EXEMPTION CLAUSES

CONTRACT LAW II
DR. NURAISYAH CHUA ABDULLAH
Outline
A. Introduction
B. Incorporation of exclusion clauses
C. Interpretation of exclusion clauses
C. Legislative control of exclusion clauses
D. Further readings
A. Introduction
A term commonly found in contracts, whether in commercial or
consumer contracts, is the exclusion clause.

An exclusion clause has been defined as any clause in a contract
or term in a notice which purports to restrict, exclude or modify a
liability, duty or remedy which would otherwise arise from a
legally recognised relationship between the parties.

Exclusion clauses can be broadly classified into 3 main types. First,
the clause may exclude legal duties which would otherwise arise
from the contractual relationship of the parties. Second, the
clause may limit or exclude liability in respect of duty which may
be breached. Third, an exclusion clause may be only procedural
in manner and purport to alter the normal burden of proof or
provide that one matter is treated as conclusive of another or
provide a time limit within which a suit must be brought.

Exclusion clause are also known as exemption clause or
exception clause.
Introduction
An exclusion clause may completely exclude all liability or it may
only set a monetary limit on liability in which case it is known as a
limitation clause.

Exclusion clause are mostly found in standard form contracts.
Standard form contracts are contracts whose contents, once
formulated, will be used by a business firm with all its customers,
in every bargain dealing with the same product or service. Thus,
only one party has the right to determine the terms and the
other party can either take it or leave it.

As standard form contract are frequently used by firms with the
stronger bargaining power, they are frequently contract of
adhesion where the weaker party merely adheres to the terms
set by the stronger party. Due to the one-sided nature of
standard form contracts, there is a tendency for inserting unfair
terms and the most common unfair term is the exclusion clause.

Introduction
The Contracts Act does not provide for the control of exclusion
clause. The judicial control of exclusion clauses will be examined
where the Malaysian courts have applied common law
principles on (i) incorporation of exclusion clauses, and (ii)
interpretation of exclusion clauses.

With the recent introduction of Unfair Contract Terms into the
Consumer Protection Act 1999 in 2011, it is important to examine
what would be the legislative control on exclusion clauses.

B. Incorporation of Exclusion Clauses
The first step taken by courts to control exclusion clauses is to
insist that an exclusion clause must be incorporated into the
contract. Before a clause purporting to exempt a party from
liability can have effect, it must first be a term of the contract to
be legally binding.

An exclusion clause can be incorporated into a contract:

a) By giving notice
b) Through a course of dealing
c) By signature in a written document.
(a). By Notice
Notice of an exclusion clause must be given before or at the
time of a contract. Notices of exclusion clause can be found in
billboards, for example, before the entrance of a car park and
in documents such as tickets. To be effective, the notice must be
sufficiently brought to the notice of the other party.

(i). Before or at the time of contract
For an exclusion clause to be effective, the party to be bound
must have sufficient notice of the clause before or at the time
the contract is entered into. Thus, it is important to determine
when the contract is formed.

Case: Thornton v. Shoe Lane Parking Co Ltd.
The Court of Appeal considered when a contract is formed in cases
of car parks operated by automatic machines. In this case, the
plaintiff parked his car in the defendants fully automatic car park.
Outside the car park, there was a traffic light, which showed red, and
a notice stating the charges and that the cars are parked at owner's
risk. As the plaintiff drove in, the light turned to green and a ticket
was pushed out from a machine. The plaintiff took the ticket from the
machine, he saw that there was writing on the ticket, but he did not
read it. There was also nobody in attendance.

In fact, the writing read: This ticket issued subject to the conditions
displayed on premises. To find the conditions, the plaintiff would
have to walk round the park, but he did not do so. The conditions
exempted the defendant from liability for damage to car and
customer, howsoever caused.
The Court of Appeal held that the defendant could not rely on those
conditions as they had not been incorporated into the contract. It
was held that in the present case, the offer occurred when the
machine was ready to accept payment and the acceptance
occurred when the customer put his money into the slot. Thus, the
ticket and the words printed on it were only given after the contract
was entered into.
Case: Olley v. Marlborough Court Ltd
The plaintiffs, a husband and wife, paid for lodging a the defendants
hotel. In the hotel room, there was a notice on the wall stating that
the hotel would not be liable for the theft or loss of any items in the
room. The wifes fur coat was stolen from the room when they went
out for a stroll. The defendant argued that the notice in the room was
incorporated into the contract.

The Court of Appeal held that the contract had been entered into
before the plaintiffs entered the room in the hotel, and as notice of
the exclusion clause was only given after the contract was entered
into, it was not incorporated into the contract.
In Thorntons case discussed earlier, another reason the
exclusion clause was inapplicable was that the ticket was held
to be no more than a voucher or receipt for the money that
has been paid. To be effectively incorporated, the exclusion
clause must be in a document where contractual terms are
expected and not merely found in a receipt.

