LECTURE 2: THE LAW OF TORT

Elements Sections and Cases

What is negligence? Blyth v Birmingham Waterworks Co (1856) 11 Ex. 781, per
Alderson B:
‘Negligence is the omission to do something which the
reasonable man, guided upon those considerations which
ordinarily regulate the conduct of human affairs, would do, or do
something which a prudent and reasonable man would not do.’
3
Elements of Negligence 4/5 STEPS

STEP 1: Caparo Industries plc v Dickman [1990] UKHL 2

The defendant owed House of Lords, following the Court of Appeal, set out a ‘three-
plaintiff duty of care fold test’. In order for a duty of care to arise in negligence:
1. Reasonable foresight of harm (Donoghue & Steven);
2. Sufficient proximity of relationship (Special R);
3. Fair just and reasonable to impose a duty.
1. Reasonable foresight of harm
Donoghue v Stevenson [1932] HL
Definition of ‘neighbour’ as per Lord Atkin:
“Persons who are so closely and directly affected by my act
that I ought reasonably to have them in contemplation as long as
so affected when I am directing my mind to the acts or
omissions that are called in question.” (neighbour principle)
**i.e. A test of proximity and reasonable foreseeability
Held: English House of Lords decided a person could be
liable for negligence even though there was no contract
between them. Manufacturers (and other is chain in
supply) owe duty of care to ultimate consumer.

Bourhill v Young [1943] AC 92

A motorcyclist carelessly collided with a tram. The plaintiff
(pregnant lady), who had just alighted from the tram, was ten
meters away and on the off-side of the tram during the accident.
She suffered nervous shock and miscarriage as result of hearing
 the noise of the collision and then seeing the aftermath.
Held: It was not reasonably foreseeable to the
motorcyclist that she (the plaintiff) would be injured as
a result of his careless riding. She was physically outside
the area of foreseeable danger and this in itself was
sufficient to prevent her from recovering.

2. Sufficient Proximity of Relationship

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]
SPECIAL RELATIONSHIP – 5 Key Elements

1. Defendant possesses a skill or expertise

Lennon v Metropolitan Police Commissioner (2004)
Lennon, a police officer applied for transfer to Northern Ireland.
He went to get advice from a personnel officer regarding his
Negligent Misstatement housing allowance. Before transferring he took a 3 week break,
where he was not informed by the personnel officer that he
would lose his allowance. He then sued for negligence.
Held: Judge held that the personnel officer owed
Lennon DOC, having assumed responsibility for
Lennon’s transfer and not warning him about the
implications of him taking a break has on his allowance
(negligent omission). Consequently, the Commissioner,
and those acting under him, were under a duty of care
to give advice to Lennon which protected him from
economic loss.
Chaudhry v Prabhakar [1988] 3 All ER 718
Plaintiff knew little about cars, and asked the defendant, who
knew significantly more to look for a second hand car for her, on
a condition that it must not have been in an accident. Defendant
found a car that had been in an accident, but did not tell the
plaintiff, and insisted it was in good condition, and relying upon
that, the plaintiff bought it. It was then discovered that the repair
job was bad, and it was unroadworthy and useless.
Held: Defendant, as a gratuitous agent owed his
principal DOC, as he knew that the principal would rely
on his skill and judgement, and Defendant was in
breach of an implied term (that car must be in
merchantable quality)
2. Defendant voluntarily assumes responsibility for his
statements
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]
Hedley (a firm) wanted to know if it would be advisable to
extend credit to a customer, Easipower. Hedley asked Heller
whether it would be advisable. Heller advised Hedley that it was
appropriate to extend credit to Easipower. Hedley extended
credit and Easipower went out of business. Hedley sued Heller.
Held: Court dismissed the case as there was no duty of
care based on the facts

3. Known User – Who?

Caparo Industries plc v Dickman [1990] UKHL 2
Fidelity plc manufactures electrical equipment, was a target for
takeover by Caparo Industries. They were not doing well, share
prices dropped, and Caparo started buying in large quantities. In
June 1984 the annual accounts, which were made with the help
of Dickman, an accountant was issued. After gaining control,
Caparo realised that the company was in a worser state than the
directors initially stated, and sued Dickman for negligence.
Held: The majority of the Court of Appeal held that a
duty was owed by the auditor to shareholders
individually, and although it was not necessary to decide
that in this case and the judgment was obiter, that a
duty would not be owed to an outside investor who had
no shareholding.

Goodwill v British Pregnancy Advisory Service (1996)

Doctor performed a vasectomy on a man and told him he need
not use any form of contraception anymore, he was all good. He
told another woman that he had a vasectomy and she need not
use contraception, and they had sexual intercourse. The
vasectomy then had a spontaneous reversal and she became
pregnant. The lady (Goodwill) sues BPAS
Held: Goodwill is not a known user of the doctor’s
advice, and it was not known that she would use it as a
warranty of permanent infertility. BPAS was not in a
sufficient or any special relationship with the plaintiff
such as gave rise to a duty of care. It could not properly
 be said that BPAS voluntarily assumed responsibility to
the plaintiff when giving advice to the man.

4. Known Purpose – What?

Caparo Industries plc v Dickman [1990] UKHL 2

5. Reasonable Reliance
Smith v Bush (1990)
Defendant was employed by a building society, Abbey National
to inspect and value a property. He disclaimed his responsibility
to the plaintiff, the purchaser. The property valuation said no
essential repairs were needed, and based on this Mrs Smith
bought the place. Bricks from the chimney then collapsed
through the roof, smashing through the roof. Smith sued.
Held: It was not unreasonable for the purchaser of a
modest house to rely on the surveyors' evaluation, as it
was such common practice. The Lords decided that even
though the defendants had issued a liability waiver, this
could not stand up to the test of reasonableness under
s.11. The Lords did however say that not all exclusion
clauses used by surveyors would be unreasonable, for
instance in big property developments.

3. Fair, just and reasonable to impose a duty

Hill v Chief Constable of West Yorkshire [1988]
The mother of a victim of the Yorkshire Ripper claimed in
negligence against the police alleging that they had failed to
satisfy their duty to exercise all reasonable care and skill to
apprehend the perpetrator of the murders and to protect members
of the public who might be his victims.
Held: The police will not generally owe a duty of care to
the victims of crime. Where the potential pool of victims
is large (in this case, arguably all the women in
Yorkshire), there cannot said to be proximity.
Furthermore, for policy reasons, it is undesirable for the
police to owe legal duties to individual victims.

COMPARED WITH
Reeves v MPC [2001]
Martin Lynch committed suicide whilst in a police cell. He had
attempted suicide earlier that day in the cells at the magistrates.
He had also attempted suicide on previous occasions. He had
been seen by a doctor at the police station on arrival who
reported that he was not schizophrenic or depressed but was a
suicide risk. The custody officer checked him at 1.57 pm and left
the hatch open. He was found at 2.05pm having used his shirt as
a ligature secured by the open hatch. He was unable to be
resuscitated and died a week later. The defendant argued that as
Lynch was of sound mind his voluntary and informed act of
suicide broke the chain of causation.
Held: The act of suicide was the very thing that the
police were under a duty to prevent to treat this as a
novus actus interveniens would deprive the duty of any
substance. Therefore the defendant was liable, however
damages were reduced by 50% under the Law Reform
(Contributory Negligence) Act 1945.

AND

Orange v Chief Constable West Yorkshire [2001]

Defendant, the police in whose custody the husband of Claimant
committed suicide, by hanging himself with his belt from the
gate to the cell.
Held: The police were under a duty to take reasonable steps
to identify whether or not a prisoner presented a suicide
risk. The obligation to take reasonable care to prevent a
prisoner from taking his own life only arose where the police
knew or ought to have known that the individual prisoner
presented a suicide risk, Reeves v Commissioner of Police of
the Metropolis [2000] applied. The deceased was not a
person whom the officers knew or ought to have known was
a suicide risk. Claimant lost.

2 types:
(a) Consequential Economic Loss (can always be claimed)
(b) Pure Economic Loss (Stand-Alone Economic Loss)
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd
[1973] 1 QB 27
- Loss of steel (YES) (CEL)
- Loss of profit (YES) (CEL)
- Loss of profit from 3 extra melts (NO) (PEL)

“Reasonable Man Test”

- How a responsible person would have acted in the
circumstances?

Nettleship v Weston [1971]

Defendant was a learner driver and the plaintiff was a driving
instructor. During one of the lessons, the defendant lost control
of the car, causing an accident which injured the plaintiff. The
defendant argued that the plaintiff was well aware of her lack of
skill and that the court should make allowance for her since she
could not be expected to drive like an experienced motorist.
Held: The plaintiff won. Defendant is liable despite her
inexperience. The standard of care required of all
motorists is the same, but plaintiff can only claim partial
damages, as this is contributory negligence (plaintiff had
partial control of the car and should have done
something).

*5 Factors Affecting the Standard of Care

Bolton v Stone [1951]
Appellant was struck by a cricket ball while walking past the
defendant’s cricket ground. The ball had travelled some 85
metres before hitting the plaintiff. Balls had only been hit over
the fence 6 occasions over the last 30 years during matches, and
committee members could not recall a similar incident ever
happening.
Held: There was no negligence, as it was not a
 reasonably foreseeable event.

COMPARE WITH

Miller v Jackson [1977]

Special Duty Situation: Cricket is often played, and the Millers stay nearby the cricket
Economic Loss field. Over the years many cricket balls have flown over to their
house, causing damages (roof tiles chipped etc) and personal
damage. Although the club took measures to prevent it from
happening, the balls still go over the field 8/9 times a year.
Held: Defendant was guilty of negligence, and had to
pay for damages caused. They were negligent for every
ball that went over the field fence

Paris v Stepney Borough Council [1951]

Plaintiff only had one good eye. While using a hammer to
remove a bolt in a vehicle, a piece of metal flew off and lodged
in his good eye, leaving him blind. The employer had not
provided him with goggles, nor was it usual practice for
employers to provide goggles to men working on maintenance.
Held: Stepney Borough Council was aware of his special
circumstances and failed in their duty of care to give
STEP 2: him protective goggles.
The defendant has
breached that Duty of
Care “But For” test
Would the plaintiff have suffered damage “but for” the
defendant’s negligence? In other words, did the damage occur
because of your negligent behaviour?

