Chapter One: Chapter One: Understanding Understanding Commercial LawCommercial Law

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Law MerchantLaw Merchant::

Medieval Medieval EuropeEurope Evelved Evelved Common usages Common usages

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OriginsOrigins:: Rules Rules MerchantsMerchants Common usages, CustomsCommon usages, Customs Civil law Civil law not responsive not responsive A need for: effective, quick, A need for: effective, quick,

comprehensible and acceptable System comprehensible and acceptable System & specialised courts& specialised courts

International commercial law today is International commercial law today is affected (affected (usages, customs..)usages, customs..).. including .. including arbitration arbitration

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The Medieval Law The Medieval Law MerchantMerchant::

Merchant courts Merchant courts trade trade centres & centres & routesroutes. .

Legal system developed and Legal system developed and administered by Merchants administered by Merchants

States or local authorities seldom States or local authorities seldom InterferenceInterference

Trade flourished Trade flourished Increasing tax revenuesIncreasing tax revenues

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The Need for Quick and The Need for Quick and Effective JusticeEffective Justice::

customs and practices among traderscustoms and practices among traders solve disputes rapidlysolve disputes rapidly least costs by least costs by

most efficient meansmost efficient means Public courts Public courts delay their business, delay their business,

and that meant losing moneyand that meant losing money Law Merchant Law Merchant

quick and effective justicequick and effective justice informal proceedingsinformal proceedings fair price, good commerce, and fair price, good commerce, and

equity.equity.55

Choice of JudgeChoice of Judge::commercial background commercial background practical knowledge. practical knowledge. Their reputation Their reputation expertise in merchant trade expertise in merchant trade a “a “professional judiciaryprofessional judiciary” ”

developed through the merchant developed through the merchant judges. judges.

serve as important measures in the serve as important measures in the appointment of international appointment of international commercial arbitrators commercial arbitrators todaytoday..

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Legal Concepts Introduced Legal Concepts Introduced by the Law Merchantby the Law Merchant::

Based on: Less procedural formality Based on: Less procedural formality However, practical need However, practical need “writing “writing

obligatory”. obligatory”. creditors could freely transfer the debts. creditors could freely transfer the debts. displace the need for more complex displace the need for more complex

forms of proof, forms of proof, party autonomy: party autonomy:

the parties free to take a case to court,the parties free to take a case to court,what evidence to submit what evidence to submit which law to apply.which law to apply.

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The Evolution of the Law The Evolution of the Law MerchantMerchant::

Law Merchant Law Merchant cosmopolitan - cosmopolitan - international international

declined towards the end of medieval times declined towards the end of medieval times due to the adoption of national due to the adoption of national

commercial law commercial law increasing modification of local customs increasing modification of local customs

to protect the interests of local to protect the interests of local merchants. merchants.

The result The result loss of autonomy of merchant loss of autonomy of merchant tribunals to state courts. tribunals to state courts.

The reason was The reason was protection of state protection of state interestsinterests

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Codification and Codification and NationalisationNationalisation of the Law of the Law

MerchantMerchant:: NationalisationNationalisation of the Law Merchant of the Law Merchant did did

not neglect the not neglect the practisespractises of merchants of merchants Some institutions continued to function, Some institutions continued to function, state judges were appointed for their state judges were appointed for their

merchant expertise merchant expertise as modern as modern commercial arbitrators.commercial arbitrators.

The law of the merchants was The law of the merchants was simply simply codified. National codes built on: codified. National codes built on: the principles laid down by trade the principles laid down by trade

commercial commercial practisepractisethey embodied Law Merchantthey embodied Law Merchant

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The Development under The Development under the Common Lawthe Common Law::

English Courts applied English Courts applied merchant merchant customscustoms if: if: they were consistent with law they were consistent with law were proven before the court were proven before the court

In the US, Law Merchant prevailed inIn the US, Law Merchant prevailed ingeneral principles & doctrines of general principles & doctrines of

commercial jourisprudencecommercial jourisprudence..

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International International Commercial Law and Commercial Law and

ArbitrationArbitration:: Law Merchant was reaffirmed in new Law Merchant was reaffirmed in new

international mercantile law international mercantile law directed at market effeciency. directed at market effeciency.

Dispute resolutions have evolved Dispute resolutions have evolved International commercial arbitration International commercial arbitration

became available. became available. The principles of the medieval Law The principles of the medieval Law

Merchant Merchant are applied in arbitration are applied in arbitration

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Evaluation, Law Evaluation, Law Merchant of the FutureMerchant of the Future::

Medieval Law MerchantMedieval Law Merchant far from far from destroyed. destroyed.

