David Matlala BProc (University of the North) LLB (Wits) LLM (UCT) LLM (Harvard) HDip Tax Law (Wits) is an adjunct professor of law at the University of Fort Hare.
October 2012 (5) The South African Law Reports (pp 323 – 644); [2012] 3 The All South African Law Reports September no 1 (pp 479 – 591) and no 2 (pp 592 – 676)
Abbreviations:
CC: Constitutional Court
GSJ: South Gauteng High Court
KZD: KwaZulu-Natal High Court, Durban
SCA: Supreme Court of Appeal
Attorneys
Right of appearance in the High Court: Section 3(4) of the Right of Appearance in Courts Act 62 of 1995 (the Act) provides that an attorney who has been granted the right of appearance in the Supreme Court (now High Court) shall be entitled to discharge the other functions of an advocate in any proceedings in the High Court. Section 4(4) of the Act provides that an attorney who has been granted the right of appearance shall be entitled to appear in any court throughout the country. In Liberty Group Ltd v Singh and Another 2012 (5) SA 526 (KZD) an attorney who was admitted in the Gauteng High Court, and who had also been granted the right of appearance by the registrar of the same court, signed a combined summons and particulars of claim, which were issued in the KZD. However, the attorney in question had not been enrolled by the registrar of the latter court. When the plaintiff applied for summary judgment, this was resisted on a number of grounds including that, as the attorney had not been enrolled by the registrar of the KZD as a practitioner entitled to practice in this division, he was not qualified to sign the combined summons and particulars of claim, which were for that reason defective.
Swain J held that it was not the intention of the law to allow a defendant to raise any technical point, no matter how insignificant, and thereby defeat the granting of summary judgment. It was never the intention to give weight to purely technical defences as this would defeat the object of summary judgment. As a result, the irregularity was condoned and summary judgment was granted with costs.
On the question of the right of appearance, the court held that s 4(4) of the Act was clear that an attorney with a right of appearance was entitled to appear in any court throughout the country. The attorney in the instant case, by virtue of the issue of a certificate of a right of appearance by the registrar of the Gauteng High Court, had acquired the right to appear before the KZD. To limit the right of appearance to a division where the attorney was admitted or enrolled unreasonably limited the right of appearance extended by the Act. Such a construction would also give rise to an absurdity in that an attorney to whom a certificate of the right of appearance was issued by the registrar of the particular division of the High Court in which the attorney was enrolled would, without further formality, be entitled to appear before the SCA and the CC but would not be able to do so before another division of the High Court without being enrolled in that division. Further, an attorney’s right to sign a combined summons qua attorney was limited to the division in which he was admitted or enrolled, however an attorney with a right of appearance had the right to sign a combined summons qua advocate without such limitation.
The signature of the combined summons by an attorney, as required by r 18 of the Uniform Rules of Court, as distinct from the signature of the combined summons by an advocate, had never been the function of an advocate. Signature of the combined summons, qua attorney, could never be justified in terms of s 3(4) of the Act in a division other than where the attorney was admitted. The authority of an attorney to sign a combined summons should accordingly be found in the provisions of the Attorneys Act 53 of 1979. An attorney would be entitled to sign, qua attorney a combined summons, issued in the division in which he was admitted and enrolled or in a division in which he had been enrolled by the registrar of that division in terms of s 20(3) of the Attorneys Act, as an attorney thereby entitled in terms of s 20(4) thereof to practise in that division. In the instant case the plaintiff’s attorney was admitted and enrolled in the Gauteng High Court and was accordingly not entitled to sign, qua attorney, the combined summons issued in the KZD, despite the fact that he possessed the right to appear in the latter division, hence the need for condonation.
Companies
Sufficient facts in business rescue plan to enable court to assess prospects of success: In Nedbank Ltd v Bestvest 153 (Pty) Ltd; Essa and Another v Bestvest 153 (Pty) Ltd and Others 2012 (5) SA 497 (WCC) a company, Bestvest, whose only asset was a commercial property, was unable to pay its debts. As a result of the financial stress it was going through, its directors applied for it to be placed under business rescue. While this application was pending, creditors applied for its winding-up. The two applications were consolidated and heard together. The court dismissed the business rescue application with costs and placed the company in provisional winding-up.
