Islamic Banking in the Singapore Civil Courts – Back to the Future

Legal Updates

Amr Mohamed El Tilby, in his book ‘Islamic Banking: How To Manage Risk And Improve Profitability’ cite that the two main issues that affect the enforceability of Shariah based contracts are (1) the documentation involved in Islamic finance transactions are still not well developed and makes the interpretation to the terms and conditions not transparent and (2) the ambiguous relationship between Islamic banks and the conventional financial and legal infrastructure.

In a brief note under the heading ‘The Regulation of Islamic Banking and Finance in Singapore’ which appears in the June 2012 issue of the Stamford Law Chronicle, the writer asks ‘ To what extent, if at all, would Singapore’s secular common law courts be able or willing to give effect to Shariah, given Shariah consist of Islamic precepts which are religious by nature and beyond the common law corpus?’

In his article ‘ Islamic Banking and Finance-Regulatory Regimes in Malaysia and Singapore ‘, published in 2011 Singapore Law Review, a local academic Raj Joshua Thomas had also raised the issue as to ‘how the secular common law courts should consider Islamic precepts given that, first, they are of religious nature, and second, they are not part of the common law corpus?’

Judging from the above comments, there exists amongst the legal, banking and academic community a significant doubt as to how our Singapore civil courts would approach a dispute involving Islamic finance. This doubt is understandable given that there is to date no reported decision or judgment in the civil courts of case involving an Islamic finance transaction.

In order for us to predict how the civil courts would approach such a case if ever one appears before them, a brief background on how Muslim Law is applicable and, how it has been applied, is critical. An appreciation of Singapore’s demographic and history is also important, as laws do not operate in a vacuum. Through this paper, I will show that the most likely approach that will be taken is not one entirely similar with either the United Kingdom or with Malaysia, but an approach that will be unique to Singapore with only some similarities with the

United Kingdom and Malaysia, reflecting its secular system that is religiousneutral as opposed to non-religious.


Muslim Law in Singapore

In Singapore, no study of the applicability of Muslim Law  is complete without reference to the Administration of Muslim Law Act (AMLA) which is the primary statute that provides the framework for the applicability of Islamic law. Introduced in 1966, it was a piece of legislation that largely continued the former British system of governance whereby the Muslims in Singapore came under a dual jurisdictional system – a Muslim Law system when it came to personal affairs (marriage, divorce, inheritance) and the common law rule of the United Kingdom.

The Syariah Court of Singapore is the forum for the adjudication of Muslim personal law and  ‘is a creature of statute .It derives its jurisdiction and power under the AMLA. Any jurisdiction or power that it purports to possess must be expressly provided in AMLA ‘. If the Syariah Court has jurisdiction, no other court in Singapore does and a decision of the Syariah Court cannot be challenged in the civil courts.

Under the Supreme Court of Judicature Act, it is the civil courts that have jurisdiction over all matters in Singapore except where specifically stated otherwise, as in the case of Syariah Court’s jurisdiction over marriage and divorces. The jurisdiction of the civil court as the forum for an Islamic finance case to be heard is thus not expected to be seriously challenged, if at all. It is for Parliament to make changes to the AMLA if it thinks fit and in this regard, I do not see this happening any time in the future.

Unfortunately, not much research has been done on the treatment of Islamic Law in the Singapore civil courts and therefore there is still much ignorance of this in the legal community. Some lawyers react with wonderment therefore when informed that our civil courts are not entirely without experience in dealing with issues of Islamic law. There appears to be a general perception, fuelled largely by media reports whenever the civil courts declines to adopt a Fatwa of the MUIS Legal Committee, that Fatwas are ineffective in our civil courts. As will be elaborated later, our civil courts have accepted a number of Fatwas.

At this stage, I will introduce 3 cases as indicators on how the Singapore civil courts will probably approach a dispute involving an Islamic finance transaction between parties. From these cases, the common thread that arises is that our civil courts do consider Muslim Law very seriously albeit by placing it in the context of other laws of the land.

In LS Investment Pte Ltd v Majlis Ugama Islam Singapura [1998] 3 SLR 754  (‘LS Investment’), the Court of Appeal, on the issue of validity of wakaf  (or waqf) proclaimed that ‘Muslim law need not be proved like foreign law. Muslim law is part of the law of the land which the Court would take cognizance of ‘.

In Mohammad Ismail Bin Ibrahim & Another v Mohammad Taha Bin Ibrahim [2004] 4 SLR 756 (‘Ibrahim case’), Justice MPH Rubin embarked on a detailed scrutiny of a Will based on Islamic Law authorities and held that the Nuzriah (vow) portion of the Will was not valid as it did not comply with Muslim law.

In Shafeeq bin Salim Talib v Fatimah Bte Abud Bin Talib [2010] SGCA 11 (‘Shafeeq’s case’), the Court of Appeal, in dealing with the issue of the jointproperty of a Muslim deceased clarified that ‘the question as to what assets constitute the estate and effects of a deceased Muslim has first to be determined according to his personal law, where applicable to the circumstances, and not according to the common law.’

