jurisdictional facts
and
to the exercise of its discretion.
‘
Requirement’
in present case?
[41]
Delinquency in the conduct of a taxpayer’s
tax affairs may in appropriate circumstances be part of the material
from which
one could infer that there is an appreciable risk that
assets available for collection of tax will be diminished. There is,
however,
no automatic connection between the two. A person may be
disorganised and late in regard to its tax administration without
there
being any appreciable danger that its assets will be diminished
by the time tax comes to be collected.
[42]
SARS in its founding papers focused on the
failure on the part of the respondents to file tax returns and to
have their tax affairs
in order and their failure to comply with
time-lines set in interactions between themselves and SARS. There
were generalised statements
to the effect that a preservation order
would ‘enable the Commissioner to collect the totality of the
tax’ owed by
the respondents, that the appointment of a curator
bonis
‘would
ensure that’ SARS recovers all taxes owed and that in the
absence of an order SARS ‘will in all likelihood
sustain severe
prejudice’ because the prospect of recovering the outstanding
taxes ‘seems bleak’. No facts were
alleged, however,
constituting a
prima facie
case
that there was an appreciable risk of assets being diminished.
[43]
SARS was required to make out its case in
the founding papers. While a great amount of detail was placed before
the court in the
subsequent sets of affidavits, focusing on updated
efforts to achieve compliance and offering conflicting (and, on the
papers,
irresoluble) versions of the amount of tax likely to be found
owing, SARS’ theme remained essentially the same as in the
founding papers, namely that the respondents’ delinquency in
completing their financial statements and making their returns
and
the initial disarray in their records were a basis for confirming the
preservation order.
[44]
SARS alleged in the founding affidavit that
Wiggett and BWA had not only failed to render tax returns but had
‘also acquired
assets whose value is not commensurate with the
declared and/or perceived income’, this being a reference to
the immovable
properties. However, the assumption that Wiggett and
BWA’s immovable properties must have been acquired from
undeclared income
is obviously fallacious. Wiggett bought the
Langebaan property during February 2000, before any period relevant
to the present
tax disputes. She acquired a half-share of the Hout
Bay property as long ago as 1991. She and Abrahams acquired the
remaining half-share
during April 2001 (I suspect this was from her
late husband’s estate). Again, this is before the period now in
issue. In
any event, it appears from the Windeed search attached to
the founding affidavit that the acquisition of the further share in
the
Hout Bay property during 2001 was funded by way of a mortgage
bond.
[45]
In the case of BWA, the Montague Gardens
property was purchased during 2006, apparently funded in part by way
of mortgage finance
from Investec. It is likely that BWA’s
acquisitions of the Montague Gardens and Caledon properties were
partially funded
by way of loan finance from Tradex. This is not
necessarily sinister, having regard to Wiggett’s explanation
concerning the
intended inter-relationship between Tradex and BWA.
Any loan made by Tradex to BWA would be an asset in Tradex’s
hands. The
inter-company loan accounts were among the matters
addressed in emails between SARS and Hartzenberg following the field
audit of
mid-May 2014. Nothing was made of the existence of such
loans in SARS’ subsequent replying and supplementary replying
papers
(apart from the tax treatment of interest or imputed
interest). The extent of the loan accounts between the two entities
and between
them and Wiggett does not appear. SARS did not attach any
of the respondents’ draft financial statements to its
affidavits.
The only set of financial statements in the entire record
are draft statements for Tradex’s year ended 29 February 2008,
a document attached to Hartzenberg’s letter to SARS dated 2 May
2014. In that letter Hartzenberg was explaining to SARS various
errors made by the previous auditors in preparing the draft financial
statements (ie she was saying that the attached draft statements
were
incorrect).
