MAKONI
J: The
applicant approached this court seeking a declaratur and
consequential relief in the following terms:-
“1.
The Application for a Declaratur is whereby granted.
2.
The garnishee order issued on 16 November 2011 by the 1st
Respondent to the 2nd
Respondent against the applicant is invalid. For the avoidance of
doubt, it is specifically declared that:
2.1.
The definition of taxes under Income Tax Act [Chapter 21:05] does not
include royalties under the Mines and Minerals Act (read with Chapter
VII of the Finance Act [Chapter 23:04]).
2.2.
The 1st
Respondent acted ultra
vires when
it used the power granted unto it under section 58 of the Income Tax
Act [Chapter 23:06] for enforcing payment of taxes under that Act, in
an attempt to enforce payment of royalties under Part XIV Section 245
of the Mines and Minerals Act [Chapter 21:05] as read with Chapter
XII Section 26, Section 37 and Section 37A of the Finance Act
[Chapter 23:04].
3.
Owing to the operation of Part XIV, section 243 of the Mines and
Minerals Act [Chapter 21:05], the Applicant's Mining Agreement with
the Government of Zimbabwe takes precedence over Part XIV section 244
and Section 245 of the Mines and Minerals Act [Chapter 21:05] and
takes precedence over Chapter VII Section 36, Section 37 Section 37A
and the Schedule of the Finance Act [Chapter 23:04]. For the
avoidance of doubt, it is specially declared that:
3.1.
The applicant is liable to pay royalty rates at 2.5% of the fair
market value of all products produced from the mining area, and not
5% or any other rate appearing [in the Schedule under Chapter VII of
the Finance Act [Chapter 23:04] enacted by the Mines and Minerals Act
[Chapter 21:05];
3.2.
The applicant overpaid royalty rates to the 1st
respondent for the period of 1 January 2004 to 30 September 2010 when
it paid at the legislative rate of 3% and 3.5% instead 2.5%. The
Applicant is entitled to recover the amount overpaid in the sum of
US$6,057,146.00 (six million fifty seven thousand one hundred and
forty six United States Dollars) by way of set off royalties which
were due and payable for the period of 1 October 2010 to 31 March
2011.
4.
Each party shall bear its own costs.”
The
background to the matter is that applicant is the holder of a Special
Mining lease issued by the Minister of Mines to the applicant, in
terms of Mines and Minerals Act [Cap
21:05]
(the Act). It is also a holder of a Mining Agreement (M.A) signed
between it and the Government of Zimbabwe (the Government). Both
documents were executed on 24 August 1994. Up until December 2003,
the applicant paid a flat royalty rate of 2.5% across the board for
all products as per the royalty rate contained in the Mining
Agreement. The payments were made quarterly. From January 2004 to 30
September 2010, the applicant paid royalties according to rates
stipulated in the Act but according to dates as provided for in the
Mining Agreement. The reason given by the applicant for such payments
is it anticipated a substantive agreement and performance by the
Government on the change of the tax regime by it. The parties had at
one point contemplated revisiting the tax regime applicable to the
applicant. A framework for the agreement contemplated was signed and
executed by the parties. The actual agreement to vary the Mining
Agreement never saw the light of day. When the Government failed to
implement the new tax regime, the applicant reverted to the original
royalty provisions as provided by the Mining Agreement. The first
respondent claimed royalties from the applicant using the legislature
rates. When the applicant did not pay the amounts claimed by the
first respondent, the first respondent issued a garnishee to the
second respondent against the applicant. The applicant then
instituted the present proceedings.
It
is the applicant's case that there is no legal basis for collection
of royalties by the first respondent in terms of the Act as opposed
to the Mining Agreement. The first respondent therefore collected in
excess of the rates applicable to the applicant and has therefore
been over compensated. The applicant overpaid the first respondent in
the sum total of $6,057,146-00.
It
also avers that the first respondent was not entitled, at law, to
recover royalties falling due under the Act by way of the power
conferred on it under the Income Tax Act [Cap
23:06]
namely to attach debts owed to the debtor.
The
first respondent opposed the application. It raised four points in
limine
viz:-
(i)
The court application is invalid and constitute a legal nullity for
want of compliance with the mandatory provisions of the State
Liabilities Act [Cap
8:14].
