Pering Mine (Pty) Limited v Director-General Mineral and Energy Affairs and Others (26582/01) [2005] ZAGPHC 81; [2005] 4 All SA 641 (T); 67 SATC 317 (10 August 2005)

IN THE HIGH COURT OF SOUTH AFRICA /ES

(TRANSVAAL PROVINCIAL DIVISION)

CASE NO: 26582/2001

DATE: 10/8/2005

reportable

IN THE MATTER BETWEEN:

PERING MINE (PTY) LIMITED APPLICANT

AND

DIRECTOR-GENERAL: MINERAL & ENERGY AFFAIRS 1ST RESPONDENT

COMMISSIONER: SOUTH AFRICAN REVENUE SERVICE 2ND RESPONDENT

SHELL SOUTH AFRICA (PTY) LIMITED 3RD RESPONDENT

JUDGMENT

DE VILLIERS, J

Introduction

This application concerns the purported redetermination ("the redetermination") by the first respondent ("the D G") in terms of section 37(4) of the Income Tax Act 58 of 1962 ("the Act") of the effective value of mining assets ("the assets") transferred from the third respondent ("Shell") to the applicant with effect from 1 July 1994.

0n 8 May 1998, the D G determined the effective value of the assets to be R93 217 839 of which R88 614 601 was determined to be redeemable. 0n the basis inter alia of this determination ("the original determination") the applicant's tax liability for the 1996, 1997 and 1998 tax years was assessed by the second respondent ("the Commissioner") and the applicant made provision for payment of this tax liability.

At some stage prior to 20 April 2001, the D G apparently purported to redetermine the effective value of the assets to be R83 044 000 of which only R40 076 222 was determined to be redeemable. 0n the basis of the redetermination of the effective value of the assets, on 7 May 2001 the Commissioner purported to issue a revised assessment of the applicant's taxable income for the 1996 tax year and on 10 May 2001 the Commissioner purported to issue revised assessments of the applicant's taxable income for the 1997 and 1998 tax years which imposed an additional tax liability on the applicant of more than R22 million.

The applicant seeks an order reviewing and setting aside the redetermination. The applicant submits that the redetermination falls to be reviewed and set aside because

1. the D G was functus officio when he purported to make the redetermination, having finalised his determination of the effective value of the assets when he made the original determination on 8 May 1998;

2. the redetermination was made irregularly by the D G because he was acting under direction of the Director of Mining Taxation in the office of the Commissioner.

The Commissioner opposes the application but he also brought a conditional counter-application in which he seeks orders

1. reviewing and setting aside the original determination on the grounds that the D G failed to apply his mind to the determination, and

2. declaring the redetermination to be valid.

The applicant opposes the conditional counter-application on the merits. It submits that the contemporaneous evidence contained within the record of the D G's original determination shows that he did apply his mind to the determination, and in particular considered and rejected the arguments which apparently were several years later to persuade him to perform the redetermination. Moreover, the applicant submits that, independent of the merits of the original determination, the relief sought by the Commissioner in the conditional counterclaim is impermissible because

1. the Commissioner has delayed unreasonably in bringing its application for the review of the original determination, and

2. even if the original determination falls to be reviewed and set aside, this does not alter the fact that the D G was functus officio when he made the redetermination; the redetermination accordingly remains invalid.

The Chronology of Events

In 1994, Shell sold to the applicant the assets and liabilities of the Pering Mine ("the mine") as a going concern. The effective date of the transfer of assets was 1 July 1994.

In terms of section 37(4) of the Act, the D G was obliged to determine the effective value of the development assets transferred from Shell to the applicant for income tax purposes. This he did on 8 May 1998 when he determined the effective value of the assets to be R93 217 839 of which R88 614 601 was determined to be redeemable.

Prior to making his original determination, the D G investigated the nature and value of the assets which passed from Shell to the applicant pursuant to the sale of the mine and heard representations from both parties in relation to the value to be given to "development assets" for the purposes of section 37 of the Act:

1. Shell maintained that the effective value of the assets should be determined in accordance with the values allocated to the assets in the original contract of sale.

2. The applicant maintained that the value of the assets in its hands as purchaser differed from the values allocated in the contract of sale and that the effective value of the assets for the purposes of section 37 of the Income Tax Act should accordingly not be determined in accordance with the values allocated in the contract of sale; the applicant suggested, instead that

2.1 for assets other than passenger vehicles, the actual price paid for each asset, as reflected on the books of the mine, should be escalated to a 30 June 1994 value and the escalated amount should then be depreciated appropriately, and

2.2 for passenger vehicles, the actual price of a new vehicle as at 30 June 1994 should be depreciated according to the age of the vehicles save that an estimated value would be allocated to fully depreciated vehicles.

