Legal Herald. It has been said that Islamic law and the civil law exist as parallel systems in Malaysia.

Transcription

1 Legal Herald MAY The Syariah Court: Its Position Under the Malaysian Legal System 11. Wavering on Waivers 18. GST Rules or Ruins? From a Ship Financier s Perspective 24. The Law on Trade Secrets 28. Partner Profile 29. Senior Associate Profiles in this issue LEE HISHAMMUDDIN ALLEN & GLEDHILL. ALL RIGHTS RESERVED DISCLAIMER: The views and opinions attributable to the authors or editors of this publication are not to be imputed to the firm, Lee Hishammuddin Allen & Gledhill. The contents are intended for general information only, and should not be construed as legal advice or legal opinion. The firm bears no responsibility for any loss that might occur from reliance on information contained in this publication. It is sent to you as a client of or a person with whom Lee Hishammuddin Allen & Gledhill has professional dealings. Please do not reproduce, transmit or distribute the contents therein in any form, or by any means, without prior permission from the firm. KDN PP 12853/07/2012 (030901) The Syariah Court: Its Position Under the Malaysian Legal System by Rosli Dahlan and Fawza Sabila Faudzi It has been said that Islamic law and the civil law exist as parallel systems in Malaysia. The proposition, while attractive, is grossly inaccurate in law. As it stands today, the administration of Islamic law is confined to personal law for Muslims and the Syariah court is subordinate to the courts established by the Federal Constitution and under federal law, as this article will show. The Syariah court has in recent years become a prominent subject in public discussion, not least of all with the constitutional provision that Islam is the religion of the Federation. 1 It is vital that the history of how religion came to be inserted in the Federal Constitution be first examined, objectively and dispassionately, given that the subject is fraught with difficulty. Federation of Malaya The Federal Constitution has its roots in the Federation of Malaya Agreement 1948 ( the FMA 1948 ) which established a federation known as the Federation of Malaya or Persekutuan Tanah Melayu comprising the nine Malay states 2 and the Settlements 3 1 Article 3, Federal Constitution 2 The Federated Malay States of Selangor, Pahang, Perak and Negeri Sembilan and the States of Perlis, Kedah, Kelantan, Terengganu and Johor 3 Previously part of the Straits Settlements Printed by One2Print Sdn Bhd Suite , Wisma Mah Sing, 163, Jalan Sungei Besi, Kuala Lumpur, Malaysia

2 of Penang and Malacca. 4 It was envisaged that the Federation, while remaining under British rule for the time being, would progress towards eventual self-government. 5 Historically, British rule in the Malay States eschewed interference with the powers of the Malay Rulers on matters relating to Islam and Malay customs. This position was maintained in the FMA 1948, 6 with a proviso that federal legislation could be made for enabling the courts to ascertain Islamic law or Malay customs concerning matters brought before them for adjudication. 7 As for legislation, each Malay State had the power to pass laws on Islam and Malay customs to the extent not repugnant to any law passed by the legislative council of the Federation. 8 This distribution of legislative powers between the Federation and the Malay States remains unchanged to this day. Islam as the religion of the Federation was to come later. The Reid Commission In 1956, as one of the final steps taken in the direction of self-government for the Federation, an independent commission headed by Lord Reid 9 was appointed by the British Crown and the Conference of Rulers to make recommendations for a constitution for an independent Federation of Malaya. The draft constitution and the report submitted by the Reid Commission was passed with amendments and approved by the Federal Legislative Council in July In the course of the deliberations of the Reid Commission, the then-dominant political party called the Alliance submitted a proposal that Islam be made the official religion. 10 The Reid Commission decided to not make any provision for an official religion, preferring to maintain the status quo by retaining religion as a State matter 11 as they were concerned over the apparent contradiction between the Alliance declaration that Malaya would be a secular state and the proposed provision for Islam to be the official religion of the Federation. 12 This omission led to the formation of a Working Party comprising representatives of the British Government, the Malay Rulers and the Alliance coalition to review the Reid Report. 13 Tunku Abdul Rahman argued strongly for an article declaring Islam as the official religion of the Federation. 14 The component parties in the Alliance agreed that the proposed provisions should include two provisos first, that it would not affect the position of the Rulers as head of religion in their respective States, and second, that the practice and propagation of other religions in the Federation would be assured under the Constitution. 15 Justice Sheik Abdul Hamid, the member of the Reid Commission from Pakistan who initially agreed with the other members to omit any provision for an official religion in the draft constitution, later proposed in his Notes of Dissent that the Alliance proposal be adopted as it was 4 Clause 3, Federation of Malaya Agreement 1948 ( FMA 1948 ) 5 Recital, FMA Clause 5, FMA Proviso, Clause 5, FMA Clause 100, FMA Hence, the Reid Commission 10 Joseph M Fernando, The Making of the Malayan Constitution (MBRAS, 2002) [Fernando] at Citing the request of the Rulers to retain religion as a State matter on the grounds that the provision would infringe their position as the head of the Muslim religion in their respective States; Fernando, supra n Fernando, supra n Ibid, at Ibid, at Ibid, at Legal Herald. MAY 2015

3 innocuous, pointing out that at least 15 other countries had similar provisions in their constitutions. 16 The Federation of Malaya government, in a White Paper published in 1957, explaining the changes to the recommendations of the Reid Commission, stated: There has been included in the proposed Federation Constitution a declaration that Islam is the religion of the Federation. This will in no way affect the present position of the Federation as a secular State, and every person will have the right to profess and practise his own religion and the right to propagate his religion, though this last right is subject to any restrictions imposed by State law relating to the propagation of any religious doctrine or belief among persons professing the Muslim religion. 17 In the event, an express provision was made in Article 3(1), the terms of which have remained unchanged since: Islam is the religion of the Federation but other religions may be practised in peace and harmony in any part of the Federation. The Malay States and the Settlements comprised in the Federation of Malaya became independent as from 31 August 1957 by virtue of the Federation of Malaya Agreement 1957, given force of law by the Federal Constitution Ordinance That the Federation was to be a secular nation was reiterated by Tunku Abdul Rahman in a speech before the legislative council: I would like to make it clear that this country is not an Islamic state as it is generally understood, we merely provided that Islam shall be the official religion of the State. 19 Malaysia Prior to the formation of Malaysia, a commission of inquiry chaired by Lord Cobbold 20 was appointed to ascertain the views of the people of North Borneo and Sarawak, and upon assessment of those views, to make recommendations on the inclusion of North Borneo and Sarawak in the proposed Federation of Malaysia and issued a report in Although the British member of the Cobbold Commission recommended that the Federal provision on religion should not be extended to Borneo territories which have a non-muslim majority, the Malayan members recommended 22 otherwise:... we are agreed that Islam should be the national religion for the Federation. We are satisfied that the proposal in no way jeopardises freedom of religion in the Federation, which in effect would be secular. In 1963, the Federal Constitution was amended upon the admission of Singapore and the North Borneo states of Sabah and Sarawak to the Federation Supra, n 10 at Ibid, at FM Ordinance No 55 of Tunku Abdul Rahman (Hansard, 1 May 1957) 20 Hence, the Cobbold Commission 21 Report of the Commission of Inquiry, North Borneo and Sarawak 22 Ibid, at 53-54; Or see < 23 Malaysia Act (Act No 26 of 1963) Legal Herald. MAY

4 Article 3 of the Federal Constitution remained unchanged. Public and private aspects of Islam in Malaysia In 1988, a full bench of five in the Supreme Court (as the Federal Court was then known) had occasion to consider Article 3 in an appeal against a mandatory death sentence for drug trafficking and possession of firearms. It was contended on behalf of the accused that Islam being the religion of the Federation, as declared in the Federal Constitution, and the Federal Constitution being the supreme law of the Federation, the imposition of the death penalty was unconstitutional, being contrary to Islamic injunction. 24 Although the Supreme Court acknowledged that Islam was not just a mere collection of dogmas and rituals but a complete way of life covering all fields of human activities, be they private or public, legal, political, economic, social, cultural, moral or judicial, 25 it held that this was not the meaning intended by the framers of the Constitution. So far as Islam was concerned, the result of the development of law by the British in Malaya had the effect of turning the legal system into a secular institution. Thus, all laws, including the administration of Islamic law, had to be validated through a secular fiat. 26 The court also observed that during the British colonial period, through their system of indirect rule and establishment of secular institutions, Islamic law was rendered isolated in the narrow confines of the law of marriage, divorce and inheritance the sphere of personal law. This private aspect of Islamic law is only applicable to Muslims as their personal law. 27 Islam being the religion of the Federation did not mean that laws passed by Parliament must be imbued with Islamic religious principles; nor did the existence of Syariah law prior to independence require that laws of general application must conform to the Syariah, for to hold otherwise would be contrary to the constitutional and legal history of the Federation and also to the Civil Law Act 1956, which provides for the reception of English common law in this country. 28 It is in this sense of the dichotomy that the framers of the Constitution understood the meaning of the word Islam in the context of Article 3. Religion being often described as a sensitive matter in Malaysia, the concluding words of Salleh Abbas LP are noteworthy:... we have to set aside our personal feelings because the law in this country is still what it is today, secular law, where morality not accepted by the law is not enjoying the status of law. 29 Jurisdictional controversies This dichotomy between the public and private aspects of Islamic law, when ignored, has given rise to difficulties. In recent years, the bitter custody and child s religious rights battles in Subashini Rajasingam, 30 Indira Gandhi 31 and Deepa Subramaniam 32 sparked new conflicts between the Syariah court and the civil court. In these three cases, all involving Hindu married couples with children, the husband had converted to Islam, taken the children away from their mothers and in two cases, converted the children also to Islam. Controversy also 24 Che Omar bin Che Soh v Public Prosecutor [1988] 2 MLJ Ibid, at 56C 26 Ibid, at 56C-D 27 Ibid, at 56E 28 Supra, n 24 at 56A-C 29 Ibid, at 57E-F 30 Subashini a/p Rajasingam v Saravanan a/l Thangathoray and other appeals [2008] 2 MLJ Indira Gandhi a/p Mutho v Pengarah Jabatan Agama Islam Perak & Ors [2013] 5 MLJ 552; Ketua Polis Negara v Indira Gandhi a/p Mutho [2015] 2 MLJ 149 (CA) 32 Viran Nagapan v Deepa Subramaniam [2015] 3 CLJ 537 (CA) 4 Legal Herald. MAY 2015

