News & Analysis
Alternative Dispute Resolution (ADR) of Tax Disputes in South Africa
By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publication of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*
The South Africa Revenue Service (SARS) has established an Internal Administrative Appeal (IAA) mechanism which allows anyone does not agree with the decision of tax officer and has approached the officer’s immediate supervisor to clarify the decision in question and resolve any uncertainties but the mater remains unresolved to institute a formal internal administrative appeal. In such cases, the client(s) not satisfied with any decision taken by officers in terms of the relevant tax law, have a right to appeal that decision to the relevant appeal committee. Once the appeal is lodged in the prescribed form to the office that communicated the decision. The Appeal has to be made within thirty (30) days from the date the client became aware of the decision or received reasons for the decision. An extension of twenty (20) days may be granted, if such extension is applied before the expiry of the 30-days period but if that is exceeded, the IAA process cannot be followed and the applicant’s only recourse will then lie in litigation.
In the event of successful appeal, the Appeal Committee has to provide a decision and reasons for the decision in writing within forty-five (45) days from the date of acknowledgement of receipt of the Appeal. If the taxpayer is unhappy with the decision of any appeal committee, their recourse is to lodge an application for Alternative Dispute Resolution (ADR) with that relevant appeal committee which made the decision. In that case, the committee will add its comments thereto and forward the application to the ADR Unit for attention. The ADR process is used as recourse against the final decision made under the IAA process and may be initiated by either the aggrieved person or SARS but the final decision on whether a matter is suitable for ADR vests with SARS.
To apply for ADR, a properly completed prescribed form together with the relevant supporting documents, must be submitted to the chairperson of the appeal committee who informed the client of the decision within 30 days of the date of the letter. The Commissioner may agree to extend the period for submission of the application for ADR. The Commissioner is required within 20 days to decide and inform the applicant whether the matter is appropriate for ADR or not and that it may be resolved by way of the procedures contemplated in the rules. The SAR Alternative Dispute Resolution (ADR) External Policy provides the standard approach to be followed by stakeholders when a dispute is referred to Alternative Dispute Resolution (ADR), as provided for in Section 77I of the Customs and Excise Act (Act No. 91 of 1964).
ADR can also be used as an alternative to judicial tax proceedings in South Africa. In that regard, the Commissioner must within ten days after receipt of a notice in terms of Section 96(1) of the Act inform the person delivering such notice that he is of the opinion that the matter is appropriate for ADR. Within ten days after the date of the above notice by the Commissioner such person must deliver a duly completed prescribed form for Application for ADR to the Commissioner should he or she agree to the ADR process. If the party does not complete the application for ADR within ten days after the date of the notice by the Commissioner, the matter may not be dealt with through ADR.
The ADR must be concluded within 90 days, or such further period as SARS may agree to. The period within which the ADR proceedings are conducted commences either 20 days after date of notice by the Commissioner of suitability of the matter for resolution by ADR or on receipt of an application for ADR by the Commissioner after communication a matter suitable for ADR as alternative to judicial proceedings. The period ends on the date of termination of proceedings in the manner provided for in the terms governing the ADR procedures. SARS is entitled to appoint a facilitator, who may be an appropriately qualified officer of SARS within 15 days and the Commissioner must inform the aggrieved person of the appointment of the facilitator. The role of the facilitator is to seek a fair, equitable and legal resolution of the dispute between an aggrieved person and SARS.
The procedure to be adopted, the time place and date and requirements as to the furnishing of submissions and documentation, are determined by the facilitator after consultation with the aggrieved person and the officer(s) or appeal committee of SARS. The aggrieved person must be personally present during the ADR proceedings but may however be accompanied by any representative of their choice. But the facilitator may, in exceptional circumstances, allow the aggrieved person to be represented in their absence by a duly authorized representative of their choice. With agreement of the facilitator, the parties may to lead or bring witnesses in the ADR process. The facilitator may also require either party to produce a witness to give evidence. At the conclusion of the meeting, either at the instance of the facilitator or by mutual agreement, the facilitator must record all issues which were resolved and issues upon which no agreement or settlement could be reached and the facilitator must deliver a report to the parties within ten days of the conclusion of the ADR process.
