Commissioner, South African Revenue Services v Hawker Air Services (Pty) Ltd; Commissioner, South African Revenue Service v Hawker Aviation Partnership and Others

• Jurisdiction: South Africa
• Judge: Howie P, Streicher JA, Cameron JA, Nugent JA and Conradie JA
• Judgment Date: 31 March 2006
• Citation: 2006 (4) SA 292 (SCA)
• Docket Number: 379/2005
• Hearing Date: 09 March 2006
• Counsel: J J Gauntlett SC and J L Van der Merwe SC (with H G A Snyman) for the appellant. G J Marcus SC and M du P van der Nest SC (with A D Stein, M Chaskalson and L N Harris) for the respondent.
• Court: Supreme Court of Appeal

Cameron JA:

[1] In the Pretoria High Court, the appellant (the Commissioner, SARS) D sought the liquidation and sequestration, respectively, of Hawker Air Services (Pty) Ltd (HAS) and a now-defunct partnership to which it belonged, Hawker Aviation Services (the partnership). Patel J dismissed both applications with punitive costs orders and later refused leave to E appeal. His judgment has been reported. [1] These are appeals against his orders with leave granted by this Court. HAS is the respondent in the liquidation appeal and the second respondent in the sequestration appeal, where the partnership is the first respondent and Hawker Management Co (Pty) Ltd (ManCo), the third respondent. F

[2] Patel J dismissed the applications on the grounds that they had not been urgent; that the Commissioner had acted with an improper ulterior purpose in bringing them; that the applications constituted an impermissible collateral challenge to an earlier Court finding; that the statutory tax judgment on which the Commissioner relied as constituting the debt rendering him an unpaid creditor of the company G and the partnership was invalid and therefore that the Commissioner could not apply for either liquidation or sequestration; that the sequestration application was fatally defective because it failed to embrace a liquidation application directed at the other corporate partner, ManCo; and that the applications should be refused, in any event, in the exercise of the Court's residual discretion. The learned H Judge passed strong criticism on the conduct of SARS's officials. In addition, he determined that certain statutory provisions were unconstitutional. He granted the respondents the costs of four counsel, and ordered the Commissioner to pay them, not on the party and party scale, nor even on the attorney and client scale, but on the I 'attorney and own client scale'.

[3] Though it is unnecessary to traverse all its findings, the judgment is

Cameron JA

incorrect and the criticism of the Commissioner and his staff unjustified. Some background is necessary. At the centre are very A substantial tax debts the Commissioner claims Mr David King, the sole director of HAS, and a number of parties connected to him owe; and the Commissioner's attempts over the last four years to ensure that HAS's principal asset, its interest in a Falcon 900B jet aircraft, remains available for the satisfaction of that and other tax debts. The B partnership was formed in August 1999 to conduct a charter business with a Hawker Executive Jet. The partnership registered as a vendor in terms of the Value-Added Tax Act 89 of 1991 and claimed 100% of the customs VAT on the Hawker's acquisition as an input tax. On the premise that the Hawker was used solely to convey passengers and goods C for reward, the Commissioner paid this claim. Just more than a year later, in September 2000, the partnership purchased the Falcon. A similar VAT input claim was made and paid.

[4] HAS was the manager of the partnership's charter business and both aircraft were registered in its name, though beneficial ownership vested in the partnership. HAS remains the registered owner D in respect of the Falcon. The partnership sold the Hawker in May 2001 to a foreign-registered company King represented in South Africa, Ben Nevis Ltd (Ben Nevis) (from which the partnership had originally bought the Hawker). In February 2002, the Commissioner issued income tax assessments for the tax years 1998, 1999 and 2000 against King (for E R912 million) and against Ben Nevis (for nearly R1,5 billion). In the same month, the High Court granted the Commissioner certain orders designed to preserve the Falcon - which the Commissioner claims is valued at some R175 million - as an asset from which these tax debts might be satisfied. But the orders were not F effective in preventing the Falcon's being flown abroad without being returned: and it has been hangared in Europe, idle, since May 2002.

[5] In September 2002, a new partnership was formed when Rand Merchant Bank Ltd, an en commandite partner (RMB), and ManCo, the other public partner, sold their interests. HAS continued as G a partner in the new partnership, with an undiminished interest in the Falcon. It is from its standing as a partner in the old partnership that the Commissioner claims HAS continues to be liable for that entity's tax debts; and from its continuing interest in the same asset - the Falcon - that the Commissioner H claims its winding up may render reward. The tax debts arise, the Commissioner asserts, from VAT assessments issued against the partnership on 13 March 2003 after SARS determined that the Hawker and Falcon aircraft were used predominantly for unrecompensed private purposes (mainly, the conveyance of Mr King) and not for commercial chartering. The Commissioner has fixed the partnership's VAT liability I at approximately R73 million in tax, additional tax, penalties and interest.

[6] Between March and early December 2003, correspondence passed between SARS and the legal representatives of HAS and the partnership in regard to the VAT assessment. An objection was partly successful but, J

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within a few days, in early December, the Commissioner made a final ruling, took statutory judgments in terms of s 40 of the VAT Act A against HAS and the partnership, obtained nulla bona returns in respect of the judgments, and moved urgently for the liquidation of HAS and the sequestration of the partnership.

[7] The urgency, the Commissioner said, lay in the fact not B only that the Falcon, while stationary, was unproductive and deteriorating, but that attempts had been made to de-register it in South Africa and to transfer its registration abroad in defiance of Court rulings. For, in February 2003, Hartzenberg J had granted the Commissioner an order requiring the new partnership to take all necessary steps to procure the Falcon's return to South Africa. In September 2003, Hartzenberg J C had granted the new partnership and associated entities leave to appeal against this order, and had refused the Commissioner's application for interim enforcement of the order under Rule 49(11).

[8] On Friday afternoon 5 December and Saturday 6 December 2003, the Commissioner launched the liquidation and D sequestration applications on an urgent basis. Patel J was the Judge on urgent duty in the Pretoria High Court that week. On Tuesday 9 December, he directed the parties to submit written argument. The matters were argued on Wednesday 10 and Thursday 11 December, when they were postponed sine die. The hearing resumed on 14 and E 15 June 2004. After the prolonged hearing before Patel J, and before he delivered judgment, this Court upheld Hartzenberg J's order requiring the new partnership to procure the return of the Falcon to South Africa. [2] Patel J dismissed the applications on 26 November 2004 and handed down his written judgment on 5 January 2005. F

Urgency

[9] One of the grounds on which Patel J dismissed the applications was that at their inception they had lacked urgency. This was erroneous. Urgency is a reason that may justify deviation from the times and forms the Rules prescribe. It relates to form, not substance, G and is not a prerequisite to a claim for substantive relief. Where an application is brought on the basis of urgency, the Rules of Court permit a Court (or a Judge in chambers) to dispense with the forms and service usually required, and to dispose of it 'as to it seems meet' (Rule 6(12)(a)). This, in effect, permits an urgent applicant, subject to the Court's control, to forge its own H Rules [3] (which must 'as far as practicable be in accordance with' the Rules). Where the application lacks the requisite element or degree of urgency, the Court can, for that reason, decline to exercise its powers under Rule 6(12)(a). The matter is then not properly on the Court's roll, and it declines to hear it. The appropriate order is generally I

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to strike the application from the roll. [4] This enables the applicant to A set the matter down again, on proper notice and compliance. [5]

[10] Far from striking the applications from his roll, Patel J heard lengthy argument over two days in December, and then permitted the parties to postpone the matters, in the event, to a date more than six months later. In the...