The above cases reflect the carefully calibrated approach of the Singapore civil courts. It would appear, at first blush, that there is a different complexion between those three cases and with potential cases in Islamic finance and banking. Firstly, it is obviously not about a personal status. Secondly, while the contract in dispute may have been executed in Singapore, the performance could be elsewhere and may involve parties in multiple jurisdictions. There thus appears to be a far wider dimension therefore than the 3 types of cases I had brought up. It is thus incumbent that we examine the experiences of other jurisdictions which are somewhat connected to ours, by way of common legal history.


The United Kingdom experience 

In Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd [2004] 1 WLR 1784 (‘Shamil’s case), parties litigated all the way to the Court of Appeal over the governing law clause in a Murabaha agreement which read as follows “Subject to the principles of the Glorious Shariah law, this agreement shall be governed by and construed in accordance with the laws of England’. The High Court judge below, Justice Morrison, had ruled that on the proper construction of the clause, the Sharia law was not applicable at all.

The Court of Appeal upheld the decision of the High Court. In its judgment, it held, inter alia, that the reference to the Shariah law was intended merely to reflect the Islamic legal principles according to which Shamil Bank held itself out as doing business and this, this was insufficient to incorporate the principles of Shariah law or any part of Shariah law into the agreements.

It must be noted that the Court of Appeal did not hold that the UK courts could never apply Shariah law The Court of Appeal pointed out that the incorporation clause in this contract was too vaguely worded and did not specify or make reference to those particular aspects of Sharia law that were to be applicable. My view is reinforced by Justice Potter’s statement  that ‘ the fact that there may be general consensus upon the prescriptions of riba and the essentials of a valid Morabaha agreement does no more than indicate that, if the Shariah law proviso were sufficient to incorporate the principles of Sharia law into the parties’ agreements, the defendants would have been likely to succeed.” It is interesting to see the court’s approach if another case comes before it on a contract with very specific and detailed references on the applicability of Shariah law.       

In Musawi v R.E. International (UK) Ltd and Others  [2007] EWHC 2981 (Ch), the High Court in the United Kingdom maintained that at common law, the proper law of a contract had to be either English law or the law of another country, and not any other system of to a contract. This was so even though in all the agreements between the parties, it was written that the governing law would be the Shia Sharia law. Ironically, the matter was brought before the High Court as an enforcement of an arbitration award.  The parties had entered into an arbitration agreement appointing Sheikh Mohsen Araki as ‘Arbitrator and Islamic legal judge in settlement of the dispute according to Islamic legal standards and to accept is as a final judgment and submit to its findings’. In my view, the decision of the High Court, in upholding the arbitration award, was born out of convenience one as they skirted around any difficult Islamic principles by simply finding that the arbitration agreement was effective in English law. The Court did acknowledge that the arbitrator was entitled to apply Shia Sharia law as required by the arbitration agreement.  7


The Malaysia experience 

In Malaysia, prior to Justice Abdul Wahab Patail’s decision in Arab – Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Others [2008] 5 MLJ 631, the civil courts had diligently applied contractual law in disputes involving Islamic banking transactions, more concerned with the civil aspects and not actually tackling the Shariah issues.  holding that there was no defence if the debtor had knowingly entered into the agreement.   Justice Patail created shockwaves when he ruled that the Al-Bai Bithaman Ajil (‘BBA’) contract in the cases before him was not a bona fide sale but a financing transaction. He found that the profit portion rendered the transaction contrary to the Islamic Banking Act 1983 on the ground that it made the contract far more onerous than the conventional with riba.

In reaching his decision, Justice Patail held that the civil court is not a mere rubber stamp and that it’s function included the examination of the application of the Islamic concepts and ensure that the transactions do not involve any element not approved in Islam. Justice Patail further stated that ‘whether the court is a Syariah Court or not, that Allah is Omniscient must also be assumed where that court is required, in this case by law, to take cognizance of elements in the religion of Islam.’  In emphasizing that form could not override substance, even the website of the Bank Negara Malaysia on BBA Financing was not spared his scalpel. Justice Patail went so far as to hold the words ‘ not approved by the religion of Islam ‘ in the Islamic Banking Act 1983 mean that ‘unless the financing facility is plainly stated to be offered as specific to a particular mazhab, then the fact it is offered generally to all Muslims means that it must not contain any element not approved by any of the recognised mazhabs’. 

Justice Patail’s decision was eventually  overturned by the Court of Appeal in Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor and other appeals [2009] 6 MLJ 839. In overturning Justice Patail’s decision, the Court of Appeal did not mince its words that Justice Patail should not have rewritten the terms of the BBA contract between the parties and unequivocally stated that he had misinterpreted the meaning of ‘Islamic banking business’ under section 2 of the Islamic Banking Act 1983. The Court of Appeal disagreed with his interpretation of the meaning and import of  ‘Islamic banking business’ under section 2 of the Act and explicitly stated that that the aims and operations of the business need not be approved by all the four mazhabs. They also issued a reminder that there are other secondary sources of law in addition to the four schools of jurisprudence (Hanafi, Shafii, Maliki, Hambali).

The resounding message from the Court of Appeal was that the judges in the civil courts ‘should not take it upon themselves to declare whether a matter is in accordance to the religion of Islam or otherwise ‘. Besides stating the obvious that not every judge in the civil courts is a Muslim, the Court of Appeal also made it plain that even if a civil court judge were a Muslim, he cannot assume that he is sufficiently equipped to ‘deal with matters which ulama take years to comprehend’. Clearly, in the learned view of the Court of Appeal, Justice Patail had crossed the line between the jurisdiction of the civil court and the ascertainment of the Muslim law in the subject matter.

The Court of Appeal saw it fit to highlight that the civil courts had to assume that the Syariah Advisory Council under the aegis of the Bank Negara Malaysia, which had endorsed the relevant BBA contract, had discharged its duty to ensure that the operation of the Islamic banks was within the ambit of Islam. The Court of Appeal held that whether or not the bank business is in accordance with the religion is within the purview of eminent Islamic jurists. They reiterated that there was already in place section 13A of the Islamic Banking Act 1983 whereby an Islamic bank could obtain the advice of the Syariah Advisory Council (of Central Bank of Malaysia) and the Islamic bank shall comply with the advice given.

The 2 BBA cases aforementioned, and the discussions they provoked, led to a change in the Central Banking Act (CBA) in Malaysia. Under section 169 (B)(8) of the repealed CBA, the Court or arbitrator who is faced with any question concerning a Syariah matter may take into consideration any written directives issued by he Central Bank (Bank Negara of Malaysia) or refer such question to the Syariah Advisory Council for its ruling. With the enactment of the new Central Banking Act on 25 November 2009, in particular sections 56 and 57, the Court (or arbitrator) no longer had discretion. The Court (or arbitrator) had to refer the Syariah matter to the Syariah Advisory Council and the latter’s ruling was binding on the court.


Lessons from Malaysia 

The situation in Malaysia today is the result of at least 2 decades of court litigation. Prior to the repeal of the old CBA and the introduction of the CBA 2009, academics and practitioners like Engku Rabiah Adawiah bt Engku Ali, law lecturer and a current member of Syariah Advisory Council and Fakihah Azahari, a practicing lawyer, had pointed out the complications in the manner the civil courts were tasked to determine disputes between Islamic banks and their clients. These are lessons worth remembering we in Singapore ponder about possible litigation.

Engku Rabiah Adawiah, in her article ‘Constraints and Opportunities in Harmonization of civil law and Shariah in the Islamic Financial Services Industry [2008] 4 MLJ ill, had warned about the possibility of decisions that may not be consistent with Shariah rules. In her words, even if the transactions may be Shariah compliant, ‘but upon enforcement of the contracts, the court may make orders and decisions that may sideline the Islamic legal principles ‘.

Fakihah Azahari, in ‘Islamic Banking: Perspective on Recent Case Development ‘ [2009] 1 MLJ xci, which was published after Justice Patail’s famous decision but before the Court of Appeal hearing, emphasized that Shariah issues could only be determined by experts in shariah, as it involved a wide realm of legal maxims and adherence to a rigid methodology for resolving complex questions.

While changes in legislation may appear to simplify and clarify the litigation process, the possibility of a legal challenge can never be wished away.

In the recent case of Tan Sri Khalid bin Ibrahim v Bank Islam Malaysia Bhd [2012] 7 MLJ 597, the Plaintiff challenged the legality of sections 56 and 57 of the CBA on the grounds that it purportedly contravened the Federal Constitution. Under Article 74 of the Federal Constitution of Malaysia, matters involving finance (which include banking and trade) are subject matters within the civil courts’ jurisdiction while matters relating to the religion of Islam are within the jurisdiction of each individual state’s Syariah Court. Justice Mohd Zawawi relied on an earlier case Mohd Alias bin Ibrahim v RHB Bank Bhd & Anor [2011] 3 MLJ 26 and held that the jurisdiction and power of the High Court (civil courts) are derived from Parliament under Federal law and sections 56 and 57 of the CBA are valid federal laws. Accordingly, the court had to invoke section 56 when there arise a question concerning a Shariah matter.

Justice Mohd Zawawi further clarified that the Syariah Advisory Council’s role is to ascertain the relevant Islamic law on the financial matter posed to them and it was not performing a judicial or quasi-judicial function. It was ultimately still the Court that had to decide on the issues pleaded.

While I do not foresee any reasonable challenge to the jurisdiction of the civil courts in Singapore, as it is unfathomable at the moment to insist that the Syariah Court be the forum for disputes on Islamic finance, challenges can come in other forms.

What is interesting about Justice Zawawi’s judgement is his open admission that the civil court judges may not be sufficiently equipped to deal with the issue whether a transaction under Islamic banking is valid or not under Islamic law. He candidly acknowledged that the rubrics of Fiqh Al-Muamalat might be beyond the grasp of the civil court judge. While one can easily appreciate a statement like this coming from a totally secular jurisdiction like the United Kingdom, as Shamil’s case has shown, it is startlingly frank coming from a Muslim judge in Malaysia, even if he is in a civil court jurisdiction. It is this admission which instinctively makes one assume, without going deeper into the past cases involving Islamic Law, that the civil court judges in Singapore will not wish to be entangled in complicated inquiries and scrutiny of any particular Islamic finance contract, especially if the defence is that it is void under Islamic law.

