Shamil Bank of Bahrain EC v Beximo Pharmaceuticals Ltd
The case of Shamil Bank of Bahrain EC v Beximco Pharmaceuticals No. 1 was one eccentric case that brought a lot of insights in the application and importance of public policy in the UAE. In the case, B appealed against a decision ([2003] EWHC 2118, [2003] 2 All E.R. (Comm) 849) giving summary judgment to S, which was a bank. S then claimed against B as principal debtors in respect of monies advanced to them by S under various Islamic financing agreements and as guarantors of some of those agreements. The governing law clause contained in the financing agreements provided that ‘subject to the principles of the Glorious Shari'a’ the agreements would be governed by and construed in accordance with the laws of England. To this S further claimed amounts outstanding under the agreements when B failed to make payments. B's defence was, inter alia, that on the proper construction of the governing law clause, the agreements were only enforceable in so far as they were recognised by Shari'a law and English law, and that the agreements were in fact contrary to Shari'a law.
The judge held that English law was the governing law because there could not be two separate systems of law governing the contracts.” Public Policy would have been highly different in Bahrain courts than that of the Western court system in which this case was held. Shari’a law and English law are in direct conflict in this case and therefore the arbitration would be extremely volatile. In this case, the appeal from the Bank of Bahrain was dismissed.
In giving the judgment for the case, the following includes most of the insights that informed the decision and perception of the court. The judge who was overseeing the proceedings of the case, Held, while dismissing the appeal, said that:
1) The judge had been correct in his determination and this he explained that in interpreting the governing law clauses, the court should lean against a construction which would defeat the commercial purpose of the agreements. There could not be two governing laws in respect of the agreements. The Rome Convention 1980, scheduled to the Contracts (Applicable Law) Act 1990, only contemplated and sanctioned the choice of the law of a country.
2) Although it was possible to incorporate provisions of foreign law as terms of a contract, the general reference in the agreements to principles of Shari'a law did not identify any specific aspects of Shari'a law intended to be incorporated into the contracts. The reference to Shari'a law was repugnant to the choice of English law and could not sensibly be given effect to. The judge was right that the words were to be read as a reference to the fact that S held itself out as conducting its affairs according to the Shari'a principles.
3) The judge was also correct that a common mistake as to the legal consequences of the agreements would not give rise to a defence to the claims on the guarantees, because B's sole interest was to obtain advances of funds and they were indifferent to the form of the agreements required by the bank or the impact of Shari'a law on their validity.”
From my analytical point of view, the effects of the public policy had little or no credence in this case. In this instance, the pharmaceutical company was trying to use the public policy in their favour; trying to say that because they borrowed the monies under Shari’a law that it was not valid and therefore tried to win an appeal against the Bank of Bahrain. Even though the arbitrators in this case were bound to rely on public policy for their decisions; they were bound to the public policy defence, but in this case the defence was completely ineffective. The money that was actually owed was still due to the Bank of Bahrain. The court found that the public policy was not a defence against the primary facts of the case; that the company owed the money to the Bank of Bahrain and were charged to pay that money back. Inasmuch as the court was not obligated to take into consideration Bahrain public policy if the parties had not asked it to do so, it would have been appropriate for the court to consider it just so as when giving its decision, it would be far reaching with the understanding that it had considered all the scenarios extensively.
Wintershall A. G. v The Government of Qatar
This was a typical case in which the UNCITRAL decided to give the local court jurisdiction in an international case. UNCITRAL was involved basically because the rights of the local court would most likely override the international public policy and it allowed the Government of Qatar jurisdiction. The decision of this case was going to be in favor of the local court, given this local court’s ability to use its own public policy to make a ruling over the case. In the case, the Tribunal referred to Article 21 (1) of the UNCITRAL Arbitration Rules . Using this rule, it gave UNCITRAL its power to rule in its own jurisdiction. This rule was set up to protect the local courts, especially in the Middle Eastern States. During the Tribunal meeting, it was stated, “the tendency has been not only to a non-restrictive but even to an expansive view of international arbitrations." Because of this article, the non-restrictive interpretation of the Tribunal would be more appropriate.
