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2019 MarsdenLR 3858
FEDERAL COURT PUTRAJAYA
SYARIKAT SEBATI SDN BHD – Appellant
Versus
PENGARAH JABATAN PERHUTANAN & ANOR – Respondent
[Appeal No: 01(f)-29-06-2017(B)]
Validity of contracts with government entities does not depend solely on formal execution but may be established by conduct based on common law principles.
Headnote:The court analyzed the applicability of s 3 of the Government Contracts Act 1949 in determining whether a valid and binding logging contract existed without a formal agreement. The court affirmed that the plaintiff was entitled to compensation under the contract despite the absence of a signed document, emphasizing conduct as key in establishing the contract's validity. The court found res judicata inapplicable due to distinct causes of action. The court ultimately restored the High Court's ruling, concluding that there was indeed a valid contract between the parties.
Key Points: - Contracts with government entities may be established by conduct based on common law principles, not solely on formal execution (!) (!) . - Section 3 of the Government Contracts Act 1949 does not mandate a formal written contract for the government or state government to be legally bound (!) (!) . - The doctrine of res judicata does not apply when a prior judgment did not determine the specific cause of action or question raised in subsequent litigation (!) (!) . - Compensation may be claimed for termination of a government contract where the termination clause is invoked and an independent assessment is due (!) (!) . - The conduct of the parties, including acceptance of benefits, can establish a valid contract even in the absence of a executed formal agreement (!) (!) . - Issue estoppel may prevent a party from re-litigating matters that were necessarily decided in prior litigation (!) (!) .
What is the scope and application of Section 3 of the Government Contracts Act 1949 in relation to contracts with government entities?
Does the doctrine of res judicata apply where a prior judgment has determined the existence of a valid contract with the government?
On what basis may a party seek compensation following termination of a contract with the government?
| Table of Content |
|---|
| 1. judgment procedural introduction and jurisdiction clarification. (Para 1 , 2 , 3 , 4) |
| 2. factual background of the logging contract and initial approvals. (Para 5 , 6 , 8 , 15) |
| 3. previous findings on res judicata and new claims for damages. (Para 17 , 21 , 22 , 23) |
| 4. court's rationale regarding requirement of written contracts under gca. (Para 32 , 33 , 67) |
| 5. final ruling reinstating the high court decision. (Para 84 , 85) |
Introduction
[1] This judgment is delivered pursuant to s 78 of the CJA 1964 as our brothers Hasan bin Lah and Jeffrey Tan have since retired. This is a unanimous decision by the remaining members of the panel who heard this appeal.
[2] The appeal before us arose out of the decision of the Court of Appeal on 7 December 2016 in Civil Appeal No: B-01(A)-72-03-2016 where it had allowed the appeal of the respondents (the defendants in the Court below) against the decision of the High Court in Originating Summons No: 24733-062015 dated 16 February 2016.
[3] Leave to appeal was granted by this Court on 31 May 2017 to determine the following question of law:
"Whether by virtue of s 3, Government Contracts Act 1949 (" GCA "), only written contracts, executed in the manner provided thereunder with the state Government are valid."
[4] For convenience, parties in this judgment will be referred to as they were referred to in the High Court.
Factual Background
[5] The factual background leading to this appeal is important to give context to the question before us. We propose for this purpose to adopt the plaintiff's (the appellant before us) submission with some modification.
[6] The plaintiff applied for a long term sustainable management of forests concession vide letters dated 11 April 1996 and 15 May 1999 to the defendants.
[7] The 1st defendant approved the said application by way of a letter dated 30 September 1999 ("the letter of approval"). The plaintiff was given the right to carry out logging activities in Hutan Simpan Gading and Bukit Belata, which were approximately 9,000 hectares (the "Concession Areas"). The terms contained in the letter of approval are, namely:
"(a) Satu Perjanjian hendaklah ditandatangani di antara Kerajaan Negeri dan pihak Syarikat Sebati Sdn Bhd dalam masa 6 bulan kelulusan diberikan;
...
(j) Kerajaan Negeri juga berhak menarik balik semua atau sebahagian kawasan bila-bila masa apabila diperlukan."
[Emphasis Added]
[8] Pursuant to the letter of approval, the plaintiff sent a draft agreement vide letter dated 16 November 1999 to the 1st defendant. There was no response from the defendants notwithstanding the 6-month requirement stipulated in the letter of approval.
[9] In the meantime, the plaintiff was permitted to commence and carry out logging activities. The defendants were aware of the on-going activities, in particular the 1st defendant who approved and issued logging licenses to the plaintiff pursuant to the National Forestry Act 1984 and the Selangor Forestry Rules 1988. The plaintiff also paid the necessary cess and premium for the licenses.
[10] The plaintiff wrote again to the 1st defendant, vide letter dated 5 September 2001, with a draft agreement but did not receive any reply.
[11] Eventually, almost four years after the issuance of the letter of approval, the 1st defendant, vide letter dated 10 May 2003, responded with a proposed standard format of agreement for execution ("the draft agreement"). The plaintiff adopted the said format and sent a revised draft agreement to the 1st defendant (the "draft revised agreement") vide letter dated 7 July 2003. Both the draft agreement and the draft revised agreement contained the following termination clause (the "Termination Clause").
"M TERMINATION ON NATIONAL INTEREST
(a) Notwithstanding any provision of this Agreement, the Government may terminate this Agreement by giving not less than sixty (60) days notice to that effect to the Company (without any obligation to give reason thereof) if it cons
