RM10 Million for Leaving a Party. The Court Said RM100,000.
RM10 Million for Leaving a Party. The Court Said RM100,000.
Court of Appeal, Putrajaya | Zuraida Kamaruddin v Saifuddin Nasution Ismail [2025] 2 CLJ 942
What is the price of disloyalty? That was the opening question the Court of Appeal put to itself in this case — and the answer it arrived at was very different from the one the High Court had accepted.
A sitting Member of Parliament resigned from her political party without giving up her parliamentary seat. The party sued on a bond she had signed before the election, claiming RM10 million. The High Court allowed it in full. The Court of Appeal reduced it to RM100,000.
The legal journey between those two numbers is one of the most instructive explorations of how Malaysian courts approach penalty clauses, liquidated damages, and the concept of reasonable compensation under section 75 of the Contracts Act 1950. The principles it confirms apply far beyond politics — to every commercial contract that contains a pre-agreed sum payable on breach.
What Happened
When Zuraida Kamaruddin was nominated as a PKR candidate for the Ampang parliamentary seat in the 14th General Election, she signed a bond in favour of the party. The bond stated that she acknowledged PKR had provided her with substantial value exceeding RM10 million — the use of the party logo, machinery, support, and brand — and that she agreed to pay RM10 million if she resigned from the party, failed to attend nominations, joined another party, or defected.
She won the seat with a majority of 41,956 votes. In February 2020, she was among eleven PKR Members of Parliament who announced their resignation from the party without resigning from parliament. PKR’s central leadership council passed a resolution terminating her membership. The party then sued on the bond.
At the High Court, the judge upheld the full RM10 million. The reasoning: the bond was a valid contract, the signature was hers, and the RM10 million served as an effective deterrent against disloyalty — a lesser amount would not have the same effect.
The Court of Appeal disagreed, and the reasoning is worth understanding in full.
The Trigger Event: Was the Bond Even Enforceable?
Before reaching the question of how much was payable, the Court first had to determine whether the bond had been triggered at all.
The bond required a certificate from the Secretary General confirming the member had resigned or been terminated. The appellant argued no such certificate had been formally issued — what existed was a resolution authentication document, not the certificate specified in the bond.
The Court of Appeal found against her on this. The resolution of PKR’s central council, dated 24 February 2020, stated explicitly that her membership had been terminated with immediate effect. The authentication document confirmed that resolution was an accurate record. Taken together with her own defence — in which she acknowledged her departure from the party — the court found the trigger event had occurred. The breach was established.
The real contest then moved to the amount.
The Legal Framework: Section 75 and the Cubic Electronics Test
Section 75 of the Contracts Act 1950 governs penalty and liquidated damages clauses. It provides that a party claiming under such a clause is entitled to reasonable compensation not exceeding the contractual amount — whether or not actual loss has been proved.
The landmark Federal Court decision in Cubic Electronics Sdn Bhd v Mars Telecommunications Sdn Bhd [2019] established the current framework. The key principles are:
Proof of actual loss is not mandatory. Reasonable compensation can be assessed without it, though evidence of actual or likely loss provides a useful starting point.
The concepts of legitimate interest and proportionality — drawn from the English Supreme Court’s Cavendish Square decision — are relevant to what constitutes reasonable compensation under Malaysian law. The question is not just what was lost, but whether the sum stipulated bears a proportionate relationship to the innocent party’s legitimate interest in enforcement.
The burden of proof operates in two stages. The party seeking to enforce the clause must first show breach and that the contract contains a clause stipulating the sum payable. Once that is established, the burden shifts to the defaulting party to show the sum is unreasonable, extravagant, unconscionable, or disproportionate.
Why RM10 Million Failed the Test
PKR had a legitimate interest in protecting its political brand, reputation, goodwill, organisational structure, and political stability — the Court of Appeal accepted all of this. A party that invests decades of effort building a national movement, and that provides a candidate with its name, logo, machinery, and voter base, does have a real and recognisable interest in loyalty.
But having a legitimate interest is not enough. The sum must be proportionate to that interest — and RM10 million was not.
The problem was the formula behind the number. In cross-examination, the party’s Secretary General explained that RM10 million represented roughly 5% of an estimated RM200 million in total party fundraising capacity — calculated across all 222 parliamentary divisions, multiple wings, and five full years. The number was a national figure, not a constituency figure. It reflected the aggregate fundraising potential of the entire party apparatus.
The Court of Appeal’s finding was direct: it is not reasonable to impose the financial consequences of national-level damage on a single candidate from a single constituency. The formula simply did not match the liability it was used to justify.
The court also identified a second proportionality failure. Zuraida had served 22 months as a Member of Parliament before her departure. That period of service — undisputed — had not been factored into the RM10 million at all. A formula that treats a candidate who served for 22 months identically to one who defected on nomination day is not a proportionate formula.
On deterrence: the High Court had justified the full amount partly on the basis that a smaller sum would not effectively deter disloyalty. The Court of Appeal rejected this reasoning. Section 75 does not ask whether the sum is an effective deterrent. It asks whether the sum is reasonable compensation. Deterrence is not the same as compensation, and it cannot substitute for the proportionality analysis that the law requires.
What the Court Awarded — and Why
The Court of Appeal did not absolve Zuraida of liability. She had breached the bond. The party was entitled to reasonable compensation. The question was what that figure should be.
The court considered three factors: the statutory maximum election expenditure for a parliamentary seat under GE-14 rules (RM200,000), the 22 months of parliamentary service she had rendered, and her contribution to the party and the election campaign. Weighing those factors, the court arrived at RM100,000 as reasonable compensation.
The reduction from RM10 million to RM100,000 — a reduction of 99% — reflects precisely how disproportionate the original sum was once it was tested against the Cubic framework.
Three Things to Take Away
A fixed sum in a contract is a cap, not a guarantee. Section 75 entitles the innocent party to reasonable compensation not exceeding the contractual sum. The contract sets the ceiling. The court determines what is reasonable within it. Inserting a large number into a penalty clause does not mean you will recover that number.
Legitimate interest matters, but proportionality is decisive. A party can have a genuine and legally recognisable interest in enforcing a penalty clause — and still have the amount reduced if the sum is disproportionate to that interest. The formula used to arrive at the number must be capable of bearing scrutiny. A figure calculated on a national basis cannot be imposed on one individual without proper justification.
Deterrence is not a legal basis for an unreasonable sum. Courts are not in the business of enforcing sums purely because the parties wanted them to sting. The inquiry under section 75 is reasonable compensation, not maximum pain. Any clause that is designed primarily as a deterrent rather than as a genuine pre-estimate of loss is vulnerable to judicial reduction.
A Final Word
Zuraida Kamaruddin is a reminder that penalty and liquidated damages clauses — however carefully worded, however confidently signed — are not immune from judicial scrutiny. The law gives contracting parties the freedom to agree on pre-estimated compensation. It does not give them the freedom to agree on sums that bear no proportionate relationship to the interest they are meant to protect.
If you are drafting a contract with a damages clause, or defending a claim under one, the analysis begins long before litigation. The strength of the clause depends on the strength of the thinking behind it.
The content of this article does not constitute legal advice. It is intended to provide general information. Specific advice should be sought in relation to your particular circumstances.
Zain Megat & Murad D2-5-1 to D2-5-3A, Block D, Solaris Dutamas No.1, Jalan Dutamas 1, 50480 Kuala Lumpur +603 6207 9331 | zmm@zainmegatmurad.com
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