Gamble J held that to give effect to s 131 of the Companies Act 71 of 2008 (the Act) a court should not set the bar at such a height that the applicant for business rescue had little chance of clearing it and persuading the court to exercise its discretion to grant supervision. It should be left to the business rescue practitioner to formulate the rescue package once he has an opportunity to properly assess the company, its progress going forward and, most importantly, the reasons for its commercial distress. That was not to say, however, that a party could approach the court for the appointment of a business rescue practitioner with flimsy grounds in the hope that the practitioner would provide the panacea to its problems. The application should set out sufficient facts, augmented by documentary evidence if necessary, from which a court would be able to assess the prospects of success before exercising its discretion. In a matter such as the instant one, the application for a business rescue would ideally set out:
In the present matter, the applicants failed to demonstrate why business rescue was the preferred option over liquidation.
Note: Other reported cases dealing with business rescue applications during the period under review are AG Petzetakis International Holdings Ltd v Petzetakis Africa (Pty) Ltd and Others (Marley Pipe Systems (Pty) Ltd and Another Intervening) 2012 (5) SA 515 (GSJ) (where the applicant could not demonstrate reasonable prospects of rescuing the company); Engen Petroleum Ltd v Multi Waste (Pty) Ltd and Others 2012 (5) SA 596 (GSJ) (taking all reasonable steps to identify affected persons and their addresses and serving the application on them); and Kalahari Resources (Pty) Ltd v Arcelormittal SA and Others [2012] 3 All SA 555 (GSJ) (failure to serve business rescue application on creditors).
Liquidator may litigate nomine officio or in name of company in liquidation: Section 386(4)(a) of the repealed Companies Act 61 of 1973 (the Act) provided that a liquidator of a company had the power to bring or defend in the name and on behalf of the company any action or other legal proceedings of a civil nature. In Barnard and Others NNO v Imperial Bank Ltd and Another 2012 (5) SA 542 (GSJ) the joint liquidators, as plaintiffs, instituted proceedings against the defendant, Imperial Bank, on behalf of Pro Med, a close corporation in liquidation. Thereafter the liquidators sought to amend the particulars of claim and substitute the close corporation as the plaintiff, represented by them. The defendant objected to the amendment on a number of grounds, including that the effect of the proposed amendment was to seek substitution of Pro Med as the plaintiff and that Pro Med’s claim had prescribed. The court granted leave to amend and ordered the plaintiffs (the joint liquidators) to pay costs, as opposition to the amendment was not frivolous or obstructive.
Weiner J held that the fact that the company’s corporate identity remained intact despite its liquidation, and that its property remained vested in it, did not affect the locus standi the liquidator enjoyed. If the liquidator nomine officio had locus standi at the inception of the proceedings, prescription did not apply. Section 386(4)(a) empowered the liquidator to bring proceedings and thus vested him with locus standi. The requirement encompassed in the section related to the citation to be used. If it was done incorrectly, this did not detract from the locus standi of the liquidator. Authorities were divided on how the plaintiffs were to be cited. As a result, until that issue was decisively determined, it would not be equitable for the High Court to refuse the amendment on the basis that the liquidators did not have locus standi when they brought the action and therefore that such action did not interrupt prescription. A company being wound-up did not have standing as the locus standi was always conferred on the liquidator who litigated on its behalf. Therefore, at the time when proceedings were instituted, the plaintiffs did have locus standi. The citation of the plaintiffs, even based on a strict interpretation of the section, was a mere misdescription.
Moratorium on legal proceedings against company subject to business rescue proceedings does not avail surety for debts: Section 133(2) of the Companies Act 71 of 2008 (the Act) provides that during business rescue proceedings a guarantee or surety by a company in favour of any other person may not be enforced against the company except with leave of the court. In Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC) the defendant, Bruyns, sought to rely on this section to resist summary judgment against him. The plaintiff, Investec Bank, had applied for summary judgment against the defendant on the basis of various claims, including those for suretyship contracts executed by the defendant in favour of the plaintiff relating to the debts of two companies in liquidation. The companies had since applied for business rescue, which applications were pending. Thus it was not the companies that were being sued, but the plaintiff, an individual, for standing surety for company debts. Summary judgment was granted with costs.
