THE old government had granted various multi-billion dollar contracts, on terms probably more favourable to the contractor than to Malaysia. This includes the Kuala Lumpur-Singapore High Speed Rail, East Coast Rail Link, Exchange Tower 106, Tun Razak Exchange, and Bandar Malaysia contracts.

In some of them, cancellation penalties can run to billion of dollars, such as a cancellation penalty of RM22 billion in ECRL contract. In some of the contracts, more monies have been paid out when less work progress has been done. In some, the terms are particularly biasedly onerous to the Malaysian government (meaning Malaysian public). 

The Chinese government not opposing the cancellation does not mean that such cancellation is free from legal questions as non-governmental interest will be involved in such contacts. The popular legal perception is that that the contracts are legally binding or what is called “pacta sunt servanda” (treaties shall be complied with) particularly in an international context.

However, that legal perception can be overcome by a not-so-popular rule against shortchanging the purse of the exchequer (the exchequer rule). This means that the courts may, and in fact should, strike down contracts entered into between government and contractors where the purse of the exchequer (treasurer) is shortchanged
 
Indian and English courts have struck down contracts applying this principle. In Malaysia, this rule has not been widely applied, but at least two apex court judgements, delivered by Justice Dr Hamid Sultan at Court of Appeal, have recognised this principle. One is MPSB v Laguna De Bay Sdn Bhd and the other is Setiausaha Kerajaan Negeri Selangor v Perbadanan Riadah Sdn Bhd.

In the former case, the court said if the term of the contract compromises the public right or state exchequer etc., the court is duty bound to strike down the infringing part on the grounds it will be ultra vires or void to exercise the powers to the detriment of the public. In consequence, even parties entering into commercial contracts such as the instant case with the government or statutory bodies or its like must be vigilant not to be a party to a term which is detrimental to the public and/or state exchequer, etc, as such contract or term is not worth the paper it is written on.

In the latter case, the court said when the exchequer is directly and/or indirectly shortchanged by dubious claim and/or technical claim whether or not it arises in consequence of private contract or conduct of government or government agencies, it rests upon the court to arrest it though it may appear from the face of the record that the claim is justified according to general commercial or tortious principles, etc.

The time has come now for Malaysian jurists to explore the exchequer rule and to come up to par with India and England in utilising the exchequer rule.

* Arun Kasi is a lawyer and construction dispute adjudicator.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.