PART A

QUESTION 1

The contract between parties may be to do something which the statute

forbids, or the contract may be one which the statute expressly or impliedly
prohibits

Discuss the above statement in the light of Sababumi (Sandakan) Sdn Bhd v
Datuk Yap Pak Leong [1998] 3 MLJ 151. Support your answer with other
relevant legal authorities.

In the case of Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong, the
court of appeal held that the prohibition of the ‘Pool Betting Act was not express and
the agreement between the club and the defendant, if allowed, wound defeat the
purpose of the Act as a whole on the ground of S.24(b) Contracts Act 1950.
However, on another appeal, the court found that the agreement is a contract to do a
forbidden act, which is altogether a different thing thus offending S. 24(a)

S.10 stated that consideration and object of the agreement must be lawful and not
expressly declared to be void. This is supported in S. 2(g) where an agreement not
enforceable by law is void.

Although Section 24(a) and Section 24(b) of the CA 1950 may appear similar,
it refers to two different situations. S24(a) is about agreements forbidden by law and
refers to express violations of the provisions. There is a direct infringement of law,
examples are unlawful possession of objects or acting in contrary to contrary
statutes.

This can be seen in the case of Haji Hamid Ariffin v Ahmad Mahmud where a
Malay guy sold his Malay Reservoir Land to a Siamese lady. She took possession of
the land and the tittle deed, which was still registered in the name of original vendor,
was given to her. Subsequently, she sold the land to the appellants who were Malay.
The original vendor and the Siamese lady dead and the appellants were appointed
as the administrators of the original vendor’s estate for specific performance. The
court held that the sale to the Siamese lady was void ab initio as Section 6(1) of the
Kedah Malay Reservation Enactment provides that where any Reservation land is
held under a document of title by a Malay, no right or interest therein shall vest,
whether by transfer or otherwise, in any person who is not a Malay. By Sec. 6(2),
any document or agreement purporting to vest in any person any right or interest
contrary to the above provisions shall be void. Thus, neither could be the Siamese
lady enforce the sale nor can she pass a good title to another even if the other is
Malay, as no one can give that which he has not.

On the other hand, section 24(a) has been discussed in the case of Yeep
Mooi v Chu Chin Chua & Ors where the appellant deposited a sum of $5000 with a
pawnbroker bearing interest at the rate of 14.4% per annum. Upon the death of the
pawnbroker, the appellant commenced proceedings for the recovery of the sum. The
Session Court held that the deposit was a void agreement under the Moneylenders
Ordinance 1951 as the appellant was held to be unlicensed moneylender who had
lent money to the pawnbroker despite her knowledge that she was not licensed to
act as a moneylender. The court then held that the appellant had not acted as a
moneylender, as her main profession was a seamstress and she had deposited the
sum with the pawnbroker as a means of saving. However, it was found that the
deceased pawnbroker was prohibited from accepting such deposits by the Borrowing
Companies Act 1969, rendering the transaction between him and the appellant void
and unenforceable. Thus, the appellant was entitled to restitution under Sec. 66.

Defined under S.24(b), there are no direct act of violation against any
provisions or statutes, but if the considerations of the agreement allowed to be
performed, it would give rise to violation of laws later on. In most cases, the object is
usually not unlawful, it is the act of carrying out the agreement itself would be
defeating the law.

This section can be applied in the case of Hee Cheng v Krishnan. The plaintiff
in this case claimed for specific performance or alternatively for damage for a breach
of contract entered between him and the defendant for the purchase of a house built
upon a piece of land in respect of which a Temporary Occupation Licence was
issued. The court held that the alleged contract was in fact an attempt to sell and to
purchase the defendant’s rights under the Temporary Occupation Licence, and
therefore void under Section 24 as, if it were allowed, it would frustrate the law.
Meanwhile, in the case of Maria Tunku Sabri v Datuk Wan Johani Wan Hussin, the
settlement entered into by the parties was a result of the defendant’s alleged breach
of promise to marry the plaintiff who was at that material time, a married Muslim
woman. There was an earlier agreement between the parties wherein the defendant
agreed to marry the plaintiff. The issue is whether the settlement agreement is
enforceable. The court held that the plaintiff, who was married had no capacity to
enter into the agreement to marry in the first place. The agreement to marry was
forbidden by law under Section 24(a) Contracts Act which provides that “no woman
shall, during the subsistence of her marriage to a man, be married to any other man.”
The expression expressly forbid the plaintiff from entering into such an agreement.
Therefore, if the settlement agreement were to be enforced, it would defeat the
objective of Section 14(1) Islamic Family Law Act, thus rendering it void under
Section 24(b) Contracts Act 1950.

This is however contradicted to the case of Nafsiah v Abdul Majid, where the
plaintiff took action against the defendant for breach of promise to marry. Both
parties professed the Muslim religion. The defendant argued that it is against public
policy to enforce the promise to marry, especially when the plaintiff knew that the
defendant was already married. The court held that the plaintiff knowledge that the
defendant was already married did not invalidate the promise as the defendant was,
under his own personal law, entitled to more than one wife.

Section 24(c) of the CA 1950 talk about consideration or object of the

agreement is a fraud. An agreement where its consideration or object is fraudulent in
nature, contravenes the law. For example, an agreement to divide a share of money
obtained by deceit is void. For example, in the relationship between principal
and agent, there is the fraud of hiding if A, the agent, agrees for money and
without the knowledge of his principal, to attain for B a lease of land belonging
to his principal. In the way of agency, the agent is unlawfully receiving a secret
profit.

In Amman Singh v Vasudevan (1973), the plaintiff give $10,000 to

defendant which in return the defendant will pay 20 cent on every product taken
from a certain forest land owned by defendant. Plaintiff and defendant had
an agreement to defraud a winding-up petition of defendant’s company. In return
for this, defendant was supposed to pay back the $10,000 that the plaintiff
had gave earlier on. Plaintiff di-opposed to the petition. Defendant gave
$5000 as a half-payment for the 10k. Plaintiff refuse to accept it and sued
defendant for breach. The court held that the contract between the
defendant and plaintiff is unlawful. The High Court held that the agreement
between the plaintiff and the defendant was an attempt to defraud the other creditors
for the winding up petition. The Court referred to Section 24 of CA 1950 and although
no reference was made to specific paragraphs, the agreement in this case would
have come within section 24(c) and (d)

Paragraph (d) CA 1950 applies to the person or property of another person.

Applying this principle, if two parties agreed to destroy a third party’s house for a
sum of money which will be paid by another person, this agreement is void in
accordance with Syed Ahamed bin Mohamed Alhabshee v. Puteh binti Sabtu (1922),
the defendant agreed to sell a property to the plaintiff in which an infant had an
interest. This transaction is detrimental to the child and therefore held void by the
court

Section 24(e) Contracts Act 1950 stated that the consideration or object of an
agreement is unlawful unless the court regards it as immoral and opposed to public
policy. This can be seen in the case of Pearce v Brooks where the defendant was a
prostitute who hired a carriage from the plaintiff, who was a coachbuilder, on hire
purchase terms to be paid for in instalments. She wanted the carriage to attract
customers. The defendant did not pay the second instalment on the carriage and
returned it in a damaged condition, in breach of the agreement. At first instance the
jury found on the evidence that the coachbuilder knew that she was a prostitute at
the time the contract was made. The coachbuilder sued for non-payment and for the
damage. It was argued that, as the coachbuilder knew the defendant was a
prostitute, he expected to be paid out of the profits of prostitution. He, therefore,
knew of the immoral purpose to which the carriage was to be put and should not be
allowed to recover on the contract. 

