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Understanding Remedies & Penalties in a Commercial Contract. By LEE SWEE SENG LLB(Hons) , LLM , MBA LEE SWEE SENG & CO MANAGING PARTNER ADVOCATES & SOLICITORS CERTIFIED MEDIATOR PATENT AGENT NOTARY PUBLIC Copyright www.leesweeseng.com [email protected]

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Understanding Remedies & Penalties in a Commercial Contract

By

LEE SWEE SENG

LLB(Hons) , LLM , MBA

LEE SWEE SENG & CO

MANAGING PARTNER

ADVOCATES & SOLICITORS

CERTIFIED MEDIATOR

PATENT AGENT

NOTARY PUBLIC

Copyright

www.leesweeseng.com

[email protected]


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Understanding Remedies & Penalties in a Commercial Contract

  • Remedies in the event of breach

  • Agreed Damages clause

  • Penalty clause

  • Exclusion clause

  • Limiting damages clause

  • Proving Damages


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Remedies available in event of Breach

  • Damages

  • Specific performance

  • Injunction

  • Liquidated Agreed Damages

  • Penalty Damages

  • Forfeiture of Deposit


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Breach of Contract

  • Breach of contract happens where there is an actual failure by a party to the contract to perform his obligations under the contract or an indication of his intention not to do so.

  • Oxford Dictionary of Law, 4th Edition


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Forms of Breach and its effects

  • Breach of Condition (breach of an important term) – the law permits the Plaintiff to treat himself as being discharged from further obligations and claim damages.

  • Breach of warranty (breach of a less important term) – the innocent party here may not treat himself as being freed of his obligations under the contract although he may sue and recover damages for non-performance of the subsidiary term.

  • Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1996] 3 MLJ 675


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Forms of Breach and its effects

  • Breach of innominate terms – this third category of terms depends on the nature and consequences of the breach.

  • In Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1996] 3 MLJ 675, Gopal Sri Ram JCA highlighted this aspect as follows:


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Forms of Breach and its effects

  • “ If the breach is of such nature that it goes to the root of the contract, then the term broken is fundamental in nature. On the other hand, if the consequences of the breach complained of are not serious in the sense that they do not go to the root of the contract, then the term in question is a subsidiary one entitling the innocent party to recover damages but not to treat the contract as being at an end.”


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Forms of Breach and its effects

  • In other words, if the breach of a particular term goes to the root of the contract , then the remedy of the innocent party lies in repudiation and damages.

  • However, if the breach produces less consequences, the remedy of the innocent party lies in damages only.


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Anticipatory Breach

  • Anticipatory breach – A refusal to perform a contract before the time for performance is due.

  • In White & Carter (Councils) Ltd v Mc Gregor [1962] AC 413, when a party commits an anticipatory breach, Plaintiff has a choice:

  • A) terminate the contract and sue for damages for anticipatory breach

  • B) continue until the actual breach and then sue for damages


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Anticipatory Breach

  • This dictum in White & Carter was followed in Teh Wan Sang & Sons Sdn Bhd v See Teow Chuan [1984] 1 MLJ 130 where Peh Swee Chin said that:

  • “A repudiation in advance by one party to a contract, that he will not perform it before the arrival of the time for the performance by the repudiating party, does not, itself, amount to a breach of contract, though it may optionally be, regarded as such breach by the other party in treating it as at the end.”


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Statutory provision of breach

  • Section 40 of the Malaysian Contracts Act 1950 provides that when a party to a contract has refused to perform, disabled himself from performing, the promisee may put an end to the contract or to continue with the contract.


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Relief under Contracts Act 1950

  • MacIntyre J in Yong Mok Hin v United Malay States Sugar Industries Ltd [1967] 2 MLJ 9 pointed out that the application of section 66 and 75 in cases of rescission under section 40 is not correct.

  • The appropriate section for right of damages is provided in Section 76 of the Contracts Act 1950.

  • Section 76 provides that a Plaintiff who rightly rescinds for non-fulfillment of a contract can claim damages sustained.


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Damages

  • The purpose of awarding damages is to compensate the Plaintiff for the loss suffered due to the Defendant’s breach of contract.

  • Damages is that sum of money which will put the party who has been injured or who has suffered, in the same position as if the contract had been properly performed.


