[1]. What is a contract made up of?

A contract is a legally binding agreement. By it, one party agrees to supply something to another: in return for money or money’s worth.

A lawyer will tell you that a contract comprises certain basic elements: three Ps, two Ts and one C. The Three Ps are Party, Property and Price. Who are the parties? What are the property or services being sold or offered? And what is the price for it?

The two Ts are ‘Terms’ (how the contract is to be carried out) and ‘Termination’: i.e. how the parties will complete the contract, or if they cannot, how they will divorce their relationship. As in a divorce, compensation will have to be paid to the wronged party. So the ‘C’ denotes the compensation.

So far so good?

[2]. A’s contract with B

Suppose A and B are two parties to a contract. A is in a position of political power: he or she could be a minister, chief minister, or some public officer in a position of power. Mostly (but not always) she/he is also a politician. 

B is his nominee, confidant, financier or supporter. 

A wins the elections. Or A is appointed to a position of high power. 

Suppose the law states that certain transactions cannot be carried out without the approval of Parliament, the State Legislative Assembly: or without some other legitimate procedure. 

Suppose A is authorised to act on behalf of his ministry or state government. And suppose he enters into a contract with B – or a company controlled by B. 

[3]. A equals B equals A

On the one side of the contract is the Paying Body. The Paying Body is a public institution with large reserves of money. It could be a state government or a federal ministry. Or an NGO formed to ‘assist’ A to carry out ‘public welfare or charitable’ work. Once in a while, it involves temples. [We will soon see to whose benefit this alleged ‘welfare’ works].

But the Paying Side is controlled by A, or A’s nominees: at worst by government servants who will do what A tells them.

On the other side of the transaction is B. You know who B is.

B is A’s friend. For all intents and purposes, B is actually A with an assumed name.

In effect, A contracts with himself.

His interest is protected on both sides.

[4]. The transaction 

The transaction between the Paying Side and B could be for anything that has a commercial value. The objective is profit. To the uninformed or the uninquiring (that is, you and I), it is for ‘legitimate’ purposes.

Examples are simple things: mining rights, the supply of river sand, extraction of rare minerals or supply of cement or sugar or salt or rice, or licenses for importing foreign cars or the right to plant and sell durians. Or vegetables. Or licensing contracts. You get the idea.

The ultimate consumer of this transaction is: you and I. 

[5]. The arbitration clause

The parties to such contracts sometimes insert an arbitration clause into the agreement.

That clause says that if the parties have a dispute, they can ‘arbitrate’.

Do you know what arbitration is? It has certain odd features. It is not a suit filed in court. It is a secret procedure. There two contending parties put their dispute before a private judge. This private judge is called an ‘arbitrator’. It is the parties who personally choose their arbitrators.

At the end of the dispute -unless parties ‘settle’ sooner – the arbitrator/s will decide who is right.

And who is to pay, what amounts, to the other. 

[6]. Do not blame legitimate arbitrations

I might add the caveat that 99% of arbitrations involve legitimate companies. And almost all arbitrators I know are decent, honest impartial professionals.

Arbitrations are usually carried out in technical subjects in which to parties want a quick resolution (because billions of dollars are involved). Parties can choose their own arbitrators because they desire a fair judge who has specialised knowledge in the subject of dispute: e.g. construction law,  oil rights,  intellectual property rights, or international contracts.

[7].  The bending of arbitration (or litigation) procedures

But what if the entire arbitration process is made to bend to the will of A and B?

Wait five. You will know why shortly.

Now return to the ‘arrangement’ (‘contract’) between A who acts for the Paying Party – and B.

Suppose the contract duration is for 5 years. (I once saw a contract that was for a duration of 30 years). It is worth, e.g., RM500 million. 

[8]. The bidding drama

The correct way for B to win the contract is through a fairly-conducted bidding process. If you are a bidder, you present, through a ‘bidding process’, what you can offer to the government. You promise high quality. You quote a cheaper price. Government officers determine which participants’ bid best serves the people (meaning the government!). 

So, the bidding instructions go out. Newspaper advertisements are sent out to show that it is all ‘public’ and ‘accessible to all’.

So bidders B through Z apply.

Government officials sift through the applications. A sits in or is the chairman of such meetings – or she (or he) has the means of controlling it.   

[9]. Bid ‘hijacking’

A sees that B’s bid is too high. And it lacks in quality.

A concludes that C has the best quality and the best price. A realises C has the best chance of winning her bid. 

A calls C.

A demands demands that C surrenders to the ministry officials all her crucial data involving her bid: the identities of manufacturers and suppliers, the rate of charges, and the secret particulars of the supply route. 

A promises C that she will succeed. Reluctantly, C parts with this crucial information: charts, tables, analyses, data and crucial information are put into the hands of officials controlled by A. 

A takes it all and gives it to B.

B copies the whole thing, and sets up another company. B now makes a newer, better and more competent offer. 

B pays A a sum of RM10 million as an inducement. 

[10]. Now add another complication to this story

The transaction of the type now being discussed is usually not at all necessary for the people. The transaction may not even be allowed by the law. The procurement procedures may have been improper, illegal, or even ‘opaque’ (no one can check, except A). 

[11]. Do you want examples? 

Once a guy wrote a list of 44 mega projects that ‘failed’ during the Mahathir era. Another guy stated that these were not ‘failures’ but ‘machinations’ on ‘how to take money out of government coffers’. That national institution which does a more prominent job than the Auditor General called ‘Comedy Court’,  even had a couple of videos that spoke about it. Remember those? 

