(R.Jayabalan – Principal, Messrs R. Jayabalan)
Stamp duty is a form of tax imposed on various types of legal documents or instruments in Malaysia pursuant to the Stamp Act 1949 essentially to generate revenue for the government.
Sec 52 of the Act states that no instruments chargeable with duty shall be admitted in evidence or acted upon unless such instrument is duly stamped. Sec 2 of the Act defines an instrument “duly stamped” as amongst others an instrument that bears an adhesive or impressed stamp of not less than the proper amount of initial duty and that such stamp has been affixed in accordance with the law. Sec 47 of the Act requires the stamping of the instrument to be done within 30 days from its execution.
Does this mean that an instrument or agreement that was not stamped in accordance with the provisions of the Stamp Act 1949 becomes unenforceable in law and the contractual obligations under such agreement no longer binding on the parties?
This issue arose in Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors [1982] 1 MLJ 198, the appellant had filed a claim based on a letter of guarantee that was stamped late outside the 30 days period and the late stamping penalty had not been paid. The Sessions Court held that as the late stamping penalty had not been paid, the letter of guarantee was not “duly stamped” under sec 52, hence not admissible in evidence and not valid. The claim was consequently dismissed. On appeal, the High Court Judge Hashim Yeop Sani J agreed with the Sessions Court findings and dismissed the appeal.
The appellant appealed to the Federal Court. The Federal Court examined sec 52 of the Act and held that the prohibition of admissibility of an instrument on account of not being duly stamped is not an absolute prohibition but conditional upon payment of a duty or a penalty, if any, under sec 43 and 47. It was held that the guarantee could be admitted in evidence in accordance with proviso (a) to sec 52 (1) on payment of a penalty of RM25 under sec 47 of the Act. This would be in consonant with the objective of the Act to impose and collect taxes on legal and commercial documents by compelling those documents to be stamped on pain of being inadmissible.
As such, it was held that the proper recourse for the court under sec 51 when facing an unstamped document is to impound the document and to admit them under proviso (a) to sec 52(1) on payment of stamp duty or penalty, if any. Following that the appeal was allowed, judgment was entered against the respondent with further order that the letter of guarantee is to be impounded and the appellant to pay the penalty RM25 to the Registrar who will send the sum together with the letter of guarantee to the Collector of Stamp Duty for stamping and the stamping in accordance with sec 53 is to be done before the order is drawn.
The same issue came up again before the Supreme Court in American Express International Banking Corporation v Tan Loon Swan [1992] 1 MLJ 727 in a similar claim but in this case the loan agreement and the letter of guarantee had not been stamped at all. The plaintiff applied for summary judgment. In order to raise triable issues, the defendant contended that the documents had not been stamped and not admissible in evidence. The Supreme Court followed Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors and held that in such situation, it is the responsibility of the court under sec 51 to impound the unstamped document and to admit them under proviso (a) to sec 52(1) on payment of stamp duty or penalty, if any. It was further held that the court and counsel appearing before it is under an obligation to draw the court’s attention to its powers under sec 51 and sec 52(1) including its proviso. In short, the non-stamping of the documents concerned does not provide a triable issue.
The issue again came up before the Federal Court in Liputan Simfoni Sdn Bhd v. Pembangunan Orkid Desa Sdn Bhd [2019] 1 CLJ 183. This time it was concerning a Sale and Purchase Agreement that was not stamped in accordance with the additional consideration under the agreement. It was contended by the plaintiff that the SPA was void ab initio and tainted with illegality pursuant to sec 24(b) of the Contracts Act 1950. The Court rejected the contention and held amongst others that:
“[125] ….. The compliance with the Stamp Act 1949 and the Real Property Gains Tax 1976 are not the prerequisite for the second SPA to be enforceable. There is no prohibition under the two Acts to preclude the first defendant from acquiring rights to the subject land. The Stamp Act 1949 provides a penalty for breach of its provisions. Similarly, under the Real Property Gains Tax Act 1976 there are penalties for breach of its provision. In addition, it is provided that tax due and payable may be recovered by the Government by civil proceeding as a debt to the Government. The object of the two Acts is to raise revenue. There is therefore no sufficient nexus such as would satisfy the test laid down in Curragh Investment Ltd. The first defendant’s infringement of the two Acts therefore did not prevent it from suing on the contract which is legal.”
This position was reaffirmed recently in Nulink Solutions Sdn Bhd v. Mitti Power Cables Sdn Bhd & Ors [2022] 1 LNS 2116. It was contended by the defendants that the agreement therein was void as it was not stamped by referring to sec. 52 (1) of the Stamp Act 1949. The learned Judge rejected the contention and held that the agreement is clearly valid despite the non-stamping, the rights, and obligations of the parties under the agreement are clearly enforceable and that the stamping of the agreement and compliance with the Stamp Act is not a pre-requisite for the enforceability of the agreement. In so holding the learned Judge referred to the Federal Court decision in Liputan Simfoni Sdn Bhd v. Pembangunan Orkid Desa Sdn Bhd.
The non-stamping of an agreement does not provide a defence to the defaulting party. When addressing a similar objection in Tang Vee Luen @ Phillip v. Titan Energy Sdn Bhd [2021] MLRHU 493, the High Court referred to the proviso (a) to sec 52(1) of the Act and held that the prohibition against admissibility of documents is not absolute, a party is still able to stamp a document late and pay the penalty for late stamping and once that is done the document becomes admissible. The non-stamping of a document does not provide the other party with a defence, it does not mean that the contents of the document are untrue and the document in question is not invalidated.
Hence, the fact that an agreement was not stamped in accordance with the Stamp Act 1949 does not make the agreement invalid nor unenforceable. It is still valid, binding, and enforceable between the parties.
As a matter of common interest and ethical practice, the Bar strongly discourages the raising of such objections that could amount to unethical conduct by a solicitor. Rule 58 of the Legal Profession (Practice and Etiquette) Rules 1978 in respect of objections to admissibility of insufficiently stamped documents states that:
“It is contrary to etiquette to object to the admissibility of any document on the ground that it is not or not sufficiently stamped, unless such objection goes to the root of the subject matter or the suit.”
In summary, the fact that an instrument, document, or agreement is not stamped does not mean that the document is invalidated or unenforceable. Parties are still bound by the obligations under the said document and is legally enforceable. The non-stamping of documents is not a defence available to the defaulting party and solicitors generally should not raise such objection except when the objection goes to the root of the subject matter. Whenever such objection is raised the trial court and the appeal court could make the necessary orders under the proviso (a) of sec 52(1) in order to make the document admissible instead of holding the document as void or unenforceable.
R.JAYABALAN
