Group Assignment

CSEA2121
Commercial Law
Sem1 2013/2014
Dr RosmawaniCheHashim
Group members
No.
Foo Jia Yi
Hon JiaXuan
Kevin GanWai Ming
CEA120032
Ong Hui Yin
SohHui Sze
CEA120098
Jacqueline HiiRu Wei
CEA120116

Matric
CEA120019
CEA120027
CEA120086

Lim Zheng Wei

CEA120117
Gan Nan Sie
Su Shi Yi

CEA120118
CEA120120

Table of Content
No
.

Content

Discuss critically:
a) Doctrine of separation of powers in
Malaysia
1 b) Federal Constitution as the highest law
in Malaysia
c) Custom as one of the sources of law in
Malaysia
Section 57 of Contract Act 1957 lays down
the law relating to two categories of
2. impossibility of performance. Discuss
these categories and support your answer
with relevant sections and case-law.
The person getting insured must willingly
disclose and surrender to the insurer his
complete true information regarding the
3. subject matter of insurance. Discuss the
application of this principle in contract of
insurance and legal issues thereof.

Page(s
)
2-5
6-9
9-11

12-17

18-22

4.

5.

a) Discuss the right (condition and

warranty) conferred by Section 7(1)(b)
of The Hire-Purchase Act 1967 (Act
212) to the hirer.
b) Explain the meaning and procedure of
re-possession under The Hire-Purchase
Act 1967 (Act 212).
References

23-24

25-28
29-30

Question 1(a) Discuss critically on the Doctrine of separation of powers in

Malaysia.
History of the Doctrine of separation of powers
The basic idea of the doctrine of separation of powers is that the entire power
or ruling authority of the State shall not be given to only a person. Concentration of
power in the hand of the same person or institution is often found to be an invitation
to despotism1. This doctrine is to avoid arbitrary power in order to avoid misuse of
power by the ruling authority. It is to be divided into three(3) branches of government,
namely the executive, judiciary and legislative. Legislative is commonly known for
making the laws, executives is known as to enforce or implement laws, while
judiciary is known as the peace-maker for settling disputes by interpreting the laws.
As of the 17th Century, a king has absolute power and this scenario has caused a lot of
sufferings. Montesqueiu2 in The Spirit of Laws propounded a theory of strict
separation of power of which there is no sharing of powers among the branches.
Principles propounded by Montesqueiu are as follows:
i.
ii.
iii.

There are 3 main classes of governmental functions.

Each of them should be vested one function.
To concentrate more than one class of functions in any person or organ is a

iv.

threat to individual liberty.

The same person should not form part of more than one of the 3 branches.

1(Tocqueville, 1997)
2 (Montesquieu, 1777)
2

v.
vi.

One organ of government should not control or interfere with the exercise of
functions by another organ.
One organ should not exercise the function of another.
However, in Malaysia, our country could not execute the doctrine of

separation of powers absolutely. TunSuffian in Parliamentary system vs Presidential

system states that we are under the influence of British Westminster system and
hence, there is a fusion between legislative and executive.3 Therefore, our country do
not really enforce the separation of powers.
Overlapping of three branches of government in Malaysia
i.

Legislature and Executive

Based on the Westminster system, legislature and executive are connected.
The Cabinet member must be a member of the parliament. Article 43(3) 4 states
that the cabinet is collectively responsible to the parliament. The law making
power has been delegated to the executive department to through subsidiary
legislation. There is no limit on the amount or nature of power that legislature
body(parliament) can delegate to the executive body in Malaysia. Article 445
hence states that the King6

ii.

Legislature and Judiciary

In the United Kingdom, the 10 Law Lords in the House of Lords act both as
judges and as legislators. However, in Malaysia, no judges are allowed to take
part in politics and they are certainly not a member of the parliament. Though
law making is the function of the parliament, there are still many important
legal principles which are of product of common law fashioned by judges in
the course of deciding cases, known as case law. The question of guilty or
innocence is for the court to decide, but once the accused is found guilty, the
penalty is dictated by the parliament.

3(Wan Arfah Hamzah, 2003)

4Article 43 of the Federal Constitution
5 Article 44 of the Federal Constitution
6King. Referring to the Yang Di-PertuanAgong
3

iii.

Judiciary and Executive

Judges of subordinate courts are part of the judicial and legal service. They
may be transferred from the judiciary to the legal service. The Administrative
Tribunals, which include members of executive officers, has the function of
the same as the court which is dispute resolution. The King, who is the head of
Executive Body, based on the advice of the Prime Minister, who is member
from the Executive Body, appoint judges. Under a fair number of laws passed
under Article 149 & 150 of the Federal Constitution, the executive authorized
to resort to extra-judicial, preventive detentions. These executive detentions,
without recourse to the court, are an undoubted exercise of the judicial power.

The Independence of Judiciary (Articles and Cases)

Prior to 1988, the power of judiciary shall be vested in 2 High Courts. After
1988, there shall be two high courts, thus, the power of judiciary shall be delegated in
accordance to the Federal Constitution. However, the Federal Constitution was done
by the Parliament, and therefore, the power of judiciary can be conferred by
parliament, hence, there is interference of parliament to the function of judiciary.
Parliament can make any law in order to control and limit the power of judiciary.
Before the amendment, the courts can review every aspects of law including
natural justice. Datuk Dr Shad SaleemFaruqi, in his column entitled Reflecting on the
Law in The Star on 16 April 2008 summed up the situation as follows:7
The amendment to Article 121(1) has created the wrong perception that the
Malaysian Executive wishes to silence the Judiciary. All Judges feel
humiliated. Some have accepted their truncated role as mere agents of
Parliament and not as independent pillars of the Federal Constitution. Others
insist that their review powers are intact.
The confusion generated by the 1988 amendment to Article 121(1) has created
the belief and misconception that:
a. the courts are powerless to address issues and do justice wherever there is a
lacuna in the law;
7Retrieved fromhttp://mstar.com.my/berita/cerita.asp?
file=/2008/4/16/TERKINI/Mutakhir/Restoring_judicial_power&sec=mstar_berita
4

