THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable

CASE NO:  139/2002

In the matter between

A M MOOLLA GROUP LIMITED                                                        1ST APPELLANT

AM CLOTHING (PTY) LTD                                                                   2ND APPELLANT

MAHOMED YACUB DHAI                                                                     3RD APPELLANT

YUSUF AHMED SADEK VAHED                                                          4TH APPELLANT

AND

THE  COMMISSIONER FOR SARS                                                      1ST RESPONDENT

CONTROLLER OF CUSTOMS & EXCISE, DURBAN                       2ND  RESPONDENT

THE GOVERNMENT OF THE RSA                                                      3RD RESPONDENT

CORAM:    MARAIS, CLOETE and LEWIS JJA

HEARD:  3 March 2003

DELIVERED:  26 March 2003

Summary: Trade agreement with Malawi: application of s 46 (and rule 46), Customs and Excise
Duty Act 91 of 1964 to imports from Malawi.

JUDGMENT

LEWIS JA

[1] At issue in this appeal is the interpretation to be placed on an article
in the trade agreement between South Africa and Malawi, entered into on
19 June 1990. The agreement was promulgated as part of the Customs
and Excise Duty Act  91 of 1964.  Before dealing with the actual dispute
between the parties I shall set out the legislative framework of relevance
to the issue.

[2] Section 49(1)(a) of the Act deals with the status and requirements
for enforceability of trade agreements generally. The section reads:
‘49 Agreements in respect of rates of duty lower than general rates of duty —
(1) (a) Whenever any international agreement which binds the Republic as
contemplated in section 231 of the Constitution of the Republic of South Africa, 1996
(Act No. 108 of 1996), is an agreement with the government of any country or
countries or group of countries—
(i) which includes the granting of preferential tariff treatment of goods and provisions of
origin governing such treatment;
(ii) concerning customs co-operation, including for the exchange of information and the
rendering of mutual and technical assistance in respect of customs co-operation
between the Republic and such other country or countries or group of countries;
(iii)  regulating transit trade and transit facilities; or
(iv) which  is a customs union agreement with the government of any territory in Africa;
(v) which provides for any other matter which either expressly or by implication
requires to be administered by customs legislation,
such agreement or any protocol or other part or provision thereof is enacted into law as
part of this Act when published by notice in the Gazette in accordance with the

provisions of subsections (1) and (1A) of section 48 or subsection (5) or (5B) of this
section’ (my emphasis).

[3] Further, the definition of  ‘this Act’ in s 1 states that it includes ‘any
proclamation, government notice, regulation or rule issued or made or agreement
concluded or deemed to have been concluded thereunder, any agreement
contemplated in section 49 . . . ’ (my emphasis).

[4] The Act makes specific provision for differential treatment of
particular countries. Section 51, which regulates trade agreements with
countries in Africa, provides:
‘(1) The National Executive may conclude an agreement with the government  of any
territory in Africa in which it is provided that, notwithstanding anything to the contrary in
this Act contained –
(a)  goods produced or manufactured in or imported into the Republic shall be admitted
into that territory free of duty or at special rates of duty and goods produced or
manufactured in or imported into that territory shall be admitted into the Republic free
of duty or at special rates of duty;
(b)  such arrangements (including arrangements providing for the prohibition or
quantitative or other limitation or restriction of the importation of any goods) as may be
agreed upon between the parties to the agreement shall apply in respect of the
admission of any goods into the territory of one of the parties from the territory of the
other party and in respect of the entry of and the collection of duty on goods on
importation into the territory of any party from a territory other than the territory of the
other party;
(c)  each party to the agreement shall be compensated in respect of duty on such
goods to the extent and in the manner agreed upon between the parties to the
agreement.’

[5] The agreement makes it clear that it is concluded under s 51. There
is therefore no question as to the status of the agreement as a part of the
Act. What is in issue is whether particular goods imported by the
appellants from Malawi are exempt from customs duty under the
agreement and the Act, a question that in turns depends on the meaning
to be attributed to the relevant provision of the agreement.

[6] Article 2 of the agreement provides that ‘goods grown, produced or
manufactured in Malawi’ must be imported into South Africa free of
customs duty (my emphasis). Article 6 regulates what is required in order
for goods to be regarded as ‘produced or manufactured’ in either Malawi
or South Africa, as the case may be. Article 6(i) deals with the
requirements in so far as imports into Malawi are concerned – to which I
shall return – and 6(ii) with goods imported into South Africa.  The present
dispute between the parties relates to the interpretation to be given to the
words ‘production cost’ in article 6(ii).