[46]
In argument, Ms Nkosi-Thomas said that one
could infer dissipation from the fact that Wiggett caused Tradex to
plough its cash flow
back into the business rather than causing the
respondents to pay their tax liabilities. That was not SARS’
case in the founding
papers. The submission was based on a statement
by Wiggett in her answering affidavit that she has, over the past 15
years, ‘reinvested
all available resources in the continual
development of [Tradex’s] technology solution’. In any
event, such conduct
does not amount to dissipation, just the
opposite. Wiggett was attempting to build up Tradex’s business.
Nurturing and expanding
its operations would, unless the business
were badly run, cause the business to become more valuable, not less.
[47]
SARS did not seek to make the case that
Tradex’s business was being run into the ground or becoming
less valuable. There is
no reason to doubt that its business has
expanded. It has contracts with a number of blue-chip customers. If
the amount of the
taxable income which SARS says it anticipates
assessing for Tradex’s most recent financial years is close to
the mark, the
business must be even more successful and profitable
than Wiggett says. There is no basis for finding that Wiggett is not
in earnest
in trying to make a success of Tradex or that she lacks
the abilities, at least from an operational perspective, to do so
(though
her administration skills may be wanting).
[48]
Despite SARS’ possession of financial
statements for Tradex, the conduct of a field audit and SARS’
statutory rights
of access to the respondents’ records, SARS
did not, in its replying and supplementary replying papers, allege
that Wiggett
was causing Tradex, innocently or deliberately, to
dissipate its assets by distributing dividends or paying unreasonable
salaries
or engaging in other suspicious transactions.
[49]
Tradex does not own anything of
significance by way of fixed assets. Its value lies in its
intellectual property and human capital
and their exploitation for
purposes of generating profit from the supply of services to its
customers. If there were a
prima facie
case that Tradex would be run better
under the care of a curator
bonis
,
one might be able to say that a preservation order was ‘required’,
because then one could conclude that there was
a reasonable prospect
that, without a preservation order, the business would be less
valuable by the time tax came to be collected.
But as I have said, no
facts to support such a conclusion were advanced in the founding
papers or subsequently.
[50]
The respondents say that, as a fact, Nel
has not, since his
ex parte
appointment,
added any value to Tradex’s business. They say he has no
experience or knowledge in the field in which Tradex
operates. His
appointment simply adds an unnecessary and inconvenient layer of
expense. They even allege that his interventions
have at times been
detrimental to the respondents’ best interests. SARS, on the
other hand, says that the respondents have
not co-operated with Nel.
I cannot resolve these disputes and do not wish to express criticism
of Nel. But I cannot on the papers
find, even on a
prima
facie
basis, that Tradex’s
business is any better off with his involvement than without.
[51]
In the case of Wiggett and BWA, their only
assets of substance (apart from Wiggett’s shareholding in
Tradex) are the immovable
properties previously mentioned. Wiggett
has owned the Langebaan and Hout Bay properties for some years. There
is no allegation
or evidence that Wiggett has attempted to dispose of
or encumber these properties.
[52]
In the case of BWA, the Montague Gardens
property was purchased in February 2006 and the Caledon property in
April 2008. Subsequent
to the launching of the application Wiggett
has received offers for the Montagu Gardens property, which she has
disclosed in her
affidavits and which she has been willing to
entertain on the basis that the net proceeds will be held in trust
pending the determination
of the respondents’ tax liability.
Save as aforesaid, there is no allegation or evidence that BWA has
attempted to dispose
of or encumber its properties.
[53]
There are further considerations which
militate against a finding that a preservation order was or is
required. Wiggett registered
as a provisional taxpayer during March
2000. SARS must have been aware for some years that she had failed to
render returns. The
same is true of BWA. In general, SARS had been
engaging with the respondents for nearly a year by the time it
launched the present
proceedings in August 2013, not to mention the
earlier SBTA and VDP applications. There was the meeting in September
2012 between
Wiggett and senior SARS executives. There was
considerable correspondence following the meeting of 16 January 2013
culminating
in the demand for payment in SARS’ letter of 21 May
2013.
