Retracting a Police Report: How Consent Order plays a role

by Lavinia Kumaraendran ~ 7 September 2018

Retracting a Police Report: How Consent Order plays a role

A Consent Order/Judgement is a form of settlement entered into between two consented parties in a legal action filed in court to resolve a dispute by satisfying certain arrangements without admission of guilt or liability. Essentially it is akin to an Agreement/Contract.

Although parties to a Consent Order may agree to settle a dispute by paying a certain amount of monies in return for having a police report withdrawn against the other party, this may render the agreement void or unenforceable by reason of illegality.

Parties need to be careful that terms agreed upon in a Consent Order are not void for reason of Illegality

Why?

Retracting police reports on its own is not illegal. However, where it prevents investigation into what could potentially be an instigation of criminal proceedings or stifles prosecution and when it concerns the public at large, it raises huge implications.

This is because the agreement herein may open up floodgates for criminals to escape criminal charges if police reports can be retracted easily. It provides defendants a ‘buyout’ option to escape from their liabilities.[1] It cannot be right that those who are financially privileged can escape criminal prosecution through the payment of money.

Retracting police reports on its own is not illegal. However, where it prevents investigation... it raises huge implications.

Thus, the courts will tend to treat consent orders of such a nature with utmost caution in upholding the enforceability of consent orders of this nature as it is against public policy although it was a term agreed to and consented willfully by both parties. The courts, both domestic and abroad, have had the opportunity to consider the validity and enforceability of such consent orders, as will be discussed below.


Consent Order Void for Illegality

The provisions of the Malaysian statute of relevance are Sections 24 and 25 of the Contracts Act 1950 which lays down certain exceptions to lawful considerations for an agreement.

i.e. Section 24(2) - the court will render anything that is contrary to public policy unlawful, and every agreement of which the consideration has been made thereto is unlawful will be void.[2]

In Lian Mong Yee v Abdul Rashid Maidin & Ors[3], Gopal Sri Ram JCA discusses the critical question of whether a consent order was void for illegality on the basis that a party in consideration for payment of a certain sum, agreed not go forward with a criminal charge of cheating he alleged in his police report against the other party to the consent order.

His Lordship decided that if an agreement contains a provision to retract a police report alleging that an offence has been committed by one party, it would be contrary to public policy and the consent order will be void. In such instances, he adds that the consent order can be set aside. His Lordship also considered the case of Charles Ooi Kiah Inn v. Kukuh Maju Industries Sdn. Bhd[4] in coming to the conclusion that if the consideration of an agreement is unlawful (namely to abandon criminal proceedings), then the entire agreement ought to be void and unenforceable as it is a serious abuse of the right of private prosecution.


How Do you Overcome a situation when the Consent Order is void

Short Answer - Apply to have that particular offending clause/term severed

In the event a clause within a consent order is void for illegality, the issue arises as to whether the illegal clause is severable from the rest of the agreement so as to render the remainder of the consent order still enforceable.

Malaysia

In Prudentdeals Sdn Bhd v YM Tengku Abdul Halim Ibni Almarhum Sultan Ibrahim,[5] the Court of Appeal laid down several governing principles to be applied when determining whether an illegal/unenforceable clause can be severed. Such considerations include:

  1. whether the severance of the illegal clause would not affect the validity of the remaining legal clauses;
  2. whether the severance of the illegal clause would render the agreement unworkable;
  3. whether after the severance of the illegal clause, what remains is still a complete agreement without altering its purpose; or
  4. whether the severance of the illegal clause would leave unchanged the subject matter and main primary consideration of the contract and the primary obligations of the parties can still be achieved.

The ultimate consideration appears to be heavily dependent on the facts and circumstances of each case as set out in the case of Lau Chee Ching v Niah Native Logging Sdn Bhd[6].

The position of law appears to be that in a situation where there is a valid and enforceable consideration, the fact that there may be ancillary promises which maybe illegal does not render the entire agreement invalid.[7] The test is whether distinct lawful consideration can be found in the rest of the agreement.

Many of these considerations are applied in other jurisdictions apart from Malaysia as well, although ultimately, the assessment will come down to whether the illegal provisions communicate itself to or contaminate those provisions which are legal. If not, the illegal provisions may be severed from the rest of the agreement unless it is dependent or inseparable from each other.

Singapore

In Singapore, the “blue pencil test” is often applied by the Courts to determine whether an illegal term can be severed from the rest of the agreement. The test provides that the Court must be able to run a “blue pencil” through the offending portion of the agreement without altering the meaning or rendering senseless the rest of the agreement. In the Singapore High Court decision of Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd and another,[8] an issue arose as to whether a specific indemnity clause in a Rental Agreement requiring a party to indemnify another party from both civil and criminal proceedings were enforceable.

Quentin Loh J decided that although it was contrary to public policy for a party to indemnify another against the consequences of a crime, the entire clause would not be void for illegality as the offending portion could still be severed (Note here that the principle of severance can be applied to even remove a specific portion of a clause, as supposed to removing an entire clause from a contract).

In coming to his decision, his Lordship considered several English Authorities which establish that the mere fact that a stipulation provides for the commission of a criminal offence, will not automatically contaminate the rest of the contract and render it enforceable. The overarching question would be whether the nature and degree of the illegality is such that it taints the entire clause or contract and renders it contrary to public policy to enforce even the unobjectionable portion.