A A modernmodern variant of the Law Merchant is variant of the Law Merchant is the evolving law and dispute resolution the evolving law and dispute resolution in in cyberspacecyberspace. . Internet traders solve disputes online Internet traders solve disputes online seldom challenged before traditional seldom challenged before traditional

courts of law. courts of law. Problem of enforceability. Problem of enforceability.

Merchants are reluctant to surrender the Merchants are reluctant to surrender the efficiencies of merchant practice to state efficiencies of merchant practice to state confinementconfinement

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Islamic Commercial Islamic Commercial LawLaw

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IntroductionIntroduction The numerous The numerous eventsevents of the past few years…attacks on the Twin of the past few years…attacks on the Twin

Towers and London, the invasions of Afghanistan and Iraq. Towers and London, the invasions of Afghanistan and Iraq. interest in Islaminterest in Islam, particularly in ‘Islamic revival’. One result is an , particularly in ‘Islamic revival’. One result is an

awareness of the role and importance of law in the life of Muslims. awareness of the role and importance of law in the life of Muslims. Islamic law Islamic law covers all aspects covers all aspects of human behaviour from political to of human behaviour from political to

sale of real property, from hunting to the etiquette of dining, sale of real property, from hunting to the etiquette of dining, It is much wider than the Western understanding of ‘law’, and It is much wider than the Western understanding of ‘law’, and

governs every detail…including commercial transactions. governs every detail…including commercial transactions. There is There is no Christian no Christian law of contract nor of property, whereas law of contract nor of property, whereas

bodies of law dealing with such matters do exist in shari’a. bodies of law dealing with such matters do exist in shari’a. it would make no sense to refer to ‘Christian commercial law’, it is it would make no sense to refer to ‘Christian commercial law’, it is

meaningful to speak of ‘Islamic Commercial Law’.meaningful to speak of ‘Islamic Commercial Law’. The shari’a… abandoned and substituted by Western law. However, The shari’a… abandoned and substituted by Western law. However,

as a result of the as a result of the Islamic revivalIslamic revival, the possibility of adapting the , the possibility of adapting the shari’a to the modern world has been considered recently. shari’a to the modern world has been considered recently.

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The Development of Islamic The Development of Islamic Commercial LawCommercial Law : :

Muslim great deal of Muslim great deal of tradingtrading activity. activity. EconomicEconomic environment…industry, manpower, free workers, environment…industry, manpower, free workers,

goods production and export and large quantities of coins.goods production and export and large quantities of coins. Developed a Developed a systemsystem … served the needs of participants well. … served the needs of participants well. The Muslim world was The Muslim world was overtakenovertaken by the by the WestWest in technology, in technology,

warfare and commercial techniques. warfare and commercial techniques. a long series of a long series of eventsevents, … conquest of Egypt by the French in , … conquest of Egypt by the French in

1798, the European domination of trade. 1798, the European domination of trade. consequence was a wish to consequence was a wish to imitateimitate and adopt those ideas and adopt those ideas

and institutions which seemed to have given Europe the and institutions which seemed to have given Europe the advantage. advantage.

The imitation movement led to the shari’a being ‘The imitation movement led to the shari’a being ‘abandonedabandoned with astonishing speed in all areas except family law; shari’a with astonishing speed in all areas except family law; shari’a commercial law disappeared from almost the entire region. commercial law disappeared from almost the entire region.

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commentatorscommentators argue about ‘why reformers looked to argue about ‘why reformers looked to Europe rather than build on pre-existing shari’a Europe rather than build on pre-existing shari’a

NapoleonNapoleon brought with him to Egypt the French idea of brought with him to Egypt the French idea of separating commercial and non-commercial law… special separating commercial and non-commercial law… special courts were set up to deal with commercial disputes. courts were set up to deal with commercial disputes.

The adoption by the Ottoman Empire in 1850 of large parts The adoption by the Ottoman Empire in 1850 of large parts of the French Commercial Code was made as part of a long of the French Commercial Code was made as part of a long and complex and complex secularisationsecularisation process process

the following factors have played a partthe following factors have played a part: : 1. European dominance of trade; 1. European dominance of trade; 2. The desire of European merchants to avoid 2. The desire of European merchants to avoid local courts local courts

and local law; and local law; 3. The perception that an obligation to use the shari’a 3. The perception that an obligation to use the shari’a

disadvantaged local merchants as disadvantaged local merchants as against their European against their European counterparts, who could use Western lawcounterparts, who could use Western law

