The law has always recognized the laissez-faire principle of the freedom of contract and as such, Malaysian Courts have been willing to uphold exclusion clauses when such clauses are clearly drafted.
In the recent landmark decision of CIMB Bank Bhd v Anthony Lawrence Bourke & Anor  2 MLJ 1, the Malaysian Federal Court held that where such exclusion clauses are drafted in a manner which effectively limits a party from enforcing their rights under a contract, such clauses would be void and in direct contravention of Section 29 of the Contracts Act, 1950 (“Section 29”). Section 29 essentially provides that terms of a contract which absolutely restrict a party from enforcing his rights under a contract is void to that extent.
In the above case, the purchasers of a property sued the Bank for negligence and breach of contract for its failure to make a progressive payment to a housing developer. This eventually resulted in the termination of the sale and purchase agreement between the housing developer and the purchasers. In its defence, the Bank relied on an exclusion clause which reads as follows:
“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 High Court, in relying on the above exclusion clause, absolved the Bank of all liabilities. This was reversed by the Court of Appeal which held that the exclusion clause which sought to restrict the purchasers from enforcing their full rights was void under the Malaysian Contracts Act.
Absolute Exclusion Clauses Invalid
Upon appeal, and in a unanimous 5 panel decision, the Federal Court upheld the Court of Appeal’s decision and affirmed that where an exclusion clause in an agreement sought to (1) exonerate a contract breaker of its liability for a breach of that contract and (2) negates the contract breakers’ liability to pay compensation for non-performance of that contract, it would be void. Section 29 of the Contracts Act, 1950 may be invoked to strike down and invalidate such a clause.
The Court further found that a right cannot be disassociated from a remedy in law. The key question to consider was whether a party would be absolutely restricted from enforcing his or her rights under a contract. On these facts, despite the finding that there was a clear breach by the Bank, yet if the exclusion clause was upheld, that would preclude the purchasers from claiming any remedy whatsoever against the Bank. From the plain reading of the exclusion clause above, the clause sought to preclude the purchasers from claiming any loss or damage. This was an absolute restriction and Section 29 of the Contracts Act, 1950 applies rendering such a clause void and unenforceable.
In view of the above decision, when drafting exclusion clauses under Malaysian law, it will be prudent to ensure that any exclusion clause drafted must not wholly exonerate a contract-breaker from liability for any breach of contract.