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Tutorial 4

1. Edward agreed to let Dawn have a room for the purpose of viewing
the Parade for Visit Malaysia Year 2007 on 1 September 2007, for
RM550. The contract provided that the money be payable
immediately. The procession did not take place because of heavy
rain and flood. Dawn who had paid RM300 on account, left the
balance unpaid. Dawn sued to recover the RM300 and Edward
counter-claimed for RM250. Advise the parties on their rights in the
above contract.
Issue:
Whether Dawn is entitled to discharge her obligations from the contract on the
basis of frustration?
Law:
Explain the law on frustration
S57(2) CA 1950 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 frustration should be supervening and subsequent to the formation of the
contract, meaning the contract has been formed and then only the events
took place which made the contract impossible to carry on with.
It should be some event the promisor himself cannot prevent from happening
and should not be self-induced.
Doctrine of frustration derives from the common law principle whereby it is
applied on the ground that there is a supervening impossibility which causes
the whole purpose of the contract to be different from what was intended or
its performance has become unlawful.
It also refers to circumstances where there is no default by the contracting
party, but because of some events took place it made the contract impossible
to carry on with.
The doctrine of frustration holds that where unforeseen contingencies arise
after the contract was made and makes the performance of the contract
impossible then the parties are excused from further performance.
Doctrine of frustration applies where there has been impossibility due to nonoccurrence of event basic to the contract.
Krell v Henry (1903): H hired a room to view the coronation parade of King
Edward VII. However, owing to the King's illness, the parade was cancelled. H
refused to take up the room.
Held: The viewing of the parade was the main purpose of hiring the room.
Since the parade did not take place, the contract is discharged. The contract
was frustrated.
Herne Bay Steamboat Co. v Hutton (1903): H hired a boat so that he
could bring visitors to view the naval parade & for a day's cruise round the
Fleet on the occasion of the coronation of the King. Owing to the King's illness
the naval parade was cancelled. H refused to take the boat.
Held: Viewing the naval parade was not the main purpose of the hiring. The
contract was not discharged. Therefore H's contract still subsisted. HBS could
sue H for the breach of contract. The contract was not frustrated.
Effect of frustration is that when a contract is discharged by frustration, the
contract does not become merely voidable but is brought to an end forthwith
and automatically (Hirji Mulji v Cheong Yue Steamship Co. Ltd. (1962)
S57(2) CA 1950 states that such a contract becomes void.
Illustration (d): A contracts to sing for B at a concert for RM1,000, which is
paid in advance. A is too ill to sing. A is not bound to make compensation to B

for the loss of the profits which B would have made if A had been able to sing,
but must refund to B the RM1,000 paid in advance.
Section 15 of the Civil Law Act 1950 (Revised 1972) is also relevant to
frustration contract. Section 15(2) provides that money due but not paid
before frustration ceases to be payable.
But if the money has actually been paid, it must be restored. If the party in the
contract has incurred expenses in performing the contract before frustration,
the court has the discretion to order payment not exceeding the amount of the
said expenses.
Application:
Applying the facts, the parties got into the contract for the purpose of the
parade. If the event was never organised, the parties would have never gotten
into the contract.
Dawns contract would be considered as frustrated because the only reasons
she had intended to rent the room was to view the parade, if the parade was
not going to take place, there was no longer a purpose of that room as per the
case of Krell v Henry.
The heavy rain and floods was something that happened after the parties
entered into the contract and the parties did not contemplate that there was
going to be rain and floods. All the parties knew was that there was going to
be a Parade in conjunction with the Visit Malaysia Year 2007 event. Due to that
all those reasons, Dawns contract would be considered as discharged by
frustration.
Any money payable ceases to be payable, meaning the balance of RM250 will
no longer be payable to Edward. However, any money paid in advance will
have to be restored to the parties. Edward will have to restore RM300 to Dawn
for the advanced booking monies she paid.

Conclusion:
Dawn is entitled to discharge her obligations under the contract on the basis
of frustration and she is entitled to claim RM300 back from Edward for the
advance booking money she had paid Edward.

