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Arbitration and the International Islamic Centre for Reconciliation and Commercial Arbitration
(IICRA).
An attempt to explore alternative dispute resolution (ADR) in a summary judgment that was
set aside involving an Islamic finance facility was made in Gulf International Bank BSC v
Ekttitab Holding Company KSCC and Al Madina [2010] EWHC B30 (Comm). Though the
summary judgment was obtained by the claimant, the court set it aside on technical grounds.
One striking direction of the court, which is rare in Islamic finance litigation, is the directive
from Simon J. to the parties to explore ADR in accordance with the rules of the court: “I also
propose to allow the parties time to engage in neutral evaluation in alternative dispute
resolution of this matter. It seems to me that relevant time should be set aside for that purpose
and it is likely to bear fruit in this case” [Para 16]. From the record of court proceedings, it was
crystal clear that the parties were willing to explore ADR with a view to considering out-of-
court settlement as an alternative to summary judgment.
During a seminar recently, Stilt critically asked about “what the appropriate tribunals for
dispute resolution of such bankruptcy or other cases of insolvency would be” when it comes to
sukuk defaults. She quickly added: “Regular courts are not always that helpful or
knowledgeable as we found out, and often arbitration bodies are chosen by parties involved”
(Islamic Finance Project, 2011). This points to the often-repeated fact that dispute resolution
in any sukuk prospectus is at the centre of the whole transaction.
A.5 INSOLVENCY AND DEBT RESTRUCTURING IN ISLAMIC LAW
There are incidences which are used by both the proto-jurists and modern scholars to
establish certain basic rules of bankruptcy. Just as in the modern laws, insolvency leads to
bankruptcy even though the latter may be preceded by the process of debt restructuring.
Hence, there are historical precedents in the Sunnah detailing some practices among the proto-
Muslims during the prophetic era. For instance, it was reported that the Prophet prevented
Mu‘ādh from disposing his property, because his debts outweighed his assets. Since he was
insolvent, the Prophet, being the head of state who also exercised judicial powers, sold the
Mu‘ādh b. Jabal’s property and paid off the creditors.32
Muslim jurists have endeavored to differentiate between financial distress (’i‘sār) and
bankruptcy (iflās), and insolvency (taflīs). While Al-Qurtubi defines financial distress as a
situation where one finds himself in a difficult situation due to lack of funds, Abu Jayib (1408)
describes bankruptcy as a situation where one’s debt outweighs his assets and there is no way
the later can settle the former. Fruthermore, there is a sharp line of distinction between
insolvency (taflīs) and bankruptcy (iflās). Once someone has become insolvent, he may be
32 This hadith was related in Sunan Al-Baihaqi, vol. 6, p. 48. Talkhis al-Khabir, vol. 3, p. 37. Al-
Mausu’ah al-Fiqhiyyah, vol. 5, p. 301.