(ii)
The applicant approached the court with dirty hands by approaching
the court without complying with the requirements of the law.
(iii)
The first respondent is an agent of the Government of Zimbabwe and
attracts no personal liability from the transactions subject to the
claim by applicant.
(iv)
There are material disputes of fact not capable of resolution on the
papers.
On
the merits, the first respondent opposes the application on the basis
that the terms of the Mining Agreement do not exempt the applicant
from paying legislated rates of royalties. It further avers that, in
the event that the court finds that the Mining Agreement superseded
legislated rates, it will be argued that the applicant waived the
benefit of the Mining Agreement. As such, it cannot unilaterally
revert to the rates specified in the Mining Agreement.
It
further avers that the first respondent was lawfully entitled to rely
upon the powers set out in the Income Tax Act to enforce the payment
of royalties levied in terms of the Act as read with the Finance Act
[Chapter
23:04].
I
first of all deal with the points in
limine.
Dirty
Hands
It
was the first respondent's contention that the applicant had duty
to comply with the law, whether arising from a court order or a legal
instrument or provide an explanation for non-compliance. The
applicant must pay all the royalties that have been assessed or
evince an intention to want to pay before seeking the court's
protection in the form of declaratur.
As
it turned out, by the time the matter was heard, the applicant had
settled the outstanding royalties in full and it was paying, on a
without prejudice basis, royalties at the rates set out in terms of
the Act. Correspondence to that effect was produced.
The
issue was therefore resolved and therefore did not require a
determination.
Invalidity
of Proceedings
I
will deal with ground (i) and (ii), together as they are interlinked.
It was submitted on behalf of the first respondent that the relief
sought by the applicant is divided into two. A declaratur and
consequential relief. The ultimate relief includes the recovery of an
amount of ± $6,000,000-00. In terms of section 3 of the Revenue
Authority Act [cap
23:11],
the first respondent is a legal entity. The revenue that it collects
is not of its own account. It collects as an agent and remits the
revenue to the relevant ministry. The applicant must therefore pursue
the first respondent and the principal ministries involved. The
ministries were cited but no substantive relief is being sought
against them. The notice in terms of section 6 of the State
Liabilities Act [Cap
8:14]
ought to have been given. It was submitted that in view of the
fragrant violation of the State Liabilities Act there was no complete
cause of action and the proceedings were therefore invalid. Mr.
Magwaliba
referred the court to the cases of Murphy
v
Director of Customs & Excise 1992
(1) ZLR 28 (H), Ervines
v
Shield
Instance Co. Ltd 1980
(2) SA 841 AD on 8338D. The cases inter
alia,
deal with the proper legal meaning of the expression “Cause of
action.” He further submitted that in respect of claims against the
State, in terms of section 6 of State Liabilities Act, while all of
the other requirements at common law would have accrued, the full
cause of action does not accrue until notice has been given to the
defendant or the respondents as the case may be.
The
first respondent further contended that it is an agent for the third
respondent and ought not to have been sued.
In
terms of section 4 of the Revenue Authority Act [Cap
23:11]
the functions of the respondent are to act as an agent of the State
in assessing, collection and enforcing the payment of all revenues.
The ordinary consequences as between a principal and an agent are
applicable in the relationship between the first respondent and the
State. The first respondent cannot therefore be sued with its
principals the third respondent. The applicant elects who to sue. It
is misleading for the first respondent to argue that the applicant's
cause of action is incomplete.
The
applicant contented that the State Liabilities Act does not apply to
this matter. It only applies to claims against the State as defined
in section 2 of the State Liabilities Act. Further the claim by the
applicant is not for money or delivery. It is a declarant. The
applicant further contends that it is not correct that the first
respondent is merely an agent ejusdem
generis
or a collecting arm of the State. Section 3 of the Revenue Act [Cap
23:11]
provides that the first respondent can be sued. The intention of the
legislature was to establish an agent sui
seneris capable
of assuming liability for its wrongful conduct. It is the first
respondent who made erroneous assessment and collected the revenue
and not third respondent.
The
answer to the above arguments is to be found in the Revenue Authority
Act. Section 3 of that Act provides:-
“There
is hereby established an authority, to be known as the Zimbabwe
Revenue Authority, which shall be a body corporate capable of suing
and being sued in its own name and subject to this Act, of performing
all acts that bodies corporate may by law perform.”
Section
4 sets out its functions and powers and one of such functions is to
act as an agent for the State in assessing, collecting and enforcing
the payment all revenues. Paragraph 22 of the Second Schedule to the
Revenue Authority Act which lays out the powers of the Authority,
provides as follows:-
“On
behalf of the State, to institute and maintain proceedings in any
court or tribunal for the recovery on any revenues and to take such
steps as may be necessary to recover the revenues.”
My
view is that these provisions take the first respondent out of the
purview of the State Liabilities Act. The clear intention of the
legislature was to create a separate legal entity in the respondent
capable of suing and being sued. The State Liabilities Act is
applicable to acts of the State as defined in section 2 of that Act.
The
acts complained of by the applicant were done by the first respondent
who is seized with the responsibility of assessing and collecting
revenue due to the State. According to applicant's averments, it
has made a wrong assessment and collected the amounts due. The
applicant is taking issue with the first respondent's statutory
obligation to assess and collect revenue. In any event it is the
first respondent who is disputing the applicant's entitlement to
assessment of royalties at a particular rate stipulated in the Mining
Agreement between it and the third respondent. The third respondent
has not opposed the application. The first respondent is therefore
rightly before the court.
I
agree entirely with the submission by the applicant that it is
misleading to argue that there is no complete cause of action unless
and until notice is given in terms of State Liabilities Act.
Having
defined cause of action correctly it should have been clear to the
first respondent that the material averments to found a cause of
action are premised on the substantive elements of a particular
action and not on procedural requirements. The Murphy case (supra)
was quoted out of context. What the court was saying in the matter is
that the preliminary notice must state the cause of action “clearly
and explicitly.”
The
first respondent cannot succeed on this point.
Disputes
of Facts
The
respondents contented that there are material disputes of fact that
cannot be resolved on the papers. The applicant ought to have known
of these material disputes of fact before embarking on the present
proceedings. This is more particularly so as the applicant initially
filed an urgent chamber application which was dismissed. The
respondents, in those proceedings, pointed out to the applicant the
existence of the material dispute of fact. The respondents made
reference to Zimbabwe
Bonded Fibre Glass (Pvt) Ltd v
Peech
1987
(2) ZLR 338 S at 339 C and Mashingaidze
v
Mashingaidze
1995
(1) ZLR at 221 9-222 A.
The
dispute of fact are contained in para 45 of the respondents' Heads
of Argument and they centre on the fact that the applicant relies
upon certain undertakings given to it by the Government of Zimbabwe.
These were not placed before the court. If the undertakings were
accepted then the applicant, as it contends, acted upon such
undertakings. There was a contract between the Government of Zimbabwe
and the applicant other than the contracts attached to the
applicant's founding affidavit.
The
applicant alleges breach of the contract by the Government. The
material terms of the contract have not been placed before the court.
The applicant also attempted to give a breakdown of the amounts it
alleges to have overpaid and expects the court to accept its
statements on its mere say so.
The
applicant contends that the issue before the court is a question of
law and the applicant has furnished the courts with the necessary
affidavits and written documents attached thereon from which the
court can ascertain the facts and apply law to establish a
declaratur. The applicant referred to the
Room Hire Co. (Pvt) Ltd v
Jeppe
Street Mansions (Pvt) Ltd
1949 (3) SA at 1155 T and Mpumela
v
Berger Paints (Pvt) Ltd 1999
(2) ZLR 146 (S).
In
Room
Hire Co (supra)
MURRAY JA observed pertinently that apart from those 2 matters there
where the procedure is prescribed by law such as ammonal matters and
illiquid claims among others in which motion proceedings are not
permissible at all -
“There
is an area in which according to recognised practice a choice between
motion proceedings and trial action is given according to whether
there is or is not an absence of a real dispute between the parties
on any material question of fact------- the deciding factor is the
existence of a dispute of fact, not as to law, and it is (with
respect) difficult to appreciate what greater advantages are denied
by a judicial officer from viva
voce
evidence, then from affidavits when he has to ascertain only the law
to be applied.”
I
agree with the position adopted by the applicant that the issue that
is before the court is a question of law.
