After having explained Fuduli (or unauthorized person acting as an agent) in the last article, I will today deliberate on the situations where a duly authorized agent oversteps its authority and what Shariah guidelines are available to deal with them.
The scholars have provided the relevant courses of action in such situations based on the nature of the agency. However, the outcome of any transgression made by the agent has forever been their focus while formulating the guidance.
For example, if the agent was granted the mandate to make purchases on behalf of the principal for certain merchandise with specified requirements and a certain quantity and price but it violates them, ie buys different merchandise or disregards the quantity or buys at a higher price, such an act violates the essence of the agency agreement.
The contravention of the Wakalah agreement terms by the agent shall result in the Shariah support coming for the principal in clear terms which is that while the agent shall be liable to the seller having concluded the purchase transaction, the principal shall be absolved from any responsibility and the purchase shall be construed to be on the agent’s account but not in the capacity as the principal’s representative but as an independent person. This is for the reason that as per the Shariah position, the Wakalah agreement gets terminated the moment the agent oversteps its authority.
What if the agent took a step resulting in a breach of the Wakalah terms but with an aim to provide a benefit to the principal since the agent judged the market oscillation correctly and acted swiftly? As mentioned a few times earlier in this space, the Shariah approach is not based on a ‘one size fits all’ approach but proper assessment based on the rationale. As such, if the breach of any of the Wakalah agreement terms and conditions by the agent provided a benefit to the principal, such a purchase shall be binding on the principal and the Wakalah agreement shall be construed to continue to remain in force.
What transpires from the aforementioned scenarios is that the Shariah discipline applies the required intellect before delivering judgment. From the foregoing examples, if the agent surpasses the granted authority which results in damage to the principal, it will be deemed that the agent has breached the Wakalah agreement and the principal shall not be responsible for such a transaction which must then be owned by the agent.
Nevertheless, if the outcome of the breach is to the contrary and the agent’s act benefited the principal, the agent’s action shall be reckoned to be condoned by the principal and the Wakalah agreement shall not be terminated. The core aspect in both situations is the intention and sincerity (or lack of it) by the agent while executing the Wakalah mandate. In other words, the agency role will always have an element of suspicion that the agent is out to exploit the role to its advantage and hence it becomes imperative that the principal is accorded protection by way of an unequivocal Shariah position.
The issue which may arise in the first situation is what if the third-party seller to the agent sues the principal seeking the payment of the deferred sale price based on its knowledge that the purchaser was acting as the agent of the principal?
Well, in such a case, the Shariah court (or even a normal court based on common law, civil law or commercial law of the land) would base the judgment in favor of the principal if it is proved that the agent actually breached the Wakalah agreement resulting in damage to the principal. The legal counsel representing the principal may argue that the seller should have evaluated that the purchase transaction being undertaken by the agent complies with the mandate granted to the agent by the principal if the seller had the knowledge that the buyer is acting as the agent.
Will the same strictures also apply in the sale agency? My research conveys that there is no issue so long as the agent has complied with all the terms and conditions of the Wakalah agreement while executing the disposal. Nonetheless, a breach of any Wakalah term shall throw the transaction into limbo until such time that the principal condones it. In the absence of the principal’s ratification, the agent will be required to take full responsibility for the consequences of the violation. The aforementioned examples relate to the restricted agency setup. How about when the principal accords the agent an unrestricted agency, ie without specifying the quality, quantity or purchase or sale price or any other condition? How would one be able to unearth the malpractice (if any) by the agent with such a free hand?
This is a difficult area filled with scores of aspects both favorable and critical. An unrestricted agency is granted in rare cases where the principal has a substantially high degree of trust in the person considered worthy to be appointed as the agent. For example, a wife retaining her husband as the agent to look after her inherited real estate holding, or a father engaging the son or daughter to act as the agent for the family business. In the commercial arena, a parent/holding company may appoint a subsidiary as the agent to carry out certain tasks, or vice versa.
One thing is for sure: if an unrestricted agency is breached by the agent, the wound is always deep and may not heal for a considerable period of time. So, how would the principal determine the agent’s breach in an unrestricted agency? I plan to discuss it in the next article.
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 subject of Wakalah shall continue.