Centre for Pre-University Studies

Tunku Abdul Rahman University College

FAC/FBU

January and September Intakes

Semester 2 and Semester 3
2022/2023

Common Lecture Notes

FPLA1044 Introduction to Business Law

Name of Student: ________________________________________

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*The contents are not for sale and strictly meant for internal circulation only.
 1. regulate the economic and social behaviour of society
2. control affairs of society
3. provide mechanisms for society
4. regulate contracts, corporate activities, commercialism

Chapter 1: Introduction to Law in Malaysia

Introduction
• Law is basically a tool to regulate the economic and social behaviour of society which
implements the element of control into the day-to-day activities of its citizens and its
businesses.
• Law is needed to regulate and control the affairs of society so that members of society can
interact with each other harmoniously.
• Should a conflict arise from the different needs and wants of these members, the law will
provide mechanisms for society to function through tools such as legislation and case-law
which is applied by the courts.
• Business law shapes commercial enterprise and is relevant to all members of society as
businesses are much affected and largely shaped by different legislations which regulate
contracts, corporate activities, commercialism, etc.

What is Law?
• Law can generally be described as a set of rules, developed over a long period of time that
regulates interactions that people have with each other, and which sets standards of conduct
between individuals and between individuals and the government which are enforceable
through sanction, i.e. authority/law.
• This general rule of conduct has seen many interpretations by different legal theorists such as
the British jurist John Austin who describes law in his book The Province of Jurisprudence
Determined as a command set by a superior being to an inferior being which is enforced by
punishments.
• In Malaysia, the term ‘law’ is defined both by Article 160 (2) of the Federal Constitution
1957 and Section 2 (1) Item (43C) of the Interpretation and General Clauses Ordinance
1948 as:
o The written law;
o Common law in so far as it is in operation in the Federation or any part thereof; and
o Any custom or usage having the force of law in the Federation or in any part thereof.

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Law and Justice
• While law aims to maintain justice in society, justice seeks to balance the abstract idea of right
and wrong, fairness and equality.
• It is said that the notion of justice is not a product of the intellect but of the spirit of
communalism where it is what right-minded members of the community believe to be fair.
• The application of law may or may not always be just depending on particular circumstances,
but it can be said that laws that coincide with the people’s ideas of justice are more likely to be
respected, obeyed and easily enforced.
• Laws are made to provide justice, and yet sometimes this may not be so as it is unlikely that
law will ever produce ‘justice’ in every case since the meaning of the word itself is difficult to
define.
• It may seem just for laws to be applied equally to everyone in the same way, but the rigid
application may lead to perceived injustices, and in addition to that, what is seen to be just
today may not be seen as such in the future as societal norms change from time to time.

Law and Ethics/Morality

• Moral and ethical values of communities which are based on religious ideas lay down a
framework for how people should behave in their communities.
• The law of the country would eventually reflect the moral values accepted by the majority of
the country; however, it is unlikely that it is exactly the same as religious moral codes.
• Moral standards of a community have a profound influence over the development of local laws,
and the purpose of the law is to govern the conduct of all members of society whilst ethics and
morality guides individuals in ascertaining the soundness of rules and their impact upon
relationships.
• Morality cannot be created or changed deliberately as it is based on the common acceptance
of a particular society, i.e. it is a social trend, while the law, on the other hand, can be altered
overnight through legislation in Parliament.
• Morality is of voluntary and personal choice with no official sanction or consequence, whereas
law makes certain behaviour obligatory with legal sanctions to enforce it.

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• Breaches of moral values are not usually subject to a formal adjudication, but breaches of the
law will be dealt with formally in a court of law.
• As society continues to modernise, morality and law will never be co-extensive. In modern
and complex societies, the law may eventually outgrow moral values, leaving traditional moral
values irrelevant in society.
• In the area of business law, businesses often use legal standards in carrying out their activities
and in decision-making; businesses also adopt codes of ethics or conduct to guide employers
and employees when considering ethical issues during the decision-making process.
• The following are some of the legal rules relevant to business law which have ethical
considerations:
o The principle of uberrimae fidei, i.e. that each party will exercise the utmost good faith
towards the other party when entering into the contract;
o Some aspects of employment and industrial law which impose obligations on employers
in relation to anti-discrimination, occupational health and safety, minimum wages and
conditions, and insolvency; and
o Restrictive trade practices in relation to consumer protection.

Rights and Duties

• The law is usually involved in a balancing act, trying to ensure that one person’s rights do not
affect another person’s rights, and by doing so, duties are imposed on certain people so that
everyone’s rights can be balanced.
• An example can be seen when the law recognises that people have the right to enjoy the use of
their own property, but this right has to be balanced by the right of other land users who also
wants to enjoy the use of their own lands.
• In criminal law, there is a duty on all citizens to obey the law so that other people’s rights can
be protected, i.e. the law upholds the rights of people not to be harmed or be deprived by others.

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Rule of Law
• It is a concept formulated by the late nineteenth century Oxford academic lawyer, Professor
A.V Dicey as the heart of our present legal system which is based on the idea that laws should
conform to a minimum standard of fairness in both content and procedure.
• For this, Dicey made three propositions in regard to the rule of law:
o No person must be punished except for a breach of the law;
o All persons are equal before the law irrespective of the status of position; and
o The rights or freedoms of citizens are enforceable in the courts.
• The law is usually involved in a balancing act, trying to ensure that one person’s rights do not
affect another person’s rights, and by doing so, duties are imposed on certain people so that
everyone’s rights can be balanced.
• An example can be seen when the law recognises that people have the right to enjoy the use of
their own property, but this right has to be balanced by the right of other land users who also
wants to enjoy the use of their own lands.
• Under criminal law, there is a duty on all citizens to obey the law so that other people’s rights
can be protected, i.e. the law upholds the rights of people not to be harmed or be deprived by
others.

The Law, State and the Constitution of Malaysia

• Malaysia, which consists of Peninsular Malaysia, Sabah, and Sarawak, is on the political unit
but is not governed by the same set of laws.
• However, there are two important links that unite the two parts of Malaysia, i.e. the Parliament
and the Federal Court. This is where the Malaysian Parliament can and does legislate for the
whole country while the Federal Court acts as a final court of appeal for the whole country.
• As a unified political unit, Malaysia is known as a State, which, for international purposes, is
administered by its own legal systems. However, each state which makes up Malaysia has its
own government and has its own rules which lay down who shall govern and how. This is
known as a Constitution, and it can come in a written or unwritten form.

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• A Constitution is basically a set of laws that a group of people has made and agreed upon that
enumerates and limits the powers and functions of a political entity. It is made up of a complex
of ideas, attitudes, and patterns of behaviour elaborating the principle that the authority of
government derives from and is limited by the fundamental law. This fundamental law defines
the basic political principles and establishes the structures, procedures, powers, and duties of
a government within a country that is applied to an overall system.
• Unlike in the United Kingdom where there is an unwritten constitution generally derived from
common law, statutes, and conventions, Malaysia has a written constitution which is known
as the Federal Constitution.
• The Federal Constitution declares itself to be the supreme law of the Federation, i.e. Article 4
(1) of the Federal Constitution states:
“This constitution is the supreme law of the Federation, and any law passed after Merdeka
Day which is inconsistent with this Constitution shall, to the extent of the inconsistency be
void.”
• Thus, even law enacted by Parliament which is inconsistent with the Federal Constitution may
be declared void by the courts.

Classification of Law
• There have been, and are many different types of legal systems in the world, but today it has
been basically classified into three main types: civil law, common law, and socialist law.
• The Malaysian legal system is a common law system where legal principles are developed by
judges through case law. This system was inherited from the British Empire, and similar
systems can be found in many former British colonies such as Australia, the United States of
America, Canada, New Zealand, and Singapore.
• Under this system, the law has been classified into three broad divisions: public law,
international law, and private law.

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Public Law
• Public law is basically the law that governs the relationship between individuals and the state.
This is subdivided into constitutional law and criminal law.
• It generally consists of constitutional laws which are laws that control the methods and forms
of governance in the country; administrative laws that control how the government should
operate; and criminal laws that set out the types of behaviour which are forbidden by the state
at risk of punishment.
• If a person commits a crime, he would be offending the laws of the State and the State has the
right to prosecute him.

International Law
• International law is concerned with disputes and relations between nations, and most of this
law comes from treaties agreed by governments of the countries. This is known as public
international laws whereby it determines and regulates diplomatic and political relationships
between sovereign states around the world.
• Private international laws, on the other hand, are part of municipal (civic) laws which consist
of rules that guide a judge when the laws of more than one country affect a particular case.
This is usually known as ‘conflict of laws’, and it may concern private international legal
disputes between two private individuals, corporations, companies and/or other legal entities.

Private Law
• Private law is usually known as civil law and is concerned with matters that affect the rights
and duties of individuals amongst themselves.
• It is divided into many different branches, and the main ones are contract, tort, family law, the
law of succession, company law and employment law.
• These laws operate differently, but mainly concerns the private dealings between individuals,
whether they have any legally binding obligation towards one another, a civil duty of care
towards another, or a right towards or against another private individual.

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Chapter 2: Sources of Malaysian Law
Sources of Laws
• These are the many rules originating from the regulation of human conduct which has legally
binding characteristics.
• These sources can come in many forms such as traditional religious beliefs and local customs
or other modern forms such as statute law, judicial precedent, law reports, etc.
• The term ‘Sources of Malaysian Law’ means the legal sources and rules that make up the law
in Malaysia which can be in the form of written law or unwritten law.

Written Laws in Malaysia

• Written law is also referred to as statute law which is made by Parliament and any other
subordinate law-making bodies to whom Parliament has delegated power.
• Most statute laws are passed in accordance with common law principles, however, where
statute law and the common law conflict, statute law will prevail to the extent of the conflict.
• Once an Act of Parliament is passed by Parliament, it remains law until it is repealed by a later
Act of Parliament.
• Most Acts of Parliament set out the law on a particular matter in broad terms with provisions
stating the detailed rules necessary to give effect to the legislation.
• With the increasing complexity of legislation, doubts of a word or phrase used in an Act of
Parliament will arise because of the extent to which the words apply to particular facts is
unclear due to its ambiguity (words with more than one meaning) or the extent of its
operation/application.
• Therefore, to resolve this issue of legal application in particular cases, judges resort to the
interpretation of an Act of Parliament when hearing a case.

