<KOD KURSUS>

BMLW5103

PART A QUESTION 1 (A)

An invitation to treat is when a client invites contractors to make him/her an offer. For
example, when the client advertises a job on internet or newspaper, it is usually an invitation
to treat rather than an offer. The offer only comes into existence after the client reviews the
tenders handed in by the contractors and accept the offer.

An offer on the other hand is when the client offers the job to one contractor without
advertising the job or having contractors to submit in the tender.

Making an invitation to treat, rather than an offer, protects the client from finding him/her
self agreed into a contract he/she cannot fulfil. Instead the client can refuse the contractor’s
offer for many different reasons.

This can be a very important protection for the client making the offer if the advertisement
for the job offers at long distance: for example, through the internet or newspaper. Always
ensure that any website, advertisement etc make it clear that it is only an invitation to treat,
not an offer.

Harvey v Facey

The issue of determining between an offer and an invitation to treat has long been discussed
by the court. One of the landmark cases that delivered the verdict is Harvey v Facey [1893]
AC 552 where the Privy Council held that:
”indication of lowest acceptable price does not constitute an offer to sell”
Rather, it is considered an offer to treat (i.e., to enter into negotiations).
Harvey was interested in a piece of real property, the Bumper Hall Pen in Kingston City,
Jamaica. Facey, the owner, had been in talks with the city of Kingston to sell it to them.
Harvey sent via telegraph a statement asking: “Will you sell us Bumper Hall Pen? Telegraph
lowest cash price-answer paid“.

Facey replied via telegraph “Lowest price for Bumper Hall Pen £900.” Harvey answered via
telegraph; “we agree to buy for 900 pounds“.

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Facey, however refused to sell at that price, at which Harvey sued for specific performance
and for an injunction to restrain Kingston from taking a conveyance of the property.
The trial court dismissed the action on the ground that the agreement did not disclose a
concluded contract, the Supreme Court of Jamaica reversed, the defendants appealed to the
Judicial Committee of the Privy Council. The Privy Council later advised that no contract
existed between the two parties. The first telegram was simply a request for information, so at
no stage did the defendant make a definite offer that could be accepted.

The distinction is important because accepting an offer creates a binding contract while
“accepting” an invitation to treat is actually making an offer.

PART A QUESTION 1 (B)

Acceptance, whether by the words or conduct, is not effective until it is actually
communicated to the offeror by the offeree or his authorized agent. The main reason for this
rule is to protect the offeror who could otherwise find himself in the unenviable position of
being bound to a contract without his knowing that his offer had been accepted.

An exception to this general rule is the acceptance, which sent by post. This exception is
commonly known as the ‘postal rule’. The postal rule states that an acceptance by post takes
effect when the acceptance is posted and not when the acceptance is actually received. The
effect of this rule is that the acceptance is valid before it is actually communicated to the
offeror. This is true even where the letter never reaches its destination.

1] Acceptance can only be given to whom the offer was made

In the case of a specific proposal or offer, it can only be accepted by the person it was made
to. No third person without the knowledge of the offeree can accept the offer.

Let us take the example of the case study of Boulton v. Jones. Boulton bought Brocklehurst’s
business but Brocklehurst did not inform all his creditors about the same. Jones, a creditor of
Brocklehurst placed an order with him. Boulton accepted and supplied the goods. Jones
refused to pay since he had debts to settle with Brocklehurst. It was held that since the offer
was never made to Boulton, he cannot accept the offer and there is no contract.

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When the proposal is a general offer, then anyone with knowledge of the offer can accept it.
2] It has to be absolute and unqualified
Acceptance must be unconditional and absolute. There cannot be conditional acceptance, that
would amount to a counteroffer which nullifies the original offer. Let us see an example. A
offers to sell his cycle to B for 2000/-. B says he accepts if A will sell it for 1500/-. This does
not amount to the offer being accepted, it will count as a counteroffer.

Also, it must be expressed in a prescribed manner. If no such prescribed manner is described

then it must be expressed in the normal and reasonable manner, i.e. as it would be in the
normal course of business. Implied acceptance can also be given through some conduct, act,
etc.

However, the law does not allow silence to be a form of acceptance. So the offeror cannot say
if no answer is received the offer will be deemed as accepted.
3] Acceptance must be communicated
For a proposal to become a contract, the acceptance of such a proposal must be
communicated to the promisor. The communication must occur in the prescribed form, or any
such form in the normal course of business if no specific form has been prescribed.

Further, when the offeree accepts the proposal, he must have known that an offer was made.
He cannot communicate acceptance without knowledge of the offer.

So when A offers to supply B with goods, and B is agreeable to all the terms. He writes a
letter to accept the offer but forgets to post the letter. So since the acceptance is not
communicated, it is not valid.
4] It must be in the prescribed mode
Acceptance of the offer must be in the prescribed manner that is demanded by the offeror. If
no such manner is prescribed, it must be in a reasonable manner that would be employed in
the normal course of business.

But if the offeror does not insist on the manner after the offer has been accepted in another
manner, it will be presumed he has consented to such acceptance.

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So A offers to sell his farm to B for ten lakhs. He asks B to communicate his answer via post.
B e-mails A accepting his offer. Now A can ask B to send the answer through the prescribed
manner. But if A fails to do so, it means he has accepted the acceptance of B and a promise is
made.
5] Implied Acceptance
Acceptance by conduct or actions of the promisee is acceptable. So if a person performs
certain actions that communicate that he has accepted the offer, such implied acceptance is
permissible. So if A agrees to buy from B 100 bales of hay for 1000/- and B sends over the
goods, his actions will imply he has accepted the offer.

PART A QUESTION 2
When it comes to legally binding agreements, certain people are always considered to lack
the legal ability (or "capacity") to contract. As a legal matter, basically they are presumed not
to know what they're doing. These people--legal minors and the mentally ill, for example--are
placed into a special category. If they enter into a contract, the agreement is considered
"voidable" by them (as the person who lacked capacity to enter the agreement in the first
place). Voidable means that the person who lacked capacity to enter the contact can either
end the contract or permit it to go ahead as agreed on. This protects the party who lacks
capacity from being forced to go through with a deal that takes advantage of his or her lack of
savvy.

Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a
minor who signs a contract can either honor the deal or void the contract. There are a few
exceptions, however. For example, in most states, a minor cannot void a contract for
necessities like food, clothing, and lodging. Also, a minor can void a contract for lack of
capacity only while still under the age of majority. In most states, if a minor turns 18 and
hasn't done anything to void the contract, then the contract can no longer be voided.

