The other side walked away from our contract. Can I end it and claim damages?

A customer cancels a two-year supply contract after three months. A contractor stops work and moves to another site. A buyer says it "no longer needs" the goods you made to order. What can you do?

What counts as walking away

Under section 40 of the Contracts Act 1950, when a party has refused to perform, or disabled itself from performing, its promise in its entirety, the other party (the promisee) may put an end to the contract, unless it has signified, by words or conduct, its acquiescence in the contract continuing.

Examples include a clear statement that the party will not perform, or conduct showing it cannot or will not, such as selling the subject matter to someone else.

Your choice: terminate or affirm

• Terminate: accept the repudiation, end the contract, and claim damages. Do it clearly and in writing.
• Affirm: keep the contract alive and insist on performance. But if you act as if the contract continues, you may lose the right to terminate for that breach.

Do not delay, and avoid mixed messages such as "we reserve our rights" while carrying on as normal for months.

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What you can claim

• Compensation for non-fulfilment: a party who rightly rescinds is entitled to compensation for damage sustained through the non-fulfilment of the contract (section 76).
• The measure: loss that naturally arose in the usual course of things from the breach, or which the parties knew when contracting was likely to result (section 74(1)). Remote and indirect losses are not recoverable.
• Mitigation: you are expected to take reasonable steps to reduce your loss, such as reselling goods or finding a replacement contract. The explanation to section 74 refers to the means of remedying the inconvenience.

Agreed damages clauses

If the contract names a sum payable on breach, or a penalty, you are entitled to reasonable compensation not exceeding that sum (section 75). Courts look at whether the sum is reasonable in the circumstances, so keep evidence of your actual losses.

Practical steps

1. Read the contract: termination clauses, notice periods and cure periods.
2. Gather the evidence of refusal: emails, messages, minutes.
3. Send a written notice accepting the repudiation, or calling for performance by a date.
4. Record your losses and steps taken to reduce them.
5. Consider a letter of demand and then a claim.

Example

A Kuching events company signs a 12-month contract to supply staff to a mall. After four months, the mall says it has appointed another supplier. The company writes accepting the repudiation, redeploys staff where it can, and sues for the profit it would have earned over the remaining eight months, less savings and replacement income.

Common mistakes

• Continuing to perform as if nothing happened, then trying to terminate later.
• Terminating on a minor breach that does not amount to repudiation.
• Claiming the whole contract price instead of actual loss.
• Ignoring the duty to reduce losses.

When to speak to a lawyer

Before you terminate, because a wrongful termination can make you the party in breach. See civil litigation or contact us.

Frequently asked questions

Do I have to give notice before terminating?

Check the contract. Some require notice and a chance to remedy. Where the other side has clearly refused to perform at all, section 40 may apply directly.

Can I keep the deposit they paid?

That depends on the contract and on section 75. A forfeiture must be reasonable.

How long do I have to sue?

Generally six years from the breach for contract claims, under the Limitation Act 1953.

Sources & fact check

Legal points in this article were checked against the primary sources below. The law can change; this is general information, not legal advice.

1. Contracts Act 1950 (Act 136), AGC Laws of Malaysia
2. Rules of Court 2012 (P.U.(A) 205/2012), text published by the Malaysian Bar, including Orders 12, 13, 18, 19 and 93

Fact-checked on 17 Oct 2026