Rules on Statutory Interpretation

• There are three common law rules of statutory interpretation: literal rule, golden rule and
mischief rule.

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The Literal Rule
• The courts assume that the meaning and intention of the legislature is clear and unambiguous.
Therefore the courts need not do more than to give effect to those words used in an Act of
Parliament.
• This would simply mean that while interpreting an Act of Parliament, judges will give the word
used in the Act its plain and ordinary meaning while applying it literally to cases before them.

Case Example: Fisher v. Bell (1961)

Facts: Bell, a shopkeeper, had displayed a flick knife in his shop window with a price tag on it.
He was charged under an English Act which stated that ‘Any person who sells, lends or gives a
flick knife to any other person commits an offence’.
The issue before the court was whether the placing of the flick knife in the window with a price
tag attached amounted to a ‘sale’ or an offer to sell.

Held: According to a literal rule interpretation, Bell had not committed an offence because the
display of goods in a shop window only amounted to an invitation to treat and not a sale.

The Golden Rule

• The courts take the plain meaning of the words used in the statute and adhere to that meaning
unless it has more than one meaning to the usage of the word.
• If there should be more than one meaning to the word, judges will opt to use the meaning which
is just and makes more sense in its application.
• This would mean that words will only be given its literal meaning unless its plain meaning
leads to an absurdity, and injustice or repugnance (an undesirable outcome).

Case Example: Lee v. KNAPP (1967)

Facts: Lee was involved in a motor vehicle accident and stopped only for a moment after the
accident and then, seeing no one was injured, drove off. He was charged under the Road Traffic
Act 1960 (UK) which states ‘If in any case, owing to the presence of a motor vehicle on the road;

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an accident occurs whereby… damage is caused to a vehicle… other than that motor vehicle the
driver of the motor car shall stop…’
The issue before the court was whether it could be argued that the requirement to ‘stop’ after an
accident was satisfied if a driver halted momentarily.

Held: The meaning of the phrase requiring the driver of the motor vehicle to stop means that the
driver shall stop and remain where he or she has stopped for as long as is necessary for anybody
who has a right to do so to get information which they may require personally.

The Mischief Rule

• The courts will look at the mischief in which the Act seeks to remedy when a literal
interpretation is not possible due to the words or phrases being ambiguous, vague or uncertain.
• In order to do this, the courts will:
o Look at the law before the statute was passed;
o Look to the overall intention of Parliament from reading the Act as a whole; and
o Ask: What was the mischief in which the current statute intended to remedy? And: What
was its social purpose?

Case Example: Smith v. Hughes (1960)

Facts: The Street Offences Act 1959 (UK) prohibited soliciting by prostitutes ‘in the street’. To
try to get around the operation of the Act, prostitutes began to try to attract business by standing
at their windows or on their balconies and calling out to a passer-by.
The issue before the court was whether the Act extends to include the activities of prostitutes who
attempted to attract business from windows or balconies or did it only catch the activities of
prostitutes who were actually soliciting on the street.

Held: The phrase ‘in a street’ extended to include the activities of prostitutes from windows or
balconies, as the mischief that the Act was directed at was to allow people to use the streets without
being harassed by prostitutes.

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Interpretation Acts 1948 & 1967
• In addition to common law rules, the courts also resort to statutory aids for statutory
interpretation, and pursuant to the Interpretation Acts the court interprets legislation in such a
way that it reflects the apparent purpose or intention of the legislators.
• To give effect to the purpose of the legislation, judges may read words into a legislative
provision if it was satisfied that Parliament had inadvertently failed to deal with the matter
required to be dealt with to achieve the purpose of the Act.
• In order to do this, three conditions must be satisfied by the courts:
o It knows the mischief with which the Act was dealing;
o It is satisfied that Parliament inadvertently overlooked an eventuality which had to be dealt
with if the purpose of the Act was to be achieved; and
o It can state with certainty the words that Parliament would have used to overcome the
omission if its attention had been drawn to the defect.

The Federal Constitution of Malaysia

• The Federal Constitution of Malaysia came into force in Malaysia in 1957 on Merdeka Day; it
is the supreme law of the country which lays down the powers of the Federal and State
Governments as well as the basic and fundamental rights of individual citizens.
• Through the Constitution, the Federation described as a constitutional monarchy having the
Yang di-Pertuan Agong as the Head of State whose roles are largely ceremonial in nature.
• The contents of the constitution can only be changed by a two-thirds majority of the total
number of members of Parliament, however ordinary statutes, on the other hand, can be
amended by a simple majority.
• This fact is as such because The Federal Constitution is the most important document which
describes the existence of Malaysia and should therefore not be easily altered.

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The Malaysian Parliament
• The Malaysian Parliament has the power to enact or legislate laws, and laws enacted after 1946
but before Malaysian Independence in 1957 are called Ordinances while those made after 1957
are known as Acts of Parliament.
• It should be noted that Parliament is not supreme as it has to enact laws subject to the provisions
set out in the Federal Constitution.
• This is in contrast with the United Kingdom’s Parliament which is supreme and the highest
law-making body of the land with no restrictions since there is no written constitution to define
the existence of the United Kingdom.
• However, the system adopted by the Malaysian Parliament is based on the Westminster system,
i.e. the system that is modelled after the UK Parliament.
• Malaysian Parliament adopts a bicameral legislature where the legislators are divided into two
separate assemblies, chambers or houses. Before something becomes law, a drafted law
(known as a Bill) will have to pass through and be approved by both chambers of Parliament
before it eventually becomes an actual law with authority.
• The bicameral parliament consists of the House of Representatives (Dewan Rakyat) and the
Senate (Dewan Negara).
• Legislation in Parliament as a source of law has also become more important than case-law or
precedents as it is increasingly used as a means of repealing, amending, enacting or codifying
the law.

Unwritten Laws in Malaysia

• Unwritten laws are mainly comprised of English law, judicial decisions, and customs.

English Law
• English law forms part of the laws of Malaysia and can be found, inter alia, in the English
common law and rules of equity. However, it should be noted that not all of England’s common
law and rule of equity form part of Malaysian law.
• Section 3 (1) (a) of the Civil Law Act 1956 which is applicable to Peninsular Malaysia
mentions the application of the ‘common law of England and the rules of equity’, whereas

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 section 3 (1) (b) and (c) of the same Act which is applicable to Sabah and Sarawak allows the
application of ‘the common law of England and the rules of equity, together with statutes of
general application’.
• The judge in Smith Kline & French Laboratories Ltd v. Salim (Malaysia) Sdn Bhd (1989)
stated, obiter, that if it were found that the general provisions of imported legislation are
inapplicable in the country, the courts have the jurisdiction, and will not hesitate to exercise
such jurisdiction, to strike down such inapplicable law on the principle lex non
cogitadimpossibilia (the law does not compel a man to do that which is impossible).
• Modern English authorities may be persuasive, but are not binding, and in determining whether
to accept their guidance the court will have regard to the circumstances of the States of
Malaysia and will be careful to apply them only to the extent that the written law permits and
no further than it is just to do so.
• However, there are two limitations to the application of English law in Malaysia. Firstly, it is
applied only in the absence of local statutes on particular subjects as the local law takes
precedence over English law as the latter is only meant to fill in the lacuna in the legal system
in Malaysia. Secondly, only that part of the English law that is suited to local circumstances
will be applied.
• The proviso to section 3 (1) of the Civil Law Act 1956 states that ‘the said common law, rules
of equity and statutes of general application shall be applied so far only as the circumstances
of the States of Malaysia and their respective inhabitants permit and subject to such
qualifications as local circumstances render necessary’.
• The proviso is necessary as the population in Malaysia comprises diverse races practising a
variety of customs and religions, most of which are totally different from those of the English.

Judicial Decisions
• The doctrine of binding judicial precedent is the concept in which judicial decisions become
part of unwritten laws in Malaysia. These binding judicial decisions are also known as case
law and may comprise of res judicata, ratio decidendi and obiter dictum.
• Res judicata is the final order of the court which is binding on the immediate parties to the
decision and other parties in similar disputes in the future are not so bound.
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• Ratio decidendi is the reason for the decision, and the legal reasoning of a particular case must
be used by judges in future cases when confronted with similar facts. This is known as a
binding judicial precedent.
• Obiter dictum is anything else said about the law in the course of a judgement that does not
form part of the matters at issue. It has no binding power; however, it can exercise an extremely
strong influence in a lower court and even in a court of equivalent standing, depending on the
court and the judge. This is known as a persuasive precedent.

• The doctrine of judicial precedent is instrumental in the evolution of, and building up of both
common law and equity. Judicial decisions set precedence for legal authority and principles
which must be followed by subsequent cases of similar nature.
• This process of following an established legal principle is important as it is based on the legal
maxim ‘stare decisis et non quieta movere’ which literally means ‘to stand by past decisions
and not disturb that which has already been established.
• The doctrine of precedent aims at ensuring fairness and equality as it enables everyone to
conduct their affairs knowing that certain rules and procedures operate to make it possible to
predict, with a fair degree of certainty, what the likely outcome will be in the event of a dispute.
• The doctrine of precedent operates with the existence of a court hierarchy where the lower
courts will be bound by the decisions of the higher courts in that hierarchy.

