Legal Cauldron issue 1 of 2010

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

IN THIS ISSUE: THE LEGAL CAULDRON TEAM

EDITOR
• An Onerous Duty Andrew Chee

• Caution when buying auction
LAYOUT & DESIGN
property
Adrian Low
• Can intellectual property rights
constitute the subject matter of ARTICLE CONTRIBUTORS
an Islamic Contract? Ganesheraj Selvarajah
Stanley Gabriel
• Protecting the future
Barvina Punnusamy
Frank Akpoviri

Visit us at www.jhj.com.my

LEGAL CAULDRON.  ISSUE 1/2010 .  PAGE 2

While others employ an operation which seems to infinitely
MESSAGE FROM THE EDITOR loop its members in a dreary, supposedly desirable and effi‐
cient, system, it is not the JHJ philosophy. You would be sur‐
Jurisprudence, legal academics make comparisons prised at the result, when hierarchy sometimes gives way to
between the Capitalist and Marxist State. To Capitalists, consensus. Ego and pride does not take root easily on JHJ soil
Marxist epistemology fails because “it would be absurd when all of us love our work and value the firm holistically.
if a doctor is paid the same as a farmer”. To the Marxist
however, society must strive to promote and encourage The Action Coach Team Award 2009 comes as recognition
its productive members to engage in the activity or and encouragement knowing that we are treading on, not
profession in which one is most apt and has the most necessarily the most profitable, but definitely the better path.
passion for without any attachment to ensuing
compensation. The Marxist in all of us continuously ask: The question I pose to you now becomes: “Would you rather
“Would you rather be treated by a doctor who is only in hire a lawyer that’s in it for the money? Or a lawyer that loves
it for the money? Or the doctor who loves his work?” and believes in his work?”

The jurisprudential relevance of this note comes to light
as we would like to announce that Messrs Jayadeep Hari AN ONEROUS DUTY
& Jamil has won the Action Coach Team Award for 2009. By Ganesheraj Selvarajah
In its entire history of awards, the Action Coach
organisation (which is established in more than 23 INTRODUCTION
countries worldwide with over a million participants)
deigned it most appropriate that JHJ be the first legal Over the years we have seen a growing number of companies
outfit amongst its stable to lift aloft this coveted award.
being established in Malaysia. A very common reason for estab‐

JHJ has been under the Action Coach program for over a lishment of a company is “Limited Liability”. What this means is
year now as our commitment to self and constant that the shareholders do not have the burden of overseeing the
improvement. Before Action Coach, JHJ had sought and risk and profitability of the company as the same fall within the
engaged professionals in guiding and steering the responsibility of the Board of Directors and with such responsi‐
members of the JHJ family in self development and bility comes accountability.
excellence in services. We are extremely elated to have
our efforts recognised in this award. Companies were The purpose of this article is not to delve into the details of the
judged based on: duties and responsibilities of directors but generally just to

serve as a guide on the substantial exposure placed on the di‐
• What the company is doing for the continuous
rectors in the day to day undertaking this onerous duty.
improvement of the team;
• The steps the company intends to take in the near
future toward the above aim; GENERAL DEFINITION OF A DIRECTOR
• The company’s HR management systems; and
• The probability of employee satisfaction. For ease of reference, I have taken the liberty to state in very
general terms the following:‐
Indeed, we are a firm that enjoys doing what we do.
Committing to self‐improvement is not a chore to JHJ. 1. An individual can be a director as long as he/she:
We may not be the biggest but we are perhaps one of the A) is 18 years old (for public companies the general rule
most passionate. It is rare to find any sort of corporation is that a director must be under 70 years old);
where the clerks and secretaries are also thinking of
B) is not an undischarged bankrupt;
suggestions and strategies to implement in the firm, be
C) has not been convicted of criminal offence involving
it to make existing systems more efficient or merely to
make the office more cheerful and comfortable. Every fraud or dishonesty;
employee gets to chair the rather important staff D) has not been imprisoned for an offence under S132,
meeting every month. And every month we get a S132A or under S303 of Companies Act; and/or
different “flavour” meeting which yields different and E) has consented to act as director.
otherwise unseen results. The osmosis of opinions and
ideas that seep and exude from everyone keeps us on a 2. Section 4 of the Companies Act 1965 (CA) defines director
constant flux that prevents the firm from descending as:
into routine monotony.



“any person occupying the position of director of a corpo‐ most potential liabilities in shareholder‐related claims. Di‐
ration by whatever name called and includes a person in rectors may be able to justify a wrongful act, such as any
accordance with whose directions or instructions the actual or alleged breach of duty and breach of trust to mi‐
directors of a corporation are accustomed to act and an nority shareholders or place the burden on the manage‐
alternate or substitute director” ment to ensure compliance.

