What does not seem to have been decided in all the established common law jurisdictions is that an exclusion clause would be considered as an ouster of the court’s jurisdiction as decided by the Federal Court in CIMB Bank Berhad v Anthony Lawrence Bourke & Anor.
The recent Federal Court decision in CIMB Bank Berhad v Anthony Lawrence Bourke & Anor was not so unexpected given the arguments adopted by the counsels and the unfortunate position of the Plaintiffs who were individual customers/borrowers of a leading bank. What is regrettable is that, in its attempt to do justice to the party with the weaker bargaining power, the Federal Court may have unnecessarily chosen to disregard well-established legal principles of contract law and rendered the work of drafting contracts more difficult.
In an earlier comment on the Court of Appeal decision in the same case, the author has discussed how an exclusion clause may be considered as a means for parties to apportion liabilities and how it often plays an important role in modern contracts between corporations. The fact that it may at times be used in an oppressive manner had galvanised the court to use the rules of interpretation and other legal principles to protect the party subjected to an overreaching unfair exclusion clause. What does not seem to have been decided in all the established common law jurisdictions is that an exclusion clause would be considered as an ouster of the court’s jurisdiction as decided by the Federal Court in CIMB Bank Berhad v Anthony Lawrence Bourke & Anor.
II. FACTS OF THE CASE
The Plaintiffs’ sale and purchase agreement dated 18 February 2008 (‘the SPA’) with a developer, Crest Worldwide Resources Sdn Bhd ‘the Developer’), to purchase a property was terminated due to the failure of the Defendant bank to pay one of the progressive payments to the Developer under the SPA. To finance the purchase of the said property, the Plaintiffs had applied for and was granted a term loan facility of RM715,487.00 by the Defendant bank. The terms of the loan were set out in the Housing/Shop House Loan Agreement dated 22 April 2008 to be read with the Application for Term Loan Facility Letter dated 24 January 2008 (together referred to as ‘the Loan Agreement’). The Defendant bank was obligated under the Loan Agreement to make direct payments, on a progressive basis against an architect’s certificate of completion, to the Developer on behalf of the Plaintiffs.
In response to the Plaintiffs’ claim for damages suffered as a result of the termination of the SPA, the Defendant bank relied on Clause 12 of the Loan Agreement as an absolute exclusion clause to absolve the Defendant bank of all liability for any damage suffered by the Plaintiffs.
Notwithstanding anything to the contrary, in no event will the measure of damages payable by the Bank to the Borrower for any loss or damage incurred by the Borrower include, nor will the Bank be liable for, any amounts for loss of income or profit or savings, or any indirect, incidental consequential exemplary punitive or special damages of the Borrower, even if the Bank had been advised of the possibility of such loss or damages in advance, and all such loss and damages are expressly disclaimed.
The Court of Appeal held that the Defendant bank was in breach of the fundamental term of the Loan Agreement in failing to pay the progressive payment due under the Loan Agreement in accordance with an invoice dated 28 February 2014 issued by the Developer. The Defendant bank was also held to be in breach of its duty of care to the Plaintiffs as its customers in the handling of the loan disbursement; the breach had directly caused the termination of the SPA, thereby causing the Plaintiffs to suffer loss and damage. The Court of Appeal further held that Clause 12 of the Loan Agreement in effect is a clause that absolutely restrains legal proceedings and is void under Section 29 of the Contracts Act 1950 (‘S.29 Contracts Act 1950’).
Leave was granted to the Defendant to appeal the Court of Appeal’s decision before the Federal Court on the following two questions of law:
III. WHETHER CLAUSE 12 IS IN CONTRAVENTION OF SECTION 29 OF THE CONTRACTS ACT 1950
We shall first consider the scope of S.29 of the Contracts Act 1950 which deals with what is commonly known as the ouster of the courts’ jurisdiction.
Section 29 Agreements in restraint of legal proceedings void
Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.
