Question 2

Group 4

CHEW MAN HOI-049764

JACULINE STEPHEN-051753

KANG ZHEN LEONG-049757

TAY XIANG RONG-050198

TEOH KAI XIONG-049612

ABC Builders, a construction and engineering company, entered into a contract

for the construction of a girl’s hostel and a swimming pool with UNISZA for
RM10m. the hostel as well as the swimming pool was to be ready by 30th April
12010 when the University reopened for the academic year. Because of the
intermittent strikes by the workers, the hostel and the swimming pool were
ready for use only on 30th April 2011. The cost of the construction during the
period rose to RM15m. UNISZA sued the company for the delay and claiming for
damages. The company contended that the contract was impossible to perform
and they were entitled to claim the excess cost of construction on a quantum
meruit basis.

Based on the above facts, discuss the rights of both parties.

The first issue is whether the ABC Builders can discharge the contract under the
doctrine of frustration.

A contract is said to be frustrated when after its formation, a change of

circumstances makes it impossible for the parties to physically or legally performed
the contract.1 The House of Lords in the case of Joseph Constantine Steamship
Line Ltd v. Imperial Smelting Corpn Ltd. [1942] AC 154, HL, held that the doctrine
of frustration is ‘only a special case of the discharge of contracts by an impossibility of

1
Pacific Forest Industries Sdn Bhd & Anor v. Lin Wen-Chih & Anor [2009] 6 MLJ 293.
performance arising after the contract was made’. The contract will ‘become void’ once
it is held to be frustrated. Section 57(2) of the Contracts Act 1950 also provides the
doctrine of frustration. In the case of Guan Aik Moh (KL) Sdn Bhd v. Selangor
Properties Bhd [2007] 4 MLJ 201, CA, Gopal Sri Ram JCA stated that there are 3
elements for the doctrine of frustrated incorporated within the meaning of Section 57
of Contracts Act 1950, namely:

(1) The event upon which the promisor relies as having frustrated the contract must
have been one for which no provision has been made in the contract. If
provision has been made then the parties must be taken to have allocated the
risk between them.
(2) The event relied upon by the promisor must be one for which he or she is not
responsible. Put shortly, self induced frustration is ineffective.
(3) The event which is said to discharge the promise must be such that renders it
radically different from that which was undertaken by the contract. The court
must find it practically unjust to enforce the original promise.

In the case of Pacific Forest Industries Sdn Bhd & Anor v. Lin Wen-Chih & Anor
[2009] 6 MLJ 293, the court held that any of the above elements must be fulfilled to
establish the frustration under s57.

The sub-issue is whether the facts of the present case fulfilled any of the
elements stated above. It is clear that the first element as stated above does not
relevant to the present case as the facts was silent on this matter. With regards to the
second element and the third element, it is submitted that ABC builder could not rely
on it. In this case, the event occurred was the intermittent strikes by the worker and
cause the delay of the construction and directly increases the cost of construction.
However, under the second element, it is stated that self-induced frustration is
ineffective. It is assumed that the aroseness of the strike by the workers was due to
the self-management system of the ABC Builders which is within its own control.
Besides, merely the increases of the cost of construction does not rendered the
performance of the contract by ABC Builders to be radically different from what was
undertaken by the contract and make it practically unjust to enforce it.
 This view can be supported by the case of Davis Contractors Ltd v. Fareham
Urban District Council [1956] AC 696, where the appellants agreed to build 78
houses within 8 months for the respondents for the fixed sum of £94,000. Owing to
unexpected shortage of skilled labour and certain materials, the period construction
was forced to extend and the cost also increased. The appellants contended that there
was frustration of the contract and claimed quantum meruit for the actual cost incurred.
The HOL held that there was no frustration. The fact that the contract becomes more
onerous or expensive to the appellants did not discharge the agreement. The thing
that undertaken was not, when performed, different from the contract.

By above reasons, it can be concluded that ABC Builders could not discharge
from the contract by claiming the doctrine of frustration.

The second issue is whether ABC Builders can claim for the excess cost of
construction on a quantum meruit basis.

Under Section 57(2) of the Contracts Act 1950, a contract discharged by

frustration becomes void and the frustrating event brings the contract to an end
automatically. When a contract becomes void, Section 66 of the Contracts Act 1950
provides remedy of restitution for parties of a void contract. This can be illustrated in
the case of Public Finance Bhd v Ehwan Bin Saring (1996) 1 MLJ 331. In this case,
the Respondent and the Appellant entered into hire-purchase agreement with regard
to a motor car. The Respondent purchased a motorcar from the Appellant for RM
82,000. He paid the Appellant a sum of RM 57,000. Six weeks later, the Customs and
Excise Department seized and forfeited the vehicle for an alleged offence. The
Respondent claimed for the return of the sum of RM 57,000. The court held that as
the vehicle was seized and forfeited, the agreement has become void pursuant to
Section 57(2) of the Contracts Act 1950 and thus in accordance with Section 66 of the
Contracts Act 1950, the Appellant must return the RM57,000 that they received from
the Respondent. Section 15(2) of the Civil Law Act 1956 provides that “in the case of
sums so paid”, they are recoverable as money received for the use of the party by
whom the sums were paid. This means that the money which had been paid to any
party before happenning of the event of frustration is recoverable. However, if the party
incurred expenses in the performance of the contract before the time of discharge, the
party may retain the whole or any part of the sum paid not in excess of the expenses
incurred. Section 15(2) of the Civil Law Act 1956 was applied in the federal court of
National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd (1983) 2
MLJ 211 to refund the deposit as money had and received as the contract had become
void upon the refusal of the Foreign Investment Committee to approve the sale of the
immovable property.

In the current case, the construction of a girl’s hostel and a swimming pool with
UNISZA was contracted on RM10m. However due to the intermittent strikes by the
workers, the construction was completed only after a year later and the cost of
construction also rose from Rm10m to Rm15m. Since the ABC Builders cannot
discharge the contract, applying Section 66 of the Contracts Act 1950, ABC Builders
cannot claim for the excess cost of construction on a quantum meruit basis.

In a nutshell, ABC Builders could not discharge from the contract by claiming
the doctrine of frustration and cannot claim for the excess cost of construction on a
quantum meruit basis.