Legal Cauldron issue 1 of 2010

Visit us at www.jhj.com.my

THE LEGAL CAULDRON TEAM

EDITOR Andrew Chee

LAYOUT & DESIGN

Adrian Low

ARTICLE CONTRIBUTORS Ganesheraj Selvarajah

Stanley Gabriel Barvina Punnusamy

Frank Akpoviri

IN THIS ISSUE:

• An Onerous Duty

• Caution when buying auction property

• Can intellectual property rights constitute the subject matter of an Islamic Contract?

• Protecting the future

No. KDN: PP 15706/02/2011 (028275)

AN ONEROUS DUTY By Ganesheraj Selvarajah INTRODUCTION Over the years we have seen a growing number of companies being established in Malaysia. A very common reason for estab‐lishment of a company is “Limited Liability”. What this means is that the shareholders do not have the burden of overseeing the risk and profitability of the company as the same fall within the responsibility of the Board of Directors and with such responsi‐bility comes accountability. The purpose of this article is not to delve into the details of the duties and responsibilities of directors but generally just to serve as a guide on the substantial exposure placed on the di‐rectors in the day to day undertaking this onerous duty. GENERAL DEFINITION OF A DIRECTOR For ease of reference, I have taken the liberty to state in very general terms the following:‐ 1. An individual can be a director as long as he/she:

A) is 18 years old (for public companies the general rule is that a director must be under 70 years old);

B) is not an undischarged bankrupt; C) has not been convicted of criminal offence involving

fraud or dishonesty; D) has not been imprisoned for an offence under S132,

S132A or under S303 of Companies Act; and/or E) has consented to act as director.

2. Section 4 of the Companies Act 1965 (CA) defines director as:

LEGAL CAULDRON. ISSUE 1/2010 . PAGE 2

MESSAGE FROM THE EDITOR

Jurisprudence, legal academics make comparisons between the Capitalist and Marxist State. To Capitalists, Marxist epistemology fails because “it would be absurd if a doctor is paid the same as a farmer”. To the Marxist however, society must strive to promote and encourage its productive members to engage in the activity or profession in which one is most apt and has the most passion for without any attachment to ensuing compensation. The Marxist in all of us continuously ask: “Would you rather be treated by a doctor who is only in it for the money? Or the doctor who loves his work?” The jurisprudential relevance of this note comes to light as we would like to announce that Messrs Jayadeep Hari & Jamil has won the Action Coach Team Award for 2009. In its entire history of awards, the Action Coach organisation (which is established in more than 23 countries worldwide with over a million participants) deigned it most appropriate that JHJ be the first legal outfit amongst its stable to lift aloft this coveted award. JHJ has been under the Action Coach program for over a year now as our commitment to self and constant improvement. Before Action Coach, JHJ had sought and engaged professionals in guiding and steering the members of the JHJ family in self development and excellence in services. We are extremely elated to have our efforts recognised in this award. Companies were judged based on: • What the company is doing for the continuous improvement of the team;

• The steps the company intends to take in the near future toward the above aim;

• The company’s HR management systems; and • The probability of employee satisfaction. Indeed, we are a firm that enjoys doing what we do. Committing to self‐improvement is not a chore to JHJ. We may not be the biggest but we are perhaps one of the most passionate. It is rare to find any sort of corporation where the clerks and secretaries are also thinking of suggestions and strategies to implement in the firm, be it to make existing systems more efficient or merely to make the office more cheerful and comfortable. Every employee gets to chair the rather important staff meeting every month. And every month we get a different “flavour” meeting which yields different and otherwise unseen results. The osmosis of opinions and ideas that seep and exude from everyone keeps us on a constant flux that prevents the firm from descending into routine monotony.


While others employ an operation which seems to infinitely loop its members in a dreary, supposedly desirable and effi‐cient, system, it is not the JHJ philosophy. You would be sur‐prised at the result, when hierarchy sometimes gives way to consensus. Ego and pride does not take root easily on JHJ soil when all of us love our work and value the firm holistically. The Action Coach Team Award 2009 comes as recognition and encouragement knowing that we are treading on, not necessarily the most profitable, but definitely the better path. The question I pose to you now becomes: “Would you rather hire a lawyer that’s in it for the money? Or a lawyer that loves and believes in his work?”

most potential liabilities in shareholder‐related claims. Di‐rectors may be able to justify a wrongful act, such as any actual or alleged breach of duty and breach of trust to mi‐nority shareholders or place the burden on the manage‐ment to ensure compliance. However, they would not be covered for acts which are deemed criminal acts where their behaviour and miscon‐duct are construed to be willful, fraudulent and intentional. POSSIBLE PENALTIES It would not be possible to state in very detail or even list out all the potential liabilities in one simple article like this but more often than not the items below are some of the examples of more common penalties/sanctions imposed on Directors. 1. Breach of their fiduciary duty

A) director sets up another firm to compete for contracts with the company: Avel Consultants Sdn Bhd & Anor v Mohamed Zain Yusof & Ors [1985] 2 MLJ 209

B) director diverts a business opportunity for his

own profit: Hytech Builders Pte Ltd v Tan Eng Leong & Anor [1995] 2 SLR 795

2. Failure to comply with statutory requirements:‐

A) obligation to keep registers; B) to make documents available for inspec‐

tion; C) to keep minutes of meetings; D) to keep accounting records and books; E) to hold AGM; F) to lodge changes in particulars of the com‐

pany directors and secretaries; and/or G) to record and note interests of and disclo‐

sure by directors or chief executives, their spouses, children or parents of their inter‐est in securities of a company.