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Types of Damages

  • Nominal Damages

  • Pecuniary and Non-pecuniary damages

  • Liquidated and Unliquidated damages


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Nominal Damages

  • Definition of nominal damages according to Chitty on Contracts:-

    “Whenever a party is liable for breach of contract, either express or implied, the Plaintiff is generally entitled to nominal damages although no actual damage is proved; the violation of a right at common law will usually entitle the plaintiff to nominal damages without proof of special damage.”


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Nominal Damages

  • Situations where nominal damages are normally awarded:

  • A) where the Plaintiff has suffered no pecuniary loss;

  • B) where the damage is shown but its amount is not sufficiently proved;

  • C) although the plaintiff has sustained damage, the damage arises from the conduct of the Plaintiff himself;

  • D) Plaintiff simply brings his action with a view to establishing his right.


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Nominal Damages

  • In Industrial & Agricultural Distribution Sdn Bhd v Golden Sands Construction Sdn Bhd [1993] 3 MLJ 433, the Court further illustrated the importance of proving damages and stated that :

  • “damages are not meant to be punitive in nature but rather compensatory…It is therefore important for the plaintiff to establish his loss and not, so much as what the defendant had gained from the breach.”


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Pecuniary damages

  • Pecuniary damages are losses that can be qualified in monetary terms.

  • They may consist of:

  • A) expectation losses eg. Loss of profits/earnings

  • B) reliance losses eg. wasted expenses


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Principles of claiming damages - Causation

  • In order to recover damages, the Plaintiff must show that his losses were caused by the Defendant’s breach. (show causation)

  • He has to prove that the loss was due to the act or default of the Defendant and there is no break in the chain of causation between the Defendant’s breach and the Plaintiff’s losses.


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Remoteness of Damages

  • Apart from causation, the Plaintiff must also show that the losses he has suffered are not remote in order to recover them.

  • In English law, the test of remoteness of damages was laid down in Hadley v Baxendale (1854) 9 Ex 341.


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Hadley v Baxendale (1854) 9 Ex 341

  • A shaft in the plaintiffs’ mill broke down and the plaintiffs hired the defendant to transport the shaft for repairs.

  • The Defendant delayed in returning the shaft and the Defendant did not know that the plaintiffs did not have a spare shaft.

  • The Plaintiffs sued for loss of profits as damages.

  • The Court held that the losses which are too remote are not recoverable.


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Hadley v Baxendale (1854) 9 Ex 341

  • Losses are not too remote if they are:

  • A) ordinary losses which arise naturally in the usual course of things; or

  • B) extraordinary losses which arise within the reasonable contemplation of the parties at the time they entered into the contract.

  • Here, the loss of profits did not fall under the 1st limb as normally mills would have spare shaft.


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Hadley v Baxendale (1854) 9 Ex 341

  • Since the Defendant did not know that the Plaintiffs did not have spare shaft, the losses did not fall under 2nd limb.

  • Hence, the losses are not recoverable.


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Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528

  • The Court further explained the test of Hadley v Baxendale in that:

  • A) the Plaintiff can always recover foreseeable losses or damages which arises naturally

  • B) what is reasonable foreseability depends on the knowledge the parties had

  • C) knowledge is actual or imputed knowledge


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Remoteness of damages in Malaysia [1949] 2 KB 528

  • In Malaysia, Section 74 Contracts Act 1950 sets out the consequences of a breach of contract:

  • (1) when a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things


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Remoteness of damages in Malaysia [1949] 2 KB 528

  • from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

  • (2) Such compensation to be given for any remote and indirect loss or damage sustained by reason of the breach.


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Remoteness of damages in Malaysia [1949] 2 KB 528

  • Section 74 of the Contracts Act 1950 provides for the test for remoteness of damages which is nearly similar to the test in Hadley v Baxendale : Toeh Kee Keong v Tambun Mining Co Ltd [1969] 1 MLJ 171.

  • Therefore, once it is shown that the losses could fall under the 1st or 2nd limb, the Defendant is liable to the full extent of it so long as the extent of damages has been shown on the balance of probabilities.


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Mitigation of Damages [1949] 2 KB 528

  • The duty to mitigate only comes about when there is a breach of contract.

