It was recently reported that approximately 150,000 Malaysians who commute to Singapore to earn their livelihoods spend several hours each day stuck in a traffic gridlock on the Johore-Singapore Causeway. It was also reported that the Chief Minister of the State of Johore “made an impassioned plea to the Federal Government for a solution to ease the traffic congestion on the Causeway.”¹
 
The massive traffic jams on the Causeway is not a recent phenomenon. In fact, the problem has existed for many years. The news report brings to mind a landmark decision on “influence peddling” by the Federal Court in Merong Mahawangsa Sdn Bhd & Anor v Dato’ Shazryl Eskay Abdullah [2015] 8 CLJ 212, that arose from a proposal by a previous administration that, if carried out, may have alleviated the traffic congestion on the Causeway.
 
Brief facts
 
Sometime before 1998, the Malaysian Government proposed to construct a bridge to replace Johore-Singapore Causeway (the “Project”). By a letter dated 25 June 1998, the Economic Planning Unit of the Prime Minister’s Department awarded, in principle, the Project to a company known as Suria Kalibu Sdn Bhd (“Consortium”) in which the First Appellant held a 60% shareholding through the Second Appellant.   
 
The First Appellant and the Respondent then entered into a letter of undertaking dated 3 July 1998 whereby the First Appellant undertook to pay the Respondent the sum of RM20 million on or before 3 November 1998 in consideration of the services rendered by the Respondent in procuring the Project for the Consortium.
 
The letter of undertaking further provided that the undertaking therein shall remain valid so long as the award for the Project remains valid and subsisting and that if the award is withdrawn or terminated for any reasons whatsoever, the said sum of RM20 million or any part thereof is to be returned without interest immediately.
 
Although the Project was subsequently cancelled by the Malaysian Government, the Respondent nevertheless commenced legal proceedings against the Appellants for payment of the sum of RM20 million under the letter of undertaking.
 
The pleaded defence of the First Appellant was two-pronged, namely that (i) the procurement of the Project on account of the Respondent’s close relationship with the Malaysian Government was against public policy and that the letter of undertaking was illegal and void; and (ii) the letter of undertaking could not be put into effect as the Project did not materialise. The Second Appellant’s defence was not materially different from that of the First Appellant.
 
Decisions of the High Court and the Court of Appeal
 
The High Court held that the Appellants had failed to produce any evidence to support their assertion that the nature of the services rendered by the Respondent had a tendency to be injurious to public interest. Accordingly, the Appellants’ first defence that the services rendered by the Respondent for which the Appellants had agreed to pay RM20 million was opposed to public policy under section 24(e) of the Contracts Act (“the Act”) was a bare assertion that could not be sustained on the facts and circumstances of the case. The High Court further found that the services rendered by the Respondent was neither opposed to public policy nor tainted with illegality as the Project, if it had proceeded, would have been for the public good, use and benefit.
 
However the High Court accepted the Appellants’ second defence that as the Project had been withdrawn or terminated and “did not materialise”, the Respondent was not entitled to payment under the letter of undertaking. The Court rejected the Respondent’s argument that it was the “Project” and not the “award” that had been withdrawn.
 
On appeal, the Court of Appeal accepted the argument that there was a difference between “award of the Project” and the “Project” itself. According to the Court of Appeal, clause 4 clearly specifically stated that the letter of undertaking shall remain in force so long as the “award for the Project” remains valid and subsisting. As it was not disputed that at no time was “award of the Project” terminated or withdrawn by the Government, the Court allowed the Respondent’s appeal and ordered the Appellants to pay the said RM20 million to the Respondent.
 
Decision of the Federal Court
 
The Appellants were granted leave to appeal the following question to the Federal Court:
 
“Whether an agreement to provide services to influence the decision of a public decision maker to award a contract is a contract opposed to public policy as defined under section 24(e) of the Contracts Act 1950 and [is] therefore void?”
 
The Federal Court answered the leave question in the affirmative and allowed the Appellants’ appeal.
 
According to the Malaysian apex court, the leave question comprised two components; first, the scope of “public policy” as defined under section 24(e) of the Act; and second, the provision of services for a consideration to influence the decision of a public decision maker to award a contract.
 
