Lodhi 5 Properties Investments CC v FirstRand Bank Limited [2015] 3 All SA 32 (SCA) and the Enforcement of Islamic Banking Law in South Africa

Keywords: Islamic law, mora interest, riba, Hiyal, Profit-and Loss Sharing

Abstract

On 22 May 2015, the Supreme Court of Appeal (“SCA”) handed down a judgment in the matter of Lodhi 5 Properties Investments Cc v Firstrand Bank Limited [2015] 3 All SA 32 (SCA). This judgement considered whether the prohibition against the charging of interest on loan in terms of Islamic law (Shariah law) may be a defence for a claim for mora interest in term of a loan agreement. This note critically discusses the judgement in light of the approach adopted by the SCA with regard to addressing dispute arising from a contract that has Islamic law as a governing law. As this is the first case that came before the SCA in South Africa, this note critically analyses how this court discussed the applicable principles of Islamic law as applicable to the dispute between the parties. In particular, it questions the court’s assertion that a claim for mora interest has nothing to do with and is not affected by the Shariah law's prohibition against payment of interest on a loan debt. It also looks at the SCA’s approach (as a common law court) with regard to the enforcement of Islamic banking law principles. This judgement raises important issues regarding the enforceability of Islamic finance law and therefore merits discussion, in light of the continuing growth and expansion of Islamic banking and finance law in South Africa.

 

Google_Scholar_97.png   ScienceOpen_Log0335.png

Author Biography

Maphuti David Tuba, University of South Africa

LLB( WITS (LLM UNISA)

SENIOR LECTURER: DEPARTMENT OF MERCANTILE LAW: UNIVERSITY OF SOUTH AFRICA

References

Bibliography

Literature

Ab'Aziz Islamic Banking in Malaysia
Ab'Aziz MR Islamic Banking and Finance in Malaysia; System, Issues and
Challenges (USIM Negeri Sembilan 2013)

Abdul-Rahman Art of RF
Abdul
-
Rahman Y
The Art of RF (Riba-Free) Islamic Banking and Finance:
Tools and Techniques for Community-Based Banking 2nd ed (Wiley
Hoboken 2014)

Ali Holy Qur'ᾱn: Translation
Ali MS The Holy Qur' ᾱn: Arabic Text and English Translation (Islamic
International Publications Islamabad 2004)

Alrifai Islamic Finance
Alrifai TIslamic Finance and the New Financial System: An Ethical
Approach to Preventing Future Financial Crises
(Wiley Singapore 2015)

Ayub Understanding Islamic Finance
Ayub M Understanding Islamic Finance (Wiley London 2007)

Chapra 1984 HI
Chapra MU "The Nature of Riba in Islam" 1984 HI 3-24

El-Gamal "Paradox"
El-Gamal MA "Interest and the Paradox of Contemporary Islamic Law and
Finance" in Al-Roubaie A and Alvi S (eds) Islamic Banking and Finance:
Critical Concepts in Economics -Vol II (Routledge London 2010) 281-308

Fakir and Tkiouat 2016 IJEFI
Fakir AEL and Tkiouat M "Single or Menu Contracting: An Application of the
Hersanyi Model to Mudaraba Financing" 2016 IJEFI221-230

Fisho-Oridedi 2009 CEPMLPAR
Fisho-Oridedi A "The Prohibition of Riba under the Islamic Law: What are
the Implications for the International Contracts" 2009 CEPMLPAR 1-20

Garner 2013 LJLC
Garner JM "A Critical Perspective on the Principles of Islamic Finance
Focusing on Sharia Compliance and Arbitrage" 2013 LJLC 69-90

Ginena and Hamid Foundations
Ginena K and Hamid A Foundations of Shari'ah Governance of Islamic
Banks (Wiley Chichester 2015)

Hanif 2011 IJBSS
Hanif M "Difference and Similarities in Islamic and Conventional Banking"
2011 IJBSS 166-175

