A Stunning Restatement of the Law on Liquidated Damages Clauses by the Federal Court

Richard Malanjum, Chief Judge of Sabah and Sarawak (as he then was), answers the question on the effectiveness of having liquidated damages clauses in contracts and whether such clauses are enforceable in Malaysia in the recent Federal Court decision of Cubic Electronics Sdn Bhd (In liquidation) v Mars Telecommunications Sdn Bhd.

I. INTRODUCTION

The Federal Court decision in the case of Selva Kumar Murugiah v Thiagarajah Retnasamy[1] (“Selva Kumar”) on the scope of Section 75 of the Contracts Act 1950 (“S.75 CA”) has left many questioning the effectiveness of having liquidated damages clauses in contracts and whether such clauses are in fact enforceable in Malaysia.  Many judges, lawyers and industry leaders share the view that liquidated damages clauses are effective and important means by which parties to a contract are able to negotiate and agree upon entering into the contract as to the compensation payable for non-performance of contractual obligations.[2] Such clauses aim to reduce the need for costly and time-consuming court proceedings in the event of a breach and provide commercial certainty for contracting parties with regard to the risks they undertake in the contract. Judicial support for these liquidated damages clauses are found in most common law jurisdictions[3] and their importance to the construction industry in particular is well recognised.[4]  

II. RESTATEMENT OF LAW  

The unanimous Federal Court decision in Cubic Electronics Sdn Bhd (In liquidation) v Mars Telecommunications Sdn Bhd (“Cubic Electronics”)[5] delivered by Richard Malanjum, Chief Judge of Sabah and Sarawak (as he then was), is certainly timely. His Lordship has summarised the restatement of the legal principles now applicable to liquidated damages clauses in Malaysia in paragraph 74 of the judgement as follows:

“i. If there is a breach of contract, any money paid in advance of performance and as part-payment of the contract price is generally recoverable by the payer. But a deposit paid which is not merely part-payment but also as a guarantee of performance is generally not recoverable.
ii. Whether a payment is part-payment of the price or a deposit is a question of interpretation that turns on the facts of a case, and the usual principles of interpretation apply. Once it has been ascertained that a payment possesses the dual characteristics of earnest money and part-payment, it is a deposit.
iii. A deposit is subject to section 75 of the Act.
iv. In determining what amounts to “reasonable compensation” under section 75 of the Act, the concepts of “legitimate interest” and “proportionality” as enunciated in Cavendish (supra) are relevant.
v. A sum payable on breach of contract will be held to be unreasonable compensation if it is extravagant and unconscionable in amount in comparison with the highest conceivable loss which could possibly flow from the breach. In the absence of proper justification, there should not be a significant difference between the level of damages spelt out in the contract and the level of loss or damage which is likely to be suffered by the innocent party.
vi. Section 75 of the Act allows reasonable compensation to be awarded by the court irrespective of whether actual loss or damage is proven. Thus, proof of actual loss is not the sole conclusive determinant of reasonable compensation although evidence of that may be a useful starting point.
vii. The initial onus lies on the party seeking to enforce a damages clause under section 75 of the Act to adduce evidence that firstly, there was a breach of contract and that secondly, the contract contains a clause specifying a sum to be paid upon breach. Once these two elements have been established, the innocent party is entitled to receive a sum not exceeding the amount stipulated in the contract irrespective of whether actual damage or loss is proven subject always to the defaulting party proving the unreasonableness of the damages clause including the sum stated therein, if any.
viii. If there is a dispute as to what constitutes reasonable compensation, the burden of proof falls on the defaulting party to show that the damages clause including the sum stated therein is unreasonable.”

One of the main issues before the Federal Court in Cubic Electronics is the treatment of the earnest deposits (held to be in the total amount of RM3 million), that is, whether once determined to be a true deposit, the deposit is forfeitable per se or is it still subject to principles of law applicable to liquidated damages clause.  The learned Chief Judge proceeded to look at how the courts in the UK and India now hold that the principles of law on damages clauses are equally applicable in relation to forfeiture of deposits instead of the mutually exclusive approach adopted previously. Having decided that the time has come for Malaysian courts to adopt a similar approach, his Lordship went on to hold that a deposit is subject to s75 CA.