b. the courts are confined to merely interpreting and implementing acts of

Parliament;
c. the courts are no longer able to make and develop common law;
d. the courts are deprived of their inherent jurisdiction, along with their inherent
right to exercise judicial review over the decisions of public bodies and
Executive functions.
The removal of TunSalleh Abbas case was another insight of where the
tribunal of removal was misused. It was used to get rid of judges who decided not to
carry out their job in governments favour. Hence, the appointment of members of
tribunal can be seen as an interference of executive. 8 Judiciary only have inherent
jurisdiction which is the power to confer justice and to make the best solution to any
disputes.
In the case of SugumarBalakrishnan v Director of immigration, State of Sabah
and Anor9, J. Gopal Sri Ram, Court of Appeal, held that the amendment to A.121 does
not change the situation as the power of judiciary still lies in the hand of judiciary.
There is no provision conferring the judiciary the power to judge as the power is an
inherent power hence, no one can take away.
In the case of KokWahKuan v Public Prosecutor,10The trial judge allow YDPA
(executive) to decide on the sentence. However, the Court of Appeal overturned the
judgment holding that it violates the doctrine of separation of powers. Lastly, the
Federal Court upheld the trial decision, stating that there is no provision in the Federal
Constitution, stating the statement of doctrine of separation of powers in Malaysia.
The Federal Court Judge dissent the judgement by J. Malamjun, emphasizing that
there is separation of powers and the power of judiciary shall be with the judiciary
and the King should not be allowed to decide on the sentence.
Even though the judiciary is inseparably an independent branch of the
government, the judiciary was made subject to Parliament after the judicial crisis
8 Retrieved fromhttp://www.freemalaysiatoday.com/category/opinion/2012/04/03/revisitingthe-1988-judicial-crisis/
9[1998] 3 MLJ 289
10[2007] 5 MLJ 174
5

1988. Instead of being directly held by the judiciary, judicial power is carry out by
parliament and vested by it in courts nowadays. The Attorney General 11 was also
conferred the power to give instruction to the court on the types of cases that they
should hear and whether to cease a particular case. The Judiciary is empowered to
hear and determine civil and criminal matters, and to pronounce on the legality of any
legislative or executive acts. In addition, the authority is given to the judiciary to
interpret the Federal and State Constitutions.
Separation of powers enforces the concept of rule of law where government by
law not rules by men. Fusion of powers (executive and legislature) in Parliamentary
system can sometimes be positive and in the other time could bring to dictatorial
effect.
Question 1(b) Discuss critically on the Federal Constitution as the highest law in
Malaysia.
A Constitution is a document that contains all of the order of rules and
regulations. It constitutes to an important policy for removing a country's governance
and administration. It determines the constitution of a Kingdom, a form of
government and the rights of the people.
The Constitution also contains principles that form the national institutions like the
executive, legislative and judicial with the powers and role of each institution within
the framework of governance and administration of the nation. Constitutions are
designed to be guidelines on the pattern of political and administrative system of
governance of a country, as well as provide protection to the people. The Constitution
also states that the responsibility and duty of every citizen against the government and
the nation.
The Federal Constitution contains of 183 items, is the supreme law in
Malaysia. It is a written legal document that has been developed based on the two
previous documents, namely the Federation of Malaya Agreement 1948 and the 1957
Independence Constitution.
Federal Constitution also consists of 15 sections and 13 tables. It touches on
the jurisdiction of the executive, legislative, judiciary, the Islamic religion, nationality,
11Attorney General of Malaysia.Principal legal adviser to the Government of Malaysia.
6

national language, the special position of Malays and natives in Sabah and Sarawak
and the like.
Supremacy of Federal Constitution
Article 4(1) of the Federal Constitution states that the Constitution is the supreme law
of the Federation and any law passed after Merdeka Day, which is inconsistent with
this Constitution shall be void to the extent of the inconsistency. It is clearly stated
that the Federal Constitution is the source of all governmental powers and it acts as
the standard or yardstick for Malaysi Legal System. It also operates as a controlling
mechanism.
Sultan Azlan Shah once said that Constitution has not only bestowed power
upon institutions and individuals charged with duties under our system of
government, but in doing so explicitly laid down limits upon the exercise of any such
power. In order to achieve the status of supremacy of Constitution, we must look into
the separation of powers and the roles of legislature.
According to the case of Marbury v Madison12, it was held that All countries
which make a written constitution wish that the written constitution can be the
fundamental law and supreme law of the land and by this, there must be a theory in
each country that a legislative act contrary to the constitution is void. This theory is
the theory of written constitution and it is a fundamental principle of society. The
theory of the fundamental principle of the society can be found in the case of
LohKooiChoon v Government of Malaysia,13it was held that
Constitution is the supreme law of the land embodying three basic concepts:
i.

individual has certain fundamental rights upon which not even the power of

the state may encroach.

ii.

the distribution of sovereign power between the states and the federation.

iii.

no single man or body shall exercise complete sovereign power, but it shall be
distributed among the executive, legislative, and judiciary branches of
government.
125 U.SS 137 (1803)
13 [1977] 2 MLJ 187
7

However, in the case of Ah Thian v Government of Malaysia, 14 it was held that

the doctrine of supremacy of parliament is not applied in Msia, here, there is a written
constitution. The power of parliament and states assembly in Malaysia is restricted by
the constitution and they cannot make law according to their wish.
A few conflicts arise due to the subject of Federal Constitution as the supreme
law in Malaysia. One of it was the state of supremacy of Federal Constitution, in other
words, whether our constitution is really supreme.
Whether our constitution is really supreme?
Article 4(1) of the Federal Constitution provides that the Federal Constitution
is supreme, but on the other hand, Article 159 and 161E of Federal Constitution
provides the power to the Parliament to amend the Federal Constitution. The more
important a particular law is to a society, the more difficult it is for that law to be
changed. The philosophy behind the amendments procedure in Malaysia has been laid
down by Reid Commission:
the methods should not be too difficult as to produce frustration nor too easy
to weaken seriously the safeguards of the constitution.
Hence, Federal Constitution is a document with spirit thus amendment is
necessary when the circumstances of society change.
Another issue is whether the laws to amend Federal Constitution are in face
inconsistent with the Federal Constitution and thus void under Article 4(1) of Federal
Constitution?

