[1951] EACA 75

## COURT OF APPEAL FOR EASTERN AFRICA

Before Sir BARCLAY NIHILL (President), SIR NEWNHAM WORLEY (Vice-President) and LOCKHART-SMITH (Justice of Appeal)

## HARNAM SINGH, Appellant (Original Defendant)

# SADHU SINGH DHIMAN, Respondent (Original Plaintiff)

## Civil Appeal No. 50 of 1950.

(Appeal from the decision of H. M. Supreme Court of Kenya-Modera, J.)

Illegality of contract—When it may be raised—Must be proved conclusively— Defence (Sale and Purchase of Motor Vehicles) Regulations, 1945.

The appellant sold the respondent two motor-cars in 1947 and in payment received a promissory note for Sh. 5,500/-. The respondent sold a third car to one Sewa Singh and received a bearer cheque for Sh. 4,150/- which he handed over to the appellant who cashed it. The appellant negotiated the promissory note and the holder sued the respondent thereon and obtained judgment. The respondent then sued the appellant saying that the amount of the cheque for Sh. $4,150/-$ should have been credited to the payment of the promissory note but that the appellant had failed to do so.

The appellant in his defence stated that he had sold the two cars for Sh. 4,000/and Sh. 5,500/- respectively and said that he had applied the cheque to payment of the notes.

The learned trial Judge believed the story of respondent and found in his favour. The appellant appealed on the ground, *inter alia*, that the cars had been sold at a price in excess of that permitted by the Defence (Sale and Purchase of Motor Vehicles) Regulations, 1945, and the sale was therefore illegal.

Held (3-8-51).—It is the right and duty of the Court to consider illegality at any stage. But an appellate court must be cautious and consider whether the illegality is sufficiently proved. In this case the apparent illegality was capable of satisfactory explanation and the Court would not presume illegality. On another aspect of the case, however, the learned Judge's finding of fact was so unsatisfactory that there must be a re-trial.

Cases referred to: Issa and Suleiman v. Micheol & Co. (1948) K. L. R. 12; Johana Mbugwa v. Reuel E. Mwangi Mugwa (1949) E. A. C. A. 1.

D. N. Khanna for the appellant.

### Parry for the respondent.

JUDGMENT (delivered by SIR NEWNHAM WORLEY, Vice-President).—This is an appeal from a judgment of the Supreme Court of Kenya awarding the respondent Sh. $4,150/-$ with consequential orders as to interest and costs, this being the amount claimed by the respondent (plaintiff in the Court below) as money had and received by the appellant to his use.

The claim arose out of the sale of two motor-cars by the appellant to the respondent in July-August, 1947. The respondent's case was that he bought the two cars for the sum of Sh. $5,500/-$ and paid for them by executing a promissory note in the appellant's favour for that sum on 14th August of that year, that he subsequently sold a third car to one Sewa Singh and received a bearer cheque for the purchase price Sh. $4,150/-$ ; this cheque was handed over to the appellant, who cashed it on August 29th. The respondent alleged that the amount so received by the appellant was to be credited to the promissory note but that the appellant failed to do so.

The appellant had previously negotiated the promissory note for Sh. 5,500/and the holder had sued thereon and recovered judgment against the respondent.

The appellant in his defence admitted the sale of the two cars to the respondent but alleged that they were sold for Sh. 4,000/- and Sh. 5,500/- respectively, and that the respondent executed two promissory notes for these amounts. He also admitted receipt of the cheque for Sh. 4,150/- but alleged that the proceeds had been applied, as to Sh. 3,500/-, in payment and discharge of the balance then due on the promissory note for Sh. 4,000/- (which was returned to the respondent and destroyed) and the remaining Sh. 650/- paid over to the respondent.

