Issue

Whether the court will impose the implied terms to the said Tenancy Agreement as
rendered by the plaintiff to include unauthorized tampering of the fittings at the
Health Spa is not accepted and amount to breach of contract.

Law

Besides express terms agreed by parties, a contract may also have rights and
labilities arising from terms which are implied to give effect to the parties` presumed
intentions. The Contract Act 1950 does not provide for implied terms and the
Malaysian courts have applied the common law on implied terms.

There are three ways in which a term can be implied; (i) by custom or usage; (ii) by
law (common law or statue); and (iii) by the courts (from the facts of the particular
contract). By referring to the famous passage of Peh Swee Chin FCJs judgment in
the Federal Court case of Sababumi (Sandakan) Sdn Bhd v. Datuk Yap Pak Leong
[1998] 3 CLJ 503; [1998] 3 MLJ 151 where it was held, and I quote at great length,
as follows:

Implied terms are of three types. The first and most important type is an
implied term which the court infers from evidence that the parties to a contract
must have intended to include it in the contract though it has not been
expressly set out in the contact. The implied term contended for in this appeal
belongs to this type and much more about this later.

This type is dependent on a court drawing an inference as explained above, there

are two tests to fix the parties with such an intention, ie that the parties must have
intended to include such an implied term in the contract. The first test is a subjective
test, as stated by MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2
KB 206 at p. 227, that such a term to be implied by a court is something so obvious
that it goes without saying, so that if, while the parties were making their bargain, an
officious bystander were to suggest some express provision for it in the agreement,
they would testily suppress his with a common Oh, of course.

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The second test is that the implied term should be of a kind that will give business
efficacy to the transaction of the contract of both parties. The test was described by
Lord Wright in Luxor (Eastbourne) Ltd & Ors v. Cooper [1941] AC 108 at p. 137, that
in regard to an implied term, it can be predicated that It goes without saying,
some term not expressed but necessary to give the transaction such business
efficacy as the parties must have intended. Business efficacy in my opinion, simply
means the desired result of the business in question. Thus, in Shirlaws case,
Shirlaw who was appointed the managing director by the defendant company for 10
years, sued for and obtained damages for breach of agreement. It was held that it
was an implied term that the defendant company would not alter its articles of
association to create a right for itself to remove the plaintiff before the 10 year term
expired. The implied term inferred by the court there was to let both parties achieve
the desired result that the post of the managing director would continue to be
available for 10 years to Shirlaw as both parties must have intended it at the time
when making the agreement.

The testy answer to the question of the officious bystander of Oh, of course spoken
of by Mackinnon LJ was described equally elaborately by Scrutton LJ in Reigate v.
Union Manufacturing Co (Ramsbottom) Ltd & Anor [1918] 1 KB 592 at p. 605 as
of course, so and so will happen, we did not trouble to say that, it is too clear.

Both tests in my opinion must be satisfied before a court infers an implied term.
Thus, Lord Wilberforce in Liverpool City Council v. Irwin & Anor [1977] AC 239 at p.
254 spoke of an implied term as a matter of necessity, so that the element of
business efficacy is inseparable. Lord Simon of Glaisdale in BP Refinery
(Westernport) Pty Ltd v. Hastings Shire Council (1977) 16 ALR 363 described both
tests as conditions the compliance of which the court must be satisfied, in addition to
what I may describe as other requirements, of existing law. Closer to home, Chong
Siew Fai J (as he then was) in Yap Nyo Nyok v. Bath Pharmacy Sdn Bhd [1993] 2
MLJ 250 held that both tests must be satisfied. If the implied term was not necessary
to give business efficacy, the answer to the officious bystander, would have been a
testy answer of Oh, dont talk rubbish.

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The issue of implied terms will only come into the picture if the particular terms of the
contract are not expressly stated. The court shall not add or subtract the terms of the
contract if the parties have clearly and expressly agreed on the said terms.

This preposition of law can be seen in another Federal Court case of Tang Chiok
Sing v. Lian Fatt Sawmill Co [1976] 1 LNS 155; [1976] 2 MLJ 241 which referred to
the case of Reigate v. Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592
where it was held as follows:

The first thing is to see what the parties have expressed in the contract; and then an
implied term is not to be added because the court thinks it would have been
reasonable to have inserted it in the contract. A term can only be implied if it is
necessary in the business sense to give efficacy to the contract; that is, if it is such a
term that it can confidently be said that if at the time the contract was being
negotiated someone had said to the parties, What will happen in such a case, they
would both have replied, Of course, so and so will happen; we did not trouble to say
that; it is too clear. Unless the court comes to such a conclusion as that, it ought not
to imply a term which the parties themselves have not expressed.

