This article was first published in the international construction law review volume 20 in January 2003
Contractors and banks intending to enter construction contracts or financing transaction for projects in the Middle East are faced with the questions of the application of Islamic Law and the compliance of certain provisions of their contracts with Sharia. The writers were mainly motivated to write this article by questions put by Western lawyers and businessmen fearful to enter into contracts with Middle Eastern government entities, when a contract stipulates the application of national laws and national jurisdiction.
Fears are often due to the lack of knowledge of the laws of the Middle East countries and partly because of the myth of Islamic law which many Western jurists and businessmen perceive out of the public negative media.
However, banks and European contractors intending to enter into contracts whether for financing or constructing projects in the Middle East are well advised to raise legal questions and seek legal advice as to the validity of certain contractual provisions and in particular those related to charging of interests.
With this in mind, we shall present in the Second part of this article a short and general survey on the extent of the application of Islamic law in certain Middle East Arab countries, showing where and how far Islamic law applies.
Related to the same issue and in a separate article we shall deal with the concept and the prohibition of interest under Islamic law as well as a short outline on Islamic Banking, referring to certain model contracts which have been used in financing construction and other projects.
Prior to that and related to the subject matters, a definition of Islamic law and short background of Islam may be useful in order to introduce to the readers few of the terminology used by Moslem jurists. Also, we shall attempt to remove a misconception existing between some European jurists and businessmen that there exists a single Arab or Middle East law. Instead, we shall refer to the common features of the Middle East Arab laws and not Middle East Arab law.
Concept of Islam and Sharia Law
Islam as a religion was revealed to the Prophet Mohammed first in AD 610 in Mecca, Saudi Arabia. According to the Islamic faith Mohammed was sent as a messenger by "Allah" to complete the messages of previous prophets such as Moses and Jesus. "Allah" is the Arabic word for God, and the Islamic faith is based on the unity of God, that there is one and the same God for Moslems, Christians and Jews.
The Moslem's holy book is the "Quran", which was revealed to the Prophet Mohammed and lays down the code of conducts and rules for the people to follow.
According to the Quran, all prophets were human beings endowed with divine revelations and were sent by God to teach human kind. The Quran recognises Christianity and Judaism as revelations from God, and calls for peaceful coexistence and dialogue with Jews and Christians (see the Quran, Surah 2/135 and Surah 16/125). Surah 2/190 states that "& fight in the cause of God those who fight you, but do not transgress limits, God does not like aggressors/transgressors". Therefore, legitimate war is that of self defence, and the killing of innocent civilians is a crime and aggression which the Quran prohibits.
The Quran is the main and the first source of Islamic law or so called "Sharia" in Arabic. For Moslems, the Quran has laid down rules which cover the whole way of life. These rules are either of binding and obligatory nature or recommended or advisable or forbidden and disapproved.
The second source of Sharia is the "Hadith" which is the says and deeds as reported from the Prophet Mohammed. Thus, Islamic law or Sharia is the body of rules and jurisprudence derived mainly from the Quran and the Hadith. The Islamic Sharia and jurisprudence have developed out of the interpretation, elaboration and study of Quran and Hadith.
There are five main Islamic schools of jurisprudence:
Four main Sunni schools namely Hanafi, Maliki, Shaffi and Hanbali schools.
In addition to the Sunni schools, there exists a large Shiat Jafari school, which was founded by Jafar Al Sadiq, the grandson of the Prophet Mohammed. The Shias make the majority of Moslems in Iraq and Iran.
All schools of Islamic jurisprudence rely on the texts of the Quran and the Hadith. The primary differences between them stem from the different interpretations of the texts of the Quran and the Hadith, and from the secondary sources which they use for solving religious and legal issues.
Middle East Law or Laws
As indicated before, there is no single uniform Middle East or Arab law, nor is there one uniform legal system for all Arab countries, though most of the Arab countries have adopted the codified civil law system, based on the Egyptian Civil Code, as opposed to the English common law system.
