Consumer Information

Author : Maryna Botha – STBB
11 August 2016

I DIDN’T KNOW VAT IS PAYABLE!  CAN I GET OUT OF SALE?
SHERIFF OF THE HIGH COURT PIKETBERG AND ANOTHER V LOURENS; IN RE: STANDARD BANK OF SOUTH AFRICA LTD V TRUSTEES FOR THE TIME BEING OF THE EILA TRUST AND OTHERS (3467/2014) [2016] ZAWCHC 93 (1 AUGUST 2016)

Modern laws brim with many safeguards for consumers, also in execution sales where both the Rules of Court and the Consumer Protection Act are relevant. Against the background of these provisions, the question that arose in this matter was whether the consumer rights of a successful bidder at an execution sale were denied by the fact that the sheriff did not inform him that VAT would be payable, despite the sale conditions noting that the purchaser will be liable for the costs of transfer.

SUMMARY OF JUDGMENT

FACTS
Standard Bank obtained judgment against the Eila Trust (the Trust) and a writ of execution was issued for the sheriff to attach and sell the Trust’s property. As per standard requirements, upon receipt of the writ, the sheriff ascertained what real rights (such as bonds and any encumbrances) were registered against the property and who the holders of these rights were so as to inform interested parties.

Standard Bank thereafter prepared the Notice of Sale and the Conditions of Sale for the sale in execution to proceed. The Notice stated that the Conditions of Sale may be inspected at the office of the sheriff.

Lourens, an interested purchaser, inspected the documents at the sheriff’s office and subsequently, via an agent, successfully bid at the auction. Clauses 4.7 of the Conditions of Sale provided that the purchaser would be “responsible for the payment of all costs and charges necessary to effect transfer, including but not limited to conveyancing costs, transfer duty or VAT attracted by the sale …”.

After the execution sale, the bank’s attorneys demanded Lourens to pay the costs, including the Value Added Tax (VAT), as the judgment debtor (the Trust) was a VAT vendor. Lourens refused to do so arguing, amongst other things, that the sheriff and the bank never made it known to him that he would be required to pay VAT.

The sheriff and the bank therefore made application to court for an order (in terms of the Uniform Rules of Court) for the cancellation of the execution sale due to Lourens’ failure to comply with his obligations to pay the VAT amount.

Lourens instituted a counter application arguing, amongst other things, that:

• The sale in execution was invalid as it did not comply with regulation 22(2) of the Consumer Protection Act (CPA), which requires an auctioneer who is not also the owner of the thing auctioned, to enter into an agreement with the owner in which the terms and conditions upon which that auctioneer accepts the goods for sale, is set out. Lourens argued that such agreement had to be entered into with either the bank or the Trust.

• The sheriff also failed to comply with regulation 22(5)(d) of the CPA, the latter requiring that “in performing the duties of an auctioneer, every auctioneer … must …. perform his or her duties in accordance with the highest standards applicable to auctions.” Lourens argued that the Conditions of Sale were not binding because a material condition of the contract of sale, namely the VAT payable on the transaction, was not brought to his attention. As such the bank and the sheriff were guilty of misrepresentation and thus contravened reg 22(5)(d) of the CPA. He further argued that there was a legal duty on the bank and the sheriff to ascertain whether the owner of the property was a VAT vendor and to disclose this to a successful bidder. Failing to do so meant that they did not adhere to the CPA and did not act in good faith.
The bank argued that the execution sale was conducted in full compliance with all rules and that it was valid. It also argued that the duty to ascertain whether VAT was payable lay with Lourens and not with the bank or the sheriff.

The parties agreed that the following were the issues in dispute:

• Did the bank and the sheriff have a duty to establish the VAT status on the property and disclose this information to Lourens? • Did the sheriff fail to comply with the provisions of the CPA? • Was there a valid auction?

HELD
Legal duty to advise of VAT liability

• It is well known that the sale of fixed property cannot attract both VAT and transfer duty. If property is sold by a VAT vendor in terms of the provisions of the VAT Act, then VAT will be payable by the seller to SARS.

• Consistent with this convention, there is the notion that operates in respect of VAT transactions that the purchase price of things sold is deemed to be VAT inclusive, except if the sale agreement specifically provides otherwise. This means that the seller as VAT vendor is liable to SARS for the output tax of 14% of the purchase price of the fixed property at the point of transfer.

• This was a VAT transaction because of the status of the owner, the Trust, as a VAT vendor and the transaction proceeding in terms of the VAT Act. Ordinarily in such circumstances, the obligation lies with the seller to pay VAT to SARS from the purchase price.

• The Trust, as judgment debtor, was unable to pay the VAT to SARS, and this obligation therefore fell on the bank (judgment creditor), as holder of rights over the property, to raise the VAT to pay over to SARS. The bank therefore included provision for this on the Conditions of Sale and demanded, correctly, the VAT amount from Lourens to effect transfer of the property.