(ii). Notices in documents
Case: Chapelton v. Barry Urban District Council
The plaintiffs wished to hire a deck chair for use on the beach. At a
pile of deck chairs belonging to the defendant council was
displayed a notice stating that the hire of chair was 2d per three-hour
session and that the public were requested to obtain tickets for
inspection. The plaintiff obtained two chairs from attendant, paid 4d
and took two tickets. On one side of the tickets was the statement
that the defendant council would not be liable for any accident or
damage arising form the hire of the chair. The plaintiff put the chairs
up and sat down on a chair which gave away, resulting in injury.
The issue which arose was whether the defendant council could rely
on the exclusion clause printed on the ticket. The Court of Appeal
held that the clause could not relied on by the defendant council, as
notice of it had been given only after the contract had been entered
into. Further, the exclusion clause was found in a ticket which was
merely receipt acknowledging the payment received.
Case: Grogan v. Robin Meredith Plant Hire
The party alleged that he signed on a time sheet on the
understanding that it was not part of an earlier oral contract. The
Court of Appeal agreed and held that the standard conditions in the
time sheet were not incorporated by the signature of one party on
this document after the contract had commenced. Further, a time
sheet was merely an administrative and accounting document and
neither party to the contract nor a reasonable man would expect a
time sheet to contain contractual terms or to have legal effect.
(iii). Sufficiently brought to notice of other party
An exclusion clause must be sufficiently brought to the notice of
the other party. This means that an ordinary and reasonable
person would have realized that there was an exclusion clause
written on the relevant signboard or ticket.

Case: Parker v. South Eastern Railway Co.
The plaintiff handed in a parcel of a value exceeding 10 at a
cloakroom at a station of the defendant railway company, paid 2d
and received a ticket. On the face of the ticket were the words see
back and on the back, was a condition that the defendant would
not be responsible for any package exceeding the value of 10. The
parcel was subsequently lost and the plaintiff brought an action for its
loss.

In this case, the Court of Appeal applied the reasonable notice test
and held that it is not sufficient that the person in question knows that
there was writing on the ticket, but that he must know or be given
reasonable notice that the ticket contains conditions.
Baggallay LJ stated that in the case of exclusion clauses found in
unsigend documents, usually in a ticket, theree questions are
relevant:

a) Did the person who received the ticket know that there was
writing in the ticket?

b) Did the person know that the ticket referred to terms?

c) Did the party relying on the terms do what was reasonable to
bring notice of the terms sought to be incorporated, to the other
partys attention?
Case: Henderson & Ors v. Stevenson.
The House of Lords rejected an exclusion clause appearing on the
back of tickets. In this case, the respondent was a passenger in the
appellants steamer. On paying his fare, he received from the
appellants clerk a ticket, on the back of which was printed a notice
exonerating the appellants from liability for loss, injury, or delay to
the passenger or his luggage, whether arising from the act, neglect,
or default of the appellants, or their servants or otherwise.

There was nothing on the face of the ticket drawing the respondent's
attention to this condition, nor was his attention directed to a printed
notice to the same effect hanging up in the ticket office. During the
voyage, the steamer was wrecked by the negligence of the
appellants servant, and the respondent lost his luggage and suffered
other damage and inconvenience. The appellants sought to rely on
the exclusion clause.
Lord Cairns LC stated:

It seems to me that it would be extremely dangerous, not merely
with regards to contracts of this description, but will regard to all
contract, if it were to be held that a document complete upon the
face of it can be exhibited as between two contracting parties and,
without any knowledge of anything beside, form the mere
circumstance that upon the back of that document there is
something else printed which has not actually been brought to, and
has not come to, the notice of one of the contracting parties, that
contracting party is to be held to have assented to that which he has
not seen, which he knows nothing, and which is not in any way
ostensibly connected with that which is printed or written upon the
face of the contract presented to him.
The Court of Appeal held that the defendant had taken reasonable
steps to bring the exclusion clause to the notice of the plaintiff. In this
case, the plaintiffs niece obtained for her an excursion ticket from
the defendant railway company at half the ordinary fare. On its face,
the ticket bore in plain, easily legible type the words For conditions
see back. Day excursion.

On the back of the ticket, also in clear type, were the words Issued
subject to the conditions and regulations of the companys time-
tables and notices and excursion and other bills. In the companys
time-table appeared the words: Excursion tickets and tickets issued
at fares less than the ordinary fares are issued subject to the
condition that neither the holder nor any other person shall have any
right of action against the company in respect of injury (fatal or
otherwise) loss, damage, or delay, however caused.
Case: Thompson v. London
The plaintiff was unable to read. Upon arrival, the plaintiff fell as she
was descending from the train to the platform and was injured. She
brought an action against the defendant company for negligence.
The defendant sought to rely on the exclusion clause.

The Court of Appeal held that the company had taken reasonable
steps to bring the condition to the notice of the plaintiff and could
rely on it. The company was taken as having made an offer to
intending travellers that, if they would accept the conditions on
which the offer was made, the fact that the conditions could not be
immediately ascertained by the plaintiff, but were to be sought in a
document or documents other than the ticket, did not prevent the
conclusion that the company had taken reasonable steps to bring
the condition to the notice of the plaintiff.
The Court of Appeal held that the more onerous and unusual a
clause, the more it must be shown that it had been fairly and
reasonably brought to the other partys attention. The greater degree
of notice required when the clause is more onerous, unusual or
unexpected is commonly referred to as the red hand rule.
Case: Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd
(iii a) Malaysian position
Case: Sanggaralingam s/o Arumugam v. Wong Kook Wah & Anor.
The High Court held that the respondent could not rely on the
exclusion clause as there was no evidence to show that the
appellant knew of the notice or that his attention was drawn to it by
the respondents. In this case, the appellant sent his car to the second
respondents workshop for repairs. A notice at the signboard stated
as follow: All vehicles stored or driven by our employees are at
owners risk. We accept no responsibility for loss or damage. While
the car was being test driven by the first respondent who was an
apprentice and the servant or agent of the second respondent, the
car collided with another motot vehicle and the appellant suffered
personal injuries.
The issue of incorporation was not adequately considered although it
was relevant on the facts. In this case, the appellant was sued for
breach of contract and negligence for failing to fly the first
respondent, a 14 years old pupil then in the UK back to Malaysia on
a particular flight although the first respondent held a confirmed
ticket for the said flight. The appellant denied liability and relied on
condition No.9 of the Conditions of Contract printed on page 2 of the
airline ticket which read as follows:

