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SARS’s Ultimate Remedy In Relation to a Recalcitrant Taxpayer Who Defies a Court Order

08 July 2013   (0 Comments)
Posted by: Author: PwC
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Author: PwC (Tax Synopsis, June 2013)

The seemingly interminable litigation between the well-known entrepreneur, David King, and the South African Revenue Service, continues to push the boundaries of SARS’s tax collection powers.

The latest episode in the on-going litigious saga is the recently-reported judgment in Murray NO v King
[2013] ZAGPPHC 68 in which judgment was handed down on 22 February 2013 in the North Gauteng High Court). 

This matter involved an application, brought by the court-appointed curator bonis, for King to be declared in contempt of court and be ordered to immediately purge his contempt, failing which he was to be committed to prison.

Non-compliance with an earlier court order

This urgent application to court was sparked by King’s alleged noncompliance with a preservation order granted by van der Merwe J on 14 November 2012 in terms of section 163 of the Tax Administration Act, which obliged King to hand over certain expensive vehicles, including a Ferrari and Mercedes Benz, to grant SARS access to a certain wine collection for purposes of valuation, and to hand over certain bank statements and company documents pursuant to a judgment secured by SARS on 5 August 2010. 

In terms of that judgment, all the issued shares in a King-controlled company, Talacar Holdings (Pty) Ltd, and the shareholders’ loan accounts in that company and in Metlika Trading Ltd were declared to be executable to satisfy the tax debts of Ben Nevis Holdings Ltd, which by this time exceeded R2.6 billion.

It seems (see the judgment at para [16]) that, in defiance of the latter court order, King had notified all the estate agents in Plettenberg Bay that the curator bonis had no right to instruct them to market the properties identified in the prior court order. This action by King led SARS to apply to court for a spoliation order, duly granted in February 2013. 

In an attempt to secure a stay of the application to have him declared to be in contempt of court, King seized on a clause in the court order in question which ostensibly provided that disputes in relation to the implementation of the order were to be resolved by mediation, failing which, by arbitration.

What must be proven to establish contempt of court

The court was unpersuaded by this argument and held (at para [20]) that, to establish that King was
indeed in contempt, the court had to be satisfied that a court order –

"was granted:

  • against the respondent
  • the respondent was either served with the order or was informed of its contents and had knowledge of the same; and
  • the respondent disobeyed the order or neglected to comply with it.”

In the present matter Pretorius J court observed (at para [22]) that –

"since the preservation order was granted on 14 November 2012 … the respondent has tried everything to avoid the order being executed. He has been obstructive in every respect …He has refused steadfastly to co-operate with the applicant in any manner. There is no dispute that the order had been served and explained to the respondent in numerous letters by the applicant’s attorneys. It is clear that the respondent is deliberately and wilfully obstructing the applicant to avoid the preservation order being executed.”

The nature and purpose of contempt proceedings

The court held that the application to declare King in contempt of court was indeed urgent, and pointed out (at para [3]) that proceedings for contempt of court were aimed not only at punishing the defaulter, but at serving the public interest in the administration of justice and, in this case, vindicating the Commissioner for the South African Revenue Service.

The court quoted from the decision in Protea Holdings Ltd and Wright 1978 (3) SA 865 where it was held by Nestadt J that –

"The object of this type of proceeding, which is concerned with the wilful refusal or failure to comply with an order of Court, is the imposition of a penalty in order to vindicate the Court’s honour consequent upon the disregard of its order”

The court held (at para [31]) that King’s counter-application in the present matter for a stay of the contempt proceedings "was merely launched to further delay and frustrate the execution of the preservation order” and concluded (at para [35]) that contempt of court had been proven.

In the result, the court handed down an order declaring that the matter was urgent, that King was in contempt of the order handed down by van der Merwe J, and that King must purge his contempt within 24 hours of the service of the present order. The court further ordered that King be committed to prison for three months, but this part of the order was suspended for three years on condition that he was not found to be in contempt of court during the period of such suspension. King was ordered to pay costs on the punitive scale of attorney and own clients.

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