3. The D G discussed with both parties the differences between their respective proposals and investigated the matter further before making his determination. The original determination was based largely on the schedule of values reported by the applicant.

Nevertheless there were important differences between the original determination and the proposal made by the applicant. By way of illustration,

3.1 the value of R14 018 183 claimed by the applicant in respect of pre production costs was reduced by the D G to R4 218 183, and

3.2 the value of R42 907 281 claimed by the applicant in respect of redeemable overburden assets was reduced by the D G to R15 007 291.

0nce the D G made his original determination, there was a final determination of the effective value of the development assets for the purposes of the Act and the applicant and Shell were assessed for income tax accordingly.

However, Shell was dissatisfied with the original determination and requested the Commissioner to re open the question of the effective value of the development assets. In July 2000, more than two years after the D G finalised his original determination, the office of the Commissioner wrote to the D G directing him to review the original determination.

The applicant was invited to participate in the redetermination of the effective value of the development assets, but took the attitude that the original determination was final and that the D G was accordingly functus officio.

After hearing Shell, but not the applicant, the D G then reversed his original determination and accepting the arguments of Shell which he had rejected in the process of making the original determination, he redetermined the effective value of the assets in accordance with the values allocated to them in the contract of sale. He did so without much conviction, stating that "for this specific transaction, and lacking better alternatives, justice may possibly be served by accepting the values as calculated according to the provisions of the contract" (par 17, founding affidavit at 12 13).

0n the basis of the redetermination, the Commissioner has issued revised assessments to the applicant. In terms of these revised assessments the applicant is required to pay an additional amount of more than R22 million in tax and interest.

THE REVIEW OF THE REDETERMINATION:

The D-G was functus officio

It is trite that where an administrative official has made a decision that affects a private individual's interests, he is functus officio and unless the enabling statute expressly or by necessary implication gives him the authority to do so, he may not re open the decision which he has taken. (See Baxter Administrative Law 372 376; Welgemoed and Another NNO v The Master and Another 1976 1 SA 513 (T) at 520B D; Afdelingsraad van Swartland v Administrateur, Kaap, en Andere 1983 3 SA 469 (C) at 478D F; 0udekraal Estates (Pty) Ltd v The City of Cape Town and 0thers 2004(6) SA 222 (SCA) par 37 in fin at 246 7.

The functus officio principle applies in cases like the present where the official contends that he has taken his decision based on an error of fact or law (ibid).

Sections 37(1) and 37(4) of the Act, as they were at the relevant time, stated the following:

"Section 37 – Calculation of capital expenditure on change of ownership of mining property

(1) For the purposes of this Act, whenever a change of ownership of a mining property occurs the new owner shall be deemed to have acquired such preliminary surveys, boreholes, shafts, development and equipment (in this section referred to as the development assets) as are included in the assets passing by such change of ownership, at a cost equal to the effective value to the new owner of the development assets at the time the change of ownership takes place, and the said cost shall be deemed to be expenditure that is incurred by the new owner during the period of assessment during which the change of ownership occurs and to be capital expenditure which is in respect of such period required to be taken into account for the purposes of the definition of 'capital expenditure incurred' in section 36(11): Provided that if in a case in which consideration is given, the effective value of all the assets so passing exceeds the consideration, the amount of such cost and expenditure shall be deemed to be an amount which bears to the amount of such consideration the same ratio as such effective value of the development assets bears to the effective value to the new owner at the said time of all the assets passing.

.....

(4) The effective value at the time the change of ownership takes place, of all the assets passing and of the development assets included therein shall be determined by the Director-General: Mineral and Energy Affairs who shall notwithstanding the repeal of the Second Schedule to the Transvaal Mining Leases and Mineral Law Amendment Act, 1918 (Act 30 of 1918), for the purposes of such determination have all the powers which were conferred upon him by the provisions of that Schedule."

Mr Dunn (with him Ms Tshombe) who appeared for the Commissioner, submitted that par 2(3) of the Second Schedule ("the Second Schedule") to Act 30 of 1918 provides for revision of a determination by the D G at the instance of the Commissioner and that the D G is accordingly authorised to re open a decision which he has taken if the Commissioner requests him to do so.

