Ebhayi Charter Air CC v Smit

• Jurisdiction: South Africa
• Judge: D Van Zyl ADJP and JM Roberson J and G Goosen J
• Judgment Date: 10 November 2015
• Docket Number: CA 43/2015
• Court: Eastern Cape Division
• Hearing Date: 10 August 2015
• Citation: 2015 JDR 2499 (ECG)

D Van Zyl ADJP:

[1]

The appellant instituted an action in the Port Elizabeth Local Division claiming payment from the respondent of two amounts. The claims arose from a contract (the agreement) concluded by the appellant and the respondent for the provision of, what has been described as "piloting services", against payment of a fixed monthly fee. The first claim was for arrear payments, while the second was

2015 JDR 2499 p2

D Van Zyl ADJP

alleged to be one for damages consequent upon the respondent's breach of the agreement, and the appellant's resultant cancellation thereof.

[2]

The existence of the agreement on which the appellant based its claims was not in dispute. It was a verbal agreement. In concluding the agreement the appellant, a close corporation, was represented by its sole member, Mr RDV Crichton (Crichton). The respondent, a family trust, was represented by its managing trustee, Mr JP Smit (Smit). Crichton was a qualified commercial pilot, and the agreement was that he would provide piloting services to the respondent whenever required against payment of an amount of R60, 000 per month, which amount was exclusive of value added tax. The appellant pleaded that the agreement was subsequently amended by the parties by agreeing that the respondent would "be entitled to deduct against each such monthly invoice an amount of R33 684,21 in reduction of an indebtedness of the said Crichton to the Defendant in respect of a loan made and advanced by the Defendant to the said Crichton of R300 000.00 during or about May 2008, until such indebtedness has been extinguished."

[3]

The appellant's first claim was based on the respondent's breach of the agreement by having failed to pay to it the full amount agreed to in terms of the agreement after it had repaid the full balance of the loan referred to, that is, from

2015 JDR 2499 p3

D Van Zyl ADJP

April 2010 until the cancellation of the agreement in November 2011. The amount claimed in respect of the appellant's second claim represented those amounts the appellant would have become entitled to during the period December 2011 to March 2013 had the agreement not been terminated prematurely by its cancellation. This claim was premised on an allegation that the term of the agreement was for five years, instead of three years as contended by the respondent.

[4]

The respondent denied any liability for the amounts claimed. The issues raised in the respondent's plea placed the terms of the agreement on which the appellant relied upon for it claims in issue. The respondent's pleaded defence was that the agreement was for a period of three years and that the terms of the oral variation of the agreement were far more extensive than that alleged by the appellant. According to the respondent the variation of the agreement was in the following terms:

"4.3.1

The monthly fee payable to the Plaintiff, from August 2009, would be R30 000,00 per month, inclusive of VAT;

4.3.2

Crichton, who had signed as surety in respect of a loan which had been made by the Defendant to the trustees for the time being of the

2015 JDR 2499 p4

D Van Zyl ADJP

Crichton Family Trust, in the sum of R300 000,00, agreed that Plaintiff, of whom he was the sole member, would repay the loan of the Crichton Family Trust as follows:

4.3.2.1

Payment of the sum of R100 000,00 at the beginning of July 2009;

4.3.2.2

The balance of the loan to be paid by Plaintiff to Defendant would be set-off against the difference between the initial contract price of R68 400,00 per month and the new contract price of R30 000,00 per month, provided the contract endured for a sufficient period so as to enable a complete set-off of the balance of the loan;

4.3.3

Once the loan had been discharged, monthly fees payable to Plaintiff would continue to be R30 000,00 per month, inclusive of VAT."

[5]

The difference in the two versions in relation to the terms of the amended agreement is that on the appellant's version, upon repayment of the loan, the amount payable to it in terms of the agreement would revert to the original amount

2015 JDR 2499 p5

D Van Zyl ADJP

of R60, 000.00 per month, while on the respondent's version that amount would reduce to an amount of R30, 000.00 per month. The respondent's defence was accordingly that after the appellant repaid the balance of the loan, the respondent continued to pay to it the reduced amount of R30, 000.00 per month in accordance with the terms of the amended agreement, and that after the expiry of the fixed period of three years, the agreement continued on a month to month basis until it was repudiated by the appellant unlawfully cancelling it in November 2011. For the sake of completeness it may be added that in respect of the appellant's claim for damages, the respondent also pleaded that the appellant had failed to act reasonably to mitigate its loss.

[6]

The respondent in turn lodged a counterclaim for payment of an amount arising from its liability to pay employees' tax, interest and penalties to the Commissioner of the South African Revenue Services (the Commissioner). It is a liability which the respondent had incurred by reason of its failure to deduct from the remuneration which it had paid to the appellant an amount representing employees' tax, colloquially known as PAYE (Pay As You Earn). The respondent's pleaded case was that its failure to deduct employees' tax from the appellant's remuneration was as a result of a misrepresentation made by the appellant. According to the respondent, the appellant misled it into believing that the

2015 JDR 2499 p6

D Van Zyl ADJP

appellant was not a personal service provider by reason of its employment of three or more full time employees in its business, thereby excluding it from the legislative provisions relating to PAYE.

[7]

The respondent was alleged to have acted on this misrepresentation to its own detriment by failing to deduct employees' tax from the appellant's remuneration, and that the appellant was liable to reimburse it for monies it had to pay to the Commissioner as a consequence. In the alternative, the respondent claimed that it was entitled to recover the monies from the appellant in terms of the provisions of section 5(3) of the Fourth Schedule to the Income Tax Act. [1] The provisions of this section will be dealt with more fully later in this judgment. In the further alternative, it was pleaded that the appellant had received a benefit from that payment, and that it was consequently enriched at the respondent's expense.

[8]

In response to the counter-claim the appellant raised a special plea. It admitted the respondent's liability to the Commissioner incurred by reason of its failure to comply with its obligation in terms of the provisions of the Fourth Schedule, but pleaded specially that the respondent's claim had become prescribed as a period of more than three years had elapsed between the date the appellant's

2015 JDR 2499 p7

D Van Zyl ADJP

claims arose and the institution of the counter-claim. In its plea over and replication the appellant admitted that the respondent was entitled to recover the amount of employees' tax which it had failed to deduct from the remuneration it had paid to the appellant, but alleged that that amount must be set-off against the amounts claimed by the appellant in its claim in convention. The appellant however denied that it had made any misrepresentation to the respondent, and instead alleged that the respondent, with full knowledge of the appellant's status as a personal service provider, had elected not to deduct employees' tax from the amounts it had paid to the appellant. On this basis the appellant accordingly denied being liable to the respondent for any payment it was obliged to make to the Commissioner in respect of penalties and interest.

[9]

Before the commencement of the trial the parties had agreed to limit the issues in the claims in convention to two issues. The first was whether the agreement was for a period of five years as contended by the appellant, or three years as contended by the respondent. The second issue was whether the parties had agreed to vary the agreement in terms of which the amount payable in term of the agreement was to be reduced to R30 000.00 per month upon full repayment by the appellant to the respondent of the balance of a loan. In respect of the respondent's counter claim, the issues were limited to that of prescription and the

2015 JDR 2499 p8

D Van Zyl ADJP

appellant's liability for the interest and penalties. It was formulated in the following terms:

"Subject to its Special Plea of Prescription, Plaintiff admits that it is indebted to Defendant and obliged to repay to Defendant the sum of R554,224.20 being amount of tax which Defendant ought to have paid to SARS. Plaintiff contends however that this should be set off against amounts which Plaintiff contends is owed to it by the Defendant."

[10]

The Court a quo dismissed the appellant's claims and the special plea raised, upheld the respondent's counter claim and ordered the appellant to pay the costs of the proceedings. The appellant has, with the leave of the trial Court, lodged an appeal against the judgment and the orders granted.

[11]

Dealing firstly with the issues raised in convention, what the trial court was tasked to do was to resolve a factual dispute with regard to the terms of the agreement. It was common cause that by seeking to enforce the terms of the amended agreement in support of the relief sought, the burden of proving the terms of that agreement rested on the appellant. [2] That this required the appellant to

2015 JDR 2499 p9

D Van Zyl ADJP

prove a negative, that is that an additional term as alleged by the respondent was not agreed upon, was correctly not placed in issue. [3]

[12]

It is trite that the measure or degree of proof that will...