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• It is not in every case that judges apply earlier precedents as a judge may not wish to apply
precedents in the following circumstances:
o Judges may ignore or overrule a precedent laid down by a lower court, where the case is
on appeal;
o They may refuse to apply the earlier precedent if it was arrived at per incuriam, i.e. there
was a mistake or error when the decision was made; and
o They may distinguish the case when they find there are material differences in facts
between the case before them and the case laying down the precedent.
• Generally, the advantages of precedents are that they promote consistency, coherence, and
certainty, and the disadvantage is that certain precedent may not be relevant in today’s
circumstances but the judges may have to follow it nevertheless, and on top of that it may also
be slow in responding to community changes.
• The advantages:
o Through precedent the law evolved is more practical since it evolved through actual
experiences and not a result of abstract theory and hypothetical situations.
o Law evolved through precedents is more flexible when compared to statute law enacted by
Parliament as a judge can escape the effect of a binding precedent by distinguishing the
facts before him from facts of an earlier case and therefore not following or overruling
decisions made by a lower court.
o Case law developed by precedents is far richer in legal detail than statute law.
• The disadvantages:
o Over time the number of decided cases will increase, making it difficult preceded cases
and legal decisions to be found and thus there is a tendency to overlook some authorities
inadvertently.
o When writing their final judgements in a case, judges seldom indicate the ratio or obiter of
their judgement therefore sometimes making it difficult for future judges to find out the
legal and binding effect of a decision.

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Local Customs
• The custom of local inhabitants in Malaysia is also the source of law which generally relates
to family law, i.e. marriage, divorce, an inheritance which are given legal force by the courts
in Malaysia.
• Malay, Chinese and Hindu customary laws are applied to Malays, Chinese and Hindus
respectively in Peninsular Malaysia.
• While in Sabah and Sarawak, native customary laws apply in land dealings over customary
native lands and family matters where native subject themselves to native customary laws.
• Since the enforcement of the Law Reform (Marriage and Divorce) Act 1976 on 1st March
1982 most customary laws of marriage have become of little or no effect. One of which is the
abolishment of polygamous marriages and child marriages.

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Chapter 3: The Law of Contract
Introduction
• Contracts and agreements come into play in almost every aspect of life. The study and the
application of the law of contract make up a core component of the learning and the practice
of law.
• The term ‘contract’ covers a very broad meaning where any legally binding agreement can
come under this term.
• An agreement can be legally binding either through a written or unwritten agreement where
the former is usually made for a more official and expressed agreement while the latter is for
implied or informal agreements.
• A promise is made binding when there is some form of exchange between the parties which
will usually involve the notion of ‘consideration’. On the other hand, a gratuitous promise
made is usually not enforceable in law as nothing is given in return, i.e. there is no
consideration when the giving party gives.
• A market capitalist society where everyone is free to buy and sell on large and small scales
will not exist if promises are not made legally binding. The market economy will only work
efficiently if its members can plan their business activities, and they can only do this if they
know they can rely on promises made to them.
• Contract law usually tries to compensate innocent or aggrieved parties by attempting to put
them in the position they would have been in if the contract had been performed as agreed.
This is to make sure that the aggrieved got what he gave/paid for and to make sure that those
who failed to perform cannot simply get away with their breach of the agreement.
• However, although every contract involves an element of the agreement, not every agreement
will result in a contract recognisable by law.
• The Law of Contract in Malaysia is governed by the Contracts Act 1950 and Section 2 (h) of
the Act defines a contract as an agreement enforceable by law. A contract requires 5 elements
to be valid:
o Offer
o Acceptance
o Consideration

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 o Intention to create legal relations
o Capacity

Making an Offer
• For a contract to exist, one party must have made a contractual offer to the other, and the other
accepts that offer unequivocally. An offeror is a person making the offer, while an offeree is a
person to whom the offer is made.
• Section 2 (a) CA 1950 provides that an offer/proposal is made when one person signifies to
another his willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other to the act or abstinence, and this offer/proposal must be accepted by the
offeree unequivocally for there to be a legally binding contract.
• Therefore with this expression of readiness by two parties or more to undertake an obligation
upon certain terms and upon acceptance by the offeree(s), it becomes a binding and enforceable
contract by law.
• It is important for there to be a clear offer and a clear acceptance of that offer, anything short
of the fulfilment of these elements will leave the contract in limbo, thereby not, in any technical
way, in existence.
• In addition to that, Section 9 of the 1950 Act also provides that a contract can be expressed in
writing, orally or by conduct.

Types of Offer
• There are generally two types of contracts that can come into existence, and both are different
in nature.
• The first is a bilateral contract where each party to the contract takes on an obligation in which
they have promised each other, and on the other hand, is a unilateral contract where only one
party assumes an obligation towards the other under the contract.

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Unilateral Offer: Advertisement
Case Example: Carlill v. Carbolic Smoke Ball Co. Ltd (1893)
Facts: Carbolic Smoke Ball Co. (D) manufactured and sold the Carbolic Smoke Ball. The
company placed advertisement in various newspapers offering a reward of 100 pounds to any
person who used the smoke ball three times per day as directed and contracted influenza, colds, or
any other disease.
After seeing the advertisement, Mrs. Carlill (Ct) purchased a ball and used it as directed. She
contracted influenza and made a claim for the reward. Carbolic Smoke Ball Co. refused to pay,
and Mrs. Carlill sued for damages arising from breach of contract. Judgment for 100 pounds was
entered for Mrs. Carlill, and Carbolic Smoke Ball Co. appealed.

Held: The court held that an advertisement is considered to be an offer when it specifies the
number of persons who are eligible to accept its terms. If such an advertisement requires
performance, the offeree is not required to give notice of his performance.
The court addressed the issue of whether the advertisement was intended to be a promise or
whether it was ”a mere puff”. The court pointed to Carbolic Smoke Ball Co.’s claim in the
advertisement that it had deposited 1000 pounds with Alliance Bank, which the court decided was
intended to demonstrate the company’s sincerity in paying the reward.

Bilateral Offer: Sale of goods

Case Example: Boulton v. Jones (1857)
Facts: Jones used to have business dealings with Brockle Hurst. He sent an order (offer) to Brockle
Hurst for the purchase of certain goods. By the time the order reached Brockle Hurst, he had sold
his business to Boulton. Boulton receiving the order sent all the goods to Jones as per the order
without informing Jones of the changing of the hands of the business.
When Jones learnt that the goods were not supplied by Brockle Hurst, he refused to pay for the
goods. His contention was that he had never placed an order to Boulton, the offer being made to
Brockle Hurst, and therefore had no intention to make a contract with Boulton.

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Held: The claimant had no right to accept an offer not made to him. Jones was not liable to pay
Boulton as his offer was made to Brockle Hurst and not to Boulton.
Therefore there is no exchange of promise and no obligation owed between Boulton and Jones
which can be legally enforceable by the courts.

Invitation to Treat
• This is the preliminary stage in which one party invites the other to make an offer so that the
inviting party can accept that offer, creating a binding contract.
• Where an offer is the willingness to form a contract, an invitation to treat is the negotiation
process between parties who are looking to form a contractual relationship. Most
advertisements which advertise certain specific goods at a certain price are usually considered
an invitation to treat because the price is not conclusive and may lead to further bargaining.

Case Example (Sale of Goods): Harvey v. Facey (1893)

Facts: Facey (D) was in negotiations with the Mayor and Council of Kingston regarding the sale
of his store. Harvey (Ct) sent Facey a telegram stating: “Will you sell us Bumper Hall Pen?
Telegraph lowest cash price-answer paid.” On the same day, Facey sent Harvey a reply by a
telegram stating: “Lowest price for Bumper Hall Pen £900.”
Harvey sent Facey another telegram agreeing to purchase the property at the asking price. Facey
refused to sell, and Harvey sued for specific performance and an injunction to prevent Kingston
from taking the property.

Held: The trial court dismissed on the grounds that an enforceable contract had not been formed
and Harvey appealed. The Supreme Court of Jamaica reversed, and Facey appealed.
A mere statement of the minimum selling price is an invitation to treat and not an offer to sell. The
court held that by replying to Harvey’s question regarding the lowest price of the property, Facey
did not make an affirmative answer to the first question regarding his willingness to sell. The court
held that Facey had made an invitation to trade and not an offer.

19
Case Example (Window Display): Fisher v. Bell (1961)
Facts: The Defendant displayed a flick knife in the window of his shop next to a ticket bearing the
words "Ejector knife – 4s. Under the Restriction of Offensive Weapons Act 1959, section 1(1), it
was illegal to manufacture, sell, hire, or offer for sale or hire, or lend to any other person.
On 14 December 1959, the claimant, a chief inspector of the police force, brought forward
information against the Defendant alleging the Defendant has contravened section 1 (1) by offering
the flick knife for sale.

Held: The Divisional Court took a literal interpretation of the statute and said he had committed
no offence: the display was an invitation to treat, not an offer to sell.
Therefore any item that is displayed on shelves in supermarkets is considered as an invitation to
treat, and no customer can take an item to the cashier and say that he accepts it, creating a legally
binding contract.
This is because shops generally do not have to sell at the marked price because of the practical
consequences that follow, i.e. that prices fluctuate all the time.

Case Example (Window Display): Pharmaceutical Society of Great Britain v. Boots Cash
Chemist Ltd (1953)
Facts: The defendants, who ran a self-service chemist shop, were charged under the Pharmacy &
Poisons Act 1933 which made it unlawful to sell certain poisons unless such sale was supervised
by a registered pharmacist. Two customers took some medicines which were price-marked on
shelves that were not supervised by a pharmacist. The pharmacist was, at that time, supervising
transactions at the cash desk.
The issue now is whether the sake had taken place at the shelves or at the cash desk.

Held: The display, even with prices marked, was only an invitation to treat. It would only be
considered that customers are making an offer when they present goods displayed at the cash desk.
A contract would only be made at the cashier’s desk when the cashier accepts the offer made by
the customer to purchase the item as the cashier/shop-owner has the final say on the sale of any
items displayed.

20
Therefore the defendants cannot be charged under the 1933 Act since the shop-owner had not
made an unlawful sale.

Case Example (Advertisements): Partridge v. Crittenden (1968)

Facts: The defendant placed an advertisement in a classified section of a magazine offering some
Bramblefinch cocks and hens for 25s each. However, Section 6 of the Protection of Birds Act 1954
made it an offence to offer such birds for sale. He was charged and convicted of the offence and
appealed against his conviction.
The question was whether the advertisement was an invitation to treat or an offer.

