JUDGMENT

Ismail Khan (Borneo) CJ:

This is an appeal from the judgement of the High Court at Kota Kinabalu. whereby the respondents obtained judgement against the appellants in the sum of $255,000. The learned trial Judge dismissed the appellants' counterclaim for $83,128,08. The circumstances leading to the action in the High Court are as follows. The Forest Officer, Sabah, issued a licence under the Forest Rules, 1954 on the 14 September 1965 authorising the Beaufort Timber Extraction Cooperative Society (hereinafter called the licensees) to extract timber at Lumadan in area about 3,370 acres (hereinafter called the concession).

By a power of attorney dated the third day of 1965, (hereinafter called the first deed) the licensees appointed the Jesselton Development limited their attorneys in respect of the rights under the licence. There is power to substitute under the deed.

By a deed dated the 13 September 1966 (hereinafter referred to as the second deed) the Jesselton Development Ltd appointed the respondents in their place as attorneys for the licensees. The respondents exercised their rights under the licence until the year 1968 when they failed to pay royalty and other dues to the Forest Department. As a result their logs in the log-pond at Weston and the logs in the jungle camp at Beaufort were seized by the department.

On 12 December 1968 the appellants entered into an agreement with the respondents. For a better appreciation of issues the agreement (hereinafter called the agreement) is set out in full herein:

AN AGREEMENT made BETWEEN SOUTHERN ESTATE SDN. BHD of Kota Kinabalu of the one part AND LO SU TSOON TIMBER DEPOT of Kota Kinabalu of the other part: Both parties agree that as from 12 December 1968 Lo Su Tsoon Timber Depot is authorised and be responsible for managing all the business of Southern Estate Sdn. Bhd. inside the Beaufort Timber Cooperative Society under Timber Licence FOB 4/65. Lo Su Tsoon shall have the right to the extraction of timber, payment of royalty, export and sale etc. As to taxes, labourers' wages and all expenses for management and maintenance etc., these shall be borne by Lo Su Tsoon Timber Depot. Medical expenses in the timber camp and insurance etc, are also included.

(2) Lo Su Tsoon Depot agrees that as from the date of taking over, in respect of the area of 2,500 acres from which timber has not been felled under this Licence, the Beaufort Timber Co-operative Society shall be paid $175 for each acre and also the Jesselton Development Co. Sdn. Bhd. shall be paid $75 (per acre). Each year Lo Su Tsoon Timber Depot shall be responsible to pay on behalf of Southern Estate Sdn. Bhd. all such sums payable, namely to pay M$625,000 to the above named persons until full payment.

(3) Lo Su Tsoon Timber Depot shall be responsible to arrange for bank guarantee or to pay in cash to the Forest Department as a deposit for the Licence to fell timber when the timber in the said area have all been felled the deposit will be refunded by the Government or the guarantee be cancelled when the procedure shall be deemed completed. At present the deposit to be made to the Forest Department is M$75,000.

(4) On the signing of this agreement Lo Su Tsoon Timber Depot shall issue a cheque for $50,000 payable to Southern Estate Sdn. Bhd. as a deposit to guarantee that all matters shall be done in accordance with law and in case of any violation of the Rules of Forest Department, fines and damages, Lo Su Tsoon Timber Depot shall be solely liable for the same. On the completion of works when everything is all cleared, the Southern Estate Sdn. Bhd. shall refund this deposit of $50,000.

(5) Both parties agree that the existing logs approximately 70,000 cubic feet of Serayah and 40,000 cubic feet of Kapor, royalties for which have been fully paid, lying in the log pond at Weston belonging to Southern Estate Sdn. Bhd. shall be taken over by Lo Su Tsoon Timber Depot at the price of $150,000 and also those existing l