FRUSTRATION-

IMPOSSIBILITY OF
PERFORMANCE –
 What is frustration?
O The doctrine of frustration operates in
situations where it is established that due
to subsequent change in circumstances, the
contract is rendered legally or physically
impossible to perform by an event not due
to the act or default of either party.
O The parties to the contract are discharged
from further performance of the contract.
(no breach)
O S. 57(2) CA
O The courts in Malaysia have recognized that
under S.57(2), a contract can be frustrated and
discharged without breach or default of either
parties.
O Case : HA Berney v Tronoh
Mines[1949]MLJ 4
HA Berney v Tronoh Mines[1949]MLJ
4
O The court held that the invasion of
Malaya by the Japanese
frustrated the performance of the
contract and therefore there was
no breach of contract by the
Defendants.
O For frustration to apply, it is necessary to
prove that the parties have made no provision
for such events in their contract.
O where the parties have themselves provided
for the situation that has arisen, the provisions
that they have made for the situation in the
contract applies, hence no frustration.
 Guan Aik Moh (KL) Sdn Bhd v
Selangor Properties Ltd [2007] 4 MLJ
201
O Gopal Sri Ram JCA - there are three elements
woven into the fabric of the doctrine of frustration:
O First, the event upon which the promisor relies as
having frustrated the contract must have been one
for which no provision has been made in the
contract. If provision has been made then the
parties must be taken to have allocated the risk
between them.
Guan Aik Moh (KL) Sdn Bhd v Selangor
Properties Ltd [2007] 4 MLJ 201
O Second, the event relied upon by the promisor
must be one for which he or she is not
responsible. Put shortly, self-induced
frustration is ineffective.
O Third, the event which is said to discharge the
promise must be such that renders it radically
different from that which was undertaken by
the contract.
(1) Act becomes impossible to
perform
O Illust (b), (d), & (e) to S. 57

O Impossible = difficult?
O What if the act becomes difficult to perform?
 Pacific Forest Industries Sdn Bhd v Lin
Wen-Chih [2009] 6 MLJ 293
O If the act becomes difficult to perform—no frustration.
O “...if a party has no money to pay his debt, it cannot be considered
impossible to perform as it is not frustration. Neither can he plead
frustration because the terms of the contract make it difficult to
interpret...”
O The appellants ('defendants') referred two questions to the Federal Court
for determination.
1. whether it was open to an appellate court to find that a contract had been
frustrated, notwithstanding the fact that frustration had not been pleaded
earlier
2. whether the doctrine of frustration recognised the failure of the parties to a
concluded contract… when the contract is in a manner 'consistent with the
prevailing market price'.
(2) Event happens after formation
of contract
O Illust. (d) S.57
O Event was subsequent to the formation of the
contract.
O Not necessary that the event is unforeseen or
unexpected or not contemplated by the parties;
as long as they have made no provision in
their contract for such future event.
(3) No frustration where promisor had
prior knowledge of impossibility
OIllust c
OS.57(3)
(4) Provisions in the contract
intended to have effect
O Where the parties have provided for the
situation that has arisen, then the
provisions in the contract applies — No
frustration.

O Case : Chan Buck Kia v Naga Shipping

& Trading Co Ltd [1963] MLJ 159
Chan Buck Kia v Naga Shipping &
Trading Co Ltd [1963] MLJ 159

O A time charter party contained a

provision that ‘if for any reason
whatsoever the vessel shall be detained
at any port by any authority having
dominion over the port, the charterer
shall continue to pay the charter hire.’
Chan Buck Kia v Naga Shipping &
Trading Co Ltd [1963] MLJ 159
O The Indonesian Govt detained the ship
when it sailed into an Indonesian port until
the end of charter period.
O Plaintiff (the ship owner), claimed from the
defendant (hirers) the hire charges.
O Defendant pleaded frustration.
 Held:
O The provision was intended to have effect in the
circumstances that had arisen in this case; full
effect should be given to it.
O The defendant must pay the hire charges for the
whole period of the time charter party.

