20151119 TZHC Arusha

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT ARUSHA COMMERCIAL CASE NO. 7 OF 2014 M/S TAX PLAN ASSOCIATES LIMITED .............................. PLAINTIFF VERSUS M/S TANZANIA AMERICAN INTERNATIONAL DEVELOPMENT CORPORATION 2000 LIMITED ...... DEFENDANT 10th September & 19th November, 2015 JUDGMENT MWAMBEGELE, J.: The Plaintiff is a body corporate that provides, inter alia, tax consultancy services. The defendant is a body corporate. The plaintiff claims from the defendant a total of USD 139,240 being professional service fees for the consultancy services rendered. The facts giving rise to the claim are fairly simple and can briefly be stated as follows. Out of tax investigations and findings by the Tanzania Revenue Authority (TRA), the defendant had been facing tax demands in the name of stamp duty, withholding tax and imputed interest for the years 2005 to 2009 from the said authority amounting to Tshs. 1,599,195,272/= in total. It is the plaintiff's case that the defendant appointed it (the plaintiff) to render tax consultancy pertaining to the said investigations. After a thorough working on the books of accounts the . 1 plaintiff's officers in Arusha filed a formal objection with TRA disputing the TRA investigative findings on behalf of the defendant. It is stated also in the plaint that after such thorough reworking of the accounts and presentation to TRA by the plaintiff, it was concluded that the defendant's tax liability was only a sum of Tshs. 219,128,569/=. Thereafter, the plaintiff wrote to the defendant incorporating the synopsis of the work done as well as the tax invoice for the service fees, but the defendant remained adamant to pay the same. It is out of this background that the plaintiff filed this suit praying for judgment and decree against the defendant as follows: i) A sum of USD 139,240 being principal amount due; ii) Compound interest on item (i) hereinabove at the rate of 10% per annum being current Commercial lending rate from the 4th day of October, 2011 to the date of Judgment; iii) Interest at 7% per annum being court rate from the date of judgment to the date of full payment; iv) Costs; and v) Any other relief(s) as the court may deem fit in the circumstances. Through its defence, the defendant denied the claim in toto putting that the said appointment of the plaintiff through a letter dated 01.03.2011 was at the instance of the plaintiff itself and a law firm going by the name of Mawalla ' Advocates as a sub-contractor for purpose of rendering the services which the defendant had assigned to the said firm; Mawalla Advocates. The defendant states in principle that there was no agreement between it and the plaintiff to . do that assignment. The defendants states in the alternative that if there was an agreement, then there was no agreement on a formula for charging the 2 defendant and further that the said amount claimed was arbitrarily fixed by the plaintiff. The defendant putts that it is for the reason of absence of such agreement and instruction to perform any services to the plaintiff by the defendant that it denied to honour any demands for payment. Mediation was attempted but it proved futile. Hearing on full scale was therefore inevitable. The parties proposed and agreed on issues for determination by this court which the court duly adopted and recorded. These are as follows: 1. Whether on or about the 1st day of March, 2011 the defendant contracted the plaintiff to handle and resolve issues pertaining to her tax investigation and assessments made by the Tanzania Revenue Authority for the years of income 2005 to 2009; 2. If the answer in 1 is in the affirmative, whether the plaintiff is entitled to a sum of USO 139,240 or any other amount that may be assessed by the Court being professional fees for the services rendered by the plaintiff; and 3. What other reliefs are the parties entitled to? To prove their respective cases, the plaintiff fielded a total of two witnesses whereas the defendant brought only one witness. The testimonies-in-chief by the plaintiff's and defence witnesses were made through witness statements as required by the High Court (Commercial Division) Procedure Rules, 2012 - GN No 250 of 2012 and were accordingly admitted in evidence and marked PWSl, PWS2 and DWS respectively. Having gone through all of them and having had a full grasp of the contents thereof as well as having keenly heard 3 their oral testimonies during cross-examination and re-examination, I will make reference to them in the course of analysis of the issues. I choose to deal with the issues in the order of their sequence as they appear above. The first issue is whether on or about 01.03.2011 the defendant contracted the plaintiff to handle and resolve issues pertaining to her tax investigation and assessments made by TRA for the years of income 2005 to 2009. In that regard, Nicholaus Duhia PWl testified that as a Managing Director of the plaintiff, he was once contacted by a firm of Advocates styled as Mawalla Advocates regarding tax consultancy for the defendant who was their client. PWl told this court further that upon indication of his (the plaintiff's) readiness to take up the assignment, he was introduced to the defendant whereby the defendant's officer, a certain Kennedy, talked to him over the phone and on 01.03. 