The court held that it was immaterial that the immoral purpose was not part of
the contract or whether the claimant was to be paid out of the proceeds. It was found
that hire of vehicle for the purpose of prostitution was held to be an immoral act. It
was part of the principle ex turpi causa non oritur actio that anyone who supplies
something for the performance an illegal act with knowledge that it was to be used
for that purpose cannot sue for the price of it. An immoral purpose was the same
thing as an illegal purpose. Therefore, the plaintiff could not recover.

Under Section 66 of Contracts Act 1950 stated that in two situations which are
void agreements and contracts become void, any person who receive the advantage
under the agreement is bound to restore it or make compensation to the person
when he received the advantage from. However, there are few requirements to be
fulfil which are person seeking relief must not be a party to illegality, the court will not
lend its aid to a man who found his cause of action upon an immoral or illegal act,
those who come to court must come with a clean hand and the parties seeking relief
under Section 66 must not be aware of the illegality at the time the contract was
entered into and the illegality was discovered subsequently.

This can be found in the case of Ng Siew San v Menaka where the
respondent had lent money to the appellant on the security of change of certain
lands belong to the appellant. The respondent made an application for the sale of
land for the principal and interest. The appellant then objected on the ground that the
ban was not registered under the moneylender and it contravened an ordinance. The
court agreed that the agreement was void as it is forbidden according to the
ordinance. However, since the respondent was not aware of the illegality during the
execution of the agreement, Section 66 of Contracts Act 1950 was applicable.
QUESTION 2

The rigors of the common law rule as shown in the older reported cases such
as Appleby v Myers (1867) LR 2 CP 651 and Whitaker v Dunn (1887) 3 TLR 602
which require complete performance by a promisor as a condition precedent
to his right of recovery under an entire contract has been modified by later
decisions.

With reference to the relevant legal authorities, discuss the principle of Entire
Performance Rule and how its harshness has been mitigated.

In the case of Appleby v Myers (1867) the plaintiffs had a contract with the
defendant to erect machinery on his premises at a specific price for particular
portions and to keep the premises in good repair for two years. The price for the
work was to be paid at the end of the two years. After some portions of the work had
been finished and others were in the course of completion, the premises with all the
machinery and materials inside were destroyed by an accidental fire. The plaintiffs
sued the defendant for the recovery of the sum for the completed work. The court
held that plaintiffs were not entitled to sue in respect of those portions of the work
which had been completed, whether or not the materials used had become the
property of the defendant or not.

Section 38(1) stated parties to a contract must or offer to perform their

promises unless such performance has been dispensed with by any law. Entire
Performance Rule illustrate that performance must be exact and precise according to
what has been promised.

This can be seen in the case of Cutter v Powell where Mr. Cutter, a sailor,
was hired for a voyage and given a promissory note from his employment that ten
days after the ship arrives at Liverpool, he will pay Mr. Cutter a certain sum,
“provided he proceeds, continues and does his duty as second mate in said ship
from hence to the port of Liverpool.” Mr. Cutter began sailing the ship as second
mate for about six weeks, but died before its arrival in Liverpool. Mr. Cutter’s wife
brought an action for a proportionate part of his due wages for the substantial
amount of the voyage on which he acted as second mate. On the facts, the contract
between the parties expressly provided that the payment was conditional upon the
completion of the voyage and only payable after the ship’s arrival. Thus, the court
held that the sailor was entitled to receive the payment if the whole duty of the
contract was performed, and not entitled to any payment if the contract was only
partially performed.

However, there are few exceptions under Entire Performance Rule in order to
mitigate its harshness and ease the rigidity of exact and complete performance
before a payment, distinction has been made between entire and divisible contract.

Firstly, entire or lump sum contract where complete performance is pre-

requisite. A contract which can only be fulfilled as a whole, so that failure in any part
is failure in the whole. Right of payment does not arise until contract has been
completely performed. Whether a contract is an entire or divisible contract, it
depends on intention of the parties. This can be found in the case of Tong Aik (Far
East) v Eastern Minerals & Trading the plaintiffs claimed the balance due to them
from the defendants as their agreed remuneration under a contract for work and
labour carried out and materials supplied at the defendants’s manganese mine. The
defendants denied liability on the ground that this as an entire contract and that
the plaintiffs were in breach of the contract as they did not supply the defendants,
with the manganese ore as stipulated in the contract. The defendants claimed to set
of various sums said be due to them and counter claimed for loss of profits and
penalties incurred by them as a result of plaintiff’s breach. The high court of
Singapore construed the contract and held that it as a divisible contract as the
parties did not intend the contract to be fulfilled as a whole.

Next, divisible contract is a contract of which the performance can be

separated, so that failure in one part affects the parties right as to that part only. The
contract resolves itself into a number of considerations for a number of acts, such as
periodical payments for a number of service where payments are made
progressively. For divisible contract, right to payment arises as each part of the
contract is performed.

This exception is illustrated in the case of KP Kunchi Raman v Goh Bros Sdn
Bhd where the plaintiff, a contractor, agreed to pay water pipes complete with special
and valves. Under the agreement, the defendant undertook to supply the pipes at the
sites of the work and the plaintiff was to supply all labour and other equipment for
laying the pipes. The plaintiff also agreed to perform the work and the payment due.
The issue was whether the agreement was a divisible or an entire contract. The
court held that generally, such contract will not be entire, but could be entire if that is
the clear intention of the parties. It was a contract for specified works and the price
had to be ascertained and paid according to a schedule of rates. The agreement was
interpreted as a whole, and it was found that it expressed a clear intention that the
contract should be an entire contract.

Next, doctrine of substantial performance enables a party who has performed

substantially his obligations under the contract to make a claim for payment. A
substantial part of the contract must have been performed, and the part unperformed
must only be a small portion to the whole contract. Thus, a party has the right to
claim for payment of the stipulated price subject only to cross-claim or a counter-
claim by the other party for the omission and defects due to the failure to perform the
contract completely and perfectly.

This can be proven in the case of Building & Estates Ltd v Connor where the
plaintiffs claimed from the defendant the unpaid purchase money in respect of a
house which the plaintiffs had built for the defendant. The defendant began
occupying the house but refused to pay the balance of the purchase price as it was
not built according to specification and that much of the works were defective and of
inferior quality. The court held that the plaintiffs are entitled to claim from the
defendant the contract price if they can show that the work which they have done
constitutes substantial compliance with the contract. The defects and omissions
proven by the defendant were not such as to entitle the defendant to say that the
plaintiff had not substantially performed their promise under the contract.
 According to Whyatt CJ, a promisor who has substantially performed his side
of the contract may sue on the contract for a lump sum but, remains liable in
damages for his partial failure to fulfil his contractual obligations.

The fourth exceptions in order to mitigate its harshness is partial performance.

Partial performance is when a party to a contract does not perform his obligations
under the contract completely. If the innocent party does not accept the partial
performance, he may remedy the contract by issuing a notice to put the contract to
an end or engage in another person to complete the unfinished work. On the other
hand, if the innocent party accepts the partial performance, the party who had
rendered services or supplied goods may make a quantum meruit claim. Quantum
meruit “as much as he deserves” which also known as a claim for reasonable
remuneration for the performance of the services rendered under the contract. A
plaintiff only needs to show that the defendant has received some kind of benefit.

This exception can be found in Sumpter v Hedges where the plaintiff, who had
agreed to construct upon the defendant’s land, two houses and stables for £565, did
part of the work to the value of about £333 and then abandoned the contract. The
plaintiff left behind some materials which the defendant used and completed the
buildings. The court held that the plaintiff was entitled to the claim for the value of the
materials, but could not recover the value of the work done. The plaintiff was not
entitled to quantum meruit for the work done on the building as there was no option
to the defendant to take or not to take the benefit of a partially completed building.

