CONTRACT LAW

SOFIA YUSOF (TRADING AS WARISAN PRESTASI RESOURCES) V. PV POWER ENGINEERING SDN BHD [2024] 2 CLJ 315 [High Court]

An agreement through influence peddling and insider information to secure a government project is contrary to public policy. The sale of influence engenders corruption and undermines public confidence in the Government. Instead of considering the merits of each tender, the sale of influence shows a tendency to corrupt where public servants are more plausible to give favourable decisions to the “arranged” tender. Such an agreement is contrary to public policy and the contractual consideration is inimical to public interest.

Brief facts

The plaintiff, Sofia bt Yusof (trading as Warisan Prestasi Resources)(‘Sofia’) entered into an agreement with the defendant, PV Power Engineering Sdn. Bhd. (‘PV Power’) in which Sofia had agreed to use her influence to secure a government contract for PV Power Engineering, in exchange for a payment of RM2,570,168 million. The dispute sparked when Sofia made a claim in the High Court for the balance of the payment that was not paid by PV Power. PV Power argued that the agreement was illegal and void ab initio, thus unenforceable as it contravened public policy under Section 24(e) of the Contracts Act 1950 (‘the Act’) and counterclaimed for the amount paid to Sofia to be returned.

Issues:

The High Court found that only two issues needed the determination of the court:

(i) whether the said agreement was illegal as it opposed the public policy and cannot be enforced; and

(ii) consequently, whether the sum of RM2,424,687 received by Sofia from PV Power in relation to the illegal contract, was to be returned to PV Power.

High Court Decision

The High Court allowed PV Power’s counterclaim with costs of RM5,000.00, concluding that the consideration was unlawful, and that the agreement between the parties was opposed to public policy under the Act thus void ab initio (from the outset) and cannot be enforced. Sofia was to have been unjustly enriched. Therefore, PV Power was entitled to restitution. The court also ordered that the sum of RM2,424,687.00 to be returned to PV Power with interest. The High Court held as follows:

[1] Pertaining to the first issue, the court found that the agreement was indeed illegal and void as it involved the sale of influence to secure a government contract, which was contrary to Malaysian public policy. In the deciding case of Merong Mahawangsa Sdn Bhd & Anor v Dato’ Shazryl Eskay bin Abdullah, the court held 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’. In the instant case, Sofia brazenly represented that only through her influence and touting could the government project be secured for PV Power and that the mere submission of a tender by PV power itself was insufficient to clinch it. Hence, by applying the principle enunciated in Merong Mahawangsa, it was plain and obvious  from the facts and evidence that the consideration for the agreement entered into by the parties herein was unlawful for being opposed to public policy under the Act and was therefore void.

[2] High Court further laid down the following reasons:

(a) it involved the affairs of the government;

(b) it would seem to appear that Sofia secured and procured the said contract from the Education Minister and/or Ministry of Education by way of influence-peddling; and

(c) it awarded Sofia a hefty percentage of the said contract as a sort of commission as pay-off for purportedly exploiting her personal relationship with the Education Minister. The court held that such actions undermine public confidence in the government and encourage corruption.

[3] Courts are bound at all stages to take notice of illegality, whether ex facie or which later appears, even though not pleaded, and to refuse to enforce the contract. In that regard, courts must be vigilant not to provide any relief on contracts which is void on the grounds of public policy, or illegality.

[4] Next, pertaining to the second issue, the High Court found that PV Power successfully proved its counterclaim, ordering Sofia to return the RM2.4 million, with interest and costs, to PV Power within 30 days. The High Court reasoned that the defendant would be severely prejudiced if restitution were denied, and it was in the public interest to grant restitution of the monies paid to the plaintiff under the illegal agreement.

[5] Alternatively, PV Power’s claim for restitution was based on unjust enrichment. In this present case, Sofia had been unjustly enriched by receiving RM2.4 million from PV Power at the expense of PV Power which in turn came from the Government under the KPM contract. The retention was unjust as Sofia had admitted that she did not know the Minister of Education nor did she have any and/or much technical knowledge and/or expertise with regards to construction or engineering, being a religious teacher.

