CIVIL APPEAL NO. 30 OF 2000

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BEFORE:
The Honourable Mr. Justice Ira Rowe - President
The Honourable Mr. Justice Manuel Sosa - Justice of Appeal
The Honourable Mr. Justice Boyd Carey - Justice of Appeal

APPEARANCES:
Mr. Fred Lumor, for the Appellant.
Mr. Dean Barrow, S.C. for the Respondent.

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2001: June 14 June and October 25.

JUDGMENT

ROWE, P.

1. Mr. Barrow, although present in court took no part in the appeal. His firm remained on the record as representing the respondent but he had no instructions in respect to the appeal.

2. The appellant was employed to the respondent in Belize from 1990 until March 1998. At the time of the termination of his employment, the appellant was the general manager of the respondent. The learned trial judge found as undisputed facts coming from the evidence of the appellant that his salary as general manager of the appellant company was $8,000.00 per month, $3,000.00 of which was to be paid in US$1,500.00 outside of Belize together with a fixed bonus of US$10,000.00 per annum and US$10,000.00 as commission for sale of equipment.

3. The appellant tendered into evidence the photocopy of a cheque for US$4,500.00 made payable to him dated September 13, 1995 and testified that this payment reflected three months arrears of the portion of his salary that was payable in US dollars. The appellant also introduced into evidence a letter from the respondent to him dated 06/01/1995 which stated in part:

"7. Salaries, increases have been given in the month of April every year based ion inflation this year it was agreed to give the increase on merits and the maximum increase to be 15% of current salary.

8. It was agreed to pay part of Frank salary in US outside of Belize, the amount will be $1,500.00 per month."

4. The evidence at trial was that the respondent had proposed the payment of part of the appellant's salary in US dollars, that the appellant agreed with this proposal and that they acted upon it. The learned trial judge, on that evidence, found as a fact, that the documents evidencing payment in US dollars to the appellant outside of Belize and the letter stating the agreement that this should be the method of remuneration of the appellant was compelling evidence concerning the appellant's salary and bonus.

5. In his Statement of Claim, the appellant claimed for:

No evidence was led at trial as to the period for which the severance payment related or how it was calculated.

6. The defence was pleaded on three limbs. Firstly that bonus payments were discretionary and no decision had been made to pay bonus to the appellant for the periods claimed; secondly that the appellant had indeed been paid severance payments amounting to $20,520.71 and thirdly that the claim for severance payment was based on an illegal and unenforceable arrangement contrary to public policy.

7. Meerabux, J held that the agreement between the appellant and the respondent violated both the Exchange Control Regulations and the provisions of the Income Tax Act, were illegal and void and contrary to public policy. He held further that the agreement was not severable and he dismissed the claim. From that judgment this appeal has been taken.

8. The appellant contends, in his notice of appeal, and before us, that (1) the decision was unreasonable and against the weight of the evidence, (2) the trial judge erred in law by misconstruing the evidence of the witnesses for the appellant and not attaching the proper weight thereto and (3) that the trial judge erred in law when he held that the contract between the parties was illegal, void and contrary to public policy.

9. At trial the appellant gave evidence that as general manager of the respondent he was not aware as to whether the respondent had approval from the exchange control authorities or from the Income Tax Commissioner to make payments to him overseas. He said "I would think the Income Tax Commissioner is not aware of that." During the address of counsel for the appellant at the close of the evidence it was stated that the payments to the appellant "may have been contrary to the Exchange Regulations Act, e.g. permission of Exchange Control Authority not granted to Plaintiff" (see page 27 of the Record).

10. The two statutory provisions which are said to be contravened by the appellant, are set out in pertinent parts, below.

11. Section 7(1) of the Exchange Control Regulations provides:

"Except with the permission of the Controller, no person shall in Belize make any payment to or for the credit of a person resident in the scheduled territories, and no person resident in the scheduled territories shall in Belize do any act which involves, is in association with or is preparatory to the making of any such payment outside Belize as consideration for or in association with -

1. the receipt by any person of a payment made outside the scheduled territories, or the acquisition of any person of property which is outside the scheduled territories; or

2. the transfer to any person, or the creation in favour of any person of a right (whether present or future and whether vested or contingent) to receive a payment outside the scheduled territories or to acquire property which is outside the scheduled territories.

2. Nothing in this regulation shall prohibit the making of any payment in accordance with the terms of a permission or consent granted under these Regulations."