Rogers AJ held that, in its plain meaning, the section referred to a suretyship furnished by the company to a creditor on behalf of a principal debtor. The section referred to a contract of suretyship ‘by the company’ and to its enforcement by another person ‘against the company’. It was a special provision dealing specifically with the enforcement of claims against the company based on guarantees and suretyships and stipulated that in such cases the claims against the company would be enforced only with leave of the court. The statutory moratorium created by the section in favour of a company that was undergoing business rescue proceedings was a defence in personam. It was a personal privilege or benefit in favour of the company. As a defence in personam, it arose from personal immunity of a debtor in respect of an otherwise valid and existing obligation. The statutory moratorium created by the section in favour of the companies undergoing business rescue proceedings did not avail the defendant, who was not a company and was thus not undergoing business rescue proceedings.
Voidable disposition: Section 341(2) of the repealed Companies Act 61 of 1973 (the Act) provided that every disposition of its property by any company being wound-up and unable to pay its debts made after the commencement of the winding-up shall be void unless the court ordered otherwise. In Excellent Petroleum (Pty) Ltd (in liquidation) v Brent Oil (Pty) Ltd 2012 (5) SA 407 (GNP) the plaintiff company, Excellent Petroleum, had a contract with the defendant, Brent Oil, in terms of which the plaintiff bought diesel and, to a lesser extent, illuminating paraffin on a cash basis. However, on 3 April 2006 an application was made for the winding-up of the plaintiff on the ground of its insolvency and inability to pay its debts. A provisional winding-up order was granted on 31 May 2006. On 8 June 2008 the defendant was informed of the provisional winding-up and immediately ceased doing business with the plaintiff. A final winding-up order was granted on 18 July 2006. In terms of s 348 of the Act, winding-up of the company was deemed to have commenced on presentation of the winding-up application on 3 April 2006. After their appointment, the liquidators instituted proceedings for an order declaring void payments made by the plaintiff and for recovery of same. The court held that payments made between 3 April 2006 and 31 May 2006 were valid, while those made after that date until 8 June 2006, when the defendant ceased doing business with the plaintiff, were invalid and had to be recovered. As this limited success on the part of the plaintiff related to a mere 10% of the relevant claim, the defendant was ordered to pay 20% of the plaintiff’s costs.
Prinsloo J held that the court had a discretion to validate payments made by the plaintiff to the defendant before the date of its provisional winding-up. The exercise of this discretion was controlled by the general principles that applied to every kind of judicial discretion. In this respect, each case had to be dealt with on its own facts and particular circumstances, having regard to the good faith and honest intentions of the parties. The court was free to act according to what it considered to be just and fair in each case. In assessing the matter, the court should attempt to strike some balance between what was fair vis-à-vis the company in liquidation and what was fair vis-à-vis the creditors. In general, a court will refuse to validate a disposition by a company that occurred after the winding-up had commenced unless the liquidator, duly authorised, consented and there was a benefit to the company or its creditors. However, dispositions made after a provisional liquidation order was granted stood on a different footing as the effect of a winding-up order was to establish a concursus creditorum, with the result that nothing could thereafter be allowed to be done by any of the creditors to alter the rights of other creditors. Once that stage was reached, the court, although it could ratify a disposition made before the winding-up order, no longer had the power in terms of s 341(2) to authorise a company to make a disposition of its property. After a winding-up order had been made, whether provisional or final, the court could not grant an order for specific performance. The court could validate dispositions made before the provisional winding-up order was granted but could not validate dispositions made after that order.
