On 6 January 2021, the Court of Appeal in Maybank Islamic
Berhad v Golden Base Construction Sdn Bhd & 2 Ors in two
appeals heard together, allowed Maybank's appeal to enter
summary judgment of RM 45,371,146.09 and struck out the
Respondents' counterclaim of RM 95,835,335.57. This decision is
significant to Islamic financial institutions. Maybank was
represented by our Partners, Leong Wai Hong and Claudia Cheah Pek
Yee, and Senior Associate, Aufa binti Radzi.
Key points
a. Non-compliance with Shariah principles
does not render an Islamic financing facility contract illegal and
unenforceable.
b. Mere allegation of breach of Shariah
principles does not amount to a triable issue as held by the High
Court below.
Brief facts
Maybank granted an Islamic Murabahah financing
facility of RM 50 million to Golden Base Construction Sdn Bhd for
the construction of a highway. The facility was secured by two
individual guarantors.
The financing was structured on the Shariah principle
of Murabahah whereby Golden Base made a request to Maybank
to purchase underlying Shariah compliant commodities
("Murabahah Asset") at a
purchase price equivalent to the financing amount, and an
undertaking by Golden Base to purchase the same Murabahah
Asset from Maybank repayable on deferred payment terms.
Golden Base and the guarantors defaulted in repayments.
Maybank commenced a suit at the High Court. In their Defence and
Counterclaim, Golden Base and the guarantors alleged inter
alia, that the financing is void and unenforceable for being
non-Shariah compliant and counterclaimed for a sum of RM
95,835,335.57 for loss of profit and loss of investment.
Decision of the High Court
At the High Court, Maybank's applications for
summary judgment and striking out of counterclaim were dismissed.
The High Court found there were two triable issues. The triable
issues were whether the Murabahah transaction complies
with Bank Negara Malaysia's Shariah guidelines and
that the Murabahah Asset has not been identified in the
financing documents. The High Court inter alia, held that
the mere use of the words "Shariah compliant commodities
determined by the Bank as per the e-certificate" in the
financing documents was insufficient to identify the underlying
asset. Thus, the legality of the Murabahah transaction was
in question due to the uncertainty of the underlying
Murabahah asset, and this called for evidence of a
Shariah expert to be given at a full trial.
Decision of the Court of Appeal
On appeal to the Court of Appeal, counsel for Maybank argued
that the High Court erred because non-compliance with
Shariah principles does not render a financing facility
contract illegal and unenforceable based on existing case law and
Section 281 of the Islamic Financial Services Act 2013. The Court
of Appeal found merits in the argument advanced by Maybank's
counsel and unanimously allowed Maybank's appeals. The Court of
Appeal entered summary judgment against Golden Base and the
guarantors as prayed for in the High Court, and struck out the
counterclaim.
Comment
This decision is important as to-date, there is no Court of
Appeal decision on the effect of Section 281 of the Islamic
Financial Services Act 2013 which reads :
"Breach or contravention not to affect contract, agreement or arrangement | 281. Except as otherwise provided in this Act, or in
pursuance of any provision of this Act, no contract, agreement or
arrangement, entered into in breach or, contravention of any
provision of this Act shall be void solely by reason of such breach
or contravention: Provided that nothing contained in this section shall affect any liability of any person for any administrative, civil or criminal actions under this Act in respect of such breach or contravention." |
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