The ADR proceedings are envisaged to be without prejudice and not one of record, and any representation made or document tendered in the course of the proceedings may not be tendered in any subsequent proceedings as evidence by any other party, unless: it is used with the knowledge and consent of the party who made the representation or tendered the document during the proceedings or the representation/document is already known to, or in possession of, that party or where it was obtained by that party otherwise than in terms of the ADR proceedings. Further, no person may subpoena any person involved in the ADR process (including the facilitator), in whatever capacity, to compel disclosure of any representation made or document tendered in the course of the proceedings.
A dispute may either be resolved by agreement whereby either SARS or the aggrieved person accepts, either in whole or in part, the other party’s interpretation of the facts or the law applicable to those facts or both. However, such agreement must be reduced to writing and signed by both parties. If the parties fail to resolve the dispute, the parties may attempt to settle the matter as set out in the Act. In any case, once a dispute is resolved either by agreement or settlement SARS must give effect to that agreement or settlement within a period of 60 days after conclusion. If the dispute is not resolved by either agreement or settlement or the proceedings are terminated, SARS must inform the aggrieved person within 10 days inform the aggrieved party of their right to institute judicial proceedings. Any agreement or settlement reached through the ADR process has no binding effect in respect of any other matters relating to that aggrieved person not actually covered by the agreement or settlement or any other person.
The Tax Law gives SARS the power to settle a dispute which is to the benefit of the State. A dispute may be settled at any time as the settlement provisions are not limited for use only during the ADR process. However, the ADR is noted as a process to resolve disputes one ideal situation where the settlement provisions may be applied in an attempt to settle the matter. The settlement provisions in the South African law may only be applied if the circumstances of the matter comply with these regulations. The settlement procedures provide guidelines as to the circumstances when it would be appropriate and when it would be inappropriate to settle.
Circumstances where it is inappropriate to settle include where, if in the opinion of SARS: the action of the aggrieved person constitute intentional tax evasion or fraud or where the settlement would be contrary to the law or a clearly established practice of the Commissioner on the matter, and no exceptional circumstances exist to justify a departure from the law or practice. Further, it is not appropriate to settle where it is in the public interest to have judicial clarification of the issue or pursuit of the matter through the courts will significantly promote compliance of the tax laws or the person concerned has not complied with the provisions of any Act administered by SARS and SARS is of the opinion that the non-compliance is of a serious nature.
On the other hand, where it is to the best advantage of the State, SARS may settle a dispute, in whole or in part, on a basis that is fair and equitable to both the person concerned and SARS. SARS is enjoined when contemplating the settling of a matter, to have regard to a number of factors including: whether that settlement would be in the interest of good management of the tax system, overall fairness and the best use of SARS’ resources; the cost of litigation in comparison to the possible benefits, whether there are any complex factual or quantum issues in contention or evidentiary difficulties which are sufficient to make the case problematic in outcome or unsuitable for resolution through the ADR process or the courts. Settlement is also to be embraced where the settlement of the dispute will promote compliance of the tax laws by the person concerned or a group of taxpayers or a section of the public in a cost-effective way.
The tax law provides for reporting requirements in terms of which SARS must report on an annual basis to the Minister of Finance and the Commissioner on settlements reached. This report must be in such format as does not disclose the identity of the person concerned and contain details of the number of disputes settled or part settled, the amounts of revenue foregone and estimated amount of savings in costs of litigation, which must be reflected in respect of main classes of taxpayers. In the end, ADR as contemplated in South African law is “a form of dispute resolution other than litigation, or adjudication through the courts.” It is less formal, less cumbersome and less adversarial and a more cost-effective and speedier process of resolving a dispute with SARS.
*This article is part of an ongoing series on Specialized Alternative Dispute Resolution in Kenya by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2022.
South Africa Revenue Service (SARS), “What is Internal Administrative Appeal and How does it Work?,” Available at: https://www.sars.gov.za/customs-and-excise/offences-penalties-and-disputes/appeals/ (accessed on 25/01/2022).
SARS, “Dispute Resolution,” Available at: https://www.sars.gov.za/customs-and-excise/offences-penalties-and-disputes/dispute-resolution/#elementor-toc__heading-anchor-1 (accessed on 25/01/2022).
SARS, Alternative Dispute Resolution (ADR) External Policy, Available at: https://www.sars.gov.za/wp-content/uploads/Ops/Policies/SC-CC-26-Alternative-Dispute-Resolution-External-Policy.pdf (accessed on 25/01/2022).