It can be observed that Middle East countries such as Qatar which have expressly accepted to be governed by international arbitration regulations could easily benefit from the latitude that such provisions offer. It should be noted that this case obtains because Qatar is not under strict Islamic rule because it is rather a monarch, with an almost secular government. Decisions made in the courts in Qatar can therefore enjoy international recognition, just as much as Qatar would also easily recognize decisions made in other jurisdictions where her citizens are involved. Qatari public policy can be seen to be less rigid in recognizing arbitration processes and decisions made elsewhere so long as the international rules to which she subscribes.
The Tribunal felt that the common ground of these decisions lay in the approach and findings of the arbitrators. In each case, the Tribunal looked first at the contract to determine the parties' intent on the jurisdictional issue, and then supported a decision based on general contract language by finding that customary international law provides for an arbitral tribunal to determine its own jurisdiction.”
Arbitration between Petroleum Development (Trucia Coast) Ltd and Sheikh of Abu Dhabi
This was an explicit case that clearly showed how the experiences of arbitration between foreign countries and the Gulf States are mixed. The case Dubai and Qatar with British Arbitrators Lord Asquith and Sir Alfred Bucknill, showed that the British arbitrators were actually insensitive to the cases in these GCC States and the consequences were extremely damaging as far as public opinion and the opinions of the Gulf courts. Lord Asquith dogmatically ignored Islamic Law and infuriated the Gulf Nations as well as the jurists in the Abu Dhabi case . He would not accept the precedents of the side of the Abu Dhabi State, coming from Islamic Law instead of international law. He rejected prima facie of the laws of Abu Dhabi, insisting that “prevailing Islamic legal traditions were not feasibly applicable to modern transactions”. The ancient legal cases in Egypt could still be used as precedents for today’s legal battles. Women were given place in the court system and could even bring suits, divorce and have modern legal rights in ancient Egypt. These cases could be used in a Bahrain court of law and are still used as precedence. In international law, there could be some negative arguments, as with Lord Asquith, which should use arbitrators more sensitive to the Islamic traditions and beliefs. This would prevent a lot of the “bad” public opinion as far as the Awards are concerned.
Even then, reliance on the foundations based on the ancient Egyptian laws could possibly pose greater challenges to the modern arbitration process arising from modern transactions, as it were. Because of the dynamic nature of society and nature of business processes and transactions, a review of the provisions of the arbitration process and decisions might need to be undertaken so as ensure compliance with the ever changing business environment. The effect of failure to recognize decisions and processes that do not conform to public policy of the Gulf States is likely to delay the process and consequently defeat the main purpose of out-of-court settlement through arbitration. Similarly, it would appear that arbitration processes pursued outside the Gulf region must involve experts from the Gulf region as well who would make sure their own public policies are not flouted, just as much as they do not flout those of their host nations. Similarly, this is likely to slow the process of settlement down, besides making it more costly.
Ruler of Qatar v International Marine Oil Company
This was another case in Qatar where NYC Arbitration Award was used. This case invoked Public Opinion clause in arbitration. The Tribunal felt that the common ground of these decisions lay in the approach and findings of the arbitrators . In the case, the Tribunal looked first at the contract to determine the parties' intent on the jurisdictional issue, and then supported a decision based on general contract language by finding that customary international law provides for an arbitral tribunal to determine its own jurisdiction” . The arbitrator at first held that the law of Qatar should apply, but later he dismissed it by saying, “I am satisfied that Qatari law does not contain any principles which would be sufficient to interpret this particular contract” . This see-saw effect seems to be a continuous back and forth method of arbitrating to settle disputes. They will bring up a Public Policy ideal and then dismiss it, using more modern arguments to settle each individual dispute with the international companies. This may be due to the precedents as the Arbitrator Lord Asquith in the Abu Dhabi cases, in which he continually tried to embarrass the GCC States by criticizing their ‘antiquated laws’ including attacking their spiritual beliefs. It is often said that a Muslim doesn’t live his religion, but he is his religion.
