The Islamisation of the English Trust: The Hibah Trust in Malaysia

Abstract

Malaysia, being a former English colony, inherited a corpus of English law which includes equity and trusts. In recent times, major banks, financial institutions, and trust companies have reimagined the English trust in combination with Islamic law, by offering an innovation called the hibah trust. This instrument represents the Islamisation of the English trust concept where the Islamic idea of the hibah, an inter vivos gift and the English trust is combined as a wealth management offering to clients. This article explores how the hibah trust works, reasons why institutions may be offering this hybrid instrument, and potential challenges to its validity both in the civil and Syariah court.

Introduction

In recent times, there has been a proliferation of scholarly work on how the concept of the trust spread from England to various parts of Asia.¹ The growth of the trust concept in Asia has been variously described as a form of ‘legal transplant’,² ‘global diffusion’³ and ‘laws’ travel’⁴ where the trust has been reconstructed, reimagined, and adapted for use in various jurisdictions in relation to a multitude of commercial and familial contexts. Malaysia, being a former English colony, has also seen the English trust concept take root since colonial days. Initially, there was the difficulty in adapting English trust law principles to accommodate local customary practices and Islamic law. In the colonial days, wealthy Chinese, Indian and Muslims merchants in Malaysia used the English trust to further the purposes of ancestor worship, funding temples and establishing awqaf.⁵ The use of English trust law presents a tension with Islamic law especially when the trust is used for the succession planning of Muslim persons. Malaysia has a parallel system of law in relation to personal laws involving Muslims and non-Muslims. In terms of inheritance, non-Muslims in Malaysia have full testamentary freedom and are governed by civil law which is similar to the English Wills Act⁶ whereas Muslim persons are subject to Islamic inheritance law as codified by State law where two-thirds of his or her estate must go to prescribed Syariah beneficiaries.⁷ Thus, if a trust is settled over much of a Muslim person's properties for certain beneficiaries leaving less than two-thirds of his or her properties to be dealt with under inheritance law, this might be said to be offensive to the spirit and intent of Islamic law.

Recently, major banks, financial institutions and trust companies have reimagined the trust and adapted the English trust in combination with Islamic law, by offering an innovation called the hibah trust, which is a hybrid between the hibah, an Islamic gift, and the English trust, as a wealth management offering to their clients. This instrument represents the Islamisation of the English trust with the incorporation of the Muslim idea of the hibah. The purpose of this article is to contribute to the literature on the proliferation of the trust in Asia by examining the reimagined trust concept in Malaysia, the hibah trust. In exploring the hibah trust, the present article seeks to shed light on the practical operation of the English trust in a foreign jurisdiction with a majority Muslim population and how the trust concept is developed and adapted by various institutional actors. The motivation for the development of the hibah trust is to accommodate a form of succession planning for Muslim persons seen to be compatible with Syariah law. A larger theme that is revealed in the development of the hibah trust is the importance which Muslims in Malaysia place on personal adherence to Muslim personal law. It is speculated that such observance stems not just from the desire to comply with the formal legal system but also the wish to follow religious, social, and cultural norms which is consistent with the growing religiosity of the Muslim population in Malaysia.

Reception of English Law in Malaysia

Due to its colonial past, Malaysia's trust law was derived from English law as modified by local legislation.⁸ Common law (which includes the law of equity and trusts) was ostensibly introduced into Penang via the First Charter of Justice in 1807 on the basis that Penang was terra nullius ie, the land of no one.⁹ But as Tun Abdul Hamid and Trakic have forcefully pointed out this assertion is almost certainly wrong; there are reliable historical documents which proves that Penang was not terra nullius at the time of the introduction First Charter of Justice in 1807 because there were organised Malay communities living there at that time.¹⁰ Hence, this initial reception of English law is based on a contested legal fiction. Be that as it may, Penang was subsequently grouped with two other states, Singapore, and Malacca, and together was known as the Straits Settlement.

The Second Charter of Justice was then introduced into the Straits Settlement in 1826.¹¹ It was couched in archaic language and did not explicitly state that English law was introduced into the Straits Settlement. The relevant part of the Second Charter of Justice read as follows: ‘And We do further give to the said Court of Judicature of Prince of Wales’ Island, Singapore and Malacca, full Power and Authority . . . to give and pass Judgment and Sentence according to Justice and Right.’¹² In other words, a new Charter was granted by the Crown which created courts in Penang (otherwise known as Prince of Wales Island at that time), Singapore and Malacca (now known as Melaka). But the Charter does not explicitly address the pressing question: What law applied in these courts? It was the interpretation of Sir Peter Benson Maxwell in the decision of Regina v Willans ¹³ in 1858 that caused English law to travel to the Straits Settlement. Maxwell R (as he then was), seized on the words ‘justice and right’ in the Charter and said that these are not abstract notions but ‘plainly a direction to decide according to the law of England.’¹⁴ This interpretation has never been seriously challenged since, and English law has been assumed to apply in the Straits Settlement. In a sense, the application of English law was a foregone conclusion – one could have hardly expected English judges sitting in colonial courts to have discarded their English law training.

