Taxation risk on Lost or stolen cheques

stollen chequeThe principles to be applied in cases where cheques have been intercepted in the post and misappropriated by thieves have been summarised in previous case law, where it has been established that when a debtor tenders payment by cheque and the creditor accepts it, the payment remains conditional and is only finalised once the cheque is honoured.

Accordingly, where the cheque is misappropriated and someone other than the payee, by fraudulent means, converts the cheque into cash, the risk will lie with the debtor since it is the debtor’s duty to seek out his creditor. However, where the creditor stipulates a particular method of payment and the debtor complies with it, any risk inherent in the stipulated method of payment is for the creditor’s account.

In the recent decision of Stabilpave v SARS (615/12) [2013] ZASCA 128, the Supreme Court of Appeal (SCA) was asked to decide on a similar issue regarding the assumption of risk where a cheque was intercepted through the post and subsequently misappropriated by thieves.

The facts of the case are that Stabilpave (appellant) and the South African Revenue Service (SARS) agreed on a written statement of facts that SARS owed the appellant a tax refund of R724 494.29. This amount was reflected as the amount due to the appellant on the tax assessment form, dated 16 November 2006, which was issued to the appellant. The tax assessment form contained a specific notice to the creditor, which provided that unless banking details are provided to SARS in order for the payment to be effected by electronic transfer, the appellant elects or alternatively accepts that payment be effected by way of a cheque which would be collected at the nearest branch.

At the time of issuing the tax assessment form, the banking details of the appellant were not available to SARS and therefore a cheque, dated 12 November 2006, was made payable to the appellant for the sum of R724 494.29 plus interest that had accrued thereon. The cheque was drawn by SARS on ABSA Bank Limited and was crossed and marked “not transferable”. The cheque was subsequently intercepted through the post and was misappropriated through fraudulent means, resulting in the proceeds of the cheque not being received by the appellant.

In an attempt to recover the proceeds, the appellant instituted action against SARS for the payment of the tax refund that became due and payable to it on 16 October 2006, plus interest and costs. The appellant’s contention was that the obligation of SARS to pay the tax refund had not been fulfilled because in law there is no payment where a cheque is posted and lost before it reaches the creditor.

SARS on the other hand admitted to the debt owing to the appellant but raised the defence of payment. SARS further argued in the alternative that on a proper construction of the tax assessment notice, the taxpayer was afforded a choice as to the mode of payment and that by the taxpayer failing to provide its banking details, so that payment could be effected electronically, the taxpayer chose to be paid by cheque through the post.

The court of first instance accepted the contention of SARS and dismissed the appellant’s claim with costs. The matter was taken on appeal to the North Gauteng High Court, which also dismissed the appeal against the decision of the court of first instance.

The matter was finally taken on appeal to the SCA. The decisive question before the SCA was whether the notice contained in the tax assessment form gave the appellant a choice to select a mode of payment, and if it did, whether the appellant exercised the choice, whether expressly or by necessary implication, that SARS should effect payment by way of a cheque sent through the post.

The SCA held as follows:

  • Upon a plain reading of the notice in the tax assessment form, the notice does not give the appellant an option to select a mode of payment to be followed by SARS. The notice simply informs the appellant of the manner of payment, namely, that payment will be effected by way of a cheque if valid banking details are not made available to SARS.
  • There is no invitation, expressly or by necessary implication, to the taxpayer to furnish banking details should the taxpayer wish for payment to be effected by means of an electronic transfer.
  • The mere fact that a creditor knows or expects to receive payment by cheque through the post and does not raise an objection thereto, does not give rise to an implied request or election by the creditor to be paid in such a manner.
  • A clear indication that the notice does not afford the appellant a choice as to the manner of payment is that the notice did not contain a cut-off date on or before which the taxpayer might furnish its banking particulars to SARS.
  • Accordingly the notice simply serves to advise the appellant that banking particulars have not been presented to SARS and therefore payment would be effected by means of a cheque through the post.

In concluding, the SCA held that the notice issued to the appellant in the tax assessment form was merely for information purposes and clearly did not provide the appellant with any options for effecting method of payment. Instead, the method of payment was dictated to the appellant by SARS.

Accordingly, based on previous case law and established principles, the risk of loss of the cheque was not assumed by the appellant but remained with SARS. SARS therefore did not discharge its indebtedness to the appellant by effecting payment by means of a cheque through the post.

Accordingly the appeal was upheld with costs and judgment was granted against SARS.

Cliffe Dekker Hofmeyr
Common Law