Influence Peddling: Whether Familiarity & Association Renders A Contract Unlawful

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There is a distinction between familiarity and influence peddling. While the former is commonplace in business dealings, the latter undermines public trust and is contrary to public policy. The Federal Court in Merong Mahawangsa Sdn Bhd & Anor v Dato’ Shazryl Eskay bin Abdullah [2015] 5 MLJ 619 established that an agreement to provide services to influence a public decision-maker in awarding a contract is contrary to public policy and therefore void under Section 24(e) of the Contracts Act 1950.

However, in Nuri Maya Sdn Bhd & Ors v Awan Plasma Sdn Bhd [2024] MLJU 2897, the High Court distinguished Merong Mahawangsa and held that mere familiarity and association with government officials do not constitute illegality unless they involve improper influence.

The Merong Mahawangsa Case

In Merong Mahawangsa, the appellants had requested the respondent to render his services to procure and secure the award of the execution of a bridge project from the government. This agreement was documented in a letter of undertaking between the parties. Subsequently, the respondent claimed RM 20 million for services rendered in securing the government contract. The appellant argued that the letter of undertaking was illegal and void as it involved influence peddling, where the respondent used his relationship with government officials to obtain the award.

The question posed 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 s 24(e) of the Contracts Act 1950 (‘the Act’) and is therefore void?”.

It is important to note that in Merong Mahawangsa, the respondent pleaded that he had used his influence and good relationship with the government to procure the original bridge project for the benefit and interest of the appellant. In the respondent’s amended statement of claim, the respondent particularised his close relationship with the Federal Ministers and his dealings with the ministers with respect to the bridge project. The respondent also admitted to influence peddling in his witness statement when it provided further details of his influence and the manner in which he exerted his influence and convinced the ministers.

The Federal Court ruled in favour of the appellant and held that the letter of undertaking was tainted with illegality and against public policy. The court emphasised that an agreement where payment is made for the procurement of a government contract using personal influence is inherently tainted with illegality and cannot be enforced under Malaysian law:

“Therefore, 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 Federal Court reaffirmed the principle that agreements facilitating influence peddling corrupt public decision-making processes and must be struck down in the interest of upholding public policy and good governance. Accordingly, the respondent’s claim for RM 20 million was dismissed.

The Nuri Maya Case

Conversely, in Nuri Maya, the defendant approached the plaintiffs seeking their services to advise, negotiate, assist and liaise with the State Government of Melaka in securing the rights to the reclamation and the development of 170 acres of land in Melaka. The plaintiffs then claimed that they had fully performed their services and despite the defendant having completed the project, the defendant failed to honour their promise to the plaintiffs.

Premised on Merong Mahawangsa, the defendant contended that the agreement was void or voidable at its instance on the ground that the agreement was against public policy. The reason was because the second and third plaintiffs were said to have had a close relationship with the state government at the material time and that they used that relationship, albeit, illegally, to secure the licenses and approvals for the benefit of the defendant. However, the plaintiffs asserted that their role was limited to providing advisory and facilitation services, without exerting improper influence over government officials.

The High Court ruled in favour of the plaintiffs that familiarity and association with public officials alone do not amount to influence peddling. From a commercial standpoint, the High Court also observed the fact that in many businesses between the private and public sector, ‘there will be always be some degree of familiarity between the parties either by way of reputation, past dealings or even through associations made through introductions of parties with experience in dealing with the relevant public authority that will give room for negotiations to be less rigid but without necessarily compromising on standards expected for the implementation of the related projects’. Ultimately, the agreement was upheld as valid as it involved legitimate advisory services and not improper influence. There was also no evidence that the plaintiffs improperly influenced the state government’s decision.

Commentary

The key difference between Merong Mahawangsa and Nuri Maya lies in the nature of the contractual obligations and the role of the parties involved:

(a)        Explicit Influence vs General Association 

In Merong Mahawangsa, the respondent explicitly admitted to using his connections to secure a government contract, whereas in Nuri Maya, there was no direct evidence of undue influence.

a)          Nature of Services Rendered

The agreement in Merong Mahawangsa was framed around the procurement of a contract through influence, whereas in Nuri Maya, the plaintiffs provided legitimate consultancy services without promising to use personal influence.

b)          Evidential Threshold

The Federal Court in Merong Mahawangsa found clear evidence of improper influence, while the High Court in Nuri Maya ruled that association alone was insufficient to taint a contract with illegality.

The distinction drawn in Nuri Maya reinforces that while business relationships with government officials are inevitable, they must not be leveraged to unduly influence public decision-making. Courts will scrutinise such agreements to ensure that they do not undermine public confidence in governance. It is also prudent for parties to be aware of anti-corruption laws in Malaysia which criminalises corrupt practices, including undue influence in government contracting.

The rulings in these cases emphasise the role of judicial oversight in ensuring that contractual relationships involving public sector dealings comply with legal and ethical standards. It is crucial to balance the need for legitimate business interactions with the imperative to prevent corrupt practices. While Merong Mahawangsa reinforces the strict prohibition against contracts based on influence, Nuri Maya acknowledges that legitimate business relationships do not necessarily amount to corrupt practices.

18 April 2025