Understanding Remedies &

Penalties in a Commercial
Contract
By

LEE SWEE SENG

LLB(Hons) , LLM , MBA

LEE SWEE SENG & CO
MANAGING PARTNER
ADVOCATES & SOLICITORS
CERTIFIED MEDIATOR
PATENT AGENT
NOTARY PUBLIC

Copyright
www.leesweeseng.com
sweeseng@tm.net.my

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 Defendants 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 compensatoryIt 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 Defendants 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 Defendants breach and the
Plaintiffs 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
shown on the balance of probabilities.

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

The Court
[1915]
ACmust
79 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

compared
[1915]
ACwith
79the 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 partys 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
clauseposition is governed by

The Malaysian
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
whetherclause
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 defendants
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

The374
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
The374
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

Therefore,
CLJ
374 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]

The 250
defendant appealed against the decision
CLJ
of the Senior Assistant Registrar in favour of
the plaintiffs 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
The250
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 entered into mutually between
agreement
the plaintiffs and the defendant and thus,
under the law, binding and enforceable
against both the parties.
Therefore, the Court dismissed the
defendants 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 partys 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 defendants 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 insurance
CLJ 230policy, the appellant

By a fire
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.

Airasias 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
The Warsaw Convention is an
Air
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
The appellant agreed to have his car
[1995] 2 MLJ 100
waxed and polished by the respondents.
He left his car at the respondents
premises and was given a receipt with
exemption clause at the back of it.
The appellants 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

The High
Court100
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

Banks

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
andwhether
officers
Any provision,
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
Gopal Sri Ram stated that:
CHONG [2001] 2 CLJ 344
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

(Hons), CLP

from Sum Wai Hoe, LLB

 END