BTW1042 Malaysian

Business Law
TUTORIAL 9
TOPIC DISCHARGE AND REMEDIES
Question 1

Answer the following using cases to support your answer:

a) How does a contract come to an end?

b) What is meant by the statement, that an innocent party has a duty to mitigate their
loss? Who bears the burden of proving that the loss was not mitigated?

c) A has recently negotiated the purchase of a Van Gogh painting. He has also signed
all relevant contractual documents. However, on the due date, B the owner, changes
his mind. What remedies are available to A?
Answer:

(a) i) Discharge by Agreement;

ii) Discharge by Performance
iii) Discharge by Breach
iv) Discharge by Frustration

(b) The law imposes a duty upon the person claiming damages to take all
reasonable steps to reduce or minimise or mitigate their loss. Failure to do so,
will result on the amount of damages recoverable to be reduced.

The victim of the breach must not allow the loss to accumulate unnecessarily.
The party in breach can plead that the innocent party failed to mitigate.

S74 – Explanation – In estimating the loss or damage arising from breach of

contract, the means which existed of remedying the inconvenience caused by the
non –performance of the contract must be taken into account.
c) A can obtain a court order for specific performance of the contract. It is a
discretionary order granted by the Court directing a person to carry out
their obligations under the contract.

In circumstances where damages are not an adequate remedy (not an

adequate compensation), for instance in this case, the subject matter
being a rare painting by Van Gogh, specific performance may be granted
by the Court.
Question 2

Alpha Pty Ltd hires a machine from Beta Machines Ltd. The machine has been negligently
maintained by Beta. It breaks down, and it will take Beta three weeks to repair the
machine. A replacement can be hired, but none is available for a week.

Normal losses amount to RM1,000 a day. [Alpha’s factory operates 7 days a week.] Alpha
Pty Ltd has also lost a lucrative government contract worth a further RM50,000. The hire of
the replacement machine is RM5,000 in total.

What damages can Alpha Pty Ltd claim?

a) $21,000
b) $71,000
c) $5,000
d) $12,000
e) $62,000
CONTRACTS ACT 1950 – SECTION 74
Compensation for loss or damage caused by breach of contract
74. (1) When a contract has been broken, the party who suffers by the breach
is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which naturally
arose in the usual course of things from the breach, or which the parties knew,
when they made the contract, to be likely to result from the breach of it.
(2) Such compensation is not to be given for any remote and indirect loss or
damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by
contract
(3) When an obligation resembling those created by
contract has been incurred and has not been
discharged, any person injured by the failure to
discharge it is entitled to receive the same
compensation from the party in default as if the person
had contracted to discharge it and had broken his
contract.
Explanation— In estimating the loss or damage arising
from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-
performance of the contract must be taken into
account.
 Answer:

Damages:

 Total potential loss 21 days @ $1,000 a day = $21,000.

 Lucrative government contract = $ 50,000.
 Replacement cost of machine = $5,000.

Options for damages claim:

(a) $21,000 only - 21 days non availability of machine
(b) $71,000 [ (a) plus RM50,000-lucrative govt. contract];
(c) $5,000 only (Replacement cost);
(d) $12,000 = [7 x $1,000 as machine unavailable for one week + replacement cost $5,000];
(e) $62,000 = [ (d) plus the loss of the lucrative govt contract].
Damages are merely compensatory not penal in nature (not to punish).

Damages is to place you in the position as if the contract had been performed; Robinson v Harman.
Damages are calculated by: natural consequences & unusual losses if known at time of formation
Hadley v Baxendale. S 74 CA 1950.

Beta Machines Ltd is unaware of the lucrative government contract. Therefore Alpha Pty Ltd cannot
claim the loss of the lucrative contract.

Alpha Pty Ltd has an obligation to minimise loss. Therefore they should order a replacement machine
after 1 week to minimize their loss: Payzu Ltd v Sanders [1919] 2 KB 581

S74 – Explanation – In estimating the loss or damage arising from breach of contract, the
means which existed of remedying the inconvenience caused by the non –performance of
the contract must be taken into account.
Question 3

On 1 March 2017, the Monash Soccer Team booked a flight to London to participate in the World Universities
Football Cup from 21 to 26 March 2017. Their travel agents, Freedom Flight Sdn Bhd, gave a discount fare of
RM2,000 per person, 50% of the price was paid upon booking and the balance of the price was to be paid on 19
March 2017 upon collecting the tickets.

