Understanding Liquidated Damages in Malaysian Property Law
Liquidated damages (LD) play a crucial role in property transactions across Malaysia, especially in cases that involve breaches of contract such as delayed project completions and failures to meet contractual obligations. Under the Contracts Act 1950, liquidated damages are predetermined sums agreed upon in contracts to compensate the aggrieved party without requiring them to prove actual losses.
Legal Framework Governing Liquidated Damages
Malaysian law primarily refers to Section 75 of the Contracts Act 1950 when assessing the enforceability of liquidated damages. The Malaysian courts have often examined whether these predetermined damages are justified based on the actual harm suffered by the claimant.
Key Case Studies on Liquidated Damages in Malaysian Property Law
1. Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817
In one of the landmark rulings, the Malaysian Federal Court reinforced the principle that liquidated damages must be proven in terms of the actual loss suffered by a claimant. In this particular case, the plaintiff sought liquidated damages from the defendant due to failure to perform contract obligations.
The court held that even though a clause for liquidated damages existed in the agreement, the claimant still needed to demonstrate quantifiable loss. This case established a crucial precedent ensuring that liquidated damages are not penal in nature but compensatory.
2. Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] 6 MLJ 15
The Federal Court, in this case, took a more flexible approach compared to the Selva Kumar ruling. Here, the court ruled that once a liquidated damages clause is included in the contract, the burden of proof shifts to the party disputing it to demonstrate that it is unreasonable.
The shift in interpretation provided greater certainty for developers and contractors involved in property disputes, reaffirming that properly drafted clauses on liquidated damages can be upheld unless proven unreasonable.
3. PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and Other Appeals [2021] 2 MLJ 50
In this widely discussed case, the issue revolved around delayed completion of a housing project and homebuyers’ claims for liquidated damages under a Sale and Purchase Agreement (SPA). The Federal Court ruled in favor of homebuyers, stating that liquidated damages had to be calculated from the date of the original agreement rather than the extended time granted unilaterally by the developers.
The ruling provided significant clarity for property buyers in Malaysia, reinforcing their rights to claim liquidated damages when projects are completed beyond the promised timeframe.
Implications of Liquidated Damages for Property Buyers and Developers
From the analyzed case studies, it is evident that courts in Malaysia take a balanced approach in assessing liquidated damages. Developers must ensure transparency in contract terms, while buyers should be well-informed about their legal rights.
Conclusion
Liquidated damages remain a critical safeguard in Malaysian property law, protecting contractual parties from financial losses due to breaches. The evolving legal landscape, along with court rulings, provides more certainty on how these claims are assessed. Both property developers and buyers must remain diligent in understanding their contractual rights and obligations.