2011 visited the plaintiff's office. He said that on that date, the defendant delivered various documents including books of accounts and ledgers for the task of review of the accounts relating to the tax investigations and demands by the TRA. It was his further averments that other documents in relation to the task were delivered to the plaintiff on 16.03.2011 and further that on 04.05.2011, an appointment letter as an introduction was sent to TRA indicating that the plaintiff was appointed the defendant's tax consultant. The said appointment letter was tendered and admitted in evidence and marked Exh. Pl. PWl's testimony is corroborated by Lemmy Bartholomew PW2. PW2 introduced himself as practicing advocate and managing partner of Mawalla Advocates. His testimony was to the effect that having been handling the tax affairs among others for the defendant, there reached a point where expertise 4 of a person well versed in accounts and taxation was required. That they informed their client - the defendant - and advised her to have the said expert to have the tax problem from TRA resolved. He testified further that upon such advice, the firm contacted the plaintiff who, through PW1 expressed interest to take up the matter and thereby, they introduced it to the defendant who instructed the plaintiff to take up the assignment. On the other hand, the defendant's one and only witness; Pius Mgulyati Dominic, through his testimony-in-chief, introduced himself as the Executive Director of the Defendant. He testified that to his understanding, the services were rendered by the plaintiff for Mawalla Advocates because she (Mawalla Advocates) had been contracted and retained by the defendant's principal company to undertake its various activities including tax matters as per the terms contained in the Retainer Agreement. As regards the appointment of the plaintiff, DW1's testimony was to the effect that the defendant had been advised by Mawalla Advocates to provide a written authorization to the plaintiff to assist them (Mawalla Advocates) in their tax related works particularly the proposed meeting with TRA. He testified that the said authorization would enable the plaintiff to attend meetings at which her tax affairs would be discussed as well as having access to the defendant's tax information. He testified further that for that purpose, the defendant wrote an introduction letter to TRA allowing the plaintiff to access defendant's information with an understanding that the said plaintiff was only assisting Mawalla Advocates. 5 I have heard the rival testimonies as well as the exhibits tendered in this court regarding the first issue, and I find the following to be undisputed facts. First, that the plaintiff rendered the said services related to tax issues to the defendant and secondly, that the plaintiff was introduced to the defendant by the firm of lawyers known as Mawalla Advocates. However, the question remains as it is the main issue, at whose instance was the said services rendered and on whose instructions? These are the questions allied to the main issue regarding appointment of the plaintiff. Whereas the plaintiff maintains that it was contracted and appointed by the defendant to render the said services, the defendant maintains that it had contracted Mawalla Advocates to undertake the said services and riot the plaintiff. The former relies on an appointment letter dated 04.05.2011 by the defendant whereas the latter relies on the retainer terms as between the defendant's principal company and the said Mawalla Advocates. The defendant agrees that indeed the services under discussion were rendered by the plaintiff to the benefit of the defendant. However, the defendant does not render any proof that the appointment of the plaintiff as its (the defendant's) tax consultant was instigated by the plaintiff. It was apparent through cross-examination that the appointment letter was drafted by the plaintiff though it contained the defendant's letter-head and was eventually signed by the defendant's official to signify authorship of the contents therein. For avoidance of doubt, let me reproduce the relevant part of the said letter; that is, Exh. Pl: 6 "4th May 2011 Manager Tax Investigations Tanzania Revenue Authority Zonal Tax Investigations Department P.O.Box 1116, Mwanza Dear Sir, RE: APPOINTMENT OF TAX CONSULTANTS This is to notify your good office that M/S Taxp/an Associates Limited have been appointed as our tax consultants effective 1st March 2011. We kindly request you to support and assist them accordingly. Sincerely, (Signed) Joseph Kahama Chairman & Chief Operations Officer Tanzania American International Development Corporation 2000 LTD." The letter, which was written on the defendant's headed paper, was copied to the plaintiff, the Regional Manager, TRA, Mwanza and Mr. Nyaga Mawalla of Mawalla Advocates. In my view, the letter (Exhibit Pl) is a clear indication that there was an appointment of the plaintiff by the defendant as her Tax consultant with effect from 01.03.2011. Thus, despite the undisputed fact that their agreement, as per the testimony of PWl, was at that time orally concluded, 7 the said letter is the only material indication to the existence of such agreement. This is so because, its authenticity and/or genuineness was, and still is, not contested by the defendant. For this reason, I find it very difficult to buy the averment by the defendant to the effect that the plaintiff was dealing as a sub-contractor for Mawalla advocates as it remains largely an allegation by the defendant which has not been substantiated by evidence. A Retainer Agreement between Mawalla advocates and the defendant's principal Company which was the only piece of documentary evidence tendered by the defendant cannot be relied on to prove existence of a sub-contract arrangement between the plaintiff and the said Mawalla Advocates. I hasten to observe, at this juncture, that a contract entered for and by two parties cannot be a basis to prove existence of a sub-contract between a third party and either of the two parties to the main contract. There should be, in my view, concrete evidence establishing such a sub-contract either in writing or at least by conduct of