DISCHARGE OF CONTRACT

BY FRUSTRATIONBY PERFORMANCE

BY AGREEMENT BY BREACH

Effect of discharge of contract

• Contract is terminated / ended

• Release from further contractual obligation

• Issues raised:

> Was the contract performed? Must contractual sum [for work done] be paid?

Was there breach of contract & entitlement to sue for breach?

Note: relevance of breach of terms & consequences

PROBLEMWani & Nana, 2 young singers each made an

agreement with ABC STARS, to perform at an All

M’sian Rock Festival Concert on 8 March 2009 at

the Bkt Jalil Stadium. The other big names include

foreign artistes like Purple Rock, Rod Stewart &

the Rolling Stones.

>>What is the legal status of these agreements if :

Problem

a. Wani had mild flu and felt that she would not be able to perform well.

b. On 6 March, Nana was involved in an accident & had to be hospitalised.

Can ABC Stars sue them for breach of contract ?

c. On 8/3/09, the police withdrew the permit whichwas issued earlier. Can the organiser be sued bythe audience who have bought the tickets?

1. DISCHARGE BY FRUSTRATION

• Common law definition:

Change of circumstances which render the

contract legally or physically impossible to

perform

Consequence: Contract then becomes

VOID

CHARACTERISTICS OF FRUSTRATION

1.CONTRACT VALID WHEN FORMED

2. SUBSEQUENT EVENTS CHANGES THE NATURE OF WHAT HE IS REQUIRED TO DO

3. EVENTS BEYOND CONTROL OF PARTIES

4. CONTRACT IS IMPOSSIBLE TO PERFORM OR UNLAWFUL

TESTS: Can the contract be performed or carried out?

• Approach / Development by the Court :

1. Contract must be performed. No excuse for non

performance. Result in injustice.

Case: Paradine v Jane : Tenancy agreemt. Land

over ran by invaders. Tenant was evicted .

Held: T must pay for the lease of the land though

cnot occupy it. Strict liability to pay

Exception: Frustration of contract

• 1.Implied term of contract that contract comes to an end

• 2. Destruction of subject matter of contract

Case: Taylor v Caldwell

Hire of music hall. Burnt in a fire• 3. Disappearance of the foundation of contract

Case: Krell v Henry

Hire of room to watch royal coronation procession

along streets of London. Procession was

cancelled. King fell ill. Contract was frustrated

TESTS: Can the contract be performed?

• 4**Radical alteration or fundamental change in performance of contractual obligations

> OBJECTIVE TEST applied

Cases :Davis Contractors v Fareham UDC

[ HL]

>> applied / followed in Ramli b Zakaria v Govt of

M’sia [ FC]

Note: Current test used in UK, Commonwealth

countries

Per Lord Radcliffe

“Frustration occur whenever…without default by either

party, a contractual obligation has become incapable of

being performed because the circumstances rendered it

a thing radically different from that which was

undertaken by the contract “

Malaysian position

Sec 57 ( 2):

• 1. A contract to do an act

• 2. which after the contract is made

• 3 becomes impossible, or

• 4. unlawful

• 5. rendering the contract void

Note: S57(2) incorporates the common

law position

Malaysian position

• Exclusion of contract that was impossible

ab initio to perform :

Goh Yew Chew v Soh Tian Kee ( 1970 )

>> Sec 57 ( 1) is not on frustration of contract !

Standard Chartered Bk v KL Landmark [1991] : test

• When after the contract has been made, there is a change of circumstances but the changed circumstances do not render a fundamental or radical change in the obligation originally undertaken, the contract does not become impossible and is not discharged by frustration

>> application of Davis Contractor

Lai Kok Kit @ Sulaiman Lai abdullah v MBF Fin [2003] CA

• Housing loan RM80,000 28/8/87. Charge over house by MBF. L defaulted. Foreclosure procedure for sale by auction.

• Restructure. Agmt (2) on 14/6/89 : RM 80,000 + RM 5000( personal loan). MBF

• Was to cancel / withdraw order for auction of house. 27/6/89, MBF wrote to administrator to adjourn the auction

[ note: Did not ask for cancellation]• House auctioned off . Shortfall RM22,000.

Pl ceased to pay loan [ Agmt 2]

cont

>Action by Def to recover balance of loan 22k + personal loan 5k

>Countersuit by Pl

>> breach of contract by Def : failed to cancel the auction

Issue: Whether the change in

Circumstances render the agmt frustrated as per the test in Ramli b Zakaria v Govt of M’sia?

