Commissioner: SARS v Daikin Air Conditioning SA (Pty) Ltd

This significant judgment suggests that there may be different rules of interpretation when dealing with statutes as opposed to contracts. In a dissenting judgment in the SCA, concerning inter alia the contra fiscum rule, there is an important statement and the judgment may well be appealed. “Recourse to the meaning of the speakers of words used in a statute is not determined in the same fashion as that of words used in a contract. In order to ascertain the intention of the lawmaker, one must have regard to the appropriate principles of law-making. In the instance of the contra fiscum rule, absent unambiguous language, the rule will be decisive in favour of the taxpayer in cases of doubt . . . . . The words employed in the statute must be the primary enquiry to consider whether they admit of any doubt or ambiguity. If not, effect must be given thereto, unless a glaring absurdity results which the lawmaker could not have contemplated. . . . .  As is correctly pointed out in Lawsa, this approach, laid down in a number of judgments of our courts relating to the interpretation of a legislative enactment, is based upon the literalist-cum-intentionalist view (Lawsa (2 ed) vol 25, Part 2 ibid at 331, footnote 38)”. [para 33]

Essence

In the instance of the contra fiscum rule it will be decisive in favour of the taxpayer in cases of doubt and in the absence of unambiguous language.

Decision

(185/2017) [2018] ZASCA 66 (25 May 2018).  Allowed appeal but not unanimous decision.

Judges

Van der Merwe JA (Maya P and Mbha JA concurring) with Majiedt JA and Davis AJA dissenting)

Reasons

The SCA classified articles for customs duty purposes ito the Customs and Excise Act 91 of 1964 and the correct tariff to be applied in respect of ‘window or wall types, self-contained or “split-system”’ air conditioning machines and parts thereof.

Discussion by GilesFiles
Court summary

Two footnotes to the dissenting judgment

“[1]  Expressed in the language of modern linguistic philosophy, the approach adopted by Wallis JA in Endumeni draws a distinction between sentence and speaker meaning. While the words used in the text to be interpreted are to be classified as sentence meaning, speaker meaning is that which can be attributed to the speaker from an examination of the context and the circumstances which gave rise to the existence of the sentence under examination interpretative process (Paul Grice Studies in the Way of Words (1989)). In other words, sentence meaning is not the alpha and omega of the inquiry. There may, however, be a need to draw a distinction between contracts and similar documents which are created after negotiations between a defined group who participate actively in the process and statutes. The drafting and subsequent interpretation of statutes cannot easily fit into an objectively determined shared purpose of sharing information which may be ascertained in respect of a contract or similar form of document.

[2] The distinction we seek to draw between a contract and a legislative enactment becomes important in that it is difficult to find an analogous purpose to speaker meaning when considering the relationship between the legislature and various parts of the audience affected by the enactment. In short, the purpose may be more difficult to divine by way of reliance on an objective theory to determine speaker meaning. For example, given the negotiations which are part and parcel of the legislative process, it is often the case that a majority of those members of a legislature who vote in favour of a bill has the aim that the legislation not be interpreted accurately, but rather in a way that yields stronger or weaker regulation than was in fact enacted. (In general, see Mark Greenberg UCLA School of Law of Research Paper No 10 -35 at 4)”.

Quotations from judgment

Note: Footnotes omitted and emphasis added

Majiedt JA and Davis AJA dissenting

[17] We have had the distinct pleasure of reading the lucid judgment of Van der Merwe JA. Regrettably, we are unable to agree with his conclusions and hence the order that follows therefrom.

. . . . .