[54]
More than two and a half months after this
demand, SARS on 12 August 2013 issued the present application. SARS
did not say that
anything had happened in recent months to cause it
to believe that the respondents’ assets were likely to be
diminished unless
a preservation order was granted. One gains the
distinct impression that SARS launched the application not so much
because a preservation
of the respondents’ assets was required
but in order to bring matters to a head by placing legal pressure on
the respondents.
This is consistent with the series of postponements
on which the parties subsequently agreed with a view to affording
time to the
respondents to bring their tax affairs in order.
[55]
While I can understand SARS’
frustration, that is not the purpose of the preservation application.
There are other statutory
mechanisms available to SARS to deal with
taxpayers who fail to provide information, to render returns or to
make payment of tax
(see, in particular, the information-gathering
provisions of Chapter 5 of the TAA, SARS’ power to issue
estimated and so-called
jeopardy assessments in terms of Chapter 8,
the tax-recovery provisions of Chapter 11, the administrative
non-compliance penalties
which can be imposed in terms of Chapter 15
and the criminal offences created by Chapter 17).
[56]
I
should also mention that the delinquency of the respondents in the
rendering of their tax returns, while entirely unacceptable,
appears
to have been attributable in substantial measure to the fact that the
financial managers engaged by Wiggett let her down.
Furthermore,
delinquency in rendering returns does not necessarily translate into
a failure timeously to pay tax. The respondent
most likely to have a
substantial tax liability is Tradex, whose outstanding tax returns at
the time the application was launched
were only in respect of its
2010 and 2011 tax years. Although Wiggett and BWA’s delinquency
extended over a much longer period,
they do not appear to have
substantial tax liabilities. Hartzenberg says Wiggett’s total
liability as recently assessed for
1999-2013 is R459 906 (SARS
alleges that there may be adjustments which will add a further
R224 414 in tax). On the respondents’
version (supported
by Hartzenberg’s work), BWA has suffered losses and thus owes
no tax at all (SARS alleges that there may
be adjustments which will
result in a tax liability of R65 197 for the 2007-2013
years)
[2]
. I cannot on the
papers determine whether the tax calculations for BWA are correct but
on any reckoning BWA cannot be said to have
been in breach of a
failure to pay a significant amount of tax.
[57]
As I have observed earlier, the question
whether a preservation order is ‘required’ cannot be
answered in the abstract.
The practical utility of the actual terms
must be considered. I have summarised the terms of the order of which
SARS seeks confirmation.
That order draws no distinction between
Tradex, Wiggett and BWA.
[58]
The order interdicting the respondents from
alienating, encumbering, dissipating or dealing in any manner with
their assets in a
way ‘that will cause a decrease in the value
of’ their assets could notionally be granted without the
appointment of
a curator. However, in the case of Tradex, which is an
active trading entity, the grant of such an order (if it meant that
the
company could not use its cash flow to meet ordinary business
expenses) would have the effect of forcing the company to shut down.
SARS, on my understanding, does not seek to close down Tradex’s
business. The granting of a preservation order which had
that effect
would not be just. It would also not be ‘required’ unless
there were reason to believe that a forced sale
of the company’s
assets or its business would achieve a better outcome for SARS than
if the business were to continue in
operation. There is no basis for
such a view.
[59]
If the interdict sought by SARS is only
intended to restrict dealings in property which would cause a
decrease in the value of Tradex’s
assets, it would be
unacceptably vague in its operation. And for the reasons I have
explained, SARS’ papers do not advance
facts to show that
Tradex, prior to the launch of the application, was dealing with its
assets in a way which would cause a decrease
in their value.
