In the recent case of
Sofia binti Yusof (trading under the name and style of Warisan Prestasi Resources) v PV Power Engineering Sdn Bhd [2024] 1 AMR 522, the High Court delivered an interesting decision on influence peddling.
The learned Judicial Commissioner applied the Federal Court decision in
Merong Mahawangsa Sdn Bhd & Anor v Dato' Shazryl Eskay b Abdullah1 [2015] 5 AMR 681 (“
Merong Mahawangsa”) and held that an influence peddling contract contravenes section 24(e) of the Contracts Act 1950 (“
CA 1950”), rendering such a contract
void ab initio (having no legal effect from its inception). More interestingly, the Court held that a person who unknowingly makes payments under such a contract is entitled to reclaim the monies so paid.
Brief Facts
Sofia binti Yusof (trading under the name of Warisan Prestasi Resources) (“
Plaintiff”) and PV Power Engineering Sdn Bhd (“
Defendant”) entered into an agreement on 21 November 2017 where the Plaintiff agreed to provide the Defendant services in securing from the Ministry of Education Malaysia ("
MOE") a project to
'upgrade and refurbish science laboratories in Secondary Schools as preparation for the implementation of science practical examinations for SPM candidates' in Johor (“
the Project”) in consideration for a payment of an amount equal to 15% of the contract sum ("
the Agreement").
The Project was awarded by the MOE to the Defendant and a total sum of RM2,424,687 was paid through several instalments by the Defendant to the Plaintiff in part-payment of the consideration under the Agreement. The Plaintiff commenced legal proceedings against the Defendant for the sum of RM145,481 being the balance of the consideration payable to the Plaintiff under the Agreement. The Defendant filed a counterclaim against the Plaintiff seeking restitution of the sum of RM2,424,687 paid under the Agreement on grounds that the Agreement is illegal for contravening public policy.
The Plaintiff’s claim was struck off by reason of the Plaintiff’s failure to deposit security of RM30,000 in court or to the Plaintiff’s counsel client’s account. Hence, the trial proceeded only in respect of the Defendant's counterclaim.
The issues before the High Court are as follows:
| (a) |
whether the Agreement was against public policy, illegal and unenforceable; and |
| (b) |
consequently, whether the sum of RM2,424,687 received by the Plaintiff from the Defendant, ought to be returned to the Defendant. |
The High Court’s Decision
| (a) |
Whether the Agreement was opposed the public policy, illegal and unenforceable |
During the trial, En. Yusof bin Ali ("
Yusof"), the Defendant's managing director, testified that his company had successfully bid for the Project. He further stated that it was the Plaintiff’s representative, Cik Nor'Iman ("
Nor'Iman"), who informed him there was a tender for the Project by MOE and that it was published in the newspaper. Yusof stated that it was his engineer employee who assisted him in completing the tender form and preparing the bill of quantities ("
BQ") before the Defendant submitted the tender to MOE, denying Nor'Iman’s involvement in the BQ preparation. Further, Yusof explained that he only realised that the Agreement was illegal and unenforceable after he was summoned by the Plaintiff and was advised by the Defendant’s counsel that it was wrong for the Plaintiff to receive payment by using her influence to secure the Project from the Minister of Education. Yusof further stressed that he had participated in the tender and complied with the procedure, requirements and conditions set by MOE and that the Agreement was entered after he had submitted the tender on behalf of the Defendant and the Plaintiff did not contribute nor submit anything pertaining to the Project.
On the other hand, the Plaintiff testified that she had entered into the Agreement with the Defendant for the purpose of assisting the Defendant in securing the Project from the MOE. The Plaintiff also stated that she did not know the Minister of Education at the material time, but asserted that the Agreement was sought to secure the Project from the MOE, rather than directly from the Minister of Education. She admitted that she did not have any and/or much technical knowledge and/or expertise in relation to construction or engineering but that Nor’Iman had the knowledge and expertise. The Plaintiff claimed that she was able to secure the Project through Nor’Iman’s contact.
Nor'Iman, who possessed 10 years of experience in managing MOE projects, was the project manager for the Project. Nor’lman emphasised that the Plaintiff was involved in all aspects, particularly in liaising with the MOE and ensuring compliance with tender requirements, from initial preparations to post-implementation tasks. She also highlighted her contributions, such as conducting site visits and attending MOE briefings or meetings together with the Defendant's representative. Nor’Iman further testified that the Defendant was awarded the Project due to the services provided by the Plaintiff. Therefore, the Plaintiff was justified in receiving the payment for her services under the Agreement. Nor'Iman stressed that the Plaintiff fulfilled all obligations outlined in the Agreement.