Certain other sections within the Companies Act have gone on However, they would not be covered for acts which are
to include the CEO, COO, CFO or any other person primarily deemed criminal acts where their behaviour and miscon‐
responsible for the operations or financial management of a duct are construed to be willful, fraudulent and intentional.
company, by whatever name called.
POSSIBLE PENALTIES
WHY THE SPOTLIGHT?
It would not be possible to state in very detail or even list
A few years ago, directors did not shoulder the same concerns out all the potential liabilities in one simple article like this
as they do today. Rightfully so, the situation has changed dra‐ but more often than not the items below are some of the
matically in line with factors such globalization on corporate examples of more common penalties/sanctions imposed on
finance and management, the growing impact of computers Directors.
and communication information, the growing demand of insti‐
tutional investors and international institution, complex capi‐ 1. Breach of their fiduciary duty
tal controls and corporate reform as a whole, just to name a
few. A) director sets up another firm to compete for
contracts with the company: Avel Consultants
Coupled with the establishment of watchdog groups and the Sdn Bhd & Anor v Mohamed Zain Yusof &
greater need for good corporate governance, a renewed em‐ Ors [1985] 2 MLJ 209
phasis has been placed on the responsibilities of directors. A
substantial change is more evident in public listed companies B) director diverts a business opportunity for his
but it will only be a matter of time when it becomes common own profit: Hytech Builders Pte Ltd v Tan
expectation or a requirement for all companies to elect quality Eng Leong & Anor [1995] 2 SLR 795
directors. Obviously the increased responsibilities, leading to
further accountability, would most definitely call on all parties 2. Failure to comply with statutory requirements:‐
to take into serious consideration any invitation to a Board,
considering the director will most evidently be exposed to A) obligation to keep registers;
greater risk and liability.   B) to make documents available for inspec‐
tion;
Although Malaysia has only seen a limited number of directors’ C) to keep  minutes of meetings;
liability cases, several factors are now combining in effect to D) to keep accounting records and books;
make this a real possibility in the future. These include the re‐ E) to hold AGM;
cent corporate and securities law reforms to lessen the burden F) to lodge changes in particulars of the  com‐
of proof for offences, whistle blowing provisions, the shift from pany directors and secretaries; and/or
a merit‐based to disclosure‐based regime for full and appro‐
priate disclosure, due diligence and increasing activism among G) to record and note interests of and disclo‐
minority shareholders.  There is a growing multitude of  statut‐   sure by directors or chief executives, their
ory liabilities under the Securities Commission Act 1993 and   spouses, children or parents of their inter‐
the Capital Market and Services Act, 2007 that will expose di‐ est in securities of a company.
rectors to a greater variety of risk factors than before.
3. Failure to comply with the requirements of making
Inadequate, inappropriate or incomplete disclosures, account‐ employment provident fund payments:‐
ing irregularities, erroneous announcements, false and mis‐
leading statements or company law violations lie at the root of

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LEGAL CAULDRON .  ISSUE 1/2010 .  PAGE 4

This is a strict liability issue. What this means is
CONCLUSION
that so long as the company fails to make the re‐
quired employment Provident Fund (EPF) contri‐
butions, the directors would be personally liable.   In conclusion, the power suits, the glamour of corporate deal‐
ings and the considerable power synonym with the post of a
The courts have even gone further and to hold the director come at a price. The price, shouldering the onerous
directors personally liable even where the com‐ duty of ensuring the interest of the company is safeguarded
pany has been wound up stating that at the mate‐ and upheld at all times, even if it is against the wishes of the
rial time when the contributions failed to be paid
stakeholders of the company itself. Taking a look at interna‐
the individual was the named Director. On Kim
Chuan & Anor V. Lembaga Kumpulan Wang tional corporate structures and precedents, the regulations
Simpanan Pekerja [2009] 6 CLJ 586 [2009] 1 and enforcement of regulations will most certainly be an area
LNS 576. that will continue to develop. As such, due and proper consid‐
eration of the roles, duties and exposures of a director must
4. Failure to comply with the requirements of the be given and just as any complex decision, due research and
Authorities:‐ advise should be sought before making a decision.

(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 Ganesheraj Selvarajah
liable to 3 months imprisonment;
Partner

ganesh@jhj.com.my
(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; CAUTION WHEN BUYING AUCTION PROPERTY
By Stanley Gabriel
(c) An operating officer engaged in an act
Siti noticed in the local newspapers, that a large number of
which operated as a deceit (Initial Public
properties are being auctioned off every day. She also realised
Offering exercise). The Operating Officer that the price of auctioned properties (reserve price) are
was sentenced to 3 years imprisonment much lower than the market value and as such was keen to
and fined RM1,000,000.00 and in default know the auction procedure and what to look out for when
would be liable to an additional 1 year purchasing an auction property.
imprisonment;
BRIEF INTRODUCTION AND PROCEDURE
(d) Omitting to state a material fact deemed
to be misleading. The Director was sen Almost all the property auctions that are published or adver‐
tised in the local newspapers are auctioned by banks or finan‐
tenced to 1 year imprisonment and fined
cial institutions. A property is put up for auction when a Bor‐
RM3,000,000.00 and in default  would be rower has defaulted in paying his/her housing loan install‐
liable to an additional 3 year imprison ments. When a Borrower defaults in the loan repayment, the
ment; (Source: Securities Commission Re procedure in which the bank or financial institution  initiates
port at www.sc.com.my) the foreclosure proceedings will vary and is dependent on
whether a separate individual title has been issued for the
The penalties imposed by the relevant authorities have property. Almost all auctions in the advertisements will refer
ranged from thousands to millions of Ringgit Malaysia, to the Borrower as “Chargor/Assignor” and the Bank as
all depending on the gravity of the offence. The courts “Chargee/Assignee”.

have also imprisoned fraudulent directors.



