Setting out a comprehensive legal framework to govern exemption clauses in Malaysia

Abstract

An exclusion clause, also known as an exemption clause, is a term of contract which endeavours either to modify principal obligation(s) arising under a contract of a particular type, or limit or exclude liability of a party which would otherwise result in a breach by that party of his primary obligations. Consequently, rights of the other party to the contract namely consumers/customers/buyers are in some way modified, limited or excluded under the contract without them being cognizant of the exclusion clause in some cases or its possible effect. This chapter will first examine validity and legal effect of exclusion clauses under the Contracts Act 1950. Whilst doing so, the chapter analyses cases decided by Malaysian courts since references were made to common law to determine validity and effect of exclusion clauses. In some cases, exclusion clauses were held to be valid thereby favouring business persons who relied on exclusion clauses to the detriment of consumers/customers/buyers. The chapter will show whether clear principles of law were laid down to test validity of exclusion clauses. The chapter then proceeds to examine other piece-meal legislations which govern exclusion clauses, namely, the Sale of Goods Act 1957, Hire Purchase Act 1967 and Consumer Protection Act 1999. Thus, this chapter will critically examine the extent to which the Sale of Goods Act 1957, Hire Purchase Act 1967 and Consumer Protection Act 1999 are effective, in governing validity and effect of exclusion clauses in Malaysia. A comparative study of the legal position in the United Kingdom and Australia will also be carried out to determine the approach taken in those countries. This is because in England, the Parliament realised the ineffectiveness of common law in laying down sound principles of law to determine validity of exclusion clauses. Considering there is no level playing field between business persons and consumers/customers/buyers, the Parliament specifically enacted the Unfair Contract Terms Act 1977. In subsequent years, in order to further strengthen the legal framework to regulate exclusion clauses, the Parliament enacted the Consumer Rights Act 2015. Similarly in Australia, the legislature realized the ineffectiveness of the common law in regulating exclusion clauses and enacted Trade Practices Act 1975 (Cth). In later years, the legislature enacted the Competition and Consumer Act 2010 (Australian Consumer Law) to govern exclusion clauses. Finally, this chapter will discuss necessary reforms that should be made to the Contracts Act 1950, Sale of Goods Act 1957, Hire-Purchase Act 1967 and Consumer Protection Act 1999 in order to effectively regulate exclusion clauses in view of current approaches in the United Kingdom and Australia. This chapter also proposes, alternatively, a new Act to regulate exclusion clauses as a way forward in governing exclusion clauses. Ultimately, the legal regime governing exclusion clauses must be effective in ensuring business persons do not take advantage of customers/buyers/consumers. Most importantly, the legal framework governing exclusion clauses in Malaysia must be in tandem with the legal position in developed countries in ensuring equity and fairness between contracting parties.