[1949] EACA 2

# COURT OF APPEAL FOR EASTERN AFRICA

# Before SIR BARCLAY NIHILL, C. J. (Kenya), SIR G. GRAHAM PAUL, C. J. (Tanganyika), and EDWARDS, C. J. (Uganda)

### HARIDAS MATHURADAS VAGANI, trading as VAGANI & COMPANY, **Appellant** (Original Plaintiff)

#### ν.

# LAKHANI LIMITED, Respondents (Original Defendants) Civil Appeal No. 3 of 1949

### (Appeal from decision of H. M. Supreme Court of Kenya)

Contract of Sale-Unstamped document basis of contract-Whether note or memorandum sent by a broker to his principal or agreement or memorandum of agreement relating to the sale of goods—Stamp Ordinance (Cap. 57, Laws of Kenya), sect. 4 and Schedule, Articles 40 and 5, exemption—Admissibility in evidence, sect. 37.

The appellant sued the respondents in the Supreme Court at Mombasa for Sh. 30.058/88 alleged to be due under two contracts of sale. The basis of the claim in each case was a document. On the facts of the case the same broker was acting for each party to whom he sent forms headed "Sale Note" setting out the names of the buyers and sellers and a memorandum covering the terms of the contract. These were subsequently signed by the appellant (seller) and confirmed by the respondents (buyers). These documents were unstamped and the trial judge, prior to dismissing the suit, held on a preliminary issue that they were clearly notes sent by a broker to his principals intimating the purchase and sale respectively on account of such principals of goods of the value of over two pounds, and as such should be stamped with a 20 cents stamp under Article 40 of the Schedule to the Stamp Ordinance to be admissible in evidence.

Under section 4 of the Ordinance, save as to exemptions in the Ordinance, every instrument described in the Schedule to the Ordinance is chargeable with duty.

Under Article 40 of the Schedule a "Note or Memorandum sent by a broker or his agent to his principal intimating the purchase or sale on account of such principal of any goods of the amount or value of two pounds or over" is chargeable with a stamp duty of 20 cents, and by section 37 of the Ordinance such instrument not duly stamped is inadmissible in evidence.

On appeal to the Court of Appeal it was submitted that the contracts sued on by the appellant on the face thereof, and on the evidence, were agreements or memoranda of the agreement for or relating to the sale of goods or merchandise as between principal and principal and were therefore exempt from stamp duty under the exemptions to Article 5 of the Schedule and admissible in evidence.

The relevant exemption to Article 5 reads: "Agreement or memorandum of an agreement for or relating to the sale of goods or merchandise exclusively not being a note or memorandum chargeable under Article 40—"

Held (18-2-49.) (Per Nihill, C. J.)-(1) That whilst on the face thereof the documents contained all the relevant terms of a contract between the parties together with their<br>signatures and relating exclusively to a sale of goods or merchandise, and would be<br>exempt from stamp duty under Article 5 of the Schedule not notes or memoranda chargeable under Article 40, it was quite impossible, from the<br>form of the documents headed "Sale Note" and signed by a broker, to find that they were not notes or memoranda sent by a broker to his principals intimating the purchase and sale on their account.

(2) That the fact that the parties, by adding their signatures added something to the documents which made them also agreements or memoranda of agreement could not remove the fact that *ab initio* they were notes sent by a broker to his principals intimating a purchase and sale on their account, and therefore being instruments chargeable with duty at the time of execution, and unstamped, were inadmissible in evidence under section 37 of the Ordinance.

(Per Edwards, C. J.).—That the way to interpret the exemption in Article 5 of the<br>Schedule is this: if you have a document which is an agreement or memorandum of agreement relating to the sale of goods or merchandise it is exempt from stamp duty provided it cannot be regarded as relating to the sale of anything else, and provided also that it is not a note or memorandum chargeable under Article 40.

Appeal dismissed.