Justice Mohd Zawawi put it very aptly when he asked that if the issue is on validity of a contract under Islamic Law:

(a)  To what source would a judge refer to

(b)  Which madzhab should he adopt if there are differing opinions; and  (c) Would Islamic law of civil law be the applicable law?

In answer to his own questions, Justice Mohd Zawawi opined that it was for a body of eminent jurists, properly qualified in Islamic jurisprudence, to be the ones dealing with questions of validity under Islamic Law and thus in Malaysia, that special body would be the Syariah Advisory Council. Drawing an analogy with the dilemma of the English Court in Shamil’s case, judges in the civil courts should not be asked to determine principles of Islamic law.

Justice Zawawi also clarified that the use of expert evidence would not be helpful to a civil court judge as ultimately, the civil court judge would still have to make a decision and he would end up having to choose which expert opinion to rely upon, and this could be further complicated if each expert based his opinion on different schools of jurisprudence. The Singapore civil courts have had the experience of hearing expert evidence on matters involving issues of Islamic law, a point that I shall discuss later.


The Singapore experience 

With the benefit of the Malaysian experience and to a certain extent, the United Kingdom, I will now show how the Singapore courts is likely to handle a dispute involving Islamic Finance transactions. This is where the approach in each of the 3 Singapore cases I introduced earlier in this paper needs closer examination as they reveal the distinct and delicate manner in which the Singapore civil courts have consistently adopted when faced with a subject-matter involving Islamic Law.

In LS Investment, a Muslim lady who died in 1912, had made a will a year earlier directing her estate to be distributed ‘in accordance with Islamic law ‘. In that will, she directed her trustees to use part of her estate monies (up to 1/3 of her estate) to purchase a house or shop for certain specific purposes.  In 1913, the 2 trustees, in compliance with her wishes, bought a property at Temple Street. In 1993, the trustees entered into a sale and purchase agreement (SPA) to sell this Temple Street property to LS Investments. The SPA referred to the will of the testator (1911 will) and the directive that a part of the estate (1/3) were to be used to purchase a house or shop for the purposes set out in the will.

The trustees managed to obtain an order (ex-parte) sanctioning the sale of the Temple Street property. The sale to LS Investment was completed on 29 November 1993. On 2 December 1993, MUIS lodged a caveat against the property claiming as lawful owner of a wakafproperty under section 59 of AMLA. LS Investments challenged MUIS in court.

Justice Judith Prakash applied section 63(1)  of AMLA and held that there was a valid Muslim charitable trust or wakaf and in view of section 58 and 59 of AMLA, the property automatically vested in MUIS. The SPA between the trustees and LS Investments were thus void, notwithstanding the ex-parte order sanctioning the sale.

In coming to her finding that the said property was indeed a wakaf property, Justice Prakash analyzed various statements from Outlines of Mohammadan Law by AA Fyzee (4th Ed11 .She cautioned that a wakaf should not be equated with the English law concept of trusts.  She made a finding that none of the purposes set out in the will was bad under Muslim law. She also endorsed the relevant Fatwa of MUIS that the wakaf created was valid.

Besides relying heavily on Fyzee’s book, Justice Prakash also accepted other authorities on Islamic Law, Ameer Ali’s Mohammedan Law(5th Edn) and Baillie on Digest of Moohummadan Law, on issues dealing with the conditions of the creation of a wakaf including the concept of contingency.

The Court of Appeal, at the appeal hearing, articulated its approval of the manner in which Justice Prakash had taken into consideration the submission on Muslim law. The Court of Appeal dismissed the appellant’s arguments that Muslim Law had to be proved as if it were a foreign law, pronouncing that ‘Muslim Law is part of the law of the land’. 

For completeness, I would mention that MUIS had indicated to the Court of Appeal that they would not be seeking ‘interest’ on the monies from the sale of the Temple Street property which is a standard practice in civil litigation and the Court of Appeal duly made the final order accordingly.

In Ibrahim’s case, the Muslim testator made a Will leaving a third of his assets under a nuzriah (nazar as described in AMLA), a third to two mosques and the final third to his beneficiaries according to Faraid.  The Plaintiff, one of the Faraid beneficiaries, claimed that the Will was in contravention of Islamic Law and applied to the civil courts for a declaration that the nuzriah segment of the Will was void.

The judge hearing this case was then the only Muslim judge in the Singapore High Court, Justice MPH Rubin.    The Defendants relied on a ruling of the Fatwa Committee that had ratified the nuzriah and confirmed the Will as valid. The Plaintiff brought in an expert witness, Dr Ismail Bin Mohd @Abu Hassan, a Lecturer at the International Islamic University of Malaysia, who was of the opinion that the concept of nuzriah was not accepted by all the schools of jurisprudence of Islam  and should not be recognized. The Plaintiff’s expert witness was the then Mufti of Singapore, who held a different view in that the nuzriah was a long standing practice in some countries, in namely Yemen14. Both witnesses gave evidence in Court, where they were rigorously cross-examined by lawyers.