In Malaya, the reception of English law was a matter of accepted judicial practice until formal recognition occurred in 1937.¹⁵ In 1937, a statute called the Civil Enactment Act was passed which provided that the common law of England and rules of equity as administered in England at that time were applicable in the Federal Malay States subject to modification by local legislation and local circumstances as necessary. Subsequently, the Civil Enactment Act was repealed and replaced with the Civil Law Ordinance in 1956 which provided for the reception of the common law and rules of equity as administered in England in 1956. In relation to Sarawak and North Borneo (now Sabah), the Laws of Sarawak Ordinance 1928 and Civil Ordinance 1928 formally acknowledged the introduction of English law into these respective states with the necessary regard to native customs and local conditions.

The Hibah Trust in Malaysia

In the colonial days, wealthy Chinese, Indian and Muslim merchants in the Straits Settlement used English trust law to further purposes such as ancestor worship,¹⁶ burial grounds,¹⁷ temples,¹⁸ Muslim religious ceremonies¹⁹ and establishing awqaf.²⁰ The story of the use of the trust during the colonial days in Penang mirrors the early use of the trust in Singapore.²¹ In terms of the practice of Chinese ancestral worship, it is unheard of these days for persons to dedicate real estate or substantial funds for this purpose. Hence, such trusts have lost modern significance. Awqaf have also not been subject to frequent disputes in the civil courts. Nowadays, awqaf are usually regarded as a matter of State law and falls within the Syariah court's jurisdiction.²² Therefore, the complex interplay between Islamic waqf principles and English trust law has not been ventilated in the Malaysian courts in recent times.²³

More recently, banks, trust companies and other major institutions in Malaysia have begun offering an instrument called the hibah trust to their clients as a wealth management and succession planning vehicle. The hibah trust appears to be a sui generis instrument not found anywhere else in the Commonwealth. Essentially, it is a hybrid between the hibah, an Islamic gift, and the common law trust. The present article explores several questions which arise from the development of the hibah trust: How does the hibah trust work? Why are these institutions offering a hibah trust? How different is the hibah trust from the common law trust? Another theme which will be explored in this article is this: is the hibah trust susceptible to legal challenge? Finally, the present author considers the reasons why banks and institutions are marketing the hibah trust to their clients instead of offering them the English trust.

How Does the Hibah Trust Work?

Hibah trusts or the hibah amanah (‘amanah’ means ‘trust’ in Malay) or hibah takaful (takaful is a form of Islamic insurance) have become increasingly popular in Islamic estate management following its introduction in 2013 by Permodalan Nasional Berhad, a major Malaysian fund management company via Amanah Saham Nasional Berhad.²⁴ Major organisations offering the hibah trust include banks like Maybank and CIMB, and Tabung Haji, the Malaysian hajj pilgrims board.²⁵ Other hibah trust products have also been introduced in Malaysia by trust companies such as Amanah Raya Berhad.²⁶ As will be explained below, the flexible structure of the hibah trusts makes it particularly attractive as a wealth planning instrument.²⁷

In order to understand the hibah trust, one must first unpack the concept of the hibah. ‘Hibah’ is derived from the Arabic root word, ‘wahaba’, which means to (unilaterally) express a benefit to others during one's lifetime without any expectation of the possibility of return.²⁸ Many academics have referred to hibah synonymously with an inter vivos gift²⁹ which suggests that hibah is the English law equivalent of a gift. Only a person who has perfect title (milk al-tam) over the intended hibah property is allowed by Islamic law to execute the hibah.³⁰ As an instrument of wealth management, the hibah is particularly useful as, unlike a testamentary bequest (wasiyyah), the hibah can be used to transfer a person's property to the extent of even excluding the donor's other legal Muslim heirs.³¹ This is because, traditionally, a hibah is executed during the lifetime of the donor.³²

Once a hibah is executed, the hibah property is no longer part of the donor's estate – upon his or her death, it will not be administered according to fara'id principles (Muslim inheritance law).³³ Thus, since a hibah can comprise the donor's entire estate, a hibah empowers the donor to decide for themselves who his or her property should be gifted to and in what proportion,³⁴ unlike a testator under Muslim law. In contrast, the wasiyyah instrument (ie, a will) only permits the testator to bequeath up to one-third of his or her estate with the rest of the estate going to prescribed fara'id beneficiaries. The major drawback to using the hibah is that the donor would have to relinquish the property during his or her lifetime. Understandably, donors may be reluctant to surrender all or part of their property during their lifetimes out of concerns that they may be neglected or abandoned by the hibah donees after the property is distributed.³⁵ Such concerns have contributed to the development of the hibah trust which ostensibly gives the donor control over the property during his or her lifetime while taking it out from the donor's estate upon his or her death.³⁶

The legal characterisation of a hibah trust appears to be a hybrid of a Muslim gift and the English conception of a trust. The steps involved in executing a hibah trust are:³⁷

• Step 1: The donor settlor offers to transfer the hibah assets to the donee beneficiary without any consideration or expectation of return (ījāb). The donee beneficiary must accept this offer (qabūl).

