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Frustration of Contract
by Hew Soon Kiong
FRUSTRATION in the Oxford Dictionary has been explained to “prevent from progressing succeeding or being fulfilled” while frustration means “being frustrated”.

Therefore, frustration of contract can be defined as a prevention from continuation of a contract when the employee who is employed under the contract becomes unable to perform the work for which he was employed due to reason beyond control by both parties (employer and employee).

When the employee is no longer able to engage is any further employment and that makes it impossible for a contract to be performed further, the said contract of employment is said to be frustrated and comes to an end.

The doctrine of frustration of contract may apply in the circumstances as the following:
- Prolonged illness of the employee;
- The employee concerned becomes incapable to perform duty due to an accident or illness;
- The employee concerned was under police detention or custody for infinite period of time; and
- The professional license for employee concerned to practice a particular profession was revoked.

It is the incumbent on the employer to prove that the employee’s absence or incapacity was of such a nature that further performance of his obligations in the future would be either impossible or a thing radically different from that undertaken by him to perform.

The doctrine of frustration applies in the same way when a workman is physically or mentally incapacitated. This incapacity can be as a result of physical or mental illness or injury, and generally employers take a sympathetic view of such cases, especially if the workman is no longer able to engage in any further employment.

In such cases, the workman would be entitled to be paid termination benefits under the Regulations 4 of the Employment (Termination And Lay-Off Benefits) Regulation 1980 and all statutory benefits due to him under the relevant legislation. In some companies, a workman who is medically boarded out will be paid prolonged illness benefits under the company’s policy.

It cannot be disputed that illness or incapacity which is permanent will frustrate the contract, and so will illness which is of so prolonged a nature as to prevent the employer from getting substantially what he has bargained for.

It is also accepted that an employee must provide satisfactory performance of work which he has contracted to do.

Therefore, illness of an employee may operate to determine the contract if the illness is such as to interfere materially with the proper performance of the contract.

On the other hand, a mere temporary illness will not so materially affect the employee’s ability give personal service and, therefore, will not entitle the employer to dismiss the employee.

The court affirmed that it was only in the case of a very serious sickness which may be considered as an event sufficiently fundamental to frustrate the contract and to give the employer the right to immediately dismiss the employee concerned on the grounds of disability.

The incapacity or illness should not be temporary, but it should be serious and prolonged that the employee cannot be expected to perform his duties in the foreseeable future.

In such circumstances, the employer has the right to terminate the employee’s services. However, terminating the services of any employee while he is still on sick leave is an unfair labour practice.

In the case of employee under police detention/custody, it is settled law that detention by police is a reasonable excuse to be absent from work. It is the finding of the court that absence from work due to arrest by police without any fault of the claimant is not misconduct and should not lead to his dismissal by applying provisions of S.13(2) and S.15(2) of the Employment Act 1955.

In any event simply not being present at work is not per se a frustrating event, especially the time concerned was of short duration. If the company relies on the frustration of contract, it is for the company to establish that the employee’s absence was of such duration that further performance of his obligations in the future is impossible.

In the case of DHL Sdn Bhd versus Ravendran Subramaniam (Award No. 14 of 997), the Industrial Court had observed that one should look from the commercial points of view of the length of absence from work to establish frustration of contract.

Thus, a contract of service may be frustrated if it is established that the nature of work so performed is critical to the operation of the company and the absence of the employee concerned is of a duration or nature that further performance of his duties under his contract of service in future would be impossible.

It would appear that the criteria to be adopted in such case is whether from the commercial point of view a replacement has to be engaged in view of the length absence from work.

The critical nature of work performed in relation to company’s operational requirements and the expected or probable duration of absence from such work will be the deciding factors in establishing whether there is frustration of contract or otherwise.