Is actual loss still the true north in assessing what is reasonable compensation when section 75 of the Contracts Act 1950 is engaged, post-Cubic Electronics? The Court of Appeal recently had to consider such compensation for the disloyalty of a political party member.
What is the reasonable price of disloyalty? The Court of Appeal grappled with this in Zuraida bt Kamaruddin v Saifuddin Nasution bin Ismail (suing as Secretary General, Parti Keadilan Rakyat for and on behalf of Parti Keadilan Rakyat) [2025] 1 MLJ 912.
The appellant, Zuraida, was a member of the respondent, PKR, one of the major political parties in Malaysia. Prior to being fielded as a candidate in the 14th general election (“GE-14”), Zuraida signed a loyalty bond in favour of PKR. The bond required Zuraida to pay a sum of RM 10 million to PKR if she should resign from the party after being elected a member of parliament (“MP”).
As it later turned out, Zuraida won her seat in GE-14 but she resigned from PKR more than a year later in February 2020 with 10 other MPs of that party. This shortly led to the fall of the Government run by a coalition in which PKR had a majority of seats, just as the country was on the cusp of being engulfed by the COVID-19 pandemic.
PKR sued Zuraida for the bond amount of RM 10 million due to her resignation from the party. The claim was allowed by the High Court but this was recently overturned by the Court of Appeal (“CA”).
One issue that the CA had to address was the application of section 75 of the Contracts Act 1950 to the bond amount, i.e. whether RM 10 million is to be regarded as reasonable compensation to PKR and if it was not, then what ought to be the amount of reasonable compensation.
The CA found that the bond amount was not reasonable compensation because:
a) it was disproportionate to the interest of PKR of maintaining its political position. The bond amount of RM 10 million was not confined to one parliamentary seat, but reflected the damage done to all 222 divisions of PKR nationwide (para 49).
b) the bond amount did not take into account the 22 months that Zuraida served as a member of parliament of PKR before she resigned (para 50).
The CA assessed RM 100,000 to be reasonable compensation on taking into account (para 61):
a) the maximum amount spent by PKR in GE-14 for a parliamentary seat, which was RM 200,000; and
b) the period served by Zuraida as a member of parliament, her contribution to PKR and the GE-14 election campaign.
Although not expressly framed as such, the CA’s approach can be usefully analysed in terms of loss incurred, and benefit received, by PKR.
The RM 200,000 election spend can be regarded as PKR’s actual loss since it would have spent maximum that amount for Zurada’s parliamentary seat in GE-14.
Whereas Zuraida’s service and contribution to PKR can be regarded as benefits enjoyed by the party during her tenure.
The CA seems to have “deducted” those benefits from the RM 200,000 election spend to arrive at a reduced figure of RM 100,000 as reasonable compensation. In doing so, the exercise appears to be geared towards determining the net actual loss suffered by PKR as a measure of reasonable compensation.
The approach of the CA is significant as it indicates that in the post-Cubic Electronics landscape, the actual loss suffered by a claimant is still a major factor in determining what is reasonable compensation when section 75 is engaged.
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