IN THE SOLOMON ISLANDS COURT OF APPEAL	
		
Nature of Jurisdiction: 	Appeal from Judgment of the High Court of Solomon Islands (Mwanesalua J)	
		
Court File Number:	Civil Appeal Case No.CA. 41 of 2011 - (On Appeal from High Court Civil Case No: 378 of 2011)	
		
Date of Hearing: 	28 March 2012	
Date of Judgment: 	30 March 2012	

The Court:	Sir Robin Auld, President	
	Sir Gordon Ward, JA	
	Justice Michael Adams	
		
Parties: 	Great Woods Limited - Appellant 	
		
	-V-	
		
	Springhill Limited  - 1st Respondent	

	Toronto Connections (SI) Limited - 2nd Respondent	
		
Advocates:		
Appellant: 	J Sullivan QC & E Soma	
Respondent 1: 	Gabriel Suri	
Respondent 2: 	No Appearance	
		
Key Words:	Stamp Duty – whether contract duly stamped – whether nominal or ad valorum duty payable – whether executor contract or transfer of property – indemnity costs – necessity for reasons	
	 	
Ex Tempore/reserved: 	RESERVED	
		
Allowed/Dismissed:	ALLOWED	
		
Pages: 	10	

JUDGMENT OF THE COURT

Introduction

1. On 22 September 2011 Springhill Limited (the claimant), commenced proceedings in the High Court against Toronto Connection (SI) Ltd (the defendant) to recover the sum of $1,640,195.10 against the defendant plus interest. On 23 September the claimant obtained an order ex parte restraining “the defendant, by itself, its directors, shareholders or agents from removing or dealing with (including sale) 15 specified items, comprising motor vehicles and other heavy equipment (the machinery). The matter was returnable on 10 October 2011. On the return date Great Woods Limited (the applicant) applied for orders that it be joined to the principal proceedings for the limited purpose of seeking to have the freezing order set aside in respect of all the machinery except for one item (a wheel loader) and setting aside the freezing order to the same extent. On 10 October, the applicant was joined as a defendant in the principal proceeding and the hearing of the application was adjourned to 19 October 2011. 

2. The ground of the application was that the applicant had, prior to the making of the freezing order, acquired ownership of the equipment from the defendant. In order to establish the change of ownership, the applicant relied on a “Sales and Purchase Agreement” (the agreement) dated 13 September 2011. Ownership was transferred on 15 September 2011 when the balance of the purchase money was paid. Stamp duty of $50 had been paid on the agreement but the claimant contended that ad valorum duty should have been paid, with the result, under s 9 of the Stamp Duties Act that the agreement was ineffectual as a transfer of property and was, at all events, inadmissible. 

3. On 4 November 2011 the High Court held that ad valorum duty was payable, and, since it had not been paid, the agreement was ineffectual or inadmissible and dismissed the application. It ordered return of the machinery to the claimant for safe-keeping. Indemnity costs against the applicant but without reasons. The applicant appeals to this Court from these orders.

Stamp Duties Act

4. The relevant provisions of the Stamp Duties Act (the Act) are as follows – 

2. In this Act unless the context otherwise requires – 

…

"transfer on sale" includes every document and every decree, certificate or order of any Court or of any judge whereby any property or any estate or interest in any property upon the sale thereof is transferred to or vested in a purchaser or any other person on his behalf or by his direction.

Documents not duly stamped inadmissible

9. No document executed in Solomon Islands or relating, wheresoever executed, to any property situated in Solomon Islands or to any matter or thing done or to be done in Solomon Islands, shall, except in criminal proceedings, and in civil proceedings by a Collector to recover any duty or penalty under this Act, be pleaded or given in evidence or admitted to be good, useful or available in law or equity unless it is duly stamped in accordance with the law in force at the time when it was first executed.

SCHEDULE

11. Transfer (other than a transfer otherwise specifically charged) of any property whatsoever or of any interest therein, upon the consideration (not being a nominal consideration) or, when there is no or a nominal consideration, upon the amount or value of the property or interest transferred-

(i) where the consideration or amount exceeds $10,000 but does not exceed $25,000	2%	
		
(ii) where the consideration or amount exceeds $25,000 but does not exceed $50,000	3%	
		
(iii) where the consideration or amount exceeds $50,000 	4%	

Companies Act 2009

5. The relevant provision of the Companies Act 2009 is as follows – 

Pre-incorporation contracts may be ratified

110. (1) In this section and in sections 111 and 112, "pre-incorporation contract" means—

(a) a contract purporting to be made by a company before its incorporation; or

(b) a contract made by a person on behalf of a company before, and in contemplation of, its incorporation. 

(2) Despite any written law or other law, a pre-incorporation contract may be ratified by the company within any period that may be specified in the contract, or if no period is specified, within a reasonable time after the incorporation of the company in the name of which, or on behalf of which, it has been made.

(3) A pre-incorporation contract that is ratified is as valid and enforceable as if the company had been a party to the contract when it was made.

