Equity and Trust – Difference Between Specific Performance and Mandatory (Positive) Injunctions
Case Scenario
Olivia enters into a contract to purchase a rare historic property from Daniel. After exchanging contracts, Daniel refuses to complete the transfer because another buyer offers a higher price.
At the same time, trustees of a family trust refuse to provide beneficiaries with important trust documents and fail to distribute trust assets properly.
Separately, a construction company unlawfully blocks a private access road belonging to neighbouring landowners. The landowners apply to court seeking an order requiring the company to remove the obstruction.
The issue is whether the court should grant specific performance or a mandatory injunction.


Specific Performance
Definition
Specific performance is an equitable remedy ordering a party to perform an existing contractual or trust obligation.
The court compels the defendant to carry out the exact duty they previously agreed to perform.
It commonly arises in:

• contracts for the sale of land;
• trust administration;
• transfer of unique property.

Key Features

• Used where damages are inadequate.
• Most common in land contracts because land is unique.
• Enforces obligations already owed under a contract or trust.
• Discretionary remedy.
• Breach amounts to contempt of court.

Practical Application
In the scenario, Olivia seeks specific performance because:

• there is a valid contract for sale of land;
• Daniel refuses to complete the transfer;
• the property is unique;
• monetary damages may not adequately compensate Olivia.

The court would likely order Daniel to transfer the property.


Specific Performance in Trusts
Courts may use specific performance to compel trustees to perform trust duties.
Examples include:

• transferring trust property;
• distributing trust funds;
• handing over trust documents.

This principle appears in Re Tillott, where trustees were ordered to provide documents to beneficiaries.
However, courts generally will not interfere with trustees’ discretionary powers where trustees are entitled to choose beneficiaries or decide distributions properly.
This limitation is illustrated in Re Blake.


Mandatory (Positive) Injunction
Definition
A mandatory injunction is an equitable remedy ordering a party to carry out a positive act.
Unlike specific performance, it is not limited to enforcing contractual obligations.
The purpose is usually to:

• remedy wrongdoing;
• restore a previous position;
• prevent continuing harm.

Key Features

• Orders positive action.
• Broader than specific performance.
• Used to correct injustice or unlawful conduct.
• Discretionary remedy.
• Breach amounts to contempt of court.

Practical Application
In the scenario, the construction company unlawfully blocks the road.
The neighbouring landowners are not seeking enforcement of a contract.
Instead, they want the company ordered to remove the obstruction.
The court would therefore grant a mandatory injunction compelling positive action.


Main Difference Between the Remedies
The central distinction is the purpose of the order.
Specific performance:

• enforces an existing contractual or trust obligation;
• requires the defendant to perform what was originally promised.

Mandatory injunction:

• compels positive action more generally;
• aims to prevent or correct wrongdoing.

Although both remedies require a defendant to do something, their legal basis differs.


Why the Remedies Are Often Confused
The remedies are similar because both:

• are equitable remedies;
• are discretionary;
• compel action rather than payment of damages;
• are enforced through contempt proceedings.

However, the source of the obligation is different.
Specific performance arises from an existing duty under a contract or trust.
Mandatory injunctions arise where the court needs to compel action to achieve justice.


Solving the Scenario
Sale of the Historic Property
The correct remedy is specific performance because:

• Daniel entered into a valid contract;
• Olivia seeks enforcement of that agreement;
• land is unique;
• damages are inadequate.

The court would likely compel transfer of the property.


Trustees Refusing Documents
The court may order specific performance compelling trustees to fulfil their trust obligations and provide documents to beneficiaries.


Obstruction of the Access Road
The appropriate remedy is a mandatory injunction because the company must take positive steps to remove the obstruction and stop the continuing interference.


Conclusion
Specific performance and mandatory injunctions are both equitable remedies compelling action, but they serve different purposes.
Specific performance enforces obligations already existing under contracts or trusts.
Mandatory injunctions compel positive conduct to prevent or remedy wrongdoing more generally.
Both remedies are discretionary and breach of either order may result in contempt of court proceedings.

​

Equity and Trust – What Falls Under Specific Performance Under UK Law
Definition
Specific performance is an equitable remedy where the court orders a party to carry out their contractual or trust obligation instead of merely paying damages.
The remedy is discretionary and will only be granted where damages are inadequate and the order is fair, practical, and enforceable.


What Falls Under Specific Performance
1. Contracts for the Sale of Land
This is the most common category.
English law treats every piece of land as unique. Because replacement property may not truly compensate the claimant, damages are often inadequate.
Example
A seller refuses to transfer a house after contracts are exchanged.
The court may order completion of the sale.


2. Transfer of Unique Property
Specific performance may apply where the item is rare or irreplaceable.
Examples include:

• antiques;
• rare artwork;
• unique shares;
• historic items;
• family heirlooms.

The claimant must show that damages would not adequately compensate for the loss.


3. Certain Commercial Contracts
Courts may grant specific performance where:

• the contractual obligation is clear;
• supervision is not difficult;
• damages are inadequate.

Example
A contract to deliver rare machinery unavailable elsewhere.


4. Trust Obligations
Courts may compel trustees to perform duties under a trust.
Examples include:

• transferring trust property;
• distributing trust funds;
• handing over trust documents;
• carrying out administrative duties required by the trust.

This principle is illustrated in Re Tillott.


5. Contracts Involving Shares in Private Companies
Specific performance may be granted where shares are not freely available on the market.
This is because damages may not allow the claimant to obtain equivalent shares elsewhere.


6. Negative Covenants (Indirectly)
Although technically enforced through injunctions, courts sometimes support contractual obligations indirectly through equitable remedies.
Example
A performer contracted not to sing for competitors may be restrained from doing so.
The court is not forcing performance, but is preventing breach of a negative promise.


What Does NOT Fall Under Specific Performance
1. Employment Contracts
Courts generally refuse to compel personal service contracts.
Reasons include:

• difficulty supervising performance;
• breakdown of trust and confidence;
• concerns about forcing labour against someone’s will.

Example
A theatre company cannot usually force an actor to continue performing.


2. Contracts Requiring Constant Court Supervision
Courts avoid orders requiring ongoing monitoring.
Example
A long-term construction project needing continuous supervision.
The court prefers damages instead.


3. Contracts Where Damages Are Adequate
If money can sufficiently compensate the claimant, specific performance will not usually be granted.
Example
Failure to deliver ordinary goods widely available on the market.
The claimant can simply buy replacements.


4. Uncertain or Incomplete Contracts
Specific performance requires clear contractual terms.
The court will refuse where:

• terms are vague;
• obligations are uncertain;
• important details are missing.

5. Contracts Obtained Unfairly
Equity requires clean hands.
Specific performance may be refused where there is:

• fraud;
• undue influence;
• misrepresentation;
• unconscionable conduct.

6. Discretionary Trust Decisions
Courts usually will not interfere with trustees exercising lawful discretion.
This principle is illustrated in Re Blake.
Example
Beneficiaries cannot normally force trustees to choose them for discretionary payments if trustees act properly.


