Contracts are standard among parties as they are legal documents stating the mutual agreement among related parties. However, one party may breach a contract due to unforeseen circumstances or without a legitimate reason. Hence, it’s crucial to know more about what happens during a breach of contract in Malaysia, including the legal solutions to solve the dispute. Let’s dive into the definition of a breach of contract, the common causes, and legal solutions.
Breach of contract in Malaysia refers to one party that fails to fulfill their contractual obligations stated in the terms of agreement. The Malaysian Contracts Act 1950 (Act 136) lays out a framework for governing contracts in Malaysia, which includes the essential details of a valid contract, rules for interpretation, and performance.
If a breach of contract occurs, the non-breaching party can perform several legal actions to either claim damages or enforce the contract.
There are several different breaches of contract in Malaysia, which are:
Minor breach refers to the breaching party that fails to fulfil a small percentage of the contractual obligations. The other party can use the breaching party for damages, although the impact is minor.
Example: If a contractor manages to complete the project but doesn’t fulfil all the requirements. The other party can request compensation.
Material breach refers to the breaching party failing to perform under the contract, affecting business operations. This could cause the contract to be broken and no longer valid.
Example: A contractor completed a project without using the agreed materials stated in the agreement. The non–breaching party can seek compensation or terminate the contract completely.
Anticipatory breach refers to the breaching party that clearly states they will not fulfill their contractual obligations before their contact is due. Hence, the non-breaching party can quickly perform legal action before the breach occurs.
Example: A contractor informs you beforehand that they won’t be able to complete a project within the required timeframe.
Actual breach refers to the breaching party that is not fulfilling its contractual obligations before the contract is due.
Example: A contractor who fails to provide services before the contract ends without a legitimate reason.
There are several common reasons for breach of contract in Malaysia, such as:
If either party cannot fulfill the contract obligations, it’s considered a contract breach, primarily if the breaching party doesn’t provide a legitimate reason. Even if the breaching party fails to fulfill just a tiny, significant part of the contract obligations, it’s considered a breach of contract in Malaysia.
Disagreements among parties can occur if the contract terms are not laid out and defined clearly. This will lead to potential misunderstandings among the related parties, causing one part to breach the contract.
When one party fails to deliver quality service or goods according to the agreed terms, this can also result in a breach of contract. This can happen mainly if no audits or inspections are conducted before the contract ends.
If one party fails to make payment, it can cause contract breaches. Ensuring the respective party makes payment on time is essential in business contracts.
Missed deadlines are another common cause for contract breaches if a timeline is set in the terms. Any delays that occur can affect the business operations or affect specific milestones.
There are several best ways to handle a breach of contract in Malaysia. Here are the most effective legal solutions based on Malaysian law:
The court orders specific performance to require the breaching party to fulfil their contractual obligations as stated in the agreed terms. This involves contracts whereby the damages are inadequate, such as unique goods or real estate transactions.
Injunctions involve a court order that prevents the breaching party from performing a specific action or prohibitory injunction, which can cause further damage to the contract.
There are two main types of damages:
- Special Damages: This refers to monetary compensation due to the breach or improper act by the breaching party, whereby the amount of loss can be quantified. For instance, the damage cost can be claimed if the breaching party damages the other party’s property.
- General Damages: General damages refer to the damages that can’t be quantified in monetary terms. For example, it can be a loss of reputation or emotional damage.
A breach of contract in Malaysia is considered a serious issue. Therefore, you should hire a competent lawyer to handle your contract disputes. We at Chambers of Koon are professionals at ensuring all contracts are processed professionally and seamlessly. We provide comprehensive and reliable legal services for all your contractual needs.