The learned Chief Judge supported his conclusion with reference to the decision in Cavendish v Square Holdings BV v Talal El Maksessi[6] (“Cavendish”) where the UK Supreme Court had made the observation that (i) both the law on penalties and the law against forfeiture may be applied to the same clause (on forfeiture of deposit) albeit the relationship between the two is “not entirely easy” and (ii) the previously ambiguous position purporting to support the mutually exclusive approach may be best rationalised by applying the reformulated law on penalties, that is, looking at legitimate interest and proportionality rather than the law of relief against forfeiture.[7]

The reference to the landmark UK Supreme Court case of Cavendish gave the Federal Court the opportunity to revisit the scope of s75 CA in the light of the recent developments relating to the principles of law on liquidated damages clauses in the UK as decided therein. Cavendish is an important decision in reformulating what some have called the “new penalty test” in relation to liquidated damages clauses[8] and has generated a great deal of interest and commentary in both the UK and other common law jurisdictions.[9] Its significance may well have been overlooked by the local legal community until now since Malaysian law by virtue of s75 CA has long departed from the UK position on the treatment of liquidated damages clauses. The said provision does not allow the courts to give effect to a liquidated damages clause; instead, a plaintiff suing under such a clause would still be required to prove actual damage or loss suffered. As such, the Federal Court’s adoption in toto of the current approach under English law in Cavendish to determine whether a liquidated damages clause amounts to a penalty by referring to the concepts of “legitimate interest” and “proportionality” warrants a closer look. 

III. THE MALAYSIAN LEGAL POSITION BEFORE CUBIC ELECTRONICS 

The Federal Court in the case of Selva Kumar[10] held that in Malaysia there is no difference between penalty and liquidated damages as understood under English Law in view of s75 CA and therefore any submission as to whether a certain clause is a penalty or liquidated damages is an exercise in futility. Peh Swee Chin FCJ (delivering the judgement of the court) held that the words “whether or not actual damage or loss is proved to have been cause thereby” are limited or restricted to those cases where the court would find it difficult to assess damages for the actual damage or loss suffered (“the first class of cases”), as distinct from or opposed to all other cases, when the plaintiff in each of them will have to prove the damages or reasonable compensation for the actual damage or loss in the usual ways.[11] Therefore, aside from a limited class of cases where the court is satisfied that damage could not be proven, the party seeking to rely on the liquidated damages clause was required to prove actual loss or damage. The Federal Court judgement in Selva Kumar seriously undermined the importance and effectiveness of liquidated damages clauses through which parties to a contract often seek to allocate risks in their contractual commitments and made effort to avoid expensive and lengthy litigation in the event of breach. Many in the construction industry were dismayed by its implication and made attempts to circumvent the impact of Selva Kumar ruling by redrafting their liquidated damages clauses.[12]

The decision posed a challenge to the lower courts as they navigated the drastic impact of the Selva Kumar ruling which refused to give effect to well-drafted liquidated damages clauses that were freely negotiated and mutually consented to by commercial parties who are of equal bargaining powers and who have been properly advised. The outcome became more unfortunate in cases where the liquidated damages clause was in fact stipulated by legislation to protect house-buyers purchasing properties under construction from housing developers.[13] This arose in the case of Sakinas Sdn Bhd v Siew Yik Hau & Anor[14] where the High Court held that a case of delay in completion of a house purchased from the developer in a housing development should be treated as belonging to the first class of cases espoused by Selva Kumar, which did not require proof of actual damage or loss. The learned judge Abdul Aziz J (as he then was) went on to opine that:

“…The method of calculating the liquidated damages for failure to hand over vacant in time was prescribed in the SPA by virtue of the Housing Developers (Control and Licensing) Regulations 1989, which was a subsidiary legislation. As such the method was incapable of overriding s75 of the CA and its effect. But in determining reasonable compensation under s75 of the CA, the court ought not to disregard the fact the minister, in his wisdom balancing the interests of house buyers and developers, and after considering the advice of his advisers, considered that the method prescribed in cl 22(2) is a fair method…”[15]

In a similar High Court case of Yap Yew Cheong & Anor v Dirga Niaga (Selangor) Sdn Bhd,[16] the learned judge Abdul Malik Ishak J (as he then was), after a thorough discussion on the law on liquidated damages clauses, disagreed with Selva Kumar’s interpretation of S.75 and made the following observation:

“…It seems that the courts are moving away from Selva Kumar and Sakinas is a classic example of it. The learned judge in the person of Abdul Aziz Mohamed J (now JCA) in deciding Sakinas was ever ready to consider the issue of delays in construction projects as a species of breach for which “no known measure is employable”. That is certainly laudable. As I see it, the only way to avoid the impact of Selva Kumar is to vary the legal consequences spelt out by Selva Kumar in the context of S.75 of the Contracts Act 1950. It can be done provided both parties are agreeable to circumvent the rigours of Selva Kumar. What both parties should agree to would be:

1. that they would agree to redeem the value of the liquidated damages to be the injured party’s actual loss; and
2. that they would agree to dispense with the need to prove the injured party’s actual loss.”[17]

The above judgements and numerous others display the creative routes taken by judges to bypass the effect of Selva Kumar ruling and going to extent of considering how parties can contract out of S.75 CA. Some judges took the view that the words “whether or not damage or loss is proved” should be interpreted literally[18] and the court must give effect to the principle of freedom of contract by holding the parties to what they have agreed as long as the agreed damages is reasonable. Others sought to distinguish the facts from Selva Kumar and held that the defaulting party is bound by the terms of the contract and cannot rely on S.75 CA to avoid paying the agreed liquidated damages to the other party.[19] Some cases do not even refer to Selva Kumar in coming to the conclusion that in failing to show that the liquidated clause is extravagant, exorbitant and unconscionable and therefore a penalty, the sum named is a genuine pre-estimate of loss and therefore recoverable.[20] What is often emphasised is that the parties had both freely bargained for and agreed upon the formula stated in the liquidated damages clause and therefore the court would preserve the sanctity of the contract entered into by the parties.[21] In view of the reluctance shown by a number of the lower courts to rigidly apply the Selva Kumar ruling as well as the attempts by industry leaders in the construction arena to contract out of S.75 CA by the use of carefully worded liquidated damages clauses,[22] it was to be expected that the highest court in the country would be asked to reconsider its approach in taking a restricted interpretation of S.75 CA.

Eventually in the case of Johor Coastal Development Sdn Bhd v Constrajasya Sdn Bhd (“Johor Coastal”),[23] the Federal Court was invited to address the following issues:

1. Whether that part of the decision in Selva Kumar which obliges a party having the benefit of a liquidated damages clause to prove its losses, notwithstanding the words in S.75 CA “whether or not actual damage or loss is proved to have been caused thereby”, is correct; and
2. Whether or not parties entering into a contract are entitled to contract out of the provisions of S.75 CA.       

In spite of the learned counsel for the Appellant’s cogent argument that the Federal Court in its judgement in Selva Kumar had relied on two old Indian cases[24] while the Indian Supreme Court had in a recent case, Oil & Natural Gas Corp Ltd v Saw Pipes Ltd,[25] departed from those earlier cases, the Federal Court answered the first question posed in the affirmative and held that Selva Kumar is still good law. The submission that the Selva Kumar decision would force the parties to always litigate, by insisting that damage must be proved in every case despite the presence of a mutually agreed liquidated clause, did not resonate with the Federal Court. The Federal Court also did not see the need to address the second issue on the basis that there was no clear provisions in the agreements between the parties which excludes the application of S.75 CA. It should be pointed out that there was a dissenting judgement by Hashim Yusof FCJ who was of the following opinion:

1. The monies was rightly forfeited by the appellant, being an amount that was reasonable in view of the nature of the project and its abandonment by the respondent three years after the agreement was signed. Although proof of loss and damages could be given, it would be a very lengthy process that the parties agreed on a stipulated sum in the event of breach. It could not be the case that the innocent party would be the one to have to prove the loss.[26]
2. The parties had expressly agreed and named the sums payable in case of breach as reasonable compensation to the non-defaulting party. The party further waived any objection thereafter that those sums would be otherwise than fair or reasonable compensation. Such stipulation was not contrary to S.75 CA.[27]       

It is interesting to note that in the months just before the Cubic Electronics appeal was heard before the Federal Court, the Court of Appeal (sitting with different quorums) had had to consider the effect of the Selva Kumar ruling in at least four cases relating to the enforceability of what may amount to a penalty in diverse commercial contracts. In the case of Malayan Cement Industries Sdn Bhd v Golden Island Shipping (L) Bhd,[28] Mohd Zawawi Salleh JCA in a judgement delivered in May 2017 held that that “the law is clear that the plaintiff, notwithstanding the liquidated damages clause of the said agreement, must still prove its loss and as a corollary to that principle, the plaintiff must mitigate its losses.”[29] The learned judge had nonetheless in an earlier part of the same judgement opined:

“At the outset, it must be recognised that there are a number of advantages to the inclusion of a liquidated damages clause in a contract. Among significant advantages are: a liquidated damages clause permits the parties to enter into a contractual relationship with a better understanding of their respective rights and obligations in the event of breach and can eliminate the cost and delay of a complex lost-profit analysis if the relationship breaks down.”[30]

The next case of Saycon Construction Sdn Bhd v Rosado Tradeline Sdn Bhd[31] deals with a dispute over a claim for liquidated and ascertained damages between the main contractor and the subcontractor in a construction project. The Court of Appeal in a decision delivered by Tengku Maimun Tuan Mat JCA in September 2017 decided that since the contractor had not proved the claims for damages and on the authority of Selva Kumar, the court’s award for reasonable compensation has no basis. The Court of Appeal went through a thorough analysis of the Selva Kumar ruling and its affirmation by the Federal Court in Johor Coastal and came to the conclusion that the courts would require proof of actual loss in awarding reasonable compensation as set out in S.75 CA. The strict approach taken by the Court of Appeal in all four cases[32] is best summed up in the most recent Court of Appeal decision of Tekun Nasional v Plentitude Drive (M) Sdn Bhd and 2 Others Appeals[33] delivered in April 2018 which categorically declared the law on liquidated damages to be as follows:

“Clause 11.2 appears to be a penalty under section 75 of the Contracts Act because it stipulates and specified the sum being payable upon breach. It is settled law that if a sum is named in a contract as the amount to be paid in case of breach, it is to be treated as a penalty and therefore void under section 75 (see Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 2 MLJ 374; Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd…). As clause 11.2 contravenes section 75 of the Contracts Act, we are bound to strike it down under Selva Kumar and Johor Coastal.”[34] [emphasis added]  

IV. THE CASE OF CUBIC ELECTRONICS 

The facts of the case are as follows:

The Defendant was the owner of a piece of land in Mukim Bukit Katil, Melaka together with the plant and machinery thereon (collectively known as “the properties”). Following the winding up of the Defendant, the properties were to be put up for sale by way of an open tender exercise. However before the exercise could be carried out, the Plaintiff made an offer to purchase the properties for RM90 million. The Defendant accepted the offer on the terms contained in the Information Memorandum issued by the Defendant. Based on the terms as set out in the Information Memorandum, the Plaintiff would have to pay an earnest deposit of RM1 million upon the acceptance by the Defendant and the Sale and Purchase Agreement (“SPA”) would have to be executed within one month from the date of the acceptance unless extended by the liquidators at their absolute discretion. Failure in executing the SPA would result in forfeiture of the earnest deposit of RM1 million as agreed liquidated damages and not by way of penalty. The Plaintiff would have to pay 10% deposit only upon signing of the SPA.  On numerous requests by the Plaintiff and upon the payment of further sums by the Plaintiff toward the earnest deposit, the Defendant had on three occasions granted an extension of the time for the Plaintiff to execute the SPA. By the time a final request was turned down by the Defendant, the Plaintiff had made a total payment of RM3 million plus the non-refundable interest of RM40,000.[35]

The High Court had dismissed the Plaintiff’s claim for the refund of the earnest deposits forfeited, and held that that the forfeiture of the deposits does not contravene S.75 CA and that the deposits paid amounting to RM3 million are true deposits whereby the Defendant need not prove loss or damage.[36] On appeal, the Court of Appeal, delivering its judgement in July 2017, agreed with the learned High Court Judge that deposits are, generally speaking, liable to be forfeited without proof of damage but held that the amount liable to be forfeited by the Defendant was only the RM1 million that was agreed as earnest deposit at the time of entering into the agreement. On the question of the additional RM2 million forfeited by the Defendant, the Court of Appeal referred to the decisions of the Federal Court in Selva Kumar and Johor Coastal and came to the view that “…In forfeiting the payments made, the respondent (the Defendant in the appeal) not only failed to adduce any evidence to prove that they suffered any damage, but that they had also failed to prove that the whole sum forfeited was a reasonable compensation which the respondent would be entitled to forfeit, as envisaged by S75 CA”. [37] It would seem that the Court of Appeal was in fact suggesting that if the Defendant could somehow prove that the sum forfeited was reasonable compensation pursuant S.75 CA, they would be entitled to forfeit the said sum contrary to the position taken by Selva Kumar.

