Cubic Electronics v Mars Telecommunications [2019] 6 MLJ 15: Liquidated Damages Modernised

Case at a glance

• Case name: Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd

• Citation: [2019] 6 MLJ 15

• Court: Federal Court of Malaysia

• Year: 2019

• Practice area: Corporate & Commercial Law

Background and facts

The dispute concerned a contract that included a liquidated-damages clause. Following breach, the innocent party sought to enforce the clause; the breaching party argued that the clause was an unenforceable penalty.

Section 75 of the Contracts Act 1950 provides that the innocent party is entitled to reasonable compensation not exceeding the amount stated in the contract. The longstanding question was: must the innocent party prove actual loss to recover the stipulated sum?

The issue before the court

What is the proper modern test under section 75 of the Contracts Act 1950 for the enforceability of liquidated-damages clauses, and to what extent must the innocent party prove actual loss?

Holding and reasoning

The Federal Court held that:

• The innocent party need not prove actual loss to recover under a properly drafted liquidated-damages clause.

• The breaching party bears the burden of showing that the stipulated sum is not a genuine pre-estimate of loss or is unreasonable in the circumstances.

• The court applies a more commercially realistic test — closer to the modern English position in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 than to the rigid Dunlop formulation.

Why this case still matters

For Malaysian commercial drafting in 2026:

• Liquidated-damages clauses are presumptively enforceable if they reflect a reasonable estimate of loss or have a legitimate commercial rationale.

• Burden shift — the breaching party must prove the clause is unreasonable, not the other way round.

• Drafting tip — record in the contract or a recital the basis on which the sum was calculated. A contemporaneous record of how the figure was set is decisive evidence at trial.

• Letters of demand — referencing the liquidated-damages clause is now a strong negotiation lever, not merely a hopeful claim.

Frequently asked questions

Do I still need to prove actual loss?

No — Cubic Electronics confirms the innocent party does not need to prove actual loss to recover under a properly drafted liquidated-damages clause. The breaching party bears the burden of showing the sum is unreasonable.

How do I draft an enforceable liquidated-damages clause?

Tie the sum to a genuine pre-estimate of loss, document the basis of the calculation in a recital or contemporaneous note, and avoid figures that are punitive on their face. We routinely draft and review such clauses for Malaysian SMEs.

Does this affect existing contracts?

Yes — the principles in Cubic Electronics apply to ongoing disputes regardless of when the contract was signed. The interpretive framework is the law as at the date of trial.

Frequently asked questions

Do I still need to prove actual loss?

No — Cubic Electronics confirms the innocent party does not need to prove actual loss to recover under a properly drafted liquidated-damages clause. The breaching party bears the burden of showing the sum is unreasonable.

How do I draft an enforceable liquidated-damages clause?

Tie the sum to a genuine pre-estimate of loss, document the basis of the calculation in a recital or contemporaneous note, and avoid figures that are punitive on their face. We routinely draft and review such clauses for Malaysian SMEs.

Does this affect existing contracts?

Yes — the principles in Cubic Electronics apply to ongoing disputes regardless of when the contract was signed. The interpretive framework is the law as at the date of trial.