Moodie v Commissioner for Inland Revenue, Transkei, and Another; Commissioner for Inland Revenue, Transkei, and Another v Moodie and Another

• Jurisdiction: South Africa
• Judge: Beck CJ, Goldin JA and Dumbutshena JA
• Judgment Date: 03 February 1992
• Citation: 1993 (2) SA 501 (TkA)
• Court: Transkei Appellate Division

Goldin, JA.:

On 11 October 1990 a rule nisi was granted on the application D of the Commissioner of Inland Revenue as first applicant and the Government of Transkei as second applicant calling on Jalc Holdings (SA) (Pty) Ltd (Jalc) as first respondent and Moodie as second respondent to shew cause why an order should not be granted in terms of which:

'1.

Second applicant is declared to be entitled to retain the amount of R5,5 million and any interest thereon, owing by it to first E respondent, pending the final resolution of first respondent's liability to second applicant for income tax and sales tax.

2.

Respondents, or one or the other of them, are ordered to pay the costs of this application only in the event that they, or one of them, should oppose it.'

F On 8 June 1983 Jalc and the Government entered into a written agreement in Umtata for the 'erection of 637 houses and infrastructure development'. The total cost for the project was about R50 million. The parties entered into a settlement agreement dated 30 July 1990 relating to the amount owing by the Government in respect of this project, which agreement was G made an award by the arbitrators who had been appointed to resolve the dispute between the parties. The relevant paragraphs of this agreement in which Jalc is described and signed as 'claimant' and the Government as 'respondent' are as follows:

'1.

Subject to the provisions of the Income Tax Act 1962 (Transkei) as amended, and the Sales Tax Act 1980 as amended, the respondent H undertakes to pay to the claimant the sum of R5 500 000. The said amount will be paid to Jalc Holdings SA (Pty) Ltd at corner of Dartfield and Commerce Crescent, East Gate, Extension 13, Sandton.

2.

Should the said amount of R5 500 000 not be paid by 31 August 1990 respondent will pay interest to claimant on this amount at a rate of 2% above the prime rate prevailing from time to time and charged by I Volkskas Bank Ltd, Adderley Street, Cape Town.

A certificate by the manager of the said branch of Volkskas Bank Ltd will be conclusive proof of the rate of interest applicable on any overdue payment as aforesaid.'

In September 1990 the Commissioner issued income tax assessments based on J estimated income of Jalc for the tax years 1981/1982 to 1987/1988. It is

Goldin JA

A common cause that Jalc had not rendered returns in respect of this period or any other period. At the same time and in respect of the same periods the Commissioner also estimated sales tax due by Jalc and issued assessments accordingly.

The Commissioner and the Government contended and Jalc and Moodie disputed that upon a proper interpretation of the settlement agreement the B amount of R5 500 000 should be retained by the Government pending the final determination of Jalc's tax liability. The Court a quo held the words 'subject to the provisions of the Income Tax and Sales Act' have the effect of introducing a limitation or condition precedent thereby curtailing or moderating Jalc's right to receive payment of the sum of C R5,5 million and the Government's obligation to pay this sum is conditional upon payment of any income and sales tax liability by Jalc. (See Hickman v The Attorney-General 1980 (2) SA 583 (R) at 585E-F.)

Mr Bertelsmann for Moodie contended that the R5,5 million was in fact due and payable to Moodie by virtue of agreements of cession between him and Jalc whereby Jalc ceded its claims for payment for the project against D Government. It was claimed that the R5,5 million was the property of Moodie and any reference to liability for tax by Jalc in the settlement agreement did not and could not relate to Moodie or affect his unfettered claim to payment of this sum.

Several contentions were made in this respect. It was argued 'that the E arbitration proceedings did not determine Jalc's claims but claims which belonged to Moodie by virtue of a cession by Jalc to Moodie of its claims'. Mr Bertelsmann stressed Moodie's allegations that the Government was aware of Jalc's cession to Moodie.

In my view these submissions are irrelevant because the obligation by F the Government to pay Jalc, and the right of Jalc to receive payment, is clearly provided in the settlement agreement. This agreement is signed by Jalc as the 'claimant'. The Government 'undertakes to pay the claimant' subject to the provisions of the Income Tax Act and Sales Tax Act. Whatever rights Moodie as cessionary may have against Jalc as cedent, the Government's liability under the agreement is to make payment to Jalc, G regardless of whether the Government knew of the existence of any cession. The agreement settled a claim by Jalc. Moodie was aware of the arbitration proceedings and the settlement but he took no part in them and was not a party to the settlement. He is not seeking to rectify or set aside the settlement agreement but claims payment to himself of the R5,5 million without giving effect to the condition precedent relating to Jalc's H liability to pay tax. He contends that the condition precedent and the liability to pay the money to Jalc set out in this settlement agreement are not binding on him. His contention is untenable. The rights and obligations of the Government and Jalc are unambiguously defined in the settlement agreement between them.

I The Court a quo correctly held that the settlement agreement means that payment of the R5,5 million is to be made to Jalc and is conditional upon payment by Jalc of both income tax and sales tax.

I did not understand Mr Bertelsmann to challenge the conclusion...