the parties. In the instant case, the conduct of the parties as depicted by the plaintiff and not disputed by the defendant inclines to the existence of a contract between them rather than between the plaintiff and Mawalla Advocates. These, in particular, are the telephone conversations and the ultimate visit of the plaintiff's office in Arusha by the defendant's officer namely Kennedy as well as the ultimate hand-over of the various documents including books of accounts, ledgers of the defendant · and instructions to proceed with the assignment which culminated into the said appointment on 01.03.2011 as 8 evidenced through the appointment and introduction letter of 04.05.2011 (Exh. Pl). These leave no shade of doubt that indeed there existed an arrangement under an agreement between the plaintiff and the defendant which was distinct and separate from that between the defendant and Mawalla Advocates. The above notwithstanding, the Retainer Agreement between Mawalla Advocates and the defendant does not, neither expressly nor by implication show that it was on such basis that there was a sub-contract between the plaintiff and Mawalla Advocates. To cement it all, when asked on whether Mawalla Advocates had billed and collected the service fees from the defendant for the services rendered by the plaintiff DW1's reply was in the negative. That apart, the defendant does not deny the fact that indeed the services were offered by the said plaintiff. Without much ado, I think, the first issue must be, and is, answered in the affirmative. The second issue is whether the plaintiff is entitled to the sum of USD 139,240 or any other amount that may be assessed by the court being professional services rendered by the plaintiff. The plaintiff claims a total of USD 139,240 as charges for the services rendered. The defendant disputes the said amount on two bases. One, that there was no agreement for rendering such services between them, and two, that the amount claimed was arrived at on the basis of arbitrarily-fixed formula which was never agreed upon between them. This was confirmed by PW1 who through cross-examination admitted that there was no formal agreement for the fees chargeable mainly due to TRA's pressure to the 9 defendant. He added that that notwithstanding, upon raising the tax invoice the defendant expressed readiness to pay the said amount. However, DWl testified that they never agreed to pay but attempted to mediate the matter as to how much was supposed to be paid but failed to reach a compromise. To that extent, there is nothing concrete from where this court can infer either to negate or confirm the second issue. Lucky enough, PW2 testified that the billing to the defendant was on the basis of the agreement with regard to the services rendered. This was not disputed by the defendant and it was also said by PW2 that they had not billed the defendant over the services which were rendered to her by the plaintiff. Therefore, the only logical conclusion would be that the mode of billing and payment which was expected by the defendant due to their normal course of business and conduct was that of charging on the basis of the work done and the value thereof as depicted in the invoices (Exh. P2 collectively). However, upon the plaintiff tendering the Proforma Invoice showing the fees chargeable to be 10% of tax savings after handling TRA Tax Investigation Findings and Demand for the Years 2005 - 2009 (as contained in Exh. P2) amounting to USD 139,240, the defendant disputed the same. Despite such denial of the claim, nothing was tendered by the defendant to dispute neither the quantity nor quality of the services rendered by the plaintiff; say, the normal rates payable for the same works which are being rendered by service providers like the plaintiff. At this juncture, I must state the obvious; having held that the Retainer Agreement (Exh. Dl) and the terms contained therein between the defendant's principal company and Mawalla Advocates had no effect to the relationship between the plaintiff and the defendant, that nothing concrete can be drawn by way of inference from the Retainer Agreement (Exh. D1) in terms of services rendered by the plaintiff and the amount payable to her. That is because, on the testimony of both PW1 and PW2, the works that were rendered by the plaintiff to the defendant were quite different from those which were supposed to be rendered by Mawalla Advocates to the defendant under the Retainer Agreement and further that the scope of services under the Tax Consultancy was extensive and specific; particularly reviewing the books of accounts in relation to the tax liabilities. This comes out lucidly first from PW2's testimony whose law firm was retained by the defendant to handle, inter alia, tax matters. For easy of reference let me reproduce some of the relevant scripts from the statement: "4. That by late February the dispute had reached a stage where involvement of an experienced Tax Consultant who can inter alia, review the books of accounts was required ... " 8. That our law firm acting on its own or on behalf of the client has never sub-contracted the plaintiff to carry out the consultant (sic) services in respect of the brief stated in paragraph 3 of this statement. .. " Secondly, in relation to the works involved in the services offered, the statement of PW1 tells it all as follows: 11 "13. We embarked on studying the voluminous documents to see how they relate to the Revenue Authority findings, to determine the extent of the client/defendant exposure, study the issues raised by the revenue Authority. Our study required extraordinary understanding of the defendant business and corporate affairs. 