O Please also read : Sentul Raya Sdn Bhd v

Hariram a/l Jayaram [2008] 4 MLJ 852
 INSTANCES OF FRUSTRATION
1. Outbreak of war
2. Destruction of the subject matter
3. Non-occurrence of a particular event
4. Death or Incapacity for Personal Service
5. Statutory Prohibition
6. Inability of promisor to obtain licence
7. Grant of Injunction
8. Seizure or compulsory acquisition by the
government
 INSTANCES OF FRUSTRATION

O (1) Outbreak of war

O Refer to the case of HA Berney v Tronoh

Mines[1949]MLJ 4
(2) Destruction of the subject
matter
-specific object essential for performance of
the contract

OThe destruction of the specific object essential

for performance of the contract will frustrate it.

OCase : Taylor v Caldwell (1863)

 Taylor v Caldwell (1863)
O Def agreed to let to the pl the use of his music
hall & garden for the purpose of entertainment.
O Before the day of the performance arrived, a fire
destroyed the music hall.
O The def, through no fault of his own, was unable
to perform the contract (letting the hall to pl)
 Held :
O The contract was frustrated.
O Parties had contracted on the basis of the
continued existence of the music hall at the
time when the concerts were to be given, that
being essential to their performance.
O The music hall having ceased to exist without
the fault of either party, both parties are
excused.
 Appleby v Myers (1867) LR 2 CP 651

O P undertook to erect machinery upon the D’s premises,

the work to be paid for upon completion.
O When the work was almost completed both the premises
and the machinery already erected were destroyed by
fire.
O Held:
O the contract was frustrated; however, the plaintiff
could recover nothing for the work done since the
obligation to pay didn’t arise until completion.
 (3) Non-occurrence of a
particular event
O The non-occurence of a specified event may
frustrate the contract. Compare the leading
cases*:
O Krell v Henry [1903] 2 KB 740
O Herne Bay Steamboat Co v Hutton [1903] 2
KB 683

O *both cases arose from the delayed coronation of Edward VII

 Krell v Henry [1903] 2 KB 740
O Henry hired a room from Krell for two days in
order to view the coronation procession of
Edward VII, but the contract itself made no
reference to that intended use.
O The King’s illness caused a postponement of the
procession.
O Def refused to pay for the room.
 Held:
O The contract was frustrated. Henry was excused from
paying the rent for the room. The holding of the
procession on the dates planned was regarded as the
foundation of the contract.

O For the contract to be frustrated in this way, all

commercial purpose must have been destroyed.
If there is some purpose to be found in the
contract then it will continue.
 (4) Death or incapacity for
personal service
O applies to contracts for personal services, e.g. contracts
of employment.
O Illust (e) to S.57
O Case : Sathiaval a/l Maruthamuthu v Shell
Malaysia Trading Sdn Bhd [1998] 1 CLJ Supp
65
O Employee’s inability to continue with his employment
with the employer due to 2 year detention of the
employee by the police under the Emergency Ordinance
rendered the employment contract frustrated.
 (5) Statutory prohibition
O Where a performance of the contract is prohibited by a
statutory order

O Case : Metropolitan Water Board v Dick Kerr [1918] AC 119.

O Respondent in 1914 agreed to construct for

appellants a reservoir within 6 years. In Feb 1916,
Minister of Munitions ordered the respondent to
cease work and to disperse and sell the plant.
 (6) Inability of promisor to
obtain licence
O Where the nature of the contract
necessitated getting a licence for its
performance

O Case : Yong Ung Kai v Enting [1965] 2

MLJ 98
 Yong Ung Kai v Enting
O Def entered into an agreement with the pl to sell to pl
the right to cut and take out certain timber.
O A licence from the forest dept was required.
O The agreement did not refer to the necessity of
obtaining a licence.
O Def did his best to get a licence but the dept refused
to grant one.
O Pl sued for breach of contract.