The Income Tax Act, Ch. 46, section 5(1) provides:

(1) Imposition of Income Tax:-

Income tax shall, subject to this act, be payable at the rate or rates specified in sections 25 to 26 (hereafter) for the year of assessment commencing on 1st January 1924 and for each subsequent year of assessment, upon the income of any person occurring in or derived from Belize or elsewhere and whether received in Belize or not in respect of -

(a) gains or profits from any trade, business, profession, or vocation, for whatever period of time such trade, business, profession or vocation may have been carried out or exercised - ".

12. Mr. Lumor submitted that although the agreement between the parties may have been stated in an illegal manner and may have been carried out in an illegal manner in the past, the appellant did not seek in the present action the performance of the contract in any manner contrary to law. I understand Mr. Lumor to mean, by this submission, that the appellant was seeking to enforce the agreement as it related to the salary of BZ$8,000.00 per month and not the agreement of "BZ$8,000.00 per month payable by BZ$5,000.00 and US$1,500.00."

13. The agreement between the parties for the payment of the salary of the appellant, on the face of it, could not be carried out without the approval of the Controller of Exchange Control. The appellant's evidence is that payments were made to him in US dollars in the United States as part of his salary. That is the manner in which the agreement had been performed over a number of years. Mr. Lumor referred to the principle in Chitty on Contracts, 28th Ed. at paragraph 17-195, but I think that in this case the onus was on the appellant to bring evidence to show that the intention of the parties was to perform this contract in a legal manner.

14. In my view the facts in this are indistinguishable from those in Napier v National Business Agency Ltd. [1951] 2 All E.R. 264. In that case a very strong Court of Appeal (Evershed M.R., Denning, L.J., Hodson, L.J.) held that the provisions of the service agreement relating to expenses to be paid to the appellant were intended to mislead the taxation authorities and evade tax, and, therefore, the agreement was contrary to public policy. Although that appellant sought only to enforce the provisions of the agreement relating to salary, the court held that those provisions were not severable from the rest of the agreement and were equally unenforceable. In that case the agreement was for the appellant to be paid ‹13.00 per week salary and ‹6.00 per week as expenses. The appellant was discharged after 10 months and sued for wages. Neither party brought up the issue of the illegality of the contract. The Judge of his own motion raised the question and inquired into it without the assistance of the parties. He found that the real expenses in the case was not more than ‹1.00 per week and that the purpose of the agreement was to evade tax. The appellant in that case had already gone to the Income Tax authorities and had tried to come to an arrangement with them to pay the additional tax.
The trial judge found that:

"This contract to pay the plaintiff what was undoubtedly, to my mind, part of his salary as expenses I must find was illegal, even if only to the extent that he was receiving money which, or a very large part of which, was liable to tax, and which, or a very large part of which, was not included as salary for the purposes of the returns to the Inland Revenue under the pay-as-you-earn scheme."

In giving the leading judgment the Master of the Rolls said:

"If those were the facts, what is the inference? It must surely be that, by making an agreement in that form the parties to it were doing that which they must be taken to know would be liable to defeat the proper claims of the Inland Revenue and together, or at least to postpone, the proper payment of income tax. If that is the right conclusion, it seems to me equally clear that the agreement must be regarded as contrary to public policy. There is a strong legal obligation placed on all citizens to make true and faithful returns for tax purposes, and, if parties make an agreement which is designed to do the contrary, i.e., to mislead and to delay, it seems to me impossible for this court to enforce that contract at the suit of one party to it."

15. The principle upon which Napier's case proceeded is of long antiquity. Chitty on Contracts 28th Ed. at paragraph 17-012 refers to the dictum of Blackburn, J. in Waugh v Morris (1873) L.R. 8 Q.B. 202, 208 that:

"Where a contract to do a thing which cannot be performed without a violation of the law, it is void, whether the parties knew the law or not."

16. In that same paragraph Chitty refers to Miller v Karlinski (1945) 62 T.L.R. 85, a case of an employee whose mode of payment amounted to a fraud on the revenue, and who was held unable to recover arrears of salary, whether or not the parties knew that what they were doing was illegal. It has been held that the rule about defrauding the revenue applies even in case of a junior employee who goes along with employer's tax fraud. See Tomlinson v Dick Evans "U" Drive Ltd. [1978] 1 C.R. 639.

