Supreme Court of Appeal unconvinced by van der Merwe story

capetownThe Supreme Court of Appeal was approached to set aside a preservation order that had been granted in the Cape High Court. The appellant’s conduct in prosecuting the appeal was dilatory and the Court showed its displeasure.

Non-compliance with legal processes and time limits in an appeal came to the fore in the recent litigation between SARS and Ms Candice-Jean van der Merwe.

The latest judgment in this litigious saga involved an application by Ms van der Merwe to the Supreme Court of Appeal for condonation (a pardoning by the court) of her failure to timeously proceed with her appeal against a preservation order that had earlier been granted in favour of SARS by the Cape High Court in respect of certain of her assets.

The tax debt owing byMs van der Merwe’s father

Ms van der Merwe’s father, Gary van der Merwe, had over a period of years been associated with certain commercial entities that had fraudulently claimed VAT refunds from SARS. He had been assessed to pay tax in the amount of some R66 million. He had not objected to the assessments, which had consequently become final and conclusive.

From this, it followed that if he became possessed of funds or assets at any time in the future, SARS would be entitled to seize them to pay his tax debt.

The background to SARS’s claim against Ms van der Merwe in relation to the tax debt due by her father was as follows:

Since the age of 19, Ms van der Merwe had been involved in modelling, but her earnings from 2009 to 2012 in that regard were modest.

In 2013, Lady Luck had suddenly smiled on her and funds of some US$15 million had been remitted from London to South Africa for her benefit by a foreign gentleman. At about the same time she had also, courtesy of a foreign benefactor, been given two expensive motor vehicles valued at over R2 million.

SARS asserted that Ms van der Merwe had received these funds and assets for the benefit of her father and on that basis had persuaded the Cape High Court to issue a provisional preservation order in respect of those assets, with a view to later proving that they could be seized to pay her father’s tax debt.

In seeking to persuade the Cape High Court to set aside the preservation order in respect of her assets, Ms van der Merwe had filed an affidavit explaining how she had become the recipient of the US$15 million and the two motor vehicles.

Ms van der Merwe recounted in her affidavit that, from the age of 19 years, she had been a model and had been invited to do modelling work at a resort for the super-rich in the Seychelles. There she had made the acquaintance of certain people, and got on very well with them, which she attributed to her healthy lifestyle and the fact that she had “a very engaging personality”.

In conversation with these wealthy people in the Seychelles she had mentioned that an Audi R8 was “her dream car”. After returning to Cape Town, she was involved in a motor accident in which the car she was driving was written off and she suffered a sprained ankle. She also mentioned this incident to them.

A few days later she “was thrilled to receive a phone call” from the Audi dealership in Cape Town to inform her that a new Audi R8, paid for in cash and registered in her name, was ready for her to collect. A few months later, a benefactor gave her a new Range Rover, and two new cell phones with unlimited international roaming were couriered to her.

On a separate occasion, when her Seychelles friends had visited Cape Town, she mentioned to them that she would like to look for a house in the upmarket suburbs of Camps Bay, Clifton or Fresnaye and “it was suggested to me that I look for a house in one of those areas which I liked because I would receive funds to pay for it”.

She later communicated to her Seychelles friends that she had seen a house that she liked which carried a price tag of R110 million.

Subsequently, the sum of US$15.3 million (over R140 million) was remitted to her by one of these friends and, after “negotiations by my father on my behalf”, she bought the property and transfer was passed to her.

SARS averred that these assets really belonged to her father

Not surprisingly, SARS took the view that these valuable assets that had fallen into Ms van der Merwe’s lap in this unusual way were in reality received and held by her on behalf of her father and could therefore be seized to pay his tax debts.

SARS had succeeded in persuading the Cape Town High Court to issue a provisional preservation order in terms of s 163 of the Tax Administration Act 28 of 2011 against those assets to ensure that they could not be disposed of and would remain available for later seizure and sale by SARS to pay Ms van der Merwe’s father’s tax debts and those of certain of his associate entities, should the Tax Court later so rule.

The circumstances leading to the application

After negotiation between the parties, a consent order was issued by the Cape High Court on 28 March 2014 granting Ms van der Merwe leave to appeal against the preservation order and granting SARS leave to cross-appeal to rectify defects in the order. In terms of the Rules of the Supreme Court of Appeal, Ms van der Merwe should have filed a notice of appeal within one month of the date of the order that granted her leave to appeal.

As no notice of appeal was filed, SARS filed its notice of appeal on 21 May 2014. Communication concerning the content of the record to be filed on appeal ensued in June and July of that year between SARS’s attorney and Ms van der Merwe’s attorney. The record was filed on 26 August 2014.