Practical Scenario
Example 1 – Specific Performance Granted
Sophia contracts to buy a historic countryside manor.
The seller refuses to transfer the property after receiving a higher offer.
The court would likely grant specific performance because:

• land is unique;
• the contract is valid;
• damages are inadequate.

Example 2 – Specific Performance Refused
A football club attempts to force a player to continue playing under an employment contract.
The court would likely refuse because:

• employment relationships require personal cooperation;
• supervision is impractical;
• equity does not compel personal service.

Key Principles for SQE
Specific performance is:

• equitable;
• discretionary;
• available only where damages are inadequate;
• commonly used for land and unique property.

Specific performance will not usually be granted where:

• damages are sufficient;
• enforcement is impractical;
• supervision is difficult;
• the claimant acted unfairly;
• the contract concerns personal service.

Conclusion
Under UK law, specific performance primarily applies to contracts and trust obligations involving unique subject matter or situations where damages are inadequate. It is especially important in land transactions and trust administration.
However, courts refuse the remedy where enforcement would be unfair, uncertain, excessively supervisory, or inconsistent with equitable principles, particularly in employment and discretionary trust situations.

​

Equity and Trust – Account of Profits
Case Scenario
Emma is a trustee of the Carter Family Trust. The trust contains £500,000 intended for the benefit of several minor beneficiaries.
Without authorisation, Emma secretly uses £200,000 of trust money to purchase an investment property in Manchester in her own name. Over the next three years, the property market rises significantly and the property increases in value to £450,000. Emma also receives rental income from tenants during that period.
The beneficiaries discover the misuse of trust money and bring a claim against Emma.
The issue is whether the beneficiaries can recover only the original £200,000 or whether they are entitled to the profits Emma made from using trust property.


Account of Profits
Definition
An account of profits is an equitable remedy requiring a defendant to surrender profits improperly obtained through breach of fiduciary duty.
The remedy commonly arises where:

• trustees make unauthorised profits;
• trustees misuse trust property;
• trustees obtain secret benefits;
• fiduciaries profit from their position without consent.

The purpose is to prevent trustees from benefiting personally from breaches of trust.


Key Principle
A trustee must not profit from their fiduciary position unless fully authorised by:

• the trust instrument;
• the beneficiaries;
• or the court.

If a trustee improperly profits, equity requires the profit to be handed over to the beneficiaries.


Practical Application
Why is repayment of the original sum sometimes insufficient?
Simply repaying the original money may still leave the trustee with a personal gain obtained through breach of trust.
In the scenario:

• Emma used £200,000 of trust money;
• the property later became worth £450,000;
• Emma also earned rental income.

If Emma only repaid £200,000, she would keep the increase in value and rental profits generated using trust assets.
That would unfairly benefit Emma at the beneficiaries’ expense.


What Can the Beneficiaries Claim?
The beneficiaries may seek:

• repayment of the original trust money;
• profits generated from the property;
• increase in property value;
• rental income earned;
• any additional financial benefit linked to the breach.

The court may therefore require Emma to account for the full profits obtained from misuse of trust assets.


Why Equity Imposes This Remedy
Equity imposes strict fiduciary duties on trustees because trustees occupy positions of trust and confidence.
The remedy aims to:

• deter fiduciary misconduct;
• prevent unjust enrichment;
• protect beneficiaries;
• ensure trustees act loyally and honestly.

The trustee’s intention is often irrelevant.
Even if Emma acted in good faith, she may still be required to surrender the profits.


Difference Between Compensation and Account of Profits
Compensation
Compensation focuses on the beneficiaries’ loss.
The court asks:

• “How much has the trust lost?”

Account of Profits
Account of profits focuses on the trustee’s gain.
The court asks:

• “How much profit did the trustee make from the breach?”

The remedies therefore serve different purposes.


Practical Example
Example 1 – Account of Profits Granted
A trustee secretly uses trust funds to buy shares.
The shares double in value.
The beneficiaries may claim:

• the original trust money;
• the increase in share value;
• dividends received.

The trustee cannot retain profits arising from misuse of trust property.


Example 2 – Secret Commission
A trustee receives a hidden payment from a company in exchange for investing trust money with that company.
Even if the trust itself suffers no loss, the trustee may still have to surrender the commission because it was obtained through fiduciary position.


Remedies the Court May Grant
The court may order:

• repayment of profits;
• transfer of property acquired with trust money;
• tracing into substitute assets;
• constructive trust over profits;
• equitable compensation.

In some cases, beneficiaries may choose the remedy most advantageous to them.


Solving the Scenario
Emma clearly breached her fiduciary duties because she:

• used trust money without authority;
• placed herself in conflict with beneficiaries’ interests;
• personally profited from trust property.

The beneficiaries would likely succeed in claiming:

• the original £200,000;
• the increase in property value;
• rental income generated from the property.

The court may also impose a constructive trust over the property itself.
Emma would not be allowed to retain any profit obtained through misuse of trust assets.


Key SQE Principles
An account of profits:

• is an equitable remedy;
• applies mainly to fiduciaries and trustees;
• prevents unauthorised personal gain;
• focuses on defendant’s profit rather than claimant’s loss;
• may exceed the original amount misappropriated.

Trustees are strictly prohibited from profiting from their fiduciary position without proper authority.


Conclusion
An account of profits ensures trustees and fiduciaries do not benefit from breaches of trust or misuse of trust property. Where trustees make unauthorised gains, equity requires them to surrender both the original assets and any profits derived from those assets.
The remedy protects beneficiaries, enforces fiduciary loyalty, and prevents unjust enrichment arising from abuse of trust.

​

Equity and Trust – What Can Beneficiaries Recover in an Account of Profits?


Short Answer


The beneficiaries are not limited to recovering only one item.


Under an account of profits claim, the court may require the trustee to surrender all gains obtained from the misuse of trust property.


Therefore, in the scenario, the beneficiaries could potentially recover:

• the original £200,000;

• the increase in the property’s value;

• the rental income earned from the property.

The aim is to strip the trustee of every unauthorised benefit connected to the breach of trust.


⸻


How This Works in Practice


Scenario


Emma improperly uses £200,000 of trust money to buy a property.


Later:

• the property value rises to £450,000;

• Emma earns rental income from tenants.

⸻


What Are the Beneficiaries Actually Claiming?


The beneficiaries are effectively saying:


“That property and its profits were generated using trust money, so the trustee should not keep any of the benefits.”


Equity therefore treats the profits as belonging to the trust.


⸻


Option 1 – Recovery of the Property Itself


The court may treat the property as held on constructive trust for the beneficiaries.


This means the beneficiaries may claim:

• ownership of the property itself;

• including its increased value.

So if the property is now worth £450,000, the trust may recover the full property worth £450,000.


⸻


Option 2 – Rental Income


Because the rental income was generated from property purchased with trust money, the beneficiaries may also claim:

• all net rental profits earned from the property.