17. In this case the appellant was the general manager of the respondent and had been so for eight years at the time the action was brought. He received the full amount of the equivalent of BZ$3,000.00 in US dollars in the United States over a number of years. There is no way for the appellant to say, "I was receiving BZ$5,000.00 per month as salary in Belize for a period of years and at the same time I was receiving the full amount of the exchange value of BZ$3,000.00 in the United States, and yet I do not know that I was evading Belize income tax on the portion of my income paid in the United States and I did not intend to evade Belize income tax". In my view, there is no way for the appellant to say, "I do not know anything about Belize Exchange Control Regulations. My bosses said they will pay me a portion of my salary in US dollars in the United States and I said yes and I accepted the money, but I do not know whether or not Exchange Control permission was granted". The appellant was the general manager of respondent in Belize. He was not some inconsequential junior employee.

18. In my opinion the findings of fact by the learned trial judge were reasonable and on the evidence that was before him they were the only reasonable findings of fact that he could have arrived at.

19. In my opinion the agreement between the parties was in breach of the Income Tax Act of Belize and in contravention of the Exchange Control Regulations of Belize. The employment agreement was illegal and void. I cannot improve upon the reasons that the learned trial judge gave for his judgment in this case and I adopt them and incorporate them with the reasons stated herein. I agree that there is no room for the severance of one portion of this agreement so as to save the portion that called for payment in Belize dollars in Belize as part of the remuneration of the appellant. For these reasons I would dismiss the appeal.

20. In the circumstances of the case I would make no order as to costs of the appeal.

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ROWE, P.


CAREY, JA:

1. It is a matter of regret that the respondent was not represented at the hearing but the attorney of record Mr. Rodwell Williams, S.C. did not attend on the court nor did he take appropriate steps to have his name removed from the record. Mr. Dean Barrow, S.C., a partner in the firm with that attorney, did attend but sought leave to withdraw, which, in the event was denied. It is all very unsatisfactory.

2. We were thus denied the assistance which we would have been afforded by hearing from the respondent's side.

3. This was an appeal by the plaintiff Leslie Frank Sharp against the dismissal of his action to recover severance payment of BZ$9,000.00, unpaid bonus for 1995, 1996, 1997 of US$30,000 and unpaid commissions of US$10,000.00. The defendant company elected not to call any evidence but relied on the maxim ex turpi causa non oritur actio. It was said that the contract was illegal and against public policy because it breached the Exchange Control Regulations, Ch. 43 and the Income Tax Act. In a considered judgment dated 31st October 2000, Meerabux J acceded to these submissions.

4. Accordingly, the sole question which arises for consideration is whether he was correct in holding the contract to be illegal and void.

5. The learned judge found that the plaintiff was employed as general manager of the defendant company at a salary of $8,000.00 per month, $3,000.00 of which was to be paid in its equivalent of U.S. $1,500.00 outside Belize together with a fixed bonus of US$10,000.00 per annum and US$10,000.00 as commission for sale of equipment.

6. He held that "the agreement violates both the Exchange Control Regulations and the Provision of the Income Tax Act" but with respect to the judge I fear I am of a contrary opinion for reasons which will emerge. In his judgment, he referred to Chitty on Contracts (25th ed.) para. 1041 which deals with the parties' ignorance of the law. It states:

". . . Where a contract is to do a thing which cannot be performed without a violation of the law, it is void, whether the parties know the law or not. Thus, in Miller v Karlinski, an employee, whose mode of payment amounted to a fraud on the Revenue, was held unable to recover arrears of salary, whether or not the parties knew that what they were doing was illegal. Equally, where a Statute makes the contract itself illegal, the parties' ignorance of the law does not it makes it less so . . ."

He also cited Napier v National Business Agency Ltd. [1951] 2 ALL ER where it was held (inter alia) that the provisions of a service agreement relating to expenses were intended to mislead the taxation authorities and evade tax and therefore the agreement was contrary to public policy. He drew further support from Bigos v Bousted [1951] 1 ALL ER 90 where the rule against enforcing illegal contracts were emphasized.

2. The learned judge's citation from para.1041 of Chitty on Contracts (25th ed.) is, in my view, helpful. That a contract is void where it cannot be performed without a violation of the law, cannot be doubted. Plainly, if the object of the contract is to do something forbidden by statute, for example, breach exchange control legislation, then, that will disentitle a party to contractual relief.

