You are on page 1of 15

Table of Contents

Table of Contents ....................................................................................................................... 0


1. Introduction ........................................................................................................................ 1
2. Basic Legal Principles in Formation of Contract ............................................................... 1
2.1. Offer ............................................................................................................................ 1
2.2. Acceptance .................................................................................................................. 2
2.3. Intention to Create Legal Relations ............................................................................. 2
2.4. Consideration .............................................................................................................. 3
2.5. Certainty ...................................................................................................................... 4
2.6. Capacity....................................................................................................................... 4
2.7. Consent of Parties........................................................................................................ 5
2.8. Case Application: Contract Validation ....................................................................... 5
3. Discharge of Contract ......................................................................................................... 6
3.1. Discharge by Performance .......................................................................................... 6
3.2. Discharge by Agreement ............................................................................................. 6
3.3. Discharge by Impossibility.......................................................................................... 6
3.4. Discharge by Breach ................................................................................................... 8
3.5. Case Application: Discharge of Contract .................................................................... 9
4. Remedies .......................................................................................................................... 10
4.1. Damages .................................................................................................................... 10
4.2. Quantum Meruit ........................................................................................................ 11
4.3. Specific Performance ................................................................................................ 11
4.4. Injunction or Preventive Relief ................................................................................. 11
4.5. Case Application: Remedies ..................................................................................... 11
5. Summary........................................................................................................................... 13
6. References ........................................................................................................................ 14
1. Introduction
A contract is basically an agreement between which legally binds the parties there to
perform specific acts and is enforceable by law. There are two essential elements that defines
a contacts, namely the agreement and enforceable by law.
Agreement is when two or more parties agree on the same matter that is to say that there
are elements of offer and acceptance of the matter. Enforceable by law means if a party to an
agreement breaches an obligation specified in the contract, the other party may enforce his
rights in accordance with the law. In order for the contract to be enforceable, each party must
exchange something of value called “consideration”.
A contract may be used for various transactions, including the sale of land or goods, or
the provision of services. The law governing contractual relationship in Malaysia is Contracts
Act 1950 (Act 136). All legal provisions refer herewith are based on this Act, unless stated
otherwise.

2. Basic Legal Principles in Formation of Contract


A valid contract depends on the validity of seven essential elements of a contract which
are offer, acceptance, consideration, intention to create legal relations, capacity to contact,
certainty and free consent. Each of these elements must be present in the formation of a valid
contract.

2.1. Offer
An offer is necessary for the formation of an agreement. In Malaysia, an offer is also
known as a proposal by virtue of the Contracts Act (1950). According to section 2(a), an
offer can be in the form of a promise, an act, or an abstinence. Most important, the person
who makes an offer (i.e., the offeror) is willingly making the offer. A proposal can be made
to a specific legal entity or to the public at large. The case of Carlill vs. Carbolic Smoke Ball
Co. (1893) illustrates that a proposal was made to the public at large through an
advertisement.
A valid offer must be communicated. Section 3 also specifies that communication can be
made in words, either spoken or written, or by conduct. Once communication comes to the
knowledge of the person to whom it is made, the offer is complete [section 4(1)]. For
example, in R vs. Clarke (1927) the respondent was not aware of the reward when he
provided an information leading to the arrest of a criminal. As he was arrested together with
another person by the police, the information he provided was meant to clear himself.
1
An offer should also be distinguished from an invitation to treat and a counter-offer. An
invitation to treat is a preliminary communication, usually takes place during the negotiation
process. Pharmaceutical Society of GB vs. Boots Cash Chemists (1953) is a famous case
illustrating that displaying of goods on shelves constitute an invitation to treat. Similarly, in
situation involving job advertisement as found in Coelho vs. The Public Services
Commission (1964), the court has ruled that it was a mere invitation to treat, and not an offer.
Counter-offer, on the other hand, refers to a rejection of an original offer by a person to
whom the offer is made. For example, Hyde vs. Wrench (1840) illustrated that the original
offer made by the defendant to sell a piece of land to a plaintiff for £1000 was no longer valid
when the plaintiff made a counter-offer to purchase the said land at £950.