Example:


If Emma received £60,000 in rent, the beneficiaries may claim that too.


⸻


Is the Original £200,000 Claimed Separately?


Usually, the beneficiaries do not recover:

• the £450,000 property value;

• PLUS another separate £200,000.

That would amount to double recovery.


Instead, the court normally gives a remedy representing the total value of the misused asset and profits.


⸻


Practical Understanding


If the Property Still Exists


The beneficiaries will usually prefer:

• the property itself;

• including all appreciation in value.

That already includes the original £200,000 invested.


They may additionally claim rental profits.


⸻


If the Property Has Been Sold


Suppose Emma sold the property for £450,000.


The beneficiaries may claim:

• the sale proceeds;

• plus any rental profits retained.

⸻


Main Principle


The trustee cannot keep any profit resulting from misuse of trust property.


Equity aims to remove the entire unauthorised gain.


The court focuses on:

• what the trustee gained;

    not merely

• what the beneficiaries lost.

Example Calculation


Initial Misuse


Trust money taken:
£200,000




Later Position


Property value:
£450,000


Rental income:
£60,000



Possible Recovery


The beneficiaries may recover:

• the property worth £450,000 (or sale proceeds);

• plus £60,000 rental profits.

Total possible recovery:
£510,000


The trustee does not get credit for the fact only £200,000 was originally taken because the profits arose entirely from misuse of trust assets.


⸻


Key SQE Principle


An account of profits is designed to:

• prevent fiduciaries from benefiting from breaches of trust;

• strip all unauthorised profits;

• prevent unjust enrichment.

The remedy may therefore exceed the original amount misappropriated.



Conclusion


The beneficiaries are generally entitled to recover the full benefit obtained through misuse of trust property, not merely the original sum taken. In the scenario, that could include:

• the property and its increased value; and

• rental income generated from it.

However, the beneficiaries cannot usually recover duplicate amounts that would overcompensate them. Equity seeks full restitution of unauthorised gains, not double recovery.

SQE – Equity and Trust – Equitable Compensation
Case Scenario
Nathan and Chloe are trustees of the Harper Family Trust. The trust contains investment funds intended for the benefit of several beneficiaries.
Without proper authority, Nathan transfers £300,000 of trust money into a speculative overseas investment scheme. The investment later collapses and the money disappears completely. The funds cannot be traced because the company has become insolvent and the money has passed through numerous international accounts.
The beneficiaries demand restoration of the trust fund. However, because the original money and assets no longer exist, restitution and tracing are impossible.
The beneficiaries therefore bring a claim for equitable compensation against Nathan.
The issue is whether the court can compensate the beneficiaries for the loss caused by breach of trust.


Equitable Compensation
Definition
Equitable compensation is an equitable monetary remedy awarded for breach of fiduciary duty or breach of trust.
The purpose is to place the beneficiaries back into the position they would have been in had the breach not occurred.
It operates similarly to common law damages but follows equitable principles.


Main Purpose
The remedy seeks to restore the trust fund or beneficiaries to the position they should properly occupy.
The court asks:
“What loss has the breach of trust caused?”


When Is Equitable Compensation Needed?
Equitable compensation is especially important where:

• trust property cannot be returned;
• tracing has failed;
• assets no longer exist;
• restitution is impossible;
• property has been dissipated.

Practical Application
Why Is Restitution Sometimes Impossible?
Ideally, trust property should simply be restored to the trust.
This may happen where:

• the asset still exists;
• the property can be traced;
• substitute property can be identified.

However, in the scenario:

• the money disappeared;
• the investment collapsed;
• the assets cannot be traced.

Therefore, returning the original property is impossible.
The beneficiaries must instead seek monetary compensation.


Difference Between Restitution and Equitable Compensation
Restitution
Restitution focuses on:

• returning the original property;
• restoring identifiable trust assets.

Example:
A trustee wrongfully transfers trust shares but the shares are still identifiable.
The court may order return of the shares.


Equitable Compensation
Equitable compensation applies where restoration is impossible.
The court instead orders the trustee personally to compensate the trust for the financial loss caused by the breach.


Practical Example
Example 1 – Compensation Required
A trustee improperly transfers £500,000 into a fraudulent investment scheme.
The company collapses and the money disappears permanently.
Because the money cannot be traced or recovered, the trustee may be ordered to pay equitable compensation equal to the loss suffered.


Example 2 – Property Destroyed
A trustee wrongfully sells trust artwork below market value and the artwork is later destroyed.
Since the property no longer exists, beneficiaries may seek equitable compensation for the value lost.


Relationship With Common Law Damages
Equitable compensation resembles damages because both provide monetary relief.
However, important differences exist.


Common Law Damages
Common law damages generally focus on:

• remoteness;
• foreseeability;
• causation rules.

Equitable Compensation
Equitable compensation focuses more strictly on:

• restoring the trust fund;
• fiduciary accountability;
• protecting beneficiaries.

Courts may apply more rigorous standards against trustees because fiduciary duties are strict.


Important Authorities
The principles were discussed extensively in Target Holdings Ltd v Redferns.
The case explored the relationship between equitable compensation and common law damages.
More recently, both equitable compensation and common law damages were awarded in Main v Giambrone.


Solving the Scenario
Nathan breached trust by:

• transferring trust money without proper authority;
• exposing the trust fund to improper risk;
• causing loss to beneficiaries.

Because:

• the money no longer exists;
• tracing is impossible;
• restitution cannot occur,

the court would likely award equitable compensation.
Nathan may therefore be personally liable to restore the lost £300,000 to the trust fund.


Key SQE Principles
Equitable compensation:

• is an equitable monetary remedy;
• applies mainly to breach of trust and fiduciary duties;
• restores beneficiaries to the position they would have occupied absent the breach;
• is commonly used where tracing or restitution is impossible.

The remedy protects beneficiaries where trust assets cannot physically be recovered.


Further Research
Key Cases to Review
Target Holdings Ltd v Redferns
Important for:

• relationship between equitable compensation and common law damages;
• causation principles in breach of trust claims;
• restoration of trust funds.

Main v Giambrone
Important for:

• concurrent award of equitable compensation and common law damages;
• solicitor’s fiduciary liability;
• professional negligence overlap.

AIB Group (UK) plc v Mark Redler & Co Solicitors
Important for:

• limits of equitable compensation;
• causation analysis;
• modern approach to assessing trustee liability.

Topics Closely Connected to Equitable Compensation
Further SQE revision should include:

• tracing in equity;
• proprietary remedies;
• constructive trusts;
• fiduciary duties;
• breach of trust remedies;
• account of profits;
• equitable rescission;
• restitution;
• causation in equity.

Conclusion
Equitable compensation is a key equitable remedy used where trust property cannot be restored or traced. It compensates beneficiaries for losses caused by breach of trust and aims to place them back in the position they would have occupied had the breach not occurred.
The remedy differs from restitution because it provides monetary recovery rather than return of property, and it reflects the strict accountability imposed on trustees and fiduciaries under equity.

​

​Equity and Trust – Declarations


Case Scenario


The trustees of the Hamilton Family Trust manage a large investment portfolio for retired beneficiaries. The trustees disagree about whether the trust should invest in companies connected to fossil fuels and arms manufacturing.


Some trustees believe these investments are profitable and necessary to maximise returns for beneficiaries. Others refuse to approve the investments because they object on ethical grounds.


At the same time, the trust owns a historic family estate that has become extremely expensive to maintain. The trustees wish to sell the property to preserve the remaining trust assets, but the principal beneficiary strongly opposes the sale and repeatedly threatens legal action against the trustees.


The trustees are uncertain whether their proposed actions are lawful and seek guidance from the court.


⸻


Declarations


Definition


A declaration is an equitable remedy in which the court formally states the legal position or clarifies the rights, duties, or obligations of the parties.


Unlike damages or injunctions, a declaration does not directly order compensation or compel conduct.


Instead, the court declares:

• what the law is;

• how it applies;

• whether conduct is lawful;

• or how trustees should act.

⸻


Purpose of Declarations


Declarations are commonly used where:

• trustees require legal guidance;

• uncertainty exists about trust powers;

• beneficiaries challenge trustee decisions;

• trustees seek court approval before acting.

The remedy helps trustees administer trusts safely and properly.


⸻


Why Declarations Are Important


Although declarations may appear less forceful than injunctions or compensation, they are extremely important because they:

• clarify trustees’ duties;

• reduce litigation risk;

• protect trustees from later claims;

• confirm whether proposed conduct is lawful;

• guide future trust administration.

⸻


Practical Application


Ethical Investments


In the scenario, trustees disagree about ethical investments.


The court may issue a declaration clarifying:

• whether trustees must prioritise financial benefit;

• whether ethical concerns may properly influence investment decisions;

• whether refusal to invest constitutes breach of trust.

This resembles Cowan v Scargill.


⸻


Cowan v Scargill


Principle


The case concerned trustees of a miners’ pension fund.


Some trustees refused certain overseas and energy investments for ethical and political reasons.


The court declared that the trustees were in breach of trust because trustees generally must act in beneficiaries’ best financial interests.


⸻


Key Principle From the Case


Trustees must normally:

• prioritise beneficiaries’ financial welfare;

• act prudently;

• avoid allowing personal ethical views to override beneficiary interests.

However, modern trust law recognises some limited scope for ethical investing where consistent with beneficiary interests and trust purposes.


⸻


Difficult Administrative Decisions


Sale of Trust Property


In the scenario, trustees want to sell an expensive estate to preserve trust funds.


Because the principal beneficiary opposes the decision and threatens litigation, the trustees seek a declaration confirming that the proposed sale is lawful and properly exercised.


This resembles Cotton v Earl of Cardigan.


⸻


Cotton v Earl of Cardigan


Principle


Trustees administering an impoverished estate sought court approval for sale of estate property.


The principal beneficiary repeatedly challenged the trustees’ actions.


The court’s declaration helped confirm that the trustees’ decision was properly made and protected them from further claims.


⸻


What Declarations Can Clarify


Courts may declare:

• scope of trustee powers;

• validity of trustee decisions;

• proper interpretation of trust terms;

• rights of beneficiaries;

• legality of proposed transactions;

• duties owed by trustees.

⸻


Difference Between Declarations and Other Remedies


Declaration


States legal rights or duties.


Does not necessarily compel action.


⸻


Injunction


Orders someone:

• to stop doing something; or

• to perform a positive act.

⸻


Specific Performance


Compels performance of contractual or trust obligations.


⸻


Equitable Compensation


Provides monetary recovery for losses caused by breach.


⸻


Solving the Scenario


Ethical Investment Dispute


The court may declare:

• trustees must prioritise beneficiaries’ financial interests;

• refusal to adopt reasonable investment strategy may breach trust duties.

⸻


Proposed Sale of Estate


The court may declare:

• the trustees acted properly;

• the sale falls within trustee powers;

• the decision is lawful and prudent.

This protects trustees against future claims by dissatisfied beneficiaries.


⸻


Key SQE Principles


Declarations:

• are equitable remedies;

• clarify legal rights and duties;

• are especially important in trust administration;

• help trustees avoid liability;

• provide guidance where uncertainty exists.

Trustees frequently seek declarations before taking controversial or high-risk decisions.


⸻


Further Research


Important Cases


Cowan v Scargill


Important for:

• ethical investment;

• trustees’ duties;

• beneficiaries’ financial interests.

⸻


Cotton v Earl of Cardigan


Important for:

• trustee protection;

• sale of trust property;

• court guidance in difficult administration decisions.

⸻


Nestle v National Westminster Bank plc


Important for:

• trustee investment duties;

• standard of care;

• prudent investment principles.

⸻


Conclusion


Declarations are an important equitable remedy allowing courts to clarify the law and guide trustees in difficult or uncertain situations. Although they do not directly compel conduct or award damages, declarations play a vital role in protecting trustees, resolving disputes, and ensuring proper trust administration.

​KembaraXtra – Bharatiya Sakshya Adhiniyam (BSA) – Comparative Notes on Indian Evidence Act, 1872 and Bharatiya Sakshya Adhiniyam, 2023

Introduction
The Bharatiya Sakshya Adhiniyam, 2023 (BSA) replaces the Indian Evidence Act, 1872 (IEA). Although the foundational structure of the old law has largely been retained, the BSA introduces important modifications to modernize evidence law, especially in relation to electronic and digital evidence. Many provisions have been renumbered, simplified, and technologically updated.

Comparative Notes between IEA, 1872 and BSA, 20231. Short Title, Application and CommencementIndian Evidence Act, 1872

• Section 1 dealt with:
  • Short title,
  • Extent, and
  • Commencement.

Bharatiya Sakshya Adhiniyam, 2023

• Section 1 deals with:
  • Short title,
  • Application, and
  • Commencement.

Important Change
The expression relating to territorial extent has been omitted in the BSA to facilitate admissibility of electronic and digital evidence originating outside India.

2. Definitions and Interpretation Clause
IEA, 1872

• Definitions were contained under Section 3.

BSA, 2023

• Definitions are consolidated under Section 2.

Important Changes
The BSA introduces modern definitions relating to:

• Electronic records,
• Digital records,
• Communication devices,
• Electronic evidence.

3. Relevancy of Facts
The principles relating to relevancy of facts have largely been retained with revised numbering and simplified headings.
Examples

• Section 6 IEA (Same transaction) → Section 4 BSA.
• Section 7 IEA (Occasion, cause, effect) → Section 5 BSA.
• Section 8 IEA (Motive, preparation, conduct) → Section 6 BSA.
• Section 9 IEA (Facts necessary to explain) → Section 7 BSA.

Important Observation
The substance of the provisions remains substantially the same, though the structure has been simplified.

4. Admissions and Confessions
Admissions
The provisions relating to admissions are substantially retained under revised section numbers.
Confessions
The BSA retains provisions regarding:

• Confession to police officers,
• Confession in police custody,
• Discovery statements.

These are mainly consolidated under Section 23.
Important Change
Certain provisions of the IEA such as Sections 28 and 29 are not separately reproduced in the BSA.

5. Electronic and Digital Evidence
Most Significant Reform under the BSAThe BSA extensively incorporates:

• Electronic evidence,
• Digital records,
• Electronic agreements,
• Electronic signatures.

Under IEA
Electronic evidence was mainly governed by Sections 65A and 65B.
Under BSA
Electronic evidence is integrated throughout the statute.
Important Changes

• Electronic evidence recognized as primary evidence.
• Digital records included within definition of document.
• Sections 61–63 specifically deal with electronic records.
• Hash certification mechanism introduced.

6. Documentary Evidence
Under IEA
Documents mainly referred to physical documents.

Under BSA
The definition of document now expressly includes:

• Emails,
• Server logs,
• Smartphones,
• Websites,
• Messages,
• Digital files,
• Locational evidence.

Significance
The BSA modernizes documentary evidence to accommodate digital technology.

7. Public and Private Documents
IEA
Public and private documents were dealt with separately under Sections 74 and 75.
BSA
Section 74 consolidates provisions relating to public and private documents.
Additional Feature
Electronic public records are also recognized.

8. Presumptions Regarding Electronic Records
The BSA introduces and expands presumptions relating to:

• Electronic agreements,
• Electronic records,
• Electronic signatures,
• Digital signature certificates,
• Electronic gazettes.

PurposeTo facilitate admissibility and authenticity of digital evidence.

9. Proof of Signature and Electronic Signature
IEA
Focused mainly on:

• Handwriting,
• Signatures,
• Seals.

BSA
Also includes:

• Electronic signatures,
• Digital signatures,
• Verification procedures for electronic authentication.

10. Expert Opinion
IEA Section 45
Expert opinion was confined to specific subjects such as:

• Science,
• Art,
• Handwriting,
• Fingerprints,
• Foreign law.

BSA Section 39
Expert opinion has been expanded to all fields requiring specialized knowledge.

11. Judicial Notice
BSA Introduces Judicial Notice of

• International treaties,
• International agreements,
• Electronic gazettes,
• Digital records.

This modernization was absent in the IEA.

12. Removal of Colonial Terminology
The BSA removes several colonial references such as:

• Parliament of the United Kingdom,
• Privy Council,
• Her Majesty,
• Queen’s Printer,
• Commonwealth references.

Importance
This reflects Indianization and modernization of evidence law.

13. Modernized Language
Several outdated expressions have been replaced with modern terminology.
Example

• “Lunatic” replaced by “Person of unsound mind”.

Important Comparative Notes
Major Similarities

• Fundamental principles of relevancy retained.
• Rules regarding admissions and confessions substantially preserved.
• Basic framework of proof and presumptions maintained.

Major Changes

• Recognition of digital and electronic evidence.
• Electronic records treated as primary evidence.
• Expanded definition of document and evidence.
• Introduction of hash certificate mechanism.
• Wider scope of expert opinion.
• Judicial notice modernized.
• Colonial terminology removed.

Major Criticisms

• Many provisions merely renumbered.
• Limited structural reform.
• Concerns regarding tampering of electronic evidence.
• Lack of sufficient safeguards against misuse of digital records.

​Introduction
The Bharatiya Sakshya Adhiniyam, 2023 (BSA) replaces the Indian Evidence Act, 1872 (IEA) while preserving much of its foundational structure. However, the BSA modernizes Indian evidence law by incorporating electronic records, digital evidence, modern terminology, and revised procedural provisions. The following comparative notes explain the important changes between the two enactments in note form.

Comparative Notes1. Presumptions regarding Books, Maps and Charts
IEA, 1872

• Section 87 dealt with presumptions regarding books, maps, and charts.

BSA, 2023

• Section 89 contains the same provision with revised numbering.

2. Presumption as to Telegraphic Messages
IEA, 1872

• Section 88 dealt with telegraphic messages.

BSA, 2023

• This provision has been omitted because telegraphic communication has become obsolete.

3. Presumption as to Electronic Messages
IEA, 1872

• Section 88A dealt with electronic messages.

BSA, 2023

• Section 90 continues the provision regarding electronic messages.

ImportanceReflects growing reliance on electronic communication.

4. Presumption as to Documents not Produced
IEA

• Section 89.

BSA

• Section 91.

The provision remains substantially similar.

5. Presumption regarding Old Documents
IEA

• Section 90 dealt with documents thirty years old.
• Section 90A dealt with electronic records five years old.

BSA

• Section 92 deals with thirty-year-old documents.
• Section 93 deals with electronic records five years old.

Important ChangeSeparate recognition of old electronic records reflects modernization of documentary evidence.

6. Evidence relating to Contracts and Dispositions of Property
IEA

• Section 91 referred to contracts and grants reduced to form of document.

BSA

• Section 94 uses broader expression:
  • “Contracts, grants and other dispositions of property reduced to form of document.”

PurposeClarifies applicability to property-related transactions.

7. Exclusion of Oral Evidence
IEA

• Sections 92–99 dealt with exclusion of oral evidence and interpretation of documents.

BSA

• Corresponding provisions are Sections 95–102.

Important Observation
The principles remain substantially unchanged but headings are simplified and modernized.

8. Burden of Proof
IEA

• Section 101 onwards dealt with burden of proof.

BSA

• Burden of proof begins from Section 104 onwards.

Principle Retained
The basic rules regarding:

• Burden of proof,
• Onus of proof,
• Presumptions,
  remain substantially the same.

9. Birth during Marriage – Legitimacy
IEA

• Section 112.

BSA

• Section 116.

Important PointBirth during valid marriage continues to be conclusive proof of legitimacy.

10. Presumption regarding Suicide and Dowry Death
IEA

• Section 113A – Abetment of suicide by married woman.
• Section 113B – Dowry death.

BSA

• Section 117 – Abetment of suicide by married woman.
• Section 118 – Dowry death.

Importance
These presumptions continue to protect married women against cruelty and dowry-related offences.

11. Court may Presume Existence of Certain Facts
IEA

• Section 114.

BSA

• Section 119.

Principle
Courts may presume facts based on:

• Natural events,
• Human conduct,
• Public and private business.

12. Presumption as to Absence of Consent in Rape Cases
IEA

• Section 114A.

BSA

• Section 120.

Importance
Strengthens protection of victims in sexual offence prosecutions.

13. Estoppel
IEA

• Sections 115–117.

BSA

• Sections 121–123.

Important Change
Estoppel of tenant continues even after termination of tenancy under the BSA.

14. Competency of Witnesses
IEA

• Sections 118–120.

BSA

• Sections 124–126.

Important Changes
Modern terminology introduced:

• “Person of unsound mind” replaces archaic expressions.

15. Privileged Communications
IEA

• Sections 122–130 dealt with:
  • Marital communications,
  • Affairs of State,
  • Official communications,
  • Professional communications.

BSA

• Corresponding provisions are Sections 128–135.

Additional Protection
The BSA strengthens confidentiality protections relating to ministerial and professional communications.

16. Production of Documents
IEA

• Sections 131–163.

BSA

• Sections 136–166.

Important Change
The BSA now expressly includes:

• Electronic records,
• Digital documents,
  within provisions relating to production and admissibility.

17. Examination of Witnesses
IEA

• Sections 135–166 governed examination of witnesses.

BSA

• Sections 140–166 deal with:
  • Examination-in-chief,
  • Cross-examination,
  • Leading questions,
  • Impeaching credit,
  • Refreshing memory.

Important ObservationSubstantive principles remain largely unchanged.

18. Leading Questions
IEA

• Sections 141–143 separately dealt with leading questions.

BSA

• Consolidated under Section 146.

PurposeSimplifies statutory structure.

19. Cross-Examination and Impeachment of Credit
IEA

• Sections 145–155.

BSA

• Sections 148–158.

Important Feature
The BSA preserves safeguards relating to:

• Witness credibility,
• Cross-examination,
• Contradiction by previous statements.

20. Refreshing Memory
IEA

• Section 159 onwards.

BSA

• Section 162 onwards.

Modernization
The provisions now also accommodate digital and electronic records.

Major Structural Changes under the BSA
Electronic Evidence Integrated Throughout
Unlike the IEA, where electronic evidence was confined mainly to Sections 65A and 65B, the BSA incorporates electronic and digital evidence throughout the statute.

Modern Terminology
Several colonial and outdated expressions have been removed and replaced with modern language.

Simplification and Renumbering
Many provisions are:

• Renumbered,
• Reorganized,
• Simplified for clarity.

Important Points (Note Form)Major Additions

• Electronic records recognized.
• Digital evidence integrated.
• Electronic signatures included.
• Electronic gazettes recognized.
• Digital documents treated as evidence.

Major Omissions

• Telegraphic message provisions removed.
• Some redundant colonial provisions omitted.

Major Continuities

• Principles of relevancy retained.
• Burden of proof unchanged.
• Rules regarding admissions and confessions preserved.
• Witness examination structure maintained.

Major Criticisms

• Excessive renumbering without substantive reform.
• Risk of tampering with digital evidence.
• Practical implementation challenges.
• Lack of adequate cyber infrastructure. 

​Comparative Notes
​1. Using as Evidence a Document whose Production was Refused on NoticeIndian Evidence Act, 1872

• Section 164 dealt with:
  • Using as evidence a document,
  • Production of which was refused on notice.

Bharatiya Sakshya Adhiniyam, 2023

• Section 167 contains the corresponding provision.

Principle
If a party refuses to produce a document after proper notice, the opposite party may later use secondary evidence regarding that document.

Important Observation
The principle remains substantially unchanged under the BSA.

2. Judge’s Power to Put Questions or Order Production
Indian Evidence Act, 1872

• Section 165 empowered judges to:
  • Ask questions,
  • Order production of documents,
  • Discover relevant facts.

Bharatiya Sakshya Adhiniyam, 2023

• Section 168 contains the same provision.

Importance
This section gives wide powers to judges to ensure:

• Discovery of truth,
• Fair trial,
• Proper administration of justice.

Important Point
The Judge is not merely a passive observer but plays an active role in uncovering truth.

3. Power of Jury or Assessors to Put QuestionsIndian Evidence Act, 1872

• Section 166 dealt with:
  • Power of jury or assessors to put questions.

Bharatiya Sakshya Adhiniyam, 2023

• This provision has been omitted.

Reason for Omission
The jury system has long been abolished in India, making the provision obsolete.

4. No New Trial for Improper Admission or Rejection of EvidenceIndian Evidence Act, 1872

• Section 167 provided that:
  • Improper admission or rejection of evidence alone does not necessarily invalidate a trial.

Bharatiya Sakshya Adhiniyam, 2023

• Section 169 retains the same principle.

Principle
A new trial will not be ordered unless:

• The error has caused substantial injustice, or
• It has affected the final decision of the case.

Purpose
This provision prevents unnecessary retrials based on minor technical defects.

Important Comparative Observations
Retention of Core Judicial Principles
The BSA preserves the important judicial principles relating to:

• Judicial discretion,
• Discovery of truth,
• Fair trial,
• Evidentiary balance.

Removal of Obsolete Provisions
The omission of provisions relating to:

• Jury,
• Assessors,
  reflects modernization of Indian procedural law.

Simplification and Renumbering
Many provisions are:

• Renumbered,
• Reorganized,
• Simplified,
  while retaining their original substance.

Important Points
Major Continuities

• Judge’s powers substantially retained.
• Rules regarding improper admission of evidence preserved.
• Judicial discretion continues.

Major Omissions

• Jury-related provisions omitted.
• Obsolete procedural references removed.

Major Objectives of BSA

• Modernization of evidence law.
• Integration of electronic evidence.
• Simplification of statutory language.
• Efficient administration of justice.

Conclusion
​The concluding provisions of the Bharatiya Sakshya Adhiniyam, 2023 demonstrate continuity with the Indian Evidence Act, 1872 while removing obsolete provisions and simplifying procedural structure. The BSA preserves the fundamental role of judges in discovering truth and ensuring fair trial, while adapting Indian evidence law to modern realities and technological developments.

Equity and Trust – Restitution in Contract Law and Trust Law
What Is Restitution?
Restitution is a remedy designed to:
restore benefits or property unfairly received by another person.
The purpose is to prevent unjust enrichment.
The court asks:
“Has someone received a benefit they should not fairly keep?”
If yes, the benefit may need to be returned.


Restitution in Contract Law
When Is It Applicable?
Restitution commonly applies where:

• a contract is rescinded;
• a contract is void;
• a contract fails completely;
• money was paid by mistake;
• there is total failure of consideration.

Contract Law Example With Figures
Scenario
Sophia contracts with Elite Kitchens Ltd to install a luxury kitchen for £80,000.
Sophia pays the full amount in advance.
Before any work begins:

• the company goes into liquidation;
• no kitchen is supplied;
• no materials are delivered.

Legal Position
Sophia received nothing in return for her payment.
There has been a:
total failure of consideration.


Restitutionary Remedy
The court may order restitution requiring Elite Kitchens Ltd (or its insolvency estate) to repay:
£80,000
because the company was unjustly enriched by retaining payment without providing performance.


Why Restitution Applies
The purpose is not compensation for loss.
Instead, the court focuses on:

• reversing unjust enrichment;
• restoring Sophia’s money.

Another Contract Example – Rescission
Scenario
Daniel buys a business for:
£500,000
The seller fraudulently misrepresents the business profits.
Daniel later rescinds the contract.


Restitutionary Consequences
Because the contract is rescinded:

• Daniel returns the business;
• the seller returns the £500,000 purchase price.

The parties are restored to their pre-contract positions.


Restitution in Trust Law
When Is It Applicable?
In trust law, restitution commonly applies where:

• trust property was wrongly transferred;
• trustees improperly received benefits;
• fiduciaries made unauthorised gains;
• trust assets can be restored.

The aim is to restore trust property to the beneficiaries or trust fund.


Trust Law Example With Figures
Scenario
Emma is trustee of the Carter Trust.
The trust contains:
£300,000
Emma improperly transfers:
£120,000
from the trust into her personal bank account and uses it to buy shares.
The shares later increase in value to:
£200,000


Legal Position
Emma improperly benefited from trust property.
The beneficiaries may seek restitutionary remedies.


Restitutionary Recovery
The court may require Emma to restore:

• the shares worth £200,000;
  or
• the sale proceeds if sold.

The beneficiaries are not limited to recovering only the original £120,000.


Why?
Because the profits were generated using trust assets.
Equity prevents trustees from retaining unauthorised gains.


Another Trust Example – Wrongful Transfer
Scenario
A trustee wrongly transfers trust money of:
£250,000
to a third party.
The third party still possesses the money and knew about the breach of trust.


Remedy
The court may order restitution requiring return of the £250,000 to the trust.
This restores the trust fund.


Difference Between Restitution and Compensation
Restitution
Focuses on:
the defendant’s gain.
Question:
“What benefit was unjustly received?”


Compensation or Damages
Focuses on:
the claimant’s loss.
Question:
“What loss did the claimant suffer?”


Key Difference Between Contract and Trust Restitution
Contract Law
Usually concerns:

• reversing failed transactions;
• repayment of money;
• unjust enrichment after contract failure.

Trust Law
Usually concerns:

• restoring trust property;
• reversing fiduciary wrongdoing;
• recovering profits from misuse of trust assets.

Practical Comparison
Contract Example
Sophia pays:
£80,000
No work done.
Restitution:
£80,000 repayment.


Trust Example
Emma misuses:
£120,000
Investment grows to:
£200,000
Restitution:
entire £200,000 investment value may be recoverable.


When Restitution Is Most Commonly Used
Contract Law

• rescission;
• failed contracts;
• mistaken payments;
• void contracts;
• unjust enrichment.

Trust Law

• breach of trust;
• tracing claims;
• unauthorised profits;
• fiduciary misconduct;
• recovery of trust assets.

Important Cases for Further Research
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
Important for restitution and total failure of consideration.


Pitt v Holt
Important for rescission and restoration of trust property.


Foskett v McKeown
Important for tracing and proprietary recovery of trust assets.


Conclusion
Restitution is a remedy designed to reverse unjust enrichment by restoring money, property, or benefits improperly received.
In contract law, restitution usually arises after failed or rescinded contracts.
In trust law, restitution commonly restores trust property and strips fiduciaries of unauthorised gains, often allowing beneficiaries to recover profits generated from trust assets.

​

​KembaraXtra – Bharatiya Sakshya Adhiniyam (BSA) – Modernization of Terminology under the BSA
Introduction
​One of the important reforms introduced by the Bharatiya Sakshya Adhiniyam, 2023 (BSA) is the modernization of legal terminology. The BSA replaces several colonial-era and insensitive expressions used in the Indian Evidence Act, 1872 (IEA) with more respectful, contemporary, and legally appropriate language.

Replacement of Outdated Terminology
Use of the Term “Person of Unsound Mind”Under the Indian Evidence Act, 1872, Section 118 used the term:

• “Lunatic”.

This expression was considered outdated, insensitive, and inconsistent with modern understanding of mental health and human dignity.
The Bharatiya Sakshya Adhiniyam, 2023 replaces this terminology with:

• “Person of unsound mind” under Section 124.

Purpose of the Change
The change reflects:

• Respect for human dignity,
• Modern legal language,
• Sensitivity toward mental health issues,
• Alignment with constitutional values and contemporary societal standards.

The replacement removes stigmatizing language while retaining the legal principle regarding competency of witnesses.

Legal Principle Retained
Although the terminology has changed, the substantive rule remains the same.
A person of unsound mind is not automatically disqualified from giving evidence. Such a person may testify if the Court is satisfied that he or she:

• Understands the questions put before them, and
• Is capable of giving rational answers.

Thus, competency depends on mental capacity at the time of testimony, not merely on mental condition generally.

Importance of the ReformHuman Rights Perspective
The reform promotes dignity and non-discrimination.
Modernization of Evidence Law
The BSA updates colonial-era language to reflect contemporary legal standards.
Inclusive Legal System
The change encourages a more humane and sensitive justice system.

Important Points

• IEA Section 118 used the term “lunatic”.
• BSA Section 124 replaces it with “person of unsound mind”.
• The change modernizes and humanizes legal terminology.
• The substantive law regarding competency of witnesses remains unchanged.
• Competency depends on ability to understand and answer rationally.

Conclusion
The replacement of the term “lunatic” with “person of unsound mind” under the Bharatiya Sakshya Adhiniyam, 2023 is an important symbolic and substantive reform. It reflects the shift toward respectful, inclusive, and modern legal language while preserving the established principles governing competency of witnesses.

​Islamic Contract – Bay’ al-Murābahah, Bay’ al-Istisnā‘ and Bay’ al-Salam

Islamic Contract – Bay’ al-Murābahah, Bay’ al-Istisnā‘ and Bay’ al-Salam
PART I — BAY’ AL-MURĀBAHAH (MARKUP SALE)
1. Definition of Murābahah
Literal Meaning
The word murābahah is derived from the Arabic root word:
ribh
which means:
profit.


Technical Definition
Technically, Bay’ al-Murābahah refers to:
a sale contract in which the seller discloses to the purchaser:

• the acquisition cost; and
• the profit markup.

The sale price is therefore:
cost price + disclosed profit.


Example
A trader purchases a laptop for:

• RM4,000.

The trader informs the customer:

• cost price = RM4,000;
• profit = RM500.

Selling Price
4,000 + 500 = 4,500

Result
✅ Valid murābahah sale.


2. Legality of Murābahah
The legality of murābahah is based on:

• the Qur’ān;
• ijmā‘ (consensus);
• qiyās (analogy).

Allah says:
“Allah has permitted trade and prohibited ribā.”
(Qur’ān, 2:275)
Murābahah is also accepted because:

• it is a genuine sale contract;
• profit is earned through trade, not ribā.

3. Types of Murābahah
A. Ordinary Murābahah
The seller:

• purchases goods independently;
• later sells them at disclosed cost plus profit.

Example
A trader buys furniture for:

• RM10,000.

The trader later sells it for:

• RM12,000.

Profit
12,000 - 10,000 = 2{,}000

Result
✅ Ordinary murābahah.


B. Murābahah to the Purchase Orderer (MPO)
The customer:

• requests the seller or Islamic bank to purchase specific goods;
• promises to buy them later at markup price.

This structure is widely used in:

• Islamic banking.