The words “Chargor/Chargee” in the advertisement will indi‐ This is because if a buyer is successful in the bid, the buyer
cate that the property in question has an individual title is deemed to have entered into an agreement and is bound
whereas the words “Assignor/Assignee” will suggest that there by the terms and conditions stipulated in the COS.
is no individual title issued yet. When there is no separate indi‐
vidual title issued, the Bank will secure the loan by getting into Prior to the commencement of an auction, a deposit of 10%
a Loan Agreement cum Assignment with the Borrower over of the reserve price must be placed with the auctioneer.
the rights, title, interest and benefits of the Principal Sale and Failure to place a deposit would prevent you from partici‐
Purchase Agreement. In this case the Bank or financial institu‐ pating in the bidding of the property. A successful bidder is
tion can directly appoint an independent auctioneer to auction required to sign a Memorandum of Sale attached to the POS
the property provided there is no restriction or precondition and the deposit will then be released to the auctioning Bank
stipulated in the Loan Agreement that requires the Bank to towards part payment of the purchase price. If the buyer is
first obtain a court order for the sale.   unsuccessful the deposit will be refunded to him/her im‐
mediately after the auction.
Where there is a separate individual title for the property, the
Bank will secure the loan by creating a charge over the prop‐ Buying an auction property is by no means a walk in the
erty. In this case the bank will enforce the charge via foreclo‐ park. There are many issues and complexities a buyer has
sure proceedings to auction the property. Prior to initiating to face and overcome when buying a property for auction.
foreclosure proceedings however, it must be determined Although the reserve price is way below the market price,
whether the Land Registry or the Land Office has issued the there maybe other factors that can ultimately increase the
separate individual title. If the title was issued by the Land costs of the property itself.
Registry, then the Bank will have to follow the rules and proce‐
dures prescribed in Sections 254‐259 of the National Land There are also risks and a lot of hassle involved when one
Code 1965 (“NLC”).   buys a property in an auction. Buyers are advised to make
enquiries, carry out investigations and read carefully the
Once the procedures in the NLC have been complied then the terms and conditions of the auction before making a deci‐
application for order for sale is made to the High Court pursu‐ sion to buy the property.
ant to Order 83 of the Rules of High Court 1980 for the High
Court to carry out and conduct auction proceedings.   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
On the other hand, if the title has been issued by the Land Of‐
factors highlighted below are by no means exhaustive.
fice, the application for order for sale must be made to the

Land Administrator in accordance to the rules and procedures
PROPERTY SOLD ON AN “AS IS WHERE IS BASIS”
prescribed in Sections 260‐265 of the National Land Code

1965. The Land Administrator has the power to conduct a
The COS will state that the property is sold subject to all
maximum of three (3) auction proceedings on the property. If
express and implied conditions, restriction in interest in‐
the property is not successfully auctioned off after three (3)
cluding charges, liens, caveats, prohibitory orders, tenan‐
attempts, the Land Administrator must then revert the matter
cies, leases, restraints, rights of occupiers and tenants af‐
to the High Court to conduct the auction proceedings.
fecting the property. The COS will further state that the

buyer is deemed to have full knowledge of the state and
PROCLAMATION OF SALE
condition of the property. This means the buyer is purchas‐

ing the property at his own risk because there is no guaran‐
Once an order for the sale has been obtained from the High
tee by the Bank that the property, which is sold to the
Court or Land Administrator, the auctioneer will prepare a
buyer, comes with a clean title.
Proclamation of Sale (POS). The POS will be advertised in the

local newspapers and a copy pasted on the property. The POS
The obligation is on the buyer to remove any caveats or
will contain the date and venue of the auction, the reserve
restraints affecting the title or evict the owner or tenant if
price,  the parties involved, the details of the property, the title
they refuse to deliver vacant possession. The buyer will
particulars and the terms and conditions of the sale.  The POS
have to remove the caveats or restraints within the comple‐
also comes together with the Conditions of Sale (COS) and it is
tion period stated in the COS. If necessary the buyer may
advisable that before a buyer bids for the property, the terms
need a court order to remove the caveats or restraints on
and conditions stipulated in the COS is read and understood.
the title.

