Enforceability of Arbitral Awards Containing Interest

240 Pages·2016·2.4 MB·English

Enforceability of Arbitral Awards Containing Interest - A
Comparative Study between Sharia Law and Positive Laws
Mohammad Motlg Althabity (2110104)

29 Jan 2016

A Thesis submitted for the degree of
Doctor of Philosophy in law (PhD)

School of Law
University of Stirling

Abstract
The dynamics of our globalised world open the way for international trade and
transactions between different countries; this may lead to conflicts in laws where transactions
and trade may be subject to different legal systems. One of the biggest issues in international
commercial law is disputes over the charging of interest, for example with regard to late
payment, interest-based loans, or compensation for damages. Interest disputes are considered
to be a complex area of law and even more complex in the international field. At the
international level, interest claims may be connected to many areas of commerce and thus
governed by various laws, which are different from one country to another; moreover, each
country has its own interest rate and such rates are changeable according to the nature of law
and economics under some jurisdictions. Furthermore, the concept of interest itself is affected
by influences such as religious beliefs and economic, political and cultural trends. Interest can
be treated as a substantive or a procedural matter. The settlement of these disputes therefore
faces difficulties.
Arbitration, as a method for settlement of disputes, is characterised by special features
that assist in resolving these issues; but it faces some obstructions, especially in international
commercial arbitration. The practices of arbitral tribunals and national courts in this regard are
different. The results of different interpretations, approaches, and theories with regard to
arbitration, at the pre-arbitration, during arbitration and post-arbitration stages, may also differ
widely due to the diversity of financial and legal systems such as Common Law, Civil Law
and the Islamic legal system – Sharia Law – across different countries. Each legal system has
a different methodology and theories, even within an individual country under one legal
system, and a state within a federal system has its own laws, which may have different
interpretations in this respect.
The New York Convention of 1958 on enforcing foreign arbitral awards was
established in favour of arbitral awards and for the purpose of unifying international rules of
arbitration. This Convention provides some procedural and substantive rules for the
enforcement of foreign arbitral awards, but also provides some grounds for refusal. These rules
have been affected by different interpretations under different jurisdictions and legal systems,
which lead to different perspectives on the matter of charging interest and settlement by
arbitration. The outcome of applying the NYC under these interpretations often has the
opposite of its intended effect: the rejection of foreign arbitral awards. Due to such
ambiguities, courts occasionally intervene in arbitration in all its stages.
The interventions of national courts occur in three stages: enforcement of the
arbitration agreement, enforcement of the contract under the applicable law to the agreement,
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and enforcement of the foreign arbitral award. The confusion between substantive and
procedural laws also creates confusion with respect to public policy, non-arbitrability and
enforceability. In addition, there may be a lack of clarity on the scope of arbitration with
respect to the parties’ agreement, whether or not the parties have agreed to the interest rates
and periods and whether or not they have agreed to the authority of the arbitrator. These issues
affect the enforceability of an arbitration agreement, the law applicable to the disputed
contract, the freedom of parties, the authority of the arbitrators and the enforceability of the
awarded interest. The thesis studies how arbitral awards containing interest have been
interpreted across the three aforementioned legal systems under the NYC 1958 in Saudi
Arabia, Egypt, the UAE, England, France, and the US and the enforceability of such awards.
ii
Attestation
I understand the nature of plagiarism, and I am aware of the University’s policy on
this. I hereby declare that no portion of the thesis is the work of others, and I clearly
acknowledge that no part of the thesis has been submitted elsewhere in support of an
application for another degree or qualification.

Signature Mohammad M Althabity Date 29/01/2016

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Acknowledgements
I thank my greatest God Almighty "Allah" for his guidance and help through this research. My
thanks to my parents, my wife and my daughters for their patience and for believing in me,
my friends for encouraging me. I would like to give a special thanks to my supervisor Dr.
Hong-Lin Yu for her guidance and appraisal of this work, and to the University of Stirling staff
for everything I needed in this work.
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Abbreviations
CISG United Nations Convention on Contracts for the International Sale of Goods
NYC The New York Convention 1958
(UN) The United Nations (UN)
UNCITRAL United Nations Commission on International Trade Law
FAA The Federal Arbitration Art
ICC The International Chamber of Commerce
ICSID The International Centre for Settlement of Investment Disputes
WIPO The World Intellectual Property Organization
PECL The Principles of European Contract Law
UCC The Uniform Commercial Code
AAA The American Arbitration Association
LCIA The London Court of International Arbitration
UCTA The Unfair Contract Terms Act 1977
UTCCR The Unfair Terms in Consumer Contracts Regulations 1999
UAE United Arab of Emirates
U.S. United States
GCC The Gulf Cooperation Council
ILA The International Law Association
SAMA The Saudi Arabian Monetary Agency
Sharia law A law based on the Islamic sources
Riba Extra, charging illegal interest
Gharar Uncertainty
Fiqh’ Islamic Jurisprudence
Qiyas Analogy
Ijtihad Human activity and independent judgment
Ijma Consensus by collective reasoning by qualified scholars
fa’ra New case
a’sl Legal precedent
Furu al Fiqh The second branch of Fiqh
Usul al Fiqh The first branch of Fiqh
Quran The Holy book of Islam
Hadith The sayings and practices of the Prophet Muhammad
Lex arbitri The law of the place where arbitration is to take place
Lex contractus The law governing a contract
lex fori The laws of a forum
lex trans The transnational law
usura Latin the word of use
intereo To be lost
Istihsan To consider something good
Istidlal A method of juristic deduction not falling within the scope of analogy
Istishab Islamic legal term for the presumption of continuity
Il’lah The effective cause
Majalla The Ottoman State’ Legal Provisions
Maqasid In harmony with reason
Tahkeem Arbitration in Arabic
Fatwa An Islamic ruling
Ma’taoum Any eaten
Althmnyah A value
shart-jazai A penalty clause
Asl Fundamentals
Wasf Components
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Ijab The offer
qabul The acceptance
Riba Al-Fadl Fadl’ means increasing or excess
Riba Al-Nasiah Nasiah’ means delay, rescheduling or defer for an addition
Diwan Al-Mazalim The Board of Grievances
pacta sunt servanda Latin – ‘promises must be kept’

