Federal Court: If there is a breach of contract, a deposit paid which is not merely part payment but also as a guarantee of performance is generally not recoverable.
" 74. In summary and for convenience, the principles that may be distilled from hereinabove are these:
i. If there is a breach of contract, any money paid in advance of performance and as part-payment of the contract price is generally recoverable by the payer. But a deposit paid which is not merely part payment but also as a guarantee of performance is generally not recoverable.
ii. Whether a payment is part-payment of the price or a deposit is a question of interpretation that turns on the facts of a case, and the usual principles of interpretation apply. Once it has been ascertained that a payment possesses the dual characteristics of earnest money and part payment, it is a deposit.
iii. A deposit is subject to section 75 of the Act.
iv. In determining what amounts to "reasonable compensation" under section 75 of the Act, the concepts of "legitimate interest" and "proportionality" as enunciated in Cavendish (supra) are relevant.
v. A sum payable on breach of contract will be held to be unreasonable compensation if it is extravagant and unconscionable in amount in comparison with the highest conceivable loss which could possibly flow from the breach. In the absence of proper justification, there should not be a significant difference between the level of damages spelt out in the contract and the level of loss or damage which is likely to be suffered by the innocent party.
vi. Section 75 of the Act allows reasonable compensation to be awarded by the court irrespective of whether actual loss or damage is proven. Thus, proof of actual loss is not the sole conclusive determinant of reasonable compensation although evidence of that may be a useful starting point.
vii. The initial onus lies on the party seeking to enforce a damages clause under section 75 of the Act to adduce evidence that firstly, there was a breach of contract and that secondly, the contract contains a clause specifying a sum to be paid upon breach. Once these two elements have been established, the innocent party is entitled to receive a sum not exceeding the amount stipulated in the contract irrespective of whether actual damage or loss is proven subject always to the defaulting party proving the unreasonableness of the damages clause including the sum stated therein, if any.
viii. If there is a dispute as to what constitutes reasonable compensation, the burden of proof falls on the defaulting party to show that the damages clause including the sum stated therein is unreasonable."
- Justice Richard Malanjum, Chief Judge of Sabah and Sarawak in Cubic Electronics Sdn Bhd vs Mars Telecommunications Sdn Bhd [Appeal No. 02(f)-64-09/2016(W) dated 21 November 2018.
Coram: Richard Malanjum CJSS, Zulkefli Ahmad Makinudin PCA, Azahar Mohamed FCJ, Aziah Ali FCJ and Alizatul Khair Osman Khairuddin FCJ.
CnP credit to @Ali Munawar