Ingenieur Vol 78 ingenieur 2019 apr (2) | Page 23

By Lam Wai Loon and Serene Hiew Mun Yi Harold & Lam Partnership T he Malaysian Federal Court has recently, in the case of Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] 2 CLJ 723 decided on the often debated point of law relating to the application and effect of liquidated damages clauses. While this recent Federal Court decision does not overrule the previous judgment of the Federal Court in Selva Kumar a/l Murugiah v Thiagarajh a/l Retnasamy [1995] 1 MLJ 817, the Federal Court has certainly clarified the decision in Selva Kumar in regard to the interpretation of Section 75 of the Contracts Act 1950. BEFORE CUBIC ELECTRONICS Prior to the Federal Court’s decision in Cubic Electronics, the courts have consistently followed the interpretation of Section 75 of the Contracts Act 1950 as laid down in Selva Kumar, which held (among others): ● ● Although Section 75 of the Contracts Act 1950 provides that an innocent party may receive reasonable compensation ‘whether or not actual damages or losses are proved to have been caused thereby’, the Federal Court held that those words ought to be given a restricted construction. As such, an innocent party who is claiming for actual damages in an action for breach of contract must prove actual damages/ losses or reasonable compensation in accordance with the principles in Hadley v Baxendale [1943-60] All ER Rep 461. ● ● An exception to the above would be where the court finds it difficult to assess the actual damages/losses as there is no known measure of damages employable. Nevertheless, the evidence ought to still show some real loss which is not too remote. Due to the restricted interpretation in Selva Kumar, even if an innocent party succeeds in proving a breach of contract, the failure to prove actual damages/losses will result in the refusal of the court to award such damages. Even if the contract contains a liquidated damages clause which stipulates a sum to be paid in the event of a breach, the innocent party will still have to prove actual damage/loss. The above position was also confirmed in the Federal Court case of Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd [2009] 4 MLJ 445. DECISION IN CUBIC ELECTRONICS After more than 20 years since Selva Kumar, the Federal Court has decided to adopt a more liberal interpretation of Section 75 of the Contracts Act 1950, in line with the position taken in other common law jurisdictions. In Cubic Electronics, the issue before the Federal Court was regarding forfeiture of a deposit (as agreed liquidated damages). Nevertheless, the Federal Court went on to clarify the law on liquidated damages clauses under Section 75 of the Contracts Act 1950: ● ● As Section 75 of the Contracts Act 1950 allows the innocent party to reasonable compensation ‘whether or not an actual damage or loss is proved’; proof of an 21 Recent Federal Court Decision on Liquidated Damages Clauses