Bearing in mind Clause 22 of the PAM contract, and applying Selva Kumar a/l Murugiah v

Thiagarajah a/l Retnasamy [1995], which held that any submission as to whether a certain
clause in a contract is a penalty or liquidated damages is an exercise in futility because as
stated in Section 75 of the Contracts Act 1950, any sum named in a contract as the amount
to be paid in case of breach is to be treated as a penalty, in this case, the defendant has
failed to prove their claim for LD because of their failure to call the architect to testify. Clause
22 of the PAM contract clearly requires the architect to certify entitled to deduct LD. The
certificate of non-completion is a condition precedent to the deduction of the LD.

Furthermore, regarding to the limitations of the employer to impose liquidated damages

under a construction contracts is to provide the proof of employer’s actual loss. Based on the
clause 22.2 of PAM 2006, liquidated damages is a pre-genuine estimate of the loss and/or
damages. In addition, this pre-genuine estimate amount usually is based on seven factors
which are:

 Direct Costs Incurred under the Contract

 Lost Revenue and Profit
 Damages and Penalties to which they may be liable
 Additional Project Administration Costs
 Interest and Financing Cost
 Cost Implications to third-party contracts

 Losses for Tax or Investment Incentives

Lastly, I opine that employer should prove their actual loss in order to protect the contractor’s
right from the overestimation of the liquidated damages made by the employer.