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SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH)

CASE NO: 118/2012

In the matter between:

EBHAYI CHARTER AIR CC.........................................................................................\Plaintiff

AND

JP SMIT, JJ SMIT AND SEKAAPP NO................................................................... Defendant

In the capacities as duly appointed Trustees

for the time being of JP Smit Family Trust

JUDGMENT

PAKADE ADJP:

[1] The plaintiff, a Close Corporation registered in terms of the Close Corporations Act, 69 of 1984, instituted an action by summons against the defendant in which it claimed arrear payment for pilot services rendered to the defendant at the latter’s special request and instance. The plaintiff further claims damages for early termination of contract of employment.

[2] It has been agreed between the parties during the trial that if the plaintiff succeeds in proving his claims, he would be entitled to judgment for payment of R825 048. 47 for arrears and to damages of R994 000.00 for the unexpired period of the contract. The plaintiff further claims interest of 15.5% on each amount .

[3] The defendant is a trust duly registered in terms of the Trust Property Control Act , 57 of 1988 . The defendant denies both claims and has further counter-claimed for payment of an amount of R664 355.78 for withheld tax on PAYE ,penalties thereon of R66 435.58 and arrear interest in the sum of R234 453.47.

[4] The plaintiff filed a special plea of prescription to the defendant' s counter-claim claiming that the counter-claim was served to the plaintiff after a period of three years had elapsed from the date that PAYE should have been paid by the defendant on a monthly basis, prior to October 2010 upon receipt of invoice from the paintiff. The defendant denies that prescription has run to its counter-claim for PAYE , penalties and interest thereon .

[5] At the commencement of trial the plaintiff admitted that in terms of the Voluntary Disclosure made by the defendant to the South African Revenue Services (SARS) the defendant paid the withheld tax of R664 355.78 together with penalties and interest of R66 435. 58 and R234 453.47 respectively. To this end the plaintiff admitted liability for tax in the sum R654 224.20 provided the special plea raised by the plaintiff to the counter claim fails. Even in the event of the failure of the special plea, plaintiff contends that the amount of R654 224.20 should be a set off against the amount owed by the defendant to him.

[6]The joint minute of a pre-trial conference held by the parties which was handed up to Court at the commencement of the trial reveals the following disputed issues: duration of the contract i.e whether it was for a period of three or five years , whether the contract of service was orally varied or not, and whether plaintiff is liable or not for withholding tax, interest and penalties thereon as counter claimed by the defendant. In order to succeed in its claims, the plaintiff must prove on a balance of probabilities that the contract of service was for a period of five years and not of three years as contended by the defendant.

[7] The facts relevant to the disputed issues appear from the evidence of the plaintiff’s witness , Mr Henry David Crichton (Crichton ) and the defendant's witnesses Messrs Jacobus Kobus Smit ;Daniel Christian Oosthuizen and Steve Eugene Kapp . I must now consider the evidence of each witness but first and foremost I should set out the case pleaded by each party .

[8] On or about August 2007, at Witbank the plaintiff, duly represented by Henry David Crichton , entered into an oral agreement with the defendant who was duly represented by Kobus Smit on the following express, alternatively tacit and alternatively implied material terms :

8.1 The plaintiff would render aircraft piloting services to the defendant by placing a qualified pilot at the disposal of the defendant to pilot aircraft for him whenever be required such services.

8.2 The pilot so to be provided was only to be David Crichton,

8.3 Crichton was to be available at all times on behalf of the plaintiff to render the piloting services to the defendant as and when the defendant required them from time to time;

8.4 The defendant would pay to the plaintiff a sum of R60 000.00 a month for services rendered upon presentation by plaintiff of an invoice each month;

8.5 The agreement would endure for a period of five years commencing on 1 April 2008 and terminating on 31 March 2013.

8.6 On or about August 2009 the parties amended the agreement by a further oral agreement that the defendant would be entitled to deduct against each monthly payment an amount of R33 684.21 in reduction of Crichton’s indebtedness to the defendant for a loan of R300 000.00 advanced by the defendant to the said Crichton during May 2008, such deduction to endure until the debt is fully paid.

[9] The plaintiff alleged that the defendant breached the agreement by failing to pay for the piloting services rendered to him by Crichton as a result of which the plaintiff cancelled the agreement on 21 December 2011 . The plaintiff further alleged that as at the date of cancellation of the agreement the defendant was indebted to the plaintiff in the sum of R 825 048.67 including VAT for arrears as tabulated in the invoices sent to the defendant.