5 arose when State religious authorities and the Syariah court purported to subject the non-muslim spouse to the jurisdiction of the Syariah court, although state Syariah laws clearly provided that the Syariah court had jurisdiction only over Muslims. Another issue was the reluctance of the police to act on the complaints made by the non-muslim spouse. In the now infamous Borders case, 33 in 2012, officers of JAWI, 34 accompanied by the media, raided the Borders Bookstore at The Gardens, Mid Valley City in Kuala Lumpur. During the raid, the JAWI officers seized several books by international author Irshad Manji, titled Allah, Kebebasan dan Cinta, a Malay translation of Allah, Liberty and Love which was also seized, on the grounds that the books were prohibited. 35 At the material time, the publications were, in fact, not subject to any prohibition order by the Minister of Home Affairs. The JAWI officers proceeded to examine the Muslim and non-muslim employees of Borders, and issued orders compelling them to be subject to further investigation and examination. The next day, a similar raid was conducted at another Borders store. Notwithstanding the full co-operation given by Borders and its employees, the JAWI officers arrested one Nik Raina Nik Abdul Aziz, who was the store manager, and charged her for disseminating or distributing publications deemed contrary to Islamic law. Both the High Court 36 and the Court of Appeal 37 held that the act of enforcement by JAWI was unlawful and illegal, primarily on the grounds that the books were in fact not subject to any prohibition order at the material time. The Court of Appeal was of the view that any law, be it Federal or State, that breached the Federal Constitution must be struck down and any Federal or any State Government and its agencies that apply the law wrongfully must be corrected. 38 In June 2014, enforcement officers of JHEAINS 39 arrested 17 people at a wedding reception. Those arrested were transgender persons, nicknamed mak andam, present at the wedding in service as wedding planners and beauticians. They were charged for crossdressing against the Syariah law in Negeri Sembilan. 40 These mak andam applied to the High Court for judicial review, which was refused. In the Court of Appeal, 41 it was declared that the Negeri Sembilan Islamic religious enactment barring cross-dressing was contrary to the Federal Constitution. 42 The Director-General of JAKIM 43 publicly criticised the Court of Appeal for interfering with the administration of lslamic law by the Syariah court in contravention of Article 121(1A) of the Federal Constitution. The Minister for Religious Affairs then issued a statement to the effect that the Government was planning to establish a Syariah Federal Court in order to prevent any further interference by the civil court. 44 This reignited the debate whether Malaysia had a dual legal system of civil law and Syariah law. 33 Berjaya Books Sdn Bhd v Jabatan Agama Islam Wilayah Persekutuan Wilayah Persekutuan & Ors [2014] 1 MLJ Jabatan Agama Islam Wilayah Persekutuan (Department of Federal Territory Islamic Affairs) 35 By virtue of s 13 of the Syariah Criminal Offences (Federal Territories) Act Supra, n Jabatan Agama Islam Wilayah Persekutuan & Ors v Berjaya Books Sdn Bhd & Ors [2015] 1 AMR Ibid, at 761(53) 39 Jabatan Hal Ehwal Agama Islam Negeri Sembilan (Department of Negeri Sembilan Islamic Affairs) 40 Syariah Criminal (Negeri Sembilan) Enactment 1992, s Muhamad Juzaili Mohd Khamis & Anor v State Government of Negeri Sembilan & Ors [2015] 1 AMR 673; [2015] 1 CLJ Decided by Mohd Hishamudin Yunus, Aziah Ali and Lim Yee Lan JJCA 43 Jabatan Kemajuan Islam Malaysia (Department of Islamic Development Malaysia) 44 < < my/news/nation/2014/11/15/civil-court-syariah-court-jakim/> Legal Herald. MAY

6 By far, the most divisive of these controversial cases have been the ban on the use of Allah by non-muslims including the ruling that the weekly Herald Malaysia newspaper of the Roman Catholic Church could not refer to God in that way in its Malay-language edition; 45 the seizure of an Indonesian publication that used Allah for Sunday school materials, 46 and the seizure of 300 copies of the Bible in Bahasa Melayu and Bahasa Iban that contained the word. 47 The High Court in the Herald case held that the church had a constitutional right to use Allah, 48 a decision that was set aside by the Court of Appeal. 49 Unfortunately, the constitutionality of the prohibition remains unclear as the Federal Court refused leave to appeal. 50 The jurisdictional controversies referred to above remain unsettled as these circumscriptions on the legislative power of the State and the jurisdiction of the Syariah court have yet to be closely examined before the courts. It is moot that some of the actions taken by the religious authorities and the orders issued by the Syariah court in the above cases may have exceeded their power and jurisdiction. The Syariah court Unlike the High Court which is established by the Federal Constitution, the Syariah court is a creature of State law. 51 Article 74 of the Federal Constitution, read together with the State List, 52 prescribes that Islamic law and Islamic matters including the establishment of Syariah courts fall under the jurisdiction of the State. According to the State List, the legislative power of the State assembly to legislate on Islamic law and Malay customs is confined to 26 matters: (a) Succession, testate and intestate, betrothal, marriage, divorce, dower, maintenance, adoption, legitimacy, guardianship, gifts, partitions and non-charitable trusts; (b) Wakafs and the definition and regulation of charitable and religious trusts, the appointment of trustees and the incorporation of persons in respect of Islamic religious and charitable endowments, institutions, trusts, charities and charitable institutions operating wholly within the State; (c) Malay customs; (d) Zakat, Fitrah and Baitulmal or similar Islamic religious revenue; (e) Mosques or any Islamic public places of worship; (f) Creation and punishment of offences by persons professing the religion of Islam against precepts of that religion; and (g) Constitution, organisation and procedure of the Syariah courts. The State List stipulates that the Syariah court is to have jurisdiction only over persons professing the religion of Islam and in respect only of the above matters. It is also provided that the Syariah court shall not have any jurisdiction in respect of offences unless conferred by federal law. Jurisdiction cannot be implied It is a common misconception that once established, a Syariah court has, ipso facto, jurisdiction over all matters relating to Islamic law and Malay customs set out in the State List. In a case where a widow sought a declaration that her deceased husband was a Buddhist during his lifetime and at the time of his death, 53 the High Court held that 45 Titular Roman Catholic Archbishop of Kuala Lumpur v Menteri Dalam Negeri & Ors [2014] 4 MLJ Jerry WA Jerry W Patel & Anor v Menteri Keselamatan Dalam Negeri Malaysia & Anor [2015] 1 MLJ < 48 Supra, n 45 at 782(12) 49 Ibid, at 782(18) 50 Supra, n Article 74 (2) of the Federal Constitution 52 Read with the Ninth Schedule of the Federal Constitution, Item 1 of List II (State List) 53 Ng Wan Chan v Majlis Ugama Islam Wilayah Persekutuan & Anor (No 2) [1991] 3 MLJ Legal Herald. MAY 2015