EXAMPLE
Ahmad, 17, a snowboarder, signs a long-term endorsement agreement for sportswear. He
endorses the products and deposits his compensation for the endorsements for several years.
At age 19, he decides he wants to void the agreement to take a better endorsement deal. He

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claims he lacked capacity when he signed the deal at 17. A court probably will not permit
Sean to now void the agreement.

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Mental Incapacity
A person who lacks mental capacity can void, or have a guardian void, most contracts (except
contracts for necessities). In most states, the standard for mental capacity is whether the party
understood the meaning and effect of the words comprising the contract or transaction. This
is called the "cognitive" test. Some states use what's called the "affective" test: a contract can
be voided if one party is unable to act in a reasonable manner and the other party has reason
to know of the condition. And some states use a third measure, called the "motivational" test.
Courts in these states measure capacity by the person's ability to judge whether or not to enter
into the agreement. These tests may produce varying results when applied to mental
conditions such as bipolar disorder.

EXAMPLE
Mr. Suhaimi contracted to sell an invention, and then later claimed that the contract was void
because he lacked capacity. Suhaimi had been diagnosed as manic-depressive and had been
in and out of mental hospitals. His doctor stated that Mr. Suhaimi was not capable of
evaluating business deals when he was in a "manic" state. A California Court of Appeals
refused to terminate the contract and stated that Suhaimi, in his manic state, was capable of
contracting. "The manic phase of the illness under discussion is not, however, a weakness of
mind rendering a person incompetent to contract ." In other words, the Court's view of manic-
depression was cognitive--that the condition may have impaired Suhaimi's judgment but not
his understanding.
Alcohol and Drugs
People who are intoxicated by drugs or alcohol are usually not considered to lack capacity to
contract. Courts generally rule that those who are voluntarily intoxicated shouldn't be allowed
to avoid their contractual obligations, but should instead have to take responsibility for the
results of their self-induced altered state of mind. However, if a party is so far gone as to be
unable to understand even the nature and consequences of the agreement, and the other
(sober) party takes advantage of the person's condition, then the contract may be voidable by
the inebriated party.

EXAMPLE
In the late 19th century, Mr. Thackrah, a Utah resident and owner of $80,000 worth of mining
stock, went on a three-month bender. Mr. T's fondness for alcohol was well known, and a

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local bank hired Mr. Haas to contract with the inebriated Thackrah. Haas did the deal, getting
Thackrah to agree to accept $1,200 for his mining stock. When he sobered up (a month later),
Thackrah learned that Haas had turned over the mining shares to a local bank (apparently the
real culprits in the scheme). Thackrah sued Haas. The case went all the way to the U.S.
Supreme Court, which ruled that the agreement was void because the bank and Hass knew
that Thackrah had no idea what he was doing when he entered the contract. The bank had to
return the shares to Thackrah, less the $1,200 he had already been paid.

PART B QUESTION 1
It is advisable for Mr Zain to understand that the law of agency is an area of commercial law
dealing with a contactor or quasi-contractor, or non contractor set of relationships when a
person, called an agent, is authorized to act on the behalf of principal to create a legal
relationship with a third party. An agent is a person employed to do any act for another or to
represent another in dealings with third persons. Principal is the person for whom such act is
done, or who is represented. With the reference of contract Act 1950, there are 5 ways that
may arise an agency, which are by express appointment by the principal, by implied
appointment by the principal, by ratification by the principal, by necessity and by the doctrine
of estoppels/holding out.

By express appointment by the principals

In contract act 1950 section 140, an agent may be authorized by mouth or word to sign a
memorandum. Express terms are the terms that have been specifically mentioned and agreed
by both parties at the time the contract is made. They can be either in oral or in writing. The
principal may by spoken or written words ‘appoint’ another person to act on his behalf. An
example of an express appointment is a Power of Attorney. A power of attorney is construed
strictly and if an attorney, in purported exercise of his authority, acted outside the reasonable
scope of his powers by changing his principal, the principal will not be liable. He will be
reliable only when he adopts it. For some purposes, the law requires a power of attorney to be
in writing.

By implied appointment by the principal

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In contract Act 1950 section 140, implied appointment arise when a person, by his words,
hold out another person as having authority to act for him. The thing spoken or written or the
ordinary course of dealing

When it is to be inferred from the circumstances of the case, may be accounted circumstances
of the case.
Chan Yin Tee v William Jacks & Co
The appellant which is Chan and Yong is a minor. Both of them were registered as partners in
a business. With a representative of the respondent company at a meeting, Chan held himself
out to be Yong’s partner. Business then commenced between the parties and goods were
supplied to Yong but the price was not paid. The respondent company obtained judgment
against Chan and Yong. They appealed to the Federal Court. The court held that irrespective
of whether Chan was a partner or not, Chan had the authority to do things on his behalf and,
Chan who act as appellant was liable for Yong’s acts.

Relationship between husband and wife

The relationship of principal and agent may exist between the husband and the wife. There is
a rebuttable presumption in law that a wife living together with her husband and the wife has
the authority to pledge her husband credit for necessaries suited to their style of living. The
example are sundry goods, household and etc) .Once the cohabitation ceases, the presumption
ceases and the tradesman must prove that the husband held his wife out to have his authority
to contract. The tradesman must also show that the goods ordered were necessary and not
extravagant. For example, a husband who habitually takes upon himself the liability to settle
his wife’s past dealings and purchases from tradesmen will remain responsible and liable for
all such contracts unless and until he makes it known to the tradesmen that her agency has
been determined. In other words, the presumption can be rebutted by the husband proving
that:

he expressly forbade his wife to pledge his credit; or

he expressly warned the tradesman not to supply his wife with goods or credit; or

his wife was given sufficient allowance without having to pledge his credit; or

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his wife was sufficiently provided for with goods of the kind in question; or

The order, though for necessaries, was unreasonable, considering her husband’s financial
position at the time.

By the Partnership Act 1971, section 7

This partnership Act provides that partners are each other’s agents when contracting in the
partnership business. Any act carrying on by a partner in the usual way business carried on by
the firm binds the firm and his fellow partners, even if the partner acting has in fact no
authority to act for the firm in the matter, unless the person with whom he is dealing knows
he has no authority, or does not know or believe him to be a partner.