[10] The plaintiff has couched its damges claim in the following manner:

10.1 The defendant was desireous of securing the said Crichton as the exclusive provider of the required services;

10.2 The defendant was aware and agreed that the said Crichton would close down his then business so as to devote his time to the rendering of these services;

10.3 The defendant in fact assisted Crichton financially to close his business by loaning the above mentioned amount of R 300 000.00 to him;

10.4 The defendant was aware that the said Crichton was nearing 60 years of age and that his employment prospects in the labour market were concommitantly minimalistic , but for conducting his own business;

10.5 The parties agreed that the utilization of Crichton's services on behalf of the plaintiff would under these circumstances necessitate a contract that would endure for at least five years.

10.6 In the premises, it is a natural consequence of any breach of contract resulting in its termination prior to the expiry of the five year period, alternatively, it was within the contemplation of the parties that the plaintiff would in such event suffer damages as constituted by the loss of payments for the remainder of the agreement.

The plaintiff accordingly claimed damages for the unexpired period of the contract which is 16 months (from December 2011 to 31March 2013).

[11] The defendant denied in its plea that the agreement would endure for a period of 5 years and avers that it was for a period of 3 years commencing on 01 April 2008 and terminating on 31 March 2011. The agreement was, thereafter on a month to month basis, so averred the defendant. The defendant avers that plaintiff unlawfully repudiated the agreement on 23 December 2011 which defendant accepted on the same day . Save to admit the loan advanced to the plaintiff , the defendant denied assisting Crichton to close his business.

[12] The defendant denied that the agreement was varied in August 2009 by agreeing orally that the defendant would be entitled to deduct against each monthly invoice an amount of R 33 684.21 in reduction of plaintiff's indebtedness to the defendant for the loan of R 300 000.00. The defendant averred as follows in this allegation:

12.1 During about the end of June 2009, beginning of July 2009, the parties did orally vary their Agreement concluded during 2007 in the following manner:

12.1.1 The monthly fee payable to the plaintiff, from August 2009, would be R 30 000.00 per month, inclusive of VAT;

12.1.2 Crichton , who had signed as surety in respect of a loan which had been made by the defendant to the trustees for the time being of the Crichton Family Trust , in the sum of R 300 000.00, agreed that plaintiff , of whom he was a sole member , would repay the loan of the Crichton Family Trust as follows:

12.1.2.1 Payment of the sum of R 100 000.00 at the beginning of July 2009;

12.1.2.2 The balance of the loan to be paid by the plaintiff to the defendant would be set off against the difference between the initial contract price of R 68 400.00 per month and the new contract price of R 30 000.00 per month , provided the contract endured for a sufficient period so as to enable a complete set off of the balance of the loan;

12.1.3 Once the loan had been discharged, monthly fees payable to plaintiff would continue to be R 30 000.00 per month, inclusive of VAT.

[13] In the counter claim on withheld P.A.Y.E, the defendant alleged that Crichton, in a meeting he had with Mr Steve Kapp, an accountant in the then defendant’s offices at Richmond Hill, Port Elizabeth during April 2008, told Mr Kapp that he wished to use plaintiff to perform services for the defendant and asked him whether P.A.Y.E would have to be deducted by the defendant from the payments to which the latter would make to the plaintiff. Thereafter Crichton approached Mr Smit and requested to change the agreement so as to reflect an agreement between the plaintiff as an independent contractor and the defendant as opposed to a contract of employment with Crichton in his personal capacity. Mr Smit agreed to the proposal provided that there were no adverse tax implications against the defendant whereupon Mr Crichton assured him that on Mr Kapp’s advice that there would be no problem in concluding an independent contractor’s agreement between the plaintiff and the defendant in terms whereof P.A.Y.E would not be deducted by the defendant. Defendant alleges that in seeking advice from Mr Kapp, Crichton fraudulently, alternatively, innocently misrepresented to Kapp that the plaintiff employed three or more full time unconnected employees and that as such the plaintiff was a Personal Service Provider as defined in the Income Tax Act 58 of 1962 and Practice Directives issued by SARS which would not be subject to having PAYE deducted from amounts to be paid to it by the defendant.

