KUALA LUMPUR (Aug 27): Parties to government contracts are entitled to reap the benefits of what was contracted for, but must equally be prepared to bear liabilities or suffer losses that may result from their contractual obligations.

Judicial Commissioner Roz Mawar Rozain made this caution to contractors and added that it is incumbent upon all parties entering into such agreements (with the government or others) to fully understand and appreciate the terms to which they are binding themselves.

“This includes provisions for early termination or changes in government policy,” she said in her judgement in dismissing a suit by national service training programme operator Sri Ledang Ventures Sdn Bhd (in the process of winding up) against the Malaysian government.

Roz Mawar in her judgement dated July 31 this year, where the full written grounds were uploaded on Tuesday, said the termination of the contract on Sri Ledang was a consequence of a significant decision by the government to abolish the national service training programme.

“Such policy decisions, while they may have adverse effects on certain parties, are necessary for the governance of the country and fall squarely within the government’s prerogative.

“This case serves as a salient reminder that government contracts, despite common misconceptions, are not inherently more secure or profitable than other commercial agreements. They are subject to the same principles of contract law that govern all business transactions.

“While parties may enter into such contracts with high expectations of stability and returns, they must also be prepared to bear the risks and potential losses that come with any commercial venture. The court’s role is not to insulate parties from the consequences of their bargains, but to give effect to the terms they have negotiated and agreed upon,” she said in her judgement.

Besides claiming general, exemplary, and aggravated damages, the plaintiff, Sri Ledang, is also claiming RM3.061 million damages for cost of construction in improving the camp, RM5.2 million for the balance of rental infrastructure from October 2018 to December 2020, RM2.244 million for underpaid rental of infrastructure and services from 2014 to 2015, and RM702,282 for underpaid infrastructure from 2017 to 2018.

It was also seeking RM1.161 million for loss of profits because of underpayments for catering services from 2014 to 2018, and another RM2.435 million as loss of profits it ought to have received from April 2018 to 2020. Sri Ledang had taken loans to improve the facility.

The national service training programme began in 2003 pursuant to laws passed, and over the years the programme has been dwindling due to budget cuts. The programme was finally halted by the government on Aug 13, 2018.

Whether Clause 36 was lawful

This led the company to file the action over the purported wrongful termination of the contract and substantial losses that led to its winding-up. The government relied on Clause 36 of the contract as grounds for the termination.

Clause 36 stipulates that the government may terminate the contract at any time by giving a written notice of 30 days in advance to the company without giving any reason, if the termination is for national and security interest, or for public policy.

Roz Mawar noted Sri Ledang questioned whether Clause 36 was lawful in its decision for the government to terminate the contract.