Thursday, June 27, 2013

When is formalism a mistake? Two guides to an answer from a South African tax case

When is formalism in legal reasoning a mistake? When, if ever, should a court hold to literal language or inflexible rules?

Here are two perspectives on those big questions, from the South African Constitutional Court case of  Liebenberg N.O. and Others v. Bergrivier Municipality (CCT 104/12, decided June 6, 2013).

First, the Bergrivier Municipality had the authority to impose “rates” – property taxes – on all property within its borders. The statute on which the municipality relied for this authority, beginning in late 2000, was the Local Government Transition Act 209 of 1993 (the “Transition Act” – so named because it was enacted as part of the legal transition from apartheid to democracy in the early 1990s). In particular, the municipality utilized section 10G(7) of the Transition Act, a section adopted in 1996, which specified various procedures that had to be followed.

All this seems, really, rather dull. But the case had a backstory. One of the governance changes made since apartheid ended was to make South Africa a nation of wall-to-wall municipalities: every place in the country is in some municipality. That meant, as the Constitutional Court explains (¶ 5) that rural areas formerly beyond local cities’ taxing power now came within those cities’ jurisdiction. In Bergrivier, however, a group of rural landowners did not cooperate. Moreover, the method of noncooperation they chose was not to pay the rates levied and then sue for a refund. (¶ 6) Instead, they just didn’t pay, apparently for several years – thereby making themselves a new part of the culture of nonpayment, a heritage of the anti-apartheid struggle that, as the Constitutional Court observes (¶¶ 79-80), poses a real threat to the ongoing efforts by the post-apartheid nation to govern itself effectively.

Ultimately the municipality sued the landowners, and then they mounted a variety of legal defenses. Some of these defenses were successful; but those that came before the Constitutional Court were not.

One of the landowners’ claims was that the statute under which the municipality claimed to act, section 10G(7) of the Transition Act, had in fact been repealed before the municipality tried to act under it over the course of several years. To determine whether section 10G(7) was or was not still on the books required an elaborate exercise in statutory interpretation, surely one that Parliament had not anticipated and that was the result of inartful choice of statutory terminology.

The first step in determining whether section 10G(7) remained in place in the relevant years was to consult another statute, the Local Government: Municipal Finance Management Act 56 of 2003 (the “Finance Act”), and specifically section 179 of this law. Section 179(1) declared the repeal of a list of statutes, a list that included section 10G of the Transition Act. This part of the Finance Act went into effect on July 2, 2005, and so it might seem to follow that from that date on section 10G(7) of the Transition Act was no more.

But section 179(2) said, explicitly, that despite section 179(1)’s repeal of section 10G, “the provisions contained in subsections (6), (6A) and (7) of section 10G remain in force until the legislation envisaged in section 229(2)(b) of the Constitution is enacted.” So Section 10G(7) was to remain in force, until this additional legislation was enacted.

Section 229(2)(b) of the Constitution in turn authorized Parliament to pass legislation regulating the power of municipalities “to impose rates on property” and other charges. Parliament in due course passed this legislation, a statute called the Local Government: Municipal Property Rates Act 6 of 2004, the “Rates Act” for short. (Are you still with me?)

With the enactment of the Rates Act, section 10G(7) ceased to be in force, by the express terms of section 179(2) of the Finance Act. Or did it? Section 88 of the Rates Act provided that property rates or taxes could continue to be conducted “in terms of legislation repealed by this Act," (that is, repealed by the Rates Act) until a new list of properties and their value (a “valuation roll”) was prepared.

So section 10G(7), which had been repealed, could still be applied! Or could it? Section 88 of the Rates Act only extended the life of “legislation repealed by this Act,” that is, again, by the Rates Act itself. But the Rates Act, which included specific reference to certain legislation that it repealed, did not include any statement that it was repealing section 10G(7). Rather, it was the Finance Act that declared that 10G(7) was repealed but would remain in force until the enactment of what turned out to be the Rates Act. So arguably the Rates Act did not repeal 10G(7); rather, the Rates Act’s enactment marked the date when the repeal of 10G(7) by the Finance Act became effective. (Are you still with me?) And if that was so, then the Rates Act provision for continued use of property rates systems it had repealed would not apply to 10G(7).