Barnett v Chelsea and Kensington Hospital Management

Committee [1969] 1 Q.B. 428
Early one morning the plaintiff’s husband went to the
defendants’ hospital and complained of vomiting after drinking
tea. The nurse on duty consulted a doctor by telephone and the
doctor said that he should go home and consult his own doctor
later in the morning. The plaintiff’s husband died of arsenic
poisoning.
Held: In failing to examine the deceased, the doctor was
 guilty of a breach of his duty of care, but this breach
was not cause of the death because, even if the deceased
had been examined and treated with proper care, the
probability was that it would have been impossible to
save his life. The plaintiff’s claim therefore failed.

Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co

Ltd (The Wagon Mound No 1) [1961] – Australian case
Defendant carelessly discharged oil from their ship, the Wagon
Mound, into Sydney Harbour. The wind and tide carried the oil
beneath Plaintiff’s wharf where welding operations were being
carried on by Plaintiff’s employees. Molten metal set some
waste floating in the oil on fire. The flames severely damaged
the wharf. Should Defendant be liable?
Held: Privy Court held that the defendants were not
liable because the fire was not a foreseeable consequence
of their negligence (damage that would be foreseeable is
pollution for example, not fire)

Contributory Negligence
At common law
The plaintiff can recover nothing (Harsh rule, especially for
cases where the plaintiff’s negligence was not the major cause of
the accident)
Section 12 of the Civil Law Act 1956
In case of contributory negligence, the damages recoverable by
the plaintiff are to be reduced ‘to such extent as the court thinks
just and equitable having regard to the claimant’s share in
responsibility for the damage’

Davies v Swan Motors [1949]

There was a collision between a dust cart and an omnibus. The
plaintiff was riding on the step of the dust cart in a somewhat
unsafe position where it collided with the bus.
Held: The Court of Appeal found the plaintiff, Mr
Davies, guilty of contributory negligence as he was not
supposed to ride on the step of the dust cart.
Sundram a/l Ramasamy v Arujunan a/l Arumugam & Anor
[1991]
 Held: The courts held that the road accident victim
could not be held to be contributorily negligent for
failing to get up from the road after an accident.

Volenti Non Fit Injura

- Voluntary Assumption of Risk
- Must be raised by Defendant and is a complete defence
STEP 3:
- Defendant must show Plaintiff knew of and fully
The defendant’s act appreciated the risk and voluntarily accepted it
caused the plaintiff
- Often raised in sporting events like wrestling
physical/mental harm
or economic loss
(Causation)
ICI v Shatwell [1965]
The plaintiff and his brother were both detonation experts. They
freely and voluntarily assumed the risk involved and there was
no pressure from any other source. To the contrary, they were
specifically warned about complying with the new safety
regulations. They had consented to the risk. They were then
injured because they could not be bothered to take the
mandatory precautions
Held: Lord Denning MR held that they were not entitled
to compensation

STEP 4:
Harm suffered by the
plaintiff was
reasonable foreseeable
(Remoteness)
STEP 5:
Check for Defences

LECTURE 4: CONSIDERATION
Elements Sections and Cases
Definition of Section 2(d) of the Contracts Act 1950
Consideration in
…when, at the desire of the promisor, the promisee or any
Malaysian Law
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is called
consideration for the promise.

Blue – Executed Consideration

Red – Executory Consideration
Orange– Past Consideration
underline – Forbearance to sue

Lush J in Currie v Misa (1875)

“A detriment to the promise or a benefit to the promisor”
Definition of
Consideration in
Common Law Lord Dunedin in Dunlop v Selfridge Ltd (1915)
“An art or forbearance of one party, or the promise thereof…”

Consideration without University of Malaya v Lee Ming Chong [1986] 2 MLJ 148
agreement
University of Malaya appointed the defendant to a scholarship
offered by the Canadian government, to pursue a degree in
 Canada. The parties entered into a scholarship agreement that
provided for the defendant to serve the University for a period
not less than five years and a breach of this term will render him
liable to pay the University on demand RM5000. The defendant
breached the term and contended that the scholarship agreement
was void as it was made without consideration.
Held: There was consideration on the part of the
university (by appointing him to the scholarship) for
Lee’s promise to serve it for 5 years after completing the
course, which he would not be able to take without the
appointment of the university.

Section 26 of the Contracts Act 1950

As a general rule, an agreement without consideration is void

Types of Consideration

Executory K. Murugesu v Nadarajah [1980] 2 MLJ 82

Consideration
The respondent was the tenant of the appellant. He pestered the
appellant to sell the house to him. The appellant finally wrote on
a piece of paper an agreement to sell the respondent the said
house for RM26,000 within three months from the date of the
agreement. Later the appellant refused to sell and the respondent
sued for specific performance. The appellant contended that
there was no consideration for the offer to sell and the agreement
was void for want of consideration.
Held: The agreement was the case of executory
consideration. A promise is made by one party in return
for a promise made by the other; such, each promise is
the consideration for the other. [Federal Court]

*refer to Section 2(d) of the Contracts Act 1950

At Common Law

Executed Consideration As per Re McArdle (1951)

If one party voluntarily performs an act, and the other party
then makes a promise, the consideration for the promise is said
Past Consideration to be in the past. The rule is that past consideration is no
consideration

EXCEPTION: PREVIOUS REQUEST

Lampleigh v Braithwait [1615] 80 ER 255

Held: The court held in favour of Lampleigh as an act
which predated to a promise could be good
consideration if, as in the present case, the act was done
at the request of the promisor and it was understood at
that time that there would be some payment for it

Pao On v Lau Yiu-long [1980] AC 614

A case on appeal to the Privy Council from Hong Kong
Held: The act must have been done at the promisor’s
request, the parties must have understood that the act
was to be remunerated further by a payment or
conferment of some benefit and the remuneration, if it
had been promised in advance, would have been legally
recoverable.

In Malaysian Law
Past Consideration is GOOD consideration
***Section 2(d) has to be read together with Section 26(b) of
the Contracts Act 1950

Section 2(d) of the Contracts Act 1950

Past consideration one at the desire of the promisor is sufficient

Kepong Prospecting Ltd & Ors v Schmidt [1968] MLJ 170

(page 174-175 in the textbook)
Held: Services provided by Schmidt prior to the
formation of the company could not be regarded as
consideration due to the non-existence of the company
at that time, but his services provided to the company
after its formation until the date of his agreement with
the company
South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ
355
(page 176 of the textbook)
Held: The former Supreme Court decided in favour to
the appellant saying that he gave the guarantee to
Perdana Sdn Bhd on the request of the respondent, and
by Section 2(d), is good consideration for the subsequent
promise made by the respondent to indemnify the
appallent.

Section 26(b) of the Contracts Act 1950

Agreement made without consideration is void unless it is a
promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor.
**This section makes Malaysian Law different from the
English Common Law

Wotherspoon Co Ltd v Henry Agency House [1962] MLJ 86

(page 177-178 in the textbook)
Held: The act done by the plaintiff for the defendant
firm at the latter’s suggestion had not been done
voluntarily and therefore the promise made without
consideration by the defendant firm to compensate the
plaintiff is not a contract

Leong Huat Sawmill (Pte) Ltd v Lee Man See [1985] 1 MLJ 47
Held: A promise made by the appellant to pay
additional wages to the respondent was not legally
enforceable for want of consideration. Court rejected
respondent’s argument that their work of extracting
timber was valid consideration as per Section 26(b)
because the logging was not done voluntarily but was
 part of his existing contractual duty.

*Illustration (f) to Section 26 of the Contracts Act

Chappell & Co Ltd v Nestle Co Ltd [1959]

Chappell & Co. owned the copyright to ‘Rockin’ shoes’. Nestle
was giving away records of it to people who sent in three
wrappers from 6d chocolate bars, as well as 1s 6d. The
Copyright Act 1956 s 8 said a 6.25% royalty needed to be paid
on the ‘ordinary retail selling price’ to the owners of copyrights.
Nestle said 1s 6d was the ordinary retail selling price, but
Chappell & Co argued that it should be more and sought an
injunction for breach of CA 1956 s 8. The question arose as to
whether the wrappers were consideration for the records.
Held: The majority of the House of Lords held that the
wrappers were part of the consideration, and so Nestle
was in breach of the Copyright Act 1956, by failing to
pay royalties reflecting the extra cost of the wrappers.

Phang Swee Kim v Beh I Hock [1964] MLJ 338

Appellant contended that there was an oral agreement made
Consideration must be between her and the respondent in which the respondent agreed
sufficient but need not to transfer the land to her on payment of $500. The learned trial
be adequate judge accepted her evidence but held that the agreement was
void due to inadequacy of consideration.
Held: On appeal the former Federal Court held that by
virtue of explanation 2 to section 26, the inadequacy of
consideration was immaterial.

Natural Love and Affection

In Common Law
Eastwood v Kenyon (1840) 11 Ad. & E. 438.
Sarah’s dad dies, leaving Eastwood as her guardian. Eastwood
borrowed money to fund for her education, and she promised to
pay him when she came of age, plus 1 year interest. Sarah then
married Kenyon who also promised to pay Eastwood back, but
he failed to do so. Eastwood sued.
Held: Kenyon’s promise to repay Eastwood for caring
 for Sarah created a moral obligation, nothing more.

In Malaysian Law
Section 26(a) of the Contracts Act 1950
Agreement made on account of natural love and affection is
binding if
- It is expressed in writing
- It is registered (if applicable)
- The parties stand in a near relation to each other
**See illustration (b) to Section 26
Consideration must be
something of value in
the eyes of the court
Tan Soh Sim, Chan Law Keong & Ors v Tan Saw Keow & Ors
(1951) MLJ 21
A woman on her deathbed expressed her intention to leave all
her properties to her four adopted children.
Held: The court held that the claims of the adopted
children were not effective as it was contrary to Section
26(a) - that it was not in writing, and there was no
natural love and affection between parties standing in
near relation to each other, since the four children were
adopted and did not have natural relations (blood ties)
to that woman.