News & Analysis
Brief History of the Permanent Court of Arbitration (PCA)
By Dr. Kariuki Muigua, PhD, C.Arb, Current Member of Permanent Court of Arbitration (PCA) Representing the Republic of Kenya.
The Permanent Court of Arbitration (PCA) is a 124 Years Old Intergovernmental Organization currently with 122 contracting states. It was established at the turn of 20th Century during the first Hague Peace Conference held between 18th May and 29th July 1899. The conference was an initiative of then Russian Czar Nicholas II to discuss peace and disarmament and specifically with the object of “seeking the most effective means of ensuring to all peoples the benefits of a real and lasting peace, and, above all, of limiting the progressive development of existing armaments.” The culmination of the conference was the adoption of a Convention on the Pacific Settlement of International Disputes, which dealt not only with arbitration but also with other methods of pacific settlement, such as good offices and mediation.
The aim of the conference was to “strengthen systems of international dispute resolution” especially international arbitration which in the last century had proven effective for the purpose with number of successful international arbitrations being concluded among Nations. The Alabama arbitration of 1871-1872 between the United Kingdom (UK) and the United States (US) under the Treaty of Washington of 1871 culminating in the arbitral tribunal’s award that the UK pay the US compensation for breach of neutrality during American Civil War which it did had demonstrated the effectiveness of arbitration in settling of international disputes and piqued interest of many practitioners in it as a mode of dispute resolution during the latter years of the nineteenth century.
The Institut de Droit International adopted a code of procedure for arbitration in 1875 to answer the need for a general law of arbitration governing for countries and parties wishing to have recourse to international arbitration. The growth of arbitration as a mode of international dispute resolution formed the background of the 1899 conference and informed its most enduring achievement, namely, the establishment of the PCA as the first global mechanism for the settlement of disputes between states. Article 16 of the 1899 Convention recognized that “in questions of a legal nature, and especially in the interpretation or application of International Conventions” arbitration is the “most effective, and at the same time the most equitable, means of settling disputes which diplomacy has failed to settle.”
In turn, the 1899 Convention provided for the creation of permanent machinery to enable the setting up of arbitral tribunals as necessary and to facilitate their work under the auspices of the institution it named as the Permanent Court of Arbitration (PCA). In particular, Article 20 of the 1899 Convention stated that “[w]ith the object of facilitating an immediate recourse to arbitration for international differences which it has not been possible to settle by diplomacy, the signatory Powers undertake to organize a Permanent Court of Arbitration, accessible at all times and operating, unless otherwise stipulated by the parties, in accordance with the rules of procedure inserted in the present Convention.” In effect, the Convention set up a permanent system of international arbitration and institutionalized the law and practice of arbitration in a definite and acceptable way.
As a result, the Permanent Court of Arbitration (PCA) was established in 1900 and began operating in 1902. The PCA as established consisted of a panel of jurists designated by each country acceding to the Convention with each country being entitled to designate up to four from among whom the members of each arbitral tribunal might be chosen. In addition, the Convention created a permanent Bureau, located in The Hague, with functions similar to those of a court registry or secretariat. The 1899 Convention also laid down a set of rules of procedure to govern the conduct of arbitrations under the PCA framework.
The second Hague Peace Conference in 1907 saw a revision of the 1899 Convention and improvement of the rules governing arbitral proceedings. Today, the PCA has developed into a modern, multi-faceted arbitral institution perfectly situated to meet the evolving dispute resolution needs of the international community. The Permanent Court of Arbitration has also diversified its service offering alongside those contemplated by the Conventions. For instance, today the International Bureau of the Permanent Court of Arbitration serves as a registry in important international arbitrations. In 1993, the Permanent Court of Arbitration adopted new “Optional Rules for Arbitrating Disputes between Two Parties of Which Only One Is a State” and, in 2001, “Optional Rules for Arbitration of Disputes Relating to Natural Resources and/or the Environment”.
PCA Website: https://pca-cpa.org/en/about/introduction/history/ (accessed on 25th May 2023).
