Sunday, April 18, 2010

Bai Bithaman Ajil contract challenged by High Court

By Habhajan Singh

The practice of Islamic banks making a claim for the full sale price in an event of a default of a home financing based on Bai Bithaman Ajil (BBA) contract has been challenged in a recent decision of the High Court.

In a collective judgment for four BBA cases, High Court Judge Datuk Rohana Yusuf (picture) noted the arguments by Bank Islam Malaysia Bhd (BIMB), the plaintiff in all four cases, is that a BBA contract gives the bank a legal right to claim for the full sale price as stipulated in the property sale agreement (PSA).

In her judgment, Rohana noted that the bank's first argument is that the 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 parties had agreed as to the amount of sale price as stipulated in the PSA, the defendant is under a legal obligation to pay the full sale price, irrespective of when a breach occurs.

Second, by virtue of the doctrine of stare decisis, the court is bound by the decision of the Court of Appeal in Lim Kok Hoe which, according to Oommen, upheld and acknowledged the obligation to pay the full sale price under the PSA.

"After a careful scrutiny of the cases I find that none of the decisions has established the ratio decidendi suggested," she wrote. Stare decisis literally means "to stand by things decided" and is a legal maxim which underlay the basis of the doctrine of binding precedent, with the lower courts having to abide by former precedent by higher courts.

Ratio decidendi of a case can be defined as the principle of law on which the court reaches its decision. On the point of lack of binding precedent, some lawyers contacted by The Malaysian Reserve believe that the argument is not on solid grounds and is open for challenge. In her judgment, Rohana said that there are 'no binding precedent by the Superior Court for me to follow to enforce the sale price under the PSA at all costs'.

"In fact to my mind, it is apparent from Lim Kok Hoe’s 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 page 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 decisive, 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," she wrote.

Bank Islam Malaysia Berhad v Lim Kok Hoe & Anor and Other Appeals was decided by the Court of Appeal on Aug 26, 2009, reversing an earlier decision of the High Court in Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Ors.

"I must vehemently stress that the purpose of this proceeding is 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," she wrote.

(This story appeared in The Malaysian Reserve on 19 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

1 comment:

Ismail said...

Hi there,

To me, the whole concept of Islamic Banking is as corrupt as it can ever be simply its products do not adhere to the related fundamental tenets of Islam.

1. Islam does not encourage borrowing nor lending because Zakat is already in place.
2. Usury is totally prohibited.
3. Islamic Banking is one based on deception and coercion in that it changes the original borrowing intention to one of commerce, and since the borrower does not have any alternatives, he proceeds with the transaction.
4. Islam encourages creditors to relinquish the debt if the debtor is found to be unable to repay due to poverty.

Islamic Banking as we know it today can never succeed because the usurious nature of the whole economic system [monetary and banking]. What we have in existence today is just a bunch of Muslim capitalists taking advantage of the disadvantaged Muslims by intentionally misterpreting the the Quran and Hadith. Their behaviour has been duly noted in the Quran where "they" rebutted the call to usury-less activities on the grounds of commerce. This is exactly what these capitalists are doing today. So everyone, do not be duped by them. Bankers are bankers, even with a different face.