The Suitability of the (AIAC) as a Platform for the Settlement of

Halal Product Disputes

Ahmed Salem Ahmed

Legal Counuilitant, Ph.D. student at Ahmed Ibrahim Kulliyyah of Laws, International Islamic University Malaysi. Libya

Keywords: Halal Products, AIAC, Judicial Experience, Arbitration, Islamic & Civil Law.

Abstract: Despite the halal industry importance and its vitality in the International business, it still lacks to real legal

framework to absorb its singularity arisen by the novel marriage between religion and industry, which created

unfamiliar Products carries commercial and religious features, to becomes exceed nor just the jurisdiction of

the Courts, but it becomes jumped from legal scope into other scopes as a technical, trade and industry, added

to its international nature, which created a real difficulty, especially, in term of its disputes settlement.

Whereby examine the judicial system capability the study has shown that there are impediments represented

in the area's versatility related to the products in term of the judicial expertise capacity and its International

nature to exceed the national legal system, which led the researcher to move into alternative means. By

overview on the alternative disputes institutions, he finds that, only (AIAC) has an independent rules

combining between UNCITRAL rule of arbitration and relevant Islamic principles as a new product of

arbitration named (I-Arbitration), which make it the proper Centre, especially Its place in the cradle of halal

products (Malaysia) and surrounded by the industry's leading players in halal sector.

1 INTRODUCTION

Halal products are unique in nature; It combine

commercial, religious and technical aspects, which

exceed the familiar legal knowledge. We will

examine shortly the components, manufacturers, and

consumers of these products. We will also explore

their overshoot of a single state and its legal system,

and the judicial systems of non-Muslim countries,

which will led the researcher to next step which is, the

finding of the institution capable of absorbing the

advanced aspects in a way that protects the rights of

both the producers and the consumers.

Considering the present judicial system, its

regional jurisdiction, and the limited mechanisms

relied upon to deal with disputes of a technical nature

(judicial experience), we find it unsuitable to settle

the disputes of halal products, and this leads to a

search for arbitration as an alternative system.

In the arbitration system, we focus on a body that

is able to combine the commercial, technical aspects

and Islamic principles, and, in this case, Asian

International Arbitration Centre stands (AIAC) out as

a rare arbitration Centre that owns a special regulation

that is able to accommodate the commercial and

religious aspects of halal products, especially in

Malaysia, which is the cradle of halal products, and

has an advanced legislative environment in it. This

paper uses an analytical approach in describing the

specific nature of halal products in the first part, and

then shows the strengths of AIAC that meet the

specificities of halal products in the second part. The

concluding part explores the extent of suitability of

AIAC for settling the disputes of halal products.

In addition to the general sources in the halal and

arbitration fields, the study has adopted the literature

review, relying on both primary and secondary

sources. However, studies on the settling of financial

disputes and Islamic banking are few, and settling of

halal product disputes is a field where research is still

lacking. As far as this researcher can say, only a single

study has shared the Malaysian judicial experience

with Islamic banking on halal dispute (Ibtisam, 2012),

but his suggestion has faced strong barriers, leading

another researcher to consider arbitration as a suitable

way to overcome those barriers (Maita, 2014). In the

same vein, the researcher is trying to find an

arbitration centre with deep experience in Islamic and

commercial aspects, and AIAC has been found by

another study comparing between the two biggest

arbitration centres, Dubai and Kuala Lumpur, (Ai

Ahmed, A.

The Suitability of the (AIAC) as a Platform for the Settlement of Halal Product Disputes.

DOI: 10.5220/0010049602170222

In Proceedings of the International Law Conference (iN-LAC 2018) - Law, Technology and the Imperative of Change in the 21st Century, pages 217-222

ISBN: 978-989-758-482-4

217

kawamura, 2017) to close to realize the halal industry

dispute nature.

2 HALAL CONCEPT AND

NATURE

2.1 Halal Concept

From the review of existing literature, it can be

summarized that the halal concept is wide, and it

applies to all facets of life. The word halal appears in

verses in the Qur’an and Sunnah, such as what Allah

says in Al-BaqÉrah (2:168):

ﺎ

ﻳ﴿﴾ﺎ

ﺒ

ﱢ

ﻴ

ﻃ

ﻻ

ﻼ

ﺣ

ﻷا

ﰲ ﺎ

ﱠ

ﳑ اﻮ

ﻠ

ﻛ

سﺎﱠﻨﻟا ﺎ

ﻬ

ﱡ

ـﻳ

O ye people! Eat of what is on earth Lawful and

thoyyiban, which means permissible, good, pure,

clean, wholesome, fit, etc. (Ibtisam, 2012). With the

development of Muslims consumers’ lives, the

words, halal and thoyyiban, have been associated

with a wide range of products and services, which

create a special category of consumers with religious

nature.

Although this concept is due to the emergence of

Islam, it does not enter into the dealing and the scope

of the rationing. For example, it featured in the recent

past in the Malaysian Trade Descriptions law (Use of

Expression of Halal) (Order: 1975), which was

developed by the Malaysian Trade Descriptions law

(Order: 2011), and followed by many countries that

are interested in legislating halal concept.

2.2 Halal Products Nature, Religious

and Commercial

This category of consumers represents the Muslim

community around the world. The Muslims constitute

a quarter of the world’s total population, with a

population of 1.6 billion (Poniman, Purchase, &

Sneddon, 2015; Wan Omar, 2017), and that will

increase to 26.4% of the world’s inhabitants by 2030,

according to estimates (Thomas, 2013). This has

added commercial value to the religious nature of this

kind of products and services. And the growing

demand in these key markets for those products in the

Muslim community, as a result of rising income

levels, creates strong economy which leads some

countries and companies, especially located in

Southeast Asia and West Asia, (Report chapter 13

2010-2030), to contribute immensely to this sector to

discover the opportunities of the sector.

The international nature of the halal product

comes from two aspects. The first relates to the

product itself, and the other relates to consumers. The

product involves the process of importing finished

products and/or raw materials from different

countries for marketing to Muslim and non-Muslim

consumers in different countries of the world. With

these two aspects, therefore, relationships emerge

naturally between two or more parties belonging to

two or more states, which indicate the international

nature of such relations. Part of the offshoots of these

relationships is, sometimes, the ensuing cross-border

disputes, which lead the parties to jurisdiction

disputes (George, 2017).

3 JUDICIAL EXPERIENCES AND

CAPACITY

3.1 Judicial Mechanisms for Settling

Disputes of Multi-disciplinary

Cases

Judicial expertise primarily means a judge’s ability to

handle disputes of a technical nature by an

investigative procedure assigned by the judge to the

expert with experience in particular or technical

aspects that are outside the scope of the judge's

knowledge to express a scientific or technical opinion

on a particular matter. The importance of this method

is that it is considered a means of reserve for the judge

at the beginning and end, as it remains subject to his

choice, whether in terms of resorting to it, or in terms

of which the term ends, whether in whole or in part to

invocation, which sometimes leads to separation of

the dispute on a non-scientific basis, which is directly

reflected on the justice in the lawsuit.

Moreover, the task of the expert in judicial

expertise is confined to a specific technical aspect in

which the subject is an expert. However, the problems

raised by halal disputes often include two scientific

aspects to three aspects in each, and more issues, such

as Islamic, technical and commercial, which means,

there is a multiplicity of technical expertise in one

dispute. This will prolong the dispute and burden the

parties with expert fees, as well as the consequent

conflict of experience reports in some cases that

would affect the judge in building his faith in this the

type of suits (Ahmed.s&Laeba, 2017).

3.2 Judicial Organization for Case by

Islamic Aspects

Halal concept is multi-disciplinary; it contains several

components, such as religious, scientific, technical,

iN-LAC 2018 - International Law Conference 2018

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economic and administrative components, but with

the trade activity relating to this concept, the most

considerable aspect of it is the religion, which reflects

the weakness of its legal framework and settlement of

the disputes related to it. Malaysia, which is at the

forefront of the halal industry, has still not regulated

the jurisdiction of halal cases in a way to suit

commercial nature of halal products.

The Federal Constitution, as the highest law in the

country, has clearly divided legislative powers of

federal and state government. Matters relating to

religion are stipulated under List II of Ninth Schedule,

which specifies that the jurisdiction to enact laws

relating to Islam falls within the purview of state

jurisdiction. It is, therefore, questionable whether

halal food will fall under federal or state jurisdiction

considering that the said term is closely associated

with Islam, and has its origin in Islamic Law. Hence,

the appropriate courts to settle the dispute would be

Shariah courts; this does not consider the commercial

nature of halal products although there are some

federal laws governing halal in products. For

example, Trade Descriptions (Definition of Halal)

(Order: 2011), which is federal act, defines halal and

the punishment for violating this Order is also

prescribed. At the same time, the offences

contravening halal requirements are also punishable

under various state of Shariah.

Malaysia has the experience to be raised in this

aspect, regulating the jurisdiction of Islamic financial

disputes. It has been agreed that the Islamic Banking

falls within the purview of federal jurisdiction as it

bears the commercial nature. Hence, the power to

legislate laws is vested in the parliament as opposed

to various state legislative assemblies. As the

fundamental operation of the Islamic banking

involves the banking process as a whole, the issue of

jurisdiction as to which court will be granted the

power to hear Islamic banking cases has been

resolved. In this regard, the civil courts have been

conferred with the said jurisdiction. By virtue of this

fact, the bank and the defaulters are allowed to apply

for the civil legal remedies, which have no equivalent

features in Shariah Courts.

