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Contractual clarity for a holy commodity

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Abstract of paper

Halal, a religious concept, a rule of Sharia law enters the world of commerce. Halal identifies food products and is a seal of quality that fosters trade. All along the chain of producers, sellers, buyers and consumers halal is a statement of Islamic faith.

Halal challenges law and lawyers. How to contract between producers, sellers, buyers and consumers in a halal food supply chain? How to recognise and safeguard the religious quality, whilst striving for maximum clarity on contractual rights and obligations of the parties? Also, how to accommodate for diverging interpretations of halal?

The halalworthiness of a product is up to the interpretation of the last shackle in the food supply chain, the consumer who wishes to eat halal food. In consequence, the seller should deliver a product that is compliant with the consumers’ requirements. A seller’s own interpretation as to what constitutes halal is not to be imposed on the transaction as far as this conflicts with fulfilling the contractual obligations.

Consumers may not always be able to make explicit their requirements for the product. Consumers usually rely on a particular trade mark which offers products in accordance with their expectations. But in a business to business contractual relationship, B2B, each party is expected to have professional in-depth knowledge about the products they trade and consequently should be able to furnish exact product specifications.

The modern food chain involves many parties, each selling or buying, exporting or importing, ingredients or finished products, across many different Islamic countries, cultures and religious denominations, covered by written and unwritten rules, national and international legislation - and lack of legislation. All the more important it is to agree on the specifics of the products and write these into the purchase contract. If the contract is not clear and explicit, it will be difficult, if not impossible, to establish, whether the delivered product is in conformity with the purchase contract.

The contents of the contract with the particulars of the product become relevant if damages occur. Often damages arise out of the refusal of a dissatisfied buyer to pay an invoice. For the buyer the challenge is to prove that the product is not in conformity, for the seller to prove the product is in conformity with the contract. Surprising as it may seem, the outcome of most litigation depends exactly on this point: on which party is the burden of proof; which party bears the risk of having to prove that his contention of conformity or non-conformity is right.

If the seller is not able to prove conformity, he will try to take regress, if he is of the opinion that the non-conformity originated earlier in the chain. So as a buyer he will, in turn, hold his seller liable for the damages incurred.

Does a halal certificate relieve a party from liability for non-conformity of the product? A halal certificate is the statement of a third party, a certification authority, that a producer or a product complies with the standards of that certificate. If the certificate certifies that the product is halal, one will have to know against which requirements, of which standard, the halal conformity has been checked, how this has been checked and whether the requirements of the certificate standard are the same as the contractual requirements. Only halal certificates which offer this degree of transparency may qualify as persuasive evidence in litigation.

In B2B trade a theological discourse on what constitutes halal is not desired. Trade is fast and needs quick and ready solutions. In that respect certification has solutions to offer: to the extent, that a certification authority publicises the exact requirements of its standard on which basis it issues a certificates, these requirements can be incorporated into B2B purchase contracts by referral to that standard. By taking as a default a particular standard, parties can still agree to add or skip requirements, according to the needs of the consumer of the final product. As an international legal framework the CISG, the UN Convention on Contracts for the International Sale of Goods (1980), will be shown to accommodate the special requirements of halal purchase contracts and dispute resolution.

The presentation will include a discussion of cases from the legal practice of the author illustrating the theory and contractual structure for trade in halal products as set out above.

Murk Muller

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