14. That after studying the brief we disputed the demand and asked for a meeting with TRA to discuss and resolve the following points of dispute: (a) Whether the mining option agreements were liable to withholding tax as lease agreements or to stamp duty as conveyances ... (b) Whether transfer pricing rules were applicable to intercompany transactions and financing ... (c) Whether payments for the lease of mining equipment were subject to the 15% nonresident withholding tax ... 15. Then we made the following submissions and tabled them for discussion with TRA: (a)That the mining option agreements were essentially conveyances and not leases and should be subjected to stamp duty at the rate of 4% for agreements signed prior to 1st 12 July 2004 and 1% for agreements signed after 1st July 2004. (b) That there were arithmetical errors and duplication of option agreements in the TRA j tax investigation workings. (c) That the group transactions were not transactions envisaged under the income tax law, but if they were to be treated as such, then the rate of interest to be imputed should be the market rate at the lender's jurisdiction and not the market rate at the borrower's jurisdiction. In addition, any attempt to impute interest will have a neutral effect as the interest income will be taxed in the hands of the lender and the interest expense should be allowed in determining the taxable income of the borrower. (c) That leases of mining equipment from foreign (non-resident) persons were subject to 15% withholding tax and not 100% as worked by TRA. 16. That the plaintiff engaged the Revenue Authority Regional Office at Mwanza and held various discussions with the Revenue Officers and finally on the 18th day of May, 2011 after a thorough presentation and reworking of the accounts by the plaintiff it was concluded that the 13 I i. defendant tax liability was only a sum of shillings 229,550,735/= resulting into total tax serving in the sum of shillings 1,626,965,942/= ... In my considered view, the episode in the statement above distances the duties described unde the Retainer Agreement from those performed by the plaintiff. For avoidance of doubt, I will reproduce the relevant clause; Clause 2.2 of the Retainer Agreement. The clause reads: "2.2 TAX MATTERS 2.2.1 Reviewing and advising on various documentations regarding the Client tax liabilities. 2.2.2 Liaising with the company tax auditor on provision and or filing of necessary documentation to the Tanzania Revenue Authority and other government authorities. 2.2.3 Attend to and advising on corporate management matters relating to tax liabilities. 2.2.4 Attend to different strategic, tax planning and investigative meetings with Tanzania Revenue Authority for and on behalf of the client, and 2.2.5 Negotiate as well as overseeing implementation of modalities of payments and settlements of tax liabilities to the Tanzania Revenue Authority." 14 The cumulative effect of the above as well as the absence of material evidence to contradict the same, in my considered view, leaves no doubt that the amount claimed being 10% of the total savings as well as the 18% VAT which is a statutory fee is reasonable in the circumstances. It thus confirms my logical conclusion intimated earlier on that the mode of billing and payment expected by the defendant was that as depicted in the invoices. In that accord, lack of agreement on the formula for charging the services rendered between the defendant and the plaintiff cannot be the basis for disputing the amount claimed, where the same has been raised basing on the volume of services rendered by the plaintiff which had resulted into Tax liability reduction to the advantage of the defendant. My view on this take is fortified by a trite principle under the law of contract that a party who performs his part of the bargain or contract as the case may be, is entitled to compensation to the extent of such performance where the other party benefitted and accepted such performance and there was no agreement that the same would be performed gratuitously - see section 70 of the Law of Contract Act, Cap. 345 of the Revised Edition, 2002. Therefore, if the defendant wished to dispute the amount claimed, concrete evidence as to actual services rendered and the amount that was supposed to be claimed or was being claimed in the normal course of business and according to their usage, was crucial. It is for this reason I decline an invitation by the counsel for the plaintiff through his final written submission to undertake the discretionary exercise of assessing the reasonable fees payable to the plaintiff. 15 In fine, therefore, I am satisfied that the requirements of section 110 of the Evidence Act, Cap. 6 of the Revised Edition, 2002 have been met by the plaintiff establishing his appointment to render the services, and his actual rendering of the said services, facts which are not disputed by the defendant, ,. and hence his entitlement to USD 139,240. Therefore, the second issue, like the firest, is also answered in the affirmative. Accordingly, that being the stance, I enter judgment for the plaintiff and by way of an answer to the third issue, proceed to pronounce as follows: 1. The defendant shall pay the plaintiff the total amount of USD 139,240 or its equivalent in Tanzania Shillings at the exchange rate prevailing at the date of accrual of the claim; 2. The defendant shall pay the plaintiff commercial interest on the principal amount above at the rate of 10% from the date of filing this suit to the date of judgment; 3. The defendant shall pay further interest to the plaintiff on the decretal sum at the court's rate of 7% from the date of this judgment till final and full satisfaction; and 4. The defendant shall pay the plaintiff costs of this suit. Order accordingly. DATED at ARUSHA this 19th day of November, 2015. J. C. M. MWAMBEGELE JUDGE 16