New Zealand

A similar position was adopted in New Zealand by the Auckland High Court in Polymer Developments Group Ltd v Tilialo [9].

The facts of this case concern a deed which was executed between the Defendant and the Plaintiff which provided that the Defendant would repay the entirety of the misappropriated funds to the Plaintiff in consideration of the Plaintiff agreeing not to commence any criminal or civil legal proceedings against the defendant’s brother for the outstanding amount. When the Defendant’s brother defaulted on payment of the second instalment, the Plaintiff commenced proceedings to enforce the deed.

The Defendant argued that the deed was illegal and unenforceable as being contrary to public policy. The Plaintiff in return argued that the deed was not illegal, but even if it was relief should be granted under section 7 of the (New Zealand) Illegal Contracts Act 1970 which empowers the Court to sever an illegal clause from an agreement unless the Court considers that it would not be in the public interest to grant such relief.

Glazebrook J decided that the covenant by the Plaintiff not to commence legal proceedings tantamount to an agreement not to institute prosecution and was therefore illegal. However, his Lordship decided that although such a deed was contrary to public policy because of the illegal term, His Lordship eventually decided in the circumstances that relief would be granted under section 7 of the Illegal Contracts Act to sever the illegal term from the deed for reasons amongst others that, the deed only prevented private prosecution and did not prohibit the Plaintiff from eventually reporting the misappropriation to the Police and that the balance of justice favoured the upholding of the freedom to contract between parties.

Polymer is a good example of the difficulty the Court’s will face in balancing between the principle of freedom to contract and the need to uphold public policy in private agreements. It can also be observed that New Zealand Courts are less reluctant to hold a contract illegal as a result of the discretion to grant relief from the consequences of illegality conferred by section 7 of the Illegal Contracts Act 1970.

Privy Council

Lastly, much insight on this area of law can be obtained from the Privy Council decision of Philip William Carney and John Edward Herbert and Others,[10] which involves an appeal from the Supreme Court of New South Wales.

Here, the defendant had argued that a contract for the sale and transfer of shares by the Plaintiff was illegal and void as a term of that agreement (pertaining to the provision of a mortgage) involved an agreement to commit a criminal offence.

Lord Brightman (delivering the judgment of the Privy Council) after considering extensive jurisprudence on the subject from Australia, England and Scotland pertaining to the severance of illegal terms which are contrary to public policy, came to the conclusion that although the terms pertaining to the provision of the mortgage was illegal and therefore void, they were merely ancillary to the overall transaction and did not go to the heart of the transaction between the parties which simply concerned the sale and purchase of shares. In such a circumstance, there would be no public policy objection to permit the enforcement of the contract without the illegal term.

The ultimate determination will centre on 2 main considerations:

  1. Whether the illegal or offending term of the agreement/consent order is an essential term of the entire agreement that goes to the heart of why parties entered into the same; and
  2. Can the illegal/offending term be divorced from the entire agreement and yet be capable of being performed in its entirety.

Alternative to settling an issue relating to a withdrawal of a police report

Write for permission to withdraw instead

A viable alternative or solution when parties still want to have as part of an agreement that a possible criminal action/police report or criminal investigation be compromised is for the parties to word the agreed term as such

“Parties agree for X to write to the Deputy Public Prosecutor to request to withdraw all existing criminal charges against Y”

Such was the case in Lim Kim Huat v Chew Chee Bor, where a consent order was entered into which contained a clause that both parties are to request the Deputy Public Prosecutor to withdraw all criminal charges against the plaintiff which arose as a result of the defendant’s police report lodged against the plaintiff to allege that he had cheated the defendant off his money.

In upholding the judgment for the defendant and distinguishing Charles Ooi and Lian Mong Yee, Che Mohd Ruzima Ghazali JC held that such a clause is not contrary to public policy as both parties were aware that the Deputy Public Prosecutor has the ultimate discretion to withdraw any criminal proceedings and whether to accept or reject a withdrawal request by the relevant parties, and because the consent order did not require the defendant to withdraw his police report (which would have been tantamount to a breach of public policy). Moreover, his lordship also observed that the defendant had entered into the consent order for the purposes of recovering his money, and as for the plaintiff, to resolve the claims stacked against him.

Similar considerations would also apply in relation to a withdrawal of a police report, namely that parties cannot be said to be stifling prosecution by merely writing to the relevant authorities to request for the withdrawal of a previous police report lodged. The paramount consideration again, being that the discretion pertaining to the prosecution of criminal offences does not lie with the parties to an agreement.

[1] Charles Ooi Kiah Inn v. Kukuh Maju Industries Sdn. Bhd [1993] 2 MLJ 224
[2] See also Section 25 of the Contracts Act 1950
[3] [2001] 3 CLJ 905
[4] [1993] 2 MLJ 224
[5] [2015] 2 MLJ 801
[6] Lau Chee Ching v Niah Native Logging Sdn Bhd [2002] 4 MLJ 8
[7] Murugesan v Krishnasamy & Anor [1958] 24 MLJ 92 which was subsequently applied in a Supreme Court decision in New Zealand Insurance Co Ltd v Ong Choon Lin (T/A Syarikat Federal Motor Trading) [1992] 1 MLJ 185
[8] [2013] 1 SLR 1
[9] [2002] 3 NZLR 258
[10] [1985] A.C. 301