Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC
| Jurisdiction | England & Wales |
| Judge | Potter,Laws,Arden L JJ |
| Judgment Date | 28 January 2004 |
| Date | 28 January 2004 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Potter, Laws and Arden L JJ.
R Hacker QC and M Arnold (instructed by Jaswal Johnston) for the appellants.
B Doctor QC and S Partington (instructed by Norton Rose) for the respondent.
The following cases were referred to in the judgment of Potter LJ:
Al-Bassam v Al-BassamUNK [2002] EWHC 2281(Ch).
Associated Japanese Bank (International Ltd) v Crédit du Nord SAWLR [1989] 1 WLR 155.
Bell v Lever Bros LtdELR [1932] AC 161.
Brennan v Bolt BurdonUNK [2003] EWHC 2493(QB).
Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (“The Amazonia”)UNK [1990] 1 Ll Rep 236.
Glencore International AG v Metro Trading International Inc [2001] CLC 1732.
Great Peace Shipping Ltd v Tsavliris Salvage (International) LtdUNK [2002] EWCA Civ 1407; [2003] 2 CLC 16.
Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gems NV (unreported, 13 February 2002).
Kleinwort Benson Ltd v Lincoln City Council [1999] CLC 332; [1999] 2 AC 349.
Nea Agrex SA v Baltic Shipping Co LtdELR [1976] QB 933.
Reardon Smith Line Ltd v Yngvar Hansen-TangenWLR [1976] 1 WLR 989.
Swain v HillmanUNK [2001] 1 All ER 91.
Banking — Governing law — Choice of law — Islamic law — Agreement governed by English law “subject to the principles of the glorious shari'a”— Contract could not have two governing laws — Rome Convention did not recognise non-national system of law — Whether specific shari'a rules incorporated into contracts Contracts — (Applicable Law) Act 1990, Sch. 1 (Rome Convention).
This was an appeal from a judgment of Morison J giving summary judgment in favour of the claimant bank (Shamil Bank of Bahrain EC) against the first and second defendants as principal debtors in respect of moneys advanced to them by the bank under various financing agreements and against the third, fourth and fifth defendants as guarantors of certain of those agreements.
The financing agreements contained a governing law clause which provided that “subject to the principles of the glorious shari'a” the agreement would be governed and construed in accordance with English law. The bank's own religious supervisory board certified in respect of the relevant years that the bank's business activities were in accordance with the shari'a, i.e. Islamic law. When the defendants defaulted under the agreements and the bank sought to enforce them, the principal defence advanced was that (a) on a true construction of the governing law clause the agreements were only enforceable in so far as they were valid and enforceable both (i) in accordance with the principles of the shari'a and (ii) in accordance with English law; and (b) in fact, the agreements were unlawful, invalid and unenforceable under the principles of the shari'a. The judge concluded that on the proper interpretation of the governing law clause he was not concerned with the principles of shari'a law at all because there could not be two separate systems of law governing the agreements and the clause was a choice of English law rather than shari'a law. Shari'a law was not the law of a country for the purposes of the Rome Convention and the Contracts (Applicable Law) Act 1990 and the parties could not have intended an English court to determine controversial religious principles. The judge therefore accepted the submission of the bank that the words “subject to the principles of glorious shari'a” were no more than a reference to the fact that the bank purported to conduct all its affairs according to shari'a principles. English law applied and the bank was entitled to summary judgment. The defendants appealed.
Held, Dismissing The Appeal:
1. There could not be two governing laws in respect of the agreements and the governing law was that of England. In so far as each of the clauses provided in clear terms that the agreement should be governed by and construed in accordance with the laws of England, the proviso that such provision should be “subject to the principles of the glorious shari'a” should be approached on a basis which was reconcilable with the purpose evident from the former words, rather than operating to defeat such purpose.
2. The Rome Convention only contemplated and sanctioned the choice of the law of a country and not a non-national system of law.
3. The general reference to principles of shari'a in this case afforded no reference to, or identification of, those aspects of shari'a law which were intended to be incorporated into the contract. It was plainly insufficient for the defendants to contend that the basic rules of the shari'a applicable in this case were not controversial. Such “basic rules” were neither referred to nor identified. Thus the reference to the “principles of the shari'a” stood unqualified as a reference to the body of shari'a law generally. As such, those words were inevitably repugnant to the choice of English law as the law of the contract and rendered the clause self-contradictory and therefore meaningless.