  • The explanation in Section 74 CA 1950 provides that in estimating the loss or damage arising from a breach of contract, the means taken to remedy the inconvenience caused by the non-performance of the contract must be taken into account.


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Principles of mitigating [1949] 2 KB 528

  • The Plaintiff must take reasonable steps to mitigate his loss and must not incur unreasonable expenses.

  • If the Plaintiff fails to mitigate his loss, he could only recover that part of the loss which is caused by his failure to mitigate.

  • If the Plaintiff mitigates his loss and does not incur any loss, then the loss cannot be recovered.

  • If the Plaintiff mitigates his loss and still incur losses, then these losses can be recovered.


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Timing of Assessment of Damages [1949] 2 KB 528

  • As a general rule, damages should be assessed as at the date of breach.

  • In Malaysia, the Court in Elkobina (M) Sdn Bhd v Mensa Mercantile (Far East) Pte Ltd [1994] 1 MLJ 553 held that:

  • A) the normal measure for damages is the difference between the market price of the goods or property as at the date of breach and the contract price.

  • B) in appropriate cases, losses can be assessed as at the date of trial.


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Liquidated Agreed Damages (LAD) and Penalty Clause - UK position

  • Liquidated Damages - genuine pre-estimate of the loss that will be caused to one party if the contract is broken.

  • Penalty Clause - payment of money stipulated as in terrorem of the offending party to force him to perform the contract

  • Penalty clause is not enforceable under the English law.

  • Dunlop Pnuematic Tyre Co. Ltd v New Garage and Motor Co Ltd [1915] AC 79


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Dunlop Pnuematic Tyre Co. Ltd v New Garage and Motor Co Ltd [1915] AC 79

  • The Court must determine whether the payment stipulated is a penalty or liquidated damages.

  • Various test has been advanced to determine whether the sum is a penalty clause and not liquidated damages.

  • It will be a penalty if:-

  • a) the sum stipulated is extravagant and unconscionable in amount when


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Dunlop Pnuematic Tyre Co. Ltd v New Garage and Motor Co Ltd [1915] AC 79

  • compared with the loss which can be proved.

  • b) the breach consists only of not paying a sum of money and the sum is the sum greater than the sum which ought to have been paid.

  • c) when a single lump sum is made payable by way of compensation, on occurrence of one or more or all of several events.


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Effects of penalty clause to contracts [1915] AC 79

  • It fixes in advance the damages payable in the event of default.

  • It will also limit a defaulting party’s liability

  • It can provide a means of pressure on the defaulter so as to coerce him into performing the contract.


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The Malaysian position of Liquidated Agreed Damages and Penalty clause

  • The Malaysian position is governed by Section 75 of the Contracts Act 1950.

  • Section 75 provides that: When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled,


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The Malaysian position of Liquidated Agreed Damages and Penalty clause

  • whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.


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Principles under the Malaysian law Penalty clause

  • In Malaysia, it appears that there is no distinction between penalty and liquidated damages : SS Maniam v The State of Perak [1957] MLJ 75

  • This distinction has ceased to be of great importance as the position in UK because the result of either case is that the court must determine reasonable compensation. : Wearne Brothers (M) Ltd v Jackson [1966] 2 MLJ 155


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Principles under the Malaysian law Penalty clause

  • In Maniam SS v The State of Perak [1957] MLJ 75, the Courts have stated that every fixed amount will be treated as a penalty and as long as the sum is reasonable it is allowed.

  • It is the duty of the court to determine the quantum of what is the reasonable compensation to be handed out.


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Principles under the Malaysian law Penalty clause

  • Whether the sum agreed as liquidated damages or otherwise is reasonable would depend on the extent of the damages suffered and the circumstances of each case : Hsu Seng v Chai Soi Fua [1990] 1 MLJ 300

  • Upon satisfaction by the court that the said sum is a genuine pre-estimate and it represents a reasonable sum for the loss suffered, it may order the said sum to be paid as damages.

  • Dato’ Seri Visu Sinnadurai, Law of Contract, 3rd edition


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Proving Damages Penalty clause

  • As a general rule, when a plaintiff claims damages from a defendant, he has to show that the loss in respect of which he claims damages was caused by the defendant’s breach, the actual amount of damages that he suffered and there were no mitigating factors.