CONSEQUENCES Sec 66 CA & Sec 15 CLA

• CONTRACT VOID / UNENFORCEEABLE: CAME TO AN END AUTOMATICALLY

• DISCHARGE / RELEASE FROM CONTRACTUAL OBLIGATION

• CLAIM FOR RETURN ON MONIES PAID (restitution :S66)

CLAIM FOR EXPENSES INCURRED: S15 CLA, 1956

• Recovery of money paid

• Money payable is no longer so

• Claim for expenses on quantum meruit

Qn: Does Sec 15 Civil Law Act 1956 override S 66 Contracts Act 1950? Advantage of Sec 15 CLA?

Sec 15 Civil Law Act 1956

• Interpretation of statute: Does a specific provision override a general provision?

• Sec 15 : Claims for expenses can be made if contract is frustrated

EXAMPLES1. Contract for personal services : Death /

illness: Robinson v Davison (1871) Pianist could not perform at concert. Finger was injured

2. War: Frustration occur

i.when war was declared , or

ii. When contract is physically impossible to be performed?

Cases:

a. Fibrosa Spolka v Fairbairn

Effect of WW2 on contract made for sale of

goods? Claim for payment?

Decision: Contract frustrated if failure of total

consideration

b.Berney v Tronoh Mines.

Effect of Japanese invasion of Malaya on

employment contract?. Is salary claimable

c. Finelvert Spolka v Vinava Shipping

EXAMPLES

3. Destruction of subject matter:Taylor v Caldwell.Hire of theatre. Destroyed by fire beforeconcert night. Issues:> Can Owner claim for hire payment? Can Hirer claim for return of money paid?Note: Position under c.law: money was payable if the duty accrue before

frustrating event Statute ie Frustrated Contract Act 1943: money paid is recoverable,

money payable / due [ after frustrating event] was no longer payable

EXAMPLES4.Non occurrence of event Krell v Henry(1903).Cancellation of royal coronation processionwhen King fell illCf Herne Bay Steam Boat’s case5. Compulsory acquisition of land by the government :

Owner of land no longer owned it once the land was gazetted

Lee Seng Hock v Fatimah Zain (1996): Sale of land. Can Buyer insist on completion of sale?Spore Woodcraft v Mok Ah SaiTenancy agreement of rent control premises. Must T pay rent to L ?

cont

6. Govt interference• Metropolitan Water Board v Dick KerrConstruction of a dam. Suspension of work byorder of Minister . New conditions imposed when order was lifted.Held: Nature of contract was changed if it was to be performed.

• Mohd v Ho Wai : Tenancy agreement. Villagers moved to New Village. Status of agreement after the order was lifted?

7. Detention / imprisonment : effect on employment contract?Subramaniam v ESSO

NO FRUSTRATION (Contract still valid & enforceable) if

1. Self induced frustration

Case: Maritime Nat Fish v Ocean Trawlers

(1953) PC.

Hire of trawlers. 5 fishing licences applied for but

only 3 were approved. Allocation to own boats.

Held:

Agreement not frustrated. Within parties’ powers to

allocate licence & perform contract

Maxisegar Sdn Bhd v Silver Concept [2005] CA

• S & P Ag for sale of land. App applied for loan from AMMB .

• Approval subject to Special Condition laid by Bank Negara ie mixed devmt :40% industrial devmt, 60% residential devmt

• App applied to exclude the 2 conditions• AMMB unable to conclude the syndication.

Poor response from potential lenders• Issue: Whether S&P Ag was frustrated?

Self induced?

No frustration

• Yee Seng Plntn v Kjaan Negeri Terengganu (2000) CA.

Facts: Action for breach of contract. State

Exco rejected application for

alienation of land which was earlier agreed

under consent order with State govt.

Held: Contract can be performed

NO FRUSTRATION2. Delay / increase in expenses incurred

> Business risk. No effect on obligations.

Case: Davis Contractors v Fareham UDC.

Building was completed late & the cost

increased. No change in contractual

obligation or type of building.

Held: no radical alteration in contractual

obligations

Provision made in agreement3. Event was foreseen.

>Provision made to determine rights of parties.

> Force majeure clause eg bad weather, trade

dispute

Note: The doctrine of frustration cannot override

express contractual provision for the frustrating

event.

Case :

Setapak Heights Development Sdn Bhd v

Tekno Kota Sdn Bhd [2006] 3 MLJ 131 (CA)