This refers to situations whereby the parties may by contract agree to sidestep the courts’ power to hear and determine any disputes arising from the contract. The legal argument that often arises is whether one of the parties to the contract is thereby prevented from having access to the courts. The right of having access to the courts has always been jealously guarded by common law, and the general principle remains that contractual provisions which seek to oust the jurisdiction of the courts are invalid. In the United Kingdom (‘UK’) and Singapore, such provisions are considered against public policy under common law and therefore void. In Malaysia and India, such clauses may be considered void as against public policy under Section 24 of the Indian Contracts Act 1872 or Section 23 of the Contracts Act 1950, or void for restraint of legal proceedings pursuant to Section 28 of the Indian Contracts Act or S.29 of the Contracts Act 1950 respectively.
It is certainly a worthwhile consideration to strike out any clause in a contract that purports to absolutely restrict a party from seeking the protection and assistance of the courts to enforce his rights. However, exclusion clauses by which a party to a contract agrees that the other party may exclude his liability in the event of a breach are generally not of the same genre as ouster of court of jurisdiction clauses. There are often practical reasons based on business considerations as to why a party would want to exclude liability and such excluded liability may well be dealt with by way of insurance. In a case like CIMB Bank Berhad v Anthony Lawrence Bourke & Anor, the bank in such contract with the borrower may want to exclude some measure of liabilities as the loan transaction involves the bank, its customer as well as the developer to whom the bank has given a legal undertaking to disburse the loan directly. Any dispute between the borrower and the developer may entangle or expose the bank to legal liability due to events beyond its control. On the other hand, the main concern of the law on restraint of legal proceedings is that parties are not denied access to the courts to enforce their rights to obtain remedies in the event that such rights as they have under a contract are breached.
The many Indian and Malaysian cases decided pursuant to S.29 of the Contracts Act 1950 (which is in pari materia with the old Section 28 of the Indian Contracts Act) have nothing to do with exclusion clauses. The cases cited in the instant Federal Court judgment in relation to the application of S.29 of the Contracts Act 1950 are those which deal with the second limb of that provision, that is, involving clauses which limit the time within which a claimant may enforce his claims. The Federal Court has chosen to reference the observation by the Supreme Court in the case of New Zealand Insurance Co Ltd v Ong Choon Lin (t/a Syarikat Federal Motor Trading) as well as the Court of Appeal decision in MBf Insurans Sdn Bhd v Lembaga Penyatuan & Pemulihan Tanah Persekutuan (FELCRA) where his Lordship Balia Yusof Wah FCJ, in delivering the judgement, came to the view that ‘the statement of law and the principle as stated by the Supreme Court in the New Zealand Insurance case is a correct statement of law on efficacy of exclusion clauses under section 29 of the Contracts Act 1950’. This is in spite of the Federal Court having in the subsequent case of The Pacific Bank Berhad v State Government of Sarawak remarked that ‘Court should be mindful in following decisions of both the authorities of New Zealand Insurance and MBf Insurans Sdn Bhd”.
The Federal Court in the case of The Pacific Bank Berhad v State Government of Sarawak clearly held that S.29 of the Contracts Act 1950 is in pari materia with the old Section 28 of the Indian Contracts Act and agreed with the earlier Indian decisions that the said Section 28 only invalidates agreements which limit the time within which a person has to enforce his rights, and not agreements which determines when a right arises or the time when the right will arise. More importantly, the Federal Court was clearly of the view that a distinction has to be made between limiting a right and limiting the enforcement of the right. This is in line with the well-recognised principle that an agreement providing the relinquishment of rights and remedies is valid but an agreement for the relinquishment of remedies only falls within the mischief of the old Section 28 Indian Contracts Act (or the equivalent S.29 of the Contracts Act 1950). It is therefore clear that the interpretation by the Federal Court in The Pacific Bank Berhad v State Government of Sarawak is on sound footing and it is puzzling why the Federal Court herein should have thought otherwise. While the decision in the case of New Zealand Insurance Co Ltd v Ong Choon Lin on the facts is not in itself wrong, the dictum of LC Vohrah with regard to there being no distinction between a right and an enforcement of right in our jurisprudence is not correct in the light of the Malaysian as well as Indian decisions and this is further supported by the following discussion on primary and secondary obligations.
