There are situations where one party would unfairly impose an exclusion clause that protects them from any liability whatsoever in the event of a breach of contract
A recent Federal Court Appeal of a suit between an established local bank and two of its customers is generating slightly more than the usual interest in the normally staid realm of Contract Law. That the case should involve an exclusion clause is hardly surprising given the backdrop of judges’ often unfavourable views of the role of such clauses in a contract. Legal arguments involving the principles of fundamental breach and the contra proferentum rule have been accepted by judges to restrict the one-sided and arguably, often unfair application, of widely drafted exclusion clauses. Lord Diplock in his judgement in the case of Photo Production Ltd v Securicor Transport Ltd said “…the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses,…”
Notwithstanding such adverse perception, exclusion or limitation clauses can be regarded in one of two ways. On one hand, such a clause is often considered to be a means for the parties to apportion liability under the contract, and is said to reflect the intention of the parties in doing so. On the other hand, such clauses are often inserted into a contract by the stronger party to exclude all possible liabilities under the contract on the part of that party. In many of the latter cases, it would appear that the innocent party would have no recourse for the losses suffered caused by the breach or other wrongful conduct of the other party by virtue of the wide exclusion clause in the respective contract.
In cases involving many consumer contracts, the Parliaments in Malaysia and the UK have legislated to provide a measure of protection to consumers. In Malaysia, Section 24 of the Consumer Protection Act 1999 gives protection to consumers who “acquire[s] goods or services of a kind ordinarily acquired for personal, domestic or household purpose, use or consumption…” However, it is often in those cases involving contracts not governed by such legislations, and where it appears that one party had unfairly imposed an exclusion clause that basically protects them from any liability whatsoever in the event of a breach of contract, that invites strict scrutiny from the courts.
The recent Court of Appeal decision in Anthony Lawrence Bourke And Another v CIMB Bank Berhad (“Bourkes v CIMB”) would appear to be such a case, whereby the court may have felt compelled to intervene judiciously in the application of such an exclusion clause.
II. Facts of the case
The Appellants’ 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 Respondent bank to pay one of progressive payments to the Developer under the SPA. To finance the purchase of the said property, the Appellants had applied for and was granted a term loan facility of RM715, 487.00 by the Respondent 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 (“the Loan Agreement”). The Respondent 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 Appellants.
In response to the Appellants’ claim for damages suffered as a result of the termination of the SPA, the Respondent bank relied on Clause 12 of the Loan Agreement as an absolute exclusion clause to absolve the Respondent bank of all liability for any damage suffered by the Appellants.
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 Respondent 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 the Invoice dated 28 February 2014 issued by the Developer. The Respondent bank was also held to be in breach of its duty of care to the Appellants as its customer in the handling of the loan disbursement which had directly caused the termination of the SPA thereby causing the Appellants 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 (“Section 29 CA”).
The grounds of the decision are as follow:
We will not within the scope of this article examine the Court of Appeal’s findings with regard to the Respondent bank’s breach of contract nor the breach of its of duty of care relating to the non-disbursement of the loan. We will confine the discussion to whether Clause 12 is in fact in contravention of Section 29 and therefore void.
III. Whether Clause 12 is in Contravention of Section 29 of the Contracts Act 1950
We would first consider the scope of Section 29 CA which deals with what is commonly known as the ousting of the court’s 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 the common law, and the general principle remains that contractual provisions which seek to oust the jurisdiction of the court are invalid. In the 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 23 of the Indian Contracts Act 1872 (“ICA”) or Section 24 of the Contracts Act 1950 or void for restraint of legal proceedings pursuant to Section 28 ICA or Section 29 CA respectively.
One of the grounds given by the Court of Appeal in Bourkes v CIMB for its decision references the observation by the Supreme Court in the case of New Zealand Insurance Co Ltd v Ong Choon Lin whereby the Supreme Court said that “the distinction between the existence of a right and its enforcement as a matter of law does not however appear in our jurisprudence…” The Court of Appeal then went on to opine that “we do not think a right can therefore be disassociated with a remedy. Thus Clause 12 though appearing to have the effect of negating the remedy to the Appellants in this case, in effect it is a clause that makes any action against the Respondent futile…” There appears to be little basis for the learned Court of Appeal Judge to equate the mere exclusion of liability for damages (even if it is the total exclusion of liability for damages as held) by the said Clause 12 as being a clause which restrains every form of legal proceeding by making any cause of action futile.
It must also be pointed out that the decision in the New Zealand Insurance case has been clearly distinguished and possibly departed from by the Federal Court in the noteworthy case of The Pacific Bank Berhad v State Government of Sarawak. The Federal Court in the latter held that Section 29 CA is in pari materia with the old Section 28 of the ICA and agreed with the 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 a clear departure from the obiter dicta in the New Zealand Insurance case that was cited in approval by the Court of Appeal as the basis for its defective argument in relation to the issue of rights and reliefs.
Contrary to what was stated by the Court of Appeal, it is clear that the principle itself is well recognised 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 Section 28 ICA (or the equivalent Section 29 CA in Malaysia). It is well within the power and the prerogative of the contracting parties to release or restrict their rights in a contract. The main concern of the law is that parties are not denied access to the courts to enforce their right to obtain remedies in the event that such rights as they have under a contract are breached. The Court of Appeal appeared to be more concerned with what they see as an exercise in futility in the filing of the suit by the Appellants by virtue of the exclusion of liability from damages as provided in Clause 12. This, by itself, cannot amount to a finding that the Appellants were in effect restrained from any forms of legal proceedings where in fact they were not prevented from filing the suit to have the matter adjudicated by the courts.