[14] The defendant having pleaded privilege to the schedule marked “A” to the particulars of claim on which the amount of R825 048.67 was alleged to have been calculated this document was struck out by agreement during the trial on the ground that it was an offer of settlement. This document was prepared by Mr Eugene Kapp prior to a meeting between Crichton and Mr Smit on 23 December 2011 for purposes of settlement negotiations.

[15] It is now convenient to consider the evidence of witnesses . I start with Crichton . He is 64 years old and a commercial pilot . In August 2007 he was requested by Mr Smit to pilot for him at a fee of R 60 000 plus VAT for a period of five years from 1 April 2008 to 31 March 2013. He would dispatch invoices for payment . He had to close down his panel beating business in order to take full time piloting duties for the defendant . Having commenced piloting duties as agreed , he noticed that he had not been paid for invoices he had issued for June and July 2008 . He lodged a complaint with the defendant resulting in a shortfall payment of an amount of R40 592.14 being deposited into his bank account without informing him .

[16] In July 2008 Crichton approached Mr Smit for a loan of three hundred thousand rands (R300 000-00) to which Mr Smit agreed on condition that it would be repaid on a monthly instalment of R 25 000 which would be deducted monthly from Crichton’s monthly salary. Crichton agreed .

[17] Crichton intended to take vacation leave to overseas in July 2008 but Mr Smit could not approve it . He started to demand the payment of the balance of the loan in full and Crichton paid a sum of one hundred thousand rand (R100 000-00). Mr Smit started deducting an amount of R 30 000 a month from his salary and gave him a monthly salary of R 38 400. Mr Smit testified that the deduction followed upon an oral agreement with Crichton for the deduction of R 30 000 from his salary in reduction of his loan and that after it had been settled full salary would be reinstated to him . This deduction occurred despite the fact that an invoice of R 68 400, inclusive of VAT, would have been issued by the plaintiff. When Crichton asked for the payment of the balance Mr Smith would complain of a cash flow problem . In August 2011 Crichton met Mr Smit in his farm in Namibia and asked for payment of the amount he owed him. Mr Smit wanted to know from him if he knew how he owed him . Crichton replied that he had not calculated the amount whereafter Mr Smit said he was owing him R 600 000 but Crichton said it was more than that.

[18] In November 2011 Crichton asked for payment of his money from Mr Smit and the latter said he would speak to Mr Steve Kapp. Later Mr Smit called Crichton to a meeting with Mr Steve Kapp . Mr Kapp produced an offer for the payment of R 600 000 in full and final settlement of the defendant's indebtedness to Crichton but Crichton rejected the offer. Later Crichton was presented with a contract purportedly concluded by him and Mr Smit with a duration of three years and which contained different terms from those which Crichton and Smit had orally agreed upon in August 2007 . Crichton rejected it, contending that their agreement was essentially oral and the written one was a new one prepared at the instance of Mr Smit.

[19] It transpired under cross-examination by Mr Schubert, Counsel for the defendant , that Crichton issued invoices for payment of R 68 400 but informed the South African Revenue Services that he was earning R 30 000 . He admitted that he was defrauding the Receiver of Revenue by understating his income and by underpaying VAT. He also conceded that his panelbeating business was running at a loss on " paper" and was deriving no income from it for a couple of years.

[20] Crichton also contradicted himself on the amount to be deducted from his salary for the reduction of the loan . Initially he testified that the agreement was that his salary would be reduced by repayment of the loan of R 25 000 per month whereas his particulars of claim averred that the loan would be reduced by R 33 684.21 per month.

[21] Crichton did not know, until June 2008, that it was plaintiff who was to render the services as he was under the impression that it was his Family Trust who was to render them.It was only after PAYE had been deducted from the payments made that he decided that the appropriate entity to render those services was the plaintiff.

Further, he admitted having attended a meeting with Mr Kapp to discuss the issue involving PAYE and that was before he sent the invoices on the name of plaintiff. He testified that he sent out those invoices in the beginning of June 2008 suggesting that the meeting was certainly before that time . However , his testimony in chief is that he talked to Mr Kapp in July 2008 .

[22] Crichton had denied that he had a meeting with Mr Oosthuizen in the defendant’s Richmond Hill premises other than being in the reception area to deliver invoices. This assertion is contradicted by Mr Kapp and Mr Oosthuizen. The defendant was still in Richmond Hill premises on 20 June 2008 when Crichton and Mr Oosthuizen were discusing the terms of the employment agreement. This is so because the defendant moved out of the premises only on 15 July 2008.