It is, therefore, proposed that the law and judicial

power on halal be vested within federal jurisdiction

be it law or judicial. As far as the former is concerned,

it can be considered as falling within item (8) of List

(1- 9th) Schedule, i.e. trade, commerce and industry.

So, the judicial power will also fall under the

jurisdiction of civil courts, which can impose a severe

penalty compared to Shariah courts (Ibtisam, 2012).

There has been the establishment of a special

division under the civil court to deal with Islamic

banking and financial matters, which began operation

in February 2009 as a Muamalat Court in the

Commercial Division of the Kuala Lumpur High

Court, where related cases are referred to the Shariah

Advisory Council pursuant to Central Bank of

Malaysia Act 2009. Accordingly, this set up has

promoted Malaysia as the first country having a

structured court system to determine both commercial

and legal issues in the area of Islamic finance

(Rusni& Mohammed, 2011).

3.3 Judicial System Experience

The importance of judicial attempts to resolve Islamic

financial disputes should not be underestimated. It

should be noted that these attempts have not yet

resulted in a smallpox solution to regulate the

settlement of these disputes, and since Islamic

financial matters are complex issues, the civil courts

face great challenges in meeting the requirements of

civil law and Shariah principles. In Malaysia, Islamic

banking and finance matters come under the

jurisdiction of the civil courts as provided in List 1,

the Federal List (Ninth schedule) of the Federal

Constitution, which includes within its scope the

mercantile law (banking and finance). This has led

some courts to apply common law principles

applicable to conventional banking and make no

reference to the applicable underlying Shariah

principles besides flawed judicial interpretations and

applications of Islamic jurisprudence and principles

by the judges leading to anomalies and conflicts

between Shariah principles and the law. This in turn

has caused the uncertainty and debates among

stakeholders and the consumer public, and erosion of

confidence in the sector.

The main issues that should be highlighted here

are the non-existence of substantive Islamic law and

lack of expertise in Islamic banking law among

judges and counsels. Furthermore, the civil courts are

also reluctant to refer to the Shariah Advisory Council

(SAC) when dealing with Shariah matters arising

from Islamic banking and financial contracts,

resulting in the unguided decisions which sometimes

are contrary to the Shariah principles. There is a

possibility that the court will not seek advice from the

SAC, but the judges will decide the Islamic financial

cases without the SAC’s advice, (Ai Kawamura,

2017), on which Kilian from Harvard Law School

posits that Islamic finance should not be viewed in the

context of "Islamization of the law," but as part of a

revival of Islamic religious ethics in international

business" where Sharia principles of Islamic finance

are applied as ethical principles and not as legal

The Suitability of the (AIAC) as a Platform for the Settlement of Halal Product Disputes

219

principles. Kilian also contends that Islamic finance

does not mean to apply Islamic law, but it only

employs Islamic law exclusively to ascertain the

permissibility of a certain transaction to evaluate it

"halal or permissible" or "haram or prohibited"

(Maita, 2014). These must be understood in order to

get international Islamic legal system practitioners,

and to better serve their clients. The major difficulty

with grasping Islamic law is that it varies significantly

from one place to another, and it is usually argued that

there is not only one Islamic law but various laws

tracking different school of thoughts, which differ

from one another (Erin, 2015).

This is reflected very clearly in the case of Shamil

Bank of Bahrain v. Beximco Pharmaceuticals. The

Shamil Islamic Murabaha agreements contained the

following governing law clause, subject to the

principles of the Glorious Shariah. This agreement

shall be governed by, and construed in accordance

with the laws of England. In this case, both the High

Court and the Court of Appeals dismissed the

defendant's arguments, reasoning that the agreements

were invalid and unenforceable due to Shariah non-

compliance. While the courts agreed with the

defendant on the Shariah non-compliance of the

agreement, the court held that the principles of

Shariah could not be applied to the agreements. The

approach followed, in this case, established English

courts' precedent on Islamic finance governing law,

and it was upheld in subsequent cases, including most

recently the decision of the London High Court in Dar

v. Blom 40, which was rendered in 2009 concerning

a different type of Islamic finance agreement. As a

result of these rulings and others in cases that were

heard in Western courts, most banks in the industry

removed the Shariah reference from their agreement

clause and may now include a "waiver of

Shariahdefens, meaning that in case of a dispute the

parties agree to waive any argument that the

agreement is invalid under Shariah Law”

(https://www.out-law.com).