During the Ottoman Empire before the first World War, the Ottoman government compiled the jurisprudence of the Hanafi school in a uniform Civil Code called "Majella", which was applied to Arab countries, which were parts of the Ottoman Empire. The Majella continued to be applied in most Arab countries after the fall of the Ottoman Empire, until each Arab country developed its own legal system and enacted a Civil Code.
With the partition of the Ottoman Empire, France and Britain took over different Arab countries. Under the rule of the Western colonial powers, the influence of Western laws particularly those of the French codified legal system and the French Civil Code grew in the Arab countries, and the legislative process of reconciling between the Sharia and the Western laws gradually began1. Consequently, the direct application of Islamic law continued to decrease.
The Egyptian Civil Code of 1948 was the first and a successful product of the aforesaid process. The author of the Egyptian Civil Code, Dr. Sanhuri, succeeded to reconcile and bring together in harmony the principles of Sharia and the provisions of European Civil Codes and in particular the French Civil Code.
Today all Arab countries except Saudi Arabia and Oman have modern Civil Codes based fully or partly on the Egyptian Civil Code. Thus, one of the common features between the laws of the Arab countries is the similarity or even uniformity of the provisions of the Civil Codes. Another major common feature is the application of Islamic law in all Arab countries whether directly or indirectly, as it will be elaborated later.
As understood from the foregoing introduction, there is no single or uniform Arab or Middle East law, but the laws of the Arab countries share together many common features and similarities, which render a comparative view of those laws a matter of interest to lawyers.
In addition to the application of Sharia, the influence of the Majella and the uniformity of the source of Arab Civil Codes as mentioned before, there are other common factors such as interchanges of judges and jurists between Arab countries, common history and common language, which all together have created a common legal approach and jurisprudence between the Arab countries.
The Application of Islamic Law
There is no single rule as when and where Sharia applies; its application varies from one country to another and depends on the religious and social structure of the society, the legal system, and the provisions of the constitution and the Civil Code of each Arab country.
Sharia may apply either directly as a common law of the country, where there is no fully developed codified legal system, or indirectly through the application of statute law based fully or partly on Islamic law, or as a source of law to fill legislative gaps when a particular statute lacks the necessary provisions.
- In Saudi Arabia, where there is no Civil Code, Sharia operates and applies directly as a common law of the country, both in commercial courts as well as in courts of personal matters. No other law is applicable if contrary to Sharia. For a businessman who concludes for example a contract with a Saudi company including provisions for interests, or for a group of banks which provide syndicated loans to a Saudi client, it is indeed advisable to see whether the terms of their contract are valid or enforceable under Islamic law. Parties should take the prohibition of interest under Sharia into account when negotiating an agreement. Even excessive penalty clauses in a contract may be held unenforceable by the Saudi courts, based on the general principles of Sharia. However, the direct application of Sharia remains confined in Saudi Arabia to areas of law, where no legislation exists. Though Sharia is the common law of the country, Saudi Arabia has enacted a great number of legislations, the so called "Regulations" covering many fields of law including the Company Law, the Code of Commerce and the Tender Law.
- In other Arab countries which adopted Civil Codes and civil legal system, Sharia plays a lesser role and applies mainly in the field of the family laws such as, marriage and inheritance.
In these countries, family laws were enacted based on one or more of the Islamic schools referred to before, while commercial and civil codes are based on European and to some extent on Islamic law.
In the said countries where a complete civil law legal system was founded, the Sharia domination or application in matters other than the family law also varies depending on the provisions of the constitution and the Civil Code of the country.
The constitutions of the most Arab countries including Egypt, Syria, Kuwait, Bahrain, Qatar, U.A.E. and Yemen refer to Sharia either as: A primary source of law or the source of law. Consequently, and in cases of legislative lacuna where the law lacks a provision, the Sharia principles are to fill the gap either as the first source or as one of the sources of law2.
Where the constitution describes Sharia as "The" principal source of legislation, the hierarchy implies that all other laws and statues must comply with the principles of Sharia. Whether this has been complied with is another question, as we shall see later.
The following is a short survey of specific provisions of the constitutions and the Civil Codes of some Arab countries which have dealt with the application of the Sharia.