3. So far as section 7 of the Exchange Control Regulations Ch. 43 is concerned, the breach of which, it was held, rendered the agreement void, it provides as follows:-

. . . (1) "Except with the permission of the Controller, no person shall in Belize make any payment to or for the credit of a person resident in the scheduled territories, and no person resident in the scheduled territories shall in Belize do any act which involves, is in association with or is preparatory to the making of any such payment outside Belize, as consideration for
or in association with -

(a) the receipt by any person of a payment made outside the scheduled territories, or the acquisition by any person of property which is outside the scheduled territories; or

(b) the transfer to any person, or the creation in favour of any person, of a right (whether present or future, and whether vested or contingent) to receive a payment outside the scheduled territories or to acquire property which is outside the scheduled territories.

(2) Nothing in this regulation shall prohibit the making of any payment in accordance with the terms of a permission or consent granted under these Regulations . . ."

9. What is proscribed is not the payment of foreign currency to any person resident in Belize or to any person outside the country, simpliciter, but rather, it is the failure to obtain the permission of the Controller for such disbursement which will constitute a breach of the law.

10. It follows that a contract which provides for the payment of funds to an employee as to a portion within Belize and the remainder outside, is not, ipso facto, illegal. It can only, in my opinion, offend the statute, if such payment was made without the permission of the Controller or that was the purpose of the contract. But this contract could be performed without breaching the law. It was not a contract to do a thing which could not be performed without violating the law. This case is therefore wholly distinguishable from Napier v National Business Agency Ltd. (supra) where there was a measure of fraud, for there, the provisions of the service agreement relating to expenses were intended to mislead the authorities and evade tax. This contract was an unexceptional contract of employment. There was not a title of evidence of any intent to flout the statute.

11. In the circumstances, this agreement cannot fairly be said to be in breach of section 7 of the Exchange Control Regulations Act.

12. I turn now to the other legislation identified by the judge. With all respect to him, I am not able to appreciate what breach of the Income Tax Act rendered the agreement illegal. Section 5(1) of that Act which was invoked, provides as follows:-

". . . Imposition of Income Tax

Income Tax shall, subject to this Act, be payable at the rate or rates specified in sections 25 to 26 (hereafter) for the year of assessment commencing on 1st January 1924, and for each subsequent year of assessment, upon the income of any person accruing in or deriving from Belize or elsewhere, and whether received in Belize or not, in respect of -

(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised; etc . . ."

The judge in his judgment said this:-

". . . Likewise, I find that there is no evidence before me on the plaintiff's admission that the Commissioner of Income Tax was aware of the arrangement to pay part of his salary and bonus outside of Belize, nor there is no evidence of permission granted to the plaintiff by the Commissioner of Income Tax to exempt from Imposition of Income Tax in the income paid to him and credited to his bank account in the USA . . ."

13. Section 5 merely renders income exigible to income tax. No offence is created by that provision. It certainly does not require a taxpayer to make the Commissioner of Income Tax aware of arrangements as to the fact of payment of salary outside of Belize. Where salary is paid, tax is deductible at source by the employer. The taxpayer remains liable to pay tax. But the manner in which these factors render a contract of employment illegal is more than mystifying. There was no evidence whatever that the purpose of the agreement was to evade tax. Unless that object was shown to be the case, it is a matter of no little difficulty to appreciate the conclusion at which the learned judge arrived.

14. The reference in the passage cited, "to exemption from income tax" suggests that the judge believed that because in the past, the appellant may not have made payments as regard income tax, that made the contract void. But that conclusion is a non sequitur. The non-payment of tax renders the taxpayer liable to be proceeded against for its recovery. It can have no effect on the contract under which he earns the income unless the contract violates the law in some way.

15. The position is that the appellant would be entitled to judgment on his claim, the sole defence of ex turpi causa having failed. I hold that the entire juridical basis on which the action was determined, was misconceived. I would order that judgment be entered for the appellant in the sum of BZ$9,000 and US$40,000. The appeal must therefore be allowed and the judgment in the court below reversed. The appellant would be entitled to costs both here and below.

16. This may be nothing more than a Pyrrhic victory as it is not clear if the company still exists. But Mr. Lumor may be comforted by the thought - sufficient is the evil to the day thereof.

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CAREY, J.A.


SOSA, J.A.


I have availed myself of the opportunity to read a draft of the judgment to be delivered by Carey, J.A. For the reasons given therein, I would allow the appeal and concur in the order as to costs contained therein.

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SOSA, J.A.


ROWE, P.

In the event, the appeal is allowed and judgment is entered for the appellant as stated in paragraph 15 of the judgment of Carey J.A.


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ROWE, P.