[23] There is a contradiction as to when Crichton paid the sum of R 100 000 in reduction of the loan . He first said that he paid it in May 2009 and only after he had been shown supporting documents that he changed his original answer to 1 July 2009. These are but some of the contradictions which are apparent in the evidence of Crichton . There are many others though.

[24] Crichton did not create a good impression as a reliable witness . As shown above, his evidence is self contradictory, vague with prevarications whose answers to questions were evasive and irrelevant in most instances hence he had to concede at one stage that his memory is not good on account of age.

[25] Mr Daniel Oosthuizen testified for the defendant after the plaintiff had closed its case .As from 2004 he was employed by Smit's Trust. Initially he operated offices in St Georges Park but later moved to Richmond Hill. He is no longer working for Mr Smit. Mr Smit requested him to prepare an agreement between Crichton and JP Smit Family Trust. The duration of the agreement was three years. Mr Smit had informed Oosthuizen that he had decided to employ Crichton permanently . Oosthuizen requested Crichton's credentials and Crichton brought them to him on 1st May 2008 . Those documents are marked exhibit "C" in the record . The first page of exhibit " C" is Crichton 's identity document; second page - his pilot licence ; third page-Aircraft ratings ; fourth page - his Aviation Medical Certificate; fifth page- Notes prepared by Oosthuizen and Crichton in the course of discussion they had on first May 2008; sixth and seventh page- Employment Agreement and other documents . The notes in page five are written in manuscript and contain the following:

" NEDBANK WARMER …...........................................................HAMBISA TRUST R25000.00

ADMIN FEE

[…......]. ........................................................................................R60 000 ( ETC)

......................................................................................................3 YEARS

.......................................................................................................OPTION 2 YEARS

[…....] ".

Crichton was satisfied with the terms of the agreement as discussed between him and Oosthuizen. On 26 May 2008 Oosthuizen wrote a letter to Jenny informing him that Mr Smit had employed Crichton permenently as a pilot in his Family Trust and that he is busy drafting a contract which he would send to him once it is signed . He informed him to prepare his payment of R60 000.00 per month as from 1 April 2008. He then furnished him with the full names and the bank details of Crichton. The bank details correspond with the figures appearing in page 5 of exhibit "C". Thereafter , Oosthuizen drafted the agreement and on 20 June 2008 emailed it to Crichton to sign . On 25 June 2008, Oosthuizen spoke to Crichton about the agreement and the latter stated that he had a problem with it because he had not been paid by the defendant. Oosthuizen advised him to speak to Mr Smit about payment .

[26] Oosthuizen denied the plaintiff's version put to him under cross examination that the plaintiff had not met Oosthuizen in Richmond Hill offices . He denied that Crichton had only ended up in the reception to deliver invoices . He adhered to his version in chief that he had met him in his office and had discussion with him with a view to drafting an agreement . Oosthuizen further denied that Crichton received the agreement in October. He admitted that Crichton was only concerned about PAYE. He did not know that upon being asked by Mr Kapp about the number of employees he had in his business, he had informed him (Kapp) that they were three .

[27] The evidence given by Oosthuizen is satisfactory and reliable . It is preferable to that of Crichton . He had not contradicted himself nor other witnesses. I accept his evidence .

[28] Kapp was the second witness to testify for the defendant. He is a Chartered Accountant and a co-Trustee of the JP Smit Family Trust since 2008. He had some dealings with Mr Smit . In March 2008 he met Crichton in Richmond Hill premises.Crichton informed Kapp that he did not want to have PAYE deducted from his salary and then expressed a desire to provide services through the plaintiff to achieve his objective. He asked him what would be the implication if he were to use a Close Corporation. He did not explain the reason for deciding to use a CC. Kapp told him that there are regulations he should comply with, Schedule 4 of the Income Tax Act, 1962. He told him that if he qualified he would not pay PAYE. Crichton told him that he had three unconnected employees in his business and it was on this basis that Kapp informed him that PAYE would not be deducted from the monies to be paid to the plaintiff . The meeting between the two lasted ten minutes . It is significant to realise that in paragraph 16.2 of the plea to Counter-claim , plaintiff had denied that he discussed anything connected with income tax with Kapp at the time of concluding an agreement . This is a contradiction .

