Zaki Tun Azmi CJ:

Introduction

[1] The appellants raised two complaints before us. The first complaint is that the Court of Appeal had considered a matter which were neither pleaded nor argued at any stage of the proceedings be it at the High Court or the Court of Appeal. According to the appellants, the Court of Appeal in considering the judgment from the High Court, delved itself into the issue of frustration, when that question was never raised in the pleadings, in the argument at the High Court, the Memorandum of Appeal to the Court of Appeal, or in the course of argument at the Court of Appeal. Secondly, following that mistake, the Court of Appeal continued to make what the appellants contend as an obvious and erroneous statement of law as to what is frustration. Hence leave was granted on the following two questions for us to decide:

Question 1

Whether it is open to an appellate Court to find or hold that a contract has been frustrated notwithstanding that such had neither been pleaded nor canvassed in the trial Court and neither pleaded as a ground of appeal in the appellate Court?

Question 2

Whether the doctrine of frustration in the law of contracts recognizes the failure of the parties to a concluded and valid sale and purchase agreement of a product to agree on the sale and purchase price as a frustrating event when the agreement provides for a price consistent with the prevailing market price of the product?

[2] I decided to follow the suggestion by the appellants' counsel that parties to this appeal be referred to in the same manner (by their designation) as at the High Court. The appellants will therefore be referred to as the 1st and 2nd defendants or defendants respectively, whilst the respondents be referred to as the 1st and 2nd plaintiffs or plaintiffs respectively.

Facts

[3] The 1st defendant was operating a sawmill and was formerly known as Veramex Sdn Bhd. The plaintiffs were once the directors of the 1st defendant and together with their two other brothers were shareholders of the 1st defendant. As on 28 August 1996, the 1st defendant owed the plaintiffs a sum of RM10,134,000. There is no dispute as to this fact. At that time, the plaintiffs together with their two brothers held 6,500,000 shares in the 1st defendant and by a Share Sale Agreement dated 12 November 1996, the plaintiffs and their two brothers agreed to sell the shares to a purchaser by the name of Liew Ho-Tien. Liew Ho-Tien was described by the 1st plaintiff as the representative of the 2nd defendant. By a letter dated 12 November 1996, the 1st defendant agreed on the method of settling their RM10,134,000 debt. This was to pay the plaintiffs the amount owed together with interest at the rate of interest of 11 percent per annum calculated on a day to day basis with the following undertakings:

a) That the 1st defendant shall sell and the plaintiffs shall purchase timber products manufactured by the 1st defendant at a price consistent with the prevailing market price and which, in total, cost the same amount as the outstanding sum plus the agreed interest over a period of ten months and such timber products are to be delivered in four shipments.

b) The cost of the timber products sold shall be deducted from and set off against the outstanding debt and agreed interest.

[4] In short, what the parties agreed was that the debt is to be set off against the supply of the 1st defendant's timber products to the plaintiffs. The price of timber to be supplied will be at the "prevailing market price". If however, the timber products are not supplied according to the agreement, the 1st defendant undertook to pay cash in lieu of the timber products.

[5] It was conceded by the plaintiffs at p. 147 of the record of appeal that the plaintiffs placed only one order for the 1st defendant's timber products by a sale contract dated 6 November 1997 resulting in the reduction of the amount owing to the plaintiffs. It should be noted that the factory produc