Bank’s Exemption Clause: The aftermath of CIMB Bank Bhd v Anthony Lawrence Bourke & Anor

The federal court recently in the case of CIMB Bank Bhd v Anthony Lawrence Bourke & Anor has attempted to balance the bargaining power between the banking industry and their customers when they enter into a banking agreement. This comes at a time where the banking industry readily relies on what we know as a bank exemption clause or bank exclusion clause to absolve themselves from any liabilities and proceedings against them in the event they breach the terms of the banking agreement.

So what was the outcome of the case?

What happened in CIMB Bank Bhd v Anthony Lawrence Bourke & Anor [1]:

A married couple (‘the couple’) entered into a loan agreement with CIMB Bank (‘the Bank’) to finance the purchase of a property that was still under construction. Under the loan agreement, the Bank was supposed to make progressive payment to the developer of the property when the payment became due. An invoice was issued to the Bank requesting for such payment. However, the Bank needs to first conduct a site visit before the payment is made to the developer.

By fault of no one but their own, the Bank failed to conduct the site visit nor did they request an extension of time to make the payment. A year after the due date for one of the payment, the developer terminated the sales and purchase agreement (‘SPA’) with the couple.

The couple then proceeded to file a claim against the Bank, on the premise that the Bank has been negligent and breached the terms of the loan agreement. The Bank relied on clause 12 of the agreement[2] i.e. the exemption clause to absolve themselves from any liabilities even in the event they have been negligent and breached the terms of the loan agreement.

The high court dismissed the couple’s claim. However, it was subsequently overturned in the court of appeal and the federal court upheld the decision of the court of appeal.

The power of exemption clause:

The central theme of the case before the federal court i.e. whether an exemption clause absolutely protects the bank of liability for breaching and/ or non-performance of the loan agreement. To this end, both parties attempted to interpret section 29 of the Contracts Act 1950 (‘CA’)[3] to aid them in their arguments.

The couple’s argument is that the exemption clause cannot stand in the eyes of section 29 as it stifles the couple’s attempt to initiate any form of proceedings against the Bank. They further noted that any form of legal proceedings against the Bank will be rendered a mere exercise as the Bank is already absolved of their liabilities i.e. no damages can be claimed against the Bank at the outset of the case.

On the flip side of the coin, the Bank argued that the exemption clause does not stifle any legal proceedings against them as the couple can still bring an action against the Bank for a breach and/ or non-performance of the loan agreement. The Bank further pointed out that the exemption clause merely excludes the couple from claiming damages arising from such a breach and or non-performance against the Bank.

The current stand:

While the court noted that they will not interfere/ slow to interfere with an agreement which was mutually agreed upon by both parties[4], the court however favoured the couple in the current case as the clause contradicts the provision of section 29. The court, amongst others, pointed out the absurdity of allowing the exemption clause to co-exist with section 29, as the exemption/ exclusion clause has placed an absolute restriction of the couple’s rights and remedy to such rights. The court further noted that such rights and remedies are intertwined and cannot stand alone/ separately. Therefore, a blanket restriction cannot stand in the eyes of the law.

The conclusion:

This comes as good news for loan borrowers as it now offers a little more protection to them in the event things go south as seen in the above case. However, it must be noted that not all exemption/ exclusion clauses are automatically void. As noted in the case, the court will only interfere if the parties rights and remedies to such rights are restricted completely by such clause.

1. [2019] 2 CLJ
2. Clause 12 reads as follows: “Notwithstanding anything to the contrary, in no event will the measure of damages payable by the Bank to the Borrower for any loss or damage incurred by the Borrower include, nor will the Bank be liable for, any amounts for loss of income or profit or savings, or any indirect, incidental consequential exemplary punitive or special damages of the Borrower, even if the Bank had been advised of the possibility of such loss or damages in advance, and all such loss and damages are expressly disclaimed.”
3. Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.
4. New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 CLJ 44.

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