According to Collins LJ, to claim for quantum meruit from the defendant
having taken the benefit of that work, the circumstances must be such as to give an
option to the defendant to take or not to take the benefit of the work done.

Partial performance also can be proven in the case of Haji Hasnan v Tan Ah
Kian. The appellant subcontracted with the respondent for the construction of roads.
The appellant inspected the work and found that it was not properly done. The
appellant terminated the contract before the work was complete without giving notice
to the respondent. He immediately entered into a fresh contract with another person
for the completion of the work. The respondent requested for an extension of time to
complete the work, and when it was not granted, brought an action for the work done
and materials supplied. The court held that the appellant was in breach of contract
and the respondent was entitled to recover on the basis of quantum meruit. There
was an implied contract on the part of the appellant to pay for the work and labour
done and materials supplied.

QUESTION 3

Ethan was previously the registered owner of a piece of land located in Johor.
He had, on 2 March 2009, executed a joint venture agreement (the JVA) with
Putra Construction for the latter to develop the said land into a housing
project. Under the JVA, Putra Construction was to deliver to Ethan 20% of the
total units to be built in the development. Following Ethan’s demise, the
ownership of the said land was transferred to his wife, Ingrid. Ingrid was
bound by the terms of the JVA.

Ingrid later claimed Putra Construction has breached Clause 7 of the JVA for
having failed to complete the construction and development of the houses as
set out in Clause 7. This failure entitled her to terminate the agreement. The
said Clause 7 reads as follows:

“The Developer shall commence construction on the said Land within 6

months from the date of the approval of the advertising permit by the relevant
authorities and shall complete the development of the allotted units hereafter
referred to in Clause 13 hereto within a period of five years from the date of
approval or rejection of partition of the said Land.”

Putra Construction, on the other hand, argued that, despite having secured the
requisite approval in 2012, they were prevented from commencing
construction of the said project because Ingrid had failed to evict the squatters
and demolish their family business factory buildings and workshops on the
said land. Putra Construction claims Ingrid is the one who breaches the JVA.
Ingrid denies that such obligations are stated anywhere in the JVA.

With reference to the relevant legal authorities, discuss the legal position of
Ingrid and Putra Construction.

The issue is whether there is implied term that Ingrid must evict the squatters
and demolish buildings on said land.

Implied terms is a terms which, though may have been discussed, are not
specifically included in the contract which “goes without saying.” The courts will have
to “read” or “imply” into the contract. There are 3 ways where contract can be implied
which are implied by law, implied by custom and implied by court. Implied by court is
where a term has not been expressly set out in the contract, the court may infer from
evidence that the parties must have intended to include it in the contract. However,
courts will not imply a term merely because it would be a reasonable term to include
if the parties had thought about the matter. Implied term by court can be determined
by three methods which are combined test, officious bystander test and business
efficacy test.

Combined test is a combination of both business efficacy and officious

bystander test. Business efficacy arise when it must be necessary to give business
efficiency to the contract. it can be shown that the term sought to be implied is
necessary to give business efficacy to the transactions to enable it to be efficient or
produce the effect that was intended. Meanwhile, officious bystander test The first
test is, as stated by MacKinnon LJ in Shirlaw v Southern Foundries, that such a term
to be implied by a court is ‘something so obvious that it goes without saying, so that
if, while the parties were making their bargain, an officious bystander were to
suggest some express provision for it in the agreement, they would testily suppress
his with a common “Oh, of course”.

Combined test can be found in the case of Sababumi (Sandakan) Sdn Bhd v
Datuk Yap Pak Leong where on 25 November 1983 , Sandakan Turf Club was
registered under the Societies Act 1966. The Club was granted a license to operate
3D and 4D lotteries. It was formed to carry out gaming activity. However, at that
time, gaming was prohibited by the Sabah Gaming Ordinance. 14 February 1984,
the club was excluded from the provisions of the Ordinance pursuant to s 27(a). On
26 November 1987, a written agreement was set between the club and the
appellant, which is Sababumi. Pool Betting Act 1967 was extended to Sabah on 21
September 1989. 14 April 1992, the Sabah authorities cancelled the licence issued
on 14 February 1984 and issued an amended licence. 15 April 1992, the Ordinance
(Sabah Gaming Ordinance) was repealed by the Modification of Laws (Common
Gaming Houses, Lotteries, Betting, Betting and Sweepstake Duties and Racing
(Totalisator Board) Order 1991. This law had extended to Sabah and Sarawak at
that time, therefore affected the business.

The Order however contained a proviso that the exemption and licence
granted earlier under the Ordinance remained in force.

On January 1995 Ministry of Finance issued a new license for Sababumi, and
Sababumi continue the betting activities. License issued under Pool Betting Act
1967, and the betting activities were still stopped by the police.

In this case, Peh Swee Chin FCJ held that the 1995 licence could in fact be
implied into the agreement, as the essence of the intention of both parties was for
the club to grant an exclusive right to the appellant to conduct betting or gaming
activities on a long-term basis. 

Zakaria Yatim FCJ agreed that both tests were necessary. They intended to
give joint venture agreement business efficacy for a period of 20 years. And if
officious bystander had asked about possible change of law, parties who benefit
would have answered ‘Oh, of course!’

However, the dissenting judge, Lamin PCA held that the 1995 licence could
not be implied into the agreement. There were material differences between the
conditions of the original licence and the 1995 licence which were beyond the
contemplation of the parties when they entered into the agreement.

Terms may be implied by court to allow unexpressed intention of the parties to

take effect depending on the term of the contract and surrounding circumstances.
There are 3 tests for implying terms which are business efficacy test, officious
bystander test and combined test.

Thus, at the time of negotiating for the said agreement or signing the said
agreement, in view of the circumstances pointed out, if the officious bystander had
asked the question whether such exclusive right to operate off-course and on-course
betting for 20 years would continue if the licences and the said exemption were
issued or granted by any other law. For example, by any other law other than
Gaming Ordinance of Sabah, both parties would have answered ‘Oh, of course’.

Secondly, implied term should be of a kind of business efficacy to the

transaction of contract of both parties, which simply means the desired result of the
business in question.

The essence of the intention for both parties in the said agreement is for the
turf club to grant an exclusive right to conduct off-course and on-course betting or
gaming for 20 years in consideration of payment to the turf club of 2% of all gross
takings from such betting activities, and in further consideration of the promise, at its
cost to buy or acquire 100 acres of land to build a racecourse, construct buildings for
the purpose and to manage and operate such gaming activities

The answer to the officious bystander would give business efficacy to the
business between both parties, the desired result of both parties under the said
agreement so the business could carry on that contemplated long-term basis at
virtually no cost to the turf club but at tremendous cost to the appellant.

In the same time, combined test has been proven in Arab-Malaysian

Merchant Bank Bhd & Ors v Court Square Pelita Sdn Bhd & Ors, in this case,
plaintiff agreed provide first defendant with a term loan and a bridging loan to assist
the first defendant to purchase lands and then to fully develop and construct a two-
phase project, consisting of a trade center and a complex. 2-5th defendants
guaranteed the loan. Later, on 30th April 1997, the trade center was practically
completed but the occupation certificate through no fault of first defendant, was not
issued resulting in a halt in the sale of the office lots in the trade center. This
resulted in the first defendant failed to repay the loan in accordance with the terms of
the loan agreement. Defendant appealed that following terms should be implied
into the loan agreement, the plaintiffs should extend the period of completion of the
project so that neither party would suffer loss when the project was stalled through
no fault of the defendants and the first defendant should be given reasonable time to
repay the loan when the buildings could not be sold through no fault of the
defendants.

