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2021 MarsdenLR 1694
HIGH COURT MALAYA SHAH ALAM
KUWAIT FINANCE HOUSE (MALAYSIA) BERHAD – Appellant
Versus
JRI RESOURCES SDN BHD & ORS – Respondent
[Civil Suit No: 22NCVC-584-09-2013]
The court confirmed the binding nature of the Shariah Advisory Council's ruling on the compliance of financial agreements, affirming the liability of guarantors under Islamic financing principles.
Headnote:(A) Central Bank of Malaysia Act 2009 – Sections 56 and 57 – Islamic financing facilities agreements – The 1st defendant defaulted on Islamic financing repayments, leading to consent judgment of RM87,388,654.20 – The Shariah Advisory Council found clause 2.8 of the Ijarah Agreements to be compliant with Shariah law – High Court bound by appellate ruling that limited issues for trial to Shariah compliance. (Paras 10, 11, 14, 19, 27)
(B) Joint and Several Directors Guarantee and Indemnity Agreement – The third-party defendants defaulted and were held liable – The Certificate of Indebtedness was accepted as proof of the outstanding amount owing. (Paras 20, 22)
Facts of the case: The plaintiff is a financial institution that entered into multiple Islamic financing agreements with the 1st defendant, which defaulted on the payments. After various legal proceedings, a consent judgment was entered. The claims against the 2nd to 4th defendants stem from directors' guarantees related to the financing facilities. (Paras 1-8)
Findings of Court: The court allowed the plaintiff to enter judgment against the 2nd to 4th defendants; the 1st defendant's counterclaim was dismissed. (Para 43)
Issues: The court addressed the compliance of clause 2.8 of the Ijarah Agreements with Shariah law and the limitations on the issues to be tried as per the appellate order. (Paras 10, 22, 26)
Ratio Decidendi: The court determined that the SAC's ruling regarding Shariah compliance is binding on the High Court and established that the Certificate of Indebtedness constitutes conclusive evidence. (Paras 20, 27)
Result: Judgment entered against the 2nd to 4th defendants; 1st defendant’s counterclaim dismissed.
Introduction
[1] The plaintiff's claim against the 1st defendant is premised on a string of Islamic financing facilities agreements entered into between the parties; whereas the plaintiff's claims against the 2nd to 4th defendants are premised on two directors' guarantee and idemnity agreements given to the plaintiff by the said defendants in relation to the Islamic financing facilities. On 23 September 2020, the plaintiff and 1st defendant entered a consent judgment for a sum of RM87,388,654.20 as at 30 March 2018.
[2] The trial of this action went on for only one day on 1 March 2021. On 25 March 2021, this Court delivered its decision in favour of the plaintiff's claims against the 2nd, 3rd and 4th defendants, and dismissed the 1st defendant's counterclaim. The reasons for the decisions are set out as below.
Background Facts
[3] The plaintiff is a financial institution which had between the period January 2008 and June 2009 granted multiple Islamic financing facilities to the 1st defendant.
[4] The plaintiff's First Letter of Offer dated 31 January 2008 offered the 1st defendant the following financing facilities:
i Murabah Tawarruq Contract Financing RM5,000,000.00
ii Ijarah Muntahiah Bitamlik 1 (Ijarah 1) RM5,192,500.00
iii Ijarah Muntahiah Bitamlik 3 (Ijarah 3) RM45,191,500.00
iv Ijarah Muntahiah Bitamlik 4 (Ijarah 4) RM15,753,375.00
v Ijarah Muntahiah Bitamlik 5 (Ijarah 5) RM56,648,500.00
[5] The plaintiff's Second Letter of Offer dated 22 July 2008 offered to increase the limit of the Ijarah 3 from RM45,191,500.00 to RM56,648,500.00 which resulted in the granting of the Ijarah 5 facility. Subsequently, on 9 June 2009, the plaintiff's Third Letter of Offer offered to increase the MTQ Contract Financing limit from RM5 million to RM10 million (MTQ Contract Financing-i 2). All the financing facilities granted in the three Letter of Offers shall collectively be referred to as the "Islamic Financing Facilities". The plaintiff and the 1st defendant entered into multiple agreements relating to the Islamic Financing Facilities, including the Master Facilities Agreement dated 22 February 2008, Supplemental Facilities Agreement dated 1 July 2009 and MTQ Contract Financing-i Facility Agreement dated 1 July 2009. All agreements arising from the Islamic Financing Facilities shall hereafter be referred to as 'the Islamic Financing Agreements'.
[6] The 2nd to 4th defendants executed two 'Joint and Several Directors Guarantee and Indemnity Agreement' dated 22 February 208 and 1 July 2009 respectively (hereafter the 'Guarantees') in favour of the plaintiff. The 2nd to 4th defendants did not merely guarantee the repayment of the Islamic Financing Facilities but stood respectively as a principal debtor for the repayment of the money due and payable under the Islamic Financing Facilities by the 1st defendant upon demand.
[7] The defendants provided to the plaintiff, inter alia, debentures, assignment of contract proceeds, charge over company shares and several vessels in consideration for the Islamic Financing Facilities granted to the 1st defendant. All the Islamic Financing Facilities were fully drawn down and utilised by the 1st defendant. It is not in dispute that the 1st defendant had defaulted in the repayment of the Islamic Financing Facilities. Likewise, the 2nd to 4th defendants had also defaulted in making payment to the plaintiff upon demands made against them by the plaintiff's solicitors.
[8] On 2 September 2013, the plaintiff initiated this suit against the defendants. The plaintiff sought for summary judgment to be entered against the defendants. On 3 October 2014, the earlier High Court allowed the plaintiff to enter summary judgment against all the defendants (hereafter 'the Summary Judgment').
[9] Dissatisfied with the High Court's decision, the defendants appealed to the Court of Appeal. One of the issues relied on by the defendants was whether the plaintiff was permitted under Shariah to transfer the obligation