The law is best summarised by a recent decision in CKR Contract Services PTE Ltd v Asplenium Land Pte Ltd & another & another appeal & another matter before the Singapore Court of Appeal. The issue therein was whether parties can agree to exclude the unconscionability exception as a ground for restraining a call on a performance bond, thereby ousting the jurisdiction of the court with regard to its discretionary power to grant injunctions. The learned Andrew Phang JA in delivering the grounds of decision of the Court of Appeal said as follows:
…limitations placed on the rights and remedies available to the parties have not been treated as an ouster of the court’s jurisdiction. For example, parties are at liberty to seek to limit or even to exclude altogether an innocent party’s right to damages in the event of a breach of contract by the other party. Clauses which attempt to do so are (as the case may be) termed either limitation clauses or exclusion clauses. More importantly, they seek to restrict or exclude a common law remedy (since an innocent party is entitled, as of right at common law, to seek damages for breach of contract). What is clear, however, is that such clauses have never been treated as being void and unenforceable as clauses seeking to oust the jurisdiction of the court, after all neither party has been denied access to the court as such.
IV. THE EXCLUSION OF PRIMARY OBLIGATIONS AND/OR SECONDARY OBLIGATIONS IN A CONTRACT
It would appear from the questions posed to the Federal Court in this appeal that one way of approaching the appeal would be by considering separately the exclusion of primary obligations and secondary obligations. The Court of Appeal in the instant case had held that Clause 12 is an absolute exclusion clause as it excludes both primary and secondary obligations in accordance with the law as enunciated in Photo Production Ltd v Securicor Transport Ltd.  Interestingly, Lord Diplock in the said House of Lord decision has this to say:
My Lords, an exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary or anticipatory secondary, that would otherwise arise under the contract by implication of law. Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits that the agreement must retain the legal characteristics of a contract; and must not offend the equitable rule against penalties; … Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the implied obligations… But this does not entitle the court to reject the exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only. (emphasis added)
Let us then consider the question of the effect of a so-called ‘absolute exclusion clause’, that is, one that is said to exclude liability not only in respect of its primary obligations but also general secondary obligations. The Federal Court in the instant case held that the Clause 12 speaks of an absolute restriction to the Plaintiff to claim damages and answered in the affirmative that S.29 of the Contracts Act 1950 may be invoked to strike down and invalidate the said clause. This is indeed an unexpected approach as even a widely drafted exclusion clause is not generally considered an ouster of courts’ jurisdiction. In a recent UK Supreme Court decision in the case of Kudos Catering (UK) Limited v Manchester Central Convention Complex Limited, the Court of Appeal has to construe the implication of a very widely drafted exclusion clause as follows:
18.6 The Contractor hereby acknowledges and agrees that the company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure (whether reasonably foreseeable or not) or indirect or consequential loss suffered by the Contractor or any third party in relation to this Agreement and the limitations set out in this condition 18.5 shall be read and construed and shall have effect subject to any limitation imposed by any applicable law, including without limitation that this Condition shall not apply to personal injury or death due to the negligence of the Company.
Lord Justice Thomlinson in delivering the judgement of the Court of Appeal held that on the proper construction of clause 18.6, the said exclusion clause cannot apply to the liability for loss of profit which arose out of the Defendant company’s repudiatory refusal to perform the contract. His Lordship said that such an approach is ‘a legitimate exercise in construing a contract consistently with business common sense and not in a manner which defeats its commercial object. It is an attempt to give effect to the presumption that parties do not lightly abandon a remedy for breach of contract afforded them by the general law’. It would appear that in the event of an absolute exclusion clause, the court may take the view that a clause which totally prevents one party to claim for losses caused by the blatant refusal of the other party to perform the contract, will not be enforceable. The rationale for this is based on the understanding that a contract is an exchange of promises which the court would enforce. Where a clause purports to exclude one party entirely from any liability, such that performance becomes optional, there are no promises by that party which can be enforced, and therefore, there is no contract. The author is of the view that the above approach, in dealing with a widely drafted exclusion clause, is more consistent with the general principles of contract law than to rule that such a clause would amount to an ouster of the courts’ jurisdiction.
