Estate Agency Affairs Board v McLaggan and Another

Neil Curdie McLaggan, an estate agent and director of McLaggans (Pty) Ltd, was convicted in 2002 on 37 counts under the Income Tax Act 58 of 1962 for deducting employees’ tax and failing to pay it to SARS, and on two counts under the Value Added Tax Act 89 of 1991 for collecting VAT and failing to pay it over. Although correct tax returns were submitted, the deducted and collected monies were used for other business purposes during financial difficulties. Following these convictions, the Estate Agency Affairs Board applied to the High Court for a declaration that McLaggan’s fidelity fund certificate had lapsed under s 28(5) of the Estate Agency Affairs Act 112 of 1976, alternatively that it be withdrawn, and sought interdictory relief against both McLaggan and the company. The High Court dismissed the application, holding that the offences did not involve dishonesty. The Board appealed to the Supreme Court of Appeal.

The appeal was upheld with costs. The High Court order was replaced with an order declaring that McLaggan’s fidelity fund certificate lapsed by reason of his convictions under the Income Tax Act and the Value Added Tax Act.

The case authoritatively establishes that failure to pay over employees’ tax or VAT to SARS after deduction or collection is inherently dishonest, even where accurate returns are submitted. It clarifies the operation of automatic lapsing of fidelity fund certificates under the Estate Agency Affairs Act and confirms the constitutionality and rationality of the statutory scheme regulating estate agents.