7 the jurisdiction of the Syariah court cannot be derived by implication and that if State law did not confer jurisdiction to deal with a particular matter in the State List, the Syariah court would be precluded from dealing with that matter. 54 As State law did not confer jurisdiction to determine the issue whether a person is a Muslim or not at the time of his death, the High Court was not precluded from hearing and determining that issue. 55 Similarly, in a dispute over wakaf land, 56 it was held that when there is a challenge to the jurisdiction of the High Court, the test was not whether the court had jurisdiction but whether jurisdiction had been conferred on the Syariah court. Only if such jurisdiction were conferred on the Syariah court would the High Court be precluded from considering the matter before it. 57 However, there is dicta to the contrary in Soon Singh a/l Bikar Singh v Pertubuhan Kebajikan Islam Malaysia (Perkim) Kedah & Anor, 58 a case before the Federal Court, that the jurisdiction of the Syariah court to deal with the issue conversion out of Islam, although not expressly provided in State law, could be implied from the express provisions conferring jurisdiction on the issue of conversion into Islam. 59 The Syariah court in that case had held that the deceased convert had not renounced the religion of Islam and therefore was a Muslim at the time of his death. The rationale of the Federal Court appears to be as follows: As in the case of conversion to Islam, certain requirements must be complied with under hukum syarak for a conversion out of Islam to be valid, which only the Syariah courts are the experts and appropriate to adjudicate. In short, it does seem inevitable that since matters on conversion to Islam come under the jurisdiction of the Syariah courts, by implication conversion out of Islam should also fall under the jurisdiction of the same courts. 60 The Federal Court was much persuaded by statements in the authorities 61 that the question of conversion out of Islam involves issues requiring substantial consideration of the Islamic law by relevant jurists qualified to do so and that therefore the only forum to qualified to do so is the Syariah court. 62 It is submitted that although the fact that the determination of a Muslim s conversion out of Islam may involve inquiry into the issue of renunciation of Islam under Islamic law, it did not follow that it would be inevitable that the Syariah court should have jurisdiction. 63 With the greatest respect, the Federal Court decision also appears to contradict two authorities cited in the judgment:... express and unambiguous language appears to be absolutely indispensable in statutes passed for the following purposes: imposing tax; conferring or taking away legal rights; excepting from the operation of or altering clear principles of law; altering the jurisdiction of courts of law the general rule undoubtedly is, that the jurisdiction of the superior courts is not taken away, except by express words or necessary implication Ibid, at 489C-F 55 Ibid, at 490D 56 Shaik Zolkaffily bin Shaik Natar & Ors v Majlis Agama Islam Pulau Pinang dan Seberang Perai [1997] 3 MLJ 281 (see also Barkath Ali bin Abu Backer v Anwar Kabir bin Abu Backer [1997] 4 MLJ 389) 57 Shaik Zolkaffily; supra, n 56 at 293F 58 [1999] 1 MLJ Ibid, at 502A 60 Ibid, at 502G 61 Dalip Kaur v Pegawai Polis Daerah, Balai Polis Daerah, Bukit Mertajam & Anor [1992] 1 MLJ 1; Md Hakim Lee v Majlis Agama Islam Wilayah Persekutuan, Kuala Lumpur [1998] 1 MLJ Dalip Kaur; supra, n 61 at 10A 63 Supra, n 58 at 502G 64 Ibid, at 502B 65 Ibid, at 502C Legal Herald. MAY

8 Unfortunately, Soon Singh was not discussed, but by implication not followed, in Latifah Mat Zain, 66 where the Federal Court held that: What it means is that, the Legislature of a State, in making law to constitute and organize the Syariah courts shall also provide for the jurisdictions of such courts within the limits allowed by item 1 of the State List, for example, it is limited only to persons professing the religion of Islam. The use of the word any between the words in respect only of and of the matters means that the State Legislature may choose one or some or all of the matters allowed therein to be included within the jurisdiction of the Syariah courts. It can never be that once the Syariah courts are established the courts are seized with jurisdiction over all the matters mentioned in item 1 automatically. It has to be provided for. 67 The Syariah court an inferior court Unlike the High Court, the Court of Appeal and the Federal Court, which are established by the Federal Constitution, 68 the Syariah court has been equated to the Sessions Court and Magistrates Court which, in the Federal Constitution, are called inferior courts. 69 The Syariah courts are mere State courts and do not enjoy the same status and powers as the High Court. 70 It follows that the High Court has supervisory powers over the Syariah court just as it has supervisory powers over other inferior tribunals, such as the Industrial Court. 71 Quite clearly, the Syariah court cannot be considered any greater than the inferior courts. 72 (a) The Sessions Courts and Magistrates Courts are established by the Subordinate Courts Act 1948, which is a federal law, whereas the Syariah court is established by State law, Article 121(1A) notwithstanding; (b) In exercising its criminal jurisidiction, 73 the Magistrates Court can impose a sentence of an imprisonment up to 5 years, a maximum fine of RM10,000 and whipping up to twelve strokes, or a combination thereof, the so-called 5:10:12 Rule ; and (c) the Syariah court in its criminal jurisdiction is subject to limits imposed by Federal law 74 of a maximum sentence of three years imprisonment, maximum fine of RM5,000 and whipping up to six strokes, the so-called 3:5:6 Rule. It is therefore clear that under no circumstances can the Syariah court be considered equivalent to the High Court. It follows in principle that, where there is an issue of competing jurisdiction between the High Court and the Syariah court, the proceedings before the High Court must take precedence over the Syariah court. 75 No exclusive jurisdiction on Islamic law It is also inaccurate to hold that the Syariah court has exclusive jurisdiction on all matters related to Islamic law. Given that the Syariah court is a creature of State law, it has no power of interpretation on any matter which is the province of the High Court and the subordinate courts, including issues on the interpretation of federal law and State law [2007] 5 MLJ Ibid, at 116(43) 68 Article 121, Federal Constitution 69 Latifah Mat Zin v Rosmawati bte Sharibun & Anor [2007] 5 MLJ 101 at 114G 70 Dato Kadar Shah Tun Sulaiman v Datin Fauziah Haron [2008] 7 MLJ 779 at 785E 71 Ibid, at 785F 72 Article 121(1), Federal Constitution 73 Subordinate Courts Act 1948; s Syariah Court (Criminal Jurisdiction) Act 1965, Act No. 355 (Rev 1988); s 2 75 Supra, n 70; para 14 at Zaina Abidin bin S Maniam & Ors v Kerajaan Malaysia & Ors [2009] 6 MLJ Legal Herald. MAY 2015

9 In 2008, one Abdul Kahar 77 was charged in the the Syariah court for several offences for deviant teaching contrary to a State Enactment. 78 He challenged the constitutionality of the State Enactment on the grounds that the subject matter of the offences fell outside the term precepts of Islam in the State List circumscribing the legislative power of the State. The issue then arose as to whether the Syariah court had jurisdiction to enter upon the interpretation of the term precepts of Islam and thereby determine whether the provisions in the State Enactment creating the offences were in accordance with the provisions of the Federal Constitution. 79 The Federal Court held that the Syariah court had no such power and that State law could not possibly confer such power because: (a) the ascertainment of Islamic law and other personal laws for purposes of federal law is a federal matter; 80 (b) any question whether a law made by a State is within the power of a state; 81 and the interpretation of the Federal Constitution is a matter for the High Court. 82 In 2012, one Siti Hasnah applied to the High Court to declare her conversion to Islam when she was a year old to be invalid. The Court of Appeal held that the jurisdiction of the civil court was not ousted merely because the subject matter of a claim or complaint has an Islamic law element in it. 83 No overlapping jurisdiction Another common misunderstanding is that the Syariah court is a parallel system established under Article 121(1A) of the Federal Constitution. Article 121 establishes the High Court, the Court of Appeal and the Federal Court and recognised such inferior courts as may be prescribed by law. Article 121(1A), however, merely excludes the jurisdiction of the High Court in respect of any matter within the jurisdiction of the Syariah court. Quite clearly, Article 121(1A) neither establishes nor confers jurisdiction on the Syariah court. 84 It is only when some jurisdiction is expressly conferred by State law on the Syariah court that Article 121(1A) would apply to exclude the jurisidiction of the High Court and the subordinate courts on that matter. It has been stated above that the Syariah court can only have jurisdiction if expressly conferred by State law within the constraints of the Islamic law matters mentioned in the State List. In the absence of jurisdiction being conferred on the Syariah court in respect of any matter, such matter would fall within the jurisdiction of the High Court and the subordinate courts, unfettered by the operation of Article 121(1A). 85 In any case, Article 121(1A) does not take away the jurisdiction of the High Court to interpret any State law enacted for the administration of Islamic law, 86 such 77 Abdul Kahar bin Ahmad v Kerajaan Negeri Selangor (Kerajaan Malaysia, intervener) & Anor [2008] 3 MLJ Charged with five offences under various provisions of the Syariah Criminal Offences (Selangor) Enactment No 9 of Supra, n 75 at 622H-I 80 Ibid, at 623C 81 Ibid, at 623G 82 Ibid, at Siti Hasnah Vangarama Abdullah v Tun Dr Mahathir Mohamad & Ors [2012] 7 CLJ 845 at 854(14) 84 Shaik Zolkaffily supra, n 56 at 293F 85 Ibid 86 Dalip Kaur v Pegawai Polis Daerah, Balai Polis Daerah, Bukit Mertajam & Anor [1992] 1 MLJ 1 at 7F Legal Herald. MAY