Forbearance to Sue
Alliance Bank v Broom (1864), Osman bin Abdul Ghani v
United Asian Bank Bhd [1987] 1 MLJ 27
CHECK IN MLJ IN UNI

Performance of an Existing Public Duty

Glasbrook Bros. Ltd v Glamorgan County Council [1925]
GB owned a colliery, due to a violent strike wanted police
protection on site. GCC, the police, believed a mobile patrol
would do. GB promised to pay the additional costs for on-site
protection. GB later refused to pay, claiming that the police were
under and existing public duty to protect the public.
Held: The police had provided more than their normal
public duty, therefore promise to pay extra was
enforceable

Performance of an Existing Contractual Duty

Stilk v Myrick (1809)
2 sailors ‘jumped ship’. Myrick persuaded the others to continue
the voyage on a return trip from London to the Baltic by
promising to split the 2 deserters’ wages amongst them.
Myrick then refused on arrival London, Stilk sued.
Held: The sailors had undertaken to do all they could
under the normal conditions of the voyage to bring the
ship safely to port. The desertion of the 2 seamen did not
extend the remaining seamen’s existing contractual
duty. Therefore, there was no new consideration.

Hartley v Ponsonby (1857)

Ponsonby’s ship contained 36 crew, 17 jumped ship in Port
Philip. Ponsonby promised £40 to Hartley of the crew to
continue voyage to India as it had become very dangerous to
sail. Similar clause in contract regarding emergencies.
Hartley sued to recover when Ponsonby reneged.
Held: There was a new element which discharged the
parties from the original contract; fresh contract existed
& could claim. Sailing the ship back to London in an
unseaworthy condition was more than the original
contract required. The promise of extra wages was
supported by good consideration. (They did more than
they were obliged to do in the original contract)

Williams v Roffey Bros [1990]

The defendants were building contractors who entered an
agreement with Shepherds Bush Housing Association to
refurbish a block of 27 flats. This contract was subject to a
liquidated damages clause if they did not complete the contract
on time. The defendants engaged the claimant to do the
carpentry work for an agreed price of £20,000. 6 months after
commencing the work, the claimant realised he had priced the
job too low and would be unable to complete at the originally
agreed price. He approached the defendant who had recognised
that the price was particularly low and was concerned about
completing the contract on time. The defendant agreed to pay
the claimant an additional £575 per flat. The claimant continued
work on the flats for a further 6 weeks but only received an
additional £500. He then ran out of money and refused to
continue unless payment was made. The defendant engaged
another carpenter to complete the contract and refused to pay the
claimant the further sums promised arguing that the claimant
had not provided any consideration as he was already under an
existing contractual duty to complete the work.
Held: Variation was supported by consideration since the
defendant was to receive a ‘practical benefit’ from the
variation. The practical benefit comprised:
a) Assurance that claimant would continue to work on
cite;
b) The better organization of the claimant’s work so as
to allow the defendant to make more efficient use of
labor on cite; the voidance of an obligation to pay
penalty as a result of the failure to complete the flats
timeously; and
c) Avoidance of the inconvenience generated by having
to find a substitute for the claimant.

Part Payment of a Debt

Under Common Law
*Part Payment is not good consideration
Pinnel’s Case (1602) – PINNEL’S RULE
‘...payment of a lesser sum on the day in satisfaction of a greater,
cannot be any satisfaction for the whole...’

Under Malaysian Law

***Pinnel’s Rule DOES NOT apply in Malaysia
Section 64 of the Contracts Act (statutory waiver)
Every promisee may dispense with or remit, wholly or in part,
the performance of the promise made to him, or may extend the
time of such performance, or may accept instead of it any
satisfaction which he thinks fit.

Under Common Law

As per Price v Easton (1833)

The person who wishes to enforce the contract must show that
they provided consideration; it is not enough to show that
someone else provided consideration

Under Malaysian Law

It is possible for consideration to move from a third party as seen
in section 2(d)
Consideration must
move from the
promisee

LECTURE 5: TERMS OF A CONTRACT

Elements Sections and Cases
Written Contracts Section 91 of the Evidence Act 1950
(Both sections 91 and When the terms of a contract or of a grant or of any other
92 are read together)
disposition of property have been reduced by or by consent of
the parties to the form of a document, and in all cases in
which any matter is required by law to be reduced to the form of
a document, no evidence shall be given in proof of the terms
of the contract, grant or other disposition of property or of the
matter except the document itself, or secondary evidence of its
contents in cases in which secondary evidence is admissible
under the provisions hereinbefore contained.

Section 92 of the Evidence Act 1950

(PAROL EVIDENCE ACT or “RULE”)
When the terms of any such contract, grant or other
disposition of property, or any matter required by law to be
reduced to the form invalidity of thof a document, have been
proved according to section 91, no evidence of any oral
agreement or statement shall be admitted as between the
parties to any such instrument or their representatives in interest
for the purpose of contradicting, varying, adding to, or
subtracting from its terms

Proviso to Section 92 of the Evidence Act 1950

(a) Invalidity of the documents
Any fact may be proved which would invalidate any
document or which would entitle any person to any
decree or order relating thereto, such as fraud,
intimidation, illegality, want of due execution, want of
capacity in any contracting party, the fact that it is
wrongly dated, want or failure of consideration, or
mistake in fact or law
(b) Separate oral agreement (collateral agreement)
The existence of any separate oral agreement, as to any
matter on which a document is silent and which is not
inconsistent with its terms, may be proved, and in
considering whether or not this proviso applies, the court
shall have regard to the degree of formality of the
document
(c) Condition precedent
The existence of any separate oral agreement constituting
a condition precedent to the attaching of any obligation
under any such contract, grant or disposition of property,
may be proved
(d) Subsequent oral agreement
The existence of any distinct subsequent oral agreement,
to rescind or modify any such contract, grant or
disposition of property, may be proved except in cases in
which the contract, grant or disposition of property is by
law required to be in writing, or has been registered
according to the law in force for the time being as to the
registration of documents
(e) Usage or custom
Any usage or custom by which incidents not expressly
mentioned in any contract are usually annexed to
contracts of that description may be proved if the
annexing of any such incident would not be repugnant to
or inconsistent with the express terms of the contract
(f) Ambiguity
Any fact may be proved which shows in what manner the
language of a document is related to existing facts

Leong Gan v Tan Chong Motor Ltd.[1969] 2 MLJ 8

The appellant and respondents executed and registered two
leases under which a piece of land was leased to the respondents
for the period of four years. When the appellant applied for
repossession of the land, the respondents argued that there was
an oral agreement between them which allowed the respondents
 to occupy the land for 12 years. The issue raised before the High
Court was in regard to the admissibility of the oral agreement in
view of section 92 of the Evidence Act 1950.
Held: The extrinsic oral evidence (the oral agreement) is
inadmissible to contradict what has been expressly
agreed in the written agreement by the parties.
Therefore, the appellant’s claim for repossession of the
land was allowed.

Section 92 should only apply if the courts are certain that the
parties have reduced all their contractual terms into a written
document
As per Tan Chong & Sons Motor Co. Sdn. Bhd. v Alan
McKnight [1983] CLJ 394
Federal Court: Salleh Abas FJ (as he then was)“… prohibition
against admissibility of evidence under section 92 only applies
where all – as opposed to some only – of the terms of the
contract are written into the agreement. Thus where some terms
are given orally and some in writing, oral evidence could be
given to prove the terms agreed to orally”

Tan Swee Hoe Co. Ltd v Ali Hussain Bros (1980)

The appellants promised the respondents that they may stay on
the premises for as long as they wished, provided that they pay
$14,000 as “tea money” (tea money is like bribe). Subsequently,
the respondents and appellants executed two written tenancy
agreements which were silent about this point. When a dispute
arose between the parties regarding the rental payment, the
appellants sued for vacant possession, arrears of rent, mesne
profits and damages. The respondents countered, saying that
there was an oral agreement between them which allowed the
respondents to occupy the premises as long as they wished
provided that they paid the rent regularly. The issue that was
raised again before the court was the admissibility of the oral
agreement.
Held: “In our view there is a growing body of authority
which supports the proposition that a collateral agreement
Doctrine of Collateral can exist side by side with the main agreement which it
Contract contradicts”
*This is however questionable (refer to Section 3 of the Civil
Law Act 1956)
Statements

Mere Puff Carlill v Carbolic Smoke Ball

Term or Mere 4 subsidary tests

Representation?
1. The Time Factor
Routledge v McKay [1954] 1 All ER 855
Plaintiff and Defendant were discussing about the
purchase of the motorcycle from the Defendant. On 23rd
October, the Defendant relying on the registration book
said to the Plaintiff that the motorcycle was a 1942
model. On 30th October, they entered into a contract of
sale without mentioning about the year of the model.
Later, the Plaintiff found out that it was actually a 1930
model. The Plaintiff sued the Defendant for damages.
Held: Court of Appeal: rejected the P’s claim stating
that the statement was a mere representation. The
gap between the periods the statement was made and
the conclusion of the agreement was well marked.

2. The Writing Factor

Routledge v McKay [1954] 1 All ER 855
*** The statement on motorcycle’s age was not
incorporated into the written document and, thus, it was
regarded as a mere representation and not a term.

3. The importance of the statement factor

Bannerman v White [1861] 142 ER 68
The Plaintiff wanted to buy crops from Defendant to
make beer (cannot contain any contamination or else
cannot make beer). Written contract was silent about the
contamination
Held: Because the oral statement was so important, it
is allowed to be used as an argument (becomes a
breach of contract

4. The relative skill and knowledge factor

 Schawel v Reade[1913] 2 IR 81
The Plaintiff wanted to buy a stallion for stud purposes.
He started to examine the horse that was advertised for
sale by the defendant. The defendant interrupted him,
saying, “you need not look for anything, the horse is
perfectly sound. If there was anything the matter with the
horse I would tell you”. The Plaintiff stopped his
examination and later concluded the contract. In fact, the
horse was unfit for stud purposes.
Held: House of Lords: the statement was a term of
the contract. The Defendant made it as a person of
special knowledge and skill as to the horse’s capacity.

Poussard v Spiers (1876) 1 QBD 410

Madame Poussard entered a contract to perform as an opera
singer for three months. She became ill five days before the
opening night and was not able to perform the first four nights.
Spiers then replaced her with another opera singer.
Held: Madame Poussard was in breach of condition
and Spiers were entitled to end the contract. She
missed the opening night which was the most
important performance as all the critics and publicity
would be based on this night.

