Picking the thread from the last article which explained the rights and protection to the agent, what if the subject matter of the agency agreement suffers damage while in the agent’s custody? Will the agent be responsible to compensate the principal?
On the surface it seems ‘yes of course’. But hang on. Did we not discuss that as per Shariah principles, the agency is substitution of oneself with a third person who is appointed as the agent? Putting it differently, what the agent has been assigned to do, the principal should also be equally competent of performing.
Well if that is the case, let us assume that the time when the ‘subject matter’ got damaged, it had just changed hands from the agent to the principal. Therefore, not only was it in the ownership but also in the possession of the hitherto principal. In such a situation, would the owner of the ‘subject matter’ not be responsible for the damage?
I will draw readers’ attention to the elaborate discussion we had on Ijarah from article 62 to 80 and where I had explained that if the leased asset is destroyed, it will be the loss of the lessor since he is the owner and is exposed to all ownership-related risks.
Copy paste this principle to the Wakalah and you will arrive at the same conclusion that even if the subject matter of an agency agreement gets destroyed while in the agent’s possession, it will be the risk and responsibility of the principal and not the agent. This is in the same manner as we saw in the Ijarah discussion which took place during the last normal summer spell the world had seen, ie in the year 2019 (or 2019 BC (before COVID) as some people narrate it).
But then readers should know that I had also explained in Ijarah that if the leased asset is destroyed due to the lessee’s negligence, the lease agreement shall terminate forthwith and the lessee shall be responsible to compensate the lessor for any shortfall in the insurance proceeds (assuming that the leased asset was by default kept insured at all times).
But if the leased asset was uninsured, the poor lessee will have to go all the way crying to the bank. In this situation, the lessee may have to sell the family silver too in order to compensate the lessor for the destroyed Ijarah asset.
Fast forward the principle and put it on Wakalah and you will see there is no difference here too. Hence, if the subject matter of the agency gets destroyed due to the agent’s negligence or default, the agent will be required to compensate the principal for the loss.
Writing articles for this series, at times I get really fascinated at the Shariah doctrine that is so well-knit and perfectly placed relating to delivering justice and ensuring fairplay among parties of the Shariah nominate contracts.
Though the laws of the land in several jurisdictions practicing Islamic finance do not particularly grant legal protection to the parties entering into an Islamic finance contract, the eternal parameters of the very contract declare the rights and obligations of parties on one another, such that no one has dared to play around with them. Examine Murabahah, or Ijarah or Istisnah or any other contract for that matter and you will discover that it is applied mutatis mutandis even now as it was done 14 centuries ago.
Not only the aforesaid, the agent shall also not be in a position to claim the Wakalah fee, and if some conservative scholars have their way, the fee already paid to the Wakeel/agent should also be refunded to the principal. This is because the fee is paid by the principal for the agent to protect the subject matter of the agency and in case of its damage attributed to the agent’s negligence, why should the principal still incur the fee cost?
Another protection the Shariah principles extend to the agent is that the principal cannot ask the agent for indemnification in case of diminution in the value of the subject matter of the agency contract. In simple terms, the agent cannot also become a guarantor to the principal at the same time when he is acting as the agent.
The easy way out here is that the agent should first call it quits to the Wakalah role should he wishes to become the guarantor, or if he is a guarantor and would like to become the Wakeel, he should first rescind the guarantee. Again, this is from the golden pot of Shariah parameters on doing fair business.
If I start the next point now, I am afraid I will breach the allocated space and hence the discussion will need to be left to the next article. Thus, it is better to put it off until next week, insha Allah.
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 fascinating subject of Wakalah shall continue.