Marwiya Binti Miswan v Dede Resources Sdn Bhd

Case Significance

Illustrates the courts' scrutiny of minimum-service and training-bond compensation clauses under section 75 of the Contracts Act 1950: a stipulated sum must reflect a legitimate interest and be proportionate rather than a penalty, and here the court set aside a RM60,000 award as unreasonable given the employee's modest salary.

This High Court decision at Shah Alam, delivered by Judicial Commissioner Elaine Yap Chin Gaik, is an appeal after a full trial concerning the enforceability of a compensation clause in an employment arrangement contract. The respondent, Dede Resources Sdn Bhd, operated a retail florist shop and had appointed the appellant, an individual, as a retail supervisor trainee; she later signed an employment arrangement contract requiring her to work for at least five years, failing which she would be liable to pay a stipulated sum described as compensation for a "Floral Design Training Course". When the employee left before the five-year term, the employer sued to recover the stipulated sum, and the Sessions Court had ordered the employee to pay RM60,000 together with RM6,000 in costs. The employee appealed. The central questions were the true meaning of the "Floral Design Training Course", whether the training was worth the stipulated sum, and whether that sum was unreasonable, exorbitant, unconscionable or disproportionate.

The court allowed the appeal in part. Construing the contract in a manner consistent with business common sense, and applying the principles governing recoverable liquidated damages — including the requirement, under section 75 of the Contracts Act 1950 as developed by the authorities, that a stipulated sum reflect a legitimate interest and be proportionate rather than a penalty — the court was not satisfied that the compensation claimed was reasonable, having regard among other things to the modest gross monthly salary of RM2,100 the employee had earned. It held that the stipulated sum could not be sustained as recoverable compensation. It accordingly set aside the Sessions Court's judgment ordering the employee to pay RM60,000 and the associated RM6,000 costs order, and ordered the employer to pay the employee costs here and below of RM10,000, subject to allocatur. The judgment illustrates the courts' scrutiny of training-bond and minimum-service compensation clauses for proportionality and legitimate interest.