to vary the legal consequences spelt out by the Act unless so expressly prohibited in the Act.” The Board held that if freedom to contract as regards a particular matter is to be cut down, this should be expressly set out.
Section 75 is silent as to whether it can be excluded by contract. Notwithstanding that, it is still uncertain whether parties are entitled to provide in their contract that s 75 is not applicable. Until a superior court has clearly pronounced on this issue, it remains a moot point.
Developments in Indian Law
In the case of Saw Pipes, the Indian Supreme
Court held as follows: Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach. The court said further,“ If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages / compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation”.
Conclusion
The current position of liquidated damages clauses in Malaysia may be summarised as follows:
( 1) Any sum specified in a contract to be the loss payable to the injured party, irrespective of whether it is liquidated damages or a penalty, is treated as setting the ceiling for damages recoverable damages;
( 2) If the loss cannot be measured by settled rules, then the court may award the liquidated damages as stipulated provided that these are a genuine pre-estimate of the loss;
( 3) If the loss cannot be measured by settled rules and the stipulated sum is a penalty, the court may award a reasonable sum as damages; and
( 4) If the loss can be measured by settled rules, then the injured party must prove his actual loss otherwise he may not be entitled to any compensation at all.
Employers would be aghast to learn that a liquidated damages clause for delay claims may not be enforceable and all that it does is to place a maximum cap on what they could claim and that their duty to prove loss still remains intact.
By requiring the injured party to prove his actual loss, the current interpretation of s 75 takes away from him the very benefit a liquidated damages clause is meant to confer, which is recovery without the need to prove actual loss.
The phrase“ whether or not actual damage or loss is proved to have been caused thereby” appears to be consistent with the very nature of a liquidated damages clause which is recovery without proof of actual loss.
The Indian Supreme Court case of Saw Pipes seems to provide the best way forward by recognising the validity of a liquidated damages clause without the necessity of proving actual loss provided that the stipulated sum is a genuine preestimate of loss. It is regrettable that the Federal Court in Johor Coastal did not delve further into and deliberate on the reasoning in Saw Pipes and consider whether it can be adopted here.
If possible, statutory language should be construed in the manner that best accords with good commercial sense. As said by Diplock LJ in Robophone Facilities Ltd v Blank [ 1966 ] 1 WLR 1428,“ I see no reason in public policy why the parties should not enter into so sensible an arrangement under which each knew where they stand in the event of a breach by the defendant and can avoid the heavy costs of proving the actual damage if litigation ensues.”
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