DISCHARGE OF CONTRACT

BY FRUSTRATION
BY 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
 PROBLEM
Wani & 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 which

was issued earlier. Can the organiser be sued by
the 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
 EXAMPLES
1. 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 before
concert 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
 EXAMPLES
4.Non occurrence of event
Krell v Henry(1903).
Cancellation of royal coronation procession
when King fell ill
Cf Herne Bay Steam Boat’s case
5. 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 Sai
Tenancy agreement of rent control premises. Must T pay
rent to L ?
 cont
6. Govt interference
• Metropolitan Water Board v Dick Kerr
Construction of a dam. Suspension of work by
order 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 FRUSTRATION
2. 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 agreement
3. 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)