Divergence and Convergence in the Law of Contractual Penalties and Liquidated Damages Clauses in England, Singapore, and Malaysia

Abstract

Contracts often make provision for the remedies available upon breach, i.e., by providing for a sum or stipulation available to either party upon breach by the other (an ‘agreed damages clause’). A persistent question is whether, and to what extent, such clauses are enforceable. In this paper, we analyse the convergences and divergences between Malaysia, Singapore, and England, in particular following decisions in the apex courts. These clauses are always enforceable under s 75 of the Malaysian Contracts Act 1950, albeit up to the point of ‘reasonable compensation’ only. Whereas, in Singapore and England, if the clause is found to be a ‘penalty’ it is liable to be unenforceable in toto. Malaysian law also differs in that a truncated assessment for ‘reasonable compensation’ is provided for in statute. We argue that the ‘proportionality’ and ‘legitimate interest’ elements in the Cavendish analysis, over the compensatory-centric analysis in Denka Advantech, may be a better fit with the concept of ‘reasonable compensation’ under Malaysian law, and may give content to the statutory interpretation of the phrase in future cases.