2. Ban Lee Construction (BLC) entered into a contract with Selangor


Rubber Plantations (SRP) to build 50 houses for the workers of SRP
at a total sum of RM 1 million within 24 months from the date of the
contract. It was further agreed that in the event BLC fails to
complete and deliver the houses to SRP within 24 months, BLC shall
pay compensation in the form of liquidated damages for any delay
at the rate of 10% per annum of the agreed price. Owing to the
shortage of building materials, cement, bricks and skilled labours,
BLC took 48 months to complete and deliver the houses to SRP. SRP
has claimed compensation for RM200,000 from BLC. BLC has denied
liability and has claimed that that the contract was frustrated on the
ground that the delay in completing the houses was due to events
that were outside their control.
Advise SLP.
Issue:
Whether frustration would apply to discharge BLC from its obligation to
perform the contract and of liability to pay compensation for late delivery of
the houses?
Law & Application:
Explain s.57(1) and s.57(2)

A contract is said to be frustrated or it becomes impossible to perform


subsequent to the contract s.57(2) CA 1950.
The test laid down to test whether the contract could be discharged on the
basis of frustration is in the case of Davis Contractors Ltd. v Fareham UDC
and subsequently applied in Ramli bin Zakaria & Ors v Government of
Malaysia.
Was the delay self-induced was there any fault on the part of BLC? Were they
responsible for the delay caused in delivering the houses?
Maxisegar Sdn. Bhd. v Silver Concept Sdn. Bhd. failure to pay the
balance of purchase price did not amount to frustration. It was self-induced.
Frustration must be something that happens naturally and unforeseeably,
without it being self-induced.
Was there any provision in the contract that covered such an event? If there is,
then the provision would apply to enable BLC to escape liability.
Sentul Raya Sdn. Bhd. v Hariram a/l Jayaram & Ors/ Chinaya a/l
Ganggaya v Sentul Raya SB Financial crisis of 1997/1998 which resulted
in the delay of completing the condominiums was not a fundamentally
different situation that it rendered it impossible

Conclusion:
Delay was not due to frustration it was rather self-induced. BLC were still
able to complete and deliver the houses meaning the contract was not
frustrated. Although there were change in circumstances but it made it more
than onerous for them to perform the contract. They could have employed
manpower from another firm and obtain materials from other suppliers in
order to prevent delay. Nothing on the facts suggested that BLC did anything
of such. Hence, they must pay compensation of RM200,000 for the late
delivery of the houses.
Tutorial 6

1. Ameer and Sameer were directors of Simfoni Kasih Sdn. Bhd. They
passed a resolution to sell the companys land situated in Jalan Loke
Yew, Kuala Lumpur for RM500,000 to MyLover Sdn. Bhd. The market
value of the land was actually RM1.5 milion. It was found later that
both Ameer and Sameer were actually directors of MyLover Sdn
Bhd. Simfoni Kasih Sdn. Bhd. eventually went into liquidation due to
its incapability to settle the debts. The liquidator now wishes to sue
Ameer and Sameer. Advise the liquidator as to the possible legal
actions against Ameer and Sameer.
Issue:
Whether the directors (Ameer and Sameer) were breach of their fiduciary
duties ?

Law:
This involves a discussion on whether the directors were acting in good
faith/bona fide in the best interest of the company and to avoid any
conflicts of interest.
Directors have duty to ensure that they must not allow a situation to come
where their duties to the persons for whose benefit they are required to
act and their own personal interest are in conflict.
The classic meaning of this principal was established in Aberdeen
Railway Co v Blaikie Bros (1981) 1 Masq 461- explain the facts and
the decision established here.