Par 2(3) of the Second Schedule provides as follows:

"The life of the mine estimated and determined as aforesaid shall be subject to revision at the instance of the lessee or of the Commissioner, whenever any material alteration takes place in any circumstance, relating to the mine or its working, which affects the life of mines and shall otherwise be subject to revision in every fifth year after the last preceding determination."

"Commissioner" is defined in par 1 of the Second Schedule as the Commissioner for Inland Revenue.

Mr Dunn submitted that the latter part of par 2(3), introduced by the word "whenever", is inapplicable since sections 37(1) and (4) of the Act do not envisage the circumstances dealt with in that part of paragraph 2(3).

Mr Solomon (with him Mr Chaskelson), for the applicant, submitted that par 2(3) cannot be split up, as suggested by Mr Dunn, and that it should be read as a whole. He submitted that par 2(3) is inapplicable since it does not deal with powers of the D G for the purposes of his determining effective value of assets in terms of section 37(4) but that such powers are to be found in the second sentence of par 2(2) of the Second Schedule which provides as follows:

"For the purpose of determining the life of the mine the Government Mining Engineer (read D G) shall have free access to all plans and records of the lessee, and may require him to furnish such information or particulars as may, in the opinion of that officer, be necessary, or the Government Mining Engineer (read: D G) may make or cause to be made any examination of the mine."

In my view, the second sentence of par 2(2) indeed sets out the powers which the D G has in terms of section 37(4) "for the purposes of ... determination" of the effective value.

Par 2(3) does not, to my mind, set out any power of the Government Mining Engineer "for the purposes of ... determination" of the effective value. Accordingly the provisions of par 2(3) are irrelevant as far as section 37(4) is concerned. Par 2(3) does provide that the Government Mining Engineer may be called upon to revise his determination of the life of the mine, inter alia at the instance of the Commissioner, "whenever any material alteration takes place in any circumstance, relating to the mine or its working, which affects the life of the mines and shall otherwise be subject to revision in every fifth year after the last preceding determination".

It is common cause that the words introduced by "whenever" cannot apply to a determination in terms of sections 37(1) and (4) of the Act.

In my view, the words introduced by "whenever" cannot notionally be severed from the rest of par 2.3 and the legislature did not in sections 37(1) or (4) of the Act intend to effect such severance.

It follows that the enabling statute does not expressly or by necessary implication grant the D G the authority to re open the decision which he has taken. Therefore, once the D G made the original determination he was functus officio and could not purport to redetermine the effective value of the development assets.

Indeed, the present case provides a good illustration of the need for the functus officio principle because the facts show that the arguments apparently accepted by the D G in justification of his redetermined values, were specifically considered by him and rejected prior to making his original determination. The present case is accordingly a case where one party affected by the original determination (Shell) was dissatisfied with the determination, refused to accept its finality and simply demanded that its original arguments be reconsidered. If the functus officio principle were not to apply in these circumstances it would be an invitation to the general public never to accept the finality of administrative decisions and continuously to badger administrators into reconsidering decisions adverse to their interests.

The D G acted under direction

If I am wrong about the D G being functus officio, and the D G has a discretion to re open a determination which he has made in terms of section 37(4) of the Act, any such discretionary power would, of course, have to be exercised by the D G himself. It is not disputed that when the D G purported to re open his original determination some two years after his original determination in May 1995, he was acting under the direction of the Commissioner. Nor could it be disputed. The contemporaneous letter from the office of the Commissioner makes this clear.

Moreover, the attitude of the Commissioner in his answering affidavit appears to be that he has the power (and possibly even the duty) to insist on a redetermination of the effective value of development assets where he concludes that the D G has made an incorrect determination.

Since the D G was acting under direction of the Commissioner when he decided to re open the original determination, the D G's decision is vitiated and the resultant redetermination is rendered invalid.

Conclusion

The D G's redetermination of the effective value of the development assets accordingly falls to be reviewed and set aside.

THE CONDITIONAL COUNTER-APPLICATION

0n 6 May 2002 the Commissioner brought a conditional counter-application to review the D G's determination of 8 May 1998, and for certain ancillary relief. The counter-application is conditional upon the Commissioner's defences to the main application not being upheld (which condition has now been fulfilled).

The counter-application is brought on the grounds that the D G did not properly apply his mind in making the determination, alternatively that he made mistakes in making that determination.

For the sake of convenience I shall refer to the parties as hereinbefore.

No application for condonation in respect of the delay in bringing the counter-application, accompanied such counter-application.