[60]
Just as an interdict against dealing in
assets could notionally be granted without the appointment of a
curator, so a curator could
notionally be appointed without an
interdict against dealing in assets, leaving it to the curator to
determine what dealings in
the taxpayer’s assets should be
permitted. That is perhaps what SARS intended. However, the question
would still remain whether
the appointment of a curator would achieve
an appreciable advantage for SARS, in the sense that there would be a
material risk
of Tradex being worse-positioned to meet its tax
liabilities if a curator was not appointed. It must be emphasised, in
this regard,
that a curator’s function is not to assist SARS to
investigate the taxpayer’s tax liabilities; his or her
functions
focus on the discovery and preservation of assets from
which tax liabilities, whatever they might turn out to be, may be
met. Again,
I have given my reasons for concluding that, in this
case, the appointment of a curator is not, in this sense, likely to
achieve
a material advantage for SARS.
[61]
In the case of Wiggett and BWA, their only
material assets are immovable properties. (There may be inter-company
transactions between
Tradex and BWA but the latter does not, on the
evidence before me, conduct business with third parties.) If SARS had
shown a material
risk that Wiggett and BWA would deal in their
immovable properties in a manner adverse to SARS, an interdict
against disposal or
encumbrance (with the registration of caveats)
would have been appropriate. Even in that event, though, I cannot see
that the appointment
of a curator would have served any purpose.
[62]
If SARS had, without resorting to
litigation, requested Wiggett and BWA to give undertakings and to
permit caveats to be registered
pending the final determination of
their tax liabilities, it is likely that they would have agreed
(regardless of whether or not
SARS was strictly entitled to this
protection). Certainly, subsequent to the grant of the
ex
parte
order Wiggett and BWA have openly
tendered caveats. If the only question had been whether caveats
should be registered against the
properties, the litigation would
have been resolved at an early stage.
Conclusion
[63]
I thus consider that in the present case a
preservation order was not, and is not, ‘required’ to
secure the collection
of tax within the meaning of s 163(3).
[64]
The respondents have, however, made certain
open tenders. Mr Goodman stated during argument that these tenders
remained open regardless
of the view I were to reach on the
application. In accordance with the tender, I propose to direct that,
pending the final determination
and payment of the taxes found to be
owing by the respondents, the caveats registered against the
immovable properties remain in
place unless the parties agree in
writing to their removal or the court otherwise directs. The Hout Bay
property will be excluded
from this regime.
[65]
I do not propose to make an order giving
effect to the security cession offered by Tradex. I simply record
that the cession has
been offered as part of an open tender and was
said by Mr Goodman to remain open even if I were to find in his
clients’ favour.
SARS would be able, on this basis, to accept
the tender, at any rate within a reasonable period of time following
this order. It
will, of course, be open to the parties to negotiate
modifications to the terms of the cession if they consider this
necessary.
[66]
Mr Goodman also made an open tender that
Wiggett would furnish a suretyship for any taxes found to be owing by
Tradex or BWA. The
purpose of this tender was so that the net value
of her Langebaan property (against which a caveat will continue to be
noted) would
be available
inter alia
to
meet the tax liabilities of the other respondents. Again, I do not
intend to make an order that a suretyship be provided. I simply
record that the tender was made on the basis that it would remain
open. Mr Goodman referred me, in that regard, to s 161 of
the
TAA, in terms whereof a senior SARS official may require security
from the taxpayer to safeguard the collection of tax
inter
alia
if the taxpayer has frequently
failed to comply with its obligations under tax legislation, which
appears accurately to describe
the respondents’ delinquency. In
the case of a corporate taxpayer which cannot itself provide
security, a senior SARS official
may, in terms of s 161(5),
require members of the company to provide suretyships. On this basis,
SARS could demand a suretyship
from Wiggett in respect of the tax
liabilities of Tradex and BWA.
[67]
Mr Goodman did not specifically tender a
suretyship from BWA in respect of the tax liabilities of Tradex and
Wiggett. However, he
handed up a draft order in terms of which the
net proceeds of the Montague Gardens property would be paid into the
respondents’
attorneys’ trust account, to be paid to SARS
in respect of the respondents’ tax liability, jointly and
severally, upon
assessment thereof. At least in respect of that
property, therefore, the tender acknowledges that BWA’s
property will serve
as security for the tax liabilities of Tradex and
Wiggett. In accordance with the open tender, I propose to include a
provision
to this effect in my order.
