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National Group for Communications and Computers Ltd. v. Lucent Technologies International, Inc.

00-86, 2004 WL 1825228 (U.S. Dist. Ct. D. N.J. 2004)

CONTRACTS; SHARI’A LAW; DAMAGES—Parties agreeing to have their contracts governed by Saudi Arabian law are agreeing to abide by Shari’a law which, because of their speculative nature, denies recovery for unrealized gains or future profits lost due to contractual default.

Two corporations entered into a telecommunications construction subcontract in Saudi Arabia. One corporation breached the subcontract causing the other corporation to liquidate its projects department. This department had been created to implement all of that corporation’s telecommunications contracts. It included staff and labor under contract, offices, equipment, vehicles, and warehouses. As a result, it, the non-breaching corporation sued for damages, including future profits.

The “Shari’a,” or divine law, governs the Saudi Arabian legal system. A key doctrine under the “Shari’a” is the prohibition on “gharar,” meaning risk or uncertainty. One of the consequences of this is that Saudi Arabian courts will not enforce the sale of anything speculative. The object of a contract must be defined and in existence. As a result, lawyers often advise their clients doing business in Saudi Arabia to include choice-of-law clauses that exclude the application of “Shari’a.” The parties in this case chose not to include any choice-of-law clause. The court concluded that the parties were knowledgeable and sophisticated business enterprises well versed in the ways of Islamic countries and the doctrines of Islamic law. Therefore, the court held that the parties were bound by any application of Shari’a.

Under Saudi Arabian law, damages for breach of contract are generally limited to those losses that are actual and direct. Saudi law denies any recovery for unrealized gains or future profits lost due to contractual default because of their speculative nature. Therefore, the court held that, under Saudi law, the non-breaching corporation was prohibited from collecting damages for the loss of its projects department beyond the loss in actual value of the department’s existing assets.

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