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This process is costly and time consuming and the buyer has PAYMENT OF BALANCE PURCHASE PRICE
to bear all costs and expenses involved with the added risk
that the compensation or costs may not be recoverable. If the Successful bidders are often given ninety (90) days from
caveats or restraints are not removed, the ownership of the the date of the auction to settle the balance payment.
property cannot be transferred to the buyer and the charge Therefore it is advisable for the buyer prior to the auction
cannot be registered in favour of the buyer’s financier. In  this to verify his/her eligibility to secure a loan for the pur‐
event, the financier will not be able to disburse the loan chase of the property. Normally ninety days (90) is suffi‐
within the time frame stated in the COS and the auctioning cient for the completion of the legal documentation and
bank has the right to forfeit your deposit.   release of the loan. However if any third parties have
lodged caveats or other encumbrances on the title, then it
Sometimes the auction properties may have been abandoned is very unlikely that the buyer can remove the encum‐
by their owners and have been locked. This makes inspection brances within the ninety (90) day time frame to pay the
rather difficult. In some cases the owner or tenant is still oc‐ balance purchase price to complete the sale. In such situa‐
cupying the property and they may refuse to vacate the prop‐ tion the buyer may have to first settle the balance pur‐
erty although the buyer has successfully bought the property.   chase in cash and later take the necessary action to re‐
move the encumbrances on the title. Otherwise the auc‐
Again the buyer may be required to obtain a court order to tioning Bank has the right to terminate the sale for the
evict them and in the process incurring more costs and ex‐ buyer’s failure to pay the balance purchase price and for‐
penses. feit the deposit.

OUTSTANDING QUIT RENT, ASSESSMENT, SERVICE,
There are also cases where the owner is still occupying the MAINTENANCE CHARGES AND OTHER OUTGOINGS
premises and will refuse entry to the buyer to view and in‐
spect the property knowing very well that the owner will Some COS will state that all outstanding quit rent, assess‐
have to vacate the property if the buyer is successful in the ment, service, maintenance, electricity, water, sewerage,
auction. sinking fund, late interest charges or other outgoings in
respect of the property will have to be borne by the buyer.
In spite of all these difficulties, the buyer must make the effort The buyer should read and check the COS carefully to see
to visit and inspect the property before the auction. A prudent who is responsible to pay the outstanding charges for the
buyer should also make enquiries and carry out his own in‐ property. If the COS states that the outstanding charges
vestigations to find out the state and condition of the prop‐ are to be borne by the buyer it is advisable for the buyer to
erty or whether anyone is residing in the property.   make enquiries with the developer and relevant authori‐
The buyer should not rely on the photograph of the property ties to find out the outstanding charges for the property.
appearing in the advertisement or printed on the POS as These outstanding charges can be quite substantial so buy‐
these will not convey the actual state and condition of the ers should carry out their own investigations to avoid any
property. dispute or misunderstandings later.

CONDUCT LAND SEARCH ON THE PROPERTY    RESELL OR TRANSFER TO THIRD PARTY

It is crucial for a buyer to conduct a land search at the rele‐ A buyer who buys a property in an auction is not allowed
vant land office to find out the express and implied conditions to resell or transfer the property directly to a third party.
of the title. The search will also reveal the current registered The buyer must first pay the full purchase price in accor‐
owner, existing chargee and whether there are any caveats, dance to the terms and conditions of the COS and transfer
prohibitory orders, restraints, exempt tenancies or leases the property to his name before he can resell or transfer it
claimed by any parties to the title. The COS will mention it is to a third party. The buyer will have to incur the legal
the obligation of the buyer to conduct a land search and the costs, stamp duty, registration fees and other disburse‐
buyer is deemed to have made the search and have full ment for the transfer of the property to his name. And if
knowledge of any encumbrances (impediment) on the title. the buyer is taking a loan to finance the purchase he/she
The Bank has no obligation to deliver vacant possession free will have to also bear the legal costs, stamp duty and dis‐
of any encumbrances or restraints affecting the title of the bursements in relation to the loan documents.
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.





The registration of the property in the buyer’s name will If there are caveats or restraints on the title, the removal
take about six months or more. So it is difficult to make a may require a court order and therefore incur more costs
quick profit, as the buyer is not allowed to resell the prop‐ and expenses. Further if the owner or tenant refuses to
erty until the buyer’s name has been registered and en‐ move out, again you may require a court order to evict the
dorsed on the title deed. If the buyer’s intention is to make owner or tenant and thereby incurring more costs and ex‐
a quick profit he will have to take into account and consider penses. The court process is lengthy, time consuming and
the time, costs, bank interest, penalty for early settlement costly. The parties who lodged the caveat or restraint may
of the loan and other costs and expenses. Buying and resell‐ contest the buyer’s application to remove their caveat or
ing an auction property immediately will not derive much restraint and thus may cause further delay and costs. Time
profit unless the buyer has the resources to wait for the is the essence to the contract and the onus is on the buyer
appreciation of the property market. to remove the caveats or restrains. Therefore if there are
delays to remove the caveats and restraints on the title, the
COMPETING WITH AGENT, TOUTS AND SYNDICATES Bank may terminate the COS and forfeit the deposit or they
may extend the completion period provided the buyer pays
On the day of the auction a buyer may come across agents, in advance late payment interest which can be quite sub‐
touts and syndicate members who will guarantee and stantial.
promise the buyer that he will be the only successful bid‐
der. These agents, touts and syndicate members will ask for Most times, buyers have been caught unaware of the proce‐
a commission to stop other people from bidding for the dures and pitfalls when buying an auction property. The
property.   buyer only appoints a lawyer after they have been success‐
ful in an auction. This has caused great loss and pain which
These agents and touts will give assurances to the buyer can be avoided if proper enquiries, investigations and
that no one else will bid for the property and that they can searches have been done before bidding for the property.
get the property for the buyer at the reserve price stated in Thus, when buying an auction property, it is necessary to
the POS. Some of the prospective buyers attending the auc‐ consider and weigh all the aforesaid risks, time and costs
tion are in fact agents, touts and syndicate members. Buy‐ involved in complying with the terms and conditions im‐
ers should avoid them and not show how keen they are on posed in the COS. It is therefore recommended that you
securing the auction property. These agents and touts can appoint a lawyer even before the auction date to advise and
be ruthless and when a buyer brushes aside their advances, safeguard your interests.
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 Stanley Gabriel
will end up paying a lot more than what he/she bargained Partner
for. stanley@jhj.com.my