The
issue is whether or not Part 14 of the Act applies in ascertaining
what royalties the applicant pays of the Mining Agreement. The
applicant has placed before the court facts, which are not disputed
by the first respondent. It has placed before the court the Mining
Agreement. There is no dispute as to whether it was amended. It has
placed on record all the correspondence between it and the fourth
respondent which the fourth respondent has not challenged. The court
is being merely asked to interpret the documents attached and apply
the law. As was stated by MURRAY AJP in Room
Hire Co. (Pvt) Ltd
(supra),
it is difficult to appreciate what greater advantages the court would
derive from viva
voce evidence
other than from affidavits and written documents attached hereon when
all the court is being asked to do is ascertain which law to apply.
In
view of the above I will dismiss the point in
limine.
Validity
of the Garnishee
The
applicant had taken issue with the definition of taxes under the
Income Tax Act [Cap
21:05]
in that it does not include royalties under the Mines and Minerals
Act as read with Chapter VII of the Finance Act [Cap
23:04].
And that the first respondent acted ultra
vires when
it used the powers granted unto it under section 58 of the Income Tax
Act [Cap
23:06]
for enforcing the payment of taxes under that Act.
By
the time the matter was heard section 58 of the Income TAX Act had
been amended in the definition of tax by the Finance Act 4/12 by the
respect of para e and the substitution of (e) any levy or sum payable
in terms of the Charging Act. Act 4/2012 came into effect on 17
September 2012. The applicant decided not to pursue the issue. There
will not be necessary therefore to determine the issue.
The
Royalties Regime which applies to the applicant
The
issue for determination is whether it is the MA regime or the
legislature regime which applies in the assessment of royalties
payable by the applicant.
Mr
Girach
contended
that clause 6 of MA provides for the payment and levying of royalties
due by the applicant. Paragraph 6.1 thereof prescribes the rate of
two and half per cent (2.5%) of the fair market value determined in
accordance with Clause 11 thereof, payable on a quarterly basis. He
further contended that section 244 and section 245 of the Act do not
apply to the applicant as he is a holder of an MA.
Mr
Magwaliba
submitted that section 167 of the Act provides that you cannot enter
into an agreement which is inconsistent with the Act. The Act in
section 244 and 245, provides for royalties which fluctuate and are
payable monthly. The MA provides for 2.5 per cent. If section 244 and
245 are read together with section 167, the MA falls foul of the law.
Section
167 provides:
“The
Minister, with the approval of the president, may enter into an
agreement, not inconsistent with the Act, with any person regarding -
(a)
--------------
(b)
--------------
(c)
The liabilities and obligations of the person in terms of any special
mining lease that may be issued to him, including payments by way of
royalties, rents and fees; and
(d)
---------------”
Section
243 of the Act provides:
“This
part shall apply to the holder of a special mining lease only to the
extent that the terms and conditions of his special mining lease or
of any agreement entered into with him in terms of section one
hundred and sixty seven and consistent with this part.”
It
is common cause that the MA was entered into in terms of section 167
of the Act. It has a royalty clause as provided for in the section.
The parties differ on the interpretation of section 167 as read with
section 243, section 244 and section 245.
Mr
Girach
contends that in terms of section 243 the rates as promulgated in
terms of section 245 do not apply to it as it is a holder of a MA. He
submitted that if the words of section 243 are given their ordinary
grammatical meaning, they clearly exclude the application of section
245 to anyone who holds a mining lease. Section 243 gives precedence
to the MA.
Mr
Magwaliba
contends that section 243 only gives precedence to a Mining Agreement
if it is properly entered into in terms of section 167. According to
his interpretation, an agreement is properly entered into in terms of
section 167 if the rates payable are made in terms of the Act. He
argued that section 167 allows parties to enter into an agreement and
agree on rate as set in terms of the Act or above it.
What
is clear from the above is that there is an obvious and glaring
discrepancy in clause 6 of the MA and the provisions of section 244
and 245 of the Act. The MA provides for a fixed rate of 2.5 per cent
payable quarterly. The Act provides for various rates based on the
mineral produced which are generally higher than those provided for
in the MA and which are payable monthly.
In
terms of Part IX of the Act, Special Mining Agreements were set up,
inter-alia, in order to encourage investment in the mining sector.