10 jurisdiction being outside the scope of State law, although concerning Islamic law. Article 121(1A) was introduced to prevent conflict of jurisdiction between the civil court and the Syariah court. 87 If federal laws and State laws are made in strict compliance with the Federal List and State List, there should not be a situation where both the civil court and the Syariah court have jurisdiction over the same matter or issue. 88 If an issue were to arise on whether State law infringes on the Federal List, Article 121(1A) cannot be an argument for ousting the jurisdiction of the civil court. 89 In such a situation the question to be asked is whether such State law is constitutional in the first place, which is a matter for the Federal Court to decide. 90 Although there may be distinct issues falling within the jurisdiction of the civil court and the Syariah court at the same time as in Latifah Mat Zain, 91 it does not follow that there is an overlapping jurisdiction or assisting jurisdiction between the two nor are they considered double proceedings. 92 Conclusion Quite clearly, the idea of a dual legal system in Malaysia of civil law and Syariah law is misconceived. Syariah law is only applicable to Muslims and only as personal law, with provision for certain offences against the precepts of Islam. Nothing in the Federal Constitution suggests that the Syariah court is to compete with or be parallel to the civil court on the same subject matter, and this is supported by judicial authority. This issue is of vital importance to the peoples of Malaysia, with their multicultural, multi-ethnic and multireligious history. The nation called Malaysia has no existence outside of the Federal Constitution, which is the supreme law of the country. A united and functional Malaysia can only exist when legal issues are determined in accordance with principle, in well-reasoned judgments by the courts, with a willingness to grapple with difficult issues without glossing over or avoidance or oversimplification or a giving way to sentiment. The authorities reviewed in this article have in the main avoided these dangers and provided guidance and a path to the future, although with some anomalies that need in due course to be resolved. LH-AG About the authors Rosli Dahlan (rd@lh-ag.com) heads the Corporate & Commercial Disputes Practice Group at Lee Hishammuddin Allen & Gledhill and regularly appears at the High Court and appellate courts on public law issues. Fawza Sabila Faudzi (fawza@lh-ag.com) graduated from the Ahmad Ibrahim Kuliyyah of Laws, International Islamic University Malaysia, and is currently a pupil-inchambers with the firm 87 Mohamed Habibullah bin Mahmood v Faridah Bte Dato Talib [1992] 2 MLJ 793 at 804A (see also Professor Ahmad Ibrahim, The Amendment of art. 121 of the Federal Constitution: Its effect on the Administration of Islamic Law [1989] 2 MLJ xvii; cited in Latifah Mat Zin, supra, n 69 at 117I 88 Latifah Mat Zin; supra, n 69 at 118C-E 89 Ibid, at 118F 90 Ibid, at 118G; Article 128 of the Federal Constitution 91 Supra, n Ismail bin Mohamad v Wan Khairani bt Wan Mahmood and another appeal [2011] 1 MLJ 743 at 750G 10 Legal Herald. MAY 2015

11 Wavering on Waivers by Chng Keng Lung The law of variation, waiver and estoppel, it has been said, is a difficult subject. Perhaps the following passage explains it best: The law is still in a state of development and neither the boundaries nor the requirements of the two doctrines (waiver and estoppel) are as yet clearly marked out. The area is further confused by the inconsistent use of terminology. Different judges and writers use different words to mean the same thing and the same words to mean different things. Waiver, total waiver, waiver of remedy, waiver of rights, election, abandonment, equitable estoppel, quasi estoppel and waiver estoppel are among the expressions which have been used. It is clear that several of these expressions mean the same thing. 1 This article examines the doctrine of waiver and its application in this jurisdiction. Waiver at common law The word waiver should apply strictly to forgiving non-performance, either before or after the time for performance has arisen. However, the word has also been used with reference not only to a waiver of performance, but also to a waiver of a breach of contract; that is to say, a waiver of the rights of an innocent party arising out of the breach by the other party. It appears from the literature that there are at least four types of waiver to consider: (a) A waiver of breach which may be in the form of: (i) a waiver by election; or (ii) a total waiver. (b) A waiver of performance which can take the form of: (i) a forbearance waiver; (ii) a unilateral waiver. The distinction between the two categories is premised on whether there is an accrual of a right. In situations involving a breach of contract, the application of either category of waiver would depend on the seriousness of the breach. Where there has been a serious breach which goes to the root of the contract, a right accrues to the innocent party to terminate the contract and it is in that situation that a waiver of breach could operate. If, however, the breach does not entitle the innocent party to terminate the contract, his remedy lies only in damages and it is in such a situation that a waiver of performance could arise. Further, there can be a waiver of performance without a breach of contract. 1 M Furmston, The Law of Contract (4th Ed, 2010), at [Furmston] Legal Herald. MAY

12 Common elements There are several common elements in all four types of waivers. Firstly, a waiver in principle does not require consideration. 2 This is what differentiates a waiver from a variation, where the presence of consideration is vital: A waiver is distinguishable from a variation of a contract in that there is no consideration for the forbearance moving from the party to whom it is given Although consideration need not be proved, certain other requirements must be satisfied for such an estoppel to be effective. 3 (Emphasis added) Even where performance is varied, it only amounts to a waiver if there is no consideration: Where an agreement to vary a contract is not itself contractually enforceable for want of consideration it will only take effect, if at all, as a waiver or on the basis of the doctrine of promissory estoppel. 4 Secondly, in order for a waiver to be effective, the waivor needs to make a clear and unequivocal representation to that effect, either by words or by conduct: 5 A party can represent that he will not enforce a specific legal right by words or conduct. He can say so expressly this of course he can only do if he is aware of the right. Alternatively he can adopt a course of conduct which is inconsistent with the exercise of that right. Such a course of conduct will only constitute a representation that he will not exercise the right if the circumstances are such to suggest either that he was aware of the right when he embarked on the course of conduct inconsistent with it or that he was content to abandon any rights that he might enjoy which were inconsistent with that course of conduct. 6 For conduct to amount to an unequivocal representation, it must be unequivocal in the true sense of the word it must be capable of one construction only, namely, that the waivor has chosen to forgo his rights. 7 Although silence alone cannot constitute a waiver, it may give rise to an unequivocal representation of a waiver when viewed in its context. 8 Finally, it is necessary for the waivor to be aware of the facts that gave rise to the rights being forgone, the right to forgo those rights and the connection between the two. 9 Waiver by election This form of a waiver of breach arises: when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right and the party has to decide whether or not to do so. 11 In other words, waiver by election arises as a reaction to a non-contractual or defective performance by the other party, 12 and therefore occurs only when a right to terminate has arisen Furmston, supra n 1 at ; Chitty on Contracts (29th Ed, Sweet & Maxwell, 2004), Vol 1, at 1303, para [Chitty] 3 Chitty, supra n 2 4 Furmston, supra n 1, para Ibid, at 369, para Youell & Ors v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [1990] 2 Lloyd s Rep 431 at Sean Wilken and Karim Ghaly, The Law of Waiver, Variation and Estoppel (3rd Ed, 2012) at 43, para 4.08 [Wilken and Ghaly] 8 Furmston, supra n 1 at 369, para 2.107; Plasticmoda Societa Per Azioni v Davidsons (Manchester) Ltd [1952] 1 Lloyd s Rep Wilken and Ghaly, supra n 7 at 59, para Chitty, supra n 2 at 1304, para Furmston, supra n 1 at 364, para Wilken and Ghaly, supra n 7 at 40, para Furmston, supra n 1 at 365, para Legal Herald. MAY 2015

13 The circumstances that would lead to the accrual of a right to terminate include those where the waivor suffers a repudiatory breach of a contract by the other party, or where the waivor is prejudiced by a misrepresentation of the other party. 14 In the case of a repudiatory breach, the waivor as the innocent party can accept the repudiation and treat himself as discharged from the contract and claim damages or, alternatively, to affirm the contract and reserve the right to claim damages. 15 In the case of a misrepresentation, the waivor as the representee is faced with a similar choice, either to rescind or to affirm the contract. 16 Faced with a choice of two alternative and inconsistent courses of action, 17 once the waivor chooses one over the other, he will be taken to have waived the rights to the course so abandoned. 18 Because of the need for certainty and finality in contract dealings, once a waivor has elected one course of action over the alternative, the election is irrevocable, irrespective of whether there has been any reliance on such election by the waivee. 19 The nature of a waiver by election has been described in the following terms: Where a party in his own mind has thought that he would choose one of two remedies, even though he has written it down in a memorandum or has indicated it in some other way, that alone will not bind him; but so soon as he has not only determined to follow one of his remedies but has communicated it to the other side in such a way as to lead the opposite party to believe that he has made that choice, he has completed his election and can go no further; and whether he intended it or not, if he has done an unequivocal act I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected another way the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election. 20 Total waiver As with waiver by election, total waiver is also a response to a repudiatory breach of contract. 21 A total waiver, similarly, does not require reliance on the part of the waivee, and is irrevocable once exercised. However, unlike a waiver by election, in the case of a total waiver, the waivor forgoes all his rights. In other words, the waivor waives not only his rights to treat himself as discharged from further performance, but also his right to damages. 22 The drastic nature of a total waiver makes it a rarity: Court will generally be slow to construe such a situation as involving a total waiver and clear evidence will be needed to show that the waivor intended to abandon all rights in respect of the breach and not merely to forgot the right to terminate the contract Ibid, at 364, para Ibid 16 Ibid 17 Ibid 18 Ibid 19 Furmston, supra n 1 at 364, para 2.101; at 370, para Wilken and Ghaly, supra n 7 at 39, para 4.01; Kammins Ballroom Co v Zenith Investments [1971] AC Wilken and Ghaly, supra n 7 at 53, para Chitty, supra n 2 at 1304, para Furmston, supra n 1 at 371, para 2.109; Wilken and Ghaly, supra n 7 at 55, para 4.37 Legal Herald. MAY

