Jurisdiction Chosen: Country – Malaysia
Malaysia has a unique legal system as it is the only country in the world that adapts a dual-track legal system where Islamic courts co-exist alongside with civil-institutions. Apparently, because of the dual legal system, Malaysia inherits legal tradition from both the Islamic law and the common law. The more interesting discussion of this research would elaborate how co-existence is possible in Malaysia without conflict.
Before British colonization in Malaya (confined to all states in the Peninsular Malaysia and excluding Sabah and Sarawak in the Borneo islands), Islamic law is only applicable in the state of Malacca. In Malacca the law was compiled in the Malacca Laws and when the Malacca Empire fell versions of the Malacca Laws were applied in the other States (Liam Yock Fang (Editor) Undang-Undang Melaka, The Hague, 1976 ). Subsequent to the fall of Malacca Empire and as a result inter-state migration that took place during that time, Islamic laws were then being spread across to other states of Malaya.
However, when British colonized Malaya in year 1920, the influence of Islamic law became less significant. The British law was implemented in form of codes enacted from India which includes the Contract Act, Criminal Procedure Code and civil Procedure Code. Interestingly enough, the land law legislation introduced at that point of time was based on Torrens System from the Australia.
However, the fact that the Torrens system was introduced during the British colonization in both Australia and Malaya clearly explains how the land law legislation originated in Australia was being implemented in Malaya.
In the today world, the Torrens system land law legislation has been widely implemented in most commonwealth country. As a result of the implementation of the British laws in Malaya the Shariah law is no longer applicable to those areas covered by the British laws. The British proceeded to set up courts that were headed by British judges trained in the English Common Law.
The Civil Law Ordinance 1956 stated that in the absence of any written law, the court shall apply in West Malaysia the Common Law of England and the rules of equity as administered in England on the 7th day of April 1956. Civil Law Ordinance. 1956, Federation of Malaya Ordinance No. 5 of 1956). As a result of the enactment of Civil Law Ordinance, although Islamic law is the law of the land in Malaya, in actuality, English law became the basic law of the land in Malaya at that juncture.
In the case of Ramah v Laton a majority of the Court of Appeal in the Malay States held that Islamic Law is not foreign law but it is the law of the land and as such it is the duty of the courts to declare and apply the law. (Ramah v Laton (1927) 6 FMSLR 128).
However during the hearing of that case, the judge does not have prior knowledge of Islamic law and hence have to refer questions of Islamic Law and customs to the State Executive Council. Due to the complication and constant references back to the Mufti during hearing, Muslim Law was enacted in the States and the Shariah Courts to deal with cases under the enactments. The important fact to take note is that the Shariah courts deals only with Muslims in the Malaya and therefore the Islamic laws are confine to Malays or other races that have converted to Muslims.
Montesquieu puts forward the idea that there is no liberty, if the judiciary power is not separated from the legislative and the executive. He said if it were joined with the legislative, the life and liberty of the subject would be exposed to arbitrary control; the judge would then be the legislator. If it were joined with the executive, the judge would behave with violence and oppression Montesquieu, The Spirit of the Laws, Book XI).
In Malaysia, the judges of courts are appointed by the Yang-Dipertuan-Agong (Monarch) on the advice of the Prime Minister. The prime minister, before advising the Monarch is required to consult the Chief justice beforehand. The judges are usually appointed from the Judicial and Legal Service or the bar council.
The independence of judiciary in Malaysia is questionable for a couple of reasons. In Article 22 of the Federal Constitution, judicial commissioners can be appointed to perform the role of a judge of the High Court. However the appointment is for an initial term of 2 years. If the commissioner performs his duty up to a satisfactory level, he may then be recommended by the Prime Minister to be a judge. As the judicial commissioners does not have a secured tenure and is playing the role of probationary judge being evaluated subjectively by the Prime Minister, his ability to not be subjected by external influences in this case the parliament headed by the Prime Minister himself can be questionable.
Moreover, the fact that judicial independence in Malaysia is questionable is further evidenced during the Malaysia judicial crisis in 1988. It all began with the then Supreme court’s decision in JP Berthelsen vs Director General of Immigration Malaysia & Ors  1 MLJ 134). The Supreme Court overruled the decision of the Minister and allowed Bethelsen to lawfully stay in the country.