According to the case of LohKooiChoon v Government of Malaysia,15 it was

held that
A constitutional amendment cannot be invalidated under Article 4(1) merely
because it is inconsistent with the Federal Constitution. The Federal
Constitution is the supreme law and cannot be inconsistent with itself. An
14[1976] 2 MLJ 112
15 [1977] 2 MLJ 187
8

amendment which complies with Article 159(3) becomes part of the

constitution. It becomes part and parcel of the constitution.
In the case of Phang Chin Hock v Public Prosecutor,16 Article 4(1) is only enforced to
nullify the ordinary laws which are inconsistent with the Constitution and is not
applicable to the laws which are approved under Article 159. Suffian LP states that
the parliament can only amend the constitution according to whatever the parliament
thinks is necessarily provided that they have to obey all the conditions stated in the
provisions. In interpreting Article 159 and Article 4, harmonious construction requires
us to give effect to these two provisions and but this we have come to know that the
Acts made by parliament following the procedures provided in Article 159 is valid
even though it is inconsistent with the Constitution.
It is clearly seen that the Federal Constitution is the supreme law in Malaysia,
however, it can be amended accordingly, suitable to the needs of the society, and the
amendments do not contradict with the articles stated in the Federal Constitution.
In a nutshell, the Federal Constitution is the supreme law of the land so that
any general law that is inconsistent with the constitution is void. Unlike the British
Parliment which is supreme and with full powers to make laws on any matter, the
local parliament functions under a written constitution and is governed by it. Although
the Malaysian Parliaments law-making power is limited by constitutional provisions
but its actual powers should not be underestimated. It has the capacity to amend the
constitution under which it functions albeit by a two-thirds majority vote of both
chambers of parliament. The federal constitution also provides that Islam be the
religion of the federation but guarantees the freedom of religion. Islamic law is
enforced only among Muslims although principals of that religion do manifest
themselves in the legal system.

Question 1(c) Discuss critically on Custom as one of the sources of law in

Malaysia. (L01)

16[1980] 1 MLJ 213

9

Custom is a practice followed by people of a particular group or region. It is

the usual and generally accepted behaviour among most people within a particular
society. It derives its characteristics from the community, thus making it different
from one race to another. The execution of custom is influenced by the environment,
religion, inner morality and so on. This custom is common tradition or usage so long
established that it has the force or validity of law. It prescribes rules for ceremonies,
including marriage and religious rites, agricultural systems, and settlement of
disputes. Custom concerns community interactions, family matters, distribution of
inheritance but it rarely touches on politics.
According to Article 160 of Federal Constitution, and any custom or
usage having the force of law , not all customs have legal consequences. Unlike
laws of Parliament, failure to comply with a custom will not lead to a person being
imposed with sanctions, unless the custom has been adopted as a law. Breach of
custom rules may give rise to the feelings of guilt or remorse on the part of the
perpetrator and disapproval from other members in the society.
The Malay Adat which includes AdatPerpatih and AdatTemenggong govern
the Malays whereas the Chinese and Hindus are governed by the Chinese and Hindu
Customary Law. There are also Orang Asli Customary Law as well as the Native
Customary Law.
AdatPerpatih can be found in Negeri Sembilan and Naning in Malacca. It is
based on matrilineal, which is in favour of women in the distribution of inheritance. It
contains traditions that are customary sayings which have been passed down from
generation to generation. AdatPerpatih covers matters concerning matrimonial law
and property and, to a limited extent, criminal law and restitution. More importantly,
it covers matters concerning the state, which includes succession in title or lineage
and the election of traditional chiefs. According to AdatPerpatih, ancestral property is
passed on to the female descendants of the tribe who hold the property in trust for the
tribe. These properties cannot be sold by any will and can only be inherited by female
tribe members in equal share. A man is considered as the salaried worker in the tribal
system. When a man marries into a female tribe, his wife already owns a piece of land
as her share of the customary holding. The unmarried males have the right to life
occupancy over the property of their mothers. Where a female is married, the property
10

in the descendant line and lineage membership passes through the women. In
Munahbinti Haji Badar v IsamBinti Mohamed Syed &Anor,17held that land which
had been transferred outside the clan to a male belonging to another clan had to be
returned, conditional upon payment of a sum of money.
AdatTemenggung applies in other states. There are numerous digests of
AdatTemenggung. These include a digest of law compiled by the Sultan of Pahang; a
digests of Kedah laws; the ninety-nine laws of Perak; a digests of Selangor laws; and
the Melaka digests which contains maritime rules. The Malacca Laws, though
entitled RisalatHukumKanun (A Tract on Customary Law), is a digest grafting the
Islamic Law of the new Sultanate {of Malacca} on to the earlier law of a Hindu
Court. It is normally based on the characteristic of patrilineal form of organization.
Patrilineal is a system in which one belongs to father's lineage; it generally involves
the inheritance of property, names or titles from father to sons.
Generally, the customs of Chinese and Indians relating to marriage and
divorce are no longer of much importance since the passing of the Law Reform
(Marriage and Divorce) Act 1976, which the act was largely based on the English
legislation, which abolished polygamous marriages among the non-Muslims. The act
introduced a uniform law on marriage, divorce and its ancillary matters among nonMuslims and a common system of solemnization and imposed compulsory
registration of marriage.
In Sabah and Sarawak, the Malay custom is a mixture of Islamic law and the
local customs. Islamic law was codified in 1936 and administered as part of the native
customary laws in matters concerning marriage, inheritance, matrimonial property
and bethoral, resulting in a situation where there was no uniform application of Malay
custom. For instance, in Matusin bin Simbi v Kawangbinti Abdullah,18Islamic law was
applied as the Malay who originated from Brunei, buthad resided with the Bajau
community in Sabah for 40 years. The judge held that the racial lawof the deceased

17[1936] 1 MLJ 34
18[1953] SCR 106

11

remained unaltered by change of domicile. Clearly, there had been some conflicts
between the local customary laws and the Malay custom.
In a nutshell, custom, to a certain extent, is an important source of unwritten
law. This is because Customs are inherited from one generation to another generation.
Common law must be used first, by virtue of Section 3(1) Civil Law Act 1956 which
states that in the absence of written law, the courts in Malaysia shall apply the
common law and rules of equity existing in England , suit the local circumstances
and local custom. Therefore, custom is very influential as all laws are made based on
its suitability on local custom. Law is also the cultural expression. Decisions made
must suit the local custom. It is only effective and useful for the specific group of
people who are born to be bound by the custom.