The position here is that there are lots of ambiguities in the interpretation of the international arbitration law when looked at together with the domestic laws. Whereas the Qatari laws have tended to synchronize more with the international laws on arbitration, they tend to be looked at in light of the other general laws applicable in the other Gulf States. Similarly, precedents set in previous cases are often applied in modern times, and this might not sufficiently address the issues in contention. It looks like some arbiters still look at the Gulf States as applying uniform laws in most of their transactions, including arbitration processes, and this might not necessarily be the case. Similarly, some arbiters seem to have developed negative attitudes towards the Gulf States’ public policy for stifling the process of arbitration because their public policy fuses in completely with the Islamic tradition and at times, it becomes difficult to draw a boundary between the two.
Bechtol Company v Dept of Civil Aviation of the Govt of Dubai
This case is an example of a recent case that presents a great chance of some of the circumstances that parties fear when considering sitting arbitration in the Middle East . In the case, International Betchtol Company Ltd as well as the Department of Civil Aviation of Dubai jointly submitted a contractual dispute to arbitration at the Industry and the Dubai Chamber of Commerce . The Swiss lawyer who was appointed as the sole arbitrator conducted the arbitration under Dubai laws and heard and took evidence from at least 15 witnesses and issued an award in favour of the company for $24.4 million. The government of Dubai was not pleased with this decision and sought to overturn the award and therefore filed a complaint in the Dubai Court of First Instance. For this, they argued that the court did not administer the oath to the witnesses appropriately in accordance to Dubai law. The arbitrator only warned the witnesses that they were “bound to tell the truth” failure to which they would face “severe consequences” and yet Dubai law requires the witness to declare “I swear by the Almighty to tell the truth and nothing but the truth”. Based on this fault, the Dubai Court of First Instance having established this flaw, ruled in favour of the government . This compelled Betchol to appeal against this ruling in the Dubai Court of Cassation which still affirmed the decision of the lower court. At the same time when the appeal was still pending, Betchol further field petitions in the US and France seeking judicial recognition and enforcement of arbitration award where the US federal district dismissed this claims on technical grounds where it concluded that Betchol was not entitled to any relief under the New York Convention basically because the UAE of which Dubai is part of, was not a signatory to the Convention. The court further found that relief was not available to Dubai under the Federal Arbitration Act since the parties involved in the case had not mutually agreed that the case could be entered into an American Court as it is required by Section 9 of the FAA .
This dismissal could have been because the Arbitrators were of a more specific mind to include Public Opinion without being influenced by past precedents that would find the ‘antiquated’ laws of Dubai inapplicable in the decision. Possibly these arbitrators have come a long way and decided to take into consideration the laws of the GCC States seriously and not to dismiss them as ridiculous as Lord Asquith had done. It was noted that that the second part of arbitration had proceeded, not on GCC States’ soil, but in a US Court of Appeals. Therefore the perception of ‘geography’, of the actual case did not matter in this instance.
It is not the country, but the spirit or substance of the law that should be of interest. If the law is followed strictly and applied fairly, they are likely to win support and recognition, the physical jurisdiction notwithstanding. What is important is that the decisions must be able to stand the test of time. Qatar is able to operate on this plane with other countries such as America because her institutions seem to have won America’s approval rating. They are not so regimented onto the public policy based on religion, but on respect for the jurisdiction within which the decisions are made.
Bibliography
Ahmed, El Kosheri, 1999, ‘International University for African Development: International Court of Arbitration, Paris, France’, Arab Quarterly Monthly, p. 880.
H. Stovall, 2010, “Abbreviation and the Arab Middle East: Some Thoughts from A Commercial Practitioner”, Chicago International Resolution Assoc, vol. 21, no. 3, p. 377.
Mahmood, Al-Yousif, 2009, ‘The New Bahrain Arbitration Law and the Bahrain’ Free Arbitration Zone, viewed on 13 October, 2010, http://bahraini.tv/2010/05/29/the-new-bahrain-arbitration-law-and-the-bahrain-free-arbitration-zone/.
