Exclusion clause, a turning point ?

So I was just casually browsing the web when an article piqued my interest. ‘Bank can’t use exclusion clauses to escape liability, court rules’. This piqued my interest for several reasons. However, let me simply explain what is exclusion clause and what this ruling means.

The word ‘exclusion clause’ would be familiar to law student. It is of general knowledge that when parties to contract sign a contract, they are bound by the terms of the contract. This is based on the reasoning that both parties have negotiated the contract, and provided their consent and willingness to be bound by the terms of the contract. Hence, if a party refuses to follow or abide by the terms of the contract, the other party would be able to claim legal action.

Having said that, it is also common fore a standard contract today, to have an exclusion clause, or at least a limitation clause. Depending on how the clause is worded, the party is able to exclude any liabilities in the event that something happen. A typical example would be if a person is staying in a hotel room. There is usually an exclusion clause, stating that the hotel will not be liable for any losses of items in the hotel room. Thus, if a person’s camera is stolen in the hotel room, the hotel will not be liable or responsible for the loss. If the person claims legal action, the hotel would merely claim that ‘look, you signed the contract. the contract has an exclusion clause. The exclusion clause says that we are not responsible for any loss suffer during your stay. Thus, we are not responsible for the loss.

In Anthony Lawrence Bourke v CIMB (2017), The appellant alleged that CIMB has breached the contract for not releasing progressive payment as per the contract. CIMB in respond, relies on the exclusion clause.

Learned counsel for the Appellant raised 3 grounds in regards to the interpretation and construction of the exclusion clause. At Para [44] of the judgment,

“The three grounds raised were that Clause 12 is void under Section 29 of the Contracts Act 1950; it is against public policy and it is not an absolute exemption on the liability of the Respondent Bank.”

In response, the Learned Counsel for the Respondent, relying on CIMB Bank v Maybank Trustees Berhad and other Appeals [2014] 3 MLJ 168 that the exemption clause must be enforced, however unreasonable the court may think.

Section 29 of the Contracts Act 1950 reads the followings:

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.

In other words, Section 29 renders a contractual clause which prohibits absolutely the right to enforce a contract by usual legal proceedings void. At para [52], the court noted that:

“It is obvious to us as well as to the learned counsel of the Appellants, and so to the Respondent, that Clause 12 has the effect of excluding the liability of the Respondent bank for any cause of action arising out of the Loan Agreement. Consequently it is a clause that negates the right of the Appellants herein to a suit for damages; the kind spelled out in that clause, which encompass all form of damages under a breach of contract or under a suit of negligence.”

After further consideration of primary and secondary obligation, the court noted that:

we are of the considered view that Clause 12 contravenes section 29 of the Contracts Act, because in its true effect it is a clause that has effectively restrained any form of legal proceedings by the Appellants against the Respondent bank. It can be clearly demonstrated by the current appeal that despite our findings on the breach by the bank in this case if Clause 12 is allowed to stay it would be an exercise in futility for the Appellants to file any suit against the Respondent bank.

The court is effectively noting that the Bank could not rely on the exclusion clause to exclude or avoid liabilities as ‘that particular exclusion clause’ contravenes Section 29. As Lawyer Ong Yu Jian, the learned counsel for the Bourkes noted that the ruling remove the ‘bulletproof vest’ of banks that prevent clients from filing suits on equal ground. He further noted that

“This decision would improve the standards of the banking industry as a whole, as it would make banks more careful and accountable to their customers in their day-to-day dealings,”

In addition to the legal interpretation of the applicability of the exemption clause, Judge Balia Yusof Wahi explains that “Parties are not on equal levels. In today’s commercial world, the customer has to accept the contract as prepared by the other party.” There is effectively an unequal bargaining power by both parties unlike the hypothetical scenario mentioned earlier. In the event where there is unequal bargaining power by both parties, it is of the public policy for the court to interfere to protect the public. If the public suffers unfairness, the court ought to intervene.

It is said that the commercial very much value certainty. Thus, in interpreting any contract between parties, the court would often want to uphold the contract rather than striking it down since it is a contract made with the consent of both parties. Thus, this decision can be seen to be a turning points of sort where the court is willing to rule the exemption clause to be void, despite being a term to a contract which both parties consented to. However, it is important to note that based on the judgment, it would seem that not all exclusion clause would contravene Section 29. It very much depending on the wording of the clause, and the bargaining power of both parties.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s