Edmund v. Bushell and Jones

Jones was employed Bushell as the manager of his business in London under the name of
“Bushell & Co.”Jones forbade Bushell from drawing and accepting bills of exchange.
However, Bushell breached this prohibition in accepting some bills and Jones was sued upon
one of them by the plaintiff. Court held that Jones was liable. This is because neither the
plaintiff nor any previous holder of the bill knew that Bushell was the agent of Jones

By ratification
Under the Contracts Act 1950, section 149, (Right of person as to acts done for him without
his authority, effect of ratification), whereby acts are done by one person on behalf of another
but without his knowledge or authority, he may elect to ratify or to disown the acts. If he
ratifies them, the same effects will follow as if they had been performed by his authority. This
means that one of the two situations must exist before agency by ratification can arise. This
can be created either an agent who was duly appointed has exceeded his authority or a person
who has no authority to act for the principal has acted as if he has the authority. The principal
can either reject the contract since he has not authorized it or accept the contract made. Once
accepted, the contract is known as ratification.

Sentance v Hawley

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Plaintiff, a broker, on instructions of defendant bought three lots of sugar for him, numbered
67, 68, and 69. By the conditions of sale the goods were to remain at the wharf, at seller’s
risk, till the warrants were delivered to the buyer. On 25 May defendant requested plaintiff to
obtain a warrant for lot 67 and clear it at the Custom House, which he did. At the same time
plaintiff paid and obtained warrants for the other lots, which was the ordinary course of
proceeding among brokers, they getting discount allowed by the seller. It was proved that
defendant knew of this practice, and that it had been done in this instance. On 22 June
defendant instructed plaintiff to clear lot 68. According to the ordinary practice, if the
warrants had not been obtained previously, they would have been obtained on the Saturday,
and the duty would have been paid on the following Monday. The warrants, however, had
been previously obtained. A fire broke out after business hours on Saturday, and lot 68 was
destroyed. The court held that the conduct of defendant amounted to a ratification or adoption
of the previous payment. The sugar was then standing at the buyer’s risk. Plaintiff could
recover the money paid for it as money paid for defendant’s use.

By necessity (in an emergency)

An agent has authority, in an emergency; to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case,
under similar circumstances. This is created when a person is entrusted with another’s
property and it becomes necessary to do something to preserve that property although he has
no express authority to do so. There must be already some existing contractual relationship
between the principal & the person who acts on his behalf. There three condition whereby it
may be created if the conditions are fulfilled. There are it must be impossible for the agent to
get the principal’s instruction, the agent’s action is necessary and agent of necessity has acted
in good faith.

In Prager v Blatspiel. Stamp & Heacock Ltd

During the First World War an agent of a fur merchant in Bucharest bought £1,900 worth of
skins. The merchant paid for the skins but owing to the war the agent couldn’t dispatch the
skins to him. The skins increased in value and the agent sold them. The court held that there
was no agency of necessity the court held. The skins were not likely to drop in value and
could be preserved by proper storage

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(v) By estoppel
Ordinarily, a person is not bound by a contract made on his behalf without his Authority. But
if a person, by his words and conduct, allows a third party to believe X is his agent, when X
is not and the third party relies on it, he will be estoppels from denying the existence of X’s
authority.

Mordaunt Bros v British Oil and Cake Mills Lt

The defendants sold oil to certain merchants. The merchants sold a portion of this oil to the
Plaintiffs. Merchants give the delivery orders, address to defendants and directing the
defendants to deliver the oil to the plaintiffs. While the merchants were punctual in their
payments to defendants, the defendants regularly delivered oil to the Plaintiffs or their sub-
purchasers. The merchants fell into arrear with their payments, and the defendants, claiming
to exercise their right of lien as unpaid sellers, refused to make any further deliveries against
the merchants’ delivery orders. The plaintiffs claimed a declaration that they were entitled to
delivery of the goods. Based this claim, defendants were estopped from denying that they had
the oil in their hands and to answer the delivery orders. The court held that the plaintiffs had
failed to prove facts sufficient to establish a case of estoppels. This showed that plaintiffs
regularly made the advances or purchases before making any inquiries as to whether the
delivery orders would be executed, and had not, therefore, altered their position on the faith
of any answers to such inquiries.

Agents and principals have their own duties to arise an agency. With the reference Contract
Act 1950 Section 168, agents are not allowed to make any secret profit out of the
performance of his duty. Secret profit is not restricted to money but it may include anything
of value, for example, an interest-free loan, a club membership and etc. An agent who has
made secret profit is liable to account to the principal for such profit. For the statement above,
the agent has used the property of principal to make profit or benefit for himself, the agent
deals on his own account in the business of agency, without first obtaining the consent of his
principal and acquantining him with all material circumstances which have come to his own
knowledge on the subject, the principal may repudiate the transaction or contract. The agent
should not make a secret profit in his own account. The statement stated that the agent gains
the unjust benefit by use of principal’ property, the principle may:

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Repudiate the contract if it is disadvantageous to him

Recover the amount of secret profit from the agent

Refuse to pay the commission or remuneration to the agent

Dismiss the agent for breach of duty

Sue the agent and third party giving the bribe, for damages for any loss he

may have sustained through entering into the contract.

But, if the principal knows about the secret profit and consent to it, the agent is entitled to
keep the profit and is not liable for the transaction.

In the Boardman v. Phipps case, Mr. Boardman was a solicitor of a family trust. The trust
assets include 27% holding in a company, Boardman was concerned about the accounts of a
company and required to protect the shareholding. He and his beneficiary, Tom Phipps, went
to a shareholders’ general meeting of the company. They suggested to a trustee which is Mr.
Fox that it would be desirable to acquire a majority shareholding, but Mr. Fox said it was
completely out of the question for the trustee to do. After that, Boardman and Phipps decided
to purchase the shares but they did not fully informed consent of all the beneficiaries. By
capitalizing some of the assets, the company made a distribution of capital without reducing
the values of the shares. The trust benefited by distribution for £47,000, while Boardman and
Phipps made £75,000. Then, John Phipps, another beneficiary, sue for their profits. The court
held that Boardman was liable to pay for his breach of the duty of loyalty, but he could be
paid for his services.

In conclusion, agents were disallowed to make any secret profit in perform his duty. But if
the secret profit was known by the principal, agent is entitled to keep the profit.

PART B QUESTION 3

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The law on hire purchase is governed by Hire Purchase Act, 1967 (Act 212). Prior of this Act
the law is governed entirely by common law and the Contracts Act 1950.

Scope of the Act – nor cover all hire purchase transactions. Goods as listed in the First
Schedule which can be amended by the Minister from time to time.

FIRST SCHEDULE
All consumer goods
Motor vehicles such as
Invalid carriages,
Motorcycles,
Motor cars including taxi cabs and hire cabs,
Good vehicles (where the maximum permissible laden weight does not exceed 2540
kilograms),
Buses, including stage buses.
DEFINITION
It is a system of buying things on credit whereby the seller of the goods is regarded as the
dealer, the purchaser is regarded as the hirer and the finance company is the owner. The
ownership of the goods bought on hire purchase does not pass to the hirer at the time of the
hire purchase agreement or upon delivery of the goods. The ownership of the goods remains
in the owner until the hirer has fully paid the price agreed upon in the hire purchase
agreement.