Consumer credit agreements
Service of s 129(1) notice: Section 129(1) of the National Credit Act 34 of 2005 (NCA) provides, among others, that if a consumer is in default under a credit agreement, the credit provider may draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date. Further, the section provides that the credit provider may not commence any legal proceedings to enforce the agreement before first providing the required notice to the consumer. This section must be read together with s 65(1) and (2), which provide that every document that is required to be delivered to a consumer must be delivered in the prescribed manner. If there is no prescribed manner of delivery, the document must be delivered by ordinary mail, fax, e-mail or printable webpage. Another relevant section is s 130(4), which provides that in any legal proceedings, if the court determines that the credit provider has not complied with the applicable provisions, it must adjourn the matter before it and make an appropriate order setting out the steps the credit provider must complete before the matter may resume.
To date, s 129(1) has been the subject of much litigation. In Rossouw and Another v FirstRand Bank Ltd 2010 (6) SA 439 (SCA) the SCA held that the legislature’s granting to the consumer of a right to choose the manner of delivery ‘inexorably points to an intention to place the risk of non-receipt on the consumer’s shoulders’. It was therefore fair to conclude from the legislature’s express language in s 65(2) that it considered ‘dispatch’ of a notice in the manner chosen by the consumer sufficient for purposes of s 129(1)(a), and that actual receipt was the consumer’s responsibility. On the other hand, in Sebola and Another v Standard Bank of South Africa Ltd and Another 2012 (5) SA 142 (CC) the CC held that mere dispatch was not enough. Where the credit provider posted a s 129(1) notice, proof of registered dispatch to the address of the consumer, together with proof that the notice ‘reached the appropriate post office’ for delivery to the consumer, would, in the absence of contrary indication, constitute sufficient proof of delivery.
It is against this background that two recent decisions of the High Court, both by single judges, should be considered. The first is Nedbank Ltd v Binneman and Thirteen Similar Cases 2012 (5) SA 569 (WCC), in which a s 129 notice was sent by registered post to the mortgaged property and did reach the appropriate post office. Griesel J held that in these circumstances, and in accordance with settled authority, the credit provider had duly provided notice to the consumer as required by s 129(1). Therefore, the risk of non-receipt rested squarely with the consumer. As a result, default judgment was granted against the consumer.
The second case is that of Absa Bank Ltd v Mkhize and Another and Two Similar Cases 2012 (5) SA 574 (KZD). In this matter registered letters containing s 129(1) notices were sent to consumers and reached the intended post offices. However, they were not collected and were eventually returned as unclaimed. The credit provider, Absa Bank, was of the view that it had complied with s 129(1) and accordingly applied for default judgment when no appearance to defend was entered. Olsen AJ held that there had not been compliance with the section and postponed the default judgment applications sine die, reserving the question of costs. The court also made orders that the credit provider had to comply with before the proceedings could resume. As to the exact manner of service of s 129(1) notices to be used, the court found it convenient to leave all options provided for by s 65(2) open, including use of registered post. If the consumer has not chosen one of the modes set out in s 65(2), then all of them are available to the credit provider, it held. Distinguishing the instant case from the Sebola case, the court held that, given how registered post works, the selection of the point when a registered letter reached the consumer’s post office could well have been significant in the Sebola case but in the ordinary case, where the letter reached the correct post office, the selection of that point in the process would be entirely arbitrary but for the fact that the attainment of it could be proved. There was, therefore, no justification for a finding that the legislature ordained that the credit provider’s obligations under s 129(1) were discharged when the letter reached the consumer’s post office. It was not permissible for the court to reach a conclusion that the effect of the Sebola case was that it (the court) could ignore conclusive evidence that the s 129 notice did not reach either the consumer or the consumer’s address beyond the post office, and that compliance with the section had been proved. Positive proof of the fact that the notice did not reach the consumer trumped any conclusion that could be drawn from the facts, which suggested that the notice ought to have reached the consumer. If one knew for a fact that the s 129 notice did not reach the consumer, then evidence which could have gone the other way in other circumstances became irrelevant – a fact the court in the Sebola case would have been alive to. It was impossible to be satisfied that the notice reached the consumer if one knew as a matter of fact that it did not do so because it was returned to the credit provider.
