Stamp Out Trouble: What Happens to Unstamped Agreements in Court?
In a bustling world of commerce, agreements form the bedrock upon which deals are struck, ventures are formed, and relationships are defined. Yet, amidst the excitement of forming agreements lies a crucial but sometimes overlooked legal requirement: stamping.
The primary purpose of stamp duty is to raise government revenue. This is governed by the Stamp Act 1949 (“Stamp Act”) which imposes stamp duty on various agreements, including but not limited to, lease agreements, loan agreements, letters of guarantee, and charge documents. The amount of stamp duty varies accordingly.1
To illustrate, consider a tenancy agreement with a monthly rental of RM 50,200 over a tenure of 2 years. Based on the First Schedule of the Stamp Act, the stamp duty payable is RM 4,800. Generally, instruments executed in Malaysia must be stamped before or at the time of execution.2 However, apart from cheques or promissory notes, they can be stamped within 30 days from the execution of the agreement by the parties.3 Failure to do so will result in penalties for late stamping as follows:4
(a) twenty-five ringgit or five per centum of the amount of the deficient duty, whichever sum be the greater, if the instrument is stamped within 3 months after the time for stamping;
(b) fifty ringgit or ten per centum of the amount of the deficient duty, whichever sum be the greater, if the instrument is stamped later than 3 months but not later than 6 months after the time for stamping; or
(c) one hundred ringgit or twenty per centum of the amount of the deficient duty, whichever sum be the greater, in any other case.
Unstamped agreement
Scenario: Party A and B entered into an agreement. The agreement is not stamped. Party B breaches the agreement. Party A files a claim in Court against Party B for breach of agreement. Since the agreement is unstamped, Party B argues that the agreement is invalid and inadmissible. This article will address the 2 issues that arise:
1. Whether the unstamped agreement is valid (and enforceable); and
2. Whether the unstamped agreement is admissible.
On the first issue, an unstamped agreement is valid (and enforceable), except where the non-stamping goes to the root or validity of the document itself or the case is a revenue dispute. This is because, after all, a stamp objection only relates to the need of safeguarding government revenue (See: Malayan Banking [1982]5; Xylem Water Solutions [2022]6).
In LST Events [2022],7 the tenant and landlord signed a tenancy agreement. The tenancy agreement was not stamped. The Court held that:
“[30] Based on the above, this Court is of the considered view that there was a valid agreement between the parties even though the impugned tenancy agreement was not dated and stamped. The intention of the parties had been reduced into writing after several meetings and exchange of several drafts between the parties before the “final” version which the parties’ representatives had placed their respective signatures on to it. Most importantly, the 1st month rental was accepted by the defendant. All these facts converge to one conclusion which is the defendant had agreed to the terms of the impugned tenancy agreement.”
On the second issue, the agreement is admissible (in other words it can be produced as evidence in Court) subject to payment of the duty and any applicable penalty. Failure to pay the duty or the penalty prevents the use of the agreement in question.Section 52 (1) of the Stamp Act addresses this situation:
“(1) No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered, or authenticated by any such person or by any public officer, unless such instrument is duly stamped:
Provided that ⎯
(a) any such instrument shall, subject to all just exceptions, be admitted in evidence on payment of the duty and the penalty, if any, chargeable in respect thereof under section 43 or 47A.”
In Malayan Banking [1982], the guarantor issued a letter of guarantee to the lender (bank). The letter of guarantee was unstamped. This issue of admissibility was addressed by the Federal Court:8
“It is clear that under this section except for certain types of instruments prohibition against admissibility of an instrument on account of not being duly stamped is not an absolute prohibition but conditional on payment of a duty or a penalty, if any, under sections 43 and 47.”
“The duty must be paid within 30 days of execution or even on a later date when the documents are used provided that an appropriate penalty is paid. Failure to pay the duty or the penalty prevents the use of the instrument. If the use is intended for a judicial proceeding the document is not admissible until the duty or the penalty is paid, unless the document belongs to special categories stated earlier. To ensure that the duty is paid section 51 imposes an obligation on those whose function is to receive evidence including the courts to be specially vigilant to see whether a document produced before them is duly stamped or not. If it appears to be unstamped the authority concerned has no choice but to impound the document and admit the same on payment of the necessary duty or penalty under proviso (a) to section 52(1) and thereafter send the impounded documents to the Collector of Stamp Duty together with the duty or penalty for stamping under section 53.”
The High Court in Teo Boon Chuan [2023]9 referred to Malayan Banking when dealing with a dispute between a photocopy machine services provider (plaintiff) and the customer (defendant). The defendant challenged the admissibility of the rental agreement produced by the plaintiff as it was not stamped. The Court held:
“[8] The law as contained in section 52(1) of the Stamp Act 1949 is clear. Subsection (1) is a prohibition against admissibility of an instrument which was chargeable with duty but was not duly stamped when it was produced. (See: Lew Ban Kin v. Dato’ Sin Yoong Ming [2012] 7 MLJ 717).
[9] In the context of the present appeal, proviso (a) to subsection (1) creates a statutory saving if the duty chargeable and penalty imposed on the instrument were paid. This may be done by the learned trial judge if she were to employ the powers under section 51 of the Stamp Act 1949 to impound the Rental Agreement and give directions for it to be stamped accordingly so that it will become admissible as evidence. (See: Malayan Banking Bhd v. Agencies Service Bureau Sdn Bhd & Ors [1982] CLJ Rep 217 SC).”
Conclusion:
- An unstamped agreement (or any instrument that requires stamp duty to be paid) is valid.
- An unstamped agreement (or any instrument that requires stamp duty to be paid) is admissible in court provided the stamp duty and penalty, if any, are paid first.
- 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.10 In fact, the Federal Court in Malayan Banking remarked: “As far as the court is concerned, the court is under an obligation, and solicitors and counsel appearing before it as officers of the court are also under an obligation, to draw the court’s attention to its powers under section 51 and section 52(1), including its provisos.”
It is important that parties to an agreement ensure the agreement is stamped and the stamped copy is kept safely by the parties.
Author: Hafiiz Rashid
[The author gratefully acknowledges his pupil master, SM Shanmugam, for his input and experience which were instrumental during the writing of this article]
References:
- See: First Schedule, Stamp Act 1949. ↩︎
- See: Section 41, Stamp Act 1949. ↩︎
- See: Section 47, Stamp Act 1949. ↩︎
- Section 47A, Stamp Act 1949. ↩︎
- Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors [1982] 1 MLJ 198. ↩︎
- Xylem Water Solutions (M) Sdn Bhd v Elmibina Sdn Bhd [2022] MLJU 1425. ↩︎
- LST Events Sdn Bhd v Twinicon (M) Sdn Bhd [2022] MLJU 3161. ↩︎
- Note 5. ↩︎
- Teo Boon Chuan & Anor v Fuji Xerox Asia Pacific Pte Ltd [2023] MLJU 2800. ↩︎
- Rule 58, Legal Profession (Practice and Etiquette) Rules 1978. ↩︎
The views and opinions attributable to the author(s) of this publication are not to be imputed to the firm, Shan Chambers. The contents of this publication are intended for purposes of general information and academic discussion only. It should not be construed as legal advice or legal opinion on any fact or circumstance