FORMATION AND NATURE OF HIRE PURCHASE AGREEMENT

Before a hire-purchase effected agreement, the Act imposed a number of legal obligations on
the owner and dealer. Section 4 (1) before any hire-purchase agreement is entered into in
respect of any goods—

(a) In a case where negotiations leading to the making of the hire-purchase agreement is
carried out by a dealer, such dealer shall

(i) serve on the intending hirer a written statement duly completed and signed by him in
accordance with the form set out in Part I of the Second Schedule

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(ii) at any time after the service of the written statement referred to in subparagraph (i) but
before the hire purchase agreement is entered into, serve on the intending hirer a written
statement duly completed and signed both by him and the prospective owner in accordance
with the form set out in Part II of the Second Schedule.

PART I OF THE SECOND SCHEDULE

A summary of the hirer financial obligations; and must set out the following;

Short description of the goods

New/second hand
Address the goods will be kept
Cash price
Deposit
Freight charges, if any
Insurance and registration (motor vehicle)
Terms charges (rate per annum, total amount of the terms charges)
Different between cash price and total amount payable
The instalment payments
DURING AGREEMENT
Hire-purchase agreement to be in writing

A hire-purchase agreement in respect of any goods specified in the First Schedule shall be in
writing - section 4A (1), if not the agreement be void and owner will be guilty of an offence
under this Act.

HIRE-PURCHASE AGREEMENT TO BE SIGNED

Every hire-purchase agreement shall be signed by or on behalf of all parties to the agreement
– Section 4B (1). No owner, dealer, agent or person acting on behalf of the owner shall
require to sign a hire-purchase agreement unless such hire-purchase agreement, form or
document has been duly completed – Section 4B (2)

Effect if not follow this proviso: the agreement void and guilty of an offence

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CONTENTS OF HIRE-PURCHASE AGREEMENT

Every hire-purchase agreement shall

(i) specify a date on which the hiring shall be considered to have launched;

(ii) specify the number of instalments to be paid under the agreement by the hirer;

(iii) specify the amounts of each of these instalments and the person to whom and the place at
which the payments of these instalments are to be made;

(iv) specify the time for the payment of each of those instalments;

(v) contain a description of the goods sufficient to identify them;

(vi) specify the address where the goods under the hire purchase agreement are - section
4C(1) (a)

Where any part of the consideration is or is to be provided otherwise than in cash, shall
contain a description of that part of the consideration – section 4C (1) (b)

Section 4C(1) (c) instructed to set out in a tabular form these particulars:

cash price - the price at which at the time of signing the agreement the hirer might have
purchased the goods for cash
deposit - the amount paid by deposit
freight or delivery charges if any - the amount included in the total amount payable to cover
the expense of delivering the goods to the hirer
vehicle registration fees - any amount included in the total amount payable to cover vehicle
registration fees in respect of the goods
insurance - any amount included in the total amount, payable for insurance in respect of the
goods
the total amounts referred to in the (i), (iii), (iv) and (v), less (ii)

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terms charges or interests - the amount of any other charges included in the total amount
payable
the annual percentage rate for terms charges which shall be calculated in accordance with the
formula set out in the Seventh Schedule of the Hire Purchase Agreement
the total of the amounts referred to in (vi) and (vii), described as "the balance originally
payable under the agreement and
the total amount payable.
Where a hire purchase agreement does not comply with the above, it shall be void.

Separate Agreement for every item of goods

There shall be a separate hire-purchase agreement in respect of every item of goods

purchased under this Act – S.4D (1). If not, the agreement is void and the owner shall be
guilty of an offence.

After Agreement

Copy of Documents to be served on hirer

Within fourteen days after the making of a hire-purchase agreement, the owner shall serve on
the hirer and the guarantors a copy of the agreement each –S.5(1)

REQUIREMENTS
Under the Hire Purchase Act 1967, a hire purchase agreement must:

specify a date on which the hiring shall be considered to have started

specify the number of instalments to be paid under the agreement by the hirer
specify the amount of each of instalments and the person whom and the place at which the
payments of these instalments are to be made
specify the time for the payment of each of those instalments
contain a description of the goods sufficient to identity them
specify the address where the goods under the hire purchase agreement are.
Among others, the hire purchase agreement must also set out in even form

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cash price - the price at which at the time of signing the agreement the hirer might have
purchased the goods for cash
deposit - the amount paid by deposit
freight or delivery charges if any - the amount included in the total amount payable to cover
the expense of delivering the goods to the hirer
vehicle registration fees - any amount included in the total amount payable to cover vehicle
registration fees in respect of the goods
insurance - any amount included in the total amount, payable for insurance in respect of the
goods
the total amounts referred to in the (i), (iii), (iv) and (v), less (ii)
terms charges or interests - the amount of any other charges included in the total amount
payable
the annual percentage rate for terms charges which shall be calculated in accordance with the
formula set out in the Seventh Schedule of the Hire Purchase Agreement
the total of the amounts referred to in (vi) and (vii), described as "the balance originally
payable under the agreement and
the total amount payable.
Where a hire purchase agreement does not comply with the above, it shall be void.

WARRANTIES AND CONDITIONS

There are certain terms which are implied in a hire purchase agreement. These terms may be
warranties and conditions. Part III of the Act lay downs various conditions and warranties to
protect hirers and guarantors.

A). IMPLIED CONDITIONS

1. RIGHT TO SELL
The owner shall have right to sell the goods at the time when the property is to pass – s.7(1)
(b). PUBLIC FINANCE BHD v EHWAN BIN SARING [1996] 1 MLJ 331 – the Act does
not differentiate between new and second hand goods as far as ownership is concerned. The
court also defines the meaning “at the time when the property is to pass” – it means at the
time when a hirer decides to pay all sums due under a hire purchase agreement and not

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necessarily only upon payment of the last instalment when it became due – at the time when a
hirer exercises his option to purchase.

2. MERCHANTABLE QUALITY
The goods shall be of merchantable quality – section 7(2), but such a condition shall not be
implied:

(a) where the hirer has examined the goods or a sample thereof, as regards defects which the
examination ought to have revealed

(b) if the goods are second-hand goods and the agreement contains a statement to the effect
that

(i) the goods are second-hand

(ii) all conditions and warranties as to quality are expressly negative, and the owner proves
that the hirer has acknowledged in writing that the statement was brought to his notice.