  • Under S2 of the Evidence Act 1950, ‘prove’ means to provide some form of evidence

  • Santhana Dass, General Principles of Malaysian Contract Law


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Proving Damages Penalty clause

  • sufficient to convince the Judge to the point that he believes it to exist or considers its existence so probable that a prudent man ought under the circumstances of the particular case, to act on supposition that it exists.

  • The burden of proving the damages lies on the person seeking damages.

  • Santhana Dass, General Principles of Malaysian Contract Law


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Does the plaintiff require to prove damages in cases under Section 75?

  • The words in Section 75 referred to: ‘whether or not actual damage or loss is proved to have caused thereby’

  • Does it mean that the plaintiff does not have to prove any damages suffered?


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Selva Kumar Murugiah v Thiagarajah Retnasamy [1995] 2 CLJ 374

  • The respondent filed an originating summons seeking a declaration that the agreement was terminated and that he was entitled to forfeit the RM96,000 being payment for the sale of medical practice.

  • The Federal Court clearly established the principle that requires the plaintiff to prove the actual damages in accordance with the settled principles in Hadley v Baxendale despite of the words in question.


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Selva Kumar Murugiah v Thiagarajah Retnasamy [1995] 2 CLJ 374

  • The words in Section 75 of the CA did not dispense with the rule that a party claiming damages must prove his loss.

  • Any failure to prove any damages will result in the refusal of the court to award such damages.

  • The Federal Court having reviewed, the relevant Indian Supreme Court decisions, recognised that the words in question were intended to cover 2 kinds of contracts.


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Selva Kumar Murugiah v Thiagarajah Retnasamy [1995] 2 CLJ 374

  • In the first class of cases, the Court finds it difficult to assess such reasonable compensation.

  • In the second class of cases, the Court could assess such reasonable compensation with settled rules.

  • The learned judges held that the words in question are limited to cases where the court finds it difficult to assess damages.


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Selva Kumar Murugiah v Thiagarajah Retnasamy [1995] 2 CLJ 374

  • Therefore, where there is inherently any actual loss or damage from the evidence and damage is not too remote and could be assessed by settled rules, any failure to prove damages will result in the refusal of the court to award damages.

  • In this case, the respondent did not prove damages.

  • Thus, the sum of RM96,000 would have to be refunded.


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Sakinas Sdn Bhd v Siew Yik Hau [2002] 3 CLJ 275 374

  • Here, the respondents agreed to purchase a condominium unit from the appellant who was the developer.

  • The agreement was in accordance with Schedule H of the Housing Developers (Control and Licensing) Regulations 1989.

  • There was failure on the part of the appellants to hand over vacant possession in time.


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Sakinas Sdn Bhd v Siew Yik Hau [2002] 3 CLJ 275 374

  • The Federal Court further summarised the judgement in Selva Kumar.

  • The Federal Court in Selva Kumar did not decide that in every case falling under Section 75 CA there must be proof of actual loss.

  • Proof of loss will be required under the second class of cases where compensation could be assessed by settled rules.


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Sakinas Sdn Bhd v Siew Yik Hau [2002] 3 CLJ 275 374

  • For this reason, a case of delay in completion such as the present case should be treated as belonging to the first class of cases which does not require proof of actual loss because there is no known measure of damages employable.

  • What the court needs to determine is what is reasonable compensation applying good sense and fair play.


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Sakinas Sdn Bhd v Siew Yik Hau [2002] 3 CLJ 275 374

  • Here, the method of calculating the liquidated damages for failure to hand over vacant possession in time is prescribed in the regulations made by the minister.

  • But in determining reasonable compensation under S75, the court ought not to disregard the fact that the minister in his wisdom balancing the interest of house-buyers and developers and the method in cl.22 is fair method and should be determined by a simple standard method.


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Yap Yew Chong & Anor v Dirga Niaga (Selangor) Sdn Bhd [2005] CLJ 250

  • The defendant appealed against the decision of the Senior Assistant Registrar in favour of the plaintiff’s summary judgment.

  • The parties entered into a set-off agreement for the purpose of settling debts.

  • It was a term that the defendant shall redeem the property and deliver to the plaintiff a letter of disclaimer failing which the defendant shall pay the plaintiff as purchaser 12% interest on daily rest on the purchase price.


