The Commissioner for the South African Revenue Service and Another v TFN Diamond Cutting Works (Pty) Ltd

TFN Diamond Cutting Works (Pty) Ltd, a diamond cutting company, purchased rough diamonds in South Africa. On 20 October 2000, its director Mr Glowiczower travelled to New York with a consignment of diamonds that had been sealed by the South African Diamond Board. He sold some diamonds in New York and returned to South Africa on 8 November 2000. Upon arrival at Johannesburg International Airport, he declared the remaining diamonds to customs officials. Due to missing documentation, the diamonds were detained and placed in a sealed plastic pouch in a locked safe within a strongroom at the customs hall. The safe was under the control of customs employees. On 10 November 2000, when proper documentation was presented to secure release of the diamonds, they were discovered missing. Evidence established that Joseph Matshiva, an employee of the Commissioner (SARS), who had custody of the safe keys during his shift, had stolen the diamonds.

• Whether the Commissioner/State was vicariously liable for the theft of diamonds by its employee Matshiva when he was entrusted with custody of the safe containing the diamonds
• Whether the employee's act of theft was committed within the course and scope of his employment
• Whether section 17(3) of the Customs and Excise Act 91 of 1964 exempted the State from liability for loss of goods in a State warehouse caused by theft by an employee

The appeal was dismissed with costs. The appellants were held jointly and severally liable to the respondent for the loss of its diamonds in such damages as may be agreed or proved.

An employer is vicariously liable for theft committed by an employee where the employee was entrusted with custody and safeguarding of the stolen property as part of their employment duties. If an employer would be liable for an employee's negligent failure to safeguard entrusted property, it cannot escape liability when the employee acts intentionally (through theft) rather than negligently - both are forms of fault. Section 17(3) of the Customs and Excise Act 91 of 1964, which exempts the State from liability for 'any loss' of goods in a State warehouse, does not encompass loss occasioned by theft by a State employee. Statutory exemptions from liability must be strictly construed and will not be extended to cover situations not expressly stated, particularly where such construction would lead to absurd results such as allowing a thief to benefit from their own wrongdoing.

The court assumed without deciding that the strongroom in the customs hall at Johannesburg International Airport constituted a 'State warehouse' as defined in the Customs and Excise Act. The court noted that the reason for the rule of vicarious liability is often stated to be public policy, with an underlying consideration being that an employer creates a risk of harm to others when work is done through employees who may prove negligent, inefficient or untrustworthy.

This case is significant in South African law for clarifying the scope of vicarious liability for intentional wrongdoing by employees, particularly theft. It establishes that an employer cannot escape vicarious liability merely because an employee acted intentionally rather than negligently when the wrongful act occurred within the course and scope of employment. The case also provides important guidance on the strict construction of statutory exemptions from liability, confirming that such provisions will not be extended beyond their clear meaning and that absurd results inconsistent with legislative intent must be avoided. The judgment reinforces the principle that where an employee is entrusted with custody of property as part of their employment duties, the employer bears vicarious liability for theft of that property by the employee.