(Per Graham Paul, C. J. dissenting.)-(1) That an examination of the documents showed that each was an agreement or memorandum of agreement for or relating to the sale of goods or merchandise exclusively.

(2) That whilst at one time each document was a note or memorandum sent by a broker to his principals, by the signature of both principals to it the whole nature of the document for stamp duty purposes was changed and it became a memorandum of agreement of sale between principals, and at the time it was produced in Court it was exempt from stamp duty under Article $5$ .

(3) That all documents are only evidence of the contractual relations between the parties and they attract or do not attract stamp duty according to what they evidence, and it is irrelevant to say at some time anterior to the date when it was produced in evidence a document was something different which at that anterior time was liable to stamp duty, for the only material time is the time when it was tendered in evidence.

Cases referred to: Ralli v. Carmalli Fazal (1890) 14 Bombay 102; Matheson v. Ross (1849) 9 E. R. 1101; Ashling v. Boon (1891) 1 Q. B. 573; Evans v. Prothero 1 D. M. & G. 572; The Royal Bank of Scotland v. Tottenham (1894) 2 Q. B. 715.

### Salter for the Appellant.

Nazareth and Doshi for the Respondents.

SIR BARCLAY NIHILL, C. J.—This is an appeal from a judgment of the Supreme Court of Kenya sitting at Mombasa on a preliminary issue raised by the defendant-respondent in a suit instituted against him for breach of contract. The issue which the learned Judge in the Court below had to decide was whether a certain unstamped document tendered by the plaintiff-appellant to prove the terms of the contract was admissible in evidence or not under the provisions of the Stamp Ordinance (Cap. 57, Laws of Kenya). The learned Judge relying on the decision in Ralli v. Carmalli Fazal (1890), 14 Bombay 102, came to the conclusion that the document before him attracted a stamp of twenty cents under Article 40 of the Schedule to the Ordinance, and as it was unstamped it was inadmissible in evidence. With some hesitation and much reluctance I have come to the conclusion that the learned Judge was right. It is true that on the face of it the document contains all the relevant terms of a contract between the parties together with their signatures and the signature of the broker who was acting both for the vendor and the purchaser. Furthermore the contract thus evidenced relates exclusively to a sale of goods or merchandise. The document would, therefore, under Exemption (a) to Article 5 of the Schedule to the Stamp Ordinance, be exempt from stamp duty if it is not a note or memorandum chargeable under Article 40. It is here that my difficulty arises. I find it quite impossible from the form of the document which bears the heading "Sale Note" and the signature of the broker to find that the document was not a notification sent by a broker to each of his principals intimating to them that he had on their account contracted a purchase and sale of the goods set out in the note which exceeded in value two pounds.

There was evidence before the learned Judge that in Mombasa it is a custom for a broker to act for both parties on instructions and for the broker to send out, not a "sold note" and a "bought note" (each of which would attract duty), but one note to both parties who write their signatures at the bottom in confirmation. Several witnesses were called by the plaintiff-appellant and the general tenor of their evidence was that they as merchants would not feel themselves bound by the broker's note until they had confirmed the contract by adding their signatures either as purchaser or vendor to the note. All these witnesses however admitted in cross-examination that they knew of very few cases, if any, where the vendor or purchaser had refused to sign. However this may be, I do not see how the peculiarities of a local merchant custom can be allowed to disguise the real nature of the document. It is a commonplace to say that it is the duty of the Courts to protect the revenue and to see that the intentions of the Legislature are carried into effect. There is no evidence before us which suggests that a broker who arranges a sale of goods in Mombasa sends any other intimation to his principals other than this triplicate document and if that is not chargeable with duty then the custom is one which evades stamp duty altogether. I consider therefore that the learned Judge could not but hold that the document before him was one which should have borne a 20 cent stamp when it left the broker, that is, at the time of execution by the broker. The fact that the parties by adding their signatures added something to the document which made it also an agreement or a memorandum of an agreement for or relating to the sale of goods or merchandise, cannot in my view remove the fact that *ab initio* it was a note sent by a broker to his principals intimating a purchase and sale on their account. If I am right in this, it cannot fall under the exemption to Article 5 because it is not an agreement relating to the sale of goods or merchandise "not being a note or memorandum chargeable under Article 40".