14 Forbearance waiver This form of a waiver may be described as: The abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted. 24 Forbearance waiver may arise before or after a contractual term falls due for performance. 25 The effect of a forbearance waiver in the context of a breach of contract is that the waivor is prevented from complaining of any breach of the term, the performance of which has been waived. 26 Unlike a waiver by election, in the case of a forbearance waiver, the waivor is not put to any election of alternative remedies and can expressly or by its conduct suggest that the waivee need no longer perform its future obligations under the contract. 27 A forbearance waiver is only binding if it is relied on by the waivee. 28 However, a forbearance waiver is suspensory in nature in that it is revocable, and only becomes irrevocable after the waivee alters his position in reliance on it: 29 It has been suggested that reliance is necessary in such a case because the waiver operates in effect as an alternative to a variation of the contract; reliance is therefore necessary to take the place of consideration. Election waiver, on the other hand, is justified by reference to the need for certainty and finality in contact dealings. 30 A further distinction between a waiver by election and a forbearance waiver is that the former is retrospective while the latter is prospective which waives the future performance of a particular obligation. 31 Forbearance waiver has therefore been said to: amount to a dissolution pro tanto of the [particular] contractual tie between the parties with both parties retaining their accrued obligations but being discharged from the future performance of particular obligations under the contract. 32 Unilateral waiver This form of a waiver of performance arise where the waivor, having the sole benefit of a provision in the contract, decides unilaterally to forgo the benefit of such provision. 33 The exercise of a unilateral waiver is wholly for the benefit of the waivor and does not affect the waivee s performance of the contract. 34 Naturally, there need be no breach of contract by the waivee for the waivor to exercise a unilateral waiver. 35 Waiver under Malaysian law The courts in Malaysia do not appear to have considered the subject of waiver with the same degree of distinction similar to what has been presented in the above. 24 Banning v Wright [1972] 1 WLR Furmston, supra n 1 at 365, para Furmston, supra n 1 at 364, para Wilken and Ghaly, supra n 7 at 52, para Supra n 26 at Ibid 30 Supra n 26 at Wilken and Ghaly, supra n 7 at 52, para 4.28; at 40, para 4.02 appendix 9 32 Ibid, at 52 para Ibid, at 55 para Ibid 35 Ibid 14 Legal Herald. MAY 2015

15 It has been suggested in the leading case on the subject, Associated Pan Malaysia Cement Sdn Bhd v Syarikat Teknikal & Kejuruteraan Sdn Bhd 36 ( APMC ), that our law, which is founded on s 64 of the Contracts Act 1950 ( the Act ), represents a departure from English law. Section 64 of the Act reads as follows: Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. In delivering the judgment of the court, Gunn Chit Tuan SCJ (as he then was) held: 37 The word waiver is used in the English common law in a variety of different senses. As pointed out by the respondent, it was unfortunate that the appellant, as the defendant, had not submitted to the trial judge in what sense the word was pleaded and used. But we agreed with Mr Sri Ram [counsel for the appellant] that s 64 of our Contracts Act 1950, which was also not brought to the attention of the learned judge, represents a departure from the common law in England. Our law on waiver in s 64 of the Contracts Act 1950 is similar to the Indian law on the general principles of waiver under which it is open to a promisee to dispense with or remit wholly or in part the performance of the promise made to him or he can accept any promise which he thinks fit. Under our law neither consideration nor an agreement will be necessary. But in this case we also agreed with the respondent that it had not been shown to the trial judge or to us that the respondent had intentionally forgone its claims. On the other hand the learned judge who saw and heard Mr Ong in the witness box accepted his evidence that the respondent did not intend to abandon its claims under the various contracts. We therefore agreed with the learned judge that as a matter of fact waiver did not apply in this case.. In any case there was no evidence of any clear and unequivocal representation by the respondent in the correspondence or orally that it was abandoning its claims for damages. Nor was there evidence that the appellant had believed and relied on such representation and had acted to his damage upon such belief thus created. The learned judge had also expressly found on the evidence that there was no such reliance. The appellant could not have relied on estoppel or any such issues not raised in the lower court and could not now therefore raise them at the appellate stage. (Emphasis added) The Supreme Court s decision on the issue of waiver may be summarised as follows: (a) The law in Malaysia on waiver represents a departure from English law in that our law does not require consideration or an agreement by virtue of s 64 of the Act, both of which are needed in English law; 36 [1990] 3 MLJ 287 (SC) 37 Ibid, at Legal Herald. MAY

16 (b) There was no evidence to show that the respondent intended to abandon its claims under the various contracts; 38 (c) There must exist an unambiguous and unequivocal representation on the part of the waivor; 39 and (d) There is a need for reliance on part of the waivee. Section 40 of the Act It is submitted that the decision of the Supreme Court is per incuriam for the reasons below. As a start, the court failed to take into account s 40, which reads: When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. (Emphasis added) If we apply the distinctions in English law as described above, it can be seen that s 40 of the Act deals with waiver of breach, while s 64 provides for waiver of performance. Since the Supreme Court in APMC held that there was a breach of a condition that went to the root of the contract, the type of waiver relevant to the case must be a waiver of breach in the face of the accrual of a right to terminate. Therefore, the innocent party when faced with such a repudiatory breach has three options: (a) to terminate the contract and claim damages, which is a waiver by election; (b) to affirm the contract while also reserving its rights to damages, also a waiver by election; or (c) to affirm the contract but waive the rights to damages, a total waiver. 40 Section 64, which makes no reference to a breach of contract, was therefore inapplicable to the facts of the case. Had the Supreme Court been referred to s 40, it would not have been compelled to force fit s 64 to the facts of the case or to hold that it was a departure from English law. Although the Supreme Court was correct in stating that an unambiguous and unequivocal representation on part of the waivor was required, the court was, with respect, incorrect in requiring reliance on the part of the waivee. In so far as the court was considering s 64, it was correct in holding as a matter of law that reliance is required, since the context of that section is a forbearance waiver. Had the court taken the opportunity to apply s 40, the question of reliance would not have arisen but rather the question of an election which, in the words of s 40, allows the promisee to put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. 38 Agreed with counsel for the respondent (Syarikat Teknikal Kejuruteraan) that a waiver requires an intention to forego a claim and the judge had accepted the evidence of Mr Ong (CEO of the respondent) that there was no intention on the part of the company to abandon its claims 39 The court found no clear and unequivocal representation by the respondent that it was abandoning its claims for damages 40 All three options fall under the category of waiver of breach 16 Legal Herald. MAY 2015

17 This again illustrates the failure on the part of the Supreme Court in appreciating the existence of the different types of waiver. It is respectfully submitted that s 64 does not in any way represent a departure from English law, but instead represents a statutory reaffirmation 41 of what is considered under English law as a forbearance waiver. Waiver and promissory estoppel are sometimes treated as the same thing, sometimes as different aspects of the same broad principle. 43 It is hoped that there will be an opportunity for the doctrine of waiver to be reconsidered in future cases. LH-AG Waiver by election under English law, it is submitted, is encapsulated in s 40, which unfortunately the Supreme Court had no opportunity to examine. As with the Supreme Court in APMC, subsequent cases 42 made no attempt to identify the different types of waiver and to distinguish a waiver of breach from that of waiver of performance. Conclusion It is therefore suggested that the law of contract on waiver in Malaysia has not departed from English law and can be reconciled in the following equivalents: (a) Section 64 Waiver of performance (b) Section 40 Waiver of breach. Waiver, however, is by no means a simple subject; in fact, the opposite is true. The confusion is not merely terminological. The relationships between the doctrines or waiver and promissory estoppel, and the situations of waiver, estoppel and contractual variation are often not clear. About the author Chng Keng Lung (ckl@lh-ag.com) is an associate with the Corporate Disputes Practice Group at Lee Hishammuddin Allen & Gledhill, who is part of a team headed by SM Shanmugam (ssm@lh-ag.com) that regularly appears at the High Court and appellate courts for various matters. They also advise on and act in various litigious matters such as shareholders disputes, breaches of directors duties, minority oppression actions, contractual and property disputes. Shan has been credited by Legal 500 Asia Pacific 2014 for his intelligence, practicality and expertise and has also been described by Asialaw Profiles 2014 as an up-and-coming corporate disputes partner. Shan has also garnered praise from clients, with one saying, He is the complete package and I can t say enough good things about him and his firm. 41 In relation to a waiver of performance 42 Norsechem Resin Sdn Bhd v Seal Incorporated Bhd [1999] MLJU 390; Sime Securities Sdn Bhd (formerly known as UMBC Securities Sdn Bhd) v Anthony Lee Sin Choy [2003] 1 MLJ 204; Majlis Perbandaran Seberang Perai v Four Winds Freight Logistics Sdn Bhd [2012] 9 MLJ 627; Muniandy a/l Thamba Kaundan Anor v D & C Bank & Anor [1996] 1 MLJ 374; and Sarawak Electricity Supply Corp v Celcom (M) Sdn Bhd [2002] 5 MJ Furmston, supra n 1 at , para 2.99 Legal Herald. MAY

