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Discharge of Contract by Frustration in Malaysia: An Overview

Contracts are legally binding agreements between parties, created to ensure that each party fulfills its obligations and responsibilities. However, there are instances where a contract cannot be fulfilled due to unforeseen circumstances or events beyond the control of the parties involved. When this happens, the contract may be discharged by frustration.

In Malaysia, the doctrine of frustration is recognized under Section 57(2) of the Contracts Act 1950. According to this section, a contract may be discharged by frustration if the performance of the contract becomes impossible or unlawful due to an event that occurs after the contract was made.

Frustration may result from a variety of events, such as natural disasters, war, government intervention, or sudden illness or death. The event must not have been foreseeable or anticipated at the time the contract was made, and it must make the performance of the contract impossible or significantly different from what was initially agreed upon.

For example, if a company contracts with a supplier to deliver goods from overseas, but the government imposes an embargo on the country of origin, preventing the goods from being exported, the contract may be discharged by frustration.

When a contract is discharged by frustration, both parties are released from their obligations, and any payments made prior to the frustrating event may be refunded. However, if one party has already performed before the frustrating event occurred, they may be entitled to payment for the work done.

It is important to note that frustration does not terminate a contract automatically. The party seeking to rely on frustration must provide evidence of the event that caused the frustration, and the court will determine if the frustration is sufficient to discharge the contract.

In conclusion, the doctrine of frustration provides a means for parties to be released from their obligations under a contract when unforeseen events make performance impossible. It is important for parties to understand the circumstances under which a contract may be discharged by frustration and to seek legal advice when necessary.