Employee’s Tax – Emolument attaching orders

taxation 2A recent, much publicised decision in the Western Cape High Court declared certain provisions in the Magistrates’ Court Act (MCA) relating to the issuing of emolument attachment orders (EAO) to be invalid and unconstitutional.

In the matter of University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others (Case No. 16703/14) [2015] ZAWCHC 99 application was made to have EAOs issued against a number of clients of the applicant declared invalid.

An EAO permits the attachment of a debtor’s earnings and obliges the debtor’s employer (garnishee) to pay a specified amount out of the debtor’s earnings to the creditor or the creditor’s attorney until the debt and legal costs have been fully paid.

Issuance of an EAO is governed by section 65J of the MCA.

The principal requirement is that the EAO must be issued from the court of the district in which the employer of the judgment debtor resides, carries on business or is employed.

Secondly, an EAO may not be issued unless:

  • the debtor has consented to its issue or a court has authorised its issue; or
  • notice has been given by registered post, sent to the debtor’s last known address, warning that an EAO will be issued if the amount is not paid within ten days after posting of the notice, and an affidavit is given confirming that this procedure has been followed.

The EAO is prepared by the creditor or his attorney, signed by the creditor or his attorney and the clerk of the court, and served on the garnishee.

The reason for declaring the EAOs unconstitutional
The evidence before the Court placed considerable doubt on the validity of consent to the issuing of the EAOs. In addition, it was clear that the primary jurisdictional requirement that an EAO be issued from the court of the district in which the employer resides had not been met.

However, the judgment is of interest in its examination of the constitutionality of the EAO process.

Desai J observed at paragraph [5] that section 65A of the MCA gives a creditor the right to require a debtor to give evidence before a magistrate to enable the court to inquire into his or her financial affairs and to make an order which is ‘just and equitable’. In the matters before the Court, the EAOs had been issued by the clerk of the court without any judicial oversight.

In a review of international law and practice, Desai J considered the International Labour Organisation’s Protection of Wages Convention as well as the United Nations’ Guiding Principles on Business and Human Rights, which were ‘highly persuasive’, and noted at paragraph [74]:
“It seems to be firmly established in international law that states have a duty to protect their citizens against the abuse of human rights by business enterprises in their territory. Where such abuses do occur, states have a duty to provide victims with an effective remedy. These duties should be taken into account in the interpretation of the provisions of the MCA and the Constitution”

EAOs do not meet international norms inter alia to the extent that they may be issued by the clerk of the court without involvement of a judicial officer and the debtor is not given an opportunity to make representations before the EAO is issued. Desai J noted further at paragraph [76] that:
“The Constitutional Court has emphasised the general principle that there must be judicial oversight where an applicant seeks an order to execute against or seize control of the property of another person”.

The Constitutional Court’s decisions related to the attachment and sale in execution of property of a debtor. However, Desai J observed at paragraph [80] that, in two of these decisions:
“… the impugned sections prescribe a process for execution similar to the process prescribed in section 65J(2) of the [MCA]. In all these cases the absence of judicial supervision and the consequences of the execution process infringes [sic] several of the debtors’ constitutional rights”.

The EAOs were considered to be unconstitutional for the reasons set out in paragraph [84] of the judgment:
“The process of issuing an EAO requires an evaluation of the amount of money to be attached per month as compared to the amount needed by the debtor to support herself and her family. On the reasoning of the Constitutional Court [in Gundwana v Steko Development CC & Others 2011 (3) SA 608 (CC)], judicial
oversight over the issue of an EAO must be mandatory (rather than being subject to the discretion of the clerk of the court) and must occur when the execution order is issued (not subsequently, when an attempt might be made to have the execution order varied or set aside)”.

The Tax Administration Act (the TAA)
Section 172 of the TAA gives SARS the power to seek a civil judgment against a defaulting tax debtor.

Section 172(1) states:
“(1) If a person has an outstanding tax debt, SARS may, after giving the person at least 10 business days’ notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct”.

Furthermore, if SARS is satisfied that the giving of notice would prejudice the collection of tax, it may seek a judgment without giving notice, in terms of section 172(3).

The certificate must be filed with the clerk of the court that has jurisdiction over the taxpayer concerned.

Upon filing, the certified statement acquires the status of a civil judgment, under section 174, which states:
“A certified statement filed under section 172 must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement”.

It is therefore possible for SARS to take a civil judgment against a taxpayer without following the normal procedures for the prosecution of a debt claim and, in certain circumstances, without giving the taxpayer notice.

Section 179(1) of the TAA confers even stronger powers on SARS:
“(1) A senior SARS official may by notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, require the person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt”.

In effect, without reference to a court, SARS may obtain the equivalent of an EAO or an order of attachment of moneys against a taxpayer.

In light of the University of Stellenbosch Legal Aid Clinic decision and the Constitutional Court cases cited by Desai J in that matter, it would appear that the provisions of section 179 of the TAA would fail the test set out by the Constitutional Court, namely that judicial oversight should be mandatory.

Desai J stated in paragraph [85] of the judgment in the Stellenbosch University Legal Aid Clinic matter, with reference to sections 65J(2)(b)(i) and (ii) of the MCA, that these provisions:
“… are in the circumstances constitutionally invalid to the extent that they allow for EAOs to be issued by a clerk of the court without judicial oversight. This is so both with regard to international law and to the current jurisprudence of the Constitutional Court”.

SARS regularly issues attachment orders requiring banks to transfer client funds to SARS in settlement of tax debts which are owed by the banks’ clients. In these instances, the intervention of a court is not required. There appears to be no constitutional checks in place to establish whether these procedures are, in the circumstances, just and equitable.

It is difficult to comprehend how, under the Constitution, the exercise of powers by the State in the collection of taxes can be viewed differently than the exercise of powers by a civil judgment creditor in collecting a debt. The purpose of the procedures is the same, and the constitutional checks and balances should be identical.

PwC
Magistrates’ Court Act: Sections 65A and 65J(2)(b)
TAA: Sections 172, 174, and 179 (1)

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