Public Policy under the Act
 
In relation to the first component, the Federal Court referred to Sababumi (Sandakan) v Datuk Yap Pak Leong [1998] 3 CLJ 503, where Peh Swee Chin FCJ observed that section 24 of the Act was drafted after some fine tuning of the common law on which it was based. Under the common law, contracts that contravene any law would be illegal for being against public policy whereas under the Act, such contracts would be unlawful and void under section 24(a) (where the consideration or object of an agreement is forbidden by a law) and section 24(b) (where the consideration or object of an agreement is of such a nature that if permitted, would defeat any law), whilst contracts such as those interfering with the administration of justice or contracts in restraint of trade would fall under section 24(e) of the Act as being opposed to public policy.
 
Further, the Court cited paragraph 430 of Halsbury’s Laws of England, 5^th Edition, Volume 22 and held that whether a contract is contrary to public policy is a question of law. The Court further observed that public policy is not static and may vary from time to time and its application would vary with the principles which for the time being guide public opinion.
 
Influence Peddling is Contrary to Public Policy
 
As for the second component of the leave question, the Federal Court after an extensive examination of various English authorities, including Montefiore v Menday Motor Components Company Ltd [1918] 2 KB 241, Lemenda Trading Co Ltd v African Middle East Petroleum Co Ltd [1988] QB 488 and Omega Group Holdings Ltd and others v Kozeny and others [2006] EWHC 872 (Comm) concluded that influence peddling is contrary to public policy in England.
 
The Federal Court then said that as section 24 of the Act is a codification of the common law, it is therefore contrary to Malaysian public policy that a person be hired for money or valuable consideration to use his position and interest to procure a benefit from the Government. This is because the sale of influence engenders corruption and undermines public confidence in the Government, which is inimical to public interest.
 
The Federal Court also referred to Mulla Indian Contract and Specific Relief Acts, 13^th Edition, Volume 1 at 702-703 which categorically states that “An agreement, the object of which is to use influence with Ministers of government to obtain a favourable decision, is destructive of sound and good administration. It showed a tendency to corrupt or influence public servants to give favourable decisions other than on their own merits. Such an agreement is contrary to public policy. It is immaterial, if the persons intended to be influenced are not amenable to such recommendations.”
 
The Federal Court overruled two earlier cases of Wong Hon Leong David v Noorazman bin Adnan [1995] 4 CLJ 155 and Ahmad Zaini Japar v TL Offshore Sdn Bhd [2002] 5 CLJ 201 where the plaintiffs successfully sued for their fees for securing contracts for the defendants allegedly by using their influence. In the opinion of the Federal Court, those cases were decided per incuriam and the courts were “entirely wrong” in dealing with the allegation of illegality by reference to section 2(d) (definition of consideration) and section 2(e) (which states that every promise and set of promises forming the consideration constitute an agreement) without referring to section 24 of the Act, as a contract may be good under section 2 but yet bad under section 24 of the Act. The Federal Court added that disregarding section 24 would render the section effete and meaningless.
 
The Malaysia apex court affirmed that whenever the illegality of a contract is raised or becomes apparent, the court is duty bound to consider the allegation by reference to section 24 of the Act and pertinent case law, which the courts in Wong Hon Leong and Ahmad Zaini Japar had failed to do.
 
According to the Federal Court, it was clear that the RM20 million claimed by the Respondent was intended as payment for services rendered by the Respondent to secure the Project for the Consortium. The Respondent had pleaded that he had “used his influence and good relationship with the Government of Malaysia to procure the (Project) for the benefit and interest of the (first appellant).” The Respondent had also particularised his close relationship with specific Federal Ministers and his dealings with Federal Ministers with respect to the Project and provided details of his influence and the manner in which he exerted his influence and convinced those Federal Ministers. The Federal Court concluded on these facts that it was plain and obvious that the consideration was unlawful, and that the letter of undertaking was void as being contrary to public policy. On this ground, the Federal Court dismissed the claim.
 
For completeness, the Federal Court commented, per obiter, that the award and the Project were intrinsically linked. Hence, when the Project was withdrawn, the award was automatically retracted. As such, the RM20 million was not payable when the Project was withdrawn.
 
Comments
 
The Federal Court’s decision in Merong Mahawangsa is significant as it unequivocally determines that an agreement to provide services to influence the decision of a public decision maker to award a contract is opposed to public policy and void in Malaysia. This decision also aligns the legal position in Malaysia on the legal effect of contracts for “influence peddling” with the position in many common law jurisdictions.
 
Case note by Lim Koon Huan (Head of the Anti-Bribery and Anti-Corruption Practice) of Skrine.
 

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