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4. 4. European traders European traders …using the French Commercial Code …using the French Commercial Code as a customary law to aid the resolution of their disputes; as a customary law to aid the resolution of their disputes;

5. A familiarity with the idea and practice of secular 5. A familiarity with the idea and practice of secular legislation in certain fields; legislation in certain fields;

6. The influence of the 6. The influence of the Ottoman elite Ottoman elite from trade with from trade with Europe, and the governmental desire to please them; Europe, and the governmental desire to please them;

7. A perception that commercial matters were of 7. A perception that commercial matters were of less less religious significance religious significance … a perception which may have been … a perception which may have been influenced by the Egyptian experience.influenced by the Egyptian experience.

what is certain is … major parts of the French Commercial what is certain is … major parts of the French Commercial Code 1807 were imported as the Ottoman Commercial Code 1807 were imported as the Ottoman Commercial Code Code 18501850. .

Subsequent Subsequent developments in state law developments in state law followed the followed the pattern of a divide between commercial and non-pattern of a divide between commercial and non-commercial matters. commercial matters.

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The Significance of Islamic The Significance of Islamic Commercial Law TodayCommercial Law Today

Few people are interested in the Islamic Few people are interested in the Islamic commercial lawcommercial law

However, the However, the Islamic revival Islamic revival has very significant has very significant changes. The most striking manifestation of the changes. The most striking manifestation of the new situation is the growth in new situation is the growth in Islamic finance Islamic finance and insurance, and insurance,

a growth has accelerated as a result of the a growth has accelerated as a result of the steady and dramatic rise in steady and dramatic rise in oil and gas prices oil and gas prices over the last decade. over the last decade.

The subject is also of considerable significance The subject is also of considerable significance as a result of the as a result of the islamisationislamisation of state-based of state-based law. Despite the fact that only non-commercial law. Despite the fact that only non-commercial law is islamised, law is islamised,

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It is not possible to achieve a It is not possible to achieve a total isolation total isolation of of commercial law. e.g., in the UAE, the commercial law. e.g., in the UAE, the fundamental law is the Civil Code, based on the fundamental law is the Civil Code, based on the shari’a. The Commercial Code is a set of shari’a. The Commercial Code is a set of variations from, and additions to, the Civil Code. variations from, and additions to, the Civil Code. So the Commercial Code is subject to shari’a. So the Commercial Code is subject to shari’a.

In addition, the In addition, the Civil Code Civil Code includes bodies of includes bodies of rules relevant to commercial matters, but drawn rules relevant to commercial matters, but drawn from the from the shari’ashari’a. . Examples include the general law of contract, Examples include the general law of contract,

the law of property, and the law relating to the law of property, and the law relating to the transfer of rights. The commercial aspects the transfer of rights. The commercial aspects of the shari’a cannot, therefore, be ignored. of the shari’a cannot, therefore, be ignored.

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Islamic Commercial Law in Islamic Commercial Law in Modern WorldModern World

The reasons for the The reasons for the adoption of Western lawadoption of Western law are are not entirely clear. The justification given by the not entirely clear. The justification given by the drafting committee of the drafting committee of the MajallaMajalla ( (the Ottoman the Ottoman codification of the Hanafi schoolcodification of the Hanafi school) for the ) for the enactment of the 1850 Commercial Code was enactment of the 1850 Commercial Code was that only Western law could deal with the that only Western law could deal with the complexitiescomplexities of modern commerce. of modern commerce.

This notion dominated thinking until quite This notion dominated thinking until quite recently, and many lawyers still believe it. recently, and many lawyers still believe it.

However, However, shari’ashari’a was a legal regime with many was a legal regime with many of the elements considered essential for the of the elements considered essential for the proper functioning of a commercial law system, proper functioning of a commercial law system, i.e. ‘certainty, flexibility and pragmatism’. i.e. ‘certainty, flexibility and pragmatism’.

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shari’ashari’a is more than adequate and have played a is more than adequate and have played a significant role in the facilitation of commerce, with a significant role in the facilitation of commerce, with a sophisticated law of sale, financial instruments, sophisticated law of sale, financial instruments, different kinds of partnership, and so on. different kinds of partnership, and so on.

What matters were What matters were customscustoms, where strict rules of the , where strict rules of the books of fiqh were abandoned ‘in books of fiqh were abandoned ‘in favourfavour of the of the merchants’ customs’, merchants’ customs’,

a position justified by a position justified by Prophetic TraditionProphetic Tradition:: ‘‘My community will not agree on an error’. My community will not agree on an error’.