It was only on 29 August 2014 that Ms van der Merwe’s attorney sought to obtain consent from SARS for the late filing of a notice of appeal. This request was refused, and application was made to the Supreme Court of Appeal for condonation of the late filing of the notice of appeal. This application is the subject of the judgment.

The decision

The application was supported by an affidavit by Mr van der Merwe.

In this, he provided a series of explanations which included the appointment of new attorneys, relocation of the attorneys’ practice, unfamiliarity of the attorneys with the procedures, and confusion over the identification of who was appellant and who was cross-appellant.

Ponnan JA made it clear (at paragraph [11]) that condonation of non-compliance with the rules of court “is not to be had merely for the asking”.

It was found that the affidavit did not disclose exactly when the various events specified in the affidavit actually occurred. Ponnan JA, at paragraph [15], was not satisfied with the explanations:

This demonstrates an obvious lack of attention to matters that plainly called for an explanation and evidences a failure to fully and candidly enlighten the court, as an applicant in a matter such as this was obliged to do (Dengetenge Holdings (Pty) Ltd v Southern Sphere Mining and Development Company Ltd …). It follows thatthe explanation proffered is woefully inadequate and I thus find it impossible to hold that the delay in bringing this application has been explained in a manner which is even remotely satisfactory.

In matters of application for condonation, one of the issues that may be considered is the prospect of success. In this regard, Ponnan JA held (at paragraph [19]):

I have not dealt with the applicant’s prospects of success on appeal because, in my view, the circumstances of the present case are such that we should refuse the application for condonation irrespective of the prospects of success. This court has often said that in cases of flagrant breaches of the rules, especially where there is no acceptable explanation therefor, the indulgence of condonation may be refused whatever the merits of the appeal. This applies even where the blame lies solely with the attorney. Here the breaches of the rules are of such a nature and the explanation offered so unacceptable and wanting that condonation ought not, in my view, to be granted, irrespective of the applicant’s prospects of success, which were in any event poor. (Footnotes omitted)

The Court found the conduct of the applicant and her father so unacceptable that it granted an order for costs against Ms van der Merwe on the punitive attorney-and-client scale.

A similar warning wasgiven in another matter

This was not the only case of non-compliance that the Supreme Court of Appeal considered in its most recent session. In another tax-related matter, Miles Plant Hire (Pty) Ltd v Commissioner for the South African Revenue Service [2015] ZASCA 98 (1June 2015), the Court recited a litany of failed compliance on the part of the taxpayer and attempts by the shareholder to circumvent the processes instituted by SARS to recover tax debts due to it.

The applicant again came before the Court seeking condonation for the late filing of a notice of appeal.

Meyer AJA, who delivered the judgment of the Court, looked with disfavour on the application, stating (at paragraph [20]):

No acceptable explanation is given why condonation was not applied for without delay. Furthermore, no attempt is even made to explain Miles’ failure to seek the consent of SARS to limit the record before the voluminous record was lodged with the registrar of this court or for its failure to have prepared a core bundle of documents. Matters that called for an explanation have simply not been explained and the explanation that is proffered lacks credence and is sorely wanting.

The Court was mindful that SARS had an interest in the finality of the matter. The Court found that SARS had started winding-up proceedings because the company was unable to pay its debts, and that this had never been challenged by the company. Further, it was undisputed that the winding-up proceedings had already reached an advanced stage. Therefore, Meyer AJA concluded that the appeal would, in any event, be academic and that it was unnecessary for the Court to have to go as far as hearing the appeal.

The decision of the Court is given in paragraph [23]:

I need not deal with Miles’ prospects of success on appeal in relation to the interpretation of s 177 of the TAA. The facts of this case show flagrant breaches of the rules of this court without any acceptable explanation therefor. The cumulative effect of these factors coupled with SARS’ interest in the finality of the court a quo’s judgment and the evident prejudice to SARS and the body of creditors, is such that condonation should be refused irrespective of the prospects of success on appeal.

In this instance, the shareholder who had masterminded the delaying tactics was ordered to pay the costs out of her own resources, on the punitive attorney-and-client scale.

PwC Comment

These decisions sound a warning to persons who seek to delay SARS’s rights of recovery through litigation, and where there is a lack of urgency or respect for procedure. Condonation of a breach will be given due consideration when the applicant has sought to act diligently to repair the breach and is candid with the Court in explaining the circumstances of the breach. However, when a litigant displays a flagrant disregard for the procedures:

… to tolerate the type of conduct encountered here would be prejudicial to the administration of justice, the integrity of any appeal process and to the functioning of our highest courts of appeal. (C:SARS v Candice-Jean van der Merwe [2015] ZASCA 86: paragraph [18])

Legal process is designed to protect persons whose rights are in need of protection. Courts will look with disfavour on persons who seek to abuse the right of access to justice. In these cases, the taxpayers showed scant regard for the procedural rules, and they paid a high price for doing so.

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