Explain the test of frustration using decided cases.

Malaysia Federal court applied the test of frustration formulated by the House of Lords in
Davis Contractors Ltd v Fareham UDC compare together with section 57(2) of the Contract
Act 1950.

English Case

Davis Contractors Ltd v Fareham UDC:

Fact:

Plaintiff agreed to build 78 houses within 8 month

However due to lack of skilled labour ad supplies of material it took 22 month
Thus the delay amounted to frustrated of the contract

Held:

Contract not frustrated

Due to unexpected events the contract more expensive
But it does not discharge the contractor liability from their obligation

The test used to decide the frustration of the contract from a case of Davis Contractors Ltd v
Fareham UDC was explained by Lord Denning in the case of The Eugenia:

To see if the doctrine applies, you have first to construe the contract and see whether
the parties have themselves provided for the situation that had arisen. If they had,
there is no frustration and the contract applies. If they have provided for it, the
contract must govern. There is no frustration. If they have not provided for it, then
you have to compare the new situation with the old situation for which they did
provide. Then you must see how different it is. The fact that it has become more
onerous or more expensive for one party that he thought is not sufficient to bring
about a frustration it must be positively unjust to hold the parties bound

If the contract already provided the situation that had arisen, thus there is no frustration.
However, if the contract not provided thus the court have to compare the new situation with
the old situation.

The Eugenia
Fact:

Let the charterers, for a trip out to India via Black Sea
During negotiations both party realized that there was a risk Suez Canal might be
closed
However they came to no agreed to meet this possibility
During its journey, its trapped since the canal blocked
The charterers claimed that 1.charter party had been frustrated by the blocking of canal

Held:

Court of Appeal held that the doctrine of frustration is inapplicable

Due to the fact that the charterers foresaw that the Suez Canal might be impassable

Lord Denning on the Eugenia judgement emphasized that the doctrine of frustration
applies, not so much because the supervening event was unexpected but more importantly,
because the two parties had not made provision for it:

It has frequently been said that the doctrine of frustration only applies when the new
situation is unforeseen, or unexpected, or uncontemplated, as if that were an essential
feature. But that is not so. It is not so much that it is unexpected, but rather that the
parties have made no provision for it in their contract here, the parties foresaw that
the canal might become impassable. It was the very thing that they feared. But they
made no provision for it.

The doctrine of frustration only will be applies if the supervening event was unexpected.
However it does not apply to the Eugenia because the two parties not made provision of it
although they foresaw the canal will be block. Further, it does not pass the test in Davis
Contractors Ltd v Fareham UDC that is a thing radically different from that which was
undertaken by the contract. Thus the Court of Appeal held that doctrine of frustration did not
apply as it was self-induced.

Malaysia Case
Ramli bin Zakaria & Ors v Government of Malaysia

Fact:

Appellants were a group of 86 vocational school teacher who were successful in their
application for teacher training.

One of the condition upon completed their training was that be accepted as teacher on UTS
scale.

Upon completed their training, UTS scale abolished and be replaced with Abdul Aziz
scheme.

The appellants claimed that they should be paid salaries and allowances under UTS scale.

The respondents claimed that since the recruitment of these teachers under UTS scale, upon
abolished of the scale, the recruitment of this teacher is frustrated.

Held:

Federal court held that the service agreement which contained the provisions of a particular
salary scheme was not frustrated when the new salary scheme was implemented to replace
the old scheme. Abdul Hamid FCJ stated:

In short it would appear that where 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 performance of the
contract something radically different from that originally undertaken, the contract
does not become impossible and it is not discharged by frustration.

Since the changes that been made did not change the fundamental obligation, thus the
contract is not frustrated. The UTS scheme salaries and allowances been implemented into
Abdul Aziz scheme which was changed the circumstances but not radically affect the
fundamental of the contract.
To be simplified, the test for doctrine of frustration is only applicable when the new situation
is unforeseen, or unexpected, or uncontemplated. The changes need to be radically affected
the fundamental obligation of the contract for the contract to be discharge by frustration.

1. Charter party: The contract between the owner of a vessel and the charterer for the use of
a vessel.

Explain 2 circumstances where a contract is frustrated.

1. Acquisition of land

Case of Yeo Siew Kiow lwn Nyo Chu Alang & Yang Lain

An acquisition of land after a sale and purchase agreement had been executed and before the
transfer is fully affected has been held to frustrate the sale and purchase agreement. The High
Court held that when the land becomes the subject of acquisition by the state authorities,
following s 57 (2) of the Contract Act, the agreement to sell the land had become invalid and
void when the land was acquired.

Thus, the agreement to sell the land become invalid and void due to the land subject to
acquisition by state authorities.