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Yap Yew Chong & Anor v Dirga Niaga (Selangor) Sdn Bhd [2005] CLJ 250

  • The Court tried to avoid the impact of Selva kumar.

  • It can be done provided both parties are agreeable to circumvent the rigours of Selva kumar.

  • The Court held that the plaintiffs do not have to prove the losses that they have suffered before they could claim the monetary damages because the so called penalty clause was a term of an


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Yap Yew Chong & Anor v Dirga Niaga (Selangor) Sdn Bhd [2005] CLJ 250

  • agreement entered into mutually between the plaintiffs and the defendant and thus, under the law, binding and enforceable against both the parties.

  • Therefore, the Court dismissed the defendant’s appeal.


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Forfeiture of Deposit CLJ 250

  • A deposit is payment made as security for the performance.

  • Part payments are installments or payments made towards the purchase price.

  • As a general rule, deposits can be forfeited but part payment cannot be forfeited.


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Forfeiture of Deposit CLJ 250

  • The sum equivalent to 10% of the total purchase price can be considered as a deposit as illustrated in Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd [1987] 2 MLJ 711


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Can S65 and S75 of the Contracts Act 1950 be invoked? CLJ 250

  • Section 65 CA requires the party rescinding to restore any benefit to the person from whom it was received.

  • However, in Linggi Plantations Ltd v Jegathesan [1972] 1 MLJ 89, deposit is not a benefit received under the contract.

  • Section 75 CA cannot be invoked as it does not apply to deposits because reasonable deposit is not a penalty.


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Exclusion and limiting clause CLJ 250

  • An exclusion clause is a term in a contract which seeks to exempt one of the parties from liability in certain events.

  • Limiting clause is a clause which seeks to limit a party’s liability.


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Exclusion clause under the common law CLJ 250

  • An exclusion clause must be incorporated into the contract by signature, notice or course of dealing.

  • If a person signs a contractual document, he is bound by its terms even if he does not read the document: L’ Estrange v Graucob [1934] 2 KB 394

  • If the exclusion clause is contained in an unsigned document, reasonable and sufficient notice of the existence of the clause should be given.


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Exclusion clause under the common law CLJ 250

  • The clause must also be in a contractual document: Chappleton v Barry UDC [1940] 1 KB 532

  • Clear words are needed in a contract to exclude liability in negligence.

  • When there is any ambiguity or uncertainty as to the meaning of an exclusion clause the court will construe it contra proferentum.


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Development in the common law position CLJ 250

  • The House of Lords decision in Suisse Atlantique Societe’ d’ Armement Maritime SA v NV Rotterdamsche kolen Centrale [1967] 1 AC 361 held that there is no rule of law under the common law that states that whenever there is a fundamental breach or a breach of fundamental term, the party in breach of the contract cannot rely on the exclusion clause.


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Development in the common law position CLJ 250

  • The effect of this decision has been followed in the following House of Lords decisions:

  • A) Photo Production Ltd v Securicor Transport Ltd

  • B) Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd

  • C) George Mitchell v Finney Lock Seeds Ltd


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Development in the common law position CLJ 250

  • The current position would be as follows:

  • “whether a condition limiting liability is effective or not is a question of construction of that condition in the context of the contract as a whole. If it is to exclude liability for negligence, it must be most clearly and unambiguously expressed and in such a contract as this, it must be construed contra proferentum.”

  • Ailsa Craig Fishing Col Ltd v Malvern Fishing Co Ltd & Anor [1983] 1 All ER 101


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Unfair Contract Terms Act 1977 (UCTA), UK CLJ 250

  • The Act requires that clauses excluding or limiting liability must satisfy the requirement of reasonableness as stated in S11(1).

  • Under S11(1), the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”


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Limiting liability clause CLJ 250

  • S11(4) UCTA provides that where a clause is designed to limit liability rather than to exclude it completely, the court must regard to :

  • A) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and

  • B) how far it was open to him to cover himself by insurance


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St. Albans District Council v ICL [1996] 4 All ER 481 CLJ 250

  • The Council claimed loss of GBP 1.3m from ICL for the defective program.

  • ICL claimed to rely on clause 9(c) to limit their liability to GBP 100,000.

  • Scott Baker J found that the clause was rendered ineffective as ICL could not establish that it satisfied the requirement of reasonableness.