O Held : Refusal to grant a licence made the contract

legally impossible to perform.
 (7) Grant of an injunction
O Case : Standard Chartered Bank v Kuala Lumpur
Sdn Bhd [1991] 2 MLJ 251
O Case : Kuala Lumpur Landmark Sdn Bhd v
Standard Chartered Bank [1994] 2 MLJ 559
O The decision was reversed on appeal.
O Issue : whether the injunction restraining both pl &
def from acting on the redemption agreement had
rendered it impossible of performance within the t&c
of the agreement.
O Held: the injunction on the Monsia suit did not
frustrate the agreement.
 (8) Seizure or compulsory
acquisition by the government
O Case : Public Finance Bhd v Ehwan bin
Saring [1996] 1 MLJ 331

O Respondent purchased a motorcar via hire-

purchase agreement.
O 6 weeks after the execution of the agreement,
the Customs & Excise Dept seized & forfeited
the motorcar for an alleged offence.
Public Finance Bhd v Ehwan bin
Saring
O Held :

O seizure by the Dept made it impossible for the

appellants to assign & make over all its rights,
benefit & interest in the vehicle.
O Appellants have defective title, hire-purchase
agreement become void under S.57(2).
INSTANCES OF NO FRUSTRATION
O (1) Events causing carriage of goods by sea more
expensive

O Case : Tsakiroglou & Co Ltd v Noblee Thorl GMBH

[1962] AC 93

O The case concerned a sale of groundnuts, c.i.f.,* from

Port Sudan to Hamburg.
O The parties envisaged shipping through the Suez
Canal, but the canal was closed after the contract was
concluded.
O [*CIF contracts (cost insurance freight) are the most common form of
contract for sale of goods to be supplied by sea A CIF contract is a type
of contract wherein the price includes cost, insurance and freight
charges.]
O
 Held:
O the contract was not frustrated as the ship
could go round via the Cape of Good Hope
(there being no implied term that carriage was
to be via Suez).

O The greater cost of the freight, borne by the

c.i.f. seller, was not so great as to render this a
fundamentally different adventure.
 (2) Shortage of labour and
materials in building contracts
O Case : Davis Contractors Ltd v Fareham UDC
O App agreed to build 78 houses within 8 months for the resp for
a fixed sum of £94k.
O Owing to unexpected shortage of skilled labour and certain
materials, the contract took 22 months instead of 8 months to
complete and cost £115k.
O App contended that there was frustration of the contract and
claimed quantum meruit for the actual cost incurred.
O HOL : no frustration. The fact that the contract became more
onerous or expensive to the app did not discharge the
agreement.
 (3) Occurrence of bad weather
O Case : Kwan Sun Ming v Chak Chee Hing
[1965] 1 MLJ 236
O This was an action for damages for breach of
contract or alternatively damages for negligence
arising out of a contract to tow 303 logs from
Kampong Abai to Sandakan.
O The defence was that the 253 logs were lost in a
storm so violent as to amount to an "act of God"
and the defendant should be excused from all
liability for damages.
 Kwan Sun Ming v Chak Chee Hin
O The learned judge held that although there was a
storm it was not a storm violent enough to be
regarded as an "act of God" and gave judgment
against the defendant and awarded the plaintiff
damages based on the cost at which the logs were
purchased.

O Federal Court held that there was no

justification for interfering with the finding of the
learned trial judge on the question whether the
storm amounted to an "act of God" because his
finding was based on all the evidence given in
this case.
 Kwan Sun Ming v Chak Chee Hin
O “A feature of both those definitions is that the event must
be one which could not have been foreseen and which
could not have been guarded against. It is obvious that in a
towage contract of this nature a storm must be expected
and would have to be guarded against, especially in the
open sea. The appellant would therefore be bound as part
of his contract to take all precautions necessary against
storms that might reasonably be foreseen. For a storm at
sea to be regarded as an act of God it would have to be a
storm that could not have been reasonably foreseen in the
circumstances…”
 Case : Khoo Than Sui v Chan Chiau Hee
[1976] 1 MLJ 25
O The plaintiff and the defendant had entered into a
verbal contract whereby the defendant agreed to
tow the plaintiff's logs from Sungei Sugut to his
log pond at Sandakan.
O The defendant towed a total of 82 logs but only 11
logs were delivered.
O The plaintiff claimed damages for the loss.
O The defences of the defendant were (a) act of God
and (b) frustration.
O It was alleged that the logs were lost in a storm at
sea.
 Held:
O (1) the storm which was encountered was not
violent enough to be regarded as an act of God;

O (2) in a towing contract of this nature a storm

must be expected and would have to be guarded
against and therefore the defence of frustration
must fail.
 (4) Compulsory acquisition by
government of small part of land
O Case : Wong Siew Choong Sdn Bhd v Anvest Corporation Sdn
Bhd [1999] 3 MLJ 577
O Resp purchased a piece of land measuring 9377 sq metres
from the app.
O Before the completion of the sale, the govt acquired 1200 sq
metres of the said land under the Land Acquisition Act 1960.