3. Failure to comply with the requirements of making

employment provident fund payments:‐

“any person occupying the position of director of a corpo‐ration by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director”

Certain other sections within the Companies Act have gone on to include the CEO, COO, CFO or any other person primarily responsible for the operations or financial management of a company, by whatever name called. WHY THE SPOTLIGHT? A few years ago, directors did not shoulder the same concerns as they do today. Rightfully so, the situation has changed dra‐matically in line with factors such globalization on corporate finance and management, the growing impact of computers and communication information, the growing demand of insti‐tutional investors and international institution, complex capi‐tal controls and corporate reform as a whole, just to name a few. Coupled with the establishment of watchdog groups and the greater need for good corporate governance, a renewed em‐phasis has been placed on the responsibilities of directors. A substantial change is more evident in public listed companies but it will only be a matter of time when it becomes common expectation or a requirement for all companies to elect quality directors. Obviously the increased responsibilities, leading to further accountability, would most definitely call on all parties to take into serious consideration any invitation to a Board, considering the director will most evidently be exposed to greater risk and liability. Although Malaysia has only seen a limited number of directors’ liability cases, several factors are now combining in effect to make this a real possibility in the future. These include the re‐cent corporate and securities law reforms to lessen the burden of proof for offences, whistle blowing provisions, the shift from a merit‐based to disclosure‐based regime for full and appro‐priate disclosure, due diligence and increasing activism among minority shareholders. There is a growing multitude of statut‐ ory liabilities under the Securities Commission Act 1993 and the Capital Market and Services Act, 2007 that will expose di‐rectors to a greater variety of risk factors than before. Inadequate, inappropriate or incomplete disclosures, account‐ing irregularities, erroneous announcements, false and mis‐leading statements or company law violations lie at the root of


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CONCLUSION In conclusion, the power suits, the glamour of corporate deal‐ings and the considerable power synonym with the post of a director come at a price. The price, shouldering the onerous duty of ensuring the interest of the company is safeguarded and upheld at all times, even if it is against the wishes of the stakeholders of the company itself. Taking a look at interna‐tional corporate structures and precedents, the regulations and enforcement of regulations will most certainly be an area that will continue to develop. As such, due and proper consid‐eration of the roles, duties and exposures of a director must be given and just as any complex decision, due research and advise should be sought before making a decision.

Ganesheraj Selvarajah Partner [email protected]

CAUTION WHEN BUYING AUCTION PROPERTY By Stanley Gabriel

Siti noticed in the local newspapers, that a large number of properties are being auctioned off every day. She also realised that the price of auctioned properties (reserve price) are much lower than the market value and as such was keen to know the auction procedure and what to look out for when purchasing an auction property.

BRIEF INTRODUCTION AND PROCEDURE

Almost all the property auctions that are published or adver‐tised in the local newspapers are auctioned by banks or finan‐cial institutions. A property is put up for auction when a Bor‐rower has defaulted in paying his/her housing loan install‐ments. When a Borrower defaults in the loan repayment, the procedure in which the bank or financial institution initiates the foreclosure proceedings will vary and is dependent on whether a separate individual title has been issued for the property. Almost all auctions in the advertisements will refer to the Borrower as “Chargor/Assignor” and the Bank as “Chargee/Assignee”.

LEGAL CAULDRON . ISSUE 1/2010 . PAGE 4


This is a strict liability issue. What this means is that so long as the company fails to make the re‐quired employment Provident Fund (EPF) contri‐butions, the directors would be personally liable. The courts have even gone further and to hold the directors personally liable even where the com‐pany has been wound up stating that at the mate‐rial time when the contributions failed to be paid the individual was the named Director. On Kim Chuan & Anor V. Lembaga Kumpulan Wang Simpanan Pekerja [2009] 6 CLJ 586 [2009] 1 LNS 576.