The applicant in the main application (Pering) raises as a point in limine in its answering affidavit to the counter-application that the Commissioner has delayed unreasonably in bringing the counter-application. The applicant's deponent points out that the Commissioner has been aware of the D G's determination and the reasons therefor since 8 May 1998 and that the Commissioner has been aware since at least July 2000 that Shell was dissatisfied with the D G's determination and that it alleged that the determination should have been made on the basis of values allocated to the assets in the contract of sale.

Furthermore, applicant's deponent points out that the Commissioner has, since at least 29 September 2000 been aware that applicant maintains that the D G was functus officio in respect of his determination and that the determination could accordingly not be circumvented without the bringing of a review application to set it aside.

Applicant's deponent submits that in the circumstances the Commissioner has manifestly failed to bring the review application within the time constraints required by the common law or the Promotion of Administrative Justice Act, 3 of 2000 ("PAJA").

Applicant's deponent avers that this unreasonable delay has caused applicant considerable prejudice in its opposition to the conditional counter-application. Detail of such prejudice is set out to which I shall return later.

The applicant's deponent's affidavit was attested to on 11 0ctober 2002.

Applicant's deponent submits that the failure of the Commissioner to bring his conditional review application within a reasonable time, alternatively within the time constraints of PAJA should not be condoned and that the conditional counterclaim should be dismissed on this count alone.

0n 20 February 2003 the Commissioner reacted hereto by filing an amended notice of motion dated 20 February 2003 in respect of his conditional counterclaim in which the following appears as a first prayer:

"To the extent necessary, condoning the applicant in reconvention's failure to timeously institute this conditional counter-application by extending in terms of section 9(1)(b) of the Promotion of Administrative Justice Act (Act no 3 of 2000), the period referred to in section 7 of the said Act with such a fixed period that will extend to, and expire on, 7 May 2002."

(Thereafter the original prayers of the conditional counterclaim are repeated.)

The date "7 May 2002" has been obviously chosen because the Commissioner's counter-application was brought on 6 May 2002.

It is common cause that, by reason of substantial factual disputes, the court would be unable to decide the merits of the Commissioner's counter-application. However, Mr Solomon submitted that the Commissioner has delayed unreasonably in bringing his conditional counter-application and that the court should refuse to condone the Commissioner's failure to timeously institute such counter-application. Accordingly he submitted that the counter-application should be dismissed with costs.

In the Commissioner's replying affidavit the reasons for the delay in bringing the counter-application are dealt with. 0n 8 May 1998 the initial determination was made by the D G. In par 6.3.9 (at 257) it is stated that at the time the initial determination was received from the D G, neither the Commissioner nor any of his officials had any reason whatsoever to doubt or even question the correctness, or otherwise, of such determination. In fact, it was accepted that the initial determination was correct, as is evidenced by the assessment of applicant's tax liability for the 1996, 1997 and 1998 tax years, which were all issued on 1 June 2000. Applicant's income tax returns for the aforesaid years were all received by the Commissioner on 19 January 2000.

Although the Commissioner does not state when he received Shell's income tax returns for the years in question, he does state that he became aware in approximately the middle of 2000 that Shell had objected to its income tax assessments for the tax years in question on the grounds that its gross income had grossly been inflated as a result of the D G's allegedly incorrect initial determination (par 6.3.14.1 read with par 6.3.10).

(Generally speaking, the value placed upon the so called development assets is of relevance to both seller and purchaser because in the case of the seller it pays tax on the recoupment and in the case of the purchaser it becomes entitled to a deduction.)

The Commissioner avers that it was only after Shell's objection had been properly considered, and consideration had also been given to the D G's redetermination of the effective value, that it was realised that the initial determination must have been wrong.

Shell's objection was finally considered and upheld on 29 January 2001. It was only on that date that the Commissioner and his officials actually realised and appreciated that the initial determination was wrong (par 6.3.10 at 258).

The Commissioner's viewpoint, correctly or incorrectly, has always been that he and his officials are entitled to have any question pertaining to the effective value revisited, and, if needs be, to have it redetermined for purposes of section 37(4) of the Income Tax Act (par 6.3.11 at 258).

After the main application was instituted on 9 0ctober 2001, the Commissioner's deponent had occasion to consult with attorney and counsel on 7 November 2001. It was only after this consultation that the deponent began to entertain some doubt as to the correctness of the Commissioner's aforesaid viewpoint. Arising from legal advice given at this consultation, it was decided that a conditional counter-application should be filed simultaneously with the Commissioner's answering affidavit (par 6.3.12 at 258 9).

