Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Potter,Lord Justice Laws,Lady Justice Arden |
| Judgment Date | 28 January 2004 |
| Neutral Citation | [2004] EWCA Civ 19 |
| Docket Number | Case No: A3/2003/1952 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 January 2004 |
[2004] EWCA Civ 19
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (MORISON J)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Potter
Lord Justice Laws and
Lady Justice Arden
Case No: A3/2003/1952
Mr R Hacker QC and Mr M Arnold (instructed by Jaswal Johnston) for the Appellants
Mr B Doctor QC and Miss S Partington (instructed by Norton Rose) for the Responden
Introduction
This is an appeal from the judgment of Mr Justice Morison dated 1 August 2003 whereby he gave summary judgment in favour of the claimant Shamil Bank of Bahrain E.C. ("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."
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 …"
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.
The Factual Background
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
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 provisions of Article 81 of the Commercial Code of 1987. The latest amendment of Article 81, affected by Law no.4 of 1992, gives the following instructions to courts: (1) interest on overdue payments of commercial debts becomes due by the mere occurrence of maturity dates unless otherwise provided for by law or agreement. (2) Under no circumstances, and with regard to debts whose settlement does not exceed a period of seven years, may the aggregate amount of interest paid to the creditor exceed the initial indebtedness. (3) The provisions of the preceding (2) do not apply to debts which were contracted in foreign currencies. (4) The creditor is entitled to claim complementary damages in addition to interest on overdue payments with no need to prove that the additional damage was caused by the debtor's fraud or his serious fault."
Nonetheless, the Bank holds itself out as applying Islamic principles in the course of its business. The Bank's full title is "Shamil Bank of Bahrain E.C. (Islamic Bankers)". The main objects clause in its Memorandum of Association is in general terms:
"3.Notwithstanding the provisions of this Article, the company shall undertake at all times to comply with the Bahrain Monetary Agency Law and any circulars, rules or regulations issued by the BMA from time to time … According to the above, the company will carry on all banking, investment, financial activities, offshore units and all services relating thereto of various commercial, industrial, agricultural, real estate, tourism, housing and other services in the State of Bahrain and outside it."
However, clause 34 of the Articles of Association provide for the Ordinary General Meeting to elect and appoint a Religious Supervisory Board "which shall comprise at least three persons who are recognised specialists and qualified in Islamic jurisprudence, religious provisions and Islamic economy".
Clauses 35 and 36 of the Articles provide:
"35.a. The Religious Supervisory Board shall ascertain that the Company's investments and activities (and the activities of its subsidiary and affiliated companies) conform with the principles and provisions of Islamic Sharia'a. It shall, in particular, discuss with the members of the Board of Directors, managers of the Company or of any subsidiary or affiliated company under its control, such conformity and the business carried out by them and shall request any information it deems necessary. In particular, the Religious Supervisory Board shall adopt all the crucial decisions for applying the provisions of Islamic Sharia'a to ensure the realisation of the objects for which the company was incorporated. Also to ensure that the members of the Board of Directors, managers and employees are co-ordinating their activities according to such decisions which will be binding on all the shareholders. The Religious Supervisory Board shall within 6 months from the end of the Company's financial year, submit a written report stating that it fulfilled the obligations indicated herein and ascertained that the Company's investments and business activities (including its subsidiary companies) conform with the provisions of Islamic Sharia'a.
…
36. The Board of Directors shall take the necessary actions to ensure that all the investments and other business transactions have been referred to the Religious Supervisory Board for approval before carrying out any other business transactions by the Company or by any subsidiary or affiliate company under its control."
As made clear by the Bank's expert witness, provisions of this kind are not unusual. In the absence of legal prescription as to what does and what does not constitute "Islamic" banking or finance, most Islamic banks create Religious or Sharia Supervisory Boards which review annually the operations of the bank and determine whether or not these have been carried out in accordance with Islamic law. They examine on a test basis each type of transaction entered into by the Bank and evidence to show that the transaction and dealings entered into by the Bank are in compliance with Sharia rules and principles, submitting an annual report to the shareholders in that respect. In this case the Bank's own Religious Supervisory Board certified in respect of the years 1995 and 1996 that:
"The Board believes that all the bank's business throughout the said year, including investment activities and banking services, were in full compliance with Glorious Islamic Sharia'a."
