To refresh the last discussion, if an agent disposes of the principal’s property at an amount lower than the threshold fixed by the principal, the agent breaches the terms of the agency agreement and shall be responsible to compensate the principal for the shortfall.
Also, if the agent is able to sell the principal’s property at the sale price higher than the minimum price set by the principal, it complies with the agency agreement. Here, the matter of surplus sale proceeds is irrelevant since it appears after the agent has successfully gotten the desired price to the principal.
If the agency agreement is silent on how to deal with the surplus, the agent can retain such amount in addition to the agency fee paid by the principal. Nevertheless, if the agency agreement stipulates on how to share the surplus, the agent shall be bound to follow the instruction.
In a similar situation, if the agent was instructed to sell the principal’s property on a deferred basis, expecting a higher price, but the agent sold it on cash at the same price, the agency shall have been discharged by the agent.
Nonetheless, in the opposite situation, ie if the agent was instructed to sell on cash but it sold the principal’s property on a deferred basis, the agent shall be considered to have overstepped its authority and the agency shall hang in the balance until such time that either the deferred sale period is completed and the sale proceed is realized in full, or the principal ratifies the agent’s unauthorized act.
What is discussed above relates to the restricted agency where the agent is required to perform a certain task within a narrow corridor and without much flexibility. In article 128, I had in passing mentioned the unrestricted agency and the time has now come for me to elaborate it further. The grant of the unrestricted agency is permitted under Shariah albeit with some constraints to safeguard the principal’s interest.
Firstly, an unrestricted agency must not be granted by the principal to just anyone but only to someone who has necessary expertise and the required skill in the relevant field. Hence, the onus to carefully select an unrestricted agent shall always be on the principal. If the principal fails to discharge the required due diligence while appointing such an agent, it will bear the consequences.
Jurists opine that the scope of an unrestricted agency could be widespread. Therefore, the unrestricted agent shall have the discretion to sell the principal’s goods either on cash or a deferred basis or a mix of both, knowing fully well the merits of each transaction. Such an agent may also have the power to dispose of the goods at below cost in order to cut the losses since he is assumed to have the market pulse.
The often repeated quote “with authority comes responsibility” fits well with the unrestricted agent in Shariah. Consequently, the unrestricted agent does have some boundaries to be respected. The primary responsibility of an unrestricted agent is to always safeguard the interests of the principal in whatever it does.
Now to a few specifics: the unrestricted agent must not accept the sale proceeds in the shape of illegal tender or weaker currency or barter against goods not in great market demand and which it will find difficult to realize. Add to that the present-day stringent anti-money laundering edicts which must be respected by the unrestricted agent toward protecting the principal at all times.
The other confine for the unrestricted agent is to prevent any conflict of interest situation from happening at all costs. Examples are purchasing the required goods from relatives and friends at higher than the market price or selling the principal’s goods to them at a lower than the prevalent market price. There is no harm if such transactions take place at the market price while respecting the ‘dealings at arm’s length’ principle.
Respecting all rules and regulations connected with the trading license of both the principal and the unrestricted agent, as well as valuing the laws of the land, is another major responsibility for the unrestricted agent.
The unrestricted agent is also answerable in terms of keeping the accounts up to date for its areas of operation and providing full information to the principal and to the principal’s counterparties (such as financing banks) at its behest.
The debate so far has centered around the protection of the principal from the unrestricted agent’s acts. What about the rights of the unrestricted agent over the principal?
Well, as I have always proved the utmost fairness of the Shariah principles, here too the principal shall not be able to hold the unrestricted agent responsible for any losses which were not caused by it or which took place due to any unforeseen situation over which the unrestricted agent had no control.
Also, as discussed earlier, the unrestricted agent shall still be eligible to get the agreed fee or compensation from the principal even if the principal continues to incur losses due to no transgression or fault of the unrestricted agent and which are attributed to an unfavorable market situation.
Can readers provide an example from the contemporary Islamic finance industry as to where the unrestricted agency is currently applied by an Islamic financial institution?
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Sohail Zubairi is the senior advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
Next week: Discussion on the other interesting angles of Wakalah.