[68]
The respondents having succeeded, they are
entitled to their costs. However, I consider that the parties should
bear their own costs
in respect of the postponements of 4 September
2013, 29 November 2013, 20 March 2014 and 29 May 2014. (The first of
these orders
is not in the court file so I do not know whether those
costs were reserved. In the case of the second and third
postponements,
the orders stated that there would be no order as to
costs. The order of 29 May 2014 recorded that costs would stand over
for later
determination.) I also consider that the parties should
bear their own costs in regard to the postponement of 25 June 2014.
Because
of the procedure they elected to follow, SARS through no
fault on its part only filed its replying papers on 19 June 2014.
Neither
side filed their heads of argument timeously. The matter was
simply not ready to proceed.
[69]
I also do not think it would be just for
SARS to be ordered to pay all of the respondents’ costs
relating to the latter’s
answering and supplementary answering
affidavits. Those affidavits were to a material extent devoted to
setting out the steps taken
by the respondents, subsequent to the
launch of the application, to bring their tax affairs in order and to
their view of the tax
owing in respect of the periods for which they
had been delinquent in rendering returns. The parties were, perhaps,
misguided in
placing such extensive detail on these matters before
the court. But to the extent that it was relevant, it was only
because of
the respondents’ prior delinquency that it was
necessary for details to be provided of the events subsequent to the
launching
of the application. I shall thus exclude the costs
associated with Hartzenberg’s affidavits and 50% of the costs
associated
with the other affidavits filed on behalf of the
respondents.
[70]
Before concluding, I make the following
observations. Firstly, although s 163 permits SARS to bring a
provisional preservation
application
ex
parte
, it would be contrary to basic
principles of fairness and constitutional values to read the section
as providing that the application
may be brought
ex
parte
in the absence of circumstances
justifying a departure from ordinary procedure
(cf
Knox D’Arcy supra
at
379F-I)
. Where the application is brought
on grounds which would sustain a conventional anti-dissipation order
at common law, an
ex parte
order
may often be warranted (though not necessarily in the case, for
example, of a taxpayer whose only material assets comprise
immovable
property). In other circumstances, there might be little or no reason
justifying an absence of notice to the taxpayer.
[71]
Second, even where
ex
parte
proceedings are warranted, it by
no means follows that the provisional order should contain all the
terms which SARS wishes to form
part of the final order. For example,
although s 163 permits a provisional order to incorporate the
appointment of a curator
bonis
,
it will often be the case that such appointment is not reasonably
required to secure the interim position pending the return day.
The
appointment of a curator
bonis
is
a considerable intrusion into the rights of the taxpayer.
Furthermore, once a curator is appointed, the question of his or her
expenses immediately arises.
[72]
For example, in the present case, without
notice to the respondents, Nel was appointed as their curator with
the right immediately
to take control of their assets and to cause
shareholdings to be transferred into his name. The respondents,
without having been
heard, were ordered
inter
alia
to deliver their books and records
to him, to act in accordance with his instructions and were obliged
to subject themselves to
interviews and to furnish the curator with
details of all their assets and how they were acquired. All their
assets were forthwith
to vest in him. If SARS had otherwise been
entitled to a preservation order and if
ex
parte
proceedings were warranted, I
cannot think there was justification for a curator to be appointed as
part of the provisional order.
Ex parte
relief should be confined to that which
is reasonably required to secure SARS’ position pending the
return day (cf
Knox D’Arcy supra
at 379J-380B).
[73]
Third, SARS should not, in my view, frame
preservation orders on a one-size-fits-all basis. The order sought in
the present case
was on the same terms as a similar application I
heard some months ago. Those terms apparently accord with orders
sought by and
granted to SARS in several matters in Gauteng. It is
unnecessary to comment on the propriety and competence of each
of these
‘standard’ terms. I merely say that the relief
should be tailored to the circumstances of the case.