[29] Kapp confirmed the loan of three hundred thousand rand advanced to Crichton by Mr Smit and that he would receive thirty thousand rand after the instalment had been deducted from his income. He prepared the severance package for him as embodied in exhibit "D" of the record . In the course of discussion Kapp told Crichton that the invoices he had issued were wrong and asked why he issued an invoice for R68400 when on account of the deduction he was paid R30 000. There was no response from Crichton . Kapp had calculated the severance package to an amount of R 629 591.67 and informed Crichton about it . On 2 December he met Crichton and gave him the draft agreement with the purpose of negotiating a settlement. Upon reading it he became very upset.

[30] Kapp confirmed that defendant made a voluntary disclosure to SARS failing which it would be liable to pay 20% penalty. It was during the preparation for trial in 2012 that it became clear that plaintiff did not have three unconnected employees . The defendant had then to approach SARS to make a voluntary disclosure and pay the PAYE which should have been paid but was not deducted from the salary of Crichton because of the misrepresentation he had made to Kapp that he had three unconnected employees.

[31]According to Kapp it was equitable to pay Crichton an amount of R 629 591.67 and he did not make a counter offer except only to say the amount should have been more .He denied initially that there was an agreement that Crichton would liquidate the loan by a monthly payment of R 25 000. When the question was put to him emphatically as to whether he disputed that Smit and Crichton agreed that Crichton would pay R 25 000 a month to reduce the loan , his answer was No.

[32] Kapp was a good witness with impressive demeanour . His evidence is reliable and is corroborated by Oosthuizen . The evidence of these two defence witnesses is preferable to that of Crichton.

[33] Mr Smit also testified . His evidence is clear and satisfactory in material respects . It is corroborated by Oosthuizen and Kapp. He testified that the agreement he had with Crichton was for three years and would expire on 31 March 2011, and thereafter continue on a month to month basis. He testified that cashflow problem was the reason for reduction of plaintiff’s salary, otherwise he would face retrenchment. When no improvement came forth on cashflow , a severance package of R 630 000 was offered to plaintiff which he rejected on the ground that he was owed more on salary . According to Mr Smit nothing was owed to plaintiff at the time of settlement discussions in December 2011.

[34] Mr Smit’s evidence is preferable to that of Crichton. His memory is clearer than that of Crichton. On a balance of probabilities, Mr Smit is truthful . Crichton did not dispute that the agreement was for three years when he was discussing the terms thereof with Oosthuizen . I must accept that there was an agreement to reduce the salary of the plaintiff in the middle of 2009 because the plaintiff did not object to the payment of R 30 000, nor was the defendant reflected as a debtor in the plaintiff's books of account . The plaintiff's return on VAT indicated its income to SARS as R 30 000 per month . The information submitted by plaintiff to auditors for tax purposes reflects that plaintiff was receiving R 30 000 per month on invoices submitted to the defendant .

[35] The probabilities of the case as a whole are in favour of the defendant. It was as a result of Crichton's misrepresentation to Kapp, either fraudulent or negligent or innocent, that the plaintiff had employed at least three unconnected employees- that the defendant repaid PAYE deductions to Crichton and did not deduct PAYE from payments made to the plaintiff. The probabilities are infavour of the defendant in that:

(a) the agreement was for a period of three years and on a month to month basis thereafter;

(b) Mr Smit advanced a loan of three hundred thousand rand to Crichton;

(c) the original agreement between Crichton and Smit was varied to the extent that Crichton agreed to pay the loan by R30 000 monthly deductions from his salary ;

(d) nothwithstanding the new agreement Crichton continued to submit for payment invoices reflecting R 68 400;

(e) notwithstanding his persistent denial of the variation of the agreement, Crichton did not object to the monthly payment of R 30 000;

(f) plaintiff 's books of account do not reflect the defendant as the debtor;

(g) information submitted by plaintiff to auditors for tax purposes reflects that plaintiff was receiving R30 000 per month on invoices it submitted to the defendant;

(h) Crichton did not dispute the 3 year contractual period when he met Oosthuizen in Richmond Hill offices;

(i) Crichton contradicted himself in saying that in terms of the agreement in June/July 2009 the defendant had to reduce his salary by paying R25 000 per month to reduce the loan . There is no record of a sum of R 25 000 reduction from his salary. Only one invoice in exhibit "A" 15-22 could have constituted a deduction of R 25 000 had it been paid for but for the fact that it was wrong it was not paid. However, in contrast to the R25 000 allegation, a different version appears in particulars of claim which have not been amended (paragraph 3.6 page 6) “that the agreement was that the loan would be reduced by R 33,684.21".