Held: The defendant's conviction was quashed as the advertisement was an invitation to treat not
an offer.

Communication of the offer

• A person cannot accept an offer of which he is not aware of as a binding contract requires the
contracting parties’ agreement which must be expressly established as opposed to being a
coincidence. Therefore, the general rule is that the offer must be communicated to the offeree
before a proposal is valid as it must come to the knowledge of the person to whom it is made:
Section 4 (1) CA 1950.

Case Example: R v. Clarke (1927)

Facts: A reward was offered by the Australian Government for information leading to the
conviction of the murderers of two policemen. The government also promised that an accomplice
giving such information would receive a free pardon.
Clarke was such an accomplice, and he had provided the information required to clear himself, but
had, at that time, forgotten about the offer made by the government. He only came to remember
about the offer sometime later and then sought to claim the reward and pardon.
Held: Mr. Clarke could not accept an offer he didn't know about and that forgetting about the
reward was as good as ignorance. It was necessary to act in "reliance on" an offer in order to accept
it, and therefore create a contract. However, the evidence showed that Mr. Clarke was not acting
on the offer.

21
Therefore the defendant was ruled not entitled to a government reward for information about the
murderers of two police officers when at the time the information was given.

Termination of the offer

• An offer made can be terminated by the offeror if the offeror wishes to revoke the offer made
whereby after such revocation the acceptance can no-longer be accepted.
• An offer may be terminated before acceptance takes place and section 5 CA 1950 provides
that a revocation of an offer is only valid when it is communicated to the offeree before
acceptance is made.
• An offer can be terminated:
o Section 6 (a): the communication of revocation by the proposer by notice.
o Section 6 (b): lapse of time.
o Section 6 (c): failure of the offeree to fulfil conditions stipulated in the offer.
o Section 6 (d): the death of the offeror or the offeree or mental incapacity.

Case Example: Payne v. Cave (1789)

Facts: At an auction, the defendant Cave made a bid for a worm-tub and a pewter worm which
was highest at the auction. Before the hammer fell, he changed his mind and withdrew his offer
for the bid. The claimant Payne then sued Cave for a breach of contract.

Held: Cave was entitled to withdraw his offer at any time before the auctioneer accepted it. The
auctioneer's request for bids was an invitation to treat, and each bid constituted an offer which
could be withdrawn at any time until it's accepted. The fall of the auctioneer's hammer constituted
acceptance of the highest bid.

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Revocation in a unilateral offer
• An offer for a unilateral contract cannot be revoked once the offeree has commenced
performance or completed that performance of acceptance. As unilateral offers are made to the
world at large, acceptance is usually made by conduct and not communicated to the offeror.
• Therefore, in the same way, revocation can be done without actual communication, so long as
it was made before the commencement of acceptance.
• However, the revocation must be done in such a way that the withdrawal of the offer must be
reasonably made so as to get the attention of such persons who are accepting the offer, i.e.
similar methods are employed.

Case Example: Shuey v. United States (1875)

Facts: The United States government posted an award of $25,000 in the national newspaper for
information leading to the apprehension of a particular criminal. Seven months later a notice
revoking the offer was published in the national newspaper again. Four months after the
revocation, the claimant, unaware that the offer had been revoked, provided information on the
criminal and then sought the award that was promised.
The issue now is whether or not a contract had been concluded or was the unilateral offer
effectively revoked despite the claimant’s ignorance of the revocation.

Held: The court found in favour of the defendant (United States) as the claimant had not begun
performing the acceptance before the offer was revoked. In addition to that, as long as the method
of revocation was the same as the unilateral offer, there is valid revocation despite the offeree’s
ignorance of the revocation.

Counter-Offer
Case Example: Hyde v. Wrench (1840)
Facts: On 6th June Mr. Wrench wrote to Mr. Hyde offering to sell the farm for £1000, stating that
it was the final offer and that he would not alter from it. Instead of accepting it, Mr. Hyde offered
£950 in his letter. By 8th June, and after examining the offer Mr. Wrench refused to accept and

23
informed Mr. Hyde of this on 27 June. On the 29th Mr. Hyde wrote to Mr. Wrench agreeing to
buy the farm for the original price of £1000 without any additional agreement from Mr. Wrench.
Mr. Wrench refused to sell the farm to Mr. Hyde he sued for breach of contract.

Held: When Mr. Hyde made an offer of his own, to purchase the property for £950, he had thereby
rejected the offer previously made by the defendant. When Mr. Hyde rejected the initial offer he
had effectively terminated it and therefore he cannot revive the proposal of Mr. Wrench by
tendering an acceptance of it.
There is no contract between the parties.

Acceptance of the Offer

• Acceptance can be made orally, in writing, or even through the conduct of the offeree. For an
acceptance to render the contract valid, the acceptance must be unconditional to all the terms
of the offer made.
• Section 2 (b) CA 1950 provides that when the person to whom the offer is made signifies his
assent to the offer, the offer is therefore accepted and becomes a promise that is legally binding.
• Therefore, with an unequivocal acceptance of the offer, a valid and binding contract is formed
and to go back on the promise made will result in a breach of contract.

Case Example: Lau Brothers & Co v. China Pacific Navigation Co Ltd (1965)
Facts: In this case, the parties were in negotiations for the delivery of logs. These negotiations we
conducted through a series of telegrams and letters. Whilst still in the negotiating stage, the
defendants withdrew.
The question now is whether or not there is a contract between the two parties.

Held: Since the parties were still in a state of negotiation, no contract was formed, and therefore
the defendants can withdraw from the negotiations.

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Communication of Acceptance
• Section 4 (2) CA 1950 states that acceptance must also be communicated to the offeror. The
offeror must know that his offer has been accepted by the offeree otherwise no contract is
formed.
• The rationale for this rule is that, without communication, people might be bound by a contract
without knowing that their offers had been accepted.
• Therefore, with this rationale, preceded cases have established that silence can never amount
to acceptance.

Case Example: Felthouse v. Bindley (1862)

Facts: An uncle and his nephew had talked about the possible sale of the nephew’s horse to the
uncle, but there was a confusion with the price. The uncle then wrote the nephew offer a certain
price and also said: “If I hear no more about it, I consider the horse mine at that price”. The nephew
did not reply to this, and at an auction of his properties, the horse was accidentally sold off to
someone else.
The issue now is whether there is a valid contract formed.

Held: Merely remaining silent cannot amount to acceptance unless it can be established that it is
absolutely clear that acceptance was intended by that silence. The rationale for this decision is
because there are many situations in which it would be very undesirable and confusing for silence
to amount to acceptance.

The Postal Rule

• The Postal Rule is an exception to the general rule of communication of acceptance. It is a
general rule that acceptance by post takes effect immediately without the need for any
communication to the offeror.

Case Example: Adams v. Lindsell (1818)

Facts: On 2nd September, the defendant wrote to the claimants offering to sell processed wool for
a certain price. Upon receiving the offer letter on 5th September, the claimants immediately posted

25
their acceptance. The letter did not reach the defendants until 9th September. By that time, the
defendant had sold the item to someone else since he had not heard from the claimant.
The issue now is whether or not a contract has been formed.

Held: The contract was concluded as soon as the acceptance was posted. Therefore the defendants
were bound to the contract the day the letter of acceptance was posted. By selling the item to
someone else, the defendant had breached the contract.

The Effect of the Postal Rule

• Postal acceptance would take effect upon its post even if the letter posted got lost or delayed
after that. Posted acceptances take effect upon its posting, but posted revocation will only take
effect on communication. It is unlikely that an offeree can revoke the postal acceptance with
some other faster means of communication.

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Chapter 4: Sale of Goods

Introduction

Ø The Sale of Goods Act 1957 (SOGA herein forth) was enacted in 1957 and the statute was

applicable to sale of goods in Peninsular Malaysia (East Malaysia), excluding the states of

Penang and Malacca.

Ø The Act was later revised in 1990 and it includes both states. The states of Sabah and

Sarawak (West Malaysia) are not governed by this Act instead they are governed by section

5 (2) of the Civil Law Act of 1956, which provides, among others, that the law to be

administered in England in the like case at the correspondent period.

Relevant Sections

ü Section 2 of SOGA

ü Below are some of the definitions of key terms in the SOGA.

1. Buyer -a person who buys or agrees to buy goods.

2. Seller -a person who sells or agrees to sell goods.

3. Goods -means every kind of movable property other than actionable claims and money;

and includes stock and shares, growing crops, grass, and things attached to or forming part

of the land which are agreed to be severed before sale or under the contract of sale.

4. specific goods - means goods identified and agreed upon at the time a contract of sale is

made, and any expression used but not defined in this Act which is defined in the Contracts

Act 1950 [Act 136], shall have the meaning assigned to it in that Act.

5. Future goods - means goods to be manufactured or produced or acquired by the seller after

the making of the contract of sale.

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6. Price- means the money consideration for a sale of goods.

ü Section 4 of SOGA- Sale & Agreement to Sell

ü A contract of sale of goods is a contract whereby the seller transfers or agrees to

transfer the property in goods to the buyer for a price.

ü The contract of sale may be absolute or conditional. The difference between the

two is that an absolute contract of sale entails a seller transferring property in goods

to the buyer, and the contract is known as a sale, whereas in a conditional contract

of sale the seller consents to transfer the property in goods to the buyer for a price

pending the fulfillment of certain conditions

ü Known as agreement to sell. The agreement to sell will become a sale when the

conditions are fulfilled.

ü Section 5 of SOGA- Contract of Sale

ü For the contract of sale of goods to exist, there has to be an offer to buy or an offer

to sell for a price.

ü Furthermore, an acceptance of the offer has to follow and ultimately the contract

may provide for immediate delivery or immediate payment or both or installments

delivery or installments payment or both.

ü The agreement to form a contract between the buyer and the seller may be in

writing or partly in writing and partly by word of mouth or by word of mouth or

maybe implied from the conduct of the parties.

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Ø Section 6 of SOGA- Existing/Future Goods

ü Existing or future goods- The goods which form the subject of a contract of sale

may be either existing goods, owned or possessed by the seller, or future goods.