Carrier undertakes to use its best effort to carry the passenger and
baggage with reasonable dispatch. Times shown in the timetable or
elsewhere are not guaranteed and form no part of this contract.
Carrier may without notice substitute alternate carriers or aircraft and
may alter or omit stopping places shown on the ticket in case of
necessity. Schedules are subject to change without notice. Carrier
assumes no responsibility for making connections.
Case: Malaysian Airline System Bhd v. Malini Nathan & Anor
The High Court held that the appellants decision not to carry the first
respondent was covered by the above condition and that the first
respondent ought to have known and was presumed to have known
condition 9 as it was printed on the ticket.

The courts approach of presuming knowledge of the exclusion
clause on the adhering party is incorrect. This aspect of the decision
is particularly unsatisfactory since it is for the person relying on an
exclusion clause to show that sufficient notice of the clause had
been given.
(b). By course of dealing
An exclusion clause can be incorporated into a contract where the
other person is a regular customer and there is a consistent course of
dealing between the parties.
The defendant bought eight wooden casks of orange juice and sent
them to the plaintiff warehousemen for storage. Later, the plaintiff
sent him a receipt for them, called a landing account, which stated
that the companys conditions as printed on the back hereof cover
the goods held in accordance with this notice . On the back of
the receipt were Contract Conditions which included a clause
exempting the plaintiffs from liability from any loss or damage to
goods entrusted to them. On the same date, the plaintiff sent an
invoice to the defendant which stated that all goods handled to us
warehoused at owner's risk .
Case: J Spurling Ltd. v. Bradshaw
When the defendant collected the goods, five barrels were without
lids and empty, one barrel contained dirty water and two barrels
were leaking badly. The defendants claimed for their loss and the
plaintiffs sought to rely on exclusion clause.

The Court of Appeal held for the plaintiffs, having regards to the
documents which had passed between the parties which had
referred to owners risk and the course of dealing between them.
Denning LJ stated:

Next it was said that the landing account and invoice were issued
after the goods had been received and could not therefore be part
of the contract of bailment: but the defendant admitted that he had
received many landing account before. True he had not troubled to
read them. On receiving this account, he took no objection to it, left
the goods there, and went on paying the warehouse rent for months
afterwards. It seems to me that the course of business and conduct of
the parties, these conditions were part of the contract.


Terms in notices or tickets may be incorporated by previous course of
dealing even if on the occasion in question the terms were not
referred to. The contracting party must have sufficient notice of the
conditions sought to be incorporated, although constructive notice
is sufficient.

Kendall, wholesale dealers, bought ground nuts from Brazil and sold
some of them to Grimsdale. Grimsdale then resold them in smaller
quantities to SAPPA by oral bargain followed by sold notes which
stated at the back the condition that the buyer took responsibility for
latent defects. There had been long course of dealing between
Grimsdale and SAPPA. The issue arose whether SAPPA was bound by
the printed conditions. The House of Lords held that SAPPA by
continuing to conduct their business with Grimsdale on the basis of
the sold notes, which contained the relevant condition, and by not
objecting to the condition must be taken to have assented to the
incorporation of these terms into the contract.
Case: Henry Kendall & Sons v. William Lillico & Sons Ltd & Ors
Lord Pearce stated:

In the present case, SAPPA had regularly received more than a
hundred similar contract notes from Grimsdale in the course of
dealing over three years. They knew of the existence of the
conditions on the back of the contract note. They never raised any
query or objection The courts task is to decide what each party to
an alleged contract would reasonably conclude form the
utterances, writings or conduct of the other The only reasonable
inference from the regular course of dealing over so long a period is
that SAPPA were evincing an acceptance of, and a readiness to be
bound by the printed conditions of whose existence they were well
aware although they had not troubled to read them. Thus the general
conditions became part of the oral contract.


However, there must be sufficient communications between the
parties to constitute previous course of dealings.

Over a period of 5 years, the plaintiff had on many occasions bought
spare parts form the defendants but sent the car elsewhere for
repairs. However, for three or four occasions during those five years
the car was sent to the defendants for repairs. The defendants
practice when doing repairs was to have a form, described as an
invoice, signed by the customer. The form contained a description
of the work to be carried out and the price for doing it. Under the
customers signature was a clause stating that the defendant is not
responsible for damage caused by fire to customers car on the
premises. The car was damaged by fire on defendants premises as
a result of defendants negligence. The Court of Appeal held by that
the clause could not be incorporated into the oral contract made
between the parties. Three or four transactions over a period of 5
years were insufficient to constitute a course of dealing.
Case: Hollier v. Rambler Motors (AMC) Ltd
Besides sufficient dealings, there must also be consistency in dealings
between the parties.

