AYER HITAM TIN DREDGING

MALAYSIA BHD V YC CHIN

ENTERPRISES SDN BHD [1994] 2 MLJ
754

GROUP MEMBER:
WAN HAZIQAH
SHARENA
DANIA IMAAN
FATINI MAT SAAD
HAIRINA MALIK
 PARTIES INVOLVED IN THIS
CASE

YC CHIN
ENTERPRIS
E SDN BHD

PARTIES
INVOLVE
D
AYER
MALAYSIA
HITAM TIN
MINING
DREDGING
CORP BHD
MALAYSIA
(MMCB)
BHD
 SUMMARY/FACTS OF THE CASE

The recorded provided shows that in March 1981,the

plaintiff( YC CHIN) had entered into negotiations with a third
party, Malaysia Mining Corp Bhd. (MMCB) a majority
shareholder of the defendant to develop and construct low-
cost houses and shop houses for the defendant (AHTD)
AHTD wrote a letter to YC CHIN accepting their proposals in
respect of the project
In reliance upon the letter, YC CHIN proceeded to perform
some of the terms stated in the letter.
However, AHTD instructed to cease all the work stating that
the negotiations was still ongoing for a future agreement.
The trial judge found that there was a contract and allowed
YC CHIN to claimed for breach.
Therefore AHTD had decided to appeal.
 ISSUE

“ Whether there was a concluded contract

between the Ayer Hitam Tin Dredging Malaysia
Bhd ( AHTD) as employer and YC Chin as
contractor ’’
 SUPREME COURT (IPOH)

The trial judge found that there

was a contract and allowed YC
CHIN’s claim for breach of
contract.

AHTD APPEALED
 JUDGEMENT

CROSSLEY v MAYCOCK

“ If an agreement is made subject to certain

conditions, then until those conditions are
accepted, there is no enforceable final
agreement.”
 EDGAR JOSEPH JR SCJ

The judge have

dismissed the
The liability of the
plaintiff’s claim for
defendant would be
general and special
on a quantum meruit
damages for breach
basis not exceeding
of contract and
RM300,000
interest on such
damages
GENERAL PRINCIPLE

ACCEPTANCE
 ACCEPTANCE MUST BE ABSOLUTE
AND UNQUALIFIED

As stated in section 7 (a) of the Contracts Act is

that an acceptance must be an unconditional
assent to the terms proposed in the offer. This
principle was stated in The Ka Wah Bank Ltd v
Nadinus Sdn Bhd & Anor as follows:

According to Chitty on Contracts, 26 th Ed(1989)

Vol I, para 54, p 44, ‘an acceptance is a final and
unqualified expression of assent to the terms of
the offer’. But where the reply is qualified or
attempts to vary the terms of the offer or
attempts to accept an offer on new terms (not
contained in the offer), then such reply is not a
communication of an acceptance but may be a
 ACCEPTANCE MADE “SUBJECT TO
CONTRACT” OR TO FULFIL CONDITION
PRECEDENT

- It is unusual to find commercial documents containing phrases

such as “subject to contract”, “without prejudice” or “a formal
agreement would be prepared and executed”.
- The questions arises whether these qualified statement constitute
a valid acceptance bringing forth legal obligations to the parties.
- There are two approaches to this matter:
- There is no contract and the court will construe such words so
as to postpone liability until the formal contract signed.
- Another view is that the parties have already entered into a
legally binding contract and the execution and signing of the
document is a mere formality.
- To determine whether the parties intend presently to be bound to
each other or whether, no matter how complete their arrangements
might appear to be, they do not so intend until the concurrence of
some further event, including the signature of some further
document or the making of some further arrangement.
 KAM MAH THEATRE SDN BHD V TAN
LAY SOON