The issue of the case is, whether such terms should be implied into the
agreement? The judgement is no such terms could be implied. Ian Chin J referred
the tests laid out in both tests. Regarding the first term, there are three questions,
which are plaintiff shall extend the period of completion of the said project so that
neither party would suffer loss when the project is stalled through no fault of the
defendants’. Secondly, the first defendant's obligation to repay outstanding sum was
to be suspended during that time and lastly the question of what qualifies as fault or
no fault on the part of the first defendant and that would potentially be very
contentious and might lead the plaintiffs to the litigation. The similarities of both of
the cases mentioned above with the case of Sababumi (Sandakan) case is that, it
uses combined test to reach the judgement of the case.

The same situation applied in the case of Reigate v Union Manufacturing

Company (Ramsbottom) Ltd and Elton Cop Dyeing Company Ltd as Scrutton LJ
said, it is stated that a term can only be implied if it is necessary in the business to
give efficacy to the contract, also, if at the time the contract was being negotiated,
someone said “What will happen in such a case?” and they would both reply “Of
course, so and so will happen, we did not trouble to say that, it is too clear!” In this
case, it has fulfilled both business efficacy and officious bystander test, hence, has
established the implied term.

Next, business efficacy test arise when if it can be shown that the term sought
to be implied is necessary to give business efficacy to the transactions to enable it to
be efficient or produce the effect that was intended.
 This can be shown in the case of The Moorcock. In this case, the defendant’s
wharfingers agreed to allow plaintff’s shipowner to discharge his vessel at the
defendant’s jetty and while the vessel was moored, the tide ebbed and the vessel
sustained damage. Court implied that the defendant should take reasonable care to
ascertain the safety of the vessel’s berth and to give such business efficacy to both
parties.

The issue is whether it implied that defendant should take reasonable care

and the judgement is yes. He is liable as he did not take reasonable care
to ascertain the safety of the vessel's berth which is simplied in the contract. Bowen
LJ stated that, such business efficacy must have been intended at all events by both
parties; not to impose on one side all the perils of the transaction, or to emancipate
one side from all the chances of failure, but to make each party promise in law as
much as both parties contemplated that he should be responsible for in respect of
those perils or chances.

The term sought to be implied is necessary to give business efficacy to the

transactions, when it enables the transaction to be efficient and it produces the effect
that was intended.

In the case of Metropolis Security Service Sdn Bhd v Ansell Industrial &
Specialty Gloves Sdn Bhd, in this case the appellant entered into the agreement with
the first respondent to provide services unarmed static guards as specified under
Schedule of Service of the agreement. The court held where term ‘static’ is used and
agreed by both parties it is understood to mean stationary, not active, not moving.

On the other hand, officious bystander goes while the parties are negotiating
and an officious bystander were to suggest an express provision for their agreement,
they would testily suppress him with a common, “Oh, of course.”

This test can be applied in the case of In this case, Southern Foundaries
appointed Shirlaw, who was then a director, to be the managing director for a fixed
term of 10years. Subsequently, the shares of Southern Foundaries were acquired by
another company, Federated Foundaries. The existing articles of association of
Southern Foundries were abrogated and new articles were adopted which, inter alia,
empowered Federated Foundaries to remove any director of the company by an
instrument subscribed by two directors and a secretary. Regarding the removal,
Shirlaw contended that it was implied that Southern Foundaries would not, by any
alteration of its articles, create a right to remove him from his position as director.
Court held that there is implied term where they agree that the defendant have no
right to be removed from becoming the managing director for 10 years.

The issue in this case is, Is there implied term which contended that Shirlaw
should not be removed and the judgement is yes, there is, thus Shirlaw should not
be removed.

Same test is applied in the case of Yong Ung Kai v Enting where defendant
entered into a written agreement with the plaintiff for the sale of timber on a certain
land. In order to cut down the timber, a licence was required from the Forest
Department. The written agreement did not refer to the necessity of obtaining
a licence. The defendant tried his best to get a licence but was unsuccessful. The
issue in this case is whether the obtaining of licence implied in the contract? The
court held that it is implied. The sale of the timber was to be subject to the necessary
licence. It must have been in the minds of the parties that the agreement required
the obtaining of a licence.
By applying into this question, the parties to the contract which are Putra
Construction and Ingrid has entered into a contract to develop the said land into a
housing project and in consideration, 20% of the total units to be built will be
acquired by Ingrid. When Putra Construction wanted to commence the work, they
claimed to have been prevented as Ingrid’s action of not evicting the squatters and
demolish their family business factory on the said land and had claimed to breach
the contract. Ingrid has denied the claim towards her as there is nowhere in the
contract stating her obligation to do so.

Putra Construction must satisfy both test which are business efficacy and
officious bystander in implying the said term. Firstly, the business efficacy test is
where the court said that this test will be satisfy if the term is necessary to be implied
if it gives the business efficacy to the contract. The desired result of the contract
between Ingrid and Putra Construction was to build a housing project in the said
land. The squatters and the family business factory buildings and workshop are said
to exist onto the said land and thus preventing the desired result of both parties to be
achieved. It is so obvious that it goes without saying and it does not necessary to
construe or to be put into the written contract. When there is an act or omission that
made the objective of the contract unable to achieve, court can imply
such term to be relied on.

Secondly, officious bystander test can be completed if any third party were to
ask, does the act done by Ingrid would prevent the desired result of the parties to be
unable to obtain the desired goals and the answer would be “Oh of course”. Then,
officious bystander test is satisfied.

In this question, it has fulfilled both business efficacy and officious bystander
test, hence, has established the implied term.
QUESTION 4

Wai Wai Sdn Bhd (Wai Wai) via a purchase order dated 6 June 2017, ordered
from Moon Dream Cake (MDC) 100,000 boxes of Mooncake Gift Set at a price
of RM18.00 per box. Each box is to contain four pieces of mooncakes with
each individual piece packed in a clear tray with laminated printed wrapper,
product stickers, an oxygen absorber and a plastic knife. The packaging
materials, including the wooden box, paper carrier bag, the wrapper, the knife
and the sticker for the box, must bear the exclusive design of Wai Wai. Three
dates of delivery and quantity to be delivered were agreed, which the last date
of delivery would be on 21 August 2017.

On 10 August 2017, a total of 60,000 boxes were delivered to Wai Wai and were
paid for. A day later, Wai Wai noticed that the sales of mooncakes is below
their expectation, so they asked MDC to stop production at 60,000 units.
However, via an email dated 18 August 2017, MDC informed Wai Wai that the
red bean paste for 20,000 boxes have been cooked. MDC thus requested Wai
Wai to allow them to deliver 20,000 boxes before they stop production. There
was no reply by Wai Wai.

When MDC delivered the 20,000 boxes of mooncakes, Wai Wai refused to take
delivery. MDC argued that Wai Wai had breached the purchase order when
they refused to take delivery of the 20,000 boxes of moon cakes and was liable
to pay MDC the cost of the raw materials as well as the packaging material
which had to be ordered earlier to met Wai Wai’s demand. Wai Wai denied they
had breached the purchase order on the basis that prior to the issuance of the
purchase order on 1 June 2017, MDC’s sales manager, Miss Tan had made an
oral representation to Wai Wai that she will be entitled to reduce the intended
purchase if she subsequently discovered that the market was not good and
MDC will stop production of the mooncakes, provided Wai Wai informed MDC
one week before the last week of delivery.