Article 2 of the amended Egyptian constitution, which was amended in 1980, stated that:
"The principles of the Sharia are THE main source of legislation in the Arab Republic of Egypt&.."
The application of this article came under test, when in 1985 the rector of Al Azhar brought a case against the president and the Egyptian parliament and others. Al Azhar contended that the provisions of the Civil Code granting interest such as Article 226 0f the Egyptian Civil Code became unconstitutional in view of the amended Article 2 of the Constitution, which adopted Sharia as THE main source of legislation.
The court rejected this contention and decided that Article 2 has no retroactive effect as to render existing laws unconstitutional, but the court claimed that Article 2 imposed an obligation on the legislative to bring all future laws in conformity with the Sharia3.
The Special Commission which prepared the amendment of the Constitution in 1980 reported that the purpose of article 2 of the Constitution is:
"to force the legislator to have recourse to the commands of Sharia, to the exclusion of any other source, in order to discover what he is searching for; then, if he does not find there an explicit ruling, he is to employ the Sharia resources of interpretive effort (al-ijtihadiyya) in order to arrive at the proper rules to follow and which do not transgress the foundations and general principles of Sharia." This principle was also confirmed in a ruling of the Egyptian constitutional court on 15. May 1993 that no legislation in the future should contradict the formal rules of Sharia.4
Article 2 of the Kuwaiti Constitution provides that:
"The religion of the state is Islam and the Islamic Sharia is a principal source of legislation&."
It is noted that according to this article, Sharia is a principle source, and not the source of legislation.
In 1992, the Kuwaiti Constitutional Court dismissed a claim that the Kuwaiti Civil Code that provides for interest was unconstitutional and contrary to Article 2 of the Constitution. The Court stated that Article 2 of the Constitution is a political directive to the legislator to adopt provisions of Sharia as far as possible. Sharia is a source, not the sole source and there is nothing to prevent the legislative from applying other sources, other than Sharia.5
In UAE the matter is somewhat ambiguous, because, while Article 7 of the UAE Constitution has the Sharia as a principal source of legislation, Article 75 of the Law of the Union Supreme Court of 1973 provides that the Supreme Court shall first apply Sharia and other laws in force if conforming to the Sharia principles. It may also apply custom, if such custom does not conflict with the principles of the Sharia.
Apart from the provisions of the Constitution, Article 1 of the Civil Code refers to Sharia as the first source of law in case of lack of any legislative provision. Also, Article 3 of the Civil Code stipulates that public policy rules are those which are not contrary to the basic principles of Sharia.
Furthermore, Article 27 of the Civil Code provides that in case of conflict of laws no law contrary to Sharia can be applied, and public policy and morals are applicable.
Here, we have constitutional provisions where Sharia is recognised only as a source of law, while the Civil Code and the aforesaid law of 1973 of the Supreme Court establishing the highest court consider Sharia as THE source of law.
The extent of the application of Sharia was raised in a number of cases in the highest court of appeal in UAE. The court ruled in a case, the Sharia is THE principal source of law, and above all other laws. But, it is for the legislator to implement that when enacting new legislation6, as we shall elaborate later.
This and other similar cases in Arab countries demonstrate the difficulties and the conflict between the principles of Sharia and the secular laws. They also show how the courts avoided the application of Sharia often on a doubtful legal reasoning, as it will be explained later.
In Saudi Arabia, the Basic Law of 1992 confirmed that Quran and Hadith are the sole sources of law and that all laws and regulations must conform to Sharia, which is the common law of the country. It follows that no foreign judgement nor any contractual provision contrary to Islamic principles may be enforced in Saudi Arabia.
Saudi Arabia follows strictly the Wahabee School, which developed out of Hanbali school of jurisprudence, though there exists a large Shia minority in Saudi Arabia.
Civil and Commercial Codes
As stated before,Article 1 of the UAE Civil Code states that in cases when there is no provision in the Civil Code, the judge must first rule in accordance with the Sharia, giving preference to Maliki and Hanbali schools. And in the absence of that, the judge shall apply rules of custom, if consistent with public order and morals.