Associated Metal Smelters v Tham Cheow Toh [1971]

The appellant agreed to sell a metal furnace to the respondent
and had undertaken that the metal furnace would have a
temperature of not less than 2,600 degrees Fahrenheit. When the
appellant did not satisfy this specification the respondent
brought an action alleging breach of an express condition of the
contract and claimed damages. (Term was condition however
treatment of the breach of contract was classified as warranty).
Term – Condition
Held: Abdul Hamid J held: the appellant's failure to
supply a furnace according to the specification
constituted a breach of a condition of the contract.
This entitled the respondent to treat such breach as a
breach of warranty. The court awarded the sum of
$7,500 as damages for the loss of profit. The former
Federal Court upheld the decision.
 Bettini v Gye (1876) 1 QBD 183
Bettini agreed by contract to perform as an opera singer for a
three month period. He became ill and missed 6 days of
rehearsals. The employer sacked him and replaced him with
another opera singer.

Term – Warranty Held: Bettini was in breach of warranty and therefore

the employer was not entitled to end the contract.
Missing the rehearsals did not go to the root of the
contract.

Baker v Asia Motors Co Ltd [1962] MLJ 425 (Singaporean

case)
The defendant, motor traders and dealers in second hand cars,
stated that the car that the plaintiff intended to buy was a 1958
model, in fact, it was a 1953 model.
Held: The court held that the statement was a term of
the contract and the plaintiff was entitled to damages.
Although the court decided that the statement was an
express term of the contract, it did not inquire further
whether such a term was a warranty or a condition.
Since it allowed only damages, the court must have
deemed it to be a warranty.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd

[1962] 2 QB 26
A ship was chartered to the defendants for a 2 year period. The
agreement included a term that the ship would be seaworthy
throughout the period of hire. Problems developed with the
engine of the ship and the engine crew were incompetent.
Consequently the ship was out of service for a 5 week period
and then a further 15 week period. The defendants treated this as
a breach of condition and ended the contract. The plaintiff
brought an action for wrongful repudiation arguing the term
relating to seaworthiness was not a condition of the contract.
Held: The defendants were liable for wrongful
repudiation. The court introduced the innominate term
approach. Rather than seeking to classify the term
itself as a condition or warranty, the court should look
to the effect of the breach and ask if the breach has
substantially deprived the innocent party of the whole
benefit of the contract. Only where this is answered
affirmatively is it to be a breach of condition. 20 weeks
 out of a 2 year contract period did not substantially
deprive the defendants of whole benefit and therefore
they were not entitled to repudiate the contract.

Modern test –
seriousness of the
consequences of the
breach

LECTURE 6: EXEMPTION CLAUSES

Elements Sections and Cases
STEP 1: Is the EC a
term of the contract?
L’Estrange v Graucob Ltd [1934] 2 KB 394
(a) Incorporation of EC
The plaintiff purchased a cigarette vending machine for use in
by signature
her cafe. She signed a sales agreement which stated in small
print 'Any express or implied, condition, statement of warranty,
statutory or otherwise is expressly excluded'. The vending
machine did not work and the plaintiff sought to reject it under
the Sale of Goods Act for not being of merchantable quality
(terms implied by statute). (Breach of an implied warranty that
machine was fit for the purpose for which it was sold.)
Held: In signing the sales agreement she was bound by
all the terms contained in the agreement irrespective of
whether she had read it or not. Consequently her claim
was unsuccessful.
 S Pearson & Son Ltd v Dublin Corp (1907) AC 351 - (Fraud)
D furnished P drawings, plans & specifications relating to
construction of sewer work. P contracted (signed) to undertake
Exception 1: Fraud and
this work based on this information. Some of the information
Misrepresentation
was false causing P to incur extra expense. P performed contract
but sought damages. D claimed they were protected from
liability due to clause in contract which stated that P must not
rely on any representation made in the plans or elsewhere but
must verify and determine the facts for themselves.
Held: A party may not avoid liability for his own
fraudulent statements by inserting a clause in the
contract that the other party shall not rely on them.
Plaintiff succeeded in his claim.

Curtis v Chemical Cleaning & Dyeing Co (1951) 1 KB 805 -

(Misrepresentation)
P brought to the D’s shop a white satin wedding dress trimmed
with beads & sequins for cleaning. P was handed a receipt which
she was asked to sign. P asked why? Reason given was that the
shop ‘would not accept liability for certain specified risks
including the risk of damage by or to beads & sequins’. The
receipt actually contained a much broader exemption excluding
liability ‘for any damage howsoever arising, or delay’. Dress
returned with a stain. P sued for damages. D relied on EC to
exclude liability.
Held: As a result of the misrepresentation as to the
scope of the EC contained in the receipt, it never
became part of the contract.

Saad Bin Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98
*Textbook page 335
Held: Court of Appeal allowed the appeal by Mr Saad and
held that the agreement concluded between the parties was
an unconscionable bargain which rendered the agreement
being unenforceable
*First Malaysian case in which the doctrine of unequal
bargaining power was applied without the reference to the well-
established doctrine of undue influence
*Malaysia Law prior to the Amendment Act 2010
 Awang v Haji Omar (1949) MLJ Supp 28
Exception 2: Unfair Plaintiff sued Defendant for damages for breach of contract. It
Contract Terms appeared that the 1st defendant, who did not know English was
induced by the 2nd defendant, his brother to sign the document
containing the contract on the understanding that it was a matter
of witnessing his brother’s signature.
Held: The defence of non est factum was open to the 1st
defendant and he could not be held liable on the
contract.

Jenifer Mcalpin Lynn & Ors v AK Ludin bin PG Salimin &

Anor (504) MD 3
Plaintiff & husband were passengers in a water taxi owned by
Exception 3: Non Est 2nd defendant. Water taxi collided with a boat. Driver of water
Factum taxi and Plaintiff’s husband died. On the back of the receipt for
the fare was written ‘all passengers are at their own risks’. One
of the issues was whether the exclusion clause on the back of the
receipt exonerated the second defendant from liability.
Held: To rely on the EC, the 2nd defendant had to
show that he had given reasonable notice of the EC to
the passengers. The passenger would not consider a
receipt to be a contractual document and would not
expect it to contain contract terms. Therefore, the EC
was ineffective and did not protect the 2nd defendant.

(b) Incorporation of EC
by Notice Parker v South-Eastern Railway Co (1877) 2 CPD 416
Plaintiff put bag in coat check and received paper ticket. On
back of ticket it said company not responsible. Plaintiff went
*Nature of Document back, no bag. Plaintiff never saw notice on the ticket.
Held: Mellish LJ observed:
1. “…if the person receiving the ticket did not see or know
that there was any writing on the ticket, he is not bound
by the conditions;
2. That if he knew there was writing and knew or believed
that the writing contained conditions then he is bound by
the conditions ;
3. That if he knew there was writing on the ticket but did not
know or believe that the writing contained conditions,
 nevertheless he would be bound if the delivering of the
ticket to him in such a manner that he could see there was
writing upon it…”

Sugar v London, Midland and Scottish Railway Co. [1941] 1

All ER 172
* Anything that covers the notice, such as a date stamp, or any
matter that hides the notice or obscures it, will prevent
reasonable notice occurring.
*Nature of Document –
Degree of notice
(reasonable steps taken Thompson v London, Midland and Scottish Railway Co.
to bring EC to other [1930] 1 KB 41
party’s notice)
The claimant was injured whilst stepping off a train. The railway
company displayed prominent notices on the platforms
excluding liability personal injury and damage to property due to
negligence. The tickets also stated they were subject to terms
and conditions displayed on the platform. The claimant was
illiterate and could not read the signs. She argued that the
exclusion clause was not incorporated into the contract as the
railway company had not brought the clause to her attention at
the time the contract was made.
Held: The clause was incorporated. There is only a
requirement to take reasonable steps to bring the clause
to the attention of a reasonable person. There was no
duty to ensure that every traveller was aware of the
clause. The claimant was therefore unsuccessful in her
claim for damages.

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Plaintiff got ticket from machine, drove in, parked car. Small
print on ticket “ticket is issued subject to conditions displayed on
premises”. Conditions were displayed on pillar opposite machine
but difficult to see. Conditions excluded liability for injury.
Plaintiff injured.
Held: Defendant liable for negligence. Clause did not
exempt them and it is not a part of contract because the
Defendant had not done what was reasonably necessary
to bring clause to Plaintiff’s notice. In this instance
virtually impossible to read conditions before
acceptance
 Olley v Marlborough Court Ltd (1949) 1 KB 532
Plaintiff & husband were guests in Defendant’s hotel. Upon
arrival, they concluded a contract for a one week stay. They paid
for a week in advance & went to their room. In their room, was a
notice that stated ‘the proprietors will not hold themselves
responsible for articles lost or stolen unless handed to the
manageress for safe custody…’ Various valuables were stolen
from the Plaintiff’s room.
Held: A notice such as that found in the Plaintiff’s room
which could not have been seen until after the contract
had been concluded could not form part of the
agreement. Thus the EC was ineffective.

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71

P sent his car to D’s garage for repairs. On 3 or 4 occasions
during the past 5 years, D carried out repairs on P’s car and on at
least 2 of those occasions the P had signed the D’s standard form
that stated that the D was ‘not responsible for damage caused by
fire to customers’ cars on the premises’. However, on the instant
occasion, P had not signed D’s standard form – merely an oral
agreement. As result of D’s negligence, there was a fire causing
substantial damage to P’s car. D sought to avoid liability
claiming that although the P had not signed the D’s standard
form, it was incorporated by a course of dealing between the
parties.
Held: The 3 or 4 transactions that occurred over the
past 5 years were not sufficient to establish a course of
dealing such that provisions of the D’s standard form
could be implied into the oral contract between the
parties.

Malaysian Airlines Bhd v Malini Nathan [1986] 1 MLJ 330

The respondents were booked and had confirmed tickets to fly
on the appellant’s airline on a scheduled date. As the flight was
fully booked, the appellant was unable to accommodate the
respondents on the said flight. The respondents sued the
*Time of Notice appellant for damages and the appellant relied on condition 9 of
the conditions of contract printed on the airline ticket. The said
 condition provided as follows: “Carrier undertakes to use its best
efforts to carry the passenger and baggage with reasonable
dispatch. Times shown in timetables or elsewhere are not
guaranteed and form no part of this contract…Schedules are
subject to change without notice…”
Held: The former Supreme Court held that the
appellant was entitled to rely on the said connection and
was thus not in breach of contract for failing to fly the
respondents from London to Kuala Lumpur on the
appellant’s airline.

