Juridical challenges to Jordanian capital markets reform
It would be unrealistic for the Amman Stock Exchange to compare its regulatory developmental approach with the London Stock Exchange, established almost 200 years earlier in 1773. British regulatory interest in its capital markets dates as far back as 1877 when the government set up a Royal Commission to "inquire into the origins, objects, present constitution, customs and usage of the London Stock Exchange." (This must however be distinguished from the earliest ever British market legislation of 1697 to regulate brokers and stock- jobbers.)
Nor is it reasonable to glibly contrast Jordanian joint stock companies with British ones which are half a millennium old, dating back to 1553. Indeed, capital markets in London and Amman are the products of different socio-economic systems underpinned by dissimilar legal-juridical traditions. And it is precisely this that necessitates that the starting point for reforming Jordanian capital markets should be first an in-depth professional appraisal of the "general law" that underpins Jordanian capital markets. The Jordanian Securities Commission should not have so hastily jumped into superficial copying of rules of investment dealings without having first carefully assessed the juridical impact of Jordan's general law.
Understanding the full juridical implications of the concept of gharar is highly relevant when looking at capital markets reform in Jordan and its interaction with the "general law". It directly affects the legality of trading in derivatives, options, swaps, futures contracts, etc. This is the case especially as gharar is a concept that arises from contract law. Vitiating contractual obligations on the grounds of gharar can, on many occasions, be quite overreaching due to the vagueness of this concept.
Both of the Sharia concepts of riba and gharar pose a juridical risk that can (at least) result in annulling offending contemporary Arab commercial legislation. However, the concepts of riba and gharar are not straightforward.
Ascertaining them has engendered much controversy among Islamic jurists who often belonged to diverse Islamic sects. This diversity in legal opinion can largely be attributed to the inherent structure of sources of Sharia. When interpreting matters relating to the non-revealed, the main Islamic legal schools through the process of ijtihad often started from different premises and thus reached different conclusions. Moreover, this diversity of Islamic legal opinion is further compounded by the fact that the Koran and many Prophet Citations prohibiting riba and gharar did not provide precise definitions.
General impact of riba and gharar on contractual obligations In order to provide a systematic account of the juridical risks posed by gharar and riba, this article now turns to look in more detail at the extent to which they influence contemporary Arab (civil and commercial) codes, particularly in Jordan, Kuwait and Oman. It shall first consider their general impact on contractual obligations before proceeding to examine in more detail their impact on the codes of the aforementioned countries.
The presence of riba and gharar nullifies Islamic contracts and renders contractual obligations either fasid or batil. Broadly speaking, contracts according to Sharia are either sahih (valid), makruh (jusristically and legally acceptable, yet contain an element which is religiously reprehensible), fasid (invalid or voidable) and batil (void or without legal effect). There have, however, been juristic differences in determining the legal meaning of the term fasid, with main differing views coming from the Hanafi School.
However, the Hanafi School is one of the most important amongst the four Sunni Schools, as its juristic opinions were adopted by the Majalla (the Ottoman's civil code), which was until the past few decades applied in many Arab countries. See section on the relationship between Shari'a and Arab codes for more elaboration. It is the Hanafi School that recognized the difference between batil and fasid contracts, elaborating that a fasid contract is valid except for the illegal contractual term or offending clause (which in itself is not enforceable).
The remainder of Islamic juristic schools did not draw such a distinction between fasid and batil. They used these terms interchangeably denoting that such contracts are null and without any legal effect. The vitiating effect of riba and gharar does not depend upon proof of financial damage, as the parties have no liberty to validate contracts that stipulate riba or contain elements of gharar. Moreover, because of the element of uncertainty which is inherent in the concept of gharar, consequential damages in rescinded contracts are not recognized due to the "uncertainty" of calculating anticipated profit. — (Jordan Times)
By Lu'ayy Minwer Al Rimawi
The writer is a part-time lecturer in law at the London School of Economics.
© 2000 Mena Report (www.menareport.com)