Lord Keith of Kinkel:

This appeal is concerned with a complicated series of transactions relating to licences for the extraction of timber from an area of forest land in the State of Pahang.

The story begins in October 1966 when the Government of the State entered into an agreement with thirty Malays to permit them to work an area of State Land Forest, extending to 24,000 acres, in the District of Temerloh (Bera). Successive licences for areas of 1000 acres were to be issued, in consideration of the agreement of the licensees to the making of royalty payments and compliance with various other conditions. It appears that the thirty licensees, operating under the agreement, had by early 1973 extracted timber from 6,000 acres, so that 18,000 acres remained to be worked. At this stage one Au Ah Wah ("Au"), an advocate and solicitor of Kuantan, appeared on the scene as a person having some sort of arrangement with the thirty licensees and seeking to interest outside parties with substantial financial resources in the exploitation of the concession. He was put in touch with the three plaintiffs in the action, two of whom are the respondents to the appeal, and they in turn brought him into contact with the defendant Pang Choon Kong ("Pang"), the appellant.

Au and Pang, as first and second parties respectively, entered into an agreement dated 20 March 1973. This proceeded on the narrative that Au had logging rights over the 18,000 acres of forest land and that Pang was desirous of acquiring these rights. In actual fact Au had no such rights and was simply acting as a go-between or entrepreneur. The terms of the agreement, (omitting the last which is not material), were as follows:

1. The first party agrees to transfer all his rights over to the second party under the following terms.

2. The second party agrees to pay M/s. Ong Ban Chai & Co. as stakeholders for the First Party a sum of RM1,200,000. The sum of RM120,000 shall be paid on the signing of this agreement (the First Party hereby acknowledges the receipt of the said sum of RM120,000).

3. The first Party Agrees to form a limited company under the Companies Act, 1965 for the second party. The Second Party agrees to inform the First Party the name of the company as early as possible. The authorized capital of the company shall be fixed at RM3,000,000. The expenses and fees involved in the formation and registration of this company shall be borne by the Second Party.

4. After the Company shall have been duly registered with the Registrar of Companies, Malaysia, the First Party shall endeavour to obtain the approval of the Government of Pahang and the consent of the thirty forest licensees to enter into an agreement in the name of the Company and the Government of Pahang so that the Company itself shall have the sole right over the said Area. The name of the thirty forest licensees is stated in the list attached herewith and marked "A".

5. All the thirty forest licensees shall have one share each in the Company and the First Party shall obtain the transfer of all the shares to the name of the Second Party or his nominees. The consideration for the transfer shall be paid by the Second Party to the First Party on the signing of the transfers by the thirty forest licensees.

6. The consideration stated in Clause 5 above shall be sum of RM1,200,000 as stated in Clause 2 above and the Second Party agrees and undertakes to provide this sum to the First Party for the purpose of paying off the thirty forest licensees for the transfers of their respective shares to the name of the second party less RM120,000 which has been paid to the First Party.

7. The Second Party and the Company agree and undertake severally to pay the First Party the sum of RM80,000 for every forest licence of 1,000 acres which may be issued by the Forest Department from time to time to the Company for the purpose of felling and logging timber in the Area.

8. The Second Party shall, as soon as the shares of the