OLATIBOYE v. CAPTAN [1968] GLR 146

DIVISION: HIGH COURT, ACCRA

DATE: 12 FEBRUARY 1968

BEFORE: AMISSAH J.A.

NATURE OF PROCEEDINGS

ACTION to recover the value of diamonds sold to the defendant. The facts are set out in the judgment of Amissah J.A. sitting as an additional judge of the High Court.

COUNSEL

J. C. Armah for the plaintiff.

P. A. Adjetey for the defendant.

JUDGMENT OF AMISSAH J.A.

The plaintiff has brought this action to recover the sum of N¢14, 250.00 being the value of diamonds which he said he sold to the defendant which the latter has refused to pay. The defendant denies the sale. Mr. Adjetey has raised a preliminary point on the defendant’s behalf which counsel says will quickly put and end to the controversy without going through a full scale trial on the merits. The contract of sale, if there was one, which is denied, is said to be unenforceable because it was founded on an illegality which the plaintiff cannot avoid relying upon if he is to succeed in his action.

That the court will not assist a plaintiff to recover on an illegal contract is sound law: see per Lord Mansfield C.J. in Holman v. Johnson (1775) 1 Cowp. 341 at p. 343 and Ramia v. Chiavelli [1967] G.L.R. 737. The illegality complained of in the instant case is

[p.148] of [1968] GLR 146 that the plaintiff has in selling diamonds contravened the provisions of the Diamond Mining Industry Protection Ordinance, Cap. 152 (1951 Rev.), which forbids the sale of diamonds without a licence. It is not averred in the statement of claim that the plaintiff had a diamond seller’s licence. What is averred is that he had a diamond digging licence under which he won the diamonds. This licence however was admitted to have expired at the time that the sale took place. There had been no time to renew it before the sale. Mr. Adjetey’s submission is that if the sale was conducted under the authority of the digging licence, then on the plaintiff’s own showing, the authority was exhausted at the material time. But in any event a digging licence is not the same as a diamond selling licence without which no legal sale of diamonds can take place. In answer to this submission, Mr. Armah for the plaintiff has argued firstly that if some illegality arises in connection with the procedure on the sale of diamonds then this cannot be determined before the evidence has been heard. Whether the plaintiff was armed with the appropriate licence or not at the time of the sale is a matter which the court may become aware of only after hearing the evidence. Until such time the plaintiff’s legal capacity or otherwise in disposing of diamonds by sale may not be known to the court and in this respect the preliminary point taken is therefore premature. Mr. Armah has also argued that if any illegality arises out of a sale without the. necessary licence this is not of such a nature as would render the contract itself illegal and therefore unenforceable. For this proposition he relies on the cases of Learoyd v. Bracken [1894] 1 Q.B. 114, C.A.; Smith v. Mawhood (1845) 14 M. & W. 452 and St. John Shipping Corporation v. Joseph Rank Ltd. [1956] 3 All E.R. 683. In Smith v. Mawhood (1845) 14 M. & W. 452 certain provisions of the English Excise Licences Act, 1825 (6 Geo. 4, c. 81), which subjected to penalties a manufacturer of or dealer in or seller of tobacco who had not got his name painted on his entered premises in a specified manner or who manufactured, dealt in, retailed, or sold tobacco without taking out the licence required for the purpose, were relied on to avoid a sale of tobacco made by a manufacturer or dealer who had not complied with the requirements of the provisions. It was held that as the effect of the provisions was merely to impose a penalty on the offending party for the benefit of the revenue, they did not make the contract of sale illegal. The court, however, drew the distinction between such provisions and provisions of a statute which indicate the intention of the legislature to prohibit the contract itself. In this latter type of case, even though, the penalty incidentally benefited the revenue, the contract would nevertheless [p.149] of [1968] GLR 146 be illegal and unenforceable. Alderson B. at p. 464, said on this point:

“The question is, does the legislature mean to prohibit the act done or not? If it does, whether it be for the purposes of revenue or otherwise, then the doing of the act is a breach of the law, and no right of action can arise out of it.”

The broker in Learoyd v. Bracken [1894] 1 Q.B. 114, C.A. who made purchases and sales on the London Stock Exchange for his principal was not prevented from recovering commission on such purchases or sales by an omission on his part to transmit to his principal the stamped contract notes in conformity with the Customs and Inland Revenue Act, 1888 (51 & 52 Vict., c. 2), s. 17 (1). The contract between the broker and his principal was that the former should make a valid and binding contract, and should be entitled to receive the usual commission thereon. The view was taken by the court that so far as concerns the validity of the contract what the broker omitted to do had no effect. In his judgment, Lord Esher M.R. said at p. 117, “The Act has imposed a duty on contract notes and a penalty for not stamping them; but that penalty is the only punishment for breach of the duty to stamp such a contract note which the legislature has thought proper to inflict. The broker was liable to that penalty every time he failed to send a contract note duty stamped; but that default of his has nothing to do with the contract between him and his principal, and was wholly independent of it.”