2.2. Acceptance
An offer must be accepted by the person to whom the offer is made (i.e., acceptor).
Similar to offer, acceptance must be communicated. A silence from the acceptor, as ruled by
the court in Felthouse vs. Bindley (1862), does not constitute a valid acceptance.
Communication of acceptance can be made in words or by conduct. A performance of a
certain action is an example of conduct. Although S.7(b) requires communication to take
place using usual mode or method, there are several exceptions. First, if an offeror has
dispensed the need for it. Second, when an offeror allows for acceptance or take the form of a
performance of an act. Third, an offeror follows the provision found in S.8, whereby the
acceptance of any consideration for a reciprocal promise which may be offered with an offer.
A failure to accept within a reasonable time, if time is an essence, also implies rejection
by the offeree as found S.6(b) and in Macon Works & Trading Sdn. Bhd. vs. Phang Hon Chin
& Anor (1976). S.7(a) specifies that acceptance must be unconditional. This means that
acceptance must be absolute and unqualified, which follows to the terms of the contract. The
validity of acceptance is destroyed when modification is made to the terms.

2.3. Intention to Create Legal Relations


Each contract must be legally intended to be enforceable. There are two basic
assumptions under intention to create legal relations. In cases involving family, domestic, and
social agreements, it is assumed that the agreements are not legally enforceable. Balfour vs.
Balfour (1919) is a case that illustrates on this point. On the contrary, all business agreements
are intended to be legally binding. However, “subject to contract” agreements are generally
not enforceable contracts, as ruled by the court in Low Kar Yit & Ors vs. Mohd Isa & Anor
2
(1963). There are also instances in which the courts ruled that “subject to contract”
agreements were enforceable contracts. For example, in Daiman Development Sdn Bhd vs.
Mathew Lui Chin Teck & Anor (1981) the court ordered that a booking pro forma was an
enforceable agreement.

2.4. Consideration
In general, any agreement made without consideration is void (S.26). S.2(d) defines
consideration as the price of which one party pays to buy the promise or act of the other.
Price here does not imply money but something which is valued by both parties. This
includes an act, an abstinence, and a promise to perform a future act or abstinence.
There are six rules on consideration. First, consideration must have some value. If a
person offers a consideration to someone who must actually undertake that action, it is not a
valid consideration. In Collins vs. Godefroy (1831), a promise was made to pay a witness for
a certain amount of money, who was under an order to attend the court as subpoena. It was
held by the court that the duty to attend was a duty imposed by law. Therefore, the promise
was unenforceable because there was no consideration for it. Second, consideration need not
be adequate but sufficient. For example, the Federal court reversed the decision made by the
judge of a lower court in the case Phang Swee Kim vs. Beh I Hock (1964). Specifically, an
agreement to transfer a parcel of land for $500 when the land was subdivided and worth
much more was valid because the consent for the agreement was freely given and the amount
did not matter. The Federal Court judge also referred to Illustration (f) in S.26, which
illustrates that a consent that is freely given is good to form a contract despite the inadequacy
of the consideration.
Third, consideration can move from the promisee or other person [S.2(d)]. In Venkata
Chinnaya vs. Verikatara’ma’ya (1881), it was held by the court that a sister was liable for the
promise she made to her brothers because there was a valid consideration for the promise
even though the consideration did not come from the brothers. Fourth, a consideration must
not be illegal. A consideration to allow a man to marry a daughter aged ten years old is
considered illegal. Fifth, a consideration must not be vague. In Scammell & Nephew vs.
Oustin (1941), the term “on the understanding that the balance of the purchase price van be
had on hire purchase terms over a period of two years” was ruled to be vague because it has
no definite meaning. Sixth, a consideration must be possible of performance. A consideration
in which a person promises to go to the moon is considered to be impossible.

3
2.5. Certainty
This element refers to certainty of terms. According to S.30, an agreement that stipulates
terms that are uncertain destroys an agreement. For example, a hundred tons of oil is
considered uncertain because the types of oil is questionable. Uncertainty covers two aspects;
language used too vague and failure for incompleteness. The first aspect refers to a situation
in which usually there is no concluded agreement. The second aspect refers to a situation in
which failure to reach agreement on a vital or fundamental term of an agreement. One
celebrated case is Karuppan Chetty vs. Suah Thian (1916). The term “as long as he likes” was
held by the court to be uncertain.