The then Prime-minister made a remark during the parliamentary debate that the minister should have the final say of how long a foreigner stays in the country. In May 1988, 20 judges and the then Chief justice wrote to the monarch expressing the concerns of the executive criticism of the judiciary publically. As a result, the prime minister invoked the procedure provided under Article 125 Federal Constitution (Malaysia) to remove the chief justice on the ground of misbehavior. These series of event leading to the sacking of the then chief justice appeared to be the darkest history in Malaysia’s judicial independence.
Comparison to judiciary independence in Australia Australia, in comparison to Malaysia, though being a Commonwealth country that shares common legal tradition from the British has a judicial system that is much more independent. Since 1900, the Australian government has adapted a tripartite separation of power of their political system. The roles and responsibly of the tripartite are clearly elaborated in the three chapters of the Australian Constitution.
Chapter 1 explained the parliament as the party that deals with legislation, chapter 2 on the
Government on providing executive powers and chapter 3 the Judicature exercising their judicial independence via the High court and federal courts. Under Chapter 3 section 72 Australian Constitution (Australia), the judges’ tenure of services is protected and can only be removed by the house of parliament and not by prime minister alone as opposed to Malaysia. Moreover, section 72 also clearly mentioned that the remuneration of the judges may not be reduced while they are in office.
In Malaysia, the judiciary does not have control of their own budget and hence the remuneration of the judges could be affected by the Ministry of Finance?
As Malaysia has a law tradition that rooted from British law during the British colonization, common law of contracts became the base of jurisdiction in enforcing promises. However, the fact that Syariah law exist, it is not uncommon for financial institutions to offer products under the Islamic law of contract. However, the discussions here are generalized to the common law as it still appears to be the most relevant contract law in Malaysia.
The common law in Malaysia, similar to common law in British, has freedom as the fundamental of promises between parties. Hence, a promise that benefits a single party more than the other is not uncommon in promises agreed in Malaysia. As long as the contract is clearly communicated in writing, and the other party is well informed of the content of the contract, it will be held valid.
Unlike Islamic law of contract, a verbal promise will not qualify as a contract. The validity of a contract in common law requires ‘consideration’ which basically implies that a contract must be bilateral. Although most promises are made in order to get something in return, in rare occasion, the in return promise could be abstract.
In the case of a father giving money to a man to marry his daughter, the consideration for that case is the fact that the father simply wanted to see his daughter getting married (Sharrington vs Strotton (1556) Plowden at 303). Contrasting with the Islamic law, a single sided promise is held valid in Wa’d which means unilateral promise in Arabic. In the case of purchase of goods in Malaysia, the purchaser is obliged to perform his own due diligence on the goods before the purchase.
It is an obligation in any commercial (sale-purchase) that the seller is to allow the buyer prior to enter into agreement to inspect the goods in order to ensure that it is defect free.
Such an obligation on the seller is known at Common law as “Caveat Emptor”. (Caveat Emptor, Mozley & Witheley’s Law Dictionary, 1993) Jowitt’s Dictionary of English Law (1997), explains that a purchaser or buyer must be on the alert for he has no right to remain in ignorance of the fact that what is buying belongs to someone other than the vendor, and that any purchaser who fails to investigate the vendor’s title does so at his own isk (Caveat Emptor, Mozley & Witheley’s Law Dictionary, 1993). This clearly distinguished contracts in Malaysian common law with Islamic law of contract where the purchaser could void a contract if he later found out that the goods purchased are defective even if he has not done his due diligence.
If there is a breach of contract on either side, the innocent party has the right to terminate the contract and to subsequently claim the party in breach for damages that would put the innocent back in a position had the contract been fulfilled.
In the example of Choo Yin Loo vs Visuvalingam Pillay(1930) 7 FMSLR 135, the plaintiff sued the defendant for not having enough worker to work on his land and hence breached the contract. As a result, the defendant was ordered to pay damages to the plaintiff.
The Islamic law of contracts emphasizes ethics in its promise; hence the promise itself must be fair and honest. In Islamic law of contracts, a promise made in verbal is also acceptable which make it very different from common law. The contract must not relate to item that is considered haram (prohibited item) by religion such as pork or swine product, alcohol, gambling equipment or drugs.
