Arbitration in Islamic Banking and Finance Dispute

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Table of Contents

Introduction
Arbitration
Current Issues
Laws
Example
Conclusion
Works Cited

Introduction

Islamic countries have been developing at an incredibly fast rate over the last few years, but some problems that are currently present may limit future growth, and they should be addressed. One of the primary issues is that previously there were no appropriate means to deal with some of the conflicts that are associated with banking and finance because of limitations of law systems, and new techniques should be taken into consideration.

The biggest problems occur when the disagreements between other countries arise because it is not an easy task to agree. The differences in-laws are quite significant and should not be disregarded. It is quite essential to note that the legal framework in this country is not as advanced as in some other Islamic ones, and it mostly focuses on Shari’ah as a primary source of legal information.

Arbitration

Arbitration is viewed as the main way to settle some of the disagreements. It is a method that is used to resolve disputes in an environment other than the court. It needs to be noted that is has become increasingly popular over the last few years, and it has been widely used in Islamic countries such as Saudi Arabia. It is paramount to say that arbitration is called al-Tahkim in Islamic countries. Its use as a way to resolve disputes is backed up by some of the principles that are stated in the Holy Quran and the Hadith (Olayemi and al-Zabyani 1). Some of the customs of the culture are also taken into account.

It is necessary to understand that a dramatic dissimilarity of the views of juries on the cases often can be seen because they are allowed to have different interpretations of common law terms. It complicates disputes most of the time because verdicts are often hard to predict, and most parties are not satisfied with such a situation. Arbitration is the only appropriate method that can be used to resolve most of the disputes that may occur rationally.

Olayemi and al-Zabyani state that “arbitration clauses can be inserted in the Islamic commercial contracts based on the model law” (6). In other words, it will help to avoid some of the issues that are associated with civil courts, and it will be extremely beneficial for the banking system. It is also paramount to say that new laws are always introduced to improve the current system because a government understands that some of the issues that are currently present may complicate some cases. It needs to be said that the government has promised to address some of the problems that are currently present in the legal system to make sure that the law is modern, and some of the changes that were suggested are rather dramatic. Also, it is important to understand how arbitration can be differentiated from other techniques and the whole process.

An arbitration clause should always be developed, and both sides of the dispute should consider the laws that should be applied in a particular case. The method of appointment, language, and several participants should also be discussed to ensure that all the factors that may complicate the process are eliminated. Both parties should be consulted by professionals because it is paramount to have an understanding of some aspects. The arbitration clause needs to be carefully reviewed because it may worsen the conflict, and one side may not get a desirable outcome of the case. One needs to understand that it is necessary to make sure that the interests of both parties are protected.

There are numerous instances when this method is not considered by Islamic companies because they prefer more traditional ones. This happens because lawyers and advocates are used to operating in such environments and situations (Hanefeld 918). It is also extremely necessary that some guidelines are currently available to help with some of the points that are not precisely described. However, it is paramount to say that some economists state that it can be used as an efficient method to resolve most disputes, but it is dependent on a few key factors that should not be disregarded. It is also necessary to understand that each case has its unique aspects and may require different ruling if it becomes necessary.

A contrast between the sets of laws that are chosen is also noticeable because of the unique features of some industry sectors. It is imperative to note that some of them are still at a relatively early stage of development, and the government may need some time to review all the issues. Other aspects such as arbitration period, confidentiality, and selection of arbitrators should also be taken into account during the process. Also, it has numerous advantages over litigation such as a smaller cost.

Current Issues

One of the problems that are currently present is that civil courts in Islamic countries have some issues, and a drastic difference can be noticed between the way they operate in Saudi Arabia and other countries of the world. It happens because judges often are not competent and do not have the necessary knowledge to do their jobs. Their decisions are often based on their interpretations of the law, and they do not agree that changes to the system are necessary most of the time. Jurisdiction is often extremely restricted, and it is nearly impossible to address the situations that are associated with commercial transactions and such as banking, insurance, and finances.

The number of contradictions that are currently present in the law may be viewed as a significant threat because it complicates the process of dispute solving. It needs to be said that the banks function quite differently in this country, and some of the aspects may be abused by one of the sides to gain an unfair advantage. One of the central issues is that money landing is not strictly described in the law that regulates banking activities.

It is also important to say that some of the operations are not allowed because of Shari’a law. Another problem is that banks are often discriminated against because the execution of rewards is often delayed, and some issues with ramification also can currently be noticed. Also, the need to reinforce awards is another subject matter that needs to be discussed because numerous problems are associated with it. It is known that many companies have struggled to receive payments because of legal issues. Nevertheless, it is expected that this aspect will be addressed soon, and the whole process will become significantly faster.

It is also imperative to note that Shari’a allows disputes to be resolved by foreign arbitrators. It helps to address some of the issues that are associated with the competency levels of Saudi judges. However, there are possible risks that each side of the process must understand. Problems often arise when one side of the conflict wants to avoid responsibility and take advantage of the differences in-laws. The ways to deal with foreign arbitral awards are not strictly stated, and the whole process is often extended for a significant period. Numerous investors are currently not ready to take such enormous risks, and the government should focus on this aspect.

Laws

The overall role of such institutions as commercial banks is essential in such countries like Saudi Arabia, and the government must make sure that barriers that limit the development are addressed. Al-Herbish states that “in all developed economies in the world today, legislation designed to protect and enhance the services of commercial banks is an integral part of the legal landscape” (221).

Differently put, it can be used as an efficient method to advance the overall economic system, and it would be easier to meet global standards and expectations. The fact that the Committee for the Settlement of Banking Disputes has been founded is essential because it helps to address some of the issues that were previously not easy to resolve and have led to numerous complications. However, it needs to be said that some think that this institution needs further improvement and restructuring may be necessary because the settlement of some cases requires a significant amount of time. It is quite imperative because laws have an enormous influence on foreign investors because they give their preference to arbitration over standard means of dispute resolution (Alnowaiser 723).

The reasoning behind such views is that this choice is much more fitting for cases that involve technical, engineering, and other aspects. The establishment of this institution was essential because it helps to regulate some of the issues that were present in the building industry, and their presence has limited the overall development of Saudi Arabia because some of the cases previously took too much time. The involvement of foreign capital is essential because it helps the economy of the country, and the government needs to take necessary measures to make sure that there are no barriers that would limit investment opportunities.

The new arbitration law that was introduced in 2012 is incredibly easy to apply in most situations, and it is also quite flexible. It is also imperative to say that it does not go against other laws. Saudi Arabia understands and respects the necessity to accept international agreements, and they are accounted for in the laws that are introduced. Such factors of arbitration must be also taken into consideration because it allows addressing some of the issues that may occur on the global levels. The introduction of this law was essential because it can be used to adopt documents that are associated with the arbitration in case they do not break any of the principles of Sharia (Alnowaiser 724).

Furthermore, it helps to make sure that regulations of arbitration stay current, and it is necessary because this process has been modernized in other countries. The primary ethics of Islamic culture are also taken into consideration, and it is a fundamental difference from previous laws. It also needs to be explained that Islamic people think that it should not be viewed as a particular limitation and helps to make sure that justice is achieved. Some researchers disagree with this perspective most of the time, but it is necessary to understand that some of the laws in Saudi Arabia are remarkably similar to the ones in other countries, and this should not be disregarded.

The revision of policies in 2012 was essential because it helped to resolve the most long-standing disagreements in this sector. The system has been thoroughly reviewed, and some of the provisions have focused on banking. Some of the previously questionable points must be significantly improved by this legislation. For example, the time limitation has been introduced, powers of the committee have expanded, and a particular board of people will focus on appeals. The arbitration language is mostly Arabic, but parties may agree to conduct the process differently if it is needed. An ability to issue injunctive relief is also quite significant and must be understood by both sides of the dispute.

The powers of both participants and the tribunal have drastically improved, and it allows them to review all necessary pieces of evidence. Other urgent actions now can also be taken before the start of the process. The fact that The Saudi Center for Commercial Arbitration was established on the territory of Riyadh in 2014 is also imperative and needs to be discussed because it is a significant decision. The single most important factor that must be considered is that it is likely that branches will be formed all over the country, and even outside of its territory (“First Commercial Arbitration Centre Formed in Saudi Arabia” par 6).

Such initiatives by the government cannot be overlooked. It is evident that Saudi Arabia acknowledges that some of the issues need to be addressed, and the law system needs to be modernized. The country plans to have a significant influence on the global economy, and it is one of the starting points that would help to solve disputes that may occur. Saudi Arabian countries can now safely operate in international markets. The formulation of new laws is much clearer, and the process of conducting arbitration is explained in great detail. The fact that requirements for the arbitrators are also stated is paramount because it helps to avoid the issues of limited competency.

It is highly likely that further legislation may be necessary because some of the operations that are performed by international banks are rather complex, and new technologies and methods are always being developed. Overall, Saudi Arabia is taking steps in the right direction because it acknowledged the need to improve policies, but culture and traditions are also taken into consideration during such decisions. Overall, it has to be said that companies that plan to build a relationship with Saudi Arabian firms must be aware of some of the differences in laws to prevent possible disputes.

Example

It needs to be said that Saudi Arabia is incredibly reliable when it comes to arbitration. Saudi Arabia v American Oil Company of 1958 may be viewed as one such case. One of the agreements has allowed the other side to perform operations that are associated with petroleum in a particular region of the country. An issue occurred because another arrangement was later signed with another company that transported such products.

There was no consensus on what firm has the sole right to use maritime pathways, and it has led to conflict (Al-Ammari 258). An international tribunal that consisted of three arbitrators has stated that the demands of the first firm are reasonable according to the policies during the ruling. It has found that this case should be regulated by international law, and some of the principles of Saudi law also must be considered. It was necessary to apply these standards in this case because of the unique aspects of the oil business that should be taken into account during the process.

This case has raised numerous points that had to be addressed, and other countries that produce oil had to review their agreements to limit the possibility of complications. Saudi Arabia had agreed that actions on its part were not reasonable, and the country wants to make sure that the agreements are not broken. Negotiation was a correct decision, and it has helped to take advantage of established relationships. It needs to be said that the country takes cases that are associated with law incredibly seriously after this dispute and wants to make sure that international laws are considered during arbitration because this sector is vital to the economy (Al-Ammari 259).

Saudi Arabia understands that some points require a consensus, and they cannot be regulated only by Islamic laws because conflicts with other nations should be avoided at all costs. The arbitration may also be necessary to resolve the Al Gosaibi-Saad dispute because it is still ongoing, and there are no signs of significant progress in this case. However, it needs to be said that this situation is rather complicated, but international intervention may be necessary because enormous sums of money are involved.

Conclusion

In conclusion, it is important to understand that there are particular differenced that can be seen in the legal systems of some countries. They have developed historically under and the influence of both internal and external factors such as traditions and culture. It is necessary to respect the law of other countries, and dissimilarities should be taken into consideration when some banking and finance disputes are resolved. The biggest difference that should be noted is that religion has an enormous influence on every single aspect of everyday lives, and it includes the law system. It is paramount to understand that operations of every single institution are supposed to be based on principles that are stated in the books.

It severely complicates the development of the system, and some of the conflicts and disputes are not easy to resolve. However, some of the laws still need to be improved. Nevertheless, it needs to be said that the government is making a slow and steady process to ensure that religious traditions are respected, and laws are modernized because it is an essential aspect that may severely limit the possibilities for the development of the country, and should be addressed. Overall, the fact that courts are now less involved in the process is paramount because it allows both sides of the dispute to have a bigger influence on its structure.

Works Cited

Al-Ammari, Saud. “Saudi Arabia and the Onassis arbitration – A commentary.” Journal of World Energy Law and Business 3.3 (2010): 257-259. Print.

Al-Herbish, Zuhair S. “Jurisdiction over Banking Disputes in Saudi Arabia.” Arab Law Quarterly 25.2 (2011): 221-228. Print

Alnowaiser, Khalid. “The New Arbitration Law and its Impact on Investment in Saudi Arabia.” Journal of International Arbitration 29.6 (2012): 723-725. Print.

“First Commercial Arbitration Centre Formed in Saudi Arabia.” Out-law. Out-law, 2014. Web.

Hanefeld, Inka. “Arbitration in Banking and Finance.” NYU Journal of Law & Business 9.1 (2013): 917-939. Print.

Olayemi, Abdul and Bandar al-Zabyani. “Arbitration Clause in Islamic Banking Contracts: A Contractual Necessity.” International Journal of Interdisciplinary and Multidisciplinary Studies 1.7 (2014): 1-6. Print.

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