LAW OF CONTRACT

Revision Pack

Kong H. Tan LLM

Advocate & Solicitor
 CONTRACT FLOWCHART Affirm and
Claim
Coercion Damages
Voidable Undue Performance
Contract Fraud
Misrepresentation Rescind and claim
Restitution
Damages outside
contract

Restitution
Illegality
Restraint of Trade
Void Contract Minor
Frustration
Mistake
Alternative for
Terms of Contract Frustration
Subject to Contract Vitiating s15 CLA
Formation of
Parole Evidence Rule Factor
Contract
Exemption Clause
Privity
Substantial Performance
Part
Quantum Meruit
Performance
Contract in Stages
Affirm and
claim damages

Terminate and claim

Breach of Time damages.
Breach
S40 Breach Alternative Restitution
if total failure
 POSTAL RULE IN MALAYSIA

COMMUNICATION OF OFFER
s4(1) The communication of a proposal
is complete when it comes to the
knowledge of the person to whom it is
1 Jan 3 Jan made.

OFFER

REVOCATION OF OFFER
REVOCATION OF ACCEPTANCE
s5(1) A proposal may be revoked at any
s5(2) An acceptance may be revoked at ACCEPTANCE time before the communication of its
any time before the communication of acceptance is complete as against the
the acceptance is complete as against the proposer, but not afterwards.
acceptor, but not afterwards. 7 Jan 5 Jan
s4(2) The communication of an
S4(2) The communication of an acceptance is complete as against the
acceptance is complete as against the proposer, when it is put in a course of
acceptor, when it comes to the transmission to him, so as to be out of
knowledge of the proposer ie 7 Jan the power of the acceptor ie 5 Jan
TERM OF CONTRACT
1.How close is it made
in relation to formation
Representation (Oscar)
Who made the
Express Term 1.Moorcock Test
representation?
Contract

Implied Term 2. Statute

3.Custom (Cheng Keng

Hong)
PRIVITY
Generally only party to the contract can enforce the
contract – Kepong Prospecting v Schmidt

Exception:-
Agency – The Golf Cheque Book v Nilai Spring
Bhd
Collateral Contract – Oriental Bank Bhd v
Third party
Promisee
Promisor Uniphoenix Corp Bhd
Trust - Malaysian Australian Finance Co v The
Law Union & Rock Insurance Co Ltd

Journal of International Commercial Law and

Technology Vol. 4, Issue 4 (2009) 262
“Circumventing the Privity Rule in Malaysia” Tan
Pei Meng
 Low Kar Yit v Mohd Isa – Subject to contract effective to negate the formation of contract.
SUBJECT TO Charles Grenier v Lau Wing Hong – Subject to contract cannot prevent the formation of
contract if all essential terms have been agreed in the preliminary agreement.
CONTRACT
Different Types of Preliminary Contract (Masters v Cameron which has been approved in
Charles Grenier). 1 and 2 binding as all essential terms have been agreed
1. parties intend to be bound with a desire to draw up a more formal document later;
2. parties intend to be bound but wish the operation to be conditional upon the execution of
document; or
3. the parties intend to postpone the creation of contractual relations until they execute a formal
contract.

How will the court decide?

• Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprises Sdn Bhd [1994] 2 MLJ
754 (SC); Deutsch Bank (M) Bhd v MBf Holdings Bhd [2015] 6 MLJ 310 (FC) Emas
Kiara Sdn Bhd v Michael Joseph Monteiro [2018] 5 MLJ 54 (CA) –(i) The test is an
objective test whether the reasonable man will think whether the parties reached an agreement
on all essential terms have been agreed (ii) The Court will look at words or conduct,
surrounding circumstances and object of the contract.
PAROLE EVIDENCE RULE

Written and Oral Contract

• Only written terms admissible
(PER S91 EA)
• Oral terms admissible if
Oral Contract exceptions under S92 EA
• Admissible if able to discharge • Collateral Contract (Consistent
burden of proof (Chapter IV of - Industrial & Inconsistent -
EA) Tan Swee Hoe)
Written Contract • Condition Precedent
• Collateral Contract
PAROLE EVIDENCE RULE & COLLATERAL CONTRACT

1. Strict application of S92 (b) – Industrial Agricultural Distribution v Golden

Sands Construction must be consistent

2. Collateral Contract Exception – Tan Swee Hoe v Ali Hussain: can exist side by
side even it is inconsistent
FC “Although it is trite law that parol evidence is not admissible to
add to, vary or contradict a written agreement, a technical way of
overcoming the rule is by invoking the doctrine of collateral contract or
collateral warranty.... In our view there is a growing body of authority which
supports the proposition that a collateral agreement can exist side by side with
the main agreement which it contradicts.