3. FITNESS
Section 7(3)

Where the hirer expressly or by implication makes known to the owner the particular purpose
for which the goods are required, there shall be implied in the hire-purchase agreement a
condition that the goods shall be reasonably fit for that purpose, but such a condition shall not
be implied if the goods are second hand goods and the agreement contains a statement to the
effect

(a) that the goods are second-hand

(b) that all conditions and warranties of fitness and suitability are expressly negative, and the
owner proves that the hirer has acknowledged in writing that the statement was brought to his
notice.

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B). IMPLIED WARRANTY
1. Quiet possession of the goods

The hirer shall have and enjoy quiet possession of the goods – section 7(1) (a)

2. Free from encumbrance

The goods shall be free from any charge or inconveniency in favour of any third party at the
time when the property is to pass - section7(1) (c)

LIABILITY OF OWNER AND DEALER FOR MISREPRESENTATION

1) If the owner made a misrepresentation in the course of negotiations leading to the hire
purchase agreement, the hirer has the right to rescind the agreement and sue for damages –
section 8(1)(a).

2) Where the dealer made a misrepresentation, the hirer cannot repudiate the agreement. He
can only sue for damages section 8(1) (b).

STATUTORY RIGHTS OF HIRERS

Section 9 to 15 of HPA provide the rights of hirers.

1. RIGHT TO BE SUPPLIED DOCUMENTS AND INFORMATION – S.9

At any time before the final payment has been made under a hire-purchase agreement the
owner shall, within fourteen days after he has received a request in writing from the hirer,
supply to the hirer a statement signed by the said person or his agent showing—

(a) the amount paid to the owner by or on behalf of the hirer

(b) the amount which has become due under the agreement but remains unpaid

(c) the amount which is to become payable under the agreement

(d) the amount derived from interest on overdue instalments:

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An owner need not comply with such a request if he has sent the hirer a statement within a
period of three months immediately preceding the receipt of the request.

2. RIGHT TO APPROPRIATION OF PAYMENT (S.10)

A hirer who is liable to make payments in respect of two or more hire-purchase agreements to
the same owner shall, be entitled, on making any payment in respect of the agreements which
is not sufficient to discharge the total amount then due under all the agreements, to require
the owner to appropriate the sum so paid by him in or towards the satisfaction of the sum due
under any one of the agreements, or in or towards the satisfaction of the sums due under any
two or more of the agreements in such proportions as he thinks fit, and, if he fails to make
any such appropriation the payment shall be appropriated towards the satisfaction of the sums
due under the respective hire purchase agreements in the order in which the agreements were
entered into.

3. RIGHT TO APPLY AN ORDER FOR GOODS TO BE REMOVED – S.11

Where, by virtue of a hire-purchase agreement, it is the duty of a hirer to keep the goods
comprised in the agreement in his possession or control at a particular place or not to remove
the goods from a particular place, a court of a Magistrate may, on the application of the hirer,
make an order approving the removal of the goods to some other place, which place shall, for
the purposes of the agreement, be substituted for the place mentioned in the agreement.

4. RIGHT TO ASSIGN – S.12

The right, title and interest of a hirer under a hire-purchase agreement may be assigned with
the consent of the owner, or if his consent is unreasonably withheld, without his consent.

5. RIGHTS BY OPERATION OF LAW- S.13

The right, title and interest of a hirer under a hire-purchase agreement shall be capable of
passing by operation of law to the personal representative of the hirer and if the hirer is a
company the liquidator may exercise the same right under the agreement as the company but
nothing in this section shall relieve any personal representative or liquidator from compliance
with the provisions of the agreement.

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6. RIGHT TO EARLY COMPLETION OF AGREEMENT- S.14
The hirer under a hire-purchase agreement may, if he has given notice in writing to the owner
of his intention to do so, on or before the day specified for that purpose in the notice,
complete the purchase of the goods by paying or tendering to the owner the net balance due
under the agreement.

7. RIGHT TO TERMINATE AGREEMENT- S.15

The hirer of any goods comprised in a hire-purchase agreement may terminate the agreement
by returning the goods to the owner during ordinary business hours at the place at which the
owner ordinarily carries on business or to the place specified for that purpose in the
agreement.

REPOSSESSION BY OWNER
The owner is entitled to recover possession of the goods when the hirer has committed a
breach of his contractual obligations relating to the payment of instalments under the hirer-
purchase agreement: The Hirer-Purchase Act 1967 lays down various restriction on the power
of the owner when recovering possession:

Notices must be given to the hirer when goods are to be repossessed – section 16
After the repossession the owner must not sell or dispose of the goods for 21 days – section
17
Hirer’s rights and immunities when goods are repossessed - section 17
Hirer can regain possession of the goods in certain circumstances – section 19
If the hirer defaults in two following payments or if he defaults in the final payments, the
owner can only repossess the goods after certain procedures:

he must serve on the hirer a notice in writing of his intention to retake possession
The period fixed by the notice must have expired and must not be less than 21 days
The owner must personally deliver to the hirer a document acknowledgement receipt of the
goods.
The owner must serve on the hirer and guarantors, if any, a notice in writing in the form set
out in the Fifth schedule of the said Act, within in 21 days.

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If the hirer is deceased, an owner shall not exercise any power of taking possession- Section
16 (1A) If the hirer return goods in 21 days after the service on him of the notice in the form
set out in the Fourth Schedule shall not liable to pay:

the cost of repossession

the cost of incidental to taking possessions
the cost of storage
Where the goods are return to the hirer pursuant to subsection (1) and any breach of the hirer-
purchase agreement has not been resolved, the owner has no rights arising out of the breach
to take possession of the goods section 19(2) unless:

by notice in writing given to the hirer at that time of the return of the goods he specifies the
breach and requires it to remedied;
the hirer fails within 21 days or within the time specified in the notice .
After the repossession the owner must not sell or dispose of the goods for 21 days- section 17
Hirer’s rights and immunities when goods are repossessed - section 18
Upon receipt of the fifth schedule notice under section 16(3),the hirer may within 21 days
gives notice to the owner requiring owner to:

Redeliver to him goods that have been repossessed - section 19 or;

Sell the goods to any person introduced by the hirer-section 18 (1)(a)
Hirer can regain possession of the goods in certain circumstances – section 19
The hirer can regain possession of the goods in 21 days after giving notice to the owner
pursuant to section 18(1)(a):

pays to the owner any amount due to the hire-purchase agreement

Remedies any breach of the agreement or pays to the owner (where he is unable to remedy
the breach by reason of the facts that the owner has taken possession of the goods) or pays to
the owner the costs and expenses reasonably and actually insures by the owner in doing act,
matter or thing necessary to remedy the breach
Pays to the owner the reasonable costs and expenses of the owner of and incidental to his
taking possession of the goods and his returning them to the hirer section 19(1)
INSURANCE

