14 March, 2018
“In no event will A be liable for any lost profits, loss of business, loss of use, loss of goodwill, lost savings or other consequential, special, incidental, indirect, exemplary or punitive damages suffered by B by reason of any delay in performance or non-performance of any obligations of A whether arising from any negligence, breach of these terms and conditions or howsoever.”
Boilerplate clauses such as the above are almost invariably found in most contracts, especially those involving the provision of goods and services. From the point of view of the vendor/service provider, the advantage of including such exclusion clauses is obvious:
- the existence of a written contract containing the exclusion clause buttresses the argument that parties have expressly agreed that the vendor/service provider shall not be held liable for any damages/losses arising from the contract (whether due to the vendor/service provider’s fault); and
- the other party may be disinclined to sue for liability in the face of an express clause, whether or not the clause is enforceable.
Notwithstanding the widespread use of such exclusion clauses, it should be noted that the popularity of the clause does not mean it is enforceable in all cases. Whether an exclusion clause is enforceable depends on a few factors, as elaborated below.
Contracts falling within the ambit of Consumer Protection Act 1999 (“CPA”)
Under the CPA, contracts or terms found therein are rendered void and unenforceable if they are found to be unfair. A contract is substantively unfair if it, among others, is in itself harsh, excludes or restricts liability for negligence, or excludes or restricts liability for breach of express or implied terms of the contract without adequate justification. In deciding whether the contract is unfair, the tribunal (established under the CPA to hear consumer claims) may take into account factors which include: whether the contract or a term of the contract is reasonably necessary for the protection of the legitimate interests of the supplier who is a party to the contract; whether it is contrary to reasonable standards of fair dealing, etc.
The concept of fairness dominates the determination of whether a contract falling under the CPA is enforceable. As such, vendors/service providers (or suppliers, to adopt the term used under the CPA) will not be able to get away with wholesale exclusion of liabilities without adequate justification.
However, to fall within the ambit and protection of the CPA, the contract must be in respect of goods and services that are offered or supplied to consumers. A consumer is defined as a person who-
(a) acquires or uses goods or services of a kind ordinarily acquired for personal, domestic or household purpose, use or consumption; and
(b) does not acquire or use the goods or services, or hold himself out as acquiring or using the goods or services, primarily for the purpose of: resupplying them in trade; consuming them in the course of a manufacturing process; or in the case of goods, repairing or treating, in trade, other goods or fixtures on land.
Contracts falling outside the ambit of the CPA
A question of construction: what is the parties’ intention?
For all other commercial contracts that fall outside the ambit of the CPA, the courts are more likely to give deference to parties’ freedom to contract and are less concerned about fairness. Indeed, the principle that courts are not entitled to reject an exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only have been applied by the Federal Court in CIMB Bank Bhd v Maybank Trustees Bhd & Other Appeals [2014] 3 CLJ 1 (“CIMB case”). Thus, whether a clause limiting liability is effective or not is a question of construction of that clause. If the clause unambiguously shows that parties intended to limit certain liabilities, then courts will enforce such clauses even if they are unreasonable, unless they are found to offend section 29 of the Contracts Act 1950 (“CA”).
Exclusion clauses that contravene section 29 of the CA are unenforceable
Section 29 of CA renders a contractual clause which prohibits or restricts absolutely the right to enforce a contract by usual legal proceedings void. This section was clarified (in light of the CIMB case) by the Court of Appeal in Anthony Lawrence Bourke & Anor v CIMB Bank Bhd [2018] 1 MLJ 104 which explained that the section is enlivened to render a clause void if it purports to prohibit or restrict absolutely a party from enforcing a legal right. The key consideration here is whether there is an absolute prohibition or restriction to enforce a legal right.
Other general principles
In addition to the above, the general principles of the enforceability of exclusion clauses can be further summarized as follows:
Exclusion clauses must be construed strictly and this means that: 1) their application must be restricted to the particular circumstances the parties had in mind at the time they entered into the contract; 2) the clause must be construed contra proferentem (a doctrine of interpretation which provides that any ambiguity of the clause is construed against the interest of the party relying on the clause).
Clear words are needed to exclude negligence.
Exclusion clauses must be incorporated into the contract.
Parties are assumed to have understood and agreed to all the terms in the contract.
Key takeaways
- For contracts entered into with consumers (hence falling under the CPA): the enforceability of an exclusion clause depends on whether the clause is unfair. An example of an unfair clause is one which excludes liabilities arising from negligence.
- For other contracts not falling within CPA:
- Parties are generally free to determine the terms of the contract.
- Whether an exclusion clause is enforceable depends on: 1) the intention of the parties; 2) whether it excludes absolutely the right to enforce a right.
- Exclusion clauses are interpreted strictly and the doctrine of contra proferentem applies.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
