The Ex Officio Power of the Arbitrator to Raise New Issues of Law in Islamis Finance Disputes

Author:Mohamed A. Hassan
Position:American University in Cairo
Pages:477-540
e Indonesian Journal of International & Comparative Law
ISSN: 2338-7602; E-ISSN: 2338-770X
http://www.ijil.org
© 2020 e Institute for Migrant Rights Press
thE Ex offiCio PowEr of thE
arBitrator to raisE nEw issuEs of
law in islamiC finanCE disPutEs
Mohamed A. Hassan
American University in Cairo
Email: Mohamed-hassan@aucegypt.edu
e legal nature of arbitration varies from the legal nature of litigation. While
the judge derives his authority from the state power, the arbitrator derives his
powers, in the rst place, from the parties' agreement. e power of the court to
raise new issues of law ex ocio is widely recognized. When it comes to arbi-
tration, the matter is more complicated. e ex ocio power of the arbitrator to
raise new issues of law is controversial in international commercial arbitration.
e situation is even more complicated in contemporary Islamic nance disputes
due to the nature of the applicable law to the merits of such disputes. Sharīa,
which is the applicable law or a signicant part thereof, obliges the arbitrator to
apply the mandatory rules of Sharīa ex ocio regardless of the parties' claims.
Under Sharīa, the primacy is to its mandatory rules, contrary to international
arbitration which grants the primacy to party autonomy. is sometimes results
in a conict between the rules of Sharīa and the rules of international arbitra-
tion. is paper examines to what extent the arbitrator may raise new issues of
law ex ocio in Islamic nance disputes. e paper argues that the arbitrator
has a power, not a duty, to raise new issues of law ex ocio in Islamic nance
disputes; however, such a power is surrounded by considerable practical and
legal challenges which may impede it. In doing so, the paper compares the scope
of arbitrator's power between Islamic legal theory and international arbitration
theory. It also examines and analyzes the available case studies which deal with
the ex ocio power of the arbitrator to raise new issues of law in Islamic nance
disputes.
Keywords: Financial Law, Alternative Dispute Settlement, Islamic Law, Litigation.
VII Indonesian Journal of International & Comparative Law 477-540 (October 2020)
478
Hassan
INTRODUCTION
International commercial arbitration has its own features which are
far dierent from litigation. Party autonomy, as expressed in the ar-
bitration agreement, is the cornerstone of the arbitration institution.
Without such an agreement, the arbitration proceedings cannot be
legally instituted. ere is a controversy amongst arbitration scholars
with respect to the juridical nature of arbitration, which is reected
in their opinion concerning the scope of the arbitrator’s power. Some
scholars consider the functions of an arbitrator like the functions of a
judge sitting in the court. Other scholars acknowledge the particularity
of arbitration which is based on the consensual element and the arbi-
trator has only the powers conferred by the parties. Others embrace a
compromise between the two theories. is variation aects the scope
of arbitrator’s power in deciding a dispute.
Raising new issues of law ex ocio is frequently exercised by judges
siting in the courts. It means that the judge may go beyond the legal
submissions provided by the parties. In other words, the judge may on
his own initiative legally re-characterize a fact which parties characterize
dierently. e judge also may ex ocio invalidate some clauses of the
contract or reject some claims due to its contradiction to mandatory
rules. e justication for that power is based on the premise that the
judge knows the law or based on the protection of state’s interests. e
situation is more problematic in arbitration. ere is a huge controversy
as to the possibility of raising new issues of law by arbitrators on their
own motion. e arbitrators are chosen by the parties and the scope of
their power is determined by the parties’ agreement. While the judge
derives his power from the state, arbitrators derive their power from
the parties’ agreement including the applicable rules chosen by the
parties. Raising new issues of law is justied on justice and fairness
considerations or the non-convincing legal submissions provided by
the parties. at power may be undermined due to procedural and
practical challenges.
e matter is more complicated in Islamic nance disputes. In
Islamic nancial industry, the main legal concern is the compliance
with Islamic Sharīa as it is the cornerstone of Islamic nance existence.
e theorists of Islamic nance are Muslims who aim to replace the
479
e Ex Ocio Power of the Arbitrator in Islamic Financial Disputes
Hassan
conventional nancial system with Islamic one. Islamic nance
theorists recalled classical Islamic contracts as a basis of the new
nancial system. e main problem of Islamic nance is that there is
no well-established regulatory framework to govern Islamic nance
contracts. e absence of such a legal framework resulted in great
uncertainty and unpredictability which are embodied in the dierent
opinions held by Muslim scholars as to various legal matters in Islamic
nance such as the legality of certain Islamic nance contracts and the
validity of some clauses incorporated into other contracts. Raising new
issues of law is more risky in Islamic nance disputes than conventional
disputes, especially in light of the absence of a well-established
regulatory framework. e underlying rationale for raising new issues
of law in Islamic nance disputes is the mandatory application of
Sharīa. In other words, under Islamic legal theory, the arbitrator, like a
judge (qādī) is obliged to apply Sharīa, as the governing law in Islamic
nance disputes. e diculties arise due to three reasons: rst, the
arbitrators are deciding disputes in an international context not in an
Islamic one; second, the mandatory rules of Sharīa are not mandatory
rules of a dened national legal system; third, there are some practical
challenges arising such as the arbitrators’ knowledge of Sharīa in the
light of the absence of Sharīa codication. is thesis ultimately argues
that the arbitrators have a discretionary power to raise ex ocio new
issues of law in Islamic nance disputes. In doing so, the arbitrators
have to observe the due process requirements, honor their mandate
and narrow the scope of the mandatory rules of Sharīa to the denitive
rules.
Section one provides an overview of Islamic nance, its main
products and its regulatory problem. It explores the risk of non-Sharīa
compliance as a ground to invalidate Islamic nance contracts. It also
examines the underlying motive to resort to arbitration instead of
litigation. e main reason for that recourse is to ensure the compliance
with Shar īa rules. Section two explores the dierent theories as to the
juridical nature of arbitration and the impact of these theories on
the views of arbitration scholars as regards the scope of arbitrators
powers. It explores the main determinants of the ex ocio power of
the arbitrator to raise new issues of law. Lastly, the main challenges
which may impede the exercise of the ex ocio power by arbitrators
are explored. Section three provides an overview of arbitration and

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