I have considered the House of Lords case of *Matheson v. Ross* (1849) 9 E. R. 1101, which was cited to us by learned counsel for the appellant and I should like to think that the principle therein enumerated could be applied to the provisions of the Kenya Stamp Ordinance. I do not consider however that that is the case. Their Lordships, as the Stamp Acts stood in England in 1849, were able to hold that where a document purports to be something which attracts stamp duty, it may be received in evidence, if unstamped, for the purpose of providing a fact collateral to it. This case was, however, decided before the Stamp Acts of 1870 and 1891 which introduced important amendments (see note (o) to para. 952 of 28 Halsbury-Hailsham Edition at page 445). Section 14, subsection 5 (4), of the English Stamp Act, 1891, laid down that an instrument which attracted duty could not be given in evidence except in criminal proceedings, unless it was duly stamped in accordance with law in force at the time when it was first executed "or be available for any purpose whatever". There can be no doubt that this section renders many of the earlier decisions including Matheson v. Ross inapplicable.

In Donagh's commentary on Indian Stamp Law (8th Edition) the learned author at page 345 discusses the effect of section 14 (4) of the English Stamp Act, 1891, on the earlier decisions and although he concedes that the matter is not altogether free from doubt he summarizes the position since 1891 as follows at pages 346 and $347$ :—

"Under the former law the rule was that where an instrument was capable of being viewed in two different aspects, in one of which it was liable to stamp duty at one rate and in the other of which it was liable to stamp duty at a different rate, the instrument was capable of being admitted in evidence where it was relied upon in the aspect in which it was properly stamped in the other respect ...

Under the present law an unstamped document which requires a stamp cannot be received in evidence, except in criminal proceedings for any purpose whatever including a collateral purpose." (Fengl v. Fengl (1914) P. D. $274.)$

It seems to me, therefore, that the learned Judge having found, rightly in my opinion, that the document was an instrument chargeable with duty at the time of execution, was bound by section 37 of the Stamp Ordinance to declare it inadmissible for this section is as follows:-

"No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped."

$\mathbf{r}$

This section although differently worded, gives effect to the same intention as section 14 (4) of the Stamp Act, 1891. The proviso to this section has no application because the instrument was one which attracted a duty of 20 cents only. I would therefore dismiss this appeal with costs.

SIR G. GRAHAM PAUL, C. J.—The appellant was the plaintiff in a suit in the Supreme Court of Kenya. He sued the respondent, claiming payment of two amounts totalling over Sh. 30,000 alleged to be due under two contracts of sale. In regard to each of the two amounts the basis of the appellant's claim was a document. The document was unstamped. It was objected by the defendant that it could not be received in evidence as it was liable to stamp duty under item 40 of the Schedule to the Stamp Ordinance as a "Note or memorandum sent" by a broker to his principal intimating the purchase or sale on account of such principal" of goods over £2 in value. The learned Judge in the Court below upheld the stamp objection which somewhat unusually, was taken by the defendant in his statement of defence. In consequence the plaintiff was unable to proceed and the suit was accordingly dismissed without any investigation of the merits of the claim. From that decision the appellant appeals to this Court.

This appeal raises what seems to me a very simple question, namely, whether at the time they were produced in Court the documents were (a) notes or memoranda sent by a broker to his principals intimating the purchase or sale on account of such principal or, (b) agreements or memoranda of agreement "for or relating to the sale of goods or merchandise exclusively, not being a note or memorandum chargeable under" item No. 40 of the Schedule (see item No. 5 of the Schedule).

