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.

The Tea Tiff

La Kaffa International Co Ltd v Loob Holdings Sdn Bhd and Another

chatime.jpg

Franchise Law

Franchising is simply defined as a tit for tat strategy where on one side it helps smaller companies to develop and prosper under the guidance of a bigger company while simultaneously allowing the bigger company to increase and expand their distribution. Guidance in this scenario encompasses being bound by rules of the franchise agreement.

Franchising in Malaysia is governed by the Franchise Act 1998 (Franchise Act), as amended by the Franchise (Amendment) Act 2012 which came into force on 1 January 2013, and the Franchise Regulations 1999 (amended by the Franchise (Forms and Fees) (Amendment) Regulations 2007).

Loob Holding Sdn Bhd (“Loob Holding”) was appointed as a Chatime franchisee in 2011 by La Kaffa International Co. Ltd (“La Kaffa”) and entered into a franchise agreement called Regional Exclusive Representation Agreement (RERA). Chatime outlets mushroomed across Malaysia with 165 outlets being owned and operated by Loob Holdings. Loob Holdings is the master franchisee with the outlets being either directly owned, sub-franchised or a joint venture with sub-franchisee.

“Due to disagreements with Loob Holdings, we have no choice but to make this painful decision”

Teresa Wang

Executive Vice President, La Kaffa

On 5th January 2017, despite having 24 more years to go, La Kaffa terminated RERA with Loob Holdings. Among others La Kaffa alleged that :

  1. Loob Holdings has violated Article 7 of RERA which states that Loob Holding can only purchase raw materials from La Kaffa.
  2. Loob Holdings has violated Article 10 of RERA by delaying and denying La Kaffa’s request to exercise its rights to inspect and audit.
  3. Despite repeated demands, Loob Holding has failed to comply with the terms of RERA and/or failed to make payment of, amongst others, the purchase of raw materials from the Plaintiff.

The dispute between the parties was to be resolved through arbitration in Singapore. This is due to Article 18 of the RERA which states that the RERA is governed by Singapore laws and any disputes regarding the RERA shall be arbitrated at the Singapore International Arbitration Centre.

“The three franchisees with four stores will maintain the Chatime name. The rest will be rebranded into Tealive from Feb 18 onwards”

Bryan Loo

CEO, Loob Holdings

Following the termination of RERA, in what appeared to be a well calculated and well maneuvered move, Loob Holdings was able to convince 95% of existing Chatime outlets to join them in new venture under the Tealive brand. At the time of the takeover, Chatime Malaysia accounted for 20% of La Kaffa’s total revenue. La Kaffa therefore commenced proceeding in the Malaysian High Court to obtain injunction (prohibitory and mandatory) against Loob Holdings pursuant to section 26(1) and 27(1) of the Franchise Act 1998. The interlocutory proceeding was issued pending the disposal of the Singapore Arbitral Proceedings under provision relating to application for interim injunction under section 11 of the Malaysian Arbitration Act 2005. As La Kaffa did not seek a perpetual injunction, if the Court grants interim injunction, it would last until the disposal of the Singapore Arbitral Proceeding.

The High Court held that it could not close Tealive down because provision s. 27 of the FA 1998 was not incorporated into the RERA and Loob Holdings and its related parties did not give a written undertaking to cease business for two years. The High Court was of the view that Tealive does not need to close down because Loob Holdings did not promise to close down after the termination of the RERA. The High Court Judicial Commissioner Wong Kian Kheong (as then he was) was of the view that the issue before the Court was whether La Kaffa is entitled to an interim injunction so that it can be used to support, assist, aid or facilitate the Singapore Arbitral Proceedings. Further, the high court found that the balance of convenience lies against the granting of the interim injunction in view that it carries a higher risk of injustice than a refusal of the interim injunction. As such, La Kaffa’s claim was refused.

“the following third parties will be adversely affected by interim restraining injunctions awarded against Loob

(iia)  161 Tealive Franchisees have to close shop immediately;

(iib)  the livelihood of about 800 employees of Loob and 161 Tealive Franchisees (Tealive Employees) will be jeopardised;

iic)  the families and dependants of Tealive Employees; (iid)  the suppliers and contractors of Loob and 161 Tealive Franchisees;

(iie)  the bankers and creditors of Loob and 161 Tealive Franchisees; and

(iif)  the landlords of the office and business premises of Loob and 161 Tealive Franchisees”

WONG KIAN KHEONG

Judicial Commissioner High Court (Commercial Division)

 

La Kaffa appealed to the Court of Appeal next and in granting the prohibitory injunction, overturned the High Court’s decision. The Court of Appeal held that firstly, a simple construction of Article 15 of the RERA as well as s. 27 of FA 1998 will demonstrate that there is an obligation for Loob not to compete with La Kaffa’s business even after the termination of the RERA. In simple terms, The Court of Appeal said that the franchise agreement and the Franchise Act both state that the franchisee (Tealive) cannot carry on a competing business after terminating the franchise agreement. The creation of Tealive was, on the face of it, in contravention of the prohibition (doing something despite not being allowed to do it) under the franchise agreement and the Franchise Act. Secondly, In light of Article 15 of the RERA and s. 27 of FA 1998, the High Court ought not to have refused the prohibitory injunction. When parties have agreed not to do certain acts and a statute also provides for such protection, the court is obliged to give effect to ensure the salient terms of the agreement as well as the statute is not breached. The Court of Appeal held that the court should not allow someone to continue doing something that they aren’t legally allowed to do in the first place. Moreover, The Court of Appeal found it unjustifiable for the High Court to rely that the Tealive bubble tea business consisting of 161 outlets and the livelihood of 800 employees will be affected.

