Court name
Harare High Court
Case number
HC 909 of 2014

Fairdrop Trading (Pvt) Ltd v ZIMRA (HC 909 of 2014) [2014] ZWHHC 68 (18 February 2014);

Law report citations
Media neutral citation
[2014] ZWHHC 68
Coram
Mafusire J

HH 68-14

HC 909/14

FAIRDROP TRADING (PRIVATE) LIMITED                                                                 

versus

THE ZIMBABWE REVENUE AUTHORITY

 

 

HIGH COURT OF ZIMBABWE

MAFUSIRE J

HARARE, 10, 13, 17 & 19 February 2014

 

                                                                                       

Urgent chamber application

 

Advocate L. Uriri, for the plaintiff

Advocate T. Magwaliba, for the defendant

 

MAFUSIRE J: This was an urgent chamber application. One had to wade through layers of emotional hyperbole to get to the nub of the matter and to identify the real issues for determination. Each side gave as much as it got. It was a mortal combat, in the literal sense.

The applicant is a company. It runs a hospital. It said it was fighting for its life and that of its patients, especially its cancer patients and also its employees. It said unless the exorbitant tax assessments by the respondent for the period 2010 to 2013 were set aside in the long run, and unless the suffocating garnishees that the respondent had imposed on its revenue sources were uplifted in the interim, and as a matter of urgency, it surely was going to liquidate. It said the situation was that dire.

The respondent is a statutory corporation. It is established by s 3 of the Revenue Authority Act, [Cap 23:11]. It is the tax collector for government. Despite the Biblical exhortation “render therefore to Caesar the things which are Caesars’” undoubtedly few obey willingly, Christians and non-Christians alike. It is not hard to imagine hard-pressed workers and other taxpayers with families and extended families to support wanting to exclude government from the list of dependants. The temptation sometimes is for some to craft some tax evasion schemes. Viewed from that angle the respondent’s task must be an unenviable one. But the government is a step ahead. The respondent is clothed with enormous powers to levy and collect taxes.  

It is public policy that revenue inflows to government should not be interrupted. Government functions must not grind to a halt. Therefore, for example, through the Income Tax Act, [Cap 23: 06], (“the Act”), in addition to the power to levy and collect taxes (s 6) the government, through Parliament, has granted respondent the following sweeping powers:

 

1.      Section 45 of the Act, the power to make tax assessments and even to make estimates of taxes due from the available information,  

 

2.      Section 46 of the Act, the power to levy penalties on taxes due but unpaid,

 

3.      Part VI of the Act, the power to appoint another person to be the agent of a taxpayer where there is some taxable income due by the agent to the taxpayer, and the power to penalise the agent for any breach of this obligation.

 

4.      Part VII of the Act, the power to insist on payment of any tax as levied pending the determination of any objection to, or an appeal against, a tax as charged, and the power to resort to self-help to recover such tax.

 

In casu, the record shows that since 2010 the respondent has been tussling with the applicant for alleged non-payment of taxes. The respondent complained that the applicant has not provided useful information on the financial aspects of its hospital project which would enable it to make a meaningful assessment of the tax payable. The respondent made an assessment of the tax due by the applicant for the years 2010, 2011, 2012 and 2013. Together with penalties the total amount required from the applicant was US$3 253 646-62 (three million two hundred and fifty three thousand six hundred and forty six United States dollars and sixty two).

The record also shows that initial assessments by the respondent had subsequently been revised considerably downwards, sometimes even to the point of carrying over zero balances into the next assessment year. The respondent explained that this happened following the receipt of further information from the applicant.

The respondent had at one time or other appointed representative taxpayers in respect of the applicant and had imposed garnishees for the attachment of moneys due to the applicant. The representative taxpayers were some medical aid societies, apparently the main revenue streams for the applicant. It appears that despite the tussles the parties remained in constant dialogue to find an amicable solution and a workable plan. However, it is apparent that mutual mistrust remained. Matters deteriorated from July 2013 when the respondent started reinstating the garnishees. In November 2013 the applicant lodged a comprehensive objection to the tax assessments for all the years from 2010 to 2013. The respondent treated the objection as one made in terms of s 62 of the Act. The relevant portions of that section read:

62 Time and manner of lodging objections

 

(1)   Any taxpayer who is aggrieved by –

 

(a)    any assessment made upon him under this Act;

 

(b)   ……………………………………………………….

 

(c)    ……………………………………………………….

 

may, unless it is otherwise provided in this Act, object to such assessment, ……. within thirty days after the date of the assessment …….. in the manner and under the terms prescribed by this Act;

 

(2)   …………………………………………………………….

 

(3)   ……………………………………………………………..