Any delays after the institution of the main application are attributable to either periods of time allowed by the rules of court, or emanate from extensions and indulgences granted by the parties to each other (par 6.3.13 at 259).

The Commissioner accounts for the period 8 December 1998 to 6 May 2002 as follows:

1. From 8 December 1998 until 28 January 2001 the Commissioner and his officials believed and accepted that the original determination was correct. Although the Commissioner's deponent became aware in approximately the middle of 2000 that Shell had objected to its income tax assessments for the tax years in question and that it was dissatisfied with the initial determination, he was unaware of any real error, reviewable or otherwise, in the initial determination or in the manner in which it was arrived at.

2. From 29 January 2001 until 6 November 2001 the Commissioner and his officials (including the Commissioner's deponent) believed that they were entitled to, indeed obliged to, have a redetermination of the effective value of the development assets done in order to raise additional assessments of the applicant; and

3. Lastly, from 7 November 2001, being the date on which the Commissioner's deponent and certain other officials consulted with their attorney and counsel, until 6 May 2002, when the counter-application was launched, the deponent knew that a counter-application would be launched and their legal advice was that it was both reasonable and practicable to do so as part of the proceedings in the matter (par 6.3.14 at 259 261).

In regard to the question of prejudice to the applicant the Commissioner points out in his replying affidavit, that the agreements giving rise to the transfer of assets from Shell to applicant were concluded in or about November 1994. The effective date for the transfer of the assets was 1 July 1994. Because such transaction involved a change of ownership of mining property, as contemplated by section 37 of the Income Tax Act, Shell notified the Commissioner thereof on 22 March 1995. Shell's notice was received by a Mr C Leipoldt, an official in the South African Revenue Service. Since the D G, or his delegee, Mr B J Klaver, was the designated functionary to determine the effective value of the relevant assets, Leipoldt referred Shell's notice to Klaver (par 6.3.1 to 6.3.3 at 255).

0n 24 August 1995 Klaver sent a letter to the applicant in which he requested the latter to furnish him with, among other things, a comprehensive list of all the assets acquired, as well as the estimated value thereof (par 6.3.4 at 255).

Klaver only received a response to his letter on 22 January 1997. Such response emanated from Gencor Ltd ("Gencor") which effectively exercised control over the applicant at the relevant time (par 6.3.5 at 256).

0n or about 6 February 1997 a meeting was held at the mine to inspect the assets and to discuss their values. The meeting was attended by representatives of the mine, Gencor and officials of the Department of Minerals and Energy, including Klaver. Neither Shell nor the Commissioner was represented at the meeting (par 6.3.6 at 256).

A final meeting was held at the mine on 6 May 1998. This meeting was attended by representatives of the mine, Billiton (the successor of Gencor) and the same officials from the Department of Minerals and Energy. Again neither Shell nor the Commissioner was represented at this meeting (par 6.3.7 at 256 7).

The Commissioner seeks condonation of his failure (if any) to comply with the provisions of section 7(1) of PAJA, or the time constraints of the common law. He submits that it is in the public interest that all taxes should be collected especially in the circumstances of the instant case, and that it is also a notorious fact that many delays are encountered in the assessment of income tax. Also inevitable delays occur when objections, etc are lodged. Frequently it is discovered, long after assessments have been raised on taxpayers, that such taxpayers are liable to greater amounts in taxes. If the Commissioner were to be impeded, by a time bar [ie the 180 days period referred to in section 7(1) of PAJA] from recovering such taxes it would be highly prejudicial to the public interest (par 11 at 265 7).

In reply to the applicant's averments regarding prejudice caused by the delay in par 10 of its answering affidavit, the Commissioner denies that applicant has suffered any prejudice, either as alleged or at all. If any prejudice was suffered, it is denied that it is attributable to the alleged delay. In relation to par 10.1 it is admitted that the determination relates to the valuation of development assets at the mine as at 1 July 1994. The Commissioner reiterates that Gencor, on behalf of the applicant, only submitted the requested information to Klaver on 22 January 1997 and that the applicant was only assessed to tax on 1 June 2000 ie after only having submitted its income tax returns for the years in question on 19 January 2000 (par 12.1 and 2 at 267).

The Commissioner avers that the content of subparagraphs 10.2 to 10.5, is bland and lacking in any factual data. It certainly does not bear scrutiny. In view of the lack of any factual data, the assertions in these subparagraphs are denied. After all, the applicant was obliged to retain its records in this case until, at least, January 2004. Consequently, any alleged inability on applicant's behalf to properly deal with the issue at hand does not stem from the delay, but from applicant's own failure to properly safeguard its relevant records. In conclusion, the Commissioner also denies what he refers to as bald assertions in subparagraph 10.5 which, equally, do not bear scrutiny (paras 12.3 and 12.4 at 267 8).