18 GST Rules or Ruins? From a Ship Financier s Perspective by Datuk D P Naban and Jennifer James Ilango The hype is over! The long-debated goods and services tax ( GST ) was implemented on 1 April 2015 by virtue of the Goods and Services Tax Act 2014 [Act 762] ( the GST Act ). Introduced as part of the government s tax reform programme to enhance the efficiency and efficacy of the taxation system, the rationale for GST is to eliminate inherent weaknesses in the now-abolished sales and service tax, which had a cascading effect due to what is known as double taxation. 1 That said, like many other sensational political issues in Malaysia, there are several differing schools of thought on its economic implications on a larger scale. The key objective of this article is to provide an overview on the mechanics and dynamics of GST that a financier in Malaysia may face in connection with ship financing. Inconsistency in definition of ship In accordance with s 2 of the Merchant Shipping Ordinance 1952 ( MSO ), the meaning of a ship includes every description of vessel used in navigation not propelled by oars. For the purposes of GST, however, the GST Act does not provide any definition as to what constitutes a ship. In this regard, the Zero-Rated Supply Order 2014 comes to its rescue. Despite incorporating the interpretation of a ship as reflected in the MSO, the Zero-Rated Supply Order 2014 goes a step further to exclude vessels that are designed or adapted for recreation, pleasure or other than freight or passenger transportation. 2 The GST Guide on Shipping Industries, on the other hand, provides a list of vessels that do not constitute a ship for the purposes of GST. Among the excluded vessels are powerboats and yachts, although passenger liners are accepted as ship. Why a distinction has been drawn between these vessels is unclear. Notwithstanding the distinction drawn by the Zero-Rated Supply Order 2014 and the Guide on Shipping Industries, there is a string of established authorities that show pleasure crafts, motor boats and yachts come within the definition of ship. 3 One may argue that powerboats and yachts are expressly excluded from the definition for GST purposes due their private nature primarily designed for recreation or pleasure. We are unable to agree with this reasoning. It will be naïve to ignore the fact that powerboats or yachts can also be utilised to transport passengers in international waters for commercial purposes. In this context, we took the liberty to consider the definition of ship under s 21(4)(a) of the Singapore Goods and Services Tax Act Prior to July 2010, a ship for the purposes of the Singapore GST Act was defined as one that is not designed or adapted for use for recreation or pleasure. Consequently, prescribed services did not enjoy zero rating. We can see the similarity between the Malaysian and Singapore GST Acts in this regard. However, that definition was subsequently amended on 1 July 2010 to include ships used or adapted for recreation 1 < 2 Section 17 of the GST Act, read with item 2 of the Goods and Services Tax (Zero-Rated Supply) Order 2014 (PU(A) 272/2014) 3 For example, in The Winnie Rig (1998) 2 Lloyd s Rep 675, a motor yacht was held to be a ship 18 Legal Herald. MAY 2015

19 or pleasure, provided that they are wholly internationally bound. 4 This means any services by ship used or adapted for recreation or pleasure that is used within international waters is now zero-rated in Singapore. With respect, the haphazard distinction in regards to the definition of a ship provided in the Zero-Rated Supply Order 2014 and the Guide on Shipping Industries causes difficulty within the shipping industry. Our view is that the Zero-Rated Supply Order 2014 should be rectified to reflect established authorities. Alternatively, it will be worthwhile to explore the expansion of the definition of a ship as has been done in Singapore to maintain competitiveness within the shipping industry. Overview of GST within shipping industry A ship will fall within the ambit of movable property under the definition of goods provided by s 2 of the GST Act, following which any service within the shipping industry is subjected to GST at either the standard rate which is at 6%, 5 or zero rate. 6 The latter was introduced with the intention of boosting Malaysia s competitiveness abroad where GST registrants in such circumstances can claim input tax credit from the government for the production of taxable supplies. To break it down into perspective, goods such as ship store supplies and spare parts purchased for the purposes of international voyages are zero-rated. 7 These rates, however, do not extend to domestic travel. Similarly, services provided by intermediaries such as navigation and ship handling services, 8 shipping agents or ship managers are zero-rated supplies. 9 Further, services rendered by classification society, salvors and the supply of containers, whether by way of sale or leased, are also zero-rated. As most Malaysian shipping companies ply international routes, it can be surmised that most of their activities will be zero-rated 10 as they involve exportation of services. Effect of GST on facilities over vessel It is settled that financial services specific to loan, advances or similar facilities are exempted from GST. 11 This also extends to bonds, debentures or other similar financial instruments representing or evidencing debt, whether secured or otherwise. 12 In short, apart from other considerations that may become payable for the usage of the facility, financiers shall not charge GST over the actual loan sum itself. Other considerations in this context will include fees relating to arranging, broking, advisory services, legal services and so on wherein the service provider shall charge GST at their respective GST rate. 13 On a related note, it seems that supply of insurance coverage pertaining to the facility for the purchase of a vessel or the construction of a new ship is taxable supply at standard rate. However, based on item 14 of the Zero-Rated Supply Order 2014, if the insurance policy is meant to cover risks directly related to the export of a ship out of Malaysia, GST will then be zero-rated. 14 Enforcement of mortgage over vessel A mortgagee may wish to enforce his mortgage over a vessel when the shipowner is in default under the terms of the mortgage. The mortgagee has two possibilities in doing so. He may use self-help or seek the assistance of the court. 4 Item 6 of the Singapore Goods and Services Tax (Amendment) Act Goods and Services Tax (Rate of Tax) Order 2014 (PU(A) 184/2014) 6 Royal Malaysian Customs Department, Goods and Services Tax (Guide on Shipping Industry), 24 March First Schedule of Goods and Services Tax (Zero-Rated Supply) Order 2014 (PU(A) 272/2014) 8 For example, pilotage, towage, berthing, wharfage and so on 9 Supra, n 7 10 Paragraph 3 of the Second Schedule of the Goods and Services Tax (Zero-Rated Supply) Order 2014 (PU(A) 272/2014) 11 Section 18(2) of the GST Act 2014, read with item 2 of Second Schedule of the Federal Government Gazette Goods and Services Tax (Exempt Supply) Order 2014 (PU(A) 271/2014). See also Royal Malaysian Customs Department, Goods and Services Tax (Guide on Commercial Banking), 19 November Ibid, item 7 of the Second Schedule of the Exempt Supply Order Ibid, item 12 of the Second Schedule of the Exempt Supply Order Ibid, item 14(a) of the Second Schedule of the Exempt Supply Order 2014 Legal Herald. MAY

20 As for the first option, the mortgagee can exercise his right under the mortgage deed to take possession of the ship and appoint a receiver and manager to manage earnings from the vessel or, alternatively, to sell the ship. 15 In practice, however, this may pose some difficulty since shipowners will not co-operate with the mortgagee who wishes to dispossess them of their vessel. Therefore, the mortgagee, more often than not, will choose to enforce his security through an in rem action and have the vessel arrested and subsequently sold by way of judicial sale to recover the debts under the facility. Effect of GST on the sale of a ship The sale of a ship is treated as a supply of goods. Accordingly, the supply of a ship, whether or not an onward trading of a whole ship or the construction of a new ship, is subject to GST at the standard rate. 16 This also applies to the importation of foreign vessels into Malaysia to be registered under the Malaysian flag. 17 However, the supply becomes zero-rated if the ship is built by a local business but eventually exported out of Malaysia. The key word here is export. Therefore, if a vessel is built by a local business, then sold to a foreign registered company (and foreign flagged) but operates within Malaysian waters, the sale will not amount to export of goods. In such instances, GST at standard rate will apply. In a straightforward sale of a vessel, it is plain that the seller is liable to pay GST at standard rate but he is entitled, if the contract so allows, to require the purchaser to pay the GST. However, circumstances differ in the case of enforcement of mortgage. In this regard, we will have to consider sub-paragraph 5(7) of the First Schedule that ought to be read conjunctively with s 65(5) of the GST Act. Sub-paragraph 5(7) of the First Schedule of the GST Act provides that: Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business. (Emphasis added) In this instance, it can be surmised that the borrower, in the event of default, will be deemed to be the person supplying the goods if the mortgagee chooses to enforce his right of sale over the vessel to recover the debt under the facility. However, this matter does not end here. In furtherance to the above sub-paragraph 5(7), one must also consider s 65(5) of the GST Act which provides as follows: Where goods are deemed to be supplied by a taxable person pursuant to subparagraph 5(7) of the First Schedule, any person, whether or not he is a taxable person, who sells the goods in satisfaction of any debt owed by that taxable person, shall be liable for any tax due and payable on the supply. (Emphasis added) 15 Goldrein, Ian S, Ship Sale and Purchase (2nd Ed, Lloyd s of London Press Ltd (1993) at Supra, n 2 17 Sections 9 and 13 of the GST Act 20 Legal Herald. MAY 2015