Malaysian National Insurance Sdn bhd v Abdul Aziz bin

Mohamed Daud [1979] 2 MLJ 29, FC.
D was driving his father’s car when it was involved in an
accident. The policy of insurance covering the car stated that the
company shall not be liable whilst any person other than an
(c) Incorporation by authorized driver was driving the motorcar. D and his father
Previous Course of were named as authorized drivers subject to the following
Dealings proviso: “Provided that the person driving is permitted in
accordance with the licensing or other laws and regulations to
drive the motor vehicle or has been so permitted, and is not
disqualified by order of a court of law or by any reason of any
enactment or regulation in that behalf from driving the motor
vehicle”. At the time of the accident the respondent had an
expired driving license but no court had disqualified him form
holding or obtaining a driving license. The question arose
whether the insurance policy was in force on the date of the
accident? The appellants denied responsibility and relied on the
exemption clause. The respondent argued that the second limb of
the proviso covered him.
Held: The second limb precisely envisaged the
respondent’s situation where there was a technical lapse
to renew his driving license. Thus, the respondent was
insured under the policy. Decision was upheld by the
Federal Court.

STEP 2: Does the

clause cover the
damage?
(a) Natural and
Ordinary Meaning
Doctrine of Suisse Atlantique Societe d’Armement Maritime SA v NV
Fundamental Breach Rotterdamsche Kolen Centrale [1971] 1 AC 361
* Doctrine of fundamental breach was rejected as inconsistent
with the freedom of contract

Photo Production Ltd v Securicor Transport Ltd [1980] 2

WLR 283
A Securicor Transport security guard was put in charge of
guarding Photo Production's building. The agreement between
Securicor and Photo Productions contained an exclusion clause
that absolved Securicor from any liability for "injurious act or
default by any employee of the company." While the security
guard was on patrol of the Photo Productions building he
intentionally started a fire that destroyed the whole building.
Could Securicor rely on the exclusion clause to escape liability
for their employee's conduct? Photo Productions argued that the
clause could not apply under the doctrine of fundamental breach.
That is, the breach of the contract was so huge that it invalidated
the whole agreement.
Held: Lord Denning, at the Court of Appeal, held that
the doctrine of fundamental breach did apply. However
at the House of Lords, Lord Wilberforce, overturned
Denning and found that the exclusion clause could
indeed be relied upon.

The Four Corners Rule Sydney Corporation v West (1965) 114 CLR 481
*Each exemption clause must be construed/interpreted in the
light of the contract as a whole.
*Four Corners = the boundary or limits of what was agreed to at
the time of formation, or what the Court believes would have
been agreed to.

LECTURE 7: VITIATING FACTORS (FRAUD AND MISREPRESENTATION)

Elements Cases and Sections
Free Consent Section 10(1) of the Contract Act provides, inter alia
 “All agreements are contracts if they are made by the free
consent of parties competent to contract…”

Section 14 of the Contract Act

“Consent is said to be free when it is not caused by—
(a) coercion, as defined in section 15;
(b) undue influence, as defined in section 16;
(c) fraud, as defined in section 17;
(d) misrepresentation, as defined in section 18; or
(e) mistake, subject to sections 21, 22 and 23.
Consent is said to be so caused when it would not have
been given but for the existence of such coercion, undue
influence, fraud, misrepresentation, or mistake.”

Section 19 of the Contract Act

Voidability of “(1) When consent to an agreement is caused by coercion,

agreements without free fraud, or misrepresentation, the agreement is a contract
consent voidable at the option of the party whose consent was so
caused. 
(2) A party to a contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in
which he would have been if the representations made had been
true.”

Section 20 of the Contract Act

“When consent to an agreement is caused by undue influence,
the agreement is a contract voidable at the option of the party
whose consent was so caused. Any such contract may be set
Power to set aside aside either absolutely or, if the party who was entitled to avoid
contract induced by it has received any benefit thereunder, upon such terms and
undue influence conditions as to the court may seem just.”

Section 21 of the Contract Act

“Where both the parties to an agreement are under a mistake as
to a matter of fact essential to the agreement, the agreement is
void.”
Agreement void where
both parties are under
mistake as to matter of
fact
Fraudulent Section 17 of the Contracts Act
Misrepresentation
“Fraud” includes any of the following acts committed by a party
to a contract, or with his connivance, or by his agent, with intent
to deceive another party thereto or his agent, or to induce him to
enter into the contract:
(a) the suggestion, as to a fact, of that which is not true by one
who does not believe it to be true;
(b) the active concealment of a fact by one having knowledge or
belief of the fact;
(c) a promise made without any intention of performing it;
(d) any other act fitted to deceive; and
(e) any such act or omission as the law specially declares to be
fraudulent.”

Derry v Peek [1889] 14 App Cas 33Directors 7, [1886-1890]

All ER 1
Defendants were directors of a tramway company which issued
a prospectus which contained a misleading information. The
prospectus stated that instead of horses, the company was
entitled to use the steam and other mechanical power to run its
trams. However, the relevant legislation provided that company
may use it only if it gets the consents of the Board of Trade. The
company did applied for the consents but they were not obtained
by the time the prospectus was issued. The company directors
honestly believed that getting the consents is mere formality.
Relying on the information provided in the prospectus, the
plaintiff, Sir Henry Peek, subscribed for shares and when the
company was wound up because the consents were never
received, he sued Derry and other directors claiming fraudulent
misrepresentation.

Held: House of Lords held that the directors were not

liable because they honestly believed that the statements
were true – so that by itself is enough to defeat action
 against them for fraud. The documents were issued
negligently but not fraudulently, so the directors were
not liable.

Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964]

P was an advertising agency had to place advertisements on
behalf of a company Easipower. As P had to personally
guarantee the payment of the advertising, it sought credit
references from D, Easipower’s bank. D wrote back indicating
Easipower were creditworthy but disclaimed responsibility for
its credit reference. Easipower were unable to pay the account.
Hedley Byrne sued Heller for negligence, claiming that the
information was given negligently and was misleading.
Held: It was decided that damages can be claimed for
negligent misstatement or misrepresentation.
Negligent
Misrepresentation
Section 18 of the Contract Act
“Misrepresentation includes –
(a) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true;
(b) any breach of duty which, without an intent to deceive, gives
an advantage to the person committing it, or anyone claiming
under him, by misleading another to his prejudice, or to the
prejudice of anyone claiming under him; and
(c) causing, however innocently, a party to an agreement to
make a mistake as to the substance of the thing which is the
subject of the agreement.”
** s18(a) covers the subject of innocent misrep at common law
Innocent
Misrepresentation **s18(b) is criticized by Pollock and Mulla to be obscure and
apparently useless and (c) to be confusing
Travelsight (M) Sdn Bhd v Atlas Corporation
*As per Abdul Malik Ishak J, “In simple language, a
misrepresentation is a representation that is untrue. It is a false
statement made by one party to the contract to the other, before,
or at the time of contracting, on which that other party relied on
 in contracting.”

Elements of Fraud Keates v Lord Cadogan (1851) 10 CB 591

and Misrepresentation
The defendant let the plaintiff a house that the defendant knew
1. A representation was was in a ruinous condition. The defendant kept silent and did not
made disclose this fact to the plaintiff.
Held: Defendant’s silence does not constitute
misrepresentation. The principles of caveat emptor
applies. The plaintiff should have inspected the premises
before renting it.

Nepline Sdn Bhd v Jones Lang Wootton [1995] 1 CLJ 865

(A new approach to misrepresentation?)
Tun Abdul Hamid Mohamad (judge who decided Nepline’s
cases said in his speech entitled “Review of Civil Law Act
1956 9Act 67) Comments”, 3rd November 2013:
“The common law on disclosure of material information (e.g. as
in Hedley Byrne) does not go so far as the Islamic law principle
that “a seller must disclose the defects of the good he is selling”.
Please see discussion in Nepline Sdn Bhd enclosed. Indeed in
that case the court went further than the common law of England
and indeed drew an inspiration from the Islamic law position,
without saying so. (I know because I decided the case.) The
Court of Appeal confirmed the judgment, perhaps without even
knowing where the idea came from. Unfortunately, there is no
written judgment of the Court of Appeal. I have not come across
any criticism of the judgment. I hope there will not be any even
after this “disclosure”!) The point I making is that there might be
some principles of Islamic law which could be applicable. Due
to ignorance and prejudice, many people do not realise the
similarities between Islamic law and common law.”
 Bisset v Wilkinson [1927] AC 177
The respondent bought the farming land from the appellant
relying on the appellant's statement that the land can
accommodate 2000 sheep. However, the land could not
accommodate 2000 sheep and the respondent alleged
misrepresentation. The appellant had not and no person had
carried on sheep farming on the land in question.
Held: The Privy Council held that the statement was
merely an honest opinion by the appellant and the sale
cannot be set aside for misrepresentation.
2. The representation
must be one of fact

Lau Hee Teah v Hargill Engineering Sdn Bhd [1980]

The appellant took a loader on hire from the respondent. The
responded represented – “loader was a ‘1968 model’ and it was
new”. However, the loader was a 1964 model and it was second-
hand. Did the respondent make a false representation (i.e.
misrepresentation)?
Held: At the time of the sale the, loader was of current
model, which had not changed since 1964, and therefore
it would not be false to say that it was of 1968. The court
further held that the term ‘new’ meant that it had not
been used when offered for sale. Thus, a loader used
regularly for demonstration purposes would have been
second-hand but not in this case where it was used only
3. The representation of once for demonstration purposes. Federal Court upheld
fact must be false the decision of the trial court and held that respondent
did not make a false representation.

Peek v Gurney [1873] LR 6 HL 377

The appellant purchased shares on the faith of false statements
contained in a prospectus issued by the promoters of the
company. The appellant was not a person to whom shares have
been allotted to on the formation of the company. He had merely
purchased shares from such allottees.
Held: House of Lords held that the prospectus was only
addressed to the first applicants for shares. It could not
be supposed to extend to others other than these. Thus
the appellant's action against the promoters failed since
the false statements in the prospectus were not
addressed to him.
 Langridge v Levy [1837] 2 M & W 519
The defendant sold a gun to the plaintiff’s father after being told
by the purchaser that he wanted the gun for use by himself and
his sons. The defendant stated that the gun was quite safe and
had been made by Nock for King George IV. When the gun was
used it exploded and the plaintiff was injured. The jury found
4. The maker addressed that the gun was unsafe and had not been made by Nock.
the statement to the
party misled (known Held: There was a false representation here that the gun
user) was safe, and that is fraud. The defendant knew that the
gun was to be used by the plaintiff. He sold the gun for
the purpose. The plaintiff wins on the basis of fraud.