Question 2: Section 57 of Contract Act 1957 lays down the law relating to two (2)
categories of impossibility of performance. Discuss these categories and support
your answer with relevant sections and case-law. (L02)
Impossibility of performance.
A contact can be discharged if there is impossibility of performance or also
known as frustration. According to Section 57 of Contract Act 1967, 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. Hence, the two categories of impossibility of
performance are:
(1) When the contract become physically impossible of performance.
(2) When the contact becomes unlawful to perform.
12

If a frustrating event occurs the contract automatically ends and the parties are
excused from their future obligations, although any accrued liabilities will remain.
It is important that a party is sure that frustration has actually occurred if it is
going to rely on frustration to justify ceasing to perform its obligations under the
contract to avoid being in breach if the event is not in fact a frustrating one.
Impossible of performance due to physical impossibility to perform.
For the first category, the contract become physical impossible of performance
when there is a destruction of subject matter. The recognition of this frustration is
formulated in the case Taylor v Caldwell 19. In this case, Taylor (plaintiff) rented out a
music hall in the Survey Gardens for the purpose of giving four grand concerts from
Caldwell (defendant). Taylor agreed to pay Caldwell 100 for every single day. Taylor
incurred big expense and lots of effort in organising the concerts. However, a week
before the first concert to be given the music hall was destroyed by an accidental fire.
The destruction was not fall on any fault on either party and in consequences there is
no concert could be given due on this destruction. Taylor sought to bring an action for
breach of contract against Caldwell (defendant) for failing to provide the hall and
want to claim for the compensation for all expenses that already incurred. The court
held that the plaintiff's action for breach of contract failed. The contract had been
frustrated as the fire meant the contract was impossible to perform. Therefore the
defendant not liable to pay because of the frustration of contract which is the
agreement becomes impossible to perform.
Judgement delivering by Blackburn J:
The principle seems to us to be that, the contract in which the performance depends
on the continued existence of a given person or thing, a condition is implies that that
the impossibility of performance arising from the perishing of the person or thing,
shall excuse the performance. In none of these cases is the promise other than
positive, nor is there any express stipulation that the destruction of the person or thing
shall excuse the performance; but that excuse is by law implied, because from the

19(1863) 3 B & S 826 Is frustrated due to destruction of subject matter.

13

nature of the contract it is apparent that the parties contracted on the basis of the
continued existence of the particular person or chattel.
Besides, death or incapacity of either party is also one of the factors result to
physical impossibility of performance. For further understanding we can check on
more cases such as Condor v Baron Knights ,20 in this case, contract for personal
performance frustrated because of the illness made it impossible to perform. A 16 year
old agreed by contract to play the drums for the defendant band for 7 nights per week
for 5 years. The plaintiff suffered a mental breakdown and was told by his doctor that
he should not perform more than 4 nights per week. The band dismissed him. He
brought a claim for wrongful dismissal. Condor (plaintiff) won the case because the
court held that the plaintiff's action was unsuccessful as his medical condition made it
impossible for him to perform his contractual obligations and the contract was thus
frustrated.
However, it is excepted when the death or incapacity of one party does not
come to the knowledge of another party when an offer is made. Acceptance without
prior knowledge of the death or mental disorder of the offeror is a good acceptance
and enforceable. This exception is explained in the case Bradbury v Morgan.21 In this
case, JM Leigh requested Bradbury (plaintiff) & Co to give credit to HJ Leigh, his
brother. JM Leigh guaranteed his brother's account to the extent of 100. Bradbury
thereafter credited HJ Leigh in the usual way of their business. JM Leigh died but
Bradbury, having no notice or knowledge of his death, continued to supply HJ Leigh
with goods on credit. JM Leigh's executors (Morgan) refused to pay, arguing that they
were not liable as the debts were contracted and incurred after the death of JM Leigh
and not in his lifetime. Judgment was given for the plaintiffs, Bradbury.
Moreover, non-occurrence of particular event will also lead to frustration. A
contract may also be frustrated where it is deprived of its commercial purpose with
the supportive case Krell v Henry .22 In the case, Henry (defendant) agreed to rent
20[1966] 1 WLR 87 Is frustrated due to personal death or incapacity.
21Is not frustrated as the death or mental disorder of offeror is known by offeree before acceptance
occurs.

22 [1903] 2 KB 740 A contract may also be frustrated where it is deprived of its commercial purpose.
14

from Krell (plaintiff) a suite of rooms in Pall Mall, for the day on which coronation
was to take place. Unfortunately, the coronation did not take place, Henry no longer
wanted the room, Krell sued for the rent. The court held that although contract can
still be performed, it was frustrated because the viewing of the procession was the
foundation of the contract.
However, the contract must be deprived of the whole commercial purpose to
amount to frustration by referring to Herne Bay Steam Boat v Hutton 23. In the case,
the court held that the contract was not frustrated. The contract had not been deprived
of its sole commercial purpose as it was still possible to perform the days cruise. The
Naval Review was not the only commercial purpose of the contract.
We need to know also where a contract will not be frustrated if , it is more difficult or
expensive to perform; impossibility of performance is the fault of either of the parties;
where there is a force majeure clause; Where the frustrating event could be foreseen.

Impossibility of Performance as It Becomes Unlawful to Perform

Under Section 10(1) of Contract Act, all agreements are contract if it is for
lawful consideration and lawful object. This means that only agreement that is
enforceable by law and regulations is valid.
A contract can be void if the content of the contract is unlawful even if it is
valid previously. Normally, this happens as there is government influence or
interference. Government interferes by changing of law and regulations applied in the
respective country will result in it certain contract becomes unlawful to perform.
Where a law subsequent to contracting is passed, which renders the
fundamental principle of contracting illegal, the contract will be found to be
frustrated. There are several situations in which this may occur. Events such
23 [1903] 2 KB 683 Exception: the contract must be deprived of the whole commercial purpose to
amount to frustration, if not, it is not a frustration.

