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Kepong Prospecting Ltd v Schmidt [1968] AC 810

Contract law – International agreements – Formation of contract

Facts

T agreed with Schmidt in writing, that in consideration for Schmidt’s assistance to obtain a permit and start mining operations, T would pay Schmidt 1% of the price that all ore from the land was sold at. A year later, KP (the plaintiff) agreed to work the land and undertake T’s agreement to Schmidt. The agreement that KP and Schmidt signed stated it was supplementary to the original agreement between KP and T. These terms were later terminated by a consent order which stated that J would take over the company and provide the company an indemnity from the payment owed to Schmidt. Schmidt claimed for the money that was agreed upon and KP claimed that they had been indemnified by J. The trial judge dismissed Schmidt’s claim and the Federal Court later reversed the decision and ordered KP to pay S. KP appealed the decision.

Issue

The court was required to establish at which point Schmidt had given consideration during proceedings. His first argument was that he had given consideration for the agreement between T and KP. If the court disagreed, Schmidt held that he had given effective consideration for the agreement between himself and KP and therefore he should be able to claim for the money owed to him.

Held

The court dismissed Schmidt’s claim to be able to enforce the original agreement between T and KP as he was not a party to that agreement. However, Schmidt was deemed to have given consideration under Malaysian law for the agreement between himself and KP. Therefore Schmidt could sue for the sum that was owed on the agreement between himself and KP.


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