4. Failure to comply with the requirements of the

Authorities:‐

(a) Stock Market manipulation and submis sion of false statement to the Securities Commission. A director was fined RM150,000.00 and in default would be liable to 3 months imprisonment; (b) Directors conspiring to withdraw money

from trust account. Two directors were fined RM200,000.00 each and in default would be liable to 1 year imprisonment;

(c) An operating officer engaged in an act which operated as a deceit (Initial Public Offering exercise). The Operating Officer was sentenced to 3 years imprisonment and fined RM1,000,000.00 and in default would be liable to an additional 1 year imprisonment;

(d) Omitting to state a material fact deemed to be misleading. The Director was sen tenced to 1 year imprisonment and fined RM3,000,000.00 and in default would be liable to an additional 3 year imprison ment; (Source: Securities Commission Re port at www.sc.com.my)

The penalties imposed by the relevant authorities have ranged from thousands to millions of Ringgit Malaysia, all depending on the gravity of the offence. The courts have also imprisoned fraudulent directors.

http://www.sc.com.my

This is because if a buyer is successful in the bid, the buyer is deemed to have entered into an agreement and is bound by the terms and conditions stipulated in the COS. Prior to the commencement of an auction, a deposit of 10% of the reserve price must be placed with the auctioneer. Failure to place a deposit would prevent you from partici‐pating in the bidding of the property. A successful bidder is required to sign a Memorandum of Sale attached to the POS and the deposit will then be released to the auctioning Bank towards part payment of the purchase price. If the buyer is unsuccessful the deposit will be refunded to him/her im‐mediately after the auction. Buying an auction property is by no means a walk in the park. There are many issues and complexities a buyer has to face and overcome when buying a property for auction. Although the reserve price is way below the market price, there maybe other factors that can ultimately increase the costs of the property itself. There are also risks and a lot of hassle involved when one buys a property in an auction. Buyers are advised to make enquiries, carry out investigations and read carefully the terms and conditions of the auction before making a deci‐sion to buy the property. These are some terms and conditions a buyer should look out for in the COS and factors to consider before deciding to buy an auction property. These terms and conditions and factors highlighted below are by no means exhaustive. PROPERTY SOLD ON AN “AS IS WHERE IS BASIS” The COS will state that the property is sold subject to all express and implied conditions, restriction in interest in‐cluding charges, liens, caveats, prohibitory orders, tenan‐cies, leases, restraints, rights of occupiers and tenants af‐fecting the property. The COS will further state that the buyer is deemed to have full knowledge of the state and condition of the property. This means the buyer is purchas‐ing the property at his own risk because there is no guaran‐tee by the Bank that the property, which is sold to the buyer, comes with a clean title. The obligation is on the buyer to remove any caveats or restraints affecting the title or evict the owner or tenant if they refuse to deliver vacant possession. The buyer will have to remove the caveats or restraints within the comple‐tion period stated in the COS. If necessary the buyer may need a court order to remove the caveats or restraints on the title.

The words “Chargor/Chargee” in the advertisement will indi‐cate that the property in question has an individual title whereas the words “Assignor/Assignee” will suggest that there is no individual title issued yet. When there is no separate indi‐vidual title issued, the Bank will secure the loan by getting into a Loan Agreement cum Assignment with the Borrower over the rights, title, interest and benefits of the Principal Sale and Purchase Agreement. In this case the Bank or financial institu‐tion can directly appoint an independent auctioneer to auction the property provided there is no restriction or precondition stipulated in the Loan Agreement that requires the Bank to first obtain a court order for the sale. Where there is a separate individual title for the property, the Bank will secure the loan by creating a charge over the prop‐erty. In this case the bank will enforce the charge via foreclo‐sure proceedings to auction the property. Prior to initiating foreclosure proceedings however, it must be determined whether the Land Registry or the Land Office has issued the separate individual title. If the title was issued by the Land Registry, then the Bank will have to follow the rules and proce‐dures prescribed in Sections 254‐259 of the National Land Code 1965 (“NLC”). Once the procedures in the NLC have been complied then the application for order for sale is made to the High Court pursu‐ant to Order 83 of the Rules of High Court 1980 for the High Court to carry out and conduct auction proceedings.

On the other hand, if the title has been issued by the Land Of‐fice, the application for order for sale must be made to the Land Administrator in accordance to the rules and procedures prescribed in Sections 260‐265 of the National Land Code 1965. The Land Administrator has the power to conduct a maximum of three (3) auction proceedings on the property. If the property is not successfully auctioned off after three (3) attempts, the Land Administrator must then revert the matter to the High Court to conduct the auction proceedings. PROCLAMATION OF SALE Once an order for the sale has been obtained from the High Court or Land Administrator, the auctioneer will prepare a Proclamation of Sale (POS). The POS will be advertised in the local newspapers and a copy pasted on the property. The POS will contain the date and venue of the auction, the reserve price, the parties involved, the details of the property, the title particulars and the terms and conditions of the sale. The POS also comes together with the Conditions of Sale (COS) and it is advisable that before a buyer bids for the property, the terms and conditions stipulated in the COS is read and understood.