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St. Albans District Council v ICL [1996] 4 All ER 481 CLJ 250

  • He concluded that there were four determining factor showing that the clause was unreasonable.

  • Firstly the parties were not in equal bargaining power.

  • ICL had not justified the figure of GBP 100,000, which was small, both in relation to potential risk and actual loss.


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St. Albans District Council v ICL [1996] 4 All ER 481 CLJ 250

  • Thirdly, ICL were well covered by insurance and finally the practical consequences of the loss.

  • Therefore, the burden of proof was on ICL to establish the reasonableness of the clause.


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Limiting Damages clause : The Malaysian prospective CLJ 250

  • Limiting damages clause can be commonly seen in cases under housing development.

  • The Housing Development (Control and Licensing) Act and the Rules made thereunder contain specific provisions which provides payment of indemnity in the event of delay in the delivery of vacant possession of the house.


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SEA Housing Corporation Sdn Bhd v Lee Poh Choo [1982] 1 LNS 22

  • The plaintiff agreed to buy from the defendant a shophouse with a term in the agreement which provides that the defendant should pay liquidated damages at the rate of 8% per annum on the purchase price for any delay in completion of the said building.

  • The said building was completed 23 months and 15 days late so the plaintiff claimed that she entitled to set off against the balance of the purchase price.


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SEA Housing Corporation Sdn Bhd v Lee Poh Choo [1982] 1 LNS 22

  • On the other hand, the defendant claimed that it is protected under clause 32 of the agreement which exempted the defendant from liability for non-fulfilment of terms which was caused by circumstances beyond the defendant’s control.

  • The Court held that clause 32 is void as being inconsistent with rule 12 and the developer is liable for damages for the delay.


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Schedule G and H of the Housing Development (Control and Licensing) Regulations 1989

  • Clause 23 Schedule G and Clause 26 Schedule H provides that:

  • If the Vendor fails to deliver vacant possession of the said building within the time stipulated, the Vendor shall be liable to pay to the Purchaser liquidated damages calculated from day to day at the rate of ten per centum (10%) per annum of the


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Schedule G and H of the Housing Development (Control and Licensing) Regulations 1989

  • purchase price from the expiry date of the delivery of vacant possession in subclause(1) until the date the Purchaser takes vacant possession of the said Building.


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Limitation of Action - New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ 230

  • By a fire insurance policy, the appellant agreed to indemnify the respondent against loss and damage occasioned from fire.

  • However, condition 19 of the fire policy provides that:

  • “In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage.”


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New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ 230

  • The Supreme Court held that Cl 19 contravenes S.29 Contracts Act and is void and inoperative as it clearly limits the time within which the respondent can enforce his right under S. 6(1) (a) of the Limitation Act.


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Exemption clause on Airlines - Malaysian Airlines (MAS) 230

  • Exemption clauses can be commonly seen in airline tickets.

  • The general conditions of carriage for MAS are as follows:

  • Articles 10 - Schedules

  • “We undertake to use our best efforts to carry you and your baggage with reasonable dispatch. Although we undertake to use our best efforts to


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General conditions of carriage - MAS 230

  • adhere to out timetables and published schedules, we do not guarantee that your flight will depart and arrive at the times set forth in our timetables and schedules. Furthermore, our timetables and published schedules shall form no part of your contract with us.”


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General conditions of carriage - MAS 230

  • Article 10.3 -

  • “Except as provided in this Article, we will have no liability to you if your flight is cancelled or delayed to causes beyond our control.”

  • Article 16.2 - International carriage to which Convention applies

  • “we will not invoke the limitation of liability


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General conditions of carriage - MAS 230

  • under the Convention for the unification of certain rules relating to International carriage by Air (Warsaw Convention) as to any claim for recovery compensatory damages in respect of your death, wounding or other bodily injury.”

  • Article 16.3 - Carriage to which the convention does not apply Same clause as in Article 16.2


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General conditions of carriage - MAS 230

  • Article 17.2 - Limitation of actions

  • “Any right to recover damages from us will be extinguished if an action is not brought within two years from the date of arrival at the destination, or the date on which the aircraft ought to have arrived, or the date on which the carriage stopped.”