21 This section addresses the question of liability. In short, although the borrower is deemed as the taxable person in a mortgage scenario, according to s 65(5) of the GST Act, the party selling the vessel is the one ultimately accountable for GST arising out of the sale. In other words, the burden to account for GST shifts from the taxable person to the person carrying out the sale. Ordinarily, this consideration turns on the manner in which the sale is done, either through the enforcement of the mortgagee s debenture by a receiver and manager, or pursuant to a power of attorney or by virtue of a court order. Sale of a ship by way of judicial sale There are two main modes of judicial sale: sale by private treaty and sale by public auction. In normal circumstances, upon the execution of a warrant of arrest on the res (which is usually a ship), unless the owner of the res furnishes security for the claim, the res is likely to be subjected to judicial sale. 18 In such case, the vessel will be sold by the sheriff free of all encumbrances by virtue of a court order. 19 Once the vessel has successfully undergone the sale process, the proceeds of judicial sale will then be utilised to satisfy the plaintiff s claim and the claims of other parties, if any, according to an established order of priorities. The authority to carry out a judicial sale is vested in the sheriff by virtue of a court order to sell the vessel. It is worth noting at this juncture that when the vessel is arrested, it enters into the care and custody of the sheriff, although possession of it is not thereby transferred. 20 The question then is: Who is the actual vendor in a judicial sale of a vessel? This question plays a crucial role in determining who is in fact liable for GST in this regard. There is no clear authority to suggest that the sheriff, in reality, carries out the judicial sale on behalf of the vendor in an enforcement of mortgage scenario, i.e. the mortgagee in this case. In light of this, we considered how the courts have interpreted the term vendor in a judicial sale in foreclosure proceedings, which is similar to the enforcement of mortgage deeds. The Malaysian courts have on several occasions held that the chargee must be regarded as the vendor in judicial sale for foreclosure proceedings. 21 If the same rationale applies, regardless whether the judicial sale of a ship is by way of public auction or private treaty, although the sale of the vessel takes place in the name of the sheriff, the mortgagee of the ship remains the actual vendor in the judicial sale. This proposition is consistent with the GST Act. The term any person who sells in sub-paragraph 5(7) ought to reflect the person who has the power to recover any debt as provided in s 65 of the GST Act. Reference to the word power in this instance certainly must be the mortgagee. Therefore, we take the view that the obligation to pay GST ultimately lies with the mortgagee in a judicial sale of a vessel. (i) By way of private treaty sale Principally, the implication of GST in judicial sale or rather known as a court sale is no different from an ordinary private tender exercise, i.e. GST at standard rate 18 Order 29 of the Rules of Court A ship, in this instance, includes her apparel, tackle and stores on board the ship 20 Kian Sing, Toh, Admiralty Law and Practice (2nd Ed, LexisNexis (2007) at Kimlin Housing Development Sdn Bhd (Appointed Receiver & Manager) (In Liquidation) v Bank Bumiputra (M) Bhd [1997] 2 MLJ 805 (SC); Public Bank Bhd v Phan Seng Kee [1991] 3 CLJ Rep 491; M & J Frozen Food Sdn Bhd v Siland Sdn Bhd [1994] 1 MLJ 294 (SC) Legal Herald. MAY

22 is applicable. As for potential bidders who place a deposit to register their interest in the tender exercise, there is no obligation to pay GST on the receipt of the deposit until the said deposit forms part of the full payment made by the successful bidder towards the purchase of the vessel. Accordingly, if their bid becomes unsuccessful, their deposit will be returned without any additional charges. One may also wish to take note that although court-related services are exempted supply, 22 GST at standard rate is still chargeable for the additional services rendered towards the sale. For instance, this may include advertisement of the sale and/or expenses incurred by the sheriff during the arrest period. 23 In order to ensure GST is claimable at the conclusion of the sale from the purchaser, solicitors acting for the mortgagee (who usually assists the sheriff in the preparation of the proclamation of sale) must be minded to specifically include conditions with respect to the payment of GST in addition to the contract price, example of which is set out below. (ii) By way of auction process In our opinion, the blanket statement that an auctioneer only acts as an agent for the owner or financier as provided in the GST Guide on Auctioneer 24 is inaccurate. More often than not, an auctioneer is called to assist the sheriff, the receiver and manager or persons executing the power of attorney to sell a ship by way of public auction. The auctioneer is engaged to merely carry out the auction exercises while the mortgagee remains the selling party. Therefore, the auctioneer s liability is limited to his duty to account for GST in so far as it concerns the services rendered by him to assist the court as an auctioneer. He will not be liable to pay for GST on the sale of the vessel, which will be the duty of the mortgagee instead as discussed earlier. It is nonetheless imperative that before the vessel is auctioned, the auctioneer must first inform bidders that the vessel is subject to the payment of GST. Suggested solutions We know that the essence of GST is based on a valueadded concept. From our understanding, the solution to s 65(5) of the GST Act is relatively simple. The person selling the vessel must ensure that the conditions of sale, whether in the form of a contract for sale or proclamation of sale, provide for the payment of GST in addition to the contract price. A sample GST term would read as follows: Goods and Services Tax (GST) (a) Unless specified to the contrary in the Contract Details, all prices are exclusive of Goods and Services Tax ( GST ) on the Services and Products and other supplies made under this Contract to the extent that they are taxable supplies within the meaning of the Goods and Services Tax Act 2014 ( the GST Act ). (b) In this clause, a word or expression defined in the GST Act has the meaning given to it in that Act. 22 Section 64 of the GST Act Section 65(5) read with sub-paragraph 5(7) of the First Schedule of the GST Act By the Royal Malaysian Customs Department, 18 July Legal Herald. MAY 2015

23 (c) If a party (Supplier) makes a supply under or in connection with this Contract in respect of which GST is payable, the recipient of the supply (Recipient) must pay to the Supplier, an additional amount equal to the GST payable on the supply (GST Amount). In summary, the terms in the agreement leading to the sale and purchase of a vessel and/or proclamation of sale must specifically spell out that GST charges ought to be borne by the purchaser, in addition to the purchase price. Otherwise, the mortgagee could be held accountable for those charges. Whether this is a fair burden placed on the mortgagee, who is merely enforcing his rights under the facility, warrants an article by itself. Conclusion It is undeniable that the GST will affect all individuals and industries. However, the extent of its impact varies, depending on the type of activity. Compared to other industries, the GST is likely to have minimal impact on the merchant shipping sector and maritime supply chain as most international trade activities are zero-rated. The rationale for this is to maintain competitiveness of the seaborne trade in Malaysia. 25 Apart from the million-dollar question as to whether Malaysia is in fact ready for the GST, the implication of GST should not be taken lightly as it has a proven track record in countries that have implemented it thus far. With proper understanding of and education on the impact of GST, it may well be a way forward in tackling the nation s fiscal deficit. LH-AG About the authors Datuk D P Naban (dpn@lh-ag.com) heads the Tax, GST and Private Clients Practice Group at Lee Hishammuddin Allen & Gledhill. He regularly represents taxpayers in tax and customs disputes in Malaysia. He also advises taxpayers on various tax matters including transfer pricing, tax audit & investigation and international tax law. Naban also heads the firm s Shipping Practice Group. Jennifer James Ilango (jji@lh-ag.com) is an associate with the Shipping Practice Group. 25 Margaret Ang Guat Hee and Laksme Khorana, An Assessment of the Introduction of Goods and Services Tax (GST) in Malaysia and its Implications on the Merchant Shipping Sector and Maritime Supply Chain. See < 20jul10.pdf> Legal Herald. MAY

24 The Law on Trade Secrets by Lim Zhi Jian When Colonel Harland Sanders opened the first Kentucky Fried Chicken outlet in 1952, neither he nor anyone else could have foreseen that it would grow into 18,875 locations generating US$23 billion in revenue a year, and all due to one trade secret, the Original Recipe. Coca-Cola, the world s most valuable brand for 13 consecutive years 1 at US$80 billion and based on a sugared beverage served 1.8 billion times a day, was built on a 140-year-old trade secret that the label of ingredients gives no hint of. A multi-billion dollar business empire can be built on trade secrets. Every business has its secrets While the average business may not have a billion-dollargenerating secret, it may not realise the value in their existing information. A business may have more trade secrets than meets the eye (and these are not limited to industrial or manufacturing processes). 2 While the name of the individual client is not confidential, the list or database of clients on which a business has expended time and effort to compile may be. 3 Business information relating to cost prices, quoted prices (which may vary depending on the particular supplier and client), past transaction records, specific needs and requirements of certain customers which the business has learned over time may also be regarded as confidential to the business. 4 In the same vein, ongoing negotiations between contracting parties have also been regarded as highly confidential. 5 Contracts, too, can be confidential in nature. 6 If such information were to fall into a competitor s hands, clients may be poached and prices undercut. 7 Information publicly available is not confidential as such. However, it is perfectly possible to have confidential information based on publicly available material, if it can only be reproduced by a laborious compilation process. 8 The fact that it consists partly of public information does not mean it cannot be information confidential to a business. 9 The list of what may be considered confidential is not exhaustive. 10 Protection As important and valuable as trade secrets are, the protection afforded by the law is not always adequate. Protection of trade secrets may take the following forms: (a) copyright; (b) patent; and (c) duty of confidence. 1 Until it was dethroned by Apple < 2 Certact Pte Ltd v Tang Siew Choy [1991] 4 CLJ (Rep) 716 at 722; Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 at Schmidt Scientific Sdn Bhd v Ong Han Suan [1997] 5 MLJ Svenson Hair Centre Sdn Bhd v Irene Chin Zee Ling [2008] 8 CLJ 386 at ; Schmidt Scientific Sdn Bhd, supra n 3 at 695; Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon [2010] 8 MLJ 297; [2010] 1 LNS 444; Certact Pte Ltd, supra n 2 5 Schmidt Scientific Sdn Bhd, supra n 3; Certact Pte Ltd, supra n 2 6 Certact Pte Ltd, supra n 2 7 Schmidt Scientific Sdn Bhd, supra n 3 8 Saltman Engineering Co Ltd v Campbell [1963] 3 All ER 413 at 415; Worldwide Rota Dies Sdn Bhd, supra n 3. The High Court grounds of judgment may also be viewed here: < DIES%20%20%20Ronald%20Ong.pdf> at Seager v Copydex Ltd [1967] 2 All ER Alfa Laval (M) Sdn Bhd v Ng Ah Hai & Ors [2008] 5 MLJ Legal Herald. MAY 2015

