News

On 10.4.2019, the historic 9-member panel of Judges which was convened for the first time in such a large number to hear a constitutional reference of issues, delivered its judgment on whether legislative provisions which allowed the rulings of the Shariah Advisory Council (“the SAC”) are unconstitutional. The Judges included the Chief Justice of Malaysia, the President of the Court of Appeal, the Chief Judge of the High Court of Malaya, and the Chief Judge of the High Court of Borneo.

The constitutional reference arose in an action involving Kuwait Finance House (Malaysia) Berhad (“KFH”) and its customer, JRI Resources Sdn Bhd (“JRI”).

Shook Lin and Bok acted for KFH in the Federal Court reference hearing, through Ms Yoong Sin Min, Mr Samuel Tan and Mr Sanjiv Naddan.

A dispute had arisen as to whether a certain clause in the Ijarah agreements entered between KFH and JRI was shariah-compliant. The High Court referred the said clause to the Shariah Advisory Council (“SAC”) pursuant to Section 56 of the Central Bank of Malaysia Act 2009 (“the CMSA”) to obtain a ruling as to whether such clause/transaction was valid under Shariah law.

On 30.6.2016, the SAC (after having considered the written submissions of Islamic law experts who represented KFH and JRI respectively) issued its ruling.

The ruling was referred to the High Court, which then set the action down for trial. JRI, however,   filed an application to refer questions to the Federal Court concerning the constitutionality of Sections 56 & 57 of the Central Bank of Malaysia Act 2009 (“the CBMA”) (“the Impugned Provisions“) and were permitted to do so.

The Federal Court thus sat on 28.8.2018 to hear the constitutional reference, with a 9-member panel of Judges being convened for the first time.  Judgment was then reserved.

Due to the far-reaching consequences of the decision of the Federal Court, the Association of Islamic Banking Institutions of Malaysia and Bank Negara Malaysia had applied, and were allowed, to intervene and participate in the proceedings.

The main issues concerned whether the Impugned Provisions had the effect of vesting judicial power in the SAC and are therefore unconstitutional and void for contravening the Federal Constitution. The contention, in brief, was that s.56 of the CBMA (which requires the court to take into consideration a SAC ruling or to refer a question on Islamic law to the SAC), as well as s. 57 of the CBMA (which provides that any SAC ruling shall be binding on the court), have effectively usurped the Court’s judicial power to hear expert evidence itself to determine whether an Islamic banking transaction was shariah-compliant. KFH posed arguments to the contrary.

On 10.4.2019, the 9-member panel of Federal Court Judges held, by a majority of 5 to 4, that the Impugned Provisions are valid and constitutional. The majority Judges held, inter alia, that the role of the SAC did not usurp the powers of the Court as the SAC only ascertained the shariah law applicable to any Islamic banking transaction, with the final determination of the dispute still within the jurisdiction of the Civil Court. It was held that the SAC provided certainty to Islamic banking business. The minority Judges, which included the Chief Justice and the Chief Judges of Malaya and Borneo, however, expressed the view that the Impugned Provisions were unconstitutional as it effectively resulted in the SAC usurping an aspect of the judicial function of the Court. The dissenting Judges held that the separation of powers (between the legislative and judicial arms of the Government) must be strictly upheld.