The possibility of adapting the shari’a to the modern The possibility of adapting the shari’a to the modern world was not considered until very recently… as a world was not considered until very recently… as a result of the result of the Islamic revivalIslamic revival, there was a call for a , there was a call for a return to the return to the totality of the shari’atotality of the shari’a, including its , including its commercial aspects. commercial aspects.

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Commercial LawCommercial Law

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Definition of Commercial Definition of Commercial LawLaw : :

Commercial law is vague! Commercial law is vague! Derived from the Derived from the practices of traders. practices of traders.

scholars define it as "scholars define it as "body of legal rules that apply body of legal rules that apply to commerce, commercial transactions, and to commerce, commercial transactions, and organises merchants' professionorganises merchants' profession." ."

It regulates relations arising from explicit It regulates relations arising from explicit businessbusiness actions and behaviour. actions and behaviour.

Commercial law is the branch of private law, which Commercial law is the branch of private law, which applies to applies to business transactionsbusiness transactions, and to a certain , and to a certain category of people, category of people, merchantsmerchants.. Commercial transactionCommercial transaction is the core of the legal is the core of the legal

rules governing rules governing business dealingsbusiness dealings. . The most common types of commercial The most common types of commercial

transactions is transactions is salesale of goods. of goods. All commercial transactions have one thing in All commercial transactions have one thing in

common: they serve to transmit common: they serve to transmit economic valueseconomic values. .

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Commercial law have Commercial law have evolved from private lawevolved from private law General principles of private law were the General principles of private law were the

essence of the general principles of the essence of the general principles of the transactions of individuals. transactions of individuals.

This is due to:This is due to: the quality of activities or the quality of activities or the privacy of the profession and the privacy of the profession and the swift transaction between traders and haste the swift transaction between traders and haste

process of business and commerce.process of business and commerce. It is often considered to be a It is often considered to be a branch of civil lawbranch of civil law. .

Many countries have adopted civil codes which Many countries have adopted civil codes which contain comprehensive statements of their contain comprehensive statements of their commercial law. commercial law.

Accordingly, Accordingly, commercial law (business law) is commercial law (business law) is “the “the body of law which governs body of law which governs business, , commerce and and consumer transactionsconsumer transactions.” .”

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BusinessBusiness BusinessBusiness: in economics, is a legally recognised : in economics, is a legally recognised

organisationalorganisational entity (also refered as a firm) entity (also refered as a firm) designed to sell designed to sell goodsgoods and/or and/or servicesservices to to

consumers or other businesses consumers or other businesses in an effort to in an effort to generate generate profitprofit. .

In In capitalistcapitalist economies (most businesses are economies (most businesses are privately owned) businesses are formed to earn privately owned) businesses are formed to earn profit and grow personal wealth of their owners. profit and grow personal wealth of their owners. The owners of a business aim to generate a The owners of a business aim to generate a

financial return in exchange for their work and financial return in exchange for their work and their acceptance of risk. their acceptance of risk.

Exceptions to this rule include cooperative Exceptions to this rule include cooperative businesses and government institutions. businesses and government institutions.

SocialisticSocialistic systems, involves either government, systems, involves either government, public, or worker ownership of most public, or worker ownership of most sizablesizable businesses.businesses.

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The The etymologyetymology of "business" relates to the state of "business" relates to the state of being busy either as an individual or society of being busy either as an individual or society doing commercially viable and profitable doing commercially viable and profitable work. work.

The term "business" has at least The term "business" has at least three usagesthree usages: : 1.1. the singular usage (above) to mean a the singular usage (above) to mean a

particular company or corporation particular company or corporation 2.2. the generalised usage to refer to a particular the generalised usage to refer to a particular

market sector, or market sector, or 3.3. the broadest meaning to include all activities the broadest meaning to include all activities

by the community of suppliers of goods & by the community of suppliers of goods & services. services.

However, the exact definition of business is a However, the exact definition of business is a matter of debate.matter of debate.

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CommerceCommerce CommerceCommerce: is a : is a divisiondivision of trade or of trade or

production which deals with the production which deals with the exchangeexchange of goods and services from of goods and services from producer to final consumer. producer to final consumer.

It comprises the It comprises the tradingtrading of something of something of of economic valueeconomic value such as goods, such as goods, services, information or money services, information or money between two or more entities. between two or more entities.

CommercialisationCommercialisation consists of the consists of the processprocess of transforming something of transforming something into a product, service or activity into a product, service or activity which one may then use in commerce.which one may then use in commerce.

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Modern Concept of Modern Concept of Commercial LawCommercial Law

Modern trends in commercial law Modern trends in commercial law reconsider the reconsider the provisionsprovisions of commercial law. of commercial law.