[25] Before dealing with the implications of the relevant note, it is important to keep in mind the approach to the interpretation of the tariff headings as set out by Trollip JA in Secretary for Custom and Excise v Thomas Barlow & Sons Ltd 1970 (2) SA 660 (A) at 679F – 680B-C:

‘[T]he primary task in classifying particular goods is to ascertain the meaning of the relevant headings and section and chapter notes, but, in performing that task, one should also use the [Explanatory Notes] for guidance especially in difficult and doubtful cases. But in using them one must bear in mind that they are merely intended to explain or perhaps supplement those headings and notes and not to override or contradict them. They are manifestly not designed for the latter purpose, for they are not worded with linguistic precision usually characteristic of statutory precepts; on the contrary they consist mainly of discursive comment and illustrations and, in any event, it is hardly likely that the Brussels Council intended that its Explanatory Notes should override or contradict its own Nomenclature. Consequently, I think that in using the [Explanatory Notes] one must construe them so as to conform with and not to override or contradict the plain meaning of the headings and notes.’

[26] Appellant adopted the view that, even though the additional sentence was inserted on 17 December 2012, it was only included to bring additional clarity but did not introduce a new meaning to the original Note. In its view, the Note with its subsequent clarification was dispositive of the dispute.

[27] This submission seems to conflate the mandated inquiry. In the first place the meaning of the header must be ascertained. Only if this task leads to the conclusion that a clear meaning cannot be ascertained from an examination of the words employed should there be reference to the Brussels Note. That is surely self-evident from the dictum of Trollip JA in Thomas Barlow above.

See also International Business Machines (Pty) Ltd v Commissioner of Customs and Exercise 1985 (4) SA 852 (A) at 864B and more recently The Heritage Collection (Pty) Ltd v CSARS 2002 (6) SA 15 (SCA) para 10 and CSARS v Coltrade International CC [2016] ZASCA 153 para 7.

[28] In our view, the words used do admit of a clear meaning. Significantly there is a comma inserted between ‘window or wall types’ and ‘self-contained or split-system’. This serves to indicate that the phrase self-contained or split-system qualifies or describes the nature of the two types of air conditioner set out: being window or wall types. The cogency of this approach to the header can be illustrated by way of the following hypothetical example: ‘Car or SUV’s; Blue or Black’. This phrase cannot plausibly be interpreted, for example, to extend to trucks or tractors.

[29] As has been the custom recently appellant sought to invoke dicta from the judgment in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) at para 18:

‘Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document.’

[30] In his judgment Van der Merwe JA invokes this dictum when he concludes that the inclusion of indoor units mounted on ceilings leads to the more sensible commercial construction. It thus becomes necessary to examine the dictum from Endumeni as it might apply to this case.

[31] Contrary to Endumeni, above at 603 (fn14) which, on the authority of KPMG Accountants (SA) v Securifin Ltd 2009 (4) SA399 (SCA), suggests that there is no distinction in the interpretation of contracts, statutes and other documents, we can find nothing in the judgment of Harms DP in KPMG that prevents a drawing of the distinction that we have drawn between the interpretation of legislation and contracts or similar documents. All that Harms DP said at para 39 in KPMG was that ‘the rules about admissibility of evidence in this regard do not depend on the nature of the document, whether statute, contract or patent’.

Self-evidently, the legislative process which culminates in an enactment, and the subsequent interpretation of that enactment, are quite different from the preceding negotiations which lead to the conclusion of a contract and the subsequent interpretation of the contract. It is difficult to see how ‘commercial sensibility’, alluded to by Van der Merwe JA, can play any role in interpreting a statute. And a statute must apply to all equally – its interpretation cannot be dependent on a particular contextual setting, nor can it vary from one factual matrix to the next. Context is fact-specific and can be applied in the interpretation of contracts and like documents, but not of statutes.

[32] What is required when seeking to ascertain the meaning of legislation is to subject the words used to an engagement, not with speaker meaning, but with the principles and standards that are appropriate to relevant law making exercise and the subsequent exercise of legal interpretation.