Following this, the Plaintiff's counsel contended that the Agreement was valid as it was entered voluntarily and without any force and consideration had been given for the services rendered by the Plaintiff in accordance with the Agreement.
However, the Court agreed with the Defendant and found that the Agreement was illegal and void under section 24(e) of the CA 1950 for the following reasons:
first, it involved affairs of the government;
second, it appeared to be procured by way of influence peddling; and
third, the Plaintiff was awarded a hefty percentage as commission for purportedly exploiting her personal relationship with the Minister of Education. The learned Judicial Commissioner added that the Agreement called for influence peddling on the part of the Plaintiff with the Minister of Education as consideration for the parties' bargain. Referring to
Merong Mahawangsa, the Court found that recognising and accepting the Agreement was injurious to good governance and economically inimical to public interest as the sale of influence engenders corruption and undermines public confidence in the government. It showed a tendency to corrupt or influence public servants to give favourable decisions otherwise than on their own merits. As such, the Agreement was found to be contrary to public policy.
| (b) |
Whether the sum of RM2,424,687 received by the Plaintiff from the Defendant is to be returned to the Defendant |
Having held the Agreement to be illegal and contrary to public policy under section 24(e) of the CA 1950, the Court considered whether the Defendant is entitled to claim restitution for the sum of RM2,424,687 which it had paid to the Plaintiff. The learned Judicial Commissioner proceeded on the premise that the Agreement, being an illegal contract, is
void ab initio.
The Court referred to the UK Supreme Court decision in
Patel v Mirza [2017] AC 467 (“
Patel”) in which the nine judges of the Supreme Court unanimously upheld the Court of Appeal’s decision allowing Patel to recover £620,000 which he had paid to Mirza to speculate on shares based on insider information which was not proceeded as the expected insider information was not forthcoming.
The learned Judicial Commissioner in the instant case then cited the following paragraph of the judgment of Lord Toulson (which received concurrence of four other appeal judges), where his Lordship after referring to
Restatement of the English Law of Contract by Professor Andrew Burrows, stated as follows:
“
120 The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system (or, possibly, certain aspects of public morality, the boundaries of which have never been made entirely clear and which do not arise for consideration in this case). In assessing whether the public interest would be harmed in that way, it is necessary (a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, (b) to consider any other relevant public policy on which the denial of the claim may have an impact and (c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts.”
The High Court then proceeded to consider the three factors proposed by Lord Toulson in
Patel and held as follows:
| (a) |
to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim |
As the Federal Court in
Merong Mahawangsa had clearly stated that “
it is 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, as the sale of influence engenders corruption and undermines public confidence in the Government, which is inimical to public interest…”, the High Court opined that the Defendant will be severely prejudiced should its claim for restitution be denied.
| (b) |
to consider any other relevant public policy on which the denial of the claim may have an impact |
The High Court found that it would be in the public’s good interest that the Defendant be granted restitution of the monies it had paid the Plaintiff unknowing at that point of time that the Agreement which the Plaintiff was relying on, was illegal.
| (c) |
to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts |
The High Court found that denial of the Defendant’s claim would be a disproportionate response to the illegality at hand and upholding the bargain would be tantamount to encouraging dishonesty.
The Court then concluded that the Plaintiff had been unjustly enriched in the circumstances and held that the Defendant is entitled to succeed in its counterclaim for restitution of the RM2,424,687 that it paid to the Plaintiff under the Agreement.
Comments
This decision follows a line of recent decisions where the Malaysian Courts have applied the considerations put forward by Lord Toulson in
Patel in determining the effect of illegality on a claim for restitution or in respect of a claim (see
Pang Mun Cheong & Anor v Cheong Huey Charn [2018] 4 MLJ 594 (CA),
Liputan Simfoni Sdn Bhd v Pembangunan Orkid Desa Sdn Bhd [2019] 4 MLJ 141 (FC),
JR Joint Resources Holdings Sdn Bhd v Norhana Sharkhan [2021] 1 LNS 1413 and
Ahmad Zulfendi Anuar v Mohd Shahril Abdul Rahman [2022] 4 CLJ 307 (CA)).
The decision raises two noteworthy points. First, the High Court's reliance on
Merong Mahawangsa underscores a clear legal stance against influence peddling contracts, declaring them to be void under section 24(e) of the CA 1950. This decision emphasises the importance of safeguarding public interest and governance integrity by nullifying contracts that involve influence peddling.
Second, the decision highlights that a person who
unknowingly makes payments under influence peddling contracts may be entitled, in appropriate circumstances, to restitution for those payments.
Case note by Lim Koon Huan (Partner), Manshan Singh (Partner) and Lim Shu Yi (Paralegal) of the Compliance and Investigations Practice of Skrine.