APPLICATION TO AMEND

[36] Mr Smit was relocating to Namibia and had therefore to retrench his employees in Port Elizabeth . He offered Crichton an opportunity to go with him to Namibia but he refused . He then offered him R630 000 as a severance package and instructed Kapp to prepare a settlement agreement on the said amount but Crichton wanted more . The offer was not an admission of liability but a severance package .

[37] Kapp, on the instruction of Mr Smit, prepared a Schedule marked Annexure “A" to the particulars of claim on 23 December 2011 prior to the meeting between Crichton and Mr Smit. During the trial that Annexure was struck out by consent on the ground that it is a privileged document meant to be used in settlement negotiation. Meanwhile there was already a pending application for amendment to substitute the Annexure for the new Annexure which was prepared by Kapp on 2 December 2012. The application was launched on 23 November 2012. The essence of the amendment sought is, as set out in Crichton’s affidavit, to “substitute Annexure PCI to the original summons with Annexure A to the proposed Notice of Intention to Amend ".

[38] The defendant objected to the amendment on two grounds, firstly that, Annexure "A" is a Schedule that was prepared for the purpose of ongoing settlement discussions and secondly, that it is a privileged document, forming part of settlement discussions between the parties and which has not been discovered.

[39] After the answering and replying affidavits had been filed of record, the application was ripe for hearing but on 4 April 2013 Dambuza J, before whom it served, postponed it to the date of trial, with costs reserved . On the last day of hearing of the action , Mr Friedman , who appeared for the plaintiff handed up the amended particulars of claim together with his heads of argument . The issue to be decided by the Court is whether the document is privileged or not. .Mr Friedman submitted that this is an updated previous Annexure "A" and to the extent that it is a follow up on exhibit "D" to which no privilege was claimed, is not privileged.

[40] Mr Friedman submitted in his heads of argument that the defendant has waived the privilege by discovering Exhibit "A" which embodied a settlement agreement for the sum of R 630 000. By discovering this document , they were expressly , or impliedly or imputedly waived , so goes the submission. He referred the Court to Schwikkard and Van Der Merwe , Principles of Evidence; Zeffert and Paizes, South African Law of Evidence, Mr Friedman further submitted that what has to be decided by the Court is whether or not the Schedule was given to plaintiff as part of " without prejudice " discussions or not . He cited , as authority for his proposition, the same authors he had cited above at page 22 and 700 , respectively . He has also cited Cross on Evidence; SA Rugby Football Union v President of RSA; Lenz Township Co (Pty) Ltd v Munnick and Others. I must now consider the plaintiff’s.

[41] Our courts have had occasion to consider the collision between the fundamental rights embodied within the privilege and the right which everyone has of access to information, as set out in section 32 of the Constitution , Act 108 of 1996. In Jeeva and Others v Receiver of Revenue, Port Elizabeth , and Others, the applicants which had vested interest in two companies which were the subject of a commission of inquiry in terms of sections 417 and 418 of the Companies Act , 61 of 1973 applied in terms of section 23 of the Interim Constitution , for an order directing the Receiver of Revenue to give access to certain information in his possession .The application was opposed on the ground , inter-alia, that the applicants were not entitled to the information because it was subject to legal professional privilege. The court upheld the opposition , holding that the privilege constituted a reasonable and justifiable limitation of the applicants' right of access to information. Further, the court considered the rationale and nature of the privilege and held, after reviewing South African and foreign authorities, that the weight of authority is overwhelmingly in favour of the view that legal professional privilege has its true basis in a fundamental right to give and take legal advice with complete confidence, without which our adversarial system of litigation cannot operate properly. It further held that courts should be inclined to uphold a bona fide claim to legal professional privilege in answer to a claim for access to information. In some cases , however, the facts and circumstances may be such that they induce the court to conclude that the privilege should not take precedence over the constitutional right of access.

