Islamic Investment Company of the Gulf (Bahamas) Ltd v
Symphony Gems NV andnothers
QUEEN'S BENCH DIVISION (COMMERCIAL COURT) 13 Feb 2002
FACTS OF THE CASE
Everything started with murabahah agreement executed between the parties consists of IICG
as the claimant or the seller or the plaintiff. the defendant 1st the symphonty gems co, 2nd def
act as a guarantor to the contract so as the second def which is known as others in the title of
the case. The purchaser wishes to request the seller to purchase the supplies and sell them to
the purchaser through a morabaha arrangement and the seller is willing to make such
purchases and sell the supplies to the purchaser on the terms and subject to the conditions set
out herein."The brief of the case can be seen from the table below;
Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gems NV
and others
SYMPHONY GEMS (1ST
DEF) BELGIAN
DEFENDANT/PURCHASER
RAJESH MEHTA (2ND DEF
4
IICG (BAHAMAS),
SAUDI
IICG SOLD THE GEMS
TO SYMPHONY WITH
MARK UP (USD
15,834,900)
SYMPHONY DID NOT
PAY /COURT ACTION
IN OCT 2001
1
(1)REQUEST TO
PURCHASE THE
GEMS
DIAMONDS)
THE PRICE IS TO
BE PAID BY
INSTALMENTS
3
PRECIOUS GOT
PROBLEM TO
DELIVER THE
DIAMONDS. X
DELIVERY
IICG (BAHAMAS), SAUDI
PLAINTIFF/
CLAIMANT/SELLER
2
IICG BROUGHT THE
GEMS FROM THE
SUPPLIER AND
PAID USD15M
PRECIOUS HK LTD IN
HONG KONG (SUPPLIER)
ISSUES DISCUSSED BY THE COURT
1) MOA AND AOA
of the claimant co (bahamian) does not allow any contract which is against the islamic rules
and principles. bahamas is a common law jurisdiction in which the english law is deemed to
apply whenever local legislation is silent.
Answer from the court : the court followed views from dr samaan that the contract does not
reflect murabaha contract. company act of bahams law gives a co full legal capacity to
contract so as to remove any limitatiion on corporate capacity.
2) COUNTERCLAIM AS DEFENCE
Answer from the court: It seems to the judge that in fact cl 12.3 of the financing agreement
precludes reliance upon a counterclaim in answer to a claim for payment made pursuant to
the agreement. the judge further held that the counterclaim has any significant or indeed any
prospect of success. even if the claimant has failed to effect delivery of diamonds or supplies
to the first defendant, that can only be because the first defendant is itself in breach of its
obligation to make the necessary arrangements which would have brought that delivery
about. even if that be wrong, which i do not think it is, the fact remains that the counterclaim
which the first defendant seeks to bring would appear, on its face, to be excluded by cl 5.7 of
the agreement. Therefore the judge failed to see how the existence of this counterclaim can
be any impediment to the claimant recovering judgment on its claim.
3) THE LAWYER ASKED THE COURT THE DECLARAE THE CONTYRACT AS
ILLEGALITY COZ AGAINST THE LAW OF SAUDI IE SHARIAH LAW
Answer from the court: not relevant
4) MISREPRESENTATION MADE TO THE 2 GUARANTORS AS TO THE REAL
NATURE OF THE TRANSACTION OF MURABAHA.
Answer from the court: Not relevant
5) QUANTUM V THE PRINCIPAL OF SHARIAH
this is a claim brought not by a Saudi company but by a Bahamas company and it is a claim
brought under an English law contract. As I have already pointed out, it involves no illegality
such as would be recognised by the law of England as being a bar to performance and in
those circumstances there is simply no basis on which it can be suggested that the relevant
liquidated damages are irrecoverable in this action.
6) NO DELIVERY OF GOODS THEREFORE NO PAY
Answer from the court : the claims flaws. Clause 4.3,4.4,5.1,5.6,, that delivery of goods is
not a prerequisite to recover by the sellers of the relevant instalments of the sale price from
the purchaser. Refer to the clauses in the murabahah agreement as below;
4.3 If, in relation to a Purchase Agreement, the Purchaser shall have failed to enter into arrangements with
the Supplier to the effect that the Seller will purchase the Supplies from the Supplier on the Settlement Date
thereunder, the Purchase Agreement shall be automatically terminated and neither the Seller nor the
Purchaser shall have any liability to the other in respect of the Purchase Agreement Provided that, for the
avoidance of doubt, the provisions of this Agreement (including, without limitation, cll 5.8 and 9) shall
survive such termination.
4.4 The relevant instalments of the Sale Price in respect of each Purchase Agreement shall be payable by the
Purchaser to the Seller on the due dates therefor, whether or not: (a) any property in the Supplies has passed
to the Purchaser under the relevant Purchase Agreement and/or to the Seller under the relevant Supply
contract; or
(b) the Seller is in breach of any of its obligations under the relevant Purchase Agreement or the relevant
Supply Contract; or (c) the Purchaser is in breach of any of its obligations under the relevant Supply
Contract, and such payment shall not be conditional upon the happening of any event, in recognition by the
parties of the facts that the source of the supply of the Supplies is selected by the Purchaser and that the
Supplies are purchased and sold, on behalf of Seller, by the Purchaser provided that the Sale Price shall not
be payable by the Purchaser to the Seller on the relevant instalment dates therefor to the extent to which:
(a) the Seller has failed to transfer the Cost Price for the Supplies on the Settlement Date to the Purchaser
pursuant to clause 4.1; or
(b) the Sale Price has already been paid to the Seller.