News & Analysis
Former KCB Company Secretary Sues Over Unlawful Dismissal
Former KCB Group Company Secretary Joseph Kamau Kania has sued the lender seeking reinstatement or be compensated for illegal sacking almost three years ago. Lawyer Kania was the KCB Group company secretary until restructuring of the lender in 2021 that saw some senior executives dropped.
Through the firm of Senior Counsel Wilfred Nderitu, Kamau wants the court to order KCB Group to unconditionally reinstate him to employment without altering any of the contractual terms until his retirement in December 2025.
In his court documents filed before Employment and Labour Relations Court, the career law banker seeks the court to declare the reorganization of the company structure a nullity and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution. He further wants the court to declare that the position of Group Company Secretary did not at any time cease to exist within the KCB Group structure.
He further urged the Employment Court to declare that the recruitment and appointment of Bonnie Okumu, his former assistant, as the Group Company Secretary, in relation to the contemporaneous termination of his employment, was unprocedural, insufficient and inappropriate to infer a lawful termination of his employment.
“A declaration that the factual and legal circumstances of the Petitioner’s termination of employment were insufficient and inappropriate to infer a redundancy against him, and that any redundancy declared by the KCB Group in relation to him was therefore null, void and of no legal effect and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution,” seeks lawyer Kamau.
Kamau says he was subjected to discriminatory practices by the KCB Bank Group in violation of his fundamental right to equality and freedom from discrimination as guaranteed in Article 27 of the Constitution and the termination of his employment was unfair, unjustified, illegal, null and void.
Lawyer Kamau further seeks the court to declare that the Non-Compete Clause in the 2016 Contract is unenforceable by the KCB Group as against him and is voidable by him as against the Bank ab initio, byreason of the termination of the Petitioner’s employment having been a violation of Articles 41(1) and 47(1) and (2) of the Constitution, and of the Employment Act.
He also wants the Employment Court to find that finding that KCB’s group legal representation by Messrs of Mohammed Muigai LLP Advocates law firm in respect of his claim for unlawful termination of employment resulted in a clear conflict of interest by reason of the fact that a Founding and Senior Partner at the said firm lawyer Mohammed Nyaoga is also the Chairman of the CBK’s Board of Directors.
“A Declaration that the circumstances of KCB’s legal representation by Messrs. Mohammed Muigai LLP Advocates resulted in a violation of the Petitioner’s fundamental right to have the employment dispute decided independently and impartially, as guaranteed in Article 50(1) of the Constitution,” seeks lawyer Kamau.
Kamau is seeking damages against both KCB Group and Central Bank of Kenya jointly and severally for the violation of his constitutional and fundamental right to fair labour practices.
He wants further wants court to declare that CBK is liable to petitioner on account of its breach of statutory duty to effectively regulate KCB Group to ensure that KCB complied with the Central Bank of Kenya Prudential Guidelines and all other Laws, Rules, Codes and Standards, and that, as an issuer of securities, it complied with capital markets legislation.
Kamau through his lawyer Nderitu told the court that he was involved in Shareholder engagement in introducing the Group aide-mémoire that significantly improved the management of the Annual General Meetings, including obtaining approval without voting through the Memorandum and Articles of Association of Kenya Commercial Bank Limited among others.
He said that during his employment at KCB Bank Kenya and with the KCB Group, he initially worked well with former KCB CEO Joseph Oigara until 2016 when the CEO allegedly started sidelining him by removing the legal function from his reporting line.
He further claims he was transferred from the Group’s offices at Kencom House to its offices Upper Hill under the guise that the Petitioner was merely to support the KCB Group Board.
He adds that at that point his roles were given to Okumu for reasons that were not related to work demands. He stated that Oigara at one time proposed that he should leave his role in the KCB Group and go and serve as the Company Secretary of the National Bank of Kenya Limited, a subsidiary of the Group, a suggestion which he disagreed with to Oigara’s utter annoyance.
Kamau stated that his work was thenceforth unfairly discredited, leading to his being taken through a disciplinary process whose intended outcome failed miserably, and the Petitioner was vindicated.
“More specifically, the Petitioner contends that the purported creation of a new organizational structure towards the end of 2020 was in fact Oigara’s orchestration targeted to remove certain individuals by requiring them to undergo interviews in the pretext that new roles were created, and amounted to a further violation of the Petitioner’s fundamental right to fair labour practices under Article 41(1) of the Constitution,” said in his court documents.