4. The validity of the contracts and the defendants” obligations thereunder fell to be decided according to English law and, if that was so, the first and second defendants were liable to the bank and the guarantors were similarly liable. The judge was correct in his view that a common mistake as to the legal consequences of the agreements would not qualify as a mistake apt to give rise to a defence. The mistake asserted was not a mistake based on a common assumption fundamental to the agreements in question. The assertions of the defendants themselves demonstrated that their sole interest was to obtain advances of funds to be used as working capital and that they were indifferent to the form of the agreements required by the bank or the impact of shari'a law upon their validity.
Potter LJ:
1. This is an appeal from the judgment of Morison J dated 1 August 2003 whereby he gave summary judgment in favour of the claimant Shamil Bank of Bahrain EC (“the Bank”) against the first and second defendants as principal debtors in respect of monies advanced to them by the Bank under various financing agreements and against the third, fourth and fifth defendants as guarantors of certain of those agreements. The total judgment sum awarded was some US $49.7million. The appellants were refused permission to appeal by Morison J, but permission was granted by Clarke LJ on 17 September 2003 in relation to a single issue relating to the construction and effect of the form of the governing law clause contained in the financing agreements. That clause reads as follows:
“Subject to the principles of the Glorious Sharia'a, this Agreement shall be governed by and construed in accordance with the laws of England.”
2. It is not in dispute that “the principles of the Glorious Sharia'a” referred to are the principles described by the defendants” expert, Mr Justice (retd) Khalil-Ur-Rehmam Khan as:
“the law laid down by the Qur'an, which is the holy book of Islam, and the Sunnah (the sayings, teachings and actions of Prophet Mohammad (pbuh)). These are the principal sources of the Sharia. The Sunnah is the most important source of the Islamic faith after the Qur'an and refers essentially to the Prophet's example as indicated by the practice of the faith. The only way to know the Sunnah is through the collection of Ahadith, which consists of reports about the sayings, deeds and reactions of the Prophet…”
3. One principle expressly stated in the Qur'an and Sunnah is that the charging of interest upon a loan, in whatever form, is “Riba” and is contrary to the Sharia. At Sura II, 275–79 of the Qur'an it is stated that:
“…Allah has made buying and selling lawful and has made the taking of interest unlawful. Remember, therefore, that he who desists because of the admonition that has come to him from his Lord, may retain what he has received in the past; and his affair is committed to Allah. But those who revert to the practice, they are the inmates of the fire; therein shall they abide.…O Ye who believe, be mindful of your duty to Allah and relinquish your claim to what remains of interest, if you are truly believers. But if you do not, then beware of war from the side of Allah and his Messenger. If, however, you desist, you will still have your capital sums; thus you will commit no wrong, nor suffer any wrong yourself.”
Sura III 130 states that:
“O Ye who believe, devour not interest, for it goes on multiplying itself; and be mindful of your obligation to Allah that you may prosper.” (The Quran, translated by Muhammad Zafrulla Khan, Curzon Press, 1971.)
4. The bank is incorporated under the laws of Bahrain and licensed to act as a bank by the Ministry of Commerce and Bahrain Monetary Agency. The Kingdom of Bahrain is a constitutional monarchy and 95% of its population are muslims. Nonetheless, while embracing and encouraging Islamic banking practice as a national policy, the principles of Islamic law, in particular the prohibition of Riba, have not been incorporated into the commercial law of Bahrain and there is an absence of any legal prescription as to what does and does not constitute “Islamic” banking or finance. In his survey of the commercial laws of the Arab Middle East, Professor Ballantyne states that:
“In our other jurisdictions, banking interest is, in practice, tolerated (Saudi Arabia) and even sanctioned by banking laws (Bahrain, Qatar and Oman), while any theoretical or hypothetical conflicts have been largely ignored.” W M Ballantyne: Commercial Law in the Arab Middle East: the Gulf States (1986) p. 133.
5. The unchallenged position as far as the charging of interest in Bahrain is concerned is that stated in Unlawful Gain and Legitimate Profit in Islamic Law: Nabil Saleh (2nd ed) p.9:
“The matter of interest is regulated as far as commercial transactions are concerned by the...
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