An examination of the documents shows quite clearly that each is an agreement or memorandum for or relating to the sale of goods or merchandise exclusively. Each sets out the transaction of sale and purchase, the price, and the whole terms of the agreement and each is signed by both seller and buyer. A clearer example of the agreement or memorandum specified in item No. 5 of the Schedule it would be difficult to imagine. That seems to me a simple proposition of logic and the English language.

The respondent's advocate, however, urges against that view that each of these documents was at one time a note or memorandum sent by a broker to his principals. That is so, but by the signature of both principals to it the whole nature of the document for stamp duty purposes was changed. It became a memorandum of an agreement of sale between principals. By being so changed, in my opinion, the document was taken out of the description of item No. 40 and into the description of item No. 5 and that being the position at the time it was produced in Court it was at that time exempt from stamp duty.

The respondent's advocate objects that this effect cannot follow for the reason that the signature of the document by both seller and buyer did not make any change in the contractual relations of the parties but was only a change of purely evidential value. I agree, but all documents are only evidence of the contractual relations between the parties and they attract or do not attract stamp duty according to what it is they evidence. If they evidence an agreement of sale between principals they come under item No. 5 and are exempt. If what they evidence is a memorandum by a broker they come under item No. 40 and are liable to stamp duty. It was, in my view, clearly the intention of the Legislature that agreements or memoranda of agreements of sale to which the principals -seller and buyer-took the trouble to become parties themselves should be **exempt** from stamp duty. It is only where they rely for the enforcement of those contracts on the broker's memorandum that stamp duty has to be paid.

So long as these documents were signed by the broker only and sent by him to the principals they came under item No. 40 but the position is quite different when the principals, by their signatures, convert the document into an agreement between principals. Though it is unnecessary to do so in this case, I would go so far as to say that if a seller receives an intimation of a sale from a broker and then gets it signed by the buyer confirming the sale the document is by that one signature taken out of item No. 40, and into item No. 5. I find myself unable to agree with the decision to the contrary in the case of *Ralli v. Carmalli*. quoted in argument. For the purpose of this appeal however, it is enough to say that the document being signed by both parties clearly brings it within item No. 5 and out of item No. 40.

It is true that at the time when the brokers in this case sent their memoranda to their principals the memoranda did come within item No. 40, and if there were a penalty for a broker sending an unstamped memorandum to a principal, the broker in this case would have incurred that penalty. But it is no offence for a broker to send an unstamped memorandum or contract note to his principal nor is there any penalty for so doing. The only sanction provided by the Stamp Ordinance is that the unstamped memorandum is inadmissible in evidence. In my view once the signature of both seller and buyer are added confirming the sale the whole character of the document is altered, in that it becomes a document between principals and not merely a document of the broker such as is contemplated in item No. 40.

If the Stamp Ordinance had provided the other way round from what in fact it does, namely, if the broker's memorandum were exempt and an agreement between principals were liable to stamp duty, it seems to me clear that these documents as they stood when produced in Court could not escape the stamp duty on an agreement between principals as by their signatures the principals had, by that time, converted it into an agreement between principals. When the result of the conversion is to convert the document into one which is exempt from stamp duty I think the result should be the same.

This is not the case—as in *Matheson* $v$ , Ross—where it is sought to put in evidence a document liable to stamp duty and unstamped for the reason that it is being put in to prove something different from or collateral to, the matter in respect of which it was liable to stamp duty. In my view, the case of *Matheson* v. Ross, and all the other cases on similar lines do not touch the present case. It was not sought to put in evidence a broker's memorandum to prove something different from, or collateral to, the transaction to which the broker's memorandum related. The appellant's case here, as I understand it, is that the document in question by reason of its being signed by both principals had become, before it was tendered in evidence, something quite different, namely, a contract between two principals executed by both. It is quite irrelevant, in my opinion, to say that at some other time anterfor to the date when it was produced in evidence this piece of paper was something different which at that anterior time was liable to stamp duty. The only material time is the time at which it was tendered in evidence.