• Step 2: The terms of the hibah as agreed upon between the donor and donee(s) are recorded in the Trust Deed, which also outlines the duties and responsibilities of the trustee(s). The Trust Deed also includes the donee's consent to the donor using and enjoying the benefits of the hibah assets during his or her lifetime.

• Step 3: The donor ceases legal ownership over the hibah assets and transfers the assets to a trustee he or she appoints. This trustee will manage and administer the hibah assets as stated in the Trust Deed.

• Step 4: During the donor's lifetime, the trustee manages and administers the hibah assets, pursuant to the Trust Deed.

• Step 5: Upon the donor's demise (or following a period specified by the Trust Deed), the trustee will distribute and transfer legal ownership of the hibah assets to the donees, pursuant to the Trust Deed.

Thus, a hibah trust involves a Muslim gift, ie, the hibah from the donor to the beneficiaries declared during his or her lifetime. However, the assets constituting the gift do not vest directly with the beneficiaries. Instead, the assets will be held on trust by an appointed trustee and subsequently transferred to the beneficiaries pursuant to the trust deed following the donor's death.³⁸ Therefore, a hibah trust appears to be a combination of both the common law trust and Islamic hibah.³⁹ The resultant effect of hibah trust is the Islamisation of the equitable concept of the trust where Syariah law principles are expressly incorporated.

Another interesting characterisation of the hibah trust is that it is an innovative attempt to revive the waqf ahli in Malaysia albeit through another name.⁴⁰ The waqf ahli is a form of waqf which may be used to benefit family members which functions like a form of family endowment. According to Gaudiosi, a ‘waqf ahli would ultimately devolve to a charitable purpose’ though not until it has benefited some generations of the family.⁴¹ Due to the fact that the waqf was viewed as charitable in nature, the Privy Council have interpreted the waqf ahli as void because it offends the rule that a charitable trust must be wholly charitable and not confer a private benefit on the settlor's family.⁴² Unsurprisingly, the waqf ahli has not been widely used in Malaysia.

Why Are Institutions Offering the Hibah Trust?

The stated reason for the introduction of the hibah trust in the literature is the problem of unclaimed estates in Malaysia.⁴³ Noordin et al reports that as of March 2016, estates of deceased people worth an estimated of RM 60 billion have not been claimed by their eligible heirs, of which it is believed that a substantial portion belong to Muslim estates.⁴⁴ It is speculated that the main factor which explains the magnitude of the phenomenon of unclaimed estate is that the management of Muslim estate is ‘perceived to be complex, inconvenient, tedious and expensive’.⁴⁵ Prolonged inheritance disputes and Muslim heirs who cannot be located contribute to the delay in the distribution of Muslim estates. Furthermore, the cost of distributing the estate is expensive. All these reasons are said to cause many estates to be unclaimed. Unsurprisingly, the wealth management industry has capitalised on this by offering the hibah trust which promises to be an efficient means of distributing the clients’ property upon his or her death without having to undergo an expensive and complicated court process. This is not a unique trend because one of the drivers to people settling a common law trust is to get around a complex and cumbersome probate process.

Quite apart from getting around potential complications arising from navigating the court process upon death, the hibah trust offers some attractive features from the wealth and succession planning perspective. There appears to be three principal uses of a hibah trust. First, it functions as a will substitute in relation to unit trusts, hajj funds and bank accounts. Certainly, this is how the hibah trust functions in relation to Amanah Saham Nasional Berhad unit trusts, Tabung Haji hajj funds and bank accounts. The donor would nominate the donee as the recipient of the funds upon his or her demise pursuant to a hibah trust. When the donor passes away, the funds will then be paid to the donee. Second, the hibah trust is used with a Muslim insurance known as takaful. This is sometimes known as a hibah takaful trust. Used in this way, the settlor will declare a hibah trust naming a bank or trust company as the trustee; the settlor will also purchase a takaful and service the premium. The takaful policy would be assigned to the trustees. Once the settlor passes away, the takaful policy pay-out will be managed by the trustees for the beneficiaries of the hibah trust. Such hibah takaful trusts are offered as solutions for maintenance of children, persons with special needs,⁴⁶ elderly parents, adult spendthrift off springs and furthering of philanthropic purposes. Third, the hibah trust involves the declaration of a portion of the settlor's assets to be held on trust for certain beneficiaries. However, the hibah trust specifically reserves the donor's right to use the property during his or her lifetime while taking the asset in question out of the donor's estate upon his or her death. This allows the donor to either enlarge the shares a person may benefit under Islamic inheritance law or to benefit someone who is not entitled to inherit property under Muslim law.

