Discharge of Contract by Frustration in Malaysia

(ii). Article 15, paragraph 3, provides that if B has received a valuable service (other than the payment of a sum of money under Article 15(2) of A prior to the performance of the contract), A may, in the opinion of the court, claim the value of that service, taking into account all the circumstances of the case. This shows that a party cannot suspend its contractual obligations simply because the party`s obligation has become more onerous due to a change in circumstances. From an economic point of view, the epidemic has dampened global economic activity and shaken the position of companies of all sizes – large, medium or small – although the full impact has not yet been determined. Some may have contractual obligations that are hampered by the outbreak. Some may have difficulty fulfilling their treaty obligations. Certainly, many wonder if there is some kind of contractual protection from which they could seek refuge in this time of uncertainty. The short answer is yes. In addition to the emergency decree, the government also announced certain restrictions under the Second Movement Control Ordinance, which came into force on January 13, 2021 (“MCO 2.0”) in Selangor, Penang, Melaka, Johor, Sabah, Kuala Lumpur, Putrajaya and Labuan. There are also restrictions in other states related to the government`s efforts to contain the Covid-19 pandemic in those other states. In this article, we will discuss the impact of the emergency decree on commercial contracts in terms of whether its occurrence can be interpreted as a “force majeure” event and the applicability of the frustration theory to such acts. In Ramli Bin Zakaria & Ors v. Government of Malaysia [1982] 2 MLJ 257, the Federal Court has ruled that “a contract is thwarted when circumstances change that make the performance of a contract legally or physically impossible”.

In addition, in Pacific Forest Industries Sdn Bhd & Anor v. Lin Wen-Chih & Anor [2009] 6 CLJ 430, the Federal Court of Justice ruled that a contract is not considered frustrated simply because it is difficult to perform. Even if a contract is not impossible to perform, it could be frustrated and declared null and void if the contract has fundamentally changed and this has not been taken into account by the parties at the time of the conclusion of the contract. 3. A contract will not be thwarted if the frustrating event was only short-lived. In Yew Siew Hoo v Nikmat Naju Development Sdn Bhd3, the parties reached an agreement on the construction of a central waste treatment plant to treat wastewater from a pig farm. Unfortunately, after the implementation of the agreement, there was an outbreak of Japanese encephalitis. This led the Negeri Sembilan state government to ban the breeding and sale of pigs in the affected area. It was found that this was a frustrating event to free both sides of the deal.

As is apparent from the abovementioned cases, the question whether the Court considers that a contract is counter-infringed depends on the way in which the terms of the contract are interpreted and the circumstances of the individual case. The party seeking compensation must prove that it is unable to fulfill its contractual obligations due to the Covid-19 pandemic and/or the AGC and that such an event makes the performance of the contract legally or physically impossible. the contract does not contain a clause to deal with the unforeseen event A lasting grace for the parties whose contractual obligations have been affected by MCO 2.0 is that Article 7 of the COVID Law provides that the inability of one or more parties to perform contractual obligations arising from a contract that falls within the scope of the COVID Law list, due to the Prevention and Control of Infectious Diseases Act 1988 (e.g. The imposition of OCM 2.0) to control or prevent the spread of COVID-19 will not result in the other party or parties exercising their rights under this Agreement. The categories of contracts specified under the COVID Act are as follows: In summary, whether a contract would be “impossible” to perform would depend very much on the circumstances and the evidence that a party who wants to rely on it can provide to support their claim that a contract can no longer be performed. For parties in the process of establishing contractual relationships, it is essential to identify from the outset and consider whether circumstances such as the Emergency Decree and/or AGC 2.0 are relevant to the parties` ability to fulfill their contractual obligations, the extent of the circumstances to be addressed in the force majeure clause itself, the termination obligations (if any) and the consequences of the contract if the force majeure clause is invoked. If the parties to a contract do not know if force majeure, frustration or COVID law is relevant to their inability to fulfill their contractual obligations due to recent developments, legal advice should be sought about them. Like the requirements for invoking a force majeure clause, the requirements for a party to invoke the frustration of a contract include, as noted in Guan Aik Moh (KL) Sdn Bhd & Anor v. Selangor Properties Bhd [2007] 4 MLJ 201: The Court of Appeal Guan Aik Moh (KL) Sdn Bhd v.

Selangor Properties Bhd1 has set out three essential elements, which must be fulfilled to cause frustration: can a contract be thwarted because of Covid-19 or the AGC? In cases where force majeure is not expressly provided for in the contract or where circumstances are insufficient to invoke the provision of force majeure, the doctrine of frustration provided for in section 57 of the Contracts Act 1950 may apply provided that certain conditions are met. “A contract relating to an act which becomes impossible after the conclusion of the contract or which is unlawful because of an event which the promisor could not prevent shall become null and void if the act becomes impossible or illegal.” It follows from the case-law that the question of whether a contract would be “impossible” to perform would depend very much on the circumstances and the evidence that a party wishing to rely on it can provide to support its assertion that a contract can no longer be performed. In the case of restrictions imposed under the Emergency Order and MCO 2.0, a party wishing to invoke these circumstances may argue that these circumstances were beyond the control of the parties and may not have been taken into account by the parties when entering into a contract, i.e. a “frustrating” event. In Malaysia, there was one case where a section 57 contract was considered frustrated, particularly due to an outbreak of Japanese encephalitis6 (“JE”). In the case of Yew Siew Hoo & Ors v. Nikmat Maju Development Sdn Bhd and another appeal [2014] 4 MLJ 413 (Court of Appeal), there was an outbreak of JE and Bukit Pelandok was one of the most affected areas. On 20 March 1999, the State Government classified the State of Negeri Sembilan as an area infected with JE and banned the breeding and sale of pigs in the affected areas. The High Court held that due to the Outbreak of Japanese Encephalitis, the interception agreement between the parties and the service agreements were void due to the frustration of the contract. It should be noted that, in the present case, the parties did not appeal the High Court`s decision in the same case. If the government takes possession of a building that is currently leased to a tenant who is a glove supplier, the landlord in this situation could potentially violate the lease and the tenant, who is the glove supplier, could violate its contracts for the delivery of goods to non-governmental entities[…].

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