In the very recent case of Cubic Electronics Sdn. Bhd. (In Liquidation) v Mars Telecommunications Sdn. Bhd., his Lordship Richard Malanjum CJSS (as he then was) in delivering the Federal Court decision was of the opinion that ‘the court of law has always maintained a supervisory jurisdiction to relieve against a damages clause which is so unconscionable or oppressive’. He cited the landmark case of Cavendish Square Holding BV v Talal El Makdessi, where the UK Supreme Court had this to say about the supervisory jurisdiction of the court:
There is a fundamental difference between a jurisdiction to review the fairness of a contractual obligation and a jurisdiction to regulate the remedy for its breach. Leaving aside challenges going to the reality of consent, such as those based on fraud, duress or undue influence, the courts do not review the fairness of men’s bargains either at law or in equity. The penalty rule regulates only the remedies available for breach of a party’s primary obligations, not the primary obligations themselves.
The CJSS had also cited the Indian case of A Muthukrishna Iyer v Sankaralingam Pillai in which the learned Judge stated as follows:
What then is the real principle underlying the court’s interference with the contract between parties as to a payment to be made by way of damages? In my opinion it can be no other than this – the doctrine that the court will carry out all contracts between parties is confined to the carrying out of the primary contract and does not extend to a secondary or subsidiary contract to come into operation if the primary contract is broken … and the courts both in England and in India do not feel bound to carry out such a secondary contract apart from its justice and reasonableness…
It is therefore very clear from the decision of our Federal Court in Cubic Electronics v Mars as well the decision of the UK Supreme Court in Cavendish that courts in various common law jurisdictions consider themselves to have always maintained a supervisory jurisdiction to relieve against a secondary obligation which is unconscionable or oppressive. The Federal Court in the instant case could have then held Clause 12 to be unenforceable on the basis that it is a well-established rule that the court is not bound to enforce the performance of a secondary obligation which is not just or reasonable. In the author’s opinion, it is therefore not necessary to declare that the said clause is invalidated by S.29 of the Contracts Acts 1950 and it may in fact be wrong pursuant to legal principles in contract law to do so.
The Federal Court herein went on to consider the issue of whether the Court can refuse to enforce Clause 12 on the ground of it being opposed to public policy. They noted the fact that the Plaintiff did not have equal bargaining powers and came to the considered view that ‘this is one instance which merits this application of this principle of public policy….’ What is interesting is that the Federal Court could then have ruled that it would refuse to enforce the said clause on the basis of public policy; being of the view that ‘there is the patent unfairness and injustice to the Plaintiffs had this clause 12 been allowed to deny their claim/rights against the Defendant. It is unconscionable on the part of the bank to seek refuge behind the clause and an abuse of the freedom of contract. Having cited various authorities on the broad scope of public policy and the fact that public policy is not static, His Lordship instead went on to then discuss the right of access to the courts. While the principle on ouster of courts’ jurisdiction is clearly premised on public policy in common law, the Federal Court could have decided to refuse to enforce Clause 12 purely on the basis of public policy or pursuant to its regulatory powers of secondary obligations without having to declare it to be an ouster of the court’s jurisdiction.