This was thus the uncertain state of the law on liquidated damages clauses when the appeal against the Court of Appeal’s decision in the instant case came before the Federal Court and it is with this in mind that we can appreciate the need for a restatement of the law on liquidated damages clauses in Malaysia. In a masterful stroke, the learned Chief Judge, having examined a litany of cases from English, Indian and even Commonwealth jurisdictions in a thorough analysis starting with the basic functions of contract law leading to the recent landmark decision in Cavendish, arrived at this conclusion:

“…we are of the considered opinion that there is nothing objectionable in holding the concepts of “legitimate interest” and “proportionality” as enunciated in Cavendish are relevant in deciding what amounts to “reasonable compensation” as stipulated in section 75 of the Act. Ultimately, the central feature of both the Cavendish case and section 75 of the Act is the notion of reasonableness.”[38]   

We shall now look briefly at the decision in Cavendish[39] where the UK Supreme Court expressed the view that the concepts of “deterrence” and “genuine pre-estimate of loss”[40] are unhelpful. Accordingly, the true test is whether the impugned provision is a secondary provision which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.[41] While the test was considered and expounded in diverse ways by the different law lords, it was succinctly put forth by Lord Mance as follows: “The first step is to consider whether any (and if so what) legitimate business interest is served and protected by the clause, and secondly, whether the provision made for that interest is extravagant, exorbitant or unconscionable”.[42] In adopting the test on penalties as formulated by Cavendish, the Federal Court was particularly taken with the application of the concepts of “legitimate interest” and “proportionality” as applied on the facts in the case of ParkingEye v Beavis (“ParkingEye”) [43] where his Lordship pointed out that the ParkingEye judgement is replete with instances where the UK Supreme Court conflated “proportionality’ with ‘reasonableness”.[44]

Based on the application of the reformulated principles in the cases of Cavendish and ParkingEye, the learned Chief Judge opined that: “…regardless of whether the damage is quantifiable or otherwise, it is incumbent upon the court to adopt a common sense approach by taking into account the legitimate interest which an innocent party may have and the proportionality of a damages clause in determining reasonable compensation”.

Applying the said principles to the instant case, the Federal Court held, inter alia, that:

1. the Defendant’s deprivation of the chance to enter into negotiations with a third party in addition to its goal of securing the execution of the SPA and avoiding delay in completion, are all legitimate interests which the forfeited payments were intended to guard against.[45]
2. in considering whether the payments forfeited was disproportionate, the additional RM2 million paid is not too large a figure when compared against the total purchase price of the properties, that is RM90 million. Combined with the initial deposit of RM1 million (which the Plaintiff is not contesting) the additional sum RM2 million represents only 3.33% of the purchase price of the properties.[46]
3. the onus lies on the Plaintiff to show the forfeiture of the additional RM2 million payments was excessive. The Plaintiff had failed to adduce any proof showing that the forfeited payments were exorbitant or unreasonable and consequently, the forfeiture of the additional RM2 million amounts to reasonable compensation.[47]  [emphasis added]

     
The most significant part of the Federal Court ruling is where the learned Chief Judge held that S.75 CA allows reasonable compensation as agreed by the parties in the liquidated damages clause to be awarded by the courts irrespective of whether actual loss or damage is proven”.[48] This restored the viability of liquidated damages clauses which is based on the fundamental principle that as long as the liquidated damages clause is not a “penalty” or “unreasonable”, the innocent party can enforce such a clause to claim for the sum agreed therein without having to prove actual loss. In order to succeed, the party seeking to be protected by such a liquidated damages clause has only to establish that he has a legitimate interest to be protected in the event of breach subject to the compensation imposed being not unreasonable, exorbitant or unconscionable. This is a direct contradiction to what was decided in Selva Kumar and strictly applied by the Court of Appeal in the recent decisions discussed herein.[49] With its acceptance of the reformulated test on penalties as expounded by Cavendish and moving away from the pre-Cavendish position, the Federal Court has in effect sought to depart from the decisions in Selva Kumar and Johor Coastal.  Its cursory explanation of the decisions in Selva Kumar and Johor Coastal, by pointing out that “…those decisions should not be interpreted (as what the subsequent decisions since have done) as imposing a legal straightjacket in which proof of actual loss is the sole conclusive determinant of reasonable compensation…”,[50] is not easy to reconcile with the clear wording of the those judgements handed down on both occasions by the Federal Court itself. In all likelihood, the ruling in those cases would in future be interpreted by the courts in a more limited and narrower manner.