From a wealth planning viewpoint, a hibah trust enables the donor to achieve several objectives. First, a settlor/donor executing a hibah trust is not restricted by fara'id distribution principles while retaining the use of the property during his or her lifetime. In other words, when the settlor/donor executes a hibah trust he or she is not restricted by the fara'id rule that a testator may only dispose 1/3^rd of his or her assets by way of a will.⁴⁷ Thus, the hibah trust effectively grants the settlor/donor full testamentary freedom while enjoying the use of the assets during his or her lifetime by reason of the beneficiaries giving their consent to the hibah assets being used by the donor. The upshot of this is that the hibah trust is more advantageous as compared to an outright inter vivos gift since the hibah assets is taken out of the Muslim person's estate while reserving use and enjoyment of the assets for the donor during the donor's lifetime. Second, the hibah trust may be used to give assets to non-Muslim donees,⁴⁸ something which not possible pursuant to testamentary dispositions under fara'id principles.⁴⁹ The use of the hibah trust might cater to Muslim converts (muallaf) who wish to benefit their non-Muslim family.⁵⁰ Due to the fact that hibah trust is ostensibly not restricted by the 1/3^rd rule, the use of hibah trusts has been criticised as a potential tool to ‘neglect one's obligations to creditors and avoid fara'id.’⁵¹ In fact, Noordin et al have advocated for the hibah trust to be structured as per fara'id rules and that settlors/donors ought to nominate two-third of the beneficiaries of a hibah trust to legal heirs under fara'id in the spirit of protecting rightful Muslim heirs.

Comparing the Hibah Trust with the Irrevocable English Discretionary Trust

This section compares the hibah trust with the irrevocable English discretionary trust and explores the question whether the same objectives sought under the hibah trust could be achieved via the use of an English trust. The comparison does not involve hibah trusts in relation to unit trusts, hajj funds and bank accounts which essentially function as a form of will substitute. Instead, the comparison in this section involves a declaration of a hibah trust over a portion of the settlor's assets or a takaful policy that is assigned to the trustee. Noordin et al have compared the hibah trust with a revocable living trust and suggested that there are some differences between the hibah trust and living trust.⁵² According to the learned authors, the principal difference lies in the revocability of the living trust as compared to the hibah trust which is irrevocable. With respect, it is suggested that it is not meaningful to compare the revocable living trust with the hibah trust because the revocable living trust is used pre-dominantly in the United States for estate planning purposes for a variety of perceived reasons⁵³ and not elsewhere in the Commonwealth. Instead, it may be more meaningful to compare the hibah trust with the irrevocable discretionary trust which is more commonly used in other Commonwealth jurisdictions.

Upon closer scrutiny, it is suggested that almost all the central features of the hibah trust may be replicated with the standard irrevocable English discretionary trust commonly used in many Commonwealth jurisdictions. The common features of a standard discretionary trust⁵⁴ used in modern wealth management are as follows:

1. (i) The beneficiaries of the trust are not fixed from the very start. Instead, there is a list of potential beneficiaries;

2. (ii) The trustee is given a very wide power of appointment as to who should enjoy the capital and income of the trust. There is usually no mandatory direction to exhaust the trust fund during the trust period;

3. (iii) The trustee is given a power to appoint new beneficiaries or to exclude current persons in the potential list of beneficiaries. Drafted in this form, the settlor might even be a potential beneficiary through an exercise of the trustee's discretion;⁵⁵

4. (iv) If the trustee does not exhaust the trust fund during the trust period, the property will go to default or residuary beneficiaries. It is often made clear that the trustee does not have to consider the interests of the default or residuary beneficiaries in exercising the trustee's power of appointment;

5. (v) There may or may not be an excluded list depending on settlor's familial circumstances – eg, the presence of an estranged spouse or children;

6. (vi) The settlor will issue a letter of wishes to the trustee. The letter of wishes is usually drafted as a non-binding expression of wishes. Over time, fresh letters of wishes may be issued;

7. (vii) The trust is usually used in connection with a company vehicle. Typically, the trust will hold 100% of the shares in a company. Assets will be injected in the company and the settlor or settlor's family members may be named as directors of the company. In some cases, there might be two layers of companies in this structure, ie, the trust will hold 100% of the shares in a holding company which in turn holds the shares of the company that controls the assets. The trust deed would usually state that the trustee is not obligated to interfere with the affairs of the company;⁵⁶

8. (viii) The investment powers of the trust may in some cases be reserved by the settlor; and

9. (ix) The trust might include a protector or a committee of protectors – ie, a third party who will have a role in the administration of the trust.

Therefore, a standard English discretionary trust especially one which is structured with a settlor's reserved power of investment and an appropriate letter of wishes stating that the settlor is the primary beneficiary during his or her lifetime plus specific stipulations of the manner of distribution upon the settlor's demise should achieve the same effect as a hibah trust. In both structures, the settlor is able to continue to enjoy the benefit of the assets during his or her lifetime with distribution only happening upon death. The fact that the English discretionary trust may achieve the same objectives as a hibah trust then raises the next question: why is the hibah trust offered in Malaysia even though the irrevocable English discretionary trust is able to achieve the same result? It is to this question that the next section turns.

The Hibah Trust: Institutional Actors Catering to Growing Religiosity

Given that the irrevocable English discretionary trust could achieve the same effect as the hibah trust, this raises the question of why the hibah trust is offered as a form of wealth management vehicle in Malaysia. It is speculated that the main reason to explain this phenomenon is the growing religiosity of certain segments of the Malay Muslim population where ‘religious and ethnic identity are perceived as inextricably intertwined’.⁵⁷ With the growing religiosity amongst Muslims, it is unsurprisingly that there is the corresponding desire to abide by Muslim principles especially in the area of succession planning. Certainly, this is a trend which is witnessed in terms of Islamic banking in Malaysia where there is empirical evidence that consumers are motivated by religious considerations when choosing Islamic financial products.⁵⁸ I am aware that this stated reason for the introduction of the hibah trust could be criticised as oxymoronic; if the Malay-Muslim population is indeed becoming increasingly religious, then it could be argued that they would be more inclined to follow Syariah inheritance laws instead of attempting to circumvent the same by using the hibah trust. But I believe that there is no contradiction here. The fact of the matter is this: the hibah trust is marketed by various institutional actors, with edicts from Muslim experts engaged by these institutional actors, as a Syariah compliant instrument of succession planning. In other words, in the eyes of the lay consumer what they are doing when using the hibah trust is perfectly acceptable under Islamic law. However, this line of reasoning may not be viewed as legitimate in the context of the use of an English discretionary trust which avoids the application of Muslim inheritance law. On the part of the settlor, there may be lingering uncertainty and unease that even though the English discretionary trust may technically take the assets out of a Muslim person's estate, this is ultimately a breach of Syariah law. On one view, an English trust is not inconsistent with Muslim law since there is a historical argument that the English trust was developed from the waqf.⁵⁹ According to this interpretation, the discretionary trust is seen as an inter-vivos gift and perfectly compatible with Islamic principles. As opposed to this, it is possible for a settlor to settle all his or her property during his or her lifetime to a discretionary trust leaving nothing for the fara'id beneficiaries. In this context, there is the prospect of an English discretionary trust being declared as ultimately being in breach of Syariah law. Thus, religious motivations explain why the hibah trust is offered instead of the English discretionary trust.⁶⁰

Looking at Malaysia on macro level, it is unsurprising to see the hibah trust being offered as a succession planning instrument instead of the English discretionary trust in this context. Public law scholars working on Malaysia have long written about the rise of an Islamic constitutional order with Professor Yvonne Tew terming this as a form of stealth theocracy. Tew writes that what was happening in Malaysia involves:

‘transformation towards a more religious constitutional order occurs informally through the engagement of judicial and political actors, rather than through formal mechanisms of constitutional modification like amendment or replacement of the constitutional text’.⁶¹

Given that such a profound shift is happening within the broader Malaysian political-legal context, it is entirely predictable that a similar phenomenon is occurring in the sphere of private law. In other words, the organisations offering the hibah trust are institutional actors contributing towards a more Islamic centric succession planning among the Muslim population. This drive towards using Islamic tools in terms of wealth management is also motivated by a corresponding demand from the consumers due to growing religiosity amongst Muslims in Malaysia. However, in terms of absolute numbers, it is not clear whether many hibah trusts have been set up. In a study published in 2016 involving Melaka, a state in Malaysia, a trust company is reported to have settled a total of only four hibah trusts in 2013 and 2014 whereas in 2015 there was no hibah trust set up.⁶² However, this study is not conclusive about the popularity of the hibah trust because it does not include the capital city, Kuala Lumpur, where the population is more affluent and involves only one trust company and not the major bank trustees in Malaysia.

Jurisdictional Uncertainty: Civil or Syariah Court for Hibah Trust Disputes?

Since the hibah trust is a hybrid concept, it raises difficult issues of conflict of personal laws between the jurisdiction of the civil and Syariah court should there be a court challenge. Because the hibah trust involves an amalgamation of a Muslim gift and the English trust concept, it is not clear whether a dispute centred around a hibah trust is subject to the jurisdiction of the civil or Syariah court. The jurisdiction question is significant because presumably the Syariah court will be hostile to the hibah trust if it offends the 1/3^rd rule in Islamic inheritance. Hence, the jurisdictional battle if a hibah trust is challenged, becomes of paramount significance, and may likely determine the outcome of the challenge. Presumably, if the Syariah court assumes jurisdiction, the hibah trust will be more likely to be declared offensive to fara'id principles if it deprives the beneficiaries of Muslim inheritance law.