[42] The plaintiff is in essence claiming a right to information embodied in a document which was prepared by the accountant of the defendant on his instruction for the purpose of a settlement negotiation. At the stage of the defendant' s instruction to the accountant to prepare the document , the legal representatives were not yet involved in the matter . It is trite that the privilege is not for the legal representative but for the client . Mr Friedman's contention is that the document was for an upgrading of another document , exhibit D , where no privilege is claimed by the defendant . I would imagine on this contention that if the two documents are contemporaneous they would serve the same purpose in which case privilege would have been claimed on exhibit D if it was used for settlement negotiations. I missed the evidence that it was an offer for settlement while Annexure A certainly qualifies itself as negotiations privilege . It was offered to Crichton who declined the offer . It qualifies as a statement without prejudice . It is trite that statements which are made expressly or impliedly without prejudice in the course of bona fide negotiations for settlement of a dispute cannot be disclosed in evidence without the consent of both parties .The purpose of the statements without prejudice not to be admitted in the proceedings is to encourage an attempt to settle the disputes without fear that what the parties have said will be used against in the event of the negotiations aborting.

[43] Mr Friedman further submitted that the plaintiff has waived the privilege by discovering exhibit D. I have already found that the two documents are not contemporaneous . The fact of the matter is that Annexure A is a negotiations privileged document which has not been discovered and could only be admitted with the consent of both parties. In terms of Rule 35 (4) a document that has not been discovered may not be used in the proceedings by the party who should have discovered it but failed to do so. In the premises , the application for amendment must fail .

PRESCRIPTION OF THE COUNTER -CLAIM

[44] The counter-claim for arrear PAYE is founded on Schedule 4 of the Income Tax Act No. 58 of 1962. Section 5(2) of the Act provides a remedy to the employer to recover from the employee tax which has not been deducted or withheld by the employer provided that the commissioner is satisfied that the failure to deduct it was not due to an intent to postpone the payment thereof or to evade the employer's obligation . On the misrepresentation of Crichton to Kapp the defendant failed to deduct PAYE from him which defendant had paid to the Receiver of Revenue .The amount paid by the defendant to SARS which should have been deducted from Crichton's salary is claimable by the defendant from Crichton .Section5(3) provides that an employer who has not been absolved from liability shall have a right of recovery against the employee in respect of the amount paid by the employer in respect of that employee , and such amount may in addition to any other right of recovery be deducted from future remuneration which may become payable by the employer to that employee. The defendant had not been absolved from liability for tax hence he had to pay PAYE on behalf of Crichton . Until the employee concerned has paid to the employer any amount which is due to the employer such employee is not entitled to receive from the employer an employees 's tax certificate in respect of that amount ( s 5(4) ). The defendant was impoverished by payment he made on behalf of Crichton and Crichton was enriched at the expense of the defendant. Notwithstanding his failure to deduct PAYE from Crichton , the defendant was obliged to pay to SARS the amount of PAYE he should have deducted from Crichton 's salary . That amount becomes a penalty due and payable by the employer ( s 5(5)). Crichton cannot benefit from his own misrepresentation , whether faudulent or innocent by claiming prescription of the amount which by law should have been deducted from his salary had he not made the misrepresentation . It was only during 2012 that the defendant became aware that Crichton did not have three unconnected employees in his company and that was at the time defendant was preparing for trial . He then filed a counter - claim for PAYE in November 2012. Section 12(2) of the Prescription Act, 68 of 1969 provides that :

"If the debtor willfully prevents the creditor from coming to know of the existence of the debt, prescription shall not commence to run untill the creditor becomes aware of the existence of the debt ".

While section 12(3) provides that:

“A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises...".

[44] Crichton admitted liability for PAYE but pleaded prescription of the amount counter-claimed. He has not , however , candidly disclosed that he had changed his mind and told the defendant the true state of affairs about his employees . Had the defendant not discovered the truth about his employees, his misrepresentation would have succeeded. In the premises, the defendant's counter- claim is alive and plaintiff’s special plea thereon fails.

[45] The following Order is hereby issued:

1. The plaintiff's action is dismissed with costs;

2. The application for an amendment is dismissed with costs

3. The defendant's Counter-Claim succeeds and;

4 The plaintiff is directed to pay the defendant's costs of the Counter-Claim.

___________

L.P Pakade

ACTING DEPUTY JUDGE PRESIDENT: MTHATHA

For the Plaintiff ..................................:... Mr Friedman

Instructed by ......................................: Friedman Scheckter

..............................................................75 Second Avenue

..............................................................Newtown Park

..............................................................PORT ELIZABETH

For the Defendant.............................. : Adv Schubart SC

Instructed by........................................: Pagdens Attorneys

..............................................................18 Castle Hill

..............................................................Central

..............................................................PORT ELIZABETH

Heard on ............................................: 06 March 2014

Delivered on .......................................: 22 August 2014

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