IICRA CASE MODEL

Proceedings of the dispute
• The Respondent (the client) submits to the Claimant (an Islamic financial institution) a request that guarantees his desire to sell the warehouses, offices and housing of the workers (the original or the property) he owns, and undertakes to lease the same asset from the Claimant fora lease period of 7 years. • The Claimant agrees to purchase the property from the Respondent and to lease the asset to the Respondent as well, provided that the period of the lease is 7 years. • The Respondent sold the property and collected the whole amount to the Claimant. After having acquired the asset legally, the Claimant contracted the same property to the Respondent for 7 years and to pay the fixed amount and the variable amount every six months in accordance with the terms of the lease. • In order to transfer the ownership of the property from the Respondent to the Claimant at the end of the lease, the parties have signed a suspended grant contract on the condition that the Respondent should comply with all his contractual obligations. • A week after signing the contracts, the Respondent signed a proxy in favor of the Claimant.
The contracts in the arbitration case
The arbitration case have 4 contracts, which include the total product of Ijara Muntahia Bittamleek and practices as well the Islamic financial institutions as a legitimate form of finance. The contracts include the following; • Purchase and Sale Agreement: Under this agreement the Claimant bought the property of the Respondent. The contract included the acknowledgment that the Claimant became legal and legitimate owner of the property and the parties agreed to postpone the registration of transfer of ownership only to the official authorities on the date specified by the Claimant. Moreover, the obligation of the Respondent to prove the asset in favor of the official authorities. The Respondent undertakes no third party exposure or entitlement to the sold asset. In the event of any dispute, breach or claim regarding this contract shall be referred to the competent court for consideration in accordance with the laws enforced in the United Arab Emirates. • Lease Contract of (Finished Leasing) Ijara Muntahia Bittamleek: Under it the Respondent leased the same asset from the Claimant for a period of 7 years. The contract included the division of the amount into fixed amount and variable amount. The fixed amount is paid on 14 semi-annual installments. The variable amount is determined by the 6 month index + 3.5% with a minimum of 9.5% of the remaining amount as the total fixed rental value for the remaining total period of this lease. The Claimant has committed to delivering the leased asset to the Respondent on the dates specified in the lease. And the confirmation of the Respondent by inspecting and receiving the leased asset, and that it is in the excellent condition to be used and to be fulfilled the intended benefits of the lease. The Respondent was allowed to rent the leased property to any third party, provided that he remains responsible for fulfilling his contractual obligations towards the Claimant. The contract includes an article stipulating in the event that the Respondent is late in paying two installments. The rest of the premiums were paid after he was warned to pay within 15 days. The Respondent is legally required to make a payment to the Claimant. The Claimant has also made guarantees against the implementation of his obligations – Mortgage, Insurance, Check Guarantee, and Property Management. The arbitration clause of the Islamic International Center for Reconciliation and Arbitration was inserted in the terms of this contract. • Grant of Contract: The Claimant shall submit to the Respondent – provided that the party (Respondent) should fulfill all his contractual obligations and the contract contains a payment pending on the condition that the Respondent complies with all his obligations under the lease. The payment shall be valid at the end of the term of the lease and upon the fulfillment of the obligations by the Respondent arising from the lease in due dates. The jurisdiction of the payment contract has been referred to the competent court in accordance with the laws enforced in the United Arab Emirates. • Power of Attorney: The document contains the power of attorney against the Claimant to do whatever he deems to be appropriate according to his absolute discretion to administer and supervise the real estate and collect the rents, revenues, maintenance of the property and insurance and the implementation of all what is stated in this agency and such case, this agency is absolutely unconditional and continuous for its opinions, words and deeds. The Respondent as a creditor also commits to the Claimant not to take any action that cancels, breaches or diminishes the rights of the occupier.