Justice Rubin accepted the opinion of the Malaysian expert witness over the then Mufti of Singapore and held that on the nuzriah was not valid. In so doing, Justice Rubin declined to follow the ruling of the Fatwa Committee. Justice Rubin adopted the stance taken by Justice L P Thean in a 1990 case involving monies in a Muslim deceased’s CPF accounts where the latter had stated that while the Court could consider a Fatwa ruling, it was merely an opinion, and the Court was not bound by the same.

Justice Rubin justified his finding that the nuzriah was not valid on grounds that it was not consistent with hukum faraid or the Muslim Law of inheritance.  Besides studying the various works relied upon by both expert witnesses, Justice Rubin referred to Abdullah Yusuf’sThe Glorious Quran -Translation and Commentary and cited extensively from various Surah, in particular Surah 76, Verse 6. Without saying as much, it is quite apparent that Justice Rubin was conducting a personal ijtihad .

The Ibrahim case was covered every single day of the hearing by the Malay language Berita Harian, and its outcome was met with great unease by a large segment of the Muslim community who viewed it as an undermining of the place of Muslim Law in Singapore. MUIS itself faced a barrage of criticism since the nuzriah was a practice sanctioned and encouraged by MUIS. This reaction could not have gone unnoticed by the civil courts.

There was no appeal from Justice Rubin’s decision. However, it is worth noting that MUIS has continued to recommend the practice of nuzriah in its official website. Debate over this decision has not completely abated and some confusion still exists as to whether Justice Rubin’s judgment is a general legal authority that a nuzriah is invalid in Singapore or a decision made purely on the facts of that case.   This paper will not go further into this but this case has ben highlighted to show the impact such a decision can have on a community. In a way, it is akin to the shockwaves of Justice Patail’s decision in the Malaysian BBA case.

In Shafeeq’s case, the issue was over a property held under a joint-tenancy between the deceased and his widow (both of Yemeni descent and Muslims of Shafii School). The deceased died intestate on 5 May 2005. The widow filed a notice of death on the 5 July 2005 at the Singapore Land Registry and had her name registered as a sole proprietor pursuant to the rights of survivorship. On 24 October 2005, she transferred the property to herself and her 2 children with the deceased (both non-Muslims).

The Plaintiffs, as the administrators to the estate, argued that they had an ‘obligation to uphold Muslim law’ and that under section 112 of AMLA, the estate had to be distributed in accordance with Muslim Law .The Plaintiffs relied on a Fatwa which ruled that the property should be distributed in accordance with Muslim law of inheritance. Justice Lee Sieu Kin duly dismissed the Plaintiffs’ claims, on the grounds that the property was not part of the estate and hence, it was outside the realm of Islamic Law.  Although the Court of Appeal upheld Justice Lee’s decision, the approach it took was markedly different.

At the Court of Appeal, the Plaintiffs’ main argument was that the common law of survivorship of a property held under joint-tenancy is repugnant to the fundamental tenets of Muslim law as it had resulted in the widow having an enhanced share. The approach of the Court of Appeal in Shafeeq’s case is extremely instructive in how the civil court is likely to deal with cases involving Islamic finance transactions. The Court of Appeal went to great lengths in explaining its understanding of the position of Muslims in Singapore under the general law.

The Court of Appeal acknowledged that although title to land in Singapore is determined by the common law and the applicable statutes, Muslims are also subject to their personal law when it came to land. The Court of Appeal explicitly stated that they recognized that Muslims may not will away more than one-third of his estate and cannot increase or reduce the share of any of his legal heirs determined according to Muslim Law, citing Justice Rubin’s decision in the Ibrahim case.

The Court of Appeal clarified that while they agreed with Justice Lee that the meaning of the ‘estate and effects’ of the Deceased is a matter of statutory construction under the general law, the court must still take into account Muslim law. The Court of Appeal stated unequivocally that ‘ the question as to what assets constitute the estate and effects of a deceased Muslim has first to be determined according to his personal law, where applicable to the circumstances, and not according to the common law ‘.

The Court of Appeal however held the Land Titles Act was also applicable for Muslims and section 112 of AMLA is only limited to distribution of a Muslim’s estate but cannot be used to override the determination of rights and interests of land in Singapore under the Land Titles Act. The Court of Appeal stated that if there were any repugnancy between LTA and Muslim personal law, the LTA would prevail, just as the CPF Act prevailed over Muslim Law in Saniah’s case.

The Court of Appeal, in dealing with the question as to whether the concept of a right of survivorship is repugnant to Muslim law, relied extensively on the works of Faiz Badruddin Tyabji in Muslim Law, The Personal Law of Muslims in India and Pakistan (4th Edition), Nawawi in Minhaj et Talibin, A Manual of Muhammaan Law according to the School of Shafii (1914), and Asaf A A Fyzee, Outlines of Muhammadan Law (Oxford University Press, 3rd edition, 1964).   The Court of Appeal also went on to state that while it was refraining from making an opinion on the issue of validity of a gift of personal property (hibah ruqba) as that was not the question for determination in this case, it had nevertheless set out the opinions of the different schools of Islam, thus again signaling that it was more than prepared to hear arguments on substantive Muslim Law principles and concepts if it had to.