O Held (FC) :
O the portion acquired was only a small portion of the said land.
The contract was not fundamentally altered by the compulsory
acquisition of a minor portion of the land. The contract was
not frustrated.
 (5) Difficulty in interpreting
the terms of the contract
O Case : Pacific Forest Industries Sdn Bhd v Lin Wen-
Chih [2009] 6 MLJ 293
O There was a dispute as to the price that was to be
fixed for the sale of the timber products.
O The price agreed was at ‘a price consistent with the
prevailing market price’

O Held (CoA ): because the parties could not agree as

to the ‘prevailing market price’ which was a
fundamental term, the agreement was frustrated.
Pacific Forest Industries Sdn Bhd v Lin
Wen-Chih
O Held (FC) :
O The agreement was not frustrated as there
was no impossibility of interpreting the
parties’ intentions. It may be difficult, but
not impossible or incapable.
 THE TEST FOR FRUSTRATION
O  ‘Radical change from obligation’ test
O The court will not hold the parties to further
performance of the contract if in the light of the
changed circumstances there would be a radical
change in their obligations under the contract.
O This test was adopted by the majority of the
House of Lords in:
O Case : Davis Contractors v Fareham UDC
[1956] AC 696.
 Davis Contractors v Fareham UDC
[1956] AC 696.
O A building, which was supposed to take 8 months
to complete, took 22 because of unexpected
labour shortages. The contractors claimed that
their contract was partially frustrated but the
court disagreed.
O The delay "was not any new state of things which
the parties could not reasonably be thought to
have foreseen."
 Davis Contractors v Fareham UDC
[1956] AC 696
O The court also stated that "frustration is not to be
lightly invoked as the dissolvent of a contract.... It
is not hardship or inconvenience or material loss
itself which calls the principle of frustration into
play. There must be as well such a change in the
significance of the obligation that the thing
undertaken would, if performed, be a different
thing from that contracted for."
 The test for frustration – cont’d
O The former Federal Court in the following case has
applied the radical change in the obligation test.
O Case : Ramli bin Zakaria v Government of Malaysia
[1982] 2 MLJ 257
O The appellants were a group of 86 vocational school
teachers who were successful in their application for
teacher training.
O One of the conditions of the offer which was accepted
was that the teachers would on completion of the course
be accepted as teachers on the UTS scale.
O By the time they completed their course of training the
UTS scale had been abolished and the Abdul Aziz
scheme came into force.
 Ramli bin Zakaria v Government of
Malaysia [1982] 2 MLJ 257
O The appellants were offered salaries under the Abdul
Aziz scheme.
O The appellants claimed that they should have been
paid salaries and allowances under the UTS scheme.
O The respondent pleaded that as the recruitment of
teachers into the UTS had been discontinued the
offer to employ them under the UTS had become
frustrated.
O The learned trial judge dismissed the claim of the
appellants and they appealed to the Federal Court.
 Held:
O (1) where after a contract has been entered into
there is a change of circumstances but the
changed circumstances do not render a
fundamental or radical change in the obligation
originally undertaken to make the contract
something radically different from that originally
undertaken, the contract does not become
impossible and it is not discharged by frustration;