2.6. Capacity
Only person who has full capacity can enter into a contract. Capacity is defined in S.11,
which emphasizes on three important requirements. First, a person must be someone who is
of the age of majority. A minor, who is below 18 years old according to the Age of Majority
Act (1971), cannot make a contract. There are several exceptions such as contract of
necessities, scholarship, and apprenticeship. For example, in Government of Malaysia vs.
Gurcharan Singh & Ors (1971), it was held by the court that education was necessaries.
Therefore, the defendant was liable to repay a reasonable sum spent on him.
Second, a person must be of sound mind. Therefore, any person who suffers from mental
disability, either permanently or temporarily, at the time of contract lacks the capacity. S.11
and S.12(1) provide the legal provisions on sound mind. S.12 further specifies that mental
disability includes persons of mentally disorder and persons who are incapacitated through
sickness, and abuse of alcohol and drugs. Overall, the basic of incapacity is a person’s
inability to understand what he is doing. However, the burden of proof to set aside a contract
on the basis of unsound mind is on the defendant as specified by the court in Imperial Loan
Co, vs Stone (1892).
Third, as long as a person is not disqualified from contracting by any law to which he is
subject, he is capable of making a contract. For example, a businessman who has been
declared bankrupt cannot enter into a contract to purchase a piece of land to set up a new
business. With reference to capacity, a company can enter into a contract because it is a legal
entity.

4
2.7. Consent of Parties
Although consent of parties is not one of the essential elements in forming a contract, the
contractual parties must have entered into the contract with free consent as specified in
S.10(1). Free consent is defined in S.13 as “when two or more parties agree upon the same
thing in the same sense”. S.14 further defines that consent is said not to be free is consent is
given due to coercion, undue influence, fraud, misrepresentation, and mistake. By virtue of
S.19(1) and S.20, contracts that are due to coercion, fraud, misrepresentation, and fraud are
voidable. That is, only one of the contractual parties has the choice to affirm or to reject an
agreement but not at the option of the other party. Only mistake renders a contract void as
specified in S.21, but the mistake must be essential to the agreement.

2.8. Case Application: Contract Validation


A contract was formed between MHS Aviation Bhd (MHS) and Petronas Carigali Sdn
Bhd (Petronas Carigali), in which MHS was to provide Petronas Carigali five EC225
helicopters for use in the latter’s oil and gas exploration and production operations. Although
both MHS and Petronas Carigali were corporate bodies, their legal entities are well-
established according to the law. Therefore, both companies have the capacity to make a
legally binding contract.
It is assumed that an offer was made by Petronas Carigali to MHS to supply five EC225
for the said aforementioned use. MHS accepted this offer for an amount of RM3.1 billion by
Petronas Carigali to them. In this situation, there was certainty of terms. In addition, the
contract which was formed in 2011 mentioned that the period of time for the contract was to
last for 10 years beginning from April 1, 2011 to 31 March 2021.
In terms of consideration, both parties provided sufficient consideration in terms of
services to be provided over a specific amount. Specifically, the amount of payment to be
made by Petronas Carigali was a consideration moving from its side for MHS’s agreement to
provide the five EC225 helicopters. Hence, providing the five EC225 helicopters was the
consideration moving from MHS to Petronas Carigali. The intention of both parties was also
clear because the contract was meant for business purposes. In addition, both parties entered
into the contract willingly; that is with mutual consent. There was no evidence pointing out to
coercion, undue influence, misrepresentation, fraud, and mistake.

5
3. Discharge of Contract
In certain cases, contractual parties can be discharged from their obligations as a result of
a contract termination. According to the law of contract, there are four ways in which a
contract may be discharged.

3.1. Discharge by Performance


First is discharge by performance, which refers to when contractual parties perform their
obligations. If both parties have carried out their obligations, then the situation is known as
complete discharge. If only one party has carried out his/her/their obligation, then this party
alone is discharged from the contract. To be discharged by performance, it is important that
performance is done according to the terms of the contract (S.40) especially at the time and
place to which the party is undertaken to do. The court held in Sim Chio Huat vs. Wong Ted
Fui (1983) that any delay in performing a contractual obligation will entitle the other party to
free himself from the contract. However, if the innocent party treats the contract as still
subsisting, then he is bound to the contract even when time has lapsed.