Hasan "Structured Products"
Hasan A "Islamic Structured Products: Issues and Challenges" in
Vernandos AM (ed) Current Issues in Islamic Banking and Finance:
Resilience and Stability in the Present System (World Scientific Singapore
2010) 189-227

Hassan, Kayed and Oseni Introduction
Hassan MK, Kayed RN and Oseni UA Introduction to Islamic Banking and
Finance: Principles and Practice (Pearson Harlow 2013)

Hatta and Samah 2015 GJAT
Hatta M and Samah S "Compensation and Penalty Imposed on Debt
Settlement of Islamic Products" 2015 GJAT 7-18

Horii 2002 ILS
Horii S "Reconsideration of the Legal Devices (Hiyal) in Islamic
Jurisprudence: The Hanafῑs and Their Exits (Makhᾱrij)" 2002 ILS312-357

Hussain Islamic Banking
Hussain MG Islamic Banking and Finance: Status and Issues (Deep and
Deep New Delhi 2011)

Iqbal "Financial Engineering"
Iqbal Z "Financial Engineering in Islamic Finance" in Al-Roubaie A and Alvi
S (eds) Islamic Banking and Finance: Critical Concepts in Economics -Vol
II (Routledge London 2010) 7-21

Irfan Heaven's Banker
Irfan H Heaven's Banker: Inside the Hidden World of Islamic Finance
(Constable London 2014)

Jalil 2010 IJBSS
Jalil MA "Financial Transactions in Islamic Banking are Viable Alternative to
the Conventional Banking Transactions" 2010 IJBSS 219-233

Kettell Islamic Finance
Kettell B Islamic Finance in a Nutshell: A Guide for Non-specialists (Wiley
Chichester 2010)

Khalil "Overview of Sharia"
Khalil E "An Overview of the Sharia'ahProhibition of Riba" in Thomas A (ed)
Interest in Islamic Economics: Understanding Riba (Routledge London
2006) 55-68

Kusheni and Hayat Contracts and Deals
Kusheni H and Hayat M Contracts and Deals in Islamic Finance: A User
Guide to Cash Flows, Balance Sheets, and Capital Structures (Wiley
Singapore 2015)

Mansoori 2011 JIBM
Mansoori MT "Use of Hiyalin Islamic Finance and its Sharῑ'ah Legitimacy"
2011 JIBM69-92

Mirakor and Zaidi "Profit-and-Loss Sharing
"Mirakor A and Zaidi I "Profit-and-loss Sharing Contracts in Islamic Finance"
in Hassan MK and Lewis MK (eds) Handbook of Islamic Banking (Elgar
Cornwall 2007) 49-63

Morapi Islamic Banking in South Africa
Morapi L The Regulation of Islamic Banking and Financial Institutions in
South Africa (LLM-dissertation University of Johannesburg 2014)

Nuhtay and Salman 2013 IJBSS
Nuhtay SN and Salman SA "Shari'ah and Ethical Issues in the Practice of
Modified Wakalah Model in Family Takaful" 2013 IJBSS 128-132

Okon 2012 AJSMS
Okon EE "The Sources and Schools of Islamic Jurisprudence" 2012 AJSMS
106-111

Qaed 2014 JRHSS
Qaed IQM "The Concept of Wadiah and its Application in Islamic Banking"
2014 JRHSS 70-74

Qasaymeh 2011 CILSA
Qasaymeh K "Islamic Banking in South Africa: Between the Accumulation
of Wealth and the Promotion of Social Prosperity" 2011 CILSA 275-292

Razak 2015 EJIF
Razak AHA "The Fundamentals of Islamic Banking and Finance: Apologue"
2015 EJIF 1-11

Saeed Islamic Banking
Saeed A Islamic Bankingand Interest: A Study of the Prohibition of Riba
and its Contemporary Interpretation (Brill Leiden 1996)

Sauer "Metaphysics and Economy"
Sauer JB "Metaphysics and Economy -The Problem of Interest: A
Comparison of the Practice and Ethics of Interest in Islamic and Christian
Cultures" in Al-Roubaie A and Alvi S (eds) Islamic Banking and Finance:
Critical Concepts in Economics -Vol II (Routledge London 2010) 153-174