The learned trial Judge regarded the case as involving simple issues of fact only, rejected the appellant's evidence which he characterized as unworthy of any credence and accepted the evidence of the respondent and his witnesses. He found that the cheque was given to the appellant in part satisfaction of the promissory note for Sh. 5,500/- and was not in fact used partly in discharge of the promissory note for Sh. $4,000/-$ alleged to have been made by the respondent. The Court gave judgment for the respondent accordingly.

The grounds of appeal are: $-$

- "(1) The learned Judge's conclusions of fact are unsupported by evidence, and where so supported are unreasonable, and are generally against reasonable inferences to be drawn from proved facts. - (2) The promissory note for Sh. $5,500$ /- was exposed by the evidence to have been given for an illegal transaction, and any payment of the said pronote was a payment against an illegal transaction and was irrecoverable and should have been so held, and the learned Judge was in error in not taking cognizance of the illegality, as was both his right and duty in the matter."

In support of the second ground of appeal, Mr. Khanna, counsel for the appellant, cited the decision of the Supreme Court of this Colony in Issa and Suleiman v. Micheol & Co. (Civil Appeal No. 17 of 1948) and the judgment of this Court in Johana Mbugwa v. Reuel E. Mwangi Mugwa (Civil Appeal No. 16 of 1948). The facts relevant to this ground of appeal are that at the date of the transaction the acquisition and disposal of motor-cars was controlled by the Defence (Sale and Purchase of Motor Vehicles) Regulations, 1945, which prohibited the sale or purchase of a vehicle otherwise than in accordance with the terms of a permit stating the maximum permissible price, any contravention being made a criminal offence by Regulation 11.

The evidence led for the respondent showed that the maximum permissible prices for the two cars were £118 and £136 respectively, totalling Sh. 5,080/- prima facie, therefore, a sale at Sh. 5,500/- would appear to be an infringement of the regulations and it is upon this alleged illegality that the appellant relies.

The principle which the Courts follow in such a case is set out in paragraph 209 of the Hailsham Edition of Halsbury's Laws of England Vol. VII at page 148:-

"If the illegality of a transaction is brought to the notice of the Court, whether the contract ex facie shows illegality, or it appears in the course of the proceedings, and the person invoking the aid of the Court is implicated in the illegality, the Court will not assist him, even if the defendant has not pleaded the illegality and does not wish to raise the objection."

The first observation I would make on this is that although, when an action is brought upon a contract and the point is not taken by the defendant that the contract is illegal the Court will itself in a proper case intervene and refuse to enforce the contract, yet this does not, in my view, relieve the defendant of the

Y

necessity for pleading illegality when that issue is raised plainly by the facts alleged in his defence. This issue is not always a simple one and it should be raised at the earliest possible stage of the proceedings to give fair notice to the other party and to the Court. Failure to do so, while not preventing the intervention of the Court, may result in the defendant being deprived of his costs. In the present instance, if the defence were true, the two cars were sold at prices grossly exceeding the permitted maxima and the appellant must have been aware of this. There would seem to be no excuse for his failure to plead illegality.

The second observation I have to make is that, although it is the right and duty of the court to consider illegality at any stage yet, when it has not been pleaded and not raised in the Court below or, at best, only raised at a late stage, an appellate court must be cautious and must consider whether the alleged illegality is sufficiently proved and must be satisfied that if there are matters of suspicion in the plaintiff's case, an opportunity was given for explanation and defence. This, I respectfully suggest, is the effect of the judgment delivered by Lord Halsbury, Lord Chancellor, in the Privy Council and Another v. Consumers' Codage *Company* (1903), 89 L. T. 347 at page 349 of the report the Lord Chancellor said: —

"At the same time, when one considers that neither at the original trial nor at any subsequent period was any evidence offered on the question of illegality, it is impossible to resist the cogency of the argument of counsel that he has not had an opportunity of meeting the allegations that are suggested against his client. As already stated, the circumstances are fraught with suspicion; but, suspicious as they are, they may, nevertheless, be susceptible of explanation, and, if so the opportunity for explanation and defence ought to have been given. That has not been done; and whatever may be the suspicions that their Lordships in common with the learned Judges below, may entertain upon the subject, mere suspicion, without judicial proof, is not sufficient for a court of justice to act upon."