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Table of Contents
Abstract ........................................................................................................................ i
Attestation .................................................................................................................. iii
Acknowledgements ................................................................................................... iv
Abbreviations ............................................................................................................. v
Table of Contents ..................................................................................................... vii
Chapter 1. Introduction ........................................................................................ 1
1.1 The complexity of the issues ................................................................................. 2
1.1.1 The impacts different legal systems may have on arbitration ............................. 2
1.1.2 The complexity of the concepts and the issues arising from usury and interest . 4
1.1.3 The general perceptions of the nature of arbitration ........................................... 7
1.1.4 Putting the issues into the context of arbitration ................................................. 8
1.2 Scope and Objectives ........................................................................................... 11
1.2.1 Specific Objectives ........................................................................................... 12
1.3 Research Question ............................................................................................... 12
1.4 The reasons for selecting the topic ..................................................................... 12
1.5 Research Methodology ........................................................................................ 13
1.5.1 Gap in the current research on awarding Riba and the academic contributions
of the thesis .................................................................................................................... 14
1.6 Overview of Thesis .............................................................................................. 15
Chapter 2. International Arbitration and Arbitration under Sharia law ..... 16
2.1 Introduction ......................................................................................................... 16
2.2 International Arbitration .................................................................................... 16
2.2.1 The concept of international ............................................................................. 18
2.3 Arbitration under Sharia law ............................................................................. 20
2.3.1 Sharia ................................................................................................................ 20
2.3.2 The Structure of Islamic Law – the Islamic sources. ........................................ 21
2.3.2.1 Islamic jurisprudence (Fiqh) ................................................................................ 21
2.3.2.2 The Two Primary Sources .................................................................................... 23
2.3.2.2.1 The Quran ....................................................................................................... 23
2.3.2.2.2 Sunna (or Hadith) ............................................................................................ 23
2.3.2.3 The Three Secondary Sources .............................................................................. 24
2.3.2.3.1 Qiyas (Analogy) ............................................................................................... 24
2.3.2.3.2 Ijtihad .............................................................................................................. 24
2.3.2.3.3 Ijma .................................................................................................................. 25
2.3.2.4 Disputed Sources .................................................................................................. 26
2.3.3 Islamic schools .................................................................................................. 27
2.3.4 The nature of arbitration under Sharia law ....................................................... 27
2.3.5 Arbitration under the major Islamic schools ..................................................... 28
2.3.5.1 The Hanafi School ............................................................................................... 28
2.3.5.2 The Shafi School .................................................................................................. 29
2.3.5.3 The Hanbali School ............................................................................................. 29
2.3.5.4 The Maliki School ................................................................................................ 30
2.4 The influences of Sharia sources and interpretations ...................................... 30
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2.5 Binding nature of arbitral award in Sharia law ............................................... 33
2.5.1 The concept of “international” under Sharia law .............................................. 33
2.5.2 Applicable law .................................................................................................. 33
2.5.3 The power of the arbitrator ............................................................................... 34
2.5.4 Judicial review .................................................................................................. 35
2.6 Conclusion ............................................................................................................ 35
Chapter 3. Applicable law to the arbitration agreement and the contract with
regards to interest .................................................................................................... 37
3.1 Introduction ......................................................................................................... 37
3.1.1 The impact of the seat of arbitration ................................................................. 39
3.2 The law applicable to the arbitration agreement ............................................. 39
3.2.1 The express choice of law agreement ............................................................... 40
3.2.2 In absence of law of arbitration agreement ....................................................... 43
3.2.2.1 The institutional rules ........................................................................................... 44
3.2.3 The applicable law to the arbitration agreement ............................................... 45
3.2.4 The arbitration agreement is binding ................................................................ 46
3.3 The law applicable to the contract and dispute ................................................ 47
3.3.1 The express choice of law ................................................................................. 48
3.3.2 Without express choice of law .......................................................................... 49
3.3.2.1 Conflict of laws rules ........................................................................................... 50
3.3.2.2 National law ......................................................................................................... 52
3.3.3 The law applicable to the dispute if failing in choice of law ............................ 54
3.3.3.1 The Application of international law and trade usages ........................................ 54
3.3.3.1 The closest connection ......................................................................................... 56
3.3.3.2 As it deems appropriate ........................................................................................ 58
3.3.3.3 Applicable law from the conflicting laws ............................................................ 60
3.4 Conclusion ............................................................................................................ 61
Chapter 4. Interest and Contracts Under Sharia Law and Positive Laws .... 63
4.1 Introduction ......................................................................................................... 63
4.2 Interest and Usury ............................................................................................... 64
4.2.1 Conflicts in the definition of interest and usury ................................................ 64
4.2.1.1 The real and closer definition of interest and usury ............................................. 65
4.2.2 Interest rate, simple and compound interest, and period ................................... 66
4.2.2.1 England ................................................................................................................. 67
4.2.2.1.1 The power of the arbitrator .............................................................................. 67
4.2.2.2 United States ........................................................................................................ 68
4.2.2.3 France ................................................................................................................... 69
4.2.2.3.1 The international concept theory ..................................................................... 70
4.2.3 Interest under Sharia law ................................................................................... 70
4.2.3.1 The concept of Riba ............................................................................................. 71
4.2.3.2 The Six Commodities ........................................................................................... 71
4.2.3.2.1 Riba under Islamic schools .............................................................................. 72
4.2.3.2.2 Riba types ........................................................................................................ 73
4.2.3.3 The closest effective cause and meaning of Riba ................................................ 75
4.2.4 Law and practice of interest in Islamic countries ............................................. 77
4.2.4.1 Saudi Arabia ......................................................................................................... 78
4.2.4.1.1 Practice ............................................................................................................ 78
4.2.4.1.2 Conflicting views in judicial bodies ................................................................ 79
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