3. Tan Chong Motor v Alam Mcknight – Salleh Abas FJ – the words “terms of
any such contract” must mean “all terms of any such contract....”
EXEMPTION CLAUSE

Before or during formation (Olley v Marlborough Hotel)

Validity Wide enough subject to contra proferentum
Sze Hai Tong
Fundamental Term Photo Production (CIMB v Maybank Trustee)

S29 Contracts Act (Bourke v CIMB)

Limitation of Liability Taveechai Marine

Coercion (s15) Undue Influence (s16)
• Position of Dominance (1) authority (2)
• Act under Penal Code
fiduciary (3) age, illness, mental, body
• Detention of Property
• Unfair Advantage – no independent
• Economic Duress (s73 and Chin Nam
advice Inche Noriah
Bee)

Voidable
Fraud (s17) Misrepresentation (s18)
• Any deliberate untruth • Untruth which is done recklessly,
• Fraud by silence when (i) duty to speak negligently or innocently
(ii) silence is equivalent to speech

Fraud by Silence and Misrep

– Duty to exercise reasonable
diligence – s19 Exception
VOIDABLE CONTRACT FLOWCHART

Voidable
Contract

Cause of
Action

Affirm Rescind

No damages – Haji
Claim Restitution
Ahmad. Damages
Damages s65 & s66
outside contract-
under s19(2) Satgur Prasad
Shah Alam
Illegality

Illegality
Illegality Remedy Old cases New cases
• Against the law 24 (a) & (b) • Contract is void • Pari delicto (Ahmad b Udoh) • Patel v Mirza (UKSC) – can still
• Maple Amalgamated v Bank • Restitution under S66 (both party to • Breach of law is not a major one claim unless (i) against public
Pertanian – Court will be slow to restore to each other) (E&O Hotel) policy, or (ii) disproportionate
held a contract is against the law • Only party to contract need to • Ochroid Trading (S’pore) – can
presumption is that parties will not restore (Badiaddin) still claim if (i) forced to be pari
enter into illegal contract. delicto (ii) repent (iii) unjust
• Against public policy 24(e) enrichment
• Theresa Chong - category of public • Liputan Simfoni (M’sia) – applied
policy is limited Patel
• Not against public policy to have
dealing behind application for loan
(Pang Mun Chung)
• Against public policy to get
approval through connection (Dato
Eskay)
• Against public policy if there is a
conflict of interest (Yogananthy v
Harta Pusaka [2020] 6 CLJ 151
FR Test for frustration (s57)

US • Impossibility (Davis Contractor) – radically different, OR

• Illegality
TR
Case Law Requirements
AT • The frustration must be a supervening event (Goh Yew Chew)
IO • The frustration must not be self-induced (Ramli Zakaria)

N Remedy

• S66 Restitution as contract is void

• S15 CLA – (i) refund of all payments made (ii) all future payment is terminated (iii)
reasonable sum to be paid for benefit received, the value is to be assessed after the frustration
(Appleby)

Force Majeure

• Frustration cannot be invoked if force majeure clause provided for the frustrating event, as
frustration is something not envisaged by the parties (Guan Aik Moh)
• FM cannot be implied (BIG Industrial Gas Sdn Bhd v Pan Wijaya Property Sdn Bhd
[2018] 3 MLJ 326.
• Force Majeure clause is a matter of construction of contract and burden of proof is on the
party relying on it that the clause covers the event (Intan Payong Sdn Bhd)
FRUSTRATION (EXTRA CASES)

