The Mark Lifman judgment: the High Court refuses to interdict the enforcement by SARS of a judgment taken against the taxpayer

court_rod_gavelMark Lifman has recently been the subject of many lurid newspaper stories, with City Press describing him as ‘one of South Africa’s biggest underworld bosses and one of Cape Town’s richest and most feared underworld figures’. It has been reported that he owes SARS some R388 million in tax.

Not for the first time in history has a powerful underworld figure met his Waterloo when engaging with the tax authorities.

A judgment of the Cape Town High Court delivered on 17 June 2015 (but not yet reported) recorded that Lifman and various close corporations of which he was the sole member owed an undisputed tax debt to SARS of over R13 million (some R3 million of which was owed by Lifman personally) that had accumulated over some ten years. Further tax debts (see para [6]) were still in issue.

This tax liability had come to light in an inquiry held in 2014–2015 in terms of section 50(1) of the Tax Administration Act 28 of 2011 into alleged non-compliance with tax obligations on the part of Lifman and 35 juristic entities making up ‘the Lifman Group’.

SARS had given notice of its intention to seek a civil judgment against Lifman and his close corporations if they failed to adhere to a date for payment of 31 March 2015 that had been agreed with SARS. When payment as agreed was not forthcoming, SARS took a civil judgment against them in terms of section 172(1) of the Tax Administration Act.

Application to interdict SARS from enforcing the judgment

On learning that a judgment had been taken against them, Lifman and his controlled close corporations attempted to interdict SARS from executing on that judgment.

The main argument put forward by Lifman was that SARS did not give the notice required by section 172(1). This provision states that –

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.

Section 174 goes on to provide that –

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.

Read together, the import of these provisions is that, having secured what amounts to a civil judgment on the basis of a mere ‘certified statement’, SARS can enforce the judgment in all the ways open to a judgment creditor, including the attachment and sale in execution of the taxpayer’s property.

This is the most draconian aspect of the notorious pay-now-argue later rule.

Potentially catastrophic consequences

The taking of such a judgment has potentially catastrophic consequences for a taxpayer.

Consequently, the statutory requirement in section 172(1) that SARS must give the taxpayer at least ‘ten business days’ notice’ assumes great importance, for it is the only procedural safeguard interposed between assessment and the taking of judgment.

It might therefore be expected that a court would adopt a strict interpretation of this solitary procedural bulwark for the taxpayer, bearing in mind that the taking of judgment in terms of these provisions is not preceded by any judicial scrutiny of the assessment to tax on which it is based. The assessment may thus be revealed in a subsequent appeal to have been completely wrong, by which time the taxpayer may, through sales in execution, have been stripped of his funds, his assets and his business.

In the Lifman case, however, the potential for a judgment based on an inaccurate assessment to tax was absent, for Lifman (see para [5] of the judgment) had, in the course of the statutory inquiry in terms of section 50(1) of the Tax Administration Act, admitted liability for the R13 million tax debt in issue and (see para [8]) caveats had been voluntarily entered against some properties, which SARS no doubt intended to sell in execution.

Lifman was left with few cards to play

In the circumstances, Lifman had few cards to play in attempting (see para [1]) to have the statutory judgment set aside or suspended.

The strongest argument available to him was that the notice given by SARS in terms of section 172(1) did not comply with the statutory requirements.

The judgment recounts in this regard (see para [9]) that at a meeting on 3 March 2015 between Lifman (represented by his legal team) and SARS, he was –

notified in writing about [SARS’s] intention to seek civil judgment on the outstanding tax debt of the applicants should applicants fail to adhere to the agreed payment date, that is, 31 March 2015.

Regrettably, given the central importance of the contents of this written notification in this litigation, the judgment does not quote the precise words of the notification. The judgment merely states (see para [30]) that on 3 March 2015, SARS’s attorneys –

caused a letter to be despatched to [Lifman’s] attorneys informing them that the current tax debt must be met by end March 2015 failing which SARS will resort to all procedures available to it to collect the debt from the taxpayers which may include obtaining civil judgments.

Lifman argued that he had been deprived of his right to be given the notice required by section 172(1).

In particular, he argued (see para [13]) that he was, in terms of this letter, merely given a general notice by SARS that it would apply for judgment in terms of section 172; and moreover, that such notice had been given more than ten days before payment was due in terms of the agreement.

In ruling on the interpretation of the requirement in section 172(1) of ten business days’ notice, the court (at para [26]) quoted a dictionary definition, saying –

The word ‘notice’ in the Oxford Dictionary means ‘notification or warning of something especially to allow reparations to be made

and the court then adopted this meaning,
saying that –

the purpose of giving notice is to give notification or warning . . . to allow preparations to be made.

The Promotion of Administrative Justice Act

The point that the judgment seems to overlook is that the Commissioner’s decision to invoke the provisions of section 172 to take a civil judgment against a taxpayer constitutes administrative action and thereby triggers the taxpayer’s rights in terms of the Promotion of Administrative Justice Act 3 of 2000. Thus, a taxpayer can, in terms of PAJA, require SARS to provide the reasons for the decision and then take the decision on review to the High Court in terms of that Act.

If the judgment in Lifman is correct, SARS could just routinely add a postscript to every notice of assessment saying that if the amount due in terms of this assessment is not paid forthwith, SARS reserves the right to take a civil judgment in terms of section 172(1).

Such a general and conditional notice would leave the taxpayer completely in the dark as to whether or not SARS actually intended to take such action.

It is strongly arguable that what section 172(1) requires is a notice expressed as an unequivocal decision taken by SARS that, unless payment of the assessed and currently outstanding tax is forthcoming by a specified date –

a certified statement will be filed with the clerk or registrar of the court in terms of section 172(1) of the Tax Administration Act

and that such a notice should not be given unless and until SARS has actually made a decision to take judgment in terms of section 172(1).

In other words, an interpretation of section 172(1) should be in harmony with a taxpayer’s constitutional right to fair administrative action.

This article first appeared on pwc.co.za.

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