 

(4)   On receipt of a notice of objection to an assessment, …………………. the Commissioner –

 

(a)    may reduce or alter the assessment, ……….. or may disallow the objection, and

 

(b)   shall send the person upon whom the assessment has been made …………notice of the ……..alteration or disallowance.

 

Provided that, if the Commissioner has not notified the person who lodged the objection of his decision on it within three months after receiving the notice of objection, or within such longer period as the Commissioner and that person may agree, the objection shall be deemed to have been disallowed.”

 

Upon receipt of the applicant’s objection aforesaid respondent invoked the provisions of s 69 of the Act. That section reads:

69 Payment of tax pending decision on objection and appeal

 

(1)   The obligation to pay and the right to receive any tax chargeable under this Act shall not, unless the Commissioner otherwise directs and subject to such terms and conditions as he may impose, be suspended pending a decision on any objection or appeal which may be lodged in terms of this Act.

 

(2)   If any assessment or decision is altered on appeal, a due adjustment shall be made, for which purpose amounts paid in excess shall be refunded and amounts short paid shall be recoverable”

 

On 16 January 2014 respondent appointed the applicant’s bank, Stanbic Bank Zimbabwe, as the applicant’s agent in terms of s 58 of the Act. It imposed the last of the garnishees. That stung the applicant. On 4 February 2014 it filed the urgent chamber application. Through its deponent Dr Munyaradzi Kereke (“Dr Kereke”), the Chairman of the Board of Trustees for the Rockfoundation Family Trust, the applicant’s holding entity, the applicant went on the attack. It condemned the garnishees as a hatchet job. The respondent was said to have been heavy-handed, vindictive, dishonest, malicious, cold-hearted and it was accused of an abuse of power in that, inter alia, it generate false and gargantuan tax liabilities to collapse the applicant.

Away from the emotions and hyperbole, the substance of the application was that the respondent’s tax assessments were demonstrably fallacious, manifestly wrong and grossly unreasonable in the “Wednesbury” sense. The applicant picked a number of examples. Respondent had rejected certain sources of income or the shareholder assets that had been injected as start-up capital for the hospital project. Those ranged from Dr Kereke’s immovable property upon which the hospital was to operate. The respondent was said to have disallowed the cost of the renovations and extensions to those premises as not being genuine tax deductible expenditures. The respondent argued that the premises remained registered in the name of Dr Kereke and that they would not form part of the assets for the applicant in the event of its liquidation.

The respondent was also accused of having treated as income for the applicant and of having taxed it accordingly, Dr Kereke’s terminal benefits and severance package from his former employer, the Reserve Bank of Zimbabwe (“the Reserve Bank”) in the sum of US$950 000 (nine hundred and fifty thousand United States dollars). Almost half of it was said to have been injected into the hospital project.

Other sources of income for the hospital project were said to have included the proceeds from Dr Kreke’s farming operations, including the sale of tobacco and goats. It was also said that they had included the bride price, or lobola proceeds from sisters getting married.

Other flash points included the respondent’s refusal to acknowledge payments for specialist consultants such as doctors and auditors whose fees would ordinarily not be subject to ‘Pay As You Earn’ (PAYE) but to a 10% withholding tax. There were numerous other issues such as those relating to related party borrowings. In particular, the respondent was said to have disallowed tax deductions for interest charges on certain loans by the applicant from certain commercial banks that the applicant had accessed through a surrogate entity called Pedalball Investments (Private) Limited (“Pedaball”. Dr Kereke said he controlled Pedaball indirectly. It was explained that such a disguised manner of borrowing had been necessary as a sanctions-busting measure since Dr Kereke was one of those Zimbabweans under sanctions by Western countries.

The respondent in turn accused Dr Kereke of having been extremely uncooperative. He was said to have failed or refused to supply proper information on the applicant’s tax liabilities. The applicant was said to have evaded paying taxes ever since its inception. It was argued that there simply had been no paper trail or verifiable information on all the impugned transactions. The respondent scoffed at the suggestion that capital for such a massive project as the applicant’s hospital could have been raised from the sale of goats and the proceeds oflobola as if the business was a tuck-shop!

As final relief the applicant sought an order of mandamus to compel the Commissioner General to hear and determine the applicant’s appeal filed on 21 November 2013 within seven days of the order. For interim relief the applicant sought the suspension of the garnishees pending the determination of the applicant’s appeal on 21 November 2013, including any appeal to the Fiscal Appeal Court.

At the hearing the respondent went on the attack. It took some points in limine. The first was in relation to a fourth set of affidavits that had been filed by the applicant. It was a supplementary affidavit by Dr Kereke. It had been filed on the new day of earing. No leave had been sought. The matter had already been twice postponed before.