ü (2) There may be a contract for the sale of goods the acquisition of which by the

seller depends upon a contingency which may or may not happen.

ü (3) Whereby a contract of sale the seller purports to effect a present sale of future

goods, the contract operates as an agreement to sell the goods.

Ø Section 9 of SOGA- Price

ü Under the subject matter of price is section 9 (1), the price may be set accordingly

by the contract, maybe set under agreed conditions or maybe set pertaining to the

dealings between both the buyer and the seller.

ü As stated in section 9 (2), if there is if no price is decided upon a reasonable price

might be charged but this will set not to any standard but according to every single

particular individual case.

Ø Section 11 of SOGA-Time

ü Unless a different intention appears from the terms of the contract, stipulations as

to time of payment are not deemed to be of the essence of the contract of sale.

Whether any other stipulation as to time is of the essence of the contract or not

depends on the terms of the contract.

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Ø Section 12 of SOGA- Conditions/Warranty

ü Terms of a contract can be divided into conditions and warranty.

ü Condition is the fundamental term of the contract, and the breach of the condition

gives the injured party the right to reject the contract.

ü Warranty refers to stipulation collateral to the main purpose of the contract, the

breach of which gives the injured party the right to claim for damages but not to

reject the goods and treat the contract as repudiated

ü Section 13 of SOGA- Condition Treated to be Warranty

ü The injured party can treat a breach of condition as a breach of warranty, which

means that the injured party is entitled to claim for damages but not reject the

contract.

ü The case in point is the case of Associated Metal Smelters Ltd v. Tham Cheow Toh

(1972) where the Federal Court allowed the respondent or the buyer to treat breach

of condition as breach of warranty, resulting in the buyer being entitled to claim for

damages within the scope of Section 13.

ü Section 14 of SOGA- Implied Term

ü This section is divided into three.

ü 1st- an implied condition on the part of the seller, that, in the case of a sale, he has

a right to sell the goods, and that in the case of an agreement to sell, he will have a

right to sell the goods at the time when the property is to pass. This in short means

that it is an implied condition to the seller to ensure that the buyer will enjoy the

30
 ownership as well as possession and use of the goods, failure to do so gives the

buyer the right to reject the contract as the issue constitutes an implied condition

(Razman and Shukor, 2001).

ü 2nd- there is an implied warranty that the buyer shall enjoy quiet possession of the

goods, and if the seller fails to comply, the buyer is entitled to claim for damages

since the matter is being constituted as an implied warranty.

ü 3rd- there is an implied warranty that the goods shall be free from any charge or

encumbrance in favor of any third party not declared or known to the buyer before

or at the time when the contract is made. If the seller fails to comply, the buyer is

entitled to claim for damages since the matter is being constituted as an implied

warranty.

ü Note: section 15- Sale by Description

Ø Section 16 of SOGA- Implied Condition- Quality/Fitness

ü There is no implied condition or warranty as to the quality or fitness for any

particular purpose of goods unless the buyer requests the goods be reasonable for a

purpose and the goods be of merchantable quality.

Ø Section 17 of SOGA- Sale by Sample

ü When dealing with goods by sample, it is required by the seller to ensure that the

bulk of the goods must correspond with the sample. If the seller fails to comply, the

buyer is entitled to reject the contract since the matter is being constituted as an

implied condition.

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Ø Section 19 of SOGA- Property Passes When Intended to Pass

ü This section states that where there is a contract for the sale of specific or

ascertained goods, property in the goods is transferred to the buyer at such time as

the parties of the contract intend it to be transferred.

ü In the case of Re Anchor Line (Henderson Brothers) Ltd, an electric crane was

bought from Ocean Co Ltd. Annual payments where to be made and Anchor was

to have full responsibility in the meantime. Payments were made regularly but it

went into liquidation. It was held that the property was still under Ocean because

all the payments had not been made.

Ø Section 20 of SOGA- Specific Goods in a Deliverable State

ü Where there is an unconditional contract for sale of good, the property passes to the

buyer when the contract is made.

ü In the case of Mohamed Mydin v Ramiaj (1965), a lorry was sold to the buyer

however a vehicle repairer had taken delivery on behalf of the buyer. Although the

registration of the lorry was not passed it is not the document of title so it was held

that the vehicle was duly delivered to the plaintiff.

Ø Section 21 of SOGA- Specific Goods to be Put into a Deliverable State

ü This section states that where there is a contract for the sale of specific goods but

the goods are not in a deliverable state (i.e. ready to be taken by the buyer) and the

seller is bound to do something to put the goods into a deliverable state, the property

32
 does not pass to the buyer until the seller has taken the steps to put the goods in a

deliverable state and the buyer has notice of it.

Ø Section 26 of SOGA- Risk PRIMA FACIE Passes with Property

ü This section provides that the goods remain at the seller’s risk until the property is

transferred to the buyer.

ü In case of the Demby Hamilton & Co Ltd v Barden (1949), the seller agreed with

the buyer to supply apple juice to a third party in weekly instalments. The third

party asked the seller to delay some deliveries and the seller followed. The juice

later turned bad. Although the property in the juice remained in the seller, the court

held that the risk has passed to the buyer since he is liable to the delay.

Ø Section 31 of SOGA

ü This section provides that it is the duty of the seller to deliver the goods and the

duty of the buyer to accept and pay for them in accordance with the terms of the

contract of sale. It is thus essential that parties keep to what has been agreed upon.

Ø Section 37 (3) of SOGA- Mixed Goods

ü This section states that where the seller delivers to the buyer the goods he contracted

to sell mixed with goods of a different description not included in the contract, the

buyer do any of the following: accept the goods which are in accordance with the

contract and reject the rest or reject the whole.

33
Ø Section 45 of SOGA- Unpaid Seller

ü An “unpaid seller” means:

ü a) when the whole of the price has not been paid or tendered;

ü (b) when a bill of exchange or other negotiable instrument has been received as

conditional payment, and the condition on which it was received has not been

fulfilled by reason of the dishonour of the instrument or otherwise.

ü (2) In this chapter, the term “seller” includes any person who is in the position of a

seller, as, for instance, an agent of the seller to whom the bill of lading has been

indorsed, or a consignor or agent who has himself paid, or is directly responsible

for, the price.

Ø Section 46 of SOGA- Unpaid Seller’s Rights

ü The rights in relation to the goods under section 46 includes a lien on the goods,

right of stopping the goods when the goods are on transit to the buyer or a right of

resale.

Ø Section 55 of SOGA- Suit for Price

ü This section states that under a contract of sale the property in the goods has passed

to the buyer and the buyer wrongfully neglects or refuses to pay for the goods

according to the terms of the contract, the seller may sue him for the price of the

goods.

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Ø Section 56 of SOGA- Damages for Non-Acceptance

ü It reads that the buyer can be sued if the buyer wrongfully neglects or refuses to

accept and pay for the goods.

Ø Section 57 of SOGA- Damages for Non-Delivery

ü Where the seller wrongfully neglects or refuses to deliver the goods to the buyer,

the buyer may sue the seller for damages for non-delivery.

35
Chapter 5: Partnership Law
Introduction
• Partnerships are one of the more common modes of business operations, and they are formed
to operate concerns varying from trading firms to professional firms, e.g. legal, accounting and
medical practices.
• The law of partnership in Malaysia is governed by the Partnership Act 1961 which is similar
to the English Partnership Act 1890.
• Basic knowledge of the law governing partnerships is important to bankers, accountants and
the business community as a whole as it is necessary that all partnership businesses as well as
sole proprietorships to be registered with the Companies Commission of Malaysia.
• The partnership is defined by section 3 (1) of the Partnership Act 1961 as ‘the relation, which
subsists between persons carrying on a business in common with a view of profit’.
• By virtue of section 3 (2) of the Act, co-operative societies and registered statutory and
chartered companies are specifically excluded from the definition. Clubs and societies, as well
as mutual benefit organizations and building societies, cannot be considered as a partnership.

Nature & Characteristics of a Partnership

• A partnership can arise through conduct, oral agreement, or a written contract known as a
partnership agreement.
• Each partner is entitled to participate in management, get an equal share of profit, an indemnity
in respect of liabilities assumed in the course of business and the right to not be expelled by
other partners. A partnership ends on the death of a partner unless an agreement is made prior
to the deaths.
• A partnership is between persons. This is different from a company which is by itself a legal
person who can be a partner with a human person or another company. The members of the
company may have limited liability while the human person has not. Two or more limited
companies can be a partner.

36
• Although the word ‘partnership’ does not appear in a contract for partnership, a partnership
may still exist if the relationship between the individuals has the business character of a
partnership within the scope of the Act.

Case Example: Ratna Ammal & Anor v. Tan Chow Soo (1964)
Facts: The parties entered into an agreement to form a ‘syndicate’ for the purpose of selling
condensed milk. The word ‘partnership’ was not used in the agreement. Instead, the word
‘syndicate’ was used.

Held: Notwithstanding the avoidance of any reference in the agreement to a partnership and the
use throughout of the word ‘syndicate’, the arrangement arrived at was, in fact, a partnership as
they had agreed to carry on a business ‘in common with a common view of profit’.

• Therefore, under section 3 (1) of the 1961 Act, for there to be a partnership to exist, two or
more persons must be ‘carrying on business in common’. The word ‘business’ has been defined
in section 2 as ‘including every trade, occupation or profession.
• This should be distinguished from charitable or religious organisations, clubs, societies, etc.
However, a ‘business’ should also be distinguished from a ‘joint venture’.

Case Example: Chooi Siew Cheong v. Lucky Height Development Sdn Bhd (1995)
Facts: Both parties we helping each other to carry out separate businesses. One party contributed
land whilst the other party developed and carried out the project to build houses and shophouses.

Held: The principle reiterated here was the relationship which subsists between persons carrying
on a business with a view of profit. Therefore, whether there is a partnership or not, the court must
have regard to the relevant rules of Section 4 and the intention of the parties. Since the parties
intended a wholly separate business, there was no business in common with the view of the same
profit, therefore not a partnership.

