Transcript Understanding Remedies & Penalties in a Commercial Contract

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
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[email protected]
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
Remedies available in event of
Breach
Damages
Specific performance
Injunction
Liquidated Agreed Damages
Penalty Damages
Forfeiture of Deposit
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
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 nonperformance of the subsidiary term.
 Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1996] 3
MLJ 675
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:
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.”
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.
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
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.”
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.
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.
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.
Types of Damages
Nominal Damages
Pecuniary and Non-pecuniary damages
Liquidated and Unliquidated damages
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.”
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.
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.”
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
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.
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.
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.
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.
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.
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
Remoteness of damages in
Malaysia
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
Remoteness of damages in
Malaysia
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.
Remoteness of damages in
Malaysia
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
Mitigation of Damages
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 nonperformance of the contract must be taken
into account.
Principles of mitigating
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.
Timing of Assessment of Damages
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.
Liquidated Agreed Damages (LAD)
and Penalty Clause - UK position
Liquidated Damages - genuine preestimate 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
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
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.
Effects of penalty clause to
contracts
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.
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,
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.
Principles under the Malaysian law
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
Principles under the Malaysian law
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.
Principles under the Malaysian law
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
Proving Damages
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
Proving Damages
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
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?
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.
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.
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.
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.
Sakinas Sdn Bhd v Siew Yik Hau
[2002] 3 CLJ 275
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.
Sakinas Sdn Bhd v Siew Yik Hau
[2002] 3 CLJ 275
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.
Sakinas Sdn Bhd v Siew Yik Hau
[2002] 3 CLJ 275
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.
Sakinas Sdn Bhd v Siew Yik Hau
[2002] 3 CLJ 275
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 housebuyers and developers and the method in
cl.22 is fair method and should be
determined by a simple standard method.
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.
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
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.
Forfeiture of Deposit
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.
Forfeiture of Deposit
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
Can S65 and S75 of the Contracts
Act 1950 be invoked?
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.
Exclusion and limiting clause
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.
Exclusion clause under the
common law
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.
Exclusion clause under the
common law
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.
Development in the common law
position
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.
Development in the common law
position
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
Development in the common law
position
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
Unfair Contract Terms Act 1977
(UCTA), UK
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.”
Limiting liability clause
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
St. Albans District Council v ICL
[1996] 4 All ER 481
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.
St. Albans District Council v ICL
[1996] 4 All ER 481
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.
St. Albans District Council v ICL
[1996] 4 All ER 481
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.
Limiting Damages clause : The
Malaysian prospective
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.
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.
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.
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
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.
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.”
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.
Exemption clause on Airlines Malaysian Airlines (MAS)
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
General conditions of carriage MAS
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.”
General conditions of carriage MAS
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
General conditions of carriage MAS
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
General conditions of carriage MAS
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.”
Airasia’s terms and conditions to
carriage
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.”
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
Warsaw Convention
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
Warsaw Convention
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.
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.
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
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.
Exclusion clause in banks
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
Exclusion clause in banks
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.
Exemption clause in Courier
Company (CC)
 CC's Liability
CC 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),
Exemption clause in Courier
Company
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.
Exemption clause in Courier
Company
 Time Limits for Claims
All 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.
Exemption clause in Courier
Company
 Delayed Shipments
CC 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.
Limits of liability in Computer
Contracts
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
Limits of liability in Computer
Contracts
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.
Limitation of liability for auditors
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
Limitation of liability for auditors
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.
Limitation of liability for auditors
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.
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.
Restriction of liability by solicitors in
UK
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
Restriction of liability by solicitors in
UK
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
Liability of Barrister
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
Liability of Barrister
amended by S4 of the Courts and Legal
Services Act 1990 to apply to any legal or
legal representatives which includes
barrister.
Arthur J.S Hall and Co. v. Simons
[2000] UKHL 38
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.
Arthur J.S Hall and Co. v. Simons
[2000] UKHL 38
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.
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.
LIM 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.
LIM 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.
Conclusion
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.
Contribution from Sum Wai Hoe, LLB
(Hons), CLP
END