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

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 a loan in terms of Islamic law (Sharia law) may be a defence for a claim for mora interest in terms of a loan agreement. This note critically discusses the judgment in the light of the approach adopted by the SCA with regard to addressing a dispute arising from a contract that has Islamic law as a governing law. As this is the first case to come before the SCA in South Africa, this note critically analyses how the court discussed the 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 Sharia 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 the principles of Islamic banking law. The judgment raises important issues regarding the enforceability of Islamic finance law and therefore merits discussion in the context of the continuing growth and expansion of Islamic banking and finance law in South Africa.

Keywords: Islamic law; mora interest; riba; Hiyal; profit-and-loss sharing; Sharia; Islam