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[2010] 5 CLJ
v.
AZHAR OSMAN & OTHER CASES
HIGH COURT MALAYA, KUALA LUMPUR
ROHANA YUSUF J
[ORIGINATING/WRIT OF SUMMONS NOS:
D4-22A-395-2005, D4-22A-399-2005,
D4-22A-195-2006 & D4-22A-263-2006]
28 JANUARY 2010
BANKING: Islamic banking - Loan facility - Bai Bithaman Ajil Determination of quantum of plaintiffs claim - Whether bank had legal
right to claim for full sale price as stipulated in Property Sale Agreement Doctrine of stare decisis - Whether there was binding precedent - National
Land Code, ss. 257(1), 266(1)
There were two sets of appeal that went before the Court of Appeal
relating to Bai Bithaman Ajil (BBA) contracts in Islamic banking.
They were heard together and decided by the Court of Appeal that
a BBA contract was valid and enforceable. The cases were sent to
this court for determination of the quantum of plaintiffs claim in
the writs of summons, as well as the amount due under the
originating summons. The proceedings before this court involved
two writs of summons registered as D4-22A-263-2006 and D4-22A195-2006 and two originating summons registered as D4-22A-3952005 and D4-22A-399-2005 respectively. The plaintiff in each of
these four cases was Bank Islam Malaysia Berhad (BIMB). Counsel
for BIMB contended that in a BBA contract, the Bank had a legal
right to claim for the full sale price as stipulated in the Property
Sale Agreement (PSA). Accordingly, he argued that in an
application pursuant to an originating summons, the court ought to
grant an order for sale based likewise, on the full sale price,
irrespective of a premature termination. The bases of the counsels
arguments were (i) that this court should honour and enforce the
clear written terms of the contract and should not interfere with the
intention of parties by imputing any other term. Since the parties
had agreed as to the amount of sale price as stipulated in the PSA,
the defendant was under a legal obligation to pay the full sale price,
irrespective of when a breach occurred; (ii) by virtue of the doctrine
of stare decisis, this court was bound by the decision of the Court
of Appeal in Lim Kok Hoe which upheld and acknowledged the
obligation to pay the full sale price under the PSA.
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Held:
(1) In cases of BBA contracts despite stipulating the full sale price
as being payable, the Bank grants ibrar or rebate on a
termination due to breach or for prepayment. The granting of
ibrar by BIMB is in line with the practice of other Islamic
banks. That being the case in an order for sale application the
sum stipulated under s. 257(1)(c) National Land Code shall be
the amount payable in the event that a customer intends to
tender payment under s. 266(1) National Land Code. Under
this section, if a chargor tenders payment to court of the
amount due and payable before the conclusion of the auction,
the Order for Sale ceased to have effect. The approach of the
Islamic banks that deduct unearned profit as ibrar is consistent
with the requirement of s. 266(1) NLC while at the same time
facilitated cases of prepayment. (paras 9 & 10)
(2) Whilst the Court of Appeal in Lim Kok Hoe held that a BBA
contract in a way differed from conventional banking because it
was a sale transaction, it could not however be regarded as a
sale transaction simpliciter. The BBA contract is secured by a
charge and concession as ibrar is given as a matter of practice
to all premature termination. Despite the written term of the
agreement, the bank in reality does not enforce payment of the
full sale price upon a premature termination. It always grants
rebate or ibrar based on unearned profit. In the decisions of
Affin Bank Bhd v. Zulkifli Abdullah, Malayan Banking Berhad v
Marilyn Ho Siok Lin and Malayan Banking Bhd v. Yakup Oje &
Anor, when a BBA contract was prematurely terminated upon
default by the borrower, the court did not allow the bank to
enforce the payment of the full sale price in a premature
termination. The court does not enforce payment of the full
sale purchase price but intervene on equitable grounds, albeit
based on different approaches. (paras 13, 14 & 18)
(3) The purpose of this proceeding was to deal with what would be
considered fair and equitable in the circumstances and to lay
emphasis on what would be the better and appropriate approach
in dealing with the plaintiffs quantum with particular reference
to the manner of its determination while being mindful of the
parties position. In doing so, the bank should not be allowed
to enrich itself with an amount which was not due while at the
same time taking cognizance of the customers right to redeem
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JUDGMENT
Rohana Yusuf J:
D
Introduction
[1] There are two sets of appeal that went before the Court of
Appeal relating to Bai Bithaman Ajil (BBA) contracts in Islamic
banking. The first set of appeal involves 11 Writs of Summons and
one originating summons. They were heard together and decided by
the Court of Appeal on 26 August 2009 and reported in Bank Islam
Malaysia Bhd v. Lim Kok Hoe & Anor and Other Appeals [2009]
6 CLJ 22. The Court of Appeal held that a BBA contract is valid
and enforceable and reversed an earlier decision of the High Court
in Arab-Malaysian Finance Bhd v. Taman Ihsan Jaya Sdn Bhd & Ors;
Koperasi Seri Kota Bukit Cheraka Bhd (Third Party) And Other Cases
[2009] 1 CLJ 419 HC. Subsequent thereto all cases involving BBA
contracts that were heard together thereat were sent to this court for
determination of the quantum of plaintiffs claim. The quantum of
the plaintiffs claim in these writs of summons and the amount due
under the originating summonses had in fact been determined by
me on 28 January 2010.
