Where the earthly meets the ethereal

Abstract

2020 has been a year of challenges and surprises in so many regards, and in keeping with this, Fa’agutu v Derhamy [2019] NZHC 406 represented a surprise for the New Zealand High Court, at least in terms of its subject-matter, as it was the first time a Mudharaba agreement has come before the courts. While this type of agreement is well known in Islamic law, or Sharia law, it is likely not so well known in New Zealand and certainly has not made its presence known in court before.

A Mudharaba agreement is a type of partnership that aims to make a profit. The lender, or investor (the rab al maal), provides money or capital to the borrower, or investment manager, or entrepreneur (mudareb or al-mudharib). The mudareb provides the knowledge and labour in the investment and management of the funds. One of the key aspects of a Mudharaba contract is that any losses that may arise from the agreement will not be shared. If there are losses, the lender will lose that money and the only losses suffered by the mudareb will be their time and future profits, as well potentially their reputation. However, the profits of the agreement may be shared between the parties, as agreed prior to signing the contract (Fa’agatu at [5] and [6]; “Mudarabah” Institute of Islamic Banking and Insurance <www.islamic-banking.com/explore/islamic-finance/shariah-rulings/question-answers-shariah-rulings/mudarabah>; and “Mudaraba” ThomsonReuters Practical Law <uk.practicallaw.thomsonreuters.com/>).

In this comment, and mostly following the approach of the Court, I will be reflecting on the issue of religion and its place in the New Zealand legal landscape in this specific context, and then I will turn to the matters of undue influence, and of breach of fiduciary obligation.