Yew Huoi, How & Associates | Leading Malaysia Law Firm

CONTRACT- FORMATION- CONSENSUS AD IDEM

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.

Sorotan Terkini

JURISDICTION – CHOOSING THE RIGHT COURT: THE SEA JUSTICE CASE HIGHLIGHTS WHERE MARITIME DISPUTES SHOULD BE HEARD

In The Sea Justice cases [2024] 2 Lloyd’s Rep 383 and [2024] 2 Lloyd’s Rep 429, the Singapore courts tackled a key question: which country should handle a maritime dispute when incidents span international waters? After examining the location of the collision, existing limitation funds in China, and witness availability, the courts concluded that China was the more appropriate forum. This ruling highlights that courts will often defer to the jurisdiction with the closest ties to the incident, ensuring efficient and fair handling of cross-border maritime disputes. This approach is also relevant in Malaysia, where similar principles apply.

Read More »

BREACH OF CONTRACT – FORCE MAJEURE – FORCE MAJEURE UNPACKED: WHEN ‘REASONABLE ENDEAVOURS’ DON’T BEND CONTRACT TERMS

The UK Supreme Court clarified the limits of force majeure clauses, ruling that “reasonable endeavours” do not require a party to accept alternative performance outside the agreed contract terms. This decision emphasizes that force majeure clauses are meant to uphold, not alter, original obligations – even in unexpected circumstances. The case serves as a reminder for businesses to define alternative options explicitly within their contracts if flexibility is desired.

Read More »

NEGLIGENCE – MEDICAL NEGLIGENCE – HOSPITAL ACCOUNTABILITY REINFORCED: COURT UPHOLDS NON-DELEGABLE DUTY IN MEDICAL NEGLIGENCE

In a landmark ruling, the court reinforced the hospital’s non-delegable duty of care, holding that even when services are outsourced to independent contractors, the hospital remains accountable for patient welfare. This decision emphasizes that vulnerable patients, reliant on medical institutions, must be safeguarded against harm caused by third-party providers. The ruling ultimately rejected the hospital’s defense of independence for contracted consultants, underscoring a high standard of duty owed to patients.

Read More »

CONTRACTS – CONTRACT FOR THE SALE OF GOODS FOB – REMOTENESS OF DAMAGES IN BACK-TO-BACK CONTRACTS – COURT DEFINES LIMITS ON LIABILITY

In a complex dispute involving back-to-back contracts, the court clarified the boundaries for assessing damages, emphasizing that a chain of contracts does not automatically ensure liability passes through. Although substantial losses resulted from delays and disruption, the court highlighted the importance of the remoteness of damages, noting that each contract’s unique terms ultimately limited liability. This decision emphasise the need for parties in chain contracts to carefully define indemnity and liability provisions, as damages are assessed based on foreseeability rather than simply the structure of linked agreements.

Read More »

TORT – BREAKING CONFIDENTIALITY – COURT CRACKS DOWN ON INSIDER LEAKS AND CORPORATE CONSPIRACY

In a recent ruling on corporate confidentiality, the court held two former employees liable for disclosing sensitive business information to a competitor, deeming it a breach of both employment contracts and fiduciary duties. This case highlights the serious consequences of unauthorized sharing of proprietary data and reinforces that such disclosures can lead to substantial legal and financial repercussions, even for the receiving parties if they knowingly benefit from confidential information.

Read More »
ms_MYMY
× Hubungi Kami