The provisions of PAJA

PAJA came into operation on 30 November 2000. The administrative action in issue took place before PAJA came into operation but the application for review was launched thereafter. In The Associated Institutions Pension Fund and 0ther v Van Zyl and 0thers (2004) 4 All SA 133 (SCA) par 46, BRAND, JA, writing the judgment of the court, took the view that PAJA was not applicable since the application for review had in that case been launched before that Act came into operation.

It is, to my mind, an academic issue whether PAJA is applicable in this matter because it is clear that, certainly for the purposes of this case, the requirements of PAJA and the common law in this regard have very few differences.

In terms of section 7(1) of PAJA proceedings for judicial review must be instituted without unreasonable delay and not later than 180 days after the date on which the applicant became aware of the administrative action and the reasons for it, or might reasonably have been expected to become aware of the action and the reasons.

Section 9 of PAJA provides that the period of 180 days may be extended for a fixed period by agreement between the parties or, failing such agreement, by a court or tribunal on application by the person or administrator concerned where the interests of justice so require.

In so far as PAJA is applicable, the first enquiry is whether there was unreasonable delay. If there was, that is the end of the matter. If there was not unreasonable delay, the application for review must still be brought within 180 days unless the court grants an extension in terms of section 9.

The common law principles

In a sense PAJA codifies the common law principles which are applicable to the consequences of a delay in applying to review administrative action. At common law, a review must be brought within a reasonable time. This common law rule continues to apply to reviews, notwithstanding the enactment of the Constitution [Bellochio Trust Trustees v Engelbrecht and Another 2002 3 SA 519 (C) at 523C 524B].

The rationale for the rule that a review must be brought within a reasonable time is twofold:

1. first, the failure to bring a review within a reasonable time may cause prejudice to the respondent [Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad 1978 1 SA 13 (A) at 41C E; the Van Zyl case supra, par 46];

2. second, there is a public interest element in the finality of administrative decisions and the exercise of administrative functions (ibid). In the Wolgroeiers case the following was said at 41D F:

"Dit is wenslik en van belang dat finaliteit in verband met geregtelike en administratiewe beslissings of handelinge binne redelike tyd bereik word. Dit kan teen die regspleging en die openbare belang strek om toe te laat dat sodanige beslissings of handelinge na tydsverloop van onredelike lang duur tersyde gestel word – interest reipublicae ut sit finis litium."

From the Wolgroeiers case and decisions that have followed it, the following principles may be identified:

1. The question of whether the review proceedings have been brought within a reasonable time is a question of fact which will depend on the circumstances of the case. Wolgroeiers case at 42C D; Van Zyl case par 48.

2. Where there is a substantial delay between the date of the decision sought to be reviewed and the date on which review proceedings are instituted, the applicant's founding affidavit must explain this delay. Lion Match Co Ltd v Paper Printing Wood & Allied Workers Union and 0thers 2001 4 SA 149 (SCA) at par 29 at 157H.

3. There is a duty on an applicant not to take an indifferent attitude but rather to take all reasonable steps available to him to investigate the reviewability of administrative decisions adversely affecting them as soon as they are aware of the decision. Whether an applicant in a particular case has taken all reasonable steps available to him in compliance with this duty will depend on the facts and circumstances of each case (Van Zyl case, par 51).

4. If a court finds that the proceedings have not been initiated within a reasonable time, it has a discretion to condone the delay (Wolgroeiers case at 39B D, Van Zyl case par 53). In exercising this discretion, prejudice to the respondent is an important consideration (Wolgroeiers case at 39E 41D; Van Zyl case par 53 at 38). Prejudice is, however, not the only consideration. Even in circumstances where a respondent has suffered no prejudice by the delay of the applicant, a court may decline to entertain a review application which has not been brought within a reasonable time (Wolgroeiers case at 39E 41D).

Was the delay unreasonable?

The facts relevant to the question whether the Commissioner's delay was unreasonable are the following:

1. The original determination was made by the D G on 8 May 1998.

2. The Commissioner was aware of the original determination and the reasons for this determination from the outset.

3. Yet the conditional counter-application was only launched on 6 May 2002, just two days short of four years after the original determination was made.

