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  • Writer's pictureGavin Jayapal

“Introducer’s Fees” and the effect of illegality on a contract (Part 1)


Image credit: Image Credit: Martin Fredy, available at https://www.bigstockphoto.com/image-108416966/stock-photo-cup-of-coffee-and-money-valid-banknotes-on-a-wooden-table

Corruption is paid for by the poor.
-Pope Francis

Corruption is an evil, pernicious worm that slowly (but surely) strikes at the heart of governance.


Enter the “Introducer’s Fee”. There are genuine instances when such a fee (couched whichever way) is payable; this generally involves transactional agreements that necessitate a brokerage fee (Ng Chee Keong v Matad Sdn Bhd [1998] 3 MLJ 189).


An abhorrent mutation of this practice sees individuals taking a “cut” of a contract, merely for making an “introduction” (i.e., influence-peddling and taking a percentage of a contract secured).


The legality of “Introducer’s fees”


“Introducer’s fees” are strictly prohibited as-between advocates and solicitors. If no work is done, no fees are collectible (Ravichanthiran Ganesan v Lau Kok Guan [2021] MLJU 1057: [11] In my view, it was clear that the Defendants’ role was merely for the First Defendant to procure the clients, and that the Plaintiff’s obligation was to handle the clients’ matters. It was, therefore, undeniable that the Scheme of Working Arrangement was caught by Ruling 14.23, and therefore, prohibited).


What about publicly funded contracts? Would similar restrictions apply?


In Wong Yee Boon v Gainvest Builders [2018] 1 MLJ 124, the Court of Appeal considered just such a point. Here, the Government was desirous of executing a project. Plaintiff/Appellant held himself out as having “close connections” with those up-top to ensure that the project could be secured by the Defendant/Respondent:


[6] The plaintiff had informed Mr New Chee Peng (‘DW2’) the director of the defendant, that he had a close connection with the top management of CRBC and could secure subcontract works under the project for the defendant.
[7] Upon the successful award of the subcontract works to the defendant, the plaintiff would be paid a remuneration of RM4,276,027.10, being the differential amount between the defendant’s first quotation and the revised second quotation of the subcontract works submitted and accepted by CRBC.

To secure these “services”, the Defendant would be obligated to pay the Plaintiff a cool 4.2 million.


The parties executed an “Introducer’s Agreement”.


The Defendant subsequently secured the Government contract for RM51m. The Defendant then wrote to the Plaintiff and said that the “Introducer’s Agreement” was terminated.


The Plaintiff then sued for the sums under the “Introducer’s Agreement”.


Findings of the High Court


The HC found the contract to be illegal and contrary to public policy. It was struck-down.


The Court of Appeal


The Court of Appeal agreed with the High Court. An argument was run in the Court of Appeal that the “Introducer’s Agreement” was one that was solely private (i.e., it was as-between the Plaintiff and the Defendant and did not involve any public funds):

[41] Consequentially, it was contended that the mark-up of the subcontract price is a matter between the main subcontractor and contractor, and thus the taxpayer’s monies do not form the consideration of payments between the subcontractors.

The Court of Appeal roundly dismissed this submission. In a particularly scathing judgment, the Court of Appeal excoriated the practice:

[55] We wish to add further that we disagree with the plaintiff’s contention that since the mark up of the quotation for the subcontract was between the subcontractors and not between the main contractor and the government, there was no nexus to the government and thus do not involve tax payer’s funds.
[56] The undisputed fact is that the project was a government project: ‘Cadangan Pembangunan Bangunan Tambahan Bagi Ibu Pejabat Polis Kontinjen, Kuala Lumpur (IPP-KL) serta Komponennya diatas Lot PT 112, Seksyen 56, Mukim Bandar Kuala Lumpur’. It stands to reason that all subcontract works would be funded, indirectly through the main contractor(s) by public funds
[57] The marking up of the quotation for the subcontract works would necessarily mean artificially inflating, literally by the stroke of a pen, the costs of the project. This would in effect, compromise the quality of the end products to be delivered to the government at the end of the day. The costs of maintenance of poor quality deliverables will invariably be high, thus causing a further drain of public funds. The blatant marking up of the price of the items in the revised quotations, in excess of RM4.2m, solely for the purpose of providing for the plaintiff’s exorbitant ‘Introducer fees’ to secure the subcontract for the defendant, is to our minds, nothing short of outrageous as it is tantamount to reaping unreasonable and unlawful profits from public funds.
[60] Thus, we are of the considered view that the agreement between the plaintiff and the defendant contravenes both public policy and morality, pursuant to s 24(e) of the Contracts Act 1950
[64] For the reasons stated above, we are of the considered opinion that the introducer agreement between the plaintiff and the defendant is illegal pursuant to s 24(e) of the Contracts Act 1950 and is therefore void ab initio. Accordingly, there is no question of the plaintiff’s purported entitlement under the agreement.
[65] Based on the foregoing, we unanimously dismissed this appeal with costs and affirmed the decision of the High Court.

The decision was appealed-against to the Federal Court. On a separate ground, the FC dismissed the appeal (majority decision).


A vivid application of the principles gleaned from the cases above may be seen in JR Joint Resources v Norhana Sharkhan [2021] MLJU 1652.


Conclusion


“Introducer’s Fees” are terrifying in what they seek to achieve. The net effect of such agreements would be to artificially inflate prices and to unjustly enrich individuals without the exercise of any merit, skill or talent.


What is even more worrying would be the fact that contractors will short-change to get the job done. From Wong Yee Boon, the contract sum was RM51m. RM4.2m was allotted as the “Introducer’s Fee”. If paid, this would leave the contractor with RM46.8m to complete the job. Corners would certainly be cut to fill the 4.2m hole and when all’s said and done, it is the public that suffers.


Illegality does not always serve to render a contract void or unenforceable, though. Part 2 of this series will consider when illegality does not vitiate a contract.


GAVIN JAYAPAL

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