Mr Magwaliba, for the respondent, objected to the admission of this supplementary affidavit. He said he had not read it. And no leave had been sought. Mr Uriri, for the applicant, submitted that he had not read it either. The affidavit had been handed over to him by his instructing practitioner just before the commencement of the proceedings. Therefore, Mr Uriri argued that none of them had an advantage over the other. At any rate, he said, in urgent applications, the courts tended to be more flexible in the application of the rules.

I disallowed the affidavit. If none of the parties’ counsel had read the document then it would add no value to their submissions. Urgent chamber applications are a species of court applications or motion proceedings. Among other things, no further affidavits beyond the answering affidavit can be filed without the leave of the court or judge. In Silver’s Trucks (Pvt) Ltd & Anor vDirector of Customs and Excise 1999 (1) ZLR 490 (H) it was held that it is only in exceptional circumstances that the court will allow the filing of an additional affidavit. There must be an application for leave to file such an affidavit. An explanation must also be given for the failure to submit all the information in the previous affidavits and for the late filing of the additional affidavit.

The next objection in limine by Mr Magwaliba was that the application was not urgent. The garnishees had been imposed from since July 2013 to November 2013. The last had been on 16 January 2014. The need to act had arisen much earlier than 4 February 2013 when the urgent chamber application had finally been filed.

The urgency that is contemplated by the rules of court is not only gauged by the imminence of the day of reckoning. It is also gauged by the day the need to act arose. In Kuvarega vRegistrar-General & Anor 1998 (1) ZLR 188 (H) CHATIKOBO J said, at p 193 F -G:

“What constitutes urgency is not only the imminent arrival of the day of reckoning; a matter is urgent, if at the time the need to act arises, the matter cannot wait. Urgency which stems from a deliberate or careless abstention from action until the dead-line draws near is not the type of urgency contemplated by the rules. It necessarily follows that the certificate of urgency or the supporting affidavit must always contain an explanation of the non-timeous action if there has been any delay.”

 

Mr Uriri argued that in this matter there was commercial urgency in the sense contemplated in the Silver’s Trucks’ case above. In that case the urgent chamber application had been brought some four months after the applicant’s goods had been embargoed by customs. It was held that the court has power to hear an application as a matter of urgency not only when there is a serious threat to life or liberty but also where the urgency arises out of the need to protect commercial interests. See also the case of 20th Century Fox Film Corporation & Another vAnthony Black Films (Pty) Ltd 1982 (3) SA 582, at 586, which is quoted by SMITH J in the Silver’s  Trucks’ case above , at p 492F – H.

I was satisfied that the matter was urgent. The last garnishee by the respondent was on 16 January 2014. It was against the applicant’s bank. It was a very serious stranglehold on the applicant’s major revenue. There was no inordinate delay when the urgent chamber application had eventually been filed on 4 February 210. The application was quite voluminous - 199 pages. Therefore it must have required lots of time to put it all together.   

On the merits, for one to succeed for an interim interdict one must show at least four elements. These are:

1.      that one has a prima facie right that one wishes to protect even though the right be open to some doubt,

 

2.      that one has a well-grounded apprehension of an irreparable harm such as would not be cured by damages,

 

3.      that the balance of convenience favours the granting of an interim interdict,

 

4.      that there is no other alternative remedy that is effective;

 

See Networking Technologies v System Publishers and Anor 1997 (1) SA 391 at p 398 – 399; Universal Merchant Bank Zimbabwe Ltd vThe Zimbabwe Independent And Anor 2000 (1) ZLR 234 (H) and Flame Lily Investments Company (Pvt) Ltd vZimbabwe Salvage (Pvt) Ltd and Anor 1980 ZLR 378.

During argument I kept asking how the applicant’s situation could be said to be any different from that of any other taxpayer who objects to an assessment and appeals to the Commissioner General but against whom the provisions of s 69 are nonetheless invoked. Mr Uriri submitted that the respondent’s tax assessments in issue were grossly unreasonable in the Wednsesbury sense.

A decision that is grossly unreasonable in the Wednesbury sense is a decision that is irrational. It is a decision that is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the issue to be decided would have arrived at it: see CCSU v Minister for the Civil Service [1984] 3 All ER 939 (HL) at p 950 – 951 which was quoted with approval by DUMBUTSHENA CJ in Patriotic Front – ZAPU v Minister of Justice, Legal and Parliamentary Affairs 1986 (1) SA 532 (ZS) at p 548 (also reported in 1999 (2) ZLR 305 (SC).

The Wednesbury principle derives from the English case one of whose parties bore that name. This was the case of Associated Provincial Picture Houses Ltd vWednesbury Corporation [1948] 1 KB 223 9 (CA). As McNALLY JA observed in the case of City of Harare vParsons 1985 (2) ZLR 293 SC, at p 298, the Wednesbury principle was laid down by LORD GREENE  MR in the Wednesbury Corporation case aforesaid in the context of a judicial review. LORD GREENE had said, at p 228:

“When an executive discretion is entrusted by Parliament to a body such as the local authority in this case, what appears to be an exercise of that discretion can only be challenged in the courts in a strictly limited class of cases.”