• Li Ching Wing v Xuan Yi Xiong [2004] 1 HKC 353 – HK case

evacuation for 10 days not frustration
• Yew Siew Hoo v Nikmat Maju [2014] 4 MLJ 413 (JE is frustration)
• Not frustrated merely because too difficult to interpret the pricing under
the contract (Pacific Forest v Lin Wen Chih) [2009] 6 MLJ 293
• Financial crisis not a frustration – Sentul Raya v Hariram [2008] 4 MLJ
852
 RESTRAINT OF TRADE
VOID UNLESS EXCEPTION UNDER S28 AND
CASE LAWS
Reasonableness S28 Exceptions (1) sale of business (2) dissolution of
partnership (3) existing partnership
• High Court in Worldwide
Rota Dics v Ronald Ong –
commercial reality is that the Negative covenant during period of validity – Polygram
test of reasonableness must Record
be applied
• Other cases do not agree eg
Protection of Trade Secret – Schmidt Scientific
Court of Appeal case of
Visioncast Sdn Bhd & 1 Or v
Dynacast (Melaka) Sdn Bhd
& 2 Others Manner of carrying out the trade – Hua Khiow Steamship
MINOR (CASE LAW)

Mohori Bibee (India) followed in Tan Hee Juan (Malaysia)

Contract with minor is void

Exception: 1.Necessaries (s69) 2.Marriage (Rajeswary)

2.Scholarship (s4(a) Contracts (Amendment) Act
3.Employment (Child Act)

Remedy: Restitution (s66) but minor need not restore

(Mohori Bibee)
MISTAKE (S21 22 23)

Mutual Mistake of Fact – Void

(Note: does not include mistake as to value)

Unilateral Mistake of Fact - Valid

Mistake of Law – only void if foreign law

UNCERTAINTY S30
• Recent Court of Appeal Case of Tan Tay Vui v MC Global (2020)
• Does the use of the word “more or less” when describing the area of the land in a joint venture agreement make the
agreement void for uncertainty?

• NO, AGREEMENT IS VALID On Interpretation of Contract:-

Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1
CLJ 269; [2010] per Gopal Sri Ram FCJ
“Section 30 provides that agreements are void where the meaning of
“Here it is important to bear in mind that a contract is to be
the agreement is not certain, or where the meaning of such agreement is not interpreted in accordance with the following guidelines. First, a
court interpreting a private contract is not confined to the four
capable of being made certain. It is the meaning of the agreement which
corners of the document. It is entitled to look at the factual matrix
requires certainty and not particular word(s) used because the meaning of which forms the background to the transaction. Second, the factual
matrix which forms the background to the transaction includes all
any of the words or terms in the agreement may be gleaned from reading the material that was reasonably available to the parties. Third, the
whole agreement, and not the particular words complained of in isolation.” interpreting court must disregard any part of the background that is
declaratory of subjective intent only. Lastly, the court should adopt
an objective approach when interpreting a private contract.”
PART PERFORMANCE
FAILURE TO FULFILL FULL PERFORMANCE
IS A BREACH
• Part performance to set off against damages payable
• Substantial Performance (Kunchi Raman v Goh Brothers)
• Quantum Meruit (Isaac v Hoenig). Quantum Meruit is provided in S71 – Court of
Appeal in Dream Property, but overruled by Federal Court
• Contract in Stages
 Is time of the essence? s56
Tan Ah Kian v Haji Hasnan(1) Express (2) Reimposition of Time (3) Surrounding
Circumstances
• Expressly stated in contract Is Extension
Time is of Time is Not
• Mere fact that time stated does not of Time a
Essence of Essence
make it of essence (FC in Ganam v
Somoo [1984] 2 CLJ 268)
waiver?
Affirm and Claim Damages by Continuing to negotiate after time
• Imposition of time after unreasonable giving Notice fixed for performance Syarikat
Hock Huat Iron Foundry v Naga Eastern Plastic
delay (Mensa Mercantile v Tembaga [1999] 1 MLJ 65
Notice must be given at the time
Eikobina [1989] 2 MLJ 170) when extension of time is granted.
Not exercising right promptly –
Affirm and Claim Damages Sim Chio Huat v Wong Ted Fui
• Unreasonable delay (No need to give notice) [1983] 1 MLJ 151 amount to
waiver

• The time imposed must be

Rescind and Claim Damages
reasonable Not waiver if merely extending
time Siah Kwee Moh
 Breach

Is there a Cause of Action

breach?

