Impact of Contingent Incidents on Commitments - Scope of Standard

Transcription

1. Shari ’ah Standard No. (36): Impact of Contingent Incidents on Commitments Statement of the Standard 1. Scope of the Standard This Standard covers the contingent incidents encountered in honoring the commitments that stem from application of Islamic modes of financing and investment by Islamic financial institutions (Institution/ Institutions).(1) It also covers the effects of such incidents on commitments. The Standard, however, does not cover defects of will or the conducts that result from mutual consent of the two parties. 2. Definition of Contingent Incidents Contingent incidents in this standard refer to those incidents which occur suddenly and cause significant influence on commitments that are properly stipulated. Therefore, contingent incidents are different from defects of will, which exist since the time of signing the contract, although their impact occurs later on. Contingent incidents are also different from termination of commitments on mutual consent of the two parties or as per the desire of any of them; when a party is entitled to such right by virtue of the contract. 3. Types of Contingent Incidents From the standpoint of its influence, a contingent incident can be either of the type that necessitates amendments in the contract, or the type which constitutes an external reason for termination of the contract. 4. Contingencies Leading to Amendment of the Contract The impact of such contingencies is confined to necessitating amendments in the contract rather than leading to its complete termination. Practical examples of such contingencies include the following among others: (1) The word (Institution/Institutions) is used here to refer, in short, to Islamic financial institutions including Islamic Banks. 910
2. Shari ’ah Standard No. (36): Impact of Contingent Incidents on Commitments 4/1 Levy of custom duties or taxes after signing the contract. Such incident affects the commitment of the party who has to bear the new obligations by virtue of law or as per the stipulations of the contract. 4/2 Change in the prices of the commodities used in implementation of a contract in a way that subjects the contractor to serious harm. Actual harm in this case can be removed through reconciliation, arbitration or legal arrangements. 4/3 Prevention of importation of the goods to be delivered in fulfillment of a Murabahah or Ijarah contract. The actual harm caused to the client or the Institution can, in this case, be removed by resort to reconciliation, arbitration or law. 4/4 Change in laws leading to more financial commitments to be borne by one of the two parties. Determination of the party who shall bear the additional burden can be reached by resort to law or as per the stipulations of the contract. 5. Contingencies Which Constitute External Reasons for Termination of the Contract This type of contingencies leads to termination of commitments without intervention of any of the two parties. Bearing of the consequences in this case is to be assigned to the competent party, as when an owner has to bear the consequences relating to what he owns. Examples of such contingencies include, among others: 5/1 When delivery becomes impossible or useless In this case the fulfillment of the commitment becomes impossible or of no use; as when the commitment to supply the requirements of a conference could not be fulfilled before holding the conference. In such case the commitment shall become null and void if: 5/1/1 Failure to honor the commitment is absolutely inevitable. 5/1/2 Failure to honor the commitment originates from objective rather than personal reasons. 5/1/3 Failure to honor the commitment is caused by an external party. 911
3. Shari ’ah Standard No. (36): Impact of Contingent Incidents on Commitments 5/2 Total or partial damage of the object of commitment If the object of commitment is damaged before being delivered to the committing party, the loss should be borne by the committed party. Similarly, when the commitment object is completely damaged due to an act of the committing party, that party should bear the loss. In case of partial damage of the object of commitment before actual or legal delivery to the committing party, and if the damage is caused by a heavenly factor (Sabab Samawi) which the committed partly can by no means avoid, the committing party should have the right of option. 5/3 Entitlement to the object of commitment If the object of commitment turned out to be owned by someone else other the committed party, the committing party becomes entitled to compensation. If the object of commitment is partly owned by someone else the commitment in that part becomes null and void, and the committing party shall have the right of option with regard to accepting or declining the remaining part of the commitment object. The committing party may choose to accept the remaining part as part of his compensation or he may terminate the contract due to fragmentation of delivery. 5/4 Termination of commitment due to excuses When the emergence of an incidental excuse in Ijarah leads to abnormal harm, the harmed party has the right to terminate the contract. The party who encounters the incident may also terminate the contract if his excuse is obvious. If acceptability of the excuse is doubtful the issue may be resolved by mutual agreement, or resort to law. [see Shari’ah Standard No. (9) on Ijarah or Ijarah Muntahiah Bittamleek; and Shari’ah Standard No. (34) on Hiring of Persons] 5/5 Jawa`ih (calamities) The term Jawa`ih refers to any incident (other than human acts) which cannot be avoided even if known. The effects of such incidents are – originally - noticeable in selling of fruits and other agricultural products, where the occurrence of an incident of this type leads to discounting the 912
4. Shari ’ah Standard No. (36): Impact of Contingent Incidents on Commitments price in proportion to the damage in the product. An example of this can also be seen in the “Ijarah Muntahia Bittamleek Contract”. In this case the amount of rent in excess of the normal rent of similar property is dropped when ownership cannot be transferred to the lessor for a reason which the lessee cannot stop. [see Shari’ah Standard No. (9) on Ijarah or Ijarah Muntahia Bittamleek, item 8/8] 6. Date of Issuance of the Standard This Standard was issued on 17 Rabi’ I, 1430 A.H., corresponding to 15 March 2009 A.D. 913