Judgment summary
The applicant, Mr Cuba Dumakude, applied to the High Court for an order directing Bidvest Bank to unfreeze and release R448 838.35 held in his account, and declaring the bank's freezing of the account since 18 February 2025 unlawful and unreasonable (paras 1-2).
The application had initially been brought urgently before being removed from the roll to allow joinder of SARS as second respondent (para 2). SARS abandoned an in limine point based on section 11(4) of the Tax Administration Act at the hearing (para 3).
The court considered the contractual basis for the bank's freezing of the account and the validity of a Third-Party Notice issued by SARS under section 179 of the Tax Administration Act in respect of funds traced to a fraudulent VAT refund claim (paras 8-18). The court dismissed the application with costs on Scale B (para 23).
Background
On 8 October 2024, Hill Side Trading and Projects CC, whose sole director is Ms Nocawe Ursula Sekhurwane, filed VAT returns claiming a refund of R3 279 667.63 (para 4).
On 13 February 2025, SARS paid this VAT refund to Hill Side Trading. On 17 February 2025, Hill Side Trading paid R900 000 from its Capitec Bank account into the applicant's Bidvest Bank account, Account No. 08197202001 (para 5).
On 20 February 2025, Capitec Bank emailed FNB, Standard Bank and Old Mutual advising that its client, Hill Side Trading, had been implicated in fraud involving SARS, and identified the R900 000 paid into the applicant's account. The applicant's account was frozen the same day, prompting these proceedings (para 5).
On 1 April 2025, SARS began investigating the authenticity of invoices submitted by Hill Side Trading. On 8 April 2025, SARS issued a Third-Party Appointment under section 179 of the Tax Administration Act to Bidvest Bank to secure R450 995.51. SARS laid criminal charges against Hill Side Trading with the South African Police Service on 9 April 2025, and on 10 April 2025 issued a further notice appointing Bidvest Bank as a Third Party under section 179(1) in respect of the R900 000 (para 6).
SARS's investigation established that the invoices submitted by Hill Side Trading were fraudulent, that the alleged suppliers denied any dealings with Hill Side Trading, and that the registered business address was in fact a daycare centre (para 7).
Core dispute
The applicant sought a final interdict directing Bidvest Bank to release the frozen funds, a declaration that the freezing of his account since 18 February 2025 was unlawful and unreasonable and in breach of the common law duty of fairness and reasonableness in contractual relations, and costs on an attorney-client scale (para 1).
The applicant argued that Bidvest Bank's reliance on an email from Capitec Bank alleging fraud was hearsay and insufficient to justify freezing the account (para 11). The applicant also argued that SARS was not entitled to issue the Third-Party Notice because he was not a tax debtor as contemplated in section 179 of the Tax Administration Act, and that SARS had failed to issue a final demand ten days before issuing the notice (para 14).
Court findings
The court held that the relationship between a bank and its customer is governed by contract, and that clause 34 of Bidvest Bank's terms and conditions entitled the bank, in its sole discretion, to suspend or restrict an account immediately without notice if it suspected fraudulent, negligent or unlawful use, including money laundering (paras 9-10).
The court found that the email from Capitec Bank was not hearsay and did not require a confirmatory affidavit, since Bidvest Bank was entitled to rely on information from another financial institution, and the suspicion was based on objective and reasonable grounds, citing Mabona and Another v Minister of Law and Order and Others 1988 (2) SA 654 (SE) and Mahlaba v Minister of Police (para 11-13).
On the section 179 point, the court held that the notice was issued against Bidvest Bank, not the applicant, and required the bank to pay funds it held on behalf of Hill Side Trading, the actual tax debtor. The court found that section 179(6) permitted SARS to dispense with a final demand where a senior SARS official is satisfied that issuing one would prejudice collection of the tax debt, and that the circumstances, including the risk of dissipation of funds, justified dispensing with a final demand (paras 14-15).
The court relied on CRRC E-Loco Supply (Pty) Ltd v Commissioner for the South African Revenue Service (37766/2021) [2022] ZAGPPHC 527 and Christoffel Hendrik Wiese and Others v CSARS (1307/2022) [2024] ZASCA 111 in finding that SARS was entitled to issue third-party notices to recover a tax debt even where the underlying indebtedness is subject to challenge, and that the Third-Party Notice in this matter was validly issued (paras 16-18).
The court found that the applicant had not established a clear right to the funds, a requirement for a final interdict. SARS's investigation showed the VAT refund was fraudulently obtained, the applicant provided no invoices, delivery notes or contracts evidencing legitimate business dealings with Hill Side Trading, the funds were paid into the applicant's dormant personal account rather than a business account, and the applicant had attempted to withdraw significant cash sums and make purchases shortly after the deposit, consistent with dissipation rather than legitimate business (paras 19-21). The court concluded the funds were proceeds of unlawful activity and did not belong to the applicant (para 22).
Outcome
The application was dismissed, with costs on Scale B (para 23).
Major issues / areas of contention
- Whether Bidvest Bank's freezing of the applicant's account without notice, based on an email from Capitec Bank alleging fraud, was unlawful or unreasonable
- Whether the Capitec Bank email constituted inadmissible hearsay requiring a confirmatory affidavit
- Whether SARS was entitled to issue a Third-Party Notice under section 179 of the Tax Administration Act to Bidvest Bank in respect of funds held for a non-taxpayer applicant
- Whether SARS was required to issue a final demand under section 179(5) before issuing the Third-Party Notice, or whether section 179(6) excused this
- Whether the applicant established a clear right to the funds sufficient to obtain a final interdict for their release