Surabaya Religious Court Decision No. 5718 of 2014: Al Qardh Financing Agreement Dispute

The plaintiff’s legal counsel asserted that, on 24 August 2011, the plaintiff (deceased) and defendant (Bank BRI Syari’ah Cabang Surabaya) entered into a financing agreement (Al Qardh) to enable the plaintiff to purchase precious metals. Articles 1 and 2 of the agreement stated that the defendant would lend to the plaintiff IDR 95.4 million to be used to purchase 200 grams of gold from the precious metals company Antam. The gold was valued at IDR 106 million, and required a down payment of IDR 10.6 million. Pursuant to art 3 of the agreement, the plaintiff was required to repay the defendant in instalments of IDR 1,590,000, over a period of 60 months (until 24 August 2016). Upon repayment of two instalments, the plaintiff was then entitled to a cash back incentive, notably after repaying the first three instalments, as well as the twelfth instalment. Article 5(1) of the agreement also specified that to guarantee the return of the monies loaned, the plaintiff was to use the 200 grams of gold as collateral. To ensure the gold was cared for and stored for the period of the loan, the plaintiff paid to the defendant a monthly fee of IDR 1,033,500, making his total monthly repayments IDR 2,623,500.

The plaintiff successfully made these repayments for 29 months (until January 2014), while the defendant upheld its end of the bargain by paying to the plaintiff the cash back incentives up until November 2013, after which it defaulted. The plaintiff alleged that the defendant had failed to act in good faith, providing a variety of reasons to postpone the payment of the cash back incentives. The plaintiff paid to the defendant the remainder of his debt owing (IDR 49,290,000 as of 7 February 2014), hoping that the defendant would then repay to the plaintiff all its cash back incentives. The defendant, however, continued to provide the plaintiff with reasons as to why it could not uphold its end of the bargain. Finally, on 23 May 2014, the defendant paid to the plaintiff the cash back for January 2014 (IDR 912,925) and March 2014 (IDR 981,825) totalling IDR 1,894,750.  The plaintiff told the court he had instigated proceedings to recoup the unpaid cash back incentives totalling IDR 21,893,175. The plaintiff also objected to the defendant unlawfully debiting the plaintiff’s bank account for IDR 3,100,500 when the principal debt had been repaid. The defendant claimed that this debit was to cover the plaintiff’s ijarah (fee) for February 2014, in addition to a fine equal to two months’ ijarah, resulting from the plaintiff repaying the entire principal. The plaintiff, however, claimed that the debit was clearly unlawful and in contravention of arts 2(3) and 4(1)(c) of the ijarah agreement, which stated that the ijarah period concluded when the gold/items being stored and cared for by the defendant no longer constituted a surety and had been returned to the plaintiff. The plaintiff sought actual damages to the value of IDR 52,044,637, as well as compensatory damages to the value of IDR 1 billion for pain and suffering. For every day the defendant failed to pay after the seven day deadline he sought the court to enforce, the plaintiff requested that the defendant pay a one per cent fine. Moreover, if the defendant was unable to pay the damages sought by the plaintiff, the plaintiff recommended that the court order it to sell a property it owned and pay the damages from the proceeds of the sale. The plaintiff also recommended the court hand down judgment, the implementation of which could not be delayed if the defendant sought to appeal the decision.

The defendant lodged an exception to the plaintiff’s case, stating that the court was not authorised to adjudicate the case. The defendant argued that art 55 of Law No. 21 of 2008 on Shari’a Banking permits parties to specify in an agreement their preferred mode of dispute resolution, which does not have to be a religious court, that being a state court or arbitration body. It argued that the parties’ express desire, as stated in art 12 of the agreement, was to resolve any disputes relating to the agreement before the National Shari’a Arbitration Board (Badan Arbitrase Syariah Nasional – Basyarnas), if initial discussions and deliberation (musyawarah) were unsuccessful. Moreover, that any decision made by Basyarnas was first and final. The defendant also cited art 59 of Law No. 48 of 2009 on Judicial Authority, which acknowledges arbitration as a final and binding form of civil dispute resolution, based on a written agreement by the parties to the dispute. In the event one of the parties to a dispute does not abide by the ruling of the arbiter, art 59(3) enables the other party to lodge an application with the Chief Justice of the state court (Pengadilan Negeri) to compel the non-abiding party to do so. The defendant also noted that the elucidation of art 59(1) defines 'arbitration' as including shari’a arbitration.

In regards to the plaintiff’s principal claim, the defendant retorted that the plaintiff’s calculations in regards to the cash back payments were excessive. It also argued that the monthly instalments owed by the plaintiff were IDR 2,623,500 (this figure comprised IDR 1,590,000 based on the Al-Qard agreement, and IDR 1,033,500 per the ijarah agreement). The defendant asserted that the cash back arrangement derived from the Al-Qard agreement, because it would otherwise have been a violation of the current law and the agreement itself, meaning that it must be calculated based on the ijarah agreement, on the condition the plaintiff paid all repayments for the entire 60 months, without defaulting. For the plaintiff to repay the entire contract price, and then to expect to receive all cash back payments at once, was not what the parties had agreed to in the ijarah agreement. The defendant acknowledged that the plaintiff had overpaid the defendant by IDR 2,067,100 when paying out the contract price, and was happy to return the excess monies. In regards to the actual damages sought by the plaintiff, the defendant struggled to understand the plaintiff’s reasoning and calculations. More fascinating, however, was its summation of the IDR 1 billion sought in compensatory damages, which it described as a "fantastic number that fell from the sky" (nilai yang fantastis yang jatuh dari langit) that had no basis.

The court acknowledged that the parties had, in art 12 of the agreement, agreed to resolve any disputes via arbitration. It cited Surat Al-Maidah, verse 1, which encourages Muslims to uphold the agreements they make, as well as art 1338 of the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata), which requires parties to an agreement to treat that agreement as law, and art 4(1) and (2) of Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution, which permits parties to agree to arbitration as their preferred mode of dispute resolution. In regards to the Constitutional Court’s (No. 93/PUU-X/2012) decision regarding the elucidation of art 55(2) of Law No. 21 of 2008, and vesting in the religious judiciary absolute jurisdiction over shari’a banking cases, the court said it needed to consider the opinion of Prof Dr Laica Marzuki, former Supreme Court and Constitutional Court Justice, that Constitutional Court judgments have no retroactive application, but are prospectively binding. As the parties had reached their agreement on 21 August 2011, the court found that the Constitutional Court’s judgment was inapplicable and, therefore, the parties were bound by the contents of the agreement.

FirstPreviousPage 1 of of 39NextLast