Bernard Barbour, Head of Legal and Sharia’a Affairs at QInvest, a leading Investment Bank in the field of Islamic financial services, stated that Islamic Banks should include clear clauses in their contracts, as international legal cases, such as the case of Shamel Bank in Bahrain, proves the necessity of such clauses.
Mr. Barbour presented these recommendations during his intervention at the Islamic Banking Conference organized by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), specialized in the issuance of legal standards for Islamic financing, which discussed the Sharia’a provisions in contracts.
Barbour pointed out, while mentioning some cases that have led or may lead to legal failures due to the lack of a solid legal ground, to the issue of Shamel Bank in Bahrain (this case is concerning a dispute on a funding contract between the Bank and a company from Bangladesh that was transferred to the British Courts, while the parties thereof confirmed that the judgment shall not violate the rules of the Islamic Sharia’a).
The British Judge indicated that he will apply the law of his country despite the fact that the literal interpretation of the term “Sharia’a” stated in the applicable law, means the celestial law set forth in the Qur’an and Sunnah and added: “However, most of the Islamic Laws on commercial and financial transactions were not stated in well-defined texts or provisions but the Islamic law was based on the divergent points of view of the various legal schools.”
Barbour considered that this case “sums up the actual problem at hand, which is the absence of a classified and framed legal document in a scientific manner that the Courts may refer to upon settlement of a dispute”. He added that there are other similar cases related to the process of “re-adjustment”, which may leave “disastrous” repercussions most of the times, lead to the loss of rights, in whole or in part, or proceed with the case in a way not compliant with the Sharia’a provisions.
He demanded that the clause of settlement of disputes in the contracts compatible with the Islamic Sharia’a, shall be specific and shall refer to a set of applicable principles and laws, including the applicable doctrine. He highlighted the problem of ambiguity of some Islamic legal texts, such as the definitions of “personal rights”, “real rights” and “moral rights”.
Mr. Barbour made several suggestions, namely preparing typical or atypical texts that are compliant with the Islamic Sharia’a and including them in the contracts, and indicated that there are several authorities that issue model laws agreements, such as the texts issued by the United Nations Commission on International Trade Law (UNCITRAL), UNIDROIT Principles of International Commercial Contracts and model contracts issued by ISDA or IIFM. He also suggested compelling Islamic Banks, especially upon concluding contracts between them, to include the principles of AAOIFI or any other principles accepted by the Sharia’a, in the applicable law of their contracts.