On further referring to a case of Metropolis Security Services Sdn Bhd V. Ansell

Industrial & Specialty Gloves (M) Sdn Bhd & Anor where in the present case, the
appellant entered into an agreement (the agreement) with the first respondent, inter
alia, to provide services of unarmed static guards as specified under the Schedule of
Service of the agreement. Although the location or premise was not mentioned in the
agreement, it was not disputed that the premise was a factory owned by the second
respondent at the material time. Following an incident of break-in causing two main
substations at the factory being severely damaged and copper wiring stolen from
both substation, the respondents proceeded to file a claim against the appellant in
the Sessions Court for breach of contract for the damages suffered. The court held
that the terms in the schedule of service of the said agreement is crystal clear. The
term static is used and agreed by both parties. The term static is understood to
mean stationary, not active, not moving and definitely as regards to the facts of the
present case, not patrolling. Since the parties have made it clear in the said
agreement, there is no need to imply any additional terms to the said agreement. It

3
would be a different matter altogether should the term static was never there in the
said agreement.

Application

In this case between Novo Hotel and Perniagaan Spanova, the issue of implied
terms arise due to particular terms of the contract are not expressly stated. This is
because, the defendant argued that, the agreement was silent in regard to the
purpose of the hot shower outlet in the bathroom and hence they were not prohibited
from using the hot shower outlet to fill up the jacuzzi.

In order for the court to determine whether there is an implied term inside the said
Tenancy Agreement, these two test which are Oh, of course test and business
efficacy test must be fulfilled as stated by Lord Wilberforce.

When the parties entered into a contract, the term implied by court is something so
obvious so that it goes without saying. Here, it can be said that the plaintiff is Novo
Hotel which are in the hospitality business whereas they dealt with new customer
every day. Thus the plaintiff must ensure the safety of the building is preserve as any
damages and injured suffered by the customer or any people that is inside the
premise or in vicinity the plaintiff would be held liable under law of occupier liability.
On entering into a contract of rent a premise inside this Novo Hotel building, the
defendant should obviously know that any action taken by them that endanger to the
building directly or indirectly are constituted as unacceptable by the plaintiff or
landlord. Upon entering the contract, defendant would know that he must ensure that
any action or conduct he did in the said premise must be safe and sound as it will
affect the safety of the building.

On the plaintiff side, when he agreed to entered into a said Tenancy Agreement with
the defendant though some term not expressed but it is necessary to give the
transaction such business efficacy as the parties must have intended. It is too clear
to anyone that, when we entered into a tenant landlord agreement, we must ensure
that before taken any action we must get the permission or authorized from the
landlord as anything problem encountered later, the landlord will alert thus if they will
repair and fix it. As referring to a case of Novo Hotel, defendant action on tampering

4
the hot shower outlet to fill up the Jacuzzi is danger due to it caused corrosion and it
will required immediate remedial measures to avoid any structural damage to the
building.

If the implied term was not necessary thus, the answer would have been a testy
answer of Oh, dont talk rubbish. Even by a norm when we rent a house though it is
for short term we as a tenant must get a permission from the landlord before we can
install any permanent furniture as it will leave permanent effect to their wall or their
house. As a tenant, we would know that we must take a reasonable care to the
building, premise or a house that we rent. Hereby, defendant should know that it is
their common sense to take a reasonable care toward the premise as it is illogical to
say that when plaintiff said, You must care for this building and on doing any danger
act, we will terminate this Tenancy Agreement and the defendant respond Oh, dont
talk rubbish I will do anything I want, as I already rent it from you and I wouldnt care
about the safety of this building. Even a reasonable man would not behave like this
as it constitutes as bring danger to people and it is offence towards law of tort.

By virtue of a case of Metropolis Security Services Sdn Bhd V. Ansell Industrial &
Specialty Gloves (M) Sdn Bhd & Anor, and cross refer it to a case of Novo Hotel the
letter was sent to defendant stated that Your unauthorized tampering of the fittings
at the Health Spa also shows a deliberate disregard for the safety of the building. We
are in the hospitality business and such an act is unacceptable to us. Here, the
plaintiff claimed that the action of tampering and disregard the safety of building is
unacceptable towards the hospitality business. Thus it is clear that plaintiff intended
initially when entered into agreement impliedly that the defendant should know that
since they are in a hospitality business, defendant should know that the safety of the
building is a crucial part as it will affect the hotel customer or people inside. When
the defendant argued that the agreement is silence, it shows that the plaintiff did not
make it crystal clear to defendant, however by applying to a test of Oh, of course
test and business efficacy test it shows that the defendant argument on stating the
term silence is an excuse as he did not read the said Tenancy Agreement in a full 4
corner of document. This is because, should defendant read and understand the
agreement plus on the time before he sign the agreement they would at least have a
discussion since this involved a business and not an individual, he would know the
plaintiff intention, he would know that he need to caution for all his action as he is a

5
tenant at Novo Hotel building, thus any conduct he did on his Health Spa will affect
the safeness of the building too.

