A multifaceted interplay of economic, social, and political factors has affected the current legal systems in the Arabian Gulf countries comprising Kuwait, Saudi Arabia, Qatar, Bahrain, Oman, and the United Arab Emirates. This region is commonly referred to as the GCC. The rural places along the Arabian Peninsula were rooted mainly in
120 Annual Report 2012 of Kuwait Stock Exchange.
<http://www.kuwaitse.com/Portal/Report/KSEAnnual2012.pdf> accessed 6 May 2014.
121 Annual Report 2012 of Saudi Capital Market Authority.
<http://www.cma.org.sa/Ar/Publicationsreports/DocLib/Report%20CMA%202012%20Final2.pdf> accessed 6 May 2014.
122
Annual Report 2012 of Qatar Exchange.
<http://www.qe.com.qa/pps/qe/qe+english+portal/Pages/About+QE/Annual+Report?> accessed 5 May 2014.
41
tribal custom, and tribal elders performed adjudicative functions.123 The Quran, the Sunnah (the prophet’s traditions), the Ijma (consensus of Muslim jurists), and the Qiyas (judgment upon juristic analogy) were the main sources of Shari’ah Islamic law, which was widespread in the region and was the source of authority in the entire area. Islamic law is sacred. It has four main sources: the Quran,124 the Sunna,125 the Ijma,126 and the Kiyas.127,128
The largest economic event in the history of the GCC States was the discovery of oil and natural gas in the region. Previously, the main economic activities were agriculture, fishing, trade and pearl-diving129 in addition to camel and sheep herding. The discovery of oil created a new economic, social and political order which could no longer rely solely on customs and Shari’ah Islamic law. All the GCC countries except Saudi Arabia decided to adopt the Egyptian-French model130 as a basis for their national legal systems. However, these legal systems have been influenced by Islamic law. For example, the Kuwaiti civil code is influenced by Islamic law.
Kuwait was first mentioned in history as a country in the eighteenth century, when the Sabah family came to Kuwait in approximately 1765. In 1899, the modern Kuwait appeared with the signing of a protection agreement with the British. Sheikh Mubarak (the ruler of Kuwait) signed an agreement, because he feared an external attack from the Ottoman Empire. The British were also concerned about the extension of Russian and
123 Ahmed Al-Suwaidi, Finance of International Trade in the Gulf (Graham & Trotman 1994) 24. 124 Book of God.
125 The prophet Muhammad life and times between 610 and 632 CE, transmitted from generation to
generation; Frank E Vogel, Islamic Law and Legal System Studies of Saudi Arabic: Studies In Islamic
Law and Society (Brill 2004) 4.
126 Consensus of researchers. 127 Reasoning by parallel. 128
Joseph Schacht, An Introduction to Islamic Law (OUP 1964) 114.
129 Ahmed Al-Suwaidi (n125) 9.
41
German interests in the area. According to the agreement, Kuwait promised that it would not receive an agent or representative of any other power or government in Kuwait without a previous sanction by the British government.131 During this period, Kuwait relied on Islamic law and custom; there was no written law. However, the judges were separate from the ruling family,132 who were the head of the executive authority; the judges were the head of the judiciary.133
In the twentieth century, the Islamic countries converted from Islamic law to modern law.134 In 1938, judges had to follow a civil code known as the ‘Mejelle’, which was written by the Ottoman Empire between the nineteenth and the twentieth centuries. It consists of collections of a civil code of Islamic law, containing 1,851 Articles based on the Hanafi Islamic School.135 In the same year, the first council was elected to represent the people. The next important event in Kuwaiti history occurred in 1961, when Kuwait withdrew from the British extra-territorial jurisdiction and the Constitution of Kuwait was drawn up. In 1963, Kuwait became a member of the United Nations (UN).
The Kuwaiti people are the source of all power and the democratic system of government. Article 6 of the Kuwaiti Constitution provides that the system of government in Kuwait shall be democratic and that sovereignty resides in the people, the source of all power but in practice the legislative power136 is with the Emir and the National Assembly, which consists of 64 democratically elected members.137 The Emir
131 Osman Abd-Malik, Constitutional Order and Political Institution In Kuwait (Dar Al-Kotob 2003) 53-
55.
