The Supreme Court is the highest court in the land and its decisions are ordinarily binding on all other courts. This practice, under the doctrine of precedent provides some degree of certainty upon which individuals can rely in the conduct of their affairs. Where a lower court departs from a decision of a higher court, it is usually done by distinguishing the decision of the superior court as inapplicable to the case before the lower court. Where the lower court makes an ill-considered departure, their decision is said to be per incuriam (made in ignorance of the law).
The Court of Appeal did just that in Haji Numan Mubi Akulamusa v Friends Estate Limited (Civil Appeal No. 104 of 2018). A key issue before the court was whether the under declaration of the consideration for the suit property to cheat the government of tax revenue constituted illegality and fraud to void the land transaction. The court stated that “stamp duty payable upon purchase of land is not computed out of the purchase price of the land as agreed to by the parties; but is instead assessed from the value given to the land by the government valuer”.
The court said further that “whatever the parties state in a land transaction is inconsequential in the determination of the stamp duty payable thereon as it is the duty of the government valuer to determine such duty and where there is collusion between a vendor and the government valuer to defeat proper payment, all that is needed is to bring the matter to the attention of the land authorities for a proper valuation of the suit property; on the basis of which the correct assessment and payment of stamp duty would be made”. The court thus upheld the transaction.
The Supreme Court decision
In reaching their decision in Akulamusa, the Court of Appeal cited its own decision in Betty Kizito v David Kizito (Civil Appeal No. 187 of 2012). However that decision had been appealed to the Supreme Court and had been decided to the opposite effect. The Supreme Court held that the false declarations that the suit land was a gift contravened the Registration of Titles Act (Cap. 230) (the “RTA”) and was a breach of legal duty. The court further held that a buyer is not a bonafide purchaser where he inserts a lesser figure on the transfer form as consideration when he actually paid more in order to defraud government of revenue and that by public policy, any transaction designed to defraud the government of its revenue is illegal and therefore a title deed acquired in such circumstances would be void for fraud.
Because the Akulamusa decision purports to depart from the decision of a superior court, it is of no value. In our view, it does however present the correct legal position that an under declaration of consideration does not void a land transaction.
The Supreme Court relied on section 92 of the RTA which requires that where the consideration for a transfer is not money, the true consideration must be concisely stated. The court held that the false declarations that the suit land was a gift contravened the RTA and was a breach of legal duty.
Additionally, the court relied on the High Court decision in Kizito Mubiru v Byensiba (Civil Suit No. 513 of 1983) long regarded as the locus classicus, where Karokora J (as he then was) held that a buyer is not a bonafide purchaser where he inserts a lesser figure on the transfer form as consideration when he actually paid more in order to defraud government of revenue. The Judge further held that by public policy, any transaction designed to defraud the government of its revenue is illegal and therefore a title deed acquired in such circumstances would be void for fraud. The court concluded that under declaration of the value of land as well as the consideration in the transfer form constituted fraud. The court ordered for the cancellation of the transaction and for reinstatement of the vendor as proprietor.
The Kizito Mubiru decision has been applied in Deox Tibeingana v Andrew Mirembe Tumwebaze, (Civil Suit No. 798 of 2019). Additionally, in Semwogerere Ibrahim Mbowa v Tumusiime Paul and Others (High Court Civil Appeal 935 of 2019), the High Court held that where there is under declaration of the consideration paid, the transfer is tainted with bad faith and illegality and is null and void and that in itself is an act of fraud leading to cancellation of a transaction. The court invoked section 77 of the RTA on voiding of fraudulent transactions. Under this section, any certificate of title, entry, removal of encumbrance or cancellation in the register book, procured by fraud, shall be void as against all parties or privies to the fraud.
The court also relied on section 190 of the RTA which provides that any certificate of title, entry or erasure or alteration procured by fraud shall be void as against all the parties or privies to the fraud.
The public policy argument
While the public policy concerns in Kizito Mubiru are well understood, the results of that decision and therefore of the later Betty Kizito case have nought to do with protection of government revenue. The transactions were nullified and the property vendors, having already been paid the consideration, received a further windfall in getting their property back. The government remained empty handed.
There is a long line of cases that provide for this public policy concern and allow the recovery of revenue by government. In Yokoyada Kaggwa v Mary Kiwanuka  HCB 23, an agreement for partition of immoveable property that was adduced in evidence when it was insufficiently stamped. It was held that an instrument on which a duty is chargeable is not admissible in evidence unless that instrument is duly stamped and the duty chargeable has been paid. In Bin Awadh Bin Mbarak Bakharesha v Ramadhan Bin Awadh Bin Mbarak Bakharesha (1956) 22 EACA, 55, the court held that such an error could be rectified before delivery of judgment by requiring the party relying on the document to pay the stamp duty required and the penalty and then admitting the document in evidence. (See also Lamusa Magidu v Alamanzani Nsadhu, High Court Civil Appeal No. 20 of 2008, Sunderji Nanji Limited v Muhamed Ali Kassam  EA 762).
By analogy, in other situations of evasion of taxes, whether on imported goods or as in this case on documents, the goods or documents maybe impounded until the proper taxes are paid, often with penalty or interest. The subject matter giving rise to the tax claim is usually not destroyed or voided. The remedy prescribed by law is that the relevant taxes are paid with a penalty. The government gets its dues.
Lessons from other jurisdictions
In India, where, an instrument of conveyance has been undervalued to fraudulently evade payment of proper stamp duty, the registering officer may register such instrument upon payment of 50% of estimated increased duty and refer it to the tax collector for determination of proper stamp duty or the difference, if any, of the amount payable by the person liable to pay. (Government of Andhra & Others v Smt Laxmi Devi, Civil Appeal No. 8270 0f 2002, (Indian Supreme Court), V.N. Devadoss v Chief Revenue Control Officer & Others, Civil Appeal No. 3411 of 2009 (Indian Supreme Court) and The Government of Tamil Nadu & 2 Others v Jayalasksmi & Others, High Court Writ Appeal Nos. 2607 to 2030 of 2005.)
In Kenya, Court in Bishop Benedictor Makani Bahati & Others v Ben Muneria Wesonga & Others, (Civil Suit No. 85 of 2011) had this say on undervaluation of property and payment of less stamp duty; “… this Court finds that not all irregularities amount to fraud and indeed if there is undervaluation of the property, the remedy is not to nullify the agreement but to order the parties to pay the difference”.
This should be the right approach for court to adopt where a party is in breach of a legal duty to pay taxes rather than cancellation of the transaction for fraud.
Failure to pay the right duty does not amount to fraud within the meaning of Section 77 and 190 of the RTA, but breach of a legal duty. The proper remedy would be to bring the matter to the attention of the land authorities for a proper valuation of the suit property and order the person in breach to pay the proper stamp duty or the difference (plus penalties?) such that the government which the court seeks to protect gets what is due to it.
It is clear that the approach taken in Kizito Mubiru (supra) of voiding a land transaction for evasion of duty was contrary to the approaches taken in other instances of tax evasion. The result of the decision is to leave the government that the court seeks to protect, high and dry. The better approach would be to require the offending buyer to pay the correct duty and allow the transaction to be consummated.
It is time to depart from Kizito Mubiru v Byensiba and we pray that the Supreme Court gets the opportunity to do so.
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