3.2. Discharge by Agreement


Discharge by agreement is the second type of discharge. It refers to a situation when a
contract created by consent is discharged by consent of the contractual parties, either at the
time of the contract via express consent or subsequent to the contract via waiver, novation,
release, remission, or rescission. S.63 specifies that the effect of novation (i.e., substitution or
replacement), rescission, and alteration is there is no performance. Illustration (a) of S.63, for
example, shows that when a person (X) owes a certain amount of money to another (Y) but
both parties together with a third person (Z) agree that Y should accept Z as his debtor
instead of X, the old debt of X and Y is at an end, and a new debt between Z and Y had been
contracted. S.64 together with its Illustrations (a), (c), (d), and (e) deal with remission of
performance. The four situations in which remission of performance are treated as discharge
by agreement are payment of a lesser sum in satisfaction of a larger sum, payment of a lesser
sum by a third party to satisfy a larger debt, payment in satisfaction of an unascertained sum,
and an arrangement for the settlement of debts between a debtor and his creditors.

3.3. Discharge by Impossibility


The third type of discharge is discharge by impossibility. S.57 specifies that there are two
situations in which a contract is discharge by impossibility. First, impossibility to perform a
6
certain act at the time when the contract is made and after it has been made. For example, X
agrees to Y to discover a treasure by magic renders an agreement to be void [Illustration (a),
S.57]. Second, by virtue of S.57(2), a contract is deemed to be impossible to perform
subsequent to its making due to some event which the promisor could not prevent, or become
unlawful. This second type of discharge by impossibility is also known as doctrine of
frustration.
Doctrine of frustration applies to situations in which the supervening impossibility causes
the whole contract to be radically different or its performance has become unlawful. The test
of “radically different” was established in Davis Contractors Ltd vs Fareham UDC (1956) by
the House of Lords, which is non haec in foedera veni or “it was not this that I promised to
do”. Nevertheless, self-induced frustration does not discharge an obligation. For example, in
Ramli bin Zakaria & Ors vs Govt. of Malaysia (1982), the court held that an agreement to
provide for a new salary scale was not frustrated by a new salary scale which abolished the
original scale.
There are several situations that have been established in the law pertaining to
supervening impossibility and illegality. First is the destruction of the subject matter of the
contract. In Taylor vs. Caldwell (1863), the music hall, which was the subject of the contract,
was burnt in fire before the first of four series of concert was executed. The plaintiff brought
an action against the defendant, who agreed to the plaintiff to use the music hall, to recover
damages because they had spent money on advertisement and preparation of the concert. The
court held that the plaintiff could not recover damages because the destruction of the hall
excused both parties from performing their promises. S.12 of the Specific Relief Act 1950,
however, specifies that the destruction must be a total destruction of the subject matter.
Second is a supervening event defeats the whole purpose or object of the contract. For
example, in Krell vs. Henry (1903), a room was reserved for the whole purpose of watching
the coronation procession of King Edward VII but the procession was cancelled due to the
King’s illness. In this case, the court held that the defendant could be excused from paying
rent for the room because the contract was frustrated by the supervening event. Third is the
death of personal incapacity of the promisor when the contract involves personal obligation.
It is because the basis of the contract is the personal qualifications and skills of the person.
Fourth is supervening illegality. For example, in Abdul Kader vs. Shaw Bros Ltd (1940), the
court held that a monthly tenancy agreement was frustrated by the enactment of a law with
retrospective effect.

