This article first appeared in Forum, The Edge Malaysia Weekly on January 27, 2025 - February 2, 2025
The fundamental principles of contract law in Malaysia are enshrined in a venerable piece of legislation known as the Contracts Act 1950 (Act 136). Its origins trace back to the Indian Contract Act 1872, a relic of British colonial influence. While the historical value of such a statute is undeniable, the passage of time has revealed its limitations. One might assume that such a crucial legal framework, governing commercial and personal agreements alike, would have undergone significant revisions to address the ever-changing needs of society and commerce. Unfortunately, this has not been the case.
The last substantive amendment to the Contracts Act occurred nearly half a century ago in 1976, when provisions concerning scholarship agreements were added. Prior to that, amendments merely extended the act’s application to additional states in Malaysia without altering its core provisions. The act’s substantive content has remained effectively untouched for over 150 years. In other words, it has never truly been “amended” to reflect modern commercial realities.
Is there a need to update the act? The answer is an unequivocal yes. The lack of amendments does not signal perfection; rather, it reflects an over-reliance on the courts to fill gaps left by outdated legislation. Malaysian courts have leaned heavily on English common law principles to address issues not covered by the act.
For instance, key principles concerning the interpretation of contracts and implied terms and the rectification of express terms are absent from the act, even though these are among the most frequently litigated issues in contract disputes. Similarly, modern legal concepts such as economic duress, unjust enrichment and the protection of consumers against unfair contract terms are nowhere to be found in the statute. Moreover, the doctrine of privity, which limits the rights of third parties to enforce contract terms, has required judicial intervention to adapt to modern expectations.
The Contracts Act 1950 is also ill-equipped to address the realities of contemporary commerce. Contracts formed through automated systems, artificial intelligence, blockchain and other emerging technologies fall outside its scope. In a world where digital transactions are becoming the norm, reliance on a 19th-century statute is increasingly untenable.
Recognising this urgent need for reform, the Legal Affairs Division of the Prime Minister’s Department has taken a significant step forward by establishing the Committee for the Review and Reform of the Contracts Act 1950. The 21-member committee brings together a diverse array of expertise, including members of the judiciary, legal practitioners, academics and representatives from key government agencies.
This initiative is spearheaded by the Centre for Commercial Law and Regulatory Studies — Malaysia Hub (CLARS-MH) at Monash University Malaysia, in collaboration with the Faculty of Law at Universiti Kebangsaan Malaysia (UKM). The committee’s mandate is to critically review the act and propose meaningful reforms, whether through amendments, a complete replacement or supplementary legislation.
The committee’s work will be conducted in three carefully planned phases over two years:
• Phase One: The initial stage focuses on assessing the current state of the law. The working groups will identify gaps and challenges within the existing framework and provide preliminary recommendations.
• Phase Two: In the second phase, the committee will engage with stakeholders, including industry leaders, legal practitioners and consumer advocacy groups. This stage will emphasise modernising the law to align with contemporary commercial practices and emerging technologies. Detailed proposals for reform will be developed during this phase.
• Phase Three: Finally, the findings will be consolidated into a comprehensive report, accompanied by draft legislation to implement the proposed reforms.
The Contracts Act 1950 has served as a cornerstone of Malaysian contract law for generations. However, its antiquated provisions are no longer fit for purpose in a rapidly evolving commercial environment. The current reform initiative represents a unique opportunity to modernise this foundational legal framework, ensuring it remains relevant and effective in meeting the needs of businesses and individuals alike.
As the committee embarks on this monumental task, it is crucial for stakeholders across the legal and business communities to lend their voices to the process. Together, we can shape a Contracts Act that not only reflects the realities of today’s world, but also anticipates the challenges of tomorrow.
Associate Professor Dr Adnan Trakic is director of the Centre for Commercial Law and Regulatory Studies — Malaysia Hub (CLARS-MH), School of Business, Monash University Malaysia
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