BANK MAY NOT USE EXEMPTION CLAUSE TO ESCAPE LIABILITY
February
24, 2017
PUTRAJAYA: The Court
of Appeal today ruled that a bank is liable for breach of contract and liable
in tort for refusal to make a housing loan progress payment to a developer.
A three-man bench
chaired by Rohana Yusuf said CIMB Bank Bhd could not rely on an exemption
clause in the loan agreement with a British couple.
“The exclusion of a
liability clause in the agreement cannot be sustained and cannot absolve the
bank from liability in contract or tort,” she said of the unanimous decision.
Justices Vernon Ong
Lam Kiat and Hasnah Mohammed Hashim were the other members of the bench.
As for the drawdown
expiry date issue, Rohana said it was clear that the bank had waived its rights
by conduct of making further disbursements after the expiry date had passed.
“Therefore, they
cannot now rely on this clause as an excuse for non-payment,” she said in
allowing the appeal from Anthony Lawrence Bourke and Alison Deborah Essex
Bourke, who had sued CIMB.
Rohana said the bank
was liable for non-payment of the sum due to the developer.
The Bourkes, now
living in the United Kingdom, bought a piece of property on Jalan Sultan Ismail
in Kuala Lumpur from developer, Crest Worldwide Resources Sdn Bhd in 2008.
To finance the
purchase, they took a loan from the bank the same year.
It was a term loan
agreement where the couple would service the monthly instalments and the bank
would essentially pay to the developer progress payments whenever they were
due.
However, CIMB failed
to make payment on one of the invoices and as a result, the developer
terminated the sale and purchase agreement with the couple.
The couple lost their
property because of CIMB’s non-payment of the sum due to the developer.
In 2015, the Bourkes
sued the bank for negligence and breach of contract.
CIMB’s defence was
heavily premised on the bank’s standard exclusion liability clause which
protects the bank from any claim being made by the borrower.
It also relied on
another clause in the loan agreement which stated the bank need not have to
disburse the loan if full drawdown was not made within a certain period of
time.
Last year, the High
Court dismissed the suit on the grounds that the exclusion liability clause
protected CIMB from being sued for damages.
The trial court also
found that because the drawdown expiry deadline had lapsed when the invoice for
the sum due from the developer was received, CIMB was not obliged to make
disbursements on it.
Lawyer Ong Yu Jian
submitted to the bench that the exclusion liability clause which protected the
bank was against public policy.
“The clause is also
in contravention of Section 29 of the Contracts Act 1950 which is to protect
public interest.”
Ong, who was assisted
by Jowe Ninoy Almeida, told the bench it was time Malaysian common law
recognised the patent unfairness of such clauses.
This, he said, was
for the protection of the public who had no choice but to agree to such clauses
when dealing with banks.
On the drawdown
expiry date issue, he said despite the clause, CIMB had continued the
relationship with the plaintiffs as if it had waived its rights under this
clause.
“It continued
disbursing payments to the developer even after the deadline had lapsed.
Therefore, to now claim protection from this clause when it had benefited from
waiving it earlier on should not be allowed.”
Counsel Wong Hock Mun
and Sharifah Alliana Idid represented the bank.
Ong said the ruling
today was an important one because previously, banks were protected from
liability, damages and claims in Malaysia by such liability exclusion clauses.
“Previously, Section
29 of the Contracts Act and public policy consideration did not seem to be
taken into account by our appellate courts when construing the applicability of
liability exclusion clauses,” he told FMT.
He said the decision
showed that a bank might still be successfully sued for acts of negligence
despite the presence of such clauses.
“The decision of the
Court of Appeal is welcome as it seeks to balance the bargaining position
between a bank and a customer.
“I believe this
decision will improve the standards of the banking industry as it will make
them more careful and accountable to their customers in their dealings.”
Ong said following
the Court of Appeal ruling, a High Court registrar would asses the damages due
to his clients.
Source: NST24 FEB 2017
BANK MAY NOT USE EXEMPTION CLAUSE TO ESCAPE LIABILITY
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9:53:00 PTG
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