132 The ruling family is Al Sabah.
133 Khalid Toama, The History of Kuwait Law (2008) 14. 134 Joseph Schacht (n130) 3.
135 <http://en.wikipedia.org/wiki/Mecelle> accessed 24 April 2014.
136 Article 51 of the Kuwaiti Constitution says that the legislative power is vested in the Emir and the
National Assembly.
137 Kuwaiti Constitution, Article 56 provides that the number of Ministers in all shall not exceed one-third
42
is the Head of State.138 In addition, the Council of Ministers has executive power.139 There are no political parties in Kuwait. The Emir appoints the Prime Minister, who then chooses the Council of Ministers.
The legislative, executive and judiciary are the three authorities in Kuwait. There are clear distinctions among these three branches. Article 50 of the Kuwaiti constitution says that the system of Government is based on the principle of separation of powers functioning in co-operation with each other in accordance with the provisions of the Constitution. None of these powers may relinquish all or part of its competence specified in the Constitution. The Kuwaiti judicial system140 is comprised of three stages of adjudication. All courts in Kuwait pass sentences in the name of the Emir. Article 53 of the Kuwaiti Constitution says that the judicial power is vested in the courts, which exercise it in the name of the Emir within the limits of the Constitution.
Around 1960, a new legal system appeared to replace Shari’ah law. Article 2 of the Kuwaiti Constitution provides that ‘the religion of the state is Islam and Islamic Shari’ah is a principal source for legislation’.141 This means that Shari’ah is not the exclusive source of Kuwaiti law, it also includes many codes, such as civil, commercial, company and criminal codes. However, the relationship with Shari’ah remains. For example, in civil cases, if a situation is not included in the code, the judge must look to Shari’ah law.142
138 Kuwaiti Constitution, Article 54 (the Emir is the Head of the State. His person is immune and
inviolable). Article 55 (the Emir exercises his powers through his Ministers).
139 Article 52 of the Kuwaiti Constitution says that the executive power is vested in the Emir, the Cabinet,
and the Ministers, in the manner specified by the Constitution.
140 In Kuwait, there are different levels of courts, namely summary, first instance, appeals and cassation
courts. The latter considers solely the law without looking at the facts.
141 Ahmed Al-Suwaidi (n 125) 25.
43
The Shari’ah is the main source for legislation as provided in Article 2 of the Kuwaiti Constitution. This is the subject of much discussion in Kuwaiti society, because many want to make Shari’ah the only source of law. At present, there are other sources of law which can contradict Shari’ah, a clear example is commercial law, which allows for the payment of interest or Riba.143
The Kuwaiti legal system is similar to the Egyptian and French codes, which are known as the ‘Latin System’.144
In 1804, the Napoleonic code was widespread in western and southern Europe and Latin America.145 Samiha Qalyoobi criticised the slow pace of the development of laws in Kuwait and gave an example of the Kuwaiti Company Law, which was adopted from the French Company Law in 1960. French Company Law has changed eight times in the intervening period; Kuwait’s Company Law was not changed until 2012.146
In Saudi Arabia the constitution is unwritten and is very unclear,147 in contrast to the constitutions of the other Gulf countries, which are written. In Saudi, Shari’ah law can be supplemented by the King, who can issue royal decrees to achieve a satisfactory balance between present day socio-economic requirements and Islamic traditions. As a result, business law in general and laws dealing with investments and overseas trade in
143 Article 102 of the Commercial Code provides: (1) The creditor has the right to interest in a commercial
loan unless the contrary is agreed; if the rate of interest is not specified in the contract, the interest due shall be the legal interest of seven per cent. (2) If the contract contains agreement on the rate of interest and the debtor delays in payment, then interest for delay shall be calculated on the basis of the agreed rate. However, Article 547 of the Civil Code provides: (1) Loans shall be without interest. Any condition to the contrary shall be void, without prejudice to the loan agreement itself. (2) Any benefit stipulated by the lender shall be considered interest.