Explanation to Section 19 of the Contract Act

“A fraud or misrepresentation which did not cause the consent to
a contract of the party on whom the fraud was practised, or to
whom the misrepresentation was made, does not render a
contract voidable.”

5. It was intended to
induce the contract

6. It did actually induce

the contract
Remedies Parties are restored to the position they had occupied before the
 contract was entered into. The right to rescind is lost where:
Rescission  The representee affirms the contract
 It is impossible to return the parties to their pre-contract
position (substantial restitution only does not have to be
100%)
 An innocent party has acquired an interest in the subject
matter of the contract before it has been rescinded

Section 34(1)(a) of the Specific Relief Act 1950

Any person interested in a contract in writing may sue to
have it rescinded, and such rescission may be adjudged by the
court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff

Section 65 of the Contract Act 1950

When a person at whose option a contract is voidable rescinds it,
the other party thereto need not perform any promise therein
contained in which he is promisor. The party rescinding a
voidable contract shall, if he has received any benefit thereunder
from another party to such contract, restore the benefit, so far as
may be, to the person from whom it was received.

LECTURE 8: DISCHARGE AND REMEDIES

Element Cases and Sections
Discharge by variation Section 63 of the Contract Act
“If the parties to a contract agree to substitute a new contract for
it, or to rescind or alter it, the original contract need not be
performed.”

Goss v Lord Nugent (1883) 110 ER 713, 716

*Where the whole of a contract has been reduced to writing, the
parol evidence rule provides that extrinsic evidence cannot be
used to explain the meaning of the written terms of the contract

Toeh Kee Keong v Tambun Mining Co. Ltd (1968) 1 MLJ 39

 ‘Novation is in effect, a form of assignment in which, by consent
of all the parties, a new contract is substituted for an existing
(a) Novation
contract. Usually, but not necessarily, a new person becomes a
party to the new contract, and some party who was a party to the
old contract is discharged from further liability. The introduction
of a new party prevents the new contract from being a mere
accord without satisfaction and thus affords a defence to any
action upon the old contract’

Illustration (a) to Section 63 of the Contract Act

• A owes money to B under a contract
• It is agreed between A, B & C that B shall henceforth
accept C as his debtor & not A
• The old debt between A & B is at an end.
• New debt from C to B has been contracted.

Illustration (b) to Section 63 of the Contract Act

• A owes B RM10,000
• A enters into arrangement with B & gives B a mortgage
of his(A)’s estate for RM5,000 in place of the debt of
RM10,000
• This is a new contract & extinguishes the old.
Illustration (c) to Section 63 of the Contract Act
● A owes B RM1,000 under a contract.
● B owes C RM1,000.
● B orders A to credit C with RM1,000 in his books, but C
does not assent to the agreement.
● B still owes C RM 1,000, and no new contract has been
entered into
Polygram Records Sdn Bhd v The Search & Anor (1994)
*Parties had a contract. On agreeing to replace it with another,
the parties impliedly rescinded the first contract.

Kepong Wood Products Co. Sdn Bhd v Daishowa (M) Wood

Products Sdn Bhs (1979) 1 MLJ 195, HC
Parties to a contract may vary some of the terms of an existing
 contract (without creating a new contract). They may merely cut
out part of the rights and obligations in an existing contract with
(b) Rescission
or without the substitution of new rights and obligations in their
place.

Part V of the Contracts Act

(c) Alteration Section 38-40

Contracts which must be performed
Section 41-46
By whom contracts must be performed
Section 47-51
Time and place of performance
Section 52-59
Performance of reciprocal promises

(d) Performance Section 60-62

Appropriation of payments
Section 63-68
Contracts which need not be performed

Discharge by Section 57(2) of the Contracts Act

frustration
“A contract to do an act which, after the contract is made,
becomes impossible, or by reason of some event which the
promisor could not prevent, unlawful, becomes void when the
act becomes impossible or unlawful.”

The Act does not define the word ‘impossible’. However, the
section envisages two main instances of frustration:
1. When the contract becomes physically impossible of
performance; and
2. When the contract becomes unlawful to perform.

Illustration (b) at Section 57 of the CA

● A and B contract to marry each other.
● Before the time fixed for the marriage, A goes mad.
 ● The contract becomes void

Illustration (d) at Section 57 of the CA

● A contracts to take in cargo for B at a foreign port
● A’s government afterwards declares war against the
country in which the port is situated
● The contract becomes void when the war is declared

Illustration (e) at Section 57 of the CA

● A contracts to act at a theatre for 6 months in
consideration of a sum paid in advance by B
● On several occasions A is too ill to act
● The contract to act on those occasions become void
Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties
Bhd [2007] 4 MLJ 201

Gopal Sri Ram JCA observed:

• “First, the event upon which the promissor relies as
having frustrated the contract must have been one for
which no provision has been made in the contract. If
provision has been made then the parties must be taken
to have allocated the risk between them.
• Second, the event relied upon by the promisor must be
one for which he or she is not responsible. Put shortly,
self-induced frustration is ineffective.
• Third, the event which is said to discharge the promise
must be such that renders it radically different from that
which was undertaken by the contract. The court must
find it practically unjust to enforce the original promise.
• If any of these elements are not present on the facts of a
given case, then s 57 does not bite.”

Pacific Forest Industries Sdn Bhd & Anor v Lin Wen-Chih &
Anor [2009] 6 MLJ 293
 Zaki Azmi CJ held:
“A contract does not become frustrated merely because it
becomes difficult to perform. If a party has no money to pay his
debt, it cannot be considered impossible to perform as it is not
frustration. Neither can he plead frustration because the terms of
the contract make it difficult to interpret. If it cannot be
Impossible to Perform v performed or becomes unlawful to perform, then the party who
Difficult to Perform is to perform his part of the bargain can plead frustration. The
doctrine of frustration is only a special case to discharge a
contract by an impossibility of performance after the contract
was entered into. A contract is frustrated when subsequent to its
formation, a change of circumstances renders the contract
legally or physically impossible to be performed.”

HA Barney v Tronoh Mines [1949] MLJ 4

The plaintiff worked at the defendant's tin mine at Tanjong
Tuallang, Perak. When the Japanese invaded Malaya, the
defendants’ European staff members evacuated from Malaya.
The plaintiff, a Swiss national, elected to remain and claimed
damages from the defendants. The defendants contended
consequent of Japanese occupation of Perak, the contract of
employment between them and the plaintiff was discharged by
frustration.
Held: The court held that the invasion of Malaya by
Japanese forces frustrated the contract. Therefore,
there was no breach of the contract by the defendants.

Taylor v Coldwell [1863] 122 ER 309

The defendant agreed to let to the plaintiff the use of his musical
hall and garden for the purpose of entertainment. Before the day
of performance arrived, a fire destroyed the music hall. The
defendant through no fault of his own, was unable to perform the
contract by letting the hall to the plaintiff.
Held: The court held that the contract was frustrated.
The music hall having ceased to exist without the fault
of either party, both parties are excused.
Yong Ung Kai v Enting [1965] 2 MLJ 98
The defendant entered into a written agreement with the plaintiff
to sell to the plaintiff the right to cut and take out certain timber
on certain lands at Sungai Rongan, Sibu. In order to cut the
timber a licence from the Forest Department was required. The
written agreement did not refer to the necessity of obtaining a
licence. The defendant did his best to get a licence but the
Department refused to grant one. The plaintiff sued for breach of
contract.
Held: McGilligan J held that there was an implied term
that the sale of the timber was to be subject to the
obtaining of the necessary licence. The refusal to grant a
licence made the contract legally impossible to perform.
The plaintiff was therefore entitled to the return of the
money advanced by him to the defendant under the
terms of the agreement.

Section 66 of the Contracts Act 1950

“When an agreement is discovered to be void, or when a
contract becomes void, any person who has received any
advantage under the agreement or contract is bound to restore it,
or to make compensation for it, to the person from whom he
received it”
Remedies
Damages Abdul Aziz J in East Asiatic Co. Ltd v Othman [1966]
The object of an award of damages – to place the injured party,
the plaintiff, so far as money can do it in as good a position as he
would have been had the defendant performed the contract.

Section 74 of the Contracts Act 1950

Section 74(1)
“When a contract has been broken, the party who suffers by the
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from
the breach, or which the parties knew, when they made the
contract, to be likely to result from the breach of it.”
Section 74(2)
“Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the breach”
Section 74(3)
“When an obligation resembling those created by contract has
been incurred and has not been discharged, any person injured
by the failure to discharge it is entitled to receive the same
compensation from the party in default as if the person had
contracted to discharge it and had broken his contract”

Sections 50-55 of the Specific Relief Act

Section 50
Preventive relief is granted at the discretion of the court by
injunction, temporary or perpetual.
Section 51
Injunction
(1) Temporary injunctions are such as are to continue until a
specified time, or until the further order of the court. They
may be granted at any period of a suit, and are regulated by
the law relating to civil procedure.
(2) A perpetual injunction can only be granted by the decree
made at the hearing and upon the merits of the suit; the
 defendant is thereby perpetually enjoined from the assertion
of a right, or from the commission of an act, which would be
contrary to the rights of the plaintiff.
Section 52
(1) Subject to the other provisions contained in, or referred to
by, this Chapter, a perpetual injunction may be granted to
prevent the breach of an obligation existing in favour of the
applicant, whether expressly or by implication.
(2) When such an obligation arises from contract, the court
shall be guided by the rules and provisions contained in
Chapter II.
(3) When the defendant invades or threatens to invade the
plaintiff’s right to, or enjoyment of, property, the court may
grant a perpetual injunction in the following cases, namely:
(a) where the defendant is trustee of the property for the
plaintiff;
(b) where there exists no standard for ascertaining the
actual damage caused, or likely to be caused, by the
invasion;
(c) where the invasion is such that pecuniary compensation
would not afford adequate relief;
(d) where it is probable that pecuniary compensation cannot
be got for the invasion; and
(e) where the injunction is necessary to prevent a
multiplicity of judicial proceedings.