 Held:
O (2) in this case it is wrong to say that the
contract was not capable of being performed and
it was not therefore frustrated. On the acceptance
of the Abdul Aziz recommendations the
Government put into force an improved salary
scale and this was applicable to the appellants.
Thus the UTS was abolished and ceased to apply
to the appellants. After that the appellants were
given a higher commencing salary and a more
favourable scale than that of UTS.
 SELF-INDUCED FRUSTRATION
O  when a person deliberately renders
performance impossible.
O Thus, in cases where the promisor himself is
responsible for the frustrating event, such self-
induced frustration does not discharge a party
from his contractual obligations.
O He will be liable for breach of contract if he
does not perform his obligation under the
contract.
 Case : Maritime National Fish v
Ocean Trawlers [1935] AC 524
O Maritime chartered from Ocean a vessel which could
only operate with an otter trawl*.
O Both parties realised that it was an offence to use
such a trawl without a government licence.
O Maritime was granted three such licences, but chose
to use them in respect of three other vessels, with the
result that Ocean's vessels could not be used.
*A large commercial fishing trawl which
uses kite like wooden boards at the corners
of the mouth of the net.
 Held:
O the charterparty had not been frustrated.
Consequently Maritime was liable to pay
the charter fee.
O Maritime freely elected not to licence
Ocean's vessel, consequently their inability
to use it was a direct result of their own
deliberate act.
 Case : Yee Seng Plantations Sdn Bhd v
Kerajaan Terengganu [2000] 3 MLJ 699
O The appellant was the sub-lessee of certain lands in
Kerteh Terengganu.
O In the years 1984 and 1986, the government of the
state of Terengganu acquired some of the land.
O The appellant took out an action challenging the
acquisition.
O The State Legal Adviser represented the defendant
(government).
O Following negotiations between the appellant's
solicitors and the State Legal Adviser, the action was
compromised and the agreement was recorded in the
form of a consent order.
 Yee Seng Plantations Sdn Bhd v
Kerajaan Terengganu
O However, difficulty arose when the state
authority, ie the State Executive Council ('the
Exco') decided to reject the appellant's application
for the alienation of the land referred to in the
consent order.
O The respondents/government commenced an
action seeking for a declaration that they were not
bound by the terms of the consent order. The
decision of the Exco was a supervening event
over which the respondents had no control. As
such the consent order was frustrated.
 Yee Seng Plantations Sdn Bhd v
Kerajaan Terengganu
O The High Court agreed with the
respondents' argument and granted the
relief sought by them. The appellant
appealed.
O The issues before the court were inter alia;
whether the consent order had become
frustrated;
 Held:
O It is well settled that the doctrine of frustration has
no room where there is fault on the part of the
party pleading it.
O In the present case, the refusal of the Exco to
alienate the land in question was a deliberate
act of non-compliance of the consent order by a
party to the first action.
O It was not a supervening event at all. In these
circumstances, it was not open to the respondents
to rely on the doctrine.
 Case for further reading :
O Dato Yap Peng v Public Bank Bhd [1997]
3 MLJ 484
O Lai Kok Kit @ Sulaiman bin Abdullah v
MBf Finance Bhd [2000] 3 MLJ 136
 CONSEQUENCES OF
FRUSTRATION