15

as war may render certain trading or actions illegal, as was the case in Denny, Mott &
Dickinson v James Fraser24. Changes in the law may render building work illegal, or
the use of certain materials illegal. A contract for the construction of a reservoir was
held to be frustrated following wartime building regulations.
For instance, in the case of Avery V Bowden,25 the ship was supposed to pick
up some cargo at Odessa. With the outbreak of the Crimean War, government made it
illegal to load cargo at an enemy port, so the ship couldnt perform its contract
without breaking the law. Hence, the court held that the contract is frustrated as it is
unlawful to perform.
There are still a lot of examples on type of frustrated contract which are where
the contract becomes illegal to perform it will frustrate the contract and we can refer
to case FibrosaSpolka v Fairbairn .26
We need to know also where a contract will not be frustrated if , It is more
difficult or expensive to perform; Impossibility of performance is the fault of either of
the parties; Where there is a force majeure clause; Where the frustrating event could
be foreseen.
However there are examples of cases that the contract not frustrated such as
Tsakiroglou& Co Ltd v NobleeThorlGmbH.27 The Nobleethorl (defendant) agreed to
ship some Sudanese peanuts during November or December 1956 to Hamburg for a
certain price. On 2nd of Nov the Suez Canal was closed to shipping. The defendant
could still have transported the peanuts within the contractually agreed time but this
would mean going via the Cape of Good Hope which would have taken four times as
long and increased the cost of transport considerably. The defendant did not carry the
goods and argued that the contract had been frustrated. The court held that the
contract was not frustrated. It was still possible to perform the contract without any
24 [1944] AC 265 Frustration as war makes the contract becomes illegal.
25(1856) 5 E & B 714
26[1943] AC 32 Frustration where the contract becomes illegal to perform it.
27[1962] AC 93 Exemption: A contract will not be frustrated merely because it becomes more difficult
or expensive to perform.

16

damage to the peanuts. The fact that it was more difficult or costly to perform is not
sufficient to amount to frustration. In short, performance had only become onerous or
more expensive; performance still possible; manner of performance not specified.
Contract not frustrated.
Here is another example which is Davis Contractors v Fareham UDC.28 Davis
Contractors (plaintiff) agreed to build 78 houses for Fareham Council (defendant)
within 8 months for an agreed price of 85,000. Due to a shortage in skilled labour
and material the contract took 22 months to complete and was much more expensive
than anticipated. Davis Contractors were paid the contractually agreed price but
bought an action arguing for more money based on the fact that the contract had
become frustrated and therefore they were entitled to further payment based on a
quantum meruit,29basis.
The court held that the contract was not frustrated. This is because the fact that a
contract becomes difficult to perform not so profitable is not sufficient to amount to
frustration. It was still possible to perform the contract and the risk can reasonably be
expected of occurred.
In addition, a contract will not be frustrated if the impossibility is the fault of
either of the parties and we can refer to cases Maritime National Fish v Ocean
Trawlers .30 A contract will not be frustrated also where there exists a force
majeure31clause. The clause must actually cover the event which occurred Jackson v
The Union Marine Insurance Co Ltd.32 Frustration will also not exist where the
28[1956] AC 696
29Quantummeruit is a Latinphrase meaning "what one has earned". In the context of contract law, it
means something along the lines of "reasonable value of services".

30 [1935] AC 524 Exemption: A contract will not be frustrated if the impossibility is the fault of either
of the parties.

31Force Majeure.This clause is meant to benefit both parties in a contract. Force majeure would come
into play, for example, when you buy a house. If the house is destroyed in a fire caused by a lightning
strike, neither party remains obligated.

32 (1874) LR 10 CP 125
17

frustrating event should have been foreseen and there are some cases are related
which are Walton Harvey Ltd v Walker &Homfrays Ltd [1931] 1 Ch 274 and Peter
Cassidy Seed Co Ltd v Osuustukkuk-Auppa Ltd [1957] 1 WLR 273.
Moreover, frustration will also not exist where the frustrating event should
have been foreseen. Example of the cases areWalton Harvey Ltd v Walker &Homfrays
Ltd [1931] andPeter Cassidy Seed Co Ltd v Osuustukkuk-Auppa Ltd [1957].

Effect of Frustration of a Contract

Where a contract is found to be frustrated, both parties are released from their
obligations under the contract and neither party may sue for breach.
The allocation of loss is decided by the Law Reform (Frustrated Contracts) Act 1943.
This provides:
S. 1(2): All money payable under the contract ceases to be payable and any money
already paid may be recovered. Where expenses have been incurred this may be
deducted from the amounts payable or paid. This is at the discretion of the court and
is subject to what is just and equitable in the circumstances of the case. There is no
provision allowing expenses to be recovered which exceed the amounts paid or
payable.
S. 1(3) - Where a valuable benefit has been conferred this must be paid for.

Question 3: The person getting insured must willingly disclose and surrender to
the insurer his complete true information regarding the subject matter of
insurance. Discuss the application of this principle in contract of insurance and
legal issues thereof.