In this case, there was a record of previous dealings between the
parties, but there was inconsistency in that the appellants agent was
sometimes asked to sig a risk note containing the exclusion clause
relied on and sometimes not asked to sign it. The House of Lords held
that the exclusion clause could not be incorporated into the contract
Case: McCutcheon v. David MacBrayne Ltd
The Malaysian position
Case: Messrs Young and Co. v. Wee Hood Teck Development Corp. Ltd.
The Federal Court found that a retainer had come into existence
between the respondents and the appellant solicitors based partly
upon the conduct of the parties which showed a course of dealing
giving rise to legal obligations and establishing the relationship of
solicitor and client. The Appellant had written to the respondents
offering their services and had prepared the respondent's article of
association. The appellants had also sent bills and receipts relating to
other transactions to the respondents who made payments for them.
Case: Popular Industries Ltd. v Eastern Garment Manufacturing Sdn. Bhd.
The High Court held that the defendants had breached their
contractual obligation to the plaintiffs to furnish the shipping dates to
the plaintiffs. The court referred to the course of dealing between the
parties wherein the practice was that the defendants would inform
the plaintiffs of the name of the ship and the date of shipment after
which the plaintiffs would open letters of credit.
(c). By Signature in written document
The issues of notice of exclusion clause or a previous course of
dealing is not relevant if one had signed a document or contract
which contains an exclusion clause. A party is bound by the contract
even though he has not read the contract.

In this case, the plaintiff purchased a cigarette vending machine
from the defendant. The agreement contained a clause excluding all
implied warranties and conditions, whether statutory or otherwise.
The plaintiff signed the agreement but did not read it and did not
know the existence of the exclusion clause. The machine broke
down and the plaintiff claimed against the defendant on the basis
that the machine was delivered unfit for the purpose of which it was
intended. The court held that the plaintiff was bound by her signature
despite the fact that the relevant clause was in small print and
despite the fact that she had not read it.
Case: LEstange v. F Graucob Ltd
The Malaysian position
Case: Subramaniam v. Retnam
In this case, the plaintiff sued the defendant for $1,000 being money
lent. The defendant had signed a written acknowledgment in the
English language of the loan, but stated that he thought the was only
signing as surety. The High Court held that the despite the fact that
the defendant was ignorant of the English language, he would be
bound by the written contract which he had signed in the absence of
fraud or misrepresentation.
Case: Sebor (Sarawak) Trading Sdn. Bhd. & Anor v. Syarikat Cheap Hin
Toy Manufacture Sdn. Bhd.
The Malaysian courts have applied the signature rule to cases of
exclusion clause. The issue arose whether the first appellant can rely
on the exclusion clause found in the bill of lading used for the
transportation of the respondents goods. The Court of Appeal held
that the first appellant had established that there was a cessor of
laiblity covered by the bill of lading (BOL).
On the question of notice of the clause, Mohd Saari JCA, delivering
the judgment of the court, stated as follows:

.. learned counsel for the respondent, submitted that the exemption
clause (cl 2 (c) which was stated on the reverse side of the BOL (P1)
must be brought to the notice of the respondent at the time of
entering into the contract. It is true that no evidence was led that
anyone had brought to the notice of the respodent regarding the
exemption clause in BOL (P1). However, the fact that PW4 (a director
of the respondent company) had signed on the reverse side of the
BOL which contained the exemption clause, it could be inferred that
PW4 must have been aware of the said clause. It is noted that in
preparing the BOL, standard format was used and it could be argued
that the respondent must have been familiar in sending goods by
sea, which involved high risks. On the facts and circumstances of
instant case, we are satisfied that the respondent had reasonable
sufficiency of notice regarding the exemption clause.



Case: Associated Concrete Prducts (M) Sdn. Bhd. v Tackoh Sdn. Bhd.
The plaintiff agreed to supply pipes to the defendant according to
certain specifications. However, no agreement was formalised and
the parties agreed to used the defendants orders and the plaintiffs
sales order confirming the defendants order. On the plaintiffs claim
for the sum due for the pipes, the defendant alleged that the plaintiff
had breached a fundamental condition by supplying inferior pipes
which were not of merchantable quality nor fit for their purpose. The
plaintiff relied on clause 9 of the terms and conditions of sale which
were printed on the back of the plaintiffs sales order. Clause 9
exempted the plaintiff form any warranty, guarantee or condition
other than those stated in the contract. The High Court held that since
the defendant did not sign on the plaintiffs sales order, it was not
bound by the printed terms and conditions.
Exceptions to the signature rule:
The signature rule will not apply if there was fraud or
misrepresentation as to the effect of the exclusion clause.