7
3.4. Discharge by Breach
The last type of discharge is discharge by breach, which refers to a failure to perform or
to offer performance that may amount to breach of contract. S.40 identifies “putting an end to
a contract” as a refusal by the promisor to perform, and the disability to perform. In this
situation, a party not in breach can continue with the contract and claim damages, or
repudiate the contract. In Ban Hong Joo Mine Ltd vs. Chen & Yap Ltd, the appellant’s
refusal to pay the respondent for excavation works which was specified as a condition in the
contract allowed the respondent to cease work for breach of condition. As a result, the
respondent was discharged of the contract.
However, there are several issues surrounding discharge of breach. First, when does a
party be considered to have refused to perform? In Choo Yin Loo vs. Visunalingam Pillay
(1930), the plaintiff contracted to perform certain work on the defendant’s land. The work
was agreed to be executed expeditiously by having 30 workers on the land at all times. The
defendant later ceased to make payment on the allegation that there was a shortage of the
stipulated number of workers provided by the plaintiff. The plaintiff sued the defendant for
damages on the ground that he had been prevented by the defendant’s default from
completing the contract. The court held that the defendant was entitled to put the contract to
an end because the plaintiff failed to employ sufficient number of employees to execute the
work, which was agreed to be executed expeditiously. Second, is the refusal refers to a
promise in its entirety? This issue is important to be addressed because the right to repudiate
or put a contract to an end is allowed only if a breach goes to the root of the contract, a breach
of an essential part of the contract, or a breach of fundamental term. In Tan Hock Chan vs.
Kho Teck Seng (1980), the defendant, who was employed by the appellant to build certain
shop houses, could not complete his work on a final lot because of a claim by an occupier of
the land to the tenancy right. It was held that the failure of the appellant to give effective
possession of the land to the respondent constituted a breach that entitled the latter to rescind
the contract. If time is the essence of a contract, the party who was not in default when the
contract was breach has the right to either repudiate the contract or to treat it as still
subsisting. This principle was established in Sim Chio Huat v Wong Ted Fui (1983).
In the event of anticipatory breach, in which it happens when a contract is repudiated
before the time performance is due either because the promisor does an act which makes the
performance impossible or the promisor expressly renounces the contract before the due date,
the innocent party has several options to choose. The innocent party may repudiate the
contract immediately and sue for damages, or disregard it so that the contract is kept alive,
8
the rights and obligations will remain the same, it enables the other party to change his mind
and complete the contract, and the other party may excuse himself for non-performance
before the due date. However, the disability to perform should not be the result of the
occurrence beyond the control of the party in default. That is, he/she/they must be the cause
to the disability to perform.

3.5. Case Application: Discharge of Contract


The issue arises when Petronas Carigali suspended the use of all five helicopters provided
by MHS following two forced landings in the North Sea in May and October 2012. The
possible legal issue here is discharge of contract. The suspension of the service could not be
classified as discharge by performance. It is because the contract was meant for ten-year time
frame and the suspension took place just a few years over after the contract was formed. With
regard to discharge by agreement, there was no indication that points to the consent between
Petronas Carigali and MHS to discharge each other’s obligation.
The suspension of the helicopters was made by Petronas Carigali due to safety concern
and its query about airworthiness of the helicopters following the directive issued by
European Aviation Safety Agency, which was also legally applicable to Malaysian registered
EC225 helicopters by virtue of Department of Civil Aviation regulations. To Petronas
Carigali, safety of their employees was the first priority, but to MHS, the suspension did not
render the contract to be discharged. In MHS’ view, the notice of termination from Petronas
Carigali was invalid.
Although this case seems to relate to doctrine of frustration, the contract was not
discharge by frustration. The fatal accidents took place in Norway. As claimed by MHS, the
accident and the use of five EC225 helicopters provided by it to Petronas Carigali were not
connected to MHS and Petronas Carigali. The subject matter of the contract was not
destructed because the five helicopters were not connected to both parties. The accident took
place in Norway, and as such the supervening event did not defeat the purpose of the object
of the contract, which was meant to be used in Petronas Carigali’s oil and gas exploration and
production operations.
Following this argument, the only possible way to discharge this contract is discharge by
breach. In this case, Petronas Carigali failed to perform its part to the contract by suspending
the operations of the five helicopters. It was Petronas Carigali’s refusal to perform the
contract and submission of notice of termination constituted the breach. Because the contract
was put to an end before the time performance was due, the breach could be considered as
9
anticipatory breach. In this case, it was Petronas Carigali decision to suspend and terminate
the contract.

4. Remedies
There are several remedies available in contract law, which include damages, quantum
meruit, specific performance and injunction.