4. It appears from the original determination that the applicant and Shell held completely diverging views in regard to the effective value of the assets. In par 7 and 8.1 of the determination (at 25) it appears that Shell wrote a letter to the Commissioner, dated 22 March 1995 in which the total value of the assets of R83 044 000 is mentioned of which R36 536 000 was regarded as redeemable and R46 508 000 was non redeemable. In par 8.1 of the determination it is stated that after the site inspection (6 June 1997) it became clear that the effective values in the hands of the purchaser (the applicant) "differed drastically" from the values shown in the said letter from Shell to the Commissioner. The D G determined the total value of the assets to be R93 217 836 of which R88 614 601 was determined to be redeemable and R4 603 238 as non redeemable (at 26). In par 9.1 (at 25) it is stated that "(t)his Department has determined the effective value of all assets in the hands of the purchaser at the effective date". In par 9.2 it is said that "(i)t must be born (sic) in mind that the values referred to by Shell represent net book values, the higher of net book values and market values, and values according to a formula which do not necessarily represent values as stated in para 9.1 above". In par 8.4 of the determination (at 25) it is stated that "affidavits have been received from Shell during March 1998 to the effect that they want the assets to be valued according to the amounts mentioned in the sales agreement between the two parties".

5. It was clear from the initial determination that the D G preferred to determine the effective value of the assets in the hands of the purchaser at the effective date and rejected Shell's view that the assets be "valued according to the amounts mentioned in the sales agreement between the parties".

6. The Commissioner's viewpoint is presently that the D G's "initial determination is patently wrong" [par 2.2.3(a) at 118]. If that is the case, the Commissioner should have realised from the outset, when he received the determination, that it was patently wrong. Yet, his deponent states that it was accepted that the initial determination was correct and that assessments of applicant's tax liability for the years in question were issued on the basis thereof (par 6.3.9 at 257).

7. The Commissioner's deponent avers that it was only after Shell's objection to their income tax assessments for the years in question had been properly considered – and consideration had also been given to the D G's redetermination of the effective value – that it was realised that the initial determination must have been wrong (par 6.3.10 at 258).

8. Accepting that the initial determination is patently wrong, if the Commissioner had taken all reasonable steps available to him to investigate the reviewability of the initial determination as soon as he became aware of such determination, he would probably have become aware at that stage that the determination was reviewable. An application to review the determination could probably have been brought within a period of 180 days after the date of such determination.

9. In my view, the Commissioner failed to take all reasonable steps available to him to investigate the reviewability of the initial determination as soon as he was aware of the determination.

10. Moreover, the Commissioner had been aware since at least the middle of 2000 that Shell was dissatisfied with the D G's determination and that it alleged that the determination should have been made on the basis of values allocated to the assets in the contract of sale (paras 6.3.10 and 6.3.14.1 at 258 9; annexure "HS6" at 30).

11. At that stage the Commissioner persisted in his failure to take all reasonable steps available to him to investigate the reviewability of the initial determination.

12. Furthermore, the Commissioner was aware, since at least 29 September 2000, that the applicant maintains that the D G was functus officio in respect of his determination and accordingly that such determination could not be circumvented without the bringing of a review application to set it aside (annexure "HS8" at 35 8; par 17 at 12 13 and par 10 at 131).

13. Even at that stage, the Commissioner persisted in failing to take all reasonable steps available to him to investigate the reviewability of the initial determination.

14. It was only on 7 November 2001, after the main application had been instituted on 9 0ctober 2001, that the Commissioner's deponent, arising from a consultation with the Commissioner's legal representatives, decided that a conditional counter-application should be filed together with the Commissioner's answering affidavit (par 6.3.12 at 258 9).

My conclusion is that in all the circumstances of the case the delay was unreasonable.

Should the delay be condoned?

A judicial discretion must be exercised as to whether condonation should be granted or not, taking into account all relevant facts and circumstances (Wolgroeiers case at 42D).

Prejudice to the other party, as well as the degree of such prejudice is a relevant factor in deciding whether unreasonable delay should be condoned (Wolgroeiers case at 42B C; Van Zyl case par 53 at 38 9).

If condonation were granted and the review were upheld, the initial determination of the D G of 8 May 1998 would be set aside. The D G would be called upon to make a new determination in terms of section 37(4) of the Act of the effective value of the mining assets transferred from Shell to the applicant with effect from 1 July 1994.

Applicant avers that the unreasonable delay of the Commissioner has caused it considerable prejudice in its opposition to the conditional counter-application. In particular applicant avers that the mine in question ceased operations at the end of 2002. At the time of the launch of the conditional counter-application it had already downscaled its operations considerably and most of the personnel with personal knowledge of the assets of the mine as at 1 July 1994 were no longer available for discussion (par 10.2 at 242).