CONCLUSION

In conclusion it can be said that buying a property in an
CAN INTELLECTUAL PROPERTY RIGHTS CON
auction has its hassles and pitfalls. Due to the uncertainty STITUTE THE SUBJECT MATTER OF AN IS
involved, people are generally reluctant to bid for property LAMIC CONTRACT?
in auctions even though they may be priced very much By Frank Akpoviri
lower than the market rate.  Very rarely can a buyer inspect
a property before the auction to find out the exact state and Unlike their conventional counterparts, Islamic contracts
condition of the property and to assess the cost of repairs are mostly asset‐based. They involve the exchange of prop‐
for the property.   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.


We Care


The parties must have the opportunity to evaluate the Thus, the fact that usufructs may be owned in the latter
worth of, and the consequential benefits derivable from the sense does not, by itself, elevate them into the realm of the
items being exchanged. As a general rule, uncertainty in physical so as to be granted the status of mal. Ibn Abidin
contracts is forbidden because that may lead to disputes goes further to differentiate between mal per se and mal
between parties, or expose them to un‐foretold financial mutaqawwan (valuable property) because, although cer‐
losses. This objective is more easily achieved when a tangi‐ tain things such as mosquitoes, snakes and lions, can be
ble property constitutes the subject matter of a contract. mal, they may have no value according to Shari’ah, and
consequently, cannot form the basis of an Islamic contract.
However, unlike previously, the range of potential items
that can be used as the subject matter of an Islamic contract Another Hanafi jurist, al‐Sarakhsi, similarly defines mal as
has widened to cover not only tangible, but also intangible something, which is created, beneficial to people and can
or abstract items, such as rights (haqq ma’nawi). On the be kept (Mabsut 1989: 11:79). Al‐Taftazani reinforces this
other hand, since compliance with Shari’ah is the defining by defining mal as something that is beneficial to people,
characteristic of Islamic contracts, any transaction that is and would decrease in its value and become worn out af‐
based on intangible items would run the risk of being con‐ ter usage. Like Ibn Abidin’s, both of these definitions also
sidered invalid due to non‐compliance with Shari’ah re‐ imply something that possesses tangible characteristics.
quirements. But there is, at least, one Hanafi jurist, al‐Kasani, who sees
things differently. As far as al‐Kasani (1982:7:385) is con‐
Yet, given recent technological breakthroughs and advance‐ cerned, mal can encompass  usufructs. In other words, mal
ments, there is a growing desire to explore the trading of can be both tangible and intangible items. Despite al‐
intangible assets, such as intellectual property rights Kasani’s discordant view, however, the general Hanafi
(IPRs), in Islamic transactions. This makes it important to consensus is that mal refers exclusively to tangible items.
enquire whether IPRs, given their intangibility, can qualify
as mal; in other words, whether they can validly constitute The Majallah’s description of mal lends support to the
the subject matter of an Islamic contract. Islamic jurists Hanafi viewpoint. Article 126, for instance, defines mal as
from different Schools of Thought constantly debate on things that are desired by man, and which can be stored
what can, and cannot constitute mal. These Schools: the for use when necessary. Like Ibn Abidin, Article 127 spe‐
Hanafi, the Maliki, the Shafi’i, and the Hanbali, proffer sys‐ cifically stresses on mal mutaqawwan, and defines it as
tems of reasoning that can be summarized under two broad something that has a benefit, the enjoyment of which the
categories.   law permits, and as property acquired, presumably, tangi‐
ble property. The most vivid backing of the Hanafis, how‐
On the one hand, the Hanafis contend that only physical ever, comes from Articles 150‐151, as well as Article 159
assets can be mal. According to Ibn Abidin, a leading Hanafi of the Majallah. After clarifying in Article 150 that the sub‐
jurist, the status of mal can only be ascribed to corporeal or ject matter of a sale is called al mabi, Article 151 proceeds
tangible things (‘ayn), to the exclusion of incorporeal or to define “al mabi” as something, which is “ fixed and indi‐
intangible things such as usufructs or the beneficial use of vidually perceptible” at the time of the sale. In Article 159,
another person’s property (manāfi’), and rights (haqq). He al mabi, is, in turn, equated with ‘ayn, which itself is illus‐
characterized the proprietary nature of corporeal things in trated with tangibles such as a chair, or a heap of corn, that
various ways, by referring to the ability to acquire and con‐ exists and is present. In Article 363, it is further stated
trol them; the tendency for people to desire them; the abil‐ that a thing capable of being sold is one that exists, and is
ity to store and retrieve them for use when needed; the deliverable.
possession of value (taqawwum); and the ability of people
Summing up these different elements, a basic explanation
to appropriate and enjoy that value.
of mal can be given as something that exists and is visible,