A more problematic interpretation of S.75 CA by the Federal Court is where it held that “if there is a dispute as to what constitute reasonable compensation, the burden of proof falls on the defaulting party [emphasis added] to show that the damages clause is unreasonable”.[51] What is striking is that the Federal Court has by this part of its decision reinstated wholesale the English law position into its interpretation of S.75 CA.[52] Putting the burden of proof on the defaulting party to show that the liquidated damages clause is not unreasonable presupposes that any liquidated damages clause is not a penalty unless the defaulting party is able to prove it is exorbitant or unconscionable, and this seems to run contrary to the wording of S.75 CA. Since the law is said to be declaratory that any stipulated sum is a penalty,[53] an interpretation more consistent with the wording of S.75 CA would be to say that the presumption is that all liquidated damages clauses are deemed to be penalty and the burden of proof is on the party seeking to enforce the clause to show that it is reasonable and not exorbitant or unconscionable.[54] This will do more justice to the wording of S.75 CA and will in no way prevent the party seeking to enforce the liquidated damages clause from using the reformulated test in Cavendish to establish that it is not out of proportion to his legitimate interest to enforce the same. This part of the Federal Court decision is all but certain to invite much scrutiny from jurists and academicians as well as challenges by litigants.

V. CONCLUSION

​It is interesting to note that the Federal Court in Cubic Electronics has chosen to deftly sidestep the uncertainty and ambiguity created by the decisions in Selva Kumar and Johor Coastal by premising its approach entirely on the new position in English law brought about by the Cavendish decision. The Federal Court’s bold ruling seems to suggest that the restatement of the traditional formula on liquidated damage clauses by the case of Cavendish justifies a fresh look at the scope of S.75 CA and, in the process, S.75 CA has to be similarly reinterpreted in line with modern commercial demands. It remains to be seen how this major restatement of the legal principles on liquidated damages clauses by the Federal Court will be applied by the lower courts in the days ahead and what effort will be made to reconcile this new ruling with the previous decisions as well as the wording of S.75 CA itself. It is however certain that this clear and emphatic restatement of an important area of contract law in Malaysia would be widely welcomed by jurists, lawyers, businessmen and, most of all, those in the construction industry. The parties to a contract can now look forward to the right to “enter into so sensible an arrangement under which each know where they stand in the event of a breach by the defendant and can avoid the heavy cost of proving actual loss if litigation ensues.”[55]

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​Written by Choong Shaw Mei, an Advocate and Solicitor (Malaya) and a lecturer of the Faculty of Law, University of Malaya.

Edited by Alyson Phung. 

Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of the University of Malaya Law Review, and the institution it is affiliated with.

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Footnotes:
​
[1] [1995] 1 MLJ 817.

[2] Philips Hong Kong v AG of Hong Kong [1993] 2 CLJ 272 PC at 277. 

[3] Courts in the UK, Singapore, Australia, Hong Kong and the USA have recognised the use of liquidated damage clauses in contracts.  

[4] Clause 22.2 of the Standard Agreement and Conditions of PAM Contract 2018.  

[5] [2018] MLJU 1935.

[6] [2015] UKSC 67.

[7] See footnote 5 at para [44].

[8] See footnote 6 at para [241] per Lord Hodge: “This doctrine…is not confined to cases requiring the payment of money on breach. It applies to clauses withholding payment on breach, clauses requiring the party in breach to transfer property, and clauses requiring payment of a non-refundable deposit if that deposit is “not reasonable as earnest money”.

[9] Goh, Yihan and Yip, Man, “English Reformulation of the Penalty Rule – Relevance in Singapore?”, (2017) 29 Singapore Academy of Law Journal 257; Nicolson, Alex “Too entrenched to be challenged? A commentary on the rule against contractual penalties post Cavendish v Makdessi and ParkingEye v Beavies”, European Journal of Current Legal Issues, 22 (2016), 1 February 2019, <http://webjcli.org/article/view/498/670>.     

[10] See footnote 1.

[11] See footnote 1, at 827 para E.

[12] Clause 22.2 of the PAM Contract 2018: “The Liquidated Damages stated in the Appendix is a genuine pre-estimate of loss and/or damage which the Employer will suffer in the event the Contractor is in breach…The parties agree that by entering into the Contract, the Contractor shall pay to the Employer the said amount, if the same becomes due without the need for the Employer to prove his loss and/or damage…”.  