It implies that directors should never undertake any activities that will
bring their interest above the interests of the company that they are
working for/representing.
Directors are allowed to be in a position of conflict with their own and the
companys S.131(1).
o Provided that a declaration is made by him.
o Declaration is made by giving general notice to the directors of the
company and the nature/extent of the interest in the contract/firm is
also to be specified.
o Reasonable steps must be taken that the notice is brought up and
read at the directors meeting.
Case: Regal Hastings Ltd v Guliver (1942) 1 All ER 378.
Duty to act bona fide in the interest of the company
Directors must always act in good faith in all matters especially to those
relating to the company and its affairs.
Re Smith & Fawcett Ltd [1942] 1 All ER 542, the directors must
exercise their powers bona fide in what they consider is in the interest of
the company and not for any collateral reason or purpose.
Re W &M Roith Ltd [1967] 1 All ER 427: A controlling shareholder and
director was about to retire. He wanted to make some financial provision
for his wife. He entered into a service contract with the company, .upon
his death, his wife would receive pension from the company The sole
purpose of the contract was to benefit the wife. Upon his death, the
contract was challenged that the director who approved the contract had
not acted bona fide in the interest of the company, but himself. The court
held that the service contract was for the benefit of the wife and not bona
fide in the interest of the company at all.
John Crowther Group Plc v Carpets International Plc. & Others
[1990] BCLC 460: The directors entered into an agreement to
recommend a particular bid for the company shares. The directors
breached the agreement and recommended a higher bid offered by
someone else. The issue was whether the directors were liable for the
breach. The court held that the directors were not liable as they acted
bona fide for the interest of the company. They must recommend the best
and higher bid.

Application:
On the facts, the two directors did not disclose their interest in the general
meeting, neither did they give any declaration or give sufficient notice to
the other board directors regarding their interest in the transaction. They
allowed their personal interest to collide with the interest of the company.
Further the assets were sold at an undervalue and that was clearly not
beneficial to the company, which again relates to the fact that they both
failed to act in the best interest of the company.
Conclusion:
The directors can be made liable under s.132 CA 1965

2. Steven Lim is the managing director of Eaglestar Sdn Bhd which is


company involved amongst others in the business of buying and
selling land. His friend, Ah Cheng offered to sell a few acres of his

agricultural land situated in Gopeng to the company. Although


Eaglestar Sdn Bhd was interested in purchasing that particular land,
but owing to the current financial problems faced by the company,
the directors decided not to purchase the land. Steven Lim decided
to take this opportunity to buy the land for himself without informing
the company about it.
Advise Steven Lim on his current position.

Issue:
Is Steven as a director of Eaglestar Sdn Bhd. allowed to take up this
opportunity without the consent of the company?
Is Steven liable for the breach of his duties to the company?

Law:
A director: any person occupying the position of director of a corporation
by whatever name called and includes a person in accordance with whose
directions or instructions the directors of a corporation are
accustomed to act and an alternate or substitute director section 4(1)

Directors have duty to ensure that they must not allow a situation to come
where their duties to the persons for whose benefit they are required to
act and their own personal interest are in conflict.
The classic meaning of this principal was established in Aberdeen
Railway Co v Blaikie Bros (1981) 1 Masq 461.
It implies that directors should never undertake any activities that will
bring their interest above the interests of the company that they are
working for/representing.
Directors are allowed to be in a position of conflict with their own and the
companys S.131(1).
Provided that a declaration is made by him.
Declaration is made by giving general notice to the directors of the
company and the nature/extent of the interest in the contract/firm is also
to be specified.
Reasonable steps must be taken that the notice is brought up and read at
the directors meeting.
Director is not entitled to make use of any opportunity or information
belonging to the company from his position as a director.
The board can approve/consent to the director taking the opportunity for
himself.
But the general meeting should give the authorization instead of the BOD
The board can approve/consent to the director taking the opportunity for
himself.
Peso-Silver Mines Ltd v Cropper (1996) 58 OLR (2d) 1: The director
may make use of the opportunity if the board of the company bona fide
rejects it the opportunity.
Queensland Mines Ltd v Hudson [1998] 52 ALJR 399.
S.132(2) directors can take opportunity if general meeting
approves/ratifies
Directors are not allowed to be in competition with persons for whom they
act.
Directors, especially executive directors are salaried employees.

They owe a duty to their employer to act in the best interest of the
company and not to compete with the employer.
However, non-executive directors are allowed to compete as per Bell v
Lever Bros [1982] AC 161 and in London & Mashonaland
Exploration Co [1891] WN 165, the court held that the director can be
a director of another company even if the company is a rival.