The Court of Appeal in Shafeeq’s case is useful for the reiteration of a civil court’s position on a Fatwa of MUIS. It held that ‘no fatwa is binding on the party seeking it or to who it is directed, unlike a Judge on an issue in a case. For this reason, a Fatwa stands in the same position as an expert opinion on any matter before the Court and may be accepted in evidence on any issue of Muslim law on the same basis as an expert opinion on the civil law’.   The Court of Appeal’s concern was that the question of law put before the Fatwa Committee would invariably be skewed by the party seeking the Fatwa. This should be noted by anyone or any party if it intends to apply for, and subsequent rely upon, a Fatwa.

It must be highlighted that between the time Shafeeq’s hearing at the High Court and the Appeal, MUIS had issued an updated Fatwadirecting that ‘upon the death of one of the joint-owners, the property is not wholly owned by the surviving joint-tenant .The surviving joint-owner shall only be entitled to half of the value of the property.’ The same Fatwa however directed that joint-tenants could make agreements either through a ‘hibah ruqba’ or ‘nuzriah’ which expressly states that the entire property shall vest on the surviving joint tenant.’

It is obvious that the said Fatwa was intended to harmonize the position between the land law and Muslim personal law but as its position on the rights of survivorship was blatantly contrary to the Land Title Act, the Court of Appeal felt it necessary to emphasize that notwithstanding this Fatwa, the general law will prevail over Muslim Law on the issue of ownership of land and openly commented that it was a point that MUIS should observe.  Practitioners of

Islamic finance would do well to heed this observation of the Court of Appeal too.

With those 3 main cases establishing how Islamic Law is applied in the civil courts in Singapore, it is thus likely that we can expect a similar approach in Islamic finance cases, if ever such an occasion arises.


The Applicable Law 

In the event of an action in the civil court on an Islamic finance matter, the approach of the court must first be to determine the applicable law.  Unlike Malaysia, which has enacted specific statutes, bearing names as Islamic Banking Act, Singapore, in keeping with its secular stance, has strategically positioned the governance of Islamic banking in line with conventional banking.

The Banking Act will therefore be the starting point for any judge as it is the main legislation for all banks here . In this sense, the approach can be compared with that used by the Court of Appeal in Shafeeq’s case, that is, to identify whether there are any specific exclusion or provision pertaining to Islamic banking while under the umbrella of the general laws.

The body which oversees all banking activities in Singapore is the Monetary Authority of Singapore (MAS). MAS utilized its power under section 78(1) of the Banking Act to make to accommodate and facilitate Islamic banking business in Singapore. They thus issued the MAS Guidelines on the Application of Banking Regulations to Islamic Banking in Singapore (‘ MAS Guidelines  ‘). A perusal of the MAS Guidelines will show the various transactions, for example the borrower’s credit risk exposure in ijara wa iqtina, which have to be in compliance with both the general notices and directions of MAS and the specific regulations on Islamic Banking.

What would be the legal effect of the MAS Guidelines in Court? What if there was a challenge on a particular guideline that goes so far as to question the validity of a particular Islamic finance transaction? What would be the weight given to a general guideline on a transaction not covered specifically?


Legal effect of ruling of Syariah Advisory Council (Malaysia) and Syariah Advisory Boards (Singapore)

In Malaysia, the position of the Central Bank of Malaysia (or Bank Negara) is clearer. Under the Islamic Banking Act 1983, resolutions passed by the Syariah Advisory Council within the Bank Negara are binding on all Islamic banks and other financial institutions offering Islamic banking and financial products.  This has been reinforced by sections 55 to 57 of the Central Bank of Malaysia Act 2009 which makes it a requirement for Islamic financial institutions, the court or an arbitrator to refer matters that involve ascertainment of Islamic law to the Syariah Advisory Council whose ruling shall be final and binding. The legal history behind the 2009 enactment has already been discussed in an earlier part of this research paper. There are differing opinions as to whether the ascertainment of the Islamic law amounts to determination and usurp the power of the civil courts, but as that is beyond the scope of this paper, I will refrain from going further into this area.

In Singapore, there is no equivalent to section 56 or 56 of the Central Bank of Malaysia Act. There is no body comparable with the Syariah Advisory Council of the Bank Negara. The Syariah Advisory Board within the banks in Malaysia and the bank in Singapore each act as the body that certifies the compliance of products with Islamic Law but that as is far as the similarity goes. In Malaysia, the Syariah Advisory Board’s role in ensuring that the bank’s financial products do not violate Islamic principles is subject to the overriding opinions of the Syariah Advisory Council. In Singapore, no such Council exists.