To determine this jurisdictional question of whether the proper forum is the civil or Syariah court engages a tricky interpretation of the Malaysian Constitution and State court legislation. In 1988, the federal legislature amended the Constitution by inserting Article 121(1A) which provides that the High Court ‘shall have no jurisdiction in respect of any matter within the jurisdiction of the Syariah courts’. Hence, decisions of the Syariah courts are not subject to appeal in the civil courts. The existence of Syariah courts is created by laws legislated by State Assemblies. Specifically, Article 74 of the Federal Constitution of Malaysia provides that a State legislature may make laws with respect to any matters enumerated in the State List. Item 1, List II, the Ninth Schedule of the Federal Constitution of Malaysia provides as follows:

Except with respect to the Federal Territories of Kuala Lumpur and Labuan, Islamic law and personal and family law of persons professing the religion of Islam, including the Islamic law relating to succession, testate and intestate, betrothal, marriage, divorce, dower, maintenance, adoption, legitimacy guardianship, gifts, partitions and non-charitable trusts; Wakafs and the definition and regulation of charitable and religious endowments, institutions, trusts, charities and charitable institutions operating wholly within the State; Malay customs. Zakat, Fitrah and Baitulmal or similar Islamic religious revenue, mosques or any Islamic public places of worship, creation and punishment of offences by persons professing the religion of Islam against precepts of that religion, except in regard to matters included in the Federal List; the constitution, organisation and procedure of Syariah courts, which shall have jurisdiction only over person professing the religion of Islam and in respect only of any of the matters included in this paragraph, but shall not have jurisdiction in respect of offences except in so fat as conferred by federal law, the control of propagating doctrines and beliefs among persons professing the religion of Islam; the determination of matters of Islamic law and doctrine Malay custom.

Thus, a State is empowered to enact its own version of Muslim law and establish Syariah courts to adjudicate disputes arising from the State's Islamic laws.⁶³ Since a gift is mentioned in the Federal Constitution there is a strong argument that the hibah falls under the jurisdiction of the Syariah courts. Be that as it may, there is uncertainty whether a hibah trust falls within the jurisdiction of the civil courts or the Syariah courts since the hibah trust is not specifically mentioned in the Federal Constitution.

Another view is that the hibah trust is an instrument offered by Islamic finance providers pursuant to the Islamic Banking Act and the civil courts would have jurisdiction to hear any disputes on the hibah trust.⁶⁴ There is Malaysian jurisprudence which states that the civil courts have the jurisdiction to hear a claim based on an Islamic financial instrument.⁶⁵ Under the Islamic Banking Act, the civil courts would have guidance from the Shariah Advisory Council on matters of Syariah law.

Surprisingly, there does not seem to be any reported case law on the jurisdiction issue in relation to the hibah trust. However, there is case law on the hibah. In Latifah Mat Zin v Rosmawati Sharibun ⁶⁶ the Federal Court held that the law relating to the hibah is within the jurisdiction of the Syariah court. This case involved monies held in a joint bank account between the late Dato Sharibun and his third wife. Upon Dato Sharibun's death, his daughters by his second wife filed a petition for a Letter of Administration of his estate and included the monies in the joint bank account as part of the deceased's estate. This would mean that the money in the joint bank account would be subject to Muslim inheritance law. The third wife disputed this and asserted that the monies were not part of the estate but constituted an inter vivos gift by Dato Sharibun to her. Parties agreed that the issue of the inter vivos gift meant that the proper legal characterisation was whether a hibah was intended by the deceased. Abdul Hamid Mohamad FCJ (delivering the judgment of the Federal Court) held:

where a question arises as to whether a specific property forms part of the assets of an estate of a deceased person who is a Muslim in a petition for a letter of administration in the civil High Court, the answer to which depends on whether there was a gift inter vivos or not, that question shall be determined in accordance with the Islamic Law of gift inter vivos or “hibah”. The determination of that issue and the beneficiary or beneficiaries entitled to it and in what proportion, if relevant, is within the jurisdiction of the syariah court and the civil court shall give effect to it in the grant of a letter of administration, and subsequently, in distributing the estate.⁶⁷

However, a hibah trust is not a classic hibah – it is a combination of both the Islamic hibah and English trust. Accordingly, the case of Latifah Mat Zin v Rosmawati Sharibun does not conclusively determine the issue although it does indicate that a future court might be inclined to hold that a hibah trust falls within the jurisdiction of Syariah court. This is consistent with the trend observed in recent Malaysian jurisprudence where the civil court has shown jurisdictional deference to the Syariah court in matters that could potentially traverse both the civil and Islamic courts.⁶⁸ If such jurisdictional deference is also followed in private law, then it is likely that the civil court would hold that the Syariah court would have jurisdiction over a hibah trust.