These were cases where the object of the enactment was found to be primarily for the raising of revenue. Not quite the same considerations applied to the third case cited.

In St. John Shipping Corporation v. Joseph Rank Ltd. [1956] 3 All E.R 683 the plaintiffs conveyed a cargo of bulk wheat under a contract of carriage from America to England, in a ship which, when bunkered with fuel sufficient for the voyage, submerged the load line contrary to the Merchant Shipping (Safety and Load Line Conventions) Act, 1932 (22 & 23 Geo. 5, c. 9). The maximum fine, amounting to £1,200 was imposed on the master in respect of this offence, but the freight earned by the excess wheat carried was £2,295. The defendants were endorsees of bills of lading in respect of part of the cargo, which had been safely delivered. But, in view of the overloading, they withheld £2,000 of the total freight contracted to be paid by them.. On a claim by the plaintiffs for the balance of the freight the defendants contended that the contract was unenforceable by the

[p.150] of [1968] GLR 146 plaintiffs by reason of illegality, namely, the overloading. But it was held that the plaintiffs were entitled to the balance of the freight because in the first place, the loading of the ship so as to submerge the load line was an infringement of law that was not contemplated by the contract and, on the true construction of the Act of 1932 the contract for the carriage of goods in the ship was not within the ambit of the prohibition against overloading enacted by the statute, which accordingly did not render the contract unenforceable for illegality. Secondly the plaintiffs did not need to prove the illegal act, namely, the overloading, in order to recover the freight, as it was enough to prove that the goods were delivered safely. And finally the plaintiffs were not barred from recovering the freight by the fact that the overloading was a crime, as the right to the freight was not brought into existence by the crime which affected only the total amount of freight earned, and no part of the claim for freight could be identified clearly as being the excess illegally earned. In a very illuminating judgment, Devlin J. (as he then was) stated the principles relating to the enforceability of contracts affected by illegality in the following manner at p. 687:

“There are two general principles. The first is that a contract which is entered into with the object of committing an illegal act is unenforceable. The application of this principle depends on proof of the intent, at the time the contract was made, to break the law; if the intent is mutual the contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who is proved to have it … The second principle is that the court will not enforce a contract which is expressly or impliedly prohibited by statute. If the contract is of this class it does not matter what the intent of the parties is if the statute prohibits the contract, it is unenforceable whether the parties meant to break the law or not. A significant distinction between the two classes is this. In the former class one has only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract; if a contract is deliberately made to do a prohibited act, that contract will be unenforceable. In the latter class, one has to consider not what acts the statute prohibits, but what contracts it prohibits; but one is not concerned at all with the intent of the parties; if the parties enter into a prohibited contract, that contract is unenforceable.” From these cases learned counsel for the plaintiff advances the following propositions. Some of them are unexceptionable. But others appear all too facile an application of the principles now stated. First, that it is not every infringement of a statutory provision that

[p.151] of [1968] GLR 146 makes a contract illegal and therefore unenforceable. That where the act contemplated by the contract is prohibited subject to a penalty which is for the benefit of the revenue merely, the contract may be enforced. Thus far there is nothing to complain of. But he then continues, in the instant case the requirement that a licence be obtained as a pre-condition for the sale of diamonds in only a provision for the benefit of the revenue as fees for the licences have to be paid. In any event section 11 of Cap: 152 provides a penalty for the contravention of the Ordinance and that should be the total liability to be suffered by the guilty party. It is, according to him, an adequate remedy for an infringement of the provisions of the Ordinance. A proper appreciation of these latter propositions must depend upon the actual terms of the provisions of Cap. 152. The Ordinance itself states as its objective “An Ordinance for the more effectual prevention of illicit dealings in diamonds.”

Section 3 (1) provides that:

“3. (1) Subject as hereinafter provided—

(a) no person shall sell any diamonds, and

(b) no person shall without the licence of the Minister, or otherwise than in accordance with the tenor therefore and with such terms and conditions as the Minister may in such licence specify, purchase any diamonds or export any diamonds for sale.”