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PAYMENT OF BALANCE PURCHASE PRICE Successful bidders are often given ninety (90) days from the date of the auction to settle the balance payment. Therefore it is advisable for the buyer prior to the auction to verify his/her eligibility to secure a loan for the pur‐chase of the property. Normally ninety days (90) is suffi‐cient for the completion of the legal documentation and release of the loan. However if any third parties have lodged caveats or other encumbrances on the title, then it is very unlikely that the buyer can remove the encum‐brances within the ninety (90) day time frame to pay the balance purchase price to complete the sale. In such situa‐tion the buyer may have to first settle the balance pur‐chase in cash and later take the necessary action to re‐move the encumbrances on the title. Otherwise the auc‐tioning Bank has the right to terminate the sale for the buyer’s failure to pay the balance purchase price and for‐feit the deposit. OUTSTANDING QUIT RENT, ASSESSMENT, SERVICE, MAINTENANCE CHARGES AND OTHER OUTGOINGS Some COS will state that all outstanding quit rent, assess‐ment, service, maintenance, electricity, water, sewerage, sinking fund, late interest charges or other outgoings in respect of the property will have to be borne by the buyer. The buyer should read and check the COS carefully to see who is responsible to pay the outstanding charges for the property. If the COS states that the outstanding charges are to be borne by the buyer it is advisable for the buyer to make enquiries with the developer and relevant authori‐ties to find out the outstanding charges for the property. These outstanding charges can be quite substantial so buy‐ers should carry out their own investigations to avoid any dispute or misunderstandings later. RESELL OR TRANSFER TO THIRD PARTY A buyer who buys a property in an auction is not allowed to resell or transfer the property directly to a third party. The buyer must first pay the full purchase price in accor‐dance to the terms and conditions of the COS and transfer the property to his name before he can resell or transfer it to a third party. The buyer will have to incur the legal costs, stamp duty, registration fees and other disburse‐ment for the transfer of the property to his name. And if the buyer is taking a loan to finance the purchase he/she will have to also bear the legal costs, stamp duty and dis‐bursements in relation to the loan documents.


This process is costly and time consuming and the buyer has to bear all costs and expenses involved with the added risk that the compensation or costs may not be recoverable. If the caveats or restraints are not removed, the ownership of the property cannot be transferred to the buyer and the charge cannot be registered in favour of the buyer’s financier. In this event, the financier will not be able to disburse the loan within the time frame stated in the COS and the auctioning bank has the right to forfeit your deposit. Sometimes the auction properties may have been abandoned by their owners and have been locked. This makes inspection rather difficult. In some cases the owner or tenant is still oc‐cupying the property and they may refuse to vacate the prop‐erty although the buyer has successfully bought the property. Again the buyer may be required to obtain a court order to evict them and in the process incurring more costs and ex‐penses.

There are also cases where the owner is still occupying the premises and will refuse entry to the buyer to view and in‐spect the property knowing very well that the owner will have to vacate the property if the buyer is successful in the auction. In spite of all these difficulties, the buyer must make the effort to visit and inspect the property before the auction. A prudent buyer should also make enquiries and carry out his own in‐vestigations to find out the state and condition of the prop‐erty or whether anyone is residing in the property. The buyer should not rely on the photograph of the property appearing in the advertisement or printed on the POS as these will not convey the actual state and condition of the property. CONDUCT LAND SEARCH ON THE PROPERTY It is crucial for a buyer to conduct a land search at the rele‐vant land office to find out the express and implied conditions of the title. The search will also reveal the current registered owner, existing chargee and whether there are any caveats, prohibitory orders, restraints, exempt tenancies or leases claimed by any parties to the title. The COS will mention it is the obligation of the buyer to conduct a land search and the buyer is deemed to have made the search and have full knowledge of any encumbrances (impediment) on the title. The Bank has no obligation to deliver vacant possession free of any encumbrances or restraints affecting the title of the property. The COS will further state that it is the duty of the buyer at his own costs and expenses to remove any encum‐brances on the title.


If there are caveats or restraints on the title, the removal may require a court order and therefore incur more costs and expenses. Further if the owner or tenant refuses to move out, again you may require a court order to evict the owner or tenant and thereby incurring more costs and ex‐penses. The court process is lengthy, time consuming and costly. The parties who lodged the caveat or restraint may contest the buyer’s application to remove their caveat or restraint and thus may cause further delay and costs. Time is the essence to the contract and the onus is on the buyer to remove the caveats or restrains. Therefore if there are delays to remove the caveats and restraints on the title, the Bank may terminate the COS and forfeit the deposit or they may extend the completion period provided the buyer pays in advance late payment interest which can be quite sub‐stantial. Most times, buyers have been caught unaware of the proce‐dures and pitfalls when buying an auction property. The buyer only appoints a lawyer after they have been success‐ful in an auction. This has caused great loss and pain which can be avoided if proper enquiries, investigations and searches have been done before bidding for the property. Thus, when buying an auction property, it is necessary to consider and weigh all the aforesaid risks, time and costs involved in complying with the terms and conditions im‐posed in the COS. It is therefore recommended that you appoint a lawyer even before the auction date to advise and safeguard your interests.

Stanley Gabriel Partner [email protected]

CAN INTELLECTUAL PROPERTY RIGHTS CONSTITUTE THE SUBJECT MATTER OF AN ISLAMIC CONTRACT? By Frank Akpoviri Unlike their conventional counterparts, Islamic contracts are mostly asset‐based. They involve the exchange of prop‐erty (mal) in return for a price. In Islamic law, in order for contracts to be valid, they must be fair and beneficial to the parties involved.

