The doctrine of frustration provides a legal escape hatch for parties to a contract when, through no fault of their own, a supervening event makes the performance of the contract impossible, unlawful, or radically different from what was originally agreed upon. It is a narrow doctrine, applied sparingly to release parties from their contractual obligations when upholding the bargain would be unjust.
Legal Foundation
In Malaysia, the doctrine is primarily codified in Section 57 of the Contracts Act 1950:
Section 57(1): An agreement to do an act impossible from the outset is void.
The Test for Frustration
Malaysian courts have adopted the classic test from the English case of Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. Frustration occurs when, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances would render it “a thing radically different from that which was undertaken by the contract.”
This test has been consistently applied in Malaysia, as seen in cases like Ramli bin Zakaria v Government of Malaysia [1982] 2 MLJ 257, FC and Khoo Than Sui v Chan Chiau Hee [1976] 1 MLJ 25, HC. The change must be fundamental, not merely making performance more onerous, expensive, or commercially difficult (Sentul Raya Sdn Bhd v Hariram Jayaram [2008] 4 MLJ 852, CA).
Key Principles and Limits
- Supervening Event: The frustrating event must occur after the contract is formed.
- Not Self-Induced: The event must be one “which the promisor could not prevent.” A party cannot rely on a “self-induced frustration” caused by its own actions (Dato Yap Peng v Public Bank Bhd [1997] 3 MLJ 484, CA; Maxisegar Sdn Bhd v Silver Concept Sdn Bhd [2005] 5 MLJ 1, CA).
- Radical Change, Not Hardship: Mere commercial impracticability or financial difficulty is insufficient. The doctrine is confined to “very narrow limits” (Tsakingqlou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, HL).
Common Instances of Frustration
Compulsory Acquisition: A sale and purchase agreement was frustrated when the land was compulsorily acquired by the government, as the subject matter ceased to exist (Lee Seng Hock v Fatimah bte Zain [1996] 3 MLJ 665, CA).
Failure to Obtain Approval: A contract for the sale of land contingent on state approval was frustrated when that approval was refused (Murugesan v Krishnasamy [1958] MLJ 92, HC; Ng Kheng Yong @ Ng Tet Lai v Seng Hup Realty Co Sdn Bhd [2004] 3 MLJ 477, CA).
Supervening Illegality: A change in law or regulation that renders performance unlawful can frustrate a contract.
Destruction of Subject Matter: The seizure of a vehicle by customs frustrated a hire-purchase agreement, as the finance company could no longer pass good title (Public Finance Bhd v Ehwan bin Saring [1996] 1 MLJ 331, HC).
Consequences of Frustration
When a contract is frustrated under S.57(2), it “becomes void.” The primary statutory remedy for restitution is found in S.66 of the Contracts Act 1950, which obliges any person who has received an advantage under the now-void contract to restore it or make compensation for it. This is often used to order the refund of deposits (Lee Seng Hock v Fatimah bte Zain [1996] 3 MLJ 665, CA).
Further legals provisions could be found in Sections 15 and 16 of the Civil Law Act 1956.
Conclusion
The doctrine of frustration acts as a crucial safety valve in contract law, providing relief in exceptional circumstances where an unforeseen event fundamentally undermines the contract’s foundation. However, its application is strict, ensuring that commercial certainty is not lightly disturbed by claims of hardship or changed circumstances.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified lawyer for your specific legal needs.
