ITCLR (Malaysia Law)

• There is no express requirement for ITCLR in the Contracts Act 1950.

• But English law is followed closely i.e. the same 2 rebuttable presumptions apply

Uncertainty of terms and ITCLR

Phiong Khon v Chonh Chai Fah [1970]
P alleged that C had executed a document by which C transferred land in dispute to him.
However, terms of that document were vague and uncertain.
Held:
“looking broadly at the arrangements set out in the document, the terms seem so vague
and uncertain that it must be seriously doubted whether there was any intention to
create a legal relationship thereby. See Jones v Padavatton [1969] 1 WLR 328.”
“As Lane J. said recently in Ford Motor Co Ltd v Amalgamated Union of Engineering and
Foundry Workers [1969] 1 WLR 339 356, that ‘without clear and express provisions making
them amenable to legal action, they remain in the realm of undertakings binding in
honour’."

M N Guha Majumder v R E Donough [1974]

Facts:
◦ P alleged that the parties had reached agreement for sale of D’s house, furniture and
orchids.
◦ D contended that he had not accepted P’s offer.
Held:
a) No ITCLR
b) “It is [a] well-established rule that the parties must make their own contract, and this
means they must agree to its terms with sufficient certainty. If the terms are
unsettled or indefinite, there will be no contract.”
c) “Where the parties enter into a formal document the intention to enter into formal
legal relationship is obvious.”
d) “But when all that happens is a quite casual conversation whether on the telephone
or otherwise, it is very much more difficult to infer that the parties are really
contemplating entering into any legal relationship.”
Social And Domestic Agreements
— As in English law, there is a rebuttable presumption that parties to agreements
made in a social or domestic context do not intend to create legal relations.

Parent and Child

Choo Tiong Hin v Choo Hock Swee [1959]
Facts:
1. P and 1st wife lived on a farm with their 2 daughters and 5 adopted sons.
2. Once they were old enough, the sons worked on the family farm and in various other
family business premises.
3. Family prospered. 1st wife died. P remarried.
4. Family quarrels ensued, and P left the farm.
5. Later P claimed possession of the farm and the other properties.
6. The sons resisted P’s claim alleging that they had agreed to be adopted and to work
on the farm, and so were entitled equally with P to possession of the farm and the
other property
HELD:
a) An agreement is not a contract in the strict sense of the word, unless it is the
common intention of the parties that it shall be legally enforceable.
b) Such an intention is normally inferred from the nature of the agreement.
c) For instance, for agreements regulating commerce or business, it is obvious that the
parties intend legal consequences to follow;
d) In contrast, for agreements relating to social engagements, it is inferred as a matter
of course that there is no common intention to create legal obligations.
e) The question in every case is whether the law will imply, from the circumstances of
the case, a common intention that the agreement is to be attended with legal
consequences.
f) In this case the agreement possessed all the characteristics of a private family
arrangement depending for its efficacy upon a sense of filial duty and paternal
responsibility on the part of the adopted sons and their adoptive father.
g) The law will not, in this case, imply an intention that the agreement between the
adopted sons and P should be attended by legal consequences.

AGREEMENTS MADE IN A COMMERCIAL CONTEXT

◦ As in English law, there is a rebuttable presumption that commercial agreements are
intended to create legal relationships.

Presumption Of Legal Intent

Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972]
“Any…agreement…made in the ordinary course of business between merchants and traders
must be presumed as intended to be legally binding.”
Rebutting the Presumption
1.HONOUR CLAUSE
2.LETTER OF COMFORT

North South Properties Sdn Bhd v David Teh Teik Lim [2005]
• Held:
• A “letter of comfort” is generally a statement of moral responsibility and is
not intended to have any legally binding effect.
• However, it may give rise to a legally binding undertaking depending on the
actual intention of the parties and the circumstances under which it is given.
• In this case the letter alleged to be a mere letter of comfort was in fact
worded as follows: “We, the undersigned being the Directors of the
Company hereby give you our joint and several undertaking that the sum of…
shall be paid to you on or before…”
• Clearly the letter in question was a binding undertaking and not merely a
letter of comfort despite being labelled as such

3.“Subject to Contract” agreements

1. An agreement that is truly “subject to contract” is an agreement to contract in the

future and is not binding until and unless the formal agreement is made.
2. The label “subject to contract” is an indication that the parties do not yet have the
ITCLR – i.e. they are still in negotiation.
3. But the label “subject to contract” is not decisive or conclusive.
4. The court will construe the “subject to contract” agreement to see if the parties
intended to be bound immediately and that the need for a formal contract is a mere
formality.