The plaintiff sent her wedding dress, which was trimmed with beads
and sequins, to the defendants laundry to be cleaned. The shop
assistant then gave her a receipt and asked the plaintiff to sign it. The
plaintiff inquired about the purpose of the document and the shop
assistant replied that it was about the exclusion of the defendant's
liability against certain risks, and in this case, for risk of damage to
beads and sequins. In fact, the document read that the defendant
would not be liable for all risks (not just limited to beads). The plaintiff
then signed the document. When the dress was returned, there was a
stain on it. The plaintiff brought an action against the defendant who
attempted to rely on the exclusion clause. The Court of Appeal held
that the defendant could not rely on the exclusion clause because
the shop assistant misrepresented the exact scope of the clause.
Case: Curtis v. Chemical Cleaning & Dyeing Co. Ltd.
Case: Mendelssohn v. Normand Ltd
The defendants could not rely on the exclusion clause as the oral
promise of the defendants attendant took precedence over the
printed conditions. In this case, the plaintiff frequently left his car at
the defendant's garage, and on each occasion, he would receive a
ticket on the back of which were printed conditions. One of the
conditions was that the garage proprietors would not accept any
responsibility for any loss sustained by the vehicle, its accessories or
contents. On the relevant occasion, he left his car in the defendant's
garage with some valuable luggage in the back. When he wanted to
lock it, the garage attendant insisted that the door need not be
locked and that he (the attendant) would lock the car as soon as he
had moved it. When the plaintiff returned, he found that the luggage
was missing and claimed against the defendant for damages. The
Court of Appeal found that although the printed conditions had been
incorporated into the contract of bailment in respect of the plaintiffs
car from a course of dealing between the plaintiff and the
defendants, the defendants could not rely on the printed condition
since it was repugnant to the express oral promise or representation.
C. Interpretation of Exclusion Clauses
After it has been determined that an exclusion clause has been
properly incorporated into the contract, the clause has to be
construed to determine if it covers the event which has occurred.

Four matters will be discussed in relation to the interpretation of
exclusion clause:
a) Contra proferentum rule;
b) Effect of negligence;
c) Rule of law;
d) Rule of construction.
e) Public policy
(a). Contra proferentum rule
An important rule often used by the courts is the contra
proferentum rule where an exclusion clause is construed strictly
against the party who drafted and is relying on the clause.

The contra rpoferentum rule applies if there is an ambiguity in the
meaning and scope of the words used in an exclusion clause. This
rule was explained in Malaysia National Insurance Sdn. Bhd. v.
Abdul Aziz bin Mohamed Daud by Raja Azlan Shah FJ as follows:



as between the assured and the insurers, the exception
clause in the proviso, on the ordinary principles of construction
has, as far as possible, to be read against the insurance
company, that is to say, if there is a doubt to its extent, and the
question were to arise as to the liability of the insurers, the
construction most favourable to the assured must be given to
him
Case: Malaysia National Insurance Sdn. Bhd v.
Abdul Aziz bin Mohamed Daud
In this case, the respondent was driving his fathers car when it was
involved in an accident. The insurance policy covering the car
stated that the appellant insurance company would not be liable
while the car was being driven by any person other than an
authorised driver. The respondent and his father were named as the
authorised drivers subject to the proviso that the person driving was
permitted in accordance with the licensing or other laws and
regulations to drive the motor vehicle or has been so permitted, and
was not disqualified by order of a court of law or by reason of any
enactment or regulation in that behalf from driving the motor vehicle.

At the time of the accident the respondent had an expired driving
license but he had not been disqualified by any court for holding or
obtaining a driving license. The appellant denied liability and relied
on the exclusion clause. Applying the contra proferentum rule, the
Federal Court held that the respondent fell within the category of
persons who had been so permitted to drive the motor vehicle, and
was not disqualified by order of a court of law or by reason of any
enactment or regulation in that behalf from driving the motor
vehicle.

The rule was also applied to an ambiguity in an exclusion clause in
Syarikat Uniweld Trading v. The Asia Insurance Co. Ltd.



Case: Syarikat Uniweld Trading v. The Asia Insurance Co. Ltd
In this case, the appellant ran a workshop repairing and welding
cars. A fire broke out during an accidental leakage of a gas pipe
and destroyed a car then under repair. The appellant compensated
the owner of the car and sought indemnity on the policy it took form
the respondent. The policy expressly provided that the respondent
would indemnify the appellant for all sums, which the appellant
should become legally liable to pay in respect of accidental
damage to properties belonging to third parties, caused by the fault
and negligence of the appellant. However, the respondent relied on
an exclusion clause which excluded liability in respect of injury
or damage caused by or in connection or arising from fire . The
High Court applied the contra proferentum rule in favor of the
appellant in view of the ambiguity between the indemnity clause
and the exclusion clause. In this case the indemnity clause provided
widely for indemnification to the appellant for all sums which the
appellant may become liable to pay to third parties.

The rule was also applied to an ambiguity in an exclusion clause in
Syarikat Uniweld Trading v. The Asia Insurance Co. Ltd.



(b). Effect of negligence
Where an exclusion clause seeks to exempt liability for loss caused
by a partys own negligence, clear words must be used to show
the intention to exclude negligence since the courts regards it as
inherently improbably that one party to a contract should intend
to absolve the other party from the consequences of his own
negligence.