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An owner shall cause to be insured in the name of the hirer -

(a) motor vehicles comprised in a hire-purchase agreement, for the first year only

(b) all other goods comprised in a hire-purchase agreement, for the duration of time that the
goods remain under hire purchase, against any risks that he thinks fit.- section 26(1)

Where the goods comprised in a hire-purchase agreement is a motor vehicle, it shall be the
duty of the hirer to cause the said vehicle to be insured in respect of the second and all
subsequent years that the motor vehicle remains under hire-purchase.-S.26(2)

FRAUDULENT SALE OF GOODS BY HIRER

Every person who, by the disposal or sale of any goods comprised in a hire-purchase
agreement, or by the removal of the goods, or by any other means, defrauds or attempts to
defraud the owner shall be guilty of an offence under this Act and shall, on conviction, be
liable to a fine not exceeding ten thousand ringgit or to imprisonment for a term not
exceeding three years or to both. - section 38

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PART B QUESTION 4 (A)
Property may be defined as anything which has a value assigned to it, both tangible and
intangible. However intangible property such as copyright are not generally insurable under
property insurance since this policy caters for property which can experience physical loss or
damage by fortuity.

There are six principles in insurance:

1. Utmost Good Faith

2. Insurable Interest
3. Proximate Cause
4. Indemnity
5. Subrogation
6. Contribution

1.0 Utmost Good Faith

Utmost Good Faith (‘Uberrima Fides’) opposite of ‘Caveat Emptor’ (let the buyer beware) is
fundamental to the buying and selling of insurance. The insurer and the proposer have the
obligation to deal honestly and openly amongst themselves in the negotiations that lead up to
the formation of the contract.

Condition 6 of MSI policy – Alternation, emphasizes that any changes made to the risk
insured must be revealed, otherwise insurers will be permitted to avoid liability. Also the MSI
policy underlines that any misdescription and fraud will make the policy voidable:

‘… the Company shall not be liable upon this Policy so far as it relates to property affected
by any such misdescription, misrepresentation or omission [1] .’

Furthermore:

‘If the claim be in any respect fraudulent or if any false declaration be made or used in
support thereof …all benefit under this Policy shall be forfeited [2] ’.

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In Joseph Muscat v. Joseph Gasan et noe (1998) [3] , which concerned a claim of a loss of a
ring, the insurers refused to meet the claim due to misrepresentation and non-disclosure,
which made the policy invalid. However the case was later revised and was concluded that
the principle of ‘Uberrima Fides’ lies also in the hands of the insurer.

Moreover, in Antonio Zammit v. Joseph Micallef ne (1952) [4] , the insured gave false
declarations, thus invalidates the policy. The insurers were not liable to indemnify the
plaintiff since ‘fraus omina corrumpit [5] ’, in Latin.

From Kettlewell v. Refuge Assurance (1908) [6] we see that misrepresentation on part of the
insurers is also likely.

In insurance there is a positive duty of disclosure, this origin is found in the case of Carter v.
Boehm (1766) [7] :

‘The special facts, upon which the contingent chance is to be computed, lie most commonly
in the knowledge of the insured only: the underwriter trusts to his representation, and
proceeds upon the confidence that he does not keep back any circumstances in his
knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and
to induce him to estimate the risk as if it did not exist [8] .’

Furthermore, in Rozanes v. Bowen (1928):

‘As the underwriter knows nothing and the man who comes to him to ask him to insure
knows everything, it is the duty of the assured … to make a full disclosure to the underwriter
without being asked of all the material circumstances [9] .’

Both cases quoted above underline the fact that the policyholder will know more information
about the risk insured than the insurer. Consequently the judgement presumes that the insurer
will not be able to find out the full details related to the risk, unless the proposer volunteers
the required information.

The principle of ‘Uberrima Fides’ imposes the:

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Insurer to disclose all applicable information and advice

Insured to disclose all material facts. ‘Every circumstance is material which would influence
the judgment of a prudent insurer in fixing the premium or determining whether he will take
the risk’ [10] .

Examples of material facts needed to be disclosed in relation to property insurance:

Those representing a greater exposure than expected– Example: A garage having vintage cars

Outside factors making risk greater– Example: Property situated next to a fire factory or
valley

Previous losses and claims

Declinature

Existence of other policies– Condition 3 of MSI policy, Other Insurances, highlights the duty
of the insured to give notice of any existent insurance policies

Full facts related to description of the risk insured– Example: Construction and age of
building, number of rooms etc

Restriction of subrogation rights– If both, Waiver of Subrogation and Hold Harmless exist in
the contract, the insurer cannot sew the guilty party on the behalf of the policyholder.

Like Uberrima Fides, the principle of Insurable Interest is not applicable only to Property
Insurance.

1.1 Insurable Interest

‘The legal right to insure arising out of a financial relationship recognized at law, between the
insured and the subject matter of insurance [11] .’

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The essentials for insurable interest are:

Subject matter of insurance– Example of insurable interest is the interest which an individual
has in the property which he owns

The insured must own an economic or financial interest whereby he will experience a
financial loss if such loss occurs

The interest must be a legal interest– In the following case, Macaura v. Northern Assurance
Co. Ltd (1925) [12] , insurers refused to meet the claim on the grounds that Macaura had no
insurable interest

The interest must be a current interest, not a mere expectancy – The expectation of something
in the future does not create insurable interest (Lucena v. Craufurd (1806) [13] ).

Examples of persons having insurable interest in property include:

Absolute or real owners

Shared or joint owners

Mortgages and mortgagors– The mortgagor’s (purchaser) interest arises from the ownership
of the property and the mortgage (usually a bank or a financial institution – lender) acquires
an insurable interest since the property is the security for the loan

Executors and trustee– These are legally responsible for the property in their charge

Landlord and tenant– A landlord (lessor) has an insurable interest in the property that he
owns, also his tenant (lessee) has an insurable interest since he may be responsible to pay for
repairs if the property experiences damage, and may have to pay the rent even when the
premises are unoccupied

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Bailees– The bailee example a TV repairer have to take reasonable care of the clients’ goods
as if they were his

People living together– Such as a spouse will have an insurable interest in the property
belonging to the other if its use and ownership is shared

Finders and people in possession

Partners in a business

Creditor in the life of a debtor.