He further adds that this sham reorganization demonstrates how the role of the KCB Group Company Secretary purportedly ceased to be and was then very briefly replaced with a new role of the KCB Group General Counsel. The role of KCB Group Company Secretary then ‘resurfaced’ immediately thereafter, in total violation of legal and regulatory requirements.
News & Analysis
Court of Appeal Upholds Eviction of Radcliffes from Karen Land
The Court of Appeal has stayed the decision of the Environment and Land Court purporting to reinstate Adrian Radcliffe into possession of the 5.7 Acre Karen Land by Kena Properties Ltd after eviction by the lawful owners in February 2022. Adrian Radcliffe who was evicted by Kena Properties Ltd, the innocent purchaser of the Land for value.
Before his eviction, Mr. Radcliffe had been living on the land as a squatter expatriate for 33 years without paying any rent. Since he moved into the property as a tenant, he only paid deposit for the land in August 1989 despite corresponding severally with the owner of the land. His attempt to acquire the land by adverse possession claim filed in 2005 was dismissed by Court in 2011 on the basis that he has engaged with the owner of the land July 1997 and agreed to buy the land which he failed to do. The High Court [Justice Kalpana Rawal as she then was] concluded that:
“His [Mr. Adrian Radcliffe] averments that he did not have any idea of the whereabouts of the Defendant and that he could possibly be not alive, were not only very sad but mala fide in view of the correspondence on record addressed by him to the Defendant’s wife. I would thus find that the averments made by him to the contrary are untrue looking to the facts of this case.”
On 10th March 2022, Mr. Adrian Radcliffe and Family purported to obtain court orders for reinstatement into the land. However, the Court of Appeal issued an interim stay of execution of the said orders. The Court of Appeal has now granted the application of Kena Properties Ltd and stayed the execution of the Environment and Land Court Order pending the hearing and determination of the Appeal.
The Court also stayed the proceedings at the Environment and Land Court on the matter during the pendency of the Appeal. In effect, the eviction orders issued by the Chief Magistrate Court for eviction of Mr. Adrian Radcliffe in favour of Kena Properties as the purchaser of the property for value were upheld and the company now enjoys unfettered ownership and possession of the suit property until the conclusion of the Appeal.
The Court of Appeal in granting the orders sought by Kena Properties Ltd concurred with Kena Properties Ltd that as the property owner it had an arguable appeal with a high probability of success which would be rendered nugatory if Adrian Radcliffe a trespasser was to resume his unlawful possession of the suit property, erect structures thereon, recklessly use or abuse the said suit property as he deems fit. In any case, that is bound to fundamentally alter the state of the suit property and render it unusable by Kena Properties Ltd as the property owner.
At the same time, the Appellate Court rubbished the argument of Adrian Radcliffe in opposition to the application for stay that he has been in occupation of the suit property for more than 30 years and that he and his family were unlawfully evicted from the suit property on 4th February, 2022. The Court also rejected Radcliffe’s claim that Kena Properties Ltd has no valid title to the suit property and held that as the purchaser, the company was entitled to enjoy ownership and possession of their property during the pendency of the appeal.
The Court dismissed claims of Mr. Adrian Radcliffe that Kena Properties Ltd as the property owner acquired title to the suit property illegally and unprocedurally finding to the contrary. Further, it rejected Adrian Radcliffe’s claim that Kena Properties as the purchaser cannot evict a legal occupier of a property putting paid to the claim that he was a legal occupier at the time of eviction.
As a matter of fact, Mr. Adrian Radcliffe cannot claim to be the legal occupier of the property having attempted to acquire it by adverse possession before the High Court thwarted his fraudulent scheme on 28th February 2011. Mr. Radcliffe did not appeal the 2011 High Court decision meaning it is still the law that he is not the owner of the land nor the legal occupier of the land having attempted to adversely acquire against the interests of the lawful owner who sold it to Kena Properties.
Mr. Adrian Radcliffe is a well-to-do Water, Sanitation and Hygiene (WaSH) UNICEF consultant and former UN employee (who has been earning hefty House Allowance). Many have wondered why he has been defaulting in paying rent for 33 years on the prime plot of land in Karen while living large and taking his kids to most expensive schools in Kenya. No question, a local Kenyan could never have gotten away with such selfish impunity.
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