CONTRACT- FORMATION- CONSENSUS AD IDEM

Legal Updates from YHA Law Firm

Developer K Sdn Bhd has entered into a contract with the main contractor J Sdn Bhd. J Sdn Bhd later appointed M to be its subcontractor. A contract was entered between K Sdn Bhd and J Sdn Bhd on 1.4.2019. M has accepted J Sdn Bhd’s request to be their sub-contractor. Later, M set up a new company called M Sdn Bhd on 1.6.2022 to undertake the work. M and M Sdn Bhd were dealing directly with K Sdn Bhd and K’s consultant all along.

Later, it was discovered that M Sdn Bhd both departed from the original specification of the construction contract between K Sdn Bhd and J Sdn Bhd. When the deadline was approaching, K Sdn Bhd confronted both J Sdn Bhd and M Sdn Bhd about the departure from the earlier contract. M Sdn Bhd later asked for an extension of time. Rejected. K Sdn Bhd insisted on the project being completed on time. Can M Sdn Bhd sue K Sdn Bhd for unreasonably refusing an extension of time?

Q: Is there a valid contract between K Sdn Bhd and M Sdn Bhd?

A: No, the contract is formed between K Sdn Bhd and J Sdn Bhd. There will only be a contract between K Sdn Bhd and M Sdn Bhd if there is a novation to M Sdn Bhd.

Q: Can subcontractor M Sdn Bhd claim they are one of the entities as J Sdn Bhd?

A: No, they are two separate corporate entities.

Q: What is a novation?

A: Novation is the transfer of legal obligations from one party to another party. Without novation between J Sdn Bhd and K Sdn Bhd, there is no valid contract between K Sdn Bhd and M Sdn Bhd. Even though M Sdn Bhd has commenced the work and has been dealing directly with K Sdn Bhd and K’s consultant.

Q: What are the elements of novation?

A: The contracting parties in the existing contract must agree that:

One party no longer wants to be bound by contract terms anymore, and a new party will replace him;
The new party takes the burden of the contract; and
Both parties to the existing contract agree that the new contracting party will perform the contract.

Q: Other than legal requirements, what element is needed in order to form a valid contract between K Sdn Bhd and M Sdn Bhd?

A: There must be consensus ad idem i.e. meaning of minds between the parties. Both parties must agree to and accept the terms of the contract.

Q: Can M Sdn Bhd claim that J Snd Bhd is negotiating with K Sdn Bhd on its behalf before it was incorporated on 1.6.2022?

A: No. M Sdn Bhd could not rely on s.35(1) and (2) of the Companies Act 1965. Under s.35(1), a contract entered prior to the formation of a company can only be ratified (validating the contract) if the contract is entered by someone representing the company (an agent). J Sdn Bhd is not an agent of M Sdn Bhd. To be an agent, J Sdn Bhd has to make it clear to K Sdn Bhd that they are representing M Sdn Bhd for negotiation. M Sdn Bhd has no right to ratify the contract since the contract is between K Sdn Bhd and J Sdn Bhd.

ADMIRALTY IN REM – WRONGFUL ARREST – POSSESORY RIGHT – ARREST GONE WRONG: WHEN A SHIP ARREST BACKFIRES WITH DAMAGES

In Eletson Holdings Inc & Ors v The Vessel “Paros” [2026] 8 MLJ 80, the High Court set aside an arrest after finding that the plaintiffs had no proprietary or possessory right to the vessel at the time of the writ, as the bareboat charter had already been terminated. The Court held that the claim was in substance a corporate control dispute dressed up as an admiralty action, and emphasised that such disputes do not fall within admiralty jurisdiction. Critically, the plaintiffs’ failure to disclose the termination of the charter when obtaining the arrest warrant amounted to a serious breach, leading the Court to find mala fides or gross negligence and order damages for wrongful arrest. The decision reinforces that ship arrest is a powerful remedy that must be exercised with full disclosure and a proper maritime foundation.