More recently, do you remember the bridge that was built over a river that did not exist?

Or the unnecessary flyover that caused greater traffic jams by its presence?

Or the bridge that collapsed? Well, stuff like that.

We are only at the tip of the iceberg here.

[12]. Suppose, eventually the government ‘awards’ the contract to B’s company

The government ‘awards’ the contract to B’s company. There is great fanfare, ‘signing ceremonies’, and ‘MOU press meets’.

C gets a rejection letter, but it is nicely worded.

If you checked behind B’s company, it would probably be worth no more than RM2.0! But that is another story for another day.

Now, B gets busy. He opens a new company, which will execute the project. He takes a bank loan, which is easily procured. He employs many people. He engages suppliers. He makes orders. He sends in to the Government, many reports, tables and charts. The idea is to give the impression that he is working at the project, to his loss, about which he will soon complain.

Soon B approaches the government. B protests that he is sinking under a mountain of debt. B asks for a helping hand: the payment of a ‘deposit’ from the government. The government pays, apparently, reluctantly. This is because the civil servants are unhappy.

But all this is  properly recorded on government papers. Very few actually check its contents. Those who know are silenced by threats of retribution.

[13]. What about MACC complications?

Someone, in this case ‘jealous C’, complains about it openly.

MACC says it is not Sherlock Holmes. It can only act if someone brings corruption to its attention. If parties to a transaction are quiet about it, MACC cannot act. 

Now, suppose A’s party controls the government. So even if MACC wishes to investigate, its directors are forced to resign. Or sent off overseas on a wild goose chase.  

This is to ensure no ‘MACC complications’ will arise. 

[14]. The ‘default’

After a few months (or in case of sensitive issues, years) it turns out that A’s government (or ministry) cannot deliver. The law forbids it. Or there are some other, legitimate, objections.

B becomes strident.

B sends out angry letters of demand. Meetings are held. Offers are made, and rejected. Everything is minuted. All legal, and all proper.

A dispute arises. B demands compensation. 

A holds press meets. He makes himself out as a victim. He blames the previous government. Or some junior officer.

Loudly and publicly, A denies liability. 

[15]. Two ways B can sue A’s Paying Party (the Government, the State or the NGO)

Eventually, B sues A’s government. 

B can litigate in one of two ways. One method could be by way of an arbitration. There, both disputants, A and B, appoint D as arbitrator. Papers are filed. 

After a couple of months, the parties approach the arbitrator. They inform the arbitrator that they have decided to ‘settle’ their differences’. The arbitrator then grants a ‘Consent Award’. 

The Paying Party (represented by A) pays a compensation is ‘only’ RM50 million’ to B’s company: for doing nothing.

A and B share the award.

The arbitrator cannot refuse the settlement against the wishes of the parties.  To make it worse, arbitration proceedings are secret. That is the nature of arbitrations.This is the law.

So A and B exploit these legal principles, and the resulting ‘secrecy principle’, to enrich themselves. 

A will announce that the parties have settled the suit. If pressed, A will say it was all done ‘according to the law’. He will blame the arbitrator’s award.

[16]. If there is no arbitration, B can always go to the court.

Suppose there is no arbitration. Then, the parties will resort to litigation.

B will summon A’s Paying Party to the court.

Usually, A might appear as a witness: A will be ‘forced’ by B to produce government minutes. A will testify. The evidence will favour B. 

Or the parties will inform the court, already burdened by heavy litigation, that they have ‘agreed to settle’ the dispute. All that the court is left to do, is to grant is a ‘consent judgment’. This will be in accordance with the parties’ agreement.

Under the ‘consent judgment’, A’s government or Ministry will pay B’s company RM75 million as compensation. 

A and B share the ‘judgment sum’. 

[17]. Laying the blame at the court’s feet is an old tactic

When queries or protests are raised, A and B will point to the court. They will blame the court. They will name the judge. They say it was all ‘done according to the law’; that it was ‘the court that had ordered the payment’.

Who would dare raise his voice against the court?

A and B share the ‘judgment sum’. 

This is how the law is being used to siphon government money. 

[18]. It is unfair to blame the judges and the courts 

No court in the land can prevent two parties from settling, unless there is clear fraud or illegality. Both are difficult to establish:and the court is not equipped to do so.

A court can only decide what the parties complain about. If there is no complaint of corruption, illegality or fraud,  the court cannot do anything.

The courts are overburdened.

They are woefully understaffed.

They have very little time.

So do not blame the courts. 

True it is that the Court of Appeal in Setiausaha Kerajaan Negeri Selangor (Perbadanan) v Perbadanan Riadah Sdn Bhd and another appeal¹[2016] 4 MLJ 723 said that: ‘… [Where] the State or its agencies are involved, the court must consider whether the taxpayers will be short-changed’.

The court added that: ‘… [If] the Exchequer (meaning the people’s money) is short-changed, the public will lose the benefit of that revenue …, which by [his/her] judicial oath [a] judge is entrusted to protect. [When] the exchequer is … shortchanged by a dubious claim …, it rests upon the court to arrest it.’²see Majlis Perbandaran Subang Jaya v Laguna De Bay Sdn Bhd [2015] 2 MLJ 509).

If the very persons elected and entrusted by the public – and who should abide by the law – go out of their way to side-step the laws and the courts, why should the courts be blamed?

Should the court take over the function of Sherlock Holmes?

Does the court have that power?

That is the question, is it not?

[The author is grateful to Miss KN Geetha, Miss Pavaani and Miss JN Lheela].

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