144 <http://www.al-ayoub.org/legal.html> accessed 24 April 2014. 145 Raymond Wacks, Law: A very short introduction (OUP 2008) 8.
146 Samiha Qalyoobi, ‘A lecture on Kuwaiti. First Conference to Discuss the Most Important
Development in the New Companies Act: The Provisions Related to adjusting the conditions of existing companies’ (Office of Loay Jassim Al-Krafi Law Firm 2014).
44
particular have grown greatly in terms of legal decrees that codify these subjects. This development occurred as the result of increased development in Saudi Arabia and to avoid legal problems. For example, the Company Law was issued in 1965 and amended in 1978 by royal decrees.148
In Saudi, Shari’ah is the main source of legislation and in cases where the Shari’ah does not cover all aspects of laws such as traffic law, the King passes the law on condition that the new law is not against Shari’ah. This makes the legal system in Saudi different from the rest of the regimes in the region. In Saudi, there is no distinction between legislative and executive authorities. Both are controlled by the King. The King in Saudi has unlimited power. He is the head of state and the head of council of ministers.149
Qatar has had three constitutions. The first was ratified on 2 April 1970, but was replaced two years later by an amended provisional constitution. Article 7 of the 1970 constitution provided that the religion of the state is Islam and that Islamic Shari’ah is the principal source for its legislation. Qatari Law No.16/71 was passed in 1971 and amended by Law No. 10/82 in 1982, which enacted civil and commercial laws.150 The third and current Qatar constitution has 150 articles and was ratified in 2004. It repealed the 1972 constitution. It is clearer than the two previous constitutions. It came with new ideas, such as the fact that Qatar is a hereditary Emirate that is ruled by the Al Thani family.151 It mentions that Shari’ah law is one of the main sources of legislation.152 This means that it is not the only source. The constitution mentions a number of principles. For example, article 18 states that ‘the Qatari society is based on the values of justice,
148 ibid.
149 <http://www.nyulawglobal.org/globalex/saudi_arabia.htm> accessed 20 December 2014. 150 Ahmed Al-Suwaidi (n 125) 26.
151 Article 8 states: ‘The rule of the State is hereditary in the family of Al Thani and in the line of the male
descendants of Hamad Bin Khalifa Bin hamad Bin Abdullah Bin Jassim’.
152
Article 1 states: ‘Qatar is an independent sovereign Arab State. Its religion is Islam, and Shari’ah law shall be a main source of its legislation. Its political system is democratic. The Arabic Language shall be its official language. The people of Qatar are a part of the Arab nation’.
45
benevolence, freedom, equality, and high morals’. Articles 34153 and 35154 mention the public’s rights and duties. The current constitution provides two ways to propose new legislation. One is by the Shoura Council; the other is through the Cabinet of Ministers. However, the final draft must be approved by the Emir.155
1.9 Conclusion
This chapter discussed the aims and the benefits of the thesis and the methodology that the thesis will follow. The research will explore ways in which investors on the Kuwait Stock Exchange can be better protected against market abuse, irresponsible actions and poor corporate governance risks. This aim will be achieved by comparing the Kuwaiti 2010 Act with legislation in the GCC countries and, when necessary, with legislation enacted in some of the developed countries, such as the UK and the USA. The structure and the difficulties of the thesis have also been discussed. This research has faced three difficulties namely, a poor understanding of securities laws, poorly documented financial regulation in the GCC and the rapidly changing financial regulation during the course of this research.
This chapter has outlined the extent of the research in this thesis. In terms of financial markets, this research will focus on secondary stock exchange markets and in respect of financial products, it will look at the direct trading of shares in listed companies. In terms of investors, individual investors are the focus of this research. In terms of laws and regulations, it will focus on securities law and with regard to risk will discuss methods of protection against direct risks related to insider dealing as an example of market abuse, unfair disclosure and poor corporate governance.
153 Article 34 states: ‘The Citizens of Qatar shall be equal in public rights and duties’.
154 Article 35 states: ‘All persons are equal before the law, and there shall be no discrimination
whatsoever on grounds of sex, race, language, or religion’.