In that respect this case is, in my view, quite different from *Matheson* $v$ . Ross, and other similar cases and is much nearer the case of The Royal Bank of Scotland v. Tottenham (1894) 2 Q. B. 715. That was a case relating to a postdated cheque. There is was admitted that a post-dated cheque presented before its date was liable to *ad valorem* duty in that it was not payable on sight. The cheque had been delivered to the bank before its due date arrived and at that time it was undoubtedly liable to *ad valorem* stamp duty and was not stamped. Payment of the cheque was stopped by the drawer and the Bank sued on the cheque. It was argued that when the cheque was handed to the bank two days before its date it was liable to *ad valorem* stamp duty as a bill of exchange not payable on demand, and that not having been so stamped it was inadmissible.

At the time the cheque was tendered in evidence, however, its due date had already arrived and it had become a bill of exchange payable on demand, and the Court held that it was therefore admissible. In giving the leading judgment of the Court of Appeal, Lord Esher (M. R.) put the matter thus: "Questions under the Stamp Act must be 'determined by the conditions existing when the question is raised'. An objection to a stamp has to be determined by the Judge at the trial and a stamp objection to a cheque, which is otherwise in order, that it was post-dated, could only be taken if the action comes on before the date on the cheque."

Similarly in my view of the present case the objection could be taken only if the action were brought and the document tendered before, by the signature of both principals, it had ceased to be a memorandum by a broker and had become a memorandum of agreement between the two principals.

I agree, of course, that it is the duty of the Courts to enforce Revenue Statutes. It is obviously right and proper that there should be penalties for evasions of stamp duty. But where, as in this case, a court of justice is invited to penalize a failure to stamp a document with 20 cents by dismissing unheard a civil claim for £1,500, it behaves us to examine very carefully whether this result is inevitable under the relative legislation. In my opinion it is not.

I would for these reasons allow the appeal and send the case back to the Court below with a direction that the documents were admissible in evidence.

EDWARDS, C. J.—Although, doubtless, the document in question which might primarily have been regarded as a note or memorandum sent by a broker or agent to his principal intimating purchase or sale of goods or stock did become "changed", I still feel that it became what one might call a "dual purpose" document, namely, an agreement or memorandum of agreement for or relating to the sale of goods or merchandise but I do not think that it can be regarded as being exclusively such. The purpose for which it was sought to be put in evidence may have been merely to afford evidence of a contract. Nevertheless, did it cease to be a note or memorandum chargeable under Article 40? I do not think that it did so cease. Some help may be afforded from a perusal of the report of the case of Ashling v. Boon (1891) 1 Q. B. at page 573 where Mr. Justice Kekewich referred to the case of Evans v. Prothero, 1 D. M. and G. 572. My difficulty is this, namely, how can one disregard the words in Article 5 "exclusively not being a note or memorandum chargeable under Article 40"? I feel that there ought to have been a comma after the word exclusively; but I do not think that the absence of a comma affects the matter. In my view, the way to interpret the Exemption $(a)$ is this. If you have a document which is an agreement or memorandum of agreement relating to the sale of goods or merchandise it is exempt from stamp duty provided it cannot be regarded as relating to the sale of anything else, and provided also that it is not a note or memorandum chargeable under Article 40. It is quite clear that, whatever was the purpose for which it was sought to be put in evidence, it still remained a note or memorandum of the kind mentioned in Article 40. Moreover, being such a note, it could not be regarded as "for or relating to the sale of goods or merchandise exclusively". On the other hand it might be argued that the word "exclusively" relates only to goods or merchandise as distinct from an agreement such as one for the sale of a house or land or a service or hire agreement. But, even if that be so, one again comes back to the question "Is it or is it not a note chargeable under Article 40?", then even if it has also become an agreement relating to the sale of goods or merchandise exclusively (as distinct from an agreement relating to the sale, say of a house), I fail to see how it can claim the exemption mentioned under "Exemptions Agreement or Memorandum of Agreement $(a)$ ."

$\mu$ I agree that the appeal be dismissed with costs.