Islamic Law and International Commercial Arbitration

Maria Bhatti

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138604254
• eBook ISBN: 9780429888212
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Wirtschaftsrecht

This book examines the intersection between contemporary International Commercial Arbitration and Shari?a law in order to determine possible tensions that may arise between the two systems. It develops evidentiary and procedural rules under Shari?a, as well as examining the consequences of stipulating qualifications of arbitrators based on gender and/or religion. The author extensively analyses the prohibition against interest ( riba ) and uncertainty ( gharar ) under Shari?a and its impact on arbitration agreements, arbitral awards and public policy. The book also explores the prohibition against riba in light of international conventions, such as the United Nations Convention on Contracts for the International Sale of Goods. Case studies in the book include the Asian International Arbitration Centre, formerly the Kuala Lumpur Regional Centre for Arbitration, and the International Islamic Centre for Reconciliation and Arbitration, as well as the 'Shari'a Standards' developed by the Accounting and Auditing Organization for Islamic Financial Institutions.

The book will be a valuable resource for academics, students and practitioners working in the areas of Islamic law and the Islamic finance industry.

1 Introduction

I Introduction

[The Sheikh, an] absolute, feudal monarch … administers a purely discretionary justice with the assistance of the Koran; and it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles applicable to the construction of modern commercial instruments.¹

This book addresses whether Shariʿa or Islamic law (defined in Chapter 2) is a predictable, enforceable and comprehensive body of law which can be applied to contemporary international commercial arbitration matters (‘contemporary ICA’). The hypothesis tested in this book is that Shariʿa can effectively apply to and harmoniously exist with contemporary ICA if: firstly, its rules on arbitration are thoroughly codified; and secondly, if there is mutual respect and recognition between Shariʿa and contemporary ICA.

The first part of this chapter explains the development of contemporary ICA and the need for arbitration that caters for Shariʿa. Subsequently, this chapter outlines the methodology used in this book and establishes how the chapters are structured.

II Scope of this research

A Development of contemporary ICA

Historians and academics have struggled with pinpointing when the concept of ‘arbitration’ initially developed. For example, Lord Mustill observes that ‘[a]rbitration has a long [p]ast, but scarcely any [h]istory … [t]here are none of the grand perspectives in which modern arbitration could be viewed as the inheritor of a continuous process of change.’² Some historians argue that international arbitration may have initially originated out of ancient Greek mythology.³ Roebuck observes that the earliest evidence of arbitration could be from the poems of Homer and Hesiod.⁴ There are also historical accounts of arbitration taking place in ancient Rome.⁵ Historians report that ‘[t]he bulk of ancient Greek arbitration was inspired by disputes over territorial boundaries, possession or use of territory, and breached treaty obligations.’⁶ One example that is often provided is from the Greek writer of the second century, Pausanias,⁷ who relates that arbitration was used to resolve disputes between people belonging to the Greek region called Messenia (the Messenians) and the Spartans.⁸ On the other hand, Fraser argues that this story is probably fabricated and that the first case of European arbitration actually took place in 650 B.C.E in a dispute between two cities, Adnors and Chacis. This case concerned the ancient city of Acanthus, and it was resolved by independent Greek citizens known as the Parians, Samians and Erythraens.⁹ Commercial arbitration can also be traced back to ancient Egyptian civilisations.¹⁰

In China, arbitration has also been traced back to 2100–1600 B.C.E and it became even more popular after Confucian ideologies began influencing China, because Confucius was a strong advocate of resolving disputes through arbitration as opposed to litigation.¹¹ Similarly, arbitration can also be traced back to ancient India.¹² In fact, Taniguchi uses Japan as an example of a country in which, until 1868, law was not practiced due to the emphasis on conciliation, which he observes was common in Asian cultures.¹³ This is also true in the Islamic world, due to the fact that Shariʿa encourages resolving disputes through conciliation, as will be discussed in more detail in the next chapter.

There are also many examples of inter-state arbitration in Europe during the Middle Ages and arbitration was also employed during the 15th and 16th centuries to resolve border disputes arising from colonisation.¹⁴ However, Born notes that while international arbitration began to decline during the 16th, 17th and 18th centuries,¹⁵

[b]y the end of the 19th century, proposals for more universal and binding state-to-state arbitration mechanisms emerged with greater frequency, often supported by religious and pacifist groups. Capturing the moral roots of such proposals, Andrew Carnegie famously remarked that “[t]he nation is criminal which refuses arbitration.”¹⁶

This book will provide a comparative analysis between contemporary ICA and Shariʿa (as defined and discussed in Chapter 2). Contemporary ICA refers to the contemporary legal framework for international commercial arbitration as developed in the 19th and 20th centuries. Greenberg, Kee and Weeramantry note

