LESSONS FROM INDIAN LAW: APPLYING THE NEW PRINCIPLES IN CUBIC ELECTRONICS

Abstract

The Federal Court’s judgment in Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd has been seen as a watershed moment for the treatment of liquidated damages clauses (‘LAD clauses’) in Malaysia. The longheld notion that the party who is claiming damages under a LAD clause must prove the actual damage incurred in accordance with the ordinary principles to calculate damages laid down in Hadley v Baxendale was shattered. In its place, the Federal Court opted to incorporate the concepts of ‘legitimate interest’ and ‘proportionality’ into Malaysian law on LAD clauses, principles which were first expounded in English cases. Unfortunately, these concepts have not been expanded on in later Malaysian cases. This article proposes that Malaysian law on LAD clauses and its newly introduced concepts can be finessed further, specifically by adopting the Indian position of requiring actual proof of loss, whenever possible, in order to prove an innocent party’s ‘legitimate interest’. This approach also mirrors the reality of the court’s considerations in practice, as demonstrated in a recent Malaysian case cited in the article.