Selected Judgments of Different Cases in UAE as Regards their Public Policy Perspective
Shamil Bank of Bahrain EC v Beximo Pharmaceuticals Ltd
The case of Shamil Bank of Bahrain EC v Beximco Pharmaceuticals No. 1 was one eccentric case that brought a lot of insights in the application and importance of public policy in the UAE. In the case, B appealed against a decision ([2003] EWHC 2118, [2003] 2 All E.R. (Comm) 849) giving summary judgment to S, which was a bank. S then claimed against B as principal debtors in respect of monies advanced to them by S under various Islamic financing agreements and as guarantors of some of those agreements. The governing law clause contained in the financing agreements provided that ‘subject to the principles of the Glorious Shari'a’ the agreements would be governed by and construed in accordance with the laws of England. To this S further claimed amounts outstanding under the agreements when B failed to make payments. B's defence was, inter alia, that on the proper construction of the governing law clause, the agreements were only enforceable in so far as they were recognised by Shari'a law and English law, and that the agreements were in fact contrary to Shari'a law.
The judge held that English law was the governing law because there could not be two separate systems of law governing the contracts.” Public Policy would have been highly different in Bahrain courts than that of the Western court system in which this case was held. Shari’a law and English law are in direct conflict in this case and therefore the arbitration would be extremely volatile. In this case, the appeal from the Bank of Bahrain was dismissed.
In giving the judgment for the case, the following includes most of the insights that informed the decision and perception of the court. The judge who was overseeing the proceedings of the case, Held, while dismissing the appeal, said that:
1) The judge had been correct in his determination and this he explained that in interpreting the governing law clauses, the court should lean against a construction which would defeat the commercial purpose of the agreements. There could not be two governing laws in respect of the agreements. The Rome Convention 1980, scheduled to the Contracts (Applicable Law) Act 1990, only contemplated and sanctioned the choice of the law of a country.
2) Although it was possible to incorporate provisions of foreign law as terms of a contract, the general reference in the agreements to principles of Shari'a law did not identify any specific aspects of Shari'a law intended to be incorporated into the contracts. The reference to Shari'a law was repugnant to the choice of English law and could not sensibly be given effect to. The judge was right that the words were to be read as a reference to the fact that S held itself out as conducting its affairs according to the Shari'a principles.
3) The judge was also correct that a common mistake as to the legal consequences of the agreements would not give rise to a defence to the claims on the guarantees, because B's sole interest was to obtain advances of funds and they were indifferent to the form of the agreements required by the bank or the impact of Shari'a law on their validity.”
From my analytical point of view, the effects of the public policy had little or no credence in this case. In this instance, the pharmaceutical company was trying to use the public policy in their favour; trying to say that because they borrowed the monies under Shari’a law that it was not valid and therefore tried to win an appeal against the Bank of Bahrain. Even though the arbitrators in this case were bound to rely on public policy for their decisions; they were bound to the public policy defence, but in this case the defence was completely ineffective. The money that was actually owed was still due to the Bank of Bahrain. The court found that the public policy was not a defence against the primary facts of the case; that the company owed the money to the Bank of Bahrain and were charged to pay that money back. Inasmuch as the court was not obligated to take into consideration Bahrain public policy if the parties had not asked it to do so, it would have been appropriate for the court to consider it just so as when giving its decision, it would be far reaching with the understanding that it had considered all the scenarios extensively.
Wintershall A. G. v The Government of Qatar
This was a typical case in which the UNCITRAL decided to give the local court jurisdiction in an international case. UNCITRAL was involved basically because the rights of the local court would most likely override the international public policy and it allowed the Government of Qatar jurisdiction. The decision of this case was going to be in favor of the local court, given this local court’s ability to use its own public policy to make a ruling over the case. In the case, the Tribunal referred to Article 21 (1) of the UNCITRAL Arbitration Rules . Using this rule, it gave UNCITRAL its power to rule in its own jurisdiction. This rule was set up to protect the local courts, especially in the Middle Eastern States. During the Tribunal meeting, it was stated, “the tendency has been not only to a non-restrictive but even to an expansive view of international arbitrations." Because of this article, the non-restrictive interpretation of the Tribunal would be more appropriate.