Much of the detail of the applicant's original submission to the D G (which was vast in its complexity) has been lost (par 10.3 at 242).

Many of the assets subject to the valuation no longer exist, or at least do not exist any longer in the form that they had on 1 July 1994 (par 10.4 at 242).

Accordingly, whatever facts are in dispute can no longer be considered with facility and/or precision and if the court were to enquire into the details of applicant's submission to the D G, and his determination of 8 May 1998, the applicant will be severely prejudiced in its ability properly and fully to deal with such issues (par 10.5 at 242).

The Commissioner denies that the applicant has suffered any prejudice, either as alleged or at all. If any prejudice was suffered, he denies that it is attributable to the alleged delay (par 12.1 at 267). He avers that the content of subparagraphs 10.2 to 10.5 is bland and lacking in any factual data and certainly does not bear scrutiny. In view of the lack of any factual data, he denies the assertion in these subparagraphs. After all, applicant was obliged to retain its records in this case until, at least, January 2004. Consequently, any alleged inability on applicant's behalf to properly deal with this issue at hand does not stem from the alleged delay, but from applicant's own failure to properly safeguard its relevant records. In conclusion, the Commissioner also denies, what he calls, the bland assertions in subparagraph 10.5 which, he avers, equally do not bear scrutiny (paras 12.1, 12.3 and 12.4 at 267 8).

The Commissioner is presumably referring to sections 73A and 73B of the Income Tax Act which require a taxpayer to retain all records relevant to an income tax return for a period of five years. However, in this case the D G made a determination in terms of section 37(4) of the Act in 1998. That was the only record relevant to the applicant's income tax return. The applicant is not required to retain records which are relevant to the determination of the effective value in the absence of some challenge to that value. The applicant is entitled to say that it has retained the valuation made by the D G and that it need not keep the underlying records for five years.

Quite apart from that, the contention by the Commissioner disregards the fact that it is not simply those records which are relevant for the purposes of the determination, but that the actual assets no longer exist, or at least do not exist any longer in the form that they had in 1994. The mine is closed. Most of the personnel with personal knowledge of the assets of the mine as at 1 July 1994 are no longer available for discussion. In my view, the Commissioner is not justified in simply denying that the applicant is prejudiced and in saying that the applicant's averments of prejudice are bland and lacking in any factual data.

Another aspect of prejudice to the applicant is the following. If the court were to grant condonation, or an extension of time as sought by the Commissioner, the review itself could not be decided on the papers by reason of the substantial disputes of fact, to which I have referred above. The matter would probably have to be referred to trial. Pleadings would be exchanged. It is unlikely that a trial could take place before 2006. The losing party may wish to take the judgment on appeal to the Supreme Court of Appeal which would probably be another two years. Potentially in 2008 there might be a final decision as to whether the initial determination is to be set aside on review. It would then be referred back to the D G to make a redetermination. 0ne is looking at 2008 or 2009 before this matter is finally resolved.

As indicated, the Commissioner supports his application for condonation by stating that it is in the public interest that all taxes should be collected especially in the circumstances of this case (par 11.2 at 266).

Certainly it is in the public interest that all taxes should be collected, but it is equally in the public interest that the applicant has finality in regard to its tax affairs. The Commissioner cannot say that his interests are any more important in this regard than the interests of the applicant. The Commissioner had the necessary machinery available to him in order to launch the review proceedings at an early stage and he cannot say that that must be overlooked because it is in the public interest that all taxes should be collected.

The Commissioner also says (par 11.2 at 266) that it is a notorious fact that many delays are encountered in the assessment of income tax. That cannot be a reason for condoning his delay in launching an application for review in these proceedings.

The Commissioner is not persisting with his application for a declaratory order that the redetermination stands.

0rder

The application is upheld. An order is granted in terms of prayer (i) of the applicant's notice of motion dated 9 0ctober 2001. The second respondent is ordered to pay the costs of the application, including the costs of two counsel. The counter-application is dismissed including the costs of two counsel.

I W B DE VILLIERS

JUDGE OF THE HIGH COURT

26582-2001

Heard on: 26 0ctober 2004

Counsel for applicant: P Solomon SC and M Chaskelson

Instructed by: Mervyn Taback Inc

Counsel for second respondent: E W Dunn SC and N L Tshombe

Instructed by: State Attorney