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EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR EST 1918 SHOOK Lin k BOK KUALA LUMPUR LEGAL UPDATE Vol 1 No 4 PP13906/8/2006 4th Quarter 2005 The partners of the firm recently had a rare group photo call opportunity. Above are the General Partners (Executive Committee) of the firm. The partners take this opportunity to extend to our readers wishes for a happy and splendid new year ahead. Front (left to right): Dato’ Cyrus Das (Deputy Chief Executive Partner), Too Hing Yeap (Chief Executive Partner), Porres Royan. Rear (left to right): Lai Wing Yong, Michael Soo, Romesh Abraham, Jal Othman, Nagarajah Muttiah, Patricia David. IN THIS ISSUE CASE UPDATES INTELLECTUAL PROPERTY ........................ 9 BANKING ........................ 5 LAND .............................. 9 CONTRACT ...................... 6 INTELLECTUAL DEFAMATION ................... 7 PROPERTY NEWS ............ 11 EMPLOYMENT ................. 8 4th Quarter 2005 1 EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR Front (left to right): Patricia David, Lai Wing Yong, Dato’ Cyrus Das (Deputy Chief Executive Partner), Too Hing Yeap, (Chief Executive Partner), Porres Royan, Romesh Abraham, Mohan Kanagasabai. Rear (left to right): Chay Ai Lin, Khong Mei Lin, Yoong Sin Min, Yuen Kit Lee, Jal Othman, Michael Soo, Steven Thiru, Dahlia Lee, Chan Kok Keong, Ivan Ho, Lam Ko Luen, Nagarajah Muttiah, Adrian Hii, Hoh Kiat Ching, Goh Siu Lin, Tharmy Ramalingam. Absent: Sudharsanan Thillainathan 2 4th Quarter 2005 EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR The above are all the general and limited partners of the firm. 4th Quarter 2005 3 EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR 4 4th Quarter 2005 EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR Case Updates That issue should be considered on another occasion. It may be contended that in such a situation, the facility should Banking be recoverable on restitutionary grounds at least. Islamic facilities Overdraft facility for bridging financing: The country has seen the advent of Islamic Mae Perkayuan distinguished financing facilities based on Syariah principles which in recent years have been on a growth trajectory. In Bank Bumiputra Malaysia Bhd v. Sal The occasion has been rare when cases Enterprise Sdn. Bhd. [2005] 4 CLJ 277, arising from disputes on Islamic facilities by a letter of offer, the bank granted an have been reported. Arab Malaysian overdraft facility of RM1.4 million to the Merchant Bank Bhd v. Silver Concept Sdn. borrower. It was stated that RM400,000 Bhd. [2005] 5 MLJ was a case on Islamic of the facility (the first tranche) was to facilities before the High Court. finance the purchase of a piece of land, and the balance of RM1 million (the The case concerned a facility to finance second tranche) was to finance the the purchase of a piece of land. The proposed development of a housing facility included an Al-Bai Bitaman Ajil project on the land. facility, which is structured as a credit sale, whereby the customer sold the land it As regards repayment of the facility, the purchased to the bank for a cash sum paid facility was “ to be reduced progressively by the bank to the customer, and the against the release of titles, the bank immediately resold it back to the redemption sum of which will be customer at a higher price which determined later”, i.e. repayment was to incorporates the bank’s profit, payable by be from the proceeds of sale of houses in the customer to the bank by monthly the housing project. instalments over a fixed period of time. The letter of offer also provided for various The cash flow mirrors that of a conditions precedent to be satisfied conventional banking loan with interest before the facility may be released. The charged, and in that manner affords duration of the facility was stated to be financing to the customer for its purchase. for two years or upon completion of the project which ever is earlier. Yet the facility The charging of interest for a loan, or was expressed to be subject to periodic usury, is prohibited in Islam. review and repayable on demand. The customer charged the land to the The facility is what is called bridging bank by way of security for the purchase financing, that is to finance a developer’s price payable by it to the bank. construction of houses, to bridge the period between the commencement of The customer defaulted in payment and construction and the receipt of proceeds the bank commenced proceedings for a of sale to purchasers, with the intention judicial sale of the land. The customer being that repayment shall primarily be opposed the application for sale on from the proceeds of sale. grounds which include that the facility was a loan with interest, in the guise