In Canada Steamship Lines Ld v. The King, the Privy Council laid
out three rules governing the exclusion of liability for negligence.
First, a clause purporting to exclude liability for negligence must
contain express language to that effect. Second, if there is no
express reference to negligence, the clause will cover liability for
negligence if that is the true construction of the clause: however,
the contra proferentum rule applies. Third, if the words used are
wide enough to cover liability for negligence, but there is some
other basis of liability to which the clause can apply, the clause
should generally be applied to the other basis.
A person may be liable based on a contractual duty or based on
a tortuous duty arising form negligence or based on both. Where
a party is liable irrespective of negligence, general words may
not be sufficient. In such a case, a general exclusion clause will
only operate on the strict contractual duty, leaving the tortuous
liability based on fault intact.
A plaintiff who had hired a bicycle from the defendant was injured
when the saddle tipped and threw the plaintiff to the ground. The
plaintiff sued, alternatively, for breach of contract and in tort for
negligence. In this case, damages could be claimed on either the
ground of negligence or for breach of a contractual duty to supply a
machine that was reasonably fit for the purpose required. The
defendant relied on an exclusion clause to the effect that nothing in
this agreement shall render the owners liable for any personal injuries
to the riders of the machine hired. The Court of Appeal held that the
exclusion clause only protected the defendant against the liability in
contract and not against the breach of a duty of care in tort.
Case: John Warwick & Co. Ltd
Nevertheless, where a party is only liable for negligence, a
general exclusion clause will more readily exclude the
defendant's liability; otherwise, the clause would be redundant.
The plaintiff sent some handkerchiefs to the defendant's laundry
which we subsequently lost. The defendant relied on a clause which
limited its liability for a lost or damaged article to twenty times
the charges made for the laundering. The Court of Appeal held that
the only duty in relation to the safe custody of the handkerchiefs was
that the defendant agreed to take reasonable care of it and that it
will not be negligent. As the handkerchiefs were lost, the only ground
that the defendant could be held liable was that of negligence. Thus,
the exclusion clause which limited liability for lost articles must have
been intended to apply to liability as a result of negligence,
otherwise, the clause would be redundant.
Case: Alderslade v. Hendon Laundry Ltd.
The Malaysian position
Case: Premier Hotel Sdn. Bhd. v. Tang Ling Seng
In this case, the respondent stayed at the hotel owned by the
appellant. One afternoon he left his room key with the receptionist
who gave it to an unknown person. Upon the respondent's claim
from the loss of his personal belongings, the appellant relied on an
exclusion clause which states that the hotel did not assume
responsibility for valuables or money lost from the room. The High
Court held that these general words would not ordinarily protect a
party from liability for negligence. To be effective, the words must be
sufficiently clear, either by referring to negligence or by using some
other expression such as however caused.
Case: Chin Hooi Nan v. Comprehensive Auto Restoration Service
Sdn. Bhd.
The appellant left his car to be waxed and polished by the
respondents and was given a receipt to claim for his car. At the back
of the receipt, a clause provided as follows: the company is not
liable for any loss or damage whatsoever of or to the vehicle, its
accessories or contents. Vehicles and goods are at owners risk. The
car was damaged while being driven by an employee of the second
respondent. The Magistrate held that the exclusion clause
exonerated the respondents. On appeal, the High Court allowed the
appellants appeal and held that an exclusion, however wide and
general, does not exonerate the respondents form the burden of
proving that the damage caused to the car was not due to their
negligence and misconduct.
However, the Malaysian court have not consistently applied
these rules of construction. In Malaysian Airline System Bhd. v.
Malini Nathan & Anor which was discussed earlier, the breach in
question was the failure of the appellant to carry the first
respondent on a particular flight although the first respondent
held a confirmed ticket for the said flight. The Court held that the
appellant was protected by condition No. 9 which stated:

Carrier undertakes to use its best efforts to carry to passenger and
baggage with reasonable dispatch. Times shown in the timetables or
elsewhere are not guaranteed and form no part of this contract.
Carrier may without notice substitute alternate carriers or aircraft, and
may alter or omit stopping places shown on the ticket in case of
necessity. Schedules are subject to change without notice. Carrier
assumes no responsibility for making connections.
A careful perusal of the above condition shows that the condition
referred only to times and schedules where delays might be
anticipated but do not cover the situation as in the present case,
where the flight was available at the stated time but due to other
reasons the first respondent was refused a set.

It would seems that the High Court had construed condition No.9
more liberally than can be supported by the provision itself. The
first respondent had also alleged that the appellant fed the name
Nathan Malini into the computer and failed to make out that
Malini Nathan and Nathan Malini was the same person.

The Court held that even if the first respondent had given her
name correctly and the appellants representative had failed to
manipulate the computer accordingly, the appellant would still
be absolved from liability for negligence in view of condition No.
9. It is noted however that the words in condition No.9 were far
from clear to show any intention of the parties that the condition
should cover the event that had occurred and least so for the
exclusion of negligence.
(c). Rule of law
It was formerly thought that if a fundamental breach occurred,
an exclusion clause, however widely drafted, cannot be relied
upon. This view is derived from the statement of Lord Denning to
the effect that a fundamental breach disentitles a party from
relying on an exclusion clause.

This is rationalized on the ground that a party should not be
entitled to rely on an exclusion clause if he has committed a
breach which goes to the core and the root of the contract. The
doctrine of fundamental breach, although devised by the courts
to protect the weaker party, has generated much confusion.

It is uncertain when a breach is considered so fundamental as to
deprive the use of an exclusion clause. There has also been much
academic debate in earlier years on fundamental breach and
breach of a fundamental term and whether they are two
distinct or synonymous concenpt?
Despite these difficulties, the doctrine as a rule of law was applied
untul the House of Lords in Suisse Atlantique Societe d Armement
Maritime SA v. NV Rotterdamsche Kolen Centrale disapproved
statement concerning the existence of this rule.

The House of Lords decided unanimously that there was no
substantive doctrine of fundamental breach and that the
question of whether an exclusion clause was applicable when
there was a fundamental breach was one of the true
construction of the contract.

