15 October 2021

Majlis Agama Islam Selangor & Anor v Bank Muamalat Malaysia Bhd [2021] 6 CLJ 319

In Majlis Agama Islam Selangor & Anor v Bank Muamalat Malaysia Bhd, a statutory body (“MAIS”) and its wholly-owned company which operates an institute of higher learning (“KUIS”) (collectively, “Defendants”) entered into a tripartite 33-year concession agreement with Redha Resources Sdn Bhd (“Redha”) for Redha to construct a student centre for KUIS at its own costs and expenses. To finance the development, Redha obtained financing via a combination of syndicated Islamic financing facilities from a consortium of three banks, including the plaintiff (“Banks”). Upon approval of the financing facilities, Redha executed an assignment (“Assignment”) of the concession agreement (“CA”) while the Defendants executed a payment guarantee agreement (“PGA”). Both agreements provided that (i) the rental charges obtained by Redha from KUIS were to be paid to the Banks as repayment to settle the financing facilities and all profits due to the Banks and (ii) the Defendants were to give their guarantee of such payment to the Banks.

When Redha failed to secure the approval of the building plans and the certificate of completion and compliance for development as set out in the CA, the Defendants deemed the CA as terminated, took over the developments from Redha and stopped payments of the rental charges.

The present appeal pertained to a suit commenced by the Banks against the Defendants for recovery of monies due under the PGA, as well as late payment and costs. The Banks’ claim was allowed by the High Court, hence the present appeal. The Court of Appeal set aside the High Court judgment and held as follows:

  • The conclusion that the guarantee under the PGA extended to the entirety of the financing facilities was untenable. It was not the duty of the court to read into contract terms and to expand it so as to make the Defendants liable as guarantors for the entire financing facilities.
  • Considering all the terms of the CA and the PGA, it was clear that the guarantee was limited in scope only to monies payable by the Defendants to Redha under the CA. It could not be construed to extend to cover all the monies due and payable by Redha to the banks under the financing facilities.
  • The Court of Appeal judgment in a separate suit commenced by the Defendants for the termination of the CA and PGA (“Suit 205”) was in keeping with the terms of the CA, the Assignment and the PGA. In Suit 205, the Court of Appeal ruled in favour of the Banks. The claim by the Banks in the present case amounted to a duplicity of proceedings, as the Banks had received the full benefit of the judgment in Suit 205.