V. WHETHER CLAUSE 12 IS IN EFFECT AN ABSOLUTE EXCLUSION CLAUSE
The Federal Court has premised its decision to invoke S.29 of the Contracts Act 1950 on its interpretation that Clause 12 is an absolute exclusion clause. The Federal Court had pointed out that the Defendant had taken the stand that Clause 12 ‘is an exclusion clause which excludes liability not only in respect of its primary obligations but also general secondary obligations’ and that ‘it was the concurrent finding of the two courts below that the said clause effectively restricts the Plaintiffs from initiating any claim against the Defendant for loss and/or damage arising from the contract’. Nevertheless, the Federal Court went on to discuss the law relating to the construction of exclusion clauses and came to its own conclusion that ‘the Plaintiffs are precluded from claiming any loss or damage and the Defendant will not be liable for any amount for loss of income or profit or savings, or any indirect, incidental, consequential, exemplary, punitive or special damages’
The author would submit that Clause 12 is not an absolute exclusion clause but rather one that excludes only the type of damages specified therein. The critical words are ‘in no event will the measure of damages payable by the Bank to the Borrower for any loss or damage incurred by the Borrower include, nor will the Bank be liable for, any amounts for loss of income or profit or savings, or any indirect, incidental consequential exemplary punitive or special damages’. In my opinion, the said clause is carefully drafted to clearly reflect the Defendant Bank’s intention not to be liable for what is specifically excluded therein, that is, liability for ‘any amount for loss of income or profit or saving” and “any indirect, incidental consequential exemplary punitive or special damages.’ Looking closely at the wording of the said Clause 12, it is clear that the types of damages specified to be excluded therein would defeat claims such as loss of profit from the potential sale of the property purchased under the SPA or loss of income from potential rental of the said property. The Plaintiffs had in their Statement of Claim put forth the sum of RM457,857.00 as the Plaintiffs’ loss of opportunity and/or profits due to the termination of the SPA. Such a claim would be indeed excluded and therefore not recoverable pursuant to Clause 12.
There are however other possible losses such as the progress payments forfeited by the Developer upon termination of the SPA, the monthly interest paid on the loan amount disbursed prior to the said termination and all expenditure incurred in the preparation of the SPA and the Loan Agreement (such as legal fees and stamp duty). These losses would be considered direct losses and some could be categorised as wasted expenditure. Claims for these losses would not be excluded by Clause 12 based on a careful reading of the words therein. The Plaintiffs had in their Statement of Claim made the following claims, some of which, I submit would have been recoverable pursuant to Clause 12 as drafted:
It is therefore difficult to understand how the Federal Court could come to the view that ‘the kind of damages spelt out in the said Clause 12 encompasses all forms of damages under suit for a breach of contract or negligence’. In fact, in the case of Allson Craig Fishing Co Ltd v Malvern Fishing Co Ltd cited in the Federal Court judgement at para , Lord Wilberforce was quoted to have said:
… Whether a condition limiting liability is effective or not is a question of construction of that condition in the context of the contract as a whole. If it is to exclude liability for negligence it must be most clearly and unambiguously expressed, and in such a contract as this, must be construed contra proferentem …one must not strive to create ambiguities by strained construction, as I think the appellants have striven to do. The relevant words must be given, if possible their natural, plain meaning.
In my view, the words in Clause 12 did not clearly and unambiguously exclude liability for negligence nor is the wording of the said exclusion clause wide enough to encompass such an exclusion.
It is a very specific exclusion clause dealing with indirect and consequential losses and other damages provided therein with which the Defendant bank clearly does not wish to be saddled in the event of its breach of the Loan Agreement, likely based on commercial considerations. The reason for which the Defendant Bank and/or their counsel took the stance that the Defendant bank is absolutely not liable for any loss whatsoever by virtue of Clause 12 is unclear but that of itself does not inform the court in the way Clause 12 should be interpreted. In any event, it is up to the courts to exercise its duty to construe the clause and to give effect to the clear and plain meaning of the words in the said Clause 12. The Federal Court did in fact go through the legal principles relating to construction of exclusion clauses thoroughly and appeared to have examined the clause itself closely before coming to its own conclusion. It is therefore difficult to understand how the Federal Court then came to its ‘considered view, on the plain meaning of the words used in the said Clause 12 of the Loan Agreement, whatever the Plaintiffs are claiming has been negated and as such section 29 of the Contracts act 1950 ought to be invoked’. In the author’s opinion, it is regrettable that a well-drafted clause in a contract such as Clause 12 could be so wrongly misinterpreted on many levels by various parties.
The author has said in the introduction that the actual decision on the facts by the Federal Court was not unexpected in view of the negligent act and obvious breach of contract by the Defendant bank in respect of its obligations under the Loan Agreement leading to the Plaintiffs’ loss of the property purchased under the SPA. This, coupled with the Defendant bank’s insistence that Clause 12 is an absolute exclusion clause totally absolving them of liability, had put the Federal Court in an untenable position of having to decide in favour of the indefensible if it were to hold Clause 12 to be valid and enforceable. Although the Federal Court did come to its own conclusion that Clause 12 is an absolute exclusion (which the author submits is the wrong interpretation), they obviously were influenced by the findings of both of the courts below and more importantly, by the submission of the counsel for the Defendant bank that it is indeed an absolute exclusion clause.
