Case CCT 48/17
[2022] ZACC 02
Judgement Date: 11 February 2022
Post Judgment Media Summary
The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.
On Friday, 11 February 2022 at 10h00, the Constitutional Court handed down judgment in an application brought by the provisional liquidators of the first applicant, Cash Paymaster Services (Pty) Limited (CPS), for the joinder of the South African Revenue Service (SARS) and for the variation of the Court’s order dated 1 April 2021 (April 2021 order) on the basis that CPS had since gone into liquidation. The first respondent, Freedom Under Law NPC (FUL), abided by the Court’s decision on the variation application but filed an affidavit setting out considerations which militated against the granting of the application. The application came off the back of a separate application brought by FUL as the applicant (the main case), CPS being the sixth respondent thereto.
A brief history of the matter is that the April 2021 order gave effect to earlier judgments of the Court, which required a determination to be made of the profits earned by CPS from the payment of social grants on behalf of the South African Social Security Agency (SASSA) over the period 1 April 2012 to 30 September 2018. On 17 April 2014, the Court declared the initial five-year contract between SASSA and CPS invalid, but suspended the declaration of invalidity on certain terms. The suspension of invalidity was twice extended on the same terms as the initial contract, by the orders dated 17 March 2017 and 23 March 2018, in order to ensure that social grants would be continued to be paid. All three orders required CPS to file with the Court an audited statement of the expenses incurred, income received and net profit earned in the relevant periods (profit statements); and required SASSA to obtain and file with the Court an independent audited verification of the profit statements. The second and third orders added a requirement that the audit verification be approved by National Treasury before it was filed with the Court.
CPS filed profit statements audited by KPMG Services (Pty) Limited (KPMG) in respect of the initial five-year period and by Mazars Incorporated (Mazars) in respect of the two extensions. SASSA engaged RAiN Chartered Accountants Incorporated (RAiN) to verify the profit statements. In October 2019 RAiN furnished its review report, National Treasury issued a letter approving the report but noted certain shortcomings, and in November 2019, SASSA filed the RAiN report and the National Treasury letter with the Court. In its report, RAiN raised that there was a crucial outstanding issue, namely whether CPS had engaged in cost-shifting and profit-shifting, and therefore requested more information, leading FUL to launch an application in April 2020 to ensure that RAiN was given the necessary information. CPS opposed only the order sought declaring that it was liable to repay all profits to SASSA. This culminated in the April 2021 order, which required the following steps to be effected in accordance with a timetable: RAiN to submit lists of required documents to CPS, KPMG and Mazars; the latter to supply the listed documents to RAiN; RAiN to submit an updated verification report to National Treasury; National Treasury to permit CPS and SASSA to make representations on the updated report; and National Treasury to approve the updated report and file such approval with this Court, alternatively to file an affidavit explaining why it could not approve the updated report.
CPS was placed in final liquidation on 16 October 2020 at SASSA’s instance - arising from an unsatisfied judgment against CPS for R316 447 361 - and the present applicants were appointed as CPS’ provisional liquidators on 30 October 2020. On 23 December 2020, FUL’s attorneys, Nortons, wrote to the Registrar to notify this Court of the liquidation and appointment of the provisional liquidators, and that it had given the requisite notice to CPS’ joint liquidators in terms of section 359(2)(a) of the Companies Act 61 of 1973 (1973 Act). Such correspondence was brought to the attention of the member of the Court tasked with preparing the judgment in the main case. On 30 December 2020, the Registrar replied to all parties on record, as well as the two provisional liquidators, that the matter was before Court and that Nortons would be notified once judgment was ready, to which no response was received prior to judgment being delivered on 1 April 2021. The judgment did not mention CPS’ liquidation. However, it appears that the provisional liquidators had tried, in a letter dated 18 January 2021, to communicate with the Court in response to the Nortons letter which unfortunately was sent to an email address of a registrar who left this Court’s service at the end of December 2020. The Court was thus left in ignorance of the provisional liquidators’ position set out in the letter, which stated that FUL’s notice in terms of section 359(2)(a) was premature because CPS’ final liquidators had not yet been appointed. Although more than two months passed before delivery of judgment on 1 April 2021, the provisional liquidators seemingly took no steps to make sure that their letter had been received.
Before the Constitutional Court and pursuant to the April 2021 order, the provisional liquidators sought the following relief: (1) that SARS be joined and that the April 2021 order be varied to align SARS’ audit process with the updated RAiN verification process; (2) that the description of CPS in the April 2021 order be amended to add “(in liquidation)”; and (c) that the rights and obligations contained in the April 2021 order insofar as CPS is concerned be varied so as to refer not to CPS but to the company’s final liquidators.
In a unanimous judgment, the Constitutional Court held that in respect of the joinder of SARS, the applicants’ case was no more than an assertion that it would be convenient for the RAiN verification and the SARS audit to proceed in parallel in accordance with a common timetable. This failed to show that SARS had a direct and substantial interest in the relief sought by FUL or in the relief granted by the Court in the April 2021 order. The April 2021 order did not affect SARS’ rights, obligations or duties in any way, and effect could be given to the order as it stands without any cooperation from SARS. Furthermore, the Court had no jurisdiction in the tax dispute between CPS and SARS. Accordingly, the prayer for SARS’ joinder was refused, and with it those variations of the April order making reference to SARS.
The Court held that in respect of the variation of CPS’ name in the April 2021 order, the addition of the words “(in liquidation)” wherever its name appears would have no substantive effect. CPS as a company had not ceased to exist because it was in final liquidation, nor had it been divested of its assets and liabilities. Furthermore, the provisional liquidators had not sought to have themselves joined in their official capacities and the proposed variation did not involve a substitution of parties as envisaged in rule 7(1) of the Rules of the Constitutional Court.
The Court then addressed the relief sought that the April 2021 be varied pursuant to section 359(1)(a) of the 1973 Act on the basis of the deferral of CPS’ obligation to furnish documents to RAiN, and CPS’ right to make submissions to National Treasury, until final liquidators are appointed, and to impose the obligation and confer the rights in question not on CPS but on its final liquidators. The effect of such variation would also be to defer the obligations of KPMG and Mazars. The Court held that the applicants had not made out a case for a variation and that, in any event, section 359(1)(a) was not a legal basis for varying a valid order, rather it was a basis for staying civil proceedings. The Court pointed out that the applicants appeared to accept that if they have not made out grounds for a variation, the April 2021 order stands and remained binding. The Court then went further to hold that since the present applicants may or may not receive appointment as final liquidators, the imposition of obligations on the final liquidators that the applicants sought was untenable as the Court cannot grant orders against absent persons. The true position is that the April 2021 order was directed at CPS, the company.
In the result, the Constitutional Court dismissed the application for joinder and variation of the April 2021 order with no order as to costs, on account of there being no formal opposition..
The Full judgment here