Arbitration Procedures
• Request for Arbitration: If the reconciliation and settlement efforts fail, the Claimant will request IICRA (in writing) to activate the arbitration clause to resolve the dispute with the party against it, and enclose the request for arbitration which complies with its requirements under IICRA Rules. The Claimant should provide copy of contracts and documents. • Nomination of the arbitrator in the request for arbitration The arbitrator in the request for arbitration sought the following; 1. The termination of the lease on the basis of the breach of contract against the party. 2. The claimant’s obligation to hand over the leased property to the occupier is free of any concerns. 3. Compel the Respondent to pay the Claimant the value of the unpaid amount. 4. Compelling the Respondent to pay the Claimant the value of the contribution of 1% due amount which the Respondent fails to pay pursuant to Article 7 of the lease of contract. 5. The Respondent shall be liable for all fees and expenses of attorney’s fee. • The Respondent’s communication and his response: Within 4 working days of receipt of the request of arbitration, IICRA shall have jurisdiction to consider the subject matter of the dispute and the validity of the request of arbitration. IICRA shall forward the request of arbitration and its attachments to the Respondent and give him 20 days to respond in writing. Afterwards, IICRA received a reply from the Respondent within the specified period stated: “The tenant claims that he should be able to use the rented property, but he is not able to since the occupant is subjected to use the property. And the Respondent argued that the Claimant forced him to issue a power of attorney”. In response note, the Respondent has nominated an arbitrator after IICRA has provided him with a list of authorized arbitrators which is placed on the parties’ behalf. In his reply, the Respondent appealed to him: 1. Proof of termination of the lease to breach the contract obligations of the party. 2. The Claimant requires to refund the amount received unlawfully. 3. Compelling fees and expenses. The Respondent has attached copy of the documents, and IICRA has received the delivered copy of documents from the Claimant. • The Arbitral Tribunal: In accordance with the text of Articles 11 and 12 of the Arbitration Rules of IICRA, the Arbitral Tribunal was formed. The names of the arbitrators nominated by the parties were approved with non – objection and IICRA was granted 15 days for the appointed arbitrators to elect third arbitrator to serve as a Chairman. In addition to the list of arbitrators of IICRA, the arbitrators agreed on the third arbitrator. By accepting the appointment of the arbitrators for the arbitration duties in the case in writing, the mission of contracts were signed directly with each arbitrator thus the arbitral tribunal was duly formed. • Handover of the arbitration file to the Arbitral tribunal: 1. The handover of the arbitration file was held in the presence of all members of the tribunal in IICRA Headquarters. 2. The minutes of meeting shall be signed by all the attendees at the date of the validity of the arbitration period in accordance with the regulations of IICRA. 3. Pursuant to Article 15 of the IICRA’s Arbitration Rules, the arbitral tribunal invited the parties to convene a preliminary meeting within 15 days of receipt of the arbitration file and requested the parties to submit their claims and arguments together with their documents for submission at the preliminary meeting which is considered the first hearing. • The Preliminary Meeting and the Corresponding Arbitration Proceedings were held: 1. The preliminary meeting was held in the presence of all parties. The minutes of the meeting included a statement of the failure of the reconciliation efforts to resolve the dispute amicably. The both parties have agreed to the validity of the appointment of the arbitral tribunal and the rapporteur, and confirmed that they had no objections of jurisdiction to be brought before the Court. The guidelines for arbitration procedures have been developed and agreed upon. The arbitral tribunal initially discussed the claims of both the Claimant and the Respondent. The arbitral tribunal decided in the minutes of the preliminary meeting that the Respondent “to compel the Claimant to refund the amounts received unlawfully” is the subject of an opposing case, whereas it proceeds in the proceedings of the opposite case. 2. The Respondent did not take the counter-action proceedings and filed with IICRA an amended response list, In which the Respondent’s legal representative has appealed to the arbitral tribunal to dismiss the case and the dissolution of the lease of the claim for the breach of the contractual and legal obligations of the party against the Respondent, while reserving the right of Respondent to refer to Claimant the claims of amount received from it with the compensation of damages and obligations of the fees and expenses. • Arbitration Document: The arbitral tribunal provided the parties the draft terms of reference and gave a time to come up their comments and amendments. The terms of reference was signed in accordance with the minutes of a preliminary arbitration hearing. The terms of reference stated the parties’ recognition of the integrity of the procedures for appointing the arbitral tribunal, ascertaining the legal characteristics of the parties, addresses of the parties approved for all correspondence of the arbitral case and determining the methods of communication (fax, e-mail, and registered mail), specifying the language of arbitration and determining the applicable substantive law which is in the laws enforced in the UAE and the applicable banking conventions in violation of the provisions of the Islamic Sharia, and determining the applicable Procedural law, and the parties agreed upon in the terms of reference to grant the arbitral tribunal the power to take any reservation or expeditious decision it deems necessary. • Exchange of responses and Arbitration hearings: The Claimant file to IICRA a list of counterclaims 1. The Respondent argument of “not receiving and not using the leased property which led him not to pay the rental fee” is a claim and statement of a Respondent which has no basis of fact or law. 2. The Respondent has handed over the rented property and benefited from it and paid the rental fee for a period of time then refused to pay the rental fee on due dates, citing a statement of account. 