Nevertheless, the Law Lords views were only obiter as the
doctrine applied only to exclusion clauses and the demurrage
clause in question did not fall within that category. The doctrine
continued to be used until its final demise in Photo Production Ltd
v. Securicor Transport Ltd.

In Malaysia, the doctrine of fundamental breach was considered
in Malayan Thread Co. v. Oyama Shipping Line Ltd & Anor.
The Malaysian position
Case: Malayan Thread CO. v. Oyama Shipping Line Ltd & Anor
In this case, the plaintiff was the consignee of cotton sewing threads
which were shipped on board a ship belonging to the first defendant.
After the goods were unloaded at the ships side, they were stolen
by person unknown. The first defendant relied on clauses 2 and 15 of
the bill of lading which provided as follows:

Clause 2: The shipping company shall not be responsible for any
consequences arising or resulting from, inter alia, loss by robberies,
thefts or pilferages, by land or water whether by persons in the
employment or service of the company or otherwise.

Clause 15: In any case, the companys liability shall cease as soon
as the goods leave the ships deck and/or tackle.
After considering the above clauses, Raja Azlan Shah stated:

In my view the correct approach is to consider whether on a
proper construction of the exemption clauses, the act which caused
the short delivery is covered by them. If so, then to consider whether
such act is itself a breach of a fundamental term .

After construing the exclusion clauses, the High Court held that the
clauses were wide and exonerated the first defendant from liability.

It is interesting that a constructionist approach was adopted as to
whether the exclusion clauses covered the short delivery of the
goods. However, this was followed with an examination as to
whether the act which caused the short delivery in the present case
was a breach of a fundamental term or a fundamental breach
interchangeably without any apparent distinction. This decision also
offers little guidance as to whether the rule of law or the rule of
construction applies in Malaysia.

(d). Rule of construction
In this case, Securicor agreed to provide a patrol service to Photo
Productions premises at a charge that worked out to be 26p per visit.
Condition 1 of the agreement provided that under no
circumstances should the Company be responsible for any injurious
act or default by any employee of the Company unless such act or
default could have been foreseen and avoided by the exercise of
due diligence on the part of the Company as his employer .

Condition 2 provided for limitation of liability should any liability arise
notwithstanding the foregoing provision. While on an inspection of
the premises, one of Securicors employee deliberately stated a fire
which resulted in a loss totaling 615,000. The trial judge allowed
Securicor to rely on condition 1 but this decision was reversed by the
Court of Appeal which held that by reason of their fundamental
breach, Securicor had lost the protection of its exclusion clause.
Case: Photo Production Ltd v Securicor Transport Ltd
On appeal the House of Lords unanimously reaffirmed their views in
Suisse Atlantique case in denying the existence of any substantive
doctrine of fundamental breach and holding that it was a question of
construction of the clause whether the clause covered the events
that had occurred. If effectively reversed the decision of the Court of
Appeal. Having considered that this was a commercial contract
negotiated between businessmen capable of looking after their
own interest and deciding how risks inherent in performance
could be most economically borne the House of Lords held that
condition 1 applied.

Lord Wilberforce added that the words of the exclusion clause were
clear and covered deliberate acts as well as negligence, while Lord
Reid and Lord Upjohn held that there was no such rule of law by
which an exclusion clause could be deprived of effect.



(c). Public policy
In Malaysia, although there are few authorities in support of its
foundation, the public policy ground as envisaged in s24(e) of the
Contracts Act 1950 has yet being made use to strike down
exemption clauses which are grossly unfair to consumers.

In Polygram Records Sdn Bhd v The Search & Anor, Visu Sinnadurai J,
stated:

In Malaysia, ... there is some support for the view that public policy
may, in some exceptional cases, demand that certain contracts
which are grossly unfair to one of the parties to a contract ought to
be set aside on the grounds of inequality of bargaining power under
s 24(e) of the Act.

Section 24(e) of the Contracts Act 1950 states that the consideration
or object of an agreement is lawful, unless:

the court regards it as immoral, or opposed to public policy.
There is no definition in the Act itself, nor in other legislations, as
to what constitutes public policy. In the old case of Egerton v
Brownlow (Earl), Lord Truro defined public policy as 'that
principle of the law which holds that no subject can lawfully do
that which has a tendency to be injurious to the public, or
against the public good, which may be termed, as it sometimes
has been, the policy of the law, or public policy in relation to the
administration of the law'.

If one is to regard that something which has a tendency to be
injurious to the public is against public policy, it should not be
difficult to see that exemption clauses are to be considered
contrary to public policy. For, when one excludes liability to the
detriment of all of the other contracting parties dealing with
him, that is something against the public good.



The suggestion that public policy be used to avoid exemption
clauses is not new, and in the United States and India, this ground
has been used by the courts in striking down exemption clauses. In
Hennigsen v Bloomfield Motors, the leading case in the United
States, the court held that an exemption clause in a contract of
sale of a car to be against public policy. The court held as follows:

Courts keep in mind the principle that the best interests of society
demand that persons should not be unnecessarily restricted in the
freedom to contract. But they do not hesitate to declare void as
against public policy contractual provisions which clearly tend to
the injury of the public in some way ...

In India, in the case of Lily White v Muniswami, the court held that
a provision in a contract limiting liability of a dry cleaner for any
negligence or loss caused to his customers' clothes was
unenforceable as being against public policy, and said:

... the court will not enforce such a term which is not in the interest
of the public and which is not in accordance with public policy.

