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COMMERCIAL LAW. Traditionally the Islamic legal system did not recognize commercial law as a separate body of rules regulating trading activities in a manner distinct from civil law, which governs all other private law relationships. In this regard Islamic law differs from most of the legal systems belonging to the Romano-Germanic family, which recognize commercial law as an autonomous branch of private law. English common law later took the same position as Islamic law in denying the duality of commercial and civil law.

The applicability of shari `ah (Islamic law) to traders and nontraders alike does not mean that it ignored the special needs of commerce or failed to respond positively to situations peculiar to domestic and transnational trade. As the law of a trading nation, shari`ah devised such institutions as the transfer of debt and the concluding of a contract on behalf of an undisclosed principal. These novel institutions were later introduced into other legal systems, probably in response to the same needs of transnational commerce which had given birth to them earlier in Islamic law.

Until the second half of the nineteenth century, the rules of Islamic law were derived directly from the original sources. The rules thus deduced were set forth in the writings of the jurists of the various schools of Islamic law. The judge had to refer to their treatises in order to locate the legal solution to any given case. During the period from 18’70 to 1877 theOttoman Empire, then the major Muslim power, enacted the various chapters of a codification known as the Mecelle (Ar., Majallah). This code, containing systematized sections and articles, improved on the disorderly state of the rules of law in the writings of early jurists-up to that time the only available source of those rules. The Mecelle adhered to the traditional position of Islamic law in rejecting the civil law/commercial law dichotomy.

Previously, in 1850, under the pressure of the need for an expanding trade with the West and in compliance with the wishes of more powerful European nations, theOttoman Empirehad promulgated a Code of Commerce applicable to disputes involving foreign parties. In 1863 a similar Code of Maritime Commerce was enacted. Thus was the autonomy of commercial law introduced into the Islamic legal system. This trend was reinforced whenEgyptpromulgated a Commercial Code in 1875 to apply to transactions involving foreign parties and another code of general application in 1883. French models were the main source of these Ottoman and Egyptian codes.

In their broad outline, the fundamental principles of shari `ah in the area of contract and business law do not differ much from their counterparts in Western legal systems. The influence of Western systems, particularly the French, which acted on Islamic law since the second half of the nineteenth century, manifested itself more in the process of codification, intended to express legal norms in a clearly written and readily accessible form, than in the substantive content of those norms. Even sections of European codes that were adopted verbatim were not, by and large, different in content from the corresponding rules in Islamic law. Adopting European codes as models was a less-arduous and less time-consuming task than undertaking an original codification of Islamic law based on the voluminous legal literature and involving updating in some cases to meet the changing needs of the times. Moreover, such a course of action was more likely to meet with the approval of Western powers. The influence of Western-type codification on Islamic law in the nineteenth century, however, was not an abandonment of substantive Islamic law in favor of a different (Western) legal system.

Commercial codes, where they exist, regulate those matters that are peculiar to trading and manufacturing activities. Beyond that specific area, there is a large area of general applicability of which the regulation is left to the civil code, such as contract law and personal and real property law. This explains the importance of the Egyptian Civil Code of 1948 and its influence in surrounding countries.

In the 1930s the need for a revision of the Egyptian Civil Code of 1883, based on the French model, was strongly felt. It was suggested that in reforming the code three sources should be considered: Islamic law, the decisions of Egyptian courts since the promulgation of the old Civil Code, and the various modern Western codes.

The reform entailed years of hard work, to which the contribution of the most prominent twentieth-century Egyptian jurist, the late `Abd al-Razzaq al-Sanhfiri (1895-1971), was crucial. The new Civil Code was promulgated in 1948, to go into effect on 15 October 1949, and was heralded as the harbinger of a uniform Arab civil code. The high quality of the new code was readily recognized in other Arab countries. It served as a model for the new civil codes ofSyria(1949),Iraq(1951),Libya(1953),Sudan(19’71; repealed in 1974),Algeria(1975),Yemen(1979), andKuwait(198o). The legislative output in all theGulf   Statessince their accession to independence has been greatly influenced by Egyptian models in all areas, including commercial law. [See the biography of `Abd al-Razzaq al-Sanhfiri.]

Two institutions crucial to the economic development and growth of Muslim societies in today’s global economy are: interest on capital, which is the foundation of the banking sector, and insurance. The status in Islamic law of these two institutions has been clouded by misinformed opinions ventured by some contemporary Muslim jurists. The misguided view that Islamic law prohibits, as riba (lit., “increase”), interest on paper money and that it does not recognize the validity of contracts of insurance has been convincingly refuted to the satisfaction of many, if not most, of the qualified Muslim jurists of our times.

One manifestation of the Muslim countries’ concern for promoting their trade relations with the rest of the world is their encouragement of transnational commercial arbitration and conciliation for the resolution of disputes without recourse to the cumbersome and timeconsuming judicial process. Many Muslim countries have enacted legislation on the subject and have set up permanent arbitration and conciliation bodies. One example is provided by the Conciliation and Arbitration By-Laws of the French-Arab Chamber of Commerce inParis. Several Muslim countries are parties to multilateral conventions on commercial arbitration and on the recognition and enforcement of foreign arbitral awards.

[See also Capitalism and Islam; Contract Law; Economics, article on Economic Theory; Law, article on Legal Thought and jurisprudence.]


Badr, Gamal M. “The New Egyptian Civil Code and the Unification of the Laws of Arab Countries.” Tulane Law Review 30 (19551956): 299-304. Provides historical background and describes the beginnings of the adoption of the Civil Code of 1948 by other countries.

Badr, Gamal M. “Islamic Law: Its Relations to Other Legal Systems.” American journal of Comparative Law 26 (19’78): 187-198. Discusses the alleged borrowings by and from Islamic law.

Badr, Gamal M. “Islamic Law and the Challenge of Modern Times.” In Law, Politics, and Personalities in theMiddle East: Essays in Honor of Majid Khadduri, edited by J. P. Piscatori and George Harris, pp. 27-44.BoulderandWashington,D.C., 1987. Provides, inter alia, a refutation of the alleged prohibition of interest and nullity of insurance contracts.

Badr, Gamal M. “Interest on Capital in Islamic Law.” American-Arab Affairs 29 (1989): 86-95. Updates and elaborates on the refutation of the alleged prohibition of interest.

Coulson, Noel J. Commercial Law in theGulf States: The Islamic Legal Tradition.London, 1984. Provides a historical overview and expounds the principles of Islamic law applicable to commercial transactions.

The Laws ofSaudi Arabia, the U.A.E.,Egypt, andJordan: A Legal and Investment Guide for American Business.Washington,D.C., n.d.


Azhar Niaz Article's Source: http://islamicus.org/commercial-law/

  • writerPosted On: November 6, 2012
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