Although a hibah is not mentioned explicitly in the Federal Constitution of Malaysia, there is a strong argument that under the current positive law it falls within the Syariah court's jurisdiction. Article 74 in Item 4, List II of the Ninth Schedule of the Federal Constitution of Malaysia provides that ‘Islamic law relating to … testate or intestate … gifts’ is within the jurisdiction of the Syariah court. Hence, depending on the state law in question, it is strongly arguable that matters of Islamic law relating to gifts fall within the Syariah's court jurisdiction and is not within the civil courts’ purview.⁶⁹ As a matter of statutory interpretation, it may be argued that the phrase ‘Islamic law relating to … gifts’ must be a reference to the hibah. Some Malaysian scholars have similarly taken the position that hibah falls under the Islamic religious administration which directly engages the jurisdiction of the Syariah court.⁷⁰ An example of State legislation conferring the Syariah court power over matters relating to hibah is section 46(2) of the Administration of Islamic Law (Federal Territories) Act 1993 which states that ‘[a] Syariah Court shall … in its civil jurisdiction, hear and determine all actions and proceedings in which all the parties are Muslim and which relate to: … gift inter vivos, or settlement made without adequate consideration in money or money's worth, by a Muslim.’⁷¹ Under this State legislation, it seems clear that the Syariah court is conferred jurisdiction to hear inter vivos gifts between Muslim persons. If a hibah falls within the jurisdiction of the Syariah court, it follows that there is therefore a strong argument that a hibah trust which seeks to incorporate Muslim law principles would similarly fall within the jurisdiction of the Syariah court and be subject to fara'id principles. This provision is also interesting in that the jurisdiction is assumed only when all parties are Muslim. Thus, if a hibah trust purports to be in favour of non-Muslim beneficiaries, presumably that under this legislation, the Syariah court will have no jurisdiction to hear the matter. No doubt these tricky conflict of personal law issues will be played out in the courts as it is likely that there will be challenges on the validity of the hibah trust from disappointed Muslim heirs both in the Syariah and civil courts.

The Civil Court's Jurisprudence on Trusts and Muslim persons

Even if this matter was decided in the civil court, it is far from clear whether a civil court will hold that a hibah trust is purely an inter vivos gift and does not engage Muslim inheritance law. While there is no case law on the hibah trust, there is jurisprudence in Malaysia that suggests an express inter vivos trust is not subject to fara'id distribution. In Re Man bin Mihat,⁷² the deceased took out an insurance policy for $40,000 to be paid, either at the end of 25 years from the commencement of the assurance or upon his death, to himself or to who he assigns. The deceased named his wife as the beneficiary in the policy and also executed an instrument assigning the policy to his wife. Both the deceased and his wife were Muslims and, therefore, the question arose as to whether the $40,000 was held on trust for his wife or the money belonged to the deceased's estate. In accordance with section 23(1) of the 1956 Civil Law Ordinance,⁷³ Suffian J (as he then was) held that the $40,000 insurance pay out was held on trust for his wife and not subject to fara'id distribution. The learned judge analogised the trust over the insurance policy to a trust over land as follows:

Indeed it is quite common for a Muslim to buy land for his minor children and have himself registered in the land office records as trustee, though the effect would be to augment the share received by those children in his property after his death. During his lifetime the land is trust property and his death does not alter its character, for thereafter the land remains trust property and his administrator holds it for the purpose of the trust.

Thus, Re Man bin Mihat stands for the proposition that property held on an inter vivos fixed trust does not form part of the deceased's estate and is not subject to fara'id distribution principles. The lingering difficulty is whether the same holding would apply to the hibah trust.

Another important case in analysing the difficult question of the conflict between Muslim personal laws and trust law is TM Feroze Khan v Meera Hussain TM Mohamed Mydin (‘TM Feroze’).⁷⁴ In this case, the deceased, a Muslim, transferred land to himself to hold on trust for the defendant (the then-8-year-old son of the deceased). This transfer was registered at the Land Registry and the deceased executed a trust deed declaring himself to be a trustee holding the property on trust for the defendant. During the deceased's lifetime, there was no transfer of the legal title of the land to the defendant nor did the defendant take physical possession of the land. Following the deceased's death, the defendant obtained an ex parte order to vest the land in his own name and so registered the property in his name. The plaintiffs, comprising the other children of the deceased, challenged this, and argued that the purported gift of the property was null and void under Islamic law as physical possession and legal title of the property did not pass to the defendant during the deceased's lifetime (per the requirements of a hibah). Instead, the plaintiffs submitted that the property formed part of the deceased's estate to be distributed under the terms of fara'id (to be shared amongst the deceased's heirs). Therefore, two issues arose in this case. First, what was the proper characterisation of the issue – was this a land law case or a situation where Islamic personal law is engaged? And if this was an issue of Islamic law, whether the trust was offensive under Muslim law? In TM Feroze, Nik Hashim JCA (delivering the judgment of the Putrajaya Court of Appeal) characterised this matter as an issue of land law and not Muslim personal law reasoning as follows:

… in the instant case, the applicability of Islamic law is subject to the civil law which are applicable to all irrespective of whether the parties are Muslims and non-Muslims. And here there are no preserving rules of Islamic law in the applicable land law and the law of trust that govern this case.⁷⁵

Hence, the plaintiffs’ argument was rejected, and the Court of Appeal upheld the High Court's decision in favour of the defendant.

