Europe's Approach to Islamic Banking: A Way Forward - Wbiaus.org

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Trakicnot made with the feeling of need to comply with the Shari’ah. The changes to theUK tax law were made to suit everybody, regardless of which religion, and thesubject matter of the discussion when analyzing these changes falls within the taxlaw and not Shari’ah interpretation of it (Amin, 2007).Furthermore, it is very important to understand the proper meaning and the scope ofthe “alternative finance arrangements”. Alternative finance arrangements are thearrangements which fall within four provisions, two among which give rise toalternative finance return, and the other two give rise to profit share return.Alternative finance return is related to purchase and resale as defined in section 47Finance Act 2005 (murabahah transaction), and diminishing share ownership asdefined in section 47A of the Finance Act 2005 (diminishing musharakah). Profitshare return is related to a deposit transaction as defined in section 49 of theFinance Act 2005 (mudharabah concept), and a profit share agency transaction asdefined in section 49A of the Finance Act 2005 (wakalah concept). 20The first change to the tax legislation which is relevant for the Islamic financeindustry is made to the Finance Act 2003 regarding the stamp duty land tax(SDLT). 21 The new amendment to the Finance Act 2003 effectively removed thedouble SDLT for the persons using the alternative property financing arrangementswhich cover the Islamic mortgages. Section 73, part IV of the Finance Act 2003clearly provides for the exemption of double SDLT in the above mentioned case. 22Later on the SLDT provisions were also extended to equity sharing in 2005 and alsoto companies in 2006.The legislative changes were also made in the Finance Act2005 and Finance Act 2006 in relation to tax whereby the two types of borrowingarrangements, as well as two types of depositing arrangements were introduced. 235.2 Judicial Approach towards the Islamic Banking Cases in the UK1. Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gemsand others [2002] WL 346969 (Queens’s Bench Division, Commercial Court, 13February 2002).In this case the claimant, Islamic Investment Company of the Gulf (IICG), made aclaim against three defendants. First defendant was Symphony Gems NV(Symphony) and two other defendants were guarantors to the first defendant. Theparties entered into a murabahah financing agreement on 27 th January 2000. IICGwas described in the agreement as a seller, while Symphony was a buyer. Basically,IICG was requested by Symphony to enter into an agreement called murabahahfinancing whereby IICG would buy precious stones and gems from the supplier forUS$ 15 million and then sell it to Symphony by way of installments as agreed by theparties for US$ 15,834,900. There were several issues raised before the court. Oneof the issues raised is in relation to the governing law clause and governingjurisdiction clause.The case was decided by the High Court judge Tomlinson J. According to the court,the parties have expressly chosen the English court as a proper avenue to decidetheir disputes and that matters will be governed by the English court. Since theparties agreed that the contract concluded between them is a murabahah financingagreement, the logical sequence would be that the principles of the murabahahagreement would be enforced and followed as Islamic law stipulates. In fact, the26
Trakiccourt called two expert witnesses in order to learn more relevant information aboutthe murabahah agreement. Nevertheless, the expert opinion given by the expertwitness has not been taken into consideration by the learned judge. Tomlinson Jstated:”The fact is that, as Dr Samaan states and as I have no reason to think is inany way inaccurate, this contract does not have the essential characteristics of aMorabaha contract. Furthermore, it is a contract governed by English law. I mustsimply construe it according to its terms as an English law contract”.The judgment was duly commented upon and criticized by a few Muslim scholars.For example, Norhashimah (2007, p. 104) questioned why the court called the expertwitnesses to give their opinion if their evidence “has no bearing whatsoever”?According to Engku Rabiah (2008), this case is an example where despite the factthat the transaction was not Shari’ah compliant, the English court said that it is validaccording to English law. This defeats the basic aim of the Shari’ah. Furthermore,she explains that this irregularity was made worse by the parties’ choice of law andchoice of court. In fact, the parties agreed that a non-Islamic court shall adjudicatethe matters in case of dispute in a non-Islamic jurisdiction.This case is an example which shows that having the contracts concluded betweenthe parties in accordance with Islamic law is not just enough. The subsequentenforcement or adjudication in case of dispute between the parties to the contract isessential. This is the additional challenge in countries where the Islamic law is notapplicable and where the courts are non-Islamic courts. Therefore, there is a need todeploy an effective mechanism which would enable the courts to follow thecontractual terms and Islamic nature of the contract where it is the case. The laws inthe non-Islamic countries which wish to introduce and practice Islamic banking andfinance could be duly amended to a certain extent so that the courts can recognizethe basic principles of Islamic law in relation to the contract. The above decision bythe English court defeats the object and purpose of having Islamic banking andfinance.2. Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd & Ors. [2004] 4All ER 1072This is another case where the parties entered into murabahah agreement. Whenone of the parties defaulted the issues raised before the English Court of Appeal wasin relation to the governing law clause. However, the unique feature of this case isthat the parties to the murabahah agreements agreed in their governing clause thatthe contracts shall be governed by the English law subject to its consistency with theShari’ah. The governing clause of the murabahah agreements provided the followingclause: “Subject to the principles of the Glorious Shari’ah, the agreements should begoverned and construed in accordance with English law”. The contention put forwardby the Beximco was that the murabahah agreements were not in compliance withShari’ah principles and as such they should be declared invalid and unenforceable.The Court of Appeal judge Potter LJ rejected that contention and held that thecontracts are governed by the English law and not Shari’ah. Furthermore heexplained that the contracts cannot be governed by two set of laws or legal systemsat the same time. Nevertheless, the learned judge acknowledged the fact that theparties do have freedom to incorporate the provisions of the foreign law into theircontracts through the ‘doctrine of incorporation’ and those foreign provisions would27
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Page 17: TrakicKarasik, T, Wehrey, F & Storm

Europe's Approach to Islamic Banking: A Way Forward - Wbiaus.org

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