Contracts
Exceptio non adimpleti contractus: The issue in TH Restaurants (Pty) Ltd v Rana Pazza (Pty) Ltd and Others 2012 (5) SA 378 (WCC) was the exceptio non adimpleti contractus defence. The applicant, TH Restaurants, entered into a franchise agreement with the first respondent, Rana Pazza, which specified the rights and obligations of the parties. Alleging breach of contract, the applicant approached the court by way of notice of motion seeking an order declaring the agreement to have been terminated; that the first respondent should be restrained from continuing to carry on the franchise business from the premises, and that it be substituted as tenant of the premises. In terms of the agreement, the applicant was franchisor of a restaurant business and the first respondent the franchisee. The agreement required the applicant to, among others, advise and assist the first respondent to start and continue running the business in return for which the latter had to pay monthly franchise fees (royalty) and advertising costs. After the first respondent failed to make payment for a number of months, the applicant launched the application, which was met with a defence of exceptio non adimpleti contractus; that is, as the obligation to make payment was dependent on the applicant complying with its contractual obligations, which had not be done, the first respondent was not in breach, with the result that the remedies sought could not be granted. The defence was upheld and the application dismissed with costs.
Yekiso J held that the defence of exceptio non adimpleti contractus was available to a party where the principle of reciprocity arose. It entitled the one party (from whom performance was demanded) to withhold such performance until the other party (the party demanding performance) had either rendered or tendered its own performance. It arose in circumstances where the performance and counter-performance were so closely linked that the one was undertaken in return for the other. Whether or not obligations were reciprocal in the sense required involved an interpretation of the agreement in order to determine whether or not the obligations were sufficiently closely linked with one another, so that the finding could be made that the one was undertaken in return for the other. Obligations that arose in bilateral contracts were presumed to be reciprocal unless a contrary intention appeared from the terms of the contract and/or the relevant circumstances. In the instant case the contract, in clear and unambiguous terms, provided that the payment required of the first respondent was to be made in consideration for the applicant performing the obligations it undertook to perform at all times during the term of the franchise agreement. Thus, the parties’ obligations arising from the franchise agreement were reciprocal, with the result that the first respondent was entitled to invoke the defence of exceptio non adimpleti contractus.
Estoppel
Representation of authority: In Northern Metropolitan Local Council v Company Unique Finance (Pty) and Others 2012 (5) SA 323 (SCA); [2012] 3 All SA 498 (SCA) two junior employees of the appellant Northern Metropolitan Local Council falsely presented themselves as having authority to sign contracts on behalf of the appellant. As authority to sign the contracts, one D, a security superintendent in the appellant’s services department, produced a resolution of the appellant signed by one V, a senior security superintendent. The alleged resolution of the appellant was in fact a fraudulent piece of paper. Based on that ‘resolution’, D, with the support of V, entered into contracts for the lease of a photocopier, radio phones and radio stations. At a meeting between D, V, their senior B, who was a strategic executive: Finance, and representatives of the first respondent company, Company Unique Finance, B informed all present that D and V did not have authority to enter into the contracts and that they were therefore null and void. Thereafter, the first respondent instituted proceedings against the appellant, claiming damages for breach of contract; in the alternative, delictual damages. It was the first respondent’s case that if D did not have actual authority to enter into the contract, he nevertheless had ostensible authority to do so as the appellant had made a representation that he had such authority.
The GSJ, per Blieden J, held that it was clear that the first respondent had relied on a proper and acceptable resolution confirming that D had authority to sign the contracts on behalf of the appellant and accordingly granted contractual claims against the appellant. The SCA upheld an appeal against the High Court order with costs.
