BANK ISLAM MALAYSIA BHD v. AZHAR OSMAN & OTHER CASES [2010] 5 CLJ 54 [2010] 1 LNS 251

 

 


 

 

 


BANK ISLAM MALAYSIA BHD 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 plaintiff’s 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 plaintiff’s 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 D4-22A-195-2006 and two originating summons registered as D4-22A-395-2005 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 counsel’s 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.

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. Ya’kup 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 plaintiff’s 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 customer’s right to redeem his property. Therefore where the BBA contract was silent on issue of rebate or the quantum of rebate, by implied term, the bank must grant a rebate and such rebate shall be the amount of unearned profit as practiced by Islamic banks. (para 22)

(4) Applying the doctrine of stare decisis to Lim Kok Hoe, this court was bound to hold that a BBA contract was a valid and enforceable agreement. However, there was no binding precedent by the Superior Court for this court to follow to enforce the sale price under the PSA at all costs. There was not a slightest suggestion in Lim Kok Hoe that the issue of quantum has been canvassed before the court. The very fact that the Court of Appeal sent the cases back to this court for determination of quantum, said it all. (paras 27 & 32)

Case(s) referred to:

Affin Bank Bhd v. Zulkifli Abdullah [2006] 1 CLJ 438 HC (refd)

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 (refd)

Bank Islam Malaysia Bhd v. Lim Kok Hoe & Anor and Other Appeals [2009] 6 CLJ 22 CA (refd)

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

Bank Kerjasama Rakyat Malaysia Bhd v. Emcee Corporation Sdn Bhd [2003] 1 CLJ 625 CA (refd)

Dalip Bhagwan Singh v. PP [1997] 4 CLJ 645 FC (refd)

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

Dato’ Tan Heng Chew v. Tan Kim Hor & Another Appeal [2006] 1 CLJ 577 FC (refd)

Hairul Hisham Salim v. Dato’ Zainal Abidin Zin & Anor [2003] 2 CLJ 712 HC (refd)

Lembaga Tatatertib Perkhidmatan Awam Hospital Besar Pulau Pinang & Anor v. Utra Badi K Perumal [2001] 2 CLJ 525 FC (refd)

Malayan Banking Bhd v. Marilyn Ho Siok Lin [2006] 3 CLJ 796 HC (refd)

Malayan Banking Bhd v. Ya’kup Oje & Anor [2007] 5 CLJ 311 HC (refd)

Perwira Habib Bank Malaysia Bhd v. Lum Choon Realty Sdn Bhd [2005] 4 CLJ 345 FC (refd)

Sababumi (Sandakan) Sdn Bhd v. Datuk Yap Pak Leong [1998] 3 CLJ 503 FC (refd)

Young v. Bristol Aeroplane Co Ltd [1944] 1 KB 718 (refd)

Legislation referred to:

National Land Code 1965, ss. 256(2), 257(1)(c), 266(1)

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

Counsel:

For the defendant – Oommen Koshy; M/s Skrine & Co

For the plaintiff – Aedyla Bokari; M/s Nassir Hafiz Nazri & Rahim

[Order accordingly.]

Reported by Suhainah Wahiduddin

 

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