Kementerian Pertahanan Malaysia & Anor v SME Ordnance Sdn Bhd

Court of Appeal · · Contract Law

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Kementerian Pertahanan Malaysia & Anor v SME Ordnance Sdn Bhd
CourtCourt of Appeal
Judgment Date21 April 2025
Date Uploaded29 October 2025
Legal TopicsContract Law
Parties

Appellant(s):

  • Kementerian Pertahanan Malaysia
  • Kerajaan Malaysia

Respondent(s): Sme Ordnance Sdn Bhd

Bench
  • YA Dato' Hashim Bin Hamzah
  • YA Datuk Mohamed Zaini Bin Mazlan
  • YA Datuk Ismail Bin Brahim
Facts & Background
  • The dispute arose from a contract for the procurement of 400 missiles, with an initial delivery date that was subsequently extended multiple times through supplementary contracts.
  • Despite extensions, the supplier delivered the missiles late, leading the procuring party to impose Liquidated Ascertained Damages (LAD) amounting to RM10,312,812.00.
  • The High Court found a breach for late delivery but declared the LAD excessive and unlawful, ordering its repayment, relying on the procuring party's witness admitting no financial losses.
Issues for the Court
  • Whether the High Court erred by deciding on unpleaded issues regarding the unreasonableness or excessiveness of the LAD, given the plaintiff's original case was based on "time at large."
  • Whether the High Court misapplied Section 75 of the Contracts Act 1950 and relevant Federal Court precedents by concluding the LAD was unreasonable despite acknowledging the right to impose it without proving actual loss.
  • What is the correct application of the burden of proof under Section 75 of the Contracts Act 1950 regarding the reasonableness of a stipulated LAD amount.
Decision
  • The Court affirmed the High Court's finding that time was of the essence and a breach occurred, entitling the innocent party to impose LAD.
  • The Court held that the High Court erred in finding the LAD unreasonable based solely on the procuring party's witness's personal opinion, which was clarified and did not constitute evidence of unreasonableness.
  • The burden of proving the unreasonableness of the LAD rested with the defaulting party, who failed to adduce sufficient evidence. The High Court also erred in awarding zero compensation, as Section 75 CA 1950 mandates reasonable compensation not exceeding the stipulated amount.
  • The appeal was allowed, and the High Court's decision to declare the LAD unlawful and order a full refund was set aside.
Link to JudgmentView Full Judgment

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