Advise Wai Wai.

 The issue is whether the oral representation made by Miss Tan to Wai Wai is
amount to collateral contract.

Parole Evidence Rule is a rule that prohibits the court from adducing
additional evidence either oral or written where the terms of the contracts have been
put in writing. This is to protect the main contract as well as prohibiting any external
and extrinsic evidence that may add, vary, contradicts the written document.

Chang Min Tat FJ in Tindok Besar Estate Sdn Bhd v Tinjar Co, stated that
one of the rational of this rule is to limit party to a litigation to say the agreement
which is the subject matter of the dispute, not containing all the terms and seek to
introduce terms.

According to this rule, the contract made between Chu Li Mo Ltd and Zhang
over the purchase of the paint considered to be a final contract and any
representation made outside the contract shall not be acknowledge.

The authority for this issue would be Section 91 of the Evidence Act
1950, where it state “When the term of contract had been reduced into writing, no
evidence shall be given in proof the terms of contract except those term in the
document itself”.

Hence, it provides protection to the original contents of the contract in a sense

that the best evidence about the contents of a document is the document itself.
Admission of oral evidence is not necessary as the document itself will speak
through its contents.

On the other hand, Section 92 Evidence Act 1950 provides that when the
terms have been proved as in section 91, any extrinsic evidences such as oral
agreement or statement will not be admitted for the purpose of contradicting, varying,
adding to or subtracting from the terms of a written agreement. Nevertheless, there
are exceptions provided under this section where it allows the ability of the court that
they may adduce external evidence if it falls within the proviso (a) until (f).

As seen in the exceptions in Section 92(a), “any fact may be proved which
would invalidate any document or which would entitle any person to any decree or
order relating thereto, such as fraud, intimidation, illegality, want of due execution,
want of capacity in any contracting party, the fact that it is wrongly dated, want or
failure of consideration, or mistake in fact or law.“

In Proviso (b), “the existence of any separate oral agreement, as to any

matter on which a document is silent and which is not inconsistent with its terms,
may be proved, and in considering whether or not this proviso applies, the court shall
have regard to the degree of formality of the document.”

In Proviso (c), “the existence of any separate oral agreement constituting a

condition precedent to the attaching of any obligation under any such contract, grant
or disposition of property, may be proved.”

This proviso was illustrated in the leading case of Tindok Besar Estate Sdn
Bhd v Tinjar Co. In this case, an agreement was made between the appellant and
respondent where the respondent undertook the work of extracting timber. There
was a dispute as to this agreement whereby the court held that the evidence sought
to be adduced did not come within proviso (a) or (b) of section 92 Evidence Act
1950, but was evidence adding a new term or terms to the agreement. Chang Min
Tat FJ, stated in summary that unless the additional evidence sought to be adduced
fell within any of the exceptions in section 92 Evidence Act 1950, it should not be
introduced as it would be to contradict, vary, add or subject to the terms of the
agreement.

However, a different approach can be seen in the case of Tan Chong & Sons
Motor Company (Sdn) Berhad v Alan Mcknight. In this case, Alan McKnight, the
appellant desired to purchase a car which comply to the Australian Design
Regulation (ADR) as he wished to take it back to Australia. On representation made
by Mr Bobby Sze, a salesman from the defendant’s company, where he orally
assured that the car comply to the ADR, Alan then bought a white Datsun 260C
Station Wagon. Upon receiving, the car was far-fetched from what Mr Sze had told
him. Due to this scenario, he faced major financial loss and also lost a fiscal
advantage of having to import a car into Australia duty- free. The respondent filed a
suit claiming for damages for breach of warranty.

The court had decided that, the oral representation falls under the exception
under section 92 of Evidence Act 1950, namely proviso (b) and (c) including
illustration (d) and can be regarded as a term to the contract in this case. Therefore,
collateral contract exists and damages can be claimed by the aggrieved party.

Collateral contract is a device that has been used to overcome parol evidence
rule to admit pre-contractual statement which had not been incorporated into written
agreement as defined by Chitty on Contracts (25th Edition). Collateral contract is
relevant in instances such as when an oral statement is made and induces the party
to enter into a contract.

As per said by Raja Azlan Shah CJ in Tan Swee Hoe Co Ltd v Ali Hussain
Bros, oral promises have an overriding effect toward the actual agreement as it
induces the other party to enter into a written contract. Thus, having said so, if there
is injustice to the written contract, the oral agreement would prevail. The burden of
proving the collateral contract is on the party alleging its existence.

In Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Berhad &
Anor, it was held that in order to establish the existence of collateral contract, there
are three tests that needs to be fulfilled. Firstly, there must be a representation
intended by the defendant to be relied upon. The representation induced the signing
of the contract. And lastly, the representation itself must amount to a warranty,
collateral to the contract and exist side by side.

Before establishing the existence of collateral contract, the pre-contractual

statement must first be determined as whether it is a term of a representation. In
determining, there are 4 guidelines, namely, time factor, existence of written
agreement, importance of the statement and the expertise of the statement maker.

Firstly, is to look at when the contract was made, or its time factor. The
relevant factor in this test is the length of time that has passed from the moment the
statement was made until the time the contract was formed. The longer the duration,
the more like the statement is a representation.

In Routledge v McKay, a contract on the sale & purchase of a motor, was

done after a week of negotiating due to the fact that the defendant was not able to
specify the model of the motor, hence lying to the plaintiff and induces him into the
contract, however, the court deemed that the statement was a representation as it
was made/. after a week.
 In contrary to Bannerman v White, where the contract was made almost
immediately after the negotiations.

Secondly, is the importance of the statement. The greater the importance the
party places on the statement, the more likely the statement is to be a term.

In the case of Bannerman v White, where the buyer wishes to buy hops and
asked the seller made whether sulphur was used in the process of growing the hops.
He said if sulphur was used, he would not even bother to ask about the price. The
seller lied that sulphur was not used and managed to induce the buyer to enter into a
contract. The court held that the statement made by the seller was a term as the
buyer places a great importance on that statement, hence seller may be liable for
breach of contract.

Thirdly is the existence of written contract. If there is a written contract, the

statement in question is not included in the contract, then there is a higher likelihood
that the statement was a representation. In the case of Routledge v McKay, the
statement was not reduced into writing, hence it can be said that it was a mere
representation. However, this guideline is not decisive and can be rebutted.

Lastly is the knowledge and expertise of the statement maker. If the person
making the statement possess skill, special knowledge or is in a better position to
ascertain the accuracy of the statement than the person receiving the information,
the courts would more likely to regard the statement as a term.

In Dick Bentley Production Ltd v Harold Smith, the statement made by a

second hand dealer car was considered to be reliable, as he is in a position that
knows the history of the car. In contrary to the case of Oscar Chess Ltd & Williams,
where the statement by a private seller was not regarded as a term as he has no
knowledge about the car and just relied on the registration book.

In applying to the question, the oral representations made by Miss Tan can be
admissible and enforce as collateral contract because it satisfy all the conditions in
the case of Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Berhad
and Anor. First, the representation intended by the defendant to be relied upon as
Wai Wai relied on it to enter into the agreement of purchasing the mooncakes and
the time interval to conclude the contract is short which only 1 week. This proves that
the first condition is fulfilled as in the case of Bannerman v White mentioned above.
Next, the representations made by Miss Tan induced Wai Wai in signing the contract
which via a purchase order, so second condition is fulfilled. Lastly, the representation
itself amount to warranty and the collateral contract exist side by side with the main
contract. It does not destroy the main contract. Miss Tan stated that if Wai Wai
subsequently discovered the market was not good, Wai Wai must informed MDC
one week before the last delivery, then MDC will stop the production of mooncakes,
so the collateral contract exist side by side with the purchase order (main
agreement). Thus, the last condition is fulfilled. This follow the case of Tan Swee
Hoe Co Ltd v Ali Hussain Brothers and Tan Chong & Sons Motor Co Sdn Bhd v Alan
McKnight. A breach of collateral contract may give right to an action for damages but
cannot repudiate the contract.