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Airasia’s terms and conditions to carriage 230

  • Article 7.1 Cancellation, Changes of schedules

  • “At any time after a booking has been made we may change our schedules and/or cancel, terminate, divert, postpone reschedule or delay any flight where we reasonable consider this to be justified by circumstances beyond our control or for reasons of safety or commercial reasons.”


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Warsaw Convention - Convention for the unification of certain rules relating to International carriage by Air

  • The Warsaw Convention is an international convention which regulates liability for international carriage of persons, luggage or goods performed by aircraft for reward.

  • http://en.wikipedia.org/wiki/Warsaw_Convention


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Warsaw Convention certain rules relating to International carriage by Air

  • In particular, the Warsaw Convention:

  • a) mandates carriers to issue passenger tickets

  • b) requires carriers to issue baggage checks for checked luggage; and

  • c) limits a carrier's liability


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Warsaw Convention certain rules relating to International carriage by Air

  • Article 22:

  • In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000 francs (RM707,036.33).

  • In the carriage of registered luggage and of goods, the liability of the carrier is limited to a sum of 250 francs (RM706.90) per kilogram.


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Exemption clause in carpark - Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn Bhd [1995] 2 MLJ 100

  • The appellant agreed to have his car waxed and polished by the respondents.

  • He left his car at the respondent’s premises and was given a receipt with exemption clause at the back of it.

  • The appellant’s car was damaged but his suit was dismissed due to the exemption clause.


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Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn Bhd [1995] 2 MLJ 100

  • The High Court allowing the appeal held that an exemption clause does not exonerate the respondents from the burden of proving that the damage caused to the car were not due to their negligence and misconduct.

  • They must show that they had exercised due diligence and care in handling the car


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Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn Bhd [1995] 2 MLJ 100

  • The respondents had not adduced any evidence to show that they had exercised due and care and there was ample evidence to show that they had been negligent.

  • Hence, the appeal is allowed.


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Exclusion clause in banks Bhd [1995] 2 MLJ 100

  • Bank’s terms and conditions:

  • Article 16 - Liability and Indemnity

  • We shall only be liable for your direct losses and damages caused solely by our gross negligence and/or wilfull default. In no event will we be liable for any other losses or damages, whether direct or indirect, exemplary, consequential, incidental, punitive, special losses or


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Exclusion clause in banks Bhd [1995] 2 MLJ 100

  • damages, or loss of income, profits or goodwill (including those of any third parties and even if advised of the same) however arising, and all such damages are expressly included.


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Exemption clause in Courier Company (CC) Bhd [1995] 2 MLJ 100

  • CC's LiabilityCC contracts with Shipper on the basis that CC's liability is strictly limited to direct loss only and to the per kilo/Ib limits in this Section 6. All other types of loss or damage are excluded (including but not limited to lost profits, income, interest, future business),


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Exemption clause in Courier Company Bhd [1995] 2 MLJ 100

  • whether such loss or damage is special or indirect, and even if the risk of such loss or damage was brought to CC's attention before or after acceptance of the Shipment since special risks can be insured by Shipper.


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Exemption clause in Courier Company Bhd [1995] 2 MLJ 100

  • Time Limits for ClaimsAll claims must be submitted in writing to CC within thirty (30) days from the date that CC accepted the Shipment, failing which CC shall have no liability whatsoever.


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Exemption clause in Courier Company Bhd [1995] 2 MLJ 100

  • Delayed ShipmentsCC will make every reasonable effort to deliver the Shipment according to CC's regular delivery schedules, but these are not guaranteed and do not form part of the contract. CC is not liable for any damages or loss caused by delays.


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Limits of liability in Computer Contracts Bhd [1995] 2 MLJ 100

  • The following provisions are limitation of liability which are generally included in computer contracts :

  • The supplier will indemnify the Customer for direct damage to property caused solely either by defects in the Products or by the negligence of its employees acting within the course of their employment and the scope of authority. The total liability of the Supplier under this sub-clause will

  • Paul Klinger and Rachel Burnett, Drafting and Negotiating Computer Contracts, Butterworths, 1994


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Limits of liability in Computer Contracts Bhd [1995] 2 MLJ 100

  • be limited to [£500,000] for any one event or series of connected events.

  • Except as expressly stated in this clause and elsewhere in this Agreement, any liability of the Supplier for breach of this Agreement will not exceed in the aggregate of damages, costs, fees, and expenses capable of being awarded to the Customer the total price paid or due to be paid by the Customer under this Agreement.


