Is there Life After the Constitution for Interpretive Aids?
16 August 2016
Posted by: Author: Craig Miller
Author: Craig Miller (PwC)
Historically, legal presumptions and aids such as the contra fiscum have been used by courts
to interpret tax legislation, but following the introduction of the
constitution, are they still relevant?
South African courts have
historically been inconsistent in the in how they have interpreted fiscal
statutes. Even the introduction of the Constitution in South Africa has not
resolved these inconsistencies.
Recently, the Supreme Court of
Appeal in the case of Natal Joint
Municipal Pension Fund v Endumeni Municipality 2012 3 SA 593 (SCA) took upon
itself the task of clarifying how courts should interpret legislation. The
court concluded that all courts in South Africa should follow a "purposive
approach” interpreting statutes. The court referred to various provisions in
the Constitution which support this approach.
Specifically the purpose approach
states that, rather than only interpreting legislation in accordance with a
strict, literal basis of the words used in a provision - consideration should be given to the language used in the light of
the ordinary rules of grammar and syntax; the context in which the provision
appears; the apparent purpose to which it is directed and the material known to
those responsible for its production.
This article considers the future
application of the contra fiscum rule
which has historically been a fundamental part of South African tax law. Meyerowitz,
Emslie and Davis (2008a: 162) have questioned whether the purposive approach
will consign the contra fiscum rule
to the scrap heap on the basis that this rule was often applied as a foil to
the literal approach.
What is the contra fiscum rule?
Meyerowitz (2006: 36) describes
the contra fiscum rule (or more
formally, interpretation contra fiscum
adhibenda) as a rule that is applied where there is doubt in relation how a
provision should be interpreted.
According to the rule, a court is bound to give the taxpayer the
benefit of the doubt as to his liability for tax. Meyerowitz concludes
that there is ample evidence of the contra
fiscum rule being applied by the courts and therefore forming part of South
African law but notes that this rule operates alongside the literal approach to
interpretation (2008: 80).
Clegg and Stretch (2015: §2-8(2))
notes that the application of the contra
fiscum rule is not a departure from existing common law but is rather an
existing application of rule "semper in
dubiis benigniora praeferenda sunt”, which means that where there is doubt,
the more lenient interpretation should always be preferred. (Cleggand Stretch (2015: §2-8(2)) support this view with reference to
the judgment of Milne J in Badenhorst & Others v CIR 20 SATC 39, where the
court held that in the context of an ambiguity, the court will interpret a
taxing statute "as it does others”
favourably to the subject).
Do presumptions and aids of interpretation such as the contra fiscum rule have a role in South
African law following the introduction of the Constitution?
Devenish (1992: 156) describes
presumptions of statutory interpretation as being rebuttable "a priori guidelines and principles employed
to assist the courts in the process of construing the law…”.
Du Plessis (2005: 591) notes that
in his view there is no overtly and explicitly recognised system for the
classification of canons and aids to statutory interpretation. However, it does appear that, in general, South
African interpreters have arranged canons and aids to interpretation in a
hierarchical order of primacy where the hierarchy tends to determine the manner
and sequence in which canons and aids are applied. In this regard, Du Plessis (2005: 592)
records the approach of determining the clear and ordinary meaning of the words
in deriving the intention of the legislature appears to rank highest in the
order of primacy. Other canons or aids become helpful only where the language
of a provision still leads to ambiguity.
Du Plessis (2005: 593) suggests
that canons of statutory interpretation include rules, presumptions, and
constitutional and statutory provisions that require observance of predefined
meanings, values and procedures when statutes are interpreted. Du Plessis
(2005: 593) is uncertain whether these canons constitute legal rules but
concedes that this is practically irrelevant as all the canons carry
interpretative weight, the extent of which is determined by the ranking in the
order of primacy. One way or the other, the canons of interpretation form part
of the common law or legislation which must be subject to interpretation which
develops the "spirit, purpose and objects
of the Bill of Rights”. Du Plessis (2005: 594) concludes that this provides
an opportunity to infuse the canons of construction with the values, norms and
principles of the Constitution which may mean that in certain circumstances
these values, norms and principles may trump the canons of interpretation.
Botha (2012: 43) notes that common
law is not sacrosanct or protected from constitutional considerations. In terms of section 2 of the Constitution,
common law which is inconsistent with the Constitution is invalid and in terms
of section 39(2) of the Constitution, courts must promote the spirit, purport
and objects of the Bill of Rights when they develop the common law. Botha
refers to Judge Chaskalson J’s comments in Pharmaceutical Manufacturers
Association of South Africa; In re: Ex parte Application of the President of
the Republic of South Africa 2000 2 SA 674 (CC) where the judge held:
"I cannot accept this contention, which treats
the common law as a body of law separate and distinct from the
Constitution. There are two systems of
law, each dealing with the same subject-matter, each having similar
requirements, each operating in its own field with its own highest Court. There
is only one system of law. It is shaped
by the Constitution which is the supreme law, and all law, including the common
law, derives its force from the Constitution and is subject to constitutional
Botha (2012: 43) notes that this judgment
reinforces the approach that the Constitution does not repeal all common
law. Rather, common law is merely
trumped by the Constitution where it is inconsistent with the
Constitution. Botha (2012: 44) notes
that presumptions of interpretation will still apply in the modern era to the
extent that they do not conflict with the values of the Constitution.
In this regard, Botha’s commentary
implies that the following three categories of presumptions exist:
which are codified in the Constitution;
- those which
conflict with the Constitution; and
which are not impacted by the Constitution.
Botha (2012: 44) describes these
presumptions as "preliminary assumptions
as to the meaning of legislation” which may have also previously been
described as a rebuttable "common law
bill of rights”. Botha (2012: 44)
records that many of the presumptions have been incorporated into the Bill of
Rights with the result that in future, these presumptions will play an
increasingly lesser role in the interpretation of statutes.
Du Plessis (2002: 152) disputes
this approach – the courts never considered these presumptions as a common law
"Bill of Rights”. In this regard, Du Plessis refers to the
Kentridge AJ’s judgment in S v Mhlungu & Others 1995 3 SA 867 (CC):
Du Plessis (2002: 151) records
that the Constitution is not a catalogue of every possible value which may have
an impact on statutory interpretation. Consequently, it is possible that the
presumptions may "stand in"
for the Constitution where the Constitution does not specifically provide for
certain values (and where the Constitution does not obviously usurp or
contradict the presumption). On this basis, it may be possible that a
presumption continues to serve its traditional purpose albeit in a different
context (Du Plessis, 2002: 153). In this
regard, Du Plessis (2002: 159) concludes that the contra fiscum rule is not specifically covered, contradicted or
usurped by any provision in the Constitution and should therefore continue to
"I would lay it down as a general principle
that where it is possible to decide any case, civil or criminal, without
reaching a constitutional issue, that is the course which should be followed.”
Burns (1998: 85) notes that prior
to the introduction of the Constitution, the presumptions of interpretation
played a big part in supporting the rights and freedoms of individuals. Burns (1998: 85) concludes that presumptions
in conflict with the Constitution will no longer apply, thereby implying that
those not in conflict or incorporated into the Bill of Rights will continue to
Van Staden (2015: 550) records
that it may be erroneously contended that presumptions of interpretation, which
were applied in the pre-Constitutional period as a means of protecting
individual rights and freedoms and often in the context of a literal approach
to interpretation, are no longer relevant given that South Africa now has a
Constitution and that a purposive approach to interpretation has finally taken
hold. In arguing in favour of the continued
application of the presumptions to the extent that they are not inconsistent
with the Constitution or have been incorporated into the Constitution, Van
Staden (2015: 551) states that presumptions are essentially manifestations of "moral” principles which invariably carry
weight, albeit not conclusive, in the minds of judges when interpreting
law. These presumptions are based on
values such as equity, reasonableness, equality, legality, legal certainty and
public interest and unless inconsistent or subsumed by the Constitution, should
continue to be relevant in the modern order. Van Staden (2015: 2015) concludes
that the presumptions remain important and they are even more important than
merely supplementing, facilitating and mediating resort to constitutional
values, on the basis that they actually represent public and constitutional
Goldswain (2012b: 45) concludes
that the purposive approach to interpretation, which should remove some of the
iniquitous results of adherence to a strict literal approach to interpretation,
supports the concepts of fairness, justice and equity which are important
principles underpinning the Constitution.
Goldswain (2012b: 45) argues that
prior to the introduction of the Constitution, the judiciary always had access
to various internal and external aids and presumptions relating to
interpretation in the context of deriving the intention of the legislature.
Section 8(3) of the Constitution
specifically includes a presumption that common law rights are not reduced.
With brief reference to the application of section 8(3) of the Constitution,
Goldswain (2012b: 67) concludes that as part of South African common law, the contra fiscum rule should remain a valid
part of the interpretation process.