Application:
Steven had failed to disclose his interest in the land to the company and
this is already in breach of the duty to avoid any conflicts of interest.
The opportunity to purchase the agricultural land was one that belonged
to the company and the opportunity had come to him by reason of his
position as a director and in the course of executing his fiduciary duties. If
he wasn't occupying the position as a director, he would have never
known about the land offer.
He should have avoided the contract knowing that it conflicts his interest
with his duty to the company.
In order to escape any liability arising out of breach of those mentioned
duties above, Steven should disclose his interest to the general meeting to
obtain their consent or ratification on the matter.
Since he had already breached his duties, the company recover anything
that he had gained directly/indirectly from the transaction.
Steven can be removed from his position as a director and the contract
will be deemed voidable and set aside at the option of the company.
However, if he can show that he had acted in good faith and honestly then
he court may give him a relief from sanctions.
Tutorial 9

1. Sally, a contestant in one of the top reality shows in TVReality was


preparing for the final contest to become the winner for the new
season 2008. Sally engaged a professional tailor to sew the dress
suitable for the contest. Sally consulted Robin, a well-known fashion
designer in town, on the choice of fabric for the dress because she
had sensitive skin and was allergic to certain types of fabric. Sally
paid RM3,000 for the cost of the dress. After the contest, Sally
discovered red spots on her skin. She went to see the doctor and
was told that her skin was sensitive to the fabric used for the dress
that she had worn for the contest. Sally went to see Robin and
returned the dress because the fabric used for the dress was not fit
for the purpose she made known to Robin and caused her skin
complaint. Sally also claimed for the refund of the cost of the dress
from Robin and the medical expenses incurred by her. Decide
whether Sally could claim for the refund of her money from Robin as
well as the cost for her medical expenses.
Issue:

Whether Sally is entitled to claim for the refund of her money from Robin and the medical
expensesincurredonher.

Law:

S16(1)

(a)
(b)
(c)
(d)

Thereisnoimpliedwarrantyorconditionastothequalityorfitnessforanyparticularpurpose
ofgoodssuppliedunderacontractofsale,exceptasfollows:
(a)Wherethebuyer,expresslyorbyimplicationmakesknowntothesellertheparticularpurpose
forwhichthegoodsarerequired,soastoshowthatthebuyerreliesontheskillsorjudgement,and
thegoodsareofadescriptionwhichitisinthecourseofthesellersbusinesstosupplythereisan
impliedconditionthatthegoodsshallbereasonablyfitforsuchpurpose
Ifthebuyerwishestohavethebenefitofsuchclauseshemustshowthesalecomewithinthe
termsofs16(1)(a)(fitnessforpurpose)
UnionAlloy(M)SdnBhdvSyarikatPembenaanYeohTiongLaySdnBhd(1993),Zakaria
YatimJ.thatthereare4preconditionslaiddownins16(1)(a):
Thebuyermustmakeknowntothesellertheparticularpurposeforwhichthegoodsarerequired;
Itmustbeshownthattherewasreliancebythebuyeronthesellersskillandjudgment,andthe
buyermustinfactrelyonthesellertosupplysuitablegoods;
Thegoodsmustbeofadescriptionwhichitisinthecourseofthesellersbusinesstosupply;and
Ifthegoodsarespecific,theymustnotbesoldundertheirpatentortradename
Griffithsv.PeterConwayLtd.[1939]1AllER685,awomanwithanabnormallysensitiveskin
boughtaHarrisTweedcoatwithoutdisclosingtotheselleraboutherabnormality.Shecouldnot
claimunderthissectionbecausethecoatwouldnotharmanormalperson.
Thus,thebuyermustclearlyindicatethespecialpurposeforwhichthegoodsaretobeused.
Otherwise,thereisnobreachoftheimpliedconditionifthegoodsaresuitablefortheirgeneral
andnormalpurpose.

