High Court did well to restore certainty in Islamic loans

Islamic loans are intended to avoid the burden of riba, or interest commonly found in conventional loans. Instead of the riba, the Islamic loan instead relied on an agreed rate of profit to be earned by the financier.

Some controversies have arisen when Courts have refused to acknowledge the agreed rate of profit, on the basis that the profit turned out to be even more than the riba of conventional loans, thereby rendering Islamic loans to be even more burdensome. This has caused uncertainty to Islamic lenders as to whether the actual terms of their financing contract would be upheld. In fact, one High Court judge had previously opined that it is open for him to re-negotiate terms between the parties if he found them to be unconscionable. Of course, what is conscionable or otherwise would be a matter of opinion, and this would result in much uncertainty in the law.

In the case of Bank Kerjasama Rakyat Malaysia Bhd v PSC Naval Dockyard Sdn Bhd, the Court restored some certainty in Islamic loans when the High Court judge refused to entertain arguments of unconscionability of the terms.

The Court instead stated unequivocally that certainty is a basic requirement in any contract, regardless whether the contract was made under the Contracts Act 1950 or under Islamic law. As long as factually, the certainty can be ascertained, then there is no reason for a contract not to be upheld.

This is clearly a very sensible and sound reason propagated by the Court. Without certainty in law, what would result would be chaos, a breakdown in social order, and opportunities for corruption (not that there is any hint of corruption in any of the cases before this).

Well done to the learned Judge concerned.

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