• Section 4 of the 1961 Act lays down certain circumstances which are not prima facie
partnerships:

37
 o Section 4 (a): ‘Joint tenancy’, which refers to ownership of property by two persons does
not imply the existence of a partnership unless there is certain evidence of partnership, e.g.
running a business together on the property.
o Section 4 (b): The sharing of ‘gross profit’ does not of itself create a partnership, e.g.
book/movie/brand royalty.
o Section 4 (c): The receipt by a person of a share of the profit may not necessarily establish
the partnership as evidence of a partnership within the contract must also be proven.

Case Example: Buckingham v. Port Jackson & Manly Steamship Co. (1957)
Facts: A contract between two parties provided for a sharing of profits and contained a reference
to a joint venture.

Held: There was no evidence of a partnership because the agreement as a whole indicated that the
parties sought to avoid such a relationship. Therefore, receipt of such a share of profits of a
business does not of itself make him a partner in the business.

Formation and Duration of a Partnership

• A partnership can be formed with or without a written agreement. It can be created orally or in
writing as it is easier to form than a company. The minimum number of members is two, and
the general rule is that everyone of legal capacity is capable of entering into a partnership
agreement. However, section 47 (2) PA 1961 provides that there cannot be a partnership of
more than 20 persons.
• There can be a partnership between a minor and an adult, however a minor can be in a
partnership for any duration of time until he wishes to disaffirm it and break away from the
partnership.
• A minor cannot incur or be responsible for any contractual liability for the firm’s debts, and
upon reaching the age of majority, he can discharge himself from all future debts of the firm
by terminating partnership. However, the failure to repudiate the partnership agreement will
result in liability for partnership debts.

38
Liability of partners
Liability for ordinary Torts
• Section 12 of the Act provides that in order to make the firm liable for damage or injury caused
to others, the tortious act or omission must have been committed by a partner either in the
ordinary course of the business of the firm or with the authority of his co-partners.
• This would mean that all the partners of a firm will be liable if any of them has been negligent
in the running of the business which eventually causes damage or injury to others.

Liability for Misapplication

• Section 13 provides that where a firm in the course of its business receives the money or
property of a third person, and the money or property so received is misapplied by one or more
of the partners while it is in the custody of the firm, the firm is liable to make good the loss.
• Every partner is liable jointly and severally for everything for which the firm becomes liable
for, therefore a claimant can sue all the partners jointly or may even sue one or more of the
partners concerned.

Contractual Liability
• Section 11 of the Act provides that all partners in a firm are jointly liable for all contractual
and other debts and liabilities including tax and judgement debts which are incurred while each
is a partner.
• In addition to that, even after the death of one of the partners, his estate is also severally liable
in due course of administration for such debts and obligations, so far as they remain unsatisfied.

Duration of Liability
• Section 19 (1) of the Act provides that a new partner who has just been admitted into a firm
is not liable for the debts incurred prior to his admission.
• However, if a new partner agrees to be liable for the existing debts of the partnership at the
time of his admission, he would be liable.
• In addition to that, a mere abandonment and inactivity by a partner who has given up all hope
of recovering his share does not affect his liability for the partnership debts.

39
Liabilities of Retired Partners
• Section 38 (1) of the Act provides that after retirement, a partner is still liable to persons who
deal with the firm after a change in its constitution unless he has given notice to such persons
that he is no longer a partner.
• This would mean that in order in order to avoid any liabilities that a business might incur, a
resigning partner’s retirement must be expressly and publicly made known even before a claim
is brought against the partnership.

Case Example: Tan Sin Moh v. Lebel Ltd (1988)

Notice of the withdrawal of the appellant from the partnership ought to be given to respondent
creditor who had habitual dealings with the partnership.

Case Example: Malayan Banking Bhd v. Lim Chee Leng (1985)

Facts: The respondents were partners of a firm called Berjasa Corporation. The appellants sued
the respondents under a trust receipt that matured and became payable on June 1975. Two of the
respondents resigned from the firm in August 1976.

Held: The respondents incurred the debt on the trust receipt before their resignations or retirement
and they could not escape liability by merely pleading resignation or retirement. Therefore,
partners remain liable for partnership debts or obligations incurred while they are partners
notwithstanding their retirement.

Relations between Partners

• The relations between partners to one another are determined by their partnership agreement
which normally provides for the rights and duties of the partners, the conduct and management
of the firm, the capital, and their profit-sharing arrangement.

40
• The Partnership Act 1961 applies in the absence of provisions being made under the agreement.
This would mean that though there is no written partnership agreement, the provisions in the
Act will be applied unless the partners have orally agreed on those provisions.
• In the absence of a partnership agreement, the principle of utmost good faith between partners
is implicit in every partnership agreement and is a prime requisite in relations between partners.
• The Partnership Act recognises this in the absence of any formal agreement because the
relationship between partners is based on mutual trust and confidence. The relevant provisions
within the Act pertaining to this principle are in sections 30, 31 and 32.

Section 30 Partnership Act 1961

• Partners are bound to render a true account, therefore when a partner purchases a share in the
partnership business from another partner, it is the duty of the purchasing-partner to disclose
all the material facts to the selling-partner.
• If material facts on the partnership assets are not disclosed, the sale and purchase transaction
of the share is voidable.

Case Example: Law v. Law (1905)

Facts: A partner sold his share in the partnership to another partner for £21,000. At the time of
sale he did not know that the partnership assets included mortgages and other securities. The buyer
knew of this but never told him about it. The seller took legal action to have the contract he had
made, be declared void.

Held: The court held that the order setting aside the contract would have been made.

Section 31 Partnership Act 1961

• Partners are accountable for private profits made, however they are not prevented from keeping
any profits made from transactions that are entirely outside the scope of the partnership.
• A partner must not make a profit or commission for himself by making use of his position or
any information acquired in the partnership business. Similarly, a partner must not make a
profit from a sale or re-sale of the firm’s property without full disclosure to the other partners.

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• The principle behind these situations is that each partner must disclose any secret profit he has
made in dealing with the firm, and account for the profit to the firm.

Section 32 Partnership Act 1961

• Partners have a duty to each partner not to compete with the partnership of the firm. However,
where it is expressly agreed by the partners that a partner may be dismissed for flagrant breach
of specified provisions, the other partners can exercise the authority to dismiss if they do so in
good faith.
• In addition to that, in partnerships amongst professionals, a serious act of professional
misconduct gives the other partners the right to dissolve the partnership.
• If there is a breach of duty committed by a partner, he is only liable to make good the loss
suffered by the partnership if he is guilty of fraud or culpable negligence or willful default.

Case example: Green v. Howell (1910)

Facts: There is a clause in the partnership agreement stated that in the event of any one of the
partner breach any duty as a partner, the other partner are not entitled to expel them unless there is
a good faith. Subsequently, one of the partners had breach the partnership agreement.

Held: Unless there was evidence of bad faith, it was not necessary for the other partner to disclose
the reasons and causes of the flagrant act. Therefore the notice was valid.

Case example: Clifford v. Timms (1908)

Facts: A partnership contract between A and B, two dentists, provided that if either should ‘be
guilty of professional misconduct or any act which is calculated to bring discredit upon or injure
the other partner or the partnership business,’ the other should have the right to terminate the
partnership. A joined with other persons in forming, and became a director and shareholder in, a
company called the American Dental Institute Limited.

Held: The other partner was entitled to determine the partnership as the party was guilty of
professional misconduct within the meaning of the partnership agreement.

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Partnership Property
• Under section 22 (1) of the Partnership Act 1961, all partnership property purchased or
acquired by any means must be used and applied for the purposes of the firm and in strict
accordance with the partnership agreement.
• A common problem that emerges is whether the property belongs to the firm of the partner or
the partner, individually.
• The mere fact that the firm’s business was conducted on the property insured by one partner
did not make it part of the partnership property. On the other hand, even if the property which
was purchased out of partnership assets was not used for carrying out the partnership business
as such property was partnership property.
• Unless the contrary intention appears, property bought with money belonging to the firm is
deemed to have been bought on account of the firm.
• However, whether or not a property is partnership property depends on the intention of the
partners which has to be determined on each individual case.
• The fact that a property is used by all the partners for the partnership purposes need not
necessarily qualify it to be termed partnership property even though the partnership may be
debited with the outgoings and expenses of the property unless there is evidence to show such
an intention.

Dissolution of Partnership
• A partnership ends when it is dissolved, and this may happen in various circumstances with
consequences that not only affect the partners themselves but also third parties dealing with
them.
• A partnership may be terminated and dissolved in the following ways:
o By agreement in the duration of partnership or mutual dissolution;
o By operation of the law;
o By the death of one of the partners or bankruptcy;
o By supervening illegality;
o By court order.

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• Unless notice of dissolution is given, all customers of the partnership are entitled to treat all
the former members as continuing to be members. Section 39 provides that notice may be
given by any advertisement in a local press, gazette or by a circular letter.

Case example: Kam Hoy Trading v. Hup Ail Tin Mining (1967)
Facts: The applicants sought an order that service of the writ of summons and notice in this case
on them as partners of the defendant firm to be set aside. They alleged that they had ceased to be
partners of the defendant firm after selling their shares, rights, and interests in the firm as well as
having duly signed their withdrawal from the partnership.
However, they subsequently discovered that the withdrawal forms were not registered with the
Registrar of Businesses.

Held: When partners dissolve their partnership they should send notice to all persons who have
trusted them as partners. In this case, the applicants should have either given notice to the claimants
of their withdrawal or taken steps to see that their withdrawal was duly registered with the Registrar
of Business.
Therefore, in the absence of such notice or registration, they were not entitled to succeed in their
application.

