Islamic Forex and the Prohibition of Gharar
5 stars based on
In a recent judgment by the Dubai Court of Appeal No. The agreement between the parties involved speculation on movements in international share and stock prices. The Defendant would speculate on one of the markets concerned closing at a certain level and, if that figure or sum were achieved, the Claimant would pay the Defendant an amount based on the formula set out in the agreement.
If the figure or sum was not achieved i. It was argued by the Claimant that the contract was a commission-based agency contract, because it related to assets stocks, shares and currencies being traded, it was not a contract for gambling. The Court of Appeal however held that there was no proof of shares or securities being traded between the parties, it was strictly a case of spread betting where predictions were made on the prices forex gharar dubai shares and stocks that were not acquired by or transferred to either party.
Since betting is prohibited under UAE Law Article of the UAE Civil Codebeing a contracts of hazard ghararthe subject matter of a spread betting contract is unlawful and renders the contract void for contravening public policy and morals. The Claimant was therefore unable to recover the debt that accrued under the spread betting contract.
The Defendant entered into an agreement and opened an online trading account with the Claimant. The dealings between the parties involved speculation on movements in international share and stock forex gharar dubai where one of the parties speculates on forex gharar dubai of the markets concerned closing at forex gharar dubai certain level and, if forex gharar dubai figure or sum is achieved, the other party pays the speculator an amount based on the formula set out in the agreement.
If the figure or sum is not achieved i. The Defendant argued that the nature of the agreement was not an agency which requires at least three parties. Such a contract is an explicit form of gambling forbidden under Islamic Law. The Court forex gharar dubai First Instance appointed an accounts expert who concluded in his report that the Defendant had opened an account with the Claimant with a password to perform online transactions and trades that allowed him to speculate on price movements.
The expert established from an accounting standpoint that the Defendant engaged in betting activity based on price movements through the account in question. Both parties exchanged comments on the expert report with both parties objecting to the report. Both parties requested that the original expert be reappointed to undertake the following:.
The Defendant sought dismissal of the action on public policy grounds Articles of the Forex gharar dubai Code. It was argued that the transaction was a type of gambling and requested that an Islamic finance expert be appointed to determine the nature of the contract and whether such activity spread forex gharar dubai was permissible under Islamic law or prohibited under Forex gharar dubai — of the Civil Code.
The Defendant also submitted documents obtained from the UK confirming that this type of transaction would not be regulated by the rules of the Financial Services Authority FSA.
These transactions are regulated by the UK Gambling Commission and any complaints relating to this type of transaction are referred to the Betting Adjudication Service.
The Defendant also highlighted that the Claimant described the activity as spread betting on its website as follows:. With a spread bet, you can speculate on price movements on both rising and falling markets.
For example, you may know that a company is about to release quarterly results and have an opinion on whether the figures will have a negative or positive affect on its share price. Based on that opinion, you can place a spread bet to go long buy or go short sell the company share price and take advantage of any price moves.
A request for the reappointment of the expert was made in order to consider issues such as: The expert added that neither party had provided him with proof of share or securities trading between the parties and that it was strictly a case of spread betting where predictions are made on the prices of shares and stocks that are not acquired by or transferred to either party.
The Court of Appeal ruled that if the subject matter of an obligation is a thing, that thing must exist or be able to exist at the time of creation of the obligation. If the subject matter of an obligation is an act or omission, it must be possible. And if the subject matter of an obligation in either case is impossible then no obligation shall arise and the contract is void. The subject matter of an obligation must be certain or forex gharar dubai of being rendered certain.
The subject matter of an obligation must also be capable of being disposed of. That might not be the case due to its nature for example, sun, air or its designated purpose such as property with a particular public interest. That would also not be forex gharar dubai case if disposing of the thing is unlawful either by operation of law or on public policy or morality grounds.
If the subject matter is inherently forex gharar dubai of being disposed of but the contract is made for an objective forex gharar dubai to public policy or morality, then as long as the other side is aware of such objective the contract would be void, not because the forex gharar dubai matter is unlawful but because its objective is unlawful for public policy or morality considerations.
In this case, the transaction is void because the objective is unlawful forex gharar dubai than the subject matter. Accordingly the contract is invalid on the basis of UAE Public policy grounds. This judgment highlights that spread betting is prohibited in the UAE and is against public policy.
The court will ultimately examine and discover the nature of the activity even if it is not inherently clear or described as forex gharar dubai else. If determined to be a form of gambling, the contract will be deemed null and void and any debts that arise from these transactions are not recoverable. The criterion for the validity forex gharar dubai a contract is that it must be forex gharar dubai over a lawful subject matter, and it must have a valid and existing lawful purpose.
If one of these essential pillars is not established, then the contract will be void and the judge may so rule of his own motion. Such a contract will not have any effect, nor may it be ratified, and any person concerned may rely on it being void. Contracts involving speculation risk being deemed a form of gambling and being found void.
The question was whether this was a contract for spread betting or not. Background Facts The Defendant entered into an agreement and opened an online trading account with the Claimant. Expert Report The Court of First Instance appointed an accounts expert who concluded in his report that the Defendant had opened an account with the Claimant with a password to perform online transactions and trades forex gharar dubai allowed him to speculate on price movements.
Both parties requested that the original expert be forex gharar dubai to undertake the following: Provide the Court of First Instance forex gharar dubai a detailed explanation of the nature of the transaction; and Determine whether any assets shares, stocks were traded between the parties or whether it forex gharar dubai only a matter of betting, prediction, and speculation without the transfer of any assets.
The Defendant also forex gharar dubai that the Claimant described the activity as spread betting on its website as follows: Comment This judgment highlights that spread betting is prohibited in the UAE and is against public policy.