A majority of the Constitutional Court, in a judgment written by Acting Justice Mhlantla, found a way around this problem. It concluded that “the ordinary meaning of the phrase ‘repealed by this Act’ [the language of section 88 of the Rates Act] does not preclude the possibility of a broader construction as referring to legislation ‘repealed by the coming into effect of this Act’ or ‘repealed as a result of this Act.’” (¶ 38)

This was hardly free-wheeling interpretation. On the contrary, the Court emphasized the exact details of the wording. "Indeed," Acting Justice Mhlantla wrote, "had the phrase 'in terms of this Act' in fact been used by the Legislature, we may well be straining the text too far to suggest that there could be any other reasonable construction." (¶ 37)

Moreover, the Court argued that a contrary reading was out of kilter with these statutes' purpose, which broadly speaking was to ensure an orderly transition from apartheid-era tax systems to those of the democratic era. It seems quite appropriate for the Court to view these statutes as intertwined, a "unique legislative suite" (¶ 46), and read them as a coherent whole so as to avoid the potential “absurdity” of a different reading. (¶ 38)

There was a further oddity. The Finance Act, section 179(2) of which provided for the repeal of section 10G(7) on enactment of the legislation envisaged in section 229(b) of the Constitution, was evidently enacted in 2003. "Enactment" in South Africa means, at least according to the two dissenters here (and the majority does not express disagreement on the point), the date when the President “assents to and signs” a law after its approval by Parliament. (¶¶ 118-19 (dissenting judgment of Justice Jafta; ¶ 139 (dissenting judgment of Justice Khampepe). But section 179(2) of the Finance Act did not go into operation until July 2, 2005. (South African allows statutes to go into operation on a date subsequent to their enactment, and the Finance Act so provided (see ¶ 140 of the dissent by Justice Khampepe).) Meanwhile, the Rates Act, the statute envisaged by section 229 of the Constitution, was enacted on May 11, 2004.

So if, at the moment that section 179 went into effect in 2005, its provision for section 10G(7) to cease to be law with the enactment of the Rates Act immediately took effect retroactively to the date of the Rates Act's enactment a year earlier, and if (as the landowners argued) section 88 of the Rates Act did not operate to preserve section 10G(7) even so, then for a period of thirteen months there evidently would simply have been no legislation enabling municipalities to impose property taxes on rural land within their borders. (¶ 52 of the majority judgment of Acting Justice Mhantla) Oddest of all, while the Transition Act would on this theory have become inoperative, other legislation from the apartheid era that hadn’t yet been repealed would have remained in effect for a time, even though the point of this entire set of statutes was to effect a transition out of apartheid. (See ¶¶ 43 & 50) It’s really inconceivable that Parliament intended such a state of affairs.

So the majority’s interpretation – which did no more than utilize one possible meaning of the text rather than another possible meaning, so as to achieve a result vastly more consistent with the statutes’ purpose than the alternative would have produced – seems entirely legitimate. This much departure from strictest legalism is easily defended. Indeed, while the majority has avoided a particularly constraining textual reading, it seems fair to say that its interpretation is so well based in the rules of statutory interpretation that it is, after all, quite formalist itself.

Second, however, there is another formalism question in the same case.

Once it's determined that section 10G(7) provided the municipality with its authority to impose taxes, it might seem to follow that the municipality was obliged to use the procedures specified in section 10G(7) for the exercise of this power. To some extent, that's exactly what the municipality did.

But not entirely. The Finance Act also specified procedures for levying rates, and the Court said  (¶ 70) that "[t]here were instances ... where the Municipality only complied with the requirements of the Finance Act in the manner that it levied the rates." 

It's not clear to me, frankly, exactly how the Finance Act procedures come into play. If the Finance Act procedures were complementary to those of section 10G(7), the municipality might have been required to obey both, but the majority explicitly rejected this possibility. (¶ 73)

On the other hand, if the two sets of procedures – from the Finance Act and from section 10G(7) – were inconsistent, and if section 179 of the Finance Act meant that section 10G(7)’s substantive authority to levy rates remained in effect, it seems odd to me to conclude that another part of the Finance Act, apparently without saying so in so many words, overrode just the procedural part of section 10G(7).