storable, owned, beneficial, desirable and lawful. When
Although Ibn Abidin acknowledges that usufructs are ame‐
IPRs are assessed against these criteria, it can be said that
nable to ownership (milk), he refuses to consider them am‐
they fulfil all, except that they are not visible and cannot be
wal (plural of mal), because according to him, they cannot
stored in the conventional sense, given their abstract na‐
constitute the specific subject matter of an Islamic contract.
ture. It is because of this lack of physicality that Ibn Abidin
A look at the Majallah (a Code of Obligation put in force in
and most other Hanafi jurists argue that usufructs, and by
the Ottoman Empire in the second half of the 19th century)
implication, rights, cannot constitute the subject matter of
will make Ibn Abidin’s point clearer. Under Article 125 of
an Islamic contract, even though they may be owned by
the Majallah, ownership can be understood in terms of ei‐
reference to their use.
ther the object owned (physical), or the use of that object,

that is, the usufruct (abstract).



In their view, usufructs and rights are unlike physical prop‐ That some of these new forms of knowledge, such as intellec‐
erty, which can be kept, and cannot exist independently as tual properties lack physical embodiment ought not preclude
valuable things, unless embodied in physical things (al‐ them from being mal, insofar as they possess benefits the en‐
Taftazani, 1996:1:321‐322). As al‐Sarakhsi demonstrates, joyment of which, is permitted by law. Islam encourages the
when a physical property is damaged, for instance, compen‐ search for knowledge, and the enjoyment of the fruits of new
sation is paid based on the nature of the damage done to that knowledge, in the form of innovation, is not necessarily
physical property, and not on the basis of the usufruct or Shari’ah non‐compliant.  The Hanafis (see al‐Sarakhsi supra)
right. This is because the latter is contingent on the former. argue that usufructs and rights cannot exist independently as
The Hanafi conceptualisation of mal means that IPRs do not valuables, because they are contingent on physical properties,
qualify as mal. This implies that they cannot constitute the and that compensation for any damage done to a physical
subject matter of an Islamic contract. Consequently, a con‐ property depends on the nature of that damage, not on the
tract that purports to have IPRs as its subject matter is auto‐ associated usufruct or right. Still, this argument can be turned
matically void for non‐compliance with Shari’ah.   upon its head. First, to compensate for damage done to a
physical property presumes some recognition of the underly‐
Nevertheless, matters do not end here. This is because on the ing right of the owner to a peaceable use and enjoyment of his
other hand, are the Jumhur that is, the Maliki, the Shafi’i and property, without unlawful interference. Second, and based
the Hanbali Schools, which argue equally vigorously, the op‐ on this right to a peaceable use of his property, the owner
posite. Put simply, they argue that so long as the usufruct of a may be allowed to claim extra compensation for loss of use.
thing is legally permissible, and is customarily treated as Third, in a way, it is the abstract right associated with a physi‐
property, or as having proprietary value, that thing is mal, cal property that makes the latter valuable. Take for instance,
indeed, mal mutaqawwam. Hence, subject to these conditions, an original intellectual creation, such as a book. When the
usufructs and rights can be mal.   author sells his work to a publisher, it is not the physical book
per se that the publisher buys, but the abstract right
As al‐Zarkashi (1985:3:222), a Shafi’i, observes, mal is any‐ (copyright) to reproduce and distribute that book. Without
thing that is beneficial. This, according to him, can be in physi‐ the copyright, that book would be of no value to the publisher

