Recent Developments In The Law On Liquidated Damages in Malaysia

The operative paragraph of section 75 of the Malaysian Contracts Act, 1950, is identical to section 74 of the Indian Contract Act, 1872…

Introduction

Liquidated damages are a commonplace feature of the contractual landscape in many jurisdictions. Courts in different common law jurisdictions have, however, taken very different approaches to liquidated damages clauses and addressing any perceived injustices that arise out of such clauses. This article examines a recent development in the law on liquidated damages in Malaysia, which is worthwhile comparing to the approach taken in India. The contrasting approaches are significant in light of the similarities in the Contract Acts of the respective countries. The approaches in these two jurisdictions are also compared with that in Singapore, which differs in not having an equivalent statutory codification of its contract law.

The operative paragraph of section 75 of the Malaysian Contracts Act, 1950, is identical to Section 74 of the Indian Contract Act, 1872, providing:

“When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.”