3. The Respondent has declared in the lease that he has inspected and received the leased property and that it which is in an excellent condition to be used and to be fulfilled with its benefits. The Respondent filed a statement to IICRA in which he reached the parties with Sharia. 1. The declaration contains in a lease contract is in fact a mistake and is considered to be outside the meaning of clause (11) of the same contract of apparent meaning and an express obligation to deliver the property to the Claimant. 2. The Claimant did not provide proof that the property was delivered and handed over to him by the Respondent. 3. The Claimant breached its contractual and legal obligations of handing over the property. 4. The Claimant did not administer the property in usual management and in due diligence. The arbitral tribunal places two memoranda of requests to the Parties. The first memorandum dealt with a request amendment (to adjust the amount of the claim). The second memorandum dealt with the Respondent’s response to the communication. 1. The Respondent’s claim not to receive the asset is the statement of a respondent seeking to disavow his contractual obligations based on a bank statement showing the payment of the amount, the rental value for a period of time in periodic installments and his request to defer some of these payments. The Claimant refused to present a settlement. 2. The written declaration of the Respondent in the lease contract by receipt and inspection shall not be proved otherwise as it is written in accordance with the general rules of evidence. The Respondent filed a complaint at IICRA in response to the last two memoranda of the Pleading Brief which reached the parties in principle stating: 1. The Respondent considers that the excess payment in the amended regulation is deemed illegal. 2. The Respondent denied that he had paid any sum to the Claimant at the beginning of the contract by acknowledging receipt of the asset, as shown in the statement of account deposited by the Claimant. 3. The Respondent denied the validity of the legal warning on the grounds that it did not include all elements of the dispute. 4. A statement of deduction of insurance amount from the account of the Respondent pursuant to the contract of the agency, even though they secured the resort and obligations at his own expense a comprehensive insurance on the leased property. A second arbitration hearing was held, attended by all the parties, and the respondent filed his counter defense to respond to the latter’s recent counterclaim confirming his previous allegation, asserting the counterclaims against him are not substantiated by fact or law. The arbitral tribunal has given the parties time to submit final counterclaims and feedback supported by the documents they wish to present. The Respondent therefore submits his final feedback in accordance with his requests and defenses raised in his previous communication. The Third arbitration hearing was held, and the arbitral tribunal confirmed that the parties had delivered all their defenses and documents and therefore had reserved the arbitration case for the judgment and set a date for the award.
 Legal and legitimate adaptation reached by the arbitral tribunal
After deliberation and consideration of requests, defenses and arguments of the parties acquire a part of the arbitral tribunal’s judgment for the ruling. The arbitral tribunal’s judgment in response to the claims of the Claimant as follows: 1. The purchasing of the property and then leasing it to the Respondent (Ijarah Muntahia Bittamleek) and provide the asset to the Claimant at the end of the lease period of one of the legal formulas traded in Islamic banks. It is as follows: The Respondent sells to the Claimant a property owned by him in exchange for the Claimant paying the Respondent the agreed purchase amount. The amount of purchase received by the Respondent is the same amount of financing agreed between the Claimant and the Respondent. The Respondent receives the amount of the financing and the Claimant acquires the property under a purchase agreement. After the Claimant acquires the property legally and by contracts, the Claimant pays the same amount to the Respondent for an agreed financing period. 2. The Claimant shall recover the amount of the financing in installments in the form of fixed rent representing the amount of financing that the Respondent receives from the Claimant. The Respondent is obliged to pay a variable fee representing the benefit of the Respondent from using apparently either by himself or by renting it out to others. At the end of the Respondent’s payment of the fixed amount and the variable amount agreed upon in the specified dates, the Claimant shall be transferred to the Respondent either by a grant or sale to the Respondent at a nominal value upon completion of the lease contract. This is a series of contracts decided by Sharia Supervisory Boards of Islamic Banks and issued by the Accounting and Auditing Organization for Islamic Financial Institutions under the title “Ijarah and Ijara Al Muntahia Bittamleek” (Sharia Standard No. 9 of 2000).
Requesting the Non-Handover of Property
1. The arbitral tribunal does not consider a discrepancy in the contract between Article 11 and Article 4 (under which the Respondent has admitted that he has inspected and received the leased property and which is an excellent condition to be used and to satisfy with its intended benefits). (11) Obliges the Claimant to surrender the property but does not prove non-delivery. Article (4) is an explicit statement from the Respondent that he has handed over the Leasehold Estate to be used and to be benefitted from it. 2. The Respondent’s claim that his acknowledgment of receipt is a mistake in fact contradicts the text of Article 265 of the UAE Civil Transactions Law as: “If the term contract is clear, it is not permissible to deviate from it by means of its interpretation to identify the will of the contractors.” The arbitral tribunal in the power of attorney to whom the Respondent has signed is insufficient.