Mpati P (Cloete, Snyders, Bosielo JJA and Ndita AJA concurring) held that where a principal (representor) had created an impression in another’s mind (though such impression could be wrong) that his agent (employee) had the requisite authority to transact on his behalf, he would be held liable under that transaction. However, in the instant case it was common cause that the document containing the resolution was fraudulent as no such resolution was passed by the appellant. Further, the alleged capacity in which V signed the document was false. There was no evidence that any official in the security subcluster of the appellant had authority to bind the appellant to any extent, other than possibly making small purchases for daily necessities. Indeed, the uncontested evidence of B was to the contrary. The impression that the representatives of the first respondent gained about the seniority of D and V and any other employee of the appellant who might have attended meetings with them could not be placed at the door of the appellant, who employed them at almost the lowest ranks in its administration, even in its security subcluster. The fact that D and V were given offices and might have had letterheads and stamps did not mean that they were clothed with authority to bind the appellant. What mattered was their seniority in the overall structure of the appellant and what ordinarily accompanied the positions they held.
Fundamental rights
Right to basic education: In Section27 and Others v Minister of Education and Another [2012] 3 All SA 579 (GNP) the first applicant, Section27, a public interest law organisation, brought an application in the High Court in its name as well as in the public interest. The second applicant, Dijannane Tumo Secondary School, was a school in the Limpopo province, which was attended by some 1 500 learners. The third respondent, Msipopetu, was a parent whose two children were affected by non-delivery of textbooks in the province. The first respondent was the Minister of Basic Education and the second respondent was the Member of the Executive Council (MEC) of the Limpopo Department of Education. The applicants sought four orders: Firstly, that the application be heard on an urgent basis; secondly, that it be declared that the respondents were acting in violation of the rights to basic education, equality and dignity, as contained in the South African Schools Act 84 of 1996 and s 195 of the Constitution, by failing to provide textbooks to some schools in Limpopo; thirdly, that textbooks be provided to schools by a specified date; and fourthly, that the respondents develop and present to court a catch-up/remedial plan to make up for lost time. The application was launched after the respondents failed to provide textbooks to schools in Limpopo by early May 2012. The orders sought were granted with costs.
Kollapen J held that the matter was urgent and that failure by the respondents to provide textbooks midway through the academic year constituted a violation of the right to basic education. The provision of learner support material in the form of textbooks was an essential component of the right to basic education. In fact, it was difficult to conceive how the right to basic education could be given effect to in the absence of textbooks. Conduct that would constitute a violation of this right did not have to be mala fide. Equally, the existence of bona fides could not have the effect of rendering conduct that would ordinarily constitute the violation of a right somewhat immune from attack simply because it was accompanied by bona fides.
Further, an order for only the delivery of textbooks would not address the consequences and effects of the delivery failure for the first half of the year. The circumstances of the matter required an intervention to address both the gaps in learning and teaching. This was to ensure that the prejudice learners would invariably have experienced on account of not having textbooks was ameliorated. Accordingly, the respondents were ordered to submit a catch-up plan by a specified date and thereafter provide monthly progress reports until the end of the 2012 academic year.
Immigration
State may not extradite or deport if exposure to real risk of death penalty: Section 7(2) of the Constitution places an obligation on the state to respect, protect, promote and fulfil the rights in the Bill of Rights. In Minister of Home Affairs and Others v Tsebe and Others 2012 (5) SA 467 (CC) two of the respondents, Tsebe and Phale, both nationals of Botswana, were alleged to have committed murder in Botswana, after which they fled to and entered South Africa illegally. As a result, the government of Botswana sought their extradition so that they could be prosecuted for the alleged crimes. However, in terms of the law of Botswana, capital punishment is mandatory on a murder conviction unless extenuating circumstances exist. Initially the South African government refused to extradite them until the government of Botswana gave an assurance that the death penalty would not be sought if they were convicted or, if imposed, such sentence would not be carried out. However, the South African government eventually agreed to extradite the two, notwithstanding the risk to which they were exposed. The two approached the GSJ for an order restraining the South African government from extraditing, deporting or otherwise surrendering them to Botswana. A full Bench (Mojapelo DJP, Claassen J and Bizos AJ) held that if the South African government was to extradite, deport or surrender the two to Botswana, this would subject them to the risk of the imposition of the death penalty and would be unlawful. The court further held that the government would be in breach of its constitutional obligations under s 7(2) of the Constitution if it were to extradite, deport or remove the two to Botswana without securing the requisite assurance.