18

Definition of Insurance
Insurance is defined as a social device providing financial compensation for
the effects of misfortune as stated in Insurance Act 199633. Insurance Act 1996
classifies insurance into two classes which are life business and general business.
According to S4 (1)(a) Insurance Act 1996, life business is all insurance business that
concern with life policies shall include any type of insurance business carried on as
incidental only to the life insurers business. In general, Insurance Malaysia states
that, life insurance is the premium that insured to pay monthly, quarterly or annually
and upon the expiry. Insured beneficiary receives death or critical illness benefit either
in the form of lump sum or periodic payout.
On the other hand, S4 (1)(b) defines general business as all insurance business
which is not life business. General liability insurance and product liability insurance
are examples of general business. In order to be insured, a contract of insurance is
required. Contract of insurance is a contract whereby for specified consideration, one
party undertakes to compensate the other for a loss relating to a particular subject as a
result of the occurrence of designated hazards as stated by West's Encyclopedia of
American Law. In short, it is a document which containing terms of contract or policy.
Duty to Disclose
Generally, contracting parties are not required by law to reveal voluntarily all
that they know about the proposed agreement. However, insurance contracts are
exceptional. According to section 21 of the Insurance Contract (IC) Act 1984 34, the
contracting parties who enter into the contract are required to disclose to each other all
information which will influence either partys decision to enter into the contract,
regardless of whether such information was requested or not. Insurance contracts are
uberrimaefidei or of utmost good faith35 because these contracts emphasize on mutual
trust and confidence between the insured and insurer. In other words, a duty to
disclose forms the basis of an insurance contract.
33 Act 553
34 Act No. 80 of Government of Australia
35 S 13(1) of Insurance Contract Act
19

Much emphasis have been placed on the duty to disclose as insurers may be
able to refuse to pay a claim or part of a claim under an insurance policy if the
policyholder has not complied with their duty of disclosure. Therefore, not only the
insured has the responsibility but both insurers and policyholders have a duty to act
towards each other with the utmost good faith. However, section 12 of the IC Act does
not require a higher duty on a policyholder in respect to disclosures made to insurers.
Insured has the heavy responsibility to disclose the subject matter of the insurance as
he knows himself better than anyone else.
The problems regarding the duty to disclose was illustrated in the case of
Lambert v Co-operative Insurance Society Ltd 36. When Mrs Lambert insured her
familys jewellery the insurer did not ask about her husbands previous convictions
and she did not mention them. When Mrs Lambert claimed 311 for lost jewellery, the
insurer avoided the policy. The Court of Appeal held that the insurer was entitled to
do so under the rules of law set out in the 1906 Act 37. The conviction was a material
circumstance, which would have influenced a prudent insurer. It did not matter that a
person in Mrs Lamberts position would not have realized this. The law was clear,
though not necessarily fair.
Furthermore, the requirement to disclose information is also explained in the
case of Carter v. Boehm38by Lord Mansfield. The Lordship held that Mr. Carter as the
proposer owed a duty of utmost good faith (uberrimaefidei) to the insurer under
which he was required to disclose all facts material to the risk. Quoting his words,
Insurance is a contract based upon speculation. The special facts, upon which
the contingent chance is to be computed, lie most commonly in the knowledge
of the insured only; the underwriter trusts to his representation and proceeds
upon the confidence that he does not keep back any circumstance in his
knowledge, to mislead the underwriter into a belief that the circumstance does
not exist, and to induce him to estimate the risque as if it did not exist. Good
36[1975] 2 Lloyds Rep 485
37 Insurance Marine Act 1906
38 (1766) 3 Burr. 1905 at pp. 1909-1910
20

faith forbids either party by concealing what he privately knows, to draw the
other into a bargain from his ignorance of that fact, and his believing the
contrary.
Meanwhile in the case of Goh Chooi Leong v. Public Life Co. Ltd 39, the
insured had suffered pulmonary tuberculosis but did not disclose this fact to the
insurer when the insurer agreed to insure his life for $10,000. When the insured dies
due to this disease, the insurer did not want to pay and claimed the insured failed to
declare the truth of his health condition. The court held that it was a deliberate lie and
the contract was voidable. Gill J held that it is a trite law that a contract of insurance
is a contract of uberrimaefidei which can be avoided for non-disclosure of material
facts. Thus, due to inadequate information by insured, insurer was able to avoid the
contract in this case.
Material Facts
From the cases mentioned above, it can be concluded that the information disclosed
need only be of material facts. Failure to comply with the requirement will give the
other party a right to avoid the contract.There are many decided cases on the
definition of material information because there is no definitive legal definition. The
discussion below provides examples as to what constitutes to a material fact. Material
facts and material information will depend on the class of insurance, but will normally
include the following40:

Business sector and activities, including processes, products and geographical

areas
of business activities
Changes to business activities, acquisitions or disposals in relation to products,
markets, locations or supply chain
Additional premises, risks, insurable items, especially in high risk

geographical,
geological or metrological areas
Higher than ordinary degree of risk, especially in relation to high value or very
fragile (for example) goods

39 [1964] MLJ 5
40Airmic Research
21

Greater liability than normal or expected, possibly because of specific

(industry)
contract terms of trade
Restricted rights of subrogation associated with claims or losses because of the
business sector or specific products
Previous claims history / experience of the business, especially in relation to
historical, emerging or other unexpected risks
Previous policy cancellation / refusal of insurance / special restrictions or

conditions applied to insurance contracts

Details of the trading profitability and financial status of the business,

including
finance, insolvency or liquidation concerns
Status, reputation, length of service, qualifications and experience of board
members, as well as details of any criminal convictions
Material facts are tested whether the facts would influence the mind of a

prudent insurer in deciding whether to accept the risk, and if so, at what premium. It
should be noted that non-disclosure of not material facts will not affect the validity of
the contract. There is an alternative test has been suggested to determine whether the
facts were material in the opinion of a reasonable insured. Nevertheless, the Court of
Appeal in Lambert v. Co-operative Insurance Society Ltd 41have both adopted the test
of prudent insurer. In the case, the defendant refused to indemnity the plaintiff for
the loss of some jewellery insured with them on the grounds that she had failed to
disclose that her husband had been previously convicted for an offence. This was
upheld by the Court of Appeal.
Moreover, the issue of materiality also been questioned in the case of New
India Assurance Co. Ltd v. Pang Piang Chong &Anor42. The defendant insured his
station-wagon and himself against usual third party risks. The vehicle was involved in
an accident in which one Abdon was killed. The insurers sought a declaration that
they were entitled to avoid the insurance on the grounds that the policy was obtained
by a non-disclosure of a material fact, and/or, representation of a fact which was false
in some particular material. The insured had made a statement that he had not been
convicted for an offence in connection with the driving of a motor vehicle. In fact,
41 [1976] 2 Lloyds Rep 631
42 [1971] 2 MLJ 34
22

he had been convicted for driving in contravention of statutory offences not related to
the actual driving of a motor vehicle licence and not displaying an L plate in a
conspicuous position while driving. The application was dismissed by the court. Syed
Othman J held that
Materialmeans of such a nature as to influence the judgement of a prudent
insurer in determining whether he will take the risk, and, if so, at what premium &
on what conditions.
In short, the duty to disclose only extends from the stage of negotiations right
to the conclusion of the contract of insurance. In the absence of specific terms in the
contract, there is no further duty to disclose material facts by the insured after the
conclusion of the contract even though there is a subsequent increase in the risk.
However, in respect of policies that require renewal, the duty to disclose arises afresh
upon each renewal of the contract.