Commercial law is the law of Commercial law is the law of economiceconomic or or business. This concept, would business. This concept, would cover cover all topics involve economic activities under all topics involve economic activities under commercial law commercial law

Rules of commercial law Rules of commercial law constant evolutionconstant evolution changing rapidly rapidly Progress in the field of industry, trade Progress in the field of industry, trade

new products, markets, tools new products, markets, tools new legal new legal versions versions

Commercial law evolves more rapidly than Commercial law evolves more rapidly than any other branches of law any other branches of law

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New contractsNew contracts: in France in recent years : in France in recent years sales through agency sales through agency Cars' factory with a distributor in an area Cars' factory with a distributor in an area The owner of an oil company with the The owner of an oil company with the

distributors in petrol stationsdistributors in petrol stations Working in mines (coal, iron and oil) is Working in mines (coal, iron and oil) is

considered business activities considered business activities The concept of The concept of economiceconomic process is more process is more

important hereimportant here In this context, the rules of commercial law In this context, the rules of commercial law

were were developed fromdeveloped from activities from activities from civil civil lawlaw..

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The Distinction between The Distinction between Commercial and Civil ActsCommercial and Civil Acts::

The The provisionsprovisions of commercial law of commercial law business and commerce business and commerce

Most contracts in the commercial law Most contracts in the commercial law were quoted from civilian life were quoted from civilian life and and have created special provisions have created special provisions such as commercial contracts, such as commercial contracts,

commercial papers, and bankruptcy. commercial papers, and bankruptcy. Scholars recognise that Scholars recognise that speedspeed and and

trusttrust in conducting business activities in conducting business activities important in commerce important in commerce recognised in commercial law. recognised in commercial law.

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SpeedSpeed is a fundamental element is a fundamental element has an impact on the legal system has an impact on the legal system “freedom of proof”“freedom of proof”

TrustTrust: business requires large : business requires large numbers of transactions numbers of transactions entail entail trusttrust

thus commercial law strengthen the thus commercial law strengthen the credit/trust by: credit/trust by: increasing creditors' guaranteesincreasing creditors' guaranteesimposing harsh sanctions on the imposing harsh sanctions on the

failing debtors.failing debtors.

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Characteristics of Characteristics of Commercial LawCommercial Law

The Features of commercial law are related The Features of commercial law are related to the business environment. to the business environment.

Providing legal tools Providing legal tools enable traders to enable traders to conduct transactions smoothly conduct transactions smoothly simpler simpler than the civil lawthan the civil law

First: First: Making ProfitMaking Profit: result is established : result is established (purpose of commerce) (purpose of commerce) actorsactors of of commercial law are individuals, companies commercial law are individuals, companies and businesses, have the ability to and businesses, have the ability to achieve that objective (making profit) achieve that objective (making profit) through transactions through transactions

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Second: Second: Speed Business TransactionsSpeed Business Transactions: (Time has : (Time has great values in business transactions)great values in business transactions) In the past, merchants used oral transactionsIn the past, merchants used oral transactions Today through rapid electronic processesToday through rapid electronic processes Hence, a need for rules Hence, a need for rules accustomed to the accustomed to the

speed speed justified by the principles of freedom of justified by the principles of freedom of proofproof

and the possibility of and the possibility of transmittingtransmitting commercial commercial rightsrights

Third: Third: Strengthening Credit/TrustStrengthening Credit/Trust: : In commercial transactions In commercial transactions deadlinesdeadlines or or

pledge to pay debts based on a combination of pledge to pay debts based on a combination of time and money time and money will bear the risk will bear the risk

legal legal rulesrules to protect commercial players to protect commercial players to to strengthen the system of interest on strengthen the system of interest on commercial debtcommercial debt

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Fourth: Fourth: Openness/Publicity of Commercial Openness/Publicity of Commercial ActivitiesActivities:: Commercial activities must be exposed Commercial activities must be exposed merchants merchants register at the chamber of register at the chamber of

commercecommerce publishing sentences of bankruptcy publishing sentences of bankruptcy in order for the law to protect others in order for the law to protect others

Fifth: Fifth: Goodwill and Integrity of BusinessGoodwill and Integrity of Business: : in contracts, negotiating them, in contracts, negotiating them,

conclusion, and implementation conclusion, and implementation DealsDeals are carried out mostly orally are carried out mostly orally no no

proof or witnesses proof or witnesses It is based on the presumption of It is based on the presumption of

merchants' merchants' confidenceconfidence3434