Sharawy 2001 GJICL
Sharawy HM "Understanding the Islamic Prohibition of Interest: A Guide to
Aid Economic Cooperation between the Islamic and Western Worlds" 2001
GJICL 153-179

Siddiqui "Islamic Banking"
Siddiqui S "Islamic Banking: Rationale, Prospects and Challenges" in Al-
Roubaie A and Alvi S (eds) Islamic Banking and Finance: Critical Concepts
in Economics-Vol IV
(Routledge London 2010) 73-89

Swartz 2012 AJBM
Swartz N "The Prevention of Over-indebtedness: The Problem of Interest
and the Islamic Response" 2012 AJBM 10099-10108

Thomas "What is Riba"
Thomas A "What is Riba" in Al-Roubaie A and Alvi S (eds) Islamic Banking
and Finance: Critical Concepts in Economics -Vol II (Routledge London
2010) 133-142

Visser Islamic Finance
Visser H Islamic Finance: Principles and Practice 2nd ed (Edward Elgar
Cheltenham 2013)

Wahyudi et al Risk Management
Wahyudi I et al Risk Management for Islamic Banks: Recent Developments
from Asia and the Middle East(Wiley Singapore 2015)

Zuhayli "Juridical Meaning of Riba"
Zuhayli S "The Juridical Meaning of Riba" in Thomas A (ed) Interest in
Islamic Economics: Understanding Riba (Routledge London 2006) 26-54

Case law

Malaysia
Bank Islam Malaysia Berhad v Lim Kok Hoe 2009 6 MLJ 839

South Africa
Albaraka Bank Ltd v Halaal Royal Snacks (Pty) Ltd (SGHC) unreported
case number 08400/2010

FirstRand Bank Ltd v Lodhi 5 Properties Investment CC 2013 3 SA 212
(GNP)

Lodhi 5 Properties Investments CC v First Rand Bank Limited 2015 3 All SA
32 (SCA)

United Kingdom

Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC 2004 APP LR
01/28

Islamic Investment Company of Gulf (Bahamas) Ltd v Symphony Gems NV
2002 WL 346969 (QB Comm Ct 13 February 2002)

The Investment Dar Company KSCC v Blom Developments Bank SAL 2009
EWHC 3545 (Ch)

Legislation

Close Corporations Act 69 of 1984

Companies Act 61 of 1973

Income Tax Act 58 of 1962

Prescribed Rates of Interest Act 55 of 1975

Tax Law Amendment Act 24 of 2011

Internet sources

Ali 1987 http://www.streathammosque.org/uploads/quran/english-quran-
yusuf-ali.pdf
Ali AY 1987 The Holy Qur'ᾱn: English Translation of the Meanings
http://www.streathammosque.org/uploads/quran/english-quran-yusuf-
ali.pdf accessed 17 May 2016

Baele, Farooq and Ongena 2012 https://core.ac.uk/
download/pdf/6654624.pdf
Baele L, Farooq M and Ongena S 2012 Of Religion and Redemption:
Evidence from Default on Islamic Loans https://core.ac.uk/download/pdf/
6654624.pdf accessed 17 May 2016

Rosly and Sanusi 1999 http://www.kantakji.com/media/8076/o113.pdf
Rosly SA and Sanusi MM 1999 The Application of Bay'AL-'Inah and Bay'
Al-Dayn in Malaysian Islamic Bonds: An Islamic Analysis
http://www.kantakji.com/media/8076/o113.pdf accessed 17 May 2016

Yaacob 2011 http://ifikr.isra.my/documents/10180/16168/19.pdf
Yaacob H 2011 A Critical Appraisal of International Islamic Finances Cases,
and the Way Forward http://ifikr.isra.my/documents/10180/16168/19.pdf
accessed 19 May 2016
Views
  • Abstract 278
  • PDF 103
  • XML 13
  • epub 12
Views and downloads are with effect from 11 January 2018
Published
2017-03-16
Section
Case Notes