Section 53 – Mandatory Injunction

When, to prevent the breach of an obligation, it is necessary
to compel the performance of certain acts which the court is
capable of enforcing, the court may in its discretion grant an
injunction to prevent the breach complained of, and also to
compel performance of the requisite acts.
Section 54
An injunction cannot be granted—
(a) to stay a judicial proceeding pending at the institution of
the suit in which the injunction is sought, unless such a
restraint is necessary to prevent a multiplicity of
proceedings;
(b) to stay proceedings in a court not subordinate to that
from which the injunction is sought;
(c) to restrain persons from applying to any legislative body;
(d) to interfere with the public duties of any department of
any Government in Malaysia, or with the sovereign acts
of a foreign Government;
(e) to stay proceedings in any criminal matter;
(f) to prevent the breach of a contract the performance of
which would not be specifically enforced;
(g) to prevent, on the ground of nuisance, an act of which
it is not reasonably clear that it will be a nuisance;
(h) to prevent a continuing breach in which the applicant has
acquiesced;
(i) when equally efficacious relief can certainly be obtained
by any other usual mode of proceeding, except in case
of breach of trust;
(j) when the conduct of the applicant or his agents has been
such as to disentitle him to the assistance of the court;
(k) where the applicant has no personal interest in the matter.
Section 55 – Injunction to perform a negative agreement
Notwithstanding paragraph 54(f), where a contract comprises
an affirmative agreement to do a certain act, coupled with a
negative agreement, express or implied, not to do a certain act,
the circumstance that the court is unable to compel specific
performance of the affirmative agreement shall not preclude it
from granting an injunction to perform the negative agreement:
Provided that the applicant has not failed to perform the contract
so far as it is binding on him.
 Oh Hiam v Tham Kong [1980] 2 MLJ 159
A contracted to sell to B seven plots of land. Six of these plots
were rubber estate in Gombak and the seventh was a half-acre in
Setapak. A’s married daughter and her family lived in a
residential building on the land at Setapak. She sought
rectification of the sale and re-transfer of the said land on the
ground that there had been a mistake, as the parties never
intended that the contract for sale included the Setapak land as
well. The Privy Council held that in the circumstances of the
case, there was sufficient evidence that neither side knew nor
intended when they signed the contract, that the Setapak land
was part of the sale.
Held: Accordingly the court ordered for rectification of
the contract by deleting in the document of sale any
reference to the land at Setapak and further ordered the
re-transfer of the said land to A.
Rectification

Section 34 of the Specific Relief Act 1950

(1) Any person interested in a contract in writing may sue to
have it rescinded, and such rescission may be adjudged by the
court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on
its face, and the defendant is more to blame than the
plaintiff; and
(c) where a decree for specific performance of a contract of
sale, or of a contract to take a lease, has been made, and
the purchaser or lessee makes default in payment of the
purchase-money or other sums which the court has ordered
him to pay.

(2) When the purchaser or lessee is in possession of the subject

matter, and the court finds that his possession is wrongful, the
Rescission court may also order him to pay to the vendor or lessor the rents
and profit, if any, received by him as possessor. In the same
case, the court may, by order in the suit in which the decree has
 been made and not complied with, rescind the contract, either so
far as regards the party in default, or altogether, as the justice of
the case may require.

Section 37 of the Specific Relief Act 1950

“On adjudging the rescission of a contract, the court may require
the party to whom the relief is granted to make any
compensation to the other which justice may require.”

LECTURE 9: AGENCY
Elements Cases and Sections
Definition of ‘Agent’ Section 135 of the Contracts Act
‘A person employed to do an act for another or to represent
another in dealings with third persons’

Creation of Agency by:

Ratification Sections 149-153 of the Contracts Act
Sections 149
Where acts are done by one person on behalf of another but
without his knowledge or authority, he may elect to ratify or to
disown the acts. If he ratifies them, the same effects will follow
as if they had been performed by his authority.
Sections 150
Ratification may be expressed or may be implied in the conduct
of the person on whose behalf the acts are done.
Section 151
No valid ratification can be made by a person whose knowledge
of the facts of the case is materially defective.
Section 152
A person ratifying any unauthorized act done on his behalf
ratifies the whole of the transaction of which the act formed a
 part.
Section 153
An act done by one person on behalf of another, without that
other person’s authority, which, if done with authority, would
have the effect of subjecting a third person to damages, or of
terminating any right or interest of a third person, cannot, by
ratification, be made to have that effect.

Section 142 of the Contracts Act

An agent has authority, in an emergency, to do all such acts for
the purpose of protecting his principal from loss as would be
done by a person of ordinary prudence, in his own case, under
similar circumstances.
Necessity

GNR v Swaffield
Mr Swaffield sent his horse by railway to a station at Sandy. The
horse arrived late at night, and the railway company lodged the
horse overnight for their own account at a livery stable. Mr
Swaffield failed to collect it on the following morning. The only
basis on which he was prepared to give any instructions about
the fate of his horse was that the railway company assumed all
responsibility for storing and delivering it to him from the time
of its arrival at Sandy. After four months of this, the railway
company lost patience, and unilaterally delivered the horse to Mr
Swaffield’s farm and then sued him for the livery charges to date
Held: The contract of carriage had come to an end on
the day after the arrival of the horse at Sandy, when the
performance required of them as carriers was
completed. Baron Pollock drew attention to Cargo ex
Argos in the course of argument and based his judgment
upon it. Having referred to previous authority to the
effect that the railway company was bound to take
reasonable care of the horse notwithstanding the
termination of the contract of carriage, he observed that
‘if there were that duty without the correlative right, it
would be a manifest injustice.’ Non-delivery for causes
arising subsequent to the consignee’s mora is more
easily excusable than before. Kelly CB, concurring
treated the principle as applying because it was
necessary for the railway company to incur the
expenditure. ‘They had no choice unless they would
leave the horse at the station or in the high road to his
 own danger and the danger of other people.’

Sachs v Miklos [1948] 1 All ER 67

D agreed to store C's furniture. After a considerable time had
elapsed D needed the storage space for his own use. Unable to
trace C, he sold the furniture and C sued him for conversion. D
pleaded agency of necessity in making the sale.
Held: There was no agency of necessity since no
emergency had arisen and D had sold the furniture for
his own convenience. If D's house had been destroyed by
fire and the furniture left in the open, then he would
then be justified in selling it.

Section 190 of the Contracts Act

“When an agent has, without authority, done acts or incurred
obligations to third persons on behalf of his principal, the
principal is bound by those acts or obligations if he has by his
words or conduct induced such third persons to believe that
those acts and obligations were within the scope of the agent’s
authority.”

Pole v Leask [1863-73] All ER 535

A had acted as an agent for P in transactions with L for a number
of years. Then P terminated the agency but A continued to act as
if he were agent and collected money and then kept it.
Was there agency?
Held: Yes. Estoppel = you are prevented from denying
an agency existed if you have not communicated the
termination to the 3rd party.

By Estoppel (or
‘holding out’)
Actual Authority Section 139 of the Contracts Act
(Express and Implied)
“The authority of an agent may be expressed or implied.”
 Section 140 of the Contracts Act
“An authority is said to be express when it is given by words
spoken or written. An authority is said to be implied when it is to
be inferred from the circumstances of the case; and things
spoken or written, or the ordinary course of dealing, may be
accounted circumstances of the case.”

Section 141 of the Contracts Act

(1) An agent having an authority to do an act has authority to do
Implied Authority every lawful thing which is necessary in order to do the act.
(2) An agent having an authority to carry on a business has
authority to do every lawful thing necessary for the purpose,
or usually done in the course of conducting such business.

Watteau v Fenwick [1893] 1 QB 346

P owned a hotel and employed the previous owner, A, to
manage it. Against P's express instructions, A bought cigars on
credit from T. T sued P on the contract and P argued that he was
not bound by the contract, since A had no actual authority to
make it.
Held: It was within the usual authority of a manager of
a hotel to buy cigars on credit and P was bound by the
contract (although T did not even know that A was the
agent of P) since the restriction on his usual authority
had not been communicated.

Section 190 of the Contracts Act

“When an agent has, without authority, done acts or incurred
obligations to third persons on behalf of his principal, the
principal is bound by those acts or obligations if he has by his
words or conduct induced such third persons to believe that
those acts and obligations were within the scope of the agent’s
authority.”

Ostensible/Apparent Freeman & Lockyer v Buckhurst Park Properties [1964]

Authority
Kapoor and Hoon carried on business as property developers. H
lived abroad and the business of the company was left entirely
under the control of K. As a director, K had no actual or
apparent authority to enter into contracts as agent of the
 company and he was never formally approved as managing
director. However, H and the other two directors allowed him to
act as if he were MD, contr]acting on the company's behalf. The
claimants sued the company for work done on K's instructions.
Held: Although there had been no actual delegation and
authorisation, the company had, by its directors'
acquiescence, led the claimants to believe that K was the
MD and, as such an authorised agent, and the claimants
had relied on it. The company was bound by the
contract made by K under the principle of 'holding out'
(or 'estoppel'). The company was estopped from denying
(that is, not permitted to deny) that K was its agent.
Although K had no actual authority to bind the
company, he had ostensible/apparent authority to do so.

Duties of Agents
1.Fiduciary Obligations ⮚ A must act in ‘good faith’
Hewson v Sydney Stock Exchange (1967)

⮚ A must follow P’s instructions

Bertram, Armstrong & Co v Godfray [1830]

⮚ A must act in P’s best interests

▪ A must disclose personal interests
Lowther v Lord Lowther [1806] 33 ER 230
▪ A not to make a secret profit
Blackham v Haythorpe [1917] 23 CLR 156
Mahesan v Malaysian Government Officers
Cooperative Husing Society Ltd [1978] 1 MLJ 149

⮚ A must use reasonable skill

Mitor Investments Pty Ltd v General Accident Fire & Life
 Assurance Corp. [1984] WAR 365

⮚ A must not divulge confidential information

⮚ A has duty to account to P all money and other property

he receives for and on behalf of P
Section 166 of the Contracts Act

⮚ A must not delegate and must act in person

John McCann & Co v Pow [1975] 1 All ER 129
Nb. Section 143-148 of the Contracts Act (Sub-Agents)

Right of Agents
1. A right to Section 172 of the Contracts Act
remuneration
“In the absence of any special contract, payment for the
performance of any act is not due to the agent until the
completion of the act; but an agent may detain moneys received
by him on account of goods sold, although the whole of the
goods consigned to him for sale may not have been sold, or
although the sale may not be actually complete.”

Section 175 of the Contracts Act

“The employer of an agent is bound to indemnify him against
2. Right to indemnity the consequences of all lawful acts done by the agent in exercise
of the authority conferred upon him.”