[2] Another set of appeal came before another panel of the Court
of Appeal on 20 October 2009. That panel followed its earlier
decision and again the cases were sent to this court for
determination of the quantum of plaintiffs claim in the writs of
summons, as well as the amount due under the originating
summonses. The proceedings before me, which were actions in the
second set of appeal, involve two Writs of Summons registered as
D4-22A-263-2006 and D4-22A-195-2006, and two Originating
Summonses registered as D4-22A-395-2005 and D4-22A-399-2005
respectively. Pursuant to the order of the Court of Appeal, parties
were notified to appear before the learned deputy registrar for case
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60
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Installment
0
D
61
Financing
Amount
100,000.00
48,912.97
148,912.97
1,128.13
99,517.70
48,267.14
147,784.85
111
1,128.13
22,087.88
1,602.82
23,690.70
112
113
1,128.13
1,128.13
21,102.40
20,110.56
1,406.17
1,323.88
22,562.57
21,434.44
114
1,128.13
19,112.31
1,194.00
20,306.31
115
116
1,128.13
1,128.13
18,107.62
17,096.43
1,070.57
953.62
19,178.19
18,050.06
117
1,128.13
16,078.72
843.21
16,921.93
118
119
1,128.13
1,128.13
15,054.43
14,023.53
739.37
642.14
15,793.80
14,665.67
120
1,128.13
12,985.97
551.57
13,537.54
121
122
1,128.13
1,128.13
11,941.71
10,890.70
467.71
390.58
12,409.41
11,281.29
123
1,128.13
9,832.91
320.25
10,153.16
124
125
1,128.13
1,128.13
8,768.29
7,696.79
256.74
200.11
9,025.03
7,896.90
126
1,128.13
6,618.37
150.41
6,768.77
127
128
1,128.13
1,128.13
5,532.98
4,440.59
107.66
71.93
5,640.64
4,512.51
129
1,128.13
3,341.14
43.25
3,384.39
130
131
1,128.13
1,128.13
2,234.59
1,120.89
21.67
7.24
2,256.26
1,128.13
132
1,128.13
0.00
0.00
0.00
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[10] From the above it may be said that the approach of the
Islamic banks that deduct unearned profit as ibrar is consistent with
the requirement of s. 266(1) NLC while at the same time facilitate
cases of prepayment. Thus, in all application for order for sale
before me, I have allowed the sum specified under s. 257(1)(c)
NLC, to be the sum due and payable at the date on which the
order is made; based on the total sale price less the amounts paid
under the instalments and further deducting the unearned profit of
the bank computed at the day on which the order for sale is made,
as illustrated in the Amortization table above. In taking this
approach, I am mindful that the law strictly requires the bank when
applying for an order for sale to state the amount due on the date
on which the order for sale is made. In a case where the tenure of
the contract has completed there would be no further unearned
profit to be deducted and the full sale price would be the amount
due and payable. Even if it is long overdue, the amount due and
payable remains the same because the sale price under the PSA
does not attract any interest.
[11] Similar approach is taken by this court in proceedings under
a writ of summons. Judgment is entered on the quantum of
plaintiff's claim based on full sale price under the PSA less the
amounts paid under instalments at the time the writ was filed or
thereabout. This sum will further be deducted by the amount of
unearned profit (if any) on the date of realisation as ibrar. This is
because, unlike the application for an order for sale, there is no
requirement for the plaintiff to state the amount due and payable on
the date of judgment.
Argument By The Bank
[12] For the banks, often it is argued that the court must enforce
the full sale price, irrespective of the time, breach occurs. In other
words, it is not the business of the court to interfere with written
terms of the contract since the customer has agreed to pay the full
sale price upon default. This argument is premised on the
underlying presumption that a BBA contract is a sale transaction
and not a loan transaction. Hence, a sale price must be met at all
cost. It is also the belief of the proponent of this argument that,
by inserting a rebate clause in the agreement it will create
uncertainty on the sale price and the gharar operates. Besides, since
it is a sale agreement, the sale price does not change, lest it will
not reflect the transaction as a true sale. As a matter of practice
however, the bank in all instances will grant a rebate at its
discretion.
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the Islamic banking contract is subject to the same law and legal
system as any banking contract. It is true that the Court of Appeal
in Lim Kok Hoe acknowledges these cases which ultimately resulted
in granting and enforcing payment of the full sale price under the
PSA, however none of the cases had in the judgment treated it to
be the ratio decidendi of the decision.
[32] In fact to my mind, it is apparent from Lim Kok Hoes
decision that the reference made by the Court of Appeal to all these
cases is to reinforce its decision in upholding the validity and
enforceability of BBA contracts. This is clear at p. 39 of the
judgment when the Court of Appeal states that it is clear that the
validity and enforceability of BBA contract had been ruled by the
Superior Courts. Hence applying the doctrine of stare decisis it is
binding on Court of Appeal in Lim Kok Hoe to follow the Superior
Court. I am not able to find any affirmation on the quantum to be
enforced in a BBA contract by the Superior Court. Thus, I am clear
that there is no binding precedent by the Superior Court for me to
follow to enforce the sale price under the PSA at all costs. There
is not a slightest suggestion in Lim Kok Hoe that the issue of
quantum has been canvassed before the court by counsel.
Furthermore, by the very fact that the Court of Appeal sent the
cases back to this court for determination of quantum, says it all.
[33] In conclusion, for the reasons adumbrated above, I hereby
allow the plaintiff's claim with costs, in the Writ of Summons Suit
No. 22A-263-2006 for the outstanding sum of RM391,634.66 and in
Suit No. 22A-193-2006 for the sum of RM190,476.54. These
judgment sums are subjected to deduction of the unearned profit by
the plaintiff (if any) upon full realization.
[34] As for the originating summons, a new hearing date of
22 February 2010 is fixed for the plaintiff in the Originating
Summons No. D4-22A-395-2005 in order for BIMB to file
supplemental affidavit to state the outstanding sum, after deducting
the unearned profit due to be deducted, on the date the order for
sale is to be obtained. At the request of BIMB, Originating
Summons No. D4-22A-399-2005 is hereby struck out.