The court established that allegations of illegality under the Forest Enactment require resolution through a full trial, not by summary judgment, emphasizing the necessity of examining interconnected agreements.

Appeal

[1] On 17 May 1997, the respondent ("the defendant") applied to the learned registrar of the Kota Kinabalu High Court by way of summons in chambers under O 18 r 19(1)(a), (b) or (d) of the Rules of the High 1980 to strike out the appellant's ("the plaintiff's") writ of summons and statement of claim. The defendant's application was dismissed by the learned registrar.

[2] The respondent's ("the defendant's") appeal against the above decision was allowed by the learned judicial commissioner who then struck out the plaintiff's action.

[3] Being dissatisfied, the plaintiff appealed to this Court. We heard the appeal on 17 March 2010 and arrived at a majority decision. Low Hop Bing and Clement Allan Skinner JJCA concurred, while Mohd Hishamudin bin Mohd Yunus JCA dissented. We now give the grounds of the majority judgment.

Factual Background

[4] On 11 April 1997, the plaintiff issued a writ of summons and statement of claim against the defendant, seeking a declaration that the Timber Sale Agreement in writing dated 9 November 1992 entered into between the defendant and the plaintiff; and the irrevocable Power of Attorney of the same date ("the PA"), given by the defendant appointing Ritai Sdn Bhd as attorney, are still valid and subsisting. The plaintiff also prayed for specific performance thereof; alternatively, for damages, interests and costs.

[5] The defendant was the holder of a Special Timber Licence No SK7/90 issued by the Director of Forestry, Sabah for and on behalf of the Government of the State of Sabah on 26 October 1990 to fell, convert and extract timber from a timber concession area consisting of approximately 258,584 hectares of timber land situated in the Forest District of Sipitang ("the concession"). The licence was for a period of five years expiring on 25 October 1995.

[6] By Timber Sale Agreement dated 9 November 1992, the defendant contracted to sell solely and exclusively to the plaintiff all merchantable timber logs extracted from approximately 13,984 hectares of the licence area, earmarked in the concession, upon the terms and conditions contained therein.

[7] Pursuant to the Timber Sale Agreement:

(a) The defendant gave the PA and appointed Ritai Sdn Bhd as its attorney with powers to, inter alia, manage and superintend the extraction and removal of merchantable timber therefrom and to enter into contracts and arrangements of all kinds in relation thereto and to generally exercise the powers granted therein; and

(b) Under the "Mutual Letter of Undertaking" executed between the plaintiff and the defendant on 11 November 1992, the plaintiff paid a total sum of RM7million (RM3.5million on 9 November 1992 and RM3.5million on 12 May 1993) to the defendant as advance payments towards the purchase of merchantable timber logs from the defendant. The advance payments had been refunded to the plaintiff on 29 March 1995.

[8] On 22 August 1994, by letter to the plaintiff, the defendant rescinded the Timber Sale Agreement and revoked the PA, on the ground that the Timber Sale Agreement and the PA are illegal, allegedly being in contravention of s 24(6) of the Sabah Forest Enactment 1968 ("s 24(6)").

Illegality

[9] Learned counsel Dato' Dr Cyrus Das (assisted by Mr Norbert Yap and Ms Celestina Stuel Galid) submitted for the defendant that the transactions between the parties herein are illegal in that they have contravened s 24(6), as the effect of the whole arrangement is to transfer or assign the defendant's rights in the Special Timber Licence (SK 7/90) to the plaintiff for a stated consideration. Reference wa