Legislative control in Malaysia
The Consumer Protection Act 1999
Section 24C. General procedural unfairness.

1) A contract or a term of a contract is procedurally unfair if it has
resulted in an unjust advantage to the supplier or unjust
disadvantage to the consumer on account of the conduct of the
supplier or the manner in which or circumstances under which the
contract or the term of the contract has been entered into or has
been arrived at by the consumer and supplier.
2) For the purposes of this section, a court or the Tribunal may take
into account the following circumstances:
a) the knowledge and understanding of the consumer in relation to
the meaning of the terms of the contract or their effect;
b) the bargaining strength of the parties to the contract relative to
each other;
c) reasonable standards of fair dealing;

d) whether or not, prior to or at the time of entering into the contract,
the terms of the contract were subject to negotiation or were part
of a standard form contract;
e) whether or not it was reasonably practicable for the consumer to
negotiate for the alteration of the contract or a term of the contract
or to reject the contract or a term of the contract;
f) whether expressions contained in the contract are in fine print or are
difficult to read or understand;
g) whether or not, even if the consumer had the competency to enter
into the contract based on his or her capacity and soundness of
mind, the consumer
i. was not reasonably able to protect his or her own interests or of
those whom he or she represented at the time the contract was
entered; or
ii. suffered serious disadvantages in relation to other parties because
the consumer was unable to appreciate adequately the contract
or a term of the contract or;

iii. its implications by reason of age, sickness, or physical, mental,
educational or linguistic disability, or emotional distress or
ignorance of business affairs;
h) whether or not independent legal or other expert advice was
obtained by the consumer who entered into the contract;
i) the extent, if any, to which the provisions of the contract or a term of
the contract or its legal or practical effect was accurately explained
by any person to the consumer who entered into the contract;
j) the conduct of the parties who entered into the contract in relation
to similar contracts or courses of dealing between them; and
k) whether the consumer relied on the skill, care or advice of the
supplier or a person connected with the supplier in entering into the
contract.
Section 24D. General substantive unfairness.

1) A contract or a term of a contract is substantively unfair if the
contract or the term of the contract
a) is in itself harsh;
b) is oppressive;
c) is unconscionable;
d) excludes or restricts liability for negligence; or
e) excludes or restricts liability for breach of express or implied terms of
the contract without adequate justification.

2) For the purposes of this section, a court or the Tribunal may take into
account the following circumstances:
a) whether or not the contract or a term of the contract imposes
conditions
i. which are unreasonably difficult to comply with; or
ii. which are not reasonably necessary for the protection of the
legitimate interests of the supplier who is a party to the contract;

b) whether the contract is oral or wholly or partly in writing;
c) whether the contract is in standard form;
d) whether the contract or a term of the contract is contrary to
reasonable standards of fair dealing;
e) whether the contract or a term of the contract has resulted in a
substantially unequal exchange of monetary values or in a
substantive imbalance between the parties;
f) whether the benefits to be received by the consumer who entered
into the contract are manifestly disproportionate or inappropriate, to
his or her circumstances;
g) whether the consumer who entered into the contract was in a
fiduciary relationship with the supplier; and
h) whether the contract or a term of the contract
i. requires manifestly excessive security for the performance of
contractual obligations;
ii. imposes penalties which are disproportionate to the consequences
of a breach of contract;

iii. denies or penalizes the early repayment of debts;
iv. entitles the supplier to terminate the contract unilaterally without
good reason or without paying reasonable compensation; or
v. entitles the supplier to modify the terms of the contract unilaterally.
Section 24F. Power to raise an issue of unfairness.

A court or the Tribunal may, in proceedings before it, raise an issue
as to whether a contract or its terms are unfair under sections 24C
and 24D, even if none of the parties has raised the issue in its
pleadings.
Section 24E. Burden of proof.

If a contract or a term of a contract excludes or restricts liability, or
excludes rights, duties and liabilities, it is for the supplier relying on such
exclusion or restriction to prove that it is not without adequate
justification.
Section 24G. Effect of unfair terms.

1) In this Part, where a court or the Tribunal comes to the
conclusion, having regard to sections 24C and 24D that a
contract or a term of a contract is either procedurally or
substantively unfair or both, the court or the Tribunal may
declare the contract or the term of the contract as
unenforceable or void and the court may grant judgment, and
the Tribunal may make an award as provided for under section
112 of this Act.
2) A court or the Tribunal may determine if any of the terms of the
contract which are either procedurally or substantially unfair, or
both, are severable, and whether and to what extent and in
what manner, the remaining terms of the contract can be
enforced or given effect to.
Further readings:
Naemah Amin, Protecting Consumers Against Unfair Contract
Terms In Malaysia: The Consumer Protection (Amendment) Act
2010 [2013] 1 MLJ lxxxix.


For examples of unfair terms see (page 8-9):
Pretam Singh Darshan Singh Legislative Intervention in Protecting
Consumers From Unfair Contract Terms [2012] 5 MLJ cxxii.

Others
Cheong May Fong, A Malaysian Doctrine of Inequality of
Bargaining Power and Unconscionability After Saad Marwi?
[2005] 4 MLJ i.

Artin Vaqari Contracting Out and Public Policy Ground Under
S24(E) of the Contracts Act 1950 [1998] 2 MLJ ix.


THANK YOU FOR YOUR ATTENTION