Conclusion

Thus, the court will not reluctant to grant this implied term to plaintiff as it get
affirmative answer on the several tests and by applying several cases. In conclusion,
there is existence of implied term on the said Tenancy Agreement between Novo
Hotel and Perniagaan Spanova.

On enabling to establish that there is an implied term regarding on the said Tenancy
Agreement relating on needs to caution the safety of the building thus the next issue
that can be arise are till what extend the plaintiff will success in suing the defendant
for breach of contract.

Issue

Whether the term breached by the defendant amount to fundamental breached that
allows the plaintiff to discharge themselves form the contract.

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Law

Upon completed the agreement both party are obliged to perform their contractual
obligation. Fail to do so, will allows the innocent party to discharge themselves form
the future contractual obligation. On the other hand, the default party must commit
serious breaches by referring to Section 40 of the Contract Act 1950 which
encompasses the common law which gives the innocent party the option whether to
rescind or to affirm the contract;

When a party to a contract has refused to perform, or disabled himself from

performing, his promise in its entirety, the promisee may put an end to the
contract, unless he has signified, by word or conduct, his acquiescence in its
continuance.

Under the common law there two situations which give the innocent party the right to
be discharged from the contract: (a) a repudiation; and (b) a fundamental breach.

The concept of fundamental breach was explained in Ching Yik Development Sdn
Bhd v Setapak Heights Development where the Court of Appeal laid down the
following principles. First, where the term breached is fundamental to the contract,
the innocent party is entitled to treat himself as discharged from further obligations
under it. Second, where the term breached is only subsidiary or minor in nature, the
innocent party may not treat himself as discharged under the contract but may
recover damages for the non-performance of the subsidiary term. Thus, a party who
terminates a contract upon the breach of a non-fundamental term is himself guilty of
a breach of contract.

In this case relating to a contract for the sale of a land, the term as to the payment of
the purchase price was a fundamental term. The court held that the appellants`
failure to pay the purchase price was fatal to their action. On the other hand, the
respondents` obligation to deliver the executed instrument of transfer was merely a
subsidiary term and its non-performance did not relieve the appellants of their
obligations under the contract.

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Application

Novo Hotel and Perniagaan Spanove had contractual duties toward each other upon
they entered into a said Tenancy Agreement. According to s 40 of the Contract Act
1950, which give the innocent party to proceed or repudiate the contract when there
is a breach of term.

By virtue of a case of Ching Yik Development Sdn Bhd v Setapak Heights

Development, the defendant breach amount to fundamental to the contract, thus the
plaintiff entitled to treat himself as discharged from further obligations under it. This is
because, the action by the defendant on unauthorized tampering of the fittings at the
Health Spa shows disregard for the safety of the building. As report by the
maintenance worker, Health Spa premise that rent by the defendant there was
corrosion and its need immediate remedial measures to avoid any structural damage
to the building. On a worst scenario, if the plaintiff did not inspect the Health Spa
thus the building structure will be at risk as the corrosion is danger and furthermore
the cost to repair may double or triple up.

On the other hand the issue to be considered is, when the defendant connecting
pipes from the hot shower outlet to fill up the Jacuzzi, the defendant had breached
the said agreement. Although defendant argued that the agreement is silence about
this matter however it already can be proved that it is term that impliedly applicable

In this case relating to a contract between tenant and landlord, the needs to care for
the safeness of the building was a fundamental term as Novo Hotel, plaintiff is in a
hospitality business. The defendant failure to oblige with this implied term would
amount the plaintiff a decision either to rescind or affirm the contract and claim
damages to defendant.

Conclusion

Thus the plaintiff likelihood on succeed on the action of suing the defendant is affirm
as the defendant breach the implied term provided on their said Tenancy Agreement.

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 PROGRAM NAME :

Bachelor of Law (Hons)

PROGRAM CODE :

LAW224

COURSE NAME :

LAW OF CONTRACT II

COURSE CODE :

LAW 486

PREPARED BY :

NURUL FARAH AIN BT ANUWAR 2015143907

PREPARED FOR :

SIR MUIZ RAZAK

DATE OF SUBMISSION :

21 DECEMBER 2016

CLASS :

LW2242C