14 July ,2026 No Comments

GUARANTEE – PERSONAL GUARANTEE ≠ PAY ON DEMAND: COURT DRAWS THE LINE BETWEEN SURETYSHIP AND DEMAND GUARANTEES

In CE Energy DMCC v Bashar [2026] Lloyds’s Rep 267, the Commercial Court clarified that not all guarantees labelled “on demand” will be treated as demand guarantees. On a proper construction, the court held that the personal guarantee in question was a contract of suretyship, requiring proof of the principal debtor’s liability rather than automatic payment upon demand. Crucially, the court found that the debtor’s “irrevocable” admissions of debt in a payment agreement created a binding contractual estoppel, which the guarantor could not challenge. The decision also confirms that, where payment is due on a “day certain”, a seller may still claim the price notwithstanding retention of title. The case underscores the importance of precise drafting and the risks of entering into settlement agreements that conclusively fix liability.

14 July ,2026 No Comments

MARITIME NEGLIGENCE – PLAINTIFF CLAIMED FOR DAMAGES CAUSED DURING ANCHOR DEPLOYMENT OPERATION – CALDERBANK OFFERS

In Tom Eastwind 365 Sdn Bhd v The Owners of the Vessel “Icon Sophia” [2025] 9 MLJ 397, the High Court held that the doctrine of res ipsa loquitur applied in a maritime collision during an anchor deployment operation, allowing an inference of negligence against the tug owner. The Court clarified that the doctrine is not defeated merely because the defendant adduces evidence explaining the accident – such evidence goes to rebutting the inference, not preventing it. While liability was established due to the tug master’s error of judgment in manoeuvring too close to a stationary barge, the plaintiff failed to properly prove its damages and was awarded only RM50,000. Notably, despite succeeding on liability, the plaintiff was ordered to pay costs after rejecting reasonable Calderbank offers, underscoring the risks of pursuing litigation without properly substantiated claims.

14 July ,2026 No Comments

JURISDICTION – BILLS OF LADING – BREACH OF HIMALAYA CLAUSE – BREACH OF EXCLUSIVE JURISDICTION CLAUSE – ONEROUS OR UNUSUAL TERMS

In Maersk Guinéa-Bissau SARL v Almar-Hum Bubacar Baldé SARL [2026] 1 Lloyd’s Rep 215, the English Commercial Court held that a shipper was liable for breach of an exclusive jurisdiction clause and a Himalaya clause after commencing proceedings in Guinea-Bissau instead of England. The Court confirmed that such clauses are standard and enforceable, and that commencing foreign proceedings in breach of them can give rise to a claim for damages. Notably, the Court also recognised that Himalaya clauses may be used offensively, allowing subcontractors to recover losses caused by wrongful litigation. The foreign judgment was not recognised due to lack of jurisdiction and denial of natural justice.

14 July ,2026 No Comments

DELIVERY WITHOUT PRESENTATION OF BILL OF LADING – LOI WON’T SAVE YOU: SHIPOWNER LIABLE FOR MISDELIVERY DESPITE INDEMNITY

In United Overseas Bank Ltd v The “Maersk Katalin” [2026] 1 Lloyd’s Rep 18, the Singapore High Court reaffirmed that delivery of cargo without presentation of original bills of lading remains a fundamental breach, even where carried out against letters of indemnity. The Court held that LOIs merely shift commercial risk but do not authorise misdelivery, and rejected arguments of consent, ratification and causation. Significantly, the Court emphasised that the burden lies on the carrier to prove that the loss would have occurred in any event – a burden not easily discharged. The decision underscores the continued strict liability regime in misdelivery cases, particularly where banks as bill holders are involved.

14 July ,2026 No Comments

CONTRACT LAW – ‘UK COURTS’ MEANS ENGLAND: COURT UPHOLDS JURISDICTION DESPITE VAGUE CLAUSE

In SMT Global Logistics Ltd v Georgian Airlines LLC [2025] Lloyd’s Rep. Plus 89, the Commercial Court held that a clause referring disputes to “the court in accordance with current legislation of the United Kingdom” was a valid jurisdiction clause in favour of the High Court of England and Wales. The Court also confirmed that the Montreal Convention does not apply to pure contractual claims for non-performance, such as repayment and loss of profits. Emphasising a broad and commercially sensible interpretation, the Court enforced the parties’ choice of forum and refused to stay proceedings, reaffirming that jurisdiction clauses will be upheld unless there are overwhelming reasons to depart.

14 July ,2026 No Comments