O The contract becomes void.

O S.57(2) : The contract is terminated as to
the future only. It is not void from the very
beginning.
O S.66 : Remedy of restitution
 CONSEQUENCES OF FRUSTRATION

O Case : Public Finance Bhd v Ehwan bin Saring

[1996] 1 MLJ 331

O Pursuant to s 57(2) of the Contracts Act 1950, the

agreement had become void, and the appellants
were obliged to return the RM57,000 to the
respondent under s 66 of the Contracts Act 1950.
 S. 15(2) & (3) Civil Law Act 1956 :
Remedy of restitution
O S. 15 (2) CLA – The right to recover money
paid
O Q: What happens to the sums paid before the
time of discharge? A : recoverable.
O Q: What if the party has incurred expenses in the
performance of the contract before the time of
discharge? A : he may retain the whole or any
part of the sum already paid, but not in excess of
the expenses incurred.
 S. 15(2) & (3) Civil Law Act 1956 :
Remedy of restitution
O Q: What happens to the sums payable before the
time of discharge/frustration?

O A: it ceases to be payable. The party may

however recover the incurred expenses ie the
whole or any part of the sum payable, but not in
excess of the expenses incurred.
 Case : National Land Finance Co-
operative Society Ltd v Sharidal Sdn
Bhd [1983] 2 MLJ 211
O The respondents had agreed to sell and the
appellants had agreed to buy certain immoveable
property.
O It was a condition of the agreement that the sale
should be subject to the approval of the Foreign
Investment Committee.
O In the event the Foreign Investment Committee
refused its approval but suggested that the
property be transferred to a joint venture company
of which at least 30% of its equity is held by
Bumiputras.
 National Land Finance Co-operative
Society Ltd v Sharidal Sdn Bhd

O The respondents contended that the

agreement became void when the Foreign
Investment Committee refused to approve
the sale, while the appellants maintained
that the agreement did not become void but
still subsisted because there was a
conditional approval.
 National Land Finance Co-operative
Society Ltd v Sharidal Sdn Bhd

O The learned trial judge held that the

agreement became void and he made a
number of consequential orders, inter alia,
that the appellants deposit to be refunded
under s.15(2) CLA.
O Federal Court affirmed the trial judge’s
decision.
 Case : Yong Ung Kai v Enting [1965]
2 MLJ 98
O The court applied s 1(2) of the Law Reform
(Frustrated Contracts) Act 1943 since the Act is a
statute of general application which was
applicable to Sarawak. The CLA was extended to
Sarawak on 1 April 1972.
O The court ordered the defendant to return to the
plaintiff the moneys advanced to him under the
terms of the agreement.
S. 15 (3) CLA – Compensation for partial
performance
O  to prevent injustice of the doctrine of entire contracts
& to prevent unjust enrichment of one party at the
expense of the other.
O this subsection is applicable where one party has
obtained valuable benefit other than payment of money
(to which s.15(2) would apply) before the time of
discharge- the other party may recover the value of the
said benefit as the court considers just, having regard to
all the circumstances of the case.
O Q: how to assess the value of the benefit?
O A: the value of the benefit after the frustrating event.
OQ: What is the position of
English Law on
frustration?
 Common law
O Until the nineteenth century the common law
adopted a doctrine of absolute obligation to
perform a contract. Thus, the parties were bound
to perform any obligation that they had
undertaken even though performance had
subsequently become impossible.

O Refer Paradine v Jane (1647) Aleyn 26, 82 ER

897
Paradine v Jane (1647) Aleyn 26,
82 ER 897
O During the English Civil War, the Royalist
forces took possession of land owned by the
plaintiff, Paradine, which was under lease to
the defendant, Jane.
O Paradine sued Jane for three years back rent,
and Jane defended himself by asserting that he
was not in possession of the land for the time
in question.
 Held:
O Jane was still liable for the rent as the parties had
committed themselves to the lease, and if they
had wanted to provide for the avoidance of
liability in certain situations, they could have
done so in the terms of the contract itself.
O Furthermore, the court reasoned, if the lessee was
to have the advantage of profiting from the use of
the land, he should bear the losses which may
occur from the use of the land as well.
 Common law
O This unsatisfactory state of the law led to the
English courts gradually employing an implied
term device/test/theory declaring such contracts
void.
O Case : Taylor v Caldwell (1863) 3 B&S 826
O Blackburn J has formulated the basic principle of
frustration to alleviate the harshness of the
absolute obligation doctrine.
 Chandler v Webster [1904] 1 KB 493

O D agreed to let a room to the P to view the

coronation process.
O The rent was £141 15s payable immediately.
O P paid £100.
O He still owed the balance of £41 15s.
O Later the contract was discharged by frustration
when the procession was abandoned.
O P sued to recover the £100 paid by him as on total
failure of consideration, and D counterclaimed for
the sum of £41 15s.
 Chandler v Webster
O Held :
O P not only has no right to recover the £100 paid,
but must pay £41 15s as it was a contractual
obligation due before the moment of frustration.
O  This rule was unsatisfactory and harsh. A
party has to pay the full price of the contract even
though he has not received anything under the
contract.
 Common law
O After 1943

O HOL in Fibrosa Spolka Akcyjna v Fairbairn

Lawson Combe Barbour Ltd [1943] AC 32
obviated the harshness of the rule in Chandler v
Webster when it ruled that payments made before
the frustrating event may be recovered where
there has been a total failure of consideration.
 Common law
O Decision in Fibrosa however did not remove
every hardship as;
O there can be no recovery of advance payment
where there was partial consideration.
O payee may be called to repay the money on the
ground of total failure of consideration, whereas
he may have incurred expenses in partial
performance of the contract.
O The English legislature responded with the
enactment of the Law Reform (Frustrated
Contracts) Act 1943.