For that matter, the Appellants were not restrained from taking action to sue the Respondent bank in court in tort and for breach of contract, which they in fact did and those two claims in the suit were decided in their favour by the Court of Appeal. Whether they are entitled to the damages claimed, upon successfully proving their case, is a separate issue for the court to consider with regards to the application of the said Clause 12 based on the rule of construction. The Court of Appeal went on to hold that the clause was an absolute exclusion clause which would prevent the Appellants from recovering any damages. However, that alone does not make it a provision by which a party is restricted absolutely from enforcing under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals. The many Indian and Malaysian cases decided under Section 28 of the ICA or Section 29 CA respectively have nothing to do with a mere exclusion clause. Being denied a remedy by virtue of the exclusion clause is not the same as being denied access to the courts.
The law is best summarised by a recent decision of 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. Whether Clause 12 is in effect an absolute exclusion clause
Pursuant to the Loan Agreement, the Appellants have the right to have the loan disbursed by the Respondent bank in a timely fashion to pay the progressive claims by the Developer. In the event of the Respondent bank’s failure to do so, one of the remedies (in addition to damages) available to the Appellants would to be to specifically enforce that right. Accordingly, it would be incorrect to say that the Appellants are restricted completely from enforcing their right in court even if we were to agree with the Court of Appeal that Clause 12 prevents the Appellants from recovering any damages whatsoever. It is clear that even in such an event the Appellants do have other options in terms of legal proceedings. The said Clause 12 cannot in any event be said to absolutely restrict the Appellants from enforcing their right to sue by the usual legal proceedings and therefore an ouster of the court’s jurisdiction clause. At most, it can only be said that the Appellants may have relinquished one of the remedies (the right to claim damages) associated with the right to the timely disbursement of the loan sum, which would not in itself render Clause 12 to be in contravention of Section 29 CA.
Finally, I would submit that Clause 12 is not an absolute exclusion clause but rather one that exclude the type of damages as specified therein. Common law principles relating to exclusion clauses would therefore require us to give the said clause a strict interpretation unless the wording themselves are clear. It would appear that Clause 12 specifically excludes 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, it is clear that the types of damages provided 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 Appellants had in their Statement of Claim put forth the sum of RM457,857.00 as the Appellants’ loss of opportunity and/or profits due to the termination of the SPA. Such a claim would be 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 the 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 strict reading of the words therein. The Appellants had in their Statement of Claim made the following claims which I believe are recoverable:
On the face of it, it would appear that the sums set out above could be considered as direct losses caused by the Respondent bank’s breach of contract in failing to fulfil its obligation to disburse the loan to the Developer toward payment of the progressive claims. These claims are not excluded by Clause 12 and the Appellants should have been able to recover them against the Respondent bank for their breach of the Loan Agreement.
Instead of rendering Clause 12 void by holding that it is an ouster of the court’s jurisdiction, a more nuanced approach would have been for the Court of Appeal to take a strict interpretation of the said clause and to give it as narrow an interpretation as possible. It would have been open to the Court of Appeal to interpret the said Clause strictly and narrowly against the Respondent bank in accordance with the rules of interpretation applicable to exclusion clauses developed by common law. It would have been entirely consistent with the interest of fairness and justice as well as with the legal principles relating to exclusion clauses to allow the Appellants to recover against the Respondent bank all the damages not excluded by the said Clause 12. It is hoped that the Federal Court upon delivering its decision in the Appeal will be able to do justice by the Appellants without having to declare a mere exclusion clause as an ouster of the court’s jurisdiction.
Written by Ms Choong Shaw Mei, LL.B (Hons) Malaya, LL.M (Malaya), part-time lecturer and tutor, Law Faculty, University of Malaya. Edited by Corina R. Mangharam.
  10 CLJ 167 (CA)
  1 All ER 556 at page 568.
 Consumer Protection Act 1999; Section 3 defines “consumer”. The said Act provides protection against exclusion and limitation clauses by the applying the test of general substantive unfairness in Section 24D.
 The Appeal to Federal Court was heard on the 3rd of January 2018. The Federal Court has reserved its decision to be delivered at a later date which is yet to be fixed (“the Appeal”).
 See footnote 2 above.
  1 MLJ 185.
 See Cheshire, Fifoot, & Furmston, 17th Ed page 496ff.
 Pollock & Mulla: The Indian Contract and Specific Relief Acts, 13th Edn at page 712.
 See footnote 8 above at page 863.
 Per LC Vohrah J at page 195.
 I will be arguing at the end of this article that Clause 12 is in fact NOT an absolute exclusion clause.
  3 CLJ 717, FC.
 See footnote 12 above at page 738.
 See footnote 12 above at page 745.
 Justice M.R. Mallick: Commentaries on Indian Contract Act; at page 457.
 See footnote 2 above.
 See footnote 8 above at pages 863-882; Dato’ Seri Visu Sinnadurai: Law of Contract 3rd Edn at pages 547-551.
  SGCA 24.
 The remedy of specific performance is subject to the rules of equity as set out the Specific
Relief Act 1950 and the discretion of the courts.
 I will be arguing shortly that Clause 12 does NOT in fact exclude all damages.
 The contra proferentum rule.