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Kuala Lumpur arbitration centre sets out adapted rules for Islamic arbitrations

Out-Law News | 19 Sep 2012 | 2:03 pm | 1 min. read

The Kuala Lumpur Regional Centre for Arbitration (KLRCA) will publish a new set of arbitration rules this week aimed at resolving disputes arising under contracts containing Shari'a law issues, it has announced.

The KLRCA i-Arbitration Rules (84-page / 755KB PDF) will be launched on Thursday at the Global Islamic Finance Forum in the Malaysian capital, the centre said on its website. The new rules are the first to adopt the UNCITRAL Arbitration Rules, one of the most common sets of rules for institutional arbitrations, while allowing for the resolution of disputes related to Shari'a contracts.

The centre said that the new rules would update its existing Rules for Islamic Banking and Financial Services Arbitration, published in 2007. Awards made under the new rules will be enforceable in the 147 countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The new rules contain a model clause which parties looking to adopt the rules as a form of dispute resolution can incorporate into their contracts. Although heavily based on the latest version of the UNCITRAL Rules, published in 2010, the i-Arbitration rules contain several modifications - most notably, a provision providing that arbitral tribunals outsource Shari'a issues to one of Malaysia's specialist Shari'a Advisory Councils or another expert agreed on by the parties. The rules stipulate that the arbitrator need not be a Shari'a or Muslim scholar.

According to the document, as a Shari'a-compliant form of the UNCITRAL Rules the new i-Arbitration Rules are "comprehensive, time tested and internationally accepted".

"With the advent of globalisation and increasing cross-border transactions, the centre decided to come up with a set of rules that provide for international commercial arbitration that is suitable for commercial transactions premised on Islamic principles, and that would be recognised and enforceable internationally," KLRCA director Sundra Rajoo told the Global Arbitration Review.

Shari'a – broadly meaning 'the way' – is the body of Islamic law, religion and ethics which governs the conduct of many of the world's Muslims. It is particularly relevant in financial transactions, as to be Shari'a compliant one party cannot unfairly exploit, or become unjustly enriched, at the expense of another. However, a growing number of Shari'a-compliant contracts are being produced in other sectors such as construction, oil and gas.