DISTRIBUTABLE (51)
Judgment
No. SC 56/07
Civil
Appeal No. 315/06
ZIMBABWE
STOCK EXCHANGE v ZIMBABWE REVENUE AUTHORITY
SUPREME COURT OF
ZIMBABWE
MALABA JA, GWAUNZA JA &
GARWE JA
HARARE, SEPTEMBER 17,
2007 & MARCH 4, 2008
T Biti, for the
appellant
M Sinyoro, for
the respondent
MALABA JA: This is an appeal from a judgment of the High Court
dated 8 November 2006 dismissing with costs an application by
the
appellant for an order declaring that stockbrokers are in terms of s
11(1)(a) of the Value Added Tax Act (the VAT Act)
exempted from
the liability for the payment of the tax chargeable in terms of s
3(1) on the value of services supplied to clients
by registered
operators in the course or furtherance of trade carried on by them.
The ground on which the application was dismissed
was that the
applicant had no locus standi in judicio to institute
the proceedings and seek the relief on behalf of stockbrokers.
The appellant is a body corporate established in terms of s 3 of
the Stock Exchange Act [Cap 24:18] (the Act) with the
capacity to sue and be sued in its corporate name. Its affairs are
managed and controlled by a
Committee known as the Committee of the
Zimbabwe Stock Exchange established in terms of s 4 of the Act. The
duties of the Committee
as set out under s 15(1) of the Act are:
(a) to manage and control the affairs of the Exchange;
and;
(b) to regulate the transaction of business on the Exchange;
and
(c) to manage and invest the funds of the Exchange; and;
(d) to raise or borrow moneys for the purposes of the Exchange
in sums not exceeding
in
aggregate twenty five thousand dollars in any
financial year unless
authorized at an Exchange meeting.
Stockbrokers are members of the Exchange. A stockbroker is defined
in s 2 of the Act as a person who carries on the business
of
purchasing and selling, or purchasing or selling listed securities on
behalf of other persons. In the discharge of the duties
of
managing and controlling the affairs of the appellant the Committee
is enjoined to ensure that there is fair and efficient dealing
in the
securities listed and that the competence and conduct of stockbrokers
is sufficiently high for the protection of the public.
Section 6(1) of the VAT Act provided for a tax to be charged,
levied and collected for the benefit of the Consolidated Revenue
Fund at such rate as may be fixed on the value of services supplied
by a registered operator in the course or furtherance of any
trade
carried on by him. The tax had to be paid by the registered
operator. Section 11(1)(a) provided exemptions from the liability
for the payment of the tax to suppliers of financial services.
Under s 2(1) of the VAT Act financial services is defined
to
mean:
(a) any service provided by a
banking institution registered
or required to be
registered
in terms of the Banking Act [cap 24:20], or;
any
service provided by a building society registered or required to be
registered in terms of the Building Societies Act [Chapter
24:02];
or;
the
exchange of bank notes or other currency of any country, except
where they are to be used as collectors items, or;
the
provisions of any deposit, loan or credit, including the provisions
of any guarantee, indemnity, security or bond in respect
of the
performance of obligations related to a deposit, loan or credit; or;
the
issue or transfer of ownership of any share in a company or interest
in a private business corporation; or
services
rendered by an insurer registered in terms of the Insurance Act
[Chapter 24:07]; or;
(g) the services of an
actuary, insurance agent or insurance
broker, as defined in
the
Insurance Act [Cap 24:07] to the extent that
those services are rendered
to or on behalf of an insurer registered in terms of the
Insurance Act [Cap 24:07]
or to or on behalf of a pension fund registered in terms of the
Pension
and Provident Funds Act [Cap 24:09].
Believing that stockbrokers are liable for the payment of the tax in
terms of s 5 of the VAT Act but had not paid the amount of
tax, the
Commissioner General (the Commissioner) in the exercise of the
powers conferred on him under s 31(3) of the VAT
Act, made
assessments of amounts of tax payable by stockbrokers and gave each
of them written notice of the assessment, at the
same time inviting
him/her to lodge objections to the assessment in writing within
thirty days after the date of the notice if
dissatisfied with the
assessment.
Notices of the assessments were given to stockbrokers on 19 May 2006.
On 22 May they stopped trading on the Stock Exchange as
a way of
expressing dissatisfaction with the assessments by the Commissioner.
They resumed trading on 30 May following an agreement
with the
respondent that they would collect the tax pending determination of
the question of their liability for the payment of
the tax by courts
of law. The moneys collected were to be remitted to the Commissioner
should the courts rule that the stockbrokers
were liable for the
payment of the tax.
On 15 June 2006 stockbrokers submitted written objections to the
assessments to the Commissioner in terms of s 31(1) of the VAT
Act.
They contended that, on the basis of s 11(1)(e) of the VAT Act, the
service of purchasing and selling of listed securities
they rendered
to their clients is a financial service. They argued that as
suppliers of a financial service defined in s 2(1)(e)
they were
exempted from liability for the payment of the tax on the value of
the service.
