Skip to main content

[Key Takeaways] Seminar on Exclusion Clause - Endgame?





The KLBC Young Lawyers Committee organised a seminar on 15 April 2019 to discuss CIMB Bank Bhd v. Anthony Lawrence Bourke & Anor [2019] 2 MLJ 1, the recent landmark Federal Court decision on exclusion clauses. Ong Yu Jian, the successful lead counsel for the Respondents shared insights into the arguments taken before the Federal Court. We also had Vince Chong Khin Young share his views on the applicability and effectiveness of an exclusion clause from the banks’ perspective in light of this recent Federal Court decision. Both speakers received many questions from the floor.

In essence, the Federal Court held that any exclusion clause which is purposed to absolutely restrain any party from litigating against another party under any type of contract, is found to contravene S. 29 of the Contracts Act 1950.

An exclusion clause can be struck down by the courts if it goes against public policy. This happens where there is unequal bargaining power between parties. In an instance where a party would benefit from the unequal bargaining power by imposing a lop-sided boiler plate clause to his advantage, a duty is imposed upon the said party to ensure that the said clause would not go against public policy.

We also observed that the Federal Court made endeavours to import statutory principles from the Unfair Contract Terms Act (‘UCTA’) 1977 into Malaysian jurisprudence.

Will the Federal Court’s decision be applicable to all contracts?
The direct impact of the Federal Court’s decision here affects all banks, insurance companies, developers or any corporations and individuals requiring the use of exclusion clauses. It is noteworthy that blanket exclusion clauses no longer have a place in our contracts. We are required to be more precise in drafting an exclusion clause.

How will the Federal Court’s decision affect us?
If banks cannot rely on an exclusion clause to limit their liabilities, then banks will generally be inclined to apply a more stringent approach in contracting with customers and approving loan applications. Banks may lose the appetite to contract and to accept risks in light of this recent Federal Court decision.

Will the Federal Court decision affect our freedom to contract?
The absolute freedom to contract does not exist in the first place as there are existing checks and balances provided in the Contracts Act 1950. A contract cannot be entered into for something that is illegal. Where terms of a contract would amount to a misrepresentation or mistake, the contract will be void. This recent Federal Court decision makes it clear that an exclusion clause which absolutely restricts enforcement of a right will not be enforced by the courts.

What happens if both parties are of equal bargaining power and the same scenario happens? Will the courts come to a similar decision?
In the event the courts find that there is a contravention of s. 29, Contracts Act 1950, the courts will come to the same conclusion. The “public policy” factor is, still of course, one of the factors the courts will consider.

Should this only be applied to bank-customer relationship contracts or any other contract containing an exclusion clause?
This applies to all forms of contracts where there is an unequal bargaining position stemming from an all-encompassing exclusion clause.
This can also be seen in paragraph 52 of the Federal Court judgment where the Federal Court dealt with an exclusion of rights to access to courts. Arguably, the decision here goes beyond banking contracts.

Moving forward, in the event a broad exclusion clause is absolutely necessary, the speakers proposed the insertion of a proviso qualifying that this will not amount to an absolute restriction of the party’s rights. This is to avoid a contravention of s. 29 of the Contracts Act 1950.


Tishon Puspanathan of the KLYLC gave the opening address on behalf of the event organising committee

Full house


The speakers and the moderator, Eleena Wahab of Lee Hishammuddin (middle)

(From left to right) Andrew Chua - member of the organising committee, Ong Yu Jian and Vince Chong Khin Young - speakers, Eleena Wahab - moderator, Vivian Kuan - Chairperson of the KLYLC, and Tishon Puspanathan - member of the organising committee 

- Report written by Raymond Kok and edited by Praveena Karunamoorthy, members of the Publications Committee. 

If you are interested to join the Publications Committee, click here

Meanwhile, the KLYLC is organising their annual flagship social event - Charity Night 2019. An evening of food, drinks, and entertainment. Click here to find out more!