The registration of the property in the buyer’s name will take about six months or more. So it is difficult to make a quick profit, as the buyer is not allowed to resell the prop‐erty until the buyer’s name has been registered and en‐dorsed on the title deed. If the buyer’s intention is to make a quick profit he will have to take into account and consider the time, costs, bank interest, penalty for early settlement of the loan and other costs and expenses. Buying and resell‐ing an auction property immediately will not derive much profit unless the buyer has the resources to wait for the appreciation of the property market. COMPETING WITH AGENT, TOUTS AND SYNDICATES On the day of the auction a buyer may come across agents, touts and syndicate members who will guarantee and promise the buyer that he will be the only successful bid‐der. These agents, touts and syndicate members will ask for a commission to stop other people from bidding for the property. These agents and touts will give assurances to the buyer that no one else will bid for the property and that they can get the property for the buyer at the reserve price stated in the POS. Some of the prospective buyers attending the auc‐tion are in fact agents, touts and syndicate members. Buy‐ers should avoid them and not show how keen they are on securing the auction property. These agents and touts can be ruthless and when a buyer brushes aside their advances, they will actually take part in the bidding on the pretext of buying the property. In the midst of the bidding they will suddenly pull out catching the genuine buyer off guard and leaving him/her as the sole bidder for the property. The buyer may then end up paying way above his/her budget or reserve price for the property. Before the auction a buyer must be sure of the maximum or the highest price he/she is willing to pay for the property. If the bidding exceeds that budget or target, the buyer should stop and withdraw from the bidding. Otherwise the buyer will end up paying a lot more than what he/she bargained for. CONCLUSION In conclusion it can be said that buying a property in an auction has its hassles and pitfalls. Due to the uncertainty involved, people are generally reluctant to bid for property in auctions even though they may be priced very much lower than the market rate. Very rarely can a buyer inspect a property before the auction to find out the exact state and condition of the property and to assess the cost of repairs for the property.


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Thus, the fact that usufructs may be owned in the latter sense does not, by itself, elevate them into the realm of the physical so as to be granted the status of mal. Ibn Abidin goes further to differentiate between mal per se and mal mutaqawwan (valuable property) because, although cer‐tain things such as mosquitoes, snakes and lions, can be mal, they may have no value according to Shari’ah, and consequently, cannot form the basis of an Islamic contract. Another Hanafi jurist, al‐Sarakhsi, similarly defines mal as something, which is created, beneficial to people and can be kept (Mabsut 1989: 11:79). Al‐Taftazani reinforces this by defining mal as something that is beneficial to people, and would decrease in its value and become worn out af‐ter usage. Like Ibn Abidin’s, both of these definitions also imply something that possesses tangible characteristics. But there is, at least, one Hanafi jurist, al‐Kasani, who sees things differently. As far as al‐Kasani (1982:7:385) is con‐cerned, mal can encompass usufructs. In other words, mal can be both tangible and intangible items. Despite al‐Kasani’s discordant view, however, the general Hanafi consensus is that mal refers exclusively to tangible items. The Majallah’s description of mal lends support to the Hanafi viewpoint. Article 126, for instance, defines mal as things that are desired by man, and which can be stored for use when necessary. Like Ibn Abidin, Article 127 spe‐cifically stresses on mal mutaqawwan, and defines it as something that has a benefit, the enjoyment of which the law permits, and as property acquired, presumably, tangi‐ble property. The most vivid backing of the Hanafis, how‐ever, comes from Articles 150‐151, as well as Article 159 of the Majallah. After clarifying in Article 150 that the sub‐ject matter of a sale is called al mabi, Article 151 proceeds to define “al mabi” as something, which is “ fixed and indi‐vidually perceptible” at the time of the sale. In Article 159, al mabi, is, in turn, equated with ‘ayn, which itself is illus‐trated with tangibles such as a chair, or a heap of corn, that exists and is present. In Article 363, it is further stated that a thing capable of being sold is one that exists, and is deliverable. Summing up these different elements, a basic explanation of mal can be given as something that exists and is visible, storable, owned, beneficial, desirable and lawful. When IPRs are assessed against these criteria, it can be said that they fulfil all, except that they are not visible and cannot be stored in the conventional sense, given their abstract na‐ture. It is because of this lack of physicality that Ibn Abidin and most other Hanafi jurists argue that usufructs, and by implication, rights, cannot constitute the subject matter of an Islamic contract, even though they may be owned by reference to their use.



