CASE REVIEW

Case : Malayan Banking Bhd v. Marilyn Ho Siok Lin [2006] 7 MLJ 249

Judge: David Wong Dak Wah JC

Court : High Court of Sabah & Sarawak in Kuching

The case of Malayan Banking Bhd v. Marilyn Ho Siok Lin [2006] 7 MLJ 249 was
decided by David Wong Dak Wah JC, at the High Court of Sabah & Sarawak in
Kuching.

The facts of this case was about the defendant, Marilyn Ho Siok Lin who obtained a
house financing facility through Al-Bai Bithaman Ajil (BBA) from the plaintiff, Malayan
Banking Bhd, to finance the purchase of a property known as No. Lot 8620, Block 16,
Kuching Central Land District. Through the BBA, the plaintiff purchased a property from
the defendant for MYR 500,000.00 (USD 122,599.29) and then the plaintiff sold the
property to the defendant for MYR 995,205.64 (USD 244,014.71). The defendant had to
pay the sale price (MYR 995,205.64) in two hundred forty (240) months in installments.
However, the defendant defaulted on paying the monthly installment after 14 months of
the execution of the BBA facility agreement.

The Plaintiff took a legal action against the defendant to sell the property in a public
auction to settle off the defendant's debt amounting to MYR 928,589.12 (USD
227,688.52) which was the residual sale price after deducting against the installment
payment which had been paid by the defendant to the plaintiff bank. The defendant
argued among others that the plaintiff's actions were unfair because the sale price
included profits for the entire sale price 240-month period. Therefore, the defendant
contended that the debt amount that he owed to the plaintiff bank should be

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substantially lesser in correspond with the period of his enjoyment over the property and
the facility, not the whole sale price period of two hundred forty (240) months. The court
held that it was unfair for the bank to collect the entire sale price from the defendant
when the facility of BBA had been terminated immature (pre-mature).

The issue in this case was whether Malayan Banking Bhd can claim for full price from
the customer debtor even though the BBA facility was terminated prematurely before
the end of the repayment period.

The principle of the case was derived from Affin Bank Bhd v. Zulkifli Abdullah [2006] 3
MLJ 67 where the plaintiff was granted a revised facility of RM394,172.06 to the
defendant. Pursuant to that, the parties executed several agreements, one of which is
the property sale agreement which provides a sale of the property from the plaintiff to
the defendant for the sum of RM 992,363.40. The defendant’s term of repayment was
25. There is also a provision that in the event of default in payment of the installments,
the defendant covenants to repay the sale price less any paid installments. The
plaintiff’s claim is RM958,909.21 which is the sale price of RM992,363.40 less
RM33,454.19, being the amount paid. The issue in this case is what is the amount that
a customer has to pay to the provider of an BBA facility in the event of default. Abdul
Wahab Patail J relying on the rationale in the Supreme Court case of Malayan Banking
Bhd v. PK Ralamani looked at the substance of the agreements signed by the plaintiff
and the defendant. The court granted order for sale and reduced the amount of
repayment.

Another principle of the case was derived from the case of Arab-Malaysian Merchant
Bank Bhd v. Silver Concept Sdn Bhd. In this case, the defendant obtained a large piece
of land that costs RM125,000,000. The defendant obtained the BBA funding facility from
the plaintiff, a financial institution to finance the land acquisition and the value of sale
was increased to RM216,875,000 due to the combination of the profit element and the

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procurement value. In relation to the BBA funding, both parties entered into two
agreements which were a sale and purchase contract and instalment sale contract. The
defendant failed to pay for the instalment and the plaintiff brought an action to the Kuala
Lumpur High Court to claim for a value of RM185,536,908.64 for the unpaid price due to
the breach of terms in the agreements. The court held that the plaintiff may conduct
public auction by applying for an order for sale based on two grounds. Firstly, it was
clear that the payment was overdue and the plaintiff did not obtain the agreed profit as
stated in the agreements. Secondly, the offer of BBA facility was accepted by defendant
as he was the one who demanded for financing. The agreements allowed the plaintiff to
cancel the facility due to default which means that the defendant cannot deny his liability
and Islamic agreement of BBA was upheld by the court.

The ratio for this case was referred to the court’s decision that, only the sale price
could be claimed by the bank and the bank had no right to claim for the profit that is not
yet earn. The unearned profit can be described as profit derives from the unexpired
tenure of the Islamic finance facility. The reason why the court disallowed the bank to
claim the unearned profit is because it would be unreasonable for any financial
institutions including Islamic banks to claim an absolute agreed profit based on the
whole tenure of the financing facility, when the customer is not fully benefiting. David
Wong J held, the court must have valid reasons to put aside or to alter the terms in the
documents of BBA. It is because, in order to give effect to the matters, it involves the
process of taking into consideration of ‘all the situations of the case’. The situations
include the public interest, the characteristics or nature of the contract, and the
compliances of the agreed terms provided in the contract by the parties. And it is true, at
the end of the day, making an order as in the situations which it seems fair to the parties
is the main purpose in the contract. The court’s judgement in this case was a deviation
from the court’s earlier judgement concerning the contract made under BBA where in
the earlier cases, the court approved the application of the bank to claim back the sale
price, without took into consideration whether the tenure of the Islamic banking facility is
expired or otherwise. In this case, judge David Wong J elaborated that the approach is

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involved in the public interest where in the future it is within the public interests that the
Muslim industry continues to flourish in Malaysia and abroad. Adopting the
interpretation given by the learned judge in Affin’s case might enhance the process. It is
a public knowledge that individuals have a preference to a BBA facility for the
straightforward reason that BBA is better off than that of conventional bank loan in
terms of ringgits and cents as the amount of repayment in nature of profits is considered
lower compared to the normal interests charged in conventional loans and fixed. For
conventional loans, the interests for loans follow the market forces where it moves up
and down. That becomes the reason for its popularity and being marketed by the
banking industry. Per se, persons who take up a BBA loan should not be put in a worse
position than the conventional bank loan. As for this case, if the plaintiff is thriving, there
is no doubt that the defendant might be put in a worse position than the conventional
bank loan. In a conventional bank loan, the debtor will be required to pay an amount
outstanding as at the date of the loan recovery, which is the date of the sale of charged
property. This becomes one of the grounds for the learned judge in Affin’s case relied
on for his conclusion. The decision made by the judge for this case is very helpful and
useful, considerate but still, the use of words might be improvised. As an example, BBA
is not actually a loan contract and the term ‘BBA loan’ is a bit imprecise. If BBA is said
to be a loan contract, it will clearly contrary to all schools of Islamic thoughts that
prohibited the element of usury in a transaction.