In the present case the question of illegality was not mooted until appellant's counsel addressed the Court after the close of his client's case although the discrepancy between the price paid and the permitted maximum was obvious before the respondent's case was closed. The transaction in the present case was not illegal per se, the necessary permits having been obtained, nor is the discrepancy amount so great as to suggest irresistibly a black-market sale. the in Assuming for our present purposes the truth of the respondent's case, there is not, in my opinion, sufficient evidence before us to justify the conclusion that there was a contravention of the Regulations. Counsel for the respondent has stated that the matter is capable of satisfactory explanation: whether that be so or not, an opportunity for explanation and defence ought to be given and has not been, and in my view this court ought not to reach any conclusion on the matter.

Turning now to the first ground of appeal, I do not find much assistance in the brief judgment written by the trial Judge. On this aspect he says:

"There are involved in this case simple issues of fact only. Though the case has taken a considerable time in the hearing I find no occasion to write a lengthy or detailed judgment for the reason that I am quite unable to believe the sworn testimony of the defendant. He has so palpably lied as to the incidence of the Sh. 170/- cheque and other matters, which I need not detail, as to make him in my view unworthy of any credence.

The onus is upon the plaintiff, who by his own testimony and that of his witnesses has discharged that onus."

The principles upon which an appellate court will act when asked to disturb the findings of fact of a Judge, who has had the advantage of observing the

demeanour of the witnesses and the drift and conduct of a case, are well settled and need not be repeated here. But where it is apparent that the trial Judge's opinion of the credibility of a witness is based upon a conflict between the oral testimony of the witness and documentary evidence in the case, and it further appears that the Judge has either misunderstood the effect of the document or improperly admitted it in evidence, then an appellate court must be free to review his conclusions.

In the present case, the learned Judge's notes include comments on the unsatisfactory demeanour of the appellant as a witness and I unhesitatingly accept those, but I cannot resist the conclusion that he has failed to appreciate the effect of the evidence relating to the cheque for Sh. $170/-$ to which he specifically refers. The respondent had sworn that, besides handing over the cheque for Sh. $4.150/-$ , he had given appellant three other cheques on account of the promissory note for Sh. 5,500/- namely cheques for Sh. 343/-, Sh. 170/- and Sh. 217/50, but he did not produce the cheques for the first two amounts. The appellant admitted the receipt of those two sums but swore that they were in respect of other transactions, the Sh. 170/- being in payment for goods supplied in January, 1948, for which he produced a copy of the receipt. He was then shown a cash cheque dated 24th March, 1948, for Sh. 170/- drawn by the respondent and endorsed "Harnam Singh" but denied that this signature was his (exhibit 1). The signature is clearly in a different handwriting to that endorsed on the cheque for Sh. 343/- which appellant admitted was his. The respondent had not identified the cheque and the position therefore was that the cheque (exhibit 1) should not have been received as an exhibit and there was no admissible evidence to justify the Judge's conclusion that the appellant's testimony on this point was untruthful.

In addition to this there were some "glaring improbabilities" in the respondent's case to which the judgment makes no reference, and in the result, I am forced to conclude that the learned Judge's findings of fact are so unsatisfactory that they afford no sure basis for any decision.

For these reasons, I would allow the appeal, setting aside the judgment appealed from and order a re-trial before another Judge. The appellant to have his costs of the appeal but the costs of the abortive trial to be in the discretion of the Judge who hears the re-trial of the case.

SIR BARCLAY NIHILL, President.—I have had the advantage of reading the judgment just delivered by the learned Vice-President and for the reasons he has given with which I concur I am also of the opinion that this is a proper case for a re-trial. An order will be made in the terms he has proposed.

LOCKHART-SMITH, J. of A.-I concur also.