But suppose that the Finance Act did have this effect. Then one can easily accept the Court's rationale for rejecting challenges based on the municipality's failure to use the section 10G(7) procedures: "the Municipality complied with the requirements of the Finance Act and, in any event, substantially complied with the objects of the requirements in section 10G(7)." (¶ 74)

But then the Court turns to another question of procedure. This question is whether the municipality complied with the requirements not of the Finance Act but of the Rates Act. If the Finance Act's procedures apply instead of section 10G(7)'s, one might think that the Rates Act's procedures similarly replace section 10G(7)'s, since I take it that both the Finance Act and the Rates Act were in force in the relevant period. (How any clashes between the Finance Act and the Rates Act might be resolved doesn't appear to be an issue in this case.)

But it turns out that the municipality definitely did not comply, over three financial (fiscal) years, with at least one requirement of the Rates Act - that its decision specifying the rates it would levy be printed in the "Provincial Gazette," an official record of government actions.

Should we care? The majority responded that this requirement of the Rates Act didn't apply, because section 10G(7) remained in effect. (¶ 77) I don't understand, however, why the Finance Act's requirements could override section 10G(7)'s, but the Rates Act requirements couldn't. (I admit I may be missing something here!)

But let’s assume for purposes of argument that the Rates Act requirement of publication in the Provincial Gazette did apply. The municipality argued that even though it had not actually published as required, it had placed notices in the newspaper and had undertaken a process of public participation, and so, it said, it “had complied substantially” with the publication requirement, since the actions it took gave notice to the public and elicited public participation. (¶ 146, dissenting opinion of Justice Khampepe) It may well be the case that the people subjected to these levies of rates (again, property taxes in U.S. parlance) were fully aware of, and had an ample opportunity to participate in the public consideration of, the decisions that the Bergrivier municipality made. The majority didn’t adopt this line of argument (since it considered the publication requirement inapplicable in the first place), but it did embrace the general idea that substantial compliance by a municipality with its statutory duties could suffice (¶ 26). Indeed, even Justice Khampepe, who focused on this publication requirement in her dissent, acknowledged that the “doctrine of substantial compliance … has its place.” (¶ 159) So the question would be whether the requirement of printing in the Gazette is one for which substantial compliance is possible.

Justice Khampepe said no, and I think there is force to her position. As she wrote, “[l]egislative acts depend for their legal efficacy on due promulgation. This is an incident of the rule of law that has long been part of South African jurisprudence.” (¶ 148) It is not hard to see the appeal of the proposition that people subject to laws must always be able to find them, without fail, in a particular place or publication.

Appealing as this proposition is, it isn’t absolute, even in the case of legislation, as Justice Khampepe acknowledged (¶ 158) Moreover, a lot of law is not legislation. The vast amounts of law made in court decisions, in South Africa as in the United States and many other countries, in fact can't be found fully in any one place, but can only be gleaned by more or less elaborate reading and interpretation of cases.

But if some law is hard to find, a lot of it is not. You're supposed to be able to find the laws enacted by Congress or Parliament, or (one might reasonably say) the laws adopted by lesser legislative bodies as well. Municipal decisions to impose property taxes, in particular, are legislation, under another Constitutional Court decision cited by Justice Khampepe (¶ 147)).

I’m inclined to say that if the publication requirement did apply (remember that the majority’s position is that the requirement just wasn’t applicable), then the failure to comply with it should have invalidated the municipality’s actions. To me, this thoroughly technical rule is part of the basic substructure for the system of laws. Once we know what the words of the adopted law are, we may want to interpret them freely, even quite a lot more freely than the Constitutional Court did in determining that section 10G(7) had not been inadvertently repealed by Parliament. But I think we need to know, as definitively as possible, what the words are in the first place. So when is formalism too much? I answer: sometimes, but not always.

And here’s one more reason why: This post is long. It’s taken me this long just to explain and briefly discuss the interpretive problems I wanted to illustrate. If you’ve read this far, I hope you’ve found the explanation reasonably clear. But it wouldn’t have been clear at all, not in the slightest, if we all didn’t take for granted a whole set of formal assumptions, such as that multiple statutes should be read with each other in mind, and that interpreters can’t simply pick the statutory language they like best or give the words they identify any meaning they choose. We couldn’t even talk about law of this sort – elaborated, systematized written legal rules and standards – if we weren’t all pretty formalist. The only real question is exactly how formalist to be.

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