[7] Article 6 reads:
‘Goods shall not be regarded as having been produced or manufactured:
(i) in South Africa, unless the last process of manufacture shall have been performed
in South Africa and, as may be prescribed from time to time under the customs
legislation of Malawi for the purpose of determining the entitlement of goods to
preferential rates of duty, such goods:
(a) contain not less than the “specified country content”;
or
(b) have been subjected in South Africa to a specified process of manufacture; and
(ii)  in Malawi unless at least twenty-five per cent, or such other lower percentage as
may from time to time be agreed upon between the Parties in respect of specified

goods manufactured in Malawi, of the production cost of those goods shall be
represented by materials produced and labour performed in Malawi and the last
process in the production or manufacture of such goods shall have taken place in
Malawi’ (my emphasis).
[8] The primary contention of the appellant is that garments imported by
it  are produced or manufactured in Malawi since at least 25 per cent of
their production cost, attributing to that phrase its ‘ordinary grammatical
meaning’, is represented by materials produced and labour performed in
Malawi. The respondents, on the other hand, contend that ‘production
cost’ must be given meaning by having regard to the provisions of the Act
and the rules made under it, in particular s 46 and rule 46.

[9] Although there is some dispute on the facts between the parties as
to the percentage of material originating in Malawi used in the
manufacture of the garments, for the purpose of the application in the
court of first instance, and for this appeal, the respondents concede, in so
far as the goods in contention are concerned, that if the appellants’
interpretation is correct the combined cost of such materials and labour
amounted to 25 per cent of the production cost. Conversely, if the
respondents’ interpretation is correct, the appellants concede that the
goods in question do not meet the 25 per cent requirement.

[10] The parties formulated the question for determination by the court a
quo in the following terms:
‘Whether or not section 46 of the Customs and Excise Act 91 of 1964, as read with
Rule 46, made in terms of the Act, applies in relation to the goods imported by the
second applicant [appellant] and defined in paragraph 1(a) of the Notice of Motion.’

In their notice of motion the appellants had asked for an order declaring
that goods imported by the second applicant under specified bills of
lading, from Crown Fashions in Malawi, complied with the provisions of
article 6(ii) of the trade agreement.

[11] Roux J answered the question in favour of the respondents, finding
that the goods were not exempt under article 6(ii). It is against this finding
that the present appeal lies, leave having been granted by this court.

[12] Section 46 read (before an amendment in 1999):
‘(1)  For the purposes of this Act goods shall not be regarded as having been produced
or manufactured in any particular territory unless –
(a)  at least twenty-five per cent (or such other percentage as may be determined
under subsection (2), (3) or (4)) of the production costs of those goods, determined in
accordance with the rules, is represented by materials produced and labour performed
in that territory;
(b)  the last process in the production or manufacture of those goods has taken place
in that territory.
(c)  . . .’
An amendment to the section  in 1999, the effect of which was the
inclusion of the words ‘except where any agreement contemplated in
section 49 or 51 otherwise provides’ after ‘Act’, is of no significance, a
matter discussed below. )

[13] Rule 46.01 provides:
‘In the calculation, for the purposes of section 46, of the cost of materials produced and
labour performed in respect of the manufacture of any goods in any territory, only the
following items may be included

(a)  the cost to the manufacturer of materials wholly produced or manufactured in the
territory in question and used directly in the manufacture of such goods; and
(b)  the cost of labour directly employed in the manufacture of such goods.’

Rule 46.02 provides:
‘In the calculation, for the purposes of section 46, of the production cost of any goods
in the territory, only the following items expended in the manufacture of such goods
may be included
(a)  the cost to the manufacturer of all materials;
(b)  manufacturing wages and salaries;
(c)  direct manufacturing expenses;
(d)  overhead factory expenses; and
(e)  cost of inside containers.’

[14] The appellants argue that article 6(ii) of the trade agreement must
be given a meaning different from that to be found in s 46 and the rule that
elaborates upon it: that ‘production cost’ means the cost of producing an
article, and that embraces a variety of costs not referred to in rule 46,
which is restrictive. The lynchpin of the argument is that s 51(1) states that
an agreement may be concluded with another country in terms of which
goods may be imported into South Africa free of duty, ‘notwithstanding
anything to the contrary’ contained in the Act. On this argument, s 46(1)
and rule 46 would have no application to the goods imported under article
6(ii). (A number of general principles of statutory interpretation were
advanced in support of this contention. I shall not deal with them since I
consider that the meaning of article 6(ii) is informed entirely by s 46 and
rule 46, a conclusion which I address  below.)