In conclusion, since all the conditions of collateral contract have been fulfilled,
the oral representations made by Miss Tan may be enforceable as collateral
contract.

PART B

QUESTION 1 (A)

K Beauty is an established local company selling beauty product called Youth

B Serum. Recently, K Beauty decided to accelerate their marketing strategy
since the current market is flooded with new beauty products of other brands.
The director of K Beauty, Rani, decided to appoint a celebrated local artist as
the new face of Youth B Serum. She decided to approach Fuyao and after
several meetings between the representative of K Beauty and Fuyao, Fuyao
agreed to become Youth B Serum’s model and brand ambassador. A contract
was executed between K Beauty and Fuyao. Amongst the terms of the contract
were:

Clause 10: Fuyao will receive a payment of RM250,000 for the first year and
RM300,000 for the second year. She was also required to attend all
promotional events organized by K Beauty and not engage in other
promotional activities which may interfere with her status as the model and the
brand ambassador of Youth B Serum.

Clause 11: Neither party shall be deemed to be in breach of this contract by

reason of any circumstances of Act of God or personal incapacity which affect
due performance of the contract.

Clause 12: Neither party will be liable to the other for any indirect, incidental,
special or consequential claim of any kind whatsoever and however caused,
arising under tort including loss of income, loss of profits, loss of contracts
and loss of business.

Immediately after signing the contract, K Beauty began their fresh and new
marketing strategies by engaging a professional photographer and a
marketing consultant to promote Youth B Serum with Fuyao as their model
and brand ambassador. K Beauty spent a sum of RM150,000 for the marketing
strategies and had targeted 30% increase of profit in their annual income.
Fuyao herself had rejected two offers from film producers as part of her
commitment as the model and brand ambassador for the period of two year.

After eight months, K beauty decided to terminate the contract with Fuyao
when Fuyao become infamous, owing to a scandalous affair with a film
director. K Beauty agreed to pay RM100,000 to Fuyao as payment for all works
done.

With reference to relevant legal authorities, answer the following questions.

a) Advise Fuyao on the likelihood of success in claiming damages from K

Beauty from the loss of income she suffered when she rejected the two
offers from film producers.

The issue is whether the exclusion clause relied by K Beauty can be made
effective.
 Exclusion clause is a term which one party induces into the contract to exclude
himself from liability. In applying common law principle, two steps have been taken
by Malaysian Courts, namely incorporation and interpretation of exclusion clause.
The first step had been taken into the court is incorporation of exclusion clause.
There are three ways which an exclusion clause can be incorporated. These ways
include by notice, course of dealing and through the signing of a written agreement.

Firstly, by notice. Notice can be found in signboards, billboards or receipts. To be

effective, the notice must be sufficiently brought to the knowledge of other party. The
burden is upon the party seeking to rely on the exemption clause to establish that
reasonable and sufficient notice had been given. There are few conditions need to
be fulfilled, such as a notice of the exemption clause must be given before or at the
time the contract is entered into.

This can be found in the case of Olley v Marlborough Court Ltd: The plaintiffs
paid for lodging at the defendant’s hotel. In the hotel room, there was a notice stating
that the hotel would not be liable for the theft or loss of any items in the room. The
wife’s fur coat was stolen from the room when they went out for a stroll. The
defendant argued that the notice in the room had been incorporated into the
contract. The court held that the contract was entered into before the plaintiffs
entered the hotel room, and as a notice of the exemption clause was only given after
the contract was entered into, it was not incorporated into the contract.

In the same time, this condition can be found in the case of Thorton v Shoelane
Parking where the plaintiff parked his car on defendant’s carpark. Outside the
carpark, there was a notice stating charges and parked at owner’s risk. The plaintiff
drove in and took the ticket from the machine. There was a writing at the ticket but
he did not read it. To find the conditions, the plaintiff shall walk round the par but he
did not so the conditions exempted the defendant from liability for damage. It was
held that the defendant cannot rely on the exclusion clause as it was incorporated
into the contract.

Second element is the exemption clause must have been brought to the attention
of the party. An ordinary and reasonable person would have realised that there was
an exclusion clause written. The party seeking to rely on it should have taken
reasonable steps to bring it to the other party’s attention.
 This can be proven in the case of Parker v South Eastern Railway Co where the
plaintiff handed in a parcel worth more than £10 at the cloakroom of the defendant’s
railway station, paid and received a ticket. At the back of the ticket was a condition
that the defendant would not be responsible for any package exceeding the value of
£10. The parcel was then lost. The court held that it is not sufficient that the person
in question knows that there was writing on the ticket, but that he must know or be
given reasonable notice that the ticket contains conditions. The other party cannot
simply be presumed to have had knowledge of the exemption clause. It is for the
person relying on an exemption clause to show that sufficient notice of the clause
had been given.

The third element of notice is the nature of the exemption clause must be
reasonable. The exclusion clause must be in a document where contractual terms
are expected and not merely be found in a receipt.

This can be seen in the case of Chapelton v Barry Urban District Council. To hire
the chairs for the use on the beach, the public was required to obtain tickets from
nearby attendant. On one side was the statement that the defendant would not be
liable for any accident or damage arising from the hire of the chairs. Plaintiff sat on
the chair which gave way and resulted in an injury. The court held that the exemption
clause could not be relied upon as it was found in a ticket which was merely a receipt
acknowledging the payment received.

Second method on incorporation is by course of dealing where the first elemet of

this method is the other party is a regular customer and there is a consistent course
of dealing between the parties.

This can be proven in the case of J Spurling Ltd v Bradshaw, the defendant
bought eight barrels of orange juice and sent them to the plaintiff warehousemen for
storage. The plaintiff sent him a receipt called a “landing account” which exempted
the plaintiff from liability from any loss or damage to the goods kept. The plaintiff then
sent an invoice stating that the goods are kept at the warehouse at the owner’s risk.
When the defendant collected the goods, all eight barrels were damaged. The court
held that the plaintiff could rely on the exemption clause having regard to the
documents which had passed between the parties. By the course of business and
conduct of the parties, such conditions were part of the contract.

Second element in the method of course of dealings is there must be sufficient

communication between the parties to constitute previous course of dealings. In the
case of Hollier v Rambler Motors (AMC) Ltd. In a period of five years, for three or
four occasions, the plaintiff had sent his car to the defendants for repairs. The
defendants’ practice was to have a form signed by the customer, which contained a
clause stating that they will not be responsible for any damage caused by a fire to
the plaintiff’s car on the premises. The car was then damaged by a fire on the
premises as a result of the defendant’s negligence. The court held that the clause
could not be incorporated into the oral contract made between the parties as three or
four transactions over five years were insufficient to constitute a course of dealing.

Thirdly, incorporation can be identified by signature in a written document. A

party is bound by the contract even though he has not read the contract. This is
illustrated in the case of L’Estrange v F Graucob Ltd: The plaintiff purchased a
cigarette vending machine from the defendant. The agreement contained a clause
excluding all implied warranties and conditions. The plaintiff signed the agreement,
but did not read it and did not know of the exemption clause. The machine broke
down and the plaintiff claimed against the defendant on the basis that it was
delivered unfit for the purpose for which it was intended. The court held that the
plaintiff was bound by her signature despite the fact that the relevant clause was in
small print and despite the fact that she had not read it. The signature rule will not
apply if there was fraud or misrepresentation as to the effect of the exemption
clause.

