[2006] 8 CLJ 9 ARAB-MALAYSIAN MERCHANT BANK BHD v. SILVER CONCEPT SDN BHD

[2006] 8 CLJ 9  

ARAB-MALAYSIAN MERCHANT BANK BHD v. SILVER CONCEPT SDN BHD
HIGH COURT MALAYA, SHAH ALAM
[ORIGINATING SUMMONS NO: MT1-24-2310-2000]
SURIYADI HALIM OMAR J
30 JUNE 2005

BANKING: Islamic BankingLoan facility – Al-Bai Bithaman Ajil, principles of – Whether Al-Bai Bithaman Ajil agreement void because differential sum resembles interest – Whether Al-Bai Bithaman Ajil facility is prohibited

BANKING: Islamic Banking – Loan facility – Al-Bai Bithaman Ajil, principles of – Whether facilities of muqassah or rebate for any customer who prepays is based on pure sympathy and indulgence – Whether the chargor being deprived of rebate qualifies as ’cause to the contrary’

LAND LAW: Charge – Order for sale – Loan granted under Al-Bai Bithaman Ajil facility – Default – Burden on defence to show “cause to the contrary” – Fatal procedural defects, deceit, bribery, un-Islamic practices in the like of usury amount to cause to the contrary – Whether court may dispense with minor omissions or errors – National Land Code, ss. 256, 257, 259

LAND LAW: Charge – Order for sale – Certificate of indebtedness, whether conclusive – Whether a covenanted certificate of indebtedness is conclusive evidence of liability and amount a borrower has to pay – National Land Code, ss. 256, 257, 259

LAND LAW: Charge – Order for sale – Locus standi – Locus standi of chargee to initiate the originating summons emanates from charges created in its favour – Whether chargee can be permitted to participate in auction – National Land Code, ss. 256, 257, 259

The defendant had bought a large tract of land (“the land”) and to part finance the acquisition of the land, the defendant had requested a consortium of financial institutions (“the vendors”), with the plaintiff as the arranger and agent to help out. The assistance sought for was for an Al-Bai Bithaman Ajil facility secured by way of two charges entered on the land. All the steps of any normal Al-Bai Bithaman Ajil facility had been adhered to strictly by the plaintiff. An Al-Wujuh Agreement was also executed between the defendant and the vendors to provide the defendant a revolving Al-Wujuh facility. The defendant later defaulted in an instalment payment. The plaintiff cancelled the facility and filed this originating summons praying that, amongst others, the land be subject to a public auction pursuant to ss. 256 and 257 of the National Land Code 1965 to satisfy the sum due to the chargee.

The defendant claimed that the contract in question cannot be enforced on several grounds, inter alia it being tainted by interest or riba. It was submitted that this originating summons must fail as there existed issues or facts that may be construed as “causes to the contrary.” The defendant claimed that, inter alia, the following matters amounted to causes to the contrary: (i) that sums not lawfully due to the plaintiff had been included in the statement of accounts; (ii) that in a contract of Al-Bai Bithaman Ajil, a bank will provide facilities for muqassah (rebate) for any customer who prepays. In this case the defendant was deprived of the rebate with the cancellation of the facility; (iii) that the plaintiff was the agent of the vendors and therefore not a lender. If the plaintiff was merely an agent it thus had no locus to initiate this application; (iv) that the plaintiff by being the arranger, vendor and an agent for the vendors, gave rise to a serious conflict of interests, when it has also prayed that it be at liberty to bid at the public auction without having to pay any deposit and deduct the auctioned amount from the amount due and owing.