[15] The respondents contend, on the other hand, that the agreement
owes its existence to the Act, forms part of the Act, and is to be construed
as such. I have set out already the provisions of the statute that regulate
the status of trade agreements.  If there were to be an apparent conflict
between general provisions of the statute and particular provisions of an
agreement, difficulties of interpretation might indeed arise. The Act must,
of course, prevail in such a case: the agreement once promulgated is by
definition part of the Act. It must follow that where words which are defined
in the Act occur in the agreement, they must be given the meaning
assigned to them by the Act unless the context indicates the contrary. Just
as the definition in the Act of the word ‘goods’ must govern the meaning to
be given to the word ’goods’ in the agreement, so must any other
explanation in the Act of the meaning of words used in the Act be taken to
extend to the same words where they appear in the agreement (unless the
context in which they are used indicates otherwise).

[16]  In any event, the respondents argue, there is no conflict between
article 6, on the one hand, and s 46 and rule 46 on the other. It is the
section, as adumbrated by the rule, that gives content to the expressions
used in the article. The article sets out the basic requirements for
qualification for exemption. Rule 46 provides the method for the
calculation of the percentage. There is thus no conflict, nor any reason to
believe that article 6(ii) should be assigned a meaning different from that
set out in the Act and rules.  I accept this argument.

[17] The appellants contended in addition that the officials who had
implemented the agreement had in fact interpreted it in the same way  as
the exporters and they had done, and that goods had been imported free
from duty over several years on the basis that ‘production cost’ was to be
given its ‘ordinary meaning’: that is, all the costs involved in the production
or manufacture of the goods. Even if that were the case, however, (and it
is not common cause that it was) there is no basis upon which to claim
that the practice should be continued.

[18] In Collector of Customs v Cape Central Railways (1888-89) 6 SC
402 it was argued for the respondent that when a senior government
official had allowed the importation of cement free of duty, the appellant
was precluded from claiming the duty that should have been levied. That
proposition was termed ‘untenable’ by De Villiers CJ (at 404). Declining to
apply any doctrine of estoppel (a term ‘used in a very vague sense in the
English law’, said the court, at 405), the court characterized the issue as
follows at 405:
‘The question to be determined, therefore, is not the limited one of estoppel, but the far
wider one whether the Government can legally abandon its right to any particular
source of revenue provided by Parliament, and having abandoned it, in any particular
instance, it is debarred from recovering it from the person in whose favour it has been
abandoned.’

[19] The court, after an examination of both English and Roman-Dutch
authorities, held that the Government was not precluded from claiming the
duty. De Villiers CJ was of the view that while it might be considered an
injustice that government should be permitted to enforce a right it had

purported to abandon, ‘the rights of Government exist for the public good
and not for the personal advantage or convenience of members of the
Government’.
Buchanan J, in a concurring judgment, made the further point that
legislation should not be rendered nugatory in consequence of an illegal
act on the part of an official. By parity of reasoning the same would apply
to a mistake.

[20] The argument of the appellants that a practice had developed, or
that a particular interpretation had been adopted, and should be adhered
to, must accordingly be rejected. Equally, the argument that the way in
which article 6(ii) had been interpreted is an indication of what it actually
means, carries no weight when that interpretation is plainly not consonant
with the express provisions of the Act and the rules.

[21] A further consideration that we were urged to take into account in
giving meaning to article 6(ii) is the wording of article 6(i), dealing with
goods exported from South Africa to Malawi. That provision differs in
significant respects from that under consideration. First, it states that the
customs legislation of Malawi may ‘from time to time’ prescribe the criteria
for exemption from customs duty. There is no corresponding provision in
relation to goods imported into South Africa. The absence of such a
provision, it was argued, indicated that the term ‘production cost’ has an
ordinary meaning (different from its statutory meaning) that does not
change when (and if) the South African legislation changes. It seems to
me, however, that the omission of such a provision has no significance.
The agreement is a part of the statute. If the provisions in the statute, or

the rules made under it, are changed from time to time, so too must the
the articles of the agreement be interpreted accordingly. No express
provision to this effect is required. This conclusion is a logical
consequence of the principle discussed earlier that the agreement takes
its meaning from the statute of which it forms a part.

[22] Secondly, article 6(i)(a) states that such goods must ‘contain not
less than the “specified country content”’ or (b) that they  must ‘have been
subjected in South Africa to a specified process of manufacture’. The
contrast, it was suggested, supports the proposition that the terms of the
agreement do not take their meaning from the South African legislation but
are to be independently construed.