(4) A pre-incorporation contract may be ratified by a company in the same manner as a contract may be entered into on behalf of a company under section 103.

(5) Despite any other Act, if a pre-incorporation contract has not been ratified by a company, or validated by the Court under section 112, the company may not enforce it or take the benefit of it.

The proceedings in the High Court

6. Evidence was led by affidavit by a director of the applicant, and not contested, that the applicant had entered into the agreement on 13 September 2011, having on 2 September 2011 paid SBD1 million as a deposit on the purchase price. Handover had been effected on 15 September and the balance of USD758,000.04 was paid on 18 September. The director deposed that the applicant had no knowledge of a claim made by the claimant or any other person in respect of the machinery, otherwise he would not have entered into the agreement on behalf of the company; in short, that the company purchased the equipment in good faith and without notice of the claim.

7. It also appeared that the applicant, though it had executed the agreement under the company’s common seal, was in fact not incorporated until 26 September 2011. On 18 October 2011, however, the agreement was ratified in accordance with s 110 of the Companies Act 2009. It was not controversial that the requirements of that Act had been satisfied.

8. In substance, the case turned on two issues. The first was whether the agreement was duly stamped in accordance with the requirements of the Stamp Duties Act. This question depended upon whether the agreement was merely one of sale or actually effected the transfer of the machinery. The second question was the effect, if any, of the freezing order on the ratification of the agreement by the Board of the applicant company.

The judgment

9. The learned primary judge referred first to s 17 of the Sale of Goods Act 1893 (UK), which provides, in substance, that where there is a contract for sale of specified goods, the property in them is transferred at the time the parties intend, bearing in mind the terms of the contract, the conduct of the parties and the circumstances of the case. Consequently, as the agreement provided for the occasion of the transfer of the machinery, it should be understood to have brought the transfer about and thus is dutiable as a transfer of property. Accordingly, s 9 of the Act applies to render it inadmissible. His Lordship also appears to have accepted the submission by the claimant that “the court will not lend its aid to enforce a contract into with the view of carrying into effect anything which is prohibited by law” and that the agreement was an illegal contract because ad valorum duty was not paid on it. His Lordship did not discuss the actual terms of the agreement, merely observing that “it is … obvious that the [applicants] have not complied with the relevant provisions of the Stamp Duties Act … [and] the court will not sanction their Sale Agreement for non-compliance … [with the Act]”.

Discussion

10. If the agreement operated as a transfer, it was conceded by Mr Sullivan QC for the applicant that, ad valorum duty was payable, had not been paid and the agreement was inadmissible. It is therefore essential to consider the terms of the agreement. Following certain (irrelevant) warranties by the seller, the agreement recites –

“The seller hereby agrees to sell and the buyer agrees to buy and take away [the machinery] on ‘as is where is basis’ upon the term[s] and conditions hereinafter stipulated.”

11. Clause 1 provides that, in consideration of the purchase price, “the seller shall sell to the buyer and the buyer shall buy from the [seller]” the specified machinery. Clause 2 provides that the purchase price “shall be payable .. in the following manner”. The following clauses are crucial – 

3. The seller is obliged to hand over the [machinery] to the buyer upon receipt of full payment of the purchase price.

4. All the risks of the [machinery] shall pass to the buyer from the date of the handover of the physical possession of the [machinery] by the seller.

5. After full settlement is paid to the seller, the buyer is the lawful owner of the [machinery].

12. Mr Suri, for the claimant, relying in particular on clause 5, submits that the agreement, in substance, is a conditional transfer and that this clause operates to transfer the ownership when the condition of full payment is made. He also submitted that the Schedule attaches ad valorum duty to the occurrence of a transfer as a transaction rather than to a document. Thus, here, there was such a transfer or purported transfer but evidence could not be given of it because of s 9 of the Act. 

13. Mr Sullivan QC, on the other hand, submits that clause 4 merely records the parties’ agreement as to the effect of payment and hand over and does not itself effect the transfer. He points to the executory character of the agreement as demonstrating that the parties agreed to a transfer of the machinery but it does itself effect that transfer. He points to the result of, say, the failure to pay or the failure to deliver. Does that mean that what was at one stage a transfer then is not? Of course, if the agreement operated as transfer, such a failure would not matter and the parties could have their action for breach. However, the property would in that event have been transferred, despite the lack of handover or the requirement in clause 5 that ownership did not pass until payment in full. We do not see how this is a correct construction of the agreement. The agreement did not effect a transfer since, as is obvious from its terms, a failure to hand over or a failure to pay would leave the property in the machinery with the seller. We note also that the definition of “transfer on sale” which – although the term is actually not used at any other point in the Act – suggests that there is a distinction between transfer and sale, and that a mere sale agreement, such as that here, is not dutiable except as an agreement upon which nominal duty is payable. 

