1. ) KEMENTERIAN PERTAHANAN MALAYSIA 2. ) KERAJAAN MALAYSIA v SME ORDNANCE SDN BHD

Case Significance

A public-procurement missile-supply dispute framed around the enforceability of a liquidated ascertained damages clause under section 75 of the Contracts Act 1950 and the Cubic Electronics approach, addressing whether an LAD of 24.5% of contract value was excessive and whether actual loss must be proven.

This Court of Appeal matter concerns a contract dispute over the procurement of missiles and a delay in delivery, in which the contracting parties were the Ministry of Defence and the Government of Malaysia on one side and SME Ordnance Sdn Bhd on the other. The dispute centred on liquidated ascertained damages (LAD) claimed for late delivery under the procurement contract, and the appeal engaged the principles governing the enforcement of an LAD clause.

The issues framed by the catchwords included whether time was of the essence, whether the LAD amount, said to be 24.5% of the contract value, was excessive, and whether actual loss had to be proven. These questions turn on section 75 of the Contracts Act 1950, which addresses compensation for breach of contract where a sum is named in the contract as the amount to be paid on breach, and on the burden of proof as explained by the Federal Court in Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd. The court also had regard to the application of Tekun Nasional v Plenitude Drive (M) Sdn Bhd in this area.

The further questions were whether the High Court had erred in finding the LAD excessive and whether it had erred in ordering a full refund of the LAD. The framing of the dispute reflects the modern approach to LAD clauses, under which a claimant relying on such a clause must still show that the sum stipulated is a genuine and reasonable pre-estimate, and under which the concepts of legitimate interest and proportionality bear on enforceability, so that a stipulated sum representing a substantial percentage of the contract value may be scrutinised. The judgment situates a public-procurement missile-supply dispute within the section 75 framework and the Cubic Electronics line of authority on liquidated damages and the proof of loss.