Article 2 of the Jordanian Civil Code stipulates that in the absence of applicable law, the court applies the principles of Sharia, and in case of lack of any Sharia rule, the court applies rules of custom, and then principles of justice provided that the applicable custom is consistent with public order and morals.
It is worthwhile to note, that the UAE Civil Code as well as the Jordanian Civil Code, have made Sharia as the first source of law in the absence of an applicable provision in the law, unlike other Arab Civil Codes which refer to the application of Sharia only after and in the absence of a relevant provision of law and a rule of custom.
Article 5 of the Commercial Code of 1990 of Oman provided that if there is no express provision, custom shall apply, and in the absence of custom, the judge shall apply the principles of Sharia.
Egypt and Iraq:
Article 1 of each of the Civil Code of Egypt and Iraq contains similar provisions that in the absence of any applicable legislative provisions, the court shall adjudicate according to custom and usage, and in the absence of applicable custom and usage, the court shall apply the principles of Sharia, which are most consistent with the provisions of the law. And in the absence of the applicable custom or principles of Sharia, the general principles of justice shall be applicable.
Article 1 of the Kuwaiti Civil Code of 1980 stipulates that Sharia applies in case of absence of an express legislative provision and only after the absence of relevant rule of custom.
Thus, the Civil and/or commercial codes of Oman, Egypt, Iraq, and Kuwait have recognised the application of Sharia only after the absence of applicable rules of law and custom, whereas UAE and Jordan Civil Codes render Sharia as the first source of law.
In cases where the Civil or the Commercial Code of an Arab state refers to Sharia as a source of law in absence of a relevant rule of custom and an express provision of law, a question arises as to whether it is permissible to apply a custom if contrary to the public order and morals or the principles of Sharia.
All Arab Civil Codes provide that no law or provision of contract or custom is applicable if contrary to public morals and policy. Consequently, it may be said that any custom contrary to the express principles of Sharia may be considered as contrary to public order and morals, and therefore not be admissible, even when the Constitution gives custom a precedence over Sharia. But, in practice this may not be the case always.
The forgoing review shows the complexity of the matter and the uncertainty in the application of the law in relation to Sharia, especially when vital issues like questions of validity of provisions of the law in relation to interests are involved.
However, there is a growing assertion of the Sharia and the Islamic identity in the Middle East society as a result of the failure of national movements and the failure of the regimes in the Arab World to satisfy the aspiration of the people to achieve social welfare and to pursue independent policies free from foreign domination. Such failures have lead to frustration and resentment, and the assertion of Sharia became a way to assert the identity of the Moslem societies. Out of this frustration and resentment, extremism is unfortunately breeding.
This may in turn invite the Western lawyers to make themselves familiar with the principles of Sharia with the aim of finding bridges and similarities instead of pointing out only to differences and diversities.
In the Moslem and Arab world, it remains a desire that an unified legislation or Civil Code may one day apply to all Arab countries, based mainly on the principles of Sharia as the Majella, the Civil Code of the Ottoman Empire, did before the first World War.
Having reviewed briefly the manner and the extent of the application of Sharia in certain Arab countries, we shall deal with the prohibition of interest so called in Arabic "Riba in a separate article.
1 See Nabil Saleh, How will Sharia Influence Middle East Contract Law Over the Next 20 Years?" ,MEER, July 2001, page 9
2 Prof. W. Ballantyne, Essays and Addresses on Arab Laws", Curzon, 2000, p.5-8 and 210-213
3 Dr.Ahmed Mahmoud Saad, Delay Interests, Comparative Study with Islamic Law (in Arabic),Cairo 1986, p.15-32
4 See Oussama Arabi, The Dawning of the Third Millenium on Sharia, Egypt Law no. 1 of 2000, Arab Law Quarterly 2001, Vol. 16-1, p. 6-7
5 Supra, Prof. Ballantyne, p. 60-64
6 Supra, Dr. Saad, footnotes no. 1 p. 15-31
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.