On the day stockbrokers lodged objections to the assessments with the
Commissioner the appellant made an application to the High
Court for
an order declaring that stockbrokers were exempted from liability for
payment of
Value Added Tax. The appellant based the application
on the same ground relied upon by the stockbrokers in the written
objections
to the assessments.
Apart from denying that purchasing and selling or purchasing or
selling of listed securities by stockbrokers on behalf of other
persons was a financial service as defined under s 2(1)(e) of the VAT
Act, the respondent raised as a point in limine the
locus standi in judicio of the appellant to institute the
proceedings and claim the particular relief on behalf of
stockbrokers.
The court a quo held that the appellant had no direct and
substantial interest in the right which formed the subject matter of
the application
and the relief applied for and dismissed the
application for lack of locus standi on the part of the
appellant. The learned Judge said:
It is common cause that the applicant itself is not a stockbroker
and is not liable to the respondent for VAT. The applicant
brings
this application on behalf of stockbrokers. From a reading of the
applicants papers, it is quite apparent that the applicant
greatly
sympathizes with the stockbrokers case and has adopted their
stance as if it was its own. It firmly believes that stockbrokers
are exempt from paying VAT and has argued so in its application.
Noticeably, in its draft order, it does not pray for an order
compelling the parties to the dispute to speedily resolve the issue
that has disrupted trading on the bourse but specifically prays
that
the dispute be resolved in favour of the stockbrokers.
The common law on locus standi in judicio of a party
instituting proceedings in a court of law is that to justify
participation in the action the party must show that he
or she has a
direct and substantial interest in the right which is the subject
matter of the proceedings and the relief sought
and not merely a
financial interest which is only an indirect interest in the
litigation. The exception to the rule is of a case
in which the
question raised for determination by a court involves the liberty of
an individual who because of mental illness or
detention is unable to
institute the proceedings himself. The common law is applicable in
the determination of the question of
locus standi of persons
seeking to enforce statutory rights unless the particular statute
prescribes specific requirements for locus standi. United
Watch & Diamond Co (Pvt) Ltd & Ors v Disa
Hotels Ltd & Anor 1972 (4) SA 409 (C), AAIL (SA) v
Muslim Judicial Council 1983 (4) SA 855 (C); SA Optometric
Association v Frames Distributors (Pvt) Ltd t/s Frames
Unlimited 1985 (3) SA 100 (O); Zimbabwe Teachers Association &
Ors v Minister of Education 1990 (2) ZLR 48 (H).
The question raised for determination by the court a quo was
whether or not stockbrokers had a right under s 11(1)(a) of the VAT
Act not be charged tax in terms of s 6(1) on the value
of the
services they supplied to their clients in the course or furtherance
of the trade they carried on. To determine the question
the court a
quo had to decide the question whether or not purchasing and
selling or purchasing or selling of listed securities on the Stock
Exchange
which stockbrokers conducted on behalf of their clients was
a financial service as defined in s 2(1) of the VAT Act. In other
words, was it the intention of Parliament that the service of
purchasing and selling listed securities on the Stock Exchange which
stockbrokers rendered to their clients be included in the meaning of
financial service under s 2(1)(e) as the issue
or
transfer of ownership of any share in a company or interest in a
private business corporation?
It is clear from the nature of the questions the court a quo
was expected to determine that stockbrokers had a direct and
substantial interest in the right which was the subject matter of
the
application made by the appellant. The appellant was not involved in
the purchasing and selling of listed securities. As
such it would
not have a direct interest in the result of the determination of the
question whether or not such a service was a
financial service
entitling its provider to an exemption from the liability for payment
of Value Added Tax under s 11(1)(a)
of the VAT Act.
In seeking to take up the cudgels and put on the garb of litigation
on behalf of stockbrokers in the representative action, the
appellant
put itself in the position of those persons to whom the common law in
locus standi is intended to deny the right of action. In
a spirited attempt to salvage a hopeless case of lack of locus
standi in judicio Mr Biti argued that stockbrokers are the
Stock Exchange and the appellant was established to protect their
interests. The contention was
that the institution of proceedings
for the determination of the question of the liability of
stockbrokers for the payment of Value
Added Tax was part of the
affairs of the appellant. It must be said, however, that the
appellant was established in terms of s
3 of the Act as a body
corporate whose affairs do not include the protection of the
financial interests of its members.
An examination of the nature of the affairs of the appellant as a
body corporate which would determine the kind of direct and
substantial interests it would have a right of action to protect
shows that they related to the management of the trading in the
stock
market. They included, for example, ensuring that only listed
securities were dealt in, that there was fairness and efficiency
in
the trading, sufficiently high standards of conduct were observed by
stockbrokers and that transactions were generally regulated.
None of
these affairs would justify the institution of the proceedings to
vindicate the right of a stockbroker to an exemption
from liability
to pay tax on the value of services he would have rendered to his
client.
The appeal is dismissed with costs.
GWAUNZA JA: I agree
GARWE JA: I agree
Honey & Blanckenberg, appellants legal practitioners
Sinyoro & Company, respondents legal practitioners
