Estate Agency Affairs Board v McLaggan and Another

• Jurisdiction: South Africa
• Judge: Howie P, Cameron JA, Navsa JA, Brand JA and Lewis JA
• Judgment Date: 31 March 2005
• Citation: 2005 (4) SA 531 (SCA)
• Docket Number: 161/2004
• Hearing Date: 14 March 2005
• Counsel: M G Swanepoel SC (with him P Kroon) for the appellant. A Beyleveld for the respondent.
• Court: Supreme Court of Appeal

Lewis JA: G

[1] This appeal turns on whether offences in respect of which an estate agent - the first respondent, Mr Neil McLaggan - was convicted in 2002 under the Income Tax Act 58 of 1962, and the Value-Added Tax Act 89 of 1991, involve an element of dishonesty such that his fidelity fund certificate lapsed or should H be withdrawn. McLaggan is employed by the second respondent, of which he is a director. Although the second respondent ('the company') was charged with the same offences, it was not convicted, apparently as a result of an oversight on the part of the trial court magistrate. I

[2] On 23 September 2002, the appellant, the Estate Agency Affairs Board ('the Board'), applied in the High Court (South Eastern Cape Local Division) for an order declaring that McLaggan's fidelity fund certificate had lapsed because of his convictions for offences involving an element of dishonesty, pursuant to s 28(5) of the Estate Agency Affairs J

Lewis JA

Act [1] ('the Estate Agency Act'). Alternatively, it sought to have the certificate withdrawn A under s 28(3) of that Act. It also sought an interdict to prevent McLaggan from continuing to act as an estate agent while not in possession of a valid fidelity fund certificate. As against the company, the second respondent in the application, the Board sought an order interdicting it from continuing to act in contravention of s 26 or, alternatively, s 28(8) of the Estate Agency Act. B

[3] McLaggan opposed the relief sought on the basis that he had not been convicted of any offence involving an element of dishonesty, and that his certificate had thus not lapsed. He contended further that the section providing for automatic lapsing was discriminatory, and should be restrictively interpreted or declared inoperative. The High C Court (per Sandi J) dismissed the application, finding that the offences in question did not involve an element of dishonesty, and that no good cause had been shown for withdrawing the certificate. It is against these findings that the Board appeals to this Court, leave having been granted by Sandi J. D

[4] I shall deal, first, with the charges and the convictions of McLaggan; second, the financial history giving rise to the convictions; third, the provisions of the Estate Agency Act that regulate fidelity fund certificates; fourth, the question whether the certificate did lapse because the offences involved an element of dishonesty; and, finally, the submission that there is a disparity between sections of E the Estate Agency Act [2] that operates unfairly against the respondents.

[5] In April 2002, McLaggan and the company were charged on 37 counts of theft in respect of employees' tax deducted by the second F respondent and not paid to the South African Revenue Service ('SARS'). In the alternative, they were charged on 37 counts in terms of paras 1 and 2(1), read with para 30(1)(b), of the Fourth Schedule to the Income Tax Act, [3] in that they had wrongfully and unlawfully used or applied the amounts deducted, or withheld employees' tax (the amounts being set out in a schedule to the charge), for purposes other than the payment of these amounts to G SARS.

[6] They were charged with two further counts of theft, in that the company, being a vendor as defined in s 1 of the Value-Added Tax Act, [4] had levied and received value-added tax ('VAT') on goods or services supplied by it and McLaggan, with the H intention to steal, and had failed to pay such amounts to SARS, using the amounts in question for the benefit of the company or himself. The alternative charges to these were that the company had 'wrongfully and unlawfully' failed to pay the amounts specified, as required by s 28(1)(b), read with s 58(d), of the VAT Act. I

Lewis JA

[7] The respondents were further charged with failing to furnish SARS with an annual income tax return in respect of three A particular tax years. Nothing turns on these charges since it was not ever contended that these were offences entailing an element of dishonesty.

[8] On 30 April 2002, in the Port Elizabeth criminal magistrate's court, McLaggan, both in his capacity as director of the company and personally, pleaded guilty to the alternative charges under B the Income Tax and VAT Acts, and on the counts of failure to submit returns. The charges of theft against them were withdrawn. McLaggan handed in a statement, in terms of s 112 of the Criminal Procedure Act, [5] in which his plea explanation is set out in full. He also submitted a lengthy 'plea in mitigation'. He was convicted on the alternative charges. As already pointed out, the C magistrate omitted to convict the company.

[9] On 2 July 2002, the trial court sentenced McLaggan to six months' imprisonment on each of the counts under the Income Tax Act, such sentences to be suspended for five years on condition that he not be convicted of contravening para 30 of the Fourth Schedule to the D Act during the period of suspension. On each of the two counts of contravening s 58 of the VAT Act, McLaggan was sentenced to 10 months' imprisonment, also suspended for five years on condition that he not be convicted of contravening s 58 of the VAT Act during the period of suspension. E

[10] McLaggan appealed against the sentences, and the Court (the Eastern Cape Division, per Pickering J, Pillay J concurring), upholding the appeal, substantially reduced the sentences on the first 37 counts (under the Income Tax Act), taking the first nine counts together and imposing a suspended fine (R400) in the alternative to the suspended term of imprisonment for all counts. The F remaining offences under the Income Tax Act were treated similarly, save that the alternative suspended fine imposed was R10 000. On the charges under the VAT Act, an alternative suspended fine of R4 000 was imposed, and both charges were taken together. G

[11] In reducing the sentences imposed by the magistrate, the Court took into account the statement in mitigation, which related to the personal and financial circumstances of McLaggan. Regard was had, in particular, to his lengthy service as an estate agent; his apparent high standing in the business; and that he had served on the Estate Agency Affairs Board itself for some 21 years and had been the H President of the Board for some of that period. Because of his high profile, the media had made much of the charges of theft against him, and his reputation had been seriously affected. The Court stated also that it was clear, in its view, that 'the provisions of the relevant sections under which the appellant was charged may be contravened in I circumstances not involving any dishonesty on the part of the offender, 'such as was the case in the present matter'. (My emphasis.) Although the question of dishonesty is

Lewis JA

the crux of the appeal before this Court, it was not in issue in relation to the appeal A against sentence, and was not debated in the judgment.

[12] In his statement in mitigation, McLaggan said that he had paid the full amount owing to SARS, having obtained a personal loan, and by registering mortgage bonds over two properties owned by his wife. He made much of his and the company's financial plight. It was due to a number of factors: the real estate business had gone into B recession in the mid-1990s; interest rates soared; in 1997, the...