In Bartolo Wood Turners Ltd. v. Middle Sea Insurance Plc (2007) [14] , the insured property
(a factory) was damaged by fire. The insurers settled the claim for the damages caused,
however refused to pay for the damages made to the huts. Consequently, John Bartolo
presented the claim to the Court. The insurers stated that there no was insurable interest in the
huts, since they were the property of the M.D.C.

‘Irrizulta li s-socjeta’ attrici ma kienitx il-propjetarja tal-bini izda dan kien mikri lilha.’

The Judgement concluded that payment was to be made to the real owners of the premises,
thus to the M.D.C.

1.2 Proximate Cause

‘The active, efficient cause that set in motion a train of events, which brings about a result,
without the intervention of any force started and working actively from a new and
independent source [15] ’, Pawsey v. Scottish Union and National (1907).

Sometimes there is more than one cause, in which case, the most dominant cause is outlined
and determined (‘Leyland Shipping v. Norwich Union Fire Insurance Society Ltd (1918) [16]
). Unless the cause is identified, the claim cannot be settled.

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In the case of Winicofsky v. Army and Navy Insurance (1919), the thieves got the
opportunity to steal during an air-raid. The proximate cause was held to be the theft itself (an
insured peril) and not the air-raid (an excluded peril).

In Emanual Micallef v Theresa Falzon (1973) [17] a road accident took place, where the
defendant crashed in the applicant’s car as to not hit the pedestrians who had unexpectedly
crossed the street in front of her. This is a case where the Court was faced in establishing
what the proximate cause effectively was. The Court stated:

‘…qieghed jigi ritenut li l-konvenuta dahlet fil-“car” ta’ l-attur biex tevita lin-nies li kienu
qeghdin jaqsmulha; allura lill-konvenuta ma jista’ jigi attribute l-ebda tort.’

Once it is clear that the causa proxima is covered by the policy, it will then be essential to
calculate the loss and decide how much the Company is liable to pay. At this point the
principle of indemnity will take control.

1.3 Indemnity
Placing the insured, as nearly as possible, in an equal financial position after a loss, as that
occupied immediately before the happening of the insured event. This implies that the insured
should not be over-compensated; neither makes a profit out of the loss.

The calculation of indemnity as regards to property is agreed not by its cost but by its value at
the date and place of loss. Hence, if the value during the policy period has increased then the
policyholder is entitled to an indemnity on the basis of the increased value subject to the sum
insured (Re Wilson and Scottish Insurance (1920)) and vice-versa.

Under property insurance, the policyholder can regain the amount of the value of the property
itself, thus cannot claim for:

Loss of perspective profits or losses unless they are specifically insured. In the case of Re
Wright and Pole (1834), the insured cannot recover under a fire policy for loss of trade and
cost of hiring premises

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Sentimental value (Richard Aubrey Film Productions Ltd v. Graham (1960) [18] )

As regards to the basis of settlements, MSI Policy states that ‘the amount payable … shall be
the cost of replacement after deductions being made for wear and tear or depreciation [19] ’.

Indemnity is however subject to: –

Policy limitations:

The sum insured is often the maximum recovery possible

Single article limits

Average is applied in the case of under-insurance. MSI Policy states: ‘… any destruction of
or damage to such property … of greater value than the sum insured thereon, then the Insured
shall be considered as being his own insurer for the difference and shall bear a rateable
proportion of the loss accordingly [20] ’

Average = Sum Insured × Loss

Value at Risk

Excesses, deductibles or franchise

Other possible settlements:

‘New for Old’: Insurers agree to pay the full replacement cost ‘as new’, with no deduction for
depreciation and wear and tear

Reinstatement: As stated in the MSI Policy ‘The Company may at its option reinstate or
replace the property damaged or destroyed or any part thereof … [21] ‘

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Agreed Value: The parties agree that in the event of a loss an agreed sum will be paid,
regardless of the actual value of the property at that time. Works of art are frequently insured
in an agreed basis.

In the judgement of Mario Misfud v. Montaldo Insurance Agency Limited Noe (2004) [22] ,
the plaintiff after purchasing a new car had a road accident. The claim was presented to court
due to the fact that the claimant argued that he should receive the full amount of the vehicle
without any deductions made for depreciation, since the vehicle was on road for only 20
days. With reference to the indemnity principle, the Court concluded that the costs should be
borne by the Company, without any deductions for depreciation.

Connected to the principle of indemnity are the principles of subrogation and contribution
which are sometimes described as corollaries of the principle of indemnity.

1.4 Subrogation
‘The right of one person, having indemnified another under a legal obligation to do so, to
stand in the place of that other and avail himself of all the rights and remedies of that other,
whether already enforced or not [23] ’. This is also highlighted in the MSI Policy, where the
Company shall be entitled to subrogate upon its payments made for any loss or damaged
occurred.

Brett, L.J. in Castellain v. Preston (1883) underlined that the main aim of subrogation is to
ensure that the insured person obtains an indemnity but “no more than an indemnity”. In
addition, the Company is not entitled to recover more than they have paid and should pay any
profits to their policyholder.

Subrogation does not apply to non-indemnity contracts and when payments are paid on ‘ex-
gratia’ basis or in situations where the policyholder receives gifts or charitable donations
following his loss.

Subrogation operates:

By means of Tort where a third party causes the insured loss or damage

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By means of Contract law where one party has rights against the other

By means of Statute law where the insured is given certain legal rights (Riot Damages Act
1886)

By means of salvage – Insurers are entitled for any salvage where they have agreed to pay the
full amount of the loss, and if the item is later found the insured cannot oblige the insurer to
return the item (Holmes v. Payne (1930)). This condition, in the MSI policy, is listed as ‘The
Company’s Rights after Destruction or Damage. [24] ’

In the case of Scottish Union and National Insurance v. Davies (1970) the insurers claimed
for £350, under the principle of subrogation, but failed on the grounds that the repairs they
paid for were ineffective and no satisfaction note has been signed by the policyholder.

In the judgement of Citadel Insurance Plc Noe et v. Borg Jonathan (2009) [25] , a motor
vehicle accident took place. After the insured (Magri Victor) had presented the claim, the
Company had indemnified him. However, the Company failed to recover the costs from the
third party (Borg Jonathan), thus the case had to be presented to court. The Court concluded
that Borg Jonathan had to pay the insurer since he was responsible for the accident.

1.5 Contribution
‘The right of an insurer to call upon other similarly, but not necessarily equally, liable to the
same insured to share the cost of an indemnity payment [26] ’.