[13] Clause 22(1) of Schedule H to the Housing Developers (Control and Licensing) Regulations 1989.  

[14] [2002] 5 MLJ 497.

[15] See footnote above at 516 para F.

[16] [2005] 7 MLJ 660.

[17] See footnote above at 680 para D-F.

[18] Lebby Sdn Bhd v Tan Keng Hong & Anor [2001] AMR 15; Leong Lai Kuen v Sentul Murni Sdn Bhd [2004] 5 CLJ 25.

[19] Brisdale Resources Sdn Bhd v Law Kim [2004] 6 MLJ 76.

[20] Larut Matang Supermarket Sdn Bhd v Liew Fook Yung [1995] 1 MLJ 375.    

[21] Silver Concepts Sdn Bhd v Brisdale [2005] 4 MLJ 101 at 123 para I.

[22] The Federal Court in Cubic Electronics by way of obiter dicta did suggest that parties may not be at liberty to     contract out of s75 CA.

[23] Johor Coastal Development Sdn Bhd v Constrajasya Sdn Bhd [2009] 4 MLJ 445.

[24] Fateh Chand v Balkishen Das [1964] 1 SCR515; Maula Bax v Union of India [1970] 1 SCR 928. 

[25] AIR 2003 SC 2629, SC.

[26] See footnote 21 at 468 para [60].

[27] See footnote 21 at 470 para [73].

[28] Malayan Cement Industries Sdn Bhd v Golden Island Shipping (L) Bhd [2018] 1 CLJ 228 (CA].

[29] See footnote above at 237 para [29].

[30] See footnote 27 at 233 para [12].

[31] [2018] 4 MLJ 652.

[32] Including the Court of Appeal’s decision in Cubic Electronics.

[33] [2018] 8 CLJ 693.

[34] See footnote above at 710 para [12].

[35] The sum of RM40,000 was held to intended by the parties to be non-refundable interest irrespective of whether the sale went through and therefore payable regardless of any breach and thus fell outside the scope of S.75 CA.

[36] See footnote 5 para [22]. 

[37] Mars Telecommunications Sdn Bhd v Cubic Electronics Sdn Bhd (in liquidation) [2017] 6 MLJ 321 at 323 para [27].

[38] See footnote 5 para [66]. 

[39] See footnote 6.

[40] Based on the traditional formulation of the principles of law applicable to damages clause as laid out in the case of Dunlop Pneumatic Co Ltd v New Garage & Motor Co Ltd [1914] AC 79.

[41] See footnote 6 para [32].

[42] See footnote 6 para [152].

[43] Jointly heard on appeal with the Cavendish case.

[44] See footnote 5 para [66].  Each of the decisions in Cavendish, ParkingEye and Cubic Electronics deserves a separate and deeper analysis in their respective application of the concepts of “legitimate interest” and “proportionality” which cannot be covered within the scope of this brief commentary.

[45] See footnote 5 para [86]. 

[46] See footnote 5 para [87]. 

[47] See footnote 5 para [88]. 

[48] See footnote 5 para [74vi].

[49] The cases of Malayan Cement Industries Sdn Bhd v Golden Island Shipping (L) Bhd [2018] 1 CLJ 228 (CA); Saycon Construction Sdn Bhd v Rosado Tradeline Sdn Bhd [2018] 4 MLJ 652 and Tekun Nasional v Plentitude Drive (M) Sdn Bhd and 2 Others Appeals [2018] 8 CLJ 693 as well as Cubic Electronics.

[50] See footnote 5 para [65].

[51] See footnote 5 para [74vii].

[52] This is in fact the common law position all along even when the traditional formulation in Dunlop Pneumatic Tyre Co Ltd was applicable to damages clauses. The decision in Cavendish made no change to the requirement for the defaulting party to prove that the clause is a penalty as far as English law is concerned.

[53] Earlier decisions declaring that all liquidated damages clauses are deemed to be penalty under S.75 CA  were made in SS Maniam v State of Perak [1957] MLJ 75 and Linggi Plantation Ltd v Jagatheesan (1971) 2 PCC 749 PC.

[54] Lim, CF “Enforcement of Liquidated Damages – To Prove Actual Loss?” [1993] 1 Malayan Law Journal lxxxi-lxxxvii.

[55] Robophone Facilities Ltd v Blank [1996] 1 WLR 1428.