• It was not shown that there existed a general duty on the sheriff or the judgment creditor to establish the VAT status of the owner of the property and to disclose this information to interested purchasers. While these aspects are significant to prospective purchasers, they are self-evidently transaction details that a purchaser ought to investigate prior to the auction.

• The sheriff is not required in law to extend its enquiries beyond enquiring what real rights are attached to the property that is the subject of the sale in execution. In this case, there was also no authority or evidence to the contrary.

• In the circumstances, all the parties were properly sensitised to the issue of pricing in regard to the property. It can therefore not be deducted that the bank and sheriff were acting in bad faith for not declaring that VAT would be payable on the sale transaction: the conditions of sale clearly stipulated that VAT could be payable by the purchaser.

• Accordingly, the sheriff and the bank were entitled to the cancellation of the sale in execution, in view of Lourens’ failure to comply with his obligations to pay the VAT.

Compliance with the CPA

(i) Applicability of the CPA

• It is necessary to harmonise Rule 46 of the Uniform Rules of Court (which regulates the sheriff conducting auctions in terms of an order of court) with the CPA and its regulations, essentially for the purpose of catering for the unique role of the sheriff as auctioneer in regard to sales in execution, as:

(i) The CPA states in section 45 that it applies to a sale in execution pursuant to a court order. However, it is so that there is a lacuna in that regulation 22(2) of the CPA establishes three categories of auctioneers which may legally sell the fixed property to be auctioned. The first category refers to an ‘owner’ auctioneer, in terms of which full dominium in the property vests in the person holding title therein; the second refers to a ‘rightful holder’ auctioneer, in terms of which a person who does not hold title is placed in charge of the fixed property for a defined purpose and whose dominium therein is limited; and the third is a ‘commercial’ auctioneer, typically an auctioneer from a commercial enterprise who is required to enter into a written contract with the owner or rightful holder of the property to be auctioned. It is obvious from the above that a structural lacuna exists in that none of these categories explicitly envisages the sheriff of the High Court in the role of auctioneer appointed in terms of an order of court.

(ii) The sheriff operates in an era of increased consumer protection and while Rule 46 of the Uniform Rules of Court and the Act and regulations may operate from different premises, the application of these provisions is very wide and caters for both standard commercial auctions and auctions conducted by the sheriff of the High Court. This means that while the sheriff’s interest in and control over the property to be auctioned is limited, it cannot act outside the court’s mandate and the provisions of Rule 46 read with the CPA and regulations.

(iii) There is a great need to regulate the property market and to ensure the necessary protections against manipulation and corruption. Rule 46 of the Uniform Rules and the CPA and regulations seek, amongst other things, to ensure that auctioneers are regulated and to constrain anti¬competitive behavior and corruption. These regulatory goals and standards are surely meant to apply to all types of auctions.

(iv) The sheriff’s unique role as auctioneer of the property to be sold in execution is no less important than that of standard commercial auctioneers – although distinct in key respects relating to the fact that the sheriff becomes the lawful custodian of the property to be auctioned based on the authority given to it by the court and not the seller. The sheriff is a messenger of the court and operates unlike a commercial enterprise auctioneer who carries its mandate exclusively from the seller.

• Since the CPA and its regulations thus incorporate sales in execution and are considered binding on the sheriff as auctioneer, it was required to be fully compliant with the provisions therein, failing which the legitimacy of the sale in execution would be open to question.

(ii) Compliance with regulation 22(2) of the CPA

• A sheriff has the same rights to sell a property at execution and to give transfer of the property as if he is the rightful owner thereof. Regulation 22(2) of the CPA, requiring an agreement between the auctioneer and the property owner, does not apply to a sale in execution pursuant to a court order declaring the property executable. An execution sale can be distinguished as it is not voluntary but occurs as part of a court sanctioned compulsory sale of a debtor’s property. It would be absurd to suggest that in such circumstances a written agreement between the owner of the property and the sheriff was required.

• On the facts the sheriff was indeed authorised by the court to transfer ownership of the property to Lourens. The sheriff was not legally required to additionally enter into a written agreement with either the registered owner of the property (the Trust) or with the bank, for the property to be sold in execution. Accordingly, the sheriff did not breach regulation 22(2) of the Act.
(iii) Compliance with regulation 22(5)(d) of the CPA

• On the facts, the sale in execution was validly conducted: it was advertised lawfully; the Conditions of Sale were open for inspection at the sheriff’s offices and were read out at the auction prior to the commencement of the bidding; Lourens was the successful bidder; and Lourens inspected the property and Conditions of Sale.

• Having established that all requirements for a valid execution sale were met, it could not be said that regulation 22(5)(d) was contravened, i.e. there was nothing to show that the sheriff did not perform his duties to the highest of standards and in accordance with the Uniform Rules of Court.

CONCLUSION:
The application therefore succeeded.

The Judgment can be viewed here: