Definition and Scope
The standard covers situations where unforeseen events ("contingent incidents") arise after a contract is formed, making performance impossible, excessively difficult, or economically unreasonable. It addresses:
- Whether obligations are suspended, reduced, or terminated.
- Who bears the loss.
- Whether parties may seek relief or renegotiation.
- The distinction between force majeure and normal business risk.
Types of Contingent Incidents
| Category | Examples | Consequence |
|---|---|---|
| Absolute force majeure (Quwwah al-Qahirah) | War, civil unrest, government prohibition, natural disasters, epidemics, or pandemics where performance is objectively impossible. | Performance may be discharged or unwound according to risk allocation and restitution rules. |
| Extreme hardship (Darar al-Ghalib) | Sharp production-cost increases, currency collapse, or significant market disruption causing a trading halt. | Performance remains possible, but parties may seek suspension, renegotiation, or court adjustment. |
| Normal commercial risk | Ordinary price volatility, supplier default not caused by force majeure, market competition, or expected agricultural weather risk. | No force-majeure relief; the party who assumed the commercial risk remains responsible. |
Consequences of Contingent Incidents
If performance is objectively impossible:
- The impossible delivery obligation is discharged or unwound to the extent of impossibility.
- Any price paid for undelivered performance must be returned unless a valid risk-allocation rule places the loss elsewhere.
- Neither party can force substitute performance when the subject matter is objectively unavailable or legally impossible.
Example: If a government ban makes delivery of a specified asset illegal, the delivery obligation is discharged and any advance payment for the undelivered asset is refunded. A Salam seller's own crop failure is different: because Salam is normally for generic goods, the seller must source substitute goods unless the goods are objectively unavailable in the market.
If performance is excessively difficult but still possible:
- Obligations may be suspended pending changed circumstances.
- Parties may renegotiate terms.
- If renegotiation fails, a court may modify terms proportionally.
- An insurer or guarantor, if any, may be called on.
Example: A Murabahah contract requires delivery of imported goods, but import tariffs triple due to sudden trade sanctions. The bank may seek a price adjustment rather than full cancellation.
If loss occurs due to a contingent incident:
- Allocation depends on who bore the risk at the time of loss.
- In sales, the buyer bears loss after taking possession and the seller bears loss before possession.
- In Salam, the seller bears production and sourcing risk because he contracted to deliver generic goods.
- In Istisna'a, the seller bears completion risk because he contracted to manufacture or construct.
Application in Common Contracts
Murabahah (Cost-plus sale): A bank purchases goods with a 3-month payment plan. After 1 month, war breaks out and import of the goods is legally prohibited. The bank cannot deliver the goods. The bank should refund the customer's payments; the loss is the bank's (it bore ownership risk).
Salam (Pre-paid sale): A buyer prepays for wheat to be delivered in 6 months. Severe drought destroys the seller's own harvest. The seller remains obligated because Salam is a generic delivery obligation, not a sale of that specific crop. He must source equivalent wheat elsewhere if reasonably available; if objective impossibility prevents delivery, he must refund the buyer for the undelivered quantity.
Istisna'a (Manufacturing contract): A builder contracts to construct a building. Mid-construction, earthquake damages the partially completed building. The builder cannot complete. The builder bore the risk; he must either rebuild or refund the customer's advance. Post-delivery, if the building deteriorates due to a contingency, the customer (now owner) bears the risk, not the builder.