This principle is applicable when there are two or more indemnity policies covering the same
peril and subject matter. It is of utmost importance that the policyholder will inform the
insurer of any other insurance in force otherwise, ‘all benefits under this Policy shall be
forfeited [27] ’. In such a case the claim payment is shared amongst the insurers: ‘the
Company shall not be liable to pay or contribute more than its proportion of such loss or
damage [28] ’. If the policyholder holds more than one policy of insurance, he still cannot
recover more than full indemnity.

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For contribution to be applied the interest must be the same. In King and Queen Granaries
(1877) both the bailees and the owners had insured the grain. The bailees’ insurers paid a
claim following damage to the grain by fire and required to recover from the owners’
insurers. However they failed to do so, on the grounds that the interest insured by the two
policies were different.

In addition different policies are needed example a fire and an accidental damage policy. In
the situation where different policies cover different interest but the same subject matter, each
of the concerned party may claim up to the loss he has experienced. The market agreement in
UK decided to disregard the principle established in the King and Queen Granaries case,
where the UK fire insurers have agreed to share certain losses even though the policies had
different interests.

The insured may chose to settle his claim under one policy, since there is no circumstance
that stops him from doing so. It is then the insurer’s duty to inherit the right of contribution
against the second insurer. Yet, the Contribution Condition under the policy prohibits the
policyholder from claiming under one policy.

1.6 Appendices
Case A
The case of Joseph Muscat v. Joseph Gasan et noe (1998) [29] concerned a claim for the
amount of Lm3000 due to a loss of a diamond ring insured under an Accidental Damage
Insurance Policy. The defendants refused to meet the claim on the basis of misrepresentation
and non-disclosure of material facts by the insured, which made the policy voidable. The
insurers (Gasan Insurance Agency Limited) stated that the insured (Joseph Muscat) had
answered incorrectly a question in the proposal form as regards to previous convictions
involving dishonesty. The insurers also claimed that the insured had failed to declare ‘that he
was previously convicted of the offence of gaming and betting and had also been imprisoned
for a term of eight days’. The Court rejected the claim for the insured since the latter facts
were considered to be significant. Yet, this judgement was reversed and the Court concluded
that the offences of which the applicant was convicted did not hold an offence concerning
dishonesty and thus he was not requested to disclose such facts. Furthermore, the Court stated
that the principle of ‘Uberrima Fides’ lies also in the hands of the insurer:

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‘Fil-fehma ta’ din il-Qorti allura, kemm il-persuna assigurata kif ukoll is-socjeta assiguratrici
kellhom l-obbligu mhux biss li jagixxu bl-aqwa bona fidi fil-konfront ta’ xulxin, imma wkoll
l-obbligu li qabel ma jigi konkluz il-kuntratt ta’ assigurazzjoni jaccertaw ruhhom minn dawk
l-elementi ta’ fatt li kienu rilevanti u materjali u li kienu jiddeterminaw il-volonta’ taghhom li
jikkonkluduh. U daqs kemm kien indubbjament obbligat l-assigurat li jizvela dawk il-fatti
lill-assiguratur taht piena ta’rexissjoni ta’ kuntratt, daqstant iehor l-assiguratur kien obbligat li
itlob minn ghandu dik l-informazzjoni fuq fatti li fil-fehma tieghu kienu releventi u
materjali’.

Case B
In Kettlewell v. Refuge Assurance (1908), the defendant’s fraudulent misrepresentation
persuaded the claimant to pay the premiums for four years, after which she was untruthfully
told that she would receive a ‘free’ policy. The Court concluded that the policyholder had the
right to avoid the policy and to recoup the premiums paid since the date of misrepresentation.

PART B QUESTION 4 (B)

The regulatory and supervisory framework of Malaysia enters a new stage of its development
as the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA)
come into force on 30 June 2013.

The FSA and IFSA is the culmination of efforts to modernise the laws that govern the
conduct and supervision of financial institutions in Malaysia to ensure that these laws
continue to be relevant and effective to maintain financial stability, support inclusive growth
in the financial system and the economy, as well as to provide adequate protection for
consumers. The laws also provide Bank Negara Malaysia with the necessary regulatory and
supervisory oversight powers to fulfil its broad mandate within a more complex and
interconnected environment, given the regional and international nature of financial
developments. This includes an increased focus on preemptive measures to address issues of
concern within financial institutions that may affect the interests of depositors and
policyholders, and the effective and efficient functioning of financial intermediation.

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It is important that Malaysia's regulatory and supervisory system is adequately equipped to
respond effectively to new and emerging risks so that confidence in the financial system is
preserved and that the critical financial intermediation activities which are vital to the
economy are not disrupted. The FSA and IFSA amalgamate several separate laws to govern
the financial sector under a single legislative framework for the conventional and Islamic
financial sectors respectively, namely, the Banking and Financial Institutions Act 1989
(BAFIA), Islamic Banking Act 1983, Insurance Act 1996 (IA), Takaful Act 1984, Payment
Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date.

Key features of the new legislation include:

Greater clarity and transparency in the implementation and administration of the law. This
includes clearly defined regulatory objectives and accountability of Bank Negara Malaysia in
pursuing its principal object to safeguard financial stability, transparent triggers for the
exercise of Bank Negara Malaysia's powers and functions under the law, and transparent
assessment criteria for authorizing institutions to carry on regulated financial business, and
for shareholder suitability;
A clear focus on Shariah compliance and governance in the Islamic financial sector. In
particular, the IFSA provides a comprehensive legal framework that is fully consistent with
Shariah in all aspects of regulation and supervision, from licensing to the winding-up of an
institution;
Provisions for differentiated regulatory requirements that reflect the nature of financial
intermediation activities and their risks to the overall financial system;
Provisions to regulate financial holding companies and non-regulated entities to take account
of systemic risks that can emerge from the interaction between regulated and unregulated
institutions, activities and markets. The Minister of Finance may subject an institution that
engages in financial intermediation activities to ongoing regulation and supervision by Bank
Negara Malaysia if it poses or is likely to pose a risk to overall financial stability;
Strengthened business conduct and consumer protection requirements to promote consumer
confidence in the use of financial services and products;
Strengthened provisions for effective and early enforcement and supervisory intervention
The new laws will place Malaysia's financial sector, encompassing the banking system, the
insurance/takaful sector, the financial markets and payment systems and other financial

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intermediaries, on a platform for advancing forward as a sound, responsible and progressive
financial system. This is especially important to enable the financial system to meet the new
demands for financing associated with Malaysia's economic transformation programme both
during and beyond the next decade, the changing demographics of our population, and the
increasing integration of the Malaysian economy with the region and the world.

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