3.4 Alternative to the Judiciary

Dr Engku Rabiah (from International Islamic

University Malaysia) has proposed adoption of

American Depositary Receipt (ADR) to over the

parties appoint persons with at least basic knowledge

and understanding of the guiding laws and principles

to settle their disputes. The adoption is not a substitute

for having competent judges of Islamic law who are

the disputes is long overdue. It is rather a viable

alternative for a better administration of justice

(Maita, 2014). This result has met the study

hypotheses and supported it to post the Centre

arbitration that proposed to realize the nature of the

Halal products and disputes.

4 AN APPROACH BETWEEN

THE FEATURE OF AIAC AND

HALAL PRODUCTS' DISPUTES

TRAIT

AIAC is an acronym for Asian International

Arbitration Centre, which is the new name for the

previous Kuala Lumpur Regional Centre for

Arbitration (KLRCA). It is a dispute resolution body

established under the Asia-African consultative

organization (AALCO) in 1978. It was found to

provide aggrieved parties with an alternative to settle

their disputes other than using the court system.

4.1 The Appropriate of AIAC for

Settling Halal Product Disputes

The surge in international trade and cross-border

transactions has also seen the emergence of Malaysia

as a popular regional and global venue for arbitration.

The revitalized Kuala Lumpur Regional Centre for

Arbitration (KLRCA), with its state of the art

facilities, is also playing a major role in spurring the

growth of international arbitration in Malaysia. In

recent years, the KLRCA has seen a steady rise in its

caseload on a yearly basis. Before 2010, the number

of cases registered with KLRCA was between 10 and

20 cases per year. In 2012, KLRCA registered 85 new

cases; by 2013 annual cases filed had risen to 156, and

by the third quarter of 2014, the centre had already

received 226 cases. According to KLRCA’s statistics,

almost 20% of the arbitration cases in 2013 were

international, a marked increase from previous years.

The surge in popularity is largely attributed to a

modernized arbitration legal framework and a

supportive judiciary. Some of the notable

developments are the principal advantages of

arbitration, procedural flexibility in arbitral

proceedings and the autonomy in nominating

arbitrators from a pool of experienced domestic and

international arbitrators from diverse fields of

expertise, and the confidentiality in proceedings.

Another thing is that Malaysia is a signatory to the

UN Convention on the Recognition and Enforcement

of Foreign Arbitral Awards 1958 (New York

Convention). Hence, arbitral awards rendered in

Malaysia are enforceable in 148 countries that are

iN-LAC 2018 - International Law Conference 2018

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also signatories to this convention, and there is

finality in arbitral awards with the judiciary adopting

a largely non-interventionist approach. Also, there is

the (i-Arbitration) Rules in multiple languages

(Arabic, Bahasa Indonesia, Bahasa Malaysia,

Spanish, Korean, Chinese (Jasri, 2011).

4.2 Special Features of AIAC

Without going into the advantages of arbitration in

general which is represented by AIAC, we will point

out that this Centre has three sets of arbitration rules:

The Rules for Arbitration of the KLRCA 2017; the

Fast Track Arbitration Rules 2010, and the KLRCA

i-Arbitration Rules 2013. It has also signed up to the

United Nations Commission on International Trade

Law’s Arbitration Rules 2010 and the 1958

Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (New York Convention)

(Rabindra, 2010) and (https://www.out-law.com).

The Centre has created a new rule compiled between

arbitration laws and Islamic law principles, which is

called (i-Arbitration) Rules, which allow arbitrations

parties to use Sharia law to resolve their international

commercial arbitration disputes (Rule 8, July 2012

rules). This rule has made several major changes

which the Centre believes will benefit Islamic parties.

It allows for parties, who have agreed to arbitrate

under Islamic law, to use a Sharia expert or advisory

council to make determinations on Islamic law issues

(Panighetti, 2013). I-Arbitration has gained a lot of

attention across the world as there are not many

models for rules to deal with Islamic financial

disputes in the ADR (Ai Kawamura, 2017).

According to the document, as a Shariah-

compliant form of the UNCITRAL Rules, the new (i-

Arbitration) Rules are "comprehensive, time-tested

and internationally accepted with the advent of

globalization and increasing cross-border

transactions. The centre has 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 recognized and enforceable internationally.

5 CONCLUSIONS

In light of the weakness of the legal framework of

halal products and the limited judicial role in

resolving such disputes in terms of the mechanisms to

consider the technical cases disputes, the study

concludes that AIAC is reasonably suitable for

settling halal product disputes in terms of regulations

that combine Islamic and commercial aspects. The

most important aspects of halal products, and its

presence, as well as its long experience in arbitrating

disputes of Islamic nature such as Islamic finance and

Islamic banking, are the most vital areas of halal

industry.

For AIAC to contribute effectively, and develop

halal sector by settling its disputes, the researcher

recommends creation of special regulations,

combining all related aspects such as a technical,

scientific, Islamic and commercial aspects, and

setting up of an independent group of specialists, who

combine different sciences related to halal products.

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