cal form or in the form of usufruct. To al‐Hijawi (2:59), a Han‐ who would, as a result, have no need to pay for it.
bali, mal is anything that is beneficial and permissible accord‐
ing to Shari’ah under normal circumstances, whilst al‐Shatibi An example can also be made of the sale of a house. Usually,
(1975:2:17), of the Maliki School, maintains that, mal is some‐ when a house is sold, it is not just the physical building that is
thing that can be possessed with exclusivity. sold, but also the ownership right (abstract), without which
the former would be of hardly any value to the purchaser.
The Jumhur however, discriminate between two categories of This means that without the associated abstract right, the
usufructs and rights. In relation to rights, which are of more physical property would remain simply as mal, rather than
direct relevance to the present enquiry, they distinguish pro‐ mal mutaqawwan, because it is the abstract right that confers
prietary rights, such as a debt right (haqq aldayn) from non‐ value on the physical property in question. And the value
proprietary rights, such as the right of custody (haqq al thereby conferred can be quantified in terms of money. All
hadanah), and point out that only proprietary rights can qual‐ this makes the Jumhur’s argument that, abstract rights are
ify as mal. That is to say, only proprietary rights can consti‐ also property, which like physical properties, can be mal,
tute the subject matter of an Islamic contract.   more appealing.
A more crucial point to note is that, unlike the Hanafis, physi‐
cality is immaterial to the Jumhur’s appreciation of mal. Apart Moreover, it is a well‐established practice for people to trade
from its preponderance, this approach is more in tune with in usufructs. This is easily observable in Islamic leasing con‐
modern trends.  Whilst the Majallah provisions examined ear‐ tracts (Ijarah), whereby the lessee (musta ‘jir) pays a rent
lier strongly suggest, as the Hanafis do, that physicality is a (ujrah) to the lessor (mu ‘jir) in order to enjoy the beneficial
critical element of mal, there appears to be no express exclu‐ use (usufruct) of the leased asset for an agreed period of time.
sion of non‐physical things from enjoying the same status. Two points can be developed from this. First, it is another
Even if there were, or such a conclusion could be implied, a indication that usufructs and rights are economically valu‐
revisionist attitude to such an interpretation would be ap‐ able, otherwise, as Nurdin Ngadimon correctly notes, people
propriate. The classical Hanafi view and the supporting Majal‐ will not be willing to pay for them. Second, trading in usu‐
lah provisions were made at a certain era, and presumably fructs, being an entrenched practice, amounts to custom
shaped by the circumstances of that era. But times and cir‐ (maruf), which is one of the sources of Islamic jurisprudence
cumstances have changed, and new forms of knowledge have (fiqh). Such a custom has the force of law based on the princi‐
emerged alongside, which can be exploited to generate eco‐ ple enshrined in the Majallah that a proven custom is akin to
nomic growth.   the stipulation of law, provided that the custom does not con‐
flict with spirit of Shari’ah.

We Care


Intellectual properties are rights because they are con‐ Even in today’s modern world, you can always hear parents
ferred and recognized by law, and become the preserve of asserting their rights and ownership over a child and chil‐
the owners. And since they are recognized as valuable and dren are meant to be seen but not heard. But, this negative
are usually traded in the business community, they qualify perception should be changed as each and every one of us
as mal, despite their intangible nature. As valuable tangible has basic human rights and children should not be de‐
items are produced and traded, so the intellectual proper‐ prived of these rights simply because they are children. In
ties used in producing them are valuable and tradable. It is, fact, children should be accorded more protection and
therefore, appropriate that the Fiqh Academy of the Organi‐ rights since they are more vulnerable and more likely to be
zation of Islamic Countries has decided that IPRs are rights exploited compared to an adult.
that can be traded for consideration, regardless of their
abstract nature.   With this in mind, the United Nations created the Conven‐
tion of the Rights of the Child (CRC). This Convention was
References adopted by the United Nations in 1989. All  the countries in
the world have ratified the Convention except for Somalia
1. Engku Rabiah Adawiah Engku Ali. “Re‐Defining Prop‐ and the United States of America. The Convention is the
erty And Property Rights in Islamic Law of Contract” in first binding treaty to endorse children's rights as separate
Jurnal Syariah, 11:2 [2003]. from both adults and the family, and is thus an important
2. Md Nurdin Ngadimon. “Intangible Asset: A New Asset step in international law toward recognition of children as
Class to Structure Islamic Financial Products”, in Sal‐ rights bearers. The CRC is based on 4 basic principles,
man Syed Ali (ed.) Islamic Capital Markets: Products, namely:
Regulation and Development (Jeddah: Islamic Research
and Training Institute, 2008). i. Survival ‐ includes the inherent right to life and State
3. Mohd Kamal Khir et al. Longman Islamic Banking, A parties are to ensure the child’s survival and physical
Practical Perspective (Petaling Jaya: Pearson Malaysia development.
Sdn Bhd, 2008).
ii. Development ‐ The right to play, to education without
discrimination, access to medical facilities are all part
of the “developmental” rights.
Frank Akpoviri iii. Protection ‐ Include providing care and protection to
children in armed conflict, abused and neglected chil‐
(An intern with JHJ and cur‐ dren, children in conflict with the law, children in espe‐
rently pursuing his post‐ cially difficult circumstances, disabled and children
graduate degree in law belonging to indigenous or minority groups.
[LLM] with the National iv. Participation – A child’s right to express his/her opin‐
University of Malaysia ion in decisions affecting him/her in all administrative
[UKM]) or judicial matters.