This decision is fascinating because Nik Hashim JCA went on to discuss Islamic law in relation to gifts and purportedly interpreted the trust via the lens of Muslim jurisprudence. He said that under Islamic law, a man may lawfully make a gift of his property during his lifetime provided the following three conditions are fulfilled: (i) a manifestation of the wish of the donor to give; (ii) the acceptance of the donee either impliedly or expressly; and (iii) the taking possession of the subject matter of the gift by the donee, either actually or constructively. While the Court of Appeal in TM Feroze recognised that, under Islamic law, delivery of possession is ‘an essential element to constitute a complete gift’,⁷⁶ the court chose to interpret this requirement broadly such that the only requirement to complete the gift was a bona fide intention to give in the context of a gift from a father to his minor son. As the deceased in TM Feroze had transferred the property to himself as trustee for his son, Nik Hashim JCA held that there was a transfer of legal possession of the property to the son. The learned judge said this was the only means of effecting transfer under Malaysia's National Land Code. Hence, the deceased's bona fide intention to give the property to the defendant was ‘manifestly clear and unequivocal’. Thus, TM Feroze stands for the proposition that a fixed inter vivos express trust of land in favour of a beneficiary is not subject to Muslim inheritance law.

It may be argued that since Re Man bin Mihat and TM Feroze stand for the proposition that an inter vivos trust is not subject to Islamic inheritance law, a hibah trust is similarly not subject to fara'id principles. This characterisation is controversial because both Re Man bin Mihat and TM Feroze involved a fixed trust where the beneficiary was a third party and not a hibah trust. Under an express fixed trust, a beneficiary with full mental capacity who has reached the age of majority may demand the trustee convey legal title to the beneficiary.⁷⁷ However, a hibah trust pre-supposes the settlor/donor retaining use of the property prior to his or her death by way of a contract between the donor and the donee. This retention of interest coupled with the fact that property would only be transferred to the donee upon the donor's death makes the hibah trust vulnerable to challenge by disappointed fara'id beneficiaries. This is particularly so given its potentially controversial nature and the lack of any statutory provisions in relation to the hibah trust.⁷⁸

In conclusion, the position in relation to the hibah trust remains uncertain and a challenge may come from either the civil or Syariah court challenging the validity of the hibah trust. Looking at the Federal Constitution of Malaysia and State legislation, it is likely that for States where the legislation is clear, the Syariah court would assume jurisdiction over the hibah trust where all parties are Muslims. The situation where the beneficiaries are non-Muslims remain uncertain. With regard to the civil court's jurisprudence on the hibah trust, the position is ambiguous whether the civil court would uphold the hibah trust as an inter vivos gift which does not engage Muslim inheritance law. While there is case law involving an express inter vivos fixed trust where the beneficiary is a third party, there has not been any authorities deciding on the proper jurisdiction of hibah trust disputes where the settlor retains an interest during his or her lifetime. Given this uncertainty in relation to the jurisdictional question, it is interesting that major banks, trust companies and institutions are offering the hibah trust as a wealth management offering to their clients.

Potential Challenge to the Hibah Trust in the Syariah Courts

There appears to be numerous challenges to the hibah in the Syariah court. In a study published in 2016 involving Melaka, a state in Malaysia, it was reported that there were 12 challenges in 2013, 22 challenges in 2014 and 31 challenges in 2015 in the Syariah court.⁷⁹ It is not clear how many of these challenges were in relation to the hibah trust. The present author has conducted a search on a paid database which contains the decisions from the Syariah court and did not find any decisions on the hibah trust.⁸⁰ While there are numerous judgments on various aspects of the hibah, there were no specific court decision on the hibah trust which retains the use of the asset for the benefit of the settlor during the settlor's lifetime. The Syariah case law accepts that a valid hibah takes the assets out of the deceased's estate⁸¹ and many of the judgments are about whether the elements of a hibah had been fulfilled.⁸² Several explanations may explain the lack of court challenges in relation to a hibah trust. First, the hibah trust is a relatively new instrument and many settlors have not passed away. Therefore, potential challenges have not been filed. Second, it could be the hibah trust is in fact not a popular instrument of succession planning which explains the lack of court decisions. And finally, it could be that even if there was unhappiness in relation to the hibah trust, disgruntled legatees either do not take out formal court challenges or prefer to settle matters out of court. Without the benefit of a court decision on the hibah trust, the following issues remain live questions: (a) whether the hibah trust is void if it deprives beneficiaries of a Muslim's estate under Islamic inheritance law? and (b) whether a hibah trust which retains the use of the asset for the benefit of the settlor is considered to be a valid hibah under Islamic law?

Conclusion

This article has explored the Islamisation of the English trust via the hibah trust in Malaysia which incorporates English trust principles with the hibah. The hibah trust demonstrates the incredible versatility of the trust instrument which could be reimagined as a hybrid instrument involving Islamic principles to cater to a Muslim population from the perspective of succession planning. As demonstrated in this article, the hibah trust was introduced by various institutional actors to accommodate a form of succession planning for Muslim persons seen to be compatible with Syariah law. A larger theme that is revealed in the development of the hibah trust is the importance which Muslim persons in Malaysia place on personal adherence to Muslim personal law due to growing religiosity. Even though the hibah trust is being offered by major institutions like banks and trust companies, uncertainty remains as whether the civil or Syariah court have the jurisdiction to hear disputes on the hibah trust. If the proper jurisdiction to hear these matters is the Syariah court, there is also uncertainty whether the hibah trust would be upheld if it deprives Muslim legatees under Islamic inheritance law.