Goldswain (2012a: 35) considers
whether there are any differences between the intention of Parliament and the
purpose of legislation. In this regard,
Goldswain (2012b: 68) notes that Parliament was considered "supreme” and whatever it decreed could never be challenged. The Constitution on the other hand introduced
a different kind of supremacy on the basis that it essentially incorporates a
set of values and in terms of section 2 of the Constitution, any law or conduct
inconsistent with the Constitution is invalid.
Consequently, in the modern era, although Parliament is responsible for
the preparation and introduction of legislation, all legislation must be
subject to the purport and spirit of the Constitution. Further, section 39(1) of the Constitution
describes how the Bill of Rights should be interpreted and section 39(2)
confirms that all legislation, including fiscal legislation, should be
interpreted to promote the spirit purport and objectives of the Bill of Rights. Section 39(3) of the Constitution requires, inter alia, that no common law may be
recognised to the extent that it is inconsistent with the provisions of the
Bill of Rights.
A fundamental difference,
therefore, between the intention of Parliament and the purposive approach is
that the purposive approach would require that the relevant common law rule is
tested against the constitutional values and whether these are consistent with
the Bill of Rights. Goldswain (2012b:
54) concludes that when interpreting legislation, the judiciary is obliged to
promote the principles of liberty of a person, his or her property and the
enforcement of the principles of equality, fairness, and transparency by public
officials. Goldswain (2012b: 69) also
notes that in terms of the Constitution, the judiciary may "read in”, "read down”
and apply the presumption that a statute is always living to ensure its
constitutionality. In doing this, the
judiciary is essentially making law which fits within the purport of the purposive
approach but which was not encouraged by the proponents of the literal
Goldswain (2012b: 69) concludes
that all the aids, including presumptions, are still valid tools to consider
when interpreting legislation and it is submitted that this is correct.
Application of the contra fiscum
rule by the courts and in the future
Meyerowitz (1995: 87) analysed
various cases and notes that in many instances the judges did not rely on contra fiscum to find in favour of the
taxpayer – rather, they relied on background information to support their
position. Meyerowitz (1995: 88)
concludes that this indicates the contra
fiscum rule is generally the last resort applied by a taxpayer in
supporting his position and that generally the courts use this rule to bolster
a construction in favour of the taxpayer which was reached without the aid of
Dison (1976: 159) also reviewed a
number of South African court cases in evaluating the application of the contra fiscum rule by South African
courts until that time. He concluded that it was noticeable that the courts
favoured taxpayers in several judgments on the apparent application of the contra fiscum rule yet never expressly
mentioned the application of the rule.
Meyerowitz, et al. (2008a:162) also points out that fiscal legislation is
different to other legislation as it seeks to deprive a taxpayer of a portion
of his funds. On this basis a court should take care not to resort to the
purpose of the Act to arrive at simply imposing a liability on the taxpayer in
every scenario. In this regard, a court should remain cognisant of the
application of the anti-avoidance rules and what these rules deem to be
acceptable or not.
Meyerowitz’s concern regarding the
application of the contra fiscum rule
is possibly illustrated by Botha JA’s judgment in Glen Anil Development
Corporation Ltd v SIR 37 SATC 319 ("Glen Anil”) and the learned judge’s
rather "broad brush” approach to the contra fiscum rule when considering the
application of anti-avoidance issues.
In this case, the court was
required to consider the ability of the Commissioner to successfully invoke the
provisions of section 103(2) of the Income Tax Act thereby disallowing the
taxpayer from setting off their taxable income against an assessed loss brought
forward from an earlier year. The
taxpayer had acquired shares in a holding company which ultimately held shares
in a company which had the assessed loss. The purchase price mechanism provided
for the purchase price for the shares to be increased to the extent that it was
evidenced that the particular subsidiary, which previously carried on business
as a distributor, enjoyed an assessed loss.
None of the companies acquired by the taxpayer held any assets. The
purchaser transferred his township development business into the subsidiary
which had a loss. The taxpayer contended
that the Secretary was not entitled to invoke the application of section 103(2)
of the Income Tax Act on the basis that the court should follow a literal
approach where an interpretation suggested that the provision, in these
circumstances, could not apply on the basis that the change in shareholding
occurred at a different level in relation to the company which ultimately
received the income (which was offset against this company’s assessed loss).
The taxpayer referred to the judgment of CIR v Simpson 16 SATC 268, in which the
court had referred to the decision of the UK courts in Cape Brandy Syndicate 1921
1 K.B. 64, as compelling grounds of support for this approach.
In concluding on this issue at
726-8, Botha JA noted in Glen Anil
with reference to the contra fiscum
"…I do not understand the rule to be that
every provision of a fiscal statute, whether it relates to the tax imposed or
not, should be construed with due regard to any rules relating to the
interpretation of fiscal statutes.