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Chapter 6: Agency Law
Introduction
• Agency is a relationship that is very important to many businesses and commercial transactions
as it is a triangular relationship that allows the creation of a legal relationship between one
person who is known as the ‘principal’ and a third party via the intervention of the ‘agent’ who
acts as the middle person representing the principal and his interest.
• The most commonplace to see the usage of the agency is in banking, e.g. agents can include
the various types of account holders of a bank; in certain circumstance, the bank may act as an
agent for his customer; or that the employees of the bank may act as agents for the bank.
• Businesses usually act as an employee or engage agents in the course of carrying on their
respective businesses. This may be seen as a form of outsourcing certain of an organisation’s
functions and work to agents.
• The purpose of outsourcing in a business situation is so as to have certain job functions of the
business done outside a company instead of having an in-house department or even employee
to perform that particular task so as to increase business efficiency and probably to save cost
at the same time wherever business may do so.

Definition of Agent
• The law of agency in Malaysia is mainly found in Part X of the Contracts Act 1950 and is
defined as ‘a person employed to do any act for another or to represent another in dealings with
third persons’.
• Therefore, in an agency, there are in effect two different contracts, i.e. the first, made between
the principal and the agent from which the agent derives his authority to act for and on behalf
of the principal; and the second, made between the principal and the third party through the
work of the agent.

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Types of Agent
• The evolution of commercial practice, coupled with the need for various functional
classifications of agents, has resulted in the recognition of a number of different kinds of
agents.

A Broker
• A broker is an agent who is engaged to make contracts between two principals as counterparties
engaged in some aspect of the trade, the commerce of navigation.
• His role is quite passive when compared to other types of agents as the broker’s role is confined
to the negotiation of contracts of sale and purchase and does not obtain possession of the goods
from the principal.

A Factor
• Derived from the Latin word ‘facit’, which means ‘doer’ or ‘maker’, a factor is a mercantile
fiduciary (trustee) who receives and sells goods on commission. This transaction is known as
‘factorage’, and the factor can do this through a business in his own name, through a company
or personally.
• A factor is an agent who has more extensive powers compared to a broker. He is entrusted with
possession of goods belonging to the principal for sale and who sells the goods in the name of
the agent without disclosing the name of the existence of the principal.
• Traditionally, a factor overseas his services in a factory (trading post). A modern factor
business is usually in the textile field, however today the services of a factor today extend to
shoe, furniture, hardware and other industries which involve heavy trading of mass-produced
materials.

A Commission/Commercial Agent
• A commission agent is one who is appointed by a principal - more commonly – to sell goods
on behalf of the principal.

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• He does so in his own name, whether as a company or personally, and is generally independent
of the principal as he has the right when dealing with certain goods to conduct the transaction
in whatever way he wishes.

An Agent with Powers of Attorney

• Powers of attorneys are legal instruments under which principals confer authority on agents to
perform certain acts for the principal and unlike most other agency relationships, powers of
attorney are governed by the Powers of Attorney Act 1949 (revised in 1990).
• This power allows a person appointed to act in the place of the principal for various purposes
either because the principal has become incapacitated or in need of some assistance to act on
his behalf.
• Agents appointed this way usually deal with financial institutions and situations, and to ensure
that the agents exercise their role properly their power to do acts in question are clearly laid
down in the power of attorney document.
• A power of attorney is a very important estate planning tool, but in fact, there are several
different kinds of powers of attorney that can be used for different purposes.
• There are four main types of powers of attorney:
o Limited: A limited power of attorney gives someone else the power to act on behalf of
the principal for a very specific purpose. For example, a one-off power to sign a
deed/contract. The power lapses when the specific deed has been done.
o General: A general power of attorney is comprehensive and gives the agent all the
powers and rights that the principal himself has. For example, a general power of
attorney may give the agent the right to do practically everything for the principal,
whether it be financial or non-financial matters. However, a general power of attorney
ends on the death or incapacitation of the principal unless he rescinds the power before
then.
o Durable: A durable power of attorney can be general or limited in scope, but it remains
in effect after the principal has become incapacitated. If a person becomes incapacitated
before appointing an agent of durable power, the court can appoint a conservator or
guardian with such powers. A durable power of attorney will remain in effect until the
principal’s death unless it is rescinded before incapacitation.

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 o Springing: A springing power of attorney can allow the agent to act for the principal
if he has become incapacitated, but it does not become effective until he is
actually incapacitated. Here, it is very important that the standard for determining
incapacity and triggering the power of attorney be clearly laid out in the document
appointing and granting power itself.

Creation of Agency
• Like any other contract, a contract of agency can be expressed - through oral or written
agreement, or implied - through the normal course of dealings, from the circumstances and the
conduct of the parties.
• The following are the few ways in which an agency can be created:

By Express Appointment
• This involves the actual consent of the principal and the agent whereby the agency is a
consensual relationship. The agency here entails a grant of express power or authority by the
principal to the agent.
• This consensual relationship and the authority to exercise granted power is expressed clearly
within the contractual agreement itself and it is only through the provision within the
agreement can the agent to act on behalf of the principal.
By Implied Appointment
• Implied authority to act on behalf of the principal is by way of the implied consent of the
principal and the agent whereby it is derived from the words and conduct of the parties in the
way they have acted in connection to one another.
• The law can infer the creation of an agency by implication when a person by his words or
conduct holds out another person as having authority to act for him, and in such circumstances,
the principal will be bound by the contracts as if he has expressly authorised them.

By Usual Authority
• The usual authority of the agent is created by the agent occupying a position which would
normally carry with it authority to do an act of the kind in question.

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• These are acts that are not within express or implied actual authority but are within the class
of acts usually associated with agents of that character and the type of activity associated with
that character. It is the authority to do whatever an agent of the type in question or employee
in a particular post would usually have the authority to do.
• Where an agent belongs to a particular class or trade he will normally have the usual authority
to do whatever is necessary in order for him to fulfil his express authority as an agent.

By Ratification
• This is the principal’s approval by act, word or conduct of that which was attempted or
accomplished by the agent which was improperly performed in the first instance.
• Ratification generally converts an unauthorised act into an act that is given authority. This is
where the agent has done something without the authority of the principal, but because of the
subsequent conduct of the principal, the unauthorised act effectively becomes ratified as if the
principal had previously authorised it, i.e. the ratification cures the original defect.
• An agency by ratification can arise in two circumstances:
- An agent who was duly appointed has exceeded his authority.
- A person who has no authority to act for the principal has acted as if he has the authority.
• When any one of the abovementioned circumstances arise, the principal can either reject the
contract or accept the contract so made, and when the principal accepts and confirm such a
contract the acceptance is called ratification.

By Necessity
• An agency of necessity may be created if the following conditions are met:
- It is impossible for the agent to get the principal’s instructions;
- The agent’s action is necessary, in the circumstances, in order to prevent loss to the
principal with respect to the interest committed to his charge, e.g. when an agent sells
perishable goods belonging to his principal to prevent them from rotting;
- The agent of necessity must have acted in good faith.
• In an emergency, the agent has the authority to do all such acts for the purpose of protecting
his principal from loss as would be done by a person of ordinary sense in his own case,
understand similar circumstances.

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Termination of Agency
• Agency may be terminated in one of the following ways:

Termination by agreement
• The authority of an agent may be terminated by the act of the parties, by mutual agreement or
mutual consent between the agent and the principal.
• The agency may also be terminated by a renunciation of the agency by the agent. This may
lead to a breach of contract unless it is accepted by the principal or that such renunciation is
provided within the agency agreement itself.

Termination by revocation
• The principal may revoke the authority of the agent at any time before it has been exercised to
bind the principal. Revocation is usually given through notice of termination which is
reasonable in length of time to the agent.
• However, there are some qualifications to the principal’s right to revoke the agent’s authority
such as where the agent has already carried out the mandate conferred by the principal and
assumed by the agent.

Termination by renunciation
• Agency may be terminated when the agent relinquishes or surrenders his authority and by
doing so, ending the agent’s mandate to the principal in a unilateral act whereby the
renunciation is done only by the agent and is usually accepted by the principal.
• If the agency agreement is for an indefinite duration, the agent may terminate the agency at
any time by giving reasonable notice to the principal. Where the agency is for a definite or
fixed period of time, the agent cannot terminate the agency before the expiry of that period
without just cause.

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Termination by performance
• The contract for the agency is brought to an end when the agent has performed the contract.
This can happen when an agency is created for a single specific transaction and the transaction
is completed.
• This would mean that the agent can no longer act on behalf of the principal as the power granted
to him lapses and the agency agreement expires.

Termination by operation of law

• The death of either the agent or the principal terminates the agency.
• The insanity or mental illness of the agent or the principal also terminates the agency since an
insane person is not capable of entering into a valid contract whether as a principal or an agent.
• Upon bankruptcy, the agency relationship also ceases to exist as a person, whether real or
artificial cannot get into a business relationship when he is legally declared as bankrupt.

Termination by frustration
• Upon the happening of an event which renders the agency unlawful, the agency may be
terminated as an agency is just like any contract which may be discharged by certain
frustrations which would make a contract unworkable.
• The agency agreement may also be frustrated by other factors such as the subject of the
principal’s interest ceases to exist due to various reasons, or that the value of the subject is no
longer on par with the principal’s interest.

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Chapter 7: Tort Law
Introduction
• In a broad sense, a tort occurs when there is a breach of a general duty fixed by civil law. It
covers a wide range of situation where it involves any two or more private citizens in any
personal and commercial scenario.
• The person who commits the tort is known as a tortfeasor whereas the injured party is known
as a victim of the tort.
• The victim to the tort is able to claim for damages against the tortfeasor in the form of monetary
claims for damages done unto him. However, in order to make a claim, the victim must prove
his case on the balance of probabilities.

General Negligence
• The Tort of Negligence is the most important area of Tort law as it covers various aspects of
everyday activities which involves harm caused by carelessness or recklessness, and not
intentional harm.
• The principle behind negligence protects individuals against three different types of harm:
o Personal injury;
o Damage to property; and
o Economic loss.
• Negligence is defined as ‘the breach of a legal duty to take care which results in damage,
undesired by the defendant to the claimant.
• The elements of negligence are:
o Duty of care
o Breach of a duty of care
o Causation
o Remoteness of damage
• However, the tort of negligence usually involves three main questions of consideration.
o Did the defendant owe the claimant a duty of care?;
o Did the defendant breach that duty of care?; and
o Did that breach cause damage to the claimant or his property?