 

It appears though that the Wednesbury principles have been developed to apply to virtually every exercise of power by executive authority or statutory functionary such as the respondent in casu. If a decision is so grossly unreasonable as to be outrageous in its defiance of logic or of acceptable moral standards then it is grossly unreasonable in the Wednesbury sense. In such a situation the court will ask whether the executive authority or statutory functionary whose decision is being impugned had taken leave of his senses. This undoubtedly is a very high standard indeed.

In this matter Mr Uriri highlighted a few examples of the alleged gross irrationality of the respondent’s tax assessments. He said the respondent would in one year raise tax assessments with substantial sums of money said to be due, only to reverse them in the following year, sometimes even carrying forward negative balances or losses. In response, Mr Magwaliba, submitted that the assessments were always reviewable and that the amounts were sometimes reversed upon the supply of more information by the applicant That to me is quite a rational explanation.

Mr Uriri pressed on with the issue of shareholder funds, particularly in relation to the immovable premises and the renovations thereto. He also referred to the respondent’s treatment of related party borrowings involving Pedalball. He referred to the treatment of Dr Kereke’s terminal benefits and his severance package from the Reserve Bank. He referred to Dr Kereke’s complaint about respondent’s heavy handedness and the high degree of scrutiny his transactions were subjected. Such conduct, he argued, was manifestly an abuse of statutory power. The respondent could have easily got the information it wanted from the Reserve Bank itself or from its lawyers at the time.

Mr Magwaliba countered that the applicant was the author of its misfortune. It been extremely uncooperative. The onus had been upon it to supply all the information required to the satisfaction of the respondent. For example, there was no reason why a basic finance document like a balance sheet should remain outstanding years after it had been requested. He said even by the time of the hearing certain of the information was still outstanding.

On the issue of an irreparable harm and the preponderance of equities, Mr Uriri submitted that the balance of convenience favoured a suspension of the guarantees. He said the applicant had established a prima facie right by showing a gross unreasonableness on the part of the respondent. The applicant stood to suffer irreparable harm if the garnishees were not suspended. The applicant was on the verge of liquidation. Only US$10 remained in its Stanbic Bank account. Employees had not been paid for months. The pharmacy department had shut down. The cancer unit would inevitably shut down and thereby put many cancer patients in jeopardy. Creditors were descending on the hospital and one of them had already made an attachment of some of the applicant’s assets. But despite all that, applicant argued, the situation could still be managed if revenue streams were unblocked. On the other hand there would be no significant prejudice to the respondent. At any rate, since inception the garnishee had yielded only US$172 000 (which the respondent corrected to US$132 000).

In response Mr Magwaliba submitted that the garnishees had nothing to do with the applicant’s plight. The litigation against it had commenced well before the onset of the garnishees. The applicant had simply failed to prudently manage its affairs and should not cry foul when the law was taking its course.

The applicant is not without my sympathy. It is undoubtedly in dire straits. It has made a very strong and persuasive moral argument for the hardships it is facing. But one should not be dazzled by that. The argument is short on law.  The respondent has the law on its side. It must be assumed that parliament was alive to the hardships or unfairness of the application of s 69 of the Income Tax Act. The law says in spite of any objection or any appeal, the tax as charged is payable. Any overcharge is refunded should the objection or the appeal succeed.

I find nothing peculiar in the circumstances of the applicant to warrant a treatment that is different from the rest of the other taxpayers that may find themselves with objectionable tax assessments against which they will have appealed. The garnishees may worsen the applicant’s bad situation. But regrettably, those are some of the natural consequences of the application of the law. I have found nothing outrageous or grossly unreasonable in the respondent’s conduct. The applicant was offered the chance to avert the garnishees by offering an acceptable payment plan. Before it filed the urgent chamber application none had been submitted. The one submitted after the launch of the application was rejected by the respondent. The respondent made a counter offer. The applicant said the counter offer was way beyond its means. But that does not make the conduct of the respondent, grossly unreasonable in any sense.

Furthermore, the applicant had defaulted on a previous payment plan. Admittedly there would have been reasons for such default. But in such circumstances I am unable to find fault with the respondent’s conduct, let alone anything that would amount to conduct so grossly outrageous in its defiance of logic or accepted moral standards as to be liable to impeachment by the court.

In the premises the application is hereby dismissed with costs.

 

 

 

 

 

Magaya-Mandizvidza,applicant’slegal practitioners

 

Legal and Corporate Services Division, respondent’s legal representative