Section 174 of the Contracts Act

“In the absence of any contract to the contrary, an agent is
entitled to retain goods, papers, and other property, whether
3. Right to lien movable or immovable, of the principal received by him, until
the amount due to himself for commission, disbursements, and
services in respect of the same has been paid or accounted for to
him.”

Agency termination Sections 154-163 of the Contracts Act

 - By action/agreement of the parties
- By the P revoking the A’s authority
- By A’s renunciation
- By performance
- By operation of law
- Frustration of contracts

LECTURE 10: PARTNERSHIP LAW

Elements Cases and Sections
Definition of Section 3(1) of the Partnership Act 1961
Partnership
“ Partnership is the relation which subsists between persons
carrying on business in common with a view of profit”

Gulazam v Noorzaman & Sobath (1957) 23 MLJ 45

The plaintiff claimed that the defendants, who were cattle
dealers, had made arrangements to form a partnership with him
to purchase, keep, and sell cattle. The conditions were that the
plaintiff was to provide capital for the purchase of the cattle and
the defendants were to look after and sell them, with the profits
to be divided equally amongst them. After a while, the
defendants failed to render accounts to the plaintiff, neither did
they pay his share of the profits.
The plaintiff, therefore, claimed for an account to be taken and
payment of any sum of money found due to him. The
defendants’ defence was the partnership never existed and that
the plaintiff’s claim was not maintainable as the partnership
business had not been registered under section 8 of the
Registration and Licensing of Business Ordinance 1953.
Held: On the facts, a partnership existed between the
parties. Section 8 of the Registration and Licensing of
Business Ordinance 1953 does not affect the right of
one partner in a firm which has failed to comply with
the Ordinance to bring an action against his co-
partners.

Section 2 of the Partnership Act 1961

“business” includes every trade, occupation, or profession
‘… a business’
‘Carrying on a business Checker Taxicab Ltd v Stone [1930] NZLR 169
in common…’
The owner of a taxi hired it out to a driver under a daily contract.
The driver had to bear the cost of running the taxi though he was
allowed to use certain facilities of the owner’s garage. Under the
contract, the driver had to return taxi to the owner’s garage at the
end of the day, in good condition. The consideration for the hire
was that the driver had to pay the owner an agreed percentage of
the daily takings. The question arose as to whether, under these
circumstances, there was a partnership between the parties.
Held: The relationship did not amount to partnership as
the circumstances did not satisfy the statutory definition
of partnership. (Business of hiring out the taxi and the
driving thereof were two separate businesses and that
the driver was not driving the taxi as agent of the
owner).

Re Spanish Prospecting Co Ltd [1911] 1 Ch 92

‘Profits’ implies a comparison between the state of a business at
two specific dates.. The fundamental meaning is the amount of
gain made by the business during the year…If the total assets of
the business at the two dates be compared, the increase which
‘...with a view to profit’ they show at the later date as compared with the earlier date…
represents in strictness the profits of the business during the
period in question’
Joint venture v Section 4 of the Partnership Act 1961
Partnership
(a) ‘joint tenancy’ or ‘tenancy in common’ (real property) –
(Rules for determining generally no partnership
existence of
partnership)
(b) sharing ‘gross returns’ (before expenses deducted) –
generally no partnership
 (c) share of profits prima facie evidence of partnership

BUT

(c)(i) Receipt of a debt out of accrued profits – NO!

(c)(ii) Contract for remuneration for service – NO!

VERY IMPORTANT Section 7 of the Partnership Act 1961

“Every partner is an agent of the firm and his other partners
for the purpose of the business of the partnership; and the
2 limbs under section 7
acts of every partner who does any act for carrying on in the
- Actual authority usual way business of the kind carried on by the firm of which
he is a member bind the firm and his partners, unless the
- Ostensible Authority partner also acting has in fact no authority to act for the
firm in the particular matter, and the person with whom he
is dealing either knows that he has no authority or does not
know or believe him to be a partner.”

Partnership by holding Section 16 of the Partnership Act

out/estoppel
If a partner/s ‘hold out’ to third parties that a non-partner is a
partner then due to the rules of ostensible authority, the firm will
be held liable as if that person was a partner.
Liability of Partners
1. Contractual Liability Section 7 and Section 11
- Every partner jointly liable for a whole debt
- All partners can be sued, but one partner might end up
paying the whole debt (if others are bankrupt)
- Unlimited personal liability

Section 12 and 13
2. Tortious Liability
If a partner commits a wrongful act (tort) while acting in the
ordinary course of the firm’s business OR while acting with the
co-partner’s authority and causes loss or injury to a third party,
then the partnership (all partners) will be just as liable as that
partner is
 Section 14
Joint and severely liable – Can sue each partner separately until
damages are satisfied OR sue the firm jointly

Walker v European Electrics Pty Ltd (1990)

Three partners in an accounting firm; each had area of speciality.
1 partner misappropriated funds from trust account.
Held: Firm liable as the setting up of the trust account
was within the normal procedure for the type and area
of work

Chung Shin Kian & Anor v Public Prosecutor (1980)

Although partners are jointly liable in civil cases, they are not
jointly liable in criminal cases

3. Criminal liability
Section 19 of the Partnership Act
(1) A person who is admitted as a partner into an existing firm
does not thereby become liable to the creditors of the firm for
anything done before he became a partner

4. Duration of Liability
WHAT IF NEW PARTNER AGREES TO BE LIABLE?

(2) A partner who retires from a firm does not thereby cease to
be liable for partnership debts or obligations incurred before his
retirement
(3) A retiring partner may be discharged from any existing
liabilities by an agreement to that effect between himself and the
members of the firm as newly constituted and the creditors, and
this agreement may be either express or inferred as a fact from
the course of dealing between the creditors and the firm as
newly constituted

Partners’ duties to each Section 26 of the Partnership Act 1961

other
“The interests of partners in the partnership property, and their
rights and duties in relation to the partnership, shall be
determined, subject to any agreement, express or implied,
 between the partners, by the following rules (a-i)”
(c) Any additional “advance” payment by a partner beyond the
amount of capital which he has agreed to subscribe, is
entitled to 8% interest per annum
- Management
(e) Every partner has the right to manage the partnership
(g) Partners can not be added or changed without the consent of
the other partners
(h) Changes to the type of business engaged in by the
partnership, must receive the consent of all the partners
(i) Partnership books are to be kept at the place of business &
available to all partners

Section 30 of the Partnership Act 1961

“Partners are bound to render true accounts and full information
of all things affecting the partnership to any partner or his legal
representatives”
* Each ‘partner’ must make FULL disclosure of all
- To render accounts things/matters affecting the partnership to other partners or
their legal representatives

Law v Law (1905) 1 CH 140

Held: A partner could avoid an agreement under which
he sold his share of the partnership’s business to
another partner when that other partner failed to
disclose the information affecting the value of the
partnership’s business to the partner selling his share of
the partnership’s business

Section 31 of the Partnership Act 1961

Section 31(1) and (2)

Aas v Benham (1891) 2 Ch 244

Benham was a partner in a ship-broking firm which hoped to act
 in negotiations between the Spanish and Portuguese
Governments and ship builders. He had also been approached
- Accountability to
for advice by a shipbuilding company. He received information
private profits
while acting for the firm suggesting that it could be reconstituted
as a builder of warships and acquire a yard he discovered in
Bilbao. He used that information to help write a prospectus for
the ship-building company’s reconstruction, and made profits for
himself as a result of the reconstruction
Held: Mr Benham was not liable to account to his
partners. It was no part of the firm’s business to advise
on corporate reconstructions or to build ships. Even
though Mr Benham had learnt of the information whilst
on the firm’s business, he owed no fiduciary duty to his
partners which prevented him from making use of the
information as he did.

Section 32 of the Partnership Act 1961

“If a partner, without the consent of the other partners, carriers
on any business of the same nature as and competing with that of
the firm, he must account for and pay over to the firm all profits
made by him in that business”

Green v Howell (1910) 1 CH 495

There is a clause in the partnership agreement stated that in the
event of any one of the partner breach any duty as a partner, the
other partner are not entitled to expel them unless there is a good
faith. Subsequently, 1 of the partner had breach the partnership
agreement
Held: The court held that a preliminary warning us
needed and meeting must be held before expulsion can
be executed. Furthermore, the partner who may be
- Not to compete with
expel need to be given a right to explain himself as
the firm
stated in the natural justice
Expulsion of Partners Section 26(g) of the Partnership Act 1961
A person cannot be introduced as a partner of the firm without
the consent of all the partners

Section 27 of the Partnership Act 1961

A majority of the partners in the firm cannot expel any partner,
unless the power to do so has been conferred by express
agreement between the partners

Partnership among Clifford v Timms (1908) A C 12

professionals
The partners carried on business as dentists. The Articles of
Partnership contained a provision that if any partner should be
guilty of professional misconduct, the other partner should be at
liberty to give notice in writing, terminating the partnership.
The Plaintiff as a director in an American Company of some
other dental surgeons was party to publications by that company
which amounted to self-puffing advertisement and which were a
disparagement of other Dentists and their mode of operations.
Among other things they alleged that only their instruments
were always sterilised before being used and that they had
engaged a trained lady nurse to be present at all dental
operations so as to prevent any scandal arising between an
operator and a lady patient. The other partners issued a notice to
the Plaintiff to terminate the partnership. The Plaintiff filed this
action for a declaration that the notice was ineffective.
Held: These publications contained elements of
 disgraceful connotations in a professional respect.
Therefore the notice was effective and the partnership
duly terminated and there was no evidence of bad faith
on the part of the Defendants.

Partnership Property Section 22(1) of the Partnership Act

- Defines partnership property
- Items brought into the partnerships as partnership
property
- Items acquired on behalf of the partnership
- Items acquired in the course of the partnership business
- Must be for the exclusive use of the partnership

Section 23 of the Partnership Act

“Unless the contrary intention appears, property bought with
money belonging to the firm is deemed to have been bought on
account of the firm”
Consequence of Section 39 of the Partnership Act 1961
dissolution
“On the dissolution of a partnership or retirement of a partner,
any partner may publicly notify the same, and may require the
other partner or partners to concur for that purpose in all
necessary or proper acts, if any, which cannot be done without
his or their concurrence”

Settlement of Accounts Assets distributed according to:

after Dissolution
Section 41 and 46 of the Partnership Act 1961
- Debts/obligations to non-partners
- Advances made by partners
- Capital by partners
- Residue in accordance with how profits are divided