Replying to my question of last week, one reader cited the shipping agency and the sole agency for cars. This gives me the opportunity to get you all out of the misery and mystery. What I had in mind while concluding the last article was the law firms that are appointed as the attorney to represent the defendant or the prosecutor.
Although the legal attorney is also a genus of the act of agency, the difference between them is that while the agent is able to exercise the power granted by the principal to execute a matter, the attorney simply provides legal advice to the client entangled in a dispute with another party and also represents it before the relevant court based on the client’s authorization and instruction.
Moving on, readers have perused through article 127 in which I had explained the differences between revocable and irrevocable Wakalah contracts and that it is always preferable to enter into an irrevocable Wakalah contract by paying the agreed fee to the agent. This is to avoid the situation where the agent may abandon the assignment halfway. Can there be situations where it may be possible that an irrevocable Wakalah contract is also terminated? Let us examine.
You see, Shariah principles provide the principal and the agent an equal right to withdraw from a Wakalah contract provided that either party gives the agreed-upon notice to the other. Please be mindful that here we are talking about the irrevocable Wakalah contract where the agent has been paid a fee to undertake the assigned task.
Nevertheless, even if the withdrawal notice is allowed in the contract, the sudden pull-out by the agent is not permitted if it jeopardizes the interests of a third party who may have got engaged with the agent based on the same Wakalah contract.
For example, if the principal has authorized the agent to dispose of certain property owned by the principal at a defined minimum price at which the agent shall be entitled to an incentive, and the agent is at an advanced stage to conclude the transaction with an interested buyer (eg signing an MoU or receiving a downpayment, etc), the principal shall not be allowed to terminate the Wakalah contract even if it has found a better buyer.
This is to protect the interest of the third-party buyer who is dealing with the agent. Moreover, this is also to provide cover to the agent who will not be able to retract from the transaction at that stage, entered into by it on behalf of the principal as there could be Shariah and legal ramifications. Then there is also the agent’s incentive at stake.
Some jurists have provided a way out for the dismissal of a Wakalah contract in such a situation. They lay the condition that the consent from the third party to withdraw from the transaction will be necessary for the principal to be able to terminate the Wakalah contract if it deems the termination to be in the principal’s benefit. Moreover, any advance money paid by the third party to the agent must also be returned to make the termination effective.
The scholars further elaborate that there should be no repercussions or damage of any kind whatsoever to the agent if he has acted diligently and in good faith toward discharging the agency responsibilities and yet the agency has caused a genuine loss to the principal. The agent shall still be eligible to get the agreed fee.
However, if the agent is found to have transgressed any of the Wakalah contract terms, the principal will have the right to dismiss the Wakalah contract instantaneously irrespective of the stage of a transaction initiated by the agent on behalf of the principal. This is because the agent overstepped his authority and the principal must protect its interest by removing the agent from the scene. The principal shall have the option to either complete the transaction itself or appoint another agent.
An example is where an agent is found selling the principal’s property at an amount lower than the one specified by the principal, or if the disposal was at the instructed price but on a deferred payment basis rather than cash as sought by the principal.
Such a disposition will render it as an unauthorized agent and he will be liable to compensate the principal as well as the third party for any genuine damage caused due to the agent’s illegal acts.
Some Islamic jurists believe that in such a situation, the disposal at the lower price or different payment term will remain valid if the agent assumes full risk and responsibility to compensate the principal on both counts.
As such, if an agent disposes off the principal’s property at an amount lower than the price sought by the principal but accepts the responsibility of making good the shortfall, it will still be considered an authorized agency act since the principal shall get what it had sought from the agent to provide.
Similarly, if the agent has been able to sell the property at a price higher than what has been sought by the principal, he will be entitled to retain the surplus, unless the agency contract stipulates the treatment to such surplus. In order to eliminate any ambiguity leading to disputes, jurists do emphasize the need to be clear on the issues of shortfall and surplus within the text of the agency agreement.
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: Continuation of Wakalah discussion.