Meanwhile, in Curtis v Chemical Cleaning & Dyeing Co Ltd, the plaintiff sent her
wedding dress, which had beads and sequins, to the defendant’s laundry. The shop
assistant gave her a receipt and asked her to sign it, stating that it was for the
exclusion of the defendant’s liability against certain risks, which in this case was for
the risk of damage to the beads and sequins. In fact, the receipt excluded the
defendant from liability for all risks, and not just limited to the beads and sequins.
When the dress was returned, there was a stain on it. The defendant then relied on
the exemption clause. The court held that defendant could not rely on the exemption
clause because the shop assistant had misrepresented the exact scope of the
clause.

When it has been determined that the exclusion clause has been incorporated
into the contract, the clause must be interpreted to determine if it covers the event
which has occurred. Exclusion clause can be interpreted by contra proforentum rule,
effect of negligence, rule of law and rule of construction.

Firstly, effect of negligence is where a party seeks to exclude himself from loss
caused by his own negligence, the clear words must be used to show that the
intention of the party to exclude negligence. The party relying on the clause must
show that he had exercised due diligence and care.

In the case of Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn
Bhd, the appellant left his car to be waxed and polished by the respondents and was
given a receipt to claim for his car. At the back of the receipt, a clause provided that
the company will not be liable for any loss or damage to the vehicle and that the
vehicle is left at the owner’s risk. The car was damaged while being driven by an
employee of the respondents. The court held an exemption clause, however wide
and general, does not exonerate the respondents from the burden of proving that the
damage caused to the car was not due to their negligence and misconduct.

Then, in the case of Premier Hotel Sdn Bhd v Tong Ling Seng where the
respondent stayed at the hotel owned by appellant. He left his key at the the
receptionist and gave it to an unknown. The respondent claimed for loss of his
personal belongings and the appellant relied on the exclusion clause. It was held that
those general word would not ordinarily protect a party from liability for negligence. In
fact to be effective, the words must be sufficiently clear, either by referring to
negligence or by using some other expression such as ‘however caused’.

On the other hand, contra proferentum rule applies when there is an ambiguity in
the meaning and scope of the word used in exclusion clause. This means that when
something is clear or uncertain and the clause open to two constructions.

This can be proven in the case of Malaysia National Insurance Sdn Bhd v Abdul
Aziz bin Mohamed Daud. The respondent drove his father’s car and was involved in
an accident. The insurance policy stated that the appellant would not be liable while
the car is being driven by any person other than the authorised driver. The
respondent and his father were named as the authorised drivers subject to the
proviso that the person driving was permitted in accordance with the licensing or
other laws and regulations to drive the motor vehicle or had been so permitted, and
was not disqualified by order of a court of law or by reason of any enactment or
regulation in that behalf from driving the motor vehicle. At the time of the accident,
the respondent had an expired driving licence but had not been disqualified by any
court for holding or obtaining a driving licence. The appellant denied liability and
relied on the exclusion clause. The court held that the respondent fell within the
category of persons who had been “so permitted to drive the motor vehicle, and was
not disqualified by order of a court of law or by reason of any enactment or regulation
in that behalf from driving the motor vehicle.”

By applying into this question, exclusion clause relied by K Beauty shall be

incorporated by the signing of a written. As the parties of a contract have signed a
document contained exclusion clause, thus the issue of incorporation become
irrelevant. Fuyao is bound to the contract even though she has not read the contract.
So, K Beauty able to rely on the exclusion clause. Next, moving to second method
which is interpretation where contra proferentum rule is applicable when there is
ambiguity in the meaning and scope of words used in exclusion clause. This can be
seen in Clause 12 where the terms ‘claim’ and ‘tort’ are too vague and general. The
term ‘claim’ and what does arise under the ‘tort’ act were not explained in the clause
in order to escape liability of K Beauty.

The second issue in this case is whether Fuyao can claim damages from K
Beauty for the loss of income she suffered.

Damages is a pecuniary compensation obtainable by success in an action for a

wrong. The compensation being in the form of a lump sum awarded unconditionally
and is generally, but not necessarily expressed in currency. Viscount Haldane in
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric
Railways Co of London Ltd stated that “the fundamental basis of an award of
contractual damages is compensation for pecuniary loss naturally flowing from the
breach.” If a contract has been breached, damages are available as a matter of right.
It is to fulfil the plaintiff’s expectation by putting him, as far as money can, in the
same position he would have been in had the contract been performed.

In order damages to be established, there are two limitation factors to be

considered. Firstly, is the remoteness of the damage. Remoteness of damage talk
about innocent party seeking to obtain damages must show that defendant’s breach
of contract was a direct cause of his loss, defendant cannot be liable for losses that
are too remote. Principle of remoteness is provided in Section 74.

Section 74(1) was elaborated in detailed in the case of Hadley v Baxendale which
it lays down test of remoteness in two limb. Section 74(1) stated where there has
been a breach of contract, the party suffering from the breach is entitled to
compensation which first, naturally arose from usual course of things from breach.
First limb is also known as imputed knowledge where a reasonable individual is
assumed to know the ‘ordinary course of things’ and to be aware of the loss that is
liable to result from a breach of contract in that ordinary course.

The second limb talked about reasonably supposed to have been in the
contemplation of both parties. Second limb also known as actual knowledge where
parties possess knowledge of special circumstances that a breach in those special
circumstances would be liable to cause more loss.

In Hadley v Baxendale, the plaintiffs’ mill stopped function when a crankshaft

broke, and the defendants were hired as carriers to send the crankshaft to the
makers in Greenwich. The defendants were informed that the article to be carried
was the broken shaft of a mill and that the plaintiffs were the millers. As a result of
the defendants’ delayed delivery, the plaintiffs’ mill was inoperable for much longer
than it would have been without the delay. It was held the plaintiffs’ claim for loss of
profits was rejected on the ground that it was too remote. It is found that the losses
suffered by the plaintiffs were not the natural consequences of the defendants’
breach, as in most cases the mill-owner would probably have another shaft.
Secondly, the loss of profits was not within the contemplation of both parties at the
time the contract was made as the special circumstance of the mill not being able to
proceed in the absence of the shaft was not communicated to the defendant.

In the same time, Victoria Laundry Ltd v Newman Industries Ltd did fulfilled both
limbs of Section 74(1). The plaintiff bought a new boiler for their laundry and dry
cleaning business from the defendant, but received it 5 months after the contracted
date of delivery. The defendant knew that the plaintiff required the boiler for their
business. The plaintiff claimed for loss of profit during the period of 5 months, and
the loss of profit of a highly lucrative dyeing contract with the Ministry of Supply. It
was held the plaintiff was entitled to the loss of profit arising from the defendant’s
delay in delivering the boiler, but was not entitled to the exceptional loss of profit it
could have earned from the dyeing contract with the Ministry of Supply. The loss
which a plaintiff seeks to recover must be reasonably foreseeable as liable to result
from the breach. In determining what is reasonably foreseeable by the parties, the
court must take into account the knowledge possessed by the parties which consist
of imputed and actual knowledge.

Next, the second limitation is mitigation of loss. Each innocent party has to carry
their own duty to mitigate their loss. Parties also cannot recover damages that could
have been avoided and also minimizes the loss if had the opportunity to do so. There
are 3 principles to be applied in this limitation which are cannot recover for loss that
could have been avoided, if loss is avoided then damages for that loss will not be
provided and money spent mitigating the loss is recoverable.