“Courts should not lend its hand to persons who on the face of records are seen to be cheats”

Hamid Sultan Bin Abu Backer, JCA

(Majority Decision)

Court of Appeal

 

Fortunately for Loob Holdings, despite being dismissed on a majority of 2-1, the stay of execution was granted by the Federal Court. Nevertheless, Tealive will be forced to close down until the disposal of the Singapore Arbitral Proceedings if the Federal Court were to refuse leave for Loob Holdings to appeal to the Federal Court.

[UPDATE] 

In a joint statement released on the 30th August 2018, Loob Holding Sdn Bhd (Tealive) and La Kaffa International Co Ltd (Chatime) announced that both companies have reached an out- of court settlement to amicably resolve all disputes arising from their one time franchise relationship of the Chatime bubble tea brand.

In light of the amicable resolution, both parties have agreed to withdraw all ongoing proceedings in Malaysian courts as well as arbitration in Singapore.


Tort of Harassment

Harassment
Harassment in its Many Forms and Types

Harassment is a common term. Its definition as per the Oxford Dictionary means “Aggressive pressure or intimidation.” Law students that studied English Law or general public often than not thinks that there is actually a law protecting us from Harassment(at least that is what I thought). However, that is not the case in Malaysia.

 

ct-cta-anti-harassment-campaign-20151009

 

In United Kingdom, the Parliament has enacted the Protection from Harassment Act 1997 following the concern over the problem of ‘stalkers’, after several much-publicized cases in which individuals became obsessed with an ex-girlfriend or -boyfriend, a celebrity or even a mere acquaintance, and subjected them to constant and often long-term harassment. However, para material legislation does not exist in Malaysia. Thus, there is no ‘tort of harassment’ per se in Malaysia.

 

In Desiree Couture Sdn Bhd & Anor v Anne F Co. Ltd & Ors [2016] 10 MLJ 315, the High Court was invited to consider if Malaysia has a cause of action under the Tort of Harassment. Azizul Azmi Adnan JC, in his judgment at para [58] noted that:

I should however note that I found the arguments in support of the existence of the tort of harassment persuasive, and the time may well be upon us to follow the examples of Hong Kong and Singapore in recognising such a cause of action under the common law.

 

His lordship affirmed that there is no such cause of action known as ‘tort of harassment’ in Malaysia. However, he agreed that given the social changes, tort of harassment should be a valid cause of action in Malaysia. Nevertheless, his lordship did not rule on the matter and establish a new tort as it was not necessary to do so.

 

Harassment-Is-A-Crime_600

 

Following on in the Federal Court case of Mohd Ridzwan bin Abdul Razak v Azmah bt Hj Mohd Nor [2016] 4 MLJ 282, the Suriyadi Halim Omar FCJ made the following comment in his judgment under para [39]:

After mulling over the matter, we arrived at a decision to undertake some judicial activism exercise and decide that it is timely to import the tort of harassment into our legal and judicial system with sexual harassment being part of it.

 

Under para [57], his lordship continues to explain principle for the ‘tort of harassment’:

For our purpose, before defining the tortious phrase of sexual harassment, we need to know what harassment is in the first place. For brevity, when identifying the harasser or the victim, the pronouns he, she and her, apply to both gender whenever appropriate. Putting aside the statutory definition provided in the Employment (Amendment) Act 2012 and in the Employment Act 1955 as discussed earlier, Lord Sumpton in Hayes v Willoughby [2013] 1 WLR 935 acknowledged that harassment is an ‘ordinary English word with a well understood meaning.’ Citing Thomas v News Group Newspaper Ltd [2002] EMLR 78, 30, Lord Sumpton stated that harassment is, ‘persistent and deliberate course of unreasonable and oppressive conduct, targeted at another person, which calculated and does cause that person alarm, fear or distress.’ We certainly have no disagreement with such a definition.

 

Based on the underlined statement, it would seem that the elements of ‘tort of harassment’ is imported into Malaysia from the English case of Thomas v News Group Newspaper Ltd [2002] EMLR 78. However, as explain by his lordship, there is a distinction between ‘tort of harassment’ and ‘tort of sexual harassment’. In a general sense, the tort of harassment is a general heading, encompasses many type of harassment including sexual harassment. This case concerns sexual harassment. Thus, it may be argued that when Suriyadi Halim Omar FCJ says that ‘it is timely to import tort of harassment into our legal and judicial system’, it is essentially an obiter dicta. This is further supported by the fact other than the afore-quoted para, there are no other discussion on ‘tort of harassment’. Nevertheless, even though it is an obiter dicta, it is an obiter dicta from the Apex court of the land. Considering it together with Azizul Azmi Adnan JC’s judgment mentioned above, the statement that ‘tort of harassment exist in Malaysia’ may be highly persuasive.

 

In Conclusion, tort of harassment is currently, not an existing Malaysian Common Law right offered to an individual. However, pursuant to the aforementioned cases, the ‘tort of harassment’ will most likely be introduced if there is a relevant case on this issue that is in dispute in the court.

 

Edit: There is currently a global anti-harassment movement. Google ‘#MeToo’ to find out more.

Further Readings:

  1. Between Lex Lata And Lex Ferenda: An Evaluation Of The Extent Of The Right To Privacy In Malaysia [2017] 4 MLJ xxix

  2. https://canlawreport.com/metoo-movement-malaysian/