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Duty of Care
• The most important tort in modern law concerns the breach of a legal duty to take care when
conducting any form of activities.
• Duty of care is a concept of obligation or a burden that is essentially imposed by the law upon
its citizens to ensure that everyone exercises their civic duty not to be careless in their daily
activities, and it requires a person to conform to a certain standard of conduct.
• Therefore, if that duty is not exercised, and as a result, a victim suffers a loss/harm,
compensation will be imposed against the tortfeasor to remedy that loss/harm.
• There had been some uncertainties in the application of the right tests to determine whether a
duty of care exists in particular circumstances, especially, when it involves novel cases as the
tort law relies primarily on decided cases.
• There are times when one would question whether the tests established are adequate and
sufficient to sustain justice for the people.
• Over the years of legal development, the courts have managed to set out clearer guidelines for
evaluating a duty of care, by extracting the vital principles from a medley of case-law.
• The issue arose on how to determine the existence of this duty, who should be responsible and
to what extent the duty can be imposed. The principle test used to determine the presence of a
duty of care is the neighbour principle which was developed from the case of Donoghue v.
Stevenson (1932).

Case Example: Donoghue v. Stevenson (1932)

Facts: A friend of the plaintiff had purchased a bottle of ginger beer at a café. The ginger beer
bottles were opaque and the claimant was unable to see its contents. When the plaintiff’s friend
refilled the glass, along with the ginger beer came the decomposed remains of a snail.
The claimant suffered shock and subsequently became ill. She sued the manufacturer in negligence
as the bottles should be carefully inspected before they were filled with the drinks.

Held: The House of Lords held that the defendants, being the manufacturers of the ginger beer,
owed a duty of care to the plaintiff, as the ultimate consumer of the drink. This duty was to take
reasonable care to ensure that the bottle did not contain any substance which was likely to cause
injury to anyone who purchases it in due course.
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“You must take reasonable care to avoid acts or omissions which you can reasonably foresee would
likely to injure your neighbour” – Lord Atkin.
• The term “neighbour” simply means persons who are so closely and directly affected by your
acts that you ought to have them in contemplation as being so affected when you are directing
your mind to the acts or omissions which are called in question.
• The test for “foreseeability” is an objective one, where the courts would ask what a reasonable
person could have been expected to foresee.
• The law only recognizes this neighbourhood principle as an initial point in determining the
existence of the duty of care in classic and normal situations.
• The neighbourhood principle, therefore, opens the door to claims in negligence for injured
parties by recognizing the class of people to whom a duty may be owed. That class of people
includes those who are close enough to be directly affected by the careless act and that the
alleged tortfeasor should have had their interests in contemplation when acting as he or she
did.
• It is clear that the principle does not throw open the floodgates to unlimited claims, because a
tortfeasor will not be held to owe a duty of care to those who are not close enough to be in his
or her contemplation at the moment of the tortious act or omission.
• As in the 1932 case, the ginger beer manufacturer did not have to know that Mrs. Donoghue
would drink their product, but only to know that someone would. Therefore, the manufacturer
owes a duty of care to whoever it is that they are supplying their products to.

Breach of Duty
• Here we are to consider what, assuming a duty has been found in any particular circumstances,
will constitute a breach of that duty. Essentially it simply means that the defendant has fallen
below the standard of behaviour expected in someone undertaking the activity concerned.
• The standard of care is an objective one where the defendant’s conduct is tested against the
standard of care which could be expected from a reasonable person. This means that it is
irrelevant that the defendant’s conduct seemed fine to them as it must meet a general standard
of reasonableness.

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Case Example: Bourhill v. Young (1943)
Facts: A motorcyclist carelessly collided with a tram. The plaintiff who had just alighted from the
tram was some ten metres away and on the off-side of the tram at the time of the accident.
She suffered nervous shock as a result of hearing the noise of the collision and then seeing the
aftermath.

Held: It was not reasonably foreseeable to the motorcyclist that the plaintiff would be injured as
a result of his careless riding. She was physically outside the area of foreseeable danger and this
in itself was sufficient to prevent her from recovering.

Case Example: Blyth v. Birmingham Waterworks Co. (1856)

Facts: The Defendant installed the water mains on the street where the Claimant lived. One of the
plugs on the pipes that were already more than 25 years old sprang a leak because of a severe
winter frost. Water seeped through the Claimant's house and caused damage. The Claimant then
sued the Defendant for negligence.

Held: A person can avoid liability in negligence if he takes precautions that conform to the
standard followed by a reasonable person. Negligence is the omission of an action that a reasonable
person would do or performing an action that a reasonable person would not do.
The Defendant was not negligent because he followed the precautions that reasonable people
would have followed. The incident was due to a very severe frost that had not been seen in years,
therefore the circumstances constituted a contingency against which no reasonable man would
have provided. Therefore this was an unfortunate accident only, not negligence.

• One is only required to come up to the standard of the average competent person carrying out
an activity, and anything less than that would amount to negligence. This is generally seen as
a public policy manner, i.e. if one cannot meet that public standard of care, one should not
conduct that activity.
• A standard of care in negligence can never amount to an absolute duty to prevent harm to
others. This means that one is only to do whatever a reasonable person would do to prevent
harm from occurring, and not do absolutely anything and everything possible to prevent harm.

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Case Example: Simmonds v. Isle of Wight Council (2003)
Facts: The claimant was a five-year-old boy, who was injured while playing, unsupervised, on
swings during a school sports day. The boy had had a picnic lunch with his mother near to where
the sports day was taking place, and afterward, his mother sent him back to rejoin the supervised
activities. Unknown to her, the boy instead headed for some nearby swings, and while playing
alone he fell off and broke his arm.
The mother then sued the school for negligence which causes her son to be injured on their
premises.

Held: The court rejected the mother’s claim that the school had a duty of care to prevent accidents
happening on the swings. The sports day had been well supervised, and the school had in place
measures to prevent children from playing on the swings. It was not possible to make a playing
field completely free of hazards but only to take reasonable precautions, and the school had done
that.
Therefore, the school is not liable for the child’s injuries on their premises.

Case Example: Holt v. Edge (2006)

Facts: The defendant was a doctor, and the claimant a patient whose illness he misdiagnosed. The
claimant had a bleed in her brain, but the defendant did not realise this because the symptoms she
described were not typical of the condition and it went on to cause her to have a stroke.

Held: Her claim failed because the symptoms she talked about were unusual for that condition,
and so the doctor did not fall below the expected standard in failing to diagnose it.

Remoteness of Damage
• Negligence must cause damage, and if there is no damage caused, there is no claim in
negligence no matter how careless the defendant’s conduct.
• There are cases where the claimant perceives that the defendant’s negligence has caused
damage, yet the law does not recognise the results of that negligence as damage.

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• In order to bring an action for negligence, there had to be a physical change in property, which
rendered the property less valuable

Case Example: Hunter v. Canary Wharf Ltd & London Docklands Development
Corporation (1997)
Facts: The case arose from the construction of a tower block at Canary Wharf in East London.
Action concerning the effects of the construction work was brought by local residents, and one of
the issues that arose from the case was whether excessive dust could be sufficient to constitute
damage to property for the purposes of negligence.

Held: The mere deposit of dust was not in itself sufficient because the dust was an inevitable
incident of urban life.

Causation
• For there to be any negligence, it must be proven that the defendant’s breach of duty actually
caused the damage suffered by the claimant and that the damage caused was not too ‘remote’
from the breach.
• Therefore a strong link between the breach and the eventual damage must be established before
a defendant can be said to have been negligent in his activities.

Case Example: Barnett v. Chelsea & Kensington Hospital Management Committee (1968)
Facts: A night-watchman arrived early in the morning at the defendant’s hospital, suffering from
nausea after having a cup of tea at work. The nurse on duty telephoned the casualty doctor, who
refused to examine the man, and simply advised that he should go home and consult his GP if he
still felt unwell in the morning. The man died five hours later of arsenic poisoning and it was
discovered that he had been murdered.
The hospital was sued for negligence, but the action failed.

Held: The court accepted that the defendants owed the deceased a duty of care and that they had
breached that duty by failing to examine him. However, the breach did not cause his death as there
was evidence that even if he had been examined, it was too late for any treatment to save him.

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Therefore, it could not be said that ‘but for’ the hospital’s negligence he would not have died.

Novus Actus Interveniens

• Where a new intervening event or act occurs, making the original damage worse, the chain of
causation is said to have broken and so the defendant will only be liable for such damage has
occurred up to the intervening event.
• However, where there is an intervening event but the original tort is still a cause of damage,
the defendant remains liable. A defendant cannot be liable for something new which had no
connection with the original tort.

Case Example: Thompson v. Blake-James (1998)

Facts: The defendant was a doctor, who was sued by the parents of a child on the basis that he had
been negligent in advising them not to have the child immunized against measles. The child
eventually caught measles and then developed brain damage. The defendant had given the advice
because the child’s medical history made her more likely than most to suffer damage as a result of
the immunisation. She was six months old at the time, and the decision not to immunise her was
not taken until a year later, after the parents had talked to other doctors.

Held: The advice given by other doctors was an intervening event which broke the chain of
causation because it showed that the parents were not relying on the defendant’s advice alone.
Therefore, the defendant-doctor is not liable for the initial breach of duty of care.

Case Example: Baker v. Willoughby (1969)

Facts: the Claimant injured his left leg in a road accident as a result of the defendant’s negligence.
After the accident, he was shot in the left leg by an armed robber and ended up having his leg
amputated. The robber was not caught and so could not be sued for the incident. The defendant
argued that his liability only extended to the point at which the armed robbery occurred when the
effects of his negligence were overtaken by the robber’s shooting.

Held: It would be inaccurate to suggest that the damage would not have occurred ‘but for’ the
breach of duty, for the claimant’s leg would have been damaged later anyway. The Courts took

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the approach that tort law compensates as much for the inability to lead a full life as for the specific
injury itself. This inability continues even where the original injury had been superseded by a later
one.

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