A certificate of compliance was also issued for that period by the Bank's auditors, reviewing the Bank's operation on the basis of the Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions.
Until their defences were filed in this action, the appellants had never given any indication to the bank that they were dissatisfied on religious grounds...
To continue reading
Request your trial
- Malayan Banking Berhad v Koh Tian Joo
- Maybank Islamic Bhd v M-IO Builders Sdn Bhd and Another
-
Halpern v Halpern (Nos. 1 and 2)
...English law, voidable. 17 This led, so we were informed, to the judge referring to Shamil Bank of Bahrain EC v Beximco Pharmaceuticals [2004] 1 W.L.R. 1784, a decision of the Court of Appeal which the judge suggested at the very least cast doubt on the question whether Jewish law as opposed......
-
Halpern v Halpern (No 1)
...Neither party then showed me that advice. Nor did either party refer to the decision of the Court of Appeal in Shamil Bank of Bahrain EC v Beximco Pharmaceuticals to which I refer below. I drew the attention of the parties to that decision and, in the light of time constraints, indicated th......
-
Islamic Finance In The UK: Recent Developments Building On Strong Foundations
...drafted so as to comply with Islamic principles. In the Shamil Bank case (Shamil Bank of Bahrain v Beximco Pharmaceuticals and others [2004] EWCA Civ 19), the Court of Appeal held that English courts would look at contracts solely from the perspective of English law and would not have regar......
-
Resolving Islamic Finance Disputes
...prior authorisation from the Council President. In the renowned English case of Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC [2004] EWCA Civ 19, one of the issues concerned the governing law of the contract. The contract stated that “subject to the principles of Glorious Sharia’a......
-
Shari'a Compliant Methods For The Financing Of Ships
...law. An obligation to pay interest will not be enforceable. In Beximco Pharmaceuticals Ltd and others v. Shamil Bank of Bahrain EC [2004] EWCA Civ 19 The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific...
-
Sharia Law: Non-Compliance and Enforceability of Contracts Governed by English Law
...case) to enable a party top avoid its contractual obligations. Shamil Bank of Bahrain v. Beximco Pharmaceuticals Limited and Others [2004] 2 Lloyd's Rep 1 also involved a Murabaha Agreement. In that case, there was a payment default by the defendants. The Agreement contained the following w......
-
Pleading and proving foreign law in Australia.
...Pry Lid v Metal Distributors (UK) Ltd; The Amazonia [1990] 1 Lloyd's Rep 236; Shamil Bank of Bahrain EC v Beximco Pharmaceuticals LM [2004] 1 WLR 1784. But see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Kleinwort Benson Lid v Lincoln City Council [1999] 2 ......
-
THE EFFECTIVE REACH OF CHOICE OF LAW AGREEMENTS
...(UK) Ltd[2007] EWHC 2981 (Ch) at [2] for the common law position. See also Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd[2004] EWCA Civ 19, [2004] 1 WLR 1784 and Halpern v Halpern[2007] EWCA Civ 291, [2008] 1 QB 105 (Rome Convention). The position appears to be similar in the US u......
-
CHOICE OF LAW FOR ENFORCEMENT OF ARBITRAL AWARDS
...& Collins on the Conflict of Laws (Sir Lawrence Collins gen ed) (Sweet & Maxwell, 14th Ed, 2006) at para 32.081. 116[2008] QB 195. 117[2004] 1 WLR 1784. 118Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd[2004] 1 WLR 1784 at [48]. 119 Francis Mann, “Lex Facit Arbitrum” in Liber Amico......
-
THIRTY-FIVE YEARS OF THE MALAYSIAN JUDICIARY ADJUDICATING ISLAMIC FINANCE MATTERS
...Co of the Gulf (Bahamas) Ltd v Symphony Gems NV [2002] All ER (D) 171; Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd [2004] 1 WLR 1784; [2004] 4 All ER 1072. 155 Maybank Islamic Bhd v M-10 Builders Sdn Bhd [2017] 2 MLJ 69 at [30]. 156 [2013] MLJU 17. 157 [2014] 3 MLJ 169. 158 [201......