It can be observed that Middle East countries such as Qatar which have expressly accepted to be governed by international arbitration regulations could easily benefit from the latitude that such provisions offer. It should be noted that this case obtains because Qatar is not under strict Islamic rule because it is rather a monarch, with an almost secular government. Decisions made in the courts in Qatar can therefore enjoy international recognition, just as much as Qatar would also easily recognize decisions made in other jurisdictions where her citizens are involved. Qatari public policy can be seen to be less rigid in recognizing arbitration processes and decisions made elsewhere so long as the international rules to which she subscribes.
The Tribunal felt that the common ground of these decisions lay in the approach and findings of the arbitrators. In each case, the Tribunal looked first at the contract to determine the parties' intent on the jurisdictional issue, and then supported a decision based on general contract language by finding that customary international law provides for an arbitral tribunal to determine its own jurisdiction.”
Arbitration between Petroleum Development (Trucia Coast) Ltd and Sheikh of Abu Dhabi
This was an explicit case that clearly showed how the experiences of arbitration between foreign countries and the Gulf States are mixed. The case Dubai and Qatar with British Arbitrators Lord Asquith and Sir Alfred Bucknill, showed that the British arbitrators were actually insensitive to the cases in these GCC States and the consequences were extremely damaging as far as public opinion and the opinions of the Gulf courts. Lord Asquith dogmatically ignored Islamic Law and infuriated the Gulf Nations as well as the jurists in the Abu Dhabi case . He would not accept the precedents of the side of the Abu Dhabi State, coming from Islamic Law instead of international law. He rejected prima facie of the laws of Abu Dhabi, insisting that “prevailing Islamic legal traditions were not feasibly applicable to modern transactions”. The ancient legal cases in Egypt could still be used as precedents for today’s legal battles. Women were given place in the court system and could even bring suits, divorce and have modern legal rights in ancient Egypt. These cases could be used in a Bahrain court of law and are still used as precedence. In international law, there could be some negative arguments, as with Lord Asquith, which should use arbitrators more sensitive to the Islamic traditions and beliefs. This would prevent a lot of the “bad” public opinion as far as the Awards are concerned.
Even then, reliance on the foundations based on the ancient Egyptian laws could possibly pose greater challenges to the modern arbitration process arising from modern transactions, as it were. Because of the dynamic nature of society and nature of business processes and transactions, a review of the provisions of the arbitration process and decisions might need to be undertaken so as ensure compliance with the ever changing business environment. The effect of failure to recognize decisions and processes that do not conform to public policy of the Gulf States is likely to delay the process and consequently defeat the main purpose of out-of-court settlement through arbitration. Similarly, it would appear that arbitration processes pursued outside the Gulf region must involve experts from the Gulf region as well who would make sure their own public policies are not flouted, just as much as they do not flout those of their host nations. Similarly, this is likely to slow the process of settlement down, besides making it more costly.
Ruler of Qatar v International Marine Oil Company
This was another case in Qatar where NYC Arbitration Award was used. This case invoked Public Opinion clause in arbitration. The Tribunal felt that the common ground of these decisions lay in the approach and findings of the arbitrators . In the case, the Tribunal looked first at the contract to determine the parties' intent on the jurisdictional issue, and then supported a decision based on general contract language by finding that customary international law provides for an arbitral tribunal to determine its own jurisdiction” . The arbitrator at first held that the law of Qatar should apply, but later he dismissed it by saying, “I am satisfied that Qatari law does not contain any principles which would be sufficient to interpret this particular contract” . This see-saw effect seems to be a continuous back and forth method of arbitrating to settle disputes. They will bring up a Public Policy ideal and then dismiss it, using more modern arguments to settle each individual dispute with the international companies. This may be due to the precedents as the Arbitrator Lord Asquith in the Abu Dhabi cases, in which he continually tried to embarrass the GCC States by criticizing their ‘antiquated laws’ including attacking their spiritual beliefs. It is often said that a Muslim doesn’t live his religion, but he is his religion.