In evaluating the Power of Attorney
1. The Claimant considers that the disposition of the Respondent is to obtain the amount of financing from the party under the purchase of contract and to pay the amount of financing to the occupant in installments over a period of 7 years under the lease provided that the Claimant does not violate the terms of the lease, “The Claimant has also made a commitment to return the property to the Respondent whom the contract will be held by the end of the lease. Under these circumstances, the parties agreed that ownership of the leased asset in the government records would remain with the Respondent, therefore the title of ownership remained with the Respondent”. 2. In order to safeguard against such risks and to shorten the Respondent’s claim to register the asset in the name of the Claimant, the parties agreed to establish several conditions and guarantees in a contract to protect the rights of the occupier in case of violation of the terms of the contract “lease” including the power of attorney. 3. If the Respondent assumes that his signature on the document of the Agency does not make him able to benefit from the leased asset, he will refrain from signing it and invoke with the Claimant, which is not clear or proven by the arbitral tribunal.
Requesting the non-jurisdiction and modification of applications
1. The arbitration clause in the lease gives the arbitral tribunal the general jurisdiction to consider any dispute arising between the parties on the interpretation and application of the terms of the lease. The arbitration document states, “The arbitral tribunal shall render the award after making sure that both the Claimant and the Respondent are allowed to submit applications and defenses in accordance with the rules and regulations of IICRA, including principles of justice.” 2. In his amended memorandum, the Claimant did not change the subject of the dispute, namely the claim of breach of the lease agreement, particularly the terms of the lease obligation to pay rent installments on time, nor did it change the subject-matter of the dispute between the parties over the delivery of the leased asset.
Regarding the changes of requests
The procedures of the International Islamic Centre for Reconciliation and Arbitration as an enforceable procedural law did not prohibit the right of the parties to amend their applications. Article 73/1 of the Federal Civil Procedure Code provides that “the court may allow the adversary during the course of the proceedings ... Modify their requests”. Local and International arbitration procedures have established two conditions for acceptance of the amendment of applications: Authorize the arbitral tribunal to accept such requests and that such modified requests do not “derogate from the jurisdiction of the arbitral tribunal”. The arbitral tribunal found that the Claimant did not escape from the jurisdiction of the arbitral tribunal in its amended regulation.
The general arguments of the Respondent
The arbitral tribunal concluded that the excuses, defenses and justifications given by the Respondent against his failure to pay the rental fees due thereon are formality and argumentality and lack seriousness and in his dealings with arbitrator (article 246 of the Civil Transactions Act). The arbitral tribunal also held that it was not appropriate to respond to the claims of the Respondent.
The request of Claimant to the Respondent to pay donation
The arbitral tribunal considered the activation of article 249 of the Civil Transactions Act of the United Arab Emirates, which states that “if there are exceptional public events that may not have been expected and that have occurred, the implementation of the contractual obligation, if not possible, becomes burdensome to the debtor which threatens him with a great loss and after balancing the interest of the parties to respond to the obligation will be exhausting to the extent reasonable if required by justice and is null and void of any agreement otherwise”. Given that the financial crisis experienced by the international markets, the arbitral tribunal found that and the Respondent was exempted from paying 1% of donation.
The Final Award
• First: The Respondent is considered to breach of his obligation to pay the full amount to the Claimant under the terms of contract and he also refuses the counterclaim that he did not receive the leased asset. • Second: The Respondent is obliged to pay the Claimant immediately the rest of the fixed amount. • Third: The Respondent is obliged to pay the Claimant immediately the rest of the variable amount. The variable amount is calculated at 9.5% of the remaining amount of the total fixed cost, up to the date of the judgment. • Fourth: The Respondent is obliged to pay immediately the resort developments (variable amount) from the date of issuing this provision until the date of full payment of the fixed value on the basis of variable semi-annual fees determined by the index of 6 months + 3.5%, provided that this fee is not less than 9% and 5% of the remaining amount of the total fixed cost value. • Fifth: Exemption of the Respondent from paying the contribution stipulated in Article (7) of the lease by (1%) of the value of the amount (fixed amount and variable amount) which failed to be paid.