4.1. Damages
Damages is intended to compensate a contractual party who does not earn his proper
benefits from the contract he has made. Instead, he suffers losses, or deprivation and injuries
caused by the breach of contract. The legal provisions for damages are specified in S.74 to
S.76. The English principles of damages that were established in Hadley vs. Baxendale
(1854) are now embedded in S.74. According to S.74(1), an injured party is entitled to
damages arising naturally according to the normal course of things resulting from the breach.
In addition, both parties know, at the time they made the contract, that the loss or damage
would be the likely consequence of the breach of contract. Referring to Hadley vs. Baxendale
(1854), the court held that the delay on delivery of the machine part by the defendant did not
contribute the loss suffered by the plaintiff. It is because the plaintiff could have another
machine as replacement under emergency or it could be caused by other defects. The
defendant was only informed that he was carrying a broken machine part. As such, the loss
did not arise naturally from the defendant’s delay and none of the parties contemplated that
the delay would cause the loss.
It is also important to note that the case of Hadley vs. Baxendale (1854) indicates that
knowledge, either actual or imputed, and information available to the parties is important
element in assessing damages. The same principle can be found in S.74(2), which specifies
that the plaintiff must prove that the loss or damage are contemplated and are caused by
breach of contract. In Tham Cheow Toh vs. Associated Metal Smelters Ltd (1972), the
defendant-appellant knew about the requirement to deliver a melting furnace capable of
producing a temperature not lower than 2600⁰F urgently. However, they failed to deliver it
according to the specification. Therefore, they were liable to pay for the loss of profits
suffered by the respondent.

10
4.2. Quantum Meruit
In situations where the plaintiff, who has supplied or delivered some benefits according to
the contract to the defendant, chooses to discharge the contract following the defendant’s
breach of contract, quantum meruit could be awarded by the court. However, the amount of
claim will be determined by the court, which is a reasonable sum deemed as just.

4.3. Specific Performance


The third type of remedies is specific performance. As the name suggested, this remedy is
awarded when the claims by the plaintiff cannot be compensated in full. That is, following
S.11(1) and S.21(1) of the Specific Relief Act (1950), the plaintiff may apply for this order
when monetary compensation is not adequate. However, S.20 of the Specific Relief Act
(1950) specifies the circumstances in which specific performance is not available. One of
these circumstances is when a contract involves the performance of a continuous duty
extending over a period longer than three years from its date.

4.4. Injunction or Preventive Relief


The fourth remedy that is available for an innocent contractual party is injunction.
Literally, it means to prohibit a contractual party from doing something. S.50 of the Specific
Relief Act (1950) identifies this remedy as a discretionary remedy, which means that it is
granted at the discretion of the court. S.51 of the Specific Relief Act (1950) classifies
injunction into two types. First is the temporary injunction; also known as interim or
interlocutory injunction. It is granted to preserve the status quo pending a resolution of a legal
action. Second is permanent injunction, which unlike temporary injunction, it is granted only
after a full trial and upon the merits of the case. The effect of permanent injunction is that the
defendant is permanently prohibited from doing the act or ascertaining a right for which the
injunction was granted. Interestingly, S.54(f) of the Specific Relief Act (1950) specifies that a
contract that cannot be enforced by specific performance cannot also be subject to injunction.

