Financial institutions will have to rethink exclusion clauses in their facility agreements, after the recent decision of the Federal Court in CIMB Bank Bhd v Anthony Lawrence Bourke & Anor [2019] 2 CLJ 1, in which the Federal Court agreed that a clause excluding the liability of a bank for breach is to be struck down.

  • Background Facts

Anthony Lawrence Bourke and Alison Deborah Essex Bourke (“the Plaintiffs”) initiated an action against CIMB Bank Berhad (“the Bank”) in relation to a housing loan granted to finance the purchase of a property (under construction) in Malaysia pursuant to a loan agreement (‘Loan Agreement’).

The Plaintiffs’ main complaint against the Bank is that the Bank failed to disburse loan to the developer to satisfy the required progressive payments for the property upon receiving the relevant invoices and architect’s certificates from the developer. This resulted in the termination of the sale and purchase agreement between the Plaintiffs and the developer. The action by the Plaintiffs is premised on a breach of contract, in negligence and breach of fiduciary duty.

The Bank relied on an exclusion clause found in Clause 12 of the Loan Agreement to deny any liability of damages to the Plaintiffs. Clause 12 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.”

  • Procedural Background

The High Court accepted the Bank’s submission on the application of Clause 12 and dismissed the Plaintiffs’ claim. The Plaintiffs appealed against the High Court’s decision and the Court of Appeal set aside the High Court’s decision. The Court of Appeal held that Clause 12 is void pursuant to Section 29 of the Contracts Act 1950 (“the Act”).

Section 29 of the Act stipulates that:

“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.”

Leave was granted to the Bank to appeal to the Federal Court on the following two questions of law:

  • Whether section 29 of the Act may be invoked to strike down and invalidate an exclusion clause which exonerates a contract breaker of liability for a breach of that contract (exclusion clauses that absolve primary obligations);
  • Whether section 29 of the Act may be invoked to strike down and invalidate an exclusion clause which negates the contract breakers liability to pay compensation for non-performance of that contract (exclusion clauses which absolve general secondary obligations).

The Federal Court answered these 2 leave questions in the affirmative and dismissed the Bank’s appeal.

  • The Federal Court’s Decision

The Federal Court held that under our jurisprudence, there is no distinction between the existence of right and enforcement of such rights as a matter of law, where the rights to relief forms part and parcel of a cause of action and ancillary to it.

Therefore, the restriction on enforcement of rights stated in Section 29 of the Act is not limited to the restriction of rights or cause of action but also includes restriction of rights to reliefs or damages. On this reason, the Federal Court held that Clause 12 of the Loan Agreement is in violation of Section 29 of the Act as Clause 12 is an absolute restriction of the Plaintiffs’ right to damages against the Bank.

Further, Section 24(c) of the Act provides that the consideration or object of an agreement is unlawful if it contravenes public policy. The Federal Court thus found that the principle of public policy applies as:

  • It is unfair and unjust to the Plaintiffs and unconscionable for the Bank to seek refuge behind Clause 12; and
  • It is an abuse of the freedom of contract when the Plaintiffs did not have room to bargain the terms of the Loan Agreement.

Based on the principles enunciated in this case by the Federal Court, any exemption clause which restricts absolutely a party’s cause of action and rights to damages will be void pursuant to Section 29 of the Act.