Hosna Realty Sdn. Bhd. v Adap 4ORTY Global Sdn. Bhd. (KA-22NCvC-24-03/2021)

These consolidated proceedings arise from two suits between Hosna Realty Sdn Bhd (the Plaintiff) and Adap 4orty Global Sdn Bhd (the Defendant). The disputes concern a quarry extraction arrangement executed by the parties under a written Contract for Extraction dated 1 June 2019, relating to quarry land at PT 1070, Mukim Ulu Melaka, Langkawi.

The Plaintiff contends that the Defendant had breached its obligations under the said contract by failing to commence and perform extraction work, and seeks damages for loss of profit and termination of the agreement. The Defendant, in turn, alleges that the contract was illegal or void for want of proper licences and has counterclaimed for restitution and damages.

After a full trial and consideration of the pleadings, evidence, and submissions, this Court finds that the contract was rendered incapable of lawful performance due to frustration, and that both parties are accordingly discharged from further obligations under it. The Plaintiff’s claim and the Defendant’s counterclaim are therefore dismissed, with each party bearing costs as stated in the dispositive orders below. S/N jXPkqcJaBUKKk1jj9/vYsw

The relevant facts are largely undisputed. The Plaintiff is the registered proprietor of the quarry land in question and had entered into the Contract for Extraction with the Defendant for the purpose of operating a quarry business. The contract was prepared by the Defendant’s solicitors and executed on 1 June 2019.

Under the contract, the Defendant was to extract and sell a minimum of 15,000 tonnes of stone per month, and to pay to the Plaintiff agreed royalties and other consideration. Clause 4.2(i) entitled the Plaintiff to terminate the contract in the event of persistent default or non-performance.

It was contemplated that the Defendant would obtain the necessary quarry operating and explosives licences from the relevant authorities. However, no such licences were ever issued in the Defendant’s name. The licences on record were held by Hosna Granite Sdn Bhd and YTM Tunku Hosna binti Sultan Badlishah for the storage and purchase of explosives.

Following repeated delays and non-performance by the Defendant, the Plaintiff issued notice of termination and commenced the present suit seeking damages and declaratory relief. The Defendant, on its part, filed a counterclaim asserting that the S/N jXPkqcJaBUKKk1jj9/vYsw contract was illegal and void ab initio as neither party held a full operating licence to extract.

Both suits were ordered to be consolidated by direction of this Court on 4 August 2021, with Hosna Realty Sdn Bhd designated as Plaintiff and Adap 4orty Global Sdn Bhd as Defendant. Trial was subsequently conducted before this Court in 2024, with extensive oral and documentary evidence tendered by both sides.

The key issues requiring determination are as follows:

whether the Contract for Extraction dated 1 June 2019 was illegal or void for lack of requisite quarry or explosives licences;

whether the contract was frustrated and thereby discharged under Section 57(2) of the Contracts Act 1950;

whether either party is entitled to relief or damages for breach; and

the appropriate orders as to cost S/N jXPkqcJaBUKKk1jj9/vYsw D. SUMMARY OF EVIDENCE

The Plaintiff called three witnesses in support of its case, while the Defendant called one witness. The material facts are largely not in dispute, save for the legal effect of the absence of operational licences and the question whether the contract had been lawfully terminated or rendered incapable of performance.

PW1 – Dato’ Rosalind Singha Ang (Managing Director,

PW1 testified that the Plaintiff is the registered proprietor of the quarry land at PT 1070, Mukim Ulu Melaka, Langkawi. The Defendant approached the Plaintiff in 2019 with a proposal to operate the quarry and extract stones for sale under a formal written agreement. The Contract for Extraction dated 1 June 2019 (“the Contract”) was subsequently prepared and vetted by the Defendant’s solicitors.

Under the Contract, the Defendant undertook to extract and sell not less than 15,000 tonnes of stone per month and to pay royalties to the Plaintiff based on the agreed rate. The Plaintiff was to provide access to the quarry and coordinate with the authorities for the necessary permits. The Defendant was responsible for obtaining all operational licences required by law. S/N jXPkqcJaBUKKk1jj9/vYsw

PW1 stated that the Defendant failed to commence extraction in the agreed quantity, failed to make the stipulated payments, and instead raised allegations that the Contract was illegal on the ground that the quarry licence was held by Hosna Granite Sdn Bhd and YTM Tunku Hosna binti Sultan Badlishah. PW1 denied any illegality and asserted that the Defendant was fully aware of the licensing structure when it signed the Contract.

She further explained that the Plaintiff had, at all material times, acted in good faith and was ready to proceed with extraction once the Defendant fulfilled its licensing obligations. The Defendant’s refusal and non-performance, she said, led to the termination of the Contract.

PW2 – Farah Nabilah binti Mohd Anuar (Land Office Officer, Pejabat Tanah Langkawi)

PW2 testified on the licensing regime applicable to quarry operations in Kedah. She confirmed that the operating approval and Permit Kuari for PT 1070 were issued to Hosna Granite Sdn Bhd, not to the Defendant. However, under the terms of the approval, the permit holder may engage a contractor or operator to carry out extraction works on its behalf, provided the operations comply with environmental and safety requirements.

PW2 further clarified that any alteration or transfer of the quarry permit must be approved by the Majlis Mesyuarat Kerajaan Negeri S/N jXPkqcJaBUKKk1jj9/vYsw (MMK). At all times material to this case, the quarry permit remained valid in the name of Hosna Granite Sdn Bhd, and there was no evidence that the Defendant had applied for, or was granted, any licence to operate.

In cross-examination, PW2 confirmed that the Plaintiff’s arrangement with the Defendant was permissible in principle, so long as the extraction was carried out in compliance with the governing licence and safety laws. She also affirmed that the Plaintiff did not act in contravention of any known statutory requirement.

PW3 – Insp. Sofian bin Shamsuddin (Licensing Officer,

PW3 testified that the police licensing records showed that only YTM Tunku Hosna binti Sultan Badlishah held valid licences to store and purchase explosives, while no blasting licence had been issued to either the Plaintiff or the Defendant.

He clarified that the absence of a blasting licence did not render the other licences unlawful, and there was no record of any illegal blasting or enforcement action against the Plaintiff or Hosna Granite. His evidence established that there was no criminal element or breach of law in the Plaintiff’s conduct. S/N jXPkqcJaBUKKk1jj9/vYsw

DW1 – Azlan Shah bin Ahmad (Managing Director,

DW1 gave evidence that the Defendant entered into the Contract believing that all necessary licences would be obtained or transferred to enable extraction to commence. He admitted that the Defendant never obtained any operating or explosives licence.

DW1 maintained that the Contract was illegal because it contemplated an activity that could not lawfully be carried out without such licences. He argued that the Plaintiff’s inability to transfer or secure the relevant permits rendered performance impossible, and that the Defendant could not lawfully perform its obligations.

In cross-examination, DW1 conceded that the Contract was drafted by the Defendant’s own solicitors and that the Defendant had taken possession of the quarry site and machinery prior to termination. He also agreed that the Defendant had not, at any stage, applied to the State Authority for the requisite licences.

Upon reviewing the testimony and contemporaneous documents, this Court finds that both parties entered into the Contract with the legitimate expectation that the necessary licences would be secured. The evidence shows that neither party acted with intent to S/N jXPkqcJaBUKKk1jj9/vYsw contravene the law. The subsequent inability to obtain the required approvals was not due to deliberate default, but arose from administrative constraints beyond their control.

The Court therefore accepts that while there was no element of illegality, the performance of the Contract became impossible in law, giving rise to the question of frustration under Section 57(2) of the Contracts Act 1950.

Having considered the pleadings, evidence, and submissions of both parties, the central question before this Court is whether the Contract for Extraction dated 1 June 2019 was –

illegal and void ab initio, or

frustrated and therefore discharged by operation of law.

The distinction between the two is fundamental. “Illegality” renders a contract void from inception, while “frustration” recognises a valid contract that becomes impossible of performance due to supervening events beyond the control of the parties.

On the Plea of Illegality S/N jXPkqcJaBUKKk1jj9/vYsw

The Defendant contends that the Contract was illegal because neither party possessed a valid quarry operating licence under the Mineral Development Act 1994 and the Explosives Act 1957. It is said that the Contract required acts that could not lawfully be performed and was therefore void.

This Court is unable to accept that submission. The evidence clearly shows that the Contract itself did not, on its face, require any unlawful act. The parties intended to perform their obligations lawfully upon obtaining the necessary approvals. The agreement expressly contemplated that the Defendant would secure the requisite licences and permits before commencing extraction.

The absence of licences at the time of execution does not, in itself, amount to illegality. As stated in Asia Commercial Finance (M) Bhd v Kawal Teliti Sdn Bhd [1995] 3 MLJ 189, the Court must distinguish between a contract that is prohibited by law and one that merely cannot be performed lawfully unless certain conditions are fulfilled. The present contract falls in the latter category.

