Tekun Nasional v Plenitude Drive (M) Sdn Bhd and another appeal [2021] 6 MLJ 619

Federal Court (Putrajaya)

Assessing damages after a contract is terminated

1. The Appellant is a government agency under the Ministry of Entrepreneur Development that provides financing to Bumiputera entrepreneurs. The Appellant entered into an agreement with the Respondent, for the development of the MG and SI computer systems used to collect loan repayments.
2. However, the Appellant later refused to proceed with the MG System. As a result, the Respondent terminated the agreement and sued the Appellant for breach of contract. The High Court found the Appellant liable for breach but rejected the Respondent’s claim for RM29,829,132.40. The High Court held that this sum, calculated using a formula in clause 11.2 of the agreement amounted to special damages, which were barred by section 75 of the Contracts Act 1950 (“CA”). The High Court therefore ordered damages to be separately assessed.
3. On appeal, the Court of Appeal agreed with the High Court on liability but disagreed on the nature of the damages. The Court of Appeal held that the RM29.8 million sum was not special damages but was an amount calculated using the contractually agreed formula. Even so, the Court of Appeal ruled that this formula operated as a penalty, making it unenforceable under section 75 of CA. 
4. The Respondent was still entitled to compensation for proven losses such as lost earnings or profits, but it could not rely on clause 11.2 of the agreement to claim the fixed amount. The appeals were dismissed, and the case was sent back to the High Court for assessment of damages.
5. Leave to appeal to the Federal Court was granted on two issues –

1. Whether the High Court still has jurisdiction to assess damages after delivering judgment in a breach of contract case, where it had already found that the respondent failed to prove damages at trial; and 
2. Whether a party relying on section 75 of CA must specifically plead it, and if challenging a contractual damages formula under that section, must also prove that the clause amounts to a penalty.

1. Whether the High Court retains any jurisdiction to assess damages in a breach of contract case after delivering judgment, when it has already found that the Respondent failed to prove damages at trial.
2. Whether a litigant relying on section 75 of the CA must plead it and, if relying on it to challenge a contractual formula for damages, also prove that the provision constitutes a penalty.

Whether the High Court retains any jurisdiction to assess damages in a breach of contract case after delivering judgment, when it has already found that the plaintiff failed to prove damages at trial.

1. The Federal Court held that once the High Court has delivered its judgment and determined that the Respondent failed to prove damages, the High Court cannot later reopen the matter for reassessment. The Federal Court reiterated that the burden of proving loss lies strictly with the Respondent at trial. If actual loss is not proven at that stage, any subsequent exercise to assess or calculate damages would amount to speculation and is beyond the scope of the Court’s jurisdiction after judgment has been entered.
2. The Federal Court emphasised that the only permissible consequence in such circumstances is the award of nominal damages, a position supported by Tan Sri Khoo Teck Puat & Anor v Plenitude Holdings Sdn Bhd [1994] 3 MLJ 777; [1995] 1 CLJ 15, where damages may be nominal when actual loss is not demonstrated. This underscores the principle that assessment of damages is time-bound to trial and cannot be revisited afterwards merely as the Respondent failed to adduce sufficient proof.
3. Accordingly, once judgment is delivered dismissing the Respondent’s claim for failure to prove damages, the High Court does not retain residual jurisdiction to assess those damages subsequently.

Whether a litigant relying on section 75 of the CA must plead it and, if relying on it to challenge a contractual formula for damages, also prove that the provision constitutes a penalty.

1. The Federal Court affirmed that any litigant who intends to rely on section 75 of the CA is required to specifically plead it. If a party invokes section 75 to dispute a contractual formula fixing damages, that party bears the burden of proving that the stipulated amount constitutes a penalty, that is, a sum that is excessive, disproportionate or unreasonable in comparison to the actual loss suffered.
2. This principle originates from Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817, where the Court stressed that contractual sums cannot be enforced if they are extravagant or unconscionable. Although the later decision in Cubic Electronics Sdn Bhd v Systems Integration Sdn Bhd [2018] 4 MLJ 621 refined the approach by shifting the burden to the defaulting party to show unreasonableness, the Federal Court clarified that Cubic applies prospectively, and litigants still must prove excessiveness when invoking section 75.
3. The Federal Court further held that a stipulated damages formula can only be enforced if supported by reasonable evidence demonstrating that it reflects real loss or legitimate commercial interest. In the present case, the claimant failed to substantiate the claimed contractual amount, rendering the formula penal in nature; the Court therefore awarded only nominal damages of RM5,000.00.

The appeal was allowed in part, with total costs of RM120,000.00 (subject to allocator). The Court of Appeal’s finding on liability was upheld. However, the order for assessment of damages was set aside and replaced with an award of RM5,000.00 as nominal damages.

The Respondent must prove actual loss at the trial stage. If damages are not proven then, the Court cannot reopen the matter later to reassess or compute damages. The most that can be awarded is nominal damages.