Landmark judgment that strengthens business confidence
LETTERS: On April 8, 2025, the Federal Court of Malaysia delivered a landmark ruling in a commercial
contract dispute that has far-reaching implications for business law and contract interpretation in our country.
The judgment, delivered by the Judge Tan Sri Ahmad Terrirudin Mohd Salleh, not only settled a contentious case involving a Minimum Guaranteed Sum (MGS) clause but also offered much-needed clarity on how courts should interpret written agreements, performance obligations, and legal doctrines in commercial settings.
It confirms the court's role as an interpreter, not a draftsman of contracts, and reinforces certainty in commercial arrangements.
At its core, the judgment upholds three key principles: respect for the written word, legal certainty in commercial dealings, and a pragmatic approach to performance obligations.
The Court began by affirming a fundamental rule: written contracts are binding, and prior discussions or informal understandings cannot override them. The agreement in question contained an "entire agreement" clause, which meant all previous negotiations were superseded once the final contract was signed.
Because the document made no mention of an MGS or guarantee, the Court refused to imply such a term.
This is a critical reminder to businesses — if something is important, it must be written into the contract. The courts will not assume or insert terms after the fact, no matter how significant the earlier discussions may have been.
A central issue in the case was whether a clause requiring a party to use "reasonable endeavours" made the contract uncertain or meaningless.
The defendant claimed that such a term was too vague to enforce. The Court disagreed.
Terrirudin explained that "reasonable endeavours" clauses are commonly used in commercial agreements and are valid. They do not mean one must guarantee an outcome, but that one must make a genuine, reasonable effort to achieve it.
This is particularly relevant in
industries where results depend on external factors beyond full control.
By supporting the enforceability of such clauses, the Court acknowledged the practical needs of businesses that often face uncertain or changing conditions.
Another key point was the Court's firm reliance on Malaysia's Evidence Act, which limits the use of external or verbal statements to interpret a written contract.
Terrirudin emphasised that courts must focus on what is clearly stated in the contract, not on what one party later claims was intended.
This protects businesses from surprise claims and encourages careful contract drafting.
Equally important was the Court's handling of the contra proferentem rule, often used to interpret ambiguous terms against the party that drafted them.
The Court reminded us that this rule is a last resort and should only apply when true ambiguity exists. In this case, the wording was clear, so there was no need to stretch or distort it.
The judgment also addressed a common legal challenge: when one party claims the other failed to meet a "reasonable endeavours" obligation, who must prove what? Terrirudin clarified that the burden of proof lies with the party making the allegation.
Simply saying, "You didn't do enough" is not sufficient. Concrete evidence must be shown that the other party acted unreasonably. This protects contract holders from being unfairly blamed for outcomes beyond their control.
Lastly, the Court dismissed the argument that one clause in the contract overruled another.
Instead, it interpreted them together in a way that made sense and preserved the overall purpose of the agreement.
This shows a commitment to reading contracts as coherent, functional documents — something that helps reduce unnecessary legal battles.
Terrirudin's judgment is a milestone in commercial law. It affirms the importance of clear contract terms, sets a reasonable standard for performance obligations, and discourages overreliance on technical legal arguments that add confusion rather than clarity.
For legal professionals, businesses, and investors, this decision offers confidence that Malaysia's highest court is aligned with both legal principles and commercial realities.
In a world where predictability and fairness are essential for investment and growth, this judgment is a positive step forward.
It reinforces the idea that the law is not just about resolving disputes — it is also about building trust in our institutions and our economy.
Kuala Lumpur
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