Held (allowing order for sale):

(1) The burden is on the defence to show “cause to the contrary”. If the defendant can successfully establish that there exists fatal- procedural defects, deceit, bribery, un-Islamic practices in the like of usury, amongst others, having tainted the transaction then the originating summons must fail. (para 26)

(2) It cannot be accepted that just because a larger sum is agreed to be paid back founded on a buy back concept, with the defendant openly having requested for deferred payment, and with the differential sum resembling interest, the agreement must be void. There is no clear text that prohibits such a transaction entrenched with all those ingredients. (para 35)

(3) For both the charges, apart from the plaintiff acting as an agent of the vendor, they were also created in its favour. The locus standi of the plaintiff to initiate the originating summons emanated from the very charges created in its favour. (para 38)

(4) The plaintiff by being the arranger, agent and part vendor gave rise to a serious conflict of interests, which offended all notions of equity and justice, if it were permitted to bid at the public auction without having to pay any deposit. In the circumstances of the case, and despite s. 259(2)(a) of the NLC, it should not even be permitted to participate in the auction. However, this ground was not sufficient to qualify as “cause to the contrary” to prevent any auction order. (para 39)

(5) It is normal that under the contract of Al-Bai Bithaman Ajil, the relevant bank will provide facilities of muqassah or rebate for any customer who prepays. Such a facility only occurs on the assumption that the customer sticks to his instalment schedules without default. As it were here, as the defendant had failed to keep up to its bargain, which had triggered the recalling of the facilities, any rebate if given would absolutely be based on pure sympathy and indulgence. Therefore, the issue of the defendant being deprived of the rebate, by reason of the recalling of the facilities could not qualify as a ’cause to the contrary.’ (para 41)

(6) So long as the correct amount is before the court at the final hearing, then the court may dispense with certain minor omissions or errors that do not fall under the category of ’cause to the contrary’. A covenanted certificate of indebtedness is conclusive evidence of the liability and the amount a borrower has to pay, unless there is manifest error in it. (paras 47 & 51)

Case(s) referred to:

Bangkok Bank Ltd v. Chang Lip Kwong [1990] 1 CLJ 1017; [1990] 3 CLJ (Rep) 523 HC (refd)

Bank Islam Malaysia Bhd v. Adnan Omar [1994] 3 CLJ 735 HC (refd)

Bray v. Ford [1896] AC 51 (refd)

Chen Heng Ping & Ors v. Intradagang Merchant Bankers (M) Bhd [1995] 3 CLJ 690 CA (refd)

Citibank NA v. Ibrahim Othman [1993] 1 LNS 104 ; [1994] 1 MLJ 608 (refd)

Dato Hj Nik Mahmud v. Bank Islam Malaysia Bhd [1998] 3 CLJ 605 CA (refd)

Horace Brenton Kelly v. Margot Cooper & Anor [1993] AC 205 (refd)

Keng Soon Finance Bhd v. MK Retnam Holdings Sdn Bhd & Anor [1989] 1 CLJ 897; [1989] 1 CLJ (Rep) 1 PC (refd)

Kho Ah Soon v. Duniaga Sdn Bhd [1996] 2 CLJ 218 SC (refd)

Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36 SC (refd)

Newacres Sdn Bhd v. Sri Alam Sdn Bhd [2000] 2 CLJ 833 FC (refd)

Tinta Press Sdn Bhd v. Bank Islam (M) Bhd [1987] 1 CLJ 447; [1987] CLJ (Rep) 396 SC (refd)

Legislation referred to:

Central Bank of Malaysia (Amendment) Act (Act A 1213), ss. 16B(8), 16B(9)(a)

Contracts Act 1950, s. 24

Evidence Act 1950, s. 114(e)

National Land Code, ss. 254, 256(1), (3), 257, 259(2)

Rules of the High Court 1980, O. 83 r. 3(c), (3)

Other source(s) referred:

Abdur Rahman I. Doi, Shariah: The Islamic Law, p 354

Halsbury’s Laws of Malaysia, vol 14, MLJ 299

Counsel:

For the plaintiff – Padzilah Pilus; M/s Adnan Sundra & Low

For the defendant – VK Lingam; M/s VK Lingam & Co

[Order for sale allowed.]

Reported by Amutha Suppayah

 [2006] 8 CLJ 9

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