MAS Guidelines 

In Singapore, it is up to individual banks to appoint the members of these Syariah Advisory Board and the bank’s appointments usually reflect its sensitivity to consumers and reputation of the bank itself. Ultimately, the financial product that is rolled out must thus be certified compliant under Muslim Law by the Syariah Advisory Board as well as within the MAS Guidelines. Academics such as Raj Thomas have commented somewhat forebodingly  that ‘ the system adopted by Singapore may not be recognized as Islamic, especially if the financial products are required to comply with technical stipulations couched in secular terms.’ 

Raj Thomas has hinted that the Singapore approach of using extremely technical descriptions of particular transactions in the MAS Guidelines (for example, murabaha and musharaka mutanaqisah ), setting them out in great detail and couched in secular language, is one way to achieve certainty in the event that these regulations are challenged in a civil court. It may be an overstatement but the fact that these regulations are issued by MAS and not an Islamic body (MUIS) should kill off any intention by anyone who dares to propose that it is not the civil court but the Syariah Court that should have jurisdiction.

It can be argued that the duty of the civil court in determining whether or not the particular Islamic financial transaction is valid is made easier by having detailed MAS Guidelines. It can then be simply a question of compliance as the civil courts can confine themselves to strictly assessing whether or not the transactions offend the MAS Guidelines in any material way and adopt the remedies stated if they are not spelt out in the transactions. A close look at the MAS Guidelines reveal that not only are there detailed descriptions of the product itself, they even extend to the remedies. Under Regulation 23B of the Banking Regulations , in an Ijara wa iqtina transaction, it is provided that ‘in the event of an early termination of the lease , the customer or a third party , shall purchase the asset from the bank, or the bank’s agent, at a price determined at the start of the lease ‘. 


MAS Guidelines – can they be challenged? 

What if the agreements between parties do not fit adequately with the financial products laid out under the MAS regulations? What if there is a challenge on the validity then? It is also not beyond a lawyer’s imagination (‘hiyal’ or legal devices) to contest any of the specific MAS regulations as being against the principles of Islam. By its own admission in the Introduction to the MAS Guidelines, it is stated that ‘the types and descriptions of Islamic financial structures set out in these guidelines are not intended to be exhaustive, nor do they prescribe a uniform structure for all products named in the guidelines. ……However, financial institutions should seek their own legal advice when structuring the transactions and applying the Banking Regulations.’ 

At paragraph 2.7 under the section “MAS’ approach to Islamic banking’, MAS clarifies that  ‘as a prudential regulator, MAS does not prescribe what constitutes Shariah compliance nor endorse specific Shariah rulings. Nevertheless, MAS expects Islamic banks to take into account Shariah compliance matters and to manage this compliance risk as part of their overall risk management process. Nothing in these guidelines should be construed as expressing an opinion on Shariah acceptability’.   

If ever there was a red flag waved invitingly to a bullish lawyer, the above statements surely must be it. Further, at paragraph 4.7 of MAS Guidelines, it is stated that these regulations are only the commonly used Islamic financing structures, to provide greater clarity on the regulatory treatment of such structures.   The regulations are thus clearly not exhaustive and the words ‘for greater clarity’ can certainly be interpreted as just that. The possibility therefore that the MAS Guidelines can be challenged or simply ignored as inapplicable on a particular transaction cannot therefore be ruled out.

It would also not be inconceivable that a party may latch on the use of the treatment by tax to argue that there is ‘interest ‘ and by extension, ‘riba’ as a defence. In the 2006 Budget Speech in Parliament, the Minister for Finance (also the Prime Minister) had stated that the mark-up or profit comprised in a murabaha transaction (cost-plus) would be economically equivalent to the interest element in a conventional financing transaction. ‘Any gains or profits accrued and any expenses incurred, in lieu of interest, will be regarded as interest’. Based on the BBA cases in Malaysia, it would not be that surprising if a Singaporean lawyer were to argue that this brings it within the realm of Riba.

Based on the loopholes I have highlighted above, the defence, if it comes, will be mounted on the product’s non-compliance with Islamic law, either by it incorporating riba in another guise, for being Gharar (uncertainty) or maybe, on a larger level, that the business of the relevant bank contains activities that are forbidden in Islam such as maisir (gambling activities).

In his article, Raj Thomas opined that if a case like Shamil were to be heard in a Singapore civil court, ‘its approach is likely to be akin to that of the English courts – apply Singapore law and decline to apply Sharia law ‘. As I have explained and shown earlier, I do not quite agree with this proposition as it is too sweeping a statement. I have already shown through the earlier Singapore cases that the Singapore civil courts have not shied away from ascertaining for itself the Islamic law position on the relevant subject matter. Either through their own analysis of the recognized authorities of Muslim Law or opinions of expert witnesses, the Court has undertaken the responsibility of deciding on a subject matter which fundamentally turns on an interpretation of a Muslim law position.


Ascertainment of Islamic Law position 

In Abidally’s case  the High Court directed the opposing lawyers to come up with an agreed position on the Muslim law and the judge focused only on the facts in dispute. This was an inheritance case where the sons of the deceased had signed an agreement to accept equal shares  (resulting in the sons receiving much less than they would under Islamic law of inheritance) as the daughters and the issue was whether they knew what they were agreeing to  .The Court of Appeal found that the sons did know what they were doing when they signed the agreement and held that ‘such an agreement was not inconsistent with Muslim law and was binding ‘.