The Defendant bank, having obviously made a serious mistake in not disbursing the loan in accordance with its obligations under the Loan Agreement, should not have balked at taking some responsibility for the loss of the Plaintiffs by insisting that Clause 12 is an absolute exclusion clause. Instead they should have understood the purpose of the exclusion clause drafted at their behest and accepted that they would be liable for some of the Plaintiffs’ losses while being protected against extensive consequential loss by Clause 12. This decision has led to uncertainty in the banking industry as well as the wider business community as to the effectiveness of properly drafted exclusion clauses, which is particularly important in contracts between corporations and in industries such as shipping and construction. Lawyers drafting contracts would be greatly concerned about how their carefully worded clauses could be very widely misinterpreted, and their litigation colleagues should keep in mind that giving their clients the most favourable interpretation of a clause may in the end be more problematic for the industry as a whole.
Written by Ms Choong Shaw Mei, an Advocate and Solicitor (Malaya), part-time lecturer and tutor, Law Faculty, University of Malaya.
Edited by Corina Robert Mangharam.
Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of the University of Malaya Law Review, and the institution it is affiliated with.
  MLRAU, p. 1
 Choong, S.M., “Can a Mere Exclusion Clause be Considered an Ouster of the Court’s Jurisdiction?”, Lex; in Breve University of Malaya Law Review, 2018, January 20, https://www.umlawreview.com/lex-in-breve/can-a-mere-exclusion-clause-be-considered-an-ouster-of-the-courts-jurisdiction.
 Photo Production Ltd. v Securicor Transport Ltd.  AC 827.
 e.g. the contra proferentum rule.
 Kudos Catering (UK) Limited v Manchester Central Convention Complex Limited  EWCA Civ 38.
 Cheshire, Fifoot, & Furmston, 17th ed, 496ff.
 Pollock & Mulla, The Indian Contract and Specific Relief Acts, 13th ed., 712.
 See footnote 7 above at 863.
 See footnote 3 above.
 Which is not the case here as the Bank was found to be in breach of its duty of care to the Plaintiffs as its customer in the handling of the loan disbursement.
 The Indian Contracts Act had been amended to add a new clause 28(b): Any agreement which extinguishes the rights of any party thereto, or discharges any party from liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent.
 See footnote 7 above at 863-882; Dato’ Seri Visu Sinnadurai, Law of Contract 3rd ed., 547-551.
  1 MLJ 185.
  2 MLJ 398.
  3 CLJ 717, FC.
 See footnote 1 above at para  of p. 15.
 See footnote 15 above at 738.
 See footnote 15 above at 745.
 The claim was properly made within the twelve-month period whereupon it was rejected and the suit itself was then filed outside the twelve-month period.
 See footnote 11 above.
  SGCA 24.
  AC 827.
 Supra at page 850.
  EWCA.
 Kudos Catering (UK) Limited v Manchester Central Convention Complex Limited  EWCA Civ 38, para 28.
  FC at p. 1.
 See footnote 26 above at para 51, p. 42.
  UKSC 67.
 This case concerned the forfeiture of deposit.
 Cubic Electronics Sdn. Bhd. (In Liquidation) v Mars Telecommunications Sdn. Bhd.  FC, para 49, p. 40.
  ILR 36 MAD 229.
 See footnote 30 above at 41.
 Philips (Hong Kong) Ltd v The Attorney General of Hong Kong  UKPC 3.
 See footnote 1 above at para , p. 17.
 See footnote 34 above.
 See footnote 34 above at para .
 See footnote 34 above at paras  to .
 See footnote 34 above at para .
 See footnote 34 above at para .
  2 AC.
e.g. the use of the words “howsoever caused” may be wide enough to include negligence.
 It is a matter of construction as decided in Photo Production Ltd v Securicor Transport Ltd  AC 827 and paras  and  of the FC judgement.