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ISLAMIC FINANCE

Dispute resolution is the key to unlocking the Islamic finance industry

Dispute resolution is the key to unlocking the Islamic finance industry

It would be ideal if all Islamic finance disputes were adjudicated in one centre through arbitration according to a standardised dispute resolution contract

Camille Paldi

March 30, 2017: As the Islamic finance industry is growing annually at a rate of 10% to 15% per year, it is imperative that a unique, independent legal framework is established in order to effectively adjudicate Islamic finance disputes around the world. It would be ideal if all Islamic finance disputes were adjudicated in one centre through arbitration according to a standardised dispute resolution contract. This may have been the impetus behind the Islamic Development Bank’s arbitration centre in Dubai — the International Islamic Centre for Reconciliation and Arbitration or the IICRA. 

However, the centre has not flourished into an ideal arbitration facility for Islamic finance and is quite heavily underused. Other arbitration centres exist. These include the DIFC-LCIA; the Takheem Sharjah International Arbitration Centre, The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), the Regional Centre for International Commercial Arbitration in Lagos in Nigeria, the Tehran Regional Arbitration Centre (TRAC), the International Islamic Mediation and Arbitration Centre (IMAC); The Hong Kong Mediation Council; BCDR-AAA in Bahrain, the Qatar International Centre for Commercial Arbitration (QICCA), the Qatar Financial Centre (QFC), The Cairo Regional Centre for International Commercial Arbitration (CRCICA), the Kuala Lumpur Regional Centre for Arbitration (KLRCA), the Malaysian Mediation Centre, the Financial Mediation Bureau, and the Singapore International Arbitration Centre (SIAC).

However, none of these centres fulfil the mandate of ‘the one’ centre which can adjudicate all Islamic finance and banking disputes through the use of a standardised dispute resolution contract effectively and globally. The various reasons include inadequately trained staff, inability to use shari’ah in the arbitration, and systemic problems etc. The aim of this short article is to introduce the concept of the Dubai World Islamic Finance Arbitration Centre (DWIFAC) and Jurisprudence Office (DWIFACJO), which may serve as the focal point for dispute resolution in the Islamic finance world.

I suggest that the Islamic finance community take steps to form the Dubai World Islamic Finance Arbitration Centre (DWIFAC) and Jurisprudence Office (DWIFACJO) in Dubai, UAE. This centre would produce an Islamic Banking law, which may be gazetted in the UAE and adopted around the world as a model Islamic banking law. The jurisprudence office may also issue a standardised dispute resolution contract to be attached to all Islamic finance, sukuk, and takaful transactions in order to harmonise dispute resolution for the industry on a worldwide scale. The standardised dispute resolution contract would contain a built-in dispute resolution mechanism based on the FIDIC contracts used in construction.

The Centre would be staffed with the leading experts in Islamic finance, shari’ah, and arbitration.  The Centre may utilize law, lex mercatoria or commercial practice, and shari’ah in settling Islamic finance disputes. 

All DWIFAC arbitrators must pass arbitration, Islamic finance, and language tests in order to secure a place on the DWIFAC Ambassador’s list of arbitrators. The languages of the centre would include English, French and Arabic. In addition, the DWIFAC jurisprudence office would create the Shari’ah Supreme Council, as envisioned by UAE Federal Law No. 6 of 1985, to act as the highest shari’ah authority for DWIFAC and the UAE, including the DIFC. 

When an Islamic finance transaction goes through a common law court or inadequately staffed or utilised arbitration centre, the Islamic transaction often inadvertently transforms into a conventional transaction. This may result in unfair adjudication by the tribunal, centre, or court of the Islamic finance dispute in question. Furthermore, shari’ah is either declared an invalid source of law or inapplicable for various reasons. Therefore, it is imperative to establish a global Islamic finance dispute resolution centre that utilises both arbitration and shari’ah as well as lex mercatoria or commercial practice. Otherwise, we may witness the Islamic finance industry inadvertently changing into a conventional financial industry through the use of a conventional dispute resolution process.

Shari’ah is often denied as a valid source of law for governing a commercial dispute or Islamic finance transaction. When English/common law is designated as the governing jurisdiction of an Islamic finance contract, courts tend to sever any association with shari’ah by recognizing conflict of laws and asserting that only a national law can govern the contract. Judges then strictly apply common law to the commercial dispute, further disassociating the Islamic aspects of the transaction from the adjudication process. Islamic finance dispute resolution must contain recourse to shari’ah in order to preserve shari’ah compliance and the Islamic component of the financial transaction. Therefore, I have a particularly strong argument for the creation of the Dubai World Islamic Finance Centre and Jurisprudence Office. 

It is not efficient for the Islamic finance industry to use domestic common and civil law litigation, which does not recognise shari’ah, gives priority to secular national laws, or relies on a controversial Shari’ah Advisory Committee to adjudicate shari’ah issues. It is clear that international arbitration is the best alternative dispute resolution mechanism available for Islamic finance. It is also evident that none of the existing arbitration centres can provide an adequate mechanism for adjudication of disputes for the international Islamic finance industry.

The DWIFAC arbitration centre along with the DWIFAC jurisprudence office (DWIFACJO) provides the best solution of the dispute resolution conundrum of the Islamic finance industry, providing a globally recognised centre for dispute resolution located in one of the world’s major financial centres, Dubai. 

DWIFAC would adjudicate disputes using arbitration incorporating lex mercatoria and shari’ah, the DWIFACJO uniform banking law, the DWIFAC arbitration rules, and the procedural law of Dubai as well as use highly qualified shari’ah and Islamic finance/law arbitrators. 

DWIFAC may also organise and utilise the existing dispute resolution framework in Dubai, the DIFC, and the UAE, consolidating the centers into one hierarchical system, which includes the Shari’ah Supreme Council for the efficient adjudication and regulation of Islamic finance disputes.

 

Camille Paldi is CEO of Franco-American Alliance for Islamic Finance

 

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