Another aspect of Islamic law is that it seeks to eliminate gharar, which represent risk, fraud, hazard and uncertainty (Kamali 2008,84)The subject of the contract must be legally owned at the point of time the contract is being drawn negotiated. Hence, items yet to be in existence or built may not qualify as a subject of contract. Usually this translates into making contract of insurance impermissible (Stovall 2002,9). As a result of contracts not allowing gharar, many financial investment contracts such as futures and options are also not permitted in the Islamic law of contract.
Laws governing joint-stock companies do not allow for the distribution of share options, which hinders entrepreneurships (Azzam 2002,64) Riba which means interest is also prohibited in the Islamic law of contract. As a result, loan contract between borrower and bank will not be able to include interest in their repayment. However, in modern Islamic countries, the alternative of charging interest are being done in the form of Ijara where a borrower will sign an agreement to sell the property to the bank at the margin of finance agreed and then sign another contract to purchase back the property at the end of the finance tenure.
For instance, in Shariah compliant mortgage, the property must change hands twice- from seller to bank and from bank to customer (World Bank Policy Research Working Paper 4053, November 2006). This has been by far the most popular Islamic financing contract for real estate, however the fact that a buyer could be selling a property at one price and buying it back at 3 times the price 20 years later contradicts greatly with the idea of prohibiting Riba as obviously a bank is having a windfall gain out of the contract.
The interesting argument revolving this is the fact that windfall gain is prohibited in a single contract but questionable if it is done in two different co-related contracts. However, when an investment deposit is made by an investor to a bank, the bank does not give interest to the investor but is merely giving profit-sharing. Islamic theory in contrary to western notions of finance: it holds that money should be use only to facilitate the sale of goods and services, but should not be “commoditized” itself because it is both socially and morally injurious (Holland 2002, 42) In Islamic law, a Wa’d (unilateral promise) is permissible, thus greatly highlighting the distinction between common law of contract and Islamic law.
Consideration is not required in Islamic law and a one-sided promise can be accepted legally as much as a bilateral promise.
The danger however, is the fact that when an offer is made, even when the other party does not respond to it may imply acceptance of the contract. In Islamic contract law, there are many self-help remedies available under the Khiyar. A contract can be terminated under Khiyar-al-aib if the subject sold is later discovered to be faulty.
This indeed is very different from caveat emptor where the buyer should have done his due diligence before purchasing it. In Khiyar-al-aib, it becomes the responsibility of the seller to ensure that goods sold are fault free to avoid the purchaser from voiding a contract?
Malaysia jurisdiction recognizes corporation as a separate entity from the owner. The corporation can be used to enter into contract as a legal entity that is entirely independent of the owner. The advantage of this setup allows the owner of the company to limit his own liability in event a contract turns sour and the innocent party is seeking damages from the owner.
However, it is important to take note that not all companies incorporated in Malaysia thru the Companies Corporation of Malaysia Act 2001 have limited liability to its owner. Hence, for owner to have limited liability the company formed must not be an unlimited company. To the question of how much liability is an owner limited to, will depends on the paid up capital declared during the formation of the company. In situations where there is more than one owner, a Memorandum of Association will be presented to clearly outline the number of shares each shareholder has and thus limiting the liability of different owners according to their shareholding.
The Memorandum of Association is used to define the nominal amount of paid up capital and more importantly the division of that capital into shares to different owners if there is more than one owner. Although formation of limited company allows the owner to have limited liability, it is important to take note that the owner may not be immune to wrongdoings conducted by the company. For example, if the company has committed an offence, the director of the company can be held liable and tried for the offence committed.
Interestingly enough, the owner can choose to be the sole shareholder but appoint/employ others to be the director. Islamic business grouping are done by forming either Mudaraba or Musharaka contract. A mudaraba contract allows for a person who owns property to invest capital with someone who puts in effort or work to make profit ( Al-Suwaidi 1994, 74).
In Musharaka, both will invest in capital for the partnership. The most contrasting characteristic of an Islamic form company compared to company law in Malaysia is the fact that there is no possibility to form a company with a limited liability. Above that, it is also impossible for the partners in the company to have limited liability by their share ownership.
The contract law is individually oriented, and collective enterprises, such as corporations, do not enjoy legal rights distinct from the individual owners (Kuran 2004,3). Laws governing joint-stock compaies do not allow for the distribution of share options, which hinders entrepenership (Azzam 2002,64)
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