On 8 April 2013 in Gaertner v Minister of Finance [2013]75 SATC 184,the Western Cape High Court held that sections 4(4)(a)(i)-(ii), 4(4)(b), 4(5) and 4(6) of the Customs and Excise Act,No. 91 of 1964 (the Customs and Excise Act) are inconsistent with the Constitution, and declared them invalid.
The declaration of constitutional invalidity has now been confirmed by the Constitutional Court in a unanimous judgment handed down on 14 November 2013.
However, the Constitutional Court suspended the declaration of invalidity for six months to enable Parliament to remedy the unconstitutionality.
The decision of the Constitutional Court is significant, not only in relation to the specific issue of the constitutionality of search and seizure in the context of the Customs and Excise Act, but for the courts general observations on the nature of and limitations to the right of privacy, in the business and in the domestic sphere. These dicta will carry great weight if the constitutionality of the search and seizure provisions of the Tax Administration Act, No. 28 of 2011 (the TAA) comes under scrutiny.
The facts of the case
In this particular case, the first and second applicants (Gaertner and Klemp) were directors of the third applicant, Orion Cold Storage (OCS), which was an importer and distributor of bulk frozen foodstuffs and held licences for storage warehouses.
Officials of the South African Revenue Service had conducted a search at OCSs premises and at Gaertners home in terms of section 4 of the Act, which does not require SARS officials to obtain a prior warrant.
The judgment recounts disturbing conduct on the part of those officials they gained access to the premises on the false pretence that they were merely conducting a bond inspection, and they warned if not threatened Gaertner that obstructing a search was a criminal offence and that they would, if necessary, call the police for assistance.
The SARS officials did not have a search warrant, and they told Gaertner that a warrant was not needed for a search in terms of section 4 of the Customs and Excise Act.
After searching the companys business premises they proceeded to Gaertners home to continue the warrantless search there. The SARS officials refused to give Gaertner reasons for the search and would not tell him what they were looking for. In the process of the search they went through personal belongings and gained access to the home computers, including those of Gaertners children.
The issues before the court
In the hearing in the Constitutional Court, all the parties were agreed that section 4 of the Customs and Excise Act is inconsistent with the Constitution and should be declared invalid, as it infringes the right to privacy.
However, the parties disagreed on the extent of the invalidity and on how the reading-in by the court should be formulated.
The judgment records that
After some initial half-hearted tenders, SARS finally tendered the return of all seized goods and the applicants costs on an attorney and client scale.
The constitutional right to privacy
Citing prior judicial decisions, the court affirmed (at para [35] of the judgment) that
The right to privacy extends beyond the inner sanctum of the home. Even though businesses do have a right to privacy, they have a lower expectation of privacy as to the disclosure of relevant information to the authorities as well as the public [and] regulated businesses possess a more attenuated right to privacy, more so if the business is public, closely regulated and potentially hazardous to the public.
The court pointed out that sections 4(4)(a)(i)-(ii), 4(4)(b), 4(5) and 4(6) of the Customs and Excise Act authorise warrantless searches at any time and at any premises whatever, that this clearly extends to private homes, and that the only qualification on the exercise of the searching power is that an officer may enter any premises for the purposes of this Act.
The court said that the wording of these provisions
is so broad that it brings within its sweep not only the places of business and homes of people who are players in the customs and excise industry, but also the homes of their clients, associates, service providers, and employees and their relatives. Quite conceivably, the premises business or homes of any person who, somehow, may be linked to a player in the customs and excise industry may be the subject of a search in terms of the impugned sections.
The court went on to say that
The language of the section says nothing about the need for the searches regardless of type to be motivated by a suspicion, let alone a reasonable one. This is true of business premises and peoples homes. The provisions are broad as to the manner of conducting the searches. Searches may be conducted in private dwellings at any time, and officials may not only break in at the dwellings but, once inside, they may even break up floors. And they do not need a warrant to do all this. That this power unbounded as to time, scope of the search and type of premises is extremely intrusive is manifest.
The court concluded (at para [43]) that sections 4(4)(a)(i)-(ii), 4(4)(b), 4(5) and 4(6) of the Customs and Excise Act do indeed limit the right to privacy.