It is interesting to note that while paragraph (a) of the above sub-section places an almost absolute ban on the sale of diamonds, paragraph (b) by contract bans the purchase of diamonds without licence. The way and manner in which a finder of diamonds may dispose of them is laid down in section 4. The finder must, if he proposes to dispose of them, immediately report his finding to the district commissioner (or administrative officer) of the district in which the diamonds were found or the officer-in-charge of the Government Diamond Market at Accra it the dealer is confined to operating at that market and must deposit the diamonds with a dealer duly licensed under section 3 of the Ordinance. The dealer has to retain the diamonds pending the issue of a licence for their disposal. After necessary inquiries a licence may be given to the finder authorising him to dispose of the diamonds to or through the agency of a duly licensed diamond dealer. This is the procedure which must be followed, otherwise no finder of diamonds may dispose of them for valuable consideration. And the burden of proof lies on the finder to prove to the satisfaction of a court that a disposal [p.152] of [1968] GLR 146 was made without valuable consideration. If not, every disposal is presumed to have been made for such consideration.

From the provisions referred to, it seems to me that the object of the Ordinance is not so much to benefit the revenue as to regulate dealings in diamonds. The Ordinance seeks to restrict and therefore to control diamond dealings, not to make money for the revenue. If its prime object were to raise revenue one would expect to obtain the licence to sell for example as a matter of formality. But that is not the case. The officer to whom the report of the finding is made and who is authorised to give the licence is rather placed under a duty to make such inquiries as he deems expedient and to be satisfied as to the good faith of the person reporting the finding. One would expect that more people would be encouraged to buy licences. There would be in that case, for example, no need to tie the grant of a licence to an actual finding; anyone wanting to set himself up as a diamond seller ought to be able to get himself a licence for the purpose. And it seems a bit curious that for an enactment passed purposely to raise revenue the question of fees should be so incidentally dealt with as is done in this Ordinance. Section 15 (1) gives the Minister responsible power to make regulations for the further, better, or more convenient effectuation of the provisions or purposes of the Ordinance, including the imposition of fees. This subsection merely permits the minister to prescribe fees. It does not compel him to do so. He may, therefore, choose not to exact any fees. The point is even more forcefully driven home by a look at the specimen licence forms contained in the Schedule to the Ordinance. Two of the specimens, forms B and C, happen to be for licences to dispose of diamonds. Not only those two but each of the specimen licences states on its face that it is “issued free.” This seems to be a standing contradiction of the argument that the object of the Ordinance is to benefit the revenue. I am therefore driven to the conclusion that the Ordinance was enacted simply to prevent any sale of diamonds except in the manner prescribed by it. Any purported sale which contravenes it is illegal and in terms of the analysis of Devlin J. in St. John Shipping Corporation v. Joseph Rank Ltd. (supra) is a contract which is prohibited by the statute. It is therefore unenforceable. I do not think that the penalties prescribed under section 11 for offences committed under the Ordinance make any difference to this my conclusion. That section provides that for a contravention of a provision for which no lesser penalty is expressly prescribed, the offender shall be liable to imprisonment with or without hard labour for a term not exceeding three years, or to a fine not exceeding £G300 (N¢600.00) or to both, if the conviction be on information which nowadays is the indictment, or to a term not exceeding one [p.153] of [1968] GLR 146 year, or to a fine not exceeding £G100 (N¢200.00) or to both, if the conviction be summary. No lesser penalties have been prescribed for any contravention of the provisions on the sale of diamonds. That the offender should be liable to go to prison for an infringement of this provision is in itself some argument against revenue being the primary concern of the Ordinance. I am sure the legislature would then have been quite content to impose further pecuniary penalties for breaches of the law. But further, section 11 makes the prescribed penalties independent “of any other liability.” I think the word “liability” here is used loosely enough to cover the disability which the offender is placed under from recovering through the courts for any damage suffered through his illegal act. Lord Esher’s words in Learoyd v. Bracken quoted earlier do not therefore seem to me to be applicable to this case. But the question is whether the plaintiff should at this stage be denied a right to sue on the contract he alleges. He claims to have sold the diamonds to the defendant. This appears quite unequivocally in his pleading. He happens to have mentioned in the same pleading a diamond digging licence which is of no moment in a contract of sale of diamonds and to have omitted to mention a licence to dispose of diamonds, which is of the utmost relevance. The omission, however, does not appear to mean admission that he had no such licence. I do not think that he was bound to disclose in the statement of claim that he had that licence. He may therefore have had it or he may not. The defendant raises in his defence the question of the illegality of the transaction. But everything in a defence which is not expressly admitted is presumed to be denied. At this stage, therefore, I am in no position to say categorically that the plaintiff lacked the necessary licence. This should come out in the evidence. In the circumstances I am constrained to agree with counsel for the plaintiff that the objection raised on behalf of the defendant is premature. I accordingly overrule it.

DECISION

Preliminary abjection overruled.

Action to proceed.

S. K. T.