Case Study: MPO
A customer requests an Islamic bank to purchase:

• machinery worth RM500,000.

The bank purchases machinery.
The bank then sells machinery to customer for:

• RM600,000 payable over 5 years.

Profit
600{,}000 - 500{,}000 = 100{,}000
600{,}000 - 500{,}000 = 100{,}000
Result
✅ Murābahah to purchase orderer.


Difference Between Ordinary Murābahah and MPO
Ordinary Murābahah

• Seller purchases goods without prior customer promise.
• Direct commercial trading.

MPO

• Customer first places purchase order.
• Commonly used by Islamic banks.
• Financing-oriented structure.

4. Basic Rules and Conditions of Murābahah
1. Cost Price Must Be Disclosed
The buyer must know:

• acquisition cost.

2. Profit Must Be Disclosed
The seller must disclose:

• markup/profit portion.

3. Asset Must Be Sharī‘ah-Compliant
Examples:
✅ vehicles
✅ machinery
Invalid:
❌ wine
❌ pork


4. Murābahah Must Not Lead to Ribā
Ribawi items cannot be structured improperly through murābahah.


Example: Gold Sale
Gold may be sold through murābahah if:

• Sharī‘ah conditions of ribawi exchange are observed.

5. Pricing in Murābahah
Islamic law permits:

• higher deferred prices compared to spot prices.

This is because:
“time takes a portion of the price.”


Example
Cash Price
RM100,000
Deferred Price (5 years)
RM120,000
Additional Amount
120{,}000 - 100{,}000 = 20{,}000
120{,}000 - 100{,}000 = 20{,}000
Result
✅ Permissible deferred murābahah pricing.


6. Application of Murābahah in Islamic Finance
Murābahah is widely used for:

• home financing;
• vehicle financing;
• trade financing;
• personal financing.

Example
Islamic bank purchases:

• car for RM90,000.

The bank sells to customer for:

• RM110,000 payable by instalments.

Result
✅ Islamic vehicle financing through murābahah.




PART II — BAY’ AL-ISTISNĀ‘ (MANUFACTURING SALE)
1. Definition of Istisnā‘
Literal Meaning
Istisnā‘ means:
requesting manufacture.


Technical Definition
Istisnā‘ refers to:
a contract to manufacture or construct specified assets for future delivery at agreed price.


Example
A company commissions:

• construction of factory machinery.

Result
✅ Istisnā‘ contract.


2. Legality of Istisnā‘
The legality of istisnā‘ is based on:

• Sunnah;
• ijmā‘;
• qiyās;
• istiḥsān.

The Prophet (SAW):

• requested manufacture of a ring.

This supports permissibility of manufacturing contracts.


3. Types of Istisnā‘
A. Ordinary Istisnā‘
Two parties only:

• purchaser;
• manufacturer.

Example
A homeowner appoints contractor to build house for:

• RM400,000.

Result
✅ Ordinary istisnā‘.


B. Parallel Istisnā‘
Two independent istisnā‘ contracts involving:

• customer;
• Islamic bank;
• manufacturer.

Example
First Contract
Bank sells factory project to customer for:

• RM20 million.

Second Contract
Bank appoints contractor for:

• RM17 million.

Profit
20{,}000{,}000 - 17{,}000{,}000 = 3{,}000{,}000
20{,}000{,}000 - 17{,}000{,}000 = 3{,}000{,}000
Result
✅ Parallel istisnā‘.


4. Basic Rules and Conditions of Istisnā‘
1. Asset Must Be Clearly Specified
Specifications must include:

• type;
• quality;
• quantity.

2. Asset Must Be Manufacturable
Examples:
✅ houses
✅ aircraft
✅ machinery


3. Materials Supplied by Manufacturer
If purchaser supplies materials:

• contract may become ijārah instead.

4. Delivery Date Must Be Specified
BNM:

• mandatory delivery date.

5. Place of Delivery
Required if transport/logistics involved.


6. Price
Price:

• may be upfront;
• progressive;
• deferred.

Unlike salam:

• full upfront payment not required.

7. Possession
Ownership transfers upon:

• actual possession (qabd haqīqī); or
• constructive possession (qabd hukmī).

5. Application of Istisnā‘ in Islamic Finance
Istisnā‘ is widely used for:

• construction financing;
• infrastructure projects;
• manufacturing industries;
• ṣukūk structures.

Example
Islamic bank finances:

• apartment construction through parallel istisnā‘.

Result
✅ Sharī‘ah-compliant project financing.




PART III — BAY’ AL-SALAM (FORWARD SALE)
1. Definition of Salam
Literal Meaning
Salam means:
advance payment.


Technical Definition
Salam refers to:
a sale contract in which the buyer pays full price upfront for commodities delivered later.


Example
A buyer pays:

• RM50,000 today
  for:
• future rice delivery.

Result
✅ Salam contract.


2. Legality of Salam
Salam is permitted based on:

• Qur’ān;
• Sunnah;
• ijmā‘.

The Prophet (SAW) said:
“Whoever pays money in advance for something should pay it for a specified measure or specified weight for delivery on a specified date.”


Wisdom of Salam
Salam supports:

• farmers;
• producers;
• commodity financing.

3. Difference Between Salam and Istisnā‘
Salam

• Fungible commodities.
• Full upfront payment compulsory.

Istisnā‘

• Manufactured assets.
• Flexible payment.

4. Types of Salam
A. Ordinary Salam
Two parties only:

• buyer;
• seller.

B. Parallel Salam
Two separate salam contracts involving:

• bank;
• supplier;
• buyer.

Example
First Salam
Bank purchases wheat for:

• RM400,000.

Second Salam
Bank sells wheat for:

• RM480,000.

Profit
480{,}000 - 400{,}000 = 80{,}000
480{,}000 - 400{,}000 = 80{,}000


5. Basic Rules and Conditions of Salam
A. Price (
Ra’s al-Māl
)

• Must be fully prepaid.
• Must be clearly known.

B. Commodity (
Muslam Fīh
)
Commodity must:

• be fungible;
• measurable;
• clearly specified;
• Sharī‘ah-compliant.

C. Delivery Date and Place

• Delivery date must be fixed.
• Delivery place specified where necessary.

D. No Sale Before Possession
Buyer:

• cannot sell salam commodity before possession.

6. Application of Salam in Islamic Finance
Salam is used for:

• short-term financing;
• agricultural financing;
• commodity financing;
• microfinancing;
• ṣukūk structures.

Example
Islamic bank finances:

• rice farmer through salam.

The bank:

• prepays purchase price.

The farmer:

• delivers crops later.

Result
✅ Sharī‘ah-compliant agricultural financing.


Overall Important Principle
Murābahah
➡️ Cost-plus sale.
Istisnā‘
➡️ Manufacturing/construction contract.
Salam
➡️ Forward commodity sale with upfront payment.
All three contracts:

• support real economic activity;
• avoid ribā;
• facilitate Sharī‘ah-compliant financing and trade.