The parties must have the opportunity to evaluate the worth of, and the consequential benefits derivable from the items being exchanged. As a general rule, uncertainty in contracts is forbidden because that may lead to disputes between parties, or expose them to un‐foretold financial losses. This objective is more easily achieved when a tangi‐ble property constitutes the subject matter of a contract. However, unlike previously, the range of potential items that can be used as the subject matter of an Islamic contract has widened to cover not only tangible, but also intangible or abstract items, such as rights (haqq ma’nawi). On the other hand, since compliance with Shari’ah is the defining characteristic of Islamic contracts, any transaction that is based on intangible items would run the risk of being con‐sidered invalid due to non‐compliance with Shari’ah re‐quirements. Yet, given recent technological breakthroughs and advance‐ments, there is a growing desire to explore the trading of intangible assets, such as intellectual property rights (IPRs), in Islamic transactions. This makes it important to enquire whether IPRs, given their intangibility, can qualify as mal; in other words, whether they can validly constitute the subject matter of an Islamic contract. Islamic jurists from different Schools of Thought constantly debate on what can, and cannot constitute mal. These Schools: the Hanafi, the Maliki, the Shafi’i, and the Hanbali, proffer sys‐tems of reasoning that can be summarized under two broad categories. On the one hand, the Hanafis contend that only physical assets can be mal. According to Ibn Abidin, a leading Hanafi jurist, the status of mal can only be ascribed to corporeal or tangible things (‘ayn), to the exclusion of incorporeal or intangible things such as usufructs or the beneficial use of another person’s property (manāfi’), and rights (haqq). He characterized the proprietary nature of corporeal things in various ways, by referring to the ability to acquire and con‐trol them; the tendency for people to desire them; the abil‐ity to store and retrieve them for use when needed; the possession of value (taqawwum); and the ability of people

to appropriate and enjoy that value. Although Ibn Abidin acknowledges that usufructs are ame‐nable to ownership (milk), he refuses to consider them am‐wal (plural of mal), because according to him, they cannot constitute the specific subject matter of an Islamic contract. A look at the Majallah (a Code of Obligation put in force in the Ottoman Empire in the second half of the 19th century) will make Ibn Abidin’s point clearer. Under Article 125 of the Majallah, ownership can be understood in terms of ei‐ther the object owned (physical), or the use of that object, that is, the usufruct (abstract).

That some of these new forms of knowledge, such as intellec‐tual properties lack physical embodiment ought not preclude them from being mal, insofar as they possess benefits the en‐joyment of which, is permitted by law. Islam encourages the search for knowledge, and the enjoyment of the fruits of new knowledge, in the form of innovation, is not necessarily Shari’ah non‐compliant. The Hanafis (see al‐Sarakhsi supra) argue that usufructs and rights cannot exist independently as valuables, because they are contingent on physical properties, and that compensation for any damage done to a physical property depends on the nature of that damage, not on the associated usufruct or right. Still, this argument can be turned upon its head. First, to compensate for damage done to a physical property presumes some recognition of the underly‐ing right of the owner to a peaceable use and enjoyment of his property, without unlawful interference. Second, and based on this right to a peaceable use of his property, the owner may be allowed to claim extra compensation for loss of use. Third, in a way, it is the abstract right associated with a physi‐cal property that makes the latter valuable. Take for instance, an original intellectual creation, such as a book. When the author sells his work to a publisher, it is not the physical book per se that the publisher buys, but the abstract right (copyright) to reproduce and distribute that book. Without the copyright, that book would be of no value to the publisher who would, as a result, have no need to pay for it. An example can also be made of the sale of a house. Usually, when a house is sold, it is not just the physical building that is sold, but also the ownership right (abstract), without which the former would be of hardly any value to the purchaser. This means that without the associated abstract right, the physical property would remain simply as mal, rather than mal mutaqawwan, because it is the abstract right that confers value on the physical property in question. And the value thereby conferred can be quantified in terms of money. All this makes the Jumhur’s argument that, abstract rights are also property, which like physical properties, can be mal, more appealing. Moreover, it is a well‐established practice for people to trade in usufructs. This is easily observable in Islamic leasing con‐tracts (Ijarah), whereby the lessee (musta ‘jir) pays a rent (ujrah) to the lessor (mu ‘jir) in order to enjoy the beneficial use (usufruct) of the leased asset for an agreed period of time. Two points can be developed from this. First, it is another indication that usufructs and rights are economically valu‐able, otherwise, as Nurdin Ngadimon correctly notes, people will not be willing to pay for them. Second, trading in usu‐fructs, being an entrenched practice, amounts to custom (maruf), which is one of the sources of Islamic jurisprudence (fiqh). Such a custom has the force of law based on the princi‐ple enshrined in the Majallah that a proven custom is akin to the stipulation of law, provided that the custom does not con‐flict with spirit of Shari’ah.