In the case of fiscal legislation, an appropriate standard is the contra fiscum rule which is based upon the idea that no tax can be imposed upon a subject of the State without words in legislation clearly evincing an intention to lay a burden on him or her. (Coltness Iron Co v Black (1888) 6 App CAS 315 (HL) at 330; LR Dison ‘The Contra Fiscum Rule in Theory and Practice’ 1976 (93) SA LJ 159). In the case of tariff headings, the Brussels Notes and the General Rules for the Interpretation of the Harmonized System provide a further basis to determine the meaning beyond a rigid recourse to sentence meaning.

[33] Recourse to the meaning of the speakers of words used in a statute is not determined in the same fashion as that of words used in a contract. In order to ascertain the intention of the lawmaker, one must have regard to the appropriate principles of law-making. In the instance of the contra fiscum rule, absent unambiguous language, the rule will be decisive in favour of the taxpayer in cases of doubt (Estate Reynolds and others v Commissioner for Inland Revenue 1937 AD 57 at 70; Willis Faber Enthoven Ltd v Receiver of Revenue 1992 (4) SA 202 (A) at 216 C).

The words employed in the statute must be the primary enquiry to consider whether they admit of any doubt or ambiguity. If not, effect must be given thereto, unless a glaring absurdity results which the lawmaker could not have contemplated. (Public Carriers Association and others v Toll Road Concessionaries (Pty) Ltd and others 1990 (1) SA 925 (A) at 942I – 943A). As is correctly pointed out in Lawsa, this approach, laid down in a number of judgments of our courts relating to the interpretation of a legislative enactment, is based upon the literalist-cum-intentionalist view (Lawsa (2 ed) vol 25, Part 2 ibid at 331, footnote 38).

[34] In addition there is the compelling consideration that the Interpretation Act 33 of 1957 applies only to legislation. Section 1 reads:

‘1. Application of the Act.

The provisions of this Act shall apply to the interpretation of every law (as in this Act defined) in force, at, or after the commencement of this Act in the Republic or in any portion thereof, and to the interpretation of all by-laws, rules, regulations or orders made under the authority of any such law, unless there is something in the language or context of the law, by-law, rule, regulation or order repugnant to such provisions or unless the contrary intention appears therein.’

This distinction reinforces the view that the interpretation of a statute cannot simply be equated that of a contract. Finally s 39(2) of the Constitution mandate a recourse to the spirit purport and objects of the Bill of rights in interpreting any legislations.

[35] Applied to the present dispute, at best for the appellant the words employed may be considered to be open to the interpretation for which it argued. But as we have suggested, the application of speaker meaning as determined by the purpose of the provision, the background and production of the document which appellant seeks to call into aid, (Endumeni at para 18) is not easily applicable to legislative enactments, including a customs tariff.

[36] Appellant contends that, even if the narrow meaning is plausible, it must give way to the more expansive interpretation of the header as contained in the Brussels Note. But, as is clear from the hypothetical analogy to cars and SUV’s, the wording employed is far from ambiguous. Indeed, the South African Embassy and Mission to the European Committees in a letter to the WCO of 16 August 2002, in which the meaning of subheading 8415.10 was debated, wrote:

‘South Africa is therefore of the view that the current wording of the subheading is restrictive and relates to window or wall type only, hence the use of a comma, rather than a semi-colon. An important point to note here is that the intention of what is to be covered by this subheading is not the issue. It may very well be that the Secretarial intended this subheading to cover ceiling types as well. The question that needs to be addressed is whether the wording currently used can be seen to reflect that.’

[37] This letter provides a succinct summary of the proper interpretive exercise to be applied to the subheading, one which is consistent with the approach to the classification of goods as was confirmed by this court in The Heritage Collection, above at para 10. A further consideration in favour of this interpretation is that the appellant’s suggested interpretation, namely that all self-contained and split-system air conditioning machines fall within tariff heading 8415.10, would render the use of the words ‘window or wall types’ in the heading superfluous.

Such an interpretation would be contrary to the presumption against superfluity (see Commissioner for Inland Revenue v Southern Life Association 1986(4) SA 717(A) at 729J-730A). Accordingly, we would dismiss the appeal with costs.