Sasfin case: beware dragons
• Sars in uncharted waters with its damages claim for tax allegedly owed by former clients
At time of going to press, the commissioner for the SA Revenue Service, (Sars) Edward Kieswetter, confirmed that Sars had instituted legal proceedings against Sasfin Bank.
Sars says it conducted a thorough investigation into various SA taxpayers who had not made true and accurate tax disclosures to Sars. The investigation revealed, it says, that the taxpayers colluded to move funds offshore in a manner that obscured tracing the expatriated payments and jeopardises the recovery of tax in SA.
The commissioner’s position was that it is inappropriate to comment on the question of liability and compensation for the loss to the fiscus, as these are legal issues that are now before the judicial system. Given this development, Sars will not be making any further comment.
Sasfin Holdings, in turn, said Sasfin Bank has received a civil summons for a total amount of R4.87 bn plus interest and costs in the form of a damages claim instituted by Sars. This summons relates to Sars’ purported inability to collect income tax, VAT and penalties allegedly owed by former foreign exchange clients of the bank.
There is little doubt this will be an interesting legal battle likely to play out over a few years as this type of claim is quite unprecedented in SA law.
In fact, a legal opinion from ENS, authored by Prof Dale Hutchinson, Prof Michael Katz and Aslam Moosajee, and endorsed by Advocate Wim Trengove SC, is unequivocal that the claim falls outside the recognised parameters of applicable law and has a very remote likelihood of success.
Sars’ claim relates to the expatriation of money going back to 2014, in which a criminal syndicate colluded with former employees of Sasfin Bank who were operating outside their scope and authority of employment.
The legal question of wrongfulness is front and centre in the case, which is based on damages rather on a direct tax claim against Sasfin. Under SA’s law of delict — or civil wrong that causes harm to another person or entity — there are two types of claims: one for bodily injury or damage to property, and one for pure economic claim. For pure economic loss claims, however, courts are generally reluctant to impose liability unless there is a recognised category that the court has already established.
Either way this case is unprecedented in SA.
Sars may find it will be tough getting over the wrongfulness hurdle — for example, claiming a bank should be held liable because its negligence has caused economic loss.
There is also a real risk that should such a claim succeed, it could open the floodgates and lead to indeterminate liability — a chilling consequence for the financial sector as a whole should other businesses ever face similar claims.