Further, PW2’s and PW3’s testimonies confirm that the licensing framework allowed the permit holder (Hosna Granite Sdn Bhd) to appoint an operator such as the Plaintiff, subject to compliance. There was therefore nothing in the Contract that offended any statute or public policy. S/N jXPkqcJaBUKKk1jj9/vYsw

Accordingly, the Court finds that the Contract was not illegal, but rather a lawful commercial arrangement rendered unworkable by circumstances beyond the parties’ control.

On the Question of Frustration

The next question is whether the Contract was frustrated within the meaning of subsection 57(2) of the Contracts Act 1950, which provides that: “A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”

The principles governing frustration are well settled. The doctrine applies when, without default of either party, a supervening event so fundamentally alters the nature of the contractual obligation that performance becomes impossible, or the contract, if performed, would be radically different from that contemplated by the parties. (Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724).

In the present case, the inability to obtain or transfer the necessary operating licences constituted precisely such a supervening event. Both parties had entered into the Contract on the assumption that S/N jXPkqcJaBUKKk1jj9/vYsw regulatory approval could be secured in due course. When it became clear that the State Authority would not issue the requisite licences, the commercial purpose of the Contract was defeated.

It is also significant that neither party was at fault. The Plaintiff had facilitated site access and coordination with the authorities, while the Defendant had taken preliminary steps to mobilise equipment. The failure of licensing was beyond both parties’ control.

The Court accepts the Plaintiff’s evidence that there was no deliberate default and that both parties acted bona fide. Nonetheless, the continued impossibility of lawful extraction rendered performance impracticable and frustrated the contract.

The doctrine of frustration therefore operates to discharge both parties from further obligations. This legal consequence arises automatically under subsection 57(2), without the need for formal rescission.

The Court also rejects the Defendant’s argument that frustration was self-induced. There is no evidence that the Plaintiff deliberately withheld licences or approval. The evidence shows that all applications and correspondence with the authorities were duly pursued, but the necessary transfer of rights was never sanctioned by the State Authority. S/N jXPkqcJaBUKKk1jj9/vYsw

Consequences of Frustration

The effect of frustration is to bring the contract to an end forthwith, releasing both parties from further performance. Neither party may claim damages for non-performance occurring after the frustrating event. (Gila Motors Sdn Bhd v Kamarulzaman Omar [2010] 1 MLJ 564; Chitty on Contracts, 33rd Ed., para 23-001).

Accordingly, both the Plaintiff’s claim for damages and the Defendant’s counterclaim must fail. The Plaintiff cannot recover contractual sums as if performance had continued, and the Defendant cannot claim for alleged loss of profits or restitution, since the contract was lawfully discharged by frustration.

The Court thus holds that this is not a case of breach, but one of frustration. Neither party is at fault; both are released from further liability, save for ancillary matters of costs. F.

Having considered all the evidence, the contemporaneous documents, and the parties’ submissions, this Court concludes as follows: S/N jXPkqcJaBUKKk1jj9/vYsw

The Contract for Extraction dated 1 June 2019 between the Plaintiff and the Defendant was a valid and lawful commercial agreement at the time of its execution.

However, subsequent events, namely, the inability to obtain or transfer the necessary quarry and explosives licences from the State Authority, rendered performance impossible in law. The contract was therefore frustrated and discharged pursuant to subsection 57(2) of the Contracts Act 1950.

As a consequence of frustration, both parties are released from further obligations under the contract. Neither party can be held liable for non-performance in these circumstances.

The Defendant’s counterclaim for damages and declaratory relief is untenable and is accordingly dismissed.

In light of the above findings, the Court makes the following orders:

The Plaintiff’s claim is dismissed.

The Defendant’s counterclaim is dismissed.

Each party shall pay costs of RM 10,000 to the other, consistent with the mutual cost order pronounced. S/N jXPkqcJaBUKKk1jj9/vYsw

No further order is made as to interest or ancillary relief.

The Court’s decision reflects that the failure of the contract was not occasioned by wrongdoing on either side but by external regulatory circumstances beyond the control of both. The law requires fairness between the parties, and the doctrine of frustration provides that balance. Dated : 10th October 2025 …………………………………………… (YA PUAN MAHAZAN BINTI MAT TAIB) JUDGE HIGH COURT OF MALAYA ALOR SETAR, KEDAH For The Plaintiff/Defendant : Marleyana Yahya To Counterclaim Tunku Mohamad Zulkifli Osman Messrs. Jin - Nge & Co Advocates & Solicitors For The Defendant/Plaintiff : Shahrul Shabbath Ali To Counterclaim Mohamed Azhar Shah Zainal Arif Messrs. Azhar Shah & Co Advocates & Solicitors S/N jXPkqcJaBUKKk1jj9/vYsw S/N jXPkqcJaBUKKk1jj9/vYsw