[23] It is clear that article 6(i) of the agreement specifically quotes what
are statutory terms of art in the Malawian legislation (such as ‘specified
country content’) while article 6(ii) does not.   An examination of the
Malawi customs and excise legislation and rules made available to this
Court by the appellants’ counsel during the hearing shows that the words
used in article 6(i) owe their origin to such legislation. The only inference
to be drawn is that the South African legislation correspondingly informs
the meaning of article 6(ii). Had the Malawian terms of art not been
employed in article 6(i) and had the same expression as is found in article
6(ii) (‘production cost’) been used instead, the South African statutory
criteria governing what was to be regarded as production cost, and not the
Malawian criteria, would have had to be applied to goods entering Malawi
from South Africa.

[24] In short, the different language in article 6(i) was employed to make
it clear that as far as goods entering Malawi from South Africa were
concerned, the Malawian legislation would control whether those would be
regarded as having been produced or manufactured in South Africa.
Where, on the other hand, Malawian goods entering South Africa were
concerned, the South African legislation would control the answer to that
question.

[25] The absence in article 6(ii) of the words ‘determined in accordance
with the rules’ which was relied upon by counsel for the appellant is not, in
my view, a strong pointer away from the conclusion that production cost
was to be so determined. At the time when the agreement was concluded
(June 1990) the words ‘except where any agreement contemplated in
section 49 or 51 otherwise provides’ did not appear in s 46(1) of the Act
and subsec(1)(a) referred to the production cost of goods ‘determined in
accordance with the regulations’. It followed that at that time the
empowering provisions in both s 49 and s 51 which related to ‘goods
produced or manufactured in . . . (a) territory’, had to be read subject to s
46(1) which provided that ‘For the purposes of this Act (excluding
Chapters VI and IX), goods shall not be regarded as having been
produced or manufactured in any particular territory unless’, inter alia, ‘at
least twenty-five per cent  (or  such  other  percentage  as  may  be
determined  under sub-section (2), (3) or (4)) of the production cost of
those goods, determined in accordance with the regulations, is
represented by materials produced and labour performed in that territory’.

[26] It was therefore not open to the State President at that time to
conclude an agreement that enabled the production cost of goods to be
determined in any other manner.  Had he purported to do so, he would
have acted ultra vires.  The presence in s 51 of the words ’notwithstanding
anything to the contrary in this Act contained’ does not derogate from the
fact that inasmuch as that provision dealt with ‘goods produced or
manufactured in (a) territory’, those goods could only be so regarded if
they satisfied the requirements of s 46.

[27] It is trite law that unless the language of a provision compels it, one
does not  read  it  in  such  a  way  as  to  visit  it  with  invalidity. The
language  of  article 6(ii)  does  not  compel such  a  reading. The
subsequent amendment  of  s 46 (1) so as to substitute for the words
‘(excluding Chapters VI and IX)’ the words ’except where any agreement
contemplated in s 49 or 51 otherwise provides’ could  not have altered
retroactively the original meaning  of  article  6(ii). And even if, potentially,
it could have done so, it would only have done so if it clearly ‘otherwise
provide(d)’. I agree with Roux J that it plainly did not.

[28] Counsel for the appellant pressed upon us the contention that the
agreement was intended to be ‘cast in stone’ so that entrepreneurs in
Malawi would know where they stood and be willing to commit capital to
business ventures. While it may have been hoped that no unfavourable
changes in customs legislation might come about, the agreement provides
no guarantees in that regard.  On the contrary, it expressly provides for
changes in the Malawian legislation and for the unilateral suspension,
withdrawal or modification by either party of the concession granted in

respect of ‘any product’. It is true that such action requires advance notice
and an opportunity to consult to be given to the other party but the fact
remains that the benefits provided by the agreement were not cast in
stone.

[29] The structure of the Act and the incorporation of the agreement as a
part of it lead to the inevitable conclusion that the agreement must be
construed in such a way as to avoid any conflict between the Act itself,
and the rules promulgated under it, on the one hand, and the terms of the
agreement on the other. While there is no definition of the term ‘production
cost’ in the Act itself, the provisions of s 46, read with rule 46, which gives
the section more precise content, are the equivalent of a definition. They
tell one exactly how the term is to be read, and which costs are to be
included  in the calculation of the  production cost.

[30] Accordingly I find that, in the determination of the production cost of
the garments imported under the particular bills of lading, rule 46 must be
applied and article 6(ii) interpreted accordingly.

[31] The appeal is dismissed with costs, including the costs occasioned
by the employment of two counsel.
________________
C H LEWIS
JUDGE OF APPEAL

MARAIS JA)
CLOETE JA)  concur