[t]he seeds of international commercial arbitration as we know it today were sewn in the late 19th and 20th centuries as a response to growing international trade, mainly in Europe, and the desire for an internationally enforceable, commercially sensible mechanism to resolve disputes.¹⁷

For example, by the 20th century, most of the important international rules, treaties and conventions governing international commercial arbitration had been developed. More specifically, this book will refer to the following:

• The New York Convention of 1958 (‘New York Convention’);
• The United Nations Commission on International Trade Law Arbitration Rules (‘UNICTRAL Rules 2010’) adopted in 1976 and revised in 2010;
• The United Nations Commission on International Trade Model Law on International Commercial Arbitration (‘UNCITRAL Model Law’) adopted in 1985 and amended in 2006;
• The United Nations Convention on Contracts for the International Sale of Goods (‘CISG’) adopted in 1980.

For this reason, commentators such as Shalkany argue that ‘[a]s a technocratic mechanism of dispute settlement, with a particular set of rules and doctrines, international commercial arbitration is a product of this century.’¹⁸ Taniguchi also opines that the New York Convention and the UNCITRAL Rules 2010 have contributed to

a distinct “commercial arbitration culture” in the West, and through the reception of the western legal system by the non-western world, arbitration has become a legitimate method of dispute resolution virtually everywhere in the world with a varying degree and scope of its application.¹⁹

Since the early 1990s, most Arab countries moved towards modernising their arbitration legislation and codifying laws and regulatory systems regarding commercial arbitration.²⁰ An increasing number of Arab states (as well as Iran and Malaysia) have also chosen to draft their arbitration laws modelled on the UNCITRAL Model Law. This includes countries such as Bahrain, Egypt, Jordan, Oman, Tunisia, Kuwait and the UAE.²¹ On the other hand, Saudi Arabia, one of the main case studies examined in this book, has only recently decided to model its arbitration regime on the UNCITRAL Model Law. As will be discussed in more detail in the next chapter, the Saudi government introduced the new Saudi Arbitration Law 2012²² and the new Saudi Enforcement Law 2013²³ (collectively referred to in this book as the ‘new Saudi Arbitration laws’). The new Saudi Arbitration Law 2012 replaces the old Arbitration Regulation of 1983 (‘Saudi Arbitration Law 1983’)²⁴ and the Implementation Rules of the previous Saudi Arbitration Law 1983²⁵ (‘old Implementation Rules 1985’) (collectively referred to as the ‘old Saudi Arbitration laws’) which will also be considered in this book by way of comparison. One of the aims of the new arbitration laws in Saudi Arabia is to align with international standards and ensure enforcement of foreign arbitral awards, and the following chapters discuss whether it is possible to achieve these objectives. Saudi Arabia’s first arbitration centre, the Saudi Centre for Commercial Arbitration (SCCA) was also recently established by the Saudi Cabinet Decree dated 15 March 2014 ‘in order to further enhance both local and foreign investment in the Kingdom’ of Saudi Arabia.²⁶ The SCCA Rules 2016 are based on the UNCITRAL Rules 2010 and came into effect recently on 31 July 2016.²⁷ This book does not examine this centre because it has only recently been established (it was formally established in 2016, despite being introduced by Saudi law in 2014). Commenting on these recent developments in Saudi Arabia, Nesheiwat and Al-Khasawneh observe that the new Saudi Arbitration laws are:

still untested, as no major awards have yet been brought for enforcement, and there are still major issues keeping people away from Saudi dispute resolution, such as the lack of suitably qualified arbitrators, the lack of a professional lawyers’ syndicate, and the lack of arbitration centers in Saudi Arabia. More importantly, the court system requires a major overhaul and a codified civil transactions law (even one based on Shari’a), in addition to accurate reporting of Saudi court jurisprudence.²⁸

Although this book does not provide a detailed analysis of the arbitration system in the following countries, by way of comparison, it will briefly analyse the application of Shariʿa in specific jurisdictions from the Middle Eastern and North African region (‘MENA region’), such as Egypt, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman, as well as Iran. The reason why these countries have been examined as case studies in this book is due to the historical or current application of Shariʿa in the respective jurisdictions, or the availability of ICC decisions from certain countries, such as Iran. This will be explored in more detail in the following chapters.

Since ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Arabic translation, transliteration and dates
• Glossary of basic Arabic terms
• 1 Introduction
• 2 The theoretical and practical framework for Shariʿa arbitration
• 3 Conflict of laws and Shariʿa as choice of law
• 4 Composition of the arbitral tribunal
• 5 Evidence and procedure in Shariʿa arbitration
• 6 The impact of riba and gharar on arbitrability and arbitration agreements
• 7 Interest on arbitral awards and the prohibition against riba
• 8 Shariʿa public policy and the recognition and enforcement of arbitral awards
• 9 Reform proposals, further research and conclusion
• Bibliography
• Index