In their view, usufructs and rights are unlike physical prop‐erty, which can be kept, and cannot exist independently as valuable things, unless embodied in physical things (al‐Taftazani, 1996:1:321‐322). As al‐Sarakhsi demonstrates, when a physical property is damaged, for instance, compen‐sation is paid based on the nature of the damage done to that physical property, and not on the basis of the usufruct or right. This is because the latter is contingent on the former. The Hanafi conceptualisation of mal means that IPRs do not qualify as mal. This implies that they cannot constitute the subject matter of an Islamic contract. Consequently, a con‐tract that purports to have IPRs as its subject matter is auto‐matically void for non‐compliance with Shari’ah. Nevertheless, matters do not end here. This is because on the other hand, are the Jumhur that is, the Maliki, the Shafi’i and the Hanbali Schools, which argue equally vigorously, the op‐posite. Put simply, they argue that so long as the usufruct of a thing is legally permissible, and is customarily treated as property, or as having proprietary value, that thing is mal, indeed, mal mutaqawwam. Hence, subject to these conditions, usufructs and rights can be mal. As al‐Zarkashi (1985:3:222), a Shafi’i, observes, mal is any‐thing that is beneficial. This, according to him, can be in physi‐cal form or in the form of usufruct. To al‐Hijawi (2:59), a Han‐bali, mal is anything that is beneficial and permissible accord‐ing to Shari’ah under normal circumstances, whilst al‐Shatibi (1975:2:17), of the Maliki School, maintains that, mal is some‐thing that can be possessed with exclusivity. The Jumhur however, discriminate between two categories of usufructs and rights. In relation to rights, which are of more direct relevance to the present enquiry, they distinguish pro‐prietary rights, such as a debt right (haqq aldayn) from non‐proprietary rights, such as the right of custody (haqq alhadanah), and point out that only proprietary rights can qual‐ify as mal. That is to say, only proprietary rights can consti‐tute the subject matter of an Islamic contract. A more crucial point to note is that, unlike the Hanafis, physi‐cality is immaterial to the Jumhur’s appreciation of mal. Apart from its preponderance, this approach is more in tune with modern trends. Whilst the Majallah provisions examined ear‐lier strongly suggest, as the Hanafis do, that physicality is a critical element of mal, there appears to be no express exclu‐sion of non‐physical things from enjoying the same status. Even if there were, or such a conclusion could be implied, a revisionist attitude to such an interpretation would be ap‐propriate. The classical Hanafi view and the supporting Majal‐lah provisions were made at a certain era, and presumably shaped by the circumstances of that era. But times and cir‐cumstances have changed, and new forms of knowledge have emerged alongside, which can be exploited to generate eco‐nomic growth.


We Care

Even in today’s modern world, you can always hear parents asserting their rights and ownership over a child and chil‐dren are meant to be seen but not heard. But, this negative perception should be changed as each and every one of us has basic human rights and children should not be de‐prived of these rights simply because they are children. In fact, children should be accorded more protection and rights since they are more vulnerable and more likely to be exploited compared to an adult. With this in mind, the United Nations created the Conven‐tion of the Rights of the Child (CRC). This Convention was adopted by the United Nations in 1989. All the countries in the world have ratified the Convention except for Somalia and the United States of America. The Convention is the first binding treaty to endorse children's rights as separate from both adults and the family, and is thus an important step in international law toward recognition of children as rights bearers. The CRC is based on 4 basic principles, namely: i. Survival ‐ includes the inherent right to life and State

parties are to ensure the child’s survival and physical development.

ii. Development ‐ The right to play, to education without

discrimination, access to medical facilities are all part of the “developmental” rights.

iii. Protection ‐ Include providing care and protection to children in armed conflict, abused and neglected chil‐dren, children in conflict with the law, children in espe‐cially difficult circumstances, disabled and children belonging to indigenous or minority groups.

iv. Participation – A child’s right to express his/her opin‐ion in decisions affecting him/her in all administrative or judicial matters.

Malaysia became a signatory party to the Convention and ratified with 12 reservations which was later reduced to 8 reservations in the year 1995. The reservations that remain are: Article 1 (Definition); Article 2 (Non‐Discrimination); Article 7 (Name and Nationality); Article 13 (Freedom of Expression); Article 14 (Freedom of Thought, Conscience and Religion); Article 15 (Freedom of Association); Article 28 (1) (a) (Free and Compulsory Education at Primary Level); and Article 37 (Torture and Deprivation of Liberty). The ratification of the Convention marked a new beginning to advocacy of the children’s rights even though Malaysia made reservations against some of the core principles of the Convention. At least with the ratification of the Conven‐tion, we know that the Government will work towards ful‐filling its obligation and ensure that the rights of the child in our country are protected.



Intellectual properties are rights because they are con‐ferred and recognized by law, and become the preserve of the owners. And since they are recognized as valuable and are usually traded in the business community, they qualify as mal, despite their intangible nature. As valuable tangible items are produced and traded, so the intellectual proper‐ties used in producing them are valuable and tradable. It is, therefore, appropriate that the Fiqh Academy of the Organi‐zation of Islamic Countries has decided that IPRs are rights that can be traded for consideration, regardless of their abstract nature. References 1. Engku Rabiah Adawiah Engku Ali. “Re‐Defining Prop‐

erty And Property Rights in Islamic Law of Contract” in Jurnal Syariah, 11:2 [2003].

2. Md Nurdin Ngadimon. “Intangible Asset: A New Asset Class to Structure Islamic Financial Products”, in Sal‐man Syed Ali (ed.) Islamic Capital Markets: Products, Regulation and Development (Jeddah: Islamic Research and Training Institute, 2008).

3. Mohd Kamal Khir et al. Longman Islamic Banking, A Practical Perspective (Petaling Jaya: Pearson Malaysia Sdn Bhd, 2008).