PROTECTING THE FUTURE Malaysia became a signatory party to the Convention and
A commentary on the ratification of the Convention on the ratified with 12 reservations which was later reduced to 8
Rights of the Child by Malaysia. reservations in the year 1995. The reservations that remain
By Barvina Punnusamy   are: Article 1 (Definition); Article 2 (Non‐Discrimination);
Article 7 (Name and Nationality); Article 13 (Freedom of
Children are one third of our population and all of our Expression); Article 14 (Freedom of Thought, Conscience
future. ~ Select Panel for the Promotion of Child Health, and Religion); Article 15 (Freedom of Association); Article
1981. 28 (1) (a) (Free and Compulsory Education at Primary
Level); and Article 37 (Torture and Deprivation of Liberty).
Although many laud for the protection of human rights but The ratification of the Convention marked a new beginning
when it comes to the rights of a child, most are still in a di‐ to advocacy of the children’s rights even though Malaysia
lemma as to whether a child enjoys the same rights as an made reservations against some of the core principles of
adult. Why, you may ask. Well, this is simply because many the Convention. At least with the ratification of the Conven‐
of us think that a child is someone who is incapable of mak‐ tion, we know that the Government will work towards ful‐
ing rationale decision and coupled with the fact that chil‐ filling its obligation and ensure that the rights of the child in
dren are considered to ‘belong’ to their parents.   our country are protected.



and the promotion of their physical, mental, intellectual and
By agreeing to undertake the obligations of the Convention,
emotional development. It is time we realise that a child is
we have committed ourselves to protecting and ensuring chil‐
the key to the country’s survival, development and prosper‐
dren's rights and agree to be held accountable for this com‐
ity. But, the responsibility to respond to the needs of chil‐
mitment before the international community. State parties to
dren’s development in Malaysia by providing various plat‐
the Convention are obliged to develop and undertake all ac‐
forms and services to uphold the spirit of the Convention
tions and policies in the light of the best  interests of the child.
does not only  lie with the Government but also on corporate
But, what was done to ensure that we abide by our obliga‐
sector, NGOs, the Human Rights Commission of Malaysia and
tions under the Convention? The first step that was taken by
the civil society.
the Government was to introduce the Child Act 2001. In the

preamble, it is stated that children should be accorded special
Children are the living messages we send to a time we
care and their welfare given paramount importance. The Act
will not see.  ~John W. Whitehead, The Stealing of America,
is an amalgamation of three comprehensive Acts now re‐
1983.
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
Barvina Punnusamy,
children out of control. It imposes severe punishments for
Associate
child trafficking, abuse, molestation, neglect, and abandon‐
barvina@jhj.com.my
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
JHJ’S NEWLY ADMITTED PARTNER
guilty of an offence which is against the purpose and object of

the Convention.  Although section 17 of the Act stipulates that
JHJ is pleased to announce that as of
a child should be given adequate protection, it does not in‐
1st January 2010, Stanley Gabriel has
clude offences such as access to pornography over the Inter‐
been admitted as a Partner.
net which contravenes with Article 34 of the Convention.

Stanley was born in Kuala Lumpur and
Sections 17 (2) (b) and (c) of the Act also implies that the
pursued his undergraduate degree in
child must be physically present at the scene of the activity
law at University of Wolverhampton
when this cannot apply when the child is observing or partici‐
and his Certificate of Legal Practice
pating in sexual activity on the Internet.
(CLP) in Brickfields College. He was
This means that there is no protection for our children
admitted to the Bar in 1997. Over his
against the many online predators waiting to pounce on them.
four (4) years he has been with JHJ, he
The ineptitude of the current legislations to cope with the
has considerable experience and
rising number of children being sexually exploited reflects the
knowledge in the area of conveyancing practice that includes
need for a more effective and appropriate measures. Children
dealing in banking and conveyancing matters relating to
must not be treated as objects but should be given roles as
housing development projects, retail and commercial banking
subjects.
matters, drafting of sale and purchase agreements and other

general matters like tenancy, lease, wills, probate and trust
In conclusion, the development of our legislation to meet the
deeds.
obligations under the Convention is heading in the right di‐

rection albeit the speed of progress. But, if we are serious to
The ability to lead and develop professional relationship with
fulfill our promise to the children to provide them a better
clients is one of the core competencies required of a partner
future and safeguard them from abuse and exploitation, then
in JHJ. Stanley has throughout his years in JHJ demonstrated
we need to  ensure  our legislative, administrative and policy
that he not only has such qualities but excels in them. JHJ is
framework caters for the protection and needs of the children
proud to have him on board and we look forward to having
him take a lead in bringing JHJ to new and greater horizons.

We Care


TEAM BUILDING AT AWANA GENTING HIGH “LORD OF THE PINS NITE” AT THE COSMIC
LANDS GOLF & COUNTRY RESORT BOWL, MID VALLEY

This newsletter is produced by our Knowledge Department. Please feel free to contact the
Department at kd@jhj.com.my 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 Spek
tra Sdn Bhd, No 12, Jalan Vivekananda, Brickfields, 50470 Kuala Lumpur.


Legal Cauldron issue 1 of 2010

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