The alleged contract contained a proviso that the

sale and purchase agreement shall incorporate
“other usual terms and conditions”.
The Supreme Court was of the view that the
proviso would have the same effect as if the
formula “subject to the contract” had been in the
document.
Court held that the formula “subject to the
contract” gives rise to a strong presumption of
the necessity of a further formal contract.
On the facts, the Court held that there was no
contract at all and that documents was dependent
on the signing of a formal contract to be further
Branca v Cobarro, the agreement entered into
by the parties contained a clause as follows: ‘
This is a provisional agreement until a fully
legalized agreement, drawn up by a solicitor
and embodying all the conditions herewith
stated, is signed’.
It was held by the Court of Appeal that a
binding into an agreement had come into effect.
Generally, when an agreement is made ‘subject
to the contract’ or ‘subject to the preparation
and approval of a formal contract’ and similar
expressions, it will generally be construed to
mean that the parties are still in state of
negotiation and do not intend to be bound
unless and until a formal contract is exchanged.
GENERAL PRINCIPLE
Intention to create
legal relationS
 INTENTION TO CREATE
LEGAL RELATIONS

The intention of the party to

become legally bound with legal
consequences to sue and be
sued.
 INTENTION TO CREATE
LEGAL RELATIONS

• No provision in the Contracts Act 1950 for the

element of intention to create legal relations, hence
the courts in Malaysia have applied common law
cases.
• The parties to an agreement must have the
intention to enter into a legal relationship between
them.
• In determining the intention of the parties, two
presumptions have been developed:
 Domestic/social agreements (GR: no ITCLR)
 Business/commercial agreements (GR: there is
ITCLR)
 BUSINESS/COMMERCIAL
AGREEMENTS

• In contrast with social/domestic agreements

where there is a presumption that there is no
legal relations, in business/commercial
agreements, the general rule is that such
intention exists.
• This is to facilitate trade and commerce and to
promote certainty in business transactions.
• However, this presumption may be rebutted
(contractual clauses may be employed to
negative contractual intention, e.g, "subject to
formal contract" clause)
 CONTRACTUAL CLAUSES

• If the parties have made the agreement with the

phrase "subject to formal contract":
 It is usually used to express that the oral or informal
agreement is not binding until the execution of a full
and final agreement in a formal written instrument.
 i.e. Winn v Bull
• If an agreement is made "subject to terms and
conditions":
 Until those conditions are accepted, there is no
enforceable final agreement.
 LETTER OF INTENT

• A document which expresses the intention of a party to

enter into a contract at a future date by outlining the terms
which are intended to be included in a finalised agreement.
• It is a mere negotiation, not a formal contract.
• However, if both parties expect a formal contract to
eventuate, but one party requests the other to commence
work, the work done is treated as having been done under
the expected contract, and if no contract is entered into, the
party carrying out the work can claim payment under the
principle of quantum meruit, i.e. a reasonable price for work
done pursuant the said request.
 RATIO DECIDENDI

ACCEPTANCE MUST BE
ABSOLUTE AND
UNQUALIFIED
ACCEPTANCE MADE
“SUBJECT TO
CONTRACT” OR TO
FULLFILL CONDITION
PRECEDENT
• "Subject to the following terms and conditions"
negatived the intention because the conditions
are yet to be accepted. (letter of 19
September 1984, condition (vi))
• No formal contract was concluded. (letter of 5
August 1987, "To date, we have yet to receive
from your office the formal master
agreement...")
• It was only a letter of intent, but since the
plaintiff had commenced the preliminary
works, quantum meruit will be awarded.
o THERE IS NO CONTRACT AND THE COURT
WILL CONSTRUE SUCH WORDS SO AS TO
POSTPONE LIABILITY UNTIL THE FORMAL
DOCUMENT IS SIGNED.
o PLAINTIFF’S CLAIM FOR GENERAL AND
SPECIAL DAMAGES FOR BREACH OF
CONTRACT AND INTEREST ON SUCH
DAMAGES HAVE BEEN DISMISSED BY THE
JUDGES AS THEY WAS NEVER A
CONCLUDED CONTRACT, HOWEVER, A
CLAIM ON QUANTUM MERUIT IS
GRANTED.