In Tekun Nasional v Plenitude Drive (M) Sdn Bhd,(1) one threshold issue before the Federal Court was whether its earlier decision in Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd(2) applied to the present appeals. The appeals concerned the application of section 75 of the Contracts Act 1950 (the Act) to the assessment of damages arising out of an agreement's termination.
In Cubic, the Federal Court decided that:
- under section 75 of the Act, the burden was on the party seeking to enforce a liquidated damages clause to adduce evidence of the breach of contract; and
- the contract contained a clause specifying the sum to be paid upon a breach.
Therefore, there is a precedent for the burden being on the defaulting party to show that the liquidated damages clause, including the sum stated, is unreasonable.
Tekun Nasional awarded a contract regarding a repayment collection system to Plenitude Drive (M) Sdn Bhd. Plenitude was supposed to supply at least 500 mobile phones for Tekun's use and provide all of the relevant technical services. In return, Plenitude was to receive 1.50 ringgit for every loan repayment transaction.
However, Tekun refused to collect a certain number of the phones and it failed to pay invoices issued by Plenitude. Eventually, Plenitude issued a notice to terminate the agreement and demanded a sum in excess of 29 million ringgit for damages, which was calculated based on a formula provided under the agreement.
Plenitude filed two suits against Tekun, alleging breach and wrongful repudiation of the agreement, claiming 29,829,132.40 ringgit and 612,000.00 ringgit, respectively. In the former suit, the high court allowed Plenitude's claim on liability but it dismissed the damages claim of 29 million ringgit based on the contractual formula. The high court held that Plenitude was not entitled to claim the specified sum due to section 75 of the Act. Instead, the high court ordered the damages to be assessed.
The Court of Appeal held, among other things, that the 29 million ringgit was not claimable and it was void under section 75 of the Act. It dismissed the appeals and remitted the case to the high court for damages assessment.
The Federal Court granted leave to appeal on the following questions of law.
The Federal Court was to assess whether the high court, in a trial on both liability and damages for breach of contract, has any residual jurisdiction to order the assessment of damages after it has delivered judgment and held that the plaintiff has failed to prove the damages at the trial.
The Federal Court also sought to answer whether:
- a litigant that wishes to rely on section 75 of the Act must raise it in the pleadings; and
- a litigant that wishes to rely on section 75 of the Act to defeat a claim based on a contractual provision that dictates the formula for calculating the damages amount must prove that the provision is a penalty.
However, at the time of the hearing in August 2020, there was a new development in the law in relation to section 75 of the Act, due to developments in Cubic, which imposed the burden of proving that the liquidated damages clause is unreasonable on the defaulting party. Tekun argued that Cubic could not be applied retrospectively as it would create injustice. Pre-Cubic, when applying section 75 of the Act, the burden was on the innocent party to show that the damages stipulated in the liquidated damages clause were a reasonable compensation by reference to the loss sustained due to the breach and in accordance with the usual principles in providing damages.
Therefore, the threshold issue was whether Cubic applied retrospectively to the appeals before the Federal Court.
Making reference to its earlier decision in Letchumanan Chettiar Alagappan @ L Alagappan v Secure Plantation Sdn Bhd,(3) the Federal Court held that, for a decision to be applied retrospectively, the case must still be the trial stage so that the parties can prepare and argue their case based on the burden of proof applicable at that time.
The Court held that Cubic should not be applied retrospectively to cases where the full trial has been completed and decided by the first-instance court. The retrospective application of Cubic would cause injustice for Tekun. In other words, Cubic will only apply prospectively to cases where trials have not been completed.
Eventually, the Court partially allowed the appeal. The Court held that Plenitude had failed to prove damages and it allowed only nominal damages of 5,000 ringgit. The Court set aside the Court of Appeal's damage assessment order as it would be an unfair second attempt by Plenitude to secure damages, and it would be a waste of judicial time and resources. The Court found it to be unnecessary to answer the questions of law posed.
In pronouncing a decision that departed from or was not consistent with its precedent, the Court was mindful not to cause material injustice to parties of other cases that had prepared and completed their cases in accordance with the laws applicable at the time. This decision is also another illustration that the Court is not bound or restricted to answering the questions of law that it grants.
For further information on this topic please contact Lee Xin Div at Gan Partnership by telephone (+603 7931 7060) or email ([email protected]). The Gan Partnership website can be accessed at www.ganlaw.my.
(1) Tekun Nasional v Plenitude Drive (M) Sdn Bhd  1 LNS 1434 (Federal Court).
(2) Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd  6 MLJ 15 (Federal Court).
(3) Letchumanan Chettiar Alagappan @ L Alagappan v Secure Plantation Sdn Bhd  4 MLJ 697 (Federal Court).