Chapter 6 - Discharge by Frustration Flashcards
DISCHARGE BY FRUSTRATION
Overview
1) Test for frustration
2) Conditions for a valid frustration
3) Examples
4) Effect of frustrated contracts
5) Frustration & COVID-19
6) Force majeure clause
DISCHARGE BY FRUSTRATION
Test for frustration - English courts
1) Davis Contractors Ltd v Fareham UDC:
- w/o default of either party, contractual obligation has become incapable of being performed;
- the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract.
- not just more onerous or expensive to perform.
2) National Carriers Ltd v Panalpina (Northern) Ltd:
- W/o default of either party, there is supervening event that significantly changes the nature of the outstanding contractual rights.
- it will be unjust to hold parties to the literal sense of its stipulation in the new circumstances.
DISCHARGE BY FRUSTRATION
Test for frustration - Malaysian courts
1) Ramli bin Zakaria v Govt. of Malaysia:
- FC adopted test in Davis Contractors and held that the contract is not frustrated.
2) Event must take place after formation of ctt - Goh Yew Chew v Soh Kian:
- The supervening event must takes place after the formation of the contract.
3) Meaning of impossibility - Satyabrata Ghose v Mugneeram Bangur:
- Impossible does not mean physical or literal impossibility;
- It means impracticable & useless from the point of view of the object & purpose which the parties had in view;
- e.g. the supervening event totally upsets the very foundation of the contract.
DISCHARGE BY FRUSTRATION
Conditions for valid frustration
Guan Aik Moh (KL) Sdn Bhd v Selangor Properties Bhd:
- the event must one which has no provision provided for in the contract;
- the event must not one which is a result of the promisor’s action;
- the event must render the performance of the promise radically different from what was agreed upon;
- court must find it practically unjust to enforce the original promise.
DISCHARGE BY FRUSTRATION
Examples of frustrated or not frustrated contract
1) SARS outbreak - Li Ching Wing v Xuan Yi Xiong:
- not frustrated - tenancy contract was long, outbreak was short.
2) Cancellation of coronation - Krell v Henry:
- frustrated - the very purpose of the short-rental is upset due to the cancellation.
3) Depressed economy - Malaysia Land Properties Sdn Bhd v Tan Peng Foo (CA, 2018):
- not frustrated - ups & downs of business are part of the risk of doing business.
4) Unlawful event - Dato’ Yap Peng v Public Bank Bhd:
- Not frustrated - Illegal event which can be made by applying for license. Deliberately did not apply for license amount to self-induced frustration.
5) Onerous or difficult to perform / economic crisis - Tai Kim Yew & Ors v Sentul Raya Sdn Bhd:
- Not frustrated - every businessman should know the risk in commercial venture & must be prepared for any possibilities.
6) Difficult to perform / interpret - Pacific Forest Industries Sdn Bhd v Lin Wen-Chih:
- Not frustrated - contract is not discharged by reason of difficulties to perform or interpret.
7) Injunction - Standard Chartered Bank v KL Landmark Sdn Bhd (No. 1):
- Frustrated - ctt becomes difficult to perform.
8) Compulsory acquisition of land - Lee Seng Hock v Fatimah bte Zain:
- Frustrated.
9) Partial acquisition of land - Wong Siew Choong Sdn Bhd v Anvest Corporation Sdn Bhd:
- Not frustrated if the area affected is small compared to the whole area contracted.
10) imposition of condition on land - Kim Nam Development:
- Not frustrated. Imposition of conditions only makes it difficult, not impossible to perform.
DISCHARGE BY FRUSTRATION
Effect of frustration
S.57(2)
S.66
DISCHARGE BY FRUSTRATION
Frustration & COVID-19
- depends on interpretation & terms of each case.
FORCE MAJEURE CLAUSE
Overview
1) Meaning
2) FMC & frustration
3) Conditions for FMC
4) Example & application of FMC
FORCE MAJEURE CLAUSE
Meaning
- clause used as terms which the parties are entitled to be excused from the performance;
- upon the happening of a specified event.
FORCE MAJEURE CLAUSE
FMC & frustration
- if there is no FMC, parties may resort to frustration under S.57(2);
- both doctrines excused the performance of parties due to intervening event.
FORCE MAJEURE CLAUSE
Conditions for FMC
1) Not be construed in isolation - Crest Worldwide Resources Sdn Bhd v Fu Sum Hou:
- FMC will not be construed in isolation; it must be construed as a whole together with other provisions in the ctt.
2) Burden of proof - Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd:
- on the party who seeks to rely on the clause to be excused or released from the obligation.
FORCE MAJEURE CLAUSE
Example & application
Tekno Kota Sdn Bhd v Setapak Heights Development Sdn Bhd:
- “due to reasons beyond the control of the parties thereto”;
- when there is FMC, operation of S.57(2) is excluded.