Conclusion

14. In our view, although the agreement envisages a transfer of the property in the machinery, the transfer does not occur by virtue of the agreement but by the payment on the one hand and the hand over on the other, with an acknowledgment that by this means the buyer becomes the owner of the machinery. Moreover, the Act imposes duty on instruments and not transactions, as is made clear by s 3 of the Act, which refers to the sums payable “in respect of the several documents specified in the … Schedule … [which duties are] denoted by affixing … adhesive stamps to … or impressing a die … upon the said documents” (emphasis added), and s 9 deals with the effect on documents of a failure to duly stamp it, not with any effect on transactions though, of course, if a document is ineffectual, that might have consequences for transactions; thus, the mere fact that a transfer of property occurred does not create a liability to ad valorum duty unless the document effected it. 

15. It may be that, if the agreement did purport to transfer the property in the machinery, it would not only have been inadmissible but also ineffectual (see, for example, Dent v Moore (1918-19) 26 CLR 316, in which a number of English authorities are discussed) but it is not necessary for us to consider that question to dispose of this appeal. 

16. Brief reference should be made to s 11 of the Act which provides that “every document which affect [sic] a transfer of property shall accompany a valuation certificate from a certified valuer”. We are satisfied that that “affect” is a typographical error for “effects”. This would accord with the scheme of the Act which only imposes ad valorum duty on documents that actually operate as transfers. Other documents are subject to nominal duty. Thus many documents might “affect” a transfer of property which fall into the latter class and there can be no reason for requiring a valuation in such cases.

17. So far as ratification is concerned, s 110(3) of the Companies Act 2009 (3), provides that the contract “is as valid and enforceable as if the company had been a party to the contract when it was made”. Accordingly, when it was ratified, the contract became effective from the date it was executed. 

18. Of course, even if the property had not passed before the freezing order came into effect, if the agreement had been entered into prior to the freezing order it should have been varied to except the machinery, having regard to the rights of the applicant as a bona fide purchaser for value without notice. In the event that the purchase price or part of it had not been paid, the claimant would have been able to obtain an order freezing those monies in the defendant’s hands.

19. Brief mention should be made of the order for indemnity costs. Rule 24.10 provides that costs are normally to be awarded on a standard basis unless the court orders the costs to be awarded on an indemnity basis. Rules 24.11 to 24.13 provide for the circumstances in which indemnity costs may be ordered. Except where the costs are to be paid out to a trustee or out of a fund (Rule 24.11 (a) and (c), such orders are in effect confined to cases where a party has acted inappropriately, such as failing to comply with the order of the court (24.11(b)), the party has deliberately prolonged the proceedings or conducted the case in a way that increased costs without good reason (24.12(a) and (c)), misused the litigation process (24.12(b)), unreasonably refusing to settle where the offer was greater than the outcome (24.12(d)). Where, in the absence of an application by a party, a court is contemplating making an order otherwise than the standard order for costs, it seems to us essential that the judge should inform the parties that such a course is under consideration and provide an opportunity for them to make submissions on the point. An order for indemnity costs can have significant financial consequences. Where such an order is made, the reasons for doing so must be clearly stated. Aside from the general responsibility of a court to give adequate reasons for decisions that affect the rights of litigants, it is necessary to do so to enable this Court appropriately to exercise its jurisdiction to correct error.

20. It follows therefore that the appeal must be upheld. The question which then arises is whether the matter should be remitted for a new trial. We have concluded that, given the nature of the point in issue and the limited evidential basis upon which the case was conducted, there is nothing to be gained by remitting the matter for rehearing. It was, in effect, agreed below that, if the agreement was duly stamped, the property in the machinery had passed prior to the making of the freezing order. That is the effect of the construction of the agreement and the uncontroversial evidence of payment and handover. 

Orders

1.	The appeal is allowed.
2.	The orders of the High Court are quashed.
3.	The freezing order is amended to exclude the following items:

A. EXCAVATOR (SKIDDING) – 
1.	Hitachi Zaxis 200-3F number HCM1UD100A00203902;
2.	Hitachi Zaxis 200-3F number HCM1UD100A00205876;
3.	Hitachi Zaxis 200-3F number HCM1UD100T00206015;

B. BULLDOZER –
4. CATD6D number K02423;
5. Komatsu D70-LE number J10392-1997
6. Komatsu D70-LE number 45563;

C. WHEEL LOADER –
7. CAT 966E number 35S02632;
8. CAT 966C number 78G4421 Eng: 44V18044;

D. MOTOR GRADER –
9. Komatsu GD500R-2 number 11344;

E. LOGGING TRUCK – 
10 MEDZ 3836 number 4821; 
11. Nissan number ENG: RE10-00166;

F. DUMP TRUCK
12. Nissan (colour: dark blue) number ENG: RE8;

G. VEHICLE AND PICK UP
13. Toyota Landcruiser number HZJ75-0032525;
14. Toyota Landcruiser number HZJ75-0038779 (no engine);
15. Toyota Landcruiser number HZJ75.

4. The respondent is to pay the appellant’s costs here and at first instance. We certify for Senior Counsel.

Sir Robin Auld
President

Sir Gordon Ward, JA
Member

Justice Michael Adams, JA
Member