5.1 The Purchaser hereby acknowledges and agrees that the Purchaser shall be solely responsible for
selecting any Supplies and each proposed Supplier of Supplies under each Purchase Agreement and shall, in
respect of the Offer, nominate the proposed Supplier selected by it (and give full particulars thereof) to the
Seller.
5.2 When title to the Supplies passes to the Seller under the terms of the relevant Supply Contract, the same
shall immediately thereafter pass to the Purchaser. The Purchaser will obtain such title to the Supplies
delivered as the Seller has received from the Supplier pursuant to the relevant Supply contract and the Seller
shall not be deemed to give any warranty or representation in respect of the Supplies whatsoever whether
arising by
implication, by statute or otherwise and, without prejudice to the generality of the foregoing, any such
warranty or representation is hereby expressly excluded to the extent permitted by law.
5.6 The Purchaser acknowledges that prior to the transfer of title to the Supplies to the Purchaser, it shall
take, or procure that such steps are taken, as may be appropriate for the Purchaser to be treated for the
purposes of this Agreement as having accepted such Supplies undeniably and without reservation and the
Purchaser shall have no further remedy against the Seller in respect of their quality, condition, quantity,
description, title or otherwise.
HELD: the claimant won the case. Ie, IICG. The total amount due up until 13 Feb 2002 ,
inclusive of both principal and the compensation for late payment, the latter calculated on a
basis more favourable to the Defendants than the contract requires, is, as I understand it, US$
10,060,354.28,
Observation:
The court applying English law held that the contract was valid. This is due to the express
terms in the contract saying tat even without delivery the goods, it was not a prerequisite of
recovery by the sellers. The choice of parties to be adjudicated by a non-islamic court in a
non Islamic jurisdiction may not being given a due recognition as to the validity and the
principles of Shariah law. Even the contract is non compliant with syariah law, the court still
validate the transaction on the basis of normal contract and still enforceable. The decision
may hurt the Islamic finance fraternity where the aim is to comply with syariah will be
defeated.
Since the expert called in this case held that this is not a murabahah transaction, then what is
the real feature of murabaha transaction?
The case reflects the concept of murabaha to order the bank will purchase the goods upon
request of the client and then resell that good to the client in a murabaha1. This contract is
viewed as an alternative to teh lending practices on conventional banks. The transcation
involved two types of promises. A promise by the client to purchase the object (wa’ad) and
a promise by the bank to sell him the goods in murabaha.. the payment may be in cash or
deferred2. It is a sale where two parties negotiate and promise each other to execute
agreement according to which the orderer asks the opurchaser to purchase the assets of which
the latter will take possession. The ordereer promises the purchaser to purchase the asset from
him and promit a promit thereon. The two parties will conclude the sale after the purchaser
has the goods in his possession. However, the purchase order may or may not be obliged to
conclude the sale. However, some modern scholars have allowed the promise in this type of
sale to be binding for the purchase orderer, ie Murabahah sale with obligation to purchase
upon possession made by the purchaserknown as wa’ad3. Imam al-Shafie4 heldcthat this
transaction is valid provided that the bank receives the purchased items5.
The validity of wa’ad is based on the Maliki school held by Ibn Syabramah that any promise
that does not results in permitting that which is forbidden or forbidding that which is
permitted is binding. This applies whenever the promise led another person or entity to
undertake a financial obligation6. The rulings made in 19837 held that mutual promises
involved in murabha sales to the one who orders the initial purchase is permitted only after
the bank owns the goods and gainjs possession of the sold object. And the sells it to the one
who ordered to purchase with the promised and known profit margin between the two (the
seller and the buyer). The bank also must hold the risk of destruction of the goods prior to
deliver it to the final buyers well as the obligation to accept the return of the goods if a
concealed defect were found. Why was it held that the case is not murabaha transaction?
Because due to the following reasons;
i) The delivery is not a prerequisite for payment. In murabaha contract the payment to
purchase the goods ordered after the delivery of goods takes place. Here the possession of
goods never takes place and the goods never being delivered
ii) The risk is borne by the bank and pose it in insurance. In this case, the risk is solely borne
by the purchaser. Cl 5.4 and 5.8.
1
AAOFII, ART ½ P125-144
Bay’ al-murabahah lil amri bi al-syira’ Yusof Qurdawi, p36
3
Refer to AAIOFII standard, p134 and Ahmad Ali Abdallah, Murabaha, p195
4
Al-Shafie, al-umm, vol 3, p33
5
The case Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gems NV and
Others does not speaks about any Hamish diyyah or orboun.
6
The talfiq of two rulings from two different schools of jurisprudence is not a forbidden type of talfiq since the
two rulings pertain to two different issues. Refer to Wahbah Zuhaili (2003), translated by Mahmoud Al-Gemal,
vol 1,p 361, Darul Fikr,: Damascus, Syria,.
7
The second conference in Kuwait on Islamic baking
2