Low Kar Yit v Mohd Isa [1963]

• Facts:
• D gave a written option to P to purchase D’s land.
• The option was stated to be subject to a formal contract to be drawn up and
agreed upon by the parties.
• Solicitors of both parties then drew up a formal option contract.
• P signed it but D changed his mind.
• P sued for specific performance or for damages for breach of contract.
Held: no concluded contract
a) “It is a question of construction whether the execution of the [formal] contract is a
condition or term of the bargain or whether it is a mere expression of the desire of
the parties as to the manner in which the transaction already agreed to will in fact go
through.”
b) “In the former case, there is no enforceable contract either because the condition is
unfulfilled or because the law does not recognise a contract to enter into a contract.
c) In the latter case there is a binding contract and the reference to the more formal
document may be ignored.”
d) Here, the parties clearly intended that they must execute a subsequent formal
contract. Since D had not signed it, there was no contract to sell the land.
Ayer Hitam Tin Dredging v YC Chin Enterprises [1994]
Facts:
1. A letter from AHTD (“the Letter”) offered YC Chin a building project “subject to
contract” stating that the formal contract was to incorporate “appropriate
indemnity clauses” in favour of AHTD.
2. The Letter contained certain essential terms such as the contract price.
3. YC Chin commenced works although no indemnity clauses were agreed, and no
formal contract was signed.
4. Several other important terms (start & completion dates; number of buildings to be
built) were NOT stated in the Letter.
5. Later AHTD told YC Chin to stop all works saying that they were discontinuing further
negotiations with YC Chin.
6. YC Chin sued AHTD for breach of contract; alternatively, compensation on a
quantum meruit basis for the work that YC Chin had already done.
Issue: was there a concluded contract based on the terms of the Letter?
Held:
a) On its true construction, the letter did NOT constitute a contract binding in law.
b) It was only a record of terms which were agreed as a basis for the negotiations of a
contract.
c) It was a letter of intent, i.e. an expression in writing of a party's present intention to
enter into a contract at a future date.
d) Also, AHTD’s letter was an offer subject to a condition that the formal contract would
incorporate “appropriate” indemnity clauses in favour of AHTD and since such
condition had not been accepted as the parties had never finalised negotiation on
the terms of the indemnity clause, there was no binding contract between the
parties.
e) However, since YC had commenced the preliminary works, with the knowledge but
not necessarily the consent of AHTD, the liability of AHTD would be on a quantum
meruit basis not exceeding RM300,000 being the value of the work done by YC.

4.Memorandum of Understanding
• Generally, the words “MOU” connote that the parties have agreed on certain terms,
BUT they do not yet intend to be bound.

Sia Siew Hong v Lim Gim Chian [1995]

• Per Gopal Sri Ram JCA
• “… in the construction of contracts, the court is not bound by the labels that
parties choose to affix onto the particular document… the duty of the court…
is to construe the document as a whole and to determine from its language
and any other admissible evidence its true nature and purport.”
Ismail bin Mohd Yunos v First Revenue Sdn Bhd [2000]
• “In order to ascertain whether [ITCLR] exists the court has to look into the words and
expressions the parties have used in the document concerned, to communicate with
each other…The court has to consider if the parties intended to be bound…or…[that]
nothing would materialise until the happening of some other event such as the
signing of a further document.”
 • Held: on a true construction, the parties intended the 2 documents described as
MOUs to be binding.

Kheam Huat Holdings v The Indian Association, Penang [2000]

Facts:
1. The IAP advertised for proposals from interested parties for building its clubhouse.
2. KHH’s proposal was selected, and the parties signed a MOU.
3. Draft agreements were then exchanged but the parties did not execute any further
agreement.
4. Subsequently, the IAP decided not to proceed with the building.
5. KHH brought an action for breach for contract against the IAP.
6. The IAP argued that there was no binding contract between the parties.
Held:
The MOU was not binding because
a) The IAP’s committee members who entered into the MOU had no power to bind the
IAP under the IAP’s Constitution.
b) Even if the committee members had such powers, the MOU was a qualified
document and not a final document since it provided that a final agreement could
only be concluded on legal advice
c) Further, the words of the MOU were uncertain [S. 30 CA 1950: “Agreements, the
meaning of which is not certain, or capable of being made certain, are void.”]

BURDEN OF PROVING NO ITCLR

Edwards v Skyways Ltd [1964] 1 WLR 349:
◦ “the onus is on the party who asserts that no legal effect was intended, and the onus
in a heavy one”
◦ “the words “ex gratia” do not…carry a necessary, or even a probable, implication
that the agreement is to be without legal effect.”
◦ This case is cited in textbooks and in Malaysian cases