4.5. Case Application: Remedies


The contract between Petronas Carigali and HMS was a long term period, which covers a
span of 10 years. The breach was alleged to have taken place a few years after the formation
of the contract (i.e., 2011 – 2016). Therefore, by virtue of s.20 of the Specific Relief Act
(1950), specific performance will not be granted by the court. Following, s.54(f) of the
Specific Relief Act (1950), injunction also will not be granted by the court. Furthermore,
11
these two remedies are discretionary remedies, which are subject to court’s discretion. As
such, MHS might claim for quantum meruit and damages.
The basis for claiming quantum meruit is “as much as he earned” and arises only in cases
of part performance. Apart from damages, MHS also sought a declaration that Petronas
Carigali was liable to pay it the monthly standby rate during the period of emergency
airworthiness directive issued by European Aviation Safety Agency. In this case, Petronas
Carigali had prevented MHS from carrying out the remainder of their contractual duties by
suspending the helicopter services. Nevertheless, the claim was not about the services that
had been rendered but the standby rate during the suspension period. As such, quantum
meruit is not a possible remedy to the breach of contract.
The most plausible remedy that MHS can seek is damages. According to the case, MHS
claimed for RM42.76 million in damages, which includes general damages and other
damages deemed fit by the tribunal. According to the law of contract, MHS could claim for
damages because it was the deprived party caused by the breach of contract, which is
suspension and termination of ten-year contract by Petronas Carigali. According to MHS, the
termination notice issued by Petronas Carigali constituted to repudiatory breach. That is, the
contract was repudiated before the time of performance is due. Hence, it is also known as
anticipatory breach. The effect of this breach is that MHS could repudiate the contract
immediately and sue for damages. This was clearly the intention of MHS after receiving the
termination notice from Petronas Carigali.
The question is whether damages arise naturally according to the normal course of things
resulting from the breach. In this instance, the damages are deemed to arise naturally
following the suspension and termination notice issues by Petronas Carigali. MHS could not
earn its proper benefit from the contract when Petronas Carigali suspended and later
terminated the contract. Both parties would know, at the time the contract was made, any
prohibitory act done by one of the contractual parties before the performance is due
constituted a breach of contract. This is even so when the basis of suspension was due to
accidents happened in the North Sea, which raised safety concern. Furthermore, the five
EC225 helicopters in the said contract were not directly related to the accident. However, it is
up to MHS to prove that the loss and damage are contemplated and are caused by breach of
contract following S.74(2) and the decision in Tham Cheow Toh vs. Associated Metal
Smelters Ltd (1972).
If MHS claims were successful, MHS could seek for liquidated damages and unliquidated
damages. Liquidated damages refer to a reasonable sum not exceeding the predetermined
12
sum agreed to at the time of the contract. Unliquidated damages, on the contrary, allow MHS
to claim for a sum which was not predetermined at the time of the contract. Because no
information was available as to whether the predetermined sum had been agreed upon during
the making of the contract, it is assumed that MHS could claim for unliquidated damages. It
can seek for substantial damages and nominal damages, too. The substantial damages would
compensate MHS, the innocent pat for the breach, so as to put it in a position it would have
been had the contract was completely performed. Nominal damages, on the other hand, refers
to nominal compensation awarded for breach of the contract where the plaintiff does not
suffer actual loss or where actual loss is not proved.

5. Summary
A contract is formed when contractual parties agree to the same subject matter of the
contract. The basic elements required in forming an enforceable contract according to the
Contracts Act 1950 are offer, acceptance, intention to create legal relations, consideration,
capacity, certainty, and consent of parties. Clearly all the elements were presence in the case
study when Petronas Carigali Sdn Bhd hired MHS Aviation Bhd to provide five EC225
helicopters for use in its oil and gas exploration and production operations in consideration
for RM3.1 billion of pay for a period of 10 years from April 1, 2011 to March 31, 2021.
However, following two forced landings in the North Sea on May and October 2012
involving EC225 helicopters, Petronas Carigali suspended the contract and, soon after issue a
termination notice to MHS. Such act constitutes a discharge by breach. In particular, this
breach had discharged MHS from performing its legal obligations. In addition, the breach
was an anticipatory breach because Petronas Carigali put the contract to an end before the
time performance was due.
Although several remedies could be opted by MHS in the event of this breach, a
careful examination of the case shows that only damages. The types of damages that MHS
was entitled to include liquidated damages as specified in their contract, and unliquidated
damages. The liquidated damages consist of substantial damages and nominal damages.

5553 words

13
6. References

Adam Aziz (2018). Bousted reaches settlement with Petronas Carigali, 3 others over
helicopter contract termination. The Edge Markets. Retrieved from
http://www.theedgemarkets.com/article/boustead-reaches-settlement-petronas-carigali-3-
others-over-helicopter-contract-termination

Adela Megan Willy (2017). Petronas Carigali gives Boustead’s MHS Aviation 90 days’
notice to terminate contract. The Edge Market. Retrieved from
http://www.theedgemarkets.com/article/petronas-carigali-gives-bousteads-mhs-aviation-
90-days-notice-terminate-contract

M. Hafidz Mahpar (2017). Petronas explains termination of contract given to MHS Aviation.
The Star Online. Retrieved from https://www.thestar.com.my/business/business-
news/2017/06/18/petronas -explains-why-it-terminates-contract-with-mhs-aviation

The Sun Daily (2017). Petronas: We have right to terminate contract with MHS Aviation
over safety concerns. The Sun Daily.
http://www.thesundaily.my/news/2017/06/19/petronas-we-have-right-terminate-contract-
mhs-aviation-over-safety-concerns.

14