Justification for the limitation on the right to privacy
As to whether the limitations on the right to privacy inherent in the statutory provisions could be justified in terms of section 36 of the Constitution, the court quoted from its decision in Magajane v Chairperson, North West Gambling Board [2006] ZACC 8 in which it was said that
The limitation analysis in terms of section 36 involves a proportionality review. A court has to consider an applicants expectation of privacy and the breadth of the legislation, among other considerations. The expectation of privacy will be more attenuated the more the business is public, closely regulated and potentially hazardous to the public.
Quoting from its own previous decision in Mistry v Interim Medical and Dental Council of South Africa [1998] ZACC 1; 1998 (4) SA 1127 (CC), the court said (at para [48]) that
The existence of safeguards to regulate the way in which state officials may enter the private domains of ordinary citizens is one of the features that distinguish a constitutional democracy from a police state. … . [The right to privacy] accordingly requires us to repudiate the past practices that were repugnant to the new constitutional values, while at the same time re-affirming and building on those that were consistent with these values.
The court went on to say (at paras [54] and [55]) that
The primary function of [excise duties and levies] is to ensure a constant stream of revenue for the state, with a secondary function of discouraging consumption of certain products that are harmful to health or the environment. The revenue generated from these duties and levies amounts to approximately ten per cent of the total revenue received by SARS. This means customs and excise controls serve an important public purpose. The Act is essentially a fiscal piece of legislation. The tight regulation of customs and excise is calculated to reduce practices that are deleterious to the purpose of the customs and excise regime. The impugned provisions ensure effective monitoring and prevent as far as possible evasion of payment of what is due in terms of the Customs and Excise Act. SARS tells us that despite the industry regulation that is in place, the country still loses billions of rand. Thus there is a need for regular inspections.’
The court differentiated business premises and private homes, and noted (at para [63]) that
The customs and excise industry is closely controlled and regulated. Given that fact, participants in the customs and excise industry must be taken to expect regular inspections. Consequently, the right to privacy in respect of business premises in this context is greatly attenuated. On the other hand, in respect of private homes the right remains as strong as one can imagine.
As regards the impugned provisions of the Customs and Excise Act, the court again remarked on the nature and scope of powers that could be exercised without a warrant, and said (at para [67] – [68]) that there must be a rational connection between the purpose of the law and the limitations on constitutional rights imposed by the legislation, and that
It is difficult to see how the achievement of the basic purposes of the Customs and Excise Act requires that inspectors be allowed to enter private homes and inspect documents and possessions at will. … Exceptions to the warrant requirement should not become the rule. A warrant is not a mere formality. It is a mechanism employed to balance an individuals right to privacy with the public interest in compliance with and enforcement of regulatory provisions.’
The court said (at para [73]) that
there is no cogent reason for not providing for warrants in respect of searches of peoples homes, with exceptions similar to those provided for in section 22 of the Criminal Procedure Act. There is no readily discernible reason in conducting searches for not having bounds as to time, place and scope.
The court concluded (at para [74]) that the impugned provisions of the Customs and Excise Act cannot be justified, but said that it would be problematic to draw a distinction between routine and non-routine searches and between types of premises.
The court said (at para [86]) that
Privacy is most often seen as a fundamental personality right deserving of protection as part of human dignity. This Court in Mistry held that, to the extent that a statute authorises warrantless entry into private homes and the rifling through private possessions, the statute breaches the right to privacy. To this end, it is necessary that the right to privacy with regard to the homes of individuals and their private possessions is protected. In this context the expectation of privacy is higher and, at the very least, entry and searches conducted there have to be authorised by warrants.
The order of the court
In the result, the Constitutional Court confirmed the Western Cape High Courts declaration of constitutional invalidity in relation to 4(4)(a)(i)-(ii), 4(4)(b), 4(5) and 4(6) of the Customs and Excise Act, but held that this would not be retrospective.
The order was to be suspended for six months to afford the legislature an opportunity to cure the invalidity. During the period of invalidity, section 4(4) of the Customs and Excise Act would be deemed to read in the manner laid down by the court.
In essence, what would be read into the Customs and Excise Act as an interim measure would be the requirement of a warrant where SARS officials wish to search private residences for the purposes of that Act.
(Editorial comment:Section 16 of the Tax Administration Laws Amendment Act No. 39 of 2013 gives effect to the comments of the court.)
PwC
Constitution of the Republic of South Africa: Section 21 and 36
Criminal Procedure Act: Section 22
Customs and Excise Act No. 91: Section 4
TAA: Sections 59 to 66