Terminate (if
Refusal to perform - Condition/Warranty Notice (Dream Affirm (be careful
breach of
s40 (Ching Yik) Property) about waiver)
condition)

Restitution – Total
Claim Damages Damages
Failure LSSC
 Damages

Pecuniary Non-Pecuniary LAD

Cubic - LAD awarded

regardless of actual
damage. Defendant can
Expectation Reliance Physical Pain Contract of Pleasure Reputation
challenge based on
unreasonableness. Apply to
deposit

1.Causation s74(2) 2.Remoteness s74(1) 3.Mitigation s74 Ex 4. Timing (Eikobina – date of breach) 5.Tax (Daishowa)
6.Contributory Negligence (Vesta). 7. Golden Victory [2007] 2 AC 353 (If there is a supervening event after the
breach that may reduce the contractual benefits, the court can take into account in reducing the damages.)
 NEW DEVELOPMENT FOR LAD
Macvilla Sdn Bhd v Mervyn Peter Guan Yin Hui (CA) Triple Point Technology, Inc v PTT Public Company Ltd
[2021] UKSC 29
• S75 applies to statutory contract.

• The innocent party has an obligation to prove loss and damages. In contract with LAD clauses, innocent party can terminate the contract and
claim LAD until the date of termination, reversing the CA decision.
• If the innocent party does not succeed wholly or partly, the courts have a
statutory discretion to provide reasonable compensation.
Tekun Nasional v Plenitude Drive (M) Sdn Bhd and Another
• In exercising discretion, the Courts can take into account market or Appeal [2021] 10 CLJ 206
industry practice. For instance, a LAD sum of 10% of the value of the
property may be a reasonable compensation according to market • Cubic should not be applied retrospectively to cases where the full trial
has been completed and decided by the first-instance court.
practice.
• If a sum named in a contract was exorbitant and unreasonable for it to be
• As a matter of policy, the Courts should not put the innocent party to paid in case of a breach of the contract, it ought to be treated as a penalty
and therefore, void by virtue of Section 75 of the CA.
strict proof at the expense of the public purse to benefit the defaulting
party.
 SRA IMPORTANT SECTIONS
• S20 – Contract which may not be specifically performed
• S11 – Contract which may be specifically enforced
• S11(2) Immovable Property Presumption

• S18 – Damages in addition and in lieu – Lee Hoy

• S21 – Discretion of court
• S19 – SP can be ordered even if contract has a LAD clause

SP of part of contract
S13 – small part – SP for so much that can be performed and damages for deficiency
S14 – big part – SP for so much that can be performed provided that Plaintiff agree to forgo the rest
S15 – SP of independent parts
 Injunction

Injunctions for a negative covenant S

55
• Agreement has a positive personal service and
a negative covenant, no SP for positive
Interlocutory Prohibitory service but can get injunction for negative
covenant eg Pertama Nite Club
• Negative covenant can be implied eg
Illustration (b) but unsuccessful in Dato HM
Shah v Dato Abdullah [1991] 1 MLJ 91. SC
Serious Q Balance of Convenience Damages Practice Direction
“S55 does not state that every affirmative
agreement includes, by necessary
implications, a negative agreement”
• Not allowed if effect is specific performance
of personal services eg Ehrman v
Bartholomew.
UNJUST ENRICHMENT

Dream Property v Atlas Housing affirmed by the FC in Tenaga Nasional Berhad v Ichi-Ban Plastic (M) Sdn Bhd and
other appeals [2018] 3 MLJ 14.
• The defendant must have been enriched by the receipt of a benefit or advantage;
• The enrichment must have been gained at the plaintiff’s expense;
• The retention of the enrichment by the defendant must be unjust; and
• There must be no defence available to extinguish or reduce the defendant’s liability to make restitution to the
plaintiff
Defence is to show that the retention is JUST
• Following the approach of ‘absence of basis’ by the Federal Court a defendant can escape liability by showing that
there was a legal ground for his enrichment, for example because the claimant was required to benefit the
defendant by statute or by contract.
TEMPORARY MEASURES FOR REDUCING THE IMPACT OF
CORONAVIRUS DISEASE (COVID19) ACT 2020

• Applies to 9 categories of contract for “inability to perform contractual obligation” due to measures
under the Prevention and Control of Infectious Diseases Act 1988
• From 18 March 2020 to 31 December 2021and further extended from 1 Jan to 22 Oct 2022
• Inability refers to “factual inability” and not “declared inability” Ravichantiran v Lee Kok Sun and
must be proven
• Jason Yap Wei Kian v PNSB [2021] 6 AMR 855 – Saving Provisions s 37(1), the suspension of
liability does not apply to cases commenced from 18 March 2020 until the date of publication of the
Act (which is 22 October 2020)
• Mediation at the PMC-19 for all Commercial Contract and not just the 9 categories