Personally I am not quite comfortable with this approach of both lawyers coming to an agreement on the Islamic Law position as it is not clear what will the methodology adopted and whether it will be based on sound Islamic jurisprudence principles. To expect our civil-trained to exercise usul al -fiqh is exceedingly optimistic. In an Islamic finance case, it may end up in a situation where each lawyer will simply push the position instructed to him by his clients (the bank), which may or may not be in line with the bank’s Syariah Advisory Board.

With the limited pool of persons who qualify to sit on Syariah Advisory Boards in Singapore, there may be situations of conflict of interests as the same person could be in several boards. What if the opposing litigants are a bank and an individual? Will it end up as the bank submitting an opinion from their Shariah Advisory Board while the customer seeks his own Islamic Law expert? At the end of the day, it would be impossible for a Judge to simply leave it to parties. That is why in the Abidally case, while the Court of Appeal did not criticize the approach of the High Court Judge who had made parties submit an agreed position on the Islamic Law, they made it clear that in reaching the same decision as him, they themselves had looked into whether or not the agreement was indeed in compliance with Islamic Law.

It is foreseeable that the civil court will also be relying on the endorsement, and reasons behind it, by the Syariah Advisory Board within each bank on a particular Islamic financial product. However, it is likely that the defence will oppose this on the ground that the Syariah Advisory Board, being appointed by the bank itself, would be beholden to the bank. As has been discussed earlier, there is no overriding authority like the Syariah Advisory Council in Malaysia where the civil court judge can (or more accurately, has to) follow. It is up to the respective Syariah Advisory Boards to maintain high standards of objectivity and professionalism. I am optimistic that the civil courts would be open enough to accept their rulings and opinions, if rigorous reasoning processes support these. Then, the only occasions, which would merit the civil courts not accepting a Fatwa would be where there are other state laws that prevent them, doing so.

While it has always maintained that the final decision lies with the Court, and it has rejected Fatwas issued by MUIS in some cases, the civil courts have accepted Fatwas where appropriate (LS Investments). MUIS should strive to continuously ensure that the Fatwa Committee is well equipped with the necessary expertise and resources to keep up with developments in the Islamic finance industry.


The Fatwa Committee 

While it is a given that the Fatwa Committee must have as its members, scholars steeped in Islamic jurisprudence, the inputs and advice of those learned in the practical aspects of the Islamic finance world should also be sought. To this, Fatwa Committee should be open to receiving views and opinions from different schools of law. Under section 33(1) of AMLA, the Fatwa Committee will ordinarily follow the tenets of the Shafii school of law but under section 33(2), it is provided that if the Fatwa Committee considers that following the tenets of the Shafii school of law will be opposed to the public interest, the other schools of law may be followed as may be considered appropriate.

MUIS should take heed of the Court of Appeal’s words in the Shafeeq’s case where they had commented that the position taken by MUIS as regards the right to survivorship was not correct. If the civil courts were to rely on fatwas of MUIS, it is absolutely critical that the Fatwa committee understands the issues not only from a Muslim jurisprudence angle but also the legal position from a secular sense. In the words of Muhammad Hashim Kamali , ‘ijtihad must continue at all times so as to keep the law abreast with the need and changing conditions of society’.  Fatwas must take into account developments in both Islamic and civil laws. This must be so as at the end of the day, the civil courts have no choice but to ensure that its decision is consistent with the Banking Act, which is secular.

It will also be interesting how the civil courts will deal with the remedies or damages in actions of Islamic finance transactions. What if there are disputes on the damages to be paid and in the manner they are to be paid? As was seen in the LS Investment case, MUIS waived their right to interest, which they were entitled to under a civil claim. What if a party refuses to waive that interest, could the other party oppose since it is an entitlement under civil law? These are all hypothetical questions for now but for how long.



The civil courts’ approach in maintaining the secular nature of this country while respecting the Islamic law principles is borne out of pragmatism. It reflects a country that understands that the potential growth in Islamic finance is dependent on a system of law that the industry will be able to have confidence in. Ignoring Islamic law principles, or making brazen statements as the Judge in Shamil case, will only harm the many who have been tasked or have undertaken to propel the growth of this industry.

On the other hand, Singapore’s reputation as a reliable financial hub is already strongly entrenched. The knowledge that Islamic banking comes within this behemoth umbrella would provide the comfort and peace of mind for financial players to undertake even more ambitious projects. The fact that there is recourse to the Courts would surely be one of the factors that would attract a non-Muslim to enter into this area. While there can be alternative dispute resolutions, faith in the judicial system is of the utmost importance in the eyes and minds of the players involved, especially if the parties are based in various jurisdictions and their transactions are cross-border in nature.

In order for the Islamic Finance to develop as an area of law in Singapore, it is thus vital that both the Islamic principles and the civil laws are well understood. It is not a mutually exclusive situation.



4 July 2012  


Ahmad Nizam Abbas