Frank Akpoviri

(An intern with JHJ and cur‐rently pursuing his post‐graduate degree in law [LLM] with the National University of Malaysia [UKM])

PROTECTING THE FUTURE A commentary on the ratification of the Convention on the Rights of the Child by Malaysia. By Barvina Punnusamy Children are one third of our population and all of our future. ~ Select Panel for the Promotion of Child Health, 1981. Although many laud for the protection of human rights but when it comes to the rights of a child, most are still in a di‐lemma as to whether a child enjoys the same rights as an adult. Why, you may ask. Well, this is simply because many of us think that a child is someone who is incapable of mak‐ing rationale decision and coupled with the fact that chil‐dren are considered to ‘belong’ to their parents.

and the promotion of their physical, mental, intellectual and emotional development. It is time we realise that a child is the key to the country’s survival, development and prosper‐ity. But, the responsibility to respond to the needs of chil‐dren’s development in Malaysia by providing various plat‐forms and services to uphold the spirit of the Convention does not only lie with the Government but also on corporate sector, NGOs, the Human Rights Commission of Malaysia and the civil society. Children are the living messages we send to a time we will not see. ~John W. Whitehead, The Stealing of America, 1983.

Barvina Punnusamy, Associate [email protected]

JHJ’S NEWLY ADMITTED PARTNER

JHJ is pleased to announce that as of 1st January 2010, Stanley Gabriel has been admitted as a Partner. Stanley was born in Kuala Lumpur and pursued his undergraduate degree in law at University of Wolverhampton and his Certificate of Legal Practice (CLP) in Brickfields College. He was admitted to the Bar in 1997. Over his four (4) years he has been with JHJ, he has considerable experience and

knowledge in the area of conveyancing practice that includes dealing in banking and conveyancing matters relating to housing development projects, retail and commercial banking matters, drafting of sale and purchase agreements and other general matters like tenancy, lease, wills, probate and trust deeds. The ability to lead and develop professional relationship with clients is one of the core competencies required of a partner in JHJ. Stanley has throughout his years in JHJ demonstrated that he not only has such qualities but excels in them. JHJ is proud to have him on board and we look forward to having him take a lead in bringing JHJ to new and greater horizons.

By agreeing to undertake the obligations of the Convention, we have committed ourselves to protecting and ensuring chil‐dren's rights and agree to be held accountable for this com‐mitment before the international community. State parties to the Convention are obliged to develop and undertake all ac‐tions and policies in the light of the best interests of the child. But, what was done to ensure that we abide by our obliga‐tions under the Convention? The first step that was taken by the Government was to introduce the Child Act 2001. In the preamble, it is stated that children should be accorded special care and their welfare given paramount importance. The Act is an amalgamation of three comprehensive Acts now re‐pealed ‐ the Juvenile Courts Act 1947, Women and Young Girls Protection Act 1973 and Child Protection Act 1991. The Child Act 2001 affords protection for children and tackles the problems of juvenile delinquency, child prostitutions and children out of control. It imposes severe punishments for child trafficking, abuse, molestation, neglect, and abandon‐ment. It also mandates the formation of children's courts. There are several other laws affecting the welfare of children in Malaysia such as the Adoption Ordinance 1960, Child Care Centres Act 1984 and Domestic Violence Act 1994. Even with the existence of all these laws, the welfare and in‐terest of children are still at stake. For example, the Child Act 2001 contains several sections that contravene the Conven‐tion. The Child Act also allows for whipping of children found guilty of an offence which is against the purpose and object of the Convention. Although section 17 of the Act stipulates that a child should be given adequate protection, it does not in‐clude offences such as access to pornography over the Inter‐net which contravenes with Article 34 of the Convention. Sections 17 (2) (b) and (c) of the Act also implies that the child must be physically present at the scene of the activity when this cannot apply when the child is observing or partici‐pating in sexual activity on the Internet. This means that there is no protection for our children against the many online predators waiting to pounce on them. The ineptitude of the current legislations to cope with the rising number of children being sexually exploited reflects the need for a more effective and appropriate measures. Children must not be treated as objects but should be given roles as subjects. In conclusion, the development of our legislation to meet the obligations under the Convention is heading in the right di‐rection albeit the speed of progress. But, if we are serious to fulfill our promise to the children to provide them a better future and safeguard them from abuse and exploitation, then we need to ensure our legislative, administrative and policy framework caters for the protection and needs of the children


We Care

“LORD OF THE PINS NITE” AT THE COSMIC BOWL, MID VALLEY


TEAM BUILDING AT AWANA GENTING HIGHLANDS GOLF & COUNTRY RESORT


This newsletter is produced by our Knowledge Department. Please feel free to contact the Department at [email protected] for any further information pertaining to this newsletter. PUBLISHER: Messrs Jayadeep Hari & Jamil, Advocates & Solicitors, Suite 2.03, 2nd Floor, Block A, Plaza Damansara, Bukit Damansara, 54090 Kuala Lumpur. PRINTER: Intan Spektra Sdn Bhd, No 12, Jalan Vivekananda, Brickfields, 50470 Kuala Lumpur.

Documents

Legal Cauldron issue 1 of 2010