JUDGMENT

Lee Hun Hoe CJ (Borneo):

Both appellants/plaintiffs and respondents/defendants are private limited companies. They are associate companies. Appellants hold about 400f the total issued share capital in respondent company. Datuk GS Sundang, the major shareholder of appellant company, also holds shares in respondent company. His shareholding is next to Helen Chung Foh, the managing director of respondent company. Appellants were granted a special licence by the State Government of Sabah on 1 February 1964 to extract timber in an area in Lamag, Sandakan extending over 33 square miles. The licence was deemed to come into force on 1 January 1963 and expired on 31 December 1972. Certain conditions were attached to the licence. 23 On January 1963 the parties entered into an agreement prior to the issue of the licence. On 26 March 1964 they entered into what was purported to be an irrevocable agency agreement to replace the earlier agreement for the extraction and sale of timber under the licence. On the same day appellants gave respondents a power of attorney irrevocable for a period of ten years to operate and manage appellants' business. All the working capital came from respondents.

By a writ of summons dated 18 November 1972 appellants claimed that respondents were indebted to them in the sum of $3,055,734.82 based on a statement of account supplied by respondents. In their defence dated 12 January 1973 respondents denied the claim stating that appellants kept a running account with them as they acted as appellants' attorney. At the date of the defence there was no balance due. In fact, they allege that appellants have certain liabilities towards them, namely, (a) income tax claimed by Government amounting to $2,200,000 and (b) drawings by Datuk Sundang on behalf of and for the account of appellants totalling $950,000. Details and exact amount have yet to be worked out. It is said that the statement of account is not a document suitable for a cause of action in respect of account stated. Paragraph 9 of the amended defence reads: -

Alternatively, the defendants shall contend at the date of the hearing that the said account was rendered in consequence of an illegal transaction in that the plaintiffs had, under an Agreement entered between the parties hereto dated 26 March 1964 and a Power of Attorney, committed the breach of the term and condition of the Forest Licence known as CFOS 1/63 Forest Circle, Sandakan, Forest District , Lamag in assigning and/or essentially transferring the rights, privileges and liabilities of the said Forest License which was granted to the plaintiffs by the State Government of Sabah to the defendants (photostat copies of the said Agreement and Power of Attorney are annexed hereto and marked as 'A' and 'B').

In their reply appellants say that the statement of account represents a final statement of account and not a running account. The income tax should have been paid by respondents on behalf of appellants but they failed to do so. Appellants denied drawing the sum of $950,000. Paragraph 10 of the amended reply is as follows: -

As to the amended para 9 thereof, the plaintiffs deny that the said account was rendered in consequence of an illegal transaction as alleged and the plaintiffs say that neither the Agreement nor the Power of Attorney referred to constitute any assignment or transfer of the rights privileges and liabilities of Forest Licence CPO 1/63 Forest Circle, Sandakan, Forest District, Lamag, as alleged.

The issue of illegality was thus raised. Counsel for both parties agreed to take this issue as a preliminary point under 'O. 25 r. 2 of the Rules of the Supreme Court. Consequently, the learned judge ruled that the agreement read with the power of attorney was in breach of the provisions of the Forests Enactment, 1968 and was, therefore, illegal, and any claim based thereon was unenforceable. He further held that appellants could not assert a cause of action on account stated w