This limitation can be illustrated in the case of Kabatasan Timber Extraction v

Chong Fah Shing. The appellants had contracted to supply timber to the respondent,
which was to be delivered at the site where the respondent had erected a saw-mill.
Three lots were then delivered. The second lot, instead of being delivered to the mill,
was dumped more than 500 feet from the mill. The respondent purchased new time
elsewhere in substitution of the second lot and claimed for the cost of doing so. The
court held that the respondent had a duty to take reasonable steps to mitigate its
loss. Instead of expending money to purchase new timber, all that was required of
the respondent was to arrange to haul the logs to the saw-mill.

By applying in this question, Fuyao stated that she suffered loss of income after
she rejected 2 offers from film producers. K Beauty had stated that Fuyao was also
required to attend all events organized by K Beauty and not to engage in other
promotional activities which may interfere with her status as the model and the brand
ambassador of Youth B Serum. However, 2 film offers that been rejected by Fuyao
does not fall within any promotional activities that may interfere Fuyao’s image as the
model and brand ambassador thus it is her decision to not participated in the offers.
Hence, the loss suffered by her is too remote. In conclusion, K Beauty is liable as the
exclusion clause is not valid where the rule is used against K Beauty. Thus, Fuyao
cannot claim for damages from K Beauty since she does not fulfil the test of
remoteness.

b) Would your answer be different if Fuyao was involved in a house fire

resulting a permanent scar in her face.

Discharged is where one or both parties to a contract are freed from their
contractual obligations. A contract is said to be frustrated when the performance of
the contract become impossible because of an exchange in event which make the
contract impossible or illegal to perform. Doctrine of frustration was evolved to
mitigate the strict rule which insisted literal performance in the case of Paradise v
Jane. Section 57 of CA 1950 provides for the doctrine of frustration. The Contracts
Act does not mention the term ‘frustration’ however in the case of Lee Seng Hock v
Fatimah Zain, S. 57(2) can be referred as the doctrine of frustration. Section 57(1)
talked about agreement to do impossible act is void meanwhile 57(2) stated that
impossibility of performance after contract has been made renders the contract void.

There are few elements need to be fulfilled in order for the doctrine of frustration
to be established. Firstly, supervening event happened after the contract is made. An
event that is unexpected; where the party was bound by the nature of the contract to
foresee the event, the doctrine is inapplicable.

This can be proven in the case of Goh Yew Chew v Soh Kian Tee. The
appellants agreed to construct two buildings on land belonging to the respondent.
The respondent paid $5000 to the appellants as earnest money. It was found that
owing to an encroachment of a neighbour’s house into the land, it was not possible
to construct the buildings according to the plan. The respondent claimed for the
return of the $5000. The court held, in the circumstances, it was impossible ab initio
to perform the contract. The respondent was entitled to the balance of the deposit
after deduction of all reasonable expenses spent.

Secondly, the supervening event must cause a fundamental or radical change to the
nature of the contractual rights and obligations. It is obvious that enhanced difficulty
or cost in the performance does not frustrate the contract.

This can be found in Davis Contractors Ltd v Fareham UDC where the appellants
tendered for a building contract, whereby they agreed to build 78 houses for the
respondents within 8 months. Due to a shortage of labour, the work took 22 months
and ran over budget. The appellants argued that an overriding condition of the
contract was that there should be adequate supplies of material and labour. Thus,
the shortage of skilled labour and adequate materials caused the contract to be
frustrated. It was held that the contract was not frustrated as the fact that there had
been an unexpected turn of events which render the contract more difficult than had
been contemplated was not a ground for relieving the contractors of their obligation.

The third element is neither party should be responsible for the supervening
event. A supervening event which was self-induced and caused by the default of a
party will not discharge the party from the contract. It is stated that neither party must
be the instigator of the frustrating event.

It is illustrated in Ocean Tramp Tankers Corporation v V/O Sovfracht. The

owners of the Eugenia let her to the charters for a trip to India through the Black Sea.
During the negotiations, both parties realised that there was a risk that the Suez
Canal might be closed. However, they came to no agreed terms to meet that
possibility. The vessel embarked on its journey and subsequently entered Suez
Canal, where she became trapped due to the canal being blocked. The charterers
claimed that the charter party had been frustrated by the blocking of the canal. The
court held doctrine of frustration was inapplicable as not only had the parties foresaw
that the Suez Canal might become impassable, they also failed to make a provision
for it.

The fourth element to establish doctrine of frustration is the supervening event

must not have been contemplated by the parties when they entered into the contract,
and therefore, there must be no provision in the contract designed to deal with it.
Lord Denning in The Eugenia stated that not only does the doctrine apply when the
supervening event is unforeseen or unexpected, but also when the parties have
made no provision for it in their contract.

In National Carriers Ltd v Panalpina (Northern) Ltd, plaintiffs leased a

warehouse to the defendants for 10 years from 1974. The only vehicular access to
the warehouse was by a street which the authorities had closed in mid-1979 due to
the dangerous condition of a derelict Victorian warehouse opposite the one leased to
the defendants. The period between the closure of the street and its reopening was
20 months, during which the warehouse was useless for the defendants. The
plaintiffs claimed for unpaid rent, and the defendants argued that the lease had been
frustrated by the events that occurred. It was held that no frustration had occurred as
the likely continuance of nearly three years of the term after the interruption makes it
impossible for the lessee to contend that the lease had been brought to an end.

Frustration takes place when the supervening event significantly changes the
nature of the outstanding obligations or rights under the contract which the parties
could have contemplated at the time they contracted. The last element is it must be
unjust to hold the parties to the contract as agreed upon.

On the other hand, there are few instances of doctrines of frustration that had
been stated in different cases. In Murugesan v Krishnasamy, the defendants were in
occupation of two pieces of land under Temporary Occupation Licenses. They then
applied for EMR titles in respect of the land and entered into agreements with the
plaintiff which provided that for the considerations that the defendants had received,
the defendant agreed to execute valid transfers of the lands to the plaintiff as soon
as titles were issue by the Collect of Land Revenue. However, the defendants’
applications for EMR titles were refused. The plaintiff claimed the return of the
money paid by him as the contract had become impossible of performance. It was
held the refusal of the state authority to grant EMR titles made it impossible for the
defendants to complete the sale. The contracts had become void by reason of the
supervening impossibility and the plaintiff was entitled to recover his purchase
money.
 The next instances is illustrated in Taylor v Caldwell. Caldwell hired out a
concert venue to Taylor on 4 specific days. The contract contained no express
provision as to destruction by fire. Before Taylor’s first scheduled performance, the
hall burnt down. Taylor claimed for damages for breach of contract and contended
that based on Paradine v Jane, the destruction did not relieve the defendants from
their obligations. It was held that the destruction of the hall had occurred without fault
of either party, and thus, both were excused from future performance. The contract
was subject to an implied term that if performance became impossible because of
some supervening event, without default of either party, both parties would be
discharged from future obligations.

By applying into this question, Fuyao still cannot claim for damages as the
nature of discharge of frustration where the contract becomes void under sec 57(2).
So, both parties, Fuyao and K Beauty are discharged from further obligations after
the frustrating of contract events. This is because it is impossible to perform a
contract to be beauty ambassador if she have permanent scar on her face. Fuyao
can only make claim for compensation if she likely ought to have known that the
accident to happened in the future, K Beauty must make compensation for loss as
stated in Section 57(3) CA 1950. To conclude, Fuyao could not claim for damages
due to discharge of frustration.