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Limitation of liability for auditors Bhd [1995] 2 MLJ 100

  • The American Institute of Certified Public Accountants (AICPA) Liability Insurance Plan Committee recommends the use of engagement letters by auditors and see it as a means of reducing potential liability.

  • The engagement letter reduces any potential liability by defining the responsibilities of both the auditor or accountant and the client.

  • Kala Anandarajah, Professional Liability in Singapore & Malaysia - Accountants & Auditors


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Limitation of liability for auditors Bhd [1995] 2 MLJ 100

  • To alleviate the extent of liability that an auditor faces, the Audit and Assurance Faculty of the Institute of Chartered Accountants in England and Wales issued Technical Release Audit No 1/03.

  • The purpose is to assist auditors in managing their risk of inadvertently assuming a duty of care to third parties in relation to their audit reports.


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Limitation of liability for auditors Bhd [1995] 2 MLJ 100

  • However, it does not totally eliminate the assumptions of responsibility in some instances, particularly where the auditors are aware of certain facts which give rise to the duty of care to the third party.

  • The Technical Release suggest that where the auditors wish to disclaim responsibilities to the third party, they should state this expressly in writing through issue of letter to the third party.


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Section 140 of the Companies Act 1965 - Provision indemnifying directors and officers

  • Any provision, whether contained in the articles or in any contract with a company or otherwise, for exempting any officer or auditor of the company from, or indemnifying him against, any liability which by law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust, of which he may be guilty in relation to the company, shall be void.


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Restriction of liability by solicitors in UK indemnifying directors and officers

  • In a contentious business agreement, any provision exempting the solicitor from liability for negligence or breach of duty is void : S60(5) Solicitors Act 1974.

  • Contentious business agreement is a written agreement made by a solicitor with his client as to his remuneration in respect of any contentious business done or to be done by him : S59(1) Solicitors Act 1974


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Restriction of liability by solicitors in UK indemnifying directors and officers

  • In the Law Society Council Statement “Limitation of liability by contract”, it was considered acceptable to restrict liability to not below the minimum level of cover under the Solicitors’ Indemnity Rules, currently £3,000,000 per firm per claim.

  • The council also recognised that this is subject to general law, in particular the Unfair Contract Terms Act 1977.

  • Jackson & Powell on Professional Negligence, 4th Edition


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Liability of Barrister indemnifying directors and officers

  • Formerly, a barrister could not be liable to pay the costs of his lay client or of the opposing side which have been wasted by his default.

  • The Barrister does not enter a contract either with the solicitor who instructs him or with the lay client.

  • However, the jurisdiction to order the payment of wasted cost has been

  • Jackson & Powell on Professional Negligence, 4th Edition


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Liability of Barrister indemnifying directors and officers

  • amended by S4 of the Courts and Legal Services Act 1990 to apply to any legal or legal representatives which includes barrister.


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Arthur J.S Hall and Co. v. Simons [2000] UKHL 38 indemnifying directors and officers

  • The House of Lords referred to Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 which held that the fact that the barrister did not enter into a contract with his solicitor or client ceased to be a ground of justification for the immunity.


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Arthur J.S Hall and Co. v. Simons [2000] UKHL 38 indemnifying directors and officers

  • The HOL re-evaluated the public policy issues and held that it was no longer in the public interest that the immunity in favour of barristers should remain in either civil or criminal cases.


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Liability of an advocates and solicitors in Malaysia- LIM SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344

  • Gopal Sri Ram stated that:

  • “Our law is differ from English Law. Advocates here have never enjoyed immunity from suits of negligence.”

  • Therefore, lawyers may be liable for negligence under the law of tort or alternatively the law of contract.


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LIM SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344 SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344

  • However, a concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort.


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LIM SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344 SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344

  • Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence.


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Conclusion SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344

  • As a conclusion, there are many remedies which are available in the event of breach.

  • However, it must be remembered that the main object of contract remedies is to compensate the injured party and not to punish the party.

  • Therefore, the law also permits clauses which exclude or limit the liability of the defaulting party subject to reasonableness.


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  • END SOH WAH & ANOR V. WONG SIN CHONG [2001] 2 CLJ 344


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