The position here is that there are lots of ambiguities in the interpretation of the international arbitration law when looked at together with the domestic laws. Whereas the Qatari laws have tended to synchronize more with the international laws on arbitration, they tend to be looked at in light of the other general laws applicable in the other Gulf States. Similarly, precedents set in previous cases are often applied in modern times, and this might not sufficiently address the issues in contention. It looks like some arbiters still look at the Gulf States as applying uniform laws in most of their transactions, including arbitration processes, and this might not necessarily be the case. Similarly, some arbiters seem to have developed negative attitudes towards the Gulf States’ public policy for stifling the process of arbitration because their public policy fuses in completely with the Islamic tradition and at times, it becomes difficult to draw a boundary between the two.
Bechtol Company v Dept of Civil Aviation of the Govt of Dubai
This case is an example of a recent case that presents a great chance of some of the circumstances that parties fear when considering sitting arbitration in the Middle East . In the case, International Betchtol Company Ltd as well as the Department of Civil Aviation of Dubai jointly submitted a contractual dispute to arbitration at the Industry and the Dubai Chamber of Commerce . The Swiss lawyer who was appointed as the sole arbitrator conducted the arbitration under Dubai laws and heard and took evidence from at least 15 witnesses and issued an award in favour of the company for $24.4 million. The government of Dubai was not pleased with this decision and sought to overturn the award and therefore filed a complaint in the Dubai Court of First Instance. For this, they argued that the court did not administer the oath to the witnesses appropriately in accordance to Dubai law. The arbitrator only warned the witnesses that they were “bound to tell the truth” failure to which they would face “severe consequences” and yet Dubai law requires the witness to declare “I swear by the Almighty to tell the truth and nothing but the truth”. Based on this fault, the Dubai Court of First Instance having established this flaw, ruled in favour of the government . This compelled Betchol to appeal against this ruling in the Dubai Court of Cassation which still affirmed the decision of the lower court. At the same time when the appeal was still pending, Betchol further field petitions in the US and France seeking judicial recognition and enforcement of arbitration award where the US federal district dismissed this claims on technical grounds where it concluded that Betchol was not entitled to any relief under the New York Convention basically because the UAE of which Dubai is part of, was not a signatory to the Convention. The court further found that relief was not available to Dubai under the Federal Arbitration Act since the parties involved in the case had not mutually agreed that the case could be entered into an American Court as it is required by Section 9 of the FAA .
This dismissal could have been because the Arbitrators were of a more specific mind to include Public Opinion without being influenced by past precedents that would find the ‘antiquated’ laws of Dubai inapplicable in the decision. Possibly these arbitrators have come a long way and decided to take into consideration the laws of the GCC States seriously and not to dismiss them as ridiculous as Lord Asquith had done. It was noted that that the second part of arbitration had proceeded, not on GCC States’ soil, but in a US Court of Appeals. Therefore the perception of ‘geography’, of the actual case did not matter in this instance.
It is not the country, but the spirit or substance of the law that should be of interest. If the law is followed strictly and applied fairly, they are likely to win support and recognition, the physical jurisdiction notwithstanding. What is important is that the decisions must be able to stand the test of time. Qatar is able to operate on this plane with other countries such as America because her institutions seem to have won America’s approval rating. They are not so regimented onto the public policy based on religion, but on respect for the jurisdiction within which the decisions are made.
Bibliography
Ahmed, El Kosheri, 1999, ‘International University for African Development: International Court of Arbitration, Paris, France’, Arab Quarterly Monthly, p. 880.
H. Stovall, 2010, “Abbreviation and the Arab Middle East: Some Thoughts from A Commercial Practitioner”, Chicago International Resolution Assoc, vol. 21, no. 3, p. 377.
Mahmood, Al-Yousif, 2009, ‘The New Bahrain Arbitration Law and the Bahrain’ Free Arbitration Zone, viewed on 13 October, 2010, http://bahraini.tv/2010/05/29/the-new-bahrain-arbitration-law-and-the-bahrain-free-arbitration-zone/.
R., Doak, 1997, ‘The Development of a Lex Petrolea’, International Arbitration of Petroleum Disputes, (King and Spaulding).
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