[6] The High Court gave reasonings accordingly:

(a) Adopting the principle in Merong Mahawangsa, the court was of the view that PV Power would be severely prejudiced should his claim for restitution be denied;

(b) It would only be in the public’s good interest that PV Power be granted restitution of the monies it had paid Sofia unknowing at that point of time that the said agreement which Sofia was relying on, was illegal in nature, monies that PV Power received for work done in completing the project; and

(c) Bearing in mind that punishment is a matter for the criminal courts, the denial of the claim would be a disproportionate response to the illegality at hand and upholding of the bargain would be tantamount to encouraging dishonesty.

TAN CHONG INDUSTRIAL EQUIPMENT SDN BHD v. TRANSNASIONAL EXPRESS SDN BHD & ORS [2025] 3 CLJ 585 (Court of Appeal)

Case Digest :

[1] A party is, in law, bound and could not resile from the terms of the agreement. When any contractual dispute is brought before the court, the court has a solemn duty to defend, protect and uphold the sanctity of the contract entered into between the parties, except if the contract is vitiated by any circumstances recognised by the law, such as fraud, coercion or undue influence.

[2] A court should not rewrite the terms of the contract between the parties, even if the court deems it to be fair or equitable.

[3] If the parties to a contract had explicitly agreed to their respective obligations under the contract, then the issue of restitution or unjust enrichment pertaining to those explicit terms does not arise.

ZURAIDA KAMARUDDIN v. SAIFUDDIN NASUTION ISMAIL (SAMAN SEBAGAI SETIAUSAHA AGUNG, PARTI KEADILAN RAKYAT UNTUK DAN BAGI PIHAK PARTI KEADILAN RAKYAT) [2025] 2 CLJ 942 (Court of Appeal)

Case Digest :

[1] A political party’s resolution to terminate the membership of its member may suffice as the trigger event for enforcing a bond, even without a formal certificate.

[2] A penalty clause in a political party's bond must be reasonable and proportionate to the legitimate interests of the party. The court has the discretion to reduce an unreasonable penalty to a reasonable amount.

NOTE : On 24 June 2025, the Federal Court (Nallini Pathmanathan, Nordin Hassan, and Vazeer Alam Mydin Meera FFCJ) granted PKR the leave to appeal against the above decision of the Court of Appeal to reduce the bond payment owed by its former vice-president Zuraida Kamaruddin from RM10 million to RM100,000. The appeal will centre on the following single question of law :-

“If Party A signs a financial agreement promising to pay an amount of money to Party B if a certain event happens, and also agrees in writing that the amount is fair because it reflects the value A got from B – can the court still step in and question if the amount is fair or reasonable especially if the relationship between A and B is unusual or complicated ?”

KERAJAAN MALAYSIA v. PDS TRAINING CAMP SDN BHD & ANOTHER APPEAL [2025] 1 CLJ 379 (Court of Appeal)

Case Digest :

[1] In a contract procured through an open tender process, where the terms are known to all bidders, there may not be unequal bargaining power. A party cannot rely on unequal bargaining power to challenge a contract term if it had the opportunity to negotiate or refuse the contract.

[2] A termination for convenience clause in a Government contract, especially one invoked in national interest, may be valid if it does not absolutely exclude all remedies for the aggrieved party. Such a clause does not necessarily violate statutory provisions, like ss. 24 and 29 of the Contracts Act 1950 , if it is not used capriciously or in bad faith.

DATO' TING CHING LEE v. TING SIU HUA [2025] 4 CLJ 1 (Federal Court)

Case Digest :

Gambling debts, even those arising from credit facilities provided for the sole purpose of gambling in casinos, are unenforceable under Malaysian laws. The courts will not enforce claims for gambling debts, regardless of the contractual arrangements surrounding them, due to the established legal framework and public policy considerations.

WORLDWIDE PLATINUM RECORDS SDN BHD v. TAN SEW CHENG [2025] 2 CLJ 406 (Court of Appeal)

Case Digest :

[1] Debt can be owed in both realms of legality and illegality. For a claimant to succeed in a claim, he must not only prove the debt but also that the debt is one that could be legally claimed in court failing which would denote that the claimant had not come to court with clean hands.

[2] Although generally the evidential burden to prove defence of illegality lies on the party asserting illegality, the court cannot ignore glaring illegalities arising from a claim. Where the primary form of the claim is already illegal, the claimant’s own legal burden should also extend to the claimant proving the legality of its claim.

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