The Settlement Agreement is a standalone instrument subject to ad valorem duty under the Stamp Act 1949, not a subsidiary of the ISDA Master Agreement.

JUDGMENT

Azizul Azmi Adnan JCA:

Introduction

[1] CIMB Bank Berhad, the appellant, appealed to the High Court pursuant to s 39 of the Stamp Act 1949 in connection with the determination by the stamp office to impose ad valorem duty on a settlement agreement that had been entered into between the appellant and its client, a publicly listed company. This settlement agreement recorded the terms by which the parties had agreed to restructure the obligations of the appellant's client under an ISDA Master Agreement entered between the parties.

[2] ISDA stands for the International Swaps and Derivatives Association. It is an association of banks and other capital market intermediaries that participate in over-the-counter derivatives transactions. The ISDA Master Agreement and the confirmations issued thereunder are a standardised form of documentation used to govern derivatives such as forward contracts, option contracts and swaps (such as interest rate and cross-currency swaps).

[3] The ISDA Master Agreement provides an overarching framework to regulate the rights and obligations of parties, and incorporates by reference standardised terms such as definitions, credit support documents and protocols. Individual derivatives transactions are recorded in confirmations.

[4] CIMB's client defaulted on a payment obligation under a confirmation governed under the ISDA Master Agreement. In the ordinary case, if a counterparty defaults under a transaction governed under the ISDA Master Agreement, all outstanding transactions under the ISDA Master Agreement would be terminated and valued. The payment obligations under all such transactions would be set off against each other to leave a net payment amount payable by one of the two parties. This set-off, referred to as close-out netting, avoids the risk of a liquidator of an insolvent counterparty from subsequently cherry-picking and avoiding transactions that are considered to be unfavourable to the counterparty.

[5] In the present case, however, CIMB did not call an event of default on its client. Instead, it agreed to term the payments out over the course of a year. This arrangement was recorded in a Settlement Agreement dated 18 December 2020. Under its terms, the client would have had to pay CIMB 13 instalment payments totalling USD66,306,316.80. This amount comprised the sums that would have been payable under five confirmations had an event of default been specified by CIMB, as well as amendment costs imposed by it.

[6] The Collector of Stamp Duties assessed the Settlement Agreement with ad valorem duty, amounting to more than RM1.3 million. It also imposed a late payment penalty amounting to RM66,878.25, making the total stamp duty and penalty payable RM1,404,443.25.

[7] CIMB paid the duty and penalty imposed, and raised a notice of objection in accordance with s 38A of the Stamp Act 1949 . On 18 May 2023, the Collector rejected the notice of objection.

[8] CIMB then appealed to the High Court pursuant to the provisions of s 39(1) of the Stamp Act 1949 . The High Court dismissed the appellant's appeal.

[9] Four arguments were advanced on behalf of CIMB in the appeal before us:

(a) it was argued that the ISDA Master Agreement dated 9 January 2007, which had been duly stamped, was the principal instrument to which the Settlement Agreement was a subsidiary instrument. Under s 4(3) of the Stamp Act 1949 , only the principal instrument documenting a transaction would be chargeable with the duty prescribed under the First Schedule to the ; other instruments would be chargeable with nominal duty of RM10.00;

(b) it was advanced for CIMB that the Settlement Agreement did not fall within any of the categories of instruments specified in items 22 or 27 of the First Schedule to the Stamp Act 1949 , and hence ought not have attracted ad valorem duty;

(c) it was argued that the legal position relating to stamp duty on financial derivatives documented under ISDA Master Agreements and confirmations issued