On appeal to the CC, the court condoned the late filing of the appeal, granted the government leave to appeal directly to it and dismissed the appeal with costs, except costs relating to the appeal of Tsebe, who passed away before the High Court hearing. Delivering the majority judgment, Zondo AJ (Yacoob ADCJ dissenting) held that in terms of art 6 of the 1969 Treaty on Extradition between South Africa and Botswana, extradition could be refused if the offence for which extradition was requested was punishable by death in the requesting state (Botswana in this case) but not in the requested state (South Africa). Further, in terms of art 5(c) of the SADC Protocol on Extradition, extradition can be refused if the offence for which it is requested carries a death penalty under the law of the requesting state unless such state gives sufficient assurance that the death penalty will not be imposed or, if imposed, will not be carried out.
The principle in Mohamed and Another v President of the Republic of South Africa and Others (Society for the Abolition of the Death Penalty in South Africa and Another Intervening) 2001 (3) SA 893 (CC), was that the government had no power to extradite or deport or in any way remove from South Africa to another state that retained the death penalty, any person who, to its knowledge, if deported or extradited to such state, would face the real risk of the death penalty. This meant that if any official in the employ of the state, without the requisite assurance, handed over anyone from this country or under the control of South African officials to another country to stand trial, knowing that such person ran the real risk of a violation of his right to life, right to human dignity or right not to be treated or punished in a cruel, inhuman or degrading way in that country, he would have acted in breach of the duty provided for in s 7(2) of the Constitution. The human rights provided for in ss 10 (human dignity), 11 (right to life) and 12 (freedom and security of the person) of the Constitution are not reserved for the citizens of South Africa. Every foreigner who enters the country, whether legally or illegally, enjoys these rights and the state’s obligations contained in s 7(2) are not qualified in any way.
Income tax
Capital versus revenue receipt and VAT zero rating: In Stellenbosch Farmers’ Winery Ltd v Commissioner, South African Revenue Service; Commissioner, South African Revenue Service v Stellenbosch Farmers’ Winery Ltd 2012 (5) SA 363 (SCA) the taxpayer appellant, Stellenbosch Farmers’ Winery (SFW), had a distribution agreement with United Distillers (UD), a company based in the United Kingdom. The agreement gave the taxpayer the exclusive right to distribute UD’s liquor products, including the Bells whiskey brand, in South Africa. With 41 months to go, the parties agreed to terminate the agreement. As compensation for loss of the distribution right, the taxpayer was paid R 67 million. The respondent, the Commissioner for the South African Revenue Service, treated this amount as a revenue receipt and assessed it for income tax. The commissioner further assessed the same amount for value-added tax (VAT) at the rate of 14% in terms of s 7(1) of the Value-Added Tax Act 89 of 1991 (VAT Act). The Tax Court sitting at Cape Town (Louw J with Ranchod and Nduna as assessors) held that the amount received was of a revenue nature and thus had been correctly assessed for income tax. Further, the Tax Court held that, in terms of s 11(2)(l)(ii) of the VAT Act, the amount was taxable for VAT at a zero rate. The taxpayer appealed to the SCA against the income tax ruling of the Tax Court (the main appeal), while the commissioner cross-appealed against the VAT ruling (the cross-appeal). The main appeal was upheld with costs and the cross-appeal dismissed, also with costs.
Kroon AJA (Brand, Van Heerden, Tshiqi JJA and Boruchowitz AJA concurring) held that there was no single criterion for determining whether a receipt or accrual was to be categorised as capital or income. The question fell to be decided on the facts of each particular case. In the instant case the exclusive distribution right held by the taxpayer was a capital asset. On termination of the distribution agreement the taxpayer lost a capital asset. Compensation for the impairment of the taxpayer’s business by loss of the distribution right was properly viewed as a receipt of a capital nature. The taxpayer, which did not carry on the business of purchasing and selling rights to purchase and sell liquor products, did not embark on a scheme of profit-making. The receipt of the amount in question was of a capital nature. Further, by agreeing to the early termination of the distribution right, the taxpayer surrendered the remaining portion of the right, which surrender constituted the supply of services in the course of an enterprise by the taxpayer to UD. The exclusive distribution right, which was incorporeal property, was not situated in South Africa. The situs of an incorporeal right was where the debtor resided. In the instant case the place of residence of the debtor, UD, was the United Kingdom. The matter therefore fell squarely within the purview of s 11(2)(l)(ii) of the Act. The supply in question was subject to value-added tax at the rate of 0%. As a result, the decision of the commissioner that the supply was subject to VAT at the rate of 14% was incorrect.