of a By a subsequent letter from the bank, by credit sale and was therefore void and which the bank agreed to the borrower’s unenforceable. The contention was request to vary or waive some of the rejected by the Judge, who held that the conditions precedent for the release of manner of contract was not prohibited the first tranche of the facility of by Islam and is accepted and entrenched RM400,000 it was provided that interest in Malaysia and in the world. was to be charged at a stipulated rate and was to be serviced monthly i.e. paid In the course of the judgment, the Judge monthly. made comments that had an Islamic facility had any un-Islamic elements, that The sum of RM400,000 was released but would vitiate the facility and rendered it only RM291,000 was required for the unenforceable for those who have balance of purchase price of the land. contracted on Islamic principles. The borrower sought the bank’s 4th Quarter 2005 5 EST 1918 SSSHOOK LLLIN k BBBOK KUALA LUMPUR permission to use the balance of the interest in the interim period. In Sal release to meet the other expenses such Enterprise, there was an obligation to as fees for lawyers, architects and valuers, service interest. travelling expenses for travelling to the land by the directors, and other related In Mae Perkayuan, it was also held that expenses. where a facility is expressed to be for a fixed term and yet expressed to be The request was rejected by the bank. repayable on demand, the provision for Upon further request, the bank asked the a fixed term takes precedence, and it is borrower to confirm whether the not repayable on demand, and not conditions precedent for the balance of repayable unless there is default. the facility had been met. The bank also required the borrower to settle the This issue was not raised for interest on the facility which it had failed consideration in Sal Enterprise. to pay, before the bank considered the borrower’s request. Upon the failure of the borrower to respond, the bank issued Contract a letter stating that the facility was recalled. In the bank’s suit for recovery Frustration and liquidated of the debt, the borrower contended that damages the facility was a bridging loan repayable only when the houses were sold, and by not releasing the balance of the facility, In Maxisegar Sdn Bhd v Silver Concept and recalling it before repayment was Sdn Bhd [2005] 5 MLJ 1, the respondent due, the bank was in breach of the had entered into an agreement to sell a agreement, and sought damages to be piece of land to the appellant. After set off against the claim. paying the deposit and part of the purchase price, the appellant informed The High Court judge found in favour of the respondent that it had failed to the borrower, but his decision was obtain a loan for the balance of the overruled on appeal to the Court of purchase price, due to the financial crisis Appeal. The Court of Appeal held that in 1997 and Bank Negara’s directive to the bank was under no obligation to banks to reduce lending for property accede to the borrower’s request to utilize development other than for inter alia, the balance of the first tranche for some lower cost housing, and claimed to be other purpose. The borrower had not discharged from the agreement on the complied with the conditions precedent. ground of frustration of the contract. The appellant filed an action seeking a The borrower had failed to service the declaration that the contract had been monthly interest and was in breach of its frustrated and that therefore it was obligations. The bank was not in breach discharged from its obligation to perform of the agreement. the contract, and also sought refund of all monies paid under the contract. The The borrower had sought to rely on the respondent counterclaimed for an order case of Bank Bumiputra Malaysia Bhd v. of specific performance of the contract or Mae Perkayuan Sdn. Bhd. [1993] 2 MLJ alternatively damages. 76. In that case, there was similarly an overdraft facility (for a fixed term, but also expressed to be repayable on demand) The High Court dismissed the appellant’s for bridging financing. The borrower claim, stating that there was no provision failed to pay interest monthly. The letter in the agreement that the agreement of offer did not state that interest was to was to be conditional on the appellant paid monthly, but stated that any non- obtaining a loan. Further, the doctrine payment of interest shall cause it to be of frustration was not brought into play capitalized and added to principal, and merely because a purchaser finds for interest shall be chargeable thereon. The whatever reason that he has not got the Court of Appeal there held that the facility money to complete the contract.

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