30 January 2019
CIMB Bank Berhad v Anthony Lawrence Bourke & Anor  1 LNS 1887
On 17 December 2018, the Malaysian Federal Court, in the landmark case of CIMB Bank Berhad v Anthony Lawrence Bourke & Anor, upheld the decision of the Malaysian Court of Appeal that commercial banks cannot rely on exclusion clauses which absolutely restrain legal proceedings, as such clauses contravene section 29 of the Malaysian Contracts Act 1950 (“CA”).
The Federal Court has held, inter alia, as follows:
- Clauses which absolutely restrict the right of customers to enforce a contract via legal proceedings are void pursuant to the CA.
- Contracts with clauses to absolutely exclude liability were “patently unfair” and unjust to bank customers, and merited the application of principles of public policy as well as interference by the courts.
In 2008, Anthony Lawrence Bourke and Alison Deborah Essex Bourke (“Plaintiffs”) obtained a bank loan to finance the purchase of property. Under the loan agreement, the bank (“Bank”) was obligated to make progressive payments to the property developer (“Developer”) on behalf of the Plaintiffs. The Bank missed one payment, resulting in the termination of the Plaintiffs’ sale and purchase agreement with the Developer.
The Plaintiffs filed a claim against the Bank for breach of the loan agreement and/or negligence and breach of the Bank’s fiduciary duties, seeking damages for the termination of the sale and purchase agreement.
The Plaintiffs’ claim was dismissed by the High Court on the basis that a clause in the loan agreement absolved the Bank of any liability (“Clause”). In 2017, the Court of Appeal reversed this decision and allowed the claim by the Plaintiffs. The Bank appealed to the Federal Court.
Absolute exclusion clauses are void
The Clause was an exclusion clause which sought to expressly exclude the Bank’s liability in respect of the loss and/or damage suffered regardless of the cause of action from which it might arise.
The Federal Court affirmed the Court of Appeal’s decision that section 29 of the CA renders void clauses which absolutely restrict the right of customers to enforce a contract by the usual legal proceedings. Further, clauses which purport to limit the time to sue under the contract are equally void. The key question was whether a customer was absolutely restricted from enforcing his or her rights under the contract.
Whilst recognising that parties enjoy freedom to contract, the Federal Court remarked that in the commercial realities of today, customers seldom deal on equal terms but are compelled to accept the terms and conditions of a standard contract prepared by institutions with stronger bargaining positions. In this regard, contracts with clauses to absolutely exclude liability were “patently unfair” and unjust to bank customers, and merited the application of principles of public policy as well as interference by the courts. The right of access to the courts has always been jealously guarded by the common law, and the general principle remains that contracts which seek to oust the jurisdiction of the courts are invalid.
The Federal Court also agreed with the Court of Appeal’s affirmation of the longstanding principle in Malaysia that relief or a remedy was ancillary to, and inseparable from, the right to commence legal proceedings.
Duty of care and skill in disbursing a loan
The Bank had also relied on a clause in the loan agreement allowing the Bank to determine how it disbursed the loan amounts to the Developer. This issue was not discussed by the Federal Court. However, at the Court of Appeal level, the court there said that clauses endowing banks with full discretion as to how loans were disbursed did not permit banks to withhold disbursement completely. A duty of care and skill applied whenever a bank was disbursing a loan in accordance with the relevant sale and purchase agreement or for the benefit of its customer. In the premises, the failure of the Bank to make a progressive payment, which then caused the developer to terminate the sale and purchase agreement, amounted to a breach of the loan agreement and negligence by the Bank.
The judgments rendered by the Federal Court and the Court of Appeal in this matter are available from the website of the Office of the Chief Registrar of the Federal Court of Malaysia, www.kehakiman.gov.my/en, or by clicking on the links below: