Essay: Islamic Financial Dispute
A dispute can be handled by the state courts or by the use of Alternative Dispute Resolution (ADR) techniques such as arbitration or negotiation . In Malaysia for instance, a negotiation process can be done with the assistance of central Bank of Malaysia Shari’a Advisory board, Islamic center for reconciliation and arbitration in Dubai or by Kuala Lumpur Regional Center for arbitration. However, these bodies still face several challenges as they move towards becoming internationally recognized centers for dispute resolution .
In Islamic finance, the choice of law is usually agreed upon during the creation of a contract and also in Sukuk Offerings . The choice of law is usually hinged on the existing or designated jurisdiction with favorable and appropriate security laws and regulatory compliance requirements of the institution. In many Islamic financial disputes, there is gross lack of established precedent in most of the jurisdictions which has been fuelled by the recent incorporation of Islamic finances and banking into state law . Due to this limitation, certain jurisdictions are often used as the governing law due to their desired or relative predictability .
A good choice of law to be used in an arbitration process is not a guarantee that the dispute will be solved during any Islamic financial dispute . For instance, Tamweel Sukuk company limited which is a special entity registered in the Cayman Islands was created by the mother mortgage finance company called Tamweel which is incorporated in United Arab Emirates (UAE) and issued with sukuk Trust Certificates (STC) to different investors who would in turn use them to acquire Shari’a law compliant assets . Using the Tamweel Sukuk prospectus, the governing law between these two companies to govern such transaction is the English law. This is predictable law for sukuk offerings but looking at Tamweel prospectus, it is not easy to tell whether the courts would enforce the Islamic law or the English law. The failure to make the right choice may lead to failure of the process .
In the case of Ahmad Hamad Algosaibi and brothers (Saudi Arabian Investment and commerce company limited-AHAB) v. Mashreqbank (UAE Incorporated) case which was filed in 2009 in New York, Mashreq opened suit against AHAB for bleaching a contract of an agreed foreign currency exchange of $150 million. Mashreq also accused AHAB of breach of implied duty of good faith as well as unjust enrichment. AHAB denied the charges and claimed that it was not aware of such a transaction until Mashreq complained about it in the courts. AHAB later filed an answer to this complain, and also opened a case against one of its chief executives in the financial services for fraud, unjust enrichment, conversion, breach of fiduciary duty and indemnification.
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