[74]
Fourth, s 163 is a procedure for
preserving assets. It is not an execution mechanism. Once tax has
been assessed or is otherwise
due and payable, the
pay-now-fight-later regime applies unless a senior SARS official
otherwise directs (s 164). SARS may,
if the taxpayer fails to
pay on due date, obtain civil judgment in terms of s 172 of the
TAA. SARS is not required to give
notice of the application for civil
judgment if the giving of such notice would prejudice the collection
of tax (s 172(3)).
SARS may thereupon levy execution in the
ordinary way against assets belonging to the taxpayer. SARS can also
institute sequestration
or liquidation proceedings (s 177-178)
and is in certain circumstances accorded rights of recovery against
third parties (ss 179-184).
[75]
Section 163 finds its primary application
where the amount of tax has not yet been ascertained (ie where SARS
cannot execute in
the ordinary way). This being so, I do not think it
appropriate that a preservation order should (as here) contain, as a
standard
provision, a power on the part of the curator to realise
assets in satisfaction of the taxpayer’s tax liability. I do
not
overlook that s 163(7) empowers a court which grants a
preservation order to make ancillary orders regarding how the assets
must be dealt with, including ‘the realising of assets in
satisfaction of the tax debt’. However, I do not understand
how, in general, it is justifiable, at a time when the tax liability
is unknown and contentious, to empower a curator to set about
selling
assets and appropriating monies towards an alleged tax debt. The
order should rather make provision for SARS to approach
the court at
a later stage (once the tax has been properly determined) for the
granting of authority to the curator to realise
the preserved assets
in satisfaction of the tax debt. In other words, a court is unlikely
to be able to make an informed and fair
decision on this question at
the time the application is initially granted and confirmed.
[76]
I make the following order:
(a) In
accordance with the respondents’ open tender, the caveats
registered against the properties referred to in paras
2.2.2 (Erf
1692 Langebaan), 2.2.4.1 (Farm
Flou
Hoogte
, Farm 658,
Portion 6 [Remaining Extant], Caledon Road, Caledon) and 2.2.4.2 (Erf
6495 Montague Gardens [also known as the Estuaries
Property]) read
with para 3 of the order of 14 August 2013 shall, pending the
determination of the respondents’ tax liabilities
to the
applicant in respect of their tax years up to and including 2013 and
the payment of the taxes assessed, remain in place
unless removed
earlier pursuant to the written agreement of the parties or upon
further order of this court.
(b) Should the
immovable property referred to in para 2.2.4.2 (the Montague Gardens
property) be sold and transferred with
the applicant’s consent
and thus released from the caveat, the net proceeds thereof must be
paid into the respondents’
attorneys’ trust account and
thereafter be paid to the applicant in respect of the respondents’
said tax liabilities,
jointly and severally, upon assessment thereof.
(c) Save as
aforesaid, the application is dismissed and the provisional order of
14 August 2013 discharged.
(d) The
applicant shall pay the respondents’ costs, including the costs
of the appearance on 13 August 2014 but excluding
the following: (i)
the reserved costs of any earlier postponements; (ii) the costs
associated with the affidavits of Ms L Hartzenberg;
(iii) 50% of the
costs associated with the other affidavits filed on behalf of the
respondents.
ROGERS
J
APPEARANCES
For Applicant:
Ms LG Nkosi-Thomas SC and Mr L Sigogo
Instructed
by:
Maponya
Inc
950
Pretorius Street
Arcadia,
Pretoria
c/o
Strauss Daly Inc
15
th
Floor, 34 Bree Street
Cape
Town
For Respondents:
Mr R Goodman SC
Instructed
by:
Hayes
Inc
Themis
Law Chambers
Unit
32, Roeland Square
Roeland
Street
Cape
Town
[1]
Wiggett
says in her answering affidavit that she owns an undivided
half-share but the Windeed search indicates that she owns a
three-quarter share.
[2]
SARS’
most recent summary of adjustments is in para 44 of the
supplementary replying affidavit at 759-760.