In Lee Seng Hock v Fatimah binti Zain, the Court of Appeal held that the sale and purchase
agreement in this case has been frustrated. Siti Norma Yaakob JCA stated:

We next ask ourselves whether the acquisition of the land had radically changed the
obligation of the respondent to sell the share of the land to the appellant. We answer
this in the affirmative When the land was compulsorily acquired and compensation
awarded, the subject matter of the agreement ceased to exist and performance of the
agreement became impossible. For that reason, we consider that the compulsory
acquisition of the land had frustrated the agreement so as to discharge both the
appellant and the respondent of their obligations under the agreement.

Respondent had obligation to sell share of the land to the appellant. However the land is
acquisition by the state authorities. Thus, the subject matter is the land and held that the
contract cannot be perform. Thus agreement became impossible, therefore it become
frustrated.
 2. Change in the law

Case of Keshore a/l Anupchand Metha & Anor v Abrar Finance Berhad & Anor

In this case the plaintiffs entered into a tenancy agreement with the first defendant. It was
agreed that the first defendant would pay damages to the plaintiffs in the event that the first
defendant terminated the tenancy before the expiry thereof. The first defendant subsequently
informed the plaintiff that it would vacate the premises, thereby terminating the tenancy, due
to its merger exercise with the second defendant. Resulting from the premature termination,
the plaintiffs re-tenanted the premises for a third party at a lower monthly rental. The
plaintiffs took action against the defendants for the losses suffered by it as consequences of
the premature termination of the agreement. The first defendant contended that the tenancy
was terminated on account of frustration that flowed from the directive by Bank Negara for it
to merge with the second defendant and the vesting order issued by the High Court granting
approval for the transfer of all its business affairs to the second defendant.

The High Court agreed with the first defendant`s submission. The merger meant that the first
defendant had no legal standing or authority to operate its business at the said premises in
view of the fact that it had surrendered its license to Bank Negara through no fault of its own.
It was not self-induced frustration. Therefore, the agreement had come to an end by way of
frustration.

Therefore, since the first defendant had no legal standing due to the merger directive by Bank
Negara thus the agreement is frustrated. Due to the thing radically changed that changes the
fundamental of the agreement it is impossible for the first defendant to continue the
agreement.

Explain 2 circumstances where a contract is not frustrated.

1. Economic crisis

Case of Tai Kim Yew & Ors v Sentul Raya Sdn Bhd

The plaintiff entered into an agreement with the defendant to purchase condominium units to
be built by the defendant. The defendant failed to deliver vacant possession of the units
within the agreed time. The plaintiffs claimed against the defendant for the liquidated
damages. The defendants alleged, inter alia, that the contract was frustrated due to its dire
financial position brought about by the 1997 1998 national economic crises which was
beyond its control.

The High Court held that the question of frustration did not arise in this case as there was no
evidence that the condominium project was impossible to complete. On the contrary, the
condominiums were eventually completed albeit after a long delay. In any event for the
doctrine of frustration to apply, it was insufficient for the defendant to merely refer to
economic crises and the consequential dire financial situation of its parent company. The
High Court referred to s 57(2) of the Contract Act and Lord Denning`s judgement in The
Eugenia and held that in the present case, there was no evidence to show that a
fundamentally different situation had arisen that rendered it impossible for the defendant to
complete the condominium project.

2. Change in the law

Case of Tye Ong Kiat & Anor v Tan Guan Hoo

The defendant entered into an agreement during the Japanese occupation of Malaya in July
1945 to sell certain property to the plaintiffs subject, inter alia, to the property being freed
from encumbrances and permission of the Perak Government being obtained. The plaintiffs
paid the purchase price and defendant paid off the only charge on the property. Subsequently
there was a change of law, the Debtor and Creditor (Occupation Period) Ordinance 1948
which gave the mortgage the right to reinstatement of his charge for the revalued amount of
the mortgage debt. The defendant pleaded that the change of law had frustrated the
agreement.

The High Court held that the contract had not been frustrated. The manner in which the
defendant freed the land from encumbrances was entirely a manner within his discretion and
outside the terms of the contract. The Debtor and Creditor (Occupation Period) Ordinance
1948 did not cast a burden on the land but on the defendant for the payment of the amount of
his revalued personal obligation. The reinstatement of the charge was only to ensure
repayment. The law had not made the performance of the contract impossible and an order
for specific performance was made.
NURUL FARAH AIN BINTI ANUWAR

2015143907

Faculty Law,

Universiti Teknologi Mara, UiTM.

MR. MUIZ RAZAK

Lecturer (Contract II)

UniversitiTeknologi Mara,UiTM 21 November 2016.

Dear Sir,

Absent Excuse Letter

By referring to the above matter, I Nurul Farah Ain binti Anuwar, with matric number
2015143907 from LWB02C, unable to attend class tutorial Contract II on Wednesday, 9 th
November 2016.

2. The reason that I cannot attend the class is revision for a test of another subject. Indeed I
dont have any valid excuse for my absent.

3. Therefore, I would like to seek apology for not attending the class. I hope sir would accept
my apology as I will not repeat it again. Thank you.

Yours faithfully,

(NURUL FARAH AIN BINTI ANUWAR)