Application:

Onthefacts,SallyconsultedRobintoadviseheronthetypeoffabricthatwouldbesuitablefor
theskinasshehadsensitiveskin.
ThepurposeofSallyconsultingRobinwastoensurethatshehadtherightfabricforthedressto
bestitchedbyanothertailor.
SallywasthebuyerhereandshedidinformRobinofhersensitivitytocertainfabrics.Asshe
knewthatRobinwasapersonofspecialskillinthatfield,shereliedonRobinsrecommendation
onthetypeoffabricthatwouldbesuitableforherdress.
Duetoallthosereasons,Sallyisentitledtoclaimunders.16(1)(a)thatthefabricwasnotfitforits
purposeasshehadalreadymadeknowntoRobinthatshewouldrequireafabricthatwouldnot
givehersensitiveskinandthefabricwastobeusedtostitchadressforacontest.Thefabricis
clearlynotsuitableforgeneralandnormalpurposeifapersonwouldsuffersensitivityafterusing
it.HenceSallywillbeabletoclaimfortherefundaswellashermedicalexpenses.

Conclusion:

Sallyshouldbeadvisedthatsheisentitledtoclaimunders.16(1)(a)forthebreachofimplied
conditionsthatthegoodwerenotfitforitspurpose.

Tutorial 10

1. Mr Romeo owns a shophouse which is insured against fire. In his


application for insurance policy, Mr Romeo stated that the
shophouse was being used as a florist shop. Yesterday, a fire broke
out in Mr Romeos shophouse and the fire was caused by an
explosion of 50 huge gas cylinders which were placed at the back of
the shophouse. Explain whether the insurers are liable under the
insurance policy.
Issue:
Whether the insurers are liable under the insurance policy ?

Law:
In contrast to other business contracts, an insurance contract expects a
party to a contract to disclose all information which is known to him.

This is because an insurance contract is based on mutual trust and


confidence between the insurer and the insured.
In other words, an insurance contract is a contract of uberrimae fidei(of
total good faith).
Goh Chooi Leng v. Public Life Assurance Co Ltd (1964), a beneficiary
to the insurance policy made a claim after the insureds death. The insurer
refused to settle the payment on grounds that the insured in his admission
had made a fraudulent statement, misrepresentation and concealed the
truth. The insureds medical report showed that the insured used to
receive treatment on tuberculosis, but when answering a question
regarding the said treatment, he denied it. The court held that the answer
in the policy form was false. The contract was therefore void.
The insured however need not disclose all facts. Only material facts must
be disclosed.
Material facts in the context of an insurance contract are facts which if
known by the insurer, could influence the judgment of the insurer in
accepting or rejecting the taking of the risks and in deciding what
premium should be fixed.
If the insured disclosed non-material facts, the policy is still valid.
New India Assurance Co Ltd v. Pang Piang Chong & Ors (1971), a
man died due to a road accident and his next-of-kin sued for damages
against the insured, who drove the car. The insurer refused to settle the
compensation money on the ground that the insured did not forward true
facts when completing the policy form. In the policy form was the
question, Have you or any person you give permission to drive, ever
committed any driving offences within the last five years. The answer
given was No. The insurer found out that the insured used to commit
five offences under the Road Traffic Ordinance 1958 for driving without
licence and for not displaying the L sign on his car.
The court held that the offence used to be committed by the insured has
no connection with the the original purpose the insurance was taken out
by insured. The answer was not a non-disclosure of material facts or a
deception of material facts.
Other relevant cases: Abu Bakar v. Oriental Fire & General Insurance
Co Ltd (1974) if its material facts :
But the insured did not know
Could not in particular instances have been expected to know
Could not have been apparent to a reasonable man
Then his failure to disclose should not be regarded as a breach of his duty.

Application:
On the facts, Mr Romeo failed to disclose that the shop had 50 cylinders of
gas. He only stated that the shop was being used for a florist. Since the
gas cylinders were the cause of the explosion in the shophouse, it could be
said that the gas cylinders are material fact to the relevant claim here.
Because Mr. Romeo failed to disclose a material fact, hence the insurers
are not liable under the insurance policy.
However, if Mr Romeo did not know about the gas cylinders in his
shophouse, then he could very well argue that he was unaware of it and it
was not expected to have known it and it was not apparent to him. If he
establishes all these, then the insurers will be liable under the insurance
policy.