25 Copyright Copyright is the exclusive right granted for the exploitation of an artistic works, literary works, musical works, films, sound recordings and broadcasts. A customer database, information on prices, contracts and individual preferences of customers may qualify for copyright protection as literary works. However, copyright protection of trade secrets is inadequate and often not feasible because: Patent (a) Not every trade secret can satisfy the requirement of originality for copyright to subsist; (b) copyright only subsists during the life of the author plus 50 years; 11 and (c) copyright protects works in tangible form and does not protect ideas as such. A patent is an exclusive right granted to exploit an invention. While a patent grants absolute monopoly, protection of trade secrets by means of a patent may be inadequate (and, to an extent, counter-productive) because filing for a patent requires publication of the invention. a) By filing for a grant of patent: i) even after publication, there is no guarantee that the patent would even be granted; ii) Protection is limited to only 20 years from the date of filing, assuming patent granted; b) the condition for grant has high thresholds, which most trade secrets may not satisfy the requirement that a patent must: i) be novel; ii) involve an inventive step; and iii) be industrially applicable; c) the application process is costly and lengthy; d) even if granted, a patent is still open to invalidation actions. Duty of confidence A duty of confidence protects information (neither publicly available nor trivial) that is conveyed in confidence. The law imposes a duty of confidence over information where the information: a) is not publicly available or is trivial; and b) is conveyed in confidence The protection is available without: a) the need to file any application or make any disclosure; and b) any time limit to the protection 11 Regardless to whom he may assign ownership of the copyright to Legal Herald. MAY

26 In the case of employees, there is an implied duty of good faith and fidelity which encompasses an obligation on employees not to divulge confidential information, or use it in a way that is detrimental to their employer. It is a breach of the implied duty even to memorise confidential information with the intention of using it later, even if such use or disclosure is post-employment. 12 Legal protection of confidential information has the following drawbacks: a) if the recipient has no notice of its confidential nature, he is not bound to keep it a secret; b) therefore continuous effort is required to preserve confidential nature of the information; c) once disclosed outside of the duty of confidence, it may enter into public domain and be available to the whole world; d) it does not prohibit an exploitation of a secret manufacturing process discovered upon reverse engineering of the same; 13 e) the protection is somewhat amorphous, relying as it does on common law and equitable principles rather than legislation. Keeping the cat in the bag The manner in which secrets are guarded has been held to be a material consideration in determining whether a certain material is confidential in nature, 14 because a duty of confidence may only arise under circumstances imparting an obligation of confidence; when the recipient has notice. 15 In an environment where confidential information needs to be shared, the steps that a business should take to retain confidentiality in information include: a) plainly making it known that the information is regarded as confidential; b) giving notice that the sharing is by reason of seniority or responsibility; 16 c) demonstrably restricting/limiting access to the information and guarding of the same; d) employing technological measures to prevent unauthorised copying and sharing of information on devices of employees; e) entering into non-disclosure or confidentiality agreements (which may be specific for one-off project partners or joint ventures, or wide and general for employees); and f) alternatively, incorporating confidentiality clauses in employment agreements. Feathers in the wind In the event of a leak, seeking immediate advice from your intellectual property legal adviser tops the list of things to do. Once disclosed, a secret can no longer be restored as one. 17 Every legal remedy at your disposal will be redundant once the information enters the public domain. The legal burden in an action for breach of confidence is discharged by establishing unauthorised use of the information to the detriment of the communicating party, the information of which has the necessary quality of 12 Schmidt Scientific Sdn Bhd, supra n 3 13 Mars UK Limited v Teknowledge Ltd [2000] FSR Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50; E Worsley & Co Ltd v Cooper [1939] 1 All ER 290 at Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at Printers and Finishers Ltd v Holloway [1965] RPC 239 at 256; Faccenda Chicken Ltd, supra n 2 17 Dynacast (Melaka) Sdn Bhd & Ors v Vision Cast & Anor [2008] 10 CLJ 190 at Legal Herald. MAY 2015

27 confidence and which was imparted to the recipient in circumstances importing an obligation of confidence. 18 The manner in which business is conducted and information is treated may be the determining factor. It is important to pair the action with an application for an injunction restraining further disclosure of the confidential information, thus reducing the risk of further disclosure. An undertaking to pay any damages caused by the injunction must be provided. When operating with the risk that the confidential information taken or copied may be moved about, disposed of quickly or further replicated, drastic orders such as the intrusive Anton Piller order, which gives the right to search premises and seize evidence without warning may need to be resorted to. In going to court for such orders, the business must act with haste. Equity aids the vigilant, not those who slumber on their rights. 19 Other remedies include damages or an account of profits arising from the unauthorised use of the confidential information, and legal costs. Conclusion Although the law recognises confidentiality, the greatest value in a trade secret is that it stays that way: secret. The Original Recipe is stored in a vault while Coca-Cola once withdrew from India the second-most populated country in the world so as to avoid complying with a local law that required it to divulge its formula. The law on trade secrets is thus to take all the steps so that you do not have to rely on the law on breach of confidence, which basically is closing the stable door after the horse has bolted. LH-AG About the author Lim Zhi Jian (lzj@lh-ag.com) is an associate with the Intellectual Property Practice Group at Lee Hishammuddin Allen & Gledhill, who is part of a team headed by Bahari Yeow (yth@lh-ag.com) that regularly appears at the High Court and appellate courts for various matters. They also advise on and act in various litigious matters such as intellectual property disputes, intellectual property protection, intellectual property management, domain name disputes, franchising, telecommunications and other regulatory and compliance exercises, including exercises conducted pursuant to data protection and competition laws. 18 Coco, supra n 15; Electro Cad Australia Pty Ltd & Ors v Mejati RCS Sdn Bhd & Ors [1998] 3 AMR Haji Wan Habib Syed Mahmud v Datuk Patinggi Haji Abdul Taib Mahmud & Anor [1986] 2 MLJ 198 (SC); Malayan Banking Bhd v Foo See Moi [1981] 2 MLJ 17; Tan Swee Lan v Engku Nik Binti Engku Muda & Ors [1973] 2 MLJ 187 (FC) Legal Herald. MAY

28 Par tner Profile Hoi Jack S'ng LHAG is pleased to announce the admission to partnership of Hoi Jack S ng with effect from 1 January Jack s primary area of practice encompasses general civil and commercial litigation, with a particular emphasis on banking litigation and corporate insolvency. His clients are typically financial institutions, liquidators, and receivers and managers. Jack graduated from the University of the West of England, Bristol in 2004, and was called to the Bar of England and Wales in He was admitted as an advocate and solicitor of the High Court of Malaya in 2006, and has been with LHAG since. LH-AG He also has experience in advising and defending clients in regulatory and statutory compliance matters as well as quasi-criminal prosecutions. Further, Jack is involved in public interest litigation and legal profession disciplinary matters. 28 Legal Herald. MAY 2015

29 Senior Associate Profiles Shariffullah bin Abdul Majeed Shariffullah graduated with an LLB (Hons) from the International Islamic University of Malaysia in 2008 and was admitted as an advocate and solicitor of the High Court of Malaya in April While his primary areas of practice are industrial relations and employment law, he has also defended claims arising from employment contracts. He has worked closely with several government-linked companies and regularly advises them on employment-related issues. Shariffullah was promoted to senior associate wef 1 January LH-AG Nadiah bt Abd Majid Nadiah is well-versed in both competition law and data protection law. As a member of LHAG s Regulatory & Compliance Team, she has conducted compliance exercises and rendered legal advice on the Competition Act 2010 and the Personal Data Protection Act She regularly provides general and legal advisory work for various government agencies and government-linked companies in their day-to-day and operational activities including contracts involving government projects encompassing land matters, procurement, consultancy, IT and IP as well as joint venture projects. Nadiah was promoted to senior associate wef 1 January LH-AG Legal Herald. MAY

30 Senior Associate Profiles Bella Chu Chai Yee Bella graduated from the University of London in 2008 and was called to the Malaysian Bar in She was previously an associate with the firm s Dispute Resolution Practice Group focusing mainly on banking and insolvency disputes. Since then, she has been involved in various aspects of corporate and commercial work. These include mergers and acquisitions, submissions to regulatory authorities, cross-border financing and general advisory work. Bella was promoted to senior associate wef 1 January 2015.LH-AG Shanaz Azwin bt Muztaza Shanaz s primary area of practice is commercial dispute resolution focusing on international and domestic arbitrations. She advises and acts for clients on matters relating to, among others, shareholder disputes, construction, engineering and energy. She has been involved in international and domestic arbitrations conducted under the KLRCA, UNCITRAL, LCIA, ICC, ICSID, IBA, SCC, LMAA, UNCITRAL and AAA arbitration rules. She has also been involved in mediations and adjudications conducted under TeCSA & ORSA adjudication rules. Shanaz works principally with Dato Nitin Nadkarni, who heads the Construction, Engineering & Arbitration Practice Group at Lee Hishammuddin Allen & Gledhill. Shanaz is a member of the Bar both in the UK and New York, and has been admitted as a solicitor of the Senior Courts of England and Wales. She is also a member of the Chartered Institute of Arbitrators (MCIArb), Arbitral Women and International Bar Association. Shanaz joined LHAG as a senior associate in January LH-AG 30 Legal Herald. MAY 2015