Section 103 of the Act is clearly directed at defeating tax avoidance
schemes. It does not impose a tax, nor does
it relate to the tax imposed by the Act or to the liability therefore or to the
incidence thereof, but rather to the schemes designed for the avoidance of
liability therefore. It should, in my view, therefore, not be construed as a
taxing measure but rather in such a way that it will advance the remedy
provided for the section and suppress the mischief against which the section is
directed (Hleka v Johannesburg City Council 1949(1) SA 842 (A))… The
discretionary powers conferred upon the Secretary should, therefore, not be
restricted unnecessarily by interpretation.”
Both Goldswain (2012b: 75) and
Dison (1976: 180) criticise the court’s approach in Glen Anil on the basis that in CIR v King 1947 14 SATC 184
(hereafter King), the court also
applied the contra fiscum rule in the
context of an anti-avoidance rule (section 90) but the court in Glen Anil made no effort to distinguish
why the principles set out in the King case
should not be applied.
On the basis that courts will
follow a purposive approach going forward, it is submitted that courts will not
distinguish between charging and non-charging provisions but rather to the
purpose of the legislation.
Consequently, Goldswain’s criticism of the court in Glen Anil is probably academic.
In the current era, courts may
very well have concluded on the same basis as Botha JA in relation to the basis
for interpreting anti-avoidance provisions in the Income Tax Act, but the
difference between the "mischief rule”
and the purposive approach is that the "mischief
rule” is limited to seeking the defect in the previous law. The purposive approach is far more all-encompassing
in considering the background and surrounding facts which inform the purpose of
In the most recent case involving
the contra fiscum principle, the
court in Shell’s Annandale Farm (Pty) Ltd v C: SARS 62 SATC 97 found in favour
of the taxpayer where SARS sought to argue that compensation received by a
taxpayer in respect of land which was expropriated constituted a "supply” on which output VAT was
payable. At that point in time, the VAT
Act did not describe a supply or deemed supply with reference to expropriation.
This case was heard by the courts at a time following the introduction of the
Constitution in South Africa and the considerations of a new approach to the
interpretation of statutes, yet the court never considered whether the contra fiscum rule remained a valid
presumption in statutory interpretation in South Africa. Rather, the court considered both arguments
of taxpayer and the Commissioner to be plausible and ultimately held that the contra fiscum rule should ultimately
weigh considerations in favour of the taxpayer. (Of interest is that the Fiscal
Appeal Court of Zimbabwe in ITC 77 SATC 1874 considered the judgment in Shell’s
Annandale and concluded that it was incorrect on the basis that "supply” was capable of an interpretation
which covered passive actions such as an expropriation).
In an analysis of the judgment
handed down in C: SARS v Airworld CC 2008 70 SATC 48, Meyerowitz, et al.
records in The Taxpayer (2008b: 226) that there are many situations where a
purposive approach to the interpretation of statutes may not result in a
purpose being identified which is distinct from the provision that is being
interpreted, alternatively two or more constructions could be subject to the
same purpose and the purposive approach is not of any benefit. In these
scenarios, the extent to which the purposive approach operates at the expense
of the rules of statutory interpretation needs to be considered.
In this regard, Meyerowitz, et al. (2008b: 228) possibly answers
this issue raised previously by Meyerowitz in 2006 in questioning the continued
existence of the contra fiscum rule
by remarking that the purposive construction is a valuable and essential tool
in the task of statutory interpretation but that it must be applied with
reference to the language itself and that a court should guard against making
unjustified assumptions as to the purpose of a statute. Instead, the purpose
should be found in the meaning of the words of the statute, not the meaning of
the words of a statute in the legislative purpose. This would also counter the
risk of courts interpreting every provision in the Income Tax Act against the
taxpayer on the basis that the reason for the legislation is to raise tax.
Conclusion: The contra fiscum rule lives on
It is submitted that the contra fiscum rule still applies in
South African law and that it would be wrong to conclude that the rule has no
application in the context of an interpretation of a fiscal provision,
anti-avoidance or otherwise.
The rule is consistent with the
values underlying the Constitution. It is conceded that in the modern era of a
purposive approach to interpretation, this rule may have a reduced application
when compared to the previous era which favoured a strict literal approach to
interpretation which more easily appeared to lead to ambiguity. However should
applying the purposive approach yield
two constructions which are both equally plausible, it is submitted that the contra fiscum rule should apply and a
court should ultimately conclude in favour of the taxpayer.
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This article first appeared on the July/August 2016 edition on Tax Talk.