On 18 March 2017, the air traffic controllers of KLIA declared a strike when the airport management refused to
reduce their retirement age to 45 years old.

When the Monash Soccer Team went to Freedom Flight Sdn Bhd on 19 March 2017, he refused to pay the
balance unless it is confirmed that the team can fly out of Kuala Lumpur on 19 March 2017.

The strike lasted for three days. By that time it was too late for the team to compete in the competition.

The Monash Soccer Team claims for the return paid to Freedom Flight Sdn Bhd. Freedom Flight Sdn Bhd refused to
return it and instead sued for the balance 50% to be paid by the Monash Soccer Team.

Decide.
Answer
Case laws:
Taylor v Caldwell[1863]; Davis Contractors Ltd v Fareham v Urban District Council [1956]

Frustration occurs whenever the law recognizes that without default of either party a
contractual obligation has become incapable of being performed because the circumstances
in which performance is called for would render it a thing radically different from that which
was undertaken by the contract.

National Carriers Ltd v Panalpina (Northern) Ltd [1981]

Frustration takes place when there supervenes an event (without the fault of either party and
for which the contract makes no sufficient provision] which significantly changes the nature
(not merely the expense or the onerousness) of the outstanding contractual rights and/or
obligations from whom the parties could reasonably have contemplated at the time of its
execution that it would be unjust to hold them to the literal sense of its stipulations in the new
circumstances; in such case the law declares both parties to be discharged from further
performance.
Based on the cases, basically the following conditions need to be fulfilled:
i) there must be supervening/frustrating (ie unexpected) event;
ii) The event must occur after the formation of the contract but before it is due for
performance;
iii) The event must cause a fundamental or radical change to the nature of the
contractual obligations and rights of the parties under the contract;
iv) Neither party must be the instigator of the supervening event;
v)The supervening event must not be within the contemplation of the parties when
they entered into the contract;
vi)It will be unjust to hold the parties to the contract.
Effect of a frustrating event on the contract:

Contract comes to an end and the parties are relieved from further
performance of their part in the contract: Davis Contractors Ltd v
Fareham Urban District Council [1956]
Discharge by Frustration : Section 57(2) Contracts Act 1950
A contract is frustrated when there is a change in the circumstances
which renders a contract legally or physically impossible to perform.
The contractual parties were not at fault for the change of circumstances
that caused the impossibility of performance.
The frustrated contract ‘becomes void’ and the parties are discharged
from the further performance of the contract.
Section 57(2) Contracts Act:
Contract to do act afterwards becoming impossible or unlawful
“A contract to do an act which, after the contract is made, becomes impossible, or by
reason of some event which the promisor could not prevent, unlawful, becomes void when
the act becomes impossible or unlawful.”

Discharges a contract immediately, but only as to the future. The contract is not void ab
initio, but only void from the time of frustrating event.
 S 66 CA 1950:

 When an agreement is discovered to be void, or when a contract

becomes void, any person who has received any advantage under
the agreement or contract is bound to restore it, or to make
compensation for it, to the person whom he received it.
Monash Soccer Team is entitled to the return of the deposit although
Freedom Flight Sdn Bhd is entitled to deduct any reasonable expenses
incurred by them until date of the contract became frustrated, that is
on 19.3.2017.

Freedom Flight Sdn Bhd cannot claim the balance 50% of the fares
from Monash Soccer Team.
Question 4
Are the following statements true or false?

1. A contract can only be discharged by breach or frustration. F

2. Once a contract is entered into, the parties are not allowed to substitute the contract
with a new contract. F

3. The doctrine of frustration of contract only applies after a contract is entered into. T

4. A owes B RM 5,000. A pays to B, and B accepts, in satisfaction of the whole debt, RM

2,000 paid at the time and place at which the RM 5,000 were payable. The whole
debt is discharged. T

5. A contracts to sing for B at a concert for RM 1,000. A is too ill to sing. A must make
compensation for B’s loss of profits. F
6. A owes money to B under a contract. It is agreed between A, B and C that B shall henceforth
accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C
to B has been contracted. T

7. A agrees with B to discover treasure by magic. The agreement is valid. F

8. A contract can become frustrated when it becomes very difficult to perform. F

9. Frustration discharges a contract immediately, but only as to the future. The contract is not void
ab initio, but only from the time of the frustrating event. T

10. Anticipatory breach is not recognized by law and, hence, there is no remedy for it. F