Question 4(a) Discuss the rights (condition and warranty) conferred by Section
7(1)(b) of The Hire-Purchase Act 1967 (Act 212) to the hirer.

23

Hire Purchase Agreement means the agreement entered into between the hirer
and the owner in relation to the goods. In this agreement the title of the goods remains
with the owner despite possession been given to the hirer. Owner is the person who
sells his or her property to a hirer under a hire-purchase agreement Hirer is the
person who buys property from an owner under a hire-purchase agreement.
According to Section 7, there are certain conditions and warranties to be implied in
every hire-purchase agreement. Section 7(1) states that in every hire-purchase
agreement there shall be:
(a) an implied warranty that the hirer shall have and enjoy quiet possession of the
goods;
(b) an implied condition on the part of the owner that he shall have a right to sell
the goods at the time when the property is to pass;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party at the time when the property is to
pass.
Unless the agreement involve second hand goods, merchantable quality of the goods,
and the condition of goods regarding fitness for purpose, otherwise these implied
conditions and warranties cannot be excluded or modified.
Section 7(1)(b) is about the condition as to title. In a hire-purchase agreement,
a sale does not occur till the hirer has exercised his or her option to purchase. Under
this section, during the time of the agreement, the title of the property does not have to
be in the hand of the owner. The title of the property is required by the owner only
when the property is to be passed to the hirer, which means when the hirer finished all
the instalments. English authorities have expressed the view that the party letting out
goods on hire-purchase should have title at the time of delivery to the hirer because
the option to purchase can be exercised at any time after the delivery.
In the case of Goddard J. inKarflex Ltd v. Poole [1993],43 the plaintiffs
described themselves as the owners of a motor car and agreed to hire it to a hirer who
is the defendant in this case on the terms that in consideration of an initial payment of
95, the hirer should have the option of purchasing it at any time during the currency
of the agreement on making certain agreed payments. However, the hirer failed to
pay his monthly payments and the plaintiffs re-took the possession of the motor car
43[1933] All ER Rep 46
24

and commenced this action to recover agreed compensation. Before the action was
tried the hirer argued that the plaintiffs were not in fact the owners of the motor car at
the date of agreement as it have been sold to them by a person who had no title to it.
Therefore he counter-claimed the 95 paid by him on entering the agreement. The
court had held that the owner impliedly contracts not that he will at some time
become possessed of that property during the currency of the agreement, but that he is
the owner of the property at the time he lets it out. So the plaintiffs were not entitled
to pay back the initial payment and the defendant was entitled to recover the amount
already paid by him.
In Public Finance Bhd v Ehwan bin Saring,44where by the respondent
purchased a motorcar from T for RM 82000, and paid RM 40517.97 to T and RM
16482.03 to appellants. He entered a hire-purchase agreement with the appellants for
the balancing amount and the appellants advance to the respondent a total amount of
RM 25000 to pay T the balance of the purchase price. However, the Custom and
Excise Department seized and forfeited the vehicle for an alleged offence. The
respondent claimed for the RM 57000. MohdGhazali J. held that the appellants had
held themselves out as owners of the vehicle at the time the agreement was entered
into. Since the vehicle was seized by the Customs, it had become impossible for the
appellants to pass a good title to the respondent. Therefore, the appellants must return
the RM 57000 that they received from the respondent.
In conclusion, the main purpose for this section is to protect the right of the
hirer to receive the title of the property he or she has bought under the hire-purchase
agreement when he or she has paid the last instalment. If the owner doesnt have the
title to the property at the time when the property is to pass, which is at the time when
the hirer paid the last instalment, the hirer can claimed whatever the he or she had lost
under this section.

Question 4(b) Explain the meaning and procedure of re-possession under The
Hire-Purchase Act 1967 (Act 212). (LO3)

44[1996] 1 MLJ. 331

25

In general, repossession is a process where a lender or seller can take the

property from the borrower or buyer usually due to default of the latter.45 Lender or
seller is referring to the owner of the property whereas borrower or buyer is referring
to the hirer. So, repossession occurs where there is default by the hirer, for the nonpayment of installments.46 Detailed provisions of setting out the rights and obligations
of both hirer and owner in the event of repossession of the goods can be found in
Sections 16 to 20 of the Hire-Purchase Act 1967.
The process of the repossession is defined in the case of KohSiak Poo v MedBumikar Mara Sdn Bhd.47 In this case, the court held that when a hirer breaches a
hire-purchase agreement relating to payment of installments of sums of money, the
owner may take possession of the goods if he complies with Section 16(1) of HirePurchase Act 1967. This section clearly states that an owner shall not exercise any
power of taking possession of goods unless:
i.

The hirer has defaulted in two successive payments or defaulted in

ii.

respect of the last payment, and

The owner has served on the hirer a notice, in writing in the form set

iii.

out in the Fourth Schedule of the Act, and

The period fixed by the notice has expired, which shall not be less than
twenty-one days after the service of the notice.