The lease holders would exploit to the resources while at the same
time creating employment. Section 243 was put in place to
specifically deal with situations such as the present one, where
there are inconsistencies between a special mining agreement and Part
XIV of the Act, which regulate royalties. The provision gives
precedence to the mining agreements. To interpret it in the manner
suggested by the respondent would be to defeat the intention of the
legislature in setting up the special mining leases. The question
would be why enter into the special mining lease, which must contain
a royalty clause in terms of section 167, and at the same time have
royalties regulated in terms of Part XIV which invariably, will be
higher than the rates in the MA. Such an interpretation will lead to
an absurdity.
I
agree with Mr Girach
that section 243 specifically confers precedence to the MA and the
respondent had no legal basis to levy royalties against the applicant
in terms of the legislature regime.
Waiver
and Estopped
Mr
Magwaliba
submitted
that in the event of the court finding in favour of the applicant in
respect of the rate of the royalty, the court must find that the
applicant abandoned any reliance on the MA to the extent that it set
the rates of the royalties payable. For a period of over 6 years the
applicant paid the higher and legislated rates. During the entire
period it was aware of its rights in terms of the MA. It did not
insist on the enforcement of such rights. The first respondent is
therefore entitled to regard the conduct of the applicant as a clear
and unequivocal abandonment of any perceived rights to pay reduced
rates of royalties in terms of the MA. The non variation clause and
the waiver clause will not assist the applicant.
Mr
Girach
submitted that as a result of an error on the part of the applicant
it paid royalties in terms of the legislated rates. This did not
amount to estoppel in view of Clause 29.2 of the MA.
The
MA contains a non-variation clause and a non-waiver clause in Clauses
29.1 and 29.2 respectively. The clauses are carefully and extensively
worded. What is the combined effect of such clauses in a contract.
The head note in Agricultural
Finance Corporation
v Pocock
1986 (2) ZLR 229 SC sums it all.
“A
non-variation clause in a contract entrenches the requirement that
any variation has to be in writing but does not prevent a party for
whose benefit it is inserted from waiving the requirement.
A
non waiver clause negatives any rising of a waiver or any estopped in
that it amounts to notice given in advance, acknowledged by the other
party, that conduct which might otherwise be a waiver or give rise to
an estopped, may not be taken to be such conduct.
The
combined effect of the two clauses is that two parties to a written
agreement containing carefully and extensively worded non-variation
and non-waiver clauses cannot enter an enforceable oral agreement
departing from the written terms since to the extent it is a
variation of the contract it is precluded by non-variation clause
whereas if it be said to be a waiver or conduct giving rise to an
estopped then the non-waiver clause provides the complete answer to
the point.”
Clause
29.2 provides a complete answer to the issue raised by the first
respondent. It cannot place reliance on the unilateral conduct of the
applicant of departing from the written MA as such conduct will not
preclude the applicant from thereafter enforcing the right or
provision of the agreement being indulged. There is nothing on the
papers to show that the MA has been varied. The first respondent
cannot therefore successfully rely on either waiver or estoppel. The
effect of Clause 29.2 is to negate both defences.
Over-payment
of Royalties
This
issue was not persisted by the applicant in its submissions. I will
take it that the applicant abandoned the claim and rightly so in my
view. The applicant had not, in its founding papers, illustrated to
the court how the alleged overpayment was made in respect of each
year.
Accordingly,
I will make the following order:
IT
IS ORDERED THAT:-
1.
Owing to the operation of Part XIV, section 243 of the Mines and
Minerals Act [Cap
21:05],
the applicant's Mining Agreement with the Government takes
precedence over Par XIV section 244 and section 245 of the Mines and
Minerals Act [Cap
21:05]
and takes precedence over Chapter VII, section 36, section 37,
section 37A and the Schedule of the Finance Act [Cap
23:04].
For the avoidance of doubt, it is specifically declared that:
1.1
The applicant is liable to pay royalty rates at 2.5% of the fair
market value of all products produced from the mining area, and not
5% or any other rate appearing in the Schedule under Chapter VII of
the Finance Act [Cap
23:04]
enacted by the Mines and Minerals Act [Cap
21:05];
2.
Each party shall bear its own costs.
Scanlen
& Holderness,
applicant's legal practitioners
The
Civil Division of the Attorney General's Office,
3rd
respondent's legal practitioners
