Bribery, secret profits and offset in AirAsia-Airbus case

By Mohd Ridhuan Md Kamal

WHILE the AirAsia-Airbus scandal has elicited multiple comments and opinions from observers, there’s none more controversial at the time of writing this than the comments of Prime Minister Tun Dr Mahathir Mohamad himself who was quoted by news portals MalaysiaKini and Free Malaysia Today stating that “If the money we obtain does not go into our own pocket but instead is meant for a certain purpose, then it becomes an offset and this is not bribery. That’s my view.”

This view runs contradictory, however, to how the Malaysian law views the issue under the banner of dealing with “secret profits”. The term “secret profit” is generally defined and accepted as any bribe, or secret commission, or even any financial advantage which is not a part of the commission/remuneration that an agent has agreed to with his/her principal.

To put it simply, based on the allegations against the two unnamed AirAsia executives, they are not allowed to obtain any clandestine financial advantage from any third party when dealing on behalf of their principal (which is AirAsia and its shareholders). The law presumes that as soon as a “secret profit” is obtained, the agent is affected to the detriment of his/her principal. It is not necessary to prove dishonest action, or even improper use of position.

And there is a bevy of authorities from the courts with regards to this. One such authority is the case of Tan Kiong Hwa v. Andrew S.H. Chong [1974] 2 MLJ 188 where the defendant, a managing director of a house agency company sold a house for a higher price than authorised by the plaintiff and had the difference credited to the defendant’s company. The court held that the defendant had committed a breach of duty despite the fact that the defendant did not pocket the money for personal gain nor was the defendant irresponsible and had caused a financial loss to the plaintiff.

The public should note and be made aware that a very important element of this breach of duty as provided under s.168 and 169 of the Contracts Act was that the action was done without consent and had resulted in material facts being dishonestly concealed. It is very important to note that it DOES NOT matter whether the agent has made and taken the secret profit for himself.

This was further pronounced in the case of Wong Mun Wai v Wong Tham Fatt and Anor (1987) 2 MLJ 249; that the duty of the agent is to act in good faith in protecting the interest of the principal and not use that position as agent to gain profit at the expense of the principal.

If the allegations are true, then the executives have allowed their interest to conflict with their duty and in utilising their positions, influencing AirAsia to commit to a transaction for a gain unknown to AirAsia is clearly an act of breach within the ambit of the law. Interestingly, it is these elements as well that currently forms the basis of some of the charges placed on the trial of former prime minister Datuk Seri Najib Razak.

What’s next if the allegations are true?

It is reported that regulatory and enforcement institutions such as the Malaysian Aviation Commission, the Securities Commission Malaysia and the Malaysian Anti-Corruption Commission have launched their own queries into the scandal. A positive finding of bribery and kickbacks may incur penalties and fines from these institutions, possibly causing further damage to the hard-hit share prices of AirAsia.

Additionally, for AirAsia and its shareholders, the law has placed a menu of options that they may take such as repudiating and cancelling the aircraft purchases, file an action to recover the alleged amount of “secret profits”, refuse to pay the commissions of the alleged executive, or even justifiably dismiss them outright for their breach of duty. – Feb 7, 2020

Mohd Ridhuan Md Kamal is a partner of the boutique law firm Messrs T.K. Low & Co, practising in Selangor. He specialises in the area of corporate-legal advisory

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