However, the owner cannot repossess the goods if he did not comply with the
notice that set out in the Fourth Schedule of the Act. The following cases illustrate the
effect of non-compliance with notice under Section 16(1) of the Hire-Purchase Act
1967, that is the notice set out in the Fourth Schedule of the Act. In the case of Pang
Bros Motors SdnBhd v Lee Aik Seng,48 the date specified in the notice was short of

45 Retrieved from http://www.investorwords.com/4188/repossession.html

46See cases relating to various aspects of repossession: KaYim Credit & Leasing SdnBhd v.
Pang Kim Cha & Bros DevSdnBhd [1989] 2 MLJ 61; Pang Brothers Motors SdnBhd v. Lee
Aik Seng [1987] 1 MLJ 179; United Manufactures SdnBhd v. Sulaiman bin Ahmad &Anor
[1989] 1 MLJ 482.
47[1994] 3 MLJ 610
48[1978] 1 MLJ 179
26

two days for the statutory minimum number of days (21 days). The court held that the
notice was bad in law even if served and its effect was therefore null and void.
Besides that, the hirer can use the reasonable force to oust persons from his
place or house and it is illustrated in the case of Public Prosecutor v Mohamed
Nor.49In this case, the hirer failed to pay monthly installment and the owner had sent
their agents to repossess the car without giving prior notice that set out in the Fourth
Schedule of the Act. However, the hirer used physical violence to oppose
repossession. The court held that the owners action was invalid as he did not comply
with the Section 16(1) of the Hire-Purchase Act 1967 and the hirer has a right to use
reasonable force the goods.
In the case where a hirer is a deceased, an owner shall not exercise any power
of taking possession of goods unless there had been four successive defaults of
payments by virtue of Section 16(1A) of the Act. The rational of this section is to give
time for deceaseds relatives to settle deceased estates. However, if there are
reasonable grounds for believing that the goods will be removed or concealed by the
hirer, the owner need not comply with the subsection (1). The onus of providing the
existence of those grounds lies upon the owner.
According to Section 16(3) of the Hire-Purchase Act 1967, a notice in the
writing in the form set out in the Fifth Schedule of the Act shall be served on the hirer
or every guarantor by the owner within twenty-one days after he has taken possession
of the goods. However, if the notice that required by subsection (3) is not served, the
owners right under the hire-purchase agreement cease and determine unless the hirer
exercises his right to recover the possessed goods in accordance with Section 16(6) of
the Act. Moreover, the owner has the duty to provide a receipt which set out the short
description of the goods and the date and the place where the owner taking possession
of the goods. While, Section 16A states that a hirer who returns goods within twentyone days after the service on him of the notice set out in the Fourth Schedule shall not
be liable to pay the cost of possession, the cost incidental to taking possession and the
cost of storage.
Next, Section 17 of the Hire-Purchase Act 1967 clearly states that the owner
shall not sell or dispose the goods without the written consent of the hirer until the
49 [1988] 3 MLJ 119
27

expiry of the twenty-one days after the date of the service on the hirer of the required
notice prescribed in Section 16(3). If the notice is under Section 18(1)(a), the owner
must not sell or dispose the goods until the time for payment or tender pursuant to the
notice has been expired. Any sale in contravention of this section constitutes an
offence.
The hirers rights and immunities when goods are repossessed will be
discussed under Section 18 of the Hire-Purchase Act 1967. The hirer may give a
notice to the owner within twenty-one days after received a notice under Section
16(3), to require the owner to:
i.

redeliver to or to his order the goods that have been repossessed

(subject to compliance by the hirer with the provisions of section 19);

ii.

or
sell the goods to any person introduced by the hirer who is prepared
to buy for cash at a price not less than the estimated value of the
goods set out in the first mentioned notice.

In general, the hirer may recover from the owner the difference in amount
where the value of the goods exceeds the money owed or the total net amount paid
exceeds the debt. Under the Section 18(4), where an owner intends to sell the goods
either by auction or by private treaty, the owner is required to give the hirer an option
to purchase at the price at which he intends to sell if the price less than the owners
estimate of the value where it is otherwise than by auction. Failure of the owner to
comply with this section is an offence.
The hirer may regain the possession of the goods if the conditions outlined in
the Section 19(1) of the Act are met. Within the twenty-one days after giving notice to
the owner pursuant to Section 18(1), the hirer:
i.

pays or tenders to the owner any amount due in respect of the period

ii.

of hiring up to the date of the payment or tender,

remedies any breach of the agreement or where he is unable to remedy

iii.

the breach because the owner has taken possession of the goods,
pays or tenders to the owner the reasonable costs and expenses of the
owner of and incidental to his taking possession of the goods and of
his returning them to the hirer.

28

Therefore, the owner shall forthwith return the goods to the hirer and the
goods shall be received and held by the hirer pursuant to the terms of the hirepurchase agreement as if the breach had not occurred and the owner had not taken
possession.

29

References
Statutes
Hire-Purchase Act 1967 (Act 212).
Insurance Act 1996
Laws of Malaysia, Federal Constitution
Law Reform (Frustrated Contracts) Act 1943
Marine Insurance Act 1906 (the 1906 Act)
Specific Relief Act 1950
The Contract Act 1950

Books
Buxbaum, D. C. (1968). Family Law And Customary Law in Asia: A Contemporary
Legal Perspective. Martinus Nijhoff Publishers.
Tocqueville, A. d. (1997). Democracy in America. Influence of Democratic Ideas and
Feelings on Political Society.
Wan Arfah Hamzah, R. B. (2003). An Introduction to the Malaysian Legal System.
Fajar Bakti Sdn.
Vohrah, B., & Wu, M. A. (2000). The Commercial Law of Malaysia. Longman.

Journal
LIM. "Insurance Malaysia." Insurance Malaysia. Insurance Malaysia, 5 Aug. 2013.
Web. 29 Nov. 2013.
LM Friedman, (1990) Legal Culture and the Welfare State Social Change as an
Engine of Legal Change p269-278

Montesquieu, The Spirit of the Laws, vol. 1, trans. Thomas Nugent (London: J.
Nourse, 1777), pp. 221-237, passim.

30

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group,
Inc.
Websites Retrieved
Law Commission. Retrieved from
http://lawcommission.justice.gov.uk/areas/consumer-insurance.htm
The Law Handbook. Retrieved from
http://www.lawhandbook.org.au/handbook/ch23s01s06.php#Ch136Se57234
http://www.legalmax.info/members2/sog/karflex.htm
http://www.ukessays.com/essays/law/instances-where-the-contract-is-void-lawessay.php
http://arifomar.blogspot.com/2010/05/malayan-law-journal-kes-jual-beli.html

31