Value-added tax
Input tax and imported services: Section 7(1)(c) of the Value-Added Tax Act 89 of 1991 (the Act) provides, among others, that there shall be levied and paid for the benefit of the National Revenue Fund a tax to be known as value-added tax (VAT) on the supply of any imported services by any person, calculated at the rate of 14% on the value of the supply concerned or the importation, as the case may be. Further, s 1 of the Act defines ‘input tax’ as, among others, tax charged on the supply of goods and services made to the vendor where the goods or services concerned are acquired by the vendor for the purpose of consumption, use or supply in the course of making taxable supplies. In Commissioner, South African Revenue Service v De Beers Consolidated Mines Ltd 2012 (5) SA 344 (SCA) the respondent, De Beers, was a South African company whose business was mining, marketing and selling diamonds. In the year 2000 the respondent received an offer from a consortium of international companies for the acquisition of its shares. To ensure that the offer made was adequate, fair and reasonable, the respondent engaged the services of a financial adviser, being the NMR company of London. The respondent also made use of the services of South African legal and financial advisers. After finalisation of the acquisition in 2001, the service providers presented invoices and were duly paid for services rendered. In the case of NMR, the respondent made full payment without deducting VAT, while in the case of the local service providers, they included VAT, which the respondent treated as input tax in its VAT returns. The appellant commissioner disallowed both. In the case of VAT charged by local service providers, the appellant determined that this did not qualify as input tax and disallowed it. In the case of the NMR payment, the appellant determined that its services amounted to ‘imported services’ and thus attracted VAT, which the appellant should have deducted from the payment made. Tax was accordingly payable by the respondent. On appeal to the Tax Court in Cape Town, Davis J held that the services rendered by NMR did not constitute ‘imported services’, while the local services rendered were held not to attract deductible input tax. The appellant appealed against the ‘imported services’ decision, while the respondent cross-appealed against the ‘input tax’ ruling. The appeal was upheld with costs and the cross-appeal dismissed with costs.
Navsa and Van Heerden JJA (Leach JA, McLaren and Southwood AJJA concurring) held that the duty imposed on a public company that was the target of a takeover (the respondent in the instant case) to ensure that the takeover offer was fair and reasonable was too far removed from the advancement of the respondent’s enterprise of mining, marketing and selling diamonds to justify characterising services rendered in the discharge of that duty as services rendered for the purposes of making taxable supplies, especially in the circumstances of the present case. Therefore, they were not taxable supplies and did not qualify for input tax deduction as the local service providers sought to achieve. Moreover, the services rendered by NMR had been consumed in South Africa. What was required was a practical approach to the issue. The fact that some meetings were held with NMR outside the country could hardly be used to justify the conclusion that the services were not consumed in South Africa. On the contrary, the compelling conclusion was that the NMR services were imported and consumed in this country.
Other cases
Apart from the cases and material referred to above, the material under review also contained cases dealing with appeal against sequestration order, asylum seeker acquiring South African domicile, cancellation of illegal tender, classification of goods for customs duty, delictual claim for emotional shock, disestablishing refugee reception office, division of joint estate on divorce, enforcing claim against deceased estate, inquiry into the affairs of a company, expert reconstruction of events, justifiable and reasonable limitation of right of freedom of expression, over-indebtedness and debt review, prescription of pension fund claims, protected occupation of land, restitution of land rights, sale of immovable property by auctioneer, substituted service of proceedings using social media and termination of right of residence of occupier.
This article was first published in De Rebus in 2012 (Dec) DR 37.
